Juniper 10Q Master 09/30/13

 

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, 2013
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from_________ to_________

Commission file number: 001-34501

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

Delaware
 
77-0422528
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1194 North Mathilda Avenue
 
 
Sunnyvale, California
 
94089
(Address of principal executive offices)
 
(Zip code)
(408) 745-2000
(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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 505,004,236 shares of the Company's Common Stock, par value $0.00001, outstanding as of November 1, 2013.

 


Juniper Networks, Inc.
Table of Contents
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Juniper Networks, Inc.
Condensed Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Net revenues:
 
 
 
 
 
 
 
Product
$
900.8

 
$
838.2

 
$
2,546.4

 
$
2,414.8

Service
284.8

 
280.1

 
849.1

 
809.8

Total net revenues
1,185.6

 
1,118.3

 
3,395.5

 
3,224.6

Cost of revenues:
 
 
 
 
 
 
 
Product
325.5

 
334.7

 
925.0

 
907.9

Service
113.6

 
109.8

 
332.7

 
340.9

Total cost of revenues
439.1

 
444.5

 
1,257.7

 
1,248.8

Gross margin
746.5

 
673.8

 
2,137.8

 
1,975.8

Operating expenses:
 
 
 
 
 
 
 
Research and development
264.6

 
288.2

 
784.5

 
826.5

Sales and marketing
268.7

 
261.0

 
790.1

 
778.2

General and administrative
61.1

 
49.4

 
157.7

 
152.9

Amortization of purchased intangible assets
1.1

 
1.1

 
3.5

 
3.5

Restructuring and other charges
6.0

 
31.0

 
21.0

 
36.2

Acquisition and litigation charges
—

 
0.3

 
10.5

 
1.3

Total operating expenses
601.5

 
631.0

 
1,767.3

 
1,798.6

Operating income
145.0

 
42.8

 
370.5

 
177.2

Other expense, net
(7.5
)
 
(4.0
)
 
(30.2
)
 
(25.6
)
Income before income taxes
137.5

 
38.8

 
340.3

 
151.6

Income tax provision
38.4

 
22.0

 
52.3

 
60.8

Net income
$
99.1

 
$
16.8

 
$
288.0

 
$
90.8

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.03

 
$
0.57

 
$
0.17

Diluted
$
0.19

 
$
0.03

 
$
0.56

 
$
0.17

Shares used in computing net income per share:
 
 
 
 
 
 
 
Basic
501.5

 
521.2

 
503.0

 
525.4

Diluted
508.6

 
524.5

 
510.7

 
530.3


See accompanying Notes to Condensed Consolidated Financial Statements


3
Table of Contents

Juniper Networks, Inc.
Condensed Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
99.1

 
$
16.8

 
$
288.0

 
$
90.8

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Change in unrealized gains on available-
  for-sale securities
65.2

 
2.0

 
70.8

 
4.1

Reclassification adjustment for realized net gains
  on available-for-sale securities included
  in net income
(0.3
)
 
(0.3
)
 
(0.8
)
 
(0.8
)
Net change in unrealized gains on
  available-for-sale securities
64.9

 
1.7

 
70.0

 
3.3

Cash flow hedges:
 
 
 
 
 
 
 
Change in unrealized gains (losses) on cash flow
  hedges
0.7

 
4.3

 
(1.8
)
 
6.9

Reclassification adjustment for realized net
  losses (gains) on cash flow hedges included in
  net income
0.6

 
2.4

 
(0.9
)
 
7.4

Net change in unrealized gains (losses) on
  cash flow hedges
1.3

 
6.7

 
(2.7
)
 
14.3

Change in foreign currency translation adjustments
4.1

 
5.2

 
(5.4
)
 
5.3

Other comprehensive income, net of tax
70.3

 
13.6

 
61.9

 
22.9

Comprehensive income
$
169.4

 
$
30.4

 
$
349.9

 
$
113.7


See accompanying Notes to Condensed Consolidated Financial Statements


4
Table of Contents

Juniper Networks, Inc.
Condensed Consolidated Balance Sheets
(In millions, except par values)
 
September 30,
2013
 
December 31,
2012
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,271.5

 
$
2,407.8

Short-term investments
573.7

 
441.5

Accounts receivable, net of allowances
549.3

 
438.4

Deferred tax assets, net
129.4

 
172.6

Prepaid expenses and other current assets
156.5

 
140.4

Total current assets
3,680.4

 
3,600.7

Property and equipment, net
868.2

 
811.9

Long-term investments
1,188.6

 
988.1

Restricted cash and investments
92.5

 
106.4

Purchased intangible assets, net
115.9

 
128.9

Goodwill
4,057.7

 
4,057.8

Other long-term assets
194.4

 
138.3

Total assets
$
10,197.7

 
$
9,832.1

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
205.6

 
$
209.3

Accrued compensation
191.6

 
279.3

Accrued warranty
28.6

 
29.7

Deferred revenue
731.9

 
693.5

Other accrued liabilities
242.9

 
210.2

Total current liabilities
1,400.6

 
1,422.0

Long-term debt
999.3

 
999.2

Long-term deferred revenue
289.3

 
229.9

Long-term income taxes payable
117.5

 
112.4

Other long-term liabilities
79.3

 
69.1

Total liabilities
2,886.0

 
2,832.6

Commitments and contingencies


 


