Company Quick10K Filing
Fortinet
Price78.86 EPS1
Shares175 P/E65
MCap13,793 P/FCF22
Net Debt-1,176 EBIT252
TEV12,617 TEV/EBIT50
TTM 2019-09-30, in MM, except price, ratios
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FTNT 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ftnt-ex311_20210331x10q.htm
EX-31.2 ftnt-ex312_20210331x10q.htm
EX-32.1 ftnt-ex321_20210331x10q.htm

Fortinet Earnings 2021-03-31

Balance SheetIncome StatementCash Flow
3.62.92.21.40.70.02012201420172020
Assets, Equity
0.60.50.30.20.0-0.12012201420172020
Rev, G Profit, Net Income
0.30.20.0-0.1-0.3-0.42012201420172020
Ops, Inv, Fin

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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from              to             
Commission file number: 001-34511
______________________________________
FORTINET, INC.
(Exact name of registrant as specified in its charter)
______________________________________

Delaware77-0560389
(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, including zip code)

(408) 235-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Common Stock, $0.001 Par ValueFTNTThe Nasdaq Stock Market LLC
(Title of each class)(Trading Symbol)(Name of exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 


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Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes       No  
As of April 30, 2021, there were 163,317,652 shares of the registrant’s common stock outstanding.




FORTINET, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2021
Table of Contents
 
  Page
PART IFINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.





Table of Contents
PART I—FINANCIAL INFORMATION

ITEM 1.     Financial Statements
FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
 March 31,
2021
December 31,
2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$1,860.2 $1,061.8 
Short-term investments1,076.7 775.5 
Accounts receivable—net 637.3 720.0 
Inventory149.6 139.8 
Prepaid expenses and other current assets57.4 43.3 
Total current assets3,781.2 2,740.4 
LONG-TERM INVESTMENTS151.1 118.3 
PROPERTY AND EQUIPMENT—NET494.2 448.0 
DEFERRED CONTRACT COSTS320.2 304.8 
DEFERRED TAX ASSETS260.6 245.2 
GOODWILL99.2 93.0 
OTHER INTANGIBLE ASSETS—NET32.3 31.6 
OTHER ASSETS143.4 63.2 
TOTAL ASSETS$5,282.2 $4,044.5 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$129.5 $141.6 
Accrued liabilities143.2 149.2 
Accrued payroll and compensation141.9 145.9 
Deferred revenue1,465.1 1,392.8 
Total current liabilities1,879.7 1,829.5 
DEFERRED REVENUE1,280.5 1,212.5 
INCOME TAX LIABILITIES97.7 90.3 
LONG-TERM DEBT987.0  
OTHER LIABILITIES56.5 56.2 
Total liabilities4,301.4 3,188.5 
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value—300.0 shares authorized; 163.3 and 162.5 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
0.2 0.2 
Additional paid-in capital1,225.2 1,207.2 
Accumulated other comprehensive income0.3 0.7 
Accumulated deficit(244.9)(352.1)
Total stockholders’ equity980.8 856.0 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$5,282.2 $4,044.5 
See notes to condensed consolidated financial statements.
1

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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)
 Three Months Ended
March 31,
2021
March 31,
2020
REVENUE:
Product$240.7 $192.3 
Service 469.6 385.4 
Total revenue710.3 577.7 
COST OF REVENUE:
Product91.3 76.3 
Service 65.3 52.4 
Total cost of revenue156.6 128.7 
GROSS PROFIT:
Product149.4 116.0 
Service 404.3 333.0 
Total gross profit553.7 449.0 
OPERATING EXPENSES:
Research and development97.2 80.3 
Sales and marketing304.0 260.0 
General and administrative32.0 28.8 
Gain on intellectual property matter(1.1)(36.8)
Total operating expenses432.1 332.3 
OPERATING INCOME121.6 116.7 
INTEREST INCOME (EXPENSE)—NET(0.2)9.2 
OTHER EXPENSE—NET(2.0)(8.0)
INCOME BEFORE INCOME TAXES119.4 117.9 
PROVISION FOR INCOME TAXES12.2 13.3 
NET INCOME$107.2 $104.6 
Net income per share (Note 10):
Basic$0.66 $0.61 
Diluted$0.64 $0.60 
Weighted-average shares outstanding:
Basic163.0 170.6 
Diluted166.4 174.2 
See notes to condensed consolidated financial statements.
2

