Document And Entity Information
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Document And Entity Information
3 Months Ended
Dec. 31, 2011
Jan. 31, 2012
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Dec. 31, 2011  
Document Fiscal Year Focus 2012  
Document Fiscal Period Focus Q1  
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   79,191,583

Consolidated Balance Sheets
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Sep. 30, 2011
ASSETS    
Cash and cash equivalents $ 257,488 $ 216,784
Short-term investments 299,049 325,766
Accounts receivable, net of allowances of $3,035 and $2,898 187,862 165,676
Inventories 17,493 17,149
Deferred tax assets 8,604 8,391
Other current assets 33,606 29,907
Total current assets 804,102 763,673
Property and equipment, net 50,870 47,998
Long-term investments 558,307 470,203
Deferred tax assets 35,172 34,762
Goodwill 234,691 234,691
Other assets, net 15,547 17,222
Total assets 1,698,689 1,568,549
LIABILITIES AND SHAREHOLDERS' EQUITY    
Accounts payable 32,566 33,525
Accrued liabilities 97,368 67,902
Deferred revenue 302,820 270,880
Total current liabilities 432,754 372,307
Other long-term liabilities 18,536 18,388
Deferred revenue, long-term 77,209 72,418
Total long-term liabilities 95,745 90,806
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, 79,169 and 79,145 shares issued and outstanding 379,349 380,737
Accumulated other comprehensive loss (6,772) (6,422)
Retained earnings 797,613 731,121
Total shareholders' equity 1,170,190 1,105,436
Total liabilities and shareholders' equity $ 1,698,689 $ 1,568,549

Consolidated Balance Sheets (Parenthetical)
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Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2011
Sep. 30, 2011
Consolidated Balance Sheets [Abstract]    
Accounts receivable, allowances $ 3,035 $ 2,898
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 79,169 79,145
Common stock, shares outstanding 79,169 79,145

Consolidated Income Statements
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Consolidated Income Statements (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Net revenues    
Products $ 196,554 $ 171,492
Services 125,878 97,442
Total 322,432 268,934
Cost of net revenues    
Products 33,200 31,614
Services 22,406 17,349
Total 55,606 48,963
Gross profit 266,826 219,971
Operating expenses    
Sales and marketing 106,238 86,825
Research and development 39,122 32,606
General and administrative 21,677 20,684
Total 167,037 140,115
Income from operations 99,789 79,856
Other income, net 1,861 2,545
Income before income taxes 101,650 82,401
Provision for income taxes 35,158 26,738
Net income $ 66,492 $ 55,663
Net income per share - basic $ 0.84 $ 0.69
Weighted average shares - basic 79,272 80,644
Net income per share - diluted $ 0.83 $ 0.68
Weighted average shares - diluted 79,822 81,648

Consolidated Statement Of Shareholders' Equity And Comprehensive Income
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Consolidated Statement Of Shareholders' Equity And Comprehensive Income (USD $)
In Thousands
Common Stock [Member]
Accumulated Other Comprehensive Income/(Loss) [Member]
Retained Earnings [Member]
Total Shareholders' Equity [Member]
Total
Balance at Sep. 30, 2011 $ 380,737 $ (6,422) $ 731,121 $ 1,105,436 $ 1,105,436
Balance, shares at Sep. 30, 2011 79,145       79,145
Exercise of employee stock options 158       158  
Exercise of employee stock options, shares 11        
Issuance of stock under employee stock purchase plan 9,429       9,429  
Issuance of stock under employee stock purchase plan, shares 111        
Issuance of restricted stock              
Issuance of restricted stock, shares 222        
Repurchase of common stock (34,473)       (34,473)  
Repurchase of common stock, shares (320)        
Tax benefit from employee stock transactions 1,375     1,375  
Stock-based compensation 22,123     22,123  
Net income       66,492    66,492
Foreign currency translation adjustment    (263)       (263)
Unrealized loss on securities, net of tax    (87)       (87)
Comprehensive income          66,142 66,142
Balance at Dec. 31, 2011 $ 379,349 $ (6,772) $ 797,613 $ 1,170,190 $ 1,170,190
Balance, shares at Dec. 31, 2011 79,169       79,169

Consolidated Statements Of Cash Flows
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Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Operating activities    
Net income $ 66,492 $ 55,663
Adjustments to reconcile net income to net cash provided by operating activities:    
Realized loss (gain) on disposition of assets and investments 579 (212)
Stock-based compensation 22,123 22,940
Provisions for doubtful accounts and sales returns 415 228
Depreciation and amortization 5,822 5,250
Deferred income taxes (598) (888)
Changes in operating assets and liabilities:    
Accounts receivable (22,601) (30,082)
Inventories (344) 632
Other current assets (3,879) 7,771
Other assets 562 (213)
Accounts payable and accrued liabilities 26,576 13,657
Deferred revenue 36,732 28,393
Net cash provided by operating activities 131,879 103,139
Investing activities    
Purchases of investments (262,499) (251,499)
Maturities of investments 198,102 98,818
Sales of investments 2,886 61,032
Increase in restricted cash (3) (39)
Purchases of property and equipment (5,857) (5,491)
Net cash used in investing activities (67,371) (97,179)
Financing activities    
Excess tax benefits from stock-based compensation 1,399 10,130
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan 9,577 8,842
Repurchase of common stock (34,473) (24,998)
Net cash used in financing activities (23,497) (6,026)
Net increase (decrease) in cash and cash equivalents 41,011 (66)
Effect of exchange rate changes on cash and cash equivalents (307) (555)
Cash and cash equivalents, beginning of period 216,784 168,754
Cash and cash equivalents, end of period $ 257,488 $ 168,133

Summary Of Significant Accounting Policies
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Summary Of Significant Accounting Policies
3 Months Ended
Dec. 31, 2011
Summary Of Significant Accounting Policies [Abstract]  
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, 2011.

