##### Table of Contents





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, 2010

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 the 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 22, 2010 was: 71,092,931.









---

##### Table of Contents

RIVERBED TECHNOLOGY, INC.

INDEX



|         |  |                                                                                                    |  |         
|-------- |  | -------------------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                                    |  | Page No.
|         |  | PART I. FINANCIAL INFORMATION                                                                      |  |         
|         |  |                                                                                                   
|Item 1.  |  | Financial Statements (Unaudited)                                                                   |  |         
|         |  |                                                                                                   
|         |  | Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009                   |  | 3       
|         |  |                                                                                                   
|         |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 |  | 4       
|         |  |                                                                                                   
|         |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 |  | 5       
|         |  |                                                                                                   
|         |  | Notes to Condensed Consolidated Financial Statements                                               |  | 6       
|         |  |                                                                                                   
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 18      
|         |  |                                                                                                   
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 30      
|         |  |                                                                                                   
|Item 4.  |  | Controls and Procedures                                                                            |  | 30      
|         |  |                                                                                                   
|         |  | PART II. OTHER INFORMATION                                                                         |  |         
|         |  |                                                                                                   
|Item 1.  |  | Legal Proceedings                                                                                  |  | 31      
|         |  |                                                                                                   
|Item 1A. |  | Risk Factors                                                                                       |  | 31      
|         |  |                                                                                                   
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                        |  | 43      
|         |  |                                                                                                   
|Item 6.  |  | Exhibits                                                                                           |  | 44      



2



---

##### Table of Contents

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

RIVERBED TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, 2010 and December 31, 2009

(in thousands, except par value)



|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                     |  | March 31,2010 |         |   | December 31,2009 |  
|                                                                                                                                                                                                     |  | (Unaudited)   |         |   |                  |  
|ASSETS                                                                                                                                                                                               |  |               |         |   |                  |   |         |  
|Current assets:                                                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                            |  | $             | 65,840  |   |                  | $ | 67,749  |  
|Short-term investments                                                                                                                                                                               |  |               | 304,514 |   |                  |   | 257,938 |  
|Trade receivables, net of allowances of $1,315 and $1,693 as of March 31, 2010 and December 31, 2009,
respectively                                                                                   |  |               | 43,020  |   |                  |   | 48,468  |  
|Inventory                                                                                                                                                                                            |  |               | 6,705   |   |                  |   | 9,742   |  
|Deferred tax assets                                                                                                                                                                                  |  |               | 9,725   |   |                  |   | 9,451   |  
|Prepaid expenses and other current assets                                                                                                                                                            |  |               | 17,250  |   |                  |   | 16,816  |  
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                                                                                 |  |               | 447,054 |   |                  |   | 410,164 |  
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Long-term investments                                                                                                                                                                                |  |               | 16,993  |   |                  |   |        |  
|Fixed assets, net                                                                                                                                                                                    |  |               | 20,960  |   |                  |   | 21,698  |  
|Goodwill                                                                                                                                                                                             |  |               | 11,312  |   |                  |   | 11,312  |  
|Intangibles, net                                                                                                                                                                                     |  |               | 18,194  |   |                  |   | 19,389  |  
|Deferred tax assets, non-current                                                                                                                                                                     |  |               | 42,530  |   |                  |   | 38,619  |  
|Other assets                                                                                                                                                                                         |  |               | 3,894   |   |                  |   | 4,097   |  
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                         |  | $             | 560,937 |   |                  | $ | 505,279 |  
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                 |  |               |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                                                 |  |               |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                                                     |  | $             | 19,121  |   |                  | $ | 19,053  |  
|Accrued compensation and benefits                                                                                                                                                                    |  |               | 21,806  |   |                  |   | 18,692  |  
|Other accrued liabilities                                                                                                                                                                            |  |               | 34,766  |   |                  |   | 25,976  |  
|Deferred revenue                                                                                                                                                                                     |  |               | 77,840  |   |                  |   | 64,478  |  
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                            |  |               | 153,533 |   |                  |   | 128,199 |  
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Deferred revenue, non-current                                                                                                                                                                        |  |               | 23,218  |   |                  |   | 21,972  |  
|Other long-term liabilities                                                                                                                                                                          |  |               | 2,968   |   |                  |   | 2,801   |  
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total long-term liabilities                                                                                                                                                                          |  |               | 26,186  |   |                  |   | 24,773  |  
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Commitments and contingencies                                                                                                                                                                        |  |               |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                                                                                |  |               |         |   |                  |   |         |  
|Preferred stock, $0.0001 par value  30,000 shares authorized, no shares outstanding                                                                                                                 |  |               |        |   |                  |   |        |  
|Common stock and additional paid-in capital; $0.0001 par value  600,000 shares authorized; 71,088 and 70,129 shares issued
and outstanding as of March 31, 2010 and December 31, 2009, respectively |  |               | 395,286 |   |                  |   | 367,236 |  
|Accumulated deficit                                                                                                                                                                                  |  |               | (13,766 | ) |                  |   | (14,849 | )
|Accumulated other comprehensive loss                                                                                                                                                                 |  |               | (302    | ) |                  |   | (80     | )
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                                                           |  |               | 381,218 |   |                  |   | 352,307 |  
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                           |  | $             | 560,937 |   |                  | $ | 505,279 |  
|                                                                                                                                                                                                     |  |               |         |   |                  |   |         |  

See Notes to Condensed Consolidated Financial Statements.



3



---

##### Table of Contents

RIVERBED TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)



|                                                      |  |                             |         |      |   |        |  
|----------------------------------------------------- |  | --------------------------- | ------- | ---- | - | ------ | -
|                                                      |  | Three months endedMarch 31, |        
|                                                      |  | 2010                        |         | 2009 |  
|Revenue:                                              |  |                             |         |      |   |        |  
|Product                                               |  | $                           | 74,737  |      | $ | 60,465 |  
|Support and services                                  |  |                             | 37,686  |      |   | 27,746 |  
|                                                      |  |                             |         |      |   |        |  
|Total revenue                                         |  |                             | 112,423 |      |   | 88,211 |  
|                                                      |  |                             |         |      |   |        |  
|Cost of revenue:                                      |  |                             |         |      |   |        |  
|Cost of product                                       |  |                             | 16,632  |      |   | 14,405 |  
|Cost of support and services                          |  |                             | 11,234  |      |   | 8,509  |  
|                                                      |  |                             |         |      |   |        |  
|Total cost of revenue                                 |  |                             | 27,866  |      |   | 22,914 |  
|                                                      |  |                             |         |      |   |        |  
|Gross profit                                          |  |                             | 84,557  |      |   | 65,297 |  
|                                                      |  |                             |         |      |   |        |  
|Operating expenses:                                   |  |                             |         |      |   |        |  
|Sales and marketing                                   |  |                             | 50,068  |      |   | 40,786 |  
|Research and development                              |  |                             | 18,885  |      |   | 16,038 |  
|General and administrative                            |  |                             | 10,746  |      |   | 8,993  |  
|Acquisition-related costs                             |  |                             | 2,725   |      |   | 1,520  |  
|                                                      |  |                             |         |      |   |        |  
|Total operating expenses                              |  |                             | 82,424  |      |   | 67,337 |  
|                                                      |  |                             |         |      |   |        |  
|Operating income (loss)                               |  |                             | 2,133   |      |   | (2,040 | )
|                                                      |  |                             |         |      |   |        |  
|Other income, net                                     |  |                             | 115     |      |   | 638    |  
|                                                      |  |                             |         |      |   |        |  
|Income (loss) before provision for income taxes       |  |                             | 2,248   |      |   | (1,402 | )
|Provision (benefit) for income taxes                  |  |                             | 1,165   |      |   | (2,376 | )
|                                                      |  |                             |         |      |   |        |  
|Net income                                            |  | $                           | 1,083   |      | $ | 974    |  
|                                                      |  |                             |         |      |   |        |  
|Net income per common share:                          |  |                             |         |      |   |        |  
|Basic                                                 |  | $                           | 0.02    |      | $ | 0.01   |  
|                                                      |  |                             |         |      |   |        |  
|Diluted                                               |  | $                           | 0.01    |      | $ | 0.01   |  
|                                                      |  |                             |         |      |   |        |  
|Shares used in computing net income per common share: |  |                             |         |      |   |        |  
|Basic                                                 |  |                             | 70,569  |      |   | 68,728 |  
|Diluted                                               |  |                             | 74,876  |      |   | 70,041 |  

See Notes to Condensed
Consolidated Financial Statements.



4



---

##### Table of Contents

RIVERBED TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



|                                                                                      |  |                             |          |   |      |   |          |  
|------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                      |  | Three months endedMarch 31, |         
|                                                                                      |  | 2010                        |          |   | 2009 |  
|Operating Activities:                                                                 |  |                             |          |   |      |   |          |  
|Net income                                                                            |  | $                           | 1,083    |   |      | $ | 974      |  
|Adjustments to reconcile net income to net cash provided by operating activities:     |  |                             |          |   |      |   |          |  
|                                                                                      |  |                            
|Depreciation and amortization                                                         |  |                             | 3,068    |   |      |   | 2,674    |  
|Stock-based compensation                                                              |  |                             | 15,450   |   |      |   | 12,782   |  
|Deferred taxes                                                                        |  |                             | (4,170   | ) |      |   | (3,009   | )
|Excess tax benefit from employee stock plans                                          |  |                             | (1,486   | ) |      |   | (91      | )
|Changes in operating assets and liabilities:                                          |  |                             |          |   |      |   |          |  
|Trade receivables                                                                     |  |                             | 5,448    |   |      |   | 6,398    |  
|Inventory                                                                             |  |                             | 3,038    |   |      |   | 2,440    |  
|Prepaid expenses and other assets                                                     |  |                             | (237     | ) |      |   | (60      | )
|Accounts payable                                                                      |  |                             | 1,487    |   |      |   | (1,747   | )
|Accrued and other liabilities                                                         |  |                             | 4,990    |   |      |   | 1,626    |  
|Acquisition-related contingent consideration                                          |  |                             | 4,156    |   |      |   | 510      |  
|Income taxes payable                                                                  |  |                             | 2,992    |   |      |   | (91      | )
|Deferred revenue                                                                      |  |                             | 14,608   |   |      |   | 4,650    |  
|                                                                                      |  |                             |          |   |      |   |          |  
|Net cash provided by operating activities                                             |  |                             | 50,427   |   |      |   | 27,056   |  
|                                                                                      |  |                             |          |   |      |   |          |  
|Investing Activities:                                                                 |  |                             |          |   |      |   |          |  
|Capital expenditures                                                                  |  |                             | (2,549   | ) |      |   | (2,216   | )
|Purchase of available for sale securities                                             |  |                             | (116,075 | ) |      |   | (107,495 | )
|Proceeds from maturities of available for sale securities                             |  |                             | 52,468   |   |      |   | 67,197   |  
|Proceeds from sales of available for sale securities                                  |  |                             |         |   |      |   | 5,000    |  
|Acquisitions, net of cash and cash equivalents acquired                               |  |                             |         |   |      |   | (20,469  | )
|                                                                                      |  |                             |          |   |      |   |          |  
|Net cash used in investing activities                                                 |  |                             | (66,156  | ) |      |   | (57,983  | )
|                                                                                      |  |                             |          |   |      |   |          |  
|Financing Activities:                                                                 |  |                             |          |   |      |   |          |  
|Proceeds from issuance of common stock under employee stock plans, net of repurchases |  |                             | 12,533   |   |      |   | 1,326    |  
|Payments for repurchases of common stock                                              |  |                             |         |   |      |   | (10,019  | )
|Payments of debt                                                                      |  |                             |         |   |      |   | (5,004   | )
|Excess tax benefit from employee stock plans                                          |  |                             | 1,486    |   |      |   | 91       |  
|                                                                                      |  |                             |          |   |      |   |          |  
|Net cash provided by (used in) financing activities                                   |  |                             | 14,019   |   |      |   | (13,606  | )
|                                                                                      |  |                             |          |   |      |   |          |  
|Effect of exchange rate changes on cash and cash equivalents                          |  |                             | (199     | ) |      |   | (114     | )
|                                                                                      |  |                             |          |   |      |   |          |  
|Net decrease in cash and cash equivalents                                             |  |                             | (1,909   | ) |      |   | (44,647  | )
|Cash and cash equivalents at beginning of period                                      |  |                             | 67,749   |   |      |   | 95,378   |  
|                                                                                      |  |                             |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                            |  | $                           | 65,840   |   |      | $ | 50,731   |  
|                                                                                      |  |                             |          |   |      |   |          |  

See Notes to Condensed Consolidated Financial Statements.