Juniper Networks stockholders' equity:
 
 
 
Convertible preferred stock, $0.00001 par value; 10.0 shares authorized; none
   issued and outstanding
—

 
—

Common stock, $0.00001 par value; 1,000.0 shares authorized; 504.6 shares and
   508.4 shares issued and outstanding as of September 30, 2013 and
   December 31, 2012, respectively
—

 
—

Additional paid-in capital
9,953.9

 
9,905.7

Accumulated other comprehensive income
66.6

 
4.7

Accumulated deficit
(2,708.8
)
 
(2,911.4
)
Total Juniper Networks stockholders' equity
7,311.7

 
6,999.0

Noncontrolling interest
—

 
0.5

Total stockholders' equity
7,311.7

 
6,999.5

Total liabilities and stockholders' equity
$
10,197.7

 
$
9,832.1


See accompanying Notes to Condensed Consolidated Financial Statements


5
Table of Contents

Juniper Networks, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Nine Months Ended September 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
288.0

 
$
90.8

Adjustments to reconcile net income to net cash provided by operating
   activities:
 
 
 
Share-based compensation
180.7

 
186.0

Depreciation and amortization
135.1

 
137.9

Restructuring and other charges
28.6

 
88.6

Deferred income taxes
40.4

 
(75.1
)
Gain on investments, net
(7.8
)
 
(7.8
)
Excess tax benefits from share-based compensation
(1.5
)
 
(7.2
)
Other non-cash charges
1.3

 
0.6

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable, net
(111.0
)
 
180.4

Prepaid expenses and other assets
(67.0
)
 
(54.0
)
Accounts payable
(1.1
)
 
(114.0
)
Accrued compensation
(88.6
)
 
5.6

Income taxes payable
(26.1
)
 
64.7

Other accrued liabilities
(16.8
)
 
(24.8
)
Deferred revenue
97.7

 
15.9

Net cash provided by operating activities
451.9

 
487.6

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(183.0
)
 
(256.8
)
Purchases of trading investments
(3.1
)
 
(3.8
)
Purchases of available-for-sale investments
(1,351.6
)
 
(1,009.1
)
Proceeds from sales of available-for-sale investments
860.4

 
625.2

Proceeds from maturities of available-for-sale investments
287.6

 
431.7

Payments for business acquisitions, net of cash and cash equivalents acquired
(10.0
)
 
(90.5
)
Proceeds from sales of privately-held investments
8.4

 
32.7

Purchases of privately-held investments
(20.4
)
 
(11.1
)
Purchase of licensed software
(10.0
)
 
(65.3
)
Changes in restricted cash
—

 
(20.8
)
Net cash used in investing activities
(421.7
)
 
(367.8
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
123.7

 
88.2

Purchases and retirement of common stock
(332.1
)
 
(400.1
)
Payment for capital lease obligation
(1.4
)
 
(1.4
)
Customer financing arrangements
41.8

 
(16.2
)
Excess tax benefits from share-based compensation
1.5

 
7.2

Net cash used in financing activities
(166.5
)
 
(322.3
)
Net decrease in cash and cash equivalents
(136.3
)
 
(202.5
)
Cash and cash equivalents at beginning of period
2,407.8

 
2,910.4

Cash and cash equivalents at end of period
$
2,271.5

 
$
2,707.9


See accompanying Notes to Condensed Consolidated Financial Statements

6
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. (the "Company" or "Juniper") have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Condensed Consolidated Balance Sheet as of December 31, 2012, is derived from the audited Consolidated Financial Statements for the year ended December 31, 2012. 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, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013, 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, 2012. Certain amounts in the prior year Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q have been reclassified to conform to the current year presentation.

The preparation of the financial statements and related disclosures in accordance with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates under different assumptions or conditions.

In the third quarter of 2013, the Company realigned certain products from its Platform Systems Division ("PSD") segment to its Software Solutions Division ("SSD") segment related to its acquisition of Contrail Systems Inc. ("Contrail"). In addition, in the first quarter of 2013, the Company consolidated operational oversight and management of all security products within the SSD segment. As a result of this product realignment, security products previously reported in the PSD segment (including the Branch SRX, Branch Firewall, and J Series product families) are now reported in the SSD segment. The Company reclassified the segment data for the prior periods to conform to the current period's presentation. These changes 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 product realignment.

The Company previously 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 were consolidated with the accounts of the Company, and a noncontrolling interest was 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 dissolve the joint venture and NSN subsequently assumed the activities of the joint venture. The Company terminated the joint venture in 2013 and the termination did not have a material effect on the Company's financial position or results of operations.

