VeriSign
Annual Report 2014

Plain-text annual report

ABOUT VERISIGN Verisign, a global leader in domain names and Internet security, enables Internet navigation for many of the world’s most recognized domain names and provides protection for websites and enterprises around the world. Verisign ensures the security, stability and resiliency of key Internet infrastructure and services, including the .com and .net domains and two of the Internet’s root servers, as well as performs the root-zone maintainer functions for the core of the Internet’s Domain Name System (DNS). Verisign’s Network Intelligence and Availability services include intelligence-driven Distributed Denial of Service Protection, iDefense Security Intelligence and Managed DNS. To learn more about what it means to be Powered by Verisign, please visit VerisignInc.com. WORLDWIDE UNITED STATES: 12061 Bluemont Way Reston, VA 20190 Phone: +1 703 948 3200 EUROPE: 3 rue des Pilettes CH-1700 Fribourg Switzerland Phone: +41 (0) 26 408 7778 Verisign – MWB Bank MWB Business Exchange One Kingdom Street Paddington London W2 6BD United Kingdom Phone: +44 20 3207 9085 ASIA: 80 Feet Road Koramangala Koramangala, Bangalore – 560 034 Karnataka India Phone: + 91 80 4256 5656 Suite 1511 and Suite 1518, 15/F Office Building A, Parkview Green 9 Dongdaqiao Road Chaoyang District, Beijing, 100020, PRC Phone: +86 (10) 5730 6081 AUSTRALIA: 5 Queens Road Level 10 Melbourne, VIC, 3004 Australia Phone: + 61 3 9926 6700 VerisignInc.com I I V E R S G N A N N U A L R E P O R T 2 0 1 4 ANNUAL REPORT 2014 i V e r i s g n I n c c o m . DEAR VERISIGN STOCKHOLDERS: OUR MISSION Enable the world to connect online with reliability and confidence, anytime, anywhere OUR VALUES • We are stewards of the Internet and our Company • We are passionate about the pursuit of technology and innovation • We take responsibility for our actions • We respect others and exhibit integrity in our actions During 2014 we continued to deliver on our goals to protect, grow and manage Internet infrastructure services while delivering strong financial performance since completing the divestitures in 2010. Significant achievements of 2014 include: • Verisign marked 17 years of uninterrupted availability in the Verisign DNS for .COM and .NET. • Revenues exceeded $1 billion in 2014. • The company repatriated $741 million of cash held by our foreign subsidiaries, net of foreign withholding taxes. • During 2014, we repurchased 16 million shares, returning $867 million to our stockholders. • Our balance sheet remained strong with year-end cash, cash equivalents and marketable securities at $1.4 billion. We look forward to 2015 focused on enhancing the value of our services to our customers while continuing to create value for our stockholders. I would like to extend my thanks to our stockholders, customers, and employees for your ongoing support. Jim Bidzos Executive Chairman President and Chief Executive Officer April 2015 2014 V E r i i s G n F o r m 1 0 - K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ———————— FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 000-23593 ———————— VERISIGN, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 12061 Bluemont Way, Reston, Virginia (Address of principal executive offices) 94-3221585 (I.R.S. Employer Identification No.) 20190 (Zip Code) Registrant’s telephone number, including area code: (703) 948-3200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock $0.001 Par Value Per Share Name of each exchange on which registered NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None ——————— Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 NO NO during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer Accelerated filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): YES NO The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the Registrant as of June 30, 2014, was $3.0 billion based upon the last sale price reported for such date on the NASDAQ Global Select Market. For purposes of this disclosure, shares of Common Stock held by persons known to the Registrant (based on information provided by such persons and/or the most recent schedule 13Gs filed by such persons) to beneficially own more than 5% of the Registrant’s Common Stock and shares held by officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination is not necessarily a conclusive determination for other purposes. Number of shares of Common Stock, $0.001 par value, outstanding as of the close of business on February 06, 2015: 116,884,257 shares. Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the 2015 Annual Meeting of Stockholders are incorporated DOCUMENTS INCORPORATED BY REFERENCE by reference into Part III 2014 K - 0 1 m r o F n G s i i r E V TABLE OF CONTENTS PART I Page Item 1. Business ......................................................................................................................................................................... Item 1A. Risk Factors ................................................................................................................................................................... Item 1B. Unresolved Staff Comments .......................................................................................................................................... Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Properties ....................................................................................................................................................................... Legal Proceedings.......................................................................................................................................................... Mine Safety Disclosures ................................................................................................................................................ Executive Officers of the Registrant.............................................................................................................................. PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .... Selected Financial Data.................................................................................................................................................. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... Item 7A. Quantitative and Qualitative Disclosures About Market Risk....................................................................................... Item 8. Item 9. Financial Statements and Supplementary Data.............................................................................................................. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ....................................... Item 9A. Controls and Procedures ................................................................................................................................................ Item 9B. Other Information .......................................................................................................................................................... PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance............................................................................................. Executive Compensation ............................................................................................................................................... Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..................... Certain Relationships and Related Transactions, and Director Independence .............................................................. Principal Accountant Fees and Services ........................................................................................................................ PART IV Item 15. Exhibits, Financial Statement Schedules ....................................................................................................................... Signatures.............................................................................................................................................................................................. Financial Statements and Notes to Consolidated Financial Statements ............................................................................................... Exhibits ................................................................................................................................................................................................. 3 10 30 30 30 30 31 32 35 36 48 49 50 50 50 51 51 51 51 51 52 58 59 90 2 2014 V E r i i s G n F o r m 1 0 - K For purposes of this Annual Report, the terms “Verisign”, “the Company”, “we”, “us” and “our” refer to VeriSign, Inc. and its consolidated subsidiaries. ITEM 1. BUSINESS Overview PART I We are a global provider of domain name registry services and Internet security, enabling Internet navigation for many of the world’s most recognized domain names and providing protection for websites and enterprises around the world (“Registry Services”). Our Registry Services ensure the security, stability and resiliency of key Internet infrastructure and services, including the .com and .net domains, two of the Internet’s root servers, and operation of the root-zone maintainer functions for the core of the Internet’s Domain Name System (“DNS”). Our product suite also includes Network Intelligence and Availability (“NIA”) Services consisting of Distributed Denial of Service (“DDoS”) Protection Services, Verisign iDefense Security Intelligence Services (“iDefense”) and Managed Domain Name System (“Managed DNS”) Services. We have one reportable segment, which consists of Registry Services and NIA Services. We have operations inside as well as outside the United States (“U.S.”). For certain additional information about our segment, including a geographic breakdown of revenues and changes in revenues, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and Note 9, “Geographic and Customer Information” of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. We were incorporated in Delaware on April 12, 1995. Our principal executive offices are located at 12061 Bluemont Way, Reston, Virginia 20190. Our telephone number at that address is (703) 948-3200. Our common stock is traded on the NASDAQ Global Select Market under the ticker symbol VRSN. VERISIGN, the VERISIGN logo, and certain other product or service names are registered or unregistered trademarks in the U.S. and other countries. Other names used in this Form 10-K may be trademarks of their respective owners. Our primary website is VerisignInc.com. The information available on, or accessible through, this website is not incorporated in this Form 10-K by reference. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available, free of charge, on the Investor Relations section of our website as soon as is reasonably practicable after filing such reports with the Securities and Exchange Commission (the “SEC”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at sec.gov. Pursuant to our agreements with the Internet Corporation for Assigned Names and Numbers (“ICANN”), Verisign makes available on its website at VerisignInc.com/zone files containing all active domain names registered in the .com and .net registries. At the same website address, Verisign makes available a summary of the number of active domain names registered in the .com and .net registries and the number of .com and .net domain names that are registered but are not configured for use. These files and the related summary data are updated at least once per day. The update times may vary each day. The summary data provided on the website includes domain names that, at the time of publication, were recently purchased and subject to a five day grace period during which the domain names may be deleted and a credit may be issued to a registrar (the “add grace period”). The number of active domain names subject to the add grace period is typically immaterial. The numbers provided in this Form 10-K are the numbers as of midnight of the date reported, include domain names registered but not configured for use, and do not include domain names subject to the add grace period and therefore cannot be compared to the summary posted on our website. The information available on, or accessible through, this website is not incorporated herein by reference. We announce material financial information to our investors using our investor relations website http://investor.verisign.com, SEC filings, investor events, news and earnings releases, public conference calls and webcasts. We use these channels as well as social media to communicate with our investors and the public about our company, our products and services, and other issues. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the social media channels listed below. This list may be updated from time to time on our investor relations website. https://www.facebook.com/Verisign http://www.twitter.com/Verisign http://www.LinkedIn.com/company/Verisign http://www.youtube.com/user/Verisign 3 2014 http://www.VerisignInc.com http://blogs.VerisignInc.com The contents of these websites are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file, and any reference to these websites are intended to be inactive textual references only. Naming Services Registry Services K - 0 1 m r o F n G s i i r E V Registry Services operates the authoritative directory of all .com, .net, .cc, .tv, and .name domain names and the back-end systems for all .gov, .jobs and .edu domain names, among others. Registry Services allows individuals and organizations to establish their online identities, while providing the secure, always-on access they need to communicate and transact reliably with large-scale online audiences. We are the exclusive registry of domain names within the .com, .net and .name generic top-level domains (“gTLDs”) under agreements with ICANN and also, with respect to the .com agreement, the U.S. Department of Commerce (“DOC”). As a registry, we maintain the master directory of all second-level domain names in these TLDs (e.g., johndoe.com and janedoe.net). Our global constellation of domain name servers provides Internet Protocol (“IP”) address information in response to queries, enabling the use of browsers, email systems, and other systems on the Internet. In addition, we own and maintain the shared registration system that allows all registrars to enter new second-level domain names into the master directory and to submit modifications, transfers, re-registrations and deletions for existing second-level domain names (“Shared Registration System”). Separate from our agreements with ICANN, we have agreements to be the exclusive registry for the .tv and .cc country code top-level domains (“ccTLDs”) and to operate the back-end registry systems for the .gov, .jobs and .edu gTLDs, among others. These TLDs are also supported by our global constellation of domain name servers and Shared Registration System. With our existing gTLDs and ccTLDs, we also provide internationalized domain name (“IDN”) services that enable Internet users to access websites in characters representing their local language. Currently, IDNs may be registered in as many as 350 different native languages and scripts. Domain names can be registered for between one and 10 years, and the fees charged for .com and .net may only be increased according to adjustments prescribed in our agreements with ICANN over the applicable term. With respect to .com, price increases require prior approval by the DOC according to the terms of Amendment 32 of the Cooperative Agreement between the DOC and Verisign. Revenues for registrations of .name are not subject to the same pricing restrictions as those applicable to .com and .net; however, .name fees charged are subject to our agreement with ICANN over the applicable term. Revenues for .cc and .tv domain names are based on a similar fee system and registration system, though the fees charged are not subject to the same pricing restrictions as those imposed by ICANN. The fees received from operating the .gov registry are based on the terms of Verisign’s agreement with the U.S. General Services Administration (“GSA”). The fees received from operating the .jobs registry infrastructure are based on the terms of Verisign’s agreement with the registry operator of .jobs. No fees are received from operating the .edu registry infrastructure. Historically, we have experienced higher domain name growth in the first quarter of the year compared to other quarters. Our quarterly revenue does not reflect these seasonal patterns because the preponderance of our revenue for each quarterly period is provided by the ratable recognition of our deferred revenue balance. The effect of this seasonality has historically resulted in the largest amount of growth in our deferred revenue balance occurring during the first quarter of the year compared to the other quarters. NIA Services NIA Services provides infrastructure assurance to organizations and is comprised of iDefense, Managed DNS and DDoS Protection Services. DDoS Protection Services supports online business continuity by providing monitoring and mitigation services against DDoS attacks. We help companies stay online without needing to make significant investments in infrastructure or establish internal DDoS expertise. As a cloud-based service, it can be deployed quickly and easily, with no customer premise equipment required. This saves time and money through operational efficiencies, support cost, and economies of scale to provide detection and protection against the largest DDoS attacks. Customers include financial institutions and e-commerce providers. Customers pay a subscription fee that varies depending on the customer’s network requirements. 4 2014 V E r i i s G n F o r m 1 0 - K iDefense provides 24 hours a day, every day of the year, access to cyber intelligence related to vulnerabilities, malicious code, and global threats. Our teams enable companies to improve vulnerability management, incident response, fraud mitigation, and proactive mitigation of the particular threats targeting their industry or global operations. Customers include financial institutions, large corporations, and governmental and quasi-governmental organizations. Customers pay a subscription fee for iDefense. Managed DNS is a hosting service that delivers DNS resolution, improving the availability of web-based systems. It provides DNS availability through a globally distributed, securely managed, cloud-based DNS infrastructure, allowing enterprises to save on capital expenses associated with DNS infrastructure deployment and reduce operational costs and complexity associated with DNS management. Managed DNS service provides full support for DNS Security Extensions (“DNSSEC”) compliance features and Geo Location traffic routing capabilities. DNSSEC is designed to protect the DNS infrastructure from man-in-the-middle attacks that corrupt, or poison, DNS data. Geo Location allows website owners to customize responses for end-users based on their physical location or IP address, giving them the ability to deliver location-specific content. Customers include financial institutions, e-commerce, and software-as-a-service providers. Customers pay a subscription fee that varies based on the amount of DNS traffic they receive. Operations Infrastructure Our operations infrastructure consists of three secure data centers in Dulles, Virginia; New Castle, Delaware; and Fribourg, Switzerland as well as approximately 70 resolution sites around the world. These secure data centers operate 24 hours a day, supporting our business units and services. The performance and scale of our infrastructure are critical for our business, and give us the platform to maintain our leadership position. Key features of our operations infrastructure include: • Distributed Servers: We operate a large number of high-speed servers globally to support localized capacity and availability demands. In conjunction with our proprietary software, processes and procedures, this platform offers automatic failover, global and local load balancing, and threshold monitoring on critical servers. • Networking: We deploy and maintain a redundant and diverse global Internet network, and maintain high-speed connections to numerous Internet service providers (“ISPs”) and maintain peering relationships globally to ensure that our critical services are readily accessible to customers at all times. • Security: We incorporate architectural concepts such as protected domains, restricted nodes and distributed access control in our system architecture. In addition, we employ firewalls and intrusion detection software, as well as proprietary security mechanisms at many points across our infrastructure. We perform recurring internal vulnerability testing and controls audits, and also contract with third-party security consultants who perform periodic penetration tests and security risk assessments on our systems. Verisign has engineered resiliency and diversity into how it hosts classes of products throughout its set of interconnected sites to mitigate unknown vendor defects and zero-hour security vulnerabilities. This includes different physical security silos, which themselves are separated into bulkheads, and in which servers are located. Corporate networks are in their own physical silo. Thus, the corporate networks to which personnel directly connect are separated from the silos that house production services; administration of production gear from corporate systems must go through an internal, fortified intermediary; and account credentials used within the corporate networks are not used within the production silos, nor on the fortified systems. • Data Integrity: Verisign employs both phased and systemic integrity validation operations via a number of proprietary mechanisms on all internal DNS publication operations. As part of our operations infrastructure for our Registry Services business, we operate all authoritative domain name servers that answer domain name lookups for the .com and .net zones, as well as for the other TLDs for which we are the registry. We also administer and operate two of the 13 root zone servers that contain authoritative data for the very top of the DNS hierarchy. Our domain name servers provide the associated authoritative name servers and IP addresses for every .com and .net domain name on the Internet and a large number of other TLD queries, resulting in an average of over 110 billion transactions per day. These name servers are located in resolution sites which are in a controlled and monitored environment, incorporating security and system maintenance features. This network of name servers is one of the cornerstones of the Internet’s DNS infrastructure. In 2013 and 2014, we continued to expand our infrastructure to meet demands to support normal and peak system load and attack volumes based on what we have experienced historically, as well as to accommodate projected Internet attack trends. Call Centers and Help Desk: We provide customer support services through our phone-based call centers, email help desks and Web-based self-help systems. Our Virginia call center is staffed 24 hours a day, every day of the year to support our 5 2014 K - 0 1 m r o F n G s i i r E V businesses. All call centers have a staff of trained customer support agents and also provide Web-based support services utilizing customized automatic response systems to provide self-help recommendations. Operations Support and Monitoring: Through our network operations centers, we have an extensive monitoring capability that enables us to track the status and performance of our critical database systems and our global resolution systems. Our distributed network operations centers are staffed 24 hours a day, every day of the year. Disaster Recovery Plans: We have disaster recovery and business continuity capabilities that are designed to deal with the loss of entire data centers and other facilities. Our Registry Services business maintains dual mirrored data centers that allow rapid failover with no data loss and no loss of function or capacity, as well as off-continent tertiary Registry Services capabilities. Our critical data services (including domain name registration and global resolution) use advanced storage systems that provide data protection through techniques such as synchronous mirroring and remote replication. Marketing, Sales and Distribution We offer promotional marketing programs for our registrars based upon market conditions and the business environment in which the registrars operate. We seek to expand our existing businesses through focused marketing programs that target growth in the .com and .net domain name base, particularly in emerging international markets, and by extending our brand and serving new markets through the IDNs for which we have applied. We market our NIA Services worldwide through multiple distribution channels, including direct sales and indirect channels. We have marketing and sales offices throughout the world. Research and Development We believe that timely development of new and enhanced services, including monitoring and visualization, registry provisioning platforms, navigation and resolution services, data services, value added services, and NIA Services is necessary to remain competitive in the marketplace. During 2014, 2013 and 2012 our research and development expenses were $67.8 million, $70.3 million and $61.7 million, respectively. Our future success will depend in large part on our ability to continue to maintain and enhance our current technologies and services, and to develop new ones. We actively investigate and incubate new concepts, and evaluate new business ideas through our innovation pipeline. In conjunction, we also continue to focus on growing our patent portfolio and consider opportunities for its strategic use. We expect that most of the future enhancements to our existing services and our new services will be the result of internal development efforts in collaboration with suppliers, other vendors, customers and the technology community. Under certain circumstances, we may also acquire or license technology from third parties. The markets for our services are dynamic, characterized by rapid technological developments, frequent new product introductions and evolving industry standards. The constantly changing nature of these markets and their rapid evolution will require us to continually improve the performance, features and reliability of our services, particularly in response to competitive offerings, and to introduce both new and enhanced services as quickly as possible and prior to our competitors. Competition We compete with numerous companies in each of the Registry Services and NIA Services businesses. The overall number of our competitors may increase and the identity and composition of competitors may change over time. New technologies and the expansion of existing technologies may increase competitive pressure. We cannot assure that competing technologies developed by others or the emergence of new industry standards will not adversely affect our competitive position or render our services or technologies noncompetitive or obsolete. In addition, our markets are characterized by announcements of collaborative relationships involving our competitors. The existence or announcement of any such relationships could adversely affect our ability to attract and retain customers. As a result of the foregoing and other factors, we may not be able to compete effectively with current or future competitors, and competitive pressures that we face could materially harm our business. Competition in Registry Services: We face competition in the domain name registry space from other gTLD and ccTLD registries that are competing for the business of entities and individuals that are seeking to obtain a domain name registration and/ or establish a Web presence. In addition to the three gTLDs we operate (.com, .net and .name), and the 18 other operational gTLDs delegated before October 23, 2013, there are over 250 Latin script ccTLD registries and more than 40 IDN ccTLD registries. Under our agreements with ICANN, we are subject to certain restrictions in the operation of .com, .net and .name on pricing, bundling, marketing, methods of distribution, the introduction of new registry services and use of registrars that do not apply to ccTLDs and therefore may create a competitive disadvantage. If other registries launch marketing campaigns for new or existing TLDs, including forms of marketing campaigns that we are prohibited from running under the terms of our agreements 6 2014 V E r i i s G n F o r m 1 0 - K with ICANN, which result in registrars or their resellers giving other TLDs greater prominence on their websites, advertising or marketing materials, we could be at a competitive disadvantage and our business could suffer. In addition, on October 23, 2013, the DOC began to authorize, and Verisign began effectuating, the delegation of the new gTLDs. ICANN is executing registry agreements with new gTLD applicants, awarding over 1,300 new gTLDs in an initial round under its new gTLD program, and plans on offering a second round of new gTLDs after the completion of the initial round, the timing of which is uncertain. For additional information about the potential risks presented by these new gTLDs, see “We may face additional competition, operational and other risks from the introduction of new gTLDs by ICANN, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.” We also face competition from service providers that offer outsourced domain name registration, resolution and other DNS services to organizations that require a reliable and scalable infrastructure. Among the competitors are Neustar, Inc., Afilias Limited, ARI Registry Services, Donuts Inc. and RightSide Inc. In addition, to the extent end-users navigate using search engines or social media, as opposed to direct navigation, we may face competition from search engine operators such as Google, Microsoft, and Yahoo!, operators of social networks such as Facebook, and operators of microblogging tools such as Twitter. Furthermore, to the extent end-users increase the use of web and phone applications to locate and access content, we may face competition from providers of such web and mobile applications. U.S. and most other countries’ trademark laws do not permit the registration of TLDs such as .com and .net as trademarks. Accordingly, Verisign’s ability to prevent other registries from using the .com and .net brand in their marketing materials may be limited. Competition in NIA Services: Several of our current and potential competitors have longer operating histories and/or significantly greater financial, technical, marketing and other resources than we do and therefore may be able to respond more quickly than we can to new or changing opportunities, technologies, standards and customer requirements. Many of these competitors also have broader and more established distribution channels that may be used to deliver competing products or services directly to customers through bundling or other means. If such competitors were to bundle competing products or services for their customers, we may experience difficulty establishing or increasing demand for our products and services or distributing our products successfully. In addition, it may be difficult to compete against consolidation and partnerships among our competitors which create integrated product suites. We face competition in the network intelligence and availability services industry from companies or services such as iSight Partners, IBM X-Force, Secunia ApS, Dell SecureWorks, McAfee, Inc., Akamai Technologies Inc. (including their acquisition of Prolexic Technologies, Inc.), AT&T Inc., Verizon Communications, Inc., Dyn, Inc., Neustar, Inc., OpenDNS, BlueCat Networks, Inc., Infoblox Inc., Nominum, Inc. and Afilias Limited. Industry Regulation Registry Services: Within the U.S. Government, oversight of the DNS is provided by the DOC. Effective October 1, 2009, the DOC and ICANN entered into a new agreement, known as the “Affirmation of Commitments” which replaced the seventh amendment of the original Memorandum of Understanding and known as the Joint Project Agreement. Under the Affirmation of Commitments, the DOC became one of several parties working together with other representative constituency members in providing an on-going review of ICANN’s performance and accountability. The Affirmation of Commitments sets forth a periodic review process by committees which provide for more international and multi-discipline participation. These review panels are charged with reviewing and making recommendations regarding: (i) the accountability and transparency of ICANN; (ii) the security, stability and resiliency of the DNS; (iii) the impact of new gTLDs on competition, consumer trust, and consumer choice; and (iv) the effectiveness of ICANN’s policies with respect to registrant data in meeting the legitimate needs of law enforcement and promoting consumer trust. Under the Affirmation of Commitments, the Assistant Secretary of Communications and Information of the DOC will be a member of the “Accountability and Transparency” review panel. Individual reviews from each panel generally are to occur no less than every three to four years. As the exclusive registry of domain names within the .com, .net and .name gTLDs, we have entered into certain agreements with ICANN and, in the case of .com, the DOC: .com Registry Agreement: On November 29, 2012, we renewed our Registry Agreement with ICANN for the .com gTLD (the “.com Registry Agreement”). The .com Registry Agreement provides that we will continue to be the sole registry operator for domain names in the .com TLD through November 30, 2018. The .com Registry Agreement revised the pricing provisions for .com domain name registrations contained in the prior agreement to provide that the price of a .com domain name shall not exceed $7.85 for the term of the Agreement except that we will continue to have the right to increase the price of a .com domain name during the term, subject to the terms of the Cooperative Agreement as set forth below, due to the imposition of any new 7 2014 K - 0 1 m r o F n G s i i r E V Consensus Policy or documented extraordinary expense resulting from an attack or threat of attack on the Security or Stability (each as defined in the .com Registry Agreement) of the DNS not to exceed 7% above the price in the prior year. Additionally, on a quarterly basis, we pay $0.25 to ICANN for each annual increment of a domain name registered or renewed during such quarter. See Note 13, “Commitments and Contingencies” of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. We are required to comply with and implement temporary specifications or policies and consensus policies, as well as other provisions pursuant to the .com Registry Agreement relating to handling of data and other registry operations. The .com Registry Agreement also provides a procedure for Verisign to propose, and ICANN to review and approve, additional registry services. The .com Registry Agreement provides that it shall be renewed for successive terms unless it has been determined that Verisign has been in fundamental and material breach of certain provisions of the .com Registry Agreement and has failed to cure such breach. As further described below, Verisign may not enter into any renewal of the .com Registry Agreement, or any other extension or continuation of, or substitution for, the .com Registry Agreement without prior written approval by the DOC. Cooperative Agreement: On November 29, 2012, Verisign and the DOC entered into Amendment Number Thirty-Two (32) (“Amendment 32”) to the Cooperative Agreement between Verisign and the DOC (the “Cooperative Agreement”), which approved the renewal of the .com Registry Agreement on the terms and conditions described below as in the public interest. Except as modified by Amendment 32, the terms and conditions of the Cooperative Agreement, including Amendment Thirty (30) to the Cooperative Agreement, which was entered into on November 29, 2006 by the Company and the DOC, remain unchanged. Amendment 32 provides that the Maximum Price (as defined in the .com Registry Agreement) of a .com domain name shall not exceed $7.85 for the term of the .com Registry Agreement, except that the we are entitled to increase the Maximum Price of a .com domain name due to the imposition of any new Consensus Policy or documented extraordinary expense resulting from an attack or threat of attack on the Security or Stability of the DNS as described in the .com Registry Agreement, provided that we may not exercise such right unless the DOC provides prior written approval that the exercise of such right will serve the public interest, such approval not to be unreasonably withheld. Amendment 32 further provides that we shall be entitled at any time during the term of the .com Registry Agreement to seek to remove the pricing restrictions contained in the .com Registry Agreement if we demonstrate to the DOC that market conditions no longer warrant pricing restrictions in the .com Registry Agreement, as determined by the DOC. Amendment 32 also provides that the DOC’s approval of the .com Registry Agreement is not intended to confer federal antitrust immunity on us with respect to the .com Registry Agreement and extends the term of the Cooperative Agreement through November 30, 2018. The Cooperative Agreement also provides that any renewal or extension of the .com Registry Agreement is subject to prior written approval by the DOC. Amendment 30 to the Cooperative Agreement provides that the DOC shall approve such renewal if it concludes that approval will serve the public interest in (a) the continued security and stability of the Internet DNS and the operation of the .com registry including, in addition to other relevant factors, consideration of Verisign’s compliance with consensus policies and technical specifications, its service level agreements as set forth in the .com Registry Agreement, and the investment associated with improving the security and stability of the DNS, and (b) the provision of Registry Services as defined in the .com Registry Agreement at reasonable prices, terms and conditions. The parties have an expectancy of renewal of the .com Registry Agreement so long as the foregoing public interest standard is met and Verisign is not in breach of the .com Registry Agreement. .net Registry Agreement: On June 27, 2011, we entered into a renewal of our Registry Agreement with ICANN for the .net gTLD (the “.net Registry Agreement”). The .net Registry Agreement provides that we will continue to be the sole registry operator for domain names in the .net TLD through June 30, 2017. The .net Registry Agreement provides that it shall be renewed unless it has been determined that Verisign has been in fundamental and material breach of certain provisions of the .net Registry Agreement and has failed to cure such breach. The descriptions of the .com Registry Agreement, Amendment 32, Amendment 30, the Cooperative Agreement, and the .net Registry Agreement are qualified in their entirety by the text of the complete agreements that are incorporated by reference as exhibits in this Form 10-K. .name Registry Agreement: On December 1, 2012, Verisign and ICANN entered into a revised .name Registry Agreement which provides that we will continue to be the sole registry operator for domain names in the .name TLD through August 15, 2018. The renewal provisions are the same as for the .net Registry Agreement. Some of the services we provide to customers globally may require approval under applicable U.S. export law. As the list of products and countries requiring export approval expands or changes, government restrictions on the export of software and hardware products utilizing encryption technology may grow and become an impediment to our growth in international markets. If we do not obtain required approvals or we violate applicable laws, we may not be able to provide some of our services in international markets and may be subject to fines and other penalties. 8 2014 V E r i i s G n F o r m 1 0 - K Intellectual Property We rely primarily on a combination of copyrights, trademarks, service marks, patents, restrictions on disclosure and other methods to protect our intellectual property. We also enter into confidentiality and/or invention assignment agreements with our employees, consultants and current and potential affiliates, customers and business partners. We also generally control access to and distribution of proprietary documentation and other confidential information. We have been issued numerous patents in the U.S. and abroad, covering a wide range of our technology. Additionally, we have filed numerous patent applications with respect to certain of our technology in the U.S. Patent and Trademark Office and patent offices outside the U.S. Patents may not be awarded with respect to these applications and even if such patents are awarded, such patents may not provide us with sufficient protection of our intellectual property. We continue to focus on growing our patent portfolio and consider opportunities for its strategic use. We have obtained trademark registrations for the VERISIGN mark and new VERISIGN logo in the U.S. and certain countries, and have pending trademark applications for the new VERISIGN logo in a number of other countries. We have common law rights in other proprietary names. We take steps to enforce and police Verisign’s trademarks. We rely on the strength of our Verisign brand to help differentiate ourselves in the marketing of our products and services. With regard to our Naming Services businesses, our principal intellectual property consists of, and our success is dependent upon, proprietary software used in our Naming Services businesses and certain methodologies (many of which are patented or for which patent applications are pending) and technical expertise we use in both the design and implementation of our current and future registry services and Internet-based products and services businesses. We own our proprietary Shared Registration System through which registrars submit second-level domain name registrations for each of the registries we operate, as well as the ATLAS distributed lookup system which processes billions of queries per day. Some of the software and protocols used in our registry services are in the public domain or are otherwise available to our competitors. Some of the software and protocols used in our business are based on open standards set by organizations such as the Internet Engineering Task Force (“IETF”). To the extent any of our patents are considered “standard essential patents,” we may be required to license such patents to our competitors on reasonable and non-discriminatory terms or otherwise be limited in our ability to assert such patents. Under the agreement reached with Symantec for the sale of our Authentication Services business, which closed on August 9, 2010 (the “Closing Date”), Symantec acquired all trademarks primarily used in our Authentication Services business, including our checkmark logo and the Geotrust and thawte brand names, and we granted Symantec a five-year license in connection with the VeriSign.com website. The VeriSign.com website will be operated by Symantec for a period of five years following the Closing Date, subject to certain rights of Verisign (including the right to include links to sub-domains operated by us). Employees The following table shows a comparison of our consolidated employee headcount, by function: As of December 31, 2014 2013 2012 Employee headcount by function: Cost of revenues........................................................................................................................... Sales and marketing ..................................................................................................................... Research and development .......................................................................................................... General and administrative .......................................................................................................... Total...................................................................................................................................... 299 171 318 273 301 172 333 273 304 194 339 262 1,061 1,079 1,099 We have never had a work stoppage, and no U.S.-based employees are represented under collective bargaining agreements. Our ability to achieve our financial and operational objectives depends in large part upon our continued ability to attract, integrate, train, retain and motivate highly qualified sales, technical and managerial personnel, and upon the continued service of our senior management and key sales and technical personnel. Competition for qualified personnel in our industry and in some of our geographical locations is intense, particularly for software development personnel. 9 2014 K - 0 1 m r o F n G s i i r E V ITEM 1A. RISK FACTORS In addition to other information in this Form 10-K, the following risk factors should be carefully considered in evaluating us and our business because these factors currently have a significant impact or may have a significant impact on our business, operating results or financial condition. Actual results could differ materially from those projected in the forward-looking statements contained in this Form 10-K as a result of the risk factors discussed below and elsewhere in this Form 10-K and in other filings we make with the SEC. Risks relating to our business Our operating results may fluctuate and our future revenues and profitability are uncertain. Our operating results have varied in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside our control. These factors include the following: • • • • deterioration of global economic and financial conditions as well as their impact on e-commerce, financial services, and the communications and Internet industries; volume of new domain name registrations and renewals; our success in direct marketing and promotional campaigns and the impact of such campaigns on new registrations and renewal rates; any changes to the scope and success of marketing efforts by third-party registrars or their resellers in the case of our Registry Services business, and by our sales channels, including resellers, referrers and OEMs, in the case of our NIA Services business; • market acceptance of our services by our existing customers and by new customers; • customer renewal rates and turnover of customers of our services, and in the case of our Registry Services business, the customers of the distributors of our services; continued development of our distribution channels for our products and services, both in the U.S. and abroad; the impact of price changes in our products and services or our competitors’ products and services; the impact of decisions by distributors to offer competing or replacement products, including ccTLDs and new gTLDs, or modify or cease their marketing practices, including with respect to new gTLDs; the impact of ICANN’s Registry Agreement for new gTLDs (the “New gTLD Registry Agreement”), which requires the distribution of new gTLDs only through registrars who have executed the 2013 Registrar Accreditation Agreement (“the 2013 RAA”) as well as accepting a unilateral right of ICANN to amend the New gTLD Registry Agreement; the availability of alternatives to our products; seasonal fluctuations in business activity; the introduction of new gTLDs, which could cause security, stability and resiliency problems that could possibly harm the industry and could substantially and permanently harm our business; in the case of our NIA Services business, the long sales cycles for some of our services and the timing and execution of individual customer contracts; potential attacks, including hacktivism, by nefarious actors, which could threaten the reliability or the perceived reliability of our products and services; potential attacks on the service offerings of our distributors, such as DDoS attacks, which could limit the availability of their service offerings and their ability to offer our products and services; changes in policies regarding Internet administration imposed by governments or governmental authorities inside or outside the U.S.; potential disruptions in regional registration behaviors due to catastrophic natural events or armed conflict; changes in the level of spending for information technology-related products and services by our customers; and the uncertainties, costs and risks as a result of the sale of our Authentication Services business, including costs related to any retained liability related to existing and future claims. • • • • • • • • • • • • • • Our operating expenses may increase. If an increase in our expenses is not accompanied by a corresponding increase in our revenues, our operating results will suffer, particularly as revenues from most of our services are recognized ratably over the term of the service, rather than immediately when the customer pays for them, unlike our sales and marketing expenses, which are expensed in full when incurred. 10 Any or all of the above factors could impact our revenues and operating results. Therefore, we believe that period-to- period comparisons of our operating results may not necessarily be meaningful. Also, operating results may fall below our expectations and the expectations of securities analysts or investors in one or more future periods. If this were to occur, the market price of our common stock would likely decline. Our operating results may be adversely affected as a result of unfavorable market, economic, social and political conditions. An unstable global economic, social and political environment, including the ongoing hostilities in the Middle East and Ukraine, natural disasters, conflicts in Europe, currency fluctuations, country specific operating regulations, and potential fallout from the disclosures related to the U.S. Internet and communications surveillance may have a negative impact on demand for our services, our business and our foreign operations. For example, recently the ongoing challenging economic conditions in Europe have possibly limited the rate of growth of the domain name base and may continue to do so in the future. More generally, the economic, social and political environment has or may negatively impact, among other things: • • • • • • • • our customers’ continued growth and development of their businesses and our customers’ ability to continue as going concerns or maintain their businesses, which could affect demand for our products and services; current and future demand for our services, including decreases as a result of reduced spending on information technology and communications by our customers; price competition for our products and services; the price of our common stock; our liquidity; our ability to service our debt, to obtain financing or assume new debt obligations; our ability to obtain payment for outstanding debts owed to us by our customers or other parties with whom we do business; and our ability to execute on any share repurchase plans. In addition, to the extent that the economic, social and political environment impacts specific industry and geographic sectors in which many of our customers are concentrated, that may further negatively impact our business. If the market, economic, social and political conditions in the U.S. and globally do not improve, or if they deteriorate, we may experience material adverse impacts on our business, operating results, financial condition and cash flows as a consequence of the above factors or otherwise. 2014 V E r i i s G n F o r m 1 0 - K 11 2014 The successful operation of our business depends on numerous factors. The successful operation of our business depends on numerous factors, many of which are not entirely under our control, including, but not limited to, the following: K - 0 1 m r o F n G s i i r E V • • • • • • • • • • • • • • • • • • the use of the Internet and other IP networks, and the extent to which domain names and the DNS are used for e- commerce and communications; changes in Internet user behavior, Internet platforms, social networks, mobile devices and web-browsing patterns; growth in demand for our services; the competition for any of our services; the perceived security of e-commerce and communications over the Internet; the perceived security of our services, technology, infrastructure and practices; the loss of customers through industry consolidation or customer decisions to deploy in-house or competitor technology and services; our continued ability to maintain our current, and enter into additional, strategic relationships; our ability to successfully market our services to new and existing distributors and customers; our ability to develop new products, services or other offerings; our success in attracting, integrating, training, retaining and motivating qualified personnel; our response to competitive developments; the successful introduction, and acceptance by our current or new customers, of new products and services; potential disruptions in regional registration behaviors due to catastrophic natural events, armed conflict and currency fluctuations; seasonal fluctuations in business activity; our ability to implement remedial actions in response to any attacks by nefarious actors; the successful introduction of enhancements to our services to address new technologies and standards, alternatives to our products and services and changing market conditions; and the successful introduction and compliance with Consensus Policies as they pertain to thick WHOIS and privacy issues for personally identifiable information of .com and .net registrants. Substantially all of our revenue is derived from our Registry Services business. Limitations on our ability to raise prices on domain name registrations and any failure to renew key agreements could materially and adversely affect our business, results of operations, financial condition and cash flows. Our Registry Services business, which derives most of its revenues from registration fees for domain names, generates substantially all of our revenue. If there is a disruption in the Registry Services business, including any disruption from changes in the domain name industry, changes in or challenges to our agreements with ICANN, including any changes resulting from legal challenges to these agreements, changes in our customers’ or Internet users’ preferences, a downturn in the economy or changes in technology related to the use of domain names, there may be a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, a failure of the DOC to approve the renewal of the .com Registry Agreement prior to the expiration of its current term on November 30, 2018 could have a material adverse effect on our business. Under the terms of the Cooperative Agreement, the Company has the right to petition for potential relief from the .com Registry Agreement’s pricing restrictions. However, there is uncertainty whether the DOC will approve any exercise by the Company of its right to increase the price per .com domain name registration under certain circumstances and whether the Company will be able to successfully demonstrate to the DOC that market conditions warrant removal of the pricing restrictions on .com domain name registrations, each of which could materially and adversely affect our business and results of operations. There is also uncertainty of future revenue and profitability and potential fluctuations in quarterly operating results due to the potential increase in expenses and costs coupled with such factors as restrictions on increasing prices due to market conditions, under the .com Registry Agreement and the Cooperative Agreement, or otherwise, or any other changes to pricing terms in these agreements upon renewal. 12 2014 V E r i i s G n F o r m 1 0 - K Issues arising from our agreements with ICANN, the DOC and the GSA could harm our Registry Services business. We are parties to agreements (i) with the DOC with respect to certain aspects of the DNS, (ii) with ICANN and the DOC as the exclusive registry of domain names within the .com gTLD and (iii) with ICANN with respect to being the exclusive registry for the .net and .name gTLDs. We face risks arising from our agreements with ICANN and the DOC, including the following: • • • • • • • ICANN could adopt or promote policies, including Consensus Policies, procedures or programs that are unfavorable to us as the registry operator of the .com, .net and .name gTLDs, that are inconsistent with our current or future plans, or that affect our competitive position; ICANN has adopted registry agreements for new gTLDs that include the right for ICANN to amend the agreement without a registry operator’s consent, which could impose unfavorable contract obligations on us that could impact our plans and competitive positions with respect to new gTLDs. ICANN might seek to impose this same unilateral right to amend other registry agreements with us under certain conditions. ICANN has also included new mandatory obligations on registry operators that may increase the risks and potential liabilities associated with providing new gTLDs and ICANN might seek to impose these new mandatory obligations in our registry agreements under certain conditions; under certain circumstances, ICANN could terminate one or more of our agreements to be the registry for the .com, .net or .name gTLDs and the DOC could refuse to grant its approval to the renewal of the .com Registry Agreement on similar terms, or at all, and if any of the foregoing events occur, in the case of the .com and .net Registry Agreements, it would have a material adverse impact on our business; if we seek a price increase with respect to .com domain names during the term of the .com Registry Agreement or at the time of the renewal of the .com Registry Agreement, the DOC could refuse to approve price increases with respect to .com domain names; the DOC’s or ICANN’s interpretation of provisions of our agreements with either of them could differ from ours; under certain circumstances, the GSA could terminate, or we could not seek to renew, our agreement to be the registry for the .gov gTLD, which could have a material adverse impact on how the Registry Services business is perceived; and contracts within our Registry Services business have faced, and could continue to face, challenges, including possible legal challenges resulting from our activities or the activities of ICANN, registrars, registrants and others, and any adverse outcome from such challenges could have a material adverse effect on our business. In addition, under the .com, .net and .name Registry Agreements with ICANN, as well as the Cooperative Agreement with the DOC, we are not permitted to acquire, directly or indirectly, control of, or a greater than 15% ownership interest in, any ICANN-accredited registrar. Historically, all gTLD registry operators were subject to this vertical integration prohibition. However, ICANN has established a process whereby these registry operators may seek ICANN’s approval to remove this restriction, and ICANN has approved such removal in some instances. Additionally, ICANN’s registry agreement for new gTLDs generally permits such vertical integration, with certain limitations including ICANN’s right, but not the obligation, to refer such vertical integration activities to competition authorities. Furthermore, unless prohibited by ICANN as noted above, such vertical integration restrictions do not generally apply to ccTLD operators. The impact of these changes to the distribution channel is uncertain but could have a material adverse effect on our business if operators of new or existing gTLDs are able to obtain competitive advantages through such vertical integration. If Verisign were to seek removal of the vertical integration restrictions contained in our agreements with respect to existing gTLDs, or in the future with respect to new gTLDs, it is uncertain whether ICANN and/or the DOC approval would be obtained. Challenges to Internet administration or changes to our pricing terms could harm our Registry Services business. Risks we face from challenges by third parties, including governmental authorities in the U.S. and other countries, to our role in the ongoing operation of the Internet include: • • • • legal, regulatory or other challenges could be brought, including challenges to the agreements governing our relationship with the DOC or ICANN, or to the legal authority underlying the roles and actions of the DOC, ICANN or us; the U.S. Congress could take action that is unfavorable to us; ICANN could fail to maintain its role, or seek to change its role, potentially resulting in changes to Internet governance that could pose a risk to our business, including instability in DNS administration; ICANN is mandated by the Affirmation of Commitments (the “AOC”) by the DOC and ICANN to uphold a private sector led multi-stakeholder approach to Internet governance for the public benefit. We believe recent actions by ICANN have signaled a willingness to abandon this model on certain important issues that impact our business and 13 2014 K - 0 1 m r o F n G s i i r E V the Internet community. If ICANN fails to uphold or significantly redefines the multi-stakeholder model, by expanding the role of governments in the Governmental Advisory Committee for example, it could harm our business and our relationship with ICANN; some governments and governmental authorities outside the U.S. have in the past disagreed, and may in the future disagree, with the actions, policies or programs of ICANN, the U.S. Government and us relating to the DNS. The AOC established several multi-party review panels and contemplates a greater involvement by foreign governments and governmental authorities in the oversight and review of ICANN. These periodic review panels may take positions that are unfavorable to Verisign; the AOC could be terminated or replaced with a different agreement between ICANN and some other authority which may establish other review panels or review procedures that may be unfavorable to Verisign; and some governments are now questioning the ability of ICANN to be accountable with respect to Internet governance and, as a result, may seek a multilateral oversight body as a replacement. • • • As a result of these and other risks, it may be difficult for us to introduce new services in our Registry Services business and we could also be subject to additional restrictions on how this business is conducted, which may not also apply to our competitors. Our international operations subject our business to additional economic risks that could have an adverse impact on our revenues and business. As of December 31, 2014, we had 124, or 12% of our employees outside the U.S. Doing business in international markets has required and will continue to require significant management attention and resources. We may also need to tailor some of our services for a particular market and to enter into international distribution and operating relationships. We have limited experience in localizing our services and in developing international distribution or operating relationships. We may fail to maintain our ability to conduct business, including potentially material business operations in some international locations or we may not succeed in expanding our services into new international markets or expand our presence in existing markets. Failure to do so could harm our business. Moreover, local laws and customs in many countries differ significantly from those in the U.S. In many foreign countries, particularly in those with developing economies, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S. law or regulations applicable to us. There can be no assurance that all of our employees, contractors and agents will not take actions in violation of such policies, procedures, laws and/or regulations. Violations of laws, regulations or internal policies and procedures by our employees, contractors or agents could result in financial reporting problems, investigations, fines, penalties, or prohibition on the importation or exportation of our products and services and could have a material adverse effect on our business. In addition, we face risks inherent in doing business on an international basis, including, among others: • • • • • • • • competition with foreign companies or other domestic companies entering the foreign markets in which we operate, as well as foreign governments actively promoting ccTLDs which we do not operate; differing and uncertain regulatory requirements; legal uncertainty regarding liability, enforcing our contracts and compliance with foreign laws; tariffs and other trade barriers and restrictions; difficulties in staffing and managing foreign operations; longer sales and payment cycles; currency fluctuations, as a small portion of our international revenues are not always denominated in U.S. dollars and some of our costs are denominated in foreign currencies; high costs associated with repatriating profits to the U.S., which could impact us due to the large percentage of our cash, cash equivalents and marketable securities currently held by us outside the U.S. (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”); potential problems associated with adapting our services to technical conditions existing in different countries; difficulty of verifying customer information; political instability; failure of foreign laws to protect our U.S. proprietary rights adequately; • • • • • more stringent privacy policies in some foreign countries; • • • • • additional vulnerability from terrorist groups targeting U.S. interests abroad; seasonal reductions in business activity; potentially conflicting or adverse tax consequences; reliance on third parties in foreign markets in which we only recently started doing business; and potential concerns of international customers and prospects regarding doing business with U.S. technology companies due to alleged U.S. government data collection policies. 14 2014 V E r i i s G n F o r m 1 0 - K Governmental regulation and the application of new and existing laws in the U.S. and overseas may slow business growth, increase our costs of doing business, create potential liability and have an adverse effect on our business. Application of new and existing laws and regulations in the U.S. or overseas to the Internet and communications industry can be unclear. The costs of complying or failing to comply with these laws and regulations could limit our ability to operate in our current markets, expose us to compliance costs and substantial liability and result in costly and time-consuming litigation. Foreign, federal or state laws could have an adverse impact on our business, financial condition, results of operations and cash flows, and our ability to conduct business in certain foreign countries. For example, laws designed to restrict who can register and who can distribute domain names, the online distribution of certain materials deemed harmful to children, online gambling (especially as we consider providing NIA Services and Registry Services to this sector), counterfeit goods, and cybersquatting; laws designed to require registrants to provide additional documentation or information in connection with domain name registrations; and laws designed to promote cyber security may impose significant additional costs on our business or subject us to additional liabilities. We have contracts pursuant to which we provide services to the U.S. government and even though these contracts are immaterial, they impose compliance costs, including compliance with the Federal Acquisition Regulation, which could be significant to the Company. Due to the nature of the Internet, it is possible that state or foreign governments might attempt to regulate Internet transmissions or prosecute us for violations of their laws. We might unintentionally violate such laws, such laws may be modified and new laws may be enacted in the future. Any such developments could increase the costs of regulatory compliance for us, affect our reputation, force us to change our business practices or otherwise materially harm our business. In addition, any such new laws could impede growth of or result in a decline in domain name registrations, as well as impact the demand for our services. We operate two root zone servers and are contracted to perform the Root Zone Maintainer function. Under ICANN’s new gTLD program, we face increased risk from these operations. We administer and operate two of the 13 root zone servers. Root zone servers are name servers that contain authoritative data for the very top of the DNS hierarchy. These servers have the software and DNS configuration data necessary to locate name servers that contain authoritative data for the TLDs. These root zone servers are critical to the functioning of the Internet. Under the Cooperative Agreement with the National Telecommunications and Information Administration (“NTIA”) of the DOC, we play a key operational role in support of the Internet Assigned Numbers Authority (“IANA”) function as the Root Zone Maintainer. In this role, we provision and publish the authoritative data for the root zone itself multiple times daily and distribute it to all root server operators. Under its new gTLD program, ICANN intends to recommend for delegation into the root zone over 1,300 new gTLDs potentially within a compressed timeframe. On October 23, 2013, NTIA began to authorize, and Verisign began effectuating, the delegation of the new gTLDs. In view of our role as the Root Zone Maintainer, and as a root operator, we face increased risks should ICANN’s delegation of these new gTLDs cause security and stability problems within the DNS and/or for parties who rely on the DNS. Such risks include potential instability of the DNS including potential fragmentation of the DNS should ICANN’s delegations create sufficient instability, and potential claims based on our role in the root zone provisioning and delegation process. These risks, alone or in the aggregate, have the potential to cause serious harm to our Registry Services business. Further, our business could also be harmed through security, stability and resiliency degradation if the delegation of new gTLDs into the root zone causes problems to certain components of the DNS ecosystem or other aspects of the global DNS, or other relying parties are negatively impacted as a result of domain name collisions, such as exposure or other leakage of private or sensitive information. Additionally, DNS Security Extensions (“DNSSEC”) enabled in the root zone and at other levels of the DNS require new preventative maintenance functions and operational practices that did not exist prior to the introduction of DNSSEC. Any failure by Verisign or the IANA functions operator to comply with stated practices, such as those outlined in relevant DNSSEC Practice Statements, introduces risk to DNSSEC relying parties and other Internet users and consumers of the DNS, which could have a material adverse impact on our business. 