JUNIPER NETWORKS INC, 10-Q filed on 8/11/2014
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2014
Aug. 8, 2014
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
JUNIPER NETWORKS INC 
 
Entity Central Index Key
0001043604 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 2014 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q2 
 
Current Fiscal Year End Date
--12-31 
 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
451,188,075 
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Net revenues:
 
 
 
 
Product
$ 929.2 
$ 863.8 
$ 1,805.2 
$ 1,645.6 
Service
300.3 
286.9 
594.4 
564.3 
Total net revenues
1,229.5 
1,150.7 
2,399.6 
2,209.9 
Cost of revenues:
 
 
 
 
Product
359.3 
321.3 
685.9 
599.5 
Service
122.0 
108.9 
245.4 
219.1 
Total cost of revenues
481.3 
430.2 
931.3 
818.6 
Gross margin
748.2 
720.5 
1,468.3 
1,391.3 
Operating expenses:
 
 
 
 
Research and development
255.5 
257.7 
519.5 
519.9 
Sales and marketing
258.0 
267.1 
531.4 
523.2 
General and administrative
60.6 
49.2 
135.5 
107.7 
Restructuring and other charges
58.2 
8.0 
172.2 
15.0 
Total operating expenses
632.3 
582.0 
1,358.6 
1,165.8 
Operating income
115.9 
138.5 
109.7 
225.5 
Other income (expense), net
178.6 
(12.6)
332.8 
(22.7)
Income before income taxes
294.5 
125.9 
442.5 
202.8 
Income tax provision
73.4 
28.0 
110.8 
13.9 
Net income
$ 221.1 
$ 97.9 
$ 331.7 
$ 188.9 
Net income per share:
 
 
 
 
Basic
$ 0.47 
$ 0.19 
$ 0.69 
$ 0.37 
Diluted
$ 0.46 
$ 0.19 
$ 0.68 
$ 0.37 
Shares used in computing net income per share:
 
 
 
 
Basic (in shares)
470.3 
503.0 
478.1 
503.8 
Diluted (in shares)
476.5 
506.3 
487.3 
510.4 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Net income
$ 221.1 
$ 97.9 
$ 331.7 
$ 188.9 
Available-for-sale securities:
 
 
 
 
Change in unrealized gains on available-for-sale securities, net of tax provision of ($6.1) and ($28.2) for the three and six months ended June 30, 2014, respectively, and $(3.9) and $(4.0) for the corresponding periods of fiscal 2013, respectively
10.3 
5.8 
48.4 
5.6 
Reclassification adjustment for realized net gains on available-for-sale securities included in net income, net of tax provision of $0.1 and $60.4 for the three and six months ended June 30, 2014, respectively, and $0.1 and $0.2 for the corresponding periods of fiscal 2013, respectively
(0.3)
(0.1)
(103.8)
(0.5)
Net change in unrealized gains on available- for-sale securities, net of taxes
10.0 
5.7 
(55.4)
5.1 
Cash flow hedges:
 
 
 
 
Change in unrealized gains (losses) on cash flow hedges, net of tax (provision) benefit of ($0.7) and ($1.3) for the three and six months ended June 30, 2014, respectively, and $1.6 and $1.6 for the corresponding periods of fiscal 2013, respectively
1.1 
(0.1)
3.2 
(2.2)
Reclassification adjustment for realized net gains on cash flow hedges included in net income, net of tax provision of $0.4 and $0.3 for the three and six months ended June 30, 2014, respectively, and $0.1 and $0.2 for the corresponding periods of fiscal 2013, respectively
(2.1)
(0.4)
(3.2)
(1.8)
Net change in unrealized gains on cash flow hedges, net of taxes
(1.0)
(0.5)
(4.0)
Change in foreign currency translation adjustments
2.2 
(3.7)
3.9 
(9.5)
Other comprehensive income (loss), net of tax
11.2 
1.5 
(51.5)
(8.4)
Comprehensive income
$ 232.3 
$ 99.4 
$ 280.2 
$ 180.5 
Condensed Consolidated Statements of Comprehensive Income Parentheticals (Unaudited) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
 
Tax provision on change in unrealized gains on available-for-sale securities
$ 6.1 
$ 3.9 
$ 28.2 
$ 4.0 
Tax provision on reclassification adjustment for realized net gains on available-for-sale securities included in net income
0.1 
0.1 
60.4 
0.2 
Tax provision (benefit) on change in unrealized gains (losses) on cash flow hedges
0.7 
(1.6)
1.3 
(1.6)
Tax provision on reclassification adjustment for realized gains included in net income
$ 0.4 
$ 0.1 
$ 0.3 
$ 0.2 
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Millions, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 2,159.8 
$ 2,284.0 
Short-term investments
460.5 
561.9 
Accounts receivable, net of allowances
560.8 
578.3 
Deferred tax assets, net
151.4 
79.8 
Prepaid expenses and other current assets
165.2 
199.9 
Total current assets
3,497.7 
3,703.9 
Property and equipment, net
889.9 
882.3 
Long-term investments
1,340.1 
1,251.9 
Restricted cash and investments
66.3 
89.5 
Purchased intangible assets, net
105.3 
106.9 
Goodwill
4,071.5 
4,057.7 
Other long-term assets
166.5 
233.8 
Total assets
10,137.3 
10,326.0 
Current liabilities:
 
 
Accounts payable
246.3 
200.4 
Accrued compensation
232.4 
273.9 
Deferred revenue
803.2 
705.8 
Other accrued liabilities
291.6 
261.3 
Total current liabilities
1,573.5 
1,441.4 
Long-term debt
1,348.9 
999.3 
Long-term deferred revenue
370.1 
363.5 
Long-term income taxes payable
125.7 
114.4 
Other long-term liabilities
107.6 
105.2 
Total liabilities
3,525.8 
3,023.8 
Commitments and contingencies (Note 16)
   
   
Stockholders' equity:
 
 
Convertible preferred stock, $0.00001 par value; 10.0 shares authorized; none issued and outstanding
Common stock, $0.00001 par value; 1,000.0 shares authorized; 475.0 shares and 495.2 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively
Additional paid-in capital
9,325.5 
9,868.9 
Accumulated other comprehensive income
13.1 
64.6 
Accumulated deficit
(2,727.1)
(2,631.3)
Total stockholders' equity
6,611.5 
7,302.2 
Total liabilities and stockholders' equity
$ 10,137.3 
$ 10,326.0 
Condensed Consolidated Balance Sheets Parentheticals (Unaudited) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
 
 
Convertible preferred stock - par value
$ 0.00001 
$ 0.00001 
Convertible preferred stock - shares authorized
10,000,000 
10,000,000 
Convertible preferred stock - issued
Convertible preferred stock - outstanding
Common stock - par value
$ 0.00001 
$ 0.00001 
Common stock - shares authorized
1,000,000,000 
1,000,000,000 
Common stock - issued
475,000,000 
495,200,000 
Common stock - outstanding
475,000,000 
495,200,000 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Cash flows from operating activities:
 
