Document and Entity Information

Document and Entity Information	9 Months Ended
Document and Entity Information	Jun. 30, 2010	Aug. 04, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-06-30
Document Fiscal Year Focus	2010
Document Fiscal Period Focus	Q3
Entity Registrant Name	F5 NETWORKS INC
Entity Central Index Key	0001048695
Current Fiscal Year End Date	--09-30
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		80,467,642

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	9 Months Ended	12 Months Ended
CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Jun. 30, 2010	Sep. 30, 2009
ASSETS
Cash and cash equivalents	$ 143,813	$ 110,837
Short-term investments	254,543	206,291
Restricted cash	2,400
Accounts receivable, net of allowances of $3,999 and $3,651	102,829	106,973
Inventories	17,747	13,819
Deferred tax assets	7,868	8,010
Other current assets	30,886	22,252
Total current assets	560,086	468,182
Restricted cash	336	2,729
Property and equipment, net	35,991	39,371
Long-term investments	382,295	257,294
Deferred tax assets	37,762	49,018
Goodwill	233,526	231,883
Other assets, net	17,277	20,168
Total assets	1,267,273	1,068,645
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	22,657	18,891
Accrued liabilities	47,990	53,232
Deferred revenue	188,661	150,891
Total current liabilities	259,308	223,014
Other long-term liabilities	15,386	14,373
Deferred revenue, long-term	50,977	32,238
Total long-term liabilities	66,363	46,611
Commitments and contingencies (Note 5)
Shareholders' equity
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding
Common stock, no par value; 200,000 shares authorized, 79,977 and 78,325 shares issued and outstanding	504,708	462,786
Accumulated other comprehensive loss	(4,595)	(2,337)
Retained earnings	441,489	338,571
Total shareholders' equity	941,602	799,020
Total liabilities and shareholders' equity	$ 1,267,273	$ 1,068,645

CONSOLIDATED BALANCE SHEETS (Parenthetical)

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands	Jun. 30, 2010	Sep. 30, 2009
Accounts receivable, allowances	$ 3,999	$ 3,651
Preferred Stock, Par value	$ 0	$ 0
Preferred stock, shares authorized	10,000	10,000
Preferred stock, shares outstanding	0	0
Common Stock, Par Value	$ 0	$ 0
Common stock, shares authorized	200,000	200,000
Common stock, shares issued	79,977	78,325
Common Stock, Shares Outstanding	79,977	78,325

CONSOLIDATED INCOME STATEMENTS

CONSOLIDATED INCOME STATEMENTS (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Jun. 30, 2010	Jun. 30, 2009	Jun. 30, 2010	Jun. 30, 2009
Net revenues
Products	$ 147,393	$ 95,619	$ 396,170	$ 297,649
Services	83,081	62,612	231,528	180,300
Total	230,474	158,231	627,698	477,949
Cost of net revenues
Products	29,328	21,955	82,789	70,915
Services	15,251	11,710	42,335	35,355
Total	44,579	33,665	125,124	106,270
Gross profit	185,895	124,566	502,574	371,679
Operating expenses
Sales and marketing	77,219	55,427	212,505	166,798
Research and development	30,889	25,070	86,743	78,149
General and administrative	17,658	12,764	49,627	40,624
Restructuring charges				4,329
Total	125,766	93,261	348,875	289,900
Income from operations	60,129	31,305	153,699	81,779
Other income, net	3,561	3,027	7,557	8,042
Income before income taxes	63,690	34,332	161,256	89,821
Provision for income taxes	23,195	11,556	58,338	26,636
Net income	$ 40,495	$ 22,776	$ 102,918	$ 63,185
Net income per share - basic	$ 0.51	$ 0.29	$ 1.3	$ 0.8
Weighted average shares - basic	79,864	78,603	79,386	78,958
Net income per share - diluted	$ 0.5	$ 0.29	$ 1.27	$ 0.79
Weighted average shares - diluted	81,031	79,612	80,870	80,014