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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
 Three Months Ended
 March 31,
2021
March 31,
2020
Net income$107.2 $104.6 
Other comprehensive loss:
Change in unrealized gains (losses) on investments(0.6)(5.2)
Less: tax benefit related to change in unrealized gains (losses) on investments(0.2)(1.0)
Other comprehensive loss(0.4)(4.2)
Comprehensive income$106.8 $100.4 
See notes to condensed consolidated financial statements.
3

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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in millions)
Three Months Ended March 31, 2021
 Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income
Accumulated DeficitTotal
Stockholders’
Equity
SharesAmount
BALANCE—December 31, 2020162.5 $0.2 $1,207.2 $0.7 $(352.1)$856.0 
Issuance of common stock in connection with equity incentive plans - net of tax withholding0.8 — (31.5)— — (31.5)
Stock-based compensation expense— — 49.5 — — 49.5 
Net unrealized loss on investments - net of tax— — — (0.4)— (0.4)
Net income— — — — 107.2 107.2 
BALANCE—March 31, 2021163.3 $0.2 $1,225.2 $0.3 $(244.9)$980.8 
Three Months Ended March 31, 2020
 Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income (Loss)
Retained Earnings (Accumulated Deficit)Total
Stockholders’
Equity
SharesAmount
BALANCE—December 31, 2019171.7 $0.2 $1,180.3 $1.1 $160.8 $1,342.4 
Issuance of common stock in connection with equity incentive plans - net of tax withholding0.9 — (30.3)— — (30.3)
Repurchase and retirement of common stock(10.0)— (66.4)— (833.5)(899.9)
Stock-based compensation expense— — 44.8 — — 44.8 
Net unrealized loss on investments - net of tax— — — (4.2)— (4.2)
Net income— — — — 104.6 104.6 
BALANCE—March 31, 2020 162.6 $0.2 $1,128.4 $(3.1)$(568.1)$557.4 


See notes to condensed consolidated financial statements.
4

Table of Contents
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
 Three Months Ended
 March 31,
2021
March 31,
2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$107.2 $104.6 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation49.5 44.8 
Amortization of deferred contract costs39.7 31.3 
Depreciation and amortization17.3 17.6 
Amortization of investment premiums (discounts)1.2 (0.6)
Other 0.4 4.3 
Changes in operating assets and liabilities:
Accounts receivable—net82.5 69.6 
Inventory(14.7)6.7 
Prepaid expenses and other current assets(13.4)(12.9)
Deferred contract costs(55.2)(43.0)
Deferred tax assets(15.2)7.3 
Other assets(4.8)0.9 
Accounts payable(12.4)(9.0)
Accrued liabilities(2.8)1.8 
Accrued payroll and compensation(3.9)1.8 
Other liabilities0.2 4.1 
Deferred revenue140.3 90.1 
Net cash provided by operating activities315.9 319.4 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments(647.1)(368.3)
Sales of investments18.6 126.8 
Maturities of investments292.4 277.2 
Purchases of property and equipment(52.1)(27.6)
Purchase of investment in privately held company(75.0) 
Payments made in connection with business combination, net of cash acquired(10.3)(3.1)
Other (0.4)
Net cash provided by (used in) investing activities(473.5)4.6 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net of discount and underwriting fees989.4  
Payments for debt issuance costs(1.9) 
Repurchase and retirement of common stock (889.9)
Proceeds from issuance of common stock9.9 7.4 
Taxes paid related to net share settlement of equity awards(41.4)(37.8)
Other (0.1)
Net cash provided by (used in) financing activities956.0 (920.4)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS798.4 (596.4)
CASH AND CASH EQUIVALENTS—Beginning of period1,061.8 1,222.5 
CASH AND CASH EQUIVALENTS—End of period$1,860.2 $626.1 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Operating lease liabilities arising from obtaining right-of-use assets$9.8 $2.4 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfers of evaluation units from inventory to property and equipment$5.1 $6.3 
Liability for purchase of property and equipment$34.3 $25.9 
Liability incurred for repurchase of common stock$ $10.0 
Liability incurred in connection with business acquisition$0.5 $ 
See notes to condensed consolidated financial statements.
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Preparation—The unaudited condensed consolidated financial statements of Fortinet, Inc. and its wholly owned subsidiaries (collectively, “we,” “us” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information, as well as the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2020, contained in our Annual Report on Form 10-K filed with the SEC on February 19, 2021. In the opinion of management, all adjustments, which includes normal recurring adjustments, considered necessary for a fair presentation have been included. All intercompany balances, transactions and cash flows have been eliminated. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results for the full year or for any future periods. The condensed consolidated balance sheet as of December 31, 2020 is derived from the audited consolidated financial statements for the year ended December 31, 2020.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

