Annual Report 2006 Revenue (in $ Millions) Gross Margin (in %) – restated – 394.0 77 77 77 78 72 281.4 171.2 115.9 108.3 Operating Margin (in %) – restated – 25 23 15 2 -14 Net Income (Loss in Millions) – restated – 66.0 46.9 36.3 -13.9 2.3 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 Deferred Revenue (in $ Millions) DSO (in days) Cash Flow from Operation (in $ Millions) Cash, Equivalents & Investments (in $ Millions) 60.3 68 55 51 47 41 125.4 85.0 40.6 14.6 9.5 39.3 28.1 19.1 14.1 492.2 365.0 222.3 81.7 79.0 TO OUR SHAREHOLDERS: Operationally, fi scal 2006 was another year of strong growth and solid achievement for F5. Net income of $66 million increased 41 percent and revenue of $394 million grew 40 percent from fi scal 2005. Unfortunately, the company’s fi nancial performance during the second half of the year was overshadowed by an inquiry into past stock option grants that 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 prevented us from reporting our full fi nancial results for the period. Selected Financial Data (in thousands) Net Revenues Gross Profi t Operating Expenses Income (Loss) from Operations Net Income (Loss) Cash, Equivalents & Investments Long-Term Debt 2002 - restated - $ 108,266 $ 77,471 $ 92,260 $ (14,789) $ (13,858) $ 81,679 0 $ 2003 - restated - $ 115,895 $ 88,920 $ 86,562 $ 2,358 $ 2,256 $ 79,010 0 $ 2004 - restated - $ 171,190 $ 131,791 $ 106,645 $ 25,146 $ 36,328 $ 222,293 0 $ 2005 - restated - $ 281,410 $ 216,226 $ 146,868 $ 69,358 $ 46,902 $ 365,015 0 $ 2006 $ 394,049 $ 305,896 $ 215,758 $ 90,138 $ 66,005 $ 492,176 0 $ About F5 Networks F5 Networks is the global leader in Application Delivery Networking. F5 provides solutions that make applications secure, fast and available for everyone, helping organizations get the most out of their investment. By adding intelligence and manageability into the network to offl oad applications, F5 optimizes applications and allows them to work faster and consume fewer resources. F5’s extensible architecture intelligently integrates application optimization, protects the application and the network, and delivers application reliability – all on one universal platform. Over 10,000 organizations and service providers worldwide trust F5 to keep their applications running. The company is headquartered in Seattle, Washington with offi ces worldwide. On November 9, we announced that the special board committee conducting the inquiry had completed its work and presented its fi ndings and recommendations to the board. As of this date, all of the fi nancial restatements recommended by the special committee have been completed, and all fi lings are current. Now that our full results have been published, the numbers speak for themselves. Instead of reviewing them here, I want to highlight the key factors that drove the company’s growth and profi tability in fi scal 2006 and briefl y describe how we plan to leverage our technology and market position to achieve continuing growth and profi tability in fi scal 2007. TMOS: THE FOUNDATION detecting and disarming security threats Since it was introduced in September 2004, or directing traffi c to the most appropriate our TMOS operating system has continued server. The ability to customize our products to validate our three-year investment in with iRules has strong appeal for our its development. The unique full-proxy distribution partners, as well as end-users, architecture of TMOS distinguishes our because it allows them to add signifi cant products from other application delivery value on top of the products themselves. networking solutions by its ability to examine the complete contents of During the past year the use of iRules Our iControl partnerships with software vendors such as Microsoft and Oracle also continue to drive our sales momentum. During fi scal 2006, more than 50 percent of our revenue was from sales infl uenced by our iControl partners. In January 2006 we introduced Global currently being developed and is targeted Traffi c Manager (GTM) and Link Controller for release at the end of this fi scal year. as software modules. The following Concurrently, we are developing a TMOS- month, we announced the availability of based version of FirePass, our SSL VPN Application Security Manager (ASM) as a product, which we plan to release around standalone appliance running TMOS and the same time. Initially, WANJet and as a software module on BIG-IP. In July FirePass will be available only as standalone we introduced a TMOS-based version of products, but their availability on TMOS WebAccelerator, also available as both a will allow customers to take advantage of continues to outperform all other competing application delivery products. Currently, we are beta-testing the BIG-IP 8800, which is 50 percent faster than the BIG-IP 8400 for Layer 7 throughput and twice as fast for SSL and compression. We plan to release the BIG-IP 8800 for general availability shortly after the fi rst of the year. transmissions passing between users and has increased dramatically, as refl ected MODULAR SOLUTIONS standalone product and a software tight integration with our other products as The BIG-IP 8800 is designed to exploit applications and modify them as needed. by the growing number of registered In addition to developing a fast, fl exible, module. GTM, formerly called 3DNS, well as the built-in features of the operating the power of dual-core processors and This ability allows F5 to add more value to members at DevCentral, our online user full-proxy architecture, one of our key design and Link Controller, which manages system itself. applications fl owing over the network than forum, and the number and variety of goals for TMOS was to create a software any other vendor in our market. iRules posted there by our customers and platform that would allow us to incorporate partners. In conjunction with iControl, our new features and functions as software traffi c among multiple ISPs, were existing F5 products. ASM, formerly called Traffi cShield, was acquired with clustered multiprocessing and to be a building block for Montreal, our chassis- based product that will utilize up to four blades, integrated on a single backplane. In addition to features such as integrated programming interface that lets application modules. Our aim was twofold: to deliver MagniFire, and WebAccelerator was LEADING-EDGE PERFORMANCE Initially, we had planned to introduce SSL encryption and decryption (which developers customize their applications to multiple features and functions integrated one of two products acquired with Along with the broad range of