UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
¥
n
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 0-26339
JUNIPER NETWORKS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1194 North Mathilda Avenue
Sunnyvale, California 94089
(Address of principal executive
offices, including zip code)
77-0422528
(IRS Employer
Identification No.)
(408) 745-2000
(Registrant’s telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $0.00001 per share
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes n
No ¥
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes n
No ¥
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes ¥
No n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. ¥
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¥
Smaller reporting company n
Accelerated filer n
Non-accelerated filer n
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the
Exchange Act). Yes n
No ¥
The aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately
$8,883,000,000 as of the end of the Registrant’s second fiscal quarter (based on the closing sale price for the Common Stock
on the NASDAQ Global Select Market on June 30, 2008). For purposes of this disclosure, shares of common stock held or
controlled by executive officers and directors of the registrant and by persons who hold more than 5% of the outstanding
shares of common stock have been treated as shares held by affiliates. However, such treatment should not be construed as an
admission that any such person is an “affiliate” of the registrant. The registrant has no non-voting common equity.
As of February 23, 2009, there were approximately 522,135,000 shares of the Registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
As noted herein, the information called for by Part III is incorporated by reference to specified portions of the Registrant’s
definitive proxy statement to be filed in conjunction with the Registrant’s 2009 Annual Meeting of Stockholders, which is
expected to be filed not later than 120 days after the Registrant’s fiscal year ended December 31, 2008.
Table of Contents
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1.
ITEM 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6.
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . .
ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 8.
Changes in and Disagreements with Accountants on Accounting and Financial
ITEM 9.
Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
ITEM 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
ITEM 12.
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14.
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ITEM 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
110
PART IV
1
ITEM 1. Business
Overview
PART I
We design, develop, and sell products and services that together provide our customers with high-performance
network infrastructure that creates responsive and trusted environments for accelerating the deployment of services
and applications over a single Internet Protocol (“IP”)-based network. We serve the high-performance networking
requirements of global service providers, enterprises, governments, and research and education institutions that
view the network as critical to their success. High-performance networking is designed to provide fast, reliable, and
secure access to applications and services. We offer a high-performance network infrastructure that includes
best-in-class IP routing, Ethernet switching, security and application acceleration solutions, as well as partnerships
designed to extend the value of the network and worldwide services and support designed to optimize customer
investments. We believe our open network infrastructure provides customers with greater choice and control in
quickly meeting high-performance business requirements, while enabling them to reduce the total cost of ownership
of their network infrastructure.
Our operations are organized into two reportable segments: Infrastructure and Service Layer Technologies
(“SLT”). Our Infrastructure segment primarily offers scalable routing and switching products that are used to
control and direct network traffic from the core, through the edge, aggregation, and the customer premise equipment
level. Infrastructure products include our IP routing and carrier Ethernet routing portfolio, as well as our Ethernet
switching portfolio. Our SLT segment offers solutions that meet a broad array of our customer’s priorities, from
protecting the network itself, and protecting data on the network, to maximizing existing bandwidth and accel-
eration of applications across a distributed network. Both segments offer worldwide services, including technical
support and professional services, as well as educational and training programs to our customers. Together, our
high-performance product and service offerings help enable our customers to convert legacy networks that provide
commoditized, best efforts services into more valuable assets that provide differentiation and value and increased
performance, reliability, and security to end-users. See Note 11 — Segment Information in Notes to Consolidated
Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, for information regarding financial
information regarding each of our Infrastructure and SLT segments, which is incorporated herein by reference.
During our fiscal year ended December 31, 2008, we generated net revenues of $3.57 billion and conducted
business in more than 100 countries around the world. See Item 8 of Part II for more information on our consolidated
financial position as of December 31, 2008 and 2007 and our consolidated results of operations, consolidated
statements of stockholders’ equity, and consolidated statements of cash flows for each of the three years in the
period ended December 31, 2008.
We were incorporated in California in 1996 and reincorporated in Delaware in 1998. Our corporate head-
quarters are located in Sunnyvale, California. Our website address is www.juniper.net.
Our Strategy
Our objective and strategy is to be the leading provider of high-performance networking. We offer a high-
performance network infrastructure that creates a responsive and trusted environment for accelerating the
deployment of services and applications over a single IP-based network. Our strategy is designed to advance
the fundamentals and economics of high-performance networking. Key elements of our strategy are described
below.
Maintain and Extend Technology Leadership
Our JUNOS» operating system, application-specific integrated circuit (“ASIC”) technology, and network-
optimized product architecture have been key elements to establishing and maintaining our technology leadership.
We believe that these elements can be leveraged into future products that we are currently developing. We intend to
maintain and extend our technological leadership in the service provider and enterprise markets primarily through
innovation and continued investment in our research and development departments, supplemented by external
2
partnerships, including strategic alliances, as well as acquisitions that would allow us to deliver a broader range of
products and services to customers in target markets.
Leverage Position as Supplier of High-Performance Network Infrastructure
From inception, we have focused on designing, developing, and building high-performance network infra-
structure for demanding service provider and enterprise networking environments and have integrated purpose-built
technology into a network-optimized architecture that specifically meets our customers’ needs. We believe that
many of these customers will deploy networking equipment from only a few vendors. We believe that the
performance, reliability, and security of our products provide us with a competitive advantage, which is critical in
gaining selection as one of these vendors.
Be Strategic to Our Customers
In developing our Infrastructure and SLT solutions, we work very closely with customers to design and build
best-in-class products and solutions specifically designed to meet their complex needs. Over time, we have
expanded our understanding of the escalating demands and risks facing our customers. That increased under-
standing has enabled us subsequently to design additional capabilities into our products. We believe our close
relationships with, and constant feedback from, our customers have been key elements in our design wins and rapid
deployments to date. We plan to continue to work hand-in-hand with our customers to implement product
enhancements as well as to design future products that meet the evolving needs of the marketplace, while enabling
customers to reduce costs.
Enable New IP-Based Services
Our platforms enable network operators to quickly build and secure networks cost-effectively and deploy new
differentiated services to drive new sources of revenue more efficiently than legacy network products. We believe
that the secure delivery of IP-based services and applications, including IP Television (“IPTV”), web hosting,
outsourced Internet and intranet services, outsourced enterprise applications, and voice-over IP, will continue to
grow, and are cost-effectively enabled by our high-performance network infrastructure offerings.
Establish and Develop Industry Partnerships
Our customers have diverse requirements. While our products meet certain requirements of our customers, our
products are not intended to satisfy certain other requirements. Therefore, we believe that it is important that we
attract and build relationships with other industry leaders in a diverse set of technologies and services that extend the
value of the network for our customers. These partnerships ensure that we have access to those technologies and
services, whether through technology integration, joint development, resale, or other collaboration, in order to
better support a broader set of our customers’ requirements. In addition, we believe in an open network
infrastructure that invites partner innovation and provides customers with greater choice and control in meeting
their evolving business requirements, while enabling them to reduce costs.
Markets and Customers
We sell our high-performance network products and service offerings through direct sales and through
distributors and value-added resellers to end-users in the following markets:
Service Providers
Service providers include wireline, wireless, and cable operators, as well as major Internet content and
application providers. Supporting most major service provider networks in the world, our high-performance
network infrastructure offerings are designed and built for the performance, reliability, and security that service
providers demand. Our networking infrastructure offerings benefit these customers by:
(cid:129) Reducing capital and operational costs by running multiple services over the same network using our high
density, highly reliable platforms;
3
(cid:129) Promoting generation of additional revenues by enabling new services to be offered to new market segments
based on our product capabilities;
(cid:129) Increasing customer satisfaction, while lowering costs, by enabling consumers to self-select automatically
provisioned service packages that provide the quality, speed, and pricing they desire; and
(cid:129) Providing increased asset longevity and higher return on investment as their networks can scale to multi-
terabit rates based on the capabilities of our platforms.
While many of these service providers have historically been categorized separately as wireline, wireless, or
cable operators, in recent years, we have seen a move towards convergence of these different types of service
providers through acquisitions, mergers, and partnerships. We believe these strategic developments are made
technically possible as operators invest in the build out of next generation networks (“NGN”) capable of supporting
voice, video, and data traffic on to the same IP-based network. This convergence relies on IP-based traffic
processing and creates the opportunity for multi-service networks including new service offerings such as IPTV.
These new services offer service providers significant new revenue opportunities.
We believe that there are several other trends affecting service providers for which we are well positioned to
deliver products and solutions. These trends include significant growth in IP traffic on service provider networks
because of peer-to-peer interaction, broadband usage, video, and an increasing reliance on the network as a mission
critical business tool in the strategies of our IP customers and of their enterprise customers.
The IP infrastructure market for service providers includes: products and technology at the network core; the
network edge to enable access; the aggregation layer; security to protect from the inside out and the outside in; the
application awareness and intelligence to optimize the network to meet business and user needs; and the
management, service awareness, and control of the entire infrastructure.
We have sold our products to all of the 100 largest service providers in the world.
Enterprise
Our high-performance network infrastructure offerings are designed to meet the performance, reliability, and
security requirements of the world’s most demanding businesses. For this reason, enterprises, governments, and
research and education institutions that view their networks as critical to their success are able to deploy our
solutions as a powerful component in delivering the advanced network capabilities needed for their leading-edge
applications while:
(cid:129) Assisting in the consolidation and delivery of existing services and applications;
(cid:129) Accelerating the deployment of new services and applications;
(cid:129) Offering integrated security to assist in the protection and recovery of services and applications; and
(cid:129) Offering operational improvements that enable cost reductions, including lower administrative, training,
customer care, and labor costs.
Since we first entered the market, we have sold our products to more than 50,000 enterprise customers.
As with the service provider market, innovation continues to be a critical component in our strategy for the
enterprise market. We believe that innovative enterprises view the network as critical to their success and therefore
must build advanced network infrastructures that provide fast, reliable, and secure access to services and
applications over a single IP-based network. These high-performance enterprises require networks that are global,
distributed, and always available. Network equipment vendors need to demonstrate performance, reliability, and
security to these customers in specific segments with best-in-class open solutions for maximum flexibility. We offer
enterprise solutions and services for data centers, branch and campus applications, distributed and extended
enterprises, and Wide Area Network (“WAN”) gateways.
As customers increasingly view the network as critical to their success, we believe that customers will
increasingly demand fast, reliable, and secure access to services and applications over a single IP-based network.
This is partly illustrated by the success of our Integrated Security Gateway (“ISG”) products that combine firewall/
4
virtual private network (“VPN”) and intrusion detection and prevention (“IDP”) solutions in a single platform and
Secure Services Gateway (“SSG”) platforms that provide a mix of high-performance security with Local Area
Network (“LAN”)/WAN connectivity for regional and branch office deployments. We will continue to invest to
develop these and other converged technologies and solutions.
Our Products and Technology
Early in our history, we developed, marketed, and sold the first commercially available purpose-built IP
backbone router optimized for the specific high-performance requirements of service providers. As the need for
core bandwidth continued to increase, the need for service rich platforms at the edge of the network was created.
Our Infrastructure products are designed to address the needs at the core and the edge of the network as well as for
wireless access by combining high-performance packet forwarding technology and robust operating systems into a
network-optimized solution. In addition, as enterprises continue to develop and rely upon more sophisticated and
pervasive internal networks, we believe the need for products with high-performance routing and switching
technology is expanding to a broader set of customers, and we believe our expertise in this technology uniquely
positions us to address this growing market opportunity.
Additionally, our SLT segment offers a broad family of network security solutions that deliver high-perfor-
mance, cost-effective security for enterprises, service providers, and government entities, including integrated
firewall and VPN solutions, secure sockets layer (“SSL”) VPN appliances, and IDP appliances. We also offer
complementary products and technologies to enable our customers to provide additional IP-based services and
enhance the performance and security of their existing networks and applications.
The following is an overview of our major Infrastructure and SLT product families:
Infrastructure Products
(cid:129) M-Series and T-Series: Our M-series routers are extremely versatile as they can be deployed at the edge of
operator networks, in small and medium core networks, enterprise networks, and in other applications. Our
T-series core routers are primarily designed for core IP infrastructures and are also being sold into the multi-
service environment. The M-series and T-series products leverage our ASIC technology and the same
JUNOS operating system to enable consistent, continuous, reliable, and predictable service delivery.
(cid:129) E-Series: Our E-series products are a full featured platform designed for the network edge with support for
carrier-class routing, broadband subscriber management services and a comprehensive set of IP services.
Leveraging our JUNOS operating system, the E-Series service delivery architecture enables service
providers to easily deploy innovative revenue-generating services to their customers. All E-Series platforms
offer a full suite of routing protocols and provide scalable capacity for tens of thousands of users.
(cid:129) MX-Series: The MX-Series is a product family developed to address emerging Ethernet network archi-
tectures and services in service provider and enterprise networks. Using our JUNOS operating system, the
MX platforms provide the carrier-class performance, scale, and reliability to enable service providers and
enterprises to support large-scale Ethernet deployments.
(cid:129) EX-Series: Our EX-series family expands our product portfolio running our JUNOS operating system to
address the Ethernet switch market. Ethernet is a widely used technology used to transport information in
enterprise networks. Our EX-series switches are designed to enable customers to cost effectively accelerate
and simplify the way they install and manage business applications across their networks and enhance
network operations without comprising performance.
SLT Products
(cid:129) Services Gateway, Integrated Firewall, and VPN Solutions: Our firewall and VPN systems and appliances
are designed to provide integrated firewall, VPN, and denial of service protection capabilities for both
enterprise environments and service provider network infrastructures. These products range from our SSG
products, which combine LAN/WAN routing capabilities with unified threat management features such as
anti-virus, anti-spam, and web filtering technologies, to our ISG and NetScreen series firewall and VPN
5
systems, which are designed to deliver high-performance security in medium/large enterprise and carrier
networks and data centers. In addition, we recently introduced the SRX-series of dynamic services gateways.
Running our JUNOS software, the SRX-series systems provide unrivaled firewall/VPN performance and
scalability and are designed to meet the network and security requirements for data center consolidation,
rapid managed services deployments, and aggregation of security services.
(cid:129) SSL VPN Appliances: Our SSL VPN appliances are used to secure remote access for mobile employees,
secure extranets for customers and partners, and secure intranets and are designed to be used in enterprise
environments of all sizes.
(cid:129) IDP Appliances: Our IDP appliances utilize advanced intrusion detection methods to increase the detect
and prevent network attacks and also provide fast and efficient traffic processing and alarm collection,
presentation, and forwarding. Once an attack is detected, our IDP appliances prevent the intrusion by
dropping the packets or connection associated with the attack, reducing or eliminating the effects of the
attack.
(cid:129) Application Acceleration Platforms: Our WX and WXC products improve the performance of client-
server and web-enabled business applications for branch-office, remote, and mobile users. These application
acceleration platforms enable our customers to deliver LAN-like performance to users around the globe who
access centralized applications.
(cid:129) Identity and Policy Control Solutions: Our portfolio of identity and policy control solutions integrate
subscriber privileges, application requirements, and business policies with the IP network infrastructure in
order to improve the end-user experience, enhance security, and help reduce operational costs.
See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in
Part II of this Annual Report on Form 10-K, for an analysis of net product revenues by segment.
JUNOS Software
In addition to our major product families, JUNOS software, our flagship network operating system, is a key
technology element in our strategy to be the leader in high-performance networking. We believe JUNOS is
fundamentally superior to other network operating systems in not only its design, but also in its development. The
advantages of JUNOS include:
(cid:129) One modular operating system with single source base of code and a single, consistent implementation for
each control plane feature;
(cid:129) One software release train extended through a highly disciplined and firmly scheduled development
process; and
(cid:129) One common modular software architecture that scales across all JUNOS-based platforms.
JUNOS software is designed to maintain continuous systems and improve the availability, performance, and
security of business applications running across the network. JUNOS software helps to automate network
operations by providing a single consistent implementation of features across the network in a single release
train that seeks to minimize the complexity, cost, and risk associated with implementing network features and
upgrades. This operational efficiency allows network administrators more time to innovate and deliver new
revenue-generating applications, helping to advance the economics of high-performance networking.
The security and stability of JUNOS software, combined with its modular architecture and single source code
base, provides a foundation for delivering exceptional performance, reliability, security, and scale at a total cost of
ownership. With an increasing number of our platforms able to leverage JUNOS, including routing, switching, and
security products, we believe JUNOS software provides us a competitive advantage over other major network
equipment vendors.
6
Customer Service and Support
In addition to our Infrastructure and SLT products, we offer the following services: 24x7x365 technical
assistance, hardware repair and replacement parts, unspecified software updates on a when-and-if-available basis,
professional services, and educational services. We deliver these services directly to end-users and utilize a multi-
tiered support model, leveraging the capabilities of our partners and third-party organizations, as appropriate.
We also train our channel partners in the delivery of education and support services to ensure locally delivered
training.
As of December 31, 2008, we employed 783 people in our worldwide customer service and support
organization. We believe that a broad range of support services is essential to the successful customer deployment
and ongoing support of our products, and we have hired support engineers with proven network experience to
provide those services.
Manufacturing and Operations
As of December 31, 2008, we employed 230 people in manufacturing and operations who primarily manage
relationships with our contract manufacturers, manage our supply chain, and monitor and manage product testing
and quality.
We have manufacturing relationships primarily with Celestica, Flextronics, and Plexus, under which we have
subcontracted the majority of our manufacturing activity. Our manufacturing activity is primarily conducted in
Canada, China, Malaysia, Mexico, and the United States.
This subcontracting activity in all locations extends from prototypes to full production and includes activities
such as material procurement, final assembly, test, control, shipment to our customers, and repairs. Together with
our contract manufacturers, we design, specify, and monitor the tests that are required to meet internal and external
quality standards. These arrangements provide us with the following benefits:
(cid:129) We can quickly deliver products to customers with turnkey manufacturing and drop-shipment capabilities;
(cid:129) We gain economies of scale because, by purchasing large quantities of common components, our contract
manufacturers obtain more favorable pricing than if we were buying components alone;
(cid:129) We operate without dedicating significant space to manufacturing operations; and
(cid:129) We can reduce our costs by reducing fixed overhead expenses.
Our contract manufacturers manufacture our products based on our rolling product demand forecasts. Each of
the contract manufacturers procures components necessary to assemble the products in our forecast and tests the
products according to our specifications. Products are then shipped to our distributors, value-added resellers, or end-
users. Generally, we do not own the components and title to the products transfers from the contract manufacturers
to us and immediately to our customers upon delivery at a designated shipment location. If the components go
unused or the products go unsold for specified periods of time, we may incur carrying charges or obsolete material
charges for components that our contract manufacturers purchased to build products to meet our forecast or
customer orders.
Although we have contracts with our contract manufacturers, those contracts merely set forth a framework
within which the contract manufacturer may accept purchase orders from us. The contracts do not require them to
manufacture our products on a long-term basis.
Our ASICs are manufactured primarily by sole or limited sources, such as IBM Corporation and Toshiba
Corporation, each of whom is responsible for all aspects of the production of the ASICs using our proprietary
designs.