There have been no material changes to our significant accounting policies as of and for the three months ended March 31, 2021.

Recently Adopted Accounting Standards

Income Taxes

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12—Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application and simplification of GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 was effective for us beginning on January 1, 2021. The adoption of this guidance did not have any impact on our condensed consolidated financial statements and accompanying disclosures.


2.     IMMATERIAL CORRECTION OF PRIOR PERIOD FINANCIAL STATEMENTS

Subsequent to the issuance of our condensed consolidated financial statements for the period ended March 31, 2020, we identified an immaterial error related to the commencement of revenue recognition for certain FortiCare support service contracts. Rather than commencing recognition upon end user registration, we should have commenced recognition when control had passed to the distributor, which we have determined is our customer. We assessed the effect of this correction, individually and in the aggregate, on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 and, based on an analysis of quantitative and qualitative factors, determined that the correction was not individually material to any of our prior interim or annual consolidated financial statements.

All financial information contained in the accompanying notes to these condensed consolidated financial statements has been revised to reflect the correction of this error.
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The corrections to our condensed consolidated statement of income for the three months ended March 31, 2020 were as follows (in millions, except per share amounts):
Three Months Ended March 31, 2020
 As Previously ReportedCorrectionsAs Corrected
REVENUE:
Service $384.6 $0.8 $385.4 
Total revenue576.9 0.8 577.7 
GROSS PROFIT:
Service 332.2 0.8 333.0 
Total gross profit448.2 0.8 449.0 
OPERATING INCOME115.9 0.8 116.7 
INCOME BEFORE INCOME TAXES117.1 0.8 117.9 
PROVISION FOR INCOME TAXES13.1 0.2 13.3 
NET INCOME$104.0 $0.6 $104.6 
Net income per share (Note 10):
Basic$0.61 $ $0.61 
Diluted$0.60 $ $0.60 

The corrections to our condensed consolidated statement of cash flows for the three months ended March 31, 2020 were as follows (in millions):
Three Months Ended March 31, 2020
 As Previously ReportedCorrectionsAs Corrected
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$104.0 $0.6 $104.6 
Changes in operating assets and liabilities:
Deferred tax assets7.1 0.2 7.3 
Deferred revenue90.9 (0.8)90.1 

For the period in which we corrected net income, we made corresponding corrections to net income and comprehensive income in our condensed consolidated statement of comprehensive income and to net income, retained earnings (accumulated deficit) and total stockholders’ equity in our condensed consolidated statements of stockholders’ equity.

3.     REVENUE RECOGNITION

We sell cybersecurity solutions to a variety of organizations, such as enterprises, communication service providers, government organizations and small to medium-sized enterprises. Our revenue consists of product and service revenue. Product revenue is generated by our FortiGate network security products, our Fortinet Security Fabric platform products and other products. Service revenue relates to sales of our security subscription services, which mainly consists of our FortiGuard security solutions, as well as our FortiCare technical support services and other services.


