e10vkza
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-K/A
Amendment
No. 3
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
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þ |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2005
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-26041
F5 Networks, Inc.
(Exact name of Registrant as specified in its charter)
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WASHINGTON
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91-1714307 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
401 Elliott Ave West
Seattle, Washington 98119
(Address of principal executive offices)
(206) 272-5555
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value
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 o No
þ
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 o No
þ
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 o No þ
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants 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. o
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2
of the Exchange Act. (Check one)
Large Accelerated
Filer o
Accelerated
Filer þ
Non-Accelerated
Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of March 31, 2005, the aggregate market value of the Registrants Common Stock held by
non-affiliates of the Registrant was $1,886,824,225 based on the closing sales price of the
Registrants Common Stock on the Nasdaq National Market on that date.
As of December 5, 2005, the number of shares of the Registrants Common Stock outstanding was
39,420,897.
DOCUMENTS
INCORPORATED BY REFERENCE
Information
required in response to Part III of Form 10-K
(Items 10, 11, 12, 13 and 14) is hereby incorporated by
reference to the specified portions of the Registrants
Definitive Proxy Statement for the Annual Shareholders Meeting held
on March 2, 2006.
EXPLANATION OF AMENDMENT
We
are filing this Amendment No. 3 on Form 10-K/A for the fiscal year
ended September 30, 2005 (Third Amendment) in response to
comments received from the Securities and Exchange Commission. This
Third Amendment provides additional disclosure to Item 6
(Selected Financial Data), Note 2
(Restatement of Consolidated Financial Statements) and
Note 13 (Quarterly
Results of Operations) to our consolidated financial statements
in Item 8 which have no impact on our results of operations or financial
condition. Item 6 has been amended to reflect the restated stock
compensation cost reported for the fiscal years ended September 30,
2002, 2001, 2000 and 1999. Note 2 has been amended to reflect
the restated stock compensation cost reported for the fiscal years
ended September 30, 2005, 2004, 2003, 2002, 2001, 2000 and 1999. Note 13 has been amended to include
interim balance sheet disclosures for the two-year period ended
September 30, 2005. In addition, the Third Amendment includes updated
certifications from our Chief Executive Officer (CEO) and Chief
Accounting Officer (CAO) as Exhibits 31.1, 31.2 and 32.1. No other
information in the Amendment No. 2 on Form 10-K/A for the fiscal
year ended September 30, 2005 originally filed on December 12, 2006
is amended hereby.
This
Amendment should be read in conjunction with our periodic filings
made with the SEC subsequent to the date of the Original Report filed
December 12, 2005, including any amendments to those filings, as well
as any Current Reports filed on Form 8-K subsequent to the date of
the Original Report.
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Item 6. Selected Financial
Data |
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Page |
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Supplemental Unaudited Information Regarding Restatement
Adjustments |
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1-2 |
Item 8. Financial Statements and Supplementary Data
F5
NETWORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Consolidated Financial Statements |
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Report Of Independent Registered Public Accounting Firm |
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3-4 |
Consolidated Balance Sheet |
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5 |
Consolidated Income Statement |
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6 |
Consolidated Statement of Shareholders Equity |
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7 |
Consolidated Statement of Cash Flow |
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8 |
Notes to Consolidated Financial Statements |
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9 |
Supplementary Data |
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Valuation and Qualifying Accounts and Reserves |
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43 |
EXHIBIT 23.1 |
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EXHIBIT 31.1 |
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EXHIBIT 31.2 |
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EXHIBIT 32.1 |
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Item 6. Selected Financial Data
The following selected consolidated financial data should be read in conjunction with the consolidated
financial statements and notes thereto and with Managements Discussion and Analysis of Financial
Condition and Results of Operations and other financial data included elsewhere in this report.
The restated consolidated balance sheet data as of September 30, 2005 and 2004 and the restated
consolidated statement of operations data for the years ended September 30, 2005, 2004 and 2003 are
derived from our audited financial statements and related notes that are included elsewhere in this
report. The restated consolidated balance sheet data as of September 30, 2003, 2002, and 2001 and
the restated consolidated statement of operations for the years ended September 30, 2002 and 2001
has been restated to conform to the financial statements included in this Form 10-K/A and has been
derived from our unaudited financial statements and related notes which are not included in this
report. Our historical results of operations are not necessarily indicative of results of
operations to be expected for any future period.
See Managements Discussion and Analysis and Note 2, Restatement of Consolidated Financial
Statements, of the Notes to Consolidated Financial Statements for more detailed information
regarding the restatement of our consolidated financial statements for the years ended September
30, 2005, 2004 and 2003.
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Years Ended September 30, |
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2005 |
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2004 |
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2003 |
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|
(In thousands, except per share data) |
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As restated |
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As restated |
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As restated |
|
Consolidated Statement of Operations Data: |
|
(1) |
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|
(1) |
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(1) |
|
Net revenues |
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|
|
|
|
|
|
|
|
|
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Products |
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$ |
219,603 |
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|
$ |
126,169 |
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|
$ |
84,197 |
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Services |
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|
61,807 |
|
|
|
45,021 |
|
|
|
31,698 |
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|
|
|
|
|
|
|
|
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Total |
|
|
281,410 |
|
|
|
171,190 |
|
|
|
115,895 |
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|
|
|
|
|
|
|
|
|
|
Cost of net revenues |
|
|
|
|
|
|
|
|
|
|
|
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Products |
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|
48,990 |
|
|
|
28,406 |
|
|
|
17,843 |
|
Services |
|
|
16,194 |
|
|
|
10,993 |
|
|
|
9,132 |
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|
|
|
|
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|
|
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Total |
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|
65,184 |
|
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39,399 |
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|
26,975 |
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|
|
|
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Gross profit |
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|
216,226 |
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|
131,791 |
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|
88,920 |
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|
|
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Operating expenses(2) |
|
|
|
|
|
|
|
|
|
|
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Sales and marketing |
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|
89,866 |
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|
|
66,446 |
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|
|
54,897 |
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Research and development |
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|
31,516 |
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|
|
24,438 |
|
|
|
19,455 |
|
General and administrative |
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|
25,486 |
|
|
|
15,761 |
|
|
|
12,210 |
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|
|
|
|
|
|
|
|
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Total |
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|
146,868 |
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|
106,645 |
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|
|
86,562 |
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|
|
|
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|
|
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Income (loss) from operations |
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69,358 |
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25,146 |
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|
2,358 |
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Other income, net |
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8,076 |
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|
2,731 |
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|
751 |
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|
|
|
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Income (loss) before income taxes |
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77,434 |
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|
27,877 |
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|
3,109 |
|
Provision (benefit) for income taxes |
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|
30,532 |
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|
(8,451 |
) |
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|
853 |
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|
|
|
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|
|
|
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Net income (loss) |
|
$ |
46,902 |
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|
$ |
36,328 |
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|
$ |
2,256 |
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|
|
|
|
|
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Net income (loss) per share basic |
|
$ |
1.26 |
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$ |
1.09 |
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|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
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|
Weighted average shares basic |
|
|
37,220 |
|
|
|
33,221 |
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|
|
26,453 |
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|
|
|
|
|
|
|
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Net income (loss) per share diluted |
|
$ |
1.21 |
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|
$ |
1.01 |
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|
$ |
0.08 |
|
|
|
|
|
|
|
|
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Weighted average shares diluted |
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|
38,761 |
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|
35,961 |
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|
28,175 |
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|
|
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Consolidated Balance Sheet Data: |
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|
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Cash, cash equivalents, and short-term
investments(3) |
|
$ |
236,181 |
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$ |
140,501 |
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Restricted cash(4) |
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|
3,871 |
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|
6,243 |
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Long-term investments(3) |
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|
128,834 |
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|
81,792 |
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|
|
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Total assets |
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|
537,739 |
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|
360,593 |
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Long-term liabilities |
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9,964 |
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|
6,228 |
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|
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Total shareholders equity |
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|
460,167 |
|
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|
307,745 |
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(1) |
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See Note 2, Restatement of Consolidated Financial Statements, of the Notes to
Consolidated Financial Statements. |
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(2) |
|
Amortization of unearned compensation reported in fiscal years 2001 through fiscal 2004 has
been reclassified to conform to the current years presentation. Specifically, amounts have
been attributed to the respective categories within operating expenses. |
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(3) |
|
The combined overall increase in cash, cash equivalents, short-term and long-term investments
in fiscal 2004 was primarily due to the net proceeds of $113.6 million received from the sale
of our common stock in a public offering in November 2003. |
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(4) |
|
Restricted cash represents escrow accounts established in connection with lease agreements
for our facilities. |
1
See Managements Discussion and Analysis and Note 2, Restatement of Consolidated
Financial Statements, of the Notes to Consolidated Financial Statements for more detailed
information regarding the restatement of our consolidated financial statements for the years ended
September 30, 2002 and 2001.
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|
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|
|
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|
|
|
|
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|
Years Ended September 30, |
|
|
|
2002 |
|
|
2001 |
|
|
|
(In thousands, except per share data) |
|
|
|
As reported |
|
|
Adjustments |
|
|
As restated |
|
|
As reported |
|
|
Adjustments |
|
|
As restated |
|
|
|
|
|
|
|
(3) |
|
|
(1) |
|
|
|
|
|
|
(3) |
|
|
(1) |
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
82,566 |
|
|
$ |
|
|
|
$ |
82,566 |
|
|
$ |
78,628 |
|
|
$ |
|
|
|
$ |
78,628 |
|
Services |
|
|
25,700 |
|
|
|
|
|
|
|
25,700 |
|
|
|
28,739 |
|
|
|
|
|
|
|
28,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
108,266 |
|
|
|
|
|
|
|
108,266 |
|
|
|
107,367 |
|
|
|
|
|
|
|
107,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
20,241 |
|
|
|
316 |
|
|
|
20,557 |
|
|
|
33,240 |
|
|
|
500 |
|
|
|
33,740 |
|
Services |
|
|
10,238 |
|
|
|
|
|
|
|
10,238 |
|
|
|
12,265 |
|
|
|
|
|
|
|
12,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
30,479 |
|
|
|
316 |
|
|
|
30,795 |
|
|
|
45,505 |
|
|
|
500 |
|
|
|
46,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
77,787 |
|
|
|
(316 |
) |
|
|
77,471 |
|
|
|
61,862 |
|
|
|
(500 |
) |
|
|
61,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
50,786 |
|
|
|
2,887 |
|
|
|
53,673 |
|
|
|
51,199 |
|
|
|
3,467 |
|
|
|
54,666 |
|
Research and development |
|
|
18,104 |
|
|
|
1,006 |
|
|
|
19,110 |
|
|
|
17,715 |
|
|
|
1,479 |
|
|
|
19,194 |
|
General and administrative |
|
|
15,164 |
|
|
|
1,039 |
|
|
|
16,203 |
|
|
|
20,689 |
|
|
|
1,550 |
|
|
|
22,239 |
|
Restructuring charges |
|
|
3,274 |
|
|
|
|
|
|
|
3,274 |
|
|
|
975 |
|
|
|
|
|
|
|
975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
87,328 |
|
|
|
4,932 |
|
|
|
92,260 |
|
|
|
90,578 |
|
|
|
6,496 |
|
|
|
97,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(9,541 |
) |
|
|
(5,248 |
) |
|
|
(14,789 |
) |
|
|
(28,716 |
) |
|
|
(6,996 |
) |
|
|
(35,712 |
) |
Other income, net |
|
|
1,420 |
|
|
|
|
|
|
|
1,420 |
|
|
|
2,021 |
|
|
|
|
|
|
|
2,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(8,121 |
) |
|
|
(5,248 |
) |
|
|
(13,369 |
) |
|
|
(26,695 |
) |
|
|
(6,996 |
) |
|
|
(33,691 |
) |
Provision (benefit) for income taxes |
|
|
489 |
|
|
|
|
|
|
|
489 |
|
|
|
4,095 |
|
|
|
|
|
|
|
4,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8,610 |
) |
|
$ |
(5,248 |
) |
|
$ |
(13,858 |
) |
|
$ |
(30,790 |
) |
|
$ |
(6,996 |
) |
|
$ |
(37,786 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic |
|
$ |
(0.34 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.55 |
) |
|
$ |
(1.36 |
) |
|
$ |
(0.31 |
) |
|
$ |
(1.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
25,323 |
|
|
$ |
|
|
|
|
25,323 |
|
|
|
22,644 |
|
|
$ |
|
|
|
|
22,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share diluted |
|
$ |
(0.34 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.55 |
) |
|
$ |
(1.36 |
) |
|
$ |
(0.31 |
) |
|
$ |
(1.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted |
|
|
25,323 |
|
|
$ |
|
|
|
|
25,323 |
|
|
|
22,644 |
|
|
$ |
|
|
|
|
22,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, |
|
|
2003 |
|
2002 |
|
2001 |
|
|
(In thousands) |
|
|
As reported |
|
As reported |
|
As reported |
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash
equivalents, and
short-term investments(3) |
|
$ |
44,878 |
|
|
$ |
80,333 |
|
|
$ |
69,783 |
|
Restricted cash(4) |
|
|
6,000 |
|
|
|
6,000 |
|
|
|
6,000 |
|
Long-term investments(3) |
|
|
34,132 |
|
|
|
1,346 |
|
|
|
|
|
Total assets |
|
|
148,173 |
|
|
|
126,289 |
|
|
|
124,663 |
|
Long-term liabilities |
|
|
1,735 |
|
|
|
1,315 |
|
|
|
1,167 |
|
Total shareholders equity |
|
|
110,429 |
|
|
|
93,685 |
|
|
|
96,488 |
|
|
|
|
(1) |
|
See Note 2, Restatement of Consolidated Financial Statements, of the Notes to
Consolidated Financial Statements. |
|
(2) |
|
Amortization of unearned compensation reported in fiscal years 2001 through fiscal 2004 has
been reclassified to conform to the current years presentation. Specifically, amounts have
been attributed to the respective categories within operating expenses. |
|
(3) |
|
The adjustments recorded in fiscal 2002 and 2001 consist of amortization of unearned
compensation that was a result of the Restatement discussed in Note 2, Restatement of
Consolidated Financial Statements, of the Notes to the Consolidated Financial Statements. |
|
(4) |
|
Restricted cash represents escrow accounts established in
connection with lease agreements for our facilities. |
Supplemental Unaudited Information Regarding Restatement Adjustments
The supplemental unaudited information presented below has been included to facilitate an
understanding of the components of the Restatement adjustments to retained earnings at September 30, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restatement on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
years prior to 2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
1999 |
|
Stock-based
compensation
expense, as reported |
|
$ |
7,682 |
|
|
$ |
443 |
|
|
$ |
2,625 |
|
|
$ |
2,127 |
|
|
$ |
2,487 |
|
Adjustments |
|
|
20,234 |
|
|
|
5,248 |
|
|
|
6,996 |
|
|
|
7,826 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, restated |
|
$ |
27,916 |
|
|
$ |
5,691 |
|
|
$ |
9,621 |
|
|
$ |
9,953 |
|
|
$ |
2,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has not amended and does not intend to amend any of its previously filed Annual
Reports on Form 10-K for the periods prior to October 1, 2002 affected by the Restatements. The
additional compensation expense of approximately $20.2 million was incurred in fiscal years prior
to the years associated with the audited consolidated financial statements presented herein.
Retained earnings at September 30, 2002 was restated to reflect the after-tax effects of
adjustments to stock-based compensation expenses for fiscal years 1999 through 2002.
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of F5 Networks, Inc.:
We have completed an integrated audit of F5 Networks, Inc.s 2005 consolidated financial statements
and of its internal control over financial reporting as of September 30, 2005 and audits of its
2004 and 2003 consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Our opinions, based on our audits, are
presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the consolidated financial position of F5 Networks, Inc. and its
subsidiaries at September 30, 2005 and 2004, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 2005 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial statement schedule are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits. We conducted our
audits of these statements 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 of financial statements includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company has restated its 2005,
2004 and 2003 consolidated financial statements.
Internal control over financial reporting
Also, we have audited managements assessment, included in Managements Report on Internal Control
over Financial Reporting appearing under Item 9A, that F5 Networks, Inc. did not maintain effective
internal control over financial reporting as of September 30, 2005, because of errors identified
related to the granting and modification of stock options and the related accounting for and
disclosure of stock-based compensation expense, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express opinions on managements assessment and on the
effectiveness of the Companys internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting 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. An audit of internal
control over financial reporting includes obtaining an understanding of internal control over
financial reporting, evaluating managements assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A companys 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
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) 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 (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
3
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.
A material weakness is a control deficiency, or combination of control deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. The following material weakness has been identified
and included in managements assessment. As of September 30, 2005, management has concluded that
the Company did not maintain effective controls over the granting and modification of stock options
and the related accounting for and disclosure of stock-based compensation expense. Specifically,
effective controls, including monitoring, were not maintained to ensure the existence,
completeness, accuracy, valuation and presentation of activity related to granting and modification
of stock options. This control deficiency resulted in the misstatement of stock-based compensation
expense, additional paid-in capital and related income tax accounts and related disclosures, and in
the restatement of the Companys 2005, 2004 and 2003 annual consolidated financial statements and
the interim consolidated financial statements for the first and second quarters of 2006 and all
quarters of 2005 and 2004 and an audit adjustment to the interim consolidated financial statements
for the third quarter of 2006. Further, this control deficiency could result in misstatements of
the aforementioned accounts and disclosures that would result in a material misstatement of the
Companys annual or interim consolidated financial statements that would not be prevented or
detected. This material weakness was considered in evaluating the nature, timing, and extent of
audit tests applied in our audit of the 2005 consolidated financial statements, and our opinion
regarding the effectiveness of the Companys internal control over financial reporting does not
affect our opinion on those financial statements.
Management and we previously concluded that the Company maintained effective internal control over
financial reporting as of September 30, 2005. However, management subsequently has determined that
the material weakness described above existed as of September 30, 2005. Accordingly, Managements
Report on Internal Control over Financial Reporting has been restated and our present opinion on
internal control over financial reporting, as presented herein, is different from that expressed in
our previous report.
In our opinion, managements assessment that F5 Networks, Inc. did not maintain effective internal
control over financial reporting as of September 30, 2005, is fairly stated, in all material
respects, based on criteria established in Internal Control Integrated Framework issued by the
COSO. Also, in our opinion, because of the effect of the material weakness described above on the
achievement of the objectives of the control criteria, F5 Networks, Inc. has not maintained
effective internal control over financial reporting as of September 30, 2005, based on criteria
established in Internal Control Integrated Framework issued by the COSO.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Seattle, Washington
December 9,
2005, except for the effect of the restatement discussed in Note 2 to the consolidated financial
statements and the matter discussed in the penultimate paragraph of Managements Report on Internal
Control over Financial Reporting, as to which the date is
December 8, 2006
4
F5 NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(as restated) (1) |
|
|
(as restated) (1) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
51,867 |
|
|
$ |
24,901 |
|
Short-term investments |
|
|
184,314 |
|
|
|
115,600 |
|
Accounts receivable, net of allowances of $2,969 and $3,161 |
|
|
41,703 |
|
|
|
22,665 |
|
Inventories |
|
|
2,699 |
|
|
|
1,696 |
|
Deferred tax assets |
|
|
4,175 |
|
|
|
3,174 |
|
Other current assets |
|
|
9,906 |
|
|
|
5,776 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
294,664 |
|
|
|
173,812 |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
3,871 |
|
|
|
6,243 |
|
Property and equipment, net |
|
|
16,158 |
|
|
|
11,954 |
|
Long-term investments |
|
|
128,834 |
|
|
|
81,792 |
|
Deferred tax assets |
|
|
36,212 |
|
|
|
28,446 |
|
Goodwill |
|
|
49,677 |
|
|
|
50,067 |
|
Other assets, net |
|
|
8,323 |
|
|
|
8,279 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
537,739 |
|
|
$ |
360,593 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
7,668 |
|
|
$ |
4,840 |
|
Accrued liabilities |
|
|
23,931 |
|
|
|
16,088 |
|
Deferred revenue |
|
|
36,009 |
|
|
|
25,692 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
67,608 |
|
|
|
46,620 |
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
6,650 |
|
|
|
3,856 |
|
Deferred revenue, long-term |
|
|
3,314 |
|
|
|
2,372 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
9,964 |
|
|
|
6,228 |
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding |
|
|
|
|
|
|
|
|
Common stock, no par value; 100,000 shares authorized, 38,593 and 34,772
shares issued and outstanding |
|
|
431,897 |
|
|
|
326,278 |
|
Accumulated other comprehensive loss |
|
|
(1,430 |
) |
|
|
(498 |
) |
Unearned compensation |
|
|
|
|
|
|
(833 |
) |
Retained earnings |
|
|
29,700 |
|
|
|
(17,202 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
460,167 |
|
|
|
307,745 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
537,739 |
|
|
$ |
360,593 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2, Restatement of Consolidated Financial Statements, of the Notes to Consolidated
Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements.
