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 customers within its verticals: Cloud, Telecom/Cable, and Strategic Enterprise who view the network as critical to their success. In addition to the Company's products, the Company offers services, including technical support, professional services, and education and training programs to its customers.
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.
Excess tax benefits from share-based compensation in prior periods have been reclassified to conform to the current-period presentation in the Consolidated Statements of Cash Flows upon adoption of the accounting standard described in Note 2,
Significant Accounting Policies
. In addition, certain amounts in the Consolidated Statements of Cash Flows have been reclassified to conform to the current-period presentation.
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 debt 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.
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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company's non-qualified compensation plan ("NQDC") 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 and common stock securities that are carried at cost. The Company’s investments in debt and redeemable preferred stock securities are classified as available-for-sale. Unrealized gains and losses on these investments are reported as a separate component of accumulated other comprehensive loss in the Consolidated Balance Sheets. The investments carried at cost and fair value are adjusted for any impairment determined to be other than temporary 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 markets for technologies or products manufactured by these companies are generally in the 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 in debt and redeemable preferred stock securities 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. 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, net, on its Consolidated Statements of Operations. Cash flows from such hedges are classified as operating activities.
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, 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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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. The Company is neither required to pledge nor entitled to receive cash collateral related to these derivative transactions.
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 net realizable value. 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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10 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 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 compares the estimated fair value of each reporting unit 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 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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company amortizes intangible assets with estimable useful lives on a straight-line basis over their useful lives.
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 are 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
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 includes technical support and 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 incurred 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
$19.9 million
,
$15.8 million
, and
$20.2 million
, for
2017
,
2016
, and
2015
, 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 rates that approximate those in effect during 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, 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, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance share awards ("PSAs") and employee stock purchases related to the Employee Stock Purchase Plan ("ESPP"). For service condition only awards, share-based compensation expense is based on the fair value of the underlying awards and amortized on a straight-line basis. For PSAs and market-based RSUs, share-based compensation expense is amortized on a straight-line basis for each separate vesting portion of the awards. Upon adoption of the accounting standard described in the
Recently Adopted Accounting Standard
section below, the Company accounts for forfeitures as they occur.
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 grant date fair value of its RSUs, RSAs, and 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 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.
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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 asset classes, and limits to the amount of credit exposure to any single issuer and credit rating.
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, 2017
,
2016
, and
2015
,
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.
Recently Adopted Accounting Standard
Share-based Compensation:
On January 1, 2017, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-09 (Topic 718)
Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting
, 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. The impact of the adoption on the Company's Consolidated Financial Statements was as follows:
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Forfeitures: The Company elected to account for forfeitures as they occur using a modified retrospective transition method, rather than estimating forfeitures, resulting in a cumulative-effect net of tax adjustment of
$9.0 million
, which increased the January 1, 2017 opening accumulated deficit balance on the Consolidated Balance Sheets.
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Income tax accounting: The Company is also required to record excess tax benefits and tax deficiencies related to stock- based compensation 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 as previously unrecognized excess tax effects were fully offset by a valuation allowance.
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Cash flow presentation of excess tax benefits: The Company is required to classify excess tax benefits along with other income tax cash flows as an operating activity either prospectively or retrospectively. The Company 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 financing activity. For 2016 and 2015, the Company reclassified
$6.7 million
and
$12.3 million
, respectively, of excess tax benefits from share-based compensation to operating activities from financing activities.
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Recent Accounting Standards Not Yet Adopted
Derivatives and Hedging:
In August 2017, the FASB issued ASU No. 2017-12 (Topic 815)
Derivatives and Hedging — Targeted Improvements to Accounting for Hedging Activities,
which expands an entity's ability to hedge financial and nonfinancial risk components and amends how companies assess effectiveness as well as changes the presentation and disclosure requirements. The new standard is to be applied on a modified retrospective basis and is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of adoption on the Consolidated Financial Statements.
Share-based Compensation:
In May 2017, the FASB issued ASU No. 2017-09 (Topic 718)
Compensation—Stock Compensation: Scope of Modification Accounting,
which provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. The new standard is effective on a prospective basis for interim and annual periods beginning after December 15, 2017, with early adoption permitted.
Amortization on Purchased Callable Debt Securities:
In March 2017, the FASB issued ASU No. 2017-08
Receivables—Nonrefundable Fees and Other Costs
(Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
which shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The ASU will not impact debt securities held at a discount. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, and is to be applied on a modified retrospective basis with early adoption permitted. The Company is currently evaluating the impact of adoption on the Consolidated Financial Statements.
Derecognition of Nonfinancial Assets:
In February 2017, the FASB issued ASU No. 2017-05
Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,
which amends guidance on how entities account for the derecognition of a nonfinancial asset or an in substance nonfinancial asset that is not a business. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, and is to be applied on either a retrospective or modified retrospective basis with early adoption permitted. The adoption of this standard will not have a material impact on the Consolidated Financial Statements.
Simplifying the Test for Goodwill Impairment:
In January 2017, the FASB issued ASU No. 2017-04 (Topic 350)
Intangibles—Goodwill and Other:
Simplifying the Test for Goodwill Impairmen
t, which removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU will be applied on a prospective basis and is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017.
Definition of a Business:
In January 2017, the FASB issued ASU No. 2017-01 (Topic 805)
Business Combinations: Clarifying the Definition of a Business
, which clarifies the definition of a business and assists entities with evaluating when a set of transferred assets and activities is a business. This ASU is effective for interim and annual periods beginning after December 15, 2017, and will be applied on a prospective basis.
Restricted Cash in Statement of Cash Flow:
In November 2016, the FASB issued ASU No. 2016-18 (Topic 230)
Statement of Cash Flow: Restricted Cash,
which provides guidance on the classification of restricted cash to be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. The amendments of this ASU are effective for interim and annual periods beginning after December 15, 2017. The standard must be applied retrospectively to all periods presented. The adoption of this standard will not have a material impact on the cash flow activity presented on the Company's Consolidated Statements of Cash Flows.
Income Taxes on Intra-Entity Transfers of Assets:
In October 2016, the FASB issued ASU No. 2016-16 (Topic 740)
Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory,
which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This ASU will be effective for annual and interim reporting periods beginning after December 15, 2017 and is to be applied on a modified retrospective basis. The adoption of this standard will not have a material impact on the Consolidated Financial Statements.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Classification in Statement of Cash Flow:
In August 2016, the FASB issued ASU No. 2016-15 (Topic 230)
Statement of Cash Flow: Classification of Certain Cash Receipts and Cash Payments,
which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2017 and will be applied on a retrospective basis. The adoption of this standard will not have a material impact on the Company's Consolidated Statements of Cash Flows.
Credit Losses on Financial Instruments:
In June 2016, the FASB issued ASU No. 2016-13 (Topic 326)
Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments
, which provides 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. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements and disclosures.
Leases:
In February 2016, the FASB issued ASU No. 2016-02 (Topic 842),
Leases
, which requires recognition of lease assets and lease liabilities on the balance sheet by lessees for leases classified as operating leases with a lease term of more than twelve months. This ASU 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 and has completed the assessment phase to determine the approach for implementing this standard. The adoption of this standard is expected to have a material impact on the Company's Consolidated Balance Sheets and disclosures. The Company is still evaluating the impact this standard will have on the Consolidated Statements of Operations.
Financial Instruments:
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
, which changes how entities measure equity investments and present changes in the fair value of financial liabilities measured under the fair value option. The guidance also updates certain presentation and disclosure requirements. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. This ASU is to be applied on a prospective basis for amendments related to equity securities without readily determinable fair values, and all other amendments in this standard will be applied on a modified retrospective basis. For equity securities without readily determinable fair values, we expect to elect the measurement alternative, defined as cost, less impairments, adjusted by observable price changes. The Company does not anticipate that the adoption of the amendments that will be applied on a modified retrospective basis will have a material impact on the Consolidated Financial Statements.
Revenue:
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 that will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. The core principle for ASU 2014-09 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. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017.
The Company expects to adopt ASU 2014-09 on January 1, 2018 under the modified retrospective approach, applying the amendments to prospective reporting periods. The Company does not expect a significant change in its control environment due to the adoption of the new standard, however, this assessment will continue until the completion of the first reporting period.
Upon adoption, the Company expects a material impact to the opening balance sheet as of January 1, 2018, related to the cumulative effect of adopting the standard, primarily as a result of the items discussed below. The Company will continue to assess and complete the review of all potential impacts of the standard including the tax related impact. The most significantly impacted areas are the following:
|
|
•
|
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. At
December 31, 2017
, the deferred revenue under Topic 605 related to shipments to distributors that had not sold through to end-users is
$68.0 million
. Since the Company will recognize revenue when control of the products transfer to the distributor under Topic 606, the majority of this amount will be eliminated as a cumulative effect adjustment of implementing Topic 606 as of January 1, 2018.
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
•
|
Software Revenue: Under Topic 605 the Company deferred revenue for software licenses where VSOE of fair value had not been established for undelivered items (primarily services). Under Topic 606, revenue for software licenses will be recognized at the time of delivery unless the ongoing services provide frequent, critical updates to the software, without which the software functionality would be rapidly diminished. At
December 31, 2017
, deferred software license revenue under Topic 605 is
$144.5 million
. The Company expects approximately half of such deferred revenue to be eliminated as a cumulative effect adjustment of implementing Topic 606 as of January 1, 2018.
|
|
|
•
|
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 expensed sales commissions. The change required by Topic 606 will result in the creation of an asset as a cumulative effect adjustment of implementing Topic 606 as of January 1, 2018.
|
|
|
•
|
Variable Consideration: Some of the Company's contracts include penalties, extended payment terms, acceptance provisions or other price variability that precluded revenue recognition under Topic 605 because of the requirement for amounts to be fixed or determinable. Topic 606 requires the Company to estimate and account for variable consideration as a reduction of the transaction price. At
December 31, 2017
, deferred revenue under Topic 605 due to amounts not being fixed or determinable is
$71.0 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, 2018.
|
|
|
•
|
Revenue Allocation: Similar to Topic 605, Topic 606 requires an allocation of revenue between deliverables, or performance obligations, within an arrangement. Topic 605 restricted the allocation of revenue that is contingent on future deliverables to current deliverables, however Topic 606 removes this restriction. In addition, the nature of the performance obligations identified within a contract under Topic 606 as compared to Topic 605 will impact the allocation of the transaction price between product and services. The Company expects a reduction to the deferred service revenue balance as a cumulative effect adjustment of implementing Topic 606 as of January 1, 2018.
|
The Company does not expect the changes described above to have a material impact to the Company’s quarterly and/or annual Statement of Operations, however the exact impact of Topic 606 will be dependent on facts and circumstances that could vary from quarter to quarter.
