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


FORM 8-K


CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
September 9, 2024
Date of Report (Date of earliest event reported)
 
HEWLETT PACKARD ENTERPRISE COMPANY
(Exact name of registrant as specified in its charter)


Delaware
001-37483
47-3298624
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)

1701 East Mossy Oaks Road, Spring, TX
  
77389
 (Address of principal executive offices)   (Zip code)

(678) 259-9860
(Registrant’s telephone number, including area code)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class
  
Trading Symbol(s)
  
Name of each exchange on which registered
Common stock, par value $0.01 per share
  
HPE
  
NYSE

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

☐
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.

Item 8.01
Other Events.
 
As previously announced, on January 9, 2024, Hewlett Packard Enterprise Company (“HPE”) entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”), by and among Juniper Networks, Inc., a Delaware corporation (“Juniper”), HPE and Jasmine Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of HPE (“Merger Sub”). Pursuant to the Merger Agreement, subject to the terms and conditions set forth therein, Merger Sub will merge with and into Juniper, with Juniper surviving the merger and becoming a wholly owned subsidiary of HPE (the “Merger”). For further information relating to the Merger, please see HPE’s Current Report on Form 8-K filed with the SEC on January 10, 2024.
 
HPE is filing: (i) as Exhibit 99.1 to this Current Report on Form 8-K, the audited consolidated financial statements of Juniper as of December 31, 2023 and 2022, and for each of the three years in the period ended December 31, 2023; (ii) as Exhibit 99.2, Juniper management’s discussion and analysis of financial condition and results of operations for the fiscal years ended December 31, 2023 and 2022; (iii) as Exhibit 99.3, the interim unaudited condensed consolidated financial statements of Juniper as of June 30, 2024 and for the three and six months ended June 30, 2024 and June 30, 2023; (iv) as Exhibit 99.4, Juniper management’s discussion and analysis of financial condition and results of operations for the three and six months ended June 30, 2024 and June 30, 2023; (v) as Exhibit 99.5, the unaudited pro forma condensed combined financial statements of HPE as of July 31, 2024 and for the year ended October 31, 2023 and nine months ended July 31, 2024; and (vi) as Exhibit 23.1, the consent of Ernst & Young, LLP, independent registered public accounting firm of Juniper.
 
This Current Report on Form 8-K does not modify or update the consolidated financial statements of HPE included in its Annual Report on Form 10-K for the fiscal year ended October 31, 2023 or in its Quarterly Reports on Form 10-Q for the quarters ended January 31, 2024, April 30, 2024 or July 31, 2024, nor does it reflect any subsequent information or events.
 
Item 9.01.
Financial Statements and Exhibits.
 
(d)
Exhibits.
 
The following exhibits are filed as part of this Current Report on Form 8-K:
 
Exhibit No.
  
Exhibit Description
 
Consent of Ernst & Young, LLP, independent registered public accounting firm (with respect to Juniper).
     
 
Audited consolidated financial statements of Juniper as of December 31, 2023 and 2022, and for each of the three fiscal years in the period ended December 31, 2023.
     
 
Juniper management’s discussion and analysis of financial condition and results of operations for the fiscal years ended December 31, 2023 and 2022.
     
 
Interim unaudited condensed consolidated financial statements of Juniper as of June 30, 2024 and for the three and six months ended June 30, 2024 and June 30, 2023.
     
 
Juniper management’s discussion and analysis of financial condition and results of operations for the three and six months ended June 30, 2024 and June 30, 2023.
     
 
Unaudited pro forma condensed combined financial statements of HPE as of July 31, 2024 and for the year ended October 31, 2023 and nine months ended July 31, 2024.
     
104
  
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

Forward-Looking Statements

This Current Report on Form 8-K contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties, and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HPE may differ materially from those expressed or implied by such forward-looking statements and assumptions. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “guide”, “will”, “estimate”, “may”, “could”, “aim”, “should”, and similar expressions are intended to identify such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any anticipated financial or operational benefits associated with the segment realignment that became effective as of the beginning of the first quarter of fiscal 2024; any projections, estimations, or expectations of addressable markets and their sizes, revenue (including annualized revenue run rate), margins, expenses (including stock-based compensation expenses), investments, effective tax rates, interest rates, investments, net earnings, net earnings per share, cash flows, liquidity and capital resources, inventory, order backlog, share repurchases, dividends, currency exchange rates, repayments of debts, amortization of intangible assets, or other financial items; any projections or estimations of future orders, including as-a-service orders; any statements of the plans, strategies, and objectives of management for future operations, as well as the execution and consummation of corporate transactions or contemplated acquisitions (including but not limited to the Merger) and dispositions (including but not limited to the disposition of our H3C shares and the receipt of proceeds therefrom), research and development expenditures, and any resulting benefit, cost savings, charges, or revenue or profitability improvements; any statements concerning the expected development, performance, market share, or competitive performance relating to products or services; any statements concerning technological and market trends, the pace of technological innovation, and adoption of new technologies, including artificial intelligence-related and other products and services offered by HPE; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HPE and our financial performance, including but not limited to supply chain, demand for our products and services, and access to liquidity, and our actions to mitigate such impacts on our business; any statements concerning the relationship between China and the U.S., and our actions in response thereto; any statements of expectation or belief, including those relating to future guidance and the financial performance of HPE; and any statements of assumptions underlying any of the foregoing.

Risks, uncertainties and assumptions include the need to address the many challenges facing HPE’s businesses; the competitive pressures faced by HPE’s businesses; risks associated with executing HPE’s strategy; the impact of macroeconomic and geopolitical trends and events, including but not limited to supply chain constraints, the use and development of artificial intelligence, the inflationary environment, the ongoing conflicts between Russia and Ukraine and in the Middle East, and the relationship between China and the U.S.; the need to effectively manage third-party suppliers and distribute HPE’s products and services; the protection of HPE’s intellectual property assets, including intellectual property licensed from third parties and intellectual property shared with its former parent; risks associated with HPE’s international operations (including public health crises, such as pandemics or epidemics, and geopolitical events, such as, but not limited to, those mentioned above); the development of and transition to new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution of HPE’s transformation and mix shift of its portfolio of offerings; the execution and performance of contracts by HPE and its suppliers, customers, clients, and partners, including any impact thereon resulting from macroeconomic or geopolitical events, such as, but not limited to, those mentioned above; the prospect of a shutdown of the U.S. federal government; the hiring and retention of key employees; the execution, integration, consummation, and other risks associated with business combination, disposition, and investment transactions, including but not limited to the risks associated with the disposition of H3C shares and the receipt of proceeds therefrom and completion of the Merger and our ability to integrate and implement our plans, forecasts, and other expectations with respect to the consolidated business; the impact of changes to privacy, cybersecurity, environmental, global trade, and other governmental regulations; changes in our product, lease, intellectual property, or real estate portfolio; the payment or non-payment of a dividend for any period; the efficacy of using non-GAAP, rather than GAAP, financial measures in business projections and planning; the judgments required in connection with determining revenue recognition; impact of company policies and related compliance; utility of segment realignments; allowances for recovery of receivables and warranty obligations; provisions for, and resolution of, pending investigations, claims, and disputes; the impacts of tax law changes and related guidance or regulations; and other risks that are described herein, including but not limited to the risks described in HPE’s Annual Report on Form 10-K for the fiscal year ended October 31, 2023, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and in other filings made by HPE from time to time with the Securities and Exchange Commission.  HPE assumes no obligation and does not intend to update these forward-looking statements, except as required by applicable law.
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
HEWLETT PACKARD ENTERPRISE COMPANY
     
 
By:
 /s/ David Antczak
 
Name:
David Antczak
 
Title:
Senior Vice President, General Counsel and Corporate Secretary
     
DATE: September 9, 2024
    


Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the incorporation by reference in the Registration Statement (Form S-3 No. 333-276221) and related Prospectus of Hewlett Packard Enterprise Company of our reports dated February 7, 2024, relating to the consolidated financial statements and schedule of Juniper Networks, Inc. as of December 31, 2023 and 2022 and for the three years then ended, and the effectiveness of internal control over financial reporting of Juniper Networks, Inc. as of December 31, 2023, appearing in this Current Report on Form 8-K of Hewlett Packard Enterprise Company.

/s/ Ernst & Young LLP

San Jose, California
September 9, 2024
Exhibit 99.1

Juniper Network, Inc.
Index to Consolidated Financial Statements
 
Page
Consolidated Statements of Operations
5
Consolidated Statements of Comprehensive Income
6
Consolidated Balance Sheets
 7
Consolidated Statements of Cash Flows
8
Consolidated Statements of Changes in Stockholders' Equity
9
Notes to Consolidated Financial Statements
10
 
Note 1. Description of Business, Basis of Presentation and Significant Accounting Policies
10
 
Note 2. Cash Equivalents and Investments
19
 
Note 3. Fair Value Measurements
 22
 
Note 4. Derivative Instruments
 24
 
Note 5. Goodwill and Purchased Intangible Assets
26
 
Note 6. Other Financial Information
27
 
Note 7. Restructuring Charges
 30
 
Note 8. Debt and Financing
31
 
Note 9. Equity
 33
 
Note 10. Employee Benefit Plans
 34
 
Note 11. Segments
37
 
Note 12. Income Taxes
38
 
Note 13. Net Income per Share
41
 
Note 14. Commitments and Contingencies
42
 
Note 15. Subsequent Events
44

1
Report of Independent Registered Public Accounting Firm


To the Stockholders and the Board of Directors of Juniper Networks, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Juniper Networks, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 7, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

2
Identification of distinct performance obligations in revenue contracts

Description of the matter
  
As described in Note 1 to the consolidated financial statements, the Company’s contracts with customers sometimes contain multiple performance obligations, which are accounted for separately if they are distinct. In such cases, the transaction price is then allocated to the distinct performance obligations on a relative standalone selling price basis and revenue is recognized when control of the distinct performance obligation is transferred. For example, product revenue is recognized at the time of hardware shipment or delivery of software license, and support revenue is recognized over time as the services are performed.

Auditing the Company’s revenue recognition was challenging, specifically related to identifying and determining the distinct performance obligations and the associated timing of revenue recognition. For example, there were nonstandard terms and conditions that required judgment to determine the distinct performance obligations and the impact on the timing of revenue recognition.
     
How we addressed the matter in our audit  
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s revenue recognition process, including controls to identify and determine the distinct performance obligations and the timing of revenue recognition.

Among the procedures we performed to test the identification and determination of the distinct performance obligations and the timing of revenue recognition, we read the executed contract and purchase order to understand the arrangement, identified the performance obligation(s), determined the distinct performance obligations, and evaluated the timing and amount of revenue recognized for a sample of individual sales transactions. We evaluated the accuracy of the Company’s contract summary documentation, specifically related to the identification and determination of distinct performance obligations and the timing of revenue recognition.
     
Inventory Valuation & Contract Manufacturer Liabilities 
     
Description of the matter
  
As discussed in Note 1 of the consolidated financial statements, the Company’s inventories are stated at the lower of cost or net realizable value. The Company’s inventory balance totaled $1.0 billion on December 31, 2023. The Company records a loss provision when inventory is determined to be in excess of anticipated demand, or considered obsolete, to adjust inventory to its estimated realizable value. The Company records a liability and recognizes a corresponding loss for non-cancellable inventory purchase commitments with contract manufacturers that are in excess of the Company’s demand forecasts, or that are considered obsolete (“contract manufacturer liability”).

Auditing management’s assessment of net realizable value for inventory, and contract manufacturer liabilities was complex and highly judgmental due to the assessment of management’s estimates of forecasted product demand, which can be impacted by changes in overall customer demand, changes in the timing of the introduction and customer adoption of new products, adjustments to manufacturing and engineering schedules, and overall economic and market conditions.
     
How we addressed the matter in our audit  
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s determination of the net realizable value of inventory and the contract manufacturer liability. This included controls over the determination of forward-looking demand and production forecasts, and the evaluation of the accuracy and completeness of the inventory provision and contract manufacturer liability.

To test the inventory provision and contract manufacturer liability, we performed audit procedures that included, among others, assessing the Company’s methodology over the computation of the loss provision and liability, testing the significant assumptions and the underlying inputs used by the Company in its analysis including historical sales trends, expectations regarding future sales, changes in the Company’s business, customer base and other relevant factors.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1996.
San Jose, California

February 7, 2024

3
Report of Independent Registered Public Accounting Firm


To the Stockholders and the Board of Directors of Juniper Networks, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Juniper Networks, Inc.'s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Juniper Networks, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated February 7, 2024, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ Ernst & Young LLP

San Jose, California
February 7, 2024

4
Juniper Networks, Inc.

Consolidated Statements of Operations
(In millions, except per share amounts)
   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Net revenues:
                  
Product
  
$
3,632.5
    
$
3,539.9
    
$
3,078.1
  
Service
    
1,932.0
      
1,761.3
      
1,657.3
  
Total net revenues
    
5,564.5
      
5,301.2
      
4,735.4
  
Cost of revenues:
                        
Product
    
1,781.6
      
1,761.7
      
1,409.4
  
Service
    
581.0
      
581.2
      
585.9
  
Total cost of revenues
    
2,362.6
      
2,342.9
      
1,995.3
  
Gross margin
    
3,201.9
      
2,958.3
      
2,740.1
  
Operating expenses:
                        
Research and development
    
1,144.4
      
1,036.1
      
1,007.2
  
Sales and marketing
    
1,233.9
      
1,133.4
      
1,052.7
  
General and administrative
    
255.5
      
249.5
      
249.8
  
Restructuring charges
    
98.0
      
20.2
      
42.9
  
Total operating expenses
    
2,731.8
      
2,439.2
      
2,352.6
  
Operating income
    
470.1
      
519.1
      
387.5
  
Gain (loss) on privately-held investments, net (1) (2)
    
(97.3
)
    
20.4
      
12.7
  
Gain on divestiture
    
-
      
45.8
      
-
  
Loss on extinguishment of debt
    
-
      
-
      
(60.6
)
Other expense, net (1)
    
(23.8
)
    
(49.0
)
    
(29.5
)
Income before income taxes and loss from equity method investment
    
349.0
      
536.3
      
310.1
  
Income tax provision
    
29.2
      
60.5
      
57.4
  
Loss from equity method investment, net of tax
    
9.6
      
4.8
      
-
  
Net income
  
$
310.2
    
$
471.0
    
$
252.7
  
                         
Net income per share:
                        
Basic
  
$
0.97
    
$
1.46
    
$
0.78
  
Diluted
  
$
0.95
    
$
1.43
    
$
0.76
  
Shares used in computing net income per share:
                        
Basic
    
320.0
      
322.1
      
324.4
  
Diluted
    
325.9
      
329.5
      
331.6
  

(1)
The prior period amounts have been reclassified to conform to the current period presentation.
(2)
Privately-held investments represent investments in privately-held debt, redeemable preferred stock securities, and equity investments without readily determinable fair value. Refer to Note 2, Cash Equivalents and Investments.

See accompanying Notes to Consolidated Financial Statements

5
Consolidated Statements of Comprehensive Income
(In millions)

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Net income
  
$
310.2
    
$
471.0
    
$
252.7
  
Other comprehensive income (loss), net of tax:
                        
Available-for-sale debt securities:
                        
Change in net unrealized gains and losses
    
7.1
      
(6.5
)
    
(5.0
)
Net realized losses (gains) reclassified into net income
    
-
      
0.4
      
(1.2
)
Net change on available-for-sale debt securities
    
7.1
      
(6.1
)
    
(6.2
)
Cash flow hedges:
                        
Change in net unrealized gains and losses
    
11.7
      
15.7
      
(13.5
)
Net realized losses (gains) reclassified into net income
    
29.1
      
26.8
      
(25.2
)
Net change on cash flow hedges
    
40.8
      
42.5
      
(38.7
)
Change in foreign currency translation adjustments
    
(3.0
)
    
(30.1
)
    
(12.8
)
Other comprehensive income (loss), net
    
44.9
      
6.3
      
(57.7
)
Comprehensive income
  
$
355.1
    
$
477.3
    
$
195.0
  

See accompanying Notes to Consolidated Financial Statements

6
Consolidated Balance Sheets
(In millions, except par values)

   
December 31,
2023
    
December 31,
2022
  
             
ASSETS
            
Current assets:
            
Cash and cash equivalents
  
$
1,068.1
    
$
880.1
  
Short-term investments
    
139.4
      
210.3
  
Accounts receivable, net of allowance for doubtful accounts of $9.8 and $11.1 as of December 31, 2023 and 2022, respectively
    
1,044.1
      
1,227.3
  
Inventory
    
952.4
      
619.4
  
Prepaid expenses and other current assets
    
591.5
      
680.0
  
Total current assets
    
3,795.5
      
3,617.1
  
Property and equipment, net
    
689.9
      
666.8
  
Operating lease assets
    
111.4
      
141.6
  
Long-term investments
    
116.8
      
139.6
  
Purchased intangible assets, net
    
91.8
      
160.5
  
Goodwill
    
3,734.4
      
3,734.4
  
Other long-term assets
    
978.7
      
866.7
  
Total assets
  
$
9,518.5
    
$
9,326.7
  
LIABILITIES AND STOCKHOLDERS' EQUITY
                
Current liabilities:
                
Accounts payable
  
$
295.1
    
$
347.4
  
Accrued compensation
    
292.2
      
306.1
  
Deferred revenue
    
1,130.0
      
1,020.5
  
Other accrued liabilities
    
386.7
      
404.9
  
Total current liabilities
    
2,104.0
      
2,078.9
  
Long-term debt
    
1,616.8
      
1,601.3
  
Long-term deferred revenue
    
894.9
      
642.6
  
Long-term income taxes payable
    
204.5
      
279.4
  
Long-term operating lease liabilities
    
82.9
      
117.7
  
Other long-term liabilities
    
122.7
      
131.7
  
Total liabilities
    
5,025.8
      
4,851.6
  
Commitments and contingencies (Note 14)
                
Stockholders' equity:
                
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; 320.3 shares and 322.9 shares issued and outstanding as of December 31, 2023 and 2022, respectively
    
-
      
-
  
Additional paid-in capital
    
6,740.0
      
6,846.4
  
Accumulated other comprehensive income
    
49.1
      
4.2
  
Accumulated deficit
    
(2,296.4
)
    
(2,375.5
)
Total stockholders' equity
    
4,492.7
      
4,475.1
  
Total liabilities and stockholders' equity
  
$
9,518.5
    
$
9,326.7
  

See accompanying Notes to Consolidated Financial Statements

7
Consolidated Statements of Cash Flows
(In millions)

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Cash flows from operating activities:
                  
Net income
  
$
310.2
    
$
471.0
     $
252.7
  
Adjustments to reconcile net income to net cash provided by operating activities:
                        
Share-based compensation expense
    
279.4
      
209.3
      
222.6
  
Depreciation, amortization, and accretion
    
194.7
      
217.7
      
237.4
  
Deferred income taxes
    
(262.1
)
    
(222.5
)
    
71.7
  
Provision for inventory excess and obsolescence (1)
    
109.8
      
36.9
      
4.9
  
Operating lease assets expense
    
40.7
      
40.3
      
44.9
  
Gain on divestiture
    
-
      
(45.8
)
    
-
  
Loss (gain) on privately-held investments, net (1)
    
97.3
      
(20.4
)
    
(12.7
)
Loss from equity method investment
    
9.6
      
4.8
      
-
  
Loss on extinguishment of debt
    
-
      
-
      
60.6
  
Impairment of assets (1)
    
28.0
      
5.1
      
16.3
  
Loss (gain) on non-qualified deferred compensation plan and other (1)
    
(4.8
)
    
12.7
      
(4.7
)
Changes in operating assets and liabilities, net of acquisitions:
                        
Accounts receivable, net
    
183.4
      
(232.0
)
    
(31.8
)
Inventory (1)
    
(484.4
)
    
(394.2
)
    
(60.4
)
Prepaid expenses and other assets (1)
    
182.2
      
(299.0
)
    
(249.9
)
Accounts payable
    
(51.9
)
    
67.4
      
0.2
  
Accrued compensation
    
(13.2
)
    
(23.1
)
    
70.3
  
Income taxes payable
    
(99.6
)
    
21.1
      
24.3
  
Other accrued liabilities
    
(7.5
)
    
(3.3
)
    
(85.4
)
Deferred revenue
    
361.0
      
251.6
      
128.7
  
Net cash provided by operating activities
    
872.8
      
97.6
      
689.7
  
Cash flows from investing activities:
                        
Purchases of property and equipment
    
(159.4
)
    
(105.1
)
    
(100.0
)
Proceeds from divestiture, net
    
-
      
89.1
      
-
  
Purchases of available-for-sale debt securities
    
(155.0
)
    
(104.1
)
    
(649.8
)
Proceeds from sales of available-for-sale debt securities
    
31.9
      
118.2
      
546.1
  
Proceeds from maturities and redemptions of available-for-sale debt securities
    
217.3
      
390.3
      
394.0
  
Purchases of equity securities
    
(11.6
)
    
(16.5
)
    
(10.1
)
Proceeds from sales of equity securities
    
15.7
      
47.7
      
25.6
  
Payments for business acquisitions, net of cash and cash equivalents acquired
    
-
      
-
      
(182.6
)
Subsequent payments related to acquisitions in prior years
    
(0.7
)
    
(14.6
)
    
(10.1
)
Funding of loan receivable and other
    
(5.8
)
    
2.5
      
0.7
  
Net cash provided by (used in) investing activities
    
(67.6
)
    
407.5
      
13.8
  
Cash flows from financing activities:
                        
Repurchase and retirement of common stock
    
(397.6
)
    
(315.2
)
    
(443.5
)
Proceeds from issuance of common stock
    
61.9
      
57.2
      
56.4
  
Payment of dividends
    
(280.8
)
    
(270.4
)
    
(259.1
)
Payment of debt
    
-
      
-
      
(423.8
)
Payment of debt extinguishment costs
    
-
      
-
      
(58.3
)
                         
Payment of debt issuance costs and other
    
(2.3
)
    
-
      
(3.4
)
Net cash used in financing activities
    
(618.8
)
    
(528.4
)
    
(1,131.7
)
                         
   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Effect of foreign currency exchange rates on cash, cash equivalents, and restricted cash
    
0.2
      
(21.7
)
    
(12.1
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
    
186.6
      
(45.0
)
    
(440.3
)
Cash, cash equivalents, and restricted cash at beginning of period
    
897.7
      
942.7
      
1,383.0
  
Cash, cash equivalents, and restricted cash at end of period
  
$
1,084.3
    
$
897.7
    
$
942.7
  
                         
Supplemental disclosures of cash flow information:
                        
Cash paid for interest, net of amounts capitalized
  
$
81.5
    
$
67.3
    
$
62.6
  
Cash paid for income taxes, net
  
$
400.9
    
$
253.2
    
$
113.2
  
Non-cash investing activity:
                        
Equity method investment
  
$
-
    
$
40.3
    
$
-
  

(1)
The prior period amounts have been reclassified to conform to the current period presentation.

See accompanying Notes to Consolidated Financial Statements

8
Consolidated Statements of Changes in Stockholders' Equity
(In millions, except per share amounts)

   
Shares
    
Common
Stock
and
Additional
Paid-In
Capital
    
Accumulated
Other
Comprehensive
Income (Loss)
    
Accumulated
Deficit
    
Total
Stockholders'
Equity
  
Balance at December 31, 2020
    
327.7
    
$
7,156.9
    
$
55.6
    
$
(2,669.0
)
  
$
4,543.5
  
Net income
    
-
      
-
      
-
      
252.7
      
252.7
  
Other comprehensive loss, net
    
-
      
-
      
(57.7
)
    
-
      
(57.7
)
Issuance of common stock
    
9.9
      
56.4
      
-
      
-
      
56.4
  
Common stock assumed upon business combination
    
-
      
2.7
      
-
      
-
      
2.7
  
Repurchase and retirement of common stock
    
(16.0
)
    
(206.2
 )
    
-
      
(237.3
)
    
(443.5
)
Share-based compensation expense
    
-
      
221.9
      
-
      
-
      
221.9
  
Payments of cash dividends ($0.80 per share of common stock)
    
-
      
(259.1
 )
    
-
      
-
      
(259.1
)
Balance at December 31, 2021
    
321.6
      
6,972.6
      
(2.1
)
    
(2,653.6
)
    
4,316.9
  
Net income
    
-
      
-
      
-
      
471.0
      
471.0
  
Other comprehensive income, net
    
-
      
-
      
6.3
      
-
      
6.3
  
Issuance of common stock
    
10.9
      
57.2
      
-
      
-
      
57.2
  
Repurchase and retirement of common stock
    
(9.6
)
    
(122.3
 )
    
-
      
(192.9
)
    
(315.2
)
Share-based compensation expense
    
-
      
209.3
      
-
      
-
      
209.3
  
Payments of cash dividends ($0.84 per share of common stock)
    
-
      
(270.4
 )
    
-
      
-
      
(270.4
)
Balance at December 31, 2022
    
322.9
      
6,846.4
      
4.2
      
(2,375.5
)
    
4,475.1
  
Net income
    
-
      
-
      
-
      
310.2
      
310.2
  
Other comprehensive income, net
    
-
      
-
      
44.9
      
-
      
44.9
  
Issuance of common stock
    
10.8
      
61.9
      
-
      
-
      
61.9
  
Repurchase and retirement of common stock
    
(13.4
)
    
(167.3
 )
    
-
      
(231.1
)
    
(398.4
)
Share-based compensation expense
    
-
      
279.8
      
-
      
-
      
279.8
  
Payments of cash dividends ($0.88 per share of common stock)
    
-
      
(280.8
 )
    
-
      
-
      
(280.8
)
Balance at December 31, 2023
    
320.3
    
$
6,740.0
    
$
49.1
    
$
(2,296.4
)
  
$
4,492.7
  

See accompanying Notes to Consolidated Financial Statements

9
Notes to Consolidated Financial Statements

Note 1. Description of Business, Basis of Presentation and Significant Accounting Policies

Description of Business

Juniper Networks, Inc. (the “Company” or “Juniper”) designs, develops, and sells products and services for high-performance networks, to enable customers to build scalable, reliable, secure and cost-effective networks for their businesses, while achieving agility and improved operating efficiency through automation. Juniper challenges the inherent complexity that comes with networking in the multicloud era. Juniper does this with products, solutions and services that transform the way people connect, work and live. Juniper simplifies the process of transitioning to a secure and automated multicloud environment to enable secure, AI-driven networks that connect the world.

Basis of Presentation

The Consolidated Financial Statements, which include the Company and its wholly-owned subsidiaries, are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). All intercompany balances and transactions have been eliminated.

Use of Estimates

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 Consolidated Financial Statements and the accompanying notes. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

Change in Accounting Estimate

In December 2023, the Company completed an assessment of the useful lives of certain property and equipment. Effective January 1, 2024, the Company has increased the expected useful life of certain lab equipment from 3-5 years to 7 years to better reflect the economic value of our assets. The Company considered several factors in making this change, including current and historical usage patterns, as well as expected technology and overall changes in our product roadmap. This change in estimate will be applied prospectively beginning in the first quarter of 2024.

Cash, Cash Equivalents, and Investments

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, demand deposits with banks, highly liquid investments in money market funds, commercial paper, government securities, certificates of deposits, time deposits, and corporate debt securities, which are readily convertible into cash. All highly liquid investments with original maturities of three months or less from Juniper's purchase date are classified as cash equivalents.

Investments in Available-for-Sale Debt Securities

The Company's investments in debt securities are classified as available-for-sale and include the Company's fixed income securities and investments in privately-held companies, consisting of debt and redeemable preferred stock securities.

Fixed income securities primarily consist of corporate debt securities, U.S. treasury securities, time deposits, asset-backed and mortgage-backed securities, certificate of deposits, commercial paper, U.S. government agency securities, and foreign government debt securities. Fixed income securities are initially recorded at cost and periodically adjusted to fair value in the Consolidated Balance Sheets. The Company periodically evaluates these investments to determine if impairment charges are required. The Company determines whether a credit loss exists for available-for-sale debt securities in an unrealized loss position. When the fair value of a security is below its amortized cost, the amortized cost will be reduced to its fair value and the resulting loss will be recorded in Consolidated Statements of Operations, if it is more likely than not that we are required to sell the impaired security before recovery of its amortized cost basis, or we have the intention to sell the security. If neither of these conditions are met, the Company considers the extent to which the fair value is less than the amortized cost, any changes to the rating of the security by a rating agency, and review of the issuer's financial statements. If factors indicate a credit loss exists, an allowance for credit loss is recorded through other expense, net, limited by the amount that the fair value is less than the amortized cost basis.

10
The Company's privately-held debt and redeemable preferred stock securities are included in other long-term assets in the Consolidated Balance Sheets and are recorded at fair value. In determining the estimated fair value of such securities, the Company utilizes the most recent data available for the investee including known acquisition offers and subsequent funding rounds. The Company periodically evaluates these securities for indicators of impairment, including the inability to recover a portion of or the entire carrying amount of the investment, the inability of the investee to sustain earnings, the reduction in or termination of financial commitment to the investee from other investors, the intention to sell the investment, and whether it is more likely than not that the Company will be required to sell the investment before recovery of the entire amortized cost basis. If the Company determines that the decline in an investment's value indicates credit losses, the difference is recognized as an impairment loss in its Consolidated Statements of Operations.

For all available-for-sale debt securities, unrealized gains and the amount of unrealized loss relating to factors other than credit loss are reported as a separate component of accumulated other comprehensive loss in the Consolidated Balance Sheets. Realized gains and losses are determined based on the specific identification method and are reported in the Consolidated Statements of Operations.

Investments in Equity Securities

The Company's investments in equity securities with readily determinable fair values consist of money market funds, amounts under the non-qualified compensation plan ("NQDC") that are invested in mutual funds, and investments in public companies. These investments are measured at fair value with changes in fair value recognized in the Consolidated Statements of Operations.

Equity securities without readily determinable fair values include the Company's investments in privately-held companies consisting of non-redeemable preferred stock and common stock securities. The Company accounts for these securities at cost, adjusted for changes from observable transactions for identical or similar investments of the same issuer, less impairments. Fair value of these equity securities is reassessed when the Company identifies observable price changes indicating that an adjustment upward or downward to the carrying value is necessary. Any observable changes in fair value are recognized in earnings as of the date that the observable transaction took place. In addition, the Company periodically evaluates equity securities without readily determinable fair values to determine if impairment charges are required by evaluating whether an event or change in circumstance has occurred that may have a significant adverse effect on the fair value of the investment. A qualitative assessment is performed each reporting period to assess whether there are any impairment indicators, including, but not limited to, significant deterioration in the investee's earnings performance; credit rating; asset quality or business prospects; adverse change in the regulatory, economic, or technological environment; change in the general market condition of the geographic area or industry; acquisition offers; and the ability to continue as a going concern. If such indicators are present, the Company estimates the fair value of impaired investments and recognizes an impairment loss in the Consolidated Statement of Operations equal to the difference between the carrying value and fair value.

The Company accounts for investments in companies over which it has the ability to exercise significant influence, but does not have control over the investee, under the equity method of accounting. The investment is initially measured at fair value and subsequently adjusted for any impairment, investee capital transactions, dividend received, plus or minus the Company's proportionate share of the equity method investee's income or loss. The Company records its interest in the net earnings or loss of its equity method investment along with adjustments for unrealized profits or losses on intra-entity transactions, within its Consolidated Statements of Operations. Depending on the timing of such financial statements of the investee, there may be a lag between the timing of such financial statement and the Company's quarter-end date. For the Company's sole equity method investment as of December 31, 2023, the Company's share of the investee's net earnings or loss is recorded two months in arrears. The Company records an impairment when factors indicate that the carrying amount of the investment might not be recoverable.

11
Fair Value

Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts, and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. These inputs are valued using market-based approaches.

Level 3 - Inputs are unobservable inputs based on the Company’s assumptions. These inputs, if any, are valued using internal financial models.

Derivative Instruments

The Company uses derivative instruments, primarily foreign currency forward and interest rate contracts, to hedge certain foreign currency and interest rate exposures. The Company does not enter into derivatives for speculative or trading purposes.

The Company uses foreign currency forward contracts or options contracts to hedge certain forecasted foreign currency transactions relating to operating expenses. These derivatives are designated as cash flow hedges, which are carried at fair value with the derivative's gain or loss initially reported as a component of accumulated other comprehensive loss, and upon occurrence of the forecasted transaction, is subsequently reclassified into the costs of services or operating expense line item to which the hedged transaction relates. Cash flows from such hedges are classified as operating activities.

The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in non-functional currencies. These derivatives are carried at fair value with changes recorded in other expense, net in the Consolidated Statements of Operations in the same period as the changes in the fair value from the re-measurement of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities.

The Company uses interest rate swap contracts to convert certain of our fixed interest rate notes to floating interest rates based on the Secured Overnight Financing Rate (SOFR). All interest rate swap contracts will expire within seven years. The change in fair value of the derivative instrument substantially offsets the change in the fair value of the hedged item. These derivatives are classified in the Consolidated Statements of Cash Flows in the same section as the underlying item.

The Company uses interest rate lock contracts, which fix the benchmark interest rates of future debt issuance. The Company records changes in fair value of these contracts in accumulated other comprehensive income (loss) in the consolidated balance sheets, in the period of change. When the forecasted transaction occurs, the Company will start to amortize the accumulated gains or losses included as a component of other comprehensive income (loss) related to the interest rate lock cash flow hedges to interest expense. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the gains or losses on the related cash flow hedge from accumulated other comprehensive income (loss) will be reclassified to other income and expense within the income statement. During the year ended December 31, 2023, the Company terminated these interest rate lock contracts. Refer to Note 4, Derivative Instruments.

12
The Company presents its derivative assets and derivative liabilities on a gross basis in the Consolidated Balance Sheets. However, under agreements containing provisions on set-off with certain counterparties, subject to applicable requirements, the Company is allowed to net-settle transactions, with a single net amount payable by one party to the other. The Company is neither required to pledge nor entitled to receive cash collateral related to these derivative transactions.

Inventory

Inventory consists primarily of component parts to be used in the manufacturing process and finished goods, and is stated at the lower of cost or net realizable value. In addition, the Company purchases and holds inventory to provide adequate component supplies over the life of the underlying products. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. A charge is recorded to cost of product when inventory is determined to be in excess of anticipated demand or considered obsolete. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in the newly established cost basis.

Leases

The Company determines if an arrangement is a lease at inception. The Company evaluates classification of leases as either operating or finance at commencement and, as necessary, at modification. As of December 31, 2023, the Company did not have any finance leases. Operating leases are included in operating lease right-of-use ("ROU") assets, other accrued liabilities, and operating lease liabilities on the Company's Consolidated Balance Sheets. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made prior to lease commencement and excludes lease incentives. Variable lease payments not dependent on an index or a rate, are expensed as incurred and are not included within the ROU asset and lease liability calculation. Variable lease payments primarily include reimbursements of costs incurred by lessors for common area maintenance and utilities. The Company's lease terms are the noncancelable period, including any rent-free periods provided by the lessor, and include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. At lease inception, and in subsequent periods as necessary, the Company estimates the lease term based on its assessment of extension and termination options that are reasonably certain to be exercised. Lease costs are recognized on a straight-line basis over the lease term.

The Company does not separate non-lease components from lease components for all underlying classes of assets. In addition, the Company does not recognize ROU assets and lease liabilities for short-term leases, which have a lease term of twelve months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

Lease cost for short-term leases is recognized on a straight-line basis over the lease term.

13
Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method, over the estimated useful lives of the following assets:

 
Estimated Useful Life (years)
Computers, equipment, and software (*)
1.5 to 10
Furniture and fixtures
5 to 7
Building and building improvements
7 to 40
Land improvements
10 to 40
Leasehold improvements
Lease term, not to exceed 10 years

(*)
Effective January 1, 2024, we increased the expected useful life of certain lab equipment from 3-5 years to 7 years to better reflect the economic value of our assets.

Land is not depreciated. Construction-in-process is related to the construction or development of property and equipment that have not yet been placed in service for their intended use.

Business Combinations

The purchase price of an acquired entity is allocated to tangible assets, liabilities, and intangible assets based on their estimated fair values with the residual of the purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain estimates, such as expected future cash flows, which include consideration of future growth rates and margins, attrition rates, future changes in technology, discount rates, and the expected use of the acquired assets. These factors are also considered in determining the useful life of the acquired intangible assets. Acquisition related expenses are recognized separately from the business combination and are expensed as incurred. The Company's Consolidated Financial Statements include the operating results of acquired businesses from the date of each acquisition.

