10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2016

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-26041

F5 NETWORKS, INC.

(Exact name of registrant as specified in its charter)

WASHINGTON	91-1714307
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

401 Elliott Avenue West

Seattle, Washington 98119

(Address of principal executive offices and zip code)

(206) 272-5555

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	þ	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

The number of shares outstanding of the registrant’s common stock as of January 27, 2017 was 64,787,647.

F5 NETWORKS, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended December 31, 2016

Table of Contents

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	3
Consolidated Balance Sheets — December 31, 2016 and September 30, 2016	3
Consolidated Income Statements — Three months ended December 31, 2016 and 2015	4
Consolidated Statements of Comprehensive Income — Three months ended December 31, 2016 and 2015	5
Consolidated Statements of Cash Flows — Three months ended December 31, 2016 and 2015	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	23
Item 4. Controls and Procedures	23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	24
Item 1A. Risk Factors	24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 6. Exhibits	25
SIGNATURES	26

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

F5 NETWORKS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

	December 31, 2016			September 30, 2016
ASSETS
Current assets
Cash and cash equivalents	$	572,934		$	514,571
Short-term investments	400,909			367,824
Accounts receivable, net of allowances of $2,609 and $2,062	313,211			268,175
Inventories	33,678			34,051
Deferred tax assets	54,058			51,601
Other current assets	52,706			52,579
Total current assets	1,427,496			1,288,801
Property and equipment, net	128,667			123,248
Long-term investments	222,999			276,375
Deferred tax assets	1,956			2,044
Goodwill	555,965			555,965
Other assets, net	60,012			59,890
Total assets	$	2,397,095		$	2,306,323
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	49,925		$	34,117
Accrued liabilities	198,832			178,353
Deferred revenue	669,926			631,768
Total current liabilities	918,683			844,238
Other long-term liabilities	35,841			34,138
Deferred revenue, long-term	244,322			238,473
Deferred tax liabilities	3,256			4,212
Total long-term liabilities	283,419			276,823
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, 64,788 and 65,315 shares issued and outstanding	17,280			13,191
Accumulated other comprehensive loss	(16,048		)	(13,194		)
Retained earnings	1,193,761			1,185,265
Total shareholders’ equity	1,194,993			1,185,262
Total liabilities and shareholders’ equity	$	2,397,095		$	2,306,323

The accompanying notes are an integral part of these consolidated financial statements.

3

F5 NETWORKS, INC.

CONSOLIDATED INCOME STATEMENTS

(unaudited, in thousands, except per share data)

	Three months ended December 31,
	2016		2015
Net revenues
Products	$	239,483	$	234,678
Services	276,475		254,808
Total	515,958		489,486
Cost of net revenues
Products	41,676		42,651
Services	43,586		43,032
Total	85,262		85,683
Gross profit	430,696		403,803
Operating expenses
Sales and marketing	164,514		157,456
Research and development	87,050		81,145
General and administrative	41,678		34,253
Total	293,242		272,854
Income from operations	137,454		130,949
Other income, net	2,643		1,135
Income before income taxes	140,097		132,084
Provision for income taxes	45,879		42,368
Net income	$	94,218	$	89,716
Net income per share — basic	$	1.45	$	1.29
Weighted average shares — basic	65,195		69,554
Net income per share — diluted	$	1.44	$	1.28
Weighted average shares — diluted	65,645		69,878

The accompanying notes are an integral part of these consolidated financial statements.

4

F5 NETWORKS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

	Three months ended December 31,
	2016			2015
Net income	$	94,218		$	89,716
Other comprehensive loss:
Foreign currency translation adjustment	(2,079		)	(96		)
Available-for-sale securities:
Unrealized losses on securities, net of taxes of $(464) and $(686) for the three months ended December 31, 2016 and 2015, respectively	(773		)	(1,143		)
Reclassification adjustment for realized (gains) losses included in net income, net of taxes of $1 and $(10) for the three months ended December 31, 2016 and 2015, respectively	(2		)	17
Net change in unrealized losses on available-for-sale securities, net of tax	(775		)	(1,126		)
Total other comprehensive loss	(2,854		)	(1,222		)
Comprehensive income	$	91,364		$	88,494

The accompanying notes are an integral part of these consolidated financial statements.

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F5 NETWORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Three months ended December 31,
	2016			2015
Operating activities
Net income	$	94,218		$	89,716
Adjustments to reconcile net income to net cash provided by operating activities:
Realized loss on disposition of assets and investments	30			27
Stock-based compensation	46,611			38,233
Provisions for doubtful accounts and sales returns	291			297
Depreciation and amortization	14,887			13,763
Deferred income taxes	(2,945		)	4,237
Changes in operating assets and liabilities:
Accounts receivable	(45,327		)	(22		)
Inventories	374			146
Other current assets	(306		)	(568		)
Other assets	391			45
Accounts payable and accrued liabilities	37,082			3,761
Deferred revenue	44,006			54,236
Net cash provided by operating activities	189,312			203,871
Investing activities
Purchases of investments	(98,983		)	(107,340		)
Maturities of investments	105,744			95,586
Sales of investments	11,211			47,742
Decrease in restricted cash	32			39
Acquisition of intangible assets	(4,000		)	(3,250		)
Purchases of property and equipment	(14,133		)	(13,292		)
Net cash (used in) provided by investing activities	(129		)	19,485
Financing activities
Excess tax benefit from stock-based compensation	2,940			1,194
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan	18,836			18,474
Repurchase of common stock	(150,021		)	(200,035		)
Net cash used in financing activities	(128,245		)	(180,367		)
Net increase in cash and cash equivalents	60,938			42,989
Effect of exchange rate changes on cash and cash equivalents	(2,575		)	(152		)
Cash and cash equivalents, beginning of period	514,571			390,460
Cash and cash equivalents, end of period	$	572,934		$	433,297

The accompanying notes are an integral part of these consolidated financial statements.

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F5 NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Summary of Significant Accounting Policies

Description of Business

F5 Networks, Inc. (the “Company”) is the leading developer and provider of software-defined application services. The Company’s core technology is a full-proxy, programmable, highly-scalable software platform called TMOS, which supports a broad array of features and functions designed to ensure that applications delivered over Internet Protocol (IP) networks are secure, fast and available. The Company’s TMOS-based offerings include software products for local and global traffic management, network and application security, access management, web acceleration and a number of other network and application services. These products are available as modules that can run individually or as part of an integrated solution on the Company’s high-performance, scalable, purpose-built BIG-IP appliances and VIPRION chassis-based hardware, or as software-only Virtual Editions. The Company also offers distributed denial-of-service (DDoS) protection, application security and other application services by subscription on its cloud-based Silverline platform. In connection with its products, the Company offers a broad range of support services including consulting, training, installation and maintenance.

Basis of Presentation

The year-end 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, 2016.

Certain prior year amounts relating to the tax effects of unrealized gains and losses on securities, have been corrected and reclassified as tax expenses and benefits, respectively, to conform to the current year presentation in the Consolidated Statements of Comprehensive Income. The corrected and reclassified amounts are considered immaterial and there was no change to comprehensive income as a result.

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.

Revenue from the sale of products is generally 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, revenue is recognized when such rights of return lapse. 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.

Revenues for post-contract customer support (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

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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.

Arrangement consideration is first allocated between software (consisting of nonessential and stand-alone software) and non-software deliverables. The majority of the Company’s products are hardware appliances which contain software essential to the overall functionality of the products. Hardware appliances are generally sold with PCS and on occasion, with consulting and/or training services. Arrangement consideration in such multiple element transactions is allocated to each element based on a fair value 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.

For software deliverables, the Company allocates revenue between multiple elements based on 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 VSOE of the fair value of delivered elements is not available, revenue is recognized on the “residual method” based on the fair value of undelivered elements. If evidence of 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.

The Company establishes VSOE for its products, PCS, consulting and training 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 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, when a substantial majority of transactions (more than 80%) are priced within a narrow range, which the Company has determined to be plus or minus 15% of the median sales price.

The Company believes that the VSOE of fair value of training and consulting services is represented by the billable rate per hour, based on the rates charged to customers when they purchase standalone training or 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 is typically not able to determine VSOE or TPE for non-software products. 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 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 has been able to establish BESP 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 the Company’s 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 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 these amounts from revenues.

Goodwill and Acquired Intangible Assets

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 Defense.Net, Inc. in fiscal year 2014, Versafe Ltd. and LineRate Systems, Inc. in fiscal year 2013, Traffix Systems in fiscal year 2012, 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. For its annual goodwill impairment test in all periods to date, the Company has operated under one reporting unit and the fair value of its reporting unit has been determined by the Company’s enterprise value. The Company performs its annual goodwill impairment test during the second fiscal quarter.

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As part of the annual goodwill impairment test, the Company first performs a qualitative assessment to determine whether further impairment testing is necessary. If, as a result of its qualitative assessment, it is more-likely-than-not (i.e. greater than 50% chance) that the fair value of the Company’s reporting unit is less than its carrying amount, the quantitative impairment test will be required. Otherwise, no further testing will be required.

Examples of events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount include macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as an expectation that a reporting unit will be sold or a sustained decrease in the stock price on either an absolute basis or relative to peers.

If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of the Company’s reporting unit is less than its carrying amount, the provisions of authoritative guidance require that the Company perform a two-step impairment test on goodwill. 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. In March 2016, the Company completed a qualitative assessment of potential impairment indicators and concluded that it was more-likely-than-not that the fair value of its reporting unit exceeded its carrying amount. The Company considered potential impairment indicators of goodwill and acquired intangible assets at December 31, 2016 and noted no indicators of impairment.

Software Development Costs

The authoritative guidance requires certain internal software development costs related to software to be sold to be capitalized upon the establishment of technological feasibility. The Company's software development costs incurred subsequent to achieving technological feasibility have not been significant, and all software development costs have been expensed as research and development activities as incurred.

Internal Use Software

In accordance with the authoritative guidance, the Company capitalizes application development stage costs associated with the development of new functionality for internal-use software and software developed related to its SaaS-based product offerings. The capitalized costs are then amortized over the estimated useful life of the software, which is generally three to five years, and are included in property and equipment in the accompanying consolidated balance sheets.

Stock-Based Compensation

The Company accounts for stock-based compensation using the straight-line attribution method for recognizing compensation expense. The Company recognized $46.6 million and $38.2 million of stock-based compensation expense for the three months ended December 31, 2016 and 2015, respectively. As of December 31, 2016, there was $230.2 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 October 28, 2016, the Company’s Board of Directors and Compensation Committee approved 1,242,170 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 issues incentive awards to certain current executive officers as part of its annual equity awards program. Fifty percent of the aggregate number of RSUs issued to executive officers vest in equal quarterly increments, and 50% are subject to the Company achieving specified quarterly revenue and EBITDA goals. In each case, 70% of the quarterly performance stock grant is based on achieving at least 80% of the quarterly revenue goal set by the Company's Board of Directors, and the other 30% is based on achieving at least 80% of the quarterly EBITDA goal set by the Company's Board of Directors. The quarterly performance stock grant is paid linearly over 80% of the targeted goals. At least 100% of both goals

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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 the 100% over-achievement threshold. Each goal is also capped at achievement of 200% above target.

As of December 31, 2016, the following annual equity grants for executive officers or a portion thereof are outstanding:

Grant Date	RSUs Granted	Vesting Schedule	Vesting Period	Date Fully Vested
November 1, 2016	115,347	Quarterly	4 years	November 1, 2020
November 2, 2015	145,508	Quarterly	4 years	November 1, 2019
November 1, 2014	171,575	Quarterly	4 years	November 1, 2018
November 1, 2013	231,320	Quarterly	4 years	November 1, 2017

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

Common Stock Repurchase

On April 20, 2016, the Company announced that its Board of Directors authorized an additional $1.0 billion for its common stock share repurchase program. This new authorization is incremental to the existing $2.4 billion program, initially approved in October 2010 and expanded in each fiscal year. Acquisitions for the share repurchase programs will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements. The programs can be terminated at any time. As of December 31, 2016, the Company had repurchased and retired 1,055,640 shares at an average price of $142.11 per share during fiscal year 2017 and the Company had $623.7 million remaining authorized to purchase shares.

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 and are not considered participating securities that should be included in the computation of earnings per share under the two-class method.

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,
	2016		2015
Numerator
Net income	$	94,218	$	89,716
Denominator
Weighted average shares outstanding — basic	65,195		69,554
Dilutive effect of common shares from stock options and restricted stock units	450		324
Weighted average shares outstanding — diluted	65,645		69,878
Basic net income per share	$	1.45	$	1.29
Diluted net income per share	$	1.44	$	1.28

For the three months ended December 31, 2016, there were no common shares potentially issuable from stock options 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 three months ended December 31, 2015, an immaterial amount of common shares potentially issuable from stock options were excluded from the calculation of diluted earnings per share.