15 2014 K - 0 1 m r o F n G s i i r E V On March 14, 2014, the National Telecommunications and Information Administration announced its intent to transition key Internet domain name functions potentially impacting our Root Zone Maintainer function. On March 14, 2014, NTIA announced its intent to transition its oversight of the IANA function to the global multi- stakeholder community. NTIA asked ICANN to convene global stakeholders to develop a proposal to transition the current role played by NTIA in the coordination of the DNS. It is uncertain whether the transition of oversight of the IANA function will affect our role as Root Zone Maintainer. Although our Root Zone Maintainer function is separate from our Registry Services business, and the NTIA announcement does not affect Verisign's operation of the .com, .net and .name registries, there can be no assurance that the transition will not negatively impact our business. Changes in Internet user behavior, either as a result of evolving technologies or user practices, may impact the demand for domain names. Currently, Internet users often navigate to a website either by directly typing its domain name into a web browser or through the use of a search engine. If (i) web browser or Internet search technologies were to change significantly; (ii) Internet search engines were to change the value of their algorithms on the use of a domain for finding a website; (iii) Internet users’ preferences or practices continue to shift away from directly typing in web addresses; (iv) Internet users were to significantly decrease the use of web browsers in favor of applications to locate and access content; or (v) Internet users were to increasingly use third level domains or alternate identifiers, such as social networking and microblogging sites, in each case the demand for domain names could decrease. Changes in the level of spending on online advertising and/or the way that online networks compensate owners of websites could impact the demand for domain names. Some domain name registrars and registrants seek to generate revenue through advertising on their websites; changes in the way these registrars and registrants are compensated (including changes in methodologies and metrics) by advertisers and advertisement placement networks, such as Google, Yahoo!, Baidu and Bing, have, and may continue to, adversely affect the market for those domain names favored by such registrars and registrants which has resulted in, and may continue to result in, a decrease in demand and/or the renewal rate for those domain names. For example, according to published reports, Google has in the past changed (and may change in the future) its search algorithm, which may decrease site traffic to certain websites, and pay-per-click advertising policies to provide less compensation for advertising on certain types of websites. This has made such websites less profitable which has resulted in, and may continue to result in, fewer domain registrations and renewals. In addition, as a result of the general economic environment, spending on online advertising and marketing may not increase or may be reduced, which in turn, may result in a further decline in the demand for those domain names. Changes in federal or state tax laws and regulations may discourage the registration or renewal of domain names for e- commerce. Many Internet merchants are not currently required to collect sales taxes in respect of shipments of goods into states where they lack physical presence. However, state tax laws and regulations may change in the future and one or more states may seek to impose sales tax collection obligations on out-of-state companies that engage in online commerce. Several states have enacted “affiliate nexus” laws which require online retailers without a physical presence in the state to begin collecting sales taxes if a significant number of local sales are generated by brick and mortar affiliates operating in the state. In addition, it is possible that national legislation may be enacted requiring online retailers with greater than $1 million in sales in a state, but without any physical presence in the state, to begin collecting sales taxes for that state. Legislation called the Marketplace Fairness Act of 2013 (S. 743), which would have done this, passed the Senate in 2013, but no action was taken by the House of Representatives prior to the 2013-2014 congressional term. It is expected that a new version of the Marketplace Fairness Act will be introduced in 2015, but it is unclear if this new version will have any greater chance of passage than S. 743 did in the prior congressional term. The enactment of any such state or federal laws may impair the growth of e-commerce and discourage the registration or renewal of domain names for e-commerce. Reduced marketing efforts or other operational changes among registrars or their resellers as a result of consolidation or changes in ownership, management, or strategy could harm our Registry Services business. Registrars and their resellers utilize substantial marketing efforts to increase the demand and/or renewal rates for domain names. Consolidation in the registrar or reseller industry or changes in ownership, management, or strategy among individual registrars or resellers could result in significant changes to their business, operating model and cost structure. Such changes could include reduced marketing efforts or other operational changes that could adversely impact the demand and/or the renewal rates for domain names. Our Registry Services business, which generates substantially all of our revenue, derives most of its revenues from registrations and renewals of domain names, and decreased demand for and/or renewals of domain names could cause a material adverse effect on our business, results of operations, financial condition and cash flows. 16 2014 V E r i i s G n F o r m 1 0 - K Undetected or unknown defects in our services could harm our business and future operating results. Services as complex as those we offer or develop could contain undetected defects or errors. Despite testing, defects or errors may occur in our existing or new services, which could result in compromised customer data, loss of or delay in revenues, loss of market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation, tort or contract claims, increased insurance costs or increased service costs, any of which could harm our business. The performance of our services could have unforeseen or unknown adverse effects on the networks over which they are delivered as well as, more broadly, on Internet users and consumers, and third-party applications and services that utilize our services, which could result in legal claims against us, harming our business. Our failure or inability to meet customer expectations in a timely manner could also result in loss of or delay in revenues, loss of market share, failure to achieve market acceptance, injury to our reputation and increased costs. If we encounter system interruptions or failures, we could be exposed to liability and our reputation and business could suffer. We depend on the uninterrupted operation of our various systems, secure data centers and other computer and communication networks. Our systems and operations are vulnerable to damage or interruption from: • • • • • • • • power loss, transmission cable cuts and other telecommunications failures; damage or interruption caused by fire, earthquake, and other natural disasters; attacks, including hacktivism, by miscreants or other nefarious actors; computer viruses or software defects; physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control; risks inherent in or arising from the terms and conditions of our agreements with service providers to operate our networks and data centers; State suppression of Internet operations; and any failure to implement effective and timely remedial actions in response to any damage or interruption. Most of the computing infrastructure for our Shared Registration System is located at, and most of our customer information is stored in, our facilities in New Castle, Delaware; Dulles, Virginia; and Fribourg, Switzerland. To the extent we are unable to partially or completely switch over to our primary alternate or tertiary sites, any damage or failure that causes interruptions in any of these facilities or our other computer and communications systems could materially harm our business. Although we carry insurance for property damage, we do not carry insurance or financial reserves for such interruptions, or for potential losses arising from terrorism. In addition, our Registry Services business and certain of our other services depend on the efficient operation of the Internet connections from customers to our Shared Registration System residing in our secure data centers. These connections depend upon the efficient operation of Internet service providers and Internet backbone service providers, all of which have had periodic operational problems or experienced outages in the past beyond our scope of control. In addition, if these service providers present inconsistent data regarding the DNS, our business could be harmed. A failure in the operation of our TLD name servers, the domain name root zone servers, or other events could result in a DNS resolution or other service outage or in the deletion of one or more domain names from the Internet for a period of time or a misdirection of a domain name to a different server. A failure in the operation of our Shared Registration System could result in the inability of one or more registrars to register and maintain domain names for a period of time. In the event that a registrar has not implemented back-up services recommended by us in conformance with industry best practices, the failure could result in permanent loss of transactions at the registrar during that period. A failure in the operation or update of the root zone file or the supporting cryptographic and other operational infrastructure that we maintain could also result in the deletion of one or more TLDs from the Internet and the discontinuation of second-level domain names in those TLDs for a period of time or a misdirection of a domain name to a different server. Any of these problems or outages could create potential liability and could decrease customer satisfaction, harming our business or resulting in adverse publicity that could adversely affect the market’s perception of the security of e-commerce and communications over the Internet as well as of the security or reliability of our services. In addition, a failure in our NIA Services could have a negative impact on our reputation and our business could suffer. If we experience security breaches, we could be exposed to liability and our reputation and business could suffer. We retain certain customer and employee information in our secure data centers and various domain name registration systems. It is critical to our business strategy that our facilities and infrastructure remain secure and are perceived by the marketplace to be secure. The Company, as an operator of critical Internet infrastructure, is frequently targeted and experiences a high rate of attacks. These include the most sophisticated forms of attacks, such as advanced persistent threat 17 2014 K - 0 1 m r o F n G s i i r E V (“APT”) attacks and zero-hour threats, which means that the threat is not compiled or has been previously unobserved within our observation and threat indicators space until the moment it is launched, and may well target specific unidentified or unresolved vulnerabilities that exist only within the target’s operating environment, making these attacks virtually impossible to anticipate and difficult to defend against. The Shared Registration System, the root zone servers, the root zone files, TLD name servers and TLD zone files that we operate are critical hardware and software to our Registry Services operations. We expend significant time and money on the security of our facilities and infrastructure. Despite our security measures, we have been subject to a security breach, as disclosed in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and our infrastructure may in the future be vulnerable to physical break-ins, outages resulting from destructive malcode, computer viruses, attacks by hackers or nefarious actors or similar disruptive problems, including hacktivism. It is possible that we may have to expend additional financial and other resources to address such problems. Any physical or electronic break-in or other security breach or compromise of the information stored at our secure data centers or domain name registration systems may cause an outage of or jeopardize the security of information stored on our premises or in the computer systems and networks of our customers. In such an event, we could face significant liability, customers could be reluctant to use our services and we could be at risk for loss of various security and standards-based compliance certifications needed for certain of our businesses, all or any of which could adversely affect our reputation and harm our business. Such an occurrence could also result in adverse publicity and therefore adversely affect the market’s perception of the security of e- commerce and communications over the Internet as well as of the security or reliability of our services. We are frequently subject to large-scale DDoS attacks. Our networks have been and likely will continue to be subject to DDoS attacks of increasing size and sophistication. We have adopted mitigation techniques, procedures and strategies to defend against such attacks but there can be no assurance that we will be able to defend against every attack especially as the attacks increase in size and sophistication. Any successful attack, or partially successful attack, could disrupt our networks, increase response time, and generally hamper our ability to provide reliable service to our Registry Services customers and the broader Internet community. Further, we sell DDoS protection services to NIA Services customers. Although our contracts with these customers provide that we may prioritize all or part of these services at no liability to us in order to preserve our operational stability, the provision of such services might expose our critical DNS services to temporary degradations or outages caused by very large-scale DDoS attacks against those customers, in addition to any directed specifically against us and our networks. We rely on our intellectual property, and any failure by us to protect or enforce, or any misappropriation of, our intellectual property could harm our business. Our success depends in part on our internally developed technologies and intellectual property. Despite our precautions, it may be possible for a third party to copy or otherwise obtain and use our trade secrets or other forms of our intellectual property without authorization. Furthermore, the laws of foreign countries may not protect our proprietary rights in those countries to the same extent U.S. law protects these rights in the U.S. In addition, it is possible that others may independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, our business could suffer. Additionally, we have filed patent applications with respect to certain of our technology in the U.S. Patent and Trademark Office and patent offices outside the U.S. Patents may not be awarded with respect to these applications and even if such patents are awarded, third parties may seek to oppose or otherwise challenge our patents, and such patents’ scope may differ significantly from what was requested in the patent applications and may not provide us with sufficient protection of our intellectual property. In the future, we may have to resort to litigation to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. This type of litigation is inherently unpredictable and, regardless of its outcome, could result in substantial costs and diversion of management attention and technical resources. Some of the software and protocols used in our business are based on standards set by standards setting organizations such as the Internet Engineering Task Force. To the extent any of our patents are considered “standards essential patents,” we may be required to license such patents to our competitors on reasonable and non-discriminatory terms. We also license third-party technology that is used in our products and services to perform key functions. These third- party technology licenses may not continue to be available to us on commercially reasonable terms or at all. The loss of or our inability to obtain or maintain any of these technology licenses could hinder or increase the cost of our launching new products and services, entering into new markets and/or otherwise harm our business. Some of the software and protocols used in our Registry Services business are in the public domain or may otherwise become publicly available, which means that such software and protocols are equally available to our competitors. We rely on the strength of our Verisign brand to help differentiate ourselves in the marketing of our products. Dilution of the strength of our brand could harm our business. We are at risk that we will be unable to fully register, build equity in, or enforce the Verisign logo in all markets where Verisign products and services are sold. 18 We could become subject to claims of infringement of intellectual property of others, which could be costly to defend and could harm our business. We cannot be certain that we do not and will not infringe the intellectual property rights of others. Claims relating to infringement of intellectual property of others or other similar claims have been made against us and could be made against us in the future. It is possible that we could become subject to additional claims for infringement of the intellectual property of third parties. The international use of our logo could present additional potential risks for third party claims of infringement. Any claims, with or without merit, could be time consuming, result in costly litigation and diversion of technical and management personnel attention, cause delays in our business activities generally, or require us to develop a non-infringing logo or technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on acceptable terms or at all. If a successful claim of infringement were made against us, we could be required to pay damages or have portions of our business enjoined. If we could not identify and adopt an alternative non-infringing logo, develop non-infringing technology or license the infringed or similar technology on a timely and cost-effective basis, our business could be harmed. A third party could claim that the technology we license from other parties infringes a patent or other proprietary right. Litigation between the licensor and a third party or between us and a third party could lead to royalty obligations for which we are not indemnified or for which indemnification is insufficient, or we may not be able to obtain any additional license on commercially reasonable terms or at all. In addition, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights in Internet-related businesses, including patents related to software and business methods, are uncertain and still evolving. Because of the growth of the Internet and Internet-related businesses, patent applications are continuously being filed in connection with Internet-related technology. There are a significant number of U.S. and foreign patents and patent applications in our areas of interest, and we believe that there has been, and is likely to continue to be, significant litigation in the industry regarding patent and other intellectual property rights. 2014 V E r i i s G n F o r m 1 0 - K We could become involved in claims, lawsuits or investigations that may result in adverse outcomes. In addition to possible intellectual property litigation and infringement claims, we are, and may in the future, become involved in other claims, lawsuits and investigations. Such proceedings may initially be viewed as immaterial but could prove to be material. Litigation is inherently unpredictable, and excessive verdicts do occur. Adverse outcomes in lawsuits and investigations could result in significant monetary damages, including indemnification payments, or injunctive relief that could adversely affect our ability to conduct our business and may have a material adverse effect on our financial condition, results of operations and cash flows. Given the inherent uncertainties in litigation, even when we are able to reasonably estimate the amount of possible loss or range of loss and therefore record an aggregate litigation accrual for probable and reasonably estimable loss contingencies, the accrual may change in the future due to new developments or changes in approach. In addition, such investigations, claims and lawsuits could involve significant expense and diversion of management’s attention and resources from other matters. See Note 13, “Commitments and Contingencies” Legal Proceedings, of our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for further information. We must establish and maintain strategic, channel and other relationships. One of our significant business strategies has been to enter into strategic or other similar collaborative relationships in order to reach a larger customer base than we could reach through our direct sales and marketing efforts, including in international markets. We may need to enter into additional relationships to execute our business plan. We may not be able to enter into additional, or maintain our existing, strategic relationships on commercially reasonable terms. If we fail to enter into additional relationships, we would have to devote substantially more resources to the distribution, sale and marketing of our services than we would otherwise. Our success in obtaining results from these relationships will depend both on the ultimate success of the other parties to these relationships and on the ability of these parties to market our services successfully. Furthermore, any changes by our distributors to their existing marketing strategies could have a material adverse effect on our business. Similarly, if one or more of our distributors were to encounter financial difficulties, or if there were a significant reduction in marketing expenditures by our distributors (including registrars or their resellers), as a result of industry consolidation or otherwise, it could have a material adverse effect on our business, including a decrease in domain name registrations and renewals. Failure of one or more of our strategic, channel or other relationships to result in the development and maintenance of a market for our services could harm our business. If we are unable to maintain our existing relationships or to enter into additional relationships, this could harm our business. 19 2014 K - 0 1 m r o F n G s i i r E V With the introduction of new gTLDs, many of our registrars, based upon their perception of market opportunity, may choose to focus their short or long-term marketing efforts on these new offerings and/or reduce the prominence or visibility of our products and services on their e-commerce platforms, and if we are unable to maintain their focus on our products and services or move through them to engage the same registrants, this could harm our business. New entrants may disrupt the registrar industry, which could have adverse effects on our business. This could include, but is not limited to, potential harm to the business models of existing registrars, impairing their ability to engage in promotional activities beneficial to the sale of domain name registrations in the TLDs operated by us. We continue to explore new strategic initiatives, the pursuit of any of which may pose significant risks and could have a material adverse effect on our business, financial condition and results of operations. We are exploring a variety of possible strategic initiatives which may include, among other things, the pursuit of new revenue streams, services or products, changes to our offerings or initiatives to leverage our patent portfolio. Any such strategic initiative may involve a number of risks, including: the diversion of our management’s attention from our existing business to develop the initiative, related operations and any requisite personnel; possible material adverse effects on our results of operations during and after the development process; and our possible inability to achieve the intended objectives of the initiative. Such initiatives may result in a reduction of cash or increased costs. We may not be able to successfully or profitably develop, integrate, operate, maintain and manage any such initiative and the related operations or employees in a timely manner or at all. Furthermore, under our agreements with ICANN, we are subject to certain restrictions in the operation of .com, .net and .name, including required ICANN approval of new registry services for such TLDs. If any new initiative requires ICANN review, we cannot predict whether this process will prevent us from implementing the initiative in a timely manner or at all. Any strategic initiative to leverage our patent portfolio will likely increase litigation risks from potential licensees and we may have to resort to litigation to enforce our intellectual property rights. Litigation is inherently unpredictable and, regardless of its outcome, could result in substantial costs and diversion of management attention and technical resources. The success of our NIA Services depends in part on the acceptance of our services. We are investing in our NIA Services, and the future growth of these services depends, in part, on the commercial success, acceptance, and reliability of our NIA Services. We continually evaluate and evolve the terms and conditions upon which these services are sold. These services may not experience success or acceptance as a result of changes to the terms and conditions. Also, these services will suffer if our target customers do not adopt or use these services. We are not certain that our target customers will choose our NIA Services or continue to use these services even after adoption. We rely on third parties to provide products which are incorporated in our NIA Services. The NIA Services incorporate and rely on third party hardware and software products, many of which have unique capabilities. If we are unable to procure these third party products, the NIA Services may malfunction, not perform as well as they should perform, not perform as well as they have been performing or not perform as planned, and our business could suffer. Many of our target markets are evolving, and if these markets fail to develop or if our products and services are not widely accepted in these markets, our business could be harmed. Our Registry Services and NIA Services businesses are developing services in emerging markets, including services that involve naming and directory services other than registry and related infrastructure services. These emerging markets are rapidly evolving, may never gain wide acceptance and may not grow. Even if these markets grow, our services may not be widely accepted. Accordingly, the demand for our services in these markets is very uncertain. The factors that may affect market acceptance of our services in these markets include the following: • market acceptance of products and services based upon technologies other than those we use; • • • • public perception of the security of our technologies and of IP and other networks; the introduction and consumer acceptance of new generations of mobile devices; the ability of the Internet infrastructure to accommodate increased levels of usage; and government regulations affecting Internet access and availability, domain name registrations or the provision of registry services, or e-commerce and telecommunications over the Internet. If the market for e-commerce and communications over IP and other networks does not grow or these services are not widely accepted in the market, our business could be materially harmed. 20 2014 V E r i i s G n F o r m 1 0 - K We depend on key employees to manage our business effectively, and we may face difficulty attracting and retaining qualified leaders. We depend on the performance of our senior management team and other key employees, and we have experienced changes in our management team during the last few years. If we are unable to attract, integrate, retain and motivate these individuals and additional highly skilled technical and sales and marketing employees, and implement succession plans for these personnel, our business may suffer. We have anti-takeover protections that may discourage, delay or prevent a change in control that could benefit our stockholders. Our amended and restated Certificate of Incorporation and Bylaws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors (“Board”). These provisions include: • • • • • our stockholders may take action only at a duly called meeting and not by written consent; special meetings of our stockholders may be called only by the chairman of the board of directors, the president, our Board, or the secretary (acting as a representative of the stockholders) whenever a stockholder or group of stockholders owning at least thirty-five percent (35%) in the aggregate of the capital stock issued, outstanding and entitled to vote, and who held that amount in a net long position continuously for at least one year, so request in writing; our Board must be given advance notice regarding stockholder-sponsored proposals for consideration at annual meetings and for stockholder nominations for the election of directors; vacancies on our Board can be filled until the next annual meeting of stockholders by majority vote of the members of the Corporate Governance and Nominating Committee, or a majority of directors then in office if no such committee exists, or a sole remaining director; and our Board has the ability to designate the terms of and issue new series of preferred stock without stockholder approval. In addition, Section 203 of the General Corporation Law of Delaware prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns or within the last three years has owned 15% or more of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless in the same transaction the interested stockholder acquired 85% ownership of our voting stock (excluding certain shares) or the business combination is approved in a prescribed manner. Section 203 therefore may impact the ability of an acquirer to complete an acquisition of us after a successful tender offer and accordingly could discourage, delay or prevent an acquirer from making an unsolicited offer without the approval of our Board. Changes in, or interpretations of, tax rules and regulations or our tax positions may adversely affect our effective tax rates. We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are subject to audit by various tax authorities. In accordance with U.S. GAAP, we recognize income tax benefits, net of required valuation allowances and accrual for uncertain tax positions. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and accruals. Should additional taxes be assessed as a result of an audit or litigation, an adverse effect on our income tax provision and net income in the period or periods for which that determination is made could result. A significant portion of our foreign earnings for the current fiscal year was earned by our Swiss subsidiaries. Our effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected to the extent earnings are lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates. As described further in “Note 12, Income Taxes, of our Notes to Consolidated Financial Statements in Part IV, Item 15 of our 2014 Form 10-K, we claimed a worthless stock deduction on our 2013 federal income tax return and recorded, during the fourth quarter of 2013, an income tax benefit of $375.3 million, net of valuation allowances and accrual for uncertain tax positions recorded as required under U.S. GAAP. This worthless stock deduction may be subject to audit and adjustment by the IRS, which could result in the reversal of all, part or none of the income tax benefit, or could result in a benefit higher than the net amount recorded. If the IRS rejects or reduces the amount of the income tax benefit related to the worthless stock deduction, we may have to pay additional cash income taxes, which could adversely affect our results of operations, financial condition and cash flows. We cannot guarantee what the ultimate outcome or amount of the benefit we receive, if any, will be. 21 2014 K - 0 1 m r o F n G s i i r E V Various legislative proposals that would reform U.S. corporate tax laws have been proposed by the Obama administration as well as members of Congress, including proposals that would significantly impact how U.S. multinational corporations are taxed on foreign earnings. We are unable to predict whether these or other proposals will be implemented. Although we cannot predict whether or in what form any proposed legislation may pass, if enacted, such legislation could have a material adverse impact on our tax expense or cash flow. Our inability to indefinitely reinvest our foreign earnings could materially adversely affect our results of operations, financial condition and cash flows. We consider the following matters, among others, in evaluating our plans for indefinite reinvestment: the forecasts, budgets and financial requirements of the parent and subsidiaries for both the long and short term; the projected available distributable capital reserves under applicable foreign statutes, the tax consequences of a decision to reinvest; and any U.S. and foreign government programs designed to influence remittances. If these factors change and as a result we are unable to indefinitely reinvest the foreign earnings, the income tax expense and payments may differ significantly from the current period and could materially adversely affect our results of operations, financial condition and cash flows. Deferred income taxes are not provided for any funds remaining in the foreign subsidiaries because these earnings are intended to be indefinitely reinvested. We are exposed to risks faced by financial institutions. The hedging transactions we have entered into expose us to credit risk in the event of default by one of our counterparties. Despite the risk control measures we have in place, a default by one of our counterparties, or liquidity problems in the financial services industry in general, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our marketable securities portfolio could experience a decline in market value, which could materially and adversely affect our financial results. As of December 31, 2014, we had $1.4 billion in cash, cash equivalents, marketable securities and restricted cash, of which $1.2 billion was invested in marketable securities. The marketable securities consist primarily of debt securities issued by the U.S. Treasury meeting the criteria of our investment policy, which is focused on the preservation of our capital through the investment in investment grade securities. We currently do not use derivative financial instruments to adjust our investment portfolio risk or income profile. These investments, as well as any cash deposited in bank accounts, are subject to general credit, liquidity, market and interest rate risks, which may be exacerbated by unusual events, such as the U.S. debt ceiling crisis and the eurozone crisis, which affected various sectors of the financial markets and led to global credit and liquidity issues. During the 2008 financial crisis, the volatility and disruption in the global credit market reached unprecedented levels. If the global credit market deteriorates again or other events negatively impact the market for U.S. Treasury securities, our investment portfolio may be impacted and we could determine that some of our investments have experienced an other-than-temporary decline in fair value, requiring an impairment charge which could adversely impact our financial results, results of operations and cash flows. We may be exposed to potential risks if we do not have an effective system of disclosure controls or internal controls over financial reporting. As a public company, we are subject to the rules and regulations of the SEC, including those that require us to report on and receive an attestation from our independent registered public accounting firm regarding our internal control over financial reporting. Despite our efforts, if we were to fail to maintain an effective system of disclosure controls or internal control over financial reporting, we may not be able to accurately or timely report on our financial results or adequately identify and reduce fraud. As a result, our financial condition could be harmed and current and potential future security holders could lose confidence in us and/or our reported financial results, which may cause a negative effect on our stock price, and we could be exposed to litigation or regulatory proceedings, which may be costly or divert management attention. 22 2014 V E r i i s G n F o r m 1 0 - K We are subject to the risks of owning real property. We own the land and building in Reston, Virginia, which constitutes our headquarters facility. Ownership of this property, as well as our data centers in Dulles, Virginia and New Castle, Delaware, may subject us to risks, including: • • • • • • adverse changes in the value of the properties, due to interest rate changes, changes in the commercial property markets, or other factors; ongoing maintenance expenses and costs of improvements; the possible need for structural improvements in order to comply with environmental, health and safety, zoning, seismic, disability law, or other requirements; the possibility of environmental contamination or notices of violation from federal or state environmental agencies, and the costs associated with fixing any environmental problems or addressing notices of violation; and possible disputes with neighboring owners, tenants, service providers or others. Risks relating to the competitive environment in which we operate The business environment is highly competitive and, if we do not compete effectively, we may suffer price reductions, reduced gross margins and loss of market share. General: New technologies and the expansion of existing technologies may increase competitive pressure. We cannot assure that competing technologies developed by others or the emergence of new industry standards will not adversely affect our competitive position or render our services or technologies noncompetitive or obsolete. In addition, our markets are characterized by announcements of collaborative relationships involving our competitors. The existence or announcement of any such relationships could adversely affect our ability to attract and retain customers. As a result of the foregoing and other factors, we may not be able to compete effectively with current or future competitors, and competitive pressures that we face could materially harm our business. Competition in Registry Services: We face competition in the domain name registry space from other gTLD and ccTLD registries that are competing for the business of entities and individuals that are seeking to obtain a domain name registration and/or establish a Web presence. In addition to the three gTLDs we operate (.com, .net and .name), and the 18 other operational gTLDs delegated before October 23, 2013, there are over 250 Latin script ccTLD registries and more than 40 IDN ccTLD registries. Under our agreements with ICANN, we are subject to certain restrictions in the operation of .com, .net and .name on pricing, bundling, marketing, methods of distribution, the introduction of new registry services and use of registrars that do not apply to ccTLDs and therefore may create a competitive disadvantage. If other registries launch marketing campaigns for new or existing TLDs, including forms of marketing campaigns that we are prohibited from running under the terms of our agreements with ICANN, which result in registrars or their resellers giving other TLDs greater prominence on their websites, advertising or marketing materials, we could be at a competitive disadvantage and our business could suffer. In addition, on October 23, 2013, the DOC began to authorize, and Verisign began effectuating, the delegation of the new gTLDs. ICANN is executing registry agreements with new gTLD applicants, awarding over 1,300 new gTLDs in an initial round under its new gTLD program, and plans on offering a second round of new gTLDs after the completion of the initial round, the timing of which is uncertain. For additional information about the potential risks presented by these new gTLDs, see “We may face additional competition, operational and other risks from the introduction of new gTLDs by ICANN, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.” We also face competition from service providers that offer outsourced domain name registration, resolution and other DNS services to organizations that require a reliable and scalable infrastructure. Among the competitors are Neustar, Inc., Afilias Limited, ARI Registry Services, Donuts Inc. and RightSide Inc. In addition, to the extent end-users navigate using search engines or social media, as opposed to direct navigation, we may face competition from search engine operators such as Google, Microsoft, and Yahoo!, operators of social networks such as Facebook, and operators of microblogging tools such as Twitter. Furthermore, to the extent end-users increase the use of web and phone applications to locate and access content, we may face competition from providers of such web and mobile applications. U.S. and most other countries’ trademark laws do not permit the registration of TLDs such as .com and .net as trademarks. Accordingly, Verisign’s ability to prevent other registries from using the .com and .net brand in their marketing materials may be limited. 23 2014 K - 0 1 m r o F n G s i i r E V Competition in NIA Services: Several of our current and potential competitors have longer operating histories and/or significantly greater financial, technical, marketing and other resources than we do and therefore may be able to respond more quickly than we can to new or changing opportunities, technologies, standards and customer requirements. Many of these competitors also have broader and more established distribution channels that may be used to deliver competing products or services directly to customers through bundling or other means. If such competitors were to bundle competing products or services for their customers, we may experience difficulty establishing or increasing demand for our products and services or distributing our products successfully. In addition, it may be difficult to compete against consolidation and partnerships among our competitors which create integrated product suites. We face competition in the network intelligence and availability services industry from companies or services such as iSight Partners, IBM X-Force, Secunia ApS, Dell SecureWorks, McAfee, Inc., Akamai Technologies Inc. (including their acquisition of Prolexic Technologies, Inc.), AT&T Inc., Verizon Communications, Inc., Dyn, Inc., Neustar, Inc., OpenDNS, BlueCat Networks, Inc., Infoblox Inc., Nominum, Inc. and Afilias Limited. We may face additional competition, operational and other risks from the introduction of new TLDs by ICANN, which could have a material adverse effect on our business, results of operations, financial condition and cash flows. Additional competition to our business may arise from the introduction of new TLDs by ICANN. On October 30, 2009, ICANN approved a fast track process for the awarding of new IDN ccTLDs requested by country code managers, resulting in the ongoing delegation of new IDN ccTLDs to the DNS root zone. Additionally, on June 13, 2012, ICANN announced it received 1,930 applications to operate over 1,400 unique new gTLDs. ICANN has begun executing registry agreements with these new gTLD applicants in connection with this initial round of gTLD applications and intends to continue recommending over 1,300 new gTLDs for delegation into the root zone. On October 23, 2013, the DOC began to authorize, and Verisign began effectuating, the delegation of the new gTLDs. ICANN plans on offering a second round of new gTLDs after the completion of the initial round, the timing of which is uncertain. Increased competition from these new TLDs could have a material effect on our business, results of operations, financial condition and cash flows. As set forth in the Verisign Labs Technical Report #1130007 version 2.2: New gTLD Security and Stability Considerations released on March 28, 2013, and reiterated in our further publications since then, we continue to believe there are issues regarding the deployment of the new gTLDs that should have been addressed before any new gTLDs were delegated, and despite our and others’ efforts, some of these issues have not been addressed by ICANN sufficiently, if at all. For example, there has been an increase in domain name collisions in 2014 which have resulted in network interruptions for enterprises as well as confusion and usability issues that have led to phishing attacks. We do not yet know the impact, if any, that these new gTLDs may have on our business, including if or how the introduction of these new gTLDs will affect registrations for .com and .net and therefore have a material adverse effect on our business, results of operations, financial condition and cash flows. Applicants for new gTLDs include companies which may have greater financial, marketing and other resources than we do, including companies that are existing competitors, domain name registrars and new entrants into the domain name industry. In addition, under the .com, .net and .name Registry Agreements with ICANN, as well as the Cooperative Agreement with the DOC, we are not permitted to acquire, directly or indirectly, control of, or a greater than 15% ownership interest in, any ICANN-accredited registrar. Historically, all gTLD registry operators were subject to this vertical integration prohibition. However, ICANN has established a process whereby these registry operators may seek ICANN’s approval to remove this restriction, and ICANN has approved such removal in some instances. Additionally, ICANN’s registry agreement for new gTLDs generally permits such vertical integration, with certain limitations including ICANN’s right, but not the obligation, to refer such vertical integration activities to competition authorities. Furthermore, unless prohibited by ICANN as noted above, such vertical integration restrictions do not generally apply to other ccTLD operators if at all. If Verisign were to seek removal of the vertical integration restrictions contained in our agreements with respect to existing gTLDs, or in the future with respect to new gTLDs, it is uncertain whether ICANN and/or the DOC approval would be obtained; without such changes, we may be at a competitive disadvantage. We applied for 14 new gTLDs, including 12 IDN gTLDs, which are transliterations of “.com” or “.net” in various languages. We executed registry agreements to become the registry operator for 12 of these new gTLDs, including 11 IDNs as well as .comsec. The remaining IDN application was for a transliteration of “.com” in Traditional Chinese script, which was a variant of a string we applied for in another IDN application (“.com” in Simplified Chinese), and has been withdrawn at the request of ICANN, because ICANN had not yet developed a policy to address such variants. We may continue with this application, or a new one for the same string, once ICANN develops and implements a policy to address variant strings. The deadline to execute the registry agreement for our .verisign application is July 29, 2015. There is no certainty that we will enter into the registry agreement for .verisign or ultimately operate any of these new gTLDs. 24 2014 V E r i i s G n F o r m 1 0 - K ICANN has stated that it will need to limit the maximum number of new gTLDs that may be delegated in a year to 1,000, which could delay the activation of some approved new gTLDs. Even though IDN gTLDs have been given priority, other factors related to the application process could delay or disrupt an application and the timing of revenue generation, if any, from these gTLDs. Further, there is no guarantee that such new gTLDs will be any more successful than the new gTLDs obtained by our competitors. For example, some of the new gTLDs including our new gTLD strings, may face additional universal acceptability and usability challenges in that current desktop and mobile device software does not ubiquitously recognize these new gTLDs and may be slow to adopt standards or support these gTLDs, even if demand for such products is strong. This is particularly true for IDN gTLDs, but applies to conventional gTLDs as well. Similarly, while we originally entered into agreements to provide back-end registry services to other applicants for approximately 220 new gTLDs, and applicants for approximately 170 new gTLDs currently continue to contract with us to provide back-end registry services, there is no guarantee that such applicants with which we have entered into agreements will be successful in obtaining one or more of these new gTLDs or that such new gTLDs will be successful due to some or all of the factors discussed above in connection with our new gTLDs. We also cannot guarantee that we will ultimately provide back-end registry services for all of these new gTLDs. ICANN’s Registry Agreement for new gTLDs requires the distribution of new gTLDs only through registrars who have executed the 2013 RAA. If registrars do not execute the 2013 RAA, our ability to provide back-end registry services would be reduced, negatively impacting the sale of our back-end registry services for new gTLDs. Even if we are able to provide such services, the timing of revenue may also be dependent on how diligently our customers proceed to delegation and launch following the completion of the application process and our customers’ respective launch plans for the new gTLDs. In addition, we may face risks regarding ICANN requirements for mitigating name collisions in the new gTLDs which we operate or for which we provide back-end registry services. Our agreements to provide back-end registry services directly to other applicants and indirectly through reseller relationships expose us to operational and other risks. For example, the increase in the number of gTLDs for which we provide registry services on a standalone basis or as a back-end service provider could further increase costs or increase the frequency or scope of targeted attacks from nefarious actors. Our inability to react to changes in our industry and successfully introduce new products and services could harm our business. The Internet and communications network services industries are characterized by rapid technological change and frequent new product and service announcements which require us continually to improve the performance, features and reliability of our services, particularly in response to competitive offerings or alternatives to our products and services. In order to remain competitive and retain our market share, we must continually improve our access to technology and software, support the latest transmission technologies, and adapt our products and services to changing market conditions and our customers’ and Internet users’ preferences and practices, or launch entirely new products and services in anticipation of, or in response to, market trends. We cannot assure that we will be able to adapt to these challenges or anticipate or respond successfully or in a cost effective way to adequately meet them. Our failure to do so would adversely affect our ability to compete and retain customers or market share. Risks related to the sale of our Authentication Services business and the completion of our divestitures We face risks related to the terms of the sale of the Authentication Services business. Under the agreement reached with Symantec for the sale of our Authentication Services business (the “Symantec Agreement”), we agreed to several terms that may pose risks to us, including the potential for confusion by the public with respect to Symantec’s right to use certain of our trademarks, brands and domain names, as well as the risk that current or potential investors in or customers of the Company may incorrectly attribute to the Company problems with Symantec products or services that currently use the VERISIGN brand pursuant to a license granted by the Company to Symantec. Any such confusion may have a negative impact on our reputation, our brand and the market for our products and services. In addition, we may determine that certain assets transferred to Symantec could have been useful in our Naming Services businesses or in other future endeavors, requiring us to forego future opportunities or design or purchase alternatives which could be costly and less effective than the transferred assets. Under the terms of the Symantec Agreement, we have licensed rights to certain of our domain name registrations to Symantec. We are at risk that our customers will go to a URL for a licensed domain name and be unable to locate our Registry or NIA Services. In addition, we will continue to maintain the registration rights for the domain names licensed to Symantec for which Symantec has sole control over the displayed content, and we may be subject to claims of infringement if Symantec posts content that is alleged to infringe the rights of a third party. 25 2014 K - 0 1 m r o F n G s i i r E V We continue to be responsible for certain liabilities following the divestiture of certain businesses. Under the agreements reached with the buyers of certain divested businesses, including the Authentication Services business, we remain liable for certain liabilities related to the divested businesses. There is a possibility that we will incur unanticipated costs and expenses associated with management of liabilities relating to the businesses we have divested, including requests for indemnification by the buyers of the divested businesses. These liabilities could potentially relate to (i) breaches of contractual representations and warranties we gave to the buyers of the divested businesses, or (ii) certain liabilities relating to the divested businesses that we retained under the agreements reached with the buyers of the divested businesses. Such liabilities could include certain litigation matters, including actions brought by third parties. Where responsibility for such liabilities is to be contractually allocated to the buyer or shared with the buyer or another party, it is possible that the buyer or the other party may be in default for payments for which they are responsible, obligating us to pay amounts in excess of our agreed-upon share of those obligations. Risks related to our securities We have a considerable number of common shares subject to future issuance. As of December 31, 2014, we had one billion authorized common shares, of which 118.5 million shares were outstanding. In addition, of our authorized common shares, 15.0 million common shares were reserved for issuance pursuant to outstanding equity and employee stock purchase plans (“Equity Plans”), and 36.4 million shares were reserved for issuance upon conversion of the Subordinated Convertible Debentures. As a result, we keep substantial amounts of our common stock available for issuance upon exercise or settlement of equity awards outstanding under our Equity Plans and/or the conversion of Subordinated Convertible Debentures into our common stock. Issuance of all or a large portion of such shares would be dilutive to existing security holders, could adversely affect the prevailing market price of our common stock and could impair our ability to raise additional capital through the sale of equity securities. Our financial condition and results of operations could be adversely affected if we do not effectively manage our liabilities. As a result of the sale of the Subordinated Convertible Debentures and our Senior Notes, we have a substantial amount of long-term debt outstanding. In addition to the Subordinated Convertible Debentures and the Senior Notes, we have an unsecured credit facility with a borrowing capacity of $200.0 million (the “Unsecured Credit Facility”) and the ability to request from time to time that the lenders thereunder agree on a discretionary basis to increase the aggregate commitments amount by up to $150.0 million. As of December 31, 2014, we had no borrowings under the Unsecured Credit Facility. It is possible that we may need to incur additional indebtedness in the future in the ordinary course of business. The terms of our Unsecured Credit Facility and the Indenture governing the Senior Notes allow us to incur additional debt subject to certain limitations and will not prevent us from incurring obligations that do not constitute indebtedness under those agreements. If new debt is added to current debt levels, the risks and limitations related to our level of indebtedness could intensify. Specifically, a high level of indebtedness could have adverse effects on our flexibility to take advantage of corporate opportunities, including the following: • making it more difficult for us to satisfy our debt obligations; • limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements, or requiring us to make non-strategic divestitures, particularly when the availability of financing in the capital markets is limited; requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; having to repatriate cash held by foreign subsidiaries which would require us to accrue and pay additional U.S. taxes; increasing our vulnerability to general adverse economic and industry conditions; limiting our flexibility in planning for and reacting to changes in our businesses and the markets in which we compete; placing us at a possible competitive disadvantage compared to other, less leveraged competitors and competitors that may have better access to capital resources; and increasing our cost of borrowing. • • • • • • In addition, the Indenture that governs the Senior Notes and the credit agreement that governs our Unsecured Credit Facility contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our debt. 26 2014 V E r i i s G n F o r m 1 0 - K We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. Moreover, in the event funds from foreign operations are needed to repay our debt obligations and U.S. tax has not already been provided, we would be required to accrue and pay additional U.S. taxes in order to repatriate these funds. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. Our Unsecured Credit Facility restricts our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due. In addition, we conduct a significant portion of our operations through our subsidiaries, which are not guarantors of the Senior Notes or our other indebtedness. Repayment of our indebtedness is substantially dependent on the generation of cash flow by VeriSign, Inc. Our non-guarantor subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Future guarantor subsidiaries, if any, may not be able to, or may not be permitted to, on commercially reasonable terms, or at all, make distributions to enable us to make payments in respect of our indebtedness. Such subsidiaries are distinct legal entities, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries on commercially reasonable terms, or at all. While our Unsecured Credit Facility limits the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to qualifications and exceptions. If we cannot service our debt obligations with our cash flows and domestic cash on hand, we may be required to repatriate cash from our foreign subsidiaries, which would be subject to U.S. federal income tax, or may otherwise be unable to make required principal and interest payments on our indebtedness. Our inability to generate sufficient cash flows to satisfy our debt obligations or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial condition and results of operations and our ability to satisfy our debt obligations. If we cannot make scheduled payments on our debt, we will be in default and holders of the Senior Notes could declare all outstanding principal and interest to be due and payable, the lenders under our Unsecured Credit Facility could terminate their commitments to loan money, certain holders of our Subordinated Convertible Debentures could declare all outstanding principal and interest to be due and payable and we could be forced into bankruptcy or liquidation. The terms of our Unsecured Credit Facility and the Indenture governing the Senior Notes restrict our current and future operations, particularly our ability to respond to changes or to take certain actions and create the risk of default on such indebtedness. The credit agreement that governs our Unsecured Credit Facility and the Indenture governing the Senior Notes contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including, subject to certain exceptions, restrictions on our ability to: permit our subsidiaries to incur or guarantee indebtedness; pay dividends or other distributions or repurchase or redeem our capital stock; prepay, redeem or repurchase certain debt; issue certain preferred stock or similar equity securities; • • • • • make loans and investments; • • • • • • • sell assets; incur liens; enter into transactions with affiliates; alter the businesses we conduct; enter into agreements restricting our subsidiaries’ ability to pay dividends; consolidate, merge or sell all or substantially all of our assets; and engage in certain sale/leaseback transactions. 27 2014 K - 0 1 m r o F n G s i i r E V In addition, the restrictive covenants in our Unsecured Credit Facility require us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we may be unable to meet them. A breach of the covenants or restrictions under our Unsecured Credit Facility or the Indenture governing the Senior Notes could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under our Unsecured Credit Facility would permit the lenders under our Unsecured Credit Facility to terminate all commitments to extend further credit under that agreement. In the event our lenders or noteholders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. As a result of these restrictions, we may be: • • • limited in how we conduct our business; unable to raise additional debt or equity financing to operate during general economic or business downturns; or unable to compete effectively or to take advantage of new business opportunities. These restrictions may affect our ability to grow in accordance with our strategy. In addition, our financial results, our substantial indebtedness and our credit ratings could adversely affect the availability and terms of our financing. Some of the cash, cash equivalents and marketable securities that appear on our consolidated balance sheet may not be available for use in our business or to meet our debt obligations without adverse income tax consequences. As of December 31, 2014, the amount of cash, cash equivalents and marketable securities held by our foreign subsidiaries that are not guarantors of the Senior Notes or our other indebtedness, was $939.0 million. During the second quarter of 2014, we completed the repatriation of approximately $740.9 million, net of withholding taxes, of cash held by foreign subsidiaries. For any funds remaining in the foreign subsidiaries after the repatriation that have not been previously taxed in the U.S., our intent is to indefinitely reinvest those funds outside of the U.S. In the event that funds from our foreign operations are needed to fund operations in the United States or to meet our debt obligations, and if U.S. tax has not already been provided, we would be required to accrue and pay additional U.S. taxes in order to repatriate those funds. In light of the foregoing, the amount of cash, cash equivalents and marketable securities that appear on our balance sheet may overstate the amount of liquidity we have available to meet our business or debt obligations, including obligations under the Senior Notes. We may not be able to repurchase the Senior Notes upon a change of control. Upon the occurrence of specific kinds of change of control events and if the Senior Notes are rated below investment grade by both rating agencies that rate the Senior Notes, we will be required to offer to repurchase all outstanding Senior Notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. Additionally, under our Unsecured Credit Facility, a change of control (as defined therein) constitutes an event of default that permits the lenders to accelerate the maturity of borrowings under the Unsecured Credit Facility and the commitments to lend would terminate. The source of funds for any repurchase of the Senior Notes and repayment of borrowings under our Unsecured Credit Facility would be our available cash or cash generated from our subsidiaries’ operations or other sources, including borrowings, sales of assets or sales of equity. We may not be able to repurchase the Senior Notes upon a change of control because we may not have sufficient financial resources to purchase all of the debt securities that are tendered upon a change of control and repay our other indebtedness that will become due. If we fail to repurchase the Senior Notes in that circumstance, we will be in default under the Indenture that governs the Senior Notes. We may require additional financing from third parties to fund any such repurchases, and we may be unable to obtain financing on satisfactory terms or at all. Further, our ability to repurchase the Senior Notes may be limited by law. In order to avoid the obligation to repurchase the Senior Notes and events of default and potential breaches of our Unsecured Credit Facility, we may have to avoid certain change of control transactions that would otherwise be beneficial to us. In addition, certain important corporate events, such as leveraged recapitalizations, may not, under the Indenture that governs the Senior Notes, constitute a “change of control” that would require us to repurchase the Senior Notes, even though those corporate events could increase the level of our indebtedness or otherwise adversely affect our capital structure, credit ratings or the value of the Senior Notes. Additionally, holders may not be able to require us to purchase their Senior Notes in certain circumstances involving a significant change in the composition of our board of directors, including a proxy contest where our board of directors approves for purposes of the change of control provisions of the Indenture, but does not endorse, a dissident slate of directors. In this regard, decisions of the Delaware Chancery Court (not involving us or our securities) considered a change of control redemption provision contained in an indenture governing publicly traded debt securities that was substantially similar to the change of control redemption provision in the Indenture that governs the Senior Notes with respect to “continuing directors.” In these cases, the court noted that the board of directors may “approve” a dissident shareholder’s nominees solely to avoid triggering the change of control redemption provision of the indenture without 28 supporting their election if the board determines in good faith that the election of the dissident nominees would not be materially adverse to the interests of the corporation or its stockholders (without taking into consideration the interests of the holders of debt securities in making this determination). Further, according to these decisions, the directors’ duty of loyalty to shareholders under Delaware law may, in certain circumstances, require them to give such approval. Furthermore, the exercise by the holders of Senior Notes of their right to require us to repurchase the Senior Notes pursuant to a change of control offer could cause a default under the agreements governing our other indebtedness, including future agreements, even if the change of control itself does not, due to the financial effect of such repurchases on us. In the event a change of control offer is required to be made at a time when we are prohibited from purchasing Senior Notes, we could attempt to refinance the borrowings that contain such prohibitions. If we do not obtain a consent or repay those borrowings, we will remain prohibited from purchasing Senior Notes. In that case, our failure to purchase tendered Senior Notes would constitute an event of default under the Indenture which could, in turn, constitute a default under our other indebtedness. Finally, our ability to pay cash to the holders of Senior Notes upon a repurchase pursuant to a change of control offer may be limited by our then existing financial resources. A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital. Any rating assigned to our debt securities could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of our debt securities. Any lowering of our rating likely would make it more difficult or more expensive for us to obtain additional debt financing in the future. 2014 V E r i i s G n F o r m 1 0 - K We may not have the ability to repurchase the Subordinated Convertible Debentures in cash upon the occurrence of a fundamental change, or to pay cash upon the conversion of Subordinated Convertible Debentures; occurrence of certain events related to our Subordinated Convertible Debentures might have significant adverse accounting, disclosure, tax, and liquidity implications. As a result of the sale of the Subordinated Convertible Debentures, we have a substantial amount of debt outstanding. Holders of our outstanding Subordinated Convertible Debentures will have the right to require us to repurchase the Subordinated Convertible Debentures upon the occurrence of a fundamental change as defined in the indenture governing the Subordinated Convertible Debentures dated as of August 20, 2007 between the Company and U.S. Bank National Association, as Trustee (the “2007 Indenture”). Although, in certain situations, the 2007 Indenture requires us to pay this repurchase price in cash, we may not have sufficient funds to repurchase the Subordinated Convertible Debentures in cash or have the ability to arrange necessary financing on acceptable terms or at all. The Subordinated Convertible Debentures continue to be convertible due to our stock price exceeding the conversion price threshold trigger, and, if holders elect to convert their Subordinated Convertible Debentures, we are permitted under the 2007 Indenture to pursue an exchange in lieu of conversion or to settle the Settlement Amount (as defined in the 2007 Indenture) in cash, stock, or a combination thereof. If we choose not to pursue or cannot complete an exchange in lieu of a conversion, we currently have the intent and the ability (based on current facts and circumstances) to settle the principal amount of the Subordinated Convertible Debentures in cash. However, if the principal amount of the Subordinated Convertible Debentures due to holders as a result of rights to convert or require repurchase exceeds our cash on hand and cash from operations, we will need to draw cash from existing financing or pursue additional sources of financing to settle the Subordinated Convertible Debentures in cash. We cannot provide any assurances that we will be able to obtain new sources of financing on terms acceptable to us or at all, nor can we assure that we will be able to obtain such financing in time to settle the Subordinated Convertible Debentures that holders elect to convert or require the Company to repurchase. If we do not have adequate cash available, either from cash on hand, funds generated from operations or existing financing arrangements, or cannot obtain additional financing arrangements, we will not be able to settle the principal amount of the Subordinated Convertible Debentures in cash and, in the case of settlement of conversion elections, will be required to settle the principal amount of the Subordinated Convertible Debentures in stock. If we settle any portion of the principal amount of the Subordinated Convertible Debentures in stock, it will result in immediate dilution to the interests of existing security holders and the dilution could be material to such security holders. If our intent to settle the principal amount in cash changes, or if we conclude that we no longer have the ability, in the future, we will be required to change our accounting policy for earnings per share from the treasury stock method to the if- converted method. Earnings per share will most likely be lower under the if-converted method as compared to the treasury stock method. 