5



---

##### Table of Contents

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 innovative and comprehensive solutions to the fundamental
problems associated with IT performance across wide area networks (WANs). Our products enable our customers to simply and efficiently improve the performance of their applications and access to their data over WANs, and provide global application
performance, reporting and analytics.

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, 2010, the condensed consolidated statements of operations for the three months ended March 31, 2010 and March 31,
2009, and the condensed consolidated statements of cash flows for the three months ended March 31, 2010 and March 31, 2009 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, 2009.

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, 2010, and our results of operations and cash flows for the three months ended March 31, 2010 and March 31, 2009. All
adjustments are of a normal recurring nature. The results for the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2010.

Other than the adoption of the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) Accounting Standards Update (ASU) 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements, and ASU 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, there have
been no significant changes in our accounting policies during the three months ended March 31, 2010, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2009.

Use of Estimates

Our condensed consolidated financial statements are prepared in accordance with 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 condensed 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 fair value of our products and services for revenue recognition, 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 acquisition-related contingent consideration. 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 condensed consolidated financial statements will be affected.

Subsequent Events

We have evaluated subsequent events through the date these condensed consolidated financial statements were issued.

Revenue Recognition

In October 2009, the FASB amended the accounting standards for revenue recognition to remove tangible products containing software
components and non-software components that function together to deliver the products essential functionality from the scope of industry-specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting
standards for multiple deliverable revenue arrangements to:



| | (i) | provide updated guidance on how the deliverables in a multiple deliverable arrangement should be separated, and how the consideration should be allocated;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



6



---

##### Table of Contents

| | (ii) | require an entity to allocate revenue in an arrangement using estimated selling prices (ESP) of deliverables if a vendor does not have vendor-specific objective
evidence (VSOE) of selling price or third-party evidence of selling price (TPE); and
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------

We elected to early adopt this accounting guidance at the beginning of our first quarter of 2010 on a prospective basis for applicable
transactions originating or materially modified after December 31, 2009.

This guidance does not generally change the
units of accounting for our revenue transactions. Most non-software products and services qualify as separate units of accounting because they have value to the customer on a standalone basis and our revenue arrangements generally do not include a
general right of return relative to delivered products.

The majority of our products are hardware appliances containing
software components that function together to provide the essential functionality of the product. Therefore, our hardware appliances are considered non-software deliverables and have been removed from the industry-specific software revenue
recognition guidance.

Our product revenue also includes stand-alone software products. Stand-alone software may operate on
our hardware appliance, but are not considered essential to the functionality of the hardware. Stand-alone software sales generally include a perpetual license to our software. Stand-alone software sales continue to be subject to the
industry-specific software revenue recognition guidance.

For all transactions originating or materially modified after
December 31, 2009, we recognize revenue in accordance with the amended accounting guidance. Certain arrangements with multiple deliverables may continue to have stand-alone software deliverables that are subject to the existing software revenue
recognition guidance along with non-software deliverables that are subject to the amended revenue accounting guidance. The revenue for these multiple deliverable arrangements is allocated to the stand-alone software deliverables as a group and the
non-software deliverables based on the relative selling prices of all of the deliverables in the arrangement using the fair value hierarchy in the amended revenue accounting guidance.

For stand-alone software sales after December 31, 2009 and for all transactions entered into prior to the first quarter of 2010, we
recognize revenue based on software revenue recognition guidance. Under the software revenue recognition guidance, 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 VSOE of the fair value of all undelivered elements exists. In the majority of our contracts, the only element that remains undelivered at the time of delivery of the product is support services. 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 VSOE of 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. In determining VSOE, we require that a substantial majority of the selling prices for a service fall within a reasonably
narrow pricing range, generally evidenced by approximately 80% of such historical stand-alone transactions falling within plus or minus 15% of the median rates. In addition, we consider major service groups, geographies, customer classifications,
and other variables in determining VSOE.

For our non-software deliverables we allocate the arrangement consideration based on
the relative selling price of the deliverables. For our hardware appliances we use ESP as our selling price. For our support and services, we generally use VSOE as our selling price. When we are unable to establish selling price using VSOE for our
support and services, we use ESP in our allocation of arrangement consideration.

We are typically not able to determine TPE
for our products or services. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of our peers and our offerings contain a significant level of
differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor products selling prices are on a stand-alone basis.

When we are unable to establish selling price of our non-software deliverables using VSOE or TPE, we use ESP in our
allocation of arrangement consideration. The objective of ESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We determine ESP for a product or service by considering multiple
factors including, but not limited to, cost of products, gross margin objectives, pricing practices, geographies, customer classes and distribution channels.

We regularly review VSOE and ESP and maintain internal controls over the establishment and updates of these estimates. There were no
material impacts during the quarter nor do we currently expect a material impact in the near term from changes in VSOE or ESP.



7



---

##### Table of Contents

The impact from the adoption of the amended revenue recognition rules to total revenue,
income from continuing operations, net income and related per share amounts, and deferred revenue was not considered material. In the three months ended March 31, 2010, we recognized $56.8 million of software revenue under the industry specific
software revenue recognition rules. Software revenue includes revenue from stand-alone software, hardware appliances, support and services on arrangements entered into before January 1, 2010. Software revenue also includes all stand-alone
software arrangements and support contract renewals entered into after December 31, 2009. In the three months ended March 31, 2010, we recognized $55.7 million of non-software revenue under the amended revenue recognition guidance for
multiple deliverable arrangements for non-software deliverables. Non-software revenue includes hardware appliance revenue, support contracts sold with hardware appliances, and related services on arrangements entered into after December 31,
2009. As of March 31, 2010, we recorded $2.9 million of deferred product revenue related to sales under the industry specific software revenue recognition rules and $4.0 million of deferred product revenue related to sales under the amended
revenue recognition guidance for multiple deliverable arrangements for non software deliverables.

In terms of the timing and
pattern of revenue recognition, the amended accounting guidance for revenue recognition did not have a significant effect on net sales, and is not expected to have a significant effect on net sales in periods after the initial adoption. However, we
expect that this amended accounting guidance will facilitate our efforts to optimize our offerings due to better alignment between the economics of an arrangement and the accounting. This may lead us to engage in new go-to-market practices in the
future. In particular, we expect that the amended accounting standards will enable us to better integrate products and services without VSOE into existing offerings and solutions. As our go-to-market strategies evolve, we may modify our pricing
practices in the future, which could result in changes in selling prices, including both VSOE and ESP. As a result, our future revenue recognition for multiple deliverable arrangements could differ materially from the results in the current period.

Product revenue consists of revenue from sales of our hardware appliances and perpetual software licenses. 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; (3) customer payment is deemed fixed or determinable and free of contingencies
and significant uncertainties; and (4) collection is probable.

For sales to direct end-users and channel partners,
including value-added resellers, value-added distributors, service providers, and systems integrators, we recognize product revenue upon delivery, assuming all other revenue recognition criteria are met. For our hardware appliances, delivery occurs
upon transfer of title and risk of loss, which is generally upon shipment. It is our practice to identify an end-user prior to shipment to a channel partner. For end-users and channel partners, we generally have no significant obligations for future
performance such as rights of return or pricing credits. A portion of our sales are made through distributors under agreements allowing for stocking of our products in their inventory, pricing credits and limited rights of return for stock rotation.
Product revenue on sales made through these distributors is initially deferred and revenue is recognized upon sell-through as reported by the distributors to us. Shipping charges billed to customers are included in product revenue and the related
shipping costs are included in cost of product revenue.

Support and services consist of support agreements, professional
services, and training. Support services include repair and replacement of defective hardware appliances, software updates and access to technical support personnel. 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. Revenue for support services is recognized on a straight-line basis over the service contract term, which is typically one to three years. Professional
services are recognized upon delivery or completion of performance. Professional service arrangements are typically short term in nature and are largely completed within 90 days from the start of service. Training services are recognized upon
delivery of the training.

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
customer has accepted, or once the acceptance provisions or right of return lapses. Payment terms to customers generally range from net 30 to 75 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.

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, the age of the units, and the estimated loss of utility. 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 recognized as cost of product and
amounted to approximately $1.4 million and $2.3 million in the three months ended March 31, 2010 and 2009, respectively.



8



---

##### Table of Contents

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 prepaid expenses and other current assets. At March 31, 2010 and December 31, 2009, our service inventory balance was $6.9 million and $6.3 million, respectively. In the three
months ended March 31, 2010 and 2009, we recognized $2.3 million and $1.7 million, respectively, to cost of support and services relating to service inventory.

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.

The following is a
summary of the warranty reserve activity for the three months ended March 31, 2010 and 2009:



|                                               |  |                              |      |   |      |   |       |  
|---------------------------------------------- |  | ---------------------------- | ---- | - | ---- | - | ----- | -
|                                               |  | Three months endedMarch 
31, |     
|(in thousands)                                 |  | 2010                         |      |   | 2009 |  
|Beginning balance                              |  | $                            | 701  |   |      | $ | 1,205 |  
|Additions charged to operations                |  |                              | 253  |   |      |   | 245   |  
|Warranty costs incurred                        |  |                              | (164 | ) |      |   | (230  | )
|Adjustments related to pre-existing warranties |  |                              |     |   |      |   | (420  | )
|                                               |  |                              |      |   |      |   |       |  
|Ending balance                                 |  | $                            | 790  |   |      | $ | 800   |  
|                                               |  |                              |      |   |      |   |       |  

Stock-Based Compensation

Stock-based awards granted include stock options, restricted stock units (RSUs), and stock purchased under our Employee Stock Purchase
Plan (the Purchase Plan). Stock-based compensation cost is measured at the grant date, based on the fair value of the awards, and is recognized as expense over the requisite service period. The cash flows resulting from the tax benefits due to tax
deductions in excess of the compensation cost recognized for those options (excess tax benefit) are classified as financing activities within our statement of cash flows.

Accounting for Income Taxes

We use the asset and liability method of 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.

As part of our accounting for business combinations, a portion of the purchase price may be
allocated to goodwill and intangible assets. Amortization expenses associated with acquired intangible assets are generally not tax deductible; however, deferred taxes are 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 increase the effective tax rate in the quarter any impairment is recorded.