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Comprehensive Income

Comprehensive income includes certain changes in equity that are excluded from net income. Specifically, unrealized gains or losses on securities and foreign currency translation adjustments are included in accumulated other comprehensive income or loss.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 and the related amendments outline a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The standard can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The Company has initiated an assessment of its systems, data and processes related to the implementation of this accounting standard. Preliminarily, the Company plans to adopt ASU 2014-09 in the first quarter of fiscal 2019 and is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (ASU 2015-11), which changes the subsequent measurement of inventory from lower of cost or market to lower of cost and net realizable value. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which requires that all deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company does not anticipate that the

adoption of this standard will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02), which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a corresponding lease liability for all leases with terms greater than twelve months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and is required to be applied with a modified retrospective approach. Early adoption is permitted. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

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In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which will require a company’s cash flow statement to explain the changes during a reporting period of the totals for cash, cash equivalents, restricted cash, and restricted cash equivalents. Additionally, amounts for restricted cash and restricted cash equivalents are to be included with cash and cash equivalents if the cash flow statement includes a reconciliation of the total cash balances for a reporting period. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which provides a more robust framework to use in determining when a set of assets and activities is considered a business. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for certain transactions. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

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 that the Company has the ability to access.

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, U.S. government agency securities and international government securities. Fair values for the Company’s level 2 investments are based on similar assets without applying significant judgments. In addition, all of the Company’s level 2 investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments.

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

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The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements at December 31, 2016, 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, 2016
Cash equivalents	$	47,109	$	—	$	—	$	47,109
Short-term investments
Available-for-sale securities — certificates of deposits	—		1,986		—		1,986
Available-for-sale securities — corporate bonds and notes	—		241,252		—		241,252
Available-for-sale securities — municipal bonds and notes	—		60,508		—		60,508
Available-for-sale securities — U.S. government securities	—		86,454		—		86,454
Available-for-sale securities — U.S. government agency securities	—		10,709		—		10,709
Long-term investments
Available-for-sale securities — corporate bonds and notes	—		99,885		—		99,885
Available-for-sale securities — municipal bonds and notes	—		36,528		—		36,528
Available-for-sale securities — U.S. government securities	—		15,996		—		15,996
Available-for-sale securities — U.S. government agency securities	—		70,590		—		70,590
Total	$	47,109	$	623,908	$	—	$	671,017

The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements at September 30, 2016, 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, 2016
Cash equivalents	$	56,525	$	—	$	—	$	56,525
Short-term investments
Available-for-sale securities — corporate bonds and notes	—		223,358		—		223,358
Available-for-sale securities — municipal bonds and notes	—		53,621		—		53,621
Available-for-sale securities — U.S. government securities	—		72,521		—		72,521
Available-for-sale securities — U.S. government agency securities	—		18,324		—		18,324
Long-term investments
Available-for-sale securities — corporate bonds and notes	—		131,427		—		131,427
Available-for-sale securities — municipal bonds and notes	—		27,050		—		27,050
Available-for-sale securities — U.S. government securities	—		27,023		—		27,023
Available-for-sale securities — U.S. government agency securities	—		90,875		—		90,875
Total	$	56,525	$	644,199	$	—	$	700,724

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, 2016, the Company did not recognize any impairment charges related to goodwill, intangible assets, or long-lived assets.

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3. Short-Term and Long-Term Investments

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

December 31, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Certificates of deposits	$	1,985	$	1	$	—		$	1,986
Corporate bonds and notes	241,425		31		(204		)	241,252
Municipal bonds and notes	60,580		—		(72		)	60,508
U.S. government securities	86,503		9		(58		)	86,454
U.S. government agency securities	10,710		—		(1		)	10,709
	$	401,203	$	41	$	(335	)	$	400,909

September 30, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate bonds and notes	$	223,448	$	38	$	(128	)	$	223,358
Municipal bonds and notes	53,657		1		(37		)	53,621
U.S. government securities	72,497		31		(7		)	72,521
U.S. government agency securities	18,318		6		—			18,324
	$	367,920	$	76	$	(172	)	$	367,824

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

December 31, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate bonds and notes	$	100,240	$	30	$	(385	)	$	99,885
Municipal bonds and notes	36,694		12		(178		)	36,528
U.S. government securities	16,024		—		(28		)	15,996
U.S. government agency securities	70,860		6		(276		)	70,590
	$	223,818	$	48	$	(867	)	$	222,999

September 30, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate bonds and notes	$	131,273	$	249	$	(95	)	$	131,427
Municipal bonds and notes	27,017		46		(13		)	27,050
U.S. government securities	26,989		36		(2		)	27,023
U.S. government agency securities	90,877		52		(54		)	90,875
	$	276,156	$	383	$	(164	)	$	276,375

The amortized cost and fair value of fixed maturities at December 31, 2016, by contractual years-to-maturity, are presented below (in thousands):

	Cost or Amortized Cost		Fair Value
One year or less	$	401,203	$	400,909
Over one year	223,818		222,999
	$	625,021	$	623,908

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The following table summarizes investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for more than 12 months as of December 31, 2016 (in thousands):

	Less Than 12 Months					12 Months or Greater					Total
December 31, 2016	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate bonds and notes	$	97,318	$	(363	)	$	154,566	$	(226	)	$	251,884	$	(589	)
Municipal bonds and notes	46,780		(186		)	43,023		(64		)	89,803		(250		)
U.S. government securities	65,955		(85		)	8,992		(1		)	74,947		(86		)
U.S. government agency securities	55,837		(236		)	12,208		(41		)	68,045		(277		)
Total	$	265,890	$	(870	)	$	218,789	$	(332	)	$	484,679	$	(1,202	)

The Company invests in securities that are rated investment grade or better. The Company reviews the individual securities in its portfolio to determine whether a decline in a security's fair value below the amortized cost basis is other-than-temporary. The Company determined that as of December 31, 2016, there were no investments in its portfolio that were other-than-temporarily impaired.

4. Inventories

The Company outsources the manufacturing of its pre-configured hardware platforms to contract manufacturers, who assemble each product to the Company’s specifications. As protection against component shortages and to provide replacement parts for its service teams, the Company also stocks limited supplies of certain key product components. The Company reduces inventory to net realizable value based on excess and obsolete inventories determined primarily by historical usage and forecasted demand. Inventories consist of hardware and related component parts and are recorded at the lower of cost or market (as determined by the first-in, first-out method).

Inventories consist of the following (in thousands):

	December 31, 2016		September 30, 2016
Finished goods	$	22,510	$	23,642
Raw materials	11,168		10,409
	$	33,678	$	34,051

5. Commitments and Contingencies

Guarantees and Product Warranties

In the normal course of business to facilitate sales of its products, the Company indemnifies other parties, including customers, resellers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. The Company has entered into indemnification agreements with its officers and directors and certain other employees, and the Company’s bylaws contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.

The Company generally offers warranties of one year for hardware for those customers without service contracts, with the option of purchasing additional warranty coverage in yearly increments. The Company accrues for warranty costs as part of its cost of sales based on associated material product costs and technical support labor costs. Accrued warranty costs as of December 31, 2016 and December 31, 2015 were not considered material.

Commitments

As of December 31, 2016, the Company’s principal commitments consisted of obligations outstanding under operating leases. The Company leases its facilities under operating leases that expire at various dates through 2025. There have been no

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material changes in the Company’s principal lease commitments compared to those discussed in Note 7 to its annual consolidated financial statements.

The Company currently has arrangements with contract manufacturers and other suppliers for the manufacturing of its products. The arrangement with the primary contract manufacturer allows them to procure component inventory on the Company’s behalf based on a rolling production forecast provided by the Company. The Company is obligated to the purchase of component inventory that the contract manufacturer procures in accordance with the forecast, unless it gives notice of order cancellation in advance of applicable lead times. There have been no material changes in the Company's inventory purchase obligations compared to those discussed in Note 7 to its annual consolidated financial statements.

Legal Proceedings

On May 1, 2013, Radware, Ltd. and Radware, Inc. (Radware), filed a complaint for patent infringement against the Company in the United States District Court for the Northern District of California seeking an unspecified amount of monetary damages, as well as interest, costs, and injunctive relief, based upon allegations that the Company infringed three Radware patents related to devices for ISP link load balancing. The Company answered the Complaint, denied the substantive allegations, and sought a declaratory judgment that the asserted claims were invalid. The Company also counter-claimed alleging that Radware had infringed certain Company patents relating to cookie persistence. F5 was granted summary judgment of non-infringement of one of Radware’s three patents, and was also granted summary judgment of non-infringement with respect to the other two patents in connection with a design-around. F5 also took an offer of judgment as to Radware’s infringement of its patents. Radware’s damages claims and F5’s invalidity claims proceeded to trial and on March 15, 2016, the jury returned a verdict finding that F5 had not proven that the asserted patents were invalid, that the Company willfully infringed one of the two patents and that Radware was due $6.4 million in damages. On August 22, 2016, the Court, in response to various post-trial motions, granted F5 judgment as a matter of law on Radware’s claim of willful infringement (and thus denied Radware’s motion for treble damages and attorneys’ fees), awarded prejudgment interest, and issued an injunction. On September 7, 2016, the Court entered judgment in the amount of $6,870,978.95 in favor of Radware on its claims, and $40,000 in favor of F5 on its counterclaim (pursuant to the offer and acceptance of judgment). On October 5, 2016, F5 moved for a new trial on invalidity. That motion was denied. F5 has appealed the denial of the motion and Radware has appealed the summary judgments of non-infringement, the district court’s exclusion of certain evidence, and the grant of judgment as a matter of law on the willfulness claim. Separately, Radware has requested an award of $192,000 in costs. F5 has objected to the request and it remains pending.

In addition, on April 4, 2016, the Company sued Radware, Inc. in the United States District Court for the Western District of Washington accusing Radware products of infringing three additional Company patents. The Company’s complaint seeks a jury trial and an unspecified amount of monetary damages, as well as interest, costs, and injunctive relief. Radware moved to dismiss the allegations of one patent but the motion was denied. Radware has separately asserted that F5 is infringing U.S. patent no. 9,231,853, another ISP link load balancing patent. F5 has denied infringement and has separately filed an inter partes review petition on the grounds that the patent is invalid. Claim construction briefing is scheduled over the next six months, but no claim construction hearing or trial is scheduled at this point.

In addition to the above referenced matters, the Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business, including intellectual property litigation. Management believes that the Company has meritorious defenses to the allegations made in its pending cases and intends to vigorously defend these lawsuits; however, the Company is unable currently to determine the ultimate outcome of these or similar matters or the potential exposure to loss, if any. There are many uncertainties associated with any litigation and these actions or other third-party claims against the Company may cause it to incur costly litigation and/or substantial settlement charges that could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.

The Company records an accrual for loss contingencies for legal proceedings when it believes that an unfavorable outcome is both (a) probable and (b) the amount or range of any possible loss is reasonably estimable. In fiscal 2016, the Company recorded an accrual related to the Radware litigation mentioned above of $7.0 million for the verdict. The Company has not recorded any other accruals for loss contingencies associated with other legal proceedings.

6. Income Taxes

The effective tax rate was 32.7% and 32.1% for the three months ended December 31, 2016 and 2015, respectively.

At December 31, 2016, the Company had $16.0 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. It is anticipated that the Company’s existing liabilities for unrecognized tax benefits will change within the next twelve months due to audit settlements or the expiration of statutes of limitations. The Company does not expect these

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changes to be material to the consolidated financial statements. The Company recognizes interest and, if applicable, penalties for any uncertain tax positions as a component of income tax expense.

The Company and its subsidiaries are subject to U.S. federal income tax as well as the income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for fiscal years through September 30, 2012. The Company is currently under audit by various states for fiscal years 2011 through 2015. Major jurisdictions where there are wholly owned subsidiaries of F5 Networks, Inc. which require income tax filings include the United Kingdom, Japan, Singapore and Australia. The earliest periods open for review by local taxing authorities are fiscal years 2015 for the United Kingdom, 2011 for Japan, 2012 for Singapore, and 2012 for Australia. Within the next four fiscal quarters, the statute of limitations will begin to close on the fiscal years 2012 and 2013 state income tax returns.

7. Geographic Sales and Significant Customers

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Management has determined that the Company is organized as, and operates in, one reportable operating segment: the development, marketing and sale of application delivery networking products that optimize the security, performance and availability of network applications, servers and storage systems.

The Company does business in four main geographic regions: the Americas (primarily the United States); Europe, the Middle East, and Africa (EMEA); Japan; and the Asia Pacific region (APAC). The Company’s chief operating decision-making group reviews financial information presented on a consolidated basis accompanied by information about revenues by geographic region. The Company’s foreign offices conduct sales, marketing and support activities. Revenues are attributed by geographic location based on the location of the customer.

