01—Abstract
Summary
Summary of the 10-K/A filed April 30, 2018. Cited figures are marked; the original filing is the authoritative source.
Fortinet's 2017 Form 10-K/A filing provides an amendment to include Part III information, primarily detailing its Directors, Executive Officers, Corporate Governance, and Executive Compensation.
The company highlights strong revenue growth of 17% to $1.49 billiona and a significant increase in GAAP operating income by 156% to $109.8 million in 2017, alongside a stock price appreciation from $30.12 to $43.69. The executive compensation strategy is designed to attract, retain, and motivate talent by aligning pay with company performance, with a focus on equity-based awards and long-term incentives. The leadership structure features Ken Xie as CEO and Chairman, with a Lead Independent Director providing oversight, a common practice in the tech industry.
Key aspects of corporate governance include a Code of Business Conduct and Ethics, Corporate Governance Guidelines, and a majority voting standard for director elections. Independence of the board is a priority, with most directors classified as independent. The Audit Committee, chaired by Christopher B.
Paisley, oversees financial integrity and independent auditors, while the Human Resources Committee, chaired by William H. Neukom, manages executive compensation.
The Board maintains an enterprise-wide approach to risk oversight, with specific responsibilities delegated to committees. The filing also details ownership structures, noting significant stakes held by institutional investors like BlackRock and Vanguard, as well as substantial holdings by founders Ken Xie and Michael Xie.
02—Key points
Key Highlights
- Fortinet reported a 17% year-over-year increase in total revenue to $1.49 billion for 2017, and a 156% increase in GAAP operating income to $109.8 million, indicating strong financial performance.
- The company's stock price appreciated significantly, moving from $30.12 at the end of 2016 to $43.69 at the end of 2017.
- The executive compensation program is strategically designed to attract, retain, and motivate top talent, emphasizing a competitive base pay, variable performance-based pay, and a significant portion in equity-based awards (stock options and RSUs) to align executive interests with long-term stockholder value.
- The Board of Directors maintains a dual leadership structure with Ken Xie serving as CEO and Chairman, and Christopher B. Paisley as Lead Independent Director, aiming for a balance of strong leadership and independent oversight.
- A majority of the Board of Directors are considered independent directors, with specific committees (Audit, Human Resources, Governance) in place to oversee key corporate functions, including financial reporting, executive compensation, and corporate governance.
- The filing details beneficial ownership, showing that founders Ken Xie and Michael Xie hold significant stakes in the company, alongside large institutional investors like BlackRock and The Vanguard Group.
- The company has robust change of control severance agreements in place for its named executive officers and non-employee directors, providing specific benefits in the event of termination or a change of control, designed to ensure executive focus and retention.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Fortinet, Inc. kept $0.02.
- Revenue$1.49B100.0%
- Cost of revenue−$385.3M25.8%
- Gross profit$1.11B74.2%
- Operating costs−$999.8M66.9%
- Operating income$109.8M7.3%
- Interest, other & tax−$78.4M5.2%
- Net income$31.4M2.1%
Where FY2017 revenue went
$1.49B- Other operating costs: $789.2M, 53% of revenue
- Cost of revenue: $385.3M, 26% of revenue
- R&D: $210.6M, 14% of revenue
- Net income: $31.4M, 2.1% of revenue
- Interest, other & tax: $78.4M, 5.2% of revenue
Kept 2.1% as net incomeNet income $31.4M · 2.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2017filed April 30, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $1.49B$1.28B | +17.2% |
| Cost of Revenue | $385.30M$337.80M | +14.1% |
| Gross Profit | $1.11B$937.60M | +18.3% |
| R&D Expenses | $210.60M$183.10M | +15.0% |
| Operating Expenses | $999.80M$894.70M | +11.7% |
| Operating Income | $109.80M$42.90M | +155.9% |
| Net Income | $31.40M$32.20M | −2.5% |
| EPS (Basic) | $0.04$0.04 | −5.3% |
| EPS (Diluted) | $0.04$0.04 | 0.0% |
| Shares Outstanding (Basic) | 871.50M863.00M | +1.0% |
| Shares Outstanding (Diluted) | 890.50M881.50M | +1.0% |
05—Questions
Frequently Asked Questions
What is the primary purpose of this 10-K/A filing?
This filing is an Amendment No. 1 to Fortinet's 2017 Form 10-K. Its sole purpose is to include information required by Items 10 through 14 of Part III, which were initially omitted and intended to be incorporated by reference from the company's definitive proxy statement. As the proxy statement was not filed in time, Fortinet is now filing this amendment to include that information directly within the 10-K.
How is Fortinet's executive compensation structured?
Fortinet's executive compensation consists of four key elements: base pay, equity-based awards (stock options and RSUs), variable pay (performance-based bonuses), and benefits programs. The company emphasizes equity-based awards and long-term incentives to align executive interests with stockholder value and to retain talent. Compensation decisions are guided by competitive market data, company performance, and individual contributions, with the Human Resources Committee overseeing these decisions.
What is the composition and independence of Fortinet's Board of Directors?
Fortinet's Board of Directors has 10 members. With the exception of CEO Ken Xie and President & CTO Michael Xie, all other current directors are considered independent according to Nasdaq's listing standards. The Board has three standing committees: Audit, Human Resources, and Governance, each composed of independent directors.
What are the key financial performance indicators highlighted in the filing for 2017?
The filing notes that Fortinet achieved total revenue of $1.49 billion in 2017, an increase of approximately 17% compared to 2016. Additionally, GAAP operating income saw a substantial increase of approximately 156% to $109.8 million. The company's stock price also rose from $30.12 at the end of 2016 to $43.69 by the end of 2017.
06—Continue