Business Combinations

12 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combinations

Business Combinations

The Company’s acquisitions are accounted for under the acquisition method. The total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. The fair value assigned to the tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions provided by management. Goodwill is not amortized but instead is tested for impairment at least annually, as described in Note 1.

Fiscal Year 2014 Acquisition of Defense.Net, Inc.

On May 22, 2014, the Company acquired all issued and outstanding shares of Defense.Net, Inc. (Defense.Net), a privately held Delaware corporation headquartered in Belmont, California for $49.7 million. Direct transaction costs associated with the acquisition were approximately $0.3 million and were expensed as general and administrative expenses in the third quarter of fiscal 2014. Defense.Net is a provider of cloud-based security services for protecting data centers and Internet applications from distributed denial-of-service (DDoS) attacks. Through this acquisition, the Company gains access to Defense.Net’s DDoS mitigation technology and service platform, their intellectual property and engineering talent. Defense.Net's cloud-based DDoS offering complements the Company's highly-scalable on-premise DDoS offering, providing a first line of defense for those customers who choose to implement both solutions. As a result of the acquisition, the Company acquired all the assets and assumed all the liabilities of Defense.Net. The results of operations of Defense.Net have been included in the Company’s consolidated financial statements from the date of acquisition. Pro forma results of operations for this acquisition have not been presented as this transaction is not considered a material acquisition and the effects were not material to the Company’s financial results for the year ended September 30, 2014 individually or in aggregate with Defense.Net.

The purchase price allocation is as follows (in thousands):

Assets acquired
Cash	$	220
Current assets	249
Property and equipment, net	2,353
Deferred tax assets, net	1,162
Developed technology, customer relationships and other intangibles	6,682
Goodwill	39,346
Total assets acquired	$	50,012
Liabilities assumed
Accrued liabilities	$	(256	)
Deferred revenue	(97		)
Total liabilities assumed	(353		)
Net assets acquired	$	49,659

Of the total estimated purchase price, $3.6 million was allocated to developed technology and $3.1 million to customer relationships and other intangibles. To determine the fair value of developed technology, the relief-from-royalty method under the income approach was used, which included estimates and assumptions provided by Defense.Net and Company management. The relief-from-royalty method is based on a hypothetical royalty that the owner would otherwise be willing to pay to use the asset, assuming it was not already owned. Hypothetical royalty is calculated as a percentage of forecasted revenue, or the royalty rate. To value the technology acquired from Defense.Net, management used a royalty rate of 15%, which was based off of independent research of comparable royalty agreements for similar technology. A combination of the income and cost approaches were used to determine the fair value of customer relationships and other intangibles. Goodwill generated from this transaction is primarily related to expected synergies of the technology and expanded breadth of the Company's existing security solutions. Goodwill is not expected to be deductible for federal tax purposes.

Developed technology will be amortized on a straight-line basis over its estimated useful life of five years and included in cost of net product revenues. Customer relationships will be amortized on a straight-line basis over its estimated useful life of ten years and included in sales and marketing expenses. The weighted average life of the amortizable intangible assets recognized from the Defense.Net acquisition was 6.6 years. The estimated useful lives for the acquired intangible assets were based on the expected future cash flows associated with each respective asset.