What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-02-21 compared with 2024-02-26 · 290 added, 250 removed, 1027 unchanged (34% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets as of December 31, 202 4 and 202 3

Consolidated Statements of Income for the year s ended December 31, 202 3 , 202 2 and 202 1

Consolidated Statements of Comprehensive Income for the year s ended December 31, 202 3 , 202 2 and 202 1

Consolidated Statements of Equity (Deficit) for the year s ended December 31, 202 3 , 202 2 and 202 1

Consolidated Statements of Cash Flows for the year s ended December 31, 202 3 , 202 2 and 202 1

Consolidated Statements of Income for the years ended December 31, 202 4 , 202 3 and 202 2

Consolidated Statements of Comprehensive Income for the years ended December 31, 202 4 , 202 3 and 202 2

Consolidated Statements of Equity (Deficit) for the years ended December 31, 202 4 , 202 3 and 202 2

Consolidated Statements of Cash Flows for the years ended December 31, 202 4 , 202 3 and 202 2

Notes to Consolidated Financial Statements

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

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

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

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

Litigation – Refer to Notes 1 and 12 to the financial statements

Revenue – Refer to Note 1 and Note 2 to the financial statements

Critical Audit Matter Description

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

Claims from third parties may result in a requirement to pay substantial damages.

The Company accrues for a loss contingency if a loss is probable, and the amount of the loss can be reasonably estimated.

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

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

The Company’s contracts with customers often include multiple performance obligations, such as hardware, software license, security subscription, technical support services, cloud and other services, which are generally capable of being distinct and accounted for as separate performance obligations.

Pursuant to accounting principles generally accepted in the United States of America, the Company is required to evaluate whether each performance obligation represents goods and services that are distinct for purposes of determining the amount and timing of revenue recognition.

A good or service is distinct where the customer can benefit from the product without the services and the services are separately identifiable within a contract, and the transfer of the good or service is separately identifiable from other promises in the contract.

The evaluation of performance obligations can require significant judgment in certain contracts and could change the amount of revenue recognized in a given period.

We identified the evaluation of performance obligations in certain contracts as a critical audit matter because of the significant judgment management makes in evaluating such contracts and the impact of such judgment on the amount of revenue recognized in a particular period.

This required a high degree of auditor judgment and an increased extent of testing.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to litigation contingencies included the following, among others:

• We tested the effectiveness of controls over management’s litigation contingency accrual analysis and assessment of matters

with potential impact.

• We obtained and evaluated legal letters from internal and external legal counsel, and we discussed the pending litigation matters with internal legal counsel.

• We made inquiries with management to obtain an understanding of litigation matters that the Company is currently undergoing.

• We read available court documents for litigation matters to search for contradictory information.

• We read Board of Directors meeting minutes to search for contradictory information.

• We evaluated the assumptions used by the Company to estimate the litigation contingency, including corroborating the assumptions with internal legal counsel.

Our audit procedures related to the Company's identification and evaluation of performance obligations within certain contracts and the resulting impact on the pattern and timing of revenue recognition included the following, among others:

• We assessed management’s significant accounting policies related to revenue recognition for compliance with Accounting Standards Codification 606, Revenue from Contracts with Customers.

• We evaluated the design and tested the operating effectiveness of internal controls over review of contracts, including those over the identification and evaluation of contract terms and conditions and the resulting impact on revenue recognition.

• We selected a sample of certain contracts and performed the following:

• Obtained and read the related contract documents and evaluated whether management had properly identified the contract terms and conditions.

• Assessed management’s evaluation of the impact of the performance obligations on the pattern and timing of revenue recognition.

/s/ DELOITTE & TOUCHE LLP

15 unchanged sentences

Total current assets 5,971.5 4,428.3

LONG-TERM INVESTMENTS — 45.5

PROPERTY AND EQUIPMENT—NET 1,349.5 1,044.4

5 unchanged sentences

TOTAL ASSETS $ 9,763.1 $ 7,258.9

LIABILITIES AND STOCKHOLDERS’ DEFICIT

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES:

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COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS’ DEFICIT:

STOCKHOLDERS’ EQUITY (DEFICIT):

Common stock, $ 0.001 par value— 1,500.0 shares authorized;

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Accumulated deficit ( 117.1 ) ( 1,861.7 )

Total stockholders’ deficit

Total stockholders’ equity (deficit)

1,493.8 ( 463.4 )

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

$ 9,763.1 $ 7,258.9

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INTEREST EXPENSE ( 20.0 ) ( 21.0 ) ( 18.0 )

OTHER EXPENSE—NET ( 6.1 ) ( 13.5 ) ( 11.6 )

GAIN ON BARGAIN PURCHASE

OTHER INCOME (EXPENSE)—NET

13.6 ( 6.1 ) ( 13.5 )

INCOME BEFORE INCOME TAXES AND LOSS FROM EQUITY METHOD INVESTMENTS

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NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS, NET OF TAX

— ( 0.7 ) ( 0.1 )

NET INCOME ATTRIBUTABLE TO FORTINET, INC.

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Comprehensive income including non-controlling interests 1,738.0 1,149.1 842.1

comprehensive income (loss) attributable to non-controlling interests — 0.2 ( 1.1 )

comprehensive income attributable to non-controlling interests

Comprehensive income attributable to Fortinet, Inc.

15 unchanged sentences

Stock-based compensation expense — — 217.3 — — — 217.3

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

Acquisition of the non-controlling interests — — 3.4 — — ( 16.9 ) ( 13.5 )

Net unrealized loss on investments - net of tax — — — ( 4.8 ) — — ( 4.8 )

6 unchanged sentences

( 27.2 ) — ( 37.4 ) — ( 1,463.1 ) — ( 1,500.5 )

Excise tax on net stock repurchases — — ( 10.9 ) — — — ( 10.9 )

Stock-based compensation expense — — 249.0 — — — 249.0

Acquisition of the non-controlling interests — — 3.4 — — ( 16.9 ) ( 13.5 )

Net unrealized loss on investments - net of tax — — — ( 4.8 ) — — ( 4.8 )

Net unrealized gain on investments - net of tax

— — — 6.8 — — 6.8

Foreign currency translation adjustment — — — ( 5.5 ) — — ( 5.5 )

4 unchanged sentences

Repurchase and retirement of common stock — — — — ( 0.6 ) — ( 0.6 )

( 27.2 ) — ( 37.4 ) — ( 1,463.1 ) — ( 1,500.5 )

Excise tax on net stock repurchases

— — ( 10.9 ) — — — ( 10.9 )

Stock-based compensation expense — — 257.9 — — — 257.9

20 unchanged sentences

29.4 42.1 68.1

Gain on bargain purchase ( 106.3 ) — —

Other ( 15.2 ) 18.5 23.6

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Purchases of investments in privately held companies

( 8.5 ) — ( 160.0 )

Payments made in connection with business combinations, net of cash acquired ( 275.5 ) — ( 30.8 )

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CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from long-term borrowings, net of discount and underwriting fees — — 989.4

Payments for debt issuance costs — — ( 2.4 )

Payments of debt assumed in connection with business combination — — ( 19.5 )

Repurchase and retirement of common stock

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Other ( 11.7 ) ( 1.2 ) ( 4.8 )

Net cash provided by (used in) financing activities ( 1,570.4 ) ( 2,130.3 ) 82.8

Net cash used in financing activities

( 50.1 ) ( 1,570.4 ) ( 2,130.3 )

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ( 2.6 ) ( 0.8 ) ( 0.4 )

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NON-CASH INVESTING AND FINANCING ACTIVITIES:

Transfers of evaluation units from inventory to property and equipment $ 31.8 $ 17.1 $ 15.9

Transfers of evaluation units and equipment from inventory to property and equipment

$ 35.5 $ 31.8 $ 17.1

Liability for purchase of property and equipment $ 23.0 $ 23.6 $ 21.2

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Fortinet’s cybersecurity solutions are designed to provide broad visibility and segmentation of the digital attack surface, through our integrated cybersecurity platform (the “Fortinet Security Fabric”) with automated protection, detection and response.

