Notes to Consolidated Financial Statements
Note 1. Description of Business and Basis of Presentation
Description of Business
Juniper Networks, Inc. (the “Company” or “Juniper”) designs, develops, and sells products and services for high-performance networks, to enable customers to build scalable, reliable, secure and cost-effective networks for their businesses, while achieving agility, efficiency and value through automation. The Company sells high-performance routing, switching, and security networking products and service offerings to global service providers, cloud providers, national governments, research and public sector organizations and other enterprises who view the network as critical to their success. In addition to the Company's products, the Company offers worldwide services, including technical support, professional services, and education and training programs to its customers. Together, the high-performance product and service offerings help the Company's customers convert legacy networks that provide commoditized services into more valuable assets that provide differentiation, value, and increased performance, reliability, and security to end-users.
Basis of Presentation
The Consolidated Financial Statements, which include the Company and its wholly-owned subsidiaries, are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). All intercompany balances and transactions have been eliminated. Certain amounts in the prior-years Consolidated Financial Statements 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 decreased both other long-term assets and long-term debt as of December 31, 2015 on the Consolidated Balance Sheets by
$11.3 million
.
Note 2. Significant Accounting Policies
Use of Estimates
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 Consolidated Financial Statements and the accompanying notes. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent there are material differences between the Company's estimates and the actual results, the Company's future consolidated results of operation may be affected.
Cash, Cash Equivalents and Investments
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits with banks, highly liquid investments in money market funds, commercial paper, government securities, certificates of deposits, time deposits, and corporate debt securities, which are readily convertible into cash. All highly liquid investments purchased with original maturities of
three months
or less are classified as cash equivalents.
Investments in Available-for-Sale and Trading Securities
The Company's investments in publicly-traded debt and equity securities are classified as available-for-sale. Available-for-sale investments are initially recorded at cost and periodically adjusted to fair value in the Consolidated Balance Sheets. Unrealized gains and losses on these investments are reported as a separate component of accumulated other comprehensive loss in the Consolidated Balance Sheets. Realized gains and losses are determined based on the specific identification method and are reported in the Consolidated Statements of Operations.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company periodically evaluates its investments to determine if impairment charges are required. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time the investment has been in a loss position, the extent to which the fair value has been less than the Company's cost basis, the investment's financial condition, and near-term prospects of the investee. If the Company determines that the decline in an investment's value is other than temporary, the difference is recognized as an impairment loss in its Consolidated Statements of Operations.
The Company's non-qualified compensation plan is invested in mutual funds, which are classified as trading securities and reported at fair value in the Consolidated Balance Sheets. The realized and unrealized holding gains and losses are reported in the Consolidated Statements of Operations.
Investments in Privately-Held Companies
The Company has privately-held investments included in other long-term assets in the Consolidated Balance Sheets. These investments include debt and redeemable preferred stock securities that are carried at fair value, and non-redeemable preferred stock securities that are carried at cost. The investments carried at cost are adjusted for any impairment, as the Company does not have a controlling interest and does not have the ability to exercise significant influence over these companies. These investments inherently carry higher risk as the market for technologies or products manufactured by these companies are usually in their early stages at the time of the investment by the Company and such markets may never be significant. The Company measures the fair value of privately-held investments using an analysis of the financial conditions and near term prospects of the investees, including recent financing activities and their capital structure. Realized gains and losses, if any, are reported in the Consolidated Statements of Operations.
Fair Value
Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts, and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. These inputs are valued using market based approaches.
Level 3 – Inputs are unobservable inputs based on the Company’s assumptions. These inputs, if any, are valued using internal financial models.
Derivatives
The Company uses derivatives to partially offset its market exposure to fluctuations in certain foreign currencies. The Company does not enter into derivatives for speculative or trading purposes.
The Company uses foreign currency forward contracts to hedge certain forecasted foreign currency transactions relating to operating expenses. These derivatives are designated as cash flow hedges. Execution of these cash flow hedge derivatives typically occurs every month with maturities of
eighteen months
or less. These derivatives are carried at fair value and 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 costs of services or operating expense line item to which the hedged transaction relates. The Company records any ineffectiveness of the hedging instruments in other (expense) income, net, on its Consolidated Statements of Operations. Cash flows from such hedges are classified as operating activities. All amounts within other comprehensive loss are expected to be reclassified into earnings within the next
eighteen months
.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in non-functional currencies. These derivatives are carried at fair value with changes recorded in other (expense) income, net in the Consolidated Statements of Operations in the same period as the changes in the fair value from the re-measurement of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. These foreign exchange forward contracts have maturities of
eighteen months
or less.
Inventory
Inventory consists primarily of component parts to be used in the manufacturing process and finished goods in-transit, and is stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. A charge is recorded to cost of product when inventory is determined to be in excess of anticipated demand or considered obsolete. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in the newly established cost basis.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method, over the estimated useful lives of the following assets:
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Estimated Useful Life (years)
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Computers, equipment, and software
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1.5 to 7
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Furniture and fixtures
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5 to 7
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Building and building improvements
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7 to 40
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Land improvements
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5 to 40
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Leasehold improvements
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Lease term, not to exceed 10 years
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Construction in progress is related to the construction or development of property and equipment that have not yet been placed in service for their intended use.
Goodwill and Other Long-Lived Assets
Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recorded. The excess of the purchase price over the estimated fair value of net assets of businesses acquired in a business combination is recognized as goodwill. Goodwill is tested for impairment annually during the fourth quarter or more frequently if certain circumstances indicate the carrying value of goodwill is impaired. A qualitative assessment is first made to determine whether it is necessary to quantitatively test goodwill for impairment. This initial assessment includes, among others, consideration of macroeconomic conditions and financial performance. If the qualitative assessment indicates that it is more likely than not that an impairment exists, a quantitative analysis is performed by comparing the estimated fair values of our reporting units with their respective carrying values, including goodwill. An impairment loss is recognized to the extent that the carrying amount of goodwill exceeds the asset's implied fair value.
Other intangible assets acquired in a business combination related to in-process research and development ("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 the 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.
Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset, or asset group, to estimated undiscounted future cash flows expected to be generated by the asset, or asset group. An impairment charge is recognized by the amount by which the carrying amount of the asset, or asset group, exceeds its fair value.
The Company amortizes intangible assets with estimable useful lives on a straight-line basis over their useful lives.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Revenue Recognition
Revenue is recognized when all of the following criteria have been met:
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Persuasive evidence of an arrangement exists. The Company generally relies upon sales contracts or agreements, and customer purchase orders to determine the existence of an arrangement.
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Delivery has occurred. The Company uses shipping terms and related documents, or written evidence of customer acceptance, when applicable, to verify delivery of product obligations.
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Sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment.
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Collectability is reasonably assured. The Company assesses collectability based on creditworthiness of customers as determined by its credit checks, their payment histories, or changes in circumstances that indicate that collectability is not reasonably assured.
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When sales arrangements contain multiple elements, the Company allocates revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on either vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. The Company then recognizes revenue on each deliverable in accordance with its policies for product and service revenue recognition. VSOE of selling price is based on the price charged when the element is sold separately. In determining VSOE, the Company requires that a substantial majority of the selling prices fall within a reasonable range based on historical discounting trends for specific products and services. TPE of selling price is established by evaluating largely interchangeable competitor products or services in stand-alone sales to similar situated customers. However, as the Company's products contain a significant element of proprietary technology and its solutions offer substantially different features and functionality, the comparable pricing of third-party products with similar functionality typically cannot be obtained and therefore TPE is not used. ESP is established considering multiple factors including, but not limited to pricing practices in different geographies and through different sales channels, gross margin objectives, internal costs, competitor pricing strategies, and industry technology lifecycles.
In multiple element arrangements where software deliverables are included, revenue is allocated to each separate unit of accounting for each of the non-software deliverables and to the software deliverables as a group using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. If the arrangement contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is then allocated to each software deliverable using the residual method when VSOE of fair value of the undelivered items exists. Under the residual method, the amount of revenue allocated to delivered elements equals the total arrangement consideration less the aggregate fair value of any undelivered elements. If VSOE of one or more undelivered items does not exist, revenue from the entire arrangement is deferred and recognized at the earlier of: (i) delivery of those elements or (ii) when VSOE can be established, and where maintenance service is the only undelivered element, the entire arrangement fee is recognized ratably over the maintenance service period.
The Company limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products or services or subject to customer-specific return or refund privileges.
The Company records reductions to revenue for estimated product returns and pricing adjustments, such as rebates and price protection, in the same period that the related revenue is recorded. The amount of these reductions is based on historical sales returns and price protection credits, specific criteria outlined in rebate agreements, and other factors known at the time.
A portion of the Company's sales is made through distributors under agreements allowing for pricing credits or rights of return. As reliable estimates of these credits or returns cannot be made, product revenue on sales made through these distributors is recognized upon sell-through as reported by the distributors to the Company. Deferred revenue on shipments to distributors reflects the effects of distributor pricing credits given and the amount of gross margin expected to be realized upon sell-through. Deferred revenue is recorded net of the related product costs of revenue.
Service revenues include revenue from maintenance, training, professional services, and software post-contract support ("PCS"). Maintenance is offered under renewable contracts. Revenue from maintenance service contracts is deferred and recognized ratably over the contractual support period, which is generally
one
to
three years
. Revenue from training and professional services is recognized as services are completed or ratably over the contractual period, which is generally
one year
or less. Software PCS
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
includes technical support and provide software license updates. Software license updates provide customers with rights to unspecified software product upgrades, maintenance releases and patches released during the term of the support period. Revenue related to software PCS is recognized over the term of the PCS arrangement.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on the Company's assessment of the collectability of customer accounts. The Company regularly reviews its receivables that remain outstanding past their applicable payment terms and establishes an allowance by considering factors such as historical experience, credit quality, and age of the accounts receivable balances, and current economic conditions that may affect a customer's ability to pay.
Warranty Reserves
The Company generally offers a
one
-year warranty on most of its hardware products, and a
90
-day warranty on the media that contains the software embedded in the products. Warranty costs are recognized as part of the Company's cost of sales based on associated material costs, logistics costs, labor costs, and overhead at the time revenue is recognized. Material costs are estimated primarily based upon the historical costs to repair or replace product returns within the warranty period. Labor, logistics and overhead costs are estimated primarily based upon historical trends in the cost to support customer cases within the warranty period.
Contract Manufacturer Liabilities
The Company establishes a liability for non-cancelable, non-returnable purchase commitments with its contract manufacturers for carrying charges, quantities in excess of its demand forecasts, or obsolete material charges for components purchased by the contract manufacturers to meet the Company’s demand forecast or customer orders. The demand forecasts are based upon historical trends and analysis from the Company's sales and marketing organizations, adjusted for overall market conditions.
Research and Development
Costs to research, design, and develop the Company's products are expensed as incurred.
Software Development Costs
Capitalization of software development costs for software to be sold, leased, or otherwise marketed begins when a product's technological feasibility has been established and ends when a product is available for general release to customers. Generally, the Company's products are released soon after technological feasibility has been established. As a result, costs incurred between achieving technological feasibility and product general availability have not been significant.
The Company capitalizes costs associated with internal-use software systems during the application development stage. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related costs for employees, who are directly associated with the development of the applications.
Advertising
Advertising costs are charged to sales and marketing expense as incurred. Advertising expense was
$15.8 million
,
$20.2 million
, and
$19.2 million
, for
2016
,
2015
, and
2014
, respectively.
Foreign Currency
Assets and liabilities of foreign operations with non-U.S. Dollar functional currency are translated to U.S. Dollars using exchange rates in effect at the end of the period. Revenue and expenses are translated to U.S. Dollars using average exchange rates for the period. The resulting translation adjustments are included in the Company’s Consolidated Balance Sheets in the stockholders’ equity section as a component of accumulated other comprehensive loss. The Company records foreign exchange transaction gains and losses for assets and liabilities denominated in non-functional currencies. These remeasurement adjustments are recorded in other (expense) income, net in the Consolidated Statements of Operations.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Loss Contingencies
The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. Management considers the likelihood of loss related to an asset, or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. The Company regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required.
Share-Based Compensation
The Company measures and recognizes compensation cost for all share-based awards made to employees and directors, including employee stock options, stock awards, restricted stock units, performance share awards and employee stock purchases related to the Employee Stock Purchase Plan ("ESPP"). Share-based compensation expense is based on the fair value of the underlying awards and amortized on a straight-line basis, net of estimated forfeitures.
The Company utilizes the Black-Scholes-Merton (“BSM”) option-pricing model to estimate the fair value of its stock options and ESPP shares. The BSM model requires various highly subjective assumptions that represent management's best estimates of volatility, risk-free interest rate, expected life, and dividend yield. The Company estimates expected volatility based on the implied volatility of market-traded options, on the Company's common stock, adjusted for other relevant factors including historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options and ESPP. The expected life of a stock option is based on historical experience of employee exercises and post-vesting termination behavior as well as the potential effect from options that have not been exercised. The expected life of ESPP approximates the offering period.
The Company determines the fair value of its restricted stock units ("RSUs"), restricted stock awards ("RSAs"), and performance share awards ("PSAs") based on the closing market price of the Company’s common stock on the date of grant, adjusted by the present value of the expected dividend.
For market-based RSUs, the Company estimates the fair value and derived service period using the Monte Carlo simulation option pricing model ("Monte Carlo model"). The determination of the grant date fair value and derived service periods using the Monte Carlo model is affected by the Company's stock price as well as various highly subjective assumptions that represent management's best estimates of volatility, risk-free interest rate, and dividend yield. The Company estimates expected volatility based on the implied volatility of market-traded options, on the Company's common stock, adjusted for other relevant factors including historical volatility of the Company’s common stock over the contractual life of the Company's market-based RSUs.
