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Fortinet Reports Fourth Quarter and Full Year 2012 Financial Results

Fortinet Reports Fourth Quarter and Full Year 2012 Financial Results 
Company Exceeds Its Expectations Across All Key Metrics 
SUNNYVALE, CA -- (Marketwire) -- 01/30/13 --  Fortinet(R) (NASDAQ:
FTNT) 
Fourth Quarter 2012 Highlights 


 
--  Revenues of $151.2 million, up 25% year over year(2)
--  Billings of $174.3 million, up 24% year over year(1,2)
--  GAAP diluted net income per share of $0.13
--  Non-GAAP diluted net income per share of $0.17(1)
--  Cash flow from operations of $50.3 million
--  Free cash flow of $48.5 million(1,2)
--  Cash, cash equivalents and investments of $739.6 million(4), with no
    debt

  
Full Year 2012 Highlights 


 
--  Revenues of $533.6 million, up 23% year over year(3)
--  Billings of $602.0 million, up 27% year over year(1,3)
--  GAAP diluted net income per share of $0.40
--  Non-GAAP diluted net income per share of $0.53(1)
--  Cash flow from operations of $183.9 million
--  Free cash flow of $161.8 million(1,3,4)

  
Fortinet(R) (NASDAQ: FTNT) -- a leader in high-performance network
security -- today announced financial results for the fourth quarter
and full year ended December 31, 2012. 
Financial Highlights for the Fourth Quarter of 2012 


 
--  Revenue(2): Total revenue was $151.2 million for the fourth quarter of
    2012, an increase of 25% compared to $120.9 million in the same
    quarter of 2011. Within total revenue, product revenue was $71.0
    million, an increase of 24% compared to the same quarter of 2011.
    Services revenue was $76.7 million, an increase of 26% compared to the
    same quarter of 2011.
    
    
--  Billings(1,2): Total billings were $174.3 million for the fourth
    quarter of 2012, an increase of 24% compared to $140.6 million in the
    same quarter of 2011.
    
    
--  Deferred Revenue: Deferred revenue was $363.2 million as of December
    31, 2012, up $23.1 million from $340.1 million as of September 30,
    2012.
    
    
--  Cash and Cash Flow(1,2): As of December 31, 2012, cash, cash
    equivalents and investments were $739.6 million, compared to $690.3
    million as of September 30, 2012. In the fourth quarter of 2012, cash
    flow from operations was $50.3 million and free cash flow was $48.5
    million.
    
    
--  GAAP Operati
ng Income(2,5): GAAP operating income was $35.0 million
    for the fourth quarter of 2012, representing a GAAP operating margin
    of 23%. GAAP operating income was $26.5 million for the same quarter
    of 2011, representing a GAAP operating margin of 22%.
    
    
--  GAAP Net Income and Diluted Net Income Per Share(2,5): GAAP net income
    was $21.5 million for the fourth quarter of 2012, based on a 41% tax
    rate for the quarter. This compares to GAAP net income of $16.5
    million for the same quarter of 2011, based on a 40% tax rate for the
    quarter. GAAP diluted net income per share was $0.13 for the fourth
    quarter of 2012, based on 167.0 million weighted-average diluted
    shares outstanding, compared to $0.10 for the same quarter of 2011,
    based on 164.5 million weighted-average diluted shares outstanding.
    
    
--  Non-GAAPOperating Income(1,2): Non-GAAP operating income was $41.3
    million for the fourth quarter of 2012, representing a non-GAAP
    operating margin of 27%. Non-GAAP operating income was $32.4 million
    for the same quarter of 2011, representing a non-GAAP operating margin
    of 27%.
    
    
--  Non-GAAPNet Income and Diluted Net Income Per Share(1,2): Non-GAAP net
    income was $28.1 million for the fourth quarter of 2012, based on a
    34% effective tax rate for the quarter. Non-GAAP net income for the
    same quarter of 2011 was $22.3 million, based on a 33% effective tax
    rate. Non-GAAP diluted net income per share was $0.17 for the fourth
    quarter of 2012 based on 167.0 million weighted-average diluted shares
    outstanding, compared to $0.14 for the same quarter of 2011, based on
    164.5 million weighted-average diluted shares outstanding.

  
Financial Highlights for the Full Year 2012 


 
--  Revenue(3): Total revenue was $533.6 million for fiscal 2012, an
    increase of 23% compared to $433.6 million for fiscal 2011. Within
    total revenue, product revenue was $248.9 million for fiscal 2012, an
    increase of 26% compared to $197.4 million for fiscal 2011. Services
    revenue was $274.0 million for fiscal 2012, an increase of 24%
    compared to $220.3 million for fiscal 2011.
    