5
F5 NETWORKS, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(as restated) (1) |
|
|
(as restated) (1) |
|
|
(as restated) (1) |
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
219,603 |
|
|
$ |
126,169 |
|
|
$ |
84,197 |
|
Services |
|
|
61,807 |
|
|
|
45,021 |
|
|
|
31,698 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
281,410 |
|
|
|
171,190 |
|
|
|
115,895 |
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
48,990 |
|
|
|
28,406 |
|
|
|
17,843 |
|
Services |
|
|
16,194 |
|
|
|
10,993 |
|
|
|
9,132 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
65,184 |
|
|
|
39,399 |
|
|
|
26,975 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
216,226 |
|
|
|
131,791 |
|
|
|
88,920 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
89,866 |
|
|
|
66,446 |
|
|
|
54,897 |
|
Research and development |
|
|
31,516 |
|
|
|
24,438 |
|
|
|
19,455 |
|
General and administrative |
|
|
25,486 |
|
|
|
15,761 |
|
|
|
12,210 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
146,868 |
|
|
|
106,645 |
|
|
|
86,562 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
69,358 |
|
|
|
25,146 |
|
|
|
2,358 |
|
Other income, net |
|
|
8,076 |
|
|
|
2,731 |
|
|
|
751 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
77,434 |
|
|
|
27,877 |
|
|
|
3,109 |
|
Provision (benefit) for income taxes |
|
|
30,532 |
|
|
|
(8,451 |
) |
|
|
853 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
46,902 |
|
|
$ |
36,328 |
|
|
$ |
2,256 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic |
|
$ |
1.26 |
|
|
$ |
1.09 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
37,220 |
|
|
|
33,221 |
|
|
|
26,453 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted |
|
$ |
1.21 |
|
|
$ |
1.01 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted |
|
|
38,761 |
|
|
|
35,961 |
|
|
|
28,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2, Restatement of Consolidated Financial Statements, of the Notes to Consolidated
Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements.
6
F5 NETWORKS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands)
(as restated) (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Retained |
|
|
Total |
|
|
|
Common Stock |
|
|
Unearned |
|
|
Comprehensive |
|
|
Earnings |
|
|
Shareholders |
|
|
|
Shares |
|
|
Amount |
|
|
Compensation |
|
|
Income/(Loss) |
|
|
(Deficit) |
|
|
Equity |
|
|
|
(In thousands) |
|
Balance, September 30, 2002 |
|
|
25,730 |
|
|
$ |
128,876 |
|
|
$ |
(93 |
) |
|
$ |
454 |
|
|
$ |
(35,552 |
) |
|
$ |
93,685 |
|
Cumulative effect of restatement (Note 2) |
|
|
|
|
|
|
22,670 |
|
|
|
(2,436 |
) |
|
|
|
|
|
|
(20,234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2002, as
restated |
|
|
25,730 |
|
|
$ |
151,546 |
|
|
$ |
(2,529 |
) |
|
$ |
454 |
|
|
$ |
(55,786 |
) |
|
$ |
93,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of employee stock options |
|
|
1,424 |
|
|
|
10,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,827 |
|
Issuance of stock under employee stock
purchase plan |
|
|
249 |
|
|
|
2,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,006 |
|
Unearned compensation |
|
|
|
|
|
|
942 |
|
|
|
(942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unearned compensation |
|
|
|
|
|
|
|
|
|
|
1,914 |
|
|
|
|
|
|
|
|
|
|
|
1,914 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,256 |
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161 |
) |
|
|
|
|
|
|
|
|
Unrealized loss on securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2003, as
restated |
|
|
27,403 |
|
|
$ |
165,321 |
|
|
$ |
(1,557 |
) |
|
$ |
195 |
|
|
$ |
(53,530 |
) |
|
$ |
110,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of employee stock options |
|
|
2,032 |
|
|
|
22,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,349 |
|
Issuance of stock under employee stock
purchase plan |
|
|
162 |
|
|
|
2,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,579 |
|
Issuance of common stock in a public
offering (net of issuance costs of
$6,682) |
|
|
5,175 |
|
|
|
113,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,636 |
|
Tax benefit from employee stock
transactions |
|
|
|
|
|
|
21,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,925 |
|
Unearned compensation |
|
|
|
|
|
|
468 |
|
|
|
(468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unearned compensation |
|
|
|
|
|
|
|
|
|
|
1,192 |
|
|
|
|
|
|
|
|
|
|
|
1,192 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,328 |
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144 |
|
|
|
|
|
|
|
|
|
Unrealized loss on securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(837 |
) |
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2004, as
restated |
|
|
34,772 |
|
|
$ |
326,278 |
|
|
$ |
(833 |
) |
|
$ |
(498 |
) |
|
$ |
(17,202 |
) |
|
$ |
307,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of employee stock options |
|
|
3,685 |
|
|
|
65,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,056 |
|
Issuance of stock under employee stock
purchase plan |
|
|
136 |
|
|
|
3,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,837 |
|
Tax benefit from employee stock
transactions |
|
|
|
|
|
|
32,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,153 |
|
Amortization of unearned compensation |
|
|
|
|
|
|
|
|
|
|
833 |
|
|
|
|
|
|
|
|
|
|
|
833 |
|
Stock-based compensation |
|
|
|
|
|
|
4,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,573 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,902 |
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161 |
) |
|
|
|
|
|
|
|
|
Unrealized loss on securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(771 |
) |
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2005, as
restated |
|
|
38,593 |
|
|
$ |
431,897 |
|
|
$ |
|
|
|
$ |
(1,430 |
) |
|
$ |
29,700 |
|
|
$ |
460,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2, Restatement of Consolidated Financial Statements, of the Notes to Consolidated
Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements
7
F5 NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(as restated) (1) |
|
|
(as restated) (1) |
|
|
(as restated) (1) |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
46,902 |
|
|
$ |
36,328 |
|
|
$ |
2,256 |
|
Adjustments to reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss (gain) on disposition of assets |
|
|
569 |
|
|
|
21 |
|
|
|
(14 |
) |
Realized (gain) loss on sale of investments |
|
|
|
|
|
|
(3 |
) |
|
|
232 |
|
Stock-based compensation |
|
|
5,406 |
|
|
|
1,192 |
|
|
|
1,914 |
|
Provision for doubtful accounts and sales returns |
|
|
1,419 |
|
|
|
1,189 |
|
|
|
1,148 |
|
Depreciation and amortization |
|
|
6,797 |
|
|
|
5,355 |
|
|
|
5,162 |
|
Deferred income taxes |
|
|
(7,733 |
) |
|
|
(33,886 |
) |
|
|
|
|
Tax benefit from employee stock option plans |
|
|
32,153 |
|
|
|
21,685 |
|
|
|
|
|
Changes in operating assets and liabilities, net of amounts acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(20,456 |
) |
|
|
(4,152 |
) |
|
|
354 |
|
Inventories |
|
|
(1,002 |
) |
|
|
(928 |
) |
|
|
(408 |
) |
Other current assets |
|
|
(3,604 |
) |
|
|
(642 |
) |
|
|
(54 |
) |
Other assets |
|
|
(149 |
) |
|
|
(630 |
) |
|
|
(512 |
) |
Accounts payable and accrued liabilities |
|
|
13,426 |
|
|
|
6,303 |
|
|
|
(320 |
) |
Deferred revenue |
|
|
11,259 |
|
|
|
8,758 |
|
|
|
4,852 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
84,987 |
|
|
|
40,590 |
|
|
|
14,610 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments |
|
|
(407,533 |
) |
|
|
(335,231 |
) |
|
|
(157,834 |
) |
Sales of investments |
|
|
290,351 |
|
|
|
205,662 |
|
|
|
149,724 |
|
Investment of restricted cash |
|
|
2,369 |
|
|
|
(168 |
) |
|
|
|
|
Proceeds from the sale of property and equipment |
|
|
|
|
|
|
|
|
|
|
14 |
|
Acquisition of intangible assets, net |
|
|
(2,259 |
) |
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired |
|
|
(395 |
) |
|
|
(29,201 |
) |
|
|
(27,373 |
) |
Purchases of property and equipment |
|
|
(9,293 |
) |
|
|
(5,775 |
) |
|
|
(2,584 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(126,760 |
) |
|
|
(164,713 |
) |
|
|
(38,053 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from secondary offering, net of issuance costs |
|
|
|
|
|
|
113,636 |
|
|
|
|
|
Proceeds from the exercise of stock options |
|
|
68,867 |
|
|
|
24,832 |
|
|
|
12,833 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
68,867 |
|
|
|
138,468 |
|
|
|
12,833 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
27,094 |
|
|
|
14,345 |
|
|
|
(10,610 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(128 |
) |
|
|
205 |
|
|
|
160 |
|
Cash and cash equivalents, beginning of year |
|
|
24,901 |
|
|
|
10,351 |
|
|
|
20,801 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
51,867 |
|
|
$ |
24,901 |
|
|
$ |
10,351 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes |
|
$ |
792 |
|
|
$ |
706 |
|
|
$ |
290 |
|
|
|
|
(1) |
|
See Note 2, Restatement of Consolidated Financial Statements, of the Notes to Consolidated
Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements.
8
F5 NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The Company
F5 Networks, Inc., (the Company) provides products and services to help companies
efficiently and securely manage their Internet traffic. The Companys products improve the
performance, availability and security of applications running on Internet-based networks. Internet
traffic between servers running applications and clients using these applications passes through
the Companys products where the content is inspected to ensure that it is safe and modified as
necessary to ensure that it is delivered securely and in a way that optimizes the performance of
both the network and the applications. The Company also offers a broad range of services such as
consulting, training, installation, maintenance, and other technical support services.
Certain Risks and Uncertainties
The Companys products and services are concentrated in highly competitive markets
characterized by rapid technological advances, frequent changes in customer requirements and
evolving regulatory requirements and industry standards. Failure to anticipate or respond
adequately to technological advances, changes in customer requirements and changes in regulatory
requirements or industry standards could have a material adverse effect on the Companys business
and operating results. Additionally, certain other factors could affect the Companys future
operating results and cause actual results to differ materially from expectations, including but
not limited to, the timely development, introduction and acceptance of additional new products and
features by the Company or its competitors; competitive pricing pressures, increased sales
discounts; the Companys ability to sustain, develop and effectively utilize distribution
relationships; the Companys ability to attract, train and retain qualified personnel; the
Companys ability to expand in international markets, and the unpredictability of the Companys
sales cycle.
Accounting Principles
The Companys consolidated financial statements and accompanying notes are prepared on the
accrual basis of accounting in accordance with generally accepted accounting principles in the
United States of America.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to prior year balances to conform to the current
period presentation. The reclassifications had no impact on previously reported net income or
shareholders equity.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent assets and
liabilities as of the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Estimates are used in accounting for revenue recognition,
reserves for doubtful accounts, product returns, obsolete and excess inventory, warranties,
valuation allowance on deferred tax assets and purchase price allocations. Actual results could
differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with purchased maturities of three months
or less to be cash equivalents. The Company invests its cash and cash equivalents in deposits with
three major financial institutions, which, at times, exceed federally insured limits. The Company
has not experienced any losses on its cash and cash equivalents.
9
Investments
The Company classifies its investment securities as available for sale. Investment securities,
consisting of corporate and municipal bonds and notes and United States government securities, are
reported at fair value with the related unrealized gains and losses included as a component of
accumulated other comprehensive income (loss) in shareholders equity. Realized gains and losses
and declines in value of securities judged to be other than temporary are included in other income
(expense). The cost of investments for purposes of computing realized and unrealized gains and
losses is based on the specific identification method. Investments in securities with maturities of
less than one year or where managements intent is to use the investments to fund current
operations are classified as short-term investments. Investments with maturities of greater than
one year are classified as long-term investments.
Concentration of Credit Risk
The Company extends credit to customers and is therefore subject to credit risk. The Company
performs initial and ongoing credit evaluations of its customers financial condition and does not
require collateral. An allowance for doubtful accounts is recorded to account for potential bad
debts. Estimates are used in determining the allowance for doubtful accounts and are based upon an
assessment of selected accounts and as a percentage of remaining accounts receivable by aging
category. In determining these percentages, the Company evaluates historical write-offs, and
current trends in customer credit quality, as well as changes in credit policies.
The Company maintains its cash and investment balances with high credit quality financial
institutions.
Fair Value of Financial Instruments
Short-term and long-term investments are recorded at fair value as the underlying securities
are classified as available for sale and marked-to-market at each reporting period. The fair value
is determined using quoted market prices for the securities held.
Inventories
The Company outsources the manufacturing of its pre-configured hardware platforms to contract
manufacturers, who assemble each product to the Companys specifications. As protection against
component shortages and to provide replacement parts for its service teams, the Company also stocks
limited supplies of certain key product components. The Company reduces inventory to net realizable
value based on excess and obsolete inventories determined primarily by historical usage and
forecasted demand. Inventories consist of hardware and related component parts and are recorded at
the lower of cost or market (as determined by the first-in, first-out method).
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
Finished goods |
|
$ |
2,486 |
|
|
$ |
1,452 |
|
Raw materials |
|
|
213 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
$ |
2,699 |
|
|
$ |
1,696 |
|
|
|
|
|
|
|
|
Restricted Cash
Restricted cash represents escrow accounts established in connection with lease agreements for
the Companys corporate headquarters and, to a lesser extent, our international facilities. Under
the terms of the lease for our corporate headquarters, the amount required to be held in escrow
reduces and eventually eliminates at various dates throughout the duration of the lease term.
During the fiscal year ended September 30, 2005, the amount required to be held in escrow decreased
from $6.0 million to $3.6 million as set forth in the lease agreement for our corporate
headquarters.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and equipment are provided
using the straight-line method over the estimated useful lives of the assets, ranging from two to
five years. Leasehold improvements are amortized over the lesser of the
10
lease term or the estimated useful life of the improvements. The cost of normal maintenance
and repairs is charged to expense as incurred and expenditures for major improvements are
capitalized at cost. Gains or losses on the disposition of assets are reflected in the income
statements at the time of disposal.
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
Computer equipment |
|
$ |
19,344 |
|
|
$ |
18,499 |
|
Office furniture and equipment |
|
|
5,326 |
|
|
|
5,895 |
|
Leasehold improvements |
|
|
8,772 |
|
|
|
8,272 |
|
|
|
|
|
|
|
|
|
|
|
33,442 |
|
|
|
32,666 |
|
Accumulated depreciation and amortization |
|
|
(17,284 |
) |
|
|
(20,712 |
) |
|
|
|
|
|
|
|
|
|
$ |
16,158 |
|
|
$ |
11,954 |
|
|
|
|
|
|
|
|
Depreciation and amortization expense totaled approximately $4.8 million, $4.0 million, and
$4.7 million for the fiscal years ended September 30, 2005, 2004 and 2003, respectively.
Goodwill
Goodwill represents the excess purchase price over the estimated fair value of net assets
acquired as of the acquisition date. The Company has adopted the requirements of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS
No. 142 requires goodwill to be tested for impairment on an annual basis and between annual tests
in certain circumstances, and written down when impaired. Goodwill of $24.2 million was recorded in
connection with the acquisition of uRoam, Inc. in fiscal year 2003 and goodwill of $25.5 million
was recorded in connection with the acquisition of MagniFire Websystems Inc., in fiscal year 2004.
The Company completed its annual impairment test in the second quarter of each fiscal year and
concluded that there was no impairment of goodwill in either fiscal year 2005 or 2004.
Other Assets
Other assets primarily consist of software development costs and acquired technology.
Software development costs are charged to research and development expense until technological
feasibility is established. The Company accounts for internally-generated software development
costs in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. Thereafter, until the
product is released for sale, software development costs are capitalized and reported at the lower
of unamortized cost or net realizable value of each product. The establishment of technological
feasibility and the ongoing assessment of recoverability of costs require considerable judgment by
the Company with respect to certain internal and external factors, including, but not limited to,
anticipated future gross product revenues, estimated economic life and changes in hardware and
software technology. The Company did not capitalize any software development costs in fiscal year
2005. During the fiscal year 2004, the Company capitalized $424,000 of software development costs.
Related amortization costs of $272,000, $328,000, and $298,000 were recorded during the fiscal
years 2005, 2004, and 2003, respectively.
Acquired technology is recorded at cost and amortized over its estimated useful life of five
years. Acquired technology of $5.0 million in fiscal year 2004 and $3.0 million in fiscal year 2003
was recorded in connection with the acquisitions of MagniFire and uRoam, respectively. Related
amortization expense, which is charged to cost of product revenues, totaled $1.6 million, $1.0
million and $100,000 during the fiscal years 2005, 2004 and 2003, respectively.
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets whenever events or changes in
business circumstances indicate that the carrying amount of an asset may not be recoverable. When
such events occur, management determines whether there has been an impairment by comparing the
anticipated undiscounted net future cash flows to the related assets carrying value. If an
impairment exists, the asset is written down to its estimated fair value.
11
Revenue Recognition
The Companys products are integrated with software that is essential to the functionality of
the equipment. Accordingly, the Company recognizes revenue in accordance with the guidance provided
under Statement of Position (SOP) No. 97-2, Software Revenue Recognition, and SOP No. 98-9
Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions,
Statement of Financial Accounting Standards (SFAS) No. 48, Revenue Recognition When Right of
Return Exists, and SEC Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition.
The Company sells products through distributors, resellers, and directly to end users. The
Company recognizes product revenue upon shipment, net of estimated returns, provided that
collection is determined to be probable and no significant obligations remain. In certain regions
where the Company does not have the ability to reasonably estimate returns, the Company defers
revenue on sales to its distributors until the Company has received information from the channel
partner indicating that the distributor has sold the product to its customer. Payment terms to
domestic customers are generally net 30 days. Payment terms to international customers range from
net 30 to 90 days based on normal and customary trade practices in the individual markets. The
Company has offered extended payment terms ranging from three to six months to certain customers,
in which case, revenue is recognized when payments are received.
Whenever a software license, hardware, installation and post-contract customer support
(PCS), elements are sold together, a portion of the sales price is allocated to each element
based on their respective fair values as determined when the individual elements are sold
separately. Revenues from the license of software are recognized when the software has been shipped
and the customer is obligated to pay for the software. When rights of return are present and the
Company cannot estimate returns, the Company recognizes revenue when such rights of return lapse.
Revenues for PCS are recognized on a straight-line basis over the service contract term. PCS
includes rights to upgrades, when and if available, a limited period of telephone support, updates,
and bug fixes. Installation revenue is recognized when the product has been installed at the
customers site. Consulting services are customarily billed at fixed rates, plus out-of-pocket
expenses, and revenues are recognized when the consulting has been completed. Training revenue is
recognized when the training has been completed.
Shipping and Handling
Shipping and handling fees charged to our customers are recognized as product revenue in the
period shipped and the related costs for providing these services are recorded as a cost of sale.
