Edgar Filing: JUNIPER NETWORKS INC

10-Q

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 March 31, 2016



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.



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 383,945,069 shares of the Company's Common Stock, par value $0.00001, outstanding as of May 6, 2016.

Juniper Networks, Inc.



Table of Contents

PART I - FINANCIAL INFORMATION
	Page
Item 1. Financial Statements	3

Condensed Consolidated Statements of Operations Three Months Ended March 31, 2016 and March 31, 2015	3

Condensed Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2016 and March 31, 2015	4

Condensed Consolidated Balance Sheets March 31, 2016 and December 31, 2015	5

Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2016 and March 31, 2015	6

Notes to Condensed Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3. Quantitative and Qualitative Disclosures About Market Risk	47

Item 4. Controls and Procedures	47

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	48

Item 1A. Risk Factors	48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	66

Item 6. Exhibits	67

SIGNATURES	68

Exhibit Index	69

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 March 31,
	2016			2015
Net revenues:
Product	$	753.0		$	764.1
Service	344.9			303.3
Total net revenues	1,097.9			1,067.4
Cost of revenues:
Product	277.9			288.8
Service	129.1			121.3
Total cost of revenues	407.0			410.1
Gross margin	690.9			657.3
Operating expenses:
Research and development	251.0			248.7
Sales and marketing	231.8			220.2
General and administrative	59.4			55.2
Restructuring and other charges	—			1.4
Total operating expenses	542.2			525.5
Operating income	148.7			131.8
Other expense, net	(22.2		)	(15.8		)
Income before income taxes	126.5			116.0
Income tax provision	35.1			35.8
Net income	$	91.4		$	80.2

Net income per share:
Basic	$	0.24		$	0.20
Diluted	$	0.23		$	0.19
Shares used in computing net income per share:
Basic	383.2			407.1
Diluted	389.3			414.2
Cash dividends declared per common stock	$	0.10		$	0.10

See accompanying Notes to Condensed Consolidated Financial Statements

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Juniper Networks, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)



	Three Months Ended March 31,
	2016		2015
Net income	$	91.4	$	80.2
Other comprehensive income (loss), net of tax:
Available-for-sale securities:
Unrealized gain (loss) on available-for-sale securities, net of tax benefit (provision) of $0.1 and ($3.8), respectively	4.3		(0.8		)
Reclassification adjustment for realized net loss (gain) on available-for-sale securities included in net income, net of tax provision of zero, respectively	0.1		(0.2		)
Net change on available-for-sale securities, net of taxes	4.4		(1.0		)
Cash flow hedges:
Unrealized gain (loss) on cash flow hedges, net of tax provisions of ($0.5) and ($0.3), respectively	2.5		(6.4		)
Reclassification adjustment for realized net losses on cash flow hedges included in net income, net of tax (benefit) provision of ($0.2) and $0.1, respectively	1.1		3.1
Net change on cash flow hedges, net of taxes	3.6		(3.3		)
Change in foreign currency translation adjustments	3.7		(11.1		)
Other comprehensive income (loss), net of tax	11.7		(15.4		)
Comprehensive income	$	103.1	$	64.8

See accompanying Notes to Condensed Consolidated Financial Statements

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Juniper Networks, Inc.

Condensed Consolidated Balance Sheets

(In millions, except par values)



	March 31, 2016			December 31, 2015
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,646.0		$	1,420.9
Short-term investments	599.4			527.1
Accounts receivable, net of allowances	783.9			780.7
Prepaid expenses and other current assets	244.9			183.7
Total current assets	3,274.2			2,912.4
Property and equipment, net	1,047.3			1,021.0
Long-term investments	1,171.4			1,244.2
Restricted cash and investments	36.1			36.2
Purchased intangible assets, net	30.6			33.9
Goodwill	2,981.3			2,981.3
Other long-term assets	376.8			378.9
Total assets	$	8,917.7		$	8,607.9
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt	$	—		$	299.9
Accounts payable	233.0			159.3
Accrued compensation	180.5			269.5
Deferred revenue	893.3			822.9
Other accrued liabilities	208.5			250.3
Total current liabilities	1,515.3			1,801.9
Long-term debt	2,131.8			1,637.5
Long-term deferred revenue	366.7			345.2
Long-term income taxes payable	190.4			187.3
Other long-term liabilities	75.4			61.6
Total liabilities	4,279.6			4,033.5
Commitments and contingencies (Note 14)
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; 386.3 shares and 384.0 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively	—			—
Additional paid-in capital	8,330.7			8,334.8
Accumulated other comprehensive loss	(7.5		)	(19.2		)
Accumulated deficit	(3,685.1		)	(3,741.2		)
Total stockholders' equity	4,638.1			4,574.4
Total liabilities and stockholders' equity	$	8,917.7		$	8,607.9

See accompanying Notes to Condensed Consolidated Financial Statements

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Juniper Networks, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)