9



---

##### Table of Contents

Comprehensive Income

Comprehensive income consists of the following:



|                                                              |  |                              |       |   |      |   |      |  
|------------------------------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ---- | -
|                                                              |  | Three months endedMarch 
31, |      
|(in thousands)                                                |  | 2010                         |       |   | 2009 |  
|Net income                                                    |  | $                            | 1,083 |   |      | $ | 974  |  
|Change in net unrealized losses on investments, net of tax    |  |                              | (24   | ) |      |   | (119 | )
|Change in foreign currency translation adjustment, net of tax |  |                              | (198  | ) |      |   | (115 | )
|                                                              |  |                              |       |   |      |   |      |  
|Total comprehensive income                                    |  | $                            | 861   |   |      | $ | 740  |  
|                                                              |  |                              |       |   |      |   |      |  

Concentrations of Risk

Financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents,
investments, and trade receivables. Investment policies have been implemented that limit investments to investment grade securities and the average portfolio maturity is 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, 2010 and 2009.

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, 2010, we had no long-term contractual commitment with any manufacturer; however, we did have a 90 day commitment totaling $7.9 million.

Recent Accounting Pronouncements

Effective January 1, 2010, we adopted the revised guidance issued by FASB intended to improve disclosures related to fair value
measurements. This guidance requires new disclosures as well as clarifies certain existing disclosure requirements. New disclosures under this guidance require separate information about significant transfers in and out of Level 1 and Level 2 and
the reason for such transfers, and also require purchases, sales, issuances, and settlements information for Level 3 measurement to be included in the rollforward of activity on a gross basis. The guidance also clarifies the requirement to determine
the level of disaggregation for fair value measurement disclosures and the requirement to disclose valuation techniques and inputs used for both recurring and nonrecurring fair value measurements in either Level 2 or Level 3. The revised accounting
guidance for the rollforward of activity on a gross basis for Level 3 fair value measurement will be effective for us in the first quarter of 2011.

2. ACQUISITION

We
acquired Mazu Networks, Inc. (Mazu) on February 19, 2009 to, among other reasons, meet enterprise and service provider customer demands by extending our suite of WAN optimization products to include global application performance, reporting and
analytics. The results of Mazus operations have been included in the condensed consolidated financial statements since the acquisition date.

Fair Value of Consideration Transferred and Contingent Consideration

Upon closing, we made payments totaling $23.1 million in cash for all of the outstanding securities of Mazu. Pursuant to the merger
agreement we will make additional cash payments (acquisition-related contingent consideration) in July 2010 to Mazu shareholders and to former employees of Mazu provided that such former Mazu employees were employees of Riverbed at the
time the acquisition-related contingent compensation was earned. As of March 31, 2010, we recorded $15.2 million in acquisition-related contingent consideration, which is subject to remeasurement in future quarters based on the final
calculation of the actual bookings achieved.



10



---

##### Table of Contents

The total acquisition date fair value of consideration transferred and contingent
consideration was estimated as follows:



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

A liability was recognized at the acquisition date for
the fair value of the acquisition-related contingent consideration to be paid to Mazu shareholders, originally estimated at $9.9 million based on the probability of achievement of the bookings target. The fair value of the acquisition-related
contingent consideration to be distributed directly to the Mazu shareholders was estimated using a probability-weighted discounted cash flow model. As of March 31, 2010, the fair value of acquisition-related contingent consideration liability
to be paid to Mazu shareholders was increased to $11.4 million, to reflect the achievement of certain bookings targets through March 31, 2010. During the three months ended March 31, 2010 and 2009, we recognized $2.7 million and $0.1
million, respectively, of acquisition-related costs due to the change in fair value of the acquisition-related contingent consideration to be distributed directly to the Mazu shareholders.

The fair value of acquisition-related contingent consideration to be paid to the former employees of Mazu (acquisition-related
compensation costs) was originally estimated at $3.8 million at the acquisition date. Acquisition-related compensation cost is considered compensatory, and has been recognized as compensation cost in operating expense ratably over the one year
period from April 1, 2009 to March 31, 2010. As of March 31, 2010, the fair value of the acquisition-related compensation costs component of the acquisition-related contingent consideration liability was $3.8 million, due to the
achievement of certain bookings targets through March 31, 2010. During the three months ended March 31, 2010 and 2009, we recognized $1.4 million and $0.4 million, respectively, of acquisition-related compensation costs. The following
table shows the acquisition-related compensation costs recognized in operating expenses for the three months ended March 31, 2010 and 2009, respectively:



|                                                   |  |                              |       |      |   |    
|-------------------------------------------------- |  | ---------------------------- | ----- | ---- | - | ---
|                                                   |  | Three months endedMarch 
31,
|(in thousands)                                     |  | 2010                         |       | 2009
|Sales and marketing                                |  | $                            | 588   |      | $ | 151
|Research and development                           |  |                              | 519   |      |   | 133
|General and administrative                         |  |                              | 324   |      |   | 83 
|                                                   |  |                              |       |      |   |    
|Total other acquisition-related compensation costs |  | $                            | 1,431 |      | $ | 367
|                                                   |  |                              |       |      |   |    

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, including stock awards.

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



|                                                     |  |                             |        |      |   |       
|---------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                     |  | Three months endedMarch 31,
|(in thousands, except per share data)                |  | 2010                        |        | 2009
|Net income                                           |  | $                           | 1,083  |      | $ | 974   
|                                                     |  |                             |        |      |   |       
|Weighted average common shares outstanding - basic   |  |                             | 70,569 |      |   | 68,728
|Dilutive effect of employee stock plans              |  |                             | 4,307  |      |   | 1,313 
|                                                     |  |                             |        |      |   |       
|Weighted average common shares outstanding - diluted |  |                             | 74,876 |      |   | 70,041
|                                                     |  |                             |        |      |   |       
|Basic net income per share                           |  | $                           | 0.02   |      | $ | 0.01  
|                                                     |  |                             |        |      |   |       
|Diluted net income per share                         |  | $                           | 0.01   |      | $ | 0.01  
|                                                     |  |                             |        |      |   |       



11



---

##### Table of Contents

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)                                           |  | 2010                         |  | 2009  
|Total potential anti-dilutive shares of common stock (1) |  | 3,996                        |  | 10,780
|                                                         |  |                              |  |       



|(1) | Stock options outstanding with an exercise price higher than our average stock price for the periods presented, represent out-of-the-money awards and 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, 2010, the fair value measurements of our cash, cash equivalents, investments, and acquisition-related contingent
consideration consisted of the following:



|                                                 |  |       |         |         |   |         |  |         |         |  |   |       
|------------------------------------------------ |  | ----- | ------- | ------- | - | ------- |  | ------- | ------- |  | - | ------
|(in thousands)                                   |  | Total |         | Level 1 |   | Level 2 |  | Level 3
|Assets:                                          |  |       |         |         |   |         |  |         |         |  |   |       
|Corporate bonds and notes                        |  | $     | 17,899  |         | $ |        |  | $       | 17,899  |  | $ |      
|U.S. government-sponsored enterprise obligations |  |       | 1,000   |         |   |        |  |         | 1,000   |  |   |      
|Money market funds                               |  |       | 41,490  |         |   | 41,490  |  |         |        |  |   |      
|Cash                                             |  |       | 5,451   |         |   |        |  |         |        |  |   |      
|                                                 |  |       |         |         |   |         |  |         |         |  |   |       
|Total cash and cash equivalents                  |  | $     | 65,840  |         | $ | 41,490  |  | $       | 18,899  |  | $ |      
|                                                 |  |       |         |         |   |         |  |         |         |  |   |       
|Corporate bonds and notes                        |  | $     | 40,214  |         | $ |        |  | $       | 40,214  |  | $ |      
|U.S. government backed securities                |  |       | 67,864  |         |   | 67,864  |  |         |        |  |   |      
|U.S. government-sponsored enterprise obligations |  |       | 206,945 |         |   |        |  |         | 206,945 |  |   |      
|FDIC-backed certificates of deposit              |  |       | 6,484   |         |   | 6,484   |  |         |        |  |   |      
|                                                 |  |       |         |         |   |         |  |         |         |  |   |       
|Total investments                                |  | $     | 321,507 |         | $ | 74,348  |  | $       | 247,159 |  | $ |      
|                                                 |  |       |         |         |   |         |  |         |         |  |   |       
|Liabilities:                                     |  |       |         |         |   |         |  |         |         |  |   |       
|Acquisition-related contingent consideration     |  | $     | 15,158  |         | $ |        |  | $       |        |  | $ | 15,158
|                                                 |  |       |         |         |   |         |  |         |         |  |   |       

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



|                                                 |  |       |         |         |   |         |  |         |         |  |   |       
|------------------------------------------------ |  | ----- | ------- | ------- | - | ------- |  | ------- | ------- |  | - | ------
|(in thousands)                                   |  | Total |         | Level 1 |   | Level 2 |  | Level 3
|Assets:                                          |  |       |         |         |   |         |  |         |         |  |   |       
|Corporate bonds and notes                        |  | $     | 24,758  |         | $ |        |  | $       | 24,758  |  | $ |      
|Money market funds                               |  |       | 36,172  |         |   | 36,172  |  |         |        |  |   |      
|Cash                                             |  |       | 6,819   |         |   |        |  |         |        |  |   |      
|                                                 |  |       |         |         |   |         |  |         |         |  |   |       
|Total cash and cash equivalents                  |  | $     | 67,749  |         | $ | 36,172  |  | $       | 24,758  |  | $ |      
|                                                 |  |       |         |         |   |         |  |         |         |  |   |       
|Corporate bonds and notes                        |  | $     | 33,072  |         | $ |        |  | $       | 33,072  |  | $ |      
|U.S. government backed securities                |  |       | 48,984  |         |   | 48,984  |  |         |        |  |   |      
|U.S. government-sponsored enterprise obligations |  |       | 167,963 |         |   |        |  |         | 167,963 |  |   |      
|FDIC-backed certificates of deposit              |  |       | 7,919   |         |   | 7,919   |  |         |        |  |   |      
|                                                 |  |       |         |         |   |         |  |         |         |  |   |       
|Total investments                                |  | $     | 257,938 |         | $ | 56,903  |  | $       | 201,035 |  | $ |      
|                                                 |  |       |         |         |   |         |  |         |         |  |   |       
|Liabilities:                                     |  |       |         |         |   |         |  |         |         |  |   |       
|Acquisition-related contingent consideration     |  | $     | 11,002  |         | $ |        |  | $       |        |  | $ | 11,002
|                                                 |  |       |         |         |   |         |  |         |         |  |   |       



12



---

##### Table of Contents

The following tables present the gross unrealized gains and gross unrealized losses as of
March 31, 2010 and December 31, 2009.



