Riverbed Technology 10-K 2010 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the year ended December 31, 2010

OR

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

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 no.)

199 Fremont Street

San Francisco, CA 94105

(Address of principal executive offices, including zip code)

(415) 247-8800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class to be so Registered	Name of Each Exchange on Which Each Class is to be Registered
Common Stock, $0.0001 par value (Title of Class)	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period 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 checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File Required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

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

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨

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

As of June 30, 2010, the last business day of our most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates was $1,503,337,128 based on the number of shares held by non-affiliates of the registrant as of June 30, 2010, and based on the reported last sale price of common stock on June 30, 2010. This calculation does not reflect a determination that persons are affiliates for any other purposes.

Number of shares of common stock outstanding as of January 27, 2011: 150,903,006.

Documents Incorporated by Reference:Portions of the registrant’s proxy statement relating to its 2011 annual meeting of stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

RIVERBED TECHNOLOGY, INC.

YEAR ENDED DECEMBER 31, 2010

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page No.
PART I.
Item 1.	Business		3
Item 1A.	Risk Factors		16
Item 1B.	Unresolved Staff Comments		34
Item 2.	Properties		34
Item 3.	Legal Proceedings		34
Item 4.	Submission of Matters to a Vote of Security Holders		34
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		35
Item 6.	Selected Financial Data		37
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		60
Item 8.	Financial Statements and Supplementary Data		61
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		97
Item 9A.	Controls and Procedures		97
Item 9B.	Other Information		98
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance		99
Item 11.	Executive Compensation		99
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		99
Item 13.	Certain Relationships and Related Transactions, and Director Independence		99
Item 14.	Principal Accountant Fees and Services		99
PART IV.
Item 15.	Exhibits and Financial Statement Schedules		100
	Signatures		103

Part I

Item 1. Business

Overview

Riverbed^® has developed innovative and comprehensive solutions to the fundamental problems associated with IT performance across wide-area networks (WANs). Historically, computing across WANs has been plagued by poor performance, IT complexity and high cost. Our IT performance products allow organizations ranging from globally connected enterprises, government agencies and regional companies to understand the total performance picture; to optimize the yield from their WAN, storage infrastructure and applications; and to consolidate their IT infrastructure in the private cloud, public cloud and at the branch office. Riverbed’s complete family of performance products includes solutions for branch offices, mobile workers, private data centers, private clouds and cloud computing.

Our flagship Steelhead^® products enable our customers to improve the performance of their applications and access to their data across WANs, typically increasing transmission speeds by 5 to 50 times and in some cases by up to 100 times. Our Cascade^® product line, allows organizations to better assess, accelerate and adapt network performance. In 2010, we added packet capture and analysis to our Cascade network and application visibility solution. The combination of our Steelhead and Cascade products allows organizations to optimize their IT infrastructure to get the maximum return from network, storage and application investments.

The IT performance delivered by Riverbed solutions allows organizations to implement key initiatives, including:

Ÿ Back-up and disaster recovery over the WAN

Ÿ Collaboration between distributed offices and employees

Ÿ Performance management across the WAN

Ÿ Virtualization

Ÿ Cloud computing

Ÿ Application performance across the WAN

Ÿ Consolidation of remote office and data center IT

Our goal is to establish our solutions as the preeminent performance and efficiency standard for organizations relying on wide-area distributed computing. We believe our products and services can provide significant benefits in millions of locations worldwide.

A common misconception is that increasing or optimizing bandwidth alone can adequately reduce the inefficiencies and performance problems inherent in wide-area distributed computing. Increasing or optimizing bandwidth may allow an organization to increase the amount of data that can traverse a WAN at a given point in time. However, application performance problems resulting from the distance between locations across a WAN and resulting from network and application protocol inefficiencies are not addressed by increasing or optimizing bandwidth alone. Inadequate bandwidth is only one of three inter-related causes of these performance problems. We believe that these problems can best be solved by simultaneously addressing all three inter-related root causes: software application protocol inefficiencies, transport network protocol inefficiencies and insufficient or unavailable bandwidth.

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Unlike alternative approaches, our Steelhead products simultaneously address these root causes across a broad range of applications. Our products utilize our proprietary software to improve the performance of applications and access to data over distance by reducing:

Ÿ application protocol inefficiencies through our proprietary application streamlining techniques;

Ÿ network protocol inefficiencies through our proprietary transport streamlining techniques; and

Ÿ bandwidth requirements through our proprietary data streamlining techniques and data compression.

Our Steelhead products are used at both ends of a WAN connection and are designed to be more easily and transparently integrated into existing networks than alternative products. Our products address a broad range of widely used software applications, are scalable across networks of all sizes and address the wide-area distributed computing needs of every major industry.

In 2010, we introduced solutions for the public cloud, including a cloud-intelligent WAN optimization solution and a cloud storage accelerator targeting back-up and select archive workloads. By extending our award-winning acceleration and de-duplication capabilities to cloud storage, we provide organizations with a fast, secure and cost-efficient method to seamlessly integrate cloud storage into their existing back-up infrastructure and disaster recovery (DR) strategies, without sacrificing security.

In February 2009, we acquired Mazu Networks, Inc. (Mazu). Mazu helps organizations manage, secure and optimize the availability and performance of global applications and was the foundation for our Cascade product line. In October 2010, we acquired CACE Technologies, Inc. (Cace), which complemented the capabilities of our existing Cascade offerings. Our Cascade products allow 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 November 2010 we acquired Global Protocols LLC (Global Protocols), which added SkipWare technology to our WAN optimization and will bolster our leadership position in delivering optimization solutions for satellite networks.

Industry Background

The WAN optimization market provides global access to data and applications across WANs with local area network (LAN)-like performance. The WAN optimization market is large and growing. The key drivers of demand in this market are the increasingly geographically distributed nature of organizations and employees, the transition towards cloud computing, the growing business dependence on application performance and real-time access to data, the increasing desirability of IT infrastructure consolidation in order to achieve compelling cost reductions or organizational efficiencies, and management and data protection benefits.

Increasingly Distributed Organizations and Workforces

Organizations are becoming more geographically distributed, with businesses becoming more global by expanding into new markets, migrating manufacturing facilities to lower-cost locations and outsourcing certain business processes. In addition, existing enterprises continue to expand their geographic scope through mergers, acquisitions, partnerships and joint ventures.

Transition Towards Cloud Computing

Organizations have begun transitioning towards either a public or private cloud computing model in order to achieve greater financial efficiency, elastic resource provisioning and automation of IT

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management. This transition, however, typically reduces application performance by moving data and applications further away from end users, and also taxes network resources by more frequently migrating large amounts of data across the network.

Organizations are Increasingly Dependent on Timely Access to Critical Data and Applications

Application performance and effective access to data are critical to executing, maintaining and expanding business operations. Employees are increasingly dependent on a wide array of software applications to perform their jobs effectively, such as e-mail, document management, enterprise resource planning and customer relationship management.

Benefits of IT Infrastructure Consolidation

As organizations have become more geographically distributed, installing and managing IT infrastructure has become increasingly costly and complex. Accordingly, IT managers often seek to consolidate IT infrastructure resources into headquarters or centralized data center locations, which can provide a number of benefits, including:

Ÿ reduction in capital costs as IT infrastructure resources (file servers, e-mail servers, web servers, application servers, back-up systems and databases) are consolidated and shared within an organization;

Ÿ reduction in IT support costs as fewer personnel are required to manage more centralized data and applications;

Ÿ more efficient and reliable data back-up and recovery and application and database administration by managing these processes from a central point of control;

Ÿ improved data protection as consolidated IT infrastructure resources are less vulnerable to theft, loss and misuse; and

Ÿ enhanced ability to implement internal controls and comply with other regulatory requirements as centralized data and applications are easier to monitor, store and access.

Despite these benefits, many organizations have foregone or delayed consolidation projects because of network performance and manageability problems.

Wide-Area Distributed Computing Challenges

Technological advances in computing, networking, semiconductor and storage technologies have improved users’ ability to access data and use applications rapidly across their LANs and store enormous amounts of information economically. However, these same applications and storage technologies, which were often designed to operate optimally on LANs, perform slowly across WANs and frequently exhibit the following performance challenges:

Ÿ delays in accessing, saving and transferring files;

Ÿ slow execution of critical software application functions;

Ÿ incomplete or inconsistent back-up and recovery of sensitive data;

Ÿ loss of worker productivity and increased end-user frustration; and

Ÿ limited visibility into performance and security metrics at remote locations.

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Although many companies have attempted to solve these problems solely by adding bandwidth, we believe these performance problems can best be solved by addressing the technical root causes of these challenges:

Ÿ Latency and protocol chattiness — “Latency” is the amount of time it takes data to travel distances across a WAN. “Chattiness” refers to the numerous interactions between clients and servers that are often required by applications or network transport protocols to complete an operation or transfer data. When combined in geographically distributed computing environments, latency and chattiness can result in dramatically slower performance. For example, a simple request to open a file may require hundreds if not thousands of sequential round-trip interactions that, when aggregated, can result in substantial delays. This problem arises from two distinct sources:

– Application protocol chattiness — Many business applications were designed for optimal use within LAN environments and employ unique communications procedures that cause high chattiness, resulting in slow performance for the end-user when transmitted over a WAN; and

– Network protocol chattiness — Transmission Control Protocol (TCP), the underlying transport protocol for most WAN traffic, divides data into relatively small packets that are sent sequentially across the WAN, and require return acknowledgement from the recipient. These numerous round trips across the WAN can result in slow performance for the end-user.

Ÿ Bandwidth limitations — Bandwidth is defined as the amount of data that can traverse a network in a given amount of time and is typically measured in megabits per second (Mbps). While most organizations’ LANs typically operate at 100 or 1,000 Mbps, their remote office WAN connections typically operate at 2 Mbps or less. This often results in WAN congestion and poor application and data services performance. In addition, WAN outages limit the effectiveness of workers who are dependent on remote access to data and applications.

Ÿ Visibility limitations — Enterprises typically are forced to buy expensive technology to capture detailed performance data, but at the same time lack tools that can quickly and comprehensively assemble that data into meaningful information or actionable analysis around performance problems.

Limitations of Alternative Approaches

Historically, organizations have implemented partial solutions in attempting to improve the performance of wide-area distributed computing, including:

Ÿ Bandwidth— Organizations often attempt to improve application performance by making costly investments in more bandwidth. While additional bandwidth may reduce network congestion, no amount of bandwidth can address performance issues caused by high latency and application and network protocol chattiness; and

Ÿ IT infrastructure resources — Deploying additional IT infrastructure resources at remote locations can increase selected application and data services performance. However, this approach is expensive, complex to manage and increases the risks of data inconsistency and compromised security.

The Riverbed Solution

We have developed an innovative and comprehensive solution that broadly addresses the inter-related root causes of poor performance of wide-area distributed computing: latency and protocol chattiness, bandwidth limitations, data growth, and limited visibility. By simultaneously addressing

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these causes, we are able to improve significantly the performance of applications and access to data across WANs and enable the consolidation of costly IT infrastructure. Our solution, the Riverbed Optimization System (RiOS)^® consists of hardware and software products that simultaneously address the fundamental performance limitations of distributed computing environments.

Through the application of our proprietary technology, our WAN optimization solution simultaneously addresses each of these root causes of poor WAN performance:

Ÿ Application protocol chattiness — Our Application Streamlining technology significantly reduces unnecessary protocol chattiness for a broad range of applications and protocols such as CIFS (Windows file sharing), NFS (UNIX file sharing), MAPI (Microsoft Exchange), Oracle Forms, Lotus Notes, MS-SQL HTTP, SSL and others;

Ÿ Network protocol chattiness — Our Transport Streamlining technology employs a variety of techniques to significantly improve TCP performance. Our technology allows more data to be transmitted in each trip, which reduces the number of trips required; and

Ÿ Bandwidth and Storage limitations — Our Data Streamlining technology employs sophisticated data mapping and pattern recognition techniques to minimize the amount of redundant data traversing WAN connections or minimize the amount of data that needs to be stored. Our products detect requests for redundant information and send very little more than the data that has actually been modified over the WAN.

Ÿ Visibility limitations— Our Cascade products utilize a unique combination of flow-based and packet-based data capture techniques that can quickly assemble a near real-time view of application performance and deliver it within a system that allows for easy analysis of complex data.

When combined, these key technologies allow us to deliver significant benefits to our customers, including the ability to:

Ÿ Accelerate performance of applications and access to data over the WAN— Our solution enables our customers to recognize dramatic increases in performance of applications and access to data across a WAN, typically increasing transmission speeds by five to 50 times and in some cases by up to 100 times. Benefits include increased employee productivity, more efficient collaboration of globally distributed workgroups and more consistent rollout and adoption of enterprise applications;

Ÿ Consolidate geographically distributed IT resources— Our solution enables the consolidation of remote office infrastructure, including servers, storage back-up systems, databases and IT support personnel, while achieving more LAN-like performance. Also, consolidation enhances data security by centralizing IT resources in more secure data centers;

Ÿ Reduce the need for WAN bandwidth — Our solution nearly eliminates redundant traffic traversing the WAN and enables more efficient use of existing bandwidth, reducing the pressure to add bandwidth, which is often expensive or unavailable, as network traffic increases;

Ÿ Shorten storage back-up and replication time over the WAN— Our solution enables back-up and replication of data over the WAN to private cloud or public cloud data centers in a fraction of the time previously allocated to the task. Additional benefits to our solution include reduced IT support needed to execute daily back-up procedures, as well as reduced security concerns related to storing and transporting backed-up data on physical tape media at every remote computing location;

Ÿ Improve productivity and reduce frustration for IT managers and end-users — Our solution allows users in sites linked by a WAN to collaborate and share files and other data without the

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delays normally caused by WANs. Additional benefits include faster development cycles, better data synchronization, lower error rates and more flexibility with respect to staffing and personnel coordination; and

Ÿ Continuously assess network and application performance — Our solution collects performance information from devices across the WAN, at both optimized and non-optimized sites, and gives operators early warning about any application performance problems.

Our products are designed to be easily and transparently deployed into our customers’ networks. Our products are also designed to be easily managed with scalability across networks of all sizes, and to address the wide-area distributed computing needs of every major industry.

In December 2010, with the addition of our cloud storage accelerator solution, the Whitewater appliance, we have extended our industry-proven de-duplication to storage. Our de-duplication solutions, incorporated into our WAN optimization products, significantly reduce the volume of data traversing networks. Our Whitewater appliance extends our industry-leading de-duplication capabilities to cloud storage, cutting the cost of data back-up and disaster recovery by reducing both the cost of storage consumed and the bandwidth requirements for moving back-up data into and out of the cloud.

The Riverbed 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:

Ÿ 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, such as our new cloud solutions, into our installed base. Continuing investments in research and development are critical to maintaining our technological advantage;

Ÿ Enhance and extend our product lines — 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;

Ÿ 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 Riverbed Services Platform (RSP);

Ÿ Increase market awareness— To generate increased demand for our products, we will continue promoting our brand and the effectiveness of our comprehensive WAN optimization solutions;

Ÿ Scale our distribution channels — Growth in revenue and increase in market share are key goals for us. We sell our products directly through our sales force and indirectly through channel partners. We derived 94% of our revenue through indirect channels in 2010. We intend to expand our direct sales force and leverage our indirect channels to extend our geographic reach and market penetration; and

Ÿ Enhance and extend our support and services capabilities — On an ongoing basis, we plan to enhance and extend our support and services capabilities to continue to support our growing global customer base.

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Products

Steelhead Product Family

Our Steelhead appliances consist of our proprietary software that is delivered as appliances on a purpose-built hardware computing platform, and as software for end users for public and private cloud environments. We sell different Steelhead appliances to address the needs of customers ranging from small office deployments to large headquarters and data center locations. The U.S. list prices for our Steelhead appliances currently range from $3,495 to $239,995. During 2010, we introduced the Steelhead 7050 WAN optimization appliance, Virtual Steelhead, and Cloud Steelhead. 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. Virtual Steelhead provides all the functionality of our appliances, in a software-based virtual appliance designed for private cloud environments. Cloud Steelhead delivers our WAN optimization functionality specifically for public cloud environments.

Riverbed Services Platform (RSP)

In addition to WAN optimization functionality, Steelhead appliances support the RSP, a virtualized environment within Steelhead appliances upon which third-party applications can be installed. RSP benefits customers by further enabling branch office IT consolidation. Applications or services that require local deployment can be deployed (for example, print services that must remain functional in the event of a WAN outage can be deployed on the already installed Steelhead appliance, which enables the decommissioning of a dedicated print server in the branch. 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 numerous other packages. Over time we expect additional products and services to become available for installation on RSP. The U.S. list prices of our RSP kits currently range from $1,590 to $3,985.

Steelhead Mobile

Steelhead Mobile is a software-only version of RiOS designed to run on Windows^® and Mac laptop or desktop machines. Steelhead Mobile has the same architecture as Steelhead appliances, with Data, Transport and Application Streamlining. A purchase of the Steelhead Mobile Controller (SMC) appliance is required when purchasing Steelhead Mobile, as is at least one Steelhead appliance, which is typically deployed in the data center. The SMC handles the licensing and the distribution of Steelhead Mobile software packages. The base list price of our SMC is currently $14,995. In 2009, we introduced the Steelhead Mobile Controller-Virtual Edition (SMC-VE), which is a software only version of the SMC. The base list price of our SMC-VE is currently $5,995.

Virtual Steelhead

Virtual Steelhead is a software version of the Steelhead appliance. Virtual Steelhead enables customers to deploy Riverbed WAN optimization solutions in a wider range of environments that may have specialized requirements, such as ruggedized environments with space limitations or data centers that have been heavily virtualized.

Cloud Steelhead

For enterprises looking to integrate public cloud computing into their IT strategy, Cloud Steelhead provides a critical connection to applications and data in those cloud environments. Cloud Steelhead interoperates with all other forms of Steelhead products, accelerating cloud environments so that they feel local to users. Cloud Steelhead is available on a subscription basis, with monthly fees starting as low as $250 per month.

