Edgar Filing: JUNIPER NETWORKS INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 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 380,323,150 shares of the Company's Common Stock, par value $0.00001, outstanding as of November 4, 2016.

Juniper Networks, Inc.



Table of Contents

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

Condensed Consolidated Statements of Operations Three and Nine Months Ended September 30, 2016 and September 30, 2015	3

Condensed Consolidated Statements of Comprehensive Income Three and Nine Months Ended September 30, 2016 and September 30, 2015	4

Condensed Consolidated Balance Sheets September 30, 2016 and December 31, 2015	5

Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2016 and September 30, 2015	6

Notes to Condensed Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3. Quantitative and Qualitative Disclosures About Market Risk	52

Item 4. Controls and Procedures	52

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	53

Item 1A. Risk Factors	53

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	72

Item 6. Exhibits	73

SIGNATURES	74

Exhibit Index	75

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Juniper Networks, Inc.

Condensed Consolidated Statements of Operations

(In millions, except per share amounts)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net revenues:
Product	$	928.2		$	925.4		$	2,543.3		$	2,589.2
Service	357.1			323.2			1,061.2			949.0
Total net revenues	1,285.3			1,248.6			3,604.5			3,538.2
Cost of revenues:
Product	349.6			322.6			955.8			923.1
Service	136.2			128.6			401.9			378.9
Total cost of revenues	485.8			451.2			1,357.7			1,302.0
Gross margin	799.5			797.4			2,246.8			2,236.2
Operating expenses:
Research and development	251.8			247.0			750.7			747.3
Sales and marketing	242.9			235.3			718.4			687.9
General and administrative	54.0			57.1			172.0			168.6
Restructuring charges (benefits)	0.8			—			3.2			(0.5		)
Total operating expenses	549.5			539.4			1,644.3			1,603.3
Operating income	250.0			258.0			602.5			632.9
Other expense, net	(13.4		)	(8.4		)	(47.2		)	(41.3		)
Income before income taxes	236.6			249.6			555.3			591.6
Income tax provision	64.2			51.9			151.5			155.7
Net income	$	172.4		$	197.7		$	403.8		$	435.9

Net income per share:
Basic	$	0.45		$	0.52		$	1.06		$	1.11
Diluted	$	0.45		$	0.51		$	1.04		$	1.09
Shares used in computing net income per share:
Basic	381.0			382.8			382.3			393.2
Diluted	384.5			389.2			387.9			401.2
Cash dividends declared per common stock	$	0.10		$	0.10		$	0.30		$	0.30

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 September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net income	$	172.4		$	197.7		$	403.8		$	435.9
Other comprehensive income, net of tax:
Available-for-sale securities:
Unrealized (losses) gains on available-for-sale securities, net of tax (provisions) benefit of ($0.3) and $0.4 during the three and nine months ended September 30, 2016, respectively, and ($3.7) and ($2.1) for the corresponding periods of the fiscal year ended December 31, 2015 ("fiscal 2015"), respectively	(0.6		)	(3.6		)	5.4			4.6
Reclassification adjustment for realized net gains on available-for-sale securities included in net income, net of tax provisions of zero and $0.5 during the three and nine months ended September 30, 2016, respectively, and zero for the corresponding periods of fiscal 2015	(0.3		)	(0.1		)	(1.1		)	(0.6		)
Net change on available-for-sale securities, net of taxes	(0.9		)	(3.7		)	4.3			4.0
Cash flow hedges:
Unrealized (losses) gains on cash flow hedges, net of tax (provisions) benefit of ($0.6) and ($1.2) during the three and nine months ended September 30, 2016, respectively, and $0.5 and ($0.2) for the corresponding periods of fiscal 2015, respectively	(0.3		)	(1.4		)	3.6			(5.4		)
Reclassification adjustment for realized net (gains) losses on cash flow hedges included in net income, net of tax provisions (benefit) of $0.3 and $0.4 during the three and nine months ended September 30, 2016, respectively, and ($0.1) and zero for the corresponding periods of fiscal 2015, respectively	(0.9		)	1.8			(1.0		)	8.7
Net change on cash flow hedges, net of taxes	(1.2		)	0.4			2.6			3.3
Change in foreign currency translation adjustments	(6.9		)	(8.8		)	(1.1		)	(12.9		)
Other comprehensive (loss) income, net of tax	(9.0		)	(12.1		)	5.8			(5.6		)
Comprehensive income	$	163.4		$	185.6		$	409.6		$	430.3

See accompanying Notes to Condensed Consolidated Financial Statements

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Juniper Networks, Inc.