Provision for Income Taxes
Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
The Company accounts for uncertainty in income taxes using a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than
50%
likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt) of cash within
one year
. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.
Concentrations of Risk
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, and accounts receivable. The Company invests only in high-quality credit instruments and maintains its cash, cash equivalents and available-for-sale investments in fixed income securities with several high-quality institutions. Deposits held with banks, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. We mitigate the concentration of credit risk in our investment portfolio through diversification of the investments in various industries and limit to the amount of credit exposure to any single issuer.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company’s derivatives expose it to credit risk to the extent that counterparties may be unable to meet the terms of the agreement. To mitigate concentration of risk related to its derivatives, the Company establishes counterparty limits to major credit-worthy financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored and the derivatives transacted with these entities are relatively short in duration. Therefore, the Company does not expect material losses as a result of defaults by counterparties.
Generally, credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company's customer base and their dispersion across different geographic locations throughout the world. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. During the years ended
December 31, 2016
,
2015
, and
2014
,
no
single customer accounted for 10% or more of net revenues.
The Company relies on sole suppliers for certain of its components such as application-specific integrated circuits ("ASICs") and custom sheet metal. Additionally, the Company relies primarily on a limited number of significant independent contract manufacturers and outside design manufacturers for the production of its products. The inability of any supplier or manufacturer to fulfill supply requirements of the Company could negatively impact future operating results.
Recent Accounting Pronouncements
In November 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-18 (Topic 230)
Statement of Cash Flow: Restricted Cash
. The pronouncement requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The standard must be applied retrospectively to all periods presented. The Company is currently evaluating the impact of adoption on the Consolidated Financial Statements.
In October 2016, the FASB issued ASU No. 2016-17 (Topic 810)
Interests held through Related Parties that are under Common Control.
The pronouncement amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The standard must be applied retrospectively to all periods presented. The Company adopted the standard on January 1, 2017 and the adoption of this standard did not have a significant impact on the Company's Consolidated Financial Statements.
In October 2016, the FASB issued ASU No. 2016-16 (Topic 740)
Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory,
which will require companies to recognize, as opposed to defer, the tax effects from intercompany transfer of an asset, other than inventory, when the transfer occurs. Prior to the issuance of this ASU, companies were required to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized. ASU 2016-16 will still require companies to defer the income tax effects of intercompany inventory transactions. ASU 2016-16 will be effective for annual and interim reporting periods beginning after December 15, 2017 and is to be applied on a modified retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of adoption on the Consolidated Financial Statements.
In August 2016, the 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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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.
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. The Company adopted the standard on January 1, 2017 and elected to account for forfeitures as they occur using a modified retrospective transition method, rather than the current method of estimating forfeitures, resulting in a cumulative-effect adjustment of approximately
$9.0 million
, which increased the January 1, 2017 opening accumulated deficit balance. The Company is also required to record excess tax benefits and tax deficiencies as income tax benefit or expense in the statement of operations prospectively when share-based awards vest or are settled. Upon adoption, the Company recognized the previously unrecognized excess tax benefits using the modified retrospective transition method, which resulted in no impact to the January 1, 2017 opening accumulated deficit balance. The previously unrecognized excess tax effects were recorded as a deferred tax asset, which was fully offset by a valuation allowance. Without the valuation allowance, the Company’s deferred tax asset would have increased by
$20.8 million
. The Company also elected to apply the change in presentation to the statements of cash flows retrospectively and no longer classify the excess tax benefits from share-based compensation as a reduction from operating cash flows.
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 adopted the standard on January 1, 2017, and the adoption of this standard did not have a significant impact on the Company's Consolidated Financial Statements.
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 of adoption of this standard, however it is expected to have a material impact on the Company's 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. 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,
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
disposal and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company adopted the standard on January 1, 2017, and the adoption of this standard did 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. The FASB has also issued several amendments to the standard since the initial issuance. This ASU will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. 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. This ASU also requires more extensive disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. 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 and the amendments will be effective for the Company beginning fiscal year 2018.
The Company intends to adopt the standard on January 1, 2018 retrospectively, applying the amendments to each prior reporting period presented. The Company's ability to adopt retrospectively is dependent on the completion of scoping and analysis of the necessary information, and being able to report each prior period within the date of adoption (or January 1, 2018).
The Company has completed a review of the accounting systems and processes required to apply the full retrospective method. Additionally, the Company has completed the majority of the assessment phase and documentation of new policies and is currently in the process of preparing prior-period financial statements, gathering data for the new disclosure requirements and evaluating its controls framework. The Company does not expect a significant change in its control environment due to the adoption of the new standard, however, we will continue to assess until date of adoption.
Upon adoption, the Company expects a material impact to the opening balance sheet as of January 1, 2016 related to the cumulative effect of adopting the standard, primarily as a result of the items discussed below. The Company will continue to assess all potential impacts of the standard, and currently believes the most significantly impacted areas are the following:
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•
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Distributor sales: Under Topic 606, the Company will recognize revenue from sales to distributors upon delivery of the product to the distributor, rather than upon delivery of the product to the end customer. Rebates and incentives offered to distributors, which are earned when sales to end customers are completed, will be estimated at the point of revenue recognition and may require significant judgment and additional assumptions. At December 31, 2015, the deferred revenue under Topic 605 related to shipments to distributors that had not sold through to end-users was
$81.8 million
. Since the Company will be required to recognize revenue when control of the products transfer to the distributor Under Topic 606, the Company expects the majority of deferred revenue at December 31, 2015 will be eliminated as a cumulative effect adjustment of implementing Topic 606 as of January 1, 2016. The full impact of the adjustment is still being analyzed by the Company.
|
|
|
•
|
Software Revenue: The Company currently defers revenue for perpetual licenses where VSOE of fair value has not been established for undelivered items. Under Topic 606, revenue for perpetual licenses will be recognized at the time of delivery as the VSOE requirement no longer applies and the Company can estimate stand-alone selling price for services. Currently, all term license revenue is deferred and recognized over the license term due to a lack of VSOE for services. Under Topic 606, term license revenue will be recognized at the time of delivery rather than ratably over the term period unless the ongoing services provide frequent, critical updates to the software, without which the software functionality would be rapidly diminished. At December 31, 2015, deferred revenue under Topic 605 due to lack of VSOE and ratably recognized term licenses was
$79.5 million
. The Company expects a significant proportion of such deferred revenue will be eliminated as a cumulative effect adjustment of implementing Topic 606 as of January 1, 2016. The full impact of the adjustment is still being analyzed by the Company.
|
|
|
•
|
Contract Acquisition costs: Topic 606 requires the deferral and amortization of “incremental” costs incurred to obtain a contract where the associated contract duration is greater than one year. The primary contract acquisition cost for the Company are sales commissions. Under current U.S. GAAP, the Company expenses sales commissions. The change required by Topic 606 will result in the creation of an asset on the opening balance sheet at January 1, 2016. In each subsequent financial period, it is expected that this asset will increase or decrease proportionally with deferred revenues and will not have a material impact to the income statement.
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
•
|
Variable Consideration: Some of the Company's contracts include penalties and acceptance provisions that preclude revenue recognition because of the requirement for amounts to be fixed or determinable under Topic 605. Topic 606 requires the Company to estimate and account for variable consideration associated with penalty provisions and requires evaluation of acceptance provisions to determine if control has transferred to the customer. At December 31, 2015, deferred revenue under Topic 605 due to penalties and acceptance provisions was
$40.3 million
. The Company expects the majority of such deferred revenue will be eliminated as a cumulative effect adjustment of implementing Topic 606 as of January 1, 2016. The full impact of the adjustment is still being analyzed by the Company.
|
|
|
•
|
Revenue Allocation: Similar to Topic 605, Topic 606 requires an allocation of revenue between deliverables within a transaction. Topic 605 restricts the allocation of revenue that is contingent on future deliverables to current deliverables, however Topic 606 removes this restriction. Impact of allocation of transaction price is still being assessed, however we do not expect this to have a material impact to the income statement.
|
The Company will continue to assess the impact of 606 as it works through the adoption in 2017, and there remain areas still to be fully concluded upon. Further, there remain ongoing interpretive reviews, which may alter the Company's conclusions and the financial impact of Topic 606.
Note 3. Business Combinations
The Company's Consolidated Financial Statements include the operating results of acquired businesses from the date of each acquisition. Pro forma results of operations for these acquisitions have not been presented as the financial impact to the Company's consolidated results of operations, both individually and in aggregate, is not material. The primary areas of the preliminary purchase price allocation that are subject to change relate to certain legal and income tax matters and residual goodwill.
The Company completed
four
acquisitions during the three years ended December 31, 2016. The Company acquired BTI Systems Inc. (“BTI”), Aurrion, Inc. ("Aurrion") and AppFormix, Inc. ("AppFormix") in 2016 and WANDL, Inc. ("WANDL") in 2014. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition dates (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2014
|
|
AppFormix
|
|
Aurrion
|
|
BTI
|
|
Total
|
|
WANDL
|
Net tangible assets acquired/(liabilities) assumed
|
$
|
(5.3
|
)
|
|
$
|
6.0
|
|
|
$
|
(19.7
|
)
|
|
$
|
(19.0
|
)
|
|
$
|
(2.7
|
)
|
Intangible assets acquired
|
20.3
|
|
|
49.0
|
|
|
43.3
|
|
|
112.6
|
|
|
17.8
|
|
Goodwill
(*)
|
32.9
|
|
|
46.9
|
|
|
20.2
|
|
|
100.0
|
|
|
13.6
|
|
Total
|
$
|
47.9
|
|
|
$
|
101.9
|
|
|
$
|
43.8
|
|
|
$
|
193.6
|
|
|
$
|
28.7
|
|
________________________________
|
|
(*)
|
The goodwill recognized for these acquisitions was primarily attributable to expected synergies and is not deductible for U.S. federal income tax purposes.
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized (in millions, except years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2014
|
|
AppFormix
|
|
Aurrion
|
|
BTI
|
|
WANDL
|
|
Weighted
Average
Estimated
Useful
Life
(In Years)
|
|
Amount
|
|
Weighted
Average
Estimated
Useful
Life
(In Years)
|
|
Amount
|
|
Weighted
Average
Estimated
Useful
Life
(In Years)
|
|
Amount
|
|
Weighted
Average
Estimated
Useful
Life
(In Years)
|
|
Amount
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing technology
|
5
|
|
$
|
20.1
|
|
|
—
|
|
$—
|
|
8
|
|
$
|
37.1
|
|
|
7
|
|
$
|
10.7
|
|
Customer relationships
|
1
|
|
0.2
|
|
|
—
|
|
—
|
|
8
|
|
5.3
|
|
|
7
|
|
6.0
|
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
0.9
|
|
|
3
|
|
1.1
|
|
Total intangible assets with
finite lives
|
|
|
20.3
|
|
|
|
|
—
|
|
|
|
43.3
|
|
|
|
|
17.8
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPR&D
|
|
|
—
|
|
|
|
49.0
|
|
|
|
|
—
|
|
|
|
—
|
Total intangible assets
acquired
|
|
|
$
|
20.3
|
|
|
|
|
$
|
49.0
|
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
17.8
|
|
2016 Acquisitions
AppFormix
On December 6, 2016, the Company acquired AppFormix for
$47.9 million
of cash. The acquisition of AppFormix, a company focused on cloud infrastructure optimization software, is expected to complement the analytics and capabilities of Contrail and to help customers enhance their cloud operations.
Under the terms of the acquisition agreement, the Company assumed share-based awards for continuing employees from the acquisition of AppFormix, which were granted in contemplation of future services. The fair value of these share-based awards was
$23.9 million
, which will be expensed as share-based compensation over the remaining service period.
Aurrion
On August 9, 2016, the Company acquired the remaining ownership interest in 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.
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.
Additionally, 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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
BTI
On April 1, 2016, the Company acquired the remaining ownership interest in 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.
2014 Acquisition
WANDL
On January 7, 2014, the Company acquired
100%
of the equity securities of WANDL, for
$28.7 million
of cash and stock consideration. WANDL, a provider of software solutions for advanced planning, management, design and optimization of next-generation multi-layer networks, provides the Company with technology and experience in traffic engineering, multi-layer optimization and path computation to help service provider customers optimize the performance and cost of their networks.
Under the terms of the purchase agreement, the Company assumed unvested share-based awards for employees with a fair value of
$34.9 million
, which were granted in contemplation of future services and are being expensed as share-based compensation over the remaining service period
.