|                                                 |  |            |         |                 |   |                  |  |   |      |  
|------------------------------------------------ |  | ---------- | ------- | --------------- | - | ---------------- |  | - | ---- | -
|(in thousands)                                   |  | Fair Value |         | UnrealizedGains |   | UnrealizedLosses | 
|Corporate bonds and notes                        |  | $          | 17,055  |                 | $ | 2                |  | $ |     |  
|Corporate bonds and notes                        |  |            | 23,159  |                 |   |                 |  |   | (42  | )
|U.S. government backed securities                |  |            | 54,375  |                 |   | 26               |  |   |     |  
|U.S. government backed securities                |  |            | 13,489  |                 |   |                 |  |   | (1   | )
|U.S. government-sponsored enterprise obligations |  |            | 118,594 |                 |   | 56               |  |   |     |  
|U.S. government-sponsored enterprise obligations |  |            | 88,351  |                 |   |                 |  |   | (60  | )
|FDIC-backed certificates of deposit              |  |            | 6,244   |                 |   | 4                |  |   |     |  
|FDIC-backed certificates of deposit              |  |            | 240     |                 |   |                 |  |   |     |  
|                                                 |  |            |         |                 |   |                  |  |   |      |  
|Total investments at March 31, 2010              |  | $          | 321,507 |                 | $ | 88               |  | $ | (103 | )
|                                                 |  |            |         |                 |   |                  |  |   |      |  
|Corporate bonds and notes                        |  | $          | 19,570  |                 | $ | 11               |  | $ |     |  
|Corporate bonds and notes                        |  |            | 13,502  |                 |   |                 |  |   | (6   | )
|U.S. government backed securities                |  |            | 27,091  |                 |   | 17               |  |   |     |  
|U.S. government backed securities                |  |            | 21,893  |                 |   |                 |  |   | (8   | )
|U.S. government-sponsored enterprise obligations |  |            | 118,366 |                 |   | 72               |  |   |     |  
|U.S. government-sponsored enterprise obligations |  |            | 49,597  |                 |   |                 |  |   | (61  | )
|FDIC-backed certificates of deposit              |  |            | 4,083   |                 |   | 3                |  |   |     |  
|FDIC-backed certificates of deposit              |  |            | 3,836   |                 |   |                 |  |   | (4   | )
|                                                 |  |            |         |                 |   |                  |  |   |      |  
|Total investments at December 31, 2009           |  | $          | 257,938 |                 | $ | 103              |  | $ | (79  | )
|                                                 |  |            |         |                 |   |                  |  |   |      |  

We have evaluated our investments as of March 31, 2010 and have determined that there were no
unrealized losses that are not other-than-temporarily impaired. No investments have been in a continuous loss position greater than one year.

Cash, Cash Equivalents and Investments

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, 2010 and December 31, 2009
was $65.8 million and $67.7 million, respectively. The carrying value approximates fair value at March 31, 2010 and December 31, 2009.

Investments, which are classified as available for sale at March 31, 2010, are carried at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholders equity. Investments consist of government-sponsored enterprise obligations, treasury bills, FDIC-backed certificates of deposit and corporate bonds and notes. The fair value
of our investments is determined as the exit price in the principal market in which we would transact. Level 1 instruments are valued based on quoted market prices in active markets and include treasury bills, money market funds and FDIC-backed
certificates of deposit. Level 2 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. As of March 31,
2010, we had no investments valued as Level 3 instruments. As of March 31, 2010 and December 31, 2009, the investments are recorded at amortized cost, which approximates fair market value. Generally all of our investments have maturity
dates up to two years from our date of purchase and active markets for these investments exist.

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 $1.4 million and $1.5 million at March 31, 2010 and December 31, 2009, respectively. Current restricted cash is included in prepaid expenses and
other current assets in the condensed consolidated balance sheet and consists primarily of collateral for letters of credit for the security deposit on the sublease of our corporate headquarters and is restricted until 45 days after the end of the
term of the sublease on August 30, 2010. Long-term restricted cash totaled $2.6 million at March 31, 2010 and December 31, 2009. 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 July 31, 2014.



13



---

##### Table of Contents

Acquisition-related Contingent Consideration

As of December 31, 2009, we estimated the fair value of the acquisition-related contingent consideration using a probability-weighted
discounted cash flow model. This fair value measurement was based on significant inputs not observed in the market and thus represented a Level 3 instrument.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.

As of March 31, 2010, the fair
value of the acquisition-related contingent consideration was $15.2 million, based on the achievement of certain bookings through March 31, 2010. As of March 31, 2010, there were significant unobservable inputs in the valuation of this
liability, and it therefore represented a Level 3 instrument. This liability is subject to remeasurement in future quarters based on the final calculation of the actual bookings achieved. The following table represents the change in the
acquisition-related consideration liability during the three months ended March 31, 2010:



|                                       |  |                                  |       
|-------------------------------------- |  | -------------------------------- | ------
|(in thousands)                         |  | Three months endedMarch 
31,2010
|Beginning balance                      |  | $                                | 11,002
|Acquisition-related compensation costs |  |                                  | 1,431 
|Adjustments to fair value measurement  |  |                                  | 2,725 
|                                       |  |                                  |       
|Ending balance                         |  | $                                | 15,158
|                                       |  |                                  |       

5. INVENTORY

Inventories consist primarily of hardware and related component parts and evaluation units located at customer locations, and are stated
at the lower of cost (on a first-in, first-out basis) or market. Inventory is comprised of the following:



|                 |  |               |       |                  |   |      
|---------------- |  | ------------- | ----- | ---------------- | - | -----
|(in thousands)   |  | March 31,2010 |       | December 31,2009
|Raw materials    |  | $             | 447   |                  | $ | 625  
|Finished goods   |  |               | 3,347 |                  |   | 5,892
|Evaluation units |  |               | 2,911 |                  |   | 3,225
|                 |  |               |       |                  |   |      
|Total inventory  |  | $             | 6,705 |                  | $ | 9,742
|                 |  |               |       |                  |   |      

6. GOODWILL AND INTANGIBLE ASSETS

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. Goodwill was $11.3 million at March 31, 2010 and December 31, 2009.

Intangible Assets

Intangible assets consisted of the following:



|                        |  |             |  |                |        |                         |   |        |     |  |   |       
|----------------------- |  | ----------- |  | -------------- | ------ | ----------------------- | - | ------ | --- |  | - | ------
|                        |  |             |  | March 31, 2010
|(in thousands)          |  | Useful life |  | Gross          |        | AccumulatedAmortization |   |        | Net
|Existing technology     |  | 5 years     |  | $              | 12,100 |                         | $ | (2,687 | )   |  | $ | 9,413 
|Patents                 |  | 5 years     |  |                | 2,700  |                         |   | (599   | )   |  |   | 2,101 
|Maintenance agreements  |  | 5 years     |  |                | 6,100  |                         |   | (1,354 | )   |  |   | 4,746 
|Customer contracts      |  | 5 years     |  |                | 2,000  |                         |   | (444   | )   |  |   | 1,556 
|Trademarks              |  | 3 years     |  |                | 600    |                         |   | (222   | )   |  |   | 378   
|                        |  |             |  |                |        |                         |   |        |     |  |   |       
|Total intangible assets |  |             |  | $              | 23,500 |                         | $ | (5,306 | )   |  | $ | 18,194
|                        |  |             |  |                |        |                         |   |        |     |  |   |       



14



---

##### Table of Contents

Estimated future amortization expense related to the above intangible assets at
March 31, 2010 is as follows:



|                                          |  |              |       
|----------------------------------------- |  | ------------ | ------
|Fiscal Year                               |  | In thousands
|2010 (the nine months ending December 31) |  | $            | 3,585 
|2011                                      |  |              | 4,780 
|2012                                      |  |              | 4,608 
|2013                                      |  |              | 4,580 
|2014                                      |  |              | 641   
|                                          |  |              |       
|Total                                     |  | $            | 18,194
|                                          |  |              |       

7. DEFERRED REVENUE

Deferred revenue consisted of the following:



|                              |  |               |         |                  |   |       
|----------------------------- |  | ------------- | ------- | ---------------- | - | ------
|(in thousands)                |  | March 31,2010 |         | December 31,2009
|Product                       |  | $             | 6,901   |                  | $ | 5,264 
|Support and services          |  |               | 94,157  |                  |   | 81,186
|                              |  |               |         |                  |   |       
|Total deferred revenue        |  | $             | 101,058 |                  | $ | 86,450
|                              |  |               |         |                  |   |       
|Reported as:                  |  |               |         |                  |   |       
|Deferred revenue, current     |  | $             | 77,840  |                  | $ | 64,478
|Deferred revenue, non-current |  |               | 23,218  |                  |   | 21,972
|                              |  |               |         |                  |   |       
|Total deferred revenue        |  | $             | 101,058 |                  | $ | 86,450
|                              |  |               |         |                  |   |       

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 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 primarily of customer payments made in advance for support contracts with terms of more than 12 months.

8. 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.



15



---

##### Table of Contents

9. 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, 2010 with a remaining non-cancelable lease term in excess of one year are as follows:



|                                          |  |               |       
|----------------------------------------- |  | ------------- | ------
|(in thousands)                            |  | March 31,2010
|2010 (the nine months ending December 31) |  | $             | 4,920 
|2011                                      |  |               | 7,904 
|2012                                      |  |               | 6,861 
|2013                                      |  |               | 5,701 
|2014                                      |  |               | 3,249 
|                                          |  |               |       
|Total                                     |  | $             | 28,635
|                                          |  |               |       

The terms of certain lease agreements provide for
rental payments on a graduated basis. We recognize rent expense on a straight-line basis over the lease period and have accrued for rent expense incurred but not paid. Rent expense under operating leases was $2.1 million and $1.9 million for the
three months ended March 31, 2010 and 2009, respectively.

On September 26, 2006, we entered into an Agreement of
Sublease (Sublease) for our 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 mentioned above. 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 $15.8 million and is included in the table above. We have
entered into two letters of credit totaling $3.5 million to serve as the security deposits for the leases, which is included in prepaid expense and other current assets and other assets in the condensed consolidated balance sheet.

10. COMMON STOCK

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense for stock options, RSUs and the purchase plan recorded in our condensed
consolidated statement of operations for the three months ended March 31, 2010 and 2009:



|                             |  |                              |        |      |   |       
|---------------------------- |  | ---------------------------- | ------ | ---- | - | ------
|                             |  | Three months endedMarch 
31,
|                             |  | 2010                         |        | 2009
|Cost of product              |  | $                            | 120    |      | $ | 95    
|Cost of support and services |  |                              | 1,263  |      |   | 1,023 
|Sales and marketing          |  |                              | 6,561  |      |   | 5,971 
|Research and development     |  |                              | 4,107  |      |   | 3,163 
|General and administrative   |  |                              | 3,399  |      |   | 2,530 
|                             |  |                              |        |      |   |       
|Total                        |  | $                            | 15,450 |      | $ | 12,782
|                             |  |                              |        |      |   |       

As of March 31, 2010, 4,288,052 shares were
available for grant under the 2006 Plan and the 2006 Director Plan. As of March 31, 2010, 1,176,128 shares were available for grant under the 2009 Plan.

Share-Based Payments Valuation Assumptions

We estimate the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. The
fair value is amortized on a straight-line basis over the requisite service periods of the awards, which is generally three to four years. We have elected to use the simplified method of determining the expected term of stock options due to our
insufficient historical exercise data. The computation of expected volatility for stock options is based on the historical volatility of comparable companies from a representative peer group selected based on industry, financial and market
capitalization data. The computation of expected volatility for the Purchase Plan is based on our historical volatility. Management estimated expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest.



16



---

##### Table of Contents

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



|                                      |  |                             |       |      |   |     
|------------------------------------- |  | --------------------------- | ----- | ---- | - | ----
|                                      |  | Three months endedMarch 31,
|                                      |  | 2010                        |       | 2009
|Employee Stock Options                |  |                             |       |      |   |     
|Expected life in years                |  |                             | 4.5   |      |   | 4.5 
|Risk-free interest rate               |  |                             | 2.2%  |      |   | 1.5%
|Volatility                            |  |                             | 52%   |      |   | 50% 
|Weighted average fair value of grants |  | $                           | 11.51 |      | $ | 4.33

Stock Options

As of March 31, 2010, total compensation cost related to stock options granted to employees and directors but not yet
recognized was $55.1 million, net of estimated forfeitures. 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, 2010 and 2009 was $9.4
million and $9.8 million, respectively.

