What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-06 · 306 added, 202 removed, 551 unchanged (48% of the section changed)

3 unchanged sentences

(unaudited, in millions, except per share amounts)

September 30,

2020 December 31,

28 unchanged sentences

Common stock, $ 0.001 par value— 300 shares authorized;

161.8 and 171.7 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

162.3 and 171.7 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 1,178.5 1,180.3

7 unchanged sentences

(unaudited, in millions, except per share amounts)

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Product $ 223.8 $ 197.1 $ 628.0 $ 549.7

17 unchanged sentences

INTEREST INCOME—NET 2.5 11.4 15.7 32.6

OTHER INCOME (EXPENSE)—NET 0.9 ( 0.4 ) ( 7.1 ) ( 0.9 )

OTHER EXPENSE—NET ( 1.0 ) ( 6.0 ) ( 8.1 ) ( 6.9 )

INCOME BEFORE INCOME TAXES 128.4 106.0 370.0 254.6

11 unchanged sentences

(unaudited, in millions)

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Net income $ 123.4 $ 80.2 $ 341.8 $ 213.5

Other comprehensive income:

Change in unrealized gains on investments 7.3 1.5 2.1 2.5

tax provision related to change in unrealized gains on investments 1.7 0.4 0.7 0.7

Other comprehensive income 5.6 1.1 1.4 1.8

Other comprehensive income (loss):

Change in unrealized gains (losses) on investments ( 1.4 ) 0.2 0.7 2.7

tax provision (benefit) related to change in unrealized gains (losses) on investments ( 0.3 ) — 0.4 0.7

Other comprehensive income (loss) ( 1.1 ) 0.2 0.3 2.0

Comprehensive income $ 122.3 $ 80.4 $ 342.1 $ 215.5

3 unchanged sentences

(unaudited, in millions)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Common Stock Additional

Capital Accumulated

Comprehensive Income (Loss) Accumulated Deficit Total

Comprehensive Income Accumulated Deficit Total

Stockholders’

Shares Amount

BALANCE—March 31, 2020 162.6 $ 0.2 $ 1,128.4 $ ( 3.1 ) $ ( 589.2 ) $ 536.3

BALANCE—June 30, 2020 161.8 $ 0.2 $ 1,154.3 $ 2.5 $ ( 590.3 ) $ 566.7

Issuance of common stock in connection with equity incentive plans - net of tax withholding 0.5 — ( 25.1 ) — — ( 25.1 )

Repurchase and retirement of common stock ( 1.4 ) — ( 10.1 ) — ( 136.0 ) ( 146.1 )

Stock-based compensation expense — — 49.3 — — 49.3

Net unrealized gain on investments - net of tax — — — 5.6 — 5.6

Net unrealized loss on investments - net of tax — — — ( 1.1 ) — ( 1.1 )

Net income — — — — 123.4 123.4

BALANCE—June 30, 2020 161.8 $ 0.2 $ 1,154.3 $ 2.5 $ ( 613.1 ) $ 543.9

Three Months Ended June 30, 2019

BALANCE—September 30, 2020 162.3 $ 0.2 $ 1,178.5 $ 1.4 $ ( 466.9 ) $ 713.2

Three Months Ended September 30, 2019

Common Stock Additional

Capital Accumulated

Comprehensive Income (Loss) Accumulated Deficit Total

Comprehensive Income Retained Earnings (Accumulated Deficit) Total

Stockholders’

Shares Amount

BALANCE—March 31, 2019 170.7 $ 0.2 $ 1,108.1 $ ( 0.2 ) $ ( 50.0 ) $ 1,058.1

BALANCE—June 30, 2019 171.0 $ 0.2 $ 1,130.2 $ 0.9 $ 8.1 $ 1,139.4

Issuance of common stock in connection with equity incentive plans - net of tax withholding 0.6 — ( 17.8 ) — — ( 17.8 )

3 unchanged sentences

Net income — — — — 80.2 80.2

BALANCE—June 30, 2019 171.0 $ 0.2 $ 1,130.2 $ 0.9 $ ( 9.0 ) $ 1,122.3

Six Months Ended June 30, 2020

BALANCE—September 30, 2019 171.3 $ 0.2 $ 1,152.6 $ 1.1 $ 64.0 $ 1,217.9

Nine Months Ended September 30, 2020

Common Stock Additional

9 unchanged sentences

Net income — — — — 341.8 341.8

BALANCE—June 30, 2020 161.8 $ 0.2 $ 1,154.3 $ 2.5 $ ( 613.1 ) $ 543.9

Six Months Ended June 30, 2019

BALANCE—September 30, 2020 162.3 $ 0.2 $ 1,178.5 $ 1.4 $ ( 466.9 ) $ 713.2

Nine Months Ended September 30, 2019

Common Stock Additional

Capital Accumulated

Comprehensive Income (Loss) Accumulated Deficit Total

Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total

Stockholders’

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Net income — — — — 213.5 213.5

BALANCE—June 30, 2019 171.0 $ 0.2 $ 1,130.2 $ 0.9 $ ( 9.0 ) $ 1,122.3

BALANCE—September 30, 2019 171.3 $ 0.2 $ 1,152.6 $ 1.1 $ 64.0 $ 1,217.9

See notes to condensed consolidated financial statements.