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

	Three months ended December 31,
	2016		2015
Americas:
United States	$	256,250	$	239,190
Other	30,453		27,944
Total Americas	286,703		267,134
EMEA	129,914		127,988
Japan	24,774		22,652
Asia Pacific	74,567		71,712
	$	515,958	$	489,486

The following distributors of the Company's products accounted for more than 10% of total net revenue:

	Three months ended December 31,
	2016		2015
Westcon Group, Inc.	18.8	%	19.7	%
Ingram Micro, Inc.	16.0	%	14.6	%
Avnet Technology Solutions	12.3	%	13.9	%
Arrow ECS	10.1	%	11.0	%

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The Company tracks assets by physical location. Long-lived assets consist of property and equipment, net, and are shown below (in thousands):

	December 31, 2016		September 30, 2016
United States	$	111,100	$	105,480
EMEA	13,456		13,789
Other countries	4,111		3,979
	$	128,667	$	123,248

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. These statements include, but are not limited to, statements about our plans, objectives, expectations, strategies, intentions or other characterizations of future events or circumstances and are generally identified by the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions. These forward-looking statements are based on current information and expectations and are subject to a number of risks and uncertainties. Our actual results could differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A. “Risk Factors” herein and in other documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to revise or update any such forward-looking statements.

Overview

We are a global provider of software-defined application delivery services designed to ensure the fast, secure and reliable delivery of applications and data. Our products include hardware-based software, software-only solutions, cloud-based subscription services and a common management framework that enable customers to accelerate, optimize, secure and manage applications across hybrid computing infrastructures that combine traditional networks and data centers with software-defined networks, virtualized data centers and cloud-based resources. We market and sell our products primarily through multiple indirect sales channels in the Americas (primarily the United States); Europe, the Middle East, and Africa (EMEA); Japan; and the Asia Pacific region (APAC). Enterprise customers (Fortune 1000 or Business Week Global 1000 companies) in the technology, telecommunications, financial services, transportation, education, manufacturing and health care industries, along with government customers, continue to make up the largest percentage of our customer base.

Our management team monitors and analyzes a number of key performance indicators in order to manage our business and evaluate our financial and operating performance on a consolidated basis. Those indicators include:

• Revenues. The majority of our revenues are derived from sales of our application delivery networking (ADN) products including our BIG-IP appliances and high end VIPRION chassis and related software modules and our software-only Virtual Editions; Local Traffic Manager (LTM), DNS Services (formerly Global Traffic Manager); Advanced Firewall Manager (AFM) and Policy Enforcement Manager (PEM), that leverage the unique performance characteristics of our hardware and software architecture; and products that incorporate acquired technology, including Application Security Manager (ASM) and Access Policy Manager (APM); signaling delivery controller products (SDC); and the WebSafe, MobileSafe, Secure Web Gateway and Silverline DDoS and Application security offerings which are sold to customers on a subscription basis. We also derive revenues from the sales of services including annual maintenance contracts, training and consulting services. We carefully monitor the sales mix of our revenues within each reporting period. We believe customer acceptance rates of our new products and feature enhancements are indicators of future trends. We also consider overall revenue concentration by customer and by geographic region as additional indicators of current and future trends.

• Cost of revenues and gross margins. We strive to control our cost of revenues and thereby maintain our gross margins. Significant items impacting cost of revenues are hardware costs paid to our contract manufacturers, third-party software license fees, Silverline infrastructure, amortization of developed technology and personnel and overhead expenses. Our margins have remained relatively stable; however, factors such as sales price, product and services mix, inventory obsolescence, returns, component price increases and warranty costs could significantly impact our gross margins from quarter to quarter and represent significant indicators we monitor on a regular basis.

• Operating expenses. Operating expenses are substantially driven by personnel and related overhead expenses. Existing headcount and future hiring plans are the predominant factors in analyzing and forecasting future operating expense

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trends. Other significant operating expenses that we monitor include marketing and promotions, travel, professional fees, computer costs related to the development of new products and provision of services, facilities and depreciation expenses.

• Liquidity and cash flows. Our financial condition remains strong with significant cash and investments and no long term debt. The increase in cash and investments for the first three months of fiscal year 2017 was primarily due to cash provided by operating activities of $189.3 million, partially offset by $150.0 million of cash used to repurchase outstanding common stock under our stock repurchase program. Going forward, we believe the primary driver of cash flows will be net income from operations. Capital expenditures of $14.1 million for the first three months of fiscal year 2017 were primarily related to the expansion of our facilities to support our operations worldwide as well as investments in information technology infrastructure and equipment purchases to support our core business activities. We will continue to evaluate possible acquisitions of, or investments in businesses, products, or technologies that we believe are strategic, which may require the use of cash.

• Balance sheet. We view cash, short-term and long-term investments, deferred revenue, accounts receivable balances and days sales outstanding as important indicators of our financial health. Deferred revenues increased in the first quarter of fiscal year 2017 due to growth in the amount of annual maintenance contracts purchased on new products and maintenance renewal contracts related to our existing product installation base. Our days sales outstanding for the first quarter of fiscal year 2017 was 55.

Summary of Critical Accounting Policies and Estimates

The preparation of our financial condition and results of operations requires us to make judgments and estimates that may have a significant impact upon our financial results. We believe that, of our significant accounting policies, the following require estimates and assumptions that require complex, subjective judgments by management, which can materially impact reported results: revenue recognition; reserve for doubtful accounts; reserve for product returns; accounting for income taxes; stock-based compensation; goodwill and intangible assets; and investments. None of these accounting policies and estimates have significantly changed since our annual report on Form 10-K for the year ended September 30, 2016 (Form 10-K). Critical accounting policies and estimates are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Actual results may differ from these estimates under different assumptions or conditions.

Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements, related notes and risk factors included elsewhere in this Quarterly Report on Form 10-Q.

	Three months ended December 31,
	2016			2015
	(in thousands, except percentages)
Net Revenues
Products	$	239,483		$	234,678
Services	276,475			254,808
Total	$	515,958		$	489,486
Percentage of net revenues
Products	46.4		%	47.9		%
Services	53.6			52.1
Total	100.0		%	100.0		%

Net revenues. Total net revenues increased5.4% for the three months ended December 31, 2016, from the same period in the prior year. Overall revenue growth for the three months ended December 31, 2016 was primarily due to increased service revenues as a result of our increased installed base of products. International revenues represented 50.3% of total net revenues for the three months ended December 31, 2016, compared to 51.1% for the same period in the prior year. We expect international sales will continue to represent a significant portion of net revenues, although we cannot provide assurance that international revenues as a percentage of net revenues will remain at current levels.

Net product revenues increased2.0% for the three months ended December 31, 2016, from the same period in the prior year. The increase in net product revenues for the three months ended December 31, 2016 was due to a increase of $6.8 million

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in sales of our ADN products from the same period in the prior year. Sales of our ADN products represented 99.4% of product revenues for the three months ended December 31, 2016, compared to 98.6% of product revenues for the three months ended December 31, 2015.

Net service revenues increased8.5% for the three months ended December 31, 2016, from the same period in the prior year. The increase in net service revenues was primarily due to increases in the purchase or renewal of maintenance contracts driven by additions to our installed base of products.

Westcon, Ingram Micro, Avnet Technology Solutions and Arrow ECS, four of our worldwide distributors, accounted for 18.8%, 16.0%, 12.3% and 10.1% of our total net revenue for the three months ended December 31, 2016, respectively. Westcon, Ingram Micro, Avnet Technology Solutions and Arrow ECS accounted for 19.7%, 14.6%, 13.9% and 11.0% of our total net revenue for the three months ended December 31, 2015, respectively. Westcon, Ingram Micro and Arrow ECS accounted for 18.3%, 12.6% and 11.4% of our accounts receivable as of December 31, 2016, respectively. Westcon and Arrow ECS accounted for 19.8% and 11.2% of our accounts receivable as of December 31, 2015, respectively. No other distributors accounted for more than 10% of total net revenue or receivables.

	Three months ended December 31,
	2016			2015
	(in thousands, except percentages)
Cost of net revenues and Gross Margin
Products	$	41,676		$	42,651
Services	43,586			43,032
Total	85,262			85,683
Gross profit	$	430,696		$	403,803
Percentage of net revenues and Gross Margin (as a percentage of related net revenue)
Products	17.4		%	18.2		%
Services	15.8			16.9
Total	16.5			17.5
Gross profit	83.5		%	82.5		%

Cost of net product revenues. Cost of net product revenues consist of finished products purchased from our contract manufacturers, manufacturing overhead, freight, warranty, provisions for excess and obsolete inventory and amortization expenses in connection with developed technology from acquisitions. Although product revenues increased from the same period in the prior year, cost of net product revenues for the three months ended December 31, 2016 remained relatively consistent. This is primarily due to a shift in product mix and more favorable margins associated with software sales.

Cost of net service revenues. Cost of net service revenues consist of the salaries and related benefits of our professional services staff, travel, facilities and depreciation expenses. For the three months ended December 31, 2016, cost of net service revenues as a percentage of net service revenues was 15.8%, compared to 16.9% for the same period in the prior year. The decrease in cost of net service revenues as a percentage of net service revenues is primarily due to the scalability of our existing customer support infrastructure and increased revenue from maintenance contracts. Professional services headcount at the end of December 2016increased to 1,261 from 1,223 at the end of December 2015. In addition, cost of net service revenues included stock-based compensation expense of $4.7 million for the three months ended December 31, 2016, compared to $4.0 million for the same period in the prior year.

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	Three months ended December 31,
	2016			2015
	(in thousands, except percentages)
Operating expenses
Sales and marketing	$	164,514		$	157,456
Research and development	87,050			81,145
General and administrative	41,678			34,253
Total	$	293,242		$	272,854
Operating expenses (as a percentage of net revenue)
Sales and marketing	31.9		%	32.1		%
Research and development	16.8			16.6
General and administrative	8.1			7.0
Total	56.8		%	55.7		%

Sales and marketing. Sales and marketing expenses consist of salaries, commissions and related benefits of our sales and marketing staff, the costs of our marketing programs, including public relations, advertising and trade shows, travel, facilities, and depreciation expenses. Sales and marketing expenses increased4.5% for the three months ended December 31, 2016, from the comparable period in the prior year. The increase in sales and marketing expense was primarily due to an increase of $4.0 million in commissions and personnel costs for the three months ended December 31, 2016, from the comparable period in the prior year. The increased commissions and personnel costs were driven primarily by growth in sales and marketing employee headcount for the corresponding periods. Sales and marketing headcount at the end of December 2016increased to 1,504 from1,483 at the end of December 2015. Sales and marketing expense included stock-based compensation expense of $17.0 million for the three months ended December 31, 2016, compared to $14.9 million for the same period in the prior year.

Research and development. Research and development expenses consist of the salaries and related benefits of our product development personnel, prototype materials and other expenses related to the development of new and improved products, facilities and depreciation expenses. Research and development expenses increased7.3% for the three months ended December 31, 2016, from the comparable period in the prior year. The increase in research and development expense was primarily due to an increase of $5.2 million in personnel costs for the three months ended December 31, 2016, from the comparable period in the prior year. Research and development headcount at the end of December 2016increased to 1,229 from 1,138 at the end of December 2015. Research and development expense included stock-based compensation expense of $13.9 million for the three months ended December 31, 2016, compared to $12.8 million for the same period in the prior year. We expect research and development expenses to remain consistent as a percentage of net revenue in the foreseeable future.

General and administrative. General and administrative expenses consist of the salaries, benefits and related costs of our executive, finance, information technology, human resource and legal personnel, third-party professional service fees, bad debt charges, facilities and depreciation expenses. General and administrative expenses increased21.7% for the three months ended December 31, 2016, from the comparable period in the prior year. The increase in general and administrative expense was primarily due to an increase of $1.7 million in personnel costs for the three months ended December 31, 2016, from the comparable period in the prior year. General and administrative headcount at the end of December 2016 increased to 464 from 429 at the end of December 2015. Stock-based compensation expense was $10.4 million for the three months ended December 31, 2016, compared to $6.1 million for the same period in the prior year.

21

	Three months ended December 31,
	2016			2015
	(in thousands, except percentages)
Other income and income taxes
Income from operations	$	137,454		$	130,949
Other income, net	2,643			1,135
Income before income taxes	140,097			132,084
Provision for income taxes	45,879			42,368
Net income	$	94,218		$	89,716
Other income and income taxes (as percentage of net revenue)
Income from operations	26.7		%	26.8		%
Other income, net	0.5			0.2
Income before income taxes	27.2			27.0
Provision for income taxes	8.9			8.7
Net income	18.3		%	18.3		%

Other income, net. Other income, net consists primarily of interest income and foreign currency transaction gains and losses. The increase in other income, net for the three months ended December 31, 2016, from the same period in the prior year was primarily due to $1.0 million in foreign currency gains.

Provision for income taxes. The effective tax rate was 32.7% and 32.1% for the three months ended December 31, 2016 and 2015, respectively. The increase in the effective tax rate for the three months ended December 31, 2016 is due to a tax benefit recognized during the three months ended December 31, 2015 relating to the permanent extension of the United States Federal Credit for Increasing Research Activities.

We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. In making these determinations we consider historical and projected taxable income, and ongoing prudent and feasible tax planning strategies in assessing the appropriateness of a valuation allowance. Our net deferred tax assets at December 31, 2016 and December 31, 2015 were $52.8 million and $51.6 million, respectively. The net deferred tax assets include valuation allowances of $15.0 million and $10.8 million as of December 31, 2016 and December 31, 2015, respectively, which are primarily related to tax net operating losses incurred in certain foreign jurisdictions, and state tax carryforwards.