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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Disaggregation of Revenue

The following table presents our revenue disaggregated by major product and service lines (in millions):
Three Months Ended
March 31,
2021
March 31,
2020
Product$240.7 $192.3 
Service:
Security subscription255.3 211.4 
Technical support and other214.3 174.0 
Total service revenue469.6 385.4 
Total revenue$710.3 $577.7 

Deferred Revenue

During the three months ended March 31, 2021 and March 31, 2020, we recognized $417.9 million and $343.3 million in service revenue that was included in the deferred revenue balance as of December 31, 2020 and December 31, 2019, respectively.

Transaction Price Allocated to the Remaining Performance Obligations

As of March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $2.75 billion, which was substantially comprised of deferred security subscription and technical support services revenue. We expect to recognize approximately $1.47 billion as revenue over the next 12 months and the remainder thereafter.

Accounts receivable

Trade accounts receivable are recorded at the invoiced amount. Our accounts receivable balance is reduced by an allowance for expected credit losses. We measure expected credit losses of accounts receivable on a collective (pooled) basis, aggregating accounts receivable that are either current or no more than 60 days past due, and aggregating accounts receivable that are more than 60 days past due. We apply a credit-loss percentage to each of the pools that is based on our historical credit losses. We review whether each of our significant accounts receivable that is more than 60 days past due continues to exhibit similar risk characteristics with the other accounts receivable in the pool. If we determine that it does not, we evaluate it for expected credit losses on an individual basis. Expected credit losses are recorded as general and administrative expenses on our consolidated statements of income.

The allowance for credit losses was $3.1 million and $2.5 million as of March 31, 2021 and December 31, 2020, respectively. Provisions, write-offs and recoveries were not material during the three months ended March 31, 2021 and 2020.

Deferred Contract Costs

Amortization of deferred contract costs during the three months ended March 31, 2021 and 2020 were $39.7 million and $31.3 million, respectively.

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4.     FINANCIAL INSTRUMENTS AND FAIR VALUE

The following tables summarize our investments (in millions):
 
 March 31, 2021
 Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Corporate debt securities$482.1 $0.5 $(0.2)$482.4 
Commercial paper426.4 0.1  426.5 
Certificates of deposit and term deposits (1)
162.7   162.7 
U.S. government securities156.2   156.2 
Total available-for-sale securities$1,227.4 $0.6 $(0.2)$1,227.8 
 December 31, 2020
 Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Corporate debt securities$410.5 $1.0 $ $411.5 
Commercial paper185.4   185.4 
Certificates of deposit and term deposits (1)
112.0   112.0 
U.S. government securities184.9   184.9 
Total available-for-sale securities$892.8 $1.0 $ $893.8 
(1) The majority of our certificates of deposit and term deposits are foreign deposits.

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):
March 31, 2021
 Less Than 12 Months12 Months or GreaterTotal
 Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Corporate debt securities$272.2 $(0.2)$ $ $272.2 $(0.2)
Commercial paper164.1    164.1  
Certificates of deposit and term deposits29.5  5.5  35.0  
Total available-for-sale securities$465.8 $(0.2)$5.5 $ $471.3 $(0.2)
December 31, 2020
 Less Than 12 Months12 Months or GreaterTotal
 Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Corporate debt securities$111.3 $ $ $ $111.3 $ 
Commercial paper61.5    61.5  
U.S. government securities38.1    38.1  
Certificates of deposit and term deposits29.5    29.5  
Total available-for-sale securities$240.4 $ $ $ $240.4 $ 

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The contractual maturities of our investments were as follows (in millions):
 March 31,
2021
December 31,
2020
Due within one year$1,076.7 $775.5 
Due within one to three years151.1 118.3 
Total$1,227.8 $893.8 

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. Accrued interest receivable of $2.6 million as of March 31, 2021 was excluded from the fair value of our available-for-sale securities and was recorded in prepaid expenses and other current assets in our condensed consolidated balance sheet.

Realized gains and losses on available-for-sale securities were insignificant in the periods presented.

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 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.