Condensed Consolidated Balance Sheets

(In millions, except par values)



	September 30, 2016			December 31, 2015
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,689.0		$	1,420.9
Short-term investments	632.7			527.1
Accounts receivable, net of allowances	753.6			780.7
Prepaid expenses and other current assets	354.1			183.7
Total current assets	3,429.4			2,912.4
Property and equipment, net	1,067.0			1,021.0
Long-term investments	1,158.4			1,244.2
Restricted cash and investments	89.8			36.2
Purchased intangible assets, net	113.2			33.9
Goodwill	3,048.4			2,981.3
Other long-term assets	239.0			378.9
Total assets	$	9,145.2		$	8,607.9
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt	$	—		$	299.9
Accounts payable	208.4			159.3
Accrued compensation	174.3			269.5
Deferred revenue	918.5			822.9
Other accrued liabilities	207.2			250.3
Total current liabilities	1,508.4			1,801.9
Long-term debt	2,133.1			1,637.5
Long-term deferred revenue	385.6			345.2
Long-term income taxes payable	205.1			187.3
Other long-term liabilities	140.5			61.6
Total liabilities	4,372.7			4,033.5
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; 380.1 shares and 384.0 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively	—			—
Additional paid-in capital	8,256.3			8,334.8
Accumulated other comprehensive loss	(13.4		)	(19.2		)
Accumulated deficit	(3,470.4		)	(3,741.2		)
Total stockholders' equity	4,772.5			4,574.4
Total liabilities and stockholders' equity	$	9,145.2		$	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)



	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net income	$	403.8		$	435.9
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense	162.1			161.3
Depreciation, amortization, and accretion	151.9			131.5
Restructuring and non-cash acquisition charges (benefits)	6.0			(4.0		)
Deferred income taxes	41.5			10.0
Loss (gain) on investments and fixed assets, net	1.6			(6.4		)
Excess tax benefits from share-based compensation	(5.8		)	(7.4		)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net	36.6			(15.7		)
Prepaid expenses and other assets	(66.5		)	8.8
Accounts payable	52.1			(21.8		)
Accrued compensation	(77.0		)	(29.0		)
Income taxes payable	(7.5		)	108.2
Other accrued liabilities	(51.3		)	(45.0		)
Deferred revenue	124.7			49.1
Net cash provided by operating activities	772.2			775.5
Cash flows from investing activities:
Purchases of property and equipment	(162.9		)	(154.9		)
Purchases of available-for-sale investments	(1,251.9		)	(1,147.6		)
Proceeds from sales of available-for-sale investments	985.1			625.9
Proceeds from maturities of available-for-sale investments	232.4			197.4
Purchases of trading investments	(4.3		)	(3.8		)
Proceeds from sales of privately-held investments	9.5			10.3
Purchases of investments in privately-held companies	(17.1		)	(5.4		)
Payments for business acquisitions, net of cash and cash equivalents acquired	(96.7		)	(3.5		)
Changes in restricted cash	(2.4		)	11.6
Net cash used in investing activities	(308.3		)	(470.0		)
Cash flows from financing activities:
Proceeds from issuance of common stock	59.7			97.0
Purchases and retirement of common stock	(323.9		)	(1,056.8		)
Issuance of long-term debt, net	494.0			594.6
Payment of long-term debt	(300.0		)	—
Payment under lease obligations	(1.7		)	(0.4		)
Payment of acquired debt	(15.5		)	—
Excess tax benefits from share-based compensation	5.8			7.4
Payment of cash dividends	(114.4		)	(118.0		)
Net cash used in financing activities	(196.0		)	(476.2		)
Effect of foreign currency exchange rates on cash and cash equivalents	0.2			(15.4		)
Net increase (decrease) in cash and cash equivalents	268.1			(186.1		)
Cash and cash equivalents at beginning of period	1,420.9			1,639.6
Cash and cash equivalents at end of period	$	1,689.0		$	1,453.5

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 of America (“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. 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, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, or any future period. The Condensed Consolidated Balance Sheet as of December 31, 2015, has been derived from the audited Consolidated Financial Statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

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.