29 2014 K - 0 1 m r o F n G s i i r E V If the amount paid (in cash or stock) to settle the Subordinated Convertible Debentures (i.e., the Settlement Amount) is less than the adjusted issue price, under the Internal Revenue Code and the regulations thereunder, the difference is included in taxable income as recapture of previous interest deductions. The adjusted issue price grows over the term of the Subordinated Convertible Debentures due to the difference between the interest deduction for tax, using a comparable yield rate of 8.5%, and the coupon rate of 3.25%, compounded annually. The settlement amount will vary based on the stock price at settlement date. Depending on the Settlement Amount for the Subordinated Convertible Debentures at the settlement date, the amount included in taxable income as a result of this recapture could be substantial, which could adversely impact our cash flow. A fundamental change may constitute an event of default or prepayment under, or result in the acceleration of the maturity of, our then-existing indebtedness. Our ability to repurchase the Subordinated Convertible Debentures in cash or make any other required payments may be limited by law or the terms of other agreements relating to our indebtedness outstanding at the time. Our failure to repurchase the Subordinated Convertible Debentures when required would result in an event of default with respect to the Subordinated Convertible Debentures. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Our corporate headquarters are located in Reston, Virginia. We have administrative, sales, marketing, research and development and operations facilities located in the U.S., Europe, Asia, and Australia. As of December 31, 2014, we owned approximately 454,000 square feet of space, which includes facilities in Reston and Dulles, Virginia and New Castle, Delaware. As of December 31, 2014 we leased approximately 60,000 square feet of space, in Asia and Europe and to a lesser extent in the U.S. These facilities are under lease agreements that expire at various dates through 2017. We believe that our existing facilities are well maintained and in good operating condition, and are sufficient for our needs for the foreseeable future. The following table lists our major locations and primary use as of December 31, 2014: United States: Major Locations Reston, Virginia................................................................... New Castle, Delaware......................................................... Dulles, Virginia ................................................................... Approximate Square Footage Use 221,000 Corporate Headquarters; and Naming Services 105,000 Naming Services 70,000 Naming Services Asia Pacific: Bangalore, India .................................................................. 25,000 Naming Services; and Corporate Services Europe: Fribourg, Switzerland.......................................................... 8,000 Naming Services; and Corporate Services The table above does not include approximately 58,000 square feet of space owned by us and leased to third parties, and approximately 13,000 square feet of space leased by us and subleased to third parties. ITEM 3. LEGAL PROCEEDINGS See Note 13, “Commitments and Contingencies,” Legal Proceedings, of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K, which is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 30 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information regarding our executive officers as of February 13, 2015: Name D. James Bidzos....................................................... George E. Kilguss, III .............................................. Thomas C. Indelicarto.............................................. Age Position 59 Executive Chairman, President and Chief Executive Officer 54 Senior Vice President and Chief Financial Officer 51 Senior Vice President, General Counsel and Secretary D. James Bidzos has served as Executive Chairman since August 2009 and President and Chief Executive Officer since August 2011. He served as Executive Chairman and Chief Executive Officer on an interim basis from June 2008 to August 2009 and served as President from June 2008 to January 2009. He served as Chairman of the Board since August 2007 and from April 1995 to December 2001. He served as Vice Chairman of the Board from December 2001 to August 2007. Mr. Bidzos served as a director of VeriSign Japan from March 2008 to August 2010 and served as Representative Director of VeriSign Japan from March 2008 to September 2008. Mr. Bidzos served as Vice Chairman of RSA Security Inc., an Internet identity and access management solution provider, from March 1999 to May 2002, and Executive Vice President from July 1996 to February 1999. Prior thereto, he served as President and Chief Executive Officer of RSA Data Security, Inc. from 1986 to February 1999. George E. Kilguss, III has served as Senior Vice President and Chief Financial Officer since May 2012. From April 2008 to May 2012, he was the Chief Financial Officer of Internap Network Services Corporation, an IT infrastructure solutions company. From December 2003 to December 2007, he served as the Chief Financial Officer of Towerstream Corporation, a company that delivers high speed wireless Internet access to businesses using WiMAX microwave access. Mr. Kilguss holds an M.B.A. degree from the University of Chicago’s Graduate School of Business and a B.S. degree in Economics and Finance from the University of Hartford. Thomas C. Indelicarto has served as Senior Vice President, General Counsel and Secretary since November 2014. From September 2008 to November 2014, he served as Vice President and Associate General Counsel. From January 2006 to September 2008, he served as Litigation Counsel. Prior to joining the Company, Mr. Indelicarto was in private practice as an associate at Arnold & Porter LLP and Buchanan Ingersoll (now, Buchanan Ingersoll & Rooney, PC). Mr. Indelicarto also served as a U.S. Army officer for nine years. Mr. Indelicarto holds a J.D. degree from the University of Pittsburgh School of Law and a Bachelor of Science degree from Indiana University of Pennsylvania. 2014 V E r i i s G n F o r m 1 0 - K 31 2014 K - 0 1 m r o F n G s i i r E V PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Price Range of Common Stock Our common stock is traded on the NASDAQ Global Select Market under the symbol “VRSN.” The following table sets forth, for the periods indicated, the high and low sales prices per share for our common stock as reported by the NASDAQ Global Select Market: Price Range High Low Year ended December 31, 2014: Fourth Quarter........................................................................................................................................... Third Quarter............................................................................................................................................. Second Quarter.......................................................................................................................................... First Quarter .............................................................................................................................................. $ 61.25 $ 52.10 $ 57.57 $ 48.50 $ 54.47 $ 46.45 $ 62.96 $ 48.55 Year ended December 31, 2013: Fourth Quarter........................................................................................................................................... Third Quarter............................................................................................................................................. Second Quarter.......................................................................................................................................... First Quarter .............................................................................................................................................. $ 59.89 $ 49.16 $ 52.13 $ 44.38 $ 49.62 $ 43.28 $ 47.50 $ 37.55 On February 6, 2015, there were 555 holders of record of our common stock. We cannot estimate the number of beneficial owners since many brokers and other institutions hold our stock on behalf of stockholders. On February 6, 2015, the reported last sale price of our common stock was $59.97 per share as reported by the NASDAQ Global Select Market. The market price of our common stock has been and is likely to continue to be volatile and significantly affected by factors such as: • general market and economic conditions in the U.S., the eurozone and elsewhere; • market conditions affecting technology and Internet stocks generally; • announcements of earnings releases, material events, technological innovations, acquisitions or investments by us or our competitors; • developments in Internet governance; and • industry conditions and trends. The market price of our common stock also has been and is likely to continue to be significantly affected by expectations of analysts and investors. Reports and statements of analysts do not necessarily reflect our views. To the extent we have met or exceeded analyst or investor expectations in the past does not necessarily mean that we will be able to do so in the future. In the past, securities class action lawsuits have often followed periods of volatility in the market price of a particular company’s securities. This type of litigation could result in substantial costs and a diversion of our management’s attention and resources. See Note 13, “Commitments and Contingencies,” Legal Proceedings of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. We have not declared or paid any cash dividends on our common stock or any other securities in the last three years. We continually evaluate the overall cash and investing needs of the business and consider the best uses for our cash, including investments in the strengthening of our infrastructure and growth opportunities for our business, as well as potential share repurchases. For information regarding securities authorized for issuance under our equity compensation plans, see Note 10, “Employee Benefits and Stock-based Compensation,” of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. 32 Share Repurchases The following table presents the share repurchase activity during the three months ended December 31, 2014: October 1 – 31, 2014 ....................................................... November 1 – 30, 2014 ................................................... December 1 – 31, 2014.................................................... Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) (2) (Shares in thousands) 1,510 912 1,230 3,652 $55.11 $59.80 $58.07 $ $ $ 749.5 million 694.9 million 623.5 million 1,510 912 1,230 3,652 (1) On July 23, 2014, our Board of Directors authorized the repurchase of up to $490.6 million of our common stock, in addition to the $509.4 million of our common stock remaining available for repurchase under the previous share repurchase program, for a total repurchase authorization of up to $1.0 billion of our common stock. (2) Effective January 30, 2015, our Board of Directors authorized the repurchase of approximately $452.9 million of our common stock, in addition to the $547.1 million of our common stock remaining available for repurchase under the previous share repurchase program, for a total repurchase authorization of up to $1.0 billion of our common stock. The share repurchase program has no expiration date. Purchases made under the program could be effected through open market transactions, block purchases, accelerated share repurchase agreements or other negotiated transactions. 2014 V E r i i s G n F o r m 1 0 - K 33 2014 Performance Graph The information contained in the Performance Graph shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act. The following graph compares the cumulative total stockholder return on our common stock, the Standard and Poor’s (“S&P”) 500 Index, and the S&P 500 Information Technology Index. The graph assumes that $100 (and the reinvestment of any dividends thereafter) was invested in our common stock, the S&P 500 Index and the S&P 500 Information Technology Index on December 31, 2009, and calculates the return annually through December 31, 2014. The stock price performance on the following graph is not necessarily indicative of future stock price performance. K - 0 1 m r o F n G s i i r E V VeriSign, Inc................................................................................ $ S&P 500 Index............................................................................. $ S&P 500 Information Technology Index..................................... $ 100 $ 100 $ 100 $ 147 $ 115 $ 110 $ 173 $ 117 $ 113 $ 188 $ 136 $ 130 $ 290 $ 180 $ 166 $ 276 205 200 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 34 ITEM 6. SELECTED FINANCIAL DATA 2014 The following table sets forth selected financial data as of and for the last five fiscal years. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K, to fully understand factors that may affect the comparability of the information presented below. Selected Consolidated Statements of Comprehensive Income Data: (in millions, except per share data) Year Ended December 31, 2014 (1) 2013 (2) 2012 2011 (3) 2010 (4) Revenues .......................................................................................... $ Operating income............................................................................. $ Income from continuing operations ................................................. $ Income from continuing operations per share: ................................ Basic .............................................................................................. $ Diluted ........................................................................................... $ Cash dividend declared and paid per share...................................... $ ——————— 1,010 564 355 2.80 2.52 $ $ $ $ $ 965 528 544 3.77 3.49 $ $ $ $ $ 874 457 312 1.99 1.91 $ $ $ $ $ — $ — $ — $ 772 329 139 0.84 0.83 2.75 $ $ $ $ $ $ 681 232 70 0.39 0.39 3.00 V E r i i s G n F o r m 1 0 - K (1) (2) (3) (4) Income from continuing operations for 2014 is reduced by $9.8 million for a non-U.S. income tax charge related to a reorganization of certain international operations and changes in estimates during 2014 for U.S. income taxes related to the 2013 worthless stock deduction and the 2014 repatriation of funds held by foreign subsidiaries. Income from continuing operations for 2013 includes a $375.3 million income tax benefit related to a worthless stock deduction, net of valuation allowances, and accrual for uncertain tax positions, partially offset by $167.1 million of income tax expense related to the repatriation of cash held by foreign subsidiaries. Income from continuing operations for 2011 is reduced by pre-tax amounts of $15.5 million in restructuring charges and $100.0 million in contingent interest paid to holders of our Subordinated Convertible Debentures, as a result of the special dividend to stockholders. Income from continuing operations for 2010 is reduced by pre-tax amounts of $16.9 million in restructuring charges and $109.1 million in contingent interest paid to holders of our Subordinated Convertible Debentures, as a result of the special dividend to stockholders. Consolidated Balance Sheet Data: (in millions) As of December 31, 2014 2013 2012 2011 2010 Cash, cash equivalents and marketable securities (1) (2) ................ $ Total assets (2) ................................................................................. $ Deferred revenues ............................................................................ $ Subordinated Convertible Debentures, including contingent interest derivative............................................................................. $ Long-term debt (3)........................................................................... $ —————— 1,425 2,155 890 631 750 $ $ $ $ $ 1,723 2,661 856 624 750 $ $ $ $ $ 1,556 2,062 813 598 100 $ $ $ $ $ 1,346 1,856 729 590 100 $ $ $ $ $ 2,061 2,444 663 582 — (1) Cash, cash equivalents and marketable securities and total assets decreased from 2013 to 2014 because of the repurchase of $867.1 million worth of common stock under our share buyback program. Total assets also decreased due to the use of a majority of our net operating loss carryforwards to offset the income generated in the U.S. as a result of the repatriation discussed in Note 12, “Income taxes” in Part IV, Item 15 of this Form 10-K. (2) Cash, cash equivalents and marketable securities and total assets decreased from 2010 to 2011 because of a dividend payment of $463.5 million and contingent interest of $100.0 million paid in May 2011. (3) The increase in Long-term debt from 2012 to 2013 was due to the issuance of $750.0 million aggregate principal amount of 4.625% senior unsecured notes due 2023. We used a portion of the net proceeds to repay the $100.0 million of outstanding indebtedness under our Unsecured Credit Facility. 35 2014 K - 0 1 m r o F n G s i i r E V ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our anticipated costs and expenses and revenue mix. Forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in Part I, Item 1A of this Form 10-K. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-K. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. Overview We are a global provider of domain name registry services and Internet security, enabling Internet navigation for many of the world’s most recognized domain names and providing protection for websites and enterprises around the world. Our Registry Services ensure the security, stability and resiliency of key Internet infrastructure and services, including the .com and .net domains, two of the Internet’s root servers, and operation of the root-zone maintainer functions for the core of the Internet’s DNS. Our product suite also includes NIA Services consisting of DDoS Protection Services, Verisign iDefense Services and Managed DNS Services. As of December 31, 2014, we had approximately 130.6 million domain names registered under the .com and .net registries, our principal registries. The number of domain names registered is largely driven by continued growth in online advertising, e-commerce, and the number of Internet users, which is partially driven by greater availability of broadband, as well as advertising and promotional activities carried out by us and third-party registrars. Growth in the number of domain names has been hindered by certain factors, including changes to the marketing strategies of certain registrars, overall economic conditions, the introduction of new gTLDs, and ongoing changes to search algorithms used by Google and other Internet search engines that negatively affect the profitability of certain types of websites, and as a result, reduce demand for new domain name registrations and renewals. Revenues from NIA Services are not significant in relation to our consolidated revenues. 2014 Business Highlights and Trends • We recorded revenues of $1,010.1 million in 2014, which represents an increase of 5% compared to 2013. • During 2014, domain names registered under the .com and .net TLDs increased by 3.4 million to end the year at 130.6 million domain names in the domain name base, which was an increase of 3% compared to December 31, 2013. • We recorded operating income of $564.4 million during 2014, which represents an increase of 7% as compared to 2013. • • • During 2014, we processed 34 million new domain name registrations for .com and .net, the same as compared to 2013. The final .com and .net renewal rate for the third quarter of 2014 was 72.0% compared with 72.7% for the same quarter in 2013. Renewal rates are not fully measurable until 45 days after the end of the quarter. During the second quarter of 2014, we completed the repatriation of $740.9 million of cash held by foreign subsidiaries, net of $28.1 million of foreign withholding taxes. • We repurchased 16.3 million shares of our common stock for an aggregate cost of $867.1 million in 2014. As of December 31, 2014, there was $623.5 million remaining for future share repurchases under the share buyback program. • Effective January 30, 2015, the Board of Directors authorized the repurchase of approximately $452.9 million of our common stock, in addition to the $547.1 million of our common stock remaining available for repurchase under the previous share repurchase program, for a total repurchase authorization of up to $1.0 billion of our common stock. Through February 12, 2015, we repurchased an additional 2.0 million shares for $112.6 million under our share buyback program. 36 2014 V E r i i s G n F o r m 1 0 - K • We generated cash flows from operating activities of $600.9 million in 2014, which represents an increase of 4% as compared to 2013. • On July 24, 2014, we announced an increase in the annual fee for a .net domain name registration from $6.18 to $6.79, which became effective February 1, 2015. Critical Accounting Policies and Significant Management Estimates The discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates those estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. An accounting estimate is considered critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and the impact of changes in the estimates and assumptions would have a material effect on the consolidated financial statements. We believe the following critical accounting estimates and policies have the most significant impact on our consolidated financial statements: Revenue recognition We generate revenues by providing services over a period of time. Fees for these services are deferred and recognized as performance occurs. The majority of our revenue transactions contain standard business terms and conditions. However, at times, we enter into non-standard arrangements including multiple-element arrangements. As a result, we must evaluate (1) whether an arrangement exists; (2) how the arrangement consideration should be allocated among the deliverables; (3) when to recognize revenue on the deliverables; and (4) whether all elements of the arrangement have been delivered. Our revenue recognition policy also requires an assessment as to whether collection is reasonably assured, which requires us to evaluate the creditworthiness of our customers. Fair value of financial instruments Our Subordinated Convertible Debentures have a contingent interest payment provision that is identified as an embedded derivative. The embedded derivative is accounted for separately at fair value, and is marked to market at the end of each reporting period. We utilize a valuation model based on stock price, bond price, risk free interest rates, volatility, and credit spread observations to estimate the value of the derivative. Several of these inputs to the model are not observable and require management judgment. Income taxes Accounting for income taxes requires significant judgments in the development of estimates used in income tax calculations. Such judgments include, but are not limited to, the likelihood we would realize the benefits of net operating loss carryforwards, domestic and/or foreign tax credit carryforwards, the adequacy of valuation allowances, and the rates used to measure transactions with foreign subsidiaries. To the extent recovery of deferred tax assets is not likely, we record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Our operations involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes payable are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from U.S. federal, state, and international tax audits. We only recognize or continue to only recognize tax positions that are more likely than not to be sustained upon examination. We adjust these amounts in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. During the second quarter of 2014, we completed the repatriation of $740.9 million of cash held by foreign subsidiaries, in a tax efficient manner by using the tax benefits resulting from the 2013 worthless stock deduction to offset the taxable income generated in the U.S. as a result of the repatriation. The repatriation utilized substantially all of the capital reserves of our foreign subsidiaries that were legally distributable under applicable foreign statutes. Deferred income taxes are not provided for any funds remaining in the foreign subsidiaries after the repatriation because these earnings are intended to be indefinitely reinvested. We consider the following matters, among others, in evaluating our plans for indefinite reinvestment: the forecasts, budgets and financial requirements of the parent and subsidiaries for both the long and short term; the tax consequences of a 37 2014 K - 0 1 m r o F n G s i i r E V decision to reinvest; and any U.S. and foreign government programs designed to influence remittances. If factors change and as a result we are unable to indefinitely reinvest the foreign earnings, the income tax expense and payments may differ significantly from the current period and could materially adversely affect our results of operations. Earnings per Share We use the treasury stock method to calculate the impact of our Subordinated Convertible Debentures on diluted earnings per share. Under this method, only a positive conversion spread related to the Subordinated Convertible Debentures is included in the diluted earnings per share calculations. This is based on our intent and ability to settle the principal amount of the Subordinated Convertible Debentures in cash. A change in our intent and ability would require us to use the if-converted method, which could have a material impact on our diluted earnings per share. Results of Operations The following table presents information regarding our results of operations as a percentage of revenues: Revenues................................................................................................................... 100% 100% 100% Year Ended December 31, 2014 2013 2012 Costs and expenses: Cost of revenues ................................................................................................ Sales and marketing........................................................................................... Research and development ................................................................................ General and administrative................................................................................ Total costs and expenses............................................................................. Operating income...................................................................................................... Interest expense ........................................................................................................ Non-operating income, net ....................................................................................... Income from continuing operations before income taxes......................................... Income tax (expense) benefit.................................................................................... Income from continuing operations, net of tax......................................................... Income from discontinued operations, net of tax ..................................................... Net income................................................................................................................ Revenues 19 9 7 9 44 56 (9) 1 48 (13) 35 — 35% 20 9 7 9 45 55 (8) — 47 9 56 — 19 11 7 11 48 52 (6) 1 47 (11) 36 1 56% 37% Revenues related to our Registry Services are primarily derived from registrations for domain names in the .com and .net domain name registries. We also derive revenues from operating domain name registries for several other TLDs which are not significant in relation to our consolidated revenues. For domain names registered with the .com and .net registries, we receive a fee from third-party registrars per annual registration that is fixed pursuant to our agreements with ICANN. Individual customers, called registrants, contract directly with third-party registrars or their resellers, and the third-party registrars in turn register the domain names with Verisign. Changes in revenues are driven largely by changes in the number of new domain name registrations and the renewal rate for existing registrations as well as the impact of new and prior price increases, to the extent permitted, by ICANN and the DOC. New registrations and the renewal rate for existing registrations are impacted by continued growth in online advertising, e-commerce, and the number of Internet users, which is partially driven by greater availability of broadband, as well as advertising and promotional activities carried out by us and third-party registrars. We increased the annual fee for a .net domain name registration from $5.11 to $5.62 on July 1, 2013, from $5.62 to $6.18 on February 1, 2014, and from $6.18 to $6.79 on February 1, 2015. We have the contractual right to increase the fees for .net domain name registrations by up to 10% each year during the term of our .net agreement with ICANN through June 30, 2017. The annual fee for a .com domain name registration is fixed at $7.85 for the duration of the current .com Registry Agreement through November 30, 2018, except that prices may be raised by up to 7% each year due to the imposition of any new Consensus Policy or documented extraordinary expense resulting from an attack or threat of attack on the Security and Stability (each as defined in the .com Registry Agreement) of the DNS, subject to approval of the DOC. We offer promotional marketing programs for our registrars based upon market conditions and the business environment in which the registrars operate. All fees paid to us for .com and .net registrations are in U.S. dollars. Revenues from NIA Services are not significant in relation to our total consolidated revenues. 38 2014 V E r i i s G n F o r m 1 0 - K A comparison of revenues is presented below: Revenues..................................................................................... $1,010,117 (Dollars in thousands) 5% $ 965,087 10% $ 873,592 2014 % Change 2013 % Change 2012 The following table compares domain names ending in .com and .net managed by our Registry Services business: Domain names ending in .com and .net ............... 130.6 million December 31, 2014 % Change December 31, 2013 127.2 million 3% % Change December 31, 2012 5% 121.1 million 2014 compared to 2013: Revenues increased by $45.0 million, primarily due to a 3% increase in the number of domain names ending in .com and .net and increases in the .net domain name registration fees in July 2013 and February 2014. 2013 compared to 2012: Revenues increased by $91.5 million, primarily due to an $80.8 million increase in revenues from the operation of the registries for the .com and .net TLDs and a $10.7 million increase from other service revenues. The increase in revenues from operation of the registries for the .com and .net TLDs is primarily due to a 5% increase in the number of domain names ending in .com and .net and increases in the .com domain name registration fees in January 2012 and .net domain name registration fees in January 2012 and July 2013 as per our agreements with ICANN. The growth in the domain name base was primarily driven by continued Internet growth and new domain name promotional programs. However, ongoing economic uncertainty, the introduction of new gTLDs and changing marketing strategies by certain registrars has limited the rate of growth of the domain name base in 2014 and to a lesser extent in 2013. Further, according to published reports, Google periodically makes changes to its search algorithms, which may decrease traffic to certain websites, and pay-per-click advertising policies, which may provide less compensation for certain types of websites. This could make such websites less profitable and hinder domain name registration growth. We believe these algorithm changes had a negative effect on the first time renewal rate for registrations in recent years. We expect to see continued growth in the domain name base during 2015 as a result of further Internet growth. In addition we expect to see continued growth internationally in the domain name base, resulting from greater broadband availability, Internet adoption, and expanding e-commerce. However, we expect the rate of growth to be limited because of the same factors described above which limited growth in 2014. We expect revenues will continue to increase in fiscal 2015, albeit at a slower rate, as compared to fiscal 2014 as a result of continued growth in the aggregate number of active domain names ending in .com and .net and increases in the .net domain name registration fees in February 2014 and 2015. We generate revenue in the U.S.; Europe, the Middle East and Africa (“EMEA”); Australia, China, India, and other Asia Pacific countries (“APAC”); and certain other countries, including Canada and Latin American countries. The following table presents a comparison of the Company’s geographic revenues: Year Ended December 31, 2014 % Change 2013 % Change 2012 U.S ....................................................................................... $ EMEA .................................................................................. APAC................................................................................... Other .................................................................................... 77,347 Total revenues.................................................................... $ 1,010,117 616,125 182,897 133,748 (Dollars in thousands) 5 % $ 585,201 10 % $ 530,111 8 % 3 % (4)% 169,767 129,664 80,455 26 % (1)% 3 % 135,084 130,648 77,749 5 % $ 965,087 10 % $ 873,592 Revenues for our Registry Services business are attributed to the country of domicile and the respective regions in which our registrars are located, however, this may differ from the regions where the registrars operate or where registrants are located. Revenue growth for each region may be impacted by registrars reincorporating, relocating, or from acquisitions or changes in affiliations of resellers. Revenue growth for each region may also be impacted by registrars domiciled in one region, registering domain names in another region. These factors are reflected in the higher revenue growth in EMEA in 2014 and 2013, lower revenue growth in APAC during 2014, and declining revenue in APAC during 2013 and in the Other region during 2014. 39 2014 K - 0 1 m r o F n G s i i r E V We applied for 14 new gTLDs, including 12 IDN gTLDs, which are transliterations of “.com” or “.net” in various languages. We executed registry agreements to become the registry operator for 12 of these new gTLDs, including 11 IDNs as well as .comsec. The remaining IDN application was for a transliteration of “.com” in Traditional Chinese script, which was a variant of a string we applied for in another IDN application (“.com” in Simplified Chinese), and has been withdrawn at the request of ICANN, because ICANN had not yet developed a policy to address such variants. We may continue with this application, or a new one for the same string, once ICANN develops and implements a policy to address variant strings. The deadline to execute the registry agreement for our .verisign application is July 29, 2015. There is no certainty that we will enter into the registry agreement for .verisign or ultimately operate any of these new gTLDs. ICANN has stated that it will need to limit the maximum number of new gTLDs that may be delegated in a year to 1,000, which could delay the activation of some approved new gTLDs. Even though IDN gTLDs have been given priority, other factors related to the application process could delay or disrupt an application and the timing of revenue generation, if any, from these gTLDs. Further, there is no guarantee that such new gTLDs will be any more successful than the new gTLDs obtained by our competitors. For example, some of the new gTLDs including our new gTLD strings, may face additional universal acceptability and usability challenges in that current desktop and mobile device software does not ubiquitously recognize these new gTLDs and may be slow to adopt standards or support these gTLDs, even if demand for such products is strong. This is particularly true for IDN gTLDs, but applies to conventional gTLDs as well. Similarly, while we originally entered into agreements to provide back-end registry services to other applicants for approximately 220 new gTLDs, and applicants for approximately 170 new gTLDs currently continue to contract with us to provide back-end registry services, there is no guarantee that such applicants with which we have entered into agreements will be successful in obtaining one or more of these new gTLDs or that such new gTLDs will be successful due to some or all of the factors discussed above in connection with our new gTLDs. We also cannot guarantee that we will ultimately provide back-end registry services for all of these new gTLDs. ICANN’s Registry Agreement for new gTLDs requires the distribution of new gTLDs only through registrars who have executed the 2013 RAA. If registrars do not execute the 2013 RAA, our ability to provide back-end registry services would be reduced, negatively impacting the sale of our back-end registry services for new gTLDs. Even if we are able to provide such services, the timing of revenue may also be dependent on how diligently our customers proceed to delegation and launch following the completion of the application process and our customers’ respective launch plans for the new gTLDs. In addition, we may face risks regarding ICANN requirements for mitigating name collisions in the new gTLDs which we operate or for which we provide back-end registry services. We cannot assess the impact, if any, the introduction of these new gTLDs will have on our revenues and results of operations. See Item 1A. “Risk Factors—We may face additional competition, operational and other risks from the introduction of new gTLDs by ICANN, which could have a material adverse effect on our business, results of operations, financial condition and cash flows,” of this Form 10-K. Cost of revenues Cost of revenues consist primarily of salaries and employee benefits expenses for our personnel who manage the operational systems, depreciation expenses, operational costs associated with the delivery of our services, fees paid to ICANN, customer support and training, consulting and development services, costs of facilities and computer equipment used in these activities, telecommunications expense and allocations of indirect costs such as corporate overhead. A comparison of cost of revenues is presented below: Cost of revenues................................................................... $ 188,425 1% $ 187,013 12% $ 167,600 2014 % Change 2013 % Change 2012 (Dollars in thousands) 2014 compared to 2013: Cost of revenues increased slightly, primarily due to increases in allocated overhead expenses and depreciation expenses. Allocated overhead expenses increased by $1.8 million, primarily due to an increase in allocable indirect costs. Depreciation expenses increased by $1.5 million, primarily due to an increase in hardware and equipment purchases to support our network infrastructure in recent years. 2013 compared to 2012: Cost of revenues increased primarily due to increases in registry fees, depreciation expenses, and salary and employee benefits expenses, including stock-based compensation expenses. Registry fees increased by $9.2 million, due to increased registry fees required to be paid under the renewed .com Registry Agreement which became effective in the fourth quarter of 2012. Depreciation expenses increased by $7.0 million, primarily due to an increase in capital expenditures in 2013, the acceleration of depreciation on an abandoned software project in 2013, and a change in the estimated useful lives of computer 40 2014 V E r i i s G n F o r m 1 0 - K hardware and equipment assets from three years to four years in 2012. Salary and employee benefits expenses, including stock- based compensation expenses, increased by $4.2 million primarily due to an increase in bonus expenses as a result of a lower payout of fiscal 2012 bonuses. We expect cost of revenues as a percentage of revenues to remain consistent in 2015 as compared to 2014. Sales and marketing Sales and marketing expenses consist primarily of salaries, sales commissions, sales operations and other personnel-related expenses, travel and related expenses, gTLD application costs, trade shows, costs of lead generation, costs of computer and communications equipment and support services, facilities costs, consulting fees, costs of marketing programs, such as online, television, radio, print and direct mail advertising costs, and allocations of indirect costs such as corporate overhead. A comparison of sales and marketing expenses is presented below: Sales and marketing ............................................................. $ 92,001 3% $ 89,337 (9)% $ 97,809 2014 % Change 2013 % Change 2012 (Dollars in thousands) 2014 compared to 2013: Sales and marketing expenses increased primarily due to increases in advertising and marketing expenses and stock-based compensation expenses, partially offset by a decrease in contract and professional services expenses. Advertising and marketing expenses increased by $2.7 million primarily due to an increase in advertising expenses for product marketing initiatives promoting Registry and NIA services and an increase in general corporate marketing expenses. Stock-based compensation expenses increased by $1.8 million, primarily due to additional expense recognized for certain performance-based RSUs which was recorded based on their period-end fair value as well as an increase in expense related to higher expected attainment levels for performance-based RSUs granted in 2013 and 2014, and lower expense recognized during 2013 as a result of lower actual attainment level for performance-based RSUs granted in 2012. Contract and professional services expenses decreased by $2.0 million, primarily due to a decrease in strategy consulting costs related to new gTLDs and other marketing research expenses. 2013 compared to 2012: Sales and marketing expenses decreased primarily due to decreases in advertising and consulting services expenses, fees paid to ICANN for new gTLD applications, and allocated overhead expenses. Advertising and consulting services expenses decreased by $2.5 million, due to changes in product marketing programs and the timing of marketing initiatives in our Registry Services business. During 2012, we applied for 14 new gTLDs and incurred fees of $2.6 million related to those applications. Allocated overhead expenses decreased by $1.6 million primarily due to a decrease in average headcount relative to other functions and a decrease in allocable expenses. We expect sales and marketing expenses as a percentage of revenues to remain consistent in 2015 as compared to 2014. Research and development Research and development expenses consist primarily of costs related to research and development personnel, including salaries and other personnel-related expenses, consulting fees, facilities costs, computer and communications equipment, support services used in our service and technology development, and allocations of indirect costs such as corporate overhead. A comparison of research and development expenses is presented below: Research and development .................................................. $ 67,777 (4)% $ 70,297 14% $ 61,694 2014 % Change 2013 % Change 2012 (Dollars in thousands) 2014 compared to 2013: Research and development expenses decreased primarily due to a $1.7 million decrease in contract and professional services expenses from lower consulting costs on various development projects as we have shifted more development work to our employees. 2013 compared to 2012: Research and development expenses increased primarily due to an increase in salary and employee benefits expenses, including stock-based compensation expenses, and a decrease in capitalized labor, partially offset by a decrease in contract and professional services expenses. Salary and employee benefits expenses, including stock-based compensation expenses, increased by $8.5 million, primarily due to an increase in average headcount to support the development of our DNS infrastructure and new services and higher bonus expenses as a result of a lower payout of fiscal 2012 bonuses. Capitalized labor 41 2014 K - 0 1 m r o F n G s i i r E V decreased by $2.0 million in 2013 due to a decrease in the volume of work performed on internally developed software projects. Contract and professional services expenses decreased by $3.4 million due to lower consulting costs on various projects. We expect research and development expenses as a percentage of revenues to remain consistent in 2015 as compared to 2014. General and administrative General and administrative expenses consist primarily of salaries and other personnel-related expenses for our executive, administrative, legal, finance, information technology and human resources personnel, costs of facilities, computer and communications equipment, management information systems, support services, professional services fees, certain tax and license fees, and bad debt expense, offset by allocations of indirect costs such as facilities and shared services expenses to other cost types. A comparison of general and administrative expenses is presented below: General and administrative .................................................. $ 97,487 8% $ 90,208 1% $ 89,162 2014 % Change 2013 % Change 2012 (Dollars in thousands) 2014 compared to 2013: General and administrative expenses increased primarily due to increases in salary and employee benefit expenses, stock-based compensation expenses, contract and professional services expenses, and depreciation expenses, partially offset by an increase in overhead expenses allocated to other cost types and a decrease in legal expenses. Salary and employee benefits expenses increased by $3.8 million, primarily due to higher average headcount and increase in severance expenses. Stock-based compensation expenses increased by $5.5 million due to additional expense recognized for certain performance-based RSUs which were recorded based on their period-end fair value as well as an increase in expense related to higher expected attainment levels for performance-based RSUs granted in 2013 and 2014, and lower expense recognized during 2013 as a result of lower actual attainment level for performance-based RSUs granted in 2012. Contract and professional services expenses increased by $2.0 million, primarily due to increases in strategic consulting costs. Depreciation expenses increased by $1.5 million, primarily due to the additional depreciation related to an internal use software product being placed into service in 2014. Overhead expenses allocated to other cost types increased by $3.5 million due to an increase in total allocable indirect costs. Legal expenses decreased by $2.7 million primarily due to a reduction in legal services related to income tax matters and our patent portfolio. 2013 compared to 2012: General and administrative expenses remained consistent in 2013 compared to 2012 as an increase in salary and employee benefits expenses, including stock-based compensation in 2013, and the 2012 reimbursement of previously incurred legal costs, received upon settlement of indemnification claims with the selling shareholders of a previously acquired business, were offset by decreases in legal expenses, occupancy expenses, and contract and professional services expenses. Salary and employee benefits expenses increased by $7.5 million, including a $1.6 million increase in stock-based compensation expenses, primarily due to an increase in average headcount and higher bonus expenses as compared to 2012 as a result of a lower payout of fiscal 2012 bonuses. Stock-based compensation expenses increased due to higher expected attainment levels for performance based RSUs granted to the Company’s executives in 2013. In the fourth quarter of 2012, we recognized a credit of $4.5 million related to reimbursement of previously incurred legal costs, received upon settlement of indemnification claims with the selling shareholders of a previously acquired business. Legal expenses decreased by $8.3 million due to costs incurred in 2012 to support the DOC’s review of our renewal of the .com Registry Agreement with ICANN, in addition to decreases in patent and trademark related expenses and legal advice related to ICANN’s new gTLD program. Occupancy expenses decreased by $2.6 million primarily due to the reversal of certain accrued expenses upon the resolution of a dispute related to a vacated office lease and a decrease in leased space. Contract and professional services expenses decreased by $1.7 million due to an increase in costs capitalized related to development and implementation of internal use software. We expect general and administrative expenses as a percentage of revenues to remain consistent in 2015 as compared to 2014. Interest expense See Note 6, “Debt and interest expense” of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. We expect interest expense to remain consistent in 2015 as compared to 2014. Non-operating income, net See Note 11, “Non-operating income, net” of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. 42 2014 V E r i i s G n F o r m 1 0 - K Income tax (benefit) expense Income tax (benefit) expense from continuing operations......................................... $ 128,051 Effective tax rate ........................................................................................................ 26% $ (87,679) $ 100,210 (19)% 24% Year Ended December 31, 2014 2013 2012 (Dollars in thousands) Our effective tax rate for 2014 was lower than the statutory federal rate of 35% primarily due to benefits from foreign income taxed at lower rates, partially offset by state income taxes and net income tax expense of $9.8 million due to a non-U.S. income tax charge in the fourth quarter of 2014 related to a reorganization of certain international operations and changes in estimates during 2014 for U.S. income taxes related to the 2013 worthless stock deduction and the 2014 repatriation of earnings from foreign subsidiaries. During the fourth quarter of 2013, we liquidated for tax purposes one of our domestic subsidiaries, which allowed us to claim a worthless stock deduction on our 2013 federal income tax return. We recorded an income tax benefit during the fourth quarter of 2013 of $375.3 million related to the worthless stock deduction, net of valuation allowances and accrual for uncertain tax positions. The financial statement carrying value of this subsidiary was not material. The worthless stock deduction may be subject to audit and adjustment by the IRS, which could result in reversal of all, part or none of the income tax benefit, or could result in a benefit higher than the net amount recorded. If the IRS rejects or reduces the amount of the income tax benefit related to the worthless stock deduction, we may have to pay additional cash income taxes, which could adversely affect our results of operations, financial condition and cash flows. We cannot guarantee what the ultimate outcome or amount of the benefit we receive, if any, will be. During the fourth quarter of 2013, we recorded an income tax expense of $167.1 million related to taxable income generated in the U.S. as a result of the 2014 repatriation. For funds remaining in the foreign subsidiaries after the repatriation that have not been previously taxed in the U.S., our intent remains to indefinitely reinvest those funds outside of the U.S. and accordingly we have not provided deferred U.S. taxes. See Note 12, “Income Taxes,” of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. Our effective tax rate for 2013 was lower than the statutory federal rate of 35% primarily due to benefits from the worthless stock deduction, net of valuation allowances and accrual for uncertain tax positions and tax benefits from foreign income taxed at lower rates, partially offset by the expense related to the repatriation of cash held by foreign subsidiaries and state income taxes. Our effective tax rate for 2012 was lower than the statutory federal rate of 35% primarily due to tax benefits from foreign income taxed at lower rates and a decrease in valuation allowances related to deferred tax assets, partially offset by state income taxes and non-deductible stock based compensation. As of December 31, 2014, we had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $304.3 million, net of valuation allowances, but before the offset of certain deferred tax liabilities. With the exception of deferred tax assets related to capital loss carryforwards, we believe it is more likely than not that the tax effects of the deferred tax liabilities, together with future taxable income, will be sufficient to fully recover the remaining deferred tax assets. Our deferred tax assets related to net operating loss carryforwards decreased in 2014 as the net operating loss carryforwards were utilized to offset 2014 taxable income, including the repatriation of foreign earnings. We qualified for two tax holidays in Switzerland. The tax holidays provide reduced rates of taxation on certain types of income and also require certain thresholds of foreign source income. One of the tax holidays is effective through December 31, 2016, and upon expiration may be subject to renewal if certain criteria are satisfied. The other tax holiday in Switzerland expired on December 31, 2014, and has not been extended. These two tax holidays increased our earnings per share by $0.50, $0.18 and $0.11 in 2014, 2013, and 2012, respectively. We qualify for an additional tax holiday in Switzerland which will take effect beginning in 2015. This tax holiday is indefinite, unless the required thresholds are no longer met, or there is a law change which eliminates the holiday. In the fourth quarter of 2014, we incurred a charge of $14.5 million in non-US income taxes as a result of a reorganization of certain international operations. As a result of the tax holiday which becomes effective in 2015, and the reorganization, we do not believe there will be a significant change to our international tax rate after the expiration of the tax holiday in Switzerland. Income from discontinued operations, net of tax See Note 4, “Discontinued Operations,” of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. 43 2014 K - 0 1 m r o F n G s i i r E V Liquidity and Capital Resources As of December 31, 2014 2013 (In thousands) Cash and cash equivalents .......................................................................................................... $ Marketable securities .................................................................................................................. 191,608 1,233,076 Total..................................................................................................................................... $ 1,424,684 $ $ 339,223 1,384,062 1,723,285 As of December 31, 2014, our principal source of liquidity was $191.6 million of cash and cash equivalents and $1.2 billion of marketable securities. The marketable securities consist of debt securities issued by the U.S. Treasury meeting the criteria of our investment policy, which is focused on the preservation of our capital through investment in investment grade securities. The cash equivalents consist mainly of amounts invested in money market funds and U.S. Treasury bills purchased with original maturities of less than 90 days. As of December 31, 2014, all of our marketable securities have contractual maturities of less than one year. Our cash and cash equivalents are readily accessible. For additional information on our investment portfolio, see Note 2, “Cash, Cash Equivalents, and Marketable Securities,” of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. During the second quarter of 2014, we completed the repatriation of approximately $740.9 million of cash held by foreign subsidiaries, net of foreign withholding taxes of $28.1 million. As of December 31, 2014, the amount of cash and cash equivalents and marketable securities held by foreign subsidiaries was $939.0 million. Our intent remains to indefinitely reinvest these funds outside of the U.S. and accordingly, we have not provided deferred U.S. taxes for these funds. In the event funds from foreign operations are needed to fund operations in the U.S. and if U.S. tax has not already been provided, we would be required to accrue and pay additional U.S. taxes in order to repatriate these funds. We utilized substantially all of the remaining net operating losses generated from the 2013 worthless stock deduction to offset current year taxable income including the taxable income recognized in the U.S. as a result of the repatriation. The repatriation generated foreign source income in the U.S. which allows the Company to claim eligible foreign taxes amounting to $187.7 million paid in the current year and prior years as foreign tax credits instead of as deductions. The majority of these foreign tax credits will expire in 2024. See “Risk Factors - Changes in, or interpretations of, tax rules and regulations or our tax positions may adversely affect our effective tax rates.” As of December 31, 2014, the amount of undistributed earnings of foreign subsidiaries for which deferred income taxes have not been provided was $447.0 million. In 2014, proceeds from sales and maturities of marketable securities, net of purchases were $151.6 million compared with $59.0 million in 2013. In 2012, purchases of marketable securities were $1.4 billion, net of sales and maturities. In 2014, we repurchased 16.3 million shares of our common stock at an average stock price of $53.15 for an aggregate cost of $867.1 million. In 2013, we repurchased 21.0 million shares of our common stock at an average stock price of $48.65 for an aggregate cost of $1.0 billion. In 2012, we repurchased 7.7 million shares of our common stock at an average stock price of $40.90 for an aggregate cost of $314.6 million. As of December 31, 2014, there was $623.5 million remaining for future share repurchases under the Share Buyback Program. Effective January 30, 2015, the Board of Directors authorized the repurchase of approximately $452.9 million of our common stock, in addition to the $547.1 million of our common stock remaining available for repurchase under the previous share repurchase program, for a total repurchase authorization of up to $1.0 billion of our common stock. As of December 31, 2014, we had $1.25 billion principal amount outstanding of 3.25% Subordinated Convertible Debentures due 2037 (See Note 6 “Debt and Interest Expense” of the accompanying consolidated financial statements). The price of our common stock exceeded the conversion price threshold trigger during the fourth quarter of 2014. Accordingly, the Subordinated Convertible Debentures are convertible at the option of each holder through March 31, 2015. We do not expect a material amount of the Subordinated Convertible Debentures to be converted in the near term as the trading price of the debentures exceeds the value that is likely to be received upon conversion. However, we cannot provide any assurance that the trading price of the debentures will continue to exceed the value that would be derived upon conversion or that the holders will not elect to convert the Subordinated Convertible Debentures. If a holder elects to convert its Subordinated Convertible Debentures, we are permitted under the Indenture to pursue an exchange in lieu of conversion or to settle the conversion value (as defined in the Indenture) in cash, stock, or a combination thereof. If we choose not to pursue or cannot complete an exchange in lieu of conversion, we currently have the intent and the ability (based on current facts and circumstances) to settle the principal amount of the Subordinated Convertible Debentures in cash. However, if the principal amount of the Subordinated Convertible Debentures that holders actually elect to convert exceeds our cash on hand and cash from operations, we will need to draw cash from existing financing or pursue additional 44 sources of financing to settle the Subordinated Convertible Debentures in cash. We cannot provide any assurances that we will be able to obtain new sources of financing on terms acceptable to us or at all, nor can we assure that we will be able to obtain such financing in time to settle the Subordinated Convertible Debentures that holders elect to convert. On August 14, 2014, the upside trigger on the Subordinated Convertible Debentures was met for the six month interest period from August 15, 2014 through February 14, 2015. On February 15, 2015, we will pay contingent interest of $5.2 million in addition to the normal coupon interest to holders of record of the Subordinated Convertible Debentures as of February 1, 2015. The upside trigger is met if the Subordinated Convertible Debentures’ average trading price is at least 150% of par during the 10 trading days before each semi-annual interest period. The upside trigger is tested semi-annually for the following six months. The semi-annual upside contingent interest payment, for a given period, can be approximated by applying the annual rate of 0.5% to the aggregate market value of all outstanding Subordinated Convertible Debentures and dividing by two for that semi-annual period payment amount. On April 16, 2013, we issued $750.0 million aggregate principal amount of 4.625% senior unsecured notes due 2023 in a private offering. The Senior Notes will mature in May 2023. We used a portion of the net proceeds to repay the $100.0 million of outstanding indebtedness under our Unsecured Credit Facility. The remaining portion of the proceeds were used for general corporate purposes including the repurchase of shares under the Share Buyback Program. The Unsecured Credit Facility remains available with a borrowing capacity of $200.0 million. We believe existing cash, cash equivalents and marketable securities, and funds generated from operations, together with our ability to arrange for additional financing should be sufficient to meet our working capital, capital expenditure requirements, and to service our debt for the next 12 months. We regularly assess our cash management approach and activities in view of our current and potential future needs. 2014 V E r i i s G n F o r m 1 0 - K In summary, our cash flows for 2014, 2013, and 2012 were as follows: Net cash provided by operating activities ................................................... $ Net cash provided by (used in) investing activities..................................... Net cash used in financing activities ........................................................... Effect of exchange rate changes on cash and cash equivalents................... Net (decrease) increase in cash and cash equivalents .......................... $ Net cash provided by operating activities Year Ended December 31, 2014 2013 2012 600,949 112,688 (859,752) (1,500) (147,615) $ (In thousands) 579,397 $ (11,062) (357,333) (2,515) 208,487 $ 537,630 (1,442,353) (277,752) (138) $ (1,182,613) Our largest source of operating cash flows is cash collections from our customers. Our primary uses of cash from operating activities are for personnel related expenditures, and other general operating expenses, as well as payments related to taxes, interest and facilities. 2014 compared to 2013: Cash provided by operating activities increased primarily due to an increase in cash received from customers partially offset by increases in cash paid for interest and cash paid to employees and vendors. Cash received from customers increased primarily due to an increase in new and renewed domain name registrations during 2014. Cash paid for interest increased due to the issuance of the Senior Notes in April 2013. Payments to employees and vendors increased primarily due to an increase in operating expenses. 2013 compared to 2012: Cash provided by operating activities increased primarily due to an increase in cash received from customers, and decreases in cash paid to employees and vendors offset by increases in interest paid and income taxes paid. Cash received from customers increased primarily due to an increase in new and renewed domain name registrations during 2013. Payments to employees and vendors decreased primarily due to the timing of payments to vendors. Interest paid increased in 2013 as a result of the issuance of our Senior Notes in April 2013. Income taxes paid increased primarily due to federal income tax payments made during 2013 based on estimated taxable income before we determined that we would claim a worthless stock deduction that ultimately resulted in a tax loss for the year. Net cash provided by (used in) by investing activities The changes in cash flows from investing activities primarily relate to purchases, maturities and sales of marketable securities, and purchases of property and equipment. 45 2014 K - 0 1 m r o F n G s i i r E V 2014 compared to 2013: The change in cash provided by (used in) investing activities was primarily due to an increase in proceeds from maturities and sales of marketable securities, net of purchases of marketable securities and a decrease in purchases of property and equipment. 2013 compared to 2012: Cash used in investing activities decreased primarily due to $1.4 billion of purchases of marketable securities, net of sales and maturities, during 2012 compared to $58.5 million of sales and maturities of marketable securities, net of purchases, in 2013, partially offset by an increase in purchases of property and equipment as we continue to invest in our infrastructure. Net cash used in financing activities The changes in cash flows from financing activities primarily relate to share repurchases, proceeds from and repayment of borrowings, stock option exercises, our employee stock purchase plan (“ESPP”), and excess tax benefits from stock-based compensation. 2014 compared to 2013: Net cash used in financing activities increased due to the proceeds received in 2013 from the issuance of Senior Notes and a decrease in proceeds from stock options exercises and ESPP as well as lower recognized excess tax benefits associated with stock-based compensation, partially offset by a decrease in share repurchases and the repayment of borrowings under our credit facility in 2013. 2013 compared to 2012: Net cash used in financing activities increased primarily due to an increase in share repurchases during 2013 and repayment of the outstanding indebtedness under our Unsecured Credit Facility in 2013, partially offset by proceeds received from the issuance of Senior Notes in 2013. Impact of Inflation We do not believe that inflation has had a significant impact on our operations in any of the periods presented. Income taxes We derive significant tax savings from the Subordinated Convertible Debentures. During 2014 and 2013, the interest deduction, for income tax purposes, related to our Subordinated Convertible Debentures was $154.9 million and $145.8 million, respectively, compared to coupon interest expense of $40.6 million for each of the same periods. For income tax purposes, we deduct interest expense on the Subordinated Convertible Debentures calculated at 8.5% of the adjusted issue price, subject to adjustment for actual versus projected contingent interest. The adjusted issue price, and consequently the interest deduction for income tax purposes, grows over the term due to the difference between the interest deduction taken using a comparable yield of 8.5% on the adjusted issue price, and the coupon rate of 3.25% on the principal amount, compounded annually. The interest deduction taken is subject to recapture upon settlement to the extent that the amount paid (in cash or stock) to settle the Subordinated Convertible Debentures is less than the adjusted issue price. Interest recognized in accordance with GAAP, which is calculated at 8.39% of the liability component of the Subordinated Convertible Debentures, will also grow over the term, but at a slower rate. This difference will result in a continuing increase in the deferred tax liability on our Consolidated Balance Sheet. If the amount paid (in cash or stock) to settle the Subordinated Convertible Debentures (i.e., the Settlement Amount) is less than the adjusted issue price, under the Internal Revenue Code and the regulations thereunder, the difference is included in taxable income as recapture of previous interest deductions. The Settlement Amount will vary based on the stock price at settlement date. Depending on the Settlement Amount for the Subordinated Convertible Debentures at the settlement date, the amount included in taxable income as a result of this recapture could be substantial, which could adversely impact our cash flow. We do not expect to pay U.S. federal income taxes during 2015 as a result of the interest deduction on our Subordinated Convertible Debentures, and the use of foreign tax credits and research tax credits. We expect the amount of cash paid for non- U.S. income taxes in 2015 to be consistent with 2014. Property and Equipment Expenditures Our planned property and equipment expenditures for 2015 are anticipated to be between $40.0 million and $50.0 million and will primarily be focused on infrastructure upgrades and enhancements to our product portfolio. 