2 unchanged sentences

(unaudited, in millions)

Six Months Ended

2020 June 30,

Nine Months Ended

September 30,

2020 September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

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Other ( 0.4 ) —

Net cash provided by (used in) investing activities 216.8 ( 375.6 )

Net cash used in investing activities ( 7.8 ) ( 402.7 )

CASH FLOWS FROM FINANCING ACTIVITIES:

2 unchanged sentences

Taxes paid related to net share settlement of equity awards ( 86.5 ) ( 76.0 )

Payments of debt assumed in connection with business combination ( 4.1 ) —

Other ( 1.2 ) —

Net cash used in financing activities ( 1,119.6 ) ( 151.8 )

NET DECREASE IN CASH AND CASH EQUIVALENTS ( 306.1 ) ( 90.3 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 340.2 ) 63.1

CASH AND CASH EQUIVALENTS—Beginning of period 1,222.5 1,112.4

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All intercompany balances, transactions and cash flows have been eliminated.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results for the full year or for any future periods.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results for the full year or for any future periods.

The condensed consolidated balance sheet as of December 31, 2019 is derived from the audited consolidated financial statements for the year ended December 31, 2019.

3 unchanged sentences

Actual results could differ materially from those estimates.

There have been no material changes to our significant accounting policies as of and for the three and six months ended June 30, 2020.

There have been no material changes to our significant accounting policies as of and for the three and nine months ended September 30, 2020.

Recently Adopted Accounting Standards

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We are currently evaluating the impact of ASU 2019-12 on our condensed consolidated financial statements.

IMMATERIAL CORRECTION OF PRIOR PERIOD FINANCIAL STATEMENTS

Subsequent to the issuance of our condensed consolidated financial statements for the period ended June 30, 2020, we identified an immaterial error related to the commencement of revenue recognition for certain FortiCare standalone service contracts.

Rather than commencing recognition upon end user registration, we should have begun to recognize revenue over the service period when control had passed to the distributor which we have determined is our customer.

We assessed the effect of this correction, individually and in the aggregate, on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletins No.

99 and 108 and, based on an analysis of quantitative and qualitative factors, determined that the correction was not individually material to any of our prior interim or annual consolidated financial statements.

All financial information contained in the accompanying notes to these condensed consolidated financial statements has been revised to reflect the correction of this error.

The corrections to our condensed consolidated balance sheet as of December 31, 2019 were as follows (in millions):

December 31, 2019

As Previously Reported Corrections As Corrected

DEFERRED TAX ASSETS $ 232.6 $ ( 6.3 ) $ 226.3

TOTAL ASSETS 3,885.5 ( 6.3 ) 3,879.2

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Deferred revenue 1,173.6 ( 17.8 ) 1,155.8

Total current liabilities 1,473.6 ( 17.8 ) 1,455.8

DEFERRED REVENUE 962.3 ( 9.0 ) 953.3

Total liabilities 2,563.6 ( 26.8 ) 2,536.8

STOCKHOLDERS’ EQUITY:

Retained earnings (accumulated deficit) 140.3 20.5 160.8

Total stockholders’ equity 1,321.9 20.5 1,342.4

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,885.5 $ ( 6.3 ) $ 3,879.2

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The corrections to our condensed consolidated statements of income for the three and nine months ended September 30, 2019 were as follows (in millions, except per share amounts):

Three Months Ended September 30, 2019

As Previously Reported Corrections As Corrected

Service $ 350.4 $ 0.6 $ 351.0

Total revenue 547.5 0.6 548.1

GROSS PROFIT:

Service 305.3 0.6 305.9

Total gross profit 423.4 0.6 424.0

OPERATING INCOME 100.0 0.6 100.6

INCOME BEFORE INCOME TAXES 105.4 0.6 106.0

PROVISION FOR INCOME TAXES 25.6 0.2 25.8

NET INCOME $ 79.8 $ 0.4 $ 80.2

Net income per share (Note 10):

Basic $ 0.47 $ — $ 0.47

Diluted $ 0.46 $ — $ 0.46

Nine Months Ended September 30, 2019

As Previously Reported Corrections As Corrected

Service $ 992.1 $ 3.1 $ 995.2

Total revenue 1,541.8 3.1 1,544.9

GROSS PROFIT:

Service 858.6 3.1 861.7

Total gross profit 1,176.4 3.1 1,179.5

OPERATING INCOME 225.8 3.1 228.9

INCOME BEFORE INCOME TAXES 251.5 3.1 254.6

PROVISION FOR INCOME TAXES 40.2 0.9 41.1

NET INCOME $ 211.3 $ 2.2 $ 213.5

Net income per share (Note 10):

Basic $ 1.24 $ 0.01 $ 1.25

Diluted $ 1.21 $ 0.01 $ 1.22

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The corrections to our condensed consolidated statements of cash flows for the nine months ended September 30, 2019 were as follows (in millions):

Nine Months Ended September 30, 2019

As Previously Reported Corrections As Corrected

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 211.3 $ 2.2 $ 213.5

Changes in operating assets and liabilities:

Deferred tax assets 10.6 0.9 11.5

Deferred revenue 258.8 ( 3.1 ) 255.7

Net cash provided by operating activities $ 617.6 $ — $ 617.6

The results for the nine months ended September 30, 2020 include corrections to increase revenue, gross profit and operating income by $ 0.8 million and $ 2.1 million for the three months ended March 31, 2020 and June 30, 2020, respectively, and to increase net income by $ 0.6 million and $ 1.7 million for the three months ended March 31, 2020 and June 30, 2020, respectively.

The correction did no t change diluted net income per share for the three months ended March 31, 2020 but did increase diluted net income per share by $ 0.01 for the three months ended June 30, 2020.

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

REVENUE RECOGNITION

We sell cybersecurity solutions to a variety of organizations, such as enterprises, communication service providers, government organizations and small businesses.

Our revenue consists of product and service revenue.

Product revenue is generated by sales of our FortiGate products and other hardware and software solutions.

Product revenue is generated by our FortiGate network security appliances, our Fortinet Security Fabric platform products and other products.

Service revenue relates to sales of our security subscription services, which mainly consist of our FortiGuard security solutions, as well as our FortiCare technical support services and other services.

