10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2015 |
or
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| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from_________ to_________ |
Commission file number: 001-34501
JUNIPER NETWORKS, INC.
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | | 77-0422528 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
1133 Innovation Way | | |
Sunnyvale, California | | 94089 |
(Address of principal executive offices) | | (Zip code) |
(408) 745-2000 |
(Registrant's telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
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| | | |
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 385,852,233 shares of the Company's Common Stock, par value $0.00001, outstanding as of October 30, 2015.
Juniper Networks, Inc.
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, |
| 2015 | | 2014 | | 2015 | | 2014 |
Net revenues: | | | | | | | |
Product | $ | 925.4 |
| | $ | 809.5 |
| | $ | 2,589.2 |
| | $ | 2,614.7 |
|
Service | 323.2 |
| | 316.4 |
| | 949.0 |
| | 910.8 |
|
Total net revenues | 1,248.6 |
| | 1,125.9 |
| | 3,538.2 |
| | 3,525.5 |
|
Cost of revenues: | | | | | | | |
Product | 322.6 |
| | 290.0 |
| | 923.1 |
| | 975.9 |
|
Service | 128.6 |
| | 121.1 |
| | 378.9 |
| | 366.5 |
|
Total cost of revenues | 451.2 |
| | 411.1 |
| | 1,302.0 |
| | 1,342.4 |
|
Gross margin | 797.4 |
| | 714.8 |
| | 2,236.2 |
| | 2,183.1 |
|
Operating expenses: | | | | | | | |
Research and development | 247.0 |
| | 253.2 |
| | 747.3 |
| | 772.7 |
|
Sales and marketing | 235.3 |
| | 249.2 |
| | 687.9 |
| | 780.6 |
|
General and administrative | 57.1 |
| | 55.0 |
| | 168.6 |
| | 190.5 |
|
Restructuring and other (benefits) charges | — |
| | (15.0 | ) | | (0.5 | ) | | 157.2 |
|
Total operating expenses | 539.4 |
| | 542.4 |
| | 1,603.3 |
| | 1,901.0 |
|
Operating income | 258.0 |
| | 172.4 |
| | 632.9 |
| | 282.1 |
|
Other (expense) income, net | (8.4 | ) | | (6.8 | ) | | (41.3 | ) | | 326.0 |
|
Income before income taxes | 249.6 |
| | 165.6 |
| | 591.6 |
| | 608.1 |
|
Income tax provision | 51.9 |
| | 62.0 |
| | 155.7 |
| | 172.8 |
|
Net income | $ | 197.7 |
| | $ | 103.6 |
| | $ | 435.9 |
| | $ | 435.3 |
|
| | | | | | | |
Net income per share: | | | | | | | |
Basic | $ | 0.52 |
| | $ | 0.23 |
| | $ | 1.11 |
| | $ | 0.93 |
|
Diluted | $ | 0.51 |
| | $ | 0.23 |
| | $ | 1.09 |
| | $ | 0.91 |
|
Shares used in computing net income per share: | | | | | | | |
Basic | 382.8 |
| | 448.4 |
| | 393.2 |
| | 468.1 |
|
Diluted | 389.2 |
| | 454.8 |
| | 401.2 |
| | 477.0 |
|
Cash dividends declared per common stock | $ | 0.10 |
| | $ | 0.10 |
| | $ | 0.30 |
| | $ | 0.10 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
Juniper Networks, Inc.
Condensed Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Net income | $ | 197.7 |
| | $ | 103.6 |
| | $ | 435.9 |
| | $ | 435.3 |
|
Other comprehensive loss, net of tax: | | | | | | | |
Available-for-sale securities: | | | | | | | |
Unrealized (losses) gains on available-for-sale securities, net of tax (provisions) benefit of ($3.7) and ($2.1) during the three and nine months ended September 30, 2015, respectively, and $2.0 and ($26.2) for the corresponding periods of the fiscal year ended December 31, 2014 ("fiscal 2014"), respectively | (3.6 | ) | | (4.4 | ) | | 4.6 |
| | 44.0 |
|
Reclassification adjustment for realized net gains on available-for-sale securities included in net income, net of tax provisions of zero during the three and nine months ended September 30, 2015, respectively, and $0.1 and $60.5 for the corresponding periods of fiscal 2014, respectively | (0.1 | ) | | (0.2 | ) | | (0.6 | ) | | (104.0 | ) |
Net change on available-for-sale securities, net of taxes | (3.7 | ) | | (4.6 | ) | | 4.0 |
| | (60.0 | ) |
Cash flow hedges: | | | | | | | |
Unrealized (losses) gain on cash flow hedges, net of tax benefit (provisions) of $0.5 and ($0.2) during the three and nine months ended September 30, 2015, respectively, and zero and ($1.3) for the corresponding periods of fiscal 2014, respectively | (1.4 | ) | | (2.8 | ) | | (5.4 | ) | | 0.4 |
|
Reclassification adjustment for realized net losses (gains) on cash flow hedges included in net income, net of tax (benefit) provisions of ($0.1) and zero during the three and nine months ended September 30, 2015, respectively, and $0.5 and $0.8 for the corresponding periods of fiscal 2014, respectively | 1.8 |
| | (1.0 | ) | | 8.7 |
| | (4.2 | ) |
Net change on cash flow hedges, net of taxes | 0.4 |
| | (3.8 | ) | | 3.3 |
| | (3.8 | ) |
Change in foreign currency translation adjustments | (8.8 | ) | | (7.7 | ) | | (12.9 | ) | | (3.8 | ) |
Other comprehensive loss, net of tax | (12.1 | ) | | (16.1 | ) | | (5.6 | ) | | (67.6 | ) |
Comprehensive income | $ | 185.6 |
| | $ | 87.5 |
| | $ | 430.3 |
| | $ | 367.7 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
Juniper Networks, Inc.
