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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the quarterly period ended March 31, 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: 001-33023





Riverbed Technology, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 03-0448754                             
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)

199 Fremont Street

San Francisco, California 94105

(Address of Principal Executive Offices
including Zip Code)

(415) 247-8800

(Registrants Telephone Number, Including Area Code)





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 that 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 (§232.405 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                      |  |                          |  |                             
|-------------------------- |  | -------------------- |  | ------------------------ |  | ----------------------------
|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 Exchange
Act).    Yes   ̈    No  x

The number of shares of the registrants common stock, par value $0.0001, outstanding as of April 23, 2009 was: 68,500,832.









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Riverbed Technology, Inc.

INDEX



|         |  |                                                                                                              |  |         
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | --------
|         |  |                                                                                                              |  | Page No.
|         |  |                                                                                                             
|         |  | PART I. FINANCIAL INFORMATION                                                                                |  |         
|         |  |                                                                                                             
|Item 1.  |  | Financial Statements                                                                                         |  |         
|         |  | Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008                             |  | 3       
|         |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 and March 31,
2008 |  | 4       
|         |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and March 31,
2008 |  | 5       
|         |  | Notes to Condensed Consolidated Financial Statements                                                         |  | 6       
|         |  |                                                                                                             
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 20      
|         |  |                                                                                                             
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 33      
|         |  |                                                                                                             
|Item 4.  |  | Controls and Procedures                                                                                      |  | 33      
|         |  |                                                                                                             
|         |  | PART II. OTHER INFORMATION                                                                                   |  |         
|         |  |                                                                                                             
|Item 1.  |  | Legal Proceedings                                                                                            |  | 34      
|         |  |                                                                                                             
|Item 1A. |  | Risk Factors                                                                                                 |  | 34      
|         |  |                                                                                                             
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                  |  | 46      
|         |  |                                                                                                             
|Item 6.  |  | Exhibits                                                                                                     |  | 47      



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|Item 1. | Financial Statements
|------- | --------------------

RIVERBED TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, 2009 and December 31, 2008

(in thousands)



|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                      |  | March 31,2009 |         |   | December 31,2008 |  
|                                                                                                                                                                      |  | (unaudited)   |         |   |                  |  
|ASSETS                                                                                                                                                                |  |               |         |   |                  |   |         |  
|Current assets:                                                                                                                                                       |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                             |  | $             | 50,731  |   |                  | $ | 95,378  |  
|Marketable securities                                                                                                                                                 |  |               | 207,502 |   |                  |   | 172,398 |  
|Trade receivables, net of allowances of $1,145 and $770 as of March 31, 2009 and December 31, 2008, respectively                                                      |  |               | 43,240  |   |                  |   | 46,839  |  
|Inventory                                                                                                                                                             |  |               | 8,737   |   |                  |   | 10,637  |  
|Deferred tax asset                                                                                                                                                    |  |               | 7,473   |   |                  |   | 6,185   |  
|Prepaid expenses and other current assets                                                                                                                             |  |               | 6,980   |   |                  |   | 6,713   |  
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                                                  |  |               | 324,663 |   |                  |   | 338,150 |  
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Fixed assets, net                                                                                                                                                     |  |               | 22,701  |   |                  |   | 21,993  |  
|Goodwill                                                                                                                                                              |  |               | 11,711  |   |                  |   |        |  
|Intangibles, net                                                                                                                                                      |  |               | 22,974  |   |                  |   |        |  
|Deferred tax asset, non-current                                                                                                                                       |  |               | 30,354  |   |                  |   | 27,033  |  
|Other assets                                                                                                                                                          |  |               | 11,157  |   |                  |   | 11,341  |  
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                          |  | $             | 423,560 |   |                  | $ | 398,517 |  
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                  |  |               |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                      |  | $             | 17,669  |   |                  | $ | 18,290  |  
|Accrued compensation and benefits                                                                                                                                     |  |               | 16,860  |   |                  |   | 13,137  |  
|Other accrued liabilities                                                                                                                                             |  |               | 13,178  |   |                  |   | 13,342  |  
|Deferred revenue                                                                                                                                                      |  |               | 49,650  |   |                  |   | 45,194  |  
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                             |  |               | 97,357  |   |                  |   | 89,963  |  
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Deferred revenue, non-current                                                                                                                                         |  |               | 14,891  |   |                  |   | 12,967  |  
|Acquisition-related contingent consideration                                                                                                                          |  |               | 10,420  |   |                  |   |        |  
|Other long-term liabilities                                                                                                                                           |  |               | 1,997   |   |                  |   | 1,758   |  
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Total long-term liabilities                                                                                                                                           |  |               | 27,308  |   |                  |   | 14,725  |  
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Commitments and contingencies                                                                                                                                         |  |               |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                                                 |  |               |         |   |                  |   |         |  
|Preferred stock, $0.0001 par value  30,000 shares authorized, no shares outstanding                                                                                  |  |               |        |   |                  |   |        |  
|Common stock; $0.0001 par value  600,000 shares authorized; 68,497 and 69,145 shares issued and outstanding as of March 31, 2009
and December 31, 2008, respectively |  |               | 320,208 |   |                  |   | 315,882 |  
|Accumulated deficit                                                                                                                                                   |  |               | (20,960 | ) |                  |   | (21,934 | )
|Accumulated other comprehensive loss                                                                                                                                  |  |               | (353    | ) |                  |   | (119    | )
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                            |  |               | 298,895 |   |                  |   | 293,829 |  
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                            |  | $             | 423,560 |   |                  | $ | 398,517 |  
|                                                                                                                                                                      |  |               |         |   |                  |   |         |  

See Notes to Condensed Consolidated Financial Statements.



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RIVERBED TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)



|                                                      |  |                             |        |   |      |   |        |  
|----------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                      |  | Three months endedMarch 31, |       
|                                                      |  | 2009                        |        |   | 2008 |  
|Revenue:                                              |  |                             |        |   |      |   |        |  
|Product                                               |  | $                           | 60,465 |   |      | $ | 57,729 |  
|Support and services                                  |  |                             | 27,746 |   |      |   | 15,253 |  
|                                                      |  |                             |        |   |      |   |        |  
|Total revenue                                         |  |                             | 88,211 |   |      |   | 72,982 |  
|                                                      |  |                             |        |   |      |   |        |  
|Cost of revenue:                                      |  |                             |        |   |      |   |        |  
|Cost of product                                       |  |                             | 14,405 |   |      |   | 13,936 |  
|Cost of support and services                          |  |                             | 8,509  |   |      |   | 6,010  |  
|                                                      |  |                             |        |   |      |   |        |  
|Total cost of revenue                                 |  |                             | 22,914 |   |      |   | 19,946 |  
|                                                      |  |                             |        |   |      |   |        |  
|Gross profit                                          |  |                             | 65,297 |   |      |   | 53,036 |  
|                                                      |  |                             |        |   |      |   |        |  
|Operating expenses:                                   |  |                             |        |   |      |   |        |  
|Sales and marketing                                   |  |                             | 40,786 |   |      |   | 31,207 |  
|Research and development                              |  |                             | 16,038 |   |      |   | 13,608 |  
|General and administrative                            |  |                             | 8,993  |   |      |   | 9,373  |  
|Acquisition-related costs                             |  |                             | 1,520  |   |      |   |       |  
|                                                      |  |                             |        |   |      |   |        |  
|Total operating expenses                              |  |                             | 67,337 |   |      |   | 54,188 |  
|                                                      |  |                             |        |   |      |   |        |  
|Operating loss                                        |  |                             | (2,040 | ) |      |   | (1,152 | )
|                                                      |  |                             |        |   |      |   |        |  
|Other income, net                                     |  |                             | 638    |   |      |   | 2,300  |  
|                                                      |  |                             |        |   |      |   |        |  
|Income (loss) before provision for income taxes       |  |                             | (1,402 | ) |      |   | 1,148  |  
|Provision (benefit) for income taxes                  |  |                             | (2,376 | ) |      |   | 510    |  
|                                                      |  |                             |        |   |      |   |        |  
|Net income                                            |  | $                           | 974    |   |      | $ | 638    |  
|                                                      |  |                             |        |   |      |   |        |  
|Net income per common share:                          |  |                             |        |   |      |   |        |  
|Basic                                                 |  | $                           | 0.01   |   |      | $ | 0.01   |  
|                                                      |  |                             |        |   |      |   |        |  
|Diluted                                               |  | $                           | 0.01   |   |      | $ | 0.01   |  
|                                                      |  |                             |        |   |      |   |        |  
|Shares used in computing net income per common share: |  |                             |        |   |      |   |        |  
|Basic                                                 |  |                             | 68,728 |   |      |   | 70,597 |  
|Diluted                                               |  |                             | 70,041 |   |      |   | 73,959 |  

See Notes to Condensed Consolidated Financial Statements.



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RIVERBED TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                      |  |                             |          |   |      |   |         |  
|------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                      |  | Three months endedMarch 31, |         
|                                                                                      |  | 2009                        |          |   | 2008 |  
|Operating Activities:                                                                 |  |                             |          |   |      |   |         |  
|Net income                                                                            |  | $                           | 974      |   |      | $ | 638     |  
|Adjustments to reconcile net income to net cash provided by operating activities:     |  |                             |          |   |      |   |         |  
|Depreciation and amortization                                                         |  |                             | 3,207    |   |      |   | 2,117   |  
|Stock-based compensation                                                              |  |                             | 12,782   |   |      |   | 11,208  |  
|Excess tax benefit from employee stock plans                                          |  |                             | (91      | ) |      |   | (391    | )
|Deferred taxes                                                                        |  |                             | (3,790   | ) |      |   |        |  
|Changes in operating assets and liabilities:                                          |  |                             |          |   |      |   |         |  
|Trade receivables                                                                     |  |                             | 6,398    |   |      |   | 7,862   |  
|Inventory                                                                             |  |                             | 2,440    |   |      |   | (2,719  | )
|Prepaid expenses and other current assets                                             |  |                             | (177     | ) |      |   | (565    | )
|Other assets                                                                          |  |                             | (418     | ) |      |   |        |  
|Accounts payable and other current liabilities                                        |  |                             | 1,081    |   |      |   | 3,347   |  
|Deferred revenue                                                                      |  |                             | 4,650    |   |      |   | 4,639   |  
|                                                                                      |  |                             |          |   |      |   |         |  
|Net cash provided by operating activities                                             |  |                             | 27,056   |   |      |   | 26,136  |  
|                                                                                      |  |                             |          |   |      |   |         |  
|Investing Activities:                                                                 |  |                             |          |   |      |   |         |  
|Capital expenditures                                                                  |  |                             | (2,216   | ) |      |   | (4,983  | )
|Purchase of available for sale securities                                             |  |                             | (107,495 | ) |      |   | (92,193 | )
|Proceeds from maturities of available for sale securities                             |  |                             | 5,000    |   |      |   | 41,632  |  
|Proceeds from sales of available for sale securities                                  |  |                             | 67,197   |   |      |   | 13,003  |  
|Acquisitions, net of cash and cash equivalents acquired                               |  |                             | (20,469  | ) |      |   |        |  
|                                                                                      |  |                             |          |   |      |   |         |  
|Net cash used in investing activities                                                 |  |                             | (57,983  | ) |      |   | (42,541 | )
|                                                                                      |  |                             |          |   |      |   |         |  
|Financing Activities:                                                                 |  |                             |          |   |      |   |         |  
|Proceeds from issuance of common stock under employee stock plans, net of repurchases |  |                             | 1,326    |   |      |   | 1,179   |  
|Payments for repurchases of common stock                                              |  |                             | (10,019  | ) |      |   |        |  
|Payments of debt                                                                      |  |                             | (5,004   | ) |      |   |        |  
|Excess tax benefit from employee stock plans                                          |  |                             | 91       |   |      |   | 391     |  
|                                                                                      |  |                             |          |   |      |   |         |  
|Net cash provided by (used in) financing activities                                   |  |                             | (13,606  | ) |      |   | 1,570   |  
|                                                                                      |  |                             |          |   |      |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                          |  |                             | (114     | ) |      |   | 72      |  
|                                                                                      |  |                             |          |   |      |   |         |  
|Net decrease in cash and cash equivalents                                             |  |                             | (44,647  | ) |      |   | (14,763 | )
|Cash and cash equivalents at beginning of period                                      |  |                             | 95,378   |   |      |   | 162,979 |  
|                                                                                      |  |                             |          |   |      |   |         |  
|Cash and cash equivalents at end of period                                            |  | $                           | 50,731   |   |      | $ | 148,216 |  
|                                                                                      |  |                             |          |   |      |   |         |  

See Notes to Condensed Consolidated Financial Statements.



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RIVERBED TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



|1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------------

Organization

Riverbed Technology, Inc. was founded on May 23, 2002 and has developed a comprehensive solution to the fundamental problems of
wide-area distributed computing. Our products enable our customers simply and efficiently to improve the performance of their applications and access to their data over wide area networks (WANs).

Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. Intercompany
transactions and balances have been eliminated. The accompanying condensed consolidated balance sheet as of March 31, 2009, the condensed consolidated statements of operations for the three months ended March 31, 2009 and March 31,
2008, and the condensed consolidated statements of cash flows for the three months ended March 31, 2009 and March 31, 2008 are unaudited. The accompanying statements should be read in conjunction with the audited consolidated financial
statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2008.

The accompanying
condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They do not
include all of the financial information and footnotes required by GAAP for complete financial statements. We believe the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements
and include all adjustments necessary for the fair presentation of our balance sheet as of March 31, 2009, and our results of operations and cash flows for the three months ended March 31, 2009 and March 31, 2008. All adjustments are
of a normal recurring nature. Certain prior period amounts have been reclassified to conform to the current period presentation. The results for the three months ended March 31, 2009 are not necessarily indicative of the results to be expected
for any subsequent quarter or for the fiscal year ending December 31, 2009.

Other than the adoption of the provisions of Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standard No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)), and FASB Staff Position (FSP) No. 142-3, Determination of the Useful Life of
Intangible Assets, there have been no significant changes in our accounting policies during the three months ended March 31, 2009, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the
year ended December 31, 2008.

Use of Estimates

GAAP requires us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of
revenue and expenses during the periods presented. Significant estimates and assumptions made by management include the determination of the fair value of stock awards issued, the allowance for doubtful accounts, inventory valuation, the accounting
for income taxes including the determination of the timing of the release of our valuation allowance related to our deferred tax asset balances, and the accounting for business combinations. We believe that the estimates and judgments upon which we
rely are reasonable based upon information available to us at the time that these estimates and judgments were made. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will
be affected.

Revenue Recognition

Our software is integrated on appliance hardware and is essential to the functionality of the product. As a result, we account for revenue in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended
by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions, for all transactions involving the sale of software. We recognize product revenue when all of the following have occurred:
(1) we have entered into a legally binding arrangement with a customer; (2) delivery has occurred, which is when product title transfers to the customer; (3) customer payment is deemed fixed or determinable and free of contingencies
and significant uncertainties; and (4) collection is probable.



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Product revenue consists of revenue from sales of our appliances and software licenses. Product sales
include a perpetual license to our software. Product revenue is generally recognized upon transfer of title at shipment, assuming all other revenue recognition criteria are met. Shipping charges billed to customers are included in product revenue
and the related shipping costs are included in cost of product revenue. Product revenue on sales to channel partners is recorded once we have received persuasive evidence of an end-user and all other revenue recognition criteria have been met.

Substantially all of our product sales have been sold in combination with support services, which consist of software updates and support.
Software updates provide customers with rights to unspecified software product upgrades and to maintenance releases and patches released during the term of the support period. Support includes access to technical support personnel and content via
the internet and telephone. Support services also include an extended warranty for the repair or replacement of defective hardware. Revenue for support services is recognized on a straight-line basis over the service contract term, which is
typically one year.

We use the residual method to recognize revenue when a product agreement includes one or more elements to be delivered
at a future date and vendor specific objective evidence (VSOE) of the fair value of all undelivered elements exists. Through March 31, 2009, in virtually all of our contracts, the only element that remained undelivered at the time of delivery
of the product was support and updates. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the contract fee is recognized as product revenue. If evidence of the fair value of one or more
undelivered elements does not exist, all revenue is generally deferred and recognized when delivery of those elements occurs or when fair value can be established. When the undelivered element for which we do not have a fair value is support,
revenue for the entire arrangement is bundled and recognized ratably over the support period. VSOE of fair value for elements of an arrangement is based upon the normal pricing and discounting practices for those services when sold separately, and
VSOE for support services is measured by the renewal rate offered to the customer.

Our fees are typically considered to be fixed or
determinable at the inception of an arrangement, generally based on specific products and quantities to be delivered. Substantially all of our contracts do not include rights of return or acceptance provisions. To the extent that our agreements
contain such terms, we recognize revenue once the acceptance provisions or right of return lapses. Payment terms to customers generally range from net 30 to 60 days. In the event payment terms are provided that differ from our standard business
practices, the fees are deemed to not be fixed or determinable and revenue is recognized when the payments become due, provided the remaining criteria for revenue recognition have been met.

We assess the ability to collect from our customers based on a number of factors, including credit worthiness of the customer and past transaction
history of the customer. If the customer is not deemed credit worthy, we defer revenue from the arrangement until payment is received and all other revenue recognition criteria have been met.

Stock-Based Compensation

Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment, using the prospective transition method, which requires us to apply the provisions of SFAS No. 123(R) to new awards
granted, and to awards modified, repurchased or cancelled, after the effective date. New awards granted include stock options, restricted stock units (RSUs), and stock purchased under our Employee Stock Purchase Plan (the Purchase Plan).
Under this method, stock-based compensation expense recognized beginning January 1, 2006 is based on a combination of the following: (a) the grant-date fair value of stock option, RSU and employee stock purchase plan awards granted or
modified after January 1, 2006; and (b) the amortization of deferred stock-based compensation related to stock option awards granted prior to January 1, 2006, which was calculated using the intrinsic value method as previously
permitted under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.

Under SFAS
No. 123(R), we estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This model utilizes the estimated fair value of common stock and requires that, at the date of
grant, we use the expected term of the option, the expected volatility of the price of our common stock, risk free interest rates and expected dividend yield of our common stock. This fair value is then amortized on a straight-line basis over the
requisite service periods of the awards, which is generally four years.