1 unchanged sentence

The following table presents our revenue disaggregated by major product and service lines (in millions):

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Product $ 223.8 $ 197.1 $ 628.0 $ 549.7

4 unchanged sentences

Deferred Revenue

During the three months ended June 30, 2020 and June 30, 2019, we recognized $ 307.9 million and $ 252.0 million in service revenue that was included in the deferred revenue balance as of December 31, 2019 and December 31, 2018, respectively.

During the six months ended June 30, 2020 and June 30, 2019, we recognized $ 656.8 million and $ 540.6 million in service revenue that was included in the deferred revenue balance as of December 31, 2019 and December 31, 2018, respectively.

During the three months ended September 30, 2020 and September 30, 2019, we recognized $ 263.1 million and $ 211.8 million in service revenue that was included in the deferred revenue balance as of December 31, 2019 and December 31, 2018, respectively.

During the nine months ended September 30, 2020 and September 30, 2019, we recognized $ 921.7 million and $ 754.5 million in service revenue that was included in the deferred revenue balance as of December 31, 2019 and December 31, 2018, respectively.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Transaction Price Allocated to the Remaining Performance Obligations

As of June 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 2.32 billion, which was substantially comprised of deferred security subscription and technical support services revenue.

As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 2.39 billion, which was substantially comprised of deferred security subscription and technical support services revenue.

We expect to recognize approximately $ 1.30 billion as revenue over the next 12 months and the remainder thereafter.

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Prior to our adoption of Topic 326, our accounts receivable balance was reduced by an allowance for doubtful accounts that we determined based on our assessment of the collectability of customer accounts.

Under Topic 326, our accounts receivable balance is reduced by an allowance for credit losses.

We measure expected credit losses of accounts receivable on a collective (pool) basis, aggregating accounts receivable that are either current or no more than 60 days past due, and aggregating accounts receivable that are more than 60 days past due.

Under Topic 326, our accounts receivable balance is reduced by an allowance for expected credit losses.

We measure expected credit losses of accounts receivable on a collective (pooled) basis, aggregating accounts receivable that are either current or no more than 60 days past due, and aggregating accounts receivable that are more than 60 days past due.

We apply a credit-loss percentage to each of the pools that is based on our historical credit losses.

We review whether each of our significant accounts receivable that is more than 60 days past due

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

continues to exhibit similar risk characteristics with the other accounts receivable in the pool.

We review whether each of our significant accounts receivable that is more than 60 days past due continues to exhibit similar risk characteristics with the other accounts receivable in the pool.

If we determine that it does not, we evaluate it for expected credit losses on an individual basis.

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

The allowance for credit losses was $ 2.2 million as of June 30, 2020, and the allowance for doubtful accounts was $ 1.2 million as of December 31, 2019.

Provisions, write-offs and recoveries were not material during the six months ended June 30, 2020.

The allowance for credit losses was $ 2.2 million as of September 30, 2020, and the allowance for doubtful accounts was $ 1.2 million as of December 31, 2019.

Provisions, write-offs and recoveries were not material during the nine months ended September 30, 2020.

Deferred Contract Costs

1 unchanged sentence

The amortization of deferred contract costs is included in sales and marketing expense in our condensed consolidated statements of income.

Amortization of deferred contract costs during the three months ended June 30, 2020 and June 30, 2019 were $ 33.2 million and $ 25.9 million, respectively.

Amortization of deferred contract costs during the six months ended June 30, 2020 and June 30, 2019 were $ 64.5 million and $ 51.0 million, respectively.

Amortization of deferred contract costs during the three months ended September 30, 2020 and September 30, 2019 were $ 35.3 million and $ 27.5 million, respectively.

Amortization of deferred contract costs during the nine months ended September 30, 2020 and September 30, 2019 were $ 99.8 million and $ 78.5 million, respectively.

FINANCIAL INSTRUMENTS AND FAIR VALUE

The following tables summarize our investments (in millions):

June 30, 2020

September 30, 2020

Cost Unrealized

1 unchanged sentence

Corporate debt securities $ 501.1 $ 1.8 $ ( 0.1 ) $ 502.8

government securities 166.3 0.1 — 166.4

Commercial paper 125.2 0.1 — 125.3

1 unchanged sentence

97.8 — — 97.8

government securities 60.8 0.2 — 61.0

Total available-for-sale securities $ 890.4 $ 2.0 $ ( 0.1 ) $ 892.3

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2019

2 unchanged sentences

Corporate debt securities $ 576.1 $ 1.0 $ ( 0.1 ) $ 577.0

government securities 195.0 0.2 — 195.2

Commercial paper 148.7 0.1 — 148.8

1 unchanged sentence

66.4 — — 66.4

government securities 195.0 0.2 — 195.2

Total available-for-sale securities $ 986.2 $ 1.3 $ ( 0.1 ) $ 987.4

(1) The majority of our certificates of deposit and term deposits are foreign deposits.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables show the gross unrealized losses and the related fair values of our investments that have been in a continuous unrealized loss position (in millions):

June 30, 2020

September 30, 2020

Less Than 12 Months 12 Months or Greater Total

3 unchanged sentences

Corporate debt securities $ 103.9 $ — $ — $ — $ 103.9 $ —

government securities 42.1 — — — 42.1 —

Commercial paper 24.6 — — — 24.6 —

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Corporate debt securities $ 117.3 $ ( 0.1 ) $ 16.1 $ — $ 133.4 $ ( 0.1 )

government securities 47.1 — — — 47.1 —

Commercial paper 26.0 — — — 26.0 —

Certificates of deposit and term deposits 13.0 — — — 13.0 —

government securities 47.1 — — — 47.1 —

Total available-for-sale securities $ 203.4 $ ( 0.1 ) $ 16.1 $ — $ 219.5 $ ( 0.1 )

The contractual maturities of our investments were as follows (in millions):

September 30,

2020 December 31,

3 unchanged sentences

Available-for-sale securities are reported at fair value, with unrealized gains and losses and the related tax impact included as a separate component of stockholders’ equity and in comprehensive income.

