Juniper 10Q 063012

 

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, 2012
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from_________ to_________
    
Commission file number: 001-34501

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

Delaware
 
77-0422528
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
1194 North Mathilda Avenue
 
 
Sunnyvale, California
 
94089
(Address of principal executive offices)
 
(Zip code)
(408) 745-2000
(Registrant's telephone number, including area code)
_________________________________
(Former name, former address and former fiscal year, if changed since last report)

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 filings 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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 approximately 526,587,746 shares of the Company's Common Stock, par value $0.00001, outstanding as of July 31, 2012.

 


 
Juniper Networks, Inc.
Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements
Juniper Networks, Inc.
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
Net revenues:
 
 
 
 
 
 
 
Product
$
804,662

 
$
891,428

 
$
1,576,535

 
$
1,768,868

Service
269,097

 
229,116

 
529,722

 
453,288

Total net revenues
1,073,759

 
1,120,544

 
2,106,257

 
2,222,156

Cost of revenues:
 
 
 
 
 
 
 
Product
292,589

 
292,391

 
573,218

 
558,137

Service
113,297

 
105,987

 
231,111

 
205,968

Total cost of revenues
405,886

 
398,378

 
804,329

 
764,105

Gross margin
667,873

 
722,166

 
1,301,928

 
1,458,051

Operating expenses:
 
 
 
 
 
 
 
Research and development
268,734

 
257,250

 
538,336

 
519,229

Sales and marketing
259,455

 
246,635

 
517,174

 
492,926

General and administrative
48,775

 
44,260

 
103,441

 
89,184

Amortization of purchased intangible assets
1,236

 
1,332

 
2,414

 
2,876

Restructuring
3,161

 
(916
)
 
5,200

 
(1,263
)
Acquisition-related
(206
)
 
2,685

 
936

 
6,786

Total operating expenses
581,155

 
551,246

 
1,167,501

 
1,109,738

Operating income
86,718

 
170,920

 
134,427

 
348,313

Other income (expense), net
2,770

 
(13,688
)
 
(21,661
)
 
(20,150
)
Income before income taxes and noncontrolling
   interest
89,488

 
157,232

 
112,766

 
328,163

Income tax provision
31,769

 
41,714

 
38,777

 
82,985

Consolidated net income
57,719

 
115,518

 
73,989

 
245,178

Adjust for net loss attributable to noncontrolling
   interest
—

 
42

 
—

 
132

Net income attributable to Juniper Networks
$
57,719

 
$
115,560

 
$
73,989

 
$
245,310

 
 
 
 
 
 
 
 
Net income per share attributable to Juniper
   Networks common stockholders:
 
 
 
 
 
 
 
Basic
$
0.11

 
$
0.22

 
$
0.14

 
$
0.46

Diluted
$
0.11

 
$
0.21

 
$
0.14

 
$
0.45

Shares used in computing net income per share:
 
 
 
 
 
 
 
Basic
527,756

 
532,909

 
527,989

 
531,827

Diluted
531,755

 
546,452

 
533,753

 
547,729

 
 
 
 
 
 
 
 
Comprehensive income
$
50,069

 
$
116,584

 
$
83,217

 
$
257,331


See accompanying Notes to Condensed Consolidated Financial Statements

3
Table of Contents

Juniper Networks, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par values)
 
June 30,
2012
 
December 31,
2011
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,044,310

 
$
2,910,420

Short-term investments
394,507

 
641,323

Accounts receivable, net of allowances
406,756

 
577,386

Deferred tax assets, net
177,412

 
154,310

Prepaid expenses and other current assets
206,771

 
156,222

Total current assets
4,229,756

 
4,439,661

Property and equipment, net
711,953

 
598,581

Long-term investments
832,966

 
740,659

Restricted cash and investments
82,002

 
78,307

Purchased intangible assets, net
143,774

 
123,114

Goodwill
3,987,707

 
3,928,144

Other long-term assets
58,123

 
75,354

Total assets
$
10,046,281

 
$
9,983,820

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
199,563

 
$
324,843

Accrued compensation
245,331

 
223,018

Accrued warranty
29,776

 
28,276

Deferred revenue
773,275

 
712,663

Income taxes payable
24,942

 
12,545

Other accrued liabilities
180,377

 
165,358

Total current liabilities
1,453,264

 
1,466,703

Long-term debt
999,108

 
999,034

Long-term deferred revenue
219,617

 
254,364

Long-term income taxes payable
108,178

 
108,471

Other long-term liabilities
57,191

 
65,590

Commitments and contingencies
 
 
 
Juniper Networks stockholders' equity:
 
 
 
Convertible preferred stock, $0.00001 par value; 10,000 shares authorized; none
   issued and outstanding
—

 
—

Common stock, $0.00001 par value; 1,000,000 shares authorized; 526,122 shares and
   526,409 shares issued and outstanding at June 30, 2012 and December 31, 2011,
   respectively
5

 
5

Additional paid-in capital
10,154,457

 
10,079,169

Accumulated other comprehensive loss
(8,362
)
 
(17,590
)
Accumulated deficit
(2,937,653
)
 
(2,972,402
)
Total Juniper Networks stockholders' equity
7,208,447

 
7,089,182

Noncontrolling interest
476

 
476

Total stockholders' equity
7,208,923

 
7,089,658

Total liabilities and stockholders' equity
$
10,046,281

 
$
9,983,820


See accompanying Notes to Condensed Consolidated Financial Statements

4
Table of Contents

Juniper Networks, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Consolidated net income
$
73,989

 
$
245,178

Adjustments to reconcile consolidated net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
89,827

 
82,649

Non-cash portion of share-based compensation
126,887

 
106,243

Deferred income taxes
(23,102
)
 
8,677

Gain on investments, net
(787
)
 
—

Excess tax benefits from share-based compensation
(6,770
)
 
(43,331
)
Amortization of debt issuance costs
472

 
273

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable, net
170,694

 
107,982

Prepaid expenses and other assets
(46,470
)
 
