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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
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.)
801 5th Avenue
Seattle, Washington 98104
(Address of principal executive offices and zip code)
(206) 272-5555
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, no par valueFFIVNASDAQ Global Select Market
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      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer   Accelerated Filer 
Non-accelerated Filer 
  (Do not check if a smaller reporting company)
  Smaller Reporting Company 
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
The number of shares outstanding of the registrant’s common stock as of April 30, 2021 was 59,614,886.


Table of Contents
F5 NETWORKS, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2021
Table of Contents
 
 Page


Table of Contents
PART I. FINANCIAL INFORMATION
 
Item 1.Financial Statements
F5 NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
March 31,
2021
September 30,
2020
ASSETS
Current assets
Cash and cash equivalents$532,166 $849,556 
Short-term investments111,105 360,333 
Accounts receivable, net of allowances of $3,420 and $3,105
374,404 296,183 
Inventories24,571 27,898 
Other current assets293,402 259,506 
Total current assets1,335,648 1,793,476 
Property and equipment, net207,599 229,239 
Operating lease right-of-use assets260,389 300,680 
Long-term investments19,078 102,939 
Deferred tax assets68,624 45,173 
Goodwill2,209,639 1,858,966 
Other assets, net418,215 347,447 
Total assets$4,519,192 $4,677,920 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$53,567 $64,472 
Accrued liabilities324,865 321,398 
Deferred revenue929,397 883,134 
Current portion of long-term debt19,275 19,275 
Total current liabilities1,327,104 1,288,279 
Deferred tax liabilities1,888 602 
Deferred revenue, long-term437,506 389,498 
Operating lease liabilities, long-term320,132 338,715 
Long-term debt359,410 369,047 
Other long-term liabilities65,333 59,511 
Total long-term liabilities1,184,269 1,157,373 
Commitments and contingencies (Note 9)
Shareholders' equity
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding
  
Common stock, no par value; 200,000 shares authorized, 60,052 and 61,099 shares issued and outstanding
39,507 305,453 
Accumulated other comprehensive loss(19,194)(18,716)
Retained earnings1,987,506 1,945,531 
Total shareholders' equity2,007,819 2,232,268 
Total liabilities and shareholders' equity$4,519,192 $4,677,920 
The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents
F5 NETWORKS, INC.
CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share data)
 
Three months ended
March 31,
Six months ended
March 31,
 2021202020212020
Net revenues
Products$309,189 $259,538 $597,234 $494,074 
Services336,098 323,911 672,670 658,680 
Total645,287 583,449 1,269,904 1,152,754 
Cost of net revenues
Products73,289 53,086 140,327 95,204 
Services55,296 48,152 103,237 94,676 
Total128,585 101,238 243,564 189,880 
Gross profit516,702 482,211 1,026,340 962,874 
Operating expenses
Sales and marketing244,908 215,472 459,454 410,991 
Research and development140,453 109,028 254,644 205,033 
General and administrative77,840 74,013 140,993 133,017 
Restructuring charges   7,800 
Total463,201 398,513 855,091 756,841 
Income from operations53,501 83,698 171,249 206,033 
Other (loss) income, net(1,377)(141)(2,060)5,079 
Income before income taxes52,124 83,557 169,189 211,112 
Provision for income taxes8,883 22,178 38,270 51,206 
Net income$43,241 $61,379 $130,919 $159,906 
Net income per share — basic$0.71 $1.01 $2.14 $2.63 
Weighted average shares — basic60,667 60,869 61,058 60,758 
Net income per share — diluted$0.70 $1.00 $2.10 $2.62 
Weighted average shares — diluted62,158 61,084 62,292 61,017 
The accompanying notes are an integral part of these consolidated financial statements.