	Three Months Ended March 31,
	2016			2015
Cash flows from operating activities:
Net income	$	91.4		$	80.2
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense	51.8			46.0
Depreciation, amortization, and accretion	47.0			47.5
Restructuring and other charges	—			1.4
Deferred income taxes	21.1			11.3
Loss (gain) on investments, net	5.4			(0.6		)
Excess tax benefits from share-based compensation	—			(1.7		)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net	(3.2		)	54.2
Prepaid expenses and other assets	(59.6		)	(21.8		)
Accounts payable	69.8			(7.8		)
Accrued compensation	(89.3		)	(54.1		)
Income taxes payable	(24.2		)	14.1
Other accrued liabilities	(29.8		)	(48.4		)
Deferred revenue	92.0			99.0
Net cash provided by operating activities	172.4			219.3
Cash flows from investing activities:
Purchases of property and equipment	(49.3		)	(44.2		)
Purchases of available-for-sale investments	(360.7		)	(398.8		)
Proceeds from sales of available-for-sale investments	286.2			169.5
Proceeds from maturities of available-for-sale investments	79.6			57.3
Purchases of trading investments	(2.5		)	(1.9		)
Purchases of privately-held investments	(10.5		)	(3.2		)
Net cash used in investing activities	(57.2		)	(221.3		)
Cash flows from financing activities:
Proceeds from issuance of common stock	32.0			31.8
Purchases and retirement of common stock	(83.4		)	(402.4		)
Issuance of long-term debt, net	494.0			594.6
Repayment of long-term debt	(300.0		)	—
Payment for capital lease obligation	—			0.4
Excess tax benefits from share-based compensation	—			1.7
Payment of cash dividends	(38.3		)	(40.8		)
Net cash provided by financing activities	104.3			185.3
Effect of foreign currency exchange rates on cash and cash equivalents	5.6			(12.1		)
Net increase in cash and cash equivalents	225.1			171.2
Cash and cash equivalents at beginning of period	1,420.9			1,639.6
Cash and cash equivalents at end of period	$	1,646.0		$	1,810.8

See accompanying Notes to Condensed Consolidated Financial Statements

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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 March 31, 2016, is derived from the audited Consolidated Financial Statements for the year ended December 31, 2015. 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 months ended March 31, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, 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, 2015. Certain amounts in the prior-year Financial Statements contained in this Report have been reclassified to conform to the current-year presentation, including the adoption of Accounting Standards Update ("ASU") No. 2015-03 (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"), 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. The Company has retrospectively adopted this standard effective January 1, 2016, resulting in a $11.3 million decrease in both other long-term assets and long-term debt as of December 31, 2015 on the Condensed Consolidated Balance Sheets. The adoption of ASU No. 2015-03 had no impact to the Company’s Condensed Consolidated Statements of Operations.

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, 2015.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-09 (Topic 718) Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeiture, statutory tax withholding requirements, and classification on the statement of cash flows. ASU-2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.

In March 2016, the FASB issued ASU No. 2016-07 (Topic 323) Investments—Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting ("ASU 2016-07"), which eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. This update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. This update requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

qualified for use of the equity method. ASU 2016-07 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.

In March 2016, the FASB issued ASU No. 2016-06 (Topic 815) Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments ("ASU 2016-06"), which requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met. One of those criteria is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contract (the “clearly and closely related” criterion). In addition, in March 2016, the FASB issued ASU No. 2016-05 (Topic 815), Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, ("ASU 2016-05"), which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-06 and ASU 2016-05 are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.

In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases ("ASU 2016-02"), which requires recognition of lease assets and lease liabilities on the balance sheet by the lessees for lease contracts with a lease term of more than twelve months. ASU 2016-02 should be applied on a modified retrospective basis and is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), which requires equity investments to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. Entities may choose a practical expedient, to estimate the fair value of certain equity securities that do not have readily determinable fair value. If the practical expedient is elected, these investments would be recorded at cost, less impairment and subsequently adjusted for observable price changes. The guidance also updates certain presentation and disclosure requirements. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is not permitted. The Company is currently evaluating the impact that ASU 2016-01will have on its Consolidated Financial Statements and disclosures.

In July 2015, the FASB issued ASU No. 2015-11 (Subtopic 330) - Simplifying the Measurement of Inventory ("ASU 2015-11"), 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 adoption of this standard will not have a significant impact on the Company's 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. Accordingly, the ASU will be effective for the Company beginning fiscal year 2018. In addition, in March 2016, the FASB issued ASU No. 2016-08 (Topic 606) Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), which clarifies the principal-versus-agent guidance in Topic 606 and requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. In April 2016, the FASB also issued ASU No. 2016-10 (Topic 606) Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing (“ASU 2016-10”), which amends the revenue guidance on identifying performance obligations and accounting for licenses of intellectual property. There are two transition methods available under the new standard, either cumulative effect or retrospective. ASU 2016-08 and ASU 2016-10 must be adopted concurrently with the adoption of ASU 2014-09. The Company is currently evaluating the impact of the adoption of this standard on its Consolidated Financial Statements and disclosures.

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 March 31, 2016 and December 31, 2015 (in millions):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
As of March 31, 2016
Fixed income securities:
Asset-backed securities	$	324.5	$	0.2	$	(0.1	)	$	324.6
Certificates of deposit	18.1		—		—			18.1
Commercial paper	6.7		—		—			6.7
Corporate debt securities	869.0		1.7		(1.1		)	869.6
Foreign government debt securities	22.8		—		—			22.8
Government-sponsored enterprise obligations	200.0		0.1		—			200.1
U.S. government securities	336.2		0.2		(0.1		)	336.3
Total fixed income securities	1,777.3		2.2		(1.3		)	1,778.2
Money market funds	129.7		—		—			129.7
Mutual funds	6.0		0.1		—			6.1
Publicly-traded equity securities	8.8		0.1		(0.4		)	8.5
Total available-for-sale securities	1,921.8		2.4		(1.7		)	1,922.5
Trading securities in mutual funds^(*)	18.9		—		—			18.9
Total	$	1,940.7	$	2.4	$	(1.7	)	$	1,941.4