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (USD $) In Thousands	Common Stock	Accumulated Other Comprehensive Income (Loss)	Retained Earnings	Total
Balance - value at Sep. 30, 2009	$ 462,786	$ (2,337)	$ 338,571	$ 799,020
Balance - shares at Sep. 30, 2009	78,325			78,325
Exercise of employee stock options - value	15,280			15,280
Exercise of employee stock options - shares	762
Issuance of stock under employee stock purchase plan - amount	13,936			13,936
Issuance of stock under employee stock purchase plan - shares	458
Issuance of restricted stock - value
Issuance of retricted stock - shares	1,397
Repurchase of common stock - value	(55,000)			(55,000)
Repurchase of common stock - shares	(965)
Tax benefit from employee stock transactions	16,715			16,715
Stock-based compensation	50,991			50,991
Comprehensive income:
Net income			102,918	102,918
Foreign currency translation adjustment		(1,170)
Unrealized loss on securities, net of tax		(1,088)
Comprehensive income				100,660
Balance - amount at Jun. 30, 2010	$ 504,708	$ (4,595)	$ 441,489	$ 941,602
Balance - Shares at Jun. 30, 2010	79,977			79,977

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	9 Months Ended
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	Jun. 30, 2010	Jun. 30, 2009
Operating activities
Net income	$ 102,918	$ 63,185
Adjustments to reconcile net income to net cash provided by operating activities:
Realized (gain) loss on disposition of assets and investments	(117)	20
Stock-based compensation	50,991	40,727
Provisions for doubtful accounts and sales returns	794	2,552
Depreciation and amortization	17,923	20,432
Deferred income taxes	10,659	1,352
Gain on auction rate securities put option	(1,491)	(3,788)
Loss on trading auction rate securities	1,491	3,788
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable	3,350	2,869
Inventories	(3,927)	(3,442)
Other current assets	(10,380)	(6,201)
Other assets	(1,651)	(512)
Accounts payable and accrued liabilities	154	(2,490)
Deferred revenue	56,507	24,873
Net cash provided by operating activities	227,221	143,365
Investing activities
Purchases of investments	(571,072)	(329,694)
Sales and maturities of investments	397,702	256,091
Investment of restricted cash	(26)	5
Acquisition of intangible assets		(706)
Purchases of property and equipment	(10,119)	(8,232)
Net cash used in investing activities	(183,515)	(82,536)
Financing activities
Excess tax benefits from share-based compensation	16,419	(2,758)
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan	29,338	15,326
Repurchase of common stock	(55,000)	(63,311)
Net cash used in financing activities	(9,243)	(50,743)
Net increase in cash and cash equivalents	34,463	10,086
Effect of exchange rate changes on cash and cash equivalents	(1,487)	(100)
Cash and cash equivalents, beginning of period	110,837	78,303
Cash and cash equivalents, end of period	$ 143,813	$ 88,289

Summary of Significant Accounting Policies

9 Months Ended

Jun. 30, 2010

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Description of Business

F5 Networks, Inc. (the "Company") provides products and services to help companies manage their Internet Protocol (IP) traffic and file storage infrastructure efficiently and securely. The Company's application delivery networking products improve the performance, availability and security of applications on Internet-based networks. Internet traffic between network-based applications and clients passes through these devices 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's storage virtualization products simplify and reduce the cost of managing files and file storage devices, and ensure fast, secure, easy access to files for users and applications. The Company also offers a broad range of services that include consulting, training, maintenance and other technical support services.

Basis of Presentation

The year end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for their fair statement in conformity with accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. The information included in this Form 10-Q should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2009.

Certain reclassifications have been made to the prior year's financial statements to conform to the fiscal year 2010 presentation. Such reclassifications did not affect total revenues, operating income or net income.

Revenue Recognition

The Company's products are integrated with software that is essential to the functionality of the equipment. Accordingly, the Company recognizes revenue in accordance with the accounting guidance for software products.

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 reasonably assured and no significant performance 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 they have 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 to net 45 days. Payment terms to international customers range from net 30 days to net 120 days based on normal and customary trade practices in the individual markets. The Company offers extended payment terms to certain customers, in which case, revenue is recognized when payments are due.

Whenever product, training services 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. Where fair value of certain elements is not available, the Company recognizes revenue on the "residual method" based on the fair value of undelivered elements. Revenues from the sale of product are recognized when the product has been shipped and the customer is obligated to pay for the product. When rights of return are present and the Company cannot estimate returns, it 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 a limited period of telephone support updates, repair or replacement of any failed product or component that fails during the term of the agreement, bug fixes and rights to upgrades, when and if available. 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.

FASB ASC Topic 985-605-25, Software, Revenue Recognition, Multiple Elements, ("ASC 985-605-25"), as amended, requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of those elements. The fair value of an element must be based on vendor specific objective evidence ("VSOE"). The Company establishes VSOE for its products, training services, PCS and consulting services based on the sales price charged for each element when sold separately. The sales price is discounted from the applicable list price based on various factors including the type of customer, volume of sales, geographic region and program level. The Company's list prices are generally not fair value as discounts may be given based on the factors enumerated above. The Company believes that the fair value of its consulting services is represented by the billable consulting rate per hour, based on the rates they charge customers when they purchase standalone consulting services. The price of consulting services is not based on the type of customer, volume of sales, geographic region or program level.

