Fortinet (FTNT) 10-K risk factor changes: FY2020 vs FY2019

In that case, the trading price of our common stock could decline substantially, and investors may lose some or all of their [removed: investment.*][added: investment.]

Risks Related to Our [removed: Business][added: Business and Financial Position]

[removed: | • |] [added: -] our ability to attract and retain new end-customers or sell additional products and services to our existing end-customers; [removed: |]

[removed: | • |] [added: -] the level of demand for our products and services, which may render forecasts [removed: inaccurate; |][added: inaccurate and may be impacted by the COVID-19 pandemic in ways that we are not able to foresee;]

[removed: | • |] [added: -] the timing of channel partner and end-customer orders, and our reliance on a concentration of shipments at the end of each quarter; [removed: |]

[removed: | • |] [added: -] 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; [removed: |]

[removed: | • |] [added: -] inventory management; [removed: |]

[removed: | • |] [added: -] component and product inventory shortages, including those caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, fires, power outages, typhoons, floods, pandemics or epidemics such as the [removed: coronavirus] [added: COVID-19 pandemic] and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks; [removed: |]

[removed: | • |] [added: -] 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; [removed: |]

[removed: | • |] [added: -] the purchasing practices and budgeting cycles of our channel partners and end-customers, including the effect of the end of product refresh cycles; [removed: |]

[removed: | • |] [added: -] any decreases in demand by channel partners or end-customers, including any such decreases caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, fires, power outages, typhoons, floods, pandemics or epidemics such as the [removed: coronavirus] [added: COVID-19 pandemic] and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks; [removed: |]

[removed: | • |] [added: -] 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 hire and retain effective sales personnel; [removed: |]

[removed: | • |] [added: -] 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, including, among other execution risks, risks associated with the complexity and distraction in selling to all segments and increased competition and unpredictability of timing to close sales deals with large enterprises; [removed: |]

[removed: | • |] [added: -] execution risk associated with our efforts to capture the opportunities related to our identified growth drivers, such as risk associated with our ability to capitalize on network security and SD-WAN, infrastructure security, cloud security and endpoint protection, IoT and OT security opportunities; [removed: |]

[removed: | • |] [added: -] the seasonal buying patterns of our end-customers; [removed: |]

[removed: | • |] [added: -] 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; [removed: |]

[removed: | • |] [added: -] the timing of revenue recognition for our [removed: sales; |][added: sales, including any impacts resulting from extension of payment terms to distributors;]

[removed: | • |] [added: -] the level of perceived threats to network security, which may fluctuate from period to period; [removed: |]

[removed: | • |] [added: -] any actual or perceived vulnerabilities in our products or services, and any actual or perceived breach of our network or our customers’ networks; [removed: |]

[removed: | • |] [added: -] changes in the requirements, market needs or buying practices and patterns of our distributors, resellers or end-customers; [removed: |]

[removed: | • |] [added: -] changes in the growth rates of the network security market in particular and other security and networking markets, such as SD-WAN, for which we sell products and services; [removed: |]

[removed: | • |] [added: -] 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; [removed: |]

[removed: | • |] [added: -] the deferral of orders from distributors, resellers or end-customers in anticipation of new products or product enhancements announced by us or our competitors; [removed: |]

[removed: | • |] [added: -] 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; [removed: |]

[removed: | • | compliance with existing laws] [added: - our ability to obtain] and [removed: regulations] [added: maintain permits and clearances,] that are applicable to our ability to conduct business with the public [removed: sector] [added: sector, including the U.S. federal government,] and other sectors; [removed: |]

[removed: | • |] [added: -] litigation, litigation fees and costs, settlements, judgments and other equitable and legal relief granted related to litigation; [removed: |]

[removed: | • |] [added: -] the impact of cloud-based platforms on our billings, revenues, operating margins and free cash flow; [removed: |]

[removed: | • |] [added: -] 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; [removed: |]

[removed: | • |] [added: -] price competition and increased competitiveness in our market, including the competitive pressure caused by product refresh cycles; [removed: |]

[removed: | • |] [added: -] our ability to both increase revenues and manage and control operating expenses in order to improve our operating margins; [removed: |]

[removed: | • |] [added: -] changes in customer renewal rates or [removed: attached] [added: attach] rates for our services; [removed: |]

[removed: | • |] [added: -] changes in [removed: payment terms] [added: the timing] of our [added: billings and collections for our] contracts with service providers and distributors; [removed: |]

[removed: | • |] [added: -] changes in our estimated annual effective tax rates; [removed: |]

[removed: | • |] [added: -] 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; [removed: |]

[removed: | • |] [added: -] increased demand for cloud-based services and the uncertainty associated with transitioning to providing such services; [removed: |]

[removed: | • |] [added: -] increased expenses, unforeseen liabilities or write-downs and any impact on results of operations from any acquisition consummated; [removed: |]

[removed: | • |] [added: -] our channel partners having insufficient financial resources to withstand changes and challenges in business conditions; [removed: |]

[removed: | • |] [added: -] 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; [removed: |]

[removed: | • |] [added: -] 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; [removed: |]

[removed: | • |] [added: -] 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; [removed: |]

We have summarized risks immediately below and encourage investors to carefully read the entirety of this Risk Factors section.*

Summary of Risk Factors

Some of the material risks that we face include:

- Our operating results are likely to vary significantly and be unpredictable.

- Adverse economic conditions or reduced information technology spending may adversely impact our business.

- Our billings, revenue, operating margin and free cash flow growth may slow or may not continue.

- We rely on third-party channel partners for substantially all of our revenue and a small number of distributors represents a large percentage of our revenue and gross accounts receivable.

- Reliance on a concentration of shipments at the end of the quarter could cause our billings and revenue to fall below expected levels.

- We are dependent on the continued services and performance of our senior management, as well as our ability to hire, retain and motivate qualified personnel, particularly for our sales organization.

- We generate a majority of revenue from sales outside of the United States.

- We may not be successful in executing our strategy to increase our sales to large- and medium-sized end-customers.

- A portion of our revenue is generated by sales to government organizations, which are subject to a number of challenges and risks.

- Our industry is highly competitive and we must accurately predict, prepare for and respond promptly to technological and market developments and changing end-customer needs, including by introducing products and product enhancements and innovations that address a fast-changing technology and threat landscape and that achieve sufficient market acceptance, in order to maintain or improve our competitive position.

- Insufficient inventory or components, including component or inventory shortages based on the COVID-19 pandemic, may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.

- We depend on several third-party manufacturers to build our products and are susceptible to manufacturing delays and cost increases.

- We are susceptible to supply shortages and disruptions, long lead times for components and supply changes because some of the key components in our products come from limited sources of supply.

- We are susceptible to defects or vulnerabilities in our products or services, as well as reputational harm from the failure or misuse of our products or services.

- Our proprietary rights may be difficult to enforce and we may be subject to claims by others that we infringe their proprietary technology.

- Global economic uncertainty and weakening product demand caused by political instability, changes in trade agreements and other conflict could adversely affect our business and financial performance.

- The trading price of our common stock may be volatile, which volatility may be exacerbated by share repurchases under our Repurchase Program.

- Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

- the impact to our business, the global economy, disruption of global supply chains and creation of significant volatility and disruption of the financial markets due to the COVID-19 pandemic;

- compliance with existing laws and regulations;

- changes in the timing of our billings and collections for service contracts or the contractual term of service contracts sold;

Our expenses as a percentage of total revenue may be higher than expected if our revenue is lower than expected.

If our investments in sales and marketing and other functional areas do not result in expected billings and revenue growth, we may experience margin declines.

The COVID-19 pandemic could adversely affect our business in a material way.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and demand for certain solutions and created significant volatility in, and disruption of, global financial markets.

The extent of the future impact of the COVID-19 pandemic on our operational and financial performance, including on demand for our products and services, our ability to source components, and our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the COVID-19 pandemic and related restrictions on, and disruptions of, business and world economies, all of which are uncertain and difficult to predict.

An extended period of global supply chain disruption, demand reduction and economic slowdown would materially negatively affect our overall business and our operating results, including billings, revenue, gross margins, operating margins, cash flows and other operating results.

Moreover, the COVID-19 pandemic has created a reduction in certain business activity and demand for certain solutions, which we believe has negatively impacted our billings and may in the future materially and negatively affect the rate and amount of our billings.

The COVID-19 pandemic may adversely affect certain of our partners’ and customers’ ability or willingness to purchase our products and services, delay certain customers’ purchasing decisions and increase customer attrition rates, all of which will adversely affect our future sales and operating results, possibly in a material way.

As a result, we may experience extended sales cycles; our ability to close transactions with new and existing customers and partners may be negatively impacted; our ability to recognize revenue from sales we do close may be negatively impacted; certain businesses will not buy our products and services when they otherwise would have; certain current partners, customers and customer prospects may go out of business or face significant business challenges, thereby negatively impacting our sales; due to product or component shortages, implementation delays or other factors; and our ability to provide technical and other support to our customers may be affected.

We have also offered, and may continue to offer, payment terms in excess of our contractual agreements to some of our distributor customers,

which may decrease the likelihood that we will be able to collect from these customers.

The COVID-19 pandemic has limited certain demand generation activities, such as conferences and in-person sales meetings, which may reduce our costs, but also may reduce leads that could result in closed sales.

The full impact of the COVID-19 pandemic is unknown at this time.

While we continue to monitor developments and the potential effect on our business, it is clear that the COVID-19 pandemic will negatively impact certain sales and may have a material negative impact on our operating results in the near term and longer term.

They may also have

We typically arrange for a logistics partner to pick up the last shipment of our products a few hours prior to the end of the quarter, and a delay in the arrival of the logistics partner or other factors such as a power outage could prevent us from shipping and billing for a material amount of products for which we have orders.

| | |

| --- | --- |

| • | changes in the payment terms of services contracts or the contractual term of services contracts sold; |

manner that we believe is in compliance with current prevailing tax laws.

In addition, for those channel partners that have rights of return, inventory held by such channel partners affects our results of operations.

While the majority of our products are manufactured outside of China, certain components for our products and certain of our products are manufactured in China and Taiwan.

In addition, certain of our logistics and shipping operations are in Taiwan.

We also have other operations in Asia.

Pandemics and epidemics such as the current coronavirus outbreak or other widespread public health problems could negatively impact our business.

If, for example, the coronavirus progresses in ways that disrupt the manufacture or shipment of our products or otherwise disrupt our operations, this may materially negatively impact our operating results for the first quarter of 2020 and subsequent periods, including billings, revenue, gross margins, operating margins, cash flows and other operating results and our overall business.

If the coronavirus spreads in ways that continue to negatively impact the overall economy and buying patterns of partners or potential customers, this would negatively impact, and may materially negatively impact, our sales, operating results and business.

These increases in expenses will likely negatively impact, and may materially negatively impact, our operating results for the first quarter 2020 and in subsequent periods.

As a result of the foregoing, the coronavirus will likely negatively impact our operating results and may do so in a material way.

The loss of the services or the

cycles.