Reported as:
Cash equivalents	$	134.8	$	—	$	—		$	134.8
Restricted investments	35.7		0.1		—			35.8
Short-term investments	599.7		0.3		(0.6		)	599.4
Long-term investments	1,170.5		2.0		(1.1		)	1,171.4
Total	$	1,940.7	$	2.4	$	(1.7	)	$	1,941.4

________________________________


^(*)	Balance consists of the Company's non-qualified deferred compensation plan assets.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
As of December 31, 2015
Fixed income securities:
Asset-backed securities	$	312.2	$	—	$	(0.5	)	$	311.7
Certificates of deposit	9.6		—		—			9.6
Commercial paper	17.7		—		—			17.7
Corporate debt securities	913.8		0.2		(2.6		)	911.4
Foreign government debt securities	16.5		—		—			16.5
Government-sponsored enterprise obligations	204.1		—		(0.4		)	203.7
U.S. government securities	278.0		—		(0.4		)	277.6
Total fixed income securities	1,751.9		0.2		(3.9		)	1,748.2
Money market funds	29.7		—		—			29.7
Mutual funds	6.1		0.1		—			6.2
Publicly-traded equity securities	8.7		0.8		(0.7		)	8.8
Total available-for-sale securities	1,796.4		1.1		(4.6		)	1,792.9
Trading securities in mutual funds^(*)	17.7		—		—			17.7
Total	$	1,814.1	$	1.1	$	(4.6	)	$	1,810.6

Reported as:
Cash equivalents	$	3.4	$	—	$	—		$	3.4
Restricted investments	35.8		0.1		—			35.9
Short-term investments	527.2		0.9		(1.0		)	527.1
Long-term investments	1,247.7		0.1		(3.6		)	1,244.2
Total	$	1,814.1	$	1.1	$	(4.6	)	$	1,810.6

________________________________


^(*)	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 March 31, 2016 (in millions):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Due in less than one year	$	606.7	$	0.3	$	(0.2	)	$	606.8
Due between one and five years	1,170.6		1.9		(1.1		)	1,171.4
Total	$	1,777.3	$	2.2	$	(1.3	)	$	1,778.2

The Company had 348 and 682 investments in unrealized loss positions as of March 31, 2016 and December 31, 2015, 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 March 31, 2016, 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 months ended March 31, 2016 and March 31, 2015.

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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 months ended March 31, 2016 and March 31, 2015, the Company did not recognize other-than-temporary impairments associated with these investments.

During the three months ended March 31, 2016 and March 31, 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.

The following tables present the Company's available-for-sale securities that were in an unrealized loss position as of March 31, 2016 and December 31, 2015 (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 March 31, 2016
Fixed income securities:
Asset-backed securities⁽¹⁾	$	143.3	$	(0.1	)	$	19.5	$	—		$	162.8	$	(0.1	)
Certificates of deposit⁽²⁾	3.3		—			—		—			3.3		—
Corporate debt securities	312.2		(1.0		)	49.6		(0.2		)	361.8		(1.2		)
Foreign government debt securities⁽²⁾	13.0		—			—		—			13.0		—
Government-sponsored enterprise obligations⁽²⁾	59.0		—			—		—			59.0		—
U.S. government securities⁽²⁾	132.6		—			—		—			132.6		—
Total fixed income securities	663.4		(1.1		)	69.1		(0.2		)	732.5		(1.3		)
Publicly-traded equity securities	6.2		(0.4		)	—		—			6.2		(0.4		)
Total available-for-sale securities	$	669.6	$	(1.5	)	$	69.1	$	(0.2	)	$	738.7	$	(1.7	)

________________________________

⁽¹⁾Balances greater than 12 months include investments that were in an immaterial unrealized loss position as of March 31, 2016.

⁽²⁾Balances less than 12 months include investments that were in an immaterial unrealized loss position as of March 31, 2016.



	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, 2015
Fixed income securities:
Asset-backed securities	$	274.2	$	(0.4	)	$	30.8	$	(0.1	)	$	305.0	$	(0.5	)
Certificates of deposit^(*)	3.3		—			—		—			$	3.3	—
Corporate debt securities	687.9		(2.3		)	58.9		(0.3		)	746.8		(2.6		)
Foreign government debt securities^(*)	9.5		—			—		—			9.5		—
Government-sponsored enterprise obligations	185.3		(0.4		)	—		—			185.3		(0.4		)
U.S. government securities	259.3		(0.4		)	—		—			259.3		(0.4		)
Total fixed income securities	1,419.5		(3.5		)	89.7		(0.4		)	1,509.2		(3.9		)
Publicly-traded equity securities	2.1		(0.7		)	—		—			2.1		(0.7		)
Total available-for-sale securities	$	1,421.6	$	(4.2	)	$	89.7	$	(0.4	)	$	1,511.3	$	(4.6	)

________________________________


^(*)	Balances less than 12 months include investments that were in an immaterial unrealized loss position as of December 31, 2015.

Table of Contents

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 March 31, 2016 and December 31, 2015, the carrying values of the Company's privately-held investments of $107.8 million and $102.4 million, respectively, were included in other long-term assets in the Condensed Consolidated Balance Sheets. As of March 31, 2016 and December 31, 2015, the carrying value of the privately-held investments includes debt and redeemable preferred stock securities of $68.6 million and $60.2 million, respectively. For the three months ended March 31, 2016 and March 31, 2015, there were no unrealized gains or losses associated with the privately-held debt 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 months ended March 31, 2016, the Company determined that certain privately-held investments were other-than-temporarily impaired, resulting in impairment charges of $5.1 million that were recorded within other expense, net in the Condensed Consolidated Statement of Operations. No such charges were recorded during the three months ended March 31, 2015.

