Attached files

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EX-32.2 - CERTIFICATION OF REGISTRANT'S CFO, PURSUANT TO 18 U.S.C. SECTION 1350 - JUNIPER NETWORKS INCjnpr-20160630ex322.htm
EX-32.1 - CERTIFICATION OF REGISTRANT'S CEO, PURSUANT TO 18 U.S.C. SECTION 1350 - JUNIPER NETWORKS INCjnpr-20160630ex321.htm
EX-31.2 - CERTIFICATION OF REGISTRANT'S CFO, PURSUANT TO RULE 13A-14(A)/15D-14(A) - JUNIPER NETWORKS INCjnpr-20160630ex312.htm
EX-31.1 - CERTIFICATION OF REGISTRANT'S CEO, PURSUANT TO RULE 13A-14(A)/15D-14(A) - JUNIPER NETWORKS INCjnpr-20160630ex311.htm
EX-12.1 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - JUNIPER NETWORKS INCjnpr-20160630ex121.htm
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
or
o
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: 001-34501

JUNIPER NETWORKS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
77-0422528
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1133 Innovation Way
 
 
Sunnyvale, California
 
94089
(Address of principal executive offices)
 
(Zip code)
(408) 745-2000
(Registrant's telephone number, including area code)

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 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 x No o
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 x No o
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 x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a 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 o No x
There were 382,962,669 shares of the Company's Common Stock, par value $0.00001, outstanding as of July 29, 2016.

 



Juniper Networks, Inc.
Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Juniper Networks, Inc.
Condensed Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net revenues:
 
 
 
 
 
 
 
Product
$
862.1

 
$
899.7

 
$
1,615.1

 
$
1,663.8

Service
359.2

 
322.5

 
704.1

 
625.8

Total net revenues
1,221.3

 
1,222.2

 
2,319.2

 
2,289.6

Cost of revenues:
 
 
 
 
 
 
 
Product
328.3

 
311.7

 
606.2

 
600.5

Service
136.6

 
129.0

 
265.7

 
250.3

Total cost of revenues
464.9

 
440.7

 
871.9

 
850.8

Gross margin
756.4

 
781.5

 
1,447.3

 
1,438.8

Operating expenses:
 
 
 
 
 
 
 
Research and development
247.9

 
251.6

 
498.9

 
500.3

Sales and marketing
243.7

 
232.4

 
475.5

 
452.6

General and administrative
58.6

 
56.3

 
118.0

 
111.5

Restructuring charges (benefits)
2.4

 
(1.9
)
 
2.4

 
(0.5
)
Total operating expenses
552.6

 
538.4

 
1,094.8

 
1,063.9

Operating income
203.8

 
243.1

 
352.5

 
374.9

Other expense, net
(11.6
)
 
(17.1
)
 
(33.8
)
 
(32.9
)
Income before income taxes
192.2

 
226.0

 
318.7

 
342.0

Income tax provision
52.2

 
68.0

 
87.3

 
103.8

Net income
$
140.0

 
$
158.0

 
$
231.4

 
$
238.2

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.37

 
$
0.41

 
$
0.60

 
$
0.60

Diluted
$
0.36

 
$
0.40

 
$
0.60

 
$
0.59

Shares used in computing net income per share:
 
 
 
 
 
 
 
Basic
382.8

 
389.9

 
383.0

 
398.4

Diluted
386.3

 
397.2

 
388.6

 
406.1

Cash dividends declared per common stock
$
0.10

 
$
0.10

 
$
0.20

 
$
0.20


See accompanying Notes to Condensed Consolidated Financial Statements


3


Juniper Networks, Inc.
Condensed Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
140.0

 
$
158.0

 
$
231.4

 
$
238.2

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Unrealized gains on available-for-sale
  securities, net of tax benefit of $0.6 and $0.7
  during the three and six months ended June 30,
  2016, respectively, and $5.4 and $1.6 for the
  corresponding periods of the fiscal year ended
  December 31, 2015 ("fiscal 2015"), respectively
1.7

 
9.0

 
6.0

 
8.2

Reclassification adjustment for realized net gains
  on available-for-sale securities included in net
  income, net of tax provisions of $0.5 and $0.5
  during the three and six months ended June 30,
  2016, respectively, and zero for the
  corresponding periods of fiscal 2015
(1.0
)
 
(0.3
)
 
(0.8
)
 
(0.5
)
Net change on available-for-sale securities, net
  of taxes
0.7

 
8.7

 
5.2

 
7.7

Cash flow hedges:
 
 
 
 
 
 
 
Unrealized gains (loss) on cash flow hedges, net
  of tax provisions of $0.1 and $0.6 during the
  three and six months ended June 30, 2016,
  respectively, and $0.4 and $0.7 for the
  corresponding periods of fiscal 2015,
  respectively
1.4

 
2.4

 
3.9

 
(4.0
)
Reclassification adjustment for realized net
  (gains) losses on cash flow hedges included in
  net income, net of tax provisions of $0.3 and
  $0.1 during the three and six months ended
  June 30, 2016, respectively, and zero and $0.1
  for the corresponding periods of fiscal 2015,
  respectively
(1.2
)
 
3.8

 
(0.1
)
 
6.9

Net change on cash flow hedges, net of taxes
0.2

 
6.2

 
3.8

 
2.9

Change in foreign currency translation adjustments
2.2

 
7.0

 
5.8

 
(4.1
)
Other comprehensive income, net of tax
3.1

 
21.9

 
14.8

 
6.5

Comprehensive income
$
143.1

 
$
179.9

 
$
246.2

 
$
244.7


See accompanying Notes to Condensed Consolidated Financial Statements


4


Juniper Networks, Inc.
Condensed Consolidated Balance Sheets
(In millions, except par values)
 
