x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 77-0560389 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
899 Kifer Road Sunnyvale, California | 94086 |
(Address of principal executive offices) | (Zip Code) |
Common Stock, $0.001 Par Value | The Nasdaq Stock Market LLC | |
(Title of each class) | (Name of exchange on which registered) |
Large accelerated filer | x | Accelerated filer | o | ||
Non-accelerated filer | o | Smaller reporting company | o | ||
Emerging growth company | o |
Page | ||
Part I | ||
Item 1. | ||
Item 1A. | ||
Item 1B. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Part II | ||
Item 5. | ||
Item 6. | ||
Item 7. | ||
Item 7A. | ||
Item 8. | ||
Item 9. | ||
Item 9A. | ||
Item 9B. | ||
Part III | ||
Item 10. | ||
Item 11. | ||
Item 12. | ||
Item 13. | ||
Item 14. | ||
Part IV | ||
Item 15. | ||
• | Network Security—We derive a majority of product sales from our FortiGate network security appliances. Our FortiGate network security appliances include a broad set of built-in security and networking features and functionalities, including firewall, software-defined wide-area network (“SD-WAN”), secure sockets layer (“SSL”) data leak prevention, virtual private network (“VPN”), switch and wireless controller and wide area network (“WAN”) acceleration. Our network security appliances include our FortiOS operating system, which provides the foundation for FortiGate security functions, and FortiASIC integrated circuit, which is designed to accelerate the processing of security and networking functions. Our customers may also purchase FortiGuard subscription services to receive threat intelligence updates. We provide standard technical support across all of our products through our FortiCare support services. We also offer services to end-customers including Technical Account Managers (“TAMs”), Resident Engineers (“REs”) and professional service consultants for implementations, as well as training services to our end-customers and channel partners. |
• | Fortinet Security Fabric—The Fortinet Security Fabric platform is an architectural approach that protects the entire digital attack surface, including network core, endpoints, applications, data centers and private and public cloud. Together with our network of Fabric-Ready Partners, the Fortinet Security Fabric platform enables disparate security devices to work together as an integrated, automated and collaborative solution. |
• | Cloud Security—We help customers connect securely to and across their cloud environments by offering security through our virtual firewall and other software products in public and private cloud environments. Our Cloud Security solutions, including our Client Access Security Broker Solution, FortiCASB, extend the core capabilities of the Fortinet Security Fabric platform to provide businesses with the same level of cybersecurity and threat intelligence in cloud environments that they receive on their physical networks. Fortinet cloud security offerings are available across all major cloud providers, including Amazon Web Services, Microsoft Azure, Google Cloud, Oracle Cloud and IBM Cloud. |
• | Internet of Things and Operational Technology—The proliferation of Internet of Things (“IoT”) and Operational Technology (“OT”) devices has generated new opportunities for us to grow our business. IoT and OT have created an environment where data move freely between devices across locations, network environments, remote offices, mobile workers and public cloud environments, making the data difficult to consistently track and secure. |
• | key enablement for the Fortinet Security Fabric architecture; |
• | option for FortiGate appliances to be configured into different security environments, such as our Internal Network Firewall, Next-Generation Firewall and Data Center Firewall; |
• | configuration of the physical aspects of the appliance, such as ports, onboard Wi-Fi and switching; |
• | extension of the Fortinet Security Fabric platform through direct management of FortiSwitch and FortiAP devices; |
• | key network functions such as routing and deployment modes (network routing, transparent, sniffer, etc.); |
• | implementation of security updates from our FortiGuard distribution network, delivering Advanced Threat Protection (“ATP”), such as IPS, antivirus and application control; |
• | access to cloud-based web and email filtering databases; |
• | direct integration with both cloud and on-premises FortiSandbox technology; |
• | security policy objects and enforcement; |
• | data leak prevention and document finger printing; and |
• | real-time reporting and logging. |
• | FortiAP—Our FortiAP product family provides secure wireless networking solutions. FortiAPs allow a variety of management options including from the cloud and directly from our FortiGate Next Generation Firewall product. FortiAPs create a scalable and secure access layer for connecting wireless devices such as computers, laptops, cell phones and tablets, as well as IoT devices. |
• | FortiSwitch—Our FortiSwitch product family provides secure switching solutions that can be deployed in traditional network switching designs with Layer 2 or Layer 3 access control features. FortiSwitch creates a scalable and secure access layer for customers to connect their end devices, such as computers and laptops, as well as to expand the field of IoT devices. |
• | FortiAnalyzer—Our FortiAnalyzer family of products provides centralized network logging, analyzing and reporting solutions that securely aggregate content and log data from our FortiGate devices, other Fortinet products and third-party devices to enable network logging, analysis and reporting. |
• | FortiManager—Our FortiManager family of products provides a central and scalable management solution for our FortiGate products, including software updates, configuration, policy settings and security updates. FortiManager facilitates the coordination of policy-based provisioning, device configuration and operating system revision management, as well as network security monitoring and device control. |
• | FortiSandbox—Our FortiSandbox technology delivers proactive detection and mitigation with the ability to generate a directly actionable protection capability. Available in both hardware and cloud-based form, the FortiSandbox subjects suspicious code to a set of multi-layer protection techniques, culminating in execution within an operating system, allowing real-time behavioral analysis to be performed in a secure environment. When malicious code is identified, a signature can be generated locally for distribution across the Fortinet Security Fabric. |
• | FortiSIEM—Our FortiSIEM family of software solutions provides a cloud-ready security information and event management (“SIEM”) solution. FortiSIEM unifies analytics that are traditionally monitored discretely, parses the information and then processes it in an event-based analytics engine for handling real-time searches, rules, dashboards and ad-hoc queries. This unification of diverse sources of data enables organizations to create comprehensive dashboards and reports to identify root causes of threats, and take the steps necessary to remediate and prevent them in the future. |
• | Threat Protection—Our Threat Protection bundle includes application control, antivirus, IP reputation and anti-botnet security, mobile security, data sanitation, sandbox, intrusion prevention and virus outbreak protection, along with FortiCare security services. |
• | Unified Threat Management (“UTM”)—Our UTM bundle includes antispam, antivirus, data sanitation, sandbox, application control, intrusion prevention, virus outbreak protection and web filtering, along with FortiCare security services. |
• | Enterprise Protection—Our Enterprise Protection bundle includes application control, intrusion prevention, web filtering, sandbox, antivirus, mobile security, IP reputation and anti-botnet security, antispam, CASB, industrial control systems, security rating, virus outbreak protection and data sanitation, along with FortiCare security services. |
• | our ability to attract and retain new end-customers or sell additional products and services to our existing end-customers; |
• | the level of demand for our products and services, which may render forecasts inaccurate; |
• | the timing of channel partner and end-customer orders, and our reliance on a concentration of shipments at the end of each quarter; |
• | the timing of shipments, which may depend on factors such as inventory levels, logistics, manufacturing or shipping delays, our ability to ship new products on schedule and our ability to accurately forecast inventory requirements; |
• | inventory management; |
• | the mix of products sold and the mix of revenue between products and services, as well as the degree to which products and services are bundled and sold together for a package price; |
• | the purchasing practices and budgeting cycles of our channel partners and end-customers, including the effect of the end of product refresh cycles; |
• | the effectiveness of our sales organization, generally or in a particular geographic region, the time it takes to hire sales personnel and the timing of hiring, and our ability to retain, sales personnel; |
• | sales execution risk related to effectively selling to all segments of the market, including enterprise and small- and medium-sized businesses and service providers, and to selling our broad security product and services portfolio; |
• | the seasonal buying patterns of our end-customers; |
• | the timing and level of our investments in sales and marketing, and the impact of such investments on our operating expenses, operating margin and the productivity and effectiveness of execution of our sales and marketing teams; |
• | the timing of revenue recognition for our sales; |
• | the level of perceived threats to network security, which may fluctuate from period to period; |
• | changes in the requirements, market needs or buying practices and patterns of our distributors, resellers or end-customers; |
• | changes in the growth rate of the network security market; |
• | the timing and success of new product and service introductions or enhancements by us or our competitors, or any other change in the competitive landscape of our industry, including consolidation among our competitors, partners or end-customers; |
• | the deferral of orders from distributors, resellers or end-customers in anticipation of new products or product enhancements announced by us or our competitors; |
• | increases or decreases in our billings, revenue and expenses caused by fluctuations in foreign currency exchange rates or a strengthening of the U.S. dollar, as a significant portion of our expenses is incurred and paid in currencies other than the U.S. dollar, and the impact such fluctuations may have on the actual prices that our partners and customers are willing to pay for our products and services; |
• | compliance with existing laws and regulations that are applicable to our ability to conduct business with the public sector; |
• | litigation, litigation fees and costs, settlements, judgments and other equitable and legal relief granted related to litigation; |
• | the impact of cloud-based platforms on our billings, revenues, operating margins and free cash flow; |
• | decisions by potential end-customers to purchase network security solutions from newer technology providers, from larger, more established security vendors or from their primary network equipment vendors; |
• | price competition and increased competitiveness in our market, including the competitive pressure caused by product refresh cycles; |
• | our ability to both increase revenues and manage and control operating expenses in order to improve our operating margins; |
• | changes in customer renewal rates or attached rates for our services; |
• | changes in the payment terms of services contracts or the contractual term of services contracts sold; |
• | changes in our estimated annual effective tax rates; |
• | changes in circumstances and challenges in business conditions, including decreased demand, which may negatively impact our channel partners’ ability to sell the current inventory they hold and negatively impact their future purchases of products from us; |
• | increased demand for cloud-based services and the uncertainty associated with transitioning to providing such services; |
• | increased expenses, unforeseen liabilities or write-downs and any impact on results of operations from any acquisition consummated; |
• | our channel partners having insufficient financial resources to withstand changes and challenges in business conditions; |
• | disruptions in our channel or termination of our relationship with important channel partners, including as a result of consolidation among distributors and resellers of security solutions; |
• | insolvency, credit or other difficulties confronting our key suppliers and channel partners, which could affect their ability to purchase or pay for products and services and which could disrupt our supply or distribution chain; |
• | policy changes and uncertainty with respect to immigration laws, trade policy and tariffs, including increased tariffs applicable to countries where we manufacture our products, foreign imports and tax laws related to international commerce; |
• | political, economic and social instability, including geo-political instability and uncertainty, such as the impact of the United Kingdom’s exit from the European Union; |
• | general economic conditions, both in domestic and foreign markets; |
• | future accounting pronouncements or changes in our accounting policies, such as changes in accounting for leases and stock-based compensation, as well as the significant costs that may be incurred to adopt and comply with these new pronouncements; |
• | possible impairments or acceleration of depreciation of our existing real estate due to our current real estate holdings and future development plans; and |
• | legislative or regulatory changes, such as with respect to privacy, information and cybersecurity, exports, the environment and applicable accounting standards. |
• | economic or political instability in foreign markets; |
• | greater difficulty in enforcing contracts and accounts receivable collection, including longer collection periods; |
• | longer sales processes for larger deals, particularly during the summer months; |
• | changes in regulatory requirements; |
• | difficulties and costs of staffing and managing foreign operations; |
• | the uncertainty of protection for intellectual property rights in some countries; |
• | costs of compliance with foreign policies, laws and regulations and the risks and costs of non-compliance with such policies, laws and regulations; |
• | protectionist policies and penalties, and local laws, requirements, policies and perceptions that may adversely impact a U.S.-headquartered business’s sales in certain countries outside of the United States; |
• | costs of complying with, and the risks and costs of non-compliance with, U.S. or other foreign laws and regulations for foreign operations, including the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act 2010, the General Data Protection Regulation (which became effective in May 2018), import and export control laws, tariffs and retaliatory measures, trade barriers and economic sanctions; |
• | other regulatory or contractual limitations on our ability to sell our products in certain foreign markets, and the risks and costs of non-compliance; |
• | heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales or sales-related arrangements, such as sales “side agreements” to allow return rights, that could disrupt the sales team through terminations of employment or otherwise, and may adversely impact financial results as compared to those already reported or forecasted and result in restatements of financial statements and irregularities in financial statements; |
• | our ability to effectively implement and maintain adequate internal controls to properly manage our international sales and operations; |
• | political unrest, changes and uncertainty associated with terrorism, hostilities, war or natural disasters; |
• | changes in foreign currency exchange rates; |
• | management communication and integration problems resulting from cultural differences and geographic dispersion; and |
• | changes in tax, tariff, employment and other laws. |
• | increased competition from competitors that traditionally target large and medium-sized businesses, service providers and government organizations and that may already have purchase commitments from those end-customers; |
• | increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements; |
• | unanticipated changes in the capital resources or purchasing behavior of large end-customers, including changes in the volume and frequency of their purchases and changes in the mix of products and services, willingness to change to cloud delivery model and related payment terms; |
• | more stringent support requirements in our support service contracts, including stricter support response times, more complex requirements and increased penalties for any failure to meet support requirements; |
• | longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our products and services; and |
• | longer ramp-up periods for enterprise sales personnel as compared to other sales personnel. |
• | the expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate or work around errors or defects or to address and eliminate vulnerabilities; |
• | the loss of existing or potential end-customers or channel partners; |
• | delayed or lost revenue; |
• | delay or failure to attain market acceptance; |
• | negative publicity and harm to our reputation; and |
• | litigation, regulatory inquiries or investigations that may be costly and harm our reputation and, in some instances, subject us to potential liability that is not contractually limited. |
• | a potential inability to obtain an adequate supply of required parts or components when required; |
• | financial or other difficulties faced by our suppliers; |
• | infringement or misappropriation of our intellectual property; |
• | price increases; |
• | failure of a component to meet environmental or other regulatory requirements; |
• | failure to meet delivery obligations in a timely fashion; and |
• | failure in component quality. |
• | public sector budgetary cycles; |
• | funding authorizations and requirements unique to government agencies, with funding or purchasing reductions or delays adversely affecting public sector demand for our products; |
• | geopolitical matters, including tariff and trade disputes, Brexit and government shutdowns; and |
• | rules and regulations applicable to certain government sales, including GSA regulations. |
• | the mix of earnings in countries with differing statutory tax rates or withholding taxes; |
• | changes in the valuation of our deferred tax assets and liabilities; |
• | transfer pricing adjustments; |
• | an increase in non-deductible expenses for tax purposes, including certain stock-based compensation expense; |
• | tax costs related to intercompany realignments; |
• | tax assessments resulting from income tax audits or any related tax interest or penalties that could significantly affect our provision for income taxes for the period in which the settlement takes place; and |
• | changes in accounting principles, court decisions, tax rulings, and interpretations of or changes to tax laws, and regulations by international, federal or local governmental authorities. |
• | delays in releasing our new products or enhancements to the market; |
• | failure to accurately predict market demand in terms of product functionality and to supply products that meet this demand in a timely fashion; |
• | failure to have the appropriate research and development expertise and focus to make our top strategic fabric products successful; |
• | failure of our sales force and partners to focus on selling new products; |
• | inability to interoperate effectively with the networks or applications of our prospective end-customers; |
• | inability to protect against new types of attacks or techniques used by hackers; |
• | actual or perceived defects, vulnerabilities, errors or failures; |
• | negative publicity about their performance or effectiveness; |
• | introduction or anticipated introduction of competing products by our competitors; |
• | poor business conditions for our end-customers, causing them to delay IT purchases; |
• | changes to the regulatory requirements around security; and |
• | reluctance of customers to purchase products incorporating open source software. |
• | greater name recognition and longer operating histories; |
• | larger sales and marketing budgets and resources; |
• | broader distribution and established relationships with distribution partners and end-customers; |
• | access to larger customer bases; |
• | greater customer support resources; |
• | greater resources to make acquisitions; |
• | lower labor and development costs; and |
• | substantially greater financial, technical and other resources. |
• | authorizing “blank check” preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock; |
• | limiting the liability of, and providing indemnification to, our directors and officers; |
• | limiting the ability of our stockholders to call and bring business before special meetings; |
• | requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; |
• | providing that certain litigation matters may only be brought against us in state or federal courts in the State of Delaware; |
• | controlling the procedures for the conduct and scheduling of board and stockholder meetings; and |
• | providing the board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings. |
ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
December 2013 * | December 2014 | December 2015 | December 2016 | December 2017 | December 2018 | |||||||||||||||||||
Fortinet, Inc. | $ | 100 | $ | 160 | $ | 163 | $ | 157 | $ | 228 | $ | 368 | ||||||||||||
S&P 500 Index | $ | 100 | $ | 111 | $ | 111 | $ | 121 | $ | 145 | $ | 136 | ||||||||||||
NASDAQ Computer | $ | 100 | $ | 120 | $ | 127 | $ | 143 | $ | 198 | $ | 191 |
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||
October 1 - October 31, 2018 | — | $ | — | — | $ | 825.8 | ||||||||
November 1 - November 30, 2018 | 559,792 | $ | 71.29 | 559,792 | $ | 785.9 | ||||||||
December 1 - December 31, 2018 | 741,623 | $ | 70.26 | 741,623 | $ | 733.8 | ||||||||
Total | 1,301,415 | 1,301,415 |
Year Ended December 31, | |||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
(in millions, except per share amounts) | |||||||||||||||||||
Consolidated Statements of Income Data: | |||||||||||||||||||
Total revenue | $ | 1,801.2 | $ | 1,494.9 | $ | 1,275.4 | $ | 1,009.3 | $ | 770.4 | |||||||||
Total gross profit | $ | 1,350.8 | $ | 1,109.6 | $ | 937.6 | $ | 722.5 | $ | 539.4 | |||||||||
Operating income | $ | 231.0 | $ | 109.8 | $ | 42.9 | $ | 14.9 | $ | 59.3 | |||||||||
Net income | $ | 332.2 | $ | 31.4 | $ | 32.2 | $ | 8.0 | $ | 25.3 | |||||||||
Net income per share: | |||||||||||||||||||
Basic | $ | 1.96 | $ | 0.18 | $ | 0.19 | $ | 0.05 | $ | 0.15 | |||||||||
Diluted | $ | 1.91 | $ | 0.18 | $ | 0.18 | $ | 0.05 | $ | 0.15 | |||||||||
Weighted-average shares outstanding: | |||||||||||||||||||
Basic | 169.1 | 174.3 | 172.6 | 170.4 | 163.8 | ||||||||||||||
Diluted | 174.2 | 178.1 | 176.3 | 176.1 | 169.3 |
As of December 31, | |||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
(in millions) | |||||||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||||
Cash, cash equivalents and investments | $ | 1,716.6 | $ | 1,349.3 | $ | 1,310.5 | $ | 1,164.3 | $ | 991.7 | |||||||||
Total assets | $ | 3,078.0 | $ | 2,257.9 | $ | 2,139.9 | $ | 1,790.5 | $ | 1,424.8 | |||||||||
Total stockholders’ equity | $ | 1,010.2 | $ | 589.4 | $ | 837.7 | $ | 755.4 | $ | 676.0 |
• | continued growth and market share gains; |
• | variability in sales in certain product categories from year to year and between quarters; |
• | expected impact of sales of certain products and services; |
• | the impact of macro-economic and geopolitical factors on our sales; |
• | the proportion of our revenue that consists of our product and service revenue, and the mix of billings between products and services, and the duration of service contracts; |
• | the impact of our product innovation strategy; |
• | the effects of government regulation, tariffs and other related policies; |
• | drivers of long-term growth and operating leverage, such as increased sales productivity, functionality and value in our standalone and bundled subscription service offerings; |
• | growing our sales to businesses, service providers and government organizations, the impact of sales to these organizations on our long-term growth, expansion and operating results, and the effectiveness of our internal sales organization; |
• | trends in revenue, cost of revenue and gross margin; |
• | trends in our operating expenses, including sales and marketing expense, research and development expense, general and administrative expense, and expectations regarding these expenses as a percentage of total revenue; |
• | risks and expectations related to acquisitions or sales of assets, including integration issues related to product plans and products, including the acquired technology; |
• | continued investments in research and development; |
• | managing our continued investments in sales and marketing, and the impact of those investments; |
• | expectations regarding uncertain tax benefits and our effective domestic and global tax rates; |
• | expectations regarding spending related to real estate and other capital expenditures and to the impact on free cash flows; |
• | competition in our markets; |
• | our intentions regarding share repurchases and the sufficiency of our existing cash, cash equivalents and investments to meet our cash needs for at least the next 12 months; |
• | other statements regarding our future operations, financial condition and prospects and business strategies; and |
• | adoption and impact of new accounting standards, including those related to accounting for leases. |
• | Network Security—We derive a majority of product sales from our FortiGate network security appliances. Our FortiGate network security appliances include a broad set of built-in security and networking features and functionalities, including firewall, SD-WAN, SSL data leak prevention, VPN, switch and wireless controller and WAN acceleration. Our network security appliances include our FortiOS operating system, which provides the foundation for FortiGate security functions, and FortiASIC integrated circuit, which is designed to accelerate the processing of security and networking functions. Our customers may also purchase FortiGuard subscription services to receive threat intelligence updates. We provide standard technical support across all of our products through our FortiCare support services. We also offer services to end-customers including TAMs, REs and professional service consultants for implementations, as well as training services to our end-customers and channel partners. |