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 acquired Cyphort Inc. ("Cyphort") in 2017 and BTI Systems Inc. (“BTI”), Aurrion, Inc. ("Aurrion"), and AppFormix, Inc. ("AppFormix") in 2016. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition dates (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Cyphort
|
|
AppFormix
|
|
Aurrion
|
|
BTI
(1)
|
Net tangible assets acquired/(liabilities) assumed
|
$
|
1.4
|
|
|
$
|
(5.3
|
)
|
|
$
|
6.0
|
|
|
$
|
(19.7
|
)
|
Intangible assets
|
15.4
|
|
|
20.3
|
|
|
49.0
|
|
|
43.3
|
|
Goodwill
(2)
|
16.7
|
|
|
32.9
|
|
|
46.9
|
|
|
20.2
|
|
Total
|
$
|
33.5
|
|
|
$
|
47.9
|
|
|
$
|
101.9
|
|
|
$
|
43.8
|
|
________________________________
|
|
(1)
|
See Note 7,
Goodwill and Purchased Intangible Assets
, for adjustments made during the measurement period subsequent to the acquisition dates.
|
|
|
(2)
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Cyphort
|
|
AppFormix
|
|
Aurrion
|
|
BTI
|
|
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
|
|
$
|
15.4
|
|
|
5
|
|
$
|
20.1
|
|
|
—
|
|
$
|
—
|
|
|
8
|
|
$
|
37.1
|
|
Customer relationships
|
—
|
|
—
|
|
|
1
|
|
0.2
|
|
|
—
|
|
—
|
|
|
8
|
|
5.3
|
|
Other
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
1
|
|
0.9
|
|
Total intangible assets with finite lives
|
|
|
15.4
|
|
|
|
|
20.3
|
|
|
|
|
—
|
|
|
|
|
43.3
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPR&D
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
49.0
|
|
|
|
|
—
|
|
Total intangible assets acquired
|
|
|
15.4
|
|
|
|
|
$
|
20.3
|
|
|
|
|
$
|
49.0
|
|
|
|
|
$
|
43.3
|
|
2017 Acquisition
Cyphort
On
September 18, 2017
, the Company acquired
100%
of Cyphort for
$33.5 million
of cash. The acquisition of Cyphort, a software company providing security analytics for advanced threat defense, is expected to strengthen Juniper's security product portfolio.
Under the terms of the acquisition agreement with Cyphort, the Company assumed certain share-based awards for continuing employees, which were granted in contemplation of future services. The fair value of these share-based awards was
$3.8 million
, which will be expensed as share-based compensation over the remaining service period.
2016 Acquisitions
AppFormix
On December 6, 2016, the Company acquired
100%
of 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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 had 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.
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.
Acquisition Costs
The Company recognized
$2.1 million
and
$11.8 million
of acquisition-related costs during the years ended
December 31, 2017
and
December 31, 2016
, 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 Securities
The following table summarizes the Company's unrealized gains and losses and fair value of investments designated as available-for-sale as of
December 31, 2017
and
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Estimated Fair
Value
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Estimated Fair
Value
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
$
|
287.1
|
|
|
$
|
—
|
|
|
$
|
(0.6
|
)
|
|
$
|
286.5
|
|
|
$
|
303.0
|
|
|
$
|
0.2
|
|
|
$
|
(0.2
|
)
|
|
$
|
303.0
|
|
Certificates of deposit
|
83.8
|
|
|
—
|
|
|
—
|
|
|
83.8
|
|
|
66.1
|
|
|
—
|
|
|
—
|
|
|
66.1
|
|
Commercial paper
|
217.1
|
|
|
—
|
|
|
—
|
|
|
217.1
|
|
|
147.7
|
|
|
—
|
|
|
—
|
|
|
147.7
|
|
Corporate debt securities
|
929.6
|
|
|
0.4
|
|
|
(3.0
|
)
|
|
927.0
|
|
|
846.5
|
|
|
0.4
|
|
|
(2.0
|
)
|
|
844.9
|
|
Foreign government debt securities
|
62.9
|
|
|
—
|
|
|
(0.2
|
)
|
|
62.7
|
|
|
34.0
|
|
|
—
|
|
|
(0.1
|
)
|
|
33.9
|
|
Time deposits
|
239.2
|
|
|
—
|
|
|
—
|
|
|
239.2
|
|
|
264.6
|
|
|
—
|
|
|
—
|
|
|
264.6
|
|
U.S. government agency securities
|
143.9
|
|
|
—
|
|
|
(0.7
|
)
|
|
143.2
|
|
|
127.0
|
|
|
—
|
|
|
(0.3
|
)
|
|
126.7
|
|
U.S. government securities
|
406.8
|
|
|
0.1
|
|
|
(0.9
|
)
|
|
406.0
|
|
|
390.7
|
|
|
0.1
|
|
|
(0.4
|
)
|
|
390.4
|
|
Total fixed income securities
|
2,370.4
|
|
|
0.5
|
|
|
(5.4
|
)
|
|
2,365.5
|
|
|
2,179.6
|
|
|
0.7
|
|
|
(3.0
|
)
|
|
2,177.3
|
|
Money market funds
|
969.8
|
|
|
—
|
|
|
—
|
|
|
969.8
|
|
|
592.2
|
|
|
—
|
|
|
—
|
|
|
592.2
|
|
Privately-held debt and redeemable preferred stock securities
|
15.9
|
|
|
37.4
|
|
|
—
|
|
|
53.3
|
|
|
15.9
|
|
|
26.4
|
|
|
—
|
|
|
42.3
|
|
Publicly-traded equity securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.3
|
|
|
—
|
|
|
(0.7
|
)
|
|
4.6
|
|
Total available-for-sale securities
|
$
|
3,356.1
|
|
|
$
|
37.9
|
|
|
$
|
(5.4
|
)
|
|
$
|
3,388.6
|
|
|
$
|
2,793.0
|
|
|
$
|
27.1
|
|
|
$
|
(3.7
|
)
|
|
$
|
2,816.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
1,279.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,279.0
|
|
|
$
|
907.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
907.1
|
|
Restricted investments
(*)
|
41.8
|
|
|
—
|
|
|
—
|
|
|
41.8
|
|
|
42.9
|
|
|
—
|
|
|
—
|
|
|
42.9
|
|
Short-term investments
|
1,027.2
|
|
|
0.1
|
|
|
(1.2
|
)
|
|
1,026.1
|
|
|
753.4
|
|
|
0.1
|
|
|
(1.2
|
)
|
|
752.3
|
|
Long-term investments
|
992.2
|
|
|
0.4
|
|
|
(4.2
|
)
|
|
988.4
|
|
|
1,073.7
|
|
|
0.6
|
|
|
(2.5
|
)
|
|
1,071.8
|
|
Other long-term assets
|
15.9
|
|
|
37.4
|
|
|
—
|
|
|
53.3
|
|
|
15.9
|
|
|
26.4
|
|
|
—
|
|
|
42.3
|
|
Total
|
$
|
3,356.1
|
|
|
$
|
37.9
|
|
|
$
|
(5.4
|
)
|
|
$
|
3,388.6
|
|
|
$
|
2,793.0
|
|
|
$
|
27.1
|
|
|
$
|
(3.7
|
)
|
|
$
|
2,816.4
|
|
________________________________
|
|
(*)
|
Balance includes
$31.4 million
and
$4.0 million
of short-term restricted investments classified as prepaid expenses and other current assets.
|
The following table presents the contractual maturities of the Company's total fixed income securities as of
December 31, 2017
(in millions):
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Estimated Fair
Value
|
Due in less than one year
|
$
|
1,378.2
|
|
|
$
|
1,377.1
|
|
Due between one and five years
|
992.2
|
|
|
988.4
|
|
Total
|
$
|
2,370.4
|
|
|
$
|
2,365.5
|
|
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, 2017
and
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
Less than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
$
|
215.2
|
|
|
$
|
(0.4
|
)
|
|
$
|
38.4
|
|
|
$
|
(0.2
|
)
|
|
$
|
253.6
|
|
|
$
|
(0.6
|
)
|
Corporate debt securities
|
646.7
|
|
|
(2.1
|
)
|
|
108.6
|
|
|
(0.9
|
)
|
|
755.3
|
|
|
(3.0
|
)
|
Foreign government debt securities
|
47.3
|
|
|
(0.2
|
)
|
|
6.6
|
|
|
—
|
|
|
53.9
|
|
|
(0.2
|
)
|
U.S. government agency securities
|
68.3
|
|
|
(0.2
|
)
|
|
67.9
|
|
|
(0.5
|
)
|
|
136.2
|
|
|
(0.7
|
)
|
U.S. government securities
|
260.8
|
|
|
(0.7
|
)
|
|
51.8
|
|
|
(0.2
|
)
|
|
312.6
|
|
|
(0.9
|
)
|
Total available-for sale securities
|
$
|
1,238.3
|
|
|
$
|
(3.6
|
)
|
|
$
|
273.3
|
|
|
$
|
(1.8
|
)
|
|
$
|
1,511.6
|
|
|
$
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
Less than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
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
|
)
|
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, 2017
, the Company had
956
investments in unrealized loss position. The gross unrealized losses related to these investments were primarily due to changes in market interest rates. 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, 2017
,
2016
, and
2015
.
During the years ended
December 31, 2017
, 2016 and 2015, there were
no
material gross realized gains or losses from available-for-sale securities.
Investments in Trading Securities
As of
December 31, 2017
and
December 31, 2016
, the total investments under the Company's NQDC plan were
$27.6 million
and
$21.0 million
, respectively, and are invested in mutual funds and classified as trading securities. During the years ended December 31, 2017, 2016 and 2015, trading gains and losses related to these trading securities were not material.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 2017; (ii) the Directors and Officers indemnification trust ("D&O Trust"); (iii) amounts held under the Company's short-term disability plan in California; and (iv) amounts under the 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, 2017
, total restricted cash and investments was
$122.0 million
, of which
$85.9 million
was included in prepaid expenses and other current assets,
$36.1 million
was included in restricted cash and investments on the Consolidated Balance Sheets.
