JUNIPER NETWORKS INC, 10-Q filed on 11/10/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Nov. 7, 2014
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
JUNIPER NETWORKS INC 
 
Entity Central Index Key
0001043604 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2014 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Current Fiscal Year End Date
--12-31 
 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
432,568,783 
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Net revenues:
 
 
 
 
Product
$ 809.5 
$ 900.8 
$ 2,614.7 
$ 2,546.4 
Service
316.4 
284.8 
910.8 
849.1 
Total net revenues
1,125.9 
1,185.6 
3,525.5 
3,395.5 
Cost of revenues:
 
 
 
 
Product
290.0 
325.5 
975.9 
925.0 
Service
121.1 
113.6 
366.5 
332.7 
Total cost of revenues
411.1 
439.1 
1,342.4 
1,257.7 
Gross margin
714.8 
746.5 
2,183.1 
2,137.8 
Operating expenses:
 
 
 
 
Research and development
253.2 
264.6 
772.7 
784.5 
Sales and marketing
249.2 
269.5 
780.6 
792.7 
General and administrative
55.0 
61.4 
190.5 
169.1 
Restructuring and other (credit) charges
(15.0)
6.0 
157.2 
21.0 
Total operating expenses
542.4 
601.5 
1,901.0 
1,767.3 
Operating income
172.4 
145.0 
282.1 
370.5 
Other (expense) income, net
(6.8)
(7.5)
326.0 
(30.2)
Income before income taxes
165.6 
137.5 
608.1 
340.3 
Income tax provision
62.0 
38.4 
172.8 
52.3 
Net income
$ 103.6 
$ 99.1 
$ 435.3 
$ 288.0 
Net income per share:
 
 
 
 
Basic, in dollars per share
$ 0.23 
$ 0.20 
$ 0.93 
$ 0.57 
Diluted, in dollars per share
$ 0.23 
$ 0.19 
$ 0.91 
$ 0.56 
Shares used in computing net income per share:
 
 
 
 
Basic (in shares)
448.4 
501.5 
468.1 
503.0 
Diluted (in shares)
454.8 
508.6 
477.0 
510.7 
Cash dividends declared per common stock
$ 0.10 
$ 0.00 
$ 0.10 
$ 0.00 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Net income
$ 103.6 
$ 99.1 
$ 435.3 
$ 288.0 
Available-for-sale securities:
 
 
 
 
Unrealized (losses) gains on available-for-sale securities, net of tax benefit (provision) of $2.0 and ($26.2) during the three and nine months ended September 30, 2014, respectively, and ($36.4) and ($40.4) for the corresponding periods of fiscal 2013, respectively
(4.4)
65.2 
44.0 
70.8 
Reclassification adjustment for realized net (gains) on available-for-sale securities included in net income, net of tax provision of $0.1 and $60.5 during the three and nine months ended September 30, 2014, respectively, and $0.1 and $0.3 for the corresponding periods of fiscal 2013, respectively
(0.2)
(0.3)
(104.0)
(0.8)
Unrealized (losses) gains on available-for-sale securities during the period, net of taxes
(4.6)
64.9 
(60.0)
70.0 
Cash flow hedges:
 
 
 
 
Unrealized (losses) gains on cash flow hedges, net of tax (provision) benefit of zero and ($1.3) during the three and nine months ended September 30, 2014, respectively, and $1.1 and $2.4 for the corresponding periods of fiscal 2013, respectively
(2.8)
0.7 
0.4 
(1.8)
Reclassification adjustment for realized net (gains) losses on cash flow hedges included in net income, net of tax provision (benefit) of $0.5 and $0.8 during the three and nine months ended September 30, 2014, respectively, and ($0.8) and ($0.3) for the corresponding periods of fiscal 2013, respectively
(1.0)
0.6 
(4.2)
(0.9)
Unrealized (losses) gains on cash flow hedges during the period, net of taxes
(3.8)
1.3 
(3.8)
(2.7)
Change in foreign currency translation adjustments
(7.7)
4.1 
(3.8)
(5.4)
Other comprehensive (loss) income, net of tax
(16.1)
70.3 
(67.6)
61.9 
Comprehensive income
$ 87.5 
$ 169.4 
$ 367.7 
$ 349.9 
Condensed Consolidated Statements of Comprehensive Income Parentheticals (Unaudited) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
 
Tax (provision) benefit on change in unrealized gains on available-for-sale securities
$ 2.0 
$ (36.4)
$ (26.2)
$ (40.4)
Tax (provision) benefit on reclassification adjustment for realized net gains on available-for-sale securities included in net income
0.1 
0.1 
60.5 
0.3 
Tax (provision) benefit on change in unrealized gains (losses) on cash flow hedges
1.1 
(1.3)
2.4 
Tax (provision) benefit on reclassification adjustment for realized gains included in net income
$ 0.5 
$ (0.8)
$ 0.8 
$ (0.3)
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 1,615.9 
$ 2,284.0 
Short-term investments
299.5 
561.9 
Accounts receivable, net of allowances
617.0 
578.3 
Deferred tax assets, net
157.5 
79.8 
Prepaid expenses and other current assets
206.5 
199.9 
Assets held for sale
166.9 
Total current assets
3,063.3 
3,703.9 
Property and equipment, net
888.8 
882.3 
Long-term investments
1,405.6 
1,251.9 
Restricted cash and investments
45.9 
89.5 
Purchased intangible assets, net
90.8 
106.9 
Goodwill
3,911.7 
4,057.7 
Other long-term assets
162.9 
233.8 
Total assets
9,569.0 
10,326.0 
Current liabilities:
 
 
Accounts payable
242.2 
200.4 
Accrued compensation
193.3 
273.9 
Deferred revenue
728.4 
705.8 
Other accrued liabilities
244.6 
261.3 
Liabilities held for sale
40.5 
Total current liabilities
1,449.0 
1,441.4 
Long-term debt
1,348.9 
999.3 
Long-term deferred revenue
345.6 
363.5 
Long-term income taxes payable
154.2 
114.4 
Other long-term liabilities
80.9 
105.2 
Total liabilities
3,378.6 
3,023.8 
Commitments and contingencies (Note 17)
   
   
Stockholders' equity:
 
 
Convertible preferred stock, $0.00001 par value; 10.0 shares authorized; none issued and outstanding
Common stock, $0.00001 par value; 1,000.0 shares authorized; 438.1 shares and 495.2 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
Additional paid-in capital
9,157.1 
9,868.9 
Accumulated other comprehensive (loss) income
(3.0)
64.6 
Accumulated deficit
(2,963.7)
(2,631.3)
Total stockholders' equity
6,190.4 
7,302.2 
Total liabilities and stockholders' equity
$ 9,569.0 
$ 10,326.0 
Condensed Consolidated Balance Sheets Parentheticals (Unaudited) (USD $)
Sep. 30, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
 