Goodwill and Intangible Assets

Goodwill is tested for impairment annually on November 1 or more frequently if certain circumstances indicate the carrying value of goodwill is impaired. Goodwill is tested for impairment at the reporting unit level. A qualitative assessment is first performed to determine whether it is necessary to quantitatively test goodwill for impairment. This initial assessment includes, among others, consideration of macroeconomic conditions and financial performance. If the qualitative assessment indicates that it is more likely than not that an impairment exists, a quantitative analysis is performed by determining the fair value of the reporting unit using a combination of the discounted cash flow and the market approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. A goodwill impairment loss is recognized for the amount that the carrying amount of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.

Intangible assets consist of existing technology, customer relationships, and trade name, which are amortized over the period of estimated benefit using the straight-line method and estimated useful lives of 4 or 5 years.

Impairment of Long-lived Assets

Long-lived assets, such as property, plant, and equipment, ROU assets, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset, or asset group, to estimated undiscounted future cash flows expected to be generated by the asset, or asset group. An impairment charge is recognized by the amount by which the carrying amount of the asset, or asset group, exceeds its fair value.

14
Warranty Reserves

The Company generally offers a one-year warranty or limited life-time warranty on most of its hardware products, and a 90-day warranty on the media that contains the software embedded in the products. Warranty costs are recognized as part of the Company's cost of sales based on associated material costs, logistics costs, labor costs, and overhead at the time revenue is recognized. Material costs are estimated primarily based upon the historical costs to repair or replace product returns within the warranty period. Labor, logistics, and overhead costs are estimated primarily based upon historical trends in the cost to support customer cases within the warranty period. Warranty reserve is reported within other accrued liabilities in the Consolidated Balance Sheets.

Contract Manufacturer Liabilities

The Company establishes a liability for non-cancelable, non-returnable purchase commitments with its contract manufacturers for carrying charges, quantities in excess of its demand forecasts, or obsolete material charges for components purchased by the contract manufacturers to meet the Company’s demand forecast or customer orders. The demand forecasts are based upon historical trends and analysis, adjusted for overall market conditions.

Loss Contingencies

The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. Management considers the likelihood of loss related to the occurrence of a liability as well as its ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required.

Foreign Currency

Assets and liabilities of foreign operations with non-U.S. Dollar functional currency are translated to U.S. Dollars using exchange rates in effect at the end of the period. Revenue and expenses are translated to U.S. Dollars using rates that approximate those in effect during the period. The resulting translation adjustments are included in the Company’s Consolidated Balance Sheets in the stockholders’ equity section as a component of accumulated other comprehensive loss. The Company remeasures monetary assets and monetary liabilities in non-functional currencies and records the resulting foreign exchange transaction gains and losses in other expense, net in the Consolidated Statements of Operations.

Revenue Recognition

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 by following a five-step process, (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.

Identify the contract with a customer. The Company generally considers a sales contract and/or agreement with an approved purchase order as a customer contract provided that collection is considered probable, which is assessed based on the creditworthiness of the customer as determined by credit checks, payment histories, and/or other circumstances. The Company combines contracts with a customer if contracts are negotiated with a single commercial substance or contain price dependencies.

Identify the performance obligations in the contract. Product performance obligations include hardware, software licenses including perpetual and term-based licenses, and service performance obligations including maintenance services, Software-as-a-Service ("SaaS"), education and training, and professional services.

15
Determine the transaction price. The transaction price for the Company’s contracts with its customers consists of both fixed and variable consideration, provided it is probable that a significant reversal of revenue will not occur when the uncertainty related to variable consideration is resolved. Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes estimates for rights of return, rebates, and price protection, which are based on historical sales returns and price protection credits, specific criteria outlined in rebate agreements, and other factors known at the time. The Company generally invoices customers for hardware, software licenses and related maintenance arrangements at time of delivery, and professional services either upfront or upon meeting certain milestones. Customer invoices are generally due within 30 to 90 days after issuance. The Company’s contracts with customers typically do not include significant financing components as the period between the transfer of performance obligations and timing of payment are generally within one year.

Allocate the transaction price to the performance obligations in the contract. For contracts that contain multiple performance obligations, the Company allocates the transaction price to the performance obligations on a relative stand-alone selling price ("SSP") basis. SSP is based on multiple factors including, but not limited to historical discounting trends for products and services, pricing practices in different geographies and through different sales channels, gross margin objectives, internal costs, competitor pricing strategies, and industry technology lifecycles.

Recognize revenue when or as the Company satisfies a performance obligation. Revenue for hardware and certain software licenses, are recognized at a point in time, which is generally upon shipment or delivery. Certain software licenses are recognized on a ratable basis over the term of the license. Revenue for maintenance services and SaaS is recognized on a ratable basis over the contract term. Revenue from education, training, and professional services is recognized as services are completed or ratably over the contractual period of generally one year or less.

Deferred product revenue represents unrecognized revenue related to undelivered product commitments and other shipments that have not met revenue recognition criteria. Deferred service revenue represents billed amounts for service contracts, which include technical support, hardware and software maintenance, professional services, SaaS, and education and training, for which services have not been rendered.

Revenue is recognized net of any taxes collected, which are subsequently remitted to governmental authorities.

Deferred Contract Costs

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. The Company capitalizes these costs, for which the transfer of the goods or services to which the asset relates will occur in future periods. These costs are recorded as prepaid expenses or other long-term assets and are deferred and then amortized over a period of benefit which is typically over the term of the customer contracts. Amortization expense is included in sales and marketing expenses in the accompanying Consolidated Statements of Operations.

Research and Development

Costs to research, design, and develop the Company's products are expensed as incurred.

Software Development Costs

Capitalization of software development costs for software to be sold, leased, or otherwise marketed begins when a product's technological feasibility has been established and ends when a product is available for general release to customers. Generally, the Company's products are released soon after technological feasibility has been established. As a result, costs incurred between achieving technological feasibility and product general availability have not been significant.

The Company capitalizes costs associated with internal-use software systems during the application development stage. Such capitalized costs include external direct costs incurred in developing or obtaining the applications and payroll and payroll-related costs for employees, who are directly associated with the development of the applications.

16
Advertising

Advertising costs are charged to sales and marketing expense as incurred. Costs to produce advertising were approximately $4.9 million for 2023, and $7.4 million for 2022 and 2021. Costs to communicate advertising totaled approximately $25.9 million, $30.0 million, and $26.6 million, for 2023, 2022, and 2021, respectively.

Share-Based Compensation

The Company measures and recognizes compensation cost for all share-based awards made to employees and directors, including employee stock options, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance share awards ("PSAs") and employee stock purchases related to the Employee Stock Purchase Plan ("ESPP"). For service condition only awards, share-based compensation expense is based on the fair value of the underlying awards and amortized on a straight-line basis. For PSAs, share-based compensation expense is amortized on a straight-line basis for each separate vesting portion of the awards. The Company accounts for forfeitures as they occur.

The Company utilizes the Black-Scholes-Merton (“BSM”) option-pricing model to estimate the fair value of its ESPP purchase rights. The BSM model requires various highly subjective assumptions that represent management's best estimates of volatility, risk-free interest rate, expected life, and dividend yield. The Company estimates expected volatility based on the implied volatility of market-traded options, on the Company's common stock, adjusted for other relevant factors including historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s ESPP. The expected life of ESPP purchase rights approximates the offering period.

The Company determines the grant date fair value of its RSUs, RSAs, and PSAs based on the closing market price of the Company’s common stock on the date of grant, adjusted by the present value of the dividends expected to be paid on the underlying shares of common stock during the requisite and derived service period as these awards are not entitled to receive dividends until vested.

For market-based RSUs, the Company estimates the fair value and derived service period using the Monte Carlo simulation option pricing model ("Monte Carlo model"). The determination of the grant date fair value and derived service periods using the Monte Carlo model is affected by the Company's stock price, comparative market-based returns, as well as various highly subjective assumptions that represent management's best estimates of volatility, risk-free interest rate, and dividend yield. The Company estimates expected volatility based on the implied volatility of market-traded options, on the Company's common stock, adjusted for other relevant factors, including historical volatility of the Company’s common stock over the contractual life of the Company's market-based RSUs.

Provision for Income Taxes

Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.

The Company accounts for uncertainty in income taxes using a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes. The Company accounts for the current impacts of U.S. tax on certain foreign subsidiaries income, which is referred to as Global Intangible Low-Taxed Income, in the year earned.

17
Concentrations of Risk

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, derivatives, and accounts receivable. The Company invests only in high-quality credit instruments and maintains its cash, cash equivalents, and available-for-sale investments in fixed income securities with several high-quality institutions. Deposits held with banks, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. We mitigate the concentration of credit risk in our investment portfolio through diversification of the investments in various industries and asset classes, and limits to the amount of credit exposure to any single issuer and credit rating.

The Company’s derivatives expose it to credit risk to the extent that counterparties may be unable to meet the terms of the agreement. The Company has a risk assessment and mitigation framework to evaluate the potential risk of loss with any one counterparty resulting from this type of credit risk. As part of this risk mitigation framework, the Company transacts with major financial institutions with high credit ratings and also enters into master netting agreements, which permit net settlement of the transactions with the same counterparty. The Company performs periodic evaluations of the relative credit standing of these financial institutions. Therefore, the Company does not expect material losses as a result of defaults by counterparties.

Generally, credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company's customer base and their dispersion across different geographic locations throughout the world. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. For the years ended December 31, 2023, 2022, and 2021, no single customer accounted for 10% or more of net revenues.

The Company relies on sole suppliers for certain critical components such as application-specific integrated circuits. Additionally, the Company relies primarily on a limited number of significant independent contract manufacturers and original design manufacturers for the production of its products. The inability of any supplier or manufacturer to fulfill supply requirements of the Company could negatively impact future operating results.

Recent Accounting Standards Not Yet Adopted

Improvements to Reportable Segment Disclosures: In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The Company is currently evaluating the effect of this pronouncement on its disclosures.

Improvements to Income Tax Disclosures: In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which expands the disclosures required for income taxes. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.

18
Note 2. Cash Equivalents and Investments

Investments in Available-for-Sale Debt Securities

The following table summarizes the Company's unrealized gains and losses and fair value of investments designated as available-for-sale debt securities as of December 31, 2023 and December 31, 2022 (in millions):

   
As of December 31, 2023
    
As of December 31, 2022
  
   
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Estimated
Fair
Value
    
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Estimated
Fair
Value
  
Fixed income securities:
                                                
Asset-backed and mortgage-backed securities
  
$
38.2
    
$
0.2
    
$
(0.4
)
  
$
38.0
    
$
37.8
    
$
-
    
$
(1.2
)
  
$
36.6
  
Certificates of deposit
    
3.0
      
-
      
-
      
3.0
      
-
      
-
      
-
      
-
  
Commercial paper
    
41.1
      
-
      
-
      
41.1
      
-
      
-
      
-
      
-
  
Corporate debt securities
    
160.2
      
0.7
      
(1.3
)
    
159.6
      
277.5
      
-
      
(7.1
)
    
270.4
  
Foreign government debt securities
    
5.3
      
-
      
(0.2
)
    
5.1
      
8.8
      
-
      
(0.4
)
    
8.4
  
Time deposits
    
273.6
      
-
      
-
      
273.6
      
70.6
      
-
      
-
      
70.6
  
U.S. government agency securities
    
4.0
      
-
      
-
      
4.0
      
18.6
      
-
      
(0.6
)
    
18.0
  
U.S. government securities
    
54.8
      
0.1
      
-
      
54.9
      
9.0
      
-
      
(0.2
)
    
8.8
  
Total fixed income securities
    
580.2
      
1.0
      
(1.9
)
    
579.3
      
422.3
      
-
      
(9.5
)
    
412.8
  
Privately-held debt and redeemable preferred stock securities
    
20.6
      
37.4
      
(8.3
)
    
49.7
      
15.5
      
37.4
      
-
      
52.9
  
Total available-for-sale debt securities
  
$
600.8
    
$
38.4
    
$
(10.2
)
  
$
629.0
    
$
437.8
    
$
37.4
    
$
(9.5
)
  
$
465.7
  
                                                                 
Reported as:
                                                                
Cash equivalents
  
$
328.2
    
$
-
    
$
-
    
$
328.2
    
$
70.6
    
$
-
    
$
-
    
$
70.6
  
Short-term investments
    
135.7
      
-
      
(1.4
)
    
134.3
      
205.9
      
-
      
(3.3
)
    
202.6
  
Long-term investments
    
116.3
      
1.0
      
(0.5
)
    
116.8
      
145.8
      
-
      
(6.2
)
    
139.6
  
Other long-term assets
    
20.6
      
37.4
      
(8.3
)
    
49.7
      
15.5
      
37.4
      
-
      
52.9
  
Total
  
$
600.8
    
$
38.4
    
$
(10.2
)
  
$
629.0
    
$
437.8
    
$
37.4
    
$
(9.5
)
  
$
465.7
  

19
The following table presents the contractual maturities of the Company's total fixed income securities as of December 31, 2023 (in millions):

   
Amortized
Cost
    
Estimated Fair
Value
  
Due in less than one year
  
$
463.9
    
$
462.5
  
Due between one and five years
    
116.3
      
116.8
  
Total
  
$
580.2
    
$
579.3
  

As of December 31, 2023, the Company had an unrealized loss of $1.9 million from 93 fixed income available-for-sale debt securities in an unrealized loss position for more than 12 months. The gross unrealized losses related to these investments were primarily due to changes in market interest rates. The Company anticipates that it will recover the entire amortized cost basis of such available-for-sale debt securities and has determined that no allowance for credit losses was required to be recognized during the years ended December 31, 2023 and December 31, 2022.

During the year ended December 31, 2023, the Company recognized an allowance for credit loss of $8.3 million on privately-held debt and redeemable preferred stock investments. The unrealized loss represents the difference between the estimated fair value and the cost of the investment. The determination of fair value was based on quantitative and qualitative analysis including factors such as the near-term prospects of the investee in the market in which it operates and evaluating the investee’s financial condition in relation to its outstanding obligations. During the years ended December 31, 2022 and December 31, 2021, there were no unrealized losses related to Company's privately-held debt and redeemable preferred stock investments.

During the years ended December 31, 2023 and December 31, 2022, the Company had no material gross realized gains or losses from available-for-sale debt securities. During the year ended December 31, 2021, the Company had gross realized gains of $15.3 million and no material gross realized losses from available-for-sale debt securities.

Investments in Equity Securities

The following table presents the Company's investments in equity securities as of December 31, 2023 and 2022 (in millions):

   
As of December 31,
  
   
2023
    
2022
  
Equity investments with readily determinable fair value
            
Money market funds
  
$
337.5
    
$
420.8
  
Mutual funds
    
38.0
      
28.1
  
Publicly-traded equity securities
    
5.1
      
7.7
  
Equity investments without readily determinable fair value
    
45.8
      
137.7
  
Equity investment under the equity method of accounting
    
26.4
      
36.0
  
Total equity securities
  
$
452.8
    
$
630.3
  
                 
Reported as:
                
Cash equivalents
  
$
337.5
    
$
420.8
  
Short-term investments
    
5.1
      
7.7
  
Prepaid expenses and other current assets
    
2.5
      
2.4
  
Other long-term assets
    
107.7
      
199.4
  
Total
  
$
452.8
    
$
630.3
  

During the years ended December 31, 2023, 2022, and 2021, there were no material unrealized gains or losses recognized for equity investments with readily determinable fair values.

20
During the year ended December 31, 2023, there were no material unrealized gains and $89.9 million unrealized losses for equity investments without readily determinable fair value. The unrealized losses represent the difference between the estimated fair values and the carrying values of equity investments without readily determinable fair value. The Company estimated the fair value of these investments based on quantitative and qualitative analysis. This analysis involved use of judgment, significant estimates and assumptions, such as the near-term prospects of the investee in the market in which it operates, evaluating the investee’s financial condition in relation to its outstanding obligations, and probabilities of securing additional capital through various alternative scenarios. During the years ended December 31, 2022 and 2021, there were no material unrealized gains or losses recognized for equity investments without readily determinable fair value.

As of December 31, 2023 and 2022, the Company's ownership in the investment accounted for under the equity method of accounting represented approximately 24.1% and 25.0%, respectively. During the years ended December 31, 2023 and 2022, the loss recognized from the equity method investment was $9.6 million and $4.8 million, respectively.

Restricted Cash and Investments

The Company has restricted cash and investments for: (i) amounts under the Company's non-qualified deferred compensation plan for senior-level employees; (ii) amounts held under the Company's short-term disability plan in California; and (iii) amounts held in escrow accounts, as required in connection with certain acquisitions. Restricted investments consist of equity investments. As of December 31, 2023, the carrying value of restricted cash and investments was $54.3 million, of which $16.4 million was included in prepaid expenses and other current assets and $37.9 million was included in other long-term assets on the Consolidated Balance Sheets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash included in the Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 (in millions):
   
As of December 31,
  
   
2023
    
2022
  
Cash and cash equivalents
  
$
1,068.1
    
$
880.1
  
Restricted cash included in Prepaid expenses and other current assets
    
13.8
      
15.2
  
Restricted cash included in Other long-term assets
    
2.4
      
2.4
  
Total cash, cash equivalents, and restricted cash
  
$
1,084.3
    
$
897.7
  

21
Note 3. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table provides a summary of assets and liabilities measured at fair value on a recurring basis and as reported in the Consolidated Balance Sheets (in millions):


  
Fair Value Measurements at
December 31, 2023
    
Fair Value Measurements at
December 31, 2022
  
   
Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1)
    
Significant Other
Observable
Remaining Inputs
(Level 2)
    
Significant Other
Unobservable
Remaining Inputs
(Level 3)
    
Total
    
Quoted Prices in
Active Markets For
Identical Assets
(Level 1)
    
Significant Other
Observable
Remaining Inputs
(Level 2)
    
Significant Other
Unobservable
Remaining Inputs
(Level 3)
    
Total
  
Assets:
                                                
Available-for-sale debt securities:
                                                
Asset-backed and mortgage-backed securities
  
$
-
    
$
38.0
    
$
-
    
$
38.0
    
$
-
    
$
36.6
    
$
-
    
$
36.6
  
Certificates of deposit
    
-
      
3.0
      
-
      
3.0
      
-
      
-
      
-
      
-
  
Commercial paper
    
-
      
41.1
      
-
      
41.1
      
-
      
-
      
-
      
-
  
Corporate debt securities
    
-
      
159.6
      
-
      
159.6
      
-
      
270.4
      
-
      
270.4
  
Foreign government debt securities
    
-
      
5.1
      
-
      
5.1
      
-
      
8.4
      
-
      
8.4
  
Time deposits
    
-
      
273.6
      
-
      
273.6
      
-
      
70.6
      
-
      
70.6
  
U.S. government agency securities
    
-
      
4.0
      
-
      
4.0
      
-
      
18.0
      
-
      
18.0
  
U.S. government securities
    
20.0
      
34.9
      
-
      
54.9
      
8.8
      
-
      
-
      
8.8
  
Privately-held debt and redeemable preferred stock securities
    
-
      
-
      
49.7
      
49.7
      
-
      
-
      
52.9
      
52.9
  
Total available-for-sale debt securities
    
20.0
      
559.3
      
49.7
      
629.0
      
8.8
      
404.0
      
52.9
      
465.7
  
Equity securities:
                                                                
Money market funds
    
337.5
      
-
      
-
      
337.5
      
420.8
      
-
      
-
      
420.8
  
Mutual funds
    
38.0
      
-
      
-
      
38.0
      
28.1
      
-
      
-
      
28.1
  
Publicly-traded equity securities
    
5.1
      
-
      
-
      
5.1
      
7.7
      
-
      
-
      
7.7
  
Total equity securities
    
380.6
      
-
      
-
      
380.6
      
456.6
      
-
      
-
      
456.6
  
Derivative assets:
                                                                
Foreign exchange contracts
    
-
      
7.2
      
-
      
7.2
      
-
      
1.3
      
-
      
1.3
  
Interest rate contracts
    
-
      
-
      
-
      
-
      
-
      
125.4
      
-
      
125.4
  
Total derivative assets
    
-
      
7.2
      
-
      
7.2
      
-
      
126.7
      
-
      
126.7
  
Total assets measured at fair value on a recurring basis
  
$
400.6
    
$
566.5
    
$
49.7
    
$
1,016.8
    
$
465.4
    
$
530.7
    
$
52.9
    
$
1,049.0
  
Liabilities:
                                                                
Derivative liabilities:
                                                                
Foreign exchange contracts
  
$
-
    
$
(7.2
)
  
$
-
    
$
(7.2
)
  
$
-
    
$
(37.6
)
  
$
-
    
$
(37.6
)
Interest rate contracts
    
-
      
(73.6
)
    
-
      
(73.6
)
    
-
      
(87.4
)
    
-
      
(87.4
)
Total derivative liabilities
    
-
      
(80.8
)
    
-
      
(80.8
)
    
-
      
(125.0
)
    
-
      
(125.0
)
Total liabilities measured at fair value on a recurring basis
  
$
-
    
$
(80.8
)
  
$
-
    
$
(80.8
)
  
$
-
    
$
(125.0
)
  
$
-
    
$
(125.0
)
                                                                 
Total assets, reported as:
                                                                
Cash equivalents
  
$
337.5
    
$
328.2
    
$
-
    
$
665.7
    
$
420.8
    
$
70.6
    
$
-
    
$
491.4
  
Short-term investments
    
12.8
      
126.6
      
-
      
139.4
      
14.6
      
195.7
      
-
      
210.3
  
Long-term investments
    
12.3
      
104.5
      
-
      
116.8
      
1.9
      
137.7
      
-
      
139.6
  
Prepaid expenses and other current assets
    
2.5
      
4.6
      
-
      
7.1
      
2.4
      
0.8
      
-
      
3.2
  
Other long-term assets
    
35.5
      
2.6
      
49.7
      
87.8
      
25.7
      
125.9
      
52.9
      
204.5
  
Total assets measured at fair value on a recurring basis
  
$
400.6
    
$
566.5
    
$
49.7
    
$
1,016.8
    
$
465.4
    
$
530.7
    
$
52.9
    
$
1,049.0
  

22
   
Fair Value Measurements at
December 31, 2023
    
Fair Value Measurements at
December 31, 2022
  
   
Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Remaining
Inputs
(Level 2)
    
Significant
Other
Unobservable
Remaining
Inputs
(Level 3)
    
Total
    
Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Remaining
Inputs
(Level 2)
    
Significant
Other
Unobservable
Remaining
Inputs
(Level 3)
    
Total
  
Total liabilities, reported as:
                                                
Other accrued liabilities
  
$
-
    
$
(6.2
)
  
$
-
    
$
(6.2
)
  
$
-
    
$
(32.5
)
  
$
-
    
$
(32.5
)
Other long-term liabilities
    
-
      
(74.6
)
    
-
      
(74.6
)
    
-
      
(92.5
)
    
-
      
(92.5
)
Total liabilities measured at fair value on a recurring basis
  
$
-
    
$
(80.8
)
  
$
-
    
$
(80.8
)
  
$
-
    
$
(125.0
)
  
$
-
    
$
(125.0
)

The Company's Level 2 available-for-sale debt 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. During the years ended December 31, 2023 and 2022, the Company had no transfers into or out of Level 3 of the fair value hierarchy of its assets or liabilities measured at fair value.

The Company's privately-held debt and redeemable preferred stock securities are classified as Level 3 assets due to the lack of observable inputs to determine fair value. The Company estimates the fair value of its privately-held debt and redeemable preferred stock securities on a recurring basis using an analysis of the financial condition and near-term prospects of the investee, including recent valuations at the time of financing activities and the investee's capital structure. During the year ended December 31, 2023, the Company recognized an unrealized loss of $8.3 million on its privately-held debt and redeemable preferred stock securities. Refer to Note 2, Cash Equivalents and Investments.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company's investments in equity securities without readily determinable fair value are classified as Level 3 assets due to the lack of observable inputs to determine fair value. The Company estimates the fair value of equity securities without readily determinable fair value and investments accounted for under the equity method of accounting, on a nonrecurring 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. As of December 31, 2023, downward adjustments for equity securities without readily determinable fair value in the aggregate were $89.9 million. Refer to Note 2, Cash Equivalents and Investments. There have been no material upward adjustments to the equity securities without readily determinable fair value.

Certain of the Company's assets, including intangible assets, goodwill and property plant and equipment, are measured at fair value on a nonrecurring basis. During the year ended December 31, 2023, the Company recognized impairment charges of $28.0 million, which relate to the Company's property and equipment and other assets. There were no significant impairment charges recognized during the years ended December 2022 and 2021.

As of December 31, 2023 and 2022, the Company had no liabilities required to be 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, accounts payable, and other accrued liabilities approximate fair value due to their short maturities. As of December 31, 2023 and December 31, 2022, the estimated fair value of the Company's total outstanding debt in the Consolidated Balance Sheets was $1,581.7 million and $1,485.6 million, respectively, based on observable market inputs (Level 2).

23
Note 4. Derivative Instruments

The notional amount of the Company's derivative instruments is summarized as follows (in millions):

   
As of December 31,
  
   
2023
    
2022
  
Designated derivatives:
            
Cash flow hedges:
            
Foreign currency contracts
  
$
801.0
    
$
775.9
  
Interest rate lock contracts
    
-
      
650.0
  
Fair value hedges:
                
Interest rate swap contracts
    
600.0
      
600.0
  
Total designated derivatives
  
$
1,401.0
    
$
2,025.9
  
                 
Non-designated derivatives
    
200.7
      
163.5
  
Total
  
$
1,601.7
    
$
2,189.4
  

The fair value of derivative instruments on the Consolidated Balance Sheets was as follows:

        
As of December 31,
  

  Balance Sheet Location
 
2023
    
2022
  
Derivative assets:
                
Derivatives designated as hedging instruments:
                
Foreign currency contracts as cash flow hedges
  
Other current assets
  
$
4.4
    
$
0.7
  
Foreign currency contracts as cash flow hedges
  
Other long-term assets
    
2.7
      
0.5
  
Interest rate lock contracts
  
Other long-term assets
    
-
      
125.4
  
Total derivatives designated as hedging instruments
      
$
7.1
    
$
126.6
  
Derivatives not designated as hedging instruments
  
Other current assets
    
0.1
      
0.1
  
Total derivative assets
      
$
7.2
    
$
126.7
  
Derivative liabilities:
                    
Derivatives designated as hedging instruments:
                    
Foreign currency contracts
  
Other accrued liabilities
  
$
6.0
    
$
32.3
  
Foreign currency contracts
  
Other long-term liabilities
    
1.0
      
5.1
  
Interest rate swap contracts
  
Other long-term liabilities
    
73.6
      
87.4
  
Total derivatives designated as hedging instruments
      
$
80.6
    
$
124.8
  
Derivatives not designated as hedging instruments
  
Other accrued liabilities
    
0.2
      
0.2
  
Total derivative liabilities
      
$
80.8
    
$
125.0
  

24
Offsetting of Derivative Instruments

The Company presents its derivative instruments at gross fair values in the Consolidated Balance Sheets. As of December 31, 2023 and December 31, 2022, the potential effects of set-off associated with the derivative contracts would be a reduction to both derivative assets and derivative liabilities by $7.2 million and $73.8 million, respectively.

Designated Derivatives

The Company uses foreign currency forward contracts or options contracts to hedge the Company's planned cost of revenues and operating expenses denominated in foreign currencies. These derivatives are designated as cash flow hedges and typically have maturities of thirty-six months or less.

The Company enters into interest rate swap contracts, designated as fair value hedges, to convert the fixed interest rates of certain Senior Notes ("Notes") to floating interest rates. In April 2021, the Company entered into these contracts for an aggregate notional amount of $300.0 million for its fixed-rate Notes maturing in December 2030 in addition to the contracts entered in 2019 for an aggregate notional amount of $300.0 million for its fixed-rate Notes maturing in March 2041. The interest rate swap contracts will expire within seven years.

In 2020, the Company entered into interest rate lock contracts with large financial institutions, which fix the benchmark interest rates of future debt issuances for an aggregate notional amount of $650.0 million. These contracts were designated as cash flow hedges for a forecasted debt issuance which was expected to occur by the end of 2025. During the year ended December 31, 2023, the Company terminated the interest rate lock contracts, resulting in a deferred gain of $133.9 million recognized in accumulated other comprehensive income, which will be deferred and amortized to interest expense over the term of the anticipated debt unless it becomes probable that the debt will not be issued with the terms anticipated at the hedge's inception. The Company classifies the cash flow in the same section as the underlying item resulting in the proceeds from sale being presented as operating activities.

Effect of Derivative Instruments on the Consolidated Statements of Operations

For cash flow hedges, the Company recognized an unrealized gain of $15.1 million, unrealized gain of $33.1 million and unrealized loss of $9.1 million in accumulated other comprehensive loss for the effective portion of its derivative instruments during the years ended December 31, 2023, 2022, and 2021, respectively.

For foreign currency contracts, the Company reclassified a loss of $29.8 million, a loss of $25.8 million and a gain of $28.9 million out of accumulated other comprehensive loss to cost of revenues and operating expenses in the Consolidated Statements of Operations during the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023, an estimated $1.6 million of unrealized net loss within accumulated other comprehensive income is expected to be reclassified into earnings within the next twelve months.

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 foreign exchange forward contracts typically have maturities of approximately one to four months. The outstanding non-designated derivative instruments are carried at fair value. Changes in the fair value of these derivatives, which were recorded in Other expense, net within the Consolidated Statements of Operations, were not material during the years ended December 31, 2023, 2022, and 2021, respectively.

See Note 1, Description of Business, Basis of Presentation and Significant Accounting Policies, for the Company’s policy regarding the offsetting of derivative assets and derivative liabilities.

25
Note 5. Goodwill and Purchased Intangible Assets

Goodwill

The Company's goodwill activity was as follows (in millions):

   
Amount
  
December 31, 2021
  
$
3,762.1
  
Other (*)
    
(27.7
)
December 31, 2022
    
3,734.4
  
Other
    
-
  
December 31, 2023
  
$
3,734.4
  

(*)
Other primarily consists of $28.9 million reduction in goodwill due to the divestiture of the Company's silicon photonics business.

We conducted our annual impairment test of goodwill during the fourth quarter of 2023; the estimated fair value of our reporting unit was substantially in excess of the carrying value. There was no goodwill impairment during the years ended December 31, 2023, 2022, and 2021.

Purchased Intangible Assets

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

   
As of December 31, 2023
    
As of December 31, 2022
  
   
Gross
    
Accumulated
Amortization
    
Accumulated
Impairments
and
Other
Charges
    
Net
    
Gross
    
Accumulated
Amortization
    
Accumulated
Impairments
and
Other
Charges
    
Net
  
Finite-lived intangible assets:
                                                
Technologies and patents
  
$
913.1
    
$
(779.1
)
  
$
(55.1
)
  
$
78.9
    
$
913.1
    
$
(721.3
)
  
$
(55.1
)
  
$
136.7
  
Customer contracts, support agreements, and related relationships
    
136.3
      
(120.9
)
    
(2.8
)
    
12.6
      
136.3
      
(111.2
)
    
(2.8
)
    
22.3
  
Trade names and other
    
9.6
      
(9.3
)
    
-
      
0.3
      
9.6
      
(8.1
)
    
-
      
1.5
  
                                                                 
Total purchased intangible assets
  
$
1,059.0
    
$
(909.3
)
  
$
(57.9
)
  
$
91.8
    
$
1,059.0
    
$
(840.6
)
  
$
(57.9
)
  
$
160.5
  

Amortization expense related to purchased intangible assets with finite lives was $68.7 million, $74.8 million, and $79.5 million for the years ended December 31, 2023, 2022, and 2021, respectively. There were no significant impairment charges related to purchased intangible assets during the years ended December 31, 2023, 2022, and 2021.

26
As of December 31, 2023, the estimated future amortization expense of purchased intangible assets with finite lives was as follows (in millions):

Years Ending December 31,
  
Amount
  
2024
  
$
49.2
  
2025
    
39.6
  
2026
    
3.0
  
2027
    
-
  
2028
    
-
  
Total
  
$
91.8
  

Note 6. Other Financial Information

Total Inventory

Total inventory consisted of the following (in millions):

   
As of December 31,
  
   
2023
    
2022
  
Production and service materials
  
$
719.0
    
$
479.6
  
Finished goods
    
299.0
      
163.3
  
Total inventory
  
$
1,018.0
    
$
642.9
  
                 
Reported as:
                
Inventory
  
$
952.4
    
$
619.4
  
Other long-term assets (1)
    
65.6
      
23.5
  
Total inventory
  
$
1,018.0
    
$
642.9
  

(1) Long-term inventory balance classified as other long-term assets in the Company's Consolidated Balance Sheets consists of last time buy component inventory to be consumed beyond the Company's normal operating cycle.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in millions):

   
As of December 31,
  
   
2023
    
2022
  
Contract manufacturer deposits
  
$
316.4
    
$
434.7
  
Prepaid expenses
    
140.9
      
104.3
  
Other current assets
    
134.2
      
141.0
  
Total prepaid expenses and other current assets
  
$
591.5
    
$
680.0
  

27
Property and Equipment, Net

Property and equipment, net, consisted of the following (in millions):

   
As of December 31,
  
   
2023
    
2022
  
Computers and equipment
  
$
990.0
    
$
940.0
  
Software
    
221.3
      
220.3
  
Leasehold improvements
    
185.9
      
189.2
  
Furniture and fixtures
    
45.3
      
45.4
  
Building and building improvements
    
292.8
      
271.9
  
Land and land improvements
    
243.6
      
243.6
  
Construction-in-process
    
4.1
      
12.1
  
Property and equipment, gross
    
1,983.0
      
1,922.5
  
Accumulated depreciation
    
(1,293.1
)
    
(1,255.7
)
Property and equipment, net
  
$
689.9
    
$
666.8
  

Depreciation expense was $123.5 million, $137.7 million, and $151.0 million in 2023, 2022, and 2021, respectively.

Warranties

Changes in the Company’s warranty reserve were as follows (in millions):
   
As of December 31,
  
   
2023
    
2022
  
Beginning balance
  
$
29.5
    
$
33.0
  
Provisions made during the period, net
    
31.9
      
30.1
  
Actual costs incurred during the period
    
(32.0
)
    
(33.6
)
Ending balance
  
$
29.4
    
$
29.5
  

Deferred Revenue

Details of the Company's deferred revenue, as reported in the Consolidated Balance Sheets, were as follows (in millions):

   
As of December 31,
  
   
2023
    
2022
  
Deferred product revenue, net
  
$
92.1
    
$
108.8
  
Deferred service revenue, net
    
1,932.8
      
1,554.3
  
Total
  
$
2,024.9
    
$
1,663.1
  
Reported as:
                
Current
  
$
1,130.0
    
$
1,020.5
  
Long-term
    
894.9
      
642.6
  
Total
  
$
2,024.9
    
$
1,663.1
  

28
Revenue

See Note 11, Segments, for disaggregated revenue by customer solution, customer vertical, and geographic region.

Product revenue of $48.3 million included in deferred revenue at January 1, 2023 was recognized during the year ended December 31, 2023. Service revenue of $907.3 million included in deferred revenue at January 1, 2023 was recognized during the year ended December 31, 2023.

Remaining Performance Obligations

Remaining Performance Obligations (RPO) are comprised mainly of deferred product and service revenue, and to a lesser extent, unbilled service revenue from non-cancellable contracts for which the Company has not invoiced and has an obligation to perform, and for which revenue has not yet been recognized in the financial statements.

The following table summarizes the breakdown of RPO(1) as of December 31, 2023 and when the Company expects to recognize the amounts as revenue (in millions):

   
Revenue Recognition Expected by Period
  
   
Total
    
Less than 1 year
    
1-3 years
    
More than 3
years
  
Product
  
$
92.9
    
$
77.3
    
$
12.9
    
$
2.7
  
Service
    
1,943.9
      
1,059.2
      
666.2
      
218.5
  
Total
  
$
2,036.8
    
$
1,136.5
    
$
679.1
    
$
221.2
  


(1) The Company's RPO does not include backlog. Backlog consists of purchase orders for product expected to be shipped to the Company's distributors, resellers, or end-customers within the next twelve months. The following amounts are not included in the Company's backlog: (1) deferred revenue, (2) unbilled contract revenue, (3) all service obligations, including software as a service (SaaS), and (4) certain future revenue adjustments for items such as sales return reserves and early payment discounts.