Acquisition Costs
The Company recognized
$11.8 million
and
$0.5 million
of acquisition-related costs during the years ended December 31, 2016 and 2014, respectively. These acquisition-related costs were expensed in the period incurred within general and administrative expense in the Company's Consolidated Statements of Operations. There were
no
such costs during the year ended December 31, 2015.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 4. Cash Equivalents and Investments
Investments in Available-for-Sale and Trading Securities
The following tables summarize the Company's unrealized gains and losses and fair value of investments designated as available-for-sale and trading securities as of
December 31, 2016
and
December 31, 2015
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Estimated Fair
Value
|
As of December 31, 2016
|
|
|
|
|
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
Asset-backed securities
|
$
|
303.0
|
|
|
$
|
0.2
|
|
|
$
|
(0.2
|
)
|
|
$
|
303.0
|
|
Certificates of deposit
|
66.1
|
|
|
—
|
|
|
—
|
|
|
66.1
|
|
Commercial paper
|
147.7
|
|
|
—
|
|
|
—
|
|
|
147.7
|
|
Corporate debt securities
|
846.5
|
|
|
0.4
|
|
|
(2.0
|
)
|
|
844.9
|
|
Foreign government debt securities
|
34.0
|
|
|
—
|
|
|
(0.1
|
)
|
|
33.9
|
|
Time deposits
|
264.6
|
|
|
—
|
|
|
—
|
|
|
264.6
|
|
U.S. government agency securities
|
127.0
|
|
|
—
|
|
|
(0.3
|
)
|
|
126.7
|
|
U.S. government securities
|
390.7
|
|
|
0.1
|
|
|
(0.4
|
)
|
|
390.4
|
|
Total fixed income securities
|
2,179.6
|
|
|
0.7
|
|
|
(3.0
|
)
|
|
2,177.3
|
|
Money market funds
|
592.2
|
|
|
—
|
|
|
—
|
|
|
592.2
|
|
Mutual funds
|
8.0
|
|
|
—
|
|
|
—
|
|
|
8.0
|
|
Publicly-traded equity securities
|
5.3
|
|
|
—
|
|
|
(0.7
|
)
|
|
4.6
|
|
Total available-for-sale securities
|
2,785.1
|
|
|
0.7
|
|
|
(3.7
|
)
|
|
2,782.1
|
|
Trading securities in mutual funds
(1)
|
21.0
|
|
|
—
|
|
|
—
|
|
|
21.0
|
|
Total
|
$
|
2,806.1
|
|
|
$
|
0.7
|
|
|
$
|
(3.7
|
)
|
|
$
|
2,803.1
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
907.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
907.1
|
|
Restricted investments
(2)
|
71.9
|
|
|
—
|
|
|
—
|
|
|
71.9
|
|
Short-term investments
|
753.4
|
|
|
0.1
|
|
|
(1.2
|
)
|
|
752.3
|
|
Long-term investments
|
1,073.7
|
|
|
0.6
|
|
|
(2.5
|
)
|
|
1,071.8
|
|
Total
|
$
|
2,806.1
|
|
|
$
|
0.7
|
|
|
$
|
(3.7
|
)
|
|
$
|
2,803.1
|
|
________________________________
|
|
(1)
|
Balance includes 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 current assets on the Consolidated Balance Sheets.
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Time deposits
|
140.0
|
|
|
—
|
|
|
—
|
|
|
140.0
|
|
U.S. government agency securities
|
204.1
|
|
|
—
|
|
|
(0.4
|
)
|
|
203.7
|
|
U.S. government securities
|
278.0
|
|
|
—
|
|
|
(0.4
|
)
|
|
277.6
|
|
Total fixed income securities
|
1,891.9
|
|
|
0.2
|
|
|
(3.9
|
)
|
|
1,888.2
|
|
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
|
1,936.4
|
|
|
1.1
|
|
|
(4.6
|
)
|
|
1,932.9
|
|
Trading securities in mutual funds
(1)
|
17.7
|
|
|
—
|
|
|
—
|
|
|
17.7
|
|
Total
|
$
|
1,954.1
|
|
|
$
|
1.1
|
|
|
$
|
(4.6
|
)
|
|
$
|
1,950.6
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
143.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
143.4
|
|
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
|
$
|
1,954.1
|
|
|
$
|
1.1
|
|
|
$
|
(4.6
|
)
|
|
$
|
1,950.6
|
|
_______________________________
|
|
(1)
|
Balance includes 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
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Estimated Fair
Value
|
Due in less than one year
|
$
|
1,105.9
|
|
|
$
|
0.1
|
|
|
$
|
(0.5
|
)
|
|
$
|
1,105.5
|
|
Due between one and five years
|
1,073.7
|
|
|
0.6
|
|
|
(2.5
|
)
|
|
1,071.8
|
|
Total
|
$
|
2,179.6
|
|
|
$
|
0.7
|
|
|
$
|
(3.0
|
)
|
|
$
|
2,177.3
|
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The following tables present the Company's available-for-sale securities that were in an unrealized loss position as of
December 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 December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
$
|
122.2
|
|
|
$
|
(0.2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
122.2
|
|
|
$
|
(0.2
|
)
|
Corporate debt securities
|
470.8
|
|
|
(1.9
|
)
|
|
76.7
|
|
|
(0.1
|
)
|
|
547.5
|
|
|
(2.0
|
)
|
Foreign government debt securities
|
20.3
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
20.3
|
|
|
(0.1
|
)
|
U.S. government agency securities
|
106.7
|
|
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
106.7
|
|
|
(0.3
|
)
|
U.S. government securities
|
254.1
|
|
|
(0.4
|
)
|
|
—
|
|
|
—
|
|
|
254.1
|
|
|
(0.4
|
)
|
Total fixed income securities
|
974.1
|
|
|
(2.9
|
)
|
|
76.7
|
|
|
(0.1
|
)
|
|
1,050.8
|
|
|
(3.0
|
)
|
Publicly-traded equity securities
|
4.6
|
|
|
(0.7
|
)
|
|
—
|
|
|
—
|
|
|
4.6
|
|
|
(0.7
|
)
|
Total available-for sale securities
|
$
|
978.7
|
|
|
$
|
(3.6
|
)
|
|
$
|
76.7
|
|
|
$
|
(0.1
|
)
|
|
$
|
1,055.4
|
|
|
$
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
U.S. government agency securities
|
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
.
|
The Company had
494
and
682
investments in unrealized loss positions as of
December 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
December 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 years ended
December 31, 2016
,
2015
, and
2014
.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 years ended
December 31, 2016
and
December 31, 2015
, the Company did not recognize other-than-temporary impairments associated with its available-for-sale equity securities. During the year ended
December 31, 2014
, the Company determined that certain available-for-sale equity securities were other-than temporarily impaired, resulting in an impairment charge of
$1.1 million
that was recorded within other (expense) income, net, in the Consolidated Statement of Operations.
During the years ended
December 31, 2016
and
December 31, 2015
, there were no material gross realized gains or losses from available-for-sale securities and trading securities. During the year ended
December 31, 2014
, gross realized gains from available-for-sale securities were
$166.8 million
and gross realized losses were not material.
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
December 31, 2016
, total restricted cash and investments was $
119.2 million
, of which
$19.3 million
was included in prepaid expenses and other current assets and
$99.9 million
was included in restricted cash and investments on the Consolidated Balance Sheets.
Investments in Privately-Held Companies
As of
December 31, 2016
and
December 31, 2015
, the carrying values of the Company's privately-held investments of
$62.7 million
and
$102.4 million
, respectively, were included in other long-term assets in the Consolidated Balance Sheets. As of
December 31, 2016
and
December 31, 2015
, the carrying value of the privately-held investments includes debt and redeemable preferred stock securities of
$43.7 million
and
$60.2 million
, respectively. During the year ended
December 31, 2016
, the Company did not record any unrealized gains or unrealized losses associated with its privately-held debt and redeemable preferred stock securities. During the year ended
December 31, 2015
, the Company recorded
$11.4 million
of unrealized gains in other comprehensive loss and no unrealized losses associated with privately-held securities and redeemable preferred stock securities. During the year ended December 31, 2014, there were
$15.0 million
of unrealized gains and no unrealized losses associated with privately-held securities and no unrealized gains or losses on redeemable preferred stock in other comprehensive loss.
The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company adjusts the carrying value for its privately-held investments for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis. During the years ended
December 31, 2016
and
December 31, 2014
, the Company determined that certain privately-held investments were other than-temporarily impaired, resulting in impairment charges of
$11.2 million
and
$1.1 million
, respectively, that were recorded within other expense (income), net in the Consolidated Statement of Operations. During the year ended
December 31, 2015
, the Company determined that
no
privately-held investments were other-than-temporarily impaired.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 5. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables provide a summary of assets and liabilities measured at fair value on a recurring basis and as reported in the Consolidated Balance Sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 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
|
$
|
—
|
|
|
$
|
303.0
|
|
|
$
|
—
|
|
|
$
|
303.0
|
|
Certificates of deposit
|
—
|
|
|
66.1
|
|
|
—
|
|
|
66.1
|
|
Commercial paper
|
—
|
|
|
147.7
|
|
|
—
|
|
|
147.7
|
|
Corporate debt securities
|
—
|
|
|
844.9
|
|
|
—
|
|
|
844.9
|
|
Foreign government debt securities
|
—
|
|
|
33.9
|
|
|
—
|
|
|
33.9
|
|
Money market funds
(1)
|
592.2
|
|
|
—
|
|
|
—
|
|
|
592.2
|
|
Mutual funds
(2)
|
8.0
|
|
|
—
|
|
|
—
|
|
|
8.0
|
|
Publicly-traded equity securities
|
4.6
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
Time deposits
|
—
|
|
|
264.6
|
|
|
—
|
|
|
264.6
|
|
U.S. government agency securities
|
—
|
|
|
126.7
|
|
|
—
|
|
|
126.7
|
|
U.S. government securities
|
345.0
|
|
|
45.4
|
|
|
—
|
|
|
390.4
|
|
Total available-for-sale securities
|
949.8
|
|
|
1,832.3
|
|
|
—
|
|
|
2,782.1
|
|
Trading securities in mutual funds
(3)
|
21.0
|
|
|
—
|
|
|
—
|
|
|
21.0
|
|
Privately-held debt and redeemable preferred
stock securities
|
—
|
|
|
—
|
|
|
43.7
|
|
|
43.7
|
|
Derivative assets:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
—
|
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
Total assets measured at fair value
|
$
|
970.8
|
|
|
$
|
1,833.2
|
|
|
$
|
43.7
|
|
|
$
|
2,847.7
|
|
Liabilities measured at fair value:
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
Total assets measured at fair value, reported as:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
549.3
|
|
|
$
|
357.7
|
|
|
$
|
—
|
|
|
$
|
907.0
|
|
Restricted investments
|
71.9
|
|
|
—
|
|
|
—
|
|
|
71.9
|
|
Short-term investments
|
178.1
|
|
|
574.3
|
|
|
—
|
|
|
752.4
|
|
Long-term investments
|
171.5
|
|
|
900.3
|
|
|
—
|
|
|
1,071.8
|
|
Prepaid expenses and other current assets
|
—
|
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
Other long-term assets
|
—
|
|
|
—
|
|
|
43.7
|
|
|
43.7
|
|
Total assets measured at fair value
|
$
|
970.8
|
|
|
$
|
1,833.2
|
|
|
$
|
43.7
|
|
|
$
|
2,847.7
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value, reported as:
|
|
|
|
|
|
|
|
Other accrued liabilities
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
________________________________
|
|
(1)
|
Balance includes
$42.9 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 non-qualified deferred compensation plan assets.
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Money market funds
(1)
|
29.7
|
|
|
—
|
|
|
—
|
|
|
29.7
|
|
Mutual funds
(2)
|
6.2
|
|
|
—
|
|
|
—
|
|
|
6.2
|
|
Publicly-traded equity securities
|
8.8
|
|
|
—
|
|
|
—
|
|
|
8.8
|
|
Time deposits
|
—
|
|
|
140.0
|
|
|
—
|
|
|
140.0
|
|
U.S. government agency securities
|
—
|
|
|
203.7
|
|
|
—
|
|
|
203.7
|
|
U.S. government securities
|
247.3
|
|
|
30.3
|
|
|
—
|
|
|
277.6
|
|
Total available-for-sale securities
|
292.0
|
|
|
1,640.9
|
|
|
—
|
|
|
1,932.9
|
|
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
|
|
|
$
|
1,641.3
|
|
|
$
|
60.2
|
|
|
$
|
2,011.2
|
|
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
|
$
|
—
|
|
|
$
|
143.4
|
|
|
$
|
—
|
|
|
$
|
143.4
|
|
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
|
|
|
$
|
1,641.3
|
|
|
$
|
60.2
|
|
|
$
|
2,011.2
|
|
|
|
|
|
|
|
|
|
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 non-qualified deferred compensation plan assets.
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 years ended
December 31, 2016
and
December 31, 2015
, the Company had
no
transfers between levels of the fair value hierarchy of its assets or liabilities measured at fair value.
All of the Company's privately-held debt and redeemable preferred stock securities, are classified as Level 3 assets due to the 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 year ended
December 31, 2016
, there were
$12.9 million
purchases related to privately-held debt securities.
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. These assets are classified as Level 3 due to the lack of observable inputs to determine fair value.
As of
December 31, 2016
, certain investments in privately-held companies with a carrying value of
$1.6 million
were impaired and were written-down to their fair value of
zero
. The impairment charges of
$1.6 million
were recorded to other expense (income), net in the Consolidated Statements of Operations. As of
December 31, 2015
, the Company had no privately-held equity investments measured at fair value on a nonrecurring basis.
As of
December 31, 2016
and
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
December 31, 2016
and
December 31, 2015
, the estimated fair value of the Company's long-term debt in the Consolidated Balance Sheets was approximately
$2,215.7 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 Consolidated Balance Sheets as of
December 31, 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 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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 6. Derivative Instruments
The Company uses derivatives to partially offset its market exposure to fluctuations in certain foreign currencies and does not enter into derivatives for speculative or trading purposes.
The notional amount of the Company's foreign currency derivatives are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
Cash flow hedges
|
$
|
172.0
|
|
|
$
|
116.8
|
|
Non-designated derivatives
|
—
|
|
|
71.8
|
|
Total
|
$
|
172.0
|
|
|
$
|
188.6
|
|
Cash Flow Hedges
The Company uses foreign currency forward or option contracts to hedge the Company's planned cost of services and operating expenses denominated in foreign currencies. These derivatives are designated as cash flow hedges. Execution of these cash flow hedge derivatives typically occurs every month with maturities of
eighteen
months or less.
See Note 5,
Fair Value Measurements,
for the
fair values of the Company’s derivative instruments in the Consolidated Balance Sheets.