6,408

Accounts payable
(137,562
)
 
(34,051
)
Accrued compensation
21,347

 
(38,756
)
Income taxes payable
17,186

 
51,220

Other accrued liabilities
2,754

 
19,670

Deferred revenue
25,865

 
45,795

Net cash provided by operating activities
314,330

 
557,957

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(169,713
)
 
(115,941
)
Purchases of trading investments
(3,120
)
 
(3,127
)
Purchases of available-for-sale investments
(614,842
)
 
(1,293,670
)
Proceeds from sales of available-for-sale investments
399,642

 
685,258

Proceeds from maturities of available-for-sale investments
371,635

 
238,000

Payments for business acquisitions, net of cash and cash equivalents acquired
(90,487
)
 
(31,073
)
Proceeds from sales of privately-held investments
19,839

 
259

Purchases of privately-held investments
(6,123
)
 
(8,902
)
Purchase of other assets
(297
)
 
—

Changes in restricted cash
(211
)
 
(1,236
)
Net cash used in investing activities
(93,677
)
 
(530,432
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
49,797

 
303,874

Purchases and retirement of common stock
(150,087
)
 
(355,171
)
Payment for capital lease obligation
(1,430
)
 
—

Issuance of long-term debt, net
—

 
991,556

Change in customer financing arrangements
8,187

 
15,064

Excess tax benefits from share-based compensation
6,770

 
43,331

Net cash (used in) provided by financing activities
(86,763
)
 
998,654

Net increase in cash and cash equivalents
133,890

 
1,026,179

Cash and cash equivalents at beginning of period
2,910,420

 
1,811,887

Cash and cash equivalents at end of period
$
3,044,310

 
$
2,838,066


See accompanying Notes to Condensed Consolidated Financial Statements

5
Table of Contents

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation

The unaudited Condensed Consolidated Financial Statements of Juniper Networks, Inc. (“Juniper Networks” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information as well as the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). 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, 2011, is derived from the audited Consolidated Financial Statements for the year ended December 31, 2011. 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, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012, 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, 2011.

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates.

Beginning in the first quarter of 2012, the Company aligned its organizational structure to focus on its platform and software strategy, which resulted in two reportable segments organized principally by product families: Platform Systems Division ("PSD") and Software Solutions Division ("SSD"). In fiscal 2011, the Company was organized into two reportable segments, Infrastructure and Service Layer Technology. The Company has reclassified the segment data for the prior periods to conform to the current period's presentation. The segment change did not impact previously reported consolidated net revenues, operating income, net income, and net income per share. See Note 12, Segments, for further discussion of the Company's segment reorganization.

As of June 30, 2012, the Company owned a 60 percent interest in a joint venture with Nokia Siemens Networks B.V. (“NSN”). Given the Company's majority ownership interest in the joint venture, the accounts of the joint venture have been consolidated with the accounts of the Company, and a noncontrolling interest has been recorded for the noncontrolling investor's interests in the net assets and operations of the joint venture. In July 2011, NSN and the Company entered into an agreement to cease operation of and terminate the joint venture. NSN has assumed the activities of the joint venture. The Company is in the process of winding down this joint venture and the termination of this joint venture is not expected to have a material effect on the Company's financial position or results of operations.

Note 2. Summary of Significant Accounting Policies

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-08, Topic 350 - Intangibles - Goodwill and Other ("ASU 2011-08"), which amends Topic 350 and provides entities an option to perform a qualitative assessment to determine whether further impairment testing on goodwill is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The Company adopted this standard in the first quarter of 2012. The Company’s adoption of the standard during the first quarter of 2012 did not impact its consolidated results of operations or financial condition.

In June 2011, the FASB issued ASU No. 2011-05, Topic 220 - Presentation of Comprehensive Income (“ASU 2011-05”), which requires companies to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued ASU No. 2011-12, Topic 220 - Comprehensive Income ("ASU 2011-12"), which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The Company adopted both standards in the first quarter of 2012.

6
Table of Contents

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

The Company’s adoption of the standard during the first quarter of 2012 did not impact its consolidated results of operations or financial condition.

In May 2011, the FASB issued ASU No. 2011-04, Topic 820 - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The Company adopted this standard in the first quarter of 2012. The Company’s adoption of the standard during the first quarter of 2012 did not impact its consolidated results of operations or financial condition.

Note 3. Business Combinations

The Company's Condensed Consolidated Financial Statements include the operating results of acquired businesses from the date of each acquisition. Pro forma results of operations for these acquisitions have not been presented as the financial impact to the Company's consolidated results of operations, both individually and in aggregate, is not material.
During the six months ended June 30, 2012, the Company completed two acquisitions. The fair values of certain income based taxes and residual goodwill are not yet finalized and subject to change. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments determined to be material will be applied retrospectively to the period of acquisition.
On February 13, 2012, the Company acquired 100% of the equity securities of Mykonos Software, Inc. ("Mykonos"). The acquisition of Mykonos is intended to extend Juniper's security portfolio with an intrusion deception system capable of detecting an attacker before an attack is in process. Goodwill recognized as the result of the acquisition was assigned to the SSD segment.
On March 8, 2012, the Company acquired a source code license, patent joint-ownership, and employees related to the service management layer of BitGravity, Inc. ("BitGravity") Content Delivery Network ("CDN") technology. The transaction complements the Company's Media Flow Solution and content and media delivery strategy, to enable service providers, on-line media companies, and content delivery networks to deliver on-line content more cost-effectively while simultaneously improving the end-user experience. Goodwill recognized as the result of the acquisition was assigned to the SSD segment.
The following table presents the preliminary purchase consideration allocations for these acquisitions, including cash and cash equivalents acquired (in millions):
 
Mykonos
 
BitGravity
 
Total
Net tangible assets/(liabilities) acquired
$
(0.8
)
 
$
0.1

 
$
(0.7
)
Intangible assets acquired
24.3

 
12.4

 
36.7

Goodwill
59.1

 
0.5

 
59.6

    Total
$
82.6

 
$
13.0

 
$
95.6


The Company recorded an adjustment of $0.2 million and recognized $4.2 million of acquisition-related costs during the three months ended June 30, 2012 and June 30, 2011, respectively, and $0.9 million and $9.3 million of acquisition-related costs during the six months ended June 30, 2012 and June 30, 2011, respectively. These acquisition-related charges were expensed in the period incurred and reported in the Company's Condensed Consolidated Statements of Comprehensive Income within cost of revenues and operating expenses.

