10-Q 1 jnpr-10q20170930.htm FORM 10-Q Document
 

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 September 30, 2017
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
 
(Do not check if a smaller reporting company)
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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 374,928,303 shares of the Company's Common Stock, par value $0.00001, outstanding as of November 3, 2017.

 



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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net revenues:
 
 
 
 
 
 
 
Product
$
869.7

 
$
928.2

 
$
2,615.8

 
$
2,543.3

Service
388.1

 
357.1

 
1,171.9

 
1,061.2

Total net revenues
1,257.8

 
1,285.3

 
3,787.7

 
3,604.5

Cost of revenues:
 
 
 
 
 
 
 
Product
336.0

 
349.6

 
1,026.4

 
955.8

Service
149.4

 
136.2

 
440.4

 
401.9

Total cost of revenues
485.4

 
485.8

 
1,466.8

 
1,357.7

Gross margin
772.4

 
799.5

 
2,320.9

 
2,246.8

Operating expenses:
 
 
 
 
 
 
 
Research and development
236.4

 
251.8

 
752.8

 
750.7

Sales and marketing
232.5

 
242.9

 
716.6

 
718.4

General and administrative
70.6

 
54.0

 
176.7

 
172.0

Restructuring charges
2.0

 
0.8

 
29.4

 
3.2

Total operating expenses
541.5

 
549.5

 
1,675.5

 
1,644.3

Operating income
230.9

 
250.0

 
645.4

 
602.5

Other expense, net
(5.1
)
 
(13.4
)
 
(33.8
)
 
(47.2
)
Income before income taxes
225.8

 
236.6

 
611.6

 
555.3

Income tax provision
60.1

 
64.2

 
157.3

 
151.5

Net income
$
165.7

 
$
172.4

 
$
454.3

 
$
403.8

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.44

 
$
0.45

 
$
1.20

 
$
1.06

Diluted
$
0.43

 
$
0.45

 
$
1.18

 
$
1.04

Shares used in computing net income per share:
 
 
 
 
 
 
 
Basic
378.3

 
381.0

 
380.0

 
382.3

Diluted
382.7

 
384.5

 
386.5

 
387.9

Cash dividends declared per common stock
$
0.10

 
$
0.10

 
$
0.30

 
$
0.30


See accompanying Notes to Condensed Consolidated Financial Statements


3


Juniper Networks, Inc.
Condensed Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
165.7

 
$
172.4

 
$
454.3

 
$
403.8

Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Unrealized (losses) gains net of tax benefits of $0.5 and $0.2 during the three and nine months ended September 30, 2017, respectively, and tax provision of $0.3 and benefit of $0.4 for the corresponding periods of the fiscal year ended December 31, 2016 ("fiscal 2016"), respectively
(0.2
)
 
(0.6
)
 
1.4

 
5.4

Reclassification adjustment for realized net gains included in net income, net of tax provision of $0.9 during both the three and nine months ended September 2017, respectively, and net of tax provisions of zero and $0.5 for the corresponding periods of fiscal 2016, respectively
(1.9
)
 
(0.3
)
 
(2.0
)
 
(1.1
)
Net change on available-for-sale securities, net of taxes
(2.1
)
 
(0.9
)
 
(0.6
)
 
4.3

Cash flow hedges:
 
 
 
 
 
 
 
Unrealized gains (loss) net of tax provisions of $0.5 and $3.0, for the three and nine months ended September 30, 2017, respectively, and tax provisions of $0.6 and $1.2 for the corresponding periods of fiscal 2016, respectively
6.3

 
(0.3
)
 
14.6

 
3.6

Reclassification adjustment for realized net gains included in net income, net of tax provisions of $0.8 and $1.7 during the three and nine months ended September 30, 2017, respectively, and tax provisions of $0.3 and $0.4 for the corresponding periods of fiscal 2016, respectively
(2.5
)
 
(0.9
)
 
(2.4
)
 
(1.0
)
Net change on cash flow hedges, net of taxes
3.8

 
(1.2
)
 
12.2

 
2.6

Change in foreign currency translation adjustments
8.4

 
(6.9
)
 
19.3

 
(1.1
)
Other comprehensive income (loss), net of taxes
10.1

 
(9.0
)
 
30.9

 
5.8

Comprehensive income
$
175.8

 
$
163.4

 
$
485.2

 
$
409.6


See accompanying Notes to Condensed Consolidated Financial Statements


4


Juniper Networks, Inc.
Condensed Consolidated Balance Sheets
(In millions, except par values)
 
September 30,
2017
 
December 31,
2016
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,363.7

 
$
1,833.2

Short-term investments
922.0

 
752.3

Accounts receivable, net of allowances
724.3

 
1,054.1

Prepaid expenses and other current assets
273.3

 
332.3

Total current assets
4,283.3

 
3,971.9

Property and equipment, net
1,007.5

 
1,063.8

Long-term investments
913.6

 
1,071.8

Restricted cash and investments
64.9

 
99.9

Purchased intangible assets, net
133.0

 
130.2

Goodwill
3,096.2

 
3,081.7

Other long-term assets
245.8

 
237.2

Total assets
$
9,744.3

 
$
9,656.5

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
205.4

 
$
221.0

Accrued compensation
166.2

 
233.6

Deferred revenue
977.4

 
1,032.0

Other accrued liabilities
236.3

 
249.3

Total current liabilities
1,585.3

 
1,735.9

Long-term debt
2,135.7

 
2,133.7

Long-term deferred revenue
485.5

 
449.1

Long-term income taxes payable
224.0

 
209.2

Other long-term liabilities
155.7

 
166.1

Total liabilities
4,586.2

 
4,694.0

Commitments and contingencies (Note 16)


 


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; 377.2 shares and 381.1 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

 

Additional paid-in capital
8,211.0

 
8,281.6

Accumulated other comprehensive loss
(6.4
)
 