Accrued interest of $ 3.7 million as of June 30, 2020 is excluded from both the fair value and the amortized cost of our available-for-sale securities and is recorded in Prepaid expenses and other current assets in our condensed consolidated balance sheet.

Accrued interest of $ 3.2 million as of September 30, 2020 is excluded from both the fair value and the amortized cost of our available-for-sale securities and is recorded in Prepaid expenses and other current assets in our condensed consolidated balance sheet.

We have elected to not record an allowance for credit losses for accrued interest for available-for-sale securities and will reverse the accrued interest against interest income in the period in which we determine the accrued interest to be uncollectible.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Prior to 2020, we followed the guidance in ASC 320 Investments—Debt and Equity Securities in determining whether unrealized losses were other than temporary.

We adopted Topic 326 on January 1, 2020, and now consider whether unrealized losses have resulted from a credit loss or other factors.

The unrealized losses on our available-for-sale securities as of June 30, 2020 and as of December 31, 2019 were caused by fluctuations in market value and interest rates as a result of the economic environment.

We concluded that an allowance for credit losses was unnecessary as of June 30, 2020 and that the impairments as of December 31, 2019 were not other than temporary because (i) the decline in market value was attributable to changes in market conditions and not credit quality, and (ii) we concluded that neither do we intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis.

The unrealized losses on our available-for-sale securities as of September 30, 2020 and as of December 31, 2019 were caused by fluctuations in market value and interest rates as a result of the economic environment.

We concluded that an allowance for credit losses was unnecessary as of September 30, 2020 and that the impairments as of December 31, 2019 were not other than temporary because (i) the decline in market value was attributable to changes in market conditions and not credit quality, and (ii) we concluded that neither do we intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis.

Realized gains and losses on available-for-sale securities were insignificant in the periods presented and are included in Other income (expense)—net in our consolidated statements of income.

We use the specific identification method to determine the cost basis of investments sold.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value Accounting—We apply the following fair value hierarchy for disclosure of the inputs used to measure fair value.

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Investments are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value of Financial Instruments

Assets Measured at Fair Value on a Recurring Basis

The following tables present the fair value of our financial assets measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 (in millions):

June 30, 2020 December 31, 2019

The following tables present the fair value of our financial assets measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 (in millions):

September 30, 2020 December 31, 2019

Assets Significant

5 unchanged sentences

Corporate debt securities $ 505.9 $ — $ 505.9 $ — $ 577.0 $ — $ 577.0 $ —

government securities 166.4 166.4 — — 195.2 195.2 — —

Commercial paper 125.3 — 125.3 — 165.8 — 165.8 —

Certificates of deposit and term deposits 97.8 — 97.8 — 66.4 — 66.4 —

government securities 61.0 61.0 — — 195.2 195.2 — —

Money market funds 164.0 164.0 — — 15.0 15.0 — —

4 unchanged sentences

Total $ 1,059.4 $ 1,019.4

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2020 and year ended December 31, 2019.

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2020 and year ended December 31, 2019.

Inventory consisted of the following (in millions):

September 30,

2020 December 31,

2 unchanged sentences

Inventory $ 134.5 $ 117.9

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

PROPERTY AND EQUIPMENT—Net

Property and equipment—net consisted of the following (in millions):

September 30,

2020 December 31,

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

Depreciation expense was $ 14.1 million and $ 12.3 million during the three months ended June 30, 2020 and June 30, 2019, respectively.

Depreciation expense was $ 27.7 million and $ 25.0 million during the six months ended June 30, 2020 and June 30, 2019, respectively.

Depreciation expense was $ 13.9 million and $ 12.8 million during the three months ended September 30, 2020 and September 30, 2019, respectively.

Depreciation expense was $ 41.6 million and $ 37.8 million during the nine months ended September 30, 2020 and September 30, 2019, respectively.

INVESTMENTS IN PRIVATELY HELD COMPANIES

Our investments in the equity securities of privately held companies totaled $ 1.0 million and $ 5.3 million as of June 30, 2020 and December 31, 2019, respectively.

Our investments in the equity securities of privately held companies without readily determinable fair values totaled $ 1.0 million and $ 5.3 million as of September 30, 2020 and December 31, 2019, respectively.

These investments are accounted for at cost, adjusted for changes in observable prices minus impairment.

1 unchanged sentence

These investments are recorded as Other assets in our condensed consolidated balance sheets and would be measured at fair value if indicators of an increase in value or impairment existed.

In the first quarter of 2020, we determined that one investment was impaired.

As a result, we recognized and included a non-cash impairment charge of $ 4.3 million in Other income (expense)—net in our condensed consolidated statements of income.

As of June 30, 2020, no other events have occurred that would affect the carrying value of these investments.

GOODWILL AND OTHER INTANGIBLE ASSETS—Net

As of June 30, 2020 and December 31, 2019, we had goodwill of $ 67.2 million.

There were no impairments to goodwill during the six months ended June 30, 2020 or during prior periods.

In the first quarter of 2020 and in the third quarter of 2019, we recognized non-cash impairment charges of $ 4.3 million and $ 3.8 million in Other expense—net in our condensed consolidated statements of income, respectively.

Cumulative impairment adjustments to all equity securities without readily determinable fair values totaled $ 8.1 million since their respective acquisitions through September 30, 2020.

As of September 30, 2020, no other events have occurred that would affect the carrying value of these investments.