Guarantees and Product Warranties
In the normal course of business to facilitate sales of its products, the Company indemnifies
other parties, including customers, resellers, lessors, and parties to other transactions with the
Company, with respect to certain matters. The Company has agreed to hold the other party harmless
against losses arising from a breach of representations or covenants, or out of intellectual
property infringement or other claims made against certain parties. These agreements may limit the
time within which an indemnification claim can be made and the amount of the claim. The Company has
entered into indemnification agreements with its officers and directors, and the Companys bylaws
contain similar indemnification obligations to the Companys agents. It is not possible to
determine the maximum potential amount under these indemnification agreements due to the limited
history of prior indemnification claims and the unique facts and circumstances involved in each
particular agreement.
The Company offers warranties of one year for hardware, with the option of purchasing
additional warranty coverage in yearly increments. The Company accrues for warranty costs as part
of its cost of sales based on associated material product costs and technical support labor costs.
During the years ended September 30, 2005, 2004 and 2003 warranty expense was $2.2 million, $0.9
million and $0.3 million, respectively.
The following table summarizes the activity related to product warranties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Balance, beginning of fiscal year |
|
$ |
1,062 |
|
|
$ |
827 |
|
|
$ |
650 |
|
Provision for warranties issued |
|
|
2,233 |
|
|
|
923 |
|
|
|
291 |
|
Payments |
|
|
(1,730 |
) |
|
|
(688 |
) |
|
|
(114 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of fiscal year |
|
$ |
1,565 |
|
|
$ |
1,062 |
|
|
$ |
827 |
|
|
|
|
|
|
|
|
|
|
|
12
Research and Development
Research and development expenses consist of salaries and related benefits of product
development personnel, prototype materials and expenses related to the development of new and
improved products, and an allocation of facilities and depreciation expense. Research and
development expenses are reflected in the statements of income as incurred.
Advertising
Advertising costs are expensed as incurred. The Company incurred $1.7 million, $1.7 million
and $1.0 million in advertising costs during the fiscal years 2005, 2004 and 2003, respectively.
Income Taxes
The Company utilizes the liability method of accounting for income taxes as set forth by
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, or SFAS 109.
Deferred income tax assets and liabilities are determined based upon differences between the
financial statement and income tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The realization of deferred
tax assets is based on historical tax positions and estimates of future taxable income. A valuation
allowance is recorded when it is more likely than not that some of the deferred tax assets will not
be realized.
Foreign Currency
The functional currency for the Companys foreign subsidiaries is the local currency in which
the respective entity is located, with the exception of F5 Networks, Ltd., in the United Kingdom
that uses the U.S. dollar as its functional currency. An entitys functional currency is determined
by the currency of the economic environment in which the majority of cash is generated and expended
by the entity. The financial statements of all majority-owned subsidiaries and related entities,
with a functional currency other than the U.S. dollar, have been translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52 Foreign Currency Translation.
All assets and liabilities of the respective entities are translated at year-end exchange rates and
all revenues and expenses are translated at average rates during the respective period. Translation
adjustments are reported as a separate component of accumulated other comprehensive income (loss)
in shareholders equity.
Foreign currency transaction gains and losses are a result of the effect of exchange rate
changes on transactions denominated in currencies other than the functional currency, including
U.S. dollars. Gains and losses on those foreign currency transactions are included in determining
net income or loss for the period of exchange. The net effect of foreign currency gains and losses
were not significant during the fiscal year ended September 30, 2005. Net transaction losses of
$466,000 and $544,000 were charged to operations for the fiscal year ended September 30, 2004 and
2003, respectively.
Segments
The Company complies with the requirements of Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosure about Segments of an Enterprise and Related Information, which
establishes annual and interim reporting standards for an enterprises operating segments and
related disclosures about its products, services, geographic areas and major customers. Management
has determined that the Company operates in one segment.
Stock-Based Compensation
On July 1, 2005, the Company adopted the fair value recognition provisions of Financial
Accounting Standards Board (FASB) Statement No. 123(R), Share-Based Payment, (FAS 123R). Prior
to July 1, 2005, the Company accounted for share-based payments under the recognition and
measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25),
and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based
Compensation (FAS 123). In accordance with APB 25 no compensation cost was required to be
recognized for options granted that had an exercise price equal to the market value of the
underlying common stock on the date of grant.
The Company adopted FAS 123R using the modified-prospective-transition method. Under that
transition method, compensation cost recognized in the fiscal year 2005 includes: a) compensation
cost for all share-based payments granted prior to, but not yet vested as of July 1, 2005, based on
the grant-date fair value estimated in accordance with the original provisions of FAS 123, and b)
compensation cost for all share-based payments granted subsequent to July 1, 2005, based on the
grant-date fair value estimated in accordance with the provisions of FAS 123R.
13
Effective July 1, 2005 the Company adopted the straight-line attribution method for
recognizing compensation expense. Previously under the disclosure-only provisions of SFAS 123, the
Company used the accelerated method of expense recognition pursuant to FASB Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans (FIN 28).
For all unvested options outstanding as of July 1, 2005, the previously measured but unrecognized
compensation expense, based on the fair value at the original grant date, will be recognized on an
accelerated basis over the remaining vesting period. For share-based payments granted subsequent to
July 1, 2005, compensation expense, based on the fair value on the date of grant, will be
recognized on a straight-line basis over the vesting period.
The fair value of restricted stock units is based on the price of a share of our common stock
on the date of grant. However, in determining the fair value of stock options, we use the
Black-Scholes option pricing model that employs the following key assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Plan |
|
Employee Stock Purchase Plan |
|
|
Years Ended September 30, |
|
Years Ended September 30, |
|
|
2005 |
|
2004 |
|
2003 |
|
2005 |
|
2004 |
|
2003 |
Risk-free interest rate |
|
|
3.53 |
% |
|
|
3.19 |
% |
|
|
2.33 |
% |
|
|
2.72 |
% |
|
|
1.14 |
% |
|
|
1.23 |
% |
Expected dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term |
|
2.7 years |
|
2.2 years |
|
4.0 years |
|
0.5 years |
|
0.5 years |
|
0.5 years |
Expected volatility |
|
|
68.17 |
% |
|
|
59.05 |
% |
|
|
49.95 |
% |
|
|
52.48 |
% |
|
|
50.18 |
% |
|
|
72.93 |
% |
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.
The Company does not anticipate declaring dividends in the foreseeable future. Expected volatility
is based on the annualized daily historical volatility of our stock price commensurate with the
expected life of the option. Expected term of the option is based on an evaluation of the
historical employee stock option exercise behavior, the vesting terms of the respective option and
a contractual life of ten years. Our stock price volatility and option lives involve managements
best estimates at that time, both of which impact the fair value of the option calculated under the
Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the
option. SFAS 123R also requires that we recognize compensation expense for only the portion of
options or stock units that are expected to vest. Therefore, the Company applies estimated
forfeiture rates that are derived from historical employee termination behavior. The estimated
forfeiture rate in the fourth quarter of fiscal 2005 is 5%. If the actual number of forfeitures
differs from those estimated by management, additional adjustments to compensation expense may be
required in future periods.
The weighted-average fair value of options granted in the fiscal years 2005, 2004 and 2003 was
$18.68, $8.32 and $7.46, respectively.
14
The following table shows the pro forma effect on the Companys net income (loss) and net
income (loss) per share for the years ended September 30, 2005, 2004 and 2003, had compensation
expense been determined based upon the fair value at the grant date for awards consistent with the
methodology prescribed by SFAS 123. The Company adopted SFAS 123R on July 1, 2005 the beginning of
its fourth quarter of fiscal 2005; therefore, stock-based compensation expense shown in the pro
forma table relates to expense through June 30, 2005 while the Company was still under the
disclosure only provisions of SFAS 123. Stock-based compensation expense for the fourth quarter of
fiscal 2005 has been included in results of operations. The following pro forma disclosure has been
restated to reflect changes in assumptions and corrections of errors related to both our reported
net income (loss) and to the pro forma stock-based compensation amounts as determined under SFAS
No. 123, identified in connection with our Restatement (See Note 2, Restatement of Consolidated
Financial Statements). The pro forma effects may not be representative of expense in future
periods since the estimated fair value of stock options on the date of grant is amortized to
expense over the vesting period, and additional options may be granted or options may be cancelled
in future years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(as restated) (1) |
|
|
(as restated) (1) |
|
|
(as restated) (1) |
|
Net income, as reported |
|
$ |
46,902 |
|
|
$ |
36,328 |
|
|
$ |
2,256 |
|
Add: Stock-based employee
compensation expense under
APB No. 25 included in
reported net income, net of
tax effect |
|
|
833 |
|
|
|
1,192 |
|
|
|
1,914 |
|
Deduct: Total stock-based
employee compensation
expense determined under
the fair value methods,
net of tax effect |
|
|
7,161 |
|
|
|
19,356 |
|
|
|
24,402 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss). |
|
$ |
40,574 |
|
|
$ |
18,164 |
|
|
$ |
(20,232 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
As reported basic |
|
$ |
1.26 |
|
|
$ |
1.09 |
|
|
$ |
0.09 |
|
Pro forma basic |
|
$ |
1.09 |
|
|
$ |
0.55 |
|
|
$ |
(0.76 |
) |
As reported diluted |
|
$ |
1.21 |
|
|
$ |
1.01 |
|
|
$ |
0.08 |
|
Pro forma diluted |
|
$ |
1.05 |
|
|
$ |
0.51 |
|
|
$ |
(0.76 |
) |
|
|
|
(1) |
|
See Note 2, Restatement of Consolidated Financial Statements, of the Notes to Consolidated
Financial Statements. |
Earnings Per Share
Basic net income per share is computed by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted net income per share is computed by
dividing net income by the weighted average number of common and dilutive common stock equivalent
shares outstanding during the period.
The following table sets forth the computation of basic and diluted net income per share (in
thousands, except per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(as restated) (1) |
|
|
(as restated) (1) |
|
|
(as restated) (1) |
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
46,902 |
|
|
$ |
36,328 |
|
|
$ |
2,256 |
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
37,220 |
|
|
|
33,221 |
|
|
|
26,453 |
|
Dilutive effect of common shares from stock options and restricted stock units |
|
|
1,541 |
|
|
|
2,740 |
|
|
|
1,722 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
38,761 |
|
|
|
35,961 |
|
|
|
28,175 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
1.26 |
|
|
$ |
1.09 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
1.21 |
|
|
$ |
1.01 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2, Restatement of Consolidated Financial Statements, of the Notes to Consolidated
Financial Statements. |
Approximately 0.4 million, 1.4 million, and 2.6 million of common shares potentially issuable
from stock options for the years ended September 30, 2005, 2004 and 2003 are excluded from the
calculation of diluted earnings per share because the exercise price was greater than the market
price.
15
Recent Accounting Pronouncements
In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF
03-1 provides guidance on other-than-temporary impairment models for marketable debt and equity
securities accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and SFAS No. 124, Accounting for Certain Investments Held by Not-for-Profit
Organizations, and non-marketable equity securities accounted for under the cost method. The EITF
developed a basic three-step model to evaluate whether an investment is other-than-temporarily
impaired. On September 30, 2004, the FASB approved the issuance of FASB Staff Position (FSP) EITF
03-1-1, which delays the effective date until additional guidance is issued for the application of
the recognition and measurement provisions of EITF 03-1 to investments in securities that are
impaired. In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments. This FSP addresses the
determination as to when an investment is considered impaired, whether the impairment is other than
temporary and the measurement of an impairment loss. This statement specifically nullifies the
requirements of paragraph 10-18 of EITF 03-1 and references existing other-than-temporary
impairment guidance. The guidance under this FSP is effective for reporting periods beginning after
December 15, 2005. The Company does not expect the adoption of FSP FAS 115-1 and FAS 124-1 to have
a material effect on the Companys results of operations or financial condition.
In May of 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections A
Replacement of APB Opinion No. 20 and FASB Statement No. 3, which changes the requirements for the
accounting and reporting of a change in accounting principle. The Statement applies to all
voluntary changes in accounting principle and to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition provisions. This
Statement requires retrospective application to prior periods financial statements of changes in
accounting principle, unless it is impracticable to determine either the period-specific effects or
the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not
expect the adoption of this statement to have a material impact on the Companys financial
condition or results of operations.
16
2. Restatement of Consolidated Financial Statements
On May 16, 2006, the Center for Financial Research and Analysis (CFRA) issued a report
entitled Options Backdating, Which Companies Are At Risk? (the CFRA Report) in which CFRA
reviewed the option prices of 100 public companies and, based upon an analysis of the exercise
prices of option grants with reference to the companies stock prices, concluded that 17% of the
subject companies were, in CFRAs view, at risk for having backdated option grants during the
period 1997 to 2002. The Company was among the 17 companies so identified.
On May 18, 2006, the Company was contacted by the Securities and Exchange Commission (SEC)
as part of an informal inquiry entitled In the Matter of F5 Networks, Inc., (SEC File No.
MHO-10462). On May 19, 2006, the Company received a grand jury subpoena issued by the U.S. District
Court for the Eastern District of New York requesting documents related to the granting of stock
options from 1995 through the present in connection with an inquiry into the Companys stock option
practices by the United States Attorneys Office for the Eastern District of New York (the
Department of Justice). The Company produced documents in response to these requests and is
continuing to cooperate fully with the SEC regarding these inquires.
On May 22, 2006, the Companys Board of Directors (the Board of Directors) formed a special
committee of outside directors with broad authority to conduct a review of the Companys stock
option practices, including a review of the Companys underlying stock option documentation and
procedures (the Special Committee). At that time, the Special Committee was composed of three
members of the Board of Directors, one of which was also on the Audit Committee, Karl Guelich, Rich
Malone and Gary Ames. In July 2006, the Special Committee was reconstituted to consist of two
independent members of the Board of Directors, Gary Ames and Deborah Bevier (who joined the
Companys Board of Directors on July 14, 2006). The Special Committee retained the law firm of
Wilson Sonsini Goodrich & Rosati P.C. (Wilson Sonsini) as its independent outside legal counsel.
Wilson Sonsini engaged Deloitte Financial Advisory Services LLP as independent accounting experts
to aid in its investigation.
In the course of responding to the SEC and the Department of Justices inquiries, the Company
determined that there were potential problems with the accounting treatment of certain stock option
grants. On July 20, 2006, the Company announced that the Audit Committee of the Board of Directors
(the Audit Committee) had determined, after consultation with management, that the Companys
financial statements and all earnings releases and similar communications relating to fiscal
periods beginning on or after October 1, 2000, the first day of
its fiscal year 2001, should be restated.
In October 2006, the Special Committee determined that the recorded grant dates for certain
stock options granted during fiscal years 1999 through 2004 should not be relied upon as the
measurement date for accounting purposes and that the accounting treatment used for the vesting of
certain stock options was incorrect. Because the prices at the originally stated grant dates were
lower than the prices on the actual measurement dates, the Company determined it should have
recognized material amounts of stock-based compensation expense which were not previously accounted
for in the Companys previously issued financial statements. Therefore, the Audit Committee after
consultation with management concluded that the Companys previously filed unaudited interim and
audited financial statement for the years ended September 30, 2005, 2004, 2003, 2002, 2001, 2000
and 1999 as well as the unaudited interim financial statements for the first and second quarters
ended December 31, 2005 and 2004 and March 31, 2006 and 2005, should no longer be relied upon
because these financial statements contained material misstatements.
Special Committee and Company Findings
On November 8, 2006, the Company announced that the Special Committee had completed its review
of the Companys stock option practices and reported its final findings to the Board of Directors.
The
Special Committee concluded that there were options grants where the
Company (i) used improper measurement dates in connection with
certain annual stock option grants to employees because the number of
shares certain individual employees were entitled to receive was not
determined until after the original grant date, (ii) granted
options to certain new employees and board members prior to their
start dates, (iii) did not have sufficient documentation to
support certain measurement dates and did not
obtain the necessary approvals for stock options issued to certain
individuals, (iv) did not properly account for stock option
grants issued to a consultant who later became an employee, and
(v) did not properly account for stock options of certain
individuals that were modified after the grant date. Based on its
investigation, the Special Committee concluded that it continued to
have confidence in the ability of the Companys current senior
management to serve in their positions with integrity at the Company.
The Special Committee was unable to reach any conclusions regarding
the intent of former officers, directors and employees. Based on the
Special Committees findings, the Company has adopted and is
implementing a number of remedial measures designed to improve its
policies, controls, processes and procedures relating to the granting
and modification of stock-based compensation and will provide
additional training for personnel responsible for administration of
the Companys equity compensation plans.
As a result of the Special Committees investigation, as well as the Companys internal
review of its stock option practices and historical financial statements, the Company has
determined the following:
|
|
|
Improper Measurement Dates for Annual Stock Option Grants. In connection with the
Companys annual stock option grants to certain employees in 2000, 2001, 2003 and 2004, the
number of shares that certain individual employees were entitled to receive was not
determined until after the original grant date, and therefore the measurement date for such
options was subsequent to the original grant date. In addition, in connection with the
Companys annual stock option grant to employees in 2000, the exercise price was not set in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and
related interpretations. As a result, the Company has restated its historical financial
statements to increase stock-based compensation expense by approximately $14.3 million
recognized over the applicable vesting periods. |
17
|
|
|
Improper Measurement Dates for Other Stock Option. Certain options to new employees and
board members were granted on dates other than to their respective
start date with the Company. As a result, the
Company has restated its historical financial statements to increase stock-based
compensation expense by approximately $1.3 million recognized over the applicable vesting
periods. |
|
|
|
|
Incomplete Documentation or Approval for Stock Option Grants. In 2000 and 2001 the
Company did not have sufficient documentation to support certain
measurement dates and did not obtain the required approvals for stock
options. As a result, the Company has restated its
historical financial statements to increase stock-based compensation expense by
approximately $4.6 million recognized over the applicable vesting periods. |
|
|
|
|
Stock Options Grants to Non-employees. In 2000, the Company did not properly accounted
for stock option grants issued to a consultant who later became an employee. The Company
erroneously accounted for the grant in accordance with APB No. 25 rather than FASB
Statement No. 123, Accounting for Stock-Based Compensation (FAS 123) and related
interpretations. As a result, the Company has restated its historical financial statements
to increase stock-based compensation expense by approximately $3.0 million. |
|
|
|
|
Modifications to Stock Option Grants. From 1999 through 2002, the Company did not
properly account for stock options for certain individuals that were modified after the
grant date. Some of these modifications were not identified in the Companys financial
reporting processes and were therefore not properly reflected in its financial statements.
As a result, The Company has restated its historical financial statements to increase
stock-based compensation expense by approximately $843,000 recognized as of the date of the
respective modifications. |
As a result of the above, the Company has recorded additional non-cash stock-based
compensation expense of approximately $24.1 million on stock option grants made from 1999 through
2004. In addition, the Company recorded approximately $1.7 million of additional compensation
expense in 2005 related to its obligation under pre-existing commitments to reimburse employees for
penalties incurred resulting from receipt of in-the-money option grants. Tax impacts of these
additional expenses included; a reclassification of windfall tax benefits of $4.8 million in fiscal year 2004, which
were previously recognized in paid-in-capital and now are required to be recognized as a tax
benefit and additional tax expenses resulting from non-deductible employee compensation of $2.5
million, which together result in a net benefit of $2.3 million.
As a result of these findings the Companys restated consolidated financial statements reflect
a decrease in net income of approximately $23.5 million for the periods 1999 through 2005. These
charges had no impact on the Companys reported net sales or cash and cash equivalents.
The cumulative effect of the restatement adjustments on the Companys consolidated balance
sheet at September 30, 2005 resulted in a decrease in retained earnings of $23.5 million, partially
offset by an increase in additional paid-in capital of $19.5 million, which results in a net
decrease in total shareholders equity of $4.0 million. All of the restatements of financial
statements, financial data and related disclosures described in these Consolidated Financial
Statements are collectively referred to elsewhere in these Consolidated Financial Statements as the
restatement.