Note 2. Summary of Significant Accounting Policies

Effective April 1, 2013, the Company extended the useful lives of certain computers and equipment resulting from its actual historical usage, which demonstrated longer useful lives, as well as the planned use of these assets. The change was accounted for as a change in estimate and applied prospectively. For the three and nine months ended September 30, 2013, this change in accounting estimate decreased depreciation expense by approximately $9.4 million and $20.4 million or $0.01 and $0.03 per diluted share, respectively.

With the exception of the above change in estimate, there have been no material changes to the Company's significant accounting policies as compared to the accounting policies described in Note 2, Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2012.


7

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

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11, Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) ("ASU 2013-11") to provide explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2013. The Company intends to adopt this standard prospectively in the first quarter of 2014 and the adoption will not result in a change to the tax provision. The Company does not expect a significant impact to its presentation of long-term taxes payable or its deferred tax assets.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"), which amends FASB Accounting Standards Codification ("ASC") 220, Comprehensive Income to include the reporting of reclassifications from accumulated other comprehensive income to the respective line items in net income. The Company adopted ASU 2013-02 during the first quarter of 2013 and presented the effects within the Condensed Consolidated Statements of Comprehensive Income and the accompanying notes.

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210)—Disclosures About Offsetting Assets and Liabilities ("ASU 2011-11"), and in January 2013 issued ASU No. 2013-01, Balance Sheet (Topic 210)—Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities ("ASU 2013-01"). These standards create new disclosure requirements regarding the nature of an entity's rights of setoff and related arrangements associated with its derivative instruments, repurchase agreements, and securities lending transactions. Disclosures of certain instruments subject to enforceable master netting arrangements would be required, irrespective of whether the entity has elected to offset those instruments in the statement of financial position. The Company adopted these standards in the first quarter of 2013 and presented the effects in the accompanying notes.

Note 3. Business Combinations

During the nine months ended September 30, 2013, the Company completed a business combination for approximately $10.0 million in cash consideration, of which $0.1 million was allocated to net tangible assets acquired and $9.9 million to intangible assets. The Company's consolidated financial statements include the operating results of this business combination from the date of acquisition, and the inclusion of those results were not material to the Company's consolidated balance sheets and results of operations.

There were no acquisition-related costs recognized during the three months ended September 30, 2013 and $0.3 million recognized during the three months ended September 30, 2012. The Company recognized $0.2 million and $1.3 million of acquisition-related costs during the nine months ended September 30, 2013 and September 30, 2012, respectively. These acquisition-related costs were expensed in the period incurred and reported as a component of acquisition and litigation charges in the Company's Condensed Consolidated Statements of Operations.


8
Table of Contents

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

Note 4. Cash Equivalents and Investments

Investments in Available-for-Sale and Trading Securities

The following tables summarize the Company's unrealized gains and losses and fair value of investments designated as available-for-sale and trading securities as of September 30, 2013 and December 31, 2012 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
As of September 30, 2013
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Certificates of deposit
$
0.1

 
$
—

 
$
—

 
$
0.1

Government-sponsored enterprise obligations
8.6

 
—

 
—

 
8.6

Money market funds
956.0

 
—

 
—

 
956.0

U.S. government securities
85.0

 
—

 
—

 
85.0

Total cash equivalents
1,049.7

 
—

 
—

 
1,049.7

Restricted investments:
 
 
 
 
 
 
 
Money market funds
88.1

 
—

 
—

 
88.1

Mutual funds
2.4

 
0.1

 
—

 
2.5

Total restricted investments
90.5

 
0.1

 
—

 
90.6

Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
253.8

 
0.1

 
(0.2
)
 
253.7

Certificates of deposit
24.8

 
—

 
—

 
24.8

Commercial paper
11.5

 
—

 
—

 
11.5

Corporate debt securities
768.2

 
1.5

 
(0.6
)
 
769.1

Foreign government debt securities
15.8

 
—

 
—

 
15.8

Government-sponsored enterprise obligations
315.1

 
0.2

 
(0.2
)
 
315.1

U.S. government securities
230.4

 
0.1

 
—

 
230.5

Total fixed income securities
1,619.6

 
1.9

 
(1.0
)
 
1,620.5

Publicly-traded equity securities
15.2

 
111.5

 
—

 
126.7

Total available-for-sale securities
2,775.0

 
113.5

 
(1.0
)
 
2,887.5

Trading securities in mutual funds(*)
15.1

 
—

 
—

 
15.1

Total
$
2,790.1

 
$
113.5

 
$
(1.0
)
 
$
2,902.6

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
1,049.7

 
$
—

 
$
—

 
$
1,049.7

Restricted investments
90.5

 
0.1

 
—

 
90.6

Short-term investments
461.7

 
112.0

 
—

 
573.7

Long-term investments
1,188.2

 
1.4

 
(1.0
)
 
1,188.6

Total
$
2,790.1

 
$
113.5

 
$
(1.0
)
 
$
2,902.6

________________________________
(*) 
Balance includes the Company's non-qualified deferred compensation plan assets.

9
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, 2012
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Certificates of deposit
$
0.6