Deferred Contract Costs

Deferred contract costs were $41.9 million and $28.2 million as of December 31, 2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, amortization expense for the deferred contract cost were $42.4 million and $35.0 million, respectively, and there were no material impairment charges recognized.

Other Expense, Net

Other expense, net consisted of the following (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Interest income
  
$
50.6
    
$
19.6
    
$
14.9
  
Interest expense
    
(80.0
)
    
(58.6
)
    
(50.8
)
Gain (loss) on other investments, net (1) (2)
    
6.0
      
(11.6
)
    
4.9
  
Other
    
(0.4
)
    
1.6
      
1.5
  
Other expense, net
  
$
(23.8
)
  
$
(49.0
)
  
$
(29.5
)
_______________
(1)
Other investments represent fixed income securities and equity investments with readily determinable fair value.
(2)
The prior period amounts have been reclassified to conform to the current period presentation.

29
Note 7. Restructuring Charges

The Company’s restructuring events are primarily intended to realign its workforce, optimize cost structure, and consolidate facilities as a result of organizational and leadership changes to effectively support the Company’s long-term strategic objectives. Restructuring charges include termination benefits related to workforce reductions, facility exit-related costs, contract termination costs, impairment of certain assets and other related costs associated with exit or disposal activities. Workforce reduction-related benefits are provided to employees primarily under the Company’s ongoing benefit arrangements, which are accrued when the existing situation or set of circumstances indicates that an obligation has been incurred, it is probable the benefits will be paid, and the amount can be reasonably estimated in accordance with the provisions of the applicable accounting guidance.

The following table presents restructuring charges included in the Consolidated Statements of Operations (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Employee severance
  
$
56.8
    
$
12.4
    
$
13.6
  
Facility exit-related and asset impairments
    
22.1
      
3.1
      
8.1
  
Contract terminations and other
    
19.1
      
4.7
      
21.2
  
Total
  
$
98.0
    
$
20.2
    
$
42.9
  

2023 Restructuring Plans

During the third quarter of 2023, as a result of a thorough review of the Company’s business and strategic objectives, the Company initiated and approved a restructuring plan (“2023 Transformation Plan”) intended to reallocate resources and investments in long-term growth opportunities, realign its workforce, and optimize its real estate and asset portfolios to efficiently support the Company’s strategic priorities and goals. During the fourth quarter of 2023, the Company continued to implement the 2023 Transformation Plan, which primarily resulted in additional workforce reductions.

In connection with the 2023 Transformation Plan, the Company incurred aggregate charges of $68.6 million, consisting of employee severance, facility exit-related, asset impairment, and other restructuring-related charges. The actions taken under the 2023 Transformation Plan are expected to be substantially completed by the end of the first quarter of 2024, though certain facility exits and workforce reduction actions may take longer to implement.

The Company also incurred aggregate charges of $31.9 million related to employee severance, asset impairments, and contract terminations under another restructuring plan initiated during the first half of 2023. As of December 31, 2023, approved actions under this plan have been substantially completed.

Prior Year Restructuring Activities

In 2022 and 2021, the Company initiated restructuring plans designed to enable reinvestment in certain key priority areas to align with strategic changes, which resulted in severance costs from workforce reductions, facility exit-related costs, contract terminations, and other exit-related costs. As of December 31, 2023, activities under these plans have been substantially completed.

30
Restructuring Liabilities

The following table provides a summary of changes in the restructuring liabilities (in millions) under the Company's approved restructuring plans for the twelve months ended December 31, 2023:

   
2023 Restructuring Plans
    
Prior Year Plans
        
   
Employee
severance
    
Facility exit-
related and
asset
impairments
    
Contract
terminations
and other
    
Employee
severance
    
Facility exit-
related and
asset
impairments
    
Contract
terminations
and other
    
Total
  
Liability as of December 31, 2022
  
$
-
    
$
-
    
$
-
    
$
3.0
    
$
1.2
    
$
1.9
    
$
6.1
  
Charges
    
57.3
      
24.1
      
19.1
      
(0.5
)
    
(2.0
)
    
-
      
98.0
  
Cash payments
    
(28.4
)
    
(0.3
)
    
(14.7
)
    
(1.5
)
    
(0.4
)
    
(1.9
)
    
(47.2
)
Non-cash items
    
0.1
      
(23.6
)
    
(1.2
)
    
-
      
1.4
      
-
      
(23.3
)
Liability as of December 31, 2023
  
$
29.0
    
$
0.2
    
$
3.2
    
$
1.0
    
$
0.2
    
$
-
    
$
33.6
  

Note 8. Debt and Financing

Debt

The following table summarizes the Company's total debt (in millions, except percentages):

           
As of December 31,
  

Maturity Date
  
Effective
Interest
Rates
    
2023
    
2022
  
Senior Notes ("Notes"):
                    
1.200% fixed-rate notes
December 2025
    
1.37
%
  
$
400.0
    
$
400.0
  
3.750% fixed-rate notes
August 2029
    
3.86
%
    
500.0
      
500.0
  
2.000% fixed-rate notes
December 2030
    
2.12
%
    
400.0
      
400.0
  
5.950% fixed-rate notes
March 2041
    
6.03
%
    
400.0
      
400.0
  
Total Notes
              
1,700.0
      
1,700.0
  
Unaccreted discount and debt issuance costs
              
(9.6
)
    
(11.3
)
Hedge accounting fair value adjustments(*)
              
(73.6
)
    
(87.4
)
Total
            
$
1,616.8
    
$
1,601.3
  


(*)
Represents the fair value adjustments for interest rate swap contracts with an aggregate notional amount of $600.0 million. These contracts convert the fixed interest rates of certain Notes to floating interest rates and are designated as fair value hedges. See Note 4, Derivative Instruments, for a discussion of the Company's interest rate swap contracts.

The Notes above are the Company’s senior unsecured and unsubordinated obligations, ranking equally in right of payment to all of the Company’s existing and future senior unsecured and unsubordinated indebtedness, and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the Notes.

31
As of December 31, 2023, the Company's aggregate debt maturities based on outstanding principal were as follows (in millions):

Years Ending December 31,
  
Amount
  
2024
  
$
-
  
2025
    
400.0
  
2026
    
-
  
2027
    
-
  
2028
    
-
  
Thereafter
    
1,300.0
  
Total
  
$
1,700.0
  

The Company may redeem the Notes, either in whole or in part, at any time at a redemption price equal to the greater of (i) 100% of the aggregate principal amount of the Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments discounted to the redemption date, plus, in either case, accrued and unpaid interest, if any.

In the event of a change of control repurchase event, the holders of the Notes may require the Company to repurchase for cash all or part of the Notes at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, if any.

Interest on the Notes is payable in cash semiannually. The effective interest rates for the Notes include the interest on the Notes, accretion of the discount, and amortization of issuance costs. The indenture and supplemental indentures (together, the "indentures") that govern the Notes also contain various covenants, including limitations on the Company's ability to incur liens or enter into sale-leaseback transactions over certain dollar thresholds.

As of December 31, 2023, the Company was in compliance with all covenants in the indentures governing the Notes.

Revolving Credit Facility

In June 2023, the Company entered into a new credit agreement with certain institutional lenders that provides for a five-year $500.0 million unsecured revolving credit facility (the "Revolving Credit Facility"), with an option to increase the Revolving Credit Facility by up to an additional $200.0 million, subject to the lenders' approval. Proceeds of loans made under the Revolving Credit Facility may be used by the Company for general corporate purposes. The Revolving Credit Facility will terminate in June 2028, subject to two one-year maturity extension options, on the terms and conditions set forth in the credit agreement.

Revolving loans will bear interest, at the Company’s option, at either (i) a per annum rate equal to (x) with respect to borrowings in U.S. dollars, the adjusted term Secured Overnight Financing Rate ("SOFR"), (y) with respect to borrowings in Euros, the adjusted Euro Interbank Offered Rate ("EURIBOR"), and (z) with respect to borrowings in pounds sterling, daily simple Sterling Overnight Index Average ("SONIA"), in each case, plus a margin of between 0.875% and 1.500%, depending on the Company’s public debt rating, or (ii) with respect to borrowings in U.S. dollars, a per annum rate equal to the Base Rate plus a margin of between 0.000% and 0.500%, depending on the Company’s public debt rating. Base Rate is defined as the greatest of (A) the Wall Street Journal prime rate, (B) the greater of the U.S. federal funds rate and the overnight bank funding rate plus 0.500% and (C) the adjusted term SOFR for a period of one month plus 1.00%. The Revolving Credit Facility also requires payment of a commitment fee on undrawn amounts at a rate of 0.075% to 0.225%, depending on the Company’s public debt rating.

The Revolving Credit Facility requires the Company to maintain a leverage ratio no greater than 3.0x (provided that if a material acquisition has been consummated, the Company is permitted to maintain a leverage ratio no greater than 3.5x for up to four quarters).

As of December 31, 2023, no amounts were outstanding under the Revolving Credit Facility and the Company was in compliance with all covenants in the Credit Agreement.

32
Financing Arrangements

The Company provides certain customers with access to extended financing arrangements that allow for longer payment terms than those typically provided by the Company by 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 providers are due to the Company within 1 to 90 days from the sale of the receivable. In these transactions with the financing providers, the Company surrenders control over the transferred assets.

Pursuant to the financing arrangements for the sale of receivables, the Company sold receivables of $37.4 million, $50.6 million and $31.9 million during the years ended December 31, 2023, 2022, and 2021, respectively. The Company received cash proceeds from financing providers of $48.0 million, $41.5 million, and $32.5 million during the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023 and December 31, 2022, the amounts owed by the financing providers were $0.6 million and $11.8 million, respectively, which were recorded in accounts receivable on the Company’s Consolidated Balance Sheets.

Note 9. Equity

The following table summarizes dividends paid, stock repurchases and retirements under the Company's stock repurchase programs, and stock repurchases for tax withholdings (in millions, except per share amounts):

   
Dividends
    
Stock Repurchases
    
Total
  
Year
  
Per Share
    
Amount
    
Shares
    
Average
price
per share
    
Amount
    
Tax
Withholding
Amount
    
Amount
  
2023
  
$
0.88
    
$
280.8
      
13.1
    
$
29.47
    
$
385.0
    
$
12.7
    
$
678.5
  
2022
  
$
0.84
    
$
270.4
      
9.2
    
$
32.32
    
$
299.7
    
$
15.4
    
$
585.5
  
2021
  
$
0.80
    
$
259.1
      
15.7
    
$
27.56
    
$
433.3
    
$
10.2
    
$
702.6
  

Cash Dividends on Shares of Common Stock

During 2023, 2022, and 2021, the Company declared and paid quarterly cash dividends of $0.22, $0.21, and $0.20 per common share, totaling $280.8 million, $270.4 million, and $259.1 million, respectively, on its outstanding common stock. Any future dividends, and the establishment of record and payment dates, are subject to approval by the Board of Directors (the "Board") of Juniper or an authorized committee thereof. See Note 15, Subsequent Events, for discussion of the Company's dividend declaration subsequent to December 31, 2023.

Stock Repurchase Activities

In January 2018, the Board approved a $2.0 billion share repurchase program ("2018 Stock Repurchase Program"). In October 2019, the Board authorized a $1.0 billion increase to the 2018 Stock Repurchase Program for a total of $3.0 billion.

During the fiscal year ended December 31, 2023, the Company repurchased 13.1 million shares of its common stock in the open market at an average price of $29.47 per share for an aggregate purchase price of $385.0 million under the 2018 Stock Repurchase Program.

As of December 31, 2023, there were $0.2 billion of authorized funds remaining under the 2018 Stock Repurchase Program.

33
In addition, the Company withholds shares of common stock from certain employees in connection with the vesting of stock awards issued to such employees to satisfy applicable tax withholding requirements. Such withheld shares are treated as common stock repurchases in the Company's financial statements as they reduce the number of shares that would have been issued upon vesting. Repurchases associated with tax withholdings were $12.7 million, $15.4 million, and $10.2 million during 2023, 2022, and 2021, respectively.

Accumulated Other Comprehensive Income (Loss), Net of Tax

The components of accumulated other comprehensive income (loss), net of related taxes, for the years ended December 31, 2023, 2022, and 2021 were as follows (in millions):

   
Unrealized
Gains/Losses
on Available-
for-
Sale Debt
Securities(1)
    
Unrealized
Gains/Losses
on Cash Flow
Hedges(2)
    
Foreign
Currency
Translation
Adjustments
    
Total
  
Balance as of December 31, 2020
  
$
34.1
    
$
57.7
    
$
(36.2
)
  
$
55.6
  
Other comprehensive loss before reclassifications
    
(5.0
)
    
(13.5
)
    
(12.8
)
    
(31.3
)
Amount reclassified from accumulated other comprehensive income (loss)
    
(1.2
)
    
(25.2
)
    
-
      
(26.4
)
Other comprehensive loss, net
    
(6.2
)
    
(38.7
)
    
(12.8
)
    
(57.7
)
Balance as of December 31, 2021
  
$
27.9
    
$
19.0
    
$
(49.0
)
  
$
(2.1
)
Other comprehensive income (loss) before reclassifications
    
(6.5
)
    
15.7
      
(30.1
)
    
(20.9
)
Amount reclassified from accumulated other comprehensive income (loss)
    
0.4
      
26.8
      
-
      
27.2
  
Other comprehensive income (loss), net
    
(6.1
)
    
42.5
      
(30.1
)
    
6.3
  
Balance as of December 31, 2022
  
$
21.8
    
$
61.5
    
$
(79.1
)
  
$
4.2
  
Other comprehensive income (loss) before reclassifications
    
7.1
      
11.7
      
(3.0
)
    
15.8
  
Amount reclassified from accumulated other comprehensive income (loss)
    
-
      
29.1
      
-
      
29.1
  
Other comprehensive income (loss), net
    
7.1
      
40.8
      
(3.0
)
    
44.9
  
Balance as of December 31, 2023
  
$
28.9
    
$
102.3
    
$
(82.1
)
  
$
49.1
  

(1)
The reclassifications out of accumulated other comprehensive income (loss) during the years ended December 31, 2023, 2022, and 2021 for realized gains on available-for-sale debt securities were not material, and were included in other expense, net, in the Consolidated Statements of Operations.
(2)
The reclassifications out of accumulated other comprehensive income (loss) for realized gains (losses) on cash flow hedges was $(29.8) million, $(25.8) million and $28.9 million for the year ended December 31, 2023, 2022 and 2021, respectively. The reclassified amounts were included within cost of revenues, research and development, sales and marketing, and general and administrative in the Consolidated Statements of Operations.

Note 10. Employee Benefit Plans

Equity Incentive Plans

The Company’s equity incentive plans include the 2015 Equity Incentive Plan (the “2015 Plan”) and the 2008 Employee Stock Purchase Plan (the “ESPP”). The Company has granted RSUs and PSAs under the 2015 Plan and purchase rights under the ESPP. In addition, in connection with certain past acquisitions, the Company has assumed or substituted stock options, RSUs, RSAs, and PSAs granted under the stock plans of the acquired companies. Such awards were converted into or replaced with the Company's stock options, RSUs, RSAs, and PSAs, respectively.

34
The 2015 Plan was adopted and approved by the Company's stockholders in May 2015 and had an initial authorized share reserve of 38.0 million shares of common stock, plus the addition of any shares subject to outstanding awards under the 2006 Equity Incentive Plan and the Amended and Restated 1996 Stock Plan that were outstanding as of May 19, 2015, and that subsequently expire or otherwise terminate, up to a maximum of an additional 29.0 million shares. In May 2017, May 2019, May 2022 and May 2023, the Company's stockholders approved an additional 23.0 million, 3.7 million, 4.5 million, and 7.0 million shares of common stock, respectively, for issuance under the 2015 Plan. As of December 31, 2023, an aggregate of 17.3 million shares were subject to outstanding equity awards and 2.3 million shares were available for future issuance under the 2015 Plan.

The ESPP was adopted and approved by the Company's stockholders in May 2008. In May 2020, the Company's stockholders approved an additional 8.0 million shares of common stock for issuance under the ESPP. To date, the Company's stockholders have approved a share reserve of 43.0 million shares of the Company's common stock for issuance under the ESPP. The ESPP permits eligible employees to acquire shares of the Company’s common stock at a 15% discount (as determined in the ESPP) through periodic payroll deductions of up to 10% of base compensation, subject to individual purchase limits of 6,000 shares in any twelve-month period or $25,000 worth of stock, determined at the fair market value of the shares at the time the stock purchase option is granted, in one calendar year. The ESPP provides 24 month offering periods with four 6-month purchase periods. A new 24-month offering period will commence every six months thereafter. The purchase price for the Company’s common stock under the ESPP is 85% of the lower of the fair market value of the shares at (1) the beginning of the applicable offering period or (2) the end of each 6-month purchase period during such offering period. The ESPP will continue in effect until February 25, 2028, unless terminated earlier under the provisions of the ESPP. As of December 31, 2023, approximately 39.4 million shares have been issued and 3.6 million shares remain available for future issuance under the ESPP.

RSU, RSA, and PSA Activities

RSUs generally vest over three years from the date of grant, and RSAs and PSAs generally vest over a period of one to three years provided that certain annual performance targets and other vesting criteria are met. Until vested, RSUs and PSAs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.

The following table summarizes the Company’s RSU, RSA, and PSA activity and related information as of and for the year ended December 31, 2023 (in millions, except per share amounts and years):

   
Outstanding RSUs, RSAs, and PSAs
  
   
Number of Shares
    
Weighted Average
Grant-Date Fair
Value per Share
    
Weighted
Average
Remaining
Contractual
Term
(In Years)
    
Aggregate
Intrinsic
Value
  
Balance at December 31, 2022
    
20.2
    
$
26.78
              
Granted(1)(2)
    
9.6
      
28.88
              
Vested(3)
    
(7.9
)
    
26.04
              
Canceled
    
(1.7
)
    
26.37
              
Balance at December 31, 2023
    
20.2
    
$
28.10
      
1.1
    
$
593.6
  
                                 
As of December 31, 2023
                                
Vested and expected-to-vest RSUs, RSAs, and PSAs
    
17.6
    
$
27.67
      
1.1
    
$
518.8
  

(1)
Includes 7.8 million service-based, 1.4 million performance-based, and 0.4 million market-based awards. The number of shares subject to performance-based and market-based conditions represents the aggregate maximum number of shares that may be issued pursuant to the award over its full term. The grant date fair value of RSUs and PSAs was reduced by the present value of dividends expected to be paid on the underlying shares of common stock during the requisite and derived service period as these awards are not entitled to receive dividends until vested.
(2)
The weighted-average grant-date fair value of RSUs, RSAs, and PSAs granted and assumed or substituted during 2023, 2022, and 2021 was $28.88, $29.62, and $26.21, respectively. The grant date fair value of RSUs and PSAs was reduced by the present value of dividends expected to be paid on the underlying shares of common stock during the requisite and derived service period as these awards are not entitled to receive dividends until vested. During 2023, the Company declared a quarterly cash dividend of $0.22 per share of common stock on January 31, 2023, April 25, 2023, July 27, 2023, and October 26, 2023.
(3)
Total fair value of RSUs, RSAs, and PSAs vested during 2023, 2022, and 2021 was $206.8 million, $202.2 million, and $184.2 million, respectively.

Shares Available for Grant

The following table presents the stock activity and the total number of shares available for grant under the 2015 Plan (in millions):

   
Number of Shares
  
Balance as of December 31, 2022
    
3.4
  
Additional shares authorized
    
7.0
  
Options, RSUs, and PSAs granted
    
(9.3
)
RSUs and PSAs canceled
    
1.2
  
Balance as of December 31, 2023
    
2.3
  

Employee Stock Purchase Plan

During 2023, 2022, and 2021, employees purchased 2.6 million, 2.6 million, and 2.8 million shares of common stock through the ESPP at an average exercise price of $23.53, $21.59, and $19.81 per share, respectively.

Valuation Assumptions

The weighted-average assumptions used and the resulting estimates of fair value for ESPP purchase rights and market-based RSUs were as follows:

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
ESPP Purchase Rights:
                  
Volatility
    
28
%
    
29
%
    
32
%
Risk-free interest rate
    
4.6
%
    
1.1
%
    
0.1
%
Expected life (years)
    
1.3
      
1.3
      
1.3
  
Dividend yield
    
2.8
%
    
2.5
%
    
3.0
%
Weighted-average fair value per share
  
$
7.97
    
$
8.84
    
$
6.96
  
                         
Market-based RSUs:
                        
Volatility
    
28
%
    
30
%
    
30
%
Risk-free interest rate
    
4.3
%
    
1.7
%
    
0.2
%
Dividend yield
    
2.8
%
    
2.5
%
    
3.4
%
Weighted-average fair value per share
  
$
37.45
    
$
47.96
    
$
30.70
  

35
Share-Based Compensation Expense

Share-based compensation expense associated with stock options, RSUs, RSAs, PSAs, and ESPP purchase rights was recorded in the following cost and expense categories in the Company's Consolidated Statements of Operations (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Cost of revenues - Product
  
$
6.7
    
$
5.9
    
$
5.3
  
Cost of revenues - Service
    
20.8
      
17.4
      
18.2
  
Research and development
    
129.2
      
84.0
      
93.1
  
Sales and marketing
    
85.2
      
59.1
      
65.9
  
General and administrative
    
37.5
      
42.9
      
40.1
  
Total
  
$
279.4
    
$
209.3
    
$
222.6
  

The following table summarizes share-based compensation expense by award type (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Stock options
  
$
2.2
    
$
5.4
    
$
9.3
  
RSUs, RSAs, and PSAs
    
249.1
      
181.9
      
196.2
  
ESPP Purchase Rights
    
28.1
      
22.0
      
17.1
  
Total
  
$
279.4
    
$
209.3
    
$
222.6
  

For the years ended December 31, 2023, 2022, and 2021, the Company recognized tax benefits on total stock-based compensation expense, which are reflected in the income tax provision in the Consolidated Statements of Operations, of $36.9 million, $25.7 million, and $28.2 million, respectively.

For the years ended December 31, 2023, 2022, and 2021, the realized tax benefit related to awards vested or exercised during the period was $34.4 million, $38.6 million, and $31.7 million, respectively. These amounts do not include the indirect effects of stock-based awards, which primarily relate to the research and development tax credit.

As of December 31, 2023, the total unrecognized compensation cost related to unvested share-based awards was $383.4 million to be recognized over a weighted-average period of 1.8 years.

401(k) Plan

The Company maintains a savings and retirement plan qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "IRC"). Employees meeting the eligibility requirements, as defined under the IRC, may contribute up to the statutory limits each year. The Company currently matches 30% of all eligible employee contributions which vest immediately. The Company’s matching contributions to the plan totaled $27.3 million, $23.5 million, and $22.3 million during 2023, 2022, and 2021, respectively.

Deferred Compensation Plan

The Company’s NQDC plan is an unfunded and unsecured deferred compensation arrangement. Under the NQDC plan, officers and other senior employees may elect to defer a portion of their compensation and contribute such amounts to one or more investment funds. As of December 31, 2023, the liability of the Company to the plan participants was $38.0 million, of which $2.5 million was included within other accrued liabilities and $35.5 million was included in other long-term liabilities on the Consolidated Balance Sheets. The Company had investments of $38.0 million correlating to the deferred compensation obligations, of which $2.5 million was included within prepaid expenses and other current assets and $35.5 million was included within other long-term assets on the Consolidated Balance Sheets. As of December 31, 2022, the liability of the Company was $28.1 million, of which $2.4 million was included within other accrued liabilities and $25.7 million was included in other long-term liabilities on the Consolidated Balance Sheets. The Company had investments of $28.1 million correlating to the deferred compensation obligations, of which $2.4 million was included within prepaid expenses and other current assets and $25.7 million was included within other long-term assets on the Consolidated Balance Sheets.

36
Note 11. Segments

The Company operates in one reportable segment. The Company's chief executive officer, who is the chief operating decision maker, reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance, accompanied by disaggregated information about net revenues by customer solution, customer vertical, and geographic region as presented below.

The following table presents net revenues by customer solution (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Customer Solutions:
                  
Automated WAN Solutions
  
$
1,839.3
    
$
1,865.3
    
$
1,665.0
  
Cloud-Ready Data Center
    
744.7
      
878.9
      
727.1
  
AI-Driven Enterprise
    
1,391.8
      
1,026.2
      
830.4
  
Hardware Maintenance and Professional Services
    
1,588.7
      
1,530.8
      
1,512.9
  
Total
  
$
5,564.5
    
$
5,301.2
    
$
4,735.4
  

The following table presents net revenues by customer vertical (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Cloud
  
$
1,162.8
    
$
1,393.6
    
$
1,228.0
  
Service Provider
    
1,842.5
      
1,891.2
      
1,839.1
  
Enterprise
    
2,559.2
      
2,016.4
      
1,668.3
  
Total
  
$
5,564.5
    
$
5,301.2
    
$
4,735.4
  

The Company attributes revenues to geographic region based on the customer’s shipping address. The following table presents net revenues by geographic region (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Americas:
                  
United States
  
$
3,066.5
    
$
2,931.6
    
$
2,426.9
  
Other
    
266.8
      
225.2
      
222.2
  
Total Americas
    
3,333.3
      
3,156.8
      
2,649.1
  
Europe, Middle East, and Africa
    
1,405.7
      
1,370.0
      
1,314.5
  
Asia Pacific
    
825.5
      
774.4
      
771.8
  
Total
  
$
5,564.5
    
$
5,301.2
    
$
4,735.4
  

During the years ended December 31, 2023, 2022, and 2021, no customer accounted for greater than 10% of the Company's net revenues.

37
The following table presents geographic information for property and equipment, net (in millions).

   
As of December 31,
  
   
2023
    
2022
  
United States
  
$
597.0
    
$
579.3
  
International
    
92.9
      
87.5
  
Property and equipment, net
  
$
689.9
    
$
666.8
  

The Company tracks assets by physical location. The majority of the Company’s assets, excluding cash and cash equivalents and investments, as of December 31, 2023 and December 31, 2022, were attributable to U.S. operations.

Note 12. Income Taxes

The components of pretax income are summarized as follows (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Domestic
  
$
340.4
    
$
509.5
    
$
264.6
  
Foreign
    
8.6
      
26.8
      
45.5
  
Total pretax income
  
$
349.0
    
$
536.3
    
$
310.1
  

The provision (benefit) for income taxes is summarized as follows (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Current provision (benefit):
                  
Federal
  
$
219.0
    
$
223.6
    
$
63.4
  
States
    
25.9
      
23.9
      
15.9
  
Foreign
    
46.5
      
36.2
      
48.2
  
Total current provision (benefit)
    
291.4
      
283.7
      
127.5
  
Deferred (benefit) provision:
                        
Federal
    
(250.0
)
    
(199.3
)
    
(54.3
)
States
    
(13.6
)
    
(13.6
)
    
(4.1
)
Foreign
    
1.4
      
(10.3
)
    
(11.7
)
Total deferred (benefit) provision
    
(262.2
)
    
(223.2
)
    
(70.1
)
Total provision for income taxes
  
$
29.2
    
$
60.5
    
$
57.4
  

38
The provision (benefit) for income taxes differs from the amount computed by applying the federal statutory tax rate of 21% to pretax income for each of the years presented as follows (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Expected provision at statutory rate
  
$
73.3
    
$
112.7
    
$
65.1
  
State taxes, net of federal benefit
    
7.0
      
12.0
      
6.5
  
Foreign income at different tax rates
    
(24.4
)
    
(18.1
)
    
(0.2
)
R&D tax credits
    
(31.4
)
    
(23.6
)
    
(16.6
)
Share-based compensation
    
(5.2
)
    
(7.4
)
    
(2.2
)
Non-deductible compensation
    
5.1
      
4.0
      
4.2
  
Recognition of previously unrecognized tax benefits
    
-
      
(8.1
)
    
-
  
Other
    
4.8
      
(11.0
)
    
0.6
  
Total provision for income taxes
  
$
29.2
    
$
60.5
    
$
57.4
  

In 2023, classified within "Other" above, the Company recorded a tax expense of $9.8 million on adjustments for certain privately-held investments and $5.0 million related to interest on income tax reserves. This was partially offset by income tax benefits of $10.9 million due to changes in tax legislation.

Deferred income taxes reflect the net tax effects of tax carry-forward items and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred income taxes are classified as other long-term assets in the Company's Consolidated Balance Sheets. Significant components of the Company's long-term deferred tax assets and deferred tax liabilities are as follows (in millions):

   
As of December 31,
  
   
2023
    
2022
  
Deferred tax assets:
            
Net operating loss carry-forwards
  
$
44.4
    
$
57.2
  
Research and other credit carry-forwards
    
294.4
      
281.3
  
Deferred revenue
    
74.9
      
58.1
  
Share-based compensation
    
25.4
      
17.2
  
Capitalized R&D expenditure
    
475.7
      
293.1
  
Reserves and accruals not currently deductible
    
133.0
      
66.1
  
Operating lease liabilities
    
31.9
      
39.7
  
Other
    
12.1
      
13.2
  
Total deferred tax assets
    
1,091.8
      
825.9
  
Valuation allowance
    
(326.9
)
    
(310.9
)
Deferred tax assets, net of valuation allowance
    
764.9
      
515.0
  
Deferred tax liabilities:
                
Property and equipment basis differences
    
(5.5
)
    
-
  
Purchased intangible assets
    
(23.0
)
    
(32.3
)
Unremitted foreign earnings
    
(24.1
)
    
(23.7
)
Net unrealized gain
    
(41.9
)
    
(35.8
)
Operating lease assets
    
(29.5
)
    
(36.1
)
Total deferred tax liabilities
    
(124.0
)
    
(127.9
)
Net deferred tax assets
  
$
640.9
    
$
387.1
  

39
As of December 31, 2023 and 2022, the Company had a valuation allowance on its U.S. and foreign deferred tax assets of $326.9 million and $310.9 million, respectively. The balance at December 31, 2023 consisted of $5.2 million, $312.9 million, and $8.8 million against the Company's U.S. federal, state, and foreign deferred tax assets, respectively, which the Company believes are not more likely than not to be utilized in future years. The valuation allowance increased in 2023 and 2022 by $16 million and $10 million, respectively, primarily related to changes in state R&D tax credits.

As of December 31, 2023, the Company had federal, California and other states net operating loss carry-forwards of approximately $104.3 million, $129.1 million, and $138.8 million, respectively. The California net operating loss carry-forwards of $129.1 million are expected to expire unused. The Company also had federal, California, and other state tax credit carry-forwards of approximately $2.4 million, $326.7 million, and $32.8 million, respectively. Unused net operating loss and other state tax credit carry-forwards will expire at various dates beginning in the year 2024. The California tax credit carry-forwards will carry forward indefinitely.

The Company provides deferred tax liabilities for all tax consequences associated with the undistributed earnings that are expected to be repatriated to subsidiaries' parent unless the subsidiaries' earnings are considered indefinitely reinvested. The Company has made no provision for deferred taxes on approximately $156.7 million of cumulative undistributed earnings of certain foreign subsidiaries through December 31, 2023. These earnings are considered indefinitely invested in operations of the subsidiaries, as the Company intends to utilize these amounts to fund future expansion of its operations. If these earnings were distributed to the parent, the Company would be subject to additional taxes of approximately $31.7 million.

As of December 31, 2023, 2022, and 2021, the total amount of gross unrecognized tax benefits was $132.8 million, $116.0 million, and $113.4 million, respectively. As of December 31, 2023, approximately $127.8 million of the gross unrecognized tax benefits, if recognized, would affect the effective tax rate before considering valuation allowance.

A reconciliation of the beginning and ending amount of the Company's total gross unrecognized tax benefits was as follows (in millions):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Balance at beginning of year
  
$
116.0
    
$
113.4
    
$
116
  
Tax positions related to current year:
                        
Additions
    
8.9
      
5.8
      
7.7
  
Tax positions related to prior years:
                        
Additions
    
8.9
      
6.9
      
3.3
  
Reductions
    
-
      
(2.5
)
    
(3.6
)
Settlements
    
-
      
-
      
(9.4
)
Lapses in statutes of limitations
    
(1.0
)
    
(7.6
)
    
(0.6
)
Balance at end of year
  
$
132.8
    
$
116.0
    
$
113.4
  

As of December 31, 2023, 2022, and 2021, the Company had accrued interest and penalties related to unrecognized tax benefits of $12.0 million, $5.6 million, and $8.1 million, respectively, as other long-term liabilities in the Consolidated Balance Sheets. Due to the changes in the level of gross unrecognized tax benefits, the Company recognized a (benefit), or expense, for net interest and penalties of $6.3 million, $(2.5) million, and $2.7 million in its Consolidated Statements of Operations during the years ended December 31, 2023, 2022, and 2021, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The Company engages in continuous discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. There is a greater than remote likelihood that the balance of the gross unrecognized tax benefits will decrease by up to $49.9 million within the next twelve months due to the completion of tax review cycles in various tax jurisdictions and lapses of applicable statutes of limitation.

40
The Company conducts business globally and, as a result, Juniper Networks or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such jurisdictions as the Netherlands, U.K., France, Germany, Japan, China, Australia, India, and the U.S. With few exceptions, the Company is no longer subject to U.S. federal, state and local, and non-U.S. income tax examinations for years before 2012.

The Company is currently under examination by the Internal Revenue Service and the India tax authorities for the 2017 through 2018 tax years and the 2012 through 2020 tax years, respectively. The Company regularly assesses the likelihood of an adverse outcome resulting from such examinations. As of December 31, 2023, the Company believes the resolution of the audits is unlikely to have a material effect on its consolidated financial condition or results of operations.

The Company is pursuing all available administrative remedies relative to ongoing matters. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to proposed adjustments and the ultimate resolution of these matters is unlikely to have a material effect on its consolidated financial condition or results of operations; however, there is still a possibility that an adverse outcome of these matters could have a material effect on its consolidated financial condition and results of operations.

Note 13. Net Income per Share

The Company computed basic and diluted net income per share as follows (in millions, except per share amounts):

   
Years Ended December 31,
  
   
2023
    
2022
    
2021
  
Numerator:
                  
Net income
  
$
310.2
    
$
471.0
    
$
252.7
  
Denominator:
                        
Weighted-average shares used to compute basic net income per share
    
320.0
      
322.1
      
324.4
  
Dilutive effect of employee stock awards
    
5.9
      
7.4
      
7.2
  
Weighted-average shares used to compute diluted net income per share
    
325.9
      
329.5
      
331.6
  
Net income per share:
                        
Basic
  
$
0.97
    
$
1.46
    
$
0.78
  
Diluted
  
$
0.95
    
$
1.43
    
$
0.76
  
Anti-dilutive shares
    
6.4
      
3.4
      
0.5
  

Basic net income per share is computed using net income available to common stockholders and the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed using net income available to common stockholders and the weighted-average number of common shares outstanding plus potentially dilutive common shares outstanding during the period. Dilutive potential common shares consist of common shares issuable upon exercise of stock options and purchase rights, and vesting of RSUs, RSAs, and PSAs. The Company includes the common shares underlying PSAs in the calculation of diluted net income per share only when they become contingently issuable. Anti-dilutive shares are excluded from the computation of diluted net income per share.

41
Note 14. Commitments and Contingencies

Commitments

Unconditional purchase obligations consist of agreements that include firm and non-cancelable terms to transfer funds in the future for fixed or minimum amounts or quantities to be purchased at fixed or minimum prices. For obligations with cancellation provisions, the amounts included in the following tables were limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee.

Purchase Commitments with Contract Manufacturers and Suppliers

In order to reduce manufacturing lead times and in the interest of having access to adequate component supply, the Company enters into agreements with contract manufacturers and certain suppliers to procure inventory based on the Company's requirements. A significant portion of the Company's purchase commitments arising from these agreements consists of firm and non-cancelable commitments. In certain instances, these agreements allow the Company the option to cancel, reschedule, and adjust its requirements based on the Company's business needs prior to firm orders being placed. The following table summarizes the Company’s purchase commitments as of December 31, 2023 (in millions):

Years Ending December 31,
  
Purchase
Commitments
  
2024
  
$
989.5
  
2025
    
137.1
  
2026
    
80.0
  
2027
    
85.0
  
Total
  
$
1,291.6
  

The Company establishes a liability in connection with purchase commitments related to quantities in excess of its demand forecasts or obsolete materials charges for components purchased by the contract manufacturers based on the Company’s demand forecast or customer orders. As of December 31, 2023, the Company had accrued $36.0 million related to such charges.

