Riverbed Technology (RVBD)

Acquisition-related Costs

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

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

Acquisition-related Costs

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

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

Acquisition-Related Costs

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

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

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

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

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

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