Juniper 10Q 093012

 

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, 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 515,574,955 shares of the Company's Common Stock, par value $0.00001, outstanding as of October 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 September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Net revenues:
 
 
 
 
 
 
 
Product
$
838,179

 
$
861,935

 
$
2,414,714

 
$
2,630,803

Service
280,132

 
243,861

 
809,854

 
697,149

Total net revenues
1,118,311

 
1,105,796

 
3,224,568

 
3,327,952

Cost of revenues:
 
 
 
 
 
 
 
Product
334,645

 
286,609

 
907,863

 
844,746

Service
109,835

 
107,583

 
340,946

 
313,551

Total cost of revenues
444,480

 
394,192

 
1,248,809

 
1,158,297

Gross margin
673,831

 
711,604

 
1,975,759

 
2,169,655

Operating expenses:
 
 
 
 
 
 
 
Research and development
288,178

 
257,096

 
826,514

 
776,325

Sales and marketing
261,026

 
254,933

 
778,200

 
747,859

General and administrative
49,442

 
44,455

 
152,883

 
133,639

Amortization of purchased intangible assets
1,148

 
1,263

 
3,562

 
4,139

Restructuring and other charges
31,018

 
16,813

 
36,218

 
15,550

Acquisition-related and other charges
250

 
18

 
1,186

 
6,804

Total operating expenses
631,062

 
574,578

 
1,798,563

 
1,684,316

Operating income
42,769

 
137,026

 
177,196

 
485,339

Other expense, net
(3,956
)
 
(15,957
)
 
(25,617
)
 
(36,107
)
Income before income taxes and noncontrolling
    interest
38,813

 
121,069

 
151,579

 
449,232

Income tax provision
21,999

 
37,398

 
60,776

 
120,383

Consolidated net income
16,814

 
83,671

 
90,803

 
328,849

Adjust for net (income) loss attributable to
    noncontrolling interest
—

 
(8
)
 
—

 
124

Net income attributable to Juniper Networks
$
16,814

 
$
83,663

 
$
90,803

 
$
328,973

 
 
 
 
 
 
 
 
Net income per share attributable to Juniper
   Networks common stockholders:
 
 
 
 
 
 
 
Basic
$
0.03

 
$
0.16

 
$
0.17

 
$
0.62

Diluted
$
0.03

 
$
0.16

 
$
0.17

 
$
0.60

Shares used in computing net income per share:
 
 
 
 
 
 
 
Basic
521,178

 
529,286

 
525,419

 
530,994

Diluted
524,537

 
536,583

 
530,343

 
544,086

 
 
 
 
 
 
 
 
Comprehensive income
$
30,403

 
$
67,425

 
$
113,620

 
$
324,756


See accompanying Notes to Condensed Consolidated Financial Statements

3
Table of Contents

Juniper Networks, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par values)
 
September 30,
2012
 
December 31,
2011
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,707,940

 
$
2,910,420

Short-term investments
439,278

 
641,323

Accounts receivable, net of allowances
397,082

 
577,386

Deferred tax assets, net
229,374

 
154,310

Prepaid expenses and other current assets
168,625

 
156,222

Total current assets
3,942,299

 
4,439,661

Property and equipment, net
768,530

 
598,581

Long-term investments
900,769

 
740,659

Restricted cash and investments
102,661

 
78,307

Purchased intangible assets, net
118,655

 
123,114

Goodwill
3,987,073

 
3,928,144

Other long-term assets
140,607

 
75,354

Total assets
$
9,960,594

 
$
9,983,820

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
224,242

 
$
324,843

Accrued compensation
230,102

 
223,018

Accrued warranty
29,776

 
28,276

Deferred revenue
771,709

 
712,663

Income taxes payable
66,996

 
12,545

Other accrued liabilities
178,976

 
165,358

Total current liabilities
1,501,801

 
1,466,703

Long-term debt
999,145

 
999,034

Long-term deferred revenue
221,217

 
254,364

Long-term income taxes payable
116,929

 
108,471

Other long-term liabilities
41,622

 
65,590

Total liabilities
2,880,714

 
2,894,162

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; 515,332 shares and
   526,409 shares issued and outstanding at September 30, 2012 and
   December 31, 2011, respectively
5