Other Purchase Obligations

The following table summarizes the Company’s unconditional purchase obligations other than with contract manufacturers and suppliers as of December 31, 2023 (in millions):

Years Ending December 31,
  
Unconditional
Purchase
Obligations
  
2024
  
$
33.1
  
2025
    
30.1
  
2026
    
5.2
  
2027
    
1.0
  
2028
    
0.2
  
Total
  
$
69.6
  

In December 2018, the Company entered into a Master Services Agreement and certain Statements of Work, as subsequently amended (collectively, the “Agreement”), with International Business Machines Corporation ("IBM"). As of December 31, 2023, the Company expects to pay IBM $56.3 million over the remaining initial term of the Agreement. The table above does not include fees payable to IBM under the contract as the Company is unable to make a reasonably reliable estimate of the amount of the payments related to each of the years under this contract due to uncertainties in the usage of the services.

42
Leases

The Company leases its facilities and certain equipment under non-cancelable operating leases that have remaining lease terms of 1 to 8 years and 1 to 4 years, respectively. Each leased facility is subject to an individual lease or sublease, which could provide various options to extend or terminate the lease agreement. Facilities are primarily comprised of corporate offices, data centers, and R&D facilities. Equipment includes vehicles and various office equipment. The Company also has variable lease payments that are primarily comprised of common area maintenance and utility charges. The Company's lease agreements do not contain any residual value guarantees or restrictive covenants.

The components of lease costs and other information related to leases were as follows (in millions, except years and percentages):

   
Years Ended December 31,
  
   
2023
    
2022
  
Operating lease cost
  
$
46.6
    
$
48.4
  
Variable lease cost
    
11.9
      
10.0
  
Total lease cost
  
$
58.5
    
$
58.4
  
                 
Operating cash outflows from operating leases
  
$
51.6
    
$
53.1
  
ROU assets obtained in exchange for new operating lease liabilities
  
$
12.4
    
$
26.0
  

   
As of December 31,
  
   
2023
    
2022
  
Weighted average remaining lease term (years)
    
3.6
      
4.1
  
Weighted average discount rate
    
3.8
%
    
3.5
%

As of December 31, 2023, future operating lease payments for each of the next five years and thereafter are as follows (in millions):

Years Ending December 31,
  
Amount
  
2024
  
$
47.1
  
2025
    
42.4
  
2026
    
21.2
  
2027
    
13.5
  
2028
    
6.9
  
Thereafter
    
7.6
  
Total lease payments
    
138.7
  
Less: interest
    
(9.4
)
Total
  
$
129.3
  
         
Balance Sheet Information
        
Other accrued liabilities
  
$
46.4
  
Long-term operating lease liabilities
    
82.9
  
Total
  
$
129.3
  

43
Debt and Interest Payment on Debt

As of December 31, 2023, the Company held total outstanding debt consisting of the Notes with a carrying value of $1,616.8 million. See Note 8, Debt and Financing, for further discussion of the Company's long-term debt and expected future principal maturities.

Tax Liability

Our transition tax liability represents future cash payments on accumulated foreign earnings of subsidiaries as a result of the Tax Cuts and Jobs Act of 2017 ("Tax Act"). The Company has elected to pay its transition tax, net of applicable tax refunds, over the eight-year period provided in the Tax Act. The remaining balance of the Company's transition tax obligation was $179.7 million, of which $106.3 million remains in long-term income taxes payable as of December 31, 2023.

As of December 31, 2023, the Company also had $92.7 million included in long-term income taxes payable on the Consolidated Balance Sheets for unrecognized tax positions. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments related to this amount due to uncertainties in the timing of tax audit outcomes.

Guarantees

The Company has financial guarantees consisting of third-party financing arrangements extended to end-user customers and standby letters of credit for certain lease facilities, insurance programs and customs of $32.5 million and $27.4 million, as of December 31, 2023 and December 31, 2022, respectively.

Legal Proceedings

The Company is involved in investigations, disputes, litigation, and legal proceedings. The Company records an accrual for loss contingencies for legal proceedings when it believes that an unfavorable outcome is both (a) probable and (b) the amount or range of any possible loss is reasonably estimable. The Company intends to aggressively defend itself in these matters, and while there can be no assurances and the outcome of these matters is currently not determinable, the Company currently believes that these existing claims or proceedings are not likely, individually and in the aggregate, to have a material adverse effect on its financial position. Notwithstanding the foregoing, there are many uncertainties associated with any litigation and these matters or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could adversely affect gross margins in future periods. If any of those events were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company's estimates, if any, which could result in the need to adjust the liability and record additional expenses.

Note 15. Subsequent Events

Dividend Declaration

On January 30, 2024, the Company announced a cash dividend of $0.22 per share of common stock to be paid on March 22, 2024 to stockholders of record as of the close of business on March 1, 2024.

Merger Agreement

On January 9, 2024, HPE and Juniper Networks, Inc. announced that the companies entered into a definitive Merger Agreement under which HPE will acquire Juniper in an all-cash transaction. Under the terms of this agreement, Juniper shareholders will receive $40.00 per share in cash upon the completion of the transaction, representing an equity value of approximately $14 billion. The transaction is currently expected to close in late calendar year 2024 or early calendar year 2025, subject to receipt of regulatory approvals, approval of the transaction by Juniper shareholders, and satisfaction of other customary closing conditions.


44
Exhibit 99.2

Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

Proposed Merger with Hewlett Packard Enterprise

On January 9, 2024, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Hewlett Packard Enterprise Company, a Delaware corporation (“HPE”), and Jasmine Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of HPE (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of HPE. Under the terms of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of our common stock (subject to certain exceptions set forth in the Merger Agreement) will be canceled and converted into the right to receive $40.00 in cash, without interest and subject to applicable withholding taxes.

The Merger Agreement generally requires us to use commercially reasonable efforts to operate our business in the ordinary course, subject to certain exceptions including as required by applicable law, pending consummation of the Merger, and subjects the Company to customary interim operating covenants that restrict us from taking certain specified actions without HPE’s approval (such approval not to be unreasonably withheld, conditioned, or delayed) until the Merger is completed or the Merger Agreement is terminated in accordance with its terms. During this period, we are permitted to continue paying regular quarterly dividends, substantially in accordance with past practice, at a quarterly rate not to exceed $0.22 per share.

The completion of the Merger, which is currently expected to close in late calendar year 2024 or early calendar year 2025, is subject to the receipt of regulatory approvals and other customary closing conditions, including the adoption of the Merger Agreement by our stockholders. If the transaction is consummated, our common stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act. See the section entitled “Risk Factors” in Item 1A of Part I of this Report for further discussion about the risks related to the Merger.

Financial Results and Key Performance Metrics Overview

The following table provides an overview of our financial results and key financial metrics (in millions, except per share amounts, percentages, and days sales outstanding, or DSO):

   
As of and for the Years Ended December 31,
  
   
2023
    
2022
    
$ Change
    
% Change
  
                         
Net revenues
  
$
5,564.5
    
$
5,301.2
    
$
263.3
      
5
%
Gross margin
  
$
3,201.9
    
$
2,958.3
    
$
243.6
      
8
%
Percentage of net revenues
    
57.5
%
    
55.8
%
                
Operating income
  
$
470.1
    
$
519.1
    
$
(49.0
)
    
(9
)%
Percentage of net revenues
    
8.4
%
    
9.8
%
                
Net income
  
$
310.2
    
$
471.0
    
$
(160.8
)
    
(34
)%
Percentage of net revenues
    
5.6
%
    
8.9
%
                
Net income per share
                                
Basic
  
$
0.97
    
$
1.46
    
$
(0.49
)
    
(34
)%
Diluted
  
$
0.95
    
$
1.43
    
$
(0.48
)
    
(34
)%
                                 
Operating cash flows
  
$
872.8
    
$
97.6
    
$
775.2
      
794
%
Stock repurchase plan activity
  
$
385.0
    
$
299.7
    
$
85.3
      
28
%
Cash dividends declared per common stock
  
$
0.88
    
$
0.84
    
$
0.04
      
5
%
DSO(1)
    
69
      
76
      
(7
)
    
(9
)%
                                 
Deferred revenue:
                                
Deferred product revenue
  
$
92.1
    
$
108.8
    
$
(16.7
)
    
(15
)%
Deferred service revenue
    
1,932.8
      
1,554.3
      
378.5
      
24
%
Total
  
$
2,024.9
    
$
1,663.1
    
$
361.8
      
22
%
                                 
Deferred revenue from customer solutions(2)
  
$
843.4
    
$
632.8
    
$
210.6
      
33
%
Deferred revenue from hardware maintenance and professional services
    
1,181.5
      
1,030.3
      
151.2
      
15
%
Total
  
$
2,024.9
    
$
1,663.1
    
$
361.8
      
22
%

(1)
DSO is for the fourth quarter ended December 31, 2023, and 2022.
(2)
Includes deferred revenue from hardware solutions, software licenses, software support and maintenance and SaaS offerings sold in our Automated WAN Solutions, Cloud-Ready Data Center, and AI-Driven Enterprise customer solution categories.


•
Net Revenues: Net revenues increased during 2023 compared to 2022 driven by a growth in Enterprise vertical, partially offset by a decline in the Cloud and Service Provider verticals. Net revenues increased across all geographies. Service net revenues increased primarily driven by strong sales of hardware maintenance contracts and SaaS subscriptions.


•
Gross Margin: Gross margin as a percentage of net revenues increased during 2023 compared to 2022 primarily due to improved service gross margin. The increase in service gross margin was mainly due to higher revenue from hardware maintenance and software subscriptions and lower service delivery costs.


•
Operating Margin: Operating income as a percentage of net revenues decreased during 2023 compared to 2022 primarily due to higher personnel-related expenses driven by an increase in headcount and higher restructuring costs, partially offset by the drivers described in the gross margin discussion above.


•
Operating Cash Flows: Net cash provided by operations increased primarily due to improvements in working capital and one-time proceeds from the termination of our interest rate lock contracts, partially offset by higher cash taxes and increased compensation payments.


•
Capital Return: We continued to return capital to our stockholders. During 2023, we repurchased a total of 13.1 million shares of our common stock in the open market at an average price of $29.47 per share for an aggregate purchase price of $385.0 million. During 2023, we paid quarterly dividends of $0.22 per share, for an aggregate amount of $280.8 million.


•
DSO: DSO is calculated as the ratio of ending accounts receivable, net of allowances, divided by average daily net revenues for the preceding 90 days. DSO decreased primarily due to improved invoicing linearity, partially offset by lower revenue for the fourth quarter ended December 31, 2023 compared to the same period in 2022.


•
Deferred Revenue: Total deferred revenue increased, primarily driven by the timing of contract renewals and increase in deferrals of SaaS and software license subscriptions.

Global Supply and Demand Update

Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation, monetary policy shifts, recession risks, and turmoil in the geopolitical environment, including the Russia-Ukraine conflict, the political and economic tensions between China and Taiwan, the Israel-Hamas war, and escalating tensions in the Red Sea in connection with the attacks by the Houthis to disrupt shipments. Our overall performance depends in-part on global economic conditions, as well as other disruptions and the impacts of such conditions on our customers.

We have a global supply chain, which is primarily composed of manufacturing partners, component suppliers, and third-party logistics partners. In prior periods, global supply chain constraints and component parts shortages resulted in extended lead times of certain products to our customers and impacted the volume of products we were able to deliver, which negatively impacted our ability to recognize revenue. Throughout fiscal year 2023, we saw an overall improvement of industry-wide supply constraints.

While global component shortages persisted in prior periods, certain customers placed advanced product orders in an effort to secure supply. These elevated product order levels declined throughout 2023 as supply chain constraints eased. As a result, we expect our backlog to normalize in 2024 as our customers consume previously placed advance orders and normalize their buying patterns.

In prior years, we committed to purchase additional inventory to meet customer demands for our products and to mitigate supply constraints. As a result, our inventory levels increased in 2023 and are expected to remain elevated in the near term. When we became aware of an inability to sell this inventory, we recognized inventory obsolescence charges, and we expect to continue to incur future inventory obsolescence charges, which may be material. Our purchase commitments are expected to continue to decline as our supplier lead times normalize. Our operating cash flows have been and may continue to be negatively impacted by significant inventories at our contract manufacturers.

Management continues to actively monitor the impact of macroeconomic factors on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce. The extent of the impact on our operations and financial performance, our ability to execute our business strategies, and initiatives in the expected time frame, will depend on the impact of macroeconomic factors on our customers, partners, employees, contract manufacturers and supply chain. See the section entitled “Risk Factors” in Item 1A of Part I of this Report for further discussion.

Critical Accounting Estimates

The preparation of the financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. We base our estimates and assumptions on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Note 1, Description of Business, Basis of Presentation and Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Report, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements.

The below accounting policies require significant judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements and actual results could differ materially from the amounts reported based on these policies.

  •
Revenue Recognition: We enter into contracts to sell our products and services, and while most of our sales agreements contain standard terms and conditions, there are agreements that contain non-standard terms and conditions and include promises to transfer multiple goods or services. As a result, significant interpretation and judgment are sometimes required to determine the appropriate accounting for these transactions, including: (1) whether performance obligations are considered distinct that should be accounted for separately versus together, how the price should be allocated among the performance obligations, and when to recognize revenue for each performance obligation; (2) developing an estimate of the stand-alone selling price, or SSP, of each distinct performance obligation; (3) combining contracts that may impact the allocation of the transaction price between product and services; and (4) estimating and accounting for variable consideration, including rights of return, rebates, price protection, expected penalties or other price concessions as a reduction of the transaction price.

Our estimates of SSP for each performance obligation require judgment that considers multiple factors, including, but not limited to, historical discounting trends for products and services, pricing practices in different geographies and through different sales channels, gross margin objectives, internal costs, competitor pricing strategies, and industry technology lifecycles. Our estimates for rights of return, rebates, and price protection are based on historical sales returns and price protection credits, specific criteria outlined in customer contracts or rebate agreements, and other factors known at the time. Our estimates for expected penalties and other price concessions are based on historical trends and expectations regarding future incurrence.

Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.


 •
Income Taxes: We are subject to income taxes in the United States and numerous foreign jurisdictions. We apply the authoritative accounting guidance for uncertainty in income taxes to all income tax positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely affect our provision for income taxes. Significant judgment is required in evaluating our uncertain tax positions and determining our taxes including the interpretation and application of GAAP and complex domestic and international tax laws and matters related to the allocation of international taxation rights between countries. In addition, we are subject to the continuous examination of our income tax returns by the IRS and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made.

Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

  •
Inventory Valuation and Contract Manufacturer Liabilities: Inventory consists primarily of components and finished goods and is stated at the lower of cost or net realizable value. A provision is recorded when inventory is determined to be in excess of anticipated future demand for customer orders or that may become obsolete to adjust inventory to its estimated realizable value. In addition, we record a liability for the possible repurchase of quantities held by our contract manufacturers in excess of anticipated future demand or that may become obsolete.

Significant judgment is used in establishing our forecasts of future demand and obsolete materials exposure. We perform a detailed analysis and review of data used in establishing our demand forecasts. If the actual component usage and product demand are significantly lower than forecast, which may be caused by factors within and outside of our control, or if there was a higher incidence of inventory obsolescence because of rapidly changing technology, our customer requirements, changes in market conditions, or new product introductions, we may be required to increase our provision and contract manufacturer liabilities, which could have an adverse impact on our gross margins and profitability. We regularly evaluate our exposure for inventory excess, obsolescence and adequacy of our contract manufacturer liabilities.

Recent Accounting Pronouncements

See Note 1, Description of Business, Basis of Presentation and Significant Accounting Policies, in Notes to the Consolidated Financial Statements in Item 8 of Part II of this Report for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial condition and results of operations, which is incorporated herein by reference.

Results of Operations

A discussion regarding our financial condition and results of operations for the fiscal year ended December 31, 2023 compared to 2022 is presented below. A discussion regarding our financial condition and results of operations for the fiscal year ended December 31, 2022 compared to 2021 can be found under Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 10, 2023, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at http://investor.juniper.net.

Revenues

The following table presents net revenues by customer solution, customer vertical, and geographic region (in millions, except percentages):

   
Years Ended December 31,
  
   
2023
    
2022
    
$ Change
    
% Change
  
Customer Solutions:
                        
Automated WAN Solutions
  
$
1,839.3
    
$
1,865.3
    
$
(26.0
)
    
(1
)%
Percentage of net revenues
    
33.1
%
    
35.2
%
                
Cloud-Ready Data Center
    
744.7
      
878.9
      
(134.2
)
    
(15
)%
Percentage of net revenues
    
13.4
%
    
16.6
%
                
AI-Driven Enterprise
    
1,391.8
      
1,026.2
      
365.6
      
36
%
Percentage of net revenues
    
25.0
%
    
19.4
%
                
Hardware Maintenance and Professional Services
    
1,588.7
      
1,530.8
      
57.9
      
4
%
Percentage of net revenues
    
28.5
%
    
28.8
%
                
Total net revenues
  
$
5,564.5
    
$
5,301.2
    
$
263.3
      
5
%
                                 
Customer Verticals:
                                
Cloud
  
$
1,162.8
    
$
1,393.6
    
$
(230.8
)
    
(17
)%
Percentage of net revenues
    
20.9
%
    
26.3
%
                
Service Provider
    
1,842.5
      
1,891.2
      
(48.7
)
    
(3
)%
Percentage of net revenues
    
33.1
%
    
35.7
%
                
Enterprise
    
2,559.2
      
2,016.4
      
542.8
      
27
%
Percentage of net revenues
    
46.0
%
    
38.0
%
                
Total net revenues
  
$
5,564.5
    
$
5,301.2
    
$
263.3
      
5
%
                                 
Geographic Regions:
                                
Americas:
                                
United States
  
$
3,066.5
    
$
2,931.6
    
$
134.9
      
5
%
Other
    
266.8
      
225.2
      
41.6
      
18
%
Total Americas
    
3,333.3
      
3,156.8
      
176.5
      
6
%
Percentage of net revenues
    
59.9
%
    
59.6
%
                
EMEA
    
1,405.7
      
1,370.0
      
35.7
      
3
%
Percentage of net revenues
    
25.3
%
    
25.8
%
                
APAC
    
825.5
      
774.4
      
51.1
      
7
%
Percentage of net revenues
    
14.8
%
    
14.6
%
                
Total net revenues
  
$
5,564.5
    
$
5,301.2
    
$
263.3
      
5
%

Total net revenues increased primarily due to growth in AI-Driven Enterprise and Hardware Maintenance and Professional Services, which were mainly driven by higher sales volume, partially offset by a decline in Cloud-Ready Data Center and Automated WAN Solutions.

The AI-Driven Enterprise revenue increase was primarily driven by Enterprise and Service Provider, partially offset by a decline in Cloud.

The decreases in Cloud-Ready Data Center revenue and the Automated WAN Solutions revenue were primarily due to a decline in Cloud and Service Provider, partially offset by a growth in Enterprise.

Also, software and security products and services represent key areas of our strategic focus that are critical components to our business success. Software and related service offerings include revenue from software license, software support and maintenance and SaaS contracts. Total security offerings include revenue from our complete portfolio of hardware and software security products, including SD-WAN solutions, as well as services related to our security solutions.

The following table presents net revenues from software and security products and services (in millions, except percentages):

   
Years Ended December 31,
  
   
2023
    
2022
    
$ Change
    
% Change
  
                         
Software and Related Services
  
$
1,223.4
    
$
994.2
    
$
229.2
      
23
%
Percentage of net revenues
    
22.0
%
    
18.8
%
                
Total Security
  
$
669.7
    
$
628.6
    
$
41.1
      
7
%
Percentage of net revenues
    
12.0
%
    
11.9
%
                

Gross Margins

The following table presents gross margins (in millions, except percentages):

   
Years Ended December 31,
  
   
2023
    
2022
    
$ Change
    
% Change
  
                         
Product gross margin
  
$
1,850.9
    
$
1,778.2
    
$
72.7
      
4
%
Percentage of product revenues
    
51.0
%
    
50.2
%
                
Service gross margin
    
1,351.0
      
1,180.1
      
170.9
      
14
%
Percentage of service revenues
    
69.9
%
    
67.0
%
                
Total gross margin
  
$
3,201.9
    
$
2,958.3
    
$
243.6
      
8
%
Percentage of net revenues
    
57.5
%
    
55.8
%
                

Our gross margins as a percentage of net revenues have been and will continue to be affected by a variety of factors, including general inflationary pressures, the mix and average selling prices of our products and services, new product introductions and enhancements, manufacturing, component and logistics costs, expenses for inventory obsolescence and warranty obligations, cost of support and service personnel, customer mix as we continue to expand our footprint with certain strategic customers, the mix of distribution channels through which our products and services are sold, and import tariffs. For example, in prior periods, our logistics and other supply chain-related costs increased due to the global component shortage, and we saw cost improvement in 2023 due to the overall reduction in industry-wide supply constraints. For more information on the impact of supply chain constraints on our business, see the “Risk Factors” section of Item 1A of Part I of this Report.

Product gross margin

Product gross margin as a percentage of product revenues increased primarily due to the easing of elevated logistics and other supply chain costs and favorable software revenue mix, partially offset by higher inventory-related expenses and unfavorable product mix. We continue to undertake specific efforts to address certain factors impacting our product gross margin. These efforts include performance and quality improvements through engineering to increase value across our products; optimizing our supply chain and service business; pricing management; and increasing software and solution sales.

Service gross margin

Service gross margin as a percentage of service net revenues increased primarily due to higher revenue from hardware maintenance and software subscriptions and lower service delivery costs.

Operating Expenses

The following table presents operating expenses (in millions, except percentages):

   
Years Ended December 31,
  
   
2023
    
2022
    
$ Change
    
% Change
  
                         
Research and development
  
$
1,144.4
    
$
1,036.1
    
$
108.3
      
10
%
Percentage of net revenues
    
20.6
%
    
19.5
%
                
Sales and marketing
    
1,233.9
      
1,133.4
      
100.5
      
9
%
Percentage of net revenues
    
22.2
%
    
21.4
%
                
General and administrative
    
255.5
      
249.5
      
6.0
      
2
%
Percentage of net revenues
    
4.6
%
    
4.7
%
                
Restructuring charges
    
98.0
      
20.2
      
77.8
      
385
%
Percentage of net revenues
    
1.8
%
    
0.4
%
                
Total operating expenses
  
$
2,731.8
    
$
2,439.2
    
$
292.6
      
12
%
Percentage of net revenues
    
49.1
%
    
46.0
%
                

Our operating expenses have historically been driven in large part by personnel-related costs, including salaries and wages; commissions and bonuses, which we refer to collectively as variable compensation; benefits; share-based compensation; and travel. Facility and information technology, or IT, departmental costs are allocated to each department based on usage and headcount. We had a total of 11,144 and 10,901 employees as of December 31, 2023, and 2022, respectively. Our headcount increased by 243 employees, or 2%.

Research and development

Research and development expense increased primarily due to higher share-based compensation and other personnel-related costs driven by headcount growth.

Sales and marketing

Sales and marketing expense increased primarily due to higher personnel-related costs driven by headcount growth and higher variable compensation.

Restructuring charges

Restructuring charges increased primarily due to expenses recorded in connection with our restructuring plans approved in the third quarter of 2023. For further explanation of our restructuring charges, see Note 7, Restructuring Charges, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.

Gain (Loss) on Privately-Held Investments, Net

The following table presents the gain (loss) on privately-held investments, net (in millions, except percentages):

   
Year Ended December 31,
  
   
2023
    
2022
    
$ Change
    
% Change
  
Gain (loss) on privately-held investments, net
  
$
(97.3
)
  
$
20.4
    
$
(117.7
)
    
N/M

Percentage of net revenues
    
(1.7
)%
    
0.4
%
                

N/M - Not meaningful

In 2023, the Company recognized an unrealized loss on its privately-held equity investments due to declines in fair values. The Company estimated the fair value of these investments based on quantitative and qualitative analysis. This analysis involved use of judgment, significant estimates, and assumptions, such as the near-term prospects of the investee in the market in which it operates, evaluating the investee’s financial condition in relation to its outstanding obligations, and probabilities of securing additional capital through various alternative scenarios.

Gain on Divestiture

The following table presents the gain on divestiture (in millions, except percentages):

   
Year Ended December 31,
  
   
2023
    
2022
    
$ Change
    
% Change
  
Gain on divestiture
  
$
-
    
$
45.8
    
$
(45.8
)
    
(100
)%
Percentage of net revenues
    
-
%
    
0.9
%
                

In 2022, we recognized a gain of $45.8 million related to the divestiture of our silicon photonics business for cash consideration of $90.0 million and a 25% equity interest in the business.

Other Expense, Net

The following table presents other expense, net (in millions, except percentages):

   
Years Ended December 31,
  
   
2023
    
2022
    
$ Change
    
% Change
  
                         
Interest income
  
$
50.6
    
$
19.6
    
$
31.0
      
158
%
Interest expense
    
(80.0
)
    
(58.6
)
    
(21.4
)
    
37
%
Gain (loss) on other investments, net (1) (2)
    
6.0
      
(11.6
)
    
17.6
      
(152
)%
Other
    
(0.4
)
    
1.6
      
(2.0
)
    
(125
)%
Total other expense, net
  
$
(23.8
)
  
$
(49.0
)
  
$
25.2
      
(51
)%
Percentage of net revenues
    
(0.4
)%
    
(0.9
)%
                

(1)
Other investments represent fixed income securities and equity investments with readily determinable fair value.
(2)
The prior period amounts have been reclassified to conform to the current period presentation.

Interest income primarily includes interest earned on our cash, cash equivalents, and investments. Interest expense primarily includes interest, net of capitalized interest expense, from long-term debt and customer financing arrangements. Gain (loss) on other investments, net, primarily includes gains (losses) from the sale of investments in fixed income securities and equity investments with readily determinable fair values. Other typically consists of foreign exchange gains and losses and other non-operational income and expense items.

Total other expense, net, decreased primarily due to higher interest income related to our fixed income investment portfolio, as a result of higher yields and higher net gains from equity investments, partially offset by higher interest expense related to our debt portfolio.

Income Tax Provision

The following table presents income tax provision (in millions, except percentages):

   
Years Ended December 31,
  
   
2023
    
2022
    
$ Change
    
% Change
  
                         
Income tax provision
  
$
29.2
    
$
60.5
    
$
(31.3
)
    
(52
)%
Effective tax rate
    
8.4
%
    
11.3
%
                

The effective tax rate for fiscal year 2023 was lower than fiscal year 2022, primarily due to the net difference in discrete items in fiscal year 2023 compared to fiscal year 2022 and a change in the geographic mix of earnings. For a complete reconciliation of our effective tax rate to the U.S. federal statutory rate of 21% and further explanation of our income tax provision, see Note 12, Income Taxes, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.

Beginning January 1, 2022, as a result of the Tax Cuts and Jobs Act of 2017 ("Tax Act"), all our U.S. and non-U.S. based R&D expenditures are being capitalized and amortized over five and fifteen years, respectively. In 2023, the new regulations resulted in incremental cash tax payments of approximately $150 million and a reduction in our effective tax rate due to increased benefit from U.S. foreign-derived intangible income and an increased federal R&D credit. Future impacts will primarily depend on if and when this legislation is deferred, modified, or repealed by the U.S. Congress, including if retroactively, and the amount of R&D expenditures paid or incurred in those respective years. We estimate the largest impact will have been to 2022 cash flow from operations and that the impact in future years should gradually decrease over the five- and fifteen-year amortization periods. The Company’s future effective tax rate may be impacted.

European Union members and certain other countries initiated legislation to adopt global minimum tax provisions in 2023, which are intended to be effective for tax years beginning after 2023. We do not expect to incur significant global minimum taxes in 2024.

Liquidity and Capital Resources

Liquidity and capital resources may be impacted by our operating activities as well as acquisitions, investments in strategic relationships, and payment of cash dividends on our common stock. Since the enactment of the Tax Act, we have repatriated a significant amount of cash from outside of the U.S., and plan to continue to repatriate on an ongoing basis. We intend to use the repatriated cash to invest in the business, support value-enhancing mergers and acquisitions, and fund our return of capital to stockholders.

Based on past performance and current expectations, we believe that our existing cash and cash equivalents, short-term, and long-term investments, and cash generated from operations together with the revolving credit facility will be sufficient to fund our operations; planned dividends; capital expenditures; purchase commitments and other liquidity requirements; and anticipated growth for at least the next twelve months and thereafter for the foreseeable future. However, our future liquidity and capital requirements may vary materially from those now planned depending on many factors, including, but not limited to, our growth rate; the timing and amount we spend to support development efforts; the expansion of sales and marketing activities; the introduction of new and enhanced products and services; the costs to acquire or invest in businesses and technologies; an increase in manufacturing or component costs; certain interim operating covenants that we have agreed to in the Merger Agreement; and the risks and uncertainties detailed in the “Risk Factors” section of Item 1A of Part I of this Report.

The Company's material cash requirements include the following contractual and other obligations.

Revolving Credit Facility

In June 2023, we entered into a new credit agreement with certain institutional lenders that provides for a five-year $500.0 million unsecured revolving credit facility (the “Revolving Credit Facility”), with an option to increase the Revolving Credit Facility by up to an additional $200.0 million, subject to the lenders' approval. The Company's previous $500.0 million revolving credit facility was terminated concurrently with the Company entering into the Revolving Credit Facility. The Revolving Credit Facility will terminate in June 2028, subject to two one-year maturity extension options, on the terms and conditions set forth in the credit agreement. As of December 31, 2023, we were in compliance with all covenants in the credit agreement, and no amounts were outstanding. In connection with our entry into the Merger Agreement, certain terms limit our ability to drawdown the full amount of $500.0 million available under the Revolving Credit Facility. Refer to Note 8, Debt and Financing, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for information on the credit agreement.

Debt

As of December 31, 2023, we had outstanding fixed-rate senior notes with varying maturities for an aggregate principal amount of $1,700.0 million (collectively the "Notes"), none of which is payable within 12 months. As of December 31, 2023, future interest payments associated with the Notes total $594.6 million, with $55.4 million payable within 12 months.

Purchase Commitments with Contract Manufacturers and Suppliers

In order to reduce manufacturing lead times and in the interest of having access to adequate component supply, we enter into agreements with contract manufacturers and certain suppliers to procure inventory based on the Company's requirements. A significant portion of the Company's purchase commitments arising from these agreements consists of firm and non-cancelable commitments. In certain instances, these agreements allow the Company the option to cancel, reschedule, and adjust its requirements based on the Company's business needs prior to firm orders being placed. As of December 31, 2023, we had purchase commitments of $1,291.6 million, with $989.5 million payable within 12 months.

Tax

Our transition tax liability represents future cash payments on accumulated foreign earnings of subsidiaries as a result of the Tax Act. The Company has elected to pay its transition tax, net of applicable tax refunds, over the eight-year period provided in the Tax Act. As of December 31, 2023, the balance of our transition tax obligation was $179.7 million, with $73.4 million payable within 12 months.

As of December 31, 2023, the Company had $92.7 million included in long-term income taxes payable on the Consolidated Balance Sheets for unrecognized tax positions. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments related to this amount due to uncertainties in the timing of tax audit outcomes.

In 2023, we made tax payments of approximately $406 million of which approximately $150 million can be attributed to the capitalization and amortization requirements for R&D expenditures pursuant to the Tax Act.

Leases

The Company leases its facilities and certain equipment under non-cancelable operating leases that have remaining lease terms of 1 to 8 years and 1 to 4 years, respectively. As of December 31, 2023, we had fixed lease payment obligations of $138.7 million, with $47.1 million payable within 12 months.

Unconditional Purchase Obligations - Other

Unconditional purchase obligations consist of agreements that include firm and non-cancelable terms to transfer funds in the future for fixed or minimum amounts or quantities to be purchased at fixed or minimum prices. As of December 31, 2023, we had unconditional purchase obligations of $69.6 million, with $33.1 million payable within 12 months. See Note 14, Commitments and Contingencies, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for further discussion of our unconditional purchase obligations.

Guarantees

We have financial guarantees consisting of third-party financing arrangements extended to end-user customers and standby letters of credit for certain lease facilities, insurance programs, and customs of $32.5 million as of December 31, 2023.

Capital Return

In addition to our cash requirements, we have a capital return program authorized by the Board of Directors (the "Board"). In January 2018, the Board, approved a $2.0 billion share repurchase program, which we refer to as the 2018 Stock Repurchase Program. In October 2019, the Board authorized a $1.0 billion increase to the 2018 Stock Repurchase Program for a total of $3.0 billion.

During the fiscal year ended December 31, 2023, we repurchased 13.1 million shares of our common stock in the open market at an average price of $29.47 per share for an aggregate purchase price of $385.0 million, under the 2018 Stock Repurchase Program. As of December 31, 2023, there was $0.2 billion of authorized funds remaining under the 2018 Stock Repurchase Program.

In connection with our entry into the Merger Agreement, we suspended our 2018 Stock Repurchase Program and will not repurchase our common stock subsequent to year end 2023. See Note 9, Equity, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for further discussion of the 2018 Stock Repurchase Program.