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F5 NETWORKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
Three months ended
March 31,
Six months ended
March 31,
 2021202020212020
Net income$43,241 $61,379 $130,919 $159,906 
Other comprehensive (loss) income:
Foreign currency translation adjustment(841)(1,586)437 (952)
Available-for-sale securities:
Unrealized losses on securities, net of taxes of $(142) and $(368) for the three months ended March 31, 2021 and 2020, respectively, and $(192) and $(344) for the six months ended March 31, 2021 and 2020, respectively
(731)(2,999)(1,151)(2,831)
Reclassification adjustment for realized losses included in net income, net of taxes of $(61) and $(17) for the three months ended March 31, 2021 and 2020, respectively, and $(61) and $(18) for the six months ended March 31, 2021 and 2020, respectively
233 58 236 70 
Net change in unrealized losses on available-for-sale securities, net of tax(498)(2,941)(915)(2,761)
Total other comprehensive loss(1,339)(4,527)(478)(3,713)
Comprehensive income$41,902 $56,852 $130,441 $156,193 
The accompanying notes are an integral part of these consolidated financial statements.

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F5 NETWORKS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited, in thousands)
 Common StockAccumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Shareholders’
Equity
 SharesAmount
 (In thousands)
Three months ended March 31, 2020
Balances, December 31, 201960,803 $211,217 $(18,376)$1,736,617 $1,929,458 
Exercise of employee stock options20 498 — — 498 
Issuance of restricted stock248 — — —  
Repurchase of common stock(442)(50,009)— — (50,009)
Stock-based compensation— 61,395 — — 61,395 
Net income— — — 61,379 61,379 
Other comprehensive loss— — (4,527)— (4,527)
Balances, March 31, 202060,629 $223,101 $(22,903)$1,797,996 $1,998,194 
Three months ended March 31, 2021
Balances, December 31, 202061,632 $386,236 $(17,855)$2,033,209 $2,401,590 
Exercise of employee stock options44 1,492 — — 1,492 
Issuance of restricted stock445 — — —  
Repurchase of common stock(2,052)(311,056)— (88,944)(400,000)
Purchase of forward contract under accelerated share repurchase program ("ASR")— (100,000)— — (100,000)
Taxes paid related to net share settlement of equity awards(17)(3,447)— — (3,447)
Stock-based compensation— 66,282 — — 66,282 
Net income— — — 43,241 43,241 
Other comprehensive loss— — (1,339)— (1,339)
Balances, March 31, 202160,052 $39,507 $(19,194)$1,987,506 $2,007,819 
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Six months ended March 31, 2020
Balances, September 30, 201960,367 $142,597 $(19,190)$1,638,090 $1,761,497 
Exercise of employee stock options31 789 — — 789 
Issuance of stock under employee stock purchase plan169 20,670 — — 20,670 
Issuance of restricted stock504 — — —  
Repurchase of common stock(442)(50,009)— — (50,009)
Stock-based compensation— 109,054 — — 109,054 
Net income— — — 159,906 159,906 
Other comprehensive loss— — (3,713)— (3,713)
Balances, March 31, 202060,629 $223,101 $(22,903)$1,797,996 $1,998,194 
Six months ended March 31, 2021
Balances, September 30, 202061,099 $305,453 $(18,716)$1,945,531 $2,232,268 
Exercise of employee stock options83 2,610 — — 2,610 
Issuance of stock under employee stock purchase plan231 26,077 — — 26,077 
Issuance of restricted stock742 — — —  
Repurchase of common stock(2,052)(311,056)— (88,944)(400,000)
Purchase of forward contract under accelerated share repurchase program ("ASR")— (100,000)— — (100,000)
Taxes paid related to net share settlement of equity awards(51)(7,928)— — (7,928)
Stock-based compensation— 124,351 — — 124,351 
Net income— — — 130,919 130,919 
Other comprehensive loss— — (478)— (478)
Balances, March 31, 202160,052 $39,507 $(19,194)$1,987,506 $2,007,819 
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)
 