 
5

Additional paid-in capital
10,042,392

 
10,079,169

Accumulated other comprehensive income (loss)
5,227

 
(17,590
)
Accumulated deficit
(2,968,220
)
 
(2,972,402
)
Total Juniper Networks stockholders' equity
7,079,404

 
7,089,182

Noncontrolling interest
476

 
476

Total stockholders' equity
7,079,880

 
7,089,658

Total liabilities and stockholders' equity
$
9,960,594

 
$
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)
 
Nine Months Ended September 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Consolidated net income
$
90,803

 
$
328,849

Adjustments to reconcile consolidated net income to net cash provided by operating activities:
 
 
 
Non-cash portion of share-based compensation
186,002

 
165,236

Depreciation and amortization
137,855

 
125,986

Restructuring and other charges
88,618

 
15,550

Deferred income taxes
(75,064
)
 
(6,014
)
(Gain) loss on investments, net
(7,810
)
 
982

Excess tax benefits from share-based compensation
(7,184
)
 
(44,524
)
Amortization of debt issuance costs
708

 
509

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable, net
180,368

 
152,019

Prepaid expenses and other assets
(54,089
)
 
14,103

Accounts payable
(114,020
)
 
(25,962
)
Accrued compensation
5,608

 
(62,625
)
Income taxes payable
64,715

 
70,241

Other accrued liabilities
(24,838
)
 
7,759

Deferred revenue
15,899

 
1,012

Net cash provided by operating activities
487,571

 
743,121

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(256,753
)
 
(187,886
)
Purchases of trading investments
(3,776
)
 
(4,575
)
Purchases of available-for-sale investments
(1,009,076
)
 
(1,893,474
)
Proceeds from sales of available-for-sale investments
625,119

 
1,050,936

Proceeds from maturities of available-for-sale investments
431,705

 
446,150

Payments for business acquisitions, net of cash and cash equivalents acquired
(90,487
)
 
(31,101
)
Proceeds from sales of privately-held investments
32,715

 
2,143

Purchases of privately-held investments
(11,123
)
 
(34,545
)
Purchase of licensed software
(65,297
)
 
—

Changes in restricted cash
(20,820
)
 
(1,144
)
Net cash used in investing activities
(367,793
)
 
(653,496
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
88,225

 
341,063

Purchases and retirement of common stock
(400,070
)
 
(548,590
)
Payment for capital lease obligation
(1,430
)
 
—

Issuance of long-term debt, net
—

 
991,556

Change in customer financing arrangements
(16,167
)
 
(7,616
)
Excess tax benefits from share-based compensation
7,184

 
44,524

Net cash (used in) provided by financing activities
(322,258
)
 
820,937

Net (decrease) increase in cash and cash equivalents
(202,480
)
 
910,562

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

 
1,811,887

Cash and cash equivalents at end of period
$
2,707,940

 
$
2,722,449

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 nine months ended September 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. Certain amounts in the prior year Condensed Consolidated Financial Statements have been reclassified to conform to the current year presentation.

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 under different assumptions or conditions.

During the third quarter of 2012, the Company recorded net out of period adjustments reducing income before income taxes and noncontrolling interest by $8.2 million. These net adjustments resulted in increased research and development expense by $18.6 million related to prototype development costs, partially offset by increased net revenues of $6.2 million related to the reversal of certain revenue obligations and reduced cost of revenues by $4.2 million related to inventory purchases. The Company assessed the materiality of these adjustments, using relevant quantitative and qualitative factors, and determined that these adjustments, both individually and in the aggregate, were not material to any previously reported period.

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 13, Segments, for further discussion of the Company's segment reorganization.

As of September 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

There have been no material changes to the Company's significant accounting policies as compared to the accounting policies described in Note 2, Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2011.

Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2012-02, Topic 350 - Intangibles - Goodwill and Other ("ASU 2012-02"), which amends Topic 350 to allow an entity to first assess

6
Table of Contents

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

qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. An entity would not be required to determine the fair value of the indefinite-lived intangible unless the entity determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company intends to adopt this standard in the first quarter of 2013 and does not expect the adoption will have an impact on our consolidated results of operations or financial condition.