Stock Purchase Plan

There was no new offering period under the Purchase Plan in the three months ended March 31, 2010 or 2009. As of March 31, 2010,
there was $4.4 million of total compensation cost, 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 up to 16 months. Amortization in the
three months ended March 31, 2010 and 2009 was $2.0 million and $1.6 million, respectively.

As of March 31, 2010,
1,540,672 shares were available under the Purchase Plan.

Restricted Stock Units

During the three months ended March 31, 2010, we granted RSUs covering up to 1.3 million shares of common stock to our employees
under the 2006 Plan. During the three months ended March 31, 2009, we granted RSUs covering up to 2.1 million shares of common stock to our employees under the 2006 Plan. As of March 31, 2010, total unrecognized compensation cost
related to non-vested RSUs to employees and directors but not yet recognized was $53.0 million, net of estimated forfeitures. This cost will be recognized over the remaining weighted-average service period. Amortization in the three months
ended March 31, 2010 and 2009 was $4.1 million and $1.0 million, respectively.

Share Repurchase Program

For the three months ended March 31, 2010, we did not repurchase any shares of common stock under our Share
Repurchase Program. For the three months ended March 31, 2009, we repurchased 952,105 shares of common stock for $10.0 million. As of March 31, 2010, the maximum dollar value of shares that remained available for purchase under the Program
was $21.0 million. The Share Repurchase Program expired on April 20, 2010.

11. INCOME TAXES

Our effective tax rate was 51.8% and 169.5% for the three months ended March 31, 2010 and 2009, respectively. Our income
tax provision consists of federal, foreign, and state income taxes. The provision (benefit) for income taxes for the three months ended March 31, 2010 and 2009 was $1.2 million, and ($2.4) million, respectively.

Our effective tax rate differs from the federal statutory rate due to state taxes and significant permanent differences. Significant
permanent differences arise primarily from stock-based compensation expense, research and development (R&D) credits, the deduction for qualified production activities, and certain acquisition related items.

12. SEGMENT INFORMATION

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 segment 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.



17



---

##### Table of Contents

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)                 |  | 2010                         |         | 2009
|United States                  |  | $                            | 58,311  |      | $ | 48,304
|Europe, Middle East and Africa |  |                              | 31,413  |      |   | 24,338
|Rest of the World              |  |                              | 22,699  |      |   | 15,569
|                               |  |                              |         |      |   |       
|Total revenue                  |  | $                            | 112,423 |      | $ | 88,211
|                               |  |                              |         |      |   |       

13. 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, 2010 that, in the opinion of management, could 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
condensed 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 or updates 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 (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 7,800 customers worldwide. We now offer several product lines including Steelhead appliances, Central Management Console,
Interceptor, Steelhead Mobile and Cascade products.

We are headquartered in San Francisco, California. Our personnel are
located throughout the U.S. and in approximately thirty countries worldwide. We expect to continue to add personnel in the U.S. and internationally to provide additional geographic sales, research and development, general and administrative and
technical support coverage.



18



---

##### Table of Contents

Company Strategy

Our goal is to establish our solutions 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 enhancements to our product 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 August 2008, we introduced the 50 series Steelhead appliances. The 50 series products represent the latest generation of our Steelhead
appliances.

In February 2009, we acquired Mazu Networks, Inc. (Mazu). Mazus Cascade product line 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.

In October 2009, we introduced the Central Management Console  Virtual Edition
(CMC-VE) designed for managed service providers (MSPs). The new capabilities of CMC-VE allow MSPs to reduce operational costs, improve visibility, easily scale and flexibly allocate management licenses to enterprise customers through its new
multi-tenant capabilities. CMC-VE runs on VMware ESX, and MSPs can deploy it on any existing server that has capacity.

In
December 2009, we introduced the latest implementation of Riverbed Services Platform (RSP) in conjunction with version 6.0 of RiOS. RSP runs within the Steelhead appliances, and now supports up to five third-party applications or services, including
Microsoft Windows Server, print server, DNS/DHCP, security, video and selected other packages. Over time we expect additional products and services to become available for installation on RSP.

In February 2010, we introduced the Steelhead 7050 wide area network (WAN) optimization appliance. The Steelhead 7050 appliance
combines new levels of bandwidth and TCP session scalability with solid-state drives and 10 Gigabit Ethernet targeted to large data centers and private cloud environments.

Extend our technology partner ecosystem

We plan to enhance our product capabilities via integration of partner technologies, in particular by increasing the selection of third
party applications on the RSP.

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 sales force and distribution channels

Growth in revenue and increase in market share are key goals for us. We intend to expand our direct sales force and leverage our indirect
channels to extend our geographic reach and market penetration. We sell our products directly through our sales force and indirectly through channel partners. We derived 92% of our revenue through indirect channels in the first quarter of 2010. We
expect revenue from channel partners to continue to constitute a substantial majority of our future revenue. During the first quarter of 2010, we announced the addition of two value-added distributors in North America.



19



---

##### Table of Contents

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.

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 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 maintain 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.

Revenue

Our revenue has grown rapidly since we began shipping products in May 2004, increasing from $2.6 million in 2004 to $394.1 million in
2009. Revenue grew by 18% in 2009 to $394.1 million from $333.3 million in 2008. Revenue grew by 27% in the first three months of 2010 to $112.4 million from $88.2 million in the first three months of 2009. We believe that our revenue growth in
2009, 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, general and administrative expenses, and acquisition-related
costs. Personnel-related costs, including stock-based compensation, are the most significant component of each of these expense categories. As of March 31, 2010, we had 1,068 employees, an increase of 14% from the 939 employees at
March 31, 2009. The increase in employees is the most significant driver behind the increase in costs and operating expenses in 2009. 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.

Stock-based Compensation Expense

Stock-based compensation expense and related payroll taxes were $15.9 million and $12.8 million, in the three months ended March 31,
2010 and 2009, 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.



20



---

##### Table of Contents

Stock-based compensation expense and related payroll tax was as follows:



|                                                                 |      |                             |        |  |   |       
|---------------------------------------------------------------- | ---- | --------------------------- | ------ |  | - | ------
|(in thousands)                                                   |      | Three months endedMarch 31,
|                                                                 | 2010 |                             | 2009  
|Cost of product                                                  |      | $                           | 125    |  | $ | 95    
|Cost of support and services                                     |      |                             | 1,284  |  |   | 1,023 
|Sales and marketing                                              |      |                             | 6,746  |  |   | 5,987 
|Research and development                                         |      |                             | 4,231  |  |   | 3,170 
|General and administrative                                       |      |                             | 3,488  |  |   | 2,533 
|                                                                 |      |                             |        |  |   |       
|Total stock-based compensation expense and related payroll taxes |      | $                           | 15,874 |  | $ | 12,808
|                                                                 |      |                             |        |  |   |       

Acquisition of Mazu

We acquired Mazu Networks, Inc. on February 19, 2009. The results of operations of Mazu are included in our condensed consolidated
results for the period subsequent to the acquisition date. In the three months ended March 31, 2010, we recognized $6.4 million in revenue, $2.7 million in acquisition-related contingent consideration, and $1.4 million in acquisition-related
compensation costs. In the three months ended March 31, 2009 we recognized $0.5 million in revenue, $0.1 million in acquisition-related contingent consideration, and $0.4 million in acquisition-related compensation costs.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. 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 condensed consolidated financial statements, as 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 condensed 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, accounting for business combinations, stock-based compensation, 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 year ended December 31, 2009 for a
more complete discussion of our critical accounting policies and estimates including goodwill, intangible assets and impairment assessments, stock-based compensation, accounting for income taxes, inventory valuation and allowances for doubtful
accounts. Our critical accounting policies have been discussed with the Audit Committee of the Board of Directors. Other than the changes in our Revenue Recognition policies as discussed below, we believe there have been no material changes to our
critical accounting policies and estimates during the three months ended March 31, 2010, compared to those discussed in our Form 10-K for the year ended December 31, 2009.

Revenue Recognition

In October 2009, the Financial Accounting Standards Board (FASB) amended the accounting standards for revenue recognition to remove
tangible products containing software components and non-software components that function together to deliver the products essential functionality from the scope of industry-specific software revenue recognition guidance. In October 2009, the
FASB also amended the accounting standards for multiple deliverable revenue arrangements to:



| | (i) | provide updated guidance on how the deliverables in a multiple deliverable arrangement should be separated, and how the consideration should be allocated;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | require an entity to allocate revenue in an arrangement using estimated selling prices (ESP) of deliverables if a vendor does not have vendor-specific objective
evidence (VSOE) of selling price or third-party evidence of selling price (TPE); and
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------

We elected to early adopt this accounting guidance at the beginning of our first quarter of 2010 on a prospective basis for applicable
transactions originating or materially modified after December 31, 2009.

This guidance does not generally change the
units of accounting for our revenue transactions. Most non-software products and services qualify as separate units of accounting because they have value to the customer on a standalone basis and our revenue arrangements generally do not include a
general right of return relative to delivered products.



21



---

##### Table of Contents

The majority of our products are hardware appliances containing software components that
function together to provide the essential functionality of the product. Therefore, our hardware appliances are considered non-software deliverables and have been removed from the industry-specific software revenue recognition guidance.

Our product revenue also includes stand-alone software products. Stand-alone software may operate on our hardware appliance, but are not
considered essential to the functionality of the hardware. Stand-alone software sales generally include a perpetual license to our software. Stand-alone software sales continue to be subject to the industry-specific software revenue recognition
guidance.

For all transactions originating or materially modified after December 31, 2009, we recognize revenue in
accordance with the amended accounting guidance. Certain arrangements with multiple deliverables may continue to have stand-alone software deliverables that are subject to the existing software revenue recognition guidance along with non-software
deliverables that are subject to the amended revenue accounting guidance. The revenue for these multiple deliverable arrangements is allocated to the stand-alone software deliverables as a group and the non-software deliverables based on the
relative selling prices of all of the deliverables in the arrangement using the fair value hierarchy in the amended revenue accounting guidance.

For stand-alone software sales after December 31, 2009 and for all transactions entered into prior to the first quarter of 2010, we
recognize revenue based on software revenue recognition guidance. Under the software revenue recognition guidance, 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 VSOE of the fair value of all undelivered elements exists. In the majority of our contracts, the only element that remains undelivered at the time of delivery of the product is support services. 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 VSOE of 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. In determining VSOE, we require that a substantial majority of the selling prices for a service fall within a reasonably
narrow pricing range, generally evidenced by approximately 80% of such historical stand-alone transactions falling within plus or minus 15% of the median rates. In addition, we consider major service groups, geographies, customer classifications,
and other variables in determining VSOE.

For our non-software deliverables we allocate the arrangement consideration based on
the relative selling price of the deliverables. For our hardware appliances we use ESP as our selling price. For our support and services, we generally use VSOE as our selling price. When we are unable to establish selling price using VSOE for our
support and services, we use ESP in our allocation of arrangement consideration.

We are typically not able to determine TPE
for our products or services. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of our peers and our offerings contain a significant level of
differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor products selling prices are on a stand-alone basis.