Investments in Privately-Held Companies
As of
December 31, 2017
and
December 31, 2016
, the carrying values of the Company's privately-held investments of
$83.0 million
and
$61.3 million
, respectively, were included in other long-term assets in the Consolidated Balance Sheets, of which
$29.7 million
and
$19.0 million
were accounted for under the cost method as of
December 31, 2017
and
December 31, 2016
, respectively. See Note 5,
Fair Value Measuremen
ts, for the Company's investments in privately-held companies that are carried at fair value and cost method investments measured at fair value on a nonrecurring basis.
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 table 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, 2017
|
|
Fair Value Measurements at
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
$
|
—
|
|
|
$
|
286.5
|
|
|
$
|
—
|
|
|
$
|
286.5
|
|
|
$
|
—
|
|
|
$
|
303.0
|
|
|
$
|
—
|
|
|
$
|
303.0
|
|
Certificates of deposit
|
—
|
|
|
83.8
|
|
|
—
|
|
|
83.8
|
|
|
—
|
|
|
66.1
|
|
|
—
|
|
|
66.1
|
|
Commercial paper
|
—
|
|
|
217.1
|
|
|
—
|
|
|
217.1
|
|
|
—
|
|
|
147.7
|
|
|
—
|
|
|
147.7
|
|
Corporate debt securities
|
—
|
|
|
927.0
|
|
|
—
|
|
|
927.0
|
|
|
—
|
|
|
844.9
|
|
|
—
|
|
|
844.9
|
|
Foreign government debt securities
|
—
|
|
|
62.7
|
|
|
—
|
|
|
62.7
|
|
|
—
|
|
|
33.9
|
|
|
—
|
|
|
33.9
|
|
Money market funds
(1)
|
969.8
|
|
|
—
|
|
|
—
|
|
|
969.8
|
|
|
592.2
|
|
|
—
|
|
|
—
|
|
|
592.2
|
|
Publicly-traded equity securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
Time deposits
|
—
|
|
|
239.2
|
|
|
—
|
|
|
239.2
|
|
|
—
|
|
|
264.6
|
|
|
—
|
|
|
264.6
|
|
U.S. government agency securities
|
—
|
|
|
143.2
|
|
|
—
|
|
|
143.2
|
|
|
—
|
|
|
126.7
|
|
|
—
|
|
|
126.7
|
|
U.S. government securities
|
322.4
|
|
|
83.6
|
|
|
—
|
|
|
406.0
|
|
|
345.0
|
|
|
45.4
|
|
|
—
|
|
|
390.4
|
|
Privately-held debt and redeemable preferred stock securities
|
—
|
|
|
—
|
|
|
53.3
|
|
|
53.3
|
|
|
—
|
|
|
—
|
|
|
42.3
|
|
|
42.3
|
|
Total available-for-sale securities
|
1,292.2
|
|
|
2,043.1
|
|
|
53.3
|
|
|
3,388.6
|
|
|
941.8
|
|
|
1,832.3
|
|
|
42.3
|
|
|
2,816.4
|
|
Trading securities
(2)
|
27.6
|
|
|
—
|
|
|
—
|
|
|
27.6
|
|
|
21.0
|
|
|
—
|
|
|
—
|
|
|
21.0
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
—
|
|
|
9.2
|
|
|
—
|
|
|
9.2
|
|
|
—
|
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
Total assets measured at fair value
|
$
|
1,319.8
|
|
|
$
|
2,052.3
|
|
|
$
|
53.3
|
|
|
$
|
3,425.4
|
|
|
$
|
962.8
|
|
|
$
|
1,833.2
|
|
|
$
|
42.3
|
|
|
$
|
2,838.3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
928.1
|
|
|
$
|
350.9
|
|
|
$
|
—
|
|
|
$
|
1,279.0
|
|
|
$
|
549.4
|
|
|
$
|
357.7
|
|
|
$
|
—
|
|
|
$
|
907.1
|
|
Restricted investments
|
69.4
|
|
|
—
|
|
|
—
|
|
|
69.4
|
|
|
63.9
|
|
|
—
|
|
|
—
|
|
|
63.9
|
|
Short-term investments
|
247.5
|
|
|
778.6
|
|
|
—
|
|
|
1,026.1
|
|
|
178.0
|
|
|
574.3
|
|
|
—
|
|
|
752.3
|
|
Long-term investments
|
74.8
|
|
|
913.6
|
|
|
—
|
|
|
988.4
|
|
|
171.5
|
|
|
900.3
|
|
|
—
|
|
|
1,071.8
|
|
Prepaid expenses and other current assets
|
—
|
|
|
9.2
|
|
|
—
|
|
|
9.2
|
|
|
—
|
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
Other long-term assets
|
—
|
|
|
—
|
|
|
53.3
|
|
|
53.3
|
|
|
—
|
|
|
—
|
|
|
42.3
|
|
|
42.3
|
|
Total assets measured at fair value
|
$
|
1,319.8
|
|
|
$
|
2,052.3
|
|
|
$
|
53.3
|
|
|
$
|
3,425.4
|
|
|
$
|
962.8
|
|
|
$
|
1,833.2
|
|
|
$
|
42.3
|
|
|
$
|
2,838.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
________________________________
|
|
(1)
|
Balance includes
$41.8 million
and
$42.9 million
of restricted investments measured at fair value, related to the Company's D&O Trust and acquisition-related escrows for the years ended
December 31, 2017
and
2016
, respectively.
|
|
|
(2)
|
Balance relates to restricted investments measured at fair value related to the Company's NQDC plan.
|
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, 2017
and 2016, the Company had
no
transfers between levels of the fair value hierarchy of its assets or liabilities measured at fair value.
All of the Company's privately-held debt and redeemable preferred stock securities, are classified as Level 3 assets due to the lack of observable inputs to determine fair value. During the year ended
December 31, 2017
, there were
$11.0 million
of unrealized gains related to privately-held debt and redeemable preferred stock securities and
no
other significant activities related to Level 3 assets.
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 non-redeemable preferred stock and common stock securities, are measured at fair value on a nonrecurring basis, when they are deemed to be other-than-temporarily impaired.
Investments in privately-held non-redeemable preferred stock and common stock securities, 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 materially impacting the carrying value of the investments. The Company estimates the fair value of these investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure. As of December 31, 2016, investments in privately-held non-redeemable preferred stock and common stock securities totaled
$19.0 million
, of which
$6.8 million
of investments had been remeasured at fair value due to an other-than-temporary decline in value and were written-down to their fair value of
zero
. These assets were classified as Level 3 assets due to lack of observable inputs to determine fair value. As of December 31, 2017, investments in privately-held non-redeemable preferred stock and common stock securities totaled
$29.7 million
and there were
no
assets measured at fair value on a nonrecurring basis. There were
no
impairment charges during the years ended
December 31, 2017
and 2015.
As of
December 31, 2017
and
2016
, 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, accounts payable, and other accrued liabilities approximate fair value due to their short maturities. As of
December 31, 2017
and
December 31, 2016
, the estimated fair value of the Company's long-term debt in the Consolidated Balance Sheets was
$2,252.9 million
and
$2,215.7 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, ("the Pulse Note"), of
$61.2 million
and
$132.9 million
approximates its fair value, as of
December 31, 2017
and
December 31, 2016
, respectively. The Pulse 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 Pulse Note.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 6. Derivative Instruments
The notional amount of the Company's foreign currency derivatives are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
Cash flow hedges
|
$
|
521.1
|
|
|
$
|
172.0
|
|
Non-designated derivatives
|
108.3
|
|
|
—
|
|
Total
|
$
|
629.4
|
|
|
$
|
172.0
|
|
Cash Flow Hedges
The Company uses foreign currency forward contracts to hedge the Company's planned cost of revenues and operating expenses denominated in foreign currencies. These derivatives are designated as cash flow hedges. Execution of cash flow hedge derivatives typically occurs every month with maturities of
eighteen
months or less. As of
December 31, 2017
, an estimated
$7.6 million
of existing gains or losses within accumulated other comprehensive loss is expected to be reclassified into earnings within the next 12 months.
The Company recognized
an unrealized gain
of
$20.2 million
and unrealized losses of
$1.3 million
and
$6.3 million
in accumulated other comprehensive loss for the effective portion of its derivative instruments during the years ended
December 31, 2017
,
2016
, and
2015
, respectively. The Company reclassified gains of
$7.6 million
and
$1.8 million
and
a loss
of
$9.6 million
out of accumulated other comprehensive loss to cost of revenues and operating expenses in the Consolidated Statement of Operations during the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
The ineffective portion of the Company's derivative instruments recognized in its Consolidated Statements of Operations were not material during the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
See Note 5,
Fair Value Measurements,
for the
fair values of the Company’s derivative instruments in the Consolidated Balance Sheets.
Non-Designated Derivatives
The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies. These foreign exchange forward contracts typically have maturities of approximately
one
month. The outstanding non-designated derivative instruments are carried at fair value. Changes in the fair value of these derivatives recorded in other expense, net within the Consolidated Statements of Operations were not material during the years ended
December 31, 2017
,
2016
, and
2015
.
See Note 2,
Significant Accounting Policies,
for the Company’s policy regarding the offsetting of derivative assets and derivative liabilities.
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, 2015
|
$
|
2,981.3
|
|
Additions due to business combinations
|
100.4
|
|
December 31, 2016
|
3,081.7
|
|
Additions due to business combination
|
16.7
|
|
Other
(*)
|
(2.2
|
)
|
December 31, 2017
|
$
|
3,096.2
|
|
________________________________
(*)
Other primarily consists of certain purchase accounting adjustments related to the acquisition of BTI.
In the fourth quarter of 2017, 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,
2017
,
2016
, and
2015
there was
no
goodwill impairment during the respective periods.