(37.3
)
Accumulated deficit
(3,046.5
)
 
(3,281.8
)
Total stockholders' equity
5,158.1

 
4,962.5

Total liabilities and stockholders' equity
$
9,744.3

 
$
9,656.5


See accompanying Notes to Condensed Consolidated Financial Statements

5


Juniper Networks, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
454.3

 
$
403.8

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Share-based compensation expense
151.1

 
162.1

Depreciation, amortization, and accretion
169.7

 
151.9

(Gain) loss on investments and disposal of fixed assets, net
(6.7
)
 
1.6

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable, net
331.9

 
36.6

Prepaid expenses and other assets
51.2

 
(22.2
)
Accounts payable
(11.5
)
 
52.1

Accrued compensation
(60.6
)
 
(77.0
)
Income taxes payable
8.8

 
(7.5
)
Other accrued liabilities
(21.1
)
 
(49.8
)
Deferred revenue
(21.2
)
 
124.7

Net cash provided by operating activities
1,045.9

 
776.3

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(97.6
)
 
(162.9
)
Purchases of available-for-sale investments
(1,298.6
)
 
(1,251.9
)
Proceeds from sales of available-for-sale investments
761.2

 
985.1

Proceeds from maturities and redemptions of available-for-sale investments
521.3

 
232.4

Proceeds from Pulse note receivable
75.0



Purchases of privately-held investments
(9.8
)
 
(17.1
)
Proceeds from sales of privately-held investments
1.3

 
9.5

Purchases of trading investments
(3.9
)
 
(4.3
)
Payments for business acquisitions, net of cash and cash equivalents acquired
(33.0
)
 
(96.7
)
Changes in restricted cash

 
(2.4
)
Net cash used in investing activities
(84.1
)
 
(308.3
)
Cash flows from financing activities:
 
 
 
Purchases and retirement of common stock
(395.5
)
 
(323.9
)
Proceeds from issuance of common stock
64.4

 
59.7

Payment of cash dividends
(113.5
)
 
(114.4
)
Payment of debt

 
(300.0
)
Issuance of debt, net

 
494.0

Payment of financing obligations

 
(15.5
)
Net cash used in financing activities
(444.6
)
 
(200.1
)
Effect of foreign currency exchange rates on cash and cash equivalents
13.3

 
0.2

Net increase in cash and cash equivalents
530.5

 
268.1

Cash and cash equivalents at beginning of period
1,833.2

 
1,420.9

Cash and cash equivalents at end of period
$
2,363.7

 
$
1,689.0


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 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. The Condensed Consolidated Balance Sheet as of December 31, 2016, has been derived from the audited Consolidated Financial Statements at that date. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017, or any future period.

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, 2016 (the "Form 10-K").

Excess tax benefits from share-based compensation in prior periods have been reclassified to conform to the current-period presentation in the Condensed Consolidated Statements of Cash Flows upon adoption of the accounting standard described in Note 2, Summary of Significant Accounting Policies. In addition, certain other amounts in the Condensed Consolidated Statements of Cash Flows have been reclassified to conform to the current-period presentation.

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

Except for the change in certain policies related to share-based compensation upon adoption of the accounting standard described below, 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 Form 10-K.

Recently Adopted Accounting Standard

On January 1, 2017, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-09 (Topic 718) Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting, 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. The impact of the adoption on the Company's Condensed Consolidated Financial Statements was as follows:

Forfeitures: The Company elected to account for forfeitures as they occur using a modified retrospective transition method, rather than estimating forfeitures, resulting in a cumulative-effect adjustment of $9.0 million, which increased the January 1, 2017 opening accumulated deficit balance on the Condensed Consolidated Balance Sheets.
Income tax accounting: The Company is also required to record excess tax benefits and tax deficiencies related to stock- based compensation as income tax benefit or expense in the statement of operations prospectively when share-based awards vest or are settled. Upon adoption, the Company recognized the previously unrecognized excess tax benefits using the modified retrospective transition method, which resulted in no impact to the January 1, 2017 opening accumulated deficit balance as previously unrecognized excess tax effects were fully offset by a valuation allowance.


7

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

Cash flow presentation of excess tax benefits: The Company is required to classify excess tax benefits along with other income tax cash flows as an operating activity either prospectively or retrospectively. The Company elected to apply the change in presentation to the statements of cash flows retrospectively and no longer classify the excess tax benefits from share-based compensation as a financing activity. For the nine months ended September 30, 2016, the Company reclassified $5.8 million of excess tax benefits from share-based compensation to operating activities from financing activities.

Recent Accounting Standards Not Yet Effective

In August 2017, the FASB issued ASU No. 2017-12 (Topic 815) Derivatives and Hedging — Targeted Improvements to Accounting for Hedging Activities, which expands an entity's ability to hedge financial and nonfinancial risk components and amends how companies assess effectiveness as well as changes the presentation and disclosure requirements. The new standard is to be applied on a modified retrospective basis and is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of adoption on the Consolidated Financial Statements.

In May 2017, the FASB issued ASU No. 2017-09 (Topic 718) Compensation—Stock Compensation: Scope of Modification Accounting, which provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. The new standard is effective on a prospective basis for interim and annual periods beginning after December 15, 2017, with early adoption permitted.

In March 2017, the FASB issued ASU No. 2017-08 Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities which shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The ASU will not impact debt securities held at a discount. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, and is to be applied on a modified retrospective basis with early adoption permitted. The Company is currently evaluating the impact of adoption on the Consolidated Financial Statements.

In February 2017, the FASB issued ASU No. 2017-05 Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which amends guidance on how entities account for the derecognition of a nonfinancial asset or an in substance nonfinancial asset that is not a business. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, and is to be applied on either a retrospective or modified retrospective basis with early adoption permitted. The adoption of this standard will not have a material impact on the Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-04 (Topic 350) Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment, which removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.  Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU will be applied on a prospective basis and is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017.