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Central Management Console

The Central Management Console (CMC) is an optional product designed to centrally manage many Steelhead appliances distributed across a WAN, simplifying the tasks of deploying, configuring, monitoring, reporting and upgrading large numbers of Steelhead appliances. The Central Management Console-Virtual Edition (CMC-VE) is a software only version of the CMC. The U.S. list prices of our CMC appliances and CMC-VE currently range from $4,995 to $49,995.

Interceptor

The Interceptor^® is a complementary product designed to enable flexible and scalable deployment of a cluster of Steelhead appliances in complex, high-traffic data center environments without requiring complex network reconfiguration, making the deployment of a Riverbed-based solution simpler, faster and more scalable than alternatives. The U.S. list price of our Interceptor appliance is currently $34,995.

Cascade Product Family

Cascade appliances help organizations manage, secure and optimize the availability and performance of global applications. The Cascade appliances allow 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. The U.S. list prices of our Cascade appliances currently range from $36,995 to $185,000.

Profiler, Gateway, and Sensor

The Profiler, Gateway, and Sensor products combine to form the core Cascade solution for enterprise-class visibility and performance management. They are designed to leverage flow-based data from all available third-party systems that can share data, layer in application specific information, and then present that data to users in meaningful ways.

Express

Express combines the Profiler, Gateway, and Sensor into one device for mid-market customers who need the same functionality at a lower scalability.

Cascade Pilot

Cascade Pilot is a software console designed for organizations of all sizes and works with the open-source tool, Wireshark, to provide analytics around packet traces for troubleshooting.

Shark

Shark is an appliance designed to provide massive scale and high throughput packet capture for enterprises requiring much larger samples of data to analyze with Cascade Pilot.

Whitewater Product Family

Whitewater is a cloud storage accelerator, designed to accelerate, de-duplicate, and secure data stored in the public cloud.

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Whitewater appliances

Whitewater appliances are deployed in customer data centers and provide a gateway to cloud storage, while at the same time providing higher performance and greater cost efficiencies than leveraging the cloud alone. Whitewater provides local-like back-up and restores without the costs of managing a second site.

Virtual Whitewater

Virtual Whitewater provides all the functionality of the Whitewater appliance in a software form factor. This product, although targeted at our smaller customers, acts as a high availability solution for Whitewater customers of all sizes.

Technology

The Riverbed Optimization System (RiOS) is our proprietary software platform that provides the core intelligence and essential functionality for our Steelhead products. To achieve performance improvements across a broad range of applications, RiOS integrates four key sets of technologies: Data Streamlining, Transport Streamlining, Application Streamlining and Management Streamlining.

Data Streamlining

Our Data Streamlining technologies address bandwidth limitations in existing networks. Our patented approach can be applied to all data and applications that run over TCP to reduce bandwidth consumption by dramatically reducing the need to send the same data multiple times over the WAN. Data Streamlining also supports the classification of individual data packets for quality-of-service and route control.

In a non-optimized WAN setting, each time data is requested by a remote user, all of the data must be sent across the WAN, regardless of whether identical data (or an insignificantly modified version of the data) has previously been sent. In wide-area distributed computing environments where Steelhead products have been deployed, all of the requested data must be sent across the WAN only the first time data is requested by a user, at which time that data is stored by the Steelhead products on both sides of the network. In subsequent requests, redundant data segments will not be sent regardless of what application is requesting the data or which user is making the request. The detection of repetitive data patterns is very granular, with a typical segment of data being approximately 100 bytes. This fine level of granularity enables Steelhead products to detect tiny changes in files, e-mails, web pages and other application data, sending only those changes across the WAN.

Each end-user request for data is sent directly to the intended authoritative application server as opposed to a cache that typically utilizes a copy of the data. Our Steelhead product intercepts the server response, identifies redundant data patterns and then sends only the new segments across the WAN to the end-user. All of the existing segments are represented by references which point to those already existing segments stored on the end-user side of the WAN connection. In this way, significantly less traffic needs to be sent to deliver large amounts of data to the end-user. In addition, this approach eliminates data consistency issues inherent in cache-based approaches.

Transport Streamlining

Transport Streamlining enhances the performance of the TCP protocol by increasing the amount of data carried per TCP round trip, thereby reducing the number of round trips required to move a given amount of data over the WAN. We accomplish this by both increasing the default TCP payload and by filling the window with references to data rather than actual data.

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We also enhance TCP performance by reducing the time associated with creating new TCP connections (especially for small, short-lived transfers), adapting transfer parameters based on real-time network characteristics and assigning priority for necessary packet resends due to packet loss. A component of Transport Streamlining, High Speed TCP, also addresses the TCP chattiness and latency that is particularly pronounced in high speed connections (for example, OC-12 (622 Mbps)). Another component of transport streamlining, MXTCP, is designed to address private networks with packet loss.

Application Streamlining

Application Streamlining provides a further mechanism to enhance the performance of specific applications. Many applications were designed for use over a LAN and require hundreds to thousands of interactions between client and server to execute even simple requests, such as opening a file. By understanding the semantics of particular application protocols, Steelhead products reduce chattiness, collapsing hundreds of client-server interactions into a few round trips over the WAN.

While most important business applications that run over TCP immediately benefit from Data Streamlining and Transport Streamlining, Application Streamlining enables us to add additional acceleration for specific applications. We have built specific Application Streamlining modules that support file, e-mail, web, ERP, database application, and thin client protocols (CIFS, MAPI, HTTP, Oracle Forms, SSL, Lotus Notes, NFS and MS-SQL, Citrix, and others). We have also built special modules to address protocol inefficiencies for common storage back-up and replication applications. We believe these applications are especially inefficient in wide-area distributed computing. We have designed our architecture to enable additional Application Streamlining modules to be incorporated easily over time.

Management Streamlining

Management Streamlining allows for simplified implementation and administration of our Steelhead products. Unlike alternative approaches, which usually require changes to clients, servers, routers and switches or the addition of an overlay network of tunnels, Steelhead products are designed to be transparently installed in existing IT infrastructure with minimal administration. The auto-discovery capabilities of RiOS allow our Steelhead products to identify automatically all Steelhead products on the WAN, typically without the need to reconfigure any network infrastructure. Our products automatically intercept WAN traffic without any further configuration requirements to applications, clients or other network infrastructure, while allowing non-optimized traffic to simply pass through.

Our RiOS software provides IT administrators with simplified management of Steelhead products through Command Line Interface (CLI), Graphical User Interface (GUI) and an optional Central Management Console.

Other key elements of Management Streamlining include touchless configuration options, over-the-wire software upgrades for Steelhead products, singular and grouped appliance management and customizable reporting analytics.

Collection of Performance Data

Our Cascade software collects performance data from sources across the network, including switches, routers and WAN optimization devices. This includes flow records, layer 7 application data, and data about optimized links. All information is collected without any server-side agents or modifications to corporate applications.

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Performance Metrics and Behavioral Analytics

Cascade presents the information collected from the network as a collection of useful metrics on application and network performance. It feeds these metrics into a behavioral analytics model, which learns the typical performance of applications and alerts an operator whenever performance deviates in a meaningful way from its learned “normal”.

Discovery and Dependency Mapping

Discovery and dependency mapping allows operators involved with performance troubleshooting, as well as IT consolidation initiatives, to rapidly understand all the components and associated interdependencies that are necessary for the delivery of an application to an end user.

Customers

Our products have been sold to over 9,200 customers worldwide in every major industry, including manufacturing, finance, technology, government, architecture, engineering and construction, professional services, utilities, healthcare and pharmaceuticals, media and retail. Our products are deployed in a wide range of organizations, from large global organizations with hundreds or thousands of locations to smaller organizations with few locations. As of December 31, 2010, no single customer accounted for more than 10% of our trade receivable balance. During the year ended December 31, 2010, one customer accounted for more than 10% of our consolidated revenue. During the years ended December 31, 2009 and 2008, no single customer accounted for 10% or more of our consolidated revenue.

Sales and Marketing

We sell our products and support through channel partners and our field sales force:

Ÿ Channel partners — We have over 1,300 channel partners worldwide, primarily VARs, VADs, service providers and systems integrators. These partners help market and sell our products to a broad array of organizations and allow us to leverage our field sales force; and

Ÿ Field sales force — We have a field sales force that is responsible for managing all direct and indirect sales within each of our geographic territories.

With the ability to foster a strong, collaborative sales engagement environment between us and our partners, the Riverbed Partner Network (RPN) delivers a coverage model that optimizes our customer’s ability to acquire and implement our solutions in the manner that best fits its needs — through either value added resellers, systems integrators or service providers.

Our marketing activities include an integrated strategy comprised of lead generation, advertising, website operations, direct marketing, public relations, technology conferences and trade shows.

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.

Support and Services

We offer tiered customer support programs depending upon the service needs of our customers’ deployments. Support contracts provide customers the right to receive unspecified software product upgrades, maintenance releases issued when and if available during the support period and hardware

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repair. Product support includes internet access to technical content, as well as telephone, internet and email access to technical support personnel. Support contracts typically have a one-year term. We have support centers in New York, the San Francisco Bay Area, Amsterdam, London, Singapore, Sydney and Tokyo, which enable us to respond at all times. As we expand, we plan to continue to hire additional technical support personnel to service our growing international customer base.

Primary product support for customers of our channel partners is often provided by the partners themselves and we provide back-up support.

Our product sales include a warranty on hardware and software. Hardware is typically warranted against material defects for 12 months. Software is typically warranted to meet published specifications for a period of 90 days.

Research and Development

Continued investment in research and development is critical to our business. To this end, we have assembled a team of engineers with expertise in various fields, including networking, applications, storage and systems management. We have invested significant time and financial resources into the development of our products. We plan to expand our product offerings and solutions capabilities in the future and plan to dedicate significant resources to these continued research and development efforts. Further, as we expand internationally and into different sectors, we may incur additional costs to conform our products to comply with local laws or local product specifications.

Research and development expenses were $87.1 million, $69.2 million, and $58.7 million in 2010, 2009, and 2008, respectively.

Manufacturing

We outsource manufacturing of all hardware products. Our manufacturers provide us with limited warranties to cover general product failures, and all our larger manufacturing partners provide specific quality control processes and replacement cycle time commitments. In addition, the lead times associated with certain components are lengthy and consequently make rapid changes in quantity requirements and delivery schedules difficult. Although we outsource manufacturing operations for cost-effective scale and flexibility, we perform rigorous quality control testing intended to ensure the reliability of our products once deployed. We provide long-term forecasts to our manufacturing partners and we maintain oversight of their supply chain activities.

Shortages in components that we use in our products are possible and our ability to predict the availability of such components may be limited. Some of these components are available only from single or limited sources of supply. Our ability to timely deliver products to our customers would be adversely impacted if we needed to qualify replacements for any of a number of the components used in our products.

We outsource our logistics functions to third parties. These third parties ship our products on our behalf and perform certain other shipping and product integration capabilities.

Competition

The WAN optimization market is highly competitive and continually evolving. We believe we compete primarily on the basis of offering a comprehensive WAN optimization solution that broadly addresses the root causes of poor performance of wide-area distributed computing. We believe other principal competitive factors in our market include product performance, ability to deploy easily into

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existing networks and ability to remotely manage products. We believe that our solution performs better than competitive products as measured by a broad range of metrics encompassing application performance, compression ratios and data transfer times. Our ability to sustain such a competitive advantage depends on our ability to achieve continuous technological innovation and adapt to the evolving needs of our customers.

We believe we are currently the only provider of a comprehensive WAN optimization solution. However, a large number of vendors have made acquisitions to enter the WAN optimization market and continue to invest in this area.

Our primary competitors include 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 believe that we compete favorably in each of the sub-segments of WAN optimization in addition to being the only provider of a comprehensive WAN optimization solution. As we have a purpose-built architecture, compared to many vendors’ attempts to combine separate technology elements, we believe we have a significant advantage in performance, ease-of-use, and ability to scale to large numbers of locations and employees.

We have received broad industry recognition for our innovative technology. For six consecutive years,InfoWorldhas named the Riverbed Steelhead appliances as a Product of the Year. For the last four years (2007 — 2010) we were positioned by Gartner in the Leaders’ Quadrant of the “WAN Optimization Controller (WOC) Magic Quadrant, authored by Andy Rolfe, Joe Skorupa and Severine Real, and most recently published in December 2010. This Gartner report positions vendors in one of four quadrants — Leaders, Challengers, Visionaries and Niche Players — based on the companies’ vision and ability to execute on that vision. Riverbed’s WAN optimization solutions have received industry recognition from Forrester Research, IDC,NetworkWorld,The Wall Street Journal,eWeek,Storage Magazine,Network Computing andByte & Switch, among others.

We also compete in the Network Performance Management market with our Cascade product line. Our primary competitors in this market are Netscout, Computer Associates (NetQoS), and OpNet.

Intellectual Property

Our success as a company depends upon our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, as well as customary contractual protections.

Our worldwide patent portfolio includes thirty-seven U.S. patents and twelve foreign patents. Patents generally have a term of twenty years from their priority date, which is generally either the date they were initially filed or the filing date of the earliest patent from which priority is claimed. Our issued patents will expire in 2020 through 2026. U.S. patent filings are intended to provide the holder with a right to exclude others from making, using, selling or importing in the U.S. the inventions covered by the claims of granted patents. We have U.S. provisional and non-provisional patent applications pending, as well as counterparts pending in other jurisdictions around the world. 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. Our granted patents, and to the extent any future patents are issued, any such future patents may be contested, circumvented or invalidated over the course of our business, and we may not be able to prevent third parties from infringing these patents. In addition, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws in the U.S. Therefore, the exact effect of having a patent cannot be predicted with certainty.

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Our registered trademarks in the U.S. include Riverbed, Steelhead, Virtual Steelhead, the Riverbed logo, RiOS, Think Fast, Cascade, Interceptor, Mazu, CACE Technologies, CACE Pilot, TurboCap, WinPcap, AirPcap and Wireshark. We additionally have registered trademarks in selected foreign jurisdictions. We also have a number of trademark applications pending, in the U.S. as well as in other jurisdictions.

In addition to the foregoing protections, we generally control access to and use of our proprietary software and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers and partners. Our software is also protected by U.S. and international copyright laws.

We also incorporate third-party software programs into our products pursuant to license agreements. For example, we embed technology from VMware into our Steelhead appliances to provide the virtualization in our Riverbed Services Platform. Any disruption in our access to any of these software programs could result in significant delays in our product releases and could require substantial effort to locate or develop a replacement program.

Employees

As of December 31, 2010, we had 1,244 employees in offices in all major geographies. Of these, 556 were engaged in sales and marketing, 357 in research and development, 169 in support and services, 136 in general and administration and 26 in manufacturing. None of our U.S. employees are represented by labor unions; however, in certain international subsidiaries, workers councils represent our employees. We consider current employee relations to be good.

Corporate Information

Riverbed Technology, Inc. was incorporated in Delaware in May 2002. We operate internationally primarily through a number of wholly owned subsidiaries that are designed primarily to support our sales, marketing and support activities outside the United States. We have a single operating segment and substantially all of our operating assets are located in the United States.

Our Internet address is www.riverbed.com. There we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Our SEC reports can be accessed through the investor relations section of our website. The information found on our website is not part of this or any other report we file with or furnish to the SEC.

Item 1A. Risk Factors

Set forth below and elsewhere in this Annual Report on Form 10-K, and in other documents we file with the SEC, are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K 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.

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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 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.

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

Ÿ 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;

Ÿ fluctuations in sales cycles and prices for our products and services;

Ÿ reductions in customers’ budgets for information technology purchases and delays in their purchasing cycles;

Ÿ general economic conditions in our domestic and international markets;

Ÿ limited visibility into customer spending plans;

Ÿ changing market conditions, including current and potential customer consolidation;

Ÿ customer or partner concentration. For example, one customer represented more than 10% of our revenue for the year ended December 31, 2010;

Ÿ variation in sales channels, product costs or mix of products sold;

Ÿ 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;

Ÿ 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;

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

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

Ÿ customer acceptance of new product introductions. For example, we recently introduced solutions for the public cloud, including a cloud-intelligent WAN optimization solution and a cloud storage accelerator targeting back-up and select archive workloads. These new products may not achieve any significant degree of market acceptance or be accepted into our sales channel by our channel partners. Furthermore many of our target customers have not purchased products similar to these and might not have a specific budget for the purchase of these products;

Ÿ unpredictability in the development of core, new or adjacent markets, including the public cloud computing market;

Ÿ the timing of product releases or upgrades by us or by our competitors;

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

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

Ÿ any component shortages or price fluctuations in our supply chain;

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

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

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

Ÿ 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;

Ÿ volatility in our stock price, which may lead to higher stock compensation expenses; and

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

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

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

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

Competitive products may in the future have better performance, more and/or better features, lower prices and broader acceptance than our products. Many of our current or potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we do. Potential customers may

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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. In the Network Performance Management market, our Cascade product line primarily competes with Netscout, Computer Associates (NetQos) and OpNet.

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.

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, turmoil in credit markets during economic downturns 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, both enterprises and government organizations 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

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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 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 may result in customers or channel partners either delaying or entirely foregoing planned purchases of our products if 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.

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. We employ a two-tier distribution strategy in North America, as 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

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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.

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 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 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

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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 or interact with 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.

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

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

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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. Customers may also defer purchases as a result of anticipated or announced releases of new products or enhancements by our competitors or by us. 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 year ended December 31, 2010, we derived approximately 47% 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:

Ÿ 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;

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

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

Ÿ unfavorable changes in tax treaties or laws;

Ÿ increased exposure to foreign currency exchange rate risk; and

Ÿ 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

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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 year ended December 31, 2010, our research and development expenses were $87.1 million, or approximately 16% of our total

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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.

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. In addition, the introduction of new products or product enhancements may shorten the life cycle of our existing products, or replace sales of some of our current products, thereby offsetting the benefit of even a successful product introduction, or may cause customers to defer purchasing our existing products in anticipation of the new or enhanced products, any of which could 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

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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. In such cases, and others, 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 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.