 Six months ended
March 31,
 20212020
Operating activities
Net income$130,919 $159,906 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation121,289 98,447 
Depreciation and amortization56,185 43,112 
Non-cash operating lease costs19,415 18,970 
Deferred income taxes(17,962)5,353 
Impairment of assets40,698  
Other105 54 
Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):
Accounts receivable(79,649)4,317 
Inventories3,327 3,459 
Other current assets(32,939)(19,603)
Other assets(29,066)(4,298)
Accounts payable and accrued liabilities(14,529)(1,936)
Deferred revenue93,493 43,987 
Lease liabilities(25,447)(25,948)
Net cash provided by operating activities265,839 325,820 
Investing activities
Purchases of investments(65,725)(195,123)
Maturities of investments126,711 237,892 
Sales of investments269,986 232,255 
Acquisition of businesses, net of cash acquired(411,319)(955,574)
Purchases of property and equipment(14,090)(35,463)
Net cash used in investing activities(94,437)(716,013)
Financing activities
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan
28,687 21,443 
Repurchase of common stock(500,000)(50,009)
Proceeds from term debt agreement
 400,000 
Payments on term debt agreement
(10,000) 
Payments for debt issuance costs
 (3,040)
Taxes paid related to net share settlement of equity awards(7,928) 
Net cash (used in) provided by financing activities(489,241)368,394 
Net decrease in cash, cash equivalents and restricted cash(317,839)(21,799)
Effect of exchange rate changes on cash, cash equivalents and restricted cash494 (1,090)
Cash, cash equivalents and restricted cash, beginning of period852,826 602,254 
Cash, cash equivalents and restricted cash, end of period$535,481 $579,365 
Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities$30,809 $30,067 
Cash paid for interest on long-term debt$2,724 $2,089 
Supplemental disclosures of non-cash activities
Right-of-use assets obtained in exchange for lease obligations$9,523 $399,203 
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 a leading provider of multi-cloud application services which enable its customers to develop, deploy, operate, secure, and govern applications in any architecture, from on-premises to the public cloud. The Company's cloud, software, and hardware solutions enable its customers to deliver digital experiences to their customers faster, reliably, and at scale. The Company's enterprise-grade application services are available as cloud-based, software-as-a-service, and software-only solutions optimized for multi-cloud environments, with modules that can run independently, or as part of an integrated solution on its high-performance appliances. In connection with its solutions, the Company offers a broad range of professional services, including consulting, training, installation, maintenance, and other technical support services. On January 22, 2021, the Company completed its acquisition of Volterra, Inc. ("Volterra"), a provider of edge-as-a-service platform solutions.
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 ("GAAP"). 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 ("SEC"). 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, 2020.
In December 2019, a novel strain of coronavirus (“COVID-19“) was first identified, and in March 2020, the World Health Organization categorized COVID-19 as a pandemic. The Company assessed the impact that COVID-19 had on its results of operations, including, but not limited to an assessment of its allowance for current expected credit losses, the carrying value of short-term and long-term investments, the carrying value of goodwill and other long-lived assets, and the impact to revenue recognition and cost of revenues. The Company is actively monitoring the impact to the results of its business operations, and may make decisions required by federal, state or local authorities, or that are determined to be in the best interests of its employees, customers, partners, suppliers and stockholders. As of the filing date, the extent to which the COVID-19 pandemic may impact the Company’s financial condition or results of operations in the future remains uncertain.
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) (ASU 2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, and hosting arrangements that include an internal-use software license. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The Company adopted this new standard prospectively on October 1, 2020. The adoption of this standard did not have a material impact to the Company’s consolidated financial statements or 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 modifies the accounting for credit losses for most financial assets and requires the use of an expected loss model, replacing the currently used incurred loss method. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. The Company adopted this new standard on October 1, 2020 using the modified retrospective approach. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements. The following accounting policies were updated as a result of the adoption of this standard.
Investments
The Company classifies its investment securities as available-for-sale. Investment securities, consisting of certificates of deposit, corporate and municipal bonds and notes, the United States government and agency securities and international