Purchased Intangible Assets
The Company’s purchased intangible assets, net, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
|
Gross
|
|
Accumulated
Amortization
|
|
Accumulated Impairments and
Other Charges
|
|
Net
|
|
Gross
|
|
Accumulated
Amortization
|
|
Accumulated Impairments and
Other Charges
|
|
Net
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technologies and patents
|
$
|
640.3
|
|
|
$
|
(518.1
|
)
|
|
$
|
(49.9
|
)
|
|
$
|
72.3
|
|
|
$
|
624.9
|
|
|
$
|
(504.2
|
)
|
|
$
|
(49.9
|
)
|
|
$
|
70.8
|
|
Customer contracts, support agreements, and related relationships
|
83.6
|
|
|
(74.1
|
)
|
|
(2.8
|
)
|
|
6.7
|
|
|
83.6
|
|
|
(70.8
|
)
|
|
(2.8
|
)
|
|
10.0
|
|
Other
|
2.0
|
|
|
(1.9
|
)
|
|
—
|
|
|
0.1
|
|
|
2.0
|
|
|
(1.6
|
)
|
|
—
|
|
|
0.4
|
|
Total
|
725.9
|
|
|
(594.1
|
)
|
|
(52.7
|
)
|
|
79.1
|
|
|
710.5
|
|
|
(576.6
|
)
|
|
(52.7
|
)
|
|
81.2
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPR&D
|
49.0
|
|
|
—
|
|
|
—
|
|
|
49.0
|
|
|
49.0
|
|
|
—
|
|
|
—
|
|
|
49.0
|
|
Total purchased intangible assets
|
$
|
774.9
|
|
|
$
|
(594.1
|
)
|
|
$
|
(52.7
|
)
|
|
$
|
128.1
|
|
|
$
|
759.5
|
|
|
$
|
(576.6
|
)
|
|
$
|
(52.7
|
)
|
|
$
|
130.2
|
|
Amortization expense was
$17.5 million
,
$16.3 million
, and
$28.5 million
for the years ended December 31,
2017
,
2016
, and
2015
, respectively. There were
no
impairment charges related to purchased intangible assets during the years ended December 31,
2017
and
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.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
As of
December 31, 2017
, the estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):
|
|
|
|
|
Years Ending December 31,
|
Amount
|
2018
|
$
|
17.5
|
|
2019
|
17.3
|
|
2020
|
17.2
|
|
2021
|
12.9
|
|
2022
|
7.7
|
|
Thereafter
|
6.5
|
|
Total
|
$
|
79.1
|
|
Note 8. Other Financial Information
Inventory
The majority of the Company's inventory is production components to be used in the manufacturing process, and finished goods inventory in transit. In addition, the Company purchases and holds inventory to provide adequate component supplies over the life of the underlying products. Total inventory consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
Production and service materials
|
$
|
71.2
|
|
|
$
|
75.6
|
|
Finished goods
|
26.6
|
|
|
19.9
|
|
Inventory
|
$
|
97.8
|
|
|
$
|
95.5
|
|
|
|
|
|
Reported as:
|
|
|
|
Prepaid expenses and other current assets
|
$
|
93.8
|
|
|
$
|
91.4
|
|
Other long-term assets
|
4.0
|
|
|
4.1
|
|
Total
|
$
|
97.8
|
|
|
$
|
95.5
|
|
Property and Equipment, Net
Property and equipment, net, consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
Computers and equipment
|
$
|
1,151.7
|
|
|
$
|
1,070.1
|
|
Software
|
217.8
|
|
|
285.4
|
|
Leasehold improvements
|
258.6
|
|
|
235.6
|
|
Furniture and fixtures
|
47.9
|
|
|
47.0
|
|
Building and building improvements
|
252.8
|
|
|
251.8
|
|
Land and land improvements
|
241.0
|
|
|
241.0
|
|
Construction-in-process
|
53.5
|
|
|
26.2
|
|
Property and equipment, gross
|
2,223.3
|
|
|
2,157.1
|
|
Accumulated depreciation
|
(1,202.2
|
)
|
|
(1,093.3
|
)
|
Property and equipment, net
|
$
|
1,021.1
|
|
|
$
|
1,063.8
|
|
Depreciation expense was
$202.8 million
,
$184.5 million
, and
$141.5 million
in
2017
,
2016
, and
2015
, respectively.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note Receivable
In October 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.
In October 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; and
|
|
|
•
|
require a minimum payment of
$75.0 million
on or prior to April 1, 2017, less any principal amount previously pre-paid to the Company.
|
In May 2017, the Company received payment of
$75.0 million
and the outstanding interest due. The Company and the issuer of the Pulse Note further mutually agreed to amend the terms of the Pulse Note to, among other things:
|
|
•
|
extend the maturity date of the remaining outstanding amount of approximately
$58.0 million
from December 31, 2018 to September 30, 2022;
|
|
|
•
|
provide that interest due after April 1, 2017 can be paid in kind by increasing the outstanding principal amount of the note or paid in cash;
|
|
|
•
|
require the promissory note to be subordinated to other debt raised by the issuer; and
|
|
|
•
|
entitle the Company to additional financial considerations if the issuer of the note and its affiliates meet certain conditions.
|
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.
No
impairment charge was required for the Pulse Note as of
December 31, 2017
. The outstanding balance of the Pulse Note, along with the accumulated interest paid in kind, of
$61.2 million
as of
December 31, 2017
is classified as a long-term asset based on expected collection beyond twelve months from the Consolidated Balance Sheet date.
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,
2017
,
2016
, and
2015
, the related amount of interest income recognized was
$8.3 million
,
$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,
|
|
2017
|
|
2016
|
Beginning balance
|
$
|
41.3
|
|
|
$
|
28.4
|
|
Provisions made during the period, net
|
36.7
|
|
|
43.0
|
|
Actual costs incurred during the period
|
(50.6
|
)
|
|
(30.1
|
)
|
Ending balance
|
$
|
27.4
|
|
|
$
|
41.3
|
|
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,
|
|
2017
|
|
2016
|
Deferred product revenue:
|
|
|
|
Undelivered product commitments and other product deferrals
|
$
|
312.6
|
|
|
$
|
302.4
|
|
Distributor inventory and other sell-through items
|
68.1
|
|
|
74.2
|
|
Deferred gross product revenue
|
380.7
|
|
|
376.6
|
|
Deferred cost of product revenue
|
(46.5
|
)
|
|
(53.7
|
)
|
Deferred product revenue, net
|
334.2
|
|
|
322.9
|
|
Deferred service revenue
|
1,205.1
|
|
|
1,158.2
|
|
Total
|
$
|
1,539.3
|
|
|
$
|
1,481.1
|
|
Reported as:
|
|
|
|
Current
|
$
|
1,030.3
|
|
|
$
|
1,032.0
|
|
Long-term
|
509.0
|
|
|
449.1
|
|
Total
|
$
|
1,539.3
|
|
|
$
|
1,481.1
|
|
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, Net
Other expense, net consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Interest income
|
$
|
53.0
|
|
|
$
|
35.4
|
|
|
$
|
21.8
|
|
Interest expense
|
(101.2
|
)
|
|
(97.7
|
)
|
|
(83.3
|
)
|
Gain (loss) on investments, net
|
14.6
|
|
|
(1.8
|
)
|
|
6.8
|
|
Other
|
(2.7
|
)
|
|
1.8
|
|
|
(5.1
|
)
|
Other expense, net
|
$
|
(36.3
|
)
|
|
$
|
(62.3
|
)
|
|
$
|
(59.8
|
)
|
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 long-term debt and customer financing arrangements. Gain (loss) on investments, net, primarily includes gains from the sale of investments in public and privately-held companies, and any impairment charges recorded on these investments. Other typically consists of foreign exchange gains and losses and other non-operational income and expense items.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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,
|
|
2017
|
|
2016
|
|
2015
|
Severance
|
$
|
57.7
|
|
|
$
|
2.8
|
|
|
$
|
0.4
|
|
Facilities
|
—
|
|
|
0.5
|
|
|
(1.0
|
)
|
Contract terminations
|
7.9
|
|
|
—
|
|
|
—
|
|
Asset write-downs
|
—
|
|
|
—
|
|
|
(3.5
|
)
|
Total
|
$
|
65.6
|
|
|
$
|
3.3
|
|
|
$
|
(4.1
|
)
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
Cost of revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3.5
|
)
|
Restructuring charges (benefits)
|
65.6
|
|
|
3.3
|
|
|
(0.6
|
)
|
Total
|
$
|
65.6
|
|
|
$
|
3.3
|
|
|
$
|
(4.1
|
)
|
2017 Restructuring Plan
During the first quarter of 2017, the Company initiated a restructuring plan (the “2017 Restructuring Plan”) to realign its workforce and increase operational efficiencies. The 2017 Restructuring Plan consisted of severance and contract termination costs that were recorded to restructuring charges (benefits) in the Consolidated Statement of Operations. In the fourth quarter of 2017, the Company amended the 2017 Restructuring Plan to further realign its workforce and also incurred charges related to contract terminations.
During the year ended
December 31, 2017
, the Company recorded
$57.7 million
of severance costs and
$7.9 million
of contract terminations, respectively, that were recorded to restructuring charges (benefits) in the Consolidated Statement of Operations. The Company does not expect to incur material future charges under the 2017 Restructuring Plan.
Prior Restructuring Activities
In 2016, the Company recorded restructuring charges related to severance costs for certain former BTI employees as well as restructuring costs related to facilities. In 2015, the Company recorded favorable adjustments for changes in previous estimates associated with restructuring activities initiated in 2014. These activities were substantially completed as of
December 31, 2017
.
Restructuring liabilities are reported within other accrued liabilities in the Consolidated Balance Sheets. The following table provides a summary of changes in the restructuring liabilities (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
Charges
|
|
Cash
Payments
|
|
Other
|
|
December 31,
2017
|
Severance
|
$
|
0.7
|
|
|
$
|
57.7
|
|
|
$
|
(40.5
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
17.7
|
|
Contract terminations and other
|
0.5
|
|
|
7.9
|
|
|
(6.2
|
)
|
|
0.1
|
|
|
2.3
|
|
Total
|
$
|
1.2
|
|
|
$
|
65.6
|
|
|
$
|
(46.7
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
20.0
|
|
The Company expects to substantially pay the remaining restructuring liabilities in the first quarter of 2018.
