Fortinet (FTNT) 10-K risk factor changes: FY2021 vs FY2020

[removed: - Our] [added: Our] billings, revenue, [removed: operating margin] and free cash flow growth may slow or may not [removed: continue.][added: continue, and our operating margins may decline.]

[removed: - We rely on third-party channel partners for substantially all of our revenue and] [added: Additionally,] a small number of distributors represents a large percentage of our revenue and gross accounts [removed: receivable.][added: receivable, and one distributor accounted for 33% of our total net accounts receivable as of December 31, 2021.]

[removed: - Our] [added: Our] proprietary rights may be difficult to enforce and we may be subject to claims by others that we infringe their [removed: proprietary technology.][added: propriety technology.]

[removed: - Global] [added: Global] economic uncertainty and weakening product demand caused by political instability, changes in trade agreements and [removed: other] [added: conflicts, such as the] conflict [added: between Russia and Ukraine,] could adversely affect our business and financial [removed: performance.][added: performance.]

[removed: - Our] [added: Our] inability to successfully acquire and integrate other businesses, products or [removed: technologies] [added: technologies, or to successfully invest in and form successful strategic alliances with other businesses,] could seriously harm our competitive [removed: position.][added: position.]

[removed: - The] [added: The] trading price of our common stock may be volatile, which [removed: volatility] may be exacerbated by share repurchases under our [added: Share] Repurchase [removed: Program.][added: Program.]

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

- the timing of channel partner and end-customer orders, [added: market acceptance of our price increases,] and our reliance on a concentration of shipments at the end of each quarter;

- the timing of shipments, which may depend on factors such as inventory levels, logistics, manufacturing or shipping delays, our ability to ship [removed: new] products on schedule and our ability to accurately forecast inventory [removed: requirements;][added: requirements and our suppliers ability to deliver components and finished goods;]

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

- the mix of products [removed: sold] [added: sold, such as the mix between FortiGate] and [added: non-FortiGate solutions, and] the mix of revenue between products and services, as well as the degree to which products and services are bundled and sold together for a package price;

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

[removed: - any decreases in demand by channel partners or end-customers, including any such decreases caused] [added: Lead times for components may be adversely impacted] by factors outside of our control such as [added: global chip shortages,] natural disasters and health [removed: emergencies, including] [added: emergencies such as] earthquakes, fires, power outages, typhoons, floods, [added: health] pandemics [removed: or] [added: and] epidemics such as the COVID-19 [removed: pandemic] [added: pandemic,] and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, [removed: wars and] [added: wars,] critical infrastructure [removed: attacks;][added: attacks and other factors.]

- sales execution risk related to effectively selling to all segments of the market, including enterprise and small- and medium-sized [removed: businesses] [added: businesses, government organizations] 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 [removed: sales deals with] [added: larger enterprise and] large [removed: enterprises;][added: organization deals;]

- 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 [removed: network security] [added: the convergence of networking] and [added: security, vendor consolidation of various cyber security solutions,] SD-WAN, infrastructure security, cloud security and endpoint protection, [added: and] IoT and OT security opportunities;

- 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 [removed: productivity] [added: productivity, capacity, tenure] and effectiveness of execution of our sales and marketing teams;

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

- changes in the growth rates of the network security market in particular and other security and networking markets, such as SD-WAN, [added: OT, switches, access points and cloud solutions] for which we [added: and our competitors] sell products and services;

- the deferral of orders from distributors, resellers or end-customers in anticipation of new products or product enhancements announced by us or our competitors; [added: or the acceleration of orders in response to our announced or expected price list increases;]

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

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

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

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

- increased expenses, unforeseen liabilities or write-downs and any [added: negative] impact on results of operations from any acquisition [removed: consummated;][added: or equity investment consummated, as well as accounting risks, integration risks related to product plans and products and risks of negative impact by such acquisitions and equity investments on our financial results;]

In addition, a significant percentage of our operating expenses are [removed: fixed in nature over the near term.]

[removed: We may experience slowing growth, or a decrease,] in [removed: billings, revenue, operating margin and free cash flow for a number of reasons, including as a result of the COVID-19 pandemic, a slowdown in] demand [removed: for our products or services, a shift in demand] from products to services, increased competition, a decrease in the growth of our overall market or softness in demand in certain geographies or industry verticals, such as the service provider industry, changes in our strategic opportunities, execution risks and our failure for any reason to continue to capitalize on sales and growth opportunities due to other risks identified in the risk factors described in this periodic report.

The COVID-19 [removed: pandemic] [added: pandemic, including its ongoing variants,] has negatively impacted the global economy, disrupted global supply chains and demand for certain solutions and created significant volatility in, and disruption of, global [removed: 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 [removed: components,] [added: 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.

If the [removed: spread of the] COVID-19 pandemic [removed: limits] [added: continues to limit] the availability of our products, either by limiting components available, [removed: by limiting] the actual manufacture and assembly or by limiting or restricting shipping of components and products, this [removed: likely would] [added: could continue to] result in increased product backlog, [added: and result in] lower billings, lower revenue and decreased [removed: profitability] [added: profitability,] and would negatively impact, and may materially negatively impact, our operating results and business.

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; [removed: 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 [removed: distributor customers,][added: distributors, which may decrease the likelihood that we will be able to collect from these customers.]

In addition, the COVID-19 pandemic has caused an increase in certain of our expenses, including increased shipping costs, increased cancellation charges and reduced attendance fees due to the cancellation of several of our [removed: 2020] [added: 2021] Accelerate sales conferences, and [removed: it may result] [added: has resulted] in increased component and product manufacturing costs.

Exclusive [removed: Networks Group (“Exclusive”)] accounted for [removed: 34%] [added: 33%,] and [removed: 36%] [added: 34%] of our total net accounts receivable as of December 31, [removed: 2020] [added: 2021] and [removed: December 31, 2019,] [added: 2020,] respectively, and six [removed: distributor customers] [added: distributors] accounted for [removed: 70%] [added: 68%] and [removed: 69%] [added: 70%] of our total net accounts receivable in the [removed: aggregate,] [added: aggregate as of December 31, 2021 and 2020,] respectively.

During [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018,] [added: 2019,] Exclusive accounted for [removed: 30%, 31% and] [added: 31%,] 30% [added: and 31%] of our total revenue, respectively.

Additionally, Exclusive may face liquidity [removed: risk,] [added: risk or other financial challenges,] which may harm our ability to collect on our accounts receivable.

[added: They may also have] incentives to promote our competitors’ products to the detriment of our own, or they may cease selling our products altogether.

Our channel partner sales structure could subject us to lawsuits, potential liability and reputational harm if, for example, any of our channel partners misrepresent the functionality of our products or services to [removed: end-customers] [added: end-customers, our service provider customers suffer a cyber event impacting end users,] or our channel partners violate laws or our corporate policies.

- disruption in manufacturing or shipping based on power outages, system failures, labor [removed: disputes,] [added: disputes or constraints, excessive demand,] natural disasters or widespread public health problems including pandemics and epidemics such as the COVID-19 pandemic;

Revenue from the sale of new, or from the renewal of existing, FortiGuard and other security subscription and FortiCare technical support service contracts may decline and fluctuate as a result of a number of factors, including fluctuations in purchases of FortiGate appliances or our Fortinet Security Fabric [added: cybersecurity mesh] platform products, changes in the sales mix between products and services, end-customers’ level of satisfaction with our products and services, the prices of our products and services, the prices of products and services offered by our competitors, reductions in our customers’ spending levels and the timing of revenue recognition with respect to these arrangements.

Competition for highly skilled personnel is frequently intense, especially for qualified sales, support and engineering employees in network security and especially in the locations where we have a substantial presence and need for highly skilled personnel, such as the San Francisco Bay Area and [added: the] Vancouver, [removed: Canada.][added: Canada area.]

- supplier cost increases and any lack of market acceptance of our price increases designed to help offset any supplier cost increases;

- 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,

- political, economic and social instability, including geo-political instability and uncertainty, such as that caused by the conflict in Ukraine and any disruption and negative impact on our ability to sell to, ship product to, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions;

fixed in nature over the near term.

The COVID-19 pandemic, including its ongoing variants, could adversely affect our business in a material way, based on, for example, component shortages or negative impact on demand.

There is a worldwide shortage of various components, impacting many industries, caused in-part by the COVID-19 pandemic.

We are experiencing ongoing component shortages, which have resulted in extended lead times of certain products and significant disruption to our production schedule.

We also have experienced and expect to continue to experience increased component costs, which may have a negative impact on our gross margins.

In addition, we may also face personnel-related risks as restrictions related to the COVID-19 pandemic begin to ease and we transition back to an in-person working model, including that our “return to office” plan may be viewed negatively by employees and lead to attrition or to difficulty in hiring.

We may experience slowing growth, or a decrease, in billings, revenue, operating margin and free cash flow for a number of reasons, including as a result of the COVID-19 pandemic, a slowdown in demand for our products or services, a shift

We have incurred indebtedness and may incur other debt in the future, which may adversely affect our financial condition and future financial results.

As of December 31, 2021, we had an aggregate of $988.4 million of indebtedness outstanding under our senior notes.

Under the agreements governing our indebtedness, we are permitted to incur additional debt.

This debt, and any debt that we may incur in the future, may adversely affect our financial condition and future financial results by, among other things:

- increasing our vulnerability to downturns in our business, to competitive pressures and to adverse economic and industry conditions;

- requiring the dedication of a portion of our expected cash from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures, share repurchases and acquisitions; and

- limiting our flexibility in planning for, or reacting to, changes in our businesses and our industries;

If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required, among other things, to seek additional financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selected assets or reduce or delay planned capital, operating or investment expenditures.

Such measures may not be sufficient to enable us to service our debt.

Additionally, the agreements governing our indebtedness impose restrictions on us and require us to comply with certain covenants.

If we breach any of these covenants and do not obtain a waiver from the noteholders, then, subject to applicable cure periods, any or all of our outstanding indebtedness may be declared immediately due and payable.

There can be no assurance that any refinancing or additional financing would be available on terms that are favorable or acceptable to us, if at all.

Under the terms of our outstanding senior notes, we may be required to repurchase the notes for cash prior to their maturity in connection with the occurrence of certain changes of control that are accompanied by certain downgrades in the credit ratings of the notes.

The repayment obligations under the notes may have the effect of discouraging, delaying or preventing a takeover of our company.

If we were required to pay the notes prior to their scheduled maturity, it could have a negative impact on our cash position and liquidity and impair our ability to invest financial resources in other strategic initiatives.

In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of both our debt and equity securities.

If our credit ratings are downgraded or other negative action is taken, the interest rate payable by us under our unsecured revolving credit facility may increase.

In addition, any downgrades in our credit ratings may affect our ability to obtain additional financing in the future and may negatively impact the terms of any such financing.

- increased requirements from these customers that we have certain third-party security or other certifications, which we may not have, the lack of which may adversely affect our ability to successfully sell to such customers;

recognition and expect greater payment flexibility from vendors.

- the government has and in the future may require them to make operational changes in order to obtain the necessary approvals to sell into the government;

- rules and regulations applicable to certain government sales, including U.S. General Service Administration regulations and certain third-party security certifications, and changes to such rules and regulations that may require us to make operational changes in order to obtain the necessary approvals to sell to government agencies.

Managing our inventory is complex, especially given current supply chain disruption.