Condensed Consolidated Balance Sheets
(In millions, except par values)
|
| | | | | | | |
| September 30,
2015 | | December 31,
2014 |
| (Unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,453.5 |
| | $ | 1,639.6 |
|
Short-term investments | 529.9 |
| | 332.2 |
|
Accounts receivable, net of allowances | 577.5 |
| | 598.9 |
|
Deferred tax assets, net | 198.4 |
| | 147.0 |
|
Prepaid expenses and other current assets | 138.8 |
| | 239.9 |
|
Total current assets | 2,898.1 |
| | 2,957.6 |
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Property and equipment, net | 959.9 |
| | 904.3 |
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Long-term investments | 1,263.6 |
| | 1,133.1 |
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Restricted cash and investments | 33.9 |
| | 46.0 |
|
Purchased intangible assets, net | 39.2 |
| | 62.4 |
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Goodwill | 2,981.3 |
| | 2,981.5 |
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Other long-term assets | 329.9 |
| | 303.9 |
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Total assets | $ | 8,505.9 |
| | $ | 8,388.8 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Short-term debt | $ | 299.9 |
| | $ | — |
|
Accounts payable | 209.1 |
| | 234.6 |
|
Accrued compensation | 193.7 |
| | 225.0 |
|
Deferred revenue | 814.4 |
| | 780.8 |
|
Other accrued liabilities | 217.8 |
| | 273.0 |
|
Total current liabilities | 1,734.9 |
| | 1,513.4 |
|
Long-term debt | 1,648.7 |
| | 1,349.0 |
|
Long-term deferred revenue | 310.5 |
| | 294.9 |
|
Long-term income taxes payable | 185.0 |
| | 177.5 |
|
Other long-term liabilities | 198.7 |
| | 134.9 |
|
Total liabilities | 4,077.8 |
| | 3,469.7 |
|
Commitments and contingencies (Note 15) |
|
| |
|
|
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; 384.8 shares and 416.2 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively | — |
| | — |
|
Additional paid-in capital | 8,334.3 |
| | 8,794.0 |
|
Accumulated other comprehensive loss | (19.4 | ) | | (13.8 | ) |
Accumulated deficit | (3,886.8 | ) | | (3,861.1 | ) |
Total stockholders' equity | 4,428.1 |
| | 4,919.1 |
|
Total liabilities and stockholders' equity | $ | 8,505.9 |
| | $ | 8,388.8 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
Juniper Networks, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited) |
| | | | | | | |
| Nine Months Ended September 30, |
| 2015 | | 2014 |
Cash flows from operating activities: | | | |
Net income | $ | 435.9 |
| | $ | 435.3 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Share-based compensation expense | 161.3 |
| | 185.4 |
|
Depreciation, amortization, and accretion | 131.5 |
| | 141.9 |
|
Restructuring and other (benefits) charges | (4.0 | ) | | 179.4 |
|
Deferred income taxes | 10.0 |
| | (85.4 | ) |
Gain on investments, net | (6.8 | ) | | (165.1 | ) |
Gain on legal settlement, net | — |
| | (121.1 | ) |
Excess tax benefits from share-based compensation | (7.4 | ) | | (8.8 | ) |
Loss on disposal of fixed assets | 0.4 |
| | 1.9 |
|
Changes in operating assets and liabilities, net of effects from acquisitions: | | | |
Accounts receivable, net | (15.7 | ) | | (33.2 | ) |
Prepaid expenses and other assets | 8.8 |
| | (19.9 | ) |
Accounts payable | (21.8 | ) | | 49.9 |
|
Accrued compensation | (29.0 | ) | | (78.3 | ) |
Income taxes payable | 108.2 |
| | 86.1 |
|
Other accrued liabilities | (45.0 | ) | | (130.5 | ) |
Deferred revenue | 49.1 |
| | 40.9 |
|
Net cash provided by operating activities | 775.5 |
| | 478.5 |
|
Cash flows from investing activities: | | | |
Purchases of property and equipment | (154.9 | ) | | (141.0 | ) |
Purchases of available-for-sale investments | (1,147.6 | ) | | (1,970.5 | ) |
Proceeds from sales of available-for-sale investments | 625.9 |
| | 1,918.7 |
|
Proceeds from maturities of available-for-sale investments | 197.4 |
| | 339.0 |
|
Purchases of trading investments | (3.8 | ) | | (3.5 | ) |
Proceeds from sales of privately-held investments | 10.3 |
| | 2.5 |
|
Purchases of privately-held investments | (5.4 | ) | | (12.3 | ) |
Payments for business acquisitions, net of cash and cash equivalents acquired | (3.5 | ) | | (27.1 | ) |
Changes in restricted cash | 11.6 |
| | 45.0 |
|
Net cash (used in) provided by investing activities | (470.0 | ) | | 150.8 |
|
Cash flows from financing activities: | | | |
Proceeds from issuance of common stock | 97.0 |
| | 157.6 |
|
Purchases and retirement of common stock | (1,057.6 | ) | | (1,761.0 | ) |
Issuance of long-term debt, net | 594.6 |
| | 346.5 |
|
Payment for capital lease obligation | 0.4 |
| | (0.4 | ) |
Customer financing arrangements | — |
| | 0.8 |
|
Excess tax benefits from share-based compensation | 7.4 |
| | 8.8 |
|
Payment of cash dividends | (118.0 | ) | | (43.8 | ) |
Net cash used in financing activities | (476.2 | ) | | (1,291.5 | ) |
Effect of foreign currency exchange rates on cash and cash equivalents | (15.4 | ) | | (5.9 | ) |
Net decrease in cash and cash equivalents | (186.1 | ) | | (668.1 | ) |
Cash and cash equivalents at beginning of period | 1,639.6 |
| | 2,284.0 |
|
Cash and cash equivalents at end of period | $ | 1,453.5 |
| | $ | 1,615.9 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
Basis of Presentation
The unaudited Condensed Consolidated Financial Statements of Juniper Networks, Inc. (the “Company” or “Juniper”) have been prepared in accordance with United States (“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 September 30, 2015, is derived from the audited Consolidated Financial Statements for the year ended December 31, 2014. 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, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, 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, 2014. Certain amounts in the prior year Financial Statements contained in this Report 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.
Note 2. Summary of Significant Accounting Policies
There have been no material changes to the Company's significant accounting policies compared to the accounting policies described in Note 2, Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2014.
Recent Accounting Pronouncements
In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-16 (Topic 805) - Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments, which replaces the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively, with a requirement that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 requires the entity to record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendment requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendment should be applied prospectively to adjustments to provisional amounts that occur after the effective date of the guidance, with early adoption permitted for financial statements that have not been issued. The adoption of this standard is not expected to have a significant impact on the Company's Condensed Consolidated Financial Statements.
In July 2015, the FASB issued ASU No. 2015-11 (Subtopic 330) - Simplifying the Measurement of Inventory, which provides guidance to companies who account for inventory using either the first-in, first-out ("FIFO") or average cost methods. The guidance states that companies should measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of the adoption on its Condensed Consolidated Financial Statements, if any.
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
In June 2015, the FASB issued ASU No. 2015-10 - Technical Corrections and Improvements, which contains minor guidance clarifications and reference corrections, simplification of the Codification, and minor improvements on a wide variety of topics. ASU 2015-10 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact of the adoption on its Condensed Consolidated Financial Statements, if any.
In April 2015, the FASB issued ASU No. 2015-05 (Subtopic 350-40) - Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact of the adoption on its Condensed Consolidated Financial Statements, if any.
In April 2015, the FASB issued ASU No. 2015-03 (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of this standard would reduce the debt issuance cost asset on the Company's Condensed Consolidated Balance Sheet by approximately $11.0 million and correspondingly reduce its debt liabilities by approximately $11.0 million. The Company plans to adopt this standard in the first quarter of 2016. The adoption of this standard will not have an impact to the Condensed Consolidated Statement of Operations.
