Equity

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation Plans

We have one primary stock incentive plan, the 2009 Equity Incentive Plan, under which we have granted RSUs and stock options. We also previously had an ESPP for eligible employees, which was terminated in February 2019.

2009 Equity Incentive Plan—Our board of directors approved the 2009 Equity Incentive Plan in 2009. On June 21, 2019, our stockholders approved the Amended and Restated Fortinet, Inc. 2009 Equity Incentive Plan (the “2009 Plan”). Among other things, the 2009 Plan provided for a net decrease in the number of shares of common stock that were authorized and available for issuance pursuant to future awards granted on or following the effective date of the 2009 Plan. On June 28, 2019, we deregistered from various registration statements on Form S-8 an aggregate of 46.2 million shares of common stock that were originally registered for issuance under the 2009 Plan.

The maximum aggregate number of shares that may be issued under the 2009 Plan is 47,873,531 shares; provided, however, that only 13,500,000 shares may be issued or transferred pursuant to new awards granted on or following the effective date of the 2009 Plan. We may grant awards to employees, directors and other service providers. In the case of an incentive stock option granted to an employee who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock, the exercise price shall be no less than 110% of the fair market value per share on the date of grant and expire no more than five years from the date of grant, and options granted to any other employee, the per share exercise price shall be no less than 100% of the closing stock price on the date of grant. In the case of a non-statutory stock option and options granted to other service providers, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. Options granted to individuals owning less than 10% of the total combined voting power of all classes of stock generally have a contractual term of no more than ten years and options generally vest over four years.

As of December 31, 2021, there were a total of 11.8 million shares of common stock available for grant under the 2009 Plan.

2011 Employee Stock Purchase Plan—In June 2011, our stockholders approved the ESPP. The ESPP permitted eligible employees to purchase common stock through regular, systematic payroll deductions, up to a maximum of 15% of

employees’ compensation for each purchase period at purchase prices equal to 85% of the lesser of the fair market value of our common stock at the first trading date of the applicable offering period or the purchase date, subject to purchase limits of 4,000 shares for each purchase period or $25,000 worth of stock for each calendar year. Our board of directors voluntarily determined to terminate the ESPP, effective February 2019 at the completion of the prior offering period.

Restricted Stock Units

The following table summarizes the activity and related information for RSUs for the periods presented below (in millions, except per share amounts):


	Restricted Stock Units Outstanding
	Number of Shares	Weighted-Average Grant Date Fair Value per Share
Balance—December 31, 2018	7.8	$	46.07
Granted	2.7	87.09
Forfeited	(0.7)	55.13
Vested	(3.7)	43.31
Balance—December 31, 2019	6.1	64.56
Granted	1.9	121.16
Forfeited	(0.4)	79.83
Vested	(2.9)	58.20
Balance—December 31, 2020	4.7	90.46
Granted	1.2	202.63
Forfeited	(0.4)	114.96
Vested	(2.3)	81.52
Balance—December 31, 2021	3.2	$	136.08

Stock compensation expense is recognized on a straight-line basis over the vesting period of each RSU. As of December 31, 2021, total compensation expense related to unvested RSUs granted to employees and non-employees under the 2009 Plan, but not yet recognized, was $367.8 million, with a weighted-average remaining vesting period of 2.6 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 employee withholding tax requirements. The payment of the withheld taxes to the tax authorities is reflected as a financing activity within the consolidated statements of cash flows.

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


	Year Ended December 31,
	2021		2020		2019
Shares withheld for taxes	0.8		0.9		1.1
Amount withheld for taxes	$	167.9	$	108.2	$	96.0

Employee Stock Options

In determining the fair value of our employee stock options, we use the Black-Scholes model, which employs the following assumptions.

Expected Term—The expected term represents the period that our stock-based awards are expected to be outstanding. We believe that we have sufficient historical experience for determining the expected term of the stock option award, and therefore, we calculated our expected term based on historical experience instead of using the simplified method.

Expected Volatility—The expected volatility of our common stock is based on our weighted-average implied and historical volatility.

Fair Value of Common Stock—The fair value of our common stock is the closing sales price of the common stock effective on the date of grant.

Risk-Free Interest Rate—We base the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

Expected Dividend—The expected dividend weighted-average assumption is zero.