The global chip shortage caused by the COVID-19 pandemic and other factors affecting manufacturing capacity is having, and we expect to continue to have, an adverse impact on our ability to manage our inventory and to meet product demand in a timely fashion.

We expect this shortage will persist for an indefinite period of time.

Mismanagement of our inventory, whether due to imprecise forecasting, employee errors

COVID-19 pandemic impacts on global supply chains are impacting our ability to procure parts required for our hardware appliances.

Extended lead times have been introduced in delivering products for customer orders in a timely fashion.

The COVID-19 pandemic has continued to impact global supply chains for many organizations, including us, resulting in shortages of and delays in both raw materials and electronic components such as computer chips.

Events in upstream supplies and component shortages are negatively impacting our ability to plan and deliver upon orders received in a timely fashion, and supply chain disruption, component shortages and shipping challenges are increasing our costs.

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.

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

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

- We rely significantly on revenue from FortiGuard security subscription and FortiCare technical support services, and revenue from these services may decline or fluctuate.

- 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.

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

- political, economic and social instability, including geo-political instability and uncertainty;

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

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

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

Additionally, a small number of distributors represents a large percentage of our revenue and gross accounts receivable, and one distributor accounted for 34% of our total net accounts receivable as of December 31, 2020.

They may also have

- rules and regulations applicable to certain government sales, including GSA regulations.

If the foregoing concerns and perceptions

Managing our inventory is complex.

In order to mitigate supply chain risk from COVID-19, we have increased our on-hand stock of certain products.

If we are unable to sell these products, we would be required to write-off excess inventory, which would have an adverse impact on our results of operations.

If we are not able to

penetration with large businesses, service providers and government organizations.

We have started construction on a second building adjacent to our headquarters as we expand our campus in Sunnyvale, California.

Our proprietary rights may be difficult to enforce, which could enable others to copy or use aspects of our products without compensating us.

As two examples of the ongoing patent lawsuits against us, one such patent lawsuit by British Telecommunications plc was filed in federal court in Delaware in July 2018, and a second such lawsuit by Finjan, Inc. was filed in federal court in California in October 2018, and additional patent lawsuits have been filed against us since.

Given this and the proliferation of lawsuits in our

Our inability to successfully acquire and integrate other businesses, products or technologies could seriously harm our competitive position.

For example, we acquired OPAQ in July 2020 and Panopta in December 2020.

The trading price of our common stock may be volatile.

Global economic uncertainty and weakening product demand caused by political instability and conflict could adversely affect our business and financial performance.

possibly in a material way, and could result in delays and reductions in billings and revenues, also possibly in a material way.

*•the duration and impact of the COVID-19 [removed: pandemic;*][added: pandemic, including various COVID-19 variants, and the implementation of “return to office” plans;*]

- *the proportion of our revenue that consists of [removed: our] product and service revenue, and the mix of billings between products and services, and the duration of service contracts;*

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

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

- *growing our sales to businesses, service providers and government organizations, our ability to execute these sales and [removed: 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 [removed: internal] sales organization;*

[removed: - *risks] [added: *•risks] and expectations related to [removed: acquisitions,] [added: acquisitions and equity interests in private and public companies,] including integration issues related to product plans and [removed: products, including] the acquired [removed: technology;*][added: technology, and risks of negative impact by such acquisitions and equity investments on our financial results;*]

*•expectations that our operating expense will increase in absolute dollars during [removed: 2021;*][added: 2022;*]

- *expectations regarding uncertain tax benefits and our effective domestic and global tax rates, and the impact of the Tax Cuts and Jobs [removed: Act (the “2017 Tax Act*”)] [added: Act*] *and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”);*

*•expectations regarding spending related to real estate [added: acquisitions] and [added: development, data center investments, as well as] other capital expenditures and to the impact on free cash [removed: flows;*][added: flow;*]

- *our intentions regarding share repurchases and the sufficiency of our existing cash, cash equivalents and investments to meet our cash [removed: needs] [added: needs, including our debt servicing requirements,] for at least the next 12 months;*

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

Our cybersecurity solutions are designed to provide broad visibility and segmentation of the digital attack surface through our integrated Fortinet Security Fabric [added: cybersecurity mesh] platform, which features automated protection, detection and [removed: response.][added: response along with consolidated visibility across both Fortinet developed solutions and a broad ecosystem of third-party solutions and technologies.]

[removed: - Security-Driven Networking—We] [added: We] derive a majority of product sales from our FortiGate network security appliances.

[removed: 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 wide area network (“SD-WAN”), Intrusion Prevention [removed: system(“IPS”),] [added: system (“IPS”),] sandboxing, data leak prevention, virtual private network (“VPN”), switch and wireless controller and wide area network (“WAN”) edge.

- [removed: Infrastructure Security—The] [added: Zero Trust Access—The] Fortinet Security Fabric [added: cybersecurity mesh] platform extends beyond the network to cover other attack vectors.

- [removed: Dynamic] [added: Adaptive] Cloud Security—We help customers connect securely to and across their individual, hybrid [added: cloud, multi-cloud,] and [removed: multi-cloud] [added: virtualized data center] 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 [added: cybersecurity mesh] platform in and across cloud environments, delivering security that follows their applications and data.

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

Additionally, the proliferation of [removed: IoT] [added: internet of things (“IoT”)] and [removed: OT] [added: operational technology (“OT”)] devices has generated new opportunities for us to grow our business.

[removed: We offer] [added: Our] network access control solutions [removed: that] provide visibility, control and automated event responses in order to secure IoT [added: and OT] devices.

- Total revenue was [removed: $2.59] [added: $3.34] billion in [removed: 2020,] [added: 2021,] an increase of [removed: 20%] [added: 29%] compared to [removed: $2.16] [added: $2.59] billion in [removed: 2019.][added: 2020.]

Product revenue was [removed: $916.4 million] [added: $1.26 billion] in [removed: 2020,] [added: 2021,] an increase of [removed: 16%] [added: 37%] compared to [removed: $788.5] [added: $916.4] million in [removed: 2019.][added: 2020.]

Service revenue was [removed: $1.68] [added: $2.09] billion in [removed: 2020,] [added: 2021,] an increase of [removed: 22%] [added: 24%] compared to [removed: $1.37] [added: $1.68] billion in [removed: 2019.][added: 2020.]

- Total gross profit was [removed: $2.02] [added: $2.56] billion in [removed: 2020,] [added: 2021,] an increase of [removed: 22%] [added: 26%] compared to [removed: $1.66] [added: $2.02] billion in [removed: 2019.][added: 2020.]

- We generated operating income of [removed: $531.8] [added: $650.4] million in [removed: 2020,] [added: 2021,] an increase of [removed: 52%] [added: 22%] compared to [removed: $351.0] [added: $531.8] million in [removed: 2019.][added: 2020.]

Operating income for [removed: 2020] [added: 2021] included gains on an IP matter of [removed: $40.2] [added: $4.6] million.

[removed: -] In 2020, we repurchased 11.7 million shares of common stock [removed: under the Repurchase Program] for [removed: an aggregate] [added: a total] purchase price of $1.08 billion.

[added: -] In [removed: 2019,] [added: 2021,] we repurchased [removed: 1.9] [added: 2.6] million shares of common stock [added: under the Repurchase Program] for [removed: a total] [added: an aggregate] purchase price of [removed: $140.9] [added: $741.8] million.

- Deferred revenue was [removed: $2.61] [added: $3.45] billion as of December 31, [removed: 2020,] [added: 2021,] an increase of [removed: $496.2] [added: $847.6] million, or [removed: 24%,] [added: 33%,] from December 31, [removed: 2019.][added: 2020.]

Short-term deferred revenue was [removed: $1.39] [added: $1.78] billion as of December 31, [removed: 2020,] [added: 2021,] an increase of [removed: $237.0] [added: $384.6] million, or [removed: 21%,] [added: 28%,] from December 31, [removed: 2019.][added: 2020.]

- We generated cash flows from operating activities of [removed: $1.08] [added: $1.50] billion in [removed: 2020,] [added: 2021,] an increase of [removed: $275.7] [added: $416.0] million, or [removed: 34%,] [added: 38%,] compared to [removed: 2019.][added: 2020.]

In [removed: 2020,] [added: 2021,] the Americas region, the Europe, Middle East and Africa (“EMEA”) region and the Asia Pacific (“APAC”) region contributed [removed: 42%,] [added: 41%,] 38% and [removed: 20%] [added: 21%] of our total revenue, respectively, and increased by [removed: 17%, 21%] [added: 26%, 29%] and [removed: 23%] [added: 35%] compared to [removed: 2019,] [added: 2020,] respectively.

Product revenue grew [removed: 16%] [added: 37%] in [removed: 2020.][added: 2021.]

We experienced revenue growth across [removed: several] [added: many] of our [removed: hardware] [added: products due to an increase in product revenue from our FortiGate products] and [removed: software] [added: security fabric platform] products, including [added: our] SD-WAN [removed: and teleworker] [added: solutions,] and [removed: remote security solutions.][added: software licenses.]

[removed: Service revenue growth] of [removed: 22% in 2020 was driven by the strength of] our FortiGuard and other security subscription revenue and FortiGate technical support and other service revenue, which [removed: both] grew 22% [added: and 27%, respectively,] in [removed: 2020.][added: 2021.]

In [removed: 2020,] [added: 2021, six countries represented] approximately 50% of our billings [added: and the remaining 50%] in the aggregate were from over [removed: 80] [added: 100] countries that individually contributed less than 3% of our billings.

In [added: 2021 and] 2020, we recognized gains of [removed: $40.2] [added: $4.6] million [added: and $40.2 million, respectively,] on an IP matter in connection with a mutual covenant-no-to-sue and release agreement with a competitor in the network security industry.

Excluding the gains on the IP matter, operating expenses as a percentage of revenue decreased by [removed: 1.3] [added: approximately 1.9] percentage points compared to [removed: 2019.][added: 2020.]

Headcount increased by [removed: 16%] [added: 24%] to [removed: 8,238] [added: 10,195] employees and contractors as of December 31, [removed: 2020,] [added: 2021,] up from [removed: 7,082] [added: 8,238] as of December 31, [removed: 2019.][added: 2020.]

COVID-19 [added: Pandemic] Update

*•the effects of supply chain constraints and the global chip and component shortages and other factors affecting our manufacturing capacity, delivery, cost and inventory management;*

- *estimates of a range of 2022 spending on capital expenditures;*

The Fortinet Security Fabric cybersecurity mesh platform leverages a common operating system or integration to this operating system across our product offerings and helps organizations better secure their environments and reduce their security and network complexities.

The Fortinet Security Fabric has an open architecture designed to connect Fortinet solutions and third-party solutions in a single ecosystem, enabling holistic detection and coordinated response across the attack cycle and surface through integration and automation.

Our product offerings consist of our FortiGate network security physical and virtual products and our non-FortiGate physical and virtual, software, and cloud-hosted products.

In addition to high performing security and networking features, we offer a rich set of cloud-delivered security services that can be added to different products across the Fortinet Security Fabric and customized to the organization’s use cases.

Our cloud- and hosted- products and services include sandboxing, endpoint detection and response (“EDR”), email security, web application and API security and cloud networking security as well as Fortinet Security Fabric management and analytics.

Our FortiGuard security services are enabled by FortiGuard Labs, which provides threat research and artificial intelligence capabilities from a cloud network to deliver coordinated protection for the ever-expanding attack surface through FortiGate appliance and virtual machine as well as all Fortinet Security Fabric products that are registered by the end-customer.