Our worldwide effective tax rate may fluctuate based on a number of factors, including variations in projected taxable income in the various geographic locations in which we operate, changes in the valuation of our net deferred tax assets, resolution of potential exposures, tax positions taken on tax returns filed in the various geographic locations in which we operate, and the introduction of new accounting standards or changes in tax laws or interpretations thereof in the various geographic locations in which we operate. We have recorded liabilities to address potential tax exposures related to business and income tax positions we have taken that could be challenged by taxing authorities. The ultimate resolution of these potential exposures may be greater or less than the liabilities recorded which could result in an adjustment to our future tax expense.

Liquidity and Capital Resources

Cash and cash equivalents, short-term investments and long-term investments totaled $1,196.8 million as of December 31, 2016, compared to $1,158.8 million as of September 30, 2016, representing an increase of $38.1 million. The increase was primarily due to cash provided by operating activities of $189.3 million for the three months ended December 31, 2016, which was partially offset by $150.0 million of cash used for the repurchase of outstanding common stock under our stock repurchase program. Cash provided by operating activities for the first three months of fiscal year 2017 resulted from net income of $94.2 million combined with changes in operating assets and liabilities, as adjusted for various non-cash items including stock-based compensation, deferred revenue, depreciation and amortization charges. Based on our current operating and capital expenditure forecasts, we believe that our existing cash and investment balances, together with cash generated from operations should be sufficient to meet our operating requirements for at least the next twelve months.

Cash used in investing activities was $0.1 million for the three months ended December 31, 2016, compared to cash provided by investing activities of $19.5 million for the same period in the prior year. Investing activities include purchases, sales and maturities of available-for-sale securities, business acquisitions, capital expenditures and changes in restricted cash requirements. The amount of cash used in investing activities for the three months ended December 31, 2016 was primarily due

22

to purchases of investments and capital expenditures related to the expansion of our facilities to support our operations worldwide partially offset by the sales and maturity of investments.

Cash used in financing activities was $128.2 million for the three months ended December 31, 2016, compared to cash used in financing activities of $180.4 million for the same period in the prior year. Our financing activities for the three months ended December 31, 2016 consisted primarily of cash required for the repurchase of outstanding common stock under our stock repurchase program of $150.0 million, partially offset by cash received from the exercise of employee stock options and stock purchases under our employee stock purchase plan of $18.8 million.

Obligations and Commitments

As of December 31, 2016, our principal commitments consisted of obligations outstanding under operating leases. We lease our facilities under operating leases that expire at various dates through 2025. There have been no material changes in our principal lease commitments compared to those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.

We outsource the manufacturing of our pre-configured hardware platforms to contract manufacturers who assemble each product to our specifications. Our agreement with our largest contract manufacturer allows them to procure component inventory on our behalf based upon a rolling production forecast. We are contractually obligated to purchase the component inventory in accordance with the forecast, unless we give notice of order cancellation in advance of applicable lead times. There have been no material changes in our inventory purchase obligations compared to those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.

Recent Accounting Pronouncements

The anticipated impact of recent accounting pronouncements is discussed in Note 1 to the accompanying Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk. We maintain an investment portfolio of various holdings, types, and maturities. Our primary objective for holding fixed income securities is to achieve an appropriate investment return consistent with preserving principal and managing risk. At any time, a sharp rise in market interest rates could have a material adverse impact on the fair value of our fixed income investment portfolio. Conversely, declines in interest rates, including the impact from lower credit spreads, could have a material adverse impact on interest income for our investment portfolio. Our fixed income investments are held for purposes other than trading. Our fixed income investments were not leveraged as of December 31, 2016. We monitor our interest rate and credit risks, including our credit exposures to specific rating categories and to individual issuers. As of December 31, 2016, 29.5% of our fixed income securities balance consisted of U.S. government and U.S. government agency securities. We believe the overall credit quality of our portfolio is strong.

Management believes there have been no material changes to our quantitative and qualitative disclosures about market risk during the three month period ended December 31, 2016, compared to those discussed in our Annual Report on Form 10-K for the year ended September 30, 2016.

Item 4. Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that required information is properly recorded, processed, summarized and reported within the required timeframe, as specified in the rules set forth by the SEC. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2016. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2016.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

23

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

See Note 5 - Commitments and Contingencies of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for information regarding legal proceedings in which we are involved.

Item 1A. Risk Factors

The following information updates, and should be read in conjunction with, the information discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016. The risks discussed below and in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. These are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be insignificant also may materially and adversely affect our business, financial condition or operating results in the future.

Our success depends on our key personnel and our ability to hire, retain and motivate qualified executives, sales and marketing, operations, product development and professional services personnel

Our success depends, in large part, on our ability to attract, engage, retain, and integrate qualified executives and other key employees throughout all areas of our business. In order to attract and retain executives and other key employees in a competitive marketplace, we must provide a competitive compensation package, including cash- and equity-based compensation. If we do not obtain the stockholder approval needed to continue granting equity compensation in a competitive manner, our ability to attract, retain, and motivate executives and key employees could be weakened. Failure to successfully hire executives and key employees or the loss of any executives and key employees could have a significant impact on our operations. Further, changes in our management team may be disruptive to our business, and any failure to successfully integrate key new hires or promoted employees could adversely affect our business and results of operations. In addition, we recently announced the Board of Directors has selected a replacement for John McAdam as the Company’s President and CEO upon his retirement on April 3, 2017. Transitioning to a new chief executive could be disruptive to our business and could adversely affect our business and results of operations. The complexity of our application delivery networking products and their integration into existing networks and ongoing support, as well as the sophistication of our sales and marketing effort, requires us to retain highly trained developers, professional services, customer support and sales personnel. Competition for qualified developers, professional services, customer support and sales personnel in our industry is intense, especially in Silicon Valley and Seattle where we have substantial operations and a need for highly skilled personnel, because of the limited number of people available with the necessary technical skills and understanding of our products. Also, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited, that they have divulged proprietary or other confidential information, that they have violated non-compete obligations to their prior employers, or that their former employers own their inventions or other work product. Our ability to hire and retain these personnel may be adversely affected by volatility or reductions in the price of our common stock or our ability to get approval from shareholders to offer additional common stock to our employees, since these employees are generally granted restricted stock units. The loss of services of any of our key personnel, the inability to retain and attract qualified personnel in the future or delays in hiring qualified personnel may harm our business and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On April 20, 2016, the Company announced that its Board of Directors authorized an additional $1.0 billion for its common stock share repurchase program. This new authorization is incremental to the existing $2.4 billion program, initially approved in October 2010 and expanded in each fiscal year. Acquisitions for the share repurchase programs will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements. The programs can be terminated at any time. As of December 31, 2016, the Company had repurchased and retired 1,055,640 shares at an average price of $142.11 per share during fiscal year 2017 and the Company had $623.7 million remaining authorized to purchase shares.

Shares repurchased and retired as of December 31, 2016 are as follows (in thousands, except shares and per share data):

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased per the Publicly Announced Plan	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan
October 1, 2016 — October 31, 2016	—	$	—	—	$	773,743
November 1, 2016 — November 30, 2016	1,055,640	$	142.11	1,055,640	$	623,722
December 1, 2016 — December 31, 2016	—	$	—	—	$	623,722

24

Item 6. Exhibits

Exhibit Number		Exhibit Description
31.1*	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	—	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	—	XBRL Instance Document
101.SCH*	—	XBRL Taxonomy Extension Schema Document
101.CAL*	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	—	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	—	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 1st day of February, 2017.

F5 NETWORKS, INC.
By:	/s/ ANDY REINLAND
	Andy Reinland
	Executive Vice President,
	Chief Financial Officer
	(principal financial officer and principal accounting officer)

26

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, John McAdam, certify that:

1) I have reviewed this Quarterly Report on Form 10-Q of F5 Networks, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 1, 2017
/s/ JOHN MCADAM
John McAdam
Chief Executive Officer and President

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Andy Reinland, certify that:

1) I have reviewed this Quarterly Report on Form 10-Q of F5 Networks, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 1, 2017
/s/ ANDY REINLAND
Andy Reinland
Executive Vice President,
Chief Financial Officer
(principal financial officer and principal accounting officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of F5 Networks, Inc. (the “Company”) on Form 10-Q for the period ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, John McAdam, President and Chief Executive Officer and Andy Reinland, Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:	February 1, 2017
/s/ JOHN MCADAM
John McAdam
Chief Executive Officer and President
/s/ ANDY REINLAND
Andy Reinland
Executive Vice President and Chief Financial Officer
(principal financial officer and principal accounting officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to F5 Networks, Inc., and will be retained by F5 Networks, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	3 Months Ended
	Dec. 31, 2016	Jan. 27, 2017
Document And Entity Information [Abstract]
Entity Registrant Name	F5 NETWORKS INC
Entity Central Index Key	0001048695
Current Fiscal Year End Date	--09-30
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Dec. 31, 2016
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		64,787,647

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2016	Sep. 30, 2016
ASSETS
Cash and cash equivalents	$ 572,934	$ 514,571
Short-term investments	400,909	367,824
Accounts receivable, net of allowances of $2,609 and $2,062	313,211	268,175
Inventories	33,678	34,051
Deferred tax assets	54,058	51,601
Other current assets	52,706	52,579
Total current assets	1,427,496	1,288,801
Property and equipment, net	128,667	123,248
Long-term investments	222,999	276,375
Deferred tax assets	1,956	2,044
Goodwill	555,965	555,965
Other assets, net	60,012	59,890
Total assets	2,397,095	2,306,323
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	49,925	34,117
Accrued liabilities	198,832	178,353
Deferred revenue	669,926	631,768
Total current liabilities	918,683	844,238
Other long-term liabilities	35,841	34,138
Deferred revenue, long-term	244,322	238,473
Deferred tax liabilities	3,256	4,212
Total long-term liabilities	283,419	276,823
Commitments and contingencies
Shareholders’ equity
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding	0	0
Common stock, no par value; 200,000 shares authorized, 64,788 and 65,315 shares issued and outstanding	17,280	13,191
Accumulated other comprehensive loss	(16,048)	(13,194)
Retained earnings	1,193,761	1,185,265
Total shareholders’ equity	1,194,993	1,185,262
Total liabilities and shareholders’ equity	$ 2,397,095	$ 2,306,323

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2016	Sep. 30, 2016
Statement of Financial Position [Abstract]
Accounts receivable, allowances	$ 2,609	$ 2,062
Preferred stock, par value (dollars per share)	$ 0	$ 0
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares outstanding	0	0
Common stock, par value (dollars per share)	$ 0	$ 0
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	64,788,000	65,315,000
Common stock, shares outstanding	64,788,000	65,315,000

XML

Consolidated Income Statements - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Net revenues
Products	$ 239,483	$ 234,678
Services	276,475	254,808
Total	515,958	489,486
Cost of net revenues
Products	41,676	42,651
Services	43,586	43,032
Total	85,262	85,683
Gross profit	430,696	403,803
Operating expenses
Sales and marketing	164,514	157,456
Research and development	87,050	81,145
General and administrative	41,678	34,253
Total	293,242	272,854
Income from operations	137,454	130,949
Other income, net	2,643	1,135
Income before income taxes	140,097	132,084
Provision for income taxes	45,879	42,368
Net income	$ 94,218	$ 89,716
Net income per share — basic (dollars per share)	$ 1.45	$ 1.29
Weighted average shares — basic (shares)	65,195	69,554
Net income per share — diluted (dollars per share)	$ 1.44	$ 1.28
Weighted average shares — diluted (shares)	65,645	69,878

XML

Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 94,218	$ 89,716
Other comprehensive loss:
Foreign currency translation adjustment	(2,079)	(96)
Unrealized losses on securities, net of taxes of $(464) and $(686) for the three months ended December 31, 2016 and 2015, respectively	(773)	(1,143)
Reclassification adjustment for realized (gains) losses included in net income, net of taxes of $1 and $(10) for the three months ended December 31, 2016 and 2015, respectively	(2)	17
Net change in unrealized losses on available-for-sale securities, net of tax	(775)	(1,126)
Total other comprehensive loss	(2,854)	(1,222)
Comprehensive income	$ 91,364	$ 88,494

XML

Consolidated Statements Of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Tax effect of unrealized gain (loss) on securities	$ (464)	$ (686)
Tax effect of reclassification adjustment for realized (gains) losses	$ 1	$ (10)

XML

Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Operating activities
Net income	$ 94,218	$ 89,716
Adjustments to reconcile net income to net cash provided by operating activities:
Realized loss on disposition of assets and investments	30	27
Stock-based compensation	46,611	38,233
Provisions for doubtful accounts and sales returns	291	297
Depreciation and amortization	14,887	13,763
Deferred income taxes	(2,945)	4,237
Changes in operating assets and liabilities:
Accounts receivable	(45,327)	(22)
Inventories	374	146
Other current assets	(306)	(568)
Other assets	391	45
Accounts payable and accrued liabilities	37,082	3,761
Deferred revenue	44,006	54,236
Net cash provided by operating activities	189,312	203,871
Investing activities
Purchases of investments	(98,983)	(107,340)
Maturities of investments	105,744	95,586
Sales of investments	11,211	47,742
Decrease in restricted cash	32	39
Acquisition of intangible assets	(4,000)	(3,250)
Purchases of property and equipment	(14,133)	(13,292)
Net cash (used in) provided by investing activities	(129)	19,485
Financing activities
Excess tax benefit from stock-based compensation	2,940	1,194
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan	18,836	18,474
Repurchase of common stock	(150,021)	(200,035)
Net cash used in financing activities	(128,245)	(180,367)
Net increase in cash and cash equivalents	60,938	42,989
Effect of exchange rate changes on cash and cash equivalents	(2,575)	(152)
Cash and cash equivalents, beginning of period	514,571	390,460
Cash and cash equivalents, end of period	$ 572,934	$ 433,297

XML

Summary of Significant Accounting Policies

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Description of Business

F5 Networks, Inc. (the “Company”) is the leading developer and provider of software-defined application services. The Company’s core technology is a full-proxy, programmable, highly-scalable software platform called TMOS, which supports a broad array of features and functions designed to ensure that applications delivered over Internet Protocol (IP) networks are secure, fast and available. The Company’s TMOS-based offerings include software products for local and global traffic management, network and application security, access management, web acceleration and a number of other network and application services. These products are available as modules that can run individually or as part of an integrated solution on the Company’s high-performance, scalable, purpose-built BIG-IP appliances and VIPRION chassis-based hardware, or as software-only Virtual Editions. The Company also offers distributed denial-of-service (DDoS) protection, application security and other application services by subscription on its cloud-based Silverline platform. In connection with its products, the Company offers a broad range of support services including consulting, training, installation and maintenance.