 
$
—

 
$
—

 
$
0.6

Commercial paper
10.8

 
—

 
—

 
10.8

Government-sponsored enterprise obligations
6.1

 
—

 
—

 
6.1

Money market funds
1,042.6

 
—

 
—

 
1,042.6

U.S. government securities
165.8

 
—

 
—

 
165.8

Total cash equivalents
1,225.9

 
—

 
—

 
1,225.9

Restricted investments:
 
 
 
 
 
 
 
Money market funds
102.6

 
—

 
—

 
102.6

Mutual funds
2.9

 
0.1

 
—

 
3.0

Total restricted investments
105.5

 
0.1

 
—

 
105.6

Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
226.2

 
0.3

 
(0.1
)
 
226.4

Certificates of deposit
41.9

 
—

 
—

 
41.9

Commercial paper
11.6

 
—

 
—

 
11.6

Corporate debt securities
533.4

 
2.3

 
(0.1
)
 
535.6

Foreign government debt securities
5.0

 
—

 
—

 
5.0

Government-sponsored enterprise obligations
264.6

 
0.3

 
—

 
264.9

U.S. government securities
328.6

 
0.1

 
—

 
328.7

Total fixed income securities
1,411.3

 
3.0

 
(0.2
)
 
1,414.1

Publicly-traded equity securities
3.0

 
—

 
(0.1
)
 
2.9

Total available-for-sale securities
2,745.7

 
3.1

 
(0.3
)
 
2,748.5

Trading securities in mutual funds(*)
12.6

 
—

 
—

 
12.6

Total
$
2,758.3

 
$
3.1

 
$
(0.3
)
 
$
2,761.1

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
1,225.9

 
$
—

 
$
—

 
$
1,225.9

Restricted investments
105.5

 
0.1

 
—

 
105.6

Short-term investments
441.3

 
0.3

 
(0.1
)
 
441.5

Long-term investments
985.6

 
2.7

 
(0.2
)
 
988.1

Total
$
2,758.3

 
$
3.1

 
$
(0.3
)
 
$
2,761.1


________________________________
(*) 
Balance includes the Company's non-qualified deferred compensation plan assets.

The following table presents the maturities of the Company's total fixed income securities as of September 30, 2013 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
Due within one year
$
431.4

 
$
0.5

 
$
—

 
$
431.9

Due between one and five years
1,188.2

 
1.4

 
(1.0
)
 
1,188.6

Total
$
1,619.6

 
$
1.9

 
$
(1.0
)
 
$
1,620.5



10
Table of Contents

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

The Company had 230 and 98 investments in an unrealized loss position as of September 30, 2013 and December 31, 2012, respectively. The gross unrealized losses related to these investments were primarily due to changes in market interest rates and stock prices. The Company reviews its investments 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.

For the available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) it has the intention to sell any of these investments and (ii) whether it is more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. As of September 30, 2013 the Company anticipates that it will recover the entire amortized cost basis of such available-for-sale debt securities and has determined that no other-than-temporary impairments associated with credit losses were required to be recognized during the three and nine months ended September 30, 2013 and September 30, 2012.

For available-for-sale equity securities that have unrealized losses, the Company evaluates whether there is an indication of other-than-temporary impairments. This determination is based on several factors, including the financial condition and near-term prospects of the issuer and the Company's intent and ability to hold the publicly-traded equity securities for a period of time sufficient to allow for any anticipated recovery in market value. During the three and nine months ended September 30, 2013 and September 30, 2012, the Company did not recognize other-than-temporary impairments associated with these investments.

There were no material gross realized gains or losses from available-for-sale and trading securities during the three and nine months ended September 30, 2013 and September 30, 2012. Realized gains and losses are determined based on the specific identification method.

The following tables present the Company's available-for-sale securities that were in an unrealized loss position as of September 30, 2013 and December 31, 2012 (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, 2013
 
 
 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
$
172.6

 
$
(0.2
)
 
$
—

 
$
—

 
$
172.6

 
$
(0.2
)
Corporate debt securities
286.6

 
(0.6
)
 
—

 
—

 
286.6

 
(0.6
)
Foreign government debt securities (*)
15.0

 
—

 
—

 
—

 
15.0

 
—

Government-sponsored enterprise obligations
158.3

 
(0.2
)
 
—

 
—

 
158.3

 
(0.2
)
U.S. government securities (*)
46.0

 
—

 
—

 
—

 
46.0

 
—

Total fixed income securities
$
678.5

 
$
(1.0
)
 
$
—

 
$
—

 
$
678.5

 
$
(1.0
)
________________________________
(*) 
Balances for less than twelve months include investments that were in an immaterial loss position as of September 30, 2013.