The amounts previously reported as Income tax liabilities are included in Other liabilities.

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

Basis of Presentation and Preparation —The consolidated financial statements of Fortinet and its subsidiaries (collectively, “we,” “us”, or “our”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).

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Use of Estimates —The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Such management estimates include, but are not limited to, the determination of contingent liabilities, the determination of our ability to exercise control or significant influence over our investees, the evaluation of the equity method investments for OTTI, the standalone selling price for our products and services, the period of benefit for deferred contract costs for commissions, stock-based compensation, inventory valuation and liability for non-cancellable inventory purchase commitments with contract manufacturers and component suppliers, the fair value of tangible and intangible assets acquired and liabilities assumed in business combinations, the measurement of liabilities for uncertain tax positions and deferred tax assets and liabilities, the assessment of recoverability of our goodwill and other long-lived assets, measurement of non-marketable equity securities and the determination of sales returns reserves.

Such management estimates include, but are not limited to, the determination of contingent liabilities, the standalone selling price for our products and services, the period of benefit for deferred contract costs for commissions, stock-based compensation, inventory valuation and liability for non-cancellable inventory purchase commitments with contract manufacturers and component suppliers, the fair value of tangible and intangible assets acquired and liabilities assumed in business combinations, the measurement of liabilities for uncertain tax positions and deferred tax assets and liabilities, the assessment of recoverability of our goodwill and other long-lived assets.

We base our estimates on historical experience and also on assumptions that we believe are reasonable.

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We generally do not require collateral on accounts receivable, and we maintain reserves for estimated credit losses.

Segment Information for distributor customers that accounted for 10% or more of our revenue or net accounts receivable.

We rely on a small number of manufacturing partners, with over 95 % of manufacturing in Taiwan and U.S., to manufacture our products, and some of the chips and other components of our products used by the contract manufacturers are available from limited or sole sources of supply.

Segment Information for distributor customers accounted for 10% or more of our revenue or net accounts receivable.

We rely on a small number of manufacturing partners, with approximately 88 % of manufacturing in Taiwan and U.S., to manufacture our products, and some of the chips and other components of our products used by the contract manufacturers are available from limited or sole sources of supply.

We do not own manufacturing activities in China.

Our proprietary Application-Specific Integrated Circuits are built by contract manufacturers located in Japan and Taiwan;

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Due to their short-term nature, the carrying amounts reported in the consolidated financial statements approximate the fair value for cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and accrued payroll and compensation.

Comprehensive Income —Comprehensive income includes certain changes in equity from non-owner sources that are excluded from net income, specifically, cumulative foreign currency translation adjustments, unrealized gains and losses on available-for-sale investments and the related tax impacts.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Foreign Currency and Transaction Gains and Losses —The functional currency for most of our foreign subsidiaries is the U.S.

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We record translation gains and losses in accumulated other comprehensive income as a component of equity (deficit).

We reflect net forei gn exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency as a component of foreign currency exchange gain (loss) in other expense—net.

We recognized a foreign currency loss of $ 7.0 million, $ 4.6 million and $ 8.2 million in other expense—net, for 2023, 2022, and 2021, respectively.

We recognized a foreign currency loss of $ 16.9 million, $ 7.0 million and $ 4.6 million in other income (expense)—net, for 2024, 2023, and 2022, respectively.

Cash and Cash Equivalents —We consider all highly liquid investments, purchased with original maturities of three months or less, to be cash equivalents.

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We consult with our investment managers and consider available quantitative and qualitative evidence in evaluating, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and our ability to hold the investment.

Once an impairment is determined to be attributable to credit-related factors, allowance for credit losses (i.e., the credit loss component) on AFS debt securities is recognized as credit loss expense, a charge in other expense—net, on our consolidated statements of income, and any remaining unrealized losses (i.e., the non-credit loss component), net of taxes, are included in accumulated other comprehensive income (loss) on our consolidated statements of equity (deficit).

Once an impairment is determined to be attributable to credit-related factors, allowance for credit losses (i.e., the credit loss component) on AFS debt securities is recognized as credit loss expense, a charge in other income (expense)—net, on our consolidated statements of income, and any remaining unrealized losses (i.e., the non-credit loss component), net of taxes, are included in accumulated other comprehensive income (loss) on our consolidated statements of equity (deficit).

We consider whether unrealized losses have resulted from a credit loss or other factors.

2 unchanged sentences

As a result, we had no credit losses recorded for the years ended December 31, 2024, 2023 and 2022.

We determine realized gains or losses on sale of AFS debt securities using the specific identification method to determine the cost basis of investments sold and record such gains or losses as other expense—net on the consolidated statements of income.

We determine realized gains or losses on sale of AFS debt securities using the specific identification method to determine the cost basis of investments sold and record such gains or losses as other income (expense)—net on the consolidated statements of income.

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

Marketable Equity Securities —Our marketable equity investments with readily determinable fair values are accounted for at fair value through net income.

Realized gains and losses as well as changes in fair value of these securities are recognized and reported in other expense—net, and are determined using the specific identification method.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Realized gains and losses as well as changes in fair value of these securities are recognized and reported in other income (expense)—net, and are determined using the specific identification method.

Investments in privately held companies —Our investments in privately held companies consist of investments in common stock or in-substance common stock.

1 unchanged sentence

These investments are accounted for under the equity method of accounting and were initially recorded at cost.

Subsequently, we recognize our proportionate share of the entity’s net loss, the amortization of any basis differences, as well as any OTTI as gain or loss from these equity method investments in the consolidated statements of income and as an adjustment to the investment balance.

Subsequently, we recognize our proportionate share of the

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

entity’s net profit or loss, the amortization of any basis differences, as well as any OTTI as gain or loss from these equity method investments in the consolidated statements of income and as an adjustment to the investment balance.

We record our proportionate share of the results of these equity method investments on a three-month lag basis.

We evaluate if there are material transactions or events that occur during the intervening period that materially affect the financial position or results of operations.

As of December 31, 2023, we had two equity method investments, including our investment in Linksys.

As of December 31, 2022, our investment in Linksys was our only equity method investment.

We evaluate whether there are material transactions or events that occur during the intervening period that materially affect the financial position or results of operations.

As of December 31, 2024 and 2023, we had two equity method investments, including our investment in Linksys Holdings, Inc.

As of December 31, 2024 and 2023, our equity method investments were recorded in other assets.

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Cost is computed using the first-in, first-out method.

Inventory costs comprise primarily of the cost of materials and other component parts as well as capitalized overhead.

Inventory costs comprise primarily of the cost of materials and other component parts, as well as overhead costs.

In assessing the ultimate recoverability of inventory, we make estimates regarding future customer demand, the timing of new product introductions, economic trends and market conditions.

3 unchanged sentences

The expense related to such accrued liability for inventory purchase commitments is recorded in cost of product revenue on the consolidated statements of income.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Property and Equipment —Property and equipment are stated at cost less accumulated depreciation.

9 unchanged sentences

We allocate the fair value of the purchase price of our business acquisitions to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values.

The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill.

The excess of the purchase price over the fair

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

values of these identifiable assets and liabilities is recorded as goodwill.