The goodwill recognized for the acquisitions completed during the six months ended June 30, 2012, was primarily attributable to expected synergies and was not deductible for U.S. federal income tax purposes.


7
Table of Contents

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

Intangible Assets Acquired

The following table presents details of the intangible assets acquired through the business combinations completed during the six months ended June 30, 2012 (in millions, except years):  
 
Mykonos
 
BitGravity
 
Estimated Useful
Life (In Years)
 
Amount
 
Estimated Useful
Life (In Years)
 
Amount
Existing technology
6
 
$
19.3

 
3
 
$
12.4

Trade name and trademarks
7
 
1.0

 
—
 
—

In-process research and development
—
 
4.0

 
—
 
—

Total
 
 
$
24.3

 
 
 
$
12.4


Note 4. Cash, Cash Equivalents and Investments

Investments in Available-for-Sale and Trading Securities

The following tables summarize the Company's unrealized gains and losses, based on the specific identification method and fair value, of investments designated as available-for-sale and trading securities, as of June 30, 2012 and December 31, 2011 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
As of June 30, 2012
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
$
156.6

 
$
0.2

 
$
—

 
$
156.8

Certificates of deposit
27.1

 
—

 
—

 
27.1

Corporate debt securities
532.7

 
1.5

 
(0.2
)
 
534.0

Foreign government debt securities
10.0

 
—

 
—

 
10.0

Government-sponsored enterprise obligations
262.3

 
0.3

 
—

 
262.6

Money market funds
1,445.3

 
—

 
—

 
1,445.3

U.S. government securities
419.4

 
—

 
(0.1
)
 
419.3

Total fixed income securities
2,853.4

 
2.0

 
(0.3
)
 
2,855.1

Publicly-traded equity securities
3.0

 
—

 
(0.2
)
 
2.8

Total available-for-sale securities
2,856.4

 
2.0

 
(0.5
)
 
2,857.9

Trading securities(*)
11.4

 
—

 
—

 
11.4

Total
$
2,867.8

 
$
2.0

 
$
(0.5
)
 
$
2,869.3

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
1,641.8

 
$
—

 
$
—

 
$
1,641.8

Short-term investments
394.4

 
0.3

 
(0.2
)
 
394.5

Long-term investments
831.6

 
1.7

 
(0.3
)
 
833.0

Total
$
2,867.8

 
$
2.0

 
$
(0.5
)
 
$
2,869.3

________________________________
(*) 
Balance includes the Company's non-qualified deferred compensation plan assets. For additional information, see Note 11, Employee Benefit Plans, under the section Deferred Compensation Plan.

8
Table of Contents

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, 2011
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
$
124.7

 
$
0.1

 
$
(0.1
)
 
$
124.7

Certificates of deposit
31.8

 
—

 
—

 
31.8

Commercial paper
10.0

 
—

 
—

 
10.0

Corporate debt securities
508.2

 
1.0

 
(0.5
)
 
508.7

Government-sponsored enterprise obligations
430.8

 
0.3

 
(0.1
)
 
431.0

Money market funds
1,316.2

 
—

 
—

 
1,316.2

U.S. government securities
301.1

 
—

 
(0.1
)
 
301.0

Total fixed income securities
2,722.8

 
1.4

 
(0.8
)
 
2,723.4

Total available-for-sale securities
2,722.8

 
1.4

 
(0.8
)
 
2,723.4

Trading securities(*)
9.3

 
—

 
—

 
9.3

Total
$
2,732.1

 
$
1.4

 
$
(0.8
)
 
$
2,732.7

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
1,350.7

 
$
—

 
$
—

 
$
1,350.7

Short-term investments
640.9

 
0.4

 
—

 
641.3

Long-term investments
740.5

 
1.0

 
(0.8
)
 
740.7

Total
$
2,732.1

 
$
1.4

 
$
(0.8
)
 
$
2,732.7

 
________________________________
(*) 
Balance includes the Company's non-qualified deferred compensation plan assets. For additional information, see Note 11, Employee Benefit Plans, under the section Deferred Compensation Plan.

The following table presents the maturities of the Company's available-for-sale and trading securities, as of June 30, 2012 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
Due within one year
$
2,021.6

 
$
0.3

 
$
—

 
$
2,021.9

Due between one and five years
831.7

 
1.7

 
(0.3
)
 
833.1

No contractual maturity
14.5

 
—

 
(0.2
)
 
14.3

Total
$
2,867.8

 
$
2.0

 
$
(0.5
)
 
$
2,869.3


The following tables present the Company's available-for-sale investments that were in an unrealized loss position as of June 30, 2012 and December 31, 2011 (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, 2012
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
$
145.6

 
$
(0.2
)
 
$
—

 
$
—

 
$
145.6

 
$
(0.2
)
U.S. government securities
194.1

 
(0.1
)
 
—

 
—

 
194.1

 
(0.1
)
Government-sponsored enterprise obligations (*)
31.0

 
—

 
—

 
—

 
31.0

 
—

Asset-backed securities (*)
35.9

 
—

 
0.9

 
—

 
36.8

 
—

Publicly-traded equity securities
2.8

 
(0.2
)
 
—

 
—

 
2.8

 
(0.2
)
Total
$
409.4

 
$
(0.5
)
 
$
0.9

 
$
—

 
$
410.3

 
$
(0.5
)
________________________________
(*) Balance includes investments that were in an immaterial unrealized loss position as of June 30, 2012.