Certain reclassifications have been made to the prior year's financial statements to conform to the fiscal year 2012 presentation. Such reclassifications did not affect total revenues, operating income or net income.

 

 

 

Revenue Recognition

The Company sells products through distributors, resellers, and directly to end users. Revenue is recognized provided that all of the following criteria have been met:

 

   

Persuasive evidence of an arrangement exists. Evidence of an arrangement generally consists of a purchase order issued pursuant to the terms and conditions of a distributor, reseller or end user agreement.

 

   

Delivery has occurred. The Company uses shipping or related documents, or written evidence of customer acceptance, when applicable, to verify delivery or completion of any performance terms.

 

   

The sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on payment terms associated with the transaction and whether the sales price is subject to refund or adjustment.

 

   

Collectability is reasonably assured. The Company assesses collectability primarily based on the creditworthiness of the customer as determined by credit checks and related analysis, as well as the Customer's payment history.

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 product has been sold to the end-user 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. Revenue from the sale of products is 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 hourly 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.

In October 2009, the Financial Accounting Standards Board (FASB) amended the accounting standards for revenue recognition to remove from the scope of industry-specific software revenue recognition guidance any tangible products containing software components and non-software components that operate together to deliver the products essential functionality. In addition, the FASB amended the accounting standards for certain multiple element revenue arrangements to:

 

   

Provide updated guidance on whether multiple elements exist, how the elements in an arrangement should be separated, and how the arrangement consideration should be allocated to the separate elements;

 

   

Require an entity to allocate arrangement consideration to each element based on a selling price hierarchy, where the selling price for an element is based on vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE), if available and VSOE is not available; or the best estimate of selling price (BESP), if neither VSOE or TPE is available; and

 

   

Eliminate the use of the residual method and require an entity to allocate arrangement consideration using the selling price hierarchy.

The majority of the Company's products are hardware appliances which contain software essential to the overall functionality of the products. Accordingly, the Company no longer recognizes revenue on sales of these products in accordance with the industry-specific software revenue recognition guidance.

For all transactions entered into prior to the first quarter of fiscal year 2011 and for sales of nonessential and stand-alone software after October 1, 2010, the Company allocates revenue for arrangements with multiple elements based on the software revenue recognition guidance. Software revenue recognition guidance 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 VSOE. Where fair value of certain elements is not available, revenue is recognized on the "residual method" based on the fair value of undelivered elements. If evidence of the fair value of one or more undelivered elements does not exist, all revenue is deferred and recognized at the earlier of the delivery of those elements or the establishment of fair value of the remaining undelivered elements.

For transactions entered into subsequent to the adoption of the amended revenue recognition standards that are multiple-element arrangements, the arrangement consideration is allocated to each element based on the relative selling prices of all of the elements in the arrangement using the fair value hierarchy in the amended revenue recognition guidance.

Consistent with the methodology used under the previous accounting guidance, 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 is typically not able to determine TPE for its products or services. TPE is determined based on competitor prices for similar elements when sold separately. Generally, the Company's go-to-market strategy differs from that of other competitive products or services in its markets and the Company's offerings contain a significant level of differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, the Company is unable to reliably determine the selling prices on a stand-alone basis of similar products offered by its competitors.

When the Company is unable to establish selling price of its non-software elements using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The Company is generally not able to establish VSOE for non-software product sales. Under software revenue recognition guidance, these product sales were accounted for utilizing the residual method. With the adoption of the new revenue recognition guidance, the Company has been able to establish BESP for non-software product sales through the list price, less a discount deemed appropriate to maintain a reasonable gross margin. Management regularly reviews the gross margin information. Non-software product BESP is determined through our review of historical sales transactions within the past 12 month period. Additional factors considered in determining an appropriate BESP include, but are not limited to, cost of products, pricing practices, geographies, customer classes, and distribution channels.

The Company has established and regularly validates the VSOE of fair value and BESP 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 when impairment indicators are identified, 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 2011, the Company completed its annual impairment test and concluded there was no impairment of goodwill. The Company also considered potential impairment indicators at December 31, 2011 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 $22.1 million and $22.9 million of stock-based compensation expense for the three months ended December 31, 2011 and 2010, respectively. As of December 31, 2011, there was $104.2 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 restricted stock units (RSUs). On July 29, 2011, the Company's Compensation Committee approved 833,739 RSUs to employees and executive officers pursuant to the Company's annual equity 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.