In August 2015, the FASB issued ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. ASU 2015-15 provides additional guidance to ASU 2015-03, which did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. The amendment states that an entity may defer and present debt issuance costs associated with line-of-credit arrangements as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of ASU 2015-15 is not expected to have an impact on the Company's Condensed Consolidated Financial Statements.
In January 2015, the FASB issued ASU No. 2015-01 (Subtopic 225-20) - Income Statement - Extraordinary and Unusual Items, which eliminates the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of this standard will not have an impact on the Company's Condensed Consolidated Financial Statements.
In November 2014, the FASB issued ASU No. 2014-16 (Topic 815) - Derivatives and Hedging, which provides clarification on how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features in evaluating the host contract and that no single term or feature would necessarily determine the economic characteristics and risks of the host contract. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendment should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the year for which the amendments are effective. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's Condensed Consolidated Financial Statements.
In August 2014, the FASB issued ASU No. 2014-15 (Subtopic 205-40) - Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”) which provides guidance about management's responsibility to evaluate whether or not there is substantial doubt about the Company's ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early application is permitted. The adoption of this standard is not expected to have an impact on the Company's Condensed Consolidated Financial Statements.
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
In June 2014, the FASB issued ASU No. 2014-12 (Topic 718) - Compensation - Stock Compensation (“ASU 2014-12”) which provides guidance that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service period is a performance condition. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost for such an award would be recognized over the required service period, if it is probable that the performance condition will be achieved. ASU 2014-12 is effective for all entities for annual periods beginning after December 15, 2015 and interim periods within those annual periods. ASU 2014-12 should be applied on a prospective basis to awards that are granted or modified on or after the effective date. The adoption of this standard is not expected to have an impact on the Company's Condensed Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09 (Topic 606)—Revenue from Contracts with Customers (“ASU 2014-09”) which provides guidance for revenue recognition. This ASU affects all contracts that the Company enters into with customers to transfer goods and services or for the transfer of nonfinancial assets. This ASU will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The standard's core principle is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In doing so, the Company will need to use additional judgment and estimates than under the existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of the new revenue standard from December 15, 2016 to December 15, 2017, with early adoption permitted as of annual reporting periods beginning after December 15, 2016. As a result, the Company will apply the new revenue standard for annual and interim periods beginning after December 15, 2017. Accordingly, the ASU will be effective for the Company beginning fiscal year 2018. The Company is currently evaluating the impact of the adoption of this standard on its Condensed Consolidated Financial Statements.
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. 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, 2015 and December 31, 2014 (in millions):
|
| | | | | | | | | | | | | | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
As of September 30, 2015 | | | | | | | |
Fixed income securities: | | | | | | | |
Asset-backed securities | $ | 324.2 |
| | $ | 0.1 |
| | $ | (0.2 | ) | | $ | 324.1 |
|
Certificates of deposit | 3.8 |
| | — |
| | — |
| | 3.8 |
|
Commercial paper | 9.4 |
| | — |
| | — |
| | 9.4 |
|
Corporate debt securities | 935.8 |
| | 0.7 |
| | (1.9 | ) | | 934.6 |
|
Foreign government debt securities | 16.5 |
| | — |
| | — |
| | 16.5 |
|
Government-sponsored enterprise obligations | 214.1 |
| | 0.1 |
| | — |
| | 214.2 |
|
U.S. government securities | 265.3 |
| | 0.2 |
| | (0.1 | ) | | 265.4 |
|
Total fixed income securities | 1,769.1 |
| | 1.1 |
| | (2.2 | ) | | 1,768.0 |
|
Money market funds | 196.0 |
| | — |
| | — |
| | 196.0 |
|
Mutual funds | 3.7 |
| | 0.1 |
| | — |
| | 3.8 |
|
Publicly-traded equity securities | 8.0 |
| | 0.7 |
| | — |
| | 8.7 |
|
Total available-for-sale securities | 1,976.8 |
| | 1.9 |
| | (2.2 | ) | | 1,976.5 |
|
Trading securities in mutual funds(1) | 16.8 |
| | — |
| | — |
| | 16.8 |
|
Total | $ | 1,993.6 |
| | $ | 1.9 |
| | $ | (2.2 | ) | | $ | 1,993.3 |
|
| | | | | | | |
Reported as: | | | | | | | |
Cash equivalents | $ | 166.3 |
| | $ | — |
| | $ | — |
| | $ | 166.3 |
|
Restricted investments | 33.4 |
| | 0.1 |
| | — |
| | 33.5 |
|
Short-term investments | 529.1 |
| | 0.9 |
| | (0.1 | ) | | 529.9 |
|
Long-term investments | 1,264.8 |
| | 0.9 |
| | (2.1 | ) | | 1,263.6 |
|
Total | $ | 1,993.6 |
| | $ | 1.9 |
| | $ | (2.2 | ) | | $ | 1,993.3 |
|
________________________________
| |
(1) | Balance consists of the Company's non-qualified deferred compensation plan assets. |
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, 2014 | | | | | | | |
Fixed income securities: | | | | | | | |
Asset-backed securities | $ | 269.3 |
| | $ | — |
| | $ | (0.3 | ) | | $ | 269.0 |
|
Certificates of deposit | 10.6 |
| | — |
| | — |
| | 10.6 |
|
Commercial paper | 20.3 |
| | — |
| | — |
| | 20.3 |
|
Corporate debt securities | 738.6 |
| | 0.5 |
| | (1.1 | ) | | 738.0 |
|
Foreign government debt securities | 24.6 |
| | — |
| | — |
| | 24.6 |
|
Government-sponsored enterprise obligations | 162.2 |
| | — |
| | (0.1 | ) | | 162.1 |
|
U.S. government securities | 246.1 |
| | — |
| | (0.1 | ) | | 246.0 |
|
Total fixed income securities | 1,471.7 |
| | 0.5 |
| | (1.6 | ) | | 1,470.6 |
|
Money market funds | 594.2 |
| | — |
| | — |
| | 594.2 |
|
Mutual funds | 3.9 |
| | 0.1 |
| | — |
| | 4.0 |
|
Publicly-traded equity securities | 2.1 |
| | — |
| | (0.1 | ) | | 2.0 |
|
Total available-for-sale securities | 2,071.9 |
| | 0.6 |
| | (1.7 | ) | | 2,070.8 |
|
Trading securities in mutual funds(1) | 16.3 |
| | — |
| | — |
| | 16.3 |
|
Total | $ | 2,088.2 |
| | $ | 0.6 |
| | $ | (1.7 | ) | | $ | 2,087.1 |
|
| | | | | | | |
Reported as: | | | | | | | |
Cash equivalents | $ | 576.6 |
| | $ | — |
| | $ | — |
| | $ | 576.6 |
|
Restricted investments | 45.2 |
| | — |
| | — |
| | 45.2 |
|
Short-term investments | 332.2 |
| | 0.2 |
| | (0.2 | ) | | 332.2 |
|
Long-term investments | 1,134.2 |
| | 0.4 |
| | (1.5 | ) | | 1,133.1 |
|
Total | $ | 2,088.2 |
| | $ | 0.6 |
| | $ | (1.7 | ) | | $ | 2,087.1 |
|
________________________________
| |
(1) | Balance consists of the Company's non-qualified deferred compensation plan assets. |
The following table presents the contractual maturities of the Company's total fixed income securities as of September 30, 2015 (in millions):
|
| | | | | | | | | | | | | | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Due in less than one year | $ | 504.2 |
| | $ | 0.3 |
| | $ | (0.1 | ) | | $ | 504.4 |
|
Due between one and five years | 1,264.9 |
| | 0.8 |
| | (2.1 | ) | | 1,263.6 |
|
Total | $ | 1,769.1 |
| | $ | 1.1 |
| | $ | (2.2 | ) | | $ | 1,768.0 |
|
The Company had 440 and 437 investments in unrealized loss positions as of September 30, 2015 and December 31, 2014, respectively. The gross unrealized losses related to these investments were primarily due to changes in market interest rates and stock prices. The Company periodically 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 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, 2015, 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, 2015 and September 30, 2014.