June 30,
2016
 
December 31,
2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,756.9

 
$
1,420.9

Short-term investments
587.1

 
527.1

Accounts receivable, net of allowances
750.3

 
780.7

Prepaid expenses and other current assets
359.5

 
183.7

Total current assets
3,453.8

 
2,912.4

Property and equipment, net
1,066.6

 
1,021.0

Long-term investments
1,147.1

 
1,244.2

Restricted cash and investments
65.2

 
36.2

Purchased intangible assets, net
69.1

 
33.9

Goodwill
3,001.6

 
2,981.3

Other long-term assets
259.4

 
378.9

Total assets
$
9,062.8

 
$
8,607.9

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt
$

 
$
299.9

Accounts payable
228.4

 
159.3

Accrued compensation
199.2

 
269.5

Deferred revenue
933.0

 
822.9

Other accrued liabilities
221.2

 
250.3

Total current liabilities
1,581.8

 
1,801.9

Long-term debt
2,132.5

 
1,637.5

Long-term deferred revenue
362.6

 
345.2

Long-term income taxes payable
199.8

 
187.3

Other long-term liabilities
109.9

 
61.6

Total liabilities
4,386.6

 
4,033.5

Commitments and contingencies (Note 15)


 


Stockholders' equity:
 
 
 
Convertible preferred stock, $0.00001 par value; 10.0 shares authorized; none
   issued and outstanding

 

Common stock, $0.00001 par value; 1,000.0 shares authorized; 382.8 shares and
   384.0 shares issued and outstanding as of June 30, 2016 and December 31,
   2015, respectively

 

Additional paid-in capital
8,277.0

 
8,334.8

Accumulated other comprehensive loss
(4.4
)
 
(19.2
)
Accumulated deficit
(3,596.4
)
 
(3,741.2
)
Total stockholders' equity
4,676.2

 
4,574.4

Total liabilities and stockholders' equity
$
9,062.8

 
$
8,607.9


See accompanying Notes to Condensed Consolidated Financial Statements

5


Juniper Networks, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
231.4

 
$
238.2

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Share-based compensation expense
107.4

 
104.9

Depreciation, amortization, and accretion
98.6

 
89.0

Restructuring and non-cash acquisition charges (benefits)
5.2

 
(0.5
)
Deferred income taxes
42.7

 
23.9

Loss (gain) on investments, net
1.8

 
(0.8
)
Excess tax benefits from share-based compensation
(5.6
)
 
(4.3
)
Loss on disposal of fixed assets

 
0.4

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable, net
39.5

 
29.0

Prepaid expenses and other assets
(58.0
)
 
(41.7
)
Accounts payable
62.9

 
(13.8
)
Accrued compensation
(67.2
)
 
3.6

Income taxes payable
(23.6
)
 
56.7

Other accrued liabilities
(24.7
)
 
(30.7
)
Deferred revenue
116.4

 
28.6

Net cash provided by operating activities
526.8

 
482.5

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(116.9
)
 
(83.8
)
Purchases of available-for-sale investments
(794.9
)
 
(841.3
)
Proceeds from sales of available-for-sale investments
665.8

 
450.9

Proceeds from maturities of available-for-sale investments
152.8

 
115.9

Purchases of trading investments
(3.2
)
 
(2.5
)
Proceeds from sales of privately-held investments
2.8

 

Purchases of privately-held investments
(10.5
)
 
(3.2
)
Payments for business acquisitions, net of cash and cash equivalents acquired
(22.8
)
 

Changes in restricted cash
0.5

 

Net cash used in investing activities
(126.4
)
 
(364.0
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
32.2

 
63.0

Purchases and retirement of common stock
(210.1
)
 
(1,004.7
)
Issuance of long-term debt, net
494.0

 
594.6

Payment of long-term debt
(300.0
)
 

Payment under lease obligations
(0.9
)
 
0.4

Payment of assumed debt
(15.5
)
 

Excess tax benefits from share-based compensation
5.6

 
4.3

Payment of cash dividends
(76.4
)
 
(79.5
)
Net cash used in financing activities
(71.1
)
 
(421.9
)
Effect of foreign currency exchange rates on cash and cash equivalents
6.7

 
(5.9
)
Net increase (decrease) in cash and cash equivalents
336.0

 
(309.3
)
Cash and cash equivalents at beginning of period
1,420.9

 
1,639.6

Cash and cash equivalents at end of period
$
1,756.9

 
$
1,330.3


See accompanying Notes to Condensed Consolidated Financial Statements

6


Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Basis of Presentation

Basis of Presentation

The unaudited Condensed Consolidated Financial Statements of Juniper Networks, Inc. (the “Company” or “Juniper”) have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, or any future period. The Condensed Consolidated Balance Sheet as of June 30, 2016, has been derived from the audited Consolidated Financial Statements for the year ended December 31, 2015 but does not include all of the information and footnotes required by GAAP for complete financial statements.

The information included in this Quarterly Report on Form 10-Q (“Report”) should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

As a result of the adoption of Accounting Standards Update ("ASU") No. 2015-03 (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, the Company decreased both other long-term assets and long-term debt as of December 31, 2015 on the Condensed Consolidated Balance Sheets by $11.3 million.

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

Note 2. Summary of Significant Accounting Policies

There have been no material changes to the Company's significant accounting policies compared to the accounting policies described in Note 2, Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2015.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13 (Topic 326) Financial Instruments - Credit Losses. The pronouncement was issued to provide more decision-useful information about the expected credit losses on financial instruments and changes the loss impairment methodology. This pronouncement is effective for reporting periods beginning after December 15, 2019, and interim periods within those fiscal years, using a modified retrospective adoption method. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.