Basis of Presentation

The year-end 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, 2016.

Certain prior year amounts relating to the tax effects of unrealized gains and losses on securities, have been corrected and reclassified as tax expenses and benefits, respectively, to conform to the current year presentation in the Consolidated Statements of Comprehensive Income. The corrected and reclassified amounts are considered immaterial and there was no change to comprehensive income as a result.

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.

Revenue from the sale of products is generally 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, revenue is recognized when such rights of return lapse. 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.

Revenues for post-contract customer support (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.

Arrangement consideration is first allocated between software (consisting of nonessential and stand-alone software) and non-software deliverables. The majority of the Company’s products are hardware appliances which contain software essential to the overall functionality of the products. Hardware appliances are generally sold with PCS and on occasion, with consulting and/or training services. Arrangement consideration in such multiple element transactions is allocated to each element based on a fair value 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.

For software deliverables, the Company allocates revenue between multiple elements based on 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 VSOE of the fair value of delivered elements is not available, revenue is recognized on the “residual method” based on the fair value of undelivered elements. If evidence of 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.

The Company establishes VSOE for its products, PCS, consulting and training 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 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, when a substantial majority of transactions (more than 80%) are priced within a narrow range, which the Company has determined to be plus or minus 15% of the median sales price.

The Company believes that the VSOE of fair value of training and consulting services is represented by the billable rate per hour, based on the rates charged to customers when they purchase standalone training or 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 is typically not able to determine VSOE or TPE for non-software products. 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 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 has been able to establish BESP 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 the Company’s 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 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 these amounts from revenues.

Goodwill and Acquired Intangible Assets

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 Defense.Net, Inc. in fiscal year 2014, Versafe Ltd. and LineRate Systems, Inc. in fiscal year 2013, Traffix Systems in fiscal year 2012, 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. For its annual goodwill impairment test in all periods to date, the Company has operated under one reporting unit and the fair value of its reporting unit has been determined by the Company’s enterprise value. The Company performs its annual goodwill impairment test during the second fiscal quarter.

As part of the annual goodwill impairment test, the Company first performs a qualitative assessment to determine whether further impairment testing is necessary. If, as a result of its qualitative assessment, it is more-likely-than-not (i.e. greater than 50% chance) that the fair value of the Company’s reporting unit is less than its carrying amount, the quantitative impairment test will be required. Otherwise, no further testing will be required.

Examples of events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount include macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as an expectation that a reporting unit will be sold or a sustained decrease in the stock price on either an absolute basis or relative to peers.

If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of the Company’s reporting unit is less than its carrying amount, the provisions of authoritative guidance require that the Company perform a two-step impairment test on goodwill. 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. In March 2016, the Company completed a qualitative assessment of potential impairment indicators and concluded that it was more-likely-than-not that the fair value of its reporting unit exceeded its carrying amount. The Company considered potential impairment indicators of goodwill and acquired intangible assets at December 31, 2016 and noted no indicators of impairment.

Software Development Costs

The authoritative guidance requires certain internal software development costs related to software to be sold to be capitalized upon the establishment of technological feasibility. The Company's software development costs incurred subsequent to achieving technological feasibility have not been significant, and all software development costs have been expensed as research and development activities as incurred.

Internal Use Software

In accordance with the authoritative guidance, the Company capitalizes application development stage costs associated with the development of new functionality for internal-use software and software developed related to its SaaS-based product offerings. The capitalized costs are then amortized over the estimated useful life of the software, which is generally three to five years, and are included in property and equipment in the accompanying consolidated balance sheets.

Stock-Based Compensation

The Company accounts for stock-based compensation using the straight-line attribution method for recognizing compensation expense. The Company recognized $46.6 million and $38.2 million of stock-based compensation expense for the three months ended December 31, 2016 and 2015, respectively. As of December 31, 2016, there was $230.2 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 October 28, 2016, the Company’s Board of Directors and Compensation Committee approved 1,242,170 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 issues incentive awards to certain current executive officers as part of its annual equity awards program. Fifty percent of the aggregate number of RSUs issued to executive officers vest in equal quarterly increments, and 50% are subject to the Company achieving specified quarterly revenue and EBITDA goals. In each case, 70% of the quarterly performance stock grant is based on achieving at least 80% of the quarterly revenue goal set by the Company's Board of Directors, and the other 30% is based on achieving at least 80% of the quarterly EBITDA goal set by the Company's Board of Directors. The quarterly performance stock grant is paid linearly over 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 the 100% over-achievement threshold. Each goal is also capped at achievement of 200% above target.

As of December 31, 2016, the following annual equity grants for executive officers or a portion thereof are outstanding:

Grant Date	RSUs Granted	Vesting Schedule	Vesting Period	Date Fully Vested
November 1, 2016	115,347	Quarterly	4 years	November 1, 2020
November 2, 2015	145,508	Quarterly	4 years	November 1, 2019
November 1, 2014	171,575	Quarterly	4 years	November 1, 2018
November 1, 2013	231,320	Quarterly	4 years	November 1, 2017

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

Common Stock Repurchase

On April 20, 2016, the Company announced that its Board of Directors authorized an additional $1.0 billion for its common stock share repurchase program. This new authorization is incremental to the existing $2.4 billion program, initially approved in October 2010 and expanded in each fiscal year. Acquisitions for the share repurchase programs will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements. The programs can be terminated at any time. As of December 31, 2016, the Company had repurchased and retired 1,055,640 shares at an average price of $142.11 per share during fiscal year 2017 and the Company had $623.7 million remaining authorized to purchase shares.

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 and are not considered participating securities that should be included in the computation of earnings per share under the two-class method.

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,
	2016		2015
Numerator
Net income	$	94,218	$	89,716
Denominator
Weighted average shares outstanding — basic	65,195		69,554
Dilutive effect of common shares from stock options and restricted stock units	450		324
Weighted average shares outstanding — diluted	65,645		69,878
Basic net income per share	$	1.45	$	1.29
Diluted net income per share	$	1.44	$	1.28

For the three months ended December 31, 2016, there were no common shares potentially issuable from stock options 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 three months ended December 31, 2015, an immaterial amount of common shares potentially issuable from stock options were excluded from the calculation of diluted earnings per share.

Comprehensive Income

Comprehensive income includes certain changes in equity that are excluded from net income. Specifically, unrealized gains or losses on securities and foreign currency translation adjustments are included in accumulated other comprehensive income or loss.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 and the related amendments outline a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The standard can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The Company has initiated an assessment of its systems, data and processes related to the implementation of this accounting standard. Preliminarily, the Company plans to adopt ASU 2014-09 in the first quarter of fiscal 2019 and is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (ASU 2015-11), which changes the subsequent measurement of inventory from lower of cost or market to lower of cost and net realizable value. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which requires that all deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company does not anticipate that the

adoption of this standard will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02), which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a corresponding lease liability for all leases with terms greater than twelve months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and is required to be applied with a modified retrospective approach. Early adoption is permitted. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which will require a company’s cash flow statement to explain the changes during a reporting period of the totals for cash, cash equivalents, restricted cash, and restricted cash equivalents. Additionally, amounts for restricted cash and restricted cash equivalents are to be included with cash and cash equivalents if the cash flow statement includes a reconciliation of the total cash balances for a reporting period. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which provides a more robust framework to use in determining when a set of assets and activities is considered a business. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for certain transactions. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

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Fair Value Measurements

3 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

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 that the Company has the ability to access.

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, U.S. government agency securities and international government securities. Fair values for the Company’s level 2 investments are based on similar assets without applying significant judgments. In addition, all of the Company’s level 2 investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments.

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

The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements at December 31, 2016, 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, 2016
Cash equivalents	$	47,109	$	—	$	—	$	47,109
Short-term investments
Available-for-sale securities — certificates of deposits	—		1,986		—		1,986
Available-for-sale securities — corporate bonds and notes	—		241,252		—		241,252
Available-for-sale securities — municipal bonds and notes	—		60,508		—		60,508
Available-for-sale securities — U.S. government securities	—		86,454		—		86,454
Available-for-sale securities — U.S. government agency securities	—		10,709		—		10,709
Long-term investments
Available-for-sale securities — corporate bonds and notes	—		99,885		—		99,885
Available-for-sale securities — municipal bonds and notes	—		36,528		—		36,528
Available-for-sale securities — U.S. government securities	—		15,996		—		15,996
Available-for-sale securities — U.S. government agency securities	—		70,590		—		70,590
Total	$	47,109	$	623,908	$	—	$	671,017

The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements at September 30, 2016, 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, 2016
Cash equivalents	$	56,525	$	—	$	—	$	56,525
Short-term investments
Available-for-sale securities — corporate bonds and notes	—		223,358		—		223,358
Available-for-sale securities — municipal bonds and notes	—		53,621		—		53,621
Available-for-sale securities — U.S. government securities	—		72,521		—		72,521
Available-for-sale securities — U.S. government agency securities	—		18,324		—		18,324
Long-term investments
Available-for-sale securities — corporate bonds and notes	—		131,427		—		131,427
Available-for-sale securities — municipal bonds and notes	—		27,050		—		27,050
Available-for-sale securities — U.S. government securities	—		27,023		—		27,023
Available-for-sale securities — U.S. government agency securities	—		90,875		—		90,875
Total	$	56,525	$	644,199	$	—	$	700,724

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, 2016, the Company did not recognize any impairment charges related to goodwill, intangible assets, or long-lived assets.

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Short-Term and Long-Term Investments

3 Months Ended

Dec. 31, 2016

Investments, Debt and Equity Securities [Abstract]

Short-Term and Long-Term Investments

Short-Term and Long-Term Investments

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

December 31, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Certificates of deposits	$	1,985	$	1	$	—		$	1,986
Corporate bonds and notes	241,425		31		(204		)	241,252
Municipal bonds and notes	60,580		—		(72		)	60,508
U.S. government securities	86,503		9		(58		)	86,454
U.S. government agency securities	10,710		—		(1		)	10,709
	$	401,203	$	41	$	(335	)	$	400,909

September 30, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate bonds and notes	$	223,448	$	38	$	(128	)	$	223,358
Municipal bonds and notes	53,657		1		(37		)	53,621
U.S. government securities	72,497		31		(7		)	72,521
U.S. government agency securities	18,318		6		—			18,324
	$	367,920	$	76	$	(172	)	$	367,824

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

December 31, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate bonds and notes	$	100,240	$	30	$	(385	)	$	99,885
Municipal bonds and notes	36,694		12		(178		)	36,528
U.S. government securities	16,024		—		(28		)	15,996
U.S. government agency securities	70,860		6		(276		)	70,590
	$	223,818	$	48	$	(867	)	$	222,999

September 30, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate bonds and notes	$	131,273	$	249	$	(95	)	$	131,427
Municipal bonds and notes	27,017		46		(13		)	27,050
U.S. government securities	26,989		36		(2		)	27,023
U.S. government agency securities	90,877		52		(54		)	90,875
	$	276,156	$	383	$	(164	)	$	276,375

The amortized cost and fair value of fixed maturities at December 31, 2016, by contractual years-to-maturity, are presented below (in thousands):

	Cost or Amortized Cost		Fair Value
One year or less	$	401,203	$	400,909
Over one year	223,818		222,999
	$	625,021	$	623,908

The following table summarizes investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for more than 12 months as of December 31, 2016 (in thousands):

	Less Than 12 Months					12 Months or Greater					Total
December 31, 2016	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate bonds and notes	$	97,318	$	(363	)	$	154,566	$	(226	)	$	251,884	$	(589	)
Municipal bonds and notes	46,780		(186		)	43,023		(64		)	89,803		(250		)
U.S. government securities	65,955		(85		)	8,992		(1		)	74,947		(86		)
U.S. government agency securities	55,837		(236		)	12,208		(41		)	68,045		(277		)
Total	$	265,890	$	(870	)	$	218,789	$	(332	)	$	484,679	$	(1,202	)

The Company invests in securities that are rated investment grade or better. The Company reviews the individual securities in its portfolio to determine whether a decline in a security's fair value below the amortized cost basis is other-than-temporary. The Company determined that as of December 31, 2016, there were no investments in its portfolio that were other-than-temporarily impaired.