In addition, any future dividends, and the establishment of record and payment dates, are subject to approval by the Board or an authorized committee thereof. See Note 15, Subsequent Events, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for discussion of our dividend declaration subsequent to December 31, 2023.
Exhibit 99.3

Condensed Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)
   
Three Months Ended June
30,
    
Six Months Ended June
30,
  
 
  
2024
    
2023
     2024     2023  
Net revenues:
                        
Product
  
$
681.2
    
$
963.2
    
$
1,333.1
    
$
1,875.8
  
Service
    
508.4
      
466.9
      
1,005.4
      
926.1
  
Total net revenues
    
1,189.6
      
1,430.1
      
2,338.5
      
2,801.9
  
Cost of revenues:
                                
Product
    
356.2
      
470.7
      
680.1
      
925.6
  
Service
    
144.9
      
146.3
      
289.0
      
292.0
  
Total cost of revenues
    
501.1
      
617.0
      
969.1
      
1,217.6
  
Gross margin
    
688.5
      
813.1
      
1,369.4
      
1,584.3
  
Operating expenses:
                                
Research and development
    
274.6
      
282.0
      
571.2
      
566.8
  
Sales and marketing
    
297.4
      
308.3
      
602.8
      
611.5
  
General and administrative
    
60.8
      
65.2
      
121.5
      
133.2
  
Restructuring charges
    
1.6
      
16.5
      
5.7
      
16.0
  
Merger-related charges (1)
    
9.1
      
-
      
37.4
      
-
  
Total operating expenses
    
643.5
      
672.0
      
1,338.6
      
1,327.5
  
Operating income
    
45.0
      
141.1
      
30.8
      
256.8
  
Gain (loss) on privately-held investments, net
    
0.7
      
(92.2
)
    
(13.6
)
    
(92.0
)
Other income (expense), net
    
1.3
      
(7.4
)
    
3.4
      
(16.2
)
Income before income taxes and loss from equity method investment
    
47.0
      
41.5
      
20.6
      
148.6
  
Income tax provision (benefit)
    
10.8
      
15.0
      
(16.9
)
    
34.6
  
Loss from equity method investment, net of tax
    
2.1
      
2.1
      
4.2
      
4.2
  
Net income
  
$
34.1
    
$
24.4
    
$
33.3
    
$
109.8
  
 
                                
Net income per share:
                                
Basic
  
$
0.10
    
$
0.08
    
$
0.10
    
$
0.34
  
Diluted
  
$
0.10
    
$
0.07
    
$
0.10
    
$
0.34
  
Weighted-average shares used to compute net income per share:
                                
Basic
    
325.1
      
319.3
      
323.8
      
320.8
  
Diluted
    
332.7
      
326.0
      
332.1
      
327.6
  

(1) Represents charges incurred directly in connection with the pending merger with HPE (as defined below). See Note 1, Basis of Presentation and Summary of Significant Accounting Policies, for further information.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)

 
  
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
  
2024
    
2023
    
2024
    
2023
  
Net income
  
$
34.1
    
$
24.4
    
$
33.3
    
$
109.8
  
Other comprehensive (loss) income, net:
                                
Available-for-sale debt securities:
                                
Change in net unrealized gains and losses
    
0.6
      
1.6
      
(28.4
)
    
3.7
  
Net realized gains reclassified into net income
    
(0.1
)
    
-
      
(0.2
)
    
-
  
Net change on available-for-sale debt securities
    
0.5
      
1.6
      
(28.6
)
    
3.7
  
Cash flow hedges:
                                
Change in net unrealized gains and losses
    
(3.6
)
    
14.0
      
(9.0
)
    
7.1
  
Net realized losses reclassified into net income
    
2.3
      
7.0
      
3.5
      
14.4
  
Net change on cash flow hedges
    
(1.3
)
    
21.0
      
(5.5
)
    
21.5
  
Change in foreign currency translation adjustments
    
(2.3
)
    
0.2
      
(6.0
)
    
1.7
  
Other comprehensive (loss) income, net
    
(3.1
)
    
22.8
      
(40.1
)
    
26.9
  
Comprehensive income (loss)
  
$
31.0
    
$
47.2
    
$
(6.8
)
  
$
136.7
  

See accompanying Notes to Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
(In millions, except par values)

 
  
June 30,
2024
    
December
31,
2023
  
 
  
(Unaudited)
        
ASSETS
  
 
Current assets:
      
Cash and cash equivalents
  
$
935.0
    
$
1,068.1
  
Short-term investments
    
186.7
      
139.4
  
Accounts receivable, net of allowances
    
878.9
      
1,044.1
  
Inventory
    
926.1
      
952.4
  
Prepaid expenses and other current assets
    
517.6
      
591.5
  
Total current assets
    
3,444.3
      
3,795.5
  
Property and equipment, net
    
685.2
      
689.9
  
Operating lease assets
    
146.8
      
111.4
  
Long-term investments
    
308.6
      
116.8
  
Purchased intangible assets, net
    
63.8
      
91.8
  
Goodwill
    
3,734.4
      
3,734.4
  
Other long-term assets
    
1,045.2
      
978.7
  
Total assets
  
$
9,428.3
    
$
9,518.5
  
LIABILITIES AND STOCKHOLDERS' EQUITY
                
Current liabilities:
                
Accounts payable
  
$
268.3
    
$
295.1
  
Accrued compensation
    
263.9
      
292.2
  
Deferred revenue
    
1,147.9
      
1,130.0
  
Other accrued liabilities
    
363.5
      
386.7
  
Total current liabilities
    
2,043.6
      
2,104.0
  
Long-term debt
    
1,607.2
      
1,616.8
  
Long-term deferred revenue
    
940.5
      
894.9
  
Long-term income taxes payable
    
74.7
      
204.5
  
Long-term operating lease liabilities
    
119.7
      
82.9
  
Other long-term liabilities
    
140.6
      
122.7
  
Total liabilities
    
4,926.3
      
5,025.8
  
Commitments and contingencies (Note 13)
                
Stockholders' equity:
                
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; 325.3 shares and 320.3 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively
    
-
      
-
  
Additional paid-in capital
    
6,765.9
      
6,740.0
  
Accumulated other comprehensive income
    
9.0
      
49.1
  
Accumulated deficit
    
(2,272.9
)
    
(2,296.4
)
Total stockholders' equity
    
4,502.0
      
4,492.7
  
Total liabilities and stockholders' equity
  
$
9,428.3
    
$
9,518.5
  

See accompanying Notes to Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
   
Six Months Ended June 30,
  
   
2024
    
2023
  
Cash flows from operating activities:
            
Net income
  
$
33.3
    
$
109.8
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Share-based compensation expense
    
141.2
      
122.9
  
Depreciation, amortization, and accretion
    
82.2
      
98.5
  
Deferred income taxes (1)
    
(64.3
)
    
(90.5
)
Provision for inventory excess and obsolescence (1)
    
2.5
      
60.6
  
Operating lease assets expense
    
21.6
      
20.3
  
Loss on privately-held investments, net
    
13.6
      
92.0
  
Loss from equity method investment
    
4.2
      
4.2
  
Other
    
0.6
      
2.7
  
Changes in operating assets and liabilities, net of acquisitions:
                
Accounts receivable, net
    
165.2
      
319.5
  
Inventory (1)
    
(6.5
)
    
(364.2
)
Prepaid expenses and other assets (1)
    
70.7
      
(9.5
)
Accounts payable
    
(22.9
)
    
22.0
  
Accrued compensation
    
(24.9
)
    
(26.1
)
Income taxes payable
    
(104.6
)
    
83.9
  
Other accrued liabilities (1)
    
(60.1
)
    
(12.9
)
Deferred revenue
    
64.3
      
101.3
  
Net cash provided by operating activities
    
316.1
      
534.5
  
Cash flows from investing activities:
                
Purchases of property and equipment
    
(58.2
)
    
(83.2
)
Purchases of available-for-sale debt securities
    
(391.5
)
    
(12.9
)
Proceeds from sales of available-for-sale debt securities
    
22.6
      
23.9
  
Proceeds from maturities and redemptions of available-for-sale debt securities
    
108.9
      
128.8
  
Purchases of equity securities
    
(5.8
)
    
(3.5
)
Proceeds from sales of equity securities
    
4.5
      
7.8
  
Funding of loan receivable
    
-
      
(7.7
)
Other
    
-
      
1.5
  
Net cash (used in) provided by investing activities
    
(319.5
)
    
54.7
  
Cash flows from financing activities:
                
Repurchase and retirement of common stock
    
(14.6
)
    
(271.3
)
Proceeds from issuance of common stock
    
32.1
      
31.6
  
Payment of dividends
    
(142.9
)
    
(140.5
)
Payment of debt issuance costs
    
-
      
(1.3
)
Other
    
1.4
      
-
  
Net cash used in financing activities
    
(124.0
)
    
(381.5
)
Effect of foreign currency exchange rates on cash, cash equivalents, and restricted cash
    
(6.0
)
    
1.8
  
Net (decrease) increase in cash, cash equivalents, and restricted cash
    
(133.4
)
    
209.5
  
Cash, cash equivalents, and restricted cash at beginning of period
    
1,084.3
      
897.7
  
Cash, cash equivalents, and restricted cash at end of period
  
$
950.9
    
$
1,107.2
  

(1) The prior period amounts have been reclassified to conform to the current period presentation.
See accompanying Notes to Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Changes in Stockholders' Equity
(In millions, except per share amounts)
(Unaudited)
   
Three Months Ended June 30, 2024
  
         
Common Stock and
Additional Paid-in
Capital
    
Accumulated Other
Comprehensive Income
    
Accumulated
Deficit
    
Total
Stockholders'
Equity
  
   
Shares
  
Balance at March 31, 2024
    
324.9
    
$
6,776.1
    
$
12.1
    
$
(2,307.0
)
  
$
4,481.2
  
Net income
    
-
      
-
      
-
      
34.1
      
34.1
  
Other comprehensive loss, net
    
-
      
-
      
(3.1
)
    
-
      
(3.1
)
Issuance of common stock
    
0.4
      
-
      
-
      
-
      
-
  
Share-based compensation expense
    
-
      
61.3
      
-
      
-
      
61.3
  
Payments of cash dividends ($0.22 per share of common stock)
    
-
      
(71.5
)
    
-
      
-
      
(71.5
)
Balance at June 30, 2024
    
325.3
    
$
6,765.9
    
$
9.0
    
$
(2,272.9
)
  
$
4,502.0
  

   
Three Months Ended June 30, 2023
  
         
Common Stock and
Additional Paid-in
Capital
    
Accumulated Other
Comprehensive Income
    
Accumulated
Deficit
     Total Stockholders' Equity  
   
Shares
  
Balance at March 31, 2023
    
321.4
    
$
6,808.1
    
$
8.3
    
$
(2,381.2
 )  
$
4,435.2
  
Net income
    
-
      
-
      
-
      
24.4
      
24.4
  
Other comprehensive income, net
    
-
      
-
      
22.8
      
-
      
22.8
  
Issuance of common stock
    
0.5
      
0.5
      
-
      
-
      
0.5
  
Repurchase and retirement of common stock
    
(4.1
)
    
(50.9
)
    
-
      
(69.1
 )    
(120.0
)
Share-based compensation expense
    
-
      
61.9
      
-
      
-
      
61.9
  
Payments of cash dividends ($0.22 per share of common stock)
    
-
      
(69.9
)
    
-
      
-
      
(69.9
 )
Balance at June 30, 2023
    
317.8
    
$
6,749.7
    
$
31.1
    
$
(2,425.9
 )  
$
4,354.9
  

See accompanying Notes to Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Changes in Stockholders' Equity
(In millions, except per share amounts)
(Unaudited)
   
Six Months Ended June 30, 2024
  
 
        
Common Stock and
Additional Paid-in
Capital
    
Accumulated Other
Comprehensive Income
    
Accumulated
Deficit
    
Total
Stockholders'
Equity
  
 
  
Shares
  
Balance at December 31, 2023
    
320.3
    
$
6,740.0
    
$
49.1
    
$
(2,296.4
)
  
$
4,492.7
  
Net income
    
-
      
-
      
-
      
33.3
      
33.3
  
Other comprehensive loss, net
    
-
      
-
      
(40.1
)
    
-
      
(40.1
)
Issuance of common stock
    
5.4
      
32.1
      
-
      
-
      
32.1
  
Repurchase and retirement of common stock
    
(0.4
)
    
(4.8
)
    
-
      
(9.8
)
    
(14.6
)
Share-based compensation expense
    
-
      
141.5
      
-
      
-
      
141.5
  
Payments of cash dividends ($0.44 per share of common stock)
    
-
      
(142.9
)
    
-
      
-
      
(142.9
)
Balance at June 30, 2024
    
325.3
    
$
6,765.9
    
$
9.0
    
$
(2,272.9
)
  
$
4,502.0
  

   
Six Months Ended June 30, 2023
  
         
Common Stock and
Additional Paid-in
Capital
    
Accumulated Other
Comprehensive Income
    
Accumulated
Deficit
    
Total
Stockholders'
Equity
  
   
Shares
  
Balance at December 31, 2022
    
322.9
    
$
6,846.4
    
$
4.2
    
$
(2,375.5
)
  
$
4,475.1
  
Net income
    
-
      
-
      
-
      
109.8
      
109.8
  
Other comprehensive income, net
    
-
      
-
      
26.9
      
-
      
26.9
  
Issuance of common stock
    
3.8
      
31.6
      
-
      
-
      
31.6
  
Repurchase and retirement of common stock
    
(8.9
)
    
(111.1
)
    
-
      
(160.2
)
    
(271.3
)
Share-based compensation expense
    
-
      
123.3
      
-
      
-
      
123.3
  
Payments of cash dividends ($0.44 per share of common stock)
    
-
      
(140.5
)
    
-
      
-
      
(140.5
)
Balance at June 30, 2023
    
317.8
    
$
6,749.7
    
$
31.1
    
$
(2,425.9
)
  
$
4,354.9
  

See accompanying Notes to Condensed Consolidated Financial Statements
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements of Juniper Networks, Inc. (the “Company” or “Juniper”) were prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all information and footnotes required by U.S. GAAP for complete financial statements. The Condensed Consolidated Balance Sheet as of December 31, 2023 has been derived from the audited Consolidated Financial Statements at that date. 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, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any future period.
These Condensed Consolidated Financial Statements and accompanying notes should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the "Form 10-K"). The Company has evaluated all subsequent events through the date these condensed consolidated financial statements were issued.
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.
Certain prior period amounts have been reclassified to conform to the current period's presentation. None of these reclassifications had a material impact to the unaudited Condensed Consolidated Financial Statements.
HPE Merger Agreement
On January 9, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Hewlett Packard Enterprise Company, a Delaware corporation (“HPE”), and Jasmine Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of HPE (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of HPE. Under the terms of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of the Company's common stock (subject to certain exceptions set forth in the Merger Agreement) will be cancelled and converted into the right to receive $40.00 in cash, without interest and subject to applicable withholding taxes.
The Merger Agreement generally requires the Company to use commercially reasonable efforts to operate the Company's business in the ordinary course, subject to certain exceptions including as required by applicable law, pending consummation of the Merger, and subjects the Company to customary interim operating covenants that restrict the Company from taking certain specified actions without HPE’s approval (such approval not to be unreasonably withheld, conditioned, or delayed) until the Merger is completed or the Merger Agreement is terminated in accordance with its terms. During this period, the Company is permitted to continue paying regular quarterly dividends, substantially in accordance with past practice, at a quarterly rate not to exceed $0.22 per share.
The completion of the Merger, which is currently expected to close in late calendar year 2024 or early calendar year 2025, is subject to the receipt of regulatory approvals and other customary closing conditions. On April 2, 2024, the Company received approval of the Merger Agreement from its stockholders. If the transaction is consummated, the Company's common stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934 (the “Exchange Act”).
The Merger Agreement can be terminated under certain customary circumstances, including by mutual agreement, the imposition of a final and non-appealable governmental order that permanently enjoins or otherwise prohibits the Merger, an uncured breach of the Merger Agreement by the other party, or if the Merger has not been consummated by January 9, 2025, as may be automatically extended pursuant to the terms of the Merger Agreement. Under certain specified circumstances in which the Merger Agreement is terminated, HPE is required to pay the Company a termination fee equal to $815.0 million.

In connection with the pending Merger, the Company incurred $9.1 million and $37.4 million of expenses for the three and six months ended June 30, 2024, respectively, including professional services and financial advisory fees, all of which were recorded within "Merger-related charges" in the Condensed Consolidated Statements of Operations.
Summary of Significant Accounting Policies
There have been no significant changes to the Company's significant accounting policies described in Note 1, Description of Business, Basis of Presentation and Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K for the fiscal year ended December 31, 2023.
Recent Accounting Standards Not Yet Adopted
Improvements to Reportable Segment Disclosures: In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a significant impact on its Condensed Consolidated Financial Statements.
Improvements to Income Tax Disclosures: In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which expands the disclosures required for income taxes. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.
Note 2. Cash Equivalents and Investments
Investments in Available-for-Sale Debt Securities
The following table summarizes the Company's unrealized gains and losses and fair value of investments designated as available-for-sale debt securities as of June 30, 2024 and December 31, 2023 (in millions):
   
As of June 30, 2024
    
As of December 31, 2023
  
 
  
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
and Credit
Losses
    
Estimated
Fair
Value
    
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
and Credit
Losses
    
Estimated
Fair
Value
  
Fixed income securities:
                                                
Asset-backed and mortgage-backed securities
  
$
109.8
     $
-
     $
(0.5
)
   $
109.3
     $
38.2
     $
0.2
     $
(0.4
)
   $
38.0
  
Corporate debt securities
    
267.1
      
0.3
      
(0.8
)
    
266.6
      
160.2
      
0.7
      
(1.3
)
    
159.6
  
Certificates of deposit
    
11.7
      
-
      
-
      
11.7
      
3.0
      
-
      
-
      
3.0
  
Commercial paper
    
67.8
      
-
      
-
      
67.8
      
41.1
      
-
      
-
      
41.1
  
Foreign government debt securities
    
5.3
      
-
      
(0.1
)
    
5.2
      
5.3
      
-
      
(0.2
)
    
5.1
  
Time deposits
    
280.9
      
-
      
-
      
280.9
      
273.6
      
-
      
-
      
273.6
  
U.S. government agency securities
    
-
      
-
      
-
      
-
      
4.0
      
-
      
-
      
4.0
  
U.S. government securities
    
77.4
      
-
      
(0.3
)
    
77.1
      
54.8
      
0.1
      
-
      
54.9
  
Total fixed income securities
    
820.0
      
0.3
      
(1.7
)
    
818.6
      
580.2
      
1.0
      
(1.9
)
    
579.3
  
Privately-held debt and redeemable preferred stock securities
    
46.5
      
-
      
(15.4
)
    
31.1
      
20.6
      
37.4
      
(8.3
)
    
49.7
  
Total available-for-sale debt securities
   $
866.5
     $
0.3
     $
(17.1
)
   $
849.7
     $
600.8
     $
38.4
     $
(10.2
)
   $
629.0
  
 
                                                                
Reported as:
                                                                
Cash equivalents
   $
332.3
     $
-
     $
-
     $
332.3
     $
328.2
     $
-
     $
-
     $
328.2
  
Short-term investments
    
178.1
      
-
      
(0.4
)
    
177.7
      
135.7
      
-
      
(1.4
)
    
134.3
  
Long-term investments
    
309.6
      
0.3
      
(1.3
)
    
308.6
      
116.3
      
1.0
      
(0.5
)
    
116.8
  
Other long-term assets
    
46.5
      
-
      
(15.4
)
    
31.1
      
20.6
      
37.4
      
(8.3
)
    
49.7
  
Total
   $
866.5
     $
0.3
     $
(17.1
)
   $
849.7
     $
600.8
     $
38.4
     $
(10.2
)
   $
629.0
  

The following table presents the contractual maturities of the Company's total fixed income securities as of June 30, 2024 (in millions):

   
Amortized
Cost
    
Estimated Fair
Value
  
Due in less than one year
  
$
510.4
    
$
510.0
  
Due between one and five years
    
309.6
      
308.6
  
Total
  
$
820.0
    
$
818.6
  

As of June 30, 2024, the Company's unrealized loss of $1.7 million resulted from 265 fixed income available-for-sale debt securities, of which losses aggregating $1.1 million were from investments in an unrealized loss position for less than 12 months, and $0.6 million were from investments in an unrealized loss position for more than 12 months. The gross unrealized losses related to these investments were primarily due to changes in market interest rates. The Company anticipates that it will recover the entire amortized cost basis of such available-for-sale debt securities and has determined that no allowance for credit losses was required to be recognized during the three and six months ended June 30, 2024 and June 30, 2023.
During the three months ended June 30, 2024, the Company did not record any material allowance for credit loss. During the six months ended June 30, 2024, the Company recorded an allowance for credit loss of $7.1 million on privately-held debt and redeemable preferred stock investments. The credit loss represents the difference between the estimated fair value and the cost of the investment related to the credit factors. The determination of fair value was based on quantitative and qualitative analysis including factors such as the near-term prospects of the investee in the market in which it operates and an evaluation of the investee's financial condition in relation to its outstanding obligations. As of June 30, 2024 and December 31, 2023, the Company had an allowance for credit loss of $15.4 million and $8.3 million, respectively, on privately-held debt and redeemable preferred stock investments.
During the three and six months ended June 30, 2024 and June 30, 2023, there were no material gross realized gains or losses from available-for-sale debt securities.
Investments in Equity Securities
The following table presents the Company's investments in equity securities as of June 30, 2024 and December 31, 2023 (in millions):
   
As of
  
 
  
June 30,
2024
    
December 31,
2023
  
Equity investments with readily determinable fair value:
            
Money market funds
  
$
303.5
    
$
337.5
  
Mutual funds
    
45.0
      
38.0
  
Publicly-traded equity securities
    
9.0
      
5.1
  
Equity investments without readily determinable fair value
    
50.8
      
45.8
  
Equity investment under the equity method of accounting
    
22.2
      
26.4
  
Total equity securities
  
$
430.5
    
$
452.8
  
 
                
Reported as:
                
Cash equivalents
  
$
303.5
    
$
337.5
  
Short-term investments
    
9.0
      
5.1
  
Prepaid expenses and other current assets
    
3.5
      
2.5
  
Other long-term assets
    
114.5
      
107.7
  
Total
  
$
430.5
    
$
452.8
  

For the three and six months ended June 30, 2024 and June 30, 2023, there were no material unrealized gains or losses recognized for equity investments with readily determinable fair value or equity investments without readily determinable fair value. For the three and six months ended June 30, 2024, the loss recognized from the equity method investment was $2.0 million and $4.2 million, respectively. For the three and six months ended June 30, 2023, the loss recognized from the equity method investment was $2.1 million and $4.2 million, respectively.
Restricted Cash and Investments
The Company has restricted cash and investments for: (i) amounts under the Company's non-qualified deferred compensation plan for senior-level employees; (ii) amounts held under the Company's short-term disability plan in California; and (iii) amounts held in escrow accounts, as required in connection with certain acquisitions. Restricted investments consist of equity investments. As of June 30, 2024, the carrying value of restricted cash and investments was $61.0 million, of which $17.0 million was included in prepaid expenses and other current assets, and $44.0 million was included in other long-term assets on the Condensed Consolidated Balance Sheets.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash included in the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (in millions):

   
As of
  
 
  
June 30,
2024
    
December 31,
2023
  
Cash and cash equivalents
  
$
935.0
    
$
1,068.1
  
Restricted cash included in prepaid expenses and other current assets
    
13.5
      
13.8
  
Restricted cash included in other long-term assets
    
2.4
      
2.4
  
Total cash, cash equivalents, and restricted cash
  
$
950.9
    
$
1,084.3
  

Note 3. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table provides a summary of assets and liabilities measured at fair value on a recurring basis and as reported in the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (in millions):
   
Fair Value Measurements at
June 30, 2024
    
Fair Value Measurements at
December 31, 2023
  
 
  
Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Remaining
Inputs
(Level 2)
    
Significant
Other
Unobservable
Remaining
Inputs
(Level 3)
    
Total
    
Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Remaining
Inputs
(Level 2)
    
Significant
Other
Unobservable
Remaining
Inputs
(Level 3)
    
Total
  
Assets:
                                                
Available-for-sale debt securities:
                                                
Asset-backed and mortgage-backed securities
  
$
-
    
$
109.3
    
$
-
    
$
109.3
    
$
-
    
$
38.0
    
$
-
    
$
38.0
  
Certificates of deposit
    
-
      
11.7
      
-
      
11.7
      
-
      
3.0
      
-
      
3.0
  
Corporate debt securities
    
-
      
266.6
      
-
      
266.6
      
-
      
159.6
      
-
      
159.6
  
Commercial paper
    
-
      
67.8
      
-
      
67.8
      
-
      
41.1
      
-
      
41.1
  
Foreign government debt securities
    
-
      
5.2
      
-
      
5.2
      
-
      
5.1
      
-
      
5.1
  
Time deposits
    
-
      
280.9
      
-
      
280.9
      
-
      
273.6
      
-
      
273.6
  
U.S. government agency securities
    
-
      
-
      
-
      
-
      
-
      
4.0
      
-
      
4.0
  
U.S. government securities
    
57.5
      
19.6
      
-
      
77.1
      
20.0
      
34.9
      
-
      
54.9
  
Privately-held debt and redeemable preferred stock securities
    
-
      
-
      
31.1
      
31.1
      
-
      
-
      
49.7
      
49.7
  
Total available-for-sale debt securities
    
57.5
      
761.1
      
31.1
      
849.7
      
20.0
      
559.3
      
49.7
      
629.0
  
Equity securities:
                                                                
Money market funds
    
303.5
      
-
      
-
      
303.5
      
337.5
      
-
      
-
      
337.5
  
Mutual funds
    
45.0
      
-
      
-
      
45.0
      
38.0
      
-
      
-
      
38.0
  
Publicly-traded equity securities
    
9.0
      
-
      
-
      
9.0
      
5.1
      
-
      
-
      
5.1
  
Total equity securities
    
357.5
      
-
      
-
      
357.5
      
380.6
      
-
      
-
      
380.6
  
Derivative assets:
                                                                
Foreign exchange contracts
    
-
      
5.5
      
-
      
5.5
      
-
      
7.2
      
-
      
7.2
  
Total derivative assets
    
-
      
5.5
      
-
      
5.5
      
-
      
7.2
      
-
      
7.2
  
Total assets measured at fair value on a recurring basis
  
$
415.0
    
$
766.6
    
$
31.1
    
$
1,212.7
    
$
400.6
    
$
566.5
    
$
49.7
    
$
1,016.8
  
Liabilities:
                                                                
Derivative liabilities:
                                                                
Foreign exchange contracts
  
$
-
    
$
(11.0
)
  
$
-
    
$
(11.0
)
  
$
-
    
$
(7.2
)
  
$
-
    
$
(7.2
)
Interest rate contracts
    
-
      
(84.1
)
    
-
      
(84.1
)
    
-
      
(73.6
)
    
-
      
(73.6
)
Total derivative liabilities
    
-
      
(95.1
)
    
-
      
(95.1
)
    
-
      
(80.8
)
    
-
      
(80.8
)
Total liabilities measured at fair value on a recurring basis
  
$
-
    
$
(95.1
)
  
$
-
    
$
(95.1
)
  
$
-
    
$
(80.8
)
  
$
-
    
$
(80.8
)

   
Fair Value Measurements at
June 30, 2024
    
Fair Value Measurements at
December 31, 2023
  
 
  
Quoted
Prices in
Active
Markets For
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Remaining
Inputs
(Level 2)
    
Significant
Other
Unobservable
Remaining
Inputs
(Level 3)
    
Total
    
Quoted
Prices in
Active
Markets For
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Remaining
Inputs
(Level 2)
    
Significant
Other
Unobservable
Remaining
Inputs
(Level 3)
    
Total
  
 
                                                
Total assets, reported as:
                                                
Cash equivalents
  
$
306.5
    
$
329.3
    
$
-
    
$
635.8
    
$
337.5
    
$
328.2
    
$
-
    
$
665.7
  
Short-term investments
    
19.7
      
167.0
      
-
      
186.7
      
12.8
      
126.6
      
-
      
139.4
  
Long-term investments
    
43.9
      
264.7
      
-
      
308.6
      
12.3
      
104.5
      
-
      
116.8
  
Prepaid expenses and other current assets
    
3.4
      
4.2
      
-
      
7.6
      
2.5
      
4.6
      
-
      
7.1
  
Other long-term assets
    
41.5
      
1.4
      
31.1
      
74.0
      
35.5
      
2.6
      
49.7
      
87.8
  
Total assets measured at fair value
  
$
415.0
    
$
766.6
    
$
31.1
    
$
1,212.7
    
$
400.6
    
$
566.5
    
$
49.7
    
$
1,016.8
  
 
                                                                
Total liabilities, reported as:
                                                                
Other accrued liabilities
  
$
-
    
$
(9.1
)
  
$
-
    
$
(9.1
)
  
$
-
    
$
(6.2
)
  
$
-
    
$
(6.2
)
Other long-term liabilities
    
-
      
(86.0
)
    
-
      
(86.0
)
    
-
      
(74.6
)
    
-
      
(74.6
)
Total liabilities measured at fair value on a recurring basis
  
$
-
    
$
(95.1
)
  
$
-
    
$
(95.1
)
  
$
-
    
$
(80.8
)
  
$
-
    
$
(80.8
)

The Company's Level 2 available-for-sale debt 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. During the three and six months ended June 30, 2024, the Company had no transfers into or out of Level 3 of the fair value hierarchy of its assets or liabilities measured at fair value.
The Company's privately-held debt and redeemable preferred stock securities are classified as Level 3 assets due to the lack of observable inputs to determine fair value. The Company estimates the fair value of its privately-held debt and redeemable preferred stock securities on a recurring basis using an analysis of the financial condition and near-term prospects of the investee, including recent valuations at the time of financing activities and the investee's capital structure. In January 2024, the Company invested in a convertible note of a privately-held company for a principal amount of $25.0 million with a maturity period of two years. During the three months ended June 30, 2024, the Company did not record any material allowance for credit loss. During six months ended June 30, 2024, the Company recognized a credit loss of $7.1 million on a privately-held debt investment and redeemable preferred stock securities. Refer to Note 2, Cash Equivalents and Investments.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company's investments in equity securities without readily determinable fair value are classified as Level 3 assets due to the lack of observable inputs to determine fair value. The Company estimates the fair value of equity securities without readily determinable fair value, and investments accounted for under the equity method of accounting, on a nonrecurring 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. As of June 30, 2024, downward adjustments for equity securities without readily determinable fair value in the aggregate were $89.9 million. There have been no material upward adjustments to the equity securities without readily determinable fair value.
Certain of the Company's assets, including intangible assets and goodwill, are measured at fair value on a nonrecurring basis. There were no significant impairment charges recognized during the three and six months ended June 30, 2024.
As of June 30, 2024 and December 31, 2023, the Company had no liabilities required to be 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, accounts payable, and other accrued liabilities approximate fair value due to their short maturities. As of June 30, 2024 and December 31, 2023, the estimated fair value of the Company's total outstanding debt in the Condensed Consolidated Balance Sheets was $1,568.4 million and $1,581.7 million, respectively, based on observable market inputs (Level 2).
Note 4. Derivative Instruments
The Company uses derivative instruments to manage a variety of risks, including risks related to fluctuations in foreign currency exchange rates and interest rates on debt instruments. The Company does not use derivative financial instruments for speculative purposes.
The notional amount of the Company's derivative instruments is summarized as follows (in millions):
   
As of
  
   
June 30,
2024
    
December 31,
2023
  
Designated derivatives:
            
Cash flow hedges:
            
Foreign currency contracts
  
$
677.2
    
$
801.0
  
Fair value hedges:
                
Interest rate swap contracts
    
600.0
      
600.0
  
Total designated derivatives
    
1,277.2
      
1,401.0
  
 
                
Non-designated derivatives
    
212.4
      
200.7
  
Total
  
$
1,489.6
    
$
1,601.7
  

The fair value of derivative instruments on the Condensed Consolidated Balance Sheets was as follows:
       
As of
  

 
Balance Sheet Classification
  
June 30,
2024
    
December 31,
2023
  
Derivative assets:
                
Derivatives designated as hedging instruments:
                
Foreign currency contracts
  
Other current assets
  
$
4.1
    
$
4.4
  
Foreign currency contracts
  
Other long-term assets
    
1.3
      
2.7
  
Total derivatives designated as hedging instruments
      
$
5.4
    
$
7.1
  
Derivatives not designated as hedging instruments
  
Other current assets
    
0.1
      
0.1
  
Total derivative assets
      
$
5.5
    
$
7.2
  
Derivative liabilities:
                    
Derivatives designated as hedging instruments:
                    
Foreign currency contracts
  
Other accrued liabilities
  
$
8.9
    
$
6.0
  
Foreign currency contracts
  
Other long-term liabilities
    
1.9
      
1.0
  
Interest rate swap contracts
  
Other long-term liabilities
    
84.1
      
73.6
  
Total derivatives designated as hedging instruments
      
$
94.9
    
$
80.6
  
Derivatives not designated as hedging instruments
  
Other accrued liabilities
    
0.2
      
0.2
  
Total derivative liabilities
      
$
95.1
    
$
80.8
  

Offsetting of Derivative Instruments
The Company presents its derivative instruments at gross fair values in the Condensed Consolidated Balance Sheets. As of June 30, 2024 and December 31, 2023, the potential effects of set-off associated with the derivative contracts would be a reduction to both derivative assets and derivative liabilities by $5.5 million and $7.2 million, respectively.
Designated Derivatives
The Company uses foreign currency forward contracts or options contracts to hedge the Company's planned cost of revenues and operating expenses denominated in foreign currencies. These derivatives are designated as cash flow hedges and typically have maturities of thirty-six months or less.
The Company enters into interest rate swap contracts, designated as fair value hedges, to convert the fixed interest rates of certain Senior Notes ("Notes") to floating interest rates. In April 2021, the Company entered into these contracts for an aggregate notional amount of $300.0 million for its fixed-rate Notes maturing in December 2030 in addition to the contracts entered in 2019 for an aggregate notional amount of $300.0 million for its fixed-rate Notes maturing in March 2041. The interest rate swap contracts will expire within six years.
In 2020, the Company entered into interest rate lock contracts with large financial institutions, which fix the benchmark interest rates of future debt issuances for an aggregate notional amount of $650.0 million. These contracts were designated as cash flow hedges for a forecasted debt issuance, which was expected to occur by the end of 2025. During the year ended December 31, 2023, the Company terminated the interest rate lock contracts, resulting in a deferred gain of $133.9 million recognized in accumulated other comprehensive income, which will be deferred and amortized to interest expense over the term of the anticipated debt unless it becomes probable that the debt will not be issued with the terms anticipated at the hedge's inception. The Company classifies the cash flow in the same section as the underlying item resulting in the proceeds from sale being presented as operating activities.
Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
For cash flow hedges, the Company recognized an unrealized loss of $3.4 million and $8.8 million in accumulated other comprehensive income for the effective portion of its derivative instruments for the three and six months ended June 30, 2024, respectively. The Company recognized an unrealized gain of $17.1 million and $7.2 million in accumulated other comprehensive income for the effective portion of its derivative instruments for the three and six months ended June 30, 2023, respectively.
For foreign currency contracts, the Company reclassified a loss of $2.2 million and $3.4 million out of accumulated other comprehensive income to cost of revenues and operating expenses in the Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2024, respectively, and a loss of $7.2 million and $15.0 million for the comparable periods ended June 30, 2023, respectively. As of June 30, 2024, an estimated $4.9 million of unrealized net loss within accumulated other comprehensive income is expected to be reclassified into earnings within the next twelve months.
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 foreign exchange forward contracts typically have maturities of approximately one to four months. The outstanding non-designated derivative instruments are carried at fair value. Changes in the fair value of these derivatives, which were recorded in Other expense, net within the Condensed Consolidated Statements of Operations, were not material during the three and six months ended June 30, 2024 and June 30, 2023.
Note 5. Other Financial Information
Total Inventory
Total inventory consisted of the following (in millions):
   
As of
  
   
June 30,
2024
    
December 31,
2023
  
Production and service materials
  
$
732.1
    
$
719.0
  
Finished goods
    
279.9
      
299.0
  
Total inventory
  
$
1,012.0
    
$
1,018.0
  
                 
Reported as:
                
Inventory
  
$
926.1
    
$
952.4
  
Other long-term assets (1)
    
85.9
      
65.6
  
Total inventory
  
$
1,012.0
    
$
1,018.0
  

(1) Long-term inventory balance classified as other long-term assets in the Company's Condensed Consolidated Balance Sheets consists of last time buy component inventory to be consumed beyond the Company's normal operating cycle.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in millions):
   
As of
  
 
  
June 30,
2024
    
December 31,
2023
  
Contract manufacturer deposits
  
$
200.3
    
$
316.4
  
Prepaid expenses
    
178.7
      
140.9
  
Other current assets
    
138.6
      
134.2
  
Total prepaid expenses and other current assets
  
$
517.6
    
$
591.5
  

During the three months ended June 30, 2024, the Company did not record any material allowance for credit loss. During six months ended June 30, 2024, the Company recorded an allowance for credit loss of $7.7 million on note receivables due from a privately-held investee. The credit loss represents the difference between the net amount expected to be collected and the amortized cost of the note receivable.
Warranties
Changes during the six months ended June 30, 2024 in the Company’s warranty reserve as reported within other accrued liabilities in the Condensed Consolidated Balance Sheets were as follows (in millions):
Balance as of December 31, 2023
  
$
29.4
  
Provisions made during the period
    
21.5
  
Actual costs incurred during the period
    
(21.1
)
Balance as of June 30, 2024
  
$
29.8
  

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,
2024
    
December 31,
2023
  
Deferred product revenue, net
  
$
84.6
    
$
92.1
  
Deferred service revenue, net
    
2,003.8
      
1,932.8
  
Total
  
$
2,088.4
    
$
2,024.9
  
Reported as:
                
Current
  
$
1,147.9
    
$
1,130.0
  
Long-term
    
940.5
      
894.9
  
Total
  
$
2,088.4
    
$
2,024.9
  

Revenue
See Note 10, Segments, for disaggregated revenue by customer solution, customer vertical, and geographic region.
Product revenue of $22.9 million and $40.1 million included in deferred revenue at January 1, 2024 were recognized during the three and six months ended June 30, 2024, respectively. Service revenue of $290.5 million and $636.0 million included in deferred revenue at January 1, 2024 were recognized during the three and six months ended June 30, 2024, respectively.
Remaining Performance Obligations
Remaining Performance Obligations ("RPO") are comprised mainly of deferred product and service revenue, and to a lesser extent, unbilled service revenue from non-cancellable contracts for which the Company has not invoiced and has an obligation to perform, and for which revenue has not yet been recognized in the financial statements.
The following table summarizes the breakdown of RPO(1) as of June 30, 2024 and when the Company expects to recognize the amounts as revenue (in millions):

   
Revenue Recognition Expected by Period
  
   
Total
    
Less than 1 year
    
1-3 years
    
More than 3 years
  
Product
  
$
84.9
    
$
71.2
    
$
11.7
    
$
2.0
  
Service
    
2,016.1
      
1,084.0
      
719.9
      
212.2
  
Total
  
$
2,101.0
    
$
1,155.2
    
$
731.6
    
$
214.2
  

(1) The Company's RPO does not include backlog. Backlog consists of purchase orders for product primarily expected to be shipped to the Company's distributors, resellers, or end customers within the next 90 days. The following amounts are not included in the Company's backlog: (1) deferred revenue, (2) unbilled contract revenue, (3) all service obligations, including software as a service (SaaS), and (4) certain future revenue adjustments for items such as sales return reserves and early payment discounts.
Deferred Contract Cost
The Company capitalizes direct and incremental costs incurred to acquire contracts, primarily sales commissions, for which the associated revenue is expected to be recognized in future periods. The Company incurs these costs in connection with both initial contracts and renewals. These costs are initially deferred, recorded as prepaid expenses and other current assets or other long-term assets, and are amortized over a period of benefit, which is typically over the term of the customer contracts or when product is delivered and revenue recognized. Commission expense is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Operations.
Deferred contract cost was $42.2 million as of June 30, 2024. For the three and six months ended June 30, 2024, amortization expense associated with the deferred commissions was $23.0 million and $41.2 million, respectively, and there were no impairment charges recognized.
Other Income (Expense), Net
Other income (expense), net, consisted of the following (in millions):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
2024
    
2023
  
Interest income
  
$
16.7
    
$
11.7
    
$
33.6
    
$
21.2
  
Interest expense
    
(20.5
)
    
(19.7
)
    
(41.0
)
    
(38.9
)
Gain on other investments, net (1)
    
4.6
      
1.2
      
8.0
      
1.9
  
Other
    
0.5
      
(0.6
)
    
2.8
      
(0.4
)
Other income (expense), net
  
$
1.3
    
$
(7.4
)
  
$
3.4
    
$
(16.2
)

(1) Other investments represent fixed income securities and equity investments with readily determinable fair value.
Note 6. Restructuring Charges
The following table presents changes in the restructuring liabilities (in millions):
   
Six Months Ended June 30, 2024
  
 
  
Employee
severance
    
Facility exit-related and asset
impairments
    
Contract terminations and
other
    
Total
  
Liability as of December 31, 2023
  
$
30.0
    
$
0.4
    
$
3.2
    
$
33.6
  
Charges
    
3.2
      
2.1
      
0.4
      
5.7
  
Cash payments
    
(24.6
)
    
-
      
(3.6
)
    
(28.2
)
Non-cash items
    
(0.2
)
    
(2.3
)
    
-
      
(2.5
)
Liability as of June 30, 2024
  
$
8.4
    
$
0.2
    
$
-
    
$
8.6
  

Note 7. Debt
Debt
The following table summarizes the Company's total debt (in millions, except percentages):
           
As of
  

Maturity Date
  
Effective Interest Rates
    
June 30,
2024
    
December 31,
2023
  
Senior Notes:
                    
1.200% fixed-rate notes
December 2025
    
1.37
%
  
$
400.0
    
$
400.0
  
3.750% fixed-rate notes
August 2029
    
3.86
%
    
500.0
      
500.0
  
2.000% fixed-rate notes
December 2030
    
2.12
%
    
400.0
      
400.0
  
5.950% fixed-rate notes
March 2041
    
6.03
%
    
400.0
      
400.0
  
Total Notes
              
1,700.0
      
1,700.0
  
Unaccreted discount and debt issuance costs
              
(8.7
)
    
(9.6
)
Hedge accounting fair value adjustments(*)
              
(84.1
)
    
(73.6
)
Total
            
$
1,607.2
    
$
1,616.8
  

(*)
Represents the fair value adjustments for interest rate swap contracts with an aggregate notional amount of $600.0 million. These contracts convert the fixed interest rates of certain Notes to floating interest rates and are designated as fair value hedges. See Note 4, Derivative Instruments, for a discussion of the Company's interest rate swap contracts.