As a result of 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 decreased both other long-term assets and long-term debt as of December 31, 2015 on the Condensed Consolidated Balance Sheets by $11.3 million.

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 August 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-15 (Topic 230) Statement of Cash Flow: Classification of Certain Cash Receipts and Cash Payments. The pronouncement provides clarification guidance on certain cash flow presentation issues such as debt prepayment or debt extinguishment costs and contingent consideration payments made after a business combination and should be applied using a retrospective transition method for each period presented. For the provisions that are impracticable to apply retrospectively, those provisions may be applied prospectively as of the earliest date practicable. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Statements of Cash Flows.

In June 2016, the FASB issued ASU No. 2016-13 (Topic 326) Financial Instruments - Credit Losses. The pronouncement was issued to provide more decision-useful information about the expected credit losses on financial instruments and changes the loss impairment methodology. This pronouncement is effective for reporting periods beginning after December 15, 2019, and interim periods within those fiscal years, using a modified retrospective adoption method. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

In March 2016, the 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 loss at the date the investment becomes 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.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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 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. In May 2016, the FASB also issued ASU No. 2016-12 (Topic 606) Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), which amends the revenue guidance to clarify measurement and presentation as well as to include some practical expedients and policy elections. There are two transition methods available under the new standard, either cumulative effect or retrospective. ASU 2016-08, ASU 2016-10, and ASU 2016-12 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. Business Combinations

During the nine months ended September 30, 2016, the Company completed two business combinations. The Company's Condensed Consolidated Financial Statements include the operating results of these business combinations from the date of each acquisition. Pro forma results of operations for these acquisitions have not been presented as the financial impact to the Company's consolidated results of operations are not material.

Additional information, such as income tax and other contingencies, existing as of the acquisition dates but unknown to the Company may become known during the remainder of the measurement period, not to exceed 12 months from the acquisition date, which may result in changes to the amounts and allocations recorded.

Aurrion, Inc.

On August 9, 2016, the Company acquired the remaining ownership interest in Aurrion, Inc. ("Aurrion"), increasing its ownership from 18% to 100%, for $74.3 million of cash. The acquisition of Aurrion, a privately-held provider of fabless silicon photonic technology, is expected to strengthen the Company's long-term competitive advantage in cost-effective, high-density, high-speed networks.

Prior to the acquisition, the Company had a pre-existing investment in Aurrion's equity and also held convertible debt that were remeasured to fair value of $17.2 million and $10.4 million, respectively, based upon the perspective of a market participant when estimating the fair value.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Additionally, under the terms of the acquisition agreement, the Company assumed share-based awards for continuing employees from the acquisition of Aurrion, which were granted in contemplation of future services. The fair value of these share-based awards was $55.0 million, which will be expensed as share-based compensation over the remaining service period.

BTI Systems Inc.

On April 1, 2016, the Company acquired the remaining ownership interest in BTI Systems Inc. (“BTI”), increasing its ownership from 12% to 100%, for $25.8 million of cash. BTI is a privately-held provider of cloud and metro networking systems and software to content, cloud, and service providers. The Company acquired BTI on the expectation that this would help to accelerate the Company's ability to deliver open and automated packet optical transport solutions.

Prior to the acquisition, the Company had a pre-existing investment in BTI's equity and remeasured the investment to its fair value of $17.1 million, which was based upon the perspective of a market participant when estimating the fair value. The Company also held $0.9 million of convertible debt measured at fair value and settled upon acquisition. The Company also repaid upon acquisition $18.6 million of certain outstanding BTI liabilities assumed.

Additionally, under the terms of the acquisition agreement, the Company assumed share-based awards for continuing employees from the acquisition of BTI, which were granted in contemplation of future services. The fair value of these share-based awards was $8.6 million, which will be expensed as share-based compensation over the remaining service period.