BUSINESS COMBINATION

OPAQ Networks, Inc.

On July 20, 2020, we acquired all outstanding shares of OPAQ Networks, Inc.

(“OPAQ”), a privately held Secure Access Service Edge (“SASE”) cloud provider.

Under the acquisition method of accounting in accordance with ASC 805, the total preliminary purchase price was allocated to OPAQ’s identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values using management’s best estimates and assumptions to assign fair value as of the acquisition date.

The preliminary purchase price for OPAQ was $ 8.0 million in cash, of which $ 1.0 million was allocated to goodwill, $ 4.7 million was allocated to identifiable intangible assets, the majority of which was developed technology, and $ 2.3 million was allocated to other net assets acquired, which predominantly included cash, deferred tax assets, operating lease right-of-use assets and lease liabilities, accounts payable, accrued liabilities and assumed debt.

The preliminary purchase price included a $ 1.3 million indemnity fund held in escrow for 12 months after the transaction closing date.

Goodwill recorded in connection with this acquisition represents the value we expect to be created through expansion into markets within our existing business, and potential cost savings and synergies, and goodwill is non-deductible for tax purposes.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our estimates and assumptions are subject to change within the measurement period, which is up to 12 months after the acquisition date.

The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to the allocation of certain assets and liabilities may occur as additional information becomes available.

The primary areas of the purchase price that are not yet finalized are related to income taxes and the valuation of acquired assets and assumed liabilities.

The operating results of the acquired company are included in our condensed consolidated statement of income from the date of acquisition.

Acquisition-related costs for this acquisition were not material.

Pro forma information has not been presented as the impact of this acquisition was not material to our condensed consolidated financial statements.

GOODWILL AND OTHER INTANGIBLE ASSETS—Net

The following table presents the changes in the carrying amount of goodwill (in millions):

Balance—December 2019 $ 67.2

Addition due to business combination 1.0

Balance—September 2020 $ 68.2

There were no impairments to goodwill during the nine months ended September 30, 2020 or during prior periods.

Other Intangible Assets—Net

The following tables present other intangible assets—net as of June 30, 2020 and December 31, 2019 (in millions, except years):

June 30, 2020

The following tables present other intangible assets—net as of September 30, 2020 and December 31, 2019 (in millions, except years):

September 30, 2020

Weighted-Average Useful Life (in Years) Gross Accumulated Amortization Net

11 unchanged sentences

Total other intangible assets—net $ 71.8 $ 40.7 $ 31.1

Amortization expense was $ 3.7 million and $ 2.9 million during the three months ended June 30, 2020 and June 30, 2019, respectively.

Amortization expense was $ 7.7 million and $ 5.9 million during the six months ended June 30, 2020 and June 30, 2019, respectively.

Amortization expense was $ 2.8 million and $ 2.2 million during the three months ended September 30, 2020 and September 30, 2019, respectively.

Amortization expense was $ 10.5 million and $ 8.1 million during the nine months ended September 30, 2020 and September 30, 2019, respectively.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes estimated future amortization expense of finite-lived intangible assets—net (in millions):

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Dilutive shares of common stock are determined by applying the treasury stock method.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share is as follows (in millions, except per share amounts):

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Net income $ 123.4 $ 80.2 $ 341.8 $ 213.5

10 unchanged sentences

Diluted $ 0.75 $ 0.46 $ 2.03 $ 1.22

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following weighted-average shares of common stock were excluded from the computation of diluted net income per share for the periods presented, as their effect would have been antidilutive (in millions):

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

RSUs 0.3 0.2 0.3 0.3

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We have operating leases for offices, research and development facilities and data centers.

Our leases have remaining terms that range from less than one year to approximately six years , some of which include one or more options to renew, with renewal terms of up to six years .

We do not include renewal options in our lease terms for calculating our lease liability, as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these renewal options at the time of the lease commencement.

Our leases have remaining terms that range from less than one year to approximately seven years , some of which include one or more options to renew, with renewal terms of up to six years .

Unless and until we are reasonably certain we will exercise these renewal options, we do not include renewal options in our lease terms for calculating our lease liability, as the renewal options allow us to maintain operational flexibility.

During the year ended December 31, 2019, we entered into a finance lease with $ 3.6 million lease liabilities arising from obtaining right-of-use assets with a lease term of approximately two years .

1 unchanged sentence

The related assumptions and further disclosures for finance leases are not material.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The components of lease expense were as follows (in millions):

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Operating lease expense $ 4.8 $ 3.8 $ 13.5 $ 11.1

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Total lease expense $ 6.5 $ 5.3 $ 18.1 $ 15.2

(1) Variable lease expense for the six months ended June 30, 2020 and June 30, 2019 predominantly included common area maintenance charges and parking expense.

(1) Variable lease expense for the nine months ended September 30, 2020 and September 30, 2019 predominantly included common area maintenance charges and parking expense.

Supplemental balance sheet information related to our operating leases was as follows (in millions, except lease term and discount rate):

Classification June 30,

Classification September 30,

2020 December 31,

5 unchanged sentences

Weighted average discount rate - operating leases 3.2 % 2.8 %

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental cash flow information related to leases was as follows (in millions):

Six Months Ended Six Months Ended

2020 June 30,

Nine Months Ended Nine Months Ended

September 30,

2020 September 30,

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows used for operating leases $ 13.8 $ 11.9

Lease liabilities arising from obtaining right-of-use assets

Operating leases $ 5.9 $ 4.9

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Maturities of operating lease liabilities as of June 30, 2020 were as follows (in millions):

Maturities of operating lease liabilities as of September 30, 2020 were as follows (in millions):

Year ending December 31, Amount

3 unchanged sentences

Less imputed interest ( 2.9 )

As of June 30, 2020, we had additional minimum lease payments of $ 8.2 million relating to operating leases that had been signed but had not yet commenced and therefore were excluded from the table above.