In January 2017, the FASB issued ASU No. 2017-01 (Topic 805) Business Combinations: Clarifying the Definition of a Business, which clarifies the definition of a business and assists entities with evaluating when a set of transferred assets and activities is a business. This ASU is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted and will be applied on a prospective basis.

In November 2016, the FASB issued ASU No. 2016-18 (Topic 230) Statement of Cash Flow: Restricted Cash, which provides guidance on the classification of restricted cash to be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. The amendments of this ASU are effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The standard must be applied retrospectively to all periods presented. The adoption of this standard will not have a material impact on the cash flow activity presented on the Company's Consolidated Statements of Cash Flows.


8

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

In October 2016, the FASB issued ASU No. 2016-16 (Topic 740) Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This ASU will be effective for annual and interim reporting periods beginning after December 15, 2017 and is to be applied on a modified retrospective basis. Early adoption is permitted. The adoption of this standard will not have a material impact on the Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15 (Topic 230) Statement of Cash Flow: Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2017 and will be applied on a retrospective basis. Early adoption is permitted. The adoption of this standard will not have a material impact on the Company's Consolidated Statements of Cash Flows.

In June 2016, the FASB issued ASU No. 2016-13 (Topic 326) Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which provides 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. 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, which requires recognition of lease assets and lease liabilities on the balance sheet by lessees for leases classified as operating leases with a lease term of more than twelve months. This ASU 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 of adoption of this standard and has commenced the assessment phase to determine the approach for implementing this standard. The adoption of this standard is expected to have a material impact on the Company's Consolidated Balance Sheets and disclosures. The Company is still evaluating the impact this standard will have on the Consolidated Statements of Operations.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure equity investments and present changes in the fair value of financial liabilities measured under the fair value option. The guidance also updates certain presentation and disclosure requirements. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. This ASU is to be applied on a prospective basis for amendments related to equity securities without readily determinable fair values, and all other amendments in this standard will be applied on a modified retrospective basis. For equity securities without readily determinable fair values, we expect to elect the measurement alternative, defined as cost, less impairments, adjusted by observable price changes. The Company does not anticipate that the adoption of the amendments that will be applied on a modified retrospective basis will have a material impact on the Consolidated Financial Statements.
 
In May 2014, the FASB issued ASU No. 2014-09 (Topic 606)—Revenue from Contracts with Customers and several amendments thereafter (“ASU 2014-09”), which provides guidance for revenue recognition that will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. The core principle for ASU 2014-09 is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017.

The Company intends to adopt ASU 2014-09 on January 1, 2018 retrospectively, applying the amendments to each prior reporting period presented and currently remains on schedule with its implementation and the preparation of its prior-period financial statements.

Upon adoption, the Company expects a material impact to the opening balance sheet as of January 1, 2016 related to the cumulative effect of adopting this standard, primarily due to the application of the new guidance in the areas of distributor sales, software revenue, contract acquisition costs, variable consideration, and revenue allocation. The Company continues to assess the impact of ASU 2014-09 including any changes to systems, processes, and the control environment as it works through the adoption in 2017, and there remain areas still to be fully concluded upon. In addition, there are ongoing interpretive reviews, which may alter

9

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

the Company's conclusions on key accounting assessments and the financial impact of ASU 2014-09 on the Company's Consolidated Financial Statements. For further information, refer to Note 2, Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K.
 
Note 3. Business Combinations

On September 18, 2017, the Company acquired 100% of Cyphort, Inc. ("Cyphort") for $33.5 million of cash. The acquisition of Cyphort, a software company providing security analytics for advanced threat defense, is expected to strengthen Juniper's security product portfolio.

The following table summarizes the estimated fair value of the assets acquired at the acquisition date (in millions, except years):
 
Amount
Net tangible assets
$
1.4

Existing technology intangible asset(*)
15.4

Goodwill
16.7

   Total
$
33.5

 ________________________________
(*) Weighted average estimated useful life of 5 years.

Under the terms of the acquisition agreement with Cyphort, the Company assumed certain share-based awards for continuing employees, which were granted in contemplation of future services. The fair value of these share-based awards was $3.8 million, which will be expensed as share-based compensation over the remaining service period.

Acquisition-related costs were not material during the three and nine months ended September 30, 2017 and were expensed in the period incurred within general and administrative expense in the Company's Condensed Consolidated Statements of Operations.

The operating results of this business combination from the date of acquisition were not material to the Company's consolidated balance sheets and results of operations. 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. The primary areas of the preliminary purchase price allocation that are subject to change relate to certain legal and income tax matters.


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 table summarizes the Company's unrealized gains and losses and fair value of investments designated as available-for-sale and trading securities as of September 30, 2017 and December 31, 2016 (in millions):


As of September 30, 2017

As of December 31, 2016

Amortized
Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Estimated Fair
Value

Amortized
Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Estimated Fair
Value
Fixed income securities:















Asset-backed securities
$
288.1


$


$
(0.3
)

$
287.8


$
303.0


$
0.2


$
(0.2
)

$
303.0

Certificates of deposit
50.0






50.0


66.1






66.1

Commercial paper
124.0






124.0


147.7






147.7

Corporate debt securities
834.1


0.8


(0.8
)

834.1


846.5


0.4


(2.0
)

844.9

Foreign government debt securities
64.8




(0.1
)

64.7


34.0




(0.1
)

33.9

Time deposits
411.4






411.4


264.6






264.6

U.S. government agency securities
156.9




(0.4
)

156.5


127.0




(0.3
)

126.7

U.S. government securities
548.3


0.1


(0.4
)

548.0


390.7


0.1


(0.4
)

390.4

Total fixed income securities
2,477.6


0.9


(2.0
)

2,476.5


2,179.6


0.7


(3.0
)

2,177.3

Money market funds
990.7






990.7


592.2






592.2

Mutual funds
8.2






8.2


8.0






8.0

Publicly-traded equity securities








5.3




(0.7
)