The Company recognizes compensation expense for only the portion of restricted 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 first quarter of fiscal year 2012 is 5.2% for grants awarded to the Company's executive officers and Board of Directors, and 8.8% 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 November 2011, as part of the annual review of executive compensation by the Compensation Committee of the Board of Directors and a change in the grant date for the Company's annual equity awards program for the executive officers, the Company granted 82,968 RSUs to certain current executive officers. Fifty percent of the aggregate number of RSUs vest in equal quarterly increments over three years, until such portion of the grant is fully vested on November 1, 2014. One-sixth of the RSU grant, or a portion thereof, is subject to the Company achieving specified quarterly revenue and EBITDA goals during fiscal year 2012. 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. The remaining 33.33% of this annual equity awards RSU grant shall be subject to quarterly performance based vesting for fiscal years 2013 and 2014 (16.66% in each period). The Compensation Committee of the Board of Directors will set applicable performance targets and vesting formulas for each of these periods.

In August 2011, the Company granted 170,390 RSUs to certain current executive officers as part of the annual equity awards program. Fifty percent of the aggregate number of RSUs granted as part of the annual equity awards program vest in equal quarterly increments over three years, until such portion of the grant is fully vested on August 1, 2014. One-sixth of the annual equity awards RSU grant, or a portion thereof, is subject to the Company achieving specified quarterly revenue and EBITDA goals during the period beginning in the fourth quarter of fiscal year 2011 through the third quarter of fiscal year 2012. 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. The remaining 33.33% of this annual equity awards RSU grant shall be subject to performance based vesting for each of the four quarter periods beginning with the fourth quarters of fiscal years 2012 and 2013 (16.66% in each period). The Compensation Committee of the Board of Directors will set applicable performance targets and vesting formulas for each of these periods.

In August 2010, the Company granted 181,334 and 83,000 RSUs to certain current executive officers as part of the annual equity and retention awards programs, respectively. Fifty percent of the aggregate number of RSUs granted as part of the annual equity awards program vest in equal quarterly increments over three years, until such portion of the grant is fully vested on August 1, 2013. One-sixth of the annual equity awards 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 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. The remaining 33.33% of this annual equity awards RSU grant shall be subject to performance based vesting for each of the four quarter periods beginning with the fourth quarters of fiscal years 2011 and 2012 (16.66% in each period). The Compensation Committee of the Board of Directors will set applicable performance targets and vesting formulas for each of these periods. All RSUs granted as part of the retention awards program fully vest on August 1, 2013.

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.

 

 

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 Company's nonvested restricted stock awards and restricted stock units do not have nonforfeitable rights to dividends or dividend equivalents.

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):

 

                 
     Three months ended
December 31,
 
     2011      2010  

Numerator

                 

Net income

   $ 66,492       $ 55,663   
    

 

 

    

 

 

 

Denominator

                 

Weighted average shares outstanding — basic

     79,272         80,644   

Dilutive effect of common shares from stock options and restricted stock units

     550         1,004   
    

 

 

    

 

 

 

Weighted average shares outstanding — diluted

     79,822         81,648   
    

 

 

    

 

 

 

Basic net income per share

   $ 0.84       $ 0.69   
    

 

 

    

 

 

 

Diluted net income per share

   $ 0.83       $ 0.68   
    

 

 

    

 

 

 

An immaterial amount of common shares potentially issuable from stock options for the three months ended December 31, 2011 and 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.

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
December 31,
 
     2011     2010  

Net Income

   $ 66,492      $ 55,663   

Unrealized loss on securities, net of tax

     (87     (654

Foreign currency translation adjustment

     (263     (587
    

 

 

   

 

 

 

Total comprehensive income

   $ 66,142      $ 54,422   
    

 

 

   

 

 

 

 

 Recent Accounting Pronouncements

 

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (ASU 2011-04), which amends current fair value measurement and disclosure guidance to converge with International Financial Reporting Standards (IFRS) and provides increased transparency around valuation inputs and investment categorization. The amendments in this standard are effective for fiscal years, and interim periods within those years beginning after December 15, 2011. The Company will adopt ASU 2011-04 in the first quarter of fiscal 2013 and does not expect the adoption of this standard to have an impact on its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income, Presentation of Comprehensive Income (ASU 2011-05), which eliminates the option of presenting other comprehensive income as part of the statement of changes in stockholders' equity and instead requires the entity to present other comprehensive income as either a single statement of comprehensive income combined with net income or as two separate but continuous statements. The amendments in this standard are to be applied retrospectively and

are effective for fiscal years, and interim periods within those years beginning after December 15, 2011. The Company will adopt ASU 2011-05 in the first quarter of fiscal 2013 and does not expect the adoption of this standard to have an impact on its consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other, Testing Goodwill for Impairment (ASU 2011-08), which simplifies how an entity tests goodwill for impairment by allowing the entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If an entity determines, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company is likely to early adopt this standard for the goodwill impairment test to be performed in fiscal 2012. This standard will impact how the Company assesses goodwill for impairment but will not change the measurement or recognition of a potential goodwill impairment charge.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12), which defers the changes in ASU 2011-05 that relate to the presentation of reclassification adjustments to other comprehensive income. No other requirements in ASU 2011-05 are affected by this deferral. Similar to ASU 2011-05, the Company will adopt ASU 2011-12 in the first quarter of fiscal 2013 and does not expect the adoption of this standard to have an impact on its consolidated financial statements.