The Company uses historical sales transactions to determine whether VSOE can be established for each of the elements. In most instances, VSOE of fair value is the sales price of actual standalone (unbundled) transactions within the past 12 month period that are priced within a reasonable range, which the Company has determined to be plus or minus 15% of the median sales price of each respective price list.

VSOE of PCS is based on standalone sales since the Company does not provide stated renewal rates to its customers. In accordance with the Company's PCS pricing practice (supported by standalone renewal sales), renewal contracts are priced as a percentage of the undiscounted product list price. The PCS renewal percentages may vary, depending on the type and length of PCS purchased. The Company offers standard and premium PCS, and the term generally ranges from one to three years. The Company employs a bell-shaped-curve approach in evaluating VSOE of fair value of PCS. Under this approach, the Company considers VSOE of the fair value of PCS to exist when a substantial majority of its standalone PCS sales fall within a narrow range of pricing.

The Company has established and regularly validates the VSOE of fair value for elements in its multiple element arrangements. The Company accounts for taxes collected from customers and remitted to governmental authorities on a net basis and excluded from revenues.

Goodwill

Goodwill represents the excess purchase price over the estimated fair value of net assets acquired as of the acquisition date. The Company tests goodwill for impairment on an annual basis and between annual tests in certain circumstances, and goodwill is written down when impaired. Goodwill was recorded in connection with the acquisition of Acopia Networks, Inc. in fiscal year 2007, Swan Labs, Inc. in fiscal year 2006, MagniFire Websystems, Inc. in fiscal year 2004 and uRoam, Inc. in fiscal year 2003.

The Company performs its annual goodwill impairment test during the second fiscal quarter, or whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. The first step of the test identifies whether potential impairment may have occurred, while the second step of the test measures the amount of the impairment, if any. Impairment is recognized when the carrying amount of goodwill exceeds its fair value. For its annual goodwill impairment analysis, the Company operates under one reporting unit. The Company determined the fair value of its reporting unit based on the Company's enterprise value. In March 2010, the Company completed its annual impairment test and concluded there was no impairment of goodwill. The Company also considered potential impairment indicators at June 30, 2010 and noted no indicators of impairment.

Stock-Based Compensation

The Company accounts for stock-based compensation using the straight-line attribution method for recognizing compensation expense. The Company recognized $17.4 million and $12.6 million of stock-based compensation expense for the three months ended June 30, 2010 and 2009, respectively, and $51.0 million and $40.7 million for the nine months ended June 30, 2010 and 2009, respectively. As of June 30, 2010, there was $42.8 million of total unrecognized stock-based compensation cost, the majority of which will be recognized over the next two years. Going forward, stock-based compensation expenses may increase as the Company issues additional equity-based awards to continue to attract and retain key employees.

The Company issues incentive awards to its employees through stock-based compensation consisting of stock options and restricted stock units ("RSUs"). On August 2, 2010, the Company awarded approximately 910,000 RSUs to employees and executive officers pursuant to the Company's annual equity and retention awards program. The value of RSUs is determined using the fair value method, which in this case, is based on the number of shares granted and the quoted price of the Company's common stock on the date of grant. Alternatively, in determining the fair value of stock options, the Company used the Black-Scholes option pricing model that employed the following key assumptions. The risk-free rate was 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 was based on the annualized daily historical volatility of the Company's stock price commensurate with the expected life of the option. Expected term of the option was 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. The Company's stock price volatility and option lives were based on management's 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.

The Company recognizes 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. Based on historical differences with forfeitures of stock-based awards granted to the Company's executive officers and Board of Directors versus grants awarded to all other employees, the Company has developed separate forfeiture expectations for these two groups. The Company's estimated forfeiture rate in the third quarter of fiscal year 2010 is 3.5% for grants awarded to the Company's executive officers and Board of Directors, and 10.5% for grants awarded to all other employees. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

