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Business Combinations | 12 Months Ended
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Dec. 31, 2021
Business Combination and Asset Acquisition [Abstract] |
BUSINESS COMBINATIONS | BUSINESS COMBINATIONS 2021 Acquisitions Alaxala Networks Corporation On August 31, 2021, we closed an acquisition of 75% of equity interests as controlling interests in Alaxala, a privately held network hardware equipment company in Japan, for $64.2 million in cash. We acquired the equity interest in Alaxala to broaden our offering of secure switches integrated with FortiGate Firewalls and Security Fabric functionality, and, over time, to innovate and rebrand certain of Alaxala’s switches to offer a broader suite of secure switches globally. Under the acquisition method of accounting in accordance with ASC 805, the total preliminary purchase price was allocated to Alaxala’s identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values using management’s best estimates and assumptions to assign fair value as of the acquisition date. The following table provides the assets acquired and liabilities assumed as of the date of acquisition:
(in millions) | Estimated Fair Value
ASSETS |
Cash | $ | 1.1 |
Accounts receivable—net | 15.6 |
Inventory | 33.4 |
Prepaid expenses and other current assets | 2.9 |
Property and equipment | 5.3 |
Goodwill | 25.5 |
Other intangible assets | 48.0 |
Other long-term assets | 5.2 |
TOTAL ASSETS | $ | 137.0 |
LIABILITIES |
Accounts payable | $ | 11.0 |
Current portion of long-term debt | 20.2 |
Accrued and other current liabilities | 17.1 |
Other long-term liabilities | 6.7 |
TOTAL LIABILITIES | $ | 55.0 |
NON-CONTROLLING INTERESTS | $ | 17.8 |
Net purchase consideration | $ | 64.2 |
The fair values assigned were updated to reflect the retrospective adoption of ASU 2021-08, which resulted in increases to the fair values assigned to goodwill, a ccrued and other current liabilities and o ther long-term liabilities as of the acquisition date. Refer to Note 1 for further discussion. The excess of the purchase consideration and the fair value of non-controlling interests over the fair value of net tangible and identified intangible assets acquired was recorded as goodwill, which is not deductible for tax purposes. Goodwill is primarily attributable to the assembled workforce of Alaxala and the anticipated operational synergies. The fair value of the non-controlling interests of $17.8 million was estimated based on the non-controlling interests’ respective share of the fair value of Alaxala. Identified intangible assets acquired and their estimated useful lives (in years) as of August 31, 2021, were as follows (in millions, except years):
| Fair Value |  | Estimated Useful Life (in years)
Developed technology | $ | 26.6 |  |  | 4
Customer relationships | 10.0 |  |  | 10
Trade name | 6.4 |  |  | 10
Backlog | 5.0 |  |  | 1
Total identified intangible assets: | $ | 48.0 |  |  |
Developed technology relates to Alaxala’s network equipment. We valued the developed technology using the relief-from-royalty method under the income approach. This method reflects the present value of the projected cost savings that are expected to be realized by the owner of the need to pay a royalty to another party in exchange for the use of the asset. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period. Customer relationships represent the fair value of future projected revenue that will be derived from sales to existing customers of Alaxala. Customer contracts and related relationships were valued using the multi-period excess earnings method. This method reflects the present value of the projected cash flows that are expected to be generated by the customer contracts and relationships less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on historical customer turnover rates. Trade name relates to the “Alaxala” trade name. The fair value was determined by applying the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue under the trade name. The economic useful life was determined based on the expected life of the trade name and the cash flows anticipated over the forecast period. Customer backlog relates to the unfulfilled customer contract orders. Backlog was valued using the multi-period excess earnings method. This method reflects the present value of the projected cash flows that are expected to be generated by the execution of the unfulfilled customer contract orders less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on the anticipated contract orders’ execution timeframe. Our estimates and assumptions are subject to change within the measurement period, which is up to 12 months after the acquisition date. The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to the allocation of certain assets and liabilities may occur as additional information becomes available. The primary areas of the purchase price that are not yet finalized are related to income taxes and the valuation of acquired assets and assumed liabilities. In connection with our acquisition of Alaxala, we assumed certain current debt liabilities of $20.2 million as of August 31, 2021. We concluded that the fair value of this debt approximated its book value as of the acquisition date. We repaid this debt in full in September and October 2021. During the post-acquisition period from September 1, 2021 through the repayment dates, interest expense related to Alaxala debt was not material. The operating results of the acquired company were included in our consolidated financial statements from the date of acquisition which was August 31, 2021. For the period from September 1, 2021 through December 31, 2021, Alaxala contributed revenue of $44.4 million. Income before income taxes for the period from September 1, 2021 through December 31, 2021 was not material. Acquisition-related costs for this acquisition were not material and were recorded as general and administrative expe nse. The following unaudited pro forma financial information presents the combined results of operations of Fortinet, Inc. and Alaxala, as if Alaxala had been acquired as of the beginning of business on January 1, 2020. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business that would have been achieved if the acquisition had taken place at the beginning of business on January 1, 2020, or of the results of our future operations of the combined business. The following unaudited pro forma financial information for all periods presented includes purchase accounting adjustments for amortization of acquired intangible assets, depreciation of acquired property and equipment, the purchase accounting effect on inventory acquired and related tax effects (in millions):
