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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from              to             
Commission file number: 001-34511
______________________________________
FORTINET, INC.
(Exact name of registrant as specified in its charter)
______________________________________

Delaware77-0560389
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

899 Kifer Road
Sunnyvale, California 94086
(Address of principal executive offices, including zip code)

(408) 235-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Common Stock, $0.001 Par ValueFTNTThe Nasdaq Stock Market LLC
(Title of each class)(Trading Symbol)(Name of exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 


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Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes       No  
As of July 30, 2021, there were 163,320,200 shares of the registrant’s common stock outstanding.




FORTINET, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 30, 2021
Table of Contents
 
  Page
PART IFINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.





Table of Contents
PART I—FINANCIAL INFORMATION

ITEM 1.     Financial Statements
FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
 June 30,
2021
December 31,
2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$1,879.3 $1,061.8 
Short-term investments1,233.9 775.5 
Accounts receivable—net 584.6 720.0 
Inventory149.8 139.8 
Prepaid expenses and other current assets60.6 43.3 
Total current assets3,908.2 2,740.4 
LONG-TERM INVESTMENTS246.6 118.3 
PROPERTY AND EQUIPMENT—NET506.5 448.0 
DEFERRED CONTRACT COSTS347.8 304.8 
DEFERRED TAX ASSETS271.2 245.2 
GOODWILL99.2 93.0 
OTHER INTANGIBLE ASSETS—NET28.7 31.6 
OTHER ASSETS150.7 63.2 
TOTAL ASSETS$5,558.9 $4,044.5 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$132.0 $141.6 
Accrued liabilities168.8 149.2 
Accrued payroll and compensation164.7 145.9 
Deferred revenue1,533.0 1,392.8 
Total current liabilities1,998.5 1,829.5 
DEFERRED REVENUE1,372.4 1,212.5 
INCOME TAX LIABILITIES95.2 90.3 
LONG-TERM DEBT987.5  
OTHER LIABILITIES55.1 56.2 
Total liabilities4,508.7 3,188.5 
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value—300.0 shares authorized; 163.3 and 162.5 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
0.2 0.2 
Additional paid-in capital1,245.8 1,207.2 
Accumulated other comprehensive income (loss)(0.1)0.7 
Accumulated deficit(195.7)(352.1)
Total stockholders’ equity1,050.2 856.0 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$5,558.9 $4,044.5 
See notes to condensed consolidated financial statements.
1

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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)
 Three Months EndedSix Months Ended
June 30,
2021
June 30,
2020
June 30,
2021
June 30,
2020
REVENUE:
Product$298.3 $211.9 $539.0 $404.2 
Service 502.8 405.7 972.4 791.1 
Total revenue801.1 617.6 1,511.4 1,195.3 
COST OF REVENUE:
Product115.6 84.4 206.9 160.7 
Service 71.3 50.7 136.6 103.1 
Total cost of revenue186.9 135.1 343.5 263.8 
GROSS PROFIT:
Product182.7 127.5 332.1 243.5 
Service 431.5 355.0 835.8 688.0 
Total gross profit614.2 482.5 1,167.9 931.5 
OPERATING EXPENSES:
Research and development106.6 82.1 203.8 162.4 
Sales and marketing326.9 253.8 630.9 513.8 
General and administrative34.4 28.9 66.4 57.7 
Gain on intellectual property matter(1.2)(1.1)(2.3)(37.9)
Total operating expenses466.7 363.7 898.8 696.0 
OPERATING INCOME147.5 118.8 269.1 235.5 
INTEREST INCOME1.2 4.0 2.3 13.2 
INTEREST EXPENSE(4.5) (5.8) 
OTHER INCOME (EXPENSE)—NET0.8 0.9 (1.2)(7.1)
INCOME BEFORE INCOME TAXES145.0 123.7 264.4 241.6 
PROVISION FOR INCOME TAXES7.5 9.9 19.7 23.2 
NET INCOME$137.5 $113.8 $244.7 $218.4 
Net income per share (Note 10):
Basic$0.84 $0.70 $1.50 $1.31 
Diluted$0.82 $0.69 $1.47 $1.29 
Weighted-average shares outstanding:
Basic163.3 161.6 163.2 166.1 
Diluted167.1 165.4 166.7 169.8 
See notes to condensed consolidated financial statements.
2