11
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, 2012
 
 
 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities(*)
$
55.1

 
$
(0.1
)
 
$
0.1

 
$
—

 
$
55.2

 
$
(0.1
)
Certificates of deposit
0.3

 
—

 
—

 
—

 
0.3

 
—

Commercial paper
10.0

 
—

 
—

 
—

 
10.0

 
—

Corporate debt securities
116.0

 
(0.1
)
 
—

 
—

 
116.0

 
(0.1
)
Government-sponsored enterprise obligations
30.0

 
—

 
—

 
—

 
30.0

 
—

U.S. government securities
68.2

 
—

 
—

 
—

 
68.2

 
—

Total fixed income securities
279.6

 
(0.2
)
 
0.1

 
—

 
279.7

 
(0.2
)
Publicly-traded equity securities
2.9

 
(0.1
)
 
—

 
—

 
2.9

 
(0.1
)
Total available-for sale securities
$
282.5

 
$
(0.3
)
 
$
0.1

 
$
—

 
$
282.6

 
$
(0.3
)
 ________________________________
(*) Balance greater than 12 months includes investments that were in an immaterial unrealized loss position as of December 31, 2012.

Restricted Cash and Investments

The Company classifies cash and investments designated as available-for-sale securities as restricted cash and investments on its Condensed Consolidated Balance Sheets for: (i) amounts held in escrow accounts, as required in connection with certain acquisitions completed between 2005 and 2013; (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.

The following table summarizes the Company's cash and investments that are classified as restricted cash and investments in the Condensed Consolidated Balance Sheets (in millions):
 
As of
 
September 30,
2013
 
December 31,
2012
Restricted cash
$
1.9

 
$
0.8

Restricted investments
90.6

 
105.6

Total restricted cash and investments
$
92.5

 
$
106.4


Privately-Held Investments

As of September 30, 2013 and December 31, 2012, the carrying values of the Company’s privately-held investments of $36.5 million and $32.0 million, respectively, were included in other long-term assets in the Condensed Consolidated Balance Sheets. During the third quarter of 2013, certain privately-held investments with carrying values of $7.6 million became public and were reclassified to short-term investments with restrictions of less than one year and resulted in unrealized gains of $100.0 million and recorded as a component of accumulated comprehensive income in the Condensed Consolidated Balance Sheets.

The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company adjusts the carrying value for its privately-held investments for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis.

The Company determined that certain privately-held investments were other-than-temporarily impaired, resulting in impairment charges of $2.1 million and $2.5 million for the three and nine months ended September 30, 2013, respectively, and $6.0 million and $20.0 million for the three and nine months ended September 30, 2012, respectively, that were recorded within other expense, net, in the Condensed Consolidated Statements of Operations.

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, 2013 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 securities:
 
 
 
 
 
 
 
Asset-backed securities
$
—

 
$
253.7

 
$
—

 
$
253.7

Certificates of deposit
—

 
24.9

 
—

 
24.9

Commercial paper
—

 
11.5

 
—

 
11.5

Corporate debt securities
—

 
769.1

 
—

 
769.1

Foreign government debt securities
—

 
15.8

 
—

 
15.8

Government-sponsored enterprise obligations
—

 
323.7

 
—

 
323.7

Money market funds (1)
1,044.1

 
—

 
—

 
1,044.1

Mutual funds (2)
2.5

 
—

 
—

 
2.5

Publicly-traded equity securities
126.7

 
—

 
—

 
126.7

U.S. government securities
182.2

 
133.3

 
—

 
315.5

Total available-for-sale securities
1,355.5

 
1,532.0

 
—

 
2,887.5

Trading securities in mutual funds (3)
15.1

 
—

 
—

 
15.1

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts
—

 
2.8

 
—

 
2.8

Total assets measured at fair value
$
1,370.6

 
$
1,534.8

 
$
—

 
$
2,905.4

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

 
$
(3.4
)
 
$
—

 
$
(3.4
)
Total liabilities measured at fair value
$
—

 
$
(3.4
)
 
$
—

 
$
(3.4
)
 
 
 
 
 
 
 
 
Total assets measured at fair value, reported as:
 
 
 
 
 
 
 
Cash equivalents
$
961.0

 
$
88.7

 
$
—

 
$
1,049.7

Restricted investments
90.6

 
—

 
—

 
90.6

Short-term investments
259.1

 
314.6

 
—

 
573.7

Long-term investments
59.9

 
1,128.7

 
—

 
1,188.6

Prepaid expenses and other current assets
—

 
2.8

 
—

 
2.8

Total assets measured at fair value
$
1,370.6

 
$
1,534.8

 
$
—

 
$
2,905.4

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

 
$
(3.4
)
 
$
—

 
$
(3.4
)
Total liabilities measured at fair value
$
—

 
$
(3.4
)
 
$
—

 
$
(3.4
)
________________________________
(1) 
Balance includes $88.1 million of restricted investments measured at fair market value, related to the Company's D&O trust and acquisition-related escrows.
(2) 
Balance relates to the restricted investments measured at fair market value of the Company's India Gratuity Trust.
(3) 
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 December 31, 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 securities:
 
 
 
 
 
 
 