As of
December 31, 2016
, the Company recognized
a loss
of
$1.3 million
in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified
a gain
of
$1.8 million
during the year ended
December 31, 2016
from other comprehensive loss to operating expense in the Consolidated Statements of Operations. As of
December 31, 2015
, the Company recognized
a loss
of
$6.3 million
in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified
a loss
of
$9.6 million
during the year ended
December 31, 2015
from other comprehensive loss to operating expense in the Consolidated Statements of Operations. As of
December 31, 2014
, the Company recognized
a loss
of
$3.4 million
in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified
a gain
of
$3.4 million
during the year ended
December 31, 2014
from other comprehensive loss to operating expense in the Consolidated Statements of Operations.
The ineffective portion of the Company's derivative instruments recognized in its Consolidated Statements of Operations was
not material
during the years ended
December 31, 2016
,
2015
, and
2014
.
Non-Designated Derivatives
During the years ended
December 31, 2016
,
2015
, and
2014
, the Company recognized a
net loss
of
$0.5 million
, a
net loss
of
$0.6 million
, and a
net loss
of
$2.4 million
, respectively, on non-designated derivative instruments within other (expense) income, net, in its Consolidated Statements of Operations.
Offsetting of Derivatives
The Company presents its derivative assets and derivative liabilities on a gross basis in the 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
December 31, 2016
and
2015
, respectively, the potential effect of rights of offset 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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 7. Goodwill and Purchased Intangible Assets
Goodwill
The following table presents the goodwill activity (in millions):
|
|
|
|
|
|
Total
|
December 31, 2014
|
$
|
2,981.5
|
|
Other
|
(0.2
|
)
|
December 31, 2015
|
2,981.3
|
|
Additions due to business combinations
|
100.4
|
|
December 31, 2016
|
$
|
3,081.7
|
|
In the fourth quarter, the Company performed its annual goodwill impairment test for the Company's
three
reporting units: Routing, Switching, and Security for the years ended December 31,
2016
,
2015
, and
2014
, respectively. During the year ended December 31, 2016, the Company performed a quantitative assessment for each of the Company's three reporting units. This quantitative assessment was performed by determining the fair value of each reporting unit using a combination of the income approach and the market approach. Based on the outcome of the quantitative assessments, the Company determined that the fair value of each reporting unit exceeded its respective carrying value, resulting in no goodwill impairment. There was no goodwill impairment during the year ended December 31, 2015.
In 2014, the Company re-aligned its go-to-market and research and development ("R&D") resources on projects with the highest potential for growth and continued to leverage its engineering efforts across its Routing, Switching, and Security products. In the fourth quarter of 2014, the Company began to implement a new Security strategy focused on network resiliency and performance based on the SRX platform. As a result, the Company rationalized its Security product portfolio including developing a new product roadmap and exiting certain point products, including the divestiture of Junos Pulse. These factors decreased the Company's short term and near term revenue and profitability forecasts of the Security reporting unit and the Company determined that the Security reporting unit's carrying value of goodwill exceeded the implied fair value of goodwill, resulting in a goodwill impairment charge of
$850.0 million
, which was recorded in the Consolidated Statement of Operations. The fair value was determined by using a combination of the income approach and the market approach. In determining the impairment amount, the fair value of the Security reporting unit was allocated to its assets and liabilities, including any unrecognized intangible assets, based on their respective fair values. Assumptions used in measuring the value of these assets and liabilities included the discount rates, customer renewal rates, and technology obsolescence rates used in valuing the intangible assets, and pricing of comparable transactions in the market in valuing the tangible assets.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 December 31, 2016
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
Technologies and patents
|
$
|
624.9
|
|
|
$
|
(504.2
|
)
|
|
$
|
(49.9
|
)
|
|
$
|
70.8
|
|
Customer contracts, support agreements, and
related relationships
|
83.6
|
|
|
(70.8
|
)
|
|
(2.8
|
)
|
|
10.0
|
|
Other
|
2.0
|
|
|
(1.6
|
)
|
|
—
|
|
|
0.4
|
|
Total intangible assets with finite lives
|
710.5
|
|
|
(576.6
|
)
|
|
(52.7
|
)
|
|
81.2
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
IPR&D
|
49.0
|
|
|
—
|
|
|
—
|
|
|
49.0
|
|
Total purchased intangible assets
|
$
|
759.5
|
|
|
$
|
(576.6
|
)
|
|
$
|
(52.7
|
)
|
|
$
|
130.2
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
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
|
|
The following table presents the amortization of intangible assets included in the Consolidated Statements of Operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Cost of revenues
|
$
|
11.7
|
|
|
$
|
24.6
|
|
|
$
|
30.9
|
|
Operating expenses:
|
|
|
|
|
|
Sales and marketing
|
2.8
|
|
|
2.8
|
|
|
4.2
|
|
General and administrative
|
1.8
|
|
|
1.1
|
|
|
1.2
|
|
Total operating expenses
|
4.6
|
|
|
3.9
|
|
|
5.4
|
|
Total
|
$
|
16.3
|
|
|
$
|
28.5
|
|
|
$
|
36.3
|
|
There were
no
impairment charges to purchased intangible assets during the year ended December 31,
2016
. During the year ended
December 31, 2015
, the Company recorded
$5.6 million
to cost of revenues in the Consolidated Statements of Operations, related to the acceleration of the end-of-life of certain intangible assets. In connection with the restructuring plan in 2014 in Note 9,
Restructuring and Other Charges (Benefits)
, the Company determined certain intangible assets of
$20.0 million
were no longer utilized and recorded charges of
$19.3 million
in cost of revenues and
$0.7 million
in restructuring and other charges (benefits) in the Consolidated Statements of Operations during the year ended December 31, 2014.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
As of
December 31, 2016
, the estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):
|
|
|
|
|
Years Ending December 31,
|
Amount
|
2017
|
$
|
16.7
|
|
2018
|
14.4
|
|
2019
|
14.2
|
|
2020
|
14.1
|
|
2021
|
9.8
|
|
Thereafter
|
12.0
|
|
Total
|
$
|
81.2
|
|
Note 8. Other Financial Information
Inventory
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. Total inventory consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
Production materials
|
$
|
75.6
|
|
|
$
|
61.9
|
|
Finished goods
|
19.9
|
|
|
13.1
|
|
Inventory
|
$
|
95.5
|
|
|
$
|
75.0
|
|
|
|
|
|
Reported as:
|
|
|
|
Prepaid expenses and other current assets
|
$
|
91.4
|
|
|
$
|
66.6
|
|
Other long-term assets
|
4.1
|
|
|
8.4
|
|
Total
|
$
|
95.5
|
|
|
$
|
75.0
|
|
Property and Equipment, Net
Property and equipment, net, consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
Computers and equipment
|
$
|
1,070.1
|
|
|
$
|
915.1
|
|
Software
|
285.4
|
|
|
169.1
|
|
Leasehold improvements
|
235.6
|
|
|
203.4
|
|
Furniture and fixtures
|
47.0
|
|
|
43.2
|
|
Building and building improvements
|
251.8
|
|
|
246.1
|
|
Land and land improvements
|
241.0
|
|
|
241.1
|
|
Construction-in-process
(*)
|
26.2
|
|
|
158.2
|
|
Property and equipment, gross
|
2,157.1
|
|
|
1,976.2
|
|
Accumulated depreciation
|
(1,093.3
|
)
|
|
(955.2
|
)
|
Property and equipment, net
|
$
|
1,063.8
|
|
|
$
|
1,021.0
|
|
_______________________________
|
|
(*)
|
Includes capitalized construction costs for a lease arrangement entered into in July 2015. Refer to Note 16.
Commitments and Contingencies
for further details.
|
Depreciation expense was
$184.5 million
,
$141.5 million
, and
$141.9 million
in
2016
,
2015
, and
2014
, respectively.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Other Long-Term Assets
Other long-term assets consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
Investments in privately-held companies
|
$
|
62.7
|
|
|
$
|
102.4
|
|
Promissory note in connection with the sale of Junos Pulse
|
57.9
|
|
|
132.9
|
|
Federal income tax receivable
|
43.8
|
|
|
28.9
|
|
Deferred tax asset
|
19.5
|
|
|
55.9
|
|
Inventory
|
4.1
|
|
|
8.4
|
|
Prepaid costs, deposits, and other
(*)
|
49.2
|
|
|
50.4
|
|
Other long-term assets
|
$
|
237.2
|
|
|
$
|
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 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 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 December 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 years ended
December 31, 2016
and
December 31, 2015
, the related amount of interest income recognized was
$10.6 million
and
$6.3 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 Consolidated Balance Sheets. Changes in the Company’s warranty reserve were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
Beginning balance
|
$
|
28.4
|
|
|
$
|
28.7
|
|
Provisions made during the period, net
|
43.0
|
|
|
27.9
|
|
Actual costs incurred during the period
|
(30.1
|
)
|
|
(28.2
|
)
|
Ending balance
|
$
|
41.3
|
|
|
$
|
28.4
|
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Deferred Revenue
Details of the Company's deferred revenue, as reported in the Consolidated Balance Sheets, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
Deferred product revenue:
|
|
|
|
Undelivered product commitments and other product deferrals
|
$
|
302.4
|
|
|
$
|
210.1
|
|
Distributor inventory and other sell-through items
|
74.2
|
|
|
81.8
|
|
Deferred gross product revenue
|
376.6
|
|
|
291.9
|
|
Deferred cost of product revenue
|
(53.7
|
)
|
|
(51.6
|
)
|
Deferred product revenue, net
|
322.9
|
|
|
240.3
|
|
Deferred service revenue
|
1,158.2
|
|
|
927.8
|
|
Total
|
$
|
1,481.1
|
|
|
$
|
1,168.1
|
|
Reported as:
|
|
|
|
Current
|
$
|
1,032.0
|
|
|
$
|
822.9
|
|
Long-term
|
449.1
|
|
|
345.2
|
|
Total
|
$
|
1,481.1
|
|
|
$
|
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 billed amounts for service contracts, which include technical support, hardware and software maintenance, professional services, and training, for which services have not been rendered.
Other (Expense) Income, Net
Other (expense) income, net consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Interest income
|
$
|
35.4
|
|
|
$
|
21.8
|
|
|
$
|
10.0
|
|
Interest expense
|
(97.7
|
)
|
|
(83.3
|
)
|
|
(66.9
|
)
|
Gain on legal settlement, net
|
—
|
|
|
—
|
|
|
196.1
|
|
(Loss) gain on investments, net
|
(1.8
|
)
|
|
6.8
|
|
|
167.9
|
|
Gain on sale of Junos Pulse
|
—
|
|
|
—
|
|
|
19.6
|
|
Other
|
1.8
|
|
|
(5.1
|
)
|
|
6.7
|
|
Other (expense) income, net
|
$
|
(62.3
|
)
|
|
$
|
(59.8
|
)
|
|
$
|
333.4
|
|
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. (Loss) 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.
Interest Expense
For the years ended December 31,
2016
,
2015
and
2014
, interest expense included
$93.0 million
, net of
$0.4 million
capitalized,
$79.8 million
, net of
$2.2 million
capitalized, and
$57.5 million
, net of
$2.7 million
capitalized, respectively, related to the Company's outstanding long-term debt issued in March 2011, March 2014, March 2015, and March 2016 discussed in Note 10,
Debt and Financing
.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Gain on Legal Settlement, Net
During the year ended December 31, 2014, the Company entered into a settlement agreement with Palo Alto Networks, Inc., or Palo Alto Networks, resolving a patent litigation between the two companies, which resulted in a realized gain on legal settlement and subsequent sale of related securities of
$196.1 million
, net of legal fees.
(Loss) Gain on Investments, Net
During the years ended
December 31, 2016
and
December 31, 2015
, the Company recorded a loss of
$1.8 million
and a gain of
$6.8 million
, respectively, primarily related to the sale of its privately-held investments. During the year ended
December 31, 2014
, the Company recorded a gain of
$163.0 million
related to the sale of investments, which were converted from privately-held investments to publicly-traded equity upon initial public offering and subsequently sold.
Gain on Sale of Junos Pulse
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 issued to the Company. As a result of the sale, the Company recorded a gain of
$19.6 million
in other (expense) income, net in the Consolidated Statement of Operations. The Company's sale of Junos Pulse was driven by product rationalization in connection with the Company's initiative to focus on projects with the highest potential for growth.
Note 9. Restructuring and Other Charges (Benefits)
The following table presents restructuring and other charges (benefits) included in cost of revenues and restructuring and other charges (benefits) in the Consolidated Statements of Operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Severance
|
$
|
2.8
|
|
|
$
|
0.4
|
|
|
$
|
52.6
|
|
Facilities
|
0.5
|
|
|
(1.0
|
)
|
|
14.4
|
|
Contract terminations and other
|
—
|
|
|
—
|
|
|
2.3
|
|
Asset impairments and write-downs
|
—
|
|
|
(3.5
|
)
|
|
139.2
|
|
Total
|
$
|
3.3
|
|
|
$
|
(4.1
|
)
|
|
$
|
208.5
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
Cost of revenues
|
$
|
—
|
|
|
$
|
(3.5
|
)
|
|
$
|
41.5
|
|
Restructuring and other charges (benefits)
|
3.3
|
|
|
(0.6
|
)
|
|
167.0
|
|
Total
|
$
|
3.3
|
|
|
$
|
(4.1
|
)
|
|
$
|
208.5
|
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
During the year ended
December 31, 2016
, the Company recorded
$2.8 million
of restructuring charges related to severance costs for certain former BTI employees, as well as
$0.5 million
of restructuring costs related to facilities, to restructuring and other charges (benefits) in the Consolidated Statements of Operations. As of
December 31, 2016
, the Company's restructuring liability was not material.
2014 Restructuring Plan
In the first quarter of 2014, the Company initiated a restructuring plan (the “2014 Restructuring Plan”) designed to refocus the Company's strategy, optimize its structure, and improve operational efficiencies. The 2014 Restructuring Plan consisted of workforce reductions, facility consolidations and closures, asset write-downs, contract terminations and other charges. The 2014 Restructuring Plan was substantially completed as of December 31, 2014, and the Company does not expect to record any significant future charges.
During the year ended December 31, 2015, the Company recorded a benefit of
$3.5 million
for a previously recorded charge related to certain products with contract manufacturers for acceleration of the end-of-service life of such products to cost of revenues in the Consolidated Statements of Operations. Additionally, the Company recorded
$0.4 million
of severance costs and a benefit of
$1.0 million
for facilities that were recorded in restructuring and other charges (benefits) in the Consolidated Statements of Operations, in connection with the 2014 Restructuring Plan.
During the year ended December 31, 2014, the Company recorded
$52.0 million
of severance costs,
$14.2 million
of facility consolidation and closures costs,
$85.4 million
of impairment charges related to licensed software,
$12.3 million
of asset write-downs, and
$2.3 million
of charges related to contract terminations, which were recorded to restructuring and other charges (benefits) in the Consolidated Statements of Operations. In connection with the facility consolidation and closures charge of
$14.2 million
, the Company, with the consent of its landlord and the administrative agent for the holder of certain liens secured upon the buildings on the leased premises, assigned certain of its real property leases, totaling approximately
0.4 million
square feet, to a third party. Concurrently with the assignments, the Company executed a sublease with the assignee for one of the properties of approximately
0.1 million
square feet, for a period of
two years
, with
one
-time right to extend the term for up to
six months
. Under these arrangements, the Company paid
$12.3 million
to the landlord and was released from all future lease obligations following the date of the assignments. The Company also incurred
$5.3 million
of transaction fees, which were recorded to restructuring and other charges (benefits) in the Consolidated Statements of Operations. Offsetting these charges was an adjustment relating to deferred rent liability relating to these premises of
$9.8 million
.
The Company also recorded inventory write-downs of
$15.5 million
, intangibles write-downs of
$19.3 million
, and a charge related to products with contract manufacturers of
$6.7 million
for acceleration of the end-of-service life of certain products to cost of revenues in the Consolidated Statements of Operations during the year ended December 31, 2014.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 10. Debt and Financing
Debt
The following table summarizes the Company's long-term debt (in millions, except percentages):
|
|
|
|
|
|
|
|
|
As of December 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
|
(16.3
|
)
|
|
|
Total
|
$
|
2,133.7
|
|
|
|
In February 2016, the Company issued
$350 million
aggregate principal amount of
3.125%
senior notes due
2019
("2019 Notes") and
$150 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 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").
As of
December 31, 2016
, the Company's aggregate debt maturities based on outstanding principle were as follows (in millions):
|
|
|
|
|
Years Ending December 31,
|
Amount
|
2017
|
$
|
—
|
|
2018
|
—
|
|
2019
|
350.0
|
|
2020
|
300.0
|
|
2021
|
300.0
|
|
Thereafter
|
1,200.0
|
|
Total
|
$
|
2,150.0
|
|
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
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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
December 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
December 31, 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.
Pursuant to the financing arrangements for the sale of receivables, the Company sold receivables of
$95.6 million
,
$72.5 million
and
$440.3 million
during the years ended
December 31, 2016
,
2015
, and
2014
, respectively. The Company received cash proceeds from financing providers of
$83.2 million
,
$99.3 million
, and
$602.1 million
during the years ended
December 31, 2016
,
2015
, and
2014
, respectively. As of
December 31, 2016
and
December 31, 2015
, the amounts owed by the financing provider were
$13.6 million
and
$1.2 million
, respectively, which were recorded in accounts receivable on the Company’s Consolidated Balance Sheets.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 11. Equity
Cash Dividends on Shares of Common Stock
During
2016
, the Company declared
four
quarterly cash dividends of
$0.10
per share on its common stock on January 27, 2016, April 28, 2016, July 26, 2016 and October 25, 2016, which were paid on March 22, 2016, June 22, 2016, September 22, 2016 and December 22, 2016, respectively, to stockholders of record as of the close of business on March 1, 2016, June 1, 2016, September 1, 2016, and December 1, 2016, respectively, in the aggregate amount of
$152.5 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 18,
Subsequent Events,
for discussion of the Company's dividend declaration subsequent to
December 31, 2016
.
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 ("Stock Repurchase Program"). In October 2014 and July 2015, the Board authorized a
$1.3 billion
and
$500.0 million
increase, respectively, to the Stock Repurchase Program for a total of
$3.9 billion
. As of
December 31, 2016
, there was
$219.7 million
of authorized funds remaining under the Stock Repurchase Program. In February 2017, the Board approved an incremental
$500.0 million
stock repurchase authorization under the 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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the Company's repurchases and retirements of its common stock under its stock repurchase programs and accelerated share repurchase, and repurchases associated with minimum tax withholdings (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Repurchased
|
|
Average Price
Per Share
|
|
Amount
Repurchased
|
2016
|
|
|
|
|
|
Repurchases under stock repurchase program
|
13.5
|
|
|
$
|
23.25
|
|
|
$
|
312.9
|
|
Repurchases for tax withholding
|
0.5
|
|
|
$
|
24.51
|
|
|
$
|
11.7
|
|
2015
|
|
|
|
|
|
Repurchases under stock repurchase program
|
45.4
|
|
|
$
|
25.16
|
|
|
$
|
1,142.5
|
|
Repurchases for tax withholding
|
0.4
|
|
|
$
|
26.70
|
|
|
$
|
11.1
|
|
2014
|
|
|
|
|
|
Repurchases under stock repurchase program
|
46.8
|
|
|
$
|
22.42
|
|
|
$
|
1,050.0
|
|
Accelerated share repurchase
(*)
|
49.3
|
|
|
$
|
24.35
|
|
|
1,200.0
|
|
Repurchases for tax withholding
|
0.6
|
|
|
$
|
19.69
|
|
|
$
|
12.5
|
|
_______________________________
|
|
(*)
|
As part of the Stock Repurchase Program, the Company entered into
two
separate accelerated share repurchase agreements (collectively, the "ASR") with
two
financial institutions to repurchase
$1.2 billion
of the Company's common stock. The Company made an up-front payment of
$1.2 billion
pursuant to the ASR to repurchase the Company's common stock. The aggregate number of shares ultimately purchased was determined based on a volume weighted average repurchase price, less an agreed upon discount. The shares received with respect to the ASR have been retired. Retired shares return to authorized but unissued shares of common stock.
|
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 18,
Subsequent Events,
for discussion of the Company's stock repurchase activity subsequent to
December 31, 2016
.
Accumulated Other Comprehensive Loss, Net of Tax
The components of accumulated other comprehensive loss, net of related taxes,
for the years ended
December 31, 2016
and
December 31, 2015
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gains
on Available-for-
Sale Securities
(1)
|
|
Unrealized
Losses
on Cash Flow
Hedges
(2)
|
|
Foreign
Currency
Translation
Adjustments
|
|
Total
|
Balance as of December 31, 2014
|
$
|
8.4
|
|
|
$
|
(4.2
|
)
|
|
$
|
(18.0
|
)
|
|
$
|
(13.8
|
)
|
Other comprehensive gain (loss) before reclassifications
|
9.1
|
|
|
(6.7
|
)
|
|
(16.9
|
)
|
|
(14.5
|
)
|
Amount reclassified from accumulated other
comprehensive loss
|
(0.5
|
)
|
|
9.6
|
|
|
—
|
|
|
9.1
|
|
Other comprehensive gain (loss), net
|
8.6
|
|
|
2.9
|
|
|
(16.9
|
)
|
|
(5.4
|
)
|
Balance as of December 31, 2015
|
$
|
17.0
|
|
|
$
|
(1.3
|
)
|
|
$
|
(34.9
|
)
|
|
$
|
(19.2
|
)
|
Other comprehensive gain (loss) before reclassifications
|
0.8
|
|
|
(2.1
|
)
|
|
(14.5
|
)
|
|
(15.8
|
)
|
Amount reclassified from accumulated other
comprehensive loss
|
(1.2
|
)
|
|
(1.1
|
)
|
|
—
|
|
|
(2.3
|
)
|
Other comprehensive (loss), net
|
(0.4
|
)
|
|
(3.2
|
)
|
|
(14.5
|
)
|
|
(18.1
|
)
|
Balance as of December 31, 2016
|
$
|
16.6
|
|
|
$
|
(4.5
|
)
|
|
$
|
(49.4
|
)
|
|
$
|
(37.3
|
)
|
________________________________
|
|
(1)
|
The reclassifications out of accumulated other comprehensive loss during the years ended
December 31, 2016
and
December 31, 2015
for realized gains on available-for-sale securities were insignificant, and were included in other (expense) income, net, in the Consolidated Statements of Operations.
|
|
|
(2)
|
The reclassifications out of accumulated other comprehensive loss for realized gains and losses on cash flow hedges are included within cost of revenues, research and development, sales and marketing, and general and administrative in the Consolidated Statements of Operations. These amounts were insignificant during the years ended
December 31, 2016
and
December 31, 2015
.
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 12. 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”), and the 2008 Employee Stock Purchase Plan (the “ESPP”). Under these plans, the Company has granted stock options, restricted stock units (“RSUs”), and performance share awards (“PSAs”). In addition, in connection with certain past acquisitions, the Company has assumed stock options, RSUs, restricted stock awards ("RSAs"), and PSAs under the stock plans of the acquired companies and exchanged the assumed awards for the Company's stock options, RSUs, RSAs, and PSAs, respectively.
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 Amended and Restated 1996 Stock 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
December 31, 2016
, an aggregate of
19.3 million
shares were subject to outstanding equity awards under the 2015 Plan and the 2006 Plan. As of
December 31, 2016
,
22.5 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.
As of
December 31, 2016
, a total of approximately
40.7 million
shares of common stock were reserved for future issuance upon exercise of stock options and vesting of RSUs, RSAs, and PSAs, and for the future grant of share-based compensation awards under the Company's equity incentive plans.
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 the ESPP, 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
December 31, 2016
, approximately
21.1 million
shares have been issued and
4.9 million
shares remain available for future issuance under the ESPP.
On December 6, 2016, the Company completed the acquisition of AppFormix. In connection with the acquisition, the Company assumed stock options, RSUs, RSAs, and PSAs that had been granted under the AppFormix, Inc. Amended and Restated 2013 Stock Plan (the "AppFormix Plan") and converted the awards for Juniper Networks' stock options, RSUs, RSAs, and PSAs, respectively, based on an exchange ratio set forth in the acquisition agreement. The Company assumed an aggregate of
0.9 million
shares of stock options, RSUs, RSAs, and PSAs in connection with the acquisition of AppFormix. No additional awards can be granted under the AppFormix Plan.
On August 9, 2016, the Company completed the acquisition of Aurrion. In connection with the acquisition, the Company assumed stock options, RSUs, RSAs, and PSAs that had been granted under the Aurrion, Inc. Amended and Restated 2008 Equity Incentive Plan (the "Aurrion Plan") and converted the awards for Juniper Networks' stock options, RSUs, RSAs, and PSAs, respectively, based on an exchange ratio set forth in the acquisition agreement. The Company assumed an aggregate of
2.5 million
shares of stock options, RSUs, RSAs, and PSAs in connection with the acquisition of Aurrion. No additional awards can be granted under the Aurrion Plan.
On April 1, 2016, the Company completed the acquisition of BTI. In connection with the acquisition, the Company assumed RSUs and PSAs that had been granted under the BTI Amended and Restated 2012 Stock Option Plan and Long-Term Incentive Plan (the "BTI Plan") and converted the awards for Juniper's RSUs and PSAs, respectively, based on an exchange ratio set forth in the acquisition agreement. The Company assumed an aggregate of
0.4 million
shares of RSUs and PSAs in connection with the acquisition of BTI. No additional awards can be granted under the BTI Plan.
During 2014, the Company completed the acquisition of WANDL and assumed the WANDL Inc. 2013 Restricted Stock Unit Plan. In connection with this plan, the Company assumed RSUs, RSAs, and PSAs and exchanged the assumed awards for Juniper Networks' RSUs, RSAs, and PSAs, respectively. The Company assumed an aggregate of
1.5 million
shares of RSUs, RSAs, and PSAs in connection with the acquisition of WANDL. No additional awards can be granted under this plan.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
As of
December 31, 2016
, stock options, RSUs, RSAs, and PSAs representing approximately
4.1 million
shares of common stock were outstanding under all awards assumed through the Company's acquisitions.
Stock Option Activities
Since 2006, the Company has granted stock option awards that have a maximum contractual life of
seven
years from the date of grant. Prior to 2006, stock option awards generally had a
ten
-year contractual life from the date of grant.