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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, 2015, the Company did not recognize other-than-temporary impairments associated with these investments. During the three and nine months ended September 30, 2014, the Company determined that certain available-for-sale equity securities were other-than-temporarily impaired, resulting in an impairment charge of $1.1 million and $2.7 million, respectively, which were recorded within other (expense) income, net, in the Condensed Consolidated Statements of Operations.
During the three and nine months ended September 30, 2015, there were no material gross realized gains or losses from available-for-sale securities and there were no material gross realized gains or losses from trading securities. During the nine months ended September 30, 2014, gross realized gains from available-for-sale securities were $166.3 million and gross realized losses were not material, excluding the impairment charge noted above. During the three months ended September 30, 2014, there were no material gross realized gains or losses from available-for-sale securities and during the three and nine months ended September 30, 2014, there were no material gross realized gains or losses from trading securities.
The following tables present the Company's available-for-sale securities that were in an unrealized loss position as of September 30, 2015 and December 31, 2014 (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, 2015 | | | | | | | | | | | |
Fixed income securities: | | | | | | | | | | | |
Asset-backed securities(1) | $ | 188.5 |
| | $ | (0.2 | ) | | $ | 34.2 |
| | $ | — |
| | $ | 222.7 |
| | $ | (0.2 | ) |
Corporate debt securities | 522.0 |
| | (1.8 | ) | | 17.5 |
| | (0.1 | ) | | 539.5 |
| | (1.9 | ) |
Foreign government debt securities(1)(2) | 13.5 |
| | — |
| | — |
| | — |
| | 13.5 |
| | — |
|
Government-sponsored enterprise obligations(1)(2) | 41.8 |
| | — |
| | — |
| | — |
| | 41.8 |
| | — |
|
U.S. government securities(1) | 119.5 |
| | (0.1 | ) | | — |
| | — |
| | 119.5 |
| | (0.1 | ) |
Total fixed income securities | 885.3 |
| | (2.1 | ) | | 51.7 |
| | (0.1 | ) | | 937.0 |
| | (2.2 | ) |
Total available-for-sale securities | $ | 885.3 |
| | $ | (2.1 | ) | | $ | 51.7 |
| | $ | (0.1 | ) | | $ | 937.0 |
| | $ | (2.2 | ) |
________________________________
(1) Balances greater than 12 months include investments that were in an immaterial unrealized loss position as of September 30, 2015.
(2) Balances less than 12 months include investments that were in an immaterial unrealized loss position as of September 30, 2015.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2014 | | | | | | | | | | | |
Fixed income securities: | | | | | | | | | | | |
Asset-backed securities | $ | 221.9 |
| | $ | (0.3 | ) | | $ | — |
| | $ | — |
| | $ | 221.9 |
| | $ | (0.3 | ) |
Corporate debt securities | 515.9 |
| | (1.1 | ) | | — |
| | — |
| | 515.9 |
| | (1.1 | ) |
Foreign government debt securities(1) | 24.6 |
| | — |
| | — |
| | — |
| | 24.6 |
| | — |
|
Government-sponsored enterprise obligations | 113.8 |
| | (0.1 | ) | | — |
| | — |
| | 113.8 |
| | (0.1 | ) |
U.S. government securities | 189.0 |
| | (0.1 | ) | | — |
| | — |
| | 189.0 |
| | (0.1 | ) |
Total fixed income securities | 1,065.2 |
| | (1.6 | ) | | — |
| | — |
| | 1,065.2 |
| | (1.6 | ) |
Publicly-traded equity securities | 2.0 |
| | (0.1 | ) | | — |
| | — |
| | 2.0 |
| | (0.1 | ) |
Total available-for-sale securities | $ | 1,067.2 |
| | $ | (1.7 | ) | | $ | — |
| | $ | — |
| | $ | 1,067.2 |
| | $ | (1.7 | ) |
________________________________
| |
(1) | Balances less than 12 months include investments that were in an immaterial unrealized loss position as of December 31, 2014. |
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Restricted Cash and Investments
The Company classifies certain cash and investments 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 2014; (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 indemnification trust (“D&O Trust”). The restricted investments are designated as available-for-sale securities.
Privately-Held Investments
The Company has privately-held investments, which include debt and redeemable preferred stock securities that are carried at fair value, and non-redeemable preferred stock securities that are carried at cost.
As of September 30, 2015 and December 31, 2014, the carrying values of the Company's privately-held investments of $91.3 million and $89.9 million, respectively, were included in other long-term assets in the Condensed Consolidated Balance Sheets. As of September 30, 2015 and December 31, 2014, the carrying value of the privately-held investments includes debt and redeemable preferred stock securities of $48.9 million and $47.5 million, respectively. For the three and nine months ended September 30, 2015, there were no unrealized gains or losses associated with the privately-held debt and redeemable preferred stock securities. For the nine months ended September 30, 2014, the Company recorded $10.0 million in other comprehensive income for unrealized gains associated with its privately-held debt securities. During the three months ended September 30, 2014, there were no unrealized gains or losses associated with its privately-held debt securities and redeemable preferred stock securities.
The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. During the three and nine months ended September 30, 2015, the Company determined that no privately-held investments were other-than-temporarily impaired. During the three and nine months ended September 30, 2014, the Company determined that certain privately-held investments were other than temporarily impaired, resulting in impairment charges of $1.1 million that were recorded within other (expense) income, net in the Condensed Consolidated Statements of Operations.