In September 2011, the 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. 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 nine months ended September 30, 2012, the Company completed two acquisitions. During the three months ended September 30, 2012, the Company recorded adjustments of $0.6 million to acquired assets and liabilities related to the acquisitions completed in 2012 and finalized the purchase accounting related to these acquisitions.
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 Networks' 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.'s ("BitGravity") Content Delivery Network ("CDN") technology. Goodwill recognized as the result of the acquisition was assigned to the SSD segment.

7
Table of Contents

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

The following table presents the purchase consideration allocations for these acquisitions, including cash and cash equivalents acquired (in millions):
 
Mykonos
 
BitGravity
 
Total
Net tangible assets/(liabilities) acquired
$
(0.2
)
 
$
0.1

 
$
(0.1
)
Intangible assets acquired
24.3

 
12.4

 
36.7

Goodwill
58.5

 
0.5

 
59.0

    Total
$
82.6

 
$
13.0

 
$
95.6


The Company recorded $0.3 million of acquisition-related costs during the three months ended September 30, 2012 and an immaterial amount of acquisition-related costs during the three months ended September 30, 2011. Acquisition-related costs of $1.2 million and $9.3 million were recorded during the nine months ended September 30, 2012 and September 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 nine months ended September 30, 2012, was primarily attributable to expected synergies and was not deductible for U.S. federal income tax purposes.

Intangible Assets Acquired

The following table presents details of the intangible assets acquired through the business combinations completed during the nine months ended September 30, 2012 (in millions, except years):  
 
2012 Acquisitions
 
Weighted Average
Estimated Useful
Life (In Years)
 
Amount
Existing technology
5
 
$
31.7

Trade name and trademarks
7
 
1.0

In-process research and development ("IPR&D")
—
 
4.0

Total
 
 
$
36.7



8
Table of Contents

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

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 September 30, 2012 and December 31, 2011 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
As of September 30, 2012
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
$
175.4

 
$
0.4

 
$
—

 
$
175.8

Certificates of deposit
26.9

 
—

 
—

 
26.9

Commercial paper
3.0

 
—

 
—

 
3.0

Corporate debt securities
566.2

 
3.1

 
—

 
569.3

Foreign government debt securities
10.0

 
—

 
—

 
10.0

Government-sponsored enterprise obligations
251.2

 
0.3

 
—

 
251.5

Money market funds
1,430.2

 
—

 
—

 
1,430.2

U.S. government securities
462.7

 
0.2

 
—

 
462.9

Total fixed income securities
2,925.6

 
4.0

 
—

 
2,929.6

Publicly-traded equity securities
3.0

 
0.6

 
—

 
3.6

Total available-for-sale securities
2,928.6

 
4.6

 
—

 
2,933.2

Trading securities(*)
12.6

 
—

 
—

 
12.6

Total
$
2,941.2

 
$
4.6

 
$
—

 
$
2,945.8

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
1,605.7

 
$
—

 
$
—

 
$
1,605.7

Short-term investments
438.2

 
1.1

 
—

 
439.3

Long-term investments
897.3

 
3.5

 
—

 
900.8

Total
$
2,941.2

 
$
4.6

 
$
—

 
$
2,945.8

________________________________
(*) 
Balance includes the Company's non-qualified deferred compensation plan assets. For additional information, see Note 12, Employee Benefit Plans, under the section Deferred Compensation Plan.

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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 12, Employee Benefit Plans, under the section Deferred Compensation Plan.

The following table presents the maturities of the Company's fixed income securities as of September 30, 2012 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
Due within one year
$
2,028.3

 
$
0.5

 
$
—

 
$
2,028.8

Due between one and five years
897.3

 
3.5

 
—

 
900.8

Total
$
2,925.6

 
$
4.0

 
$
—

 
$
2,929.6


As of September 30, 2012, the unrealized losses for investments in an unrealized loss position for less than twelve months and more than twelve months were not material. The following tables present the Company's available-for-sale investments that were in an unrealized loss position as of September 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 September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
$
40.8

 
$
—

 
$
—

 
$
—

 
$
40.8

 
$
—

U.S. government securities
51.0

 
—

 
—

 
—

 
51.0

 
—

Government-sponsored enterprise obligations
20.0

 
—

 
—

 
—

 
20.0

 
—

Asset-backed securities
16.9

 
—

 
1.4

 
—

 
18.3

 
—

Total
$
128.7

 
$
—

 
$
1.4

 
$
—

 
$
130.1

 
$
—



10
Table of Contents

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 greater than 12 months includes investments that were in an immaterial unrealized loss position as of December 31, 2011.