• | Fortinet Security Fabric—The Fortinet Security Fabric platform is an architectural approach that protects the entire digital attack surface, including network core, endpoints, applications, data centers and private and public cloud. Together with our network of Fabric-Ready Partners, the Fortinet Security Fabric platform enables disparate security devices to work together as an integrated, automated and collaborative solution. |
• | Cloud Security—We help customers connect securely to and across their cloud environments by offering security through our virtual firewall and other software products in public and private cloud environments. Our Cloud Security solutions, including our Client Access Security Broker Solution, FortiCASB, extend the core capabilities of the Fortinet Security Fabric platform to provide businesses with the same level of cybersecurity and threat intelligence in cloud environments that they receive on their physical networks. Fortinet cloud security offerings are available across all major cloud providers, including Amazon Web Services, Microsoft Azure, Google Cloud, Oracle Cloud and IBM Cloud. |
• | Internet of Things and Operational Technology—The proliferation of IoT and OT devices has generated new opportunities for us to grow our business. IoT and OT have created an environment where data move freely between devices across locations, network environments, remote offices, mobile workers and public cloud environments, making the data difficult to consistently track and secure. |
• | We recorded total revenue of $1.80 billion in 2018, an increase of 20% compared to $1.49 billion in 2017. Product revenue was $674.4 million in 2018, an increase of 17% compared to $577.2 million in 2017. Service revenue was $1.13 billion in 2018, an increase of 23% compared to $917.7 million in 2017. |
• | We generated operating income of $231.0 million in 2018, an increase of 110% compared to $109.8 million in 2017. |
• | Cash, cash equivalents and investments were $1.72 billion as of December 31, 2018, an increase of $367.3 million, or 27%, from December 31, 2017. |
• | Deferred revenue was $1.69 billion as of December 31, 2018, an increase of $350.5 million, or 26%, from December 31, 2017. |
• | We generated cash flows from operating activities of $638.9 million in 2018, an increase of $44.5 million, or 7%, compared to 2017. |
• | In 2018, we repurchased 3.8 million shares of common stock under the Repurchase Program for an aggregate purchase price of $209.1 million. In 2017, we repurchased 11.2 million shares of common stock for a total purchase price of $446.3 million. |
Year Ended or As of December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
(in millions) | |||||||||||
Revenue | $ | 1,801.2 | $ | 1,494.9 | $ | 1,275.4 | |||||
Deferred revenue | $ | 1,686.8 | $ | 1,336.3 | $ | 1,035.3 | |||||
Billings (non-GAAP) | $ | 2,153.3 | $ | 1,795.9 | $ | 1,515.1 | |||||
Net cash provided by operating activities | $ | 638.9 | $ | 594.4 | $ | 345.7 | |||||
Free cash flow (non-GAAP) | $ | 585.9 | $ | 459.1 | $ | 278.5 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
(in millions) | |||||||||||
Billings: | |||||||||||
Revenue | $ | 1,801.2 | $ | 1,494.9 | $ | 1,275.4 | |||||
Add: Change in deferred revenue | 350.5 | 301.0 | 244.1 | ||||||||
Add: Deferred revenue adjustment due to adoption of Topic 606 | 4.1 | — | — | ||||||||
Less: Deferred revenue balance acquired in business combinations | (2.5 | ) | — | (4.4 | ) | ||||||
Total billings (non-GAAP) | $ | 2,153.3 | $ | 1,795.9 | $ | 1,515.1 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
(in millions) | |||||||||||
Free Cash Flow: | |||||||||||
Net cash provided by operating activities | $ | 638.9 | $ | 594.4 | $ | 345.7 | |||||
Less: Purchases of property and equipment | (53.0 | ) | (135.3 | ) | (67.2 | ) | |||||
Free cash flow (non-GAAP) | $ | 585.9 | $ | 459.1 | $ | 278.5 | |||||
Net cash used in investing activities | $ | (134.9 | ) | $ | (76.8 | ) | $ | (74.1 | ) | ||
Net cash used in financing activities | $ | (202.6 | ) | $ | (415.6 | ) | $ | (105.9 | ) |
• | Product revenue. Product revenue is primarily generated from sales of our appliances. The majority of our product revenue has been generated by our FortiGate product line, and we do not expect this to change in the foreseeable future. Product revenue also includes revenue derived from sales of FortiGate software licenses and other software. As a percentage of total revenue, we expect that our product revenue may vary from quarter-to-quarter based on certain factors, as discussed below under “—Quarterly Results of Operations,” and we expect the trend to continue in 2019. |
• | Service revenue. Service revenue is generated primarily from FortiGuard security subscription services and from FortiCare technical support services. We recognize revenue from FortiGuard security subscription and FortiCare technical support services over the contractual service period. Our typical contractual support and subscription term is one to three years and, to a lesser extent, five years. We also generate a small portion of our revenue from professional services and training services, for which we recognize revenue as the services are provided, and cloud-based services, for which we recognize revenue as the services are delivered or on a monthly usage basis. As a percentage of total revenue, we continue to expect service revenue to be higher than product revenue. Our service revenue growth rate depends significantly on the growth of our customer base, the expansion of our service bundle offerings, the expansion and introduction of new service offerings and the renewal of service contracts by our existing customers. |
• | Cost of product revenue. The majority of the cost of product revenue consists of third-party contract manufacturers' costs and the costs of materials used in production. Our cost of product revenue also includes supplies, shipping costs, personnel costs associated with logistics and quality control, facility-related costs, excess and obsolete inventory costs, warranty costs, and amortization of intangible assets, if applicable. Personnel costs include direct compensation and benefits. |
• | Cost of service revenue. Cost of service revenue is primarily comprised of salaries, benefits and bonuses, as well as stock-based compensation. Cost of service revenue also includes third-party repair and contract fulfillment, data center and cloud hosting, supplies and facility-related costs. |
• | Research and development. Research and development expense consists primarily of personnel costs. Additional research and development expenses include ASIC and system prototypes and certification-related expenses, depreciation of property and equipment and facility-related expenses. The majority of our research and development is focused on both software development and the ongoing development of our hardware platform. We record all research and development expenses as incurred. Our research and development teams are primarily located in Canada and the United States. |
• | Sales and marketing. Sales and marketing expense is the largest component of our operating expenses and primarily consists of personnel costs. Additional sales and marketing expenses include promotional lead generation and other marketing expenses, travel, depreciation of property and equipment and facility-related expenses. We intend to hire additional personnel focused on sales and marketing and expand our sales and marketing efforts worldwide in order to capture market share in the enterprise market. |
• | General and administrative. General and administrative expense consists of personnel costs, as well as professional fees, depreciation of property and equipment and software and facility-related expenses. General and administrative personnel include our executive, finance, human resources, information technology and legal organizations. Our professional fees principally consist of outside legal, auditing, accounting, tax, information technology and other consulting costs. |
• | identification of a contract or contracts with a customer; |
• | identification of the performance obligations in a contract, including evaluation of performance obligations as to being distinct goods or services in a contract; |
• | determination of a transaction price; |
• | allocation of a transaction price to the performance obligations in a contract; and |
• | recognition of revenue when, or as, we satisfy a performance obligation. |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
(in millions) | |||||||||||
Consolidated Statements of Income Data: | |||||||||||
Revenue: | |||||||||||
Product | $ | 674.4 | $ | 577.2 | $ | 548.1 | |||||
Service | 1,126.8 | 917.7 | 727.3 | ||||||||
Total revenue | 1,801.2 | 1,494.9 | 1,275.4 | ||||||||
Cost of revenue: | |||||||||||
Product | 291.0 | 243.8 | 209.0 | ||||||||
Service | 159.4 | 141.5 | 128.8 | ||||||||
Total cost of revenue | 450.4 | 385.3 | 337.8 | ||||||||
Gross profit: | |||||||||||
Product | 383.4 | 333.4 | 339.1 | ||||||||
Service | 967.4 | 776.2 | 598.5 | ||||||||
Total gross profit | 1,350.8 | 1,109.6 | 937.6 | ||||||||
Operating expenses: | |||||||||||
Research and development | 244.5 | 210.6 | 183.1 | ||||||||
Sales and marketing | 782.3 | 701.0 | 626.5 | ||||||||
General and administrative | 93.0 | 87.9 | 81.1 | ||||||||
Restructuring charges | — | 0.3 | 4.0 | ||||||||
Total operating expenses | 1,119.8 | 999.8 | 894.7 | ||||||||
Operating income | 231.0 | 109.8 | 42.9 | ||||||||
Interest income | 26.5 | 13.5 | 7.3 | ||||||||
Other income (expense)—net | (6.6 | ) | 0.7 | (7.1 | ) | ||||||
Income before income taxes | 250.9 | 124.0 | 43.1 | ||||||||
Provision for (benefit from) income taxes | (81.3 | ) | 92.6 | 10.9 | |||||||
Net income | $ | 332.2 | $ | 31.4 | $ | 32.2 |
Year Ended December 31, | ||||||||
2018 | 2017 | 2016 | ||||||
(as percentage of revenue) | ||||||||
Revenue: | ||||||||
Product | 37 | % | 39 | % | 43 | % | ||
Service | 63 | 61 | 57 | |||||
Total revenue | 100 | 100 | 100 | |||||
Cost of revenue: | ||||||||
Product | 16 | 16 | 16 | |||||
Service | 9 | 9 | 10 | |||||
Total cost of revenue | 25 | 26 | 26 | |||||
Gross margin: | ||||||||
Product | 57 | 58 | 62 | |||||
Service | 86 | 85 | 82 | |||||
Total gross margin | 75 | 74 | 74 | |||||
Operating expenses: | ||||||||
Research and development | 14 | 14 | 14 | |||||
Sales and marketing | 43 | 47 | 49 | |||||
General and administrative | 5 | 6 | 6 | |||||
Restructuring charges | — | — | 0.3 | |||||
Total operating expenses | 62 | 67 | 70 | |||||
Operating margin | 13 | 7 | 3 | |||||
Interest income | 1 | 1 | 1 | |||||
Other income (expense)—net | — | — | (1 | ) | ||||
Income before income taxes | 14 | 8 | 3 | |||||
Provision for (benefit from) income taxes | (5 | ) | 6 | 1 | ||||
Net income | 18 | % | 2 | % | 3 | % |
Year Ended December 31, | ||||||||||||||||||||
2018 (1) | 2017 | |||||||||||||||||||
Amount | % of Revenue | Amount | % of Revenue | Change | % Change | |||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Revenue: | ||||||||||||||||||||
Product | $ | 674.4 | 37 | % | $ | 577.2 | 39 | % | $ | 97.2 | 17 | % | ||||||||
Service | 1,126.8 | 63 | 917.7 | 61 | 209.1 | 23 | ||||||||||||||
Total revenue | $ | 1,801.2 | 100 | % | $ | 1,494.9 | 100 | % | $ | 306.3 | 20 | % | ||||||||
Revenue by geography: | ||||||||||||||||||||
Americas | $ | 762.9 | 42 | % | $ | 642.3 | 43 | % | $ | 120.6 | 19 | % | ||||||||
Europe, Middle East and Africa (“EMEA”) | 678.0 | 38 | 554.6 | 37 | 123.4 | 22 | ||||||||||||||
Asia Pacific (“APAC”) | 360.3 | 20 | 298.0 | 20 | 62.3 | 21 | ||||||||||||||
Total revenue | $ | 1,801.2 | 100 | % | $ | 1,494.9 | 100 | % | $ | 306.3 | 20 | % |
As Reported | Balances Without Adoption of Topic 606 | Effect of Change Increase (Decrease) | |||||||||
(in millions) | |||||||||||
Revenue: | |||||||||||
Product | $ | 674.4 | $ | 654.9 | $ | 19.5 | |||||
Service | 1,126.8 | 1,126.9 | (0.1 | ) | |||||||
Total revenue | $ | 1,801.2 | $ | 1,781.8 | $ | 19.4 | |||||
Revenue by geography: | |||||||||||
Americas | $ | 762.9 | $ | 746.2 | $ | 16.7 | |||||
EMEA | 678.0 | 674.9 | 3.1 | ||||||||
APAC | 360.3 | 360.7 | (0.4 | ) | |||||||
Total revenue | $ | 1,801.2 | $ | 1,781.8 | $ | 19.4 |
Year Ended December 31, | ||||||||||||||
2018 (1) | 2017 | Change | % Change | |||||||||||
(in millions, except percentages) | ||||||||||||||
Cost of revenue: | ||||||||||||||
Product | $ | 291.0 | $ | 243.8 | $ | 47.2 | 19 | % | ||||||
Service | 159.4 | 141.5 | 17.9 | 13 | ||||||||||
Total cost of revenue | $ | 450.4 | $ | 385.3 | $ | 65.1 | 17 | % | ||||||
Gross margin (%): | ||||||||||||||
Product | 56.9 | % | 57.8 | % | ||||||||||
Service | 85.9 | 84.6 | ||||||||||||
Total gross margin | 75.0 | % | 74.2 | % |
As Reported | Balances Without Adoption of Topic 606 | Effect of Change Increase (Decrease) | |||||||||
(in millions, except percentages) | |||||||||||
Cost of revenue: | |||||||||||
Product | $ | 291.0 | $ | 289.6 | $ | 1.4 | |||||
Service | 159.4 | 159.4 | — | ||||||||
Total cost of revenue | $ | 450.4 | $ | 449.0 | $ | 1.4 | |||||
Gross margin (%): | |||||||||||
Product | 56.9 | % | 55.8 | % | |||||||
Service | 85.9 | 85.9 | |||||||||
Total gross margin | 75.0 | % | 74.8 | % |
Year Ended December 31, | Change | % Change | ||||||||||||||||||
2018 (1) | 2017 | |||||||||||||||||||
Amount | % of Revenue | Amount | % of Revenue | |||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | $ | 244.5 | 14 | % | $ | 210.6 | 14 | % | $ | 33.9 | 16 | % | ||||||||
Sales and marketing | 782.3 | 43 | 701.0 | 47 | 81.3 | 12 | ||||||||||||||
General and administrative | 93.0 | 5 | 87.9 | 6 | 5.1 | 6 | ||||||||||||||
Restructuring charges | — | — | 0.3 | — | (0.3 | ) | (100 | ) | ||||||||||||
Total operating expenses | $ | 1,119.8 | 62 | % | $ | 999.8 | 67 | % | $ | 120.0 | 12 | % |
As Reported | Balances Without Adoption of Topic 606 | Effect of Change Increase (Decrease) | |||||||||
(in millions) | |||||||||||
Operating expenses: | |||||||||||
Research and development | $ | 244.5 | $ | 244.5 | $ | — | |||||
Sales and marketing expenses | 782.3 | 827.8 | (45.5 | ) | |||||||
General and administrative | 93.0 | 93.0 | — | ||||||||
Total operating expenses | $ | 1,119.8 | $ | 1,165.3 | $ | (45.5 | ) |
Year Ended December 31, | ||||||||||||||
2018 | 2017 | Change | % Change | |||||||||||
(in millions, except percentages) | ||||||||||||||
Interest income | $ | 26.5 | $ | 13.5 | $ | 13.0 | 96 | % | ||||||
Other income (expense)—net | (6.6 | ) | 0.7 | (7.3 | ) | (1,043 | ) |
Year Ended December 31, | Change | % Change | ||||||||||||
2018 (1) | 2017 | |||||||||||||
(in millions, except percentages) | ||||||||||||||
Provision for (benefit from) income taxes | $ | (81.3 | ) | $ | 92.6 | $ | (173.9 | ) | (188 | )% | ||||
Effective tax rate | (32 | )% | 75 | % |
As Reported | Balances Without Adoption of Topic 606 | (Increase) Decrease | |||||||||
(in millions, except percentages) | |||||||||||
Benefit from income taxes | $ | (81.3 | ) | $ | (92.2 | ) | $ | 10.9 | |||
Effective tax rate | (32 | )% | (49 | )% |
Year Ended December 31, | Change | % Change | ||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
Amount | % of Revenue | Amount | % of Revenue | |||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Revenue: | ||||||||||||||||||||
Product | $ | 577.2 | 39 | % | $ | 548.1 | 43 | % | $ | 29.1 | 5 | % | ||||||||
Service | 917.7 | 61 | 727.3 | 57 | 190.4 | 26 | ||||||||||||||
Total revenue | $ | 1,494.9 | 100 | % | $ | 1,275.4 | 100 | % | $ | 219.5 | 17 | % | ||||||||
Revenue by geography: | ||||||||||||||||||||
Americas | $ | 642.3 | 43 | % | $ | 536.7 | 42 | % | $ | 105.6 | 20 | % | ||||||||
EMEA | 554.6 | 37 | 477.4 | 37 | 77.2 | 16 | ||||||||||||||
APAC | 298.0 | 20 | 261.3 | 21 | 36.7 | 14 | ||||||||||||||
Total revenue | $ | 1,494.9 | 100 | % | $ | 1,275.4 | 100 | % | $ | 219.5 | 17 | % |
Year Ended December 31, | Change | % Change | ||||||||||||
2017 | 2016 | |||||||||||||
(in millions, except percentages) | ||||||||||||||
Cost of revenue: | ||||||||||||||
Product | $ | 243.8 | $ | 209.0 | $ | 34.8 | 17 | % | ||||||
Service | 141.5 | 128.8 | 12.7 | 10 | ||||||||||
Total cost of revenue | $ | 385.3 | $ | 337.8 | $ | 47.5 | 14 | % | ||||||
Gross margin (%): | ||||||||||||||
Product | 57.8 | % | 61.9 | % | ||||||||||
Service | 84.6 | 82.3 | ||||||||||||
Total gross margin | 74.2 | % | 73.5 | % |
Year Ended December 31, | Change | % Change | ||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
Amount | % of Revenue | Amount | % of Revenue | |||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | $ | 210.6 | 14 | % | $ | 183.1 | 14 | % | $ | 27.5 | 15 | % | ||||||||
Sales and marketing | 701.0 | 47 | 626.5 | 49 | 74.5 | 12 | ||||||||||||||
General and administrative | 87.9 | 6 | 81.1 | 6 | 6.8 | 8 | ||||||||||||||
Restructuring charges | 0.3 | — | 4.0 | 0.3 | (3.7 | ) | (93 | ) | ||||||||||||
Total operating expenses | $ | 999.8 | 67 | % | $ | 894.7 | 70 | % | $ | 105.1 | 12 | % |
Year Ended December 31, | Change | % Change | ||||||||||||
2017 | 2016 | |||||||||||||
(in millions, except percentages) | ||||||||||||||
Interest income | $ | 13.5 | $ | 7.3 | $ | 6.2 | 85 | % | ||||||
Other income (expense)—net | 0.7 | (7.1 | ) | 7.8 | (110 | ) |
Year Ended December 31, | Change | % Change | ||||||||||||
2017 | 2016 | |||||||||||||
(in millions, except percentages) | ||||||||||||||
Provision for income taxes | $ | 92.6 | $ | 10.9 | $ | 81.7 | 750 | % | ||||||
Effective tax rate | 75 | % | 25 | % |
Three Months Ended | |||||||||||||||||||||||||||||||
Dec 31, 2018 | Sept 30, 2018 | Jun 30, 2018 | Mar 31, 2018 | Dec 31, 2017 | Sept 30, 2017 | Jun 30, 2017 | Mar 31, 2017 | ||||||||||||||||||||||||
(in millions, except per share amounts) | |||||||||||||||||||||||||||||||
Consolidated Statements of Income Data: | |||||||||||||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||||||||
Product | $ | 200.8 | $ | 164.5 | $ | 166.3 | $ | 142.8 | $ | 162.1 | $ | 137.1 | $ | 142.7 | $ | 135.3 | |||||||||||||||
Service | 306.2 | 289.4 | 275.0 | 256.2 | 254.5 | 237.1 | 220.8 | 205.3 | |||||||||||||||||||||||
Total revenue | 507.0 | 453.9 | 441.3 | 399.0 | 416.6 | 374.2 | 363.5 | 340.6 | |||||||||||||||||||||||
Cost of revenue: | |||||||||||||||||||||||||||||||
Product (1)(2) | 86.9 | 72.0 | 73.9 | 58.2 | 69.6 | 58.1 | 60.8 | 55.3 | |||||||||||||||||||||||
Service (1)(2) | 41.6 | 39.6 | 39.2 | 39.0 | 35.8 | 35.5 | 34.9 | 35.3 | |||||||||||||||||||||||
Total cost of revenue | 128.5 | 111.6 | 113.1 | 97.2 | 105.4 | 93.6 | 95.7 | 90.6 | |||||||||||||||||||||||
Total gross profit | 378.5 | 342.3 | 328.2 | 301.8 | 311.2 | 280.6 | 267.8 | 250.0 | |||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||
Research and development (1) | 65.5 | 58.7 | 61.2 | 59.1 | 54.7 | 53.5 | 51.2 | 51.2 | |||||||||||||||||||||||
Sales and marketing (1)(2) | 205.9 | 198.3 | 192.8 | 185.3 | 191.9 | 172.4 | 166.3 | 170.4 | |||||||||||||||||||||||
General and administrative (1) | 22.0 | 22.5 | 23.5 | 25.0 | 22.4 | 21.0 | 21.9 | 22.6 | |||||||||||||||||||||||
Restructuring charges | — | — | — | — | — | — | (0.1 | ) | 0.4 | ||||||||||||||||||||||
Total operating expenses | 293.4 | 279.5 | 277.5 | 269.4 | 269.0 | 246.9 | 239.3 | 244.6 | |||||||||||||||||||||||
Operating income | 85.1 | 62.8 | 50.7 | 32.4 | 42.2 | 33.7 | 28.5 | 5.4 | |||||||||||||||||||||||
Interest income | 9.3 | 6.9 | 5.8 | 4.5 | 4.0 | 3.9 | 3.2 | 2.4 | |||||||||||||||||||||||
Other income (expense)—net | (2.3 | ) | 0.9 | (5.0 | ) | (0.2 | ) | (1.2 | ) | 0.4 | 1.2 | 0.3 | |||||||||||||||||||
Income before income taxes | 92.1 | 70.6 | 51.5 | 36.7 | 45.0 | 38.0 | 32.9 | 8.1 | |||||||||||||||||||||||
Provision for (benefit from) income taxes | (90.5 | ) | 11.9 | 2.2 | (4.9 | ) | 74.0 | 11.3 | 9.9 | (2.6 | ) | ||||||||||||||||||||
Net income (loss) | $ | 182.6 | $ | 58.7 | $ | 49.3 | $ | 41.6 | $ | (29.0 | ) | $ | 26.7 | $ | 23.0 | $ | 10.7 | ||||||||||||||
Net income (loss) per share: | |||||||||||||||||||||||||||||||
Basic | $ | 1.07 | $ | 0.35 | $ | 0.29 | $ | 0.25 | $ | (0.17 | ) | $ | 0.15 | $ | 0.13 | $ | 0.06 | ||||||||||||||
Diluted | $ | 1.04 | $ | 0.33 | $ | 0.28 | $ | 0.24 | $ | (0.17 | ) | $ | 0.15 | $ | 0.13 | $ | 0.06 |
Three Months Ended | |||||||||||||||||||||||||||||||
Dec 31, 2018 | Sept 30, 2018 | Jun 30, 2018 | Mar 31, 2018 | Dec 31, 2017 | Sept 30, 2017 | Jun 30, 2017 | Mar 31, 2017 | ||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
Cost of product revenue | $ | 0.4 | $ | 0.3 | $ | 0.4 | $ | 0.4 | $ | 0.3 | $ | 0.3 | $ | 0.4 | $ | 0.3 | |||||||||||||||
Cost of service revenue | 2.8 | 2.8 | 2.7 | 2.5 | 2.4 | 2.4 | 2.5 | 2.3 | |||||||||||||||||||||||
Research and development | 9.5 | 9.3 | 9.2 | 8.4 | 8.1 | 8.0 | 8.3 | 7.9 | |||||||||||||||||||||||
Sales and marketing | 25.1 | 26.0 | 23.6 | 20.9 | 19.6 | 19.6 | 19.7 | 19.0 | |||||||||||||||||||||||
General and administrative | 4.8 | 4.8 | 4.7 | 4.3 | 4.0 | 4.0 | 4.2 | 3.8 | |||||||||||||||||||||||
Total stock-based compensation expense | $ | 42.6 | $ | 43.2 | $ | 40.6 | $ | 36.5 | $ | 34.4 | $ | 34.3 | $ | 35.1 | $ | 33.3 |
Three Months Ended | |||||||||||||||||||||||||||||||
Dec 31, 2018 | Sept 30, 2018 | Jun 30, 2018 | Mar 31, 2018 | Dec 31, 2017 | Sept 30, 2017 | Jun 30, 2017 | Mar 31, 2017 | ||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
Amortization of intangible assets | $ | 2.9 | $ | 2.5 | $ | 1.8 | $ | 1.8 | $ | 2.1 | $ | 2.0 | $ | 2.2 | $ | 2.3 |
As of December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
(in millions) | |||||||||||
Cash and cash equivalents | $ | 1,112.4 | $ | 811.0 | $ | 709.0 | |||||
Investments | 604.2 | 538.3 | 601.5 | ||||||||
Total cash, cash equivalents and investments | $ | 1,716.6 | $ | 1,349.3 | $ | 1,310.5 | |||||
Working capital | $ | 964.5 | $ | 689.6 | $ | 709.3 | |||||
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
(in millions) | |||||||||||
Net cash provided by operating activities | $ | 638.9 | $ | 594.4 | $ | 345.7 | |||||
Net cash used in investing activities | (134.9 | ) | (76.8 | ) | (74.1 | ) | |||||
Net cash used in financing activities | (202.6 | ) | (415.6 | ) | (105.9 | ) | |||||
Net increase in cash and cash equivalents | $ | 301.4 | $ | 102.0 | $ | 165.7 |
Payments Due by Period | |||||||||||||||||||
Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||||||||||
(in millions) | |||||||||||||||||||
Operating lease commitments (1) | $ | 50.1 | $ | 17.1 | $ | 20.7 | $ | 8.6 | $ | 3.7 | |||||||||
Inventory purchase commitments (2) | 177.3 | 173.1 | 4.2 | — | — | ||||||||||||||
Total | $ | 227.4 | $ | 190.2 | $ | 24.9 | $ | 8.6 | $ | 3.7 |
(1) | Consists of contractual obligations from non-cancelable office space under operating leases. |
(2) | Consists of minimum purchase commitments with independent contract manufacturers. |
ITEM 8. | Financial Statements and Supplementary Data |
Page | |
December 31, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 1,112.4 | $ | 811.0 | |||
Short-term investments | 537.2 | 440.3 | |||||
Accounts receivable—Net of reserves for doubtful accounts of $0.9 million at December 31, 2018 and net of reserves for sales returns and doubtful accounts of $14.5 million at December 31, 2017 | 444.5 | 348.2 | |||||
Inventory | 90.0 | 77.3 | |||||
Prepaid expenses and other current assets | 36.8 | 40.0 | |||||
Total current assets | 2,220.9 | 1,716.8 | |||||
LONG-TERM INVESTMENTS | 67.0 | 98.0 | |||||
PROPERTY AND EQUIPMENT—NET | 271.4 | 245.4 | |||||
DEFERRED CONTRACT COSTS | 182.6 | — | |||||
DEFERRED TAX ASSETS | 255.0 | 146.9 | |||||
OTHER INTANGIBLE ASSETS—NET | 22.1 | 16.3 | |||||
GOODWILL | 38.2 | 14.6 | |||||
OTHER ASSETS | 20.8 | 19.9 | |||||
TOTAL ASSETS | $ | 3,078.0 | $ | 2,257.9 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Accounts payable | $ | 86.4 | $ | 70.0 | |||
Accrued liabilities | 77.5 | 50.0 | |||||
Accrued payroll and compensation | 98.4 | 92.0 | |||||
Income taxes payable | 28.2 | 21.4 | |||||
Deferred revenue | 965.9 | 793.8 | |||||
Total current liabilities | 1,256.4 | 1,027.2 | |||||
DEFERRED REVENUE | 720.9 | 542.5 | |||||
INCOME TAX LIABILITIES | 77.5 | 90.2 | |||||
OTHER LIABILITIES | 13.0 | 8.6 | |||||
Total liabilities | 2,067.8 | 1,668.5 | |||||
COMMITMENTS AND CONTINGENCIES (Note 10) | |||||||
STOCKHOLDERS’ EQUITY: | |||||||
Common stock, $0.001 par value—300 shares authorized; 169.8 and 167.9 shares issued and outstanding at December 31, 2018 and 2017, respectively | 0.2 | 0.2 | |||||
Additional paid-in capital | 1,068.3 | 909.6 | |||||
Accumulated other comprehensive loss | (0.8 | ) | (0.8 | ) | |||
Accumulated deficit | (57.5 | ) | (319.6 | ) | |||
Total stockholders’ equity | 1,010.2 | 589.4 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,078.0 | $ | 2,257.9 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
REVENUE: | |||||||||||
Product | $ | 674.4 | $ | 577.2 | $ | 548.1 | |||||
Service | 1,126.8 | 917.7 | 727.3 | ||||||||
Total revenue | 1,801.2 | 1,494.9 | 1,275.4 | ||||||||
COST OF REVENUE: | |||||||||||
Product | 291.0 | 243.8 | 209.0 | ||||||||
Service | 159.4 | 141.5 | 128.8 | ||||||||
Total cost of revenue | 450.4 | 385.3 | 337.8 | ||||||||
GROSS PROFIT: | |||||||||||
Product | 383.4 | 333.4 | 339.1 | ||||||||
Service | 967.4 | 776.2 | 598.5 | ||||||||
Total gross profit | 1,350.8 | 1,109.6 | 937.6 | ||||||||
OPERATING EXPENSES: | |||||||||||
Research and development | 244.5 | 210.6 | 183.1 | ||||||||
Sales and marketing | 782.3 | 701.0 | 626.5 | ||||||||
General and administrative | 93.0 | 87.9 | 81.1 | ||||||||
Restructuring charges | — | 0.3 | 4.0 | ||||||||
Total operating expenses | 1,119.8 | 999.8 | 894.7 | ||||||||
OPERATING INCOME | 231.0 | 109.8 | 42.9 | ||||||||
INTEREST INCOME | 26.5 | 13.5 | 7.3 | ||||||||
OTHER INCOME (EXPENSE)—NET | (6.6 | ) | 0.7 | (7.1 | ) | ||||||
INCOME BEFORE INCOME TAXES | 250.9 | 124.0 | 43.1 | ||||||||
PROVISION FOR (BENEFIT FROM) INCOME TAXES | (81.3 | ) | 92.6 | 10.9 | |||||||
NET INCOME | $ | 332.2 | $ | 31.4 | $ | 32.2 | |||||
Net income per share (Note 9): | |||||||||||
Basic | $ | 1.96 | $ | 0.18 | $ | 0.19 | |||||
Diluted | $ | 1.91 | $ | 0.18 | $ | 0.18 | |||||
Weighted-average shares outstanding: | |||||||||||
Basic | 169.1 | 174.3 | 172.6 | ||||||||
Diluted | 174.2 | 178.1 | 176.3 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Net income | $ | 332.2 | $ | 31.4 | $ | 32.2 | |||||
Other comprehensive income (loss): | |||||||||||
Change in unrealized gains (losses) on investments | — | (0.1 | ) | 0.3 | |||||||
Tax provision (benefit) related to change in unrealized gains (losses) on investments | — | — | 0.1 | ||||||||