The
information presented below has been included to facilitate an
understanding of the components of the restatement adjustments to
retained earnings. The following table is a summary of pre-tax
adjustments made to stock-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restatement on |
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
years prior to
2003 |
|
2002 |
|
2001 |
|
2000 |
|
1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, as reported |
|
$ |
|
|
|
$ |
10 |
|
|
$ |
83 |
|
|
$ |
7,682 |
|
|
$ |
443 |
|
|
$ |
2,625 |
|
|
$ |
2,127 |
|
|
$ |
2,487 |
|
Adjustments |
|
|
833 |
|
|
|
1,182 |
|
|
|
1,831 |
|
|
|
20,234 |
|
|
|
5,248 |
|
|
|
6,996 |
|
|
|
7,826 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, restated |
|
$ |
833 |
|
|
$ |
1,192 |
|
|
$ |
1,914 |
|
|
$ |
27,916 |
|
|
$ |
5,691 |
|
|
$ |
9,621 |
|
|
$ |
9,953 |
|
|
$ |
2,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For explanatory purposes, the Company has classified the stock-based compensation and other
adjustments that were affected by the restatement into the aforementioned categories as presented
below. The classified amounts involve certain subjective judgments by management to the extent
particular stock option related accounting errors may fall within more than one category to avoid
double counting the adjustment amounts between categories (e.g., a stock option that is subject to
date changes and/or combined with expenses resulting from consulting, transition or advisory
roles). As such, the table below should be considered a reasonable representation of the magnitude
of expenses in each category.
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on years |
|
Adjustments to Stock-Based Compensation by Category |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
prior to 2003 |
|
Improper measurement dates for annual stock option grants |
|
$ |
464 |
|
|
$ |
719 |
|
|
$ |
1,407 |
|
|
$ |
11,717 |
|
Modifications to stock option grants |
|
|
335 |
|
|
|
356 |
|
|
|
152 |
|
|
|
|
|
Incomplete documentation or approval for stock option grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,625 |
|
Improper measurement dates for other stock option grants |
|
|
34 |
|
|
|
107 |
|
|
|
272 |
|
|
|
904 |
|
Stock option grants to non-employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
adjustments to income before income taxes |
|
|
833 |
|
|
|
1,182 |
|
|
|
1,831 |
|
|
|
20,234 |
|
Payroll related liabilities |
|
|
1,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments to net income |
|
|
2,533 |
|
|
|
1,182 |
|
|
|
1,831 |
|
|
|
20,234 |
|
Income tax impact of restatement adjustments |
|
|
2,298 |
|
|
|
(4,557 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments to net income |
|
$ |
4,831 |
|
|
$ |
(3,375 |
) |
|
$ |
1,831 |
|
|
$ |
20,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In order to further enhance investor understanding of the effects of the matters
described in the section entitled Special Committee and Company Findings and to provide context
for the disclosure and the composition of the cumulative adjustment to opening retained earnings we
have provided the information below, which shows the accounting periods to which the stock
compensation adjustments relate. The Companys financial statements for such periods and the
related SEC reports for such periods have not been amended. Accordingly, for illustrative
purposes, the table below applies the stock compensation adjustments amounts to the captions and
periods shown to facilitate an understanding of the amount by which opening retained earnings has
been adjusted. In addition to the stock compensation adjustment shown in the table below, the
Company has also included the effect of the payroll related liability referred to above and the
related tax effects of all adjustments so as to reconcile to the impact on the Companys retained earnings
balance as of October 1, 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to Stock-Based |
|
|
|
|
|
|
|
|
|
|
|
|
|
on years |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation to Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
prior to |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Operations |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
1999 |
|
Adjustments to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
27 |
|
|
$ |
20 |
|
|
$ |
70 |
|
|
$ |
1,117 |
|
|
$ |
316 |
|
|
$ |
500 |
|
|
$ |
301 |
|
|
$ |
|
|
Sales and marketing |
|
|
613 |
|
|
|
1,068 |
|
|
|
1,393 |
|
|
|
7,485 |
|
|
|
2,887 |
|
|
|
3,467 |
|
|
|
1,131 |
|
|
|
|
|
Research and development |
|
|
167 |
|
|
|
77 |
|
|
|
195 |
|
|
|
2,701 |
|
|
|
1,006 |
|
|
|
1,479 |
|
|
|
216 |
|
|
|
|
|
General and administrative |
|
|
26 |
|
|
|
17 |
|
|
|
173 |
|
|
|
8,931 |
|
|
|
1,039 |
|
|
|
1,550 |
|
|
|
6,178 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
|
|
833 |
|
|
|
1,182 |
|
|
|
1,831 |
|
|
|
20,234 |
|
|
|
5,248 |
|
|
|
6,996 |
|
|
|
7,826 |
|
|
|
164 |
|
Payroll related liabilities |
|
|
1,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments to net income |
|
|
2,533 |
|
|
|
1,182 |
|
|
|
1,831 |
|
|
|
20,234 |
|
|
|
5,248 |
|
|
|
6,996 |
|
|
|
7,826 |
|
|
|
164 |
|
Income tax impact of restatement
adjustments |
|
|
2,298 |
|
|
|
(4,557 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments to net income |
|
$ |
4,831 |
|
|
$ |
(3,375 |
) |
|
$ |
1,831 |
|
|
$ |
20,234 |
|
|
$ |
5,248 |
|
|
$ |
6,996 |
|
|
$ |
7,826 |
|
|
$ |
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These adjustments, along with the stock-based items referenced above, did not affect the
Companys previously reported cash and cash equivalents and investments balances in prior periods.
The following tables present the effect of the restatement adjustments by financial statement line
item for the Consolidated Balance Sheets, Statements of Operations and Statements of Cash Flows.
19
Consolidated Balance Sheets as of September 30, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005 |
|
|
September 30, 2004 |
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
51,867 |
|
|
$ |
|
|
|
$ |
51,867 |
|
|
$ |
24,901 |
|
|
$ |
|
|
|
$ |
24,901 |
|
Short-term investments |
|
|
184,314 |
|
|
|
|
|
|
|
184,314 |
|
|
|
115,600 |
|
|
|
|
|
|
|
115,600 |
|
Accounts receivable, net |
|
|
41,703 |
|
|
|
|
|
|
|
41,703 |
|
|
|
22,665 |
|
|
|
|
|
|
|
22,665 |
|
Inventories |
|
|
2,699 |
|
|
|
|
|
|
|
2,699 |
|
|
|
1,696 |
|
|
|
|
|
|
|
1,696 |
|
Deferred tax assets |
|
|
3,935 |
|
|
|
240 |
|
|
|
4,175 |
|
|
|
2,934 |
|
|
|
240 |
|
|
|
3,174 |
|
Other current assets |
|
|
9,906 |
|
|
|
|
|
|
|
9,906 |
|
|
|
5,776 |
|
|
|
|
|
|
|
5,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
294,424 |
|
|
|
240 |
|
|
|
294,664 |
|
|
|
173,572 |
|
|
|
240 |
|
|
|
173,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
3,871 |
|
|
|
|
|
|
|
3,871 |
|
|
|
6,243 |
|
|
|
|
|
|
|
6,243 |
|
Property and equipment, net |
|
|
16,158 |
|
|
|
|
|
|
|
16,158 |
|
|
|
11,954 |
|
|
|
|
|
|
|
11,954 |
|
Long-term investments |
|
|
128,834 |
|
|
|
|
|
|
|
128,834 |
|
|
|
81,792 |
|
|
|
|
|
|
|
81,792 |
|
Deferred tax assets |
|
|
36,212 |
|
|
|
|
|
|
|
36,212 |
|
|
|
28,446 |
|
|
|
|
|
|
|
28,446 |
|
Goodwill |
|
|
49,677 |
|
|
|
|
|
|
|
49,677 |
|
|
|
50,067 |
|
|
|
|
|
|
|
50,067 |
|
Other assets, net |
|
|
8,323 |
|
|
|
|
|
|
|
8,323 |
|
|
|
8,279 |
|
|
|
|
|
|
|
8,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
537,499 |
|
|
$ |
240 |
|
|
$ |
537,739 |
|
|
$ |
360,353 |
|
|
$ |
240 |
|
|
$ |
360,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
7,668 |
|
|
$ |
|
|
|
$ |
7,668 |
|
|
$ |
4,840 |
|
|
$ |
|
|
|
$ |
4,840 |
|
Accrued liabilities |
|
|
19,648 |
|
|
|
4,283 |
|
|
|
23,931 |
|
|
|
15,948 |
|
|
|
140 |
|
|
|
16,088 |
|
Deferred revenue |
|
|
36,009 |
|
|
|
|
|
|
|
36,009 |
|
|
|
25,692 |
|
|
|
|
|
|
|
25,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
63,325 |
|
|
|
4,283 |
|
|
|
67,608 |
|
|
|
46,480 |
|
|
|
140 |
|
|
|
46,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
6,650 |
|
|
|
|
|
|
|
6,650 |
|
|
|
3,856 |
|
|
|
|
|
|
|
3,856 |
|
Deferred revenue, long-term |
|
|
3,314 |
|
|
|
|
|
|
|
3,314 |
|
|
|
2,372 |
|
|
|
|
|
|
|
2,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
9,964 |
|
|
|
|
|
|
|
9,964 |
|
|
|
6,228 |
|
|
|
|
|
|
|
6,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
412,419 |
|
|
|
19,478 |
|
|
|
431,897 |
|
|
|
306,655 |
|
|
|
19,623 |
|
|
|
326,278 |
|
Accumulated other comprehensive loss |
|
|
(1,430 |
) |
|
|
|
|
|
|
(1,430 |
) |
|
|
(498 |
) |
|
|
|
|
|
|
(498 |
) |
Unearned compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(833 |
) |
|
|
(833 |
) |
Retained earnings |
|
|
53,221 |
|
|
|
(23,521 |
) |
|
|
29,700 |
|
|
|
1,488 |
|
|
|
(18,690 |
) |
|
|
(17,202 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
464,210 |
|
|
|
(4,043 |
) |
|
|
460,167 |
|
|
|
307,645 |
|
|
|
100 |
|
|
|
307,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
537,499 |
|
|
$ |
240 |
|
|
$ |
537,739 |
|
|
$ |
360,353 |
|
|
$ |
240 |
|
|
$ |
360,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Consolidated Statement of Operations for the years ended September 30, 2005, 2004 and 2003 (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
219,603 |
|
|
$ |
|
|
|
$ |
219,603 |
|
|
$ |
126,169 |
|
|
$ |
|
|
|
$ |
126,169 |
|
|
$ |
84,197 |
|
|
$ |
|
|
|
$ |
84,197 |
|
Services |
|
|
61,807 |
|
|
|
|
|
|
|
61,807 |
|
|
|
45,021 |
|
|
|
|
|
|
|
45,021 |
|
|
|
31,698 |
|
|
|
|
|
|
|
31,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
281,410 |
|
|
|
|
|
|
|
281,410 |
|
|
|
171,190 |
|
|
|
|
|
|
|
171,190 |
|
|
|
115,895 |
|
|
|
|
|
|
|
115,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
48,985 |
|
|
$ |
5 |
|
|
|
48,990 |
|
|
|
28,404 |
|
|
$ |
2 |
|
|
|
28,406 |
|
|
|
17,837 |
|
|
$ |
6 |
|
|
|
17,843 |
|
Services |
|
|
16,172 |
|
|
|
22 |
|
|
|
16,194 |
|
|
|
10,975 |
|
|
|
18 |
|
|
|
10,993 |
|
|
|
9,068 |
|
|
|
64 |
|
|
|
9,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
65,157 |
|
|
|
27 |
|
|
|
65,184 |
|
|
|
39,379 |
|
|
|
20 |
|
|
|
39,399 |
|
|
|
26,905 |
|
|
|
70 |
|
|
|
26,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
216,253 |
|
|
|
(27 |
) |
|
|
216,226 |
|
|
|
131,811 |
|
|
|
(20 |
) |
|
|
131,791 |
|
|
|
88,990 |
|
|
|
(70 |
) |
|
|
88,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
89,253 |
|
|
|
613 |
|
|
|
89,866 |
|
|
|
65,378 |
|
|
|
1,068 |
|
|
|
66,446 |
|
|
|
53,504 |
|
|
|
1,393 |
|
|
|
54,897 |
|
Research and development |
|
|
31,349 |
|
|
|
167 |
|
|
|
31,516 |
|
|
|
24,361 |
|
|
|
77 |
|
|
|
24,438 |
|
|
|
19,260 |
|
|
|
195 |
|
|
|
19,455 |
|
General and administrative |
|
|
23,760 |
|
|
|
1,726 |
|
|
|
25,486 |
|
|
|
15,744 |
|
|
|
17 |
|
|
|
15,761 |
|
|
|
12,037 |
|
|
|
173 |
|
|
|
12,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
144,362 |
|
|
|
2,506 |
|
|
|
146,868 |
|
|
|
105,483 |
|
|
|
1,162 |
|
|
|
106,645 |
|
|
|
84,801 |
|
|
|
1,761 |
|
|
|
86,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
71,891 |
|
|
|
(2,533 |
) |
|
|
69,358 |
|
|
|
26,328 |
|
|
|
(1,182 |
) |
|
|
25,146 |
|
|
|
4,189 |
|
|
|
(1,831 |
) |
|
|
2,358 |
|
Other income, net |
|
|
8,076 |
|
|
|
|
|
|
|
8,076 |
|
|
|
2,731 |
|
|
|
|
|
|
|
2,731 |
|
|
|
751 |
|
|
|
|
|
|
|
751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
79,967 |
|
|
|
(2,533 |
) |
|
|
77,434 |
|
|
|
29,059 |
|
|
|
(1,182 |
) |
|
|
27,877 |
|
|
|
4,940 |
|
|
|
(1,831 |
) |
|
|
3,109 |
|
Provision (benefit) for
income taxes |
|
|
28,234 |
|
|
|
2,298 |
|
|
|
30,532 |
|
|
|
(3,894 |
) |
|
|
(4,557 |
) |
|
|
(8,451 |
) |
|
|
853 |
|
|
|
|
|
|
|
853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
51,733 |
|
|
$ |
(4,831 |
) |
|
$ |
46,902 |
|
|
$ |
32,953 |
|
|
$ |
3,375 |
|
|
$ |
36,328 |
|
|
$ |
4,087 |
|
|
$ |
(1,831 |
) |
|
$ |
2,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic |
|
$ |
1.39 |
|
|
$ |
(0.13 |
) |
|
$ |
1.26 |
|
|
$ |
0.99 |
|
|
$ |
(0.10 |
) |
|
$ |
1.09 |
|
|
$ |
0.15 |
|
|
$ |
(0.06 |
) |
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
basic |
|
|
37,220 |
|
|
|
|
|
|
|
37,220 |
|
|
|
33,221 |
|
|
|
|
|
|
|
33,221 |
|
|
|
26,453 |
|
|
|
|
|
|
|
26,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
diluted |
|
$ |
1.34 |
|
|
$ |
(0.13 |
) |
|
$ |
1.21 |
|
|
$ |
0.92 |
|
|
$ |
0.09 |
|
|
$ |
1.01 |
|
|
$ |
0.14 |
|
|
$ |
(0.06 |
) |
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
diluted |
|
|
38,733 |
|
|
|
28 |
|
|
|
38,761 |
|
|
|
35,992 |
|
|
|
(31 |
) |
|
|
35,961 |
|
|
|
28,220 |
|
|
|
(45 |
) |
|
|
28,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Shares used for purposes of computing diluted earnings per share are different in this
Amendment than those in the Companys Original Report as unearned stock compensation, significant
amounts of which were recorded as part of our restatement and have been presented in shareholders
equity, is considered proceeds for purposes of applying the treasury stock method to determine
incremental common shares to be included in diluted shares in periods in which the Company has
reported net income.
The following table presents the Companys net income per share computations for the years
ended September 30, 2005, 2004 and 2003 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share |
|
|
|
Income |
|
|
Shares |
|
|
amount |
|
|
|
(as restated) |
|
|
(as restated) |
|
|
(as restated) |
|
Year ended September 30, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,256 |
|
|
|
26,453 |
|
|
$ |
0.09 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Incremental common shares attributable to shares issuable under employee stock
option plans |
|
|
|
|
|
|
1,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
$ |
2,256 |
|
|
|
28,175 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
36,328 |
|
|
|
33,221 |
|
|
$ |
1.09 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Incremental common shares attributable to shares issuable under employee stock
option plans |
|
|
|
|
|
|
2,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
$ |
36,328 |
|
|
|
35,961 |
|
|
$ |
1.01 |
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
46,902 |
|
|
|
37,220 |
|
|
$ |
1.26 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Incremental common shares attributable to shares issuable under employee stock
option plans |
|
|
|
|
|
|
1,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
$ |
46,902 |
|
|
|
38,761 |
|
|
$ |
1.21 |
|
|
|
|
|
|
|
|
|
|
|
|
22
Consolidated Statement of Cash Flows for the years ended September 30, 2005, 2004 and 2003 (in
thousands except for share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
51,733 |
|
|
$ |
(4,831 |
) |
|
$ |
46,902 |
|
|
$ |
32,953 |
|
|
$ |
3,375 |
|
|
$ |
36,328 |
|
|
$ |
4,087 |
|
|
$ |
(1,831 |
) |
|
$ |
2,256 |
|
Adjustments to reconcile
net income to net cash
provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss (gain) on
disposition of assets |
|
|
569 |
|
|
|
|
|
|
|
569 |
|
|
|
21 |
|
|
|
|
|
|
|
21 |
|
|
|
(14 |
) |
|
|
|
|
|
|
(14 |
) |
Realized (gain) loss on
sale of investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
232 |
|
|
|
|
|
|
|
232 |
|
Stock-based compensation |
|
|
4,573 |
|
|
|
833 |
|
|
|
5,406 |
|
|
|
10 |
|
|
|
1,182 |
|
|
|
1,192 |
|
|
|
83 |
|
|
|
1,831 |
|
|
|
1,914 |
|
Provision for doubtful
accounts and sales
returns |
|
|
1,419 |
|
|
|
|
|
|
|
1,419 |
|
|
|
1,189 |
|
|
|
|
|
|
|
1,189 |
|
|
|
1,148 |
|
|
|
|
|
|
|
1,148 |
|
Depreciation and
amortization |
|
|
6,797 |
|
|
|
|
|
|
|
6,797 |
|
|
|
5,355 |
|
|
|
|
|
|
|
5,355 |
|
|
|
5,162 |
|
|
|
|
|
|
|
5,162 |
|
Deferred income taxes |
|
|
(7,733 |
) |
|
|
|
|
|
|
(7,733 |
) |
|
|
(33,886 |
) |
|
|
|
|
|
|
(33,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from
employee stock option
plans |
|
|
32,298 |
|
|
|
(145 |
) |
|
|
32,153 |
|
|
|
26,382 |
|
|
|
(4,697 |
) |
|
|
21,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating
assets and liabilities,
net of amounts
acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(20,456 |
) |
|
|
|
|
|
|
(20,456 |
) |
|
|
(4,152 |
) |
|
|
|
|
|
|
(4,152 |
) |
|
|
354 |
|
|
|
|
|
|
|
354 |
|
Inventories |
|
|
(1,002 |
) |
|
|
|
|
|
|
(1,002 |
) |
|
|
(928 |
) |
|
|
|
|
|
|
(928 |
) |
|
|
(408 |
) |
|
|
|
|
|
|
(408 |
) |
Other current assets |
|
|
(3,604 |
) |
|
|
|
|
|
|
(3,604 |
) |
|
|
(642 |
) |
|
|
|
|
|
|
(642 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
(54 |
) |
Other assets |
|
|
(149 |
) |
|
|
|
|
|
|
(149 |
) |
|
|
(630 |
) |
|
|
|
|
|
|
(630 |
) |
|
|
(512 |
) |
|
|
|
|
|
|
(512 |
) |
Accounts payable and
accrued liabilities |
|
|
9,283 |
|
|
|
4,143 |
|
|
|
13,426 |
|
|
|
6,163 |
|
|
|
140 |
|
|
|
6,303 |
|
|
|
(320 |
) |
|
|
|
|
|
|
(320 |
) |
Deferred revenue |
|
|
11,259 |
|
|
|
|
|
|
|
11,259 |
|
|
|
8,758 |
|
|
|
|
|
|
|
8,758 |
|
|
|
4,852 |
|
|
|
|
|
|
|
4,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by operating
activities |
|
$ |
84,987 |
|
|
$ |
|
|
|
$ |
84,987 |
|
|
$ |
40,590 |
|
|
$ |
|
|
|
$ |
40,590 |
|
|
$ |
14,610 |
|
|
$ |
|
|
|
$ |
14,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
In connection with the preparation of the Companys restated financial statements, the Company
also determined that the pro forma disclosures for stock-based compensation expense required under
FAS 123, Accounting for Stock-Based Compensation included in Note 1 of the Notes to Consolidated
Financial Statements included in the Companys originally filed Annual Report on Form 10-K/A
(Amendment No. 1), were incorrect. The Company has corrected these errors in Note 1 of these
Consolidated Financial Statements. These corrections do not affect the Companys consolidated
statements of operations, consolidated balance sheets or consolidated statements of cash flows for
any period.