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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 March 31, 2016 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	$	—	$	324.6		$	—	$	324.6
Certificates of deposit	—		18.1			—		18.1
Commercial paper	—		6.7			—		6.7
Corporate debt securities	—		869.6			—		869.6
Foreign government debt securities	—		22.8			—		22.8
Government-sponsored enterprise obligations	—		200.1			—		200.1
Money market funds⁽¹⁾	129.7		—			—		129.7
Mutual funds⁽²⁾	6.1		—			—		6.1
Publicly-traded equity securities	8.5		—			—		8.5
U.S. government securities	288.2		48.1			—		336.3
Total available-for-sale securities	432.5		1,490.0			—		1,922.5
Trading securities in mutual funds⁽³⁾	18.9		—			—		18.9
Privately-held debt and redeemable preferred stock securities	—		—			68.6		68.6
Derivative assets:
Foreign exchange contracts	—		3.4			—		3.4
Total assets measured at fair value	$	451.4	$	1,493.4		$	68.6	$	2,013.4
Liabilities measured at fair value:
Derivative liabilities:
Foreign exchange contracts	$	—	$	(0.6	)	$	—	$	(0.6	)
Total liabilities measured at fair value	$	—	$	(0.6	)	$	—	$	(0.6	)

Total assets measured at fair value, reported as:
Cash equivalents	$	100.0	$	34.8		$	—	$	134.8
Restricted investments	35.8		—			—		35.8
Short-term investments	161.2		438.2			—		599.4
Long-term investments	154.4		1,017.0			—		1,171.4
Prepaid expenses and other current assets	—		3.4			—		3.4
Other long-term assets	—		—			68.6		68.6
Total assets measured at fair value	$	451.4	$	1,493.4		$	68.6	$	2,013.4

Total liabilities measured at fair value, reported as:
Other accrued liabilities	$	—	$	(0.6	)	$	—	$	(0.6	)
Total liabilities measured at fair value	$	—	$	(0.6	)	$	—	$	(0.6	)

________________________________


⁽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.

Table of Contents

Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)



	Fair Value Measurements at December 31, 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	$	—	$	311.7		$	—	$	311.7
Certificates of deposit	—		9.6			—		9.6
Commercial paper	—		17.7			—		17.7
Corporate debt securities	—		911.4			—		911.4
Foreign government debt securities	—		16.5			—		16.5
Government-sponsored enterprise obligations	—		203.7			—		203.7
Money market funds⁽¹⁾	29.7		—			—		29.7
Mutual funds⁽²⁾	6.2		—			—		6.2
Publicly-traded equity securities	8.8		—			—		8.8
U.S. government securities	247.3		30.3			—		277.6
Total available-for-sale securities	292.0		1,500.9			—		1,792.9
Trading securities in mutual funds⁽³⁾	17.7		—			—		17.7
Privately-held debt and redeemable preferred stock securities	—		—			60.2		60.2
Derivative assets:
Foreign exchange contracts	—		0.4			—		0.4
Total assets measured at fair value	$	309.7	$	1,501.3		$	60.2	$	1,871.2
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	$	—	$	3.4		$	—	$	3.4
Restricted investments	35.9		—			—		35.9
Short-term investments	108.2		418.9			—		527.1
Long-term investments	165.6		1,078.6			—		1,244.2
Prepaid expenses and other current assets	—		0.4			—		0.4
Other long-term assets	—		—			60.2		60.2
Total assets measured at fair value	$	309.7	$	1,501.3		$	60.2	$	1,871.2

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.

Table of Contents

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 months ended March 31, 2016, 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 months ended March 31, 2016, there were purchases related to privately-held debt securities of $10.5 million.

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 March 31, 2016, certain privately-held equity investments with a carrying value of $5.1 million, were impaired and were written-down to their fair value of zero and were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity. The impairment charges of $5.1 million were recorded to other expense, net in the Condensed Consolidated Statements of Operations. As of December 31, 2015, the Company had no significant privately-held equity investments measured at fair value on a nonrecurring basis.

As of March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015, the estimated fair value of the Company's long-term debt in the Condensed Consolidated Balance Sheets was approximately $2,165.8 million and $1,946.7 million, respectively, based on observable market inputs (Level 2). The carrying value of the promissory note, issued to the Company in connection with the sale of Junos Pulse, of $132.9 million approximates its fair value and is recorded in other long-term assets in the Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015, respectively. The promissory note is classified as a Level 3 asset due to the absence of quoted market prices and inherent lack of liquidity. See Note 7, Other Financial Information, for further information on the promissory note.

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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
	March 31, 2016		December 31, 2015
Cash flow hedges	$	125.6	$	116.8
Non-designated derivatives	21.3		71.8
Total	$	146.9	$	188.6

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, 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.

As of March 31, 2016, the Company recognized unrealized gains of $3.0 million in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified a realized loss during the three months ended March 31, 2016 of $1.3 million from other comprehensive loss to cost of revenues and operating expense in the Condensed Consolidated Statements of Operations. As of March 31, 2015, the Company recognized an unrealized loss of $6.1 million in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified a realized loss of $3.0 million during the three months ended March 31, 2016 from other comprehensive loss to cost of revenues and 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 months ended March 31, 2016 and March 31, 2015.