Other comprehensive income (loss) | — | (0.1 | ) | 0.2 | |||||||
Comprehensive income | $ | 332.2 | $ | 31.3 | $ | 32.4 |
Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings (Deficit) | Total Stockholders’ Equity | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
BALANCE—December 31, 2015 | 171.4 | $ | 0.2 | $ | 687.6 | $ | (0.9 | ) | $ | 68.5 | $ | 755.4 | ||||||||||
Issuance of common stock in connection with equity incentive plans - net of tax withholding | 5.5 | — | 6.0 | — | — | 6.0 | ||||||||||||||||
Repurchase and retirement of common stock | (3.8 | ) | — | (16.2 | ) | — | (94.6 | ) | (110.8 | ) | ||||||||||||
Stock-based compensation expense | — | — | 122.4 | — | — | 122.4 | ||||||||||||||||
Cumulative-effect adjustment from adoption of ASU 2016-09 | — | — | 0.8 | — | 31.5 | 32.3 | ||||||||||||||||
Net unrealized gain on investments - net of tax | — | — | — | 0.2 | — | 0.2 | ||||||||||||||||
Net income | — | — | — | — | 32.2 | 32.2 | ||||||||||||||||
BALANCE—December 31, 2016 | 173.1 | 0.2 | 800.6 | (0.7 | ) | 37.6 | 837.7 | |||||||||||||||
Issuance of common stock in connection with equity incentive plans - net of tax withholding | 6.0 | — | 29.5 | — | — | 29.5 | ||||||||||||||||
Repurchase and retirement of common stock | (11.2 | ) | — | (57.7 | ) | — | (388.6 | ) | (446.3 | ) | ||||||||||||
Stock-based compensation expense | — | — | 137.2 | — | — | 137.2 | ||||||||||||||||
Net unrealized loss on investments - net of tax | — | — | — | (0.1 | ) | — | (0.1 | ) | ||||||||||||||
Net income | — | — | — | — | 31.4 | 31.4 | ||||||||||||||||
BALANCE—December 31, 2017 | 167.9 | 0.2 | 909.6 | (0.8 | ) | (319.6 | ) | 589.4 | ||||||||||||||
Issuance of common stock in connection with equity incentive plans - net of tax withholding | 5.7 | — | 17.5 | — | — | 17.5 | ||||||||||||||||
Repurchase and retirement of common stock | (3.8 | ) | — | (21.7 | ) | — | (187.4 | ) | (209.1 | ) | ||||||||||||
Stock-based compensation expense | — | — | 162.9 | — | — | 162.9 | ||||||||||||||||
Cumulative effect adjustments from adoption of Topic 606 | — | — | — | — | 117.3 | 117.3 | ||||||||||||||||
Net income | — | — | — | — | 332.2 | 332.2 | ||||||||||||||||
BALANCE—December 31, 2018 | 169.8 | $ | 0.2 | $ | 1,068.3 | $ | (0.8 | ) | $ | (57.5 | ) | $ | 1,010.2 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net income | $ | 332.2 | $ | 31.4 | $ | 32.2 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Stock-based compensation | 162.9 | 137.2 | 122.4 | ||||||||
Amortization of deferred contract costs | 90.9 | — | — | ||||||||
Depreciation and amortization | 55.7 | 55.5 | 48.5 | ||||||||
Amortization of investment premiums | (0.6 | ) | 2.5 | 4.8 | |||||||
Other non-cash items—net | (0.9 | ) | 3.8 | 2.6 | |||||||
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions: | |||||||||||
Accounts receivable—net | (82.0 | ) | (38.4 | ) | (57.9 | ) | |||||
Inventory | (33.4 | ) | 9.4 | (43.0 | ) | ||||||
Prepaid expenses and other current assets | 4.2 | (6.7 | ) | 2.6 | |||||||
Deferred contract costs | (136.4 | ) | — | — | |||||||
Deferred tax assets | (127.8 | ) | 35.8 | (27.8 | ) | ||||||
Other assets | (3.8 | ) | (1.0 | ) | (2.4 | ) | |||||
Accounts payable | 14.6 | 13.1 | 0.1 | ||||||||
Accrued liabilities | 14.5 | 14.4 | (3.2 | ) | |||||||
Accrued payroll and compensation | 3.5 | 12.6 | 15.7 | ||||||||
Other liabilities | (0.8 | ) | (5.5 | ) | (5.0 | ) | |||||
Deferred revenue | 352.1 | 300.8 | 243.0 | ||||||||
Income taxes payable | (6.0 | ) | 29.5 | 13.1 | |||||||
Net cash provided by operating activities | 638.9 | 594.4 | 345.7 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Purchases of investments | (681.8 | ) | (669.2 | ) | (473.6 | ) | |||||
Sales of investments | 42.8 | 300.3 | 28.3 | ||||||||
Maturities of investments | 578.8 | 427.4 | 460.5 | ||||||||
Purchases of property and equipment | (53.0 | ) | (135.3 | ) | (67.2 | ) | |||||
Payments made in connection with business acquisitions, net of cash acquired | (21.7 | ) | — | (22.1 | ) | ||||||
Net cash used in investing activities | (134.9 | ) | (76.8 | ) | (74.1 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Repurchase and retirement of common stock | (211.8 | ) | (446.3 | ) | (110.8 | ) | |||||
Proceeds from issuance of common stock | 86.5 | 75.8 | 44.8 | ||||||||
Taxes paid related to net share settlement of equity awards | (67.2 | ) | (45.1 | ) | (38.3 | ) | |||||
Payments of debt assumed in connection with business acquisitions | (10.1 | ) | — | (1.6 | ) | ||||||
Net cash used in financing activities | (202.6 | ) | (415.6 | ) | (105.9 | ) | |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 301.4 | 102.0 | 165.7 | ||||||||
CASH AND CASH EQUIVALENTS—Beginning of year | 811.0 | 709.0 | 543.3 | ||||||||
CASH AND CASH EQUIVALENTS—End of year | $ | 1,112.4 | $ | 811.0 | $ | 709.0 | |||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||||
Cash paid for income taxes—net | $ | 41.4 | $ | 32.2 | $ | 26.6 | |||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | |||||||||||
Transfers of evaluation units from inventory to property and equipment | $ | 21.6 | $ | 21.0 | $ | 21.1 | |||||
Liability for purchase of property and equipment | $ | 8.3 | $ | 8.1 | $ | 8.2 | |||||
Liability incurred for repurchase of common stock | $ | 4.2 | $ | — | $ | — |
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Estimated Useful Lives | |
Building and building improvements | 2 to 30 years |
Computer equipment and software | 1 to 7 years |
Evaluation units | 1 year |
Furniture and fixtures | 3 to 5 years |
Leasehold improvements | Shorter of useful life or lease term |
• | identification of the performance obligations in a contract, including evaluation of performance obligations and evaluating the distinct goods or services in a contract, |
Balance at December 31, 2017 | Adjustments due to Topic 606 | Balance at January 1, 2018 | |||||||||
Assets: | |||||||||||
Accounts receivable, net | $ | 348.2 | $ | 13.6 | $ | 361.8 | |||||
Inventory | 77.3 | (0.1 | ) | 77.2 | |||||||
Deferred tax assets | 146.9 | (18.0 | ) | 128.9 | |||||||
Deferred contract costs | — | 137.1 | 137.1 | ||||||||
Liabilities: | |||||||||||
Accrued liabilities | 50.0 | 13.6 | 63.6 | ||||||||
Deferred revenue, current | 793.8 | 0.3 | 794.1 | ||||||||
Deferred revenue, non-current | 542.5 | (4.4 | ) | 538.1 | |||||||
Other liabilities, non-current | 8.6 | 5.8 | 14.4 | ||||||||
Stockholders’ equity: | |||||||||||
Accumulated deficit | $ | (319.6 | ) | $ | 117.3 | $ | (202.3 | ) |
2. | REVENUE RECOGNITION |
Years Ended | |||||||
December 31, 2018 | December 31, 2017 (1) | ||||||
Product | $ | 674.4 | $ | 577.2 | |||
Service: | |||||||
Security subscription | 606.1 | 504.8 | |||||
Technical support and other (2) | 520.7 | 412.9 | |||||
Total service revenue | 1,126.8 | 917.7 | |||||
Total revenue | $ | 1,801.2 | $ | 1,494.9 | |||
(1) Prior period amounts have not been adjusted under the modified retrospective method. | |||||||
(2) During 2018, the amounts previously reported as professional services and training have been combined with the amounts previously reported as technical support. The combined amounts are now being presented as technical support and other. The professional service and training amounts are not material, and the reclassification did not have any impact on our service revenue or total revenue. Prior periods have been reclassified to conform with current period presentation. |
As of December 31, 2018 | |||||||||||
As Reported | Balances Without Adoption of Topic 606 | Effect of Change Increase (Decrease) | |||||||||
Assets: | |||||||||||
Accounts receivable | $ | 444.5 | $ | 422.4 | $ | 22.1 | |||||
Prepaid and other current assets | 36.8 | 37.2 | (0.4 | ) | |||||||
Inventory | 90.0 | 91.5 | (1.5 | ) | |||||||
Deferred contract costs | 182.6 | — | 182.6 | ||||||||
Deferred tax assets | 255.0 | 279.6 | (24.6 | ) | |||||||
Liabilities: | |||||||||||
Accrued liabilities | 77.5 | 53.4 | 24.1 | ||||||||
Deferred revenue, current | 965.9 | 988.9 | (23.0 | ) | |||||||
Deferred revenue, non-current | 720.9 | 723.4 | (2.5 | ) | |||||||
Income taxes payable | 28.2 | 27.4 | 0.8 | ||||||||
Other liabilities, non-current | 13.0 | 4.1 | 8.9 | ||||||||
Stockholders’ Equity | |||||||||||
Accumulated deficit | $ | (57.5 | ) | $ | (227.4 | ) | $ | 169.9 |
Year Ended December 31, 2018 | |||||||||||
As Reported | Balances Without Adoption of Topic 606 | Effect of Change Increase (Decrease) | |||||||||
REVENUE: | |||||||||||
Product (1) | $ | 674.4 | $ | 654.9 | $ | 19.5 | |||||
Service | 1,126.8 | 1,126.9 | (0.1 | ) | |||||||
Total revenue | 1,801.2 | 1,781.8 | 19.4 | ||||||||
COSTS OF REVENUE: | |||||||||||
Product | 291.0 | 289.6 | 1.4 | ||||||||
GROSS PROFIT: | |||||||||||
Product | 383.4 | 365.3 | 18.1 | ||||||||
Service | 967.4 | 967.5 | (0.1 | ) | |||||||
Total gross profit | 1,350.8 | 1,332.8 | 18.0 | ||||||||
OPERATING EXPENSES: | |||||||||||
Sales and marketing expenses | 782.3 | 827.8 | (45.5 | ) | |||||||
OPERATING INCOME | 231.0 | 167.5 | 63.5 | ||||||||
INCOME BEFORE INCOME TAXES | 250.9 | 187.4 | 63.5 | ||||||||
PROVISION FOR (BENEFIT FROM) INCOME TAXES | (81.3 | ) | (92.2 | ) | 10.9 | ||||||
NET INCOME | $ | 332.2 | $ | 279.6 | $ | 52.6 | |||||
Net income per share: | |||||||||||
Basic | $ | 1.96 | $ | 1.65 | $ | 0.31 | |||||
Diluted | $ | 1.91 | $ | 1.61 | $ | 0.30 |
Year Ended December 31, 2018 | |||||||||||
As Reported | Balances Without Adoption of Topic 606 | Effect of Change Increase (Decrease) | |||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 332.2 | $ | 279.6 | $ | 52.6 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Amortization of deferred contract costs | 90.9 | — | 90.9 | ||||||||
Other | (0.9 | ) | 7.6 | (8.5 | ) | ||||||
Changes in operating assets and liabilities: | |||||||||||
Prepaid expenses and other current assets | 4.2 | 3.7 | 0.5 | ||||||||
Inventory | (33.4 | ) | (34.8 | ) | 1.4 | ||||||
Deferred contract costs | (136.4 | ) | — | (136.4 | ) | ||||||
Deferred tax assets | (127.8 | ) | (134.3 | ) | 6.5 | ||||||
Accrued liabilities | 14.5 | 4.0 | 10.5 | ||||||||
Other liabilities | (0.8 | ) | (3.9 | ) | 3.1 | ||||||
Deferred revenue | 352.1 | 373.5 | (21.4 | ) | |||||||
Income taxes payable | (6.0 | ) | (6.8 | ) | 0.8 | ||||||
Net cash provided by operating activities | $ | 638.9 | $ | 638.9 | $ | — |
3. | FINANCIAL INSTRUMENTS AND FAIR VALUE |
December 31, 2018 | |||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
Corporate debt securities | $ | 299.5 | $ | — | $ | (1.2 | ) | $ | 298.3 | ||||||
Commercial paper | 102.5 | — | — | 102.5 | |||||||||||
Certificates of deposit and term deposits (1) | 145.8 | — | — | 145.8 | |||||||||||
U.S. government and agency securities | 57.7 | — | (0.1 | ) | 57.6 | ||||||||||
Total available-for-sale securities | $ | 605.5 | $ | — | $ | (1.3 | ) | $ | 604.2 | ||||||
December 31, 2017 | |||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
Corporate debt securities | $ | 391.0 | $ | — | $ | (1.2 | ) | $ | 389.8 | ||||||
Commercial paper | 74.2 | — | — | 74.2 | |||||||||||
Certificates of deposit and term deposits (1) | 45.9 | — | — | 45.9 | |||||||||||
U.S. government and agency securities | 28.5 | — | (0.1 | ) | 28.4 | ||||||||||
Total available-for-sale securities | $ | 539.6 | $ | — | $ | (1.3 | ) | $ | 538.3 | ||||||
(1) The majority of our certificates of deposit and term deposits are foreign deposits. |
December 31, 2018 | |||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
Corporate debt securities | $ | 150.1 | $ | (0.2 | ) | $ | 93.5 | $ | (1.0 | ) | $ | 243.6 | $ | (1.2 | ) | ||||||||
Certificates of deposit and term deposits | 51.7 | — | — | — | 51.7 | — | |||||||||||||||||
Commercial paper | 75.6 | (0.1 | ) | — | — | 75.6 | (0.1 | ) | |||||||||||||||
U.S. government and agency securities | 39.0 | — | 3.5 | — | 42.5 | — | |||||||||||||||||
Total available-for-sale securities | $ | 316.4 | $ | (0.3 | ) | $ | 97.0 | $ | (1.0 | ) | $ | 413.4 | $ | (1.3 | ) |
December 31, 2017 | |||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
Corporate debt securities | $ | 317.4 | $ | (0.9 | ) | $ | 58.2 | $ | (0.3 | ) | $ | 375.6 | $ | (1.2 | ) | ||||||||
Certificates of deposit and term deposits | 37.2 | — | — | — | 37.2 | — | |||||||||||||||||
Commercial paper | 29.1 | — | — | — | 29.1 | — | |||||||||||||||||
U.S. government and agency securities | 17.0 | — | 11.4 | (0.1 | ) | 28.4 | (0.1 | ) | |||||||||||||||
Total available-for-sale securities | $ | 400.7 | $ | (0.9 | ) | $ | 69.6 | $ | (0.4 | ) | $ | 470.3 | $ | (1.3 | ) |
December 31, 2018 | December 31, 2017 | ||||||
Due within one year | $ | 537.2 | $ | 440.3 | |||
Due within one to three years | 67.0 | 98.0 | |||||
Total | $ | 604.2 | $ | 538.3 |
December 31, 2018 | December 31, 2017 | ||||||||||||||||||||||||||||||
Aggregate Fair Value | Quoted Prices in Active Markets For Identical Assets | Significant Other Observable Remaining Inputs | Significant Other Unobservable Remaining Inputs | Aggregate Fair Value | Quoted Prices in Active Markets For Identical Assets | Significant Other Observable Remaining Inputs | Significant Other Unobservable Remaining Inputs | ||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||
Corporate debt securities | $ | 299.3 | $ | — | $ | 299.3 | $ | — | $ | 411.1 | $ | — | $ | 411.1 | $ | — | |||||||||||||||
Certificates of deposit and term deposits | 217.4 | — | 217.4 | — | 132.1 | — | 132.1 | — | |||||||||||||||||||||||
Money market funds | 58.6 | 58.6 | — | 195.6 | 195.6 | — | — | ||||||||||||||||||||||||
Commercial paper | 184.7 | — | 184.7 | — | 128.9 | — | 128.9 | — | |||||||||||||||||||||||
U.S. government and agency securities | 57.6 | 45.3 | 12.3 | — | 28.4 | 24.9 | 3.5 | — | |||||||||||||||||||||||
Total | $ | 817.6 | $ | 103.9 | $ | 713.7 | $ | — | $ | 896.1 | $ | 220.5 | $ | 675.6 | $ | — | |||||||||||||||
Reported as: | |||||||||||||||||||||||||||||||
Cash equivalents | $ | 213.4 | $ | 357.8 | |||||||||||||||||||||||||||
Short-term investments | 537.2 | 440.3 | |||||||||||||||||||||||||||||
Long-term investments | 67.0 | 98.0 | |||||||||||||||||||||||||||||
Total | $ | 817.6 | $ | 896.1 |
December 31, 2018 | December 31, 2017 | ||||||
Raw materials | $ | 13.3 | $ | 13.0 | |||
Finished goods | 76.7 | 64.3 | |||||
Inventory | $ | 90.0 | $ | 77.3 |
December 31, 2018 | December 31, 2017 | ||||||
Building and building improvements | $ | 144.2 | $ | 133.2 | |||
Computer equipment and software | 95.9 | 79.9 | |||||
Land | 75.7 | 65.6 | |||||
Leasehold improvements | 17.9 | 20.8 | |||||
Evaluation units | 20.5 | 20.1 | |||||
Furniture and fixtures | 15.7 | 14.7 | |||||
Construction-in-progress | 12.3 | 6.3 | |||||
Total property and equipment | 382.2 | 340.6 | |||||
Less: accumulated depreciation | (110.8 | ) | (95.2 | ) | |||
Property and equipment—net | $ | 271.4 | $ | 245.4 |
Amount | |||
Balance—December 31, 2017 | $ | 14.6 | |
Additions due to business combinations | 23.6 | ||
Balance—December 31, 2018 | $ | 38.2 |
December 31, 2018 | |||||||||||||
Weighted-Average Useful Life (in Years) | Gross | Accumulated Amortization | Net | ||||||||||
Other intangible assets—net: | |||||||||||||
Finite-lived intangible assets: | |||||||||||||
Developed technologies | 4.0 | $ | 34.4 | $ | 17.0 | $ | 17.4 | ||||||
Customer relationships | 4.4 | 17.5 | 12.8 | 4.7 | |||||||||
Total other intangible assets—net | $ | 51.9 | $ | 29.8 | $ | 22.1 |
December 31, 2017 | |||||||||||||
Weighted-Average Useful Life (in Years) | Gross | Accumulated Amortization | Net | ||||||||||
Other intangible assets—net: | |||||||||||||
Finite-lived intangible assets: | |||||||||||||
Developed technologies and other | 3.8 | $ | 24.0 | $ | 13.7 | $ | 10.3 | ||||||
Customer relationships | 4.7 | 14.5 | 10.1 | 4.4 | |||||||||
38.5 | 23.8 | 14.7 | |||||||||||
Indefinite-lived intangible assets: | |||||||||||||
In-process research and development | 1.6 | — | 1.6 | ||||||||||
Total other intangible assets—net | $ | 40.1 | $ | 23.8 | $ | 16.3 |
Amount | |||
Years: | |||
2019 | $ | 10.2 | |
2020 | 6.2 | ||
2021 | 3.6 | ||
2022 | 2.1 | ||
Total | $ | 22.1 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Numerator: | |||||||||||
Net income | $ | 332.2 | $ | 31.4 | $ | 32.2 | |||||
Denominator: | |||||||||||
Basic shares: | |||||||||||
Weighted-average common stock outstanding-basic | 169.1 | 174.3 | 172.6 | ||||||||
Diluted shares: | |||||||||||
Weighted-average common stock outstanding-basic | 169.1 | 174.3 | 172.6 | ||||||||
Effect of potentially dilutive securities: | |||||||||||
RSUs | 3.6 | 2.3 | 1.9 | ||||||||
Stock options | 1.4 | 1.4 | 1.7 | ||||||||
ESPP | 0.1 | 0.1 | 0.1 | ||||||||
Weighted-average shares used to compute diluted net income per share | 174.2 | 178.1 | 176.3 | ||||||||
Net income per share: | |||||||||||
Basic | $ | 1.96 | $ | 0.18 | $ | 0.19 | |||||
Diluted | $ | 1.91 | $ | 0.18 | $ | 0.18 |
Year Ended December 31, | ||||||||
2018 | 2017 | 2016 | ||||||
RSUs | 0.5 | 1.4 | 3.3 | |||||
Stock options | 0.3 | 1.0 | 1.0 | |||||
ESPP | 0.1 | 0.2 | 0.2 | |||||
0.9 | 2.6 | 4.5 |
Total | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | |||||||||||||||||||||
Operating lease commitments | $ | 50.1 | $ | 17.1 | $ | 12.2 | $ | 8.5 | $ | 5.0 | $ | 3.6 | $ | 3.7 | |||||||||||||
Inventory purchase commitments | 177.3 | 173.1 | 4.2 | — | — | — | — | ||||||||||||||||||||
Total | $ | 227.4 | $ | 190.2 | $ | 16.4 | $ | 8.5 | $ | 5.0 | $ | 3.6 | $ | 3.7 |
Restricted Stock Units Outstanding | ||||||
Number of Shares | Weighted-Average Grant Date Fair Value per Share | |||||
Balance—December 31, 2015 | 9.3 | $ | 32.97 | |||
Granted | 5.5 | 27.96 | ||||
Forfeited | (1.7 | ) | 32.03 | |||
Vested | (3.6 | ) | 30.45 | |||
Balance—December 31, 2016 | 9.5 | 31.01 | ||||
Granted | 4.2 | 37.60 | ||||
Forfeited | (1.3 | ) | 34.12 | |||
Vested | (3.9 | ) | 29.42 | |||
Balance—December 31, 2017 | 8.5 | 34.79 | ||||
Granted | 4.1 | 57.37 | ||||
Forfeited | (0.9 | ) | 39.29 | |||
Vested | (3.9 | ) | 34.67 | |||
Balance—December 31, 2018 | 7.8 | $ | 46.07 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Shares withheld for taxes | 1.2 | 1.2 | 1.2 | ||||||||
Amount withheld for taxes | $ | 67.2 | $ | 45.1 | $ | 38.3 |
Year Ended December 31, | ||||||||
2018 | 2017 | 2016 | ||||||
Expected term in years | 4.4 | 4.4 | 4.3 | |||||
Volatility | 31.8 | % | 36.0 | % | 42.2 | % | ||
Risk-free interest rate | 2.7 | % | 1.9 | % | 1.1 | % | ||
Dividend rate | — | % | — | % | — | % |
Options Outstanding | ||||||||||||
Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||
Balance—December 31, 2015 | 7.0 | $ | 20.03 | |||||||||
Granted | 1.5 | 25.65 | ||||||||||
Forfeited | (0.3 | ) | 34.82 | |||||||||
Exercised | (2.0 | ) | 10.45 | |||||||||
Balance—December 31, 2016 | 6.2 | 23.79 | ||||||||||
Granted | 0.5 | 37.34 | ||||||||||
Forfeited | (0.2 | ) | 31.75 | |||||||||
Exercised | (2.2 | ) | 19.19 | |||||||||
Balance—December 31, 2017 | 4.3 | 27.50 | ||||||||||
Granted | 0.8 | 52.09 | ||||||||||
Forfeited | (0.2 | ) | 32.24 | |||||||||
Exercised | (1.9 | ) | 24.96 | |||||||||
Balance—December 31, 2018 | 3.0 | $ | 35.53 | |||||||||
Options vested and expected to vest—December 31, 2018 | 3.0 | $ | 35.53 | 4.00 | $ | 105.6 | ||||||
Options exercisable—December 31, 2018 | 1.6 | $ | 28.91 | 2.67 | $ | 66.3 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Weighted-average fair value per share granted | $ | 16.03 | $ | 12.15 | $ | 9.14 | |||||
Intrinsic value of options exercised | 62.2 | 42.7 | 40.3 | ||||||||
Fair value of options vested | 7.2 | 8.1 | 5.4 |
Options Outstanding | Options Exercisable | |||||||||||||
Range of Exercise Prices | Number Outstanding | Weighted- Average Remaining Contractual Life (Years) | Weighted- Average Exercise Price | Number Exercisable | Weighted- Average Exercise Price | |||||||||
$19.94–24.92 | 1.0 | 3.34 | 23.50 | 0.7 | 23.37 | |||||||||
26.49–33.31 | 0.7 | 1.69 | 29.30 | 0.6 | 28.90 | |||||||||
36.70–39.49 | 0.4 | 5.06 | 37.42 | 0.2 | 37.50 | |||||||||
48.83–49.06 | 0.8 | 5.74 | 49.02 | 0.1 | 48.85 | |||||||||
58.29–76.22 | 0.1 | 6.52 | 68.29 | — | — | |||||||||
3.0 | 1.6 |
Year Ended December 31, | ||||||||
2018 | 2017 | 2016 | ||||||
Expected term in years | 0.5 | 0.5 | 0.5 | |||||
Volatility | 28.9 | % | 29.5 | % | 39.4 | % | ||
Risk-free interest rate | 2.0 | % | 0.9 | % | 0.4 | % | ||
Dividend rate | — | % | — | % | — | % |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Weighted-average fair value per share granted | $ | 14.14 | $ | 8.73 | $ | 7.68 | |||||
Shares issued under the ESPP | 1.1 | 1.1 | 1.2 | ||||||||
Weighted-average price per share issued | $ | 35.32 | $ | 29.52 | $ | 21.01 |
December 31, 2018 | ||
Reserved for future equity award grants | 52.7 | |
Outstanding stock options and RSUs | 10.8 | |
Reserved for future ESPP issuances | 1.9 | |
Total common stock reserved for future issuances | 65.4 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Cost of product revenue | $ | 1.5 | $ | 1.4 | $ | 1.2 | |||||
Cost of service revenue | 10.8 | 9.5 | 8.8 | ||||||||
Research and development | 36.4 | 32.2 | 30.1 | ||||||||
Sales and marketing | 95.6 | 78.0 | 68.1 | ||||||||
General and administrative | 18.6 | 16.1 | 14.2 | ||||||||
Total stock-based compensation expense | $ | 162.9 | $ | 137.2 | $ | 122.4 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
RSUs | $ | 143.9 | $ | 119.8 | $ | 107.1 | |||||
Stock options | 8.8 | 7.3 | 6.6 | ||||||||
ESPP | 10.2 | 10.1 | 8.7 | ||||||||
Total stock-based compensation expense | $ | 162.9 | $ | 137.2 | $ | 122.4 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Income tax benefit associated with stock-based compensation | $ | 24.9 | $ | 30.9 | $ | 29.2 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Domestic | $ | 0.3 | $ | (40.7 | ) | $ | (49.7 | ) | |||
Foreign | 250.6 | 164.7 | 92.8 | ||||||||
Total income before income taxes | $ | 250.9 | $ | 124.0 | $ | 43.1 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Current: | |||||||||||
Federal | $ | (12.6 | ) | $ | 34.7 | $ | 7.9 | ||||
State | 2.0 | 0.8 | 0.8 | ||||||||
Foreign | 36.9 | 27.7 | 17.8 | ||||||||
Total current | $ | 26.3 | $ | 63.2 | $ | 26.5 | |||||
Deferred: | |||||||||||
Federal | $ | (125.5 | ) | $ | 39.1 | $ | (10.0 | ) | |||
State | 14.4 | (9.3 | ) | (4.9 | ) | ||||||
Foreign | 3.5 | (0.4 | ) | (0.7 | ) | ||||||
Total deferred | (107.6 | ) | 29.4 | (15.6 | ) | ||||||
Provision for (benefit from) income taxes | $ | (81.3 | ) | $ | 92.6 | $ | 10.9 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Tax at federal statutory tax rate | $ | 52.7 | $ | 43.4 | $ | 15.1 | |||||
Foreign income taxed at different rates | (21.5 | ) | (19.5 | ) | (13.7 | ) | |||||
Foreign withholding taxes | 20.1 | 17.4 | 15.0 | ||||||||
Stock-based compensation expense | (14.3 | ) | 9.5 | 10.0 | |||||||
Foreign tax credit | (15.8 | ) | (12.8 | ) | (35.0 | ) | |||||
State taxes—net of federal benefit | 1.2 | (3.5 | ) | (4.2 | ) | ||||||
Research and development credit | (5.0 | ) | (4.0 | ) | (2.7 | ) | |||||
Valuation allowance | 14.9 | — | — | ||||||||
Dividend distribution | (3.8 | ) | — | 27.3 | |||||||
Impact of the 2017 Tax Act: | |||||||||||
Deferred tax asset remeasurement due to reduction in the federal corporate income tax rate | — | 47.9 | — | ||||||||
One-time transition tax | 32.6 | 15.2 | — | ||||||||
Global Intangible Low-Taxed Income | 20.5 | — | — | ||||||||
Book-to-Tax Basis differences | (164.0 | ) | — | — | |||||||
Other | 1.1 | (1.0 | ) | (0.9 | ) | ||||||
Total provision for (benefit from) income taxes | $ | (81.3 | ) | $ | 92.6 | $ | 10.9 |
December 31, 2018 | December 31, 2017 | ||||||
Deferred tax assets: | |||||||
General business credit carryforward | $ | 29.5 | $ | 49.9 | |||
Deferred revenue | 223.9 | 37.4 | |||||
Reserves and accruals | 26.6 | 23.0 | |||||
Net operating loss carryforward | 13.5 | 15.7 | |||||
Stock-based compensation expense | 16.2 | 12.3 | |||||
Depreciation and amortization | 3.3 | 8.8 | |||||
Other | — | (0.2 | ) | ||||
Total deferred tax assets | 313.0 | 146.9 | |||||
Less: Valuation allowance | (14.9 | ) | — | ||||
Deferred tax assets, net of valuation allowance | 298.1 | 146.9 | |||||
Deferred tax liabilities: | |||||||
Deferred contract costs | (52.1 | ) | — | ||||
Total deferred tax liabilities | (52.1 | ) | — | ||||
Net deferred tax assets | $ | 246.0 | $ | 146.9 |
Year Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Unrecognized tax benefits, beginning of year | $ | 72.5 | $ | 65.5 | $ | 59.7 | |||||
Gross increases for tax positions related to the current year | 8.6 | 13.2 | 4.8 | ||||||||
Gross decreases for tax positions related to the current year | — | (10.7 | ) | — | |||||||
Gross increases for tax positions related to the prior year | 6.0 | 7.0 | 1.7 | ||||||||
Gross decreases for tax positions related to prior year | (9.5 | ) | (0.9 | ) | (0.7 | ) | |||||
Gross decreases for tax positions related to prior year audit settlements | (6.4 | ) | (1.6 | ) | — | ||||||
Gross decreases for tax positions related to expiration of statute of limitations | (7.7 | ) | — | — | |||||||
Unrecognized tax benefits, end of year | $ | 63.5 | $ | 72.5 | $ | 65.5 |
Year Ended December 31, | |||||||||||
Revenue | 2018 | 2017 | 2016 | ||||||||
Americas: | |||||||||||
United States | $ | 577.2 | $ | 496.9 | $ | 426.4 | |||||
Latin America (“LATAM”) | 120.8 | 92.1 | 66.0 | ||||||||
Canada | 64.9 | 53.3 | 44.3 | ||||||||
Total Americas | 762.9 | 642.3 | 536.7 | ||||||||
Europe, Middle East and Africa (“EMEA”) | 678.0 | 554.6 | 477.4 | ||||||||
Asia Pacific (“APAC”) | 360.3 | 298.0 | 261.3 | ||||||||
Total revenue | $ | 1,801.2 | $ | 1,494.9 | $ | 1,275.4 |
Property and Equipment—net | December 31, 2018 | December 31, 2017 | |||||
Americas: | |||||||
United States | $ | 132.1 | $ | 115.6 | |||
Canada | 113.5 | 103.8 | |||||
LATAM | 0.4 | 0.3 | |||||
Total Americas | 246.0 | 219.7 | |||||
EMEA | 16.2 | 17.7 | |||||
APAC | 9.2 | 8.0 | |||||
Total property and equipment—net | $ | 271.4 | $ | 245.4 |
Year Ended December 31, 2017 | |||||||||||
Unrealized Losses on Investments | Tax benefit (provision) related to unrealized gains or losses on investments | Total | |||||||||
Beginning balance | $ | (1.2 | ) | $ | 0.4 | $ | (0.8 | ) | |||
Other comprehensive income before reclassifications | (0.9 | ) | 0.3 | (0.6 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss | 0.8 | (0.2 | ) | 0.6 | |||||||
Net current-period other comprehensive income | (0.1 | ) | 0.1 | — | |||||||
Ending balance | $ | (1.3 | ) | $ | 0.5 | $ | (0.8 | ) |
1. | Financial Statements: The information concerning Fortinet’s financial statements and the Report of Independent Registered Public Accounting Firm required by this Item 15(a)(1) is incorporated by reference herein to the section of this Annual Report on Form 10-K in Part II, Item 8, titled “Financial Statements and Supplementary Data.” |
2. | Financial Statement Schedule: The following financial statement schedule of Fortinet, Inc., for the fiscal years ended December 31, 2018, 2017 and 2016, is filed as part of this Annual Report on Form 10-K and should be read in conjunction with our consolidated financial statements. |