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, 2017
|
|
Issuance date
|
|
Maturity Date
|
|
Amount
|
|
Effective Interest
Rates
|
Senior Notes ("Notes"):
|
|
|
|
|
|
|
|
3.125% fixed-rate notes ("2019 Notes")
|
February 2016
|
|
February 2019
|
|
$
|
350.0
|
|
|
3.36
|
%
|
3.300% fixed-rate notes ("2020 Notes")
|
March 2015
|
|
June 2020
|
|
300.0
|
|
|
3.47
|
%
|
4.600% fixed-rate notes
|
March 2011
|
|
March 2021
|
|
300.0
|
|
|
4.69
|
%
|
4.500% fixed-rate notes
(*)
("2024 Notes")
|
March 2014
|
|
March 2024
|
|
350.0
|
|
|
4.63
|
%
|
4.500% fixed-rate notes
(*)
("2024 Notes")
|
February 2016
|
|
March 2024
|
|
150.0
|
|
|
4.87
|
%
|
4.350% fixed-rate notes ("2025 Notes")
|
March 2015
|
|
June 2025
|
|
300.0
|
|
|
4.47
|
%
|
5.950% fixed-rate notes
|
March 2011
|
|
March 2041
|
|
400.0
|
|
|
6.03
|
%
|
Total Notes
|
|
|
|
|
2,150.0
|
|
|
|
Unaccreted discount and debt issuance costs
|
|
|
|
|
(13.7
|
)
|
|
|
Total
|
|
|
|
|
$
|
2,136.3
|
|
|
|
________________________________
|
|
(*)
|
2024 Notes issued in March 2014 and February 2016 form a single series and are fully fungible.
|
The Notes above 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.
As of
December 31, 2017
, the Company's aggregate debt maturities based on outstanding principal were as follows (in millions):
|
|
|
|
|
Years Ending December 31,
|
Amount
|
2018
|
$
|
—
|
|
2019
|
350.0
|
|
2020
|
300.0
|
|
2021
|
300.0
|
|
2022
|
—
|
|
Thereafter
|
1,200.0
|
|
Total
|
$
|
2,150.0
|
|
The Company may redeem the
2020
Notes and
2025
Notes, either in whole or in part, at any time one month prior to the maturity date of the
2020
Notes, and
three
months prior to the maturity date of the
2025
Notes, at a redemption price equal to the greater of (i)
100%
of the aggregate principal amount of the
2020
Notes and
2025
Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments discounted at the Treasury rate plus 30 basis points for the
2020
Notes, or the Treasury rate plus 37.5 basis points for the
2025
Notes, plus, in the case of each of the clauses (i) and (ii) above, accrued and unpaid interest, if any. At any time on or after May 15, 2020, in the case of the
2020
Notes, and at any time on or after March 15, 2025, in the case of the
2025
Notes, the Company may redeem Notes of such series, in whole or in part, at a redemption price equal to
100%
of the principal amount of the
2020
Notes and the
2025
Notes to be redeemed, plus accrued and unpaid interest, if any. The Company may redeem the other Notes, either in whole or in part, at any time at a redemption price equal to the greater of (i)
100%
of the aggregate principal amount of the Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments discounted to the redemption date, plus, in either case, accrued and unpaid interest, if any.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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, 2017
, the Company was in compliance with all covenants in the indentures governing the Notes.
Revolving Credit Facility
In June 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, 2017, the Company has not borrowed any funds under the Credit Agreement and was in compliance with all covenants in the Credit Agreement.
Financing Arrangements
The Company provides certain customers with access to extended financing arrangements that allow for 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 providers are due to the Company within
1
to
90
days from the sale of the receivable. In these transactions with the financing providers, the Company surrenders control over the transferred assets.
Pursuant to the financing arrangements for the sale of receivables, the Company sold receivables of
$169.4 million
,
$95.6 million
and
$72.5 million
during the years ended
December 31, 2017
,
2016
, and
2015
, respectively. The Company received cash proceeds from financing providers of
$169.3 million
,
$83.2 million
, and
$99.3 million
during the years ended
December 31, 2017
,
2016
, and
2015
, respectively. As of
December 31, 2017
and
December 31, 2016
, the amounts owed by the financing providers were
$13.7 million
and
$13.6 million
, respectively, which were recorded in accounts receivable on the Company’s Consolidated Balance Sheets.
The portion of the receivable financed that has not been recognized as revenue is accounted for as a financing arrangement and is included in other accrued liabilities in the Consolidated Balance Sheets. As of
December 31, 2017
, the cash received from the financing provider not recognized as revenue was
$16.9 million
. There was no outstanding balance as of
December 31, 2016
.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 11. Equity
The following table summarizes dividends paid and stock repurchase activities (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
Stock Repurchase Program
|
|
Total
|
Year
|
Per Share
|
|
Amount
|
|
Shares
|
|
Average price
per share
|
|
Amount
|
|
Amount
|
2017
|
$
|
0.40
|
|
|
$
|
150.4
|
|
|
26.1
|
|
|
$
|
27.61
|
|
|
$
|
719.7
|
|
|
$
|
870.1
|
|
2016
|
$
|
0.40
|
|
|
$
|
152.5
|
|
|
13.5
|
|
|
$
|
23.25
|
|
|
$
|
312.9
|
|
|
$
|
465.4
|
|
2015
|
$
|
0.40
|
|
|
$
|
156.3
|
|
|
45.4
|
|
|
$
|
25.16
|
|
|
$
|
1,142.5
|
|
|
$
|
1,298.8
|
|
Cash Dividends on Shares of Common Stock
During
2017
, the Company declared
four
quarterly cash dividends of
$0.10
per share on its common stock on January 26, 2017, April 25, 2017, July 25, 2017 and October 24, 2017, which were paid on March 22, 2017, June 22, 2017, September 22, 2017 and December 22, 2017, respectively, to stockholders of record as of the close of business on March 1, 2017, June 1, 2017, September 1, 2017, and December 1, 2017, respectively. 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 an authorized committee thereof. See Note 18,
Subsequent Events,
for discussion of the Company's dividend declaration subsequent to
December 31, 2017
.
Stock Repurchase Activities
In 2014 and 2015, 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, and subsequent increases to the authorization totaling
$1.8 billion
("Stock Repurchase Program"). In February 2017, the Board authorized an additional
$500 million
increase to the Stock Repurchase Program for a total of
$4.4 billion
. As of
December 31, 2017
, the Company had utilized all of the authorized funds under the Stock Repurchase Program. See Note 18,
Subsequent Events,
for discussion of the Company's stock repurchase activity subsequent to
December 31, 2017
.
In addition to repurchases under the Company’s Stock Repurchase Program, the Company also repurchases common stock from certain employees in connection with the net issuance of shares to satisfy minimum tax withholding obligations upon the vesting of certain stock awards issued to such employees. Repurchases associated with tax withholdings were
$6.0 million
,
$11.7 million
, and
$11.1 million
for the years ended
December 31, 2017
, 2016, and 2015, respectively.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Accumulated Other Comprehensive Loss, Net of Tax
The components of accumulated other comprehensive loss, net of related taxes,
for the years ended
December 31, 2017
, 2016, and 2015 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gains
on Available-for-
Sale Securities
(1)
|
|
Unrealized
Gains (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 income (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 income (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 income (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
|
)
|
Other comprehensive income before reclassifications
|
4.5
|
|
|
15.7
|
|
|
19.0
|
|
|
39.2
|
|
Amount reclassified from accumulated other comprehensive loss
|
(2.1
|
)
|
|
(5.2
|
)
|
|
—
|
|
|
(7.3
|
)
|
Other comprehensive income, net
|
2.4
|
|
|
10.5
|
|
|
19.0
|
|
|
31.9
|
|
Balance as of December 31, 2017
|
$
|
19.0
|
|
|
$
|
6.0
|
|
|
$
|
(30.4
|
)
|
|
$
|
(5.4
|
)
|
________________________________
|
|
(1)
|
The reclassifications out of accumulated other comprehensive loss during the years ended
December 31, 2017
,
2016
, and
2015
for realized gains on available-for-sale securities were not material, and were included in other expense, net, in the Consolidated Statements of Operations.
|
|
|
(2)
|
The reclassifications out of accumulated other comprehensive loss during the years ended
December 31, 2017
,
2016
, and
2015
for realized gains and losses on cash flow hedges were not material, and were included within cost of revenues, research and development, sales and marketing, and general and administrative in the Consolidated Statements of Operations.
|
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, RSUs, and PSAs. In addition, in connection with certain past acquisitions, the Company has assumed stock options, RSUs, 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. In May 2017, the Company's stockholders approved an additional
23.0 million
shares of common stock for issuance under the 2015 Plan. As of
December 31, 2017
, an aggregate of
17.0 million
shares were subject to outstanding equity awards under the 2015 Plan and the 2006 Plan. As of
December 31, 2017
,
33.5 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.
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
35.0 million
shares of the Company's common stock for issuance under the ESPP, which includes an additional
7.0 million
and
9.0 million
shares approved by the Company's stockholders in May 2015 and May 2017, respectively.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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. On November 6, 2017, the Company’s Compensation Committee amended and restated the ESPP to provide that for the offering period that begins on February 1, 2018, the ESPP will consist of a
24
-month offering period with
four
6
-month purchase periods in each offering period. The purchase price for the Company’s common stock under the ESPP will be
85%
of the lower of the fair market value of the shares at (1) the beginning of a rolling
2
year offering period or (2) the end of each
6
-month purchase period during such offering period. The ESPP will continue in effect until February 25, 2028, unless terminated earlier under the provisions of the ESPP. As of
December 31, 2017
, approximately
23.8 million
shares have been issued and
11.2 million
shares remain available for future issuance under the ESPP.
During 2017 and 2016, the Company completed the acquisitions of Cyphort, AppFormix, Aurrion, and BTI. In connection with these acquisitions, the Company assumed an aggregate of
3.9 million
shares of stock options, RSUs, RSAs, and PSAs. No additional awards can be granted under the stock plans of the acquired companies. As of
December 31, 2017
, approximately
3.4 million
shares of common stock were outstanding under all awards assumed through the Company's acquisitions.