integrated Montreal in the fi rst half of calendar 2007. enable our products to manage encrypted control our products, iRules give customers on a single platform; and to streamline Swan Labs. WebAccelerator addresses functions enabled by TMOS, the However, with the performance lead we traffi c more effi ciently than competing broad fl exibility in managing their the process of adding new features and an important segment of the promising performance of our products has become will have with the BIG-IP 8800, we decided products), TMOS has a built-in programming applications for maximum performance, functions. When we introduced BIG-IP V.9 WAN Optimization market that few of our increasingly important with the growing to push the launch of Montreal back to the language called iRules that allows users security and availability. That makes it less with TMOS in September 2004, it included competitors are equipped to compete in, number and variety of IP-based applications end of the year and focus our near-term to customize our products to meet their likely that customers who use iRules and modules for compression, rate shaping, and we believe its availability on TMOS and the demands they place on the development efforts on making all of our specifi c application requirements. Uses deploy iControl-enabled applications will SSL acceleration and other features that adds signifi cant value to its core functions. network. In January 2006, we introduced products available on TMOS. of iRules range from stripping sensitive switch to competing products. customers can purchase and activate as A TMOS-based version of WANJet, which the BIG-IP 8400, which delivered industry- data such as credit card or social security numbers from outgoing transmissions to needed. Since then, we have added a caching we also acquired with Swan Labs is leading performance at the time and feature and four new product modules. 1999 2000 2001 2002 2003 2004 2005 F5 acquires Swan Labs BIG-IP #1 in Japan 1997 1998 1996 F5 founded UK and APAC operations launched F5 listed on NASDAQ BIG-IP 5000 launched F5 acquires MagniFire F5 acquires uRoam TMOS platform introduced 2006 F5 defi nes the Application Delivery Networking market F5 quarterly revenue exceeds $100 mil F5 reaches #1 overall ADC market share as measured by Gartner EXTENDING MARKET LEADERSHIP In addition to investments in technology, As we push ahead into fi scal 2007, I want Shareholders’ Information In its latest report on the Application we plan to expand our marketing, sales, to thank the entire F5 team for their Delivery Controller market, Gartner Group and service organizations across all shows F5 leading the overall market geographies. During fi scal 2006, we added with 33 percent share and the Advanced 280 employees and we plan to increase our Platform segment of the market with headcount signifi cantly in the current year. 60 percent. We believe our leadership While these investments will likely reduce position in these markets is a direct outcome our operating margins slightly over the of the unique capabilities of TMOS, the next several quarters, we believe they broad array of integrated functions it will enable us to accelerate our revenue supports, and the superior performance growth, penetrate new markets and we deliver in our purpose-built systems. continue to take market share from our As we began fi scal 2007 we announced traditional competitors. In pursuing these dedication in delivering another year of exceptional growth and profi tability. On behalf of the Board, I’m proud of the company’s accomplishments, and I look forward to the prospect of continuing growth and profi tability in the year ahead. an aggressive investment strategy to objectives, we are grateful for your support John McAdam extend our leadership in the Application and for your confi dence in our ability to Delivery Controller market and to become achieve them. President & Chief Executive Offi cer a signifi cant player in the adjacent WAN Optimization Controller market. December 15, 2006 Board of Directors Gary Ames Retired President and Chief Executive Offi cer of MediaOne International Deborah Bevier Principal, DL Bevier Consulting LLC Corporate Offi cers John McAdam President and Chief Executive Offi cer Andy Reinland Keith Grinstein Partner, Second Avenue Partners John Rodriguez Karl Guelich Certifi ed Public Accountant Alan Higginson Board Chair, President and CEO, Hubspan, Inc. Rich Malone Retired General Principal and Chief Information Offi cer of Edward Jones John McAdam President and Chief Executive Offi cer Tom Hull Julian Eames Dan Matte Karl Triebes Senior Vice President and Chief Finance Offi cer Senior Vice President and Chief Accounting Offi cer Senior Vice President of Worldwide Sales Senior Vice President of Business Operations and Global Services Senior Vice President of Marketing Senior Vice President of Product Development and Chief Technical Offi cer Jeff Christianson Senior Vice President and General Counsel Notice of Annual Meeting Our annual shareholders meeting will be held: F5 Networks Corporate Headquarters March 22, 2007, 10:00 AM Corporate Headquarters 401 Elliott Avenue West Seattle, WA 98119 206.272.5555 www.f5.com NASDAQ Listing NASDAQ Symbol – FFIV Investor Relations 206.272.6677 info@f5.com Independent Accountants PricewaterhouseCoopers LLP Seattle, WA Transfer Agent American Stock Transfer 212.936.5100 The statements contained in this report that are not purely historical are forward-looking statements. These statements include, but are not limited to, statements about integration of new features and functions with TMOS and BIG-IP, our growth and profi tability in our core market and the adjacent markets into which we are expanding, and our plans, objectives, expectations, strategies and intentions. These statements are generally identifi ed by the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “target,” and similar expressions. Because these forward-looking statements 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 under the heading “Risk Factors” in the company’s Form 10-K for fi scal 2006 and in other documents we fi le from time to time with the Securities and Exchange Commission. All forward-looking statements included in this report are based on information available to us on the date hereof. We assume no obligation to update any such forward-looking statements. © 2006 F5 Networks, Inc. All rights reserved. F5 Networks, Inc. Corporate Headquarters 401 Elliott Avenue West Seattle, WA 98119 (206) 272-5555 Voice (888) 88BIGIP Toll-free (206) 272-5556 Fax www.f5.com info@f5.com