Year Ended December 31, | |||||||||||
2018 (1) | 2017 | 2016 | |||||||||
(in millions) | |||||||||||
Sales Returns Reserve and Allowance for Doubtful Accounts: | |||||||||||
Beginning balance | $ | 14.5 | $ | 11.2 | $ | 6.2 | |||||
Charged to costs and expenses, net of deductions | — | 3.3 | 5.0 | ||||||||
Reclassification due to adoption of Topic 606 (1) | (13.6 | ) | — | — | |||||||
Ending balance | $ | 0.9 | $ | 14.5 | $ | 11.2 | |||||
(1) Effective January 1, 2018, we reclassified our sales returns reserve in the amount of $13.6 million from accounts receivable to accrued liabilities, in connection with the adoption of Topic 606. The ending balance for the year ended December 31, 2018 consists only of the allowance for doubtful accounts. |
3. | Exhibits: See Item 15(b) below. We have filed, or incorporated into this Annual Report on Form 10-K by reference, the exhibits listed on the accompanying Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K. |
Exhibit Number | Description | Incorporated by reference herein | ||||||
Form | Date | Exhibit Number | ||||||
Amended and Restated Certificate of Incorporation | Current Report on Form 8-K (File No. 001-34511) | June 28, 2018 | 3.1 | |||||
Amended and Restated Bylaws | Current Report on Form 8-K (File No. 001-34511) | June 28, 2018 | 3.2 | |||||
Specimen common stock certificate of the Company | Registration Statement on Form S-l, as amended (File No. 333-161190) | November 2, 2009 | 4.1 | |||||
10.1† | Forms of Indemnification Agreement between the Company and its directors and officers | Registration Statement on Form S-l (File No. 333-161190) | August 10, 2009 | 10.1 | ||||
10.2† | 2000 Stock Plan and forms of agreement thereunder | Registration Statement on Form S-l (File No. 333-161190) | August 10, 2009 | 10.2 | ||||
10.3† | 2008 Stock Plan and forms of agreement thereunder | Registration Statement on Form S-l (File No. 333-161190) | August 10, 2009 | 10.3 | ||||
10.4† | 2009 Equity Incentive Plan and forms of restricted stock unit award and restricted stock agreement thereunder | Registration Statement on Form S-l (File No. 333-161190) | August 10, 2009 | 10.4 | ||||
10.5† | Forms of stock option agreement under 2009 Equity Incentive Plan | Annual Report on Form 10-K (File No. 001-34511) | February 28, 2012 | 10.5 | ||||
10.6† | Form of performance stock unit award agreement under 2009 Equity Incentive Plan | Quarterly Report on Form 10-Q (File No. 001-34511) | August 6, 2013 | 99.1 | ||||
10.7† | Forms of restricted stock unit award and performance stock unit award agreement under 2009 Equity Incentive Plan (Additional Forms) | Annual Report on Form 10-K (File No. 001-34511) | March 2, 2015 | 10.7 | ||||
10.8† | Fortinet, Inc. 2011 Employee Stock Purchase Plan | Current Report on Form 8-K (File No. 001-34511) | June 27, 2011 | 10.1 | ||||
10.9† | Meru Networks, Inc. 2010 Equity Incentive Plan | Registration Statement on Form S-8 (File No. 333-205958) | July 30, 2015 | 99.1 | ||||
Meru Networks, Inc. 2013 New Employee Stock Inducement Plan | Registration Statement on Form S-8 (File No. 333-205958) | July 30, 2015 | 99.2 | |||||
Forms of Fortinet, Inc. Restricted Stock Unit Assumption Agreement | Registration Statement on Form S-8 (File No. 333-205958) | July 30, 2015 | 99.3 | |||||
Fortinet, Inc. Bonus Plan | Current Report on Form 8-K (File No. 001-34511) | January 26, 2010 | 10.1 | |||||
Fortinet, Inc. Cash and Equity Incentive Plan | Quarterly Report on Form 10-Q (File No. 001-34511) | November 5, 2013 | 10.1 | |||||
Form of Change of Control Agreement between the Company and its directors | Quarterly Report on Form 10-Q (File No. 001-34511) | August 4, 2015 | 10.1 | |||||
Amended and Restated Change of Control Agreement, dated as of February 4, 2016, between the Company and Ken Xie | Annual Report on Form 10-K (File No. 001-34511) | February 26, 2016 | 10.15 | |||||
Amended and Restated Change of Control Agreement, dated as of February 4, 2016, between the Company and Michael Xie | Annual Report on Form 10-K (File No. 001-34511) | February 26, 2016 | 10.16 | |||||
Amended and Restated Change of Control Agreement, dated as of February 4, 2016, between the Company and John Whittle | Annual Report on Form 10-K (File No. 001-34511) | February 26, 2016 | 10.17 | |||||
Amended and Restated Change of Control Agreement, dated as of February 4, 2016, between the Company and Andrew Del Matto | Annual Report on Form 10-K (File No. 001-34511) | February 26, 2016 | 10.18 | |||||
Offer Letter, dated as of October 23, 2006, by and between the Company and John Whittle | Registration Statement on Form S-l, as amended (File No. 333-161190) | August 10, 2009 | 10.10 | |||||
Offer Letter, dated as of December 17, 2013, by and between the Company and Andrew Del Matto | Current Report on Form 8-K (File No. 001-34511) | December 20, 2013 | 99.1 | |||||
Letter regarding stock grants, dated as of December 17, 2013, between the Company and Andrew Del Matto | Current Report on Form 8-K (File No. 001-34511) | December 20, 2013 | 99.2 | |||||
Offer Letter, dated as of April 3, 2014, by and between the Company and Keith Jensen | Annual Report on Form 10-K (File No. 001-34511) | February 26, 2018 | 10.22 | |||||
Change of Control Severance Agreement, dated as of February 4, 2016, between the Company and Keith Jensen | Annual Report on Form 10-K (File No. 001-34511) | February 26, 2018 | 10.23 | |||||
Amendment No. 1 to Change of Control Severance Agreement, dated as of May 1, 2018, between the Company and Keith Jensen | Quarterly Report on Form 10-Q (File No. 001-34511) | May 8, 2018 | 10.1 | |||||
21.1* | List of subsidiaries | |||||||
23.1* | Consent of Independent Registered Public Accounting Firm | |||||||
24.1* | Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K) |
31.1* | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2* | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1* | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.INS* | XBRL Instance Document |
FORTINET, INC. | ||
By: | /s/ Ken Xie | |
Ken Xie, Chief Executive Officer and Chairman | ||
(Duly Authorized Officer and Principal Executive Officer) |
FORTINET, INC. | ||
By: | /s/ Keith Jensen | |
Keith Jensen, Chief Financial Officer | ||
(Duly Authorized Officer and Principal Financial Officer and Principal Accounting Officer) |
Signature | Title | Date | ||
/s/ Ken Xie | Chief Executive Officer and Chairman | February 26, 2019 | ||
Ken Xie | (Principal Executive Officer) | |||
/s/ Keith Jensen | Chief Financial Officer | February 26, 2019 | ||
Keith Jensen | (Principal Financial Officer and Principal Accounting Officer) | |||
/s/ Michael Xie | President, Chief Technology Officer and Director | February 26, 2019 | ||
Michael Xie | ||||
/s/ Peter D. Cohen | Director | February 26, 2019 | ||
Peter D. Cohen | ||||
/s/ Ming Hsieh | Director | February 26, 2019 | ||
Ming Hsieh | ||||
/s/ Gary Locke | Director | February 26, 2019 | ||
Gary Locke | ||||
/s/ William H. Neukom | Director | February 26, 2019 | ||
William H. Neukom | ||||
/s/ Christopher B. Paisley | Director | February 26, 2019 | ||
Christopher B. Paisley | ||||
/s/ Judith Sim | Director | February 26, 2019 | ||
Judith Sim |
Entity | Jurisdiction of Incorporation | |
Fortinet International, Inc. | Cayman Islands | |
Fortinet UK, Ltd. | United Kingdom | |
Fortinet Technologies (Canada), ULC | Canada | |
Fortinet Japan K.K. | Japan | |
Fortinet Information Technology (Beijing) Co., Ltd. | China | |
Fortinet Information Technology (Tianjin) Co., Ltd. | China | |
Fortinet Malaysia SDN. BHD. | Malaysia | |
Fortinet Singapore Private Limited | Singapore | |
Fortinet Technologies India Private Limited | India | |
Fortinet S.A.R.L. | France | |
Fortinet GmbH | Germany | |
Fortinet Federal, Inc. | U.S.A. | |
Fortinet BV | Netherlands | |
Fortinet Mexico, S. de R.L. de C.V. | Mexico | |
Fortinet Network Security Brazil Limitada | Brazil | |
Fortinet Colombia S.A.S | Colombia | |
Fortinet Security NZ Limited | New Zealand | |
Fortinet Security Israel Ltd. | Israel | |
Fortinet Security Korea Ltd. | Korea | |
Fortinet Security LLC | Qatar | |
Fortinet Security Italy S.R.L. | Italy | |
Fortinet Networks Romania S.R.L. | Romania | |
Fortinet Holding LLC | U.S.A. | |
Accelops HK | Hong Kong | |
Accelops China | China | |
Fortinet Turkey Güvenlik Sistemleri Limited Şirketi | Turkey | |
Fortinet Security Spain S.L | Spain | |
Fortinet Networks Mauritius Ltd | Mauritius | |
Bradford Networks, Inc. | U.S.A. | |
Bradford Networks Europe Limited | United Kingdom | |
ZoneFox Holding Limited | United Kingdom | |
ZoneFox Limited | United Kingdom |
1. | I have reviewed this Annual Report on Form 10-K of Fortinet, 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(s) 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 control 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 control over financial reporting; and |
5. | The registrant’s other certifying officer(s) 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. |
/s/ Ken Xie | |
Ken Xie | |
Chief Executive Officer and Chairman (Principal Executive Officer) |
1. | I have reviewed this Annual Report on Form 10-K of Fortinet, 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(s) 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 control 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 control over financial reporting; and |
5. | The registrant’s other certifying officer(s) 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. |
/s/ Keith Jensen | |
Keith Jensen | |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
By: | /s/ Ken Xie | ||
Date: | February 26, 2019 | Name: | Ken Xie |
Title: | Chief Executive Officer and Chairman (Principal Executive Officer) |
By: | /s/ Keith Jensen | ||
Date: | February 26, 2019 | Name: | Keith Jensen |
Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Feb. 22, 2019 |
Jun. 29, 2018 |
|
DEI [Abstract] | |||
Entity Registrant Name | FORTINET INC | ||
Entity Central Index Key | 0001262039 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2018 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2018 | ||
Document Fiscal Period Focus | FY | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Well Known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Common Stock, Shares Outstanding | 170,633,671 | ||
Entity Public Float | $ 7,073,006,351 |
Consolidated Balance Sheets Parenthetical - USD ($) $ in Millions |
Dec. 31, 2018 |
Dec. 31, 2017 |
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Reserves for sales returns and doubtful accounts | $ 0.9 | $ 14.5 |
Common Stock, par value (dollars per share) | $ 0.001 | $ 0.001 |
Common Stock, shares authorized | 300,000,000 | 300,000,000 |
Common Stock, shares issued | 169,800,000 | 167,900,000 |
Common Stock, shares outstanding | 169,800,000 | 167,900,000 |
Consolidated Statements of Income - USD ($) shares in Millions, $ in Millions |
12 Months Ended | ||
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Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
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REVENUE: | |||
Product | $ 674.4 | $ 577.2 | $ 548.1 |
Service | 1,126.8 | 917.7 | 727.3 |
Total revenue | 1,801.2 | 1,494.9 | 1,275.4 |
COST OF REVENUE: | |||
Product | 291.0 | 243.8 | 209.0 |
Service | 159.4 | 141.5 | 128.8 |
Total cost of revenue | 450.4 | 385.3 | 337.8 |
GROSS PROFIT: | |||
Product | 383.4 | 333.4 | 339.1 |
Service | 967.4 | 776.2 | 598.5 |
Total gross profit | 1,350.8 | 1,109.6 | 937.6 |
OPERATING EXPENSES: | |||
Research and development | 244.5 | 210.6 | 183.1 |
Sales and marketing | 782.3 | 701.0 | 626.5 |
General and administrative | 93.0 | 87.9 | 81.1 |
Restructuring charges | 0.0 | 0.3 | 4.0 |
Total operating expenses | 1,119.8 | 999.8 | 894.7 |
OPERATING INCOME | 231.0 | 109.8 | 42.9 |
INTEREST INCOME | 26.5 | 13.5 | 7.3 |
OTHER INCOME (EXPENSE)—NET | (6.6) | 0.7 | (7.1) |
INCOME BEFORE INCOME TAXES | 250.9 | 124.0 | 43.1 |
PROVISION FOR (BENEFIT FROM) INCOME TAXES | (81.3) | 92.6 | 10.9 |
NET INCOME | $ 332.2 | $ 31.4 | $ 32.2 |
Net income per share (Note 9): | |||
Basic (in dollars per share) | $ 1.96 | $ 0.18 | $ 0.19 |
Diluted (in dollars per share) | $ 1.91 | $ 0.18 | $ 0.18 |
Weighted-average shares outstanding: | |||
Basic (in shares) | 169.1 | 174.3 | 172.6 |
Diluted (in shares) | 174.2 | 178.1 | 176.3 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
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Net income | $ 332.2 | $ 31.4 | $ 32.2 |
Other comprehensive income (loss): | |||
Change in unrealized gains (losses) on investments | 0.0 | (0.1) | 0.3 |
Tax provision (benefit) related to change in unrealized gains (losses) on investments | 0.0 | 0.0 | 0.1 |
Other comprehensive income (loss) | 0.0 | (0.1) | 0.2 |
Comprehensive income | $ 332.2 | $ 31.3 | $ 32.4 |
Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business—Fortinet, Inc. (“Fortinet”) was incorporated in Delaware in November 2000 and is a global leader in broad, integrated and automated cybersecurity solutions. Fortinet provides high performance cybersecurity solutions to a wide variety of businesses, such as enterprises, communication service providers and small businesses. Fortinet’s cybersecurity solutions are designed to provide broad visibility and segmentation of the digital attack surface, through our integrated Security Fabric Platform with automated protection, detection and responses. Basis of Presentation and Preparation—The consolidated financial statements of Fortinet and its wholly owned subsidiaries (collectively, the “Company,” “we,” “us” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates—The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such management estimates include, but are not limited to, the standalone selling price for each distinct performance obligation included in customer contracts with multiple performance obligations, the period of benefit for deferred contract costs for commissions, stock-based compensation, inventory valuation, fair value of assets acquired and liabilities assumed in business combinations, measurement of liabilities for uncertain tax positions and deferred tax assets and liabilities, assessment of recoverability of our goodwill and other long-lived assets, sales returns reserve and contingent liabilities. We base our estimates on historical experience and also on assumptions that we believe are reasonable. Actual results could differ from those estimates. Concentration of Credit Risk—Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents, short-term and long-term investments and accounts receivable. Our cash balances are maintained as deposits with various large financial institutions in the United States and around the world. Balances in the United States typically exceed the amount of insurance provided on such deposits. We maintain our cash equivalents and investments in money market funds, commercial paper and fixed income securities with major financial institutions that our management believes are financially sound. Our accounts receivables are primarily derived from our channel partners in various geographic locations. We perform ongoing credit evaluations of our customers. We generally do not require collateral on accounts receivable, and we maintain reserves for estimated potential credit losses. In July 2017, Exclusive Networks Group (“Exclusive”), which distributes our solutions to a large group of resellers and end-customers, acquired the U.S. division of Fine Tec Computers (“Fine Tec U.S.”). Fine Tec U.S.’s revenue and accounts receivable have been combined with Exclusive’s from the date of acquisition. As of December 31, 2018 and 2017 Exclusive accounted for 38% and 35% of total net accounts receivable, respectively. During 2018, Exclusive and Ingram Micro Inc. accounted for 30% and 10% of total revenue, respectively. During 2017 and 2016, Exclusive accounted for 25% and 20% of total revenue, respectively. Financial Instruments and Fair Value—We define fair value as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which to transact and the market-based risk. We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Due to their short-term nature, the carrying amounts reported in the consolidated financial statements approximate the fair value for cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and accrued payroll and compensation. Comprehensive Income—Comprehensive income includes certain changes in equity from non-owner sources that are excluded from net income, specifically, unrealized gains and losses on available-for-sale investments and the related tax impact. Foreign Currency and Transaction Gains and Losses—The functional currency of our foreign subsidiaries is the U.S. dollar. Accordingly, monetary assets and liabilities denominated in foreign currencies have been remeasured into U.S. dollars using the exchange rates in effect at the balance sheet dates. Foreign currency denominated income and expenses have been remeasured using the exchange rates in effect during each period. Foreign currency remeasurement gains (losses) of $(8.2) million, $1.0 million and $(6.6) million are included in other income (expense)—net for 2018, 2017 and 2016, respectively. Cash, Cash Equivalents and Available-for-Sale Investments—We consider all highly liquid investments, purchased with original maturities of three months or less, to be cash equivalents. Cash and cash equivalents consist of balances with banks and highly liquid investments in money market funds, commercial paper, term deposits and corporate debt. We classify our investments as available-for-sale at the time of purchase, since it is our intent that these investments are available for current operations. Investments with original maturities greater than three months that mature less than one year from the consolidated balance sheet date are classified as short-term investments. Investments with maturities greater than one year from the consolidated balance sheet date are classified as long-term investments. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. We consult with our investment managers and consider available quantitative and qualitative evidence in evaluating potential impairment of our investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, we evaluate, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and our intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. For debt securities in an unrealized loss position which is deemed to be other-than-temporary, the difference between the security’s then-current amortized cost basis and fair value is separated into (i) the amount of the impairment related to the credit loss (i.e., the credit loss component) and (ii) the amount of the impairment related to all other factors (i.e., the non-credit loss component). The credit loss component is recognized in earnings. The non-credit loss component is recognized in accumulated other comprehensive loss. Inventory—Inventory is recorded at the lower of cost or net realizable value. Cost is computed using the first-in, first-out method. In assessing the ultimate recoverability of inventory, we make estimates regarding future customer demand, the timing of new product introductions, economic trends and market conditions. If the actual product demand is significantly lower than forecasted, we could be required to record inventory write-downs which would be charged to cost of product revenue. Property and Equipment—Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Other Investments—Investments in privately held companies where we own less than 20% of the voting stock and have no indicators of significant influence over operating and financial policies of those companies are included in other assets in the consolidated balance sheets. As of December 31, 2017, these investments were accounted for under the cost method. As of December 31, 2018, with the adoption of the ASU 2016-01—Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, these investments are accounted for at cost, adjusted for changes in observable prices minus impairment. Adoption of ASU 2016-01 did not have an impact on our consolidated financial statements. For these non-quoted investments, we regularly review the assumptions underlying the operating performance and cash flow forecasts as well as current fundraising activities and valuations based on information provided by these privately held companies. If it is determined that an other-than-temporary decline or increase in value exists in an investment without readily determinable value, we adjust the value of the investment to its fair value and record the related impairment or increase in value as an investment loss or gain in our consolidated statements of income. Business Combinations—We include the results of operations of the businesses that we acquire as of the respective dates of acquisition. We allocate the fair value of the purchase price of our business acquisitions to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. We often continue to gather additional information throughout the measurement period, and if we make changes to the amounts recorded, such amounts are recorded in the period in which they are identified. Impairment of Long-Lived Assets—We evaluate events and changes in circumstances that could indicate carrying amounts of long-lived assets, including intangible assets, may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future undiscounted cash flows is less than the carrying amount of those assets, we record an impairment charge in the period in which we make the determination. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Goodwill—Goodwill represents the excess of purchase consideration over the estimated fair value of net assets of businesses acquired in a business combination. Goodwill acquired in a business combination is not amortized, but instead tested for impairment at least annually during the fourth quarter, or sooner when circumstances indicate an impairment may exist. We perform a qualitative assessment in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. Then we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount. Any excess in the carrying value of a reporting unit’s goodwill over its fair value is recognized as an impairment loss, limited to the total amount of goodwill allocated to that reporting unit. We performed our annual goodwill impairment analysis and did not identify any impairment indicators as a result of the review. As of December 31, 2018, we had one reporting unit. Other Intangible Assets—Intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed using the straight-line or accelerated method over the estimated economic lives of the assets, which range from three to five years. Deferred Revenue—Deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue. The majority of deferred revenue is comprised of security subscription and technical support services which are invoiced upfront and delivered over 12 months or longer. Income Taxes—We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. We recognize tax benefits from an uncertain tax positions only if it is more likely than not, based on the technical merits of the position, that the tax position will be sustained on examination by the tax authorities. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Stock-Based Compensation—The fair value of restricted stock units (“RSUs”) is based on the closing market price of our common stock on the date of grant. We have elected to use the Black-Scholes-Merton (“Black-Scholes”) pricing model to determine the fair value of our employee stock options and our equity incentive plans. Stock-based compensation expense is amortized on a straight-line basis over the service period. Leases—We rent certain facilities under operating lease agreements and recognize related rent expense on a straight-line basis over the term of the lease. Some of our lease agreements contain rent holidays, scheduled rent increases, lease incentives and renewal options. Rent holidays and scheduled rent increases are included in the determination of rent expense to be recorded over the lease term. Lease incentives are recognized as a reduction of rent expense on a straight-line basis over the term of the lease. Renewals are not assumed in the determination of the lease term unless they are deemed to be reasonably assured at the inception of the lease. We begin recognizing rent expense on the date that we obtain the legal right to use and control the leased space. Advertising Expense—Advertising costs are expensed when incurred and are included in operating expenses in the accompanying consolidated statements of income. Our advertising expenses were not significant for any periods presented. Research and Development Costs—Research and development costs are expensed as incurred. Deferred Contract Costs and Commission Expense—In 2017, we recognized commission expense on both product sales and service contracts at the time of sale. Beginning on January 1, 2018, we recognize sales commissions related to product sales upfront while sales commissions for service contracts are deferred as Deferred contract costs in the consolidated balance sheets and amortized over the applicable amortization period. Costs for initial contracts that are not commensurate with renewal commissions are amortized on a straight-line basis over the period of benefit, which we have determined to be five years and which is typically longer than the initial contract term. Software Development Costs—The costs to develop software that is marketed have not been capitalized as we believe our current software development process is essentially completed concurrently with the establishment of technological feasibility. Such costs are expensed as incurred and included in research and development in our consolidated statements of income. The costs to obtain or develop software for internal use are capitalized based on qualifying criteria, which includes a determination of whether such costs are incurred during the application development stage. Such costs are amortized over the software’s estimated useful life. Revenue Recognition—On January 1, 2018 we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under ASU 2009-13, Revenue Recognition (Topic 605) (“Topic 605”). The details of significant changes and quantitative impact of the changes are discussed below. Beginning in 2018, revenues are recognized when control of these goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Prior to 2018, revenue was recognized under Topic 605 when all of the following criteria were met: (i) persuasive evidence of an arrangement existed, (ii) delivery has occurred or services have been rendered, (iii) sales price was fixed or determinable and (iv) collectability was reasonably assured. Under Topic 606, we determine revenue recognition through the following steps: •identification of a contract or contracts with a customer,