These leases will commence during 2020 and will have lease terms of approximately three to seven years .

As of September 30, 2020, we had additional minimum lease payments of $ 3.8 million relating to operating leases that had been signed but had not yet commenced and therefore were excluded from the table above.

These leases will commence during 2020 and will have lease terms of approximately three to five years .

MUTUAL COVENANT-NOT-TO-SUE AND RELEASE AGREEMENT

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We estimated the stand-alone selling price of each distinct performance obligation and allocated the $ 100.0 million transaction price.

During the three and six months ended June 30, 2020, we recorded $ 1.1 million and $ 37.9 million in Gain on IP matter in our condensed consolidated statements of income, respectively.

We recorded $ 12.1 million in Accrued liabilities and Other liabilities in our condensed consolidated balance sheet as of June 30, 2020.

During the three and nine months ended September 30, 2020, we recorded $ 1.1 million and $ 39.0 million in Gain on IP matter in our condensed consolidated statements of income, respectively.

We recorded $ 11.0 million in Accrued liabilities and Other liabilities in our condensed consolidated balance sheet as of September 30, 2020.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

COMMITMENTS AND CONTINGENCIES

The following table summarizes our inventory purchase commitments as of June 30, 2020 (in millions):

The following table summarizes our inventory purchase commitments as of September 30, 2020 (in millions):

Total 2020 2021 2022 2023 2024 Thereafter

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In order to reduce manufacturing lead times and plan for adequate component supply, we may issue purchase orders to some of our independent contract manufacturers, which may not be cancelable.

As of June 30, 2020, we had $ 282.1 million of open purchase orders with our independent contract manufacturers that may not be cancelable.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of September 30, 2020, we had $ 284.7 million of open purchase orders with our independent contract manufacturers that may not be cancelable.

Other Contractual Commitments and Open Purchase Orders —In addition to commitments with contract manufacturers, we have open purchase orders and contractual obligations in the ordinary course of business for which we have not received goods or services.

As of June 30, 2020, we had $ 27.8 million in other contractual commitments having a remaining term in excess of one year that may not be cancelable.

As of September 30, 2020, we had $ 23.1 million in other contractual commitments having a remaining term in excess of one year that may not be cancelable.

Litigation —We are involved in disputes, litigation, and other legal actions.

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2009 Equity Incentive Plan (the “Amended Plan”) pursuant to which we have granted RSUs and stock options.

We also previously had an Employee Stock Purchase Plan (“ESPP”) for eligible employees, which was terminated in February 2019.

As of June 30, 2020, there was a total of 12.0 million shares of common stock available for grant under the Amended Plan.

As of September 30, 2020, there was a total of 12.1 million shares of common

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

stock available for grant under the Amended Plan.

We also previously had an Employee Stock Purchase Plan (“ESPP”) for eligible employees, which was terminated in February 2019.

Restricted Stock Units

6 unchanged sentences

Vested ( 2.3 ) 57.07

Balance—June 30, 2020 5.8 $ 81.49

Balance—September 30, 2020 5.3 $ 86.31

Stock compensation expense is recognized on a straight-line basis over the vesting period of each RSU.

As of June 30, 2020, total compensation expense related to unvested RSUs granted to employees and non-employees under the 2009 Plan, but not yet recognized, was $ 427.5 million, with a weighted-average remaining vesting period of 2.9 years.

As of September 30, 2020, total compensation expense related to unvested RSUs granted to employees and non-employees under the 2009 Plan, but not yet recognized, was $ 399.1 million, with a weighted-average remaining vesting period of 2.7 years.

RSUs settle into shares of common stock upon vesting.

Upon the vesting of the RSUs, we net-settle the RSUs and withhold a portion of the shares to satisfy minimum statutory employee withholding tax requirements.

Upon the vesting of the RSUs, we net-settle the RSUs and withhold a portion of the shares to satisfy employee withholding tax requirements.

The payment of the withheld taxes to the tax authorities is reflected as a financing activity within the condensed consolidated statements of cash flows.

The following summarizes the number and value of the shares withheld for employee taxes (in millions):

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Shares withheld for taxes 0.2 0.2 0.7 0.9

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The following table summarizes the weighted-average assumptions relating to our employee stock options:

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Expected term in years 4.4 4.4 4.4 4.4

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Exercised ( 0.4 ) 40.99

Balance—June 30, 2020 2.9 $ 66.01

Options vested and expected to vest—June 30, 2020 2.9 $ 66.01 4.7 $ 206.0

Options exercisable—June 30, 2020 1.4 $ 41.09 3.5 $ 134.3

The aggregate intrinsic value represents the difference between the exercise price of stock options and the quoted market price of our common stock on June 30, 2020 for all in-the-money stock options.

Balance—September 30, 2020 2.8 $ 66.72

Options vested and expected to vest—September 30, 2020 2.8 $ 66.72 4.4 $ 146.4

Options exercisable—September 30, 2020 1.5 $ 42.81 3.3 $ 109.6

The aggregate intrinsic value represents the difference between the exercise price of stock options and the quoted market price of our common stock on September 30, 2020 for all in-the-money stock options.

Stock compensation expense is recognized on a straight-line basis over the vesting period of each stock option.

As of June 30, 2020, total compensation expense related to unvested stock options granted to employees but not yet recognized was $ 38.5 million, with a weighted-average remaining vesting period of 3.0 years.

As of September 30, 2020, total compensation expense related to unvested stock options granted to employees but not yet recognized was $ 35.1 million, with a weighted-average remaining vesting period of 2.8 years.

