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F5, INC. Annual Report (Amendment), Year Ended Sep 30, 2005

Filing Date
Filed December 12, 2006
Period End
September 30, 2005
Security
FFIV
In the record · 2016–202610-K1010-Q338-K108

FFIV filed 10 annual reports (10-K), 33 quarterly reports (10-Q) and 108 current reports (8-K) between 2016 and 2026.

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  4. Leadership change8-K · Oct ’25Oct ’25

01—Abstract

Summary

Summary of the 10-K/A filed December 12, 2006. Cited figures are marked; the original filing is the authoritative source.

This is Amendment No. 2 (10-K/A) to F5 Networks' annual report for fiscal year ended September 30, 2005, restating prior financials because of stock option backdating.

The Special Committee found improper measurement dates, undocumented or unapproved grants, grants to a consultant, and improperly modified options from 1999 through 2004. The restatement adds about $24.1 milliona of non-cash stock-based compensation expense on grants from 1999 through 2004, plus about $1.7 million of 2005 penalty reimbursements. Net of tax, net income falls by about $23.5 million across 1999 to 2005.

Restated FY2005 net income is $46.9 millionb, versus $51.7 million originally reported, and diluted EPS is $1.21, versus $1.34. Shareholders' equity drops about $4.0 million, and the restatement does not change revenue or cash. The filing also reports a material weakness in internal control over stock-based compensation as of September 30, 2005.

Management concluded that controls were not effective at that date, and disclosure controls were deemed ineffective. The company reports that the weakness was remediated as of September 30, 2006. The SEC and Department of Justice inquiries were ongoing, and the company was also facing derivative suits, an IRS audit, and a Nasdaq delisting process that the Panel had resolved in its favor subject to conditions.

Fundamentals were strong: FY2005 revenue grew 64.4% to $281.4 millionc, operating cash flow was $85.0 million, cash and investments totaled $365.0 million, and the company had no long-term debt. The company also acquired Swan Labs for $43 million in October 2005. For investors, the central issue is governance and regulatory risk rather than operating deterioration.

The restated figures are modest relative to the business, but the possibility of SEC or DOJ penalties, litigation costs, and the loss of S-3 eligibility create real uncertainty. The company also noted its general counsel had resigned and an interim replacement was named.

02—Key points

Key Highlights

  1. FY2005 revenue rose 64.4% to $281.4 million, and gross margin held at about 77%.
  2. Restatement adds about $24.1 million of non-cash stock compensation expense for 1999 to 2004 grants, plus $1.7 million of 2005 penalty reimbursements. Net income falls about $23.5 million across 1999 to 2005.
  3. Restated FY2005 net income is $46.9 million (diluted EPS $1.21), down from $51.7 million (diluted EPS $1.34) as originally reported.
  4. Management identified a material weakness in stock option controls as of September 30, 2005, so internal control and disclosure controls were deemed not effective at that date.
  5. SEC informal inquiry and DOJ grand jury investigation into stock option practices were ongoing, and shareholder derivative suits were pending.
  6. Balance sheet remains strong, with $365.0 million in cash and investments, no long-term debt, and $85.0 million of operating cash flow.
  7. Nasdaq delisting risk was resolved by a Panel grant of continued listing subject to conditions, and the company lost S-3 shelf eligibility for one year.

03—Questions

Frequently Asked Questions

  1. Does the restatement change F5's revenue or cash position?

    No. The filing states the restatement had no impact on reported net revenues or on cash and cash equivalents. It affects stock-based compensation expense, net income, retained earnings, and additional paid-in capital, with a net reduction of about $4.0 million in shareholders' equity.

  2. How large is the restatement's effect on earnings?

    Across 1999 through 2005, net income is reduced by about $23.5 million in total. For FY2005 alone, restated net income is $46.9 million versus $51.7 million originally reported, a reduction of about $4.8 million, and diluted EPS falls from $1.34 to $1.21.

  3. What caused the restatement?

    The Special Committee found that certain stock option grants from 1999 through 2004 used improper measurement dates, were granted before employees' start dates, lacked documentation or approval, were issued to a consultant without proper accounting, or were modified after grant without proper accounting. These issues caused understated stock-based compensation expense.

  4. What regulatory and legal risks remain for investors?

    The SEC and Department of Justice inquiries were ongoing, and the company could face penalties, including potentially criminal penalties, depending on outcomes. Derivative suits, an IRS audit of 2002 to 2004, and potential additional litigation also remained. The filing says the company could not predict the remedies or monetary terms the agencies might seek.

  5. Has the material weakness been fixed?

    Management reports that the material weakness was remediated as of September 30, 2006, through new controls over stock-based compensation, including accounting review and approval, standardized documentation, and quarterly reconciliation. Note that the filing describes the weakness as existing at September 30, 2005, and the remediation is the company's own assertion as of this filing.

04—Continue

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