For example, as we previously announced, in the second quarter of 2019 we discovered that an unauthorized party targeted us using sophisticated techniques, such as efforts to impersonate our firewall update servers, in order to try to gain access to certain of our customers’ systems.

We have historically had relatively low spending on marketing activities.

For example, in July 2017, Exclusive, which distributes our solutions to a large group of resellers and end-customers, acquired Fine Tec U.S. Since the acquisition of Fine Tec U.S., Exclusive’s business with us has increased and may continue to increase in the future.

Attacks may target specific unidentified or unresolved vulnerabilities that exist or arrive only in the supply chain, making these attacks virtually impossible to anticipate and difficult to defend against.

or fail to meet the increased requirements of our customer base.

Digital.

Lead times for components may be adversely impacted by factors outside of our control such as natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, health pandemics and epidemics such as the coronavirus, and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars, critical infrastructure attacks and other factors.

more stringent than in the United States.

Fines for non-compliance may be up to $7,500 per violation.

As an example, the U.S. Department of Justice (the “DOJ”) has in the past pursued claims against, and obtained monetary settlements or damages from, companies, including us, under the False Claims Act and other statutes related to pricing, discount practices and compliance with laws related to sales to the federal government, such as the Trade Agreements Act (the “TAA”).

The DOJ continues to actively pursue such claims.

could be subject to substantial civil and criminal penalties, including fines for the company and incarceration for responsible employees and managers, and the possible loss of export or import privileges.

| • | geopolitical matters, including tariff and trade disputes, Brexit and government shutdowns; and |

On June 7, 2019, the Ninth Circuit issued an opinion in *Altera Corporation and Subsidiaries vs. Commissioner of Internal Revenue* that reversed the Tax Court Decision in favor of the IRS.

This ruling stated the IRS rule that stock compensation must be included in cost sharing was valid.

Based on this decision, in second quarter of 2019, we recorded a reserve for uncertain tax positions for this potential tax liability.

On February 10, 2020, the Ninth Circuit decision was appealed to the Supreme Court of the United States.

We will continue to monitor and assess the impact as this case moves forward.

For example, we closed our acquisitions of enSilo and CyberSponse in the fourth quarter of 2019.

Any earthquake in the Bay Area or Burnaby, or

available on the internet.

Also, many of our smaller competitors that specialize

copyrights), royalties or other fees.

In September 2018, California enacted a law that requires publicly held companies headquartered in California to have at least one female director by the end of 2019 and at least three by the end of 2021, depending on the size of the board.

The law would impose financial penalties for failure to comply.

[removed: | *•* | *continued] [added: *•continued] growth and market share gains;* [removed: |]

[removed: | *•* | *variability] [added: *•variability] in sales in certain product categories from year to year and between quarters;* [removed: |]

[removed: | *•* | *expected] [added: *•expected] impact of sales of certain products and services;* [removed: |]

[removed: | • | *the] [added: *•the] impact of macro-economic, geopolitical factors and other disruption on our manufacturing or sales, including the impact of the [removed: coronavirus] [added: COVID-19 pandemic] and other public health issues and natural disasters;* [removed: |]

[removed: | • |] [added: -] *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;* [removed: |]

[removed: | • |] [added: -] *the impact of our product innovation strategy;* [removed: |]

[removed: | • |] [added: -] *the effects of government regulation, tariffs and other related policies;* [removed: |]

[removed: | • |] [added: -] *drivers of long-term growth and operating leverage, such as [removed: increased] sales productivity, functionality and value in our standalone and bundled subscription service offerings;* [removed: |]

[removed: | • |] [added: -] *growing our sales to businesses, service providers and government organizations, our ability to execute these sales and of the complexity of selling to all segments (including the increased competition and unpredictability of timing associated with sales to larger enterprises), the impact of sales to these organizations on our long-term growth, expansion and operating results, and the effectiveness of our internal sales organization;* [removed: |]

[removed: | • |] [added: -] *our ability to hire properly qualified and effective sales, support and engineering employees;* [removed: |]

[removed: | • |] [added: -] *trends in revenue, cost of revenue and gross margin;* [removed: |]

[removed: | • |] [added: -] *trends in our operating expenses, including sales and marketing expense, research and development expense, general and administrative expense, and expectations regarding these expenses;* [removed: |]

[removed: | • |] [added: -] *risks and expectations related to [removed: acquisitions or sales of assets,] [added: acquisitions,] including integration issues related to product plans and products, including the acquired technology;* [removed: |]

[removed: | *•* | *continued investments in research and development, and expectations] [added: *•expectations] that our [removed: research and development] [added: operating] expense will increase in absolute dollars during [removed: 2020;* |][added: 2021;*]

[removed: | *•* | *expectations that our] [added: We currently expect] general and administrative expense [removed: will] [added: to] increase in absolute dollars [removed: during 2020;* |][added: in 2021.]

[removed: | *•* | *expectations] [added: *•expectations] that proceeds from the exercise of stock options in future years will be adversely impacted by the increased mix of restricted stock units versus stock options granted;* [removed: |]

[removed: | *•* | *estimates] [added: *•estimates] of a range of [removed: 2020] [added: 2021] spending on our headquarters expansion [added: project and of the anticipated completion timeline for the] project;* [removed: |]

[removed: | • |] [added: -] *expectations regarding uncertain tax benefits and our effective domestic and global tax rates, and the impact of the Tax Cuts and Jobs Act (the [removed: “2017] [added: “2017] Tax Act*”) *and the [removed: Ninth Circuit’s* *Altera* *decision regarding stock-based compensation in cost sharing arrangements;* |][added: Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”);*]

[removed: | *•* | *expectations] [added: *•expectations] regarding spending related to real estate and other capital expenditures and to the impact on free cash flows;* [removed: |]

[removed: | *•* | *competition] [added: *•competition] in our markets;* [removed: |]

[removed: | • |] [added: -] *statements regarding expected outcomes and liabilities in litigation;* [removed: |]

[removed: | • |] [added: -] *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;* [removed: |]

[removed: | *•* | *other] [added: *•other] statements regarding our future operations, financial condition and prospects and business strategies; and* [removed: |]

[removed: | *•* | *adoption] [added: *•adoption] and impact of new accounting standards.* [removed: |]

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K and, in particular, the risks discussed under the heading “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K and those discussed in other documents we file with the [removed: Securities and Exchange Commission (the “SEC”).][added: SEC.]

Fortinet is a global leader in cybersecurity solutions provided to a wide variety of organizations, [removed: such as] [added: including] enterprises, communication service providers, government organizations and small businesses.

[removed: | • | 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, next-generation firewall, secure web gateway, [removed: SSL] [added: secure sockets layer (“SSL”)] inspection, [removed: SD-WAN, intrusion prevention, SSL] [added: software-defined wide area network (“SD-WAN”), Intrusion Prevention system(“IPS”), sandboxing,] data leak prevention, [removed: VPN,] [added: virtual private network (“VPN”),] switch and wireless controller and wide area network [added: (“WAN”)] edge. [removed: Our network security appliances are managed by our FortiOS network operating system, which provides the foundation for FortiGate security functions. We enhance the performance of our network security appliances from branch to data center by designing and implementing SPU technology within our appliances, enabling us to add security and network functionality with minimal impact to network throughput performance. |]

[removed: | • | Infrastructure] [added: - Infrastructure] Security—The Fortinet Security Fabric platform [removed: is a broad, automated and integrated security platform that] extends beyond the network to cover other attack vectors. [removed: Other infrastructure solutions covered include Secure Access (Wi-Fi and switch). |]

[removed: | • | Endpoint] [added: - Endpoint] Protection, Internet of Things [added: (“IoT”)] and Operational Technology [added: (“OT”)] Security—We protect end-customers from advanced threats that target their devices and the data that reside on them through our advanced endpoint solutions that provide core endpoint protection, advanced threat protection, incident monitoring, and response. [removed: Additionally, the proliferation of IoT and the digitization of OT devices has generated new opportunities for us to grow our business. We offer network access control solutions that provide visibility, control and automated event responses in order to secure IoT devices. |]

[removed: We also] [added: - AI-Driven Security Operations—We] develop and provide [removed: AI\-driven] [added: Artificial Intelligence (“AI”) driven] security operations solutions, including FortiGuard [added: and other] security [removed: services] [added: subscription services, endpoint detection and response, and our security orchestration, automation and response (“SOAR”) capabilities and solutions,] that can be applied across the entire Fortinet Security Fabric platform.

In addition to our security solutions, our [removed: customers, channel partners and end-customers] [added: customers] may purchase FortiGuard and other security subscription services to receive threat intelligence [removed: updates,] [added: updates and protection updates delivered by FortiGuard Labs,] FortiCare technical support services [removed: across all of our products] and the support of [removed: Technical Account Managers, Resident Engineers] [added: TAMs, REs] and professional service consultants for implementations or training services.

[removed: | • |] [added: -] Cash, cash equivalents and investments were [removed: $2.21] [added: $1.96] billion as of December 31, [removed: 2019, an increase] [added: 2020, a decrease] of [removed: $493.3] [added: $254.3] million, or [removed: 29%,] [added: 12%,] from December 31, [removed: 2018. |][added: 2019.]

[removed: | • |] [added: -] Deferred revenue was [removed: $2.14] [added: $2.61] billion as of December 31, [removed: 2019,] [added: 2020,] an increase of [removed: $449.1] [added: $496.2] million, or [removed: 27%,] [added: 24%,] from December 31, [removed: 2018. |][added: 2019.]

[removed: | • |] [added: -] We generated cash flows from operating activities of [removed: $808.0 million] [added: $1.08 billion] in [removed: 2019,] [added: 2020,] an increase of [removed: $169.1] [added: $275.7] million, or [removed: 26%,] [added: 34%,] compared to [removed: 2018. |][added: 2019.]

[removed: | • |] In 2019, we repurchased 1.9 million shares of common stock [removed: under the Repurchase Program] for [removed: an aggregate purchase price of $140.9 million. In 2018, we repurchased 3.8 million shares of common stock for] a total purchase price of [removed: $209.1] [added: $140.9] million. [removed: |]

Product revenue grew [removed: 17%] [added: 16%] in [removed: 2019.][added: 2020.]

We experienced revenue growth across several of our hardware and software products, including [removed: FortiGate enabled with] SD-WAN [removed: features.][added: and teleworker and remote security solutions.]

Service revenue growth of [removed: 21%] [added: 22%] in [removed: 2019] [added: 2020] was driven by the strength of our FortiGuard and other security subscription [added: revenue and FortiGate technical support and other service] revenue, which [added: both] grew [removed: 24%.][added: 22% in 2020.]

The impact of these [removed: acquisitions, individually and in the aggregate,] [added: acquisitions] were not material to our consolidated financial statements.

[removed: As a result,] [added: Excluding the gains on the IP matter,] operating expenses as a percentage of revenue decreased by [removed: two] [added: 1.3] percentage points compared to [removed: 2018.][added: 2019.]

*•the duration and impact of the COVID-19 pandemic;*

- Security-Driven Networking—We derive a majority of product sales from our FortiGate network security appliances.

Our network security appliances are managed by our FortiOS network operating system, which provides the foundation for FortiGate security functions.