9
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Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

 
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, 2011
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
$
189.9

 
$
(0.5
)
 
$
—

 
$
—

 
$
189.9

 
$
(0.5
)
U.S. government securities
186.7

 
(0.1
)
 
—

 
—

 
186.7

 
(0.1
)
Government-sponsored enterprise obligations
146.0

 
(0.1
)
 
—

 
—

 
146.0

 
(0.1
)
Asset-backed securities (*)
76.8

 
(0.1
)
 
0.3

 
—

 
77.1

 
(0.1
)
Total
$
599.4

 
$
(0.8
)
 
$
0.3

 
$
—

 
$
599.7

 
$
(0.8
)
 ________________________________
(*) Balance includes investments that were in an immaterial unrealized loss position as of December 31, 2011.

The Company had 103 and 135 investments in unrealized loss positions as of June 30, 2012 and December 31, 2011, respectively. The gross unrealized losses related to these investments were primarily due to changes in market interest rates. For the fixed income securities that have unrealized losses, the Company determined that (i) it does not have the intent to sell any of these investments and (ii) it is not 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, 2012 and December 31, 2011, the Company did not consider these investments to be other-than-temporarily impaired. The Company reviews its investments on a regular basis 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.

Restricted Cash and Investments
The Company classifies cash and investments as restricted cash and investments on its Condensed Consolidated Balance Sheets for: (i) amounts held in escrow accounts, as required by certain acquisitions completed between 2005 and 2012; (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; and (iii) the Directors and Officers ("D&O") indemnification trust. During the three and six months ended June 30, 2012, the Company distributed approximately $0.5 million and $79.5 million of restricted cash, respectively, mainly related to the acquisitions completed during 2012.

The following table summarizes the Company's cash and investments that are classified as restricted cash and investments in the Condensed Consolidated Balance Sheets and designated as available-for-sale securities (in millions):
 
As of
 
June 30,
2012
 
December 31,
2011
Restricted cash:
 
 
 
Demand deposits
$
0.7

 
$
0.6

Total restricted cash
0.7

 
0.6

Restricted investments:
 
 
 
Corporate debt securities
1.6

 
1.6

Mutual funds
0.9

 
1.0

Money market funds
78.8

 
75.1

Total restricted investments
81.3

 
77.7

Total restricted cash and investments
$
82.0

 
$
78.3


As of June 30, 2012 and December 31, 2011, the unrealized gains and losses related to restricted investments were not material.

Privately-Held Investments

As of June 30, 2012 and December 31, 2011, the carrying values of the Company’s privately-held and other equity investments of $36.0 million and $51.8 million, respectively, were included in other long-term assets in the Condensed Consolidated

10
Table of Contents

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

Balance Sheets. During the three and six months ended June 30, 2012, the Company invested $5.0 million and $6.1 million, respectively, in privately-held investments. During the three and six months ended June 30, 2011, the Company invested $2.9 million and $8.9 million, respectively, in privately-held and other equity investments.

During the three and six months ended June 30, 2012, the Company recognized a net gain of $14.8 million and $0.8 million, respectively, related to the Company's privately-held investments. There were no gains or losses from the Company's privately-held and other equity investments during the three and six months ended June 30, 2011.

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, 2012 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 debt securities:
 
 
 
 
 
 
 
Asset-backed securities
$
—

 
$
156.8

 
$
—

 
$
156.8

Certificate of deposit
—

 
27.1

 
—

 
27.1

Corporate debt securities (1)
—

 
535.6

 
—

 
535.6

Foreign government debt securities
—

 
10.0

 
—

 
10.0

Government-sponsored enterprise obligations
262.6

 
—

 
—

 
262.6

Money market funds (2)
1,524.1

 
—

 
—

 
1,524.1

Mutual funds (3)
0.9

 
—

 
—

 
0.9

U.S. government securities
206.3

 
213.0

 
—

 
419.3

Total available-for-sale debt securities
1,993.9

 
942.5

 
—

 
2,936.4

Available-for-sale equity securities:
 
 
 
 
 
 
 
Publicly-traded equity securities
2.8

 
—

 
—

 
2.8

Total available-for-sale securities
1,996.7

 
942.5

 
—

 
2,939.2

Trading securities:
 
 
 
 
 
 
 
Mutual funds (4)
11.4

 
—

 
—

 
11.4

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts
—

 
0.4

 
—

 
0.4

Total assets measured at fair value
$
2,008.1

 
$
942.9

 
$
—

 
$
2,951.0

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

 
$
4.0

 
$
—

 
$
4.0

Total liabilities measured at fair value
$
—

 
$
4.0

 
$
—

 
$
4.0

________________________________
(1) 
Balance includes $1.6 million of restricted investments measured at fair market value, related to the Company's India Gratuity Trust.
(2) 
Balance includes $78.8 million of restricted investments measured at fair market value, related to the Company's D&O trust and acquisitions related escrows.
(3) 
Balance relates to the restricted investments measured at fair market value of the Company's India Gratuity Trust.
(4) 
Balance relates to investments measured at fair value related to the Company's non-qualified deferred compensation plan assets.