    
--  Billings(1,3): Total billings were $602.0 million for fiscal 2012, an
    increase of 27% compared to $475.8 million in fiscal 2011.
    
    
--  Deferred Revenue: Deferred revenue was $363.2 million as of December
    31, 2012, an increase of 23% compared to deferred revenue of $294.8
    million as of December 31, 2011.
    
    
--  Cash and Cash Flow(1,3,4): As of December 31, 2012, cash, cash
    equivalents and investments were $739.6 million, compared to $538.7
    million as of December 31, 2011. In fiscal 2012, cash flow from
    operations was $183.9 million and free cash flow was $161.8 million.
    
    
--  GAAP Operating Income(3,5): GAAP operating income was $100.5 million
    for fiscal 2012, representing a GAAP operating margin of 19%. GAAP
    operating income was $88.9 million for fiscal 2011, representing a
    GAAP operating margin of 21%.
    
    
--  GAAP Net Income and Diluted Net Income Per Share(3,5): GAAP net income
    was $66.8 million for fiscal 2012, based on a 36% tax rate for the
    year. This compares to GAAP net income of $62.5 million for fiscal
    2011, based on a 32% tax rate for the year. GAAP diluted net income
    per share was $0.40 for fiscal 2012, based on 166.3 million
    weighted-average diluted shares outstanding, compared to $0.38 for
    fiscal 2011, based on 163.8 million weighted-average diluted shares
    outstanding.
    
    
--  Non-GAAPOperating Income(1,3): Non-GAAP operating income was $129.3
    million for fiscal 2012, representing a non-GAAP operating margin of
    24%. Non-GAAP operating income was $106.0 million for fiscal 2011,
    representing a non-GAAP operating margin of 24%.
    
    
--  Non-GAAPNet Income and Diluted Net Income Per Share(1,3): Non-GAAP net
    income was $88.3 million for fiscal 2012, based on a 34% effective tax
    rate for the year. Non-GAAP net income for fiscal 2011 was $73.1
    million, based on a 33% effective tax rate. Non-GAAP diluted net
    income per share was $0.53 for fiscal 2012 based on 166.3 million
    weighted-average diluted shares outstanding, compared to $0.45 for
    fiscal 2011, based on 163.8 million weighted-average diluted shares
    outstanding.