 
Convertible preferred stock - par value
$ 0.00001 
$ 0.00001 
Convertible preferred stock - shares authorized
10,000,000 
10,000,000 
Convertible preferred stock - issued
Convertible preferred stock - outstanding
Common stock - par value
$ 0.00001 
$ 0.00001 
Common stock - shares authorized
1,000,000,000 
1,000,000,000 
Common stock - issued
438,100,000 
495,200,000 
Common stock - outstanding
438,100,000 
495,200,000 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Cash flows from operating activities:
 
 
Net income
$ 435.3 
$ 288.0 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Share-based compensation expense
185.4 
180.7 
Depreciation, amortization, and accretion
141.9 
135.2 
Restructuring and other (credit) charges
179.4 
28.6 
Deferred income taxes
(85.4)
40.4 
Gain on investments, net
(165.1)
(7.8)
Gain on legal settlement, net
(121.1)
Excess tax benefits from share-based compensation
(8.8)
(1.5)
Loss on disposal of fixed assets
1.9 
1.2 
Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
Accounts receivable, net
(33.2)
(111.0)
Prepaid expenses and other assets
(29.4)
(67.0)
Accounts payable
47.4 
(1.1)
Accrued compensation
(78.3)
(88.6)
Income taxes payable
86.1 
(26.1)
Other accrued liabilities
(124.5)
(16.8)
Deferred revenue
40.9 
97.7 
Net cash provided by operating activities
472.5 
451.9 
Cash flows from investing activities:
 
 
Purchases of property and equipment
(140.9)
(183.0)
Purchases of available-for-sale investments
(1,970.5)
(1,351.6)
Proceeds from sales of available-for-sale investments
1,918.7 
860.4 
Proceeds from maturities of available-for-sale investments
339.0 
287.6 
Purchases of trading investments
(3.5)
(3.1)
Proceeds from sales of privately-held investments
2.5 
8.4 
Purchases of privately-held investments
(12.3)
(20.4)
Payments for business acquisitions, net of cash and cash equivalents acquired
(27.1)
(10.0)
Purchase of licensed software
(10.0)
Changes in restricted cash
45.0 
Net cash provided by (used in) investing activities
150.9 
(421.7)
Cash flows from financing activities:
 
 
Proceeds from issuance of common stock
157.6 
123.7 
Purchases and retirement of common stock
(1,761.0)
(332.1)
Issuance of long-term debt, net
346.5 
Payment for capital lease obligation
(0.4)
(1.4)
Customer financing arrangements
0.8 
41.8 
Excess tax benefits from share-based compensation
8.8 
1.5 
Payment of cash dividends
(43.8)
Net cash used in financing activities
(1,291.5)
(166.5)
Net decrease in cash and cash equivalents
(668.1)
(136.3)
Cash and cash equivalents at beginning of period
2,284.0 
2,407.8 
Cash and cash equivalents at end of period
$ 1,615.9 
$ 2,271.5 
Basis of Presentation
Basis of Presentation
Basis of Presentation

Basis of Presentation

The unaudited Condensed Consolidated Financial Statements of Juniper Networks, Inc. (the "Company" or "Juniper") have been prepared in accordance with United States ("U.S.") generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Condensed Consolidated Balance Sheet as of December 31, 2013, is derived from the audited Consolidated Financial Statements for the year ended December 31, 2013. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or any future period. The information included in this Quarterly Report on Form 10-Q ("Report") should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Certain amounts in the prior year Condensed Consolidated Financial Statements contained in this Report have been reclassified to conform to the current year presentation.

The preparation of the financial statements and related disclosures in accordance with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates under different assumptions or conditions.

In the first quarter of 2014, the Company announced an integrated operating plan ("IOP") to refocus the Company's strategy, optimize its structure, and improve operational efficiencies. In connection with the IOP, the Company realigned its organization into a One-Juniper structure which includes consolidating the Company's R&D and go-to-market functions to reduce complexity, increase clarity of responsibilities, and improve efficiency. As a result of these changes, the Company's consolidated business is considered to be one reportable segment. Future organizational changes, if any, could impact how the chief operating decision maker ("CODM") allocates resources and assesses performance. In fiscal 2013, the Company operated under two reportable segments: Platform Systems Division ("PSD") and Software Solutions Division ("SSD"). This change did not impact previously reported consolidated results of operations. See Note 14, Segments, for further discussion of the Company's segment reorganization.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

There have been no material changes to the Company's significant accounting policies compared to the accounting policies described in Note 2, Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2013.

Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15 (Subtopic 205-40) - Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ("ASU 2014-15") which provides guidance about management's responsibility to evaluate whether or not there is substantial doubt about the Company's ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early application is permitted. The adoption of this standard is not expected to have an impact on the Company's Consolidated Financial Statements.

In June 2014, the FASB issued ASU No. 2014-12 (Topic 718) - Compensation - Stock Compensation ("ASU 2014-12") which provides guidance that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service period is a performance condition. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost for such an award would be recognized over the required service period, if it is probable that
the performance condition will be achieved. ASU 2014-12 is effective for all entities for annual periods beginning after December 15, 2015 and interim periods within those annual periods. ASU 2014-12 should be applied on a prospective basis to awards that are granted or modified on or after the effective date. The adoption of this standard is not expected to have an impact on the Company's Consolidated Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09 (Topic 606)—Revenue from Contracts with Customers ("ASU 2014-09") which provides guidance for revenue recognition. This ASU affects all contracts that the Company enters into with customers to transfer goods and services or for the transfer of nonfinancial assets. This ASU will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The standard's core principle is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In doing so, the Company will need to use additional judgment and estimates than under the existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. Accordingly, the ASU will be effective for the Company beginning fiscal year 2017. The Company is currently evaluating the impact of the adoption on its Consolidated Financial Statements.

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08") which raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. ASU 2014-08 is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. The Company has determined that this pronouncement would not have a material impact on the Company's financial position or results of operations.
Business Combination
Business Combination
Business Combination

On January 7, 2014, the Company acquired 100% of the equity securities of WANDL, Inc. ("WANDL"), for $28.7 million of cash and stock consideration. WANDL, a provider of software solutions for advanced planning, management, design and optimization of next-generation multi-layer networks, provides the Company with technology and experience in traffic engineering, multi-layer optimization and path computation to help service provider customers optimize the performance and cost of their networks.