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Our products are highly technical and may contain undetected software or hardware errors. These errors, and any related claims against our products, 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 October 2010 and November 2010, we acquired CACE Technologies, Inc. and Global Protocols LLC, respectively. 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. We may also encounter difficulties in maintaining uniform standards, controls, procedures and policies across locations, or in managing geographically or culturally diverse locations. We may experience significant problems with acquired or integrated product quality. We may also experience significant liabilities associated with acquired or integrated technology. 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

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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. We could also be subject to similar conditions or restrictions should there be any changes in the licensing terms of the open source software incorporated into our products. In either 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 appliance and software products. 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. Each of these software programs is currently available from only one vendor. Any disruption in our access to these or other software programs or third-party technologies 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.

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

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

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. In addition, the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act contains various provisions applicable to the corporate governance functions of public companies. 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 controls 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 controls over financial reporting and disclosure controls and procedures. In particular, for the year ended December 31, 2010, we performed system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls 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 controls 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.

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

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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.

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, transfer pricing adjustments, not meeting the terms and conditions of tax holidays or incentives, changes in the valuation of our deferred tax assets and liabilities, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting principles or interpretations thereof. In addition, like other companies, we may be subject to examination of our income tax returns by the Internal Revenue Service and other tax authorities. While we regularly assess the likelihood of adverse outcomes from such examinations and the adequacy of our provision for income taxes, there can be no assurance that such provision is sufficient and that a determination by a tax authority will not have an adverse effect on our results of operations.

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.

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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, 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, or provide support to our customers, any of 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. 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 December 31, 2010, our stock price has fluctuated from a low of $3.55 to a high of $37.94. 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:

Ÿ variations in our operating results;

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

Ÿ the gain or loss of significant customers;

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Ÿ recruitment or departure of key personnel;

Ÿ 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;

Ÿ 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;

Ÿ announcements by or about us regarding events or news adverse to our business;

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

Ÿ adoption or modification of regulations, policies, procedures or programs applicable to our business;

Ÿ an announced acquisition of or by a competitor; and

Ÿ 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 announcements by, or events that affect other companies in our industry or the trading price might decline in reaction to events that affect the stock market generally even if these announcements or 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 such a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert management’s attention and resources.

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

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

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.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We lease approximately 102,358 square feet of office space in San Francisco, California pursuant to a lease that expires in 2014. In addition, we lease approximately 46,000 square feet of office space in Sunnyvale, California pursuant to a lease that expires in 2013. We maintain support centers in New York, the San Francisco Bay Area, Amsterdam, London, Singapore, Sydney and Tokyo, and sales offices in multiple locations worldwide. We believe that our current facilities are suitable and adequate to meet our current needs, and we intend to add new facilities or expand existing facilities as necessary.

Item 3. 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 4. Submission of Matters to a Vote of Security Holders

None.

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Part II

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

Market Information for Common Stock

Our common stock has traded on Nasdaq under the symbol “RVBD” since our initial public offering on September 20, 2006, first on the Nasdaq Global Market and, since January 1, 2008, on the Nasdaq Global Select Market. Prior to our initial public offering, there was no public market for our common stock.

The following table sets forth for the indicated periods the high and low sales prices of our common stock as reported by the Nasdaq Global Select Market.

	High		Low
First Quarter 2009	$	7.74	$	4.42
Second Quarter 2009	$	12.40	$	6.46
Third Quarter 2009	$	13.00	$	9.08
Fourth Quarter 2009	$	12.67	$	9.81
First Quarter 2010	$	14.78	$	11.08
Second Quarter 2010	$	16.36	$	12.56
Third Quarter 2010	$	23.48	$	13.21
Fourth Quarter 2010	$	37.94	$	20.67

The last reported sale price for our common stock on the Nasdaq Global Select Market was $37.11 per share on February 4, 2011.

Dividend Policy

We have never paid any cash dividends on our common stock. Our board of directors currently intends to retain any future earnings to support operations and to finance the growth and development of our business and does not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors.

Stockholders

As of January 27, 2011, there were 53 registered stockholders of record of our common stock.

Stock Performance Graph

The graph set forth below compares the cumulative total stockholder return on our common stock between September 21, 2006 (the date of our initial public offering) and December 31, 2010, with the cumulative total return of (i) the Nasdaq Computer Index and (ii) the Nasdaq Composite Index, over the same period. This graph assumes the investment of $100 on September 21, 2006 in our common stock, the Nasdaq Computer Index and the Nasdaq Composite Index, and assumes the reinvestment of dividends, if any. We have never paid dividends on our common stock and have no present plans to do so. The graph assumes the initial value of our common stock on September 21, 2006 was the closing sales price of $7.65 per share.

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The comparisons shown in the graph below are based upon historical data and are not intended to suggest future performance. This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing of ours under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Recent Sales of Unregistered Securities

None.

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Item 6. Selected Financial Data

The following selected consolidated financial data should be read in conjunction with our audited consolidated financial statements and related notes thereto and with Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included in this Annual Report on Form 10-K. The consolidated statement of operations data for the years ended December 31, 2010, 2009 and 2008, and the selected consolidated balance sheet data as of December 31, 2010 and 2009 are derived from, and are qualified by reference to, the audited consolidated financial statements included in this Annual Report on Form 10-K. The consolidated statement of operations data for the years ended December 31, 2007 and 2006, and the consolidated balance sheet data as of December 31, 2008, 2007 and 2006 are derived from audited consolidated financial statements, which are not included in this Annual Report on Form 10-K.

	Year ended December 31,
(in thousands, except per share amounts)	2010		2009		2008			2007		2006
Consolidated Statement of Operations Data:
Revenue:
Product	$	380,277	$	267,885	$	252,929		$	196,622	$	77,298
Support and services		171,612		126,261		80,420			39,784		12,909
Total revenue		551,889		394,146		333,349			236,406		90,207
Cost of revenue:
Cost of product (3)		81,998		61,052		60,439			51,068		25,174
Cost of support and services		50,750		37,916		28,175			14,856		4,978
Total cost of revenue (1) (3)		132,748		98,968		88,614			65,924		30,152
Gross profit		419,141		295,178		244,735			170,482		60,055
Operating expenses
Sales and marketing (1) (3)		225,052		177,487		140,653			95,652		48,080
Research and development (1) (3)		87,117		69,164		58,658			39,696		19,215
General and administrative (1) (3)		47,382		38,080		38,669			24,834		9,294
Other charges (2)		—		—		11,000			—		—
Acquisition-related costs (3)		3,343		104		—			—		—
Total operating expenses		362,894		284,835		248,980			160,182		76,589
Operating income (loss)		56,247		10,343		(4,245	)		10,300		(16,534	)
Total other income, net		724		1,042		6,514			9,733		992
Income (loss) before income taxes		56,971		11,385		2,269			20,033		(15,542	)
Provision (benefit) for income taxes		22,813		4,300		(8,332	)		5,235		303
Net income (loss)	$	34,158	$	7,085	$	10,601		$	14,798	$	(15,845	)
Net income (loss) per share:
Basic	$	0.24	$	0.05	$	0.07		$	0.11	$	(0.29	)
Diluted	$	0.22	$	0.05	$	0.07		$	0.10	$	(0.29	)
Shares used in computing net income (loss) per common share:
Basic		145,012		138,400		141,514			136,040		53,954
Diluted		155,999		143,080		146,534			146,488		53,954

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(1) Includes stock-based compensation and related payroll tax expenses as follows:

	Year ended December 31,
(in thousands)	2010		2009		2008		2007		2006
Cost of product	$	578	$	453	$	182	$	100	$	—
Cost of support and services		5,805		4,540		4,493		2,579		520
Sales and marketing		30,529		25,453		23,632		15,616		4,636
Research and development		20,616		14,389		13,080		8,814		2,541
General and administrative		16,420		11,873		9,202		5,482		1,521
Total stock-based compensation and related payroll tax expenses	$	73,948	$	56,708	$	50,589	$	32,591	$	9,218

(2) Settlement of Quantum litigation. See Note 16 of Notes to Consolidated Financial Statements for details.

(3) Includes acquisition-related costs from amortization of purchased intangibles, retention bonuses for acquired employees, contingent consideration to be paid to employees recorded as compensation expense, adjustments to the fair value of contingent consideration to be paid to stockholders and acquisition-related and integration costs as follows:

	Year ended December 31,
(in thousands)	2010		2009		2008		2007		2006
Cost of product	$	3,883	$	2,546	$	—	$	—	$	—
Sales and marketing		2,481		2,535		—		—		—
Research and development		1,005		856		—		—		—
General and administrative		324		534		—		—		—
Acquisition-related costs		3,343		104		—		—		—
Total Acquisition-related costs	$	11,036	$	6,575	$	—	$	—	$	—

	As of December 31,
(in thousands)	2010		2009		2008		2007		2006
Consolidated Balance Sheet Data
Cash and cash equivalents	$	165,726	$	67,749	$	95,378	$	162,979	$	105,330
Short and long-term investments		335,414		257,938		172,398		83,103		3,999
Working capital		374,898		281,965		254,079		243,640		102,195
Total assets		736,081		505,279		398,517		337,602		150,769
Common stock and additional paid-in-capital		518,052		367,236		315,882		292,200		156,329
Stockholders’ equity		537,420		352,307		293,829		259,718		108,980

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The information in this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. 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,” “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 Annual Report on Form 10-K in the section titled “Risk Factors” and the risks discussed in our other SEC filings. We undertake no obligation to publicly release any revisions to the forward-looking statements after the date of this Annual Report on Form 10-K.

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 9,200 customers worldwide. We offer several product lines including Steelhead appliances, Central Management Console, Interceptor, Steelhead Mobile, Whitewater 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.

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, such as our new cloud solutions, into our installed base. Continuing investments in research and development are critical to maintaining our technological advantage.

Enhance and extend our product lines

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.

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

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

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

In February 2009, we acquired Mazu Networks. 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 simultaneous third-party applications or services, including Microsoft Windows Server, print server, DNS/DHCP, security, video and selected packages. Over time we expect additional products and services to become available for installation on RSP.

In February 2010, we introduced the Steelhead 7050 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.

In July 2010, we introduced the Virtual Steelhead, a virtual version of the Steelhead appliance. Virtual Steelhead enables customers to deploy Riverbed WAN optimization solutions in a wider range of environments that may have specialized requirements such as ruggedized environments or environments with space limitations, as well as data centers that have been heavily virtualized.

In November 2010, we introduced our Cloud Steelhead™ solution that is engineered for the public cloud. Cloud Steelhead was designed to easily install and scale within cloud service provider environments in order to both accelerate the migration of data to the public cloud and improve performance for applications hosted in the public cloud.

In October 2010, we acquired CACE, which complemented the capabilities of our existing Cascade offerings. Our Cascade products allow 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. As part of our acquisition of CACE, we became corporate sponsor for Wireshark, an open source program that is widely used and well known in the networking community.

The 2010 acquisition of Global Protocols added its SkipWare technology to our WAN optimization and will bolster our leadership position in delivering optimization solutions for satellite networks.

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In December 2010, we introduced our Whitewater product, a cloud storage accelerator, designed to accelerate, de-duplicate, and secure data that is to be stored in the public cloud. Whitewater is a cloud storage accelerator, designed to accelerate, de-duplicate, and secure data that is to be stored in the public cloud.

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 share of market 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 94% of our revenue through indirect channels in 2010. We expect revenue from channel partners to continue to constitute a substantial majority of our future revenue.

Enhance and extend our support and services capabilities

On an ongoing basis, we plan to enhance and extend our support and services capabilities to continue to support our growing global customer base. Our support organization goals include providing customers with the highest service levels in the industry for hardware replacement and software support. Our sales organization is focused on maintaining a high rate of service contract renewals on our existing customer base. Our professional services team is focused on developing and distributing training programs directed at our partners, and expanding our professional service offering.

Major Trends Affecting Our Financial Results

Company outlook

We believe that our current value proposition, which enables customers to improve the performance of their applications and access to their data across WANs, while also offering the ability to simplify IT infrastructure and realize significant capital and operating cost savings, should allow us to continue to grow our business. Our product revenue growth rate will depend significantly on continued growth in the WAN optimization market, and our ability to continue to attract new customers in that market and generate additional sales from existing customers. Our growth in support and services revenue is dependent upon increasing the number of products under support contracts, which is dependent on both growing our installed base of customers and renewing existing support contracts. Our future profitability and rate of growth will be directly affected by the continued acceptance of our products in the marketplace, as well as the timing and size of orders, product mix, average selling prices and costs of our products and general economic conditions. Our ability to achieve profitability in the future will also be affected by the extent to which we must incur additional expenses to expand our sales, support, marketing, development, and general and administrative capabilities to grow our business. The largest component of our expenses is personnel costs. Personnel costs consist of salaries, benefits and incentive compensation for our employees, including commissions for sales personnel and stock-based compensation.

Revenue

Our revenue has grown rapidly since we began shipping products in May 2004, increasing from $2.6 million in 2004 to $551.9 million in 2010. Revenue grew by 40% in 2010 to $551.9 million from $394.1 million in 2009. We believe that our revenue growth in 2009 and 2010, during periods in which

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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 December 31, 2010, we had 1,244 employees, an increase of 23% from the 1,013 employees at December 31, 2009. The increase in employees is the most significant driver behind the increase in costs and operating expenses in 2010. 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 $73.9 million, $56.7 million, and $50.6 million in the years ended December 31, 2010, 2009, and 2008 respectively. We expect to continue to incur significant stock-based compensation expense and anticipate further growth in stock-based compensation expense as our employee base grows because we expect stock-based compensation to continue to play an important part in the overall compensation structure for our employees.

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

	Year ended December 31,
(in thousands)	2010		2009		2008
Cost of product	$	578	$	453	$	182
Cost of support and services		5,805		4,540		4,493
Sales and marketing		30,529		25,453		23,632
Research and development		20,616		14,389		13,080
General and administrative		16,420		11,873		9,202
Total stock-based compensation expense and related payroll taxes	$	73,948	$	56,708	$	50,589

Acquisitions

During fiscal 2010, we acquired two companies to expand our product offerings. These acquisitions were not significant, individually or in the aggregate. Combined, the total purchase price for these acquisitions was approximately $26.9 million, which was paid in cash. The purchase price allocation for these acquisitions included $14.3 million of goodwill, $13.5 million of identifiable intangible assets, $3.3 million of in-process research and development intangible assets, $2.2 million of acquired debt, paid down at the acquisition date, and $3.5 million of net tangible liabilities. The results of operations of these companies are included in our consolidated results for the period subsequent to the acquisition date. In the year ended December 31, 2010, we recognized $1.1 million in revenue from the sale of these acquired companies’ products and services, and we recognized $2.9 million of operating expenses, which included $0.6 million of acquisition-related intangible amortization, $0.6 million of transaction and integration costs, $0.5 million of acquisition-related compensation costs and $0.2 million of stock based compensation costs.

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During 2009, we acquired Mazu. The results of operations of Mazu are included in our consolidated results for the period subsequent to the acquisition date. In the years ended December 31, 2010 and 2009, we recognized $27.7 million and $9.7 million in revenue, respectively, from the sale of Mazu products and services. In the years ended December 31, 2010 and 2009, we recognized $1.4 million and $2.4 million, respectively, of acquisition-related compensation costs.

Critical Accounting Policies and Estimates

Our 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 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 consolidated financial statements could be adversely affected.

The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following: revenue recognition, stock-based compensation, accounting for business combinations, accounting for income taxes, inventory valuation and allowances for doubtful accounts. Our critical accounting policies have been discussed with the Audit Committee of the Board of Directors.

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 (TPE) of selling price; 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.

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Our product revenue also includes revenue from the sale of 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 further 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 a substantial majority of such historical stand-alone transactions falling within a reasonably narrow range 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.

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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 year 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 year ended December 31, 2010, we recognized $175.2 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 year ended December 31, 2010, we recognized $376.7 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 December 31, 2010, we recorded $0.4 million of deferred product revenue related to sales under the industry specific software revenue recognition rules and $6.3 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 related 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 reasonably assured.

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.

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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.

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 only for those equity awards expected to vest.

The fair value of the RSUs is determined based on the stock price on the date of grant. We estimated the fair value of stock options and stock purchased under our Purchase Plan using the Black-Scholes model. This model utilizes the estimated fair value of common stock and requires that, at the date of grant, we use the expected term of the grant, the expected volatility of the price of our common stock, risk-free interest rates and expected dividend yield of our common stock. 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 for stock options and six months to two years for stock purchased under our Purchase Plan.

The expected term represents the period that stock options are expected to be outstanding. During the first three quarters of 2010 and for the years ended December 31, 2009 and 2008, we elected to use the simplified method of determining the expected term of stock options due to insufficient historical exercise data as a publicly traded company. During the fourth quarter of 2010, we determined that we had sufficient historical information to use a method based on hypothetical exercises, which we believe is more representative of our expected term.

During the first three quarters of 2010 and for the years ended December 31, 2009 and 2008, the computation of our expected volatility for stock options was based on the historical volatility of comparable companies from a representative peer group selected based on industry, financial and market capitalization data, due to insufficient historical volatility data as a publicly traded company. During the fourth quarter of 2010, we determined that we had sufficient historical volatility data to use a

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blended historical and implied volatility. The computation of expected volatility for the Purchase Plan for the years ended December 31, 2010 and 2009 is based on our historical volatility. The computation of expected volatility for the Purchase Plan for the year ended December 31, 2008 is based on historical volatility of comparable companies.

Accounting for Business Combinations

In our business combinations, we are required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at acquisition date with respect to intangible assets, estimated contingent consideration payments and pre-acquisition contingencies.

Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired company and are inherently uncertain. Examples of critical estimates in accounting for acquisitions include but are not limited to:

Ÿ the estimated fair value of the acquisition-related contingent consideration, which is performed using a probability-weighted discounted cash flow model based upon the forecasted achievement of post acquisition bookings targets;

Ÿ the future expected cost to develop the in-process research and development into commercially viable products and the estimated cash flows from the products when completed;

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

Ÿ the discount rates.

Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimate of the bookings that are expected to be achieved, will be recognized in earnings in the period of the estimated fair value change.