We have five core values: trust, respect, humility, integrity, and excellence. These values are integral to how we
manage our company and interact with our employees, customers, partners, and suppliers. By working collab-
oratively with our suppliers, we also have the opportunity to promote socially responsible business practices beyond
our company and into our worldwide supply chain. To this end, we have adopted, and promote the adoption by
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others, of the Electronic Industry Code of Conduct. The Electronic Industry Code of Conduct outlines standards to
ensure that working conditions in the electronics industry supply chain are safe, that workers are treated with
respect and dignity, and that manufacturing processes are environmentally responsible.
Research and Development
As of December 31, 2008, we employed 3,194 people in our worldwide research and development organi-
zations. Our research and development expenses totaled $731.2 million, $623.0 million and $480.3 million in the
years ended December 31, 2008, 2007 and 2006, respectively. We have assembled a team of skilled engineers with
extensive experience in the fields of high-end computing, network system design, ASIC design, security, routing
protocols, and embedded operating systems. These individuals have worked in leading computer data networking
and telecommunication companies.
We believe that strong product development capabilities are essential to our strategy of enhancing our core
technology, developing additional applications, incorporating that technology, and maintaining the competitiveness
of our product and service offerings. In our Infrastructure and SLT products, we are leveraging our software and
ASIC technology, developing additional network interfaces targeted to our customers’ applications, and continuing
to develop NGN technology to support the anticipated growth in IP network requirements. We continue to expand
the functionality of our products to improve performance reliability and scalability, and to provide an enhanced user
interface.
Our research and development process is driven by the availability of new technology, market demand, and
customer feedback. We have invested significant time and resources in creating a structured process for all product
development projects. Following an assessment of market demand, our research and development team develops a
full set of comprehensive functional product specifications based on inputs from the product management and sales
organizations. This process is designed to provide a framework for defining and addressing the steps, tasks, and
activities required to bring product concepts and development projects to market.
Sales and Marketing
As of December 31, 2008, we employed 2,190 people in our worldwide sales and marketing organizations.
These sales employees operate in different locations around the world in support of our customers.
Our sales organization is organized into three geographic regions and within each region according to the
particular needs in that market. Our three geographic regions are: (i) the Americas (including United States, Canada,
Mexico, Central and South America), (ii) Europe, Middle East, and Africa (“EMEA”) and (iii) Asia Pacific
(“APAC”). Within each region, there are regional and country teams to ensure we operate close to our customers.
See Note 11 — Segment Information in Notes to Consolidated Financial Statements in Item 8 of Part II of this
Annual Report on Form 10-K, for information concerning our revenues by geographic regions and by significant
customers, which is incorporated herein by reference. Our operations subject us to certain risks and uncertainties
associated with international operations. See Item 1A of Part I, “Risk Factors,” for more information.
Our sales teams operate in their respective regions and generally either engage customers directly or manage
customer opportunities through our distribution and reseller relationships or channels as described below. In the
United States and Canada, we sell to several service providers directly and sell to other service providers and
enterprise customers primarily through resellers. Almost all of our sales outside the United States and Canada are
made through our channel partners.
Direct Sales Structure
Where we have a direct relationship with our customers, the terms and conditions are governed either by
customer purchase orders and our acknowledgement of those orders or by purchase contracts. In instances where we
have direct contracts with our customers, those contracts set forth only general terms of sale and do not require
customers to purchase specified quantities of our products. For this type of customer, our sales team engages
directly with the customer. We directly receive and process customer purchase orders.
8
Channel Sales Structure
A critical part of our sales and marketing efforts are our channel partners through which we do the majority of
our business. We employ various channel partners, including but not limited to:
(cid:129) A global network of strategic distribution relationships, as well as region or country-specific distributors
who in turn sell to local value added resellers who sell to the end-user customer. The distribution channel
partners mainly sell our SLT products plus certain Infrastructure products that are often purchased by our
enterprise customers. These distributors tend to be focused on particular regions or particular countries
within regions. For example, we have substantial distribution relationships with Ingram Micro in the
Americas and with NEC in Japan. Our agreements with these distributors are generally non-exclusive,
limited by region, and provide product discounts and other ordinary terms of sale. These agreements do not
require our distributors to purchase specified quantities of our products.
(cid:129) Direct value-added resellers including our strategic resellers referenced below, which resell our products to
end-users around the world. These direct value-added resellers buy the products and services directly from
us and have expertise in deploying complex networking solutions in their respective markets. Our agree-
ments with these direct value-added resellers are generally non-exclusive, limited by region, and provide
product discounts and other ordinary terms of sale. These agreements do not require our direct value-added
resellers to purchase specified quantities of our products.
(cid:129) Strategic worldwide reseller relationships with Nokia-Siemens Networks B.V. (“NSN”), Ericsson Telekom
A.B. (“Ericsson”), and IBM. These companies each offer services and products that complement, but in
some cases compete with, our own product offerings and act as a fulfillment partner for our products. Our
arrangements with these partners allow them to resell our products on a worldwide, non-exclusive basis,
provide for product discounts, and specify other general terms of sale. These agreements do not require these
partners to purchase specified quantities of our products. No single customer accounted for more than 10%
of our total net revenues in 2008. NSN accounted for greater than 10% of our total net revenues in 2007 and
2006.
Within each region, we employ sales professionals to assist with the management of our various sales channels.
In addition, we have a “direct touch” sales team that works directly with the channel partners on key accounts in
order to maintain a direct relationship with our more strategic end-user customers while at the same time supporting
the ultimate fulfillment of product through our channel partners.
Our sales organization is generally split between service provider and enterprise customers, with each separate
team ensuring focus on the key customers in these respective markets. There is a structure of sales professionals,
system engineers, and marketing and channel teams each focused on the respective service provider and enterprise
markets.
Backlog
Our sales are made primarily pursuant to purchase orders under framework agreements with our customers. At
any given time, we have orders for products that have not been shipped and for services that have not yet been
performed for various reasons. Because we believe industry practice would allow customers to cancel or change
orders with limited advance notice prior to shipment or performance, as well as our history of allowing such changes
and cancellations, we do not consider this backlog firm and do not believe our backlog information is necessarily
indicative of future revenues.
Seasonality
Many companies in our industry experience adverse seasonal fluctuations in customer spending patterns,
particularly in the first and third quarters. In addition, our SLT segment has experienced seasonally strong customer
demand in the fourth quarter. This historical pattern should not be considered a reliable indicator of our future net
revenues or financial performance.
9
Competition
Infrastructure Business
In the network infrastructure business, Cisco Systems has historically been the dominant player in the market.
However, other companies such as Alcatel-Lucent, Brocade Communications Systems, Inc., Ericsson, Extreme
Networks, Inc., Huawei Technologies Co., Ltd., and Nortel Networks Corporation, are providing competitive
products in the marketplace.
Many of our current and potential competitors, such as Cisco, Alcatel-Lucent, and Huawei have significantly
broader product lines than we do and may bundle their products with other networking products in a manner that
may discourage customers from purchasing our products. In addition, consolidation among competitors, or the
acquisition of our partners and resellers by competitors, can increase the competitive pressure faced by us. For
example, in 2006 Alcatel combined with Lucent Technologies, Inc. and Ericsson acquired Redback Networks. In
addition, many of our current and potential competitors have greater name recognition and more extensive customer
bases that could be leveraged. Increased competition could result in price reductions, fewer customer orders,
reduced gross margins, and loss of market share, any of which could seriously harm our operating results.
SLT Business
In the market for SLT products, Cisco generally is our primary competitor with its broad range of products. In
addition, there are a number of other competitors for each of the product lines within SLT, including Checkpoint
Software Technologies, Fortinet, Inc., F5 Networks, Inc., Nortel, and Riverbed Technology, Inc. These additional
competitors tend to be focused on single product line solutions and therefore are generally specialized and focused
as competitors to our products. In addition, a number of public and private companies have announced plans for new
products to address the same needs that our products address. We believe that our ability to compete with Cisco and
others depends upon our ability to demonstrate that our products are superior in meeting the needs of our current and
potential customers.
For both product groups, we expect that, over time, large companies with significant resources, technical
expertise, market experience, customer relationships, and broad product lines, such as Cisco, Alcatel-Lucent,
Huawei, will introduce new products, which are designed to compete more effectively in the market. There are also
several other companies that claim to have products with greater capabilities than our products. Consolidation in
this industry has begun, with one or more of these companies being acquired by large, established suppliers of
network infrastructure products, and we believe it is likely to continue.
As a result, we expect to face increased competition in the future from larger companies with significantly
more resources than we have. Although we believe that our technology and the purpose-built features of our
products make them unique and will enable us to compete effectively with these companies, we cannot guarantee
that we will be successful.
Environment
We are subject to regulations that have been adopted with respect to environmental matters, such as the Waste
Electrical and Electronic Equipment (“WEEE”) and Restriction of the Use of Certain Hazardous Substances in
Electrical and Electronic Equipment (“RoHS”) regulations adopted by the European Union. In addition, in
September 2007, we announced our sponsorship and continued participation in the Carbon Disclosure Project
(“CDP”). CDP is a global standardized mechanism by which companies report their greenhouse gas emissions to
institutional investors. It hosts one of the largest registries of corporate greenhouse gas data in the world at
www.cdproject.net. We continue to invest in the infrastructure and systems required to be able to inventory and
measure our carbon footprint on a global basis. We believe we have made significant strides in improving our
energy efficiency around the world.
Compliance with federal, state, local, and foreign laws enacted for the protection of the environment has to
date had no material effect on our capital expenditures, earnings, or competitive position.
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In addition, we are committed to the environment by our effort in improving the energy efficiency of key
elements of our high-performance network product offerings. For example, our T1600 router consumes substan-
tially less energy than competitive products. The environment will remain a focus area across multiple aspects of
our business.
Intellectual Property
Our success and ability to compete are substantially dependent upon our internally developed technology and
expertise. Our operating systems were developed internally and are protected by United States and other copyright
laws.
While we rely on patent, copyright, trade secret, and trademark law to protect our technology, we also believe
that factors such as the technological and creative skills of our personnel, new product developments, frequent
product enhancements, and reliable product maintenance are essential to establishing and maintaining a technology
leadership position. There can be no assurance that others will not develop technologies that are similar or superior
to our technology.
In addition, we integrate licensed third-party technology into certain of our products. From time to time, we
may be required to license additional technology from third parties to develop new products or product enhance-
ments. There can be no assurance that third-party licenses will be available or continue to be available to us on
commercially reasonable terms. Our inability to maintain or re-license any third-party licenses required in our
products or our inability to obtain third-party licenses necessary to develop new products and product enhancements
could require us to obtain substitute technology of lower quality or performance standards or at a greater cost, any of
which could harm our business, financial condition, and results of operations.
Our success will depend upon our ability to obtain necessary intellectual property rights and protect our
intellectual property rights. We cannot be certain that patents will be issued on the patent applications that we have
filed, or that we will be able to obtain the necessary intellectual property rights or that other parties will not contest
our intellectual property rights.
Employees
As of December 31, 2008, we had 7,014 full-time employees. We have not experienced any work stoppages,
and we consider our relations with our employees to be good. Competition for qualified personnel in our industry is
intense. We believe that our future success depends in part on our continued ability to hire, motivate, and retain
qualified personnel. We believe that we have been successful in recruiting qualified employees, but there is no
assurance that we will continue to be successful in the future.
Our future performance depends in significant part upon the continued service of our key technical, sales, and
senior management personnel, none of whom is bound by an employment agreement requiring service for any
defined period of time. The loss of the services of one or more of our key employees could have a material adverse
effect on our business, financial condition, and results of operations. Our future success also depends on our
continuing ability to attract, train, and retain highly qualified technical, sales, and managerial personnel. Com-
petition for such personnel is intense, and there can be no assurance that we can retain our key personnel in the
future.
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Executive Officers of the Registrant
The following sets forth certain information regarding our executive officers as of February 15, 2009.
Name
Age
Position
Kevin R. Johnson . . . . . . . . . . . . . . . . .
Pradeep Sindhu . . . . . . . . . . . . . . . . . .
48 Chief Executive Officer
56 Chief Technical Officer and Vice Chairman of the
Board
Mark Bauhaus . . . . . . . . . . . . . . . . . . .
Robyn M. Denholm . . . . . . . . . . . . . . .
Mitchell Gaynor. . . . . . . . . . . . . . . . . .
47 Executive Vice President and General Manager,
Service Layer Technology Business Group
45 Executive Vice President and Chief Financial Officer
49
Senior Vice President, General Counsel and
Secretary
John Morris . . . . . . . . . . . . . . . . . . . . .
48 Executive Vice President, Worldwide Sales and
Services
Kim Perdikou . . . . . . . . . . . . . . . . . . .
51 Executive Vice President and General Manager,
Infrastructure Products Group
Michael J. Rose . . . . . . . . . . . . . . . . . .
56 Executive Vice President of Service, Support and
Operations
Gene Zamiska . . . . . . . . . . . . . . . . . . .
47 Vice President, Finance and Corporate Controller
KEVIN R. JOHNSON joined Juniper Networks in September 2008 as Chief Executive Officer. Prior to Juniper
Networks, Mr. Johnson was at Microsoft Corporation, a worldwide provider of software, services, and solutions,
where he had served as President, Platforms and Services Division since January 2007. He had been Co-President of
the Platforms and Services Division since September 2005. Prior to that role, he held the position of Microsoft’s
Group Vice President, Worldwide Sales, Marketing and Services since March 2003. Before that position,
Mr. Johnson had been Senior Vice President, Microsoft Americas since February 2002 and Senior Vice President,
U.S. Sales, Marketing, and Services since August 2000. Before joining Microsoft in 1992, Mr. Johnson worked in
IBM’s systems integration and consulting business and started his career as a software developer. He earned a
Bachelor’s degree in business administration from New Mexico State University and served as a founding member
of the Board of Directors of NPower, a nonprofit organization whose mission is to help other nonprofits use
technology to expand the reach and impact of their work. Mr. Johnson also served as a member of the Western
Region Board of Advisors of Catalyst, a non-profit organization dedicated to women’s career advancement.
PRADEEP SINDHU co-founded Juniper Networks in February 1996 and served as Chief Executive Officer
and Chairman of the Board of Directors until September 1996. Since then, Dr. Sindhu has served as Vice Chairman
of the Board of Directors and Chief Technical Officer of Juniper Networks. From September 1984 to February
1991, Dr. Sindhu worked as a Member of the Research Staff, and from March 1987 to February 1996, as the
Principal Scientist, and from February 1994 to February 1996, as Distinguished Engineer at the Computer Science
Lab, Xerox Corporation, Palo Alto Research Center, a technology research center. Dr. Sindhu holds a B.S.E.E. from
the Indian Institute of Technology in Kanpur, an M.S.E.E. from the University of Hawaii, and a Masters in
Computer Science and Ph.D. in Computer Science from Carnegie-Mellon University.
MARK BAUHAUS joined Juniper Networks in September 2007 as Executive Vice President and General
Manager, Service Layer Technology Business Group. From January 2007 to September 2007, Mr. Bauhaus served
as founder and principal of Bauhaus Productions Consulting. From December 1986 to December 2006, Mr. Bauhaus
served at Sun Microsystems in a range of executive level assignments, most recently in the position of Senior Vice
President, Service Oriented Architecture Software. Mr. Bauhaus holds a Bachelors degree in business management
and environmental systems analysis from the University of California at Davis.
ROBYN M. DENHOLM joined Juniper Networks in August 2007 as Executive Vice President and Chief
Financial Officer. From January 1996 to August 2007, Ms. Denholm was at Sun Microsystems where she served in
executive assignments that included Senior Vice President, Corporate Strategic Planning; Senior Vice President,
Finance; Vice President and Corporate Controller (Chief Accounting Officer); Vice President, Finance; Service
Division; Director, Shared Financial Services APAC; and Controller, Australia/New Zealand. From May 1989 to
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January 1996, Ms. Denholm served at Toyota Motor Corporation Australia and from December 1984 to May 1989,
Ms. Denholm served at Arthur Andersen and Company in various finance assignments. Ms. Denholm is a Fellow of
the Institute of Chartered Accountants of Australia and holds a Bachelors Degree in Economics from the University
of Sydney and a Masters of Commerce from the University of New South Wales.
MITCHELL GAYNOR is Senior Vice President, General Counsel, and Secretary and joined Juniper Networks
in February 2004 as. Between April 1999 and February 2004, Mr. Gaynor was Vice President, General Counsel and
Secretary of Portal Software, Inc. He also served as Vice President, General Counsel and Secretary of Sybase, Inc.,
from 1997 to 1999 and served in various other legal roles in Sybase between 1993 and 1997. Mr. Gaynor was
Assistant General Counsel of ComputerLand Corporation, a computer equipment reseller, during 1989 and 1990.
From 1984 to 1989 and from 1990 to 1993, Mr. Gaynor was an associate with the law firm of Brobeck, Phleger &
Harrison. Mr. Gaynor holds a J.D. from U.C. Hastings College of the Law and a B.A. in History from the University
of California, Berkeley.
JOHN MORRIS joined Juniper Networks in July 2008 as Executive Vice President, Worldwide Field
Operations. From 2005 to 2008, Mr. Morris served as President and Chief Executive Officer of Pay By Touch,
a biometric payment technology company. Prior to Pay By Touch, Mr. Morris spent 23 years at IBM Corporation,
where he served in a range of executive assignments, most recently as Vice President and General Manager of the
Distribution Sector in the Americas region. Mr. Morris also served on IBM’s Global Marketing Council, as well as
extensive experience in the Asian theater, including serving as Vice President and General Manager of the
distribution sector for Asia Pacific, based in Tokyo, Japan. Mr. Morris holds a degree in Finance from Indiana
University Bloomington.
KIM PERDIKOU joined Juniper Networks in August 2000 as Chief Information Officer and served in that role
until January 2006 when she assumed the role as the Executive Vice President and General Manager of the
Infrastructure Products Group. Prior to Juniper Networks, Ms. Perdikou served as Chief Information Officer at
Women.com from June 1999 to August 2000, and held the position of Vice President, Global Networks, at Reader’s
Digest from March 1992 to April 1998, as well as leadership positions at Knight Ridder from June 1999 to August
2000, and Dun & Bradstreet from August 1989 to March 1992. Ms. Perdikou holds a B.S. in Computing Science
with Operational Research from Paisley University, Paisley, Scotland; a Post-Graduate in Education degree from
Jordanhill College, Glasgow, Scotland; and a Masters in Information Systems from Pace University, New York.
MICHAEL J. ROSE joined Juniper Networks in November 2008 as Executive Vice President of Service,
Support and Operations. From 2005 to November 2008, Mr. Rose was an independent business consultant. From
2001 to 2005, Mr. Rose served as Executive Vice President and Chief Information Officer of Royal Dutch Shell plc.
Prior to Royal Dutch Shell, Mr. Rose worked for 23 years in a wide range of positions at Hewlett Packard Company,
including controller for various business groups. In 1997, he was named Hewlett Packard’s Chief Information
Officer, and in 2000, he was elected an officer by the Board of Directors of Hewlett Packard. He was named the
company’s Controller in 2001. Rose holds a Bachelor’s degree in economics from the State University of New York
at Geneseo, N.Y.