We enhance the performance of our network security appliances from branch to data center by designing and implementing Security Processing Units (“SPUs”) technology within our appliances, enabling us to add security and network functionality with minimal impact to network throughput performance.

Other infrastructure solutions covered include teleworker and remote security solutions such as FortiAuthenticator, FortiClient and FortiToken, as well as Secure Access (Wi-Fi and switch).

- Dynamic Cloud Security—We help customers connect securely to and across their individual, hybrid and multi-cloud environments by offering security through our virtual firewall and other software products and through integrated capabilities with major cloud platforms.

Our public and private cloud security solutions, including virtual appliances and hosted solutions, extend the core capabilities of the Fortinet Security Fabric platform in and across cloud environments, delivering security that follows their applications and data.

Our Secure SD-WAN for Multi-Cloud solution automates deployment of an overlay network across different cloud networks and offers visibility, control and centralized management that integrates functionality across multiple cloud environments.

Our Cloud Security portfolio also includes securing applications, including email and web.

Fortinet cloud security offerings are available for deployment in major public and private cloud environments, including Amazon Web Services, Microsoft Azure, Google Cloud, Oracle Cloud, Alibaba Cloud, IBM Cloud and VMWare Cloud.

We also offer managed IPS and web application firewall (“WAF”) rules delivered by FortiGuard Labs as an overlay service to native security offerings offered by Amazon Web Services.

Additionally, the proliferation of IoT and OT devices has generated new opportunities for us to grow our business.

We offer network access control solutions that provide visibility, control and automated event responses in order to secure IoT devices.

These solutions deliver intelligence and insights.

Correction of Prior Period Financial Data

As discussed further in Note 2 of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, we identified an immaterial error related to the commencement of revenue recognition for certain FortiCare support service contracts, which resulted in an understatement of revenue during the years ended 2019 and 2018, respectively.

The correction of this error resulted in increases to service revenue, gross profit and operating income of $6.8 million and $3.4 million for the year ended 2019 and 2018, respectively.

Net income increased by $5.2 million and $2.7 million for the year ended 2019 and 2018, respectively.

This resulted in an increase to diluted net income per share of $0.03 and $0.01 for the year ended 2019 and 2018, respectively.

We evaluated the effect of this correction on the previous results of operations and determined that it did not materially impact any trends previously disclosed.

This correction did not impact net cash provided by operating activities, billings or free cash flows.

- Total revenue was $2.59 billion in 2020, an increase of 20% compared to $2.16 billion in 2019.

Product revenue was $916.4 million in 2020, an increase of 16% compared to $788.5 million in 2019.

Service revenue was $1.68 billion in 2020, an increase of 22% compared to $1.37 billion in 2019.

- Total gross profit was $2.02 billion in 2020, an increase of 22% compared to $1.66 billion in 2019.

- We generated operating income of $531.8 million in 2020, an increase of 52% compared to $351.0 million in 2019.

Operating income for 2020 included gains on an IP matter of $40.2 million.

- In 2020, we repurchased 11.7 million shares of common stock under the Repurchase Program for an aggregate purchase price of $1.08 billion.

Short-term deferred revenue was $1.39 billion as of December 31, 2020, an increase of $237.0 million, or 21%, from December 31, 2019.

In 2020, the Americas region, the Europe, Middle East and Africa (“EMEA”) region and the Asia Pacific (“APAC”) region contributed 42%, 38% and 20% of our total revenue, respectively, and increased by 17%, 21% and 23% compared to 2019, respectively.

Our billings were diversified on a geographic basis.

In 2020, approximately 50% of our billings in the aggregate were from over 80 countries that individually contributed less than 3% of our billings.

During the fourth quarter of 2020, we acquired Panopta Holdings LLC (“ Panopta”) to provide a platform for monitoring the health and performance of network and IT infrastructure.

During the third quarter of 2020, we acquired OPAQ Networks, Inc. (“OPAQ”) to further enhance the Fortinet Security Fabric platform by providing enterprises with the zero trust network access SASE cloud solution.

In 2020, we recognized gains of $40.2 million on an IP matter in connection with a mutual covenant-no-to-sue and release agreement with a competitor in the network security industry.

COVID-19 Update

The United States and the global community we serve are facing unprecedented challenges posed by the COVID-19 pandemic.

In response to the pandemic, we have taken a number of actions to protect our employees, including restricting travel and directing most of our employees to work from home.

Where onsite work is permitted, we have implemented measures such as staggered work shifts, social distancing, the use of face coverings, health safety awareness training and frequent disinfection of shared spaces.

We have implemented our readiness plans, which include steps to maintain critical internet infrastructure with many employees working remotely.

| | |

| --- | --- |

| • | *continued investments in our sales resources and infrastructure and marketing strategy, and expectations that our sales and marketing expense will increase in absolute dollars during 2020;* |

| • | Cloud Security—We help customers connect securely to and across their hybrid, public and private cloud environments by offering security through our virtual firewall and other software products in public and private cloud environments. Our cloud security solutions, including virtual appliances and hosted solutions, extend the core capabilities of the Fortinet Security Fabric platform to provide businesses with the same level of cybersecurity and threat intelligence in and across 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, Alibaba Cloud and IBM Cloud. Our Cloud Security portfolio also includes securing applications, including email and web. |

These solutions help customers better secure their environments by delivering deeper intelligence and insights and by narrowing the gaps in security skills and resources that are present in many organizations.

| • | Total revenue was $2.16 billion in 2019, an increase of 20% compared to $1.80 billion in 2018. Product revenue was $788.5 million in 2019, an increase of 17% compared to $674.4 million in 2018. Service revenue was $1.37 billion in 2019, an increase of 21% compared to $1.13 billion in 2018. |

| • | We generated operating income of $344.2 million in 2019, an increase of 49% compared to $231.0 million in 2018. |

During the second quarter of 2019, we reclassified the 100 series of our FortiGate product from an entry-level product to a mid-range product.

Prior periods have been reclassified to conform with current period presentation.

Including this reclassification, we saw a mix shift from high-end to mid-range products in 2019.

During the fourth quarter of 2019, we acquired enSilo Limited (“enSilo”) and CyberSponse Inc. (“CyberSponse”) to further strengthen our Fortinet Security Fabric platform by providing real-time automated endpoint detection and response capability (enSilo) and security orchestration, automation and response products and services (CyberSponse).

In 2019, our revenue growth outpaced our growth in operating expenses.

The acquisition of enSilo and CyberSponse increased headcount by 135 employees.

Excluding these two acquisitions, headcount would have increased 19% year over year.

The impact of the coronavirus outbreak on our business remains uncertain, and, though the majority of our products are manufactured outside of China, certain components for our products and certain of our products are manufactured in China and Taiwan and we have international shipping and logistics centers in Taiwan.

While any significant impact is uncertain at this point, if the coronavirus outbreak continues to spread, the business disruption caused thereby could have a material negative impact on our billings, revenue, gross margin, operating margin, cash flows and other financial results for the first quarter of 2020 and certain periods thereafter.

We primarily sell our products and services through a two-tier distribution model.

In certain cases, we sell directly to large service providers and major systems integrators.

The invoice is typically payable within 30 to 45 days.

We also invoice certain services on a monthly basis.

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Revenue | $ | 2,156.2 | | | $ | 1,801.2 | | | $ | 1,494.9 | |

| Deferred revenue | $ | 2,135.9 | | | $ | 1,686.8 | | | $ | 1,336.3 | |

drive current and future revenue, which is an important indicator of the health and viability of our business.

| • | *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 fabric hardware and software products, including FortiGate software licenses. 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 2020. |

| • | *Service revenue*. Service revenue is generated primarily from FortiGuard security subscription services and 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 was comprised of direct product costs and indirect costs, including inventory reserves and other manufacturing overhead.

On January 1, 2018, we adopted Topic 606, Revenue from Contracts with Customers, 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 ASC Topic 605 (“Topic 605”), Revenue Recognition.

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.

If not observable through past transactions, we determine standalone selling price based on the historical pricing and discounting practices for those services when sold separately.

Under the previous standard, Topic 605, revenue from contracts that contain products and services is 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 an 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.

Beginning in 2018, we recognized commission expense based on Topic 606’s guidance for contract costs.

[added: The risk] associated with fluctuating interest rates is limited to our investment portfolio.

A 10% decrease in interest rates in [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017] [added: 2018] would have resulted in an insignificant decrease in our interest income in each of these periods.

However, a substantial portion of our operating expenses incurred outside the United States are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Canadian dollar (“CAD”), the [removed: Brazilian real (“BRL”), the] Euro (“EUR”) and the British pound (“GBP”).

We record changes in the fair value of forward exchange contracts related to balance sheet accounts in [removed: Other income (expense)—net] [added: other expense—net] in the consolidated statements of income.

We recognized an expense of [removed: $4.7] [added: $5.5] million in [removed: 2019] [added: 2020] due to foreign currency transaction losses.

Long-term material changes in the value of the U.S. dollar against other foreign currencies, such as the [removed: EUR, BRL] [added: EUR] and GBP, could adversely impact our operating expenses in the future.

For foreign currency exchange rate risk, a 10% increase or decrease of foreign currency exchange rates against the U.S. dollar with all other variables held constant would have resulted in a [removed: $5.6] [added: $5.9] million change in the value of our foreign currency cash balances as of December 31, [removed: 2019.][added: 2020.]

The risk

| | |

| --- | --- |

| ITEM 8. | Financial Statements and Supplementary Data |

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2019, 2018, and 2017

| | Page |

| [Report of Independent Registered Public Accounting Firm](#s004122A02E62751662DB670F66CEF8F6) | [63](#s004122A02E62751662DB670F66CEF8F6) |

| [Consolidated Balance Sheets](#s90445431C9E9DCA2C07B670F1C5B7E6F) | [65](#s90445431C9E9DCA2C07B670F1C5B7E6F) |

| [Consolidated Statements of Income](#s1E64BD873F00997D033F670F1CB5B840) | [66](#s1E64BD873F00997D033F670F1CB5B840) |

| [Consolidated Statements of Comprehensive Income](#s75F87DADF28870493FE9670F1D114A56) | [67](#s75F87DADF28870493FE9670F1D114A56) |

| [Consolidated Statements of Stockholders’ Equity](#sC735225C5DC061B09445670F1D251136) | [68](#sC735225C5DC061B09445670F1D251136) |

| [Consolidated Statements of Cash Flows](#s0FF7459DCB8BB377DBF9670F1DF85EC2) | [69](#s0FF7459DCB8BB377DBF9670F1DF85EC2) |

| [Notes to Consolidated Financial Statements](#sB36533F7E019DE91505C670F67F9A622) | [70](#sB36533F7E019DE91505C670F67F9A622) |

The supplementary financial information required by this Item 8 is included in Part II, Item 7 of this Annual Report on Form 10-K under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quarterly Results of Operations.”

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Fortinet, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Fortinet, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in *Internal Control–Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for revenue in fiscal 2018 due to adoption of the new revenue standard.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Litigation Contingencies–Refer to Note 11 to the financial statements

*Critical Audit Matter Description*

The Company is involved in disputes, litigation and other legal actions in the normal course of business.