Goodwill, Intangible Assets and Impairment Assessments

Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Goodwill is tested for impairment at least annually during the fourth quarter (and more frequently if certain indicators are present). In the event that we determine that the carrying value of our single reporting unit is less than the reporting unit’s fair value, we will incur an impairment charge for the amount of the difference during the quarter in which the determination is made. We performed our annual review of goodwill in the fourth quarter of 2009 and concluded that no impairment existed at December 31, 2010.

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

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certain assets are not fully recoverable, we will incur an impairment charge for those assets or portion thereof during the quarter in which the determination is made, measured as the amount by which the carrying value exceeds the fair value.

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 estimates and assumptions in preparing our income tax provision including forecasted annual income.

We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available to us for tax reporting purposes, as well as other relevant factors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses, future changes in income tax law, or variances between our actual and anticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates.

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

We are subject to periodic audits by the Internal Revenue Service and other taxing authorities. These audits may challenge certain tax positions we have taken, such as the timing and amount of deductions and allocation of taxable income to the various tax jurisdictions. Income tax contingencies are accounted for in accordance with authoritative guidance, and may require significant management judgment in estimating final outcomes. Actual results could materially differ from these estimates and could significantly affect the effective tax rate and cash flows in future years.

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, 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

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products, the timing of new product introductions and technological obsolescence of our products. Inventory write-downs are reflected as cost of product and amounted to $4.8 million, $4.9 million and $6.0 million in the years ended December 31, 2010, 2009 and 2008, respectively.

Allowances for Doubtful Accounts

We make judgments as to our ability to collect outstanding receivables and provide allowances for the applicable portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding receivables. For those receivables not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our historical collection experience and current economic trends. If the historical data we use to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. The allowance for doubtful accounts was $1.4 million and $1.7 million at December 31, 2010 and 2009, respectively.

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 and services revenue includes unspecified software license updates and product support. 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.

	Year ended December 31,
(dollars in thousands)	2010		2009		2008
Total Revenue	$	551,889	$	394,146	$	333,349
Total Revenue by Type:
Product	$	380,277	$	267,885	$	252,929
Support and services	$	171,612	$	126,261	$	80,420
% Revenue by Type:
Product		69%		68%		76%
Support and services		31%		32%		24%
Total Revenue by Geography:
United States	$	294,631	$	221,206	$	193,190
Europe, Middle East and Africa	$	149,647	$	104,990	$	87,446
Rest of the World	$	107,611	$	67,950	$	52,713
% Revenue by Geography:
United States		53%		56%		58%
Europe, Middle East and Africa		27%		27%		26%
Rest of the World		20%		17%		16%
Total Revenue by Sales Channel:
Direct	$	31,525	$	29,915	$	27,703
Indirect	$	520,364	$	364,231	$	305,646
% Revenue by Sales Channel:
Direct		6%		8%		8%
Indirect		94%		92%		92%

2010 Compared to 2009:    Product revenue increased by 42% in 2010 due primarily to an increase in unit volume from increasing sales to existing customers and the addition of new customers.

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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. As of December 31, 2010, our products had been sold to over 9,200 customers, compared to approximately 7,300 as of December 31, 2009.

Substantially all of our customers purchase support when they purchase our products. Support and services revenue increased 36% in 2010 as compared to 2009 which is consistent with our growth in product revenue. Support and services revenue as a percentage of total revenues remained relatively consistent with the prior year as our renewal rate of support contracts by existing customers remained stable. As our customer base grows, we expect our revenue generated from support and services to increase; however, we expect the renewal rate of support contracts by existing customers to remain level.

We generated 47% of our revenue in the year ended December 31, 2010 from international locations, compared to 44% in the year ended December 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.

2009 Compared to 2008:    Product revenue increased by 6% in 2009 due primarily to an increase in unit volume from increasing sales to existing customers and the addition of new customers. As of December 31, 2009, our products had been sold to over 7,300 customers, compared to approximately 5,500 as of December 31, 2008.

Support and services revenue increased on an absolute basis and as a percentage of total revenue due primarily to an increase in the renewal rate of support contracts by existing customers and also on an increase in the installed base. The increase in the renewal rate of support contracts by existing customers was a result of a focused sales effort to drive support contract renewals. In each of the years ended December 31, 2010 and 2009, we derived 94% and 92%, respectively, of our revenue from indirect channels. We expect indirect channel revenue to continue to be a substantial majority of our revenue.

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, warranty obligations and amortization of acquisition-related intangibles. 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.

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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.

	Year ended December 31,
(dollars in thousands)	2010		2009		2008
Revenue:
Product	$	380,277	$	267,885	$	252,929
Support and services		171,612		126,261		80,420
Total revenue		551,889		394,146		333,349
Cost of revenue:
Cost of product		81,998		61,052		60,439
Cost of support and services		50,750		37,916		28,175
Total cost of revenue		132,748		98,968		88,614
Gross profit	$	419,141	$	295,178	$	244,735
Gross margin for product		78%		77%		76%
Gross margin for support and services		70%		70%		65%
Total gross margin		76%		75%		73%

2010 Compared to 2009:    The total cost of product revenue increased $20.9 million in the year ended December 31, 2010 compared to the year ended December 31, 2009. The cost of product sold increased $15.5 million primarily due to an increase in unit volume associated with higher revenue. The increase in cost of product revenue was also attributable to increased shipping costs of $1.8 million primarily due to an increase in unit volume, amortization of acquisition-related intangible assets of $1.0 million and $0.4 million related to the fair value adjustment of inventory sold from our recently acquired entity. 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 169 employees as of December 31, 2010 compared to 136 employees as of December 31, 2009.

Gross margins increased to 76% in the year ended December 31, 2010 from 75% in the year ended December 31, 2009 primarily due to higher margins on product revenue as a result of lower unit product costs as well as a favorable product mix. Product gross margins increased to 78% in the year ended December 31, 2010 from 77% in the year ended December 31, 2009 as a result of volume leverage and favorable product mix. Gross margins for support and services remained at 70%.

2009 Compared to 2008:    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 increased manufacturing overhead of $3.7 million, and amortization of acquisition related intangibles of $2.5 million. Manufacturing overhead includes costs of manufacturing personnel and related costs, logistics services, and royalties. These increases were offset by lower per unit purchase price of product of $2.4 million, lower inventory write-downs of $1.1 million, lower warranty related costs of $0.6 million, and lower shipping costs 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 136 employees as of December 31, 2009 compared to 110 employees as of December 31, 2008. Additionally, costs related to freight, logistics, and inventory consumption increased due to increased infrastructure to support the increased installed base.

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Product gross margins increased to 77% in the year ended December 31, 2009 from 76% in the year ended December 31, 2008 primarily due lower unit product costs, lower inventory write-downs, lower warranty costs which were partially offset by higher manufacturing overhead 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.

	Year ended December 31,
(dollars in thousands)	2010		2009		2008
Sales and marketing expenses	$	225,052	$	177,487	$	140,653
Percent of total revenue		41%		45%		42%

2010 Compared to 2009:    Sales and marketing expenses increased by $47.6 million, or 27%, in the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily due to increases in personnel costs of $29.6 million, increased stock-based compensation and related payroll tax expense of $5.1 million, increased marketing-related activities of $4.7 million, increased facilities and IT related costs of $2.6 million, and higher travel and entertainment costs of $2.2 million. The increase in personnel costs, which include salaries, commissions, bonuses and related benefits and stock-based compensation, was primarily due to headcount increasing to 556 employees as of December 31, 2010 from 468 employees as of December 31, 2009 and higher commissions on increased revenue.

2009 Compared to 2008:    Sales and marketing expenses increased by $36.8 million, or 26%, in the year ended December 31, 2009 compared to the year ended December 31, 2008 primarily due to an increase in the number of sales and marketing employees, as sales and marketing headcount grew to 468 employees as of December 31, 2009 from 404 employees as of December 31, 2008, which included 27 employees from the acquisition of Mazu. The increase in employees resulted in higher salary expense and employee related benefits. Additionally, commission expense increased in the year ended December 31, 2009 as compared to the year ended December 31, 2008 due to increased revenue, higher attainment of targets and an increase in personnel. Salaries and related benefits, bonuses and commissions accounted for $20.8 million, marketing related activities accounted for $3.1 million, facilities and information technology expenses accounted for $2.0 million, travel and entertainment expenses accounted for $1.1 million, and bad debt expense accounted for $1.2 million of the $36.8 million increase in sales and marketing expenses. Stock-based compensation and related payroll tax expense was $25.5 million in the year ended December 31, 2009 compared to $23.6 million in the year ended December 31, 2008. In addition, in the year ended December 31, 2009, amortization of acquisition-related intangibles and compensation expense of acquisition-related contingent consideration to be paid to former employees of Mazu accounted for $1.6 million and $1.0 million of the increase, respectively.

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Research and Development Expenses

Research and development expenses primarily include personnel costs and facilities costs. We expense research and development expenses 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.

	Year ended December 31,
(dollars in thousands)	2010		2009		2008
Research and development expenses	$	87,117	$	69,164	$	58,658
Percent of total revenue		16%		18%		18%

2010 Compared to 2009:    Research and development expenses increased by $18.0 million, or 26%, in the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily due to increases in personnel costs of $13.9 million. The increase in personnel costs, which include salaries, bonuses and related benefits and stock-based compensation, was primarily due to headcount increasing to 357 employees as of December 31, 2010 from 271 employees as of December 31, 2009, which includes 28 employees from acquisitions in the fourth quarter of 2010.

2009 Compared to 2008:    Research and development expenses increased by $10.5 million, or 18%, in the year ended December 31, 2009 compared to the year ended December 31, 2008 due to an increase in personnel and facility-related costs as a result of research and development headcount increasing to 271 employees as of December 31, 2009 from 240 employees as of December 31, 2008. Salaries, bonuses and related benefits accounted for $6.4 million and facilities and related costs accounted for $1.2 million of the $10.5 million increase in research and development expenses. Stock-based compensation and related payroll tax expense was $14.4 million in the year ended December 31, 2009 compared to $13.1 million in the year ended December 31, 2008. Compensation expenses of acquisition-related contingent consideration to be paid to former employees of Mazu were $0.9 million in the year ended December 31, 2009. We plan to continue to invest in research and development as we develop new products and make further enhancements to existing products.

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 outside legal, audit and information technology consulting costs.

	Year ended December 31,
(dollars in thousands)	2010		2009		2008
General and administrative expenses	$	47,382	$	38,080	$	38,669
Percent of total revenue		9%		10%		12%

2010 Compared to 2009:    General and administrative expenses increased by $9.3 million, or 24%, in the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily due to an increase in personnel costs of $6.9 million. The increase in personnel costs, which include salaries, bonuses and related benefits and stock-based compensation, was primarily due to headcount increasing to 136 employees as of December, 2010 from 120 employees as of December 31, 2009.

2009 Compared to 2008:    General and administrative expenses decreased by $0.6 million, or 2%, in the year ended December 31, 2009 compared to the year ended December 31, 2008 due to a

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decrease in legal fees incurred to defend intellectual property (IP) litigation that was settled in the third quarter of 2008, offset by an increase in personnel costs, primarily as a result of headcount increasing to 120 employees as of December 31, 2009 from 98 employees as of December 31, 2008. Of the $0.6 million decrease in general and administrative expenses, legal fees decreased $4.8 million offset by an increase in salaries, bonuses and related benefits of $2.0 million. Legal fees associated with the IP litigation were zero in the year ended December 31, 2009 compared to $4.1 million in the year ended December 31, 2008. Stock-based compensation and related payroll tax expense was $11.9 million in the year ended December 31, 2009 compared to $9.2 million in the year ended December 31, 2008.

Acquisition-Related Costs

Acquisition-related costs include changes in the fair value of acquisition-related contingent consideration, transaction costs and integration-related costs. The final liability for contingent consideration relating to the Mazu acquisition, which was determined pursuant to the achievement of certain bookings targets through March 31, 2010, was paid during the third quarter of 2010.

The following table summarizes the acquisition-related costs (credits), including changes in the fair value of the acquisition-related contingent consideration distributed directly to shareholders of Mazu, transaction costs and integration-related costs, recognized in the years ended December 31, 2010 and 2009:

	Year ended December 31,
(in thousands)	2010		2009
Transaction costs	$	392	$	595
Severance		—		412
Integration costs		226		364
Change in fair value of acquisition-related contingent consideration		2,725		(1,267	)
Acquisition-related costs	$	3,343	$	104

There were no acquisition-related costs in the year ended December 31, 2008.

Other Income, Net

Other income, net consists primarily of interest income on our cash and marketable securities, 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.

	Year ended December 31,
(in thousands)	2010			2009			2008
Interest income	$	1,243		$	1,945		$	6,806
Other		(519	)		(903	)		(292	)
Total other income, net	$	724		$	1,042		$	6,514

2010 Compared to 2009:    Other income, net, decreased in the year ended December 31, 2010 due to average interest rates. Weighted average interest rates applicable to our cash and investments balances decreased to 0.3% in the year ended December 31, 2010 compared to 0.7% in the year ended December 31, 2009.

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2009 Compared to 2008:    Other income (expense), net, decreased in the year ended December 31, 2009 due to decreased interest income on cash and marketable securities balances as a result of declining interest rates. Weighted average interest rates applicable to our cash and marketable securities balances decreased to 0.7% in the year ended December 31, 2009 compared to 2.6% in the year ended December 31, 2008. Other expense in the year ended December 31, 2009 and 2008 consists primarily of foreign currency losses.

Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes were $22.8 million, $4.3 million, and ($8.3) million for the years ended December 31, 2010, 2009, and 2008, respectively. Our income tax provision (benefit) consists of federal, foreign, and state income taxes. Our effective tax rate was 40%, 38%, and (367%), for the years ended December 31, 2010, 2009, and 2008, respectively.

Our effective tax rate differs from the federal statutory rate due to state taxes, significant permanent differences, relative profitability by jurisdiction and the change in our valuation allowances on our net deferred tax assets. Significant permanent differences arise from the portion of stock-based compensation expense that is not expected to generate a tax deduction, such as stock compensation expense on grants to certain foreign employees, our employee stock purchase plan and incentive stock options, offset by the actual tax benefits in the current periods from disqualifying dispositions of those shares. Beginning in 2011, we expect our effective tax rate to be impacted by our entering into an intercompany research and development program with our Singapore subsidiary.

For years prior to 2008, we recorded a full valuation allowance because of the uncertainty of the realization of the deferred tax assets. Realization of our deferred tax assets is dependent primarily upon future taxable income. In assessing the need for a valuation allowance, we have considered our historical levels of income, expectations of future taxable income and on-going tax planning strategies.

In the year ended December 31, 2008, management reevaluated the need for a full valuation allowance on its deferred tax assets as a result of cumulative profits generated in the most recent three year period as well as other positive evidence. As a result of this evaluation, we concluded that it is more likely than not that we will realize sufficient earnings to utilize a significant portion of our deferred tax assets. Accordingly, we reversed the valuation allowance against our domestic deferred tax assets and recorded a benefit of $11.7 million. This benefit was partially offset by a provision for income taxes of $3.4 million related to federal, state and local taxes. At December 31, 2008 we maintained a valuation allowance on foreign deferred tax assets.

In the year ended December 31, 2009, management reevaluated the need for a valuation allowance on our foreign deferred tax assets. As a result of this evaluation, we concluded that it is more likely than not that we will realize sufficient future taxable income to utilize our foreign deferred tax assets. Accordingly, we reversed the valuation allowance against our foreign deferred tax assets and recorded an income tax benefit of $0.7 million in 2009.

As part of our accounting for the acquisition of Mazu in 2009, we established deferred tax assets for federal net operating loss carryforwards and research and development credit carryforwards that are subject to limitation under Sections 382 and 383 of the Internal Revenue Code. Accordingly, we recorded a valuation allowance of $8.8 million related to a portion of the federal net operating loss carryforwards and research and development credit carryforwards that we do not expect to be realized. Any subsequent reduction of the valuation allowance and the recognition of the associated tax benefits will be recorded to our provision for income taxes.

In the year ended December 31, 2010, management concluded that a valuation allowance was needed on our California income tax credit carryforwards. Due to a change in the Company’s forecasted income allocated to California for tax years after 2010, it is more likely than not that the

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California income tax credits carryforwards as of December 31, 2010 will not be utilized in the foreseeable future. Accordingly, we established a 100% valuation allowance against the tax credits and recorded additional income tax expense of $3.1 million in 2010.

We are subject to potential income tax audits on open tax years by any taxing jurisdiction in which we operate in. The taxing authorities of the most significant jurisdictions are the United States Internal Revenue Service, California Franchise Tax Board and HM Revenue and Customs in the United Kingdom (UK). We do not anticipate any material adjustments to our tax provisions relating to previously filed tax returns. The statute of limitations for federal, state, and UK tax purposes are generally three, four, and one year(s) respectively; however, we continue to carryover tax attributes prior to these periods for federal and state purposes, which would still be open for examination by the respective tax authorities. Accordingly, all years since our inception are open to tax examinations for federal and state purposes. Our 2009 UK tax is open for examination.