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, 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.

During the three months ended March 31, 2016 and March 31, 2015, the Company recognized a net loss of $1.3 million and a net gain of $2.1 million, respectively, on non-designated derivative instruments within other expense, net, in its Condensed Consolidated Statements of Operations.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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 March 31, 2016 and December 31, 2015, 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 three months ended March 31, 2016 (in millions):



Balance as of December 31, 2015	$	2,981.3
Other	—
Balance as of March 31, 2016	$	2,981.3

There were no impairments to goodwill during the three months ended March 31, 2016 and March 31, 2015.

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 March 31, 2016
Intangible assets with finite lives:
Technologies and patents	$	567.7	$	(494.4	)	$	(49.9	)	$	23.4
Customer contracts, support agreements, and related relationships	78.1		(68.4		)	(2.8		)	6.9
Other	1.1		(0.8		)	—			0.3
Total purchased intangible assets	$	646.9	$	(563.6	)	$	(52.7	)	$	30.6

As of December 31, 2015
Intangible assets with finite lives:
Technologies and patents	$	567.7	$	(491.8	)	$	(49.9	)	$	26.0
Customer contracts, support agreements, and related relationships	78.1		(67.8		)	(2.8		)	7.5
Other	1.1		(0.7		)	—			0.4
Total purchased intangible assets	$	646.9	$	(560.3	)	$	(52.7	)	$	33.9

Table of Contents

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 March 31,
	2016		2015
Cost of revenues	$	2.4	$	10.8
Operating expenses:
Sales and marketing	0.5		0.8
General and administrative	0.4		0.3
Total operating expenses	0.9		1.1
Total	$	3.3	$	11.9

During the three months ended March 31, 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 March 31, 2016.

There were no impairment charges related to purchased intangible assets during the three months ended March 31, 2016 and March 31, 2015.

As of March 31, 2016, the estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):



Years Ending December 31,	Amount
Remainder of 2016	$	8.3
2017	7.0
2018	5.1
2019	4.9
2020	4.8
Thereafter	0.5
Total	$	30.6

Note 7. Other Financial Information

Inventories

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 to be used in the manufacturing process and finished goods inventory in transit. Inventories are reported within both 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
	March 31, 2016		December 31, 2015
Production materials	$	76.8	$	61.9
Finished goods	21.3		13.1
Inventories	$	98.1	$	75.0

Table of Contents

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
	March 31, 2016		December 31, 2015
Privately-held investments	$	107.8	$	102.4
Licensed software	6.7		7.1
Federal income tax receivable	43.7		28.9
Customer financing receivable	2.2		—
Inventory	7.2		8.4
Prepaid costs, deposits, and other^(*)	76.3		99.2
Promissory note in connection with the sale of Junos Pulse	132.9		132.9
Other long-term assets	$	376.8	$	378.9

________________________________


^(*)	During the three months ended March 31, 2016, the Company adopted ASU 2015-03. The balance as of December 31, 2015 was retrospectively adjusted to conform to the current-year presentation.

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”). On October 2, 2015, the Company and the issuer of the Pulse Note mutually agreed to amend the original terms of the Pulse Note to, among other things, extend the maturity date from April 1, 2016 to December 31, 2018, provided that interest due on the Pulse Note through December 31, 2015 shall be paid in kind by increasing the outstanding principal amount of the note and increasing the interest rate on the Pulse Note. In addition, under the amended terms of the Pulse Note, the issuer is 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. The note receivable, along with interest paid in kind, is classified as long-term assets based on expected collection beyond twelve months from the Condensed Consolidated Balance Sheet date.

The Company considers notes receivable to be impaired when, based on current information and events, it is probable that the Company will not be able to collect the scheduled payments of principal or interest when due. Further, 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 the impairment assessment, no impairment charge was required to the Pulse Note as of March 31, 2016. 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 cash flows is less than the recorded investment. During the three months ended March 31, 2016 and March 31, 2015, the related amount of interest income recognized was $2.7 million and $1.6 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 three months ended March 31, 2016 were as follows (in millions):



Balance as of December 31, 2015	$	28.4
Provisions made during the period	6.6
Actual costs incurred during the period	(6.6		)
Balance as of March 31, 2016	$	28.4

Table of Contents

Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Deferred Revenue

Details of the Company's deferred revenue, as reported in the Condensed Consolidated Balance Sheets, were as follows (in millions):



	As of
	March 31, 2016			December 31, 2015
Deferred product revenue:
Undelivered product commitments and other product deferrals	$	205.6		$	210.1
Distributor inventory and other sell-through items	102.8			81.8
Deferred gross product revenue	308.4			291.9
Deferred cost of product revenue	(47.3		)	(51.6		)
Deferred product revenue, net	261.1			240.3
Deferred service revenue	998.9			927.8
Total	$	1,260.0		$	1,168.1
Reported as:
Current	$	893.3		$	822.9
Long-term	366.7			345.2
Total	$	1,260.0		$	1,168.1

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, Net

Other expense, net, consisted of the following (in millions):



	Three Months Ended March 31,
	2016			2015
Interest income	$	7.9		$	3.8
Interest expense	(22.5		)	(18.5		)
(Loss) gain on investments	(5.4		)	0.6
Other	(2.2		)	(1.7		)
Other expense, net	$	(22.2	)	$	(15.8	)

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.