Claims from third parties may result in a requirement to pay substantial damages and could prevent the Company from selling certain of their products.

Fortinet is a global leader in cybersecurity solutions provided to a wide variety of organizations, [removed: such as] [added: including] enterprises, communication service providers, government organizations and small businesses.

[removed: | • | 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, next-generation firewall, secure web gateway, secure sockets layer (“SSL”) inspection, software-defined [removed: wide-area] [added: wide area] network (“SD-WAN”), intrusion [removed: prevention, SSL] [added: prevention system (“IPS”), sandboxing,] data leak prevention, virtual private network (“VPN”), switch and wireless controller and wide area network [added: (“WAN”)] edge. [removed: Our network security appliances are managed by our FortiOS network operating system, which provides the foundation for FortiGate security functions. We enhance the performance of our network security appliances from branch to data center by designing and implementing Security Processing Unit (“SPU”) technology within our appliances, enabling us to add security and network functionality with minimal impact to network throughput performance. |]

[removed: | • | Infrastructure] [added: - Infrastructure] Security—The Fortinet Security Fabric platform [removed: is a broad, automated and integrated security platform that] extends beyond the network to cover other attack vectors. [removed: Other infrastructure solutions covered include Secure Access (Wi-Fi and switch). |]

[removed: | • | Endpoint] [added: - Endpoint] Protection, Internet of Things [added: (“IoT”)] and Operational Technology [added: (“OT”)] Security—We protect end-customers from advanced threats that target their devices and the data that reside on them through our advanced endpoint solutions that provide core endpoint protection, advanced threat protection, incident monitoring, and response. [removed: Additionally, the proliferation of Internet of Things (“IoT”) and the digitization of Operational Technology (“OT”) devices has generated new opportunities for us to grow our business. We offer network access control solutions that provide visibility, control and automated event responses in order to secure IoT devices. |]

[removed: We also] [added: - AI-Driven Security Operations—We] develop and provide Artificial Intelligence [removed: (“AI”)-driven] [added: (“AI”) driven] security operations solutions, including FortiGuard [added: and other] security [added: subscription] services, [added: endpoint detection and response, and our security orchestration, automation and response (“SOAR”) capabilities and solutions,] that can be applied across the entire Fortinet Security Fabric platform.

In addition to our security solutions, our [removed: customers, channel partners and end-customers] [added: customers] may purchase FortiGuard and other security subscription services to receive threat intelligence [removed: updates,] [added: updates and protection updates delivered by FortiGuard Labs,] FortiCare technical support services [removed: across all of our products] and the support of Technical Account Managers, Resident Engineers and professional service consultants for implementations or training services.

During our year ended December 31, [removed: 2019,] [added: 2020,] we generated total revenue of [removed: $2.16] [added: $2.59] billion and net income of [removed: $326.5] [added: $488.5] million.

See Part II, Item 8 of this Annual Report on Form 10-K for more information on our consolidated balance sheets as of December 31, [removed: 2019] [added: 2020] and [removed: 2018] [added: 2019] and our consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017.][added: 2018.]

The Fortinet Security Fabric platform has an open architecture designed to connect Fortinet solutions and third-party solutions into a single [removed: ecosystem.][added: ecosystem, enabling integration and automation.]

Our SPUs are designed to enhance the security processing capabilities implemented in software by accelerating computationally intensive tasks such as firewall policy enforcement, SD-WAN, network address translation, [removed: Intrusion Prevention Systems (“IPS”)] [added: IPS,] threat detection and encryption.

Our proprietary FortiOS operating system provides the foundation for the operation of all FortiGate [added: network security] appliances, whether physical, virtual, [removed: private] [added: private-] or [removed: public cloud based, and is at the heart of the Fortinet Security Fabric platform.][added: public-cloud based.]

[removed: | • | key] [added: -] enablement for the Fortinet Security Fabric platform architecture; [removed: |]

[removed: | • |] [added: -] optionality to configure FortiGate appliances into different security environments, such as our Internal Network Firewall, Next-Generation Firewall and Data Center Firewall; [removed: |]

[removed: | • |] [added: -] configuration of the physical aspects of the appliance, such as ports, onboard Wi-Fi and switching; [removed: |]

[removed: | • |] [added: -] extension of the Fortinet Security Fabric platform through direct management of FortiSwitch and FortiAP devices; [removed: |]

[removed: | • | key] [added: -] network functions such as routing and deployment modes (network routing, transparent, sniffer, etc.); [removed: |]

[removed: | • |] [added: -] the ability to deploy and orchestrate SD-WAN instances; [removed: |]

[removed: | • |] [added: -] implementation of security updates from our FortiGuard distribution network, delivering FortiGuard security subscription services and intelligence, such as IPS, antivirus and application control; [removed: |]

[removed: | • |] [added: -] native integrations with major cloud provider platforms; and [removed: |]

[removed: | • |] [added: -] real-time reporting and logging. [removed: |]

FortiOS is designed to help control network traffic in order to optimize performance by including functionality such as packet classification, queue disciplines, policy enforcement, congestion management, [removed: wide-area network (“WAN”)] [added: WAN] optimization and caching.

With over [removed: 40] [added: 35] models in the FortiGate product line, FortiGate is designed to address security requirements for small- to medium-sized businesses, large enterprises and government organizations worldwide.

As part of the Fortinet Security Fabric platform, we offer products that provide network security, [removed: end point] [added: endpoint] security, cloud security, web-based application security, identity and access management, sandbox protection and email security.

The following Fortinet products can operate as part of the Fortinet Security Fabric [removed: platform.][added: platform:]

[removed: | • | FortiSwitch—Our] FortiSwitch [removed: 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. [removed: |]

[removed: | • | FortiAP—Our FortiAP product family provides secure wireless networking solutions.] FortiAPs [removed: allow a variety of management options including from the cloud and directly from our FortiGate 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. [removed: |]

[removed: | • | FortiAnalyzer—Our] [added: - 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. [removed: |]

[removed: | • | FortiManager—Our] [added: - 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. [removed: FortiManager facilitates the coordination of policy-based provisioning, device configuration and operating system revision management, as well as network security monitoring and device control. |]

[removed: | • |] [added: -] FortiWeb—Our FortiWeb product family provides web application firewall solutions, including internet protocol (“IP”) reputation and anti-botnet security, distributed denial-of-service protection, protocol validation, application attack signatures and deep learning AI to protect applications against a wide range of threats. [removed: |]

[removed: | • | FortiMail—Our] FortiMail [removed: product family provides secure email gateway solutions. FortiMail] utilizes the technologies and security services from FortiGuard Labs to deliver protection against threats that use email as an attack vector. [removed: FortiMail also integrates data protection capabilities to avoid data loss. |]

[removed: | • | 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. [removed: When malicious code is identified, a signature can be generated locally for distribution across the Fortinet Security Fabric platform. |]

[removed: | • | FortiToken and FortiAuthenticator—Our] [added: - FortiToken—Our] FortiToken [removed: and FortiAuthenticator product families allow] [added: allows] organizations to implement [removed: multi-factor] [added: two-factor] authentication to better safeguard systems, assets and data. [removed: |]

All of the products listed above are available in multiple form factors, such as hardware, virtual machine, cloud or software-as-a-service (“SaaS”), except for FortiSwitch, FortiAP and FortiExtender, which are available as hardware appliances [added: only and FortiGate-VM and FortiEDR/XDR which are available as virtual solutions] only.

[removed: | • | Advanced] [added: - Advanced] Threat Protection—Our Advanced 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 support services. [removed: |]

[removed: | • | Unified] [added: - Unified] Threat Protection—Our Unified Threat Protection bundle includes antispam, antivirus, data sanitation, sandbox, application control, intrusion prevention, virus outbreak protection and web filtering, along with FortiCare support services. [removed: |]

[removed: | • | Enterprise] [added: - Enterprise] Protection—Our Enterprise Protection bundle includes application control, intrusion prevention, web filtering, sandbox, antivirus, mobile security, IP reputation and anti-botnet security, antispam, cloud access security broker (“CASB”), industrial control systems, security rating, virus outbreak protection and data sanitation, along with FortiCare support services. [removed: |]

[removed: | • |] [added: -] 360 Protection—Our 360 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 enhanced FortiCare support services and operational services such as SD-WAN orchestration and cloud-based management and visibility of the Fortinet Security Fabric platform. [removed: |]

We typically sell our security solutions to [removed: channel partners, who] [added: distributors that sell to resellers, service providers and managed security service providers (“MSSPs”), who,] in [removed: turn] [added: turn,] sell to end-customers.

Our end-customers are located in over 80 countries and include [removed: small] [added: small-] and medium-sized businesses, large enterprises and government organizations across a wide range of industries, including telecommunications, [removed: government,] [added: governments,] financial services, retail, technology, education, manufacturing and healthcare.

During 2019, Exclusive [removed: Networks Group (“Exclusive”)] and Ingram Micro [removed: Inc. (“Ingram Micro”)] accounted for 31% and 11% of total revenue, respectively.

- Security-Driven Networking—We derive a majority of product sales from our FortiGate network security appliances.

Our network security appliances are managed by our FortiOS network operating system, which provides the foundation for FortiGate security functions.

We enhance the performance of our network security appliances from branch to data center by designing and implementing Security Processing Units (“SPUs”) technology within our appliances, enabling us to add security and network functionality with minimal impact to network throughput performance.

Other infrastructure solutions covered include teleworker and remote security solutions such as FortiAuthenticator, FortiClient and FortiToken, as well as Secure Access (Wi-Fi and switch).

- Dynamic Cloud Security—We help customers connect securely to and across their individual, hybrid and multi-cloud environments by offering security through our virtual firewall and other software products and through integrated capabilities with major cloud platforms.

Our public and private cloud security solutions, including virtual appliances and hosted solutions, extend the core capabilities of the Fortinet Security Fabric platform in and across cloud environments, delivering security that follows their applications and data.

Our Secure SD-WAN for Multi-Cloud solution automates deployment of an overlay network across different cloud networks and offers visibility, control and centralized management that integrates functionality across multiple cloud environments.

Our Cloud Security portfolio also includes securing applications, including email and web.

Fortinet cloud security offerings are available for deployment in major public and private cloud environments, including Amazon Web Services, Microsoft Azure, Google Cloud, Oracle Cloud, Alibaba Cloud, IBM Cloud and VMWare Cloud.

We also offer managed IPS and web application firewall (“WAF”) rules delivered by FortiGuard Labs as an overlay service to native security offerings offered by Amazon Web Services.

Additionally, the proliferation of IoT and OT devices has generated new opportunities for us to grow our business.

We offer network access control solutions that provide visibility, control and automated event responses in order to secure IoT devices.

These solutions deliver intelligence and insights.

Our product offerings consist of our FortiGate network security product family and our non-FortiGate products.

Our FortiGate hardware and software licenses are sold with a set of security services in addition to networking features and are run using our proprietary FortiOS operating system.

Our security services are enabled by FortiGuard Labs, which provides threat research and artificial intelligence capabilities from a cloud network to deliver protection services to each FortiGate appliance and virtual machine that is registered by the end-customer.