The following table presents the effect of these corrections on the Companys pro forma
calculation of its net income and earnings per share for the years ended September 30, 2005, 2004
and 2003 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
Net income (loss) |
|
$ |
51,733 |
|
|
$ |
(4,831 |
) |
|
$ |
46,902 |
|
|
$ |
32,953 |
|
|
$ |
3,375 |
|
|
$ |
36,328 |
|
|
$ |
4,087 |
|
|
$ |
(1,831 |
) |
|
$ |
2,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Stock-based employee
compensation expense included in
reported net income |
|
|
|
|
|
|
833 |
|
|
|
833 |
|
|
|
10 |
|
|
|
1,182 |
|
|
|
1,192 |
|
|
|
83 |
|
|
|
1,831 |
|
|
|
1,914 |
|
Deduct: Stock-based employee
compensation expense determined under
fair value based method for all
awards |
|
|
7,020 |
|
|
|
141 |
|
|
|
7,161 |
|
|
|
18,913 |
|
|
|
443 |
|
|
|
19,356 |
|
|
|
23,371 |
|
|
|
1,031 |
|
|
|
24,402 |
|
|
|
|
Pro forma net loss |
|
$ |
44,713 |
|
|
$ |
(4,139 |
) |
|
$ |
40,574 |
|
|
$ |
14,050 |
|
|
$ |
4,114 |
|
|
$ |
18,164 |
|
|
$ |
(19,201 |
) |
|
$ |
(1,031 |
) |
|
$ |
(20,232 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (basic) |
|
$ |
1.39 |
|
|
$ |
(0.13 |
) |
|
$ |
1.26 |
|
|
$ |
0.99 |
|
|
$ |
0.10 |
|
|
$ |
1.09 |
|
|
$ |
0.15 |
|
|
$ |
(0.06 |
) |
|
$ |
0.09 |
|
Net loss per share (basic), pro forma |
|
$ |
1.20 |
|
|
$ |
(0.11 |
) |
|
$ |
1.09 |
|
|
$ |
0.42 |
|
|
$ |
0.13 |
|
|
$ |
0.55 |
|
|
$ |
(0.73 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.72 |
) |
Net income (loss) per share (diluted) |
|
$ |
1.34 |
|
|
$ |
(0.13 |
) |
|
$ |
1.21 |
|
|
$ |
0.92 |
|
|
$ |
0.09 |
|
|
$ |
1.01 |
|
|
$ |
0.14 |
|
|
$ |
(0.06 |
) |
|
$ |
0.08 |
|
Net loss per share (diluted), pro forma |
|
$ |
1.15 |
|
|
$ |
(0.10 |
) |
|
$ |
1.05 |
|
|
$ |
0.39 |
|
|
$ |
0.12 |
|
|
$ |
0.51 |
|
|
$ |
(0.73 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.72 |
) |
24
3. Short-Term and Long-Term Investments
Short-term investments consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes |
|
$ |
56,352 |
|
|
$ |
|
|
|
$ |
(275 |
) |
|
$ |
56,077 |
|
Municipal bonds and notes |
|
|
45,500 |
|
|
|
|
|
|
|
|
|
|
|
45,500 |
|
U.S. government securities |
|
|
83,061 |
|
|
|
1 |
|
|
|
(325 |
) |
|
|
82,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
184,913 |
|
|
$ |
1 |
|
|
$ |
(600 |
) |
|
$ |
184,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
September 30, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes |
|
$ |
37,060 |
|
|
$ |
2 |
|
|
$ |
(140 |
) |
|
$ |
36,922 |
|
Municipal bonds and notes |
|
|
59,750 |
|
|
|
|
|
|
|
(15 |
) |
|
|
59,735 |
|
U.S. government securities |
|
|
19,054 |
|
|
|
|
|
|
|
(111 |
) |
|
|
18,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
115,864 |
|
|
$ |
2 |
|
|
$ |
(266 |
) |
|
$ |
115,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes |
|
$ |
61,932 |
|
|
$ |
|
|
|
$ |
(1,007 |
) |
|
$ |
60,925 |
|
U.S. government securities |
|
|
68,497 |
|
|
|
|
|
|
|
(588 |
) |
|
|
67,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
130,429 |
|
|
$ |
|
|
|
$ |
(1,595 |
) |
|
$ |
128,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
September 30, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes |
|
$ |
45,286 |
|
|
$ |
31 |
|
|
$ |
(328 |
) |
|
$ |
44,989 |
|
U.S. government securities |
|
|
37,007 |
|
|
|
3 |
|
|
|
(207 |
) |
|
|
36,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
82,293 |
|
|
$ |
34 |
|
|
$ |
(535 |
) |
|
$ |
81,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair value of fixed maturities at September 30, 2005, by contractual
years-to-maturity, are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
|
|
|
|
Cost |
|
|
Fair Value |
|
One year or less |
|
$ |
184,913 |
|
|
$ |
184,314 |
|
Over one year through five years |
|
|
130,429 |
|
|
|
128,834 |
|
|
|
|
|
|
|
|
|
|
$ |
315,342 |
|
|
$ |
313,148 |
|
|
|
|
|
|
|
|
The Company invests in securities that are rated investment grade or better. The unrealized
losses on these investments were caused by interest rate increases and not credit quality. The
Company has determined the unrealized losses are temporary as the duration of the decline in value
of investments has been short, the extent of the decline, in both dollars and as a percentage of
costs, is not significant, and the Company has the ability and intent to hold the investments until
it recovers at least substantially all of the cost of the investments.
25
The following table summarizes investments that have unrealized losses as of September 30,
2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months |
|
|
12 Months of Greater |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes |
|
$ |
74,686 |
|
|
$ |
796 |
|
|
$ |
33,316 |
|
|
$ |
486 |
|
|
$ |
108,002 |
|
|
$ |
1,282 |
|
U.S. government securities |
|
|
107,912 |
|
|
|
605 |
|
|
|
37,733 |
|
|
|
308 |
|
|
|
145,645 |
|
|
|
913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
182,598 |
|
|
$ |
1,401 |
|
|
$ |
71,049 |
|
|
$ |
794 |
|
|
$ |
253,647 |
|
|
$ |
2,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Business Combinations
The Companys acquisitions are accounted for under the purchase method of accounting in
accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. The
total purchase price is allocated to the tangible and intangible assets acquired and the
liabilities assumed based on their estimated fair values. The excess of the purchase price over
those fair values is recorded as goodwill. The fair value assigned to the tangible and intangible
assets acquired and liabilities assumed are based on estimates and assumptions provided by
management, and other information compiled by management, including independent valuations,
prepared by valuation specialists that utilize established valuation techniques appropriate for the
technology industry. In accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and other Intangible Assets, goodwill is not amortized but instead is tested for
impairment at least annually.
2004 Acquisition of MagniFire Websystems, Inc.
On May 31, 2004, the Company completed its acquisition of MagniFire Websystems, Inc. a
provider of web application firewall products. As a result of the merger, the Company acquired all
the assets of MagniFire, including MagniFires web application firewall product line
(TrafficShield), all property, equipment and other assets that MagniFire used in its business and
assumed certain of the liabilities of MagniFire. The purchase price was $30.5 million including
$1.5 million of transactions costs. The results of operations of MagniFire have been included in
the Companys consolidated financial statements since June 1, 2004.
The purchase price allocation is as follows (in thousands):
|
|
|
|
|
Assets acquired |
|
|
|
|
Cash |
|
$ |
895 |
|
Accounts receivable, net |
|
|
152 |
|
Restricted cash |
|
|
76 |
|
Other assets |
|
|
625 |
|
Property and equipment |
|
|
81 |
|
Developed technology |
|
|
5,000 |
|
Goodwill |
|
|
25,488 |
|
|
|
|
|
Total assets acquired |
|
$ |
32,317 |
|
|
|
|
|
Liabilities assumed |
|
|
|
|
Accrued liabilities |
|
$ |
(723 |
) |
Deferred tax liability |
|
|
(1,069 |
) |
Deferred revenue |
|
|
(25 |
) |
|
|
|
|
Total liabilities assumed |
|
|
(1,817 |
) |
|
|
|
|
Net assets acquired |
|
$ |
30,500 |
|
|
|
|
|
Of the total estimated purchase price, $5.0 million was allocated to developed technology. To
determine the value of the developed technology, a combination of cost and market approaches were
used. The cost approach required an estimation of the costs required to reproduce the acquired
technology. The market approach measures the fair value of the technology through an analysis of
recent comparable transactions. The $5.0 million allocated to developed technology is being
amortized on a straight-line basis over an estimated useful life of five years.
At the time of the acquisition, the estimated purchase price was allocated to goodwill in the
amount of $24.8 million, including the Companys full valuation allowance on deferred taxes. During
the fourth quarter of fiscal year 2004, the Company reversed the valuation allowance and therefore
increased the amount allocated to goodwill by an additional $1.1 million due to the deferred tax
liability that was assumed as a result of the acquisition. During the fourth quarter of fiscal year
2005, the Company adjusted the fair value of certain other assets and as a result decreased the
amount allocated to goodwill by $0.4 million.
26
2003 Acquisition of uRoam, Inc.
On July 23, 2003, the Company acquired substantially all of the assets of uRoam, Inc. (uRoam),
including uRoams FirePass product line, and assumed certain liabilities for cash of $25.0 million.
The Company also incurred $2.4 million of direct transaction costs for a total purchase price of
$27.4 million. uRoams FirePass server is a comprehensive remote access product that enables users
to access applications in a secure fashion using industry standard Secured Socket Layer technology.
The acquired technology is currently being amortized over its estimated useful life of five years
using the straight-line method. The excess of the purchase price over the fair value of the
identifiable tangible and intangible net assets acquired of $24.2 million was recorded as goodwill.
The results of operations of uRoam have been included in the Companys consolidated financial
statements from the date of acquisition.
The purchase price allocation is as follows (in thousands):
|
|
|
|
|
Assets acquired |
|
|
|
|
Accounts receivable, net |
|
$ |
335 |
|
Property and equipment |
|
|
4 |
|
Developed technology |
|
|
3,000 |
|
Goodwill |
|
|
24,188 |
|
|
|
|
|
Total assets acquired |
|
$ |
27,527 |
|
|
|
|
|
Liabilities assumed |
|
|
|
|
Accrued liabilities |
|
$ |
(29 |
) |
Deferred revenue |
|
|
(125 |
) |
|
|
|
|
Total liabilities assumed |
|
|
(154 |
) |
|
|
|
|
Net assets acquired |
|
$ |
27,373 |
|
|
|
|
|
Pro Forma Results
The unaudited pro forma condensed combined consolidated summary financial information below,
presents the combined results of operations as if the acquisitions had occurred on October 1, 2002.
For pro forma reporting purposes, the fiscal year 2004 presentation includes the results of
operations of MagniFire from October 1, 2003 through May 31, 2004, the date of acquisition. The
fiscal year 2003 presentation includes the results of operations of uRoam from October 1, 2002
through July 23, 2003 and the results of MagniFire for the entire year.
Unaudited pro forma financial information is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2004 |
|
|
2003 |
|
|
|
(as restated) (1) |
|
|
(as restated) (1) |
|
Net revenues pro forma |
|
$ |
171,309 |
|
|
$ |
116,944 |
|
Net income (loss) pro forma |
|
$ |
28,700 |
|
|
$ |
(7,307 |
) |
Net income (loss) per share basic pro forma |
|
$ |
0.86 |
|
|
$ |
(0.28 |
) |
Net income (loss) per share diluted pro forma |
|
$ |
0.80 |
|
|
$ |
(0.28 |
) |
(1) See Note 2, Restatement of Consolidated Financial Statements, of the Notes to Consolidated
Financial Statements.
Net pro forma adjustments (unaudited) of $1.5 million and $2.2 million for the fiscal years
2004 and 2003, respectively, have been made to the combined results of operations reflecting the
amortization of the developed technology acquired and the net change in interest income (expense)
had the respective acquisition taken place at the beginning of the period. The unaudited pro forma
financial information does not reflect integration costs, or cost savings or other synergies
anticipated as a result of the acquisition. This information is not necessarily indicative of the
operating results that would have occurred if the acquisition had been consummated on the date
indicated nor is it necessarily indicative of future operating results of the combined enterprise.
27
5. Balance Sheet Details
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
Software development costs |
|
$ |
521 |
|
|
$ |
793 |
|
Acquired technology |
|
|
5,367 |
|
|
|
6,967 |
|
Deposits and other |
|
|
2,435 |
|
|
|
519 |
|
|
|
|
|
|
|
|
|
|
$ |
8,323 |
|
|
$ |
8,279 |
|
|
|
|
|
|
|
|
Amortization expense related to other assets was approximately $1.9 million, $1.3 million, and
$0.4 million for the fiscal years ended September 30, 2005, 2004 and 2003, respectively.
Estimated amortization expense for software development costs and acquired technology for the
five succeeding fiscal years is as follows (in thousands):
|
|
|
|
|
2006 |
|
$ |
1,872 |
|
2007 |
|
$ |
1,849 |
|
2008 |
|
$ |
1,500 |
|
2009 |
|
$ |
667 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
$ |
5,888 |
|
|
|
|
|
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
Payroll and benefits |
|
$ |
11,572 |
|
|
$ |
9,007 |
|
Sales and marketing |
|
|
1,544 |
|
|
|
1,997 |
|
Restructuring |
|
|
559 |
|
|
|
625 |
|
Warranty |
|
|
1,564 |
|
|
|
1,062 |
|
Income taxes |
|
|
4,265 |
|
|
|
940 |
|
Other |
|
|
4,427 |
|
|
|
2,457 |
|
|
|
|
|
|
|
|
|
|
$ |
23,931 |
|
|
$ |
16,088 |
|
|
|
|
|
|
|
|
28
As of September 30, 2005, restructuring liabilities were $0.6 million and consisted of
obligations under an excess facility operating lease. The excess facility charge was initially
recognized during fiscal 2002 as part of the Companys decision to discontinue its cache appliance
business and exit its support facility in Washington D.C. The remaining liability approximates the
full amount owed through the remainder of the lease term, expiring in 2007, and actual losses are
not expected to vary from the original estimate.
The activity of the remaining restructuring liability as of September 30, 2005 and 2004 is
presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Cash |
|
|
Balance at |
|
|
|
September 30, |
|
|
Additional |
|
|
Payments and |
|
|
September 30, |
|
|
|
2004 |
|
|
Charges |
|
|
Write-Offs |
|
|
2005 |
|
Excess facilities |
|
$ |
625 |
|
|
$ |
|
|
|
$ |
(66 |
) |
|
$ |
559 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
625 |
|
|
$ |
|
|
|
$ |
(66 |
) |
|
$ |
559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Cash |
|
|
Balance at |
|
|
|
September 30, |
|
|
Additional |
|
|
Payments and |
|
|
September 30, |
|
|
|
2003 |
|
|
Charges |
|
|
Write-Offs |
|
|
2004 |
|
Excess facilities |
|
$ |
782 |
|
|
$ |
|
|
|
$ |
(157 |
) |
|
$ |
625 |
|
Other |
|
|
62 |
|
|
|
|
|
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
844 |
|
|
$ |
|
|
|
$ |
(219 |
) |
|
$ |
625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long term liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
Income taxes payable |
|
$ |
3,880 |
|
|
$ |
1,720 |
|
Deferred rent and other |
|
|
2,770 |
|
|
|
2,136 |
|
|
|
|
|
|
|
|
|
|
$ |
6,650 |
|
|
$ |
3,856 |
|
|
|
|
|
|
|
|
29
6. Income Taxes
The United States and international components of income (loss) before income taxes are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(as restated) |
|
|
(as restated) |
|
|
(as restated) |
|
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
United States |
|
$ |
73,797 |
|
|
$ |
26,533 |
|
|
$ |
1,693 |
|
International |
|
|
3,637 |
|
|
|
1,344 |
|
|
|
1,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
77,434 |
|
|
$ |
27,877 |
|
|
$ |
3,109 |
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(as restated) |
|
|
(as restated) |
|
|
(as restated) |
|
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
33,827 |
|
|
$ |
133 |
|
|
$ |
|
|
State |
|
|
2,451 |
|
|
|
129 |
|
|
|
45 |
|
Foreign |
|
|
750 |
|
|
|
923 |
|
|
|
657 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
37,028 |
|
|
|
1,185 |
|
|
|
702 |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
|
(6,129 |
) |
|
|
(9,034 |
) |
|
|
141 |
|
State |
|
|
(653 |
) |
|
|
(602 |
) |
|
|
10 |
|
Foreign |
|
|
286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(6,496 |
) |
|
|
(9,636 |
) |
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,532 |
|
|
$ |
(8,451 |
) |
|
$ |
853 |
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate differs from the U.S. federal statutory rate as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(as restated) |
|
|
(as restated) |
|
|
(as restated) |
|
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
Income tax provision at statutory rate |
|
$ |
27,102 |
|
|
$ |
9,757 |
|
|
$ |
1,088 |
|
State taxes, net of federal benefit |
|
|
1,874 |
|
|
|
706 |
|
|
|
36 |
|
Impact of international operations |
|
|
2,417 |
|
|
|
357 |
|
|
|
91 |
|
Research and development and other credits |
|
|
(2,057 |
) |
|
|
(1,397 |
) |
|
|
(1,017 |
) |
Other |
|
|
3,845 |
|
|
|
(1,498 |
) |
|
|
(60 |
) |
Change in valuation allowance |
|
|
(2,649 |
) |
|
|
(28,062 |
) |
|
|
4,382 |
|
Impact of stock option compensation on valuation allowance |
|
|
|
|
|
|
11,686 |
|
|
|
(3,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,532 |
|
|
$ |
(8,451 |
) |
|
$ |
853 |
|
|
|
|
|
|
|
|
|
|
|
30
The tax effects of the temporary differences that give rise to the deferred tax assets and
liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(as restated) |
|
|
(as restated) |
|
|
(as restated) |
|
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carry-forwards |
|
$ |
25,002 |
|
|
$ |
26,427 |
|
|
$ |
22,318 |
|
Allowance for doubtful accounts |
|
|
915 |
|
|
|
810 |
|
|
|
844 |
|
Accrued compensation and benefits |
|
|
1,140 |
|
|
|
690 |
|
|
|
591 |
|
Inventories and related reserves |
|
|
417 |
|
|
|
210 |
|
|
|
198 |
|
Other accruals and reserves |
|
|
6,097 |
|
|
|
2,248 |
|
|
|
1,773 |
|
Depreciation |
|
|
462 |
|
|
|
838 |
|
|
|
831 |
|
Tax credit carry-forwards |
|
|
7,631 |
|
|
|
5,552 |
|
|
|
4,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,664 |
|
|
|
36,775 |
|
|
|
30,711 |
|
Valuation allowance |
|
|
|
|
|
|
(2,649 |
) |
|
|
(30,711 |
) |
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchased intangibles and other |
|
|
(1,277 |
) |
|
|
(2,506 |
) |
|
|
(151 |
) |
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities) |
|
$ |
40,387 |
|
|
$ |
31,620 |
|
|
$ |
(151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2, Restatement of Consolidated Financial Statements, of the Notes to Consolidated
Financial Statements. |
During the fourth quarter of fiscal year 2005 the Company determined, based on an evaluation
of current operating results and projected future taxable income that the valuation allowance of
$2.6 million pertaining to net operating loss carry-forwards in the United Kingdom was no longer
needed and as a result the related valuation allowance was reversed. In the prior year, the Company
determined that the U.S. deferred tax assets were more likely than not to be realizable and
reversed the related valuation allowance during the fourth quarter of fiscal 2004. The Company had
provided for a full valuation allowance against the deferred tax assets at the end of fiscal year
2003. If the estimates and assumptions used in the Companys determination change in the future,
the Company could be required to revise the Companys estimates of the valuation allowances against
the Companys deferred tax assets and adjust the Companys provisions for additional income taxes.