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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
 Three Months EndedSix Months Ended
 June 30,
2021
June 30,
2020
June 30,
2021
June 30,
2020
Net income$137.5 $113.8 $244.7 $218.4 
Other comprehensive loss:
Change in unrealized gains (losses) on investments(0.4)7.3 (1.0)2.1 
Less: tax benefit related to change in unrealized gains (losses) on investments 1.7 (0.2)0.7 
Other comprehensive income (loss)(0.4)5.6 (0.8)1.4 
Comprehensive income$137.1 $119.4 $243.9 $219.8 
See notes to condensed consolidated financial statements.
3

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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in millions)
Three Months Ended June 30, 2021
 Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income
Accumulated DeficitTotal
Stockholders’
Equity
SharesAmount
BALANCE—March 31, 2021163.3 $0.2 $1,225.2 $0.3 $(244.9)$980.8 
Issuance of common stock in connection with equity incentive plans - net of tax withholding0.5 — (28.7)— — (28.7)
Repurchase and retirement of common stock(0.5)(3.3)(88.3)(91.6)
Stock-based compensation expense— — 52.6 — — 52.6 
Net unrealized loss on investments - net of tax— — — (0.4)— (0.4)
Net income— — — — 137.5 137.5 
BALANCE—June 30, 2021163.3 $0.2 $1,245.8 $(0.1)$(195.7)$1,050.2 
Three Months Ended June 30, 2020
 Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income (Loss)
Retained Earnings (Accumulated Deficit)Total
Stockholders’
Equity
SharesAmount
BALANCE—March 31, 2020162.6 $0.2 $1,128.4 $(3.1)$(568.1)$557.4 
Issuance of common stock in connection with equity incentive plans - net of tax withholding0.6 — (12.9)— — (12.9)
Repurchase and retirement of common stock(1.4)— (10.1)— (136.0)(146.1)
Stock-based compensation expense— — 48.9 — — 48.9 
Net unrealized loss on investments - net of tax— — — 5.6 — 5.6 
Net income— — — — 113.8 113.8 
BALANCE—June 30, 2020 161.8 $0.2 $1,154.3 $2.5 $(590.3)$566.7 


See notes to condensed consolidated financial statements.
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Six Months Ended June 30, 2021
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income
Retained Earnings (Accumulated Deficit)Total
Stockholders’
Equity
SharesAmount
BALANCE—December 31, 2020162.5 $0.2 $1,207.2 $0.7 $(352.1)$856.0 
Issuance of common stock in connection with equity incentive plans - net of tax withholding1.3 — (60.2)— — (60.2)
Repurchase and retirement of common stock(0.5)— (3.3)— (88.3)(91.6)
Stock-based compensation expense— — 102.1 — — 102.1 
Net unrealized gain on investments - net of tax— — — (0.8)— (0.8)
Net income— — — — 244.7 244.7 
BALANCE—June 30, 2021163.3 $0.2 $1,245.8 $(0.1)$(195.7)$1,050.2 
Six Months Ended June 30, 2020
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated DeficitTotal
Stockholders’
Equity
SharesAmount
BALANCE—December 31, 2019171.7 $0.2 $1,180.3 $1.1 $160.8 $1,342.4 
Issuance of common stock in connection with equity incentive plans - net of tax withholding1.5 — (43.2)— — (43.2)
Repurchase and retirement of common stock(11.4)— (76.5)— (969.5)(1,046.0)
Stock-based compensation expense— — 93.7 — — 93.7 
Net unrealized gain on investments - net of tax— — — 1.4 — 1.4 
Net income— — — — 218.4 218.4 
BALANCE—June 30, 2020161.8 $0.2 $1,154.3 $2.5 $(590.3)$566.7 