Additional information related to our stock options is summarized below (in millions, except per share amounts):

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Weighted-average fair value per share granted $ 43.80 $ 24.97 $ 35.76 $ 26.96

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Stock-based compensation expense, including stock-based compensation expense related to awards classified as liabilities, is included in costs and expenses as follows (in millions):

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Cost of product revenue $ 0.4 $ 0.4 $ 1.2 $ 1.2

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The following table summarizes stock-based compensation expense, including stock-based compensation expense related to awards classified as liabilities, by award type (in millions):

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

RSUs $ 46.4 $ 39.5 $ 134.5 $ 120.6

3 unchanged sentences

Total income tax benefit associated with stock-based compensation that is recognized in the condensed consolidated statements of income is as follows (in millions):

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Income tax benefit associated with stock-based compensation $ 11.0 $ 9.8 $ 31.9 $ 30.1

Share Repurchase Program

Under the Share Repurchase Program originally approved by our board of directors in January 2016 (the “Repurchase Program”), our board of directors has authorized the repurchase of up to $ 2.5 billion of our outstanding common stock through February 28, 2021.

In July 2020, under the Share Repurchase Program originally approved by our board of directors in January 2016 (the “Repurchase Program”), our board of directors approved a $ 500.0 million increase and extended the term to February 28, 2022, bringing the aggregate amount authorized to be repurchased to $ 3.0 billion.

Share repurchases may be made by us from time to time in privately negotiated transactions or in open market transactions.

The Repurchase Program does not require us to purchase a minimum number of shares, and may be suspended, modified or discontinued at any time without prior notice.

During the three and six months ended June 30, 2020, we repurchased 1.4 million and 11.4 million shares of common stock, respectively, under the Repurchase Program in open market transactions at an average price of $ 99.69 per share and $ 91.55 per share, respectively, for an aggregate purchase price of $ 146.1 million and $ 1.0 billion, respectively.

As of June 30, 2020, $ 546.8 million remained available for future share repurchases under the Repurchase Program.

Our effective tax rate was 8 % for the three months ended June 30, 2020, compared to an effective tax rate of 15 % for the same period last year.

Our effective tax rate was 9 % for the six months ended June 30, 2020, compared to an effective tax rate of 10 % for the same period last year.

During the nine months ended September 30, 2020, we repurchased 11.4 million shares of common stock under the Repurchase Program in open market transactions at an average price $ 91.55 per share, for an aggregate purchase price $ 1.05 billion.

As of September 30, 2020, $ 1.05 billion remained available for future share repurchases under the Repurchase Program.

Our effective tax rate was 4 % for the three months ended September 30, 2020, compared to an effective tax rate of 24 % for the same period last year.

Our effective tax rate was 8 % for the nine months ended September 30, 2020, compared to an effective tax rate of 16 % for the same period last year.

The effective tax rates for the periods presented are primarily comprised of U.S.

federal and state taxes, withholding taxes, foreign taxes and excess tax benefits from stock-based compensation expense.

The tax rates for the three months ended June 30, 2020 and June 30, 2019 were impacted by U.S.

The tax rates for the three months ended September 30, 2020 and September 30, 2019 were impacted by U.S.

federal and state taxes, withholding taxes and foreign taxes that were $ 17.5 million and $ 32.7 million, respectively.

federal and state taxes were lowered by a tax benefit of $ 5.0 million from the foreign-derived intangible income deduction for the three months ended June 30, 2020.

The tax rates for the three months ended June 30, 2020 and June 30, 2019 were impacted by excess tax benefits from stock-based compensation expense of $ 10.0 million and $ 11.7 million, respectively, and release of reserves of $ 8.7 million and $ 10.0 million, respectively, on uncertain tax positions and the interest due to the expiration of the statute of limitations.

The tax rate for the three months ended June 30, 2019 was further impacted by an increase in tax expense of $ 10.3 million related to the U.S.

Court of Appeals for the Ninth Circuit’s (the “Ninth Circuit”) opinion in Altera Corporation and Subsidiaries vs.

Commissioner of Internal Revenue (“ Altera ”), as described below, regarding stock-based compensation expense in cost sharing arrangements.

The tax rates for the six months ended June 30, 2020 and June 30, 2019 were impacted by U.S.

federal and state taxes included a tax benefit of $ 16.0 million from the foreign-derived intangible income deduction for the three months ended September 30, 2020.

The tax rates for the three months ended September 30, 2020 and September 30, 2019 were impacted by excess tax benefits from stock-based compensation expense of $ 12.5 million and $ 6.9 million, respectively.

The tax rates for the nine months ended September 30, 2020 and September 30, 2019 were impacted by U.S.

federal and state taxes, withholding taxes and foreign taxes of $ 74.8 million and $ 75.4 million, respectively.

federal and state taxes were lowered by a tax benefit of $ 9.6 million from the foreign-derived intangible income deduction for the six months ended June 30, 2020.

The tax rates for the six months ended June 30, 2020 and June 30, 2019 were impacted by excess tax benefits from stock-based compensation expense of $ 25.2 million and $ 27.7 million, respectively, and release of reserves of $ 8.7 million and $ 10.0 million, respectively, on uncertain tax positions and the interest due to the expiration of the statute of limitations.

federal and state taxes included a tax benefit of $ 25.6 million from the foreign-derived intangible income deduction for the nine months ended September 30, 2020.

The tax rates for the nine months ended September 30, 2020 and September 30, 2019 were impacted by excess tax benefits from stock-based compensation expense of $ 37.6 million and $ 34.6 million, respectively, and release of reserves of $ 9.0 million and $ 10.0 million, respectively, on uncertain tax positions and the interest due to the expiration of the statute of limitations.

The provision for income taxes for the nine months ended September 30, 2019 was further impacted by an increase in tax expense of $ 10.3 million for an unrecognized tax benefit related to the opinion of the U.S.

Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) in Altera Corporation and Subsidiaries vs.

Commissioner of Internal Revenue (“ Altera ”) described below, regarding stock-based compensation expense in cost sharing arrangements.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

rate for the six months ended June 30, 2019 was further impacted by an increase in tax expense of $ 10.3 million related to the Ninth Circuit’s Altera decision, regarding stock-based compensation expense in cost sharing arrangements.

As of June 30, 2020 and December 31, 2019, unrecognized tax benefits were $ 62.9 million and $ 67.5 million, respectively.

As of September 30, 2020 and December 31, 2019, unrecognized tax benefits were $ 67.1 million and $ 67.5 million, respectively.

If recognized, $ 61.7 million of the unrecognized tax benefits would favorably affect our effective tax rate.

It is our policy to include accrued interest and penalties related to uncertain tax benefits in income tax expense.

As of June 30, 2020 and December 31, 2019, accrued interest and penalties were $ 13.4 million and $ 14.1 million, respectively.

It is our policy to include accrued interest and penalties related to unrecognized tax benefits in income tax expense.

As of September 30, 2020 and December 31, 2019, accrued interest and penalties were $ 13.1 million and $ 14.1 million, respectively.

It is reasonably possible that our gross unrecognized tax benefits will decrease by up to $ 4.0 million in the next 12 months, due to the lapse of the statute of limitations.

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We do not expect there to be a material tax impact on our condensed consolidated financial statements at this time and will continue to assess the implications of the CARES Act and its continuing developments and interpretations.

On July 9, 2020, the United States Department of the Treasury and the Internal Revenue Service (the “IRS”) released final Section 250 regulations, providing guidance on foreign-derived intangible income deduction and global intangible low-taxed income.

On July 9, 2020, the United States Department of the Treasury (the “U.S.

Treasury”) and the Internal Revenue Service (the “IRS”) released final Section 250 regulations, providing guidance on foreign-derived intangible income deduction and global intangible low-taxed income.

Generally, the final regulations are applicable for taxable years beginning on or after January 1, 2021.

However, taxpayers may apply the final regulations for taxable years beginning on or after January 1, 2018.

We are in the process of analyzing the tax impact from the final regulations on our foreign-derived intangible income deduction calculation.

We have elected to apply the final regulations to the year ending December 31, 2020 and included the tax impact from the final regulations on our foreign-derived intangible income deduction calculation.

On September 29, 2020, the U.S.

Treasury and the IRS released final regulations related to foreign tax credits that were the subject of proposed regulations issued in December 2019 and proposed certain provisions in proposed regulations issued in December 2019.

The final and proposed regulations provide administrative guidance for the foreign tax credit regime, which was updated in the 2017 Tax Cuts and Jobs Act.

Generally, the provisions that were included in the 2019 proposed regulations apply to taxable years ending on or after December 16, 2019, except as otherwise specified.

We are in the process of analyzing the tax impact from the final regulations on our foreign tax credit calculation.

DEFINED CONTRIBUTION PLANS

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Our board of directors approved 50 % matching contributions on employee contributions up to 4 % of each employee’s eligible earnings.

Our matching contributions to our 401(k) Plan and the RRSP for the three months ended June 30, 2020 and June 30, 2019 were $ 2.2 million and $ 1.7 million, respectively.

Our matching contributions to our 401(k) Plan and the RRSP for the six months ended June 30, 2020 and June 30, 2019 were $ 4.4 million and $ 3.4 million, respectively.

Our matching contributions to our 401(k) Plan and the RRSP for the three months ended September 30, 2020 and September 30, 2019 were $ 2.1 million and $ 1.8 million, respectively.

Our matching contributions to our 401(k) Plan and the RRSP for the nine months ended September 30, 2020 and September 30, 2019 were $ 6.5 million and $ 5.2 million, respectively.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SEGMENT INFORMATION

2 unchanged sentences

Our chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance.

We have one business activity, and there are no segment managers

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level.

We have one business activity, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level.

Accordingly, we have determined that we have one operating segment, and therefore, one reportable segment.

1 unchanged sentence

The following tables set forth revenue and property and equipment—net by geographic region (in millions):

Three Months Ended Six Months Ended

Revenue June 30,

2020 June 30,

2019 June 30,

2020 June 30,

Three Months Ended Nine Months Ended

Revenue September 30,

2020 September 30,

2019 September 30,

2020 September 30,

United States $ 206.0 $ 182.3 $ 589.1 $ 506.9

5 unchanged sentences

Property and Equipment — net

September 30,

2020 December 31,

6 unchanged sentences

The following distributors accounted for 10% or more of our revenue:

Three Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Exclusive Networks Group 31 % 31 % 31 % 31 %

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Exclusive Networks Group (“Exclusive”)

29 % 30 % 30 % 31 %

Ingram Micro, Inc.

(“Ingram Micro”) 10 % 11 % 10 % 11 %

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following distributors accounted for 10% or more of net accounts receivable:

September 30,

2020 December 31,

Exclusive Networks Group 31 % 36 %

Exclusive 31 % 36 %

Ingram Micro 11 % 10 %

Tech Data Corporation 10 % *

* Represents less than 10%

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SUBSEQUENT EVENTS

Share Repurchase

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

As of August 6, 2020, $ 1.05 billion remained available for future share repurchases under the Repurchase Program.

Business Combination

On July 20, 2020, we acquired OPAQ Networks, Inc.

(“OPAQ”), a privately held Secure Access Service Edge cloud provider.

We acquired OPAQ for approximately $ 13.0 million in cash consideration, subject to certain adjustments.

We are currently in the process of evaluating the business combination accounting, including the consideration transferred and the initial purchase price allocation.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements