Riverbed Technology (RVBD)

Costs and Expenses

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

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Table of Contents

Costs and Expenses

Operating expenses consist of sales and marketing, research and development and general and administrative expenses. Personnel-related costs, including stock-based compensation, are the most significant component of each of these expense categories. As of December 31, 2008 we had 857 employees, an increase of 38% from the 623 employees at December 31, 2007. The increase in employees is the most significant driver behind the increase in costs and operating expenses in 2008. 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 was $50.4 million, $31.8 million, and $9.2 million in the years ended December 31, 2008, 2007, and 2006, respectively. We expect to continue to incur significant stock-based compensation expense and anticipate further growth in stock-based compensation expense.