The total purchase consideration, consisting of cash consideration paid and the fair value of previous investments, of $101.9 million and $43.8 million for Aurrion and BTI, respectively, were allocated as follows (in millions):



	Aurrion		BTI			Total
Net tangible assets acquired/(liabilities) assumed ⁽¹⁾	$	6.0	$	(19.7	)	$	(13.7	)
Intangible assets acquired	49.0		43.3			92.3
Goodwill ⁽¹⁾	46.9		20.2			67.1
Total	$	101.9	$	43.8		$	145.7

________________________________

⁽¹⁾During the three months ended September 30, 2016, the Company recorded insignificant adjustments to the preliminary fair value of certain assets acquired and liabilities assumed in the BTI acquisition. These adjustments were based on information obtained in the current period about facts and circumstances that existed at the acquisition date.

The goodwill recognized for these acquisitions was primarily attributable to expected synergies and is not deductible for U.S. federal income tax purposes.

The Company recognized $2.8 million and $10.7 million of acquisition-related costs during the three and nine months ended September 30, 2016, respectively. These acquisition-related costs were expensed in the period incurred within general and administrative expense in the Company's Condensed Consolidated Statements of Operations. There were no such charges during the three and nine months ended September 30, 2015.

The Company also recorded $0.5 million and $2.9 million of restructuring charges during the three and nine months ended September 30, 2016, related to severance costs for certain former BTI employees which were recorded in restructuring charges (benefits) in the Condensed Consolidated Statements of Operations.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Intangible Assets Acquired

A summary of the Company's intangible assets acquired through the business combinations completed during the nine months ended September 30, 2016 was as follows (in millions, except years):



	Weighted Average Estimated Useful Life (In Years)	Amount
Finite-lived intangible assets:
Existing technology	8	$	37.1
Customer relationships	8	5.3
Trade name	1	0.6
Backlog	1	0.3
Total intangible assets with finite lives		43.3
Indefinite-lived intangible assets:
In-process research and development ("IPR&D")		49.0
Total intangible assets acquired		$	92.3

As a result of the Aurrion acquisition, the Company acquired IPR&D consisting of existing research and development projects that have not yet reached technological feasibility at the time of the acquisition. The acquired IPR&D involves technology for cost-effective, high-speed networks. The IPR&D was valued using the multi-period excess earnings method under the income approach by discounting forecasted cash flows directly related to the products expected to result from the associated project.

Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. Indefinite-lived intangibles are not amortized into results of operations but instead are evaluated for impairment. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized as cost of revenues over their respective estimated useful lives at that point in time. If the research and development project is abandoned, the acquired IPR&D assets are written off and charged to expense in the period of abandonment.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4. Cash Equivalents and Investments

Investments in Available-for-Sale and Trading Securities

The Company's unrealized gains and losses and fair value of investments designated as available-for-sale and trading securities as of September 30, 2016 and December 31, 2015 were as follows (in millions):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
As of September 30, 2016
Fixed income securities:
Asset-backed securities	$	326.8	$	0.6	$	—		$	327.4
Certificates of deposit	49.9		—		—			49.9
Commercial paper	52.4		—		—			52.4
Corporate debt securities	866.1		1.7		(0.5		)	867.3
Foreign government debt securities	38.5		—		—			38.5
Government-sponsored enterprise obligations	127.3		0.1		—			127.4
U.S. government securities	331.8		0.2		(0.1		)	331.9
Total fixed income securities	1,792.8		2.6		(0.6		)	1,794.8
Money market funds	413.0		—		—			413.0
Mutual funds	8.1		—		—			8.1
Publicly-traded equity securities	4.5		0.8		—			5.3
Total available-for-sale securities	2,218.4		3.4		(0.6		)	2,221.2
Trading securities in mutual funds⁽¹⁾	20.5		—		—			20.5
Total	$	2,238.9	$	3.4	$	(0.6	)	$	2,241.7

Reported as:
Cash equivalents	$	379.0	$	—	$	—		$	379.0
Restricted Investments⁽²⁾	71.6		—		—			71.6
Short-term investments	631.8		1.0		(0.1		)	632.7
Long-term investments	1,156.5		2.4		(0.5		)	1,158.4
Total	$	2,238.9	$	3.4	$	(0.6	)	$	2,241.7

________________________________


⁽¹⁾	Balance consists of the Company's non-qualified deferred compensation plan assets.