Our estimates and assumptions are subject to change based on information existing at acquisition date but unknown to us, which may become known during the remainder of the measurement period, not to exceed 12 months from the acquisition date, and if we make changes to the amounts recorded, such amounts are recorded in the period in which they are identified.

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We estimate actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as accruals and allowances not currently deductible for tax purposes.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

differences result in deferred tax assets, which are included in our consolidated balance sheets.

These differences result in deferred tax assets, which are included in our consolidated balance sheets.

In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of income become deductible expenses under applicable income tax laws, or loss or credit carryforwards are utilized.

4 unchanged sentences

We recognize tax benefits from an uncertain tax position only if it is more likely than not, based on the technical merits of the position, that the tax position will be sustained on examination by the tax authorities.

The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

The tax benefits recognized

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

We have elected to account for the tax effect of the GILTI as a current period expense.

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For our finance leases, we recognize amortization expense from the amortization of the corresponding assets and interest expense on the related lease liabilities.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Advertising Expense —Advertising costs are expensed when incurred and are included in operating expenses in the accompanying consolidated statements of income.

7 unchanged sentences

Internal use software development costs capitalized were not material for any periods presented.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred Contract Costs and Commission Expense —Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer.

15 unchanged sentences

• recognition of revenue when, or as, we satisfy a performance obligation.

We derive a majority of product sales from Secure Networking hardware and associated security services which 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, intrusion prevention, SSL data leak prevention, virtual private network, switch and wireless controller and wide area network edge.

We derive a majority of product sales from FortiGate, other secure networking hardware which include a broad set of built-in security and networking features and functionalities, including firewall, next-generation firewall, secure web gateway, SSL inspection, software-defined wide-area network, intrusion prevention, SSL data leak prevention, virtual private network, switch and wireless controller and wide area network edge.

We recognize product revenue upon shipment when control of the promised goods is transferred to the customer.

Our term software licenses represent multiple performance obligations, which include software licenses and software support services where the term licenses are recognized upfront upon transfer of control, with the associated software support services recognized ratably over the service term as services and software updates are provided.

Service revenue relates to sales of our FortiGuard security subscription, FortiCare technical support services and other services.

Our term-based software licenses represent multiple performance obligations, which include software licenses and software support services where the software licenses are recognized upfront within product revenue upon transfer of control, and the associated software support services are recognized ratably over the service term as service revenue.

Service revenue relates to sales of our FortiGuard and other security subscriptions, FortiCare technical support services and other services.

Our typical subscription and support term is one to five years .

We generally recognize revenue from these services ratably over the service term because of continuous transfer of control to the customer.

We also generate a portion of our revenue from other services consisting of professional services, training and software-as-a-service (“SaaS”) which is either hosted by us or provided through cloud-providers.

We recognize revenue from professional and training services as the services

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

are provided.

We also generate a portion of our revenue from other services consisting of professional services, training and SaaS which is either hosted by us or provided through cloud providers.

We recognize revenue from professional and training services as the services are provided.

We recognize revenue from SaaS as the subscription service is delivered over the term, which is typically one year, or on a monthly usage basis.

To date, SaaS revenue has not represented a significant percentage of our total revenue.

Our sales contracts typically contain multiple deliverables, such as hardware, software license, security subscription, technical support services and other services, which are generally capable of being distinct and accounted for as separate performance obligations.

Our sales contracts typically contain performance obligations, such as hardware, software license, security subscription, technical support services, cloud and other services, which are generally capable of being distinct and accounted for as separate performance obligations.

Our hardware and software licenses have significant standalone functionalities and capabilities.

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We establish standalone selling price using the prices charged for a deliverable when sold separately.

If not observable through past transactions, we determine standalone selling price by considering multiple historical factors including, but not limited to, cost of products, gross margin objectives, pricing practices, geographies and the term of a service contract.

If not observable through past transactions, we determine standalone selling price by considering multiple historical factors including, but not limited to, cost

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

of products, gross margin objectives, pricing practices, geographies and the term of a service contract.

Revenue is reported net of sales tax.

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The actual liability in any such matters may be materially different from our estimates, which could result in the need to adjust our liability and record additional expenses, which may be material.

Recent Accounting Standards Not Yet Effective

Recently Adopted Accounting Standards

Segment Reporting

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which is intended to

Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses.

We adopted ASU 2023-07 for our annual period beginning fiscal year 2024 on a retrospective basis to all periods presented.

Refer to Note 16.

Segment Information.

Recent Accounting Standards Not Yet Effective

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses.

ASU 2023-07 was effective for us beginning on January 1, 2024 and will be applied on a retrospective basis to all periods presented.

disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.

The amendments are effective for our annual period beginning fiscal year 2025, with early adoption permitted, and should be applied prospectively.

We are currently evaluating the ASU to determine its impact on our disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.

The amendments are effective for our annual periods beginning January 1, 2025, with early adoption permitted, and should be applied prospectively.

Income Statement

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses (ASU 2024-03), and in January 2025, the FASB issued ASU No.

2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the Effective Date, which clarified the effective date of ASU 2024-03.

ASU 2024-03 enhances the disclosures required for expense disaggregation in our annual and interim consolidated financial statements.

The amendments are effective for our annual reporting period beginning fiscal 2027, with early adoption permitted, and can be applied prospectively or retrospectively.

We are currently evaluating the ASU to determine its impact on our disclosures.

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Commercial paper 428.7 0.2 ( 0.2 ) 428.7

Certificates of deposit and term deposits 88.2 0.1 — 88.3

Corporate debt securities 166.4 0.1 ( 0.1 ) 166.4

Certificates of deposit and term deposits 61.8 — — 61.8

Total available-for-sale investments

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Commercial paper 401.7 0.2 ( 0.1 ) 401.8

Certificates of deposit and term deposits 34.2 — — 34.2

Corporate debt securities 70.0 0.1 ( 0.1 ) 70.0

Municipal Bonds 5.1 — ( 0.1 ) 5.0

Certificates of deposit and term deposits 88.2 0.1 — 88.3

Total available-for-sale investments

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Corporate debt securities 63.5 ( 0.1 ) — — 63.5 ( 0.1 )

Certificates of deposit and term deposits 10.9 — — — 10.9 —

Total available-for-sale investments

8 unchanged sentences

Corporate debt securities 21.8 — 26.9 ( 0.1 ) 48.7 ( 0.1 )

Municipal Bonds 5.0 ( 0.1 ) — — 5.0 ( 0.1 )

Total available-for-sale investments

7 unchanged sentences

Total $ 1,126.4 $ 1,021.5

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

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

We do not intend to sell any of the securities in an unrealized loss position and it is not more likely than not that we would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity.

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Our marketable equity securities were $ 64.2 million and $ 21.0 million as of December 31, 2024 and December 31, 2023, respectively.

The changes in fair value of our marketable equity securities are recorded in other expense—net on the consolidated statements of income.

We recognized $ 4.4 million and $ 13.1 million of losses in 2023 and 2022, respectively.

The changes in fair value of our marketable equity securities are recorded in other income (expense)—net on the consolidated statements of income.

We recognized $ 26.4 million gain, $ 4.4 million and $ 13.1 million of losses in 2024, 2023 and 2022, respectively.

Fair Value of Financial Instruments

24 unchanged sentences

Commercial paper 488.4 — 488.4 — 472.2 — 472.2 —

Certificates of deposit and term deposits 104.8 — 104.8 — 50.4 — 50.4 —

Corporate debt securities 166.4 — 166.4 — 73.0 — 73.0 —

Certificates of deposit and term deposits 61.8 — 61.8 — 104.8 — 104.8 —

Money market funds 296.1 296.1 — — 277.1 277.1 — —

Municipal bonds — — — — 5.0 — 5.0 —

Marketable equity securities 64.2 64.2 — — 21.0 21.0 — —

3 unchanged sentences

Short-term investments 1,126.4 1,021.5

Long-term investments — 45.5

Total $ 1,546.4 $ 1,449.5

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended December 31, 2024 and December 31, 2023.