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On September 20, 2006, the effective date of the registration statement relating to our initial
public offering (IPO), we implemented the Purchase Plan, which has a two year offering period and two purchases per year. The fair value of shares granted under the Purchase Plan is amortized over the two year offering period. Under the Purchase
Plan, employees may purchase shares of common stock through payroll deductions at a price per share that is 85% of the lesser of the fair market value of our common stock as of the beginning of an applicable offering period or the applicable
purchase date, with purchases generally every six months.

Accounting for Income Taxes

We use the asset and liability method of accounting for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under this
method, income tax expenses or benefits are recognized for the amount of taxes payable or refundable for the current year and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our
consolidated financial statements or tax returns. The measurement of current and deferred tax assets and liabilities are based on provisions of currently enacted tax laws. The effects of future changes in tax laws or rates are not contemplated.

As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax expense and tax
contingencies in each of the tax jurisdictions in which we operate. This process involves estimating current income tax expense together with assessing temporary differences in the treatment of items for tax purposes versus financial accounting
purposes that may create net deferred tax assets and liabilities. We rely on management estimates and assumptions in preparing our income tax provision including forecasted annual income.

We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. In assessing the need
for a valuation allowance, we have considered our historical levels of income and expectations of future taxable income. In determining future taxable income, we make assumptions to forecast federal, state and foreign operating income, the reversal
of temporary differences, and the implementation of any feasible and prudent tax planning strategies. The assumptions require significant judgment regarding the forecasts of taxable income, and are consistent with our forecasts used to manage our
business. The valuation allowance primarily relates to deferred tax assets established in purchase accounting. Any subsequent reduction of that portion of the valuation allowance and the recognition of the associated tax benefits will be recorded to
our provision for income taxes pursuant to SFAS No. 141(R).

As part of our accounting for business combinations, a portion of the
purchase price was allocated to goodwill and intangible assets. Amortization expenses associated with acquired intangible assets are generally not tax deductible; however, deferred taxes have been recorded for non-deductible amortization expenses as
a part of the purchase price allocation. In the event of an impairment charge associated with goodwill, such charges are generally not tax deductible and would result in an increased effective income tax rate in the quarter any impairment is
recorded.

Inventory Valuation

Inventory consists of hardware and related component parts and is stated at the lower of cost (on a first-in, first-out basis) or market. A portion of our inventory relates to evaluation units located at customer locations, as some of our
customers test our equipment prior to purchasing. Inventory that is obsolete or in excess of our forecasted demand is written down to its estimated realizable value based on historical usage, expected demand, and with respect to evaluation units,
the historical conversion rate and age of the units. Inherent in our estimates of market value in determining inventory valuation are estimates related to economic trends, future demand for our products, the timing of new product introductions and
technological obsolescence of our products. Inventory write-downs are reflected as cost of product and amounted to $2.3 million and $0.5 million in the three months ended March 31, 2009 and 2008, respectively.

Warranty Reserve

Upon shipment of products to
our customers, we provide for the estimated cost to repair or replace products that may be returned under warranty. Our warranty period is typically 12 months from the date of shipment to the end-user customer for hardware and 90 days for
software. For existing products, the reserve is estimated based on actual historical experience. For new products, the warranty reserve is based on historical experience of similar products until such time as sufficient historical data has been
collected for the new product. If actual product failure rates, repair rates or any other post sales support costs differ from these estimates, revisions to the estimated warranty liability would be required.



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The following is a summary of the warranty reserve activity for the three months ended March 31,
2009 and 2008.



|                                |  |                             |       |   |      |   |       |  
|------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                |  | Three months endedMarch 31, |      
|(in thousands)                  |  | 2009                        |       |   | 2008 |  
|Beginning balance               |  | $                           | 1,205 |   |      | $ | 1,089 |  
|Additions charged to operations |  |                             | 245   |   |      |   | 661   |  
|Warranty costs incurred         |  |                             | (230  | ) |      |   | (582  | )
|Other                           |  |                             | (420  | ) |      |   |      |  
|                                |  |                             |       |   |      |   |       |  
|Ending balance                  |  | $                           | 800   |   |      | $ | 1,168 |  
|                                |  |                             |       |   |      |   |       |  

Deferred Inventory Costs

When our products have been delivered, but the product revenue associated with the arrangement has been deferred as a result of not meeting the revenue
recognition criteria in SOP 97-2, we also defer the related inventory costs for the delivered items in accordance with Accounting Research Bulletin 43, Restatement and Revision of Accounting Research Bulletins. Deferred inventory costs
amounted to $2.1 million and $2.2 million at March 31, 2009 and December 31, 2008, respectively, and are included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

Service Inventory

We hold service inventory
that is used to repair or replace defective hardware reported by our customers who purchase support services. We classify service inventory as other long term assets. At March 31, 2009 and December 31, 2008 our service inventory
balance was $5.9 million. In the three months ended March 31, 2009 and 2008, we recognized $0.8 million and $0.4 million, respectively, to cost of support and services relating to service inventory.

Goodwill, Intangible Assets and Impairment Assessments

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 is tested for impairment at least annually
(more frequently if certain indicators are present). In the event that we determine that the carrying value of the reporting unit to which the goodwill is allocated is less than the reporting units fair value, we will incur an impairment
charge for the amount of the difference during the quarter in which the determination is made.

Intangible assets that are not considered
to have an indefinite life are amortized over their useful lives. Each period we evaluate the estimated remaining useful life of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of
amortization. The carrying amounts of these assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is
measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate. In the event that we determine certain assets are not fully recoverable, we will incur an impairment charge for
those assets or portion thereof during the quarter in which the determination is made.

Concentrations of Risk

Financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities,
and trade receivables. Investment policies have been implemented that limit investments to investment grade securities and the average portfolio maturity to less than six months. The risk with respect to trade receivables is mitigated by credit
evaluations we perform on our customers and by the diversification of our customer base. No customer represented more than 10% of our revenue for the three months ended March 31, 2009 and 2008.

We outsource the production of our inventory to third-party manufacturers. We rely on purchase orders or long-term contracts with our contract
manufacturers. At March 31, 2009, we had no long-term contractual commitment with any manufacturer; however, we did have a 90 day commitment totaling $7.8 million.



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Recent Accounting Pronouncements

Effective January 1, 2009, we adopted SFAS No. 141(R). Under SFAS No. 141(R), an acquiring entity is required to recognize all the assets
acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as
incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be
recognized as a component of provision for taxes. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. See Note 2 for a description of our acquisition of Mazu
Networks, Inc.

Effective January 1, 2009, we adopted FSP No. 142-3, that amends the factors considered in developing renewal or
extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP No. 142-3 amends paragraph 11(d) of SFAS No. 142 to require an entity to
consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset. The adoption did not have a material impact on our consolidated results of operations or financial condition for
the three months ended March 31, 2009.

Effective January 1, 2009, we adopted FSP No. 157-2, Effective Date of FASB
Statement No. 157. FSP No. 157-2 delayed the effective date of SFAS No. 157, Fair Value Measurements, for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal 2009. The adoption of FSP No. 157-2 did not have a material impact on our consolidated results of operations or
financial condition for the three months ended March 31, 2009.



|2. | ACQUISITION
|-- | -----------

We acquired Mazu Networks, Inc.
(Mazu) on February 19, 2009 (the acquisition date), by means of a merger of a wholly-owned subsidiary with and into Mazu, such that Mazu became a wholly-owned subsidiary of ours. The results of Mazus operations
have been included in the consolidated financial statements since the acquisition date. We acquired Mazu, among other reasons, to meet enterprise and service provider customer demands by extending our suite of WAN optimization products to include
global application performance, reporting and analytics.

The estimated acquisition date fair value of consideration transferred, assets
acquired and the liabilities assumed for Mazu are presented below and represent our best estimates.

Preliminary Fair Value of Consideration Transferred

Pursuant to the merger agreement we made payments totaling $23.1 million in cash for all of the outstanding securities of Mazu promptly
following the closing. In addition, we will potentially make additional payments (acquisition-related contingent consideration) totaling up to $22.0 million in cash, based on achievement of certain bookings targets related to Mazu
products for the one-year period from April 1, 2009 through March 31, 2010 (the Earn-Out period), with up to $16.6 million to be paid to Mazu shareholders and up to $5.4 million to be paid to former employees of Mazu as an
incentive bonus provided generally that such former Mazu employees are employees of Riverbed at the time the acquisition-related contingent consideration is earned.



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The total acquisition date fair value of the consideration transferred is estimated at
$33.0 million, which includes the initial payments totaling $23.1 million in cash and the estimated fair value of acquisition-related contingent consideration to be paid to Mazu shareholders totaling $9.9 million. The total acquisition date
fair value of consideration transferred is estimated as follows:



|                                             |  |   |       
|-------------------------------------------- |  | - | ------
|(in thousands)                               |  |  
|Payment to Mazu shareholders                 |  | $ | 23,051
|Acquisition-related contingent consideration |  |   | 9,909 
|                                             |  |   |       
|Total acquisition-date fair value            |  | $ | 32,960
|                                             |  |   |       

In accordance with SFAS No. 141(R), a liability was recognized for an estimate of the
acquisition date fair value of the acquisition-related contingent consideration based on the probability of achievement of the bookings target. Any change in the fair value of the acquisition-related contingent consideration subsequent to the
acquisition date, including changes from events after the acquisition date, such as changes in our estimate of the bookings targets, will be recognized in earnings in the period the estimated fair value change. The fair value estimate is based on
the probability weighted bookings to be achieved over the earn-out period. Actual achievement of bookings below $16.0 million would reduce the liability to zero and achievement of bookings of $35.0 million or more would increase the liability to
$16.6 million. A change in fair value of the acquisition-related contingent consideration could have a material affect on the statement of operations and financial position in the period of the change in estimate.

We estimated the fair value of the acquisition-related contingent consideration using a probability-weighted discounted cash flow model. This fair value
measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement as defined by SFAS No. 157.Level 3 instruments are valued based on unobservable inputs that are supported by little or no
market activity and reflect our own assumptions in measuring fair value. The estimated fair value of acquisition-related contingent consideration of $9.9 million includes amounts to be distributed directly to shareholders, discounted at 13%, but
excludes a fair value estimate of $3.8 million to be paid to former employees of Mazu. As of March 31, 2009, there were no significant changes in the estimated fair value of the contingent consideration recognized as a result of the acquisition
of Mazu.

The estimated fair value of acquisition-related contingent consideration of $3.8 million to be paid to the former employees of
Mazu is considered compensatory and will be recognized as compensation cost, recorded in operating expense, over the Earn-Out period provided generally that such former Mazu employees are employees of Riverbed at the time the acquisition-related
contingent consideration is earned.

Acquisition-related Costs

Acquisition-related costs recognized in the three months ended March 31, 2009 include transaction costs, integration-related costs and changes in the fair value of the acquisition-related contingent
consideration. During the three months ended March 31, 2009, transaction costs such as legal, accounting, valuation and other professional services were $0.6 million and integration-related costs were $0.8 million.

The following table summarizes the acquisition-related costs, including the acquisition-related contingent consideration to be paid to the former
employees of Mazu, recognized in the three months ended March 31, 2009 and 2008.



|                                      |  |                             |       |      |   |  
|------------------------------------- |  | --------------------------- | ----- | ---- | - | -
|                                      |  | Three months endedMarch 31,
|(in thousands)                        |  | 2009                        |       | 2008
|Sales and marketing                   |  | $                           | 151   |      | $ | 
|Research and development              |  |                             | 133   |      |   | 
|General and administrative            |  |                             | 83    |      |   | 
|Acquisition-related costs             |  |                             | 1,520 |      |   | 
|                                      |  |                             |       |      |   |  
|Total other acquisition-related costs |  | $                           | 1,887 |      | $ | 
|                                      |  |                             |       |      |   |  

Preliminary Allocation of Consideration Transferred

Under the purchase method of accounting, the identifiable assets acquired and liabilities assumed were recognized and measured as of the acquisition date
based on their estimated fair values as of the February 19, 2009, the acquisition date. The excess of the acquisition date fair value of consideration transferred over estimated fair value of the net tangible assets and intangible assets was
recorded as goodwill.



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The following table summarizes the estimated fair values of the assets and liabilities assumed at the
acquisition date. Estimates of both current and non-current deferred tax assets are subject to change, pending the finalization of certain tax returns.



|                                       |  |   |        |  
|-------------------------------------- |  | - | ------ | -
|(in thousands)                         |  |   |       
|Cash and cash equivalents              |  | $ | 2,582  |  
|Accounts receivable                    |  |   | 2,569  |  
|Other tangible assets                  |  |   | 1,481  |  
|Intangible assets                      |  |   | 23,500 |  
|                                       |  |   |        |  
|Total identifiable assets acquired     |  |   | 30,132 |  
|Accounts payable and other liabilities |  |   | (2,379 | )
|Loan payable                           |  |   | (5,004 | )
|Deferred revenue                       |  |   | (1,500 | )
|                                       |  |   |        |  
|Total liabilities assumed              |  |   | (8,883 | )
|                                       |  |   |        |  
|Net identifiable assets acquired       |  |   | 21,249 |  
|Goodwill                               |  |   | 11,711 |  
|                                       |  |   |        |  
|Net assets acquired                    |  | $ | 32,960 |  
|                                       |  |   |        |  

Intangible Assets

Management engaged a third-party valuation firm to assist in the determination of the fair value of the intangible assets. In our determination of the fair value of the intangible assets we considered, among other
factors, the best use of acquired assets, analyses of historical financial performance and estimates of future performance of Mazus products. The fair values of identified intangible assets were calculated using an income approach and
estimates and assumptions provided by Mazus and our management. The rates utilized to discount net cash flows to their present values were based on a weighted average cost of capital of 19%. This discount rate was determined after
consideration of the rate of return on debt capital and equity that typical investors would require in an investment in companies similar in size and operating in similar markets as Mazu. The following table sets forth the components of identified
intangible assets associated with the Mazu acquisition and their estimated useful lives:



|                        |  |             |  |            |       
|----------------------- |  | ----------- |  | ---------- | ------
|(in thousands)          |  | Useful life |  | Fair Value
|Existing technology     |  | 5 years     |  | $          | 12,100
|Patents                 |  | 5 years     |  |            | 2,700 
|Maintenance agreements  |  | 5 years     |  |            | 6,100 
|Customer contracts      |  | 5 years     |  |            | 2,000 
|Trademarks              |  | 3 years     |  |            | 600   
|                        |  |             |  |            |       
|Total intangible assets |  |             |  | $          | 23,500
|                        |  |             |  |            |       

In accordance with FSP No. 142-3, we determined the useful life of intangible assets based on
the expected future cash flows associated with the respective asset. Existing technology is comprised of products that have reached technological feasibility and are part of Mazus product line. There were no in-process research and development
assets as of the acquisition date. Patents are related to the design and development of Mazus products and this proprietary know-how can be leveraged to develop new technology and products and improve existing products. Customer relationships
and maintenance agreements represent the underlying relationships and agreements with Mazus installed customer base. Trademarks represent the fair value of the brand and name recognition associated with the marketing of Mazus products
and services. Amortization of existing technology and patents is included in cost of revenue, and amortization expense for customer relationships and trademarks is included in operating expenses.

Goodwill

Of the total estimated purchase price,
$11.7 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 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



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impaired, we will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made. None of the goodwill
is expected to be deductible for income tax purposes. As of March 31, 2009, there was no change in the recognized amounts of goodwill resulting from the acquisition of Mazu.

Deferred Revenues

In connection with the purchase price allocation, we estimated the fair value of
the service obligations assumed from Mazu as a consequence of the acquisition. The estimated fair value of the service obligations was determined using a cost build-up approach. The cost build-up approach determines fair value by estimating the
costs relating to fulfilling the obligations plus a normal profit margin. The sum of the costs and operating profit approximates, in theory, the amount that we would be required to pay a third party to assume the service obligations. The estimated
costs to fulfill the service obligations were based on the historical direct costs and indirect costs related to Mazus service agreements with its customers. Direct costs include personnel directly engaged in providing service and support
activities, while indirect costs consist of estimated general and administrative expenses based on normalized levels as a percentage of revenue. Profit associated with selling efforts was excluded because Mazu had concluded the selling efforts on
the service contracts prior to the date of our acquisition. The estimated research and development costs associated with support contracts have not been included in the fair value determination, as these costs were not deemed to represent a legal
obligation at the time of acquisition. We recorded $1.5 million of deferred revenue to reflect the estimate of the fair value of Mazus service obligations assumed.

Pre-Acquisition Contingencies

We have evaluated and continue to evaluate pre-acquisition
contingencies related to Mazu that existed as of the acquisition date. If these pre-acquisition contingencies that existed as of the acquisition date become probable in nature and estimable during the remainder of the measurement period, amounts
recorded for such matters will be made in the measurement period and, subsequent to the measurement period, in our results of operations.

Results of
Operations

The amount of revenue and operating loss of Mazu included in our consolidated condensed statement of operations from the
acquisition date to the period ending March 31, 2009:



|               |  |   |        |  
|-------------- |  | - | ------ | -
|(in thousands) |  |   |       
|Revenue        |  | $ | 512    |  
|Operating loss |  | $ | (1,189 | )

Pro Forma Results for Mazu Acquisition

The following table presents our unaudited pro forma results (including Mazu) for the three months ended March 31, 2009 and 2008 as though the
companies had been combined as of the beginning of each of the periods presented. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the
acquisition had taken place at the beginning of each period presented. The unaudited pro forma results presented include amortization charges for acquired intangible assets, eliminations of intercompany transactions, adjustments to interest expense
and related tax effects.



|               |  |                             |        |   |      |   |        |  
|-------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|               |  | Three months endedMarch 31, |       
|(in thousands) |  | 2009                        |        |   | 2008 |  
|Total revenue  |  | $                           | 89,726 |   |      | $ | 76,675 |  
|Operating loss |  | $                           | (3,964 | ) |      | $ | (2,184 | )



|3. | NET INCOME PER COMMON SHARE
|-- | ---------------------------

Basic net income per
common share is computed by dividing net income by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by giving effect to all potential dilutive common shares.



