Goodwill and Purchased Intangible Assets (Notes)

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Purchased Intangible Assets

Goodwill

The following table presents the goodwill activity (in millions):



	Total
December 31, 2012	$	4,057.8
Foreign currency translation adjustment	(0.1		)
December 31, 2013	4,057.7
Additions due to business combination	13.6
Impairment	(850.0		)
Divestiture	(239.8		)
December 31, 2014	$	2,981.5

In the fourth quarter of 2014, the Company performed its annual goodwill impairment test for the Company's three reporting units: Routing, Switching, and Security. The Company compared each reporting units’ fair value to their current value to determine whether an impairment exists. The fair value was determined by using a combination of the income approach and the market approach.

Under the income approach, the fair value of each reporting unit was based on the present value of the estimated future cash flows that the reporting unit is expected to generate over its remaining life. Cash flow projections were based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rates used were based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit’s ability to execute on the projected cash flows. Under the market approach, the Company estimated the fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting units. The income approach and the market approach were equally weighted to derive the fair value of each reporting unit.

The fair value of the Company’s Routing and Switching reporting units significantly exceeded their carrying value. However the fair value of the Security reporting unit did not exceed its carrying value and therefore the Company determined the Security reporting unit’s goodwill was impaired. In 2014, the Company re-aligned its go-to-market and research and development resources on projects with the highest potential for growth and continued to leverage its engineering efforts across its Routing, Switching, and Security products. In the fourth quarter of 2014, the Company began to implement a new Security strategy focused on network resiliency and performance based on the SRX platform. As a result, the Company rationalized its Security product portfolio including developing a new product roadmap and exiting certain point products, including the divestiture of Junos Pulse. These factors decreased the Company's short term and near term revenue and profitability forecasts of the Security reporting unit.

In determining the impairment amount, the fair value of the Security reporting unit was allocated to its assets and liabilities, including any unrecognized intangible assets, based on their respective fair values. Assumptions used in measuring the value of these assets and liabilities included the discount rates, customer renewal rates, and technology obsolescence rates used in valuing the intangible assets, and pricing of comparable transactions in the market in valuing the tangible assets. Based on this allocation, the Security reporting unit's carrying value of goodwill exceeded the implied fair value of goodwill, resulting in a goodwill impairment charge of $850.0 million which was recorded in the Consolidated Statement of Operations.

There were no impairments to goodwill during the years ended December 31, 2013, and 2012.

Purchased Intangible Assets

The Company’s purchased intangible assets were as follows (in millions):



	Gross		Accumulated Amortization			Impairments and Other Charges			Net
As of December 31, 2014
Intangible assets with finite lives:
Technologies and patents	$	567.7	$	(466.1	)	$	(49.9	)	$	51.7
Customer contracts, support agreements, and related relationships	78.1		(65.2		)	(2.8		)	10.1
Other	1.1		(0.5		)	—			0.6
Total purchased intangible assets	$	646.9	$	(531.8	)	$	(52.7	)	$	62.4

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 Consolidated Statements of Operations (in millions):



	Years Ended December 31,
	2014		2013		2012
Cost of revenues	$	30.9	$	27.3	$	27.6
Operating expenses:
Sales and marketing	4.2		3.4		3.5
General and administrative	1.2		1.2		1.2
Total operating expenses	5.4		4.6		4.7
Total	$	36.3	$	31.9	$	32.3

In connection with the restructuring plan in 2014 and 2012 discussed in Note 9, Restructuring and Other Charges, the Company determined certain intangible assets of $20.0 million and $10.7 million, respectively, were no longer utilized. Additionally, in 2012 the Company recorded a $5.4 million impairment charge as a result of the fair value assessment. During the year ended December 31, 2014, the Company recorded charges of $19.3 million in cost of revenues and $0.7 million in restructuring and other charges in the Consolidated Statements of Operations. During the year ended December 31, 2012, the Company recorded charges of $16.1 million in cost of revenues in the Consolidated Statements of Operations. There were no impairment charges to purchased intangible assets during the years ended December 31, 2013.

As of December 31, 2014, the estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):



Years Ending December 31,	Amount
2015	$	24.2
2016	13.8
2017	8.9
2018	5.2
2019	4.9
Thereafter	5.4
Total	$	62.4

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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