Inventory consisted of (in millions):

Inventory, net of reserves, consisted of (in millions):

2024 December 31,

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The excess and obsolete inventory reserve was $ 144.8 million and $ 89.2 million as of December 31, 2024 and 2023, respectively.

Inventory write-downs related to excess and obsolete inventory were $ 35.8 million for the year ended December 31, 2023, and not material for the years ended December 31, 2022 and 2021.

Inventory write-downs related to excess and obsolete inventory were $ 37.1 million and $ 35.8 million for the year ended December 31, 2024 and 2023, respectively, and not material for the year ended December 31, 2022.

They were recorded in cost of product revenue on the consolidated statements of income.

14 unchanged sentences

Property and equipment—net $ 1,349.5 $ 1,044.4

During 2023, we purchased certain real estate in the United States, Spain, and Australia totaling $ 109.3 million.

During 2024, we purchased certain real estate in California, Georgia and New York, United States, and Alberta, Canada, totaling $ 295.8 million.

The purchases were accounted for under the asset acquisition method.

The costs of the assets allocated to land, buildings and improvements and construction-in-progress were $ 41.7 million, $ 46.0 million and $ 21.6 million, respectively, based on their relative fair values.

The costs of the assets allocated to land, buildings and improvements and furniture and fixtures were $ 149.0 million, $ 145.7 million and $ 1.1 million, respectively, based on their relative fair values.

Depreciation expense was $ 99.7 million, $ 94.5 million and $ 81.0 million in 2024, 2023 and 2022, respectively.

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Linksys Holdings, Inc.

During 2021, we invested $ 160.0 million in cash for shares of the Series A Preferred Stock of Linksys for a 50.8 % ownership interest in this privately held company.

During 2021, we invested $ 160.0 million in cash for shares of the Series A Preferred Stock of Linksys for a 50.8 % ownership interest in outstanding equity of Linksys.

As of December 31, 2024 and 2023, our ownership interest remained the same.

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We have concluded that our investment in Linksys is an in-substance common stock investment and that we do not hold an absolute controlling financial interest in Linksys, but that we have the ability to exercise significant influence over the operating and financial policies of Linksys.

Determining that we have significant influence but not control over the operating and financial policies of Linksys required significant judgement of 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.

Therefore, we determined to account for this investment using the equity method of accounting.

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We determined that there was a basis difference between the cost of our investment in Linksys and the amount of underlying equity in net assets of Linksys.

Our share of loss of Linksys’ financial results, as well as our share of the amortization of the basis differences, totaled $ 42.1 million in 2023.

Our loss related to Linksys in 2022 totaled $ 68.1 million, which comprised of our proportionate share of Linksys’ financial results as well as the amortization of the basis differences of $ 45.9 million, which included a $ 17.5 million charge in connection with a valuation allowance established on deferred tax assets at Linksys, and the other-than-temporary impairment (“OTTI”) charge of $ 22.2 million recorded during the three months ended December 31, 2022.

Our share of loss of Linksys’ financial results as well as our share of the amortization of the basis differences in total was $ 7.6 million in 2021.

Our share of loss of Linksys’ financial results, as well as our share of the amortization of the basis differences, totaled $ 29.0 million in 2024, which comprised of our proportionate share of Linksys’ financial results and the amortization of the basis differences of $ 21.0 million, as well as an OTTI charge of $ 8.0 million recognized in the second quarter of 2024.

Our share of loss of Linksys’ financial results and our share of the amortization of the basis differences totaled $ 42.1 million in 2023.

Our loss related to Linksys in 2022 totaled $ 68.1 million, which comprised of our proportionate share of Linksys’ financial results as well as the amortization of the basis differences of $ 45.9 million, which included a $ 17.5 million charge in connection with a valuation allowance established on deferred tax assets at Linksys, and the OTTI charge of $ 22.2 million recorded during the three months ended December 31, 2022.

The loss related to Linksys is recorded in loss from equity method investments on the consolidated statements of income.

Due to the presence of impairment indicators, such as a series of operating losses, current expected performance relative to expected performance when we initially invested, performance relative to peers, changes in net working capital and cash available for business operations, and the results of a discounted cash flows analysis, we evaluated our equity method investment for an OTTI during 2023 and 2022.

We considered various factors in determining whether an OTTI has occurred, including Linksys financial results and operating history, our ability and intent to hold the investment until its fair value recovers, the implied revenue valuation multiples compared to guideline public companies, Linksys’ ability to achieve

Due to the presence of impairment indicators, such as a series of operating losses, we evaluated our equity method investment for an OTTI during 2024, 2023 and 2022.

We considered various factors in determining whether an OTTI has occurred, including Linksys’ financial results, operating history, our ability and intent to hold the investment until its fair value recovers, the implied revenue valuation multiples compared to guideline public companies, the discounted cash flows analysis, Linksys’ ability to achieve milestones and any notable operational and strategic changes.

In connection with our evaluation as of June 30, 2024 and December 31, 2022, we noted that certain factors were present that indicated that the equity method investment’s decline in value was OTTI, primarily driven by Linksys’ continuous losses, decrease in revenue and operating

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

milestones and any notable operational and strategic changes.

In connection with our evaluation as of December 31, 2022, we noted that certain factors were present that indicated that the equity method investment’s decline in value was OTTI, primarily driven by Linksys’ continuous losses, decrease in revenue and operating results, then current forecasted results for the foreseeable future as compared to the expected performance at the time of the investments, and the results of a discounted cash flows analysis.

results, then current forecasted results for the foreseeable future as compared to the expected performance at the time of the investments, and the results of a discounted cash flows analysis.

To determine the fair value of our investment in Linksys, we utilized a market approach referencing revenue multiples from publicly traded peer companies and concluded that the estimated fair value of the investment was lower than its carrying value.

During the three months ended December 31, 2022, we recorded a non-cash impairment charge of $ 22.2 million on our equity method investment in Linksys.

In connection with our evaluation as of December 31, 2023, we determined that an additional OTTI has not occurred.

However, we may be required to recognize an impairment loss in future reporting periods if and when our evaluation of the aforementioned factors indicates that the investment in Linksys is determined to be other than temporarily impaired.

Such determination will be based on the prevailing facts and circumstances at that time.

During the three months ended June 30, 2024 and December 31, 2022, we recorded non-cash impairment charge of $ 8.0 million and $ 22.2 million, respectively, on our equity method investment in Linksys.

In connection with our evaluation as of December 31, 2024 and 2023, we determined that an additional OTTI has not occurred.

The carrying amount of our Linksys investment was $ 13.2 million and $ 42.2 million as of December 31, 2024 and 2023, respectively, and the investment was included in other assets on our consolidated balance sheets.

Other investment

On August 1, 2023, we invested $ 8.5 million in cash for a 19.5 % ownership interest in the outstanding common stock of a privately held company that provides rugged ethernet switches, 4G/5G industrial routers and media converters for critical infrastructure customers.

We accounted for this investment as an equity method investment since we have the ability to exercise significant influence, but not control, over the operating and financial policies of the privately held company.

Determining that we have significant influence but not control over the operating and financial policies of the privately held company required significant judgement of many factors, including but not limited to the ownership interest, board representation, participation in policy-making processes and participation rights in certain significant financial and operating decisions in the ordinary course of business.