4.6

Total available-for-sale securities
3,476.5


0.9


(2.0
)

3,475.4


2,785.1


0.7


(3.7
)

2,782.1

Trading securities in mutual funds
26.1






26.1


21.0






21.0

Total
$
3,502.6


$
0.9


$
(2.0
)

$
3,501.5


$
2,806.1


$
0.7


$
(3.7
)

$
2,803.1























Reported as:























Cash equivalents
$
1,588.8


$


$


$
1,588.8


$
907.1


$


$


$
907.1

Restricted investments
77.1






77.1


71.9






71.9

Short-term investments
922.3


0.1


(0.4
)

922.0


753.4


0.1


(1.2
)

752.3

Long-term investments
914.4


0.8


(1.6
)

913.6


1,073.7


0.6


(2.5
)

1,071.8

Total
$
3,502.6


$
0.9


$
(2.0
)

$
3,501.5


$
2,806.1


$
0.7


$
(3.7
)

$
2,803.1






11

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


The following table presents the contractual maturities of the Company's total fixed income securities as of September 30, 2017 (in millions):
 
Amortized
Cost
 
Estimated Fair
Value
Due in less than one year
$
1,563.2

 
$
1,562.9

Due between one and five years
914.4

 
913.6

Total
$
2,477.6

 
$
2,476.5


The following tables present the Company's available-for-sale securities that were in an unrealized loss position as of September 30, 2017 and December 31, 2016 (in millions):
 
As of September 30, 2017
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
$
224.2

 
$
(0.3
)
 
$

 
$

 
$
224.2

 
$
(0.3
)
Corporate debt securities
361.6

 
(0.5
)
 
59.5

 
(0.3
)
 
421.1

 
(0.8
)
Foreign government debt securities
36.6

 
(0.1
)
 

 

 
36.6

 
(0.1
)
U.S. government agency securities
89.0

 
(0.2
)
 
18.0

 
(0.2
)
 
107.0

 
(0.4
)
U.S. government securities
256.3

 
(0.4
)
 
1.8

 

 
258.1

 
(0.4
)
Total available-for-sale securities
$
967.7

 
$
(1.5
)
 
$
79.3

 
$
(0.5
)
 
$
1,047.0

 
$
(2.0
)

 
As of December 31, 2016
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
$
122.2

 
$
(0.2
)
 
$

 
$

 
$
122.2

 
$
(0.2
)
Corporate debt securities
470.8

 
(1.9
)
 
76.7

 
(0.1
)
 
547.5

 
(2.0
)
Foreign government debt securities
20.3

 
(0.1
)
 

 

 
20.3

 
(0.1
)
U.S. government agency securities
106.7

 
(0.3
)
 

 

 
106.7

 
(0.3
)
U.S. government securities
254.1

 
(0.4
)
 

 

 
254.1

 
(0.4
)
Total fixed income securities
974.1

 
(2.9
)
 
76.7

 
(0.1
)
 
1,050.8

 
(3.0
)
Publicly-traded equity securities
4.6

 
(0.7
)
 

 

 
4.6

 
(0.7
)
Total available-for-sale securities
$
978.7

 
$
(3.6
)
 
$
76.7

 
$
(0.1
)
 
$
1,055.4

 
$
(3.7
)

The Company had 582 and 494 investments in unrealized loss positions as of September 30, 2017 and December 31, 2016, respectively. The gross unrealized losses related to these investments were primarily due to changes in market interest rates and stock prices.

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 September 30, 2017, 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 nine months ended September 30, 2017. During the three and nine months ended September 30, 2016, there were no other-than-temporary impairments associated with these investments.

12

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


During the three and nine months ended September 30, 2017 and September 30, 2016, there were no material gross realized gains or losses from either available-for-sale securities or from trading securities.

Restricted Cash and Investments

There have been no material changes to the composition of the Company's restricted cash and investments as described in Note 4, Cash Equivalents and Investments, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K. The restricted investments are designated as available-for-sale securities except relating to the non-qualified deferred compensation plan which are designated as trading securities. As of September 30, 2017, total restricted cash and investments was $123.2 million, of which $58.3 million was included in prepaid expenses and other current assets and $64.9 million was included in restricted cash and investments on the Condensed Consolidated Balance Sheets.

Investments in Privately-Held Companies

As of September 30, 2017 and December 31, 2016, the carrying values of the Company's investments in privately-held companies of $72.5 million and $62.7 million, respectively, were included in other long-term assets in the Condensed Consolidated Balance Sheets. These investments include debt and redeemable preferred stock securities that are carried at fair value, and non-redeemable preferred stock and common stock securities that are carried at cost. As of September 30, 2017 and December 31, 2016, the carrying value of the investments accounted for under the cost method were $30.2 million and $19.0 million, respectively. See Note 5, Fair Value Measurements, for the Company's investments in privately-held companies that are carried at fair value.

The Company adjusts the carrying value for its investments in privately-held companies that are carried at cost for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis. There were no impairment charges for the three and nine months ended September 30, 2017. During the three and nine months ended September 30, 2016, the Company determined that certain investments in privately-held companies were other than-temporarily impaired, resulting in impairment charges of $4.5 million and $9.6 million, that were recorded within other expense, net in the Condensed Consolidated Statement of Operations.




