10-K/APeriod: FY2005

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

Filed April 3, 2007For Securities:FFIV

Summary

This filing represents an amendment (Amendment No. 3) to F5, Inc.'s (FFIV) 2005 Form 10-K, primarily addressing restatements of its consolidated financial statements due to issues identified with stock option accounting. The company has restated its financial results for fiscal years 2000 through 2005, increasing stock-based compensation expense. This restatement, driven by improper measurement dates and inadequate documentation in stock option grants, resulted in a decrease in net income across these periods. Despite the restatement, F5 Networks demonstrated significant revenue growth, with total net revenues increasing from $115.9 million in fiscal year 2003 to $281.4 million in fiscal year 2005. Profitability also saw substantial improvement, with income from operations rising from $2.4 million in fiscal year 2003 to $69.4 million in fiscal year 2005. Investors should note the significant cash position and growing equity, though the stock-based compensation adjustments and ongoing SEC and DOJ inquiries warrant careful consideration.

Key Highlights

  • 1Revenue growth: Total net revenues increased from $115.9 million in FY2003 to $281.4 million in FY2005.
  • 2Profitability improvement: Income from operations grew from $2.4 million in FY2003 to $69.4 million in FY2005.
  • 3Significant restatement: The company restated its financial statements for fiscal years 2000-2005 due to stock-based compensation accounting errors related to stock options.
  • 4Increased stock-based compensation expense: The restatement resulted in an additional $24.1 million in non-cash stock-based compensation expense for grants made between 1999 and 2004.
  • 5Strong cash and equity position: The company maintained a healthy cash and equivalents balance, growing from $10.4 million at the end of FY2003 to $51.9 million at the end of FY2005, with total shareholders' equity increasing to $460.2 million.
  • 6Ongoing investigations: F5 Networks was subject to SEC and Department of Justice inquiries regarding its stock option practices, leading to the restatements.
  • 7Acquisition activity: The company completed the acquisition of MagniFire Websystems, Inc. in FY2004 and uRoam, Inc. in FY2003, and notes the subsequent acquisition of Swan Labs, Inc. in October 2005.

Frequently Asked Questions

This filing is an amendment to correct and restate the company's financial statements due to identified issues with the accounting treatment of stock option grants. Specifically, there were problems with determining the correct measurement dates for stock options and issues with documentation and approvals, leading to an underestimation of stock-based compensation expense.

The restatement resulted in an increase in stock-based compensation expense, leading to a decrease in net income by approximately $23.5 million for the periods 1999 through 2005. While it decreased retained earnings, the impact on cash and cash equivalents and investments was not affected.

Despite the accounting issues, F5 Networks demonstrated strong financial performance in terms of revenue and operations. Total net revenues grew significantly from $115.9 million in FY2003 to $281.4 million in FY2005. Income from operations also showed substantial improvement, rising from $2.4 million in FY2003 to $69.4 million in FY2005, indicating underlying business strength.

Yes, F5 Networks was subject to informal inquiries from the SEC and a grand jury subpoena from the Department of Justice concerning its stock option practices. These investigations led to the company's decision to restate its financial statements. While the company is cooperating, the full impact of these investigations is not yet determined.