The Company had 39 and 135 investments in unrealized loss positions as of September 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 September 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 nine months ended September 30, 2012, the Company distributed approximately $0.1 million and $79.6 million of restricted cash, respectively, mainly related to amounts held in escrow accounts for acquisitions.

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
 
September 30,
2012
 
December 31,
2011
Restricted cash:
 
 
 
Demand deposits
$
0.9

 
$
0.6

Total restricted cash
0.9

 
0.6

Restricted investments:
 
 
 
Corporate debt securities
1.9

 
1.6

Mutual funds
1.2

 
1.0

Money market funds
98.7

 
75.1

Total restricted investments
101.8

 
77.7

Total restricted cash and investments
$
102.7

 
$
78.3


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


11
Table of Contents

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

Privately-Held Investments

As of September 30, 2012 and December 31, 2011, the carrying values of the Company’s privately-held and other equity investments of $33.9 million and $51.8 million, respectively, were included in other long-term assets in the Condensed Consolidated Balance Sheets and were accounted for under the cost method. During the three and nine months ended September 30, 2012, the Company invested $5.0 million and $11.1 million, respectively, in privately-held investments. During the three and nine months ended September 30, 2011, the Company invested $25.6 million and $34.5 million, respectively, in privately-held and other equity investments.

During the three and nine months ended September 30, 2012, the Company recognized a net gain of $5.8 million and $6.6 million, respectively, related to the Company's privately-held investments. During the three and nine months ended September 30, 2011, the Company recognized a loss of $1.8 million from the impairment of a privately-held investment partially offset by gains on other privately-held investments.


12
Table of Contents

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

Note 5. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables provide a summary of assets and liabilities measured at fair value on a recurring basis and as reported in the Condensed Consolidated Balance Sheets (in millions):
 
Fair Value Measurements at September 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
$
—

 
$
175.8

 
$
—

 
$
175.8

Certificate of deposit
—

 
26.9

 
—

 
26.9

Commercial paper
—

 
3.0

 
—

 
3.0

Corporate debt securities (1)
—

 
571.2

 
—

 
571.2

Foreign government debt securities
—

 
10.0

 
—

 
10.0

Government-sponsored enterprise obligations
241.5

 
10.0

 
—

 
251.5

Money market funds (2)
1,528.9

 
—

 
—

 
1,528.9

Mutual funds (3)
1.2

 
—

 
—

 
1.2

U.S. government securities
260.8

 
202.1

 
—

 
462.9

Total available-for-sale debt securities
2,032.4

 
999.0

 
—

 
3,031.4

Available-for-sale equity securities:
 
 
 
 
 
 
 
Publicly-traded equity securities
3.6

 
—

 
—

 
3.6

Total available-for-sale securities
2,036.0

 
999.0

 
—

 
3,035.0

Trading securities:
 
 
 
 
 
 
 
Mutual funds (4)
12.6

 
—

 
—

 
12.6

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts
—

 
4.6

 
—

 
4.6

Total assets measured at fair value
$
2,048.6

 
$
1,003.6

 
$
—

 
$
3,052.2

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

 
$
0.6

 
$
—

 
$
0.6

Total liabilities measured at fair value
$
—

 
$
0.6

 
$
—

 
$
0.6

________________________________
(1) 
Balance includes $1.9 million of restricted investments measured at fair market value, related to the Company's India Gratuity Trust.
(2) 
Balance includes $98.7 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.