•determination of a transaction price, •allocation of a transaction price to the performance obligations in a contract, and •recognition of revenue when, or as, we satisfy a performance obligation. We derive a majority of product sales from our FortiGate products. Our FortiGate products include a broad set of built-in security and networking features and functionalities including firewall, SD-WAN, data leak prevention, VPN, switch and wireless controller and WAN acceleration, among others. We previously recognized product revenue for sales to distributors that had no general right of return and direct sales to end-customers upon shipment, based on general revenue recognition accounting guidance once all other revenue recognition criteria were met. Certain distributors are granted stock rotation rights, limited rights of return or rebates for sales of our products. The arrangement fee for this group of distributors was not fixed or determinable when products were shipped and revenue was therefore deferred and recognized upon sell-through. Under Topic 606, we recognize product revenue upon shipment when control of the promised goods is transferred to the customer. We recognize revenue from term licenses upon electronic transfer of the license key to a customer. Previously, term licenses were recognized over the license period. Service revenue relates to sales of our FortiGuard security subscription, FortiCare technical support services and other services. Our typical subscription and contractual support term is one to three years, and to a lesser extent, five years. Our revenue recognition for service arrangements did not significantly change under Topic 606. We continue to recognize revenue from these services ratably over the contractual service period because of continuous transfer of control to the customer over the support period. Revenue related to subsequent renewals of these services are recognized over the support term of the renewal agreement. We also generate a small portion of our revenue from other services consisting of professional services, training and software-as-a-service (“SaaS”) which is either hosted or cloud-based services. We recognize revenue from professional and training services as the services are provided. We recognize revenue from SaaS as the subscription service is delivered over the term, which is typically one year, or on a monthly usage basis. To date, SaaS revenue has not represented a significant percentage of our total revenue. Our sales contracts typically contain multiple deliverables, such as hardware, software license, security subscription, technical support services and other services, which are generally capable of being distinct and accounted for as separate performance obligations. We evaluated the criteria to be distinct under Topic 606 and concluded that the hardware and software license were distinct and distinct in the context of the contract from the security subscription and technical support services, as the customer can benefit from the hardware and license without the services and the services are separately identifiable within the contract. We allocate the transaction price to each performance obligation based on relative standalone selling price. We determine standalone selling price based on the historical pricing and discounting practices for those services when sold separately. We determine standalone selling price for a product or service by considering multiple historical factors including, but not limited to, cost of products, gross margin objectives, pricing practices, geographies and the term of the service contract that fall within a reasonably range as a percentage of list price. Revenue is reported net of sales tax. Under Topic 605, revenue from contracts that contain our products and services were allocated to each unit of accounting based on an estimated selling price using vendor-specific objective evidence (“VSOE”) of selling price, if it existed, or third-party evidence (“TPE”) of selling price. If neither VSOE nor TPE of selling price existed for a deliverable, we used our best estimate of selling price for that deliverable. For multiple-element arrangements where software deliverables were included, revenue was allocated to the non-software deliverables and to the software deliverables as a group using the relative estimated selling prices of each of the deliverables in the arrangement based on the estimated selling price hierarchy. The amount allocated to the software deliverables was then allocated to each software deliverable using the residual method when VSOE of fair value existed. If evidence of VSOE of fair value of one or more undelivered elements did not exist, all software allocated revenue was deferred and recognized when delivery of those elements occurred or when fair value was established. When the undelivered element for which we did not have VSOE of fair value was support, revenue for the entire arrangement was recognized ratably over the support period. The same residual method and VSOE of fair value principles applied for our multiple element arrangements that contained only software elements. In certain circumstances, our contracts include provisions for sales rebates and other customer incentive programs. Additionally, in limited circumstances, we may permit end-customers, distributors and resellers to return our products, subject to varying limitations, for a refund within a reasonably short period from the date of purchase. These amounts are accounted for as variable consideration that can decrease the transaction price. We estimate variable consideration at the most likely amounts to which we expect our customers to be entitled. We include estimated amounts in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimate for sales return reserve was $20.8 million as of December 31, 2018 and is included in current liabilities in our consolidated balance sheet. Under Topic 605, the sales return reserve of $13.6 million was presented as a reduction to accounts receivable as of December 31, 2017. We generally invoice at the time of our sale for the total price of the hardware, software licenses, security and technical support and other services, and the invoice is payable within 30 to 45 days. We also invoice certain services on a monthly basis. Amounts billed and due from our customers are classified as receivables on the balance sheet and do not bear interest. Our deferred revenue primarily consists of amounts that have been invoiced but have not been recognized as revenue as of period end. Shipping and handling fees charged to our customers are recognized as revenue in the period shipped and the related costs for providing these services are recorded in cost of revenue. Shipping and handling fees recognized were not significant during 2018 and 2017. Warranties—We generally provide a one-year warranty on most hardware products and a 90-day warranty on software. We also provide extended warranties under the terms of our support agreements. A provision for estimated future costs related to warranty activities in the first year after product sale is recorded as a component of cost of product revenues when the product revenue is recognized, based upon historical product failure rates and historical costs incurred in correcting product failures. Warranty costs related to extended warranties sold under support agreements are recognized as cost of service revenue. In the event we change our warranty reserve estimates, the resulting charge against future cost of revenue or reversal of previously recorded charges may materially affect our gross margins and operating results. Accrued warranty was not significant as of December 31, 2018 and 2017. Contingent Liabilities—From time to time, we are involved in disputes, litigation, and other legal actions. However, there are many uncertainties associated with such legal action, and these actions or other third-party claims against us may cause us to incur substantial settlement charges, which are inherently difficult to estimate and could adversely affect our results of operations. We review significant new claims and litigation for the probability of an adverse outcome. Estimates can change as individual claims develop. The actual liability in any such matters may be materially different from our estimates, which could result in the need to adjust our liability and record additional expenses. Recently Adopted Accounting Standards Financial Instruments – Recognition and Measurement In January 2016, the FASB issued ASU 2016-01—Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, with further clarifications made recently with the issuance of ASU 2018-03—Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires most equity investments to be measured at fair value, with subsequent changes in fair value recognized in net income. A practicality exception applies to those equity investments that do not have a readily determinable fair value. These investments may be measured at cost, adjusted for changes in observable prices minus impairment. ASU 2016-01 was effective prospectively for us beginning on January 1, 2018 for our equity investments, which were previously accounted for under the cost-method. We adopted ASU 2016-01 on January 1, 2018. There was no material impact on our consolidated financial statements as of the adoption date. Revenue Recognition In May 2014, the FASB issued Topic 606, which supersedes the revenue recognition requirements in Topic 605 and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We recorded a net reduction to our accumulated deficit as of January 1, 2018 of $117.3 million due to the cumulative impact of adopting Topic 606. The primary impact of adopting Topic 606 relates to the deferral of our incremental contract costs, which are comprised of sales commissions. Prior to January 1, 2018, we expensed all sales commissions upfront. Beginning on January 1, 2018, we continue to expense sales commissions related to product sales upfront, but capitalize and then amortize certain sales commissions on service contracts over the applicable amortization period. The deferred contract costs for capitalized sales commissions related to the initial service contracts are deferred and then amortized as expense on a straight-line basis over the period of benefit which we have determined to be five years. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the contractual period of the underlying contracts. The deferral of contract costs generated a deferred tax liability of $23.8 million, of which $18.0 million was recorded against deferred tax assets and the remaining $5.8 million was recorded in other long-term liabilities on our consolidated balance sheet. The impact on deferred revenue as of January 1, 2018 was $4.1 million, which primarily relates to certain changes in revenue recognition on software license sales and the acceleration of revenue from U.S.-based channel partners which were previously deferred until the product was sold through. Beginning on January 1, 2018, our sales returns reserve is now included on the balance sheet in accrued liabilities and no longer as a reduction to our accounts receivable. See above significant accounting policies for further details. The cumulative effects of the changes made to our January 1, 2018 consolidated balance sheet for the adoption of Topic 606 were as follows (in millions):
Recent Accounting Standards Not Yet Effective Cloud Computing In August 2018, the FASB issued ASU 2018-15—Intangibles-Goodwill and Other-Internal—Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) Topic 350, Intangibles—Goodwill and Other, to determine which implementation costs to capitalize as assets or expense as incurred. ASU 2018-15 is effective for us beginning January 1, 2020, and early adoption is permitted. We are currently evaluating the impact of ASU 2018-15 on our consolidated financial statements. Fair Value Measurements In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements in ASC 820, Fair Value Measurement, as part of its disclosure framework project. ASU 2018-13 is effective for us beginning January 1, 2020. The amendments in ASU 2018-13 on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments in ASU 2018-13 should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of ASU 2018-13. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. We are currently assessing the impact the new guidance will have on our disclosures. Stock Compensation In June 2018, the FASB issued ASU 2018-07—Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees subject to certain exceptions. ASU 2018-07 expands the scope of ASC Topic 718, Compensation—Stock Compensation (“ASC 718”), to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505, Equity, by moving it to ASC 718. This amendment was effective for us beginning January 1, 2019. The adoption of this standard will not have a material impact on our consolidated financial statements. Comprehensive Income In February 2018, the FASB issued ASU 2018-02—Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded tax effects resulting from the 2017 Tax Act, from accumulated other comprehensive income to retained earnings. ASU 2018-02 also requires certain new disclosures regardless of the election. ASU 2018-02 was effective for us beginning January 1, 2019. We are currently assessing the impact of ASU 2018-02 on our consolidated financial statements and we expect the standard will not have a material impact on our consolidated financial statements. Financial Instruments In June 2016, the FASB issued ASU 2016-13—Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a financial asset (or a group of financial assets) to be measured at an amortized cost basis to be presented at the net amount expected to be collected. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans and held-to-maturity debt securities. ASU 2016-13 is effective for us beginning on January 1, 2020, and early adoption is permitted. We are currently assessing the impact of ASU 2016-13 on our consolidated financial statements. Leases In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842), which requires the recognition of right-of-use assets and lease liabilities on the consolidated balance sheet for substantially all leases. ASU 2016-02 includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 will also require significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. In July 2018, the FASB issued ASU 2018-10—Codification Improvements to Topic 842, Leases, and ASU 2018-11—Leases (Topic 842): Targeted Improvements, which address questions about how to apply certain aspects for the adoption of Topic 842. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options and variable payments that depend on an index or rate, and provide an alternative transition approach that allows companies to initially apply the new leases standard by recognizing a cumulative-effect adjustment on adoption date. ASU 2016-02 was effective for us beginning on January 1, 2019, and we expect to apply a modified retrospective transition approach through a cumulative-effect adjustment at the beginning of the first quarter of 2019. Based on our current lease portfolio, we currently estimate that the value of leased assets and liabilities that may be recognized to be at least $40.0 million. We are continuing to evaluate the impact of ASU 2016-02 and our estimate is subject to change. We do not believe that ASU 2016-02 will have a material impact on our consolidated statements of income and cash flows. Upon adoption, we expect to expand our disclosures in the notes to consolidated financial statements to include more details on our leases, significant judgments and lease-related amounts recognized in the consolidated financial statements. |
Revenue Recognition |
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Revenue Recognition | REVENUE RECOGNITION The following table presents our revenue disaggregated by major product and service lines (in millions):
Transaction Price Allocated to the Remaining Performance Obligations As of December 31, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $1.69 billion, which was substantially comprised of deferred security subscription and technical support services. We expect to recognize revenue on approximately 80% of these remaining performance obligations over the next one to two years, with the remaining balance to be recognized in three to five years. Accounts Receivable Trade accounts receivable are recorded at the invoiced amount. Trade accounts receivable is reduced by allowance for doubtful accounts which is determined based on our assessment of the collectability of customer accounts. The allowance for doubtful accounts was $0.9 million as of December 31, 2018 and December 31, 2017. As of December 31, 2017, accounts receivable was also reduced by sales return reserve of $13.6 million, which we reclassified to accrued liabilities account as of January 1, 2018 in accordance with the adoption of Topic 606. Contract Assets Contract assets represent amounts that have been recognized as revenue but for which we did not have the unconditional right to invoice the customer. We did not have contract assets as of December 31, 2018 and January 1, 2018. Deferred Contract Costs Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for the sale of products and software licenses are recognized at the time of sale. Sales commissions for initial service contracts are deferred and then amortized as an expense on a straight-line basis over the period of benefit which we have determined to be five years. We determined the period of benefit taking into consideration our customer contracts, our technology and other factors. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the contractual period of the underlying contracts which ranges from one to three years and, to a lesser extent, five years. The amortization of deferred contract costs is included in sales and marketing expense in our consolidated statement of income. Amortization of deferred contract costs during 2018 was $90.9 million. No impairment loss was recognized during 2018. Deferred Revenue Our deferred revenue consists of amounts that have been invoiced but have not been recognized as revenue as of period end. During 2018, we recognized $753.3 million in revenue that was included in the deferred revenue balance as of January 1, 2018. Practical Expedient We elected to use the contract modification practical expedient. This practical expedient allows for all contract modifications before January 1, 2018 to be aggregated and evaluated at adoption date. Impact on Consolidated Financial Statements The following tables summarize the impact of adopting Topic 606 on our consolidated financial statements as of and for 2018 (in millions). These tables do not represent the full consolidated financial statements as they only reflect the accounts impacted by the adoption of Topic 606. Consolidated Balance Sheet
Consolidated Statement of Income
(1) Product revenue during 2018 included a $19.5 million benefit from the adoption of Topic 606, which primarily related to the change in accounting treatment under Topic 606 for some of our software products such that revenue from these arrangements is now recognized upfront instead of ratably over the contracted service term, net of the lost opportunity to recognize revenue that had been deferred and was written off to equity on the date of adoption. Consolidated Statement of Cash Flows
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Financial Instruments and Fair Value |
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Financial Instruments and Fair Value [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FINANCIAL INSTRUMENTS AND FAIR VALUE | FINANCIAL INSTRUMENTS AND FAIR VALUE The following tables summarize our investments (in millions):
The following tables show the gross unrealized losses and the related fair values of our investments that have been in a continuous unrealized loss position (in millions):
The contractual maturities of our investments were as follows (in millions):
Available-for-sale securities are reported at fair value, with unrealized gains and losses and the related tax impact included as a separate component of stockholders’ equity and in comprehensive income. Realized losses on available-for-sale securities were insignificant in the periods presented and are included in Other income (expense)—net in our consolidated statements of income. We use the specific identification method to determine the cost basis of investments sold. The unrealized losses on our available-for-sale securities were caused by fluctuations in market value and interest rates as a result of the economic environment. As the decline in market value are attributable to changes in market conditions and not credit quality, and because we have concluded currently that we neither intend to sell nor is it more likely than not that we will be required to sell these investments prior to a recovery of par value, we do not consider these investments to be other-than temporarily impaired as of December 31, 2018. Fair Value Accounting—We apply the following fair value hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments. Level 3—Unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation. We measure the fair value of money market funds and certain U.S. government and agency securities using quoted prices in active markets for identical assets. The fair value of all other financial instruments was based on quoted prices for similar assets in active markets, or model driven valuations using significant inputs derived from or corroborated by observable market data. We classify investments within Level 1 if quoted prices are available in active markets for identical securities. We classify items within Level 2 if the investments are valued using model driven valuations using observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Investments are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models. Fair Value of Financial Instruments Assets Measured at Fair Value on a Recurring Basis The following tables present the fair value of our financial assets measured at fair value on a recurring basis as of December 31, 2018 and 2017 (in millions):
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended December 31, 2018 and December 31, 2017. |
Inventory |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORY | INVENTORY Inventory consisted of the following (in millions):
Inventory includes materials at contract manufacturers of $2.4 million and $2.6 million as of December 31, 2018 and 2017, respectively. |
Property and Equipment—Net |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT—Net | PROPERTY AND EQUIPMENT—Net Property and equipment—net consisted of the following (in millions):
Depreciation expense was $46.7 million, $46.9 million and $39.2 million in 2018, 2017 and 2016, respectively. |
Investments in Privately-Held Companies |
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Dec. 31, 2018 | |
Investments, All Other Investments [Abstract] | |
INVESTMENTS IN PRIVATELY-HELD COMPANIES | INVESTMENTS IN PRIVATELY HELD COMPANIES Our investments in the equity securities of privately held companies totaled $9.1 million and $12.1 million as of December 31, 2018 and 2017, respectively. These investments, which were previously accounted for at cost, are now accounted for at cost, adjusted for changes in observable prices minus impairment. We own less than 20% of the voting securities in each of these investments and do not have the ability to exercise significant influence over operating and financial policies of the respective entities. These investments are recorded as other assets on our consolidated balance sheets and would be measured at fair value if indicators of an increase in value or impairment existed. During the third quarter of 2018, we sold equity securities of a privately held company for $5.2 million and recognized a gain of $2.2 million as other income in our consolidated statements of income. As of December 31, 2018, no events have occurred that would affect the carrying value of these investments. |
Business Combinations |
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Dec. 31, 2018 | |
Business Combinations [Abstract] | |
BUSINESS COMBINATIONS | BUSINESS COMBINATIONS ZoneFox Holdings Limited On October 22, 2018, we acquired all outstanding shares of ZoneFox Holdings Limited (“ZoneFox”), a privately held cloud-based insider threat detection and response company headquartered in Edinburgh, Scotland. We expect the ZoneFox acquisition will allow us to provide additional user and entity behavior analytics features. Under the business combination method of accounting in accordance with ASC Topic 805, Business Combinations (“ASC 805”), the total preliminary purchase price was allocated to ZoneFox’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, and our estimates and assumptions are subject to change within the measurement period. 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 area that remains preliminary relates to finalization of valuation analyses pertaining to intangible assets acquired and tax liabilities assumed. The preliminary purchase price for ZoneFox was $16.1 million, of which $12.5 million was allocated to goodwill that was non-deductible for tax purposes, and $6.8 million was allocated to identifiable intangible assets the majority of which was developed technology offset by $3.2 million of net liabilities assumed. Acquisition-related costs related to the ZoneFox acquisition were not material. 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. We may pay an additional $2.0 million in cash consideration as an earn-out that is subject in full to satisfaction of certain performance conditions. As of December 31, 2018, no fair value was assigned to the contingent consideration based on the estimated probability of attainment of the target. Bradford Networks, Inc. On June 4, 2018, we acquired all outstanding shares of Bradford Networks, Inc. (“Bradford”), a provider of network access control security products and services. We believe that this acquisition will extend the Fortinet Security Fabric to include network access control and provide for the security assessment and response related to devices accessing the network, including Internet of Things devices. Under the business combination method of accounting in accordance with ASC 805, the total purchase price was allocated to Bradford’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 purchase price for Bradford was $6.8 million, of which $11.1 million was allocated to goodwill that was non-deductible for tax purposes, and $8.0 million was allocated to identifiable intangible assets the majority of which was developed technology offset by $12.3 million of net liabilities assumed. Acquisition-related costs related to the Bradford acquisition were not material. 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. We may pay an additional $2.0 million in cash consideration as an earn-out that is subject in full to satisfaction of certain performance conditions. As of December 31, 2018, no fair value was assigned to the contingent consideration based on the estimated probability of attainment of the target. AccelOps, Inc. On June 7, 2016, we completed our acquisition of AccelOps, Inc. (“AccelOps”), a provider of network security monitoring and analytics solutions. This acquisition extended the Fortinet Security Fabric. The acquisition of AccelOps was accounted as a business combination in accordance with ASC 805, and we used our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The total purchase price for AccelOps was $22.3 million, of which $9.9 million was allocated to goodwill that was non-deductible for tax purposes, and $16.5 million was allocated to identifiable intangible assets with average estimated lives of approximately two to four years, offset by $4.1 million of net liabilities assumed. 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. Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to our consolidated statements of income. |