Therefore, we determined to account for this investment using the equity method of accounting.

We recorded our proportionate share of the privately held company’s financial results on a three-month lag basis and presented it in loss from equity method investments on the consolidated statements of income.

Our share of income of the privately held company’s financial results, as well as our share of the amortization of the basis differences, were immaterial during 2023.

The carrying amount of the investment was $ 8.5 million as of December 31, 2023, and the investment was included in other assets on our consolidated balance sheets.

Refer to Note 17 .

Subsequent Events, for additional information on our acquisition of Linksys.

BUSINESS COMBINATIONS

2024 Acquisitions

Network Detection and Response Business

On December 22, 2022, we closed an acquisition of certain assets and liabilities of a business specializing in network detection and response for $ 18.0 million in cash.

This acquisition was accounted for as a business combination using the acquisition method of accounting.

Of the purchase price, $ 5.8 million was allocated to goodwill, $ 10.5 million was allocated to developed technology intangible asset, $ 10.0 million was allocated to customer relationships intangible asset and $ 8.3 million was allocated to other net liabilities assumed, which predominantly include deferred revenue.

Goodwill recorded in connection with this acquisition is primarily attributable to the assembled workforce acquired and the anticipated operational synergies.

All acquired goodwill is expected to be deductible for tax purposes.

Acquisition-related costs related to this acquisition were not material and were recorded as general and administrative expense.

Alaxala Networks Corporation

On October 3, 2022, we acquired the remaining 25 % of equity interests in Alaxala for $ 13.5 million in cash, and Alaxala became a wholly owned subsidiary.

2021 Acquisition

Alaxala Networks Corporation

On August 31, 2021, we closed an acquisition of 75 % of equity interests as controlling interests in Alaxala Networks Corporation (“Alaxala”), a privately held network hardware equipment company in Japan, for $ 64.2 million in cash.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

acquired the equity interests in Alaxala to broaden our offering of secure switches integrated with our secure networking solutions.

Under the acquisition method of accounting in accordance with ASC 805, the total purchase price was allocated to Alaxala ’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.

Lacework Inc.

On August 1, 2024, we closed an acquisition of Lacework Inc.

(“Lacework”), a privately held data-driven cloud security company, for $ 152.3 million in cash.

We acquired Lacework with a goal of offering its Cloud-Native Application Protection Platform solution separately as well as integrated with our existing portfolio, forming a comprehensive, AI-driven cloud security platform available from a single vendor, which will help customers identify, prioritize and remediate risks and threats in complex cloud-native infrastructure from code to cloud.

Under the acquisition method of accounting in accordance with ASC 805, the total preliminary purchase price was allocated to Lacework’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 following table provides the assets acquired and liabilities assumed as of the date of acquisition:

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Accounts receivable—net 14.8

Inventory 33.4

Prepaid expenses and other current assets 9.6

Property and equipment 5.3

Goodwill 25.5

Deferred tax assets

Other intangible assets 61.3

Other long-term assets 5.2

TOTAL ASSETS $ 336.3

Accounts payable $ 2.5

Current portion of long-term debt 20.2

Deferred revenue

Accrued payroll and compensation

Accrued and other current liabilities 25.5

Other long-term liabilities 6.7

Other liabilities

TOTAL LIABILITIES $ 77.7

NON-CONTROLLING INTERESTS $ 17.8

Gain on bargain purchase

Net purchase consideration $ 152.3

The excess of the purchase consideration and the fair value of non-controlling interests over the fair value of net tangible and identified intangible assets acquired was recorded as goodwill, which is not deductible for tax purposes.

Goodwill is primarily attributable to the assembled workforce of Alaxala and the anticipated operational synergies.

The fair value of the non-controlling interests of $ 17.8 million was estimated based on the non-controlling interests ’ respective share of the fair value of Alaxala.

Identified intangible assets acquired and their estimated useful lives as of August 31, 2021, were (in millions, except years) :

The excess of the fair values of the net assets acquired over the net purchase consideration was recorded as a gain on bargain purchase within other income, net on the consolidated statements of income.

The gain on bargain purchase occurred primarily due to the recognition of the deferred tax assets.

The deferred tax assets were comprised primarily of pre-acquisition federal net operating loss carryforwards with an indefinite carryforward period .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Identified intangible assets acquired and their estimated useful lives (in years) as of August 1, 2024, were as follows (in millions, except years) :

Fair Value Estimated Useful Life (in years)

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Total identified intangible assets:

Developed technology relates to Alaxala ’ s network equipment.

(1) Developed technology is Lacework’s CNAPP solution.

We valued the developed technology using the relief-from-royalty method under the income approach.

This method reflects the present value of the projected cost savings that are expected to be realized by avoiding the royalty that otherwise would be granted in exchange for the use of the asset.

This method reflects the present value of the projected cash flows that are expected to be generated by the developed technology.

The economic useful life was determined based on the technology cycle as well as the cash flows over the forecast period.

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 area of the purchase price that is not yet finalized is related to income taxes.

The operating results of the acquired company were included in our consolidated financial statements from the date of acquisition, which was August 1, 2024.

For the period from August 2, 2024 through December 31, 2024 , Lacework contributed $ 31.1 million of revenue and $ 45.8 million of a net loss.

Acquisition-related costs for this acquisition were not material and were recorded as general and administrative expense .

Next DLP Holdings Limited

On August 5, 2024, we completed the acquisition of Next DLP Holdings Limited (“Next DLP”), a privately held insider risk and data loss prevention company, for approximately $ 105.0 million in cash.

We acquired Next DLP to improve our position in the standalone enterprise DLP market and strengthen our leadership in integrated DLP markets within endpoint and SASE.

This acquisition was accounted for as a business combination using the acquisition method of accounting.

The total preliminary purchase price was allocated to Next DLP’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.

Of the total preliminary purchase price, $ 82.6 million was allocated to goodwill, $ 13.5 million was allocated to developed technology intangible asset, $ 10.5 million was allocated to customer relationships intangible asset, offset by $ 1.6 million of net liabilities assumed, which predominantly included deferred revenue and deferred tax liabilities.

Goodwill recorded in connection with this acquisition represents the value we expect to be created through expansion into markets within our existing business, and the anticipated operational synergies, and goodwill is not expected to be deductible for tax purposes.

Acquisition-related costs related to this acquisition were not material and were recorded as general and administrative expense.

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

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.

Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of Fortinet, Inc., Lacework and Next DLP, as if Lacework and Next DLP had been acquired as of the beginning of business on January 1, 2023.

The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business that would have been achieved if the acquisitions had taken place at the beginning of business on January 1, 2023, or of the results of our future operations of the combined business.

The following unaudited pro forma financial information for all periods presented includes purchase accounting adjustments for amortization of acquired intangible assets, the gain on bargain purchase, and various related tax impacts (in millions):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.

Customer relationships represent the fair value of future projected revenue that will be derived from sales to existing customers of Alaxala.

Customer contracts and related relationships were valued using the multi-period excess earnings method.

This method reflects the present value of the projected cash flows that are expected to be generated by the customer contracts and relationships less charges representing the contribution of other assets to those cash flows.

The economic useful life was determined based on historical customer turnover rates.

Trade name relates to the “Alaxala” trade name.

The fair value was determined by applying the relief-from-royalty method under the income approach.

This method is based on the application of a royalty rate to forecasted revenue under the trade name.

The economic useful life was determined based on the expected life of the trade name and the cash flows anticipated over the forecast period.

Customer backlog relates to the unfulfilled customer contract orders.

Backlog was valued using the multi-period excess earnings method.