All these are combined to form the Fortinet Security Fabric platform, which is an approach to security that ties discrete security solutions together into an integrated whole.

We have made updates to our FortiOS 7.0, as we aim to create a platform that will cover data centers, clouds, edge computing endpoints and networks.

Fortinet Security Fabric is powered by FortiOS.

- 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.

- 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 firewall product.

- FortiGate-VM— FortiGate-VM extends the Fortinet Security Fabric through the cloud on-ramp into the cloud, enabling customers to achieve security-driven networking within the cloud and between clouds and hybrid clouds.

FortiGate-VM is powered by Fortinet vSPU (virtual Security Processing Unit) to deliver accelerated security and performance with minimal impact to performance.

Our Cloud Networking solution enables better, more secure application experiences for users and branch offices by providing for encrypted data transports, granular segmentation and application-layer protection against advanced threats, and seamless overlay network with uniform policies across multi-clouds.

FortiGate-VM is available for all major cloud providers, hypervisors and software-defined network (“SDN”) platforms.

FortiManager facilitates the coordination of policy-based provisioning, device configuration and operating system revision management, as well as network security monitoring and device control.

- FortiMail—Our FortiMail product family provides secure email gateway solutions.

FortiMail also integrates data protection capabilities to avoid data loss.

- FortiSandbox—Our FortiSandbox technology delivers proactive detection and mitigation with the ability to generate a directly actionable protection capability.

When malicious code is identified, a signature can be generated locally for distribution across the Fortinet Security Fabric platform.

- FortiClient—Our FortiClient provides advanced endpoint protection with pattern-based anti-malware, behavior-based exploit protection, web-filtering and an application firewall.

FortiClient integrates with FortiSandbox to detect zero-day threats and custom malware.

FortiClient also provides secure remote access with built-in VPN, single-sign-on and two-factor authentication for added security.

With two-factor authentication, a password is used along with a security token and authentication server to provide seamless yet highly secured access between users and applications.

Authorized employees can access company resources safely using a variety of devices, ranging from laptops to mobile phones.

- FortiEDR/XDR—Our FortiEDR/XDR is an endpoint protection solution that provides both comprehensive machine-learning anti-malware execution and real-time post-infection protection.

It automatically detects and defuses potential threats in real time even on already infected hosts.

With automated EDR/XDR functions for threat hunting and incident response, FortiEDR/XDR eliminates the breach response time gap, dwell time, and alert fatigue.

Additionally, it protects systems and supports broad OS coverage workstations, servers, and virtual machines, including legacy operating and embedded systems.

| | |

| --- | --- |

| • | Cloud Security—We help customers connect securely to and across their hybrid, public and private cloud environments by offering security through our virtual firewall and other software products in public and private cloud environments. Our cloud security solutions, including virtual appliances and hosted solutions, extend the core capabilities of the Fortinet Security Fabric platform to provide businesses with the same level of cybersecurity and threat intelligence in and across 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, Alibaba Cloud and IBM Cloud. Our Cloud Security portfolio also includes securing applications, including email and web. |

These solutions help customers better secure their environments by delivering deeper intelligence and insights and by reducing the gaps in security skills and resources that are present in many organizations.

Our proprietary SPU hardware architecture, FortiOS operating system and associated security and networking functions are combined to form the Fortinet Security Fabric platform.

This approach to security ties together discrete security solutions into an integrated whole, which enables our products to perform security processing for networks with high throughput requirements across a broad threat landscape.

| • | FortiExtender—Our FortiExtender appliance provides a WAN connection to our FortiGate products using wireless broadband networks. End-customers that use multiple WAN connections, including SD-WAN, can use FortiExtender for one of those WAN links. FortiExtender can also be used as the primary connection for a location where wireless is the preferred broadband option. |

| • | 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. |

| • | FortiNAC—Our FortiNAC product family enables customers to implement zero trust network access strategies by gaining visibility into devices connecting into the network, including IoT devices, in order to meet minimum required security postures and to control access. |

In the fourth quarter of 2019, we acquired enSilo Limited (“enSilo”), a provider of endpoint detection and response products and services, and CyberSponse, Inc. (“CyberSponse”), a provider of security orchestration, automation and response products and services.

We expect that the enSilo acquisition will further enhance the Fortinet Security Fabric platform and strengthen endpoint and network security solutions by providing customers with advanced endpoint security.

We expect that the CyberSponse acquisition will further extend the automation and incident response capabilities of our FortiAnalyzer, FortiSIEM and FortiGate solutions.

During 2017, Exclusive accounted for 25% of total revenue.

Employees

As of December 31, 2019, our total headcount was 7,082 employees and contractors.

[removed: FORM 10-K][added: FORM 10-K]

| ☒ | [added: | |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

For the [removed: fiscal] year [removed: ended December] [added: ended December] 31, [removed: 2019][added: 2020]

| ☐ | [added: | |] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

Commission file [removed: number: 001-34511][added: number: 001-34511]

| Delaware | [added: | |] 77-0560389 | [added: | |]

| (State or other jurisdiction [removed: of incorporation] [added: of incorporation] or organization) | [added: | |] (I.R.S. [removed: Employer Identification] [added: Employer Identification] No.) | [added: | |]

[removed: Sunnyvale, California 94086][added: Sunnyvale, California 94086]

[removed: (408) 235-7700][added: (408) 235-7700]

| Common Stock, $0.001 Par Value | [added: | | | | |] FTNT | [added: | | | | |] The Nasdaq Stock Market LLC | [added: | |]

| (Title of each class) | [added: | | | | |] (Trading Symbol) | [added: | | | | |] (Name of exchange on which registered) | [added: | |]

| Large accelerated filer | [added: | |] ☒ | | | [added: | | | | | |] Accelerated filer | [added: | |] ☐ | [added: | |]

| Non-accelerated filer | [added: | |] ☐ | | | [added: | | | | | |] Smaller reporting company | [added: | |] ☐ | [added: | |]

| | [added: | |] Emerging growth company | [added: | |] ☐ | | | | [added: | | | | | | | |]

The aggregate market value of voting stock held by non-affiliates of the registrant, as of June [removed: 28, 2019,] [added: 30, 2020,] the last business day of the registrant’s most recently completed second quarter, was [removed: $8,793,866,992] [added: $14,216,424,929] (based on the closing price for shares of the registrant’s common stock as reported by The Nasdaq Global Select Market on that date).

As of February [removed: 21, 2020,] [added: 12, 2021,] there were [removed: 172,514,722] [added: 163,190,919] shares of the registrant’s common stock outstanding.

Portions of the registrant’s definitive Proxy Statement relating to its [removed: 2020] [added: 2021] Annual Meeting of Stockholders [added: (“Proxy Statement”)] are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

For the Year [removed: Ended December] [added: Ended December] 31, [removed: 2019][added: 2020]

| | | [added: | | | |] Page | [added: | |]

| | [added: | |] Part I | | [added: | | | |]

| Item 1. | [removed: [Business](#sCA8A248484993C80BE03670F39A7579E)] | [removed: [1](#sCA8A248484993C80BE03670F39A7579E)] | [added: [Business](#i4e6fbc9082d745e79a8cefaefd19597b_13) | | | [1](#i4e6fbc9082d745e79a8cefaefd19597b_13) | | |]

| Item 1A. | [added: | |] [Risk [removed: Factors](#s0B52AB8F0BACDAAFADCA670F643246B9)] [added: Factors](#i4e6fbc9082d745e79a8cefaefd19597b_16)] | [removed: [10](#s0B52AB8F0BACDAAFADCA670F643246B9)] | [added: | [10](#i4e6fbc9082d745e79a8cefaefd19597b_16) | | |]

| Item 1B. | [added: | |] [Unresolved Staff [removed: Comments](#s08D5E4A65CB968B95709670F64E75785)] [added: Comments](#i4e6fbc9082d745e79a8cefaefd19597b_19)] | [removed: [39](#s08D5E4A65CB968B95709670F64E75785)] | [added: | [43](#i4e6fbc9082d745e79a8cefaefd19597b_19) | | |]

| Item 2. | [removed: [Properties](#s4DD6BAF1D0B153276F7C670F64F3B253)] | [removed: [39](#s4DD6BAF1D0B153276F7C670F64F3B253)] | [added: [Properties](#i4e6fbc9082d745e79a8cefaefd19597b_22) | | | [43](#i4e6fbc9082d745e79a8cefaefd19597b_22) | | |]

| Item 3. | [added: | |] [Legal [removed: Proceedings](#sDB92261DD7871F4F4EAE670F65021CB7)] [added: Proceedings](#i4e6fbc9082d745e79a8cefaefd19597b_25)] | [removed: [39](#sDB92261DD7871F4F4EAE670F65021CB7)] | [added: | [43](#i4e6fbc9082d745e79a8cefaefd19597b_25) | | |]

| Item 4. | [added: | |] [Mine Safety [removed: Disclosures](#s6D73B3B1655EA5923B1F670F650F7116)] [added: Disclosures](#i4e6fbc9082d745e79a8cefaefd19597b_28)] | [removed: [39](#s6D73B3B1655EA5923B1F670F650F7116)] | [added: | [44](#i4e6fbc9082d745e79a8cefaefd19597b_28) | | |]

| | [added: | |] Part II | | [added: | | | |]

| Item 5. | [added: | |] [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s87E7D0FD85C71962E447670F4E15F8B6)] [added: Securities](#i4e6fbc9082d745e79a8cefaefd19597b_34)] | [removed: [40](#s87E7D0FD85C71962E447670F4E15F8B6)] | [added: | [45](#i4e6fbc9082d745e79a8cefaefd19597b_34) | | |]

| Item 6. | [added: | |] [Selected Financial [removed: Data](#sDE56A8126BD3B034BDC0670F65603CA7)] [added: Data](#i4e6fbc9082d745e79a8cefaefd19597b_37)] | [removed: [42](#sDE56A8126BD3B034BDC0670F65603CA7)] | [added: | [47](#i4e6fbc9082d745e79a8cefaefd19597b_37) | | |]

| Item 7. | [added: | |] [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s1720158921335F31E68B670F316AB8D0)] [added: Operations](#i4e6fbc9082d745e79a8cefaefd19597b_40)] | [removed: [43](#s1720158921335F31E68B670F316AB8D0)] | [added: | [49](#i4e6fbc9082d745e79a8cefaefd19597b_40) | | |]

| Item 7A. | [added: | |] [Quantitative and Qualitative Disclosures about Market [removed: Risk](#s5C9818E074C523962D17670F66A3E82B)] [added: Risk](#i4e6fbc9082d745e79a8cefaefd19597b_49)] | [removed: [60](#s5C9818E074C523962D17670F66A3E82B)] | [added: | [68](#i4e6fbc9082d745e79a8cefaefd19597b_49) | | |]

| Item 8. | [added: | |] [Financial Statements and Supplementary [removed: Data](#s6BBAB9D8A98D8DAFC563670F66B22886)] [added: Data](#i4e6fbc9082d745e79a8cefaefd19597b_52)] | [removed: [62](#s6BBAB9D8A98D8DAFC563670F66B22886)] | [added: | [70](#i4e6fbc9082d745e79a8cefaefd19597b_52) | | |]