The aggregate consideration of $28.7 million was allocated as follows: intangible assets of $17.8 million, recognized goodwill of $13.6 million, and net liabilities of $2.7 million. The goodwill recognized for the acquisition of WANDL was primarily attributable to expected synergies and is not deductible for U.S. federal income tax purposes.

Additionally, under the terms of the purchase agreement, the Company assumed share-based awards for employees with a fair value of $34.9 million, which were granted in contemplation of future services and will be expensed as share-based compensation over the remaining service period.

Intangible Assets Acquired

The following table presents details of the Company's intangible assets acquired through the business combination completed during the nine months ended September 30, 2014 (in millions, except years):
 
Weighted
Average
Estimated
Useful
Life
(In Years)
 
Amount
Existing technology
7
 
$
10.7

Customer relationships
7
 
6.0

Trade name
4
 
0.6

Backlog
1
 
0.2

Non-compete agreements
2
 
0.3

Total
7
 
$
17.8



The Company's Condensed Consolidated Financial Statements include the operating results of this business combination from the date of acquisition. Pro forma results of operations for this acquisition have not been presented as the financial impact to the Company's consolidated results of operations is not material.
Assets Held for Sale
Assets Held for Sale
Assets Held for Sale

On July 22, 2014, the Company entered into a definitive agreement to sell its Junos® Pulse product portfolio to an affiliate of Siris Capital, a private equity firm, for approximately $250.0 million, subject to certain working capital adjustments. The sale was completed on October 1, 2014 and the Company received total consideration of $228.1 million, of which $103.1 million was in cash, net of a $21.9 million working capital adjustment, and $125.0 million was in the form of an 18-month non-contingent interest bearing promissory note issued to the Company. The related assets and liabilities sold have been presented as held for sale in the Condensed Consolidated Balance Sheet as of September 30, 2014. The Company's sale of the Junos Pulse product portfolio is driven by product rationalization in connection with the Company's IOP.

The following table presents the carrying value of the major components of assets and liabilities of Junos Pulse held for sale as of September 30, 2014 (in millions):
 
As of
 
September 30, 2014
Assets:
 
Goodwill(1)
$
159.8

Intangible assets
6.0

Other assets
1.1

Total assets held for sale
$
166.9

Liabilities:
 
Deferred revenue
$
38.3

Other liabilities
2.2

Total liabilities related to assets held for sale
$
40.5

Cash Equivalents and Investments
Cash Equivalents and Investments
Cash Equivalents and Investments

Investments in Available-for-Sale and Trading Securities

The following tables summarize the Company's unrealized gains and losses and fair value of investments designated as available-for-sale and trading securities as of September 30, 2014 and December 31, 2013 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
As of September 30, 2014
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
$
310.3

 
$

 
$
(0.3
)
 
$
310.0

Certificates of deposit
12.4

 

 

 
12.4

Commercial paper
12.9

 

 

 
12.9

Corporate debt securities
869.8

 
0.8

 
(0.8
)
 
869.8

Foreign government debt securities
28.4

 

 

 
28.4

Government-sponsored enterprise obligations
200.3

 
0.1

 
(0.2
)
 
200.2

U.S. government securities
269.9

 
0.1

 

 
270.0

Total fixed income securities
1,704.0

 
1.0

 
(1.3
)
 
1,703.7

Money market funds
692.0

 

 

 
692.0

Mutual funds
3.8

 
0.1

 

 
3.9

Publicly-traded equity securities
2.4

 

 
(0.3
)
 
2.1

Total available-for-sale securities
2,402.2

 
1.1

 
(1.6
)
 
2,401.7

Trading securities in mutual funds(1)
16.7

 

 

 
16.7

Total
$
2,418.9

 
$
1.1

 
$
(1.6
)
 
$
2,418.4

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
668.2

 
$

 
$

 
$
668.2

Restricted investments
45.1

 

 

 
45.1

Short-term investments
299.5

 
0.3

 
(0.3
)
 
299.5

Long-term investments
1,406.1

 
0.8

 
(1.3
)
 
1,405.6

Total
$
2,418.9

 
$
1.1

 
$
(1.6
)
 
$
2,418.4


________________________________
(1) 
Balance includes the Company's non-qualified deferred compensation plan assets.
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
As of December 31, 2013
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
Asset-backed securities
$
249.9

 
$
0.1

 
$
(0.1
)
 
$
249.9

Certificates of deposit
27.6

 

 

 
27.6

Commercial paper
6.9

 

 

 
6.9

Corporate debt securities
813.6

 
2.0

 
(0.3
)
 
815.3

Foreign government debt securities
10.7

 

 

 
10.7

Government-sponsored enterprise obligations
306.2

 
0.1

 
(0.1
)
 
306.2

U.S. government securities
303.3

 
0.1

 
(0.1
)
 
303.3

Total fixed income securities
1,718.2

 
2.3

 
(0.6
)
 
1,719.9

Money market funds
1,043.7

 

 

 
1,043.7

Mutual funds
3.9

 
0.1

 

 
4.0

Publicly-traded equity securities
12.0

 
104.5

 
(1.9
)
 
114.6

Total available-for-sale securities
2,777.8

 
106.9

 
(2.5
)
 
2,882.2

Trading securities in mutual funds(1)
15.4

 

 

 
15.4

Total
$
2,793.2

 
$
106.9

 
$
(2.5
)
 
$
2,897.6

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cash equivalents
$
996.2

 
$

 
$

 
$
996.2

Restricted investments
87.5

 
0.1

 

 
87.6

Short-term investments
459.0

 
104.9

 
(2.0
)
 
561.9

Long-term investments
1,250.5

 
1.9

 
(0.5
)
 
1,251.9

Total
$
2,793.2

 
$
106.9

 
$
(2.5
)
 
$
2,897.6


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

The following table presents the contractual maturities of the Company's total fixed income securities as of September 30, 2014 (in millions):
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Estimated Fair
Value
Due in less than one year
$
297.9

 
$
0.2

 
$

 
$
298.1

Due between one and five years
1,406.1

 
0.8

 
(1.3
)
 
1,405.6

Total
$
1,704.0

 
$
1.0

 
$
(1.3
)
 
$
1,703.7



The Company had 325 and 178 investments in an unrealized loss position as of September 30, 2014 and December 31, 2013, respectively. The gross unrealized losses related to these investments were primarily due to changes in market interest rates and stock prices. The Company periodically reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company aggregates its investments by category and length of time the securities have been in a continuous unrealized loss position to facilitate its evaluation.

For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) it has the intention to sell any of these investments and (ii) whether it is more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. As of September 30, 2014, the Company anticipates that it will recover the entire amortized cost basis of such available-for-sale debt securities and has determined that no other-than-temporary impairments associated with credit losses were required to be recognized during the three and nine months ended September 30, 2014 and September 30, 2013.