Quarterly Results of Operations

The following table sets forth our unaudited quarterly consolidated statement of operations data for each of the eight quarters ended December 31, 2010. In management’s opinion, the data has been prepared on the same basis as the audited consolidated financial statements included in this Annual Report on Form 10-K, and reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

	For the three months ended
(in thousands, except per share data)	2010								2009
	Dec. 31		Sep. 30		Jun. 30		Mar. 31		Dec. 31			Sep. 30			Jun. 30			Mar. 31
Revenue:
Product	$	118,194	$	102,841	$	84,505	$	74,737	$	77,563		$	69,543		$	60,314		$	60,465
Support and services		47,239		44,965		41,722		37,686		35,336			32,506			30,673			27,746
Total revenue		165,433		147,806		126,227		112,423		112,899			102,049			90,987			88,211
Cost of revenue:
Cost of product		24,865		21,889		18,612		16,632		17,276			14,982			14,389			14,405
Cost of support and services		14,274		12,878		12,364		11,234		10,531			9,410			9,466			8,509
Total cost of revenue		39,139		34,767		30,976		27,866		27,807			24,392			23,855			22,914
Gross profit		126,294		113,039		95,251		84,557		85,092			77,657			67,132			65,297
Operating expenses		105,701		90,546		84,223		82,424		84,529			67,783			65,186			67,337
Operating income (loss)		20,593		22,493		11,028		2,133		563			9,874			1,946			(2,040	)
Other income, net		41		384		184		115		218			141			45			638
Income (loss) before income taxes		20,634		22,877		11,212		2,248		781			10,015			1,991			(1,402	)
Provision (benefit) for income taxes		8,023		8,967		4,658		1,165		(151	)		4,546			2,281			(2,376	)
Net income (loss)	$	12,611	$	13,910	$	6,554	$	1,083	$	932		$	5,469		$	(290	)	$	974
Net income (loss) per share-basic	$	0.08	$	0.10	$	0.05	$	0.01	$	0.01		$	0.04		$	—		$	0.01
Net income (loss) per share-diluted	$	0.08	$	0.09	$	0.04	$	0.01	$	0.01		$	0.04		$	—		$	0.01
Stock-based compensation expense and related payroll taxes included in above	$	21,939	$	17,847	$	18,288	$	15,874	$	15,959		$	13,951		$	13,990		$	12,808
Acquisition-related costs (credits) included in above	$	618	$	—	$	—	$	2,725	$	7,235		$	(1,809	)	$	(1,264	)	$	2,413

Our operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful.

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You should not rely on our past results as an indication of our future performance. In addition, a significant portion of our quarterly sales typically occurs during the last month of the quarter, which we believe reflects customer buying patterns of products similar to ours and other products in the technology industry generally. As a result, our quarterly operating results are difficult to predict even in the near term.

Commencing with the first shipment of our products in the second quarter of 2004, revenue has increased sequentially in all but one quarter, due to increases in the number of products and support and services sold to new and existing customers and international expansion. Cost of revenue has increased sequentially each quarter in absolute dollars, but has decreased over time as a percentage of revenue. The increase in gross margins is primarily due to higher margins on product revenue as a result of lower unit product costs. Operating expenses have increased over time, as we continued to add headcount and related costs to accommodate our growing business.

Liquidity and Capital Resources

(in thousands)	As of December 31,
	2010			2009			2008
Working capital	$	374,898		$	281,965		$	254,079
Cash and cash equivalents		165,726			67,749			95,378
Short and long-term investments		335,414			257,938			172,398
	Year ended December 31,
(in thousands)	2010			2009			2008
Cash provided by operating activities	$	145,515		$	96,487		$	67,606
Cash used in investing activities		(114,997	)		(115,435	)		(101,215	)
Cash provided by (used in) financing activities		67,349			(8,984	)		(33,515	)

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.

Short and long-term 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 income (loss) in our stockholders’ equity as of December 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 marketable securities.

Cash and cash equivalents, short-term investments and long-term investments increased by $175.5 million to $501.1 million in the year ended December 31, 2010.

Pursuant to certain lease agreements and as security for our merchant services agreement with our principal financial institution, we are required to maintain cash reserves, classified as restricted cash. Current restricted cash totaled zero at December 31, 2010 and $1.5 million at December 31, 2009. Long-term restricted cash totaled $2.6 million at December 31, 2010 and 2009. Long-term restricted cash is included in other assets in the 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.

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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.

Cash Provided by Operating Activities

Our largest source of operating cash flows is the 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 $49.0 million to $145.5 million in the year ended December 31, 2010 compared to $96.5 million in the year ended December 31, 2009. The increase in cash flow from operating activities was due to an increase in cash flow of $20.1 million from operations after adjusting for non-cash items, including depreciation and amortization, and stock-based compensation, and $28.9 million from the change in operating assets and liabilities.

Cash provided by operating activities was $96.5 million in the year ended December 31, 2009 compared to $67.6 million in the year ended December 31, 2008. The increase in cash flow from operating activities was due to an increase in cash flow of $8.7 million from operations after adjusting for non-cash items, including depreciation and amortization, and stock-based compensation, and $20.2 million from the change in operating assets and liabilities.

Cash Used in Investing Activities

Cash 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 was $115.0 million in the year ended December 31, 2010 compared to $115.4 million in the year ended December 31, 2009. Cash used in investing activities in 2010 includes $26.9 million used for acquisitions, $10.7 million used for purchases of capital equipment, and $77.4 million used to purchase short-term and long-term investments. Cash used in investing activities in 2009 includes $20.5 million used for acquisitions, $9.0 million used for capital expenditures, and $86.0 million used to purchase short-term investments.

Cash used in investing activities increased in the year ended December 31, 2009 compared to the year ended December 31, 2008 primarily due to the $20.5 million used for acquisitions. This was partially offset by lower purchases of marketable securities and lower capital expenditures.

Cash provided by (used in) Financing Activities

Cash provided by financing activities was $67.3 million in the year ended December 31, 2010. Cash provided from the exercise of stock options was $64.3 million in the year ended December 31, 2010 compared to $25.3 million in the year ended December 31, 2009, and cash provided from the excess tax benefit relating to employee stock plans was $27.5 million in the year ended 2010 compared to $2.8 million in the year ended 2009. Cash used for repurchases of common stock was $29.0 million in the year ended December 31, 2009, whereas no repurchases of common stock occurred in the year ended December 31, 2010. Cash used to net share settle equity awards was

58

$12.3 million in 2010 compared to $3.0 million in 2009. Of the $15.2 million used for the Mazu acquisition-related contingent consideration in the year ended December 31, 2010, $9.9 million was estimated as of the acquisition date, and therefore recorded as a financing cash outflow. There were no acquisition-related contingent consideration payments in the year ended December 31, 2009. We used $2.2 million of cash in 2010 to pay down debt assumed in the Global Protocols acquisition and we used $5.0 million to pay down the debt acquired in the acquisition of Mazu in the year ended December 31, 2009.

Cash used in financing activities was $9.0 million in the year ended December 31, 2009. Cash used for repurchases of common stock was $29.0 million in the year ended December 31, 2009 compared to $50.0 million in the year ended December 31, 2008. Cash provided from the exercise of stock options was $22.2 million in the year ended December 31, 2009 compared to $11.6 million in the year ended December 31, 2008, cash used to pay down the debt acquired in the acquisition of Mazu was $5.0 million in the year ended December 31, 2009.

We believe that our net proceeds from operations, together with our cash and investments balance at December 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 the fourth quarter of 2010, we acquired Cace and Global Protocols for approximately $27 million of cash and in February 2009, we acquired Mazu for approximately $25 million of cash, which was paid 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 December 31, 2010:

	Year ending December 31,
(in thousands)	Total		2011		2012		2013		2014		2015		Thereafter
Contractual Obligations
Operating leases	$	30,431	$	8,415	$	8,465	$	7,508	$	4,366	$	637	$	1,040
Purchase obligations (1)		8,345		8,336		9		—		—		—		—
Total contractual obligations	$	38,776	$	16,751	$	8,474	$	7,508	$	4,366	$	637	$	1,040

(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.

Off-Balance Sheet Arrangements

At December 31, 2010 and 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.

59

Other

At December 31, 2010 and 2009, we did not have commercial commitments under lines of credit, standby repurchase obligations or other such debt arrangements.

Recent Accounting Pronouncements

See Note 18 of “Notes to Consolidated Financial Statements” for recent accounting pronouncements that could have an effect on us.

Item 7A. 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 $501.1 million and $325.7 million at December 31, 2010 and 2009, respectively. Cash and cash equivalents of $165.7 million and $67.7 million at December 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 $335.4 million and $257.9 million at December 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 relatively short duration of these investments, we do not believe that we have any material exposure to changes in the fair market value as a result of changes in interest rates. Declines in interest rates, however, will reduce future investment income. The volatility in the credit markets in late 2008 through mid 2009 caused a macro shift in investments into highly liquid short-term investments such as U.S. Treasury bills. This has caused a significant decline in short-term interest rates, which resulted in a significant reduction in our investment income. This macro economic trend of lower interest rates on high quality interest bearing investments continued throughout 2010. In addition, the volatility in the credit markets increases the risk of write-downs of investments to fair market value.

60

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following financial statements are filed as part of this Annual Report on Form 10-K

	Page No.
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm		62
Consolidated Balance Sheets		64
Consolidated Statements of Operations		65
Consolidated Statements of Stockholders’ Equity		66
Consolidated Statements of Cash Flows		67
Notes to Consolidated Financial Statements		68

61

REPORT OF ERNST & YOUNG LLP,

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Riverbed Technology, Inc.

We have audited the accompanying consolidated balance sheets of Riverbed Technology, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15(b). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Riverbed Technology, Inc. at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, under the heading Revenue Recognition, the Company changed their method of accounting for revenue recognition with the adoption of amendments to the FASB ASC resulting from Accounting Standards Update No. 2009-13,Multiple-Deliverable Revenue Arrangements, and Accounting Standards Update No. 2009-14,Certain Revenue Arrangements That Include Software Elements, both early adopted effective January 1, 2010. As discussed in Note 1 to the consolidated financial statements, under the heading Business Combinations, the Company adopted FASB Statement No. 141(R)Business Combinations (codified in FASB ASC Topic 805, Business Combinations) effective January 1, 2009.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Riverbed Technology, Inc.’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 8, 2011 expressed an unqualified opinion thereon.

/s/    Ernst & Young LLP

San Francisco, California

February 8, 2011

62

REPORT OF ERNST & YOUNG LLP,

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Riverbed Technology, Inc.

We have audited Riverbed Technology, Inc.’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Riverbed Technology, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in Part 1, Item 9a of this Annual Report on Form 10-K under the heading “Management’s Report on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, Riverbed Technology, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Riverbed Technology, Inc as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010 of Riverbed Technology, Inc. and our report dated February 8, 2011 expressed an unqualified opinion thereon.

/s/    Ernst & Young LLP

San Francisco, California

February 8, 2011

63

RIVERBED TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	As of December 31,
	2010		2009
ASSETS
Current assets:
Cash and cash equivalents	$	165,726	$	67,749
Short-term investments		259,245		257,938
Trade receivables, net of allowances of $1,402 and $1,693 as of December 31, 2010 and 2009, respectively		50,726		48,468
Inventory		15,180		9,742
Deferred tax assets		20,832		9,451
Prepaid expenses and other current assets		30,958		16,816
Total current assets		542,667		410,164
Long-term investments		76,169		—
Fixed assets, net		21,522		21,698
Goodwill		25,653		11,312
Intangibles, net		30,789		19,389
Deferred tax assets, non-current		35,775		38,619
Other assets		3,506		4,097
Total assets	$	736,081	$	505,279
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	27,015	$	19,053
Accrued compensation and benefits		32,915		18,692
Other accrued liabilities		18,813		25,976
Deferred revenue		89,026		64,478
Total current liabilities		167,769		128,199
Deferred revenue, non-current		26,511		21,972
Other long-term liabilities		4,381		2,801
Total long-term liabilities		30,892		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; 150,868 and 140,258 shares issued and outstanding as of December 31, 2010 and 2009, respectively		518,052		367,236
Retained earnings (Accumulated deficit)		19,309		(14,849	)
Accumulated other comprehensive income (loss)		59		(80	)
Total stockholders’ equity		537,420		352,307
Total liabilities and stockholders’ equity	$	736,081	$	505,279

See Notes to Consolidated Financial Statements

64

RIVERBED TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Year ended December 31,
	2010			2009			2008
Revenue:
Product	$	380,277		$	267,885		$	252,929
Support and services		171,612			126,261			80,420
Total revenue		551,889			394,146			333,349
Cost of revenue:
Cost of product		81,998			61,052			60,439
Cost of support and services		50,750			37,916			28,175
Total cost of revenue		132,748			98,968			88,614
Gross profit		419,141			295,178			244,735
Operating expenses:
Sales and marketing		225,052			177,487			140,653
Research and development		87,117			69,164			58,658
General and administrative		47,382			38,080			38,669
Other charges		—			—			11,000
Acquisition-related costs		3,343			104			—
Total operating expenses		362,894			284,835			248,980
Operating income (loss)		56,247			10,343			(4,245	)
Other income
Interest income		1,243			1,945			6,806
Other expense, net		(519	)		(903	)		(292	)
Total other income		724			1,042			6,514
Income before provision for income taxes		56,971			11,385			2,269
Provision (benefit) for income taxes		22,813			4,300			(8,332	)
Net income	$	34,158		$	7,085		$	10,601
Net income per common share:
Basic	$	0.24		$	0.05		$	0.07
Diluted	$	0.22		$	0.05		$	0.07
Shares used in computing net income per common share:
Basic		145,012			138,400			141,514
Diluted		155,999			143,080			146,534

See Notes to Consolidated Financial Statements

65

RIVERBED TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years ended December 31, 2010, 2009 and 2008

(in thousands)

	Common stock and additional paid-in-capital						Retained Earnings (Accumulated deficit)			Accumulated other comprehensive income (loss)			Total
	Shares			Amount
Balance at December 31, 2007		142,664		$	292,200		$	(32,535	)	$	53			259,718
Repurchase of common stock		(8,056	)		(49,992	)		—			—			(49,992	)
Common stock issued under stock plans		3,766			13,550			—			—			13,550
Stock options repurchased		(84	)		(27	)		—			—			(27	)
Reclassification of options exercised but not vested		—			250			—			—			250
Tax benefit from employee stock plans		—			11,451			—			—			11,451
Stock-based compensation		—			48,450			—			—			48,450
Comprehensive income:
Currency translation adjustments		—			—			—			(476	)		(476	)
Unrealized gain on marketable securities, net of tax		—			—			—			304			304
Net income		—			—			10,601			—			10,601
Comprehensive income														10,429
Balance at December 31, 2008		138,290			315,882			(21,934	)		(119	)		293,829
Repurchase of common stock		(3,910	)		(29,016	)		—			—			(29,016	)
Common stock issued under stock plans, net of shares withheld for employee taxes		5,878			23,207			—			—			23,207
Reclassification of options exercised but not vested		—			92			—			—			92
Tax benefit from employee stock plans		—			1,816			—			—			1,816
Stock-based compensation		—			55,255			—			—			55,255
Comprehensive income:
Currency translation adjustments		—			—			—			497			497
Unrealized loss on marketable securities, net of tax		—			—			—			(458	)		(458	)
Net income		—			—			7,085			—			7,085
Comprehensive income														7,124
Balance at December 31, 2009		140,258			367,236			(14,849	)		(80	)		352,307
Common stock issued under stock plans, net of shares withheld for employee taxes		10,610			51,964			—			—			51,964
Tax benefit from employee stock plans		—			28,051			—			—			28,051
Stock-based compensation		—			70,801			—			—			70,801
Comprehensive income:
Currency translation adjustments		—			—			—			111			111
Unrealized gain on marketable securities, net of tax		—			—			—			28			28
Net income		—			—			34,158			—			34,158
Comprehensive income														34,297
Balance at December 31, 2010		150,868		$	518,052		$	19,309		$	59		$	537,420

See Notes to Consolidated Financial Statements

66

RIVERBED TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year ended December 31,
	2010			2009			2008
Operating Activities:
Net income	$	34,158		$	7,085		$	10,601
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,855			14,340			7,965
Stock-based compensation		70,801			56,218			50,408
Deferred taxes		(11,851	)		(13,517	)		(32,619	)
Excess tax benefit from employee stock plans		(27,538	)		(2,792	)		(4,909	)
Changes in operating assets and liabilities:
Trade receivables		(1,026	)		940			1,926
Inventory		(4,414	)		1,341			(6,040	)
Prepaid expenses and other assets		(13,515	)		(2,756	)		(1,489	)
Accounts payable		8,392			(665	)		994
Accrued and other liabilities		23,379			6,640			3,884
Acquisition-related contingent consideration		(5,249	)		1,093			—
Income taxes payable		27,436			1,772			11,499
Deferred revenues		29,087			26,788			25,386
Net cash provided by operating activities		145,515			96,487			67,606
Investing Activities:
Capital expenditures		(10,690	)		(8,978	)		(12,406	)
Purchase of available for sale securities		(526,051	)		(375,056	)		(424,864	)
Proceeds from maturities of available for sale securities		404,767			272,818			245,312
Proceeds from sales of available for sale securities		43,862			16,250			90,743
Acquisitions, net of cash and cash equivalents acquired		(26,885	)		(20,469	)		—
Net cash used in investing activities		(114,997	)		(115,435	)		(101,215	)
Financing Activities:
Acquisition-related contingent consideration		(9,909	)		—			—
Proceeds from issuance of common stock under employee stock plans, net of repurchases		64,295			25,288			11,568
Cash used to net share settle equity awards		(12,331	)		(3,044	)		—
Payments for repurchases of common stock		—			(29,016	)		(49,992	)
Payments of debt		(2,244	)		(5,004	)		—
Excess tax benefit from employee stock plans		27,538			2,792			4,909
Net cash provided by (used in) financing activities		67,349			(8,984	)		(33,515	)
Effect of exchange rate changes on cash and cash equivalents		110			303			(477	)
Net increase (decrease) in cash and cash equivalents		97,977			(27,629	)		(67,601	)
Cash and cash equivalents at beginning of period		67,749			95,378			162,979
Cash and cash equivalents at end of period	$	165,726		$	67,749		$	95,378
Supplemental schedule of cash flow data:
Cash paid for income taxes	$	18,158		$	14,935		$	11,994

See Notes to Consolidated Financial Statements

67

RIVERBED TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Financial Statements

The consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. Intercompany transactions and balances have been eliminated.

Use of Estimates

Our 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 consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant estimates and assumptions made by management include the determination of the fair value of stock awards issued, the allowance for doubtful accounts, inventory valuation, measurement of our warranty liability, the accounting for income taxes, including the determination of the timing of the establishment or release of our valuation allowance related to our deferred tax asset balances, the accounting for business combinations 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 are made. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected.

Effective November 8, 2010, we completed a two-for-one stock split of our outstanding shares of common stock. In accordance with GAAP, we have retroactively displayed the effect of the change in our consolidated financial statements.

Subsequent Events

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

Cash and Cash Equivalents

We consider all highly liquid investments purchased with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value.