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. 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, 2015 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 | $ | — |
| | $ | 324.1 |
| | $ | — |
| | $ | 324.1 |
|
Certificates of deposit | — |
| | 3.8 |
| | — |
| | 3.8 |
|
Commercial paper | — |
| | 9.4 |
| | — |
| | 9.4 |
|
Corporate debt securities | — |
| | 934.6 |
| | — |
| | 934.6 |
|
Foreign government debt securities | — |
| | 16.5 |
| | — |
| | 16.5 |
|
Government-sponsored enterprise obligations | — |
| | 214.2 |
| | — |
| | 214.2 |
|
Money market funds(1) | 196.0 |
| | — |
| | — |
| | 196.0 |
|
Mutual funds(2) | 3.8 |
| | — |
| | — |
| | 3.8 |
|
Publicly-traded equity securities | 8.7 |
| | — |
| | — |
| | 8.7 |
|
U.S. government securities | 265.4 |
| | — |
| | — |
| | 265.4 |
|
Total available-for-sale securities | 473.9 |
| | 1,502.6 |
| | — |
| | 1,976.5 |
|
Trading securities in mutual funds(3) | 16.8 |
| | — |
| | — |
| | 16.8 |
|
Privately-held debt and redeemable preferred stock securities | — |
| | — |
| | 48.9 |
| | 48.9 |
|
Derivative assets: | | | | | | | |
Foreign exchange contracts | — |
| | 0.6 |
| | — |
| | 0.6 |
|
Total assets measured at fair value | $ | 490.7 |
| | $ | 1,503.2 |
| | $ | 48.9 |
| | $ | 2,042.8 |
|
Liabilities measured at fair value: | | | | | | | |
Derivative liabilities: | | | | | | | |
Foreign exchange contracts | $ | — |
| | $ | (1.3 | ) | | $ | — |
| | $ | (1.3 | ) |
Total liabilities measured at fair value | $ | — |
| | $ | (1.3 | ) | | $ | — |
| | $ | (1.3 | ) |
| | | | | | | |
Total assets measured at fair value, reported as: | | | | | | | |
Cash equivalents | $ | 166.3 |
| | $ | — |
| | $ | — |
| | $ | 166.3 |
|
Restricted investments | 33.5 |
| | — |
| | — |
| | 33.5 |
|
Short-term investments | 135.1 |
| | 394.8 |
| | — |
| | 529.9 |
|
Long-term investments | 155.8 |
| | 1,107.8 |
| | — |
| | 1,263.6 |
|
Prepaid expenses and other current assets | — |
| | 0.6 |
| | — |
| | 0.6 |
|
Other long-term assets | — |
| | — |
| | 48.9 |
| | 48.9 |
|
Total assets measured at fair value | $ | 490.7 |
| | $ | 1,503.2 |
| | $ | 48.9 |
| | $ | 2,042.8 |
|
| | | | | | | |
Total liabilities measured at fair value, reported as: | | | | | | | |
Other accrued liabilities | $ | — |
| | $ | (1.3 | ) | | $ | — |
| | $ | (1.3 | ) |
Total liabilities measured at fair value | $ | — |
| | $ | (1.3 | ) | | $ | — |
| | $ | (1.3 | ) |
________________________________
| |
(1) | Balance includes $29.7 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 restricted investments measured at fair market value related to 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. |
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2014 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 | $ | — |
| | $ | 269.0 |
| | $ | — |
| | $ | 269.0 |
|
Certificates of deposit | — |
| | 10.6 |
| | — |
| | 10.6 |
|
Commercial paper | — |
| | 20.3 |
| | — |
| | 20.3 |
|
Corporate debt securities | — |
| | 738.0 |
| | — |
| | 738.0 |
|
Foreign government debt securities | — |
| | 24.6 |
| | — |
| | 24.6 |
|
Government-sponsored enterprise obligations | — |
| | 162.1 |
| | — |
| | 162.1 |
|
Money market funds(1) | 594.2 |
| | — |
| | — |
| | 594.2 |
|
Mutual funds(2) | 4.0 |
| | — |
| | — |
| | 4.0 |
|
Publicly-traded equity securities | 2.0 |
| | — |
| | — |
| | 2.0 |
|
U.S. government securities | 246.0 |
| | — |
| | — |
| | 246.0 |
|
Total available-for-sale securities | 846.2 |
| | 1,224.6 |
| | — |
| | 2,070.8 |
|
Trading securities in mutual funds(3) | 16.3 |
| | — |
| | — |
| | 16.3 |
|
Privately-held debt and redeemable preferred stock securities | — |
| | — |
| | 47.5 |
| | 47.5 |
|
Derivative assets: | | | | | | | |
Foreign exchange contracts | — |
| | 0.1 |
| | — |
| | 0.1 |
|
Total assets measured at fair value | $ | 862.5 |
| | $ | 1,224.7 |
| | $ | 47.5 |
| | $ | 2,134.7 |
|
Liabilities measured at fair value: | | | | | | | |
Derivative liabilities: | | | | | | | |
Foreign exchange contracts | $ | — |
| | $ | (3.9 | ) | | $ | — |
| | $ | (3.9 | ) |
Total liabilities measured at fair value | $ | — |
| | $ | (3.9 | ) | | $ | — |
| | $ | (3.9 | ) |
| | | | | | | |
Total assets measured at fair value, reported as: | | | | | | | |
Cash equivalents | $ | 552.9 |
| | $ | 23.7 |
| | $ | — |
| | $ | 576.6 |
|
Restricted investments | 45.2 |
| | — |
| | — |
| | 45.2 |
|
Short-term investments | 87.0 |
| | 245.2 |
| | — |
| | 332.2 |
|
Long-term investments | 177.4 |
| | 955.7 |
| | — |
| | 1,133.1 |
|
Prepaid expenses and other current assets | — |
| | 0.1 |
| | — |
| | 0.1 |
|
Other long-term assets | — |
| | — |
| | 47.5 |
| | 47.5 |
|
Total assets measured at fair value | $ | 862.5 |
| | $ | 1,224.7 |
| | $ | 47.5 |
| | $ | 2,134.7 |
|
| | | | | | | |
Total liabilities measured at fair value, reported as: | | | | | | | |
Other accrued liabilities | $ | — |
| | $ | (3.9 | ) | | $ | — |
| | $ | (3.9 | ) |
Total liabilities measured at fair value | $ | — |
| | $ | (3.9 | ) | | $ | — |
| | $ | (3.9 | ) |
________________________________
| |
(1) | Balance includes $41.3 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 restricted investments measured at fair market value related to 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. |
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The Company's Level 2 available-for-sale fixed income securities are priced using quoted market prices for similar instruments or non-binding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets. The Company's derivative instruments are classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs. The Company's policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 at the beginning of the quarter in which a change in circumstances resulted in a transfer. During the three and nine months ended September 30, 2015, the Company had no transfers between levels of the fair value hierarchy of its assets or liabilities measured at fair value.