GENE ZAMISKA joined Juniper Networks in December 2007 as Vice President of Finance and Corporate
Controller. From February 1989 through November 2007, Mr. Zamiska served in various roles in the finance
department of Hewlett Packard Company, a provider of technology hardware, software, and services, most recently
serving as Senior Director of Finance for Hewlett Packard’s consulting and integration division and Senior Director
of Finance and Assistant Corporate Controller. Mr. Zamiska is a Certified Public Accountant and holds a BS in
Business-Accounting from the University of Illinois, Champaign-Urbana.
Available Information
We file our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the U.S. Securities and Exchange
Commission (the “SEC”) electronically. The public may read or copy any materials we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website
13
that contains reports, proxy and information statements, and other information regarding issuers, including the
Company, that file electronically with the SEC. The address of that website is http://www.sec.gov.
You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current
reports on Form 8-K and amendments to those reports on our website at http://www.juniper.net, by contacting the
Investor Relations Department at our corporate offices by calling 1-888-586-4737, or by sending an e-mail message
to investor-relations@juniper.net. Such reports and other information are available on our website when they are
available on the SEC website. Information on our website is not a part of this Annual Report on Form 10-K.
ITEM 1A. Risk Factors
Factors That May Affect Future Results
Investments in equity securities of publicly traded companies involve significant risks. The market price of our
stock has historically reflected a higher multiple of expected future earnings than many other companies.
Accordingly, even small changes in investor expectations for our future growth and earnings, whether as a result
of actual or rumored financial or operating results, changes in the mix of the products and services sold,
acquisitions, industry changes or other factors, could trigger, and have triggered, significant fluctuations in the
market price of our common stock. Investors in our securities should carefully consider all of the relevant factors,
including, but not limited to, the following factors, that could affect our stock price.
Our quarterly results are inherently unpredictable and subject to substantial fluctuations, and, as a result,
we may fail to meet the expectations of securities analysts and investors, which could adversely affect the
trading price of our common stock.
Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors,
many of which are outside of our control and any of which may cause our stock price to fluctuate.
The factors that may affect the unpredictability of our quarterly results include, but are not limited to: limited
visibility into customer spending plans, changes in the mix of products sold, changing market conditions, including
current and potential customer consolidation, competition, customer concentration, long sales and implementation
cycles, regional economic and political conditions and seasonality. For example, many companies in our industry
experience adverse seasonal fluctuations in customer spending patterns, particularly in the first and third quarters.
As a result, we believe that quarter-to-quarter comparisons of operating results are not necessarily a good
indication of what our future performance will be. It is likely that in some future quarters, our operating results may
be below the expectations of securities analysts or investors, in which case the price of our common stock may
decline. Such a decline could occur, and has occurred in the past, even when we have met our publicly stated
revenues and/or earnings guidance.
Fluctuating economic conditions make it difficult to predict revenues for a particular period and a
shortfall in revenues or increase in costs of production may harm our operating results.
Our revenues depend significantly on general economic conditions and the demand for products in the markets
in which we compete. Economic weakness, customer financial difficulties, and constrained spending on network
expansion have previously resulted, and may in the future result, in decreased revenues and earnings and could
negatively impact our ability to forecast and manage our contract manufacturer relationships. In addition, recent
turmoil in the global financial markets and associated economic weakness, or recession, particularly in the
United States, as well as turmoil in the geopolitical environment in many parts of the world, may continue to put
pressure on global economic conditions, which could lead to reduced demand for our products and/or higher costs
of production. Economic downturns may also lead to longer collection cycles for payments due from our customers,
an increase in bad debts, restructuring initiatives and associated expenses, and impairment of investments.
Furthermore, the recent disruption in worldwide credit markets may adversely impact the ability of our customers
to adequately fund their expected capital expenditures, which could lead to delays or cancellations of planned
purchases of our products or services. In addition, our operating expenses are largely based on anticipated revenue
trends and a high percentage of our expenses are, and will continue to be, fixed in the short-term. Uncertainty about
14
future economic conditions makes it difficult to forecast operating results and to make decisions about future
investments. Future or continued economic weakness, customer financial difficulties, increases in costs of
production, and reductions in spending on network maintenance and expansion could have a material adverse
effect on demand for our products and consequently on our business, financial condition, and results of operations.
A limited number of our customers comprise a significant portion of our revenues and any decrease in
revenues from these customers could have an adverse effect on our net revenues and operating results.
A substantial majority of our net revenues depend on sales to a limited number of customers and distribution
partners. For example, NSN and its predecessor companies contributed more than 10% of revenues in the fiscal
years ended 2007 and 2006. This customer concentration increases the risk of quarterly fluctuations in our revenues
and operating results. Changes in the business requirements, vendor selection, or purchasing behavior of our key
customers or potential new customers could significantly decrease sales to such customers. In addition, the recent
disruption in worldwide credit markets may adversely impact the ability of our customers to adequately fund their
expected capital expenditures, which could lead to delays or cancellations of planned purchases of our products or
services. Any of these factors could adversely affect our business, financial condition, and results of operations.
In addition, in recent years there has been consolidation in the telecommunications industry (for example, the
acquisitions of AT&T Inc., MCI, Inc., and BellSouth Corporation) and consolidation among the large vendors of
telecommunications equipment and services (for example, the combination of Alcatel and Lucent, the joint venture
of NSN, and the acquisition of Redback by Ericsson). Such consolidation may cause our customers who are
involved in these acquisitions to suspend or indefinitely reduce their purchases of our products or have other
unforeseen consequences that could harm our business, financial condition, and results of operations.
If we receive Infrastructure product orders late in a quarter, we may be unable to recognize revenue for
these orders in the same period, which could adversely affect our quarterly revenues.
Generally, our Infrastructure products are not stocked by distributors or resellers due to their cost, complexity,
and configurations required by our customers, and we generally build such products as orders are received. If orders
for these products are received late in any quarter, we may not be able to build, ship, and recognize revenue for these
orders in the same period, which could adversely affect our ability to meet our expected revenues for such quarter.
Telecommunications companies and other large companies generally require more onerous terms and
conditions of their vendors. As we seek to sell more products to such customers, we may be required to
agree to terms and conditions that may have an adverse effect on our business or ability to recognize
revenues.
Telecommunications service provider companies and other large companies, because of their size, generally
have greater purchasing power and, accordingly, have requested and received more favorable terms, which often
translate into more onerous terms and conditions for their vendors. As we seek to sell more products to this class of
customer, we may be required to agree to such terms and conditions, which may include terms that affect the timing
of our ability to recognize revenue and have an adverse effect on our business, financial condition, and results of
operations. Consolidation among such large customers can further increase their buying power and ability to require
onerous terms.
For example, many customers in this class have purchased products from other vendors who promised certain
functionality and failed to deliver such functionality and/or had products that caused problems or outages in the
networks of these customers. As a result, this class of customers may request additional features from us and require
substantial penalties for failure to deliver such features or may require substantial penalties for any network outages
that may be caused by our products. These additional requests and penalties, if we are required to agree to them,
may affect our ability to recognize the revenues from such sales, which may negatively affect our business, financial
condition, and results of operations. For example, in April 2006, we announced that we would be required to defer a
large amount of revenue from a customer due to the contractual obligations required by that customer.
For arrangements with multiple elements, vendor specific objective evidence of fair value of the undelivered
element is required in order to separate the components and to account for elements of the arrangement separately.
15
Vendor specific objective evidence of fair value is based on the price charged when the element is sold separately.
However, customers may require terms and conditions that make it more difficult or impossible for us to maintain
vendor specific objective evidence of fair value for the undelivered elements to a similar group of customers, the
result of which could cause us to defer the entire arrangement fees for a similar group of customers (product,
maintenance, professional services, etc.) and recognize revenue only when the last element is delivered, or if the
only undelivered element is maintenance revenue, we would recognize revenue ratably over the contractual
maintenance period, which is generally one year but could be substantially longer.
Our ability to process orders and ship products in a timely manner is dependent in part on our business
systems and performance of the systems and processes of third parties such as our contract
manufacturers, suppliers, or other partners, as well as interfaces with the systems of such third parties. If
our systems, the systems and processes of those third parties, or the interfaces between them experience
delays or fail, our business processes and our ability to build and ship products could be impacted, and
our financial results could be harmed.
Some of our business processes depend upon our information technology systems (“IT”), the systems and
processes of third parties, and on interfaces with the systems of third parties. For example, our order entry system
feeds information into the systems of our contract manufacturers, which enable them to build and ship our products.
If those systems fail or are interrupted, our processes may function at a diminished level or not at all. This could
negatively impact our ability to ship products or otherwise operate our business, and our financial results could be
harmed. For example, although it did not adversely affect our shipments, an earthquake in late December of 2006
disrupted communications with China, where a significant part of our manufacturing occurs.
We also rely upon the performance of the systems and processes of our contract manufacturers to build and
ship our products. If those systems and processes experience interruption or delay, our ability to build and ship our
products in a timely manner may be harmed. For example, as we have expanded our contract manufacturing base to
China, we have experienced instances where our contract manufacturer was not able to ship products in the time
periods expected by us. If we are not able to ship our products or if product shipments are delayed, our ability to
recognize revenue in a timely manner for those products would be affected and our financial results could be
harmed.
If we fail to accurately predict our manufacturing requirements, we could incur additional costs or
experience manufacturing delays which would harm our business.
We provide demand forecasts to our contract manufacturers. If we overestimate our requirements, our contract
manufacturers may assess charges, or we may have liabilities for excess inventory, each of which could negatively
affect our gross margins. Conversely, because lead times for required materials and components vary significantly
and depend on factors such as the specific supplier, contract terms, and the demand for each component at a given
time, if we underestimate our requirements, our contract manufacturers may have inadequate time or materials and
components required to produce our products, which could increase costs or could delay or interrupt manufacturing
of our products and result in delays in shipments and deferral or loss of revenues.
We are dependent on sole source and limited source suppliers for several key components, which makes
us susceptible to shortages or price fluctuations in our supply chain, and we may face increased
challenges in supply chain management in the future.
With the current demand for electronic products, component shortages are possible, and the predictability of
the availability of such components may be limited. Growth in our business and the economy is likely to create
greater pressures on us and our suppliers to accurately project overall component demand and to establish optimal
component levels. If shortages or delays persist, the price of these components may increase, or the components
may not be available at all. We may not be able to secure enough components at reasonable prices or of acceptable
quality to build new products in a timely manner, and our revenues and gross margins could suffer until other
sources can be developed. For example, from time to time, including the first quarter of 2008, we have experienced
component shortages that resulted in delays of product shipments. We currently purchase numerous key compo-
nents, including ASICs, from single or limited sources. The development of alternate sources for those components
16
is time consuming, difficult, and costly. In addition, the lead times associated with certain components are lengthy
and preclude rapid changes in quantities and delivery schedules. In the event of a component shortage or supply
interruption from these suppliers, we may not be able to develop alternate or second sources in a timely manner. If,
as a result, we are unable to buy these components in quantities sufficient to meet our requirements on a timely
basis, we will not be able to deliver product to our customers, which would seriously affect present and future sales,
which would, in turn, adversely affect our business, financial condition, and results of operations.
In addition, the development, licensing, or acquisition of new products in the future may increase the
complexity of supply chain management. Failure to effectively manage the supply of key components and products
would adversely affect our business.
We are dependent on contract manufacturers with whom we do not have long-term supply contracts, and
changes to those relationships, expected or unexpected, may result in delays or disruptions that could
cause us to lose revenues and damage our customer relationships.
We depend on independent contract manufacturers (each of which is a third-party manufacturer for numerous
companies) to manufacture our products. Although we have contracts with our contract manufacturers, those
contracts do not require them to manufacture our products on a long-term basis in any specific quantity or at any
specific price. In addition, it is time consuming and costly to qualify and implement additional contract manu-
facturer relationships. Therefore, if we should fail to effectively manage our contract manufacturer relationships or
if one or more of them should experience delays, disruptions, or quality control problems in our manufacturing
operations, or if we had to change or add additional contract manufacturers or contract manufacturing sites, our
ability to ship products to our customers could be delayed. Also, the addition of manufacturing locations or contract
manufacturers would increase the complexity of our supply chain management. Moreover, an increasing portion of
our manufacturing is performed in China and other countries and is therefore subject to risks associated with doing
business in other countries. Each of these factors could adversely affect our business, financial condition, and results
of operations.
We expect gross margin to vary over time, and our recent level of product gross margin may not be
sustainable.
Our product gross margins will vary from quarter to quarter, and the recent level of gross margins may not be
sustainable and may be adversely affected in the future by numerous factors, including product mix shifts, increased
price competition in one or more of the markets in which we compete, increases in material or labor costs, excess
product component or obsolescence charges from our contract manufacturers, increased costs due to changes in
component pricing or charges incurred due to component holding periods if our forecasts do not accurately
anticipate product demand, warranty related issues, or our introduction of new products or entry into new markets
with different pricing and cost structures.
The long sales and implementation cycles for our products, as well as our expectation that some
customers will sporadically place large orders with short lead times, may cause our revenues and
operating results to vary significantly from quarter to quarter.
A customer’s decision to purchase certain of our products involves a significant commitment of its resources
and a lengthy evaluation and product qualification process. As a result, the sales cycle may be lengthy. In particular,
customers making critical decisions regarding the design and implementation of large or next-generation networks
may engage in very lengthy procurement processes that may delay or impact expected future orders. Throughout the
sales cycle, we may spend considerable time educating and providing information to prospective customers
regarding the use and benefits of our products. Even after making the decision to purchase, customers may deploy
our products slowly and deliberately. Timing of deployment can vary widely and depends on the skill set of the
customer, the size of the network deployment, the complexity of the customer’s network environment, and the
degree of hardware and operating system configuration necessary to deploy the products. Customers with large
networks usually expand their networks in large increments on a periodic basis. Accordingly, we may receive
purchase orders for significant dollar amounts on an irregular basis. These long cycles, as well as our expectation
17
that customers will tend to sporadically place large orders with short lead times, may cause revenues and operating
results to vary significantly and unexpectedly from quarter to quarter.
We are a party to lawsuits, which are costly to investigate and defend and, if determined adversely to us,
could require us to pay damages or prevent us from taking certain actions, any or all of which could
harm our business, financial condition, and results of operations.
We and certain of our current and former officers and current and former members of our Board of Directors
are subject to various lawsuits. For example, we have been served with lawsuits related to the alleged backdating of
stock options and other related matters, a description of which can be found in Note 7 — Commitments and
Contingencies in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on
Form 10-K, under the heading “Legal Proceedings.” There can be no assurance that these or any actions that have
been or may be brought against us will be resolved in our favor. Regardless of whether they are resolved in our favor,
these lawsuits are, and any future lawsuits to which we may become a party will likely be, expensive and time
consuming to investigate, defend, settle, and/or resolve. Such costs of investigation and defense, as well as any
losses resulting from these claims or settlement of these claims, could significantly increase our expenses and could
harm our business, financial condition, and results of operations.
In addition, we are party to a lawsuit which seeks to enjoin us from granting equity awards under our 2006
Equity Incentive Plan (the “2006 Plan”), as well as to invalidate all awards granted under such plan to date. The
2006 Plan is the only active plan under which we currently grant stock options and restricted stock units to our
employees. If this lawsuit is not resolved in our favor, we may be prevented from using the 2006 Plan to provide
these equity awards to recruit new employees or to compensate existing employees, which would put us at a
significant disadvantage to other companies that compete for workers in high technology industries such as ours.
Accordingly, our ability to hire, retain, and motivate current and prospective employees would be harmed, the result
of which could negatively impact our business operations.
We sell our products to customers that use those products to build networks and IP infrastructure and, if
the demand for network and IP systems does not continue to grow, then our business, financial condition,
and results of operations could be adversely affected.
A substantial portion of our business and revenues depends on the growth of secure IP infrastructure and on the
deployment of our products by customers that depend on the continued growth of IP services. As a result of changes
in the economy and capital spending or the building of network capacity in excess of demand, all of which have in
the past particularly affected telecommunications service providers, spending on IP infrastructure can vary, which
could have a material adverse effect on our business, financial condition, and results of operations. In addition, a
number of our existing customers are evaluating the build out of their NGNs. During the decision making period
when the customers are determining the design of those networks and the selection of the equipment they will use in
those networks, such customers may greatly reduce or suspend their spending on secure IP infrastructure. Such
pauses in purchases can make it more difficult to predict revenues from such customers, can cause fluctuations in
the level of spending by these customers and, even where our products are ultimately selected, can have a material
adverse effect on our business, financial condition, and results of operations.
If we do not successfully anticipate market needs and develop products and product enhancements that
meet those needs, or if those products do not gain market acceptance, we may not be able to compete
effectively and our ability to generate revenues will suffer.
We cannot guarantee that we will be able to anticipate future market needs or be able to develop new products
or product enhancements to meet such needs or to meet them in a timely manner. If we fail to anticipate market
requirements or to develop and introduce new products or product enhancements to meet those needs in a timely
manner, such failure could substantially decrease or delay market acceptance and sales of our present and future
products, which would significantly harm our business, financial condition, and results of operations. Even if we are
able to anticipate, develop, and commercially introduce new products and enhancements, there can be no assurance
that new products or enhancements will achieve widespread market acceptance. For example, in the first quarter of
2008, we announced new products designed to address the Ethernet switching market, a market in which we had not
18
had a historical presence. If these new products do not gain market acceptance at a sufficient rate of growth, our
ability to meet future financial targets may be adversely affected. Any failure of our products to achieve market
acceptance could adversely affect our business and financial results.
We rely on value-added resellers and distribution partners to sell our products, and disruptions to, or our
failure to effectively develop and manage our distribution channel and the processes and procedures that
support it could adversely affect our ability to generate revenues from the sale of our products.
Our future success is highly dependent upon establishing and maintaining successful relationships with a
variety of value-added reseller and distribution partners. The majority of our revenues are derived through value-
added resellers and distributors, most of which also sell competitors’ products. Our revenues depend in part on the
performance of these partners. The loss of or reduction in sales to our value-added resellers or distributors could
materially reduce our revenues. For example, in April 2007, our largest customer, Siemens, transferred its
telecommunications business to a joint venture between Siemens and Nokia. Our competitors may in some cases
be effective in providing incentives to current or potential resellers and distributors to favor their products or to
prevent or reduce sales of our products. If we fail to maintain relationships with our partners, fail to develop new
relationships with value-added resellers and distributors in new markets, or expand the number of distributors and
resellers in existing markets, fail to manage, train or motivate existing value-added resellers and distributors
effectively or if these partners are not successful in their sales efforts, sales of our products may decrease, and our
business, financial condition, and results of operations would suffer.
In addition, we recognize a portion of our revenues based on a sell-through model using information provided
by our distributors. If those distributors provide us with inaccurate or untimely information, the amount or timing of
our revenues could be adversely impacted.
Further, in order to develop and expand our distribution channel, we must continue to scale and improve our
processes and procedures that support it, and those processes and procedures may become increasingly complex and
inherently difficult to manage. Our failure to successfully manage and develop our distribution channel and the
processes and procedures that support it could adversely affect our ability to generate revenues from the sale of our
products.
We face intense competition that could reduce our revenues and adversely affect our financial results.