Table of Contents

Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 8. Debt and Financing

Long-Term Debt

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



	As of March 31, 2016
	Amount			Effective Interest Rates
Senior Notes:
3.125% fixed-rate notes, due February 2019	$	350.0		3.36	%
3.300% fixed-rate notes, due June 2020	300.0			3.47	%
4.600% fixed-rate notes, due March 2021	300.0			4.69	%
4.500% fixed-rate notes, due March 2024, issued March 2014	350.0			4.63	%
4.500% fixed-rate notes, due March 2024, issued February 2016	150.0			4.87	%
4.350% fixed-rate notes, due June 2025	300.0			4.47	%
5.950% fixed-rate notes, due March 2041	400.0			6.03	%
Total senior notes	2,150.0
Unaccreted discount and debt issuance costs	(18.2		)
Total	$	2,131.8

In February 2016, the Company issued $350.0 million aggregate principal amount of 3.125% senior notes due 2019 ("2019 Notes") and $150.0 million aggregate principal amount of 4.50% senior notes due 2024 ("2024 Notes"). In March 2015, the Company issued $300.0 million aggregate principal amount of 3.30% senior notes due 2020 ("2020 Notes") and $300.0 million aggregate principal amount of 4.35% senior notes due 2025 ("2025 Notes"). In addition, in March 2014, the Company issued $350.0 million aggregate principal amount of the 2024 Notes, which form a single series and are fully fungible with the 2024 Notes issued in February 2016. In March 2011, the Company issued $300.0 million aggregate principal amount of 4.60% senior notes due 2021 ("2021 Notes") and $400.0 million aggregate principal amount of 5.95% senior notes due 2041 ("2041 Notes").

The "2019 Notes", "2020 Notes," "2021 Notes," "2024 Notes", "2025 Notes" and "2041 Notes" collectively the "Notes" are the Company’s senior unsecured and unsubordinated obligations, ranking equally in right of payment to all of the Company’s existing and future senior unsecured and unsubordinated indebtedness and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the Notes.

The Company may redeem the 2020 Notes and 2025 Notes, either in whole or in part, at any time one month prior to the maturity date of the 2020 Notes, and three months prior to the maturity date of the 2025 Notes, at a redemption price equal to the greater of (i) 100% of the aggregate principal amount of the 2020 Notes and 2025 Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments discounted at the Treasury rate plus 30 basis points for the 2020 Notes, or the Treasury rate plus 37.5 basis points for the 2025 Notes, plus, in the case of each of the clauses (i) and (ii) above, accrued and unpaid interest, if any. At any time on or after May 15, 2020, in the case of the 2020 Notes, and at any time on or after March 15, 2025, in the case of the 2025 Notes, the Company may redeem Notes of such series, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2020 Notes and the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any. The Company may redeem the other Notes, either in whole or in part, at any time at a redemption price equal to the greater of (i) 100% of the aggregate principal amount of the Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments discounted to the redemption date, plus, in either case, accrued and unpaid interest, if any.

In the event of a change of control repurchase event, the holders of the Notes may require the Company to repurchase for cash all or part of the Notes at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, if any.

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Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Interest on the Notes is payable in cash semiannually. The effective interest rates for the Notes include the interest on the Notes, accretion of the discount, and amortization of issuance costs. The indentures that govern the Notes also contain various covenants, including limitations on the Company's ability to incur liens or enter into sale-leaseback transactions over certain dollar thresholds.

In March 2016, the Company repaid the aggregate principal amount of $300.0 million on its 3.10% senior notes upon maturity.

As of March 31, 2016, the Company was in compliance with all covenants in the indentures governing the Notes.

Revolving Credit Facility

On June 27, 2014, the Company entered into a Credit Agreement (“Credit Agreement”) with certain institutional lenders and Citibank, N.A., as administrative agent, that provides for a $500.0 million unsecured revolving credit facility, with an option of the Company to increase the amount of the credit facility by up to an additional $200.0 million, subject to certain conditions. Proceeds of loans made under the Credit Agreement may be used by the Company for working capital and general corporate purposes. Revolving loans may be borrowed, repaid and reborrowed until June 27, 2019, at which time all amounts borrowed must be repaid. Borrowing may be denominated, at the Company's option, in U.S. dollars, Pounds Sterling or Euro.

Borrowings under the Credit Agreement will bear interest at either i) a floating rate per annum equal to the base rate plus a margin of between 0.00% and 0.50%, depending on the Company's public debt rating or ii) a per annum rate equal to the reserve adjusted Eurocurrency rate, plus a margin of between 0.90% and 1.50%, depending on the Company's public debt rating. Base rate is defined as the greatest of (A) Citibank's base rate, (B) the Federal Funds rate plus 0.50% or (C) the ICE Benchmark Administration Settlement Rate applicable to dollars for a period of one month plus 1.00%. The Eurocurrency rate is determined for U.S. dollars and Pounds Sterling as the rate at which deposits in such currency are offered in the London interbank market for the applicable interest period and for Euro as the rate specified for deposits in Euro with a maturity comparable to the applicable interest period.

As of March 31, 2016, the Company was in compliance with all covenants in the Credit Agreement, and no amounts were outstanding.

Customer Financing Arrangements

The Company provides certain distribution partners access to extended financing arrangements for certain end-user customers that require longer payment terms than those typically provided by the Company through factoring accounts receivable to third-party financing providers (“financing providers”). The program does not and is not intended to affect the timing of the Company's revenue recognition. Under the financing arrangements, proceeds from the financing provider are due to the Company within 30 to 90 days from the sale of the receivable. In these transactions with the financing provider, the Company surrenders control over the transferred assets. Beginning in 2014 and through 2015, the Company transitioned certain distribution partners from the third party financing program to the Company's commercial payment terms. As a result, the Company's customer financing activities significantly declined from fiscal year 2014 through the first quarter of 2016.