⁽²⁾	Includes $4.0 million of short-term restricted investments classified as prepaid expenses and other on the Condensed Consolidated Balance Sheets.

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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⁽¹⁾	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

________________________________


⁽¹⁾	Balance consists of the Company's non-qualified deferred compensation plan assets.

The contractual maturities of the Company's total fixed income securities as of September 30, 2016 were as follows (in millions):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Due in less than one year	$	636.3	$	0.2	$	(0.1	)	$	636.4
Due between one and five years	1,156.5		2.4		(0.5		)	1,158.4
Total	$	1,792.8	$	2.6	$	(0.6	)	$	1,794.8

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The Company's available-for-sale securities that were in an unrealized loss position as of September 30, 2016 and December 31, 2015 were as follows (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, 2016
Fixed income securities:
Corporate debt securities	$	195.5	$	(0.3	)	$	102.5	$	(0.2	)	$	298.0	$	(0.5	)
U.S. government securities	102.2		(0.1		)	—		—			102.2		(0.1		)
Total available-for-sale securities	$	297.7	$	(0.4	)	$	102.5	$	(0.2	)	$	400.2	$	(0.6	)



	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 insignificant unrealized loss position as of December 31, 2015.

The Company had 221 and 682 investments in unrealized loss positions as of September 30, 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 September 30, 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 and nine months ended September 30, 2016 and September 30, 2015.

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, 2016 and September 30, 2015, there were no other-than-temporary impairments associated with these investments.

During the three and nine months ended September 30, 2016 and September 30, 2015, there were no material gross realized gains or losses from either available-for-sale securities or from trading securities.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Restricted Cash and Investments

The Company has restricted cash and investments for: (i) amounts held in escrow accounts, as required in connection with certain acquisitions completed primarily between 2014 and 2016; (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; (iii) the Directors and Officers indemnification trust (“D&O Trust”); (iv) amounts held under the Company's short-term disability plan in California; and (v) amounts under the non-qualified deferred compensation ("NQDC") plan for officers and other senior-level employees. The restricted investments are designated as available-for-sale securities except relating to the NQDC plan which are designated as trading securities. As of September 30, 2016, restricted cash and investments of $20.9 million and $89.8 million were included in prepaid expenses and other current assets and restricted cash and investments, respectively, on the Condensed Consolidated Balance Sheets.

Investments in Privately-Held Companies

The Company has investments in privately-held companies, which include debt and redeemable preferred stock securities that are carried at fair value, and non-redeemable preferred stock securities and common stock that are carried at cost. The Company reviews these investments to identify and evaluate investments that have an indication of possible impairment.

As of September 30, 2016 and December 31, 2015, the carrying values of the Company's investments in privately-held companies of $61.1 million and $102.4 million, respectively, were included in other long-term assets in the Condensed Consolidated Balance Sheets. As of September 30, 2016 and December 31, 2015, the carrying value of the investments in privately-held companies includes debt and redeemable preferred stock securities of $43.7 million and $60.2 million, respectively. For the three and nine months ended September 30, 2016 and September 30, 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 and nine months ended September 30, 2016, the Company determined that certain privately-held investments were other than-temporarily impaired, resulting in impairment charges of $4.5 million and $9.6 million, respectively, that were recorded within other expense, net in the Condensed Consolidated Statement of Operations. No such charges were recorded during the three and nine months ended September 30, 2015.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 5. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

A summary of assets and liabilities measured at fair value on a recurring basis and as reported in the Condensed Consolidated Balance Sheets were as follows (in millions):