| Year Ended December 31,
| 2021 |  | 2020 |  |
Pro forma revenue | $ | 3,424.3 |  |  | $ | 2,714.7 |  |  |
Pro forma net income attributable to Fortinet, Inc. | $ | 608.2 |  |  | $ | 480.0 |  |  |
ShieldX Networks, Inc. On March 10, 2021, we closed an acquisition of certain assets and liabilities of ShieldX Networks Inc. (“ShieldX”), a provider of a security platform focusing on protecting multi-cloud data centers from the risk of lateral movement that can lead to attacks such as ransomware, data loss and service disruption, for $10.8 million in cash. This acquisition was accounted for as a business combination using the acquisition method of accounting. Of the purchase price, $6.2 million was allocated to goodwill, $4.1 million was allocated to developed technology intangible asset and $0.5 million was allocated to other net assets acquired. Goodwill recorded in connection with this acquisition represents the value we expect to be created through expansion into markets within our existing business and potential cost savings and synergies. All acquired goodwill is expected to be deductible for tax purposes. Acquisition-related costs related to this acquisition were not material and were recorded as general and administrative expense. 2020 Acquisitions Panopta Holdings LLC On December 9, 2020, we acquired all outstanding shares of Panopta Holdings LLC (“Panopta”), a privately held SaaS platform innovator that provides visibility, automated management and alerting, and remediation for enterprise networks and infrastructure. The purchase price for Panopta was $31.9 million in cash, of which $24.8 million was allocated to goodwill and $9.0 million was allocated to identifiable intangible assets, the majority of which was developed technology, offset by $1.9 million of net liabilities assumed, which predominantly included cash and accounts payable. $15.8 million of goodwill is expected to be deductible for tax purposes. OPAQ Networks, Inc. On July 20, 2020, we acquired all outstanding shares of OPAQ Networks, Inc. (“OPAQ”), a privately held Secure Access Service Edge cloud provider. The purchase price for OPAQ was $8.0 million in cash, of which $1.0 million was allocated to goodwill, $4.7 million was allocated to identifiable intangible assets, the majority of which was developed technology, and $2.3 million was allocated to other net assets acquired, which predominantly included cash, deferred tax assets, operating lease right-of-use assets and lease liabilities, accounts payable, accrued liabilities and assumed debt. The purchase price included a $1.3 million indemnity fund held in escrow for 12 months after the transaction closing date, of which $0.4 million was received by Fortinet and the remainder was released to OPAQ shareholders during the year ended December 31, 2021. 2019 Acquisitions CyberSponse, Inc. On December 12, 2019, we acquired all outstanding shares of CyberSponse, Inc. (“CyberSponse”), a provider of security orchestration, automation and response products and services. The purchase price for CyberSponse was $26.1 million, of which $18.6 million was allocated to goodwill that was non-deductible for tax purposes and $9.1 million was allocated to identifiable intangible assets, the majority of which was developed technology, offset by $1.6 million of net liabilities assumed. We incurred a $4.1 million liability in connection with this business combination, the majority of which related to the settlement of CyberSponse’s equity awards in cash, which we included in accrued liabilities in our consolidated balance sheet as of December 31, 2019, and paid during the year ended December 31, 2020. The purchase price included $3.0 million of this liability and the remaining $1.1 million was recognized as compensation cost in the consolidated statements of income for the year ended December 31, 2019. The purchase price also included $3.8 million held in indemnity escrow, of which $2.8 million was held for 12 months and released to CyberSponse shareholders during the year ended December 31, 2020, and the remaining $1.0 million will be held for 36 months after the transaction closing date. enSilo Limited On October 28, 2019, we acquired all outstanding shares of enSilo Limited (“enSilo”), a provider of endpoint detection and response products and services. The purchase price for enSilo was $15.8 million, of which $10.4 million was allocated to goodwill, $10.8 million was allocated to identifiable intangible assets, the majority of which was developed technology, offset by $5.4 million of net liabilities assumed. The purchase price included $2.0 million held in indemnity escrow for 12 months after the transaction closing date, of which $1.7 million was received by Fortinet and the remainder was released to enSilo shareholders during the year ended December 31, 2020. Additional Acquisition-Related Information The operating results of the acquired companies are included in our consolidated statements of income from the respective dates of acquisition. Acquisition-related costs related to each acquisition were not material. Pro forma information has not been presented, except for Alaxala as disclosed above, as the impact of these acquisitions, individually and in the aggregate, in each year were not material to our consolidated financial statements.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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