13
Table of Contents

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

 
Fair Value Measurements at September 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
$
1,430.2

 
$
175.5

 
$
—

 
$
1,605.7

Short-term investments
212.7

 
226.6

 
—

 
439.3

Long-term investments
305.8

 
595.0

 
—

 
900.8

Restricted investments
99.9

 
1.9

 
—

 
101.8

Prepaid expenses and other current assets
—

 
4.6

 
—

 
4.6

Total assets measured at fair value
$
2,048.6

 
$
1,003.6

 
$
—

 
$
3,052.2

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

 
$
0.6

 
$
—

 
$
0.6

Total liabilities measured at fair value
$
—

 
$
0.6

 
$
—

 
$
0.6


 
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

Mutual funds (3)
1.0

 
—

 
—

 
1.0

U.S. government securities
149.3

 
151.7

 
—

 
301.0

Total available-for-sale debt securities
1,855.8

 
945.3

 
—

 
2,801.1

Trading securities:
 
 
 
 
 
 
 
Mutual funds (4)
9.3

 
—

 
—

 
9.3

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


14
Table of Contents

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

________________________________
(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 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.

 
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 nine months ended September 30, 2012 and September 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

Certain of the Company's assets, including intangible assets, goodwill, and privately-held equity investments, are measured at fair value on a nonrecurring basis if impairment is indicated.
Privately-held equity investments, which are normally carried at cost, are measured at fair value due to events and circumstances that the Company identified as significantly impacting the fair value of the investments. The Company measured the fair value of its privately-held equity investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and their capital structure. During the third quarter of 2012, privately-held equity investments with a carrying value of $6.0 million were measured at fair value. As of September 30, 2012, their fair value was zero. As of December 31, 2011, the carrying value of privately-held equity investments was $0.4 million. These investments were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity.
During the three and nine months ended September 30, 2012, respectively, the Company recognized an other-than-temporary impairment loss of $6.0 million and $20.0 million, respectively, for privately-held equity investments measured at fair. During the three and nine months ended September, 30, 2011, the Company recognized an other-than-temporary impairment loss of $1.8 million for privately-held equity investments at fair.
During the third quarter of 2012, certain purchased intangible assets with a carrying value of 5.4 million were measured at fair value. As of September 30, 2012, their fair was zero. As of December 31, 2011, there were no purchased intangible assets

15
Table of Contents

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

measured at fair value on a nonrecurring basis. The Company measured the fair value of these assets primarily using discounted cash flow projections. Purchased intangible assets were classified as Level 3 assets, due to the absence of quoted market prices. See Note 7, Goodwill and Purchased Intangibles Assets, for further information.
During the three and nine months ended September 30, 2012, an other-than-temporary impairment charge of $5.4 million related to purchased intangible assets was recognized in cost of revenues. There were no such charges for the three and nine months ended September 30, 2011.
As of September 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 10, Long-Term Debt and Financing, and was determined using quoted market prices (Level 1).

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
 
September 30,
2012
 
December 31,
2011
Cash flow hedges
$
130.2

 
$
184.3

Non-designated derivatives
102.8

 
122.7

     Total
$
233.0

 
$
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 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 September 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 $4.6 million and $0.4 million, respectively. As of September 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 $0.6 million and $9.6 million, respectively.

During the three and nine months ended September 30, 2012, the Company recognized a gain of $5.7 million and $6.5 million, respectively, in accumulated other comprehensive income for the effective portion of its derivative instruments and reclassified a loss of $3.2 million and $8.7 million, respectively, from other comprehensive income to operating expense in the Condensed Consolidated Statements of Comprehensive Income. During the three and nine months ended September 30, 2011, the Company recognized a loss of $5.6 million and a gain of $1.5 million, respectively, in accumulated other comprehensive

16
Table of Contents

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

income for the effective portion of its derivative instruments and reclassified a gain of $1.2 million and $3.4 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 nine months ended September 30, 2012 and September 30, 2011.

Non-Designated Derivatives

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 derivatives do not qualify for special hedge accounting treatment. These derivatives are carried at fair value with changes recorded in other 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.