In August 2009, the Company granted 420,000 RSUs to certain current executive officers (the "2009 Performance Award"). Fifty percent of the aggregate number of RSUs granted at such time vest in equal quarterly increments over two years, until such portion of the grant is fully vested on August 1, 2011. Twenty-five percent of the RSU grant, or a portion thereof, was subject to the Company achieving specified quarterly revenue and EBITDA goals during the period beginning in the fourth quarter of fiscal year 2009 through the third quarter of fiscal year 2010 and the remaining twenty-five percent is subject to the Company achieving specified quarterly revenue and EBITDA goals during the period beginning in the fourth quarter of fiscal year 2010 through the third quarter of fiscal year 2011. In each case, 50% of the quarterly performance stock grant is based on achieving at least 80% of the quarterly revenue goal and the other 50% is based on achieving at least 80% of the quarterly EBITDA goal. The quarterly performance stock grant is paid linearly above 80% of the targeted goals. At least 100% of both goals must be attained in order for the quarterly performance stock grant to be awarded over 100%. Each goal is evaluated individually and subject to the 80% achievement threshold and 100% over-achievement threshold.

In August 2008, the Company granted 383,400 RSUs to certain current executive officers. Fifty percent of the aggregate number of RSUs granted at such time vest in equal quarterly increments over two years, until such portion of the grant is fully vested on August 1, 2010. Twenty-five percent of the RSU grant, or a portion thereof, was subject to the Company achieving specified percentage increases in total revenue during the period beginning in the fourth quarter of fiscal year 2008 through the third quarter of fiscal year 2009, relative to the same periods in fiscal years 2007 and 2008 (the "2008 Performance Award"). Approximately half of this twenty-five percent was earned in fiscal year 2009. The remaining twenty-five percent was subject to the Company achieving specified quarterly revenue and EBITDA goals during the period beginning in the fourth quarter of fiscal year 2009 through the third quarter of fiscal year 2010, as set by the Compensation Committee of the Company's Board of Directors.

The Company recognizes compensation costs for awards with performance conditions when it concludes it is probable that the performance condition will be achieved. The Company reassesses the probability of vesting at each balance sheet date and adjusts compensation costs based on the probability assessment.

Common Stock Repurchase

On October 22, 2008, the Company announced that its Board of Directors approved a new program to repurchase up to an additional $200 million of the Company's outstanding common stock. Acquisitions for the share repurchase program will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements. The program can be terminated at any time. As of August 4, 2010, the Company had repurchased and retired 4,331,392 shares at an average price of $33.28 per share under the new program.

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):


	Three months ended				Nine months ended
	June 30,				June 30,
	2010		2009		2010		2009
Numerator
Net income	$	40,495	$	22,776	$	102,918	$	63,185

Denominator
Weighted average shares outstanding — basic		79,864		78,603		79,386		78,958
Dilutive effect of common shares from stock options and restricted stock units		1,167		1,009		1,484		1,056

Weighted average shares outstanding — diluted		81,031		79,612		80,870		80,014

Basic net income per share	$	0.51	$	0.29	$	1.30	$	0.80

Diluted net income per share	$	0.50	$	0.29	$	1.27	$	0.79

An immaterial amount of common shares potentially issuable from stock options for the three and nine months ended June 30, 2010, are excluded from the calculation of diluted earnings per share because the exercise price was greater than the average market price of common stock for the respective period. Approximately 0.3 million and 0.5 million of common shares potentially issuable from stock options for the three and nine months ended June 30, 2009, respectively, are excluded from the calculation of diluted earnings per share because the exercise price was greater than the average market price of the Company's common stock for the respective period.

Comprehensive Income

Comprehensive income includes certain changes in equity that are excluded from net income. Specifically, unrealized gains (losses) on securities and foreign currency translation adjustments are included in accumulated other comprehensive loss. Comprehensive income and its components were as follows (in thousands):


	Three months ended					Nine months ended
	June 30,					June 30,
	2010			2009		2010			2009
Net Income	$	40,495		$	22,776	$	102,918		$	63,185
Unrealized (loss) gain on securities, net of tax		(277	)		372		(1,088	)		2,940
Foreign currency translation adjustment		(724	)		300		(1,170	)		(64	)

Total comprehensive income	$	39,494		$	23,448	$	100,660		$	66,061

Recent Accounting Pronouncements

In December 2007, the FASB issued ASC 810-10, Consolidation — Overall ("ASC 810-10"), which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Company adopted ASC 810-10 in the first quarter of fiscal year 2010. The adoption of this statement did not have any impact on the Company's consolidated financial position, results of operations or cash flows.

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition) ("ASU 2009-13") and ASU 2009-14, Certain Arrangements That Include Software Elements, (amendments to FASB ASC Topic 985, Software) ("ASU 2009-14"). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the impact of the standards, but does not expect adoption of ASU 2009-13 or ASU 2009-14 to have a material impact on the Company's consolidated results of operations or financial condition.