Competition is intense in the markets that we address. The IP infrastructure market has historically been
dominated by Cisco with other companies such as Alcatel-Lucent, Brocade, Ericsson, Extreme Networks, Huawei,
and Nortel providing products to a smaller segment of the market. In addition, a number of other small public and
private companies have products or have announced plans for new products to address the same challenges and
markets that our products address.
In the SLT market, we face intense competition from a broader group of companies including appliance
vendors such as Cisco, Fortinet, F5 Networks, Nortel, Riverbed, and software vendors such as CheckPoint. In
addition, a number of other small public and private companies have products or have announced plans for new
products to address the same challenges and markets that our products address.
In addition, actual or speculated consolidation among competitors, or the acquisition of our partners and
resellers by competitors, can increase the competitive pressures faced by us. In this regard, Alcatel combined with
Lucent in 2006, and Ericsson acquired Redback in 2007. A number of our competitors have substantially greater
resources and can offer a wider range of products and services for the overall network equipment market than we do.
If we are unable to compete successfully against existing and future competitors on the basis of product offerings or
price, we could experience a loss in market share and revenues and/or be required to reduce prices, which could
reduce our gross margins, and which could materially and adversely affect our business, financial condition, and
results of operations.
19
Our success depends upon our ability to effectively plan and manage our resources and restructure our
business through rapidly fluctuating economic and market conditions.
Our ability to successfully offer our products and services in a rapidly evolving market requires an effective
planning, forecasting, and management process to enable us to effectively scale our business and adjust our business
in response to fluctuating market opportunities and conditions. In periods of market expansion, we have increased
investment in our business by, for example, increasing headcount and increasing our investment in research and
development and other parts of our business. Conversely, during 2001 and 2002, in response to downward trending
industry and market conditions, we restructured our business and reduced our workforce. Many of our expenses,
such as real estate expenses, cannot be rapidly or easily adjusted because of fluctuations in our business or numbers
of employees. Moreover, rapid changes in the size of our workforce could adversely affect the ability to develop and
deliver products and services as planned or impair our ability to realize our current or future business objectives.
We are currently implementing upgrades to key internal systems and processes, and problems with the
design or implementation of these systems and processes could interfere with our business and
operations.
In 2007, we initiated a project to upgrade certain key internal systems and processes, including our company-
wide human resources management system, our customer relationship management (“CRM”) system and enter-
prise resource planning (“ERP”) system. We have invested, and will continue to invest, significant capital and
human resources in the design and implementation of these systems and processes, which may be disruptive to our
underlying business. Any disruptions or delays in the design and implementation of the new systems or processes,
particularly any disruptions or delays that impact our operations, could adversely affect our ability to process
customer orders, ship products, provide service and support to our customers, bill and track our customers, fulfill
contractual obligations, record and transfer information in a timely and accurate manner, file SEC reports in a
timely manner, or otherwise run our business. Even if we do not encounter these adverse effects, the design and
implementation of these new systems and processes may be much more costly than we anticipated. If we are unable
to successfully design and implement these new systems and processes as planned, or if the implementation of these
systems and processes is more costly than anticipated, our business, financial condition, and results of operations
could be negatively impacted.
Litigation or claims regarding intellectual property rights may be time consuming, expensive and require
a significant amount of resources to prosecute, defend, or make our products non-infringing.
Third parties have asserted and may in the future assert claims or initiate litigation related to patent, copyright,
trademark, and other intellectual property rights to technologies and related standards that are relevant to our
products. The asserted claims and/or initiated litigation may include claims against us or our manufacturers,
suppliers, or customers, alleging infringement of their proprietary rights with respect to our products. Regardless of
the merit of these claims, they have been and can be time consuming, result in costly litigation, and may require us
to develop non-infringing technologies or enter into license agreements. Furthermore, because of the potential for
high awards of damages or injunctive relief that are not necessarily predictable, even arguably unmeritorious claims
may be settled for significant amounts of money. If any infringement or other intellectual property claim made
against us by any third party is successful, if we are required to settle litigation for significant amounts of money, or
if we fail to develop non-infringing technology or license required proprietary rights on commercially reasonable
terms and conditions, our business, financial condition, and results of operations could be materially and adversely
affected.
We are subject to risks arising from our international operations.
We derive a majority of our revenues from our international operations, and we plan to continue expanding our
business in international markets in the future. As a result of our international operations, we are affected by
economic, regulatory, and political conditions in foreign countries, including changes in general IT spending, the
imposition of government controls, changes or limitations in trade protection laws, unfavorable changes in tax
treaties or laws, natural disasters, labor unrest, earnings expatriation restrictions, misappropriation of intellectual
property, acts of terrorism, and continued unrest in many regions and other factors, which could have a material
20
impact on our international revenues and operations. In particular, in some countries, we may experience reduced
intellectual property protection. Moreover, local laws and customs in many countries differ significantly from those
in the United States. In many foreign countries, particularly in those with developing economies, it is common for
others to engage in business practices that are prohibited by our internal policies and procedures or United States
regulations applicable to us. Although we implement policies and procedures designed to ensure compliance with
these laws and policies, there can be no assurance that none of our employees, contractors, and agents will take
actions in violation of them. Violations of laws or key control policies by our employees, contractors, or agents
could result in financial reporting problems, fines, penalties, or prohibition on the importation or exportation of our
products and could have a material adverse effect on our business.
Our financial condition and results of operations could suffer if there is an additional impairment of
goodwill or other intangible assets with indefinite lives.
We are required to test annually and review on an interim basis, our goodwill and intangible assets with
indefinite lives, including the goodwill associated with past acquisitions and any future acquisitions, to determine if
impairment has occurred. If such assets are deemed impaired, an impairment loss equal to the amount by which the
carrying amount exceeds the fair value of the assets would be recognized. This would result in incremental expenses
for that quarter, which would reduce any earnings or increase any loss for the period in which the impairment was
determined to have occurred. For example, such impairment could occur if the market value of our common stock
falls below certain levels for a sustained period, or if the portions of our business related to companies we have
acquired fail to grow at expected rates or decline. In the second quarter of 2006, our impairment evaluation resulted
in a reduction of $1,280.0 million to the carrying value of goodwill on our balance sheet for the SLT operating
segment, primarily due to the decline in our market capitalization that occurred over a period of approximately nine
months prior to the impairment review and, to a lesser extent, a decrease in the forecasted future cash flows used in
the income approach. Recently, the turmoil in credit markets and the broader economy has contributed to extreme
price and volume fluctuations in global stock markets that have reduced the market price of many technology
company stocks, including ours. Further declines in our stock price or the failure of our stock price to recover from
previous declines, as well as any marked decline in our level of revenues or gross margins, increase the risk that
goodwill and intangible assets may become impaired in future periods. We cannot accurately predict the amount
and timing of any impairment of assets.
Changes in effective tax rates or adverse outcomes resulting from examination of our income or other
tax returns could adversely affect our results.
Our future effective tax rates could be subject to volatility or adversely affected by: earnings being lower than
anticipated in countries where we have lower statutory rates and higher than anticipated earnings in countries where
we have higher statutory rates; by changes in the valuation of our deferred tax assets and liabilities; by expiration of
or lapses in the research and development (“R&D”) tax credit laws; by transfer pricing adjustments related to
certain acquisitions including the license of acquired intangibles under our intercompany R&D cost sharing
arrangement; by tax effects of stock-based compensation; by costs related to intercompany restructurings; or by
changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, we are subject to the
continuous examination of our income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities.
We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous
examinations will not have an adverse effect on our business, financial condition, and results of operations.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial
condition and results of operations.
Because a majority of our business is conducted outside the United States, we face exposure to adverse
movements in non-U.S. currency exchange rates. These exposures may change over time as business practices
evolve and could have a material adverse impact on our financial condition and results of operations.
The majority of our revenues and expenses are transacted in U.S. Dollars. We also have some transactions that
are denominated in foreign currencies, primarily the British Pound, the Euro, Indian Rupee, and Japanese Yen
21
related to our sales and service operations outside of the United States. An increase in the value of the U.S. Dollar
could increase the real cost to our customers of our products in those markets outside the United States in which we
sell in U.S. Dollars, and a weakened U.S. Dollar could increase the cost of local operating expenses and
procurement of raw materials to the extent we must purchase components in foreign currencies.
Currently, we hedge only those currency exposures associated with certain assets and liabilities denominated
in nonfunctional currencies and periodically will hedge anticipated foreign currency cash flows. The hedging
activities undertaken by us are intended to offset the impact of currency fluctuations on certain nonfunctional
currency assets and liabilities. However, no amount of hedging can be effective against all circumstances, including
long-term declines in the value of the U.S. Dollar. If our attempts to hedge against these risks are not successful, or if
long-term declines in the value of the U.S. Dollar persist, our financial condition and results of operations could be
adversely impacted.
If we fail to adequately evolve our financial and managerial control and reporting systems and processes,
our ability to manage and grow our business will be negatively affected.
Our ability to successfully offer our products and implement our business plan in a rapidly evolving market
depends upon an effective planning and management process. We will need to continue to improve our financial and
managerial control and our reporting systems and procedures in order to manage our business effectively in the
future. If we fail to continue to implement improved systems and processes, our ability to manage our business,
financial condition, and results of operations may be negatively affected.
Our ability to develop, market, and sell products could be harmed if we are unable to retain or hire key
personnel.
Our future success depends upon our ability to recruit and retain the services of executive, engineering, sales
and marketing, and support personnel. The supply of highly qualified individuals, in particular engineers in very
specialized technical areas, or sales people specializing in the service provider and enterprise markets, is limited
and competition for such individuals is intense. None of our officers or key employees is bound by an employment
agreement for any specific term. The loss of the services of any of our key employees, the inability to attract or
retain personnel in the future or delays in hiring required personnel, particularly engineers and sales people, and the
complexity and time involved in replacing or training new employees, could delay the development and intro-
duction of new products, and negatively impact our ability to market, sell, or support our products.
Our products are highly technical and if they contain undetected errors, our business could be adversely
affected and we may need to defend lawsuits or pay damages in connection with any alleged or actual
failure of our products and services.
Our products are highly technical and complex, are critical to the operation of many networks, and, in the case
of our security products, provide and monitor network security and may protect valuable information. Our products
have contained and may contain one or more undetected errors, defects, or security vulnerabilities. Some errors in
our products may only be discovered after a product has been installed and used by end-customers. Any errors,
defects, or security vulnerabilities discovered in our products after commercial release could result in loss of
revenues or delay in revenue recognition, loss of customers, loss of future business, and increased service and
warranty cost, any of which could adversely affect our business, financial condition, and results of operations. In
addition, in the event an error, defect, or vulnerability is attributable to a component supplied by a third-party
vendor, we may not be able to recover from the vendor all of the costs of remediation that we may incur. In addition,
we could face claims for product liability, tort, or breach of warranty. Defending a lawsuit, regardless of its merit, is
costly and may divert management’s attention. In addition, if our business liability insurance coverage is
inadequate, or future coverage is unavailable on acceptable terms or at all, our financial condition and results
of operations could be harmed.
22
A breach of network security could harm public perception of our security products, which could cause
us to lose revenues.
If an actual or perceived breach of network security occurs in the network of a customer of our security
products, regardless of whether the breach is attributable to our products, the market perception of the effectiveness
of our products could be harmed. This could cause us to lose current and potential end-customers or cause us to lose
current and potential value-added resellers and distributors. Because the techniques used by computer hackers to
access or sabotage networks change frequently and generally are not recognized until launched against a target, we
may be unable to anticipate these techniques.
If our products do not interoperate with our customers’ networks, installations will be delayed or
cancelled and could harm our business.
Our products are designed to interface with our customers’ existing networks, each of which have different
specifications and utilize multiple protocol standards and products from other vendors. Many of our customers’
networks contain multiple generations of products that have been added over time as these networks have grown and
evolved. Our products will be required to interoperate with many or all of the products within these networks as well
as future products in order to meet our customers’ requirements. If we find errors in the existing software or defects
in the hardware used in our customers’ networks, we may need to modify our software or hardware to fix or
overcome these errors so that our products will interoperate and scale with the existing software and hardware,
which could be costly and negatively affect our business, financial condition, and results of operations. In addition,
if our products do not interoperate with those of our customers’ networks, demand for our products could be
adversely affected or orders for our products could be cancelled. This could hurt our operating results, damage our
reputation, and seriously harm our business and prospects.
Governmental regulations affecting the import or export of products could negatively affect our revenues.
The United States and various foreign governments have imposed controls, export license requirements, and
restrictions on the import or export of some technologies, especially encryption technology. In addition, from time
to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the
escrow and governmental recovery of private encryption keys. Governmental regulation of encryption technology
and regulation of imports or exports, or our failure to obtain required import or export approval for our products,
could harm our international and domestic sales and adversely affect our revenues. In addition, failure to comply
with such regulations could result in penalties, costs, and restrictions on export privileges.
Integration of past acquisitions and future acquisitions could disrupt our business and harm our financial
condition and stock price and may dilute the ownership of our stockholders.
We have made, and may continue to make, acquisitions in order to enhance our business. In 2005, we
completed the acquisitions of five private companies. Acquisitions involve numerous risks, including problems
combining the purchased operations, technologies or products, unanticipated costs, diversion of management’s
attention from our core businesses, adverse effects on existing business relationships with suppliers and customers,
risks associated with entering markets in which we have no or limited prior experience, and potential loss of key
employees. There can be no assurance that we will be able to integrate successfully any businesses, products,
technologies, or personnel that we might acquire. The integration of businesses that we have acquired has been, and
will continue to be, a complex, time consuming, and expensive process. Acquisitions may also require us to issue
common stock that dilutes the ownership of our current stockholders, assume liabilities, record goodwill and
amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic
impairment charges, incur amortization expenses related to certain intangible assets, and incur large and immediate
write-offs and restructuring and other related expenses, all of which could harm our financial condition and results
of operations.
In addition, if we fail in our acquisition integration efforts with respect to our acquisitions and are unable to
efficiently operate as a combined organization utilizing common information and communication systems,
23
operating procedures, financial controls, and human resources practices, our business, financial condition, and
results of operations may be adversely affected.
Due to the global nature of our operations, economic or social conditions or changes in a particular
country or region could adversely affect our sales or increase our costs and expenses, which could have a
material adverse impact on our business, financial condition, and results of operations.
We conduct significant sales and customer support operations directly and indirectly through our distributors
and value-added resellers in countries throughout the world and depend on the operations of our contract
manufacturers and suppliers that are located inside and outside of the United States. In addition, our research
and development and our general and administrative operations are conducted in the United States as well as other
countries. Accordingly, our future results could be materially adversely affected by a variety of uncontrollable and
changing factors including, among others, political or social unrest, natural disasters, epidemic disease, war, or
economic instability in a specific country or region, trade protection measures, and other regulatory requirements
which may affect our ability to import or export our products from various countries, service provider, and
government spending patterns affected by political considerations and difficulties in staffing and managing
international operations. Any or all of these factors could have a material adverse impact on our business, financial
condition, and results of operations.
Our products incorporate and rely upon licensed third-party technology, and if licenses of third-party
technology do not continue to be available to us or become very expensive, our revenues and ability to
develop and introduce new products could be adversely affected.
We integrate licensed third-party technology into certain of our products. From time to time, we may be
required to license additional technology from third parties to develop new products or product enhancements.
Third-party licenses may not be available or continue to be available to us on commercially reasonable terms. Our
inability to maintain or re-license any third-party licenses required in our products or our inability to obtain third-
party licenses necessary to develop new products and product enhancements, could require us to obtain substitute
technology of lower quality or performance standards or at a greater cost, any of which could harm our business,
financial condition, and results of operations.
Matters related to the investigation into our historical stock option granting practices and the restatement
of our financial statements have resulted in litigation and regulatory proceedings, and may result in
additional litigation or other possible government actions.
Our historical stock option granting practices and the restatement of our consolidated financial statements have
exposed us to risks such as litigation, regulatory proceedings, and government enforcement actions. For more
information regarding our current litigation and related inquiries, please see Note 7 — Commitments and Con-
tingencies in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K,
under the heading “Legal Proceedings” as well as the other risk factors related to litigation set forth in this section.
We have provided the results of our internal review and independent investigation to the SEC and the United States
Attorney’s Office for the Northern District of California, and in that regard, we have responded to formal and
informal requests for documents and additional information. In August 2007, we announced that we entered into a
settlement agreement with the SEC in connection with our historical stock option granting practices in which we
consented to a permanent injunction against any future violations of the antifraud, reporting, books-and-records and
internal control provisions of the federal securities laws. This settlement concluded the SEC’s formal investigation
of the Company with respect to this matter. In addition, while we believe that we have made appropriate judgments
in determining the correct measurement dates for our stock option grants, the SEC may disagree with the manner in
which we accounted for and reported, or did not report, the corresponding financial impact. We are also subject to
civil litigation related to the stock option matters. No assurance can be given regarding the outcomes from litigation
or other possible government actions. The resolution of these matters will be time consuming, expensive, and may
distract management from the conduct of our business. Furthermore, if we are subject to adverse findings in
litigation or if we enter into any settlements related thereto, we could be required to pay damages or penalties or
have other remedies imposed, which could harm our business, financial condition, and results of operations.
24
While we believe that we currently have adequate internal control over financial reporting, we are
exposed to risks from legislation requiring companies to evaluate those internal controls.
Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our independent
auditors to attest to, the effectiveness of our internal control over financial reporting. We have an ongoing program
to perform the system and process evaluation and testing necessary to comply with these requirements. We have and
will continue to incur significant expenses and devote management resources to Section 404 compliance on an
ongoing basis. In the event that our chief executive officer, chief financial officer, or independent registered public
accounting firm determine in the future that, our internal controls over financial reporting are not effective as
defined under Section 404, investor perceptions may be adversely affected and could cause a decline in the market
price of our stock.
Regulation of the telecommunications industry could harm our operating results and future prospects.
The telecommunications industry is highly regulated and our business and financial condition could be
adversely affected by changes in the regulations relating to the telecommunications industry. Currently, there are
few laws or regulations that apply directly to access to or commerce on IP networks. We could be adversely affected
by regulation of IP networks and commerce in any country where we operate. Such regulations could address
matters such as voice over the Internet or using IP, encryption technology, and access charges for service providers.
In addition, regulations have been adopted with respect to environmental matters, such as the WEEE and RoHS
regulations adopted by the European Union, as well as regulations prohibiting government entities from purchasing
security products that do not meet specified local certification criteria. Compliance with such regulations may be
costly and time-consuming for us and our suppliers and partners. The adoption and implementation of such
regulations could decrease demand for our products, and at the same time could increase the cost of building and
selling our products as well as impact our ability to ship products into affected areas and recognize revenue in a
timely manner, which could have a material adverse effect on our business, financial condition, and results of
operations.
The investment of our cash balance and our investments in government and corporate debt securities are
subject to risks, which may cause losses and affect the liquidity of these investments.
At December 31, 2008, we had $2,019.1 million in cash and cash equivalents and $274.3 million in short- and
long-term investments. We have invested these amounts primarily in U.S. government securities, corporate notes
and bonds, commercial paper, and money market funds meeting certain criteria. Certain of these investments are
subject to general credit, liquidity, market, and interest rate risks, which may be exacerbated by U.S. sub-prime
mortgage defaults that have affected various sectors of the financial markets and caused credit and liquidity issues.