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The following table sets forth the computation of income per share:



|                                                     |  |                             |        |      |   |       
|---------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                     |  | Three months endedMarch 31,
|(in thousands, except per share data)                |  | 2009                        |        | 2008
|Net income                                           |  | $                           | 974    |      | $ | 638   
|                                                     |  |                             |        |      |   |       
|Weighted average common shares outstanding - basic   |  |                             | 68,728 |      |   | 70,597
|Dilutive effect of employee stock plans              |  |                             | 1,313  |      |   | 3,362 
|                                                     |  |                             |        |      |   |       
|Weighted average common shares outstanding - diluted |  |                             | 70,041 |      |   | 73,959
|                                                     |  |                             |        |      |   |       
|Basic net income per share                           |  | $                           | 0.01   |      | $ | 0.01  
|                                                     |  |                             |        |      |   |       
|Diluted net income per share                         |  | $                           | 0.01   |      | $ | 0.01  
|                                                     |  |                             |        |      |   |       

The following weighted average outstanding options and RSUs were excluded from the computation of
diluted net income per common share for the periods presented because including them would have had an anti-dilutive effect:



|                        |  |                             |  |      
|----------------------- |  | --------------------------- |  | -----
|                        |  | Three months endedMarch 31,
|(in thousands)          |  | 2009                        |  | 2008 
|Out-of-the-money awards |  | 10,780                      |  | 6,652

Stock options outstanding with an exercise price higher than our average stock price for the
periods presented, (Out-of-the-money awards) are excluded from the calculations of the diluted net income per share since the effect would have been anti-dilutive under the treasury stock method.



|4. | FAIR VALUE OF ASSETS AND LIABILITIES
|-- | ------------------------------------

As of
March 31, 2009, the fair value measurements of our cash, cash equivalents, marketable securities, and acquisition-related contingent consideration consisted of the following:



|                                                                                                                                             |  |       |         |         |   |         |  |         |         |  |   |       
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | ------- | ------- | - | ------- |  | ------- | ------- |  | - | ------
|(in thousands)                                                                                                                               |  | Total |         | Level 1 |   | Level 2 |  | Level 3
|Assets                                                                                                                                       |  |       |         |         |   |         |  |         |         |  |   |       
|Corporate bonds and notes                                                                                                                    |  | $     | 13,845  |         | $ |        |  | $       | 13,845  |  | $ |      
|Money market funds                                                                                                                           |  |       | 29,228  |         |   | 29,228  |  |         |        |  |   |      
|Cash                                                                                                                                         |  |       | 7,658   |         |   |         |  |         |         |  |   |       
|                                                                                                                                             |  |       |         |         |   |         |  |         |         |  |   |       
|Total Cash and cash equivalents                                                                                                              |  | $     | 50,731  |         |   |         |  |         |         |  |   |       
|                                                                                                                                             |  |       |         |         |   |         |  |         |         |  |   |       
|Corporate bonds and notes                                                                                                                    |  | $     | 29,606  |         | $ |        |  | $       | 29,606  |  | $ |      
|U.S. government backed securities                                                                                                            |  |       | 46,746  |         |   | 46,746  |  |         |        |  |   |      
|U.S. government-sponsored enterprise obligations                                                                                             |  |       | 131,150 |         |   |        |  |         | 131,150 |  |   |      
|                                                                                                                                             |  |       |         |         |   |         |  |         |         |  |   |       
|Total Marketable securities                                                                                                                  |  | $     | 207,502 |         |   |         |  |         |         |  |   |       
|                                                                                                                                             |  |       |         |         |   |         |  |         |         |  |   |       
|Liabilities                                                                                                                                  |  |       |         |         |   |         |  |         |         |  |   |       
|Acquisition-related contingent consideration                                                                                                 |  | $     | 10,420  |         | $ |        |  | $       |        |  | $ | 10,420
|                                                                                                                                             |  |       |         |         |   |         |  |         |         |  |   |       
|                                                                                                                                            
|As of December 31, 2008, the fair value measurements of our cash and cash equivalents, and marketable securities consisted of the
following:
|                                                                                                                                             |  |       |         |        
|(in thousands)                                                                                                                               |  | Total |         | Level 1 |   | Level 2 |  |        
|Corporate bonds and notes                                                                                                                    |  | $     | 16,783  |         | $ |        |  | $       | 16,783  |  |   |       
|Money market funds                                                                                                                           |  |       | 73,877  |         |   | 73,877  |  |         |        |  |   |       
|Cash                                                                                                                                         |  |       | 4,718   |         |   |        |  |         |        |  |   |       
|                                                                                                                                             |  |       |         |         |   |         |  |         |         |  |   |       
|Total Cash and cash equivalents                                                                                                              |  | $     | 95,378  |         |   |         |  |         |         |  |   |       
|                                                                                                                                             |  |       |         |         |   |         |  |         |         |  |   |       
|Corporate bonds and notes                                                                                                                    |  | $     | 33,487  |         | $ |        |  | $       | 33,487  |  |   |       
|U.S. government backed securities                                                                                                            |  |       | 69,829  |         |   | 69,829  |  |         |        |  |   |       
|U.S. government-sponsored enterprise obligations                                                                                             |  |       | 69,082  |         |   |        |  |         | 69,082  |  |   |       
|                                                                                                                                             |  |       |         |         |   |         |  |         |         |  |   |       
|Total Marketable securities                                                                                                                  |  | $     | 172,398 |         |   |         |  |         |         |  |   |       
|                                                                                                                                             |  |       |         |         |   |         |  |         |         |  |   |       

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents consist primarily of highly liquid investments in money market mutual funds, government sponsored enterprise obligations,
treasury bills, commercial paper and other money market securities with remaining maturities at date of purchase of 90 days or less. The carrying value of cash and cash equivalents at March 31, 2009 and December 31, 2008 was $50.7
million and $95.4 million, respectively, and approximates fair value.

Marketable securities, which are classified as available for sale at
March 31, 2009, are carried at fair value, with the unrealized gains and losses reported as a separate component of stockholders equity. Marketable securities consist of government sponsored enterprise obligations, treasury bills and
corporate bonds and notes. The fair value of our marketable securities is determined in accordance with SFAS No. 157, which defines fair value as the exit price in the principal market in which we would transact. Under SFAS No. 157,
Level 1 instruments are valued based on quoted market prices in active markets and include treasury bills and money market funds. Level 2



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instruments are valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable
levels of price transparency and include corporate bonds and notes and government sponsored enterprise obligations. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect our own
assumptions in measuring fair value. We have no marketable securities valued as Level 3 instruments.

Restricted Cash

Pursuant to certain lease agreements and as security for our merchant services agreement with our financial institution, we are required to maintain cash
reserves, classified as restricted cash. Current restricted cash totaled $0.1 million at March 31, 2009 and December 31, 2008, and long-term restricted cash totaled $3.5 million at March 31, 2009 and December 31, 2008. Long-term
restricted cash is included in other assets in the condensed consolidated balance sheets and consists primarily of funds held as collateral for letters of credit for the security deposit on the leases of our corporate headquarters. The long-term
restricted cash is restricted until the end of the lease terms on August 30, 2010 and July 31, 2014.

Acquisition-Related Contingent
Consideration

The fair value measurement of the acquisition-related contingent consideration is based on significant inputs not
observed in the market and thus represents a Level 3 measurement as defined in accordance with SFAS No. 157. The estimated fair value, as of the acquisition date, of acquisition-related contingent consideration of $9.9 million includes amounts
to be distributed directly to shareholders, discounted at 13%, but excludes a fair value estimate of $3.8 million to be paid to former employees of Mazu. As of March 31, 2009, the fair value of the acquisition-related contingent consideration
was $10.4 million, which includes a fair value adjustment to the acquisition-related contingent consideration amounts to be distributed directly to shareholders due to the passage of time and the portion of the contingent consideration to be paid to
former employees of Mazu that was recognized during the period.



|5. | INVENTORY
|-- | ---------

Inventory consists primarily of hardware
and related component parts and is stated at the lower of cost (on a first-in, first-out basis) or market. Inventory is comprised of the following:



|                 |  |               |       |                  |   |       
|---------------- |  | ------------- | ----- | ---------------- | - | ------
|(in thousands)   |  | March 31,2009 |       | December 31,2008
|Raw materials    |  | $             | 394   |                  | $ | 544   
|Finished goods   |  |               | 5,738 |                  |   | 7,545 
|Evaluation units |  |               | 2,605 |                  |   | 2,548 
|                 |  |               |       |                  |   |       
|Total inventory  |  | $             | 8,737 |                  | $ | 10,637
|                 |  |               |       |                  |   |       



|6. | GOODWILL AND INTANGIBLE ASSETS
|-- | ------------------------------

Goodwill

Goodwill allocated to our one business unit represents the excess of the purchase price of an acquired business over the fair value of the underlying
net assets acquired. During the three months ended March 31, 2009, we recorded goodwill in the amount of $11.7 million.



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Intangible Assets

Intangible assets consisted of the following:



|                        |  |             |  |                                  |        |                         |   |      |     |  |   |       
|----------------------- |  | ----------- |  | -------------------------------- | ------ | ----------------------- | - | ---- | --- |  | - | ------
|                        |  |             |  | Three months endedMarch 31, 2009
|(in thousands)          |  | Useful life |  | Gross                            |        | AccumulatedAmortization |   |      | Net
|Existing technology     |  | 5 years     |  | $                                | 12,100 |                         | $ | (267 | )   |  | $ | 11,833
|Patents                 |  | 5 years     |  |                                  | 2,700  |                         |   | (59  | )   |  |   | 2,641 
|Maintenance agreements  |  | 5 years     |  |                                  | 6,100  |                         |   | (134 | )   |  |   | 5,966 
|Customer contracts      |  | 5 years     |  |                                  | 2,000  |                         |   | (44  | )   |  |   | 1,956 
|Trademarks              |  | 3 years     |  |                                  | 600    |                         |   | (22  | )   |  |   | 578   
|                        |  |             |  |                                  |        |                         |   |      |     |  |   |       
|Total intangible assets |  |             |  | $                                | 23,500 |                         | $ | (526 | )   |  | $ | 22,974
|                        |  |             |  |                                  |        |                         |   |      |     |  |   |       

Estimated future amortization expense related to the above intangible assets at March 31,
2009 is as follows:



|                                          |  |              |       
|----------------------------------------- |  | ------------ | ------
|Fiscal Year                               |  | In thousands
|2009 (the nine months ending December 31) |  | $            | 3,585 
|2010                                      |  |              | 4,780 
|2011                                      |  |              | 4,780 
|2012                                      |  |              | 4,608 
|2013 and thereafter                       |  |              | 5,221 
|                                          |  |              |       
|Total                                     |  | $            | 22,974
|                                          |  |              |       



|7. | OTHER ACCRUED LIABILITIES
|-- | -------------------------

Other accrued
liabilities consisted of the following:



|                                |  |               |        |                  |   |       
|------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|(in thousands)                  |  | March 31,2009 |        | December 31,2008
|Deferred rent liability         |  | $             | 4,880  |                  | $ | 4,783 
|Other accrued liabilities       |  |               | 8,298  |                  |   | 8,559 
|                                |  |               |        |                  |   |       
|Total other accrued liabilities |  | $             | 13,178 |                  | $ | 13,342
|                                |  |               |        |                  |   |       



|8. | DEFERRED REVENUE
|-- | ----------------

Deferred revenue consisted of the
following:



|                              |  |               |        |                  |   |       
|----------------------------- |  | ------------- | ------ | ---------------- | - | ------
|(in thousands)                |  | March 31,2009 |        | December 31,2008
|Product                       |  | $             | 11,877 |                  | $ | 4,987 
|Support and services          |  |               | 52,664 |                  |   | 53,174
|                              |  |               |        |                  |   |       
|Total deferred revenue        |  | $             | 64,541 |                  | $ | 58,161
|                              |  |               |        |                  |   |       
|Reported as:                  |  |               |        |                  |   |       
|Deferred revenue, current     |  | $             | 49,650 |                  | $ | 45,194
|Deferred revenue, non-current |  |               | 14,891 |                  |   | 12,967
|                              |  |               |        |                  |   |       
|Total deferred revenue        |  | $             | 64,541 |                  | $ | 58,161
|                              |  |               |        |                  |   |       



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Deferred product revenue relates to arrangements where not all revenue recognition criteria have been
met. Deferred support revenue represents customer payments made in advance for annual support contracts. Support contracts are typically billed on a per annum basis in advance and revenue is recognized ratably over the support period. Deferred
revenue, non-current consists of customer payments made in advance for support contracts with terms of more than 12 months.



|9. | GUARANTEES
|-- | ----------

Our agreements with customers, as well
as our reseller agreements, generally include certain provisions for indemnifying customers and resellers and their affiliated parties 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 indemnifications and have not accrued any liabilities related to such obligations in our condensed consolidated financial statements.

As permitted or required under Delaware law and to the maximum extent allowable under that law, we have certain obligations to indemnify our officers,
directors and certain key employees for certain events or occurrences while the officer, director or employee is or was serving at our request in such capacity. These indemnification obligations are valid as long as the director, officer or employee
acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The maximum potential amount of future payments we could be required to make under these indemnification obligations is unlimited; however, we have a director and officer insurance policy that mitigates our exposure and enables us to recover a
portion of any future amounts paid.



|10. | LEASE COMMITMENTS
|--- | -----------------

We lease our facilities under
non-cancelable operating lease agreements. Future minimum commitments for these operating leases in place as of March 31, 2009 with a remaining non-cancelable lease term in excess of one year are as follows:



|                                          |  |               |       
|----------------------------------------- |  | ------------- | ------
|(in thousands)                            |  | March 31,2009
|2009 (the nine months ending December 31) |  | $             | 4,606 
|2010                                      |  |               | 5,945 
|2011                                      |  |               | 6,846 
|2012                                      |  |               | 5,763 
|2013 and thereafter                       |  |               | 7,104 
|                                          |  |               |       
|Total                                     |  | $             | 30,264
|                                          |  |               |       

The terms of certain lease agreements provide for rental payments on a graduated basis. We
recognize rent expense on the straight-line basis over the lease period and have accrued for rent expense incurred but not paid. Rent expense under operating leases was $1.9 million and $1.8 million for the three months ended March 31, 2009 and
2008, respectively.

On September 26, 2006, we entered into an Agreement of Sublease (Sublease) for new corporate headquarters, and on
March 21, 2007 entered into another lease agreement to expand our corporate headquarters as well as extend the term of the existing Sublease. The terms of the leases are from February 1, 2007 and March 31, 2007, respectively, to
July 31, 2014, with two five year renewal options. The aggregate minimum lease commitment for the combined leases is $18.6 million and is included in the table above. We have entered into two letters of credit totaling $3.0 million to serve as
the security deposit for the leases, which is included in other assets in the condensed consolidated balance sheet.

On February 29,
2009, we entered into a lease agreement for office space in Boston, Massachusetts. The term of the lease is for five years, with one five year renewal option, commencing on March 1, 2009. The aggregate minimum lease commitment is $2.1 million
and is reflected in the table above.



|11. | COMMON STOCK
|--- | ------------

In July 2002, our Board of Directors
adopted the 2002 Stock Plan (the 2002 Plan). In April and May 2006, our Board of Directors approved the 2006 Equity Incentive Plan (the 2006 Plan), the Purchase Plan and the 2006 Director Stock Option Plan (the 2006
Director Plan), which became effective upon our IPO. In September 2006, all shares of common stock available for grant under the 2002 Plan transferred to the 2006 Plan.



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In February 2009, our Board of Directors adopted the 2009 Inducement Equity Incentive Plan (the
2009 Plan). The objective of the 2009 Plan is to provide incentives to attract, retain, and motivate eligible persons whose potential contributions are important to promote our long-term success and the creation of stockholder value. The
2009 Plan is intended to comply with NASDAQ Rule 4350(i)(1)(A)(iv), which governs granting certain awards as a material inducement to an individual entering into employment with us. The 2009 Plan may be used for new hire equity grants should the
Board of Directors determine to do so in the future.

Stock Options

Options issued under our stock option plans are generally for periods not to exceed 10 years and are issued with an exercise price equal to the market
value of our common stock on the date of grant, as determined by the last sale price of such stock on the Nasdaq Global Select Market. Options typically vest either 25% of the shares one year after the options vesting commencement date and the
remainder ratably on a monthly basis over the following three years, or ratably on a monthly basis over four years. Options granted under the 2002 Plan prior to May 31, 2006 have a maximum term of ten years, and beginning May 31, 2006 have
a maximum term of seven years. Options granted under the 2006 Plan have a maximum term of seven years. Options granted under the 2006 Director Plan prior to March 4, 2008 have a maximum term of ten years, and options granted beginning
March 4, 2008 have a maximum term of seven years.

We granted options under the 2009 Plan to purchase 0.4 million of common stock
to Mazu employees that joined us following the closing of the merger.

The fair value of options granted was estimated at the date of grant
using the following assumptions:



|                                      |  |                             |      |      |   |     
|------------------------------------- |  | --------------------------- | ---- | ---- | - | ----
|                                      |  | Three months endedMarch 31,
|                                      |  | 2009                        |      | 2008
|Employee Stock Options                |  |                             |      |      |   |     
|Expected life in years                |  |                             | 4.5  |      |   | 4.5 
|Risk-free interest rate               |  |                             | 1.5% |      |   | 2.6%
|Volatility                            |  |                             | 50%  |      |   | 51% 
|Weighted average fair value of grants |  | $                           | 4.33 |      | $ | 9.53

The expected term represents the period that stock-based awards are expected to be outstanding.
For the three months ended March 31, 2009 and 2008, we have elected to use the simplified method of determining the expected term of stock options as permitted by SEC Staff Accounting Bulletin 110 due to our insufficient historical exercise
data. The computation of expected volatility for the three months ended March 31, 2009 and 2008 is based on the historical volatility of comparable companies from a representative peer group selected based on industry, financial and market
capitalization data. As required by SFAS No. 123(R), management estimated expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest.

As of March 31, 2009, total compensation cost related to stock options granted under SFAS No. 123(R) to employees and directors but not yet
recognized was $82.6 million, net of estimated forfeitures of $16.0 million. This cost will be recognized on a straight-line basis over the remaining weighted-average service period. Amortization in the three months ended March 31, 2009 and
2008 was $9.8 million and $7.8 million, respectively.

Restricted Stock Units

In the first quarter of 2009, we granted RSUs covering 2.1 million shares of common stock to our employees under the 2006 Plan, which included
performance-based RSUs to eligible executives covering 1.8 million shares of common stock and 0.3 million time-based RSUs. We expense the cost of RSUs, which is determined to be the fair market value of the shares of our common stock at
the date of grant, ratably over the service period.