When we are unable to establish selling price of our non-software deliverables using VSOE or TPE, we use ESP in our
allocation of arrangement consideration. The objective of ESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We determine ESP for a product or service by considering multiple
factors including, but not limited to, cost of products, gross margin objectives, pricing practices, geographies, customer classes and distribution channels.

We regularly review VSOE and ESP and maintain internal controls over the establishment and updates of these estimates. There were no
material impacts during the quarter nor do we currently expect a material impact in the near term from changes in VSOE or ESP.

The impact from the adoption of the amended revenue recognition rules to total revenue, income from continuing operations, net income and
related per share amounts, and deferred revenue was not considered material. In the three months ended March 31, 2010, we recognized $56.8 million of software revenue under the industry specific software revenue recognition rules. Software
revenue includes revenue from stand-alone software, hardware appliances, support and services on arrangements entered into before January 1, 2010. Software revenue also includes all stand-alone software arrangements and support contract
renewals entered into after December 31, 2009. In the three months ended March 31, 2010, we recognized $55.7 million of non-software revenue under the amended revenue recognition guidance for multiple deliverable arrangements for
non-software deliverables. Non-software revenue includes hardware appliance revenue, support contracts sold with hardware appliances, and related services on arrangements entered into after December 31, 2009. As of March 31, 2010, we
recorded $2.9 million of deferred product revenue related to sales under the industry specific software revenue recognition rules and $4.0 million of deferred product revenue related to sales under the amended revenue recognition guidance for
multiple deliverable arrangements for non software deliverables.



22



---

##### Table of Contents

In terms of the timing and pattern of revenue recognition, the amended accounting guidance
for revenue recognition did not have a significant effect on net sales, and is not expected to have a significant effect on net sales in periods after the initial adoption. However, we expect that this amended accounting guidance will facilitate our
efforts to optimize our offerings due to better alignment between the economics of an arrangement and the accounting. This may lead us to engage in new go-to-market practices in the future. In particular, we expect that the amended accounting
standards will enable us to better integrate products and services without VSOE into existing offerings and solutions. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes in selling
prices, including both VSOE and ESP. As a result, our future revenue recognition for multiple deliverable arrangements could differ materially from the results in the current period.

Product revenue consists of revenue from sales of our hardware appliances and perpetual software licenses. 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; (3) customer payment is deemed fixed or determinable and free of contingencies and significant
uncertainties; and (4) collection is probable.

For sales to direct end-users and channel partners, including value-added
resellers, value-added distributors, service providers, and systems integrators, we recognize product revenue upon delivery, assuming all other revenue recognition criteria are met. For our hardware appliances, delivery occurs upon transfer of title
and risk of loss, which is generally upon shipment. It is our practice to identify an end-user prior to shipment to a channel partner. For end-users and channel partners, we generally have no significant obligations for future performance such as
rights of return or pricing credits. A portion of our sales are made through distributors under agreements allowing for stocking of our products in their inventory, pricing credits and limited rights of return for stock rotation. Product revenue on
sales made through these distributors is initially deferred and revenue is recognized upon sell-through as reported by the distributors to us. Shipping charges billed to customers are included in product revenue and the related shipping costs are
included in cost of product revenue.

Support and services consist of support agreements, professional services, and training.
Support services include repair and replacement of defective hardware appliances, software updates and access to technical support personnel. 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. Revenue for support services is recognized on a straight-line basis over the service contract term, which is typically one to three years. Professional services are recognized upon
delivery or completion of performance. Professional service arrangements are typically short term in nature and are largely completed within 90 days from the start of service. Training services are recognized upon delivery of the training.

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 customer has accepted, or once
the acceptance provisions or right of return lapses. Payment terms to customers generally range from net 30 to 75 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.

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 and Cascade products and is typically recognized upon shipment. Support revenue includes unspecified software updates, access to technical assistance and repair and replacement of
defective hardware appliances. 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.



23



---

##### Table of Contents

|                                |  |                              |         |      |   |       
|------------------------------- |  | ---------------------------- | ------- | ---- | - | ------
|                                |  | Three months endedMarch 
31,
|(dollars in thousands)          |  | 2010                         |         | 2009
|Total Revenue                   |  | $                            | 112,423 |      | $ | 88,211
|Total Revenue by Type:          |  |                              |         |      |   |       
|Product                         |  | $                            | 74,737  |      | $ | 60,465
|Support and services            |  | $                            | 37,686  |      | $ | 27,746
|% Revenue by Type:              |  |                              |         |      |   |       
|Product                         |  |                              | 66%     |      |   | 69%   
|Support and services            |  |                              | 34%     |      |   | 31%   
|Total Revenue by Geography:     |  |                              |         |      |   |       
|United States                   |  | $                            | 58,311  |      | $ | 48,304
|Europe, Middle East and Africa  |  | $                            | 31,413  |      | $ | 24,338
|Rest of the World               |  | $                            | 22,699  |      | $ | 15,569
|% Revenue by Geography:         |  |                              |         |      |   |       
|United States                   |  |                              | 52%     |      |   | 55%   
|Europe, Middle East and Africa  |  |                              | 28%     |      |   | 28%   
|Rest of the World               |  |                              | 20%     |      |   | 17%   
|Total Revenue by Sales Channel: |  |                              |         |      |   |       
|Direct                          |  | $                            | 9,296   |      | $ | 7,765 
|Indirect                        |  | $                            | 103,127 |      | $ | 80,446
|% Revenue by Sales Channel:     |  |                              |         |      |   |       
|Direct                          |  |                              | 8%      |      |   | 9%    
|Indirect                        |  |                              | 92%     |      |   | 91%   

Quarter Ended
March 31, 2010 Compared to the Quarter Ended March 31, 2009:Product revenue increased in the three months ended March 31, 2010 as compared to the three months ended March 31, 2009 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 services and 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 a larger installed base due to increased product and first year support sales combined with an increase in the renewal
rate of support contracts by existing customers.

As our customer base grows, we expect the proportion of revenue generated
from support and services to increase. Renewal rates increased in the prior year as we hired additional sales resources to support renewals on existing customer base. We expect our renewal rates to remain proportionate to our revenue growth.

In the three months ended March 31, 2010, we derived 92% of our revenue from indirect channels compared to 91% in the
three months ended March 31, 2009. We expect indirect channel revenue to continue to be a substantial majority of our revenue.

We generated 48% of our revenue from international locations in the three months ended March 31, 2010 compared to 45% in the three
months ended March 31, 2009. 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 consists of the costs of the appliance hardware, manufacturing, shipping and logistics costs and expenses for
inventory obsolescence and warranty obligations. We utilize third parties to assist in the design of and to manufacture our appliance hardware, embed our proprietary software and perform shipping logistics. Cost of support and service revenue
consists of personnel costs of technical support and professional services personnel, spare parts and logistics services. As we expand internationally and into other sectors, we may incur additional costs to conform our products to comply with local
laws or local product specifications. In addition, as we expand internationally, we will continue to hire additional technical support personnel to support our growing international customer base.



24



---

##### Table of Contents

Our gross margin has been and will continue to be affected by a variety of factors,
including the mix and average selling prices of our products, new product introductions and enhancements, the cost of our appliance hardware, expenses for inventory obsolescence and warranty obligations, cost of support and service personnel, and
the mix of distribution channels through which our products are sold.



|                                      |  |                             |         |      |   |       
|------------------------------------- |  | --------------------------- | ------- | ---- | - | ------
|                                      |  | Three months endedMarch 31,
|(dollars in thousands)                |  | 2010                        |         | 2009
|Revenue:                              |  |                             |         |      |   |       
|Product                               |  | $                           | 74,737  |      | $ | 60,465
|Support and services                  |  |                             | 37,686  |      |   | 27,746
|                                      |  |                             |         |      |   |       
|Total revenue                         |  |                             | 112,423 |      |   | 88,211
|                                      |  |                             |         |      |   |       
|Cost of revenue:                      |  |                             |         |      |   |       
|Cost of product                       |  |                             | 16,632  |      |   | 14,405
|Cost of support and services          |  |                             | 11,234  |      |   | 8,509 
|                                      |  |                             |         |      |   |       
|Total cost of revenue                 |  |                             | 27,866  |      |   | 22,914
|                                      |  |                             |         |      |   |       
|Gross profit                          |  | $                           | 84,557  |      | $ | 65,297
|                                      |  |                             |         |      |   |       
|Gross margin for product              |  |                             | 78%     |      |   | 76%   
|Gross margin for support and services |  |                             | 70%     |      |   | 69%   
|Total gross margin                    |  |                             | 75%     |      |   | 74%   

Quarter Ended
March 31, 2010 Compared to the Quarter Ended March 31, 2009:The increase in cost of product revenue was due primarily to increased unit volume associated with higher revenue. The increase in cost of product revenue was primarily due
to higher per unit purchase price of product of $1.8 million, higher warranty-related costs of $0.5 million due to adjustments related to pre-existing warranties in the same period of the prior year, and amortization of acquisition-related
intangibles of $0.4 million. These increases were offset by lower inventory write-downs of $0.9 million. 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 145 employees as of March 31, 2010 compared to 120 employees as of March 31, 2009. Additionally, costs related to freight and inventory consumption increased due to increased
infrastructure to support the increased installed base.

Product gross margins increased to 78% in the three months ended
March 31, 2010 from 76% in the three months ended March 31, 2009 primarily due to lower inventory write-downs, partially offset by higher warranty-related costs and acquisition-related intangible amortization. Gross margins for support and
services increased to 70% as a result of revenues increasing at a higher rate than support and services costs.

Sales and
Marketing Expenses

Sales and marketing expenses represent the largest component of our operating expenses and include
personnel costs, sales commissions, marketing programs and facilities costs. Marketing programs are intended to generate revenue from new and existing customers, and are expensed as incurred. 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 continue to increase 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.



|                             |  |                             |        |      |   |       
|---------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                             |  | Three months endedMarch 31,
|(dollars in thousands)       |  | 2010                        |        | 2009
|Sales and marketing expenses |  | $                           | 50,068 |      | $ | 40,786
|Percent of total revenue     |  |                             | 45%    |      |   | 46%   

Quarter Ended
March 31, 2010 Compared to the Quarter Ended March 31, 2009:Sales and marketing expenses increased by $9.3 million, or 23%, primarily due to an increase in the number of sales and marketing employees, as sales and marketing headcount
grew to 506 employees as of March 31, 2010 from 440 employees as of March 31, 2009. The increase in employees resulted in higher



25



---

##### Table of Contents

salary expense and employee related benefits. Additionally, commission expense increased in the three months ended March 31, 2010 as compared to the three months ended March 31, 2009
due to increased revenue and personnel. Salaries and related benefits, bonuses and commissions accounted for $5.8 million and facilities and information technology expenses accounted for $0.7 million of the $9.3 million increase in sales and
marketing expenses. Stock-based compensation and related payroll tax expense was $6.7 million in the three months ended March 31, 2010 compared to $6.0 million in the three months ended March 31, 2009, an increase of $0.7 million. In
addition, acquisition-related compensation cost and amortization of intangibles increased by $0.4 million and $0.3 million, respectively, in the three months ended March 31, 2010 as compared to the three months ended March 31, 2009.