Goodwill and Other Intangible Assets - Net |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS - Net | GOODWILL AND OTHER INTANGIBLE ASSETS—Net Goodwill The following table presents the changes in the carrying amount of goodwill (in millions):
There were no impairments to goodwill during 2018, 2017, 2016 or any previous years. Other Intangible Assets—net The following tables present other intangible assets—net as of December 31, 2018 and 2017 (in millions, except years):
The project related to in-process research and development intangible asset of $1.6 million was completed in the first quarter of 2018. Upon completion, the cost was transferred to developed technology and is amortized over the estimated useful life of four years. Amortization expense of finite-lived intangible assets was $9.0 million, $8.6 million and $9.3 million in 2018, 2017, and 2016, respectively. The following table summarizes estimated future amortization expense of finite-lived intangible assets—net (in millions):
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Net Income Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET INCOME PER SHARE | NET INCOME PER SHARE Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, plus the dilutive effects of RSUs, stock options and our Employee Stock Purchase Plan (the “ESPP”). Dilutive shares of common stock are determined by applying the treasury stock method. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share is as follows (in millions, except per share amounts):
The following weighted-average shares of common stock were excluded from the computation of diluted net income per share for the periods presented, as their effect would have been antidilutive (in millions):
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Commitments and Contingencies |
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COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES The following table summarizes our future principal contractual obligations as of December 31, 2018 (in millions):
Operating Leases—We lease certain facilities under various non-cancelable operating leases, which expire through 2026. Certain leases require us to pay variable costs such as taxes, maintenance, and insurance. The terms of certain operating leases also provide for renewal options and escalation clauses. Rent expense was $17.1 million, $16.7 million and $18.9 million for 2018, 2017 and 2016, respectively. Rent expense is recognized using the straight-line method over the term of a lease. Inventory Purchase Commitments—Our independent contract manufacturers procure components and build our products based on our forecasts. These forecasts are based on estimates of future demand for our products, which are in turn based on historical trends and an analysis from our sales and marketing organizations, adjusted for overall market conditions. In order to reduce manufacturing lead times and plan for adequate component supply, we may issue purchase orders to some of our independent contract manufacturers which may not be cancelable. As of December 31, 2018, we had $177.3 million of open purchase orders with our independent contract manufacturers that may not be cancelable. Other Contractual Commitments and Open Purchase Orders—In addition to commitments with contract manufacturers, we have open purchase orders and contractual obligations in the ordinary course of business for which we have not received goods or services. As of December 31, 2018, we had $14.3 million in other contractual commitments having a remaining term in excess of one year that may not be cancelable. Litigation—We are involved in disputes, litigation, and other legal actions. For lawsuits where we are the defendant, we are in the process of defending these litigation matters, and while there can be no assurances and the outcome of these matters is currently not determinable, we currently believe that there are no existing claims or proceedings that are likely to have a material adverse effect on our financial position. There are many uncertainties associated with any litigation and these actions or other third-party claims against us may cause us to incur costly litigation fees, costs and substantial settlement charges, and possibly subject us to damages and other penalties. In addition, the resolution of any intellectual property litigation may require us to make royalty payments, which could adversely affect our gross margins in future periods. If any of those events were to occur, our business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from our estimates, if any, which could result in the need to adjust the liability and record additional expenses. As required under ASC 450, Contingencies, issued by the FASB, we accrue for contingencies when we believe that a loss is probable and that we can reasonably estimate the amount of any such loss. As previously disclosed, in October 2016, we received a letter from the United States Attorney’s Office for the Northern District of California requesting information relating to events from over two years ago related to our compliance with the Trade Agreements Act. We have been fully cooperating with this ongoing inquiry and have periodically met and spoken with the United States Attorney’s Office in connection with this matter. We are currently in settlement discussions with the United States Attorney's Office. Indemnification—Under the indemnification provisions of our standard sales contracts, we agree to defend our customers against third-party claims asserting various allegations such as product defects and infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay judgments entered on such claims. In some contracts, our exposure under these indemnification provisions is limited by the terms of the contracts to certain defined limits, such as the total amount paid by our customer under the agreement. However, certain agreements include covenants, penalties and indemnification provisions including and beyond indemnification for third-party claims of intellectual property infringement, that could potentially expose us to losses in excess of the amount received under the agreement, and in some instances to potential liability that is not contractually limited. To date, there have been no material awards under such indemnification provisions. |
Stockholders' Equity |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | STOCKHOLDERS’ EQUITY Stock-Based Compensation Plans Our stock-based compensation plans include the 2000 Stock Plan (the “2000 Plan”), the 2008 Stock Plan (the “2008 Plan”), the 2009 Equity Incentive Plan (the “2009 Plan”) and the ESPP. Under these plans, we have granted stock options and RSUs. Stock Plans—Our board of directors adopted the 2000 Plan in 2000 and the 2008 Plan in 2008. During 2018, 2017 and 2016, we issued no stock options under these plans. As of December 31, 2015, no shares remain available for grant under these plans. 2009 Equity Incentive Plan—In 2009, our board of directors approved the 2009 Plan, which includes awards of stock options, stock appreciation rights, restricted stock, RSUs and performance stock units. The maximum aggregate number of shares that may be issued under the 2009 Plan is 9.0 million shares, plus any shares subject to stock options or similar awards granted under the 2008 Plan and the 2000 Plan that expire or otherwise terminate without having been exercised in full and shares issued pursuant to awards granted under the 2008 Plan and the 2000 Plan that are forfeited to or repurchased by us, with the maximum number of shares to be added to the 2009 Plan pursuant to such terminations, forfeitures and repurchases not to exceed 21.0 million shares. The shares may be authorized but unissued or reacquired common stock. The number of shares available for issuance under the 2009 Plan is increased on the first day of each year beginning with 2011, in an amount equal to the lesser of (i) 14.0 million shares (as adjusted in connection with the stock split effected in June 2011), (ii) 5% of the outstanding shares on the last day of the immediately preceding year or (iii) such number of shares determined by our board of directors. Under the 2009 Plan, we may grant awards to employees, directors and other service providers. In the case of an incentive stock option granted to an employee who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock, the exercise price shall be no less than 110% of the fair market value per share on the date of grant and expire five years from the date of grant, and options granted to any other employee, the per share exercise price shall be no less than 100% of the closing stock price on the date of grant. In the case of a non-statutory stock option and options granted to other service providers, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. Options granted to individuals owning less than 10% of the total combined voting power of all classes of stock generally have a contractual term of seven years and options generally vest over four years. 2011 Employee Stock Purchase Plan—In June 2011, our stockholders approved the ESPP. The ESPP permitted eligible employees to purchase common stock through regular, systematic payroll deductions, up to a maximum of 15% of employees’ compensation for each purchase period at purchase prices equal to 85% of the lesser of the fair market value of our common stock at the first trading date of the applicable offering period or the purchase date, subject to purchase limits of 4,000 shares for each purchase period or $25,000 worth of stock for each calendar year. Our board of directors voluntarily determined to terminate the ESPP, effective February 2019 at the completion of the prior offering period. As of December 31, 2018, there were a total of 54,512,197 shares of common stock available for grant under our stock-based compensation plans. Restricted Stock Units The following table summarizes the activity and related information for RSUs for the periods presented below (in millions, except per share amounts):
As of December 31, 2018, total compensation expense related to unvested RSUs granted to employees and non-employees under the 2009 Plan, but not yet recognized, was $306.1 million. This expense is expected to be amortized on a straight-line basis over a weighted-average vesting period of 2.70 years. RSUs settle into shares of common stock upon vesting. Upon the vesting of the RSUs, we net-settle the RSUs and withhold a portion of the shares to satisfy minimum statutory employee withholding tax requirement. Total payment of the employees’ tax obligations to the tax authorities is reflected as a financing activity within the consolidated statements of cash flows. The following summarizes the number and value of the shares withheld for employee taxes (in millions):
Employee Stock Options In determining the fair value of our employee stock options, we use the Black-Scholes option pricing model, which employs the following assumptions. Expected Term—The expected term represents the period that our stock-based awards are expected to be outstanding. We believe that we have sufficient historical experience for determining the expected term of the stock option award, and therefore, we calculated our expected term based on historical experience instead of using the simplified method. Expected Volatility—The expected volatility of our common stock is based on our weighted-average implied and historical volatility. Fair Value of Common Stock—The fair value of our common stock is the closing sales price of the common stock effective on the date of grant. Risk-Free Interest Rate—We base the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. Expected Dividend—The expected dividend weighted-average assumption is zero. The following table summarizes the weighted-average assumptions relating to our employee stock options:
The following table summarizes the stock option activity and related information for the periods presented below (in millions, except exercise prices and contractual life):
The aggregate intrinsic value represents the pre-tax difference between the exercise price of stock options and the quoted market price of our common stock on December 31, 2018, for all in-the-money stock options. As of December 31, 2018, total compensation expense related to unvested stock options granted to employees but not yet recognized was $16.5 million. This expense is expected to be amortized on a straight-line basis over a weighted-average period of 2.60 years. Additional information related to our stock options is summarized below (in millions, except per share amounts):
The following table summarizes information about outstanding and exercisable stock options as of December 31, 2018, as follows (in millions, except exercise prices and contractual life):
Employee Stock Purchase Plan In determining the fair value of the ESPP, which was terminated in February 2019, we use the Black-Scholes option pricing model that employs the following weighted-average assumptions:
Additional information related to the ESPP is provided below (in millions, except per share amounts):
Shares Reserved for Future Issuances The following table presents the common stock reserved for future issuance (in millions):
Stock-based Compensation Expense Stock-based compensation expense is included in costs and expenses as follows (in millions):
The following table summarizes stock-based compensation expense by award type (in millions):
Total income tax benefit associated with stock-based compensation that is recognized in the consolidated statements of income is as follows (in millions):
Share Repurchase Program In January 2016, our board of directors approved the Share Repurchase Program (the “Repurchase Program”), which authorized the repurchase of up to $200.0 million of our outstanding common stock through December 31, 2017. In 2016 and 2017, our board of directors approved the increases in the aggregate authorized repurchase amount under the Repurchase Program by $100.0 million and $700.0 million, respectively, to a total of $1.0 billion. In July 2018, our board of directors approved a $500.0 million increase in the authorized stock repurchase under the Repurchase program and extended the term of the Repurchase Program to December 31, 2019, bringing the aggregate amount authorized to be repurchased to $1.5 billion of our outstanding common stock through December 31, 2019. Under the Repurchase Program, share repurchases may be made by us from time to time in privately negotiated transactions or in open market transactions. The Repurchase Program does not require us to purchase a minimum number of shares, and may be suspended, modified or discontinued at any time without prior notice. In 2018, we repurchased 3.8 million shares of common stock under the Repurchase Program in open market transactions for an aggregate purchase price of $209.1 million. As of December 31, 2018, $733.8 million remained available for future share repurchases under the Repurchase Program. |
Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | INCOME TAXES Income before income taxes consisted of the following (in millions):
The provision for (benefit from) income taxes consisted of the following (in millions):
The provision for (benefit from) income taxes differs from the amount computed by applying the statutory federal income tax rate as follows (in millions):
There are permanent differences that arise from the portion of stock-based compensation expense that is not expected to generate a tax deduction, such as stock-based compensation expense on stock grants to certain foreign employees, this is offset by the actual tax benefits in the current periods from shares held by our U.S. employees. In 2018, this excess tax benefit was greater than the non-deductible stock-based compensation expense. We have realigned our tax structure in order to maximize the tax efficiency of our group structure and better align with our business operations as a result of the Tax Cuts and Jobs Act (the “2017 Tax Act”). This realignment resulted in a book-to-tax basis difference for previously taxed off-shore deferred revenue as well as other book-to-tax difference. The basis differences resulted in a $164.0 million benefit to the 2018 tax provision. In December 2017, the U.S. federal government enacted the 2017 Tax Act. The 2017 Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018 and created a territorial tax system with a one-time mandatory tax on foreign earnings of U.S. subsidiaries not previously subject to U.S. income tax. Under GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate. In December 2017, the staff of the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result, we previously provided a provisional estimate of the effect of the 2017 Tax Act in our financial statements. In the fourth quarter of 2018, we completed our analysis to determine the effect of the 2017 Tax Act within the measurement period under the SEC guidance, and reflected an additional $32.6 million increase related to the transition tax in the 2018 income tax expense. We expect further guidance may be forthcoming from the FASB and the SEC, as well as regulations, interpretations and rulings from federal and state tax agencies, which could result in additional impacts. The 2017 Tax Act also creates a new requirement that Global Intangible Low-Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of a CFC’s U.S. shareholder. In 2018, there was also a $20.5 million expense for the GILTI tax regime that was introduced by the 2017 Tax Act. Under GAAP, we are allowed to make an accounting policy choice of either (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (ii) factoring such amounts into a company’s measurement of its deferred taxes. Our selection of an accounting policy for 2018 with respect to the GILTI tax rules was to treat GILTI tax as a current period expense under the period cost method. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets as of the years ended are presented below (in millions):
In assessing the realizability of deferred tax assets, we considered whether it is more likely than not that some portion or all of our deferred tax assets will be realized. This realization is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We concluded that it is more likely than not that we would be able to realize the benefits of our deferred tax assets in the future except for California research and development (“R&D”) credits carryforward. We anticipate having sufficient current year generated California R&D credits to cover the same year California tax liability for tax year 2018 and subsequent years. As a result, we recorded a valuation allowance of $14.9 million against California R&D credits carryforwards (net of the unrecognized tax benefits), as it is more likely than not these deferred tax assets will not be realized. As of December 31, 2018, we had $47.3 million in federal net operating loss carryforwards to offset future income, which is limited by Section 382 of the Internal Revenue Code (“Section 382”) due to the acquisition of Meru, AccelOps and Bradford. With the acquisition of Meru, we had $22.6 million in federal net operating loss carryforwards which is limited by Section 382 available from year 2020. With the acquisition of AccelOps, we had $19.9 million in federal net operating loss carryforwards from 2016 and that are limited by Section 382. With the acquisition of Bradford, we had $8.6 million in federal net operating loss carryforwards from 2018 and that are limited by Section 382 available from July 2018. In 2018, it is estimated that the NOL carryforwards of $3.0 million from AccelOps and $0.8 million from Bradford will be utilized. We had $7.8 million federal tax credits to offset future federal taxes. As of December 31, 2018, we had $36.7 million in California net operating loss carryforwards including $22.1 million from Meru and $14.6 million from AccelOps, both of which are limited by Section 382. We had state tax credit carryforwards of $24.0 million available to offset our future state taxes. The state credits carry forward indefinitely. Under the 2017 Tax Act, starting on January 1, 2018, we are no longer subject to federal income tax on earnings remitted from our foreign subsidiaries. We have analyzed our global working capital and cash requirements and the potential tax liabilities attributable to repatriation, and have determined that we will be repatriating certain unremitted foreign earnings which was previously deemed indefinitely reinvested. For those investments from which we were able to make a reasonable estimate of the tax effects of such repatriation, we have recorded a provisional estimate for withholding and state taxes. For those investments from which we were not able to make a reasonable estimate, we have not recorded any deferred taxes. We operate under a tax incentive agreement in Singapore, which is effective through December 31, 2021, and may be extended if certain additional requirements are satisfied. The tax incentive agreement is conditional upon our meeting certain employment and investment thresholds. As of December 31, 2018, we had $63.5 million of unrecognized tax benefits, of which, if recognized, $58.8 million would favorably affect our effective tax rate. Our policy is to include accrued interest and penalties related to uncertain tax benefits in income tax expense. As of December 31, 2018, 2017 and 2016, accrued interest and penalties were $11.6 million, $13.5 million and $9.5 million, respectively. The aggregate changes in the balance of unrecognized tax benefits are as follows (in millions):
As of December 31, 2018, 2017 and 2016, $77.5 million, $90.2 million and $68.6 million, respectively, of the amounts reflected above were recorded as Income tax liabilities—non-current in our consolidated balance sheet. We recorded a net decrease of gross unrecognized tax benefits of approximately $9.0 million during the year ended December 31, 2018. The net decrease was primarily due to the reversal of gross unrecognized tax benefit in connection with the lapse of statutes of limitations in foreign jurisdictions and the audit settlement, offset by the increases related to 2018 gross unrecognized tax benefits. It is reasonably possible that our gross unrecognized tax benefits will decrease by up to $10.1 million in the next 12 months, primarily due to the lapse of the statute of limitations. These adjustments, if recognized, would positively impact our effective tax rate, and would be recognized as additional tax benefits. We file income tax returns in the U.S. federal jurisdiction and in various U.S. state and foreign jurisdictions. Generally, we are no longer subject to U.S. state and non-U.S. income tax examinations by tax authorities for tax years prior to 2009. We are no longer subject to examination by U.S federal income tax authorities for tax years prior to 2015. We have closed the Internal Revenue Service audit for tax years 2012, 2013 and 2014 at the field level. In March 2018, we received a refund of $6.8 million for a carry-back claim approved in this audit. In October 2018, the French tax authorities notified us that they had closed the permanent establishment audits of Fortinet, Inc. and Fortinet Singapore for tax years from 2007 to 2015 with no tax adjustments. We currently have ongoing tax audits in the United Kingdom, Israel, India and Italy. The focus of these audits is the inter-company profit allocation. On July 24, 2018, the U.S. Court of Appeals for the Ninth Circuit overturned the U.S. Tax Court’s unanimous 2015 decision in Altera Corp v. Commissioner, holding that the IRS did not violate the rulemaking procedures required by the Administrative Procedures Act. On August 7, 2018, the Ninth Circuit withdrew the opinions filed July 24, 2018 to allow time for the reconstituted panel to confer on the appeal. In the Altera case, the taxpayer challenged IRS regulations that required participants in qualified cost sharing arrangements to share stock-based compensation costs. We continue to treat our stock-based compensation expense in accordance with Tax Court Opinion. We also continue to monitor developments in this case and any impact it could have on our tax provision. |
Defined Contribution Plans |
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Dec. 31, 2018 | |
Retirement Benefits [Abstract] | |
DEFINED CONTRIBUTION PLANS | DEFINED CONTRIBUTION PLANS Our tax-deferred savings plan under our 401(k) Plan, permits participating U.S. employees to defer a portion of their pre-tax earnings. In Canada, we have a Group Registered Retirement Savings Plan Program (the “RRSP”), which permits participants to make tax deductible contributions. Our board of directors approved 50% matching contributions on employee contributions up to 4% of each employee’s eligible earnings. Our matching contributions to our 401(k) Plan and the RRSP for 2018, 2017 and 2016 were $5.7 million, $4.7 million and $4.4 million, respectively. |
Segment Information |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION | SEGMENT INFORMATION Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our chief executive officer. Our chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. We have one business activity, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, we have determined that we have one operating segment, and therefore, one reportable segment. Revenue by geographic region is based on the billing address of our distributors and direct customer. The following tables set forth revenue and property and equipment—net by geographic region (in millions):