In March 2016, the FASB issued ASU No. 2016-09 (Topic 718) Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeiture, statutory tax withholding requirements, and classification on the statement of cash flows. ASU-2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.


7

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

In March 2016, the FASB issued ASU No. 2016-07 (Topic 323) Investments—Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting ("ASU 2016-07"), which eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. This update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. This update requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive loss at the date the investment becomes qualified for use of the equity method. ASU 2016-07 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.

In March 2016, the FASB issued ASU No. 2016-06 (Topic 815) Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments ("ASU 2016-06"), which requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met. One of those criteria is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contract (the “clearly and closely related” criterion). In addition, in March 2016, the FASB issued ASU No. 2016-05 (Topic 815), Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, ("ASU 2016-05"), which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-06 and ASU 2016-05 are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.

In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases ("ASU 2016-02"), which requires recognition of lease assets and lease liabilities on the balance sheet by the lessees for lease contracts with a lease term of more than twelve months. ASU 2016-02 should be applied on a modified retrospective basis and is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), which requires equity investments to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. Entities may choose a practical expedient, to estimate the fair value of certain equity securities that do not have readily determinable fair value. If the practical expedient is elected, these investments would be recorded at cost, less impairment and subsequently adjusted for observable price changes. The guidance also updates certain presentation and disclosure requirements. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is not permitted. The Company is currently evaluating the impact that ASU 2016-01will have on its Consolidated Financial Statements and disclosures.

In July 2015, the FASB issued ASU No. 2015-11 (Subtopic 330) - Simplifying the Measurement of Inventory ("ASU 2015-11"), which provides guidance to companies who account for inventory using either the first-in, first-out ("FIFO") or average cost methods. The guidance states that companies should measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The adoption of this standard will not have a significant impact on the Company's Consolidated Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09 (Topic 606)—Revenue from Contracts with Customers (“ASU 2014-09”) which provides guidance for revenue recognition. This ASU affects all contracts that the Company enters into with customers to transfer goods and services or for the transfer of nonfinancial assets. This ASU will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The standard's core principle is that revenue is recognized

8

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In doing so, the Company will need to use additional judgment and estimates than under the existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of the new revenue standard from December 15, 2016 to December 15, 2017, with early adoption permitted as of annual reporting periods beginning after December 15, 2016. Accordingly, the ASU will be effective for the Company beginning fiscal year 2018. In addition, in March 2016, the FASB issued ASU No. 2016-08 (Topic 606) Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), which clarifies the principal-versus-agent guidance in Topic 606 and requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. In April 2016, the FASB also issued ASU No. 2016-10 (Topic 606) Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing (“ASU 2016-10”), which amends the revenue guidance on identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB also issued ASU No. 2016-12 (Topic 606) Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), which amends the revenue guidance to clarify measurement and presentation as well as to include some practical expedients and policy elections. There are two transition methods available under the new standard, either cumulative effect or retrospective. ASU 2016-08, ASU 2016-10, and ASU 2016-12 must be adopted concurrently with the adoption of ASU 2014-09. The Company is currently evaluating the impact of the adoption of this standard on its Consolidated Financial Statements and disclosures.

Note 3. Business Combinations

On April 1, 2016, the Company acquired the remaining ownership interest in BTI Systems Inc. (“BTI”), increasing its ownership from 12% to 100%, for $26.1 million of cash. BTI is a privately-held provider of cloud and metro networking systems and software to content, cloud, and service providers. The Company acquired BTI on the expectation that this would accelerate the delivery of open and automated packet optical transport solutions with integrated network management based on BTI Systems' proNX Service Manager and Juniper's Connectivity Services Director, as well as the NorthStar Controller.
Prior to the acquisition, the Company had a pre-existing investment in BTI's equity and remeasured the investment to its fair value of $17.1 million, which was based upon adjustments market participants would consider when estimating the fair value. The Company also held $0.9 million of convertible debt measured at fair value and settled upon acquisition.
The aggregate value of $44.1 million, consisting of cash consideration of $26.1 million and $18.0 million for the fair value of the previous investments in BTI was allocated as follows (in millions):
Net tangible liabilities assumed
$
(19.5
)
Intangible assets acquired
43.3

Goodwill
20.3

    Total
$
44.1


The goodwill recognized for the acquisition of BTI was primarily attributable to expected synergies and is not deductible for U.S. federal income tax purposes. Upon acquisition, the Company also repaid $18.6 million of certain outstanding BTI liabilities assumed.

Additionally, under the terms of the acquisition agreement, the Company assumed share-based awards for employees with a fair value of $8.6 million, which were granted in contemplation of future services and will be expensed as share-based compensation over the remaining service period.
The Company's Condensed Consolidated Financial Statements include the operating results of this business combination from the date of acquisition. Pro forma results of operations for this acquisition have not been presented as the financial impact to the Company's consolidated results of operations is not material.


9

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

The Company recognized $1.3 million and $4.2 million of acquisition-related costs during the three and six months ended June 30, 2016, respectively. These acquisition-related costs were expensed in the period incurred within general and administrative expense in the Company's Condensed Consolidated Statements of Operations. There were no such charges during the three and six months ended June 30, 2015.

The Company also recorded $2.4 million of restructuring charges during the three and six months ended June 30, 2016, related to severance costs for certain former BTI employees which were recorded in restructuring charges (benefit) in the Condensed Consolidated Statements of Operations.

Intangible Assets Acquired

The following table presents details of the Company's intangible assets acquired through the business combination completed during the three months and six months ended June 30, 2016 (in millions, except years):
 
Weighted
Average
Estimated
Useful
Life
(In Years)
 
Amount
Existing technology
8
 
$
37.1

Customer relationships
8
 
5.3

Trade name
1
 
0.6

Backlog
1
 
0.3

Total
 
 
$
43.3


Additional information, such as income tax and other contingencies, existing as of the acquisition date but unknown to the Company may become known during the remainder of the measurement period, not to exceed 12 months from the acquisition date, which may result in changes to the amounts and allocations recorded.