This method reflects the present value of the projected cash flows that are expected to be generated by the execution of the unfulfilled customer contract orders less charges representing the contribution of other assets to those cash flows.

The economic useful life was determined based on the anticipated contract orders ’ execution timeframe.

In connection with our acquisition of Alaxala, we assumed certain current debt liabilities of $ 20.2 million as of August 31, 2021.

We concluded that the fair value of this debt approximated its book value as of the acquisition date.

We repaid this debt in full in September and October 2021.

During the post-acquisition period from September 1, 2021 through the repayment dates, interest expense related to Alaxala debt was not material.

The following unaudited pro forma financial information presents the combined results of operations of Fortinet, Inc.

and Alaxala, as if Alaxala had been acquired as of the beginning of business on January 1, 2020.

The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business that would have been achieved if the acquisition had taken place at the beginning of business on January 1, 2020, or of the results of our future operations of the combined business.

The following unaudited pro forma financial information for all periods presented includes purchase accounting adjustments for amortization of acquired intangible assets, depreciation of acquired property and equipment, the purchase accounting effect on inventory acquired and related tax effects (in millions):

Year Ended December 31,

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$ 6,016.8 $ 5,404.3

Pro forma net income attributable to Fortinet, Inc.

Pro forma net income

$ 1,468.2 $ 1,017.5

Perception Point Ltd.

On December 5, 2024, we closed an acquisition of certain assets and liabilities of Perception Point Ltd., a business specializing in advanced collaboration and email security, for $ 33.7 million in cash.

This acquisition was accounted for as a business combination using the acquisition method of accounting.

Of the purchase price, $ 24.5 million was allocated to goodwill, $ 9.5 million was allocated to developed technology intangible asset, $ 6.5 million was allocated to customer relationships intangible asset, and $ 6.8 million was allocated to other net liabilities assumed, which predominantly include deferred revenue.

Goodwill recorded in connection with this acquisition is primarily attributable to the assembled workforce acquired and the anticipated operational synergies.

All acquired goodwill is expected to be deductible for tax purposes.

Acquisition-related costs related to this acquisition were not material and were recorded as general and administrative expense.

2022 Acquisitions

Network Detection and Response Business

On December 22, 2022, we closed an acquisition of certain assets and liabilities of a business specializing in network detection and response for $ 18.0 million in cash.

This acquisition was accounted for as a business combination using the acquisition method of accounting.

Goodwill recorded in connection with this acquisition is primarily attributable to the assembled workforce acquired and the anticipated operational synergies.

All acquired goodwill is expected to be deductible for tax purposes.

Acquisition-related costs related to this acquisition were not material and were recorded as general and administrative expense.

Additional acquisition-related information

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Acquisition-related costs related to each acquisition were not material.

Pro forma information has not been presented, except for Alaxala as disclosed above, as the impact of these acquisitions, individually and in the aggregate, in each year were not material to our consolidated financial statements.

Pro forma information has not been presented, except for Lacework and Next DLP as disclosed above, as the impact of these acquisitions, individually and in the aggregate, in each year were not material to our consolidated financial statements.

GOODWILL AND OTHER INTANGIBLE ASSETS—Net

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Balance—December 31, 2023

Additions due to business combinations

Foreign currency translation adjustments ( 2.0 )

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Amortization expense of finite-lived intangible assets was $ 23.1 million, $ 18.9 million and $ 23.3 million in 2024, 2023, and 2022, respectively.

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

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

Year Ending December 31, Amount

Thereafter 3.9

Total $ 115.0

NET INCOME PER SHARE

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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 seven years .

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

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Year Ending December 31, Amount

Thereafter 3.3

Total lease payments $ 84.3

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As of December 31, 2024 and 2023, we accrued interest payable of $ 4.7 million, and there are no financial covenants with which we must comply.

In 2023, 2022 and 2021 we recorded $ 17.9 million, $ 17.9 million and $ 14.7 million of total interest expense in relation to these Senior Notes and repaid $ 16.0 million, $ 16.0 million and $ 8.4 million of interest in cash, respectively.

In 2024, 2023 and 2022 we recorded $ 18.0 million, $ 17.9 million and $ 17.9 million of total interest expense in relation to these Senior Notes and repaid $ 16.0 million of interest in cash, respectively.

No interest costs were capitalized in 2024, 2023 and 2022, as the costs that qualified for capitalization were not material.

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Inventory purchase commitments $ 591.1 $ 588.9 $ 2.2

Inventory Purchase Commitments —Our independent contract manufacturers and certain component suppliers procure components and build our products based on our forecasts, the availability of various components and their capacity.

These forecasts are based on estimates of future demand for our products, which are in turn based on historical trends and an analysis from our sales and marketing organizations, adjusted for lead times, changes in supplier delivery commitments and other supply chain matters and market conditions.

In order to manage manufacturing lead times, plan for adequate component supply and incentivize suppliers to deliver, we may issue purchase orders to some of our independent contract manufacturers which are non-cancelable.

As of December 31, 2023, we had $ 637.3 million of open purchase orders with our independent contract manufacturers that consist of non-cancelable commitments.

Inventory Purchase Commitments —We purchase components of our inventory from certain suppliers and use several independent contract manufacturers to provide manufacturing services for our products.

During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that allow them to procure inventory based upon criteria as defined by us or establish the parameters defining our requirements.

A significant portion of our reported purchase commitments arising from these agreements consists of firm, non-cancelable and unconditional commitments.

Certain of these inventory purchase commitments with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain product components for multi-year periods.

In certain instances, these agreements allow us the option to reschedule and adjust our requirements based on our business needs prior to firm orders being placed.

We record a liability for non-cancelable inventory purchase commitments for quantities in excess of our future estimated demand forecasts, consistent with the valuation of our excess and obsolete inventory.

As of December 31, 2023, the liability for these inventory purchase commitments was $ 84.7 million and was included in accrued liabilities.

The expense related to such accrued liability

As of December 31, 2024, we had $ 591.1 million of non-cancelable inventory purchase commitments with our independent contract manufacturers.

We recorded a liability for these purchase commitments for quantities in excess of our future estimated demand forecasts, consistent with the valuation of our excess and obsolete inventory.

As of December 31, 2024 and December 31, 2023, the liability for these inventory purchase commitments was $ 54.0 million and $ 84.7 million,

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

for inventory purchase commitments was $ 85.9 million for the year ended December 31, 2023, and not material for the years ended December 31, 2022 and 2021, and was recorded in cost of product revenue on the consolidated statements of income.

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

A significant portion of our reported purchase commitments consist of firm and non-cancelable commitments.

respectively, and was recorded in accrued liabilities on our consolidated balance sheets.

The expense related to such accrued liability for inventory purchase commitments was $ 3.5 million and $ 85.9 million for the year ended December 31, 2024 and 2023, and not material for the year ended December 31, 2022, and was recorded in cost of product revenue on the consolidated statements of income.

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.

A significant portion of our reported purchase commitments consist of non-cancelable commitments.

In certain instances, contractual commitments allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to firm orders being placed.

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There are many uncertainties associated with any litigation and these actions or other third-party claims against us may cause us to incur costly litigation fees, costs and substantial settlement charges, and possibly subject us to damages and other penalties.

In addition, the resolution of any intellectual property (“IP”) litigation may require us to make royalty payments, which could adversely affect our gross margins in future periods.

In addition, the resolution of any intellectual property litigation may require us to make royalty payments, which could adversely affect our gross margins in future periods.

If any of those events were to occur, our business, financial condition, results of operations, and cash flows could be adversely affected.

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On March 21, 2019, we were sued by Alorica Inc.

(“Alorica”) in Santa Clara County Superior Court in California.