 
Net income
$ 331.7 
$ 188.9 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Share-based compensation expense
120.1 
111.4 
Depreciation, amortization, and accretion
95.6 
94.6 
Restructuring and other charges
194.4 
16.5 
Deferred income taxes
(82.3)
26.6 
Gain on investments, net
(167.0)
(3.8)
Gain on legal settlement, net
(120.3)
Excess tax benefits from share-based compensation
(8.0)
(1.3)
Loss on disposal of fixed assets
0.8 
0.1 
Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
Accounts receivable, net
21.4 
(92.3)
Prepaid expenses and other assets
149.2 
(86.9)
Accounts payable
53.0 
(3.4)
Accrued compensation
(39.5)
(64.0)
Income taxes payable
(38.3)
(18.5)
Other accrued liabilities
(61.7)
3.1 
Deferred revenue
101.9 
104.5 
Net cash provided by operating activities
551.0 
275.5 
Cash flows from investing activities:
 
 
Purchases of property and equipment
(98.3)
(142.3)
Purchases of available-for-sale investments
(1,577.6)
(895.0)
Proceeds from sales of available-for-sale investments
1,504.6 
587.5 
Proceeds from maturities of available-for-sale investments
234.2 
183.8 
Purchases of trading investments
(2.4)
(2.1)
Proceeds from sales of privately-held investments
2.5 
1.7 
Purchases of privately-held investments
(5.0)
(14.4)
Payments for business acquisitions, net of cash and cash equivalents acquired
(27.1)
(10.0)
Purchase of licensed software
(10.0)
Changes in restricted cash
25.0 
Net cash provided by (used in) investing activities
55.9 
(300.8)
Cash flows from financing activities:
 
 
Proceeds from issuance of common stock
121.2 
74.3 
Purchases and retirement of common stock
(907.1)
(239.2)
Purchase of equity forward contract
(300.0)
Issuance of long-term debt, net
346.5 
Payment for capital lease obligation
(0.4)
(1.4)
Customer financing arrangements
0.7 
32.4 
Excess tax benefits from share-based compensation
8.0 
1.3 
Net cash used in financing activities
(731.1)
(132.6)
Net decrease in cash and cash equivalents
(124.2)
(157.9)
Cash and cash equivalents at beginning of period
2,284.0 
2,407.8 
Cash and cash equivalents at end of period
$ 2,159.8 
$ 2,249.9 
Basis of Presentation
Basis of Presentation
Basis of Presentation

Basis of Presentation

The unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with United States ("U.S.") generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Condensed Consolidated Balance Sheet as of December 31, 2013, is derived from the audited Consolidated Financial Statements for the year ended December 31, 2013. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or any future period. The information included in this Quarterly Report on Form 10-Q ("Report") should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Certain amounts in the prior year Condensed Consolidated Financial Statements contained in this Report have been reclassified to conform to the current year presentation.

The preparation of the financial statements and related disclosures in accordance with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates under different assumptions or conditions.

In the first quarter of 2014, the Company announced an integrated operating plan ("IOP") to refocus the Company's strategy, optimize its structure, and improve operational efficiencies. In connection with the IOP, the Company realigned its organization into a One-Juniper structure which includes consolidating the Company's R&D and go-to-market functions to reduce complexity, increase clarity of responsibilities, and improve efficiency. As a result of these changes, the Company's consolidated business is considered to be one reportable segment. Future organizational changes, if any, could impact how the chief operating decision maker ("CODM") allocates resources and assesses performance. In fiscal 2013, the Company operated under two reportable segments: Platform Systems Division ("PSD") and Software Solutions Division ("SSD"). This change did not impact previously reported consolidated results of operation. See Note 13, Segments, for further discussion of the Company's segment reorganization.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

There have been no material changes to the Company's significant accounting policies compared to the accounting policies described in Note 2, Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2013.

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-12 (Topic 718) - Compensation - Stock Compensation ("ASU 2014-12") which provides guidance that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service period is a performance condition. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost for such an award would be recognized over the required service period, if it is probable that the performance condition will be achieved. ASU 2014-12 is effective for all entities for annual periods beginning after December 15, 2015 and interim periods within those annual periods. ASU 2014-12 should be applied on a prospective basis to awards that are granted or modified on or after the effective date. The Company is currently evaluating the impact of the adoption on its Consolidated Financial Statements.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 (Topic 606)—Revenue from Contracts with Customers ("ASU 2014-09") which provides guidance for revenue recognition. This ASU affects all contracts that the Company enters into with customers to transfer goods and services or for the transfer of nonfinancial assets. This ASU will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The standard's core principle is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In doing so, the Company will need to use additional judgment and estimates than under the existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. Accordingly, the ASU will be effective for the Company beginning fiscal year 2017. The Company is currently evaluating the impact of the adoption on its Consolidated Financial Statements.

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08") which raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. ASU 2014-08 is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. The Company has determined that this pronouncement would not have a material impact on the Company's financial position or results of operations.
Business Combination
Business Combination
Business Combination

On January 7, 2014, the Company acquired 100% of the equity securities of WANDL, Inc. ("WANDL"), for $28.7 million of cash and stock consideration. WANDL, a provider of software solutions for advanced planning, management, design and optimization of next-generation multi-layer networks, will provide the Company with technology and experience in traffic engineering, multi-layer optimization and path computation, to help service provider customers optimize the performance and cost of their networks.

The aggregate consideration of $28.7 million was allocated as follows: intangible assets of $17.8 million, recognized goodwill of $13.6 million, and net liabilities of $2.7 million. The goodwill recognized for the acquisition of WANDL was primarily attributable to expected synergies and is not deductible for U.S. federal income tax purposes.

Additionally, under the terms of the purchase agreement, the Company assumed share-based awards for employees with a fair value of $34.9 million, which were granted in contemplation of future services and will be expensed as share-based compensation over the remaining service period.