These market risks associated with our investment portfolio may have a negative adverse effect on our liquidity,
financial condition, and results of operations.
Uninsured losses could harm our operating results.
We self-insure against many business risks and expenses, such as intellectual property litigation and our
medical benefit programs, where we believe we can adequately self-insure against the anticipated exposure and risk
or where insurance is either not deemed cost-effective or is not available. We also maintain a program of insurance
coverage for various types of property, casualty, and other risks. We place our insurance coverage with various
carriers in numerous jurisdictions. The types and amounts of insurance that we obtain vary from time to time and
from location to location, depending on availability, cost, and our decisions with respect to risk retention. The
policies are subject to deductibles, policy limits, and exclusions that result in our retention of a level of risk on a self-
insurance basis. Losses not covered by insurance could be substantial and unpredictable and could adversely affect
our financial condition and results of operations.
ITEM 1B. Unresolved Staff Comments
None.
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ITEM 2. Properties
We lease approximately 1.9 million square feet worldwide, with nearly 70 percent being in North America.
Our corporate headquarters is located in Sunnyvale, California, and consists of eight buildings totaling approx-
imately 0.9 million square feet. Each building is subject to an individual lease or sublease, which provides various
option, expansion, and extension provisions. The leases for our corporate headquarters expire between January 2011
and December 2014. We also own approximately 80 acres of land adjacent to our leased corporate headquarters
location. Additionally, we lease an approximately 0.2 million square foot facility in Westford, Massachusetts. These
leases expire between January and March 2011.
In addition to our offices in Sunnyvale and Westford, we also lease offices in various locations throughout the
United States, Canada, South America, EMEA, and APAC region, including offices in Australia, China, Hong Kong,
India, Ireland, Israel, Japan, the Netherlands, Russia, United Arab Emirates, and the United Kingdom. Our longest
lease expires in January 2017. Our current offices are in good condition and appropriately support our business
needs.
ITEM 3. Legal Proceedings
The information set forth under “Legal Proceedings” section in Note 7 — Commitments and Contingencies in
the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, is
incorporated herein by reference.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by
this report.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock trades on the NASDAQ Global Select Market under the symbol “JNPR.” On December 31,
2008 (the last trading day of our fiscal year), the closing price of our common stock on the NASDAQ Global Select
Market was $17.51 per share.
Price Range of Common Stock
The following table sets forth the high and low bid prices for our common stock as reported on NASDAQ
Global Select Market for each quarterly period of the two most recently completed years:
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33.30
$29.49
$27.65
$20.80
$23.43
$21.92
$20.58
$13.29
$20.92
$26.00
$37.57
$37.95
$17.21
$19.63
$25.25
$28.01
2008
2007
High
Low
High
Low
Holders
At January 30, 2009, there were approximately 1,300 stockholders of record of our common stock and we
believe a substantially greater number of beneficial owners.
Dividends
We have never paid cash dividends on our common stock and have no present plans to do so.
26
Equity Compensation Plan Information
The equity compensation plan information called for by Item 201(d) of Regulation S-K is set forth in Item 12
of Part III of this Annual Report on Form 10-K under the heading “Equity Compensation Plan Information.”
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information with respect to the shares of common stock we repurchased during
the three months ended December 31, 2008.
Period
Total Number
of Shares
Purchased(1)
Average
Price Paid
per Share
October 1 — October 31, 2008 . . . . .
November 1 — November 30, 2008. .
December 1 — December 31, 2008 . .
933,354
751,468
751,468
Total . . . . . . . . . . . . . . . . . . . . . . . .
2,436,290
$18.77
16.68
16.57
$17.45
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
933,354
751,468
751,468
2,436,290
Maximum Dollar
Value of Shares
That May Yet Be
Purchased
Under the Plans or
Programs(1)
$797,100,020
784,565,956
772,111,717
(1) In July 2006 and February 2007, our Board of Directors (the “Board”) approved a stock repurchase program
(the “2006 Stock Repurchase Program”). This program authorized us to purchase up to a total of $2.0 billion of
our common stock. In addition, during March 2008, the Board approved a new stock repurchase program (the
“2008 Stock Repurchase Program”) which authorized us to purchase up to $1.0 billion of our common stock.
This new program is in addition to the 2006 Stock Repurchase Program. During the three months ended
December 31, 2008, we repurchased and retired 2,436,290 shares of common stock at an average price of
$17.45 per share, under the 2008 Stock Repurchase Program. Under the 2006 Stock Repurchase Program and
the 2008 Stock Repurchase Program, we repurchased and retired common stock of 15,359,852 shares at an
average price of $24.53 per share and 9,728,374 shares at an average price of $23.43 per share, respectively,
during 2008. All shares of common stock purchased under the 2006 and 2008 Stock Repurchase Programs have
been retired. As of December 31, 2008, the 2006 Stock Repurchase Program has no remaining authorized
funds. Future share repurchases under the 2008 Stock Repurchase Program will be subject to a review of the
circumstances in place at the 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. This program may be discontinued at
any time.
27
Company Stock Performance
The graph below shows the cumulative total stockholder return over a five-year period assuming the
investment of $100 on December 31, 2003, in each of Juniper Networks’ common stock, the Standard & Poor’s
500 Stock Index (“S&P 500”), and the NASDAQ Telecommunications Index (“IXUT”). The graph shall not be
deemed to be incorporated by reference into other SEC filings; nor deemed to be soliciting material or filed with the
Commission or subject to Regulation 14A or 14C or subject to Section 18 of the Exchange Act. The comparisons in
the graph below are based upon historical data and are not indicative of, or intended to forecast, future performance
of our common stock.
Stock Performance Graph
$200
$180
$160
$140
$120
$100
$80
$60
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
JNPR
S&P 500
IXUT
2003
2004
As of December 31,
2006
2005
2007
2008
JNPR. . . . . . . . . . . . . . . . . . . . . . . . . . . . $100.00
$145.56
$119.38
$101.39
$177.73
$93.74
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
IXUT . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
108.99
108.00
112.26
100.21
127.55
128.03
132.06
139.77
81.23
79.69
28
ITEM 6. Selected Consolidated Financial Data
The following selected consolidated financial data should be read in conjunction with Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated Financial
Statements and the notes thereto in Item 8, “Consolidated Financial Statements and Supplementary Data,” of this
Annual Report on Form 10-K, which are incorporated herein by reference.
The information presented below reflects the impact of certain significant transactions and the adoption of
certain accounting pronouncements, which makes a direct comparison difficult between each of the last five fiscal
years. For a complete description of matters affecting the results in the tables below during the three years ended
December 31, 2008, see “Notes to Consolidated Financial Statements” in Item 8 Part II of this Annual Report on
Form 10-K.
Consolidated Statements of Operations Data
2008(a)
Net revenues . . . . . . . . . . . . . . . . . . . . $3,572.4
1,166.0
Cost of revenues . . . . . . . . . . . . . . . . .
2,406.4
Gross margin . . . . . . . . . . . . . . . . . . .
1,711.4
Operating expenses . . . . . . . . . . . . . . .
695.0
Operating income (loss) . . . . . . . . . . .
33.9
Other Income and expense, net . . . . . .
728.9
Income (loss) before income taxes . . . .
(217.2)
Provision for income taxes . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . .
511.7
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . $
Shares used in computing net income
0.96
0.93
Years Ended December 31,
2006(c)
2005(d)
2007(b)
(In millions, except per share data)
$ 2,303.6
754.3
1,549.3
2,547.1
(997.8)
100.7
(897.0)
(104.4)
(1,001.4)
$2,064.0
653.5
1,410.5
969.5
441.0
56.5
497.5
(146.8)
350.7
$2,836.1
927.6
1,908.5
1,501.4
407.1
103.5
510.6
(149.8)
360.8
2004(e)
(Unaudited)
$1,336.0
415.1
920.9
728.6
192.3
15.8
208.1
(79.9)
128.2
$
$
0.67
0.62
$
$
(1.76)
(1.76)
$
$
0.63
0.58
$
$
0.26
0.24
(loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . .
530.3
551.4
537.8
579.1
567.5
567.5
554.2
600.2
493.1
543.7
(a)
(b)
(c)
(d)
Includes the following significant pre-tax items: stock-based compensation of $108.1 million, write-down of
minority equity investments of $11.3 million, other-than-temporary decline in publicly-traded equity invest-
ment of $3.5 million, and legal settlement charge of $9.0 million.
Includes the following significant pre-tax items: stock-based compensation of $88.0 million, stock option
tender offer and tax-related charges of $8.0 million, stock option investigation costs of $6.0 million, a gain
from a minority equity investment of $6.7 million, and a net legal settlement gain of $5.3 million. We
recognized in accumulated deficit a non-cash charge for the cumulative effect of accounting charge of
$19.2 million relating to the adoption of Financial Accounting Standards Board (“FASB”) Interpretation
No. 48, Accounting for Income Taxes, (“FIN 48”).
Includes the following significant pre-tax items: goodwill and intangible assets impairment charges of
$1,283.4 million, stock-based compensation of $87.6 million, stock option investigation costs of $20.5 million,
other tax-related charges of $10.1 million, and restructuring and acquisition-related charges of $5.9 million.
Includes the following significant pre-tax items: stock-based compensation expense of $22.3 million, in-
process research and development charges of $11.0 million, a gain from the sale of equity investment of
$1.7 million, a patent-related charge of $10.0 million, a charge of $5.9 million from the impairment of certain
purchased intangible assets, and a reversal of acquisition-related liabilities of $6.6 million.
29
(e)
Includes the following significant pre-tax items: stock-based compensation expense of $54.9 million, in-
process research and development charges of $27.5 million, merger integration costs of $5.1 million, loss on
redemption of the convertible subordinated notes of $4.1 million, an investment write-down charge of
$2.9 million, and a credit of $5.1 million from changes in restructuring estimates.
Consolidated Balance Sheet Data
2008
2007
As of December 31,
2006
2005
(In millions)
2004
(Unaudited)
Cash, cash equivalents, and marketable
securities . . . . . . . . . . . . . . . . . . . . . $2,293.4
1,759.6
3,658.6
7,187.3
229.3
5,901.4
Working capital . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . .
Total long-term liabilities . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . .
$2,015.8
1,175.3
3,658.6
6,885.4
151.7
5,353.9
$2,614.3
1,759.2
3,624.7
7,368.4
490.7
6,115.1
$2,047.1
1,261.4
4,879.7
8,183.6
468.0
7,088.2
$1,713.1
903.9
4,409.4
6,981.3
504.1
5,974.3
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Annual Report on Form 10-K (“Report”), including the “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”, contains forward-looking statements regarding future events and
the future results of Juniper Networks, Inc. (the “Company”) that are based on current expectations, estimates,
forecasts, and projections about the industry in which we operate and the beliefs and assumptions of our
management. Words such as ’expects,’ ’anticipates,’ ’targets,’ ’goals,’ ’projects,’ ’intends,’ ’plans,’ ’believes,’ ’seeks,’
’estimates,’ variations of such words, and similar expressions are intended to identify such forward-looking
statements. These forward-looking statements are only predictions and are subject to risks, uncertainties, and
assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those
expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but
are not limited to, those discussed in this Report under the section entitled “Risk Factors” in Item 1A of Part I and
elsewhere, and in other reports we file with the SEC, specifically the most recent reports on Form 10-Q. While
forward-looking statements are our best prediction at the time that they are made, you should not rely on them. We
undertake no obligation to revise or update publicly any forward-looking statements for any reason.
The following discussion is based upon our Consolidated Financial Statements included elsewhere in this
report, which have been prepared in accordance with U.S. generally accepted accounting principles. In the course of
operating our business, we routinely make decisions as to the timing of the payment of invoices, the collection of
receivables, the manufacturing, and shipment of products, the fulfillment of orders, the purchase of supplies, and the
building of inventory and spare parts, among other matters. Each of these decisions has some impact on the financial
results for any given period. In making these decisions, we consider various factors including contractual
obligations, customer satisfaction, competition, internal and external financial targets and expectations, and
financial planning objectives. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of
contingencies. On an on-going basis, we evaluate our estimates, including those related to sales returns, pricing
credits, warranty costs, allowance for doubtful accounts, impairment of long-term assets, especially goodwill and
intangible assets, contract manufacturer exposures for carrying and obsolete material charges, assumptions used in
the valuation of stock-based compensation, and litigation. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions.
To aid in understanding our operating results for the periods covered by this report, we have provided an
executive overview and a summary of the significant events that affected the most recent fiscal year and a discussion
of the nature of our operating expenses. These sections should be read in conjunction with the more detailed
30
discussion and analysis of our consolidated financial condition and results of operations in this Item 7, our “Risk
Factors” section included in Item 1A of Part I, and our audited consolidated financial statements and notes included
in Item 8 of Part II of this report.
Executive Overview
Our 2008 performance was the result of a combination of strong market demand for networking and security
products as well as our focused execution and market share gains. In addition, we began shipment of several new
products, which contributed to our revenue growth during the year. While revenue growth was substantial, towards
the end of 2008 worldwide economic conditions, in particular the slowdown in the U.S., led to slowing rates of
growth and reduced our visibility into future periods. During 2008, we continued implementation of a series of
operational excellence initiatives. These initiatives are intended to strengthen the management systems and
processes throughout our organization to support our growth and to improve operational efficiency and contain
costs in the face of difficult economic and market conditions.
2008
2007
$ Change % Change
(In millions, except per share amounts and
percentages)
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,572.4
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 695.0
Percentage of net revenues . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 511.7
Percentage of net revenues . . . . . . . . . . . . . . . . . . . .
Net income per share:
19.5%
14.3%
$2,836.1
$ 407.1
$736.3
$287.9
26%
71%
14.4%
$ 360.8
$150.9
42%
12.7%
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.96
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.93
$
$
0.67
0.62
$ 0.29
$ 0.31
43%
50%
(cid:129) Net Revenues: Our net revenues increased in 2008 compared to 2007, primarily due to the growing
acceptance of our router and firewall products and services in the service provider and enterprise markets.
We experienced growth in both product and service revenues, which represented 81.5% and 18.5%,
respectively, of our total net revenues in 2008. Product revenues increased $584.0 million, or 25%, to
$2,911.0 million in 2008 compared to 2007. Service revenues increased $152.3 million, or 30%, to
$661.4 million in 2008 compared to 2007. Net revenues increased in each of our three geographic regions
in 2008 compared to 2007.
(cid:129) Operating Income: Our operating income as well as operating margin as a percentage of net revenues
increased in 2008 compared to 2007. These increases were, in large part, due to the growth in revenues and a
decrease in operating expense as a percentage of net revenues, which was attributable to our efforts to better
manage expenses and improve efficiencies in 2008 compared to 2007. In our effort to manage our expenses,
we expanded our R&D headcount in regions with lower operating costs.
(cid:129) Net Income and Net Income Per Share: The increase in net income and net income per share in 2008
compared to 2007, is primarily due to the increase in operating income, which resulted from the growth in
revenues, and the reduction in operating expense as a percentage of net revenues, which is attributable to a
decrease in the amortization of purchased intangible assets and the implementation of certain cost reduction
initiatives compared to 2007. The increase in operating income was partially offset by lower net interest and
other income primarily due to lower interest rates along with higher income tax expense in 2008.
(cid:129) Other Financial Highlights: Total deferred revenue increased $77.0 million in 2008, primarily due to the
growth in our installed equipment base for maintenance and customer support contracts. In 2008, we
generated a net increase of $303.0 million in cash and cash equivalents, primarily resulting from
$875.2 million in cash provided by our operating activities, which was offset by the repurchase of
$604.7 million of our common stock.
31
Significant Events
Business and Market Environment
We design, develop, and sell products and services that together provide our customers with high-performance
network infrastructure that creates responsive and trusted environments for accelerating the deployment of services
and applications over a single IP-based network. We serve the high-performance networking requirements of global
service providers, enterprises, governments, and research and education institutions that view the network as critical
to their success. High-performance networking is designed to provide fast, reliable, and secure access to appli-
cations and services at scale. We offer a high-performance network infrastructure that includes IP routing, Ethernet
switching, security, and application acceleration solutions, as well as partnerships designed to extend the value of
the network and worldwide services and support designed to optimize customer investments.
In 2008, we continued to deliver new and innovative, high-performance network infrastructure solutions. We
entered the enterprise switching market, through the introduction of the EX-series, a family of Ethernet switches
that leverage the operational simplicity and carrier-class reliability of our JUNOS software. We also introduced a
new category of extensible networking and security products with our SRX series dynamic services gateways. In
addition, we introduced a new family of IDP appliances that deliver up to 10 Gigabits per second real-world
throughput and performance to enable deployments in the network core, the integration of services, including
Firewall and chassis clustering, into JUNOS software for implementation on the J-series services router and the
Security Threat Response Manager (“STRM”), a platform capable of providing businesses with a centralized
scalable and effective way to log and manage a rapidly evolving threat landscape. We also announced an advanced
mobile IP/Multi Protocol Label Switching (“MPLS”) solution portfolio with the new BX 7000 multi-access
gateway router for the cell site, M-series circuit emulation physical interface cards for the aggregation site, and a
suite of software features designed to simplify deployment, provisioning and management of mobile backhaul
networks. In addition, we introduced the JCS 1200, a dedicated high-performance control plane scaling platform.
We also delivered new enhancements to existing solutions to help customers maximize their network
infrastructure investments and lower their overall total cost of ownership. We expanded our Network and Security
Manager (“NSM”) to deliver a centralized management solution for routing, security, and switching, enabling
customers to consolidate and simplify the management of their network infrastructure. We announced enhance-
ments to our Access Control Solution, to deliver enhanced scalability and performance, with centralized access
policy management via NSM, helping customers cost effectively achieve comprehensive network visibility with
broad enforcement capabilities. We introduced the next generation of our WXC application acceleration platforms
to deliver a more scalable, modular, and cost-effective approach to delivering fast and consistent application
response across the WAN. In addition, we announced three new line card families for the MX-series Ethernet
Services Routers.
In 2008, the growing weakness of the global economy, and in the United States in particular, has affected the
purchasing behavior of our customers and led to lower revenue growth in our fourth quarter compared to previous
quarters, delays in purchase decisions, and reduced visibility regarding future business. If economic growth in the
United States and other countries’ economies continues to decline and/or fail to recover, our customers may delay or
reduce their purchases. This could result in reductions in sales of our products, longer sales cycles, slower adoption
of new technologies and increased price competition. In 2009, we will continue to invest in key research and
development projects that we believe will lead to future growth while at the same time containing other costs and
allocating resources effectively.
Japan Distributor Audit
In December 2008, during the course of our performance of routine distributor audits, we became aware of
facts that caused us to question the accuracy of point of sale reports of a few distributors in Japan with respect to a
small number of transactions. As a result, we commenced a review of revenue from sales through distributors in
Japan, which was completed prior to the filing of this report. As a result of this review, we deferred $3.0 million of
revenue for sales through distributors in Japan. Total revenues through distributors in Japan, after the $3.0 million
deferral, were approximately $53.0 million in 2008 and approximately $13.0 million in the three months ended
December 31, 2008. For financial data for the quarter ended December 31, 2008, which incorporates the results of
32
this review, please see Note 13 — Selected Quarterly Financial Data (Unaudited) in Notes to Consolidated
Financial Statements in Item 8 of Part II of this Annual report on Form 10-K.