Our proprietary Security Processing Units (“SPUs”) are Application-Specific Integrated Circuits that are implemented in our physical FortiGate appliances and are designed to enhance the security processing capabilities implemented in software by accelerating computationally intensive tasks such as firewall policy enforcement, software-defined wide-area network (“SD-WAN”), network address translation, Intrusion Prevention Systems (“IPS”), threat detection and encryption.

We also provide virtualized Security Processing Units (“vSPUs”) across our FortiGate virtual appliances to deliver similar accelerated capabilities when run in virtualized environments.

Our FortiOS operating system provides the foundation for the operation of all FortiGate network security appliances, whether physical, virtual, private- or public-cloud based.

FortiOS directs the operations of processors and SPUs and provides system management functions.

We make regular updates to FortiOS available through our FortiCare support services.

FortiOS, its associated security and networking functions and products that run or are integrated with FortiOS are combined to form the Fortinet Security Fabric cybersecurity mesh platform.

This approach to security ties discrete security solutions together into an integrated whole that provides centralized management and visibility, automation and intelligence sharing to simplify network and security operations and rapid response to threats.

- Security-Driven Networking—Our Security-Driven Networking solutions enables the convergence of networking and security across all edges to provide next-generation firewall (“NGFW”), software-defined wide area network (“SD-WAN”), LAN Edge (Wi-Fi and switch) and secure access service edge (“SASE”).

Along with our secure Wi-fi access points and switches, Fortinet helps organizations secure their networks across campuses, branches, and work-from-home deployments.

Our Zero Trust Access solutions enable customers to know and control who and what is on their network, in addition to providing security for work from anywhere (“WFA”).

Zero Trust Access solutions include FortiNAC, FortiAuthenticator, FortiClient and FortiToken.

- AI-Driven Security Operations—We develop and provide a range of products and services that enable the security operations center (“SOC”) teams to identify, investigate and remediate potential incidents in which cybercriminals bypass prevention-oriented controls.

Given the breadth of the attack surface to monitor, as well as the volume and sophistication of cyber threats, artificial intelligence (“AI”) is a key part of these offerings, which include: FortiGuard and other security subscription services, modern endpoint security with EDR, a range of breach-protection technologies plus our security information and event management (“SIEM”) and security orchestration, automation and response (“SOAR”), all of which can be applied across the entire Fortinet Security Fabric cybersecurity mesh platform.

These solutions automatically deliver security intelligence and insights that enable organizations to protect against and respond to threats faster through integration with Fortinet and third-party controls.

- Security as a Service—Our customers purchase our natively integrated FortiGuard security subscription services as an add-on to products and solutions across the Fortinet Security Fabric with the goal of receiving real-time threat intelligence and protection updates.

The rich set of FortiGuard services is built from the ground up to provide comprehensive protection for users and applications, including market leading offerings for IPS, Web, video and DNS filtering, AV and cloud sandbox as well as IoT and OT Security.

The FortiGuard security services are provided from our FortiGuard Labs and cloud-delivered to provide real-time unified protection across network endpoint and cloud.

FortiCare technical support services and the support of technical account managers, resident engineers and professional service consultants for implementations or training services.

- Support and Professional Services – Fortinet offers technical support, FortiOS updates and extended product warranty through our FortiCare support services.

In addition to our technical support services, we offer a range of advanced services, including premium support, professional services and expedited warranty replacement.

Our professional service offerings include resident engineers and professional service consultants for implementations or trainings.

- Cash, cash equivalents, investments and marketable equity securities were $2.99 billion as of December 31, 2021, an increase of $1.04 billion, or 53%, from December 31, 2020.

- In March 2021, we issued $1.0 billion of Senior Notes.

Long-term debt, net of unamortized discount and debt issuance costs, was $988.4 million as of December 31, 2021.

There was no such debt outstanding at December 31, 2020.

We received $50.0 million of proceeds from an IP matter in the first quarter of 2020.

- Total bookings were $4.33 billion for 2021, an increase of 40.2% compared to $3.09 billion in 2020.

We define bookings as the total value of all orders received during the fiscal period.

- Backlog was $161.9 million as of December 31, 2021, an increase of $149.7 million compared to $12.2 million as of December 31, 2020.

Backlog represents orders received but not fulfilled and excludes backlog related to Alaxala Networks Corporation's (“Alaxala”) products and services of $26.0 million.

- On August 31, 2021, we closed an acquisition of 75% of the equity interests in Alaxala, a privately-held network hardware equipment company in Japan, to help broaden our offering of secure switches integrated with FortiGate Firewalls and Security Fabric functionality, and, over time, to innovate and rebrand certain of Alaxala’s switches to offer a broader suite of secure switches globally.

From September 1, 2021 to December 31, 2021, Alaxala’s revenue was $44.4 million, or 1.3% of total revenue during the year ended December 31, 2021.

*•estimates of a range of 2021 spending on our headquarters expansion project and of the anticipated completion timeline for the project;*

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).

- Endpoint Protection, Internet of Things (“IoT”) and Operational Technology (“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.

- AI-Driven Security Operations—We develop and provide Artificial Intelligence (“AI”) driven security operations solutions, including FortiGuard and other security 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.

These solutions deliver intelligence and insights.

In addition to our security solutions, our customers may purchase FortiGuard and other security subscription services to receive threat intelligence updates and protection updates delivered by FortiGuard Labs, FortiCare technical support services and the support of TAMs, REs and professional service consultants for implementations or training services.

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.

- Cash, cash equivalents and investments were $1.96 billion as of December 31, 2020, a decrease of $254.3 million, or 12%, from December 31, 2019.

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.

The impact of these acquisitions were not material to our consolidated financial statements.

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.

We are also providing free online information technology security training for the public, aimed at helping high school and college students and professionals augment their security skill sets to open career opportunities and to help narrow the security skills gap.

As of December 31, 2020, there have been over 800,000 registrations for our free online trainings since we launched the program.

We will continue to provide free online trainings in 2021.

As a result, expenses related to travel and marketing events decreased significantly.

To the extent that it becomes safe for our employees to travel and for us to hold or attend marketing events, these expenses may increase in the future, although we cannot predict if or when such expenses will increase or return to pre-pandemic levels.

- After performing additional credit review of our existing customers, including obtained credit reports and reviewing their latest available statements of financial position, we increased the allowance of credit losses for certain accounts receivable.

The allowance for credit losses was $2.5 million as of December 31, 2020.

Provisions, write-offs and recoveries were not material during the year ended December 31, 2020.

- We have offered payment terms in excess of our contractual agreements to certain distributor customers, which has resulted in an increase to the average collection period of our trade receivables.

As of December 31, 2020, 97% of our outstanding trade accounts receivable was due to be collected during the first quarter of 2021.

- The countries and geographic regions in which we experienced the fastest billings growth in the fourth quarter of 2020, as compared to the fourth quarter of 2019, were countries and geographic regions in which the COVID-19 pandemic is generally considered to have had a comparatively shorter or less severe impact on the local population and economy during the quarter.

- We have noted that, for some of our customers, sales cycles appear to have lengthened, though it is unclear whether this trend will persist.

- Our average service contract duration increased by approximately two months in the fourth quarter of 2020 as compared to the fourth quarter of 2019.

- The yield on investment-grade debt has decreased, and while the risk of credit losses on our investments and cash equivalents has not changed significantly, as the debt securities in our portfolio have matured, they have been replaced by securities with lower effective interest rates.

This has contributed to a decrease in our interest income during the year ended December 31, 2020, compared to the same periods last year.

Through the filing of this Annual Report on Form 10-K, there have been no material changes to the trends described above.

As a result, the effects of the pandemic may not be fully reflected in our results of operations until future periods.

| Add: Deferred revenue adjustment due to adoption of Topic 606 | | | — | | | | | | — | | | | | | 4.1 | | |

Cost of service revenue is primarily comprised of salaries, benefits and bonuses, as well as stock-based compensation.

*Valuation of Inventory*

Inventory is recorded at the lower of cost or net realizable value.

[removed: Interest] [added: Investment and Interest] Rate Fluctuation Risk

To minimize this risk, we maintain our portfolio of cash, cash [removed: equivalents and] [added: equivalents,] investments [added: and marketable equity securities] in a variety of securities, including [added: commercial paper,] corporate debt securities, [added: U.S. government and agency securities,] certificates of deposit and term deposits, [removed: commercial paper,] money [removed: market funds, and U.S. government and agency securities.]

A 10% decrease in interest rates in [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018] [added: 2019] would have resulted in an insignificant decrease in our interest income in each of these periods.

We recognized an expense of [removed: $5.5] [added: $8.2] million in [removed: 2020] [added: 2021] due to foreign currency transaction losses.

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: $5.9] [added: $8.3] million change in the value of our foreign currency cash balances as of December 31, [removed: 2020.][added: 2021.]

We are exposed to interest rate risks related to our investment portfolio and outstanding debt.

market funds, municipal bonds and marketable equity securities.

On March 5, 2021, we issued $1.0 billion aggregate principal amount of senior notes, consisting of $500.0 million aggregate principal amount of 1.0% notes due March 15, 2026 and $500.0 million aggregate principal amount of 2.2% notes due March 15, 2031.

We carry the senior notes at face value less unamortized discount on our consolidated balance sheets.

As the senior notes bear interest at a fixed rate, we have no financial statement risk associated with changes in interest rates.

Refer to Note 11.

Debt in Part II, Item 8 of this Annual Report on Form 10-K.

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

[removed: - Security-Driven Networking—We] [added: We] derive a majority of product sales from our FortiGate network security appliances.

[removed: 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 wide area network (“SD-WAN”), intrusion prevention system (“IPS”), sandboxing, data leak prevention, virtual private network (“VPN”), switch and wireless controller and wide area network (“WAN”) edge.

- [removed: Dynamic] [added: Adaptive] Cloud Security—We help customers connect securely to and across their individual, hybrid [removed: and] [added: cloud,] multi-cloud [added: and virtualized data center] 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 [added: cybersecurity mesh] platform in and across cloud environments, delivering security that follows their applications and data.

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

[removed: We offer] [added: Our] network access control solutions [removed: that] provide visibility, control and automated event responses in order to secure [removed: IoT] [added: internet of things (“IoT”) and operational technology (“OT”)] devices.

During our year ended December 31, [removed: 2020,] [added: 2021,] we generated total revenue of [removed: $2.59] [added: $3.34] billion and net income of [removed: $488.5] [added: $606.8] 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: 2020] [added: 2021] and [removed: 2019] [added: 2020] and our consolidated statements of income, comprehensive income, [removed: stockholders’] equity, and cash flows for each of the three years ended December 31, [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018.][added: 2019.]

[removed: Technology] [added: Consolidation of Technology] and Architecture

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

Our [added: core] product offerings consist of our FortiGate [removed: network security] [added: firewall] product family and our non-FortiGate [removed: products.][added: products which may be purchased to integrate and expand security architectures.]

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

Our [added: FortiGuard] security services are enabled by FortiGuard Labs, which provides threat research and artificial intelligence capabilities from a cloud network to deliver protection [removed: services to each] [added: through] FortiGate appliance and virtual machine [added: as well as Fortinet Security Fabric products] that [removed: is] [added: are] registered by the end-customer.