Investments

We determine the appropriate classification of short and long-term investments at the time of purchase and reevaluate such determination at each balance sheet date. The fair value of our

68

RIVERBED TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

investments is determined as the exit price in the principal market in which we would transact. Securities, which are classified as available for sale at December 31, 2010, 2009 and 2008, are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. Unrealized gains and losses to date have not been material. Realized gains and losses and declines in value judged by us to be other-than-temporary on securities available for sale are included as a component of interest income (expense). The cost of securities sold is based on the specific-identification method. Interest on securities classified as available for sale is included as a component of interest income.

Allowances for Doubtful Accounts

We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of trade receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding receivables. For those receivables not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable. In determining these rates, we analyze our historical collection experience and current economic trends. The allowance for doubtful accounts was $1.4 million and $1.7 million at December 31, 2010 and 2009, respectively.

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 $4.8 million, $4.9 million and $6.0 million for the years ended December 31, 2010, 2009 and 2008, respectively.

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 December 31, 2010 and 2009 our service inventory balance was $7.0 million and $6.3 million, respectively. In the years ended December 31, 2010, 2009 and 2008, we recognized $3.1 million, $2.9 million and $2.0 million, respectively, to cost of support and services relating to service inventory.

Internal-Use Software Development Costs

We capitalize qualifying costs for computer software developed for or obtained for internal-use, which are incurred during the application development stage, and amortize them over the software’s estimated useful life.

We capitalized $4.7 million, $5.3 million and $3.5 million in internal use software during the years ended December 31, 2010, 2009 and 2008, respectively. Amortization expense related to these assets

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totaled $3.1 million, $2.3 million and $1.1 million during the years ended December 31, 2010, 2009 and 2008, respectively. Software development costs required to be capitalized for software sold, leased, or otherwise marketed have not been material to date.

Impairment of Long-Lived Assets

We review long-lived assets and identifiable intangible assets, excluding goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. We assess these assets for impairment based on estimated undiscounted future cash flows from these assets. If the carrying value of the assets exceeds the estimated future undiscounted cash flows, a loss is recorded for the excess of the asset’s carrying value over the fair value. To date we have not recognized any impairment loss for long-lived assets.

Goodwill, Intangible Assets and Impairment Assessments

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill is tested for impairment at least annually during the fourth quarter (and more frequently if certain indicators are present). In the event that we determine that the carrying value of our single reporting unit is less than the reporting unit’s fair value, we will incur an impairment charge for the amount of the difference during the quarter in which the determination is made. We performed our annual review of goodwill in the fourth quarter of 2010 and concluded that no impairment existed at December 31, 2010.

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

Recoverability of indefinite lived intangible assets is measured by comparison of the carrying amount of the asset to the future discounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. We did not recognize any goodwill or intangible asset impairment charges in the years ended December 31, 2010, 2009 or 2008.

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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. Our warranty liability was approximately $1.3 million and $0.7 million at December 31, 2010 and 2009, respectively. The following is a summary of the warranty reserve activity for the three years ended December 31, 2010:

	Year ended December 31,
(in thousands)	2010			2009			2008
Beginning balance	$	701		$	1,205		$	1,089
Additions charged to operations		1,460			887			1,745
Warranty costs incurred		(832	)		(636	)		(1,629	)
Adjustments related to pre-existing warranties		—			(755	)		—
Ending balance	$	1,329		$	701		$	1,205

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;

(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 (TPE) of selling price; 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.

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Our product revenue also includes revenue from the sale of 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 further 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 a substantial majority of such historical stand-alone transactions falling within a reasonably narrow range 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

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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 year 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 year ended December 31, 2010, we recognized $175.2 million of software revenue under the industry specific software revenue recognition rules. Software revenue includes revenue recognized in 2010 from arrangements entered into before January 1, 2010 for sales of stand-alone software, hardware appliances, support and services. Software revenue also includes all stand-alone software arrangements and support contract renewals entered into after December 31, 2009. In the year ended December 31, 2010, we recognized $376.7 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 December 31, 2010, we recorded $0.4 million of deferred product revenue related to sales under the industry specific software revenue recognition rules and $6.3 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 related 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 reasonably assured.

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

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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 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.

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 only for those equity awards expected to vest.

The fair value of the RSUs is determined based on the stock price on the date of grant. We estimated the fair value of stock options and stock purchased under our Purchase Plan using the Black-Scholes model. This model utilizes the estimated fair value of common stock and requires that, at the date of grant, we use the expected term of the grant, the expected volatility of the price of our common stock, risk-free interest rates and expected dividend yield of our common stock. 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 for stock options and six months to two years for stock purchased under our Purchase Plan.

The expected term represents the period that stock options are expected to be outstanding. During the first three quarters of 2010 and for the years ended December 31, 2009 and 2008, we elected to use the simplified method of determining the expected term of stock options due to

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insufficient historical exercise data as a publicly traded company. During the fourth quarter of 2010, we determined that we had sufficient historical information to use a method based on historical exercise patterns and post vesting termination behavior, which we believe is more representative of our expected term.

During the first three quarters of 2010 and for the years ended December 31, 2009 and 2008, the computation of our expected volatility for stock options was based on the historical volatility of comparable companies from a representative peer group selected based on industry, financial and market capitalization data, due to insufficient historical volatility data as a publicly traded company. During the fourth quarter of 2010, we determined that we had sufficient historical volatility data to use a blended historical and implied volatility. The computation of expected volatility for the Purchase Plan for the years ended December 31, 2010 and 2009 is based on our historical volatility. The computation of expected volatility for the Purchase Plan for the year ended December 31, 2008 is based on historical volatility of comparable companies.

Business Combinations

Effective January 1, 2009, we adopted ASC Topic 805,Business Combinations. Under ASC Topic 805, we are required to recognize all the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; that changes in the estimated fair value of contingent consideration after the initial measurement on the acquisition date be recognized in earnings in the period of the change in estimate; and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. In addition, the fair value of in-process research and development is recorded as an indefinite-lived intangible asset until the underlying project is completed, at which time the intangible asset is amortized over its estimated useful life, or abandoned, at which time the intangible asset is expensed.

The purchase price allocation process requires management to make significant estimates and assumptions, especially at acquisition date with respect to intangible assets, estimated contingent consideration payments and pre-acquisition contingencies.

Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired company and are inherently uncertain. Examples of critical estimates in accounting for acquisitions include but are not limited to:

Ÿ the estimated fair value of the acquisition-related contingent consideration, which is performed using a probability-weighted discounted cash flow model based upon the forecasted achievement of post acquisition bookings targets;

Ÿ the future expected cost to develop the in-process research and development into commercially viable products and the estimated cash flows from the products when completed;

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

Ÿ the discount rates.

Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

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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 expected tax consequences of temporary differences between the tax bases of assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. 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 estimates and assumptions in preparing our income tax provision.

We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available to us for tax reporting purposes, as well as other relevant factors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses, future changes in income tax law, or variances between our actual and anticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates.

We are subject to periodic audits by the Internal Revenue Service and other taxing authorities. These audits may challenge certain tax positions we have taken, such as the timing and amount of deductions and allocation of taxable income to the various tax jurisdictions. The accounting for income tax contingencies may require significant management judgment in estimating final outcomes. Actual results could differ materially from these estimates and could significantly affect the effective tax rate and cash flows in future years. As of December 31, 2010, we have $4.1 million recorded for such contingencies and have recognized a decrease in our deferred tax assets of $2.8 million. We have elected to record interest and penalties in the financial statements as a component of income taxes.

Concentrations of Risk

Financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities, and trade receivables. Investment policies have been implemented that limit investments to investment grade securities and the average portfolio maturity is less than a year. 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 single customer represented more than 10% of our trade receivable balance at December 31, 2010. One customer represented more than 10% of our revenue for the year ended December 31, 2010. No customer represented more than 10% of our revenue for the years ended December 31, 2009 or 2008.

We outsource the production of our inventory to third-party manufacturers. We rely on purchase orders or long-term contracts with our contract manufacturers. At December 31, 2010, we had no long-term contractual commitment with any manufacturer; however, we did have a 90 day commitment totaling $8.0 million.

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Foreign Currency Translation

While the majority of our revenue contracts are denominated in U.S. dollars, we incur certain operating expenses in various foreign currencies. The functional currency of our foreign operations is the local country’s currency. Consequently, expenses of operations outside the U.S. are translated into U.S. dollars using average exchange rates for the period reported while assets and liabilities of operations outside the U.S. are translated into U.S. dollars using end of period exchange rates. Foreign currency translation adjustments not affecting net income are included in stockholders’ equity as a component of accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. The revaluation effect of foreign currency fluctuations on intercompany balances is recorded to foreign currency gain (loss) and included in other income (expense) in the accompanying consolidated statements of operations. Foreign currency losses included in other income (expense) for the years ended December 31, 2010, 2009 and 2008, were $0.5 million, $0.7 million and $0.3 million, respectively.

Advertising

Advertising costs are expensed as incurred. Adverting expenses recorded as marketing expenses were $1.7 million, $1.1 million and $1.2 million for the years ended December 31, 2010, 2009 and 2008, respectively.

Cooperative advertising obligations with customers are accrued and the costs expensed at the time the related revenue is recognized. Cooperative advertising expenses are recorded as marketing expenses to the extent that an advertising benefit separate from the revenue transaction can be identified and the cash paid does not exceed the fair value of that advertising benefit received. Otherwise, such cooperative advertising obligations with customers are recorded as a reduction of revenue. Cooperative advertising expenses recorded as a reduction of revenue were $6.3 million, $3.1 million and $0.3 million in the years ended December 31, 2010, 2009 and 2008, respectively.

Research and Development

All costs to develop our products are expensed as incurred.

2.     ACQUISITIONS

Fiscal 2010 Acquisitions

During the fourth quarter of fiscal 2010, we acquired Cace Technologies, Inc. and Global Protocols, LLC to expand our product offerings. We have included the financial results of these companies in our consolidated results from their respective acquisition dates. These acquisitions were not significant, individually or in the aggregate, and therefore the pro forma results of operations have not been presented. Combined, the total purchase price for these acquisitions was approximately $26.9 million, which was paid in cash. The preliminary purchase price allocation for these acquisitions included $14.3 million of goodwill, $13.5 million of identifiable intangible assets, $3.3 million of in-process research and development intangible assets and $3.5 million of net tangible liabilities. The preliminary purchase price allocations for each of these acquisitions were based upon a preliminary valuation and our estimates and assumptions for certain of these acquisitions are subject to change as we obtain additional information for our estimates during the respective measurement periods. The primary areas of those purchase price allocations that are not yet finalized relate to income and non-income based taxes and residual goodwill.

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We have evaluated and continue to evaluate the pre-acquisition tax contingencies related to our 2010 acquisitions that existed as of the acquisition date. If any pre-acquisition tax contingencies that existed as of the acquisition date become probable in nature and estimable following our completion of the final tax returns for the acquired entities, amounts for such matters will be recorded against goodwill.

In addition, during 2010, we recorded acquisition-related transaction and integration costs of $0.6 million and acquisition-related compensation costs of $0.5 million. The acquisition-related compensation costs were recorded pursuant to certain employee retention agreements, which total $5.0 million and will be recorded over a two year period.

Fiscal 2009 Acquisitions

We acquired Mazu Networks, Inc. on February 19, 2009 (the “acquisition date”) 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 consolidated financial statements since the acquisition date.

Acquisition date estimated fair value

Upon closing, we made payments totaling $23.1 million in cash for all of the outstanding securities of Mazu. Pursuant to the merger agreement, additional cash payments were due to Mazu shareholders upon the achievement of certain bookings targets through March 31, 2010. At the acquisition date, we recorded a liability for the estimated fair value of the acquisition-related contingent consideration to be paid to Mazu shareholders (acquisition-related contingent consideration) of $9.9 million. This liability was estimated using a probability-weighted discounted cash flow model on the achievement of the bookings target. At the acquisition date, we estimated the fair value of the acquisition-related contingent consideration to be paid to the former employees of Mazu (acquisition-related compensation costs) to be $3.8 million. This fair value was also estimated using a probability-weighted discounted cash flow model on the achievement of the bookings target. No liability for the acquisition-related compensation cost was recorded as of the acquisition date, as this component was considered compensatory and was recognized as compensation cost in operating expense ratably over the period from the acquisition date to March 31, 2010.

As of the acquisition date, the 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

Acquisition-related contingent consideration

The final liability for the acquisition-related contingent consideration, which included the acquisition-related contingent consideration paid to Mazu shareholders and the acquisition-related compensation costs, was $15.2 million. This liability was paid during the third quarter of 2010.

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The acquisition-related contingent consideration paid to Mazu shareholders was $11.4 million, based on the achievement of certain bookings targets through March 31, 2010. During the fiscal year ended 2010, we recognized $2.7 million of acquisition-related costs due to the change in fair value of the acquisition-related contingent consideration distributed directly to the Mazu shareholders. During the fiscal year 2009, we recorded a net charge of $0.1 million, which included the transaction costs such as legal, accounting, valuation and other professional services of $0.6 million and integration costs of $0.8 million, offset by the cumulative changes in fair value of the acquisition-related contingent consideration to be paid directly to the Mazu shareholders of $1.3 million.

The acquisition-related compensation costs component of the acquisition-related contingent consideration was $3.8 million, based on the achievement of certain bookings targets through March 31, 2010. During the fiscal years 2010 and 2009, we recognized $1.4 million and $2.4 million, respectively, of acquisition-related compensation costs.

Acquisition-related costs

The following table shows the acquisition-related costs pursuant to the 2010 and 2009 acquisitions and the acquisition-related compensation costs that were recognized in operating expenses for the fiscal years 2010 and 2009, respectively:

	Year ended December 31,
(in thousands)	2010		2009
Sales and marketing	$	588	$	970
Research and development		1,005		856
General and administrative		324		534
Acquisition-related costs		3,343		104
Total acquisition-related costs	$	5,260	$	2,464

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 and common stock subject to repurchase.

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

	Year ended December 31,
(in thousands, except per share data)	2010		2009		2008
Net income	$	34,158	$	7,085	$	10,601
Weighted average common shares outstanding — basic		145,012		138,400		141,514
Dilutive effect of employee stock plans		10,987		4,680		5,020
Weighted average common shares outstanding — diluted		155,999		143,080		146,534
Basic net income per share	$	0.24	$	0.05	$	0.07
Diluted net income per share	$	0.22	$	0.05	$	0.07

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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:

(in thousands)	Year ended December 31,
	2010		2009		2008
Total potential shares of common stock excluded from the computation of earning per share (1)		1,875		18,336		17,285

(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 of including them would have been anti-dilutive under the treasury stock method.

4.     FAIR VALUE OF ASSETS AND LIABILITIES

As of December 31, 2010, the fair value measurements of our cash, cash equivalents and investments consisted of the following:

(in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Corporate bonds and notes	$	7,746	$	—	$	7,746	$	—
U.S. government backed securities		4,999		4,999		—		—
U.S. government-sponsored enterprise obligations		78,186		—		78,186		—
Money market funds		52,438		52,438		—		—
Cash		22,357		—		—		—
Total cash and cash equivalents	$	165,726	$	57,437	$	85,932	$	—
Corporate bonds and notes	$	113,179	$	—	$	113,179	$	—
U.S. government backed securities		27,620		27,620		—		—
U.S. government-sponsored enterprise obligations		189,100		—		189,100		—
FDIC-backed certificates of deposit		5,515		—		5,515		—
Total investments	$	335,414	$	27,620	$	307,794	$	—

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	$	48,984	$	208,954	$	—
Liabilities:
Acquisition-related contingent consideration	$	11,002	$	—	$	—	$	11,002

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

(in thousands)	Fair Value		Unrealized Gains		Unrealized Losses
Corporate bonds and notes	$	70,082	$	81	$	—
Corporate bonds and notes		43,097		—		(31	)
U.S. government backed securities		27,620		67		—
U.S. government-sponsored enterprise obligations		83,978		56		—
U.S. government-sponsored enterprise obligations		105,122		—		(96	)
FDIC-backed certificates of deposit		1,925		5		—
FDIC-backed certificates of deposit		3,590				(9	)
Total investments at December 31, 2010	$	335,414	$	209	$	(136	)
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 December 31, 2010 and have determined that no investments with unrealized losses are 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 December 31, 2010 and 2009 was $165.7 million and $67.7 million, and the weighted average interest rates were 0.2% and 0.4%, respectively. The carrying value approximates fair value at December 31, 2010 and 2009.

Investments, which are classified as available for sale at December 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. 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 and FDIC-backed certificates of deposit. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions

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in measuring fair value. As of December 31, 2010 and 2009, we had no investments valued as Level 3 instruments. As of December 31, 2010 and 2009, the investments are recorded at amortized cost, which approximates fair market value. Generally 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 principal financial institution, we are required to maintain cash reserves, classified as restricted cash. Current restricted cash totaled zero at December 31, 2010 and $1.5 million at December 31, 2009. Current restricted cash is included in prepaid expenses and other current assets in the consolidated balance sheet and consists primarily of collateral for letters of credit for the security deposit on the sublease of our corporate headquarters and was restricted until the end of the term of the sublease which expired on August 30, 2010. Long-term restricted cash totaled $2.6 million at December 31, 2010 and 2009, respectively. Long-term restricted cash is included in other assets in the 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.

Acquisition-related Contingent Consideration

We estimated the fair value of the acquisition-related contingent consideration using a probability-weighted discounted cash flow model. This fair value measure 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.

The following table represents the change in the acquisition-related contingent consideration liability during the years ended December 31, 2010 and 2009:

(in thousands)	Year ended December 31,
	2010			2009
Beginning balance	$	11,002		$	—
Acquisition date fair value measurement		—			9,909
Acquisition-related compensation costs		1,431			2,360
Adjustments to fair value measurement		2,725			(1,267	)
Payment of acquisition-related contingent consideration liability		(15,158	)		—
Ending balance	$	—		$	11,002

The acquisition-related contingent consideration was paid during the third quarter of 2010.