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Accumulated Other Comprehensive Loss |
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Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS | ACCUMULATED OTHER COMPREHENSIVE LOSS The following table summarizes the changes in accumulated balances of other comprehensive loss for 2017 (in millions):
Amounts reclassified from accumulated other comprehensive loss for unrealized losses on investments and tax provision related to unrealized gains or losses on investments are recorded in Other income (expense)—net and in Provision for income taxes, respectively. We do not have any material changes to accumulated other comprehensive income during 2018. |
Subsequent Events |
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Dec. 31, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | SUBSEQUENT EVENTS Share Repurchase Program Subsequent to December 31, 2018, through the filing of this Annual Report on Form 10-K, we repurchased 0.8 million shares of our common stock, for an aggregate purchase price of $56.3 million at an average price of $72.19 per share, under the Repurchase Program. 2011 Employee Stock Purchase Plan Our board of directors voluntarily determined to terminate the ESPP, effective February 2019 at the completion of the prior offering period. |
Schedule II - Valuation and Qualifying Accounts |
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Valuation and Qualifying Accounts [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule II Valuation and Qualifying Accounts | SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.
(b) Exhibits: The exhibit list in the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K is incorporated herein by reference as the list of exhibits required by this Item 15(b). (c) Financial Statement Schedules: See Item 15(a) above. |
Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Preparation | Basis of Presentation and Preparation—The consolidated financial statements of Fortinet and its wholly owned subsidiaries (collectively, the “Company,” “we,” “us” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). All intercompany transactions and balances have been eliminated in consolidation. |
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Use of Estimates | Use of Estimates—The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such management estimates include, but are not limited to, the standalone selling price for each distinct performance obligation included in customer contracts with multiple performance obligations, the period of benefit for deferred contract costs for commissions, stock-based compensation, inventory valuation, fair value of assets acquired and liabilities assumed in business combinations, measurement of liabilities for uncertain tax positions and deferred tax assets and liabilities, assessment of recoverability of our goodwill and other long-lived assets, sales returns reserve and contingent liabilities. We base our estimates on historical experience and also on assumptions that we believe are reasonable. Actual results could differ from those estimates. |
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Concentration of Credit Risk | Concentration of Credit Risk—Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents, short-term and long-term investments and accounts receivable. Our cash balances are maintained as deposits with various large financial institutions in the United States and around the world. Balances in the United States typically exceed the amount of insurance provided on such deposits. We maintain our cash equivalents and investments in money market funds, commercial paper and fixed income securities with major financial institutions that our management believes are financially sound. Our accounts receivables are primarily derived from our channel partners in various geographic locations. We perform ongoing credit evaluations of our customers. We generally do not require collateral on accounts receivable, and we maintain reserves for estimated potential credit losses. |
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Financial Instruments and Fair Value | Financial Instruments and Fair Value—We define fair value as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which to transact and the market-based risk. We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Due to their short-term nature, the carrying amounts reported in the consolidated financial statements approximate the fair value for cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and accrued payroll and compensation. |
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Comprehensive Income | Comprehensive Income—Comprehensive income includes certain changes in equity from non-owner sources that are excluded from net income, specifically, unrealized gains and losses on available-for-sale investments and the related tax impact. |
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Foreign Currency and Transaction Gains and Losses | Foreign Currency and Transaction Gains and Losses—The functional currency of our foreign subsidiaries is the U.S. dollar. Accordingly, monetary assets and liabilities denominated in foreign currencies have been remeasured into U.S. dollars using the exchange rates in effect at the balance sheet dates. Foreign currency denominated income and expenses have been remeasured using the exchange rates in effect during each period. |
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Cash, Cash Equivalents and Available-for-sale Investments | Cash, Cash Equivalents and Available-for-Sale Investments—We consider all highly liquid investments, purchased with original maturities of three months or less, to be cash equivalents. Cash and cash equivalents consist of balances with banks and highly liquid investments in money market funds, commercial paper, term deposits and corporate debt. We classify our investments as available-for-sale at the time of purchase, since it is our intent that these investments are available for current operations. Investments with original maturities greater than three months that mature less than one year from the consolidated balance sheet date are classified as short-term investments. Investments with maturities greater than one year from the consolidated balance sheet date are classified as long-term investments. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. We consult with our investment managers and consider available quantitative and qualitative evidence in evaluating potential impairment of our investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, we evaluate, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and our intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. For debt securities in an unrealized loss position which is deemed to be other-than-temporary, the difference between the security’s then-current amortized cost basis and fair value is separated into (i) the amount of the impairment related to the credit loss (i.e., the credit loss component) and (ii) the amount of the impairment related to all other factors (i.e., the non-credit loss component). The credit loss component is recognized in earnings. The non-credit loss component is recognized in accumulated other comprehensive loss. |
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Inventory | Inventory—Inventory is recorded at the lower of cost or net realizable value. Cost is computed using the first-in, first-out method. In assessing the ultimate recoverability of inventory, we make estimates regarding future customer demand, the timing of new product introductions, economic trends and market conditions. If the actual product demand is significantly lower than forecasted, we could be required to record inventory write-downs which would be charged to cost of product revenue. |
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Property and Equipment | Property and Equipment—Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
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Other Investments | Other Investments—Investments in privately held companies where we own less than 20% of the voting stock and have no indicators of significant influence over operating and financial policies of those companies are included in other assets in the consolidated balance sheets. As of December 31, 2017, these investments were accounted for under the cost method. As of December 31, 2018, with the adoption of the ASU 2016-01—Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, these investments are accounted for at cost, adjusted for changes in observable prices minus impairment. Adoption of ASU 2016-01 did not have an impact on our consolidated financial statements. For these non-quoted investments, we regularly review the assumptions underlying the operating performance and cash flow forecasts as well as current fundraising activities and valuations based on information provided by these privately held companies. If it is determined that an other-than-temporary decline or increase in value exists in an investment without readily determinable value, we adjust the value of the investment to its fair value and record the related impairment or increase in value as an investment loss or gain in our consolidated statements of income. |
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Business Combinations | Business Combinations—We include the results of operations of the businesses that we acquire as of the respective dates of acquisition. We allocate the fair value of the purchase price of our business acquisitions to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. We often continue to gather additional information throughout the measurement period, and if we make changes to the amounts recorded, such amounts are recorded in the period in which they are identified. |
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Impairment of Long-Lived Assets | Impairment of Long-Lived Assets—We evaluate events and changes in circumstances that could indicate carrying amounts of long-lived assets, including intangible assets, may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future undiscounted cash flows is less than the carrying amount of those assets, we record an impairment charge in the period in which we make the determination. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. |
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Goodwill | Goodwill—Goodwill represents the excess of purchase consideration over the estimated fair value of net assets of businesses acquired in a business combination. Goodwill acquired in a business combination is not amortized, but instead tested for impairment at least annually during the fourth quarter, or sooner when circumstances indicate an impairment may exist. We perform a qualitative assessment in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. Then we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount. Any excess in the carrying value of a reporting unit’s goodwill over its fair value is recognized as an impairment loss, limited to the total amount of goodwill allocated to that reporting unit. We performed our annual goodwill impairment analysis and did not identify any impairment indicators as a result of the review. As of December 31, 2018, we had one reporting unit. |
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Other Intangible Assets | Other Intangible Assets—Intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed using the straight-line or accelerated method over the estimated economic lives of the assets, which range from three to five years. |
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Deferred Revenue | Deferred Revenue—Deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue. The majority of deferred revenue is comprised of security subscription and technical support services which are invoiced upfront and delivered over 12 months or longer. |
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Income Taxes | Income Taxes—We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. We recognize tax benefits from an uncertain tax positions only if it is more likely than not, based on the technical merits of the position, that the tax position will be sustained on examination by the tax authorities. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. |
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Stock-Based Compensation | Stock-Based Compensation—The fair value of restricted stock units (“RSUs”) is based on the closing market price of our common stock on the date of grant. We have elected to use the Black-Scholes-Merton (“Black-Scholes”) pricing model to determine the fair value of our employee stock options and our equity incentive plans. Stock-based compensation expense is amortized on a straight-line basis over the service period. |
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Leases | Leases—We rent certain facilities under operating lease agreements and recognize related rent expense on a straight-line basis over the term of the lease. Some of our lease agreements contain rent holidays, scheduled rent increases, lease incentives and renewal options. Rent holidays and scheduled rent increases are included in the determination of rent expense to be recorded over the lease term. Lease incentives are recognized as a reduction of rent expense on a straight-line basis over the term of the lease. Renewals are not assumed in the determination of the lease term unless they are deemed to be reasonably assured at the inception of the lease. We begin recognizing rent expense on the date that we obtain the legal right to use and control the leased space. |
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Advertising Expense | Advertising Expense—Advertising costs are expensed when incurred and are included in operating expenses in the accompanying consolidated statements of income. Our advertising expenses were not significant for any periods presented. |
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Research and Development Costs | Research and Development Costs—Research and development costs are expensed as incurred. |
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Commissions Expense | Commission Expense—In 2017, we recognized commission expense on both product sales and service contracts at the time of sale. Beginning on January 1, 2018, we recognize sales commissions related to product sales upfront while sales commissions for service contracts are deferred as Deferred contract costs in the consolidated balance sheets and amortized over the applicable amortization period. Costs for initial contracts that are not commensurate with renewal commissions are amortized on a straight-line basis over the period of benefit, which we have determined to be five years and which is typically longer than the initial contract term. |
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Software Development Costs | Software Development Costs—The costs to develop software that is marketed have not been capitalized as we believe our current software development process is essentially completed concurrently with the establishment of technological feasibility. Such costs are expensed as incurred and included in research and development in our consolidated statements of income. The costs to obtain or develop software for internal use are capitalized based on qualifying criteria, which includes a determination of whether such costs are incurred during the application development stage. Such costs are amortized over the software’s estimated useful life. |
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Revenue Recognition | Revenue Recognition—On January 1, 2018 we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under ASU 2009-13, Revenue Recognition (Topic 605) (“Topic 605”). The details of significant changes and quantitative impact of the changes are discussed below. Beginning in 2018, revenues are recognized when control of these goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Prior to 2018, revenue was recognized under Topic 605 when all of the following criteria were met: (i) persuasive evidence of an arrangement existed, (ii) delivery has occurred or services have been rendered, (iii) sales price was fixed or determinable and (iv) collectability was reasonably assured. Under Topic 606, we determine revenue recognition through the following steps: •identification of a contract or contracts with a customer,
•determination of a transaction price, •allocation of a transaction price to the performance obligations in a contract, and •recognition of revenue when, or as, we satisfy a performance obligation. We derive a majority of product sales from our FortiGate products. Our FortiGate products include a broad set of built-in security and networking features and functionalities including firewall, SD-WAN, data leak prevention, VPN, switch and wireless controller and WAN acceleration, among others. We previously recognized product revenue for sales to distributors that had no general right of return and direct sales to end-customers upon shipment, based on general revenue recognition accounting guidance once all other revenue recognition criteria were met. Certain distributors are granted stock rotation rights, limited rights of return or rebates for sales of our products. The arrangement fee for this group of distributors was not fixed or determinable when products were shipped and revenue was therefore deferred and recognized upon sell-through. Under Topic 606, we recognize product revenue upon shipment when control of the promised goods is transferred to the customer. We recognize revenue from term licenses upon electronic transfer of the license key to a customer. Previously, term licenses were recognized over the license period. Service revenue relates to sales of our FortiGuard security subscription, FortiCare technical support services and other services. Our typical subscription and contractual support term is one to three years, and to a lesser extent, five years. Our revenue recognition for service arrangements did not significantly change under Topic 606. We continue to recognize revenue from these services ratably over the contractual service period because of continuous transfer of control to the customer over the support period. Revenue related to subsequent renewals of these services are recognized over the support term of the renewal agreement. We also generate a small portion of our revenue from other services consisting of professional services, training and software-as-a-service (“SaaS”) which is either hosted or cloud-based services. We recognize revenue from professional and training services as the services are provided. We recognize revenue from SaaS as the subscription service is delivered over the term, which is typically one year, or on a monthly usage basis. To date, SaaS revenue has not represented a significant percentage of our total revenue. Our sales contracts typically contain multiple deliverables, such as hardware, software license, security subscription, technical support services and other services, which are generally capable of being distinct and accounted for as separate performance obligations. We evaluated the criteria to be distinct under Topic 606 and concluded that the hardware and software license were distinct and distinct in the context of the contract from the security subscription and technical support services, as the customer can benefit from the hardware and license without the services and the services are separately identifiable within the contract. We allocate the transaction price to each performance obligation based on relative standalone selling price. We determine standalone selling price based on the historical pricing and discounting practices for those services when sold separately. We determine standalone selling price for a product or service by considering multiple historical factors including, but not limited to, cost of products, gross margin objectives, pricing practices, geographies and the term of the service contract that fall within a reasonably range as a percentage of list price. Revenue is reported net of sales tax. Under Topic 605, revenue from contracts that contain our products and services were allocated to each unit of accounting based on an estimated selling price using vendor-specific objective evidence (“VSOE”) of selling price, if it existed, or third-party evidence (“TPE”) of selling price. If neither VSOE nor TPE of selling price existed for a deliverable, we used our best estimate of selling price for that deliverable. For multiple-element arrangements where software deliverables were included, revenue was allocated to the non-software deliverables and to the software deliverables as a group using the relative estimated selling prices of each of the deliverables in the arrangement based on the estimated selling price hierarchy. The amount allocated to the software deliverables was then allocated to each software deliverable using the residual method when VSOE of fair value existed. If evidence of VSOE of fair value of one or more undelivered elements did not exist, all software allocated revenue was deferred and recognized when delivery of those elements occurred or when fair value was established. When the undelivered element for which we did not have VSOE of fair value was support, revenue for the entire arrangement was recognized ratably over the support period. The same residual method and VSOE of fair value principles applied for our multiple element arrangements that contained only software elements. In certain circumstances, our contracts include provisions for sales rebates and other customer incentive programs. Additionally, in limited circumstances, we may permit end-customers, distributors and resellers to return our products, subject to varying limitations, for a refund within a reasonably short period from the date of purchase. These amounts are accounted for as variable consideration that can decrease the transaction price. We estimate variable consideration at the most likely amounts to which we expect our customers to be entitled. We include estimated amounts in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimate for sales return reserve was $20.8 million as of December 31, 2018 and is included in current liabilities in our consolidated balance sheet. Under Topic 605, the sales return reserve of $13.6 million was presented as a reduction to accounts receivable as of December 31, 2017. We generally invoice at the time of our sale for the total price of the hardware, software licenses, security and technical support and other services, and the invoice is payable within 30 to 45 days. We also invoice certain services on a monthly basis. Amounts billed and due from our customers are classified as receivables on the balance sheet and do not bear interest. Our deferred revenue primarily consists of amounts that have been invoiced but have not been recognized as revenue as of period end. Shipping and handling fees charged to our customers are recognized as revenue in the period shipped and the related costs for providing these services are recorded in cost of revenue. Shipping and handling fees recognized were not significant during 2018 and 2017. |
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Warranties | Warranties—We generally provide a one-year warranty on most hardware products and a 90-day warranty on software. We also provide extended warranties under the terms of our support agreements. A provision for estimated future costs related to warranty activities in the first year after product sale is recorded as a component of cost of product revenues when the product revenue is recognized, based upon historical product failure rates and historical costs incurred in correcting product failures. Warranty costs related to extended warranties sold under support agreements are recognized as cost of service revenue. In the event we change our warranty reserve estimates, the resulting charge against future cost of revenue or reversal of previously recorded charges may materially affect our gross margins and operating results. Accrued warranty was not significant as of December 31, 2018 and 2017. |
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Contingent Liabilities | Contingent Liabilities—From time to time, we are involved in disputes, litigation, and other legal actions. However, there are many uncertainties associated with such legal action, and these actions or other third-party claims against us may cause us to incur substantial settlement charges, which are inherently difficult to estimate and could adversely affect our results of operations. We review significant new claims and litigation for the probability of an adverse outcome. Estimates can change as individual claims develop. The actual liability in any such matters may be materially different from our estimates, which could result in the need to adjust our liability and record additional expenses. |
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Recently Adopted Accounting Standards and Recent Accounting Standards Not Yet Effective | Recently Adopted Accounting Standards Financial Instruments – Recognition and Measurement In January 2016, the FASB issued ASU 2016-01—Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, with further clarifications made recently with the issuance of ASU 2018-03—Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires most equity investments to be measured at fair value, with subsequent changes in fair value recognized in net income. A practicality exception applies to those equity investments that do not have a readily determinable fair value. These investments may be measured at cost, adjusted for changes in observable prices minus impairment. ASU 2016-01 was effective prospectively for us beginning on January 1, 2018 for our equity investments, which were previously accounted for under the cost-method. We adopted ASU 2016-01 on January 1, 2018. There was no material impact on our consolidated financial statements as of the adoption date. Revenue Recognition In May 2014, the FASB issued Topic 606, which supersedes the revenue recognition requirements in Topic 605 and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We recorded a net reduction to our accumulated deficit as of January 1, 2018 of $117.3 million due to the cumulative impact of adopting Topic 606. The primary impact of adopting Topic 606 relates to the deferral of our incremental contract costs, which are comprised of sales commissions. Prior to January 1, 2018, we expensed all sales commissions upfront. Beginning on January 1, 2018, we continue to expense sales commissions related to product sales upfront, but capitalize and then amortize certain sales commissions on service contracts over the applicable amortization period. The deferred contract costs for capitalized sales commissions related to the initial service contracts are deferred and then amortized as expense on a straight-line basis over the period of benefit which we have determined to be five years. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the contractual period of the underlying contracts. The deferral of contract costs generated a deferred tax liability of $23.8 million, of which $18.0 million was recorded against deferred tax assets and the remaining $5.8 million was recorded in other long-term liabilities on our consolidated balance sheet. The impact on deferred revenue as of January 1, 2018 was $4.1 million, which primarily relates to certain changes in revenue recognition on software license sales and the acceleration of revenue from U.S.-based channel partners which were previously deferred until the product was sold through. Beginning on January 1, 2018, our sales returns reserve is now included on the balance sheet in accrued liabilities and no longer as a reduction to our accounts receivable. See above significant accounting policies for further details. The cumulative effects of the changes made to our January 1, 2018 consolidated balance sheet for the adoption of Topic 606 were as follows (in millions):