10

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


Note 4. Cash Equivalents and Investments

Investments in Available-for-Sale and Trading Securities

The following tables summarize the Company's unrealized gains and losses and fair value of investments designated as available-for-sale and trading securities as of June 30, 2016 and December 31, 2015 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
As of June 30, 2016
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
$
320.3

 
$
0.4

 
$

 
$
320.7

Certificates of deposit
19.4

 

 

 
19.4

Commercial paper
6.7

 

 

 
6.7

Corporate debt securities
861.3

 
3.0

 
(0.6
)
 
863.7

Foreign government debt securities
35.5

 

 

 
35.5

Government-sponsored enterprise obligations
177.1

 
0.1

 

 
177.2

U.S. government securities
366.2

 
0.5

 

 
366.7

Total fixed income securities
1,786.5

 
4.0

 
(0.6
)
 
1,789.9

Money market funds
538.7

 

 

 
538.7

Mutual funds
5.8

 

 

 
5.8

Publicly-traded equity securities
6.2

 

 
(1.7
)
 
4.5

Total available-for-sale securities
2,337.2

 
4.0

 
(2.3
)
 
2,338.9

Trading securities in mutual funds(*)
19.3

 

 

 
19.3

Total
$
2,356.5

 
$
4.0

 
$
(2.3
)
 
$
2,358.2

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
555.2

 
$

 
$

 
$
555.2

Restricted investments
68.8

 

 

 
68.8

Short-term investments
588.5

 
0.4

 
(1.8
)
 
587.1

Long-term investments
1,144.0

 
3.6

 
(0.5
)
 
1,147.1

Total
$
2,356.5

 
$
4.0

 
$
(2.3
)
 
$
2,358.2

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

11

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
As of December 31, 2015
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
$
312.2

 
$

 
$
(0.5
)
 
$
311.7

Certificates of deposit
9.6

 

 

 
9.6

Commercial paper
17.7

 

 

 
17.7

Corporate debt securities
913.8

 
0.2

 
(2.6
)
 
911.4

Foreign government debt securities
16.5

 

 

 
16.5

Government-sponsored enterprise obligations
204.1

 

 
(0.4
)
 
203.7

U.S. government securities
278.0

 

 
(0.4
)
 
277.6

Total fixed income securities
1,751.9

 
0.2

 
(3.9
)
 
1,748.2

Money market funds
29.7

 

 

 
29.7

Mutual funds
6.1

 
0.1

 

 
6.2

Publicly-traded equity securities
8.7

 
0.8

 
(0.7
)
 
8.8

Total available-for-sale securities
1,796.4

 
1.1

 
(4.6
)
 
1,792.9

Trading securities in mutual funds(*)
17.7

 

 

 
17.7

Total
$
1,814.1

 
$
1.1

 
$
(4.6
)
 
$
1,810.6

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
3.4

 
$

 
$

 
$
3.4

Restricted investments
35.8

 
0.1

 

 
35.9

Short-term investments
527.2

 
0.9

 
(1.0
)
 
527.1

Long-term investments
1,247.7

 
0.1

 
(3.6
)
 
1,244.2

Total
$
1,814.1

 
$
1.1

 
$
(4.6
)
 
$
1,810.6


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

The following table presents the contractual maturities of the Company's total fixed income securities as of June 30, 2016 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
Due in less than one year
$
642.4

 
$
0.4

 
$
(0.1
)
 
$
642.7

Due between one and five years
1,144.1

 
3.6

 
(0.5
)
 
1,147.2

Total
$
1,786.5

 
$
4.0

 
$
(0.6
)
 
$
1,789.9


The Company had 214 and 682 investments in unrealized loss positions as of June 30, 2016 and December 31, 2015, respectively. The gross unrealized losses related to these investments were primarily due to changes in market interest rates and stock prices. The Company periodically reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company aggregates its investments by category and length of time the securities have been in a continuous unrealized loss position to facilitate its evaluation.

For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) it has the intention to sell any of these investments and (ii) whether it is more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. As of June 30, 2016, the Company anticipates that it will recover the entire amortized cost basis of such available-for-sale debt securities and has determined that no other-than-temporary impairments associated with credit losses were required to be recognized during the three and six months ended June 30, 2016 and June 30, 2015.

12

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


For available-for-sale equity securities that have unrealized losses, the Company evaluates whether there is an indication of other-than-temporary impairments. This determination is based on several factors, including the financial condition and near-term prospects of the issuer and the Company's intent and ability to hold the publicly-traded equity securities for a period of time sufficient to allow for any anticipated recovery in market value. During the three and six months ended June 30, 2016 and June 30, 2015, the Company did not recognize other-than-temporary impairments associated with these investments.

During the three and six months ended June 30, 2016 and June 30, 2015, there were no material gross realized gains or losses from available-for-sale securities and there were no material gross realized gains or losses from trading securities.

The following tables present the Company's available-for-sale securities that were in an unrealized loss position as of June 30, 2016 and December 31, 2015 (in millions):
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
As of June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities(1)(2)
$
82.4

 
$

 
$
12.4

 
$

 
$
94.8

 
$

Certificates of deposit(2)
3.3

 

 

 

 
3.3

 

Corporate debt securities
153.9

 
(0.3
)
 
93.8

 
(0.3
)
 
247.7

 
(0.6
)
Foreign government debt securities(2)
13.5

 

 

 

 
13.5

 

Government-sponsored enterprise obligations(2)
23.0

 

 

 

 
23.0

 

U.S. government securities(2)
17.2

 

 

 

 
17.2

 

Total fixed income securities
293.3

 
(0.3
)
 
106.2

 
(0.3
)
 
399.5

 
(0.6
)
Publicly-traded equity securities
4.5

 
(1.7
)
 

 

 
4.5

 
(1.7
)
Total available-for-sale securities
$
297.8

 
$
(2.0
)
 
$
106.2

 
$
(0.3
)
 
$
404.0

 
$
(2.3
)
________________________________
(1) Balances greater than 12 months include investments that were in an immaterial unrealized loss position as of June 30, 2016.
(2) Balances less than 12 months include investments that were in an immaterial unrealized loss position as of June 30, 2016.