At September 30, 2005, the Company had approximately $64.3 million of U.S. net operating loss
carry-forwards resulting from tax benefits associated with employee stock option plans, a portion
of which begins to expire in 2011. The Company also had net operating loss carry-forwards of
approximately $7.4 million related to operations in the United Kingdom that carry-forward
indefinitely. At September 30, 2005, the Company also has federal research credit carry-forwards of
approximately $7.2 million which, if not utilized, will begin to expire in fiscal year 2011 and
state research credit carry-forwards of $349,000 which will begin to expire in fiscal year 2025.
United States income and foreign withholding taxes have not been provided on approximately
$1.8 million of undistributed earnings from the Companys international subsidiaries. The Company
has not recognized a deferred tax liability for the undistributed earnings of its foreign
subsidiaries because the Company currently does not expect to remit those earnings in the
foreseeable future. Determination of the amount of unrecognized deferred tax liability related to
undistributed earnings of foreign subsidiaries is not practicable because such liability, if any,
is dependent on circumstances existing if and when remittance occurs.
On October 22, 2004, the American Jobs Creation Act of 2004 (AJCA) was signed into law. The
AJCA provides for a temporary 85% dividends received deduction on certain earnings repatriated
during either fiscal year 2005 or fiscal year 2006. The deduction would result in an approximate
5.25% federal tax rate on the repatriated earnings. To qualify for the deduction, the earnings must
be reinvested in the U.S. pursuant to a domestic reinvestment plan established by a companys chief
executive officer and approved by the companys board of directors. Additionally, certain other
significant criteria, as outlined in the AJCA, must also be met. F5 Networks did not elect this
provision in fiscal year 2005, and does not intend to make an election in fiscal year 2006.
7. Shareholders Equity
Common Stock
In November 2003, the Company sold 5,175,000 shares, including 675,000 shares sold upon the
exercise of the underwriters over-allotment option, of its common stock in a public offering at a
price of $23.25 per share. The proceeds to the Company were $113.6 million, net of offering costs
of $6.7 million.
31
Equity Incentive Plans
In fiscal 2005, the Company modified the method in which it issues incentive awards to its
employees through stock-based compensation. In prior years, stock-based compensation consisted only
of stock options. In 2005, the majority of awards consisted of restricted stock unit awards and to
a lesser degree stock options. Employees vest in restricted stock units and stock options ratably
over the corresponding service term, generally one to four years. The Companys stock options
expire 10 years from the date of grant. Restricted stock units are payable in shares of the
Companys common stock as the periodic vesting requirements are satisfied. The value of a
restricted stock unit is based upon the fair market value of the Companys common stock on the date
of grant. The value of restricted stock units is determined using the intrinsic value method and is
based on the number of shares granted and the quoted price of the Companys common stock on the
date of grant. Alternatively, the Company uses the Black-Scholes option pricing model to determine
the fair value of its stock options. Compensation expense related to restricted stock units and
stock options is recognized over the vesting period. The Company has adopted a number of
stock-based compensation plans as discussed below.
1998 Equity Incentive Plan. In November 1998, the Company adopted the 1998 Equity Incentive
Plan, or the 1998 Plan, which provides for discretionary grants of non-qualified and incentive
stock options, stock purchase awards and stock bonuses for employees and other service providers.
Upon certain changes in control of the Company, all outstanding and unvested options or stock
awards under the 1998 Plan will vest at the rate of 50%, unless assumed or substituted by the
acquiring entity. As of September 30, 2005, there were options to purchase 1,663,983 shares
outstanding and 58,934 shares available for awards under the 1998 Plan.
1999 Employee Stock Purchase Plan. In May 1999, the board of directors approved the adoption
of the 1999 Employee Stock Purchase Plan, or the Employee Stock Purchase Plan. A total of 2,000,000
shares of common stock have been reserved for issuance under the Employee Stock Purchase Plan. The
Employee Stock Purchase Plan permits eligible employees to acquire shares of the Companys common
stock through periodic payroll deductions of up to 15% of base compensation. No employee may
purchase more than $25,000 worth of stock, determined at the fair market value of the shares at the
time such option is granted, in one calendar year. The Employee Stock Purchase Plan has been
implemented in a series of offering periods, each 6 months in duration. The price at which the
common stock may be purchased is 85% of the lesser of the fair market value of the Companys common
stock on the first day of the applicable offering period or on the last day of the respective
purchase period. As of September 30, 2005 there were 1,012,549 shares available for awards under
the Employee Stock Purchase Plan.
2000 Equity Incentive Plan. In July 2000, the Company adopted the 2000 Employee Equity
Incentive Plan, or the 2000 Plan, which provides for discretionary grants of non-qualified stock
options, stock purchase awards and stock bonuses for non-executive employees and other service
providers. A total of 3,500,000 shares of common stock have been reserved for issuance under the
2000 Plan. Upon certain changes in control of the Company, all outstanding and unvested options or
stock awards under the 2000 Plan will vest at the rate of 50%, unless assumed or substituted by the
acquiring entity. As of September 30, 2005, there were options to purchase 1,144,991 shares
outstanding and 55,853 shares available for awards under the 2000 Plan.
New Hire Incentive Plans. In October 2000, the Company adopted a non-qualified stock option
plan, or the Pancottine Plan, in connection with the hiring of Jeff Pancottine, the Companys
Senior Vice President and General Manager, Security Business Unit. The Pancottine Plan provided for
a grant of 200,000 non-qualified stock options for Mr. Pancottine. As of September 30, 2005, there
were no options outstanding and no shares available for awards under the Pancottine Plan. In May
2001, the Company adopted a non-qualified stock option plan, or the Coburn Plan, in connection with
the hiring of Steve Coburn, the Companys former Senior Vice President of Finance and Chief
Financial Officer. The Coburn Plan provided for a grant of 200,000 non-qualified stock options for
Mr. Coburn. As of September 30, 2005, there were no options outstanding and no shares available for
awards under the Coburn Plan. In October 2003, the company adopted a non-qualified stock option
plan, or the Hull Plan, in connection with the hiring of Thomas Hull, the Companys Senior Vice
President of Worldwide Sales. The Hull plan provided for a grant of 225,000 non-qualified stock
options for Mr. Hull. As of September 30, 2005, there were options to purchase 170,000 shares
outstanding and no shares available for awards under the Hull Plan. In August 2004, the Company
adopted a non-qualified stock option plan, or the Triebes Plan, in connection with the hiring of
Karl Triebes, the Companys Senior Vice President of Product Development and Chief Technology
Officer. The Triebes Plan provided for a grant of 300,000 non-qualified stock options for Mr.
Triebes. As of September 30, 2005, there were options to purchase 250,000 shares outstanding and no
shares available for awards under the Triebes Plan. Upon certain changes in control of the Company,
100% of all outstanding and unvested options remaining under the Hull Plan and the Triebes Plan
will vest and become immediately exercisable.
Acquisition Incentive Plans. In July 2003, the Company adopted the uRoam Acquisition Equity
Incentive Plan, or the uRoam Plan, in connection with the hiring of the former employees of uRoam,
Inc. A total of 250,000 shares of common stock were reserved
32
for issuance under the uRoam Plan. The plan provided for discretionary grants of non-qualified
and incentive stock options, stock purchase awards and stock bonuses. The Company has not granted
any stock purchase awards or stock bonuses under this plan. As of September 30, 2005 there were
options to purchase 38,044 shares outstanding and no shares available for awards under the uRoam
Plan. In July 2004, the Company adopted the MagniFire Acquisition Equity Incentive Plan, or the
MagniFire Plan, in connection with the hiring of the former employees of MagniFire Websystems, Inc.
A total of 415,000 shares of common stock were reserved for issuance under the MagniFire Plan. The
plan provides for discretionary grants of non-qualified and incentive stock options, stock purchase
awards and stock bonuses. The Company has not granted any stock purchase awards or stock bonuses
under this plan. As of September 30, 2005 there were options to purchase 234,606 shares outstanding
and no shares available for awards under the MagniFire Plan. Options that expire under the uRoam
Plan or the MagniFire Plan, whether due to termination of employment or otherwise, are not
available for future grant.
2005 Equity Incentive Plan. In December 2004, the Company adopted the 2005 Equity Incentive
Plan, or the 2005 Plan, which provides for discretionary grants of non-statutory stock options and
stock units for employees, including officers, and other service providers. A total of 1,700,000
shares of common stock have been reserved for issuance under the 2005 Plan. Upon certain changes in
control of the Company, the surviving entity will either assume or substitute all outstanding Stock
Awards under the 2005 Plan. During the fiscal year 2005, the Company issued 37,500 stock options
and 721,184 stock units under the 2005 Plan. As of September 30, 2005, there were options to
purchase 37,500 shares outstanding and 944,316 shares available for awards under the 2005 Plan.
The restricted stock units were granted during the fourth quarter of fiscal 2005 with a per
share weighted average fair value of $44.60. The restricted stock units granted in fiscal 2005 vest
quarterly over a two year period. A summary of restricted stock unit activity under the 2005 Plan
is as follows:
|
|
|
|
|
|
|
Outstanding Stock |
|
|
Units |
Balance, September 30, 2004 |
|
|
|
|
Units granted |
|
|
721,184 |
|
Units vested |
|
|
|
|
Units cancelled |
|
|
(3,000 |
) |
|
|
|
|
|
Balance, September 30, 2005 |
|
|
718,184 |
|
|
|
|
|
|
A summary of stock option activity under all of the Companys plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Exercise Price |
|
|
|
Shares |
|
|
Per Share |
|
Balance, September 30, 2002 |
|
|
7,240,850 |
|
|
$ |
17.30 |
|
Options granted |
|
|
2,195,300 |
|
|
|
15.24 |
|
Options exercised |
|
|
(1,423,550 |
) |
|
|
7.60 |
|
Options cancelled |
|
|
(504,771 |
) |
|
|
25.65 |
|
|
|
|
|
|
|
|
Balance, September 30, 2003 |
|
|
7,507,829 |
|
|
|
17.92 |
|
Options granted |
|
|
2,230,515 |
|
|
|
24.79 |
|
Options exercised |
|
|
(2,031,552 |
) |
|
|
11.00 |
|
Options cancelled |
|
|
(353,232 |
) |
|
|
26.07 |
|
|
|
|
|
|
|
|
Balance, September 30, 2004 |
|
|
7,353,560 |
|
|
|
21.52 |
|
Options granted |
|
|
224,100 |
|
|
|
43.73 |
|
Options exercised |
|
|
(3,684,558 |
) |
|
|
17.66 |
|
Options cancelled |
|
|
(297,786 |
) |
|
|
34.08 |
|
|
|
|
|
|
|
|
Balance at September 30, 2005 |
|
|
3,595,316 |
|
|
$ |
25.82 |
|
|
|
|
|
|
|
|
33
The weighted-average fair values per share at the date of grant for options granted with
exercise prices equal to market for were $18.68, $9.36, and $7.67 for the fiscal year 2005, 2004,
and 2003, respectively. The weighted-average fair values per share at the date of grant for options
granted with exercise prices less than market were, $7.41 and $8.05 for the fiscal years 2004 and
2003, respectively. The total intrinsic value for options outstanding at September 30, 2005 was $63.5 million,
representing the difference between the fair value
of the Companys common stock underlying these options at
September 30, 2005 and the related exercise
prices.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Contractual |
|
|
Exercise |
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Life |
|
|
Price per |
|
|
Number of |
|
|
Price per |
|
Range of Exercise Prices |
|
Shares |
|
|
(In Years) |
|
|
Share |
|
|
Shares |
|
|
Share |
|
$0.25 $12.79 |
|
|
546,577 |
|
|
|
5.58 |
|
|
$ |
8.57 |
|
|
|
523,220 |
|
|
$ |
8.49 |
|
$12.84 $22.17 |
|
|
1,024,994 |
|
|
|
7.64 |
|
|
$ |
17.27 |
|
|
|
701,237 |
|
|
$ |
15.72 |
|
$22.43 $24.75 |
|
|
475,736 |
|
|
|
8.49 |
|
|
$ |
23.24 |
|
|
|
108,153 |
|
|
$ |
23.47 |
|
$25.01 $33.20 |
|
|
907,854 |
|
|
|
8.16 |
|
|
$ |
27.38 |
|
|
|
732,558 |
|
|
$ |
26.57 |
|
$33.34 $120.88 |
|
|
640,155 |
|
|
|
5.90 |
|
|
$ |
53.96 |
|
|
|
476,846 |
|
|
$ |
56.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.25 $120.88 |
|
|
3,595,316 |
|
|
|
7.26 |
|
|
$ |
25.82 |
|
|
|
2,542,014 |
|
|
$ |
25.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
The total intrinsic value for options exercisable at September 30,
2005 was $46.2 million, representing the difference between the fair value of the
Companys common stock underlying these options at September 30, 2005 and the related exercise prices.
As of September 30, 2005, equity based awards (including stock option and stock units)
available for future issuance is as follows:
|
|
|
|
|
|
|
Awards |
|
|
Available for |
|
|
Grant |
Balance, September 30, 2002 |
|
|
1,714,262 |
|
Granted |
|
|
(2,195,300 |
) |
Exercised |
|
|
|
|
Cancelled |
|
|
504,771 |
|
Additional shares reserved (terminated), net |
|
|
1,155,000 |
|
|
|
|
|
|
Balance, September 30, 2003 |
|
|
1,178,733 |
|
Granted |
|
|
(2,230,515 |
) |
Exercised |
|
|
|
|
Cancelled |
|
|
353,232 |
|
Additional shares reserved (terminated), net |
|
|
820,070 |
|
|
|
|
|
|
Balance, September 30, 2004 |
|
|
121,520 |
|
Granted |
|
|
(945,284 |
) |
Exercised |
|
|
|
|
Cancelled |
|
|
300,786 |
|
Additional shares reserved (terminated), net |
|
|
1,582,081 |
|
|
|
|
|
|
Balance at September 30, 2005 |
|
|
1,059,103 |
|
|
|
|
|
|
The Company recognized $4.6 million of pre-tax stock compensation expense following the early
adoption of FAS 123R in the fourth quarter of fiscal year 2005. As of September 30, 2005, there was
$32.7 million of total unrecognized compensation cost, related to unvested stock options and
restricted stock units, the majority of which will be recognized ratably over the next two years.
An assumption of a five percent forfeiture rate is utilized when arriving at the amount of stock
compensation expense.
8. Commitments and Contingencies
Operating Leases
The majority of the Companys operating lease payments relate to the Companys two building
corporate headquarters in Seattle, Washington. The lease on the first building commenced in July
2000; and the lease on the second building commenced in September 2000. The lease for both
buildings expire in 2012. The second building has been fully subleased until 2012. The Company also
leases additional office space for product development and sales and support personnel in the
United States and internationally.
35
Future minimum operating lease payments, net of sublease income, are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Lease |
|
|
Sublease |
|
|
Lease |
|
|
|
Payments |
|
|
Income |
|
|
Payments |
|
2006 |
|
$ |
7,647 |
|
|
$ |
3,350 |
|
|
$ |
4,297 |
|
2007 |
|
|
7,341 |
|
|
|
3,460 |
|
|
|
3,881 |
|
2008 |
|
|
6,700 |
|
|
|
3,570 |
|
|
|
3,130 |
|
2009 |
|
|
6,853 |
|
|
|
3,681 |
|
|
|
3,172 |
|
2010 |
|
|
6,831 |
|
|
|
3,791 |
|
|
|
3,040 |
|
Thereafter |
|
|
11,915 |
|
|
|
7,239 |
|
|
|
4,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
47,287 |
|
|
$ |
25,091 |
|
|
$ |
22,196 |
|
|
|
|
|
|
|
|
|
|
|
Rent expense under non-cancelable operating leases amounted to approximately $5.6 million,
$4.8 million, and $4.5 million for the fiscal years ended September 30, 2005, 2004, and 2003,
respectively.
Litigation
In July and August 2001, a series of putative securities class action lawsuits were filed in
United States District Court, Southern District of New York against certain investment banking
firms that underwrote the Companys initial and secondary public offerings, the Company and some of
the Companys officers and directors. These cases, which have been consolidated under In re F5
Networks, Inc. Initial Public Offering Securities Litigation, No. 01 CV 7055, assert that the
registration statements for the Companys June 4, 1999 initial public offering and September 30,
1999 secondary offering failed to disclose certain alleged improper actions by the underwriters for
the offerings. The consolidated, amended complaint alleges claims against the Company and those of
its officers and directors named in the complaint under Sections 11 and 15 of the Securities Act of
1933, and under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Other lawsuits
have been filed making similar allegations regarding the public offerings of more than 300 other
companies. All of these various consolidated cases have been coordinated for pretrial purposes as
In re Initial Public Offering Securities Litigation, Civil Action No. 21-MC-92. In October 2002,
the directors and officers were dismissed without prejudice. The issuer defendants filed a
coordinated motion to dismiss these lawsuits in July 2002, which the Court granted in part and
denied in part in an order dated February 19, 2003. The Court declined to dismiss the Section 11
and Section 10(b) and Rule 10b-5 claims against the Company. In June 2004, a stipulation of
settlement for the claims against the issuer defendants, including the Company, was submitted to
the Court. On August 31, 2005, the Court granted preliminary approval of the settlement. The
settlement is subject to a number of conditions, including final approval by the Court. If the
settlement does not occur, and litigation against the Company continues, the Company believes it
has meritorious defenses and intend to defend the case vigorously. Securities class action
litigation could result in substantial costs and divert our managements attention and resources.
Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate
outcome of the litigation, and any unfavorable outcome could have a material adverse impact on the
Companys business, financial condition and operating results.
As of September 30, 2005, the Company was not aware of any additional pending legal
proceedings that, individually or in the aggregate, would have had a material adverse effect on the
Companys business, operating results, or financial condition. The Company may in the future be
party to litigation arising in the ordinary course of business, including claims that the Company
allegedly infringes upon third-party trademarks or other intellectual property rights. Such claims,
even if not meritorious, could result in the expenditure of significant financial and managerial
resources.
9. Employee Benefit Plans
The Company has a 401(k) savings plan whereby eligible employees may voluntarily contribute a
percentage of their compensation. The Company may, at its discretion, match a portion of the
employees eligible contributions. Contributions by the Company to the plan during the years ended
September 30, 2005, 2004, and 2003 were approximately $1.2 million, $1.0 million and $0.9 million,
respectively. Contributions made by the Company vest over four years.
10. Geographic Sales and Significant Customers
Operating segments are defined as components of an enterprise for which separate financial
information is available and evaluated regularly by the chief operating decision-maker, or
decision-making group, in deciding how to allocate resources and in assessing performance. The
Company is organized as, and operates in, one reportable segment: the development, marketing and
selling of a comprehensive suite of application networking solutions that helps customers
efficiently and securely manage application traffic on
36
their Internet-based networks. The Company manages its business based on four geographic
regions: the Americas (primarily the United States); Europe, the Middle East, and Africa (EMEA);
Japan; and Asia Pacific. The Companys chief operating decision-making group reviews financial
information presented on a consolidated basis accompanied by information about revenues by
geographic region. The Companys foreign offices conduct sales, marketing and support activities.