Stock Option Activities
The Company has granted stock option awards that have a maximum contractual life of
seven
years from the date of grant. Options assumed in connection with past acquisitions generally have 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 year ended
December 31, 2017
(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, 2016
|
2.4
|
|
|
$
|
29.20
|
|
|
|
|
|
Exercised
|
(0.5
|
)
|
|
14.83
|
|
|
|
|
|
Expired/Canceled
|
(1.0
|
)
|
|
31.87
|
|
|
|
|
|
Balance as of December 31, 2017
|
0.9
|
|
|
$
|
34.41
|
|
|
1.0
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017:
|
|
|
|
|
|
|
|
Vested and expected-to-vest options
|
0.9
|
|
|
$
|
34.41
|
|
|
1.0
|
|
$
|
3.0
|
|
Exercisable options
|
0.9
|
|
|
$
|
35.67
|
|
|
0.7
|
|
$
|
2.1
|
|
The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was
$28.50
per share as of
December 29, 2017
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
for both 2017 and 2016 and
$27.5 million
for
2015
. Total fair value of options vested during
2017
,
2016
, and
2015
was
$0.7 million
,
$3.9 million
, and
$7.0 million
, respectively.
The following table summarizes additional information regarding outstanding and exercisable options as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
$0.08 - $38.93
|
|
0.3
|
|
|
2.7
|
|
$
|
20.02
|
|
|
0.3
|
|
|
$
|
22.10
|
|
$40.26 - $44.00
|
|
0.6
|
|
|
0.2
|
|
41.12
|
|
|
0.6
|
|
|
41.12
|
|
$0.08 - $44.00
|
|
0.9
|
|
|
1.0
|
|
$
|
34.41
|
|
|
0.9
|
|
|
$
|
35.67
|
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
RSU, RSA, and PSA 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.
The following table summarizes the Company’s RSU, RSA, and PSA activity and related information as of and for the year ended
December 31, 2017
(in millions, except per share amounts and years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding RSUs, RSAs, and PSAs
(6)
|
|
Number of Shares
|
|
Weighted Average
Grant-Date Fair
Value per Share
|
|
Weighted Average
Remaining
Contractual Term
(In Years)
|
|
Aggregate
Intrinsic
Value
|
Balance at December 31, 2016
|
20.9
|
|
|
$
|
24.05
|
|
|
|
|
|
RSUs granted
(1)(2)
|
7.9
|
|
|
27.54
|
|
|
|
|
|
RSUs assumed in acquisitions
(2)(5)
|
0.1
|
|
|
26.91
|
|
|
|
|
|
PSAs granted
(2)(4)
|
0.9
|
|
|
27.52
|
|
|
|
|
|
RSUs vested
(3)
|
(6.7
|
)
|
|
23.99
|
|
|
|
|
|
RSAs vested
(3)
|
(0.5
|
)
|
|
23.72
|
|
|
|
|
|
PSAs vested
(3)
|
(0.5
|
)
|
|
24.29
|
|
|
|
|
|
RSUs canceled
|
(2.1
|
)
|
|
24.97
|
|
|
|
|
|
PSAs canceled
|
(0.5
|
)
|
|
25.25
|
|
|
|
|
|
Balance at December 31, 2017
|
19.5
|
|
|
$
|
25.39
|
|
|
1.0
|
|
$
|
555.3
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
Vested and expected-to-vest RSUs, RSAs, and PSAs
|
15.9
|
|
|
$
|
25.76
|
|
|
1.1
|
|
$
|
452.3
|
|
________________________________
|
|
(1)
|
Includes service-based and market-based RSUs granted under the 2015 Plan according to their terms.
|
|
|
(2)
|
The weighted-average grant-date fair value of RSUs, RSAs, and PSAs granted and assumed during
2017
,
2016
, and
2015
was
$27.53
,
$24.66
, and
$23.45
, respectively.
|
|
|
(3)
|
Total fair value of RSUs, RSAs, and PSAs vested during
2017
,
2016
, and
2015
was
$187.3 million
,
$185.7 million
, and
$202.7 million
, respectively.
|
|
|
(4)
|
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
0.7 million
shares. Depending on achievement of such performance goals, the range of shares that could be issued under these awards is
0 million
to
0.9 million
shares.
|
|
|
(5)
|
RSUs assumed in connection with the acquisition of Cyphort.
|
|
|
(6)
|
Excludes
1.4 million
shares of PSAs that were modified in 2017, which relate to PSAs assumed by the Company in connection with acquisitions consummated in 2016. These awards are contingent upon the achievement of certain performance milestones. The total incremental compensation cost resulting from the modifications totaled
$6.7 million
to be recognized over the remaining terms of the modified awards.
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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, 2016
|
22.5
|
|
Additional shares authorized
|
23.0
|
|
RSUs and PSAs granted
(1)
|
(18.5
|
)
|
RSUs and PSAs canceled
(2)
|
5.5
|
|
Options canceled/expired
(2)
|
1.0
|
|
Balance as of December 31, 2017
|
33.5
|
|
________________________________
|
|
(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)
|
Canceled or expired options and canceled RSUs and PSAs under the 2006 Plan are no longer available for future grant under such plan; however, the number of shares available for grant under the 2015 Plan are increased by (i) the amount of such canceled or expired options and (ii) two and one-tenth the shares for each canceled 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
2.7 million
shares of common stock through the ESPP during each year in 2017, 2016, and 2015 at an average exercise price of
$20.83
,
$19.66
, and
$19.25
per share, respectively.
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,
|
|
2017
|
|
2016
|
|
2015
|
ESPP:
|
|
|
|
|
|
Volatility
|
25%
|
|
32%
|
|
29%
|
Risk-free interest rate
|
0.9%
|
|
0.4%
|
|
0.1%
|
Expected life (years)
|
0.5
|
|
0.5
|
|
0.5
|
Dividend yield
|
1.5%
|
|
1.8%
|
|
1.7%
|
Weighted-average fair value per share
|
$6.04
|
|
$5.56
|
|
$5.63
|
|
|
|
|
|
|
Market-based RSUs:
|
|
|
|
|
|
Volatility
|
30%
|
|
36%
|
|
34%
|
Risk-free interest rate
|
1.9%
|
|
1.2%
|
|
1.4%
|
Dividend yield
|
1.4%
|
|
1.7%
|
|
1.8%
|
Weighted-average fair value per share
|
$19.30
|
|
$14.71
|
|
$14.97
|
|
|
|
|
|
|
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
|
|
—
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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,
|
|
2017
|
|
2016
|
|
2015
|
Cost of revenues - Product
|
$
|
4.6
|
|
|
$
|
6.4
|
|
|
$
|
5.6
|
|
Cost of revenues - Service
|
17.5
|
|
|
15.3
|
|
|
13.8
|
|
Research and development
|
86.6
|
|
|
126.5
|
|
|
125.4
|
|
Sales and marketing
|
55.6
|
|
|
55.2
|
|
|
45.6
|
|
General and administrative
|
23.2
|
|
|
23.4
|
|
|
26.9
|
|
Total
|
$
|
187.5
|
|
|
$
|
226.8
|
|
|
$
|
217.3
|
|
The following table summarizes share-based compensation expense by award type (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Stock options
|
$
|
0.5
|
|
|
$
|
4.4
|
|
|
$
|
6.6
|
|
RSUs, RSAs, and PSAs
|
171.3
|
|
|
206.9
|
|
|
197.3
|
|
ESPP
|
15.7
|
|
|
15.5
|
|
|
13.4
|
|
Total
|
$
|
187.5
|
|
|
$
|
226.8
|
|
|
$
|
217.3
|
|
For the years ended December 31, 2017, 2016 and 2015, the Company recognized tax benefits on total stock-based compensation expense, which are reflected in the income tax provision in the Consolidated Statements of Operations, of
$29.1 million
,
$53.3 million
, and
$49.5 million
, respectively.
For the years ended December 31, 2017, 2016 and 2015, tax benefit realized related to awards vested or exercised during the period was
$64.1 million
,
$58.6 million
and
$67.1 million
, respectively. These amounts do not include the indirect effects of stock-based awards, which primarily relate to the research and development tax credit.
As of
December 31, 2017
, the total unrecognized compensation cost related to unvested share-based awards was
$270.1 million
to be recognized over a weighted-average period of
1.7
years.
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
$21.1 million
,
$20.7 million
, and
$19.6 million
during
2017
,
2016
, and
2015
, respectively.
Deferred Compensation Plan
The Company’s 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. As of December 31, 2017, the liability of the Company to the plan participants was
$27.6 million
, of which
$4.9 million
was included within other accrued liabilities and
$22.7 million
was included in other long-term liabilities on the Consolidated Balance Sheets. The Company had investments of
$27.6 million
correlating to the deferred compensation obligations, of which
$4.9 million
was included within prepaid expenses and other current assets and
$22.7 million
was included within restricted cash and investments on the Consolidated Balance Sheets. As of December 31, 2016, the liability of the Company was
$21.0 million
, which was included in other long-term liabilities on the Consolidated Balance Sheets and the Company had investments of
$21.0 million
correlating to the deferred compensation obligations, which were included in restricted cash and investment in the Consolidated Balance Sheets.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Non-US Pension Plans
The Company maintains the India Gratuity Trust and Israel Retirement Trust (or "the Pension Plans") to cover statutory severance obligations in the event of termination of any of its India and Israel employees, respectively. The Pension Plans are primarily invested in mutual funds and measured at fair value using Level 1 hierarchy on a recurring basis. The Company reports the Pension Plans on a net basis on the Consolidated Balance Sheets. As of
December 31, 2017
and
December 31, 2016
, the fair value of the Pension Plans was
$11.3 million
and
$8.4 million
, respectively. As of
December 31, 2017
and
December 31, 2016
, the Company recorded a net plan liability of
$4.3 million
and
$2.4 million
, respectively, in accrued compensation on the Consolidated Balance Sheets.
Note 13. Segments
The Company operates in
one
reportable segment. The Company's chief executive officer, who is the chief operating decision maker, reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance, accompanied by disaggregated information about net revenues by product and service, customer vertical, and geographic region as presented below.