All these are combined to form the Fortinet Security Fabric [added: cybersecurity mesh] platform, which is an approach to security that [removed: ties] [added: consolidates] discrete security solutions together into an integrated [removed: whole.][added: offering.]

Our SPUs are [added: embedded in our physical FortiGate appliances and are] designed to enhance the security processing capabilities [removed: implemented in software] [added: of our operating system] by accelerating computationally intensive tasks such as firewall policy enforcement, SD-WAN, network address translation, IPS, threat detection and [removed: encryption.][added: encryption while also converging security capabilities with networking functionality.]

The use of SPUs allows our appliances to [removed: deliver] [added: consolidate] security functionality [added: and converge security] with [added: a] minimal impact to network throughput performance, which we believe delivers a lower total cost of ownership (“TCO”) to our customers.

As the security needs [added: and technologies] of our end-customers increase, we believe [removed: that] our [removed: TCO and our SPUs will] [added: TCO-driven SPU approach] give our products a competitive advantage against other architectural approaches.

Our proprietary FortiOS operating system provides the foundation for the operation of [removed: all] FortiGate network security appliances, whether physical, virtual, private- or public-cloud based.

We make regular [added: enhancements and other] updates to FortiOS available through our FortiCare support services.

The [added: convergence of] security and networking capabilities [removed: of] [added: provided by] the Fortinet Security Fabric [added: cybersecurity mesh] platform are [added: powered and] controlled through FortiOS.

Additional features include virtual domain capabilities, which can provide support for multiple customers on a single device or FortiOS [removed: instance.][added: instance in support of service provider and managed security service provider (“MSSP”) deployments.]

These security services are enabled by FortiGuard Labs, which provides [removed: extensive] threat research and artificial intelligence capabilities from a global cloud network to deliver protection [removed: services to each FortiGate appliance that is registered by the end-customer.][added: services.]

Our non-FortiGate products [removed: span the full range of our customers’ core security needs and] include the Fortinet Security Fabric [added: cybersecurity mesh] platform, email security, cloud security, endpoint protection and other products.

FortiGate [removed: offers] [added: converges] a broad set of security and networking functions, including firewall, intrusion prevention, anti-malware, VPN, application control, web filtering, anti-spam and WAN acceleration.

FortiGate platforms can be centrally managed through both embedded web-based and command line interfaces, as well as through FortiManager, which provides a central management architecture for FortiGate appliances and the Fortinet Security Fabric [added: cybersecurity mesh] platform.

[removed: Typically, all] [added: Most] FortiGate hardware appliances include [added: one of] our SPUs to accelerate content and network security features implemented within FortiOS.

The FortiGate-1000 through -7000 series models deliver high performance and scalable network security functionality for perimeter, data center and [added: hyper scale data centers, and] core deployment in large enterprises.

*Fortinet Security Fabric [added: Cybersecurity Mesh] Platform and Non-FortiGate Products*

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

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

[removed: - FortiSwitch—Our] [added: *•*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.

[removed: - FortiAP—Our] [added: *•*FortiAP—Our] FortiAP product family provides secure wireless networking solutions.

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

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

[removed: - FortiToken—Our] [added: *•*FortiToken—Our] FortiToken allows organizations to implement two-factor authentication to better safeguard systems, assets and data.

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

[removed: Additionally, it protects systems and] [added: FortiEDR/XDR] supports broad OS coverage workstations, servers, and virtual machines, including legacy operating and embedded systems.

[removed: All of the] [added: 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 only and FortiGate-VM and FortiEDR/XDR which are available as virtual solutions only.

Our FortiGuard security subscription services are designed to [removed: quickly] deliver [removed: new] threat detection and prevention capabilities to end-customers worldwide as [removed: new] threats evolve.

- Convergence / Security-Driven Networking—Our Security-Driven Networking solutions enable the convergence of networking and security across all edges to provide next-generation firewall (“NGFW”), software-defined wide area network (“SD-WAN”), LAN Edge (Wi-Fi and switch) and secure access service edge (“SASE”).

Traditional networking lacks awareness of content, applications, users, devices, location and more.

A security-driven networking approach converges networking and security into a single, accelerated solution.

A specially designed operating system and security processors work in concert to greatly improve network performance and security posture while decreasing footprint and power consumption.

Along with our secure Wi-Fi access points and switches, Fortinet helps organizations secure their networks across campuses, branches and work from anywhere (“WFA”) deployments.

- Zero Trust Access—Our Zero Trust Access solutions enable customers to know and control who and what is on their network, in addition to providing security for WFA.

Zero Trust Access solutions include FortiNAC, FortiAuthenticator, FortiClient/EDR and FortiToken.

- AI-Driven Security Operations—We develop and provide a range of products and services that enable the security operations center (“SOC”) teams to identify, investigate and remediate potential incidents in which cybercriminals bypass prevention-oriented controls.

Given the breadth of the attack surface to monitor, as well as the volume and sophistication of cyber threats, artificial intelligence (“AI”) is a key part of these offerings, which include: FortiGuard and other security subscription services, endpoint security with endpoint detection and response (“EDR”), a range of breach-protection technologies plus our security information and event management (“SIEM”) and security orchestration, automation and response (“SOAR”), all of which can be applied across the Fortinet Security Fabric cybersecurity mesh platform.

These solutions automatically deliver security intelligence and insights that help organizations to protect against and respond to threats through integration with Fortinet and third-party solutions.

- Security as a Service—Our customers purchase our FortiGuard security subscription services as an add-on to products and solutions across the Fortinet Security Fabric to receive threat intelligence and protection updates.

FortiGuard services are designed to provide protection for users and applications, including offerings for IPS, web, video and domain name system (“DNS”) filtering, audio/visual (“AV”) and cloud sandbox along with IoT and OT Security.

The

FortiGuard security services are provided from our FortiGuard Labs and cloud-delivered to provide real-time unified protection across network endpoint and cloud.

- Support and Professional Services—Fortinet offers technical support, FortiOS updates, and extended product warranty through our FortiCare support services.

Our professional service offerings include resident engineers and professional service consultants for implementations or trainings.

Cybersecurity has traditionally been deployed one solution at a time and not designed to work well with other deployed solutions while also increasing management complexity.

A Fortinet Security Fabric cybersecurity mesh platform approach consolidates point products into a platform, allowing for much tighter integration, increased automation and a more rapid, coordinated, and effective response to threats across the network.

Our product offerings consist of our FortiGate network security products and our non-FortiGate products, which are offered in a broad range of form factors spanning physical appliances, virtual appliances, software and cloud-hosted services.

This enables Fortinet to protect customers across all edges and deployment scenarios including users, devices, networks, cloud, and virtual data center.

Our cloud- and hosted- products and services include sandboxing, endpoint detection and response (“EDR”), email security, web application and API security, and cloud networking security as well as Fortinet Security Fabric management and analytics.

Additionally, we offer cloud-delivered and hosted-security services.

This integrated approach to security extends across both Fortinet developed solutions and a broad ecosystem of technology partner solutions and technologies.

We also provide virtualized security processing units (“vSPUs”) across our FortiGate virtual appliances.

FortiOS, its associated security and networking functions and products that run or are integrated with FortiOS are combined to form the Fortinet Security Fabric cybersecurity mesh platform.

This approach to security ties discrete security solutions together into an integrated offering.

FortiOS also provides capabilities for the logging of traffic for forensic analysis purposes.

In addition to networking security features, all FortiGate models and form factors also deliver secure SD-WAN capabilities.

Fortinet also offers FortiGate Rugged models for OT applications where ruggedized appliances are needed.

email security.

In the third quarter of 2021, we closed an acquisition of 75% of equity interests in Alaxala Networks Corporation (“Alaxala”), a privately held network hardware equipment company in Japan, to help address the increasing need for secure switches integrated with FortiGate firewalls and Security Fabric functionality, and, over time, to innovate and rebrand certain of Alaxala’s switches to offer a broader suite of secure switches globally.

In the first quarter of 2021, we acquired ShieldX Networks Inc. (“ShieldX”), a provider of a security platform focusing on protecting multi-cloud data centers from the risk of lateral movement that can lead to attacks such as ransomware, data loss and service disruption.

In addition to our technical support services, we offer a range of advanced services, including premium support, professional services and expedited warranty replacement.

- Enterprise Protection—Our Enterprise Protection bundle includes the Unified Threat Protection services noted above, as well as industrial control systems, security rating, along with enhanced FortiCare support services.

- Small Medium Business – Our Small Medium Business bundle includes the Unified Threat Protection services noted above, as well as FortiGate Cloud which provides cloud-based management, reporting, and analytics for FortiGates along with enhanced FortiCare support services.

Fortinet also offers remote, cloud-based IR and monitoring services to help customers identify, remediate and understand compromises.

This service leverages our FortiEDR capabilities either as part of a premium FortiEDR subscription for continuous monitoring or alternatively, can be deployed to help deliver IR services on a per incident basis.

Since 2020, Fortinet also offers a number of free online training courses to help address prevalent industry-wide cybersecurity skills gaps and shortages.

At times, we also sell directly to large service providers and major systems integrators who may sell to our end-customers or use our products and services to provide hosted solutions to other enterprises.

proprietary information.

Our cybersecurity solutions are designed to provide broad visibility and segmentation of the digital attack surface through our integrated Fortinet Security Fabric platform, which features automated protection, detection and response.

- Infrastructure Security—The Fortinet Security Fabric platform extends beyond the network to cover other attack vectors.

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).

- Endpoint Protection, Internet of Things (“IoT”) and Operational Technology (“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.

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

- AI-Driven Security Operations—We develop and provide Artificial Intelligence (“AI”) driven security operations solutions, including FortiGuard and other security 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.

These solutions deliver intelligence and insights.

In addition to our security solutions, our customers may purchase FortiGuard and other security subscription services to receive threat intelligence updates and protection updates delivered by FortiGuard Labs, FortiCare technical support services and the support of Technical Account Managers, Resident Engineers and professional service consultants for implementations or training services.

The Fortinet Security Fabric platform helps organizations secure their environments and reduce their security and network complexities.

Each successive generation of SPU adds network speed and the capacity to perform security functions.

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.

The core kernel functions to the security processing feature sets work together to provide a highly integrated solution.

Key high-level functions and capabilities of FortiOS include:

- enablement for the Fortinet Security Fabric platform architecture;

- optionality to configure FortiGate appliances into different security environments, such as our Internal Network Firewall, Next-Generation Firewall and Data Center Firewall;

- configuration of the physical aspects of the appliance, such as ports, onboard Wi-Fi and switching;

- extension of the Fortinet Security Fabric platform through direct management of FortiSwitch and FortiAP devices;

- network functions such as routing and deployment modes (network routing, transparent, sniffer, etc.);

- the ability to deploy and orchestrate SD-WAN instances;

- implementation of security updates from our FortiGuard distribution network, delivering FortiGuard security subscription services and intelligence, such as IPS, antivirus and application control;

- native integrations with major cloud provider platforms; and

- real-time reporting and logging.

FortiOS also provides capabilities for the logging of traffic for forensic analysis purposes, which are particularly important for regulatory compliance initiatives such as payment card industry data security standards.

These features enable administrators to set the appropriate configurations and policies that meet their infrastructure needs.

Our core product offerings consist of our FortiGate product family and our non-FortiGate products, all of which may be purchased to complement commercial and enterprise deployments.

Our FortiGate hardware and software licenses are sold with a set of broad security services.