 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
As of December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
$
274.2

 
$
(0.4
)
 
$
30.8

 
$
(0.1
)
 
$
305.0

 
$
(0.5
)
Certificates of deposit(*)
3.3

 

 

 

 
$
3.3

 

Corporate debt securities
687.9

 
(2.3
)
 
58.9

 
(0.3
)
 
746.8

 
(2.6
)
Foreign government debt securities(*)
9.5

 

 

 

 
9.5

 

Government-sponsored enterprise obligations
185.3

 
(0.4
)
 

 

 
185.3

 
(0.4
)
U.S. government securities
259.3

 
(0.4
)
 

 

 
259.3

 
(0.4
)
Total fixed income securities
1,419.5

 
(3.5
)
 
89.7

 
(0.4
)
 
1,509.2

 
(3.9
)
Publicly-traded equity securities
2.1

 
(0.7
)
 

 

 
2.1

 
(0.7
)
Total available-for-sale securities
$
1,421.6

 
$
(4.2
)
 
$
89.7

 
$
(0.4
)
 
$
1,511.3

 
$
(4.6
)
 ________________________________
(*) 
Balances less than 12 months include investments that were in an immaterial unrealized loss position as of December 31, 2015.


13

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


Restricted Cash and Investments

The Company classifies certain cash and investments as restricted cash and investments on its Condensed Consolidated Balance Sheets for: (i) amounts held in escrow accounts, as required in connection with certain acquisitions completed between 2005 and 2016; (ii) the India Gratuity Trust and Israel Retirement Trust, which cover statutory severance obligations in the event of termination of any of the Company's India and Israel employees, respectively; (iii) the Directors and Officers indemnification trust (“D&O Trust”); (iv) amounts held under the Company's short-term disability plan in California; and (v) amounts under the non-qualified deferred compensation ("NQDC") plan for officers and other senior employees. The restricted investments are designated as available-for-sale securities except the NQDC plan which is designated as trading securities.

Privately-Held Investments

The Company has privately-held investments, which include debt and redeemable preferred stock securities that are carried at fair value, and non-redeemable preferred stock securities that are carried at cost.

As of June 30, 2016 and December 31, 2015, the carrying values of the Company's privately-held investments of $88.5 million and $102.4 million, respectively, were included in other long-term assets in the Condensed Consolidated Balance Sheets. As of June 30, 2016 and December 31, 2015, the carrying value of the privately-held investments includes debt and redeemable preferred stock securities of $51.4 million and $60.2 million, respectively. For the three and six months ended June 30, 2016 and June 30, 2015, there were no unrealized gains or losses associated with the privately-held debt and redeemable preferred stock securities.

The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. During the six months ended June 30, 2016, the Company determined that certain privately-held investments were other-than-temporarily impaired, resulting in impairment charges of $5.1 million that were recorded within other expense, net in the Condensed Consolidated Statement of Operations. No such charges were recorded during the three months ended June 30, 2016 and three and six months ended June 30, 2015.

14

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


Note 5. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables provide a summary of assets and liabilities measured at fair value on a recurring basis and as reported in the Condensed Consolidated Balance Sheets (in millions):
 
Fair Value Measurements at June 30, 2016 Using:
 
 
 
Quoted Prices in
Active Markets For
Identical Assets
 
Significant Other
Observable
Remaining Inputs
 
Significant Other
Unobservable
Remaining Inputs
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Assets measured at fair value:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Asset-backed securities
$

 
$
320.7

 
$

 
$
320.7

Certificates of deposit

 
19.4

 

 
19.4

Commercial paper

 
6.7

 

 
6.7

Corporate debt securities

 
863.7

 

 
863.7

Foreign government debt securities

 
35.5

 

 
35.5

Government-sponsored enterprise obligations

 
177.2

 

 
177.2

Money market funds(1)
538.7

 

 

 
538.7

Mutual funds(2)
5.8

 

 

 
5.8

Publicly-traded equity securities
4.5

 

 

 
4.5

U.S. government securities
295.5

 
71.2

 

 
366.7

Total available-for-sale securities
844.5

 
1,494.4

 

 
2,338.9

Trading securities in mutual funds(3)
19.3

 

 

 
19.3

Privately-held debt and redeemable preferred stock
  securities

 

 
51.4

 
51.4

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts

 
2.8

 

 
2.8

Total assets measured at fair value
$
863.8

 
$
1,497.2

 
$
51.4

 
$
2,412.4

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

 
$
(0.3
)
 
$

 
$
(0.3
)
Total liabilities measured at fair value
$

 
$
(0.3
)
 
$

 
$
(0.3
)
 
 
 
 
 
 
 
 
Total assets measured at fair value, reported as:
 
 
 
 
 
 
 
Cash equivalents
$
495.0

 
$
60.2

 
$

 
$
555.2

Restricted investments
68.8

 

 

 
68.8

Short-term investments
122.4

 
464.7

 

 
587.1

Long-term investments
177.6

 
969.5

 

 
1,147.1

Prepaid expenses and other current assets

 
2.8

 

 
2.8

Other long-term assets

 

 
51.4

 
51.4

Total assets measured at fair value
$
863.8

 
$
1,497.2

 
$
51.4

 
$
2,412.4

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

 
$
(0.3
)
 
$

 
$
(0.3
)
Total liabilities measured at fair value
$

 
$
(0.3
)
 
$

 
$
(0.3
)
________________________________
(1) 
Balance includes $43.7 million of restricted investments measured at fair market value related to the Company's D&O Trust and acquisition-related escrows.
(2) 
Balance relates to restricted investments measured at fair market value related to the Company's India Gratuity Trust.
(3) 
Balance relates to restricted investments measured at fair value related to the Company's NQDC plan assets.