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


	Year Ended December 31,
	2021		2020		2019
Expected term in years	4.4		4.4		4.4
Volatility	39.1	%	34.8	%	34.3	%
Risk-free interest rate	0.5	%	1.1	%	2.4	%
Dividend rate	—	%	—	%	—	%

The following table summarizes the stock option activity and related information for the periods presented below (in millions, except exercise prices and contractual life):


	Options Outstanding
	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Balance—December 31, 2018	3.0	$	35.53	4.0	$	105.6
Granted	0.7	85.02
Forfeited	(0.1)	62.93
Exercised	(0.9)	30.21
Balance—December 31, 2019	2.7	50.37		4.5	150.3
Granted	0.6	118.80
Forfeited	(0.1)	91.52
Exercised	(0.5)	41.49
Balance—December 31, 2020	2.7	67.53		4.2	220.4
Granted	0.6	186.28
Forfeited	(0.1)	122.65
Exercised	(0.5)	55.07
Balance—December 31, 2021	2.7	$	92.87
Options vested and expected to vest—December 31, 2021	2.7	$	92.87	4.0	$	729.9
Options exercisable—December 31, 2021	1.7	$	58.53	2.9	$	496.7

The aggregate intrinsic value represents the difference between the exercise price of stock options and the quoted market price of our common stock on December 31, 2021 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 December 31, 2021, total compensation expense related to unvested stock options granted to employees but not yet recognized was $43.6 million, with a weighted-average remaining vesting period of 2.7 years.

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


	Year Ended December 31,
	2021		2020		2019
Weighted-average fair value per share granted	$	60.76	$	35.79	$	27.19

Intrinsic value of options exercised	$	83.5	$	43.5	$	54.6
Fair value of options vested	$	17.2	$	13.5	$	10.1

The following table summarizes information about outstanding and exercisable stock options as of December 31, 2021, as follows (in millions, except exercise prices and contractual life):


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
$23.83-$23.83	0.3	1.1	$	23.83	0.3	$	23.83
$31.39-$39.49	0.3	1.9	36.43		0.4	36.43
$48.83-$72.75	0.5	3.0	50.10		0.5	49.91
$76.22-$343.51	1.6	5.2	131.05		0.5	98.79
	2.7				1.7

Employee Stock Purchase Plan

There were no grants under the ESPP during the year ended December 31, 2021, 2020 and 2019, respectively.

Additional information related to the ESPP is provided below (in millions, except per share amounts):


	December 31, 2019
Shares issued under the ESPP	0.3
Weighted-average price per share issued	$	64.79

Shares Reserved for Future Issuances

The following table presents the common stock reserved for future issuance (in millions):


			December 31, 2021
Reserved for future equity award grants			11.8
Outstanding stock options and RSUs			5.9
Total common stock reserved for future issuances			17.7

Stock-Based Compensation Expense

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):


	Year Ended December 31,
	2021		2020		2019
Cost of product revenue	$	1.7	$	1.6	$	1.5
Cost of service revenue	15.7		12.9		11.3
Research and development	56.7		47.6		38.7
Sales and marketing	110.0		108.4		101.7
General and administrative	27.1		23.3		20.9
Total stock-based compensation expense	$	211.2	$	193.8	$	174.1

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


	Year Ended December 31,
	2021		2020		2019
RSUs	$	191.8	$	179.7	$	160.2
Stock options	19.4		14.1		12.6
ESPP	—		—		1.3
Total stock-based compensation expense	$	211.2	$	193.8	$	174.1

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


	Year Ended December 31,
	2021		2020		2019
Income tax benefit associated with stock-based compensation	$	45.4	$	42.1	$	38.3

Share Repurchase Program

In January 2016, our board of directors approved the Share Repurchase Program (the “Repurchase Program”), which authorized the repurchase of up to $200.0 million of our outstanding common stock through December 31, 2017. From 2016 through 2020, our board of directors approved increases to our Repurchase Program by various amounts, bringing the aggregated amount authorized to $3.0 billion. In October 2021, our board of directors approved a $1.25 billion increase and extended the term to February 28, 2023, bringing the aggregate amount authorized to be repurchased to $4.25 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 2021, we repurchased 2.6 million shares of common stock under the Repurchase Program in open market transactions for an aggregate purchase price of $741.8 million. As of December 31, 2021, $1.52 billion remained available for future share repurchases under the Repurchase Program.