Research and Development Expenses

Research and development expenses primarily include personnel costs and facilities costs. We expense research and development costs as
incurred. We are devoting substantial resources to the continued development of additional functionality for existing products and the development of new products. We intend to continue to invest significantly in our research and development efforts
because we believe they are essential to maintaining our competitive position. Investments in research and development personnel costs are expected to increase in dollar amount.



|                                  |  |                             |        |      |   |       
|--------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                  |  | Three months endedMarch 31,
|(dollars in thousands)            |  | 2010                        |        | 2009
|Research and development expenses |  | $                           | 18,885 |      | $ | 16,038
|Percent of total revenue          |  |                             | 17%    |      |   | 18%   

Quarter Ended
March 31, 2010 Compared to the Quarter Ended March 31, 2009:Research and development expenses increased by $2.8 million, or 18%, in the three months ended March 31, 2010 compared to the three months ended March 31, 2009 due
to an increase in personnel and facility-related costs as a result of research and development headcount increasing to 274 employees as of March 31, 2010 from 258 employees as of March 31, 2009. Salaries, bonuses and related benefits
accounted for $1.2 million of the $2.8 million increase in research and development expenses. Stock-based compensation and related payroll tax expense was $4.2 million in the three months ended March 31, 2010, an increase of $1.0 million from
the $3.2 million recorded in the three months ended March 31, 2009. Acquisition-related contingent compensation increased by $0.4 million in the three months ended March 31, 2010 as compared to 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)              |  | 2010                        |        | 2009
|General and administrative expenses |  | $                           | 10,746 |      | $ | 8,993
|Percent of total revenue            |  |                             | 10%    |      |   | 10%  

Quarter Ended
March 31, 2010 Compared to the Quarter Ended March 31, 2009:General and administrative expenses increased by $1.8 million, or 19%, in the three months ended March 31, 2010 compared to the three months ended March 31, 2009
due to an increase in personnel costs, primarily as a result of headcount increasing to 125 employees as of March 31, 2010 from 105 employees as of March 31, 2009. Salaries, bonuses and related benefits accounted for $0.3 million of the
$1.8 million increase in general and administrative expenses. Stock-based compensation and related payroll tax expense increased by $1.0 million to $3.5 million in the three months ended March 31, 2010 from $2.5 million in the three months
ended March 31, 2009. Acquisition-related contingent compensation increased by $0.2 million in the three months ended March 31, 2010 as compared to the three months ended March 31, 2009.

Acquisition-Related Costs

Acquisition-related costs include changes in the fair value of the acquisition-related contingent consideration, transaction costs and
integration-related costs. As of March 31, 2010, the fair value of acquisition-related contingent consideration liability was increased to $11.4 million from our acquisition date estimated fair value of $9.9 million, primarily due to the
achievement of certain bookings targets through March 31, 2010. During the three months ended March 31, 2010 and 2009, we recognized $2.7 million and $0.1 million, respectively, of acquisition-related costs due to the change in fair value
of the acquisition-related contingent consideration to be distributed directly to the Mazu shareholders.



26



---

##### Table of Contents

The following table summarizes the acquisition-related costs, including changes in the fair
value of the acquisition-related contingent consideration to be distributed directly to shareholders of Mazu, transaction costs and integration-related costs, recognized in the three months ended March 31, 2010 and March 31, 2009.



|                                                                     |  |                             |       |      |   |      
|-------------------------------------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                                                     |  | Three months endedMarch 31,
|(in thousands)                                                       |  | 2010                        |       | 2009
|Transaction costs                                                    |  | $                           |      |      | $ | 595  
|Severance                                                            |  |                             |      |      |   | 412  
|Integration costs                                                    |  |                             |      |      |   | 370  
|Change in fair value of acquisition-related contingent consideration |  |                             | 2,725 |      |   | 143  
|                                                                     |  |                             |       |      |   |      
|Total acquisition-related costs                                      |  | $                           | 2,725 |      | $ | 1,520
|                                                                     |  |                             |       |      |   |      

Quarter Ended March 31, 2010 Compared to the
Quarter Ended March 31, 2009:The transaction costs, severance costs, and integration-related costs were 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 originally recognized at the acquisition date for the acquisition-related contingent consideration to be paid to Mazu shareholders.

Other Income, Net

Other
income , net consists primarily of interest income on our cash and investments, interest expense, and foreign currency exchange losses. Cash has historically been invested in highly liquid investments such as time deposits held at major banks,
commercial paper, U.S. government agency discount notes, money market mutual funds and other money market securities with maturities at the date of purchase of 90 days or less.



|                        |  |                              |      |   |      |   |     |  
|----------------------- |  | ---------------------------- | ---- | - | ---- | - | --- | -
|                        |  | Three months endedMarch 
31, |     
|(in thousands)          |  | 2010                         |      |   | 2009 |  
|Interest income         |  | $                            | 259  |   |      | $ | 678 |  
|Other                   |  |                              | (144 | ) |      |   | (40 | )
|                        |  |                              |      |   |      |   |     |  
|Total other income, net |  | $                            | 115  |   |      | $ | 638 |  
|                        |  |                              |      |   |      |   |     |  

Quarter Ended March 31, 2010 Compared to the Quarter Ended March 31, 2009:Other income,
net, decreased in the three months ended March 31, 2010 due to decreased interest income on cash and investments balances as a result of declining interest rates. Weighted average interest rates applicable to our cash and investments balances
decreased to 0.3% in the three months ended March 31, 2010 compared to 1.1% in the three months ended March 31, 2009.

Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes for the three months ended March 31, 2010 and 2009 was $1.2 million, and ($2.4) million,
respectively. Our income tax provision consists of federal, foreign, and state income taxes. Our effective tax rate was 51.8% and 169.5% for the three months ended March 31, 2010 and 2009.

Our effective tax rate differs from the federal statutory rate due to state taxes and significant permanent differences. Significant
permanent differences arise primarily from stock-based compensation expense, research and development (R&D) credits, the deduction for qualified production activities and certain acquisition-related items.

Our effective tax rate for the three months ended March 31, 2010 is lower when compared to the same period in the prior year
primarily due to higher forecasted annual income in the current year.

Our effective tax rate in 2010 may fluctuate on a
quarterly basis. The effective tax rate could be affected by our stock-based compensation expense, changes in the valuation of our deferred tax assets, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting
principles, or interpretations thereof. On December 31, 2009, the federal R&D credit expired and was not renewed as of March 31, 2010. If the federal R&D credit is renewed later this year, our effective tax rate would decrease.



27



---

##### Table of Contents

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.

We recorded a valuation allowance in 2009
related 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.

Liquidity and Capital Resources



|                                                |  |                             |         |   |                       |   |         |  
|----------------------------------------------- |  | --------------------------- | ------- | - | --------------------- | - | ------- | -
|(in thousands)                                  |  | As ofMarch 31,2010          |         |   | As ofDecember 31,2009 |  
|Working capital                                 |  | $                           | 293,521 |   |                       | $ | 281,965 |  
|Cash and cash equivalents                       |  | $                           | 65,840  |   |                       | $ | 67,749  |  
|Short-term investments                          |  | $                           | 304,514 |   |                       | $ | 257,938 |  
|Long-term investments                           |  | $                           | 16,993  |   |                       | $ |        |  
|                                                | 
|                                                |  | Three months endedMarch 31, |        
|(in thousands)                                  |  | 2010                        |         |   | 2009                  |  
|Cash provided by operating activities           |  | $                           | 50,427  |   |                       | $ | 27,056  |  
|Cash used in investing activities               |  | $                           | (66,156 | ) |                       | $ | (57,983 | )
|Cash provided by (used in) financing activities |  | $                           | 14,019  |   |                       | $ | (13,606 | )

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.

Investments consist of government-sponsored enterprise obligations, treasury bills and corporate bonds and notes. The fair value of
investments is determined as the exit price in the principal market in which we would transact. The fair value of our investments has not materially fluctuated from historical cost The accumulated unrealized gains (losses), net of tax, on
investments recognized in accumulated other comprehensive loss in our stockholders equity as of March 31, 2010 is $0.1 million. The recent volatility in the credit markets has increased the risk of material fluctuations in the fair value
of investments.

Cash and cash equivalents, short-term investments and long-term investments increased by $61.7 million in the
three months ended March 31, 2010 to $387.3 million.

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 $1.4 million and $1.5 million at March 31, 2010 and December 31, 2009,
respectively. Current restricted cash is included in prepaid expenses and other current assets in the condensed consolidated balance sheet and consists primarily of collateral for letters of credit for the security deposit on the sublease of our
corporate headquarters and is restricted until the end of the term of the sublease on August 30, 2010. Long-term restricted cash totaled $2.6 million at March 31, 2010 and December 31, 2009, respectively. 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 July 31, 2014.

Since the fourth quarter of 2004, we have expanded our operations internationally. Our
sales contracts are principally denominated in U.S. dollars and therefore changes in foreign exchange rates have not materially 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.



28



---

##### Table of Contents

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 related cash flows from their sales efforts.

Cash provided by operating activities increased by $23.4 million to $50.4 million in the three months ended March 31, 2010 compared
to $27.1 million in the three months ended March 31, 2009. The increase in cash flow from operating activities was primarily due to an increase in cash flow of $13.3 million from higher accrued liabilities and deferred revenues, coupled with an
increase in profitability of $3.8 million after excluding the effects of the acquisition-related contingent consideration.

Cash Flows used in Investing Activities

Cash flows used in investing activities primarily relate to purchases of investments, net of sales and maturities, capital expenditures
and cash used in acquisitions.

Cash used in investing activities increased by $8.2 million to $66.2 million in the three
months ended March 31, 2010 compared to $58.0 million in the three months ended March 31, 2009. The increase in cash used from investing activities is primarily due to additional purchases of investments, net of sales and maturities, of
$28.3 million, offset by $20.5 million used for acquisitions in the three months ended March 31, 2009.

Cash Flows
provided by/used in Financing Activities

Cash flows provided by financing activities in the three months ended
March 31, 2010 totaled $14.0 million and consisted primarily of proceeds from the issuance of common stock of $12.5 million compared to cash used in financing activities of $13.6 million in the three months ended March 31, 2009. Cash used
in financing activities in the first quarter of 2009 was primarily $10.0 million used to repurchase common stock and $5.0 million used to pay down debt assumed in the acquisition of Mazu.

We believe that our net proceeds from operations, together with our cash balance at March 31, 2010, 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. In February 2009, we acquired Mazu Networks, Inc. for approximately $25 million
of cash which was paid for from our existing cash balance. In the future, we may enter into other arrangements for potential investments in, or acquisitions of, complementary businesses, services or technologies, which 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, 2010:



|                                                 |  |                |        |                             |   |        |  |      |       |      |   |       |  |   |       |  |   |      
|------------------------------------------------ |  | -------------- | ------ | --------------------------- | - | ------ |  | ---- | ----- | ---- | - | ----- |  | - | ----- |  | - | -----
|                                                 |  | Total          |        | Remainingnine monthsof 2010 |   | 2011   |  | 2012 |       | 2013 |   | 2014 
|                                                 |  | (in thousands)
|Contractual Obligations                          |  |                |        |                             |   |        |  |      |       |      |   |       |  |   |       |  |   |      
|Operating leases                                 |  | $              | 28,635 |                             | $ | 4,920  |  | $    | 7,904 |      | $ | 6,861 |  | $ | 5,701 |  | $ | 3,249
|Purchase obligations (1)                         |  | $              | 8,916  |                             |   | 8,806  |  |      | 101   |      |   | 9     |  |   |      |  |   |     
|Acquisition-related contingent consideration (2) |  | $              | 15,158 |                             |   | 15,158 |  |      |      |      |   |      |  |   |      |  |   |     
|                                                 |  |                |        |                             |   |        |  |      |       |      |   |       |  |   |       |  |   |      
|Total contractual obligations                    |  | $              | 52,709 |                             | $ | 28,884 |  | $    | 8,005 |      | $ | 6,870 |  | $ | 5,701 |  | $ | 3,249
|                                                 |  |                |        |                             |   |        |  |      |       |      |   |       |  |   |       |  |   |      



|(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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Acquisition-related contingent consideration will be paid in July 2010.
|--- | -----------------------------------------------------------------------



29



---

##### Table of Contents

Off-Balance Sheet Arrangements

At March 31, 2010 and December 31, 2009, we did not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes,
nor did we have any undisclosed material transactions or commitments involving related persons or entities.