15

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


 
Fair Value Measurements at December 31, 2015 Using:
 
 
 
Quoted Prices in
Active Markets For
Identical Assets
 
Significant Other
Observable
Remaining Inputs
 
Significant Other
Unobservable
Remaining Inputs
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Assets measured at fair value:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Asset-backed securities
$

 
$
311.7

 
$

 
$
311.7

Certificates of deposit

 
9.6

 

 
9.6

Commercial paper

 
17.7

 

 
17.7

Corporate debt securities

 
911.4

 

 
911.4

Foreign government debt securities

 
16.5

 

 
16.5

Government-sponsored enterprise obligations

 
203.7

 

 
203.7

Money market funds(1)
29.7

 

 

 
29.7

Mutual funds(2)
6.2

 

 

 
6.2

Publicly-traded equity securities
8.8

 

 

 
8.8

U.S. government securities
247.3

 
30.3

 

 
277.6

Total available-for-sale securities
292.0

 
1,500.9

 

 
1,792.9

Trading securities in mutual funds(3)
17.7

 

 

 
17.7

Privately-held debt and redeemable preferred stock
  securities

 

 
60.2

 
60.2

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts

 
0.4

 

 
0.4

Total assets measured at fair value
$
309.7

 
$
1,501.3

 
$
60.2

 
$
1,871.2

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

 
$
(1.3
)
 
$

 
$
(1.3
)
Total liabilities measured at fair value
$

 
$
(1.3
)
 
$

 
$
(1.3
)
 
 
 
 
 
 
 
 
Total assets measured at fair value, reported as:
 
 
 
 
 
 
 
Cash equivalents
$

 
$
3.4

 
$

 
$
3.4

Restricted investments
35.9

 

 

 
35.9

Short-term investments
108.2

 
418.9

 

 
527.1

Long-term investments
165.6

 
1,078.6

 

 
1,244.2

Prepaid expenses and other current assets

 
0.4

 

 
0.4

Other long-term assets

 

 
60.2

 
60.2

Total assets measured at fair value
$
309.7

 
$
1,501.3

 
$
60.2

 
$
1,871.2

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

 
$
(1.3
)
 
$

 
$
(1.3
)
Total liabilities measured at fair value
$

 
$
(1.3
)
 
$

 
$
(1.3
)
________________________________
(1) 
Balance includes $29.7 million of restricted investments measured at fair market value related to the Company's D&O Trust and acquisition-related escrows.
(2) 
Balance relates to restricted investments measured at fair market value related to the Company's India Gratuity Trust.
(3) 
Balance relates to investments measured at fair value related to the Company's NQDC plan assets.

16

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


The Company's Level 2 available-for-sale fixed income securities are priced using quoted market prices for similar instruments or non-binding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets. The Company's derivative instruments are classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs. The Company's policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 at the beginning of the quarter in which a change in circumstances resulted in a transfer. During the three and six months ended June 30, 2016, the Company had no transfers between levels of the fair value hierarchy of its assets or liabilities measured at fair value.

All of the Company's privately-held debt and redeemable preferred stock securities are classified as Level 3 assets due to the absence of quoted market prices and an inherent lack of liquidity. The Company estimates the fair value of its privately-held debt investments on a recurring basis using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure. During the six months ended June 30, 2016, there were purchases of $10.5 million related to privately-held debt securities and no purchases during the three months ended June 30, 2016.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain of the Company's assets, including intangible assets, goodwill, and privately-held equity investments, are measured at fair value on a nonrecurring basis, only if impairment is indicated. Privately-held equity investments, which are normally carried at cost, are measured at fair value on a nonrecurring basis due to events and circumstances that the Company identifies as significantly impacting the fair value of investments. The Company estimates the fair value of its privately-held equity investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure. Purchased intangible assets are measured at fair value primarily using discounted cash flow projections.

As of June 30, 2016, the Company had no assets measured at fair value on a nonrecurring basis. As of December 31, 2015, the Company had no significant privately-held equity investments measured at fair value on a nonrecurring basis. 

As of June 30, 2016 and December 31, 2015, the Company had no liabilities measured at fair value on a nonrecurring basis.

Assets and Liabilities Not Measured at Fair Value

The carrying amounts of the Company's accounts receivable, financing receivables, accounts payable, and other accrued liabilities approximate fair value due to their short maturities. As of June 30, 2016 and December 31, 2015, the estimated fair value of the Company's long-term debt in the Condensed Consolidated Balance Sheets was approximately $2,246.5 million and $1,946.7 million, respectively, based on observable market inputs (Level 2). The carrying value of the promissory note, issued to the Company in connection with the sale of Junos Pulse, of $132.9 million approximates its fair value, of which $75 million is recorded in prepaid expenses and other current assets and the remaining balance is recorded within other long-term assets in the Condensed Consolidated Balance Sheets as of June 30, 2016. As of December 31, 2015, the carrying value of the promissory note of $132.9 million was recorded in other long-term assets in the Condensed Consolidated Balance Sheets. The promissory note is classified as a Level 3 asset due to the absence of quoted market prices and inherent lack of liquidity. See Note 8, Other Financial Information, for further information on the promissory note.
 