During the three and nine months ended September 30, 2012, the Company recognized a net gain of $0.3 million and $0.5 million, respectively, within other expense, net, on its Condensed Consolidated Statements of Comprehensive Income from non-designated derivative instruments. During the three and nine months ended September 30, 2011, the Company recognized a net gain of $0.8 million and $1.0 million, respectively, within other 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 nine months ended September 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

Accumulated adjustment to goodwill
—

 
(0.6
)
 
(0.6
)
Balance as of September 30, 2012
$
1,795.6

 
$
2,191.5

 
$
3,987.1


The additions to goodwill were based on the purchase price allocation of the acquisitions completed during the first quarter of 2012. During the nine months ended September 30, 2012, the Company recorded adjustments of $0.6 million to acquired assets and liabilities related to the acquisitions completed in 2012. There were no impairments to goodwill during the three and nine months ended September 30, 2012 and September 30, 2011.
 

17
Table of Contents

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

Purchased Intangible Assets

The Company’s purchased intangible assets were as follows (in millions):
 
Gross
 
Accumulated
Amortization
 
Impairments and Other Charges
 
Net
As of September 30, 2012
 
 
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
 
 
Technologies and patents
$
538.1

 
$
(426.4
)
 
$
(16.1
)
 
$
95.6

Other
92.5

 
(69.4
)
 
—

 
23.1

Total purchased intangible assets
$
630.6

 
$
(495.8
)
 
$
(16.1
)
 
$
118.7

 
 
 
 
 
 
 
 
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


During the third quarter of 2012, $6.8 million of acquired IPR&D accounted for as indefinite lived assets reached technological feasibility and were reclassified as amortizable finite-lived assets. Amortization of purchased intangible assets included in operating expenses and cost of product revenues totaled $9.0 million and $6.7 million for the three months ended September 30, 2012 and September 30, 2011, respectively, and $25.1 million and $20.2 million for the nine months ended September 30, 2012 and September 30, 2011, respectively.

In connection with the restructuring plan discussed in Note 9, Restructuring and Other Charges, the Company assessed the impairment and remaining useful life of certain intangible assets and determined intangible assets of $5.4 million were impaired and written-down to their fair value of zero, and other intangible assets of $10.7 million will no longer be utilized. As a result, the Company recorded $16.1 million in charges related to these items during the three and nine months ended September 30, 2012, which are included in cost of revenues in the Condensed Consolidated Statements of Comprehensive Income.

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

As of September 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
$
7.2

2013
28.6

2014
28.5

2015
24.9

2016
12.2

Thereafter
17.3

Total
$
118.7



18
Table of Contents

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

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
 
September 30, 2012
 
December 31, 2011
Inventories, net
 
 
 
Production materials
$
61.4

 
$
52.4

Finished goods
19.4

 
16.7

Total inventories, net
$
80.8

 
$
69.1


In connection with the restructuring plan discussed in Note 9, Restructuring and Other Charges, the Company recorded a charge during the third quarter of 2012, to cost of revenues of $36.3 million, representing component inventory held in excess of forecasted demand.

Licensed Software

On July 3, 2012, the Company entered into an agreement with Riverbed Technology, Inc. ("Riverbed") to license Riverbed's Application Delivery Controller (“ADC”) software in exchange for the aggregate consideration of $87.9 million, which consist of the following: (1) cash consideration of $75.0 million ($65.0 million paid in the third quarter of 2012 and the remaining $10.0 million payable in the third quarter of 2013); (2) technology integration services with a fair value of $12.6 million; (3) technology partnership in wide area network optimization solutions; and (4) transaction costs of $0.3 million. Contingent consideration of up to $10.0 million has not been recorded but may also be payable to Riverbed if certain third-party approvals of the underlying technology integration services are not obtained.
The aggregate consideration of $87.9 million was allocated to the acquired ADC software of $84.3 million and associated prepaid maintenance and support of $1.0 million. The licensed software acquired was reported within other long-term assets on the Condensed Consolidated Balance Sheets. It will be amortized over its useful life of 6 years beginning in the period in which the product is available for general release to customers, estimated to be in 2013. The amortization expense will be recognized in cost of product revenues.
The technology integration services require the Company to develop certain technology, cross-license of associated software, and to provide support over seven years. The fair value of technology integration services, less estimated amounts to be reimbursed is reported within deferred revenue on the Condensed Consolidated Balance Sheets. Amounts are deferred until the underlying technology has been delivered. In the event third-party approval is not obtained, $20.0 million becomes immediately payable to Riverbed. This amount is held in escrow and reported within restricted cash and investments on the Condensed Consolidated Balance Sheets.