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government securities are reported at fair value with the related unrealized gains and losses included as a component of accumulated other comprehensive income (loss) in shareholders’ equity. Realized gains and losses and impairments due to credit losses, in which the fair value of a security is below its amortized cost and management’s intent is to sell the impaired security prior to its recovery, are included in other income (expense). An allowance for credit losses for the excess of amortized cost over the expected cash flows is recorded in other income, net in the Company's consolidated income statements. The cost of investments for purposes of computing realized and unrealized gains and losses is based on the specific identification method. Investments in securities with maturities of less than one year or where management’s intent is to use the investments to fund current operations are classified as short-term investments. Investments with maturities of greater than one year are classified as long-term investments.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount, net of allowances for credit losses for any potential uncollectible amounts. The allowance for credit losses is based on the assessment of the collectability of accounts. Management regularly reviews the adequacy of the allowance for credit losses on a collective basis by considering the age of each outstanding invoice, each customer’s expected ability to pay and collection history, current market conditions, and reasonable and supportable forecasts of future economic conditions to determine whether the allowance is appropriate. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. For the three and six months ended March 31, 2021 and 2020, the allowance for credit losses activity was not significant.
There have been no additional changes to the Company's significant accounting policies as of and for the six months ended March 31, 2021.
2. Revenue from Contracts with Customers
Capitalized Contract Acquisition Costs
The table below shows significant movements in capitalized contract acquisition costs (current and noncurrent) for the six months ended March 31, 2021 and 2020 (in thousands):
Six months ended
March 31,
20212020
Balance, beginning of period$70,396 $59,446 
Additional capitalized contract acquisition costs deferred 18,614 21,836 
Amortization of capitalized contract acquisition costs(16,590)(16,972)
Balance, end of period$72,420 $64,310 
Amortization of capitalized contract acquisition costs was $8.4 million and $8.3 million for the three months ended March 31, 2021 and 2020, respectively, and $16.6 million and $17.0 million for the six months ended March 31, 2021 and 2020, respectively, and is recorded in Sales and Marketing expense in the accompanying consolidated income statements. There was no impairment of any capitalized contract acquisition costs during any period presented.
Contract Balances
Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to the Company's contracts with customers. The Company records assets for amounts related to performance obligations that are satisfied but not yet billed and/or collected, in addition to contracts that have started, but not yet been fully billed. These assets are recorded as contract assets rather than receivables when receipt of the consideration is conditional on something other than the passage of time. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. These liabilities are classified as current and non-current deferred revenue.
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The table below shows significant movements in contract assets (current and noncurrent) for the six months ended March 31, 2021 and 2020 (in thousands):
Six months ended
March 31,
20212020
Balance, beginning of period$200,472 $132,492 
Revenue recognized during period but not yet billed30,294 13,998 
Contract asset additions81,040 38,060 
Contract assets acquired through acquisition of businesses 6,045 
Contract assets reclassified to accounts receivable(65,909)(33,211)
Balance, end of period$245,897 $157,384 
As of March 31, 2021, contract assets that are expected to be reclassified to receivables within the next 12 months are included in other current assets, with those expected to be transferred to receivables in more than 12 months included in other assets. There were no impairments of contract assets during the six months ended March 31, 2021 and 2020.
The table below shows significant movements in the deferred revenue balances (current and noncurrent) for the six months ended March 31, 2021 and 2020 (in thousands):
Six months ended
March 31,
20212020
Balance, beginning of period$1,272,632 $1,198,116 
Amounts billed but not recognized as revenues680,124 587,983 
Deferred revenue acquired through acquisition of businesses779 39,000 
Revenues recognized related to the opening balance of deferred revenue(586,632)(543,995)
Balance, end of period$1,366,903 $1,281,104 
The Company's contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period.
Remaining Performance Obligations
Remaining performance obligations represent the amount of the transaction price under contracts with customers that are attributable to performance obligations that are unsatisfied or partially satisfied at the reporting date. As of March 31, 2021, the total non-cancelable remaining performance obligations under the Company's contracts with customers was approximately $1.4 billion and the Company expects to recognize revenues on approximately 68.0% of these remaining performance obligations over the next 12 months, 19.4% in year two, and the remaining balance thereafter.
See Note 13, Segment Information, for disaggregated revenue by significant customer and geographic region, as well as disaggregated product revenue by systems and software.
3. 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.
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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.
Assets and Liabilities Measured and Recorded 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 March 31, 2021, 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
March 31,
2021
Cash equivalents$45,060 $ $ $45,060 
Short-term investments
Available-for-sale securities — corporate bonds and notes 90,909  90,909 
Available-for-sale securities — municipal bonds and notes 2,908  2,908 
Available-for-sale securities — U.S. government securities 12,036  12,036 
Available-for-sale securities — U.S. government agency securities
 5,252  5,252 
Long-term investments
Available-for-sale securities — corporate bonds and notes 8,500  8,500 
Available-for-sale securities — U.S. government securities 8,078  8,078 
Available-for-sale securities — U.S. government agency securities
 2,500  2,500 
Total$45,060 $130,183 $ $175,243 