46 2014 V E r i i s G n F o r m 1 0 - K Contractual Obligations See Note 13, “Commitments and Contingencies, ”Purchase Obligations and Contractual Agreements, of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. We enter into indemnification agreements with many of our customers in the ordinary course of business. We also entered into indemnification agreements with Symantec in connection with the sale of the Authentication Services business. See Note 13, “Commitments and Contingencies,” Indemnifications, of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. Off-Balance Sheet Arrangements It is not our business practice to enter into off-balance sheet arrangements. As of December 31, 2014, we did not have any significant off-balance sheet arrangements. See Note 13, “Commitments and Contingencies,” Off-Balance Sheet Arrangements, of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K for further information regarding off-balance sheet arrangements. Dilution from Subordinated Convertible Debentures, RSUs and Stock Options The conversion of our Subordinated Convertible Debentures may dilute the holdings of existing shareholders due to the potential number of shares that could be required to settle the Subordinated Convertible Debentures. We have the intent and ability to settle the principal amount of the Subordinated Convertible Debentures in cash, but the excess of the conversion value over the principal amount (“the conversion spread”) may be settled in shares of common stock. As of December 31, 2014, there are 36.4 million shares of common stock reserved for issuance upon conversion or repurchase of the Subordinated Convertible Debentures. Based on the if-converted value of the Subordinated Convertible Debentures as of December 31, 2014, the conversion spread could have required us to issue up to 14.4 million shares of common stock. See Item 1A. “Risk Factors—We may not have the ability to repurchase the Subordinated Convertible Debentures in cash upon the occurrence of a fundamental change, or to pay cash upon the conversion of Subordinated Convertible Debentures; Occurrence of certain events related to our Subordinated Convertible Debentures might have significant adverse accounting, disclosure, tax, and liquidity implications,” of this Form 10-K. Grants of stock-based awards are key components of the compensation packages we provide to attract and retain certain of our talented employees and align their interests with the interests of existing stockholders. We recognize that these stock- based awards dilute existing stockholders and have sought to control the number granted while providing competitive compensation packages. As of December 31, 2014, there are a total of 2.2 million unvested RSUs which represent potential dilution of 1.8%. This maximum potential dilution will only result if all outstanding RSUs vest and are settled. There were no stock options granted in the last three years. In recent years, our stock repurchase program has more than offset the dilutive effect of our stock option and RSU programs; however, we may reduce the level of our stock repurchases in the future as we may use our available cash for other purposes. 47 2014 K - 0 1 m r o F n G s i i r E V ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to financial market risks, including changes in interest rates, foreign exchange rates and market risks. We have not entered into any market risk sensitive instruments for trading purposes. Interest rate sensitivity Our marketable securities consist of fixed income securities which are subject to interest rate risk. As of December 31, 2014, we had $1.2 billion of fixed income securities, which consisted of U.S. Treasury bills with maturities of less than one year. A hypothetical change in interest rates by 100 basis points would not have a significant impact on the fair value of our investments. Foreign exchange risk management We conduct business throughout the world and transact in multiple foreign currencies. Our foreign currency risk management program is designed to mitigate foreign exchange risks associated with monetary assets and liabilities of our operations that are denominated in non-functional currencies. The primary objective of this program is to minimize the gains and losses to income resulting from fluctuations in exchange rates. We may choose not to hedge certain foreign exchange exposures due to immateriality, prohibitive economic cost of hedging particular exposures, and limited availability of appropriate hedging instruments. We do not enter into foreign currency transactions for trading or speculative purposes, nor do we hedge foreign currency exposures in a manner that entirely offsets the effects of changes in exchange rates. The program may entail the use of forward or option contracts, which are usually placed and adjusted monthly. These foreign currency forward contracts are derivatives and are recorded at fair market value. We attempt to limit our exposure to credit risk by executing foreign exchange contracts with financial institutions that have investment grade ratings. As of December 31, 2014, we held foreign currency forward contracts in notional amounts totaling $29.7 million to mitigate the impact of exchange rate fluctuations associated with certain foreign currencies. Gains or losses on the foreign currency forward contracts would be largely offset by the remeasurement of our foreign currency denominated assets and liabilities, resulting in an insignificant net impact to income. A hypothetical uniform 10% strengthening or weakening in the value of the U.S. dollar relative to the foreign currencies in which our revenues and expenses are denominated would not result in a significant impact to our financial statements. Market risk management The fair market values of our Subordinated Convertible Debentures and the Senior Notes are subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The Subordinated Convertible Debentures are subject to market risk due to the convertible feature of the debentures, the fair market value will increase as the market price of our common stock increases, and decrease as the market price of our common stock falls. The interest and market value changes affect the fair market value of the Subordinated Convertible Debentures and the Senior Notes but do not impact our financial condition, cash flows or results of operations. As of December 31, 2014, the fair value of the Subordinated Convertible Debentures was approximately $2.2 billion and the fair value of the Senior Notes was $727.6 million, based on available market information from public data sources. The fair market value of the contingent interest derivative on Subordinated Convertible Debentures is also subject to market risk and, to a lesser extent, to interest rate risk. Generally, the fair market value of the contingent interest derivative will increase or decrease with the fair market value of the Subordinated Convertible Debentures. 48 2014 V E r i i s G n F o r m 1 0 - K ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements Verisign’s financial statements required by this Item are set forth as a separate section of this Form 10-K. See Item 15 for a listing of financial statements provided in the section titled “Financial Statements.” Supplementary Data (Unaudited) The following tables set forth unaudited supplementary quarterly financial data for the two year period ended December 31, 2014. In management’s opinion, the unaudited data has been prepared on the same basis as the audited information and includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the data for the periods presented. 2014 Quarter Ended Year Ended March 31 (2) June 30 (3) September 30 (4) December 31 (5) December 31, (In thousands, except per share data) Revenues ................................................ $ Gross Profit ............................................ $ Operating Income................................... $ Net income ............................................. $ Net income per share (1):....................... Basic.................................................. $ Diluted............................................... $ 248,796 200,770 139,585 94,423 0.71 0.64 $ $ $ $ $ $ 250,382 204,393 143,121 100,176 0.77 0.71 $ $ $ $ $ $ 255,022 208,089 139,500 95,189 0.77 0.69 $ $ $ $ $ $ 255,917 $ 1,010,117 208,440 142,221 65,472 0.54 0.48 $ $ $ $ $ 821,692 564,427 355,260 2.80 2.52 —————— (1) Net income per share for the year is computed independently and may not equal the sum of the quarterly net income per share. (2) Net income for the quarter ended March 31, 2014 was increased by $5.3 million pre-tax unrealized gain due to a decrease in the fair value of the embedded contingent interest derivative related to our Subordinated Convertible Debentures. (3) Net income for the quarter ended June 30, 2014 was increased by $5.2 million pre-tax unrealized gain due to a decrease in the fair value of the embedded contingent interest derivative related to our Subordinated Convertible Debentures and an additional $5.2 million discrete tax benefit recognized due to changes in estimates of U.S. income taxes related to the 2013 worthless stock deduction and the 2014 repatriation of earnings from foreign subsidiaries. (4) Net income for the quarter ended September 30, 2014 was increased by an $11.4 million discrete income tax benefit recognized due to changes in estimates of U.S. income taxes related to the 2014 repatriation of earnings from foreign subsidiaries, partially offset by $6.6 million pre-tax unrealized loss due to an increase in the fair value of the embedded contingent interest derivative related to our Subordinated Convertible Debentures. (5) Net income for the fourth quarter of 2014 was reduced by an income tax expense of $26.4 million due to non-U.S. income taxes related to a reorganization of certain international operations and changes in estimates of U.S. income taxes related to the 2013 worthless stock deduction and the 2014 repatriation of earnings from foreign subsidiaries. 2013 Quarter Ended Year Ended March 31 June 30 September 30 (2) December 31 (3) December 31, (In thousands, except per share data) Revenues................................................ $ Gross Profit............................................ $ Operating Income .................................. $ Net income............................................. $ Net income per share (1): ...................... Basic ................................................. $ Diluted .............................................. $ 236,447 189,193 133,264 84,513 0.55 0.52 $ $ $ $ $ $ 239,332 192,702 132,081 86,890 0.58 0.55 $ $ $ $ $ $ 243,678 197,124 132,713 80,898 0.57 0.53 $ $ $ $ $ $ 245,630 199,055 130,174 292,149 2.15 1.94 $ $ $ $ $ $ 965,087 778,074 528,232 544,450 3.77 3.49 —————— (1) Net income per share for the year is computed independently and may not equal the sum of the quarterly net income per share. (2) Net income for the quarter ended September 30, 2013 was reduced by $5.3 million pre-tax unrealized loss due to an increase in the fair value of the embedded contingent interest derivative related to our Subordinated Convertible Debentures. (3) Net income for the quarter ended December 31, 2013 includes a $375.3 million income tax benefit related to a worthless stock deduction net of valuation allowances and accrual for uncertain tax positions, and $15.8 million pre-tax gain on sale of certain cost method investments, partially offset by $167.1 million income tax expense related to the repatriation of cash held by foreign subsidiaries in 2014, and $8.1 million pre-tax unrealized loss due to an increase in the fair value of the embedded contingent interest derivative related to our Subordinated Convertible Debentures. Income tax benefit related to the worthless stock deduction and income tax expense related to the repatriation of cash held by foreign subsidiaries is further described in Note 12, “Income Taxes,” of our Notes to Consolidated Financial Statements in Item 15 of this Form 10-K. 49 2014 K - 0 1 m r o F n G s i i r E V Our quarterly revenues and operating results are difficult to forecast. Therefore, we believe that period-to-period comparisons of our operating results will not necessarily be meaningful, and should not be relied upon as an indication of future performance. Also, operating results may fall below our expectations and the expectations of securities analysts or investors in one or more future quarters. If this were to occur, the market price of our common stock would likely decline. For further information regarding the quarterly fluctuation of our revenues and operating results, see Item 1A, “Risk Factors-Our operating results may fluctuate and our future revenues and profitability are uncertain” of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES a. Evaluation of Disclosure Controls and Procedures Based on our management’s evaluation, with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), as of December 31, 2014, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. b. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014 using the criteria established in Internal Control-Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the COSO framework, management has concluded that our internal control over financial reporting is effective 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. KPMG LLP, an independent registered public accounting firm, has issued a report concerning the effectiveness of our internal control over financial reporting as of December 31, 2014. See “Report of Independent Registered Public Accounting Firm” in Item 15 of this Form 10-K. c. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. d. Inherent Limitations of Disclosure Controls and Internal Control over Financial Reporting Because of their inherent limitations, our disclosure controls and procedures and our internal control over financial reporting may not prevent material errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to risks, including that the controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures may deteriorate. ITEM 9B. OTHER INFORMATION Not applicable. 50  PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item relating to our directors and nominees, regarding compliance with Section 16(a) of the Exchange Act, and regarding our Audit Committee, Corporate Governance and Nominating Committee and Compensation Committee will be included under the captions “Proposal No. 1: Election of Directors,” “Security Ownership of Certain Beneficial Owners and Management-Section 16(a) Beneficial Ownership Reporting Compliance,” and “Corporate Governance” in our Proxy Statement related to the 2015 Annual Meeting of Stockholders and is incorporated herein by reference (“2015 Proxy Statement”). Pursuant to General Instruction G(3) of Form 10-K, the information required by this item relating to our executive officers is included under the caption “Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K. We have adopted a code of ethics that applies to our principal executive officer, principal financial officer and other senior accounting officers. This code of ethics, titled “Code of Ethics for the Chief Executive Officer and Senior Financial Officers,” is posted on our website along with the “Verisign Code of Conduct” that applies to all officers and employees, including the aforementioned officers. The Internet address for our website is VerisignInc.com, and the “Code of Ethics for the Chief Executive Officer and Senior Financial Officers” may be found from our main Web page by clicking first on “INVESTORS,” next on “Corporate Governance,” next on “Ethics and Business Conduct,” and finally on “Code of Ethics for the Chief Executive Officer and Senior Financial Officers.” The “Verisign Code of Conduct” applicable to all officers and employees can similarly be found on the Web page for “Ethics and Business Conduct” under the link entitled “Verisign Code of Conduct-2012.” We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of the “Code of Ethics for the Chief Executive Officer and Senior Financial Officers” or, to the extent also applicable to the principal executive officer, principal financial officer, or other senior accounting officers, the “Verisign Code of Conduct-2012” by posting such information on our website, on the Web page found by clicking through to “Ethics and Business Conduct” as specified above. 2014 V E r i i s G n F o r m 1 0 - K ITEM 11. EXECUTIVE COMPENSATION Information required by this item is incorporated herein by reference to our 2015 Proxy Statement from the discussions under the captions “Compensation of Directors,” “Non-Employee Director Retainer Fees and Equity Compensation Information” and “Non-Employee Director Compensation Table for Fiscal 2014,” and “Executive Compensation.” ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information required by this item is incorporated herein by reference from the discussions under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our 2015 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information required by this item is incorporated herein by reference to our 2015 Proxy Statement from the discussions under the captions “Policies and Procedures with Respect to Transactions with Related Persons,” “Certain Relationships and Related Transactions” and “Independence of Directors.” ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information required by this item is incorporated herein by reference to our 2015 Proxy Statement from the discussions under the captions “Principal Accountant Fees and Services” and “Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors.” 51 2014 K - 0 1 m r o F n G s i i r E V ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES PART IV (a) Documents filed as part of this report 1. Financial statements • • • • • • Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2014 and 2013 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012 Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2014, 2013 and 2012 Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012 Notes to Consolidated Financial Statements 2. Financial statement schedules Financial statement schedules are omitted because the information called for is not material or is shown either in the consolidated financial statements or the notes thereto. 3. Exhibits (a) Index to Exhibits Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), the Company has filed certain agreements as exhibits to this Form 10-K. These agreements may contain representations and warranties by the parties thereto. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (1) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements if those statements prove to be inaccurate, (2) may have been qualified by disclosures that were made to such other party or parties and that either have been reflected in the Company’s filings or are not required to be disclosed in those filings, (3) may apply materiality standards different from what may be viewed as material to investors and (4) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments. Accordingly, these representations and warranties may not describe the Company’s actual state of affairs at the date hereof or at any other time. Exhibit Number 2.01 2.02 2.03 2.04 2.05 Exhibit Description Agreement and Plan of Merger dated as of March 6, 2000, by and among the Registrant, Nickel Acquisition Corporation and Network Solutions, Inc. Agreement and Plan of Merger dated September 23, 2001, by and among the Registrant, Illinois Acquisition Corporation and Illuminet Holdings, Inc. Incorporated by Reference Form Date Number 8-K 3/8/00 2.1 Filed Herewith S-4 10/10/01 4.03 Purchase Agreement dated as of October 14, 2003, as amended, among the Registrant and the parties indicated therein. 8-K 12/10/03 2.1 Sale and Purchase Agreement Regarding the Sale and Purchase of All Shares in Jamba! AG dated May 23, 2004 between the Registrant and certain other named individuals. 10-K 3/16/05 2.04 Asset Purchase Agreement dated October 10, 2005, as amended, among the Registrant, eBay, Inc. and the other parties thereto. 8-K 11/23/05 2.1 52 V E r i i s G n F o r m 1 0 - K Exhibit Description Fifth Amended and Restated Certificate of Incorporation of the Registrant. Incorporated by Reference Form 10-Q Date 7/24/14 Number 3.01 2014 Filed Herewith Exhibit Number 3.01 3.02 4.01 4.02 Seventh Amended and Restated Bylaws of VeriSign, Inc. 10-Q 7/24/14 Indenture dated as of August 20, 2007 between the Registrant and U.S. Bank National Association. 8-K/A 9/6/07 3.02 4.1 Registration Rights Agreement dated as of August 20, 2007 between the Registrant and J.P. Morgan Securities, Inc. Indenture, dated as of April 16, 2013, between VeriSign, Inc., each of the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. Form of Note (included in Exhibit 4.03). 8-K/A 9/6/07 4.2 4.03 Indenture, dated as of April 16, 2013, between VeriSign, Inc., each of the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. 8-K 4/17/13 4.1 4.04 Form of Note (included in Exhibit 4.03). 8-K 4/17/13 4.2 10.01 10.02 10.03 10.04 10.05 10.06 10.07 10.08 10.09 10.10 10.11 10.12 10.13 10.14 Form of Revised Indemnification Agreement entered into by the Registrant with each of its directors and executive officers. 10-K 3/31/03 10.02 409A Options Election Form and related documentation. + Registrant's 1998 Directors Stock Option Plan, as amended through May 22, 2003, and form of stock option agreement. + 8-K S-8 1/4/07 6/23/03 99.01 4.02 Registrant's 2001 Stock Incentive Plan, as amended through November 22, 2002. + 10-K 3/31/03 10.08 Registrant's 2006 Equity Incentive Plan, as adopted May 26, 2006. + 10-Q 7/12/07 10.02 Registrant's 2006 Equity Incentive Plan, form of Stock Option Agreement. + 10-Q 7/12/07 10.03 Registrant's 2006 Equity Incentive Plan, form of Directors Nonqualified Stock Option Grant. + 10-Q 8/9/07 10.01 Nonqualified Registrant's 2006 Equity Incentive Plan, amended form of Nonqualified Directors Stock Option Grant. + S-1 11/5/07 10.15 Registrant's 2006 Equity Incentive Plan, form of Employee Restricted Stock Unit Agreement. + 10-Q 7/12/07 10.04 Registrant's 2006 Equity Incentive Plan, form of Non-Employee Director Restricted Stock Unit Agreement. + 10-Q 7/12/07 10.05 Registrant's 2006 Equity Incentive Plan, form of Performance- Based Restricted Stock Unit Agreement. + 8-K 8/30/07 99.1 Registrant's 2007 Employee Stock Purchase Plan, as adopted August 30, 2007. + Assignment Agreement, dated as of April 18, 1995 between the Registrant and RSA Data Security, Inc. BSAFE/TIPEM OEM Master License Agreement, dated as of April 18, 1995, between the Registrant and RSA Data Security, Inc., as amended. S-1 S-1 S-1 11/5/07 10.19 1/29/98 10.15 1/29/98 10.16 53 2014 Exhibit Number 10.15 K - 0 1 m r o F n G s i i r E V 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 Exhibit Description Amendment Number Two to BSAFE/TIPEM OEM Master License Agreement dated as of December 31, 1998 between the Registrant and RSA Data Security, Inc. Non-Compete and Non-Solicitation Agreement, dated April 18, 1995, between the Registrant and RSA Security, Inc. Microsoft/VeriSign Certificate Technology Preferred Provider Agreement, effective as of May 1, 1997, between the Registrant and Microsoft Corporation.* Master Development and License Agreement, dated as of September 30, 1997, between the Registrant and Security Dynamics Technologies, Inc.* Amendment Number One to Master Development and License Agreement dated as of December 31, 1998 between the Registrant and Security Dynamics Technologies, Inc. Amendment No. Thirty (30) to Cooperative Agreement - Special Awards Conditions NCR-92-18742, between VeriSign and U.S. Department of Commerce managers. Confirmation of Accelerated Purchase of Equity Securities dated August 14, 2007 between the Registrant and J P Morgan Securities, Inc. * Limited Liability Company Agreement by and among Fox US Mobile Holdings, Inc., News Corporation, VeriSign U.S. Holdings, Inc. and US Mobile Holdings, LLC, dated January 31, 2007.* Confirmation of Accelerated Repurchase of Common Stock dated February 8, 2008 between the Registrant and J.P. Morgan Securities, Inc., as agent to JPMorgan Chase Bank, National Association, London Branch. * Incorporated by Reference Form S-1 Date 1/5/99 Number 10.31 Filed Herewith S-1 S-1 1/29/98 10.17 1/29/98 10.18 S-1 1/29/98 10.19 S-1 1/5/99 10.30 10-K 7/12/07 10.27 S-1 11/5/07 10.44 10-Q 7/16/07 10.03 10-Q 5/12/08 10.01 Settlement Agreement and General Release by and between VeriSign, Inc. and William A. Roper, Jr., dated June 30, 2008. + 10-Q 8/8/08 10.02 Release and Waiver of Age Discrimination Claims by William A. Roper, Jr., dated June 30, 2008. + 10-Q 8/8/08 10.03 Assignment of Invention, Nondisclosure and Nonsolicitation Agreement between VeriSign, Inc. and D. James Bidzos, dated August 20, 2008. Assignment of Invention, Nondisclosure and Nonsolicitation Agreement between VeriSign, Inc. and Roger Moore, dated October 1, 2008. Purchase and Termination Agreement dated as of October 6, 2008, by and among Fox Entertainment Group, Inc., Fox US Mobile Holdings, Inc., US Mobile Holdings, LLC, Fox Dutch Mobile B.V., Jamba Netherlands Mobile Holdings GP B.V., Netherlands Mobile Holdings C.V., VeriSign, Inc., VeriSign US Holdings, Inc., VeriSign Netherlands Mobile Holdings B.V., and VeriSign Switzerland S.A. 10-Q 11/7/08 10.03 10-Q 11/7/08 10.05 10-Q 11/7/08 10.06 VeriSign, Inc. 2006 Equity Incentive Plan, adopted May 26, 2006, as amended August 5, 2008. + 10-Q 11/7/08 10.07 Form of VeriSign, Inc. 2006 Equity Incentive Plan Stock Option Agreement. + 10-Q 11/7/08 10.08 Form of VeriSign, Inc. 2006 Equity Incentive Plan Employee Restricted Stock Unit Agreement. + 10-Q 11/7/08 10.09 54 Exhibit Number 10.32 10.33 10.34 10.35 10.36 10.37 10.38 10.39 10.40 10.41 10.42 10.43 10.44 10.45 10.46 10.47 Exhibit Description Form of VeriSign, Inc. 2006 Equity Incentive Plan Performance Based Restricted Stock Unit Agreement. + Incorporated by Reference Form Date Number 10-Q 11/7/08 10.10 2014 Filed Herewith Arrangement Agreement dated as of January 23, 2009 between VeriSign, Inc. and Certicom Corp. 10-K 3/3/09 10.59 Asset Purchase Agreement between VeriSign, Inc. and Transaction Network Services, dated March 2, 2009. 10-Q 5/8/09 10.03 V E r i i s G n F o r m 1 0 - K Letter Agreement dated May 1, 2009 to Asset Purchase Agreement between VeriSign, Inc. and Transaction Network Services, Inc., dated March 2, 2009. Acquisition Agreement by and among VeriSign, Inc., a Delaware corporation, VeriSign S.À.R.L., VeriSign Do Brasil Serviços Para Internet Ltda, VeriSign Digital Services Technology (China) Co., Ltd., VeriSign Services India Private Limited, and Syniverse Holdings, Inc., a Delaware corporation dated as of August 24, 2009. * Letter Amendment to the Acquisition Agreement by and among VeriSign, Inc., a Delaware corporation, VeriSign S.À.R.L., VeriSign Do Brasil Serviços Para Internet Ltda, VeriSign Digital Services Technology (China) Co., Ltd., VeriSign Services India Private Limited, and Syniverse Holdings, Inc., a Delaware corporation dated as of August 24, 2009, by and among each of the parties thereto, dated October 2, 2009. Letter Amendment No. 2 to the Amendment to the Acquisition Agreement by and among VeriSign, Inc., a Delaware corporation, VeriSign S.À.R.L., VeriSign Do Brasil Serviços Para Internet Ltda, VeriSign Digital Services Technology (China) Co., Ltd., VeriSign Services India Private Limited, and Syniverse Holdings, Inc., a Delaware corporation dated as of August 24, 2009, by and among each of the parties thereto, Syniverse Technologies Services (India) Private Limited, dated October 23, 2009. 10-Q 8/6/09 10.01 10-Q 11/6/09 10.05 10-Q 11/6/09 10.06 10-Q 11/6/09 10.07 Form of Indemnity Agreement entered into by the Registrant with each of its directors and executive officers. + 10-Q 4/28/10 10.01 Acquisition Agreement between VeriSign, Inc., a Delaware corporation, and Symantec Corporation, a Delaware corporation, dated as of May 19, 2010. * 10-Q 8/3/10 10.01 VeriSign, Inc. 2006 Equity Incentive Plan Form of Stock Option Agreement. + 10-Q 8/3/10 10.02 VeriSign, Inc. 2006 Equity Incentive Plan Form of Employee Restricted Stock Unit Agreement. + 10-Q 8/3/10 10.03 VeriSign, Inc. 2006 Equity Incentive Plan Form of Directors Nonqualified Stock Option Grant Agreement. + 10-Q 8/3/10 10.04 VeriSign, Inc. 2006 Equity Incentive Plan Form of Non- Employee Director Restricted Stock Unit Agreement. + 10-Q 8/3/10 10.05 Deed of Lease between 12061 Bluemont Owner, LLC, a Delaware limited liability company as Landlord, and VeriSign, Inc., a Delaware corporation as Tenant, dated as of September 15, 2010. VeriSign, Inc. Annual Incentive Compensation Plan. + VeriSign, Inc. 2006 Equity Incentive Plan Form of Performance- Based Restricted Stock Unit Agreement. + 10-Q 10/29/10 10.01 10-K 10-K 2/24/11 2/24/11 10.64 10.65 55 2014 Exhibit Number 10.48 Exhibit Description Registry Agreement between VeriSign, Inc. and the Internet Corporation for Assigned Names and Numbers, entered into as of June 27, 2011. Incorporated by Reference Form 8-K Date 6/28/11 Number 10.01 Filed Herewith K - 0 1 m r o F n G s i i r E V 10.49 10.50 10.51 10.52 10.53 10.54 10.55 10.56 10.57 10.58 10.59 10.60 10.61 10.62 10.63 10.64 10.65 Amended and Restated VeriSign, Inc. 2006 Equity Incentive Plan, as amended and restated May 26, 2011. + 10-Q 7/29/11 10.02 Form of Amended and Restated Change-in-Control and Retention Agreement. + 10-Q 7/29/11 10.03 Amended and Restated Change-in-Control and Retention Agreement [CEO Form of Agreement]. + 10-Q 7/29/11 10.04 Separation & General Release of Claims Agreement between VeriSign, Inc. and Kevin Werner, effective as of May 3, 2011. + 10-Q 7/29/11 10.05 Separation & General Release of Claims Agreement between VeriSign, Inc. and Christine Brennan, effective as of July 13, 2011. + Purchase and Sale Agreement for 12061 Bluemont Way Reston, Virginia between 12061 Bluemont Owner, LLC, a Delaware limited liability company, as Seller and VeriSign, Inc., a Delaware corporation, as Purchaser Dated August 18, 2011. Credit Agreement, dated as of November 22, 2011 among VeriSign, Inc., the borrowing subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Europe Limited, as London Agent. 10-Q 7/29/11 10.06 8-K 9/7/11 10.01 8-K 11/29/11 10.01 Guarantee Agreement, dated as of November 22, 2011, among VeriSign, Inc., the other guarantors identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent. 8-K 11/29/11 10.02 VeriSign, Inc. 2006 Equity Incentive Plan Form of Performance- Based Restricted Stock Unit Agreement. + 10-K 2/24/12 10.75 Employment Offer Letter between the Registrant and George E. Kilguss, III dated April 20, 2012+ 10-Q 7/27/12 10.01 Letter Agreement between the Registrant and George E. Kilguss, III dated June 28, 2012. + VeriSign, Inc. 2006 Equity Incentive Plan Form of Non- Employee Director Restricted Stock Unit Agreement. + Registry Agreement between VeriSign, Inc. and the Internet Corporation for Assigned Names and Numbers, entered into on November 29, 2012. Amendment Number Thirty-Two (32) to the Cooperative Agreement between VeriSign, Inc. and Department of Commerce, entered into on November 29, 2012. 10-Q 7/27/12 10.02 10-Q 7/27/12 10.03 8-K 11/30/12 10.1 8-K 11/30/12 10.2 VeriSign, Inc. 2006 Equity Incentive Plan Employee Restricted Stock Unit Agreement. + 10-Q 4/25/13 10.02 VeriSign, Inc. 2006 Equity Incentive Plan Performance-Based Restricted Stock Unit Agreement. + 10-Q 4/25/13 10.03 VeriSign, Inc. 2006 Equity Incentive Plan Performance-Based Restricted Stock Unit Agreement. + 10-Q 4/25/13 10.04 56 2014 V E r i i s G n F o r m 1 0 - K X X X X X X X X X X X X X X X Exhibit Description Registration Rights Agreement, dated April 16, 2013, by and among VeriSign, Inc., VeriSign Information Services, Inc. and J.P. Morgan Securities LLC, as representative of the several initial purchasers. Incorporated by Reference Form 8-K Date 4/17/13 Number 10.01 Filed Herewith VeriSign, Inc. 2006 Equity Incentive Plan Performance-Based Restricted Stock Unit Agreement + 10-Q 4/24/14 10.01 Exhibit Number 10.66 10.67 10.68 10.69 21.01 23.01 24.01 31.01 31.02 32.01 32.02 Amendment No. 1 to VeriSign, Inc. 2006 Equity Incentive Plan Performance Based Restricted Stock Unit Agreement(s). + Separation and General Release Agreement between VeriSign, Inc. and Richard H. Goshorn, effective as of November 29, 2014.+ Subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm. Powers of Attorney (Included as part of the signature pages hereto). Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a). Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a). Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code (18 U.S.C. 1350). ** Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code (18 U.S.C. 1350). ** 101.INS XBRL Instance Document. 101.SCH XBRL Taxonomy Extension Schema. 101.CAL XBRL Taxonomy Extension Calculation Linkbase. 101.DEF XBRL Taxonomy Extension Definition Linkbase. 101.LAB XBRL Taxonomy Extension Label Linkbase. 101.PRE XBRL Taxonomy Extension Presentation Linkbase. * Confidential treatment was received with respect to certain portions of this agreement. Such portions were omitted and filed separately with the Securities and Exchange Commission. ** As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Annual Report on Form 10-K and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of VeriSign, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in such filings. + Indicates a management contract or compensatory plan or arrangement. 57 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Reston, Commonwealth of Virginia, on the 13th day of February 2015. SIGNATURES VERISIGN, INC. By: /S/ D. JAMES BIDZOS D. James Bidzos President and Chief Executive Officer (Principal Executive Officer) KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints D. James Bidzos, George E. Kilguss, III, and Thomas C. Indelicarto, and each of them, his or her true lawful attorneys-in-fact and agents, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granted unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of February 2015. Signature Title 2014 K - 0 1 m r o F n G s i i r E V /S/ D. JAMES BIDZOS D. JAMES BIDZOS /S/ GEORGE E. KILGUSS, III GEORGE E. KILGUSS, III /S/ WILLIAM L. CHENEVICH WILLIAM L. CHENEVICH /S/ KATHLEEN A. COTE KATHLEEN A. COTE /S/ JAMIE S. GORELICK JAMIE S. GORELICK /S/ ROGER H. MOORE ROGER H. MOORE JOHN D. ROACH /S/ LOUIS A. SIMPSON LOUIS A. SIMPSON /S/ TIMOTHY TOMLINSON TIMOTHY TOMLINSON President, Chief Executive Officer, Executive Chairman and Director (Principal Executive Officer) Chief Financial Officer (Principal Financial and Accounting Officer) Director Director Director Director Director Director Director 58 As required under Item 8—Financial Statements and Supplementary Data, the consolidated financial statements of Verisign, Inc. are provided in this separate section. The consolidated financial statements included in this section are as follows: FINANCIAL STATEMENTS Financial Statement Description Reports of Independent Registered Public Accounting Firm ............................................................................ Page Consolidated Balance Sheets As of December 31, 2014 and December 31, 2013 ........................................................................................... Consolidated Statements of Comprehensive Income For the Years Ended December 31, 2014, 2013 and 2012................................................................................. Consolidated Statements of Stockholders' Deficit For the Years Ended December 31, 2014, 2013 and 2012................................................................................. Consolidated Statements of Cash Flows For the Years Ended December 31, 2014, 2013 and 2012................................................................................. Notes to Consolidated Financial Statements...................................................................................................... 60 62 63 64 65 66 2014 V E r i i s G n F o r m 1 0 - K 59 2014 K - 0 1 m r o F n G s i i r E V Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders VeriSign, Inc.: We have audited the accompanying consolidated balance sheets of VeriSign, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, stockholders’ deficit, and cash flows for each of the years in the three-year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, 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), VeriSign, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 13, 2015 expressed an unqualified opinion on the effectiveness of VeriSign, Inc.’s internal control over financial reporting. /s/ KPMG LLP McLean, Virginia February 13, 2015 60 2014 V E r i i s G n F o r m 1 0 - K Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders VeriSign, Inc.: We have audited VeriSign, Inc.’s (the Company) internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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 Management’s Report on Internal Control over Financial Reporting (Item 9A.b). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 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. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of VeriSign, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, stockholders’ deficit, and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated February 13, 2015 expressed an unqualified opinion on those consolidated financial statements. /s/ KPMG LLP McLean, Virginia February 13, 2015 61 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value) December 31, 2014 December 31, 2013 Current assets: ASSETS Cash and cash equivalents ................................................................................................... $ Marketable securities........................................................................................................... 191,608 $ 339,223 1,233,076 1,384,062 Accounts receivable, net...................................................................................................... Other current assets ............................................................................................................. 13,448 52,475 13,631 66,283 Total current assets....................................................................................................... 1,490,607 1,803,199 Property and equipment, net ....................................................................................................... Goodwill ..................................................................................................................................... Long-term deferred tax assets..................................................................................................... Other long-term assets ................................................................................................................ Total long-term assets................................................................................................... Total assets ................................................................................................................... $ 319,028 52,527 266,954 25,743 664,252 2,154,859 $ 339,653 52,527 437,643 27,745 857,568 2,660,767 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable and accrued liabilities ............................................................................ $ Deferred revenues................................................................................................................ Subordinated convertible debentures, including contingent interest derivative.................. Deferred tax liabilities ......................................................................................................... 190,278 $ 621,307 631,190 477,781 149,276 595,221 624,056 660,633 Total current liabilities.................................................................................................. 1,920,556 2,029,186 Long-term deferred revenues...................................................................................................... Senior notes ................................................................................................................................ Other long-term tax liabilities..................................................................................................... Total long-term liabilities............................................................................................. Total liabilities.............................................................................................................. 269,047 750,000 98,722 1,117,769 3,038,325 260,615 750,000 44,524 1,055,139 3,084,325 Commitments and contingencies Stockholders’ deficit: Preferred stock—par value $.001 per share; Authorized shares: 5,000; Issued and outstanding shares: none...................................................................................................... Common stock—par value $.001 per share; Authorized shares: 1,000,000; Issued shares: 321,699 at December 31, 2014 and 320,358 at December 31, 2013; Outstanding shares: 118,452 at December 31, 2014 and 133,724 at December 31, 2013....................... Additional paid-in capital .................................................................................................... Accumulated deficit............................................................................................................. Accumulated other comprehensive loss .............................................................................. Total stockholders’ deficit............................................................................................ Total liabilities and stockholders’ deficit...................................................................... $ — 322 — 320 18,120,045 (19,000,835) (2,998) (883,466) 2,154,859 18,935,302 (19,356,095) (3,085) (423,558) 2,660,767 $ See accompanying Notes to Consolidated Financial Statements. 62 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except per share data) Year Ended December 31, 2014 2013 2012 Revenues........................................................................................................................... $1,010,117 Costs and expenses: $ 965,087 $ 873,592 Cost of revenues ........................................................................................................ 188,425 187,013 167,600 Sales and marketing................................................................................................... Research and development ........................................................................................ General and administrative........................................................................................ Total costs and expenses..................................................................................... Operating income.............................................................................................................. Interest expense ................................................................................................................ Non-operating income, net ............................................................................................... Income from continuing operations before income taxes................................................. Income tax (expense) benefit............................................................................................ Income from continuing operations, net of tax................................................................. 92,001 67,777 97,487 445,690 564,427 (85,994) 4,878 483,311 (128,051) 355,260 89,337 70,297 90,208 97,809 61,694 89,162 436,855 416,265 528,232 (74,761) 3,300 456,771 87,679 544,450 457,327 (50,196) 5,564 412,695 (100,210) 312,485 Income from discontinued operations, net of tax ............................................................. — — 7,547 Net income........................................................................................................................ 355,260 544,450 320,032 Realized foreign currency translation adjustments, included in net income ............. Unrealized gain (loss) on investments, net of tax...................................................... Realized loss (gain) on investments, net of tax, included in net income................... — 84 3 Other comprehensive income (loss) ................................................................................. 87 Comprehensive income .................................................................................................... $ 355,347 81 (369) (2,409) (2,697) $ 541,753 — 2,757 (61) 2,696 $ 322,728 Basic income per share: Continuing operations ............................................................................................... $ Discontinued operations ............................................................................................ Net income................................................................................................................. $ Diluted income per share: Continuing operations ............................................................................................... $ Discontinued operations ............................................................................................ Net income................................................................................................................. $ Shares used to compute net income per share 2.80 — 2.80 2.52 — 2.52 $ $ $ $ 3.77 — 3.77 3.49 — 3.49 $ $ $ $ 1.99 0.05 2.04 1.91 0.04 1.95 Basic .......................................................................................................................... Diluted ....................................................................................................................... 126,710 140,895 144,591 155,786 156,953 163,909 See accompanying Notes to Consolidated Financial Statements. 63 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (In thousands) Common Stock Shares Amount Additional Paid- In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit Balance at December 31, 2011........................... 159,422 $ 317 $ 20,135,237 $ (20,220,577) $ (3,084) $ Net income ........................................................... Other comprehensive income .............................. — — Issuance of common stock under stock plans ...... 1,941 Stock-based compensation................................... Net excess income tax benefits associated with stock-based compensation............................... — — Repurchase of common stock .............................. (7,971) Other .................................................................... — — — 2 — — — — — — 29,301 36,199 16,045 (325,680) 189 320,032 — — — — — — Balance at December 31, 2012 .......................... 153,392 319 19,891,291 (19,900,545) Net income ........................................................... Other comprehensive loss .................................... — — Issuance of common stock under stock plans ...... 1,636 Stock-based compensation................................... Net excess income tax benefits associated with stock-based compensation............................... — — Repurchase of common stock .............................. (21,304) — — 1 — — — — — 20,666 39,642 19,320 (1,035,617) 544,450 — — — — — — 2,696 — — — — — (388) — (2,697) — — — — Balance at December 31, 2013 .......................... 133,724 320 18,935,302 (19,356,095) (3,085) Net income ........................................................... Other comprehensive income .............................. — — Issuance of common stock under stock plans ...... 1,341 Stock-based compensation................................... Net excess income tax benefits associated with stock-based compensation............................... — — Repurchase of common stock .............................. (16,613) — — 2 — — — — — 17,595 46,728 3,823 (883,403) 355,260 — — — — — — 87 — — — — Balance at December 31, 2014 .......................... 118,452 $ 322 $ 18,120,045 $ (19,000,835) $ (2,998) $ See accompanying Notes to Consolidated Financial Statements (88,107) 320,032 2,696 29,303 36,199 16,045 (325,680) 189 (9,323) 544,450 (2,697) 20,667 39,642 19,320 (1,035,617) (423,558) 355,260 87 17,597 46,728 3,823 (883,403) (883,466) 64 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Cash flows from operating activities: Net income................................................................................................... $ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment and amortization of other intangible assets.................................................................................... Year Ended December 31, 2014 2013 2012 355,260 $ 544,450 $ 320,032 63,690 60,655 54,819 Stock-based compensation ................................................................... Excess tax benefit associated with stock-based compensation ............ Unrealized (gain) loss on contingent interest derivative on Subordinated Convertible Debentures ................................................. Loss (gain) on sale of investments ....................................................... Other, net .............................................................................................. Changes in operating assets and liabilities Accounts receivable ........................................................................... Prepaid expenses and other assets...................................................... Accounts payable and accrued liabilities........................................... Deferred revenues .............................................................................. Net deferred income taxes and other long-term tax liabilities........... Net cash provided by operating activities ..................................... 43,977 (6,054) (2,249) 5 11,353 (73) 11,571 45,419 34,518 43,532 600,949 Cash flows from investing activities: Proceeds from maturities and sales of marketable securities and investments .................................................................................................... Purchases of marketable securities ................................................................ Purchases of property and equipment ............................................................ Other investing activities ............................................................................... Net cash provided by (used in) investing activities ...................... 3,428,659 (3,277,096) (39,327) 452 112,688 Cash flows from financing activities: Proceeds from issuance of common stock from option exercises and employee stock purchase plans...................................................................... Repurchases of common stock....................................................................... Proceeds from senior notes, net of issuance costs ......................................... Repayment of borrowings.............................................................................. Excess tax benefit associated with stock-based compensation...................... Other financing activities............................................................................... Net cash used in financing activities............................................. Effect of exchange rate changes on cash and cash equivalents........................ Net (decrease) increase in cash and cash equivalents ...................................... Cash and cash equivalents at beginning of period ........................................... Cash and cash equivalents at end of period...................................................... $ Supplemental cash flow disclosures: 17,597 (883,403) — — 6,054 — (859,752) (1,500) (147,615) 339,223 191,608 Cash paid for interest, net of capitalized interest........................................... $ Cash paid for income taxes, net of refunds received ..................................... $ 75,088 35,201 $ $ $ See accompanying Notes to Consolidated Financial Statements. 36,649 (19,320) 17,801 (18,861) 14,182 (2,500) (2,694) 19,065 43,254 (113,284) 579,397 3,508,569 (3,450,068) (65,594) (3,969) (11,062) 20,667 (1,035,617) 738,297 (100,000) 19,320 — (357,333) (2,515) 208,487 130,736 339,223 58,928 26,133 $ $ $ 33,362 (18,436) (422) (102) 11,505 3,327 (9,344) (13,534) 84,011 72,412 537,630 1,234,156 (2,622,898) (53,023) (588) (1,442,353) 29,303 (325,680) — — 18,436 189 (277,752) (138) (1,182,613) 1,313,349 130,736 41,276 19,436 65 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014, 2013 AND 2012 Note 1. Description of Business and Summary of Significant Accounting Policies Description of Business VeriSign, Inc. (“Verisign” or “the Company”) was incorporated in Delaware on April 12, 1995. The Company has one reportable segment, which consists of Registry Services and Network Intelligence and Availability (“NIA”) Services. Registry Services ensure the security, stability and resiliency of key Internet infrastructure and services, including the .com and .net domains, two of the Internet’s root servers, and operation of the root-zone maintainer functions for the core of the Internet’s Domain Name System (DNS). NIA Services provides infrastructure assurance services consisting of Distributed Denial of Services (“DDoS”) Protection Services, Verisign iDefense Security Intelligence Services (“iDefense”) and Managed Domain Name System (“Managed DNS”). Basis of Presentation The accompanying consolidated financial statements of Verisign and its subsidiaries have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”). All significant intercompany accounts and transactions have been eliminated. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Reclassifications Certain reclassifications have been made to prior period amounts to conform to current period presentation. Such reclassifications have no effect on net income as previously reported. Significant Accounting Policies Cash and Cash Equivalents Verisign considers all highly-liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include certain money market funds, debt securities and various deposit accounts. Verisign maintains its cash and cash equivalents with financial institutions that have investment grade ratings and, as part of its cash management process, performs periodic evaluations of the relative credit standing of these financial institutions. Marketable Securities Marketable securities consist of debt securities issued by the U.S. Treasury. All marketable securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses, net of taxes, are reported as a component of Accumulated other comprehensive loss. The specific identification method is used to determine the cost basis of the marketable securities sold. The Company classifies its marketable securities as current based on their nature and availability for use in current operations. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets of 35 to 47 years for buildings, 10 years for building improvements and three to five years for computer equipment, purchased software, office equipment, and furniture and fixtures. Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful lives of the assets or associated lease terms. The Company capitalizes interest on facility assets under construction and on significant software development projects. 66 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Capitalized Software Software included in property and equipment includes amounts paid for purchased software and development costs for software used internally that have been capitalized. The following table summarizes the costs capitalized during 2014 and 2013, related to third-party implementation and consulting services as well as costs related to internally developed software. Year Ended December 31, 2014 2013 (In thousands) Third-party implementation and consulting services ................................................................. $ Internally developed software..................................................................................................... $ 1,305 20,039 $ $ 6,361 22,138 Goodwill and Other Long-lived Assets Goodwill represents the excess of purchase consideration over fair value of net assets of businesses acquired. Goodwill is not amortized, but instead tested for impairment. All of the Company’s goodwill is included in the Registry Services reporting unit which has a negative carrying value. The Company performs a qualitative analysis at the end of each reporting period to determine if any events have occurred or circumstances exist that would indicate that it is more likely than not that a goodwill impairment exists. The qualitative factors the Company reviews include, but are not limited to: (a) macroeconomic conditions; (b) industry and market considerations such as a deterioration in the environment in which an entity operates; (c) a significant adverse change in legal factors or in the business climate; (d) an adverse action or assessment by a regulator; (e) unanticipated competition; (f) loss of key personnel; (g) a more-likely-than-not expectation of sale or disposal of a reporting unit or a significant portion thereof; or (h) testing for recoverability of a significant asset group within a reporting unit. Long-lived assets, such as property, plant, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or asset group, may not be recoverable. Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business, a significant decrease in the benefits realized from an acquired business, difficulties or delays in integrating the business or a significant change in the operations of an acquired business. 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 in the amount by which the carrying amount of the asset exceeds its fair value. 3.25% Junior Subordinated Convertible Debentures Due 2037 (“Subordinated Convertible Debentures”) Verisign separately accounts for the liability (debt) and equity (conversion option) components of the Subordinated Convertible Debentures in a manner that reflects the borrowing rate for a similar non-convertible debt. The liability component is recognized at fair value on the issuance date, based on the fair value of a similar instrument that does not have a conversion feature at issuance. The excess of the principal amount of the Subordinated Convertible Debentures over the fair value of the liability component is the equity component or debt discount. Such excess represents the estimated fair value of the conversion feature and is recorded as Additional paid-in capital. The debt discount is amortized using the Company’s effective interest rate over the term of the Subordinated Convertible Debentures as a non-cash charge to interest expense. The Subordinated Convertible Debentures also have a contingent interest payment provision that may require the Company to pay interest based on certain thresholds, beginning with the semi-annual interest period which commenced on August 15, 2014, and upon the occurrence of certain events, as outlined in the Indenture governing the Subordinated Convertible Debentures. The contingent interest payment provision has been identified as an embedded derivative, to be accounted for separately at fair value, and is marked to market at the end of each reporting period, with any gains and losses recorded in Non-operating income, net. Foreign Currency Remeasurement Verisign conducts business throughout the world and transacts in multiple currencies. The functional currency for all of Verisign’s international subsidiaries is the U.S. Dollar. The Company’s subsidiaries’ financial statements are remeasured into U.S. Dollars using a combination of current and historical exchange rates and any remeasurement gains and losses are included in Non-operating income, net. The Company recorded a remeasurement gain of $1.0 million in 2014, a loss of $3.1 million in 2013, and a loss of $0.9 million in 2012. 67 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Verisign maintains a foreign currency risk management program designed to mitigate foreign exchange risks associated with the monetary assets and liabilities that are denominated in non-functional currencies. The primary objective of this program is to minimize the gains and losses resulting from fluctuations in exchange rates. The Company does not enter into foreign currency transactions for trading or speculative purposes, nor does it hedge foreign currency exposures in a manner that entirely offsets the effects of changes in exchange rates. The program may entail the use of forward or option contracts, which are usually placed and adjusted monthly. These foreign currency forward contracts are derivatives and are recorded at fair market value. The Company records gains and losses on foreign currency forward contracts in Non-operating income, net. The Company recorded gains of $1.5 million in 2013 related to foreign currency forward contracts. The Company recorded losses related to foreign currency forward contracts of less than $1.0 million in 2014 and 2012. As of December 31, 2014, Verisign held foreign currency forward contracts in notional amounts totaling $29.7 million to mitigate the impact of exchange rate fluctuations associated with certain assets and liabilities held in foreign currencies. Revenue Recognition Verisign recognizes revenues when the following four criteria are met: • Persuasive evidence of an arrangement exists: It is the Company’s customary practice to have a written contract, signed by both the customer and Verisign or a service order form from those customers who have previously negotiated a standard master services agreement with Verisign. • Delivery has occurred or services have been rendered: The Company’s services are usually delivered continuously from service activation date through the term of the arrangement. • The fee is fixed or determinable: Substantially all of the Company’s revenue arrangements have fixed or determinable fees. • Collectability is reasonably assured: Collectability is assessed on a customer-by-customer basis. Verisign typically sells to customers for whom there is a history of successful collection. The majority of customers either maintain a deposit with Verisign or provide an irrevocable letter of credit in excess of the amounts owed. New customers are subjected to a credit review process that evaluates the customer’s financial condition and, ultimately, their ability to pay. If Verisign determines from the outset of an arrangement that collectability is not probable based upon its credit review process, revenues are recognized as cash is collected. Substantially all of the Company’s revenue arrangements have multiple service deliverables. However, all service deliverables in those arrangements are usually delivered over the same term and, in the absence of a discernible pattern of performance, are presumed to be delivered ratably over that service term. If the Company enters into an arrangement with multiple elements where standalone value exists for each element and the delivery of the elements occur at different times, revenue for such arrangement is allocated to the elements based on the best estimate of selling prices of the elements and recognized based on applicable service term for each element. Registry Services Registry Services revenues primarily arise from fixed fees charged to registrars for the initial registration or renewal of .com, .net, and other domain names. Revenues from the initial registration or renewal of domain names are deferred and recognized ratably over the registration term, generally one year and up to ten years. Fees for renewals and advance extensions to the existing term are deferred until the new incremental period commences. These fees are then recognized ratably over the renewal term. Verisign also offers promotional marketing programs to its registrars based upon market conditions and the business environment in which the registrars operate. Amounts payable to these registrars for such promotional marketing programs are usually recorded as a reduction of revenue. If Verisign obtains an identifiable benefit separate from the services it provides to the registrars, then amounts payable up to the fair value of the benefit received are recorded as advertising expenses and the excess, if any, is recorded as a reduction of revenue. NIA Services Following the revenue recognition criteria above, revenues from NIA Services are usually deferred and recognized over the service term, generally one to two years. 68 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Advertising Expenses Advertising costs are expensed as incurred and are included in Sales and marketing expenses. Advertising expenses were $10.4 million, $13.2 million, and $10.2 million in 2014, 2013, and 2012, respectively. Income Taxes Verisign uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records a valuation allowance to reduce deferred tax assets to an amount whose realization is more likely than not. The Company allocates valuation allowances between current deferred tax assets and long-term deferred tax assets in proportion to the related classification of gross deferred tax assets for each tax jurisdiction. Deferred tax liabilities and assets are classified as current or noncurrent based on the financial reporting classification of the related asset or liability, or, for deferred tax liabilities or assets that are not related to an asset or liability for financial reporting, according to the expected reversal date of the temporary difference. For every tax-paying component and within each tax jurisdiction, (a) all current deferred tax liabilities and assets are offset and presented as a single amount and (b) all noncurrent deferred tax liabilities and assets are offset and presented as a single amount. The Company’s income taxes payable is reduced by the tax benefits from employee stock option exercises and restricted stock unit (“RSU”) vesting. The Company’s income tax benefit related to stock options is calculated as the tax effect of the difference between the fair market value of the stock and the exercise price at the time of option exercise. The Company’s income tax benefit related to RSUs is equal to the fair market value of the stock at the vesting date. If the income tax benefit at exercise or vesting date is greater than the income tax benefit recorded based on the grant date fair value of the stock options or RSUs, such excess tax benefit is recognized as an increase to Additional paid-in capital. If the income tax benefit at exercise or vesting date is less than the income tax benefit recorded based on the grant date fair value of the stock options or RSUs, the shortfall is recognized as a reduction of Additional paid-in capital to the extent of previously recognized excess tax benefits. Verisign’s global operations involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes payable are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from U.S. federal, state, and international tax audits. The Company may only recognize or continue to recognize tax positions that are more likely than not to be sustained upon examination. The Company adjusts these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from its current estimate of the tax liabilities. The Company’s assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and character of future taxable income, such as income from operations or capital gains income. Actual operating results and the underlying amount and character of income in future years could render the Company’s current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause the Company’s actual income tax obligations to differ from its estimates, thus materially impacting its financial condition and results of operations. Stock-based Compensation During 2014, the Company’s stock-based compensation was primarily related to RSUs granted to employees. There were no stock options granted in any period presented. The Company used the Black-Scholes option pricing model to determine the fair value of its employee stock purchase plan (“ESPP”) offerings. The determination of the fair value of stock-based payment awards using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. For the awards that are expected to vest, after considering estimated forfeitures, stock-based compensation expense is typically recognized on a straight-line basis over the requisite service period for each such award. The Company also grants RSUs which include performance conditions, and in some cases market conditions, to certain executives. The expense for these performance-based RSUs is recognized on a graded vesting schedule over the term of the award based on 69 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 the probable outcome of the performance conditions, The expense recognized for awards with market conditions is based on the grant date fair value of the awards including the impact of the market conditions. Earnings per Share The Company computes basic net income per share by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share gives effect to dilutive potential common shares, including outstanding stock options, unvested RSUs, ESPP offerings and the conversion spread related to the Subordinated Convertible Debentures using the treasury stock method. Fair Value of Financial Instruments 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: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. • Level 3: Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. The Company measures and reports certain financial assets and liabilities at fair value on a recurring basis, including its investments in money market funds classified as Cash and cash equivalents, marketable debt securities, foreign currency forward contracts, and the contingent interest derivative associated with the Subordinated Convertible Debentures. Recent Accounting Pronouncements On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard will become effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.? Note 2. Cash, Cash Equivalents, and Marketable Securities The following table summarizes the Company’s cash, cash equivalents, and marketable securities: As of December 31, 2014 2013 (In thousands) Cash ............................................................................................................................................ $ Money market funds ................................................................................................................... Time deposits.............................................................................................................................. Debt securities issued by the U.S. Treasury ............................................................................... Total..................................................................................................................................... $ 110,799 $ 85,453 3,383 1,233,076 1,432,711 Included in Cash and cash equivalents ....................................................................................... $ Included in Marketable securities............................................................................................... $ Included in Other long-term assets (Restricted cash) ................................................................. $ 191,608 1,233,076 8,027 70 72,232 246,492 3,978 1,409,062 1,731,764 339,223 1,384,062 8,479 $ $ $ $ 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 The fair value of the debt securities held as of December 31, 2014 was $1.2 billion, including less than $0.1 million of gross and net unrealized gains. All of the debt securities held as of December 31, 2014 have contractual maturities of less than one year. Note 3. Fair Value of Financial Instruments Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and December 31, 2013: Total Fair Value Level 1 Level 2 Level 3 Fair Value Measurement Using (In thousands) As of December 31, 2014: Assets: Investments in money market funds ....................... $ Debt securities issued by the U.S. Treasury ........... Foreign currency forward contracts (1) .................. Total ....................................................... $ 85,453 1,233,076 330 1,318,859 Liabilities: Contingent interest derivative on Subordinated Convertible Debentures .......................................... $ Foreign currency forward contracts (2) .................. Total ....................................................... $ 26,755 169 26,924 As of December 31, 2013: Assets: Investments in money market funds ....................... $ Debt securities issued by the U.S. Treasury ........... Foreign currency forward contracts (1) .................. Total ....................................................... $ 246,492 1,409,062 141 1,655,695 Liabilities: Contingent interest derivative on Subordinated Convertible Debentures .......................................... $ Foreign currency forward contracts (2) .................. Total ....................................................... $ 29,004 131 29,135 $ $ $ $ $ $ $ $ 85,453 1,233,076 — 1,318,529 $ $ — $ — — $ 246,492 1,409,062 — 1,655,554 $ $ — $ — — $ (1) Included in Other current assets (2) Included in Accounts payable and accrued liabilities — $ — 330 330 $ — $ 169 169 $ — $ — 141 141 $ — $ 131 131 $ — — — — 26,755 — 26,755 — — — — 29,004 — 29,004 The fair value of the Company’s investments in money market funds approximates their face value. Such instruments are classified as Level 1 and are included in Cash and cash equivalents. The fair value of the debt securities consisting of U.S. Treasury bills is based on their quoted market prices and are classified as Level 1. Debt securities purchased with original maturities in excess of three months are included in Marketable securities. The fair value of the Company’s foreign currency forward contracts is based on foreign currency rates quoted by banks or foreign currency dealers and other public data sources. The Company utilizes a valuation model to estimate the fair value of the contingent interest derivative on the Subordinated Convertible Debentures. The inputs to the model include stock price, bond price, risk free interest rates, volatility, and credit spread observations. As several significant inputs are not observable, the overall fair value measurement of the derivative is 71 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 classified as Level 3. The volatility and credit spread assumptions used in the calculation are the most significant unobservable inputs. As of December 31, 2014, the valuation of the contingent interest derivative assumed a volatility rate of approximately 32%. A hypothetical 5% increase or decrease in the volatility rate would not significantly change the fair value of the contingent interest derivative. The credit spread assumed in the valuation was approximately 4% at December 31, 2014. A hypothetical 1% increase or decrease in the credit spread would not significantly change the fair value of the contingent interest derivative. The following table summarizes the change in the fair value of the Company’s contingent interest derivative on Subordinated Convertible Debentures during the year ended December 31, 2014 and 2013: Beginning balance...................................................................................................................... $ Unrealized (gain) loss on contingent interest derivative on Subordinated Convertible Debentures ................................................................................................................................. Ending balance........................................................................................................................... $ Year Ended December 31, 2014 2013 (In thousands) 29,004 $ 11,203 (2,249) 26,755 $ 17,801 29,004 On August 14, 2014, the upside trigger on the Subordinated Convertible Debentures was met for the six month interest period from August 15, 2014 through February 14, 2015. On February 15, 2015, the Company will pay contingent interest of $5.2 million in addition to the normal coupon interest to holders of record of the Subordinated Convertible Debentures as of February 1, 2015. The value of the contingent interest payable in February 2015 is included in the balance of the contingent interest derivative on the Subordinated Convertible Debentures as of December 31, 2014. Other As of December 31, 2014, the Company’s other financial instruments include cash, accounts receivable, restricted cash, and accounts payable whose carrying values approximated their fair values. The fair values of the Company’s Subordinated Convertible Debentures and the Company’s senior notes due 2023 (the “Senior Notes”) as of December 31, 2014, were $2.2 billion and $727.6 million, respectively, and are based on available market information from public data sources. These fair value measurements are classified as Level 2. Note 4. Discontinued Operations Income from discontinued operations in 2012 is primarily related to the reimbursement of previously incurred litigation and legal defense costs received upon the settlement of indemnification claims with selling shareholders of a previously acquired business that was later divested. Income from discontinued operations in 2012 also includes the reversal of certain retained liabilities and the reversal of certain accruals for retained litigation related to the prior operations of a divested business. Note 5. Other Balance Sheet Items Other Current Assets Other current assets consist of the following: Prepaid expenses......................................................................................................................... $ Income tax and other receivables ............................................................................................... Debt issuance costs ..................................................................................................................... Deferred tax assets...................................................................................................................... Other ........................................................................................................................................... As of December 31, 2014 2013 (In thousands) 16,190 $ 24,821 10,570 247 647 13,502 39,884 10,705 1,743 449 Total other current assets..................................................................................................... $ 52,475 $ 66,283 72 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Income tax and other receivables, includes a federal income tax receivable recognized in connection with a worthless stock deduction as discussed in Note 12, “Income Taxes.” Property and Equipment, Net The following table presents the detail of property and equipment, net: Land ............................................................................................................................................ $ Buildings and building improvements........................................................................................ Computer equipment and software............................................................................................. Capital work in progress............................................................................................................. Office equipment and furniture................................................................................................... Leasehold improvements ............................................................................................................ Total cost................................................................................................................................ Less: accumulated depreciation.................................................................................................. Total property and equipment, net ......................................................................................... $ Goodwill The following table presents the detail of goodwill: Goodwill, gross........................................................................................................................... $ Accumulated goodwill impairment ............................................................................................ Total goodwill........................................................................................................................ $ As of December 31, 2014 2013 (In thousands) 31,141 $ 243,300 403,945 7,520 6,341 1,858 31,141 240,572 359,331 16,213 6,305 2,189 694,105 (375,077) 319,028 $ 655,751 (316,098) 339,653 As of December 31, 2014 2013 (In thousands) 1,537,843 (1,485,316) 52,527 $ $ 1,537,843 (1,485,316) 52,527 There was no impairment of goodwill or other long-lived assets recognized in any of the periods presented. Other Long-Term Assets Other long-term assets consist of the following: Debt issuance costs ..................................................................................................................... $ Long-term restricted cash ........................................................................................................... Other tax receivable.................................................................................................................... Long-term prepaid expenses and other assets ............................................................................ Total other long-term assets................................................................................................. $ As of December 31, 2014 2013 (In thousands) 10,160 $ 11,521 8,028 5,673 1,882 25,743 $ 8,479 5,811 1,934 27,745 73 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following: Accounts payable........................................................................................................................ $ Accrued employee compensation ............................................................................................... Customer deposits, net................................................................................................................ Taxes payable and other tax liabilities........................................................................................ Other accrued liabilities.............................................................................................................. As of December 31, 2014 2013 (In thousands) 29,335 $ 49,470 30,103 47,079 34,291 24,843 49,974 20,869 19,853 33,737 Total accounts payable and accrued liabilities .................................................................... $ 190,278 $ 149,276 Accrued employee compensation primarily consists of liabilities for employee leave, salaries, payroll taxes, employee contributions to the employee stock purchase plan, and incentive compensation. Other accrued liabilities include miscellaneous vendor payables, interest on the Subordinated Convertible Debentures which is paid semi-annually in arrears on August 15 and February 15, and interest on the Senior Notes which is paid semi-annually in arrears on May 1 and November 1. Note 6. Debt and Interest Expense Senior Notes due 2023 On April 16, 2013, the Company issued $750.0 million principal amount of 4.625% senior notes due May 1, 2023 at an issue price of 100%. The Senior Notes were issued pursuant to an indenture, dated as of April 16, 2013 (the “Indenture”), among the Company, each of the subsidiary guarantors party thereto and U.S. Bank National Association. The Indenture provides that the Senior Notes are general unsecured obligations of the Company. The Company’s Restricted Subsidiaries (as defined in the Indenture) may be required to guarantee the Senior Notes if they incur or guarantee certain indebtedness. The Company used a portion of the net proceeds from the sale of the Senior Notes to repay in full the $100.0 million of outstanding indebtedness under its unsecured credit facility (“Unsecured Credit Facility”) and to pay accrued and unpaid interest thereunder. The Company has used the remaining amount of the net proceeds for general corporate purposes, including, but not limited to, the repurchase of shares under its share repurchase program. In connection with the offering the Company incurred $12.0 million of issuance costs which were deferred and included in Other long-term assets. The issuance costs are being amortized to Interest expense over the 10 year term of the Senior Notes. The Company pays interest on the Senior Notes at 4.625% per annum, semi-annually on May 1 and November 1, commencing on November 1, 2013. The Company may redeem all or a portion of the Senior Notes at any time prior to May 1, 2018 at a price equal to 100% of the principal amount of the Senior Notes plus a make-whole premium, plus accrued and unpaid interest, if any, to the redemption date. In addition, on or before May 1, 2018, the Company may redeem up to 35% of the aggregate principal amount of the Senior Notes with the net proceeds of certain equity offerings at a redemption price of 104.625% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. The Company may redeem all or a portion of the Senior Notes at any time on or after May 1, 2018 at the applicable redemption prices set forth in the Indenture plus accrued and unpaid interest, if any, to the redemption date. If the Company experiences specific kinds of changes in control and if the Senior Notes are rated below investment grade by both rating agencies that rate the Senior Notes, the Company will be required to make an offer to purchase the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to the date of purchase. The Indenture contains covenants that limit the ability of the Company and/or its Restricted Subsidiaries, under certain circumstances, to, among other things: (i) pay dividends or make distributions on, or redeem or repurchase, its capital stock; (ii) make certain investments; (iii) create liens on assets; (iv) enter into sale/leaseback transactions and (v) merge or consolidate or sell all or substantially all of its assets. These covenants are subject to a number of important limitations and exceptions. The Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, accrued and unpaid interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately. 74 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 2011 Credit Facility On November 22, 2011, Verisign entered into a credit agreement with a syndicate of lenders led by JPMorgan Chase Bank, N.A., as the administrative agent. The credit agreement provides for a $200.0 million committed senior unsecured revolving credit facility, under which Verisign and certain designated subsidiaries may be borrowers. Loans under the 2011 Facility may be denominated in U.S. dollars and certain other currencies. The Company has the option under the Unsecured Credit Facility to invite lenders to make competitive bid loans at negotiated interest rates. The facility expires on November 22, 2016 at which time any outstanding borrowings are due. On November 28, 2011, the Company borrowed $100.0 million as a LIBOR revolving loan denominated in US dollars to be used in connection with the purchase of Verisign’s headquarters facility in Reston, Virginia and for general corporate purposes. In April 2013, the company repaid the $100.0 million of borrowings that were outstanding under the Unsecured Credit Facility using proceeds from the issuance of the Senior Notes. The Unsecured Credit Facility remains open with a borrowing capacity of $200.0 million available to the Company. The Company is required to pay a commitment fee between 0.2% and 0.3% per year of the amount committed under the facility, depending on the Company’s leverage ratio. The credit agreement contains customary representations and warranties, as well as covenants limiting the Company’s ability to, among other things, incur additional indebtedness, merge or consolidate with others, change its business, sell or dispose of assets. The covenants also include limitations on investments, limitations on dividends, share redemptions and other restricted payments, limitations on entering into certain types of restrictive agreements, limitations on entering into hedging agreements, limitations on amendments, waivers or prepayments of the Subordinated Convertible Debentures, limitations on transactions with affiliates and limitations on the use of proceeds from the facility. The facility includes financial covenants requiring that the Company’s interest coverage ratio not be less than 3.0 to 1.0 for any period of four consecutive quarters and the Company’s leverage ratio not exceed 2.0 to 1.0. As of December 31, 2014, the Company was in compliance with the financial covenants of the Unsecured Credit Facility. Verisign may from time to time request lenders to agree on a discretionary basis to increase the commitment amount by up to an aggregate of $150.0 million during the term of the Unsecured Credit Facility. Subordinated Convertible Debentures In August 2007, Verisign issued $1.25 billion principal amount of 3.25% subordinated convertible debentures due August 15, 2037, in a private offering. The Subordinated Convertible Debentures are initially convertible, subject to certain conditions, into shares of the Company’s common stock at a conversion rate of 29.0968 shares of common stock per $1,000 principal amount of Subordinated Convertible Debentures, representing an initial effective conversion price of approximately $34.37 per share of common stock. The conversion rate will be subject to adjustment for certain events as outlined in the Indenture governing the Subordinated Convertible Debentures but will not be adjusted for accrued interest. As of December 31, 2014, approximately 36.4 million shares of common stock were reserved for issuance upon conversion or repurchase of the Subordinated Convertible Debentures. On or after August 15, 2017, the Company may redeem all or part of the Subordinated Convertible Debentures for the principal amount plus any accrued and unpaid interest if the closing price of the Company’s common stock has been at least 150% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading-day period prior to the date on which the Company provides notice of redemption. 75 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Holders of the debentures may convert their Subordinated Convertible Debentures at the applicable conversion rate, in multiples of $1,000 principal amount, only under the following circumstances: • during any fiscal quarter beginning after December 31, 2007, if the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price in effect on the last trading day of such preceding fiscal quarter (the “Conversion Price Threshold Trigger”). The Conversion Price Threshold Trigger is currently $44.68; • during the five business-day period after any 10 consecutive trading-day period in which the trading price per $1,000 principal amount of Subordinated Convertible Debentures for each day of that 10 consecutive trading-day period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on such day; • if the Company calls any or all of the Subordinated Convertible Debentures for redemption pursuant to the terms of the Indenture, at any time prior to the close of business on the trading day immediately preceding the redemption date; • upon the occurrence of any of several specified corporate transactions as specified in the Indenture governing the Subordinated Convertible Debentures; or • at any time on or after May 15, 2037, and prior to the maturity date. The Company’s common stock price exceeded the Conversion Price Threshold Trigger during the fourth quarter of 2014. Accordingly, the Subordinated Convertible Debentures were convertible at the option of each holder during the first quarter of 2015. Further, in the event of conversion, the Company intends, and has the ability, to settle the principal amount of the Subordinated Convertible Debentures in cash, and therefore, classified the debt component of the Subordinated Convertible Debentures, the embedded contingent interest derivative and the related deferred tax liability as current liabilities, and also classified the related debt issuance costs as a current asset as of December 31, 2014. The determination of whether or not the Subordinated Convertible Debentures are convertible, and accordingly, the classification of the related liabilities and assets as long-term or current, must continue to be performed quarterly. As of December 31, 2014, the if-converted value of the Subordinated Convertible Debentures exceeded its principal amount. Based on the if-converted value of the Subordinated Convertible Debentures as of December 31, 2014, the conversion spread could have required the Company to issue up to an additional 14.4 million shares of common stock. In addition, holders of the Subordinated Convertible Debentures who convert their Subordinated Convertible Debentures in connection with a fundamental change may be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a fundamental change, the holders of the Subordinated Convertible Debentures may require Verisign to purchase all or a portion of their Subordinated Convertible Debentures at a purchase price equal to 100% of the principal amount of Subordinated Convertible Debentures, plus accrued and unpaid interest, if any. On August 14, 2014, the upside contingent interest trigger on the Subordinated Convertible Debentures was met for the six month interest period from August 15, 2014 through February 14, 2015. On February 15, 2015 the Company will pay contingent interest of $5.2 million in addition to the normal coupon interest to holders of record of the Subordinated Convertible Debentures as of February 1, 2015. The upside trigger is met if the Subordinated Convertible Debentures’ average trading price is at least 150% of par during the 10 trading days before each semi-annual interest period. The upside trigger is tested semi-annually for the following six months. The Company calculated the carrying value of the liability component at issuance as the present value of its cash flows using a discount rate of 8.5% (borrowing rate for similar non-convertible debt with no contingent payment options), adjusted for the fair value of the contingent interest feature, yielding an effective interest rate of 8.39%. The excess of the principal amount of the debt over the carrying value of the liability component is also referred to as the “debt discount” or “equity component” of the Subordinated Convertible Debentures. The debt discount is being amortized using the Company’s effective interest rate of 8.39% over the term of the Subordinated Convertible Debentures as a non-cash charge included in Interest expense. As of December 31, 2014, the remaining term of the Subordinated Convertible Debentures is 22.6 years. Interest is payable semiannually in arrears on August 15 and February 15. 76 VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Proceeds upon issuance of the Subordinated Convertible Debentures were as follows (in thousands): Principal value of Subordinated Convertible Debentures ................................................................................... Less: Issuance costs............................................................................................................................................. Net proceeds, Subordinated Convertible Debentures.............................................................................. Amounts recognized at issuance: Subordinated Convertible Debentures, including contingent interest derivative......................................... Additional paid-in capital............................................................................................................................. Long-term deferred tax liabilities................................................................................................................. Other long-term assets.................................................................................................................................. Non-operating loss ....................................................................................................................................... Net proceeds, Subordinated Convertible Debentures.............................................................................. $ $ $ $ 1,250,000 (25,777) 1,224,223 558,243 418,996 267,225 (11,328) (8,913) 1,224,223 The table below presents the carrying amounts of the liability and equity components: 2014 V E r i i s G n F o r m 1 0 - K As of December 31, 2014 2013 (In thousands) Debt discount upon issuance (net of issuance costs of $14,449) ............................................ $ Deferred taxes associated with the debt discount upon issuance ............................................ Carrying amount of equity component.................................................................................... $ 686,221 (267,225) 418,996 $ $ $ 686,221 (267,225) 418,996 1,250,000 (654,948) 595,052 29,004 624,056 1,250,000 (645,565) 604,435 26,755 631,190 $ Principal amount of Subordinated Convertible Debentures.................................................... $ Unamortized discount of liability component ......................................................................... Carrying amount of liability component ................................................................................. Contingent interest derivative.................................................................................................. Subordinated Convertible Debentures, including contingent interest derivative.................... $ The following table presents the components of the Company’s interest expense: Contractual interest on Subordinated Convertible Debentures ................... $ Contractual interest on Senior Notes........................................................... Amortization of debt discount on the Subordinated Convertible Debentures................................................................................................... Interest capitalized to Property and equipment, net .................................... Credit facility and other interest expense .................................................... Year Ended December 31, 2014 2013 2012 (In thousands) 40,625 $ 40,625 $ 40,625 34,688 24,570 9,412 (707) 1,976 8,670 (1,218) 2,114 — 7,986 (934) 2,519 Total interest expense........................................................................... $ 85,994 $ 74,761 $ 50,196 77 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Note 7. Stockholders’ Deficit Treasury Stock Treasury stock is accounted for under the cost method. Treasury stock includes shares repurchased under Stock Repurchase Programs and shares withheld in lieu of minimum tax withholdings due upon vesting of RSUs. On July 23, 2014, the Board of Directors approved an additional authorization for share repurchases of approximately $490.6 million of common stock in addition to the $509.4 million remaining available for repurchases of common stock under the previous share buyback program for a total repurchase authorization of up to $1.0 billion of its common stock. The share buyback program has no expiration date. Purchases made under the program could be effected through open market transactions, block purchases, accelerated share repurchase agreements or other negotiated transactions. Effective January 30, 2015, our Board of Directors authorized the repurchase of approximately $452.9 million of our common stock, in addition to the $547.1 million of our common stock remaining available for repurchase under the previous share repurchase program, for a total repurchase authorization of up to $1.0 billion of our common stock. The share repurchase program has no expiration date. Purchases made under the program could be effected through open market transactions, block purchases, accelerated share repurchase agreements or other negotiated transactions. The summary of the Company’s common stock repurchases for 2014, 2013 and 2012 are as follows: 2014 2013 2012 Shares Average Price Shares Average Price Shares Average Price Total repurchases under the repurchase plans.............. Total repurchases for tax withholdings ........................ Total repurchases.......................................................... 16,613 Total costs..................................................................... $ 883,403 16,316 297 (In thousands, except average price amounts) $ 53.15 $ 54.73 $ 53.18 21,006 $ 48.65 7,692 $ 40.90 298 $ 46.16 279 $ 39.63 21,304 $ 48.61 7,971 $ 40.86 $1,035,617 $ 325,680 Since inception, the Company has repurchased 203.2 million shares of its common stock for an aggregate cost of $6.9 billion, which is recorded as a reduction of Additional paid-in capital. Accumulated Other Comprehensive Loss The following table summarizes the changes in the components of Accumulated other comprehensive loss for 2014 and 2013: Foreign Currency Translation Adjustments Loss Unrealized Gain On Investments, net of tax (In thousands) Total Accumulated Other Comprehensive Loss Balance, December 31, 2012........................................ $ Changes ........................................................................ Balance, December 31, 2013........................................ Changes ........................................................................ Balance, December 31, 2014........................................ $ (3,241) $ 81 (3,160) — (3,160) $ $ 2,853 (2,778) 75 87 162 $ (388) (2,697) (3,085) 87 (2,998) The change in the unrealized gain on investments, net of tax during 2013 was due primarily to the sale of the Company’s investment in the equity securities of a public company and the reclassification of the related gain out of Accumulated other comprehensive loss and into net income. This gain is included in Non-operating income, net as discussed in Note 11, “Non- Operating Income, net”. 78 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Note 8. Calculation of Net Income per Share The following table presents the computation of weighted-average shares used in the calculation of basic and diluted net income per share: Year Ended December 31, 2014 2013 2012 (In thousands) Weighted-average shares of common stock outstanding............................. 126,710 144,591 156,953 Weighted-average potential shares of common stock outstanding: Conversion spread related to Subordinated Convertible Debentures... 13,384 10,361 Unvested RSUs .................................................................................... Stock Options ....................................................................................... Employee stock purchase plan ............................................................. 740 27 34 709 92 33 5,944 763 174 75 Shares used to compute diluted net income per share................................. 140,895 155,786 163,909 The calculation of diluted weighted average shares outstanding, excludes potentially dilutive securities, the effect of which would have been anti-dilutive, as well as performance based RSUs granted by the Company for which the relevant performance criteria have not been achieved. The number of potential shares excluded from the calculation was not significant in any period presented. Note 9. Geographic and Customer Information The Company generates revenue in the U.S.; Europe, the Middle East and Africa (“EMEA”); Australia, China, India, and other Asia Pacific countries (“APAC”); and certain other countries, including Canada and Latin American countries. The following table presents a comparison of the Company’s geographic revenues: Year Ended December 31, 2014 2013 2012 U.S ............................................................................................................... $ EMEA.......................................................................................................... APAC........................................................................................................... Other ............................................................................................................ (In thousands) 616,125 $ 585,201 $ 182,897 133,748 77,347 169,767 129,664 80,455 Total revenues ........................................................................................... $ 1,010,117 $ 965,087 $ 530,111 135,084 130,648 77,749 873,592 Revenues for our Registry Services business are generally attributed to the country of domicile and the respective regions in which the Company’s registrars are located, however, this may differ from the regions where the registrars operate or where registrants are located. Revenue growth for each region may be impacted by registrars reincorporating, relocating, or from acquisitions or changes in affiliations of resellers. Revenue growth for each region may also be impacted by registrars domiciled in one region, registering domain names in another region. 79 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 The following table presents a comparison of property and equipment, net of accumulated depreciation, by geographic region: U.S ............................................................................................................................................ $ EMEA ....................................................................................................................................... APAC........................................................................................................................................ Total property and equipment, net............................................................................................ $ Major Customers As of December 31, 2014 2013 (In thousands) 308,563 $ 9,919 546 325,636 13,317 700 319,028 $ 339,653 One customer accounted for approximately 31% of revenues in 2014 and 30% in 2013 and 2012. The Company does not believe that the loss of this customer would have a material adverse effect on the Company’s business because, in that event, end-users of this customer would transfer to the Company’s other existing customers. Note 10. Employee Benefits and Stock-based Compensation 401(k) Plan The Company maintains a defined contribution 401(k) plan (the “401(k) Plan”) for substantially all of its U.S. employees. Under the 401(k) Plan, eligible employees may contribute up to 50% of their pre-tax salary, subject to the Internal Revenue Service (“IRS”) annual contribution limits. In 2014, 2013 and 2012, the Company matched 50% of the employee’s contribution up to a total of 6% of the employee’s annual salary. The Company contributed $3.4 million in 2014, $3.1 million in 2013, and $2.8 million in 2012 under the 401(k) Plan. The Company can terminate matching contributions at its discretion at any time. Stock Option and Restricted Stock Plans The majority of Verisign’s stock-based compensation relates to RSUs. As of December 31, 2014, a total of 13.3 million shares of common stock were reserved for issuance upon the exercise of stock options and for the future grant of stock options or awards under Verisign’s stock option and restricted stock plans. On May 26, 2006, the stockholders of Verisign approved the 2006 Equity Incentive Plan (the “2006 Plan”). The 2006 Plan replaces Verisign’s previous 1998 Directors Plan, 1998 Equity Incentive Plan, and 2001 Stock Incentive Plan. The 2006 Plan authorizes the award of incentive stock options to employees and non-qualified stock options, restricted stock awards, RSUs, stock bonus awards, stock appreciation rights and performance shares to eligible employees, officers, directors, consultants, independent contractors and advisers. The 2006 Plan is administered by the Compensation Committee which may delegate to a committee of one or more members of the Board or Verisign’s officers the ability to grant certain awards and take certain other actions with respect to participants who are not executive officers or non-employee directors. RSUs are awards covering a specified number of shares of Verisign common stock that may be settled by issuance of those shares (which may be restricted shares). RSUs generally vest in four installments with 25% of the shares vesting on each anniversary of the first four anniversaries of the grant date. Certain performance-based RSUs, granted to the Company’s executives, vest over two and three year terms. Additionally, the Company has granted fully vested RSUs to members of its Board of Directors in each of the last three years. The Compensation Committee may authorize grants with a different vesting schedule in the future. A total of 27.0 million common shares were authorized and reserved for issuance under the 2006 Plan. 2007 Employee Stock Purchase Plan On August 30, 2007, the Company’s stockholders approved the 2007 Employee Stock Purchase Plan which replaced the previous 1998 Employee Stock Purchase Plan. A total of 6.0 million common shares were authorized and reserved for issuance under the ESPP. Eligible employees may purchase common stock through payroll deductions by electing to have between 2% and 25% of their compensation withheld to cover the purchase price. Each participant is granted an option to purchase common stock on the first day of each 24-month offering period and this option is automatically exercised on the last day of each six- 80 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 month purchase period during the offering period. The purchase price for the common stock under the ESPP is 85% of the lesser of the fair market value of the common stock on the first day of the applicable offering period or the last day of the applicable purchase period. Offering periods begin on the first business day of February and August of each year. As of December 31, 2014, 1.7 million shares of the Company’s common stock are reserved for issuance under this plan. Stock-based Compensation Stock-based compensation is classified in the Consolidated Statements of Comprehensive Income in the same expense line items as cash compensation. The following table presents the classification of stock-based compensation: Year Ended December 31, 2014 2013 2012 (In thousands) Stock-based compensation: Cost of revenues .......................................................................................... $ Sales and marketing..................................................................................... Research and development .......................................................................... General and administrative.......................................................................... Total stock-based compensation.................................................................. $ 6,400 $ 6,156 $ 8,023 7,018 22,536 6,252 7,199 17,042 43,977 $ 36,649 $ 5,754 6,091 6,023 15,494 33,362 The following table presents the nature of the Company’s total stock-based compensation: RSUs............................................................................................................ $ Performance-based RSUs............................................................................ ESPP ............................................................................................................ Stock options ............................................................................................... Capitalization (Included in Property and equipment, net)........................... Total stock-based compensation expense............................................. $ Year Ended December 31, 2014 2013 2012 (In thousands) 32,304 $ 29,123 $ 10,232 4,192 — (2,751) 43,977 $ 5,033 5,307 179 (2,993) 36,649 $ 28,874 1,933 4,436 956 (2,837) 33,362 The income tax benefit recognized on stock-based compensation within Income tax expense for 2014, 2013, and 2012 was $15.1 million, $11.9 million, and $9.4 million, respectively. The following table sets forth the weighted-average assumptions used to estimate the fair value of ESPP awards: Volatility.................................................................................................... Risk-free interest rate ................................................................................ Expected term ........................................................................................... Dividend yield........................................................................................... 24% 0.16% 26% 0.14% 26% 0.16% 1.25 years 1.25 years 1.25 years Zero Zero Zero Year Ended December 31, 2014 2013 2012 The Company’s expected volatility is based on the average of the historical volatility over the period commensurate with the expected term of the awards and the mean historical implied volatility of traded options. The risk-free interest rates are derived from the average U.S. Treasury constant maturity rates during the respective periods commensurate with the expected term. On the ESPP offering dates, the Company did not anticipate paying any cash dividends and therefore used an expected dividend yield of zero. The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting forfeitures and records stock-based compensation only for those awards that are expected to vest. 81 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 RSUs Information The following table summarizes unvested RSUs activity: 2014 2013 2012 Year Ended December 31, Weighted- Average Grant-Date Fair Value Shares 2,442 $ 909 (878) (294) 2,179 $ 38.00 55.05 35.99 44.00 46.36 Weighted- Average Grant-Date Fair Value Shares (Shares in thousands) 2,478 $ 1,132 (900) (268) 2,442 $ 32.07 45.08 30.73 36.09 38.00 Weighted- Average Grant-Date Fair Value Shares 2,345 $ 1,341 (881) (327) 2,478 $ 27.33 38.20 27.57 32.34 32.07 Unvested at beginning of period.............. Granted .................................................... Vested and settled.................................... Forfeited .................................................. The RSUs in the table above include certain RSUs granted to the Company’s executives that are subject to performance conditions, and in some cases, market conditions. The unvested RSUs as of December 31, 2014 include approximately 0.3 million RSUs subject to performance and/or market conditions. The number of RSUs that ultimately vest may range from zero to a maximum of 0.6 million RSUs depending on the level of performance achieved and whether any market conditions are satisfied. The closing price of Verisign’s stock was $57.00 on December 31, 2014. As of December 31, 2014, the aggregate intrinsic value of unvested RSUs was $124.3 million. The fair values of RSUs that vested during 2014, 2013, and 2012 were $47.9 million, $41.5 million, and $31.7 million, respectively. As of December 31, 2014, total unrecognized compensation cost related to unvested RSUs was $56.4 million which is expected to be recognized over a weighted-average period of 2.3 years. Stock Options Information The Company has not granted any stock options in each of the last three years. The number of remaining options outstanding is not material. As of December 31, 2014, all of the compensation cost related to the Company’s stock options has been recognized. Modifications Under the ESPP, if the market price of the stock at the end of any six-month purchase period is lower than the stock price at the offering date, the plan is immediately cancelled after that purchase date and a new two-year plan is established using the then-current stock price as the base purchase price. The Company also allows its employees to increase their payroll withholdings during the offering period. The Company accounts for these increases in employee payroll withholdings and the plan rollover as modifications. Modification expenses for the ESPP were not material in any period presented. 82 VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Note 11. Non-operating Income, Net The following table presents the components of Non-operating income, net: Realized net (loss) gain on investments ...................................................... $ Unrealized gain (loss) on contingent interest derivative on Subordinated Convertible Debentures ............................................................................... Interest and dividend income....................................................................... Income from transition services agreements ............................................... Other, net ..................................................................................................... Total non-operating income, net.................................................................. $ Year Ended December 31, 2014 2013 2012 (In thousands) (5) $ 18,861 $ 2,249 922 — 1,712 (17,801) 1,897 — 343 4,878 $ 3,300 $ 102 422 2,957 2,541 (458) 5,564 The realized net gain on investments in 2013 included gains of $15.8 million from the sale of certain cost method investments, and $3.0 million from the sale of the Company’s investment in the equity securities of a public company. The unrealized gains and losses on the contingent interest derivative on the Subordinated Convertible Debentures reflects the change in value of the derivative that results primarily from the changes in the Company’s stock price. Interest and dividend income is earned principally from the Company’s surplus cash balances and marketable securities. Income from transition services agreements includes fees generated from services provided to the purchasers of divested businesses for a certain period of time to facilitate the transfer of business operations. All transition services were completed in 2012. 2014 V E r i i s G n F o r m 1 0 - K 83 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Note 12. Income Taxes Income from continuing operations before income taxes is categorized geographically as follows: Year Ended December 31, 2014 2013 2012 (In thousands) United States................................................................................................ $ Foreign......................................................................................................... Total income from continuing operations before income taxes................ $ 270,373 212,938 483,311 $ $ 250,041 206,730 456,771 $ $ 245,745 166,950 412,695 The provision for income taxes consisted of the following: Year Ended December 31, 2014 2013 2012 (In thousands) Continuing Operations: Current (expense) benefit: Federal .................................................................................................. $ State...................................................................................................... Foreign, including foreign withholding tax............................................ Deferred (expense) benefit: Federal .................................................................................................. State...................................................................................................... Foreign ................................................................................................. Total income tax expense (benefit) from continuing operations ............ $ Income tax (expense) benefit from discontinued operations....................... $ (4,643) $ 14 (69,614) (74,243) (76,614) (15,402) 38,208 (53,808) (128,051) $ — $ (1,104) $ (8,150) (13,613) (22,867) 53,629 66,701 (9,784) 110,546 87,679 $ — $ (13,553) (7,960) (8,498) (30,011) (67,700) (6,760) 4,261 (70,199) (100,210) (3,594) The difference between income tax expense and the amount resulting from applying the federal statutory rate of 35% to Income from continuing operations before income taxes is attributable to the following: Income tax expense at federal statutory rate ............................................... $ State taxes, net of federal benefit ................................................................ Differences between statutory rate and foreign effective tax rate ............... Reorganization of certain non-U.S. operations ........................................... Tax (expense) benefit from worthless stock deduction............................... Change in valuation allowance.................................................................... Repatriation of foreign earnings.................................................................. Accrual for uncertain tax positions.............................................................. Other ............................................................................................................ $ 84 Year Ended December 31, 2014 2013 2012 (In thousands) (169,159) $ (11,308) 57,876 (14,474) (14,497) 41,700 4,164 (22,719) 366 (128,051) $ (159,870) $ (13,821) 51,016 (144,443) (10,003) 51,780 — 1,717,466 (1,195,303) (167,115) (140,596) (4,098) 87,679 $ — — 5,760 — (306) (2,998) (100,210) 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 During 2014 the Company completed the previously disclosed repatriation of $740.9 million of cash held by foreign subsidiaries, net of $28.1 million of foreign withholding taxes which were accrued during 2013. The Company utilized the majority of the remaining deferred tax asset for net operating loss carryforwards generated from the 2013 worthless stock deduction to offset the income tax resulting from current year income and the repatriation. The repatriation amount utilized substantially all of the available capital reserves of the Company’s foreign subsidiaries that were legally distributable under applicable foreign statutes. During the fourth quarter of 2013, the Company recorded income tax expense of $167.1 million related to taxable income generated in the U.S. as a result of the intended repatriation. For funds remaining in the foreign subsidiaries after the repatriation that have not been previously taxed in the U.S., the Company’s intention remains to indefinitely reinvest those funds outside of the U.S. and accordingly deferred U.S. taxes have not been provided. As of December 31, 2014, the amount of undistributed earnings of foreign subsidiaries for which deferred income taxes have not been provided was $447.0 million. As a result of the completion of the repatriation during 2014 and changes to estimates related to the 2013 worthless stock deduction, the Company recognized a net income tax benefit of $8.6 million during 2014. The components of this net benefit are included in the table above for changes in valuation allowances, adjustments to the benefit from the worthless stock deduction, changes to the accrual for uncertain tax positions and the repatriation of foreign earnings. The Company qualifies for two tax holidays in Switzerland. The tax holidays provide reduced rates of taxation on certain types of income and also require certain thresholds of foreign source income. One of the tax holidays is effective through December 31, 2016, and upon expiration may be subject to renewal if certain criteria are satisfied. The other tax holiday in Switzerland expired on December 31, 2014, and has not been extended. These two tax holidays increased the Company’s earnings per share by $0.50, $0.18 and $0.11 in 2014, 2013, and 2012, respectively. The Company qualifies for an additional tax holiday in Switzerland which will take effect beginning in 2015. This tax holiday is indefinite, unless the required thresholds are no longer met, or there is a law change which eliminates the holiday. In the fourth quarter of 2014, the Company incurred a charge of $14.5 million in non-US income taxes as a result of a reorganization of certain international operations. As a result of the tax holiday which becomes effective in 2015, and the reorganization, the Company believes it will not have a significant change to its international tax rate after the expiration of the tax holiday in Switzerland. During 2013, the Company liquidated for tax purposes one of its domestic subsidiaries, which allowed the Company to claim a worthless stock deduction on its 2013 federal income tax return. During the fourth quarter of 2013 the Company recorded an income tax benefit of $375.3 million related to the worthless stock deduction, net of valuation allowances and accrual for uncertain tax positions. The financial statement carrying value of this subsidiary was not material. The worthless stock deduction may be subject to audit and adjustment by the IRS, which could result in reversal of all, part or none of the income tax benefit, or could result in a benefit higher than the net amount recorded. If the IRS rejects or reduces the amount of the income tax benefit related to the worthless stock deduction, the Company may have to pay additional cash income taxes, which could adversely affect the Company’s results of operations, financial condition and cash flows. The Company cannot guarantee what the ultimate outcome or amount of benefit it receives, if any, will be. 85 2014 VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities are as follows: Deferred tax assets: As of December 31, 2014 2013 (In thousands) K - 0 1 m r o F n G s i i r E V Net operating loss carryforwards ........................................................................................... $ Deductible goodwill and intangible assets............................................................................. Tax credit carryforwards........................................................................................................ Deferred revenue, accruals and reserves................................................................................ Capital loss carryforwards and book impairment of investments.......................................... Other ...................................................................................................................................... Total deferred tax assets ...................................................................................................... Valuation allowance ................................................................................................................. Net deferred tax assets......................................................................................................... 61,059 $ 260,253 34,586 100,190 103,794 48,365 4,432 99,934 1,161,896 1,210,529 4,956 1,466,481 (1,162,170) 304,311 5,060 1,628,573 (1,203,870) 424,703 Deferred tax liabilities: Property and equipment ......................................................................................................... Unremitted foreign earnings .................................................................................................. Subordinated Convertible debentures .................................................................................... Other ...................................................................................................................................... Total deferred tax liabilities................................................................................................. Total net deferred tax liabilities........................................................................................... $ (16,115) — (494,625) (4,151) (514,891) (210,580) $ (19,354) (167,115) (453,825) (5,656) (645,950) (221,247) With the exception of deferred tax assets related to capital loss carryforwards, management believes it is more likely than not that the tax effects of the deferred tax liabilities together with future taxable income, will be sufficient to fully recover the remaining deferred tax assets. As of December 31, 2014, the Company had federal, state and foreign net operating loss carryforwards of approximately $39.7 million, $1.6 billion, and $ 22.1 million, respectively, before applying tax rates for the respective jurisdictions. As of December 31, 2014, the Company had federal and state research tax credits of $41.3 million and $2.1 million, respectively, and alternative minimum tax credits of $22.4 million available for future years. Certain net operating loss carryforwards and credits are subject to an annual limitation under Internal Revenue Code Section 382, but are expected to be fully realized. In future periods, an aggregate, tax effected amount of $71.3 million will be recorded to Additional paid-in capital when carried forward excess tax benefits from stock-based compensation are utilized to reduce future cash tax payments. The federal and state net operating loss and federal tax credit carryforwards expire in various years from 2015 through 2034. The foreign net operating loss can be carried forward indefinitely. As of December 31, 2014, the Company had federal and state capital loss carryforwards of $3.0 billion and $3.1 billion, respectively, before applying tax rates for the respective jurisdictions. The capital loss carryforwards expire in 2018 and are also subject to annual limitations under Internal Revenue Code Section 382. The Company does not expect to realize any tax benefits from the capital loss carryforwards and accordingly has reserved the entire amount through valuation allowance and accrual for uncertain tax positions. There is a foreign tax credit carryforward of $187.7 million as a result of the repatriation. The repatriation generated foreign source income in the U.S. which should enable the Company to claim eligible foreign taxes paid in the current year and prior years as foreign tax credits instead of as deductions. The benefit from these foreign tax credits was included in the computation of the deferred tax liability on unremitted foreign earnings as of December 31, 2013. The majority of these foreign tax credits will expire in 2024. 86 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 The deferred tax liability related to the Subordinated Convertible Debentures is driven by the excess of the tax deduction taken for interest expense over the amount of interest expense recognized in the consolidated financial statements. The interest expense deducted for tax purposes is based on the adjusted issue price of the Subordinated Convertible Debentures, while the interest expense recognized in accordance with GAAP is based only on the liability portion of the Subordinated Convertible Debentures. The adjusted issue price of the Subordinated Convertible Debentures grows over the term due to the difference between the interest deduction taken for income tax, using a comparable yield of 8.5%, and the coupon rate of 3.25%, compounded annually. In 2014, the Company adopted Accounting Standards Update (ASU) 2013-11, “Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, Or a Tax Credit Carryforward Exists.” This ASU generally requires that unrecognized tax benefits be presented as a reduction to a deferred tax asset for a net operating loss, similar tax loss or a tax credit carryforward that is available to settle additional income taxes that would result from the disallowance of a tax position, presuming disallowance at the reporting date. The amount of unrecognized tax benefits that were offset against deferred tax assets was $108.1 million and $140.6 million as of December 31, 2014 and 2013, respectively. The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available including changes in tax regulations and other information. A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows: As of December 31, 2014 2013 (In thousands) Gross unrecognized tax benefits at January 1 .......................................................................... $ Increases in tax positions for prior years.................................................................................. Increases in tax positions for current year................................................................................ Gross unrecognized tax benefits at December 31 .................................................................... $ 197,189 $ 56,593 22,538 181 219,908 $ 83 140,513 197,189 As of December 31, 2014, approximately $210.3 million of unrecognized tax benefits, including penalties and interest, could affect the Company’s tax provision and effective tax rate. The IRS is examining the Company’s federal income tax returns for fiscal years 2010 through 2012. It is reasonably possible that during the next twelve months, the Company’s unrecognized tax benefits may change by a significant amount as a result of the audit. However the timing of completion and ultimate outcome of the audit remains uncertain. Therefore, the Company cannot currently estimate the impact on the balance of unrecognized tax benefits. In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. These accruals were not material in any period presented. The Company’s major taxing jurisdictions are the U.S., the state of Virginia, and Switzerland. As stated previously, the Company’s federal income tax returns are currently under examination by the Internal Revenue Service for the years ended December 31, 2010, 2011 and 2012. The Company’s other tax returns are not currently under examination by their respective taxing jurisdictions. Because the Company uses historic net operating loss carryforwards and other tax attributes to offset its taxable income in current and future years’ income tax returns for the U.S. and Virginia, such attributes can be adjusted by these taxing authorities until the statute closes on the year in which such attributes were utilized. The open years in Switzerland are the 2013 tax year and forward. 87 2014 K - 0 1 m r o F n G s i i r E V VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Note 13. Commitments and Contingencies Purchase Obligations and Contractual Agreements The following table represents the minimum payments required by Verisign under certain purchase obligations, leases, the .tv Agreement with the Government of Tuvalu, and the interest payments and principal on the Subordinated Convertible Debentures and the Senior Notes: Purchase Obligations Leases .tv Agreement Senior Notes (In thousands) Subordinated Convertible Debentures Total 2015...................................................... $ 2016...................................................... 2017...................................................... 2018...................................................... 2019...................................................... Thereafter ............................................. Total...................................................... $ 20,894 $ 1,920 $ 5,000 $ 34,688 $ 45,851 $ 108,353 6,036 1,369 — — — 1,346 252 — — — 5,000 5,000 5,000 5,000 10,000 34,688 34,688 34,688 34,688 888,747 40,625 40,625 40,625 87,695 81,934 80,313 40,625 1,966,016 80,313 2,864,763 28,299 $ 3,518 $ 35,000 $ 1,062,187 $ 2,174,367 $ 3,303,371 The amounts in the table above exclude $210.3 million of income tax related uncertain tax positions, as the Company is unable to reasonably estimate the ultimate amount or time of settlement of those liabilities. Verisign enters into certain purchase obligations with various vendors. The Company’s significant purchase obligations primarily consist of firm commitments with telecommunication carriers and other service providers. The Company does not have any significant purchase obligations beyond 2017. Verisign leases a portion of its facilities under operating leases that extend through 2017. Rental expenses under operating leases were $1.6 million in 2014, $1.9 million in 2013, and $3.0 million in 2012. On November 29, 2012, the Company renewed its agreement with Internet Corporation for Assigned Name and Numbers (“ICANN”) to be the sole registry operator for domain names in the .com TLD through November 30, 2018. Under this agreement, the Company pays ICANN on a quarterly basis, $0.25 for each annual increment of a domain name registered or renewed during such quarter. As of December 31, 2014, there were 115.6 million domain names in the .com TLD. However, the number of domain names registered and renewed each quarter may vary significantly. The Company incurred registry fees for the .com TLD of $28.4 million in 2014, $27.9 million in 2013, and $18.7 million in 2012. Registry fees for other generic TLDs have been excluded from the table above because the amounts are variable or passed through to registrars. In 2011, the Company renewed its agreement with the Government of Tuvalu to be the sole registry operator for .tv domain names through December 31, 2021. Registry fees were $4.5 million in 2014, $4.5 million in 2013, and $4.0 million in 2012. In April 2013, the Company issued $750 million principal amount of Senior Notes. The Company will pay cash interest at an annual rate of 4.625% payable semi-annually on May 1 and November 1 of each year until maturity on May 1, 2023. In August 2007, the Company issued $1.25 billion principal amount of Subordinated Convertible Debentures. The Company will pay cash interest at an annual rate of 3.25% payable semi-annually on February 15 and August 15 of each year, until maturity on August 15, 2037. Interest on the Subordinated Convertible Debentures for 2015 in the table above, includes $5.2 million of contingent interest which will be paid in February 2015, as discussed in Note 6, “Debt and interest expense” of the Notes to Consolidated Financial Statements. 88 2014 V E r i i s G n F o r m 1 0 - K VERISIGN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 2014, 2013 AND 2012 Legal Proceedings Verisign is involved in various investigations, claims and lawsuits arising in the normal conduct of its business, none of which, in its opinion, will have a material adverse effect on its financial condition, results of operations, or cash flows. The Company cannot assure you that it will prevail in any litigation. Regardless of the outcome, any litigation may require the Company to incur significant litigation expense and may result in significant diversion of management attention. While certain legal proceedings and related indemnification obligations to which the Company is a party specify the amounts claimed, such claims may not represent reasonably possible losses. Given the inherent uncertainties of the litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any, be reasonably estimated, except in circumstances where an aggregate litigation accrual has been recorded for probable and reasonably estimable loss contingencies. A determination of the amount of accrual required, if any, for these contingencies is made after careful analysis of each matter. The required accrual may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters. The Company does not believe that any such matter currently being reviewed will have a material adverse effect on its financial condition, results of operations, or cash flows. Indemnifications In connection with the sale of the Authentication Services business to Symantec in August 2010, the Company has agreed to indemnify Symantec for certain potential legal claims arising from the operation of the Authentication Services business for a period of sixty months after the closing of the sale transaction. The Company’s indemnification obligations in this regard are triggered only when indemnifiable claims exceed in the aggregate $4.0 million. Thereafter, the Company is obligated to indemnify Symantec for 50% of all indemnifiable claims. The Company’s maximum indemnification obligation with respect to these claims is capped at $50.0 million. Off-Balance Sheet Arrangements As of December 31, 2014 and 2013, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if the Company had engaged in such relationships. It is not the Company’s business practice to enter into off-balance sheet arrangements. However, in the normal course of business, the Company does enter into contracts in which it makes representations and warranties that guarantee the performance of the Company’s products and services. Historically, there have been no significant losses related to such guarantees. 89 2014 K - 0 1 m r o F n G s i i r E V As required under Item 15—Exhibits, Financial Statement Schedules, the exhibits filed as part of this report are provided in this separate section. The exhibits included in this section are as follows: EXHIBITS Exhibit Number Exhibit Description 10.68 10.69 21.01 23.01 24.01 31.01 31.02 32.01 32.02 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE Amendment No. 1 to VeriSign, Inc. 2006 Equity Incentive Plan Performance Based Restricted Stock Unit Agreement(s). + Separation and General Release Agreement between VeriSign, Inc. and Richard H. Goshorn, effective as of November 29, 2014.+ Subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm. Powers of Attorney (Included as part of the signature pages hereto). Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a). Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a). Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code (18 U.S.C. 1350). * Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code (18 U.S.C. 1350). * XBRL Instance Document XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Definition Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase * + As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Annual Report on Form 10-K and are not deemed filed with the SEC and are not incorporated by reference in any filing of VeriSign, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in such filings. Indicates a management contract or compensatory plan or arrangement. 90 VeriSign, Inc. 12061 Bluemont Way Reston, Virginia 20190 April 8, 2015 To Our Stockholders: You are cordially invited to attend the 2015 Annual Meeting of Stockholders of VeriSign, Inc. (“Verisign”) to be held at our corporate offices located at 12061 Bluemont Way, Reston, Virginia 20190 on Thursday, May 21, 2015, at 10:00 a.m., Eastern Time (the “Meeting”). The matters expected to be acted upon at the Meeting are described in detail in the following Notice of the 2015 Annual Meeting of Stockholders and Proxy Statement. We have implemented a U.S. Securities and Exchange Commission rule that requires companies to furnish their proxy materials over the Internet. As a result, we are mailing to our stockholders a Notice of Internet Availability of Proxy Materials instead of a paper copy of our annual report to security holders, which includes our Annual Report on Form 10-K for the year ended December 31, 2014 (collectively, the “Annual Report”), and this proxy statement. The Notice of Internet Availability of Proxy Materials contains instructions on how to access those documents over the Internet. The Notice of Internet Availability of Proxy Materials also contains instructions on how each stockholder can receive a paper copy of our proxy soliciting materials, including this notice and proxy statement, our Annual Report and a form of proxy card or voting instruction card. We believe that this process will conserve natural resources and reduce the costs of printing and distributing our proxy materials. It is important that you use this opportunity to take part in the affairs of Verisign by voting on the business to come before this meeting. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE THE PROXY ELECTRONICALLY OR BY PHONE AS DESCRIBED ON THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS AND UNDER “INTERNET AND TELEPHONE VOTING” IN THE PROXY STATEMENT, OR ALTERNATIVELY, IF RECEIVING PAPER COPIES OF PROXY MATERIALS, DATE, SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. Returning or completing the proxy does not deprive you of your right to attend the Meeting and to vote your shares in person. We look forward to seeing you at our 2015 Annual Meeting of Stockholders. Sincerely, /s/ D. James Bidzos D. James Bidzos Chairman of the Board of Directors and Executive Chairman, President and Chief Executive Officer V E r i i s G n P r o x y 2015 This page intentionally left blank. y x o r P n G s i i r E V 2015 VERISIGN, INC. 12061 Bluemont Way Reston, Virginia 20190 Notice of the 2015 Annual Meeting of Stockholders TO OUR STOCKHOLDERS: NOTICE IS HEREBY GIVEN that the 2015 Annual Meeting of Stockholders of VeriSign, Inc. will be held at our corporate offices located at 12061 Bluemont Way, Reston, Virginia 20190 on Thursday, May 21, 2015, at 10:00 a.m., Eastern Time. The 2015 Annual Meeting of Stockholders is being held for the following purposes: 1. To elect seven directors of VeriSign, Inc., each to serve until the next annual meeting, or until a successor has been elected and qualified or until the director’s earlier resignation or removal. 2. To approve VeriSign, Inc.’s Annual Incentive Compensation Plan. 3. To approve, on a non-binding, advisory basis, VeriSign, Inc.’s executive compensation. 4. To ratify the selection of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2015. 5. To vote, on an advisory basis, on a stockholder proposal, if properly presented at the meeting, requesting that the Board take steps to permit stockholder action by written consent. 6. To transact such other business as may properly come before the 2015 Annual Meeting of Stockholders or any adjournment thereof. The foregoing items of business are more fully described in the proxy statement accompanying this Notice. Only stockholders of record at the close of business on March 27, 2015, are entitled to notice of and to vote at the 2015 Annual Meeting of Stockholders or any adjournment thereof. V E r i i s G n P r o x y By Order of the Board of Directors, /s/ Thomas C. Indelicarto Thomas C. Indelicarto Secretary Reston, Virginia April 8, 2015 WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE THE PROXY ELECTRONICALLY OR BY PHONE AS DESCRIBED ON THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS AND UNDER “INTERNET AND TELEPHONE VOTING” IN THE PROXY STATEMENT, OR ALTERNATIVELY, IF RECEIVING PAPER COPIES OF PROXY MATERIALS, COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. 2015 TABLE OF CONTENTS Proxy Statement for the 2015 Annual Meeting of Stockholders.................................................................................................... Proposal No. 1—Election of Directors ......................................................................................................................................... Director Nominees ............................................................................................................................................................... Non-Employee Director Compensation Table for Fiscal 2014 ............................................................................................ Corporate Governance ................................................................................................................................................................... Independence of Directors ................................................................................................................................................... Board Leadership Structure .................................................................................................................................................. Board Role in Risk Oversight ............................................................................................................................................. Board and Committee Meetings ........................................................................................................................................... Board Members’ Attendance at the Annual Meeting............................................................................................................ Corporate Governance and Nominating Committee ............................................................................................................ Audit Committee .................................................................................................................................................................. Audit Committee Financial Expert ....................................................................................................................................... Report of the Audit Committee ............................................................................................................................................ Compensation Committee .................................................................................................................................................... Communicating with the Board ........................................................................................................................................... Code of Ethics ...................................................................................................................................................................... Security Ownership of Certain Beneficial Owners and Management ........................................................................................... Beneficial Ownership Table ................................................................................................................................................. Section 16(a) Beneficial Ownership Reporting Compliance................................................................................................ Proposal No. 2—To Approve VeriSign, Inc. Annual Incentive Compensation Plan...................................................................... Proposal No. 3—To Approve, on a Non-Binding Advisory Basis, Verisign’s Executive Compensation ...................................... Executive Compensation ............................................................................................................................................................... Compensation Discussion and Analysis ............................................................................................................................... Compensation Committee Report ........................................................................................................................................ Compensation Committee Interlocks and Insider Participation ........................................................................................... Summary Compensation Table ............................................................................................................................................ Grants of Plan-Based Awards for Fiscal 2014 ...................................................................................................................... Outstanding Equity Awards at 2014 Fiscal Year End .......................................................................................................... Option Exercises and Stock Vested for Fiscal 2014 ............................................................................................................. Potential Payments Upon Termination or Change-in-Control .............................................................................................. Equity Compensation Plan Information ............................................................................................................................... Policies and Procedures With Respect to Transactions With Related Persons ..................................................................... Certain Relationships and Related Transactions .................................................................................................................. Proposal No. 4—Ratification of Selection of Independent Registered Public Accounting Firm ................................................... Principal Accountant Fees and Services ........................................................................................................................................ Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors........... Proposal No. 5— Stockholder Proposal Requesting that the Board take Steps to Permit Stockholder Action by Written Consent................................................................................................................................................................................. Other Information .......................................................................................................................................................................... Stockholder Proposals for the 2016 Annual Meeting of Stockholders ................................................................................ Other Business ..................................................................................................................................................................... Communicating With Verisign ............................................................................................................................................. Appendix A—VeriSign, Inc. Annual Incentive Compensation Plan ............................................................................................. Page 1 4 4 7 9 9 9 9 10 10 10 10 11 12 14 14 14 15 16 17 18 21 22 22 36 36 37 38 39 40 40 44 44 45 46 47 47 48 51 51 53 53 A-1 y x o r P n G s i i r E V 2015 VERISIGN, INC. 12061 Bluemont Way Reston, Virginia 20190 PROXY STATEMENT FOR THE 2015 ANNUAL MEETING OF STOCKHOLDERS April 8, 2015 The accompanying proxy is solicited on behalf of the Board of Directors (the “Board”) of VeriSign, Inc. (“Verisign” or the “Company”) for use at the 2015 Annual Meeting of Stockholders (the “Meeting”) to be held at our corporate offices located at 12061 Bluemont Way, Reston, Virginia 20190 on Thursday, May 21, 2015 at 10:00 a.m., Eastern Time. Only holders of record of our common stock at the close of business on March 27, 2015, which is the record date, will be entitled to vote at the Meeting. At the close of business on the record date, we had 116,428,984 shares of common stock outstanding and entitled to vote. This proxy statement and the accompanying form of proxy (collectively, the “Proxy Statement”) were first made available to stockholders on or about April 8, 2015. Our annual report to security holders, which includes our Annual Report on Form 10-K for the year ended December 31, 2014 (collectively, the “Annual Report”), is enclosed with this Proxy Statement for stockholders receiving a paper copy of proxy soliciting materials. The Annual Report and Proxy Statement can both be accessed on the Investor Relations section of our website at http://investor.verisign.com, or at www.edocumentview.com/vrsn. All proxies will be voted in accordance with the instructions contained therein. Unless contrary instructions are specified, if the accompanying proxy is executed and returned (and not revoked) prior to the Meeting, the shares of Verisign common stock represented by the proxy will be voted: (1) FOR the election of each of the seven director candidates nominated by the Board; (2) FOR the approval of Verisign’s Annual Incentive Compensation Plan; (3) FOR the non-binding, advisory resolution to approve Verisign’s executive compensation; (4) FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2015 (“fiscal 2015”); (5) AGAINST the stockholder proposal, if properly presented at the meeting, requesting that the Board take steps to permit stockholder action by written consent and (6) in accordance with the best judgment of the named proxies on any other matters properly brought before the Meeting. Adoption of Majority Vote Standard in Uncontested Director Elections Verisign’s Seventh Amended and Restated Bylaws provide for a majority of votes cast standard in uncontested director elections. A majority of the votes cast means, with respect to a nominee for director, that the number of shares voted “for” the election of that nominee must exceed the number of votes cast as “withheld” for that nominee. In contested elections where the number of nominees exceeds the number of directors to be elected, the vote standard will continue to be a plurality of votes cast. In uncontested elections where a nominee who already serves as a director is not re-elected, such director shall tender his or her resignation, subject to acceptance by the Board. The Corporate Governance and Nominating Committee shall make a recommendation to the Board as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board shall act on the Corporate Governance and Nominating Committee’s recommendation and publicly disclose its decision and the rationale therefor within ninety days from the date of the certification of the election results. The director who tenders his or her resignation will not participate in the 1 V E r i i s G n P r o x y 2015 Corporate Governance and Nominating Committee’s or the Board’s decision. If the failure of a nominee to be elected at the annual meeting results in a vacancy on the Board, that vacancy can be filled by action of the Board. Voting Rights Holders of our common stock are entitled to one vote for each share held as of the record date. Quorum, Effect of Abstentions and Broker Non-Votes, Vote Required to Approve the Proposals A majority of the shares of common stock outstanding and entitled to vote must be present or represented by proxy at the Meeting in order to have a quorum. Abstentions and broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Meeting. A broker non-vote occurs when a bank, broker or other stockholder of record holding shares for a beneficial owner submits a proxy for the meeting, but does not vote on a particular proposal because that record holder does not have discretionary voting power with respect to that “non-routine” proposal and has not received voting instructions from the beneficial owner. Each of the election of directors, the approval of Verisign’s Annual Incentive Compensation Plan and the stockholder proposal, if properly presented at the meeting, requesting that the Board take steps to permit stockholder action by written consent, and the non-binding, advisory vote to approve executive compensation is a “non-routine” proposal and so shares for which record holders do not receive voting instructions will not be voted on such matters. If a quorum is present, a nominee for election to a position on the Board in an uncontested election in which directors are elected by a majority of votes cast will be elected as a director if the votes cast “for” the election of the nominee exceed the number of votes cast as “withheld” for that nominee. The following will not be votes cast and will have no effect on the election of any director nominee: (i) a share whose ballot is marked as abstain; (ii) a share otherwise present at the meeting but for which there is an abstention; (iii) a share otherwise present at the meeting as to which a stockholder gives no authority or direction; and (iv) a share subject to a broker non-vote. Stockholders may not cumulate votes in the election of directors. If a quorum is present, approvals of the proposals for: • • • • the approval of Verisign’s Annual Incentive Compensation Plan; the non-binding, advisory resolution to approve Verisign’s executive compensation; the ratification of the selection of KPMG LLP as our independent registered public accounting firm for fiscal 2015; the stockholder proposal, if properly presented at the meeting, requesting that the Board take steps to permit stockholder action by written consent; and • all other matters that properly come before the Meeting require the affirmative vote of a majority of the shares of common stock present or represented by proxy and entitled to vote on the subject matter. Under this voting standard, abstentions will have the effect of votes cast against the proposal, and broker non-votes will not affect the voting outcome. The inspector of elections appointed for the Meeting will separately tabulate affirmative and withheld votes, abstentions and broker non-votes. Adjournment of Meeting In the event that a quorum shall fail to attend the Meeting, either in person or represented by proxy, the chairman may adjourn the Meeting, or alternatively, the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the Meeting. Any such adjournment proposed by a stockholder or person named as a proxy would require the affirmative vote of the majority of the outstanding shares present in person or represented by proxy at the Meeting. Expenses of Soliciting Proxies Verisign will pay the expenses of soliciting proxies to be voted at the Meeting. Verisign intends to retain Georgeson Inc. for various services related to the solicitation of proxies, which we anticipate will cost between $12,000 and $17,000, plus reimbursement 2 y x o r P n G s i i r E V 2015 of expenses. Following the original mailing of the Notice of Internet Availability of Proxy Materials and paper copies of proxies and other proxy soliciting materials, we and/or our agents may also solicit proxies by mail, telephone, electronic transmission, including email, or in person. Following the original mailing of the Notice of Internet Availability of Proxy Materials and paper copies of the proxies and other proxy soliciting materials, we will request that brokers, custodians, nominees and other record holders of our shares forward copies of the proxy and other proxy soliciting materials to persons for whom they hold shares and request authority for the exercise of proxies. In such cases, we will reimburse the record holders for their reasonable expenses if they ask us to do so. Revocability of Proxies A stockholder may revoke any proxy that is not irrevocable by attending the Meeting and voting in person or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the Company. Internet and Telephone Voting If you hold shares of record as a registered stockholder, you can simplify your voting process and save the Company expense by voting your shares by telephone at 1-800-652-VOTE (8683) or on the Internet at www.envisionreports.com/vrsn twenty-four hours a day, seven days a week. Telephone and Internet voting are available through 12:00 a.m. Eastern Time the day of the Meeting. More information regarding Internet voting is given on the Notice of Internet Availability of Proxy Materials. If you hold shares through a bank or brokerage firm, the bank or brokerage firm will provide you with separate instructions on a form you will receive from them. Many such firms make telephone or Internet voting available, but the specific processes available will depend on those firms’ individual arrangements. Householding A number of brokerage firms have instituted a procedure called “householding,” which has been approved by the Securities and Exchange Commission (the “SEC”). Under this procedure, the firm delivers only one copy of the Notice of Internet Availability of Proxy Materials or paper copies of the Annual Report and Proxy Statement, as the case may be, to multiple stockholders who share the same address and have the same last name, unless it has received contrary instructions from an affected stockholder. If your shares are held in “street name,” please contact your bank, broker or other holder of record to request information about householding. V E r i i s G n P r o x y 2015 3 PROPOSAL NO. 1 ELECTION OF DIRECTORS Our Bylaws authorize eleven directors or such number of directors determined from time to time by a resolution of the Board; there are currently eight directors, as determined by a written resolution of the Board. The terms of the current directors, who are identified below, expire upon the election and qualification of the directors to be elected at the Meeting. The Board has nominated D. James Bidzos, William L. Chenevich, Kathleen A. Cote, Jamie S. Gorelick, Roger Moore, Louis A. Simpson and Timothy Tomlinson, each of whom are current directors, for re-election at the Meeting to serve until the 2016 Annual Meeting of Stockholders and until their respective successors have been elected and qualified. The Board has not nominated John D. Roach to stand for re-election and the size of the Board will be decreased from eight to seven directors immediately following the Meeting. There are currently no vacancies on the Board. Proxies cannot be voted for more than seven persons, which is the number of nominees. Unless otherwise directed, the persons named in the proxy intend to vote all proxies FOR the re-election of the nominees, as listed below, each of whom has consented to serve as a director if elected. If, at the time of the Meeting, any of the nominees is unable or declines to serve as a director, the discretionary authority provided in the enclosed proxy will be exercised to vote for a substitute candidate designated by the Board, unless the Board chooses to reduce its own size. The Board has no reason to believe any of the nominees will be unable or will decline to serve if elected. Director Nominees Set forth below is certain information relating to our director nominees, including details on each director nominee’s specific experience, qualifications, attributes or skills that led the Board to conclude that the person should serve as a director of the Company. Name Nominees for election as directors for a term expiring in 2016: D. James Bidzos ............................................................... William L. Chenevich(1)(2) .............................................. Kathleen A. Cote(1)(2) ..................................................... Jamie S. Gorelick(2)(3) ................................................... Roger H. Moore(1)(2) ....................................................... Louis A. Simpson(2)(3) .................................................... Timothy Tomlinson(2)(3) ................................................. (1) (2) (3) Member of the Audit Committee. Member of the Corporate Governance and Nominating Committee. Member of the Compensation Committee. Age Position 60 71 66 64 73 78 65 Chairman of the Board, Executive Chairman, President and Chief Executive Officer Lead Independent Director Director Director Director Director Director D. James Bidzos has served as Executive Chairman since August 2009 and President and Chief Executive Officer since August 2011. He served as Executive Chairman and Chief Executive Officer on an interim basis from June 2008 to August 2009 and served as President from June 2008 to January 2009. He served as Chairman of the Board since August 2007 and from April 1995 to December 2001. He served as Vice Chairman of the Board from December 2001 to August 2007. Mr. Bidzos served as a director of VeriSign Japan K.K. (“VeriSign Japan”) from March 2008 to August 2010 and served as Representative Director of VeriSign Japan from March 2008 to September 2008. Mr. Bidzos served as Vice Chairman of RSA Security Inc., an Internet identity and access management solution provider, from March 1999 to May 2002, and Executive Vice President from July 1996 to February 1999. Prior thereto, he served as President and Chief Executive Officer of RSA Data Security, Inc. from 1986 to February 1999. Mr. Bidzos is a business executive with significant expertise in the technology that is central to the Company’s businesses. Mr. Bidzos is an Internet and security industry pioneer who understands the strategic technology trends in markets that are important to the Company. Mr. Bidzos was a founder of the Company and has been either Chairman or Vice Chairman of the Company’s Board of Directors since the Company’s founding in April 1995, providing him with valuable insight and institutional knowledge of the Company’s history and development. Mr. Bidzos has prior experience on our Compensation Committee and our Corporate Governance and Nominating Committee and as a member of several other public-company boards. Mr. Bidzos’s years of board-level 4 y x o r P n G s i i r E V 2015 experience contribute important knowledge and insight to the Board. Additionally, Mr. Bidzos’s executive-level experience includes many years as a Chief Executive Officer, providing him with a perspective that the Board values. Mr. Bidzos also has international business experience from his service as a director of VeriSign Japan. William L. Chenevich has served as Lead Independent Director since February 2009 and as a director since the Company’s founding in April 1995. Mr. Chenevich served as Vice Chairman of Technology and Operations for U.S. Bancorp, a financial holding company, from February 2001 to July 2010. He served as Vice Chairman of Technology and Operations Services of Firstar Corporation, a financial services company, from 1999 until its merger with U.S. Bancorp in February 2001. Prior thereto, he was Group Executive Vice President of VISA International, a financial services company, from 1994 to 1999. Mr. Chenevich holds a B.B.A. degree in Business from the City College of New York and an M.B.A. degree in Management from the City University of New York. Mr. Chenevich is a business executive with significant expertise in technology and operations developed over more than twenty years in the financial services industry. Mr. Chenevich’s expertise in technology and operations is directly relevant to the products and services of the Company’s businesses. Mr. Chenevich’s experience in the financial services industry is also relevant as that industry is an important target industry for the Company’s products and services. Mr. Chenevich’s service on several other boards of directors over his career, and his service on our Board since the Company’s founding, have provided him with significant board-level experience, as well as valuable insight and institutional knowledge of the Company’s history and development. Mr. Chenevich’s financial and accounting skills qualify him as an audit committee financial expert. His experience on our Audit Committee and the audit committee of another company are also valuable to the Company. In addition, Mr. Chenevich has significant executive-level experience as a management committee member at leading financial institutions for more than twenty years, including experience in mergers and acquisitions transactions. Mr. Chenevich also has significant international business experience from his time as Group Executive Vice President of VISA International. Kathleen A. Cote has served as a director since February 2008. From May 2001 to June 2003, Ms. Cote served as Chief Executive Officer of Worldport Communications Company, a provider of Internet managed services. From September 1998 to May 2001, she served as Founder and President of Seagrass Partners, a consulting firm specializing in providing strategic planning, business, operational and management support for startup and mid-sized technology companies. Prior thereto, she served as President and Chief Executive Officer of Computervision Corporation, a supplier of desktop and enterprise, client server and web-based product development and data management software and services. During the past five years, Ms. Cote has held directorships at Asure Software Corporation, GT Advanced Technologies Inc., 3Com Corporation and Western Digital Corporation. Ms. Cote holds an Honorary Doctorate from the University of Massachusetts, an M.B.A. degree from Babson College, and a B.A. degree from the University of Massachusetts, Amherst. Ms. Cote is a business executive with significant expertise overseeing global companies in technology and operations in the areas of systems integration, networks, hardware and software, including web-based applications and Internet services. Ms. Cote’s expertise in technology and operations is directly relevant to the Company’s businesses. Ms. Cote’s expertise as a business executive also includes sales and marketing, product development, strategic planning and international experience, which contributes important expertise to the Board in those areas of business administration. Ms. Cote’s financial and accounting skills qualify her as an audit committee financial expert. In addition to Ms. Cote’s tenure as a director of the Company, Ms. Cote has served on several other boards of directors, including service on the audit and corporate governance committees of those boards, providing her with valuable board-level experience. Ms. Cote’s executive-level experience includes experience as a Chief Executive Officer, providing her with a perspective that the Board values. V E r i i s G n P r o x y Jamie S. Gorelick has served as a director since January 2015. Ms. Gorelick has been a partner at Wilmer Cutler Pickering Hale and Dorr LLP, an international law firm, since 2003. She served as Deputy Attorney General of the United States from 1994 to 1997 and as General Counsel of the Department of Defense from 1993 to 1994. She has been a director of Amazon.com, Inc. since 2012 and serves as Chair of its Nominating and Governance Committee. She previously served as a director of United Technologies Corp. and of Schlumberger, Ltd. She holds B.A. and J.D. degrees from Harvard University. Ms. Gorelick is an experienced attorney with significant expertise in legal, policy and corporate matters. Ms. Gorelick’s regulatory and policy experience is directly relevant to the Company’s business. She is well-versed in critical infrastructure and national security issues and brings a valuable skill-set and wealth of government experience to the Board. Ms. Gorelick has served on 5 2015 several other corporate boards, a compensation committee, and a nominating and governance committee, and served on numerous government boards and commissions. Ms. Gorelick’s experience in both the public and private sectors, combined with her experience in the corporate boardroom, provides her valuable board experience, and she offers a perspective the Board values. Roger H. Moore has served as a director since February 2002. From December 2007 to May 2009, he served as a consultant assisting Verisign in the divestiture of its Communications Services business. From June 2007 through November 2007, Mr. Moore served as interim Chief Executive Officer of Arbinet Corporation, a provider of online trading services. He was President and Chief Executive Officer of Illuminet Holdings, Inc. from December 1995 until December 2001 when Verisign acquired Illuminet Holdings. Prior to Illuminet Holdings, Mr. Moore spent ten years with Nortel Networks in a variety of senior management positions including President of Nortel Japan. During the past five years, Mr. Moore has held directorships at Western Digital Corporation and Consolidated Communications Holdings, Inc. Mr. Moore holds a B.S. degree in General Science from Virginia Polytechnic Institute and State University. Mr. Moore is a business executive with significant expertise in general management, sales, technology and strategic planning in the telecommunications industry. Mr. Moore’s expertise contributes operational knowledge of important inputs to the Company’s businesses and provides valuable experience in areas of business administration. Mr. Moore also has significant experience, both as a senior executive and as a board member, in joint venture and mergers and acquisition transactions, which is experience that is valuable to the Board. Mr. Moore’s financial and accounting skills qualify him as an audit committee financial expert. Mr. Moore also serves on several other boards of directors, including service on the audit, compensation and corporate governance committees of certain of those boards, providing him with valuable board-level experience. In addition to the several years of business management experience mentioned above, Mr. Moore has international business experience from his time as President of Nortel Japan and as President of AT&T Canada. Louis A. Simpson has served as a director since May 2005. Mr. Simpson is Chairman of SQ Advisors, LLC, an investment firm. From May 1993 to December 2010, he served as President and Chief Executive Officer, Capital Operations, of GEICO Corporation, a passenger auto insurer. Mr. Simpson previously served as Vice Chairman of the Board of GEICO from 1985 to 1993. During the past five years, Mr. Simpson has held directorships at Science Applications International Corporation and Chesapeake Energy Corporation. Mr. Simpson holds a B.A. degree from Ohio Wesleyan University and an M.A. degree in Economics from Princeton University. Mr. Simpson is a business executive with significant expertise in insurance, finance and private investment. Mr. Simpson’s expertise contributes all around business acumen, skills in strategic planning and finance, along with knowledge important to mergers and acquisitions activity. Throughout his career, Mr. Simpson has served on the board of directors of more than fifteen publicly traded companies, providing him with extensive and valuable board-level experience. Mr. Simpson’s board-level experience also includes previous audit committee, finance committee, nominating and corporate governance committee and compensation committee experience on certain of those public-company boards. Mr. Simpson is a recognized expert in corporate governance matters, having lectured and presented numerous times on corporate governance topics at seminars and continuing education courses. As indicated above, Mr. Simpson’s career includes executive-level experience as a Chief Executive Officer, providing him with a perspective that the Board values. Timothy Tomlinson was a corporate lawyer employed as General Counsel of Portola Minerals Company, a producer and seller of limestone products, from May 2011 through December 2013. Mr. Tomlinson was employed as Of Counsel by the law firm Greenberg Traurig, LLP from May 2007 through May 2011. Mr. Tomlinson was the founder and a named partner of Tomlinson Zisko LLP and practiced with this Silicon Valley law firm from 1983 until its acquisition by Greenberg Traurig, LLP in May 2007. He served as managing partner of Tomlinson Zisko LLP for multiple terms. Mr. Tomlinson is a long-tenured member of the Board, having served from the Company’s founding in 1995 until 2002, and again since his reappointment in November 2007. Mr. Tomlinson holds a B.A. degree in Economics, a Ph.D. degree in History, an M.B.A. and a J.D. degree from Stanford University. Mr. Tomlinson has significant expertise in corporate matters including finance and mergers and acquisitions and has represented clients in the technology industry for more than thirty years. Mr. Tomlinson’s long-term service on our Board has provided him with valuable insight and institutional knowledge of the Company’s history and development. He has extensive experience in corporate governance, both as a lawyer advising clients, and through serving on our Audit, Compensation and Corporate Governance and Nominating Committees, as well as the audit, compensation, and governance committees of other public companies. 6 y x o r P n G s i i r E V 2015 Compensation of Directors This section provides information regarding the compensation policies for non-employee directors and amounts earned and securities awarded to these directors in fiscal 2014. Employee directors are not compensated for their services as a director. D. James Bidzos, a director, is the Company’s Executive Chairman, President and Chief Executive Officer. As an employee of the Company, Mr. Bidzos does not participate in the compensation program for non-employee directors, and he is compensated as an executive officer of the Company. Mr. Bidzos’ compensation is described in “Executive Compensation” elsewhere in this Proxy Statement. Non-Employee Director Retainer Fees and Equity Compensation Information On July 22, 2014, the Compensation Committee met to consider the cash and equity-based compensation to be paid to non- employee directors. The Compensation Committee reviewed competitive market data prepared by Frederic W. Cook & Co. (“FW Cook”), its independent compensation consultant, for the same comparator group used to benchmark executive compensation and certain available information for other boards and reviewed the board compensation practices of these companies. For information about the comparator group, see “Executive Compensation—Compensation Discussion and Analysis.” Following this review and consideration of the recommendations made by FW Cook, the Compensation Committee determined that it was in the best interests of Verisign and its stockholders to maintain the amount of the annual cash retainer fees at current levels and maintain the value of the annual equity award grant to each director at $240,000 (made solely in the form of restricted stock units (“RSUs”)). New directors are granted an equity award equal to the pro rata amount of such annual equity award, the amount of which is determined based on the date of such new director’s appointment or election to the Board. Directors are subject to the Company’s Stock Retention Policy as described in “Executive Compensation—Compensation Discussion and Analysis.” Directors also receive annual cash retainer fees, which in fiscal 2014 were as follows: Annual retainer for non-employee directors .......................................................................................................... $ Additional annual retainer for Non-Executive Chairman of the Board(1) ............................................................. $ Additional annual retainer for Lead Independent Director .................................................................................... $ Additional annual retainer for Audit Committee members .................................................................................... $ Additional annual retainer for Compensation Committee members ...................................................................... $ Additional annual retainer for Corporate Governance and Nominating Committee members .............................. $ Additional annual retainer for Audit Committee Chairperson ............................................................................... $ Additional annual retainer for Compensation Committee Chairperson ................................................................. $ Additional annual retainer for Corporate Governance and Nominating Committee Chairperson ......................... $ 40,000 100,000 25,000 25,000 20,000 10,000 15,000 10,000 5,000 (1) The position of “Non-Executive Chairman of the Board” was not held during 2014, and as such no annual retainer fees were paid during this period. Non-employee directors are reimbursed for their expenses in attending meetings. Non-Employee Director Compensation Table for Fiscal 2014 The following table sets forth a summary of compensation information for our non-employee directors for fiscal 2014. As an executive officer of the Company during fiscal 2014, Mr. Bidzos received no additional compensation for services provided as a director. Information regarding Mr. Bidzos’ compensation may be found under “Executive Compensation.” Ms. Gorelick is not included in the table below as she joined the Board on January 30, 2015. 7 V E r i i s G n P r o x y 2015 DIRECTOR COMPENSATION FOR FISCAL 2014 Non-Employee Director Name William L. Chenevich .......................................................................................................... Kathleen A. Cote(3) ............................................................................................................. Roger H. Moore ................................................................................................................... John D. Roach ...................................................................................................................... Louis A. Simpson ................................................................................................................ Timothy Tomlinson(4) ......................................................................................................... Fees Earned or Paid in Cash ($)(1) 115,000 80,000 75,000 85,000 80,000 70,000 Stock Awards ($)(2) 239,967 239,967 239,967 239,967 239,967 239,967 Total ($) 354,967 319,967 314,967 324,967 319,967 309,967 (1) (2) Amounts shown represent retainer fees earned by each director. Stock Awards consist solely of RSUs. Amounts shown represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for the applicable awards granted in fiscal 2014. The grant date fair value of each Stock Award granted to each non-employee director on July 22, 2014 was $ 239,967 (4,840 RSUs at $49.58 per share closing price on the grant date). (3) As of December 31, 2014, Ms. Cote held outstanding options to purchase 8,844 shares of the Company’s common stock. (4) As of December 31, 2014, Mr. Tomlinson held outstanding options to purchase 8,884 shares of the Company’s common stock. Stock options are granted at an exercise price not less than 100% of the fair market value of Verisign’s common stock on the date of grant and have a term of not greater than seven years from the date of grant. Directors are permitted to exercise vested stock options for up to three months following the termination of their Board service other than for death or disability and twelve months for death or disability. RSUs granted to non-employee directors in 2014 vested immediately upon grant. The Compensation Committee may authorize grants with different vesting schedules in the future. The vesting of equity awards for all non-employee directors accelerates as to 100% of any unvested equity awards upon certain changes-in-control as set forth in the Amended and Restated VeriSign, Inc. 2006 Equity Incentive Plan (the “2006 Plan”) and the 1998 Directors Stock Option Plan, as applicable. The Board Recommends a Vote “FOR” the Election of Each of the Nominated Directors. y x o r P n G s i i r E V 2015 8 CORPORATE GOVERNANCE Independence of Directors As required under The NASDAQ Stock Market’s listing standards, a majority of the members of our Board must qualify as “independent,” as determined by the Board. The Board consults with our legal counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of The NASDAQ Stock Market. Consistent with these considerations, after review of all relevant transactions and relationships between each director, or any of his or her family members, and Verisign, our executive officers or our independent registered public accounting firm, the Board affirmatively determined on February 11, 2015 that the majority of our Board is comprised of independent directors. Our independent directors are: Mr. Chenevich, Ms. Cote, Ms. Gorelick, Mr. Moore, Mr. Roach (who will not stand for re-election), Mr. Simpson, and Mr. Tomlinson. Each director who serves on the Audit Committee, the Compensation Committee or the Corporate Governance and Nominating Committee is an independent director. Mr. Bidzos serves as Executive Chairman, President and Chief Executive Officer. Board Leadership Structure The Board regularly considers the appropriate leadership structure for the Company and has concluded that the Company and its stockholders are best served by not having a formal policy on whether the same individual should serve as both Chief Executive Officer and Chairman of the Board. This flexibility allows the Board to utilize its considerable experience and knowledge to elect the most appropriate director as Chairman, while maintaining the ability to separate the Chairman of the Board and Chief Executive Officer roles when necessary. This determination is made according to what the Board believes is best to provide appropriate leadership for the Company at such time. Currently, the Company’s eight-member Board is led by Chairman D. James Bidzos. Mr. Bidzos is also an officer of the Company, serving as its Executive Chairman, President and Chief Executive Officer. The Board has appointed William L. Chenevich as Lead Independent Director. The Lead Independent Director presides at all meetings of the Board at which the Chairman of the Board is not present. Seven of the eight directors are independent. Mr. Roach will not stand for re-election at the Meeting. The Board has determined that its current leadership represents an appropriate structure for the Company. In particular, this structure capitalizes on the expertise and experience of Messrs. Bidzos and Chenevich due to their long-tenured service to the Board. The structure permits Mr. Bidzos to engage in the operations of the Company in a more in-depth way as Executive Chairman, President and Chief Executive Officer. Lastly, the structure ensures Board independence from management by permitting the Lead Independent Director to call and chair meetings of the independent directors separate and apart from the Chairman of the Board. Mr. Bidzos was a founder of the Company and its initial Chief Executive Officer, and he has been either Chairman or Vice Chairman of the Company’s Board of Directors since the Company’s founding in 1995. Mr. Bidzos’s current tenure as Chairman of the Board dates to August 2007. Mr. Bidzos was appointed Executive Chairman, President and Chief Executive Officer of Verisign on an interim basis on June 30, 2008. On January 14, 2009, Mr. Bidzos resigned as President on an interim basis, and on August 17, 2009, Mr. Bidzos resigned as Executive Chairman and Chief Executive Officer on an interim basis and was appointed Executive Chairman of Verisign. On August 1, 2011, Mr. Bidzos was appointed President and Chief Executive Officer. Mr. Chenevich has also been a member of the Board since the Company’s founding in 1995 and has been the Lead Independent Director since February 2009. V E r i i s G n P r o x y Board Role in Risk Oversight The Board’s role in the Company’s risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the Company, including operational, financial, legal and regulatory, and strategic and reputational risks. The full Board (or the appropriate committee in the case of risks that are under the purview of a particular committee) receives these reports from the appropriate member of senior management responsible for mitigating these risks within the organization to enable it to understand our risk identification, risk management and risk mitigation strategies. When a committee receives a report on risks under its purview, the Chairperson of the relevant committee reports on the discussion to the full Board during the committee reports portion of the next Board meeting. This enables the Board and its committees to coordinate the risk 9 2015 oversight role, particularly with respect to risk interrelationships. All of our Board members have experience with enterprise risk management. In addition, the Board discusses cyber risks regularly during its regularly scheduled board meetings. Board and Committee Meetings The Board met six times and its committees collectively met fifteen times during 2014. During 2014, no director attended fewer than 75% of the aggregate of (i) the total number of meetings held by the Board and (ii) the total number of meetings held by all committees on which he or she served. As the Lead Independent Director, Mr. Chenevich may schedule and conduct separate meetings of the independent directors and perform other similar duties. Board Members’ Attendance at the Annual Meeting Although we do not have a formal policy regarding attendance by members of the Board at our annual meeting of stockholders, we encourage directors to attend. One member of the Board attended our 2014 Annual Meeting of Stockholders. Corporate Governance and Nominating Committee The Board has established a Corporate Governance and Nominating Committee to recruit, evaluate, and nominate candidates for appointment or election to serve as members of the Board, recommend nominees for committees of the Board, recommend corporate governance principles and periodically review and assess the adequacy of these principles, and review annually the performance of the Board. The Corporate Governance and Nominating Committee is currently composed of Ms. Cote (Chairperson), Mr. Chenevich, Ms. Gorelick, Mr. Moore, Mr. Simpson and Mr. Tomlinson, each of whom has been determined by the Board to be an “independent director” under the rules of The NASDAQ Stock Market. The Corporate Governance and Nominating Committee operates pursuant to a written charter. The Corporate Governance and Nominating Committee’s charter is located on our website at https://investor.verisign.com/documents.cfm. The Corporate Governance and Nominating Committee met five times during fiscal 2014. In nominating candidates for election to the Board, the Corporate Governance and Nominating Committee considers the performance and qualifications of each potential nominee or candidate, not only for his or her individual strengths but also for his or her potential contribution to the Board as a group. While it has no express policy, in carrying out this responsibility the Corporate Governance and Nominating Committee also considers additional factors, such as diversity of business administration specialty, expertise within industries and markets tangential or complementary to the Company’s industry, and business contacts among the various market segments relevant to the Company’s sales, human resource and development strategies. Additionally, pursuant to its charter, the Corporate Governance and Nominating Committee evaluates and reviews with the Board the criteria for selecting new directors, including skills and characteristics, in the context of the current composition of the Board and its committees. The Corporate Governance and Nominating Committee considers candidates for director nominees proposed by directors and stockholders. The Corporate Governance and Nominating Committee may also from time to time retain one or more third-party search firms to identify suitable candidates. The Corporate Governance and Nominating Committee will consider all candidates identified by the directors, chief executive officer, stockholders, or third-party search firms through the processes described above, and will evaluate each of them, including incumbents and candidates nominated by stockholders, based on the same criteria. If you would like the Corporate Governance and Nominating Committee to consider a prospective candidate, in accordance with our Bylaws, please submit the candidate’s name and qualifications to: Thomas C. Indelicarto, Secretary, VeriSign, Inc., 12061 Bluemont Way, Reston, Virginia 20190. Audit Committee The Board has established an Audit Committee that oversees the accounting and financial reporting processes at the Company, internal control over financial reporting, audits of the Company’s financial statements, the qualifications of the Company’s 10 y x o r P n G s i i r E V 2015 independent registered public accounting firm, and the performance of the Company’s internal audit department and the independent registered public accounting firm. The independent registered public accounting firm reports directly to the Audit Committee, and the Audit Committee is responsible for the appointment (subject to stockholder ratification), compensation and retention of the independent registered public accounting firm. The Audit Committee also oversees the Company’s processes to manage business and financial risk, and compliance with significant applicable legal and regulatory requirements, and oversees the Company’s ethics and compliance programs. The Audit Committee is currently composed of Mr. Chenevich (Chairperson), Ms. Cote, Mr. Moore and Mr. Roach. Mr. Roach will not stand for re-election at the Meeting. Each member of the Audit Committee meets the independence criteria of The NASDAQ Stock Market and the SEC. Each Audit Committee member meets The NASDAQ Stock Market’s financial knowledge requirements, and the Board has determined that the Audit Committee has at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities as required by Rule 5605(c)(2) of The NASDAQ Stock Market. The Audit Committee operates pursuant to a written charter, which complies with the applicable provisions of the Sarbanes- Oxley Act of 2002 and related rules of the SEC and The NASDAQ Stock Market. The Audit Committee’s charter is located on our website at https://investor.verisign.com/documents.cfm. The Audit Committee met five times during fiscal 2014. Audit Committee Financial Expert Our Board has determined that William L. Chenevich, Kathleen A. Cote, Roger H. Moore and John D. Roach are “audit committee financial experts” as such term is defined in Item 407(d)(5) of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Mr. Chenevich, Ms. Cote, Mr. Moore and Mr. Roach meet the independence requirements for audit committee members as defined in the applicable listing standards of The NASDAQ Stock Market. V E r i i s G n P r o x y 2015 11 Report of the Audit Committee The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the Securities and Exchange Commission (“SEC”) or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) except to the extent that Verisign specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act. The Audit Committee is composed of four directors who meet the independence and experience requirements of The NASDAQ Stock Market Rules. The Audit Committee operates under a written charter adopted by the board of directors (the “Board”) of VeriSign, Inc. (“Verisign”). The members of the Audit Committee are Messrs. Chenevich (Chairperson), Moore and Roach, and Ms. Cote. The Audit Committee met five times during fiscal 2014. Management is responsible for the preparation, presentation and integrity of Verisign’s financial statements, accounting and financial reporting principles and internal controls and processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting standards and applicable laws and regulations (the “Internal Controls”). The independent registered public accounting firm, KPMG LLP (“KPMG”), is responsible for performing an independent audit of Verisign’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (United States) and for issuing reports thereon. The Audit Committee is responsible for oversight of Verisign’s financial, accounting and reporting processes and its compliance with legal and regulatory requirements. The Audit Committee is also responsible for the appointment, compensation and oversight of Verisign’s independent registered public accounting firm, including (i) evaluating the independent registered public accounting firm’s qualifications and performance, (ii) reviewing and confirming the independent registered public accounting firm’s independence, (iii) reviewing and approving the planned scope of the annual audit, (iv) overseeing the audit work of the independent registered public accounting firm, (v) reviewing and pre-approving any non-audit services that may be performed by the independent registered public accounting firm, (vi) reviewing with management and the independent registered public accounting firm the adequacy of Verisign’s Internal Controls, and (vii) reviewing Verisign’s critical accounting policies, the application of accounting principles and conduct of the audit, including the oversight of the resolution of any issues identified by the independent registered public accounting firm. We have adopted a policy regarding rotation of the audit partners (as defined under SEC rules) responsible for the audit of Verisign’s financial statements. The independent registered public accounting firm shall not provide audit services to Verisign if the lead or coordinating audit partner (having primary responsibility for the audit) or the audit partner responsible for reviewing the audit has performed audit services for Verisign in each of the five previous fiscal years. During fiscal 2014, the Audit Committee met privately with KPMG to discuss the results of the audit, evaluations by the independent registered public accounting firm of Verisign’s Internal Controls and quality of Verisign’s financial reporting. The Audit Committee has reviewed and discussed the audited consolidated financial statements contained in Verisign’s Annual Report on Form 10-K for the year ended December 31, 2014 with management. This review included a discussion of the accounting principles, reasonableness of significant judgments, and clarity of disclosures in the consolidated financial statements. Management represented to the Audit Committee that Verisign’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and the Audit Committee has reviewed and discussed the consolidated financial statements with management and KPMG. The Audit Committee has discussed with KPMG the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 16, Communications with Audit Committees. In addition, the Audit Committee has received from KPMG the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the firm’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed the firm’s independence with the firm. 12 y x o r P n G s i i r E V 2015 Based upon the review and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in Verisign’s Annual Report on Form 10-K for the year ended December 31, 2014, for filing with the SEC. This report is submitted by the Audit Committee William L. Chenevich (Chairperson) Roger H. Moore Kathleen A. Cote John D. Roach V E r i i s G n P r o x y 2015 13 Compensation Committee The Board has established a Compensation Committee to discharge the Board’s responsibilities with respect to all forms of compensation of the Company’s directors and executive officers, to administer the Company’s equity incentive plans, and to produce an annual report on executive compensation for use in the Company’s proxy statement. The Compensation Committee is also responsible for approving and evaluating executive officer compensation arrangements, plans, policies and programs of the Company. The Compensation Committee operates pursuant to a written charter. The Compensation Committee’s charter is located on our website at https://investor.verisign.com/documents.cfm. The Compensation Committee is currently composed of Mr. Simpson (Chairperson), Ms. Gorelick, Mr. Roach (who will not stand for re-election at the Meeting) and Mr. Tomlinson, each of whom is an “independent director” under the rules of The NASDAQ Stock Market for compensation committee members, a “non-employee director” pursuant to Rule 16b-3 promulgated under Section 16 of the Exchange Act and an “outside director” pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Compensation Committee met five times during fiscal 2014. For further information regarding the role of compensation consultants and management in setting executive compensation, see “Executive Compensation—Compensation Discussion and Analysis.” Communicating with the Board Any stockholder who desires to contact the Board may do so electronically by sending an e-mail to the following address: bod@verisign.com. Alternatively, a stockholder may contact the Board by writing to: Board of Directors, VeriSign, Inc., 12061 Bluemont Way, Reston, Virginia 20190, Attention: Secretary. Communications received electronically or in writing are distributed to the Chairman of the Board or other members of the Board, as appropriate, depending on the facts and circumstances outlined in the communication received. Code of Ethics We have adopted a code of ethics that applies to our principal executive officer, principal financial officer and other senior accounting officers. This code of ethics, titled “Code of Ethics for the Chief Executive Officer and Senior Financial Officers,” is posted on our website along with the “Verisign Code of Conduct” that applies to all officers and employees, including the aforementioned officers. The Internet address for our website is www.verisigninc.com, and the “Code of Ethics for the Chief Executive Officer and Senior Financial Officers” may be found from our main Web page by clicking first on “Investors,” next on “Corporate Governance,” next on “Ethics and Business Conduct,” and finally on “Code of Ethics for the Chief Executive Officer and Senior Financial Officers.” The “Verisign Code of Conduct” applicable to all officers and employees can similarly be found on the Web page for “Ethics and Business Conduct” under the link entitled “Verisign Code of Conduct—2012.” We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of the “Code of Ethics for the Chief Executive Officer and Senior Financial Officers” or, to the extent also applicable to the principal executive officer, principal financial officer, or other senior accounting officers, the “Verisign Code of Conduct—2012” by posting such information on our website, on the Web page found by clicking through to “Ethics and Business Conduct” as specified above. 14 y x o r P n G s i i r E V 2015 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership of our common stock as of February 27, 2015, except as otherwise indicated, by: • each current stockholder who is known to own beneficially more than 5% of our common stock; • each current director; • each of the Named Executive Officers (see “Executive Compensation—Summary Compensation Table” elsewhere in this Proxy Statement); and • all current directors and executive officers as a group. The percentage ownership is based on 116,961,008 shares of common stock outstanding at February 27, 2015. Shares of common stock that are (i) covered by RSUs vesting or (ii) subject to options currently exercisable or becoming exercisable, each within 60 days of February 27, 2015, are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options but are not deemed outstanding for computing the percentage ownership of any other person. Unless otherwise indicated in the footnotes following the table, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. V E r i i s G n P r o x y 2015 15 BENEFICIAL OWNERSHIP TABLE Name and Address of Beneficial Owner Greater Than 5% Stockholders Capital World Investors(2) 333 South Hope Street Los Angeles, CA 90071 .................................................................................................. Warren Buffett(3) Berkshire Hathaway, Inc. 3555 Farnam Street Omaha, NE 68131 .......................................................................................................... T. Rowe Price Associates, Inc.(4) 100 E. Pratt Street Baltimore, MD 21202 ..................................................................................................... The Vanguard Group(5) 100 Vanguard Boulevard Malvern, PA 19355 ........................................................................................................ Capital International Investors(6) 333 South Hope Street Los Angeles, CA 90071 .................................................................................................. BlackRock, Inc. (7) 55 East 52nd Street New York, NY 10022 ...................................................................................................... Directors and Named Executive Officers Shares Beneficially Owned Number(1) Percent(1) 16,027,044 13.70 % 12,985,000 11.10 % 11,865,953 10.14 % 8,839,869 7.56 % 8,344,063 7.13 % 6,374,035 5.45 % D. James Bidzos .............................................................................................................. William L. Chenevich ..................................................................................................... Kathleen A. Cote(8) ......................................................................................................... Jamie S. Gorelick ............................................................................................................ Roger H. Moore ............................................................................................................... John D. Roach ................................................................................................................. Louis A. Simpson(9)........................................................................................................ Timothy Tomlinson(10) ................................................................................................... George E. Kilguss ............................................................................................................ Thomas C. Indelicarto ..................................................................................................... Patrick S. Kane(11) ......................................................................................................... Richard H. Goshorn ......................................................................................................... All current directors and executive officers as a group (10 persons)(12) ........................ 466,575 26,347 35,645 2,075 26,304 4,853 203,974 14,140 43,375 5,635 65,359 15,305 909,587 * * * * * * * * * * * * * * (1) (2) (3) (4) Less than 1% of Verisign’s outstanding common stock. The percentages are calculated using 116,961,008 outstanding shares of the Company’s common stock on February 27, 2015 as adjusted pursuant to Rule 13d-3(d)(1)(i). Pursuant to Rule 13d-3(d)(1) of the Exchange Act, beneficial ownership information for each person also includes shares subject to options exercisable, or RSUs vesting, within 60 days of February 27, 2015, as applicable. Based on Schedule 13G filed on February 13, 2015 with the SEC by Capital World Investors, with respect to beneficial ownership of 16,027,044 shares. Capital World Investors has sole voting power over 16,027,044 of these shares and sole dispositive power over 16,027,044 of these shares. Based on Schedule 13G filed on August 4, 2014 with the SEC by Berkshire Hathaway, Inc., with respect to beneficial ownership of 12,985,000 shares. Berkshire Hathaway, Inc., is a diversified holding company which Mr. Buffett may be deemed to control. Mr. Buffett and Berkshire Hathaway share voting and dispositive power over 12,985,000 of these shares, which include shares beneficially owned by certain subsidiaries of Berkshire Hathaway. Based on Schedule 13G filed on February 11, 2015 with the SEC by T. Rowe Price Associates, Inc. with respect to beneficial ownership of 11,865,953 shares. T. Rowe Price Associates, Inc. has sole voting power over 3,133,953 of these shares and sole dispositive power over 11,865,953 of these shares. 16 y x o r P n G s i i r E V 2015 (5) (6) (7) (8) (9) (10) (11) (12) Based on Schedule 13G filed on February 11, 2015 with the SEC by The Vanguard Group with respect to beneficial ownership of 8,839,869 shares. The Vanguard Group has sole voting power over 195,765 of these shares, sole dispositive power over 8,653,636 of these shares and shared dispositive power over 186,233 of these shares. Based on Schedule 13G filed on February 13, 2015 with the SEC by Capital International Investors with respect to beneficial ownership of 8,344,063 shares. Capital International Investors has sole voting power over 7,299,183 of these shares and sole dispositive power over 8,344,063 of these shares. Based on Schedule 13G filed on February 9, 2015 with the SEC by BlackRock, Inc. with respect to beneficial ownership of 6,374,035 shares. BlackRock has sole voting power over 5,366,464 of these shares and sole dispositive power over 6,374,035 of these shares. Includes 8,884 shares subject to options held directly by Ms. Cote which Ms. Cote subsequently exercised and held on March 3, 2015. Includes 199,134 shares held by a grantor retained annuity trust, under which Mr. Simpson is the trustee. Includes 14,140 shares held indirectly by the Tomlinson Family Trust, under which Mr. Tomlinson and his spouse are co-trustees. Includes 7,374 shares subject to options held directly by Mr. Kane. Includes the shares described in footnotes (8)-(11). Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our directors and officers, and persons who own more than 10% of Verisign’s common stock to file initial reports of ownership and reports of changes in ownership with the SEC and The NASDAQ Stock Market. These persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. We file Section 16(a) reports on behalf of our directors and executive officers to report their initial and subsequent changes in beneficial ownership of our common stock. Based solely on a review of the reports we filed on behalf of our directors and executive officers, or written representations from reporting persons that all reportable transactions were reported, the Company believes that all Section 16(a) filing requirements applicable to our directors and executive officers were complied with for fiscal 2014, except one report was filed late by the Company on behalf of George E. Kilguss, III covering one transaction. V E r i i s G n P r o x y 2015 17 PROPOSAL NO. 2 TO APPROVE VERISIGN, INC. ANNUAL INCENTIVE COMPENSATION PLAN Summary of the VeriSign, Inc. Annual Incentive Compensation Plan At the Annual Meeting of Stockholders, we will ask the stockholders to approve the VeriSign, Inc. Annual Incentive Compensation Plan (the “Plan”), which will replace the Company’s current Annual Incentive Compensation Plan which was approved by stockholders on May 27, 2010 and will expire on December 31, 2015. The purpose of the Plan is to advance the interests of the Company and its stockholders and assist the Company in attracting and retaining executive officers by providing incentives and financial rewards to such executive officers. The Plan also provides the Company with the opportunity, although not the obligation, to make awards intended to be deductible as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). If approved by stockholders, the Plan will become effective as of the date of approval by the holders of the then outstanding securities of the Company entitled to vote generally in the election of directors. The material terms of the Plan are summarized below. This summary is qualified by reference to the full text of the Plan, which is included as Appendix A to this Proxy Statement. Administration; Amendment and Termination. The Plan is administered by the Compensation Committee of the Board of Directors of the Company, or any subcommittee of the Compensation Committee formed by the Compensation Committee to act on its behalf under the Plan (the Compensation Committee or any such subcommittee, for the purposes of this section, the “Committee”). The Committee has broad authority to administer and interpret the Plan and its provisions as it deems necessary and appropriate. The Committee will be composed solely of two or more “outside directors” within the meaning of Section 162(m) of the Code. The Board of Directors or the Committee may amend or terminate the Plan at any time. Amendments to the Plan will require stockholder approval to the extent required to comply with applicable law or stock exchange requirements. Eligibility. Executive officers of the Company who are selected by the Committee to participate in the Plan are eligible to receive awards under the Plan. Currently, there are three executive officers of the Company who have been selected by the Committee to participate in the Plan. Performance Criteria. The Committee will establish specific performance targets applicable to awards granted under the Plan, determine the period over which such performance will be measured and establish an objective formula for calculating the bonus payable to each participant pursuant to his or her award. The Committee will take these actions within 90 days of the beginning of the Company’s fiscal year (or, if earlier, by the expiration of 25% of the applicable performance period). The performance targets may be based on one or more of the following performance criteria: net sales; revenue; revenue growth or product revenue growth; operating income (before or after taxes); pre- or after-tax income or loss (before or after allocation of corporate overhead and bonus); earnings or loss per share; net income or loss (before or after taxes); return on equity; total stockholder return; cash flow or cash flow per share; return on assets or net assets; appreciation in and/or maintenance of the price of shares of the Company’s common stock or any other publicly-traded securities of the Company; market share; gross profits; earnings or losses (including earnings or losses before taxes, before interest and taxes, or before interest, taxes, depreciation and amortization); economic value-added models or equivalent metrics; comparisons with various stock market indices; reductions in costs; cash flow or cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return on investment; improvement in or attainment of expense levels or working capital levels, including cash, inventory and accounts receivable; operating margin; gross margin; year-end cash; cash margin; debt reduction; stockholders equity; operating efficiencies; market share; customer satisfaction; customer growth; employee satisfaction; regulatory achievements (including submitting or filing applications or other documents with regulatory authorities or receiving approval of any such applications or other documents and passing pre-approval inspections (whether of the Company or the Company’s third-party manufacturer) and validation of manufacturing processes (whether the Company’s or the Company’s third-party manufacturer’s)); strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property; establishing relationships with commercial entities with respect to the marketing, distribution and sale of the Company’s products (including with group purchasing organizations, distributors and other vendors); supply chain achievements (including establishing relationships with manufacturers or suppliers of component materials and manufacturers of the Company’s products); co-development, co-marketing, profit sharing, joint venture or other similar arrangements); financial ratios, including those measuring liquidity, activity, profitability or leverage; cost of capital or assets under management; financing and other capital raising transactions (including sales of the Company’s equity or debt securities; factoring 18 y x o r P n G s i i r E V 2015 transactions; sales or licenses of the Company’s assets, including its intellectual property, whether in a particular jurisdiction or territory or globally; or through partnering transactions); implementation, completion or attainment of measurable objectives with respect to research, development, manufacturing, commercialization, products or projects, production volume levels, acquisitions and divestitures; factoring transactions; or recruiting and maintaining personnel. The Committee may also specify any exclusion(s) or inclusion(s) for charges related to any event(s) or occurrence(s) which the Committee determines should appropriately be excluded or included, as applicable, for purposes of measuring performance against the applicable performance targets, which may include (a) restructurings, reorganizations, discontinued operations, non-core businesses in continuing operations, acquisitions, dispositions, or any extraordinary nonrecurring, unusual or infrequently occurring items as described in ASC Subtopic 225-20 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s Annual Report on Form 10-K for the applicable year, (b) the cumulative effects of tax or accounting changes, each in accordance with generally accepted accounting principles, (c) foreign exchange gains or losses, (d) stock-based compensation, (e) amortization of intangible assets, impairments of goodwill and other intangible assets, asset write downs, or non- cash interest expense or (f) litigation or claim judgments or settlements. In addition, if the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances, render previously established performance goals unsuitable, the Committee may in its discretion modify such performance goals or the related levels of achievement, in whole or in part, as the Committee deems appropriate and equitable; provided that, unless the Committee determines otherwise, no such action shall be taken if and to the extent it would result in the loss of an otherwise available exemption of the award under Section 162(m) of the Code. The Committee may not waive the achievement of the applicable performance goals except in the case of the death or disability of the Participant, a change in control of the Company, or as otherwise determined by the Committee in special circumstances, in each case in accordance with the exception for performance-based compensation set forth in Section 162(m) of the Code. Maximum Award; Payment of Awards. The maximum dollar value of an award payable to any participant in any 12-month period is $5,000,000. The amount of the award actually paid to a participant may, in the sole discretion of the Committee, be reduced to less than the amount otherwise payable to the participant based on attainment of the performance goals for the performance period (including that any such amount may be reduced to zero). Each award under the Plan will be paid in cash or, to the extent provided in such stock plan, in share awards under a stockholder-approved stock plan of the Company. If permitted by the Committee, receipt of payment pursuant to awards under the Plan may be deferred under certain circumstances in accordance with a deferred compensation plan that complies with Section 409A of the Code. Incentive Compensation Recovery. Notwithstanding any other provision of the Plan, all awards made pursuant to the Plan may be recovered by the Committee, in whole or in part, if such recovery is required by applicable law or regulations, including rules and regulations promulgated by the Securities and Exchange Commission and the NASDAQ Stock Market or any policy adopted by the Company. Termination of Employment. Payment to each Participant shall be subject to the Participant’s continuous employment with the Company or an affiliate through the applicable payment date. If a Participant does not remain continuously employed with the Company or an affiliate through the applicable payment date for an award, the participant will forfeit his or her right to any payment pursuant to such award; provided that, except where the participant was terminated for cause (as determined by the Committee in its sole discretion), the Committee, in its sole discretion, may determine to pay such participant all or any portion of such award, subject to such terms and conditions as the Committee may establish and, unless the Committee determines otherwise, subject to compliance with the exception for performance-based compensation set forth in Section 162(m) of the Code. Federal Income Tax Consequences. The following is a summary of certain federal income tax consequences of awards made under the Plan, based upon the laws in effect on the date hereof. The discussion is general in nature and does not take into account a number of considerations which may apply in light of the circumstances of a particular participant under the Plan. The income tax consequences under applicable state and local tax laws may not be the same as under federal income tax laws. 19 V E r i i s G n P r o x y 2015 If an award under the Plan is paid in cash or its equivalent, a participant will recognize compensation taxable as ordinary income (and subject to income tax withholding) at the time the award is paid in an amount equal to the cash or the fair market value of its equivalent, and the Company will be entitled to a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Code apply. Section 162(m) of the Code limits the deductibility of certain compensation of the Chief Executive Officer and the next three most highly compensated officers of publicly-held corporations (other than the Chief Financial Officer). Compensation paid to such an officer during a year in excess of $1,000,000 that is not performance-based (and does not comply with another exception from Section 162(m)) would not be deductible on the Company’s federal income tax return for that year. It is the intention of the Company, although not its obligation, that compensation attributable to awards payable under the Plan qualify as performance-based compensation under Section 162(m) of the Code. Plan Benefits. The amounts of awards for fiscal year 2015 and any subsequent years will be determined based upon the performance criteria and any maximum bonus amounts below the $5,000,000 cap that may be established by the Committee from time to time for such year. As a result, it is not possible to determine the amounts of awards for fiscal year 2015 or subsequent years at this time. See the Summary Compensation Table elsewhere in this Proxy Statement for the incentive awards the Committee actually determined to pay our Named Executive Officers for the 2014 fiscal year. Approval. Under Delaware law, Section 162(m) of the Code and the charter and Bylaws of the Company, the Plan, including the material terms of the performance goals set forth therein, is approved by stockholders if a majority of the shares of common stock present or represented by proxy and entitled to vote on the subject matter vote in favor of the approval of this Proposal No. 2. The Board Recommends a Vote “FOR” the Approval of the Annual Incentive Compensation Plan. y x o r P n G s i i r E V 2015 20 PROPOSAL NO. 3 TO APPROVE, ON A NON-BINDING ADVISORY BASIS, VERISIGN’S EXECUTIVE COMPENSATION Under Schedule 14A of the Exchange Act and the corresponding SEC rules, Verisign is seeking an advisory stockholder vote with respect to compensation awarded to our Named Executive Officers for 2014 as disclosed in the Compensation Discussion and Analysis section and accompanying compensation tables contained in this Proxy Statement. The stockholder vote on executive compensation is advisory only, and the result of the vote is not binding upon the Company or its Board. Although the resolution is non-binding, the Board and the Compensation Committee will consider the outcome of the advisory vote on executive compensation when making future compensation decisions. On May 26, 2011, the majority of the Company’s stockholders voted in favor of an annual non-binding stockholder advisory vote on executive compensation and, in consideration of the outcome of the frequency vote, the Board determined to hold such advisory vote each year. Following the Meeting, the next such non-binding advisory vote to approve Verisign’s executive compensation is scheduled to occur at the 2016 Annual Meeting of Stockholders. Verisign’s executive compensation program and compensation paid to the Named Executive Officers are described elsewhere in this Proxy Statement. The Compensation Committee oversees the program and compensation awarded, adopting changes to the program and awarding compensation as appropriate to reflect the Company’s circumstances and to promote the main objectives of the program: to provide competitive overall pay relative to peers, taking into account company and individual performance, to effectively tie pay to performance, and to align the Named Executive Officers’ interests with stockholders. This proposal allows our stockholders to express their opinions regarding the decisions of the Compensation Committee on the prior fiscal year’s annual compensation to the Named Executive Officers. You may vote for or against the following resolution, or you may abstain. This vote is advisory and non-binding. Resolved, that the stockholders approve the compensation of VeriSign, Inc.’s Named Executive Officers, as disclosed under Securities and Exchange Commission rules, including the Compensation Discussion and Analysis section, the compensation tables and related material included in this Proxy Statement. The Board Recommends a Vote “FOR” the foregoing resolution. V E r i i s G n P r o x y 2015 21 EXECUTIVE COMPENSATION Compensation Discussion and Analysis This Compensation Discussion and Analysis (“CD&A”) provides comprehensive information about our executive compensation program for our fiscal 2014 Named Executive Officers (“NEOs”), who are listed below, and provides context for the decisions underlying the compensation reported in the executive compensation tables in the Proxy Statement. Our NEOs are: • D. James Bidzos, Executive Chairman, President and Chief Executive Officer (throughout the CD&A the person occupying the position of President and Chief Executive Officer will be referred to from time to time as the “CEO”); • George E. Kilguss, III, Senior Vice President and Chief Financial Officer (“CFO”); • Thomas C. Indelicarto, Senior Vice President, General Counsel and Secretary (Mr. Indelicarto was appointed Senior Vice President, General Counsel and Secretary effective November 14, 2014); • Patrick S. Kane, Senior Vice President, Naming Services (Due to a change in Mr. Kane’s role and responsibilities with the Company, on February 19, 2014, the Board determined that Mr. Kane was no longer an executive officer and Section 16 Officer but he continues to serve the Company as a senior officer); and • Richard H. Goshorn, Former Senior Vice President, General Counsel and Secretary (Mr. Goshorn resigned from the Company effective November 14, 2014). In the sections below, we will describe the material elements of our executive compensation program for 2014, including how we set compensation, tied pay to performance, and our executive compensation governance practices. Our executive compensation program encompassed our NEOs and other senior vice presidents. We refer to our NEOs and other senior vice presidents, who are not NEOs, collectively as our “senior officers.” Executive Summary In fiscal 2014, we continued to meet our long-term objective of profitable growth while maintaining and protecting the critical Internet infrastructure we operate. From a financial perspective, we generated 5% revenue growth and a record $564 million of operating income. During 2014, we processed 34 million new domain name registrations for .com and .net, the same as 2013. We repurchased 16.3 million shares of our common stock for an aggregate cost of $867.1 million in 2014. We also continued our focus on our customers by delivering another year of .com and .net continuous resolution system availability, and continued our focus on our shareholders by returning excess capital through share repurchases. 2014 Company Performance Highlights: The table below illustrates the results of our core operations in 2014: Key Financial Measure Revenues ........................................................................................ Operating income ........................................................................... Net cash provided by operating activities ...................................... Result 1,010.1 million 564.4 million 600.9 million $ $ $ 2014 vs. 2013 Performance 5% increase 7% increase 4% increase 22 y x o r P n G s i i r E V 2015 2014 Executive Compensation Program Highlights: In 2014, our focus remained on the alignment of pay and performance. The following table provides highlights of our 2014 compensation program and changes we made in 2014: Item Action or Change Rationale Annual base salary increases No annual salary increases were provided in 2014 to our NEOs, except in the case of Mr. Indelicarto who received a base salary increase upon promotion to Senior Vice President, General Counsel and Secretary. Salaries were appropriately aligned with the market. Annual incentive bonus Funded bonus pool at 118.0% of target. Long-term incentive compensation Granted equity awards comprised of 50% time-vesting Restricted Stock Units (“RSUs”) and 50% performance-based RSUs. The pre-established formula for determining the size of the bonus pool yielded funding equal to 118.0% of target based on achievement levels of our key financial metrics of revenue and non-GAAP operating margin. To provide immediate retentive value, tie long-term incentive compensation to Company performance, and create strong alignment with driving stockholder value. Stock retention policy No changes to ownership guidelines for CEO and SVP level: • 6x base salary for CEO; • 2x base salary for SVP level and above. To ensure alignment of our Directors, CEO’s and Senior Vice Presidents’ interests with interests of stockholders. Peer group The retainer ratio for Directors was increased from 3x to 5x. These guidelines remain in place until six months after separation of service from the company. Conducted annual review of companies to be included in our peer group. Methodology remained consistent with previous year in which we included companies in the Software & Services Industry Group of the Global Industry Classification that are within 1/3 to 3x our annual revenue and market capitalization. The retainer ratio for Directors was increased to more closely align with market practice. To ensure our peer group reflects competitive market for talent and companies similar to us in industry, size and complexity. Results of Shareholder Advisory Votes on Executive Compensation: When the Compensation Committee of our Board of Directors (the “Compensation Committee” or “Committee”) set compensation amounts for 2015, it took into account the results of the stockholder advisory vote on executive compensation that took place in May 2014. Although the vote was advisory and not binding, our stockholders indicated strong approval and support of our executive compensation program for our NEOs as disclosed in the 2014 Proxy Statement (113,049,342 votes were in favor, 106,664 abstained and 2,353,506 voted against, with 7,375,382 broker non-votes). Approximately 86% of votes (number of shares entitled to vote as of the record date was 132,063,920) were in favor of our NEO 23 V E r i i s G n P r o x y 2015 compensation program. We believe this strong support indicates that the pay-for-performance emphasis in our executive compensation program is appropriately aligned with the interests of our stockholders. Compensation Philosophy and Objectives Verisign’s reputation as an industry leader in the secure and reliable operation of critical Internet infrastructure is built on the executive talent we are able to attract and retain. Our executive compensation program is designed to ensure we have the talent we need to maintain our current high performance standards and grow our business for the future. Our philosophy is to provide a mix of compensation that motivates our executives to achieve our short and long-term performance goals, which in turn will create value for our stockholders. Our executive compensation program is designed with the following objectives in mind: Objective Program Design Element Attract and retain talented executives • Provide a competitive level of total direct compensation (base salary, bonus and long-term incentive). • Provide a portion of executive compensation in the form of time-vesting RSUs that have retentive value as they vest over a multi-year period. Tie a significant portion of executives’ compensation to achievement of the Company’s performance objectives • Program is weighted in favor of annual and long-term incentives and includes performance-based RSUs. Performance objectives are tied to stockholder value creation and other financial and strategic goals. Align the interests of our executives with our stockholders • Under the annual incentive program, awards based on Company performance may be modified up or down based on individual performance to closely align executives’ personal accomplishments with their compensation. • Provide annual equity grants that vest over a multi-year period and are comprised of 50% time-vesting RSUs and 50% performance-based RSUs. • Require executives to meet stock ownership guidelines and retain their required ownership until six months after termination of employment. Pay and Performance Relationship: Attracting and retaining the level of executive talent we need to be successful is a key objective of our executive compensation program. However, it is equally important that our executives are motivated and rewarded to achieve objectives that provide long-term benefits to our stockholders. We have designed our executive compensation program so that a significant amount of our NEOs’ compensation is performance-based to ensure the actual compensation paid to our executives is appropriately aligned with our Company’s performance and stockholders’ long-term interests. The charts below illustrate our emphasis on performance-based compensation. 24 y x o r P n G s i i r E V 2015 Executive Chairman, President and CEO Pay Mix at Target NEOs Excluding CEO Pay Mix at Target Base Salary 10.0% Target Bonus 10.0% LTI Grant Value 80.0% LTI Grant Value 67.2% Base Salary 20.5% Target Bonus 12.3% Total Performance-Based Compensation1 = 90.0% Total Performance-Based Compensation1 = 79.5% 1Performance-Based Compensation = Annual incentive bonus and long-term incentive (“LTI”), valued as of the date of the grant. Note that the graph “NEOs Excluding CEO Pay Mix at Target” includes Mr. Indelicarto’s pay. Mr. Indelicarto was promoted to Senior Vice President, General Counsel and Secretary effective November 14, 2014. The chart includes his annual target salary as Senior Vice President and the value of the equity he received over the course of 2014. If he were excluded, the Pay Mix would be 19.6%, 11.8% and 68.6% for Base Salary, Target Bonus and LTI Grant Value, respectively. The variance is primarily attributable to a portion of the value of his 2014 equity being associated with his Vice President role. Our Process for Setting Compensation Role of the Compensation Committee: The Compensation Committee oversees our compensation and benefit programs and sets the policies that govern compensation of our senior officers, including NEOs, and other employees. As part of its role in approving senior officers’ compensation, the Compensation Committee annually: Reviews and makes changes as appropriate to the peer group used to benchmark competitive compensation levels for our • senior officers; Reviews and approves design elements of senior officer compensation for market competitiveness, and alignment with • Company performance; • Sets performance goals for our annual and long-term incentive compensation programs; Reviews the Board’s assessment of the individual performance of the CEO achieved during the fiscal year and approves any • adjustments to the CEO’s base salary, and annual incentive and equity awards based on this assessment; and • Reviews the CEO’s assessment of individual performance of each senior officer in conjunction with performance achieved during the fiscal year and approves any adjustments to base salary and annual incentive and equity awards based on this assessment. Role of Management: The CEO annually reviews the performance of each senior officer, other than the CEO (whose performance is reviewed by the Board), and makes recommendations to the Committee for base salary adjustments, incentive bonus payouts and equity awards based on this assessment. Role of External Compensation Consultant: The Compensation Committee has engaged FW Cook as its independent consultant to assist it in evaluating and analyzing the Company’s executive compensation program and principles. FW Cook also reviews compensation design recommendations by the Company’s management and provides recommendations to the Compensation Committee for any changes to the CEO’s compensation. FW Cook provides the following services to the Compensation Committee: 25 V E r i i s G n P r o x y 2015 • • • • • • • Analyzes the senior officers’ annual compensation based on comparisons to the Company’s peer group, including comparing target and actual total compensation and advises the Compensation Committee on the appropriateness of management’s recommendations for any changes to the senior officers’ compensation; Reviews the Company’s peer group annually and provides recommendations for changes as appropriate; Advises the Compensation Committee on best practices related to governance and design of executive compensation programs; Reviews the Company’s equity compensation philosophy and incentive design; Reviews the risk assessment of company incentive plans and arrangements; Reviews the draft CD&A; and Reviews non-employee director compensation. At its meeting in December 2014, the Committee reviewed FW Cook’s performance and assessed FW Cook’s independence against the six independence factors set forth in the NASDAQ rules. FW Cook provided the Committee with a written statement addressing the six independence factors and presented information which addressed all factors. Upon review of FW Cook’s responses, the Committee determined that FW Cook was independent and engaged FW Cook for fiscal year 2015. FW Cook performs no other services for the Company and the Committee believes its services for the Committee do not raise any conflicts of interest. Competitive Market Assessment: Each year, we assess the competitiveness of our senior officers’ (including our NEOs’) base salary, annual incentive bonus targets and long-term incentive compensation targets (element by element and in the aggregate) by comparing our program to a peer group of publicly-traded high technology companies that we view as our competitors for executive talent. We examine the compensation data of our peer group and also review broader publicly-available survey data for high technology companies that are comparable to us in annual revenues. The Compensation Committee carefully considers our peer group and survey data when determining total compensation for its NEOs. The Compensation Committee also considers a senior officer’s individual performance, future potential, and scope of responsibilities and experience when approving compensation. Each year, the Compensation Committee reviews the peer group with the assistance of its independent consultant and makes changes as appropriate in order to ensure it continues to appropriately reflect the competitive market for executive talent. For 2014, our peer group was made up of the following 14 companies: Akamai Technologies Equinix Rackspace Hosting ANSYS Autodesk FactSet Research Systems Informatica Red Hat Rovi Citrix Systems MICROS Systems Solera Holdings Nuance Communications TIBCO Software Following its annual review of the peer group, which took place during its regularly scheduled meeting in December 2014, the Compensation Committee determined to make no changes to the group for 2015 with the exception of removing MICROS Systems and TIBCO Software. In 2014, MICROS Systems was acquired by Oracle, and TIBCO Software was acquired by Vista Equity Partners. The peer group includes companies in the Global Industry Classification (GIC) Industry Group of Software and Services only, and within that GIC generally includes those with revenue and market capitalization 1/3x to 3x that of Verisign. The chart below illustrates Verisign’s revenue and market capitalization percentile rank as compared to its 2014 peer group as of December 31, 2014 with revenue reflecting the most recently reported four quarters prior to December 2014. The peer data excludes 26 y x o r P n G s i i r E V 2015 MICROS Systems and TIBCO Software as data was unavailable for the relevant time period given that both companies were acquired. Elements of Our Executive Compensation Program Our executive compensation program is made up of three main elements: base salary, annual incentive bonus, and long-term incentive compensation. The chart below shows our objectives for each element of compensation, what factors we use to determine actual awards, and how awards are positioned compared to relevant market data. Element Objective Factors Used to Determine Awards Market Positioning Base Salary Annual Incentive Bonus Long-Term Incentive Compensation Provide a guaranteed level of annual income in order to attract and retain our executive talent. Provide a target reward for achieving financial and strategic operational goals, and a greater than target award for exceeding goals. Provide a reward that incents executives to manage Verisign from the perspective of a stockholder. Also, to retain our executive talent. • Job responsibilities • Experience • Individual contributions • Future potential • Internal pay equity • Effect on other elements of compensation and benefits including target bonus amounts • Company performance measures • Individual performance We review peer group and relevant survey data and pay particular attention to the 50th percentile in both data sets. We adjust for individual factors. We review peer group and relevant survey data and pay particular attention to the 50th percentile in both data sets. We adjust for individual factors. • Job responsibilities • Individual contributions • Future potential • Value of vested and unvested outstanding equity awards • Internal pay equity We review peer group and relevant survey data and pay particular attention to the 50th percentile in both data sets. We adjust for individual factors. 27 V E r i i s G n P r o x y 2015 Base Salary: For 2014, the Compensation Committee reviewed competitive benchmark data provided by FW Cook and recommendations from our CEO regarding each senior officer’s individual performance. Based on that review, no adjustments were made by the Compensation Committee to NEOs’ salaries as summarized in the chart below. 2013 Base Salary $750,000 2014 Base Salary Rationale for Adjustment $750,000 Mr. Bidzos’ salary was not Name Position D. James Bidzos George E. Kilguss, III Thomas C. Indelicarto Executive Chairman, President and CEO Senior Vice President and CFO Senior Vice President, General Counsel and Secretary $410,000 $410,000 $330,000 increased and has not been since he assumed the CEO role in August 2011. Mr. Kilguss’ base salary was not increased based on review of peer group market data. Mr. Indelicarto was promoted from Vice President, Associate General Counsel to Senior Vice President, General Counsel and Secretary effective November 14, 2014 following the departure of Mr. Goshorn. His base salary represents his salary upon promotion to Senior Vice President. Mr. Kane’s base salary was not increased in 2014 based on a review of peer group market data. Patrick S. Kane Senior Vice President, Naming Services $325,500 $325,500 Richard H. Goshorn Former $408,000 $408,000 Mr. Goshorn’s base salary was Senior Vice President, General Counsel and Secretary not increased in 2014 based on a review of peer group market data. Mr. Goshorn departed the Company on November 14, 2014. Annual Incentive Bonus: We provide annual cash bonuses to our employees, including our NEOs, under the Verisign Performance Plan (“VPP”) based on the Company’s achievement of pre-established financial and strategic operational goals, as well as individual performance. y x o r P n G s i i r E V 2015 28 The target annual incentive opportunity for each of our NEOs is determined based on a comparison to our peer group and information obtained from relevant survey data. Each of the target bonuses for our NEOs was at or slightly below the 50th percentile of our peer group. For 2014, the Compensation Committee approved the following bonus targets as a percent of base salary for our NEOs: NEOs CEO ............................................................................................................................................. CFO ............................................................................................................................................. Senior Vice Presidents ................................................................................................................ 2014 Bonus Target as a % of Base Salary 100% 70% 60% The Compensation Committee approves actual annual incentive award payments for our senior officers, including NEOs, taking into account the Company’s performance. The Company’s performance determines the initial level of funding for the annual incentive bonus pool. The Compensation Committee then considers, and approves as appropriate, management’s recommendation for modifying any individual awards above or below the level of funding based on an assessment of individual performance, subject to the maximum individual bonus payments described below for NEOs under Tax Treatment of Executive Compensation. The Company’s performance goals for the fiscal 2014 VPP were approved by the Compensation Committee in February 2014 and were based on two financial measures: Revenue and non-GAAP operating margin, both weighted equally at 50%. For purposes of determining the bonus pool, we calculate the non-GAAP operating margin by taking the consolidated non-GAAP operating income as a percentage of revenue. We determine the consolidated non-GAAP operating income by excluding stock-based compensation from the Company’s consolidated operating income. We use this non-GAAP performance measure because we believe it presents a clearer picture of the performance of the Company’s core operations than the corresponding GAAP performance measures. A description of the performance measures and funding established for each of the goals pertaining to the 2014 VPP are set forth below: • Revenue: Weighted at 50% of the total bonus pool, this component would be funded when the actual results met a threshold level of achievement greater than 97% of the established target of $1,020.0 million. Revenue achievement between 97% and 100% of target would result in funding from 0% to 100% with respect to this goal; revenue achievement between 100% and 103.8% of target would result in funding from 100% to 200% with respect to this goal. • Non-GAAP operating margin: Weighted at 50% of the total bonus pool, this component would be funded when the actual results met a threshold level of achievement greater than 97% of the established target of 58.8%. Non-GAAP operating margin achievement between 97% and 100% of target would result in funding from 0% to 100% with respect to this goal; non-GAAP operating margin achievement between 100% and 104.4% of target would result in funding from 100% to 200% with respect to this goal. The chart below illustrates how each goal component and its respective performance achievement resulted in a final funding multiplier of 118.0% of total target bonus pool for the VPP bonus plan. 29 V E r i i s G n P r o x y 2015 Goal Target Actual Actual as % of Target Achievement Weighting Funding Multiplier Revenue $1,020.0 $1,010.1 99.0% 80.0% 58.8% 60.2% 102.4% 156.0% Non – GAAP operating margin Total 50% 50% 40.0% 78.0% 118.0% In order to establish actual award amounts under the VPP bonus plan, the Compensation Committee also reviewed the CEO’s assessment of individual performance of the NEOs and considered the Board’s assessment of the CEO’s individual performance. The chart below indicates the Compensation Committee’s approved annual incentive bonus award for each NEO under the 2014 VPP bonus plan. 2014 Actual Bonus Payment Bonus Target as a % of Base Salary 100% Funding Multiplier as a % of Target 118.0% Actual Payout as a % of Target 118.0% Actual Payout Amount $885,000 Actual Payout as a % of Base Salary 118.0% 2014 Base Salary $750,000 $410,000 70% 118.0% 122.0% $350,000 85.4% $330,000 33%(1) 118.0% 130.0% $140,267 42.5% $325,500 60% 118.0% 118.0% $230,454 70.8% $408,000 60% 118.0% - - - Name Position D. James Bidzos Executive Chairman, President and CEO George E. Kilguss, III Senior Vice President and CFO Thomas C. Indelicarto Patrick S. Kane Richard H. Goshorn Senior Vice President, General Counsel and Secretary Senior Vice President, Naming Services Former Senior Vice President, General Counsel and Secretary Notes Mr. Bidzos’ bonus payment was made at the funding multiplier level of 118.0% of his target bonus. No further adjustment was made. Mr. Kilguss’ bonus payout was made at 122.0%. The adjustment over the funding multiplier was made due to exceptional performance. Mr. Indelicarto’s bonus payout was made at 130.0% of his prorated target. The adjustment over the funding multiplier was made due to exceptional performance. Mr. Kane’s bonus payout was made at the funding multiplier level of 118.0% of his target bonus. No further adjustment was made. Mr. Goshorn terminated on November 14, 2014 and was ineligible for bonus. Pursuant to the terms of Mr. Goshorn’s general release of claims against the Company, he received cash separation payment including $212,976 for a 2014 pro-rated target bonus amount. (1)Mr. Indelicarto’s prorated target bonus (33%) was calculated based on the portion of the year he spent as the Vice President, Associate General Counsel role from January 1, 2014 to November 13, 2014 at a base salary of $269,301 and bonus target of 35%, and the remainder of 2014 in the Senior Vice President, General Counsel and Secretary role with a base salary of $330,000 and a bonus target of 60%. 30 y x o r P n G s i i r E V 2015 Long-Term Incentive Compensation: Equity-based grants are a key element of our total compensation program. Consistent with our compensation philosophy, we believe it is important that these awards have a performance component and that they are aligned with total shareholder return. The target award amounts are based on several factors including competitiveness as determined by our peer group and relevant survey data provided by FW Cook, job responsibilities, individual contributions, and future potential of the executive. The target award amounts for our NEOs generally approximate or are slightly below the 50th percentile of our peer group. In 2014, the Compensation Committee granted long-term equity compensation to our senior officers consisting of 50% performance- based RSUs and 50% time-vesting RSUs. The time-vesting RSUs provide strong retentive value for our executive talent as they vest ratably over four years. They are also linked to increases in stockholder value creation as their value goes up or down with the Company’s stock price. The performance-based RSUs are linked to long-term Company financial performance as well as increases in stockholder value. The 2014 performance-based RSUs cliff vest at the end of a three-year performance period, which also provides a strong retention incentive. The 2014 performance-based RSUs are based on two financial measures – compound annual growth rate (“CAGR”) of operating income per share growth and Total Shareholder Return (“TSR”) of Verisign stock compared to the TSR of S&P 500 index. The number of RSUs earned may range from 0 to 200% of the target award based on CAGR of operating income per share growth for the relevant performance period, but no more than 100% of target may be earned unless the TSR of Verisign stock equals or outperforms the TSR of the S&P 500 index for the period January 1, 2014 through December 31, 2016. We believe that the performance metrics coincide with shareholder interests, create a long-term performance focus and complement the performance metrics in the Company’s short term annual incentive plan. The chart below illustrates the vesting schedule and performance metrics for the 2014 equity grants Grant of Time-Vesting RSUs 50% of LTI Grant (1) 2015 2016 2017 2018 25% vested on February 19, 2015 25% vesting on February 19, 2016 25% vesting on February 19, 2017 25% vesting on February 19, 2018 Grant of Performance- Based RSUs 50% of LTI Grant (1) N/A N/A N/A Number of RSUs earned based on performance achievement during 2014-2016 determined in February 2017(2) (1) (2) Except for the CEO, whose grant of time-vesting RSUs was 42% of LTI Grant and performance-based RSUs was 58% of LTI grant. Vesting will be on the later of the date the achievement of the performance goal is certified and the date the Company receives an unqualified signed opinion of the Company’s financial statements from its independent registered public accounting firm. Equity awards for NEOs were granted on February 19, 2014 at the regularly scheduled Compensation Committee meeting. The Compensation Committee approved the total value granted to individual executives (time-vesting and performance-based) based on the factors discussed herein. The actual number of RSUs was a function of the closing stock price on February 19, 2014. The chart below shows the number of RSUs granted to each NEO in 2014: 31 V E r i i s G n P r o x y 2015 2014 Equity Grant Total Market Value of Equity Grant $ 5,999,948 FMV at Grant per RSU $ 55.24 Time- Vesting RSUs granted (1) 45,257 Performance- Based RSUs granted (2) 63,359 $ 1,699,956 $ 55.24 15,387 15,387 $ 829,600 $ 59.26(3) 14,000 - $ 999,954 $ 55.24 9,051 9,051 $ 1,299,908 $ 55.24 11,766 11,766 Name D. James Bidzos ........... George E. Kilguss, III ... Thomas C. Indelicarto .... Patrick S. Kane ............ Richard H. Goshorn ....... Position Executive Chairman, President and CEO Senior Vice President and CFO Senior Vice President, General Counsel and Secretary Senior Vice President, Naming Services Former Senior Vice President, General Counsel and Secretary Notes Mr. Bidzos’ equity grant was positioned at the 50th percentile for CEOs in our peer group. Mr. Kilguss’ equity award value was determined taking into account alignment with market LTI values, in addition to individual factors such as job responsibilities, experience, individual contributions, future potential, and internal equity. Mr. Indelicarto received several LTI grants over the course of 2014 in his role as VP and subsequently for his promotion to SVP on November 14, 2014. Mr. Kane’s equity award value was determined taking into account alignment with market LTI values, in addition to individual factors such as job responsibilities, experience, individual contributions, future potential, and internal equity. Mr. Goshorn’s equity award value was determined taking into account alignment with market LTI values, in addition to individual factors such as job responsibilities, experience, individual contributions, future potential, and internal equity. Mr. Goshorn resigned from the Company, and his last day was November 14, 2014. (1) 25% vested on February 20, 2015, and the remainder vests 25% at each annual anniversary of the grant date. (2) Vesting of shares for the 2014 performance-based RSUs granted is based on meeting a CAGR of the operating income per share target for the three-year period (January 1, 2014 to December 31, 2016). Performance-based RSUs earned for CAGR of operating income per share above target are subject to the TSR of Verisign stock equaling or outperforming the TSR of the S&P 500 Index for the period January 1, 2014 to December 31, 2016. Total market value of the grant in the table above is calculated based on FMV per RSU on the date of grant. Vesting occurs on the later of the date when the performance goal is certified by the Committee and the date the Company receives an unqualified signed opinion of the Company’s financial statements from its independent registered public accounting firm. (3) Mr. Indelicarto received several LTI grants over the course of 2014. In his role as Vice President, Associate General Counsel, Mr. Indelicarto received a grant of 1,000 time-vesting RSUs on January 15, 2014 with a FMV per RSU on the grant date of $62.61. He also received 4,000 time-vesting RSUs on February 19, 2014 with a FMV per RSU on the grant date of $55.24. On November 14, 2014, Mr. Indelicarto received a grant of 9,000 time-vesting RSUs associated with his promotion to SVP, General Counsel and Secretary with a FMV per RSU on the date of grant was $60.67. At its meeting on February 10, 2015, the Committee approved the 2015 Equity Program for its senior officers. The program includes a mix of time-vesting RSUs and performance-based RSUs. Performance measures and goals associated with the performance-based RSUs include CAGR of the operating income per share and TSR of Verisign stock equaling or outperforming the TSR of the S&P 500 Index over the three year period ending December 31, 2017. In February 2013, the Committee granted performance-based RSUs with two performance periods. In February 2015, the Committee confirmed the extent of achievement of the performance goal results for the first performance period, January 1, 2013 to December 31, 2014, associated with these performance-based RSUs. The performance goals were based on average annualized EPS growth over the two-year period ending December 31, 2014, with above target potential subject to TSR of Verisign stock outperforming the TSR of the S&P 500 Index for the relevant performance periods. The average annualized EPS growth was 27.5% over the two-year period, which exceeded 11%, the level at which the maximum number of RSUs could be earned. The Committee noted that in 2013 the Company recognized an income tax benefit of $375.3 million from a worthless stock deduction, offset by $167.1 million income tax expense related to repatriation of foreign earnings, both of which, if excluded, would have resulted in annualized EPS growth of 14.9%, an amount still in excess of 11%, the level associated with the maximum payout level. The TSR of Verisign stock of 55.65% was greater than the index return of 50.57%. This resulted in performance at the maximum achievement level of 200% for this two-year performance period. 32 y x o r P n G s i i r E V 2015 The chart below shows the number of performance-based RSUs that were earned in 2015 based on achievement of the performance metrics tied to the 2013 performance-based grant. 2013 RSUs Earned Based on January 1, 2013 – December 31, 2014 Performance Total Performance- Based RSUs Granted in 2013 Shares Subject to Vest in First Performance Period (50% of Granted Amount) Goal Achievement Performance Based RSUs Earned and Vested in February 2015 78,159 39,080 200% 78,159 18,981 9,491 200% 18,981 Name Position D. James Bidzos George E. Kilguss, III Executive Chairman, President and CEO Senior Vice President and CFO Thomas C. Indelicarto(1) Senior Vice President, - - - - Patrick S. Kane Richard H. Goshorn(2) General Counsel and Secretary Senior Vice President, Naming Services Former Senior Vice President, General Counsel and Secretary 11,165 5,583 200% 11,165 13,398 6,699 - - (1) Mr. Indelicarto was appointed Senior Vice President, General Counsel and Secretary effective November 14, 2014 and therefore was not eligible for the 2013 Performance Grant. (2) Mr. Goshorn resigned from the Company effective November 14, 2014 and forfeited the unvested stock award. CEO Compensation: Our philosophy is that our CEO should be primarily compensated in the form of performance-based compensation. We place the greatest emphasis on the annual and long-term incentive compensation elements when determining appropriate compensation levels, and especially emphasize equity compensation. We believe that it is important that our CEO make decisions that are in the best interests of our stockholders and we reinforce that philosophy through our executive compensation program. Mr. Bidzos’ 2014 compensation was determined by the Compensation Committee as part of its annual review of executive compensation in February 2014. The components of his compensation are summarized below: • Mr. Bidzos’ annual base salary was $750,000 in 2013 and was not adjusted in 2014. Based on data provided by FW Cook for CEOs in our peer group, the Committee determined that Mr. Bidzos’ salary aligned with the market 50th percentile of our peer group and was appropriately set at its current level. • Mr. Bidzos’ bonus target was set at 100% of his base salary for 2013 and was not adjusted for 2014. His bonus target aligns with the market 50th percentile of bonus target data provided by FW Cook for CEOs in our peer group. In February 2015, the Committee awarded Mr. Bidzos a bonus of $885,000. The Committee determined this amount as it reflected the performance achievement as approved by the Committee for the 2014 VPP (118.0%), as discussed above. 33 V E r i i s G n P r o x y 2015 • Mr. Bidzos received an equity award for 2014 with an aggregate value of $5,999,948 consisting of 45,257 time-vested RSUs and 63,359 performance-based (at target achievement level) with a fair market value per RSU of $55.24 on the date of the grant. The value of the equity granted was above the 50th percentile and below the 75th percentile for CEOs in our peer group. The time-based RSUs vest at 25% per year on each anniversary of the grant date. The performance-based RSUs vest based on performance achievement between January 1, 2014 and December 31, 2016. • Mr. Bidzos is eligible for certain payments and benefits in the event of a change-in-control, but is not otherwise eligible for any severance payments. His change-in-control agreement provides for a severance payment of two times his base salary and a bonus payment of two times target bonus plus the cash equivalent of two years of continuation of health benefits if he participates in the Company’s health plans at the date of his termination. The other terms of his change-in-control agreement are the same as other senior officers as described below. Features of our Executive Compensation Program Stock Retention Policy: Our stock retention policy applies to our employees at the Senior Vice President level and above, officers who are subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended (“Section 16 Officers”), and board members. At its meeting in July 2012, the Compensation Committee amended the Stock Retention Policy to specify minimum ownership levels required for participants under the policy. Ownership levels are set as a multiple of base salary or annual retainer and are as follows which reflect subsequent changes approved by the Compensation Committee since July 2012: • CEO: 6x Base Salary • Directors: 5x Annual Retainer • Section 16 Officers and Senior Vice Presidents, other than the CEO: 2x Base Salary The ownership levels for Directors were increased from 3x to 5x in 2014 to more appropriately align with the market. The policy also requires participants to retain 50% of their shares received from equity awards (net of taxes) until they reach their minimum ownership level and that shares at specified ownership targets must be held until six months after the participant ceases employment or board service with the Company. We believe requiring senior employees and board members to continue to retain stock after their service with the Company ceases is important to align our senior officers’ interests with the long-term interests of our stockholders. Our Stock Retention Policy can be found on our website at https://investor.verisign.com/documents.cfm. Securities Trading Policy: Our Securities Trading Policy prohibits employees, including our senior officers, from buying or selling derivative securities related to our common stock, such as puts or calls on our common stock. We believe derivative securities diminish the alignment of incentives between our senior officers and stockholders. The Policy also prohibits employees from entering into agreements or purchasing instruments designed to hedge or offset decreases in the market value of the Company’s securities. Additionally, under our Policy, our senior officers may only purchase and sell our common stock during approved trading windows. These windows are related to the time of our earnings releases. Recovery of Incentive Compensation: The Compensation Committee adopted an executive compensation recovery policy in March 2010, and amended it in 2014, that applies to annual and long-term incentive awards. If there is an inaccurate financial statement (including statements of earnings, revenues, or gains or any other material inaccurate performance metric criterion, regardless of whether such inaccuracy was the subject of an accounting restatement), and, as a result, certain senior officers received materially more incentive compensation than they would have had the correct financial statement been prepared at the time of the compensation award, the Compensation Committee shall seek recovery of this overpayment. The recovery could occur either by limiting future awards or directly seeking repayment if the Compensation Committee determines that, based on the costs and likelihood of obtaining recovery, it is economical to pursue full recovery. In the case of fraudulent, intentional, willful or grossly negligent misconduct by the recipient of an award, the Compensation Committee can recoup previous incentive awards paid regardless of when the awards were paid to the senior officer. If the inaccuracy is not the result of these circumstances, the Compensation Committee can only recover incentive awards paid based on the inaccuracy if they were paid in the three years prior to the determination that the financial statement was inaccurate. 34 y x o r P n G s i i r E V 2015 Equity Award Practices: The Compensation Committee approves all equity awards to our senior officers, the aggregate annual equity pool, employee grant guidelines, and all equity awards to all employees during the annual grant process, which generally takes place in February. For employees hired during the year that are below the Senior Vice President level, the Compensation Committee has delegated actual award determination to the Grant Committee which currently has one member, D. James Bidzos. Grant Committee awards are granted on the 15th of the month (or next scheduled trading day if the 15th is not a trading day) following approval by the Grant Committee. Benefits: We do not provide our senior officers with any benefits in addition to those provided to all of our other U.S.-based employees. All of our U.S.-based employees are eligible for medical, dental and vision insurance, life insurance, short and long-term disability, paid time off, an employee stock purchase plan, and a qualified 401(k) salary deferral plan. Severance Agreements: We generally do not enter into severance or employment agreements with our senior officers, nor do we provide severance or other benefits following voluntary termination. However, the Compensation Committee may determine in special circumstances that providing such severance payments and benefits is warranted in order to attract a potential executive or for other business considerations. Following his departure from the Company, Mr. Goshorn and the Company entered into a Separation and General Release Agreement (the “Agreement”). Pursuant to the terms of the Agreement, in return for Mr. Goshorn’s general release of claims against the Company, including in respect of any compensation, equity awards or any other monetary recovery (other than as provided in the Agreement) and compliance with certain transition, non-disparagement, confidentiality and cooperation obligations, Mr. Goshorn is entitled to receive a cash separation payment in the aggregate amount of $1,000,379, which is equal to $313,847 for severance, $212,976 for a 2014 pro-rated target bonus amount, $13,556 for medical, dental and vision insurance replacement, and an additional amount of $460,000. Change-In-Control and Retention Agreements: We have entered into change-in-control and retention agreements with our senior officers. These agreements provide for change-in-control severance benefits and payments in the event the senior officer’s employment is terminated in connection with a change in control of the Company. They are “double trigger” agreements which means the senior officers will only be eligible for payments under the agreements if both a change-in-control of the Company occurs and the senior officer’s employment is terminated without cause (or by the senior officer for good reason) within 24 months of the change-in- control. The Compensation Committee believes these agreements are necessary to attract and retain executive talent and to neutralize the personal interests of our executives when making decisions related to potentially beneficial corporate transactions. Each year, the Compensation Committee reviews the provisions of the change-in-control agreements with FW Cook and makes adjustments as necessary to ensure alignment of senior officers’ interests with stockholders’ interests. No changes were made to the existing agreements in 2014 as FW Cook advised the Compensation Committee that they were in line with best practices which include double trigger benefits, severance multiples less than or equal to 2x base salary and target bonus and the lack of a tax-gross up provision. Additional details about these agreements, including potential payments, may be found in the “Potential Payments Upon Termination or Change-in-Control” and “Change-in-Control Benefit Estimates as of December 31, 2014” table. Risk Assessment: In 2014, we performed a comprehensive assessment of our compensation policies and programs design to determine whether risks arising under them would be likely to have a material adverse effect on the Company. We considered each element of our compensation programs and policies in our enterprise-wide risk assessment and determined that none of our compensation policies and programs create a risk that is reasonably likely to have a material adverse effect on the Company. Tax Treatment of Executive Compensation: Section 162(m) of the Internal Revenue Code of 1986 limits the amount of compensation in excess of $1,000,000 that the Company may deduct in any one year with respect to its CEO and three other most highly compensated officers (excluding the CFO) serving at the end of the fiscal year as disclosed in the annual proxy statement. There are exceptions to this deduction limit if the compensation is “performance-based” under Section 162(m). The Company does not limit compensation as a result of Section 162(m) but does try to structure its executive compensation program to maximize the amount of compensation that may be deducted. While base salaries and time-vesting RSUs are subject to the deduction limitation, our performance-based awards, including annual incentive bonus and performance-based RSUs, are generally exempt from the limitation. 35 V E r i i s G n P r o x y 2015 In order to try to ensure that annual incentive bonuses paid to certain senior officers are fully deductible for tax purposes under Section 162(m), in 2010, the Company adopted (and the stockholders approved) the Annual Incentive Compensation Plan (“AICP”). The AICP is the vehicle under which certain of our senior officers’ bonuses, determined as described above, are paid. For 2014, assuming the performance goal was met, each such senior officer could be awarded a maximum bonus of 300% of his or her target bonus (but no more than $5 million), subject to the Compensation Committee’s discretion to award bonuses in lesser amounts. The Compensation Committee exercised its discretion to award bonuses in lesser amounts and primarily based the AICP payments on the funding results of the VPP annual bonus program of 118.0%. The performance goal for the AICP was approved by the Compensation Committee at its February 19, 2014 meeting and provided that the Company must achieve non-GAAP operating income in excess of $50 million before a bonus could be paid. For 2014, non-GAAP operating income was $608.4 million. The Company is replacing the current AICP with a plan that is similar to the current AICP as described under “Proposal No. 2— Approval of VeriSign, Inc. Annual Incentive Compensation Plan,” and its effectiveness is conditioned on its being approved by the stockholders. If approved by the Company’s stockholders, any bonuses paid to executive officers will be paid pursuant to the new plan. As with the current AICP, payments under the new plan will be based upon satisfaction of a performance target setting a maximum bonus and the Committee’s negative discretion. Compensation Committee Report The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act. The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement. Based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. This report is submitted by the Compensation Committee Louis A. Simpson (Chairperson) John D. Roach Jamie S. Gorelick Timothy Tomlinson Compensation Committee Interlocks and Insider Participation The members of the Compensation Committee are Louis A. Simpson, Jamie S. Gorelick (effective February 11, 2015), John D. Roach and Timothy Tomlinson. All of the members of the Compensation Committee during 2014 were independent directors, and none of the members of the Compensation Committee during 2014 were employees or officers or former officers of Verisign. No executive officer of Verisign has served on the compensation committee (or other board committee performing equivalent functions, if any) or the board of directors of another entity, one of whose executive officers served as a member of the Compensation Committee of Verisign during 2014; and no executive officer of Verisign has served on the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a member of the Board during 2014. 36 y x o r P n G s i i r E V 2015 Summary Compensation Table The following table sets forth certain summary information concerning the compensation received by each person who served as our principal executive officer and principal financial officer during fiscal 2014, the other most highly compensated executive officer as of the end of fiscal 2014, and two additional individuals who served the Company for a portion of fiscal 2014 as executive officers for whom disclosure would have been provided but for the fact that such individuals were not serving as executive officers as of December 31, 2014. We refer to these executive officers as our “Named Executive Officers.” Named Executive Officer and Principal Position D. James Bidzos ................. Executive Chairman, President and Chief Executive Officer George E. Kilguss, III(7) ......... Senior Vice President and Chief Financial Officer Thomas C. Indelicarto(9) ......... Senior Vice President, General Counsel and Secretary Patrick S. Kane(10) ............. Senior Vice President, Naming and Directory Services Richard H. Goshorn(11) ........ Former Senior Vice President, General Counsel and Secretary Year 2014 2013 2012 2014 2013 2012 2014 2014 2013 2012 2014 2013 2012 SUMMARY COMPENSATION TABLE Salary ($)(1) 752,885 752,885 752,885 411,577 406,192 232,212 Stock Awards ($)(2) 5,999,948 6,810,008 4,500,792 1,699,956 2,237,298 3,180,800 Non-Equity Incentive Plan Compensation ($)(3) 885,000 957,750 593,550 350,000 375,000 112,872 All Other Compensation ($)(4) Total ($) 15,032 (5) 7,652,865 20,484 (5)(6) 8,541,127 9,650 (5) 5,856,877 8,480 2,470,013 36,067 (8) 3,054,557 30,629 (8) 3,556,513 275,440 829,600 140,267 515 1,245,822 326,752 326,752 324,367 370,339 409,570 408,339 999,954 1,134,277 746,400 1,299,908 1,367,850 933,000 230,454 230,000 154,560 0 312,610 193,735 8,286 7,101 7,894 1,018,059 (12) 8,385 8,235 1,565,446 1,698,130 1,233,221 2,688,306 2,098,415 1,543,309 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Includes, where applicable, amounts electively deferred by each Named Executive Officer under our 401(k) Plan. Amounts shown represent the aggregate grant date fair value, which is based on the share price on the date of the grant. Stock Awards consist of RSUs granted in 2014, 2013, and 2012, respectively. Amounts shown in “Stock Awards” include the value of awards subject to performance conditions based upon the probable outcome of the performance conditions as of the grant date of the award, excluding the effect of estimated forfeitures. The values of awards subject to performance conditions included in “Stock Awards” were as follows: Mr. Bidzos, $3,499,951 (2014), $3,499,960 (2013), $2,250,396 (2012); Mr. Kilguss, $849,978 (2014), $849,969 (2013), $1,590,400 (2012); Mr. Kane, $499,977 (2014), $499,969 (2013), $373,200 (2012); and Mr. Goshorn, $649,954 (2014), $599,962 (2013), $466,500 (2012). Grant date fair value for performance-based RSUs granted in 2014 and 2013 at the maximum achievement level (i.e., 200% payout) would be 153% and 171%, respectively, of the amounts for each executive, calculated using a Monte Carlo simulation model. Half of the performance-based RSUs granted in 2013 vested in February 2015 at the maximum achievement level, resulting in 200% payout. For performance-based RSUs granted in 2012, the maximum potential payout and grant date fair value was 150% of the 2012 amounts for each executive and actual achievement was 49%. The value specific to the one-time special performance-based RSUs granted in 2013 and included in “Stock Awards” were as follows: Mr. Bidzos, $810,070; Mr. Kilguss, $537,360; Mr. Goshorn, $167,925; and Mr. Kane, $134,340. Vesting of these awards was subject to achievement of the 2013 AICP performance goal. The goal was achieved, and as such, 100% of the awards were earned as of February 21, 2014. Amounts shown are for non-equity incentive plan compensation earned during the year indicated, but paid in the following year. Except as otherwise indicated, amounts in “All Other Compensation” for fiscal 2014, fiscal 2013, and fiscal 2012 include, where applicable, matching contributions made by the Company to the VeriSign, Inc. 401(k) Plan, Life insurance and Accidental Death and Dismemberment insurance payments. Includes $14,204 (2014), $17,997 (2013) and $8,750 (2012) in payments for a leased automobile. Includes $1,607 in relocation payments for Mr. Bidzos. Mr. Kilguss was appointed Senior Vice President and Chief Financial Officer as of May 14, 2012. Includes $24,554 (2012) and $27,688 (2013) in relocation payments for Mr. Kilguss. Mr. Indelicarto was appointed Senior Vice President, General Counsel and Secretary effective November 14, 2014. Mr. Indelicarto did not receive performance-based RSUs in 2014. Due to a change in Mr. Kane’s role and responsibilities with the Company, on February 19, 2014, the Board determined that Mr. Kane was no longer an executive officer and Section 16 Officer, but he continues to serve the Company in a senior capacity. (11) Mr. Goshorn resigned from the Company effective November 14, 2014. (12) Pursuant to the terms of Mr. Goshorn’s general release of claims against the Company, Mr. Goshorn received cash separation payment in the aggregate amount of $1,000,379, which is equal to $313,847 for severance, $212,976 for a 2014 pro-rated target bonus amount, $13,556 for medical, dental and vision insurance replacement, and an additional amount of $460,000. V E r i i s G n P r o x y 2015 37 Grants of Plan-Based Awards for Fiscal 2014 The following table shows all plan-based awards granted to the Named Executive Officers during fiscal 2014 under annual and long-term plans. GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2014(1) Estimated Future Payouts Under Non-Equity Incentive Plan Awards ($) Estimated Future Payouts Under Equity Incentive Plan Awards Named Executive Officer D. James Bidzos ............. Grant Date 2/19/2014 2/19/2014 Threshold ($) 0 Target ($) 750,000 Maximum ($) 2,250,000 Threshold (#) Target (#) Maximum (#) 0 63,359(3) 126,718(3) All Other Stock Awards: Number of Shares of Stock or Units (#) 45,257(4) Grant Date Fair Value of Stock and Option Awards ($) 2,499,997 3,499,951 George E. Kilguss, III ....... 2/19/2014 2/19/2014 0 287,000 861,000 0 15,387(3) 30,774(3) 15,387(4) 849,978 849,978 Thomas C. Indelicarto ......... 1/15/2014 0 107,898(2) 323,694 0 0 0 1,000(4) 62,610 2/19/2014 11/14/2014 Patrick S. Kane ............... Richard H. Goshorn ......... 2/19/2014 2/19/2014 2/19/2014 2/19/2014 0 195,300 585,900 0 244,800 734,400 0 9,051(3) 18,102(3) 0 11,766(3) 23,532(3) 4,000(4) 220,960 9,000(4) 546,030 9,051(4) 11,766(4) 499,977 499,977 649,954 649,954 (1) Named Executive Officers are eligible to receive an annual cash bonus under the annual plans and long-term incentive compensation under our 2006 Plan as described in “Compensation Discussion and Analysis” elsewhere in this Proxy Statement. (2) Mr. Indelicarto was promoted to Senior Vice President, General Counsel and Secretary effective November 14, 2014. The incentive target represents a prorated target factoring in both the change in salary and bonus target associated with the promotion. Mr. Indelicarto’s prorated target bonus (33%) was calculated based on the portion of the year he spent as the Vice President and Associate General Counsel from January 1, 2014 to November 13, 2014 at a base salary of $269,301 and bonus target of 35%, and the remainder of 2014 in the Senior Vice President, General Counsel and Secretary role with a base salary of $330,000 and a bonus target of 60%. (3) The Named Executive Officers, except Mr. Indelicarto who became a Named Executive Officer in November 2014, were awarded performance-based RSUs to be earned based on Company performance in fiscal years 2014, 2015 and 2016 and determination to be made after the end of fiscal year 2016. (4) The RSU award vests as to 25% of the total award on each anniversary of the date of grant until fully vested. The Company generally does not enter into employment agreements with its executive officers, each of whom may be terminated at any time at the discretion of the Board. The Company and Mr. Bidzos, our President and Chief Executive Officer, are parties to the CEO Amended and Restated Change-in-Control and Retention Agreement, and the Company and other of its senior vice presidents, including the Named Executive Officers, are parties to Amended and Restated Change-in-Control and Retention Agreements. An RSU is an award covering a number of shares of Verisign common stock which are typically settled by issuance of those shares on a one-for-one basis. Any dividends paid on our common stock during the vesting period applicable to RSUs shall be credited to the participant in the form of additional RSUs, the number of which shall be calculated based on the market price of our common stock on the date such dividends are paid to stockholders. Any such additional RSUs shall be subject to the same terms and conditions as the underlying RSU award. 