	Fair Value Measurements at September 30, 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	$	—	$	327.4		$	—	$	327.4
Certificates of deposit	—		49.9			—		49.9
Commercial paper	—		52.4			—		52.4
Corporate debt securities	—		867.3			—		867.3
Foreign government debt securities	—		38.5			—		38.5
Government-sponsored enterprise obligations	—		127.4			—		127.4
Money market funds⁽¹⁾	413.0		—			—		413.0
Mutual funds⁽²⁾	8.1		—			—		8.1
Publicly-traded equity securities	5.3		—			—		5.3
U.S. government securities	320.9		11.0			—		331.9
Total available-for-sale securities	747.3		1,473.9			—		2,221.2
Trading securities in mutual funds⁽³⁾	20.5		—			—		20.5
Privately-held debt and redeemable preferred stock securities						43.7		43.7
Derivative assets:
Foreign exchange contracts	—		2.7			—		2.7
Total assets measured at fair value	$	767.8	$	1,476.6		$	43.7	$	2,288.1
Liabilities measured at fair value:
Derivative liabilities:
Foreign exchange contracts	$	—	$	(0.9	)	$	—	$	(0.9	)
Total liabilities measured at fair value	$	—	$	(0.9	)	$	—	$	(0.9	)

Total assets measured at fair value, reported as:
Cash equivalents	$	370.0	$	9.0		$	—	$	379.0
Restricted investments	71.6		—			—		71.6
Short-term investments	173.1		459.6			—		632.7
Long-term investments	153.1		1,005.3			—		1,158.4
Prepaid expenses and other current assets	—		2.7			—		2.7
Other long-term assets	—		—			43.7		43.7
Total assets measured at fair value	$	767.8	$	1,476.6		$	43.7	$	2,288.1

Total liabilities measured at fair value, reported as:
Other accrued liabilities	$	—	$	(0.9	)	$	—	$	(0.9	)
Total liabilities measured at fair value	$	—	$	(0.9	)	$	—	$	(0.9	)

________________________________


⁽¹⁾	Balance includes $43.0 million of restricted investments measured at fair value related to the Company's D&O Trust and acquisition-related escrows.


⁽²⁾	Balance relates to restricted investments measured at fair value related to the Company's India Gratuity Trust.


⁽³⁾	Balance relates to restricted investments measured at fair value related to the Company's NQDC plan assets.

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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 value related to the Company's D&O Trust and acquisition-related escrows.


⁽²⁾	Balance relates to restricted investments measured at fair value related to the Company's India Gratuity Trust.


⁽³⁾	Balance relates to investments measured at fair value related to the Company's NQDC plan assets.

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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, 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 lack of observable inputs to determine fair value. 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, 2016, the Company purchased $6.6 million and $17.1 million, respectively, related to debt securities of privately-held companies.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain of the Company's assets, including intangible assets, goodwill, and investments in privately-held companies (non-redeemable preferred stock securities and common stock), are measured at fair value on a nonrecurring basis, when they are deemed to be other-than-temporarily impaired. Investments in privately-held companies, 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 investments in privately-held companies 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, 2016, certain investments in privately-held companies with a carrying value of $6.1 million were impaired and were written-down to their fair value of $1.6 million and were classified as Level 3 assets due to lack of observable inputs to determine fair value. The impairment charges of $4.5 million were recorded to other expense, net in the Condensed Consolidated Statements of Operations. As of December 31, 2015, there were no investments in privately-held companies measured at fair value on a nonrecurring basis.

As of September 30, 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 September 30, 2016 and December 31, 2015, the estimated fair value of the Company's long-term debt in the Condensed Consolidated Balance Sheets was approximately $2,283.6 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 previously-completed sale of Junos Pulse, of $132.9 million approximates its fair value, of which $75.0 million is recorded in prepaid expenses and other current assets and the remaining balance is recorded within other long-term assets in the Condensed Consolidated Balance Sheets as of September 30, 2016. As of December 31, 2015, the carrying value of the promissory note of $132.9 million was recorded in other long-term assets in the Condensed Consolidated Balance Sheets. The promissory note is classified as a Level 3 asset due to the lack of observable inputs to determine fair value. See Note 8, 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 6. Derivative Instruments

The Company uses derivatives to partially offset its market exposure to fluctuations in certain foreign currencies and does not enter into derivatives for speculative or trading purposes.