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The Company's financial assets measured at fair value on a recurring basis subject to the disclosure requirements at September 30, 2020, 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,
2020
Cash equivalents$43,553 $207,417 $ $250,970 
Short-term investments
Available-for-sale securities — corporate bonds and notes 189,662  189,662 
Available-for-sale securities — municipal bonds and notes 6,146  6,146 
Available-for-sale securities — U.S. government securities 117,374  117,374 
Available-for-sale securities — U.S. government agency securities
 47,151  47,151 
Long-term investments
Available-for-sale securities — corporate bonds and notes 102,939  102,939 
Total$43,553 $670,689 $ $714,242 
The Company uses the fair value hierarchy for financial assets and liabilities. The carrying amounts of other current financial assets and other current financial liabilities approximate fair value due to their short-term nature.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
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 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 tangible and intangible long-lived assets for impairment whenever events or changes in circumstances indicate its carrying amount may not be recoverable. Included in the Company’s impairment considerations for non-financial assets and liabilities in the current quarter were the potential impacts of the COVID-19 pandemic.
During the three months ended March 31, 2021, the Company recorded an impairment of $23.5 million against the operating lease right-of-use asset related to the exit of six floors in its corporate headquarters. Impairment charges for the second quarter of fiscal 2021 also included $10.3 million for tenant improvements and other fixed assets associated with the exited floors. In the first quarter of fiscal 2021, the Company recorded an impairment of $6.7 million against the operating lease right-of-use asset related to the integration of the former Shape headquarters in Santa Clara, California. Impairment charges for the first quarter of fiscal 2021 also included $0.2 million for other fixed assets associated with the Shape headquarters in Santa Clara, California. The Company calculated the fair value of the right-of-use assets, tenant improvements and other fixed assets based on estimated future discounted cash flows and classified the fair value as a Level 3 measurement due to the significance of unobservable inputs, which included the amount and timing of estimated sublease rental receipts that the Company could reasonably obtain over the remaining lease term and the discount rate. The impairment charges for the three and six months ended March 31, 2021 were allocated to various expense line items on the Company’s consolidated income statements based on the teams that previously worked out of the exited space.
Impairment charges were allocated to the following income statement line items for the three and six months ended March 31, 2021 and 2020 (in thousands):
 Three months ended
March 31,
Six months ended
March 31,
 2021202020212020
Cost of net product revenue$897 $ $2,865 $ 
Cost of net service revenue3,491  3,492  
Sales and marketing10,256  11,515  
Research and development9,845  12,974  
General and administrative9,336  9,852  
Total impairment charges$33,825 $ $40,698 $ 
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During the three and six months ended March 31, 2021 and 2020, the Company did not recognize any impairment charges related to goodwill or intangible assets.
4. Short-Term and Long-Term Investments
Short-term investments consist of the following (in thousands):
 
