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 both within prepaid expenses and other current assets and other long-term assets in the Consolidated Balance Sheets. Total inventories consisted of the following (in millions):



	As of December 31,
	2015		2014
Production materials	$	61.9	$	38.3
Finished goods	13.1		24.2
Inventories	$	75.0	$	62.5

In connection with the 2014 Restructuring Plan discussed in Note 9, Restructuring and Other Charges, the Company accelerated the end-of-service life of certain products resulting in inventory charges of $15.5 million, recorded within cost of revenues in the Consolidated Statement of Operations for December 31, 2014. There were no similar charges recorded during the years ended December 31, 2015 and 2013.

Property and Equipment, Net

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



	As of December 31,
	2015			2014
Computers and equipment	$	915.1		$	806.1
Software	169.1			161.2
Leasehold improvements	203.4			179.5
Furniture and fixtures	43.2			33.7
Building and building improvements	246.1			238.4
Land and land improvements	241.1			241.0
Construction-in-process ⁽¹⁾	158.2			70.3
Property and equipment, gross	1,976.2			1,730.2
Accumulated depreciation	(955.2		)	(825.9		)
Property and equipment, net	$	1,021.0		$	904.3

_______________________________

⁽¹⁾On July 10, 2015, the Company entered into a data center lease agreement that was accounted for as a build-to-suit lease. As the Company was deemed to be the owner of the property during the construction period, the Company capitalized the construction cost in property, plant and equipment and recorded a corresponding financing liability of $45.6 million on the Consolidated Balance Sheet as of December 31, 2015.

Depreciation expense was $141.5 million, $141.9 million, and $148.2 million in 2015, 2014, and 2013, respectively. Property and equipment is periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Other Long-Term Assets

Other long-term assets consisted of the following (in millions):



	As of December 31,
	2015		2014
Privately-held investments	$	102.4	$	89.9
Licensed software	7.1		8.6
Federal income tax receivable	28.9		20.0
Customer financing receivable	—		16.9
Inventory	8.4		8.0
Prepaid costs, deposits, and other⁽¹⁾	110.5		75.1
Promissory note, including principal and accrued interest, in connection with the sale of Junos Pulse	132.9		125.0
Other long-term assets⁽¹⁾	$	390.2	$	343.5

_______________________________

⁽¹⁾

During the year ended December 31, 2015, the Company early adopted ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, requiring all deferred tax assets and liabilities, and any related valuation allowance, to be classified as non-current on the Consolidated Balance Sheets. Certain amounts in the prior-year Consolidated Financial Statements were retrospectively adjusted 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. Under the terms of the modified Pulse Note, the parties agreed to 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, increase the interest payable on the Pulse Note, and include semi-annual excess cash flow sweeps commencing in 2016, and required certain other debt to be subordinated to the promissory note issued to the Company. 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 amount previously pre-paid to the Company, and use commercially reasonable efforts to refinance the entire note, with any remaining balance due by December 31, 2018. In connection with the amendment, certain holding companies of the issuer also provided the Company with a guarantee and additional collateral to secure the repayment of the amended promissory note. The note receivable, along with the related interest receivable, are classified as long-term assets based on expected collection beyond twelve months from the 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 December 31, 2015. 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 years ended December 31, 2015 and December 31, 2014, the related amount of interest income recognized was $6.3 million and $1.6 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 Consolidated Balance Sheets. Changes in the Company’s warranty reserve were as follows (in millions):



	As of December 31,
	2015			2014
Beginning balance	$	28.7		$	28.0
Provisions made during the period, net	27.9			28.6
Actual costs incurred during the period	(28.2		)	(27.9		)
Ending balance	$	28.4		$	28.7

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,
	2015			2014
Deferred product revenue:
Undelivered product commitments and other product deferrals	$	210.1		$	180.3
Distributor inventory and other sell-through items	81.8			103.7
Deferred gross product revenue	291.9			284.0
Deferred cost of product revenue	(51.6		)	(58.4		)
Deferred product revenue, net	240.3			225.6
Deferred service revenue	927.8			850.1
Total	$	1,168.1		$	1,075.7
Reported as:
Current	$	822.9		$	780.8
Long-term	345.2			294.9
Total	$	1,168.1		$	1,075.7

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) Income, Net

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



	Years Ended December 31,
	2015			2014			2013
Interest income	$	21.8		$	10.0		$	8.7
Interest expense	(83.3		)	(66.9		)	(58.4		)
Net gain on legal settlement	—			196.1			—
Gain on investments	6.8			167.9			11.3
Gain on sale of Junos Pulse	—			19.6			—
Other	(5.1		)	6.7			(2.0		)
Other (expense) income, net	$	(59.8	)	$	333.4		$	(40.4	)

Interest income primarily includes interest earned on the Company’s cash, cash equivalents, investments, and on the 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.

Interest Expense

For the years ended December 31, 2015, 2014 and 2013, interest expense included $79.8 million, net of $2.2 million capitalized, $57.5 million, net of $2.7 million capitalized, and $45.2 million, net of $1.9 million capitalized, respectively, related to the Company's outstanding short-term and long-term debt issued in March 2011, March 2014, and March 2015 discussed in Note 10, Debt and Financing.

Gain on Legal Settlement

During the year ended December 31, 2014, the Company entered into a settlement agreement with Palo Alto Networks, Inc., or Palo Alto Networks, resolving a patent litigation between the two companies, which resulted in a realized gain on legal settlement and subsequent sale of related securities of $196.1 million, net of legal fees.

Gain on Investments

During the years ended December 31, 2015 and December 31, 2013, the Company recorded a gain of $6.8 million and $7.1 million, respectively, primarily related to the sale of its privately-held investments. During the year ended December 31, 2014, the Company recorded a gain of $163.0 million primarily related to the sale of investments which were converted from privately-held investments to publicly-traded equity upon initial public offering and subsequently sold.

Gain on Sale of Junos Pulse