13

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

Fair Value Measurements at
September 30, 2017 Using:



Fair Value Measurements at
December 31, 2016 Using:



Quoted Prices in
Active Markets For
Identical Assets
(Level 1)

Significant Other
Observable
Remaining Inputs
(Level 2)

Significant Other
Unobservable
Remaining Inputs
(Level 3)

Total

Quoted Prices in
Active Markets For
Identical Assets
(Level 1)

Significant Other
Observable
Remaining Inputs
(Level 2)

Significant Other
Unobservable
Remaining Inputs
(Level 3)

Total
Assets:















Available-for-sale securities:




















Asset-backed securities
$


$
287.8


$


$
287.8


$


$
303.0


$


$
303.0

Certificates of deposit


50.0




50.0




66.1




66.1

Commercial paper


124.0




124.0




147.7




147.7

Corporate debt securities


834.1




834.1




844.9




844.9

Foreign government debt securities


64.7




64.7




33.9




33.9

Money market funds
990.7






990.7


592.2






592.2

Mutual funds
8.2






8.2


8.0






8.0

Publicly-traded equity securities








4.6






4.6

Time deposits


411.4




411.4




264.6




264.6

U.S. government agency securities


156.5




156.5




126.7




126.7

U.S. government securities
343.7


204.3




548.0


345.0


45.4




390.4

Total available-for-sale securities
1,342.6


2,132.8




3,475.4


949.8


1,832.3




2,782.1

Trading securities in mutual funds
26.1






26.1


21.0






21.0

Privately-held debt and redeemable preferred stock securities




42.3


42.3






43.7


43.7

Derivative assets:























Foreign exchange contracts


8.5




8.5




0.9




0.9

Total assets measured at fair value
$
1,368.7


$
2,141.3


$
42.3


$
3,552.3


$
970.8


$
1,833.2


$
43.7


$
2,847.7

Liabilities:





















Derivative liabilities:





















Foreign exchange contracts
$


$
(0.6
)

$


$
(0.6
)

$


$
(4.9
)

$


$
(4.9
)
Total liabilities measured at fair value
$


$
(0.6
)

$


$
(0.6
)

$


$
(4.9
)

$


$
(4.9
)






















Total assets, reported as:





















Cash equivalents
$
947.9


$
640.9


$


$
1,588.8


$
549.4


$
357.7


$


$
907.1

Restricted investments
77.1






77.1


71.9






71.9

Short-term investments
231.9


690.1




922.0


178.0


574.3




752.3

Long-term investments
111.8


801.8




913.6


171.5


900.3




1,071.8

Prepaid expenses and other current assets


8.5




8.5




0.9




0.9

Other long-term assets




42.3


42.3






43.7


43.7

Total assets measured at fair value
$
1,368.7


$
2,141.3


$
42.3


$
3,552.3


$
970.8


$
1,833.2


$
43.7


$
2,847.7























Total liabilities, reported as:





















Other accrued liabilities
$


$
(0.6
)

$


$
(0.6
)

$


$
(4.9
)

$


$
(4.9
)
Total liabilities measured at fair value
$


$
(0.6
)

$


$
(0.6
)

$


$
(4.9
)

$


$
(4.9
)

14

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 nine months ended September 30, 2017, 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 lack of observable inputs to determine fair value. The Company estimates the fair value of its privately-held debt and redeemable preferred stock securities on a recurring basis using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure. During the three and nine months ended September 30, 2017, there were no purchases, sales, gains, or losses related to privately-held debt and redeemable preferred stocks securities.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

As of September 30, 2017, the Company had no assets required to be measured at fair value on a nonrecurring basis. Investments in privately-held companies, 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 materially impacting the carrying value of the investments. As of December 31, 2016, certain investments in privately-held companies with a carrying value of $1.6 million were impaired and written-down to their fair value of zero and were classified as Level 3 assets due to lack of observable inputs to determine fair value. The Company estimates the fair value of its investments in privately-held companies using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure. The impairment charge was recorded to other expense, net in the Condensed Consolidated Statements of Operations.

As of September 30, 2017 and December 31, 2016, the Company had no liabilities required to be measured at fair value on a nonrecurring basis.

Assets and Liabilities Not Measured at Fair Value

The carrying amounts of the Company's accounts receivable, accounts payable, and other accrued liabilities approximate fair value due to their short maturities. As of September 30, 2017 and December 31, 2016, the estimated fair value of the Company's long-term debt in the Condensed Consolidated Balance Sheets was $2,274.8 million and $2,215.7 million, respectively, based on observable market inputs (Level 2). The carrying value of the promissory note issued to the Company in connection with the previously completed sale of Junos Pulse (the “Pulse Note”), of $58.5 million and $132.9 million approximates its fair value as of September 30, 2017 and December 31, 2016. The Pulse Note is classified as a Level 3 asset due to the lack of observable inputs to determine fair value. See Note 8, Other Financial Information, for further information on the Pulse Note.
 


15

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
 
September 30,
2017
 
December 31,
2016
Cash flow hedges
$
231.6

 
$
172.0

Non-designated derivatives
147.1

 

   Total
$
378.7

 
$
172.0


Cash Flow Hedges

The Company uses foreign currency forwards to hedge the Company's planned cost of revenues and operating expenses denominated in foreign currencies. These derivatives are designated as cash flow hedges. Execution of cash flow hedge derivatives typically occurs every month with maturities of eighteen months or less. As of September 30, 2017, an estimated $8.8 million of existing gains or losses within accumulated other comprehensive loss is expected to be reclassified into earnings within the next 12 months.

The Company recognized an unrealized gain of $6.8 million and $17.6 million in accumulated other comprehensive loss for the effective portion of its derivative instruments for the three and nine months ended September 30, 2017, respectively; and unrealized gains of $0.3 million and $4.8 million for the corresponding periods of the fiscal year ended December 31, 2016, respectively. The amounts reclassified out of accumulated other comprehensive loss to cost of revenues and operating expense in the Condensed Consolidated Statements of Operations was not material during the three and nine months ended September 30, 2017 and September 30, 2016.

The ineffective portion of the Company's derivative instruments recognized in its Condensed Consolidated Statements of Operations was not material during the three and nine months ended September 30, 2017 and September 30, 2016.