For available-for-sale equity securities that have unrealized losses, the Company evaluates whether there is an indication of other-than-temporary impairments. This determination is based on several factors, including the financial condition and near-term prospects of the issuer and the Company's intent and ability to hold the publicly-traded equity securities for a period of time sufficient to allow for any anticipated recovery in market value. During the three and nine months ended September 30, 2014, the Company determined that certain available-for-sale equity securities were other-than-temporarily impaired, resulting in an impairment charge of $1.1 million and $2.7 million, respectively that were recorded within other (expense) income, net, in the Condensed Consolidated Statements of Operations. There were no such charges during the three and nine months ended September 30, 2013.

During the nine months ended September 30, 2014, gross realized gains from available-for-sale securities were $166.3 million and gross realized losses were not material, excluding the impairment charge noted above. During the three months ended September 30, 2014, and during the three and nine months ended September 30, 2013, there were no material gross realized gains or losses from available-for-sale securities and there were no material gross realized gains or losses from trading securities during the three and nine months ended September 30, 2014 and September 30, 2013.

The following tables present the Company's available-for-sale securities that were in an unrealized loss position as of September 30, 2014 and December 31, 2013 (in millions):
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
As of September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
$
237.2

 
$
(0.3
)
 
$

 
$

 
$
237.2

 
$
(0.3
)
Corporate debt securities
472.8

 
(0.8
)
 

 

 
472.8

 
(0.8
)
Foreign government debt securities(1)
15.9

 

 

 

 
15.9

 

Government-sponsored enterprise obligations
104.2

 
(0.2
)
 

 

 
104.2

 
(0.2
)
U.S. government securities(1)
21.7

 

 

 

 
21.7

 

Total fixed income securities
851.8

 
(1.3
)
 

 

 
851.8

 
(1.3
)
Publicly-traded equity securities
2.1

 
(0.3
)
 

 

 
2.1

 
(0.3
)
Total available-for-sale securities
$
853.9

 
$
(1.6
)
 
$

 
$

 
$
853.9

 
$
(1.6
)
________________________________
(1) Balances less than 12 months include investments that were in an immaterial unrealized loss position as of September 30, 2014.

 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
As of December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities(1)
$
153.0

 
$
(0.1
)
 
$
0.6

 
$

 
$
153.6

 
$
(0.1
)
Corporate debt securities(1)
156.1

 
(0.3
)
 
9.7

 

 
165.8

 
(0.3
)
Foreign government debt securities(2)
10.0

 

 

 

 
10.0

 

Government-sponsored enterprise obligations
123.1

 
(0.1
)
 

 

 
123.1

 
(0.1
)
U.S. government securities
119.7

 
(0.1
)
 

 

 
119.7

 
(0.1
)
Total fixed income securities
561.9

 
(0.6
)
 
10.3

 

 
572.2

 
(0.6
)
Publicly-traded equity securities
6.8

 
(1.9
)
 

 

 
6.8

 
(1.9
)
Total available-for-sale securities
$
568.7

 
$
(2.5
)
 
$
10.3

 
$

 
$
579.0

 
$
(2.5
)
 ________________________________
(1) 
Balances 12 months or greater include investments that were in an immaterial unrealized loss position as of December 31, 2013.
(2) 
Balances less than 12 months include investments that were in an immaterial unrealized loss position as of December 31, 2013.

Restricted Cash and Investments

The Company classifies certain cash and investments as restricted cash and investments on its Condensed Consolidated Balance Sheets for: (i) amounts held in escrow accounts, as required in connection with certain acquisitions completed between 2005 and 2014; (ii) the India Gratuity Trust and Israel Retirement Trust, which cover statutory severance obligations in the event of termination of any of the Company's India and Israel employees, respectively; and (iii) the Directors and Officers indemnification trust ("D&O Trust"). The restricted investments are designated as available-for-sale securities.

Privately-Held Investments

As of September 30, 2014 and December 31, 2013, the carrying values of the Company's privately-held investments of $79.3 million and $57.2 million, respectively, were included in other long-term assets in the Condensed Consolidated Balance Sheets. As of September 30, 2014, the carrying value of the privately-held debt securities was $42.3 million. For the nine months ended September 30, 2014, the Company recorded $10.0 million in other comprehensive income for unrealized gains associated with its privately-held debt securities. During the three months ended September 30, 2014, and during the three and nine months ended September 30, 2013, there were no unrealized gains associated with its privately-held debt securities.

The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company adjusts the carrying value of its privately-held investments for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis.

During the three and nine months ended September 30, 2014, the Company determined that certain privately-held investments were other than temporarily impaired, resulting in impairment charges of $1.1 million that were recorded within other (expense) income, net in the Condensed Consolidated Statements of Operations. For the three and nine months ended September 30, 2013, the Company recorded impairment charges for certain privately-held investments of $2.1 million and $2.5 million, respectively, within other (expense) income, net in the Condensed Consolidated Statements of Operations.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables provide a summary of assets and liabilities measured at fair value on a recurring basis and as reported in the Condensed Consolidated Balance Sheets (in millions):
 
Fair Value Measurements at September 30, 2014 Using:
 
 
 
Quoted Prices in
Active Markets For
Identical Assets
 
Significant Other
Observable
Remaining Inputs
 
Significant Other
Unobservable
Remaining Inputs
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Assets measured at fair value:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Asset-backed securities
$

 
$
310.0

 
$

 
$
310.0

Certificates of deposit

 
12.4

 

 
12.4

Commercial paper

 
12.9

 

 
12.9

Corporate debt securities

 
869.8

 

 
869.8

Foreign government debt securities

 
28.4

 

 
28.4

Government-sponsored enterprise obligations

 
200.2

 

 
200.2

Money market funds(1)
692.0

 

 

 
692.0

Mutual funds(2)
3.9

 

 

 
3.9

Publicly-traded equity securities
2.1

 

 

 
2.1

U.S. government securities
243.0

 
27.0

 

 
270.0

Total available-for-sale securities
941.0

 
1,460.7

 

 
2,401.7

Trading securities in mutual funds(3)
16.7

 

 

 
16.7

Privately-held debt securities

 

 
42.3

 
42.3

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts

 
1.2

 

 
1.2

Total assets measured at fair value
$
957.7

 
$
1,461.9

 
$
42.3

 
$
2,461.9

Liabilities measured at fair value:
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
Foreign exchange contracts
$

 
$
(1.8
)
 
$

 
$
(1.8
)
Total liabilities measured at fair value
$

 
$
(1.8
)
 