Intangible Assets Acquired

The following table presents details of the Company's intangible assets acquired through the business combination completed during the six months ended June 30, 2014 (in millions, except years):
 
Weighted
Average
Estimated
Useful
Life
(In Years)
 
Amount
Existing technology
7
 
$
10.7

Customer relationships
7
 
6.0

Trade name
4
 
0.6

Backlog
1
 
0.2

Non-compete agreements
2
 
0.3

Total
7
 
$
17.8



The Company's Condensed Consolidated Financial Statements include the operating results of this business combination from the date of acquisition. Pro forma results of operations for this acquisition have not been presented as the financial impact to the Company's consolidated results of operations is not material.
Cash Equivalents and Investments
Cash Equivalents and Investments
Cash Equivalents and Investments

Investments in Available-for-Sale and Trading Securities

The following tables summarize the Company's unrealized gains and losses and fair value of investments designated as available-for-sale and trading securities as of June 30, 2014 and December 31, 2013 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
As of June 30, 2014
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
$
259.1

 
$
0.1

 
$
(0.1
)
 
$
259.1

Certificates of deposit
10.2

 

 

 
10.2

Commercial paper
15.8

 

 

 
15.8

Corporate debt securities
815.7

 
1.4

 
(0.4
)
 
816.7

Foreign government debt securities
28.5

 

 

 
28.5

Government-sponsored enterprise obligations
226.2

 

 
(0.1
)
 
226.1

U.S. government securities
355.5

 
0.1

 

 
355.6

Total fixed income securities
1,711.0

 
1.6

 
(0.6
)
 
1,712.0

Money market funds
1,135.1

 

 

 
1,135.1

Mutual funds
4.0

 
0.1

 

 
4.1

Publicly-traded equity securities
87.0

 
6.2

 
(0.2
)
 
93.0

Total available-for-sale securities
2,937.1

 
7.9

 
(0.8
)
 
2,944.2

Trading securities in mutual funds(*)
16.4

 

 

 
16.4

Total
$
2,953.5

 
$
7.9

 
$
(0.8
)
 
$
2,960.6

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
1,094.6

 
$

 
$

 
$
1,094.6

Restricted investments
65.3

 
0.1

 

 
65.4

Short-term investments
454.3

 
6.4

 
(0.2
)
 
460.5

Long-term investments
1,339.3

 
1.4

 
(0.6
)
 
1,340.1

Total
$
2,953.5

 
$
7.9

 
$
(0.8
)
 
$
2,960.6


________________________________
(*) 
Balance includes the Company's non-qualified deferred compensation plan assets.
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
As of December 31, 2013
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
$
249.9

 
$
0.1

 
$
(0.1
)
 
$
249.9

Certificates of deposit
27.6

 

 

 
27.6

Commercial paper
6.9

 

 

 
6.9

Corporate debt securities
813.6

 
2.0

 
(0.3
)
 
815.3

Foreign government debt securities
10.7

 

 

 
10.7

Government-sponsored enterprise obligations
306.2

 
0.1

 
(0.1
)
 
306.2

U.S. government securities
303.3

 
0.1

 
(0.1
)
 
303.3

Total fixed income securities
1,718.2

 
2.3

 
(0.6
)
 
1,719.9

Money market funds
1,043.7

 

 

 
1,043.7

Mutual funds
3.9

 
0.1

 

 
4.0

Publicly-traded equity securities
12.0

 
104.5

 
(1.9
)
 
114.6

Total available-for-sale securities
2,777.8

 
106.9

 
(2.5
)
 
2,882.2

Trading securities in mutual funds(*)
15.4

 

 

 
15.4

Total
$
2,793.2

 
$
106.9

 
$
(2.5
)
 
$
2,897.6

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
996.2

 
$

 
$

 
$
996.2

Restricted investments
87.5

 
0.1

 

 
87.6

Short-term investments
459.0

 
104.9

 
(2.0
)
 
561.9

Long-term investments
1,250.5

 
1.9

 
(0.5
)
 
1,251.9

Total
$
2,793.2

 
$
106.9

 
$
(2.5
)
 
$
2,897.6


________________________________
(*) 
Balance includes the Company's non-qualified deferred compensation plan assets.

The following table presents the contractual maturities of the Company's total fixed income securities as of June 30, 2014 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
Due in less than one year
$
371.7

 
$
0.2

 
$

 
$
371.9

Due between one and five years
1,339.3

 
1.4

 
(0.6
)
 
1,340.1

Total
$
1,711.0

 
$
1.6

 
$
(0.6
)
 
$
1,712.0



The Company had 178 investments in an unrealized loss position as of June 30, 2014 and December 31, 2013. The gross unrealized losses related to these investments were primarily due to changes in market interest rates and stock prices. The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company aggregates its investments by category and length of time the securities have been in a continuous unrealized loss position to facilitate its evaluation.

For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) it has the intention to sell any of these investments and (ii) whether it is more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. As of June 30, 2014, the Company anticipates that it will recover the entire amortized cost basis of such available-for-sale debt securities and has determined that no other-than-temporary impairments associated with credit losses were required to be recognized during the three and six months ended June 30, 2014 and June 30, 2013.

For available-for-sale equity securities that have unrealized losses, the Company evaluates whether there is an indication of other-than-temporary impairments. This determination is based on several factors, including the financial condition and near-term prospects of the issuer and the Company's intent and ability to hold the publicly-traded equity securities for a period of time sufficient to allow for any anticipated recovery in market value. During the six months ended June 30, 2014, the Company determined that certain available-for-sale equity securities were other-than-temporarily impaired, resulting in an impairment charge of $1.6 million that were recorded within other income (expense), net, in the Condensed Consolidated Statements of Operations. There were no such charges during the three months ended June 30, 2014 and during the three and six months ended June 30, 2013.

During the six months ended June 30, 2014, gross realized gains from available-for-sale securities were $165.8 million and gross realized losses were not material, excluding the impairment charge noted above. During the three months ended June 30, 2014, and during the three and six months ended June 30, 2013, there were no material gross realized gains or losses from available-for-sale securities and there were no material gross realized gains or losses from trading securities during the three and six months ended June 30, 2014 and June 30, 2013.

The following tables present the Company's available-for-sale securities that were in an unrealized loss position as of June 30, 2014 and December 31, 2013 (in millions):
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
As of June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities(1)
$
61.0

 
$
(0.1
)
 
$
2.2

 
$

 
$
63.2

 
$
(0.1
)
Corporate debt securities
297.1

 
(0.4
)
 

 

 
297.1

 
(0.4
)
Foreign government debt securities(2)
16.0

 

 

 

 
16.0

 

Government-sponsored enterprise obligations
114.9

 
(0.1
)
 

 

 
114.9

 
(0.1
)
U.S. government securities(2)
123.0

 

 

 

 
123.0

 

Total fixed income securities
612.0

 
(0.6
)
 
2.2

 

 
614.2

 
(0.6
)
Publicly-traded equity securities
2.4

 
(0.2
)
 

 

 
2.4

 
(0.2
)
Total available-for-sale securities
$
614.4

 
$
(0.8
)
 
$
2.2

 
$

 
$
616.6

 
$
(0.8
)
________________________________
(1) 
Balances 12 months or greater include investments that were in an immaterial unrealized loss position as of June 30, 2014.
(2) 
Balances less than 12 months include investments that were in an immaterial unrealized loss position as of June 30, 2014.