The Companys management evaluates performance based primarily on revenues in the geographic
locations in which the Company operates. Revenues are attributed by geographic location based on
the location of the customer. The Companys assets are primarily located in the United States and
not allocated to any specific region. Therefore, geographic information is presented only for net
product revenue.
The following presents revenues by geographic region (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Americas |
|
$ |
167,322 |
|
|
$ |
103,603 |
|
|
$ |
75,409 |
|
EMEA |
|
|
47,198 |
|
|
|
25,606 |
|
|
|
16,880 |
|
Japan |
|
|
38,435 |
|
|
|
26,801 |
|
|
|
16,039 |
|
Asia Pacific |
|
|
28,455 |
|
|
|
15,180 |
|
|
|
7,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
281,410 |
|
|
$ |
171,190 |
|
|
$ |
115,895 |
|
|
|
|
|
|
|
|
|
|
|
Net revenues from international customers are primarily denominated in U.S. dollars and
totaled $114.1 million, $67.6 million, and $40.5 million for the years ended September 30, 2005,
2004 and 2003, respectively. One domestic distributor accounted for 18.6%, 19.1% and 12.6% of total
net revenue for the fiscal years 2005, 2004 and 2003, respectively. This distributor accounted for
26.2%, 26.9% and 17.8% of accounts receivable as of September 30, 2005, 2004 and 2003,
respectively.
11. Subsequent Events
On October 4, 2005, the Company acquired all of the capital stock of Swan Labs, Inc. (Swan
Labs), a privately held Delaware corporation headquartered in San Jose, California for $43.0
million in cash. The Company also incurred $3.2 million of direct transaction costs for a total
purchase price of approximately $46.2 million. Swan Labs provides WAN (Wide Area Network)
optimization and application acceleration products and services. The addition of Swan Labs is
intended to allow the Company to quickly enter the WAN optimization market, broaden the Companys
customer base, and augment its existing product line.
12. Subsequent Events Related to the Special Committee and Company Investigations and the
Restatement
On May 16, 2006, the CFRA issued the CFRA Report, in which CFRA reviewed the option prices of
100 public companies and, based upon an analysis of the exercise prices of option grants with
reference to the companies stock prices, concluded that 17% of the subject companies were, in
CFRAs view, at risk for having backdated option grants during the period 1997 to 2002. The
Company was among the 17 companies so identified.
On May 18, 2006, the Company was contacted by the SEC as part of an informal inquiry entitled
In the Matter of F5 Networks, Inc. (SEC File No. MHO-10462). On May 19, 2006, the Company received
a grand jury subpoena issued by the U.S. District Court for the Eastern District of New York
requesting documents related to the granting of stock options from 1995 through the present in
connection with an inquiry into the Companys stock option practices by the Department of Justice.
The Company produced documents in response to these requests.
On May 22, 2006, the Board of Directors formed the Special Committee with broad authority to
investigate and address the Companys stock option practices. The Special Committee was originally
composed of three members of the Board of Directors, one of which was also on the Audit Committee,
Karl Guelich, Rich Malone and Gary Ames. In July 2006, the Special Committee was reconstituted to
consist of two independent members of the Board of Directors, Gary Ames and Deborah Bevier (who
joined the Companys Board of Directors on July 14, 2006). The Company continues to fully
cooperate with the SEC and the Department of Justice, and has provided such agencies with extensive
documentation relating to the Special Committees and the Companys inquiries as discussed in Note
2 to these Consolidated Financial Statements. The SEC and the Department of Justice inquiries are
ongoing. The Company does not know the remedial, civil or criminal penalties or monetary terms that
either the SEC or the Department of Justice may seek.
The Company received a notice from the Internal Revenue Service (IRS) indicating the IRS
would be auditing its tax returns for the 2002, 2003, and 2004. The Company has produced documents
and other information to the IRS and is currently in discussions
37
with the IRS to resolve all issues arising from this audit. The Company does not believe this
audit and any settlement with the IRS will have a material adverse impact on its consolidated
financial position or results of operations.
On May 24, 2006, a shareholder action captioned Adams v. Amdahl et al. was filed against
certain of the Companys current and former officers and directors in the King County Superior
Court in Washington. The complaint generally alleges that the defendants breached their fiduciary
duties to the Company in connection with the granting of certain stock options. Five additional
shareholder derivative complaints, based on substantially the same allegations, were subsequently
filed in the Washington federal and state courts. Although litigation is subject to inherent
uncertainties, the Company does not believe the results of these pending actions will, individually
or in the aggregate, have a material adverse impact on its consolidated financial position or
results of operations.
38
13. Quarterly Results of Operations (unaudited)
The
following table presents the Companys selected unaudited
quarterly balance sheets and results of operations
restated for the eight quarters ended September 30, 2005 from previously reported information filed
on Form 10-Q and Form 10-K, as a result of the Restatement of our financial results discussed in
this Form 10-K/A.
See Note 2, of the Notes to Consolidated Financial Statements for more detailed information
regarding the restatement of our consolidated financial statements for the years ended September
30, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Sept 30, 2005 |
|
|
June 30, 2005 |
|
|
March 31, 2005 |
|
|
Dec. 31, 2004 |
|
|
|
(In thousands, except per share data) |
|
|
|
As |
|
|
|
|
|
|
As |
|
|
As |
|
|
|
|
|
|
As |
|
|
As |
|
|
|
|
|
|
As |
|
|
As |
|
|
|
|
|
As |
|
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
62,762 |
|
|
$ |
|
|
|
$ |
62,762 |
|
|
$ |
57,112 |
|
|
$ |
|
|
|
$ |
57,112 |
|
|
$ |
53,332 |
|
|
$ |
|
|
|
$ |
53,332 |
|
|
$ |
46,397 |
|
|
$ |
|
|
|
$ |
46,397 |
|
Services |
|
|
17,845 |
|
|
|
|
|
|
|
17,845 |
|
|
|
15,952 |
|
|
|
|
|
|
|
15,952 |
|
|
|
14,398 |
|
|
|
|
|
|
|
14,398 |
|
|
|
13,612 |
|
|
|
|
|
|
|
13,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
80,607 |
|
|
|
|
|
|
|
80,607 |
|
|
|
73,064 |
|
|
|
|
|
|
|
73,064 |
|
|
|
67,730 |
|
|
|
|
|
|
|
67,730 |
|
|
|
60,009 |
|
|
|
|
|
|
|
60,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
13,886 |
|
|
|
|
|
|
|
13,886 |
|
|
|
12,751 |
|
|
|
1 |
|
|
|
12,752 |
|
|
|
11,820 |
|
|
|
2 |
|
|
|
11,822 |
|
|
|
10,528 |
|
|
|
2 |
|
|
|
10,530 |
|
Services |
|
|
4,572 |
|
|
|
|
|
|
|
4,572 |
|
|
|
4,306 |
|
|
|
6 |
|
|
|
4,312 |
|
|
|
3,908 |
|
|
|
7 |
|
|
|
3,915 |
|
|
|
3,386 |
|
|
|
9 |
|
|
|
3,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18,458 |
|
|
|
|
|
|
|
18,458 |
|
|
|
17,057 |
|
|
|
7 |
|
|
|
17,064 |
|
|
|
15,728 |
|
|
|
9 |
|
|
|
15,737 |
|
|
|
13,914 |
|
|
|
11 |
|
|
|
13,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
62,149 |
|
|
|
|
|
|
|
62,149 |
|
|
|
56,007 |
|
|
|
(7 |
) |
|
|
56,000 |
|
|
|
52,002 |
|
|
|
(9 |
) |
|
|
51,993 |
|
|
|
46,095 |
|
|
|
(11 |
) |
|
|
46,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
25,521 |
|
|
|
54 |
|
|
|
25,575 |
|
|
|
23,207 |
|
|
|
12 |
|
|
|
23,219 |
|
|
|
20,885 |
|
|
|
103 |
|
|
|
20,988 |
|
|
|
19,640 |
|
|
|
444 |
|
|
|
20,084 |
|
Research and
development |
|
|
9,039 |
|
|
|
27 |
|
|
|
9,066 |
|
|
|
7,547 |
|
|
|
37 |
|
|
|
7,584 |
|
|
|
7,789 |
|
|
|
45 |
|
|
|
7,834 |
|
|
|
6,974 |
|
|
|
58 |
|
|
|
7,032 |
|
General and
administrative |
|
|
7,067 |
|
|
|
271 |
|
|
|
7,338 |
|
|
|
5,833 |
|
|
|
483 |
|
|
|
6,316 |
|
|
|
5,854 |
|
|
|
487 |
|
|
|
6,341 |
|
|
|
5,006 |
|
|
|
485 |
|
|
|
5,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
41,627 |
|
|
|
352 |
|
|
|
41,979 |
|
|
|
36,587 |
|
|
|
532 |
|
|
|
37,119 |
|
|
|
34,528 |
|
|
|
635 |
|
|
|
35,163 |
|
|
|
31,620 |
|
|
|
987 |
|
|
|
32,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations |
|
|
20,522 |
|
|
|
(352 |
) |
|
|
20,170 |
|
|
|
19,420 |
|
|
|
(539 |
) |
|
|
18,881 |
|
|
|
17,474 |
|
|
|
(644 |
) |
|
|
16,830 |
|
|
|
14,475 |
|
|
|
(998 |
) |
|
|
13,477 |
|
Other income, net |
|
|
2,925 |
|
|
|
|
|
|
|
2,925 |
|
|
|
2,123 |
|
|
|
|
|
|
|
2,123 |
|
|
|
1,641 |
|
|
|
|
|
|
|
1,641 |
|
|
|
1,387 |
|
|
|
|
|
|
|
1,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before income taxes |
|
|
23,447 |
|
|
|
(352 |
) |
|
|
23,095 |
|
|
|
21,543 |
|
|
|
(539 |
) |
|
|
21,004 |
|
|
|
19,115 |
|
|
|
(644 |
) |
|
|
18,471 |
|
|
|
15,862 |
|
|
|
(998 |
) |
|
|
14,864 |
|
Provision (benefit)
for income taxes |
|
|
7,796 |
|
|
|
392 |
|
|
|
8,188 |
|
|
|
7,566 |
|
|
|
745 |
|
|
|
8,311 |
|
|
|
7,003 |
|
|
|
504 |
|
|
|
7,507 |
|
|
|
5,869 |
|
|
|
657 |
|
|
|
6,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
15,651 |
|
|
$ |
(744 |
) |
|
$ |
14,907 |
|
|
$ |
13,977 |
|
|
$ |
(1,284 |
) |
|
$ |
12,693 |
|
|
$ |
12,112 |
|
|
$ |
(1,148 |
) |
|
$ |
10,964 |
|
|
$ |
9,993 |
|
|
$ |
(1,655 |
) |
|
$ |
8,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per share basic |
|
$ |
0.41 |
|
|
$ |
(0.02 |
) |
|
$ |
0.39 |
|
|
$ |
0.37 |
|
|
$ |
(0.04 |
) |
|
$ |
0.33 |
|
|
$ |
0.33 |
|
|
$ |
(0.03 |
) |
|
$ |
0.30 |
|
|
$ |
0.28 |
|
|
$ |
(0.05 |
) |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares basic |
|
|
38,479 |
|
|
|
|
|
|
|
38,479 |
|
|
|
37,918 |
|
|
|
|
|
|
|
37,918 |
|
|
|
36,905 |
|
|
|
|
|
|
|
36,905 |
|
|
|
35,577 |
|
|
|
|
|
|
|
35,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per share diluted |
|
$ |
0.39 |
|
|
$ |
(0.02 |
) |
|
$ |
0.37 |
|
|
$ |
0.35 |
|
|
$ |
(0.03 |
) |
|
$ |
0.32 |
|
|
$ |
0.31 |
|
|
$ |
(0.03 |
) |
|
$ |
0.28 |
|
|
$ |
0.26 |
|
|
$ |
(0.04 |
) |
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares diluted |
|
|
40,015 |
|
|
|
(1 |
) |
|
|
40,014 |
|
|
|
39,418 |
|
|
|
15 |
|
|
|
39,433 |
|
|
|
38,921 |
|
|
|
18 |
|
|
|
38,939 |
|
|
|
37,818 |
|
|
|
30 |
|
|
|
37,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Sept 30, 2004 |
|
|
June 30, 2004 |
|
|
March 31, 2004 |
|
|
Dec. 31, 2003 |
|
|
|
(In thousands, except per share data) |
|
|
|
As |
|
|
|
|
|
|
As |
|
|
As |
|
|
|
|
|
|
As |
|
|
As |
|
|
|
|
|
|
As |
|
|
As |
|
|
|
|
|
|
As |
|
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
37,536 |
|
|
$ |
|
|
|
$ |
37,536 |
|
|
$ |
32,537 |
|
|
$ |
|
|
|
$ |
32,537 |
|
|
$ |
29,720 |
|
|
$ |
|
|
|
$ |
29,720 |
|
|
$ |
26,376 |
|
|
$ |
|
|
|
$ |
26,376 |
|
Services |
|
|
12,683 |
|
|
|
|
|
|
|
12,683 |
|
|
|
11,706 |
|
|
|
|
|
|
|
11,706 |
|
|
|
10,927 |
|
|
|
|
|
|
|
10,927 |
|
|
|
9,705 |
|
|
|
|
|
|
|
9,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
50,219 |
|
|
|
|
|
|
|
50,219 |
|
|
|
44,243 |
|
|
|
|
|
|
|
44,243 |
|
|
|
40,647 |
|
|
|
|
|
|
|
40,647 |
|
|
|
36,081 |
|
|
|
|
|
|
|
36,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
8,489 |
|
|
|
2 |
|
|
|
8,491 |
|
|
|
7,267 |
|
|
|
|
|
|
|
7,267 |
|
|
|
6,799 |
|
|
|
|
|
|
|
6,799 |
|
|
|
5,849 |
|
|
|
|
|
|
|
5,849 |
|
Services |
|
|
3,055 |
|
|
|
9 |
|
|
|
3,064 |
|
|
|
2,832 |
|
|
|
4 |
|
|
|
2,836 |
|
|
|
2,626 |
|
|
|
2 |
|
|
|
2,628 |
|
|
|
2,462 |
|
|
|
3 |
|
|
|
2,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
11,544 |
|
|
|
11 |
|
|
|
11,555 |
|
|
|
10,099 |
|
|
|
4 |
|
|
|
10,103 |
|
|
|
9,425 |
|
|
|
2 |
|
|
|
9,427 |
|
|
|
8,311 |
|
|
|
3 |
|
|
|
8,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
38,675 |
|
|
|
(11 |
) |
|
|
38,664 |
|
|
|
34,144 |
|
|
|
(4 |
) |
|
|
34,140 |
|
|
|
31,222 |
|
|
|
(2 |
) |
|
|
31,220 |
|
|
|
27,770 |
|
|
|
(3 |
) |
|
|
27,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
17,597 |
|
|
|
207 |
|
|
|
17,804 |
|
|
|
16,907 |
|
|
|
(37 |
) |
|
|
16,870 |
|
|
|
15,920 |
|
|
|
433 |
|
|
|
16,353 |
|
|
|
14,954 |
|
|
|
465 |
|
|
|
15,419 |
|
Research and
development |
|
|
6,764 |
|
|
|
51 |
|
|
|
6,815 |
|
|
|
6,253 |
|
|
|
12 |
|
|
|
6,265 |
|
|
|
5,900 |
|
|
|
6 |
|
|
|
5,906 |
|
|
|
5,444 |
|
|
|
8 |
|
|
|
5,452 |
|
General and
administrative |
|
|
4,463 |
|
|
|
10 |
|
|
|
4,473 |
|
|
|
4,069 |
|
|
|
4 |
|
|
|
4,073 |
|
|
|
3,855 |
|
|
|
1 |
|
|
|
3,856 |
|
|
|
3,357 |
|
|
|
2 |
|
|
|
3,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
28,824 |
|
|
|
268 |
|
|
|
29,092 |
|
|
|
27,229 |
|
|
|
(21 |
) |
|
|
27,208 |
|
|
|
25,675 |
|
|
|
440 |
|
|
|
26,115 |
|
|
|
23,755 |
|
|
|
475 |
|
|
|
24,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations |
|
|
9,851 |
|
|
|
(279 |
) |
|
|
9,572 |
|
|
|
6,915 |
|
|
|
17 |
|
|
|
6,932 |
|
|
|
5,547 |
|
|
|
(442 |
) |
|
|
5,105 |
|
|
|
4,015 |
|
|
|
(478 |
) |
|
|
3,537 |
|
Other income, net |
|
|
891 |
|
|
|
|
|
|
|
891 |
|
|
|
848 |
|
|
|
|
|
|
|
848 |
|
|
|
808 |
|
|
|
|
|
|
|
808 |
|
|
|
184 |
|
|
|
|
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before income taxes |
|
|
10,742 |
|
|
|
(279 |
) |
|
|
10,463 |
|
|
|
7,763 |
|
|
|
17 |
|
|
|
7,780 |
|
|
|
6,355 |
|
|
|
(442 |
) |
|
|
5,913 |
|
|
|
4,199 |
|
|
|
(478 |
) |
|
|
3,721 |
|
Provision (benefit)
for income taxes |
|
|
(5,039 |
) |
|
|
(4,559 |
) |
|
|
(9,598 |
) |
|
|
347 |
|
|
|
|
|
|
|
347 |
|
|
|
400 |
|
|
|
|
|
|
|
400 |
|
|
|
398 |
|
|
|
2 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
15,781 |
|
|
$ |
4,280 |
|
|
$ |
20,061 |
|
|
$ |
7,416 |
|
|
$ |
17 |
|
|
$ |
7,433 |
|
|
$ |
5,955 |
|
|
$ |
(442 |
) |
|
$ |
5,513 |
|
|
$ |
3,801 |
|
|
$ |
(480 |
) |
|
$ |
3,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per share basic |
|
$ |
0.46 |
|
|
$ |
0.12 |
|
|
$ |
0.58 |
|
|
$ |
0.22 |
|
|
$ |
|
|
|
$ |
0.22 |
|
|
$ |
0.18 |
|
|
$ |
(0.02 |
) |
|
$ |
0.16 |
|
|
$ |
0.13 |
|
|
$ |
(0.02 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares basic |
|
|
34,593 |
|
|
|
|
|
|
34,593 |
|
|
|
34,382 |
|
|
|
|
|
|
|
34,382 |
|
|
|
33,768 |
|
|
|
|
|
|
|
33,768 |
|
|
|
30,159 |
|
|
|
|
|
|
|
30,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per share diluted |