19
Table of Contents

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

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 during the nine months ended September 30, 2012 were as follows (in millions):
 
As of
 
September 30, 2012
Beginning balance
$
28.3

Provisions made during the period, net
24.3

Change in estimate
—

Actual costs incurred during the period
(22.8
)
Ending balance
$
29.8


Deferred Revenue

Details of the Company's deferred revenue, as reported on the Condensed Consolidated Balance Sheets, were as follows (in millions):
 
As of
 
September 30,
2012
 
December 31,
2011
Deferred product revenue:
 
 
 
Undelivered product commitments and other product deferrals
$
299.4

 
$
288.1

Distributor inventory and other sell-through items
136.9

 
134.0

Deferred gross product revenue
436.3

 
422.1

Deferred cost of product revenue
(103.3
)
 
(136.9
)
Deferred product revenue, net
333.0

 
285.2

Deferred service revenue
659.9

 
681.8

Total
$
992.9

 
$
967.0

Reported as:
 
 
 
Current
$
771.7

 
$
712.6

Long-term
221.2

 
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.


20
Table of Contents

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,
 
2012
 
2011
 
2012
 
2011
Interest income
$
2.6

 
$
2.2

 
$
8.3

 
$
7.2

Interest expense
(12.8
)
 
(13.9
)
 
(40.6
)
 
(35.6
)
Other
6.2

 
(4.2
)
 
6.7

 
(7.7
)
Other expense, net
$
(4.0
)
 
$
(15.9
)
 
$
(25.6
)
 
$
(36.1
)

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 nine months ended September 30, 2012, the Company recognized a net gain in Other of $5.8 million and $6.6 million, respectively, related to the Company's privately-held investments. During the three and nine months ended September 30, 2011, Other included legal expenses unrelated to current or recent operations of $1.4 million and $6.8 million, respectively, and net losses on privately-held and other equity investments of $1.1 million and $1.0 million, respectively.

Note 9. Restructuring and Other Charges

Restructuring charges are based on the Company's restructuring plans that were committed to by management. These restructuring charges are recorded within cost of revenues or restructuring and other charges in the Condensed Consolidated Statements of Comprehensive Income, as applicable. 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.

2012 Restructuring Plan

During the third quarter of 2012, the Company initiated a restructuring plan (the "2012 Restructuring Plan") to bring its cost structure more in line with its long-term financial and strategic model. The 2012 Restructuring Plan consists of workforce reductions, facility consolidations or closures, and supply chain and procurement efficiencies. During the three months ended September 30, 2012, the Company recorded $29.1 million in severance costs and $0.4 million of other charges related to the 2012 Restructuring Plan. These accrued amounts are expected to be paid out through the fourth quarter of 2012. In connection with its restructuring activities, the Company also recorded certain inventory and intangible asset impairment charges totaling $52.4 million to cost of revenues.

2011 and 2009 Restructuring Plans

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 December 31, 2010 and 2009.

The Company recorded net restructuring charges of $1.5 million and $6.7 million during the three and nine months ended September 30, 2012, respectively, for severance and facilities related to the restructuring activities associated with the 2011 Restructuring Plan. During the three and nine months ended September 30, 2011, the Company recorded net restructuring charges of $16.8 million and $15.6 million, respectively, primarily in connection with the 2011 Restructuring Plan. As of

21
Table of Contents

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

September 30, 2012, the remaining restructuring liability relates to severance costs under the 2011 Restructuring Plan which are expected to be paid during the fourth quarter of 2012, as well as facilities-related charges under the Restructuring Plans, which are expected to be completed by March 2018.

In connection with the restructuring plans discussed above, the Company expects to record aggregate future charges of approximately $20.0 million through 2013, consisting of approximately $4.0 million and $16.0 million related to workforce reductions and facility closures and other charges, respectively.