 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
As of December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities(1)
$
153.0

 
$
(0.1
)
 
$
0.6

 
$

 
$
153.6

 
$
(0.1
)
Corporate debt securities(1)
156.1

 
(0.3
)
 
9.7

 

 
165.8

 
(0.3
)
Foreign government debt securities(2)
10.0

 

 

 

 
10.0

 

Government-sponsored enterprise obligations
123.1

 
(0.1
)
 

 

 
123.1

 
(0.1
)
U.S. government securities
119.7

 
(0.1
)
 

 

 
119.7

 
(0.1
)
Total fixed income securities
561.9

 
(0.6
)
 
10.3

 

 
572.2

 
(0.6
)
Publicly-traded equity securities
6.8

 
(1.9
)
 

 

 
6.8

 
(1.9
)
Total available-for-sale securities
$
568.7

 
$
(2.5
)
 
$
10.3

 
$

 
$
579.0

 
$
(2.5
)
 ________________________________
(1) 
Balances 12 months or greater include investments that were in an immaterial unrealized loss position as of December 31, 2013.
(2) 
Balances less than 12 months include investments that were in an immaterial unrealized loss position as of December 31, 2013.

Restricted Cash and Investments

The Company classifies certain cash and investments as restricted cash and investments on its Condensed Consolidated Balance Sheets for: (i) amounts held in escrow accounts, as required in connection with certain acquisitions completed between 2005 and 2014; (ii) the India Gratuity Trust and Israel Retirement Trust, which cover statutory severance obligations in the event of termination of any of the Company's India and Israel employees, respectively; and (iii) the Directors and Officers indemnification trust ("D&O Trust"). The restricted investments are designated as available-for-sale securities.

Privately-Held Investments

As of June 30, 2014 and December 31, 2013, the carrying values of the Company's privately-held investments of $72.0 million and $57.2 million, respectively were included in other long-term assets in the Condensed Consolidated Balance Sheets. As of June 30, 2014, the carrying value of the privately-held debt securities was $32.5 million. For the three and six months ended June 30, 2014, the Company recorded $10.0 million in other comprehensive income for unrealized gains associated with its privately-held debt securities. The fair value associated with these privately-held debt securities was $42.3 million as of June 30, 2014.

The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company adjusts the carrying value of its privately-held investments for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis.

During the three and six months ended June 30, 2013, the Company determined that certain privately-held investments were other than temporarily impaired, resulting in impairment charges of $0.4 million that were recorded within other income (expense), net in the Condensed Consolidated Statements of Operations. There were no such charges during the three and six months ended June 30, 2014.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables provide a summary of assets and liabilities measured at fair value on a recurring basis and as reported in the Condensed Consolidated Balance Sheets (in millions):
 
Fair Value Measurements at June 30, 2014 Using:
 
 
 
Quoted Prices in
Active Markets For
Identical Assets
 
Significant Other
Observable
Remaining Inputs
 
Significant Other
Unobservable
Remaining Inputs
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Assets measured at fair value:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Asset-backed securities
$

 
$
259.1

 
$

 
$
259.1

Certificates of deposit

 
10.2

 

 
10.2

Commercial paper

 
15.8

 

 
15.8

Corporate debt securities

 
816.7

 

 
816.7

Foreign government debt securities

 
28.5

 

 
28.5

Government-sponsored enterprise obligations

 
226.1

 

 
226.1

Money market funds(1)
1,135.1

 

 

 
1,135.1

Mutual funds(2)
4.1

 

 

 
4.1

Publicly-traded equity securities
93.0

 

 

 
93.0

U.S. government securities
304.9

 
50.7

 

 
355.6

Total available-for-sale securities
1,537.1

 
1,407.1

 

 
2,944.2

Trading securities in mutual funds(3)
16.4

 

 

 
16.4

Privately-held debt securities

 

 
42.3

 
42.3

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts

 
3.0

 

 
3.0

Warrant on Palo Alto Networks, Inc.
   common stock

 
38.8

 

 
38.8

Total assets measured at fair value
$
1,553.5

 
$
1,448.9

 
$
42.3

 
$
3,044.7

Liabilities measured at fair value:
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
Foreign exchange contracts
$

 
$
(0.2
)
 
$

 
$
(0.2
)
Total liabilities measured at fair value
$

 
$
(0.2
)
 
$

 
$
(0.2
)
 
 
 
 
 
 
 
 
Total assets measured at fair value, reported as:
 
 
 
 
 
 
 
Cash equivalents
$
1,073.9

 
$
20.7

 
$

 
$
1,094.6

Restricted investments
65.4

 

 

 
65.4

Short-term investments
212.5

 
248.0

 

 
460.5

Long-term investments
201.7

 
1,138.4

 

 
1,340.1

Prepaid expenses and other current assets

 
41.8

 

 
41.8

Other long-term assets

 

 
42.3

 
42.3

Total assets measured at fair value
$
1,553.5

 
$
1,448.9

 
$
42.3

 
$
3,044.7

 
 
 
 
 
 
 
 
Total liabilities measured at fair value, reported as:
 
 
 
 
 
 
 
Other accrued liabilities
$

 
$
(0.2
)
 
$

 
$
(0.2
)
Total liabilities measured at fair value
$

 
$
(0.2
)
 
$

 
$
(0.2
)
________________________________
(1) 
Balance includes $61.3 million of restricted investments measured at fair market value related to the Company's D&O Trust and acquisitions related escrows.
(2) 
Balance relates to restricted investments measured at fair market value related to the Company's India Gratuity Trust.
(3) 
Balance relates to investments measured at fair value related to the Company's non-qualified deferred compensation plan assets.
 
Fair Value Measurements at December 31, 2013 Using:
 
 
 
Quoted Prices in
Active Markets For
Identical Assets
 
Significant Other
Observable
Remaining Inputs
 
Significant Other
Unobservable
Remaining Inputs
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Assets measured at fair value:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Asset-backed securities
$

 
$
249.9

 
$

 
$
249.9

Certificates of deposit

 
27.6

 

 
27.6

Commercial paper

 
6.9

 

 
6.9

Corporate debt securities

 
815.3

 

 
815.3

Foreign government debt securities

 
10.7

 

 
10.7

Government-sponsored enterprise obligations

 
306.2

 

 
306.2

Money market funds(1)
1,043.7

 

 

 
1,043.7

Mutual funds(2)
4.0

 

 

 
4.0

Publicly-traded equity securities
114.6

 

 

 
114.6

U.S. government securities
197.2

 
106.1

 

 
303.3

Total available-for-sale securities
1,359.5

 
1,522.7

 

 
2,882.2

Trading securities in mutual funds(3)
15.4

 

 

 
15.4

Privately-held debt securities

 

 
28.1

 
28.1

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts

 
3.0

 

 
3.0

Total assets measured at fair value
$
1,374.9

 
$
1,525.7

 
$
28.1

 
$
2,928.7

Liabilities measured at fair value:
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
Foreign exchange contracts
$

 
$
(0.7
)
 
$

 
$
(0.7
)
Total liabilities measured at fair value
$

 
$
(0.7
)
 
$

 
$
(0.7
)
 
 
 
 
 
 
 
 
Total assets measured at fair value, reported as:
 
 
 
 
 
 
 
Cash equivalents
$
965.1

 
$
31.1

 
$

 
$
996.2

Restricted investments
87.6

 