| Item 9. | [added: | |] [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#s5357E64BADF8A9FA0C25670F6BF9BD46)] [added: Disclosure](#i4e6fbc9082d745e79a8cefaefd19597b_151)] | [removed: [97](#s5357E64BADF8A9FA0C25670F6BF9BD46)] | [added: | [108](#i4e6fbc9082d745e79a8cefaefd19597b_151) | | |]

| Item 9A. | [added: | |] [Controls and [removed: Procedures](#s9646E9BF5500603AA006670F6C076A52)] [added: Procedures](#i4e6fbc9082d745e79a8cefaefd19597b_154)] | [removed: [97](#s9646E9BF5500603AA006670F6C076A52)] | [added: | [108](#i4e6fbc9082d745e79a8cefaefd19597b_154) | | |]

| Item 9B. | [added: | |] [Other [removed: Information](#s3EC861E2ABF34AC92C2D670F6C1EC009)] [added: Information](#i4e6fbc9082d745e79a8cefaefd19597b_157)] | [removed: [99](#s3EC861E2ABF34AC92C2D670F6C1EC009)] | [added: | [110](#i4e6fbc9082d745e79a8cefaefd19597b_157) | | |]

| | [added: | |] Part III | | [added: | | | |]

| Item 10. | [added: | |] [Directors, Executive Officers and Corporate [removed: Governance](#s2B0B89A5425F4EEB6406670F6C56A388)] [added: Governance](#i4e6fbc9082d745e79a8cefaefd19597b_163)] | [removed: [99](#s2B0B89A5425F4EEB6406670F6C56A388)] | [added: | [111](#i4e6fbc9082d745e79a8cefaefd19597b_163) | | |]

| Item 11. | [added: | |] [Executive [removed: Compensation](#s01A5255683E5DE4EF7CC670F6C8735D7)] [added: Compensation](#i4e6fbc9082d745e79a8cefaefd19597b_166)] | [removed: [99](#s01A5255683E5DE4EF7CC670F6C8735D7)] | [added: | [111](#i4e6fbc9082d745e79a8cefaefd19597b_166) | | |]

| Item 12. | [added: | |] [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s9F21AB222700A0491AE5670F6CAF4ABA)] [added: Matters](#i4e6fbc9082d745e79a8cefaefd19597b_169)] | [removed: [99](#s9F21AB222700A0491AE5670F6CAF4ABA)] | [added: | [111](#i4e6fbc9082d745e79a8cefaefd19597b_169) | | |]

| Item 13. | [added: | |] [Certain Relationships and Related Transactions, and Director [removed: Independence](#sC032CA9392D2E10C2B2D670F6CDA75C5)] [added: Independence](#i4e6fbc9082d745e79a8cefaefd19597b_172)] | [removed: [99](#sC032CA9392D2E10C2B2D670F6CDA75C5)] | [added: | [111](#i4e6fbc9082d745e79a8cefaefd19597b_172) | | |]

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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| | | | [Exhibit Index](#i4e6fbc9082d745e79a8cefaefd19597b_190) | | | [113](#i4e6fbc9082d745e79a8cefaefd19597b_190) | | |

| | | | [Signatures](#i4e6fbc9082d745e79a8cefaefd19597b_193) | | | [115](#i4e6fbc9082d745e79a8cefaefd19597b_193) | | |

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| | [Exhibit Index](#s6BB7D1DC88CF3A319D13670F6DD41677) | [101](#s6BB7D1DC88CF3A319D13670F6DD41677) |

| | [Signatures](#sC2D54F8120F6C1370DE0670F6DF557FC) | [103](#sC2D54F8120F6C1370DE0670F6DF557FC) |

Along with our corporate headquarters, as of December 31, [removed: 2019,] [added: 2020,] we also own approximately 200,000 square feet in Union City, California used as a manufacturing assembly and operations center; approximately 375,000 square feet of office and building space in Burnaby and Ottawa, Canada used for operations, support and research and development work; and 40,000 square feet of office space in Valbonne, France predominantly used as a sales and support office.

For information regarding the geographical location of our property and equipment, see Note [removed: 15] [added: 17] to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

| | |

| --- | --- |

| ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |

Our common stock is traded on The Nasdaq Global Select Market under the symbol “FTNT.”

Holders of Record

As of February 21, 2020, there were 43 holders of record of our common stock.

A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions.

Dividends

We have never declared or paid cash dividends on our capital stock.

We do not anticipate paying any cash dividends in the foreseeable future.

Any future determination to declare cash dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

Stock Performance Graph

*This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934* (*the “Exchange Act”), or incorporated by reference into any filing of Fortinet under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.*

The following graph compares the cumulative five-year total return for our common stock, the Standard & Poor’s 500 Stock Index (the “S&P 500 Index”) and the NASDAQ Computer Index.

Such returns are based on historical results and are not intended to suggest future performance.

Data for the S&P 500 Index and the NASDAQ Computer Index assume reinvestment of dividends.

We have never declared or paid cash dividends on our capital stock, nor do we anticipate paying any such cash dividends in the foreseeable future.

COMPARISON OF CUMULATIVE TOTAL RETURN*

Among Fortinet, Inc., the S&P 500 Index and

the NASDAQ Computer Index


| | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | December 2014 * | | | | December 2015 | | | | December 2016 | | | | December 2017 | | | | December 2018 | | | | December 2019 | | |

| Fortinet, Inc. | | $ | 100 | | | $ | 102 | | | $ | 98 | | | $ | 142 | | | $ | 230 | | | $ | 348 | |

| S&P 500 Index | | $ | 100 | | | $ | 99 | | | $ | 109 | | | $ | 130 | | | $ | 122 | | | $ | 157 | |

| NASDAQ Computer | | $ | 100 | | | $ | 106 | | | $ | 119 | | | $ | 166 | | | $ | 159 | | | $ | 240 | |

* Assumes that $100 was invested on December 31, 2014 in stock or index, including reinvestment of dividends.

Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.

Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

*Share Repurchase Program*

In January 2016, our board of directors approved our Share Repurchase Program (the “Repurchase Program”).

In November 2019, our board of directors approved a $1.0 billion increase in the authorized stock repurchase under the Repurchase Program and extended the term of the Repurchase Program to February 28, 2021, bringing the aggregate amount authorized to be repurchased to $2.5 billion of our outstanding common stock through February 28, 2021.

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.

Since its inception, we have repurchased 20.8 million shares of our common stock under the Repurchase Program for an aggregate purchase price of $907.2 million.

The following table provides information with respect to the shares of common stock we repurchased during the three months ended December 31, 2019 (in millions, except per share amounts):

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Common Stock

Our common stock is traded on The Nasdaq Global Select Market under the symbol “FTNT.”

Holders of Record

As of February 12, 2021, there were 43 holders of record of our common stock.

A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions.

Dividends

We have never declared or paid cash dividends on our capital stock.

We do not anticipate paying any cash dividends in the foreseeable future.

Any future determination to declare cash dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission (the “SEC”) within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Stock Performance Graph

*This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934* (*the “Exchange Act”), or incorporated by reference into any filing of Fortinet under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.*

The following graph compares the cumulative five-year total return for our common stock, the Standard & Poor’s 500 Stock Index (the “S&P 500 Index”) and the NASDAQ Computer Index.

Such returns are based on historical results and are not intended to suggest future performance.

Data for the S&P 500 Index and the NASDAQ Computer Index assume reinvestment of dividends.

COMPARISON OF CUMULATIVE TOTAL RETURN*

Among Fortinet, Inc., the S&P 500 Index and

the NASDAQ Computer Index


| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | December 2015 * | | | | | | December 2016 | | | | | | December 2017 | | | | | | December 2018 | | | | | | December 2019 | | | | | | December 2020 | | |

| Fortinet, Inc. | | | | | | $ | 100 | | | | | $ | 97 | | | | | $ | 140 | | | | | $ | 226 | | | | | $ | 343 | | | | | $ | 477 | |

| S&P 500 Index | | | | | | $ | 100 | | | | | $ | 110 | | | | | $ | 131 | | | | | $ | 123 | | | | | $ | 158 | | | | | $ | 184 | |

| NASDAQ Computer | | | | | | $ | 100 | | | | | $ | 112 | | | | | $ | 156 | | | | | $ | 150 | | | | | $ | 226 | | | | | $ | 338 | |

| * Assumes that $100 was invested on December 31, 2015 in stock or index, including reinvestment of dividends. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

*Share Repurchase Program*

In January 2016, our board of directors approved our 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.

From 2016 through 2019, our board of directors approved increases to our Repurchase Program by various amounts, bringing the aggregated amount authorized to $2.5 billion.

In July 2020, our board of directors approved a $500.0 million increase and extended the term to February 28, 2022, bringing the aggregate amount authorized to be repurchased to $3.0 billion.

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.

Since its inception, we have repurchased 32.5 million shares of our common stock under the Repurchase Program for an aggregate purchase price of $2.0 billion.

The following table provides information with respect to the shares of common stock we repurchased during the three months ended December 31, 2020 (in millions, except per share amounts):

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The following [added: table presents our] selected consolidated financial data [removed: set forth below was derived from our historical audited consolidated financial statements] and should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements and Supplementary Data,” and other financial data included elsewhere in this Annual Report on Form 10-K.

| | [added: | |] Year Ended December 31, | | | | | | | | | | | | | | | | | | | [added: | | | | | | | |]

| | [added: | | 2020 | | | | | |] 2019 [added: (1)] | | | | [added: | |] 2018 [added: (1)] | | | | [removed: 2017] | | [added: 2017 (2)] | | [removed: 2016] | | | | [removed: 2015] [added: 2016 (2)] | | |

| | [added: | |] (in millions, except per share amounts) | | | | | | | | | | | | | | | | | | | [added: | | | | | | | |]

| Consolidated Statements of Income Data: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Total gross profit | [added: | |] $ | [removed: 1,650.3] [added: 1,109.6] | | | [added: | |] $ | [removed: 1,350.8] [added: 2.8] | | | [added: | |] $ | [removed: 1,109.6] [added: 1,112.4] | | | [added: | |] $ | 937.6 | | | [added: | |] $ | [removed: 722.5] [added: 3.1] | | [added: | | | $ | 940.7 | |]

| Net income per share: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Weighted-average shares outstanding: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Basic | [added: | | 164.2 | | | | | |] 171.0 | | | | [added: | |] 169.1 | | | | [removed: 174.3] | | [added: 174.3] | | [removed: 172.6] | | | | [removed: 170.4] [added: 172.6] | | |

| Diluted | [added: | | 167.7 | | | | | |] 175.0 | | | | [added: | |] 174.2 | | | | [removed: 178.1] | | [added: 178.1] | | [removed: 176.3] | | | | [removed: 176.1] [added: 176.3] | | |

| | [added: | |] As of December 31, | | | | | | | | | | | | | | | | | | | [added: | | | | | | | |]

| [added: 2020 | | | | | |] 2019 [added: (1)] | | | | [added: | |] 2018 [added: (1)] | | | | [added: | |] 2017 [added: (2)] | | | | [removed: 2016] | | [added: 2016 (2)] | | [removed: 2015] | | | |

| (in millions) | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Cash, cash equivalents and investments | [added: | |] $ | [removed: 2,209.9] [added: 1,955.6] | | | [added: | |] $ | [removed: 1,716.6] [added: 2,209.9] | | | [added: | |] $ | [removed: 1,349.3] [added: 1,716.6] | | | [added: | |] $ | [removed: 1,310.5] [added: 1,349.3] | | | [added: | |] $ | [removed: 1,164.3] [added: 1,310.5] | |

| Total stockholders’ equity | [added: | |] $ | [removed: 1,321.9] [added: 589.4] | | | [added: | |] $ | [removed: 1,010.2] [added: 12.6] | | | [added: | |] $ | [removed: 589.4] [added: 602.0] | | | [added: | |] $ | 837.7 | | | [added: | |] $ | [removed: 755.4] [added: 8.6] | | [added: | | | $ | 846.3 | |]