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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)	As of December 31,
	2010		2009
Raw materials	$	1,972	$	625
Finished goods		10,424		5,892
Evaluation units		2,784		3,225
Total	$	15,180	$	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. We consider the acquired businesses an additions to our product portfolio and not additional reporting units or operating segments. We record goodwill adjustments pursuant to changes to net assets acquired during the measurement period, which is generally up to one year from the date of acquisition. Goodwill was $25.7 million and $11.3 million at December 31, 2010 and 2009, respectively. We expect the portion of goodwill associated with the acquisition of Global Protocols to be deductible for income tax purposes.

The following is a summary of the goodwill activity during the year ended December 31, 2010:

(in thousands)	Year ended December 31,
Beginning balance	$	11,312
Additions to goodwill from acquisitions		14,341
Ending balance	$	25,653

Intangible Assets

Intangible assets are recorded at their estimated fair value as of the acquisition date of the related acquired business. Intangible assets that have a finite life are amortized over their useful lives.

Intangible assets consisted of the following:

(in thousands)	Useful life		As of December 31, 2010
			Gross		Accumulated Amortization			Net
Existing technology		3-5 years	$	24,100	$	(5,048	)	$	19,052
Patents		5 years		2,700		(1,004	)		1,696
Maintenance agreements		5 years		6,100		(2,269	)		3,831
Customer contracts		3-5 years		2,600		(767	)		1,833
Trademarks		3 years		1,400		(417	)		983
Non-compete agreements		3 years		100		(6	)		94
In-process technology		N/A		3,300		—			3,300
Total intangible assets			$	40,300	$	(9,511	)	$	30,789

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(in thousands)	Useful life		As of December 31, 2009
			Gross		Accumulated Amortization			Net
Existing technology		5 years	$	12,100	$	(2,082	)	$	10,018
Patents		5 years		2,700		(464	)		2,236
Maintenance agreements		5 years		6,100		(1,049	)		5,051
Customer contracts		5 years		2,000		(344	)		1,656
Trademarks		3 years		600		(172	)		428
Total intangible assets			$	23,500	$	(4,111	)	$	19,389

Amortization expense was $9.5 million and $4.1 million for the years ended December 31, 2010 and 2009, respectively.

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

Fiscal Year	In thousands
2011	$	8,493
2012		8,321
2013		7,871
2014		1,821
2015		983
Thereafter		—
Total	$	27,489

7.    FIXED ASSETS

Fixed assets are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, which is typically two to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Repair and maintenance costs are expensed as incurred.

Fixed assets consisted of the following:

(in thousands)	Estimated Useful Lives		As of December 31,
			2010			2009
Computer hardware and equipment		3 years	$	23,218		$	19,070
Leasehold improvements		2-5 years		11,000			10,052
Furniture and fixtures		3 years		4,737			4,583
Software		2-5 years		17,009			12,338
Total fixed assets				55,964			46,043
Accumulated depreciation and amortization				(34,442	)		(24,345	)
Fixed assets, net			$	21,522		$	21,698

Depreciation and amortization expense of fixed assets was $10.4 million, $10.1 million and $7.9 million for the years ended December 31, 2010, 2009 and 2008, respectively.

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8.    CURRENT LIABILITIES

Accrued compensation and benefits consisted of the following:

(in thousands)	As of December 31,
	2010		2009
Accrued commissions	$	11,184	$	6,517
Other accrued compensation and benefits		21,731		12,175
Total accrued compensation and benefits	$	32,915	$	18,692

Other accrued liabilities consisted of the following:

(in thousands)	As of December 31,
	2010		2009
Deferred rent liability	$	5,085	$	5,684
Acquisition-related contingent consideration		—		11,002
Other accrued liabilities		13,728		9,290
Total other accrued liabilities	$	18,813	$	25,976

9.    DEFERRED REVENUE

Deferred revenue consisted of the following:

(in thousands)	As of December 31,
	2010		2009
Product	$	6,766	$	5,264
Support and services		108,771		81,186
Total deferred revenue	$	115,537	$	86,450
Reported as:
Deferred revenue, current	$	89,026	$	64,478
Deferred revenue, non-current		26,511		21,972
Total deferred revenue	$	115,537	$	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.

10.    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 consolidated financial statements.

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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.

11.    LEASE COMMITMENTS

We lease our facilities under non-cancelable operating lease agreements. Future minimum commitments for these operating leases in place as of December 31, 2010 with a remaining non-cancelable lease term in excess of one year are as follows:

(in thousands)	December 31, 2010
2011	$	8,415
2012		8,465
2013		7,508
2014		4,366
2015		637
Thereafter		1,040
Total	$	30,431

The terms of certain lease agreements provide for rental payments on a graduated basis. We recognize rent expense on the straight-line basis over the lease period and have accrued for rent expense incurred but not paid. Rent expense under operating leases was $8.5 million, $8.2 million and $7.1 million for the years ended December 31, 2010, 2009 and 2008, respectively.

12.    COMMON STOCK

Stock Plans

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

The Plans provide for automatic replenishments as follows:

Ÿ 2006 Plan — increased on January 1 of each year for five years, beginning in 2007, by a number equal to the lesser of (i) 8,000,000 shares or (ii) 5% of the shares of common stock outstanding at that time or (iii) the number of shares determined by the Board.

Ÿ 2006 Employee Stock Purchase Plan — increased on January 1 of each year for the term of the 2006 Employee Stock Purchase Plan by a number of shares equal to the lesser of (i) 1,500,000 shares or (ii) 1% of the shares of common stock outstanding at that time or (iii) the number of shares determined by the Board.

Ÿ 2006 Director Stock Option Plan — increased on January 1 of each year for the term of the 2006 Director Stock Option Plan by 500,000 shares.

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

As of December 31, 2010, 4,687,057 shares were available for grant under the 2006 Plan and the 2006 Director Plan. As of December 31, 2010, 1,913,246 shares were available for grant under the 2009 Plan.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense for stock options, RSUs and the Purchase Plan recorded in our statement of operations:

	Year ended December 31,
(in thousands)	2010		2009		2008
Cost of product	$	537	$	449	$	182
Cost of support and services		5,556		4,518		4,487
Sales and marketing		29,131		25,225		23,583
Research and development		19,713		14,253		13,003
General and administrative		15,864		11,773		9,153
Total stock-based compensation expense	$	70,801	$	56,218	$	50,408

Share-Based Payments Valuation Assumptions

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

	Year ended December 31,
	2010		2009		2008
Employee Stock Options (1)
Expected life in years		4.2 - 4.5		4.5		4.5
Risk-free interest rate		1.1% - 2.2%		1.5% - 2.1%		2.5% - 3.1%
Volatility		52% - 62%		50% - 52%		50% - 51%

(1) Assumptions used in 2008 exclude the assumptions used related to the modification accounting associated with the Tender Offer. Such assumptions include an expected life of 2.5 years to 3.6 years, a risk-free interest rate of 2.4% to 2.6% and a volatility of 48% to 49%.

	Year ended December 31,
	2010		2009		2008
Purchase Plan
Expected life in years		0.5 - 2.0		0.5 - 2.0		0.5 - 2.0
Risk-free interest rate		0.18% - 0.83%		0.15% - 0.93%		1.3% - 2.4%
Volatility		44% - 67%		48% - 83%		47% - 71%

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We estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This model utilizes the estimated fair value of common stock and requires that, at the date of grant, we use the expected term of the option, the expected volatility of the price of our common stock, risk-free interest rates and expected dividend yield of our common stock. 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.

The expected term represents the period that stock options are expected to be outstanding. During the first three quarters of 2010 and for the years ended December 31, 2009 and 2008, we elected to use the simplified method of determining the expected term of stock options due to insufficient historical exercise data as a publicly traded company. During the fourth quarter of 2010, we determined that we had sufficient historical information to use a method based on historical exercise patterns and post vesting termination behavior, which we believe is more representative of our expected term. During the first three quarters of 2010 and for the years ended December 31, 2009 and 2008, the computation of our expected volatility for stock options was based on the historical volatility of comparable companies from a representative peer group selected based on industry, financial and market capitalization data, due to our insufficient historical volatility data as a publicly traded company. During the fourth quarter of 2010, we determined that we had sufficient historical volatility data to use a blended historical and implied volatility.

The computation of expected volatility for the Purchase Plan for the years ended December 31, 2010 and 2009 is based on our historical volatility. The computation of expected volatility for the Purchase Plan for the year ended December 31, 2008 is based on historical volatility of comparable companies.

Management estimated expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest.

Stock Options

Options issued under our stock option plans are generally for periods not to exceed 10 years and are issued with an exercise price equal to the market value of our common stock on the date of grant, as determined by the last sale price of such stock on the Nasdaq Global Select Market. Options typically vest either 25% of the shares one year after the options’ vesting commencement date and the remainder ratably on a monthly basis over the following three years, or ratably on a monthly basis over four years. Options granted under the 2002 Plan prior to May 31, 2006 have a maximum term of ten years, and beginning May 31, 2006 have a maximum term of seven years. Options granted under the 2006 Plan have a maximum term of seven years. Options granted under the 2006 Director Option Plan prior to March 4, 2008 have a maximum term of ten years, and options granted beginning March 4, 2008 have a maximum term of seven years. Options granted under the 2009 Plan have a maximum term of seven years.

Options granted under the 2002 Plan to the employees in the U.S. prior to March 28, 2006 were immediately exercisable. For options granted beginning March 28, 2006, optionees may only exercise vested shares. Any unvested stock issued upon early exercise under the 2002 Plan were subject to repurchase by us. Grants made pursuant to the 2006 Plan do not provide for the early exercise of options. At December 31, 2010, no shares were subject to repurchase under the 2002 Plan.

As of December 31, 2010, total compensation cost related to stock options granted to employees and directors but not yet recognized was $50.2 million, net of estimated forfeitures. This cost will be

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recognized on a straight-line basis over the remaining weighted-average service period of 2.28 years. Amortization in the years ended December 31, 2010, 2009 and 2008 was $37.4 million, $39.0 million and $36.9 million, respectively.

The following table summarizes information about stock options activity under all stock option plans:

(in thousands, except per share amounts)	Options Outstanding			Weighted Average  Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balance, December 31, 2009		24,934		$	7.81		4.84	$	103,139
Granted		3,885		$	18.42
Exercised		(7,354	)	$	6.78
Forfeited or expired		(814	)	$	9.31
Balance, December 31, 2010		20,651		$	10.11		4.46	$	517,540
Exercisable		11,497		$	8.29		3.93	$	309,066
Vested and expected to vest		19,928		$	9.90		4.40	$	503,607

The range of exercise prices for options outstanding at December 31, 2010 was $0.05 to $35.57.

	Options Outstanding						Options Exercisable
Range of Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
			(in years)
$0.05   – $3.00		2,438		5.17	$	2.50		2,438	$	2.50
$3.01   – $7.19		5,871		4.32	$	6.49		3,087	$	6.41
$7.20   – $8.98		4,855		2.81	$	8.81		3,333	$	8.87
$8.99   – $15.96		5,612		4.96	$	13.54		2,358	$	14.67
$15.97 – $35.57		1,875		6.75	$	24.48		281	$	18.58
$0.05   – $35.57		20,651		4.46	$	10.11		11,497	$	8.29

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing price of our common stock at December 31, 2010. During the years ended December 31, 2010, 2009 and 2008, the aggregate intrinsic value of stock option awards exercised was $102.0 million, $15.9 million, and $13.7 million, respectively, determined at the date of option exercise.

The weighted average grant-date fair value of options granted for the years ended December 31, 2010, 2009 and 2008, was $8.55, $3.57, and $3.42 per share, respectively.

During the second quarter of 2008, we filed a Tender Offer Statement on Schedule TO with the SEC pursuant to which we extended an offer to non-section 16 reporting employees to exchange up to an aggregate of 5,511,495 options to purchase shares of our common stock, whether vested or unvested. Options granted prior to May 1, 2008 with an exercise price greater than 120% of the closing market price on April 30, 2008 were eligible to be tendered pursuant to the offer. The closing market price on April 30, 2008 was $13.67. In accordance with the Tender Offer (the “TO”), the number of new

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options issued was based on an exchange ratio of 0.85 new shares for each share exchanged based on the number of options tendered. A total of 5,246,325 options were tendered and cancelled, and a total of 4,459,392 options were granted on May 30, 2008 at $17.95 per share. The new options retained the vesting schedule of the options exchanged. The TO was subject to modification accounting whereby the total compensation cost measured at the date of modification was the portion of the grant-date fair value of the original award for which the requisite service was expected to be rendered (or had already been rendered) at that date plus the incremental cost resulting from the modification. The incremental cost resulting from the modification is measured as the excess of the fair value of the modified award over the fair value of the original award immediately before its terms were modified. The incremental fair value of $5.5 million for the new awards was computed using an expected life of 2.5 years to 3.6 years, a risk-free interest rate of 2.4% to 2.6% and a volatility of 48% to 49%. The $407,000 incremental fair value of the vested awards was recognized as compensation expense on the modification date in 2008. The $5.1 million incremental fair value of the unvested awards is being amortized over the remaining service period.

Stock Purchase Plan

Under the Purchase Plan, employees may purchase shares of common stock through payroll deductions at a price per share that is 85% of the lesser of the fair market value of our common stock as of the beginning of an applicable offering period or the applicable purchase date. Offering periods are generally 24 months with purchases generally every six months. Employees’ payroll deductions may not exceed 15% of their compensation. Employees may purchase up to 2,000 shares per purchase period provided that the value of the shares purchased in any calendar year does not exceed IRS limitations.

In the year ended December 31, 2010, there was $11.4 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 19 months. Amortization in the years ended December 31, 2010, 2009 and 2008 was $6.8 million, $7.1 million and $9.6 million, respectively.

The weighted average fair value of grants for the years ended December 31, 2010, 2009 and 2008, was $9.69, $4.36, and $2.55 per share, respectively.

As of December 31, 2010, 609,538 shares were available under the Purchase Plan.

Restricted Stock Units

In the year ended December 31, 2010, we granted RSUs covering 5.2 million shares of common stock to our employees under the 2006 Plan, which included performance-based RSUs to eligible executives covering 2.6 million shares of common stock. We expense the cost of nonvested RSUs, which is determined to be the fair market value of the shares of our common stock at the date of grant, ratably over the service period.

The number of performance-based RSUs that vest is variable based upon meeting certain annual performance targets, and require the eligible executives to be employed by us for up to three years from the date of grant. Annual performance targets for awards granted in the years ended December 31, 2010 and 2009 were earned and determined at December 31, 2010 and 2009, respectively. In connection with the performance-based RSUs, we amortized $13.4 million and $3.5 million, for the years ended December 31, 2010 and 2009, respectively. No expense was recorded in 2008 for performance-based RSUs.

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RSUs generally vest over a period of three to four years from the date of grant. Until vested, RSUs do not have the voting rights of common stock and the shares underlying the awards are not considered issued and outstanding.

As of December 31, 2010, total unrecognized compensation cost related to nonvested RSUs to employees and directors but not yet recognized was $94.6 million, net of estimated forfeitures. This cost will be recognized over the remaining weighted-average service period of 2.29 years. Amortization in the years ended December 31, 2010, 2009 and 2008 was $26.6 million, $9.1 million, and $1.9 million, respectively.

The following table summarizes information about nonvested RSUs as of December 31, 2010:

(in thousands, except per share amounts)	Number of Shares			Weighted Average Grant Date Fair Value
Balance, December 31, 2009		5,699		$	6.97
Granted		5,209		$	19.12
Vested		(1,261	)	$	8.46
Forfeited		(238	)	$	11.03
Balance, December 31, 2010		9,409		$	13.39

The weighted average grant-date fair value of RSUs granted in the years ended December 31, 2010, 2009 and 2008 were $19.12, $7.61, and $7.19, respectively.

Share Repurchase Program

On April 21, 2008, our Board of Directors authorized a Share Repurchase Program (the “Program”), which authorized us to repurchase and retire up to $100.0 million of our outstanding common stock during a period not to exceed 24 months from the Board authorization date. The Program expired on April 20, 2010.

We did not repurchase any shares of common stock under the Program during the year ended December 31, 2010. For the year ended December 31, 2009, we repurchased 1,955,000 shares of common stock under this Program on the open market for an aggregate purchase price of approximately $29.0 million, or an average of $14.84 per share. In 2008, we repurchased 4,027,706 shares of common stock under this Program for an aggregate purchase price of approximately $50.0 million, or an average of $12.41 per share. The timing and amounts of these purchases were based on market conditions and other factors including price, regulatory requirements and capital availability. The share repurchases were financed by available cash balances and cash from operations.

91

RIVERBED TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13.    INCOME TAXES

A geographical breakdown of income before provision for income taxes is shown in the following table:

	Year ended December 31,
(in thousands)	2010			2009			2008
Domestic	$	57,899		$	19,842		$	8,022
Foreign		(928	)		(8,457	)		(5,753	)
Total	$	56,971		$	11,385		$	2,269

The provision (benefit) for income tax expense consists of the following:

	Year Ended December 31,
(in thousands)	2010			2009			2008
Current:
Federal	$	28,247		$	15,149		$	20,399
State		2,492			2,122			2,972
Foreign		3,925			1,336			916
Total Current	$	34,664		$	18,607		$	24,287
Deferred:
Federal	$	(14,844	)	$	(11,075	)	$	(27,338	)
State		2,982			(2,090	)		(5,281	)
Foreign		11			(1,142	)		—
Total Deferred	$	(11,851	)	$	(14,307	)	$	(32,619	)
Total Provision	$	22,813		$	4,300		$	(8,332	)

Our effective tax rate was 40%, 38%, and (367%), for the years ended December 31, 2010, 2009, and 2008, respectively. We have not provided U.S. taxes for our foreign earnings because such earnings are intended to be indefinitely reinvested outside the U.S.