$

 
$
(1.8
)
 
 
 
 
 
 
 
 
Total assets measured at fair value, reported as:
 
 
 
 
 
 
 
Cash equivalents
$
650.8

 
$
17.4

 
$

 
$
668.2

Restricted investments
45.1

 

 

 
45.1

Short-term investments
98.4

 
201.1

 

 
299.5

Long-term investments
163.4

 
1,242.2

 

 
1,405.6

Prepaid expenses and other current assets

 
1.2

 

 
1.2

Other long-term assets

 

 
42.3

 
42.3

Total assets measured at fair value
$
957.7

 
$
1,461.9

 
$
42.3

 
$
2,461.9

 
 
 
 
 
 
 
 
Total liabilities measured at fair value, reported as:
 
 
 
 
 
 
 
Other accrued liabilities
$

 
$
(1.8
)
 
$

 
$
(1.8
)
Total liabilities measured at fair value
$

 
$
(1.8
)
 
$

 
$
(1.8
)
________________________________
(1) 
Balance includes $41.3 million of restricted investments measured at fair market value related to the Company's D&O Trust and acquisitions related escrows.
(2) 
Balance relates to restricted investments measured at fair market value related to the Company's India Gratuity Trust.
(3) 
Balance relates to investments measured at fair value related to the Company's non-qualified deferred compensation plan assets.
 
Fair Value Measurements at December 31, 2013 Using:
 
 
 
Quoted Prices in
Active Markets For
Identical Assets
 
Significant Other
Observable
Remaining Inputs
 
Significant Other
Unobservable
Remaining Inputs
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Assets measured at fair value:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Asset-backed securities
$

 
$
249.9

 
$

 
$
249.9

Certificates of deposit

 
27.6

 

 
27.6

Commercial paper

 
6.9

 

 
6.9

Corporate debt securities

 
815.3

 

 
815.3

Foreign government debt securities

 
10.7

 

 
10.7

Government-sponsored enterprise obligations

 
306.2

 

 
306.2

Money market funds(1)
1,043.7

 

 

 
1,043.7

Mutual funds(2)
4.0

 

 

 
4.0

Publicly-traded equity securities
114.6

 

 

 
114.6

U.S. government securities
197.2

 
106.1

 

 
303.3

Total available-for-sale securities
1,359.5

 
1,522.7

 

 
2,882.2

Trading securities in mutual funds(3)
15.4

 

 

 
15.4

Privately-held debt securities

 

 
28.1

 
28.1

Derivative assets:
 
 
 
 
 
 
 
Foreign exchange contracts

 
3.0

 

 
3.0

Total assets measured at fair value
$
1,374.9

 
$
1,525.7

 
$
28.1

 
$
2,928.7

Liabilities measured at fair value:
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
Foreign exchange contracts
$

 
$
(0.7
)
 
$

 
$
(0.7
)
Total liabilities measured at fair value
$

 
$
(0.7
)
 
$

 
$
(0.7
)
 
 
 
 
 
 
 
 
Total assets measured at fair value, reported as:
 
 
 
 
 
 
 
Cash equivalents
$
965.1

 
$
31.1

 
$

 
$
996.2

Restricted investments
87.6

 

 

 
87.6

Short-term investments
246.5

 
315.4

 

 
561.9

Long-term investments
75.7

 
1,176.2

 

 
1,251.9

Prepaid expenses and other current assets

 
3.0

 

 
3.0

Other long-term assets

 

 
28.1

 
28.1

Total assets measured at fair value
$
1,374.9

 
$
1,525.7

 
$
28.1

 
$
2,928.7

 
 
 
 
 
 
 
 
Total liabilities measured at fair value, reported as:
 
 
 
 
 
 
 
Other accrued liabilities
$

 
$
(0.7
)
 
$

 
$
(0.7
)
Total liabilities measured at fair value
$

 
$
(0.7
)
 
$

 
$
(0.7
)

________________________________
(1) 
Balance includes $83.6 million of restricted investments measured at fair market value related to the Company's D&O Trust and acquisitions related escrows.
(2) 
Balance relates to restricted investments measured at fair market value related to the Company's India Gratuity Trust.
(3) 
Balance relates to investments measured at fair value related to the Company's non-qualified deferred compensation plan assets.

The Company's Level 2 available-for-sale fixed income securities are priced using quoted market prices for similar instruments or non-binding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets. The Company's derivative instruments are classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs. The Company's policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 at the beginning of the quarter in which a change in circumstances resulted in a transfer. During the three and nine months ended September 30, 2014, 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 securities are classified as Level 3 assets due to the absence of quoted market prices and an inherent lack of liquidity. The Company estimates the fair value of its privately-held debt investments on a recurring basis using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure. During the three and nine months ended September 30, 2014, there were purchases of $0.2 million and $4.6 million respectively, related to our privately-held debt securities.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain of the Company's assets, including intangible assets, goodwill, and privately-held equity investments, are measured at fair value on a nonrecurring basis, if impairment is indicated.

Privately-held equity investments, which are normally carried at cost, are measured at fair value on a nonrecurring basis due to events and circumstances that the Company identified as significantly impacting the fair value of investments. The Company estimates the fair value of its privately-held equity investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure.

Purchased intangible assets are measured at fair value primarily using discounted cash flow projections.

As of September 30, 2014, the Company had no significant assets measured at fair value on a nonrecurring basis. As of December 31, 2013, the Company had $2.0 million of privately-held equity investments measured at fair value on a nonrecurring basis and were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity. The impairment charges, representing the difference between the net book value and the fair value, are recorded to other (expense) income, net in the Condensed Consolidated Statements of Operations.

As of September 30, 2014 and December 31, 2013, the Company had no liabilities measured at fair value on a nonrecurring basis.

Assets and Liabilities Not Measured at Fair Value

The carrying amounts of the Company's accounts receivable, financing receivables, accounts payable, and other accrued liabilities approximate fair value due to their short maturities. As of September 30, 2014 and December 31, 2013, the estimated fair value of the Company's long-term debt in the Condensed Consolidated Balance Sheets was approximately $1,432.7 million and $1,023.5 million, respectively, based on observable market inputs (Level 2).
Derivative Instruments
Derivative Instruments
Derivative Instruments

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

The notional amount of the Company's foreign currency derivatives are summarized as follows (in millions):
 
As of
 
September 30,
2014
 
December 31,
2013
Cash flow hedges
$
144.4

 
$
137.6

Non-designated derivatives
94.7

 
144.4

     Total
$
239.1

 
$
282.0



Cash Flow Hedges

The Company uses foreign currency forward or option contracts to hedge certain forecasted foreign currency transactions relating to cost of services and operating expenses. The derivatives are intended to hedge the U.S. Dollar equivalent of the Company's planned cost of services and operating expenses denominated in certain foreign currencies. These derivatives are designated as cash flow hedges. Execution of these cash flow hedge derivatives typically occurs every month with maturities of one year or less. The effective portion of the derivative's gain or loss is initially reported as a component of accumulated other comprehensive income, and upon occurrence of the forecasted transaction, is subsequently reclassified into the cost of services or operating expense line item to which the hedged transaction relates. The Company records any ineffectiveness of the hedging instruments in other (expense) income, net, in its Condensed Consolidated Statements of Operations. Cash flows from such hedges are classified as operating activities. All amounts within other comprehensive income are expected to be reclassified into earnings within the next twelve months.