17

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


Note 6. Derivative Instruments

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

The notional amount of the Company's foreign currency derivatives are summarized as follows (in millions):
 
As of
 
June 30,
2016
 
December 31,
2015
Cash flow hedges
$
136.4

 
$
116.8

Non-designated derivatives

 
71.8

     Total
$
136.4

 
$
188.6


Cash Flow Hedges

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

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

During the three and six months ended June 30, 2016, the Company recognized unrealized gains of $1.5 million and $4.5 million, respectively, in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified a realized gain during the three and six months ended June 30, 2016 of $1.5 million and $0.2 million, respectively, from other comprehensive loss to cost of revenues and operating expense in the Condensed Consolidated Statements of Operations. During the three and six months ended June 30, 2015, the Company recognized an unrealized gain of $2.8 million and an unrealized loss of $3.3 million, respectively, in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified a realized loss of $3.8 million and $6.8 million, respectively, from other comprehensive loss to cost of revenues and operating expense in the Condensed Consolidated Statements of Operations.

The ineffective portion of the Company's derivative instruments recognized in its Condensed Consolidated Statements of Operations was not material during the three and six months ended June 30, 2016 and June 30, 2015.

Non-Designated Derivatives

The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies. These derivatives are carried at fair value with changes recorded in other expense, net, in the Condensed Consolidated Statements of Operations. Changes in the fair value of these derivatives are largely offset by remeasurement of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. These foreign exchange forward contracts have maturities within two months.

During the three and six months ended June 30, 2016, the Company recognized a net gain of $0.1 million and a net loss of $1.2 million, respectively, on non-designated derivative instruments within other expense, net in its Condensed Consolidated Statement of Operations. During the three and six months ended June 30, 2015, the Company recognized net losses of $2.4 million and $0.3 million, respectively, on non-designated derivative instruments within other expense, net, in its Condensed Consolidated Statements of Operations.

18

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


Offsetting of Derivatives

The Company presents its derivative assets and derivative liabilities on a gross basis in the Condensed Consolidated Balance Sheets. However, under agreements containing provisions on netting with certain counterparties of foreign exchange contracts, subject to applicable requirements, the Company is allowed to net-settle transactions on the same date in the same currency, with a single net amount payable by one party to the other. As of June 30, 2016 and December 31, 2015, the potential effect of rights of setoff associated with derivative instruments was not material. The Company is neither required to pledge nor entitled to receive cash collateral related to these derivative transactions.

Note 7. Goodwill and Purchased Intangible Assets

Goodwill
The following table presents goodwill activity during the six months ended June 30, 2016 (in millions):
Balance as of December 31, 2015
$
2,981.3

Additions due to business combination
20.3

Balance as of June 30, 2016
$
3,001.6


There were no impairments to goodwill during the three and six months ended June 30, 2016 and June 30, 2015.

Purchased Intangible Assets

The Company’s purchased intangible assets were as follows (in millions):
 
Gross
 
Accumulated
Amortization
 
Accumulated Impairments and
Other Charges
 
Net
As of June 30, 2016
 
 
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
 
 
Technologies and patents
$
604.8

 
$
(498.1
)
 
$
(49.9
)
 
$
56.8

Customer contracts, support agreements, and
  related relationships
83.4

 
(69.2
)
 
(2.8
)
 
11.4

Other
2.0

 
(1.1
)
 

 
0.9

Total purchased intangible assets
$
690.2

 
$
(568.4
)
 
$
(52.7
)
 
$
69.1

 
 
 
 
 
 
 
 
As of December 31, 2015
 
 
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
 
 
Technologies and patents
$
567.7

 
$
(491.8
)
 
$
(49.9
)
 
$
26.0

Customer contracts, support agreements, and
  related relationships
78.1

 
(67.8
)
 
(2.8
)
 
7.5

Other
1.1

 
(0.7
)
 

 
0.4

Total purchased intangible assets
$
646.9

 
$
(560.3
)
 
$
(52.7
)
 
$
33.9



19

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

The following table presents the amortization of intangible assets included in the Condensed Consolidated Statements of Operations (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Cost of revenues
$
3.6

 
$
4.7

 
$
6.0

 
$
15.5

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
0.8

 
0.6

 
1.3

 
1.4

General and administrative
0.4

 
0.3

 
0.8

 
0.7

Total operating expenses
1.2

 
0.9

 
2.1

 
2.1

Total
$
4.8

 
$
5.6

 
$
8.1

 
$
17.6


During the six months ended June 30, 2015, the Company recorded $5.6 million to cost of revenues in the Condensed Consolidated Statements of Operations, related to the acceleration of the end-of-life of certain intangible assets. There were no such charges during the three and six ended June 30, 2016.

There were no impairment charges related to purchased intangible assets during the three and six months ended June 30, 2016 and June 30, 2015.

As of June 30, 2016, the estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):
Years Ending December 31,
Amount
Remainder of 2016
$
8.1

2017
12.5

2018
10.4

2019
10.2

2020
10.1

Thereafter
17.8

Total
$
69.1


Note 8. Other Financial Information

Inventories

The Company purchases and holds inventory to provide adequate component supplies over the life of the underlying products. The majority of the Company's inventory is production components to be used in the manufacturing process and finished goods inventory in transit. Inventories are reported within both prepaid expenses and other current assets and other long-term assets in the Condensed Consolidated Balance Sheets. Total inventories consisted of the following (in millions):
 
As of
 
June 30,
2016
 
December 31,
2015
Production materials
$
82.4

 
$
61.9

Finished goods
28.1

 
13.1

Inventories
$
110.5

 
$
75.0


20

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Other Long-Term Assets

Other long-term assets consisted of the following (in millions):
 