  
(1) A reconciliation of GAAP to non-GAAP financial measures has been
provided in the financial statement tables included in this press
release. An explanation of these measures is also included below
under the heading "Non-GAAP Financial Measures." 
(2) Includes the impact of a $1.9 million sale of previously-acquired
patents during the fourth quarter of 2012. 
(3) Includes the impact of a $3.7 million sale of previously-acquired
patents during fiscal 2012. In addition, fiscal 2011 includes the
impact of a $2.6 million sale of previously-acquired patents.  
(4) Includes the impact of $14.5 million paid for the purchase of
land and buildings near our Silicon Valley headquarters during the
third quarter of 2012. 
(5) Includes the impact of a $1.5 million non-recurring cumulative
out-of-period adjustment record
ed during the fourth quarter of 2012
to reflect a true-up related to forfeitures of stock awards granted
to employees. The adjustment resulted in lower stock-based
compensation expense and higher operating income and net income
during the fourth quarter of 2012. We believe the impact of the
adjustment is not material to the current or prior fiscal periods. 
Management Commentary: 
 Ken Xie, founder, president and chief
executive officer of Fortinet, stated: "We had a great fourth
quarter, which resulted in a strong finish to the year as we
demonstrated our ability to successfully execute our global go to
market strategy and increase market share. We continued to attract
and retain a number of large profile enterprise and service provider
customers, and we introduced several new and competitive products
that differentiate us from our competitors. With a healthy pipeline
of business and a plan to continue investments in sales, marketing
and product development, we are well-positioned to continue to gain
market share and grow our business."  
Nancy Bush, interim chief financial officer of Fortinet, stated: "We
reported strong fourth quarter results, which exceeded our
expectations across all of our key operating metrics. We had
particularly strong growth in revenue, profitability, and cash flow
generation, and ended the quarter with a cash, cash equivalents and
investments balance of approximately $740 million with no debt. We
are confident, yet cautious, as we enter 2013 and remain focused on
further gaining market share worldwide by delivering innovative new
products, and expanding our sales, marketing and R&D infrastructure." 
Conference Call Details
 Fortinet will host a conference call today,
January 30, 2013, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time)
to discuss its financial results. To access this call, dial (877)
303-6913 (domestic) or (224) 357-2188 (international) with conference
ID # 87079826. A live webcast of the conference call and supplemental
slides will be accessible from the Investor Relations page of
Fortinet's website at http://investor.fortinet.com and a replay will
be archived and accessible at
http://investor.fortinet.com/events.cfm. A replay of this conference
call can also be accessed through February 13, 2013, by dialing (855)
859-2056 (domestic) or (404) 537-3406 (international) with conference
ID# 87079826.  
Following Fortinet's earnings conference call, the Company will host
an additional question-and-answer session at 3:30 p.m. Pacific Time
(6:30 p.m. Eastern Time) to provide an opportunity for financial
analysts and investors to ask more detailed product and financial
questions. To access this call, dial (877) 303-6913 (domestic) or
(224) 357-2188 (international) with conference ID # 87078965. This
follow-up call will be webcast live and accessible at
http://investor.fortinet.com, and a replay will be archived and
available after the call at http://investor.fortinet.com/events.cfm.
A replay of this conference call will also be available through
February 7, 2013 by dialing (855) 859-2056 (domestic) or (404)
537-3406 (international) with conference ID # 87078965.  
About Fortinet (www.fortinet.com) 
 Fortinet (NASDAQ: FTNT) is a
worldwide provider of network security appliances and a market leader
in unified threat management (UTM). Our products and subscription
services provide broad, integrated and high-performance protection
against dynamic security threats while simplifying the IT security
infrastructure. Our customers include enterprises, service providers
and government entities worldwide, including the majority of the 2012
Fortune Global 100. Fortinet's flagship FortiGate product delivers
ASIC-accelerated performance and integrates multiple layers of
security designed to help protect against application and network
threats. Fortinet's broad product line goes beyond UTM to help secure
the extended enterprise - from endpoints, to the perimeter and the
core, including databases and applications. Fortinet is headquartered
in Sunnyvale, Calif., with offices around the world. 
Copyright Copyright 2013 Fortinet, Inc. All rights reserved. The
symbols (R) and (TM) denote respectively federally registered
trademarks and unregistered trademarks of Fortinet, Inc., its
subsidiaries and affiliates. Fortinet's trademarks include, but are
not limited to, the following: Fortinet, FortiGate, FortiGuard,
FortiManager, FortiMail, FortiClient, FortiCare, FortiAnalyzer,
FortiReporter, FortiOS, FortiASIC, FortiWiFi, FortiSwitch, FortiVoIP,
FortiBIOS, FortiLog, FortiResponse, FortiCarrier, FortiScan, FortiDB
and FortiWeb. Other trademarks belong to their respective owners.  
FTNT-F 
Forward-looking Statements 
 This press release contains
forward-looking statements that involve risks and uncertainties.
These forward-looking statements include statements regarding the
momentum in our business, growth of our business, positioning to
continue to gain market share, our outlook as we enter 2013, our
pipeline, and expanding our infrastructure and continued investments
in sales, marketing and product development. Although we attempt to
be accurate in making forward-looking statements, it is possible that
future circumstances might differ from the assumptions on which such
statements are based. Important factors that could cause results to
differ materially from the statements herein include the following:
general economic risks; specific economic risks in different
geographies and among different customer segments; uncertainty
regarding increased business and renewals from existing customers;
uncertainties around continued success in sales growth and market
share gains; failure to convert sales pipeline into final sales;
risks associated with successful implementation of multiple
integrated software products and other product functionality risks;
execution risks around marketing, new product development and
introductions and innovation; litigation and disputes and the
potential cost, distraction and damage to sales and reputation caused
thereby; market acceptance of new products and services; the ability
to attract and retain personnel, particularly sales and technical
personnel; changes in strategy; risks associated with management of
growth; lengthy sales and implementation cycles, particularly in
larger organizations; technological changes that make our products
and services less competitive; risks associated with the adoption of,