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Total revenue | | | $ | 2,594.4 | | | | | $ | 2,163.0 | | | | | $ | 1,804.6 | | | | | $ | 1,497.7 | | | | | $ | 1,278.5 | |

| Total gross profit | | | $ | 2,024.4 | | | | | $ | 1,657.1 | | | | | $ | 1,354.2 | | | | | $ | 1,112.4 | | | | | $ | 940.7 | |

| Operating income | | | $ | 531.8 | | | | | $ | 351.0 | | | | | $ | 234.4 | | | | | $ | 112.6 | | | | | $ | 46.0 | |

| Net income | | | $ | 488.5 | | | | | $ | 331.7 | | | | | $ | 334.9 | | | | | $ | 35.4 | | | | | $ | 34.1 | |

| Basic | | | $ | 2.98 | | | | | $ | 1.94 | | | | | $ | 1.98 | | | | | $ | 0.20 | | | | | $ | 0.20 | |

| Diluted | | | $ | 2.91 | | | | | $ | 1.90 | | | | | $ | 1.92 | | | | | $ | 0.20 | | | | | $ | 0.19 | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Total assets | | | $ | 4,044.5 | | | | | $ | 3,879.2 | | | | | $ | 3,073.3 | | | | | $ | 2,253.9 | | | | | $ | 2,134.7 | |

| Total stockholders’ equity | | | $ | 856.0 | | | | | $ | 1,342.4 | | | | | $ | 1,025.5 | | | | | $ | 602.0 | | | | | $ | 846.3 | |

(1) We identified an immaterial error related to the commencement of revenue recognition for certain FortiCare support service contracts, which resulted in an understatement of revenue during the year ended December 31, 2019 and 2018, respectively.

See Note 2 of our consolidated financial statements in Part II, Item 8 for further detail.

(2) We identified an immaterial error related to the commencement of revenue recognition for certain FortiCare support service contracts, which resulted in an understatement of revenue during the year ended December 31, 2017 and 2016, respectively.

The following tables show the affected line items within our consolidated financial statements:

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | Year Ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | 2017 | | | | | | | | | | | | | | | | | | 2016 | | | | | | | | | | | | | | |

| | | | As Previously Reported | | | | | | Corrections | | | | | | As Corrected | | | | | | As Previously Reported | | | | | | Corrections | | | | | | As Corrected | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | (in millions, except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Consolidated Statements of Income Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Total revenue | | | $ | 1,494.9 | | | | | $ | 2.8 | | | | | $ | 1,497.7 | | | | | $ | 1,275.4 | | | | | $ | 3.1 | | | | | $ | 1,278.5 | |

| Operating income | | | $ | 109.8 | | | | | $ | 2.8 | | | | | $ | 112.6 | | | | | $ | 42.9 | | | | | $ | 3.1 | | | | | $ | 46.0 | |

| Net income | | | $ | 31.4 | | | | | $ | 4.0 | | | | | $ | 35.4 | | | | | $ | 32.2 | | | | | $ | 1.9 | | | | | $ | 34.1 | |

| Net income per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Basic | | | $ | 0.18 | | | | | $ | 0.02 | | | | | $ | 0.20 | | | | | $ | 0.19 | | | | | $ | 0.01 | | | | | $ | 0.20 | |

| Diluted | | | $ | 0.18 | | | | | $ | 0.02 | | | | | $ | 0.20 | | | | | $ | 0.18 | | | | | $ | 0.01 | | | | | $ | 0.19 | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | As of December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | 2017 | | | | | | | | | | | | | | | | | | 2016 | | | | | | | | | | | | | | |

| | | | As Previously Reported | | | | | | Corrections | | | | | | As Corrected | | | | | | As Previously Reported | | | | | | Corrections | | | | | | As Corrected | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | (in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Total revenue | $ | 2,156.2 | | | $ | 1,801.2 | | | $ | 1,494.9 | | | $ | 1,275.4 | | | $ | 1,009.3 | |

| Operating income | $ | 344.2 | | | $ | 231.0 | | | $ | 109.8 | | | $ | 42.9 | | | $ | 14.9 | |

| Net income | $ | 326.5 | | | $ | 332.2 | | | $ | 31.4 | | | $ | 32.2 | | | $ | 8.0 | |

| Basic | $ | 1.91 | | | $ | 1.96 | | | $ | 0.18 | | | $ | 0.19 | | | $ | 0.05 | |

| Diluted | $ | 1.87 | | | $ | 1.91 | | | $ | 0.18 | | | $ | 0.18 | | | $ | 0.05 | |

| Total assets | $ | 3,885.5 | | | $ | 3,078.0 | | | $ | 2,257.9 | | | $ | 2,139.9 | | | $ | 1,790.5 | |

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| | | | Page | | |

| | | | | | |

| [Report of Independent Registered Public Accounting Firm](#i4e6fbc9082d745e79a8cefaefd19597b_55) | | | [71](#i4e6fbc9082d745e79a8cefaefd19597b_55) | | |

| [Consolidated Balance Sheets](#i4e6fbc9082d745e79a8cefaefd19597b_58) [as of December 31, 2020 and 2019](#i4e6fbc9082d745e79a8cefaefd19597b_58) | | | [73](#i4e6fbc9082d745e79a8cefaefd19597b_58) | | |

| [Consolidated Statements of Income for the year ended December 31, 2020, 2019 and 2018](#i4e6fbc9082d745e79a8cefaefd19597b_64) | | | [74](#i4e6fbc9082d745e79a8cefaefd19597b_64) | | |

| [Consolidated Statements of Comprehensive Income for the year ended December 31, 2020, 2019 and 2018](#i4e6fbc9082d745e79a8cefaefd19597b_67) | | | [75](#i4e6fbc9082d745e79a8cefaefd19597b_67) | | |

| [Consolidated Statements of Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2020, 2019 and 2018](#i4e6fbc9082d745e79a8cefaefd19597b_70) | | | [76](#i4e6fbc9082d745e79a8cefaefd19597b_70) | | |

| [Consolidated Statements of Cash Flows for the year ended December 31, 2020, 2019 and 2018](#i4e6fbc9082d745e79a8cefaefd19597b_73) | | | [77](#i4e6fbc9082d745e79a8cefaefd19597b_73) | | |

| [Notes to Consolidated Financial Statements](#i4e6fbc9082d745e79a8cefaefd19597b_76) | | | [78](#i4e6fbc9082d745e79a8cefaefd19597b_76) | | |

The supplementary financial information required by this Item 8 is included in Part II, Item 7 of this Annual Report on Form 10-K under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Unaudited Quarterly Results of Operations.”

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Fortinet, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Fortinet, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in *Internal Control–Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Litigation Contingencies–Refer to Note 13 to the financial statements

*Critical Audit Matter Description*

The Company is involved in disputes, litigation and other legal actions in the normal course of business.

Claims from third parties may result in a requirement to pay substantial damages and could prevent the Company from selling certain of their products.

An estimated loss from a loss contingency is accrued by a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Where a range of loss can be reasonably estimated with no best estimate in the range, management records the minimum estimated liability.

The determination of litigation contingency accruals is subject to significant management judgement in assessing the likelihood of a loss being incurred and when determining whether a reasonable estimate of the loss or range of loss can be made.

Given the inherent uncertainty of the outcome of identified current matters, auditing the valuation assertion of litigation contingencies required a high degree of auditor judgment and an increased extent of effort when performing audit procedures.

Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, [removed: 2019] [added: 2020] to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, [removed: 2019.][added: 2020.]

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2019] [added: 2020] has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report, which appears in this Item under the heading “Report of Independent Registered Public Accounting Firm.”

There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during [removed: 2019] [added: 2020] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have audited the internal control over financial reporting of Fortinet, Inc. and subsidiaries (the “Company”) as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in *Internal Control–Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in *Internal Control–Integrated Framework (2013)* issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, [removed: 2019,] [added: 2020,] of the Company and our report dated February [removed: 25, 2020,] [added: 19, 2021,] expressed an unqualified opinion on those [added: consolidated] financial [removed: statements and included an explanatory paragraph related to the Company’s change in its method of accounting for revenue due to adoption of the new revenue standard in 2018.][added: statements.]

February 19, 2021

February 25, 2020

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our [removed: 2020] [added: 2021] Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our [removed: 2020] [added: 2021] Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our [removed: 2020] [added: 2021] Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our [removed: 2020] [added: 2021] Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our [removed: 2020] [added: 2021] Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

[removed: | 1. | *Financial] [added: 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.” [removed: |]

[removed: | *2.* | *Financial] [added: Financial] Statement Schedule:* The following financial statement schedule of Fortinet, Inc., for the fiscal years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017,] [added: 2018,] is filed as part of this Annual Report on Form 10-K and should be read in conjunction with our consolidated financial statements. [removed: |]

| | [added: | |] Year Ended December 31, | | | | | | | | | | | [added: | | | |]

| | [removed: 2019] [added: | | 2020] (1) | | | | [removed: 2018] [added: | | 2019] (1) | | | | [removed: 2017] | | [added: 2018 (1)] | [added: | |]

| | [added: | |] (in millions) | | | | | | | | | | | [added: | | | |]

| Sales Returns Reserve and Allowance for [removed: Doubtful Accounts:] [added: Credit Losses/Doubtful Accounts] | | | | | | | | | | | | [added: | | | | | |]

| Beginning balance | [added: | |] $ | [removed: 0.9] [added: 1.2] | | | [added: | |] $ | [removed: 14.5] [added: 0.9] | | | [added: | |] $ | [removed: 11.2] [added: 14.5] | |

| Charged to [removed: costs and] expenses, net of deductions | [removed: 0.3] | | [added: 1.3] | | [removed: —] | | | | [removed: 3.3] [added: 0.3] | | | [added: | | | — | | |]

| Reclassification due to adoption of Topic 606 (1) | [removed: —] | | [added: —] | | [removed: (13.6] | | [removed: )] | | — | | | [added: | | | (13.6) | | |]

| Ending balance | [added: | |] $ | [removed: 1.2] [added: 2.5] | | | [added: | |] $ | [removed: 0.9] [added: 1.2] | | | [added: | |] $ | [removed: 14.5] [added: 0.9] | |

| (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 balances for the years ended December 31, [removed: 2019] [added: 2020] and [removed: 2018] [added: 2019] consist only of the allowance for [added: credit losses or] doubtful accounts. | | | | | | | | | | | | [added: | | | | | |]