Asset-backed securities
$
—

 
$
226.4

 
$
—

 
$
226.4

Certificates of deposit
—

 
42.5

 
—

 
42.5

Commercial paper
—

 
22.4

 
—

 
22.4

Corporate debt securities
—

 
535.6

 
—

 
535.6

Foreign government debt securities
—

 
5.0

 
—

 
5.0

Government-sponsored enterprise obligations
254.9

 
16.1

 
—

 
271.0

Money market funds (1)
1,145.2

 
—

 
—

 
1,145.2

Mutual funds (2)
1.0

 
2.0

 
—

 
3.0

Publicly-traded equity securities
2.9

 
—

 
—

 
2.9

U.S. government securities
275.9

 
218.6

 
—

 
494.5

Total available-for-sale securities
1,679.9

 
1,068.6

 
—

 
2,748.5

Trading securities in mutual funds (3)
12.6

 
—

 
—

 
12.6

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts
—

 
3.5

 
—

 
3.5

Total assets measured at fair value
$
1,692.5

 
$
1,072.1

 
$
—

 
$
2,764.6

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

 
$
0.1

 
$
—

 
$
0.1

Total liabilities measured at fair value
$
—

 
$
0.1

 
$
—

 
$
0.1

 
 
 
 
 
 
 
 
Total assets measured at fair value, reported as:
 
 
 
 
 
 
 
Cash equivalents
$
1,048.7

 
$
177.2

 
$
—

 
$
1,225.9

Restricted investments
103.6

 
2.0

 
—

 
105.6

Short-term investments
224.4

 
217.1

 
—

 
441.5

Long-term investments
315.8

 
672.3

 
—

 
988.1

Prepaid expenses and other current assets
—

 
3.5

 
—

 
3.5

Total assets measured at fair value
$
1,692.5

 
$
1,072.1

 
$
—

 
$
2,764.6

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

 
$
0.1

 
$
—

 
$
0.1

Total liabilities measured at fair value
$
—

 
$
0.1

 
$
—

 
$
0.1

________________________________
(1) 
Balance includes $102.6 million of restricted investments measured at fair market value, related to the Company's D&O trust and acquisition-related escrows.
(2) 
Balance relates to the restricted investments measured at fair market value of the Company's India Gratuity Trust.
(3) 
Balance relates to investments measured at fair value related to the Company's non-qualified deferred compensation plan assets.

The Company's Level 2 available-for-sale fixed income securities are priced using quoted market prices for similar instruments or non-binding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency which

14
Table of Contents

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

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 at the beginning of the quarter in which a change in circumstance resulted in the transfer. During the three and nine months ended September 30, 2013, the Company transferred approximately $287.4 million of government agency bonds within government-sponsored enterprise obligations from Level 1 to Level 2 primarily due to the use of additional valuation inputs more appropriately classified as Level 2 inputs. During the three and nine months ended September 30, 2013, the Company had no transfers to Level 3. During the three and nine months ended September 30, 2012, 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 investments, are measured at fair value on a nonrecurring basis if impairment is indicated. Privately-held 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 investments. The Company estimated 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 and their capital structure. During the three and nine months ended September 30, 2013, privately-held investments with a carrying value of $4.3 million and $4.7 million, respectively, were measured at fair value, resulting in an impairment charge of $2.1 million and $2.5 million, respectively. As of September 30, 2013, these investments were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity. As of December 31, 2012, the Company had no assets measured at fair value on a nonrecurring basis.

As of September 30, 2013 and December 31, 2012, 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 the Company's foreign currency derivatives are summarized as follows (in millions):
 
As of
 
September 30,
2013
 
December 31,
2012
Cash flow hedges
$
127.2

 
$
85.8

Non-designated derivatives
153.5

 
112.8

     Total
$
280.7

 
$
198.6


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, 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 Operations. Cash flows from such hedges are

15
Table of Contents

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

classified as operating activities. All amounts within other comprehensive income are expected to be reclassified into earnings within the next twelve months.

As of September 30, 2013 and December 31, 2012, the total fair value of the Company’s derivative assets recorded in other current assets on the Condensed Consolidated Balance Sheets was $2.8 million and $3.5 million, respectively. As of September 30, 2013 and December 31, 2012, the total fair value of the Company’s derivative liabilities recorded in other accrued liabilities on the Condensed Consolidated Balance Sheets was $3.4 million and $0.1 million, respectively.

During the three and nine months ended September 30, 2013, the Company recognized a loss of $0.4 million and $4.2 million, respectively, in accumulated other comprehensive income for the effective portion of its derivative instruments and reclassified a loss of $1.4 million and a gain of $0.6 million, respectively, from other comprehensive income to operating expense in the Condensed Consolidated Statements of Operations. 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 Operations.

The ineffective portion of the Company's derivative instruments recognized in its Condensed Consolidated Statements of Operations was not material during the three and nine months ended September 30, 2013 and September 30, 2012.

Non-Designated Derivatives

The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies. These 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 Operations. 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 within two months.

During the three and nine months ended September 30, 2013, the Company recognized a net gain of $0.9 million and $1.0 million, respectively, on non-designated derivative instruments within other expense, net in its Condensed Consolidated Statements of Operations. 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, in its Condensed Consolidated Statements of Operations.