 

 
87.6

Short-term investments
246.5

 
315.4

 

 
561.9

Long-term investments
75.7

 
1,176.2

 

 
1,251.9

Prepaid expenses and other current assets

 
3.0

 

 
3.0

Other long-term assets

 

 
28.1

 
28.1

Total assets measured at fair value
$
1,374.9

 
$
1,525.7

 
$
28.1

 
$
2,928.7

 
 
 
 
 
 
 
 
Total liabilities measured at fair value, reported as:
 
 
 
 
 
 
 
Other accrued liabilities
$

 
$
(0.7
)
 
$

 
$
(0.7
)
Total liabilities measured at fair value
$

 
$
(0.7
)
 
$

 
$
(0.7
)

________________________________
(1) 
Balance includes $83.6 million of restricted investments measured at fair market value related to the Company's D&O Trust and acquisitions related escrows.
(2) 
Balance relates to restricted investments measured at fair market value related to the Company's India Gratuity Trust.
(3) 
Balance relates to investments measured at fair value related to the Company's non-qualified deferred compensation plan assets.

The Company's Level 2 available-for-sale fixed income securities are priced using quoted market prices for similar instruments or non-binding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets. The Company's derivative instruments are classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs. The Company's policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 at the beginning of the quarter in which a change in circumstances resulted in a transfer. During the three and six months ended June 30, 2014, the Company had no transfers between levels of the fair value hierarchy of its assets or liabilities measured at fair value.

All of the Company's privately-held debt securities are classified as Level 3 assets due to the absence of quoted market prices and an inherent lack of liquidity.

The Company estimates the fair value of its privately-held debt investments on a recurring basis using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure. During the three and six months ended June 30, 2014, there were purchases of $4.2 million related to our privately-held debt securities.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain of the Company's assets, including intangible assets, goodwill, and privately-held equity investments, are measured at fair value on a nonrecurring basis if impairment is indicated.

Privately-held equity investments, which are normally carried at cost, are measured at fair value on a nonrecurring basis due to events and circumstances that the Company identified as significantly impacting the fair value of investments. The Company estimates the fair value of its privately-held equity investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure.

Purchased intangible assets are measured at fair value primarily using discounted cash flow projections.

As of June 30, 2014, the Company had no assets measured at fair value on a nonrecurring basis. As of December 31, 2013, the Company had $2.0 million of privately-held equity investments measured at fair value on a nonrecurring basis and were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity. The impairment charges, representing the difference between the net book value and the fair value, are recorded to other income (expense), net in the Condensed Consolidated Statement of Operations.

As of June 30, 2014 and December 31, 2013, the Company had no liabilities measured at fair value on a nonrecurring basis.

Assets and Liabilities Not Measured at Fair Value

The carrying amounts of the Company's accounts receivable, financing receivables, accounts payable, and other accrued liabilities approximate fair value due to their short maturities. As of June 30, 2014 and December 31, 2013, the estimated fair value of the Company's long-term debt in the Condensed Consolidated Balance Sheets was approximately $1,436.3 million and $1,023.5 million, respectively, based on observable market inputs (Level 2).
Derivative Instruments
Derivative Instruments
Derivative Instruments

The Company uses derivatives to partially offset its market exposure to fluctuations in certain foreign currencies and does not enter into derivatives for speculative or trading purposes.

The notional amount of the Company's foreign currency derivatives are summarized as follows (in millions):
 
As of
 
June 30,
2014
 
December 31,
2013
Cash flow hedges
$
89.0

 
$
137.6

Non-designated derivatives
172.2

 
144.4

     Total
$
261.2

 
$
282.0



Cash Flow Hedges

The Company uses foreign currency forward or option contracts to hedge certain forecasted foreign currency transactions relating to cost of services and operating expenses. The derivatives are intended to hedge the U.S. Dollar equivalent of the Company's planned cost of services and operating expenses denominated in certain foreign currencies. These derivatives are designated as cash flow hedges. Execution of these cash flow hedge derivatives typically occurs every month with maturities of one year or less. The effective portion of the derivative's gain or loss is initially reported as a component of accumulated other comprehensive income, and upon occurrence of the forecasted transaction, is subsequently reclassified into the cost of services or operating expense line item to which the hedged transaction relates. The Company records any ineffectiveness of the hedging instruments in other income (expense), net, in its Condensed Consolidated Statements of Operations. Cash flows from such hedges are classified as operating activities. All amounts within other comprehensive income are expected to be reclassified into earnings within the next twelve months.

See Note 5, Fair Value Measurements, for the fair values of the Company's derivative instruments in the Condensed Consolidated Balance Sheets.

During the three and six months ended June 30, 2014, the Company recognized a gain of $1.8 million and $4.5 million, respectively, in accumulated other comprehensive income (loss) for the effective portion of its derivative instruments and reclassified a gain of $2.5 million and $3.5 million, respectively, from other comprehensive income (loss) to operating expense in the Condensed Consolidated Statements of Operations. During the three and six months ended June 30, 2013, the Company recognized a loss of $1.7 million and $3.8 million, respectively, in accumulated other comprehensive income (loss) for the effective portion of its derivative instruments and reclassified a gain of $0.6 million and $2.0 million, respectively, from other comprehensive income (loss) to operating expense in the Condensed Consolidated Statements of Operations.

The ineffective portion of the Company's derivative instruments recognized in its Condensed Consolidated Statements of Operations was not material during the three and six months ended June 30, 2014 and June 30, 2013.

Non-Designated Derivatives

The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies. These derivatives were not designated for special hedge accounting treatment. These derivatives are carried at fair value with changes recorded in other income (expense), net, in the Condensed Consolidated Statements of Operations. Changes in the fair value of these derivatives are largely offset by remeasurement of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. The derivatives have maturities within two months.

During the three and six months ended June 30, 2014, the Company recognized net losses of $2.4 million and $3.0 million, respectively, on non-designated derivative instruments within other income (expense), net, in its Condensed Consolidated Statements of Operations. During the three and six months ended June 30, 2013, the Company recognized net gain of $0.8 million and $0.1 million, respectively, on non-designated derivative instruments within other income (expense), net, in its Condensed Consolidated Statements of Operations.

Offsetting of Derivatives

The Company presents its derivative assets and derivative liabilities on a gross basis in the Condensed Consolidated Balance Sheets. However, under agreements containing provisions on netting with certain counterparties of foreign exchange contracts, subject to applicable requirements, the Company is allowed to net-settle transactions on the same date in the same currency, with a single net amount payable by one party to the other. As of June 30, 2014 and December 31, 2013, the potential effect of rights of setoff associated with derivative instruments was not material. The Company is neither required to pledge nor entitled to receive cash collateral related to these derivative transactions.
Goodwill and Purchased Intangible Assets
Goodwill and Purchased Intangible Assets
Goodwill and Purchased Intangible Assets

Goodwill
The following table presents goodwill activity during the six months ended June 30, 2014 (in millions):
Balance as of December 31, 2013
$
4,057.7

Additions due to business combination
13.6

Tax reserve adjustment
0.2

Balance as of June 30, 2014
$
4,071.5



The additions to goodwill were based on the purchase price allocation of the acquisition completed during the first quarter of 2014. There were no impairments to goodwill during the three and six months ended June 30, 2014 and June 30, 2013.