The notional amount of the Company's foreign currency derivatives is summarized as follows (in millions):



	As of
	September 30, 2016		December 31, 2015
Cash flow hedges	$	147.9	$	116.8
Non-designated derivatives	—		71.8
Total	$	147.9	$	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 revenues and operating expenses. The derivatives are intended to hedge a portion of the U.S. Dollar equivalent of the Company's planned cost of revenues 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 revenues 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 5, 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, 2016, the Company recognized unrealized gains of $0.3 million and $4.8 million, respectively, in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified a realized gain during the three and nine months ended September 30, 2016 of $1.2 million and $1.4 million, respectively, from accumulated other comprehensive loss to cost of revenues and operating expense in the Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2015, the Company recognized 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 accumulated 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 and nine months ended September 30, 2016 and September 30, 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 typically have maturities within two months.

During the three and nine months ended September 30, 2016, the Company recognized a net gain of $0.3 million and a net loss of $0.9 million, respectively, on non-designated derivative instruments within other expense, net in its Condensed Consolidated Statement of Operations. During the three and nine months ended September 30, 2015, the Company recognized net losses of $0.1

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

million and $0.4 million, respectively, on non-designated derivative instruments within other expense, net, in its Condensed Consolidated Statements of Operations.

Offsetting of Derivatives

The Company presents its derivative assets and derivative liabilities on a gross basis in the Condensed Consolidated Balance Sheets. However, under agreements containing provisions on netting with certain counterparties of foreign exchange contracts, subject to applicable requirements, the Company is allowed to net-settle transactions on the same date in the same currency, with a single net amount payable by one party to the other. As of September 30, 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 7. Goodwill and Purchased Intangible Assets

Goodwill

Goodwill activity during the nine months ended September 30, 2016 was as follows (in millions):



Balance as of December 31, 2015	$	2,981.3
Additions due to business combinations	67.1
Balance as of September 30, 2016	$	3,048.4

There were no impairments to goodwill during the three and nine months ended September 30, 2016 and September 30, 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 September 30, 2016
Finite-lived intangible assets:
Technologies and patents	$	604.8	$	(501.9	)	$	(49.9	)	$	53.0
Customer contracts, support agreements, and related relationships	83.4		(70.0		)	(2.8		)	10.6
Other	2.0		(1.4		)	—			0.6
Total intangible assets with finite lives	690.2		(573.3		)	(52.7		)	64.2
Indefinite-lived intangible assets:
IPR&D	49.0		—			—			49.0
Total purchased intangible assets	$	739.2	$	(573.3	)	$	(52.7	)	$	113.2

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

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The amortization of intangible assets included in the Condensed Consolidated Statements of Operations was as follows (in millions):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of revenues	$	3.5	$	4.7	$	9.5	$	20.2
Operating expenses:
Sales and marketing	0.8		0.7		2.1		2.1
General and administrative	0.5		0.2		1.3		0.9
Total operating expenses	1.3		0.9		3.4		3.0
Total	$	4.8	$	5.6	$	12.9	$	23.2

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 and nine months ended September 30, 2016 and the three months ended September 30, 2015.

There were no impairment charges related to purchased intangible assets during the three and nine months ended September 30, 2016 and September 30, 2015.

As of September 30, 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	$	3.3
2017	12.5
2018	10.4
2019	10.2
2020	10.1
Thereafter	17.7
Total	$	64.2

Note 8. 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
	September 30, 2016		December 31, 2015
Production materials	$	86.8	$	61.9
Finished goods	19.4		13.1
Inventories	$	106.2	$	75.0

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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, 2016		December 31, 2015
Investments in privately-held companies	$	61.1	$	102.4
Promissory note in connection with the sale of Junos Pulse	57.9		132.9
Federal income tax receivable	40.9		28.9
Deferred tax asset	20.1		55.9
Inventory	6.5		8.4
Prepaid costs, deposits, and other^(*)	52.5		50.4
Other long-term assets	$	239.0	$	378.9