11
Table of Contents

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

 
Fair Value Measurements at June 30, 2012 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
Total assets measured at fair value, reported as:
 
 
 
 
 
 
 
Cash equivalents
$
1,445.3

 
$
196.5

 
$
—

 
$
1,641.8

Short-term investments
191.6

 
202.9

 
—

 
394.5

Long-term investments
291.5

 
541.5

 
—

 
833.0

Restricted investments
79.7

 
1.6

 
—

 
81.3

Prepaid expenses and other current assets
—

 
0.4

 
—

 
0.4

Total assets measured at fair value
$
2,008.1

 
$
942.9

 
$
—

 
$
2,951.0

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

 
$
4.0

 
$
—

 
$
4.0

Total liabilities measured at fair value
$
—

 
$
4.0

 
$
—

 
$
4.0


 
Fair Value Measurements at December 31, 2011 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 debt securities:
 
 
 
 
 
 
 
Asset-backed securities
$
—

 
$
124.7

 
$
—

 
$
124.7

Certificate of deposit
—

 
31.8

 
—

 
31.8

Commercial paper
—

 
10.0

 
—

 
10.0

Corporate debt securities (1)
—

 
510.3

 
—

 
510.3

Government-sponsored enterprise obligations
314.2

 
116.8

 
—

 
431.0

Money market funds (2)
1,391.3

 
—

 
—

 
1,391.3

U.S. government securities
149.3

 
151.7

 
—

 
301.0

Total available-for-sale debt securities
1,854.8

 
945.3

 
—

 
2,800.1

Trading securities:
 
 
 
 
 
 
 
Mutual funds (3)
10.3

 
—

 
—

 
10.3

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts
—

 
0.4

 
—

 
0.4

Total assets measured at fair value
$
1,865.1

 
$
945.7

 
$
—

 
$
2,810.8

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

 
$
9.6

 
$
—

 
$
9.6

Total liabilities measured at fair value
$
—

 
$
9.6

 
$
—

 
$
9.6

________________________________
(1) 
Balance includes $1.6 million of restricted investments measured at fair market value, related to the Company's India Gratuity Trust.
(2) 
Balance includes $75.1 million of restricted investments measured at fair market value, related to the Company's D&O trust and acquisition related escrows.
(3) 
Balance includes $9.3 million of the Company's non-qualified deferred compensation plan assets and $1.0 million of restricted investments measured at fair market value, related to the Company's India Gratuity Trust.

12
Table of Contents

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

 
Fair Value Measurements at December 31, 2011 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
Total assets measured at fair value, reported as:
 
 
 
 
 
 
 
Cash equivalents
$
1,316.2

 
$
34.5

 
$
—

 
$
1,350.7

Short-term investments
168.9

 
472.4

 
—

 
641.3

Long-term investments
303.9

 
436.8

 
—

 
740.7

Restricted investments
76.1

 
1.6

 
—

 
77.7

Prepaid expenses and other current assets
—

 
0.4

 
—

 
0.4

Total assets measured at fair value
$
1,865.1

 
$
945.7

 
$
—

 
$
2,810.8

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

 
$
9.6

 
$
—

 
$
9.6

Total liabilities measured at fair value
$
—

 
$
9.6

 
$
—

 
$
9.6


The Company's Level 2 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 policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 as of the actual date of the events or change in circumstances that caused the transfer. During the three and six months ended June 30, 2012 and June 30, 2011, the Company had no transfers between levels of the fair value hierarchy of its assets or liabilities measured at fair value.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

As of June 30, 2012, there were no privately-held investments measured at fair value on a nonrecurring basis. As of December 31, 2011, the carrying value of privately-held investments measured at fair value on a nonrecurring basis was $0.4 million. These privately-held investments, which are normally carried at cost, are measured at fair value if events and circumstances are identified by the Company during the period that significantly impact the fair value of the investments. The Company measures the fair value of its privately-held investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities, cash flow projections, and probability-weighted expected value based on the expected recoverability of the investments.

During the three months ended June 30, 2012, the Company determined there were no other-than-temporary impairments on its privately-held investments. The Company recognized an other-than-temporary impairment loss of $14.0 million on its privately-held investments during the six months ended June 30, 2012 and classified the investments as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity. The Company had no other-than-temporary impairment losses against its privately-held investments during the three and six months ended June 30, 2011.

As of June 30, 2012 and December 31, 2011, 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. The fair value of the Company’s long-term debt is disclosed in Note 9, Long-Term Debt and Financing, and was determined using quoted market prices (Level 1).


13
Table of Contents

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 Company's foreign currency derivatives are summarized as follows (in millions):
 
As of
 
June 30,
2012
 
December 31,
2011
Cash flow hedges
$
128.8

 
$
184.3

Non-designated hedges
105.0

 
122.7

     Total
$
233.8

 
$
307.0


Cash Flow Hedges

The Company can use 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 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 income (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 income (expense), net in its Condensed Consolidated Statements of Comprehensive Income. 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 12 months.

As of June 30, 2012 and December 31, 2011, the total fair value of the Company’s derivative assets recorded in other current assets on the Condensed Consolidated Balance Sheets was $0.4 million and $0.4 million, respectively. As of June 30, 2012 and December 31, 2011, the total fair value of the Company’s derivative liabilities recorded in other accrued liabilities on the Condensed Consolidated Balance Sheets was $4.0 million and $9.6 million, respectively.

During the three and six months ended June 30, 2012, the Company recognized a loss of $5.2 million and a gain of $0.8 million, respectively, in accumulated other comprehensive income for the effective portion of its derivative instruments and reclassified a loss of $2.0 million and $5.5 million, respectively, from other comprehensive income to operating expense in the Condensed Consolidated Statements of Comprehensive Income. During the three and six months ended June 30, 2011, the Company recognized a gain of $1.9 million and $7.1 million, respectively, in accumulated other comprehensive income for the effective portion of its derivative instruments and reclassified a gain of $1.7 million and $2.2 million, respectively, from other comprehensive income to operating expense in the Condensed Consolidated Statements of Comprehensive Income.

The ineffective portion of the Company's derivative instruments recognized in its Condensed Consolidated Statements of Comprehensive Income was not material during the three and six months ended June 30, 2012 and June 30, 2011.

Non-Designated Hedges

The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in foreign currencies. These hedges do not qualify for special hedge accounting treatment. These derivatives are carried at fair value with changes recorded in other income (expense), net in the Condensed Consolidated Statements of Comprehensive Income. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. The derivatives have maturities of approximately two months.