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements ("ASU 2010-06"). ASU 2010-06 increases disclosures to include transfers in and out of Levels 1 and 2 and clarifies inputs, valuation techniques and level of disaggregation to be disclosed. The Company adopted ASU 2010-06 in the second quarter of fiscal year 2010. The adoption of this statement did not have any impact on the Company's consolidated financial position, results of operations or cash flows.

Fair Value Measurements

9 Months Ended

Jun. 30, 2010

Fair Value Measurements

2. Fair Value Measurements

In accordance with the authoritative guidance on fair value measurements and disclosure under GAAP, the Company determines fair value using a fair value hierarchy that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity, and the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances and expands disclosure about fair value measurements.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date, essentially the exit price.

The levels of fair value hierarchy are:

Level 1: Quoted prices in active markets for identical assets and liabilities at the measurement date.

Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Unobservable inputs for which there is little or no market data available. These inputs reflect management's assumptions of what market participants would use in pricing the asset or liability.

Level 1 investments are valued based on quoted market prices in active markets and include the Company's cash equivalent investments. Level 2 investments, which include investments that are valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, include the Company's certificates of deposit, corporate bonds and notes, municipal bonds and notes and U.S. government securities. Fair values for the Company's level 2 investments are based on similar assets without applying significant judgments. In addition, all of the Company's level 2 investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments.

A financial instrument's level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes "observable" requires significant judgment by the Company. The Company considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The Company's financial assets measured at fair value on a recurring basis subject to the disclosure requirements at June 30, 2010, were as follows (in thousands):


	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant
	Active Markets for		Other Observable		Significant		Fair Value at
	Identical Securities		Inputs		Unobservable Inputs		June 30,
	(Level 1)		(Level 2)		(Level 3)		2010
Cash equivalents	$	19,091	$	—	$	—	$	19,091
Short-term investments
Available-for-sale securities — certificates of deposit		—		249		—		249
Available-for-sale securities — corporate bonds and notes		—		80,911		—		80,911
Available-for-sale securities — municipal bonds and notes		—		106,040		—		106,040
Available-for-sale securities — U.S. government securities		—		67,343		—		67,343
Long-term investments
Available-for-sale securities — corporate bonds and notes		—		150,570		—		150,570
Available-for-sale securities — municipal bonds and notes		—		26,474		—		26,474
Available-for-sale securities — U.S. government securities		—		189,359		—		189,359
Available-for-sale securities — auction rate securities		—		—		15,892		15,892

Total	$	19,091	$	620,946	$	15,892	$	655,929

Due to the auction failures of the Company's auction rate securities ("ARS") that began in the second quarter of fiscal year 2008, there are still no quoted prices in active markets for similar assets as of June 30, 2010. Therefore, the Company has classified its ARS as level 3 financial assets. The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3) (in thousands):


	Significant			Significant
	Unobservable Inputs			Unobservable Inputs
	(Level 3) (1)			(Level 3) (2)
Balance, beginning of period	$	41,595		$	53,350
Total losses realized or unrealized:
Included in earnings (other income, net)		1,491			—
Included in other comprehensive income		347			(3,108	)
Recognition of put option to earnings		(1,491	)		—
Settlements		(26,050	)		(34,350	)
Transfers into and/or out of level 3		—			—

Balance, June 30, 2010	$	15,892		$	15,892

Gains (losses) attributable to assets still held as of June 30, 2010		347			(3,108	)


(1)		Beginning balance represents the fair value of the Company's investments in ARS as of September 30, 2009

(2)		Beginning balance represents the fair value (par value) of the Company's investments in ARS as of February 1, 2008 prior to auction failures

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable or there is limited market activity such that the determination of fair value requires significant judgment or estimation. Level 3 investment securities primarily include certain ARS for which there was a decrease in the observation of market pricing. At June 30, 2010, these securities were valued primarily using internal cash flow valuation that incorporates transaction details such as contractual terms, maturity, timing and amount of future cash flows, as well as assumptions about liquidity and credit valuation adjustments of marketplace participants at June 30, 2010.

The Company adopted the fair value hierarchy for financial assets and liabilities on October 1, 2008, the first day of fiscal year 2009. On October 1, 2009, the first day of fiscal year 2010, the Company applied the fair value hierarchy to all non-financial assets and liabilities. The adoption did not have a material effect on the consolidated financial statements. The Company's non-financial assets and liabilities, which include goodwill, intangible assets, and long-lived-assets, are not required to be carried at fair value on a recurring basis. These non-financial assets and liabilities are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when impairment is recognized. The Company reviews goodwill and intangible assets for impairment annually, during the second quarter of each fiscal year, or as circumstances indicate the possibility of impairment. The Company monitors the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate its carrying amount may not be recoverable. During the three months ended June 30, 2010, the Company did not recognize any impairment charges related to goodwill, intangible assets, or long-lived assets.