Purchased Intangible Assets

The Company’s purchased intangible assets were as follows (in millions):
 
Gross
 
Accumulated
Amortization
 
Impairments and
Other Charges
 
Net
As of June 30, 2014
 
 
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
 
 
Technologies and patents
$
592.0

 
$
(470.5
)
 
$
(30.5
)
 
$
91.0

Customer contracts, support agreements, and
  related relationships
80.3

 
(64.7
)
 
(2.2
)
 
13.4

Other
19.9

 
(19.0
)
 

 
0.9

Total purchased intangible assets
$
692.2

 
$
(554.2
)
 
$
(32.7
)
 
$
105.3

 
 
 
 
 
 
 
 
As of December 31, 2013
 
 
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
 
 
Technologies and patents
$
581.4

 
$
(453.4
)
 
$
(30.5
)
 
$
97.5

Customer contracts, support agreements, and
  related relationships
74.3

 
(62.7
)
 
(2.2
)
 
9.4

Total purchased intangible assets
$
655.7

 
$
(516.1
)
 
$
(32.7
)
 
$
106.9



The following table presents the amortization of intangible assets included in the Condensed Consolidated Statements of Operations (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Cost of revenues
$
8.4

 
$
6.5

 
$
16.6

 
$
12.8

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
1.1

 
0.9

 
2.1

 
1.8

General and administrative
0.3

 
0.3

 
0.6

 
0.6

Total operating expenses
1.4

 
1.2

 
2.7

 
2.4

Total
$
9.8

 
$
7.7

 
$
19.3

 
$
15.2



There were no impairment charges related to purchased intangible assets during the three and six months ended June 30, 2014 and June 30, 2013.

As of June 30, 2014, the estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):
Years Ending December 31,
Amount
Remainder of 2014
$
19.5

2015
35.3

2016
21.1

2017
13.0

2018
6.1

Thereafter
10.3

Total
$
105.3

Other Financial Information
Other Financial Information
Other Financial Information

Inventories

The Company purchases and holds inventory to provide adequate component supplies over the life of the underlying products. The majority of the Company's inventory is production components. Inventories are reported both within prepaid expenses and other current assets and other long-term assets in the Condensed Consolidated Balance Sheets. Total inventories consisted of the following (in millions):
 
As of
 
June 30,
2014
 
December 31,
2013
Production materials
$
46.5

 
$
51.3

Finished goods
0.6

 
1.4

Inventories
$
47.1

 
$
52.7



The Company recorded charges in cost of revenues of $11.5 million and $15.5 million, for the three and six months ended June 30, 2014, respectively, related to the acceleration of the end-of-life of certain products in connection with the 2014 Restructuring Plan discussed in Note 9, Restructuring and Other Charges.

 
Other Long-Term Assets

Other long-term assets consisted of the following (in millions):
 
As of
 
June 30,
2014
 
December 31,
2013
Privately-held investments
$
72.0

 
$
57.2

Licensed software
9.5

 
90.4

Federal income tax receivable
20.0

 
20.0

Financed customer receivable
19.6

 
19.9

Inventory
11.7

 
15.2

Prepaid costs, deposits, and other
33.7

 
31.1

Other long-term assets
$
166.5

 
$
233.8



In connection with the 2014 Restructuring Plan discussed in Note 9, Restructuring and Other Charges, the Company reviewed its product portfolio and determined to cease development of the application delivery controller software technology licensed in July 2012. As a result, the Company recognized a charge of $84.7 million recorded within operating expenses in the Condensed Consolidated Statement of Operations during the six months ended June 30, 2014. There were no revenues associated with this technology.

Warranties

The Company accrues for warranty costs based on associated material, labor for customer support, and overhead at the time revenue is recognized. This accrual is reported within other accrued liabilities in the Condensed Consolidated Balance Sheets. Changes in the Company’s warranty reserve during the six months ended June 30, 2014 were as follows (in millions):
Balance as of December 31, 2013
$
28.0

Provisions made during the period
14.6

Actual costs incurred during the period
(14.0
)
Balance as of June 30, 2014
$
28.6



Deferred Revenue

Details of the Company's deferred revenue, as reported in the Condensed Consolidated Balance Sheets, were as follows (in millions):
 
As of
 
June 30,
2014
 
December 31,
2013
Deferred product revenue:
 
 
 
Undelivered product commitments and other product deferrals
$
182.5

 
$
184.9

Distributor inventory and other sell-through items
127.0

 
118.7

Deferred gross product revenue
309.5

 
303.6

Deferred cost of product revenue
(58.4
)
 
(58.6
)
Deferred product revenue, net
251.1

 
245.0

Deferred service revenue
922.2

 
824.3

Total
$
1,173.3

 
$
1,069.3

Reported as:
 
 
 
Current
$
803.2

 
$
705.8

Long-term
370.1

 
363.5

Total
$
1,173.3

 
$
1,069.3



Deferred product revenue represents unrecognized revenue related to shipments to distributors that have not sold through to end-users, undelivered product commitments, and other shipments that have not met all revenue recognition criteria. Deferred product revenue is recorded net of the related costs of product revenue. Deferred service revenue represents billable amounts for service contracts, which include technical support, hardware and software maintenance, professional services, and training, for which services have not been rendered.

Other Income (Expense), Net

Other income (expense), net, consisted of the following (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Interest income
$
2.1

 
$
1.7

 
$
4.2

 
$
3.8

Interest expense
(17.8
)
 
(14.9
)
 
(33.3
)
 
(29.2
)
Net gain on legal settlement
195.3

 

 
195.3

 

Net gain on investments
0.8

 
1.5

 
167.0

 
3.8

Other
(1.8
)
 
(0.9
)
 
(0.4
)
 
(1.1
)
Other income (expense), net
$
178.6

 
$
(12.6
)
 
$
332.8

 
$
(22.7
)


Interest income primarily includes interest earned on the Company’s cash, cash equivalents, and investments. Interest expense primarily includes interest, net of capitalized interest expense, from long-term debt and customer financing arrangements. Other typically consists of investment and foreign exchange gains and losses and other non-operational income and expense items.

During the three months ended June 30, 2014, the Company entered into a settlement agreement with Palo Alto Networks ("PAN") resolving patent litigation between the two companies, which resulted in a realized gain on legal settlement of $195.3 million, net of legal fees. Under the terms of the settlement, PAN made a one-time payment to the Company of $75.0 million in cash and issued the Company PAN common stock and warrants. The fair value of the PAN common stock and warrants at the date of receipt was included in the net realized gain. All such PAN securities have been sold in the third quarter of 2014.