and demand for, the UTM model in general and by specific customer
segments; competition and pricing pressure; and the other risk
factors set forth from time to time in our most recent Annual Report
on Form 10-K, our most recent Quarterly Report on Form 10-Q and our
other filings with the SEC, copies of which are available free of
charge at the SEC's website at www.sec.gov or upon request from our
investor relations department. All forward-looking statements herein
reflect our opinions only as of the date of this release, and we
undertake no obligation, and expressly disclaim any obligation, to
update forward-looking statements herein in light of new information
or future events. 
Non-GAAP Financial Measures 
 We have provided in this release
financial information that has not been prepared in accordance with
Generally Accepted Accounting Principles (GAAP). We use these
non-GAAP financial measures internally in
 analyzing our financial
results and believe they are useful to investors, as a supplement to
GAAP measures, in evaluating our ongoing operational performance. We
believe that the use of these non-GAAP financial measures provides an
additional tool for investors to use in evaluating ongoing operating
results and trends and in comparing our financial results with other
companies in our industry, many of which present similar non-GAAP
financial measures to investors.  
Non-GAAP financial measures should not be considered in isolation
from, or as a substitute for, financial information prepared in
accordance with GAAP. Investors are encouraged to review the
reconciliation of these non-GAAP financial measures to their most
directly comparable GAAP financial measures below. As previously
mentioned, a reconciliation of our non-GAAP financial measures to
their most directly comparable GAAP measures has been provided in the
financial statement tables included below in this press release. 
Billings. We define billings as revenue recognized during a period
plus the change in deferred revenue from the beginning to the end of
the period. We consider billings to be a useful metric for management
and investors because billings drive deferred revenue, which is an
important indicator of the health and visibility of our business, and
has historically represented a majority of the quarterly revenue that
we recognize. There are a number of limitations related to the use of
billings versus revenue calculated in accordance with GAAP. First,
billings include amounts that have not yet been recognized as
revenue. Second, we may calculate billings in a manner that is
different from other companies that report similar financial
measures. Management compensates for these limitations by providing
specific information regarding GAAP revenue and evaluating billings
together with revenues calculated in accordance with GAAP. 
Free cash flow. We define free cash flow as net cash provided by
operating activities minus capital expenditures. We consider free
cash flow to be a liquidity measure that provides useful information
to management and investors about the amount of cash generated by the
business that, after the acquisition of property and equipment, can
be used for strategic opportunities, including investing in our
business, making strategic acquisitions, and strengthening the
balance sheet. Analysis of free cash flow facilitates management's
comparisons of our operating results to competitors' operating
results. A limitation of using free cash flow versus the GAAP measure
of net cash provided by operating activities as a means for
evaluating the Company is that free cash flow does not represent the
total increase or decrease in the cash balance from operations for
the period because it includes the impact of cash paid for capital
expenditures. Management compensates for this limitation by providing
information about our capital expenditures on the face of the cash
flow statement and under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity
and Capital Resources" in our most recent Quarterly Report on Form
10-Q and Annual Report on Form 10-K.  
Non-GAAP operating income and operating margin. We define non-GAAP
operating income as operating income plus stock-based compensation
reduced by the income from payments we received from a patent
settlement. Non-GAAP operating margin is defined as non-GAAP
operating income divided by revenue. We consider these non-GAAP
financial measures to be useful metrics for management and investors
because they exclude the effect of stock-based compensation expense
and patent settlement related income so that our management and
investors can compare our recurring core business operating results
over multiple periods. There are a number of limitations related to
the use of non-GAAP operating income versus operating income
calculated in accordance with GAAP. First, non-GAAP operating income
excludes stock-based compensation expense. Stock-based compensation
has been and will continue to be for the foreseeable future a
significant recurring expense in our business. Second, stock-based
compensation is an important part of our employees' compensation and
impacts their performance. Third, the components of the costs that we
exclude in our calculation of non-GAAP operating income may differ
from the components that our peer companies exclude when they report
their non-GAAP results of operations. Management compensates for
these limitations by providing specific information regarding the
GAAP amounts excluded from non-GAAP operating income and evaluating
non-GAAP operating income together with operating income calculated
in accordance with GAAP. 
Non-GAAP net income and diluted net income per share. We define
non-GAAP net income as net income plus stock-based compensation
expense reduced by the income from payments we received from a patent
settlement, and includes the impact of the tax adjustment, if any,
required to achieve the effective tax rate on a pro forma basis,
which could differ from the GAAP tax rate. We define non-GAAP diluted
net income per share as non-GAAP net income divided by the
weighted-average diluted shares outstanding. We consider these
non-GAAP financial measures to be useful metrics for management and
investors for the same reasons that we use non-GAAP operating income
and non-GAAP operating margin. However, in order to provide a
complete picture of our recurring core business operating results, we
include in non-GAAP net income and non-GAAP diluted net income per
share, the tax adjustment required to achieve the effective tax rate
on a pro forma basis, which could differ from the GAAP tax rate. We
believe the effective tax rates we used are reasonable estimates of
long-term normalized tax rates under our global operating structure.
The same limitations described above regarding our use of non-GAAP
operating income and non-GAAP operating margin apply to our use of
non-GAAP net income and non-GAAP diluted net income per share. We
compensate for these limitations by providing specific information
regarding the GAAP amounts excluded from non-GAAP net income and
non-GAAP diluted net income per share and evaluating non-GAAP net
income and non-GAAP diluted net income per share together with net
income and diluted net income per share calculated in accordance with
GAAP. 