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Inventories

3 Months Ended

Dec. 31, 2016

Inventory Disclosure [Abstract]

Inventories

Inventories

The Company outsources the manufacturing of its pre-configured hardware platforms to contract manufacturers, who assemble each product to the Company’s specifications. As protection against component shortages and to provide replacement parts for its service teams, the Company also stocks limited supplies of certain key product components. The Company reduces inventory to net realizable value based on excess and obsolete inventories determined primarily by historical usage and forecasted demand. Inventories consist of hardware and related component parts and are recorded at the lower of cost or market (as determined by the first-in, first-out method).

Inventories consist of the following (in thousands):

	December 31, 2016		September 30, 2016
Finished goods	$	22,510	$	23,642
Raw materials	11,168		10,409
	$	33,678	$	34,051

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Commitments and Contingencies

3 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Guarantees and Product Warranties

In the normal course of business to facilitate sales of its products, the Company indemnifies other parties, including customers, resellers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. The Company has entered into indemnification agreements with its officers and directors and certain other employees, and the Company’s bylaws contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.

The Company generally offers warranties of one year for hardware for those customers without service contracts, with the option of purchasing additional warranty coverage in yearly increments. The Company accrues for warranty costs as part of its cost of sales based on associated material product costs and technical support labor costs. Accrued warranty costs as of December 31, 2016 and December 31, 2015 were not considered material.

Commitments

As of December 31, 2016, the Company’s principal commitments consisted of obligations outstanding under operating leases. The Company leases its facilities under operating leases that expire at various dates through 2025. There have been no material changes in the Company’s principal lease commitments compared to those discussed in Note 7 to its annual consolidated financial statements.

The Company currently has arrangements with contract manufacturers and other suppliers for the manufacturing of its products. The arrangement with the primary contract manufacturer allows them to procure component inventory on the Company’s behalf based on a rolling production forecast provided by the Company. The Company is obligated to the purchase of component inventory that the contract manufacturer procures in accordance with the forecast, unless it gives notice of order cancellation in advance of applicable lead times. There have been no material changes in the Company's inventory purchase obligations compared to those discussed in Note 7 to its annual consolidated financial statements.

Legal Proceedings

On May 1, 2013, Radware, Ltd. and Radware, Inc. (Radware), filed a complaint for patent infringement against the Company in the United States District Court for the Northern District of California seeking an unspecified amount of monetary damages, as well as interest, costs, and injunctive relief, based upon allegations that the Company infringed three Radware patents related to devices for ISP link load balancing. The Company answered the Complaint, denied the substantive allegations, and sought a declaratory judgment that the asserted claims were invalid. The Company also counter-claimed alleging that Radware had infringed certain Company patents relating to cookie persistence. F5 was granted summary judgment of non-infringement of one of Radware’s three patents, and was also granted summary judgment of non-infringement with respect to the other two patents in connection with a design-around. F5 also took an offer of judgment as to Radware’s infringement of its patents. Radware’s damages claims and F5’s invalidity claims proceeded to trial and on March 15, 2016, the jury returned a verdict finding that F5 had not proven that the asserted patents were invalid, that the Company willfully infringed one of the two patents and that Radware was due $6.4 million in damages. On August 22, 2016, the Court, in response to various post-trial motions, granted F5 judgment as a matter of law on Radware’s claim of willful infringement (and thus denied Radware’s motion for treble damages and attorneys’ fees), awarded prejudgment interest, and issued an injunction. On September 7, 2016, the Court entered judgment in the amount of $6,870,978.95 in favor of Radware on its claims, and $40,000 in favor of F5 on its counterclaim (pursuant to the offer and acceptance of judgment). On October 5, 2016, F5 moved for a new trial on invalidity. That motion was denied. F5 has appealed the denial of the motion and Radware has appealed the summary judgments of non-infringement, the district court’s exclusion of certain evidence, and the grant of judgment as a matter of law on the willfulness claim. Separately, Radware has requested an award of $192,000 in costs. F5 has objected to the request and it remains pending.

In addition, on April 4, 2016, the Company sued Radware, Inc. in the United States District Court for the Western District of Washington accusing Radware products of infringing three additional Company patents. The Company’s complaint seeks a jury trial and an unspecified amount of monetary damages, as well as interest, costs, and injunctive relief. Radware moved to dismiss the allegations of one patent but the motion was denied. Radware has separately asserted that F5 is infringing U.S. patent no. 9,231,853, another ISP link load balancing patent. F5 has denied infringement and has separately filed an inter partes review petition on the grounds that the patent is invalid. Claim construction briefing is scheduled over the next six months, but no claim construction hearing or trial is scheduled at this point.

In addition to the above referenced matters, the Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business, including intellectual property litigation. Management believes that the Company has meritorious defenses to the allegations made in its pending cases and intends to vigorously defend these lawsuits; however, the Company is unable currently to determine the ultimate outcome of these or similar matters or the potential exposure to loss, if any. There are many uncertainties associated with any litigation and these actions or other third-party claims against the Company may cause it to incur costly litigation and/or substantial settlement charges that could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.

The Company records an accrual for loss contingencies for legal proceedings when it believes that an unfavorable outcome is both (a) probable and (b) the amount or range of any possible loss is reasonably estimable. In fiscal 2016, the Company recorded an accrual related to the Radware litigation mentioned above of $7.0 million for the verdict. The Company has not recorded any other accruals for loss contingencies associated with other legal proceedings.

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Income Taxes

3 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The effective tax rate was 32.7% and 32.1% for the three months ended December 31, 2016 and 2015, respectively.

At December 31, 2016, the Company had $16.0 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. It is anticipated that the Company’s existing liabilities for unrecognized tax benefits will change within the next twelve months due to audit settlements or the expiration of statutes of limitations. The Company does not expect these changes to be material to the consolidated financial statements. The Company recognizes interest and, if applicable, penalties for any uncertain tax positions as a component of income tax expense.

The Company and its subsidiaries are subject to U.S. federal income tax as well as the income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for fiscal years through September 30, 2012. The Company is currently under audit by various states for fiscal years 2011 through 2015. Major jurisdictions where there are wholly owned subsidiaries of F5 Networks, Inc. which require income tax filings include the United Kingdom, Japan, Singapore and Australia. The earliest periods open for review by local taxing authorities are fiscal years 2015 for the United Kingdom, 2011 for Japan, 2012 for Singapore, and 2012 for Australia. Within the next four fiscal quarters, the statute of limitations will begin to close on the fiscal years 2012 and 2013 state income tax returns.

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Geographic Sales and Significant Customers

3 Months Ended

Dec. 31, 2016

Segment Reporting [Abstract]

Geographic Sales and Significant Customers

Geographic Sales and Significant Customers

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Management has determined that the Company is organized as, and operates in, one reportable operating segment: the development, marketing and sale of application delivery networking products that optimize the security, performance and availability of network applications, servers and storage systems.

The Company does business in four main geographic regions: the Americas (primarily the United States); Europe, the Middle East, and Africa (EMEA); Japan; and the Asia Pacific region (APAC). The Company’s chief operating decision-making group reviews financial information presented on a consolidated basis accompanied by information about revenues by geographic region. The Company’s foreign offices conduct sales, marketing and support activities. Revenues are attributed by geographic location based on the location of the customer.

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

	Three months ended December 31,
	2016		2015
Americas:
United States	$	256,250	$	239,190
Other	30,453		27,944
Total Americas	286,703		267,134
EMEA	129,914		127,988
Japan	24,774		22,652
Asia Pacific	74,567		71,712
	$	515,958	$	489,486

The following distributors of the Company's products accounted for more than 10% of total net revenue:

	Three months ended December 31,
	2016		2015
Westcon Group, Inc.	18.8	%	19.7	%
Ingram Micro, Inc.	16.0	%	14.6	%
Avnet Technology Solutions	12.3	%	13.9	%
Arrow ECS	10.1	%	11.0	%

The Company tracks assets by physical location. Long-lived assets consist of property and equipment, net, and are shown below (in thousands):

	December 31, 2016		September 30, 2016
United States	$	111,100	$	105,480
EMEA	13,456		13,789
Other countries	4,111		3,979
	$	128,667	$	123,248

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Summary of Significant Accounting Policies (Policy)

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Description of Business

Description of Business

F5 Networks, Inc. (the “Company”) is the leading developer and provider of software-defined application services. The Company’s core technology is a full-proxy, programmable, highly-scalable software platform called TMOS, which supports a broad array of features and functions designed to ensure that applications delivered over Internet Protocol (IP) networks are secure, fast and available. The Company’s TMOS-based offerings include software products for local and global traffic management, network and application security, access management, web acceleration and a number of other network and application services. These products are available as modules that can run individually or as part of an integrated solution on the Company’s high-performance, scalable, purpose-built BIG-IP appliances and VIPRION chassis-based hardware, or as software-only Virtual Editions. The Company also offers distributed denial-of-service (DDoS) protection, application security and other application services by subscription on its cloud-based Silverline platform. In connection with its products, the Company offers a broad range of support services including consulting, training, installation and maintenance.

Basis of Presentation

Basis of Presentation

The year-end 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, 2016.

Certain prior year amounts relating to the tax effects of unrealized gains and losses on securities, have been corrected and reclassified as tax expenses and benefits, respectively, to conform to the current year presentation in the Consolidated Statements of Comprehensive Income. The corrected and reclassified amounts are considered immaterial and there was no change to comprehensive income as a result.

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.

Revenue from the sale of products is generally 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, revenue is recognized when such rights of return lapse. 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.

Revenues for post-contract customer support (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.

Arrangement consideration is first allocated between software (consisting of nonessential and stand-alone software) and non-software deliverables. The majority of the Company’s products are hardware appliances which contain software essential to the overall functionality of the products. Hardware appliances are generally sold with PCS and on occasion, with consulting and/or training services. Arrangement consideration in such multiple element transactions is allocated to each element based on a fair value 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.

For software deliverables, the Company allocates revenue between multiple elements based on 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 VSOE of the fair value of delivered elements is not available, revenue is recognized on the “residual method” based on the fair value of undelivered elements. If evidence of 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.

The Company establishes VSOE for its products, PCS, consulting and training 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 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, when a substantial majority of transactions (more than 80%) are priced within a narrow range, which the Company has determined to be plus or minus 15% of the median sales price.

The Company believes that the VSOE of fair value of training and consulting services is represented by the billable rate per hour, based on the rates charged to customers when they purchase standalone training or 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 is typically not able to determine VSOE or TPE for non-software products. 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 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 has been able to establish BESP 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 the Company’s 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 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 these amounts from revenues.

Goodwill and Acquired Intangible Assets

Goodwill and Acquired Intangible Assets

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 Defense.Net, Inc. in fiscal year 2014, Versafe Ltd. and LineRate Systems, Inc. in fiscal year 2013, Traffix Systems in fiscal year 2012, 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. For its annual goodwill impairment test in all periods to date, the Company has operated under one reporting unit and the fair value of its reporting unit has been determined by the Company’s enterprise value. The Company performs its annual goodwill impairment test during the second fiscal quarter.

As part of the annual goodwill impairment test, the Company first performs a qualitative assessment to determine whether further impairment testing is necessary. If, as a result of its qualitative assessment, it is more-likely-than-not (i.e. greater than 50% chance) that the fair value of the Company’s reporting unit is less than its carrying amount, the quantitative impairment test will be required. Otherwise, no further testing will be required.

Examples of events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount include macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as an expectation that a reporting unit will be sold or a sustained decrease in the stock price on either an absolute basis or relative to peers.

If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of the Company’s reporting unit is less than its carrying amount, the provisions of authoritative guidance require that the Company perform a two-step impairment test on goodwill. 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. In March 2016, the Company completed a qualitative assessment of potential impairment indicators and concluded that it was more-likely-than-not that the fair value of its reporting unit exceeded its carrying amount. The Company considered potential impairment indicators of goodwill and acquired intangible assets at December 31, 2016 and noted no indicators of impairment.