During the six months ended June 30, 2014, other income (expense), net was primarily comprised of a net gain on investments of $164.0 million, primarily related to certain publicly-traded equity and privately-held investments and $195.3 million net realized gain on legal settlement.

During the three months ended June 30, 2013, net gain on investments was primarily comprised of a gain on sale of certain investments partially offset by a loss on privately-held investments. During the six months ended June 30, 2013, net gain on investments was primarily comprised of a net gain of $1.3 million related to privately-held investments.
Restructuring and Other Charges
Restructuring and Other Charges
Restructuring and Other Charges

The following table presents restructuring and other charges included in cost of revenues and restructuring and other charges in the Condensed Consolidated Statements of Operations (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Severance
$
10.2

 
$
0.8

 
$
38.5

 
$
5.2

Facilities
37.6

 
7.7

 
37.8

 
10.3

Contract terminations
1.5

 
0.3

 
2.3

 
1.0

Total restructuring charges
49.3

 
8.8

 
78.6

 
16.5

Asset impairment and write-downs
22.7

 

 
115.8

 

Total restructuring and other charges
$
72.0

 
$
8.8

 
$
194.4

 
$
16.5

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cost of revenues
$
13.8

 
$
0.8

 
$
22.2

 
$
1.5

Restructuring and other charges
58.2

 
8.0

 
172.2

 
15.0

Total
$
72.0

 
$
8.8

 
$
194.4

 
$
16.5



Restructuring and other charges noted above are based on the Company's 2014 Restructuring Plan and Other Restructuring Plans that were committed to by management. Any changes in the estimates of executing the approved plans are reflected in the Company's results of operations.

2014 Restructuring Plan

In connection with IOP announced in the first quarter of 2014, the Company initiated a restructuring plan (the “2014 Restructuring Plan”) to refocus the Company's strategy, optimize its structure, and improve operational efficiencies. The 2014 Restructuring Plan consists of workforce reductions, facility consolidations and closures, asset write-downs, contract terminations and other charges.

During the three months ended June 30, 2014, the Company recorded $9.9 million of severance costs, $37.6 million of facility consolidation and closures, $8.9 million of asset write-downs, and $1.5 million of contract terminations that were recorded to restructuring and other charges in the Condensed Consolidated Statement of Operations. The Company also recorded inventory write-downs of $11.5 million and a charge related to products with contract manufacturers of $2.3 million for acceleration of the end-of-service life of certain products to cost of revenues in the Condensed Consolidated Statement of Operations during the three months ended June 30, 2014.

During the six months ended June 30, 2014, the Company recorded $37.9 million of severance costs, $37.6 million of facility consolidation and closures, $84.7 million of impairment charges related to licensed software, 8.9 million of asset write-downs, and $2.3 million of contract terminations that were recorded to restructuring and other charges in the Condensed Consolidated Statement of Operations. The Company also recorded inventory write-downs of $15.5 million and a charge related to products with contract manufacturers of $6.7 million for acceleration of the end-of-service life of certain products to cost of revenues in the Condensed Consolidated Statement of Operations during the six months ended June 30, 2014.

In connection with the 2014 Restructuring Plan, the Company expects to record aggregate future charges of approximately $5.0 million to $10.0 million allocated to the following restructuring activities: $2.0 million to $4.0 million for severance, $2.0 million to $5.0 million for facility consolidations or closures, and up to $1.0 million for contract terminations and other charges.

The remaining restructuring liabilities under the 2014 Restructuring Plan are expected to be completed in the second half of 2014.

Other Restructuring Plans

Restructuring plans initiated by the Company in fiscal 2013, 2012, and 2011 have been substantially completed as of June 30, 2014 with minor adjustments recorded during the three months ended June 30, 2014 in connection with these plans. The Company does not expect to record significant future charges under these restructuring plans. The remaining restructuring liabilities under these plans are expected to be settled by March 2018.

Restructuring Liability

Restructuring liabilities are reported within other accrued liabilities and other long-term liabilities in the Condensed Consolidated Balance Sheets. The following table provides a summary of changes in the restructuring liability related to the Company's plans during the six months ended June 30, 2014 (in millions):
 
December 31,
2013
 
Charges
 
Cash
Payments
 
Non-cash
Settlements and
Other
 
June 30,
2014
Severance
$
5.6

 
$
38.5

 
$
(34.4
)
 
$
(0.8
)
 
$
8.9

Facilities
5.1

 
37.8

 
(1.7
)
 
9.7

 
50.9

Contract terminations and other
7.1

 
2.3

 
(8.3
)
 
(0.8
)
 
0.3

Total
$
17.8

 
$
78.6

 
$
(44.4
)
 
$
8.1

 
$
60.1

Long-Term Debt and Financing
Long-Term Debt and Financing
Long-Term Debt and Financing

Long-Term Debt

The following table summarizes the Company's long-term debt (in millions, except percentages):
 
As of June 30, 2014
 
Amount
 
Effective Interest
Rates
Senior notes:
 
 
 
3.10% fixed-rate notes, due 2016 ("2016 Notes")
$
300.0

 
3.25
%
4.60% fixed-rate notes, due 2021 ("2021 Notes")
300.0

 
4.69
%
4.50% fixed-rate notes, due 2024 ("2024 Notes")
350.0

 
4.63
%
5.95% fixed-rate notes, due 2041 ("2041 Notes")
400.0

 
6.03
%
Total senior notes
1,350.0

 
 
Unaccreted discount
(1.1
)
 
 
Total
$
1,348.9

 
 

In February 2014, the Company issued $350.0 million aggregate principal amount of 4.50% senior notes due 2024. The 2024 Notes are senior unsecured obligations and rank equally with all of the Company's other existing and future senior unsecured indebtedness. Interest on the 2024 Notes is payable in cash semiannually. The Company may redeem the 2024 Notes, at any time in whole or from time to time in part, subject to a make-whole premium, and in the event of a change in control, the holders of the 2024 Notes may require the Company to repurchase for cash all or part of the 2024 Notes at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, if any. The indenture that governs the 2024 Notes also contains various covenants, including limitations on the Company's ability to incur liens or enter into sale-leaseback transactions over certain dollar thresholds.

The effective interest rates for the 2016 Notes, 2021 Notes, 2024 Notes, and 2041 Notes (collectively the “Notes”) include the interest on the Notes, accretion of the discount, and amortization of issuance costs. As of June 30, 2014, the Company was in compliance with all of its covenants in the indentures governing the Company's notes.