 
                                                                            
                               FORTINET, INC.                               
                        CONSOLIDATED BALANCE SHEETS                         
                         (Unaudited, in thousands)                          
                                                                            
                                                                            
                                                 December 31,  December 31, 
                                                
     2012          2011     
                                                 ------------  ------------ 
                     ASSETS                                                 
CURRENT ASSETS:                                                             
  Cash and cash equivalents                      $    122,975  $     71,990 
  Short-term investments                              290,719       318,283 
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $115 and $336,                                      
   respectively                                       107,642        95,522 
  Inventory                                            21,060        16,249 
  Deferred tax assets                                  13,663         7,578 
  Prepaid expenses and other current assets            13,215        13,948 
                                                 ------------  ------------ 
    Total current assets                              569,
274       523,570 
PROPERTY AND EQUIPMENT-Net                             25,638         7,966 
DEFERRED TAX ASSETS-Non-current                        48,525        46,523 
LONG-TERM INVESTMENTS                                 325,892       148,414 
OTHER ASSETS                                            6,168         8,274 
                                                 ------------  ------------ 
TOTAL ASSETS                                     $    975,497  $    734,747 
                                                 ============  ============ 
      LIABILITIES AND STOCKHOLDERS' EQUITY                                  
CURRENT LIABILITIES:                                                        
  Accounts payable                               $     20,816  $     19,768 
  Accrued liabilities                                  22,263        15,971 
  Accrued payroll and compensation                     28,957        24,197 
  Deferred revenue                                    247,268       206,928 
                                                 ------------  ------------ 
    Total current liabilities                         319,304       266,864 
DEFERRED REVENUE-Non-current                          115,917        87,905 
OTHER LIABILITIES                                      29,342        21,624 
                                                 ------------  ------------ 
    Total liabilities   
                              464,563       376,393 
                                                 ------------  ------------ 
STOCKHOLDERS' EQUITY:                                                       
  Common stock                                            162           156 
  Additional paid-in capital                          400,075       317,026 
  Treasury stock                                       (2,995)       (2,995)
  Accumulated other comprehensive income                3,091           402 
  Retained earnings                                   110,601        43,765 
                                                 ------------  ------------ 
    Total stockholders' equity                        510,934       358,354 
                                                 ------------  ------------ 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $    975,497  $    734,747 
                                                 ============  ============ 
                                                                            
                                                                            
                               FORTINET, INC.                               
                   CONSOLIDATED STATEMENTS OF OPERATIONS                    
            (Unaudited, in thousands, except per share amounts)             
                                                                            
                         Three Months Ended              Year Ended         
                     --------------------------  -------------------------- 
                     December 31,  December 31,  December 31,  December 31, 
                         2012          2011          2012          2011     
                     ------------  ------------  ------------  ------------ 
REVENUE:                                                                    
  Product            $     71,025  $     57,463  $    248,948  $    197,408 
  Services                 76,711        61,076       274,043       220,268 
  Ratable and other                                                         
   revenue                  3,426         2,322        10,648        15,900 
                     ------------  ------------  ------------  ------------ 
    Total revenue         151,162       120,861       533,639       433,576 
                     ------------  ------------  ------------  ------------ 
COST OF REVENUE:                                                            
  Product (1)              26,974        21,929        93,971        73,201 
  Services (1)             13,836         9,671        50,682        35,486 
  Ratable and other                                                         
   revenue                    632           886         2,767         4,911 
                     ------------  ------------  ------------  ------------ 
    Total cost of                                                           
     revenue               41,442        32,486       147,420       113,598 
                     ------------  ------------  ------------  ------------ 
GROSS PROFIT:                                                               
  Product                  44,051        35,534       154,977       124,207 
  Services                 62,875        51,405       223,361       184,782 
  Ratable and other                                                         
   revenue                  2,794         1,436         7,881        10,989 
                     ------------  ------------  ------------  ------------ 
    Total gross                                                             
     profit               109,720        88,375       386,219       319,978 
                     ------------  ------------  ------------  ------------ 
OPERATING EXPENSES:                                                         
  Research and                                                              
   development (1)         20,525        16,379        81,078        63,577 
  Sales and                                                                 
   marketing (1)           48,117        39,984       179,155       145,532 
  General and                                                               
   administrative                                                           
   (1)                      6,038         5,492        25,511        21,965 
                     ------------  ------------  ------------  ------------ 
    Total operating                                                         
     expenses              74,680       
 61,855       285,744       231,074 
                     ------------  ------------  ------------  ------------ 
OPERATING INCOME           35,040        26,520       100,475        88,904 
INTEREST INCOME             1,400           963         5,006         3,523 
OTHER EXPENSE-Net            (170)         (112)         (485)         (354)
                     ------------  ------------  ------------  ------------ 
INCOME BEFORE INCOME                                                        
 TAXES                     36,270        27,371       104,996        92,073 
PROVISION FOR INCOME                                                        
 TAXES                     14,763        10,877        38,160        29,581 
                     ------------  ------------  ------------  ------------ 
NET INCOME           $     21,507  $     16,494  $     66,836  $     62,492 
                     ============  ============  ============  ============ 
Net income per                                                              
 share:                                                                     
  Basic              $       0.13  $       0.11  $       0.42  $       0.41 
                     ============  ============  ============  ============ 
  Diluted            $       0.13  $       0.10  $       0.40  $       0.38 
                     ============  ============  ============  ============ 
Weighted-average                                                            
 shares outstanding:                                                        
  Basic                   160,034       154,429       158,074       152,581 
                     ============  ============  ============  ============ 
  Diluted                 166,955       164,505       166,329       163,781 
                     ============  ============  ============  ============ 
                                                                            