Stock Repurchase Activity
In 2008, we repurchased $604.7 million, or 25.1 million share of common stock, under the following two stock
repurchase programs authorized by our Board of Directors (the “Board”).
Under the $2.0 billion stock repurchase program approved in 2006 and 2007 (the “2006 Stock Repurchase
Program”), we repurchased approximately 15.4 million shares of our common stock at an average price of $24.53
per share for a total purchase price of $376.8 million in 2008. As of December 31, 2008, we had repurchased and
retired approximately 84.8 million shares of our common stock under the 2006 Stock Repurchase Program at an
average price of $23.58 per share. The program has no remaining authorized funds available for future stock
repurchases.
The Board approved a $1.0 billion stock repurchase program in March 2008 (the “2008 Stock Repurchase
Program”). Under this program, we repurchased approximately 9.7 million shares of our common stock at an
average price of $23.43 per share for a total purchase price of $227.9 million in 2008. As of December 31, 2008, the
2008 Stock Repurchase Program had remaining authorized funds of $772.1 million. See Note 14 — Subsequent
Events in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, for
discussion of our stock repurchase activity in 2009.
Nature of Expenses
Most of our manufacturing, repair, and supply chain operations are outsourced to independent contract
manufacturers. Accordingly, most of our cost of revenues consists of payments to our independent contract
manufacturers for the standard product costs. The independent contract manufacturers produce our products using
design specifications, quality assurance programs, and standards that we establish. Controls around manufacturing,
engineering, and documentation are conducted at our facilities in Sunnyvale, California, and Westford, Massa-
chusetts. Our independent contract manufacturers have facilities primarily in Canada, China, Malaysia, Mexico,
and the United States. We generally do not own the components and title to products transfers from the contract
manufacturers to us and immediately to our customers upon shipment.
The contract manufacturers procure components based on our build forecasts, and if actual component usage is
lower than our forecasts, we may be, and have been in the past, liable for carrying or obsolete material charges.
In recent years, an increasing amount of our products have been manufactured in Asia, and we anticipate that a
larger percentage of our products will be produced outside the United States and Canada in the future. Our contracts
generally provide for passage of title and risk of loss at the designated point of shipment to the customer. The
manufacturing of products in Asia for shipment to customers in EMEA and the Americas resulted in additional
shipment logistics, freight and timing issues for us and those customers. In an ongoing effort to balance our and the
customers’ needs, we have made changes on occasion to the payment of freight and the point of shipment with
respect to products shipped from Asia. These changes impact shipping costs and the timing of revenue recognition
of the affected shipments.
We have employees in our manufacturing and operations organization who manage relationships with our
contract manufacturers, manage our supply chain, and monitor product testing and quality.
Employee-related costs have historically been the primary driver of our operating expenses, and we expect this
trend to continue. Employee-related costs include items such as wages, commissions, bonuses, vacation, benefits,
stock-based compensation, and travel. We had 7,014, 5,879, and 4,833 employees as of December 31, 2008, 2007,
and 2006, respectively. The year-over-year increases were primarily attributable to increases in our research and
development and sales and marketing organizations. Our headcount is expected to remain flat in 2009 as we
continue our cost reduction activities. We accounted for stock-based compensation under the fair value approach of
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), in
2008, 2007, and 2006. Details of our stock-based compensation expense are described in Note 10 — Employee
33
Benefit Plans in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on
Form 10-K.
Facility and information technology departmental costs are allocated to other departments based on usage and
headcount, respectively. These departmental costs have increased in 2008, 2007, and 2006 due to increases in
headcount and facility leases resulting from infrastructure systems added to support our growth and past acqui-
sitions. Facility and information technology related headcount was 267, 224, and 177 as of December 31, 2008,
2007, and 2006, respectively. In 2009, we expect to continue to invest in our company-wide information technology
infrastructure as we implement our operational excellence initiatives.
Our operating expenses are denominated in U.S. dollars as well as other foreign currencies including the
British Pound, the Euro, Indian Rupee, and Japanese Yen. Changes in related currency exchange rates may affect
our operating results. Periodically, we use foreign currency forward and/or option contracts to hedge certain
forecasted foreign currency transactions relating to operating expenses. The effective portion of the derivative’s
gain or loss is initially reported as a component of accumulated other comprehensive income (loss), and, upon
occurrence of the forecasted transaction, is subsequently reclassified into the appropriate line item of the
consolidated statement of operations to which the hedged transaction relates. Any ineffectiveness of the hedging
instruments is reported in other income (expense) on our consolidated statements of operations. The increase in
operating expenses including research and development, sales and marketing, as well as general and administrative
expenses, due to foreign currency fluctuations was approximately 1% in 2008.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted
accounting principles requires us to make judgments, assumptions, and estimates that affect the amounts reported in
the Consolidated Financial Statements and the accompanying notes. We base our estimates and assumptions on
current facts, historical experience, and various other factors that we believe are reasonable under the circum-
stances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources.
Note 1 — Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in Item 8
of Part II of this Annual Report on Form 10-K, describes the significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. The critical accounting policies described below are
significantly affected by critical accounting estimates. Such accounting policies require significant judgments,
assumptions, and estimates used in the preparation of the Consolidated Financial Statements and actual results
could differ materially from the amounts reported based on these policies. To the extent there are material
differences between our estimates and the actual results, our future results of operations may be affected.
(cid:129) Revenue Recognition. Our products are generally integrated with software that is essential to the functionality
of our equipment. Additionally, we provide unspecified upgrades and enhancements related to our integrated
software through our maintenance contracts for most of our products. Accordingly, we account for revenue in
accordance with Statement of Position No. 97-2, Software Revenue Recognition, and all related interpretations.
Revenue is recognized when all of the following criteria have been met:
(cid:129) Persuasive evidence of an arrangement exists. We generally rely upon sales contracts, or agreements and
customer purchase orders to determine the existence of an arrangement.
(cid:129) Delivery has occurred. We use shipping terms and related documents or written evidence of customer
acceptance, when applicable, to verify delivery or performance. In instances where we have outstanding
obligations related to product delivery or the final acceptance of the product, revenue is deferred until all the
delivery and acceptance criteria have been met.
(cid:129) Sales price is fixed or determinable. We assess whether the sales price is fixed or determinable based on the
payment terms and whether the sales price is subject to refund or adjustment.
(cid:129) Collectability is reasonably assured. We assess collectability based on the creditworthiness of the
customer as determined by our credit checks and the customer’s payment history. We record accounts
receivable net of allowance for doubtful accounts, estimated customer returns, and pricing credits.
34
For arrangements with multiple elements, such as sales of products that include services, we allocate revenue
to each element using the residual method based on the vendor-specific objective evidence (“VSOE”) of fair value
of the undelivered items. 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. VSOE of fair value is
based on the price charged when the element is sold separately. We then recognize revenue on each deliverable in
accordance with our policies for product and service revenue recognition. If VSOE of fair value of one or more
undelivered items does not exist, revenue is deferred and recognized at the earlier of (i) delivery of those elements or
(ii) when fair value can be established unless maintenance is the only undelivered element, in which case, the entire
arrangement fee is recognized ratably over the contractual support period. Our ability to recognize revenue in the
future may be affected if actual selling prices are significantly less than fair value. In addition, our ability to
recognize revenue in the future could be impacted by conditions imposed by our customers.
For sales to direct end-users and value-added resellers, we recognize product revenue upon transfer of title and
risk of loss, which is generally upon shipment. It is our practice to identify an end-user prior to shipment to a value-
added reseller. For our end-users and value-added resellers, there are no significant obligations for future
performance such as rights of return or pricing credits. A portion of our sales are made through distributors
under agreements allowing for pricing credits or rights of return. We recognize product revenue on sales made
through these distributors upon sell-through as reported to us by the distributors. Deferred revenue on shipments to
distributors reflects the effects of distributor pricing credits 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.
We record 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 included in rebate agreements, and other factors
known at the time. Should actual product returns or pricing adjustments differ from our estimates, additional
reductions to revenue may be required. In addition, we report revenue net of sales taxes.
Services include maintenance, training, and professional services. Maintenance is offered under renewable
contracts. Revenue from maintenance service contracts is deferred and is recognized ratably over the contractual
support period, which is generally one to three years. Revenue from training and professional services is recognized
as the services are completed or ratably over the contractual period, which is generally one year or less.
We sell certain interests in accounts receivable on a non-recourse basis as part of a distributor accounts
receivable financing arrangement primarily with one major financing company. We record cash received under this
arrangement in advance of revenue recognition as short-term debt with a balance of $33.0 million and $10.0 million
as of December 31, 2008, and 2007, respectively.
(cid:129) Contract Manufacturer Liabilities. We outsource most of our manufacturing, repair, and supply chain man-
agement operations to our independent contract manufacturers and a significant portion of our cost of revenues
consists of payments to them. Our independent contract manufacturers procure components and manufacture our
products based on our demand forecasts. These forecasts are based on our estimates of future demand for our
products, which are in turn based on historical trends and an analysis from our sales and marketing organizations,
adjusted for overall market conditions. We establish a provision for inventory, carrying costs and obsolete
material exposures for excess components purchased based on historical trends. If the actual component usage
and product demand are significantly lower than forecasted, which may be caused by factors outside of our
control, it could have an adverse impact on our gross margins and profitability. Supply chain management
remains an area of focus as we balance the risk of material obsolescence and supply chain flexibility in order to
reduce lead times.
(cid:129) Warranty Costs. We generally offer a one-year warranty on all of our hardware products and a 90-day warranty
on the media that contains the software embedded in the products. We accrue for warranty costs as part of our cost
of sales based on associated material costs, labor costs for customer support, and overhead at the time revenue is
recognized. Material cost is estimated primarily based upon the historical costs to repair or replace product
returns within the warranty period. Technical support labor and overhead cost are estimated primarily based upon
historical trends in the cost to support the customer cases within the warranty period. Although we engage in
extensive product quality programs and processes, our warranty obligation is affected by product failure rates, use
35
of materials, technical labor costs and associated overhead incurred. Should actual product failure rates, use of
materials, or service delivery costs differ from our estimates, we may incur additional warranty costs, which could
reduce gross margin.
(cid:129) Goodwill and Purchased Intangible Assets. Our methodology for allocating the purchase price relating to
acquisitions is determined through established valuation techniques. Goodwill is measured as the excess purchase
price of an acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired
less liabilities assumed. The amounts and useful lives assigned to identified intangible assets impacts the amount
and timing of future amortization. The value of our intangible assets, including goodwill, could be impacted by
future adverse changes such as: (i) future declines in our operating results, (ii) a sustained decline in our market
capitalization, (iii) significant slowdown in the worldwide economy or the networking industry, or (iv) failure to
meet our forecasted operating results. We evaluate these assets on an annual basis as of November 1 or more
frequently if we believe indicators of impairment exist. The process of evaluating the potential impairment of
goodwill is subjective and requires significant judgment at many points during the analysis. In the process of our
annual impairment review, we determine the fair value of our intangible assets based upon a weighting of the
market approach and the income approach. Under the market approach, we estimate fair value of our reporting
units by comparing them to transactions involving publicly-traded companies in similar lines of business. Under
the income approach, we calculate fair value of a reporting unit based on the present value of estimated future
cash flows. The weighted fair value of each reporting unit is compared to the allocated book value of each
reporting unit. If the book value exceeds the fair value, we revalue the assets associated with the impaired
reporting unit. The impairment is the difference between the new fair values and the existing book values of the
impaired asset. The estimates we have used are consistent with the plans and estimates that we use to manage our
business. If our actual results or the plans and estimates used in future impairment analyses are lower than the
original estimates used to assess the recoverability of these assets, we could incur additional impairment charges.
(cid:129) Stock-Based Compensation. We recognize stock-based compensation expense for all share-based payment
awards including employee stock options, restricted stock units (“RSUs”), performance share awards, and
purchases under our Employee Stock Purchase Plan granted after December 31, 2005, and granted prior to but not
yet vested as of December 31, 2005, in accordance with SFAS 123R. We valued compensation expense for
expected-to-vest stock-based awards that were granted on or prior to December 31, 2005, under the multiple-
option approach. We amortize these share-based payments using the accelerated attribution method. Subsequent
to December 31, 2005, compensation expense for expected-to-vest stock-based awards is valued under the single-
option approach and amortized on a straight-line basis, net of estimated forfeitures. Prior to the adoption of
SFAS 123R, we accounted for stock-based compensation under the intrinsic value recognition provisions of APB
Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”).
We utilize the Black-Scholes-Merton (“BSM”) option-pricing model and incorporate a Monte Carlo simu-
lation when appropriate in order to determine the fair value of stock-based awards under SFAS 123R. The BSM
model requires various highly subjective assumptions including volatility, expected option life, and risk-free
interest rate. The expected volatility is based on the implied volatility of market traded options on our common
stock, adjusted for other relevant factors including historical volatility of our common stock over the most recent
period commensurate with the estimated expected life of our stock options. The expected life of an award is based
on historical experience, the terms and conditions of the stock awards granted to employees, as well as the potential
effect from options that have not been exercised at the time.
The assumptions used in calculating the fair value of share-based payment awards represent management’s
best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If
factors change and we use different assumptions, our stock-based compensation expense could be materially
different in the future. In addition, we are required to estimate the expected forfeiture rate and recognize expense
only for those expected-to-vest shares. If our actual forfeiture rate is materially different from our estimate, our
recorded stock-based compensation expense could be different.
(cid:129) Income Taxes. Estimates and judgments occur in the calculation of certain tax liabilities and in the determi-
nation of the recoverability of certain deferred tax assets, which arise from temporary differences and carry-
forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to
36
taxable income in effect for the years in which those tax assets are expected to be realized or settled. We regularly
assess the likelihood that our deferred tax assets will be realized from recoverable income taxes or recovered from
future taxable income based on the realization criteria set forth in Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes (“SFAS 109”). To the extent that we believe any amounts are not more
likely than not to be realized, we record a valuation allowance to reduce our deferred tax assets. We believe it is
more likely than not that future income from the reversal of the deferred tax liabilities and forecasted income will
be sufficient to fully recover the remaining deferred tax assets. In the event we determine that all or part of the net
deferred tax assets are not realizable in the future, an adjustment to the valuation allowance would be charged to
earnings in the period such determination is made. Similarly, if we subsequently realize deferred tax assets that
were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in
a positive adjustment to earnings or a decrease in goodwill in the period such determination is made. In addition,
the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax
regulations. We recognize potential liabilities based on our estimate of whether, and the extent to which,
additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the
liabilities may result in tax benefits being recognized in the period when we determine the liabilities are no longer
necessary. If our estimate of tax liabilities is less than the amount ultimately assessed, a further charge to expense
would result.
Significant judgment is also required in determining any valuation allowance recorded against deferred tax
assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating
results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change
our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance
with a corresponding effect to the provision for income taxes in the period in which such determination is made.
On January 1, 2007, we adopted Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes-
an interpretation of FASB Statement No. 109 (“FIN 48”), which was a change in accounting for income taxes.
FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in
accordance with SFAS 109. 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. Additionally, FIN 48 provides
guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and
transition. The application of FIN 48 may increase an entity’s future effective tax rates and its future intra-period
effective tax rate volatility. As of January 1, 2007, our cumulative effect of applying FIN 48 was a $19.2 million
increase to the opening balance of accumulated deficit and a $1.0 million increase to goodwill.
Significant judgment is required in evaluating our uncertain tax positions under FIN 48 and determining our
provision for income taxes. Although we believe our reserves under FIN 48 are reasonable, no assurance can be
given that the final tax outcome of these matters will not be different from that which is reflected in our historical
income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as
the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is
different than the amounts recorded, such differences will affect the provision for income taxes in the period in
which such determination is made. The provision for income taxes includes the effect of reserves under FIN 48 and
any changes to the reserves that are considered appropriate, as well as the related net interest and penalties, if
applicable.
(cid:129) Loss Contingencies. We are subject to the possibility of various loss contingencies arising in the ordinary course
of business. We consider the likelihood of loss or impairment of an asset, or the incurrence of a liability, as well as
our 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. We record a charge equal to at least the minimum estimated liability
for litigation costs or a loss contingency only when both of the following conditions are met: (i) information
available prior to issuance of our consolidated financial statements indicates that it is probable that an asset had
been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of loss can
37
be reasonably estimated. We regularly evaluate current information available to us to determine whether such
accruals should be adjusted and whether new accruals are required.
From time to time, we are involved in disputes, litigation, and other legal actions. We are aggressively
defending our current litigation matters. However, there are many uncertainties associated with any litigation, and
these actions or other third-party claims against us may cause us to incur costly litigation and/or substantial
settlement charges. In addition, the resolution of any future intellectual property litigation may require us to make
royalty payments, which could adversely impact gross margins in future periods. If any of those events were to
occur, our 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 our estimates, which could result in the need to adjust
our liability and record additional expenses.
Recent Accounting Pronouncements
See Note 1 — Summary of Significant Accounting Policies in Notes to the Consolidated Financial Statements
in Item 8 of Part II of this Annual Report on Form 10-K, for a full description of recent accounting pronouncements,
including the expected dates of adoption and estimated effects on financial condition and results of operations,
which is incorporated herein by reference.
Results of Operations
The following table shows total net product and service revenues and net product and service revenues as a
percentage of total net revenues (in millions, except percentages):
Years Ended December 31,
Years Ended December 31,
2008
2007
$ Change % Change
2007
2006
$ Change % Change
Net revenues:
Product . . . . . . . . . . . . . $2,911.0
Percentage of net
$2,327.0
$584.0
25% $2,327.0 $1,893.3
$433.7
23%
revenues . . . . . . . . . . .
Service . . . . . . . . . . . . .
Percentage of net
revenues . . . . . . . . . . .
81.5%
661.4
82.0%
509.1
152.3
30%
82.0%
509.1
82.2%
410.3
98.8
24%
18.5%
18.0%
18.0%
17.8%
Total net revenues. . . . $3,572.4
$2,836.1
$736.3
26% $2,836.1 $2,303.6
$532.5
23%
Our net product revenues increased in 2008 compared to 2007 primarily due to increased sales of products
from both our Infrastructure and SLT solutions to the service provider and enterprise markets. In particular, we had
success in selling our Infrastructure products to service providers who are adopting NGN IP networks, which are
designed for higher capacity and efficiency to help reduce total operating costs and to be able to offer multiple
services over a single network. In 2008, our new product releases and further expansion into emerging markets
contributed to the increase in total net product revenues. Our net service revenues increased in 2008 compared to
2007 primarily due to the increase in maintenance revenue from our expanding installed base of equipment under
service contracts.
Our net revenues increased in 2007 compared to 2006 primarily due to growth in both product and service
revenues. Our revenue performance and share gains were driven by Infrastructure and SLT product revenues.