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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
 Six Months Ended
 June 30,
2021
June 30,
2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$244.7 $218.4 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation102.1 93.7 
Amortization of deferred contract costs81.8 64.5 
Depreciation and amortization36.2 35.4 
Amortization of investment premiums (discounts)2.9 (0.4)
Other 0.3 5.5 
Changes in operating assets and liabilities:
Accounts receivable—net135.6 44.5 
Inventory(20.1)(17.9)
Prepaid expenses and other current assets(16.4)(15.2)
Deferred contract costs(124.8)(91.1)
Deferred tax assets(25.8)13.6 
Other assets(11.8)0.7 
Accounts payable(9.5)9.7 
Accrued liabilities21.3 6.5 
Accrued payroll and compensation18.7 8.9 
Other liabilities(1.2)5.6 
Deferred revenue300.1 184.0 
Net cash provided by operating activities734.1 566.4 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments(1,262.5)(399.3)
Sales of investments71.4 130.0 
Maturities of investments600.3 548.1 
Purchases of property and equipment(75.6)(58.5)
Purchase of investment in privately held company(75.0) 
Payments made in connection with business combination, net of cash acquired(10.3)(3.1)
Other (0.4)
Net cash provided by (used in) investing activities(751.7)216.8 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings, net of discount and underwriting fees989.4  
Payments for debt issuance costs(2.4) 
Repurchase and retirement of common stock(91.6)(1,046.0)
Proceeds from issuance of common stock15.8 15.7 
Taxes paid related to net share settlement of equity awards(76.0)(58.9)
Other(0.1)(0.1)
Net cash provided by (used in) financing activities835.1 (1,089.3)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS817.5 (306.1)
CASH AND CASH EQUIVALENTS—Beginning of period1,061.8 1,222.5 
CASH AND CASH EQUIVALENTS—End of period$1,879.3 $916.4 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes—net $48.3 $18.3 
Operating lease liabilities arising from obtaining right-of-use assets$21.1 $5.9 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfers of evaluation units from inventory to property and equipment$10.3 $10.2 
Liability for purchase of property and equipment$33.5 $24.9 
See notes to condensed consolidated financial statements.
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Preparation—The unaudited condensed consolidated financial statements of Fortinet, Inc. and its wholly owned subsidiaries (collectively, “we,” “us” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information, as well as the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2020, contained in our Annual Report on Form 10-K filed with the SEC on February 19, 2021. In the opinion of management, all adjustments, which includes normal recurring adjustments, considered necessary for a fair presentation have been included. All intercompany balances, transactions and cash flows have been eliminated. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results for the full year or for any future periods. The condensed consolidated balance sheet as of December 31, 2020 is derived from the audited consolidated financial statements for the year ended December 31, 2020.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Except for the update to the range of useful lives for property and equipment discussed in Note 6 and our policy election for how we account for our share of financial results for a specific investment in privately held companies on a three-month lag basis as discussed in Note 7, there have been no material changes to our significant accounting policies as of and for the three and six months ended June 30, 2021.

Recently Adopted Accounting Standards

Income Taxes

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12—Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application and simplification of GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 was effective for us beginning on January 1, 2021. The adoption of this guidance did not have any impact on our condensed consolidated financial statements and accompanying disclosures.


2.     IMMATERIAL CORRECTION OF PRIOR PERIOD FINANCIAL STATEMENTS

Subsequent to the issuance of our condensed consolidated financial statements for the period ended June 30, 2020, we identified an immaterial error related to the commencement of revenue recognition for certain FortiCare support service contracts. Rather than commencing recognition upon end user registration, we should have commenced recognition when control had passed to the distributor, which we have determined is our customer. We assessed the effect of this correction, individually and in the aggregate, on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 and, based on an analysis of quantitative and qualitative factors, determined that the correction was not individually material to any of our prior interim or annual consolidated financial statements.