By combining multiple network security functions in our purpose-built security platform, FortiGate appliances provide broad, high-quality protection capabilities and deployment flexibility while reducing the operational burden and costs associated with managing multiple point products.

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.

In the fourth quarter of 2020, we acquired Panopta Holdings LLC (“Panopta”), a privately held SaaS company providing a platform for monitoring the health and performance of network and information technology (“IT”) infrastructure.

We expect that the integration of Panopta technology into our Fortinet Fabric Security platform through FortiMonitor will provide comprehensive network and security operations management solution for enterprises or service providers.

In the third quarter of 2020, we acquired OPAQ Networks, Inc. (“OPAQ”), a privately held Secure Access Service Edge (“SASE”) cloud provider, to further enhance the Fortinet Security Fabric platform by helping advance our development of zero-trust network access SASE cloud solutions.

- 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.

- 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.

At times, we also sell directly to end-customers.

responsibility initiatives.

In December 2021, we entered into an agreement that provided for settlement and dismissal of an existing patent infringement lawsuit and a mutual covenant-not-to-sue for a defined duration of time.

Please refer to Note 13.

Commitments and Contingencies in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

For the year ended December 31, [removed: 2020][added: 2021]

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

The aggregate market value of voting stock held by non-affiliates of the registrant, as of June 30, [removed: 2020,] [added: 2021,] the last business day of the registrant’s most recently completed second quarter, was [removed: $14,216,424,929] [added: $25,503,578,291] (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: 12, 2021,] [added: 18, 2022,] there were [removed: 163,190,919] [added: 160,815,446] shares of the registrant’s common stock outstanding.

Portions of the registrant’s definitive Proxy Statement relating to its [removed: 2021] [added: 2022] Annual Meeting of Stockholders (“Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

For the Year Ended December 31, [removed: 2020][added: 2021]

| Item 1. | | | [removed: [Business](#i4e6fbc9082d745e79a8cefaefd19597b_13)] [added: [Business](#iebf4bf97a0d04753801601bc721cb1d4_13)] | | | [removed: [1](#i4e6fbc9082d745e79a8cefaefd19597b_13)] [added: [3](#iebf4bf97a0d04753801601bc721cb1d4_13)] | | |

| Item 1A. | | | [Risk [removed: Factors](#i4e6fbc9082d745e79a8cefaefd19597b_16)] [added: Factors](#iebf4bf97a0d04753801601bc721cb1d4_16)] | | | [removed: [10](#i4e6fbc9082d745e79a8cefaefd19597b_16)] [added: [13](#iebf4bf97a0d04753801601bc721cb1d4_16)] | | |

| Item 1B. | | | [Unresolved Staff [removed: Comments](#i4e6fbc9082d745e79a8cefaefd19597b_19)] [added: Comments](#iebf4bf97a0d04753801601bc721cb1d4_19)] | | | [removed: [43](#i4e6fbc9082d745e79a8cefaefd19597b_19)] [added: [45](#iebf4bf97a0d04753801601bc721cb1d4_19)] | | |

| Item 2. | | | [removed: [Properties](#i4e6fbc9082d745e79a8cefaefd19597b_22)] [added: [Properties](#iebf4bf97a0d04753801601bc721cb1d4_22)] | | | [removed: [43](#i4e6fbc9082d745e79a8cefaefd19597b_22)] [added: [45](#iebf4bf97a0d04753801601bc721cb1d4_22)] | | |

| Item 3. | | | [Legal [removed: Proceedings](#i4e6fbc9082d745e79a8cefaefd19597b_25)] [added: Proceedings](#iebf4bf97a0d04753801601bc721cb1d4_25)] | | | [removed: [43](#i4e6fbc9082d745e79a8cefaefd19597b_25)] [added: [46](#iebf4bf97a0d04753801601bc721cb1d4_25)] | | |

| Item 4. | | | [Mine Safety [removed: Disclosures](#i4e6fbc9082d745e79a8cefaefd19597b_28)] [added: Disclosures](#iebf4bf97a0d04753801601bc721cb1d4_28)] | | | [removed: [44](#i4e6fbc9082d745e79a8cefaefd19597b_28)] [added: [46](#iebf4bf97a0d04753801601bc721cb1d4_28)] | | |

| Item 5. | | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#i4e6fbc9082d745e79a8cefaefd19597b_34)] [added: Securities](#iebf4bf97a0d04753801601bc721cb1d4_34)] | | | [removed: [45](#i4e6fbc9082d745e79a8cefaefd19597b_34)] [added: [46](#iebf4bf97a0d04753801601bc721cb1d4_34)] | | |

| Item 7. | | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i4e6fbc9082d745e79a8cefaefd19597b_40)] [added: Operations](#iebf4bf97a0d04753801601bc721cb1d4_40)] | | | [removed: [49](#i4e6fbc9082d745e79a8cefaefd19597b_40)] [added: [49](#iebf4bf97a0d04753801601bc721cb1d4_40)] | | |

| Item 7A. | | | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#i4e6fbc9082d745e79a8cefaefd19597b_49)] [added: Risk](#iebf4bf97a0d04753801601bc721cb1d4_52)] | | | [removed: [68](#i4e6fbc9082d745e79a8cefaefd19597b_49)] [added: [66](#iebf4bf97a0d04753801601bc721cb1d4_52)] | | |

| Item 8. | | | [Financial Statements and Supplementary [removed: Data](#i4e6fbc9082d745e79a8cefaefd19597b_52)] [added: Data](#iebf4bf97a0d04753801601bc721cb1d4_55)] | | | [removed: [70](#i4e6fbc9082d745e79a8cefaefd19597b_52)] [added: [68](#iebf4bf97a0d04753801601bc721cb1d4_55)] | | |

| Item 9. | | | [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#i4e6fbc9082d745e79a8cefaefd19597b_151)] [added: Disclosure](#iebf4bf97a0d04753801601bc721cb1d4_142)] | | | [removed: [108](#i4e6fbc9082d745e79a8cefaefd19597b_151)] [added: [106](#iebf4bf97a0d04753801601bc721cb1d4_142)] | | |

| Item 9A. | | | [Controls and [removed: Procedures](#i4e6fbc9082d745e79a8cefaefd19597b_154)] [added: Procedures](#iebf4bf97a0d04753801601bc721cb1d4_145)] | | | [removed: [108](#i4e6fbc9082d745e79a8cefaefd19597b_154)] [added: [106](#iebf4bf97a0d04753801601bc721cb1d4_145)] | | |

| Item 9B. | | | [Other [removed: Information](#i4e6fbc9082d745e79a8cefaefd19597b_157)] [added: Information](#iebf4bf97a0d04753801601bc721cb1d4_148)] | | | [removed: [110](#i4e6fbc9082d745e79a8cefaefd19597b_157)] [added: [108](#iebf4bf97a0d04753801601bc721cb1d4_148)] | | |

| Item 10. | | | [Directors, Executive Officers and Corporate [removed: Governance](#i4e6fbc9082d745e79a8cefaefd19597b_163)] [added: Governance](#iebf4bf97a0d04753801601bc721cb1d4_157)] | | | [removed: [111](#i4e6fbc9082d745e79a8cefaefd19597b_163)] [added: [108](#iebf4bf97a0d04753801601bc721cb1d4_157)] | | |

| Item 11. | | | [Executive [removed: Compensation](#i4e6fbc9082d745e79a8cefaefd19597b_166)] [added: Compensation](#iebf4bf97a0d04753801601bc721cb1d4_160)] | | | [removed: [111](#i4e6fbc9082d745e79a8cefaefd19597b_166)] [added: [108](#iebf4bf97a0d04753801601bc721cb1d4_160)] | | |

| Item 12. | | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#i4e6fbc9082d745e79a8cefaefd19597b_169)] [added: Matters](#iebf4bf97a0d04753801601bc721cb1d4_163)] | | | [removed: [111](#i4e6fbc9082d745e79a8cefaefd19597b_169)] [added: [108](#iebf4bf97a0d04753801601bc721cb1d4_163)] | | |

| Item 13. | | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#i4e6fbc9082d745e79a8cefaefd19597b_172)] [added: Independence](#iebf4bf97a0d04753801601bc721cb1d4_166)] | | | [removed: [111](#i4e6fbc9082d745e79a8cefaefd19597b_172)] [added: [108](#iebf4bf97a0d04753801601bc721cb1d4_166)] | | |

| Item 14. | | | [Principal Accounting Fees and [removed: Services](#i4e6fbc9082d745e79a8cefaefd19597b_175)] [added: Services](#iebf4bf97a0d04753801601bc721cb1d4_169)] | | | [removed: [111](#i4e6fbc9082d745e79a8cefaefd19597b_175)] [added: [108](#iebf4bf97a0d04753801601bc721cb1d4_169)] | | |

| Item 15. | | | [removed: [Exhibits, Financial] [added: [Exhibits](#iebf4bf97a0d04753801601bc721cb1d4_175) [and](#iebf4bf97a0d04753801601bc721cb1d4_175) [Financial] Statement [removed: Schedules](#i4e6fbc9082d745e79a8cefaefd19597b_181)] [added: Schedules](#iebf4bf97a0d04753801601bc721cb1d4_175)] | | | [removed: [112](#i4e6fbc9082d745e79a8cefaefd19597b_181)] [added: [109](#iebf4bf97a0d04753801601bc721cb1d4_175)] | | |

| | | | [Risk Factor Summary](#iebf4bf97a0d04753801601bc721cb1d4_1581) | | | [1](#iebf4bf97a0d04753801601bc721cb1d4_1581) | | |

| Item 6. | | | [\[](#iebf4bf97a0d04753801601bc721cb1d4_37)[R](#iebf4bf97a0d04753801601bc721cb1d4_37)[eserved](#iebf4bf97a0d04753801601bc721cb1d4_37)[\]](#iebf4bf97a0d04753801601bc721cb1d4_37) | | | [48](#iebf4bf97a0d04753801601bc721cb1d4_37) | | |

| Item 9C. | | | [Disclosure Regarding Foreign Jurisdictions that Prevents Inspections](#iebf4bf97a0d04753801601bc721cb1d4_1593) | | | [108](#iebf4bf97a0d04753801601bc721cb1d4_1593) | | |

| | | | | | | | | |

| | | | [Exhibit Index](#iebf4bf97a0d04753801601bc721cb1d4_184) | | | [110](#iebf4bf97a0d04753801601bc721cb1d4_184) | | |

| Item 16. | | | [Form 10-K Summary](#iebf4bf97a0d04753801601bc721cb1d4_1621) | | | [112](#iebf4bf97a0d04753801601bc721cb1d4_1621) | | |

| | | | [Signatures](#iebf4bf97a0d04753801601bc721cb1d4_187) | | | [113](#iebf4bf97a0d04753801601bc721cb1d4_187) | | |

Summary of Risk Factors

Our business is subject to numerous risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.

You should carefully consider these risks and uncertainties when investing in our common stock.

Some of the principle risks and uncertainties include the following:

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

- The COVID-19 pandemic, including its ongoing variants, could adversely affect our business in a material way, based on, for example, component shortages or negative impact on demand.

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

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

- 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 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 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 rely significantly on revenue from FortiGuard security subscription and FortiCare technical support services, and revenue from these services may decline or fluctuate.

- We have incurred indebtedness and may incur other debt in the future, which may adversely affect our financial condition and future financial results.