The following table presents net revenues by product and service (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Routing
|
$
|
2,189.5
|
|
|
$
|
2,352.9
|
|
|
$
|
2,359.2
|
|
Switching
|
963.4
|
|
|
858.0
|
|
|
768.3
|
|
Security
|
293.3
|
|
|
318.0
|
|
|
435.6
|
|
Total product
|
3,446.2
|
|
|
3,528.9
|
|
|
3,563.1
|
|
|
|
|
|
|
|
Total service
|
1,581.0
|
|
|
1,461.2
|
|
|
1,294.7
|
|
Total
|
$
|
5,027.2
|
|
|
$
|
4,990.1
|
|
|
$
|
4,857.8
|
|
In 2017, the Company began reporting revenue on the following verticals: Cloud, Telecom/Cable, and Strategic Enterprise. A summary of the types of customers included in these verticals is as follows:
|
|
•
|
Cloud: companies that are heavily reliant on the cloud for their business model’s success. As an example, customers in the cloud vertical can include cloud service providers as well as enterprises that provide software-as-a-service, infrastructure-as-a-service, or platform-as-a-service.
|
|
|
•
|
Telecom/Cable: includes wireline and wireless carriers and cable operators.
|
|
|
•
|
Strategic Enterprise: includes financial services; national, federal, state, and local governments; research and educational institutions and enterprises not included in the Cloud vertical.
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table presents net revenues by customer vertical (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Cloud
|
$
|
1,314.9
|
|
|
$
|
1,322.3
|
|
|
$
|
1,021.2
|
|
Telecom/Cable
|
2,315.7
|
|
|
2,324.7
|
|
|
2,417.1
|
|
Strategic Enterprise
|
1,396.6
|
|
|
1,343.1
|
|
|
1,419.5
|
|
Total
|
$
|
5,027.2
|
|
|
$
|
4,990.1
|
|
|
$
|
4,857.8
|
|
The Company attributes revenues to geographic region based on the end customer’s shipping address. The following table presents net revenues by geographic region (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Americas:
|
|
|
|
|
|
United States
|
$
|
2,712.6
|
|
|
$
|
2,737.0
|
|
|
$
|
2,568.6
|
|
Other
|
234.6
|
|
|
231.8
|
|
|
223.6
|
|
Total Americas
|
2,947.2
|
|
|
2,968.8
|
|
|
2,792.2
|
|
Europe, Middle East, and Africa
|
1,195.8
|
|
|
1,238.1
|
|
|
1,320.3
|
|
Asia Pacific
|
884.2
|
|
|
783.2
|
|
|
745.3
|
|
Total
|
$
|
5,027.2
|
|
|
$
|
4,990.1
|
|
|
$
|
4,857.8
|
|
During the years ended
December 31, 2017
,
2016
, and
2015
,
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,
|
|
2017
|
|
2016
|
United States
|
$
|
1,005.1
|
|
|
$
|
1,046.6
|
|
International
|
144.1
|
|
|
147.4
|
|
Property and equipment, net and purchased intangible assets, net
|
$
|
1,149.2
|
|
|
$
|
1,194.0
|
|
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, 2017
and
December 31, 2016
, were attributable to U.S. operations.
The components of pretax income are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
$
|
474.2
|
|
|
$
|
466.2
|
|
|
$
|
456.3
|
|
Foreign
|
337.6
|
|
|
361.2
|
|
|
395.9
|
|
Total pretax income
|
$
|
811.8
|
|
|
$
|
827.4
|
|
|
$
|
852.2
|
|
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The provision for income taxes is summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Current provision:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
594.3
|
|
|
$
|
121.4
|
|
|
$
|
181.4
|
|
States
|
13.9
|
|
|
10.3
|
|
|
15.9
|
|
Foreign
|
45.4
|
|
|
46.0
|
|
|
43.3
|
|
Total current provision
|
653.6
|
|
|
177.7
|
|
|
240.6
|
|
Deferred (benefit) provision:
|
|
|
|
|
|
Federal
|
(128.7
|
)
|
|
57.2
|
|
|
(16.7
|
)
|
States
|
(17.7
|
)
|
|
4.3
|
|
|
(0.4
|
)
|
Foreign
|
(1.6
|
)
|
|
(4.5
|
)
|
|
(5.0
|
)
|
Total deferred (benefit) provision
|
(148.0
|
)
|
|
57.0
|
|
|
(22.1
|
)
|
Total provision for income taxes
|
$
|
505.6
|
|
|
$
|
234.7
|
|
|
$
|
218.5
|
|
The provision for income taxes differs from the amount computed by applying the federal statutory rate to pretax income as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Expected provision at 35% rate
|
$
|
284.1
|
|
|
$
|
289.6
|
|
|
$
|
298.3
|
|
State taxes, net of federal benefit
|
12.0
|
|
|
8.9
|
|
|
8.9
|
|
Foreign income at different tax rates
|
(46.4
|
)
|
|
(53.4
|
)
|
|
(68.9
|
)
|
R&D tax credits
|
(15.1
|
)
|
|
(16.8
|
)
|
|
(12.7
|
)
|
Share-based compensation
|
—
|
|
|
10.5
|
|
|
13.2
|
|
Release of valuation allowance
|
(1.7
|
)
|
|
(0.7
|
)
|
|
—
|
|
Domestic production activities
|
(12.4
|
)
|
|
(9.5
|
)
|
|
(15.1
|
)
|
Non-deductible compensation
|
1.6
|
|
|
2.4
|
|
|
3.7
|
|
Cost sharing adjustment
(*)
|
—
|
|
|
—
|
|
|
(13.2
|
)
|
Impact of the U.S. Tax Cuts and Jobs Act
|
289.5
|
|
|
—
|
|
|
—
|
|
Other
|
(6.0
|
)
|
|
3.7
|
|
|
4.3
|
|
Total provision for income taxes
|
$
|
505.6
|
|
|
$
|
234.7
|
|
|
$
|
218.5
|
|
________________________________
|
|
(*)
|
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).
|
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Effective January 1, 2018, the Tax Act provides for significant changes to U.S. income tax law, including the reduction of the U.S. federal corporate income tax rate from 35% to 21% and the creation of a minimum tax on foreign earnings. In addition, the Tax Act imposed a one-time transition tax on accumulated foreign earnings through December 31, 2017. The Company recognized a provisional income tax charge of
$289.5 million
, which is included as a component of the income tax provision on our Consolidated Statements of Operations.
Included in the provisional amounts is (i) a one-time transition tax of
$431.2 million
on the Company’s accumulated foreign earnings, which the Company has elected to pay over eight years, (ii)
$134.5 million
related to the re-measurement of the Company’s deferred tax assets at the revised U.S. statutory rates and (iii)
$65.1 million
of other accrued taxes on foreign distributable earnings, primarily related to withholding taxes and certain foreign timing differences. These impacts were partially offset by
$341.3 million
related to the reversal of deferred tax liabilities previously accrued on foreign earnings.
The Company’s tax expense of
$431.2 million
on the Company's accumulated foreign earnings is based on estimates of the effects of the Tax Act as the analysis requires significant data from the Company's foreign subsidiaries which is not regularly collected or analyzed, including the impact of certain foreign timing differences as well as the effect of foreign earnings upon the Company’s ability to utilize foreign tax credits.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
In addition, the provisional amount includes the remeasurement of certain U.S. deferred tax assets and liabilities of
$134.5 million
, foreign withholding taxes and the impact of certain foreign timing differences of
$65.1 million
. The Company has computed the amounts based on information available to it, including its expectation that the settlement of certain foreign basis differences will affect the amount of U.S. minimum tax upon reversal; however there is still uncertainty as to the application of the Tax Act.
As the Company collects and prepares the necessary data, interprets the Tax Act and reviews any additional guidance issued by the U.S. Treasury Department, state revenue and taxation authorities and other standard-setting bodies, the Company may make adjustments to the provisional amounts noted above which may materially impact its provision for income taxes from continuing operations in the period in which the adjustments are made. The accounting for the tax effects of the Tax Act will be completed in 2018.
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. In accordance with the Tax Act, the effect of the cumulative adjustment was remeasured.
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,
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
|
Net operating loss carry-forwards
|
$
|
18.3
|
|
|
$
|
23.8
|
|
Research and other credit carry-forwards
|
198.8
|
|
|
137.5
|
|
Deferred revenue
|
103.5
|
|
|
125.6
|
|
Stock-based compensation
|
31.1
|
|
|
52.3
|
|
Cost sharing adjustment
|
12.4
|
|
|
69.9
|
|
Reserves and accruals not currently deductible
|
76.7
|
|
|
141.3
|
|
Other
|
12.8
|
|
|
12.8
|
|
Total deferred tax assets
|
453.6
|
|
|
563.2
|
|
Valuation allowance
|
(214.5
|
)
|
|
(154.4
|
)
|
Deferred tax assets, net of valuation allowance
|
239.1
|
|
|
408.8
|
|
Deferred tax liabilities:
|
|
|
|
Property and equipment basis differences
|
(42.5
|
)
|
|
(58.1
|
)
|
Purchased intangibles
|
(12.4
|
)
|
|
(28.8
|
)
|
Unremitted foreign earnings
|
(25.4
|
)
|
|
(311.4
|
)
|
Deferred compensation and other
|
(10.4
|
)
|
|
(11.0
|
)
|
Total deferred tax liabilities
|
(90.7
|
)
|
|
(409.3
|
)
|
Net deferred tax assets (liabilities)
|
$
|
148.4
|
|
|
$
|
(0.5
|
)
|
Based on changes provided by the Tax Act, the Company re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%.
As of
December 31, 2017
and
2016
, the Company had a valuation allowance on its U.S. domestic deferred tax assets of approximately
$214.5 million
and
$154.4 million
, respectively. The balance at
December 31, 2017
consisted of approximately
$191.0 million
and
$19.7 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
$3.8 million
related to losses that are capital in nature and may carry forward to offset future capital gains only. The valuation allowance increased in
2017
and
2016
by
$60.1 million
and
$8.2 million
, respectively, primarily related to the change in California and Massachusetts R&D tax credits.
As of
December 31, 2017
, the Company had federal and California net operating loss carry-forwards of approximately
$66.7 million
and
$123.9 million
, respectively. The California net operating loss carry-forwards of
$123.9 million
are expected to expire unused. The Company also had federal and California tax credit carry-forwards of approximately
$2.6 million
and
$222.4 million
, respectively. Unused net operating loss carry-forwards will expire at various dates beginning in the year 2018. The California tax credit carry-forwards will carry forward indefinitely.
As of
December 31, 2017
,
2016
, and
2015
, the total amount of gross unrecognized tax benefits was
$264.5 million
,
$223.1 million
, and
$216.1 million
, respectively. As of
December 31, 2017
, approximately
$259.8 million
of the
$264.5 million
gross unrecognized tax benefits, if recognized, would affect the effective tax rate. The increase in unrecognized tax benefits for the fiscal year 2017 was primarily related to changes in estimates resulting from the Tax Act.