The number of performance-based RSUs that vest is variable based upon meeting certain
annual performance targets, and require the eligible executives to be employed by us for up to three years from the date of grant. We estimated stock compensation expense for our performance share awards based on the probability-weighted estimate of
achieving the annual performance target and only recognized expense for the portions of such awards estimated to be earned and vested. We accrued stock compensation expense of $0.2 million in operating expenses in the first quarter of 2009 in
connection with the performance-based RSUs. Any change in the estimate of the number of performance-based RSUs to be earned will result in an adjustment to the cumulative compensation expense in the period of the change in estimate.



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RSUs generally vest over a period of three to four years from the date of grant. Until vested, RSUs do
not have the voting rights of common stock and the shares underlying the awards are not considered issued and outstanding. As of March 31, 2009, total unrecognized compensation cost related to non-vested RSUs granted under SFAS No. 123(R)
to employees and directors but not yet recognized was $17.8 million, net of estimated forfeitures of $3.9 million. This cost will be recognized over the remaining weighted-average service period. Amortization in the three months ended
March 31, 2009 and 2008 was $1.0 million and zero, respectively.

As of March 31, 2009, 2,789,461 shares were available for grant
under the 2006 Plan and the 2006 Director Plan. As of March 31, 2009, 1,123,975 shares were available for grant under the 2009 Plan.

Stock Purchase Plan

The Purchase Plan became effective on the effective date of the registration statement relating to our
IPO. Under the Purchase Plan, employees may purchase shares of common stock through payroll deductions at a price per share that is 85% of the lesser of the fair market value of our common stock as of the beginning of an applicable offering period
or the applicable purchase date, with purchases generally every six months. Employees payroll deductions may not exceed 15% of their compensation. Employees may purchase up to 2,000 shares per purchase period provided that the value of the
shares purchased in any calendar year does not exceed IRS limitations.

There was no new offering period under the Purchase Plan in the
three months ended March 31, 2009 or 2008.

As of March 31, 2009, there was $8.5 million, net of estimated forfeitures, left to
be amortized under our Purchase Plan, which will be amortized over the remaining Purchase Plan offering period, which is 19 months. Amortization in the three months ended March 31, 2009 and 2008 was $1.6 million and $2.9 million, respectively.

As of March 31, 2009, 1,922,303 shares were available under the Purchase Plan.

Share Repurchase Program

On
April 21, 2008, our Board of Directors authorized a Share Repurchase Program (the Program), which authorizes us to repurchase and retire up to $100.0 million of our outstanding common stock during a period not to exceed 24 months
from the Board authorization date. The Program does not require us to purchase a minimum number of shares, and may be suspended, modified or discontinued at any time. For the three months ended March 31, 2009, we repurchased 952,105 shares of
common stock under this Program on the open market for an aggregate purchase price of $10.0 million, or an average of $10.52 per share. The maximum dollar value of shares that are available for purchase under the Program is $40.0 million. The
timing and amounts of these purchases were based on market conditions and other factors including price, regulatory requirements and capital availability. The share repurchases were financed by available cash balances and cash from operations.



|12. | INCOME TAXES
|--- | ------------

Our effective tax rate was
(169.5%) and 44.4% for the three months ended March 31, 2009 and 2008, respectively. Our income tax provision (benefit) consists of federal, foreign, and state income taxes.

Our effective tax rate differs from the federal statutory rate due to state taxes and significant permanent differences. Significant permanent
differences arise primarily from the portion of stock-based compensation expense that is not expected to generate a tax deduction, such as stock compensation expense on grants to foreign employees, our purchase plan and incentive stock options,
offset by the actual tax benefits in the current periods from disqualifying dispositions of our purchase plan shares and incentive stock options.

As of March 31, 2009, our tax benefit includes a $0.6 million deferred tax expense for a write-down of certain state deferred tax assets due to a recently enacted California income tax law that is expected to reduce our California
effective tax rate beginning in 2011.

As part of our accounting for the acquisition of Mazu, we established deferred tax assets for
federal net operating loss carryforwards and research and development (R&D) credit carryforwards that are subject to limitation under Section 382 of the Internal Revenue Code. Accordingly, we recorded a valuation allowance of $9.2 million
related to a portion of the federal net operating loss carryforwards and R&D credit carryforwards that we do not expect to be realized. Any subsequent reduction of the valuation allowance and the recognition of the associated tax benefits will
be recorded to our provision for income taxes.

For the three months ended March 31, 2009, the liability for unrecognized income tax
benefits increased by $1.0 million, principally related to tax attributes recorded as part of our accounting for the acquisition of Mazu.



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|13. | SEGMENT INFORMATION
|--- | -------------------

SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive
Officer. Our Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. We have
one business activity and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, we are considered to be in a single reporting
segment and operating unit structure.

Revenue by geography is based on the billing address of the customer. The following table sets forth
revenue by geographic area.

Revenue



|                               |  |                             |        |      |   |       
|------------------------------ |  | --------------------------- | ------ | ---- | - | ------
|                               |  | Three months endedMarch 31,
|(in thousands)                 |  | 2009                        |        | 2008
|United States                  |  | $                           | 48,304 |      | $ | 40,502
|Europe, Middle East and Africa |  |                             | 24,338 |      |   | 19,623
|Rest of the World              |  |                             | 15,569 |      |   | 12,857
|                               |  |                             |        |      |   |       
|Total revenue                  |  | $                           | 88,211 |      | $ | 72,982
|                               |  |                             |        |      |   |       



|14. | LEGAL MATTERS
|--- | -------------

From time to time, we are involved
in various legal proceedings, claims and litigation arising in the ordinary course of business. There are no currently pending legal proceedings at March 31, 2009 that, in the opinion of management, might have a material adverse effect on our
financial position, results of operations or cash flows.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this Form 10-Q. The information in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act. Such forward-looking statements include statements related to our business and strategy and statements related to growth of our revenue and sales and marketing expenses. Such statements are based upon current expectations that involve risks and
uncertainties. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, words such as may, will, could, should,
estimates, predicts, potential, continue, strategy, believes, anticipates, plans, expects, intends and similar expressions are
intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those discussed elsewhere in this Form 10-Q in the section titled Risk Factors and the risks discussed in our other SEC filings. We disclaim any obligation to publicly release any revisions to the
forward-looking statements after the date of this Form 10-Q.

Overview

We were founded in May 2002 by experienced industry leaders with a vision to improve the
performance of wide-area distributed computing. Having significant experience in caching technology, our executive management team understood that existing approaches failed to address adequately all of the root causes of this poor performance. We
determined that these performance problems could be best solved by simultaneously addressing inefficiencies in software applications and wide area networks, or WANs, as well as insufficient or unavailable bandwidth. This innovative approach served
as the foundation of the development of our products. We began commercial shipments of our products in May 2004 and have since sold our products to over 6,000 customers worldwide. We now offer several product lines including Steelhead® appliances, Central Management Console, Interceptor, Steelhead Mobile and Cascade products.



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We are headquartered in San Francisco, California. Our personnel are located throughout the United States
and in over twenty-five countries worldwide. We expect to continue to add personnel in the United States and internationally to provide additional geographic sales, research and development, general and administrative and technical support coverage.

Company Strategy

Our goal is to
establish our solution as the preeminent performance and efficiency standard for organizations relying on wide-area distributed computing. Key elements of our strategy include:

Maintain and extend our technological advantages

We believe that we offer the broadest ability to
enable rapid, reliable access to applications and data for our customers. We intend to enhance our position as a leader and innovator in the WAN optimization market. We also intend to continue to sell new capabilities into our installed base.
Continuing investments in research and development are critical to maintaining our technological advantage.

Enhance and extend our product line

We plan to introduce new models of our current products as well as enhancements to their capabilities in order to address our
customers size and application requirements. We also plan to introduce new products to extend our market and utilize our technology platform to extend our capabilities.

In August 2007, we began selling our Steelhead Mobile product line, which includes a software client version of our Steelhead appliances, which delivers
LAN-like application performance to any employee laptop, whether on the road, working from home or connected wirelessly in the office.

In
February 2008, we announced the introduction of the Riverbed Services Platform (RSP), which enables the delivery of virtualized edge services without the need to deploy additional physical servers at remote or branch offices. RSP allows customers to
deploy services from an array of vendors on Steelhead appliances in a self-contained partition to minimize the hardware infrastructure footprint at the branch office.

In August 2008, we introduced the 50 series models of our Steelhead appliances. The 50 series models represent the next generation of our Steelhead appliances.

In February 2009, we acquired Mazu Networks, Inc. (Mazu). Mazu helps organizations manage, secure and optimize the availability and
performance of global applications. The acquisition allows us to meet enterprise and service provider customer demands by extending our suite of WAN optimization products to include global application performance, reporting and analytics with the
Cascade product line.

Increase market awareness

To generate increased demand for our products, we will continue promoting our brand and the effectiveness of our comprehensive WAN optimization solution.

Scale our distribution channels

We intend to leverage and expand our indirect channels to extend our
geographic reach and market penetration. We sell our products directly through our sales force and indirectly through resellers. We derived 92% of our revenue through indirect channels in 2008. We expect revenue from resellers to continue to
constitute a substantial majority of our future revenue. During 2008, we added 300 new reseller partners, 4 large systems integrators and 16 managed service providers. Also in 2008, we expanded our direct sales force presence in 4 new countries.

Enhance and extend our support and services capabilities

We plan to enhance and extend our support and services capabilities to continue to support our growing global customer base. In 2008, we increased our sales focus on service contract renewals on our existing customer
base, we developed and distributed training programs directed at our partners, and expanded our professional service offering.

Major Trends Affecting
Our Financial Results

Company Outlook

We believe that our current value proposition, which enables customers to improve the performance of their applications and access to their data across WANs, while also offering the ability to simplify IT infrastructure and realize
significant capital and operating cost savings, should allow us to continue to grow our business. Our product revenue growth rate will depend significantly on continued growth in the WAN optimization market, and our ability to continue to attract
new customers in that market and generate additional sales from existing customers. Our



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growth in support and services revenue is dependent upon increasing the number of products under support contracts, which is dependent on both growing our
installed base of customers and renewing existing support contracts. Our future profitability and rate of growth will be directly affected by the continued acceptance of our products in the marketplace, as well as the timing and size of orders,
product mix, average selling prices and costs of our products and general economic conditions. Our ability to achieve profitability in the future will also be affected by the extent to which we must incur additional expenses to expand our sales,
support, marketing, development, and general and administrative capabilities to grow our business. The largest component of our expenses is personnel costs. Personnel costs consist of salaries, benefits and incentive compensation for our employees,
including commissions for sales personnel and stock-based compensation.

Macroeconomic Environment

During 2008 the domestic and international economic environment turned sharply negative, with most developed countries, including the U.S., falling into
economic recessions. Credit markets and bank lending contracted suddenly in the third quarter of 2008 making credit generally harder to obtain for most businesses and consumers. Commodity prices declined sharply in the second half of 2008 as demand
for commodities decreased. This resulted in a sharp reduction in consumer spending in the second half of 2008. This macroeconomic environment caused the growth trend in corporate spending on IT infrastructure to slow in 2008 and this trend is
forecasted to continue or slow down further in the first half of 2009.

Revenue

Our revenue has grown rapidly since we began shipping products in May 2004, increasing from $2.6 million in 2004 to $333.3 million in 2008. Revenue
grew by 41% in 2008 to $333.3 million from $236.4 million in 2007. We believe that our revenue growth in 2008, when the global macroeconomic environment negatively impacted many businesses, is a positive sign that our products have a significant
value proposition to our customers and that the WAN optimization market is still expanding despite the challenging macroeconomic environment.

Costs and
Expenses

Operating expenses consist of sales and marketing, research and development and general and administrative expenses.
Personnel-related costs, including stock-based compensation, are the most significant component of each of these expense categories. As of March 31, 2009 we had 939 employees, which included 62 employees that joined as a result of the Mazu
acquisition, an increase of 30% from the 721 employees at March 31, 2008. The increase in employees is the most significant driver behind the increase in costs and operating expenses. The increase in employees was required to support our
increased revenue. The timing of additional hires has and could materially affect our operating expenses, both in absolute dollars and as a percentage of revenue, in any particular period.



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Stock-based Compensation Expense

Stock-based compensation expense and related payroll taxes was $12.8 million and $11.3 million, in the three months ended March 31, 2009, and 2008, respectively. We expect to continue to incur significant
stock-based compensation expense and anticipate further growth in stock-based compensation expense as our employee base grows because we expect stock-based compensation to continue to play an important part in the overall compensation structure for
our employees.



|                                                                 |  |                             |        |      |   |       
|---------------------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                                 |  | Three months endedMarch 31,
|(in thousands)                                                   |  | 2009                        |        | 2008
|Stock-based compensation and related payroll taxes:              |  |                             |        |      |   |       
|Cost of product                                                  |  | $                           | 95     |      | $ | 35    
|Cost of support and services                                     |  |                             | 1,023  |      |   | 1,031 
|Sales and marketing                                              |  |                             | 5,987  |      |   | 5,405 
|Research and development                                         |  |                             | 3,170  |      |   | 2,943 
|General and administrative                                       |  |                             | 2,533  |      |   | 1,855 
|                                                                 |  |                             |        |      |   |       
|Total stock-based compensation expense and related payroll taxes |  | $                           | 12,808 |      | $ | 11,269
|                                                                 |  |                             |        |      |   |       

Acquisition of Mazu

On February 19, 2009, we acquired 100% of Mazu Networks, Inc. We made an initial payment totaling $23.1 million in cash; and potentially will make additional payments totaling up to $22.0 million in cash based on
achievement of certain bookings targets for the one-year period from April 1, 2009 through March 31, 2010. An initial estimate of the fair value of the acquisition-related contingent consideration of $9.9 million was included in the
purchase price of Mazu. Any change in the estimated fair value of the acquisition-related contingent consideration will be recognized in earnings in the period of the change in estimate.

The results of operations of Mazu are included in our consolidated results for the period subsequent to the acquisition date of February 19, 2009.
No prior periods have been restated. In the quarter ended March 31, 2009 we recognized $0.5 million in revenue from Mazu products and services, recorded $1.5 million in operating expenses and added 62 former Mazu employees.

The following table summarizes the amortization of intangibles recognized in the three months ended March 31, 2009 and 2008:



|                                  |  |                             |     |      |   |  
|--------------------------------- |  | --------------------------- | --- | ---- | - | -
|                                  |  | Three months endedMarch 31,
|(in thousands)                    |  | 2009                        |     | 2008
|Cost of product                   |  | $                           | 326 |      | $ | 
|Sales and marketing               |  |                             | 200 |      |   | 
|                                  |  |                             |     |      |   |  
|Total amortization of intangibles |  | $                           | 526 |      | $ | 
|                                  |  |                             |     |      |   |  

The following table summarizes the acquisition-related costs, including the acquisition-related
contingent consideration to be paid to the former Mazu employees, recognized in the three months ended March 31, 2009 and 2008:



|                                      |  |                             |       |      |   |  
|------------------------------------- |  | --------------------------- | ----- | ---- | - | -
|                                      |  | Three months endedMarch 31,
|(in thousands)                        |  | 2009                        |       | 2008
|Sales and marketing                   |  | $                           | 151   |      | $ | 
|Research and development              |  |                             | 133   |      |   | 
|General and administrative            |  |                             | 83    |      |   | 
|Acquisition-related costs             |  |                             | 1,520 |      |   | 
|                                      |  |                             |       |      |   |  
|Total other acquisition-related costs |  | $                           | 1,887 |      | $ | 
|                                      |  |                             |       |      |   |  

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (GAAP). These accounting
principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, as



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well as the reported amounts of revenue and expenses during the periods presented. We believe that the estimates and judgments upon which we rely are
reasonable based upon information available to us at the time that these estimates and judgments are made. To the extent there are material differences between these estimates and actual results, our consolidated financial statements could be
adversely affected.

The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe
are the most critical to aid in fully understanding and evaluating our reported financial results include the following: revenue recognition, stock-based compensation, accounting for business combinations, accounting for income taxes, inventory
valuation and allowances for doubtful accounts. Please refer to Managements Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended
December 31, 2008 for a more complete discussion of our critical accounting policies and estimates. Our critical accounting policies have been discussed with the Audit Committee of the Board of Directors. We believe there have been no material
changes to our critical accounting policies and estimates during the three months ended March 31, 2009, compared to those discussed in our Form 10-K for the year ended December 31, 2008, except as discussed below.

Business Combinations

We account for business
combinations pursuant to Financial Accounting Standards Board Statement of Financial Accounting Standard (SFAS) No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)). Under SFAS No. 141(R), we are required to
recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. The purchase price allocation process requires management to make significant estimates and
assumptions, especially at acquisition date with respect to intangible assets, estimated contingent consideration payments and pre-acquisition contingencies.

Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired company
and are inherently uncertain. Examples of critical estimates in valuing the estimated contingent consideration and certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:



| |  |  | We estimated the fair value of the acquisition-related contingent consideration using a probability-weighted discounted cash flow model based upon the expected
achievement of performance targets;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts and acquired developed technologies and patents;
and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | discount rates.
| | - |  | ---------------

Unanticipated
events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the
acquisition date, including changes from events after the acquisition date, such as changes in our estimate of the bookings targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the
acquisition-related contingent consideration could have a material affect on the statement of operations and financial position in the period of the change in estimate.

Goodwill, Intangible Assets and Impairment Assessments

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 is tested for impairment at least annually (more frequently if certain indicators are
present). In the event that we determine that the carrying value of the reporting unit to which the goodwill is allocated is less than the reporting units fair value, we will incur an impairment charge for the amount of the difference
during the quarter in which the determination is made.

Intangible assets that are not considered to have an indefinite life are amortized
over their useful lives. Each period we evaluate the estimated remaining useful life of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. The carrying amounts of
these assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by comparison of the carrying
amount of each asset to the future undiscounted cash flows the asset is expected to generate. In the event that we determine certain assets are not fully recoverable, we will incur an impairment charge for those assets or portion thereof during the
quarter in which the determination is made.