All of the Company's privately-held debt and redeemable preferred stock securities, are classified as Level 3 assets due to the absence of quoted market prices and an inherent lack of liquidity. The Company estimates the fair value of its privately-held debt investments on a recurring basis using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure. During the three and nine months ended September 30, 2015, there were purchases related to privately-held debt securities of $2.2 million and $5.0 million, respectively.
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, only if impairment is indicated. Privately-held equity investments, which are normally carried at cost, are measured at fair value on a nonrecurring basis due to events and circumstances that the Company identifies as significantly impacting the fair value of investments. The Company estimates 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 the investee's capital structure. Purchased intangible assets are measured at fair value primarily using discounted cash flow projections.
As of September 30, 2015, the Company had no assets measured at fair value on a nonrecurring basis. As of December 31, 2014, the Company recorded a goodwill impairment charge of $850.0 million for its Security reporting unit measured at fair value on a nonrecurring basis. The remeasurement of goodwill is classified as a Level 3 value assessment due to the significance of unobservable inputs developed using company-specific information. As of December 31, 2014, the Company had no significant privately-held equity investments measured at fair value on a nonrecurring basis.
As of September 30, 2015 and December 31, 2014, 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. As of September 30, 2015 and December 31, 2014, the estimated fair value of the Company's short-term and long-term debt in the Condensed Consolidated Balance Sheets was approximately $1,976.0 million and $1,395.2 million, respectively, based on observable market inputs (Level 2). As of September 30, 2015 and December 31, 2014, the carrying value of the promissory note of $125.0 million issued to the Company in connection with the sale of Junos Pulse recorded in other long-term assets in the Condensed Consolidated Balance Sheet approximates its fair value. The promissory note is classified as a Level 3 asset due to the absence of quoted market prices and inherent lack of liquidity.
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. 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,
2015 | | December 31,
2014 |
Cash flow hedges | $ | 116.3 |
| | $ | 160.7 |
|
Non-designated derivatives | 55.9 |
| | 78.0 |
|
Total | $ | 172.2 |
| | $ | 238.7 |
|
Cash Flow Hedges
The Company uses 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 certain 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 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) income, net, on its Condensed Consolidated Statements of Operations. 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 twelve months.
See Note 4, Fair Value Measurements, for the fair values of the Company's derivative instruments in the Condensed Consolidated Balance Sheets.
During the three and nine months ended September 30, 2015, the Company recognized unrealized losses of $1.9 million and $5.2 million, respectively, in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified a realized loss of $1.9 million and $8.7 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, 2014, the Company recognized an unrealized loss of $2.8 million and an unrealized gain of $1.7 million, respectively, in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified a realized gain of $1.5 million and $5.0 million, respectively, during the three and nine months ended September 30, 2014 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, 2015 and September 30, 2014.
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 are carried at fair value with changes recorded in other (expense) income, net, in the Condensed Consolidated Statements of Operations. Changes in the fair value of these derivatives are largely offset by remeasurement of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. These foreign exchange forward contracts have maturities within two months.
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
During the three and nine months ended September 30, 2015, the Company recognized a net loss of $0.1 million and $0.4 million, respectively, on non-designated derivative instruments within other (expense) income, net, in its Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2014, the Company recognized net losses of $0.3 million and $3.3 million, respectively, on non-designated derivative instruments within other (expense) income, 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, 2015 and December 31, 2014, the potential effect of rights of setoff associated with derivative instruments was not material. The Company is neither required to pledge nor entitled to receive cash collateral related to these derivative transactions.
Note 6. Goodwill and Purchased Intangible Assets
Goodwill
The following table presents goodwill activity during the nine months ended September 30, 2015 (in millions):
|
| | | |
Balance as of December 31, 2014 | $ | 2,981.5 |
|
Other | (0.2 | ) |
Balance as of September 30, 2015 | $ | 2,981.3 |
|
There were no impairments to goodwill during the three and nine months ended September 30, 2015 and September 30, 2014.
Purchased Intangible Assets
The Company’s purchased intangible assets were as follows (in millions):
|
| | | | | | | | | | | | | | | |
| Gross | | Accumulated Amortization | | Accumulated Impairments and Other Charges | | Net |
As of September 30, 2015 | | | | | | | |
Intangible assets with finite lives: | | | | | | | |
Technologies and patents | $ | 567.7 |
| | $ | (487.2 | ) | | $ | (49.9 | ) | | $ | 30.6 |
|
Customer contracts, support agreements, and related relationships | 78.1 |
| | (67.2 | ) | | (2.8 | ) | | 8.1 |
|
Other | 1.1 |
| | (0.6 | ) | | — |
| | 0.5 |
|
Total purchased intangible assets | $ | 646.9 |
| | $ | (555.0 | ) | | $ | (52.7 | ) | | $ | 39.2 |
|
| | | | | | | |
As of December 31, 2014 | | | | | | | |
Intangible assets with finite lives: | | | | | | | |
Technologies and patents | $ | 567.7 |
| | $ | (466.1 | ) | | $ | (49.9 | ) | | $ | 51.7 |
|
Customer contracts, support agreements, and related relationships | 78.1 |
| | (65.2 | ) | | (2.8 | ) | | 10.1 |
|
Other | 1.1 |
| | (0.5 | ) | | — |
| | 0.6 |
|
Total purchased intangible assets | $ | 646.9 |
| | $ | (531.8 | ) | | $ | (52.7 | ) | | $ | 62.4 |
|
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The following table presents the amortization of intangible assets included in the Condensed Consolidated Statements of Operations (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Cost of revenues | $ | 4.7 |
| | $ | 7.1 |
| | $ | 20.2 |
| | $ | 23.7 |
|
Operating expenses: | | | | | | | |
Sales and marketing | 0.7 |
| | 1.1 |
| | 2.1 |
| | 3.2 |
|
General and administrative | 0.2 |
| | 0.3 |
| | 0.9 |
| | 0.9 |
|
Total operating expenses | 0.9 |
| | 1.4 |
| | 3.0 |
| | 4.1 |
|
Total | $ | 5.6 |
| | $ | 8.5 |
| | $ | 23.2 |
| | $ | 27.8 |
|
During the nine months ended September 30, 2015, the Company recorded $5.6 million to cost of revenues in the Condensed Consolidated Statements of Operations, related to the acceleration of the end-of-life of certain intangible assets. There were no such charges during the three months ended September 30, 2015 and three and nine months ended September 30, 2014.
There were no impairment charges related to purchased intangible assets during the three and nine months ended September 30, 2015 and September 30, 2014.