- We generate a majority of revenue and cash flow 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.

- We face intense competition in our market and we may not maintain or improve our competitive position.

- Insufficient inventory or components, including finished goods, chips and other components, and including component or inventory shortages related to the COVID-19 pandemic, manufacturer’s capacity, shipping challenges, or other factors affecting the global supply chain, may result in lost sales opportunities or delayed billings and revenue and increased costs, and may harm our gross margins and our product price increases designed to help mitigate lower gross margins may not be acceptable to customers.

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

- We are susceptible to supply chain constraints, supply shortages and disruptions, long lead times for components and finished goods 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.

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

- Global economic uncertainty and weakening product demand caused by political instability, changes in trade agreements and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business and financial performance.

| Item 6. | | | [Selected Financial Data](#i4e6fbc9082d745e79a8cefaefd19597b_37) | | | [47](#i4e6fbc9082d745e79a8cefaefd19597b_37) | | |

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

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

Our corporate headquarters is located in Sunnyvale, California and comprises approximately [removed: 160,000] [added: 390,000] square feet of building space on [removed: ten] [added: twenty] acres of land.

Along with our corporate headquarters, as of December 31, [removed: 2020,] [added: 2021,] we [removed: also] own approximately [removed: 200,000] [added: 290,000] square feet in Union City, [removed: California] [added: California,] used [removed: as a] [added: for] manufacturing assembly and [removed: operations center;] [added: operations;] approximately [removed: 375,000] [added: 460,000] square feet of office [removed: and building] space in Burnaby and Ottawa, [removed: Canada] [added: Canada,] used for operations, support and research and development work; [added: approximately 100,000 square feet of office space in Florida; approximately 90,000 square feet of office space in Texas;] and [removed: 40,000] [added: approximately 70,000] square feet of office space in Valbonne, [removed: France] [added: France,] predominantly used [removed: as a] [added: for] sales and [removed: support office.][added: support.]

We intend to expand our facilities or add new facilities [removed: as we add employees] [added: to support our future growth] and enter new geographic markets, and we believe that suitable additional or alternative space will be available [added: or can be developed] as needed to accommodate ongoing operations and any such growth.

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

We also own additional building space in Sunnyvale and Union City, California, for future development of approximately 140,000 square feet.

In 2019, we began construction on a second building of approximately 170,000 square feet that will serve as the cornerstone of our headquarters campus.

As of February [removed: 12, 2021,] [added: 18, 2022,] there were 43 holders of record of our common stock.

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our [removed: 2021] [added: 2022] 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.

Such returns are based on historical results and are not [removed: intended to suggest future performance.]

[removed: ][added: ]

| | | | | | | December [removed: 2015] [added: 2016] * | | | | | | December [removed: 2016] [added: 2017] | | | | | | December [removed: 2017] [added: 2018] | | | | | | December [removed: 2018] [added: 2019] | | | | | | December [removed: 2019] [added: 2020] | | | | | | December [removed: 2020] [added: 2021] | | |

| * Assumes that $100 was invested on December 31, [removed: 2015] [added: 2016] in stock or index, including reinvestment of dividends. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

From 2016 through [removed: 2019,] [added: 2020,] our board of directors approved increases to our Repurchase Program by various amounts, bringing the aggregated amount authorized to [removed: $2.5] [added: $3.0] billion.

In [removed: July 2020,] [added: October 2021,] our board of directors approved a [removed: $500.0 million] [added: $1.25 billion] increase and extended the term to February 28, [removed: 2022,] [added: 2023,] bringing the aggregate amount authorized to be repurchased to [removed: $3.0] [added: $4.25] billion.

Since its inception, we have repurchased [removed: 32.5] [added: 35.1] million shares of our common stock under the Repurchase Program for an aggregate purchase price of [removed: $2.0] [added: $2.73] billion.

The following table provides information with respect to the shares of common stock we repurchased during the three months ended December 31, [removed: 2020] [added: 2021] (in millions, except per share amounts):

intended to suggest future performance.

| Fortinet, Inc. | | | | | | $ | 100 | | | | | $ | 145 | | | | | $ | 234 | | | | | $ | 354 | | | | | $ | 493 | | | | | $ | 1,193 | |

| S&P 500 Index | | | | | | $ | 100 | | | | | $ | 119 | | | | | $ | 112 | | | | | $ | 144 | | | | | $ | 168 | | | | | $ | 213 | |

| NASDAQ Computer | | | | | | $ | 100 | | | | | $ | 139 | | | | | $ | 134 | | | | | $ | 201 | | | | | $ | 301 | | | | | $ | 415 | |

| October 1 - October 31, 2021 | | | | | | 0.2 | | | | | | $ | 291.82 | | | | | 0.2 | | | | | | $ | 2,005.4 | |

| November 1 - November 30, 2021 | | | | | | 0.1 | | | | | | 325.05 | | | | | | 0.1 | | | | | | 1,963.7 | | |

| December 1 - December 31, 2021 | | | | | | 1.5 | | | | | | 308.77 | | | | | | 1.5 | | | | | | 1,520.9 | | |

| Total | | | | | | 1.8 | | | | | | | | | | | | 1.8 | | | | | | | | |

| 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 | |

| October 1 - October 31, 2020 | | | | | | — | | | | | | $ | — | | | | | — | | | | | | $ | 1,046.8 | |

| November 1 - November 30, 2020 | | | | | | 0.3 | | | | | | 115.33 | | | | | | 0.3 | | | | | | 1,012.7 | | |

| December 1 - December 31, 2020 | | | | | | — | | | | | | $ | — | | | | | — | | | | | | $ | 1,012.7 | |

| Total | | | | | | 0.3 | | | | | | | | | | | | 0.3 | | | | | | | | |

The following table presents our selected consolidated financial data 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.

Our historical results of operations are not indicative of our future results of operations.

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

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

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

| | | | 2020 | | | | | | 2019 (1) | | | | | | 2018 (1) | | | | | | 2017 (2) | | | | | | 2016 (2) | | |

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

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

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

| 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 | |

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

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

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

| Weighted-average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Basic | | | 164.2 | | | | | | 171.0 | | | | | | 169.1 | | | | | | 174.3 | | | | | | 172.6 | | |

| Diluted | | | 167.7 | | | | | | 175.0 | | | | | | 174.2 | | | | | | 178.1 | | | | | | 176.3 | | |

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

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

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

| 2020 | | | | | | 2019 (1) | | | | | | 2018 (1) | | | | | | 2017 (2) | | | | | | 2016 (2) | | | | | |

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

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

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

| Cash, cash equivalents and investments | | | $ | 1,955.6 | | | | | $ | 2,209.9 | | | | | $ | 1,716.6 | | | | | $ | 1,349.3 | | | | | $ | 1,310.5 | |

| 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) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| [Report of Independent Registered Public Accounting [removed: Firm](#i4e6fbc9082d745e79a8cefaefd19597b_55)] [added: Firm](#iebf4bf97a0d04753801601bc721cb1d4_58) (PCAOB ID No.34)] | | | [removed: [71](#i4e6fbc9082d745e79a8cefaefd19597b_55)] [added: [69](#iebf4bf97a0d04753801601bc721cb1d4_58)] | | |

| [Consolidated Balance [removed: Sheets](#i4e6fbc9082d745e79a8cefaefd19597b_58) [as] [added: Sheets as] of December 31, [removed: 2020 and 2019](#i4e6fbc9082d745e79a8cefaefd19597b_58)] [added: 202](#iebf4bf97a0d04753801601bc721cb1d4_61)[1](#iebf4bf97a0d04753801601bc721cb1d4_61) [and](#iebf4bf97a0d04753801601bc721cb1d4_61) [20](#iebf4bf97a0d04753801601bc721cb1d4_61)[20](#iebf4bf97a0d04753801601bc721cb1d4_61)] | | | [removed: [73](#i4e6fbc9082d745e79a8cefaefd19597b_58)] [added: [71](#iebf4bf97a0d04753801601bc721cb1d4_61)] | | |

| [Consolidated Statements of Income for the year ended December 31, [removed: 2020, 2019 and 2018](#i4e6fbc9082d745e79a8cefaefd19597b_64)] [added: 202](#iebf4bf97a0d04753801601bc721cb1d4_64)[1](#iebf4bf97a0d04753801601bc721cb1d4_64)[, 20](#iebf4bf97a0d04753801601bc721cb1d4_64)[20](#iebf4bf97a0d04753801601bc721cb1d4_64) [and 20](#iebf4bf97a0d04753801601bc721cb1d4_64)[19](#iebf4bf97a0d04753801601bc721cb1d4_64)] | | | [removed: [74](#i4e6fbc9082d745e79a8cefaefd19597b_64)] [added: [72](#iebf4bf97a0d04753801601bc721cb1d4_64)] | | |

| [Consolidated Statements of Comprehensive Income for the year ended December 31, [removed: 2020, 2019 and 2018](#i4e6fbc9082d745e79a8cefaefd19597b_67)] [added: 202](#iebf4bf97a0d04753801601bc721cb1d4_67)[1](#iebf4bf97a0d04753801601bc721cb1d4_67)[, 20](#iebf4bf97a0d04753801601bc721cb1d4_67)[20](#iebf4bf97a0d04753801601bc721cb1d4_67) [and 20](#iebf4bf97a0d04753801601bc721cb1d4_67)[19](#iebf4bf97a0d04753801601bc721cb1d4_67)] | | | [removed: [75](#i4e6fbc9082d745e79a8cefaefd19597b_67)] [added: [73](#iebf4bf97a0d04753801601bc721cb1d4_67)] | | |

| [Consolidated Statements of Consolidated Statements [removed: of Stockholders’ Equity] [added: of](#iebf4bf97a0d04753801601bc721cb1d4_70) [Equity] for the year ended December 31, [removed: 2020, 2019 and 2018](#i4e6fbc9082d745e79a8cefaefd19597b_70)] [added: 202](#iebf4bf97a0d04753801601bc721cb1d4_70)[1](#iebf4bf97a0d04753801601bc721cb1d4_70)[, 20](#iebf4bf97a0d04753801601bc721cb1d4_70)[20](#iebf4bf97a0d04753801601bc721cb1d4_70) [and 20](#iebf4bf97a0d04753801601bc721cb1d4_70)[19](#iebf4bf97a0d04753801601bc721cb1d4_70)] | | | [removed: [76](#i4e6fbc9082d745e79a8cefaefd19597b_70)] [added: [74](#iebf4bf97a0d04753801601bc721cb1d4_70)] | | |

| [Consolidated Statements of Cash Flows for the year ended December 31, [removed: 2020, 2019 and 2018](#i4e6fbc9082d745e79a8cefaefd19597b_73)] [added: 202](#iebf4bf97a0d04753801601bc721cb1d4_73)[1](#iebf4bf97a0d04753801601bc721cb1d4_73)[, 20](#iebf4bf97a0d04753801601bc721cb1d4_73)[20](#iebf4bf97a0d04753801601bc721cb1d4_73) [and 20](#iebf4bf97a0d04753801601bc721cb1d4_73)[19](#iebf4bf97a0d04753801601bc721cb1d4_73)] | | | [removed: [77](#i4e6fbc9082d745e79a8cefaefd19597b_73)] [added: [75](#iebf4bf97a0d04753801601bc721cb1d4_73)] | | |

| [Notes to Consolidated Financial [removed: Statements](#i4e6fbc9082d745e79a8cefaefd19597b_76)] [added: Statements](#iebf4bf97a0d04753801601bc721cb1d4_76)] | | | [removed: [78](#i4e6fbc9082d745e79a8cefaefd19597b_76)] [added: [76](#iebf4bf97a0d04753801601bc721cb1d4_76)] | | |

We have audited the accompanying consolidated balance sheets of Fortinet, Inc. and subsidiaries (the “Company”) as of December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] the related consolidated statements of income, comprehensive income, [removed: stockholders’] equity, and cash flows, for each of the three years in the period ended December 31, [removed: 2020,] [added: 2021,] and the related notes [removed: 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, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2020,] [added: 2021,] 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, [removed: 2020,] [added: 2021,] based on criteria established in *Internal [removed: Control–Integrated] [added: Control – Integrated] Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February [removed: 19, 2021,] [added: 25, 2022,] expressed an unqualified opinion on the Company’s internal control over financial reporting.