Summary Of Significant Accounting Policies (Policy)
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Summary Of Significant Accounting Policies (Policy)
3 Months Ended
Dec. 31, 2011
Summary Of Significant Accounting Policies [Abstract]  
Description Of Business

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

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, 2011.

Certain reclassifications have been made to the prior year's financial statements to conform to the fiscal year 2012 presentation. Such reclassifications did not affect total revenues, operating income or net income.

Revenue Recognition

Revenue Recognition

The Company sells products through distributors, resellers, and directly to end users. Revenue is recognized provided that all of the following criteria have been met:

 

   

Persuasive evidence of an arrangement exists. Evidence of an arrangement generally consists of a purchase order issued pursuant to the terms and conditions of a distributor, reseller or end user agreement.

 

   

Delivery has occurred. The Company uses shipping or related documents, or written evidence of customer acceptance, when applicable, to verify delivery or completion of any performance terms.

 

   

The sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on payment terms associated with the transaction and whether the sales price is subject to refund or adjustment.

 

   

Collectability is reasonably assured. The Company assesses collectability primarily based on the creditworthiness of the customer as determined by credit checks and related analysis, as well as the Customer's payment history.

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 product has been sold to the end-user 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. Revenue from the sale of products is 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 hourly 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.

In October 2009, the Financial Accounting Standards Board (FASB) amended the accounting standards for revenue recognition to remove from the scope of industry-specific software revenue recognition guidance any tangible products containing software components and non-software components that operate together to deliver the products essential functionality. In addition, the FASB amended the accounting standards for certain multiple element revenue arrangements to:

 

   

Provide updated guidance on whether multiple elements exist, how the elements in an arrangement should be separated, and how the arrangement consideration should be allocated to the separate elements;

 

   

Require an entity to allocate arrangement consideration to each element based on a selling price hierarchy, where the selling price for an element is based on vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE), if available and VSOE is not available; or the best estimate of selling price (BESP), if neither VSOE or TPE is available; and

 

   

Eliminate the use of the residual method and require an entity to allocate arrangement consideration using the selling price hierarchy.

The majority of the Company's products are hardware appliances which contain software essential to the overall functionality of the products. Accordingly, the Company no longer recognizes revenue on sales of these products in accordance with the industry-specific software revenue recognition guidance.

For all transactions entered into prior to the first quarter of fiscal year 2011 and for sales of nonessential and stand-alone software after October 1, 2010, the Company allocates revenue for arrangements with multiple elements based on the software revenue recognition guidance. Software revenue recognition guidance 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 VSOE. Where fair value of certain elements is not available, revenue is recognized on the "residual method" based on the fair value of undelivered elements. If evidence of the fair value of one or more undelivered elements does not exist, all revenue is deferred and recognized at the earlier of the delivery of those elements or the establishment of fair value of the remaining undelivered elements.

For transactions entered into subsequent to the adoption of the amended revenue recognition standards that are multiple-element arrangements, the arrangement consideration is allocated to each element based on the relative selling prices of all of the elements in the arrangement using the fair value hierarchy in the amended revenue recognition guidance.

Consistent with the methodology used under the previous accounting guidance, 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 is typically not able to determine TPE for its products or services. TPE is determined based on competitor prices for similar elements when sold separately. Generally, the Company's go-to-market strategy differs from that of other competitive products or services in its markets and the Company's offerings contain a significant level of differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, the Company is unable to reliably determine the selling prices on a stand-alone basis of similar products offered by its competitors.

When the Company is unable to establish selling price of its non-software elements using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The Company is generally not able to establish VSOE for non-software product sales. Under software revenue recognition guidance, these product sales were accounted for utilizing the residual method. With the adoption of the new revenue recognition guidance, the Company has been able to establish BESP for non-software product sales through the list price, less a discount deemed appropriate to maintain a reasonable gross margin. Management regularly reviews the gross margin information. Non-software product BESP is determined through our review of historical sales transactions within the past 12 month period. Additional factors considered in determining an appropriate BESP include, but are not limited to, cost of products, pricing practices, geographies, customer classes, and distribution channels.

The Company has established and regularly validates the VSOE of fair value and BESP 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

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 when impairment indicators are identified, 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 2011, the Company completed its annual impairment test and concluded there was no impairment of goodwill. The Company also considered potential impairment indicators at December 31, 2011 and noted no indicators of impairment.

Stock-Based Compensation

Stock-Based Compensation

The Company accounts for stock-based compensation using the straight-line attribution method for recognizing compensation expense. The Company recognized $22.1 million and $22.9 million of stock-based compensation expense for the three months ended December 31, 2011 and 2010, respectively. As of December 31, 2011, there was $104.2 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 restricted stock units (RSUs). On July 29, 2011, the Company's Compensation Committee approved 833,739 RSUs to employees and executive officers pursuant to the Company's annual equity 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.