As of
 
June 30,
2016
 
December 31,
2015
Privately-held investments
$
88.5

 
$
102.4

Licensed software
6.2

 
7.1

Federal income tax receivable
40.8

 
28.9

Inventory
5.6

 
8.4

Prepaid costs, deposits, and other(*)
47.2

 
43.3

Deferred tax asset
13.2

 
55.9

Promissory note in connection with the sale of Junos Pulse
57.9

 
132.9

Other long-term assets
$
259.4

 
$
378.9

 ________________________________
(*) 
During the six months ended June 30, 2016, the Company adopted ASU 2015-03. As a result, debt issuance costs included in prepaid costs, deposits, and other were reclassified to long-term debt as of December 31, 2015 to conform to the current-year presentation.
On October 1, 2014, the Company completed the sale of its Junos Pulse product portfolio. The Company received total consideration of $230.7 million, of which $105.7 million was in cash, net of a $19.3 million working capital adjustment, and $125.0 million was in the form of a non-contingent interest-bearing promissory note due to the Company on April 1, 2016 (the “Pulse Note”). On October 2, 2015, the Company and the issuer of the Pulse Note mutually agreed to amend the original terms of the Pulse Note to, among other things, extend the maturity date from April 1, 2016 to December 31, 2018, provided that interest due on the Pulse Note through December 31, 2015 shall be paid in kind by increasing the outstanding principal amount of the note and increasing the interest rate on the Pulse Note. In addition, under the amended terms of the Pulse Note, the issuer is required to make a minimum payment of $75.0 million on or prior to April 1, 2017, less any principal amount previously pre-paid to the Company. The $75.0 million portion of the note receivable, is classified as prepaid expenses and other current assets in the Condensed Consolidated Financial Statements. The remaining balance, along with interest paid in kind, is classified as a long-term asset based on expected collection beyond twelve months from the Condensed Consolidated Balance Sheet date.

The Company considers notes receivable to be impaired when, based on current information and events, it is probable that the Company will not be able to collect the scheduled payments of principal or interest when due. Further, the Company measures any impairment to the Pulse Note based on the present value of expected cash flows, which are discounted at the note's effective interest rate, compared to the recorded investment of the note, including principal and accrued interest. Based on the impairment assessment, no impairment charge was required to the Pulse Note as of June 30, 2016. Interest income on the Pulse Note is accrued and credited to interest income as it is earned, unless it is not probable the Company will collect the amounts due or if the present value of expected cash flows is less than the recorded investment. During the three and six months ended June 30, 2016, the related amount of interest income recognized was $2.7 million and $5.3 million, respectively.

Warranties

The Company accrues for warranty costs based on associated material, labor for customer support, and overhead at the time revenue is recognized. This accrual is reported within other accrued liabilities in the Condensed Consolidated Balance Sheets. Changes in the Company’s warranty reserve during the six months ended June 30, 2016 were as follows (in millions):
Balance as of December 31, 2015
$
28.4

Provisions made during the period
13.6

Actual costs incurred during the period
(13.5
)
Balance as of June 30, 2016
$
28.5


21

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Deferred Revenue

Details of the Company's deferred revenue, as reported in the Condensed Consolidated Balance Sheets, were as follows (in millions):
 
As of
 
June 30,
2016
 
December 31,
2015
Deferred product revenue:
 
 
 
Undelivered product commitments and other product deferrals
$
242.5

 
$
210.1

Distributor inventory and other sell-through items
99.9

 
81.8

Deferred gross product revenue
342.4

 
291.9

Deferred cost of product revenue
(51.6
)
 
(51.6
)
Deferred product revenue, net
290.8

 
240.3

Deferred service revenue
1,004.8

 
927.8

Total
$
1,295.6

 
$
1,168.1

Reported as:
 
 
 
Current
$
933.0

 
$
822.9

Long-term
362.6

 
345.2

Total
$
1,295.6

 
$
1,168.1


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

Other Expense, Net

Other expense, net, consisted of the following (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Interest income
$
8.5

 
$
6.7

 
$
16.4

 
$
10.5

Interest expense
(25.0
)
 
(21.8
)
 
(47.5
)
 
(40.3
)
Gain (loss) on investments
3.6

 
0.2

 
(1.8
)
 
0.8

Other
1.3

 
(2.2
)
 
(0.9
)
 
(3.9
)
Other expense, net
$
(11.6
)
 
$
(17.1
)
 
$
(33.8
)
 
$
(32.9
)

Interest income primarily includes interest earned on the Company’s cash, cash equivalents, investments, and promissory note issued to the Company in connection with the sale of Junos Pulse. Interest expense primarily includes interest, net of capitalized interest expense, from short-term debt, long-term debt, and customer financing arrangements. Other typically consists of investment and foreign exchange gains and losses and other non-operational income and expense items.
    

22

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Note 9. Debt and Financing

Long-Term Debt

The following table summarizes the Company's long-term debt (in millions, except percentages):
 
As of June 30, 2016
 
Amount
 
Effective Interest
Rates
Senior Notes:
 
 
 
3.125% fixed-rate notes, due February 2019
$
350.0

 
3.36
%
3.300% fixed-rate notes, due June 2020
300.0

 
3.47
%
4.600% fixed-rate notes, due March 2021
300.0

 
4.69
%
4.500% fixed-rate notes, due March 2024, issued March 2014
350.0

 
4.63
%
4.500% fixed-rate notes, due March 2024, issued February 2016
150.0

 
4.87
%
4.350% fixed-rate notes, due June 2025
300.0

 
4.47
%
5.950% fixed-rate notes, due March 2041
400.0

 
6.03
%
Total senior notes
2,150.0

 
 
Unaccreted discount and debt issuance costs