The Notes above are the Company’s senior unsecured and unsubordinated obligations, ranking equally in right of payment to all of the Company’s existing and future senior unsecured and unsubordinated indebtedness, and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the Notes.
The Company may redeem the Notes, either in whole or in part, at any time, at a redemption price equal to the greater of (i) 100% of the aggregate principal amount of the Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments discounted to the redemption date, plus, in either case, accrued and unpaid interest, if any. Upon both a change-of-control and a rating event, the holders of the Notes may require the Company to repurchase for cash all or part of the Notes at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, if any. The terms of the Merger Agreement restrict the Company from redeeming any indebtedness that has a make whole amount, prepayment penalty, or similar obligation, including the Notes, without HPE’s approval.
Interest on the Notes is payable in cash semiannually. The effective interest rates for the Notes include the interest on the Notes, accretion of the discount, and amortization of issuance costs. The indenture and the supplemental indentures (together, the "indentures") that govern the Notes also contain various covenants, including limitations on the Company's ability to incur liens or enter into sale-leaseback transactions over certain dollar thresholds.
As of June 30, 2024, the Company was in compliance with all covenants in the indentures governing the Notes.
Revolving Credit Facility
The Company maintains an unsecured revolving credit facility that was entered into in June 2023, with an aggregate lending commitment of $500.0 million and an option to increase the facility by up to an additional $200.0 million for a period of five years with two one-year extension options. As of June 30, 2024, there were no amounts outstanding, and the Company was in compliance with all covenants in the credit agreement.
Under the terms of the Merger Agreement, the Company is required to terminate the Revolving Credit Facility upon the closing of the Merger.
Note 8. Equity
The following table summarizes dividends paid and stock repurchases under the Company's stock repurchase program (in millions, except per share amounts):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
  
2024
    
2023
    
2024
    
2023
  
Dividends:
                        
Per share
  
$
0.22
    
$
0.22
          
$
0.44
    
$
0.44
  
Amount
  
$
71.5
    
$
69.9
          
$
142.9
    
$
140.5
  
 
                  
                 
Repurchased under the 2018 Stock Repurchase Program:
                  
                 
Shares
    
-
      
4.1
 		      

     
-
      
8.6
  
Average price per share
  
$
-
    
$
29.23
            
$
-
    
$
30.26
  
Amount
  
$
-
    
$
120.0
            
$
-
    
$
260.0
  

Cash Dividends on Shares of Common Stock
During the three and six months ended June 30, 2024, the Company declared and paid a quarterly cash dividend of $0.22 per common share, totaling $71.5 million and $142.9 million, respectively, on its outstanding common stock. Any future dividends, and the establishment of record and payment dates, are subject to approval by the Board of Directors of Juniper or an authorized committee thereof. See Note 14, Subsequent Events, for discussion of the Company's dividend declaration subsequent to June 30, 2024.
Stock Repurchase Activities
As of June 30, 2024, there was approximately $0.2 billion of authorized funds remaining under the 2018 Stock Repurchase Program. In connection with its entry into the Merger Agreement, the Company is required to suspend its stock repurchase program and did not repurchase its common stock during the three and six months ended June 30, 2024.
In addition to repurchases under the 2018 Stock Repurchase Program, the Company also withholds shares of common stock from certain employees in connection with the vesting of stock awards issued to such employees to satisfy applicable tax withholding requirements. Such withheld shares are treated as common stock repurchases in the Company's financial statements as they reduce the number of shares that would have been issued upon vesting. During the six months ended June 30, 2024 and June 30, 2023, repurchases associated with tax withholdings were $14.6 million and $11.4 million, respectively.
Accumulated Other Comprehensive Income, Net of Tax
The components of accumulated other comprehensive income, net of related taxes, for the six months ended June 30, 2024 were as follows (in millions):
 
  
Unrealized
Gains/Losses
on Available-for-
Sale Debt
Securities
    
Unrealized
Gains/Losses
on Cash
Flow
Hedges
    
Foreign
Currency
Translation
Adjustments
    
Total
  
Balance as of December 31, 2023
  
$
28.9
    
$
102.3
    
$
(82.1
)
  
$
49.1
  
Other comprehensive loss before reclassifications
    
(28.4
)
    
(9.0
)
    
(6.0
)
    
(43.4
)
Amount reclassified from accumulated other comprehensive income
    
(0.2
)
    
3.5
      
-
      
3.3
  
Other comprehensive loss, net
    
(28.6
)
    
(5.5
)
    
(6.0
)
    
(40.1
)
Balance as of June 30, 2024
  
$
0.3
    
$
96.8
    
$
(88.1
)
  
$
9.0
  

Note 9. Employee Benefit Plans
Equity Incentive Plans
The Company has stock-based compensation plans pursuant to which it has granted stock options, restricted stock units (“RSUs”), and performance share awards (“PSAs”). The Company also maintains its 2008 Employee Stock Purchase Plan (the “ESPP”) for all eligible employees. In June 2024, the Company's stockholders approved an additional 7.0 million shares of common stock for issuance under the Company's 2015 Equity Incentive Plan and an additional 3.0 million shares of common stock for issuance under the Company's ESPP. As of June 30, 2024, 7.2 million and 5.3 million shares were available for future issuance under the Company's 2015 Equity Incentive Plan and the ESPP, respectively. In connection with past acquisitions, the Company has also assumed or substituted stock options, RSUs, restricted stock awards ("RSAs"), and PSAs.
After signing the Merger Agreement, the Company has suspended the following aspects of the Company's ESPP: (1) commencing a new offering period, (2) permitting new participants, and (3) any increase in the amount of payroll deductions.
RSU, RSA, and PSA Activities
The Company’s RSU, RSA, and PSA activities and related information as of and for the six months ended June 30, 2024 were as follows (in millions, except per share amounts and years):
   
Outstanding RSUs, RSAs, and PSAs
 
  
Number of Shares
    
Weighted Average
Grant Date Fair
Value per Share
  
Weighted Average
Remaining
Contractual Term
(In Years)
    
Aggregate
Intrinsic
Value
Balance as of December 31, 2023
    
20.2
    
$
28.10
  
 

Granted(*)
    
3.4
      
35.00
  
   
Vested
    
(3.9
)
  
26.44
  
      
Cancelled
    
(1.5
)
    
27.28
  
   
Balance as of June 30, 2024
    
18.2
    
$
29.83
  
1.0
   $
662.3

(*)
Includes 1.6 million service-based and 1.8 million performance-based awards. The number of shares subject to performance-based conditions represents the aggregate maximum number of shares that may be issued pursuant to the award over its full term. The grant date fair value of RSUs and PSAs was reduced by the present value of dividends expected to be paid on the underlying shares of common stock during the requisite and derived service period as these awards are not entitled to receive dividends until vested.

Employee Stock Purchase Plan
The following table summarizes employee stock purchases through the ESPP (in millions, except per share amounts):
   
Six Months Ended June 30,
  
   
2024
    
2023
  
Shares purchased
    
1.3
      
1.3
  
Average exercise price per share
  
$
23.81
    
$
23.44
  

Share-Based Compensation Expense
Share-based compensation expense associated with stock options, RSUs, RSAs, PSAs, and ESPP purchase rights was recorded in the following cost and expense categories in the Condensed Consolidated Statements of Operations (in millions):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
2024
    
2023
  
Cost of revenues - Product
  
$
1.4
    
$
1.7
    
$
3.2
    
$
3.4
  
Cost of revenues - Service
    
4.9
      
4.7
      
10.4
      
9.4
  
Research and development
    
26.4
      
26.1
      
64.9
      
51.8
  
Sales and marketing
    
18.7
      
19.4
      
42.8
      
38.0
  
General and administrative
    
9.9
      
10.1
      
19.9
      
20.3
  
Total
  
$
61.3
    
$
62.0
    
$
141.2
    
$
122.9
  

The following table summarizes share-based compensation expense by award type (in millions):

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
2024
    
2023
  
Stock options
  
$
0.3
    
$
0.6
    
$
0.6
    
$
1.4
  
RSUs, RSAs, and PSAs
    
56.2
      
54.9
      
129.1
      
107.9
  
ESPP purchase rights
    
4.8
      
6.5
      
11.5
      
13.6
  
Total
  
$
61.3
    
$
62.0
    
$
141.2
    
$
122.9
  

As of June 30, 2024, the total unrecognized compensation cost related to unvested share-based awards was $314.3 million to be recognized over a weighted-average period of 1.72 years.
Note 10. Segments
The Company operates in one reportable segment. The Company's Chief Executive Officer, who is the chief operating decision maker, reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance, accompanied by disaggregated information about net revenues by customer solution, customer vertical, and geographic region as presented below.
The following table presents net revenues by customer solution (in millions):
 
  
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
  
2024
    
2023
    
2024
    
2023
  
Customer Solutions(*):
                        
Wide Area Networking
  
$
340.8
    
$
474.6
    
$
691.2
    
$
949.1
  
Data Center
    
168.7
      
200.3
      
331.8
      
393.9
  
Campus and Branch
    
279.9
      
371.1
      
520.4
      
688.1
  
Hardware Maintenance and Professional Services
    
400.2
      
384.1
      
795.1
      
770.8
  
Total
  
$
1,189.6
    
$
1,430.1
    
$
2,338.5
    
$
2,801.9
  

(*) Effective as of the first quarter of 2024, our customer solution revenue categories include the following name changes, and historical revenue by customer solution was not impacted by the name change: 1) Automated WAN Solutions changed to Wide Area Networking, 2) Cloud-Ready Data Center changed to Data Center, and 3) AI-Driven Enterprise changed to Campus and Branch.
The following table presents net revenues by customer vertical (in millions):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
2024
    
2023
  
Cloud
  
$
267.9
    
$
311.0
    
$
517.9
    
$
575.9
  
Service Provider
    
367.1
      
473.6
      
749.0
      
1,023.5
  
Enterprise
    
554.6
      
645.5
      
1,071.6
      
1,202.5
  
Total
  
$
1,189.6
    
$
1,430.1
    
$
2,338.5
    
$
2,801.9
  

The Company attributes revenues to a geographic region based on the customer’s shipping address. The following table presents net revenues by geographic region (in millions):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
2024
    
2023
  
Americas:
                        
United States
  
$
654.7
    
$
776.3
    
$
1,264.1
    
$
1,509.9
  
Other
    
59.3
      
72.3
      
115.4
      
137.2
  
Total Americas
    
714.0
      
848.6
      
1,379.5
      
1,647.1
  
Europe, Middle East, and Africa
    
296.4
      
354.6
      
607.5
      
724.5
  
Asia Pacific
    
179.2
      
226.9
      
351.5
      
430.3
  
Total
  
$
1,189.6
    
$
1,430.1
    
$
2,338.5
    
$
2,801.9
  

For the three and six months ended June 30, 2024 and June 30, 2023, no customer accounted for more than 10% of total net revenues.
Note 11. Income Taxes
The following table provides details of income taxes (in millions, except percentages):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
  
2024
    
2023
    
2024
    
2023
  
Income before income taxes
  
$
47.0
    
$
41.5
    
$
20.6
    
$
148.6
  
Income tax provision (benefit)
  
$
10.8
    
$
15.0
    
$
(16.9
)
  
$
34.6
  
Effective tax rate
    
23.0
%
    
36.2
%
    
(82.0
)%
    
23.3
%

The Company’s effective tax rate differs from the federal statutory rate of 21% primarily due to the tax impact of state taxes, geographic mix of earnings including foreign-derived intangible income deductions and the capitalization of research and development ("R&D") expenditures, R&D and foreign tax credits, tax audit settlements, non-deductible compensation, cost sharing of stock-based compensation, and other transfer pricing adjustments.
The Company’s effective tax rate for the six months ended June 30, 2024 includes $19.0 million of one-time benefits from tax settlements related to the geographic mix of earnings.
The Company’s effective tax rate for the six months ended June 30, 2023 increased primarily due to tax expense on adjustments for certain privately-held investments.
As of June 30, 2024, deferred tax assets increased $72.7 million to $713.6 million from $640.9 million at December 31, 2023. Deferred income taxes are classified as other long-term assets in the Company's Condensed Consolidated Balance Sheets.
As of June 30, 2024, the total amount of gross unrecognized tax benefits was $113.0 million. Primarily due to the completion of tax review cycles, the amount decreased by $19.8 million compared to $132.8 million at December 31, 2023.
The Company engages in continuous discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. There is a greater than remote likelihood that the balance of the gross unrecognized tax benefits will decrease by up to $0.4 million within the next 12 months and $51.0 million within the next 18 months due to the completion of tax review cycles in various tax jurisdictions and lapses of applicable statutes of limitation.
The Company's examination by the IRS for the 2017 through 2018 tax years closed in February 2024. The closure did not have a significant impact to the income tax provision and the Company is not currently under examination by the IRS for other tax years. The Company is under examination by the India tax authorities for the 2012 through 2020 tax years.
Note 12. Net Income per Share
The Company computed basic and diluted net income per share as follows (in millions, except per share amounts):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
  
2024
    
2023
    
2024
    
2023
  
Numerator:
                        
Net income
  
$
34.1
    
$
24.4
    
$
33.3
    
$
109.8
  
Denominator:
                                
Weighted-average shares used to compute basic net income per share
    
325.1
      
319.3
      
323.8
      
320.8
  
Dilutive effect of employee stock awards
    
7.6
      
6.7
      
8.3
      
6.8
  
Weighted-average shares used to compute diluted net income per share
    
332.7
      
326.0
      
332.1
      
327.6
  
Net income per share:
                                
Basic
  
$
0.10
    
$
0.08
    
$
0.10
    
$
0.34
  
Diluted
  
$
0.10
    
$
0.07
    
$
0.10
    
$
0.34
  
 
                                
Anti-dilutive shares
    
0.3
      
3.9
      
0.1
      
3.8
  

Note 13. Commitments and Contingencies
Commitments
Except for the items below, there have been no material changes to the Company's commitments compared to the commitments described in Note 14, Commitments and Contingencies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K.
Purchase Commitments with Contract Manufacturers and Suppliers
In order to reduce manufacturing lead times and in the interest of having access to adequate component supply, the Company enters into agreements with contract manufacturers and certain suppliers to procure inventory based on the Company's requirements. A significant portion of the Company's purchase commitments arising from these agreements consists of firm and non-cancellable commitments. In certain instances, these agreements allow the Company the option to cancel, reschedule, and adjust its requirements based on the Company's business needs prior to firm orders being placed. These purchase commitments totaled $1,051.2 million as of June 30, 2024.
HPE Merger Contingencies
In connection with the pending Merger, the Company expects to incur additional liabilities of approximately $151.8 million that are subject to the consummation of the Merger. These contingent liabilities include financial advisory fees and certain retention bonuses.
Legal Proceedings
In the ordinary course of business, the Company is subject to various pending and potential investigations, disputes, litigation, and legal proceedings. The Company records an accrual for loss contingencies for legal proceedings when it believes that an unfavorable outcome is both (a) probable and (b) the amount or range of any possible loss is reasonably estimable. The Company intends to aggressively defend itself in any legal matters, and while the outcome of any pending matters is not currently determinable, the Company believes that none of its currently existing claims or proceedings are likely, individually or in the aggregate, to have a material adverse effect on its financial position. Notwithstanding the foregoing, there are many uncertainties associated with any litigation and these matters or any other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could adversely affect gross margins in future periods. If any of these events were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company's estimates, if any, which could result in the need to adjust the liability and record additional expenses.
Tax Liability
Our transition tax liability represents future cash payments on accumulated foreign earnings of subsidiaries as a result of the Tax Cuts and Jobs Act of 2017 ("Tax Act"). The Company has elected to pay its transition tax, net of applicable tax refunds, over the eight-year period provided in the Tax Act. The remaining balance of the Company's transition tax obligation of $102.1 million is to be paid within the next 12 months and is included within short-term income taxes payable as of June 30, 2024. Short-term income taxes payable are classified as other accrued liabilities in the Company's Condensed Consolidated Balance Sheets.
As of June 30, 2024, the Company also had $74.7 million included in long-term income taxes payable on the Condensed Consolidated Balance Sheets for unrecognized tax positions. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments related to this amount due to uncertainties in the timing of tax audit outcomes.
Note 14. Subsequent Events
Dividend Declaration
On July 25, 2024, the Company announced a cash dividend of $0.22 per share of common stock to be paid on September 23, 2024 to stockholders of record as of the close of business on September 2, 2024.

Exhibit 99.4
Management's Discussion and Analysis of Financial Condition and Results of Operations
Business and Market Environment
Juniper Networks designs, develops, and sells products and services for high-performance networks to enable customers to build scalable, reliable, secure, and cost-effective networks for their businesses, while achieving agility and improved operating efficiency through automation. We sell our solutions in more than 150 countries in three geographic regions: Americas; Europe, Middle East, and Africa, which we refer to as EMEA; and Asia Pacific, which we refer to as APAC. We organize and manage our business by major functional departments on a consolidated basis as one operating segment.
Our true north is experience-first networking to help our customers achieve their business outcomes. We sell high-performance networking product offerings within the following customer solution categories1: Campus and Branch, Data Center, and Wide Area Networking, and our connected security products are sold in each category.

•
Campus and Branch encompasses client-to-cloud portfolio, cloud-delivered campus wired and wireless solutions of Mist and EX switches, and our SD-WAN portfolio, which includes Session Smart Router, Branch SRX and Network Access Control solutions.


•
Data Center includes our QFX switching product line and Juniper Apstra, along with our high-end security portfolio of SRX, targeting data center security for service provider, cloud, and enterprise.


•
Wide Area Networking includes our MX and PTX routing product lines, and the ACX routing product line targeting the Metro market. It also includes Paragon Active Assurance, formerly known as Netrounds, which is now part of Paragon Automation, our WAN Automation suite.

In addition to our product offerings, we offer software-as-a-service ("SaaS"), software subscriptions, and other customer services, including maintenance and support, professional services, and education and training programs.
Our products and services address high-performance network requirements for our customers within our verticals: Cloud, Service Provider, and Enterprise who view the network as critical to their success. We believe our silicon, systems, and software represent innovations that transform the economics and experience of networking, helping our customers achieve superior performance, greater choice, and flexibility, while reducing overall total cost of ownership. We are executing against our innovation roadmap as each of our industry verticals transitions to cloud architectures. We focus on compelling and differentiated use cases targeting the Campus and Branch, Data Center, and Wide Area Networking solution categories. We believe our understanding of high-performance networking technology and cloud architecture positions us to effectively capitalize on the industry transition to more automated, cost-efficient, and scalable networks.
HPE Merger Agreement
On January 9, 2024, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Hewlett Packard Enterprise Company, a Delaware corporation (“HPE”), and Jasmine Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of HPE (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of HPE. Under the terms of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of our common stock (subject to certain exceptions set forth in the Merger Agreement) will be cancelled and converted into the right to receive $40.00 in cash, without interest and subject to applicable withholding taxes.
1 Effective as of the first quarter of 2024, our customer solution revenue categories include the following name changes, and historical revenue by customer solution was not impacted by the name change: 1) Automated WAN Solutions changed to Wide Area Networking, 2) Cloud-Ready Data Center changed to Data Center, and 3) AI-Driven Enterprise changed to Campus and Branch.
The Merger Agreement generally requires us to use commercially reasonable efforts to operate our business in the ordinary course, subject to certain exceptions including as required by applicable law, pending consummation of the Merger, and subjects the Company to customary interim operating covenants that restrict us from taking certain specified actions without HPE’s approval (such approval not to be unreasonably withheld, conditioned, or delayed) until the Merger is completed or the Merger Agreement is terminated in accordance with its terms. During this period, we are permitted to continue paying regular quarterly dividends, substantially in accordance with past practice, at a quarterly rate not to exceed $0.22 per share.
The completion of the Merger, which is currently expected to close in late calendar year 2024 or early calendar year 2025, is subject to the receipt of regulatory approvals and other customary closing conditions. On April 2, 2024, we received stockholder approval of the Merger Agreement. If the Merger is consummated, our common stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934 (the “Exchange Act”).
The Merger Agreement can be terminated under certain customary circumstances, including by mutual agreement, the imposition of a final and non-appealable governmental order that permanently enjoins or otherwise prohibits the Merger, an uncured breach of the Merger Agreement by the other party, or if the Merger has not been consummated by January 9, 2025, as may be automatically extended pursuant to the terms of the Merger Agreement. Under certain specified circumstances in which the Merger Agreement is terminated, HPE is required to pay us a termination fee equal to $815.0 million.
In connection with the pending Merger, we expect to incur additional liabilities of approximately $151.8 million consisting of financial advisory fees and certain retention bonuses, that are contingent on the consummation of the Merger.
Global Supply and Demand Update
Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation, monetary policy shifts, and turmoil in the geopolitical environment, including the Russia-Ukraine conflict, the political and economic tensions between China and Taiwan, and Middle East conflicts, including the Israel-Hamas war, tensions in the Red Sea in connection with the attacks by the Houthis to disrupt shipments, and military actions in response to these disruptions. Our overall performance depends in part on global economic conditions, as well as other disruptions and the impacts of such conditions on our customers.
We have a global supply chain, which is primarily composed of manufacturing partners, component suppliers, and third-party logistics partners. In prior periods, certain customers placed advanced product orders in an effort to secure supply and as a result, we experienced elongated sales cycles. In 2024, we have experienced some improvements in sales cycles and expect to see continued improvements in our Cloud vertical. We also expect to see improved sales cycles in our Service Provider vertical in the second half of 2024.
In prior years, we purchased additional inventory to meet customer demands and to mitigate supply constraints. As customers adopted a more conservative approach to spending, our mitigating actions resulted in increased inventory levels, and we increased inventory obsolescence charges in 2023. We expect inventory levels and excess and obsolescence charges to decline during the second half of 2024.
Management continues to actively monitor the impact of macroeconomic factors on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce. The extent of the impact on our operations and financial performance, our ability to execute our business strategies, and initiatives in the expected time frame, will depend on the impact of macroeconomic factors on our customers, partners, employees, contract manufacturers and supply chain. See the section entitled “Risk Factors” in Item 1A of Part II of this Report for further discussion.
Financial Results and Key Performance Metrics Overview
The following table provides an overview of our financial results and key financial metrics (in millions, except per share amounts, percentages, and days sales outstanding, or DSO):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
$ Change
    
% Change
    
2024
    
2023
    
$ Change
    
% Change
  
Net revenues
  
$
1,189.6
    
$
1,430.1
    
$
(240.5
)
    
(17
)%
  
$
2,338.5
    
$
2,801.9
    
$
(463.4
)
    
(17
)%
Gross margin
  
$
688.5
    
$
813.1
    
$
(124.6
)
    
(15
)%
  
$
1,369.4
    
$
1,584.3
    
$
(214.9
)
    
(14
)%
Percentage of net revenues
    
57.9
%
    
56.9
%
                    
58.6
%
    
56.5
%
                
Operating income
  
$
45.0
    
$
141.1
    
$
(96.1
)
    
(68
)%
  
$
30.8
    
$
256.8
    
$
(226.0
)
    
(88
)%
Percentage of net revenues
    
3.8
%
    
9.9
%
                    
1.3
%
    
9.2
%
                
Net income
  
$
34.1
    
$
24.4
    
$
9.7
      
40
%
  
$
33.3
    
$
109.8
    
$
(76.5
)
    
(70
)%
Percentage of net revenues
    
2.9
%
    
1.7
%
                    
1.4
%
    
3.9
%
                
Net income per share:
                                                                
Basic
  
$
0.10
    
$
0.08
    
$
0.02
      
25
%
  
$
0.10
    
$
0.34
    
$
(0.24
)
    
(71
)%
Diluted
  
$
0.10
    
$
0.07
    
$
0.03
      
43
%
  
$
0.10
    
$
0.34
    
$
(0.24
)
    
(71
)%
                                                                 
Operating cash flows
                                  
$
316.1
    
$
534.5
    
$
(218.4
)
    
(41
)%
Stock repurchase plan activity
  
$
-
    
$
120.0
    
$
(120.0
)
    
(100
)%
  
$
-
    
$
260.0
    
$
(260.0
)
    
(100
)%
Cash dividends declared per common stock
  
$
0.22
    
$
0.22
    
$
-
      
-
%
  
$
0.44
    
$
0.44
    
$
-
      
-
%
DSO
    
66
      
57
      
9
      
16
%
                                

   
As of
  
   
June 30,
2024
    
December
31,
2023
    
$ Change
    
% Change
  
Deferred revenue:
                        
Deferred product revenue
  
$
84.6
    
$
92.1
    
$
(7.5
)
    
(8
)%
Deferred service revenue
    
2,003.8
      
1,932.8
      
71.0
      
4
%
Total
  
$
2,088.4
    
$
2,024.9
    
$
63.5
      
3
%
                                 
Deferred revenue from customer solutions(*)
  
$
913.9
    
$
843.4
    
$
70.5
      
8
%
Deferred revenue from hardware maintenance and professional services
    
1,174.5
      
1,181.5
      
(7.0
)
    
(1
)%
Total
  
$
2,088.4
    
$
2,024.9
    
$
63.5
      
3
%

(*)
Includes deferred revenue from hardware solutions, software licenses, software support and maintenance, and SaaS offerings sold in our Campus and Branch, Data Center, and Wide Area Networking customer solution categories.


•
Net Revenues: Product net revenues decreased during the three and six months ended June 30, 2024, compared to the same periods in 2023, across all customer solutions, verticals, and geographies, mainly due to lower sales volume. Service net revenues increased during the three and six months ended June 30, 2024, compared to the same periods in 2023, primarily driven by strong sales of software support and hardware support contracts and SaaS.

Of our top ten customers for the second quarter of 2024, six were in Cloud, two were in Service Provider, and two were in Enterprise. Of these customers, none were located outside of the U.S.

•
Gross Margin: Gross margin as a percentage of net revenues increased primarily due to higher service revenue mix, improved services margin, and lower inventory-related expenses partially offset by unfavorable product mix and lower revenue.


•
Operating Margin: Operating income as a percentage of net revenues decreased primarily due to merger-related charges incurred in connection with our pending acquisition by HPE, partially offset by the drivers described in the gross margin discussion above.


•
Operating Cash Flows: Net cash provided by operations decreased primarily due to lower customer collections and resumption of normal timing of cash tax payments post-expiration of IRS relief for the California floods in October 2023, partially offset by lower supplier payments.


•
Capital Return: We continue to return capital to our stockholders. During the three and six months ended June 30, 2024, we paid a quarterly dividend of $0.22 per share, for an aggregate amount of $71.5 million and $142.9 million, respectively.


•
Annual Recurring Revenue (“ARR”): ARR represents annual recurring revenue from renewable contracts with customers for software licenses, software support and maintenance, and SaaS expected to be recognized over an annual period of time. ARR includes the implied annualized billing value of contracts that are active as of the end of the periods presented. ARR excludes (i) software licenses recognized as revenue at a point in time and (ii) revenue included in bundled hardware maintenance stock-keeping units that is allocable to software-related maintenance. As of June 30, 2024, ARR was $424.0 million, compared to $318.5 million as of June 30, 2023, and the increase was primarily driven by strong sales of SaaS subscriptions.


•
DSO: DSO is calculated as the ratio of ending accounts receivable, net of allowances, divided by average daily net revenues for the preceding 90 days. DSO increased primarily due to invoicing, which occurred later in the quarter.


•
Deferred Revenue: Total deferred revenue increased as of June 30, 2024, compared to December 31, 2023, primarily driven by the timing of contract renewals and an increase in deferrals of SaaS subscriptions and software and related services.

Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and the accompanying notes. On an ongoing basis, we evaluate our estimates and assumptions. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
During the six months ended June 30, 2024, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Form 10-K.
Results of Operations
Revenues
The following table presents net revenues by customer solution, customer vertical, and geographic region (in millions, except percentages):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
$
Change
    
%
Change
    
2024
    
2023
    
$
Change
    
%
Change
  
Customer Solutions:
                                                
Wide Area Networking
  
$
340.8
    
$
474.6
    
$
(133.8
)
    
(28
)%
  
$
691.2
    
$
949.1
    
$
(257.9
)
    
(27
)%
Percentage of net revenues
    
28.6
%
    
33.2
%
                    
29.6
%
    
33.9
%
                
Data Center
    
168.7
      
200.3
      
(31.6
)
    
(16
)%
    
331.8
      
393.9
      
(62.1
)
    
(16
)%
Percentage of net revenues
    
14.2
%
    
14.0
%
                    
14.2
%
    
14.1
%
                
Campus and Branch
    
279.9
      
371.1
      
(91.2
)
    
(25
)%
    
520.4
      
688.1
      
(167.7
)
    
(24
)%
Percentage of net revenues
    
23.5
%
    
25.9
%
                    
22.3
%
    
24.6
%
                
Hardware Maintenance and Professional Services
    
400.2
      
384.1
      
16.1
      
4
%
    
795.1
      
770.8
      
24.3
      
3
%
Percentage of net revenues
    
33.7
%
    
26.9
%
                    
33.9
%
    
27.4
%
                
Total net revenues
  
$
1,189.6
    
$
1,430.1
    
$
(240.5
)
    
(17
)%
  
$
2,338.5
    
$
2,801.9
    
$
(463.4
)
    
(17
)%
                                                                 
Cloud
  
$
267.9
    
$
311.0
    
$
(43.1
)
    
(14
)%
  
$
517.9
    
$
575.9
    
$
(58.0
)
    
(10
)%
Percentage of net revenues
    
22.5
%
    
21.8
%
                    
22.2
%
    
20.6
%
                
Service Provider
    
367.1
      
473.6
      
(106.5
)
    
(22
)%
    
749.0
      
1,023.5
      
(274.5
)
    
(27
)%
Percentage of net revenues
    
30.9
%
    
33.1
%
                    
32.0
%
    
36.5
%
                
Enterprise
    
554.6
      
645.5
      
(90.9
)
    
(14
)%
    
1,071.6
      
1,202.5
      
(130.9
)
    
(11
)%
Percentage of net revenues
    
46.6
%
    
45.1
%
                    
45.8
%
    
42.9
%
                
Total net revenues
  
$
1,189.6
    
$
1,430.1
    
$
(240.5
)
    
(17
)%
  
$
2,338.5
    
$
2,801.9
    
$
(463.4
)
    
(17
)%
 
                                                                
Americas:
                                                                
United States
  
$
654.7
    
$
776.3
    
$
(121.6
)
    
(16
)%
  
$
1,264.1
    
$
1,509.9
    
$
(245.8
)
    
(16
)%
Other
    
59.3
      
72.3
      
(13.0
)
    
(18
)%
    
115.4
      
137.2
      
(21.8
)
    
(16
)%
Total Americas
    
714.0
      
848.6
      
(134.6
)
    
(16
)%
    
1,379.5
      
1,647.1
      
(267.6
)
    
(16
)%
Percentage of net revenues
    
60.0
%
    
59.3
%
                    
59.0
%
    
58.8
%
                
EMEA
    
296.4
      
354.6
      
(58.2
)
    
(16
)%
    
607.5
      
724.5
      
(117.0
)
    
(16
)%
Percentage of net revenues
    
24.9
%
    
24.8
%
                    
26.0
%
    
25.9
%
                
APAC
    
179.2
      
226.9
      
(47.7
)
    
(21
)%
    
351.5
      
430.3
      
(78.8
)
    
(18
)%
Percentage of net revenues
    
15.1
%
    
15.9
%
                    
15.0
%
    
15.3
%
                
Total net revenues
  
$
1,189.6
    
$
1,430.1
    
$
(240.5
)
    
(17
)%
  
$
2,338.5
    
$
2,801.9
    
$
(463.4
)
    
(17
)%

Three Months Ended June 30, 2024 compared with the Three Months Ended June 30, 2023
Total net revenues decreased primarily due to decreases in all customer solutions, which were mainly driven by lower sales volume, partially offset by an increase in Hardware Maintenance and Professional Services.
The Wide Area Networking revenue and Campus and Branch revenue decreased across all verticals.
The Data Center revenue decreased primarily due to a decline in Service Provider and Enterprise, partially offset by a growth in Cloud.
Six Months Ended June 30, 2024 compared with the Six Months Ended June 30, 2023
Total net revenues decreased primarily due to decreases in all customer solutions, which were mainly driven by lower sales volume, partially offset by an increase in Hardware Maintenance and Professional Services.
The Wide Area Networking revenue and Campus and Branch revenue decreased across all verticals.
The Data Center revenue decreased primarily due to a decline in Service Provider and Enterprise, partially offset by a growth in Cloud.
Also, software and security products and services represent key areas of our strategic focus that are critical components to our business success. Software and related service offerings include revenue from software license, software support and maintenance and SaaS contracts, except for revenue included in bundled hardware maintenance stock-keeping units that is allocable to software-related maintenance. Total security offerings include revenue from our complete portfolio of hardware and software security products, including SD-WAN solutions, as well as services related to our security solutions.
The following table presents net revenues from software and security products and services (in millions, except percentages):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
$
Change
    
% Change
    
2024
    
2023
    
$
Change
    
% Change
  
Software and Related Services
  
$
301.9
    
$
318.3
    
$
(16.4
)
    
(5
)%
  
$
607.7
    
$
550.5
    
$
57.2
      
10
%
Percentage of net revenues
    
25.4
%
    
22.3
%
                    
26.0
%
    
19.6
%
                
Total Security
  
$
128.6
    
$
167.6
    
$
(39.0
)
    
(23
)%
  
$
254.6
    
$
349.2
    
$
(94.6
)
    
(27
)%
Percentage of net revenues
    
10.8
%
    
11.7
%
                    
10.9
%
    
12.5
%
                

Gross Margins
The following table presents gross margins (in millions, except percentages):