All financial information contained in the accompanying notes to these condensed consolidated financial statements has been revised to reflect the correction of this error.
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The corrections to our condensed consolidated statement of income for the three and six months ended June 30, 2020 were as follows (in millions, except per share amounts):
Three Months Ended June 30, 2020
 As Previously ReportedCorrectionsAs Corrected
REVENUE:
Service $403.6 $2.1 $405.7 
Total revenue$615.5 $2.1 $617.6 
GROSS PROFIT:
Service $352.9 $2.1 $355.0 
Total gross profit$480.4 $2.1 $482.5 
OPERATING INCOME$116.7 $2.1 $118.8 
INCOME BEFORE INCOME TAXES$121.6 $2.1 $123.7 
PROVISION FOR INCOME TAXES$9.5 $0.4 $9.9 
NET INCOME$112.1 $1.7 $113.8 
Net income per share (Note 10):
Basic$0.69 $0.01 $0.70 
Diluted$0.68 $0.01 $0.69 
Six Months Ended June 30, 2020
 As Previously ReportedCorrectionsAs Corrected
REVENUE:
Service $788.2 $2.9 $791.1 
Total revenue$1,192.4 $2.9 $1,195.3 
GROSS PROFIT:
Service $685.1 $2.9 $688.0 
Total gross profit$928.6 $2.9 $931.5 
OPERATING INCOME$232.6 $2.9 $235.5 
INCOME BEFORE INCOME TAXES$238.7 $2.9 $241.6 
PROVISION FOR INCOME TAXES$22.6 $0.6 $23.2 
NET INCOME$216.1 $2.3 $218.4 
Net income per share (Note 10):
Basic$1.30 $0.01 $1.31 
Diluted$1.27 $0.02 $1.29 

The corrections to our condensed consolidated statement of cash flows for the six months ended June 30, 2020 were as follows (in millions):
Six Months Ended June 30, 2020
 As Previously ReportedCorrectionsAs Corrected
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$216.1 $2.3 $218.4 
Changes in operating assets and liabilities:
Deferred tax assets13.0 0.6 13.6 
Deferred revenue186.9 (2.9)184.0 

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

3.     REVENUE RECOGNITION

We sell cybersecurity solutions to a variety of organizations, such as enterprises, communication service providers, government organizations and small to medium-sized enterprises. Our revenue consists of product and service revenue. Product revenue is generated by our FortiGate network security products, our Fortinet Security Fabric platform products and other products. Service revenue relates to sales of our security subscription services, which mainly consists of our FortiGuard security solutions, as well as our FortiCare technical support services and other services.

Disaggregation of Revenue

The following table presents our revenue disaggregated by major product and service lines (in millions):
Three Months EndedSix Months Ended
June 30,
2021
June 30,
2020
June 30,
2021
June 30,
2020
Product$298.3 $211.9 $539.0 $404.2 
Service:
Security subscription272.9 222.6 528.2 434.0 
Technical support and other229.9 183.1 444.2 357.1 
Total service revenue502.8 405.7 972.4 791.1 
Total revenue$801.1 $617.6 $1,511.4 $1,195.3 

Deferred Revenue

During the three months ended June 30, 2021 and June 30, 2020, we recognized $371.2 million and $302.0 million in service revenue that was included in the deferred revenue balance as of December 31, 2020 and December 31, 2019, respectively. During the six months ended June 30, 2021 and June 30, 2020, we recognized $789.1 million and $645.3 million in service revenue that was included in the deferred revenue balance as of December 31, 2020 and December 31, 2019, respectively.

Transaction Price Allocated to the Remaining Performance Obligations

As of June 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $2.91 billion, which was substantially comprised of deferred security subscription and technical support services revenue. We expect to recognize approximately $1.53 billion as revenue over the next 12 months and the remainder thereafter.

Accounts receivable

Trade accounts receivable are recorded at the invoiced amount. Our accounts receivable balance is reduced by an allowance for expected credit losses. We measure expected credit losses of accounts receivable on a collective (pooled) basis, aggregating accounts receivable that are either current or no more than 60 days past due, and aggregating accounts receivable that are more than 60 days past due. We apply a credit-loss percentage to each of the pools that is based on our historical credit losses. We review whether each of our significant accounts receivable that is more than 60 days past due continues to exhibit similar risk characteristics with the other accounts receivable in the pool. If we determine that it does not, we evaluate it for expected credit losses on an individual basis. Expected credit losses are recorded as general and administrative expenses on our consolidated statements of income.

The allowance for credit losses was $2.7 million and $2.5 million as of June 30, 2021 and December 31, 2020, respectively. Provisions, write-offs and recoveries were not material during the six months ended June 30, 2021 and 2020.
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred Contract Costs
    
Amortization of deferred contract costs during the three months ended June 30, 2021 and 2020 were $42.1 million and $33.2 million, respectively. Amortization of deferred contract costs during the six months ended June 30, 2021 and 2020 were $81.8 million and $64.5 million, respectively.