14
Table of Contents

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

During the three and six months ended June 30, 2012, the Company recognized a net gain of $0.4 million and $0.3 million, respectively, within other income (expense), net, on its Condensed Consolidated Statements of Comprehensive Income from non-designated derivative instruments. During the three and six months ended June 30, 2011, the Company recognized a net gain of $0.4 million and $0.2 million, respectively, within other income (expense), net, on its Condensed Consolidated Statements of Comprehensive Income from non-designated derivative instruments.

Note 7. Goodwill and Purchased Intangible Assets

Goodwill
The following table presents the goodwill activity allocated to the Company's reportable segments during the six months ended June 30, 2012 (in millions):
 
PSD
 
SSD
 
Total
Balance as of January 1, 2012
$
1,795.6

 
$
2,132.5

 
$
3,928.1

Additions due to business combinations
—

 
59.6

 
59.6

Balance as of June 30, 2012
$
1,795.6

 
$
2,192.1

 
$
3,987.7


The Company had no adjustments to goodwill during the six months ended June 30, 2012. The additions to goodwill during the six months ended June 30, 2012 were based on preliminary allocations of the purchase prices. There were no impairments to goodwill during the three and six months ended June 30, 2012 and June 30, 2011.
 
Purchased Intangible Assets

The Company’s purchased intangible assets were as follows (in millions):
 
Gross
 
Accumulated
Amortization
 
Net
As of June 30, 2012
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
Technologies and patents
$
531.2

 
$
(418.2
)
 
$
113.0

Other
92.5

 
(68.5
)
 
24.0

Total intangible assets with finite lives
623.7

 
(486.7
)
 
137.0

IPR&D with indefinite lives
6.8

 
—

 
6.8

Total purchased intangible assets
$
630.5

 
$
(486.7
)
 
$
143.8

 
 
 
 
 
 
As of December 31, 2011
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
Technologies and patents
$
499.5

 
$
(404.2
)
 
$
95.3

Other
91.5

 
(66.5
)
 
25.0

Total intangible assets with finite lives
591.0

 
(470.7
)
 
120.3

IPR&D with indefinite lives
2.8

 
—

 
2.8

Total purchased intangible assets
$
593.8

 
$
(470.7
)
 
$
123.1


Amortization of purchased intangible assets included in operating expenses and cost of product revenues totaled $8.8 million and $6.8 million for the three months ended June 30, 2012 and June 30, 2011, respectively, and $16.1 million and $13.5 million for the six months ended June 30, 2012 and June 30, 2011, respectively. There were no impairment charges with respect to the purchased intangible assets during the three and six months ended June 30, 2012 and June 30, 2011.

The purchased intangible assets balance as of June 30, 2012, includes intangible assets acquired through acquisitions completed during the first six months of 2012. Refer to Note 3, Business Combinations, for further details.


15
Table of Contents

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

As of June 30, 2012, the estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):
Years Ending December 31,
Amount
Remainder of 2012
$
17.5

2013
34.7

2014
32.8

2015
24.8

2016
11.1

Thereafter
16.1

Total
$
137.0


Note 8. Other Financial Information

Inventories, net

The Company's inventories are stated at the lower of cost or market. The Company purchases and holds inventory to ensure adequate component supplies over the life of the underlying products. The majority of the Company's inventory is production components. Inventories, net are reported within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets and consisted of the following (in millions):
 
As of
 
June 30, 2012
 
December 31, 2011
Inventories, net
 
 
 
Production materials
$
87.3

 
$
52.4

Finished goods
17.5

 
16.7

Total inventories, net
$
104.8

 
$
69.1


Warranties

The Company accrues for warranty costs as part of its cost of sales based on associated material costs, labor costs for customer support, and overhead at the time revenue is recognized. This provision is reported as accrued warranty within current liabilities on the Condensed Consolidated Balance Sheets. Changes in the Company’s warranty reserve were as follows (in millions):
 
June 30, 2012
Beginning balance
$
28.3

Provisions made during the period, net
16.8

Change in estimate
—

Actual costs incurred during the period
(15.3
)
Ending balance
$
29.8



16
Table of Contents

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

Deferred Revenue

Details of the Company's deferred revenue, as reported on the Condensed Consolidated Balance Sheets, were as follows (in millions):
 
As of
 
June 30,
2012
 
December 31,
2011
Deferred product revenue:
 
 
 
Undelivered product commitments and other product deferrals
$
281.6

 
$
288.1

Distributor inventory and other sell-through items
112.6

 
134.0

Deferred gross product revenue
394.2

 
422.1

Deferred cost of product revenue
(102.7
)
 
(136.9
)
Deferred product revenue, net
291.5

 
285.2

Deferred service revenue
701.4

 
681.8

Total
$
992.9

 
$
967.0

Reported as:
 
 
 
Current
$
773.3

 
$
712.6

Long-term
219.6

 
254.4

Total
$
992.9

 
$
967.0


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. Deferred product revenue is recorded net of the related costs of product revenue. Deferred service revenue represents customer payments made in advance for services, which include technical support, hardware and software maintenance, professional services, and training.

Restructuring Liabilities

During the third quarter of 2011, the Company implemented a restructuring plan (the "2011 Restructuring Plan") in an effort to better align its business operations with the current market and macroeconomic conditions. The 2011 Restructuring Plan consisted of certain workforce reductions, facility closures and to a lesser extent, contract terminations.

During 2009, the Company implemented a restructuring plan (the "2009 Restructuring Plan" and together with the 2011 Restructuring Plan, the "Restructuring Plans") in an effort to better align its business operations with the market and macroeconomic conditions. The 2009 Restructuring Plan included restructuring of certain business functions that resulted in reductions of workforce and facilities. The Company recorded the majority of the restructuring charges associated with this plan during the years ended 2010 and 2009.