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
$ Change
    
% Change
    
2024
    
2023
    
$ Change
    
% Change
  
Product gross margin
  
$
325.0
    
$
492.5
    
$
(167.5
)
    
(34
)%
  
$
653.0
    
$
950.2
    
$
(297.2
)
    
(31
)%
Percentage of product revenues
    
47.7
%
    
51.1
%
                    
49.0
%
    
50.7
%
                
Service gross margin
    
363.5
      
320.6
      
42.9
      
13
%
    
716.4
      
634.1
      
82.3
      
13
%
Percentage of service revenues
    
71.5
%
    
68.7
%
                    
71.3
%
    
68.5
%
                
Total gross margin
  
$
688.5
    
$
813.1
    
$
(124.6
)
    
(15
)%
  
$
1,369.4
    
$
1,584.3
    
$
(214.9
)
    
(14
)%
Percentage of net revenues
    
57.9
%
    
56.9
%
                    
58.6
%
    
56.5
%
                

Our gross margins as a percentage of net revenues have been and will continue to be affected by a variety of factors, including general inflationary pressures, the mix and average selling prices of our products and services, new product introductions and enhancements, manufacturing, component and logistics costs, expenses for inventory obsolescence and warranty obligations, cost of support and service personnel, customer mix as we continue to expand our footprint with certain strategic customers, the mix of distribution channels through which our products and services are sold, and import tariffs. For example, in prior periods, our logistics and other supply chain-related costs increased due to the global semiconductor shortage, and we started to see cost improvement in 2023 due to the overall reduction in industry-wide supply constraints. For more information on the impact of supply chain constraints on our business, see the “Risk Factors” section of Item 1A of Part II of this Report.
Three Months Ended June 30, 2024 compared with the Three Months Ended June 30, 2023
Product gross margin
Product gross margin as a percentage of product revenues decreased primarily due to unfavorable revenue mix, partially offset by lower inventory-related expenses. We continue to undertake specific efforts to address certain factors impacting our product gross margin. These efforts include performance and quality improvements through engineering to increase value across our products; optimizing our supply chain and service business; pricing management; and increasing software and solution sales.
Service gross margin
Service gross margin as a percentage of service net revenues increased primarily due to higher revenue, including a 4% increase in maintenance revenue, 56% increase in SaaS revenue, 66% increase in professional services revenue, and ongoing productivity improvements.
Six Months Ended June 30, 2024 compared with the Six Months Ended June 30, 2023
Product gross margin
Product gross margin as a percentage of product revenues decreased primarily due to unfavorable revenue mix and lower revenue, partially offset by lower inventory-related expenses.
Service gross margin
Service gross margin as a percentage of service net revenues increased primarily due to higher revenue, a 5% increase in maintenance revenue, 54% increase in SaaS revenue, 29% increase in professional services revenue, and ongoing productivity improvements.
Operating Expenses
The following table presents operating expenses (in millions, except percentages):

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
$ Change
    
% Change
    
2024
    
2023
    
$
Change
    
% Change
  
Research and development
  
$
274.6
    
$
282.0
    
$
(7.4
)
    
(3
)%
  
$
571.2
    
$
566.8
    
$
4.4
      
1
%
Percentage of net revenues
    
23.1
%
    
19.7
%
                    
24.4
%
    
20.2
%
                
Sales and marketing
    
297.4
      
308.3
      
(10.9
)
    
(4
)%
    
602.8
      
611.5
      
(8.7
)
    
(1
)%
Percentage of net revenues
    
25.0
%
    
21.5
%
                    
25.8
%
    
21.8
%
                
General and administrative
    
60.8
      
65.2
      
(4.4
)
    
(7
)%
    
121.5
      
133.2
      
(11.7
)
    
(9
)%
Percentage of net revenues
    
5.1
%
    
4.6
%
                    
5.2
%
    
4.8
%
                
Restructuring charges
    
1.6
      
16.5
      
(14.9
)
    
(90
)%
    
5.7
      
16.0
      
(10.3
)
    
(64
)%
Percentage of net revenues
    
0.1
%
    
1.2
%
                    
0.2
%
    
0.6
%
                
Merger-related charges
    
9.1
      
-
      
9.1
      
N/
M
    
37.4
      
-
      
37.4
      
N/
M
Percentage of net revenues
    
0.8
%
    
-
%
                    
1.6
%
    
-
%
                
Total operating expenses
  
$
643.5
    
$
672.0
    
$
(28.5
)
    
(4
)%
  
$
1,338.6
    
$
1,327.5
    
$
11.1
      
1
%
Percentage of net revenues
    
54.1
%
    
47.0
%
                    
57.2
%
    
47.4
%
                

N/M - Not meaningful
Three Months Ended June 30, 2024 compared with the Three Months Ended June 30, 2023

Total operating expenses decreased primarily due to lower headcount-related costs and lower restructuring charges.
Six Months Ended June 30, 2024 compared with the Six Months Ended June 30, 2023

Total operating expenses increased primarily due to merger-related charges, including professional services and financial advisory fees incurred directly in connection with the pending Merger, partially offset by lower restructuring charges, a decrease in personnel-related costs, and a reduction in legal and other professional services.
Gain (Loss) on Privately-Held Investments, Net
The following table presents the gain (loss) on privately-held investments, net (in millions, except percentages):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
$
Change
    
% Change
    
2024
    
2023
    
$
Change
    
% Change
  
Gain (loss) on privately-held
investments, net
  
$
0.7
    
$
(92.2
)
  
$
92.9
      
N/
M
  
$
(13.6
)
  
$
(92.0
)
  
$
78.4
      
(85
)%
Percentage of net revenues
    
0.1
%
    
(6.4
)%
                    
(0.6
)%
    
(3.3
)%
                

N/M - Not meaningful
During the three months ended June 30, 2024, the Company did not record any material allowance for credit loss. During the six months ended June 30, 2024, the Company recognized an allowance for credit loss reserve on debt and redeemable preferred stock investments and note receivables relating to its privately-held investees. The credit loss represents the difference between the estimated fair value or the amount expected to be collected and the amortized cost related to credit factors.
Other Income (Expense), Net
The following table presents other income (expense), net (in millions, except percentages):

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
$ Change
    
% Change
    
2024
    
2023
    
$ Change
    
% Change
  
Interest income
  
$
16.7
    
$
11.7
    
$
5.0
      
43
%
  
$
33.6
    
$
21.2
    
$
12.4
      
58
%
Interest expense
    
(20.5
)
    
(19.7
)
    
(0.8
)
    
4
%
    
(41.0
)
    
(38.9
)
    
(2.1
)
    
5
%
Gain on other investments, net (1)
    
4.6
      
1.2
      
3.4
      
N/M
    
8.0
      
1.9
      
6.1
      
N/M
Other
    
0.5
      
(0.6
)
    
1.1
      
N/M
    
2.8
      
(0.4
)
    
3.2
      
N/M
Total other income (expense), net
  
$
1.3
    
$
(7.4
)
  
$
8.7
      
N/M
  
$
3.4
    
$
(16.2
)
  
$
19.6
      
N/M
Percentage of net revenues
    
0.1
%
    
(0.5
)%
                    
0.1
%
    
(0.6
)%
            
 

N/M - Not meaningful
(1) Other investments represent fixed income securities and equity investments with readily determinable fair value.
Total other income (expense), net, increased during the three and six months ended June 30, 2024, compared to the same periods in 2023, primarily due to higher interest income, net gains on investments and higher foreign currency gains, partially offset by higher interest expense.
Income Tax Provision (Benefit)
The following table presents income tax provision (benefit) (in millions, except percentages):

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2024
    
2023
    
$ Change
    
% Change
    
2024
    
2023
    
$ Change
    
% Change
  
Income tax provision (benefit)
  
$
10.8
    
$
15.0
    
$
(4.2
)
    
(28
)%
  
$
(16.9
)
  
$
34.6
    
$
(51.5
)
    
(149
)%
Effective tax rate
    
23.0
%
    
36.2
%
                    
(82.0
)%
    
23.3
%
                

The effective tax rate decreased during the three and six months ended June 30, 2024, as compared to the same periods in 2023, primarily due to the changes in the effect of one-time items in the comparative periods. For further explanation of our income tax provision, see Note 11, Income Taxes, in Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report.
Beginning January 1, 2022, as a result of the Tax Cuts and Jobs Act of 2017 ("Tax Act"), all our U.S. and non-U.S. based R&D expenditures are being capitalized and amortized over five and fifteen years, respectively. Absent a change in legislation, we estimate a reduced effective tax rate and incremental cash tax payments of up to $130 million in 2024. The actual impacts will primarily depend on if and when this legislation is deferred, modified, or repealed by the U.S. Congress, including if retroactively, and the amount of R&D expenditures paid or incurred. We estimate the impacts should gradually decrease over the five- and fifteen-year amortization periods.
Through June 30, 2024, European Union members and several other countries either initiated legislation to adopt or enacted global minimum tax provisions, which were effective for Juniper beginning January 1, 2024. We do not expect to incur significant global minimum taxes in 2024.
Liquidity and Capital Resources
Liquidity and capital resources may be impacted by our operating activities as well as acquisitions, investments in strategic relationships, and payment of cash dividends on our common stock. Since the enactment of the Tax Act, we have repatriated a significant amount of cash from outside of the U.S., and plan to continue to repatriate on an ongoing basis. We intend to use the repatriated cash to invest in the business and fund our return of capital to stockholders.
Based on past performance and current expectations, we believe that our existing cash and cash equivalents, short-term, and long-term investments, and cash generated from operations together with the revolving credit facility will be sufficient to fund our operations; planned dividends; capital expenditures; purchase commitments and other liquidity requirements; and anticipated growth for at least the next twelve months and thereafter for the foreseeable future. However, our future liquidity and capital requirements may vary materially from those now planned depending on many factors, including, but not limited to, our growth rate; the timing and amount we spend to support development efforts; the expansion of sales and marketing activities; the introduction of new and enhanced products and services; the costs to acquire or invest in businesses and technologies; an increase in manufacturing or component costs; costs related to the consummation of the Merger; certain interim operating covenants that we have agreed to in the Merger Agreement; and the risks and uncertainties detailed in the “Risk Factors” section of Item 1A of Part II of this Report.
The Company's cash requirements have not changed materially since December 31, 2023, as discussed in the Form 10-K, except for purchase commitments with contracts manufacturers and suppliers and potential tax payments pursuant to the Tax Act.
Revolving Credit Facility
In June 2023, we entered into a credit agreement with certain institutional lenders that provides for a five-year $500.0 million unsecured revolving credit facility (the “Revolving Credit Facility”), with an option to increase the Revolving Credit Facility by up to an additional $200.0 million, subject to the lenders' approval. The Revolving Credit Facility will terminate in June 2028, subject to two one-year maturity extension options, on the terms and conditions set forth in the credit agreement. Under the terms of the Merger Agreement, the Company has agreed to limit its borrowing to $40 million and is required to terminate the Revolving Credit Facility upon the closing of the Merger. As of June 30, 2024, we were in compliance with all covenants in the credit agreement, and no amounts were outstanding. Refer to Note 7, Debt, in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report for information on the credit agreement.
Purchase Commitments with Contract Manufacturers and Suppliers
In order to reduce manufacturing lead times and in the interest of having access to adequate component supply, we enter into agreements with contract manufacturers and certain suppliers to procure inventory based on the Company's requirements. A significant portion of the Company's purchase commitments arising from these agreements consists of firm and non-cancellable commitments. In certain instances, these agreements allow the Company the option to cancel, reschedule, and adjust its requirements based on the Company's business needs prior to firm orders being placed. As of June 30, 2024, we had purchase commitments of $1,051.2 million, with $772.5 million payable within 12 months.
Tax Payments
During the six months ended June 30, 2024, we made tax payments of approximately $188.4 million. In 2024, we may incur up to $130 million in additional tax payments attributed to the capitalization and amortization requirements for R&D expenditures pursuant to the Tax Act.
Capital Return
We have a capital return program authorized by the Board of Directors (the "Board"). As of June 30, 2024, there was approximately $0.2 billion of authorized funds remaining under the 2018 Stock Repurchase Program. In connection with our entry into the Merger Agreement, we are required to suspend our stock repurchase program, and we did not repurchase our common stock during the six months ended June 30, 2024.
In addition, any future dividends, and the establishment of record and payment dates, are subject to approval by the Board or an authorized committee thereof. See Note 14, Subsequent Events, in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report for discussion of our dividend declaration subsequent to June 30, 2024.

Exhibit 99.5

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF
HEWLETT PACKARD ENTERPRISE COMPANY AND JUNIPER NETWORKS, INC.

On January 9, 2024, Hewlett Packard Enterprise Company, a Delaware corporation (“HPE” or the “Company”), Jasmine Acquisition Sub, Inc., a Delaware corporation (“Merger Sub”) and Juniper Networks, Inc., a Delaware corporation (“Juniper”) entered into the Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub will be merged with and into Juniper, with Juniper surviving as a wholly owned subsidiary of the Company (the “Merger”).

a)
Juniper shareholders will receive $40.00 per share in cash upon the completion of the transaction, representing an equity value of approximately $13.3 billion.
 
b)
Consideration for the Merger will be funded in part by a portion of the proceeds from borrowings of approximately $9.5 billion, which is assumed for the purposes of this unaudited pro forma condensed combined financial information to be comprised of $6.5 billion, aggregate principal amount of senior unsecured notes, (the “Senior Notes”) and a $3.0 billion three-year term loan, with a consortium of lenders (the “Term Loan”, and together with the Senior Notes the “Debt Financing”). The Senior Notes are assumed to include four series that each pay a fixed rate of interest and mature at various tenors ranging from five to thirty years. The Term Loan interest rate is indexed to the Secured Overnight Financing Rate (“SOFR”) plus an Applicable Rate, (i.e., subject to the credit rating of the Company), plus 0.10% of a credit spread adjustment. The Debt Financing will ultimately be utilized to fund the Merger Consideration and repay all principal, interest and fees outstanding under Juniper’s current revolving credit arrangement (entered into through its credit agreement dated June 15, 2023).
 
c)
Consideration for the Merger is also expected to be funded by HPE’s issuance of Mandatory Convertible Preferred Stock expected to result in aggregate gross proceeds of  $1.5 billion, (the “Equity Financing”). The par value of these shares is assumed to be $0.01 and cumulative dividends will accrue at an estimated annual coupon of 8.0% on the liquidation preference of $50.00 per share. The shares are not expected to be redeemable, unless the Merger does not close. Further, the preferred shareholders have no voting rights unless the Company defaults on its obligation to pay dividends.

d)
HPE will also be utilizing all of the cash consideration of the $2.1 billion ($2.0 billion, net of cash tax) in gross proceeds generated from the sale of its 30% stake in H3C Technologies Co., Limited ("H3C") to fund the Merger. The H3C sale was executed, pursuant to an Amended and Restated Put Share Agreement, dated May 24, 2024, among Unisplendour International Technology Limited and certain wholly owned subsidiaries of the Company. The sale of the 30% stake in H3C closed on September 4, 2024.

e)
In connection with the Merger, each of the outstanding and unvested equity awards of Juniper which is comprised of restricted stock units (“RSUs”), restricted stock awards (“RSAs”), performance stock awards (“PSAs”) and stock options (collectively referred to as “Juniper equity awards”) which had been previously issued to its employees, will be converted into HPE equity awards (the “new HPE equity awards”), utilizing the Exchange Ratio (as defined below). The terms and conditions of the new HPE equity awards are substantially similar to those of Juniper’s equity awards (other than certain performance vesting conditions).

Juniper equity awards held by the Chief Executive Officer (“CEO”) and certain other executives will also generally be converted into new HPE equity awards, with 30% of the equity awards of the CEO of Juniper (the “Accelerated CEO Awards”) immediately vesting on the closing date of the Merger. Further, RSUs held by the non-employee members of Juniper’s board of directors shall vest in full and be cancelled and converted such that each member will receive an amount of cash equivalent to the number of outstanding RSU awards held by each member multiplied by the merger consideration of $40.00 per share. Additionally, as a part of the compensation arrangement post-Merger close, HPE will be issuing retention, time and performance based RSU awards to the CEO of Juniper. The retention and time-based performance awards are going to vest in three equal annual installments, whereas the performance-based awards will be linked to the operating profit goals for the Networking business unit and will vest after the completion of a three-year performance period.

Additionally, Juniper also maintains an Employee Stock Purchase Plan (the “ESPP”), which as a part of the Merger will be terminated immediately prior to the Merger and all accumulated contributions remaining in the ESPP will be refunded to such participants (i.e., Juniper employees).

1
The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. The Company and Juniper have different fiscal years: the Company’s fiscal year ends on October 31, and Juniper’s fiscal year ends on December 31. The unaudited pro forma condensed combined financial information has been prepared utilizing period ends that differ by one fiscal quarter or less, as permitted by Rule 11-02 of Regulation S-X.

The unaudited pro forma condensed combined balance sheet gives effect to the Merger, and the Financing Transactions as if consummated as of July 31, 2024, and is derived from:

•
For the Company, the unaudited condensed consolidated financial statements as of July 31, 2024.
•
For Juniper, the unaudited condensed consolidated financial statements as of June 30, 2024.

The unaudited pro forma condensed combined statement of operations for the year ended October 31, 2023, gives effect to the Merger and the Financing Transactions as if they had occurred on November 1, 2022, and is derived from:

•
For the Company, the audited consolidated financial statements for the year ended October 31, 2023.
•
For Juniper, the audited consolidated financial statements for the year ended December 31, 2023.

The unaudited pro forma condensed combined statement of operations for the nine months ended July 31, 2024, gives effect to the Merger and the Financing Transaction as if they had occurred on November 1, 2022, and is derived from:

•
For the Company, the unaudited condensed consolidated financial statements for the nine months ended July 31, 2024.
•
For Juniper, the unaudited condensed consolidated statement of operations for the six months ended June 30, 2024, and three months ended December 31, 2023, which has been calculated by deducting Juniper’s results for the nine months ended September 30, 2023, from its results for the fiscal year ended December 31, 2023. The historical results of operations (i.e., sales, income and costs) for Juniper pertaining to the three months ended December 31, 2023, have been included in the unaudited pro forma condensed combined statement of operations for both the twelve months ended October 31, 2023, and the nine months ended June 30, 2024.
 
The unaudited pro forma condensed combined financial information has been prepared by the Company using the acquisition method of accounting in accordance with U.S. generally accepted accounting principles (“US GAAP”). The Company has been treated as the acquirer in the Merger for accounting purposes. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable as of the date hereof. The unaudited pro forma condensed combined financial information is provided for illustrative and informational purposes only and does not purport to represent or be indicative of the consolidated results of operations or financial condition of the Company had the Merger been completed as of the dates presented and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity.
 
An updated determination of the fair value of Juniper’s assets acquired and liabilities assumed will be performed within one year of closing of the Merger. The final purchase price allocation may be materially different from the preliminary purchase consideration allocation presented in the unaudited pro forma condensed combined financial information. Any changes in the fair values of the net assets or total purchase consideration as compared with the information shown in the unaudited pro forma condensed combined financial information may change the amount of the total purchase price allocated to goodwill, and other assets and liabilities, which may impact the combined entity’s balance sheet and statement of operations. As a result of the foregoing, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final acquisition accounting may arise, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and the combined entity’s future results of operations and financial position.
 
The unaudited pro forma condensed combined financial information does not reflect any expected cost savings, operating synergies, or revenue enhancements that the combined entity may achieve as a result of the Merger or the costs necessary to achieve any such cost savings, operating synergies, or revenue enhancements.
2
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JULY 31, 2024
(in millions)

   
HPE Historical (as of
July 31,
2024)
    
Juniper Historical (as of
June 30,
2024),
As Adjusted
(Note 2)
    
Transaction Accounting Adjustments - Merger
(Note 4 & 5)
    
Notes
  
Transaction Accounting Adjustments – Debt Financing and Equity Financing
(Note 6)
    
Notes
  
Transaction Accounting Adjustments - H3C Stake Sale
(Note 7)
    
Notes
    
Pro Forma Combined
  
ASSETS
                                                  
Current Assets:
                                                  
Cash and cash equivalents
  
$
3,642
    
$
935
    
$
(13,079
)
    
4(g) 5(e)
  
$
10,924
      
6(a) 6(b)
  
$
2,023
      
7
    
$
4,445
  
Accounts receivable, net of allowances
    
3,857
      
879
      
-
            
-
            
-
              
4,736
  
Financing receivables, net of allowances
    
3,705
      
-
      
-
            
-
            
-
              
3,705
  
Inventory
    
7,679
      
1,012
      
555
      
4(a)
    
-
            
-
              
9,246
  
Assets held for sale
    
6
      
-
      
-
            
-
            
-
              
6
  
Other current assets
    
3,516
      
705
      
-
            
-
            
-
              
4,221
  
Total current assets
  
$
22,405
    
$
3,531
    
$
(12,524
)
        
$
10,924
          
$
2,023
            
$
26,359
  
Property, plant and equipment, net
    
5,738
      
685
      
226
      
4(b)
    
-
            
-
              
6,649
  
Long-term financing receivables and other assets
    
11,926
      
1,415
      
(1,081
)
    
4(f) 4(h)
    
-
            
-
              
12,260
  
Investments in equity interests
    
2,318
      
-
      
-
            
-
            
(1,419
)
    
7
      
899
  
Goodwill
    
17,988
      
3,734
      
2,549
      
4(e)
    
-
            
-
              
24,271
  
Intangible assets, net
    
477
      
64
      
6,536
      
4(c)
    
-
            
-
              
7,077
  
Total assets
  
$
60,852
    
$
9,429
    
$
(4,294
)
        
$
10,924
          
$
604
            
$
77,515
  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                    
Current Liabilities:
                                                                    
Notes payable and short-term borrowings
    
3,864
      
-
      
-
            
150
      
6(a)
    
-
              
4,014
  
Accounts payable
    
10,085
      
268
      
-
            
-
            
-
              
10,353
  
Employee compensation and benefits
    
1,166
      
264
      
-
            
-
            
-
              
1,430
  
Taxes on earnings
    
150
      
108
      
-
            
-
            
90
      
7
      
348
  
Deferred revenue
    
3,803
      
1,148
      
-
            
-
            
-
              
4,951
  
Accrued restructuring
    
86
      
9
      
-
            
-
            
-
              
95
  
Liabilities held for sale
    
59
      
-
      
-
            
-
            
-
              
59
  
Other accrued liabilities
    
4,652
      
247
      
(2
)
    
4(f)
    
-
            
-
              
4,897
  
Total current liabilities
  
$
23,865
    
$
2,044
    
$
(2
)
        
$
150
          
$
90
            
$
26,147
  
Long-term debt
    
7,939
      
1,607
      
-
            
9,311
      
6(a)
    
-
              
18,857
  
Other non-current liabilities
    
6,914
      
1,276
      
(12
)
    
4(f)
    
-
            
-
              
8,178
  
Commitments and Contingencies
                                                                    
Stockholders' Equity
                                                                    
HPE stockholders' Equity:
                                                                    
Mandatory convertible preferred stock
    
-
      
-
      
-
            
-
            
-
              
-
  
Common stock
    
13
      
-
      
-
            
-
            
-
              
13
  
Additional paid-in capital
    
28,361
      
6,766
      
(6,480
)
    
4(d) 5(e)
    
1,463
      
6(b)
                    
30,110
  
Accumulated deficit
    
(3,240
)
    
(2,273
)
    
2,209
      
4(d) 5(d)
    
-
            
514
      
7
      
(2,790
)
Accumulated other comprehensive loss
    
(3,057
)
    
9
      
(9
)
    
4(d)
    
-
            
-
              
(3,057
)
Total HPE stockholders' equity
  
$
22,077
    
$
4,502
    
$
(4,280
)
        
$
1,463
          
$
514
            
$
24,276
  
Non-controlling interests
    
57
      
-
      
-
            
-
            
-
              
57
  
Total stockholders' equity
  
$
22,134
    
$
4,502
    
$
(4,280
)
          
1,463
          
$
514
            
$
24,333
  
Total liabilities and stockholders' equity
  
$
60,852
    
$
9,429
    
$
(4,294
)
        
$
10,924
          
$
604
            
$
77,515
  
3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2023
(in millions, except per share data)

   
HPE
Historical (Fiscal
Year
Ended
October
31, 2023)
    
Juniper Historical (Fiscal
Year
Ended
December
31, 2023),
As Adjusted
(Note 2)
    
Transaction Accounting Adjustments - Merger
(Note 5)
    
Notes
  
Transaction Accounting Adjustments - Debt Financing
(Note 6)
    
Notes
  
Transaction Accounting Adjustments - H3C Stake Sale
(Note 7)
    
Notes
    
Pro Forma
Combined
  
Net Revenue:
                                                  
Products
  
$
18,100
    
$
3,633
    
$
-
          
-
          
-
          
$
21,733
  
Services
    
10,488
      
1,932
      
-
                                    
12,420
  
Financing income
    
547
      
-
      
-
          
-
          
-
            
547
  
Total net revenue
    
29,135
      
5,565
      
-
          
-
          
-
            
34,700
  
Costs and Expenses:
                                                              
Cost of products
    
11,958
      
1,792
      
527
      
5(a) 5(b) 5(e)
    
-
          
-
            
14,277
  
Cost of services
    
6,555
      
618
      
(16
)
    
5(b) 5(e)
    
-
          
-
            
7,157
  
Financing cost
    
383
      
-
      
-
            
-
          
-
            
383
  
Research and development
    
2,349
      
1,083
      
(6
)
    
5(b) 5(e)
    
-
          
-
            
3,426
  
Selling, general and administrative
    
5,160
      
1,435
      
(11
)
    
5(b) 5(e)
    
-
          
-
            
6,584
  
Amortization of intangible assets
    
288
      
69
      
799
      
5(c)
    
-
          
-
            
1,156
  
Transformation costs
    
283
      
98
      
-
            
-
          
-
            
381
  
Disaster charges
    
1
      
-
      
-
            
-
          
-
            
1
  
Acquisition, disposition, and other related charges
    
69
      
-
      
64
      
5(d)
    
-
          
-
            
133
  
  Total costs and expenses
    
27,046
      
5,095
      
1,357
            
-
          
-
            
33,498
  
Earnings from operations
    
2,089
      
470
      
(1,357
)
          
-
          
-
            
1,202
  
Interest and other, net
    
(156
)
    
(121
)
    
-
            
(538
)
    
6(a)
    
-
            
(815
)
Tax indemnification and other adjustments
    
55
                                                        
55
  
Non-service net periodic benefit (cost) credit
    
(3
)
            
-
                          
-
            
(3
)
Gain from sale of equity interests
    
-
      
-
      
-
            
-
            
724
    
7
      
724
  
Earnings (Loss) from equity interests
    
245
      
(10
)
    
-
            
-
            
(150
)
  
7
      
85
  
Earnings before provision for taxes
    
2,230
      
339
      
(1,357
)
          
(538
)
          
574
            
1,248
  
Provision for taxes
    
(205
)
    
(29
)
    
229
      
5(f)
    
118
      
5(f)
    
(183
)
  
7
      
(70
)
Net earnings after taxes
    
2,025
      
310
      
(1,128
)
          
(420
)
          
391
            
1,178
  
Dividends on mandatory convertible preferred Stock
    
-
      
-
      
-
            
(120
)
    
6(b)
    
-
            
(120
)
Net earnings available to common shareholders
  
$
2,025
    
$
310
    
$
(1,128
)
        
$
(540
)
        
$
391
          
$
1,058
  
Net Earnings Per Share:
                                                                  
Basic
   $
1.56
                                                      
$
0.81
  
Diluted
   $
1.54
                                                      
$
0.82
  
                                                                   
Weighted-average Shares Used to Compute Net Earnings Per Share:
                                                                  
Basic
    
1,299
                                                        
1,299
  
Diluted
    
1,316
                                                        
1,434
  
4
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR NINE MONTHS ENDED JULY 31, 2024
(in millions, except per share data)

   
HPE
Historical (Nine
Months
Ended
July 31,
2024)
    
Juniper Historical (Nine
Months
Ended
June 30,
2024),
As Adjusted
(Note 2)
    
Transaction Accounting Adjustments - Merger
(Note 5)
    
Notes
  
Transaction Accounting Adjustments - Debt Financing
(Note 6)
    
Notes
  
Transaction Accounting Adjustments - H3C Stake Sale
(Note 7)
    
Notes
    
Pro Forma
Combined
  
Net Revenue:
                                                  
Products
  
$
13,134
    
$
2,192
    
$
-
        
$
-
        
$
-
          
$
15,326
  
Services
    
8,049
      
1,512
      
-
          
-
          
-
            
9,561
  
Financing income
    
486
      
-
      
-
          
-
          
-
            
486
  
Total net revenue
    
21,669
      
3,704
      
-
          
-
          
-
            
25,373
  
Costs and Expenses:
                                                              
Cost of products
    
8,998
      
1,100
      
(19
)
    
5(b) 5(e)
    
-
          
-
            
10,079
  
Cost of services
    
5,032
      
463
      
(14
)
    
5(b) 5(e)
    
-
          
-
            
5,481
  
Financing cost
    
367
      
-
      
-
            
-
          
-
            
367
  
Research and development
    
1,719
      
818
      
(27
)
    
5(b) 5(e)
    
-
          
-
            
2,510
  
Selling, general and administrative
    
3,660
      
1,059
      
(29
)
    
5(b) 5(e)
    
-
          
-
            
4,690
  
Amortization of intangible assets
    
198
      
45
      
606
      
5(c)
    
-
          
-
            
849
  
Disaster Charges
    
5
       -      
-
            
-
          
-
            
5
  
Transformation costs
    
67
      
25
      
-
            
-
          
-
            
92
  
Acquisition, disposition, and other related charges
    
126
      
37
      
-
            
-
          
-
            
163
  
  Total costs and expenses
    
20,172
      
3,547
      
517
            
-
          
-
            
24,236
  
Earnings from operations
    
1,497
      
157
      
(517
)
          
-
          
-
            
1,137
  
Interest and other, net
    
(122
)
    
(18
)
    
-
            
(397
)
    
6(a)
    
-
            
(537
)
Earnings (Loss) from equity interests
    
161
      
(8
)
    
-
            
-
            
(99
)
    
7
      
54
  
Earnings before provision for taxes
    
1,536
      
131
      
(517
)
          
(397
)
          
(99
)
            
654
  
(Provision) benefit for taxes
    
(323
)
    
27
      
56
      
5(f)
    
87
      
5(f)
    
14
      
7
      
(139
)
Net earnings after taxes
    
1,213
      
158
      
(461
)
          
(310
)
          
(85
)
            
515
  
Dividends on mandatory convertible preferred stock
    
-
      
-
      
-
            
(90
)
    
6(b)
    
-
              
(90
)
Net earnings available to common shareholders
  
$
1,213
    
$
158
    
$
(461
)
        
$
(400
)
        
$
(85
)
          
$
425
  
Net Earnings Per Share:
                                                                    
Basic
  
$
0.93
                                                        
$
0.32
  
Diluted
  
$
0.92
                                                        
$
0.36
  
                                                                     
Weighted-average Shares Used to Compute Net Earnings Per Share:
                                                                    
Basic
    
1,308
                                                          
1,308
  
Diluted
    
1,325
                                                          
1,440
  

5
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Basis of Pro Forma Presentation
 
The unaudited pro forma condensed combined financial information has been prepared by the Company in connection with its acquisition of Juniper, a company which designs, develops, and sells products and services for high-performance networks, to enable customers to build scalable, reliable, secure, and cost-effective networks for their businesses, while achieving agility and improved operating efficiency through automation.

The accompanying unaudited pro forma condensed combined balance sheet as of July 31, 2024, combines the unaudited historical condensed consolidated balance sheet of HPE as of July 31, 2024, with the unaudited historical condensed consolidated balance sheet of Juniper as of June 30, 2024, giving effect to the Merger and the Financing Transactions as if the same had been consummated as of July 31, 2024. The unaudited pro forma condensed combined statement of operations for the year ended October 31, 2023, combines the audited consolidated statement of operations of HPE for the year ended October 31, 2023, with the audited consolidated statement of operations of Juniper for the year ended December 31, 2023, giving effect to the Merger as if the transaction had occurred on November 1, 2022. The unaudited pro forma condensed combined statement of operations for the nine months ended July 31, 2024 combines the unaudited condensed consolidated statement of operations of HPE for the nine months ended July 31, 2024 with the unaudited condensed consolidated statement of operations of Juniper for the six months ended June 30, 2024 and the three months ended December 31, 2023, which has been calculated by deducting Juniper’s results for the nine months ended September 30, 2023 from its results for the fiscal year ended December 31, 2023, giving effect to the Merger as if the transaction had occurred on November 1, 2022. Refer to Juniper’s adjusted historical results for this period in the unaudited pro forma condensed combined statement of operations for the nine months ending July 31, 2024.

The Company’s and Juniper’s historical financial statements were prepared in accordance with U.S. GAAP. Management has included certain reclassification adjustments for consistency in presentation as indicated in the subsequent notes. See Note 2 for further discussion. The Company is currently in the process of evaluating Juniper’s accounting policies. That evaluation may identify additional differences between the accounting policies of the Company and Juniper. Based on the information currently available, the Company has determined on a preliminary basis that no significant adjustments are necessary to conform Juniper’s financial statements to the accounting policies used by the Company.
 
The accompanying unaudited pro forma condensed combined financial information and related notes were prepared using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, (“ASC 805”), with HPE considered the accounting acquirer of Juniper. ASC 805 requires, among other things, that the assets acquired, and liabilities assumed, in a business combination be recognized at their fair values as of the acquisition date. For purposes of the unaudited pro forma condensed combined balance sheet, the purchase price consideration has been allocated to the assets acquired and liabilities assumed of Juniper based upon management’s preliminary estimate of their fair values. The excess of the purchase price consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill. Accordingly, the purchase price allocation and related adjustments reflected in the unaudited pro forma condensed combined financial information are preliminary and subject to adjustment based on a final determination of fair value and tax contingency matters. The purchase price consideration as well as the estimated fair values of the assets and liabilities will be updated and finalized as soon as practicable, but no later than one year from the closing of the acquisition.

The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The unaudited pro forma condensed combined financial information is provided for informational purposes only and does not purport to represent or be indicative of the consolidated results of operations or financial condition of the Company had the Merger been completed as of the dates presented and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity.
 
6
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
2. Juniper Reclassification Adjustments
 
During the preparation of the unaudited pro forma condensed combined statement of operations, management performed a preliminary analysis of Juniper’s financial information to identify differences in Juniper’s financial statement presentation as compared to the financial statement presentation of the Company. Based on a preliminary analysis performed, certain reclassification adjustments have been made to conform Juniper’s historical financial statement presentation to the Company’s financial statement presentation. The Company is currently performing a full and detailed review of Juniper’s financial statement presentation and accounting policies, which could result in amounts set forth in the Company’s future financial statements being materially different from the amounts set forth in the unaudited pro forma condensed combined financial information presented herein.
 