The Company recognizes compensation expense for only the portion of restricted 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 first quarter of fiscal year 2012 is 5.2% for grants awarded to the Company's executive officers and Board of Directors, and 8.8% 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 November 2011, as part of the annual review of executive compensation by the Compensation Committee of the Board of Directors and a change in the grant date for the Company's annual equity awards program for the executive officers, the Company granted 82,968 RSUs to certain current executive officers. Fifty percent of the aggregate number of RSUs vest in equal quarterly increments over three years, until such portion of the grant is fully vested on November 1, 2014. One-sixth of the RSU grant, or a portion thereof, is subject to the Company achieving specified quarterly revenue and EBITDA goals during fiscal year 2012. 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. The remaining 33.33% of this annual equity awards RSU grant shall be subject to quarterly performance based vesting for fiscal years 2013 and 2014 (16.66% in each period). The Compensation Committee of the Board of Directors will set applicable performance targets and vesting formulas for each of these periods.

In August 2011, the Company granted 170,390 RSUs to certain current executive officers as part of the annual equity awards program. Fifty percent of the aggregate number of RSUs granted as part of the annual equity awards program vest in equal quarterly increments over three years, until such portion of the grant is fully vested on August 1, 2014. One-sixth of the annual equity awards RSU grant, or a portion thereof, is subject to the Company achieving specified quarterly revenue and EBITDA goals during the period beginning in the fourth quarter of fiscal year 2011 through the third quarter of fiscal year 2012. 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. The remaining 33.33% of this annual equity awards RSU grant shall be subject to performance based vesting for each of the four quarter periods beginning with the fourth quarters of fiscal years 2012 and 2013 (16.66% in each period). The Compensation Committee of the Board of Directors will set applicable performance targets and vesting formulas for each of these periods.

In August 2010, the Company granted 181,334 and 83,000 RSUs to certain current executive officers as part of the annual equity and retention awards programs, respectively. Fifty percent of the aggregate number of RSUs granted as part of the annual equity awards program vest in equal quarterly increments over three years, until such portion of the grant is fully vested on August 1, 2013. One-sixth of the annual equity awards 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 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. The remaining 33.33% of this annual equity awards RSU grant shall be subject to performance based vesting for each of the four quarter periods beginning with the fourth quarters of fiscal years 2011 and 2012 (16.66% in each period). The Compensation Committee of the Board of Directors will set applicable performance targets and vesting formulas for each of these periods. All RSUs granted as part of the retention awards program fully vest on August 1, 2013.

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
Earnings Per Share

 

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 Company's nonvested restricted stock awards and restricted stock units do not have nonforfeitable rights to dividends or dividend equivalents.

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):

 

                 
     Three months ended
December 31,
 
     2011      2010  

Numerator

                 

Net income

   $ 66,492       $ 55,663   
    

 

 

    

 

 

 

Denominator

                 

Weighted average shares outstanding — basic

     79,272         80,644   

Dilutive effect of common shares from stock options and restricted stock units

     550         1,004   
    

 

 

    

 

 

 

Weighted average shares outstanding — diluted

     79,822         81,648   
    

 

 

    

 

 

 

Basic net income per share

   $ 0.84       $ 0.69   
    

 

 

    

 

 

 

Diluted net income per share

   $ 0.83       $ 0.68   
    

 

 

    

 

 

 

An immaterial amount of common shares potentially issuable from stock options for the three months ended December 31, 2011 and 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.

Comprehensive Income

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
December 31,
 
     2011     2010  

Net Income

   $ 66,492      $ 55,663   

Unrealized loss on securities, net of tax

     (87     (654

Foreign currency translation adjustment

     (263     (587
    

 

 

   

 

 

 

Total comprehensive income

   $ 66,142      $ 54,422   
    

 

 

   

 

 

 

Summary Of Significant Accounting Policies (Tables)
v0.0.0.0
Summary Of Significant Accounting Policies (Tables)
3 Months Ended
Dec. 31, 2011
Summary Of Significant Accounting Policies [Abstract]  
Schedule Of Computation Of Basic And Diluted Net Income Per Share
                 
     Three months ended
December 31,
 
     2011      2010  

Numerator

                 

Net income

   $ 66,492       $ 55,663   
    

 

 

    

 

 

 

Denominator

                 

Weighted average shares outstanding — basic

     79,272         80,644   

Dilutive effect of common shares from stock options and restricted stock units

     550         1,004   
    

 

 

    

 

 

 

Weighted average shares outstanding — diluted

     79,822         81,648   
    

 

 

    

 

 

 

Basic net income per share

   $ 0.84       $ 0.69   
    

 

 

    

 

 

 

Diluted net income per share

   $ 0.83       $ 0.68   
    

 

 

    

 

 

 
Schedule Of Comprehensive Income And Its Components
                 
     Three months ended
December 31,
 
     2011     2010  

Net Income

   $ 66,492      $ 55,663   

Unrealized loss on securities, net of tax

     (87     (654

Foreign currency translation adjustment

     (263     (587
    

 

 

   

 

 

 