[removed: | 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. [removed: |]

The [removed: exhibit list in] [added: exhibits listed on] 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).

| [removed: Exhibit Number] [added: Exhibit Number] | | [added: | | | |] Description | | [removed: Incorporated] [added: | | | | Form Incorporated] by reference herein | | | | | [added: | Date Filed | | | | | | Exhibit Number | | |]

| [3.1](http://www.sec.gov/Archives/edgar/data/1262039/000126203918000023/exhibit31-amendedandrestat.htm) | | [added: | | | |] Amended and Restated Certificate of Incorporation | | [added: | | | |] Current Report on Form 8-K (File No. 001-34511) | | [added: | | | |] June 28, 2018 | | [added: | | | |] 3.1 | [added: | |]

| [removed: [3.2](http://www.sec.gov/Archives/edgar/data/1262039/000126203918000023/exhibit32-amendedandrestat.htm)] [added: [3.2](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000044/amendedandrestatedbyla.htm)] | | [added: | | | |] Amended and Restated Bylaws | | [added: | | | |] Current Report on Form 8-K (File No. 001-34511) | | [removed: June 28, 2018] | | [removed: 3.2] | [added: | July 21, 2020 | | | | | | 3.1 | | |]

| [4.1](http://www.sec.gov/Archives/edgar/data/1262039/000119312509220527/dex41.htm) | | [added: | | | |] Specimen common stock certificate of the Company | | [added: | | | |] Registration Statement on Form S-l, as amended (File No. 333-161190) | | [added: | | | |] November 2, 2009 | | [added: | | | |] 4.1 | [added: | |]

| [removed: [4.2](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000011/ftnt-ex4220191231xk.htm)*] [added: [4.2](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex42_20201231xk.htm)*] | | [added: | | | |] Description of Securities Registered Pursuant to Section 12 of the Exchange Act | | | | | | | [added: | | | | | | | | | | | | | |]

| [10.1](http://www.sec.gov/Archives/edgar/data/1262039/000119312509169817/dex101.htm)† | | [added: | | | |] Forms of Indemnification Agreement between the Company and its directors and officers | | [added: | | | |] Registration Statement on Form S-l (File No. 333-161190) | | [added: | | | |] August 10, 2009 | | [added: | | | |] 10.1 | [added: | |]

| [10.2](http://www.sec.gov/Archives/edgar/data/1262039/000126203919000023/ftnt-ex101amendedandre.htm)† | | [added: | | | |] Amended and Restated 2009 Equity Incentive Plan | | [added: | | | |] Quarterly Report on Form 10-Q (File No. 001-34511) | | [added: | | | |] August 1, 2019 | | [added: | | | |] 10.1 | [added: | |]

| [10.3](http://www.sec.gov/Archives/edgar/data/1262039/000126203912000013/ftnt-ex105_20111231xk.htm)† | | [added: | | | |] Forms of stock option agreement under Amended and Restated 2009 Equity Incentive Plan | | [added: | | | |] Annual Report on Form 10-K (File No. 001-34511) | | [added: | | | |] February 28, 2012 | | [added: | | | |] 10.5 | [added: | |]

| [10.4](http://www.sec.gov/Archives/edgar/data/1262039/000126203913000044/fortinet_20130630x10-qex991.htm)† | | [added: | | | |] Form of performance stock unit award agreement under Amended and Restated 2009 Equity Incentive Plan | | [added: | | | |] Quarterly Report on Form 10-Q (File No. 001-34511) | | [added: | | | |] August 6, 2013 | | [added: | | | |] 99.1 | [added: | |]

| [10.5](http://www.sec.gov/Archives/edgar/data/1262039/000126203915000009/ftnt-ex107_20141231xk.htm)† | | [added: | | | |] Forms of restricted stock unit award and performance stock unit award agreement under Amended and Restated 2009 Equity Incentive Plan (Additional Forms) | | [added: | | | |] Annual Report on Form 10-K (File No. 001-34511) | | [added: | | | |] March 2, 2015 | | [added: | | | |] 10.7 | [added: | |]

| [removed: [10.6](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000011/ftnt-ex10620191231xk.htm)†*] [added: [10.6](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000011/ftnt-ex10620191231xk.htm)†] | | [added: | | | |] Form of restricted stock unit award agreement under Amended and Restated 2009 Equity Incentive Plan (Additional Form) | | | | | | [added: Annual Report on Form 10-K (File No. 001-34511)] | [added: | | | | | February 26, 2020 | | | | | | 10.6 | | |]

| [removed: [10.7](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000011/ftnt-ex10720191231xk.htm)†*] [added: [10.7](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000011/ftnt-ex10720191231xk.htm)†] | | [added: | | | |] Form of stock option award agreement under Amended and Restated 2009 Equity Incentive Plan (Additional Form) | | | | | | [added: Annual Report on Form 10-K (File No. 001-34511)] | [added: | | | | | February 26, 2020 | | | | | | 10.7 | | |]

| [removed: [10.8](http://www.sec.gov/Archives/edgar/data/1262039/000119312510013031/dex101.htm)†] [added: [10.9](http://www.sec.gov/Archives/edgar/data/1262039/000126203913000055/fortinet_20130930x10-qex101.htm)†] | | [added: | | | |] Fortinet, Inc. [removed: Bonus] [added: Cash and Equity Incentive] Plan | | [removed: Current] [added: | | | | Quarterly] Report on Form [removed: 8-K] [added: 10-Q] (File No. 001-34511) | | [removed: January 26, 2010] | | [added: | | November 5, 2013 | | | | | |] 10.1 | [added: | |]

| [10.10](http://www.sec.gov/Archives/edgar/data/1262039/000126203915000024/ftnt-ex101_20150630xqxcoca.htm)† | | [added: | | | |] Form of Change of Control Agreement between the Company and its directors | | [added: | | | |] Quarterly Report on Form 10-Q (File No. 001-34511) | | [added: | | | |] August 4, 2015 | | [added: | | | |] 10.1 | [added: | |]

| [10.11](http://www.sec.gov/Archives/edgar/data/1262039/000126203919000023/ftnt-ex102changeofctrl.htm)† | | [added: | | | |] Amended and Restated Change of Control Severance Agreement, effective as of August 7, 2019, between the Company and Ken Xie | | [added: | | | |] Quarterly Report on Form 10-Q (File No. 001-34511) | | [added: | | | |] August 1, 2019 | | [added: | | | |] 10.2 | [added: | |]

| [10.12](http://www.sec.gov/Archives/edgar/data/1262039/000126203919000023/ftnt-ex103changeofctrl.htm)† | | [added: | | | |] Amended and Restated Change of Control Severance Agreement, effective as of August 7, 2019, between the Company and Michael Xie | | [added: | | | |] Quarterly Report on Form 10-Q (File No. 001-34511) | | [added: | | | |] August 1, 2019 | | [added: | | | |] 10.3 | [added: | |]

| [10.13](http://www.sec.gov/Archives/edgar/data/1262039/000126203919000023/ftnt-ex104changeofctrl.htm)† | | [added: | | | |] Amended and Restated Change of Control Severance Agreement, effective as of August 7, 2019, between the Company and John Whittle | | [added: | | | |] Quarterly Report on Form 10-Q (File No. 001-34511) | | [added: | | | |] August 1, 2019 | | [added: | | | |] 10.4 | [added: | |]

| [10.14](http://www.sec.gov/Archives/edgar/data/1262039/000119312509169817/dex1010.htm)† | | [added: | | | |] Offer Letter, dated as of October 23, 2006, by and between the Company and John Whittle | | [added: | | | |] Registration Statement on Form S-l, as amended (File No. 333-161190) | | [added: | | | |] August 10, 2009 | | [added: | | | |] 10.10 | [added: | |]

| [10.15](http://www.sec.gov/Archives/edgar/data/1262039/000126203918000009/ftnt-ex1022_20171231xk.htm)† | | [added: | | | |] Offer Letter, dated as of April 3, 2014, by and between the Company and Keith Jensen | | [added: | | | |] Annual Report on Form 10-K (File No. 001-34511) | | [added: | | | |] February 26, 2018 | | [added: | | | |] 10.22 | [added: | |]

| [10.16](http://www.sec.gov/Archives/edgar/data/1262039/000126203919000023/ftnt-ex105changeofctrl.htm)† | | [added: | | | |] Amended and Restated Change of Control Severance Agreement, effective as of August 7, 2019, between the Company and Keith Jensen | | [added: | | | |] Quarterly Report on Form 10-Q (File No. 001-34511) | | [added: | | | |] August 1, 2019 | | [added: | | | |] 10.5 | [added: | |]

| [removed: [21.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000011/ftnt-ex21120191231xk.htm)*] [added: [21.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex211_20201231xk.htm)*] | | [added: | | | |] List of subsidiaries | | | | | | | [added: | | | | | | | | | | | | | |]

| [removed: [23.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000011/ftnt-ex23120191231xk.htm)*] [added: [23.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex231_20201231xk.htm)*] | | [added: | | | |] Consent of Independent Registered Public Accounting Firm | | | | | | | [added: | | | | | | | | | | | | | |]

| [removed: [24.1](#sC2D54F8120F6C1370DE0670F6DF557FC)*] [added: [24.1](#i4e6fbc9082d745e79a8cefaefd19597b_193)*] | | [added: | | | |] Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K) | | | | | | | [added: | | | | | | | | | | | | | |]

| [removed: [31.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000011/ftnt-ex31120191231xk.htm)*] [added: [31.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex311_20201231xk.htm)*] | | [added: | | | |] 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 | [added: | |]

| [removed: [31.2](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000011/ftnt-ex31220191231xk.htm)*] [added: [31.2](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex312_20201231xk.htm)*] | | [added: | | | |] 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 | [added: | |]

| [removed: [32.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000011/ftnt-ex32120191231xk.htm)] [added: [32.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex321_20201231xk.htm)] | | [added: | | | |] 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 | [added: | |]

| 101.INS* | | [added: | | | |] Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | [added: | |]

*2.

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3.

*Exhibits*: See Item 15(b) below.

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| [10.8](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex108_20201231xk.htm)†* | | | | | | Fortinet, Inc. Amended Bonus Plan | | | | | | | | | | | | | | | | | | | | |

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| FORTINET, INC. | | | | | | | | |

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| | | | | Form | | Date | | Exhibit Number |

| [10.9](http://www.sec.gov/Archives/edgar/data/1262039/000126203913000055/fortinet_20130930x10-qex101.htm)† | | Fortinet, Inc. Cash and Equity Incentive Plan | | Quarterly Report on Form 10-Q (File No. 001-34511) | | November 5, 2013 | | 10.1 |

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| /s/ Gary Locke | | Director | | February 25, 2020 |

| Gary Locke | | | | |