7
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
UNAUDITED RECLASSIFIED BALANCE SHEET OF JUNIPER NETWORKS, INC.
AS OF JUNE 30, 2024
(in millions)
   
Juniper Historical
    
Reclassification Adjustments
    
Notes
  
Juniper Historical,
As Adjusted
  
ASSETS
                      
Current Assets:
                      
Cash and cash equivalents
  
$
935
    
$
-
        
$
935
  
Short-term investments
    
187
      
(187
)
    
2(a)
    
-
  
Accounts receivable, net of allowances
    
879
      
-
            
879
  
Inventory
    
926
      
86
      
2(e)
    
1,012
  
Prepaid expenses and other current assets
    
518
      
(518
)
    
2(b)
    
-
  
Other current assets
    
-
      
705
      
2(a) 2(b)
    
705
  
Total current assets
  
$
3,445
    
$
86
          
$
3,531
  
Property, plant and equipment, net
    
685
      
-
            
685
  
Operating lease assets
    
147
      
(147
)
    
2(c)
    
-
  
Long-term financing receivables and other assets
    
-
      
1,415
      
2(c) 2(d) 2(e)
    
1,415
  
Long-term investments
    
309
      
(309
)
    
2(d)
    
-
  
Goodwill
    
3,734
      
-
            
3,734
  
Intangible assets, net
    
64
      
-
            
64
  
Other long-term assets
    
1,045
      
(1,045
)
    
2(e)
    
-
  
Total assets
  
$
9,429
    
$
-
          
$
9,429
  
LIABILITIES AND STOCKHOLDERS' EQUITY
                              
Current Liabilities:
                              
Accounts payable
    
268
      
-
            
268
  
Employee compensation and benefits
    
-
      
264
      
2(f)
    
264
  
Accrued compensation
    
264
      
(264
)
    
2(f)
    
-
  
Taxes on earnings
    
-
      
108
      
2(l)
    
108
  
Deferred revenue
    
1,148
      
-
            
1,148
  
Accrued restructuring
    
-
      
9
      
2(g)
    
9
  
Other accrued liabilities
    
364
      
(117
)
    
2(g) 2(l)
    
247
  
Total current liabilities
  
$
2,044
    
$
-
          
$
2,044
  
Long-term debt
    
1,607
      
-
            
1,607
  
Long-term deferred revenue
    
940
      
(940
)
    
2(h)
    
-
  
Long-term income taxes payable
    
75
      
(75
)
    
2(i)
    
-
  
Long-term operating lease liabilities
    
120
      
(120
)
    
2(j)
    
-
  
Other long-term liabilities
    
141
      
(141
)
    
2(k)
    
-
  
Other non-current liabilities
    
-
      
1,276
      
2(h) 2(i) 2(j) 2(k)
    
1,276
  
Total liabilities
  
$
4,927
    
$
-
          
$
4,927
  
Commitments and Contingencies
                          
-
  
Stockholders' Equity
                          
-
  
Common stock
    
-
      
-
            
-
  
Additional paid-in capital
    
6,766
      
-
            
6,766
  
Accumulated deficit
    
(2,273
)
    
-
            
(2,273
)
Accumulated other comprehensive income
    
9
      
-
            
9
  
Total stockholders' equity
  
$
4,502
    
$
-
          
$
4,502
  
Total liabilities and stockholders' equity
  
$
9,429
    
$
-
          
$
9,429
  
8
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
Adjustments to the Unaudited Reclassified Balance Sheet of Juniper Networks Inc.:

2(a)
Represents the reclassification of Juniper's "Short-term investments," amounts to "Other current assets" to conform to HPE's historical presentation.
2(b)
Represents the reclassification of Juniper's "Prepaid expenses and other current assets" amounts, which includes deposits, prepaid expenses, and other current assets to "Other current assets" to conform to HPE's historical presentation.
2(c)
Represents the reclassification of Juniper's "Operating lease assets" amounts to "Long-term financing receivables and other assets" to conform to HPE's historical presentation.
2(d)
Represents the reclassification of Juniper's "Long-term investments" amounts to "Long-term financing receivables and other assets" to conform to HPE's historical presentation.
2(e)
Represents the reclassification of Juniper's "Other long-term assets" amounts, which includes long-term deferred income taxes, equity investments, long-term restricted investments, and long-term restricted cash, to "Long-term financing receivables and other assets". Further, Juniper’s long-term inventory has been reclassified to current portion of "Inventory" to conform to HPE's historical presentation.
2(f)
Represents the reclassification of Juniper's "Accrued compensation" amounts to "Employee compensation and benefits" to conform to HPE's historical presentation.
2(g)
Represents the reclassification of Juniper's amounts related to restructuring accruals that are sitting within their "Other accrued liabilities" to "Accrued restructuring" to conform to HPE's historical presentation.
2(h)
Represents the reclassification of Juniper's "Long-term deferred revenue" amounts to "Other non-current liabilities" to conform to HPE's historical presentation.
2(i)
Represents the reclassification of Juniper's "Long-term income taxes payable" amounts to "Other non-current liabilities" to conform to HPE's historical presentation.
2(j)
Represents the reclassification of Juniper's "Long-term operating lease liabilities" amounts to "Other non-current liabilities" to conform to HPE's historical presentation.
2(k)
Represents the reclassification of Juniper's "Other long-term liabilities" amounts, which includes derivatives, deferred compensation, and tax items to "Other non-current liabilities” to conform to HPE's historical presentation.
2(l)
Represents the reclassification of Juniper's amounts related to taxes on earnings that are sitting within "Other accrued liabilities" amounts to "Taxes on earnings” to conform to HPE's historical presentation.

9
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
UNAUDITED RECLASSIFIED STATEMENT OF OPERATIONS OF JUNIPER NETWORKS INC.
FOR THE YEAR ENDED DECEMBER 31, 2023
(in millions)
   
Juniper
Historical
    
Reclassification Adjustments
    
Notes
  
Juniper Historical,
As Adjusted
  
Net Revenue:
                      
Products
  
$
3,633
    
$
-
        
$
3,633
  
Services
    
1,932
      
-
          
1,932
  
Total net revenue
    
5,565
      
-
          
5,565
  
Costs and Expenses:
                            
    Cost of products
    
1,782
      
10
      
2(o) 2(t)
    
1,792
  
Cost of services
    
581
      
37
      
2(t)
    
618
  
Total cost of revenues
    
2,363
      
47
            
2,410
  
Gross margin
    
3,202
      
(47
)
          
3,155
  
Operating expenses:
                              
    Research and development
    
1,144
      
(61
)
    
2(t)
    
1,083
  
Selling, general and administrative
    
-
      
1,435
      
2(m) 2(t)
    
1,435
  
Sales and marketing
    
1,234
      
(1,234
)
    
2(m) 2(o)
    
-
  
General and administrative
    
256
      
(256
)
    
2(m) 2(o)
    
-
  
Restructuring charges
    
98
      
(98
)
    
2(n)
    
-
  
Amortization of intangible assets
    
-
      
69
      
2(o)
    
69
  
Transformation costs
    
-
      
98
      
2(n)
    
98
  
Total operating expenses
    
2,732
      
(47
)
          
2,685
  
Operating income
    
470
      
-
            
470
  
(Loss) Gain on privately-held investments, net
    
(97
)
    
97
      
2(p)
    
-
  
Other expense, net
    
(24
)
    
24
      
2(q)
    
-
  
Earnings from operations
    
349
      
121
            
470
  
Interest and other, net
    
-
      
(121
)
    
2(p) 2(q)
    
(121
)
    Loss from equity interests
    
-
      
(10
)
    
2(r)
    
(10
)
Earnings before provision for taxes
    
349
      
(10
)
          
339
  
    Provision for taxes
    
(29
)
    
-
            
(29
)
Loss from equity method investment, net of tax
    
(10
)
    
10
      
2(r)
    
-
  
Net earnings
  
$
310
    
$
-
          
$
310
  


10
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
UNAUDITED RECLASSIFIED STATEMENT OF OPERATIONS OF JUNIPER NETWORKS INC.
FOR THE NINE MONTHS ENDED JUNE 30, 2024
(in millions)
   
Juniper
Historical1
    
Reclassification Adjustments
    
Notes
  
Juniper
Historical,
As Adjusted
  
Net Revenue:
                      
Products
  
$
2,192
    
$
-
        
$
2,192
  
Services
    
1,512
      
-
          
1,512
  
Total net revenue
    
3,704
      
-
          
3,704
  
Costs and Expenses:
                            
Cost of products
    
1,091
      
9
      
2(o) 2(t)
    
1,100
  
Cost of services
    
436
      
27
      
2(t)
    
463
  
Total cost of revenues
    
1,527
      
36
            
1,563
  
Gross margin
    
2,177
      
(36
)
          
2,141
  
Operating expenses:
                              
Research and development
    
860
      
(42
)
    
2(t)
    
818
  
    Selling, general and
    administrative
    
-
      
1,059
      
2(m) 2(t)
    
1,059
  
Sales and marketing
    
914
      
(914
)
    
2(m) 2(o)
    
-
  
General and administrative
    
184
      
(184
)
    
2(m) 2(o)
    
-
  
Restructuring charges
    
25
      
(25
)
    
2(n)
    
-
  
Amortization of intangible assets
    
-
      
45
      
2(o)
    
45
  
Transformation costs
    
-
      
25
      
2(n)
    
25
  
Acquisition, disposition, and other related charges
    
-
      
37
      
2(s)
    
37
  
Merger-related charges
    
37
      
(37
)
    
2(s)
    
-
  
Total operating expenses
    
2,020
      
(36
)
          
1,984
  
Operating income
    
157
      
-
            
157
  
(Loss) Gain on privately-held investments, net
    
(19
)
    
19
      
2(p)
    
-
  
Other income (expense), net
    
1
      
(1
)
    
2(q)
    
-
  
Earnings from operations
    
139
      
18
            
157
  
Interest and other, net
    
-
      
(18
)
    
2(p) 2(q)
    
(18
)
Loss from equity interests
    
-
      
(8
)
    
2(r)
    
(8
)
Earnings before provision for taxes
    
139
      
(8
)
          
131
  
Benefit for taxes
    
27
      
-
            
27
  
Loss from equity method investment, net of tax
    
(8
)
    
8
      
2(r)
    
-
  
Net earnings
  
$
158
    
$
-
          
$
158
  

1 The nine-month period ended June 30, 2024, is equal to the six months period ended June 30, 2024, plus the three-month period resulting from deducting the results of the nine months period ended September 30, 2023, from the results for the year ended December 31, 2023.
11
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
Adjustments to the Unaudited Reclassified Statements of Operations of Juniper Networks Inc.: -

2(m)
Represents the combination and reclassification of Juniper’s “Sales and marketing” and “General and administrative” amounts to “Selling, general and administrative” to conform to HPE’s historical presentation.
2(n)
Represents the reclassification of Juniper’s “Restructuring charges” amounts to “Transformation costs” to conform to HPE’s historical presentation.
2(o)
Represents the reclassification of Juniper's amortization of intangible assets, included within their "Cost of Products" and "Sales and marketing" and "General and administrative" to "Amortization of intangible assets" to conform to HPE's historical presentation.
2(p)
Represents the reclassification of Juniper’s “Gain (loss) on privately-held investments, net” amounts to “Interest and other, net” to conform to HPE’s historical presentation
2(q)
Represents the reclassification of Juniper’s “Other expense, net” amounts to “Interest and other, net” to conform to HPE’s historical presentation.
2(r)
Represents the reclassification of Juniper’s "Loss from equity method investment, net of tax" amounts to "Earnings (Loss) from equity interests" to conform to HPE's historical presentation.
2(s)
Represents the reclassification of Juniper's "Merger-related charges" amounts to " Acquisition, disposition and other related charges" to conform to HPE's historical presentation.
2(t)
Reclassification of Juniper's depreciation expense from within "Research and Development" and "Selling, General and Administrative" to "Cost of Products", "Costs of Services" and "Research and Development" in order to conform with the HPE's historical presentation

3. Preliminary Purchase Price Allocation

Estimated Total Aggregate Acquisition Consideration

Pursuant to the Merger Agreement, on the Merger closing date, all of Juniper’s outstanding common shares will automatically convert into the right to receive $40 per share. The total aggregate consideration for the Merger is approximately $13.3 billion.

(a)
The preliminary Merger consideration is calculated as follows:

Preliminary Purchase Consideration Paid to Juniper Shareholders
(in millions except per share amounts)
  
Amount
  
Common stock outstanding2
    
325.3
  
Per share cash purchase price
  
$
40.00
  
Cash paid to Juniper’s shareholders
    
13,012
  
Plus: Consideration for paying non-employee awards (refer Note 5(e))
    
3
  
Total cash consideration paid to Juniper
  
$
13,015
  
Plus: Conversion of Juniper’s equity awards attributable to the pre-combination period (refer Note 5(e))
    
286
  
Total consideration
  
$
13,301
  

(b)
Preliminary Purchase Price Allocation
 
The accounting for the Merger, including the preliminary total aggregate consideration, is based on provisional amounts, and the associated purchase accounting is not final. The preliminary allocation of the purchase price to the acquired assets and assumed liabilities was based upon the preliminary estimate of fair values. For the preliminary estimate of fair values of assets acquired and liabilities assumed of Juniper, the Company used publicly available benchmarking information as well as a variety of other assumptions, including market participant assumptions. The Company has, and is expected to use widely accepted income-based, market-based, and cost-based valuation approaches upon finalization of purchase accounting for the Merger. Actual results may differ materially from the assumptions within this unaudited pro forma condensed combined financial information.

2 The number of shares of Juniper’s common stock outstanding to be converted as a part of the Merger consideration is subject to change as the closing date of the merger approaches.

12
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
The unaudited pro forma adjustments are based upon available information and certain assumptions the Company believes are reasonable under the circumstances.

The following table summarizes the preliminary purchase price allocation as of the date of the Merger:

Preliminary Purchase Price Allocation
(in millions)
  
Estimated Fair Value
  
Assets acquired:
      
Cash and cash equivalents
  
$
935
  
Accounts receivable, net of allowances
    
879
  
Inventory
    
1,567
  
Other current assets
    
705
  
Property, plant and equipment, net
    
911
  
Goodwill
    
6,283
  
Intangible assets
    
6,600
  
Long-term financing receivables and other assets
    
334
  
Total assets acquired
  
$
18,214
  
         
Accounts payable
  
$
268
  
Employee compensation and benefits
    
264
  
Taxes on earnings
    
108
  
Deferred revenue
    
1,148
  
Accrued restructuring
    
9
  
Other accrued liabilities
    
245
  
Long-term debt
    
1,607
  
Other non-current liabilities
    
1,264
  
Total liabilities assumed
  
$
4,913
  
Estimated Purchase consideration
  
$
13,301
  
 
4. Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
 
(a)
Represents an adjustment related to the preliminary fair value step up of inventory of Juniper. The inventories are primarily comprised of raw materials, work-in-progress and finished goods. The fair value of the finished goods was estimated using the comparative sales method.

Inventory (in millions)
  
As of July 31, 2024
  
Fair value of inventory
  
$
1,567
  
Less: Inventory book value
    
(1,012
)
Pro forma adjustment3
  
$
555
  

(b)
Represents the net adjustment to the estimated fair value of property, plant, and equipment of Juniper. Preliminary property, plant and equipment fair values in the pro forma financial information are provided in the table below. The preliminary value of the identifiable property, plant and equipment is determined using the cost and/or market approaches, as applicable for each asset class. The fair values are determined by comparing current data with market data, asset trends and industry standards, with the useful lives determined by using the standard useful lives, per Company policy, minus the effective age of the asset (i.e., between the date such asset was placed in service and the date of valuation).

3 The fair value adjustment increase in inventory is estimated to be expensed within a year, which is reflected as a pro forma adjustment in cost of products.

13
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
The depreciation expense related to these assets is reflected as a pro forma adjustment in the unaudited pro forma condensed combined statements of operations, as further described in Note 5(b).

Property, plant and equipment, net
(in millions)
 
  
Estimated Fair Value
    
Estimated Useful Life
(in years)
  
Site improvements
  
$
17
      
4
  
Buildings
    
153
      
30
  
Building improvements
    
83
      
5
  
Network equipment
    
212
      
2
  
Leasehold improvements
    
75
      
2
  
Computer hardware
    
24
      
2
  
Computer servers
    
62
      
2
  
Off-the-Shelf software
    
20
      
2
  
Office furniture & fixtures
    
8
      
2
  
Computer shelving & rack systems
    
5
      
10
  
Total Property, plant, and equipment subject to depreciation
  
$
659
      
6
  
Property, plant, and equipment not subject to depreciation:
 
Land
  
$
240
    
NA
  
Construction in progress
    
4
    
NA
  
ARO and clearing assets
    
8
    
NA
  
Total Property, plant, and equipment
  
$
911
          
Less: Historical book value of property, plant and equipment
    
(685
)
        
Pro forma adjustment to balance sheet
  
$
226
          

(c)
Represents the net adjustment to the estimated fair value of intangible assets acquired in the Merger. Preliminary identifiable intangible assets in the unaudited pro forma condensed combined financial information are provided in the table below. The preliminary value of the identifiable tradenames and developed technology is determined using the relief from royalty method whereas customer relationships are valued using a discounted cash flow model.

The straight-line amortization related to these identifiable intangible assets is reflected as a pro forma adjustment in the unaudited pro forma condensed combined statements of operations, as further described in Note 5(c).

Intangible Assets
(in millions)
  
Estimated Fair Value
   
Estimated Useful Life
(in years)
  
Customer relationships
  
$
3,500
      
9
  
Trademarks/Tradenames - Definite
    
300
      
7
  
Developed technology
    
2,800
      
6
  
Total intangibles fair value
  
$
6,600
      
7
  
Less: intangibles book value
    
(64
)
        
Pro forma adjustment to balance sheet
  
$
6,536
          

14
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
(d)
Represents elimination of Juniper’s historical equity.

(in millions)
  
As of July 31, 2024
  
Common stock
  
$
-
  
Additional-paid-in capital
    
(6,766
)
Accumulated deficit
    
2,273
  
Accumulated other comprehensive income
    
(9
)
Total stockholders’ equity elimination
  
$
(4,502
)

(e)
The pro forma adjustment represents the preliminary estimate of goodwill of $6,283 million, offset by the elimination of historical goodwill. Goodwill represents the excess of total consideration over the preliminary fair value of assets acquired and liabilities assumed.

Goodwill (in millions)
  
Estimated Fair Value
  
Cash and cash equivalents
  
$
935
  
Accounts receivable, net of allowances
    
879
  
Inventory
    
1,567
  
Other current assets
    
705
  
Property, plant and equipment, net
    
911
  
Intangible assets
    
6,600
  
Long-term financing receivables and other assets
    
334
  
Total assets acquired
  
$
11,931
  
         
Accounts payable
  
$
268
  
Employee compensation and benefits
    
264
  
Taxes on earnings
    
108
  
Deferred revenue
    
1,148
  
Accrued restructuring
    
9
  
Other accrued liabilities
    
245
  
Long-term debt
    
1,607
  
Other non-current liabilities
    
1,264
  
Total liabilities assumed
  
$
4,913
  
         
Net assets acquired
  
$
7,018
  
Estimated Purchase consideration
    
13,301
  
Estimated Goodwill
  
$
6,283
  
Less: Juniper's historical goodwill
    
(3,734
)
Pro forma adjustment to Goodwill
  
$
2,549
  

(f)
As part of the allocation of the purchase price in a business combination, lease terms are compared to market terms to determine if the leases are favorable or unfavorable. Any favorable or unfavorable leasehold interests identified increase (favorable) or reduce (unfavorable) the associated right-of-use (“ROU) lease asset and are recognized over the life of the related right-of-use asset. The unaudited pro forma condensed combined financial information reflects the preliminary fair value adjustments of the favorable and unfavorable leasehold interests acquired from Juniper.
 
15
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
Consequently, for leases acquired by the Company, in the Merger, the Company has measured the lease liabilities at the present value of the remaining lease payments, as if the acquired lease were a new lease. The associated right-of-use asset was remeasured at the same amount as the lease liability, adjusted to reflect favorable or unfavorable terms of the lease when compared to market terms. The below adjustment reflects a preliminary favorable or unfavorable position of the leased properties which is determined using the income approach, namely the yield capitalization method.
 
Lease liabilities and ROU assets
(in millions)
  
As of July 31, 2024
  
Lease liabilities - Current portion (per valuation results)
  
$
44
  
Less: Historical book value
    
(46
)
Net Impact (Lease liabilities current)
  
$
(2
)
 
        
Lease liabilities - Non-current portion (per valuation results)
  
$
108
  
Less: Historical book value
    
(120
)
Net Impact (Lease liabilities non-current)
  
$
(12
)
         
ROU asset (per valuation results)
  
$
162
  
Less: Historical book value
    
(147
)
(Favorable) / Unfavorable adjustment
    
(10
)
Net Impact (Long- term financing receivables and other assets)
  
$
5
  

(g)
Reflects the following adjustments to cash and cash equivalents:

(in millions)
  
As of July 31, 2024
  
Estimated consideration4
  
$
13,012
  
Transaction costs 5
    
64
  
Pro forma adjustment to Cash and cash equivalents
  
$
13,076
  

(h)
Reflects an adjustment related to deferred tax liabilities which are primarily derived based on fair value adjustments from the preliminary purchase allocation.

5. Transaction Accounting Adjustments to Unaudited Pro Forma Combined Statements of Operations
 
(a)
Reflects the impact on cost of goods sold as follows:

Inventory Step-up
(in millions)
  
For the Year Ended October 31, 2023
  
Fair value of inventory
  
$
1,567
  
Less: Inventories book value (current portion)
    
(1,012
)
Pro forma adjustment to income statement
  
$
555
  

(b)
Represents the adjustment to record elimination of historical depreciation expense and recognition of new straight-line depreciation expense based on the estimated fair value as of July 31, 2024. The depreciation of property, plant and equipment is based on the estimated remaining useful lives of the assets as discussed in Note 4(b) above.
 

4 Refer to Note 3(a) for more details.
5 Refer to Note 5(d) for more details.

16
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
Depreciation Expense- Property, Plant and Equipment
(in millions)
  
For the Nine Months Ended July 31, 2024
    
For the Year Ended October 31, 2023
  
Pro forma depreciation expense
  
$
55
    
$
73
  
Less: Juniper depreciation expense, as reported
    
(87
)
    
(123
)
Pro forma adjustment to income statements
  
$
(32
)
  
$
(50
)

The below table represents the adjustment recorded in various income statement financial statement line items to conform to the HPE’s presentation of depreciation expense:

Depreciation expense adjustment
(in millions)
  
For the Nine Months Ended July 31, 2024
    
For the Year Ended October 31, 2023
  
Cost of products
  
$
(17
)
  
$
(27
)
Cost of services
    
(10
)
    
(15
)
Research and development
    
(1
)
    
(1
)
Selling, general and administrative
    
(4
)
    
(7
)
Pro forma adjustment to income statements
  
$
(32
)
  
$
(50
)

(c)
Represents the adjustment to record elimination of historical amortization expense and recognition of new amortization expense related to identifiable intangible assets based on the estimated fair value. Amortization expense is calculated based on the estimated fair value of each of the identifiable intangible assets and the associated estimated useful life as discussed in Note 4(c) above and is included under the amortization of intangible assets line item on the pro forma income statements.

Amortization Expense – Intangible Assets, net
(in millions)
  
For the Nine Months Ended July 31, 2024
    
For the Year Ended October 31, 2023
  
Total pro forma intangible assets amortization
  
$
651
    
$
868
  
Less: Juniper amortization expense, as reported
    
(45
)
    
(69
)
Pro forma adjustment to income statements
  
$
606
    
$
799
  

(d)
Transaction Costs

1.
Incurred by HPE: HPE has incurred, and has plans to incur, $141.6 million of non-recurring transaction costs. Of this amount, $77.4 million of transaction costs have been incurred through the nine months ended July 31, 2024.

The remaining transaction costs pertaining to legal, consulting, and professional services amounting to $64.2 million are expected to be incurred by the Company until the close of the Merger. On the pro forma balance sheet as of July 31, 2024, these transaction costs have been recorded as a reduction in cash (i.e., credit to cash) with a debit offset to accumulated deficit based on the assumption that all the transaction costs will be paid by HPE before the close of the Merger. Further on the pro forma statement of operations for the year ending October 31, 2023, these transaction costs have been expensed under Acquisition, disposition and other related charges.

2.
Incurred by Juniper: Juniper has also incurred certain non-recurring transaction costs during the six months ended June 30, 2024, which have been expensed and included in the historical financial statements. Therefore, no pro forma adjustments were made pertaining to the transaction costs incurred by Juniper. Further, any transaction costs incurred by Juniper after June 30, 2024 (i.e., after the historical period) will not be included in the pro forma financial statements as adjustments.

(e)
Stock Based Compensation and Severance

In connection with the Merger, HPE assumed Juniper equity awards and replaced them with similar awards having the same terms and conditions (other than certain performance vesting conditions that will no longer apply) or issued cash to holders of such awards. Juniper equity awards that are unvested and outstanding prior to the Merger will convert into either restricted stock unit awards or option awards linked to HPE’s shares by applying a contractual award exchange ratio (the “Exchange Ratio”) as defined in the Merger Agreement. The adjustments to the pro forma financial information assume that the Juniper PSUs are probable of vesting at the date of merger.

17
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
The below table represents the computation of the Exchange Ratio:
   
Amount
  
Purchase consideration per share
  
$
40.00
  
HPE average stock price (average of 10 days prior to September 4, 2024)
  
$
(19.00
)
Exchange Ratio
    
2.11
  

Based on the exchange ratio, HPE has determined the following number of Juniper equity awards that will be converted into HPE equity awards:

(in millions, except for exchange ratio and per share amounts)
  
As of July 31, 2024
  
RSA, RSU and PSUs outstanding
    
18.13
  
Exchange ratio
    
2.11
  
Number of replacement HPE awards
    
38.17
  
Fair value per share of HPE awards (as of September 4, 2024)
  
$
18.77
  
Fair value of replacement awards to be allocated between pre- and post-combination periods
  
$
716.4
  

As noted in the table above, as of July 31, 2024, HPE is assumed to have replaced approximately 18.1 million Juniper equity awards with approximately 38.2 million HPE equity awards.

The acquisition date fair value of the replacement equity awards has been determined by utilizing the September 4, 2024, closing stock price for HPE on the New York Stock Exchange and the number of replacement awards issued. The fair value of replacement awards of $716.4 million will be divided among the pre- and post-combination periods by utilizing the respective weighted average years attributable to pre- and post-combination periods.

Additionally, HPE and Juniper historically have policies of recognizing share-based compensation expense, net of an estimated forfeiture rate over the requisite service period of the award based on the fair value at the date of the grant. Consequently, in order to determine the pre- and post-combination fair values of the replacement awards, an estimated forfeiture rate of 5% was used, which is in line with HPE’s policy. Because the accelerated CEO Awards will vest immediately after the Merger closes, no forfeiture rate was applied to such awards.

The costs attributable to the pre-combination services of $286.2 million is included in the Merger consideration. This calculation is based on the pre-Merger period, which has already lapsed, of 1.3 years. The non-employee awards that have been issued and are currently unvested and outstanding will also be redeemed with a cash payment of $40 per share in connection with the Merger. Therefore, an adjustment of $3 million has been made to the Merger consideration (refer to Note 3(a) for further details).

The following table represents the adjustment to reflect the post-combination effect of HPE’s replacement equity awards. The post-combination expenses calculated below reflect:

a)
the weighted average remaining unvested period of Juniper’s stock awards as of June 30, 2024, which is approximately 1.7 years.
b)
30% of the CEO’s equity awards will immediately vest on the close of the Merger.
c)
the additional HPE retention and time-based equity awards being issued to the chief executive officer of Juniper. The impact of new HPE performance-based awards that are being issued to the chief executive officer of Juniper is not reflected in the below calculation because the performance conditions are not likely to be met.

18
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
Stock Based Compensation Expense/ (Income)
(in millions)
  
For the Nine Months Ended July 31, 2024
    
For the Year Ended October 31, 2023
  
Post-combination stock-based compensation expense
  
$
166
    
$
240
  
Less: Historical compensation expense
    
(223
)
    
(251
)
Pro forma adjustment to income statement
  
$
(57
)
  
$
(11
)

The below table represents the adjustment recorded in various line items on the pro forma statements of operations to conform to HPE’s presentation of stock-based compensation expense:

Stock Based Compensation
(in millions)
  
For the Nine Months Ended July 31, 2024
    
For the Year Ended October 31, 2023
  
Cost of products
  
$
(2
)
  
$
(1
)
Cost of services
    
(4
)
    
(1
)
Research and development
    
(26
)
    
(5
)
Selling, general and administrative
    
(25
)
    
(4
)
Pro forma adjustment to income statement
  
$
(57
)
  
$
(11
)

Additionally, as noted above, the ESPP plan is expected to be terminated on the closing date of the Merger. Any contributions to the plan as of such date will be converted into Juniper stock and participating employees will receive consideration of $40 per share. Any additional contribution received from employees will be refunded. However no pro forma adjustments have been recorded pertaining to termination of the ESPP as the amounts are considered to be immaterial.

Further, as a result of the Merger, certain executive officers of Juniper may be entitled to receive severance and other separation benefits related to existing employment agreements with double-trigger provisions. The triggers are (i) consummation of the Merger, and (ii) termination of the executive. Potential one-time charges of approximately $70 million may be incurred if the Company elects to terminate certain of these executives. However, no adjustments have been recorded in the pro forma financial statements because no decisions have been finalized and certain executives are expected to continue service post close.

(f)
Income Taxes

The income tax impact of the pro forma adjustments utilizes blended statutory income tax rates in effect of 14.3% and 18.0%, respectively, for the fiscal quarter ended July 31, 2024, and the fiscal year ended October 31, 2023 (except for the gain recognized on the sale of 30% stake held in H3C). The effective tax rate of the Company following the acquisition could be significantly different depending on post-acquisition activities, including cash needs, the geographical mix of income, and changes in tax law. Because the tax rates used for the unaudited condensed combined pro forma statement of operations are estimated, the blended rate will likely vary from the actual effective tax rate in periods subsequent to the completion of the acquisition. This determination is preliminary and subject to change based upon the final determination of the fair value of the acquired assets and assumed liabilities.

19
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
6.
Acquisition Financing

(a)
Debt Financing

Reflects the impact of the Debt Financing:
 
 (in millions)
  
Debt Financing
    
Interest expense
    
Interest expense
  
   
As of July 31, 2024
    
For the Nine months ended July 31, 2024
    
For the Year ended October 31, 2023
  
Fixed rate Senior Notes6
  
$
6,500
    
$
252
    
$
336
  
Variable rate Term Loan6
    
3,000
      
141
      
197
  
Add/ (Less): Unamortized New debt issuance costs (balance sheet) and Amortization of debt issuance costs (income statement)
    
(39
)
    
4
      
5
  
Less: Juniper’s historical revolving credit not assumed7
    
-
      
-
      
-
  
Pro forma adjustment
  
$
9,461
    
$
397
    
$
538
  
 
The below table reflects the impact to the pro forma balance sheet:
   
As of July 31, 2024
  
Current portion of long-term debt
  
$
150
  
Long-term debt (term loan)
    
2,844
  
Senior Notes
    
6,467
  
Pro forma adjustment
  
$
9,461
  
 
The interest rate on the variable rate Term Loan is calculated using the SOFR adjusted for a margin and is initially estimated to be approximately 6.7%. The interest rate on each series of Senior Notes will be a fixed rate, and the weighted average interest rate with respect to the Senior Notes is initially estimated to be approximately 5.2%.
 
A sensitivity analysis on interest expense with respect to the variable rate Term Loan for the nine months ended July 31, 2024, and the year ended October 31, 2023, has been performed to assess the effect of a change of 0.125% of the hypothetical interest rate:
 

Sensitivity Analysis
(in millions)
  
For the Nine months ended July 31, 2024
    
For the Year ended October 31, 2023
  
Increase of 0.125%
  
$
145
    
$
203
  
Decrease of 0.125%
  
$
140
    
$
196
  

A sensitivity analysis on the weighted average interest expense with respect to the Senior Notes for the nine months ended July 31, 2024, and the year ended October 31, 2023, has been performed to assess the effect of a change of 0.125% on the hypothetical weighted average interest rate:

Sensitivity Analysis
(in millions)
  
For the Nine months ended July 31, 2024
    
For the Year ended October 31, 2023
  
Increase of 0.125%
  
$
256
    
$
341
  
Decrease of 0.125%
  
$
250
    
$
333
  

(b)
Equity Financing

As noted above, the pro forma financial statements assume that the Company issues Mandatorily Convertible Preferred Stock to partially fund the Merger. The Company expects such preferred stock to be accounted for as permanent equity and this has been reflected as such in the pro forma financial statements. The below adjustment to Stockholders’ equity reflects an assumed issuance of $1,500 million of Mandatory Convertible Preferred Stock:

(in millions)
  
As of July 31, 2024
  
Issue price of Mandatory convertible preferred stock
  
$
1,500
  
Less: Issuance fees of 2.5%
    
(37
)
Pro forma adjustment to Stockholders equity and Cash and cash equivalents
  
$
1,463
  


6 In order to fund the Merger, HPE assumes for the purposes of this unaudited pro forma condensed combined financial information to have entered into two types of debt instruments involving issuance of fixed rate Senior Notes of $6.5 billion and a variable rate Term Loan of $3 billion.
7 Pursuant to Juniper’s June 30, 2024, Form 10-Q, Juniper has not drawn any amount of revolving credit loans.

20
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
The below adjustment reflects an estimated 8.0% annual dividend rate on the $50.00 liquidation preference per share of Mandatory Convertible Preferred Stock:

 
(in millions)
  
For the Nine months ended July 31, 2024
    
For the Year ended October 31, 2023
  
Pro forma Dividends on mandatory convertible preferred stock
  
$
90
    
$
120
  

7.
H3C Disposition Adjustment

The below adjustments reflect the effect of the sale of 30% of the total issued share capital of H3C (out of 49% original interest held by HPE) and the effect on historical equity in earnings of H3C, as the pro forma financial information assumes the divestiture takes place simultaneously with the closing of the Merger. A gain related to this sale is presented in the unaudited pro forma condensed combined statement of operations for the year ended October 31, 2023, and the related impact on HPE’s accumulated deficit is presented in the unaudited pro forma condensed combined balance sheet as of July 31, 2024.

The adjustments to the unaudited pro forma condensed combined balance sheet as of July 31, 2024, for the H3C sale and related adjustments are as follows:

Sale of interest in H3C by HPE (in millions, except for percentages)
  
As of July 31, 2024
  
Investments in equity interest (by HPE)
  
$
2,318
  
Percentage of interest held by HPE in H3C
    
49
%
Percentage of interest sold by HPE in H3C
    
30
%
Net impact to Investments in equity interests
  
$
1,419
  

Cash received on sale of stake in H3C (in millions, except for percentages)
  
As of July 31, 2024
  
Sale price of 30% stake
  
$
2,143
  
Less: Income tax on gain (paid in cash)8
    
(120
)
Net impact to Cash and cash equivalents
  
$
2,023
  

Income taxes on gain
  
As of July 31, 2024
  
Income tax on gain (paid in cash)8
  
$
120
  
Income tax on gain (non-cash)8
    
90
  
Total income taxes on gain
  
$
210
  

Impact to accumulated deficit (in millions, except for percentages)
  
As of July 31, 2024
  
Sale price of 30% stake (net of tax)
  
$
1,933
  
Less: Book value of investment in H3C
    
(1,419
)
Net impact to Accumulated deficit
  
$
514
  

The adjustments to the unaudited pro forma condensed combined statements of operations upon the aforementioned stake sale of H3C are as follows:

Sale of interest in H3C by HPE (in millions)
  
For the Nine Months Ended July 31, 2024
    
For the Year Ended October 31, 2023
  
Sale price of 30% interest held by HPE in H3C
  
$
-
    
$
2,143
  
Less: Book value of investment in H3C sold by HPE
    
-
      
(1,419
)
Net Impact to Gain from sale of equity interests
  
$
-
    
$
724
  
Impact to Earnings from equity interest and taxes
                
Net impact to Earnings from equity interests (upon sale by HPE of 30% interest in H3C)
    
(99
)
    
(150
)
Adjustment for income tax benefit (expense)
    
14
      
(183
)
Net impact to Income statement
  
$
(85
)
  
$
391
  

8 Because the adjustments contained in the pro forma financial information are based on estimates, the effective tax rate herein will likely vary from the effective rate in periods subsequent to the merger.

21
HEWLETT PACKARD ENTERPRISE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (Continued)
8. Earnings per share

The pro forma “Net earnings per share: Basic” equals pro forma net earnings attributable to HPE less income allocated to participating securities divided by the weighted-average number of common shares outstanding. The pro forma “Net earnings per share: Diluted” equals pro forma net earnings attributable to HPE divided by the weighted-average number of common shares outstanding, after giving effect to dilutive stock options, preferred stock impacts, and unvested Juniper equity awards. The following table provides a reconciliation of the pro forma “net earnings” and shares used in calculating pro forma net earnings attributable to HPE per basic common share to those used in calculating pro forma net earnings attributable to HPE per diluted common share:


In millions, except per share amounts
  
For the Nine Months Ended July 31, 2024
    
For the Year Ended October 31, 2023
  
Numerator
            
Pro forma net earnings used to compute basic net EPS
  
$
425
    
$
1,058
  
Dividends on mandatory convertible preferred stock
    
90
      
120
  
Pro forma net earnings used to compute diluted net EPS
  
$
515
    
$
1,178
  
Denominator:
                
Weighted-average shares used to compute basic net EPS
    
1,308
      
1,299
  
Dilutive effect of employee stock plans
    
53
      
56
  
Issuance of mandatory convertible preferred stock
    
79
      
79
  
Weighted-average shares used to compute diluted net EPS
    
1,440
      
1,434
  
Net earnings per share
                
Basic
  
$
0.32
    
$
0.81
  
Diluted
  
$
0.36
    
$
0.82
  


22