Service revenues also increased in 2007 compared to 2006 primarily due to the increase in our installed base of
equipment under service contracts and, to a lesser extent, growth in professional service revenues.
38
Changes to Segments
Beginning in January 2008, we realigned our reporting structure which resulted in two segments: Infrastruc-
ture and SLT. The previously reported Service segment has been combined into the following two segments:
(cid:129) Infrastructure: Our Infrastructure segment consists primarily of products and services related to the E-, M-,
MX-, and T-series router product families, EX-series switching products, as well as the circuit-to-circuit
products.
(cid:129) SLT: Our SLT segment consists primarily of products and services related to our firewall/VPN (“Fire-
wall”) systems and appliances, SSL VPN appliances, IDP appliances, the J-series router product family, and
WAN optimization platforms.
Infrastructure Segment Revenues
The following table shows net Infrastructure segment revenues and net Infrastructure segment revenues as a
percentage of total net revenues by product and service categories (in millions, except percentages):
Years Ended December 31,
2007(1)
2008
$ Change % Change
Years Ended December 31,
2006(1)
2007(1)
$ Change % Change
Net Infrastructure segment revenues:
Infrastructure product revenues . . . . $2,301.9
Percentage of net revenues . . . . . . .
Infrastructure service revenues. . . . .
Percentage of net revenues . . . . . . .
424.0
11.9%
64.4%
$1,753.2
$548.7
31%
$1,753.2
$1,413.4
$339.8
24%
61.8%
61.8%
61.3%
320.1
103.9
32%
320.1
266.7
53.4
20%
11.3%
11.3%
11.6%
Total Infrastructure segment
revenues(1) . . . . . . . . . . . . . . $2,725.9
$2,073.3
$652.6
31%
$2,073.3
$1,680.1
$393.2
23%
Percentage of net revenues . . . . . . .
76.3%
73.1%
73.1%
72.9%
(1) Prior period amounts have been reclassified to reflect the 2008 segment structure, which now includes service
revenues in the Infrastructure and SLT segments.
Infrastructure — Product
Infrastructure product revenues increased in 2008 compared to 2007, primarily attributable to revenue growth
from our M- MX- and T-series product families, from sales to both the service provider and enterprise markets due
to our customers’ increased demand for network infrastructure solutions. To a lesser extent, our EX-series products,
which were introduced in the first quarter of 2008, and our E-series products also contributed to the revenue growth
in 2008. In 2008, we experienced sales growth in both the service provider and enterprise markets. From a
geographical perspective, in 2008, we experienced revenue growth in all three regions, with particular strength in
the Americas region.
Infrastructure product revenues increased in 2007 compared to 2006, primarily attributable to increased
revenues from our M-, T-, and MX-series router products, driven by our service provider customers’ continued
build-out of NGNs as their bandwidth requirement increased. Our service provider customers also moved towards
NGNs that are designed to enable a fast and cost-effective deployment of differentiating multi-play services that
allow them to generate new sources of revenues. Also contributing to the revenue growth was an increase in
Infrastructure product sales to the content service provider and the enterprise markets. From a geographical
perspective, we experienced revenue growth in all three regions with particular strength in the Americas region.
We track Infrastructure chassis revenue units and ports shipped to analyze customer trends and indicate areas
of potential network growth. Most of our Infrastructure product platforms are modular, with the chassis serving as
the base of the platform. Each chassis has a certain number of slots that are available to be populated with
components we refer to as modules or interfaces. The modules are the components through which the platform
receives incoming packets of data from a variety of transmission media. The physical connection between a
transmission medium and a module is referred to as a port. The number of ports on a module varies widely
depending on the functionality and throughput offered by the module. Chassis revenue units represent the number of
39
chassis on which revenue was recognized during the period. The following table shows Infrastructure revenue units
and ports shipped:
Years Ended December 31,
Years Ended December 31,
2008
2007
Unit Change % Change
2007
2006
Unit Change % Change
Infrastructure chassis revenue
units(1) . . . . . . . . . . . . . . . . .
13,745
11,195
2,550
Infrastructure ports shipped(1) . . . . 397,907
225,452
172,455
23%
76%
11,195
10,211
984
225,452
160,318
65,134
10%
41%
(1) Excludes fixed configuration Ethernet switching products.
Infrastructure chassis revenue units increased in 2008 compared to 2007, primarily due to the product mix that
favored higher capacity chassis revenue units, which was driven by bandwidth demand as our customers sought to
expand capabilities in their networks and to offer differentiating, feature-rich, multi-play services that allow them to
generate new sources of revenues. The port shipments also increased in 2008 compared to 2007 primarily due to the
increase in the overall number of chassis revenue units from richly configured T- and M-series router chassis
revenue units shipped during the 2008 period.
Chassis revenue units increased in 2007 compared to 2006, primarily due to the introduction of the MX-series
products, which are our Carrier Ethernet services routers. We also experienced growth in our M- and T-series
products, driven by bandwidth demand as service provider customers sought to expand voice and video capability in
their existing networks. The port shipment units increased in 2007 compared to 2006, primarily due to the growth in
chassis revenue units with larger expansion capacity and our customers’ need to differentiate themselves by
providing feature-rich, multi-play services.
Infrastructure — Service
Infrastructure service revenues increased in 2008 compared to 2007, primarily due to an increase in our
installed base of equipment being serviced. Installed base is calculated based on the number of systems that our
customers have under maintenance. A majority of our service revenues is earned from customers that purchase our
products and simultaneously enter into service contracts for support service. We also experienced increased
professional service revenues due to consulting projects.
Infrastructure service revenues increased in 2007 compared to 2006, primarily driven by increased technical
support service contracts associated with higher Infrastructure product sales, which have resulted in increased
renewals and a larger installed base of equipment being serviced. To a lesser extent, professional services also
contributed to the growth in net service revenues in 2007. Professional service revenues increased primarily due to
large customer deployments requiring consulting services.
SLT Segment Revenues
The following table shows net SLT segment revenues and net SLT segment revenues as a percentage of total
net revenues by product and service categories (in millions, except percentages):
Years Ended December 31,
Years Ended December 31,
2008
2007(1)
$ Change % Change
2007(1)
2006(1)
$ Change % Change
Net SLT segment revenues:
SLT product revenues . . . . . . . . . . . . . . .
Percentage of net revenues . . . . . . . . . . . .
SLT service revenues . . . . . . . . . . . . . . .
Percentage of net revenues . . . . . . . . . . . .
$609.1
$573.8
$35.3
6%
$573.8
$479.9
$ 93.9
20%
17.1%
20.2%
20.2%
20.8%
237.4
189.0
48.4
26%
189.0
143.6
45.4
32%
6.6%
6.7%
6.7%
6.3%
Total SLT segment revenues(1) . . . . . . .
$846.5
$762.8
$83.7
11%
$762.8
$623.5
$139.3
22%
Percentage of net revenues . . . . . . . . . . . .
23.7%
26.9%
26.9%
27.1%
(1) Prior period amounts have been reclassified to reflect the 2008 segment structure, which now includes service
revenues in the Infrastructure and SLT segments.
40
SLT — Product
SLT product revenues increased in 2008 compared to 2007, primarily due to an increase in revenues from
Firewall and J-series products. These increases were partially offset by a decline in revenues from DX and WX
products. The integrated systems introduced prior to 2007, such as the SSG Firewall products, gained further
traction in the market place with revenues from these product lines growing in 2008 compared to 2007. In 2008, we
experienced sales growth both in the service provider and enterprise markets. Geographically, revenues increased in
the EMEA and APAC regions and decreased in the Americas region.
SLT product revenues increased in 2007 compared to 2006, primarily attributable to the increased revenues
across the majority of the SLT product families, in particular, the Firewall, SSL, WAN Optimization and J-series
products. The integrated systems introduced prior to 2007, such as the ISG and SSG firewall products, gained
traction in the market place and generated additional revenues in 2007. All three geographic regions had significant
growth in SLT revenues during 2007. We experienced a growing demand for our SLT products in both the enterprise
and service provider markets as we focused on cross-selling more integrated products and solutions in the enterprise
and service provider markets while leveraging partnerships with open standards-based interoperability of our SLT
products.
The following table shows SLT revenue units recognized:
Years Ended December 31,
Years Ended December 31,
2008
2007
Unit Change % Change
2007
2006
Unit Change % Change
SLT revenue units . . . . . . . . . . . . 241,504
239,021
2,483
1%
239,021
183,575
55,446
30%
SLT revenue units increased slightly in 2008 compared to 2007. The percentage increase in SLT revenue units
was lower than the percentage increase in product revenues, primarily due to the product mix that favored products
with higher average selling prices.
In January 2008, we announced a plan to phase out our DX product line. These products will be supported until
2013. We do not expect this plan to have a material impact on our consolidated financial condition, results of
operations, and cash flows.
SLT revenue units increased in 2007 compared to 2006, primarily attributable to the growing demand for our
SLT products in the market place. The percentage increase in SLT revenue units was greater than the percentage
increase in product revenues, primarily due to the increased revenues from sales of our branch Firewall products,
which have lower average selling price than other SLT products.
SLT — Service
SLT service revenues increased in 2008 compared to 2007, primarily due to an increase in our installed base of
equipment being serviced. A majority of our service revenues is earned from customers that purchase our products
and simultaneously enter into support service contracts.
SLT service revenues increased in 2007 compared to 2006, primarily driven by an increase in support service
contracts associated with the increase in SLT product sales. To a lesser extent, professional services also contributed
to the growth in net service revenues in 2007.
41
Total Net Revenues by Geographic Region
The following table shows total net revenues by geographic region (in millions, except percentages):
Years Ended December 31,
Years Ended December 31,
2008
2007
$ Change % Change
2007
2006
$ Change % Change
Americas:
United States . . . . . . . . . . . . . . . . $1,538.1
228.1
Other . . . . . . . . . . . . . . . . . . . . .
$1,215.8
124.7
$322.3
103.4
Total Americas . . . . . . . . . . . . .
Percentage of net revenues. . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . .
Percentage of net revenue . . . . . . . . .
APAC . . . . . . . . . . . . . . . . . . . .
Percentage of net revenues: . . . . . . . .
1,766.2
1,340.5
425.7
49.4%
47.3%
1,077.7
918.0
159.7
17%
30.2%
728.5
20.4%
32.4%
577.6
150.9
26%
20.3%
27%
83%
32%
$1,215.8
124.7
$ 950.3
83.0
$265.5
41.7
1,340.5
1,033.3
307.2
28%
50%
30%
47.3%
918.0
32.4%
577.6
20.3%
44.8%
817.4
35.5%
452.9
19.7%
100.6
12%
124.7
28%
Total . . . . . . . . . . . . . . . . . . . . $3,572.4
$2,836.1
$736.3
26%
$2,836.1
$2,303.6
$532.5
23%
Net revenues in the Americas region increased in absolute dollars and as a percentage of total net revenues in
2008 compared to 2007, primarily due to growth in Infrastructure revenues from both the service provider and
enterprise markets, as our customers continued to focus on increasing network performance, reliability, and scale. In
the United States, net revenues increased in absolute dollars and as a percentage of total net revenues, in 2008
compared to 2007, primarily due to growth in revenues from both the service provider and enterprise markets. Net
revenues in the Americas region increased in absolute dollars and as a percentage of total revenues in 2007
compared to 2006, primarily due to strength in the United States and in Latin America. In the United States, net
revenues increased in absolute dollars and as a percentage of total revenues in 2007 compared to 2006, primarily
due to revenue growth in Infrastructure product and services from our service provider and Internet content provider
customers.
Net revenues in EMEA increased in absolute dollars in 2008 compared to 2007, primarily due to revenue
growth in emerging markets in the Middle East and Eastern Europe, which was driven by service provider network
build-outs as a result of bandwidth demand as well as growth in demand in the enterprise market. Net revenues in
EMEA as a percentage of total net revenues decreased in 2008 compared to 2007, primarily due to the relative
strength of the Americas region. Net revenues in EMEA increased in absolute dollars in 2007 compared to 2006,
primarily due to increased Infrastructure product and SLT product revenues along with increased service revenues
driven by strong bandwidth demands in Europe, as well as revenue growth from sales in emerging markets in the
Middle East and Eastern Europe. Net revenues in EMEA as a percentage of total net revenues decreased in 2007
compared to 2006, primarily due to the relative strength of the Americas region.
Net revenues in APAC increased in absolute dollars in 2008 compared to 2007, primarily due to strength in
Japan, China, and the Association of Southeast Asian Nations (“ASEAN”) countries, which was mainly driven by
bandwidth demand as well as our customers’ deployment of routing platforms for their NGNs, partially offset by a
decrease in revenues from Australia. Net revenues in APAC increased in absolute dollars and as a percentage of total
net revenues in 2007 compared 2006, primarily due to increased revenues from Infrastructure products, SLT
products and service driven by demands from service providers as well as enterprise customers resulting from cross-
selling of our product portfolio. We experienced revenue growth across the region with strength in Korea, Australia,
Malaysia, India, and Indonesia.
Net Revenues by Markets and Customers
We sell our high-performance network products and service offerings from both the Infrastructure and SLT
segments to two primary markets — service providers and enterprise customers. The service provider market
includes wireline, wireless, and cable operators as well as major Internet content and application providers. The
enterprise market represents businesses; federal, state and local governments, and research and education insti-
tutions. In 2008, the service provider market accounted for 71.9% of our total net revenues, and the enterprise
market accounted for 28.1% of our total net revenues. In 2007, the service provider market accounted for 71.0% of
42
our total net revenues, and the enterprise market accounted for 29.0% of our total net revenues. Net revenues to the
service provider market increased by 27% in 2008 compared to 2007. Net revenues to the enterprise market
increased by 22% in 2008 compared to 2007. In 2006, the service provider market accounted for 70.8% of our total
net revenues, and the enterprise market accounted for 29.2% of our total net revenues. Net revenues to the service
provider market increased by 24% in 2007 compared to 2006. Net revenues to the enterprise market increased by
22% in 2007 compared to 2006.
No single customer accounted for 10.0% or more of our net revenues for the year ended December 31, 2008.
NSN and its predecessor companies accounted for greater than 10.0% of our net revenues in 2007 and 2006.
Cost of Revenues
The following table shows cost of product and service revenues and the related gross margin (“GM”)
percentages (in millions, except percentages):
Years Ended December 31,
Years Ended December 31,
2008
2007
$ Change % Change
2007
2006
$ Change % Change
Cost of revenues:
Product . . . . . . . . . . . . . . . . . . . . . . .
GM percentage of revenues . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . .
GM percentage of revenues . . . . . . . . .
$ 867.6
$676.2
$191.4
28% $676.2
$555.1
$121.1
22%
70.2% 70.9%
298.4
54.9% 50.6%
251.4
47.0
19%
70.9% 70.7%
251.4
50.6% 51.4%
199.2
52.2
26%
Total cost of revenues . . . . . . . . . . .
$1,166.0 $927.6
$238.4
26% $927.6
$754.3
$173.3
23%
GM percentage of revenues . . . . . . .
67.4% 67.3%
67.3% 67.3%
The cost of product revenues increased in absolute dollars in 2008 compared to 2007, primarily due to our
increase in product revenues, which resulted in higher product costs. The slight decrease in product gross margin as
a percentage of product revenues in 2008 compared to 2007, is primarily attributable to changes in the product mix,
partially offset by growth in our higher-margin T- and M-series product families within our Infrastructure segment
and increased sales of our higher-margin Firewall and J-series products within our SLT segment. As of
December 31, 2008, and 2007, we had 230 and 190 employees, respectively, in our manufacturing and operations
organization that primarily manage relationships with our contract manufacturers, manage our supply chain, and
monitor and manage product testing and quality.
The cost of product revenues increased in absolute dollars in 2007 compared to 2006, primarily attributable to
increased product revenues in both the enterprise and service provider markets. The product gross margin slightly
increased in 2007 compared to 2006, primarily due to favorable product mix and, to a lesser extent, improvements in
standard costs of our Infrastructure products, partially offset by a slight decrease in our SLT product gross margin.
As of December 31, 2007, and 2006, we had 190 and 149 employees, respectively, in our manufacturing and
operations organization.
The cost of service revenues and service gross margin increased in 2008 compared to 2007. The increase was
commensurate with the growth in revenues in absolute dollars attributable to the growth in our installed equipment
base. Service-related headcount increased by 35 employees, or 5%, to 783 employees in 2008, compared to 748 in
2007. Personnel-related charges, consisting of salaries, bonus, fringe benefits expenses, and stock-based com-
pensation expenses, represented the majority of the increases in cost of service revenues in 2008. Total personnel-
related charges as a percentage of service revenues were approximately 20% for 2008 and 23% for 2007. The
decrease in personnel-related charges in 2008 as a percentage of service revenues, is primarily due to the overall
increase in service revenues. Our outside service expense also increased in 2008, primarily to support the expanding
installed equipment base. Freight-related expense increased primarily to support larger volume of spare parts in
supporting our growth. Additionally, facilities and information technology expenses related to cost of service
revenues increased in connection with the growth of service business as a portion of our overall operations.
Cost of service revenues increased in 2007 compared to 2006, while service gross margin decreased slightly in
2007 as compared to 2006. The increase in service costs and the decrease in gross margin were primarily
43
attributable to increases in headcount-related expenses associated with expanding our service delivery infrastruc-
ture and professional service organization, particularly in North America and in India, as well as increasing our
resources for supporting network build-outs and deployments by our customers. Service-related headcount
increased by 137 employees, or 22%, to 748 employees in 2007, compared to 611 in 2006. Personnel-related
charges, consisting of salaries, bonus, fringe benefits expenses, and stock-based compensation expenses, repre-
sented the majority of the increases in cost of service revenues in 2007. Total personnel-related charges as a
percentage of service revenues were approximately 23% and 21% for 2007 and 2006, respectively. Outside service
expense increased as we used outside providers to support the increase in customer support contracts and
professional engagements. Freight-related expense increased due to the deployment of spare parts in supporting
our growth overseas. Facilities and information technology expenses related to the cost of service revenues
increased in 2007, which is consistent with other areas of our organization, due to our headcount growth and
investment in internal infrastructure to support our growing business. Partially offsetting the increases was a
decrease in spares component purchases due to a large purchase we made in 2006.
Operating Expenses
The following table shows operating expenses (in millions, except percentages):
Years Ended December 31,
Years Ended December 31,
2008
2007
$ Change % Change
2007
2006
$ Change % Change
Research and development . . . . . . . . $ 731.2
782.9
Sales and marketing . . . . . . . . . . . .
$ 623.0
666.7
General and administrative . . . . . . . .
144.8
116.4
$108.2
116.2
28.4
17%
17%
24%
$ 623.0
666.7
116.4
Amortization of purchased intangible
assets . . . . . . . . . . . . . . . . . . . .
38.5
85.9
(47.4)
(55)%
85.9
$ 480.3
558.0
$
97.1
91.8
142.7
108.7
19.3
30%
19%
20%
(5.9)
(6)%
Impairment of goodwill and intangible
assets . . . . . . . . . . . . . . . . . . . .
Other charges, net . . . . . . . . . . . . . .