(1) Includes stock-                                                         
 based compensation                                                         
 expense as follows:                                                        
  Cost of product                                                           
   revenue           $         96  $         54  $        333  $        183 
  Cost of services                                                          
   revenue                  1,032           666         3,736         1,790 
  Research and                                                              
   development              2,452         1,737         9,226         4,691 
  Sales and                                                                 
   marketing                1,996         3,036        12,793         9,325 
  General and                                                               
   administrative           1,186           848         4,602         3,026 
                     ------------  ------------  ------------  ------------ 
                     $      6,762  $      6,341  $     30,690  $     19,015 
                     ============  ============  ============  ============ 
                                                                            
                                                                            
       CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                      
                  (Unaudited, in thousands)                                 
                                                                            
                                                                            
                                                                            
                         Three Months Ended              Year Ended         
                     --------------------------  -------------------------- 
                     December 31,  December 31,  December 31,  December 31, 
                         2012          2011          2012          2011     
                     ------------  ------------  ------------  ------------ 
Net income           $     21,507  $     16,494  $     66,836  $     62,492 
Other comprehensive                                                         
 income (loss):                                                             
  Foreign currency                                                          
   translation gains                                                        
   (losses)                  (344)          246           524          (553)
  Unrealized gains                                                          
   (losses) on                                                              
   investments               (110)         (509)        3,331        (1,702)
  Unrealized gains                                                          
   (losses) on cash                                                         
   flow hedges                  -           119             -           (74)
  Tax provision                                                             
   related to items                                                         
   of other                                                                 
   comprehensive                                                            
   income or loss             (32)          550        (1,166)          550 
                     ------------  ------------  ------------  ------------ 
Net change in                                                               
 accumulated other                                                          
 comprehensive                                                              
 income                      (486)          406         2,689        (1,779)
                     ------------  ------------  ------------  ------------ 
Comprehensive income $     21,021  $     16,900  $     69,525  $     60,713 
                     ============  ============  ============  ============ 
                                                                            
                                                                            
                      FORTINET, INC. AND SUBSIDIARIES                       
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                         (Unaudited, in thousands)                          
                                                                            
                                                                            
                         Three Months Ended              Year Ended         
                     --------------------------  -------------------------- 
                     December 31,  December 31,  December 31,  December 31, 
                         2012          2011          2012          2011     
                     ------------  ------------  ------------  ------------ 
CASH FLOWS FROM                                                             
 OPERATING                      
                                            