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Results of Operations

Revenue

We derive our revenue from sales of our appliances and software licenses and from support
and services. Product revenue primarily consists of revenue from sales of our Steelhead products and is typically recognized upon shipment. Support obligations include technical assistance, unspecified software license updates and defective hardware
replacement. Support revenue is recognized ratably over the contractual period, which is typically one year. Service revenue includes professional services and training, which to date has not been significant, and is recognized as the services are
performed.



|                                |  |                             |        |      |   |       
|------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                |  | Three months endedMarch 31,
|(dollars in thousands)          |  | 2009                        |        | 2008
|Total Revenue                   |  | $                           | 88,211 |      | $ | 72,982
|Total Revenue by Type:          |  |                             |        |      |   |       
|Product                         |  | $                           | 60,465 |      | $ | 57,729
|Support and services            |  | $                           | 27,746 |      | $ | 15,253
|% Revenue by Type:              |  |                             |        |      |   |       
|Product                         |  |                             | 69%    |      |   | 79%   
|Support and services            |  |                             | 31%    |      |   | 21%   
|Total Revenue by Geography:     |  |                             |        |      |   |       
|United States                   |  | $                           | 48,304 |      | $ | 40,502
|Europe, Middle East and Africa  |  | $                           | 24,338 |      | $ | 19,623
|Rest of the World               |  | $                           | 15,569 |      | $ | 12,857
|% Revenue by Geography:         |  |                             |        |      |   |       
|United States                   |  |                             | 55%    |      |   | 55%   
|Europe, Middle East and Africa  |  |                             | 28%    |      |   | 27%   
|Rest of the World               |  |                             | 17%    |      |   | 18%   
|Total Revenue by Sales Channel: |  |                             |        |      |   |       
|Direct                          |  | $                           | 7,765  |      | $ | 8,063 
|Indirect                        |  | $                           | 80,446 |      | $ | 64,919
|% Revenue by Sales Channel:     |  |                             |        |      |   |       
|Direct                          |  |                             | 9%     |      |   | 11%   
|Indirect                        |  |                             | 91%    |      |   | 89%   

Quarter Ended March 31, 2009 Compared to the Quarter Ended March 31, 2008:
Product revenue increased in the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 due primarily to an increase in unit volume from increasing sales to existing customers and the addition of new
customers. We believe the market for our products has grown due to increased market awareness of WAN optimization and an increase in distributed organizations, which increases dependence on timely access to data and applications.

Substantially all of our customers purchase support when they purchase our products. The increase in support and services revenue on an absolute basis
and as a percentage of total revenues is a result of increased product and first year support sales combined with the renewal of support contracts by existing customers. As our customer base grows, we expect the proportion of revenue generated from
support and services to increase.

In the three months ended March 31, 2009, we derived 91% of our revenue from indirect channels
compared to 89% in the three months ended March 31, 2008. We expect indirect channel revenue to continue to be a significant portion of our revenue.

We generated 45% of our revenue from international locations in both the three months ended March 31, 2009 and 2008. We continue to expand into international locations and introduce our products in new markets
and expect international revenue to increase in dollar amount over time.

Cost of Revenue and Gross Margin

Cost of product revenue primarily consists of the costs of appliance hardware, manufacturing, shipping and logistics costs and expenses for inventory
obsolescence, amortization of certain intangibles, and warranty obligations. Cost of support and service revenue consists of salary and related costs of technical support and professional services personnel, spare parts and logistics services.



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|                                      |  |                             |        |      |   |       
|------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                      |  | Three months endedMarch 31,
|(dollars in thousands)                |  | 2009                        |        | 2008
|Revenue:                              |  |                             |        |      |   |       
|Product                               |  | $                           | 60,465 |      | $ | 57,729
|Support and services                  |  |                             | 27,746 |      |   | 15,253
|                                      |  |                             |        |      |   |       
|Total revenue                         |  |                             | 88,211 |      |   | 72,982
|                                      |  |                             |        |      |   |       
|Cost of revenue:                      |  |                             |        |      |   |       
|Cost of product                       |  |                             | 14,405 |      |   | 13,936
|Cost of support and services          |  |                             | 8,509  |      |   | 6,010 
|                                      |  |                             |        |      |   |       
|Total cost of revenue                 |  |                             | 22,914 |      |   | 19,946
|                                      |  |                             |        |      |   |       
|Gross profit                          |  | $                           | 65,297 |      | $ | 53,036
|                                      |  |                             |        |      |   |       
|Gross margin for product              |  |                             | 76%    |      |   | 76%   
|Gross margin for support and services |  |                             | 69%    |      |   | 61%   
|Total gross margin                    |  |                             | 74%    |      |   | 73%   

Quarter Ended March 31, 2009 Compared to the Quarter Ended March 31, 2008: The
cost of product revenue increased slightly primarily due to higher write-down of inventory and higher manufacturing overhead from higher personnel costs of $0.5 million, offset by lower product costs and lower cost of warranty. Cost of product
revenue in the three months ended March 31, 2009 includes a $2.3 million write-down for inventory on hand in excess of forecasted demand. In the same period of the prior year, inventory obsolescence costs were $0.5 million. The increase in the
provision for inventory is related to the write down of legacy inventory as we transition to the 50 series Steelhead appliances. Product costs decreased by $1.6 million, or 2.6% of revenue, in the current quarter due to improved margins on the 50
series products. Warranty costs were $0.5 million lower in Q1 2009 as compared to Q1 2008 primarily due to a reduction in estimated product returns in Q1 2009. Cost of product revenue in Q1 2009 includes $0.3 million in amortization of intangibles
recognized in the Mazu acquisition. Cost of support and services revenue increased as we added more technical support headcount domestically and abroad to support our growing customer base. Technical support and services headcount was 120 employees
as of March 31, 2009 compared to 83 employees as of March 31, 2008.

Gross margins increased to 74% in the three months ended
March 31, 2009 from 73% in the three months ended March 31, 2008. Gross margin for product remains flat as higher margins on product revenue as a result of lower unit product costs from a change in product mix towards the 50 series models
and a one-time benefit on warranty costs due to a change in estimate were offset by higher inventory write-downs and intangibles amortization. Gross margin for product in the three months ended March 31, 2009 was also negatively affected by
approximately 3% due to the inventory obsolescence costs. Gross margin for support and services increased as a result of revenues increasing at a higher rate than support and services costs.

Sales and Marketing Expenses

Sales
and marketing expenses primarily include personnel costs, sales commissions, marketing programs and facilities costs.



|                             |  |                             |        |      |   |       
|---------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                             |  | Three months endedMarch 31,
|(dollars in thousands)       |  | 2009                        |        | 2008
|Sales and marketing expenses |  | $                           | 40,786 |      | $ | 31,207
|Percent of total revenue     |  |                             | 46%    |      |   | 43%   

Quarter Ended March 31, 2009 Compared to the Quarter Ended March 31, 2008:Sales
and marketing expenses increased by $9.6 million, or 31%, primarily due to an increase in the number of sales and marketing employees, as sales and marketing headcount grew to 440 employees as of March 31, 2009 from 336 employees as of
March 31, 2008. The increase in employees resulted in higher salary expense and employee related benefits. Additionally, commission expense increased in the three months ended March 31, 2009 as compared to the three months ended
March 31, 2008 due to increased revenue and personnel. Salaries and related benefits, bonuses and commissions accounted for $5.8 million, marketing related activities accounted for $1.3 million, facilities and information technology expenses
accounted for $0.3 million and bad debt expense accounted for $0.3 million of the $9.6 million increase in sales and marketing expenses. Stock-based compensation, which was $6.0 million in the



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three months ended March 31, 2009 compared to $5.4 million in the three months ended March 31, 2008, accounted for $0.6 million of the increase in
sales and marketing expenses. In addition, the first quarter of 2009 includes acquisition-related expenses for the amortization of intangibles of $0.2 million and compensation expense of $0.2 million related to the acquisition-related contingent
consideration to be paid to former employees of Mazu.

We plan to continue to make investments in sales and marketing with the intent to
add new customers and increase penetration within our existing customer base by increasing the number of sales personnel worldwide, expanding our domestic and international sales and marketing activities, increasing channel penetration, building
brand awareness and sponsoring additional marketing events. We expect future sales and marketing expenses to grow and continue to be our most significant operating expense. Generally, sales personnel are not immediately productive and sales and
marketing expenses do not immediately result in increased revenue. Hiring additional sales personnel reduces short-term operating margins until the sales personnel become productive and generate revenue. Accordingly, the timing of sales personnel
hiring and the rate at which they become productive will affect our future performance.

Research and Development Expenses

Research and development expenses primarily consist of personnel costs and facilities costs. We expense research and development
expenses as incurred.



|                                  |  |                             |        |      |   |       
|--------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                  |  | Three months endedMarch 31,
|(dollars in thousands)            |  | 2009                        |        | 2008
|Research and development expenses |  | $                           | 16,038 |      | $ | 13,608
|Percent of total revenue          |  |                             | 18%    |      |   | 19%   

Quarter Ended March 31, 2009 Compared to the Quarter Ended March 31, 2008:
Research and development expenses increased by $2.4 million, or 18%, in the three months ended March 31, 2009 compared to the three months ended March 31, 2008 due to an increase in personnel and facility-related costs as a result of
research and development headcount increasing to 258 employees as of March 31, 2009 from 208 employees as of March 31, 2008. Salaries, bonuses and related benefits accounted for $1.7 million and facilities and related costs accounted for
$0.2 million of the $2.4 million increase in research and development expenses. Stock-based compensation, which was $3.2 million in the three months ended March 31, 2009 compared to $2.9 million in the three months ended March 31, 2008,
accounted for $0.3 million of the increase in research and development expenses. Acquisition-related expenses for the compensation expense related to the acquisition-related contingent consideration to be paid to former employees of Mazu were
$0.1 million in the three months ended March 31, 2009. We plan to continue to invest in research and development as we develop new products and make further enhancements to existing models.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for personnel and facilities costs related to our executive, finance, human resources, information technology and legal organizations, and fees for professional services.
Professional services include legal, audit and information technology consulting costs.



|                                    |  |                             |       |      |   |      
|----------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                    |  | Three months endedMarch 31,
|(dollars in thousands)              |  | 2009                        |       | 2008
|General and administrative expenses |  | $                           | 8,993 |      | $ | 9,373
|Percent of total revenue            |  |                             | 10%   |      |   | 13%  

Quarter Ended March 31, 2009 Compared to the Quarter Ended March 31, 2008:
General and administrative expenses decreased by $0.4 million, or 4%, in the three months ended March 31, 2009 compared to the three months ended March 31, 2008 due to a decrease in legal fees incurred to defend intellectual property (IP)
litigation that was settled in the third quarter of 2008, offset by an increase in personnel costs, primarily as a result of headcount increasing to 105 employees as of March 31, 2009 from 87 employees as of March 31, 2008. Of the $0.4
million decrease in general and administrative expenses, salaries, bonuses and related benefits increased $0.8 million whereas professional service fees decreased $1.7 million. Professional service fees decreased primarily due to decreased legal
fees associated with IP litigation. Legal fees associated with the IP litigation were $0.9 million in the quarter ended March 31, 2008 but no significant fees were incurred in the quarter ended March 31, 2009. Stock-based compensation,
which was $2.5 million in the three months ended March 31, 2009 compared to $1.9 million in the three months ended March 31, 2008, accounted for $0.6 million of the offsetting increase in general and administrative expenses.



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Acquisition-Related Costs

On February 19, 2009, we acquired Mazu and in the first quarter of 2009 we incurred the following costs related to professional fees to close the
transaction, severance costs related to the elimination of redundant staff, costs associated with the integration of the Mazu operations and changes in the fair value of the acquisition-related contingent consideration.



|                                                                     |  |                             |       |      |   |  
|-------------------------------------------------------------------- |  | --------------------------- | ----- | ---- | - | -
|                                                                     |  | Three months endedMarch 31,
|(in thousands)                                                       |  | 2009                        |       | 2008
|Transaction costs                                                    |  | $                           | 595   |      | $ | 
|Severance                                                            |  |                             | 412   |      |   | 
|Integration costs                                                    |  |                             | 370   |      |   | 
|Change in fair value of acquisition-related contingent consideration |  |                             | 143   |      |   | 
|                                                                     |  |                             |       |      |   |  
|                                                                     |  | $                           | 1,520 |      | $ | 
|                                                                     |  |                             |       |      |   |  

The transaction costs, severance costs, and integration-related costs are expected to be one-time
costs in the first quarter of 2009. The change in the fair value of the acquisition-related contingent consideration is the change in fair value in the current period related to the $9.9 million liability recognized at the acquisition date for the
acquisition-related contingent consideration to be paid to Mazu shareholders. The acquisition-related contingent consideration was recognized at fair value using a probability weighted estimate of the achievement of the bookings target and a
discount rate of 13%. Between the acquisition date and March 31, 2009, the estimated fair value of the acquisition-related contingent consideration increased by $0.1 million.

We will potentially make additional acquisition-related contingent consideration payments totaling up to $22.0 million in cash, if Mazu achieves certain
performance targets for the one-year period from April 1, 2009 through March 31, 2010 with up to $16.6 million to be paid to Mazu shareholders and up to $5.4 million to be paid to former employees of Mazu as an incentive bonus, provided
generally that such former Mazu employees are employed at Riverbed at the time the acquisition-related contingent consideration is earned.

The estimated fair value of acquisition-related contingent consideration of $9.9 million to be distributed directly to shareholders was recognized as part of the purchase price of Mazu. Changes in the fair value of this liability will be
recognized in earnings as other acquisition-related costs in the period of the change in estimate. The fair value estimate is based on a probability weighted bookings amount. Actual achievement of bookings below $16.0 million would reduce the
liability to zero and achievement of bookings of $35.0 million or more would increase the liability to $16.6 million. The achievement of bookings target could be different than our estimates and could have a material effect on the fair value of the
acquisition-related contingent consideration which will be recognized in earnings in the period of the change in estimate.

We estimated
fair value of acquisition-related contingent consideration of $3.8 million to be paid to the former employees of Mazu using the same probability weighted bookings estimate as used for the acquisition-related contingent consideration to be
distributed directly to the shareholders. The employee bonus portion of the earn-out is recognized in operating expenses as compensation cost ratably over the service period from February 20, 2009 to March 31, 2010. Actual achievement of
bookings below $16.0 million would reduce the employee bonus to zero and achievement of bookings of $35.0 million or more would increase compensation costs to $5.4 million. A change in the estimated bookings for the earn-out could have a material
effect on earnings in the period of the change in estimate.



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Other Income, Net

Other income, net consists primarily of interest income and foreign currency exchange losses.



|                        |  |                             |     |   |      |   |       |  
|----------------------- |  | --------------------------- | --- | - | ---- | - | ----- | -
|                        |  | Three months endedMarch 31, |    
|(dollars in thousands)  |  | 2009                        |     |   | 2008 |  
|Interest income         |  | $                           | 678 |   |      | $ | 2,349 |  
|Other                   |  |                             | (40 | ) |      |   | (49   | )
|                        |  |                             |     |   |      |   |       |  
|Total other income, net |  | $                           | 638 |   |      | $ | 2,300 |  
|                        |  |                             |     |   |      |   |       |  

Quarter Ended March 31, 2009 Compared to the Quarter Ended March 31, 2008: Other
income, net, decreased in the three months ended March 31, 2009 due to decreased interest income on cash and marketable securities balances as a result of declining interest rates. Weighted average interest rates applicable to our cash and
marketable securities balances decreased to 1.1% in the three months ended March 31, 2009 compared to 3.7% in the three months ended March 31, 2008.

Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes for the three months
ended March 31, 2009 and 2008 was ($2.4) million and $0.5 million, respectively. Our income tax provision consists of federal, foreign, and state income taxes. Our effective tax rate was (169.5%) and 44.4% for the three months ended
March 31, 2009 and 2008.

Our effective tax rate differs from the federal statutory rate due to state taxes and significant permanent
differences. Significant permanent differences arise primarily from the portion of stock-based compensation expense that is not expected to generate a tax deduction, such as stock compensation expense on grants to foreign employees, our stock
purchase plan and incentive stock options, offset by the actual tax benefits in the current periods from disqualifying dispositions of our purchase plan shares and incentive stock options.

As of March 31, 2009, our tax benefit includes a $0.6 million deferred tax expense for a write-down of certain state deferred tax assets due to a
recently enacted California income tax law that is expected to reduce our California effective tax rate beginning in 2011.

Our effective
tax rate for the three months ended March 31, 2009 is higher when compared to the same period in the prior year primarily due to the impact on pre-tax income from increased stock compensation expense and expenses associated with the accounting
for the acquisition of Mazu.

We expect our effective tax rate in 2009 to fluctuate on a quarterly basis. The effective tax rate could be
affected by our stock-based compensation expense, by changes in the valuation of our deferred tax assets, changes in actual results versus our estimates, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.

We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. In
assessing the need for a valuation allowance, we have considered our historical levels of income and expectations of future taxable income. In determining future taxable income, we make assumptions to forecast federal, state and international
operating income, the reversal of temporary differences, and the implementation of any feasible and prudent tax planning strategies. The assumptions require significant judgment regarding the forecasts of taxable income, and are consistent with our
forecasts used to manage our business. The valuation allowance primarily relates to deferred tax assets established in purchase accounting. Any subsequent reduction of that portion of the valuation allowance and the recognition of the associated tax
benefits will be recorded to our provision for income taxes pursuant to SFAS No. 141(R).



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Liquidity and Capital Resources



|                                                |  |                             |         |   |                       |   |         |  
|----------------------------------------------- |  | --------------------------- | ------- | - | --------------------- | - | ------- | -
|(in thousands)                                  |  | As ofMarch 31,2009          |         |   | As ofDecember 31,2008 |  
|Working capital                                 |  | $                           | 227,306 |   |                       | $ | 248,187 |  
|Cash and cash equivalents                       |  | $                           | 50,731  |   |                       | $ | 95,378  |  
|Marketable securities                           |  | $                           | 207,502 |   |                       | $ | 172,398 |  
|                                                | 
|                                                |  | Three months endedMarch 31, |        
|(in thousands)                                  |  | 2009                        |         |   | 2008                  |  
|Cash provided by operating activities           |  | $                           | 27,056  |   |                       | $ | 26,136  |  
|Cash used in investing activities               |  | $                           | (57,983 | ) |                       | $ | (42,541 | )
|Cash provided by (used in) financing activities |  | $                           | (13,606 | ) |                       | $ | 1,570   |  

Cash and Cash Equivalents

Cash and cash equivalents consist of money market mutual funds, government sponsored enterprise obligations, treasury bills, commercial paper and other
money market securities with remaining maturities at date of purchase of 90 days or less.