The difference between the provision (benefit) for income taxes and the amount computed by applying the federal statutory income tax rate to income before taxes is as follows:

	Year ended December 31,
(in thousands)	2010			2009			2008
Expected provision at federal statutory rate	$	19,940		$	3,985		$	793
State taxes, net of federal benefit		3,562			12			(3,353	)
Stock-based compensation expense		1,681			3,125			4,509
Non-deductible expenses		221			278			274
Foreign rate differential		(17	)		14			290
Research and development tax credits		(3,225	)		(1,658	)		(1,012	)
Change in valuation allowance		—			(746	)		(8,060	)
Manufacturing deduction		(381	)		(730	)		(898	)
Acquisition related expenses		964			(235	)		—
Other (net)		68			255			(875	)
Total	$	22,813		$	4,300		$	(8,332	)

92

RIVERBED TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of the current and non-current deferred tax assets and liabilities consist of the following:

	As of December 31,
(in thousands)	2010			2009
Current deferred tax assets:
Other accrued liabilities and reserves	$	8,143		$	6,231
Deferred compensation		8,392			2,980
Net operating losses		1,499			1,359
Depreciation and amortization		1,587			747
Deferred revenue		4,157			(399	)
Valuation allowance		(2,946	)		(1,467	)
Total current deferred tax assets	$	20,832		$	9,451
Non-current deferred tax assets:
Deferred compensation	$	25,995		$	26,903
Net operating losses		12,007			12,979
Deferred revenue		9,073			5,960
Credit carryforwards		5,064			4,826
Other accrued liabilities and reserves		2,024			2,124
State taxes		(2,105	)		(3,258	)
Depreciation and amortization		(2,053	)		(2,256	)
Intangible assets		(3,494	)		(1,290	)
Valuation allowance		(10,736	)		(7,369	)
Total non-current deferred tax assets	$	35,775		$	38,619

As of December 31, 2010, we had net operating loss carryforwards for federal, state and foreign income tax purposes of $33.8 million, $25.5 million and $0.9 million, respectively. The utilization of the federal loss carryforwards are subject to limitation under Section 382 of the Internal Revenue Code. We also had federal and state research and development tax credit carryforwards of approximately $2.3 million and $9.3 million, respectively. If not utilized, the federal net operating loss carryforwards will expire between 2022 and 2029, while the state net operating loss carryforwards will expire between 2017 and 2030. The federal tax credit carryforwards expire in 2030. The state tax credit carryforwards and foreign net operating loss carryforwards do not expire.

For years prior to 2008, we recorded a full valuation allowance because of the uncertainty of the realization of the deferred tax assets. Realization of our deferred tax assets is dependent primarily upon future taxable income. In assessing the need for a valuation allowance, we considered our historical levels of income, expectations of future taxable income and on going tax planning strategies.

In the year ended December 31, 2008, management reevaluated the need for a full valuation allowance on its deferred tax assets as a result of cumulative profits generated in the most recent three year period as well as other positive evidence. As a result of this evaluation, we concluded that it is more likely than not that we will realize sufficient earnings to utilize a significant portion of our deferred tax assets. Accordingly, we reversed the valuation allowance against our domestic deferred tax assets and recorded a benefit of $11.7 million. This benefit was partially offset by a provision for income taxes of $3.4 million related to federal, state and local taxes. At December 31, 2008, we maintained a valuation allowance on foreign deferred tax assets.

93

RIVERBED TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the year ended December 31, 2009, management reevaluated the need for a valuation allowance on our foreign deferred tax assets. As a result of this evaluation, we concluded that it is more likely than not that we will realize sufficient future taxable income to utilize our foreign deferred tax assets. Accordingly, we reversed the valuation allowance against our foreign deferred tax assets and recorded an income tax benefit of $0.7 million in 2009.

As part of our accounting for the acquisition of Mazu, we established deferred tax assets for federal net operating loss carryforwards and research and development credit carryforwards that are subject to limitation under Section 382 of the Internal Revenue Code. Accordingly, we recorded a valuation allowance of $8.8 million related to a portion of the federal net operating loss carryforwards and research and development credit carryforwards that we do not expect to be realized. Any subsequent reduction of the valuation allowance and the recognition of the associated tax benefits will be recorded to our provision for income taxes.

In the year ended December 31, 2010, management concluded that a valuation allowance was needed on our California income tax credit carryforwards. Due to a change in the Company’s forecasted income allocated to California for tax years after 2010, it is more likely than not the California income tax credits carryforwards as of December 31, 2010 will not be utilized in the foreseeable future. Accordingly, we established a 100% valuation allowance against the tax credits and recorded additional income tax expense of $3.1 million in 2010.

During 2010, we reduced our current federal, foreign and state taxes payable by $28.1 million for the excess tax benefits from stock option exercises, offsetting additional paid-in capital. In addition, we have unrecorded excess tax benefits from stock option exercises of approximately $5.4 million as of December 31, 2010. These amounts will be credited to additional paid-in-capital when such amounts reduce cash taxes payable.

Uncertain Income Tax Positions

A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits during the year is as follows:

	Year Ended December 31,
(in thousands)	2010			2009			2008
Beginning Balance	$	4,941		$	2,580		$	298
Additions for tax positions of prior years		116			422			1,766
Additions for tax positions related to the current year		2,514			2,759			516
Reductions for tax positions of prior year		(653	)		(820	)		—
Settlements		—			—			—
Ending Balance	$	6,918		$	4,941		$	2,580

Included in the unrecognized tax benefits of $6.9 million at December 31, 2010 was approximately $6.1 million of tax benefits that, if recognized, would reduce our annual effective tax rate. During 2010, we accrued $0.1 million of interest and penalties associated with uncertain tax positions. Over the next 12 months, we do not expect any part of our unrecognized tax benefits to be reduced. The statute of limitations for federal, state, and United Kingdom (UK) tax purposes are generally three, four, and one year(s) respectively; however, we continue to carryover tax attributes

94

RIVERBED TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

prior to these periods for federal and state purposes, which would still be open for examination by the respective tax authorities. Accordingly, all years since our inception are open to tax examinations for federal and state purposes. Our 2009 UK tax return is open for examination.

14.    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 activity and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, we are considered to be in a single reporting segment and operating unit structure.

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

Revenue

	Year ended December 31,
(in thousands)	2010		2009		2008
United States	$	294,631	$	221,206	$	193,190
Europe, Middle East and Africa		149,647		104,990		87,446
Rest of the World		107,611		67,950		52,713
Total revenue	$	551,889	$	394,146	$	333,349

15.    EMPLOYEE BENEFIT PLAN

We have a 401(k) plan covering all eligible employees. During 2010, we contributed $0.4 million to the plan compared to zero in 2009 and 2008.

16.    LEGAL MATTERS

During the year ended December 31, 2008, we entered into a mutual release and settlement agreement (the “Settlement Agreement”) with Quantum Corporation (“Quantum”) and certain affiliates of Quantum, pursuant to which we jointly executed and filed dismissals of patent infringement actions brought in the United States District Court for the Northern District of California. Pursuant to the terms of the Settlement Agreement, we paid Quantum a lump sum of $11.0 million, and entered into a perpetual covenant not to sue each other or certain other parties related to the patents in question and certain patents related to data de-duplication as well as a three-year covenant not to file any patent infringement lawsuits against each other or certain other parties. In addition, we released each other from any and all claims, demands, losses, liabilities and causes of action relating to any infringement of any patent based on acts occurring prior to the date of the Settlement Agreement. Based on the terms of the Settlement Agreement we recorded operating expense of $11.0 million during 2008, which was recorded as Other charges in our consolidated statements of operations.

95

RIVERBED TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 December 31, 2010 that, in the opinion of management, might have a material adverse effect on our financial position, results of operations or cash flows.

17.    RELATED PARTIES

No significant related party transactions occurred in the year ended December 31, 2010.

18.    NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2010, we adopted the revised guidance issued by FASB ASC ASU 2010-06,Fair Value Measurements and Disclosures (Topic 820) 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. We do not expect the revised guidance to have a material impact on our consolidated financial statements.

In December 2010, FASB issued ASC ASU 2010-28,When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350) — Intangibles — Goodwill and Other. ASU 2010-28 which amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The amendments to this Update are effective for us in the first quarter of 2011. Any impairment to be recorded upon adoption will be recognized as an adjustment to our beginning retained earnings. We are currently evaluating the impact of the pending adoption of ASU 2010-28 on our consolidated financial statements.

96

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

There have been no disagreements with accountants on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures required to be reported under this item.

Item 9A. 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 December 31, 2010, the end of the period covered by this Annual Report on Form 10-K. 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 Annual Report on Form 10-K, 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 December 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.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework. Based on our assessment, using those criteria, our management concluded that, as of December 31, 2010, our internal control over financial reporting was effective. The attestation report concerning the effectiveness of our internal control over financial reporting as of December 31, 2010, issued by Ernst & Young, LLP, Independent Registered Public Accounting Firm, appears in Part II, Item 8 of the Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fourth 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.

97

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 will be 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 deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 9B. Other Information

None.

98

Part III

Item 10. Directors, Executive Officers and Corporate Governance

The information regarding our directors required by this item is included under the caption “Election of Directors” in Riverbed’s Proxy Statement for its 2011 Annual Meeting of Stockholders to be filed within 120 days after the end of the fiscal year ended December 31, 2010 (the “2011 Proxy Statement”) and is incorporated herein by reference. The information regarding our executive officers required by this item is included under the caption “Executive Officers” in the 2011 Proxy Statement and is incorporated herein by reference. The information regarding compliance with Section 16(a) of the Exchange Act required by this item is included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2011 Proxy Statement and is incorporated herein by reference. The information regarding our code of ethics, nominating committee and audit committee required by this item is included under the caption “Corporate Governance” in the 2011 Proxy Statement and is incorporated herein by reference.

Item 11. Executive Compensation

The information regarding executive compensation required by this item is included under the caption “Compensation of Executive Officers” in the 2011 Proxy Statement and is incorporated herein by reference.

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

The information regarding securities authorized for issuance under equity compensation plans required by this item is included under the caption “Equity Compensation Plan Information” in the 2011 Proxy Statement and is incorporated herein by reference. The information regarding security ownership of certain beneficial owners and management required by this item is included under the caption “Security Ownership of Certain Beneficial Owners and Management” in the 2011 Proxy Statement and is incorporated herein by reference.

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

The information regarding transactions with related persons required by this item is included under the caption “Certain Relationships and Related Transactions” in the 2011 Proxy Statement and is incorporated herein by reference. The information regarding director independence required by this item is included under the caption “Corporate Governance” in the 2011 Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated under the captions “Independent Registered Public Accounting Firm’s Fees” and “Pre-Approval Policies and Procedures” in the 2011 Proxy Statement and is incorporated herein by reference.

99

Part IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements

The financial statements filed as part of this report are listed on the index to financial statements on page 52.

(b) Financial Statement Schedules

The following financial statement schedule is filed as a part of this Annual Report on Form 10-K

Schedule II — Valuation and Qualifying Accounts

SCHEDULE II

Valuation and Qualifying Accounts

	Year ended December 31,
(in thousands)	2010			2009			2008
Trade Receivable Allowance
Beginning balance	$	1,693		$	770		$	734
Additions charged to operations		343			1,303			95
Write-offs		(634	)		(380	)		(59	)
Ending balance	$	1,402		$	1,693		$	770

All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.

(c) Exhibits

The following exhibits are incorporated by reference or filed herewith.

Exhibit No.	Description
2.1	Agreement of Merger, dated as of January 20, 2009, among Riverbed Technology, Inc., a Delaware corporation, Maple Acquisition Sub, Inc., a Delaware corporation, Mazu Networks, Inc., a Delaware corporation and Donald A. Sullivan as the Stockholders’ Agent (incorporated by reference to Exhibit 2.1 of Registrant’s Current Report on Form 8-K (No. 001-33023), filed with the SEC on February 20, 2009).
3.1	Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 of Registrant’s Form S-1 Registration No. 333-133437).
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K filed with the SEC on December 18, 2008).
4.1	Reference is made to Exhibits 3.1 and 3.2.
4.2	Form of Common Stock certificate (incorporated by reference to Exhibit 4.2 of Registrant’s Form S-1 Registration No. 333-133437).
4.3	Amended and Restated Investors’ Rights Agreement, dated February 10, 2006, by and among the Registrant and the investors listed on the signature pages thereto (incorporated by reference to Exhibit 4.3 of Registrant’s Form S-1 Registration No. 333-133437).

100

Exhibit No.	Description
10.1	Form of Indemnification Agreement between the Registrant and each of its directors, executive officers and certain key employees (incorporated by reference to Exhibit 10.1 of Registrant’s Form S-1 Registration No. 333-133437).
10.2	Riverbed Technology, Inc. 2002 Stock Plan (incorporated by reference to Exhibit 10.2 of Registrant’s Form S-1 Registration No. 333-133437). *
10.3	Form of 2002 Stock Plan Stock Option Agreement (incorporated by reference to Exhibit 10.3 of Registrant’s Form S-1 Registration No. 333-133437). *
10.4	Form of 2002 Stock Plan Stock Option Agreement (Officers and Key Employees) (incorporated by reference to Exhibit 10.4 of Registrant’s Form S-1 Registration No. 333-133437). *
10.5	Form of 2002 Stock Plan Stock Option Agreement (Installment Vesting) (incorporated by reference to Exhibit 10.34 of Registrant’s Form S-1 Registration No. 333-133437). *
10.6	Form of 2002 Stock Plan Stock Option Agreement (Officers and Key Employees) (Installment Vesting) (incorporated by reference to Exhibit 10.35 of Registrant’s Form S-1 Registration No. 333-133437). *
10.7	2006 Equity Incentive Plan. *
10.8	Form of 2006 Equity Incentive Plan Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K (No 001-33023), filed with the SEC on May 7, 2008). *
10.9	Form of 2006 Equity Incentive Plan Notice of Stock Option Grant and Stock Option Agreement (incorporated by reference to Exhibit 10.42 of Registrant’s Quarterly Report on Form 10-Q (No 001-33023), filed with the SEC on July 30, 2007). *
10.10	2006 Director Option Plan. *
10.11	Forms of agreements under the 2006 Director Option Plan (incorporated by reference to Exhibit 10.6 of Registrant's Form S-1 Registration No. 333-133437). *
10.12	Form of 2006 Director Option Plan Notice of Stock Option Grant (incorporated by reference to Exhibit 10.45 of Registrant’s Quarterly Report on Form 10-Q (No. 001-33023), filed with the SEC on October 25, 2007). *
10.13	2006 Employee Stock Purchase Plan, as amended and restated on April 28,2009. *
10.14	Riverbed Technology, Inc. Management Bonus Plan (incorporated by reference to Exhibit 10.43 of Registrant’s Quarterly Report on Form 10-Q (No. 001-33023), filed with the SEC on July 30, 2007). *
10.15	Amendment to Riverbed Technology, Inc. Management Bonus Plan (incorporated by reference to Exhibit 10.15 of Registrant’s Annual Report on Form 10-K (No. 001-33023), filed with the SEC on February 23, 2009). *
10.16	Riverbed Technology, Inc. 2009 Inducement Equity Incentive Plan. *
10.17	Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K (No. 001-33023), filed with the SEC on February 19, 2009). *
10.18	Amended and Restated Change in Control Severance Agreement, dated as of December 19, 2008, with Jerry M. Kennelly (incorporated by reference to Exhibit 10.16 of Registrant’s Annual Report on Form 10-K (No. 001-33023), filed with the SEC on February 23, 2009). *

101

Exhibit No.	Description
10.19	Amended and Restated Change in Control Severance Agreement, dated as of December 19, 2008, with Randy S. Gottfried (incorporated by reference to Exhibit 10.17 of Registrant’s Annual Report on Form 10-K (No. 001-33023), filed with the SEC on February 23, 2009). *
10.20	Offer Letter with David M. Peranich, dated July 7, 2006 (incorporated by reference to Exhibit 10.39 of Registrant’s Form S-1 Registration No. 333-133437). *
10.21	Agreement of Sublease dated September 26, 2006 between PricewaterhouseCoopers LLP and the Registrant (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K (No. 001-33023), filed with the SEC on October 2, 2006).
10.22	Lease agreement for 199 Fremont Street dated March 21, 2007 between GLL Fremont Street Partners, Inc. and the Registrant (incorporated by reference to Exhibit 10.22 of Registrant's Annual Report on Form 10-K (No. 001-33023), filed with the SEC on February 15, 2008).
10.23	Lease agreement dated June 28, 2007 between W2005 RPS Realty, L.L.C. and the Registrant (incorporated by reference to Exhibit 10.44 of Registrant’s Quarterly Report on Form 10-Q (No. 001-33023), filed with the SEC on July 30, 2007).
10.24	Forms of agreement under the Riverbed Technology, Inc. 2009 Inducement Equity Incentive Plan (Incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K (No. 001-33023), filed with the SEC on February 20, 2009). *
21.1	List of subsidiaries. (incorporated by reference to Exhibit 21.1 of Registrant’s Annual Report on Form 10-K, (No. 001-33023), filed with the SEC on February 23, 2009).
23.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

The certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10-K 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 Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

* Management contract or compensatory plan or arrangement.

102

SIGNATURES

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

RIVERBED TECHNOLOGY, INC.
By:	/S/    JERRY M. KENNELLY
	Jerry M. Kennelly, President and Chief Executive Officer
	Date: February 8, 2011
RIVERBED TECHNOLOGY, INC.
By:	/S/    RANDY S. GOTTFRIED
	Randy S. Gottfried, Chief Financial Officer
	Date: February 8, 2011

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

Signature	Title	Date
/S/    JERRY M. KENNELLY Jerry M. Kennelly	President, Chief Executive Officer and Chairman (Principal Executive Officer)	February 8, 2011
/S/    RANDY S. GOTTFRIED Randy S. Gottfried	Chief Financial Officer (Principal Financial and Accounting Officer)	February 8, 2011
/S/    MICHAEL BOUSTRIDGE Michael Boustridge	Director	February 8, 2011
/S/    STEVEN MCCANNE Steven McCanne	Director	February 8, 2011
/S/    MARK A. FLOYD Mark A. Floyd	Director	February 8, 2011
/S/    MICHAEL R. KOUREY Michael R. Kourey	Director	February 8, 2011
/S/    MARK LEWIS Mark Lewis	Director	February 8, 2011
/S/    STANLEY J. MERESMAN Stanley J. Meresman	Director	February 8, 2011

103

Signature	Title	Date
/S/    CHRISTOPHER J. SCHAEPE Christopher J. Schaepe	Director	February 8, 2011
/S/    JAMES R. SWARTZ James R. Swartz	Director	February 8, 2011

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