|
$ |
0.43 |
|
|
$ |
0.12 |
|
|
$ |
0.55 |
|
|
$ |
0.20 |
|
|
$ |
0.00 |
|
|
$ |
0.20 |
|
|
$ |
0.16 |
|
|
$ |
(0.01 |
) |
|
$ |
0.15 |
|
|
$ |
0.11 |
|
|
$ |
(0.01 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares diluted |
|
|
36,779 |
|
|
|
(21 |
) |
|
|
36,758 |
|
|
|
36,969 |
|
|
|
(37 |
) |
|
|
36,932 |
|
|
|
36,946 |
|
|
|
(29 |
) |
|
|
36,917 |
|
|
|
33,121 |
|
|
|
(40 |
) |
|
|
33,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company adopted FAS123R on July 1, 2005, and as a result recognized $4.6 million of
compensation expense related to stock-based compensation charges included in operating
expenses in the fourth quarter of fiscal 2005. |
|
(2) |
|
During the fourth quarter of fiscal 2004, the Company reversed the valuation allowance
on U.S. deferred tax assets and as a result realized an income tax benefit of $11.9
million. The credit from the reversal of the valuation allowance was partially offset by
actual U.S. and international tax expenses during the period. |
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005 |
|
|
June 30, 2005 |
|
|
March 31, 2005 |
|
|
December. 31, 2004 |
|
|
|
As |
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
51,867 |
|
|
|
|
|
|
$ |
51,867 |
|
|
$ |
11,587 |
|
|
|
|
|
|
$ |
11,587 |
|
|
$ |
21,792 |
|
|
|
|
|
|
$ |
21,792 |
|
|
$ |
23,803 |
|
|
|
|
|
|
$ |
23,803 |
|
Short-term investments |
|
|
184,314 |
|
|
|
|
|
|
|
184,314 |
|
|
|
196,530 |
|
|
|
|
|
|
|
196,530 |
|
|
|
174,334 |
|
|
|
|
|
|
|
174,334 |
|
|
|
139,909 |
|
|
|
|
|
|
|
139,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
|
|
|
|
2,400 |
|
|
|
2,400 |
|
|
|
|
|
|
|
2,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
41,703 |
|
|
|
|
|
|
|
41,703 |
|
|
|
37,749 |
|
|
|
|
|
|
|
37,749 |
|
|
|
34,822 |
|
|
|
|
|
|
|
34,822 |
|
|
|
28,101 |
|
|
|
|
|
|
|
28,101 |
|
Inventories |
|
|
2,699 |
|
|
|
|
|
|
|
2,699 |
|
|
|
2,288 |
|
|
|
|
|
|
|
2,288 |
|
|
|
2,095 |
|
|
|
|
|
|
|
2,095 |
|
|
|
1,728 |
|
|
|
|
|
|
|
1,728 |
|
Deferred tax assets |
|
|
3,935 |
|
|
|
240 |
|
|
|
4,175 |
|
|
|
3,233 |
|
|
|
240 |
|
|
|
3,473 |
|
|
|
4,794 |
|
|
|
240 |
|
|
|
5,034 |
|
|
|
4,619 |
|
|
|
240 |
|
|
|
4,859 |
|
Other current assets |
|
|
9,906 |
|
|
|
|
|
|
|
9,906 |
|
|
|
9,744 |
|
|
|
|
|
|
|
9,744 |
|
|
|
7,141 |
|
|
|
|
|
|
|
7,141 |
|
|
|
8,495 |
|
|
|
|
|
|
|
8,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
294,424 |
|
|
|
240 |
|
|
|
294,664 |
|
|
|
263,531 |
|
|
|
240 |
|
|
|
263,771 |
|
|
|
247,378 |
|
|
|
240 |
|
|
|
247,618 |
|
|
|
206,655 |
|
|
|
240 |
|
|
|
206,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
3,871 |
|
|
|
|
|
|
|
3,871 |
|
|
|
3,875 |
|
|
|
|
|
|
|
3,875 |
|
|
|
3,816 |
|
|
|
|
|
|
|
3,816 |
|
|
|
6,221 |
|
|
|
|
|
|
|
6,221 |
|
Property and equipment, net |
|
|
16,158 |
|
|
|
|
|
|
|
16,158 |
|
|
|
15,563 |
|
|
|
|
|
|
|
15,563 |
|
|
|
13,108 |
|
|
|
|
|
|
|
13,108 |
|
|
|
12,969 |
|
|
|
|
|
|
|
12,969 |
|
Long-term investments |
|
|
128,834 |
|
|
|
|
|
|
|
128,834 |
|
|
|
120,962 |
|
|
|
|
|
|
|
120,962 |
|
|
|
97,181 |
|
|
|
|
|
|
|
97,181 |
|
|
|
90,657 |
|
|
|
|
|
|
|
90,657 |
|
Deferred tax assets |
|
|
36,212 |
|
|
|
|
|
|
|
36,212 |
|
|
|
42,592 |
|
|
|
|
|
|
|
42,592 |
|
|
|
38,845 |
|
|
|
|
|
|
|
38,845 |
|
|
|
32,966 |
|
|
|
|
|
|
|
32,966 |
|
Goodwill |
|
|
49,677 |
|
|
|
|
|
|
|
49,677 |
|
|
|
50,067 |
|
|
|
|
|
|
|
50,067 |
|
|
|
50,067 |
|
|
|
|
|
|
|
50,067 |
|
|
|
50,067 |
|
|
|
|
|
|
|
50,067 |
|
Other assets, net |
|
|
8,323 |
|
|
|
|
|
|
|
8,323 |
|
|
|
8,856 |
|
|
|
|
|
|
|
8,856 |
|
|
|
7,475 |
|
|
|
|
|
|
|
7,475 |
|
|
|
7,954 |
|
|
|
|
|
|
|
7,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
537,499 |
|
|
$ |
240 |
|
|
$ |
537,739 |
|
|
$ |
505,446 |
|
|
$ |
240 |
|
|
$ |
505,686 |
|
|
$ |
457,870 |
|
|
$ |
240 |
|
|
$ |
458,110 |
|
|
$ |
407,489 |
|
|
$ |
240 |
|
|
$ |
407,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
7,668 |
|
|
|
|
|
|
$ |
7,668 |
|
|
$ |
6,201 |
|
|
|
|
|
|
$ |
6,201 |
|
|
$ |
7,207 |
|
|
|
|
|
|
$ |
7,207 |
|
|
$ |
7,746 |
|
|
|
|
|
|
$ |
7,746 |
|
Accrued liabilities |
|
|
19,648 |
|
|
|
4,283 |
|
|
|
23,931 |
|
|
|
19,290 |
|
|
|
3,586 |
|
|
|
22,876 |
|
|
|
17,897 |
|
|
|
2,372 |
|
|
|
20,269 |
|
|
|
16,537 |
|
|
|
1,376 |
|
|
|
17,913 |
|
Deferred revenue |
|
|
36,009 |
|
|
|
|
|
|
|
36,009 |
|
|
|
36,905 |
|
|
|
|
|
|
|
36,905 |
|
|
|
32,478 |
|
|
|
|
|
|
|
32,478 |
|
|
|
29,046 |
|
|
|
|
|
|
|
29,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
63,325 |
|
|
|
4,283 |
|
|
|
67,608 |
|
|
|
62,396 |
|
|
|
3,586 |
|
|
|
65,982 |
|
|
|
57,582 |
|
|
|
2,372 |
|
|
|
59,954 |
|
|
|
53,329 |
|
|
|
1,376 |
|
|
|
54,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
6,650 |
|
|
|
|
|
|
|
6,650 |
|
|
|
2,701 |
|
|
|
|
|
|
|
2,701 |
|
|
|
2,337 |
|
|
|
|
|
|
|
2,337 |
|
|
|
2,298 |
|
|
|
|
|
|
|
2,298 |
|
Deferred revenue, long-term |
|
|
3,314 |
|
|
|
|
|
|
|
3,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
9,964 |
|
|
|
|
|
|
|
9,964 |
|
|
|
2,701 |
|
|
|
|
|
|
|
2,701 |
|
|
|
2,337 |
|
|
|
|
|
|
|
2,337 |
|
|
|
2,298 |
|
|
|
|
|
|
|
2,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, no par value |
|
|
412,419 |
|
|
|
19,478 |
|
|
|
431,897 |
|
|
|
403,641 |
|
|
|
19,511 |
|
|
|
423,152 |
|
|
|
376,258 |
|
|
|
19,504 |
|
|
|
395,762 |
|
|
|
341,318 |
|
|
|
19,520 |
|
|
|
360,838 |
|
Note receivable from shareholder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81 |
) |
|
|
(81 |
) |
|
|
|
|
|
|
(143 |
) |
|
|
(143 |
) |
|
|
|
|
|
|
(311 |
) |
|
|
(311 |
) |
Accumulated other comprehensive income (loss) |
|
|
(1,430 |
) |
|
|
|
|
|
|
(1,430 |
) |
|
|
(862 |
) |
|
|
|
|
|
|
(862 |
) |
|
|
(1,900 |
) |
|
|
|
|
|
|
(1,900 |
) |
|
|
(937 |
) |
|
|
|
|
|
|
(937 |
) |
Retained earnings |
|
|
53,221 |
|
|
|
(23,521 |
) |
|
|
29,700 |
|
|
|
37,570 |
|
|
|
(22,776 |
) |
|
|
14,794 |
|
|
|
23,593 |
|
|
|
(21,493 |
) |
|
|
2,100 |
|
|
|
11,481 |
|
|
|
(20,345 |
) |
|
|
(8,864 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
464,210 |
|
|
|
(4,043 |
) |
|
|
460,167 |
|
|
|
440,349 |
|
|
|
(3,346 |
) |
|
|
437,003 |
|
|
|
397,951 |
|
|
|
(2,132 |
) |
|
|
395,819 |
|
|
|
351,862 |
|
|
|
(1,136 |
) |
|
|
350,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
537,499 |
|
|
$ |
240 |
|
|
$ |
537,739 |
|
|
$ |
505,446 |
|
|
$ |
240 |
|
|
$ |
505,686 |
|
|
$ |
457,870 |
|
|
$ |
240 |
|
|
$ |
458,110 |
|
|
$ |
407,489 |
|
|
$ |
240 |
|
|
$ |
407,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2004 |
|
|
June 30, 2004 |
|
|
March 31, 2004 |
|
|
December 31, 2003 |
|
|
|
As |
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
previously |
|
|
|
|
|
|
As |
|
|
|
reported |
|
|
Adjustments |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
|
reported |
|
|
Adjustment |
|
|
restated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24,901 |
|
|
|
|
|
|
$ |
24,901 |
|
|
$ |
22,165 |
|
|
|
|
|
|
$ |
22,165 |
|
|
$ |
22,162 |
|
|
|
|
|
|
$ |
22,162 |
|
|
$ |
27,712 |
|
|
|
|
|
|
$ |
27,712 |
|
Short-term investments |
|
|
115,600 |
|
|
|
|
|
|
|
115,600 |
|
|
|
90,265 |
|
|
|
|
|
|
|
90,265 |
|
|
|
108,656 |
|
|
|
|
|
|
|
108,656 |
|
|
|
110,190 |
|
|
|
|
|
|
|
110,190 |
|
Accounts receivable, net |
|
|
22,665 |
|
|
|
|
|
|
|
22,665 |
|
|
|
19,789 |
|
|
|
|
|
|
|
19,789 |
|
|
|
19,158 |
|
|
|
|
|
|
|
19,158 |
|
|
|
17,496 |
|
|
|
|
|
|
|
17,496 |
|
Inventories |
|
|
1,696 |
|
|
|
|
|
|
|
1,696 |
|
|
|
1,868 |
|
|
|
|
|
|
|
1,868 |
|
|
|
1,905 |
|
|
|
|
|
|
|
1,905 |
|
|
|
1,158 |
|
|
|
|
|
|
|
1,158 |
|
Deferred tax assets |
|
|
2,934 |
|
|
|
240 |
|
|
|
3,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
|
5,776 |
|
|
|
|
|
|
|
5,776 |
|
|
|
4,500 |
|
|
|
|
|
|
|
4,500 |
|
|
|
5,275 |
|
|
|
|
|
|
|
5,275 |
|
|
|
4,574 |
|
|
|
|
|
|
|
4,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
173,572 |
|
|
|
240 |
|
|
|
173,812 |
|
|
|
138,587 |
|
|
|
|
|
|
|
138,587 |
|
|
|
157,156 |
|
|
|
|
|
|
|
157,156 |
|
|
|
161,130 |
|
|
|
|
|
|
|
161,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
6,243 |
|
|
|
|
|
|
|
6,243 |
|
|
|
6,258 |
|
|
|
|
|
|
|
6,258 |
|
|
|
6,183 |
|
|
|
|
|
|
|
6,183 |
|
|
|
6,000 |
|
|
|
|
|
|
|
6,000 |
|
Property and equipment, net |
|
|
11,954 |
|
|
|
|
|
|
|
11,954 |
|
|
|
12,007 |
|
|
|
|
|
|
|
12,007 |
|
|
|
10,272 |
|
|
|
|
|
|
|
10,272 |
|
|
|
9,871 |
|
|
|
|
|
|
|
9,871 |
|
Long-term investments |
|
|
81,792 |
|
|
|
|
|
|
|
81,792 |
|
|
|
98,058 |
|
|
|
|
|
|
|
98,058 |
|
|
|
96,450 |
|
|
|
|
|
|
|
96,450 |
|
|
|
67,097 |
|
|
|
|
|
|
|
67,097 |
|
Deferred tax assets |
|
|
28,446 |
|
|
|
|
|
|
|
28,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
50,067 |
|
|
|
|
|
|
|
50,067 |
|
|
|
48,998 |
|
|
|
|
|
|
|
48,998 |
|
|
|
24,188 |
|
|
|
|
|
|
|
24,188 |
|
|
|
24,188 |
|
|
|
|
|
|
|
24,188 |
|
Other assets, net |
|
|
8,279 |
|
|
|
|
|
|
|
8,279 |
|
|
|
9,003 |
|
|
|
|
|
|
|
9,003 |
|
|
|
3,727 |
|
|
|
|
|
|
|
3,727 |
|
|
|
4,010 |
|
|
|
|
|
|
|
4,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
360,353 |
|
|
$ |
240 |
|
|
$ |
360,593 |
|
|
$ |
312,911 |
|
|
$ |
|
|
|
$ |
312,911 |
|
|
$ |
297,976 |
|
|
$ |
|
|
|
$ |
297,976 |
|
|
$ |
272,296 |
|
|
$ |
|
|
|
$ |
272,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,840 |
|
|
|
|
|
|
$ |
4,840 |
|
|
$ |
6,348 |
|
|
|
|
|
|
$ |
6,348 |
|
|
$ |
5,397 |
|
|
|
|
|
|
$ |
5,397 |
|
|
$ |
2,670 |
|
|
|
|
|
|
$ |
2,670 |
|
Accrued liabilities |
|
|
15,948 |
|
|
|
140 |
|
|
|
16,088 |
|
|
|
16,107 |
|
|
|
|
|
|
|
16,107 |
|
|
|
13,678 |
|
|
|
|
|
|
|
13,678 |
|
|
|
13,348 |
|
|
|
|
|
|
|
13,348 |
|
Deferred revenue |
|
|
25,692 |
|
|
|
|
|
|
|
25,692 |
|
|
|
26,321 |
|
|
|
|
|
|
|
26,321 |
|
|
|
24,502 |
|
|
|
|
|
|
|
24,502 |
|
|
|
21,775 |
|
|
|
|
|
|
|
21,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
46,480 |
|
|
|
140 |
|
|
|
46,620 |
|
|
|
48,776 |
|
|
|
|
|
|
|
48,776 |
|
|
|
43,577 |
|
|
|
|
|
|
|
43,577 |
|
|
|
37,793 |
|
|
|
|
|
|
|
37,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
3,856 |
|
|
|
|
|
|
|
3,856 |
|
|
|
1,812 |
|
|
|
|
|
|
|
1,812 |
|
|
|
1,744 |
|
|
|
|
|
|
|
1,744 |
|
|
|
1,668 |
|
|
|
|
|
|
|
1,668 |
|
Deferred revenue, long-term |
|
|
2,372 |
|
|
|
|
|
|
|
2,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605 |
|
|
|
|
|
|
|
605 |
|
|
|
454 |
|
|
|
|
|
|
|
454 |
|
|
|
303 |
|
|
|
|
|
|
|
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
6,228 |
|
|
|
|
|
|
|
6,228 |
|
|
|
2,417 |
|
|
|
|
|
|
|
2,417 |
|
|
|
2,198 |
|
|
|
|
|
|
|
2,198 |
|
|
|
1,971 |
|
|
|
|
|
|
|
1,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, no par value |
|
|
306,655 |
|
|
|
19,623 |
|
|
|
326,278 |
|
|
|
277,009 |
|
|
|
24,004 |
|
|
|
301,013 |
|
|
|
273,263 |
|
|
|
23,612 |
|
|
|
296,875 |
|
|
|
259,837 |
|
|
|
23,612 |
|
|
|
283,449 |
|
Note receivable from shareholder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned compensation |
|
|
|
|
|
|
(833 |
) |
|
|
(833 |
) |
|
|
|
|
|
|
(1,036 |
) |
|
|
(1,036 |
) |
|
|
|
|
|
|
(628 |
) |
|
|
(628 |
) |
|
|
|
|
|
|
(1,070 |
) |
|
|
(1,070 |
) |
Accumulated other comprehensive income (loss) |
|
|
(498 |
) |
|
|
|
|
|
|
(498 |
) |
|
|
(998 |
) |
|
|
|
|
|
|
(998 |
) |
|
|
647 |
|
|
|
|
|
|
|
647 |
|
|
|
359 |
|
|
|
|
|
|
|
359 |
|
Retained earnings |
|
|
1,488 |
|
|
|
(18,690 |
) |
|
|
(17,202 |
) |
|
|
(14,293 |
) |
|
|
(22,968 |
) |
|
|
(37,261 |
) |
|
|
(21,709 |
) |
|
|
(22,984 |
) |
|
|
(44,693 |
) |
|
|
(27,664 |
) |
|
|
(22,542 |
) |
|
|
(50,206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
307,645 |
|
|
|
100 |
|
|
|
307,745 |
|
|
|
261,718 |
|
|
|
|
|
|
|
261,718 |
|
|
|
252,201 |
|
|
|
|
|
|
|
252,201 |
|
|
|
232,532 |
|
|
|
|
|
|
|
232,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
360,353 |
|
|
$ |
240 |
|
|
$ |
360,593 |
|
|
$ |
312,911 |
|
|
$ |
|
|
|
$ |
312,911 |
|
|
$ |
297,976 |
|
|
$ |
|
|
|
$ |
297,976 |
|
|
$ |
272,296 |
|
|
$ |
|
|
|
$ |
272,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
F5 NETWORKS, INC.
SUPPLEMENTARY DATA
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
Charges to |
|
Charges to |
|
|
|
|
|
Balance |
|
|
Beginning |
|
Costs and |
|
Other |
|
|
|
|
|
at End |
Description |
|
of Period |
|
Expenses |
|
Accounts |
|
Deductions |
|
of Period |
|
|
(In thousands) |
Year Ended September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
1,594 |
|
|
$ |
653 |
|
|
$ |
|
|
|
$ |
(500 |
) |
|
$ |
1,747 |
|
Allowance for sales returns |
|
$ |
1,567 |
|
|
$ |
766 |
|
|
$ |
626 |
|
|
$ |
(1,737 |
) |
|
$ |
1,222 |
|
Income tax valuation allowance |
|
$ |
2,649 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2,649 |
) |
|
$ |
|
|
Year Ended September 30, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
1,524 |
|
|
$ |
150 |
|
|
$ |
|
|
|
$ |
(80 |
) |
|
$ |
1,594 |
|
Allowance for sales returns |
|
$ |
1,525 |
|
|
$ |
1,009 |
|
|
$ |
1,566 |
|
|
$ |
(2,533 |
) |
|
$ |
1,567 |
|
Income tax valuation allowance |
|
$ |
30,711 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(28,062 |
) |
|
$ |
2,649 |
|
Year Ended September 30, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
3,836 |
|
|
$ |
(650 |
) |
|
$ |
|
|
|
$ |
(1,662 |
) |
|
$ |
1,524 |
|
Allowance for sales returns |
|
$ |
1,616 |
|
|
$ |
347 |
|
|
$ |
745 |
|
|
$ |
(1,183 |
) |
|
$ |
1,525 |
|
Income tax valuation allowance |
|
$ |
26,329 |
|
|
$ |
|
|
|
$ |
4,382 |
|
|
$ |
|
|
|
$ |
30,711 |
|
43
Item 15. Exhibits and Financial Statement Schedules
|
(a) |
|
Documents filed as part of this report are as follows: |
|
|
1. |
|
Consolidated Financial Statements: |
|
|
|
|
See Index to Consolidated Financial Statements included under Item 8 in Part II of this
Amendment. |
|
|
2. |
|
Exhibits: |
|
|
|
|
Amendment Annual Report on Form 10-K and are described in the Exhibit Index immediately
preceding the first exhibit. |
44
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.
|
|
|
|
|
|
|
|
|
F5 NETWORKS, INC. |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ JOHN MCADAM
John McAdam
|
|
|
|
|
|
|
Chief Executive Officer and President |
|
|
|
|
|
|
|
|
|
Dated:
April 3, 2007
45
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Exhibit Description |
31.1*
|
|
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
31.2*
|
|
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
32.1*
|
|
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
46