________________________________


^(*)	On January 1, 2016, the Company adopted ASU 2015-03. As a result, debt issuance costs included in prepaid costs, deposits, and other were reclassified to long-term debt as of December 31, 2015 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, 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 and increase 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 principal amount previously pre-paid to the Company. The $75.0 million portion of the note receivable is classified within prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The remaining balance, along with interest paid in kind, is classified as a long-term asset 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 September 30, 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 and nine months ended September 30, 2016, the related amount of interest income recognized was $2.7 million and $8.0 million, respectively. 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, 2016 were as follows (in millions):



Balance as of December 31, 2015	$	28.4
Provisions made during the period	19.9
Actual costs incurred during the period	(20.9		)
Balance as of September 30, 2016	$	27.4

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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, 2016			December 31, 2015
Deferred product revenue:
Undelivered product commitments and other product deferrals	$	250.4		$	210.1
Distributor inventory and other sell-through items	92.8			81.8
Deferred gross product revenue	343.2			291.9
Deferred cost of product revenue	(45.3		)	(51.6		)
Deferred product revenue, net	297.9			240.3
Deferred service revenue	1,006.2			927.8
Total	$	1,304.1		$	1,168.1
Reported as:
Current	$	918.5		$	822.9
Long-term	385.6			345.2
Total	$	1,304.1		$	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 September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Interest income	$	9.1		$	5.7		$	25.5		$	16.3
Interest expense	(25.1		)	(21.6		)	(72.6		)	(61.9		)
Gain on investments, net	1.9			6.0			0.1			6.8
Other	0.7			1.5			(0.2		)	(2.5		)
Other expense, net	$	(13.4	)	$	(8.4	)	$	(47.2	)	$	(41.3	)

Interest income primarily includes interest earned on the Company’s cash, cash equivalents, investments, and 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. Gain on investments, net, primarily includes gains and losses from the sale of investments in privately-held companies, including any impairment charges recorded on these investments. Other typically consists of investment and foreign exchange gains and losses and other non-operational income and expense items.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 9. Debt and Financing

Long-Term Debt

The Company's long-term debt was summarized as follows (in millions, except percentages):



	As of September 30, 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	(16.9		)
Total	$	2,133.1

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.

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.

As of September 30, 2016, the Company was in compliance with all covenants in the indentures governing the Notes.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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 September 30, 2016, the Company was in compliance with all covenants in the Credit Agreement, and no amounts were outstanding.

Financing Arrangements

The Company provides certain channel partners access to extended financing arrangements that require longer payment terms than those typically provided by the Company by 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. During 2015, the Company transitioned certain distribution partners from the third party financing program to the Company's commercial payment terms.

Pursuant to the financing arrangements for the sale of receivables, the Company sold net receivables of $59.3 million and $73.4 million during the three and nine months ended September 30, 2016, respectively, and $11.4 million and $69.9 million during the three and nine months ended September 30, 2015, respectively. The Company received cash proceeds from financing providers of $30.0 million and $40.8 million during the three and nine months ended September 30, 2016, respectively, and $9.1 million and $94.6 million during the three and nine months ended September 30, 2015, respectively. As of September 30, 2016 and December 31, 2015, the amounts owed by the financing provider were $33.8 million and $1.2 million, respectively, which were recorded in accounts receivable on the Condensed Consolidated Balance Sheets.

Note 10. Equity

Cash Dividends on Shares of Common Stock

During the nine months ended September 30, 2016, the Company declared quarterly cash dividends of $0.10 per share of common stock on January 27, 2016, April 28, 2016, and July 26, 2016, which were paid on March 22, 2016, June 22, 2016, and September 22, 2016, respectively, to stockholders of record on March 1, 2016, June 1, 2016, and September 1, 2016, respectively, in the aggregate amount of $114.4 million. Any future dividends, and the establishment of record and payment dates, are subject to approval by the Board of Directors (the “Board”) of Juniper Networks or authorized committee thereof. See Note 16, Subsequent Events, for discussion of the Company's dividend declaration subsequent to September 30, 2016.

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Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Stock Repurchase Activities

In February 2014, the 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 September 30, 2016, there was $219.7 million of authorized funds remaining under the 2014 Stock Repurchase Program. 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.

The following table summarizes the Company's repurchases and retirements of its common stock under its stock repurchase program and repurchases associated with minimum tax withholdings (in millions, except per share amounts):