Marketable securities consist of government
sponsored enterprise obligations, treasury bills and corporate bonds and notes. The fair value of marketable securities is determined in accordance with SFAS No. 157, Fair Value Measurements, which defines the fair value as the exit
price in the principal market in which we would transact. The fair value of our marketable securities has not materially fluctuated from historical cost. The accumulated unrealized losses on marketable securities recognized in accumulated other
comprehensive loss in our stockholders equity is $0.2 million. The recent volatility in the credit markets has increased the risk of material fluctuations in the fair value of marketable securities.

Cash and cash equivalents, and marketable securities decreased by $9.5 million in the three month period ended March 31, 2009 to $258.2 million.
Significant cash expenditures in the quarter were $25.5 million related to the acquisition of Mazu and $10.0 million in share repurchases.

Pursuant to certain lease agreements and as security for our merchant services agreement with our financial institution, we are required to maintain cash reserves, classified as restricted cash. Current restricted cash totaled $0.1 million
at March 31, 2009 and December 31, 2008, and long-term restricted cash totaled $3.5 million at March 31, 2009 and December 31, 2008. Long-term restricted cash is included in other assets in the condensed consolidated balance
sheets and consists primarily of funds held as collateral for letters of credit for the security deposit on the leases of our corporate headquarters and is restricted until the end of the lease terms on August 30, 2010 and July 31, 2014.

We have significant international sales costs and derive approximately 45% of our revenues outside the U.S. Our sales contracts are
principally denominated in United States dollars and therefore changes in foreign exchange rates have not affected our cash flows from operations. As we fund our international operations, our cash and cash equivalents are affected by changes in
exchange rates. To date, the foreign currency effect on our cash and cash equivalents has not been material.

Cash Flows from Operating
Activities

Our largest source of operating cash flows is cash collections from our customers. Our primary uses of cash from operating
activities are for personnel related expenditures, product costs, outside services, and rent payments. Our cash flows from operating activities will continue to be affected principally by the extent to which we grow our revenue and spend on hiring
personnel in order to grow our business. The timing of hiring sales personnel in particular affects cash flows as there is a lag between the hiring of sales personnel and the generation of revenue and cash flows from sales personnel.

Cash provided by operating activities was $27.1 million in the three months ended March 31, 2009 compared to $26.1 million in the three months ended
March 31, 2008, primarily due to increased profitability after excluding the effects of non-cash stock-based compensation expense and lower accounts receivable balances due to increased collections.



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Cash Flows from Investing Activities

Cash flows used in investing activities primarily relate to investments in marketable securities, acquisitions and capital expenditures to support our
growth.

Cash used in investing activities increased in the three months ended March 31, 2009 compared to the three months ended
March 31, 2008 primarily due to additional purchases of marketable securities, $20.5 million paid for the acquisition of Mazu, net of cash and cash equivalents acquired of $2.6 million, and $2.2 million in additional capital expenditures.

Cash Flows from Financing Activities

Cash flows from financing activities in the three months ended March 31, 2009 consisted of repurchases of common stock, proceeds and tax benefits received from the exercise of stock options, and the paydown of
the debt acquired in the acquisition of Mazu of $5.0 million.

On April 21, 2008, our Board of Directors authorized a Share Repurchase
Program, which authorizes us to repurchase up to $100.0 million of our outstanding common stock during a period not to exceed 24 months from the Board authorization date. The Program does not require us to purchase a minimum number of shares, and
may be suspended, modified or discontinued at any time. During the first quarter of 2009, we repurchased 952,105 shares of common stock under this Program for an aggregate purchase price of $10.0 million, or an average of $10.52 per share. The
maximum dollar value of common stock available for purchase under the Program is $40.0 million. The timing and amounts of these repurchases were based on market conditions and other factors including price, regulatory requirements and capital
availability. The share repurchases were financed by available cash balances and cash from operations.

We believe that our net proceeds
from operations, together with our cash balance at March 31, 2009, will be sufficient to fund our projected operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate
of revenue growth, the expansion of our sales and marketing activities, the timing and extent of expansion into new territories, the timing of introductions of new products and enhancements to existing products, and the continuing market acceptance
of our products. We may enter into arrangements for potential investments in, or acquisitions of, complementary businesses, services or technologies, which also could require us to seek additional equity or debt financing. Additional funds may not
be available on terms favorable to us or at all.

Contractual Obligations

The following is a summary of our contractual obligations as of March 31, 2009:



|                                             |  |                |        |                             |   |        |  |      |        |      |   |                |  |   |       |  |   |      
|-------------------------------------------- |  | -------------- | ------ | --------------------------- | - | ------ |  | ---- | ------ | ---- | - | -------------- |  | - | ----- |  | - | -----
|                                             |  | Total          |        | Remainingnine monthsof 2009 |   | 2010   |  | 2011 |        | 2012 |   | 2013 andbeyond
|                                             |  | (in thousands)
|Contractual Obligations                      |  |                |        |                             |   |        |  |      |        |      |   |                |  |   |       |  |   |      
|Operating leases                             |  | $              | 30,264 |                             | $ | 4,606  |  | $    | 5,945  |      | $ | 6,846          |  | $ | 5,763 |  | $ | 7,104
|Purchase obligations (1)                     |  | $              | 10,271 |                             |   | 9,040  |  |      | 1,200  |      |   | 31             |  |   |      |  |   |     
|Acquisition-related contingent consideration |  | $              | 10,420 |                             |   |       |  |      | 10,420 |      |   |               |  |   |      |  |   |     
|                                             |  |                |        |                             |   |        |  |      |        |      |   |                |  |   |       |  |   |      
|Total contractual obligations                |  | $              | 50,955 |                             | $ | 13,646 |  | $    | 17,565 |      | $ | 6,877          |  | $ | 5,763 |  | $ | 7,104
|                                             |  |                |        |                             |   |        |  |      |        |      |   |                |  |   |       |  |   |      



|(1) | Represents amounts associated with agreements that are enforceable, legally binding and specify terms, including: fixed or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of payment. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Off-Balance Sheet Arrangements

At March 31, 2009 and December 31, 2008, 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 other contractually narrow or limited purposes.

Other

At March 31, 2009 and December 31, 2008, we did not have commercial commitments under lines of credit,
standby repurchase obligations or other such debt arrangements.

Recent Accounting Pronouncements

See Note 1 of Notes to Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us.



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|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Foreign Currency Risk

Our sales contracts are principally denominated in United States dollars and therefore our revenue
and receivables are not subject to significant foreign currency risk. We do incur certain operating expenses in currencies other than the U.S. dollar and therefore are subject to volatility in cash flows due to fluctuations in foreign currency
exchange rates, particularly changes in the British pound, Euro, Australian dollar and Singapore dollar. To date, we have not entered into any hedging contracts since exchange rate fluctuations have had minimal impact on our operating results and
cash flows. We sell predominantly in U.S. dollars, and the recent increase in value of the U.S. dollar relative to most other major currencies may negatively affect our sales as any foreign currency devaluation against the U.S. dollar would increase
the real cost of our products to our customers and partners in foreign markets where we sell in U.S. dollars. In addition, sales would be negatively affected if we chose to more heavily discount our product price in foreign markets to maintain
competitive pricing.

Interest Rate Sensitivity

We had unrestricted cash and cash equivalents totaling $50.7 million and $95.4 million at March 31, 2009 and December 31, 2008, respectively. The unrestricted cash and cash equivalents are held for working
capital purposes. We do not enter into investments for trading or speculative purposes. Cash and cash equivalents include highly liquid investments with a maturity of ninety days or less at the time of purchase. Cash equivalents consist primarily of
money market mutual funds, government sponsored enterprise obligations, treasury bills, and other money market securities. Due to the high investment quality and short duration of these investments, we do not believe that we have any material
exposure to changes in the fair market value as a result of changes in interest rates. Declines in interest rates, however, will reduce future investment income. The recent volatility in the credit markets has caused a macro shift in
investments into highly liquid short-term investments such as U.S. Treasury bills. This has caused a significant decline in short-term interest rates, which we expect will reduce future investment income. In addition, the volatility in the credit
markets increases the risk of write-downs of investments to fair market value.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31,
2009, the end of the period covered by this quarterly report on Form 10-Q. This controls evaluation was done under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO) as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Disclosure controls and procedures are designed to
provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, such as this quarterly report on Form 10-Q, is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed such that information is accumulated and
communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Based
upon the controls evaluation, our CEO and CFO have concluded that as of March 31, 2009, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and to ensure that material information relating to us and our consolidated subsidiaries is made known to management,
including the CEO and CFO.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the first quarter of 2009 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting means 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.



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Inherent Limitations of Internal Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls over financial reporting
will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. 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, within the Company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. 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 controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

From time to time, we are
subject to various legal proceedings, claims and litigation arising in the ordinary course of business. We do not believe we are party to any currently pending legal proceedings the outcome of which may have a material adverse effect on our
financial position, results of operations or cash flows.

There can be no assurance that existing or future legal proceedings arising in
the ordinary course of business or otherwise will not have a material adverse effect on our financial position, results of operations or cash flows.



|Item 1A. | Risk Factors
|-------- | ------------

Set forth below and elsewhere in
this Quarterly Report on Form 10-Q, and in other documents we file with the SEC, are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this
Quarterly Report on Form 10-Q and in our other public statements. Because of the following factors, as well as other variables affecting our operating results, past financial performance should not be considered as a reliable indicator of future
performance and investors should not use historical trends to anticipate results or trends in future periods.

Risks Related to Our
Business and Industry

Our operating results may fluctuate significantly, which makes our future results difficult to predict and could cause our
operating results to fall below expectations or our guidance.

Our quarterly and annual operating results have varied significantly in
the past and could vary significantly in the future, which makes it difficult for us to predict our future operating results. Our operating results may fluctuate due to a variety of factors, many of which are outside of our control, including the
changing and recently volatile U.S. and global economic environment, any of which may cause our stock price to fluctuate. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past
results as an indication of our future performance. In addition, revenues in any quarter are largely dependent on customer contracts entered into during that quarter. Moreover, a significant portion of our quarterly sales typically occurs during the
last month of the quarter, which we believe reflects customer buying patterns of products similar to ours and other products in the technology industry generally. As a result, our quarterly operating results are difficult to predict even in the near
term and a delay in an anticipated sale past the end of a particular quarter may negatively impact our results of operations for that quarter, or in some cases, that year. A delay in the recognition of revenue, even from just one account, may have a
significant negative impact on our results of operations for a given period. If our revenue or operating results fall below the expectations of investors or securities analysts or below any guidance we may provide to the market, as occurred in the
quarter ended March 31, 2008, the price of our common stock could decline substantially. Such a stock price decline could occur, and has occurred in the past, even when we have met our publicly stated revenue and/or earnings guidance.

In addition to other risks listed in this Risk Factors section, factors that may affect our operating results include, but are
not limited to:



| |  |  | fluctuations in demand, including due to seasonality, for our products and services. For example, many companies in our industry experience adverse seasonal
fluctuations in customer spending patterns, particularly in the first and third quarters; we have experienced these seasonal fluctuations in the past and expect that this trend will continue in the future;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | fluctuations in sales cycles and prices for our products and services;
| | - |  | ----------------------------------------------------------------------



| |  |  | reductions in customers budgets for information technology purchases and delays in their purchasing cycles;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | general economic conditions in our domestic and international markets;
| | - |  | ----------------------------------------------------------------------



| |  |  | limited visibility into customer spending plans;
| | - |  | ------------------------------------------------



| |  |  | changing market conditions, including current and potential customer consolidation;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | customer concentration;
| | - |  | -----------------------



| |  |  | the timing of recognizing revenue in any given quarter as a result of software revenue recognition rules, including the extent to which sales transactions in a
given period are unrecognizable until a future period or, conversely, the satisfaction of revenue recognition rules in a given period resulting in the recognition of revenue from transactions initiated in prior periods;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the sale of our products in the timeframes we anticipate, including the number and size of orders, and the product mix within any such orders, in each quarter;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to develop, introduce and ship in a timely manner new products and product enhancements that meet customer requirements;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing and execution of product transitions or new product introductions, including any related or resulting inventory costs;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing of product releases or upgrades by us or by our competitors;
| | - |  | -----------------------------------------------------------------------



| |  |  | any significant changes in the competitive dynamics of our markets, including new entrants or substantial discounting of products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to control costs, including our operating expenses and the costs of the components we purchase;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | any decision to increase or decrease operating expenses in response to changes in the marketplace or perceived marketplace opportunities;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to derive benefits from our investments in sales, marketing, engineering or other activities;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | our ability to successfully work with partners on combined solutions. For example, where our product features the Riverbed Services Platform (RSP), we are required
to work closely with our partners in product validation, marketing, selling and support;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | volatility in our stock price, which may lead to higher stock compensation expenses pursuant to SFAS No. 123(R);
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | our estimates of the fair value of the acquisition-related contingent consideration may change significantly and could have a material effect on earnings pursuant
to SFAS No. 141(R); and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | unpredictable fluctuations in our effective tax rate due to disqualifying dispositions of stock from the employee stock purchase plan and stock options, changes in
the valuation of our deferred tax assets or liabilities, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting principles, or interpretations thereof.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We face intense competition that could reduce our revenue and adversely affect our financial results.

The market for our products is highly competitive and we expect competition to intensify in the future. Other companies may introduce new products in the
same markets we serve or intend to enter.

This competition could result, and has resulted in the past, in increased pricing pressure,
reduced profit margins, increased sales and marketing expenses and failure to increase, or the loss of, market share, any of which would likely seriously harm our business, operating results or financial condition.

Competitive products may in the future have better performance, more and/or better features, lower prices and broader acceptance than our products. Many
of our current or potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we do. Potential customers may prefer
to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. Currently, we face competition from a number of established companies, including Cisco Systems, Juniper Networks, Blue Coat Systems,
F5 Networks and Citrix Systems. We also face competition from a large number of smaller private companies and new market entrants.



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We expect increased competition from our current competitors as well as other established and emerging
companies if our market continues to develop and expand. For example, third parties currently selling our products could market products and services that compete with our products and services. In addition, some of our competitors have made
acquisitions or entered into partnerships or other strategic relationships with one another to offer a more comprehensive solution than they individually had offered. We expect this trend to continue as companies attempt to strengthen or maintain
their market positions in an evolving industry and as companies enter into partnerships or are acquired. Many of the companies driving this consolidation trend have significantly greater financial, technical and other resources than we do and are
better positioned to acquire and offer complementary products and technologies. The companies resulting from these possible consolidations may create more compelling product offerings and be able to offer greater pricing flexibility, making it more
difficult for us to compete effectively, including on the basis of price, sales and marketing programs, technology or product functionality. Continued industry consolidation may adversely impact customers perceptions of the viability of
smaller and even medium-sized technology companies and consequently customers willingness to purchase from such companies. These pressures could materially adversely affect our business, operating results and financial condition.

We also face competitive pressures from other sources. For example, Microsoft has announced its intention to improve the performance of its software
for remote office users. Our products are designed to improve the performance of many applications, including applications that are based on Microsoft protocols. Accordingly, improvements to Microsoft application protocols may reduce the need for
our products, adversely affecting our business, operating results and financial condition. Improvement in other application protocols or in the Transmission Control Protocol (TCP), the underlying transport protocol for most WAN traffic, could have a
similar effect. In addition, we market our products, in significant part, on the anticipated cost savings to be realized by organizations if they are able to avoid the purchase of costly IT infrastructure at remote sites by purchasing our products.
To the extent other companies are able to reduce the costs associated with purchasing and maintaining servers, storage or applications to be operated at remote sites, our business, operating results and financial condition could be adversely
affected.

Continued adverse economic conditions or reduced information technology spending may harm our business. In addition, the recent turmoil in
credit markets increases our exposure to our customers and partners credit risk, which could result in reduced revenue or additional write-offs of accounts receivable.

Our business depends on the overall demand for information technology, and in particular for WAN optimization, and on the economic health and general
willingness of our current and prospective customers to make capital commitments. If the conditions in the U.S. and global economic environment remain uncertain or continue to be volatile, or if they deteriorate further, our business, operating
results, and financial condition may be materially adversely affected. In addition, the market we serve is emerging and the purchase of our products involves material changes to established purchasing patterns and policies. The purchase of our
products is often discretionary and may involve a significant commitment of capital and other resources. In addition, our operating expenses are largely based on anticipated revenue trends and a high percentage of our expenses are, and will continue
to be, fixed in the short-term. Uncertainty about future economic conditions makes it difficult to forecast operating results and to make decisions about future investments. Weak or volatile economic conditions would likely harm our business and
operating results in a number of ways, including information technology spending reductions among customers and prospects, longer sales cycles, lower prices for our products and services and reduced unit sales. A reduction in information technology
spending could occur or persist even if economic conditions improve. In addition, any increase in worldwide commodity prices, such as occurred in 2008, may result in higher component prices and increased shipping costs, both of which may negatively
impact our financial results.

Many of our customers and channel partners use third parties to finance their purchases of our products. Any
freeze, or reduced liquidity, in the credit markets, such as we have recently experienced, may result in customers or channel partners either delaying or entirely foregoing planned purchases of our products as they are unable to obtain the required
financing. This would result in reduced revenues, and our business, operating results and financial condition would be harmed. In addition, these customers and partners ability to pay for products already purchased may be adversely
affected by the credit market turmoil or an associated downturn in their own business, which in turn could harm our business, operating results and financial condition.



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We rely heavily on indirect distribution partners to sell our products. Disruptions to, or our failure to effectively
develop and manage, our distribution channels and the processes and procedures that support them could harm our business.

Our future
success is highly dependent upon establishing and maintaining successful relationships with a variety of indirect distribution partners, including value-added resellers and service providers. A substantial majority of our revenue is derived from
indirect channel sales and we expect indirect channel sales to continue to account for a substantial majority of our total revenue. Accordingly, our revenue depends in large part on the effective performance of these channel partners, and the loss
of or reduction in sales to our channel partners could materially reduce our revenues. By relying on indirect channels, we may have little or no contact with the ultimate users of our products, thereby making it more difficult for us to establish
brand awareness, ensure proper delivery and installation of our products, service ongoing customer requirements and respond to evolving customer needs. In addition, we recognize a large portion of our revenue based on a sell-through model using
information regarding the end user customers that is provided by our channel partners. If those channel partners provide us with inaccurate or untimely information, the amount or timing of our revenues could be adversely impacted.