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 (in millions):
 March 31, 2021December 31, 2020
 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$489.6 $489.6 $ $413.7 $ $413.7 $ 
Commercial paper463.2  463.2  197.2  197.2  
U.S. government securities156.2 156.2   184.9 184.9   
Certificates of deposit and term deposits169.2  169.2  112.0  112.0  
Money market funds282.8 282.8   152.7 152.7   
Total$1,561.0 $439.0 $1,122.0 $ $1,060.5 $337.6 $722.9 $ 
Reported as:
Cash equivalents$333.2 $166.7 
Short-term investments1,076.7 775.5 
Long-term investments151.1 118.3 
Total$1,561.0 $1,060.5 

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2021 and year ended December 31, 2020.

5.     INVENTORY

Inventory consisted of the following (in millions):
 March 31,
2021
December 31,
2020
Raw materials$15.2 $13.8 
Finished goods134.4 126.0 
Inventory$149.6 $139.8 

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6.     PROPERTY AND EQUIPMENT—Net

Property and equipment—net consisted of the following (in millions):
 
 March 31,
2021
December 31,
2020
Land$106.8 $93.3 
Building and building improvements153.8 150.6 
Computer equipment and software146.4 137.2 
Leasehold improvements33.6 31.9 
Evaluation units18.7 19.8 
Furniture and fixtures22.1 21.3 
Construction-in-progress193.4 166.4 
Total property and equipment674.8 620.5 
Less: accumulated depreciation(180.6)(172.5)
Property and equipment—net$494.2 $448.0 

Construction-in-progress consists primarily of costs incurred in connection with the construction of a second building at our headquarters campus.

Depreciation expense was $14.0 million and $13.6 million during the three months ended March 31, 2021 and 2020, respectively.

7.     INVESTMENTS IN PRIVATELY HELD COMPANIES

Linksys Holdings, Inc.

On March 19, 2021, we invested $75.0 million in cash for shares of the Series A Preferred Stock of Linksys Holdings, Inc. (“Linksys”), which provides router connectivity solutions, for a 32.6% ownership interest in the outstanding capital stock of Linksys.

We concluded that our investment is an in-substance common-stock investment, and, though we do not hold a controlling financial interest in Linksys, we have the ability to exercise significant influence over the operating and financial policies of Linksys. Therefore, we will account for this investment using the equity method of accounting.

As of March 31, 2021, the investment was included in other assets on our condensed consolidated balance sheet. Our share of the earnings of Linksys subsequent to the acquisition date was not material for the quarter ended March 31, 2021. Transaction costs related to this investment were not material.

Our other investments in the equity securities of privately held companies without readily determinable fair values totaled $1.0 million as of March 31, 2021 and December 31, 2020.

8.     BUSINESS COMBINATION

ShieldX Networks, Inc.

On March 10, 2021, we closed an acquisition of certain assets and liabilities of ShieldX Networks Inc. (ShieldX) for $10.8 million in cash. This acquisition was accounted for as a business combination using the acquisition method of accounting. Of the purchase price, $6.2 million was allocated to goodwill, $4.1 million was allocated to developed technology intangible asset and $0.5 million was allocated to other net assets acquired. Goodwill recorded in connection with this acquisition represents the value we expect to be created through expansion into markets within our existing business and potential cost savings and synergies. All acquired goodwill is expected to be deductible for tax purposes. Acquisition-related costs related to this acquisition were not material and were recorded as general and administrative expense.

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

9.     GOODWILL AND OTHER INTANGIBLE ASSETS—Net

Goodwill

The following table presents the changes in the carrying amount of goodwill (in millions):
Amount
Balance—December 31, 2020$93.0 
Addition due to business combination6.2 
Balance—March 31, 2021$99.2 

There were no impairments to goodwill during the three months ended March 31, 2021 or during prior periods.

Other Intangible Assets—Net

The following tables present other intangible assets—net (in millions, except years):
March 31, 2021
 Weighted-Average Useful Life (in Years)GrossAccumulated AmortizationNet
Other intangible assets—net:
Finite-lived intangible assets:
Developed technologies4.0$63.4 $34.8 $28.6 
Customer relationships4.0