As of September 30, 2015, the estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):
|
| | | |
Years Ending December 31, | Amount |
Remainder of 2015 | $ | 5.3 |
|
2016 | 11.6 |
|
2017 | 7.0 |
|
2018 | 5.1 |
|
2019 | 4.9 |
|
Thereafter | 5.3 |
|
Total | $ | 39.2 |
|
Note 7. Other Financial Information
Inventories
The Company purchases and holds inventory to help ensure adequate component supplies over the life of the underlying products. The majority of the Company's inventory is production components to be used in the manufacturing process and finished goods inventory in transit. Inventories are reported both within prepaid expenses and other current assets and other long-term assets in the Condensed Consolidated Balance Sheets. Total inventories consisted of the following (in millions):
|
| | | | | | | |
| As of |
| September 30,
2015 | | December 31,
2014 |
Production materials | $ | 45.2 |
| | $ | 38.3 |
|
Finished goods | 27.1 |
| | 24.2 |
|
Inventories | $ | 72.3 |
| | $ | 62.5 |
|
In connection with the 2014 Restructuring Plan discussed in Note 8, Restructuring and Other Charges, the Company accelerated the end-of-service life of certain products resulting in inventory charges of $15.5 million, recorded within cost of revenues in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2014. There were no similar charges recorded for the three months ended September 30, 2014 and the three and nine months ended September 30, 2015.
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Other Long-Term Assets
Other long-term assets consisted of the following (in millions):
|
| | | | | | | |
| As of |
| September 30,
2015 | | December 31,
2014 |
Privately-held investments | $ | 91.3 |
| | $ | 89.9 |
|
Licensed software | 7.7 |
| | 8.6 |
|
Federal income tax receivable | 28.9 |
| | 20.0 |
|
Customer financing receivable | 1.5 |
| | 16.9 |
|
Inventory | 8.7 |
| | 8.0 |
|
Prepaid costs, deposits, and other | 60.5 |
| | 35.5 |
|
Promissory note in connection with the sale of Junos Pulse | 125.0 |
| | 125.0 |
|
Interest receivable in connection with Promissory note | 6.3 |
| | — |
|
Other long-term assets | $ | 329.9 |
| | $ | 303.9 |
|
On October 1, 2014, the Company completed the sale of its Junos Pulse product portfolio. The Company received total consideration of $230.7 million, of which $105.7 million was in cash, net of a $19.3 million working capital adjustment, and $125.0 million was in the form of a non-contingent interest-bearing promissory note due to the Company on April 1, 2016 (the “Pulse Note”). As of September 30, 2015, the Company did not receive scheduled interest payments of $3.1 million on the Pulse Note and expected further delayed payments beyond the original term of the agreement. On October 2, 2015, the Company and the issuer of the Pulse Note mutually agreed to amend the original terms of the Pulse Note. Under the terms of the modified Pulse Note, the parties agreed to extend the maturity date from April 1, 2016 to December 31, 2018, provide that interest due on the Pulse Note through December 31, 2015 shall be paid in kind by increasing the outstanding principal amount of the note, increase the interest payable on the Pulse Note, and include semi-annual excess cash flow sweeps commencing in 2016. The issuer of the Pulse Note is also required to make a minimum payment of $75.0 million on or prior to April 1, 2017, less any amount previously pre-paid to the Company, and use commercially reasonable efforts to refinance the entire note, with any remaining balance due by December 31, 2018. Certain holding companies of the issue also provided the Company with collateral and guarantees. See Note 16, Subsequent Events, for further details on the modified terms. The note receivable, along with the related interest receivable, are classified as long-term assets based on expected collection beyond twelve months from the Condensed Consolidated Balance Sheet date.
The Company measures any impairment to the Pulse Note based on the present value of expected cash flows, which are discounted at the note’s effective interest rate, compared to the recorded investment of the note, including principal and accrued interest. Based on this calculation, no impairment charge was required to the Pulse Note as of September 30, 2015. Interest income on the Pulse Note is accrued and credited to interest income as it is earned, unless it is not probable the Company will collect the amounts due or if the present value of expected future cash flow is less than the recorded investment. During the three and nine months ended September 30, 2015, the related amount of interest income recognized was $1.6 million and $4.7 million, respectively.
Warranties
The Company accrues for warranty costs based on associated material, labor for customer support, and overhead at the time revenue is recognized. This accrual is reported within other accrued liabilities in the Condensed Consolidated Balance Sheets. Changes in the Company’s warranty reserve during the nine months ended September 30, 2015 were as follows (in millions):
|
| | | |
Balance as of December 31, 2014 | $ | 28.7 |
|
Provisions made during the period | 20.8 |
|
Actual costs incurred during the period | (21.2 | ) |
Balance as of September 30, 2015 | $ | 28.3 |
|
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Deferred Revenue
Details of the Company's deferred revenue, as reported in the Condensed Consolidated Balance Sheets, were as follows (in millions):
|
| | | | | | | |
| As of |
| September 30,
2015 | | December 31,
2014 |
Deferred product revenue: | | | |
Undelivered product commitments and other product deferrals | $ | 221.7 |
| | $ | 180.3 |
|
Distributor inventory and other sell-through items | 63.1 |
| | 103.7 |
|
Deferred gross product revenue | 284.8 |
| | 284.0 |
|
Deferred cost of product revenue | (43.7 | ) | | (58.4 | ) |
Deferred product revenue, net | 241.1 |
| | 225.6 |
|
Deferred service revenue | 883.8 |
| | 850.1 |
|
Total | $ | 1,124.9 |
| | $ | 1,075.7 |
|
Reported as: | | | |
Current | $ | 814.4 |
| | $ | 780.8 |
|
Long-term | 310.5 |
| | 294.9 |
|
Total | $ | 1,124.9 |
| | $ | 1,075.7 |
|
Deferred product revenue represents unrecognized revenue related to shipments to distributors that have not sold through to end-users, undelivered product commitments, and other shipments that have not met all revenue recognition criteria. In circumstances when costs are deferred, deferred product revenue is recorded net of the related costs of product revenue. Deferred service revenue represents billable amounts for service contracts, which include technical support, hardware and software maintenance, professional services, and training, for which services have not been rendered.
Other (Expense) Income, Net
Other (expense) income, net, consisted of the following (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Interest income | $ | 5.7 |
| | $ | 2.7 |
| | $ | 16.3 |
| | $ | 6.9 |
|
Interest expense | (21.6 | ) | | (16.9 | ) | | (61.9 | ) | | (50.2 | ) |
Net gain on legal settlement | — |
| | 0.8 |
| | — |
| | 196.1 |
|
Gain (loss) on investments | 6.0 |
| | (1.9 | ) | | 6.8 |
| | 165.1 |
|
Other | 1.5 |
| | 8.5 |
| | (2.5 | ) | | 8.1 |
|
Other (expense) income, net | $ | (8.4 | ) | | $ | (6.8 | ) | | $ | (41.3 | ) | | $ | 326.0 |
|
Interest income primarily includes interest earned on the Company’s cash, cash equivalents, investments, and on the promissory note issued to the Company in connection with the sale of Junos Pulse. Interest expense primarily includes interest, net of capitalized interest expense, from short-term debt, long-term debt, and customer financing arrangements. Other typically consists of investment and foreign exchange gains and losses and other non-operational income and expense items.