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

Non-Designated Derivatives

The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies. These foreign exchange forward contracts typically have maturities of approximately one month. The outstanding non-designated derivative instruments are carried at fair value. Changes in the fair value of these derivatives recorded in other expense, net within the Condensed Consolidated Statements of Operations were not material during the three and nine months ended September 30, 2017 and September 30, 2016.

Note 7. Goodwill and Purchased Intangible Assets

Goodwill
The following table presents goodwill activity (in millions):
Balance as of December 31, 2016
$
3,081.7

Additions due to business combination
16.7

Other(*)
(2.2
)
Balance as of September 30, 2017
$
3,096.2

 ________________________________
(*) Other primarily consists of certain purchase accounting adjustments related to previously completed business combinations.

16

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

Purchased Intangible Assets

The Company’s purchased intangible assets as of September 30, 2017 and December 31, 2016, were $133.0 million and $130.2 million, respectively. The balance as of September 30, 2017 includes $15.4 million of purchased intangible assets related to the acquisition of Cyphort. See Note 3, Business Combinations, for further details.

Amortization expense was $4.1 million and $12.6 million during the three and nine months ended September 30, 2017, respectively, and $4.8 million and $12.9 million during the three and nine months ended September 30, 2016, respectively.

Note 8. Other Financial Information

Inventory

Total inventory consisted of the following (in millions):
 
As of
 
September 30,
2017
 
December 31,
2016
Production and service materials
$
72.6

 
$
75.6

Finished goods
18.3

 
19.9

Inventory
$
90.9

 
$
95.5

 
 
 
 
Reported as:
 
 
 
Prepaid expenses and other current assets
$
84.9

 
$
91.4

Other long-term assets
6.0

 
4.1

Total
$
90.9

 
$
95.5


Note Receivable

In October 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.

In October 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;
provide 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 increase the interest rate on the Pulse Note; and
require a minimum payment of $75.0 million on or prior to April 1, 2017, less any principal amount previously pre-paid to the Company.


17

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

In May 2017, the Company received payment of $75.0 million and the outstanding interest due. The Company and the issuer of the Pulse Note further mutually agreed to amend the terms of the Pulse Note to, among other things:

extend the maturity date of the remaining outstanding amount of approximately $58.0 million from December 31, 2018 to September 30, 2022;
provide that interest due after April 1, 2017 can be paid in kind by increasing the outstanding principal amount of the note or paid in cash;
require the promissory note to be subordinated to other debt raised by the issuer; and
entitle the Company to additional financial considerations if the issuer of the note and its affiliates meet certain conditions.

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 for the Pulse Note as of September 30, 2017. The outstanding balance of the Pulse Note, along with the accumulated interest paid in kind, of $58.5 million as of September 30, 2017 is classified as a long-term asset based on expected collection beyond twelve months from the Condensed Consolidated Balance Sheet date.

During the three and nine months ended September 30, 2017, the interest income on the Pulse Note was $1.6 million and $6.5 million, respectively. During the three and nine months ended and September 30, 2016, the related amount of interest income recognized was $2.7 million and $8.0 million, respectively.

Warranties

Changes during the nine months ended September 30, 2017 in the Company’s warranty reserve as reported within other accrued liabilities in the Condensed Consolidated Balance Sheets were as follows (in millions):
Balance as of December 31, 2016
$
41.3

Provisions made during the period
29.6

Actual costs incurred during the period
(41.5
)
Balance as of September 30, 2017
$
29.4


Deferred Revenue

Details of the Company's deferred revenue, as reported in the Condensed Consolidated Balance Sheets, were as follows (in millions):
 
As of
 
September 30,
2017
 
December 31,
2016
Deferred product revenue:
 
 
 
Undelivered product commitments and other product deferrals
$
309.3

 
$
302.4

Distributor inventory and other sell-through items
61.9

 
74.2

Deferred gross product revenue
371.2

 
376.6

Deferred cost of product revenue
(47.5
)
 
(53.7
)
Deferred product revenue, net
323.7

 
322.9

Deferred service revenue
1,139.2

 
1,158.2

Total
$
1,462.9

 
$
1,481.1

Reported as:
 
 
 
Current
$
977.4

 
$
1,032.0

Long-term
485.5

 
449.1

Total
$
1,462.9

 
$
1,481.1


18

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

Other Expense, Net

Other expense, net, consisted of the following (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Interest income
$
14.7

 
$
9.1

 
$
37.1

 
$
25.5

Interest expense
(25.3
)
 
(25.1
)
 
(75.6
)
 
(72.6
)
Gain on investments, net
4.7

 
1.9

 
6.7

 
0.1

Other
0.8

 
0.7

 
(2.0
)
 
(0.2
)
Other expense, net
$
(5.1
)
 
$
(13.4
)
 
$
(33.8
)
 
$
(47.2
)

Note 9. Restructuring Charges

During the first quarter of 2017, the Company initiated a restructuring plan (the “2017 Restructuring Plan”) to realign its workforce and increase operational efficiencies. During the second quarter of 2017, the Company undertook certain further actions under the 2017 Restructuring Plan, resulting in additional severance and contract termination costs that were recorded to restructuring charges in the Condensed Consolidated Statement of Operations.

During the three and nine months ended September 30, 2017, the Company recorded $0.6 million and $26.0 million of severance costs, and $1.4 million and $3.4 million of contract terminations, respectively, that were recorded to restructuring charges in the Condensed Consolidated Statement of Operations. See Note 17, Subsequent Events, for discussion of the Company's restructuring activity subsequent to September 30, 2017.

Restructuring liabilities are reported within other accrued liabilities in the Condensed Consolidated Balance Sheets. The following table provides a summary of changes in the restructuring liabilities primarily related to the 2017 Restructuring Plan initiated in February 2017 (in millions):
 
December 31, 2016(*)
 
Charges
 
Cash
Payments
 

Other
 
September 30,
2017
Severance
$
0.7

 
$
26.0

 
$
(25.5
)
 
$
(0.1
)
 
$
1.1

Contract terminations and other
0.5

 
3.4

 
(0.4
)
 
0.1

 
3.6

Total
$
1.2

 
$
29.4

 
$
(25.9
)
 
$

 
$
4.7

 ________________________________
(*) Consists of costs in connection with a prior restructuring plan that is substantially complete.