38 y x o r P n G s i i r E V 2015 Please refer to “Compensation Discussion and Analysis” elsewhere in this Proxy Statement for more information concerning our compensation practices and policies for executive officers. Outstanding Equity Awards at 2014 Fiscal Year-End The following table shows all outstanding equity awards held by the Named Executive Officers at the end of fiscal 2014 granted under the 2006 Plan. OUTSTANDING EQUITY AWARDS AT 2014 FISCAL YEAR-END Option Awards Stock Awards Number of Securities Underlying Unexercised Options Exercisable (#) Option Exercise Price ($) Option Expiration Date 7,374(5) 32.28 08/04/2015 Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)(1) 156,318(3) 8,910,126 126,718(8) 7,222,926 Number of Shares or Units of Stock That Have Not Vested (#) 30,150(2) 14,817(6) 41,873(2) 12,060(4) Market Value of Shares or Units of Stock That Have Not Vested ($)(1) 1,718,550 844,569 2,386,761 687,420 45,257(2) 2,579,649 20,000(2) 9,828(6) 14,235(2) 8,000(4) 15,387(2) 2,684(2) 4,000(2) 4,980(2) 750(2) 1,000(2) 4,000(2) 9,000(2) 2,684(2) 2,684(2) 2,725(7) 5,000(2) 2,458(6) 8,373(2) 2,000(4) 9,051(2) 1,140,000 560,196 811,395 456,000 877,059 152,988 228,000 283,860 42,750 57,000 228,000 513,000 152,988 152,988 155,325 285,000 140,106 477,261 114,000 515,907 37,962(3) 2,163,834 30,774(8) 1,754,118 22,330(3) 1,272,810 18,102(8) 1,031,814 Named Executive Officer D. James Bidzos George E. Kilguss, III Thomas C. Indelicarto(9) Patrick S. Kane Grant Date 02/21/2012 02/21/2012 02/26/2013 02/26/2013 02/26/2013 02/19/2014 02/19/2014 05/14/2012 05/14/2012 02/26/2013 02/26/2013 02/26/2013 02/19/2014 02/19/2014 02/22/2011 02/21/2012 02/26/2013 04/15/2013 01/15/2014 02/19/2014 11/14/2014 08/04/2008 01/10/2011 02/22/2011 02/22/2011 02/21/2012 02/21/2012 02/26/2013 02/26/2013 02/26/2013 02/19/2014 02/19/2014 Richard H. Goshorn(10) --- (1) (2) (3) The market value is calculated by multiplying the number of shares by the closing price of our common stock on December 31, 2014, which was $57.00. The RSU award vests as to 25% of the total award on each anniversary of the date of grant until fully vested. Awards of performance-based RSUs were granted on February 26, 2013, with 50% eligible to be earned based on Company performance in fiscal years 2013 and 2014 and 50% eligible to be earned based on Company performance in fiscal years 2013, 2014 and 2015. The number of shares shown is based on achievement of maximum performance as the Company’s 2013 and 2014 performance exceeded the maximum performance level. Performance criteria were achieved at the maximum performance 39 V E r i i s G n P r o x y 2015 (4) (5) (6) level with respect to fiscal year 2013 and 2014, and as such, 50% of the performance-based RSUs vested on the date the Company received an unqualified signed opinion of the Company’s financial statements from its independent registered public accounting firm, February 13, 2015. Awards of performance-based RSUs were granted on February 26, 2013. As previously specified, performance criteria were achieved with respect to fiscal year 2013; the performance-based RSUs earned vested 33% on the date the Company received an unqualified signed opinion of the Company’s financial statements from its independent registered public accounting firm, February 21, 2014 and thereafter will vest 33% on each of the next two anniversaries of the date of grant, subject to certain employment conditions. The option became exercisable as to 25% of the grant on the first anniversary of the date of grant, and vested quarterly thereafter at the rate of 6.25% per quarter until fully vested. Performance-based RSUs earned based on performance in fiscal year 2012 will vest 25% on each anniversary of the grant date, subject to certain employment conditions, until fully vested on February 21, 2016 except for Mr. Kilguss who was appointed Senior Vice President and CFO effective as of May 14, 2012 and his remaining performance-based RSUs will fully vest on May 14, 2016. (7) Performance-based RSUs earned based on performance in fiscal year 2011 will vest 25% on each anniversary of the grant date until fully vested on February 22, 2015, (8) subject to certain employment conditions. Awards of performance-based RSUs were granted on February 19, 2014, to be earned based on Company performance in fiscal years 2014, 2015 and 2016 and determination to be made after the end of fiscal year 2016. The number of shares shown is based on achievement of maximum performance as the Company’s 2014 performance exceeded the maximum performance level. Includes awards granted prior to promotion and appointment as NEO and Section 16 Officer. (9) (10) Mr. Goshorn resigned from the Company effective November 14, 2014. Option Exercises and Stock Vested for Fiscal 2014 The following table shows all stock options exercised and the value realized upon exercise, and all stock awards vested and the value realized upon vesting, by our Named Executive Officers during fiscal 2014. OPTION EXERCISES AND STOCK VESTED FOR FISCAL 2014 Name D. James Bidzos ........................................................................................ George E. Kilguss, III ................................................................................ Thomas C. Indelicarto ............................................................................... Patrick S. Kane .......................................................................................... Richard H. Goshorn ................................................................................... Option Awards Stock Awards Number of Shares Acquired on Exercise (#) — — — 32,986 6,187 Value Realized on Exercise ($) — — — 843,439 211,013 Number of Shares Acquired on Vesting (#) 114,599(1) 38,641(1) 9,229 29,352(1) 19,766(2) Value Realized on Vesting ($) 6,861,976 2,169,540 506,254 1,711,485 1,087,066 y x o r P n G s i i r E V 2015 Awards of performance-based RSUs were granted on February 26, 2013 to the Named Executive Officers. If specified performance and market criteria were achieved, (1) the RSUs earned for the two-year performance period ending December 31, 2014 vested on the date the Company received an unqualified signed opinion of the Company’s financial statements from its independent registered public accounting firm, February 13, 2015. The Company issued 78,159 shares to Mr. Bidzos, 18,981 shares to Mr. Kilguss and 11,165 shares to Mr. Kane, each of which represents the maximum possible number of shares to be earned in accordance with the performance criteria of the grant. These shares are included in the table above. (2) Mr. Goshorn resigned from the Company effective November 14, 2014 and forfeited the unvested remainder of the stock award. Potential Payments Upon Termination or Change-in-Control Except as described below, the Company has no formal severance program for its Named Executive Officers, each of whom may be terminated at any time at the discretion of the Board. On August 24, 2007, the Compensation Committee adopted and approved forms of change-in-control and retention agreements to be entered into with Verisign’s chief executive officer and our other executive officers, and on April 26, 2011, the Compensation Committee approved amendments to those form agreements (such agreements, as amended, the “CIC Agreements”). On February 26, 2013, the Compensation Committee approved modifications to the form of Employee Restricted Stock Unit Agreements to allow for full acceleration of unvested equity for grants made on or after February 26, 2013 in the event of termination due to death or disability as follows: • Time-Based RSUs – unvested RSUs shall accelerate in full according to the terms in the “Employee Restricted Stock Unit Agreement;” and 40 • Performance-Based RSUs – If termination occurs during the applicable performance period and before the conclusion of such performance period, then such RSUs will accelerate based on the target performance achievement; if termination occurs after the conclusion of the applicable performance period but before the award for such performance period has been paid, then the RSUs will fully accelerate based upon the actual performance achievement. Under the CIC Agreements, an executive officer of the Company is entitled to receive severance benefits if, within the twenty- four months following a “change-in-control” (or under certain circumstances, during the six-month period preceding a “change-in- control”), the executive officer’s employment is terminated by Verisign without “cause” or by the executive officer for “good reason.” The terms and conditions of the CIC Agreements are described below. Under the CIC Agreements, “change-in-control” means: (a) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company or its subsidiaries, becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly (excluding, for purposes of this Section, securities acquired directly from the Company), of securities of the Company representing at least thirty-five percent (35%) of (A) the then-outstanding shares of common stock of the Company or (B) the combined voting power of the Company’s then-outstanding securities; (b) the consummation of a merger or consolidation, or series of related transactions, which results in the voting securities of the Company outstanding immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), directly or indirectly, at least fifty (50%) percent of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (c) a change in the composition of the Board occurring within a 24-month period, as a result of which fewer than a majority of the directors are incumbent directors; (d) the sale or disposition of all or substantially all of the Company’s assets (or consummation of any transaction, or series of related transactions, having similar effect); or (e) stockholder approval of the dissolution or liquidation of the Company. Under the CIC Agreements, “cause” means: (a) an executive’s willful and continued failure to substantially perform the executive’s duties after written notice providing the executive with ninety (90) days from the date of the executive’s receipt of such notice in which to cure; (b) conviction of (or plea of guilty or no contest to) the executive for a felony involving moral turpitude; (c) an executive’s willful misconduct or gross negligence resulting in material harm to the Company; or (d) an executive’s willful violation of the Company’s policies resulting in material harm to the Company. Under the CIC Agreements, “good reason” means: (a) a change in the executive’s authority, duties or responsibilities that is inconsistent in any material and adverse respect from the executive’s authority, duties and responsibilities immediately preceding the change-in-control; (b) a reduction in the executive’s base salary compared to the executive’s base salary immediately preceding the change- in-control, except for an across-the-board reduction of not more than ten percent (10%) of base salary applicable to all senior executives of the Company; (c) a reduction in the executive’s bonus opportunity of five percent (5%) or more from the executive’s bonus opportunity immediately preceding the change-in-control, except for an across-the-board reduction applicable to all senior executives of the Company; (d) a failure to provide the executive with long-term incentive opportunities that in the aggregate are at least comparable to the long-term incentives provided to other senior executives at the Company; 41 V E r i i s G n P r o x y 2015 (e) a reduction of at least 5% in aggregate benefits that the executive is entitled to receive under all employee benefit plans of the Company following a change-in-control compared to the aggregate benefits the executive was eligible to receive under all employee benefit plans maintained by the Company immediately preceding the change-in-control; (f) a requirement that the executive be based at any office location more than 40 miles from the executive’s primary office location immediately preceding the change-in-control, if such relocation increases the executive’s commute by more than ten (10) miles from the executive’s principal residence immediately preceding the change-in-control; or (g) the failure of the Company to obtain the assumption of the agreement from any successor as provided in the agreement. Under the CIC Agreements, “incumbent director” means: directors who either (i) are directors as of the date hereof, or (ii) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the incumbent directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company. If a change-in-control occurs and the executive officer experiences a qualifying termination and timely delivers a general release agreement, the CIC Agreements provide that Verisign will make the following payments and provide the following benefits to the executive officer (subject to a six month delay if and to the extent required by the deferred compensation rules set forth in and promulgated under Section 409A of the Code): • a lump sum equal to the pro rata target bonus for the year in which the executive officer was terminated; • a lump sum equal to a specified multiple of the sum of (i) the executive officer’s annual base salary plus (ii) the average of the executive officer’s annual bonus amount for the last three full fiscal years prior to a change-in-control, or, if the executive officer was employed by the Company for fewer than three full fiscal years preceding the fiscal year in which the change-in- control occurs, the average target bonus for the number of full fiscal years the executive officer was employed by the Company before the change-in-control or the target bonus for the fiscal year in which the change-in-control occurs if the executive officer was not eligible to receive a bonus from the Company during any of the prior three fiscal years; the applicable multiples are 200% of the annual base salary and bonus for the chief executive officer and 100% of the annual base salary and bonus for other executive officer participants; • • if the executive elects to continue medical coverage under COBRA, reimbursement of the executive’s premium, for 24 months for the Chief Executive Officer and for 12 months for all other executives; immediate acceleration of vesting of all of the executive officer’s unvested stock options and RSUs; however, if the consideration to be received by stockholders of the Company in connection with the change-in-control consists of substantially all cash or if the stock options and RSUs held by the executive officer are not assumed in the change-in-control, then all of the executive officer’s then-unvested and outstanding stock options and RSUs shall vest immediately prior to the change-in-control regardless of whether or not there is a termination of employment in connection therewith; and • if performance shares are accelerated, and the performance period has not been completed, the amount payable is computed as if the performance has been satisfied at the target level. In addition, the CIC Agreements include the following terms and conditions: • to the extent any change-in-control payments or benefits are characterized as excess parachute payments within the meaning of Section 4999 of the Code, and such characterization would subject the executive officer to a federal excise tax due to that characterization, the executive officer’s termination benefits will be reduced to an amount so that none of the amounts payable constitute excess parachute payments if this would result in the executive officer’s receipt, on an after-tax basis, of the greatest amount of termination and other benefits, after taking into account applicable federal, state and local taxes, including the excise tax under Section 4999 of the Code; • an initial term ending on August 24, 2012 and automatic renewal for one-year periods thereafter unless the Board terminates the CIC Agreement at least 90 days before the end of the then-current term, provided that such termination shall not be effective until the last day of the then-current term; and 42 y x o r P n G s i i r E V 2015 • the executive officer is prohibited from soliciting employees of Verisign or competing against Verisign for a period of twelve months. The following table shows the value of RSUs that would have vested for our Named Executive Officers as of December 31, 2014, as well as the additional cash compensation payable, if any, under the change-in-control and termination scenarios described above. The value of the accelerated RSUs is based on the market value of our common stock as of December 31, 2014, which was $57.00. Change-in-Control Benefit Estimates as of December 31, 2014 Value of Accelerated Cash Compensation Benefits ($)(1) Value of Accelerated Stock Awards ($) Value of Accelerated Option Awards ($) Change-in- Control Only — — — — — Change-in- Control plus Qualifying Termination 3,750,000 997,310 739,145 729,269 — Change-in- Control Only Change-in-Control plus Qualifying Termination(2) Change-in- Control Only — — — — — 18,511,035 6,344,613 1,505,598 3,464,175 — — — — — — Change-in- Control plus Qualifying Termination(2) — — — — — Named Executive Officer D. James Bidzos ......................................... George E. Kilguss, III ................................. Thomas C. Indelicarto ................................ Patrick S. Kane ........................................... Richard H. Goshorn(3) ............................... (1) (2) (3) To the extent any payments made or benefits provided upon termination of an executive officer’s employment constitute deferred compensation subject to Section 409A of the Code, payment of such amounts or provision of such benefits will be delayed for six months after the executive officer’s separation from service if and to the extent required under Section 409A. If the equity awards held by the executive are not assumed upon a change-in-control or the consideration to be received by stockholders consists of substantially all cash, then all such equity awards shall have their vesting and exercisability accelerated in full immediately prior to the change-in-control regardless of whether there is a qualifying termination. Mr. Goshorn resigned from the Company effective November 14, 2014. Please see the Summary Compensation Table above for a discussion of payments received by Mr. Goshorn upon his departure. V E r i i s G n P r o x y 2015 43 Equity Compensation Plan Information The following table sets forth information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2014. EQUITY COMPENSATION PLAN INFORMATION (A) Equity Compensation Plan Information (B) (C) Plan Category Equity compensation plans approved by stockholders(3) ... Equity compensation plans not approved by stockholders .. Total 2,221,424 $ Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) 2,221,424(4) Weighted-average exercise price of outstanding options, warrants and rights(2) $ — $ 32.30 — 32.30 Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) 12,753,477(5) — 12,753,477 (1) (2) (3) (4) (5) Includes 2,179,014 shares subject to RSUs outstanding as of December 31, 2014 that were issued under the 2006 Plan. Does not include any price for outstanding RSUs. Includes the 2006 Plan, and the 2007 Employee Stock Purchase Plan (the “2007 Purchase Plan”). Effective May 27, 2006, the granting of equity awards under the 1998 Plan was discontinued and new equity awards are granted under the 2006 Plan. Remaining authorized shares under the 1998 Plan that were not subject to outstanding awards as of May 26, 2006 were cancelled on May 26, 2006. Excludes purchase rights accruing under the 2007 Purchase Plan, which has a remaining stockholder-approved reserve of 1,742,325 shares as of December 31, 2014. Consists of shares available for future issuance under the 2006 Plan and the 2007 Purchase Plan. As of December 31, 2014, an aggregate of 11,011,152 shares and 1,742,325 shares of common stock were available for issuance under the 2006 Plan and the 2007 Purchase Plan, respectively, including 187,520 shares subject to purchase under the 2007 Purchase Plan during the current purchase period. In addition to options and RSUs, shares can be granted under the 2006 Plan pursuant to stock appreciation rights, restricted stock awards, stock bonuses and performance shares. POLICIES AND PROCEDURES WITH RESPECT TO TRANSACTIONS WITH RELATED PERSONS Verisign’s Audit Committee approved a written Policy for Entering into Transactions with Related Persons (the “Related Person Transaction Policy”) which sets forth the requirements for review, approval or ratification of transactions between Verisign and “related persons,” as such term is defined under Item 404 of Regulation S-K. Pursuant to the terms of the Related Person Transaction Policy, the Audit Committee shall review, approve or ratify the terms of any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (i) Verisign was or is to be a participant and (ii) a related person has or will have a direct or indirect material interest (“Related Person Transaction”), except for those transactions, arrangements or relationships specifically listed in the Related Person Transaction Policy that do not require approval or ratification. In determining whether to approve or ratify a Related Person Transaction, the Audit Committee will take into account, among factors it deems appropriate, whether the Related Person Transaction terms are no more favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the materiality of the related person’s direct or indirect interest in the transaction. Prior approval of the Audit Committee shall be required for the following Related Person Transactions: • Any Related Person Transaction to which a related person is a named party to the underlying agreement or arrangement; provided, however, certain agreements or arrangements between Verisign and a related person concerning employment and any compensation solely resulting from employment or concerning compensation as a member of the Board that have, in each case, been entered into or approved in accordance with policies of Verisign shall not be subject to prior approval of the Audit Committee; 44 y x o r P n G s i i r E V 2015 • Any Related Person Transaction involving an indirect material interest of a related person where the terms of the agreement or arrangement are not negotiated on an arm’s length basis or where the Related Person Transaction is not a transaction in the ordinary course of business; and • Any Related Person Transaction where the total transaction value exceeds $1,000,000. On a quarterly basis, the Audit Committee shall review and, if determined by the Audit Committee to be appropriate, ratify any Related Person Transactions not requiring prior approval of the Audit Committee pursuant to the Related Person Transaction Policy. In the event Verisign proposes to enter into a transaction with a related person who is a member of the Audit Committee or an immediate family member of a member of the Audit Committee, prior approval by a majority of the disinterested members of the Board shall be required and no such member of the Audit Committee for which he or she or an immediate family member is a related person shall participate in any discussion or approval of such transaction, except to provide all material information concerning the Related Person Transaction. The following Related Person Transactions shall not require approval or ratification by the Audit Committee: • Payment of compensation to executive officers in connection with their employment with Verisign; provided that such compensation has been approved in accordance with policies of Verisign. • Remuneration to directors in connection with their service as a member of the Board; provided that such remuneration has been approved in accordance with policies of Verisign. • Reimbursement of expenses incurred in exercising duties as an officer or director of Verisign; provided that such reimbursement has been approved in accordance with policies of Verisign. • Any transaction with another company at which a related person’s only relationship is as a director or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved does not exceed $1,000,000. • Any transaction with a related person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services. • Any transaction involving a related person where the rates or charges involved are determined by competitive bids, or the transaction involves the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority. • Any transaction where the related person’s interest arises solely from the ownership of Verisign’s common stock and all holders of Verisign’s common stock received the same benefit on a pro rata basis (e.g., dividends). There are no transactions required to be reported under Item 404(a) of Regulation S-K where the Related Person Transaction Policy did not require review, approval or ratification, or where the Related Person Transaction Policy was not followed during fiscal 2014. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Since January 1, 2014, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we or any of our subsidiaries are or were to be a party in which the amount involved exceeded or will exceed $120,000 and in which any director, executive officer or beneficial holder of more than 5% of the common stock of Verisign or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. 45 V E r i i s G n P r o x y 2015 PROPOSAL NO. 4 RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee of the Board has selected KPMG LLP as our independent registered public accounting firm to perform the audit of our consolidated financial statements for the year ending December 31, 2015, and our stockholders are being asked to ratify this selection. Representatives of KPMG LLP, expected to be present at the Meeting, will have the opportunity to make a statement at the Meeting if they desire to do so and are expected to be available to respond to appropriate questions. The Board Recommends a Vote “FOR” the Ratification of the Selection of KPMG LLP as our Independent Registered Public Accounting Firm. y x o r P n G s i i r E V 2015 46 PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table presents fees billed for professional services rendered by KPMG LLP for the audit of our annual consolidated financial statements for the years ended December 31, 2014 and December 31, 2013, and fees billed for other services provided by KPMG LLP, in each of the last two completed fiscal years. 2014 Fees 2013 Fees Audit Fees (including quarterly reviews): Consolidated Integrated Audit ........................................................ $ 1,355,000 $ 1,612,000 Statutory Audits .............................................................................. 200,927 Comfort Letters and Consent on SEC filing .................................. Total Audit Fees .......................................................... Audit-Related Fees(1) .............................................................................. Tax Fees(2) .............................................................................................. All Other Fees .......................................................................................... - Total Fees .............................................................................. $ 2,008,362 $ 2,740,671 215,665 - 1,570,665 437,697 - - 287,500 2,100,427 490,244 150,000 (1) Audit-Related Fees consist principally of reporting on Service Organization Controls (SOC 2 and 3 reports). (2) Tax Fees consist principally of technical tax advice. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors Per the Audit Committee’s Charter, the Audit Committee, or a designated member of the Audit Committee, pre-approved all audit and permissible non-audit services provided by the independent registered public accounting firm. These services included audit services, audit-related services, tax services and other services. Any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. V E r i i s G n P r o x y 2015 47 PROPOSAL NO. 5 STOCKHOLDER PROPOSAL REQUESTING THAT THE BOARD TAKE STEPS TO PERMIT STOCKHOLDER ACTION BY WRITTEN CONSENT John Chevedden has submitted a stockholder proposal for consideration at the Annual Meeting. Mr. Chevedden’s address is 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278. We have been notified that Mr. Chevedden has continuously owned no fewer than 50 shares of our common stock since June 1, 2013. If properly presented at the Annual Meeting, the Board unanimously recommends a vote “AGAINST” the following proposal. The affirmative vote of the holders of a majority of the stock present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to approve the stockholder proposal. Mr. Chevedden has requested that the proposal set forth below in italics be presented for a vote at the Meeting: Stockholder Supporting Statement Resolved, Shareholders request that our board of directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting. This written consent is to be consistent with applicable law and consistent with giving shareholders the fullest power to act by written consent consistent with applicable law. This includes shareholder ability to initiate any topic for written consent consistent with applicable law. A shareholder right to act by written consent and to call a special meeting are 2 complimentary ways to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle. A shareholder right to act by written consent is one method to equalize our limited provisions for shareholders to call a special meeting. Delaware law allows 10% of shareholders to call a special meeting without mandating a holding period. However it takes 35% of VeriSign shareholders, from only those shareholders with at least one-year of continuous stock ownership, to call a special meeting. Thus potentially 50% of VeriSign shareholders could be disenfranchised from having any voice whatsoever in calling a special meeting due to the VeriSign one-year rule. The average holding period for stock is less than one-year according to "Stock Market Investors Have Become Absurdly Impatient." Our clearly improvable corporate governance (as reported in 2014) is an added incentive to vote for this proposal: We may not have the best-qualified Lead Director in William Chenevich with 19-years long- tenure. Director independence declines after 10 to 15-years and director independence is critical to the role of an effective Lead Director. James Bidzos, our CEO had a parallel long-tenure of 19-years with William Chenevich. John Roach, on our audit and executive pay committees, was negatively flagged by GMI Ratings, an independent investment research firm, because of his director duties at PMI Group when it filed for bankruptcy. GMI said the VeriSign board did not include a fully independent audit committee, a serious concern for shareholders. Roger Moore was an inside-related director and was a member of our audit and nomination committees. GMI said unvested equity pay partially or fully accelerates upon CEO termination. Accelerated equity pay vesting allows executives to realize lucrative pay without necessarily having earned it through strong performance. VeriSign had not disclosed specific, quantifiable performance objectives for our CEO. Thus it may not be a surprise that Louis Simpson, who at age 77 chaired our executive pay committee, received our highest negative votes by far. Returning to the core topic of this proposal from the context of our clearly improvable corporate governance, please vote to protect shareholder value: Right to Act b y Written Consent - Proposal N o . 5 48 y x o r P n G s i i r E V 2015 Board of Director’s Statement in Opposition to Proposal No. 5 The Board has carefully considered the proponent’s proposal and for the following reasons believes that the proposal is not in the best interests of the Company or its stockholders and recommends voting “AGAINST” this proposal. The Proposal Provides the Ability to Disenfranchise the Company’s Minority Shareholders. In the Board’s view, the most problematic aspect of this proposal is that it would deprive stockholders of the opportunity to receive accurate and complete information about the subject of the action by written consent and to deliberate in a transparent manner. It can deprive stockholders of the ability to present their views on a particular issue and to benefit from hearing the views of other stockholders and the Board. The Board spends significant time studying the needs and issues specific to the Company and owes a fiduciary duty to the Company and its stockholders. In fact, the proposed right to act by written consent can deprive both minority stockholders and the Company from even receiving notice of the proposed actions to be taken. This could result in a stockholder action being approved by a majority of stockholders before the minority was aware that the action was being considered and before the Board could voice its viewpoint. Thus the adoption of the proponent’s proposal could result in critical corporate action being taken in relative secrecy by a bare majority of stockholders who do not owe a fiduciary duty to any other stockholder or to the Company. The Board believes matters that are sufficiently important to be subject to stockholder approval should be communicated to all stockholders who should be given the opportunity to discuss the proposed action and vote on it at an annual or special meeting. Verisign’s governing documents currently require actions subject to a stockholder vote to be considered at a meeting of stockholders. This requirement assures that all stockholders receive advance notice of the proposed action and have an opportunity to both consider the proposed action and discuss all points of view before a vote is taken. Our Shareholders’ Current Right to Call a Special Meeting Accomplishes the Proponent’s Goals. The Board believes that the proposal is unnecessary and would allow circumvention of the deliberative process afforded stockholders by the Company’s current annual and special meeting processes. The proponent suggests that stockholder rights (i) to act by written consent and (ii) to call a special meeting are two complementary ways to bring an important matter to the attention of both management and stockholders outside of the annual meeting cycle. The Board agrees that providing stockholders with the right to call a special meeting allows stockholders to bring important matters to the attention of the Board, management and stockholders. This is why the Board put forth the proposal last year to amend the Company’s Bylaws and Certificate of Incorporation to provide stockholders with such a right. But the Board strongly disagrees that implementing the proponent’s stockholder right to act by written consent proposal would accomplish any of the objectives outlined by the proponent. At last year’s annual meeting, the Board put a management proposal in front of the stockholders to provide stockholders with the ability to call a special meeting to raise and consider important matters. The proposal was adopted by stockholders who voted and held over 99 percent of the votes cast in connection with the proposal. Accordingly, the Company’s amended Bylaws now give stockholders holding at least 35 percent of the outstanding capital stock the ability to call a special meeting. This ability to call a special meeting allows stockholders to initiate action without waiting for the Company’s next annual meeting, making action by written consent as contemplated in the proposal unnecessary to facilitate prompt action by stockholders. The right to call a special meeting is an important stockholder right that the Board determined should be adopted to further Board and management accountability to stockholders. Given the Company’s stockholder concentration in a small number of investors, the Board determined last year that the 35 percent ownership threshold was in the best interests of stockholders because it strikes an important balance between supporting stockholder rights and avoiding situations in which a small minority of stockholders could force the Company to incur the time and expense of convening a special meeting to consider a matter of little or no interest to other stockholders. At December 31, 2013, just five stockholders held at least 35 percent of the outstanding capital stock of the Company. At December 31, 2014, the concentration increased further and just four stockholders held at least 35 percent of the outstanding capital stock of the Company. Given this high concentration of stockholdings, the Board acted to provide stockholders with the right to call a special meeting in a manner that ensured a meaningful number of stockholders would be permitted to participate in the decision-making process to call a special meeting. A special meeting, called by a meaningful number of stockholders, is preferable to action by written consent as proposed because a special meeting allows all stockholders to participate in the proposed action and allows the Board to make a considered recommendation regarding the action. 49 V E r i i s G n P r o x y 2015 The Proposal Provides Opportunities for Abuse and Confusion. Allowing stockholders to act by written consent as contemplated by the proposal allows stockholders to take action without complying with the procedural safeguards inherent in the stockholder meeting process. The proponent’s proposal provides opportunity for abuse and other issues, including: -- It may encourage short-term stock ownership manipulation by a small group of investors to advance a special agenda that may be contrary to the long-term best interests of the Company and all of its stockholders. -- It may result in special interest demands that distract management and the Board and may result in significant administrative burdens and expense. -- It may create confusion because multiple groups of stockholders could solicit written consents simultaneously, some of which may be duplicative or contradictory. The Company Provides Other Mechanisms to Ensure Board Accountability to Shareholders. In addition to the powerful right for stockholders to call a special meeting added last year, the Company’s current governance structure, as revised in recent years to incorporate best practices, already makes the Board responsive to stockholder concerns. The Board has taken numerous actions to promote effective corporate governance and accountability to stockholders, including the following: • • • • • • • • Declassification of the Board—We have recommended and stockholders have approved amendments to the Certificate of Incorporation to eliminate the classified board and provide for the annual election of all directors. Lead Independent Director—The Board has appointed a lead independent director, ensuring Board independence from management by permitting the lead independent director to call and chair meetings of the independent directors separate and apart from the Chairman of the Board. Majority voting—Verisign’s amended Bylaws provide for a majority of votes cast standard in uncontested director elections rather than a plurality. No Super Majority Voting – Verisign’s corporate documents do not include any supermajority voting provisions. No Stockholder Rights Plan – Verisign does not have a stockholder rights plan, also known as a poison pill. Annual Advisory Vote on Executive Compensation – The Board has implemented an annual stockholder advisory vote on executive compensation, which means that stockholders have the opportunity to provide feedback on the Company’s executive compensation practices on an annual basis. Verisign’s Board is primarily composed of independent directors – All but one member of Verisign’s eight- member Board are independent directors. Stockholder communications with the Board – As described in this Proxy Statement, the Company has established a process by which stockholders may communicate directly with the Company’s Board or non- management directors throughout the year on any topics of interest to stockholders. The Board believes in policies and governance practices that serve the interests of the Company and its stockholders as a whole. This proposal would not do so. The Board recommends a vote “AGAINST” this proposal for the reasons discussed above. Proxies solicited by the Board will be voted “AGAINST” this proposal unless a stockholder indicates otherwise in voting the proxy. 50 y x o r P n G s i i r E V 2015 OTHER INFORMATION Stockholder Proposals for the 2016 Annual Meeting of Stockholders Proposals of stockholders intended to be presented at our 2016 Annual Meeting of Stockholders and included in our proxy statement and form of proxy relating to the meeting, pursuant to Rule 14a-8 under the Exchange Act must be received by us at our principal executive offices no later than 120 calendar days before the one year anniversary of the date of this Proxy Statement, or December 10, 2015. In accordance with our Bylaws, we have an advance notice procedure for stockholder proposals not included in our proxy statement to be brought before an Annual Meeting of Stockholders. In general, nominations for the election of directors may be made: • pursuant to Verisign’s notice of such meeting; • by or at the direction of the Board; or • by any stockholder of the Company who was a stockholder of record at the time of giving notice who is entitled to vote at such meeting and complies with the notice procedures set forth below. The only business that will be conducted at an Annual Meeting of Stockholders is business that is brought before the meeting by or at the direction of the chairman of the meeting and is consistent with rules and regulations that the Board may adopt for the conduct of the meeting or by any stockholder entitled to vote who has delivered timely written notice to the Secretary of the Company no later than ninety (90) days and no earlier than one hundred twenty (120) days prior to the first anniversary of the date of the Company’s proxy statement released to stockholders in connection with the previous year’s Annual Meeting (such date, the “Proxy Anniversary Date”). In the event that the date of the Annual Meeting is more than thirty (30) days before or more than sixty (60) days after the Proxy Anniversary Date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to the Annual Meeting and not later than the close of business on the later of the ninetieth (90th) day prior to the Annual Meeting or the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Company. Additionally, if the number of directors to be elected to the board is increased and the Company does not publicly announce either all of the director nominees or the size of the increased board at least seventy (70) days prior to the Proxy Anniversary Date (or, if the Annual Meeting is held more than thirty (30) days before or more than sixty (60) days after the Proxy Anniversary Date, at least seventy (70) days prior to such meeting), a stockholder’s notice with respect to nominees for any new positions will be considered timely if delivered no later than the close of business on the tenth (10th) day following such public announcement by the Company. In no event shall the public announcement of an adjournment or postponement of an annual meeting or a new record date for an annual meeting commence a new time period for the giving of a stockholder’s notice as described above. The stockholder’s notice must contain information specified in the Bylaws concerning the matters to be brought before the meeting and concerning the stockholder proposing those matters and certain other parties. If a stockholder who has notified us of his or her intention to present a proposal at an Annual Meeting does not appear or send a qualified representative to present the stockholder’s proposal at the meeting, the Company need not present the proposal for a vote at the meeting. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements, including conditions established by the SEC. To be eligible to be a nominee for election or re-election by the stockholders as a director of the Company or to serve as a director of the Company, a person must deliver to the Secretary a written questionnaire with respect to the background and qualification of such person and, if applicable, the background of any other person on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person: (i) is not and will not become a party to any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person as to how such person, if elected as a director, will act or vote on any issue or question that has not been disclosed in such questionnaire; (ii) is not and will not become a party to any agreement, arrangement or understanding with any person other than the Company with respect to any direct or indirect compensation, 51 V E r i i s G n P r o x y 2015 reimbursement or indemnification in connection with service or action as a director that has not been disclosed in such questionnaire; and (iii) in such person’s individual capacity and on behalf of any person on whose behalf the nomination is being made, would be in compliance, if elected as a director, and will comply with, applicable law and all conflict of interest, confidentiality and other policies and guidelines of the Company (including the Company’s Corporate Governance Principles) applicable to directors generally and publicly available (whether on the Company’s website or otherwise) as of the date of such representation and agreement. A copy of the full text of the bylaw provisions discussed above may be obtained by writing to the Secretary of Verisign and is also available at our website at https://investor.verisign.com/documents.cfm. All notices of proposals by stockholders, whether or not included in our proxy materials, should be sent to the Secretary of Verisign at 12061 Bluemont Way, Reston, Virginia 20190. y x o r P n G s i i r E V 2015 52 Other Business The Board does not presently intend to bring any other business before the Meeting, and, so far as is known to the Board, no matters are to be brought before the Meeting except as specified in the Notice of the Meeting. As to any business that may properly come before the Meeting, however, it is intended that proxies will be voted in respect thereof in accordance with the judgment of the persons voting such proxies. Whether or not you expect to attend the Meeting, please complete the proxy electronically as described on the Notice of Internet Availability of Proxy Materials and under “Internet and Telephone Voting” in this Proxy Statement, or alternatively, if you have requested paper copies of the proxy soliciting materials, please complete, date, sign and promptly return the proxy in the enclosed postage paid envelope or cast your vote by phone so that your shares may be represented at the Meeting. Communicating With Verisign We have from time-to-time received calls from stockholders inquiring about the available means of communication with Verisign. We thought that it would be helpful to describe those arrangements that are available for your use. • If you would like to receive information about Verisign, you may use one of these convenient methods: 1. 2. To have information such as our latest Annual Report on Form 10-K or Quarterly Report on Form 10-Q mailed to you, please email our Investor Relations Department at ir@verisign.com, and specify your mailing address, or call our Investor Relations Department at 1-800-922-4917 (U.S.) or 1-703-948-3447 (international). To view our website on the Internet, use our Internet address: www.verisigninc.com. Our home page gives you access to product, marketing and financial data, and an on-line version of this Proxy Statement, our Annual Report on Form 10-K and other filings with the SEC. The information available on, or accessible through, this website is not incorporated herein by reference. • If you would like to write to us, please send your correspondence to the following address: VeriSign, Inc. Attention: Investor Relations 12061 Bluemont Way Reston, Virginia 20190 or via email at ir@verisign.com. • If you would like to inquire about stock transfer requirements, lost certificates and change of stockholder address, please call our transfer agent, Computershare Inc. at 1-877-255-1918. Foreign stockholders please call 1-201-680-6578. You may also visit their website at http://www.computershare.com/investor for step-by-step transfer instructions. 53 V E r i i s G n P r o x y 2015 This page intentionally left blank. y x o r P n G s i i r E V 2015 APPENDIX A VERISIGN, INC. ANNUAL INCENTIVE COMPENSATION PLAN VeriSign, Inc. (the “Company”), a Delaware corporation, hereby establishes and adopts the Annual Incentive Compensation Plan (the “Plan”) to provide incentive awards that are intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. 1. PURPOSES OF THE PLAN The purposes of the Plan are to advance the interests of the Company and its stockholders and assist the Company in attracting and retaining executive officers of the Company and its Affiliates who, because of the extent of their responsibilities, can make significant contributions to the Company’s success by their ability, industry, loyalty and exceptional services, by providing incentives and financial rewards to such executive officers. 2. DEFINITIONS 2.1. “Affiliate” shall mean any corporation, partnership or other organization of which the Company owns or controls, directly or indirectly, not less than 50% of the total combined voting power of all classes of stock or other equity interests. 2.2. “Award” shall mean an award granted to a Participant under the Plan. 2.3. “Board” shall mean the board of directors of the Company. 2.4. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. 2.5. “Committee” shall mean the Compensation Committee of the Board or any subcommittee thereof formed by the Compensation Committee to act as the Committee hereunder. For purposes of satisfying the requirements of Section 162(m) of the Code and the regulations thereunder, the Committee is intended to consist solely of two or more “outside directors” as such term is defined in Section 162(m) of the Code and the regulations thereunder. 2.6. “Disability” means any physical or mental condition of a Participant that in the opinion of the Committee renders the Participant incapable of continuing to be an employee of the Company and its Affiliates. 2.7. “Participant” shall mean the Company’s Chief Executive Officer and each other executive officer of the Company selected by the Committee pursuant to Section 3.1 to participate in the Plan. 2.8. “Performance Criteria” shall mean the measurable performance objective(s) established pursuant to the Plan for Participants who have received grants of Awards hereunder, which may include any one or more of the following: net sales; revenue; revenue growth or product revenue growth; operating income (before or after taxes); pre- or after-tax income or loss (before or after allocation of corporate overhead and bonus); earnings or loss per share; net income or loss (before or after taxes); return on equity; total stockholder return; cash flow or cash flow per share; return on assets or net assets; appreciation in and/or maintenance of the price of shares of the Company’s common stock or any other publicly-traded securities of the Company; market share; gross profits; earnings or losses (including earnings or losses before taxes, before interest and taxes, or before interest, taxes, depreciation and amortization); economic value-added models or equivalent metrics; comparisons with various stock market indices; reductions in costs; cash flow or cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return on investment; improvement in or attainment of expense levels or working capital levels, including cash, inventory and accounts receivable; operating margin; gross margin; year-end cash; cash margin; debt reduction; stockholders equity; operating efficiencies; market share; customer satisfaction; customer growth; employee satisfaction; regulatory achievements (including submitting or filing applications or other documents with regulatory authorities or receiving approval of any such applications or other documents and passing pre-approval inspections (whether of the Company or the Company’s third-party manufacturer) and validation of manufacturing processes (whether the Company’s or the Company’s third-party manufacturer’s)); strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property; establishing relationships with commercial entities with respect to the marketing, distribution and sale of the Company’s products (including with group purchasing organizations, distributors and other vendors); supply chain achievements (including establishing relationships with manufacturers or suppliers of component materials and manufacturers of the Company’s products); co-development, co-marketing, profit sharing, joint venture or other similar arrangements; financial ratios, including those measuring liquidity, activity, profitability or leverage; cost of capital or assets under management; financing and other capital raising transactions (including sales of the Company’s equity or debt securities; factoring transactions; sales or licenses of the Company’s assets, including its intellectual property, whether in a particular jurisdiction or territory or globally; or through partnering transactions); implementation, completion or attainment of measurable A-1 V E r i i s G n P r o x y 2015 objectives with respect to research, development, manufacturing, commercialization, products or projects, production volume levels, acquisitions and divestitures; factoring transactions; or recruiting and maintaining personnel. 2.9. “Performance Period” shall mean the Company’s fiscal year or such other period that the Committee, in its sole discretion, may establish. 3. ELIGIBILITY AND ADMINISTRATION 3.1. Eligibility. The individuals eligible to participate in the Plan shall be the Company’s Chief Executive Officer and any other executive officer of the Company or an Affiliate selected by the Committee to participate in the Plan (each, a “Participant”). 3.2. Administration. (a) The Plan shall be administered by the Committee. The Committee shall have full power and authority, subject to the provisions of the Plan and subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board or the Committee, to: (i) select the Participants to whom Awards may from time to time be granted hereunder; (ii) determine the terms and conditions, not inconsistent with the provisions of the Plan, of each Award; (iii) determine the time when Awards will be granted and paid and the Performance Period to which they relate; (iv) determine the performance goals for Awards for each Participant in respect of each Performance Period based on the Performance Criteria and certify the calculation of the amount of the Award payable to each Participant in respect of each Performance Period; (v) determine whether payment of Awards may be deferred by Participants; (vi) interpret and administer the Plan and any instrument or agreement entered into in connection with the Plan; (vii) correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent that the Committee shall deem desirable to carry it into effect; (viii) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan. (b) Decisions of the Committee shall be final, conclusive and binding on all persons or entities, including the Company, any Affiliate, any Participant and any person claiming any benefit or right under an Award or under the Plan. (c) To the extent not inconsistent with applicable law or the rules and regulations of the NASDAQ Stock Market (or such other principal securities market on which the Company’s securities are listed or qualified for trading), including the applicable provisions of Section 162(m) of the Code and the regulations thereunder, the Committee may delegate to one or more officers of the Company or a committee of officers the authority to take actions on its behalf pursuant to the Plan. 4. AWARDS 4.1. Performance Period; Performance Goals. (a) Not later than the earlier of (i) 90 days after the commencement of each fiscal year of the Company and (ii) the expiration of 25% of the Performance Period, the Committee shall, in writing, designate (x) one or more Performance Periods, (y) the Participants for each Performance Period and (z) the performance goals for determining the Award to be paid to each Participant for each Performance Period based on attainment of specified levels of one or any combination of the Performance Criteria. Within such time period the Committee shall also specify any exclusion(s) or inclusion(s) for charges related to any event(s) or occurrence(s) which the Committee determines should appropriately be excluded or included, as applicable, for purposes of measuring performance against the applicable Performance Criteria, which may include (a) restructurings, reorganizations, discontinued operations, non-core businesses in continuing operations, acquisitions, dispositions, or any extraordinary nonrecurring, unusual or infrequently occurring items and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s Annual Report on Form 10-K for the applicable year, (b) the cumulative effects of tax or accounting changes, each in accordance with generally accepted accounting principles, (c) foreign exchange gains or losses, (d) stock-based compensation, (e) amortization of intangible assets, impairments of goodwill and other intangible assets, asset write downs, or non-cash interest expense, (f) the refinancing or repurchase of bank loans or debt securities or (g) litigation or claim judgments or settlements. Any such inclusion or exclusion shall be prescribed in a form that meets the requirements for deductibility under Section 162(m) of the Code and the regulations thereunder. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances, render previously established performance goals unsuitable, the Committee may in its discretion modify such performance goals or the related levels of achievement, in whole or in part, as the Committee deems appropriate and equitable; provided that, unless the Committee determines otherwise, no such action shall be taken if and to the extent it would result in the loss of an otherwise available exemption of the Award under Section 162(m) of the Code and the regulations thereunder. (b) If a person becomes eligible to participate in the Plan after the Committee has made its initial designation of Participants, such individual may become a Participant if so designated in writing by the Committee. (c) The performance goals designated by the Committee may be determined solely by reference to the Company’s performance and/or the performance of one or more Affiliates, divisions, business segments or business units of the Company, or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies. Such performance goals shall otherwise comply with the requirements for performance based compensation set forth in Section 162(m) of the Code and the regulations thereunder. A-2 y x o r P n G s i i r E V 2015 4.2. Certification. At such time as it shall determine appropriate following the conclusion of each Performance Period and prior to the applicable payment date (as determined in accordance with Section 4.3), the Committee shall certify, in writing, whether and to what extent the applicable Performance Criteria have been satisfied and the amount (if any) to be paid pursuant to each Participant’s Award for such Performance Period. 4.3. Payment of Awards. The amount of the Award actually paid to a Participant may, in the sole discretion of the Committee, be reduced to less than the amount otherwise payable to the Participant based on attainment of the performance goals for the Performance Period as determined in accordance with Sections 4.1 and 4.2 (including that any such amount may be reduced to zero). The Committee may not waive the achievement of the applicable performance goals except in the case of the death or Disability of the Participant, a change in control of the Company, or as otherwise determined by the Committee in special circumstances, in each case in accordance with the exception for performance based compensation set forth in Section 162(m) of the Code and the regulations thereunder. The actual amount of the Award determined by the Committee for a Performance Period shall be paid in cash and/or, to the extent provided in such plan, in share awards under a stockholder-approved stock plan of the Company. Payment to each Participant shall be subject to the Participant’s continuous employment with the Company or its Affiliate through the applicable payment date. If the Participant satisfies the service condition set forth in the preceding sentence, payment to such Participant shall be made no later than the fifteenth day of the third month following the end of the fiscal year of the Company in which the applicable payment date occurs, unless payment is deferred pursuant to a plan or arrangement satisfying the requirements of Section 409A of the Code. 4.4. Changes in Employment. If a person becomes a Participant as specified in Section 4.1(b) during a Performance Period, the Award payable to such Participant may, in the discretion of the Committee, be proportionately reduced based on the period of actual employment during the applicable Performance Period. If a Participant does not remain continuously employed with the Company or its Affiliate through the applicable payment date for an Award, the Participant shall forfeit his or her right to any payment pursuant to such Award; provided that, except where the Participant was terminated for cause (as determined by the Committee in its sole discretion), the Committee, in its sole discretion, may determine to pay such Participant all or any portion of such Award, subject to such terms and conditions as the Committee may establish. Notwithstanding anything to the contrary herein, unless the Committee determines otherwise, any actions taken by the Committee pursuant to this Section 4.4 shall be subject to compliance with the exception for performance based compensation set forth in Section 162(m) of the Code and the regulations thereunder. 4.5. Maximum Award. The maximum dollar value of an Award payable to any Participant in any 12-month period is $5,000,000. 5. MISCELLANEOUS 5.1. Amendment and Termination of the Plan. The Board or the Committee may, from time to time, alter, amend, suspend or terminate the Plan as it shall deem advisable, subject to any requirement for stockholder approval imposed by applicable law, including Section 162(m) of the Code, or by the NASDAQ Stock Market (or such other principal securities market on which the Company’s securities are listed or qualified for trading). No amendments to, or termination of, the Plan shall in any way materially impair the rights of a Participant under any Award previously granted without such Participant’s consent. 5.2. Section 162(m) of the Code. Unless otherwise determined by the Committee, the provisions of this Plan shall be administered and interpreted in accordance with Section 162(m) of the Code and the regulations thereunder to ensure the deductibility by the Company of the payment of Awards. 5.3. Section 409A of the Code. Awards are intended not to be subject to Section 409A of the Code by reason of being a short- term deferral and shall be interpreted accordingly. If any provision of the Plan or any Award could cause any Award to be subject to taxes, interest or penalties under Section 409A of the Code, or if any such provision contravenes Section 409A (or any regulations or guidance promulgated thereunder), the Company may, in its sole discretion, modify the Plan or any Award to (a) avoid being subject to, or comply with, Section 409A, (b) avoid the imposition of taxes, interest and penalties under Section 409A and/or (c) maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A. Moreover, any discretionary authority that the Board or the Committee may have pursuant to the Plan shall not be applicable to any Award that is subject to Section 409A to the extent such discretionary authority would contravene Section 409A. Nothing in the Plan shall require the Company to provide any gross-up or other tax reimbursement to a Participant in connection with any violation of Section 409A or otherwise. 5.4. Tax Withholding. The Company or an Affiliate shall have the right to make all payments or distributions pursuant to the Plan to a Participant net of any applicable federal, state and local taxes required to be paid or withheld. The Company or an Affiliate shall have the right to withhold from wages, Awards or other amounts otherwise payable to such Participant such withholding taxes as may be required by law, or to otherwise require the Participant to pay such withholding taxes. If the Participant shall fail to make such tax payments as are required, the Company or an Affiliate shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Participant or to take such other action as may be necessary to satisfy such withholding obligations. A-3 V E r i i s G n P r o x y 2015 5.5. Right of Discharge Reserved; Claims to Awards. Nothing in this Plan shall provide any Participant a right to receive any Award or payment under the Plan with respect to a Performance Period. Nothing in the Plan nor the grant of an Award hereunder shall confer upon any Participant the right to continue in the employment of the Company or an Affiliate or affect any right that the Company or an Affiliate may have to terminate the employment of (or to demote or to exclude from future Awards under the Plan) any such Participant at any time for any reason. Except as specifically provided by the Committee, in the event of the termination of employment of any Participant, the Company shall not be liable for the loss of existing or potential profit from any Award granted to such Participant. No Participant shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants under the Plan. 5.6. Nature of Payments. All Awards made pursuant to the Plan are in consideration of services performed or to be performed for the Company or an Affiliate, division or business unit of the Company. Any income or gain realized pursuant to Awards under the Plan constitute a special incentive payment to the Participant and shall not be taken into account, to the extent permissible under applicable law, as compensation for purposes of any of the employee benefit plans of the Company or an Affiliate except as may be determined by the Committee or by the Board or board of directors of the applicable Affiliate. 5.7. Other Plans. Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. 5.8. Incentive Compensation Recovery. Notwithstanding any other provision of the Plan, all Awards made pursuant to the Plan may be recovered by the Committee, in whole or in part, if such recovery is required by applicable law or regulations, including rules and regulations promulgated by the Securities and Exchange Commission and the NASDAQ Stock Market or any policy adopted by the Company. 5.9. Severability. If any provision of the Plan shall be held unlawful or otherwise invalid or unenforceable in whole or in part by a court of competent jurisdiction, such provision shall (a) be deemed limited to the extent that such court of competent jurisdiction deems it lawful, valid and/or enforceable and as so limited shall remain in full force and effect, and (b) not affect any other provision of the Plan or part thereof, each of which shall remain in full force and effect. If the making of any payment or the provision of any other benefit required under the Plan shall be held unlawful or otherwise invalid or unenforceable by a court of competent jurisdiction, such unlawfulness, invalidity or unenforceability shall not prevent any other payment or benefit from being made or provided under the Plan, and if the making of any payment in full or the provision of any other benefit required under the Plan in full would be unlawful or otherwise invalid or unenforceable, then such unlawfulness, invalidity or unenforceability shall not prevent such payment or benefit from being made or provided in part, to the extent that it would not be unlawful, invalid or unenforceable, and the maximum payment or benefit that would not be unlawful, invalid or unenforceable shall be made or provided under the Plan. 5.10. Construction. As used in the Plan, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.” 5.11. Unfunded Status of the Plan. The Plan is intended to constitute an “unfunded” plan for incentive compensation and deferred compensation if permitted by the Committee. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. 5.12. Governing Law. The Plan and all determinations made and actions taken thereunder, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware, without reference to principles of conflict of laws that might result in the application of the laws of another jurisdiction, and shall be construed accordingly. 5.13. Effective Date of Plan. The Plan shall be effective on the date of the approval of the Plan by the holders of the then outstanding securities of the Company entitled to vote generally in the election of directors. The Plan shall be null and void and of no effect if the foregoing condition is not fulfilled. 5.14. Captions. The captions in the Plan are for convenience of reference only, and are not intended to narrow, limit or affect the substance or interpretation of the provisions contained herein. A-4 y x o r P n G s i i r E V 2015 BOARD OF DIRECTORS D. James Bidzos Chairman of the Board of Directors Executive Chairman President and Chief Executive Officer VeriSign, Inc. William L. Chenevich Former Vice Chairman of Technology and Operations U.S. Bancorp Jamie S. Gorelick Partner Wilmer Cutler Pickering Hale and Dorr LLP Louis A. Simpson Chairman SQ Advisors, LLC Roger H. Moore Former President and Chief Executive Officer Illuminet Holdings, Inc. Timothy Tomlinson Former General Counsel Portola Minerals Company Kathleen A. Cote Former Chief Executive Officer Worldport Communications Company John D. Roach Chairman and Chief Executive Officer Stonegate International EXECUTIVE OFFICERS D. James Bidzos Chairman of the Board of Directors Executive Chairman President and Chief Executive Officer George E. Kilguss, III Senior Vice President and Chief Financial Officer INVESTOR INFO Quarterly earnings releases, corporate news releases, and Securities and Exchange Commission filings are available by contacting Verisign Investor Relations or through our website at http://investor.verisign.com. A copy of Verisign’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, containing additional information of possible interest to stockholders will be sent without charge to any stockholder who requests it. Please direct your request to Verisign Investor Relations at the address at right. STOCK EXCHANGE LISTING NASDAQ Stock Market Ticker Symbol: VRSN Thomas C. Indelicarto Senior Vice President General Counsel and Secretary VERISIGN INVESTOR RELATIONS 12061 Bluemont Way Reston, VA 20190 Phone: + 1 800 922 4917 Int’l: + 1 703 948 3447 Email: ir@verisign.com http://investor.verisign.com INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP 1676 International Drive, Suite 1200 McLean, VA 22102 TRANSFER AGENT If you have questions concerning stock certificates, change of address, consolidation of accounts, transfer of ownership, or other stock account matters, please contact Verisign’s transfer agent: Computershare Inc. P.O. Box 30170 College Station, TX 77842 Phone: + 1 877 255 1918 Int’l: + 1 201 680 6578 http://www.computershare.com/investor ABOUT VERISIGN Verisign, a global leader in domain names and Internet security, enables Internet navigation for many of the world’s most recognized domain names and provides protection for websites and enterprises around the world. Verisign ensures the security, stability and resiliency of key Internet infrastructure and services, including the .com and .net domains and two of the Internet’s root servers, as well as performs the root-zone maintainer functions for the core of the Internet’s Domain Name System (DNS). Verisign’s Network Intelligence and Availability services include intelligence-driven Distributed Denial of Service Protection, iDefense Security Intelligence and Managed DNS. To learn more about what it means to be Powered by Verisign, please visit VerisignInc.com. WORLDWIDE UNITED STATES: 12061 Bluemont Way Reston, VA 20190 Phone: +1 703 948 3200 EUROPE: 3 rue des Pilettes CH-1700 Fribourg Switzerland Phone: +41 (0) 26 408 7778 Verisign – MWB Bank MWB Business Exchange One Kingdom Street Paddington London W2 6BD United Kingdom Phone: +44 20 3207 9085 ASIA: 80 Feet Road Koramangala Koramangala, Bangalore – 560 034 Karnataka India Phone: + 91 80 4256 5656 Suite 1511 and Suite 1518, 15/F Office Building A, Parkview Green 9 Dongdaqiao Road Chaoyang District, Beijing, 100020, PRC Phone: +86 (10) 5730 6081 AUSTRALIA: 5 Queens Road Level 10 Melbourne, VIC, 3004 Australia Phone: + 61 3 9926 6700 VerisignInc.com I I V E R S G N A N N U A L R E P O R T 2 0 1 4 ANNUAL REPORT 2014 i V e r i s g n I n c c o m . 

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