Revolving Credit Facility

On June 27, 2014, the Company entered into a Credit Agreement ("Credit Agreement") with certain institutional lenders and Citibank, N.A., as administrative agent, that provides for a $500.0 million unsecured revolving credit facility, with an option of the Company to increase the amount of the credit facility by up to an additional $200.0 million, subject to certain conditions. Proceeds of loans made under the Credit Agreement may be used by the Company for working capital and general corporate purposes. Revolving loans may be borrowed, repaid and reborrowed until June 27, 2019, at which time all amounts borrowed must be repaid. Borrowing may be denominated, at the Company's option in U.S. dollars, Pounds Sterling or Euro.

Borrowings under the Credit Agreement will bear interest, at either i) a floating rate per annum equal to the base rate plus a margin of between 0.00% and 0.50%, depending on the Company's public debt rating or ii) a per annum rate equal to the reserve adjusted Eurocurrency rate, plus a margin of between 0.90% and 1.50%, depending on the Company's public debt rating. Base rate is defined as the greatest of (A) Citibank's base rate, (B) the federal funds rate plus 0.50% or (C) the ICE Benchmark Administration Settlement Rate applicable to dollars for a period of one month plus 1.00%. The Eurocurrency rate is determined for U.S. dollars and Pounds Sterling as the rate at which deposits in such currency are offered in the London interbank market for the applicable interest period and for Euro as the rate specified for deposits in Euro with a maturity comparable to the applicable interest period.

The Credit Agreement requires the Company to maintain a leverage ratio no greater than 3.0x and an interest coverage ratio no less than 3.0x during the term of the credit facility. In addition, the Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company and its subsidiaries to, among other things, grant liens, merge or consolidate, dispose of all or substantially all of its assets, change their accounting or reporting policies, change their business and incur subsidiary indebtedness, in each case subject to customary exceptions for a credit facility of this size and type. As of June 30, 2014, the Company was in compliance with all covenants in the Credit Agreement, and no amounts were outstanding.

Customer Financing Arrangements

The Company provides certain distribution partners access to extended financing arrangements for certain end-user customers that require longer payment terms than those typically provided by the Company through factoring accounts receivable to third-party financing providers ("financing providers"). The program does not and is not intended to affect the timing of the Company's revenue recognition. Under the financing arrangements, proceeds from the financing provider are due to the Company 30 to 90 days from the sale of the receivable. In these transactions with the financing provider, the Company surrenders control over the transferred assets. The factored accounts receivable are isolated from the Company and put beyond the reach of the Company's creditors, even in the event of bankruptcy. The Company does not maintain effective control over the transferred assets through obligations or rights to redeem, transfer, or repurchase the receivables after they have been transferred.

Pursuant to the financing arrangements for the sale of receivables, the Company sold net receivables of $209.8 million and $184.7 million during the three months ended June 30, 2014 and June 30, 2013, respectively, and $342.7 million and $365.7 million during the six months ended June 30, 2014 and June 30, 2013, respectively.

The Company received cash proceeds from the financing provider of $152.1 million and $205.7 million during the three months ended June 30, 2014 and June 30, 2013, respectively, and $344.4 million and $368.4 million during the six months ended June 30, 2014 and June 30, 2013, respectively. As of June 30, 2014 and December 31, 2013, the amounts owed to the Company by the financing provider were $182.7 million and $189.8 million, respectively, and were recorded in accounts receivable on the Condensed Consolidated Balance Sheets.

The Company has provided guarantees to third-party financing companies for third-party financing arrangements extended to certain end-user customers, which have terms of up to four years. The Company is liable for the aggregate unpaid payments to the
third-party financing company in the event of customer default. As of June 30, 2014, the Company has not been required to make any payments under these arrangements. Pursuant to these arrangements, the Company has guarantees for third-party financing arrangements of $22.1 million as of June 30, 2014.

The portion of the receivable financed that has not been recognized as revenue is accounted for as a financing arrangement and is included in other accrued liabilities and other long-term liabilities in the Consolidated Balance Sheets. As of June 30, 2014 and December 31, 2013, the estimated cash received from the financing provider not recognized as revenue was $54.2 million and $62.3 million, respectively.
Equity
Equity
Equity

Stock Repurchase Activities

In February 2014, the Company's Board of Directors (the "Board") approved a stock repurchase program that authorized the Company to repurchase up to $2.0 billion of its common stock through the end of the first quarter of 2015, including $1.2 billion to be used pursuant to an accelerated share repurchase program ("2014 Stock Repurchase Program"). The $2.0 billion authorization replaced the $1.0 billion stock repurchase authorization approved by the Board in July 2013 ("2013 Stock Repurchase Program").

As part of the 2014 Stock Repurchase Program, the Company entered into two separate accelerated share repurchase agreements (collectively, the "ASR") with two financial institutions to repurchase $1.2 billion of the Company’s common stock. During the three months ended March 31, 2014, the Company made an up-front payment of $1.2 billion pursuant to the ASR and received and retired an initial 33.3 million shares ("Initial Shares") of the Company’s common stock for an aggregate price of $900.0 million based on the market value of the Company’s common stock on the date of the transaction which was accounted for as a reduction to stockholders' equity in the Condensed Consolidated Balance Sheets. The remaining $300.0 million was recorded as a forward contract within stockholders' equity in the Condensed Consolidated Balance Sheets.

During the six months ended June 30, 2014, the only repurchases under the 2014 Stock Repurchase Program were in connection with the ASR. Accordingly, as of June 30, 2014, there was $800.0 million of authorized funds remaining under the 2014 Stock Repurchase Program. On July 23, 2014, the ASR was completed and the Company received an additional 16.0 million shares from the financial institutions for a total of 49.3 million shares of the Company's common stock, which resulted in a volume weighted average repurchase price, less an agreed upon discount, of $24.35 per share. The 16.0 million shares received will be retired in the third quarter of 2014.

During the three and six months ended June 30, 2013, the Company repurchased and retired approximately 6.4 million and 12.6 million shares of its common stock, respectively, at an average price of $16.45 and $18.68 per share, respectively, for an aggregate purchase price of $105.5 million and $235.4 million, respectively, under its 2013 Stock Repurchase Program.

In addition to repurchases under the Company’s stock repurchase program, the Company also repurchases common stock from certain employees in connection with the net issuance of shares to satisfy minimum tax withholding obligations upon the vesting of certain stock awards issued to such employees. Repurchases associated with tax withholdings were not significant during the three and six months ended June 30, 2014 and June 30, 2013.

Future stock repurchases under the Company’s stock repurchase program will be subject to a review of the circumstances at that time and will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements.

See Note 17, Subsequent Events, for discussion of the Company's stock repurchase activity subsequent to June 30, 2014.

Accumulated Other Comprehensive Income, Net of Tax

The components of accumulated other comprehensive income, net of related taxes, during the six months ended June 30, 2014 were as follows (in millions):
 
Unrealized
Gains (Losses)
on Available-for-
Sale Securities(1)
 
Unrealized
Gains (Losses)
on Cash Flow
Hedges(2)
 
Foreign
Currency
Translation
Adjustments
 
Total
Balance as of December 31, 2013
$
66.2

 
$
2.2

 
$
(3.8
)