Total comprehensive income

   $ 66,142      $ 54,422   
    

 

 

   

 

 

 

Summary Of Significant Accounting Policies (Narrative) (Details)
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Summary Of Significant Accounting Policies (Narrative) (Details) (USD $)
3 Months Ended 4 Months Ended 1 Months Ended 1 Months Ended 3 Months Ended 3 Months Ended
Dec. 31, 2011
years
Dec. 31, 2010
Jan. 31, 2012
Nov. 30, 2011
Annual Equity Program [Member]
Aug. 31, 2011
Annual Equity Program [Member]
Aug. 31, 2010
Annual Equity Program [Member]
Jul. 29, 2011
Annual Equity Program [Member]
Aug. 31, 2010
Retention Awards Program [Member]
Dec. 31, 2011
Executive Officers And Board Of Directors [Member]
Dec. 31, 2011
Other Employees [Member]
Dec. 31, 2011
October 26, 2010 Program [Member]
Dec. 31, 2011
Minimum [Member]
days
Dec. 31, 2011
Maximum [Member]
days
Schedule Of Summary Of Significant Accounting Policies [Line Items]                          
Domestic accounts receivable terms of payment, in days                       30 45
International accounts receivable terms of payment, in days                       30 120
Range of VSOE to median sales price 15.00%                        
PCS maturity term, years                       1 3
Stock-based compensation $ 22,123,000 $ 22,940,000                      
Unrecognized stock-based compensation cost 104,200,000                        
Unrecognized stock-based compensation cost, period for recognition, years 2                        
Approved RSUs to employees and executive officers by compensation committee             833,739            
Rate for grant awarded                 5.20% 8.80%      
Approved RSUs to employees and executive officers pursuant to the Company's annual equity awards program       82,968 170,390 181,334   83,000          
Percentage of the aggregate number of RSUs granted that vest in equal quarterly increments       50.00% 50.00% 50.00%              
Annual equity awards program vesting period, years       three three three              
Percentage of quarterly performance stock grant based on achieving quarterly revenue goal       50.00% 50.00% 50.00%              
Percentage of quarterly revenue goal to be achieved for performance stock grant       80.00% 80.00% 80.00%              
Percentage of quarterly performance stock grant based on achieving EBITDA goal       50.00% 50.00% 50.00%              
Percentage of achievement threshold to which the goals are entitled       80.00% 80.00% 80.00%              
Percentage of over-achievement threshold to which the goals are entitled       100.00% 100.00% 100.00%              
Percentage of annual equity awards RSU grant subject to performance based vesting       33.33% 33.33% 33.33%              
Percentage of annual equity awards RSU grant subject to performance based vesting in each period       16.66% 16.66% 16.66%              
Stock repurchase program, number of shares authorized to be repurchased 400,000,000                   200,000,000    
Shares repurchased and retired     7,898,137,000,000                    
Average price of shares repurchased     $ 60.16                    
Stock repurchase program, remaining value amount of shares authorized to be repurchased     $ 324,400,000                    

Summary Of Significant Accounting Policies (Schedule Of Computation Of Basic And Diluted Net Income Per Share) (Details)
v0.0.0.0
Summary Of Significant Accounting Policies (Schedule Of Computation Of Basic And Diluted Net Income Per Share) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Summary Of Significant Accounting Policies [Abstract]    
Net income $ 66,492 $ 55,663
Weighted average shares outstanding - basic 79,272 80,644
Dilutive effect of common shares from stock options and restricted stock units 550 1,004
Weighted average shares outstanding - diluted 79,822 81,648
Basic net income per share $ 0.84 $ 0.69
Diluted net income per share $ 0.83 $ 0.68

Summary Of Significant Accounting Policies (Schedule Of Comprehensive Income And Its Components) (Details)
v0.0.0.0
Summary Of Significant Accounting Policies (Schedule Of Comprehensive Income And Its Components) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Summary Of Significant Accounting Policies [Abstract]    
Net Income $ 66,492 $ 55,663
Unrealized loss on securities, net of tax (87) (654)
Foreign currency translation adjustment (263) (587)
Comprehensive income $ 66,142 $ 54,422

Fair Value Measurements
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Fair Value Measurements
3 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]  
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, actual trade data, benchmark yields 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, U.S. government securities and U.S. government agency 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 December 31, 2011, were as follows (in thousands):

 

     Fair Value Measurements at Reporting Date Using         
     Quoted Prices in
Active  Markets for
Identical Securities
(Level 1)
     Significant
Other  Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Fair Value at
December 31,
2011
 

Cash equivalents

   $ 36,066       $ —         $ —         $ 36,066   

Short-term investments

           

Available-for-sale securities — corporate bonds and notes

     —           122,716         —           122,716   

Available-for-sale securities — municipal bonds and notes

     —           86,584         —           86,584   

Available-for-sale securities — U.S. government securities

     —           800         —           800   

Available-for-sale securities — U.S. government agency securities

     —           88,949         —           88,949   

Long-term investments

           