19

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

Note 10. Debt and Financing

Debt

The Company's long-term debt is summarized as follows (in millions, except percentages):
 
As of September 30, 2017
 
Amount
 
Effective Interest
Rates
Senior Notes ("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
(14.3
)
 
 
Total
$
2,135.7

 
 

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

The Company may redeem, either in whole or in part, the Senior Notes due 2020 at any time on or after May 15, 2020, the Senior Notes due 2025 at any time on or after March 15, 2025, and the other Notes at any time, in each case, according to the terms of the indentures governing the Notes.

In the event of a change of control repurchase event, the holders of the Notes may require the Company to repurchase for cash all or part of the Notes at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, if any. The indentures that govern the Notes also contain various covenants, including limitations on the Company's ability to incur liens or enter into sale-leaseback transactions over certain dollar thresholds. As of September 30, 2017, the Company was in compliance with all covenants in the indentures governing the Notes.

Revolving Credit Facility

In June 2014, the Company entered into a Credit Agreement (“Credit Agreement”) with certain institutional lenders that provides for a $500.0 million unsecured revolving credit facility, with an option to increase the amount of the credit facility by up to an additional $200.0 million, subject to certain conditions. Revolving loans may be borrowed, repaid and reborrowed until June 27, 2019, at which time all amounts borrowed must be repaid. Borrowings under the Credit Agreement will bear interest at either i) a floating rate per annum equal to the base rate plus a margin of between 0.00% and 0.50%, depending on the Company's public debt rating or ii) a per annum rate equal to the reserve adjusted Eurocurrency rate, plus a margin of between 0.90% and 1.50%, depending on the Company's public debt rating. As of September 30, 2017, the Company was in compliance with all covenants in the Credit Agreement, and no amounts were outstanding.

Financing Arrangements

The Company provides certain customers with access to extended financing arrangements that allow for longer payment terms than those typically provided by the Company by factoring accounts receivable to third-party financing providers (“financing providers”). The program does not and is not intended to affect the timing of the Company's revenue recognition. Under the

20

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

financing arrangements, proceeds from the financing providers are due to the Company within 1 to 90 days from the sale of the receivable. In these transactions with the financing providers, the Company surrenders control over the transferred assets.

Pursuant to the financing arrangements for the sale of receivables, the Company sold net receivables of $77.3 million and $132.6 million during the three and nine months ended September 30, 2017, respectively, and $59.3 million and $73.4 million during the three and nine months ended September 30, 2016, respectively. The Company received cash proceeds from financing providers of $57.6 million and $113.3 million during the three and nine months ended September 30, 2017, respectively, and $30.0 million and $40.8 million during the three and nine months ended September 30, 2016, respectively. As of September 30, 2017 and December 31, 2016, the amounts owed by the financing providers were $32.9 million and $13.6 million, respectively, which were recorded in accounts receivable in the Condensed Consolidated Balance Sheets.

Note 11. Equity

Cash Dividends on Shares of Common Stock

During the nine months ended September 30, 2017, the Company declared a quarterly cash dividend of $0.10 per share of common stock on January 26, 2017, April 25, 2017 and July 25, 2017, which was paid on March 22, 2017, June 22, 2017 and September 22, 2017, respectively, to stockholders of record on March 1, 2017, June 1, 2017, and September 1, 2017, respectively, in the aggregate amount of $113.5 million. Any future dividends, and the establishment of record and payment dates, are subject to approval by the Board of Directors (the “Board”) of the Company or an authorized committee thereof. See Note 17, Subsequent Events, for discussion of the Company's dividend declaration subsequent to September 30, 2017.

Stock Repurchase Activities

In 2014 and 2015, the Board approved a stock repurchase program that authorized the Company to repurchase up to $2.1 billion of its common stock, including $1.2 billion pursuant to an accelerated share repurchase program, and subsequent increases to the authorization totaling $1.8 billion (“Stock Repurchase Program”). In February 2017, the Board authorized an additional $500.0 million increase to the Stock Repurchase Program for a total of $4.4 billion.

The following table summarizes the Company's repurchases and retirements of its common stock under its Stock Repurchase Program (in millions, except per share amounts):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Shares repurchased
5.0

 
4.9

 
13.5

 
13.5

Average price per share
$
28.16

 
$
23.04

 
$
28.85

 
$
23.25

Amount repurchased
$
140.0

 
$
112.4

 
$
390.0

 
$
312.9


As of September 30, 2017, there was $329.7 million of authorized funds remaining under the Stock Repurchase Program.

Future share repurchases under the Stock Repurchase Program will be subject to a review of the circumstances at that time and will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements. The Stock Repurchase Program may be discontinued at any time. See Note 17, Subsequent Events, for discussion of the Company's stock repurchase activity subsequent to September 30, 2017.

In addition to repurchases under the Stock Repurchase Program, the Company also repurchases common stock from certain employees in connection with the net issuance of shares to satisfy minimum tax withholding obligations upon the vesting of certain stock awards issued to such employees. Repurchases associated with tax withholdings were not material during the three and nine months ended September 30, 2017. Repurchases associated with tax withholdings were $1.4 million and $11.0 million for the three and nine months ended September 30, 2016.