The following table summarizes the Company’s stock option activity and related information as of and for the three years ended
December 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, 2013
|
23.1
|
|
|
$
|
25.15
|
|
|
2.4
|
|
$
|
44.6
|
|
Canceled
|
(0.6
|
)
|
|
30.15
|
|
|
|
|
|
Exercised
|
(5.4
|
)
|
|
19.76
|
|
|
|
|
|
Expired
|
(7.2
|
)
|
|
29.11
|
|
|
|
|
|
Balance as of December 31, 2014
|
9.9
|
|
|
$
|
24.87
|
|
|
2.0
|
|
$
|
24.7
|
|
Canceled
|
(0.1
|
)
|
|
23.65
|
|
|
|
|
|
Exercised
|
(3.5
|
)
|
|
19.78
|
|
|
|
|
|
Expired
|
(2.7
|
)
|
|
27.99
|
|
|
|
|
|
Balance as of December 31, 2015
|
3.6
|
|
|
$
|
27.52
|
|
|
2.1
|
|
$
|
16.6
|
|
Assumed in acquisitions
|
0.1
|
|
|
7.01
|
|
|
|
|
|
Cancelled
|
(0.3
|
)
|
|
36.57
|
|
|
|
|
|
Exercised
|
(0.7
|
)
|
|
14.47
|
|
|
|
|
|
Expired
|
(0.3
|
)
|
|
24.84
|
|
|
|
|
|
Balance as of December 31, 2016
|
2.4
|
|
|
$
|
29.20
|
|
|
1.6
|
|
$
|
9.9
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016:
|
|
|
|
|
|
|
|
Vested and expected-to-vest options
|
2.4
|
|
|
$
|
29.20
|
|
|
1.6
|
|
$
|
9.9
|
|
Exercisable options
|
2.3
|
|
|
$
|
29.95
|
|
|
1.3
|
|
$
|
8.2
|
|
The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was
$28.26
per share as of
December 30, 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 the exercise and the exercise price of each option, was
$7.1 million
,
$27.5 million
, and
$33.4 million
for
2016
,
2015
, and
2014
, respectively. Total fair value of options vested during
2016
,
2015
, and
2014
was
$3.9 million
,
$7.0 million
, and
$20.8 million
, respectively.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes additional information regarding outstanding and exercisable options as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Price
(In dollars)
|
|
Number
Outstanding
(In millions)
|
|
Weighted Average
Remaining
Contractual Life
(In years)
|
|
Weighted Average
Exercise Price
(In dollars)
|
|
Number
Exercisable
(In millions)
|
|
Weighted Average
Exercise Price
(In dollars)
|
$0.03 - $18.45
|
|
0.4
|
|
|
5.4
|
|
$
|
4.60
|
|
|
0.3
|
|
|
$
|
4.05
|
|
$19.73 - $27.44
|
|
0.3
|
|
|
0.9
|
|
25.58
|
|
|
0.3
|
|
|
25.58
|
|
$29.33 - $29.33
|
|
—
|
|
|
1.5
|
|
29.33
|
|
|
—
|
|
|
29.33
|
|
$29.89 - $29.89
|
|
0.6
|
|
|
0.2
|
|
29.89
|
|
|
0.6
|
|
|
29.89
|
|
$30.01 - $31.94
|
|
0.2
|
|
|
0.9
|
|
30.60
|
|
|
0.2
|
|
|
30.60
|
|
$34.73 - $34.73
|
|
0.1
|
|
|
0.9
|
|
34.73
|
|
|
0.1
|
|
|
34.73
|
|
$36.49 - $36.49
|
|
—
|
|
|
1.0
|
|
36.49
|
|
|
—
|
|
|
36.49
|
|
$38.93 - $38.93
|
|
0.1
|
|
|
1.4
|
|
38.93
|
|
|
0.1
|
|
|
38.93
|
|
$40.26 - $40.26
|
|
0.5
|
|
|
1.2
|
|
40.26
|
|
|
0.5
|
|
|
40.26
|
|
$44.00
|
|
0.2
|
|
|
1.1
|
|
44.00
|
|
|
0.2
|
|
|
44.00
|
|
$0.03 - $44.00
|
|
2.4
|
|
|
1.6
|
|
$
|
29.20
|
|
|
2.3
|
|
|
$
|
29.95
|
|
Restricted Stock Unit, Restricted Stock Award, and Performance Share Award Activities
RSUs and RSAs generally vest over a period of
three
to
four years
from the date of grant and PSAs generally vest over a period of
two
to
three years
provided that certain annual performance targets and other vesting criteria are met. Until vested, RSUs and PSAs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the Company’s RSU, RSA, and PSA activity and related information as of and for the three years ended
December 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, 2013
|
25.4
|
|
|
$
|
23.44
|
|
|
1.1
|
|
$
|
573.5
|
|
RSUs granted
(1)(4)
|
10.0
|
|
|
22.52
|
|
|
|
|
|
RSUs assumed
(2)
|
0.4
|
|
|
22.66
|
|
|
|
|
|
RSAs assumed
(2)
|
0.9
|
|
|
22.66
|
|
|
|
|
|
PSAs granted
(3)(4)
|
1.4
|
|
|
24.25
|
|
|
|
|
|
PSAs assumed
(2)
|
0.2
|
|
|
22.66
|
|
|
|
|
|
RSUs vested
(5)
|
(7.3
|
)
|
|
22.98
|
|
|
|
|
|
RSAs vested
(5)
|
(1.4
|
)
|
|
19.59
|
|
|
|
|
|
PSAs vested
(5)
|
(1.1
|
)
|
|
36.19
|
|
|
|
|
|
RSUs canceled
|
(4.0
|
)
|
|
21.63
|
|
|
|
|
|
PSAs canceled
|
(3.2
|
)
|
|
30.43
|
|
|
|
|
|
Balance as of December 31, 2014
|
21.3
|
|
|
$
|
22.05
|
|
|
1.1
|
|
$
|
475.0
|
|
RSUs granted
(1)(4)
|
8.9
|
|
|
23.41
|
|
|
|
|
|
PSAs granted
(4)(6)
|
1.0
|
|
|
23.76
|
|
|
|
|
|
RSUs vested
(5)
|
(7.2
|
)
|
|
22.58
|
|
|
|
|
|
RSAs vested
(5)
|
(1.8
|
)
|
|
20.13
|
|
|
|
|
|
PSAs vested
(5)
|
(0.3
|
)
|
|
22.52
|
|
|
|
|
|
RSUs canceled
|
(2.3
|
)
|
|
22.18
|
|
|
|
|
|
PSAs canceled
|
(1.0
|
)
|
|
22.27
|
|
|
|
|
|
Balance at December 31, 2015
|
18.6
|
|
|
$
|
22.71
|
|
|
1.1
|
|
$
|
514.1
|
|
RSUs granted
(1)(4)
|
8.1
|
|
|
24.75
|
|
|
|
|
|
RSUs assumed in acquisitions
(8)
|
0.3
|
|
|
24.50
|
|
|
|
|
|
RSAs assumed in acquisitions
(8)
|
0.7
|
|
|
25.51
|
|
|
|
|
|
PSAs granted
(4)(7)
|
1.2
|
|
|
25.39
|
|
|
|
|
|
PSAs assumed in acquisitions
(8)
|
2.6
|
|
|
23.83
|
|
|
|
|
|
RSUs vested
(5)
|
(6.7
|
)
|
|
22.55
|
|
|
|
|
|
RSAs vested
(5)
|
(0.9
|
)
|
|
20.64
|
|
|
|
|
|
PSAs vested
(5)
|
(0.7
|
)
|
|
21.83
|
|
|
|
|
|
RSUs canceled
|
(1.6
|
)
|
|
23.20
|
|
|
|
|
|
PSAs canceled
|
(0.7
|
)
|
|
22.71
|
|
|
|
|
|
Balance at December 31, 2016
|
20.9
|
|
|
$
|
24.05
|
|
|
1.1
|
|
$
|
590.6
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
Vested and expected-to-vest RSUs, RSAs,
and PSAs
|
17.9
|
|
|
$
|
24.06
|
|
|
1.0
|
|
$
|
505.3
|
|
________________________________
|
|
(1)
|
Includes service-based and market-based RSUs granted under the 2006 Plan and 2015 Plan according to their terms.
|
|
|
(2)
|
RSUs, RSAs, and PSAs assumed in connection with the acquisition of WANDL.
|
|
|
(3)
|
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 (or an authorized subcommittee) are achieved at target is
0.7 million
shares. Depending on achievement of such performance goals, the range of shares that could be issued under these awards is
0
to
1.4 million
shares.
|
|
|
(4)
|
On February 20, 2014, the Company announced its intention to initiate a quarterly cash dividend of
$0.10
per share of common stock in the third quarter of 2014. As a result of the Company's announcement, the grant date fair value of RSUs and PSAs granted after the announcement date were reduced by the present value of the 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.
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
(5)
|
Total fair value of RSUs, RSAs, and PSAs vested during
2016
,
2015
, and
2014
was
$185.7 million
,
$202.7 million
, and
$238.5 million
, respectively.
|
|
|
(6)
|
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 (or an authorized subcommittee) are achieved at target is
0.7 million
shares. Depending on achievement of such performance goals, the range of shares that could be issued under these awards is
0
to
1.0 million
shares.
|
|
|
(7)
|
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
0.9 million
shares. Depending on achievement of such performance goals, the range of shares that could be issued under these awards is
0
to
1.2 million
shares.
|
|
|
(8)
|
RSUs, RSAs, and PSAs assumed in connection with the acquisition of BTI, Aurrion and AppFormix.
|
Shares Available for Grant
The following table presents the stock activity and the total number of shares available for grant under the 2015 Plan:
|
|
|
|
|
Number of Shares
|
Balance as of December 31, 2015
|
36.7
|
|
RSUs and PSAs granted
(1)
|
(19.6
|
)
|
RSUs and PSAs canceled
(1)(2)
|
4.8
|
|
Options canceled
(2)
|
0.3
|
|
Options expired
(2)
|
0.3
|
|
Balance as of December 31, 2016
|
22.5
|
|
________________________________
|
|
(1)
|
RSUs and PSAs with a per share or unit purchase price lower than
100%
of the fair market value of the Company's common stock on the day of the grant under the 2015 Plan are counted against shares authorized under the plan as
two and one-tenth
shares of common stock for each share subject to such award. The number of shares subject to PSAs granted represents the maximum number of shares that may be issued pursuant to the award over its full term.
|
|
|
(2)
|
Cancelled or expired options under the 2006 Plan and the 1996 Plan and cancelled RSUs and PSAs under the 2006 Plan are no longer available for future grant under such plans; however, the number of shares available for grant under the 2015 Plan will be increased by the amount of such cancelled or expired options, RSUs or PSAs, as applicable, up to a maximum of
29.0 million
additional shares of common stock, pursuant to the terms of the 2015 Plan.
|
Employee Stock Purchase Plan
The Company's ESPP is implemented in a series of offering periods, each
six months
in duration, or a shorter period as determined by the Board. Employees purchased approximately
2.7 million
,
2.7 million
, and
2.9 million
shares of common stock through the ESPP at an average exercise price of
$19.66
,
$19.25
, and
$19.30
per share during
2016
,
2015
, and
2014
, respectively.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Valuation Assumptions
The weighted-average assumptions used and the resulting estimates of fair value for stock options, ESPP, and market-based RSUs were as follows:
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
ESPP:
|
|
|
|
|
|
Volatility
|
32%
|
|
29%
|
|
30%
|
Risk-free interest rate
|
0.4%
|
|
0.1%
|
|
0.1%
|
Expected life (years)
|
0.5
|
|
0.5
|
|
0.5
|
Dividend yield
|
1.8%
|
|
1.7%
|
|
0% - 1.8%
|
Weighted-average fair value per share
|
$5.56
|
|
$5.63
|
|
$5.72
|
|
|
|
|
|
|
Market-based RSUs
|
|
|
|
|
|
Volatility
|
36%
|
|
34%
|
|
36%
|
Risk-free interest rate
|
1.2%
|
|
1.4%
|
|
1.6%
|
Dividend yield
|
1.7%
|
|
1.8%
|
|
0% - 2.0%
|
Weighted-average fair value per share
|
$14.71
|
|
$14.97
|
|
$16.89
|
|
|
|
|
|
|
Stock Options Assumed
|
|
|
|
|
|
Volatility
|
31%
|
|
—
|
|
—
|
Risk-free interest rate
|
0.7%
|
|
—
|
|
—
|
Expected life (years)
|
1.3
|
|
—
|
|
—
|
Dividend yield
|
1.7%
|
|
—
|
|
—
|
Weighted-average fair value per share
|
$16.17
|
|
—
|
|
—
|
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 Company's Consolidated Statements of Operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Cost of revenues - Product
|
$
|
6.4
|
|
|
$
|
5.6
|
|
|
$
|
5.0
|
|
Cost of revenues - Service
|
15.3
|
|
|
13.8
|
|
|
14.2
|
|
Research and development
|
126.5
|
|
|
125.4
|
|
|
134.5
|
|
Sales and marketing
|
55.2
|
|
|
45.6
|
|
|
60.2
|
|
General and administrative
|
23.4
|
|
|
26.9
|
|
|
26.1
|
|
Total
|
$
|
226.8
|
|
|
$
|
217.3
|
|
|
$
|
240.0
|
|
The following table summarizes share-based compensation expense by award type (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Stock options
|
$
|
4.4
|
|
|
$
|
6.6
|
|
|
$
|
14.9
|
|
RSUs, RSAs, and PSAs
|
206.9
|
|
|
197.3
|
|
|
209.7
|
|
ESPP
|
15.5
|
|
|
13.4
|
|
|
15.4
|
|
Total
|
$
|
226.8
|
|
|
$
|
217.3
|
|
|
$
|
240.0
|
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table presents unrecognized compensation cost, adjusted for estimated forfeitures, recognized over a weighted-average period related to unvested stock options, RSUs, RSAs, and PSAs as of
December 31, 2016
(in millions, except years):
|
|
|
|
|
|
|
|
Unrecognized
Compensation Cost
|
|
Weighted Average
Period
(In Years)
|
Stock options
|
$
|
1.2
|
|
|
2.3
|
RSUs, RSAs, and PSAs
|
$
|
269.3
|
|
|
1.6
|
401(k) Plan
The Company maintains a savings and retirement plan qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "IRC"). Employees meeting the eligibility requirements, as defined under the IRC, may contribute up to the statutory limits each year. The Company currently matches
30%
of all eligible employee contributions which vest immediately. The Company’s matching contributions to the plan totaled
$20.7 million
,
$19.6 million
, and
$20.2 million
during the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
Deferred Compensation Plan
The Company’s non-qualified deferred compensation (“NQDC”) plan is an unfunded and unsecured deferred compensation arrangement. Under the NQDC plan, officers and other senior employees may elect to defer a portion of their compensation and contribute such amounts to one or more investment funds. The NQDC plan assets are included within restricted cash and investments and offsetting obligations are included within other long-term liabilities in the Consolidated Balance Sheets as of December 31, 2016. The NQDC plan assets are included within short-term investments and offsetting obligations are included within accrued compensation in the Consolidated Balance Sheets as of December 31, 2015. The investments are considered trading securities and are reported at fair value. The realized and unrealized holding gains and losses related to these investments are recorded in other (expense) income, net, and the offsetting compensation expense is recorded as operating expenses in the Consolidated Statements of Operations. The deferred compensation liability under the NQDC plan was approximately
$21.0 million
and
$17.7 million
as of
December 31, 2016
and
December 31, 2015
, respectively.