March 31, 2021Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Corporate bonds and notes$90,511 $399 $(1)$90,909 
Municipal bonds and notes2,907 1  2,908 
U.S. government securities12,035 1  12,036 
U.S. government agency securities5,250 2  5,252 
$110,703 $403 $(1)$111,105 
 
September 30, 2020Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Corporate bonds and notes$188,932 $736 $(6)$189,662 
Municipal bonds and notes6,143 3  6,146 
U.S. government securities117,363 14 (3)117,374 
U.S. government agency securities47,148 3  47,151 
$359,586 $756 $(9)$360,333 
Long-term investments consist of the following (in thousands):
 
March 31, 2021Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Corporate bonds and notes$8,472 $29 $(1)$8,500 
U.S. government securities8,078 1 (1)8,078 
U.S. government agency securities2,499 1  2,500 
$19,049 $31 $(2)$19,078 
 
September 30, 2020Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Corporate bonds and notes$102,206 $756 $(23)$102,939 
$102,206 $756 $(23)$102,939 
Interest income from investments was $0.7 million and $3.3 million for the three months ended March 31, 2021 and 2020, respectively, and $1.8 million and $8.9 million for the six months ended March 31, 2021 and 2020, respectively. Interest income is included in other income, net on the Company's consolidated income statements.
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 March 31, 2021 (in thousands):
 
 Less Than 12 Months12 Months or GreaterTotal
March 31, 2021Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
Corporate bonds and notes$12,248 $(2)$ $ $12,248 $(2)
U.S. government securities9,707 (1)  9,707 (1)
Total$21,955 $(3)$ $ $21,955 $(3)
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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 September 30, 2020 (in thousands):
 
 Less Than 12 Months12 Months or GreaterTotal
September 30, 2020Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
Corporate bonds and notes$43,492 $(28)$5,006 $(1)$48,498 $(29)
U.S. government securities41,812 (3)  41,812 (3)
Total$85,304 $(31)$5,006 $(1)$90,310 $(32)
The Company invests in securities that are rated investment grade. 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 March 31, 2021, there were no investments in its portfolio that were other-than-temporarily impaired.
5. Business Combinations
Fiscal Year 2021 Acquisition of Volterra, Inc.
On January 5, 2021, the Company entered into a Merger Agreement (the “Merger Agreement”) with Volterra, Inc. ("Volterra"), a provider of edge-as-a-service platform solutions. The transaction closed on January 22, 2021 with Volterra becoming a wholly-owned subsidiary of F5.
Pursuant to the Merger Agreement, at the effective time of the Merger, the capital stock of Volterra and the vested outstanding and unexercised stock options in Volterra were cancelled and converted to the right to receive approximately $427.2 million in cash, subject to certain adjustments and conditions set forth in the Merger Agreement. The unvested stock options and restricted stock units in Volterra held by continuing employees of Volterra were assumed by F5, on the terms and conditions set forth in the Merger Agreement. The Company incurred $6.9 million and $9.5 million of transaction costs associated with the acquisition for the three and six months ended March 31, 2021, respectively, which was included in General and Administrative expenses.
As a result of the acquisition, the Company acquired all the assets and assumed all the liabilities of Volterra. The goodwill related to the Volterra acquisition is comprised primarily of expected synergies from combining operations and the acquired intangible assets that do not qualify for separate recognition. Goodwill related to the Volterra acquisition is not expected to be deductible for tax purposes. The results of operations of Volterra have been included in the Company's consolidated financial statements from the date of acquisition.
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The allocated purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values is presented in the following table (in thousands):
Estimated
Useful Life
Assets acquired
Cash, cash equivalents, and restricted cash$14,012 
Other tangible assets acquired, at fair value7,499 
Identifiable intangible assets:
Developed technologies