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,
|
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of year
|
$
|
223.1
|
|
|
$
|
216.1
|
|
|
$
|
199.2
|
|
Tax positions related to current year:
|
|
|
|
|
|
Additions
|
64.6
|
|
|
27.2
|
|
|
18.1
|
|
Tax positions related to prior years:
|
|
|
|
|
|
Additions
|
1.8
|
|
|
1.0
|
|
|
5.3
|
|
Reductions
|
(16.6
|
)
|
|
(4.1
|
)
|
|
(2.9
|
)
|
Settlements
|
(4.0
|
)
|
|
(14.3
|
)
|
|
—
|
|
Lapses in statutes of limitations
|
(4.4
|
)
|
|
(2.8
|
)
|
|
(3.6
|
)
|
Balance at end of year
|
$
|
264.5
|
|
|
$
|
223.1
|
|
|
$
|
216.1
|
|
As of
December 31, 2017
,
2016
, and
2015
, the Company had accrued interest and penalties related to unrecognized tax benefits of
$40.7 million
,
$31.3 million
, and
$24.1 million
, respectively, to other long-term liabilities in the Consolidated Balance Sheets. The Company recognized an expense for net interest and penalties of
$8.5 million
,
$6.0 million
, and
$2.5 million
in its Consolidated Statements of Operations during the years ended
December 31, 2017
,
2016
, and
2015
, 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
$48.0 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, 2017
, 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 December 2017, the UK tax authorities concluded its audit of the 2013 through 2015 tax years, which did not have a material impact to the Company's financial statements.
The Company is also subject to separate ongoing examinations by the UK tax authorities for the 2016 tax year, the German tax authorities for the 2010 through 2013 tax years, the Australia tax authorities for the 2016 and 2017 tax years, and the India tax authorities for the 2003 tax year, the 2004 through 2008 tax years, and the 2009 through 2014 tax years. As of December 31, 2017, 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.
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
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 per share as follows (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
Net income
|
$
|
306.2
|
|
|
$
|
592.7
|
|
|
$
|
633.7
|
|
Denominator:
|
|
|
|
|
|
Weighted-average shares used to compute basic net income per share
|
377.7
|
|
|
381.7
|
|
|
390.6
|
|
Dilutive effect of employee stock awards
|
6.5
|
|
|
6.1
|
|
|
8.8
|
|
Weighted-average shares used to compute diluted net income per share
|
384.2
|
|
|
387.8
|
|
|
399.4
|
|
Net income per share:
|
|
|
|
|
|
Basic
|
$
|
0.81
|
|
|
$
|
1.55
|
|
|
$
|
1.62
|
|
Diluted
|
$
|
0.80
|
|
|
$
|
1.53
|
|
|
$
|
1.59
|
|
|
|
|
|
|
|
Anti-dilutive shares
|
1.1
|
|
|
2.5
|
|
|
3.4
|
|
Basic net income per share is computed using net income 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 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
The following table summarizes the Company’s unconditional purchase obligations and future minimum payments under non-cancelable operating and other lease arrangements for each of the next five years and thereafter as of
December 31, 2017
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
Years Ending December 31,
|
Unconditional Purchase Obligations
|
|
Operating Leases
|
|
Other Lease Arrangement
|
2018
|
$
|
47.1
|
|
|
$
|
36.1
|
|
|
$
|
9.8
|
|
2019
|
25.2
|
|
|
27.3
|
|
|
13.2
|
|
2020
|
13.3
|
|
|
20.8
|
|
|
13.5
|
|
2021
|
6.0
|
|
|
16.0
|
|
|
13.8
|
|
2022
|
3.1
|
|
|
10.7
|
|
|
14.6
|
|
Thereafter
|
0.1
|
|
|
28.8
|
|
|
47.1
|
|
Total
|
$
|
94.8
|
|
|
$
|
139.7
|
|
|
$
|
112.0
|
|
Unconditional Purchase Obligations
Unconditional purchase obligations consist 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.
Operating Leases
The Company leases its facilities and certain equipment under non-cancelable operating leases that expire at various dates through
March 2028
. 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
2017
,
2016
, and
2015
was approximately
$39.3 million
,
$37.9 million
, and
$43.2 million
, respectively.
Other Lease Arrangement
In July 2015, the Company entered into a lease arrangement through March 2026 for approximately
63,000
square feet of space in the State of Washington. 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. The Company capitalized the construction costs by recording a build-to-suit lease asset and a corresponding build-to-suit financing liability. Upon the completion of construction in 2016, 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. As of
December 31, 2017
, the total payment under the lease agreement over the
ten
-year term is approximately
$112.0 million
of which
$62.6 million
is included in other-long term liabilities on the Consolidated Balance Sheets.
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
$615.2 million
as of
December 31, 2017
.
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, 2017
, the Company had accrued
$22.0 million
based on its estimate of such charges.
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Clock-Signal, Supplier Component Remediation Liability
As of
December 31, 2017
and
December 31, 2016
, the Company had approximately
zero
and
$10.8 million
, respectively, 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 had been advised by the component supplier that components may begin to fail after the product has been in operation for
18 months
. As of
December 31, 2017
, the Company has substantially completed the remediation process with its customers.
Debt and Interest Payment on Debt
As of
December 31, 2017
, the Company held long-term debt consisting of the Notes with a carrying value of
$2,136.3 million
. See Note 10,
Debt and Financing
, for further discussion of the Company's long-term debt and expected future principal maturities.
Tax Liability
As of December 31, 2017, the Company has made a reasonable estimate of the effects on the one-time transition tax as a result of the Tax Act, which includes estimated charges of
$431.2 million
of tax on the Company’s accumulated foreign earnings, of which
$394.0 million
is included within long-term income taxes payable in the Consolidated Balance Sheets. See Note 14,
Income Taxes
, for further discussion.
As of
December 31, 2017
, the Company had
$256.6 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, 2017
, the Company recorded
$20.4 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 and standby letters of credit for certain lease facilities and insurance programs of
$23.0 million
and
$6.0 million
, as of
December 31, 2017
and
December 31, 2016
, respectively.
Legal Proceedings
Investigations
The Company previously disclosed that the U.S. Securities and Exchange Commission ("SEC") and the U.S. Department of Justice ("DOJ") were conducting investigations into possible violations by the Company of the U.S. Foreign Corrupt Practices Act ("FCPA"). The Company has been cooperating with these agencies regarding these matters. In the fourth quarter of 2017, the DOJ notified the Company that the DOJ has closed its investigation related to these matters without taking any action against the Company. 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 ongoing SEC investigation, 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 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.
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 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 intends to aggressively defend itself in these matters, and while there can be no assurances and the outcome of these matters is currently not
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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.
Note 17. Selected Quarterly Financial Data (Unaudited)
The table below sets forth selected unaudited financial data for each quarter of the years ended
December 31, 2017
and
December 31, 2016
(in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Net revenues
|
$
|
1,221.0
|
|
|
$
|
1,308.9
|
|
|
$
|
1,257.8
|
|
|
$
|
1,239.5
|
|
|
$
|
1,097.9
|
|
|
$
|
1,221.3
|
|
|
$
|
1,285.3
|
|
|
$
|
1,385.6
|
|
Gross margin
|
746.6
|
|
|
801.9
|
|
|
772.4
|
|
|
751.2
|
|
|
690.9
|
|
|
756.4
|
|
|
799.5
|
|
|
857.7
|
|
Income before income taxes
|
140.6
|
|
|
245.2
|
|
|
225.8
|
|
|
200.2
|
|
|
126.5
|
|
|
192.2
|
|
|
236.6
|
|
|
272.1
|
|
Net income (loss)
(1)
|
$
|
108.8
|
|
|
$
|
179.8
|
|
|
$
|
165.7
|
|
|
$
|
(148.1
|
)
|
|
$
|
91.4
|
|
|
$
|
140.0
|
|
|
$
|
172.4
|
|
|
$
|
188.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.29
|
|
|
$
|
0.47
|
|
|
$
|
0.44
|
|
|
$
|
(0.40
|
)
|
|
$
|
0.24
|
|
|
$
|
0.37
|
|
|
$
|
0.45
|
|
|
$
|
0.50
|
|
Diluted
(3)
|
$
|
0.28
|
|
|
$
|
0.47
|
|
|
$
|
0.43
|
|
|
$
|
(0.40
|
)
|
|
$
|
0.23
|
|
|
$
|
0.36
|
|
|
$
|
0.45
|
|
|
$
|
0.49
|
|
_______________
|
|
(1)
|
Net loss for the fourth quarter of 2017 includes an estimated
$289.5 million
of tax expense related to the Tax Act, and restructuring charges of
$36.2 million
.
|
|
|
(2)
|
Net income (loss) 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.
|
|
|
(3)
|
Potentially dilutive common shares for the fourth quarter of 2017 were excluded from the computation of diluted net loss per share because their effect would be anti-dilutive.
|
Note 18. Subsequent Events
Dividend Declaration
On January 30, 2018, the Company announced that the Board declared a quarterly cash dividend of
$0.18
per share of common stock to be paid on
March 22, 2018
to stockholders of record as of the close of business on
March 1, 2018
. This reflects an increase of
80%
compared to previous quarterly dividends.
Stock Repurchase Activities
In January 2018, the Board approved a new
$2.0 billion
share repurchase authorization ("2018 Stock Repurchase Program"), which replaces the previous authorization. The Board also authorized the Company to enter into an accelerated share repurchase program ("ASR") for an amount up to
$750.0 million
under the 2018 Stock Repurchase Program.
In February 2018, the Company entered into ASR agreements with
two
financial institutions to repurchase an aggregate of
$750.0 million
of the Company's common stock. The Company made an up-front payment of
$750.0 million
pursuant to the ASR and received and retired an initial
23.3 million
shares of the Company's common stock for an aggregate price of
$600.0 million
based on the market value of the Company's common stock on the date of the transaction. The Company has an aggregate of
$1.3 billion
of authorized funds remaining under the 2018 Stock Repurchase Program, as of the filing date of this Annual Report on Form 10-K.
Future share repurchases under the 2018 Stock Repurchase Program 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 2018 Stock Repurchase Program may be discontinued at any time.