Note 13. Segments
The Company conducts business globally and is managed, operated and organized by major functional departments that operate on a consolidated basis. Each major functional leader reports directly to the Company's chief executive officer, who is the chief operating decision maker (“CODM”). The Company’s CODM views the business, allocates resources and assesses the performance of the Company primarily based on consolidated financial information for the entire business, accompanied by disaggregated information about net revenues by product and service and geographic region as presented below. As a result, the Company operates in one reportable segment.
The following table presents net revenues by product and service (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Routing
|
$
|
2,352.9
|
|
|
$
|
2,359.2
|
|
|
$
|
2,223.9
|
|
Switching
|
858.0
|
|
|
768.3
|
|
|
721.2
|
|
Security
|
318.0
|
|
|
435.6
|
|
|
463.6
|
|
Total product
|
3,528.9
|
|
|
3,563.1
|
|
|
3,408.7
|
|
|
|
|
|
|
|
Total service
|
1,461.2
|
|
|
1,294.7
|
|
|
1,218.4
|
|
Total
|
$
|
4,990.1
|
|
|
$
|
4,857.8
|
|
|
$
|
4,627.1
|
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company attributes revenues to geographic region based on the customer’s shipping address. The following table presents net revenues by geographic region (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Americas:
|
|
|
|
|
|
United States
|
$
|
2,737.0
|
|
|
$
|
2,568.6
|
|
|
$
|
2,410.6
|
|
Other
|
231.8
|
|
|
223.6
|
|
|
219.7
|
|
Total Americas
|
2,968.8
|
|
|
2,792.2
|
|
|
2,630.3
|
|
Europe, Middle East, and Africa
|
1,238.1
|
|
|
1,320.3
|
|
|
1,263.3
|
|
Asia Pacific
|
783.2
|
|
|
745.3
|
|
|
733.5
|
|
Total
|
$
|
4,990.1
|
|
|
$
|
4,857.8
|
|
|
$
|
4,627.1
|
|
During the years ended
December 31, 2016
,
2015
, and
2014
,
no
customer accounted for greater than 10% of the Company's net revenues.
The following table presents geographic information for property and equipment, net and purchased intangible assets, net (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
United States
|
$
|
1,046.6
|
|
|
$
|
925.5
|
|
International
|
147.4
|
|
|
129.4
|
|
Property and equipment, net and purchased intangible assets, net
|
$
|
1,194.0
|
|
|
$
|
1,054.9
|
|
The Company tracks assets by physical location. The majority of the Company’s assets, excluding cash and cash equivalents and investments, as of
December 31, 2016
and
December 31, 2015
, were attributable to U.S. operations.
The components of pretax income (loss) and noncontrolling interest are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Domestic
|
$
|
466.2
|
|
|
$
|
456.3
|
|
|
$
|
(509.7
|
)
|
Foreign
|
361.2
|
|
|
395.9
|
|
|
423.4
|
|
Total pretax income (loss)
|
$
|
827.4
|
|
|
$
|
852.2
|
|
|
$
|
(86.3
|
)
|
The provision for income taxes is summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Current provision:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
121.4
|
|
|
$
|
181.4
|
|
|
$
|
180.1
|
|
States
|
10.3
|
|
|
15.9
|
|
|
15.2
|
|
Foreign
|
46.0
|
|
|
43.3
|
|
|
33.7
|
|
Total current provision
|
177.7
|
|
|
240.6
|
|
|
229.0
|
|
Deferred provision (benefit):
|
|
|
|
|
|
Federal
|
57.2
|
|
|
(16.7
|
)
|
|
17.3
|
|
States
|
4.3
|
|
|
(0.4
|
)
|
|
1.2
|
|
Foreign
|
(4.5
|
)
|
|
(5.0
|
)
|
|
0.5
|
|
Total deferred provision (benefit)
|
57.0
|
|
|
(22.1
|
)
|
|
19.0
|
|
Total provision for income taxes
|
$
|
234.7
|
|
|
$
|
218.5
|
|
|
$
|
248.0
|
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The provision for income taxes differs from the amount computed by applying the federal statutory rate to pretax income (loss) as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Expected provision (benefit) at 35% rate
|
$
|
289.6
|
|
|
$
|
298.3
|
|
|
$
|
(30.2
|
)
|
State taxes, net of federal benefit
|
8.9
|
|
|
8.9
|
|
|
9.5
|
|
Foreign income at different tax rates
|
(53.4
|
)
|
|
(68.9
|
)
|
|
(90.2
|
)
|
R&D tax credits
|
(16.8
|
)
|
|
(12.7
|
)
|
|
(17.1
|
)
|
Share-based compensation
|
10.5
|
|
|
13.2
|
|
|
25.3
|
|
Non-deductible goodwill impairment
|
—
|
|
|
—
|
|
|
297.5
|
|
Gain on sale of Junos Pulse
|
—
|
|
|
—
|
|
|
75.6
|
|
Release of valuation allowance
|
(0.7
|
)
|
|
—
|
|
|
(22.8
|
)
|
Domestic production activities
|
(9.5
|
)
|
|
(15.1
|
)
|
|
(6.8
|
)
|
Non-deductible compensation
|
2.4
|
|
|
3.7
|
|
|
3.2
|
|
Cost sharing adjustment
(*)
|
—
|
|
|
(13.2
|
)
|
|
—
|
|
Other
|
3.7
|
|
|
4.3
|
|
|
4.0
|
|
Total provision for income taxes
|
$
|
234.7
|
|
|
$
|
218.5
|
|
|
$
|
248.0
|
|
________________________________
|
|
(*)
|
Represents cumulative impact through fiscal year 2014 for the change in treatment of share-based compensation as a result of the U.S. Tax Court decision in Altera Corp. v. Commissioner, 145 T.C. No. 3 (2015).
|
In 2015, the United States Tax Court (the “Court”) issued an opinion favorable to Altera Corporation (“Altera”) with respect to Altera’s litigation with the Internal Revenue Service (“IRS”). The litigation relates to the treatment of share-based compensation expense in an inter-company cost-sharing arrangement with Altera’s foreign subsidiary. In its opinion, the Court accepted Altera’s position of excluding share-based compensation from its inter-company cost-sharing arrangement. As a result, the Company has reversed the inclusion of share-based compensation in its cost-sharing arrangement as a cumulative adjustment in the quarter ended September 30, 2015. Because this change to cost sharing increases the Company's cumulative foreign earnings, approximately
$70.3 million
of the gross income tax benefit associated with this change has been offset by an increase in income tax expense accrued upon the company’s foreign earnings. In 2016, the IRS filed an appeal to the Altera decision rendered by the Court, which appeal is currently pending. The Company will continue to monitor ongoing developments and potential impacts to its financial statements.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Deferred income taxes reflect the net tax effects of tax carry-forward items and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's long-term deferred tax assets and deferred tax liabilities are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
|
Net operating loss carry-forwards
|
$
|
23.8
|
|
|
$
|
1.0
|
|
Research and other credit carry-forwards
|
137.5
|
|
|
128.7
|
|
Deferred revenue
|
125.6
|
|
|
109.3
|
|
Stock-based compensation
|
52.3
|
|
|
49.1
|
|
Cost sharing adjustment
|
69.9
|
|
|
70.1
|
|
Reserves and accruals not currently deductible
|
141.3
|
|
|
173.9
|
|
Other
|
12.8
|
|
|
19.2
|
|
Total deferred tax assets
|
563.2
|
|
|
551.3
|
|
Valuation allowance
|
(154.4
|
)
|
|
(146.2
|
)
|
Deferred tax assets, net of valuation allowance
|
408.8
|
|
|
405.1
|
|
Deferred tax liabilities:
|
|
|
|
Property and equipment basis differences
|
(58.1
|
)
|
|
(44.1
|
)
|
Purchased intangibles
|
(28.8
|
)
|
|
(3.1
|
)
|
Unremitted foreign earnings
|
(311.4
|
)
|
|
(290
|
)
|
Deferred compensation and other
|
(11.0
|
)
|
|
(12.0
|
)
|
Total deferred tax liabilities
|
(409.3
|
)
|
|
(349.2
|
)
|
Net deferred tax (liabilities) assets
|
$
|
(0.5
|
)
|
|
$
|
55.9
|
|
As of
December 31, 2016
and
2015
, the Company had a valuation allowance on its U.S. domestic deferred tax assets of approximately
$154.4 million
and
$146.2 million
, respectively. The balance at
December 31, 2016
consisted of approximately
$134.8 million
and
$11.9 million
against the Company's California and Massachusetts deferred tax assets, respectively, which the Company believes are not more likely than not to be utilized in future years. The remaining deferred tax assets on which the Company recorded a valuation allowance of approximately
$7.7 million
related to losses that are capital in nature and may carry forward to offset future capital gains only. The valuation allowance increased in 2016 and 2015 by
$8.2 million
and
$1.7 million
, respectively, primarily related to the change in California and Massachusetts R&D tax credits.
As of
December 31, 2016
, the Company had federal and California net operating loss carry-forwards of approximately
$55.9 million
and
$111.4 million
, respectively. The California net operating loss carry-forwards of
$111.4 million
are expected to expire unused. The Company also had federal and California tax credit carry-forwards of approximately
$2.7 million
and
$246.5 million
, respectively. Approximately
$20.8 million
of the benefit from the California tax credit carry-forwards will be credited to additional paid-in capital when realized on the Company's income tax returns. Unused net operating loss carry-forwards will expire at various dates beginning in the year 2017. The California tax credit carry-forwards will carry forward indefinitely.
The Company provides U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries' earnings are considered indefinitely reinvested outside of the United States. The Company has made no provision for U.S. income taxes on approximately
$2.4 billion
of cumulative undistributed earnings of certain foreign subsidiaries through
December 31, 2016
. These earnings are considered indefinitely invested in operations outside of the U.S., as the Company intends to utilize these amounts to fund future expansion of its international operations. If these earnings were distributed to the United States in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, the Company would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.
As of
December 31, 2016
,
2015
, and
2014
, the total amount of gross unrecognized tax benefits was
$223.1 million
,
$216.1 million
, and
$199.2 million
, respectively. As of
December 31, 2016
, approximately
$194.7 million
of the
$223.1 million
gross unrecognized tax benefits, if recognized, would affect the effective tax rate.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
A reconciliation of the beginning and ending amount of the Company's total gross unrecognized tax benefits was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Balance at beginning of year
|
$
|
216.1
|
|
|
$
|
199.2
|
|
|
$
|
137.6
|
|
Tax positions related to current year:
|
|
|
|
|
|
Additions
|
27.2
|
|
|
18.1
|
|
|
62.5
|
|
Tax positions related to prior years:
|
|
|
|
|
|
Additions
|
1.0
|
|
|
5.3
|
|
|
0.6
|
|
Reductions
|
(4.1
|
)
|
|
(2.9
|
)
|
|
—
|
|
Settlements
|
(14.3
|
)
|
|
—
|
|
|
—
|
|
Lapses in statutes of limitations
|
(2.8
|
)
|
|
(3.6
|
)
|
|
(1.5
|
)
|
Balance at end of year
|
$
|
223.1
|
|
|
$
|
216.1
|
|
|
$
|
199.2
|
|
As of
December 31, 2016
,
2015
, and
2014
, the Company had accrued interest and penalties related to unrecognized tax benefits of
$31.3 million
,
$24.1 million
, and
$22.3 million
, respectively, to other long-term liabilities in the Consolidated Balance Sheets. The Company recognized an expense for net interest and penalties of
$6.0 million
,
$2.5 million
, and
$2.8 million
in its Consolidated Statements of Operations during the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
The Company engages in continuous discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. There is a greater than remote likelihood that the balance of the gross unrecognized tax benefits will decrease by approximately
$3.7 million
within the next twelve months due to lapses of applicable statutes of limitation and the completion of tax review cycles in various tax jurisdictions.
The Company conducts business globally and, as a result, Juniper Networks or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as the Netherlands, U.K., France, Germany, Japan, China, Australia, India, and the U.S. With few exceptions, the Company is no longer subject to U.S. federal, state and local, and non-U.S. income tax examinations for years before 2007.
The Company is currently under examination by the IRS for the 2007 through 2009 tax years. In March 2016, the IRS concluded its field audit and issued a final assessment. The Company is appealing this assessment. The Company regularly assesses the likelihood of an adverse outcome resulting from such examinations. As of December 31, 2016, the Company believes the resolution of the audits is unlikely to have a material effect on its consolidated financial condition or results of operations.
