Other Financial Information

12 Months Ended

Dec. 31, 2019

Other Financial Information [Abstract]

Inventory

Total inventory consisted of the following (in millions):



	As of December 31,
	2019		2018
Production and service materials	$	69.0	$	60.6
Finished goods	25.2		21.4
Inventory	$	94.2	$	82.0

Reported as:
Prepaid expenses and other current assets	$	90.6	$	80.6
Other long-term assets	3.6		1.4
Total	$	94.2	$	82.0

Property and Equipment, Net

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



	As of December 31,
	2019			2018
Computers and equipment	$	1,041.4		$	1,100.0
Software	228.6			223.3
Leasehold improvements	216.9			235.2
Furniture and fixtures	48.3			48.6
Building and building improvements	255.0			254.3
Land and land improvements	243.5			243.2
Construction-in-process	12.9			19.5
Property and equipment, gross	2,046.6			2,124.1
Accumulated depreciation	(1,215.7		)	(1,172.4		)
Property and equipment, net	$	830.9		$	951.7

Depreciation expense was $184.0 million, $193.2 million, and $202.8 million in 2019, 2018, and 2017, respectively.

Notes Receivable and Deposit

Total outstanding notes receivable and deposit, net of issuance costs, reported within other long-term assets in the Consolidated Balance Sheets were as follows (in millions):



	As of December 31,
	2019		2018
Pulse Note (including accumulated interest paid in kind)	$	78.9	$	69.0
Contract manufacturer deposit (non-interest bearing)	46.0		23.9
Total	$	124.9	$	92.9

In connection with the sale of its Junos Pulse product portfolio in 2014, the Company was issued a non-contingent interest-bearing promissory note of $125.0 million. In 2017, the Company received payment of $75.0 million and the outstanding interest due. The maturity date of the Pulse Note was extended to September 30, 2022 under the terms of an amended agreement. The amended agreement also provided that interest due on the note be paid in kind by increasing the principal amount and interest rate on the Pulse Note. The outstanding balance of the Pulse Note was classified as a long-term asset based on expected collection beyond twelve months from the Consolidated Balance Sheet date.

In 2018, the Company paid a deposit of $25.0 million to a contract manufacturer in exchange for improved pricing and savings on inventory carrying charges. The deposit was recorded at the face value of $25.0 million, less an unamortized discount of $1.1 million, calculated based on an imputed interest rate of 4.8%, that will be amortized over the term of the deposit to interest income along with a corresponding amount to cost of revenues. In 2019, the Company paid an additional non-interest bearing deposit of $23.6 million, for a total balance of $48.6 million, less an unamortized discount of $2.6 million, calculated based on an imputed interest rate of 5.0% as of December 31, 2019. The deposit is due on demand in the first quarter of 2021 and was classified as other long-term assets on the Consolidated Balance Sheets.

Interest income on the notes receivable 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. Interest income recognized was $10.4 million, $8.4 million, and $8.3 million, during the years ended December 31, 2019, 2018, and 2017, respectively.

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. No impairment charge was required as of December 31, 2019, 2018, and 2017.

Warranties

Changes in the Company’s warranty reserve were as follows (in millions):



	As of December 31,
	2019			2018
Beginning balance	$	28.0		$	27.4
Provisions made during the period, net	39.0			30.7
Actual costs incurred during the period	(35.6		)	(30.1		)
Ending balance	$	31.4		$	28.0

Deferred Revenue

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



	As of December 31,
	2019			2018
Deferred revenue:
Undelivered product commitments and other product deferrals	$	141.7		$	163.3
Deferred gross product revenue	141.7			163.3
Deferred cost of product revenue	(9.1		)	(18.9		)
Deferred product revenue, net	132.6			144.4
Deferred gross service revenue	1,090.8			1,071.8
Deferred cost of service revenue	—			(2.6		)
Deferred service revenue, net	1,090.8			1,069.2
Total	$	1,223.4		$	1,213.6
Reported as:
Current	$	812.9		$	829.3
Long-term	410.5			384.3
Total	$	1,223.4		$	1,213.6

Revenue

See Note 13, Segments, for disaggregated revenue by product and service, customer vertical, and geographic region.

Product revenue of $68.6 million included in deferred revenue at January 1, 2019 was recognized during the year ended December 31, 2019. Service revenue of $706.8 million included in deferred revenue at January 1, 2019 was recognized during the year ended December 31, 2019.

The following table summarizes the transaction price for contracts that have not yet been recognized as revenue as of December 31, 2019 and when the Company expects to recognize the amounts as revenue (in millions):



	Revenue Recognition Expected by Period
	Total		Less than 1 year		1-3 years		More than 3 years
Product	$	141.7	$	118.6	$	19.9	$	3.2
Service^(*)	1,103.6		706.7		328.3		68.6
Total	$	1,245.3	$	825.3	$	348.2	$	71.8

________________________________


^(*)	Represents unearned service revenue allocated to the performance obligations not delivered or partially delivered as of December 31, 2019. The unearned service revenue are comprised of deferred revenue and unbilled revenue.

Deferred Commissions

Deferred commissions were $24.1 million and $33.7 million as of December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, amortization expense for the deferred commissions were $130.9 million and $144.2 million, respectively, and there were no impairment charges recognized.

Other Expense, Net

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



	Years Ended December 31,
	2019			2018			2017
Interest income	$	79.1		$	72.7		$	53.0
Interest expense	(88.7		)	(103.2		)	(101.2		)
Loss on extinguishment of debt	(15.3		)	—			—
(Loss) gain on investments, net	(3.8		)	(7.4		)	14.6
Other	0.9			(1.6		)	(2.7		)
Other expense, net	$	(27.8	)	$	(39.5	)	$	(36.3	)

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 long-term debt and customer financing arrangements. Loss on extinguishment of debt resulted from the early repayment of senior notes due 2020 and 2021. (Loss) gain on investments, net, primarily includes (Loss) gains from the sale of investments in public and privately-held companies, and any observable changes in fair value and impairment charges recorded on these investments. Other typically consists of foreign exchange gains and losses and other non-operational income and expense items.