Alorica has alleged breach of warranty and misrepresentation claims, which we deny.

Fact discovery closed during the quarter ended June 30, 2023.

Trial is set for May 2024.

Although we believe that the ultimate outcome of this matter will not materially impact our financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, and an unfavorable ruling could occur, which may result in a material adverse impact on our business, financial position, results of operations and cash flows.

in Santa Clara County Superior Court in California.

Alorica alleged breach of warranty and misrepresentation claims, which we denied.

After trial, a jury returned a verdict fully in favor of us and against Alorica on October 4, 2024.

Alorica has filed a notice of appeal.

We believe that the ultimate outcome of this matter will not materially impact our financial position, results of operations or cash flows.

However, any further legal proceedings, including Alorica’s appeal, would be subject to inherent uncertainties, and a future unfavorable ruling could occur.

No loss accrual had been recorded as of December 31, 2024 related to this litigation.

Indemnification and Other Matters —Under the indemnification provisions of our standard sales contracts, we agree to defend our customers against third-party claims asserting various allegations such as product defects and infringement of certain IP rights, which may include patents, copyrights, trademarks or trade secrets, and to pay judgments entered on such claims.

Indemnification and Other Matters —We enter into indemnification provisions in the ordinary course of business with other companies such as partners, customers, and vendors, where we agree to indemnify, hold harmless, and reimburse the indemnified party for certain losses suffered or incurred by the indemnified party as a result of our activities, including defending against third-party claims asserting various allegations such as product defects, breach of representations or covenants, and infringement of certain IP rights, which may include patents, copyrights, trademarks or trade secrets, and to pay judgments entered on such claims.

In some contracts, our exposure under these indemnification provisions is limited by the terms of the contracts to certain defined limits, such as the total amount paid by our customer under the agreement.

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Although from time to time there are indemnification claims asserted against us and currently there are pending indemnification claims, to date there have been no material awards under such indemnification provisions.

Similar to other security companies and companies in other industries, we have experienced and may experience in the future, cybersecurity threats, malicious activity directed against our information technology infrastructure or unauthorized attempts to gain access to our and our customers’ sensitive information and systems.

We currently are unaware of any existing claims or proceedings related to these types of matters, including any that we believe are likely to have a material adverse effect on our financial position.

Periodically we, like other security companies and companies in other industries, have experienced, and may experience in the future, cybersecurity threats, malicious activity directed against our information technology infrastructure and unauthorized attempts to gain access to our and our customers’ sensitive information and systems.

For example, in the third quarter of 2024, we discovered that an individual gained unauthorized access to a limited number of files stored on Fortinet’s instance of a third-party cloud-based shared file drive, which included limited data related to a small number of Fortinet customers.

We have completed our investigation of this incident and we do not currently believe that it had a material impact on our business or that of any of our customers.

We are currently not aware of any significant claims arising from this matter.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

EQUITY PLANS AND SHARE REPURCHASE PROGRAM

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The maximum aggregate number of shares that may be issued under the 2009 EIP is 239,367,655 shares;

provided, however, that only 67,500,000 shares may be

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

issued or transferred pursuant to new awards granted on or following the effective date of the 2009 EIP.

provided, however, that only 67,500,000 shares may be issued or transferred pursuant to new awards granted on or following the effective date of the 2009 EIP.

We may grant awards to employees, directors and other service providers.

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

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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Amount withheld for taxes $ 101.0 $ 112.5 $ 160.4

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Employee Stock Options

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20 %, 20 %, 20 % and 40 % of the PSUs vest over one -, two -, three - and four-year service periods, respectively.

We granted approximately 0.3 million shares of PSU awards with a grant date fair value of $ 90.96 per share to certain of our executives during the first quarter of 2023.

The grant date fair value of these awards was determined using a Monte Carlo simulation pricing model.

The following table summarizes the weighted-average assumptions relating to our PSUs for the three months ended March 31, 2023:

Three Months Ended

The following table summarizes the weighted-average assumptions relating to our PSUs for the year ended December 31, 2024 and 2023:

Year Ended December 31,

Expected term in years 2.7 2.7

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Dividend rate — % — %

We granted approximately 0.3 million shares of PSU awards with a weighted-average grant date fair value of $ 97.40 per share and $ 90.96 per share to certain of our executives during the year ended December 31, 2024 and December 31, 2023, respectively.

The grant date fair value of these awards was determined using a Monte Carlo simulation pricing model.

Approximately 0.1 million shares of PSU awards were vested and approximately 0.1 million shares of PSU awards were forfeited during the year ended December 31, 2024.

None of these PSU awards were vested and PSU awards forfeited were immaterial during the year ended December 31, 2023.

1 unchanged sentence

This expense is expected to be amortized on a graded vesting method over a weighted-average vesting period of 2.2 years.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Shares Reserved for Future Issuances

3 unchanged sentences

Total common stock reserved for future issuances 68.2

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-Based Compensation Expense

13 unchanged sentences

Stock options 28.2 28.8 24.8

$ 11.0 $ — $ —

Total stock-based compensation expense $ 260.2 $ 251.6 $ 219.8

8 unchanged sentences

In April 2023 and July 2023, our board of directors approved $ 1.0 billion and $ 500.0 million increases in the authorized stock repurchase amount under the Repurchase Program, bringing the aggregate amount authorized to be repurchased to $ 6.75 billion.

Under the Repurchase Program, share repurchases may be made by us from time to time in privately negotiated transactions or in open market transactions.

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

In 2023, we repurchased 27.2 million shares of common stock under the Repurchase Program in open market transactions for an aggregate purchase price of $ 1.50 billion, which excludes a $ 10.9 million accrual related to the 1% excise tax imposed by the Inflation Reduction Act of 2022.

As of December 31, 2023, $ 529.1 million remained available for future share repurchases under the Repurchase Program.

Refer to Note 17, Subsequent Events, for information regarding the approved $ 500.0 million increase in the authorized stock repurchase amount under the Repurchase Program in January 2024 and the extension of the Repurchase Program to February 28, 2025 in February 2024.

In January 2024, our board of directors approved a $ 500.0 million increase in the authorized stock repurchase amount under the Repurchase Program, bringing the aggregate amount authorized to be repurchased to $ 7.25 billion of our outstanding common stock.

In February 2024, our board of directors approved an extension of the Repurchase Program to February 28, 2025.

In October 2024, our board of directors approved a $ 1.0 billion increase in the authorized stock repurchase amount under the Repurchase Program and extended the term of the Repurchase Program to February 28, 2026, bringing the aggregate amount authorized to be repurchased to $ 8.25 billion of our outstanding common stock through February 28, 2026.

Under the Repurchase Program, share repurchases may be made by us from time to

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

time in privately negotiated transactions or in open market transactions.

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

In 2024, we repurchased less than 0.1 million shares of common stock under the Repurchase Program in open market transactions for an aggregate purchase price of $ 0.6 million.

As of December 31, 2024, $ 2.03 billion remained available for future share repurchases under the Repurchase Program.

Income before income taxes and loss from equity method investments consisted of (in millions):

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Impact of the 2017 Tax Cuts and Jobs Act:

One-time transition tax — — 5.8

Tax effect of a law change

Foreign-Derived Intangible Income ("FDII")

Foreign-Derived Intangible Income

( 111.5 ) ( 89.5 ) ( 115.2 )

2 unchanged sentences

Total provision for income taxes $ 283.9 $ 143.8 $ 30.8

Effective January 1, 2022, research and development expenses are required to be capitalized and amortized for U.S.

tax purposes, which delays the deductibility of these expenses, and increases our current provision.

During 2023, we changed our position regarding the allocation and apportionment of expenses for income tax purposes.