- Definition

This element represents the disclosure related to the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods.

+ References+ Details

Short-Term and Long-Term Investments

9 Months Ended

Jun. 30, 2010

Short-Term and Long-Term Investments

3. Short-Term and Long-Term Investments

Short-term investments consist of the following (in thousands):


	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
June 30, 2010
Certificates of deposit	$	249	$	—	$	—		$	249
Corporate bonds and notes		80,822		244		(155	)		80,911
Municipal bonds and notes		105,660		384		(4	)		106,040
U.S. government securities		67,254		92		(3	)		67,343

	$	253,985	$	720	$	(162	)	$	254,543


	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
September 30, 2009
Certificates of deposit	$	3,120	$	2	$	—		$	3,122
Corporate bonds and notes		34,325		201		(2	)		34,524
Municipal bonds and notes		106,491		854		—			107,345
Auction rate securities		24,559		—		—			24,559
U.S. government securities		36,646		96		(1	)		36,741

	$	205,141	$	1,153	$	(3	)	$	206,291

Long-term investments consist of the following (in thousands):


	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
June 30, 2010
Corporate bonds and notes	$	150,515	$	498	$	(443	)	$	150,570
Municipal bonds and notes		26,400		80		(6	)		26,474
Auction rate securities		19,000		—		(3,108	)		15,892
U.S. government securities		189,064		316		(21	)		189,359

	$	384,979	$	894	$	(3,578	)	$	382,295


	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
September 30, 2009
Corporate bonds and notes	$	48,194	$	508	$	(24	)	$	48,678
Municipal bonds and notes		72,202		777		—			72,979
Auction rate securities		19,000		—		(3,455	)		15,545
U.S. government securities		119,447		649		(4	)		120,092

	$	258,843	$	1,934	$	(3,483	)	$	257,294

The cost or amortized cost and fair value of fixed maturities at June 30, 2010, by contractual years-to-maturity, are presented below (in thousands):


	Cost or
	Amortized
	Cost		Fair Value
One year or less	$	253,985	$	254,543
Over one year		384,979		382,295

	$	638,964	$	636,838

The cost or amortized cost values of the Company's ARS include $19.0 million of available-for-sale securities as of June 30, 2010 and $19.0 million of available-for-sale securities and $24.6 million of trading investment securities as of September 30, 2009.

The following table summarizes investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for more than 12 months as of June 30, 2010 (in thousands):


	Less Than 12 Months					12 Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
June 30, 2010
Corporate bonds and notes	$	124,614	$	(598	)	$	—	$	—		$	124,614	$	(598	)
Municipal bonds and notes		11,425		(10	)		—		—			11,425		(10	)
Auction rate securities		—		—			15,892		(3,108	)		15,892		(3,108	)
U.S. government securities		38,037		(24	)		—		—			38,037		(24	)

Total	$	174,076	$	(632	)	$	15,892	$	(3,108	)	$	189,968	$	(3,740	)

The Company invests in securities that are rated investment grade or better. The unrealized losses on investments for the first nine months of fiscal year 2010 were primarily caused by reductions in the values of the ARS due to the illiquid markets and were partially offset by unrealized gains related to interest rate decreases.

ARS are variable-rate debt securities. The Company limits its investments in ARS to securities that carry an AAA/A- (or equivalent) rating from recognized rating agencies and limits the amount of credit exposure to any one issuer. At the time of the Company's initial investment and at the date of this report, all ARS were in compliance with the Company's investment policy. In the past, the auction process allowed investors to obtain immediate liquidity if so desired by selling the securities at their face amounts. Liquidity for these securities has historically been provided by an auction process that resets interest rates on these investments on average every 7-35 days. However, as has been reported in the financial press, the disruptions in the credit markets adversely affected the auction market for these types of securities.

Beginning in February 2008, auctions failed for approximately $53.4 million in par value of municipal ARS the Company held because sell orders exceeded buy orders. The funds associated with failed auctions will not be accessible until a successful auction occurs or a buyer is found outside the auction process.