 ACTIVITIES:                                                                
  Net income         $     21,507  $     16,494  $     66,836  $     62,492 
  Adjustments to                                                            
   reconcile net                                                            
   income to net                                                            
   cash provided by                                                         
   operating                                                                
   activities:                                                              
    Depreciation and                                                        
     amortization           3,488         1,875        11,564         6,989 
    Amortization of                                                         
     investment                                                             
     premiums               2,960         3,007        12,962        12,515 
    Stock-based                                                             
     compensation           6,762         6,341        30,690        19,015 
    Excess tax                                                              
     benefits from                                                          
     employee stock                                                         
     option plan           (2,458)      (10,565)      (12,069)      (19,829)
    Other non-cash                                                          
     items, net               (12)            -           881            22 
    Changes in                                                              
     operating                                                              
     assets and                                                             
     liabilities:                                                           
    Accounts                                                                
     receivable-net       (17,800)      (19,687)      (12,120)      (23,246)
    Inventory               3,674        (4,556)      (11,303)       (6,034)
    Deferred tax                                                            
     assets                (4,739)       (2,328)       (9,254)       (7,874)
    Prepaid expenses                                                        
     and other                                                              
     current assets           862        (1,906)          791        (2,915)
    Other assets              585           (85)        2,470           227 
    Accounts payable       (2,088)        4,287           961         6,801 
    Accrued                                                                 
     liabilities             (491)       (3,102)        2,171         1,765 
    Accrued payroll                                                         
     and                                                                    
     compensation           3,036         3,191         4,599         4,773 
    Other                                                                   
     liabilities             (509)       (2,664)       (1,870)            - 
    Deferred revenue       23,100        19,706        68,292        42,177 
    Income taxes                                                            
     payable               12,416        12,551        28,265        35,964 
    Net cash                                                                
     provided by                                                            
     operating                                                              
     activities            50,293        22,559       183,866       132,842 
                     ------------  ------------  ------------  ------------ 
CASH FLOWS FROM                                                             
 INVESTING                                                                  
 ACTIVITIES:                                                                
                     ------------  ------------  ------------  ------------ 
  Purchases of                                                              
   investments            (77,698)     (109,796)     (601,087)     (516,906)
  Sales of                                                                  
   investments                500             -        26,268        75,582 
  Maturities of                                                             
   investments             72,266        76,646       415,440       280,745 
  Purchases of                                                              
   property and                                                             
   equipment               (1,800)         (839)      (22,083)       (3,624)
  Payments made in                                                          
   connection with                                                          
   business                                                                 
   acquisitions              (500)            -        (1,249)       (2,623)
    Net cash used in                                                        
     investing                                                              
     activities            (7,232)      (33,989)     (182,711)     (166,826)
                     ------------  ------------  ------------  ------------ 
CASH FLOWS FROM                                                             
 FINANCING                                                                  
 ACTIVITIES:                                                                
                     ------------  ------------  ------------  ------------ 
  Proceeds from                                                             
   issuance of                                                              
   common stock             2,081         5,950        38,087        19,968 
  Excess tax benefit                                                        
   from employee                                                            
   stock option plan        2,458        10,565        12,069        19,829 
    Net cash                                                                
     provided by                                                            
     financing                                                              
     activities             4,539        16,515        50,156        39,797 
                     ------------  ------------  ------------  ------------ 
EFFECT OF EXCHANGE                                                          
 RATES ON CASH AND                                                          
 CASH EQUIVALENTS             (91)          275          (326)         (682)
                     ------------  ------------  ------------  ------------ 
NET INCREASE IN CASH                                                        
 AND CASH                                                                   
 EQUIVALENTS               47,509         5,360        50,985         5,131 
CASH AND CASH                                                               
 EQUIVALENTS-                                                               
 Beginning of period       75,466        66,630        71,990        66,859 
                     ------------  ------------  ------------  ------------ 
CASH AND CASH                                                               
 EQUIVALENTS-End of                                                         
 period              $    122,975  $     71,990  $    122,975  $     71,990 
                     ============  ============  ============  ============ 
                                                                            
                                                                            
Reconciliations of non-GAAP results of                                      
 operations measures to the nearest comparable                              
 GAAP measures                                                              
(Unaudited, in thousands)                                                   
                                                                            
                                                                            
Reconciliation of GAAP revenue to billings                                  
                                                                            
                                                                            
                         Three Months Ended              Year Ended         
                     --------------------------  -------------------------- 
                     December 31,  December 31,  December 31,  December 31, 
                         2012          2011          2012          2011     
                     ------------  ------------  ------------  ------------ 
Total revenue        $    151,162  $    120,
861  $    533,639  $    433,576 
  Increase in                                                               
   deferred revenue        23,107        19,706        68,352        42,202 
                     ------------  ------------  ------------  ------------ 
Total billings (Non-                                                        
 GAAP)               $    174,269  $    140,567  $    601,991  $    475,778 
                     ============  ============  ============  ============ 
                                                                            
                                                                            
Reconciliation of net cash provided by                                      
operating activities to free cash flow                                      
                                                                            
                                                                            
                         Three Months Ended              Year Ended         
                     --------------------------  -------------------------- 
                     December 31,  December 31,  December 31,  December 31, 
                         2012          2011          2012          2011     
                     ------------  ------------  ------------  ------------ 
Net cash provided by                                                        
 operating                                                                  
 activities          $     50,293  $     22,559  $    183,866  $    132,842 
  Less purchases of                                                         
   property and                                                             
   equipment               (1,800)         (839)      (22,083)       (3,624)
                     ------------  ------------  ------------  ------------ 
Free cash flow (Non-                                                        
 GAAP)               $     48,493  $     21,720  $    161,783  $    129,218 
                     ============  ============  ============  ============ 
                                                                            
                                                                            
Reconciliation of non-GAAP results of operations to the nearest comparable  
GAAP measures                                                               
(Unaudited, in thousands, except per share amounts)                         
                                                                            
Reconciliation of GAAP to Non-GAAP operating income, operating margin, net  
income and diluted net income per share                                     

 
                                                                            