See Note 6, Fair Value Measurements, for the fair values of the Company's derivative instruments in the Condensed Consolidated Balance Sheets.

During the three and nine months ended September 30, 2014, the Company recognized a loss of $2.8 million and a gain of $1.7 million, respectively, in accumulated other comprehensive (loss) income for the effective portion of its derivative instruments and reclassified a gain of $1.5 million and $5.0 million, respectively, from other comprehensive income to operating expense in the Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2013, the Company recognized a loss of $0.4 million and $4.2 million, respectively, in accumulated other comprehensive loss for the effective portion of its derivative instruments and reclassified a loss of $1.4 million and a gain of $0.6 million, respectively, from other comprehensive (loss) income to operating expense in the Condensed Consolidated Statements of Operations.

The ineffective portion of the Company's derivative instruments recognized in its Condensed Consolidated Statements of Operations was not material during the three and nine months ended September 30, 2014 and September 30, 2013.

Non-Designated Derivatives

The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies. These derivatives were not designated for special hedge accounting treatment. These derivatives are carried at fair value with changes recorded in other (expense) income, net, in the Condensed Consolidated Statements of Operations. Changes in the fair value of these derivatives are largely offset by remeasurement of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. The derivatives have maturities within two months.

During the three and nine months ended September 30, 2014, the Company recognized net losses of $0.3 million and $3.3 million, respectively, on non-designated derivative instruments within other expense, net, in its Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2013, the Company recognized net gain of $0.9 million and $1.0 million, respectively, on non-designated derivative instruments within other (expense) income, net, in its Condensed Consolidated Statements of Operations.

Offsetting of Derivatives

The Company presents its derivative assets and derivative liabilities on a gross basis in the Condensed Consolidated Balance Sheets. However, under agreements containing provisions on netting with certain counterparties of foreign exchange contracts, subject to applicable requirements, the Company is allowed to net-settle transactions on the same date in the same currency, with a single net amount payable by one party to the other. As of September 30, 2014 and December 31, 2013, the potential effect of rights of setoff associated with derivative instruments was not material. The Company is neither required to pledge nor entitled to receive cash collateral related to these derivative transactions.
Goodwill and Purchased Intangible Assets
Goodwill and Purchased Intangible Assets
Goodwill and Purchased Intangible Assets

Goodwill
The following table presents goodwill activity during the nine months ended September 30, 2014 (in millions):
Balance as of December 31, 2013
$
4,057.7

Additions due to business combination
13.6

Goodwill reclassified to assets held for sale
(159.8
)
Tax reserve adjustment
0.2

Balance as of September 30, 2014
$
3,911.7



The additions to goodwill were based on the purchase price allocation of the acquisition completed during the first quarter of 2014. There were no impairments to goodwill during the three and nine months ended September 30, 2014 and September 30, 2013.

Purchased Intangible Assets

The Company’s purchased intangible assets were as follows (in millions):
 
Gross
 
Accumulated
Amortization
 
Impairments and
Other Charges (1)
 
Net
As of September 30, 2014
 
 
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
 
 
Technologies and patents
$
592.0

 
$
(477.8
)
 
$
(35.7
)
 
$
78.5

Customer contracts, support agreements, and
  related relationships
80.3

 
(65.8
)
 
(3.0
)
 
11.5

Other
19.9

 
(19.1
)
 

 
0.8

Total purchased intangible assets
$
692.2

 
$
(562.7
)
 
$
(38.7
)
 
$
90.8

 
 
 
 
 
 
 
 
As of December 31, 2013
 
 
 
 
 
 
 
Intangible assets with finite lives:
 
 
 
 
 
 
 
Technologies and patents
$
581.4

 
$
(453.4
)
 
$
(30.5
)
 
$
97.5

Customer contracts, support agreements, and
  related relationships
74.3

 
(62.7
)
 
(2.2
)
 
9.4

Total purchased intangible assets
$
655.7

 
$
(516.1
)
 
$
(32.7
)
 
$
106.9


________________________________
(1) Balance includes $6.0 million of unamortized intangible assets related to Junos Pulse that have been reclassified to assets held for sale.

Intangible assets to be disposed of as a result of the Junos Pulse product portfolio disposition were included in assets held for sale within the Condensed Consolidated Balance Sheets as of September 30, 2014 and accordingly, amortization of the assets was stopped as of the date they were deemed to be held for sale.

The following table presents the amortization of intangible assets included in the Condensed Consolidated Statements of Operations (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Cost of revenues
$
7.1

 
$
6.5

 
$
23.7

 
$
19.3

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
1.1

 
0.8

 
3.2

 
2.6

General and administrative
0.3

 
0.3

 
0.9

 
0.9

Total operating expenses
1.4

 
1.1

 
4.1

 
3.5

Total
$
8.5

 
$
7.6

 
$
27.8

 
$
22.8



There were no impairment charges related to purchased intangible assets during the three and nine months ended September 30, 2014 and September 30, 2013.