In October 2008, the Company entered into an agreement ("the Agreement") with UBS whereby UBS would purchase eligible ARS it sold to the Company prior to February 13, 2008. Under the terms of the Agreement, and at the Company's discretion, UBS will purchase eligible ARS from the Company at par value ("Put Option") during the period of June 30, 2010 through July 2, 2012. Prior to June 30, 2010, UBS purchased all of the eligible ARS the Company held for par value of $34.4 million.

At June 30, 2010, the Company held $15.9 million of ARS classified as available-for-sale securities in long-term investments as reflected in the Company's consolidated balance sheet. The Company believes that this is the appropriate presentation, as the Company does not believe it will be able to liquidate these securities in the next twelve months.

- Definition

This item represents the entire disclosure related to Investments in Certain Debt and Equity Securities (and certain other trading assets) which include all debt and equity securities (other than those equity securities accounted for under the equity or cost methods of accounting) with readily determinable fair values. Other trading assets include assets that are carried on the balance sheet at fair value and held for trading purposes. A debt security represents a creditor relationship with an enterprise that is in the form of a security. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities (and other trading assets).

+ References+ Details

Inventories

9 Months Ended

Jun. 30, 2010

Inventories

4. Inventories

The Company outsources the manufacturing of its pre-configured hardware platforms to contract manufacturers, who assemble each product to the Company's 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):


	June 30,		September 30,
	2010		2009
Finished goods	$	13,986	$	8,326
Raw materials		3,761		5,493

	$	17,747	$	13,819

Commitments and Contingencies

9 Months Ended

Jun. 30, 2010

Commitments and Contingencies

5. Commitments and Contingencies

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 Company's bylaws contain similar indemnification obligations to the Company's 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 for those customers without service contracts, 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. Accrued warranty costs as of June 30, 2010 and June 30, 2009 were not material.

Purchase Commitments

The Company currently has arrangements with contract manufacturers and other suppliers for the manufacturing of its products. The arrangement with the primary contract manufacturer allows them to procure component inventory on the Company's behalf based on a rolling production forecast provided by the Company. The Company is obligated to the purchase of component inventory that the contract manufacturer procures in accordance with the forecast, unless they give notice of order cancellation in advance of applicable lead times. As of June 30, 2010, the Company was committed to purchase approximately $15.7 million of such inventory during the next quarter.

Legal Proceedings

Derivative Suits. Beginning on or about May 24, 2006, several derivative actions were filed against certain of the Company's current and former directors and officers. These derivative lawsuits were filed in: (1) the Superior Court of King County, Washington, as In re F5 Networks, Inc. State Court Derivative Litigation (Case No. 06-2-17195-1 SEA), which consolidates Adams v. Amdahl, et al. (Case No. 06-2-17195-1 SEA), Wright v. Amdahl, et al. (Case No. 06-2-19159-5 SEA), and Sommer v. McAdam, et al. (Case No. 06-2-26248-4 SEA) (the "State Court Derivative Litigation"); and (2) in the U.S. District Court for the Western District of Washington, as In re F5 Networks, Inc. Derivative Litigation, Master File No. C06-0794RSL, which consolidates Hutton v. McAdam, et al. (Case No. 06-794RSL), Locals 302 and 612 of the International Union of Operating Engineers-Employers Construction Industry Retirement Trust v. McAdam et al. (Case No. C06-1057RSL), and Easton v. McAdam et al. (Case No. C06-1145RSL) (the "Federal Court Derivative Litigation"). On August 2, 2007, another derivative lawsuit, Barone v. McAdam et al. (Case No. C07-1200P) was filed in the U.S. District Court for the Western District of Washington. The Barone lawsuit was designated a related case to the Federal Court Derivative Litigation on September 4, 2007. The complaints generally allege that certain of the Company's current and former directors and officers, including, in general, each of the Company's current outside directors (other than Deborah L. Bevier and Scott Thompson who joined the Board of Directors in July 2006 and January 2008, respectively) breached their fiduciary duties to the Company by engaging in alleged wrongful conduct concerning the manipulation of certain stock option grant dates. The Company is named solely as a nominal defendant against whom the plaintiffs seek no recovery. The Company's combined motion to consolidate and stay the State Court Derivative Litigation was granted in a court order dated April 3, 2007. The Company's motion to dismiss the consolidated federal derivative actions based on plaintiffs' failure to make demand on the Company's Board of Directors prior to filing suit was granted in a court order dated August 6, 2007 with leave to amend the allegations in plaintiffs' complaint. Plaintiffs filed an amended consolidated federal derivative action complaint on September 14, 2007. The Company filed a motion to dismiss the amended complaint based on plaintiff's failure to make demand on the Company's Board of Directors prior to filing suit. On July 3, 2008, before ruling on the Company's pending dismissal motion, the federal court entered an order certifying certain issues of Washington state law to the Washington Supreme Court for resolution. The hearing in the Washington Supreme Court was held on March 24, 2009. On May 21, 2009, the Washington Supreme Court issued its opinion on the certified issues submitted by the federal court. The Company's dismissal motion remains pending before the federal court and the Company intends to continue to vigorously pursue dismissal of the derivative actions.