In June 2016, the California Franchise Tax Board (“FTB”) concluded its audit of the 2004 through 2006 tax years. As a result of the closure of the California FTB audit, the gross unrecognized tax benefits was reduced by approximately
$14.3 million
, which did not affect the Company’s effective tax rate. The Company is no longer subject to an audit of its California income taxes through the 2006 tax year.
The Company is also subject to separate ongoing examinations by the UK tax authorities for the 2013 through 2014 tax years, the French tax authorities for the 2014 through 2015 tax years, the German tax authorities for the 2010 through 2013 tax years, the Australia tax authorities for the 2016 tax year, and the India tax authorities for the 2003 tax year, the 2004 through 2008 tax years, and the 2009 through 2012 tax years. As of December 31, 2016, the Company is not aware of any other examinations by tax authorities in any other major jurisdictions in which it files income tax returns.
In 2008, the Company received a proposed adjustment from the India tax authorities related to the 2004 tax year. In 2009, the India tax authorities commenced a separate investigation of the Company's 2004 through 2008 tax returns and are disputing the Company's determination of taxable income due to the cost basis of certain fixed assets. The Company accrued
$4.6 million
in penalties and interest in 2009 related to this matter. The Company understands that in accordance with the administrative and judicial process in India, the Company may be required to make payments that are substantially higher than the amount accrued in order to ultimately settle this issue. The Company strongly believes that any assessment it may receive in excess of the amount accrued would be inconsistent with applicable India tax laws and intends to defend this position vigorously.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company is pursuing all available administrative remedies relative to these matters. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to these proposed adjustments and the ultimate resolution of these matters is unlikely to have a material effect on its consolidated financial condition or results of operations; however, there is still a possibility that an adverse outcome of these matters could have a material effect on its consolidated financial condition and results of operations.
Note 15. Net Income per Share
The Company computed basic and diluted net income (loss) per share as follows (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Numerator:
|
|
|
|
|
|
Net income (loss)
|
$
|
592.7
|
|
|
$
|
633.7
|
|
|
$
|
(334.3
|
)
|
Denominator:
|
|
|
|
|
|
Weighted-average shares used to compute basic net income (loss)
per share
|
381.7
|
|
|
390.6
|
|
|
457.4
|
|
Dilutive effect of employee stock awards
|
6.1
|
|
|
8.8
|
|
|
—
|
|
Weighted-average shares used to compute diluted net income (loss)
per share
|
387.8
|
|
|
399.4
|
|
|
457.4
|
|
Net income (loss) per share:
|
|
|
|
|
|
Basic
|
$
|
1.55
|
|
|
$
|
1.62
|
|
|
$
|
(0.73
|
)
|
Diluted
|
$
|
1.53
|
|
|
$
|
1.59
|
|
|
$
|
(0.73
|
)
|
|
|
|
|
|
|
Anti-dilutive:
|
|
|
|
|
|
Potential anti-dilutive shares
|
2.5
|
|
|
3.4
|
|
|
20.8
|
|
Basic net income per share is computed using net income (loss) available to common stockholders and the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed using net income (loss) available to common stockholders and the weighted-average number of common shares outstanding plus potentially dilutive common shares outstanding during the period. Dilutive potential common shares consist of common shares issuable upon exercise of stock options, issuances of ESPP, and vesting of RSUs, RSAs, and PSAs. The Company includes the common shares underlying PSAs in the calculation of diluted net income per share only when they become contingently issuable. Anti-dilutive shares are excluded from the computation of diluted net income per share.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 16. Commitments and Contingencies
Commitments
Operating and Other Lease Arrangements
The following table summarizes the Company’s future minimum payments under non-cancelable operating and other lease arrangements for each of the next five years and thereafter as of
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
Operating Leases
|
|
Other Lease Arrangement
|
2017
|
$
|
33.1
|
|
|
$
|
3.5
|
|
2018
|
26.3
|
|
|
9.8
|
|
2019
|
17.2
|
|
|
13.2
|
|
2020
|
12.6
|
|
|
13.5
|
|
2021
|
8.4
|
|
|
13.8
|
|
Thereafter
|
17.3
|
|
|
61.7
|
|
Total
|
$
|
114.9
|
|
|
$
|
115.5
|
|
Operating Leases
The Company leases its facilities and certain equipment under non-cancelable operating leases that expire at various dates through
March 2026
. Certain leases require the Company to pay variable costs such as taxes, maintenance, and insurance and include renewal options and escalation clauses. Rent expense for
2016
,
2015
, and
2014
was approximately
$37.9 million
,
$43.2 million
, and
$46.0 million
, respectively.
Other Lease Arrangement
On July 10, 2015, the Company entered into a lease arrangement through March 2026 in which the Company has the option to extend the term of the lease for up to an additional
twenty
years in increments of either
five
years or
ten
years, for approximately
63,000
square feet of space in the State of Washington. As of
December 31, 2016
, the total payment under the lease agreement over the
ten
-year term is approximately
$115.5 million
of which
$61.6 million
is included in other-long term liabilities on the Consolidated Balance Sheets. The lease agreement provides the Company with a tenant allowance of
$6.0 million
to be used for tenant leasehold improvements. Any unused tenant allowance may be applied as a credit to the rent payment. During the year ended
December 31, 2016
, the Company received reimbursement for tenant allowances of
$4.4 million
. The space is used, among other things, to consolidate certain of the Company's laboratory operations currently located in Sunnyvale, California.
Due to certain contractual obligations during the construction period, the Company was deemed the owner of the property during that period. As of December 31, 2015, the Company capitalized the construction costs by recording a build-to-suit lease asset under construction in progress of
$45.6 million
, which is a component of property and equipment, net, and a corresponding build-to-suit financing liability, which is a component of other long-term liabilities, in the Consolidated Balance Sheets. Through the date of construction completion, the Company recorded additional construction costs and a corresponding build-to-suit financing liability of
$15.3 million
.
Upon the completion of construction in April 2016, the Company assessed whether the arrangement qualified under the sale-leaseback accounting guidance. The Company concluded that it had a certain form of continuing economic involvement in the facility, which precluded sale-leaseback accounting treatment. As a result, a total of
$60.9 million
of costs capitalized were placed in service and are being depreciated over the lease term.
Purchase Commitments with Contract Manufacturers and Suppliers
In order to reduce manufacturing lead times and in the interest of having access to adequate component supply, the Company enters into agreements with contract manufacturers and certain suppliers to procure inventory based on the Company's requirements. A significant portion of the Company's purchase commitments arising from these agreements consists of firm and non-cancelable commitments. These purchase commitments totaled
$686.2 million
as of
December 31, 2016
.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company establishes a liability in connection with purchase commitments related to quantities in excess of its demand forecasts or obsolete materials charges for components purchased by the contract manufacturers based on the Company’s demand forecast or customer orders. As of
December 31, 2016
, the Company had accrued
$14.0 million
based on its estimate of such charges.
Clock-Signal, Supplier Component Remediation Liability
As of December 31, 2016, the Company recorded approximately
$10.8 million
in other accrued liabilities on the Consolidated Balance Sheets for the expected remediation costs for certain products containing a defect in a clock-signal component manufactured by a third-party supplier. The Company has been advised by the component supplier that components may begin to fail after the product has been in operation for
18 months
. The Company is in the process of working with its customers and the component supplier to implement a remediation.
Debt and Interest Payment on Debt
As of
December 31, 2016
, the Company held long-term debt consisting of the Notes with a carrying value of
$2,133.7 million
. See Note 10,
Debt and Financing
, for further discussion of the Company's long-term debt and expected future principal maturities.
Other Contractual Obligations
As of
December 31, 2016
, other contractual obligations primarily consisted of
$46.2 million
of agreements that include firm and non-cancelable terms to transfer funds in the future for fixed or minimum amounts or quantities to be purchased at fixed or minimum prices.
Tax Liabilities
As of
December 31, 2016
, the Company had
$209.2 million
included in long-term income taxes payable in the Consolidated Balance Sheets for unrecognized tax positions. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments related to this amount due to uncertainties in the timing of tax audit outcomes.
Guarantees
The Company enters into agreements with customers that contain indemnification provisions relating to potential situations where claims could be alleged that the Company’s products solely, or in combination with other third party products, infringe the intellectual property rights of a third-party. As of
December 31, 2016
, the Company recorded
$28.9 million
for such indemnification obligations in other accrued liabilities and other long-term liabilities on the Consolidated Balance Sheets. The Company also has financial guarantees consisting of guarantees of product and service performance, standby letters of credit for certain lease facilities and insurance programs, and guarantees related to third-party customer-financing arrangements of
$6.0 million
and
$15.8 million
, as of
December 31, 2016
and
December 31, 2015
, respectively.
Legal Proceedings
Investigations
The U.S. Securities and Exchange Commission ("SEC") and the U.S. Department of Justice ("DOJ") are conducting investigations into possible violations by the Company of the U.S. Foreign Corrupt Practices Act ("FCPA"). The Company is cooperating with these agencies regarding these matters. The Company’s Audit Committee, with the assistance of independent advisors, has been investigating and conducting a thorough review of possible violations of the FCPA, and has made recommendations for remedial measures, including employee disciplinary actions in foreign jurisdictions, which the Company has implemented and continues to implement. The Company is unable to predict the duration, scope or outcome of the SEC and DOJ investigations, but believes that an adverse outcome is reasonably possible. However, the Company is not able to estimate a reasonable range of possible loss. The SEC and/or DOJ could take action against the Company or the Company could agree to settle. In such event, the Company could be required to pay substantial fines and sanctions and/or implement additional remedial measures; in addition, it may be determined that the Company violated the FCPA.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Other Litigations and Investigations
In addition to the investigations discussed above, the Company is involved in other investigations, disputes, litigations, and legal proceedings. The Company intends to aggressively defend itself in these matters, and while there can be no assurances and the outcome of these matters is currently not determinable, the Company currently believes that none of these existing claims or proceedings are likely to have a material adverse effect on its financial position. Notwithstanding the foregoing, there are many uncertainties associated with any litigation and these matters or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could adversely affect gross margins in future periods. If any of those events were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company's estimates, if any, which could result in the need to adjust the liability and record additional expenses.
The Company records an accrual for loss contingencies for legal proceedings when it believes that an unfavorable outcome is both (a) probable and (b) the amount or range of any possible loss is reasonably estimable. The Company has not recorded any accrual for loss contingencies associated with such legal proceedings or the investigations discussed above.
Note 17. Selected Quarterly Financial Data (Unaudited)
The tables below set forth selected unaudited financial data for each quarter of the two years ended
December 31, 2016
(in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
$
|
1,097.9
|
|
|
$
|
1,221.3
|
|
|
$
|
1,285.3
|
|
|
$
|
1,385.6
|
|
Gross margin
(1)
|
690.9
|
|
|
756.4
|
|
|
799.5
|
|
|
857.7
|
|
Income before income taxes
|
126.5
|
|
|
192.2
|
|
|
236.6
|
|
|
272.1
|
|
Net income
|
$
|
91.4
|
|
|
$
|
140.0
|
|
|
$
|
172.4
|
|
|
$
|
188.9
|
|
|
|
|
|
|
|
|
|
Net income per share:
(2)
|
|
|
|
|
|
|
|
Basic
|
$
|
0.24
|
|
|
$
|
0.37
|
|
|
$
|
0.45
|
|
|
$
|
0.50
|
|
Diluted
|
$
|
0.23
|
|
|
$
|
0.36
|
|
|
$
|
0.45
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
$
|
1,067.4
|
|
|
$
|
1,222.2
|
|
|
$
|
1,248.6
|
|
|
$
|
1,319.6
|
|
Gross margin
|
657.3
|
|
|
781.5
|
|
|
797.4
|
|
|
842.4
|
|
Income before income taxes
|
116.0
|
|
|
226.0
|
|
|
249.6
|
|
|
260.6
|
|
Net income
|
$
|
80.2
|
|
|
$
|
158.0
|
|
|
$
|
197.7
|
|
|
$
|
197.8
|
|
|
|
|
|
|
|
|
|
Net income per share:
(2)
|
|
|
|
|
|
|
|
Basic
|
$
|
0.20
|
|
|
$
|
0.41
|
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
Diluted
|
$
|
0.19
|
|
|
$
|
0.40
|
|
|
$
|
0.51
|
|
|
$
|
0.51
|
|
_______________
|
|
(1)
|
Gross margin for the fourth quarter of 2016 includes a
$10.8 million
charge for expected remediation costs for certain products containing a defect in a clock-signal component manufactured by a third-party supplier.
|
|
|
(2)
|
Net income per share is computed independently. Therefore, the sum of the quarterly net income per share may not equal the total computed for the year or any cumulative interim period.
|
Note 18. Subsequent Events
Dividend Declaration
On January 26, 2017, the Company announced that it had declared a quarterly cash dividend of
$0.10
per share of common stock payable on March 22, 2017 to stockholders of record as of the close of business on March 1, 2017.
Stock Repurchase Activities
In February 2017, the Board approved an incremental
$500.0 million
stock repurchase authorization under the Stock Repurchase Program.
Subsequent to December 31, 2016, through the filing of this Annual Report on Form 10-K, the Company repurchased
4.5 million
shares of its common stock, for an aggregate purchase price of
$125.0 million
at an average price of
$28.03
per share, under the Stock Repurchase Program. Repurchases of
3.7 million
shares were settled prior to the filing of this Report and the remaining shares will be settled after the filing date. Following the February 2017 increase to the Stock Repurchase Program, the Company has an aggregate of
$594.7 million
in authorized funds remaining as of the filing date. Purchases under the Company's stock repurchase program are subject to review of the circumstances in place at the time and will be made from time to time as permitted by securities law and other legal requirements. This program may be discontinued at any time.