Software Development Costs

Software Development Costs

The authoritative guidance requires certain internal software development costs related to software to be sold to be capitalized upon the establishment of technological feasibility. The Company's software development costs incurred subsequent to achieving technological feasibility have not been significant, and all software development costs have been expensed as research and development activities as incurred.

Internal Use Software

Internal Use Software

In accordance with the authoritative guidance, the Company capitalizes application development stage costs associated with the development of new functionality for internal-use software and software developed related to its SaaS-based product offerings. The capitalized costs are then amortized over the estimated useful life of the software, which is generally three to five years, and are included in property and equipment in the accompanying consolidated balance sheets.

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 $46.6 million and $38.2 million of stock-based compensation expense for the three months ended December 31, 2016 and 2015, respectively. As of December 31, 2016, there was $230.2 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 October 28, 2016, the Company’s Board of Directors and Compensation Committee approved 1,242,170 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 issues incentive awards to certain current executive officers as part of its annual equity awards program. Fifty percent of the aggregate number of RSUs issued to executive officers vest in equal quarterly increments, and 50% are subject to the Company achieving specified quarterly revenue and EBITDA goals. In each case, 70% of the quarterly performance stock grant is based on achieving at least 80% of the quarterly revenue goal set by the Company's Board of Directors, and the other 30% is based on achieving at least 80% of the quarterly EBITDA goal set by the Company's Board of Directors. The quarterly performance stock grant is paid linearly over 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 the 100% over-achievement threshold. Each goal is also capped at achievement of 200% above target.

As of December 31, 2016, the following annual equity grants for executive officers or a portion thereof are outstanding:

Grant Date	RSUs Granted	Vesting Schedule	Vesting Period	Date Fully Vested
November 1, 2016	115,347	Quarterly	4 years	November 1, 2020
November 2, 2015	145,508	Quarterly	4 years	November 1, 2019
November 1, 2014	171,575	Quarterly	4 years	November 1, 2018
November 1, 2013	231,320	Quarterly	4 years	November 1, 2017

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

Common Stock Repurchase

On April 20, 2016, the Company announced that its Board of Directors authorized an additional $1.0 billion for its common stock share repurchase program. This new authorization is incremental to the existing $2.4 billion program, initially approved in October 2010 and expanded in each fiscal year. Acquisitions for the share repurchase programs will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements. The programs can be terminated at any time. As of December 31, 2016, the Company had repurchased and retired 1,055,640 shares at an average price of $142.11 per share during fiscal year 2017 and the Company had $623.7 million remaining authorized to purchase shares.

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 and are not considered participating securities that should be included in the computation of earnings per share under the two-class method.

Comprehensive Income

Comprehensive Income

Comprehensive income includes certain changes in equity that are excluded from net income. Specifically, unrealized gains or losses on securities and foreign currency translation adjustments are included in accumulated other comprehensive income or loss.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 and the related amendments outline a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The standard can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The Company has initiated an assessment of its systems, data and processes related to the implementation of this accounting standard. Preliminarily, the Company plans to adopt ASU 2014-09 in the first quarter of fiscal 2019 and is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (ASU 2015-11), which changes the subsequent measurement of inventory from lower of cost or market to lower of cost and net realizable value. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which requires that all deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company does not anticipate that the

adoption of this standard will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02), which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a corresponding lease liability for all leases with terms greater than twelve months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and is required to be applied with a modified retrospective approach. Early adoption is permitted. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which will require a company’s cash flow statement to explain the changes during a reporting period of the totals for cash, cash equivalents, restricted cash, and restricted cash equivalents. Additionally, amounts for restricted cash and restricted cash equivalents are to be included with cash and cash equivalents if the cash flow statement includes a reconciliation of the total cash balances for a reporting period. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which provides a more robust framework to use in determining when a set of assets and activities is considered a business. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for certain transactions. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Schedule of Nonvested Restricted Stock Units Activity

As of December 31, 2016, the following annual equity grants for executive officers or a portion thereof are outstanding:

Grant Date	RSUs Granted	Vesting Schedule	Vesting Period	Date Fully Vested
November 1, 2016	115,347	Quarterly	4 years	November 1, 2020
November 2, 2015	145,508	Quarterly	4 years	November 1, 2019
November 1, 2014	171,575	Quarterly	4 years	November 1, 2018
November 1, 2013	231,320	Quarterly	4 years	November 1, 2017

Schedule of Computation of Basic and Diluted Net Income Per Share

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,
	2016		2015
Numerator
Net income	$	94,218	$	89,716
Denominator
Weighted average shares outstanding — basic	65,195		69,554
Dilutive effect of common shares from stock options and restricted stock units	450		324
Weighted average shares outstanding — diluted	65,645		69,878
Basic net income per share	$	1.45	$	1.29
Diluted net income per share	$	1.44	$	1.28

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Fair Value Measurements (Tables)

3 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Schedule of Financial Assets Measured at Fair Value on a Recurring Basis

The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements at December 31, 2016, 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, 2016
Cash equivalents	$	47,109	$	—	$	—	$	47,109
Short-term investments
Available-for-sale securities — certificates of deposits	—		1,986		—		1,986
Available-for-sale securities — corporate bonds and notes	—		241,252		—		241,252
Available-for-sale securities — municipal bonds and notes	—		60,508		—		60,508
Available-for-sale securities — U.S. government securities	—		86,454		—		86,454
Available-for-sale securities — U.S. government agency securities	—		10,709		—		10,709
Long-term investments
Available-for-sale securities — corporate bonds and notes	—		99,885		—		99,885
Available-for-sale securities — municipal bonds and notes	—		36,528		—		36,528
Available-for-sale securities — U.S. government securities	—		15,996		—		15,996
Available-for-sale securities — U.S. government agency securities	—		70,590		—		70,590
Total	$	47,109	$	623,908	$	—	$	671,017

The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements at September 30, 2016, 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, 2016
Cash equivalents	$	56,525	$	—	$	—	$	56,525
Short-term investments
Available-for-sale securities — corporate bonds and notes	—		223,358		—		223,358
Available-for-sale securities — municipal bonds and notes	—		53,621		—		53,621
Available-for-sale securities — U.S. government securities	—		72,521		—		72,521
Available-for-sale securities — U.S. government agency securities	—		18,324		—		18,324
Long-term investments
Available-for-sale securities — corporate bonds and notes	—		131,427		—		131,427
Available-for-sale securities — municipal bonds and notes	—		27,050		—		27,050
Available-for-sale securities — U.S. government securities	—		27,023		—		27,023
Available-for-sale securities — U.S. government agency securities	—		90,875		—		90,875
Total	$	56,525	$	644,199	$	—	$	700,724

XML

Short-Term and Long-Term Investments (Tables)

3 Months Ended

Dec. 31, 2016

Schedule of Investments [Line Items]

Schedule of Amortized Cost and Fair Value of Fixed Maturities by Contractual Years-To-Maturity

The amortized cost and fair value of fixed maturities at December 31, 2016, by contractual years-to-maturity, are presented below (in thousands):

	Cost or Amortized Cost		Fair Value
One year or less	$	401,203	$	400,909
Over one year	223,818		222,999
	$	625,021	$	623,908

Schedule of Investments That Have Been in a Continuous Unrealized Loss Position

The following table summarizes investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for more than 12 months as of December 31, 2016 (in thousands):

	Less Than 12 Months					12 Months or Greater					Total
December 31, 2016	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate bonds and notes	$	97,318	$	(363	)	$	154,566	$	(226	)	$	251,884	$	(589	)
Municipal bonds and notes	46,780		(186		)	43,023		(64		)	89,803		(250		)
U.S. government securities	65,955		(85		)	8,992		(1		)	74,947		(86		)
U.S. government agency securities	55,837		(236		)	12,208		(41		)	68,045		(277		)
Total	$	265,890	$	(870	)	$	218,789	$	(332	)	$	484,679	$	(1,202	)

Short-Term Investments [Member]

Schedule of Investments [Line Items]

Schedule of Short-Term and Long-Term Investments

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

December 31, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Certificates of deposits	$	1,985	$	1	$	—		$	1,986
Corporate bonds and notes	241,425		31		(204		)	241,252
Municipal bonds and notes	60,580		—		(72		)	60,508
U.S. government securities	86,503		9		(58		)	86,454
U.S. government agency securities	10,710		—		(1		)	10,709
	$	401,203	$	41	$	(335	)	$	400,909

September 30, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate bonds and notes	$	223,448	$	38	$	(128	)	$	223,358
Municipal bonds and notes	53,657		1		(37		)	53,621
U.S. government securities	72,497		31		(7		)	72,521
U.S. government agency securities	18,318		6		—			18,324
	$	367,920	$	76	$	(172	)	$	367,824

Long-Term Investments [Member]

Schedule of Investments [Line Items]

Schedule of Short-Term and Long-Term Investments

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

December 31, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate bonds and notes	$	100,240	$	30	$	(385	)	$	99,885
Municipal bonds and notes	36,694		12		(178		)	36,528
U.S. government securities	16,024		—		(28		)	15,996
U.S. government agency securities	70,860		6		(276		)	70,590
	$	223,818	$	48	$	(867	)	$	222,999

September 30, 2016	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate bonds and notes	$	131,273	$	249	$	(95	)	$	131,427
Municipal bonds and notes	27,017		46		(13		)	27,050
U.S. government securities	26,989		36		(2		)	27,023
U.S. government agency securities	90,877		52		(54		)	90,875
	$	276,156	$	383	$	(164	)	$	276,375

XML

Inventories (Tables)

3 Months Ended

Dec. 31, 2016

Inventory Disclosure [Abstract]

Schedule Of Inventories

Inventories consist of the following (in thousands):

	December 31, 2016		September 30, 2016
Finished goods	$	22,510	$	23,642
Raw materials	11,168		10,409
	$	33,678	$	34,051

XML

Geographic Sales and Significant Customers (Tables)

3 Months Ended

Dec. 31, 2016

Segment Reporting [Abstract]

Schedule of Revenues by Geographic Region

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

	Three months ended December 31,
	2016		2015
Americas:
United States	$	256,250	$	239,190
Other	30,453		27,944
Total Americas	286,703		267,134
EMEA	129,914		127,988
Japan	24,774		22,652
Asia Pacific	74,567		71,712
	$	515,958	$	489,486

Schedule of Revenue by Major Customers by Reporting Segments

The following distributors of the Company's products accounted for more than 10% of total net revenue:

	Three months ended December 31,
	2016		2015
Westcon Group, Inc.	18.8	%	19.7	%
Ingram Micro, Inc.	16.0	%	14.6	%
Avnet Technology Solutions	12.3	%	13.9	%
Arrow ECS	10.1	%	11.0	%

Long-lived Assets by Geographic Areas [Table Text Block]

The Company tracks assets by physical location. Long-lived assets consist of property and equipment, net, and are shown below (in thousands):

	December 31, 2016		September 30, 2016
United States	$	111,100	$	105,480
EMEA	13,456		13,789
Other countries	4,111		3,979
	$	128,667	$	123,248

XML

Summary of Significant Accounting Policies (Narrative) (Details) - USD ($)		3 Months Ended
	Oct. 28, 2016	Dec. 31, 2016	Dec. 31, 2015	Apr. 20, 2016	Jan. 21, 2015
Schedule Of Summary Of Significant Accounting Policies [Line Items]
Number of Reportable Segments		1
Revenue Recognition
VSOE percentage which constitutes substantial majority of transactions priced within a narrow range		80.00%
Range of VSOE to median sales price		15.00%
Stock-Based Compensation
Share-based compensation expense		$ 46,600,000	$ 38,200,000
Unrecognized stock-based compensation cost		$ 230,200,000
Unrecognized stock-based compensation cost, period for recognition		2 years
Common Stock Repurchase
Stock Repurchase Program, Number Of Shares Repurchased And Retired		1,055,640
Treasury Stock Acquired, Average Cost Per Share		$ 142.11
Stock Repurchase Program, Remaining Authorized Repurchase Amount		$ 623,700,000
Restricted Stock Units (RSUs) [Member]
Stock-Based Compensation
Approved RSUs to employees and executive officers pursuant to the Company's annual equity awards program	1,242,170
Minimum [Member]
Revenue Recognition
Domestic accounts receivable terms of payment		30 days
International accounts receivable terms of payment		30 days
Maximum [Member]
Revenue Recognition
Domestic accounts receivable terms of payment		45 days
International accounts receivable terms of payment		120 days
October Twenty Six Two Thousand Ten Program [Member]
Common Stock Repurchase
Stock Repurchase Program, Authorized Amount				$ 1,000,000,000	$ 2,400,000,000
Annual Equity Program [Member] | Restricted Stock Units (RSUs) [Member]
Stock-Based Compensation
Percentage of the aggregate number of RSUs granted that vest in equal quarterly increments		50.00%
Portion of RSU grant subject to Company achieving specified quarterly revenue and EBITDA goals		50.00%
Percentage of quarterly performance stock grant based on achieving quarterly revenue goal		70.00%
Percentage of quarterly revenue goal to be achieved for performance stock grant		80.00%
Percentage of quarterly performance stock grant based on achieving EBITDA goal		30.00%
Percentage Of Quarterly Ebitda Goal To Be Achieved For Performance Stock Grant		80.00%
Threshold percentage of targeted goals above which quarterly performance stock grant is paid linearly		80.00%
Percentage of over-achievement threshold to which the goals are entitled		100.00%
Percentage Of Over-Achievement To Which Quarterly Performance Based Vesting Cannot Exceed		200.00%
Annual Equity Program [Member] | November 1, 2016 [Member] | Restricted Stock Units (RSUs) [Member]
Stock-Based Compensation
Approved RSUs to employees and executive officers pursuant to the Company's annual equity awards program		115,347
Annual equity awards program vesting period		4 years
Annual Equity Program [Member] | November 2, 2015 [Member] | Restricted Stock Units (RSUs) [Member]
Stock-Based Compensation
Approved RSUs to employees and executive officers pursuant to the Company's annual equity awards program		145,508
Annual equity awards program vesting period		4 years
Annual Equity Program [Member] | November 1, 2014 [Member] | Restricted Stock Units (RSUs) [Member]
Stock-Based Compensation
Approved RSUs to employees and executive officers pursuant to the Company's annual equity awards program		171,575
Annual equity awards program vesting period		4 years
Annual Equity Program [Member] | November 1, 2013 [Member] | Restricted Stock Units (RSUs) [Member]
Stock-Based Compensation
Approved RSUs to employees and executive officers pursuant to the Company's annual equity awards program		231,320
Annual equity awards program vesting period		4 years
Software and Software Development Costs [Member] | Minimum [Member]
Schedule Of Summary Of Significant Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life		3 years
Software and Software Development Costs [Member] | Maximum [Member]
Schedule Of Summary Of Significant Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life		5 years