The Company recorded net restructuring charges of $3.2 million and $5.2 million during the three and six months ended June 30, 2012, respectively, related to the restructuring activities associated with the 2011 Restructuring Plan. During the three and six months ended June 30, 2011, the Company recorded adjustments of $0.9 million and $1.3 million, respectively, in connection with the 2009 Restructuring Plan. These amounts are recorded within restructuring in the Condensed Consolidated Statements of Comprehensive Income. As of June 30, 2012, the remaining restructuring liability relates to severance costs under the 2011 Restructuring Plan that are expected to be paid during the remainder of 2012, as well as facilities-related charges under the Restructuring Plans, which are expected to be completed by February 2015.


17
Table of Contents

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

Restructuring charges were based on the Company's restructuring plans that were committed by management. Any changes in the estimates of executing the approved plans will be reflected in the Company's results of operations. Restructuring liabilities are reported within other accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets. The following table provides a summary of changes in the Company’s restructuring liability during the six months ended June 30, 2012 (in millions):
 
December 31,
2011
 
Charges
 
Cash
payments
 
Non-cash
Settlements and
Other
Adjustments
 
June 30,
2012
Facilities
$
1.0

 
$
1.7

 
$
(0.4
)
 
$
—

 
$
2.3

Severance, contractual
   commitments, and other charges
3.1

 
3.5

 
(4.8
)
 
0.9

 
2.7

Total
$
4.1

 
$
5.2

 
$
(5.2
)
 
$
0.9

 
$
5.0


Other Income (Expense), Net

Other income (expense), net consisted of the following (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
Interest income
$
2.9

 
$
2.6

 
$
5.7

 
$
5.0

Interest expense
(13.5
)
 
(15.2
)
 
(27.7
)
 
(21.6
)
Other
13.4

 
(1.1
)
 
0.4

 
(3.5
)
Other income (expense), net
$
2.8

 
$
(13.7
)
 
$
(21.6
)
 
$
(20.1
)

Interest income primarily includes interest earned on the Company’s cash, cash equivalents, and investments. Interest expense primarily includes interest expense from long-term debt and customer financing arrangements. Other income and expense typically consists of investment and foreign exchange gains and losses and other non-operational income and expense items. During the three and six months ended June 30, 2012, the Company recognized a net gain of $14.8 million and $0.8 million, respectively, related to the Company's privately-held investments. The Company had no such gains during the three and six months ended June 30, 2011.

Note 9. Long-Term Debt and Financing

Long-Term Debt

The following table summarizes the Company's long-term debt (in millions, except percentages):
 
As of June 30, 2012
 
Amount
 
Effective Interest
Rates
Senior notes:
 
 
 
3.10% fixed-rate notes, due 2016 ("2016 Notes")
$
300.0

 
3.12
%
4.60% fixed-rate notes, due 2021 ("2021 Notes")
300.0

 
4.63
%
5.95% fixed-rate notes, due 2041 ("2041 Notes")
400.0

 
6.01
%
Total senior notes
1,000.0

 
 
Unaccreted discount
(0.9
)
 
 
Total
$
999.1

 
 


18
Table of Contents

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

The effective interest rates for the 2016 Notes, 2021 Notes, and 2041 Notes (collectively the “Notes”) include the interest on the Notes, accretion of the discount, and amortization of issuance costs. At June 30, 2012 and December 31, 2011, the estimated fair value of the Notes included in long-term debt was approximately $1,097.3 million and $1,069.8 million, respectively, based on quoted market prices (Level 1).
 
Customer Financing Arrangements

The Company has customer financing arrangements to sell its accounts receivable to a major third-party financing provider. The program does not and is not intended to affect the timing of revenue recognition because the Company only recognizes revenue upon sell-through. Under the financing arrangements, proceeds from the financing provider are due to the Company 30 days from the sale of the receivable. In these transactions with the financing provider, the Company surrendered control over the transferred assets. The accounts receivable were isolated from the Company and put beyond the reach of creditors, even in the event of bankruptcy. The Company does not maintain effective control over the transferred assets through obligations or rights to redeem, transfer, or repurchase the receivables after they have been transferred.

Pursuant to the financing arrangements for the sale of receivables, the Company sold net receivables of $162.6 million and $224.2 million during the three months ended June 30, 2012 and June 30, 2011, respectively, and $283.2 million and $399.0 million during the six months ended June 30, 2012 and June 30, 2011, respectively.

The Company received cash proceeds from the financing provider of $147.3 million and $207.6 million during the three months ended June 30, 2012 and June 30, 2011, respectively, and $325.8 million and $401.9 million during the six months ended June 30, 2012 and June 30, 2011, respectively. As of June 30, 2012 and December 31, 2011, the amounts owed by the financing provider were $114.0 million and $162.9 million, respectively, and were recorded in accounts receivable on the Company’s Condensed Consolidated Balance Sheets.

The portion of the receivable financed that has not been recognized as revenue is accounted for as a financing arrangement and is included in other accrued liabilities and other long-term liabilities in the Condensed Consolidated Balance Sheets. As of June 30, 2012 and December 31, 2011, the estimated cash received from the financing provider not recognized as revenue from distributors was $41.3 million and $33.3 million, respectively.

Note 10. Equity

Stock Repurchase Activities

In June 2012, the Company’s Board of Directors (the “Board”) approved a stock repurchase program (the "2012 Stock Repurchase Program"), which authorized the Company to repurchase up to $1.0 billion of its common stock. This authorization was in addition to the $1.0 billion approved by the Board in February 2010 (the "2010 Stock Repurchase Program").

The Company repurchased and retired approximately 5.0 million and 7.4 million shares of its common stock at an average price of $18.76 and $19.72 per share for an aggregate purchase price of $94.0 million and $145.6 million during the three and six months ended June 30, 2012, respectively, under its stock repurchase programs. The Company repurchased and retired approximately 3.9 million and 8.6 million shares of its common stock at an average price of $38.94 and $40.71 per share for an aggregate purchase price of $150.0 million and $350.2 million during the three and six months ended June 30, 2011, respectively, under its stock repurchase programs. As of June 30, 2012, there was $1.1 billion authorized funds remaining under its stock repurchase programs.