As of September 30, 2014, the estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):
Years Ending December 31,
Amount
Remainder of 2014
$
8.5

2015
32.1

2016
20.8

2017
13.0

2018
6.1

Thereafter
10.3

Total
$
90.8

Other Financial Information
Other Financial Information
Other Financial Information

Inventories

The Company purchases and holds inventory to help ensure adequate component supplies over the life of the underlying products. The majority of the Company's inventory is production components. Inventories are reported both within prepaid expenses and other current assets and other long-term assets in the Condensed Consolidated Balance Sheets. Total inventories consisted of the following (in millions):
 
As of
 
September 30,
2014
 
December 31,
2013
Production materials
$
35.6

 
$
51.3

Finished goods
15.0

 
1.4

Inventories
$
50.6

 
$
52.7



The Company recorded charges in cost of revenues of $15.5 million for the nine months ended September 30, 2014, related to the acceleration of the end-of-life of certain products in connection with the 2014 Restructuring Plan discussed in Note 10, Restructuring and Other Charges, and no similar charges for the three months ended September 30, 2014.
Other Long-Term Assets

Other long-term assets consisted of the following (in millions):
 
As of
 
September 30,
2014
 
December 31,
2013
Privately-held investments
$
79.3

 
$
57.2

Licensed software
9.4

 
90.4

Federal income tax receivable
20.0

 
20.0

Financed customer receivable
18.2

 
19.9

Inventory
6.8

 
15.2

Prepaid costs, deposits, and other
29.2

 
31.1

Other long-term assets
$
162.9

 
$
233.8



In connection with the 2014 Restructuring Plan discussed in Note 10, Restructuring and Other Charges, the Company reviewed its product portfolio and determined to cease development of the application delivery controller software technology licensed in July 2012. As a result, the Company recognized a charge of $84.7 million recorded within operating expenses in the Condensed Consolidated Statements of Operations during the nine months ended September 30, 2014. There were no revenues associated with this technology.

Warranties

The Company accrues for warranty costs based on associated material, labor for customer support, and overhead at the time revenue is recognized. This accrual is reported within other accrued liabilities in the Condensed Consolidated Balance Sheets. Changes in the Company’s warranty reserve during the nine months ended September 30, 2014 were as follows (in millions):
Balance as of December 31, 2013
$
28.0

Provisions made during the period
21.9

Actual costs incurred during the period
(21.3
)
Warranty reclassified to liabilities held for sale
(0.5
)
Balance as of September 30, 2014
$
28.1



Deferred Revenue

Details of the Company's deferred revenue, as reported in the Condensed Consolidated Balance Sheets, were as follows (in millions):
 
As of
 
September 30,
2014
 
December 31,
2013
Deferred product revenue:
 
 
 
Undelivered product commitments and other product deferrals
$
166.5

 
$
184.9

Distributor inventory and other sell-through items
113.0

 
118.7

Deferred gross product revenue
279.5

 
303.6

Deferred cost of product revenue
(57.0
)
 
(58.6
)
Deferred product revenue, net
222.5

 
245.0

Deferred service revenue
851.5

 
824.3

Total
$
1,074.0

 
$
1,069.3

Reported as:
 
 
 
Current
$
728.4

 
$
705.8

Long-term
345.6

 
363.5

Total
$
1,074.0

 
$
1,069.3



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. Deferred product revenue is recorded net of the related costs of product revenue. Deferred service revenue represents billable amounts for service contracts, which include technical support, hardware and software maintenance, professional services, and training, for which services have not been rendered.

Other (Expense) Income, Net

Other (expense) income, net, consisted of the following (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Interest income
$
2.7

 
$
2.3

 
$
6.9

 
$
6.1

Interest expense
(16.9
)
 
(14.2
)
 
(50.2
)
 
(43.4
)
Net gain on legal settlement
0.8

 

 
196.1

 

(Loss) gain on investments
(1.9
)
 
4.0

 
165.1

 
7.8

Other
8.5

 
0.4

 
8.1

 
(0.7
)
Other (expense) income, net
$
(6.8
)
 
$
(7.5
)
 
$
326.0

 
$
(30.2
)


Interest income primarily includes interest earned on the Company’s cash, cash equivalents, and investments. Interest expense primarily includes interest, net of capitalized interest expense, from long-term debt and customer financing arrangements. Other typically consists of foreign exchange gains and losses and other non-operational income and expense items.

During the nine months ended September 30, 2014, the Company entered into a settlement agreement with Palo Alto Networks ("PAN") resolving patent litigation between the two companies, which resulted in a realized gain on legal settlement and subsequent sale of related securities of $196.1 million, net of legal fees. Under the terms of the settlement, PAN made a one-time payment to the Company of $75.0 million in cash and issued PAN common stock and warrants to the Company. The fair value of the PAN common stock and warrants at the date of receipt was included in the net realized gain. All such PAN securities were sold in the third quarter of 2014, and the Company recorded an additional $0.8 million gain during the three months ended September 30, 2014.
Other (expense) income, net, during the nine months ended September 30, 2014, was also comprised of a gain of $163.0 million, related to the sale of investments which were converted from privately-held investments to publicly-traded equity upon IPO and subsequently sold.

During the three and nine months ended September 30, 2013, net gain on investments was primarily comprised of a gain of $3.6 million and $4.9 million, respectively, related to the Company's privately-held investments.
Restructuring and Other Charges
Restructuring and Other Charges
Restructuring and Other Charges

The following table presents restructuring and other charges included in cost of revenues and restructuring and other (credit) charges in the Condensed Consolidated Statements of Operations (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Severance
$
7.1

 
$
3.8

 
$
45.6

 
$
9.0

Facilities
(25.0
)
 
(0.8
)
 
12.8

 
9.5

Contract terminations

 
1.8

 
2.3

 
2.8

Total restructuring charges
(17.9
)
 
4.8

 
60.7

 
21.3

Asset impairment and write-downs
2.9

 
7.3

 
118.7

 
7.3

Total restructuring and other (credit) charges
$
(15.0
)
 
$
12.1

 
$
179.4

 
$
28.6

 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
Cost of revenues
$

 
$
6.1

 
$
22.2

 
$
7.6

Restructuring and other (credit) charges
(15.0
)
 
6.0

 
157.2

 
21.0

Total
$
(15.0
)
 
$
12.1

 
$
179.4

 
$
28.6



Restructuring and other (credit) charges noted above are based on the Company's 2014 Restructuring Plan and Other Restructuring Plans that were committed to by management. Any changes in the estimates of executing the approved plans are reflected in the Company's results of operations.

2014 Restructuring Plan

In connection with IOP announced in the first quarter of 2014, the Company initiated a restructuring plan (the “2014 Restructuring Plan”) designed to refocus the Company's strategy, optimize its structure, and improve operational efficiencies. The 2014 Restructuring Plan consists of workforce reductions, facility consolidations and closures, asset write-downs, contract terminations and other charges.

During the three months ended September 30, 2014, the Company recorded $7.1 million of severance costs, a benefit of $25.0 million of facility consolidation and closures, and $2.9 million of asset write-downs, that were recorded to restructuring and other (credit) charges in the Condensed Consolidated Statements of Operations.