[removed: Critical] [added: *Critical] Audit [removed: Matter][added: Matter Description*]

The critical audit [removed: matter] [added: matters] communicated below [removed: is a matter] [added: are matters] arising from the current-period audit of the financial statements that [removed: was] [added: were] communicated or required to be communicated to the audit committee and that (1) [removed: relates] [added: relate] 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 [removed: matter] [added: matters] below, providing [removed: a] separate [removed: opinion] [added: opinions] on the critical audit [removed: matter] [added: matters] or on the accounts or disclosures to which [removed: it relates.][added: they relate.]

Litigation [removed: Contingencies–Refer] [added: – Refer] to Note 13 to the financial statements

[removed: An estimated loss from] [added: The Company accrues for] a loss contingency [removed: is accrued by a charge to income] if [removed: it] [added: a loss] is probable [removed: that a liability has been incurred] and the amount of the loss can be reasonably estimated.

- We tested the effectiveness of controls over management’s litigation contingency accrual analysis and assessment of matters [removed: with potential impact.]

| | | | [removed: December 31, 2020] | | | | | | December 31, 2019 | | |

| Cash and cash equivalents | | | $ | [removed: 1,061.8] [added: 1,319.1] | | | | | $ | [removed: 1,222.5] [added: 1,061.8] | |

| Short-term investments | | | [removed: 775.5] [added: 1,194.0] | | | | | | [removed: 843.1] [added: 775.5] | | |

| Accounts receivable—Net of allowance for credit losses of [removed: $2.5] [added: $2.4] million [removed: at December 31, 2020] and [removed: net of allowance for doubtful accounts of $1.2] [added: $2.5] million at December 31, [removed: 2019] [added: 2021 and 2020, respectively] | | | [removed: 720.0] [added: 807.7] | | | | | | [removed: 544.3] [added: 720.0] | | |

| Inventory | | | [removed: 139.8] [added: 175.8] | | | | | | [removed: 117.9] [added: 139.8] | | |

| Prepaid expenses and other current assets | | | [removed: 43.3] [added: 65.4] | | | | | | [removed: 41.2] [added: 43.3] | | |

| Total current assets | | | [removed: 2,740.4] [added: 3,600.6] | | | | | | [removed: 2,769.0] [added: 2,740.4] | | |

| LONG-TERM INVESTMENTS | | | [removed: 118.3] [added: 440.8] | | | | | | [removed: 144.3] [added: 118.3] | | |

| PROPERTY AND EQUIPMENT—NET | | | [removed: 448.0] [added: 687.6] | | | | | | [removed: 344.3] [added: 448.0] | | |

| DEFERRED CONTRACT COSTS | | | [removed: 304.8] [added: 423.3] | | | | | | [removed: 237.0] [added: 304.8] | | |

| DEFERRED TAX ASSETS | | | [removed: 245.2] [added: 342.3] | | | | | | [removed: 226.3] [added: 245.2] | | |

| OTHER INTANGIBLE ASSETS—NET | | | [removed: 31.6] [added: 63.6] | | | | | | [removed: 31.1] [added: 31.6] | | |

| GOODWILL | | | [removed: 93.0] [added: 125.1] | | | | | | [removed: 67.2] [added: 93.0] | | |

| OTHER ASSETS | | | [removed: 63.2] [added: 235.8] | | | | | | [removed: 60.0] [added: 63.2] | | |

| TOTAL ASSETS | | | $ | [removed: 4,044.5] [added: 5,919.1] | | | | | $ | [removed: 3,879.2] [added: 4,044.5] | |

| LIABILITIES AND [removed: STOCKHOLDERS’] EQUITY | | | | | | | | | | | |

| Accounts payable | | | $ | [removed: 141.6] [added: 148.4] | | | | | $ | [removed: 96.4] [added: 141.6] | |

| Accrued liabilities | | | [removed: 149.2] [added: 197.3] | | | | | | [removed: 101.8] [added: 149.2] | | |

| Accrued payroll and compensation | | | [removed: 145.9] [added: 195.0] | | | | | | [removed: 101.8] [added: 145.9] | | |

| Deferred revenue | | | [removed: 1,392.8] [added: 1,777.4] | | | | | | [removed: 1,155.8] [added: 1,392.8] | | |

| Total current liabilities | | | [removed: 1,829.5] [added: 2,318.1] | | | | | | [removed: 1,455.8] [added: 1,829.5] | | |

| DEFERRED REVENUE | | | [removed: 1,212.5] [added: 1,675.5] | | | | | | [removed: 953.3] [added: 1,212.5] | | |

| INCOME TAX LIABILITIES | | | [removed: 90.3] [added: 79.5] | | | | | | [removed: 82.8] [added: 90.3] | | |

| OTHER LIABILITIES | | | [removed: 56.2] [added: 59.2] | | | | | | [removed: 44.9] [added: 56.2] | | |

Critical Audit Matters

These accruals are generally based on a range of possible outcomes that require significant management judgement.

with potential impact.

Investments in Privately Held Companies – Refer to Notes 1 and 6 to the financial statements

In fiscal year 2021, the Company invested $160 million in cash for shares of the Series A Preferred Stock of Linksys Holdings, Inc. (“Linksys”), for a 50.8% ownership interest.

The Company accounts for its investment in Linksys using the equity method of accounting based on its determination that it does not hold an absolute controlling financial interest but has the ability to exercise significant influence over the operating and financial policies of Linksys.

Determining that the Company does not control but exercises significant influence over the operating and financial policies of Linksys required significant management judgement when considering many factors, including but not limited to, the ownership interest in Linksys, board representation, participation in policy-making processes, and participation rights in certain significant financial and operating decisions of Linksys in the ordinary course of business.

We identified the Company’s conclusion to account for its investment in Linksys using the equity method of accounting as a critical audit matter because of the complex judgments involved in determining that the Company does not hold a controlling financial interest but exercises significant influence.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve professionals with expertise in the accounting for equity method investments and consolidation accounting, when performing audit procedures to evaluate the appropriateness of the accounting conclusion.

*How the Critical Audit Matter Was Addressed in the Audit*

Our audit procedures related to the Company’s conclusion to account for its investment in Linksys using the equity method of accounting included the following, among others:

- We tested the effectiveness of controls over management’s assessment of the appropriateness of the accounting conclusion for the investment in Linksys under the equity method of accounting.

- We obtained and read the executed Linksys investment agreement to evaluate the accuracy and completeness of the terms used in management’s assessment that the Company does not control but has significant influence over Linksys.

- With the assistance of professionals in our firm having expertise in accounting for equity method investments and consolidation accounting, we evaluated management’s conclusion to account for the investment in Linksys as an equity method investment, including the appropriateness of the accounting policies applied and the determination that the Company does not control, but has significant influence over the operating and financial policies of Linksys.

February 25, 2022

| Marketable equity securities | | | 38.6 | | | | | | — | | |

| LONG-TERM DEBT | | | 988.4 | | | | | | — | | |

| Non-controlling interests | | | 16.7 | | | | | | — | | |

| Total equity | | | 798.4 | | | | | | 856.0 | | |

| INTEREST EXPENSE | | | (14.9) | | | | | | — | | | | | | — | | |

| INCOME BEFORE INCOME TAXES AND LOSS FROM EQUITY METHOD INVESTMENT | | | 628.4 | | | | | | 541.7 | | | | | | 386.0 | | |

| LOSS FROM EQUITY METHOD INVESTMENT | | | (7.6) | | | | | | — | | | | | | — | | |

| NET INCOME INCLUDING NON-CONTROLLING INTERESTS | | | 606.7 | | | | | | 488.5 | | | | | | 331.7 | | |

| LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS, NET OF TAX | | | (0.1) | | | | | | — | | | | | | — | | |

| Weighted-average shares used to compute net income per share attributable to Fortinet, Inc.: | | | | | | | | | | | | | | | | | |

| Net income including non-controlling interests | | | $ | 606.7 | | | | | $ | 488.5 | | | | | $ | 331.7 | |

| Change in foreign currency translation | | | (3.8) | | | | | | — | | | | | | — | | |

| Less: tax provision (benefit) related to items of other comprehensive income or loss | | | (0.8) | | | | | | 0.2 | | | | | | 0.5 | | |

| Comprehensive income including non-controlling interests | | | 600.2 | | | | | | 488.1 | | | | | | 333.7 | | |

| Less: comprehensive loss attributable to non-controlling interests | | | (1.1) | | | | | | — | | | | | | — | | |

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

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

| Recognition of non-controlling interests upon business combination | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 17.8 | | | | | | 17.8 | | |

| Net unrealized loss on investments - net of tax | | | — | | | | | | — | | | | | | — | | | | | | (2.7) | | | | | | — | | | | | | — | | | | | | (2.7) | | |

| Foreign currency translation adjustment | | | — | | | | | | — | | | | | | — | | | | | | (2.8) | | | | | | — | | | | | | (1.0) | | | | | | (3.8) | | |

| Net income | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 606.8 | | | | | | (0.1) | | | | | | 606.7 | | |

| BALANCE—December 31, 2021 | | | 162.0 | | | | | | $ | 0.2 | | | | | $ | 1,254.2 | | | | | $ | (4.8) | | | | | $ | (467.9) | | | | | $ | 16.7 | | | | | $ | 798.4 | |

| Net income including non-controlling interests | | | $ | 606.7 | | | | | $ | 488.5 | | | | | $ | 331.7 | |

| Loss from equity method investment | | | 7.6 | | | | | | — | | | | | | — | | |

| Purchases of investment in privately held company | | | (160.0) | | | | | | — | | | | | | — | | |

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.”

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.

- We evaluated the Company’s litigation contingencies disclosure for consistency with our knowledge of the Company’s litigation matters.

February 19, 2021

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

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

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

| INCOME BEFORE INCOME TAXES | | | 541.7 | | | | | | 386.0 | | | | | | 254.3 | | |

| Weighted-average shares outstanding: | | | | | | | | | | | | | | | | | |

| Less: tax provision related to change in unrealized gains (losses) on investments | | | 0.2 | | | | | | 0.5 | | | | | | — | | |

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

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

| BALANCE—December 31, 2017 | | | 167.9 | | | | | | $ | 0.2 | | | | | $ | 909.6 | | | | | $ | (0.8) | | | | | $ | (307.0) | | | | | $ | 602.0 | |

| Cumulative effect adjustments from adoption of Topic 606 | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 117.3 | | | | | | 117.3 | | |

| Net income | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 334.9 | | | | | | 334.9 | | |

| Net income | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 331.7 | | | | | | 331.7 | | |

| Net income | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 488.5 | | | | | | 488.5 | | |

| Liability incurred for repurchase of common stock | | | $ | — | | | | | $ | — | | | | | $ | 4.2 | |

[Table of Conten](#i4e6fbc9082d745e79a8cefaefd19597b_7)[ts](#i4e6fbc9082d745e79a8cefaefd19597b_7)

Accordingly, monetary assets and liabilities denominated in foreign currencies have been remeasured into U.S. dollars using the exchange rates in effect at the balance sheet dates.