21

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


Accumulated Other Comprehensive Loss, Net of Tax

The components of accumulated other comprehensive loss, net of related taxes, for the nine months ended September 30, 2017 were as follows (in millions):
 
Unrealized
Gains (Losses)
on Available-for-
Sale Securities(1)
 
Unrealized
 (Losses) Gains
on Cash Flow
Hedges(2)
 
Foreign
Currency
Translation
Adjustments
 
Total
Balance as of December 31, 2016
$
16.6

 
$
(4.5
)
 
$
(49.4
)
 
$
(37.3
)
Other comprehensive gains before reclassifications
1.4

 
14.6

 
19.3

 
35.3

Amount reclassified from accumulated other comprehensive loss
(2.0
)
 
(2.4
)
 

 
(4.4
)
Other comprehensive (loss) gains, net
(0.6
)
 
12.2

 
19.3

 
30.9

Balance as of September 30, 2017
$
16.0

 
$
7.7

 
$
(30.1
)
 
$
(6.4
)
________________________________
(1) 
The reclassifications out of accumulated other comprehensive loss during the nine months ended September 30, 2017 for realized gains on available-for-sale securities were not material, and were included in other expense, net, in the Condensed Consolidated Statements of Operations.         
(2) 
The reclassifications out of accumulated other comprehensive loss during the nine months ended September 30, 2017 for realized gains on cash flow hedges were not material, and were included within cost of revenues, research and development, sales and marketing, and general and administrative in the Condensed Consolidated Statements of Operations.
    
Note 12. Employee Benefit Plans

Equity Incentive Plans

The Company has stock-based compensation plans pursuant to which it has granted stock options, restricted stock units (“RSUs”), and performance share awards (“PSAs”). The Company also maintains the Company's 2008 Employee Stock Purchase Plan (the “ESPP”) for all eligible employees.

As of September 30, 2017, 35.3 million and 11.2 million shares were available for future issuance under the Company's 2015 Equity Incentive Plan (the "2015 Plan") and the ESPP, respectively, which includes an additional 23.0 million shares under the 2015 Plan and 9.0 million shares under the ESPP that were approved by the Company's stockholders in May 2017.

Stock Option Activities

The following table summarizes the Company’s stock option activity and related information as of and for the nine months ended September 30, 2017 (in millions, except for per share amounts and years):
 
Outstanding Options
 
Number of Shares
 
Weighted Average
Exercise Price
per Share
 
Weighted Average
Remaining
Contractual Term
(In Years)
 
Aggregate
Intrinsic
Value
Balance as of December 31, 2016
2.4

 
$
29.20

 
 
 
 
Exercised
(0.5
)
 
14.97

 
 
 
 
  Expired/Canceled
(0.8
)
 
31.09

 
 
 
 
Balance as of September 30, 2017
1.1

 
$
34.31

 
1.1
 
$
3.1

 
 
 
 
 
 
 
 
As of September 30, 2017:
 
 
 
 
 
 
 
Vested and expected-to-vest options
1.1

 
$
34.31

 
1.1
 
$
3.1

Exercisable options
1.0

 
$
35.56

 
0.8
 
$
2.1



22

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


Restricted Stock Unit, Restricted Stock Award, and Performance Share Award Activities

The Company’s RSU, restricted stock award ("RSA"), and PSA activity and related information as of and for the nine months ended September 30, 2017 were as follows (in millions, except per share amounts and years):
 
Outstanding RSUs, RSAs, and PSAs
 
Number of Shares
 
Weighted Average
Grant-Date Fair
Value per Share
 
Weighted Average
Remaining
Contractual Term
(In Years)
 
Aggregate
Intrinsic
Value
Balance as of December 31, 2016
20.9

 
$
24.05

 
 
 
 
RSUs granted (1)(3)
6.6

 
27.56

 
 
 
 
RSUs assumed in acquisitions
0.1

 
26.91

 
 
 
 
PSAs granted (2)(3)
0.6

 
27.37

 
 
 
 
RSUs vested
(6.0
)
 
23.81

 
 
 
 
RSAs vested
(0.4
)
 
22.80

 
 
 
 
PSAs vested
(0.5
)
 
24.29

 
 
 
 
RSUs canceled
(1.5
)
 
24.57

 
 
 
 
PSAs canceled
(0.5
)
 
25.11

 
 
 
 
Balance as of September 30, 2017
19.3

 
$
25.23

 
1.1
 
$
537.1

________________________________
(1) 
Includes service-based and market-based RSUs.
(2) 
The number of shares subject to PSAs granted represents the aggregate maximum number of shares that may be issued pursuant to the award over its full term. The aggregate number of shares subject to these PSAs that would be issued if performance goals determined by the Compensation Committee of the Board are achieved at target is 0.4 million shares. Depending on achievement of such performance goals, the range of shares that could be issued under these awards is 0 to 0.6 million shares.
(3) 
The grant date fair value of RSUs and PSAs were reduced by the present value of dividends expected to be paid on the underlying shares of common stock during the requisite and derived service period as these awards are not entitled to receive dividends until vested. During the nine months ended September 30, 2017, the Company declared a quarterly cash dividend of $0.10 per share of common stock on January 26, 2017, April 25, 2017, and July 25, 2017.

Employee Stock Purchase Plan

The ESPP is implemented in a series of offering periods, each currently six months in duration, or such other period as determined by the Board. Employees purchased approximately 1.2 million and 2.7 million shares of common stock through the ESPP at an average exercise price of $22.79 and $20.83 per share during the three and nine months ended September 30, 2017, respectively. Employees purchased approximately 1.4 million and 2.7 million shares of common stock through the ESPP at an average exercise price of $19.29 and $19.66 per share during the three and nine months ended September 30, 2016, respectively.

Share-Based Compensation Expense

Share-based compensation expense associated with stock options, RSUs, RSAs, PSAs, and ESPP was recorded in the following cost and expense categories in the Condensed Consolidated Statements of Operations (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Cost of revenues - Product
$
1.5

 
$
1.5

 
$
3.8

 
$
4.9

Cost of revenues - Service
3.9

 
3.5

 
13.5

 
11.3

Research and development
18.5

 
27.2

 
67.4

 
89.0

Sales and marketing
13.7

 
17.5

 
45.3