Offsetting of Derivatives

The Company presents its derivative assets and derivative liabilities on a gross basis in the Condensed Consolidated Balance Sheets. However, under agreements containing provisions on netting with certain counterparties of foreign exchange contracts, subject to applicable requirements, the Company is allowed to net-settle transactions on the same date in the same currency, with a single net amount payable by one party to the other. As of September 30, 2013 and December 31, 2012, the potential effect of rights of setoff associated with derivative instruments would be an offset to both assets and liabilities of $1.1 million and $0.1 million, respectively. The resulting net derivative assets and derivative liabilities of the potential offset impact are $1.7 million and $2.3 million as of September 30, 2013, respectively. The resulting net derivative assets are $3.4 million and not material for derivative liabilities as of December 31, 2012. The Company is neither required to pledge nor entitled to receive cash collateral related to these derivative transactions.


16

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

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, 2013 (in millions):
 
PSD
 
SSD
 
Total
Balance as of December 31, 2012
$
1,866.3

 
$
2,191.5

 
$
4,057.8

Reclassifications
(249.6
)
 
249.6

 
—

Foreign currency translation adjustment
(0.1
)
 
—

 
(0.1
)
Balance as of September 30, 2013
$
1,616.6

 
$
2,441.1

 
$
4,057.7


During the third quarter of 2013, the Company realigned certain products from its PSD segment to its SSD segment resulting in a reclassification of goodwill of $70.6 million related to its acquisition of Contrail. In addition, goodwill of $179.0 million associated with security products previously reported under PSD was reclassified to SSD in connection with the Company's product realignment of all security products during the first quarter of 2013. See Note 13, Segments, for further discussion of the Company's product realignments. Goodwill was reclassified based on the relative fair value allocation of the reporting units affected. There were no impairments to goodwill during the three and nine months ended September 30, 2013 and September 30, 2012.

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, 2013
 
 
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
 
 
Technologies and patents
$
581.4

 
$
(445.2
)
 
$
(30.5
)
 
$
105.7

Customer contracts, support agreements, and
  related relationships
74.3

 
(61.9
)
 
(2.2
)
 
10.2

Other
18.8

 
(18.8
)
 
—

 
—

Total purchased intangible assets
$
674.5

 
$
(525.9
)
 
$
(32.7
)
 
$
115.9

 
 
 
 
 
 
 
 
As of December 31, 2012
 
 
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
 
 
Technologies and patents
$
554.1

 
$
(425.0
)
 
$
(30.5
)
 
$
98.6

Customer contracts, support agreements, and
  related relationships
74.3

 
(59.2
)
 
(2.2
)
 
12.9

Other
18.8

 
(18.8
)
 
—

 
—

Total intangible assets with finite lives
647.2

 
(503.0
)
 
(32.7
)
 
111.5

IPR&D with indefinite lives
17.4

 
—

 
—

 
17.4

Total purchased intangible assets
$
664.6

 
$
(503.0
)
 
$
(32.7
)
 
$
128.9


The purchased intangible assets balance as of September 30, 2013, includes intangible assets acquired through the acquisition completed during the first quarter of 2013. Refer to Note 3, Business Combinations, for further details.


17

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

During the third quarter of 2013, $17.4 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 cost of product revenues and operating expenses totaled $7.6 million and $9.0 million for the three months ended September 30, 2013 and September 30, 2012, respectively, and $22.8 million and $25.1 million for the nine months ended September 30, 2013 and September 30, 2012, respectively.

In connection with the 2012 Restructuring Plan discussed in Note 9, Restructuring and Other Charges, the Company assessed the value and remaining useful life of certain intangible assets and determined intangible assets of $5.4 million were impaired and such assets were written-down to their fair value of zero during the three and nine months ended September 30, 2012. These assets were measured at fair value primarily using discounted cash flow projections. Additionally, other intangible assets of $10.7 million were no longer 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 were included in cost of revenues in the Condensed Consolidated Statements of Operations. There were no impairment charges to purchased intangible assets during the three and nine months ended September 30, 2013.

As of September 30, 2013, the estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):
Years Ending December 31,
Amount
Remainder of 2013
$
9.1

2014
36.2

2015
32.6

2016
18.5

2017
10.5

Thereafter
9.0

Total
$
115.9


Note 8. Other Financial Information

Inventories, Net

The Company purchases and holds inventory to provide adequate component supplies over the life of the underlying products. The majority of the Company's inventory is production components. 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,
2013
 
December 31,
2012
Inventories, net:
 
 
 
Production materials
$
54.4

 
$
54.6

Finished goods
0.8

 
4.1

Total inventories, net
$
55.2

 
$
58.7


In connection with the 2012 Restructuring Plan discussed in Note 9, Restructuring and Other Charges, the Company recorded a $36.3 million charge during the three and nine months ended September 30, 2012, to cost of revenues for component inventory held in excess of forecasted demand.