Available-for-sale securities — certificates of deposit

     —           3,549         —           3,549   

Available-for-sale securities — corporate bonds and notes

     —           158,715         —           158,715   

Available-for-sale securities — municipal bonds and notes

     —           22,439         —           22,439   

Available-for-sale securities — U.S. government agency securities

     —           360,540         —           360,540   

Available-for-sale securities — auction rate securities

     —           —           13,064         13,064   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 36,066       $ 844,292       $ 13,064       $ 893,422   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company's financial assets measured at fair value on a recurring basis subject to the disclosure requirements at September 30, 2011, were as follows (in thousands):

 

     Fair Value Measurements at Reporting Date Using         
     Quoted Prices in
Active  Markets for
Identical Securities
(Level 1)
     Significant
Other  Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Fair Value at
September 30,
2011
 

Cash equivalents

   $ 33,740       $ —         $ —         $ 33,740   

Short-term investments

           

Available-for-sale securities — corporate bonds and notes

     —           137,156         —           137,156   

Available-for-sale securities — municipal bonds and notes

     —           82,715         —           82,715   

Available-for-sale securities — U.S. government securities

     —           799            799   

Available-for-sale securities — U.S. government agency securities

     —           105,096         —           105,096   

Long-term investments

           

Available-for-sale securities — corporate bonds and notes

     —           141,150         —           141,150   

Available-for-sale securities — municipal bonds and notes

     —           30,714         —           30,714   

Available-for-sale securities — U.S. government agency securities

     —           285,329         —           285,329   

Available-for-sale securities — auction rate securities

     —           —           13,010         13,010   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 33,740       $ 782,959       $ 13,010       $ 829,709   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 December 31, 2011. 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):

     Three months ended
December 31,
 
     2011      2010  

Balance, beginning of period

   $ 13,010       $ 16,043   

Total gains realized or unrealized:

     

Included in earnings (other income, net)

     —           —     

Included in other comprehensive income

     54         217   

Recognition of put option to earnings

     —           —     

Settlements

     —           —     

Transfers into and/or out of level 3

     —           —     
  

 

 

    

 

 

 

Balance, end of period

   $ 13,064       $ 16,260   
  

 

 

    

 

 

 

Gains attributable to assets still held as of end of period

     54         217   

 

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 December 31, 2011, the values of these securities were estimated primarily using discounted cash flow analysis that incorporated 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 December 31, 2011.

The Company uses the fair value hierarchy for financial assets and liabilities. 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 December 31, 2011, the Company did not recognize any impairment charges related to goodwill, intangible assets, or long-lived assets.


Fair Value Measurements (Tables)
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Fair Value Measurements (Tables)
3 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]  
Schedule Of Financial Assets Measured At Fair Value On A Recurring Basis

     Fair Value Measurements at Reporting Date Using         
     Quoted Prices in
Active  Markets for
Identical Securities
(Level 1)
     Significant
Other  Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Fair Value at
December 31,
2011
 

Cash equivalents

   $ 36,066       $ —         $ —         $ 36,066   

Short-term investments

           

Available-for-sale securities — corporate bonds and notes

     —           122,716         —           122,716   

Available-for-sale securities — municipal bonds and notes

     —           86,584         —           86,584   

Available-for-sale securities — U.S. government securities

     —           800         —           800   

Available-for-sale securities — U.S. government agency securities

     —           88,949         —           88,949   

Long-term investments

           

Available-for-sale securities — certificates of deposit

     —           3,549         —           3,549   

Available-for-sale securities — corporate bonds and notes

     —           158,715         —           158,715   

Available-for-sale securities — municipal bonds and notes

     —           22,439         —           22,439   

Available-for-sale securities — U.S. government agency securities

     —           360,540         —           360,540   

Available-for-sale securities — auction rate securities

     —           —           13,064         13,064   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 36,066       $ 844,292       $ 13,064       $ 893,422   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Fair Value Measurements at Reporting Date Using         
     Quoted Prices in
Active  Markets for
Identical Securities
(Level 1)
     Significant
Other  Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Fair Value at
September 30,
2011
 

Cash equivalents

   $ 33,740       $ —         $ —         $ 33,740   

Short-term investments

           

Available-for-sale securities — corporate bonds and notes

     —           137,156         —           137,156   

Available-for-sale securities — municipal bonds and notes

     —           82,715         —           82,715   

Available-for-sale securities — U.S. government securities

     —           799            799   

Available-for-sale securities — U.S. government agency securities

     —           105,096         —           105,096   

Long-term investments

           

Available-for-sale securities — corporate bonds and notes

     —           141,150         —           141,150   

Available-for-sale securities — municipal bonds and notes

     —           30,714         —           30,714   

Available-for-sale securities — U.S. government agency securities

     —           285,329         —           285,329   

Available-for-sale securities — auction rate securities

     —           —           13,010         13,010   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 33,740       $ 782,959       $ 13,010       $ 829,709   
  

 

 

    

 

 

    

 

 

    

 

 

 
Schedule Of Reconciliation Of Items Measured At Fair Value On A Recurring Basis That Used Significant Unobservable Inputs (Level 3)
     Three months ended
December 31,
 
     2011      2010  

Balance, beginning of period

   $ 13,010       $ 16,043   

Total gains realized or unrealized:

     

Included in earnings (other income, net)