Other

At March 31, 2010 and December 31, 2009, 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 Condensed Consolidated Financial Statements for recent accounting pronouncements that could have an
effect on us.



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

Foreign Currency Risk

Our sales contracts are principally denominated in U.S. 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. 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, and investments totaling $387.3 million and $325.7 million at March 31, 2010 and
December 31, 2009, respectively. Cash and cash equivalents of $65.8 million and $67.7 million at March 31, 2010 and December 31, 2009, respectively, are held for working capital purposes and 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. Investments of $321.5
million and $257.9 million at March 31, 2010 and December 31, 2009, respectively, consist of government-sponsored enterprise obligations, treasury bills, FDIC-backed certificates of deposit and corporate bonds and notes.

We do not enter into investments for trading or speculative purposes. Due to the high investment quality and relative 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. The volatility in the credit markets in early 2009 caused a macro shift in investments into
highly liquid short-term investments such as U.S. Treasury bills. This caused a significant decline in short-term interest rates, which reduced investment income. Further declines in interest rates may 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, 2010, 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, 2010, 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.



30



---

##### Table of Contents

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 2010 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.

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, and 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, and sometimes within the last few weeks or days of the quarter. 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 has occurred in the past, 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.



31



---

##### Table of Contents

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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | -----------------------



| |  |  | variation in sales channels, product costs or mix of products sold;
| | - |  | -------------------------------------------------------------------



| |  |  | the timing of recognizing revenue in any given quarter as a result of revenue recognition accounting 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 component shortages or price fluctuations in our supply chain;
| | - |  | ------------------------------------------------------------------



| |  |  | our ability to establish and maintain successful relationships with channel partners, and the effectiveness of any changes we make to our distribution
model;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | our estimates of the fair value of acquisition-related contingent consideration may change significantly and could have a material effect on earnings
and cash flows; 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.



32



---

##### Table of Contents

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, Blue Coat
Systems, Juniper Networks, Citrix Systems, and F5 Networks. We also face competition from a large number of smaller private companies and new market entrants.

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 improved, and has announced its intention to further
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 make it difficult to predict revenues
for a particular period and may lead to reduced information technology spending, which would harm our business and operating results. 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 increased 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 would likely be materially adversely affected. Economic weakness, customer financial
difficulties and constrained spending on IT initiatives have resulted, and may in the future result, in challenging and delayed sales cycles and could negatively impact our ability to forecast future periods. 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 experienced in 2009, 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.



33



---

##### Table of Contents

We rely heavily on channel partners to sell our products. Disruptions to, or our failure to effectively
implement, 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 channel partners,
including value-added resellers, value-added distributors, service providers, and systems integrators. 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. Recently we announced a two-tier distribution strategy in North America, part of a larger effort to scale our reach and better serve the needs of our channel. Our revenue depends in large part on the
effective performance of these channel partners, and changes to our distribution model, the loss of a channel partner or the reduction in sales to our channel partners could materially reduce our revenues and gross margins. 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. For example, we have encountered delays with certain partners where internal processing issues have prevented that partner from
providing a purchase order to us in a timely manner.

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 be adversely affected by our 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, product discounting, freight charges, or our introduction of new products or new product platforms or entry into new markets with different pricing and
cost structures.

Any introduction of, and 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. 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.



34



---

##### Table of Contents

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 have occurred recently and may occur in the future, 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. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantity requirements and delivery schedules. The
unavailability of any component that is necessary to the proper functioning of our appliances would prevent us from shipping products. Any inability to timely ship our products would adversely impact our revenue.

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 and purchase orders to our contract manufacturers. To the extent that any such demand forecast or purchase order is binding, 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. In addition, a portion of our manufacturing is performed overseas and is therefore subject to risks associated with doing business in other countries.

We are dependent on various information technology systems, and failures of or interruptions to those systems could harm our business.

Many of our business processes depend upon our information technology systems (IT), the systems and processes of third
parties, and on interfaces with the systems of third parties. For example, our order entry system provides information to the systems of our contract manufacturers, which enables them to build and ship our products. If those systems fail or are
interrupted, or if our ability to connect to one or more networks is interrupted, our processes may function at a diminished level or not at all. This would harm our ability to ship products, and our financial results would likely be harmed.

In addition, reconfiguring our IT systems or other business processes in response to changing business needs may be
time-consuming and costly. To the extent this impacted our ability to react timely to specific market or business opportunities, our financial results would likely be harmed.



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



35



---

##### Table of Contents

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 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, value-added 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. Even after making the decision to purchase, customers may deploy our products slowly and deliberately. In addition, product purchases are frequently and
increasingly subject to budget constraints, multiple approvals, and unplanned administrative, processing and other delays. Product purchases have in some instances 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 2010, we derived approximately 48% 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



36



---

##### Table of Contents

| |  |  | 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | unfavorable changes in tax treaties or laws;
| | - |  | --------------------------------------------



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



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

Foreign currencies periodically experience 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.
Conversely, a weakened U.S. dollar could increase the cost of local operating expenses and procurement of raw materials to the extent we purchase components in foreign currencies.

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 2010, our research and development expenses were $18.9 million, or approximately 17% 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.



37



---

##### Table of Contents

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.

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



38



---

##### Table of Contents

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 be discovered only 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, operations, technologies or products 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.

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 products, and in our Central
Management Console and Steelhead Mobile Controller appliances we use third-party software to help manage statistics and reporting.



39



---

##### Table of Contents

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. For example, 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 increase the cost of building and selling our products, 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.

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.

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, 2009, 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.



40



---

##### Table of Contents

Changes in financial accounting standards may cause adverse unexpected revenue fluctuations and affect
our reported results of operations.

A change in accounting policies can have a significant effect on our reported results
and may even affect our reporting of transactions completed before the change is effective. New pronouncements and varying interpretations of existing pronouncements have occurred with frequency and may occur in the future. Changes to existing
rules, or changes to the interpretations of existing rules, could lead to changes in our accounting practices, and such changes could adversely affect our reported financial results or the way we conduct our business.

In September 2009, the Financial Accounting Standards Board (FASB) amended the accounting standards related to revenue recognition for
arrangements with multiple deliverables and arrangements that include software elements (new accounting principles). The new accounting principles amend the scope provisions of the accounting guidance for software revenue recognition.
The new accounting principles permit prospective or retrospective adoption. We early adopted the new accounting principles during the first quarter of 2010 under the prospective method. Because we adopted the new accounting principles prospectively,
our future revenues may be different than what would have been reported using the prior software accounting literature and this may make forecasting, or comparisons to historical results, more difficult. New accounting principles frequently require
significant judgments in their application, and are subject to numerous subsequent clarifications and interpretations, some of which may require changes in the way we recognize revenue and may require restatement of prior period revenue and results,
either of which could adversely affect our reported results.

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 significant components 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 compensation charges that we are required to
record related to these equity awards 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 provision for income taxes is subject to volatility and could be adversely affected by nondeductible stock-based compensation, changes
in the research and development tax credit laws, 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, 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 U.S. 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.

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, instability and uncertainty in the financial
markets, as has been recently experienced, could result in the incurrence of significant realized or impairment losses associated with certain of our investments, which would reduce our net income.



41



---

##### Table of Contents

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 center, 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 disrupt our operations and therefore harm our business, operating results and financial condition. A natural
disaster could also impact our ability to manufacture and deliver our products to customers, which would 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. Natural disasters, 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, 2010, our stock price has fluctuated from a low of $7.10 to a high of $52.81. The market price of our common stock has at times reflected a higher multiple of
expected future earnings than many other companies. As a result, even small changes in investor expectations regarding our future growth and earnings, whether as a result of actual or rumored financial or operating results, changes in the mix of
products and services sold, acquisitions, industry changes, or other factors, could result in, and have in the past resulted in, significant fluctuations in the market price of our common stock.

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;
| | - |  | ------------------------------------------



| |  |  | providing estimates of our future operating results, or changes of these estimates, 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;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | 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.



42



---

##### Table of Contents

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, 2010, our directors and executive officers and their affiliates
beneficially owned, in the aggregate, approximately 11.3% 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, 2010 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, 2010 - January 31, 2010   |  |                                   |  | $                          |  |                                                                   |  |                                                                                         | $ | 21,016,000
|February 1, 2010 - February 28, 2010 |  |                                   |  | $                          |  |                                                                   |  |                                                                                         | $ | 21,016,000
|March 1, 2010 - March 31, 2010       |  |                                   |  | $                          |  |                                                                   |  |                                                                                         | $ | 21,016,000
|                                     |  |                                    |  |                            |   |                                                                   |   |                                                                                         |   |           
|Total                                |  |                                   |  | $                          |  |                                                                   |  |                                                                                         | $ | 21,016,000
|                                     |  |                                    |  |                            |   |                                                                   |   |                                                                                         |   |           



|(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. The Share Repurchase Program expired on April 20, 2010.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | During the first quarter of 2010, we did not repurchase any shares of common stock under this Program. Shares are generally purchased in open market transactions. The
timing and amounts of any purchases are 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



43



---

##### Table of Contents

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



|            |  |                                                                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                   
|3.1         |  | Restated Certificate of Incorporation. (1)                                                                                                                                    
|            | 
|3.2         |  | Amended and Restated Bylaws. (2)                                                                                                                                              
|            | 
|4.1         |  | Form of Common Stock Certificate. (1)                                                                                                                                         
|            | 
|10.1        |  | 2006 Equity Incentive Plan, as amended and restated on March 12, 2010                                                                                                         
|            | 
|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 32.1 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 Registration Statement on Form S-1 (No. 333-133437) filed with the SEC on April 20, 2006, as amended.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to Registrants Current Report on Form 8-K (No. 001-33023) filed with the SEC on December 18, 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------



44



---

##### 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, 2010



RIVERBED TECHNOLOGY, INC.By:

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


Dated:
April 30, 2010



RIVERBED TECHNOLOGY, INC.By:

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




45



---

##### Table of Contents

EXHIBIT INDEX



|            |  |                                                                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                   
|3.1         |  | Restated Certificate of Incorporation. (1)                                                                                                                                    
|            | 
|3.2         |  | Amended and Restated Bylaws. (2)                                                                                                                                              
|            | 
|4.1         |  | Form of Common Stock Certificate. (1)                                                                                                                                         
|            | 
|10.1        |  | 2006 Equity Incentive Plan, as amended and restated on March 12, 2010                                                                                                         
|            | 
|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 32.1 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 Registration Statement on Form S-1 (No. 333-133437) filed with the SEC on April 20, 2006, as amended.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to Registrants Current Report on Form 8-K (No. 001-33023) filed with the SEC on December 18, 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------



46