Recent Accounting Standards Not Yet Effective Cloud Computing In August 2018, the FASB issued ASU 2018-15—Intangibles-Goodwill and Other-Internal—Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) Topic 350, Intangibles—Goodwill and Other, to determine which implementation costs to capitalize as assets or expense as incurred. ASU 2018-15 is effective for us beginning January 1, 2020, and early adoption is permitted. We are currently evaluating the impact of ASU 2018-15 on our consolidated financial statements. Fair Value Measurements In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements in ASC 820, Fair Value Measurement, as part of its disclosure framework project. ASU 2018-13 is effective for us beginning January 1, 2020. The amendments in ASU 2018-13 on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments in ASU 2018-13 should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of ASU 2018-13. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. We are currently assessing the impact the new guidance will have on our disclosures. Stock Compensation In June 2018, the FASB issued ASU 2018-07—Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees subject to certain exceptions. ASU 2018-07 expands the scope of ASC Topic 718, Compensation—Stock Compensation (“ASC 718”), to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505, Equity, by moving it to ASC 718. This amendment was effective for us beginning January 1, 2019. The adoption of this standard will not have a material impact on our consolidated financial statements. Comprehensive Income In February 2018, the FASB issued ASU 2018-02—Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded tax effects resulting from the 2017 Tax Act, from accumulated other comprehensive income to retained earnings. ASU 2018-02 also requires certain new disclosures regardless of the election. ASU 2018-02 was effective for us beginning January 1, 2019. We are currently assessing the impact of ASU 2018-02 on our consolidated financial statements and we expect the standard will not have a material impact on our consolidated financial statements. Financial Instruments In June 2016, the FASB issued ASU 2016-13—Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a financial asset (or a group of financial assets) to be measured at an amortized cost basis to be presented at the net amount expected to be collected. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans and held-to-maturity debt securities. ASU 2016-13 is effective for us beginning on January 1, 2020, and early adoption is permitted. We are currently assessing the impact of ASU 2016-13 on our consolidated financial statements. Leases In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842), which requires the recognition of right-of-use assets and lease liabilities on the consolidated balance sheet for substantially all leases. ASU 2016-02 includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 will also require significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. In July 2018, the FASB issued ASU 2018-10—Codification Improvements to Topic 842, Leases, and ASU 2018-11—Leases (Topic 842): Targeted Improvements, which address questions about how to apply certain aspects for the adoption of Topic 842. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options and variable payments that depend on an index or rate, and provide an alternative transition approach that allows companies to initially apply the new leases standard by recognizing a cumulative-effect adjustment on adoption date. ASU 2016-02 was effective for us beginning on January 1, 2019, and we expect to apply a modified retrospective transition approach through a cumulative-effect adjustment at the beginning of the first quarter of 2019. Based on our current lease portfolio, we currently estimate that the value of leased assets and liabilities that may be recognized to be at least $40.0 million. We are continuing to evaluate the impact of ASU 2016-02 and our estimate is subject to change. We do not believe that ASU 2016-02 will have a material impact on our consolidated statements of income and cash flows. Upon adoption, we expect to expand our disclosures in the notes to consolidated financial statements to include more details on our leases, significant judgments and lease-related amounts recognized in the consolidated financial statements. |
Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Estimated Useful Lives of Property and Equipment - net | Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
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Impact of Adopting New Accounting Pronouncement | The cumulative effects of the changes made to our January 1, 2018 consolidated balance sheet for the adoption of Topic 606 were as follows (in millions):
The following tables summarize the impact of adopting Topic 606 on our consolidated financial statements as of and for 2018 (in millions). These tables do not represent the full consolidated financial statements as they only reflect the accounts impacted by the adoption of Topic 606. Consolidated Balance Sheet
Consolidated Statement of Income
(1) Product revenue during 2018 included a $19.5 million benefit from the adoption of Topic 606, which primarily related to the change in accounting treatment under Topic 606 for some of our software products such that revenue from these arrangements is now recognized upfront instead of ratably over the contracted service term, net of the lost opportunity to recognize revenue that had been deferred and was written off to equity on the date of adoption. Consolidated Statement of Cash Flows
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Revenue Recognition (Tables) |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue | The following table presents our revenue disaggregated by major product and service lines (in millions):
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Impact of Adopting New Accounting Pronouncement | The cumulative effects of the changes made to our January 1, 2018 consolidated balance sheet for the adoption of Topic 606 were as follows (in millions):
The following tables summarize the impact of adopting Topic 606 on our consolidated financial statements as of and for 2018 (in millions). These tables do not represent the full consolidated financial statements as they only reflect the accounts impacted by the adoption of Topic 606. Consolidated Balance Sheet
Consolidated Statement of Income
(1) Product revenue during 2018 included a $19.5 million benefit from the adoption of Topic 606, which primarily related to the change in accounting treatment under Topic 606 for some of our software products such that revenue from these arrangements is now recognized upfront instead of ratably over the contracted service term, net of the lost opportunity to recognize revenue that had been deferred and was written off to equity on the date of adoption. Consolidated Statement of Cash Flows
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Financial Instruments and Fair Value (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments and Fair Value [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Investments | The following tables summarize our investments (in millions):
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Schedule of Unrealized Loss on Investments | The following tables show the gross unrealized losses and the related fair values of our investments that have been in a continuous unrealized loss position (in millions):
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Investments Classified by Contractual Maturity Date | The contractual maturities of our investments were as follows (in millions):
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Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis | The following tables present the fair value of our financial assets measured at fair value on a recurring basis as of December 31, 2018 and 2017 (in millions):
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Inventory (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Inventory | Inventory consisted of the following (in millions):
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Property and Equipment—Net (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment - Net | Property and equipment—net consisted of the following (in millions):
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Goodwill and Other Intangible Assets - Net (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Changes in Carrying Value of Goodwill | The following table presents the changes in the carrying amount of goodwill (in millions):
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Schedule of Finite-Lived and Indefinite-Lived Intangible Assets by Major Class | The following tables present other intangible assets—net as of December 31, 2018 and 2017 (in millions, except years):
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Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | The following table summarizes estimated future amortization expense of finite-lived intangible assets—net (in millions):
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Net Income Per Share (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted | A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share is as follows (in millions, except per share amounts):
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Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | The following weighted-average shares of common stock were excluded from the computation of diluted net income per share for the periods presented, as their effect would have been antidilutive (in millions):
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Commitments and Contingencies (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contractual Obligation, Fiscal Year Maturity Schedule | The following table summarizes our future principal contractual obligations as of December 31, 2018 (in millions):
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Stockholders' Equity (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Compensation, Restricted Stock Units Award Activity | The following table summarizes the activity and related information for RSUs for the periods presented below (in millions, except per share amounts):
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Schedule of Share-based Compensation, Shares Withheld for Taxes | The following summarizes the number and value of the shares withheld for employee taxes (in millions):
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Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions | The following table summarizes the weighted-average assumptions relating to our employee stock options:
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Schedule of Share-based Compensation, Stock Options, Activity | The following table summarizes the stock option activity and related information for the periods presented below (in millions, except exercise prices and contractual life):
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Schedule of Share-based Compensation, Stock Options, Activity, Additional Information | Additional information related to our stock options is summarized below (in millions, except per share amounts):
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Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range | The following table summarizes information about outstanding and exercisable stock options as of December 31, 2018, as follows (in millions, except exercise prices and contractual life):
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Schedule of Share-based Payment Award, Employee Stock Purchase Plan, Valuation Assumptions | In determining the fair value of the ESPP, which was terminated in February 2019, we use the Black-Scholes option pricing model that employs the following weighted-average assumptions:
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Schedule of Share-based Payment Award Employee Stock Purchase Plan Additional Information | Additional information related to the ESPP is provided below (in millions, except per share amounts):
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Schedule of Shares Reserved for Future Issuance | The following table presents the common stock reserved for future issuance (in millions):
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Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs | Stock-based compensation expense is included in costs and expenses as follows (in millions):
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Schedule of Employee Service Share based Compensation Allocation of Recognized Period Costs by Award Type | The following table summarizes stock-based compensation expense by award type (in millions):
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Income Tax Benefit from Stock Option Plans | Total income tax benefit associated with stock-based compensation that is recognized in the consolidated statements of income is as follows (in millions):
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Income Taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Income before Income Tax, Domestic and Foreign | Income before income taxes consisted of the following (in millions):
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Schedule of Components of Income Tax Expense (Benefit) | The provision for (benefit from) income taxes consisted of the following (in millions):
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Schedule of Effective Income Tax Rate Reconciliation | The provision for (benefit from) income taxes differs from the amount computed by applying the statutory federal income tax rate as follows (in millions):
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Schedule of Deferred Tax Assets and Liabilities | The tax effects of temporary differences that give rise to significant portions of the deferred tax assets as of the years ended are presented below (in millions):
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Schedule of Aggregate Changes in Unrecognized Tax Benefits | The aggregate changes in the balance of unrecognized tax benefits are as follows (in millions):
|
Segment Information (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from external customers by geographic region | Revenue by geographic region is based on the billing address of our distributors and direct customer. The following tables set forth revenue and property and equipment—net by geographic region (in millions):
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Property and equipment by geographic region |
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Accumulated Other Comprehensive Loss (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive (Loss) Income | The following table summarizes the changes in accumulated balances of other comprehensive loss for 2017 (in millions):
|
Summary of Significant Accounting Policies , Concentration of Credit Risk (Details) - Customer Concentration Risk [Member] |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Exclusive Networks Group [Member] | Accounts Receivable [Member] | |||
Concentration Risk [Line Items] | |||
Concentration (percent) | 38.00% | 35.00% | |
Exclusive Networks Group [Member] | Sales Revenue [Member] | |||
Concentration Risk [Line Items] | |||
Concentration (percent) | 30.00% | 25.00% | 20.00% |
Ingram Micro [Member] | Sales Revenue [Member] | |||
Concentration Risk [Line Items] | |||
Concentration (percent) | 10.00% |
Summary of Significant Accounting Policies , Foreign Currency Translation (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Accounting Policies [Abstract] | |||
Foreign currency transaction gains (losses) | $ (8.2) | $ 1.0 | $ (6.6) |
Summary of Significant Accounting Policies , Cash, Cash Equivalents and Available-for-sale Investments (Details) |
12 Months Ended |
---|---|
Dec. 31, 2018 | |
Accounting Policies [Abstract] | |
Short-term investments, minimum original maturity | 3 months |
Short-term investments, maximum original maturity | 1 year |
Long-term investments, minimum original maturity | 1 year |
Summary of Significant Accounting Policies , Goodwill (Details) |
12 Months Ended |
---|---|
Dec. 31, 2018
reporting_unit
| |
Accounting Policies [Abstract] | |
Number of reporting units | 1 |
Summary of Significant Accounting Policies , Other Intangible Assets (Details) |
12 Months Ended |
---|---|
Dec. 31, 2018 | |
Minimum [Member] | |
Finite-Lived Intangible Assets [Line Items] | |
Useful life of finite-lived intangible assets | 3 years |
Maximum [Member] | |
Finite-Lived Intangible Assets [Line Items] | |
Useful life of finite-lived intangible assets | 5 years |
Summary of Significant Accounting Policies , Commission Expense (Details) |
12 Months Ended |
---|---|
Dec. 31, 2018 | |
Maximum [Member] | |
Commissions Expense [Line Items] | |
Revenue recognition period (in years) | 5 years |
Summary of Significant Accounting Policies , Warranties (Details) |
12 Months Ended |
---|---|
Dec. 31, 2018 | |
Hardware Products [Member] | |
Warranties [Line Items] | |
Warranty length | 1 year |
Software Products [Member] | |
Warranties [Line Items] | |
Warranty length | 90 days |
Revenue Recognition - Disaggregated Revenues (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Disaggregation of Revenue [Line Items] | |||
Product | $ 674.4 | $ 577.2 | $ 548.1 |
Service | 1,126.8 | 917.7 | 727.3 |
Total revenue | 1,801.2 | 1,494.9 | $ 1,275.4 |
Security Subscription [Member] | |||
Disaggregation of Revenue [Line Items] | |||
Service | 606.1 | 504.8 | |
Technical Support [Member] | |||
Disaggregation of Revenue [Line Items] | |||
Service | $ 520.7 | $ 412.9 |
Inventory (Details) - USD ($) $ in Millions |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Inventory, Net [Abstract] | ||
Raw materials | $ 13.3 | $ 13.0 |
Finished goods | 76.7 | 64.3 |
Inventory | 90.0 | 77.3 |
Materials at contract manufacturers | $ 2.4 | $ 2.6 |
Investments in Privately-Held Companies (Details) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2018 |
Dec. 31, 2017 |
|
Investments, All Other Investments [Abstract] | |||
Investments in equity securities of privately-held companies | $ 9.1 | ||
Investments in equity securities of privately-held companies | $ 12.1 | ||
Proceeds from sale of equity securities of privately held company | $ 5.2 | ||
Recognized gain on sale of equity securities of privately held company | $ 2.2 |
Goodwill and Other Intangible Assets - Net - Goodwill (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Goodwill [Roll Forward] | |||
Balance - beginning of period | $ 14,600,000 | ||
Additions due to business combinations | 23,600,000 | ||
Balance - end of period | 38,200,000 | $ 14,600,000 | |
Goodwill impairment | $ 0 | $ 0 | $ 0 |
Goodwill and Other Intangible Assets - Net - Estimated Future Amortization Expense (Details) - USD ($) $ in Millions |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Fiscal Years: | ||
2019 | $ 10.2 | |
2020 | 6.2 | |
2021 | 3.6 | |
2022 | 2.1 | |
Total | $ 22.1 | $ 14.7 |
Net Income Per Share , Anti Dilutive Securities (Details) - shares shares in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Anti-dilutive securities (in shares) | 0.9 | 2.6 | 4.5 |
Restricted Stock Units (RSUs) [Member] | Stock Compensation Plan [Member] | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Anti-dilutive securities (in shares) | 0.5 | 1.4 | 3.3 |
Stock Options [Member] | Stock Compensation Plan [Member] | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Anti-dilutive securities (in shares) | 0.3 | 1.0 | 1.0 |
ESPP [Member] | Stock Compensation Plan [Member] | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Anti-dilutive securities (in shares) | 0.1 | 0.2 | 0.2 |
Commitments and Contingencies (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Commitments and Contingencies Disclosure [Abstract] | |||
Rent expense | $ 17.1 | $ 16.7 | $ 18.9 |
Inventory purchase commitments | 177.3 | ||
Other contractual commitments and open purchase orders | $ 14.3 |
Stockholders' Equity , Performance Stock Units (Details) |
12 Months Ended |
---|---|
Dec. 31, 2018 | |
Performance Share, Weighted Average Assumptions [Abstract] | |
Dividend rate | 0.00% |
Stockholders' Equity , ESPP Information (Details) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Dividend rate | 0.00% | ||
Employee Stock Purchase Plan [Member] | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Expected term in years | 6 months | 6 months | 6 months |
Volatility | 28.90% | 29.50% | 39.40% |
Risk-free interest rate | 2.00% | 0.90% | 0.40% |
Dividend rate | 0.00% | 0.00% | 0.00% |
Stockholders' Equity , Additional Information Related To ESPP (Details) - Employee Stock Purchase Plan [Member] - $ / shares shares in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Weighted-average fair value per share granted (in dollars per share) | $ 14.14 | $ 8.73 | $ 7.68 |
Shares issued under the ESPP (in shares) | 1.1 | 1.1 | 1.2 |
Weighted-average price per share issued (in dollars per share) | $ 35.32 | $ 29.52 | $ 21.01 |
Stockholders' Equity , Share Repurchase Program (Details) - USD ($) shares in Millions |
1 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Jul. 31, 2018 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Jan. 31, 2016 |
|
Share Repurchase Program [Line Items] | |||||
Stock repurchased in the period, value | $ 209,100,000 | $ 446,300,000 | $ 110,800,000 | ||
2016 Share Repurchase Program [Member] | |||||
Share Repurchase Program [Line Items] | |||||
Stock repurchase program, authorized amount | $ 1,500,000,000.0 | 1,000,000,000.0 | $ 200,000,000 | ||
Additional shares authorized | $ 500,000,000.0 | $ 700,000,000.0 | $ 100,000,000.0 | ||
Stock repurchased in the period, shares | 3.8 | ||||
Stock repurchased in the period, value | $ 209,100,000 | ||||
Stock repurchase program, unused balance | $ 733,800,000 |
Income Taxes , Reconciliation of Pre-Tax Income (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Extraordinary Items, Noncontrolling Interest [Abstract] | |||
Domestic | $ 0.3 | $ (40.7) | $ (49.7) |
Foreign | 250.6 | 164.7 | 92.8 |
INCOME BEFORE INCOME TAXES | $ 250.9 | $ 124.0 | $ 43.1 |
Income Taxes , Provision for Income Tax (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Current: | |||
Federal | $ (12.6) | $ 34.7 | $ 7.9 |
State | 2.0 | 0.8 | 0.8 |
Foreign | 36.9 | 27.7 | 17.8 |
Total current | 26.3 | 63.2 | 26.5 |
Deferred: | |||
Federal | (125.5) | 39.1 | (10.0) |
State | 14.4 | (9.3) | (4.9) |
Foreign | 3.5 | (0.4) | (0.7) |
Total deferred | (107.6) | 29.4 | (15.6) |
Provision for (benefit from) income taxes | $ 81.3 | $ (92.6) | $ (10.9) |
Income Taxes , Effective Tax Rate Reconciliation (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Income Tax Disclosure [Abstract] | |||
Tax at federal statutory tax rate | $ 52.7 | $ 43.4 | $ 15.1 |
Foreign income taxed at different rates | (21.5) | (19.5) | (13.7) |
Foreign withholding taxes | 20.1 | 17.4 | 15.0 |
Stock-based compensation expense | (14.3) | 9.5 | 10.0 |
Foreign tax credit | (15.8) | (12.8) | (35.0) |
State taxes—net of federal benefit | 1.2 | (3.5) | (4.2) |
Research and development credit | (5.0) | (4.0) | (2.7) |
Valuation allowance | 14.9 | 0.0 | 0.0 |
Dividend distribution | (3.8) | 0.0 | 27.3 |
Deferred tax asset remeasurement due to reduction in the federal corporate income tax rate | 0.0 | 47.9 | 0.0 |
One-time transition tax | 32.6 | 15.2 | 0.0 |
Global Intangible Low-Taxed Income | 20.5 | ||
Book-to-Tax Basis difference | (164.0) | ||
Other | 1.1 | (1.0) | (0.9) |
Provision for income taxes | $ (81.3) | $ 92.6 | $ 10.9 |
Defined Contribution Plans (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Retirement Benefits [Abstract] | |||
Matching contribution on employee contributions, Percent | 50.00% | ||
Maximum contribution percentage of each employee's eligible earnings, Percent | 4.00% | ||
Matching contributions to the RRSP and 401(k) Plans | $ 5.7 | $ 4.7 | $ 4.4 |
Subsequent Events (Details) - Subsequent Event [Member] $ / shares in Units, shares in Millions, $ in Millions |
2 Months Ended |
---|---|
Feb. 26, 2019
USD ($)
$ / shares
shares
| |
Subsequent Event [Line Items] | |
Shares of common stock repurchased (in shares) | shares | 0.8 |
Aggregate purchase price | $ | $ 56.3 |
Average price (in dollars per share) | $ / shares | $ 72.19 |
Schedule II - Valuation and Qualifying Accounts (Details) - USD ($) $ in Millions |
12 Months Ended | |||
---|---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Jan. 01, 2018 |
|
Movement in Valuation Allowances and Reserves [Roll Forward] | ||||
Amount of sales return reserve reclassified from accounts receivable to accrued liabilities | $ 13.6 | |||
Reserves for Sales Returns and Allowance for Doubtful Accounts [Member] | ||||
Movement in Valuation Allowances and Reserves [Roll Forward] | ||||
Beginning balance | $ 14.5 | $ 11.2 | $ 6.2 | |
Charged to costs and expenses, net of deductions | 0.0 | 3.3 | 5.0 | |
Adjustment due to adoption of Topic 606 | (13.6) | 0.0 | 0.0 | |
Ending balance | $ 0.9 | $ 14.5 | $ 11.2 |
Label | Element | Value |
---|---|---|
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ 32,300,000 |
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 117,300,000 |
Retained Earnings [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 31,500,000 |
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 117,300,000 |
Additional Paid-in Capital [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ 800,000 |
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