     —           —     

Included in other comprehensive income

     54         217   

Recognition of put option to earnings

     —           —     

Settlements

     —           —     

Transfers into and/or out of level 3

     —           —     
  

 

 

    

 

 

 

Balance, end of period

   $ 13,064       $ 16,260   
  

 

 

    

 

 

 

Gains attributable to assets still held as of end of period

     54         217   

Fair Value Measurements (Schedule Of Financial Assets Measured At Fair Value On A Recurring Basis) (Details)
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Fair Value Measurements (Schedule Of Financial Assets Measured At Fair Value On A Recurring Basis) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Sep. 30, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Cash equivalents, fair value $ 36,066 $ 33,740
Investments, fair value 857,356  
Financial assets measured at fair value on a recurring basis, total 893,422 829,709
Quoted Prices In Active Markets For Identical Securities (Level 1) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Cash equivalents, fair value 36,066 33,740
Financial assets measured at fair value on a recurring basis, total 36,066 33,740
Significant Other Observable Inputs (Level 2) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Financial assets measured at fair value on a recurring basis, total 844,292 782,959
Significant Unobservable Inputs (Level 3) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Financial assets measured at fair value on a recurring basis, total 13,064 13,010
Short-Term Investments [Member] | Corporate Bonds And Notes [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 122,716 137,156
Short-Term Investments [Member] | Corporate Bonds And Notes [Member] | Significant Other Observable Inputs (Level 2) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 122,716 137,156
Short-Term Investments [Member] | Municipal Bonds And Notes [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 86,584 82,715
Short-Term Investments [Member] | Municipal Bonds And Notes [Member] | Significant Other Observable Inputs (Level 2) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 86,584 82,715
Short-Term Investments [Member] | U.S. Government Securities [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 800 799
Short-Term Investments [Member] | U.S. Government Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 800 799
Short-Term Investments [Member] | U.S. Government Agency Securities [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 88,949 105,096
Short-Term Investments [Member] | U.S. Government Agency Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 88,949 105,096
Long-Term Investments [Member] | Corporate Bonds And Notes [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 158,715 141,150
Long-Term Investments [Member] | Corporate Bonds And Notes [Member] | Significant Other Observable Inputs (Level 2) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 158,715 141,150
Long-Term Investments [Member] | Municipal Bonds And Notes [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 22,439 30,714
Long-Term Investments [Member] | Municipal Bonds And Notes [Member] | Significant Other Observable Inputs (Level 2) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 22,439 30,714
Long-Term Investments [Member] | U.S. Government Agency Securities [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 360,540 285,329
Long-Term Investments [Member] | U.S. Government Agency Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 360,540 285,329
Long-Term Investments [Member] | Auction Rate Securities [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value 13,064 13,010
Long-Term Investments [Member] | Auction Rate Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]    
Investments, fair value $ 13,064 $ 13,010

Fair Value Measurements (Schedule Of Reconciliation Of Items Measured At Fair Value On A Recurring Basis That Used Significant Unobservable Inputs (Level 3)) (Details)
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Fair Value Measurements (Schedule Of Reconciliation Of Items Measured At Fair Value On A Recurring Basis That Used Significant Unobservable Inputs (Level 3)) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Fair Value Measurements [Abstract]    
Balance, beginning of period $ 13,010 $ 16,043
Total gains realized or unrealized: Included in earnings (other income, net)      
Total gains realized or unrealized: Included in other comprehensive income 54 217
Recognition of put option to earnings      
Settlements      
Transfers into and/or out of level 3      
Balance, end of period 13,064 16,260
Gains attributable to assets still held as of end of period $ 54 $ 217

Short-Term And Long-Term Investments
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Short-Term And Long-Term Investments
3 Months Ended
Dec. 31, 2011
Short-Term And Long-Term Investments [Abstract]  
Short-Term And Long-Term Investments

3. Short-Term and Long-Term Investments

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

 

      $000,000       $000,000       $000,000       $000,000  
December 31, 2011    Cost or
Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Value  

Corporate bonds and notes

   $ 122,651       $ 281       $ (216   $ 122,716   

Municipal bonds and notes

     86,540         82         (38     86,584   

U.S. government securities

     800         —           —          800   

U.S. government agency securities

     88,891         58         —          88,949   
    

 

 

    

 

 

    

 

 

   

 

 

 
     $ 298,882       $ 421       $ (254   $ 299,049   
    

 

 

    

 

 

    

 

 

   

 

 

 

 

      $000,000       $000,000       $000,000       $000,000  
September 30, 2011    Cost or
Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Value  

Corporate bonds and notes

   $ 137,087       $ 251       $ (182   $ 137,156   

Municipal bonds and notes

     82,687         62         (34     82,715   

U.S. government securities

     799         —           —          799   

U.S. government agency securities

     105,050         55         (9     105,096   
    

 

 

    

 

 

    

 

 

   

 

 

 
     $ 325,623       $ 368       $ (225   $ 325,766   
    

 

 

    

 

 

    

 

 

   

 

 

 

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

 

      $000,000       $000,000       $000,000       $000,000  
December 31, 2011    Cost or
Amortized
Cost