Pursuant to the financing arrangements for the sale of receivables, the Company sold net receivables of $4.9 million and $47.1 million during the three months ended March 31, 2016 and March 31, 2015, respectively.

The Company received cash proceeds from the financing provider of $1.7 million and $60.0 million during the three months ended March 31, 2016 and March 31, 2015, respectively. As of March 31, 2016 and December 31, 2015, the amounts owed by the financing provider were $4.4 million and $1.2 million, respectively, and were recorded in accounts receivable on the Condensed Consolidated Balance Sheets.

Note 9. Equity

Cash Dividends on Shares of Common Stock

During the three months ended March 31, 2016, the Company declared a quarterly cash dividend of $0.10 per share of common stock on January 27, 2016 which was paid on March 22, 2016 to stockholders of record on March 1, 2016 in the aggregate amount of $38.3 million. Any future dividends, and the establishment of record and payment dates, are subject to approval by the Board

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Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

of Directors (the “Board”) of Juniper Networks or authorized committee thereof. See Note 15, Subsequent Events, for discussion of the Company's dividend declaration subsequent to March 31, 2016.

Stock Repurchase Activities

In February 2014, the Company's Board approved a stock repurchase program that authorized the Company to repurchase up to $2.1 billion of its common stock, including $1.2 billion pursuant to an accelerated share repurchase program (“2014 Stock Repurchase Program”). In October 2014 and July 2015, the Board authorized a $1.3 billion and $500.0 million increase, respectively, to the 2014 Stock Repurchase Program for a total of $3.9 billion. As of March 31, 2016, there was $457.5 million of authorized funds remaining under the 2014 Stock Repurchase Program.

During the three months ended March 31, 2016 and March 31, 2015, the Company repurchased and retired approximately 3.1 million and 17.4 million shares of its common stock, respectively, at an average price of $23.89 and $23.05 per share, respectively, for an aggregate purchase price of $75.0 million and $400.0 million, respectively.

In addition to repurchases under the Company’s stock repurchase program, the Company also repurchases common stock from certain employees in connection with the net issuance of shares to satisfy minimum tax withholding obligations upon the vesting of certain stock awards issued to such employees. Repurchases associated with tax withholdings were not significant during the three months ended March 31, 2016 and March 31, 2015.

Future share repurchases under the Company’s stock repurchase programs will be subject to a review of the circumstances at that time and will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements.

The Company's stock repurchase programs may be discontinued at any time. See Note 15, Subsequent Events, for discussion of the Company's stock repurchase activity subsequent to March 31, 2016.

Accumulated Other Comprehensive Loss, Net of Tax

The components of accumulated other comprehensive loss, net of related taxes, during the three months ended March 31, 2016 were as follows (in millions):



	Unrealized Gains (Losses) on Available-for- Sale Securities⁽¹⁾		Unrealized Gains (Losses) on Cash Flow Hedges⁽²⁾			Foreign Currency Translation Adjustments			Total
Balance as of December 31, 2015	$	17.0	$	(1.3	)	$	(34.9	)	$	(19.2	)
Other comprehensive gain before reclassifications	4.3		2.5			3.7			10.5
Amount reclassified from accumulated other comprehensive loss	0.1		1.1			—			1.2
Other comprehensive gains, net	4.4		3.6			3.7			11.7
Balance as of March 31, 2016	$	21.4	$	2.3		$	(31.2	)	$	(7.5	)

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⁽¹⁾	The reclassifications out of accumulated other comprehensive loss during the three months ended March 31, 2016 for realized losses on available-for-sale securities of $0.1 million are included in other expense, net, in the Condensed Consolidated Statements of Operations.

⁽²⁾

The reclassifications out of accumulated other comprehensive loss during the three months ended March 31, 2016 for realized losses on cash flow hedges are included within cost of revenues of $0.3 million, research and development of $0.4 million, sales and marketing of $0.3 million, and general and administrative of $0.1 million for which the hedged transactions relate in the Condensed Consolidated Statements of Operations.

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Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 10. Employee Benefit Plans

Equity Incentive Plans

The Company’s equity incentive plans include the 2015 Equity Incentive Plan (the “2015 Plan”), the 2006 Equity Incentive Plan (the “2006 Plan”), the Amended and Restated 1996 Stock Plan (the “1996 Plan”), various equity incentive plans assumed through acquisitions, and the 2008 Employee Stock Purchase Plan (the “ESPP”). Under these plans, the Company has granted (or, in the case of acquired plans, assumed) stock options, restricted stock units (“RSUs”), restricted stock awards (“RSAs”), and performance share awards (“PSAs”).

The 2015 Plan was adopted and approved by the Company's stockholders in May 2015 and had an initial authorized share reserve of 38.0 million shares of common stock plus the addition of any shares subject to outstanding awards under the 2006 Plan and the 1996 Plan that were outstanding as of May 19, 2015, and that subsequently expire or otherwise terminate, up to a maximum of an additional 29.0 million shares. As of March 31, 2016, an aggregate of 22.1 million shares were subject to outstanding equity awards under the 2015 Plan and the 2006 Plan, and no shares were subject to outstanding equity awards under the 1996 Plan. As of March 31, 2016, 23.6 million shares were available for future issuance under the 2015 Plan and no shares were available for future issuance under the 2006 Plan or the 1996 Plan.