                                    Three Months Ended December 31, 2012    
                                ------------------------------------------- 
                                    GAAP                          Non-GAAP  
                                  Results      Adjustments        Results   
Operating Income                $    35,040    $     6,284  (a) $    41,324 
                                ===========    ===========      =========== 
Operating Margin                         23%                             27%
                                ===========                     =========== 
Adjustments:                                                                
  Stock-based compensation                                                  
   expense                                           6,762                  
  Patent settlement income                            (478)                 
  Tax adjustment                                       295  (c)             
                                               -----------                  
Net Income                           21,507          6,579           28,086 
                                ===========                     =========== 
Diluted net income per share    $      0.13                     $      0.17 
Shares used in per share                                                    
 calculations - diluted             166,955                         166,955 
 
                                                                            
                                    Three Months Ended December 31, 2011    
                                ------------------------------------------- 
                                    GAAP                          Non-GAAP  
                                  Results      Adjustments        Results   
Operating Income                $    26,520    $     5,863  (b) $    32,383 
                                ===========    ===========      =========== 
Operating Margin                         22%                             27%
                                ===========                     =========== 
Adjustments:                                                                
  Stock-based compensation                                                  
   expense                                           6,341                  
  Patent settlement income                            (478)                 
  Tax adjustment                                       (90) (d)             
                                               -----------                  
Net Income                           16,494          5,773           22,267 
                                ===========                     =========== 
Diluted net income per share    $      0.10                     $      0.14 
Shares used in per share                                                    
 calculations - diluted             164,505                         164,505 
                                                                            
(a) To exclude $6.8 million of stock-based compensation expense offset by   
 $0.5 million of patent settlement income in the three months ended December
 31, 2012.                                                                  
                                                                            
(b) To exclude $6.3 million of stock-based compensation expense offset by   
 $0.5 million of patent settlement income in the three months ended December
 31, 2011.                                                                  
                                                                            
(c) Non-GAAP financial information is adjusted to achieve an overall 34     
 percent effective tax rate on a pro forma basis, which differs from the    
 GAAP tax rate, in the three months ended December 31, 2012.                
                                                                            
(d) Non-GAAP financial information is adjusted to achieve an overall 33     
 percent effective tax rate on a pro forma basis, which differs from the    
 GAAP tax rate, in the three months ended December 31, 2011.                
                                                                            
                                                                            
                                                                            
                                         Year Ended December 31, 2012       
                                  ----------------------------------------- 
                                      GAAP                        Non-GAAP  
                                    Results    Adjustments        Results   
Operating Income                  $   100,475  $    28,778  (e) $   129,252 
                                  ===========  ===========      =========== 
Operating Margin                           19%                           24%
                                  ===========                   =========== 
Adjustments:                                                                
  Stock-based compensation                                                  
   expense                      
                    30,690                  
  Patent settlement income                          (1,912)                 
  Tax adjustment                                    (7,323) (g)             
                                               -----------                  
Net Income                             66,836       21,455           88,291 
                                  ===========                   =========== 
Diluted net income per share      $      0.40                   $      0.53 
Shares used in per share                                                    
 calculations - diluted               166,329                       166,329 
 
                                                                            
                                                                            
                                         Year Ended December 31, 2011       
                                  ----------------------------------------- 
                                      GAAP                        Non-GAAP  
                                    Results    Adjustments        Results   
Operating Income                  $    88,904  $    17,104  (f) $   106,008 
                                  ===========  ===========      =========== 
Operating Margin                           21%                           24%
                                  ===========                   =========== 
Adjustments:                                                                
  Stock-based compensation                                                  
   expense                                          19,015                  
  Patent settlement income                          (1,911)                 
  Tax adjustment                                    (6,447) (h)             
                                               -----------                  
Net Income                             62,492       10,657           73,149 
                                  ===========                   =========== 
Diluted net income per share      $      0.38                   $      0.45 
Shares used in per share                                                    
 calculations - diluted               163,781                       163,781 
                                                                            
(e) To exclude $30.7 million of stock-based compensation expense offset by  
 $1.9 million of patent settlement income in the year ended December 31,    
 2012.                                                                      
                                                                            
(f) To exclude $19.0 million of stock-based compensation expense offset by  
 $1.9 million of patent settlement income in the year ended December 31,    
 2011.                                                                      
                                                                            
(g) Non-GAAP financial information is adjusted to achieve an overall 34     
 percent effective tax rate on a pro forma basis, which differs from the    
 GAAP tax rate, in the year ended December 31, 2012.                        
                                                                            
(h) Non-GAAP financial information is adjusted to achieve an overall 33     
 percent effective tax rate on a pro forma basis, which differs from the    
 GAAP tax rate, in the year ended December 31, 2011.                        

  
Investor Contact: 
Michelle Spolver 
Fortinet, Inc. 
408-486-7837 
mspolver@fortinet.com 
Media Contact: 
Rick Popko
Fortinet, Inc.
408-486-7853 
rpopko@fortinet.com