During the nine months ended September 30, 2014, the Company entered into a settlement agreement with Palo Alto Networks, Inc. (“PAN”) resolving patent litigation between the two companies, which resulted in a realized gain on legal settlement of $196.1 million, net of legal fees. Under the terms of the settlement, PAN made a one-time payment to the Company of $75.0 million in cash and issued the Company PAN common stock and warrants. The fair value of the PAN common stock and warrants at the date of receipt was included in net realized gain. All such PAN securities were sold in the third quarter of 2014, and the Company recorded an additional $0.8 million gain during the three months ended September 30, 2014.
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
During the three and nine months ended September 30, 2015, the Company recorded a gain of $6.0 million primarily related to the sale of its privately-held investments. During the nine months ended September 30, 2014, the Company recorded a gain of $163.0 million primarily related to the sale of investments which were converted from privately-held investments to publicly-traded equity upon initial public offering and subsequently sold.
Note 8. Restructuring and Other Charges
2014 Restructuring Plan and Other Restructuring Plans
In the first quarter of 2014, the Company initiated a restructuring plan (the “2014 Restructuring Plan”) designed to refocus the Company's strategy, optimize its structure, and improve operational efficiencies. The 2014 Restructuring Plan consisted of workforce reductions, facility consolidations and closures, asset write-downs, contract terminations and other charges. The Company had also initiated restructuring plans in each of the fiscal years from 2011 through 2013 (the “Other Restructuring Plans”) which focused on improving the Company's cost structure through product portfolio rationalizations, workforce reductions, contract terminations, project cancellations, and facility closures and consolidations. As of December 31, 2014, the Company's restructuring plans have been substantially completed and the Company does not expect to record significant future charges under any of these restructuring plans.
The following table presents restructuring and other charges and (benefits) included in cost of revenues and restructuring and other (benefits) 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, |
| 2015 | | 2014 | | 2015 | | 2014 |
Severance | $ | — |
| | $ | 7.1 |
| | $ | 0.4 |
| | $ | 45.6 |
|
Facilities | — |
| | (25.0 | ) | | (0.9 | ) | | 12.8 |
|
Contract terminations | — |
| | — |
| | — |
| | 2.3 |
|
Asset impairment and write-downs | (3.5 | ) | | 2.9 |
| | (3.5 | ) | | 118.7 |
|
Total | $ | (3.5 | ) | | $ | (15.0 | ) | | $ | (4.0 | ) | | $ | 179.4 |
|
| | | | | | | |
Reported as: | | | | | | | |
Cost of revenues | $ | (3.5 | ) | | $ | — |
| | $ | (3.5 | ) | | $ | 22.2 |
|
Restructuring and other (benefits) charges | — |
| | (15.0 | ) | | (0.5 | ) | | 157.2 |
|
Total | $ | (3.5 | ) | | $ | (15.0 | ) | | $ | (4.0 | ) | | $ | 179.4 |
|
During the three months ended September 30, 2015, the Company recorded a benefit of $3.5 million for a previously recorded charge related to products with contract manufacturers for acceleration of the end-of-service life of certain products to cost of revenues in the Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2015, the Company recorded $0.4 million of severance costs and a benefit of $0.9 million for facilities that were recorded in restructuring and other (benefits) charges in the Condensed Consolidated Statements of Operations, in connection with the 2014 Restructuring Plan.
During the three months ended September 30, 2014, the Company recorded $7.1 million of severance costs, a benefit of $25.0 million for facility consolidation and closures, and $2.9 million of asset write-downs, that were recorded to restructuring and other (benefits) charges in the Condensed Consolidated Statement of Operations. In connection with the facility consolidation and closures charge, the Company with the consent of its landlord and the administrative agent to its lienholder, assigned certain of its real property leases, totaling approximately 0.4 million square feet, to a third party. Concurrently with the assignments, the Company executed a sublease with the assignee for one of the properties of approximately 0.1 million square feet, for a period of two years, with a one-time right to extend the term for up to six months. Under these arrangements, the Company paid $12.3 million to the landlord and was released from all future lease obligations following the date of the assignments. The Company also incurred $5.3 million of transaction fees, which were recorded to restructuring and other (benefits) charges in the Condensed Consolidated Statements of Operations. As a result of the lease assignments, the Company recorded a benefit of approximately
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
$25.0 million, which included a reversal of previously recorded restructuring liability and additional charges relating to facility consolidation activities, in the third quarter of 2014.
During the nine months ended September 30, 2014, the Company recorded $45.0 million of severance costs, $12.6 million of facility consolidation and closures, $84.7 million of impairment charges related to licensed software, $11.8 million of asset write-downs, and $2.3 million of charges related to contract terminations, which were recorded in restructuring and other (benefits) charges in the Condensed Consolidated Statements of Operations, in connection with the 2014 Restructuring Plan. The Company also recorded inventory write-downs of $15.5 million and a charge related to products with contract manufacturers of $6.7 million for acceleration of the end-of-service life of certain products to cost of revenues in the Condensed Consolidated Statement of Operations during the nine months ended September 30, 2014, in connection with the 2014 Restructuring Plan. The remaining $0.8 million of charges were incurred for the Other Restructuring Plans during the nine months ended September 30, 2014.
Restructuring and other (benefits) charges noted above are based on the 2014 Restructuring Plan and Other Restructuring Plans that were committed to by management. Any changes in the estimates of executing the approved restructuring plans are reflected in the Company's results of operations.
Restructuring Liability
Restructuring liabilities are reported within other accrued liabilities and other long-term liabilities in the Condensed Consolidated Balance Sheets. 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, 2015 (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| December 31,
2014 | | Charges | | Cash Payments | | Non-cash Settlements and Other | | September 30,
2015 |
Severance | $ | 9.4 |
| | $ | 0.4 |
| | $ | (8.0 | ) | | $ | (1.8 | ) | | $ | — |
|
Facilities | 7.4 |
| | (0.9 | ) | | (2.3 | ) | | (0.7 | ) | | 3.5 |
|
Contract terminations and other | 0.2 |
| | (3.5 | ) | | — |
| | 3.3 |
| | — |
|
Total | $ | 17.0 |
| | $ | (4.0 | ) | | $ | (10.3 | ) | | $ | 0.8 |
| | $ | 3.5 |
|
As of September 30, 2015, the Company's restructuring liability was $3.5 million related to facility closures which are expected to be paid through March 2018.
Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Note 9. Debt and Financing
Debt
The following table summarizes the Company's short-term and long-term debt (in millions, except percentages):