This change in approach affected the amount of our FDII benefit and our ability to utilize certain foreign tax credits.

As a result, our FDII benefits recorded in prior years decreased by $ 92.8 million, partially offset by an increased benefit for the utilization of foreign tax credits of $ 63.1 million.

These foreign tax credit carryforwards were previously expected to have expired unutilized resulting in the recording of a full valuation allowance thereon.

Accordingly, the benefit recognized as a result of their utilization is included in the benefit from the release of a valuation allowance of $ 67.7 million.

On January 4, 2022, the U.S.

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On December 11, 2023, the IRS released a notice that extended the suspension of significant portions of the final regulations beyond December 31, 2023, until further guidance is issued.

On August 16, 2022, the United States enacted the Inflation Reduction Act of 2022 that provides for certain changes to the U.S.

corporate income tax system, including a 15% minimum tax based on financial statement income for companies with three-year average annual adjusted financial statement income exceeding $1 billion, and a 1% excise tax on net repurchases of stock after December 31, 2022, if any.

The applicable tax law changes have had no impact to our tax provision for the year ended December 31, 2023.

We will continue to evaluate the impact of these tax law changes on future periods.

In December 2021, the Organisation for Economic Co-operation and Development (the “OECD”) enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting, legislation on this.

We are in the process of assessing the tax impact of Pillar Two legislation becoming applicable to us beginning January 1, 2024, and believe these rules will not have a material impact on our provision for income taxes.

In December 2021, the Organisation for Economic Co-operation and Development enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting, legislation on this.

For the tax year 2024, all of our foreign jurisdictions have either not implemented BEPS Pillar Two or satisfied the transitional Country-by Country Reporting safe harbor requirements, and as such, are not subject to top-up tax.

We do not expect any material tax impact for 2024 and will continue to evaluate the impact of these tax law changes for future periods.

FORTINET, INC.

6 unchanged sentences

Reserves and accruals 139.0 134.1

Net operating loss carryforward 19.2 21.2

Net operating loss and capital loss carryforwards

Stock-based compensation expense 27.0 25.1

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As of December 31, 2024, we had a valuation allowance of $ 40.7 million against those items.

As of December 31, 2023, our federal and California net operating loss carryforwards for income tax purposes were $ 67.0 million and $ 20.8 million, respectively.

As of December 31, 2024, our federal and California net operating loss carryforwards for income tax purposes were $ 1.03 billion and $ 76.7 million, respectively.

All the net operating loss carryforwards were from acquisitions which were limited by Section 382 of the Internal Revenue Code.

16 unchanged sentences

As of December 31, 2024, we had $ 75.9 million of unrecognized tax benefits, of which, if recognized, $ 61.2 million would favorably affect our effective tax rate.

Our gross unrecognized tax benefits decreased approximately $ 1.6 million during the year ended December 31, 2023.

The net decrease was primarily due to the reversal of gross unrecognized tax benefits in connection with the lapse of statutes of limitations.

Our gross unrecognized tax benefits increased approximately $ 10.1 million during the year ended December 31, 2024.

The net increase was primarily due to the normal buildup of reserves related to the Federal R&D credit and transfer pricing.

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

6 unchanged sentences

Generally, we are no longer subject to examination by U.S.

federal income tax authorities for tax years prior to 2015.

We are no longer subject to U.S.

state and foreign income tax examinations by tax authorities for tax years prior to 2010.

federal income tax authorities for tax years prior to 2020 and by U.S.

state and foreign tax authorities in our significant jurisdictions for tax years prior to 2016.

We currently have ongoing tax audits in the United Kingdom, Canada, Germany and several other foreign jurisdictions.

The focus of these audits is the inter-company profit allocation.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DEFINED CONTRIBUTION PLANS

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Our chief operating decision maker is our chief executive officer.

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

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

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

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

Our chief executive officer assesses financial performance of the reportable segment and decides how to allocate resources based on net income that also is reported as net income attributable to Fortinet, Inc.

on the consolidated statements of income.

Net income is also used by our chief operating decision maker to monitor actual results versus budget and prior periods amounts of our reportable segment and decide whether to reinvest net income into the reportable segment or to expand business through business combinations or to return value to shareholders.

The measure of the segment assets is reported on the balance sheet as total assets.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table reflects certain financial data for our reportable segment (in millions):

Year Ended December 31,

2024 2023 2022

Total revenue $ 5,955.8 $ 5,304.8 $ 4,417.4

Cost of product revenue 652.0 763.6 691.3

Cost of service revenue 505.6 473.6 393.6

Research and development expense

716.8 613.8 512.4

Other sales and marketing expense (1)

1,654.9 1,635.3 1,366.4

Commission expense 389.9 370.7 319.7

General and administrative expense

237.8 211.3 169.0

Other segment items (2)

230.3 55.1 ( 76.9 )

Provision for income taxes 283.9 143.8 30.8

$ 1,745.2 $ 1,147.8 $ 857.3

(1) Excludes commission expense.

(2) The following table presents other segment items (in millions):

Year Ended December 31,

2024 2023 2022

Gain on intellectual property matter $ 4.6 $ 4.6 $ 4.6

Interest income

155.2 119.7 17.4

Interest expense

( 20.0 ) ( 21.0 ) ( 18.0 )

Gain on bargain purchase 106.3 — —

Other income (expense)—net

13.6 ( 6.1 ) ( 13.5 )

Loss from equity method investments ( 29.4 ) ( 42.1 ) ( 68.1 )

Net loss attributable to non-controlling interests, net of tax

Total other segment items

$ 230.3 $ 55.1 $ ( 76.9 )

The following table presents other segment information (in millions):

Year Ended December 31,

2024 2023 2022

Significant non-cash items:

Stock‐based compensation expense

$ 260.2 $ 251.6 $ 219.8

Depreciation and amortization expense

122.8 113.4 104.3

$ 9,763.1 $ 7,258.9 $ 6,228.0

Purchases of property and equipment $ 378.9 $ 204.1 $ 281.2

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue by geographic region is based on the billing address of our customers.

5 unchanged sentences

Total Americas 2,442.2 2,175.2 1,785.0

Europe, Middle East and Africa (“EMEA”) 2,072.9 1,691.8 1,275.9

Asia Pacific (“APAC”) 1,056.7 940.6 707.5

2,396.2 2,072.9 1,691.8

1,117.4 1,056.7 940.6

Total revenue $ 5,955.8 $ 5,304.8 $ 4,417.4

8 unchanged sentences

Total property and equipment—net $ 1,349.5 $ 1,044.4

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

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

Year Ended December 31,

3 unchanged sentences

Distributor C 13 % 13 % 14 %

* Represents less than 10%

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

Distributor A 31 % 33 %

2 unchanged sentences

SUBSEQUENT EVENTS

Real Property Purchases

In January 2024, we purchased real property in Santa Clara, CA, and Union City, CA, totaling approximately 480,000 square feet and 54,300 square feet, respectively, for $ 192.0 million and $ 14.8 million in cash, respectively.

Share Repurchase Program

In February 2024, our board of directors approved an extension of the Repurchase Program to February 28, 2025.

As of February 23, 2024, approximately $ 1.03 billion remained available for future share repurchases.

Real Property Purchase

In February 2025, we signed a definitive agreement subject to regulatory approval to purchase real property in Frankfurt, Germany, totaling approximately 540,000 square feet for $ 49.1 million in cash, excluding acquisition costs.

FORTINET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On January 31, 2025, we acquired all of the remaining outstanding Series A Preferred Stock of Linksys for $ 22.0 million in initial consideration and now own 100 % of the outstanding equity of Linksys.

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data