19
Table of Contents

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

Comprehensive Income Attributable to Juniper Networks

The activity for each component of comprehensive income attributable to Juniper Networks, net of related taxes, was as follows (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
Consolidated net income
$
57.7

 
$
115.5

 
$
74.0

 
$
245.2

Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized (loss) gain on
   investments
(3.1
)
 
(1.5
)
 
9.2

 
2.9

Change in foreign currency translation
   adjustment
(4.5
)
 
2.6

 
0.1

 
9.2

Total other comprehensive (loss) income
(7.6
)
 
1.1

 
9.3

 
12.1

Consolidated comprehensive income
50.1

 
116.6

 
83.3

 
257.3

Adjust for comprehensive loss attributable to
  noncontrolling interest
—

 
0.1

 
—

 
0.1

Comprehensive income attributable to
   Juniper Networks
$
50.1

 
$
116.7

 
$
83.2

 
$
257.4


Note 11. Employee Benefit Plans

Share-Based Compensation Plans

The Company’s share-based compensation plans include the 2006 Equity Incentive Plan (the “2006 Plan”), 2000 Nonstatutory Stock Option Plan (the “2000 Plan”), Amended and Restated 1996 Stock Plan (the “1996 Plan”), as well as various equity incentive plans assumed through acquisitions. Under these plans, the Company has granted (or in the case of acquired plans, assumed) stock options, restricted stock units ("RSUs"), and performance share awards ("PSAs"). In addition, the Company’s 2008 Employee Stock Purchase Plan (the “2008 Purchase Plan”) permits eligible employees to acquire shares of the Company’s common stock at a 15% discount to the offering price (as determined in the 2008 Purchase Plan) through periodic payroll deductions of up to 10% of base compensation, subject to individual purchase limits of 6,000 shares in any twelve-month period or $25,000 worth of stock, determined at the fair market value of the shares at the time the stock purchase option is granted, in one calendar year.

The 2006 Plan was adopted and approved by the Company’s stockholders in May 2006 and had an initial authorized share reserve of 64.5 million shares of common stock plus the addition of any shares subject to options under the 2000 Plan and the 1996 Plan that were outstanding as of May 18, 2006, and that subsequently expire unexercised, up to a maximum of an additional 75.0 million shares. In addition, the Company’s stockholders’ approved amendments to the 2006 Plan that increased the number of shares reserved for issuance under the 2006 Plan, thereby increasing the authorized share reserve by 30.0 million shares in May 2010 and 2011, respectively, and 25.0 million shares in May 2012. As of June 30, 2012, the 2006 Plan had 62.5 million shares subject to currently outstanding equity awards and 47.2 million shares available for future issuance.

In connection with certain past acquisitions, the Company assumed stock options and RSU awards under the stock plans of the acquired companies. The Company exchanged those awards for Juniper Networks' stock options and RSUs. As of June 30, 2012, stock options and RSUs representing approximately 1.4 million shares of common stock were outstanding under awards assumed through the Company's past acquisitions.

Stock Option Activities

Since 2006, the Company has granted stock option awards that have a maximum contractual life of seven years from the date of grant. Prior to 2006, stock option awards generally had a ten-year contractual life from the date of grant.



20
Table of Contents

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

The following table summarizes the Company’s stock option activity and related information as of and for the six months ended June 30, 2012 (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 at January 1, 2012
38.6

 
$
23.98

 
 
 
 
Options granted (*)
3.0

 
22.93

 
 
 
 
Options canceled
(0.6
)
 
28.63

 
 
 
 
Options exercised
(2.5
)
 
10.32

 
 
 
 
Options expired
(0.6
)
 
27.58

 
 
 
 
Balance at June 30, 2012
37.9

 
$
24.64

 
3.6
 
$
13.3

 
 
 
 
 
 
 
 
As of June 30, 2012:
 
 
 
 
 
 
 
Vested or expected-to-vest options
36.2

 
$
24.46

 
3.5
 
$
13.2

Exercisable options
26.9

 
$
23.41

 
2.9
 
$
11.2

________________________________
(*)    There were no options granted during the three months ended June 30, 2012.

Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $16.31 per share as of June 30, 2012, and the exercise price multiplied by the number of related options. The pre-tax intrinsic value of options exercised, representing the difference between the fair market value of the Company’s common stock on the date of the exercise and the exercise price of each option, was $16.2 million and $23.1 million for the three and six months ended June 30, 2012, respectively. The total fair value of vested options for the three and six months ended June 30, 2012 was $18.8 million and $46.2 million, respectively.

Restricted Stock Units and Performance Share Awards Activities

RSUs generally vest over a period of three to four years from the date of grant and PSAs generally vest after three years provided that certain annual performance targets and other vesting criteria are met. Until vested, RSUs and PSAs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.


21
Table of Contents

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

The following table summarizes the Company’s RSU and PSA activity and related information as of and for the six months ended June 30, 2012 (in millions, except per share amounts and years):
 
Outstanding RSUs and PSAs
 
Number of Shares
 
Weighted Average
Grant-Date Fair
Value per Share
 
Weighted Average
Remaining
Contractual Term
(In Years)
 
Aggregate
Intrinsic
Value
Balance at January 1, 2012
19.6

 
$
30.27

 
 
 
 
RSUs granted
7.3

 
21.70

 
 
 
 
RSUs assumed
0.2

 
22.47

 
 
 
 
PSAs granted (*)
2.2

 
23.22

 
 
 
 
RSUs vested
(1.9
)
 
27.88

 
 
 
 
PSAs vested
(1.5
)
 
15.79

 
 
 
 
RSUs canceled
(0.9
)
 
29.37

 
 
 
 
PSAs canceled
(0.4
)
 
32.45

 
 
 
 
Balance at June 30, 2012
24.6

 
$
27.87

 
1.5
 
$
424.8