XML

Summary of Significant Accounting Policies (Schedule Of Computation Of Basic And Diluted Net Income Per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Accounting Policies [Abstract]
Net income	$ 94,218	$ 89,716
Weighted average shares outstanding - basic	65,195	69,554
Dilutive effect of common shares from stock options and restricted stock units	450	324
Weighted average shares outstanding - diluted	65,645	69,878
Basic net income per share (dollars per share)	$ 1.45	$ 1.29
Diluted net income per share (dollars per share)	$ 1.44	$ 1.28

XML

Fair Value Measurements (Schedule of Financial Assets Measured at Fair Value on a Recurring Basis) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Sep. 30, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]
Cash equivalents, fair value	$ 47,109	$ 56,525
Investments, fair value	623,908
Financial assets measured at fair value on a recurring basis, total	671,017	700,724
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	47,109	56,525
Financial assets measured at fair value on a recurring basis, total	47,109	56,525
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	623,908	644,199
Short-Term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]
Investments, fair value	400,909	367,824
Short-Term Investments [Member] | Certificates of Deposit [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]
Investments, fair value	1,986
Short-Term Investments [Member] | Certificates of Deposit [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	1,986
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	241,252	223,358
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	241,252	223,358
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	60,508	53,621
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	60,508	53,621
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	86,454	72,521
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	86,454	72,521
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	10,709	18,324
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	10,709	18,324
Long-Term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Line Items]
Investments, fair value	222,999	276,375
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	99,885	131,427
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	99,885	131,427
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	36,528	27,050
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	36,528	27,050
Long-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	15,996	27,023
Long-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	15,996	27,023
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	70,590	90,875
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	$ 70,590	$ 90,875

XML

Short-Term and Long-Term Investments (Schedule of Short-Term and Long-Term Investments) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Sep. 30, 2016
Schedule of Investments [Line Items]
Cost or Amortized Cost	$ 625,021
Fair Value	623,908
Long Term Investments [Member]
Schedule of Investments [Line Items]
Cost or Amortized Cost	223,818	$ 276,156
Gross Unrealized Gains	48	383
Gross Unrealized Losses	(867)	(164)
Fair Value	222,999	276,375
Long Term Investments [Member] | Corporate bonds and notes
Schedule of Investments [Line Items]
Cost or Amortized Cost	100,240	131,273
Gross Unrealized Gains	30	249
Gross Unrealized Losses	(385)	(95)
Fair Value	99,885	131,427
Long Term Investments [Member] | Municipal bonds and notes
Schedule of Investments [Line Items]
Cost or Amortized Cost	36,694	27,017
Gross Unrealized Gains	12	46
Gross Unrealized Losses	(178)	(13)
Fair Value	36,528	27,050
Long Term Investments [Member] | U.S. government securities
Schedule of Investments [Line Items]
Cost or Amortized Cost	16,024	26,989
Gross Unrealized Gains	0	36
Gross Unrealized Losses	(28)	(2)
Fair Value	15,996	27,023
Long Term Investments [Member] | U.S. government agency securities
Schedule of Investments [Line Items]
Cost or Amortized Cost	70,860	90,877
Gross Unrealized Gains	6	52
Gross Unrealized Losses	(276)	(54)
Fair Value	70,590	90,875
Short-term Investments [Member]
Schedule of Investments [Line Items]
Cost or Amortized Cost	401,203	367,920
Gross Unrealized Gains	41	76
Gross Unrealized Losses	(335)	(172)
Fair Value	400,909	367,824
Short-term Investments [Member] | Certificates of Deposit [Member]
Schedule of Investments [Line Items]
Cost or Amortized Cost	1,985
Gross Unrealized Gains	1
Gross Unrealized Losses	0
Fair Value	1,986
Short-term Investments [Member] | Corporate bonds and notes
Schedule of Investments [Line Items]
Cost or Amortized Cost	241,425	223,448
Gross Unrealized Gains	31	38
Gross Unrealized Losses	(204)	(128)
Fair Value	241,252	223,358
Short-term Investments [Member] | Municipal bonds and notes
Schedule of Investments [Line Items]
Cost or Amortized Cost	60,580	53,657
Gross Unrealized Gains	0	1
Gross Unrealized Losses	(72)	(37)
Fair Value	60,508	53,621
Short-term Investments [Member] | U.S. government securities
Schedule of Investments [Line Items]
Cost or Amortized Cost	86,503	72,497
Gross Unrealized Gains	9	31
Gross Unrealized Losses	(58)	(7)
Fair Value	86,454	72,521
Short-term Investments [Member] | U.S. government agency securities
Schedule of Investments [Line Items]
Cost or Amortized Cost	10,710	18,318
Gross Unrealized Gains	0	6
Gross Unrealized Losses	(1)	0
Fair Value	$ 10,709	$ 18,324

XML

Short-Term and Long-Term Investments (Schedule of Amortized Cost And Fair Value of Fixed Maturities by Contractual Years-To-Maturity) (Details) $ in Thousands	Dec. 31, 2016 USD ($)
Investments, Debt and Equity Securities [Abstract]
Cost or Amortized Cost, Fixed Maturities, One year or less	$ 401,203
Cost or Amortized Cost, Fixed Maturities, Over one year	223,818
Cost or Amortized Cost	625,021
Fair Value, Fixed Maturities, One year or less	400,909
Fair Value, Fixed Maturities, Over one year	222,999
Fair Value	$ 623,908

XML

Short-Term and Long-Term Investments (Schedule of Investments That Have Been in a Continuous Unrealized Loss Position) (Details) $ in Thousands	Dec. 31, 2016 USD ($)
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Continuous Loss Position, Unrealized Loss, Less Than 12 Months	$ 265,890
Gross Unrealized Losses, Continuous Loss Position, Unrealized Loss, Less Than 12 Months	(870)
Fair Value, Continuous Loss Position, Unrealized Loss, 12 Months or Greater	218,789
Gross Unrealized Losses, Continuous Loss Position, 12 Months or Greater	(332)
Fair Value, Continuous Loss Position, Unrealized Loss, Total	484,679
Gross Unrealized Losses, Continuous Loss Position, Total	(1,202)
Corporate Bonds and Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Continuous Loss Position, Unrealized Loss, Less Than 12 Months	97,318
Gross Unrealized Losses, Continuous Loss Position, Unrealized Loss, Less Than 12 Months	(363)
Fair Value, Continuous Loss Position, Unrealized Loss, 12 Months or Greater	154,566
Gross Unrealized Losses, Continuous Loss Position, 12 Months or Greater	(226)
Fair Value, Continuous Loss Position, Unrealized Loss, Total	251,884
Gross Unrealized Losses, Continuous Loss Position, Total	(589)
Municipal Bonds and Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Continuous Loss Position, Unrealized Loss, Less Than 12 Months	46,780
Gross Unrealized Losses, Continuous Loss Position, Unrealized Loss, Less Than 12 Months	(186)
Fair Value, Continuous Loss Position, Unrealized Loss, 12 Months or Greater	43,023
Gross Unrealized Losses, Continuous Loss Position, 12 Months or Greater	(64)
Fair Value, Continuous Loss Position, Unrealized Loss, Total	89,803
Gross Unrealized Losses, Continuous Loss Position, Total	(250)
U.S. Government Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Continuous Loss Position, Unrealized Loss, Less Than 12 Months	65,955
Gross Unrealized Losses, Continuous Loss Position, Unrealized Loss, Less Than 12 Months	(85)
Fair Value, Continuous Loss Position, Unrealized Loss, 12 Months or Greater	8,992
Gross Unrealized Losses, Continuous Loss Position, 12 Months or Greater	(1)
Fair Value, Continuous Loss Position, Unrealized Loss, Total	74,947
Gross Unrealized Losses, Continuous Loss Position, Total	(86)
U.S. Government Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Continuous Loss Position, Unrealized Loss, Less Than 12 Months	55,837
Gross Unrealized Losses, Continuous Loss Position, Unrealized Loss, Less Than 12 Months	(236)
Fair Value, Continuous Loss Position, Unrealized Loss, 12 Months or Greater	12,208
Gross Unrealized Losses, Continuous Loss Position, 12 Months or Greater	(41)
Fair Value, Continuous Loss Position, Unrealized Loss, Total	68,045
Gross Unrealized Losses, Continuous Loss Position, Total	$ (277)

XML

Inventories (Schedule of Inventories) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Sep. 30, 2016
Inventory Disclosure [Abstract]
Finished goods	$ 22,510	$ 23,642
Raw materials	11,168	10,409
Inventories, Total	$ 33,678	$ 34,051

XML

Commitments And Contingencies (Details) - USD ($)			3 Months Ended
	Sep. 07, 2016	Mar. 15, 2016	Dec. 31, 2016
Loss Contingencies [Line Items]
Product warranty period			1 year
Loss Contingency Accrual			$ 7,000,000
Radware, Ltd. and Radware, Inc. Patent Infringement Complaint [Member] | Pending Litigation [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Amount	$ (6,870,978.95)	$ (6,400,000)
Loss Contingency Accrual			$ 192,000
F5 Counterclaim of Radware, Ltd. and Radware, Inc. Patent Infringement Complaint [Member] | Pending Litigation [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Amount	$ 40,000

XML

Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Effective Income Tax Rate Reconciliation, Percent	32.70%	32.10%
Unrecognized tax benefit	$ 16.0

XML

Geographic Sales and Significant Customers (Details) $ in Thousands	3 Months Ended
	Dec. 31, 2016 USD ($) geographic_region	Dec. 31, 2015 USD ($)	Sep. 30, 2016 USD ($)
Segment Reporting Information [Line Items]
Number of Reportable Segments	1
Number of Geographic Regions | geographic_region	4
Revenue	$ 515,958	$ 489,486
Long-lived assets	128,667		$ 123,248
Americas [Member]
Segment Reporting Information [Line Items]
Revenue	286,703	267,134
United States [Member]
Segment Reporting Information [Line Items]
Revenue	256,250	239,190
Long-lived assets	111,100		105,480
Other [Member]
Segment Reporting Information [Line Items]
Revenue	30,453	27,944
EMEA [Member]
Segment Reporting Information [Line Items]
Revenue	129,914	127,988
Long-lived assets	13,456		13,789
Japan [Member]
Segment Reporting Information [Line Items]
Revenue	24,774	22,652
Asia Pacific [Member]
Segment Reporting Information [Line Items]
Revenue	74,567	$ 71,712
Other International Countries [Member]
Segment Reporting Information [Line Items]
Long-lived assets	$ 4,111		$ 3,979
Worldwide Distributor 1 [Member] | Net Revenue [Member] | Geographic Concentration [Member]
Segment Reporting Information [Line Items]
Concentration risk percentage	18.80%	19.70%
Worldwide Distributor 2 [Member] | Net Revenue [Member] | Geographic Concentration [Member]
Segment Reporting Information [Line Items]
Concentration risk percentage	16.00%	14.60%
Worldwide Distributor 3 [Member] | Net Revenue [Member] | Geographic Concentration [Member]
Segment Reporting Information [Line Items]
Concentration risk percentage	12.30%	13.90%
Worldwide Distributor4 [Member] | Net Revenue [Member] | Geographic Concentration [Member]
Segment Reporting Information [Line Items]
Concentration risk percentage	10.10%	11.00%