The following table provides a summary of changes in the restructuring liability related to the Company's plans during the nine months ended September 30, 2012 (in millions):
 
December 31,
2011
 
Charges
 
Cash
Payments
 
Non-cash
Settlements and
Other
 
September 30, 2012
Severance
$
3.1

 
$
32.6

 
$
(6.6
)
 
$
1.0

 
$
30.1

Facilities
1.0

 
3.2

 
(1.5
)
 
—

 
2.7

Other charges
—

 
0.4

 
—

 
(0.4
)
 
—

Total
$
4.1

 
$
36.2

 
$
(8.1
)
 
$
0.6

 
$
32.8


Note 10. Long-Term Debt and Financing

Long-Term Debt

The following table summarizes the Company's long-term debt (in millions, except percentages):
 
As of September 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

 
 

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 September 30, 2012 and December 31, 2011, the estimated fair value of the Notes included in long-term debt was approximately $1,082.4 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.


22
Table of Contents

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

Pursuant to the financing arrangements for the sale of receivables, the Company sold net receivables of $198.8 million and $153.4 million during the three months ended September 30, 2012 and September 30, 2011, respectively, and $482.0 million and $552.4 million during the nine months ended September 30, 2012 and September 30, 2011, respectively.

The Company received cash proceeds from the financing provider of $156.7 million and $142.8 million during the three months ended September 30, 2012 and September 30, 2011, respectively, and $482.5 million and $544.7 million during the nine months ended September 30, 2012 and September 30, 2011, respectively. As of September 30, 2012 and December 31, 2011, the amounts owed by the financing provider were $152.3 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 September 30, 2012 and December 31, 2011, the estimated cash received from the financing provider not recognized as revenue from distributors was $17.8 million and $33.3 million, respectively.

Note 11. 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 from time to time in management's discretion. This authorization was in addition to the $1.0 billion approved by the Board in February 2010 (the "2010 Stock Repurchase Program").

During the three and nine months ended September 30, 2012, the Company repurchased and retired approximately 13.9 million and 21.3 million shares of its common stock under its stock repurchase programs at an average price of $18.00 and $18.60 per share for an aggregate purchase price of $250.0 million and $395.6 million, respectively. During the three and nine months ended September 30, 2011, the Company repurchased and retired approximately 8.9 million and 17.5 million shares of its common stock at an average price of $21.47 and $30.93 per share for an aggregate purchase price of $191.0 million and $541.2 million, respectively. As of September 30, 2012, there were $818.2 million of authorized funds remaining under the 2012 Stock Repurchase Program. There were no remaining funds under the 2010 Stock Repurchase Program.

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 September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Consolidated net income
$
16.8

 
$
83.7

 
$
90.8

 
$
328.8

Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gain (loss) on
   investments
8.4

 
(8.7
)
 
17.5

 
(5.8
)
Change in foreign currency translation
   adjustment
5.2

 
(7.5
)
 
5.3

 
1.7

Total other comprehensive income (loss)
13.6

 
(16.2
)
 
22.8

 
(4.1
)
Consolidated comprehensive income
30.4

 
67.5

 
113.6

 
324.7

Adjust for comprehensive loss attributable to
  noncontrolling interest
—

 
—

 
—

 
0.1

Comprehensive income attributable to
   Juniper Networks
$
30.4

 
$
67.5

 
$
113.6

 
$
324.8



23
Table of Contents

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

Note 12. 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 September 30, 2012, the 2006 Plan had 59.0 million shares subject to currently outstanding equity awards and 50.2 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 September 30, 2012, stock options and RSUs representing approximately 1.2 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.

The following table summarizes the Company’s stock option activity and related information as of and for the nine months ended September 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
3.1

 
22.81

 
 
 
 
Options canceled
(2.1
)
 
25.61

 
 
 
 
Options exercised
(2.8
)
 
10.84

 
 
 
 
Options expired
(1.1
)
 
26.97

 
 
 
 
Balance at September 30, 2012
35.7

 
$
24.73

 
3.2
 
$
17.2

 
 
 
 
 
 
 
 
As of September 30, 2012:
 
 
 
 
 
 
 
Vested or expected-to-vest options
34.6

 
$
24.58

 
3.2
 
$
17.1

Exercisable options
27.4

 
$
23.59

 
2.6
 
$
15.4



24
Table of Contents

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

Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $17.11 per share as of September 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 $1.6 million and $24.8 million for the three and nine months ended September 30, 2012, respectively. The