Recruiting and retaining qualified channel partners and training them in our technology and product offerings requires significant time and resources. In
order to develop and expand our distribution channel, we must continue to scale and improve our processes and procedures that support our distribution channel, including investment in systems and training, and those processes and procedures may
become increasingly complex and difficult to manage. We have no minimum purchase commitments with any of our value-added resellers or other indirect distributors, and our contracts with these channel partners do not prohibit them from offering
products or services that compete with ours. Our competitors may be effective in providing incentives to existing and potential channel partners to favor their products, to choose not to partner with us, or to prevent or reduce sales of our
products. Our channel partners may choose not to offer our products exclusively or at all. If we fail to maintain successful relationships with our channel partners, fail to develop new relationships with channel partners in new markets or expand
the number of channel partners in existing markets, fail to manage, train or motivate existing channel partners effectively or if these channel partners are not successful in their sales efforts, sales of our products would decrease and our
business, operating results and financial condition would be materially adversely affected.

We expect our gross margins to vary over time and our
recent level of product gross margin may not be sustainable. In addition, our product gross margins may continue to be adversely affected by our recent and future introductions of new products.

Our product gross margins vary from quarter to quarter and the recent level of gross margins may not be sustainable and may be adversely affected in the
future by numerous factors, including but not limited to product or sales channel mix shifts, increased price competition, increases in material or labor costs, excess product component or obsolescence charges from our contract manufacturers,
write-downs for obsolete or excess inventory, increased costs due to changes in component pricing or charges incurred due to component holding periods if our forecasts do not accurately anticipate product demand, warranty related issues, or our
introduction of new products or new product platforms or entry into new markets with different pricing and cost structures.

We recently
introduced our 50 series of Steelhead appliances. The introduction of, and planned transition to, a new product line requires us to forecast customer demand for both legacy and new product lines for a period of time, and to maintain adequate
inventory levels to support the sales forecasts for both product lines. If new product line sales exceed our sales forecast, we could possibly experience stock shortages, which would negatively affect our revenues. If legacy product line sales fall
short of our sales forecast, we could have excess inventory as has occurred in prior quarters. In the first quarter of 2009, we recognized approximately $2.3 million in excess and obsolete inventory charges related to the new product line
introduction. Our inventory level increased in our third fiscal quarter as we balanced the forecast demand for both product lines. If future sales between our legacy and any new product lines differ from our forecasts, and this results in an excess
of legacy products, then additional inventory charges may be required. In addition, if future overall sales are less than forecasted, then additional inventory charges may be required. Any inventory charges would negatively impact our product gross
margins.

We rely on third parties to perform shipping and other logistics functions on our behalf. A failure or disruption at a logistics partner
would harm our business.

Currently, we use third-party logistics partners to perform storage, packaging, shipment and handling for us.
Although the logistics services required by us may be readily available from a number of providers, it is time consuming and costly to qualify and implement these relationships. If one or more of our logistics partners suffers an interruption in its
business, or experiences delays, disruptions or quality control problems in its operations, or we choose to change or add additional logistics partners, our ability to ship products to our customers would be delayed and our business, operating
results and financial condition would be adversely affected.



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We are susceptible to shortages or price fluctuations in our supply chain. Any shortages or price fluctuations in
components used in our products could delay shipment of our products or increase our costs and harm our operating results.

Our increase
in the use of Riverbed-designed content in our hardware platforms has increased our susceptibility to scarcity or delivery delays for custom components within our systems. Shortages in components that we use in our products are possible and our and
our suppliers ability to predict the availability of such components may be limited. Some of these components are available only from limited sources of supply. The unavailability of any of these components would prevent us from shipping
products because each of these components is necessary to the proper functioning of our appliances. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantity requirements and delivery
schedules.

Any growth in our business or the economy is likely to create greater pressures on us and our suppliers to project overall
component demand accurately and to establish optimal component inventory levels. In addition, increased demand by third parties for the components we use in our products may lead to decreased availability and higher prices for those components. We
carry limited inventory of our product components, and we rely on suppliers to deliver components in a timely manner based on forecasts we provide. We rely on both purchase orders and long-term contracts with our suppliers, but we may not be able to
secure sufficient components at reasonable prices or of acceptable quality, which would seriously impact our ability to deliver products to our customers and, as a result, adversely impact our revenue.

If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience manufacturing delays, which would harm our business. We
are dependent on contract manufacturers, and changes to those relationships, expected or unexpected, may result in delays or disruptions that could harm our business.

We depend on independent contract manufacturers to manufacture and assemble our products. We rely on purchase orders or long-term contracts with our contract manufacturers. Some of our contract manufacturers are not
obligated to supply products to us for any specific period, in any specific quantity or at any specific price. Our orders may represent a relatively small percentage of the overall orders received by our contract manufacturers from their customers.
As a result, fulfilling our orders may not be considered a priority by one or more of our contract manufacturers in the event the contract manufacturer is constrained in its ability to fulfill all of its customer obligations in a timely manner. We
provide demand forecasts to our contract manufacturers. If we overestimate our requirements, the contract manufacturers may assess charges or we may have liabilities for excess inventory, each of which could negatively affect our gross margins.
Conversely, because lead times for required materials and components vary significantly and depend on factors such as the specific supplier, contract terms and the demand for each component at a given time, if we underestimate our requirements, the
contract manufacturers may have inadequate materials and components required to produce our products, which could interrupt manufacturing of our products and result in delays in shipments and deferral or loss of revenue.

Although the contract manufacturing services required to manufacture and assemble our products may be readily available from a number of established
manufacturers, it is time-consuming and costly to qualify and implement contract manufacturer relationships. Therefore, if one or more of our contract manufacturers suffers an interruption in its business, or experiences delays, disruptions or
quality control problems in its manufacturing operations, or we choose to change or add additional contract manufacturers, our ability to ship products to our customers would be delayed and our business, operating results and financial condition
would be adversely affected.

If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be
required to incur significant expenses to enforce our rights.

We depend on our ability to protect our proprietary technology. We rely
on trade secret, patent, copyright and trademark laws and confidentiality agreements with employees and third parties, all of which offer only limited protection. Despite our efforts, the steps we have taken to protect our proprietary rights may not
be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, and our ability to police such misappropriation or infringement is uncertain, particularly in countries outside of the U.S.
Further, with respect to patent rights, we do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims, and even if patents are issued,
they may be contested, circumvented or invalidated over the course of our business. The invalidation of any of our key patents could benefit our competitors by allowing them to more easily design products similar to ours. Moreover, the rights
granted under any issued patents may not provide us with proprietary protection or competitive advantages, and competitors may in any event be able to develop similar or superior technologies to our own now or in the future. Protecting against the
unauthorized use of our products, trademarks and other proprietary rights is expensive, difficult and, in some cases, impossible. Litigation has been necessary in the past and may be



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necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. For example, in the third quarter of 2008 we settled a patent infringement lawsuit with Quantum Corporation where both we and Quantum asserted that the other party infringed a patent or patents. Intellectual property
litigation has resulted, and may in the future result, in substantial costs and diversion of management resources, and may in the future harm our business, operating results and financial condition. Furthermore, many of our current and potential
competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating
our intellectual property.

Claims by others that we infringe their proprietary technology could harm our business.

Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other
intellectual property rights. In the ordinary course of our business, we are involved in disputes and licensing discussions with others regarding their claimed proprietary rights and we cannot assure you that we will always successfully defend
ourselves against such claims. Third parties have claimed and may in the future claim that our products or technology infringe their proprietary rights. For example, in the third quarter of 2008 we settled a patent infringement lawsuit with Quantum
Corporation. We expect that infringement claims may increase as the number of products and competitors in our market increases and overlaps occur. In addition, as we have gained greater visibility and market exposure as a public company, we face a
higher risk of being the subject of intellectual property infringement claims. Any claim of infringement by a third party, even those without merit, could cause us to incur substantial legal costs defending against the claim, and could distract our
management from our business. Furthermore, we could be subject to a judgment or voluntarily enter into a settlement, either of which could require us to pay substantial damages. A judgment or settlement could also include an injunction or other
court order that could prevent us from offering our products. In addition, we might elect or be required to seek a license for the use of third-party intellectual property, which may not be available on commercially reasonable terms or at all, or if
available, the payments under such license may harm our operating results and financial condition. Alternatively, we may be required to develop non-infringing technology, which could require significant effort and expense and may ultimately not be
successful. Any of these events could seriously harm our business, operating results and financial condition. Third parties may also assert infringement claims against our customers and channel partners. Any of these claims would require us to
initiate or defend potentially protracted and costly litigation on their behalf, regardless of the merits of these claims, because we generally indemnify our customers and channel partners from claims of infringement of proprietary rights of third
parties. If any of these claims succeed, or if we voluntarily enter into a settlement, we may be forced to pay damages on behalf of our customers or channel partners, which could have a material adverse effect on our business, operating results and
financial condition.

Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense. As a result, our
revenue is difficult to predict and may vary substantially from quarter to quarter.

The timing of our revenue is difficult to predict.
Our sales efforts involve educating our customers about the use and benefit of our products, including their technical capabilities and potential cost savings to an organization. Customers typically undertake a significant evaluation process that
has in the past resulted in a lengthy sales cycle, in some cases over twelve months. Also, as our channel model distribution strategy evolves, utilizing value-added resellers, distributors, systems integrators and service providers, the level of
variability in the length of sales cycle across transactions may increase and make it more difficult to predict the timing of many of our sales transactions. We spend substantial time, effort and money in our sales efforts without any assurance that
our efforts will produce any sales. In addition, product purchases are frequently and increasingly subject to budget constraints, multiple approvals, and unplanned administrative, processing and other delays. Beginning in early 2008, product
purchases have been delayed by the volatile U.S. and global economic environment, which has introduced additional risk into our ability to accurately forecast sales in a particular quarter. If sales expected from a specific customer for a particular
quarter are not realized in that quarter or at all, revenue will be harmed and we may miss our stated guidance for that period.

Our international sales
and operations subject us to additional risks that may harm our operating results.

In the first quarter of 2009, we derived
approximately 45% of our revenue from customers outside the U.S. We have personnel in numerous countries worldwide. We expect to continue to add personnel in additional countries. Our international sales and operations subject us to a variety of
risks, including:



| |  |  | the difficulty and cost of managing and staffing international offices and the increased travel, infrastructure, legal and other compliance costs associated with
multiple international locations;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | difficulties in enforcing contracts and collecting accounts receivable, and longer payment cycles, especially in emerging markets;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | tariffs and trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased exposure to foreign currency exchange rate risk; and
| | - |  | --------------------------------------------------------------



| |  |  | reduced protection for intellectual property rights in some countries.
| | - |  | ----------------------------------------------------------------------

Recently, certain foreign currencies have experienced rapid fluctuations in value against the U.S. dollar. Any foreign currency devaluation against the
U.S. dollar increases the real cost of our products to our customers and partners in foreign markets where we sell in U.S. dollars, which has resulted in the past and may result in the future in delayed or cancelled purchases of our products and, as
a result, lower revenues. In addition, this increase in cost increases the risk to us that we will be unable to collect amounts owed to us by such customers or partners, which in turn would impact our revenues and could materially adversely impact
our business and financial results. Any devaluation may also lead us to more aggressively discount our prices in foreign markets in order to maintain competitive pricing, which would negatively impact our revenues and gross margins.

International customers may also require that we localize our products. The product development costs for localizing the user interface of our products,
both graphical and textual, could be a material expense to us if the software requires extensive modifications. To date, such changes have not been extensive, and the costs have not been material.

As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and
other risks associated with our international sales and operations. Our failure to manage any of these risks successfully could harm our international operations, reduce our international sales and harm our business, operating results and financial
condition.

We are investing in engineering, sales, marketing, services and infrastructure, and these investments may achieve delayed or lower than
expected benefits, which could harm our operating results.

We intend to continue to add personnel and other resources to our
engineering, sales, marketing, services and infrastructure functions as we focus on developing new technologies, growing our market segment, capitalizing on existing or new market opportunities, increasing our market share, and enabling our business
operations to meet anticipated demand. We are likely to recognize the costs associated with these investments earlier than some of the anticipated benefits, and the return on these investments may be lower, or may develop more slowly, than we
expect. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected.

If we lose key personnel or are unable to attract and retain personnel on a cost-effective basis, our business would be harmed.

Our success is substantially dependent upon the performance of our senior management and key technical and sales personnel. Our management and employees can terminate their employment at any time, and the loss of the
services of one or more of our executive officers or other key employees could harm our business. Our success also is substantially dependent upon our ability to attract additional personnel for all areas of our organization, particularly in our
sales, research and development and customer service departments. Competition for qualified personnel is intense, and we may not be successful in attracting and retaining such personnel on a timely basis, on competitive terms, or at all.
Additionally, fluctuations or a sustained decrease in the price of our stock could affect our ability to attract and retain key personnel. When our stock price declines, our equity incentive awards may lose retention value, which may negatively
affect our ability to attract and retain such key personnel. If we are unable to attract and retain the necessary technical, sales and other personnel on a cost-effective basis, our business, operating results and financial condition would be
adversely affected.

We may not generate positive returns on our research and development investments.

Developing our products is expensive, and the investment in product development may involve a long payback cycle or may not generate additional revenue at
all. In the first quarter of 2009, our research and development expenses were $16.0 million, or approximately 18% of our total revenue. Our future plans include significant investments in research and development and related product opportunities.
We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. These investments may take several years to generate positive returns, if ever.



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Our ability to sell our products is highly dependent on the quality of our support and services offerings, and our
failure to offer high quality support and services would harm our operating results and reputation.

Once our products are deployed
within our customers networks, our customers depend on our support organization to resolve any issues relating to our products. A high level of support is critical for the successful marketing and sale of our products. If we or our channel
partners do not effectively assist our customers in deploying our products, succeed in helping our customers quickly resolve post-deployment issues, and provide effective ongoing support, it would adversely affect our ability to sell our products to
existing customers and would harm our reputation with potential customers. In addition, as we expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support,
training and documentation in languages other than English. Any failure to maintain high quality support and services would harm our operating results and reputation.

If we fail to manage future growth effectively, our business would be harmed.

We have expanded our
operations significantly since inception and anticipate that further significant expansion will be required. This future growth, if it occurs, will place significant demands on our management, infrastructure and other resources. To manage any future
growth, we will need to hire, integrate and retain highly skilled and motivated employees. We will also need to continue to improve our financial and management controls, reporting systems and procedures. We have an enterprise resource planning
software system that supports our finance, sales and inventory management processes. If we were to encounter delays or difficulties as a result of this system, including loss of data and decreases in productivity, our ability to properly run our
business could be adversely impacted. If we do not effectively manage our growth, our business would be harmed.

If we do not successfully anticipate
market needs and develop products and product enhancements that meet those needs, or if those products do not gain market acceptance, our business and operating results will be harmed.

We may not be able to anticipate future market needs or be able to develop new products or product enhancements to meet such needs, either on a timely
basis or at all. For example, our failure to address additional application-specific protocols, particularly if our competitors are able to provide such functionality, could harm our business. In addition, our inability to diversify beyond our
current product offerings could adversely affect our business. Any new products or product enhancements that we introduce may not achieve any significant degree of market acceptance or be accepted into our sales channel by our channel partners,
which would adversely affect our business and operating results.

Organizations are increasingly concerned with the security of their data, and to the
extent they elect to encrypt data being transmitted from the point of the end user in a format that were not able to decrypt, rather than only across the WAN, our products will become less effective.

Our products are designed to remove the redundancy associated with repeated data requests over a WAN, either through a private network or a virtual
private network (VPN). The ability of our products to reduce such redundancy depends on our products ability to recognize the data being requested. Our products currently detect and decrypt some forms of encrypted data. Since most
organizations currently encrypt most of their data transmissions only between sites and not on the LAN, the data is not encrypted when it passes through our products. For those organizations that elect to encrypt their data transmissions from the
end-user to the server in a format that were not able to decrypt, our products will offer limited performance improvement unless we are successful in incorporating additional functionality into our products that address those encrypted
transmissions. Our failure to provide such additional functionality could limit the growth of our business and harm our operating results.

If our
products do not interoperate with our customers infrastructure, installations could be delayed or cancelled, which would harm our business.

Our products must interoperate with our customers existing infrastructure, which often have different specifications, utilize multiple protocol standards, deploy products from multiple vendors, and contain
multiple generations of products that have been added over time. If we find errors in the existing software or defects in the hardware used in our customers infrastructure or problematic network configurations or settings, as we have in the
past, we may have to modify our software or hardware so that our products will interoperate with our customers infrastructure. Our products may be unable to provide significant performance improvements for applications deployed in our
customers infrastructure. These issues could cause longer installation times for our products and could cause order cancellations, either of which would adversely affect our business, operating results and financial condition. In addition,
government and other customers may require our products to comply with certain security or other certifications and standards. If our products are late in achieving or fail to achieve compliance with these certifications and standards, or our
competitors achieve compliance with these certifications and standards, we may be disqualified from selling our products to such customers, or at a competitive disadvantage, which would harm our business, operating results and financial condition.



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If functionality similar to that offered by our products is incorporated into existing network infrastructure
products, organizations may decide against adding our products to their network, which would harm our business.

Other providers of
network infrastructure products, including our partners, are offering or announcing functionality aimed at addressing the problems addressed by our products. For example, Cisco Systems incorporates WAN optimization functionality into certain of its
router blades. The inclusion of, or the announcement of intent to include, functionality perceived to be similar to that offered by our products in products that are already generally accepted as necessary components of network architecture or in
products that are sold by more established vendors may have an adverse effect on our ability to market and sell our products. Furthermore, even if the functionality offered by other network infrastructure providers is more limited than our products,
a significant number of customers may elect to accept such limited functionality in lieu of adding appliances from an additional vendor. Many organizations have invested substantial personnel and financial resources to design and operate their
networks and have established deep relationships with other providers of network infrastructure products, which may make them reluctant to add new components to their networks, particularly from new vendors. In addition, an organizations
existing vendors or new vendors with a broad product offering may be able to offer concessions that we are not able to match because we currently offer a focused line of products and have fewer resources than many of our competitors. If
organizations are reluctant to add network infrastructure products from new vendors or otherwise decide to work with their existing vendors, our business, operating results and financial condition will be adversely affected.

Our products are highly technical and may contain undetected software or hardware errors, which could cause harm to our reputation and our business.