4.     FINANCIAL INSTRUMENTS AND FAIR VALUE

The following tables summarize our investments (in millions):
 
 June 30, 2021
 Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Commercial paper$658.4 $0.1 $(0.3)$658.2 
Corporate debt securities485.6 0.3 (0.2)485.7 
Certificates of deposit and term deposits (1)
187.7 0.1  187.8 
U.S. government securities148.8   148.8 
Total available-for-sale securities$1,480.5 $0.5 $(0.5)$1,480.5 
 December 31, 2020
 Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Commercial paper$185.4 $ $ $185.4 
Corporate debt securities410.5 1.0  411.5 
Certificates of deposit and term deposits (1)
112.0   112.0 
U.S. government securities184.9   184.9 
Total available-for-sale securities$892.8 $1.0 $ $893.8 
(1) The majority of our certificates of deposit and term deposits are foreign deposits.
The following tables show the gross unrealized losses and the related fair values of our investments that have been in a continuous unrealized loss position (in millions):
June 30, 2021
 Less Than 12 Months12 Months or GreaterTotal
 Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Commercial paper$139.0 $(0.3)$ $ $139.0 $(0.3)
Corporate debt securities225.8 (0.2)  225.8 (0.2)
Certificates of deposit and term deposits19.4  5.5  24.9  
U.S. government securities37.3    37.3  
Total available-for-sale securities$421.5 $(0.5)$5.5 $ $427.0 $(0.5)
December 31, 2020
 Less Than 12 Months12 Months or GreaterTotal
 Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Commercial paper$61.5 $ $ $ $61.5 $ 
Corporate debt securities111.3    111.3  
Certificates of deposit and term deposits29.5    29.5  
U.S. government securities38.1    38.1  
Total available-for-sale securities$240.4 $ $ $ $240.4 $ 
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


The contractual maturities of our investments were as follows (in millions):
 June 30,
2021
December 31,
2020
Due within one year$1,233.9 $775.5 
Due within one to three years246.6 118.3 
Total$1,480.5 $893.8 

Available-for-sale securities are reported at fair value, with unrealized gains and losses and the related tax impact included as a separate component of stockholders’ equity and in comprehensive income. Accrued interest receivable of $3.2 million as of June 30, 2021 was excluded from the fair value of our available-for-sale securities and was recorded in prepaid expenses and other current assets in our condensed consolidated balance sheet.

Realized gains and losses on available-for-sale securities were insignificant in the periods presented.

Fair Value Accounting—We apply the following fair value hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3—Unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

We measure the fair value of money market funds and certain U.S. government securities using quoted prices in active markets for identical assets. The fair value of all other financial instruments was based on quoted prices for similar assets in active markets, or model-driven valuations using significant inputs derived from or corroborated by observable market data.

We classify investments within Level 1 if quoted prices are available in active markets for identical securities.

We classify items within Level 2 if the investments are valued using model-driven valuations using observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Investments are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.

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Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value of Financial Instruments

Assets Measured at Fair Value on a Recurring Basis

The following tables present the fair value of our financial assets measured at fair value on a recurring basis (in millions):
 June 30, 2021December 31, 2020
 Aggregate
Fair
Value
Quoted
Prices in
Active
Markets For
Identical
Assets
Significant
Other
Observable
Remaining
Inputs
Significant
Other
Unobservable
Remaining
Inputs
Aggregate
Fair
Value
Quoted
Prices in
Active
Markets For
Identical
Assets
Significant
Other
Observable
Remaining
Inputs
Significant
Other
Unobservable
Remaining
Inputs
  (Level 1)(Level 2)(Level 3) (Level 1)(Level 2)(Level 3)
Assets:
Commercial paper$658.2 $ $658.2 $ $197.2 $ $197.2 $ 
Corporate debt securities485.7  485.7  413.7  413.7  
Certificates of deposit and term deposits187.8  187.8  112.0  112.0  
U.S. government securities148.8 148.8   184.9 184.9