During the three months ended September 30, 2014, the Company with the consent of its landlord and the administrative agent to its lienholder, assigned certain of its real property leases, totaling approximately 0.4 million square feet, some of which the Company has already ceased the use of in the second quarter, to a third party. Concurrently with the assignments, the Company executed a sublease with the assignee for one of the properties of approximately 0.1 million square feet, for a period of two years, with a one-time right to extend the term for up to six months. Under these arrangements, the Company paid $12.3 million to the landlord and was released from all future lease obligations following the date of the assignments. The Company also incurred $5.3 million of transaction fees, which were recorded to restructuring and other (credit) charges in the Condensed Consolidated Statements of Operations. As a result of the lease assignments, the Company recorded a benefit of approximately $25.0 million, which included a reversal of previously recorded restructuring liability and additional charges relating to facility consolidation activities, in the third quarter of 2014.

During the nine months ended September 30, 2014, the Company recorded $45.0 million of severance costs, $12.6 million of facility consolidation and closures costs, $84.7 million of impairment charges related to licensed software, $11.8 million of asset write-downs, and $2.3 million of charges related to contract terminations, which were recorded to restructuring and other (credit) charges in the Condensed Consolidated Statements of Operations. The Company also recorded inventory write-downs of $15.5 million and a charge related to products with contract manufacturers of $6.7 million for acceleration of the end-of-service life of certain products to cost of revenues in the Condensed Consolidated Statements of Operations during the nine months ended September 30, 2014.

In connection with the 2014 Restructuring Plan, the Company expects to record aggregate future charges of approximately $7.0 million to $9.0 million allocated to the following restructuring activities: $4.0 million to $5.0 million for severance, $2.0 million to $3.0 million for facility consolidations or closures, and up to $1.0 million for contract terminations and other charges.

Other Restructuring Plans

Restructuring plans initiated by the Company in fiscal 2013, 2012, and 2011 have been substantially completed as of September 30, 2014. The Company does not expect to record significant future charges under these restructuring plans.

Restructuring Liability

Restructuring liabilities are reported within other accrued liabilities and other long-term liabilities in the Condensed Consolidated Balance Sheets. The following table provides a summary of changes in the restructuring liability related to the Company's plans during the nine months ended September 30, 2014 (in millions):
 
December 31,
2013
 
Charges
 
Cash
Payments
 
Non-cash
Settlements and
Other
 
September 30,
2014
Severance
$
5.6

 
$
45.6

 
$
(40.9
)
 
$
(1.0
)
 
$
9.3

Facilities
5.1

 
12.8

 
(17.5
)
 
8.9

 
9.3

Contract terminations and other
7.1

 
2.3

 
(8.3
)
 
(0.9
)
 
0.2

Total
$
17.8

 
$
60.7

 
$
(66.7
)
 
$
7.0

 
$
18.8



As of September 30, 2014, the Company's restructuring liability was $18.8 million, of which $9.5 million is related to severance and other charges expected to be settled by January 2015. The remaining $9.3 million related to facility closures is expected to be paid through March 2018.
Long-Term Debt and Financing
Long-Term Debt and Financing
Long-Term Debt and Financing

Long-Term Debt

The following table summarizes the Company's long-term debt (in millions, except percentages):
 
As of September 30, 2014
 
Amount
 
Effective Interest
Rates
Senior notes:
 
 
 
3.10% fixed-rate notes, due 2016 ("2016 Notes")
$
300.0

 
3.25
%
4.60% fixed-rate notes, due 2021 ("2021 Notes")
300.0

 
4.69
%
4.50% fixed-rate notes, due 2024 ("2024 Notes")
350.0

 
4.63
%
5.95% fixed-rate notes, due 2041 ("2041 Notes")
400.0

 
6.03
%
Total senior notes
1,350.0

 
 
Unaccreted discount
(1.1
)
 
 
Total
$
1,348.9

 
 

In February 2014, the Company issued $350.0 million aggregate principal amount of 4.50% senior notes due 2024. The 2024 Notes are senior unsecured obligations and rank equally with all of the Company's other existing and future senior unsecured indebtedness. Interest on the 2024 Notes is payable in cash semiannually. The Company may redeem the 2024 Notes, at any time in whole or from time to time in part, subject to a make-whole premium, and in the event of a change in control, the holders of the 2024 Notes may require the Company to repurchase for cash all or part of the 2024 Notes at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, if any. The indenture that governs the 2024 Notes also contains various covenants, including limitations on the Company's ability to incur liens or enter into sale-leaseback transactions over certain dollar thresholds.

The effective interest rates for the 2016 Notes, 2021 Notes, 2024 Notes, and 2041 Notes (collectively the “Notes”) include the interest on the Notes, accretion of the discount, and amortization of issuance costs. As of September 30, 2014, the Company was in compliance with all of its covenants in the indentures governing the Company's notes.

Revolving Credit Facility

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

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

As of September 30, 2014, the Company was in compliance with all covenants in the Credit Agreement, and no amounts were outstanding.

Customer Financing Arrangements

The Company provides certain distribution partners access to extended financing arrangements for certain end-user customers that require longer payment terms than those typically provided by the Company through factoring accounts receivable to third-party financing providers ("financing providers"). The program does not and is not intended to affect the timing of the Company's revenue recognition. Under the financing arrangements, proceeds from the financing provider are due to the Company within 30 to 90 days from the sale of the receivable. In these transactions with the financing provider, the Company surrenders control over the transferred assets. The factored accounts receivable are isolated from the Company and put beyond the reach of the Company's creditors, even in the event of bankruptcy. The Company does not maintain effective control over the transferred assets through obligations or rights to redeem, transfer, or repurchase the receivables after they have been transferred.

Pursuant to the financing arrangements for the sale of receivables, the Company sold net receivables of $92.8 million and $241.4 million during the three months ended September 30, 2014 and September 30, 2013, respectively, and $429.2 million and $607.1 million during the nine months ended September 30, 2014 and September 30, 2013, respectively.

The Company received cash proceeds from the financing provider of $128.9 million and $210.8 million during the three months ended September 30, 2014 and September 30, 2013, respectively, and $473.3 million and $579.2 million during the nine months ended September 30, 2014 and September 30, 2013, respectively. As of September 30, 2014 and December 31, 2013, the amounts owed to the Company by the financing provider were $146.2 million and $189.8 million, respectively, and were recorded in accounts receivable on the Condensed Consolidated Balance Sheets.

The Company has provided guarantees to third-party financing companies for certain third-party financing arrangements extended to certain end-user customers, which have terms of up to four years. The Company is liable for the aggregate unpaid payments to the third-party financing company in the event of customer default. As of September 30, 2014, the Company has not been required to make any payments under these arrangements. Pursuant to these arrangements, the Company has guarantees for third-party financing arrangements of $22.1 million as of September 30, 2014.

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 and other long-term liabilities in the Consolidated Balance Sheets. As of September 30, 2014 and December 31, 2013, the estimated cash received from the financing provider not recognized as revenue was