Our products, including software product upgrades and releases, are highly technical and complex and, when deployed, are critical to the operation of
many networks. Our products have contained and may contain undetected errors, defects or security vulnerabilities. In particular, new products and product platforms may be subject to increased risk of hardware issues. Some errors in our products may
only be discovered after a product has been installed and used by customers. Some of these errors may be attributable to third-party technologies incorporated into our products, which makes us dependent upon the cooperation and expertise of such
third parties for the diagnosis and correction of such errors. The diagnosis and correction of third-party technology errors is particularly difficult where our product features the Riverbed Services Platform (RSP), because it is not always
immediately clear whether a particular error is attributable to a technology incorporated into our product or to the third-party RSP software deployed on our product. In addition, our RSP solutions, because they involve a third party, are more
complex, and the solutions may lead to new technical errors that may prove difficult to diagnose and support. Any delay or mistake in the initial diagnosis of an error will result in a delay in the formulation of an effective action plan to correct
such error. Any errors, defects or security vulnerabilities discovered in our products after commercial release could result in loss of revenue or delay in revenue recognition, loss of customers and increased service and warranty cost, any of which
could harm our reputation, business, operating results and financial condition. Any such errors, defects or security vulnerabilities could also adversely affect the markets perception of our products and business. In addition, we could face
claims for product liability, tort or breach of warranty, including claims relating to changes to our products made by our channel partners. Our contracts with customers contain provisions relating to warranty disclaimers and liability limitations,
which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert managements attention and harm the markets perception of us and our products. In addition, if our business liability insurance coverage
proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results and financial condition could be adversely impacted.

We may engage in future acquisitions that could disrupt our business and cause dilution to our stockholders.

In February 2009, we acquired Mazu Networks, Inc. In the future we may acquire other businesses, products or technologies. Our ability as an organization to integrate acquisitions is unproven. Any acquisitions that we complete may not
ultimately strengthen our competitive position or achieve our goals, or the acquisition may be viewed negatively by customers, financial markets or investors. In addition, we may encounter difficulties in integrating personnel and operations from
the acquired businesses and in retaining and motivating key personnel from these businesses. Acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities and increase our expenses. Acquisitions may reduce our
cash available for operations and other uses and could result in an increase in amortization expense related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt.



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We compete in rapidly evolving markets and have a limited operating history, which make it difficult to predict our
future operating results.

We were incorporated in May 2002 and shipped our first Steelhead appliance in May 2004. We have a limited
operating history and offer a focused line of products in an industry characterized by rapid technological change. It is very difficult to forecast our future operating results. You should consider and evaluate our prospects in light of the risks
and uncertainty frequently encountered by companies in rapidly evolving markets characterized by rapid technological change, changing customer needs, increasing competition, evolving industry standards and frequent introductions of new products and
services. As we encounter rapidly changing customer requirements and increasing competitive pressures, we likely will be required to reposition our product and service offerings and introduce new products and services. We may not be successful in
doing so in a timely and appropriately responsive manner, or at all. Furthermore, many of our target customers have not purchased products similar to ours and might not have a specific budget for the purchase of our products and services. All of
these factors make it difficult to predict our future operating results.

Our use of open source and third-party software could impose limitations on
our ability to commercialize our products.

We incorporate open source software into our products. Although we monitor our use of open
source closely, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to
commercialize our products. In such event, we could be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot
be accomplished on a timely or successful basis, any of which could adversely affect our business, operating results and financial condition.

We also incorporate certain third-party technologies, including software programs, into our products and may need to utilize additional third-party technologies in the future. However, licenses to relevant third-party technology may not
continue to be available to us on commercially reasonable terms, or at all. Therefore, we could face delays in product releases until equivalent technology can be identified, licensed or developed, and integrated into our current products. These
delays, if they occur, could materially adversely affect our business, operating results and financial condition. We currently use third-party software programs in our Steelhead appliances, our Interceptor appliances, our Central Management Console
appliances, our Cascade appliances, and our Steelhead Mobile software client and controller. For example, in our Steelhead appliances, we use third-party software to configure a storage adapter for specific redundant disk setups as well as to
initialize and diagnose hardware on certain models, and in our Central Management Console and Steelhead Mobile Controller appliances we use third-party software to help manage statistics and reporting. Each of these software programs is currently
available from only one vendor. As a result, any disruption in our access to these software programs could result in significant delays in our product releases and could require substantial effort to locate or develop a replacement program. If we
decide in the future to incorporate into our products any other software program licensed from a third party, and the use of such software program is necessary for the proper operation of our appliances, then our loss of any such license would
similarly adversely affect our ability to release our products in a timely fashion.

We are subject to various regulations that could subject us to
liability or impair our ability to sell our products.

Our products are subject to a variety of government regulations, including export
controls, import controls, environmental laws and required certifications. In particular, our products are subject to U.S. export controls and may be exported outside the U.S. only with the required level of export license or through an export
license exception, because we incorporate encryption technology into our products. In addition, 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 regulations may create delays in the introduction of our products in international markets, prevent our customers with
international operations from deploying our products throughout their global systems or, in some cases, prevent the export or import of our products to certain countries altogether. Any change in regulations, shift in approach to the enforcement or
scope of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential
customers with international operations. We must comply with various and increasing environmental regulations, both domestic and international, regarding the manufacturing and disposal of our products. For example, we must comply with Waste
Electrical and Electronic Equipment Directive laws, which are being adopted by certain European Economic Area countries on a country-by-country basis. Failure to comply with these and similar laws on a timely basis, or at all, could have a material
adverse effect on our business, operating results and financial condition. This would also be true if we fail to comply, either on a timely basis or at all, with any U.S. environmental laws regarding the manufacturing or disposal of our products.
Any decreased use of our products or limitation on our ability to export or sell our products would harm our business, operating results and financial condition.



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We incur significant costs as a result of operating as a public company, and our management devotes substantial time
to new compliance initiatives.

We incur significant legal, accounting and other expenses as a public company, including costs resulting
from regulations regarding corporate governance practices and costs relating to compliance with Section 404 of the Sarbanes-Oxley Act. For example, the listing requirements of the Nasdaq Stock Markets Global Select Market require that we
satisfy certain corporate governance requirements relating to independent directors, audit committees, distribution of annual and interim reports, stockholder meetings, stockholder approvals, solicitation of proxies, conflicts of interest,
stockholder voting rights and codes of conduct. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and
will make some activities more time-consuming and costly. For example, these rules and regulations could make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as executive
officers.

While we believe that we currently have adequate internal control over financial reporting, we are exposed to risks from legislation
requiring companies to evaluate those internal controls.

The Sarbanes-Oxley Act requires that we test our internal control over
financial reporting and disclosure controls and procedures. In particular, for the year ended December 31, 2008, we performed system and process evaluation and testing of our internal control over financial reporting to allow management and our
independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our compliance with Section 404 requires that we incur
substantial expense and expend significant management time on compliance-related issues. Moreover, if we are not able to comply with the requirements of Section 404 in the future, or if we or our independent registered public accounting firm
identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock may decline and we could be subject to sanctions or investigations by the Nasdaq Stock Markets
Global Select Market, the SEC or other regulatory authorities, which would require significant additional financial and management resources.

We are
required to expense equity compensation given to our employees, which has reduced our reported earnings, will harm our operating results in future periods and may reduce our stock price and our ability to effectively utilize equity compensation to
attract and retain employees.

We historically have used stock options, restricted stock units (RSU), and an employee stock purchase
plan as a significant component of our employee compensation program in order to align employees interests with the interests of our stockholders, encourage employee retention, and provide competitive compensation packages. The Financial
Accounting Standards Board has adopted changes that require companies to record a charge to earnings for employee stock option grants and other equity incentives. We adopted this standard effective January 1, 2006. By causing us to record
significantly increased compensation costs, such accounting changes have reduced, and will continue to reduce, our reported earnings, will harm our operating results in future periods, and may require us to reduce the availability and amount of
equity incentives provided to employees, which could make it more difficult for us to attract, retain and motivate key personnel. Moreover, if securities analysts, institutional investors and other investors adopt financial models that include stock
option expense in their primary analysis of our financial results, our stock price could decline as a result of reliance on these models with higher expense calculations.

We may have exposure to greater than anticipated tax liabilities.

Our future income taxes could be
affected by disqualifying dispositions of stock from our employee stock purchase plan and stock options, by earnings being lower than anticipated in jurisdictions where we have lower statutory rates and being higher than anticipated in jurisdictions
where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting principles or interpretations
thereof. In addition, like other companies, we may be subject to examination of our income tax returns by the Internal Revenue Service and other tax authorities. 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 results of operations.



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If we fail to successfully manage our exposure to the volatility and economic uncertainty in the global financial
marketplace, our operating results could be adversely impacted.

We are exposed to financial risk associated with the global financial
markets, including volatility in interest rates and uncertainty in the credit markets. Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. The primary objective of our investment activities
is to preserve principal, maintain adequate liquidity and portfolio diversification while at the same time maximizing yields without significantly increasing risk. However, the valuation of our investment portfolio is subject to uncertainties that
are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities that we hold, interest rate changes, the ongoing strength and quality, and recent instability, of the global credit market, and
liquidity. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments. Additionally, the current instability and
uncertainty in the financial markets could result in the incurrence of significant realized or impairment losses associated with certain of our investments, which would reduce our net income.

If we need additional capital in the future, it may not be available to us on favorable terms, or at all.

We have historically relied on outside financing and cash flow from operations to fund our operations, capital expenditures and expansion. We may require
additional capital from equity or debt financing in the future to fund our operations or respond to competitive pressures or strategic opportunities. We may not be able to secure timely additional financing on favorable terms, or at all. The terms
of any additional financing may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing
stockholders could suffer significant dilution in their percentage ownership of our company, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain
adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited.

Our business is subject to the risks of earthquakes, fire, floods, pandemics and other natural catastrophic events, and to interruption by manmade problems such as
computer viruses or terrorism.

Our main operations, including our primary data centers, are located in the San Francisco Bay Area, a
region known for seismic activity. A significant natural disaster, such as an earthquake, fire or a flood, could harm our business, operating results and financial condition. In addition, our servers are vulnerable to computer viruses, break-ins and
similar disruptions from unauthorized tampering with our computer systems. Acts of terrorism or war could also cause disruptions in our or our customers business or the economy as a whole. To the extent that such disruptions result in delays
or cancellations of customer orders or the deployment of our products, our business, operating results and financial condition would be adversely affected.

Risks Related to Ownership of Our Common Stock

The trading price of our common stock has been volatile and is
likely to be volatile in the future.

The trading prices of the securities of technology companies have been highly volatile. Further,
our common stock has a limited trading history. Since our initial public offering in September 2006 through March 31, 2009, our stock price has fluctuated from a low of $7.10 to a high of $52.81. Factors that could affect the trading price of
our common stock include, but are not limited to:



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



| |  |  | announcements of technological innovations, new services or service enhancements, strategic alliances or significant agreements by us or by our competitors;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the gain or loss of significant customers;
| | - |  | ------------------------------------------



| |  |  | recruitment or departure of key personnel;
| | - |  | ------------------------------------------



| |  |  | changes in the estimates of our operating results, either by us or by any securities analysts who follow our common stock, or changes in recommendations by any
securities analysts who follow our common stock;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significant sales or purchases, or announcement of significant sales or purchases, of our common stock by us or our stockholders, including our directors and
executive officers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements by or about us regarding events or news adverse to our business;
| | - |  | ------------------------------------------------------------------------------



| |  |  | market conditions in our industry, the industries of our customers and the economy as a whole;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | adoption or modification of regulations, policies, procedures or programs applicable to our business;
| | - |  | -----------------------------------------------------------------------------------------------------



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| |  |  | an announced acquisition of or by a competitor; and
| | - |  | ---------------------------------------------------



| |  |  | an announced acquisition of or by us.
| | - |  | -------------------------------------

If the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial condition.
The trading price of our common stock might also decline in reaction to events that affect other companies in our industry or the stock market generally even if these events do not directly affect us. Each of these factors, among others, could cause
our stock price to decline. Some companies that have had volatile market prices for their securities have had securities class actions filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in
substantial costs and divert managements attention and resources.

If securities or industry analysts do not publish research or publish
inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our
common stock will continue to depend in part on the research and reports that securities or industry analysts publish about us or our business. If we do not continue to maintain adequate research coverage or if one or more of the analysts who covers
us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for
our stock could decrease, which could cause our stock price and trading volume to decline.

Insiders have substantial control over us and will be able
to influence corporate matters.

As of March 31, 2009, our directors and executive officers and their affiliates beneficially
owned, in the aggregate, approximately 20.1% of our outstanding common stock. As a result, these stockholders will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a
third party from acquiring control over us.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a
change in control of our company and may affect the trading price of our common stock.

We are a Delaware corporation and the
anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the
person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and amended and restated bylaws contain provisions that may discourage,
delay or prevent a change in our management or control over us that stockholders may consider favorable.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

The following table summarizes the stock repurchase activity for the three months ended March 31, 2009 and the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program:



|                                     |  |                                    |  |                            |       |                                                                   |         |                                                                                        |   |           
|------------------------------------ |  | ---------------------------------- |  | -------------------------- | ----- | ----------------------------------------------------------------- | ------- | -------------------------------------------------------------------------------------- | - | ----------
|Period                               |  | Total Number ofSharesPurchased (1) |  | AveragePrice Paidper Share |       | Total Number ofShares Purchasedas Part ofPubliclyAnnouncedProgram |         | MaximumApproximate DollarValue of Shares thatMay Yet be PurchasedUnder the Program (2)
|January 1, 2009 - January 31, 2009   |  |                                   |  | $                          |      |                                                                   |        |                                                                                        | $ | 50,024,000
|February 1, 2009 - February 28, 2009 |  | 590,955                            |  |                            | 10.85 |                                                                   | 590,955 |                                                                                        |   | 43,611,000
|March 1, 2009 - March 31, 2009       |  | 361,150                            |  |                            | 9.98  |                                                                   | 361,150 |                                                                                        |   | 40,005,000
|                                     |  |                                    |  |                            |       |                                                                   |         |                                                                                        |   |           
|Total                                |  | 952,105                            |  | $                          | 10.52 |                                                                   | 952,105 |                                                                                        | $ | 40,005,000
|                                     |  |                                    |  |                            |       |                                                                   |         |                                                                                        |   |           



|(1) | On April 21, 2008, our Board of Directors authorized a Share Repurchase Program, which authorizes us to repurchase up to $100.0 million of our outstanding common stock during a
period not to exceed 24 months from the Board authorization date.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | During the first quarter of 2009, we repurchased 952,105 shares of common stock under this Program for an aggregate purchase price of approximately $10.0 million, or an average of
$10.52 per share. These shares were purchased in open market transactions. The timing and amounts of these purchases were based on market conditions and other factors including price, regulatory requirements and capital availability. The share
repurchases were financed by available cash balances and cash from operations.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Item 6. | Exhibits
|------- | --------



|            |  |                                                                                                                                                                                                                                                                    
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                        
|            | 
|2.1         |  | Agreement of Merger, dated as of January 20, 2009, among Riverbed Technology, Inc., a Delaware corporation, Maple Acquisition Sub, Inc., a Delaware corporation, Mazu Networks, Inc., a
Delaware corporation and Donald A. Sullivan as the Stockholders Agent. (1)
|            | 
|3.1         |  | Restated Certificate of Incorporation. (2)                                                                                                                                                                                                                         
|            | 
|3.2         |  | Amended and Restated Bylaws. (3)                                                                                                                                                                                                                                   
|            | 
|4.1         |  | Form of Common Stock Certificate. (2)                                                                                                                                                                                                                              
|            | 
|10.1        |  | Riverbed Technology, Inc. Long-Term Incentive Plan. (4)                                                                                                                                                                                                            
|            | 
|10.2        |  | Riverbed Technology, Inc. 2009 Inducement Equity Incentive Plan and forms of agreement thereunder. (1)                                                                                                                                                             
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                
|            | 
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                     

The certification attached as Exhibit 32 that accompanies this Quarterly Report on Form 10-Q is
not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Riverbed Technology, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or
after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.



|(1) | Incorporated by reference to Registrants Current Report on Form 8-K (No. 001-33023) filed with the SEC on February 20, 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|(2) | Incorporated by reference to Registrants Registration Statement on Form S-1 (No. 333-133437) filed with the SEC on April 20, 2006, as amended.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Incorporated by reference to Registrants Current Report on Form 8-K (No. 001-33023) filed with the SEC on December 18, 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|(4) | Incorporated by reference to Registrants Current Report on Form 8-K (No. 001-33023) filed with the SEC on February 19, 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------------



47



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements 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.

Dated: April 30, 2009



RIVERBED TECHNOLOGY, INC.By:

/s/ Jerry M. KennellyJerry M. KennellyPresident and Chief Executive Officer


Dated: April 30, 2009



RIVERBED TECHNOLOGY, INC.By:

/s/ Randy S. GottfriedRandy S. GottfriedChief Financial Officer




48



---

##### Table of Contents

EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                    
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                        
|            | 
|2.1         |  | Agreement of Merger, dated as of January 20, 2009, among Riverbed Technology, Inc., a Delaware corporation, Maple Acquisition Sub, Inc., a Delaware corporation, Mazu Networks, Inc., a
Delaware corporation and Donald A. Sullivan as the Stockholders Agent. (1)
|            | 
|3.1         |  | Restated Certificate of Incorporation. (2)                                                                                                                                                                                                                         
|            | 
|3.2         |  | Amended and Restated Bylaws. (3)                                                                                                                                                                                                                                   
|            | 
|4.1         |  | Form of Common Stock Certificate. (2)                                                                                                                                                                                                                              
|            | 
|10.1        |  | Riverbed Technology, Inc. Long-Term Incentive Plan. (4)                                                                                                                                                                                                            
|            | 
|10.2        |  | Riverbed Technology, Inc. 2009 Inducement Equity Incentive Plan and forms of agreement thereunder. (1)                                                                                                                                                             
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                
|            | 
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                     

The certification attached as Exhibit 32 that accompanies this Quarterly Report on Form 10-Q is
not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Riverbed Technology, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or
after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.



|(1) | Incorporated by reference to Registrants Current Report on Form 8-K (No. 001-33023) filed with the SEC on February 20, 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|(2) | Incorporated by reference to Registrants Registration Statement on Form S-1 (No. 333-133437) filed with the SEC on April 20, 2006, as amended.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Incorporated by reference to Registrants Current Report on Form 8-K (No. 001-33023) filed with the SEC on December 18, 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|(4) | Incorporated by reference to Registrants Current Report on Form 8-K (No. 001-33023) filed with the SEC on February 19, 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------------



49