SEC and Department of Justice Inquiries. The Company previously received notice from both the SEC and the Department of Justice that they were conducting informal inquiries into the Company's historical stock option practices, and has fully cooperated with both agencies. In January 2010, the Company received notice from the SEC that the investigation concerning the Company's historical stock option practices has been completed and that no enforcement action has been recommended. The Company currently believes that the Department of Justice will take no further action in connection with its inquiry into the Company's historical stock option practices.

The Company is not aware of any additional pending legal proceedings that, individually or in the aggregate, would have a material adverse effect on the Company's 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 we allegedly infringe upon third-party intellectual property rights. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

Income Taxes

9 Months Ended

Jun. 30, 2010

Income Taxes

6. Income Taxes

The effective tax rate was 36.4% and 33.7% for the three months ended June 30, 2010 and 2009, respectively, and 36.2% and 29.7% for the nine months ended June 30, 2010 and 2009, respectively. The increase in effective tax rate was primarily due to the expiration of the federal research and development credit at December 31, 2009 and a favorable adjustment related to equity awards in a major foreign tax jurisdiction which was reflected in the effective tax rate for the nine months ended June 30, 2009.

At June 30, 2010, the Company has classified approximately $5.7 million of unrecognized tax liabilities as a non-current liability. The Company does not anticipate that total unrecognized tax benefits will significantly change within the next twelve months.

The Company recognizes interest and, if applicable, penalties for any uncertain tax positions. This interest and penalty expense will be a component of income tax expense. In the three months ended June 30, 2010, the Company accrued an immaterial amount of interest expense related to its liability for unrecognized tax benefits. All unrecognized tax benefits, if recognized, would affect the effective tax rate.

The Company and its subsidiaries are subject to U.S. federal income tax as well as the income tax of multiple state and foreign jurisdictions. Major jurisdictions where there are wholly owned subsidiaries of F5 Networks, Inc. which require income tax filings include the United Kingdom, Japan, Australia and Germany. Periods open for review by local taxing authorities are fiscal years 2007, 2009, 2006 and 2005 for the United Kingdom, Japan, Australia and Germany, respectively. Within the next four fiscal quarters, the statute of limitations will begin to close on the fiscal years ended 2006 and 2007 tax returns filed in various states and the fiscal year ended 2007 federal income tax return.

Geographic Sales and Significant Customers

9 Months Ended

Jun. 30, 2010

Geographic Sales and Significant Customers

7. 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 sale of application delivery networking products that optimize the security, performance and availability of network applications, servers and storage systems. The Company does business in four main geographic regions: the Americas (primarily the United States); Europe, the Middle East, and Africa (EMEA); Japan; and the Asia Pacific region (APAC). The Company's chief operating decision-making group reviews financial information presented on a consolidated basis accompanied by information about revenues by geographic region. The Company's foreign offices conduct sales, marketing and support activities. Revenues are attributed by geographic location based on the location of the customer. The Company's assets are primarily located in the United States and not allocated to any specific region. Therefore, geographic information is presented only for net revenue.

The following presents revenues by geographic region (in thousands):


	Three months ended				Nine months ended
	June 30,				June 30,
	2010		2009		2010		2009
Americas	$	135,584	$	88,327	$	364,996	$	262,316
EMEA		50,900		36,035		146,504		112,099
Japan		15,185		12,728		43,112		41,233
Asia Pacific		28,805		21,141		73,086		62,301

	$	230,474	$	158,231	$	627,698	$	477,949

Net revenues from international customers are primarily denominated in U.S. dollars and totaled $94.9 million and $69.9 million for the three months ended June 30, 2010 and 2009, respectively, and $262.7 million and $215.6 million for the nine months ended June 30, 2010 and 2009, respectively. One worldwide distributor accounted for 13.3% of total net revenue for the three month period ended June 30, 2010. Two worldwide distributors accounted for 23.3% of total net revenue for the nine month period ended June 30, 2010. One worldwide distributor accounted for 15.2% and 16.0% of total net revenue for the three and nine months ended June 30, 2009, respectively. No other distributors accounted for more than 10% of total net revenue or receivables.