The ESPP was adopted and approved by the Company's stockholders in May 2008. To date, the Company's stockholders have approved a share reserve of 26.0 million shares of the Company's common stock for issuance under this plan, which includes an additional 7.0 million shares approved by the Company's stockholders in May 2015. The ESPP permits eligible employees to acquire shares of the Company’s common stock at a 15% discount to the offering price (as determined in the ESPP) through periodic payroll deductions of up to 10% of base compensation, subject to individual purchase limits of 6,000 shares in any twelve-month period or $25,000 worth of stock, determined at the fair market value of the shares at the time the stock purchase option is granted, in one calendar year. As of March 31, 2016, approximately 19.7 million shares have been issued and 6.3 million shares remain available for future issuance under the ESPP.

In connection with certain past acquisitions, the Company assumed stock options, RSUs, and RSAs under the assumed stock plans of the acquired companies and exchanged the assumed awards for the Company's stock options, RSUs, and RSAs, respectively. No new equity awards can be granted under these assumed plans. As of March 31, 2016, stock options, RSUs, and RSAs representing approximately 1.0 million shares of common stock were outstanding under all awards assumed through the Company's acquisitions.

Stock Option Activities

The following table summarizes the Company’s stock option activity and related information as of and for the three months ended March 31, 2016 (in millions, except for per share amounts and years):



	Outstanding Options
	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Balance as of December 31, 2015	3.6		$	27.52
Exercised	(0.4	)	14.50
Balance as of March 31, 2016	3.2		$	29.23	2.0	$	9.2

As of March 31, 2016:
Vested and expected-to-vest options	3.2		$	29.27	2.0	$	9.1
Exercisable options	3.1		$	30.18	1.8	$	6.7

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $25.51 per share as of March 31, 2016, and the exercise price of the applicable options multiplied by the number of related options. The pre-tax intrinsic value of options exercised, representing the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option, was $3.9 million for the three months ended March 31, 2016.

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

The following table summarizes the Company’s RSU, RSA, and PSA activity and related information as of and for the three months ended March 31, 2016 (in millions, except per share amounts and years):



	Outstanding RSUs, RSAs, and PSAs
	Number of Shares		Weighted Average Grant-Date Fair Value per Share		Weighted Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Balance as of December 31, 2015	18.6		$	22.71
RSUs granted ⁽¹⁾⁽³⁾	6.1		24.97
PSAs granted⁽²⁾⁽³⁾	0.7		23.70
RSUs vested	(3.5	)	21.73
RSAs vested	(0.6	)	21.02
PSAs vested	(0.7	)	21.61
RSUs canceled	(0.3	)	22.29
PSAs canceled	(0.4	)	21.69
Balance as of March 31, 2016	19.9		$	23.73	1.5	$	506.9

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⁽¹⁾	Includes service-based and market-based RSUs granted under the 2015 Plan according to its terms.

⁽²⁾

The number of shares subject to PSAs granted represents the aggregate maximum number of shares that may be issued pursuant to the award over its full term. The aggregate number of shares subject to these PSAs that would be issued if performance goals determined by the Compensation Committee are achieved at target is 0.4 million shares. Depending on achievement of such performance goals, the range of shares that could be issued under these awards is 0 to 0.7 million shares.

⁽³⁾

The grant date fair value of RSUs and PSAs were reduced by the present value of dividends expected to be paid on the underlying shares of common stock during the requisite and derived service period as these awards are not entitled to receive dividends until vested. On January 27, 2016, the Company declared a cash dividend of $0.10 per share of common stock, or $38.3 million in the aggregate, to stockholders of record on March 1, 2016, which was paid on March 22, 2016.

Employee Stock Purchase Plan

The ESPP is implemented in a series of offering periods, each currently six months in duration, or such other period as determined by the Board. Employees purchased 1.3 million and 1.4 million shares of common stock through the ESPP at an average exercise price of $20.06 and $19.32 per share for the three months ended March 31, 2016 and March 31, 2015, respectively.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Valuation Assumptions

The weighted-average assumptions used and the resulting estimates of fair value for ESPP and market-based RSUs during the three months ended March 31, 2016 and March 31, 2015 were as follows:



	Three Months Ended March 31,
	2016	2015
ESPP ⁽¹⁾:
Volatility	35%	30%
Risk-free interest rate	0.5%	0.1%
Expected life (years)	0.5	0.5
Dividend yield	1.7%	1.9%
Weighted-average fair value per share	$5.95	$5.23

Market-based RSUs ⁽²⁾:
Volatility	36%	34%
Risk-free interest rate	1.2%	1.4%
Dividend yield	1.7%	1.8%
Weighted-average fair value per share	$14.71	$14.97

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⁽¹⁾	The Black-Scholes-Merton option-pricing model is utilized to estimate the fair value of shares issuable under the ESPP.

⁽²⁾

The fair value of market-based RSUs utilizes a Monte Carlo valuation methodology. The Company amortizes the fair value of these awards over the derived service period adjusted for estimated forfeitures for each separately vesting tranche of the award. Provided that the derived service is rendered, the total fair value of the market-based RSUs at the date of grant is recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.

Share-Based Compensation Expense

Share-based compensation expense associated with stock options, RSUs, RSAs, PSAs, and ESPP was recorded in the following cost and expense categories in the Condensed Consolidated Statements of Operations (in millions):



	Three Months Ended March 31,
	2016		2015
Cost of revenues - Product	$	1.9	$	1.7
Cost of revenues - Service	3.5		3.4
Research and development