The COVID-19 pandemic and the recent economic downturn prompted us to perform additional credit reviews of our existing customers, including obtaining recent credit reports and reviewing their latest available statements of financial position.

In addition, we have seen an increase in requests for extended payment terms.

After performing our additional reviews, we increased the allowance for credit losses for certain accounts receivable.

We elected to account for these equity investments using the measurement alternative, which is at cost, less any impairment, adjusted for changes in fair value resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer.

For these non-quoted investments, we regularly review the assumptions underlying the operating performance and cash flow forecasts as well as current fundraising activities and valuations based on information provided by these privately held companies.

If it is determined that a decline or increase in value exists in an investment without readily determinable fair value, we adjust the carrying value of the investment to its fair value and record the related impairment or increase in value as an investment loss or gain.

There was no material impairment in 2020, 2019 and 2018.

Effective January 1, 2018, the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) reduced the federal corporate income tax rate from 35% to 21% and created a territorial tax system with a one-time transition tax on foreign earnings of U.S. subsidiaries not previously subject to U.S. income tax.

Our selection of an accounting policy for 2018 with respect to the Global Intangible Low-Taxed Income (“GILTI”) tax rules was to treat GILTI tax as a current period expense under the period cost method.

For 2019 and 2020, we were not subject to GILTI.

We will continue to monitor and assess the impact of the 2017 Tax Act and ongoing guidance and accounting interpretations issued in response to the 2017 Tax Act.

Leases—We rent certain facilities under operating lease agreements.

On January 1, 2019, we adopted FASB Topic 842, Leases (“Topic 842”), which requires the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases on the consolidated balance sheet.

Prior to 2019, leases were recognized under FASB Topic 840, Leases (“Topic 840”).

Under Topic 840, related rent expense was recognized on a straight-line basis over the term of the lease.

Rent holidays and scheduled rent increases were included in the determination of rent expense to be recorded over the lease term.

Lease incentives were recognized as a reduction of rent expense on a straight-line basis over the term of the lease.

Renewals were not assumed in the determination of the lease term unless they were deemed to be reasonably assured at the inception of the lease.

We began recognizing rent expense on the date that we obtained the legal right to use and control the leased space.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange [removed: Act”)] [added: Act”))] as of the end of the period covered by this Annual Report on Form 10-K.

Based on that evaluation, our [removed: chief executive officer] [added: Chief Executive Officer] and [removed: chief financial officer] [added: Chief Financial Officer] concluded that our disclosure controls and procedures were effective as of December 31, [removed: 2020] [added: 2021] 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 [removed: chief executive officer] [added: Chief Executive Officer] and [removed: chief financial officer,] [added: 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: 2020.][added: 2021.]

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2020] [added: 2021] 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: 2020] [added: 2021] 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: 2020,] [added: 2021,] based on criteria established in *Internal [removed: Control–Integrated] [added: 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: 2020,] [added: 2021,] based on criteria established in *Internal [removed: Control–Integrated] [added: 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: 2020,] [added: 2021,] of the Company and our report dated February [removed: 19, 2021,] [added: 25, 2022,] expressed an unqualified opinion on those [removed: consolidated] financial statements.

In accordance with the Internal Controls Guidance, management has excluded Alaxala Networks Corporation (“Alaxala”), a privately-held network hardware equipment company in Japan, from its assessment of internal control over financial reporting as of December 31, 2021, because it was acquired by the Company in a business combination during the fiscal year ended December 31, 2021.

Alaxala assets represented approximately 1.5% of the Company’s consolidated total assets, excluding the effects of purchase accounting, as of December 31, 2021 and its revenues represented approximately 1.3% of the Company's consolidated total revenues for the year ended December 31, 2021.

As described in “Management’s Report on Internal Control over Financial Reporting”, management excluded from its assessment the internal control over financial reporting at Alaxala Networks Corporation (“Alaxala”), which was acquired on August 31, 2021, and whose financial statements constitute approximately 1.5% of the Company’s consolidated total assets, excluding the effects of purchase accounting, as of December 31, 2021 and approximately 1.3% of the Company’s consolidated total revenues for the year ended December 31, 2021.

Accordingly, our audit did not include the assessment of the internal controls over financial reporting for Alaxala.

February 25, 2022

In January 2019, we implemented certain internal controls over financial reporting in connection with our adoption of Topic 842.

February 19, 2021

Part III

Not applicable.

Part III

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our [removed: 2021] [added: 2022] 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: 2021] [added: 2022] 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: 2021] [added: 2022] 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: 2021] [added: 2022] 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: 2021] [added: 2022] 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: Schedules not listed above] [added: Financial Statement Schedule:* Financial statement schedules] have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.

| [removed: [3.2](https://www.sec.gov/Archives/edgar/data/1262039/000126203920000044/amendedandrestatedbyla.htm)] [added: [3.2](https://www.sec.gov/Archives/edgar/data/1262039/000110465921056360/tm2114350d1_ex3-1.htm)] | | | | | | Amended and Restated Bylaws | | | | | | Current Report on Form 8-K (File No. 001-34511) | | | | | | [removed: July 21, 2020] [added: April 28, 2021] | | | | | | 3.1 | | |

| [removed: [4.2](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex42_20201231xk.htm)*] [added: [4.2](https://www.sec.gov/Archives/edgar/data/1262039/000126203922000008/ftnt-ex42_20211231xk.htm)*] | | | | | | Description of Securities Registered Pursuant to Section 12 of the Exchange Act | | | | | | | | | | | | | | | | | | | | |

| [removed: [10.8](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex108_20201231xk.htm)†*] [added: [10.8](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex108_20201231xk.htm)†] | | | | | | Fortinet, Inc. Amended Bonus Plan | | | | | | [added: Annual Report on Form 10-K (File No. 001-34511)] | | | | | | [added: February 19, 2021] | | | | | | [added: 10.8] | | |

| [removed: [21.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex211_20201231xk.htm)*] [added: [21.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203922000008/ftnt-ex211_20211231xk.htm)*] | | | | | | List of subsidiaries | | | | | | | | | | | | | | | | | | | | |

| [removed: [23.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex231_20201231xk.htm)*] [added: [23.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203922000008/ftnt-ex231_20211231xk.htm)*] | | | | | | Consent of Independent Registered Public Accounting Firm | | | | | | | | | | | | | | | | | | | | |

| [removed: [24.1](#i4e6fbc9082d745e79a8cefaefd19597b_193)*] [added: [24.1](#iebf4bf97a0d04753801601bc721cb1d4_187)*] | | | | | | Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K) | | | | | | | | | | | | | | | | | | | | |

| [removed: [31.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex311_20201231xk.htm)*] [added: [31.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203922000008/ftnt-ex311_20211231xk.htm)*] | | | | | | 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 | | |

| [removed: [31.2](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex312_20201231xk.htm)*] [added: [31.2](https://www.sec.gov/Archives/edgar/data/1262039/000126203922000008/ftnt-ex312_20211231xk.htm)*] | | | | | | 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 | | |

| [removed: [32.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203921000008/ftnt-ex321_20201231xk.htm)] [added: [32.1](https://www.sec.gov/Archives/edgar/data/1262039/000126203922000008/ftnt-ex321_20211231xk.htm)] | | | | | | 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 | | |

| 104* | | | | | | Cover Page Interactive Data File - the cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, [removed: 2020] [added: 2021] is formatted in inline XBRL. | | |

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

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

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

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

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

| | | | 2020 (1) | | | | | | 2019 (1) | | | | | | 2018 (1) | | |

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

| Sales Returns Reserve and Allowance for Credit Losses/Doubtful Accounts | | | | | | | | | | | | | | | | | |

| Beginning balance | | | $ | 1.2 | | | | | $ | 0.9 | | | | | $ | 14.5 | |

| Charged to expenses, net of deductions | | | 1.3 | | | | | | 0.3 | | | | | | — | | |

| Reclassification due to adoption of Topic 606 (1) | | | — | | | | | | — | | | | | | (13.6) | | |

| Ending balance | | | $ | 2.5 | | | | | $ | 1.2 | | | | | $ | 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, 2020 and 2019 consist only of the allowance for credit losses or doubtful accounts. | | | | | | | | | | | | | | | | | |

| | | | | | | | | |

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

| | | | | | | | | |

| | | | | | | | | |

| | | | | | | | | |

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 19, 2021.

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

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

| | | | By: | | | /s/ Ken Xie | | |

| | | | | | | Ken Xie, Chief Executive Officer and Chairman | | |

| | | | | | | (Duly Authorized Officer and Principal Executive Officer) | | |

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

| | | | By: | | | /s/ Keith Jensen | | |

| | | | | | | Keith Jensen, Chief Financial Officer | | |

| | | | | | | (Duly Authorized Officer and Principal Financial Officer and Principal Accounting Officer) | | |

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ken Xie and Keith Jensen, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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

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

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

| Signature | | | | | | Title | | | | | | Date | | |

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

| /s/ Ken Xie | | | | | | Chief Executive Officer and Chairman | | | | | | February 19, 2021 | | |

| Ken Xie | | | | | | (Principal Executive Officer) | | | | | | | | |

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 25, 2022.

| | | | | | | | | |

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

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

| | | | | | | | | |

| | | | By: | | | /s/ Ken Xie | | |

| | | | | | | Ken Xie, Chief Executive Officer and Chairman | | |

| | | | | | | (Duly Authorized Officer and Principal Executive Officer) | | |

| | | | | | | | | |

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

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

| | | | | | | | | |

| | | | By: | | | /s/ Keith Jensen | | |

| | | | | | | Keith Jensen, Chief Financial Officer | | |

| | | | | | | (Duly Authorized Officer and Principal Financial Officer and Principal Accounting Officer) | | |

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ken Xie and Keith Jensen, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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

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

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

| Signature | | | | | | Title | | | | | | Date | | |

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

| /s/ Ken Xie | | | | | | Chief Executive Officer and Chairman | | | | | | February 25, 2022 | | |

| Ken Xie | | | | | | (Principal Executive Officer) | | | | | | | | |

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

| /s/ Keith Jensen | | | | | | Chief Financial Officer | | | | | | February 25, 2022 | | |

| Keith Jensen | | | | | | (Principal Financial Officer and Principal Accounting Officer) | | | | | | | | |

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

| /s/ Michael Xie | | | | | | President, Chief Technology Officer and Director | | | | | | February 25, 2022 | | |

| Michael Xie | | | | | | | | | | | | | | |

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

| /s/ Kelly Ducourty | | | | | | Director | | | | | | February 25, 2022 | | |

| Kelly Ducourty | | | | | | | | | | | | | | |

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

| /s/ Kenneth A. Goldman | | | | | | Director | | | | | | February 25, 2022 | | |

| Kenneth A. Goldman | | | | | | | | | | | | | | |

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