18

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

Warranties
The Company accrues for warranty costs as part of its cost of revenues 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, 2013 were as follows (in millions):
Balance as of December 31, 2012
$
29.7

Provisions made during the period, net
20.9

Adjustments related to pre-existing warranties
(0.7
)
Actual costs incurred during the period
(21.3
)
Balance as of September 30, 2013
$
28.6


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,
2013
 
December 31,
2012
Deferred product revenue:
 
 
 
Undelivered product commitments and other product deferrals
$
212.2

 
$
256.9

Distributor inventory and other sell-through items
133.9

 
138.4

Deferred gross product revenue
346.1

 
395.3

Deferred cost of product revenue
(66.3
)
 
(99.4
)
Deferred product revenue, net
279.8

 
295.9

Deferred service revenue
741.4

 
627.5

Total
$
1,021.2

 
$
923.4

Reported as:
 
 
 
Current
$
731.9

 
$
693.5

Long-term
289.3

 
229.9

Total
$
1,021.2

 
$
923.4


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 billable amounts for service contracts, which include technical support, hardware and software maintenance, professional services, and training, for which services have not been rendered.



19

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,
 
2013
 
2012
 
2013
 
2012
Interest income
$
2.3

 
$
2.6

 
$
6.1

 
$
8.3

Interest expense
(14.2
)
 
(12.8
)
 
(43.4
)
 
(40.6
)
Other
4.4

 
6.2

 
7.1

 
6.7

Other expense, net
$
(7.5
)
 
$
(4.0
)
 
$
(30.2
)
 
$
(25.6
)

Interest income primarily includes interest earned on the Company’s cash, cash equivalents, and investments. Interest expense primarily includes interest, net of capitalized interest expense from long-term debt and customer financing arrangements. Other typically consists of investment and foreign exchange gains and losses and other non-operational income and expense items. During the three and nine months ended September 30, 2013, the Company recognized a net gain in Other of $3.6 million and $4.9 million, respectively, related to the Company's privately-held investments. During the three and nine months ended September 30, 2012, Other was primarily comprised of a net gain of $5.8 million and $6.6 million, respectively, related to the Company's privately-held investments.

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 Operations, as applicable. Any changes in the estimates of executing the approved plans are 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.

During the third quarter of 2013, the Company initiated a restructuring plan (the "2013 Restructuring Plan") to continue to improve its cost structure and rationalize its product portfolio and rebalance its investments. The 2013 Restructuring Plan consists of workforce reductions, contract terminations, and project cancellations. The Company recorded $4.5 million in severance costs and $6.6 million of contract termination and project cancellation charges related to the 2013 Restructuring Plan during the three months ended September 30, 2013. The Company expects to incur charges related to this plan through the first half of 2014.

During 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 and closures, and supply chain and procurement efficiencies. During the three and nine months ended September 30, 2013, the Company continued to implement restructuring activities under the 2012 Restructuring Plan and recorded $1.0 million and $17.6 million, respectively, in charges for severance costs, facility consolidations and closures, and contract terminations. The Company recorded $29.1 million in severance costs and $0.4 million of other charges related to the 2012 Restructuring Plan during the three and nine months ended September 30, 2012. In connection with these restructuring activities, the Company also recorded certain inventory and intangible asset impairment charges totaling $52.4 million to cost of revenues during the third quarter of 2012. Under the 2012 Restructuring Plan, total costs incurred through September 30, 2013 were $111.0 million, of which $56.9 million was recorded within cost of revenues and $54.1 million was recorded within restructuring and other charges in the Condensed Consolidated Statements of Operations. The restructuring activities related to this plan are substantially complete.

During 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. The Company recorded the majority of the restructuring charges associated with the 2011 Restructuring Plan during the years ended 2012 and 2011 and recorded a severance-related reversal of $0.1 million during the nine months ended September 30, 2013. As of September 30, 2013, the remaining restructuring liability under this plan relates to facility charges, which are expected to be completed by March 2018.

20

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

The following table presents restructuring and other charges included in cost of revenues and restructuring and other charges in the Condensed Consolidated Statements of Operations under the Company's restructuring plans (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Severance
$
3.8

 
$
29.1

 
$
9.0

 
$
33.4

Facilities
(0.8
)
 
1.5

 
9.5

 
3.2

Contract terminations and other
9.1

 
52.8

 
10.1

 
52.0

Total
$
12.1

 
$
83.4

 
$
28.6

 
$
88.6

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cost of revenues
$
6.1

 
$
52.4

 
$
7.6

 
$
52.4

Restructuring and other charges
6.0

 
31.0

 
21.0

 
36.2

Total
$
12.1

 
$
83.4

 
$
28.6

 
$
88.6


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, 2013 (in millions):
 
December 31,
2012
 
Charges
 
Cash
Payments
 
Non-cash
Settlements and
Other
 
September 30,
2013
Severance
$
10.6

 
$
9.0

 
$
(14.8
)
 
$
(0.1
)
 
$
4.7

Facilities
5.2

 
9.5

 
(4.4
)
 
(4.1
)
 
6.2

Contract terminations and other
2.4

 
10.1

 
(5.5
)
 
(0.6
)
 
6.4

Total
$
18.2

 
$
28.6

 
$
(24.7
)
 
$
(4.8
)
 
$
17.3


In connection with the restructuring plans discussed above, the Company expects to record aggregate future charges of approximately $11.0 million related to workforce reductions and contract terminations through the first half of 2014.

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, 2013
 
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