5.0
9.0
—
9.4
5.0
(0.4)
100%
(4)%
— 1,283.4
36.5
9.4
(1,283.4)
(27.1)
(100)%
(74)%
Total operating expenses. . . . . . . . . . $1,711.4
$1,501.4
$210.0
14%
$1,501.4
$2,547.1
$(1,045.7)
(41)%
Operating income (loss) . . . . . . . . . . $ 695.0
$ 407.1
$287.9
71%
$ 407.1
$ (997.8)
$ 1,404.9
141%
The table highlights our operating expenses as a percentage of net revenues:
Years Ended
December 31,
2007
2006
2008
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.5% 22.0% 20.8%
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.9% 23.5% 24.2%
4.0% 4.1% 4.2%
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.1% 3.0% 4.0%
Amortization of purchased intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
0.1% — 55.7%
Impairment of goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . .
0.3% 0.3% 1.7%
Other charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47.9% 52.9% 110.6%
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.5% 14.4% (43.3)%
Research and Development Expenses
Research and development expenses include costs of developing our products from components to prototypes
to finished products, costs for outside services such as certifications of new products, and expenditures associated
with equipment used for testing. Several components of our research and development effort require significant
expenditures, such as the development of new components and the purchase of prototype equipment, the timing of
which can cause quarterly variability in our expenses. We expense our research and development costs as they are
incurred.
44
Research and development expenses increased in 2008 compared to 2007, primarily due to strategic initiatives
to expand our product portfolio and maintain our technological advantage over our competitors. In particular, in
2008 we continued to expand our EX-series Ethernet switching products, and invested in our recently announced
SRX dynamic services gateways and intelligent services edge offering that advances the M- and MX-series
platforms. Research and development expenses primarily consist of personnel-related expenses and new product
development costs. Personnel-related charges, consisting of salaries, bonus, fringe benefits expenses, and stock-
based compensation expenses, increased $59.3 million, or 16%, to $435.2 million in 2008 primarily due to a 25%
increase in headcount in our engineering organization, from 2,563 to 3,194 employees, to support product
innovation intended to capture anticipated future network infrastructure growth and opportunities. Outside
consulting and other development expense also increased to support our product innovation initiatives. Addition-
ally, facilities and information technology expenses related to research and development expenses increased to
support these engineering efforts.
Research and development expense increased in 2007 compared to 2006, primarily due to our commitment to
continue innovation of our products. In particular, in 2007 we continued the development of our Ethernet products,
including the MX-series and our EX-series Ethernet switching products introduced in January 2008, as well as the
development of our T1600 product, which was released in November 2007. Personnel-related charges, consisting of
salaries, bonus, fringe benefits expenses, and stock-based compensation expenses, which comprise the majority of
our research and development expenses, increased primarily due to headcount growth and merit-based salary
increases in 2007. Research and development related headcount increased by 493 employees, or 24%, in 2007 to
2,563 employees as of December 31, 2007. Headcount increase was primarily due to additional hires in the
engineering organization within the Infrastructure segment. In addition to personnel-related expenses, we also
increased prototype and lab equipment expenses in 2007 for the development of our new products. Additionally,
facilities and information technology expenses, as well as depreciation expenses, for our research and development
organization increased in 2007 due to increases in headcount from additional internal systems to support our
growth. In general, we grew our engineering organizations to support product innovation, expand and improve our
product portfolio, and address growth opportunities in NGN bandwidth and features for our service provider and
enterprise customers.
Sales and Marketing Expenses
Sales and marketing expenses include costs for selling and promoting our products and services, demon-
stration equipment, and advertisements. These costs vary quarter-to-quarter depending on revenues, product
launches, and marketing initiatives. We have an extensive distribution channel in place that we use to target new
customers and increase sales. We have made substantial investments in our distribution channel during 2008, 2007,
and 2006.
Sales and marketing expenses increased in 2008 compared to 2007, primarily due to increases in personnel-
related expenses and marketing expenses. As a percentage of net revenues, sales and marketing expenses decreased
in 2008 due to our focus on managing expenses and creating efficiency in our sales activities. Personnel-related
charges, consisting of salaries, commissions, bonus, fringe benefits, and stock-based compensation expenses,
increased $70.8 million, or 17%, to $497.2 million in 2008, primarily due to an 18% increase in headcount in our
worldwide sales and marketing organizations, from 1,863 to 2,190 employees. Included in personnel-related
charges was an increase in commission expense of $5.3 million in 2008 compared to 2007, due to our higher net
revenues. We also increased our investment in corporate and channel marketing efforts from the prior year. As our
sales force grew, we also increased facilities and information technology expenses related to the sales and marketing
organizations in 2008 compared to 2007.
Sales and marketing expenses increased 2007 compared to 2006, primarily due to increases in personnel-
related charges. As a percentage of net revenues, sales and marketing expenses decreased slightly in 2007 due to our
focus on increasing our operating margin and the efficiency of our sales activities. The increases in absolute dollars
were primarily headcount-related increases. Sales and marketing related headcount increased 272 employees, or
17%, in 2007 to 1,863 as of December 31, 2007, as we hired additional personnel across our Infrastructure and SLT
organizations to support the larger product portfolio and to expand our presence in the enterprise marketplace. In
addition, commission expenses increased primarily as a result of strong revenue growth. In 2007, we also increased
45
consulting expenses to support our sales and marketing initiatives. Likewise, our demand for demonstration
equipment has grown as we seek to capture new markets and release new products. As the sales and marketing
organization expands, we have also grown our facilities and information technology expenses related to the sales
and marketing organization.
General and Administrative Expenses
General and administrative expenses include professional fees, bad debt provisions, and other corporate
expenses. Professional fees include legal, audit, tax, accounting, and certain corporate strategic services.
General and administrative expenses increased in 2008 compared to 2007, primarily due to an increase in
personnel-related expenses and outside professional services. As a percentage of net revenues, general and
administrative expenses decreased slightly in 2008 due to our focus on managing expenses and growing revenues.
Personnel-related charges, consisting of salaries, bonus, fringe benefits, and stock-based compensation expenses,
increased $12.4 million, or 21%, to $71.2 million in 2008 compared to 2007, primarily due to a 20% increase in
headcount in our worldwide general and administrative functions, from 291 to 350 employees, to support the overall
growth of the business. Outside professional service fees increased in 2008 compared to 2007, as a result of
increased legal fees and business process re-engineering costs. Additionally, facilities and information technology
expenses related to our general and administrative infrastructure increased to support our growing business.
General and administrative expenses increased in 2007 compared to 2006. As a percentage of net revenues,
general and administrative expenses slightly decreased in 2007 due to our focus on increasing our operating margin.
The increases in absolute dollars were primarily due to a 24% increase in headcount in our worldwide general and
administrative functions, from 235 to 291 employees, to support the overall growth of the business. The headcount
increases were primarily in the finance and human resources organizations as we expanded our organization
infrastructure in lower cost regions, improved internal processes, and continued our initiatives to update our
information systems. Outside services increased $4.5 million in 2007 compared to 2006, as we invested in designing
a more efficient organizational structure and improving our internal systems. Such increases were offset by
decreases in accounting and legal fees of $1.5 million for 2007, compared to 2006. Consistent with other areas of
our organization, facilities and information technology expenses related to our general and administrative
infrastructure increased in order to support these initiatives and the growth of our business.
Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets decreased in 2008 compared to 2007, primarily due to a decrease
in amortization expense as certain purchased intangible assets became fully amortized during the second quarter of
2008. Amortization of purchased intangible assets decreased in 2007 compared to 2006, primarily due to certain
purchased intangible assets reaching the end of their amortization period during 2007.
Impairment of Goodwill and Purchased Intangible Assets
We had no impairment against our goodwill in 2008 and 2007. In 2008, we recognized an impairment charge of
$5.0 million against our purchased intangible assets, as a result of the phase-out of our DX products. We had no
impairment on our purchased intangible assets in 2007. In 2006, we incurred impairment charges of $1,283.4 million
as a result of the impairment of both goodwill and purchased intangible assets. The impairment charges were primarily
due to the decline in our market capitalization that occurred over a period of approximately six months prior to the
impairment review and, to a lesser extent, to a decrease in the forecasted future cash flows used in the income
approach. Based upon our impairment review, we reduced the carrying value of goodwill within the SLT segment by
$1,280.0 million. In 2006, we recorded a $3.4 million impairment charge pertaining to a write-down of purchased
intangible assets as a result of a decrease in our revenue forecast for our Session Border Control (“SBC”) products. See
Note 5 — Goodwill and Purchased Intangible Assets in Item 8 of Part II of this Annual Report on Form 10-K, for more
information on our impairment of goodwill and purchased intangible assets.
46
Other Charges, Net
Other charges are summarized as follows:
(cid:129) Restructuring and Acquisition-Related Charges. There were no restructuring and acquisition-related
charges in 2008. In 2007, we recorded net restructuring and acquisition-related charges of $0.7 million,
of which $1.1 million pertained to bonus accruals associated with past acquisitions, partially offset by a
benefit of $0.4 million pertaining to net restructuring adjustments. We recorded net restructuring and
acquisition-related charges of $5.9 million in 2006, of which $5.6 million was due to accrued bonuses
associated with past acquisitions, and $0.3 million was due to net restructuring-related charges, including
$0.7 million in restructuring charges associated with a program to reduce product development costs and the
discontinuation of our SBC product.
(cid:129) Stock Option Investigation Costs. There were no such stock option investigation costs recorded in 2008.
We recorded expenses of $6.0 million and $20.5 million in 2007 and 2006, respectively, related to
professional fees and other costs in connection with our investigation into historical stock option granting
practices.
(cid:129) Stock Option Amendment and Tax-Related Charges. There were no stock option amendment and tax-
related charges recorded in 2008. We recorded $8.0 million and $10.1 million in operating expense during
2007 and 2006, respectively, in relation to the amendment of stock options and to the payment of certain
taxes and penalties associated with employee stock option exercises.
(cid:129) Net Settlement (Loss) Gain. We recorded a net legal settlement loss of $9.0 million in 2008, related to our
shareholder derivative lawsuit. In 2007, we recognized a net legal settlement gain of $5.3 million, which
consisted of cash settlement proceeds of $6.2 million, net of the $0.9 million legal expense related to direct
transaction costs incurred in the third quarter of 2007. There were no legal settlement gains or losses
recorded in 2006.
Net Interest and Other Income, Gain (Loss) on Equity Investments, and Income Tax Provision
The following table shows net interest and other income and income tax provision (in millions, except
percentages):
Years Ended December 31,
Years Ended December 31,
2008
2007
$ Change % Change
2007
2006
$ Change % Change
Interest and other income, net . . . . $ 48.7
Percentage of net revenues . . . . . .
(Loss) gain on equity
1.4%
investments . . . . . . . . . . . . . . .
Percentage of net revenues . . . . . .
Income tax provision . . . . . . . . . .
Percentage of net revenues . . . . . .
Interest and Other Income, Net
3.4%
6.7
0.2%
$ 96.8
$(48.1)
(50)% $ 96.8
$100.7
$ (3.9)
(4)%
3.4%
4.4%
(14.8)
(0.4)%
(21.5)
(321)%
6.7
0.2%
217.2
149.8
67.4
45%
149.8
—
—
104.4
6.7
100%
45.4
43%
6.1%
5.3%
5.3%
4.5%
Net interest and other income decreased in 2008 compared to 2007, primarily due to lower interest rates during
2008.
Net interest and other income decreased in 2007 compared to 2006, resulting from a decrease in interest
income due to a lower cash, cash equivalents and investment balance, which was attributable to common stock
repurchases of approximately $1.6 billion during the first and second quarters of 2007. Partially offsetting the
decreases was the higher interest yield combined with higher positive cash flows from operations compared to 2006.
Interest and other expenses slightly increased in 2007 compared to 2006, primarily due to costs associated with our
distributor financing program. See Note 8 — Debt in Notes to the Consolidated Financial Statements in Item 8 of
Part II of this Annual Report on Form 10-K, for a full description of our distributor financing program. Other interest
47
and expenses include short-term debt expenses, debt issuance cost amortization, foreign exchange losses, and other
miscellaneous expenses such as bank fees.
(Loss) Gain on Equity Investments
During 2008, we recognized impairment losses of $14.8 million on our investments in privately-held and
publicly-traded companies for changes in fair value that we believed were other than temporary. In June 2007, one
of the companies in which we had a minority equity investment completed an initial public offering (“IPO”). As a
result, we realized a gain of $6.7 million during 2007 based upon the difference between the market value of our
investment at the time of the IPO and our cost basis. During 2006, none of our investments had any recognized gain
or loss.
Income Tax Provision
Our effective tax rates were 29.8%, 29.3%, and (11.6%) in 2008, 2007, and 2006, respectively. The increase in
the overall rate in 2008 compared to 2007, was primarily due to the differences in the geographic mix of our taxable
income and the level of research and development credits in the U.S. The 2006 effective tax rate differs from 2008
and 2007, primarily due to the inability to benefit from a substantial portion of the goodwill impairment charge
recorded in 2006.
We are currently under examination by the IRS for the 2004 tax year, the Indian tax authorities for the 2004 tax
year, and the German tax authorities for the 2005 tax year. Additionally, we have not reached a final resolution with
the IRS on an adjustment it proposed for the 1999 and 2000 tax years. We are not under examination by any other
major jurisdictions in which we file income tax returns as of December 31, 2008.
In September 2008, as part of the on-going 2004 IRS audit, we received a proposed adjustment related to our
business credit carry-forwards, which if agreed, would reduce our business credit carry-forwards.
In
December 2008, we received a proposed adjustment from the Indian tax authorities related to the 2004 tax year.
We are pursuing all available administrative procedures relative to these matters. In December 2008, we reached a
tentative settlement with the German tax authorities for the 2005 tax year. We believe that we have 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 our consolidated financial condition or results of operations.
We do not expect complete resolution of any IRS, or other audits within significant foreign or state
jurisdictions within the next 12 months. However, it is reasonably possible that we may reach agreement with
certain issues and as a result, the amount of the liability for unrecognized tax benefits may decrease by
approximately $13.0 million within the next 12 months.
For a complete reconciliation of our effective tax rate to the U.S. federal statutory rate of 35% and further
explanation of our income tax provision, see Note 12 — Income Taxes in the Notes to the Consolidated Financial
Statements in Item 8 of Part II of this Annual Report on Form 10-K.
Segment Information
For a description of the products and services for each segment, see Item 1 of Part I of this Annual Report on
Form 10-K. A description of the measures included in management operating income (loss) can also be found in
Note 11 — Segment Information in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this
Annual Report on Form 10-K. We have included segment financial data for each of the three years in the period
ended December 31, 2008, for comparative purposes.
48
Financial information for each segment used by management to make financial decisions and allocate
resources is as follows (in millions, except percentages):
Years Ended December 31,
Years Ended December 31,
2008
2007(1)
$ Change % Change
2007(1)
2006(1)
$ Change % Change
Net revenues:
Infrastructure:
Product
Service. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . $2,301.9
424.0
$1,753.2
320.1
$548.7
103.9
Total Infrastructure revenues . .
2,725.9
2,073.3
652.6
Service Layer Technologies:
Product
. . . . . . . . . . . . . . . . .
Service. . . . . . . . . . . . . . . . . .
609.1
237.4
573.8
189.0
35.3
48.4
Total Service Layer
Technologies revenues . . . .
846.5
762.8
83.7
Total net revenues . . . . . . .
3,572.4
2,836.1
736.3
Operating income:
Infrastructure . . . . . . . . . . . . . . .
Service Layer Technologies . . . . . .
806.0
65.8
Total segment operating
income . . . . . . . . . . . . . . . .
871.8
Other corporate(2) . . . . . . . . . . . .
(7.9)
597.8
5.8
603.6
—
208.2
60.0
268.2
(7.9)
Total management operating
31%
32%
31%
6%
26%
11%
26%
35%
N/M
44%
N/M
$1,753.2
320.1
$ 1,413.4
266.7
$ 339.8
53.4
2,073.3
1,680.1
393.2
573.8
189.0
479.9
143.6
762.8
623.5
2,836.1
2,303.6
597.8
5.8
603.6
—
505.9
5.2
511.1
—
93.9
45.4
139.3
532.5
91.9
0.6
92.5
—
24%
20%
23%
20%
32%
22%
23%
18%
12%
18%
N/M
income . . . . . . . . . . . . . . . .
863.9
603.6
260.3
43%
603.6
511.1
92.5
18%
Amortization of purchased
intangible assets . . . . . . . . . . . .
(44.0)
(91.4)
47.4
(52)%
(91.4)
(97.3)
5.9
(6)%
Stock-based compensation
expense . . . . . . . . . . . . . . . . .
(108.1)
Stock-based payroll tax expense . . .
(2.8)
Impairment of goodwill and
intangible assets . . . . . . . . . . . .
Other charges, net(3) . . . . . . . . . .
Total operating income (loss) . . .
Other income and expense, net
. . . . .
Income (loss) before income
(5.0)
(9.0)
695.0
33.9
(88.0)
(7.7)
—
(9.4)
407.1
103.5
(20.1)
4.9
5.0
0.4
287.9
(69.6)
23%
(64)%
100%
N/M
71%
(67)%
(88.0)
(7.7)
(87.6)
(2.7)
(0.4)
(5.0)
N/M
185%
— (1,283.4)
(37.9)
(9.4)
1,283.4
28.5
407.1
103.5
(997.8)
1,404.9
100.7
2.8
(100)%
(75)%
141%
3%
taxes . . . . . . . . . . . . . . . . . . . $ 728.9
$ 510.6
$218.3
43%
$ 510.6
$ (897.1)
$1,407.7
157%
N/M Not meaningful.
(1) Prior year amounts have been reclassified to reflect the 2008 segment structure, which now includes service
revenues and operating results in Infrastructure and SLT segments.
(2) Other corporate charges include workforce-rebalancing charges primarily for severance and related costs.
Workforce-rebalancing activities are considered part of our normal operations as we continue to optimize our
cost structure. Workforce-rebalancing costs are not included in our business segment results, and we may incur
additional workforce-rebalancing costs in the future.
(3) Other charges, net, for 2008 includes loss on litigation settlement. Other charges, net, for 2007 includes charges
such as restructuring, acquisition-related charges, stock option investigation costs, as well as stock amendment
and tax-related charges. Other charges, net, for 2006 includes charges such as restructuring, acquisition-related
charges, stock option investigation costs and tax-related charges, as well as certain restructuring charges in cost
of product revenues.
49
The following table shows financial information for each segment as a percentage of total net revenues:
Years Ended December 31,
2008
2007(1)
2006(1)
Net revenues:
Infrastructure:
Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64.4% 61.8% 61.3%
11.9% 11.3% 11.6%
Total Infrastructure revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
76.3% 73.1% 72.9%
Service Layer Technologies:
Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.1% 20.2% 20.8%
6.3%
6.7%
6.6%
Total Service Layer Technologies revenues . . . . . . . . . . . . . . . .
23.7% 26.9% 27.1%
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Operating income:
Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service Layer Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.6% 21.1% 22.0%
0.2%
0.2%
1.8%
Total segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . .
Other corporate(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.4% 21.3% 22.2%
(0.2)% —
—
Total management operating income . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangible assets . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based payroll tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill and intangible assets. . . . . . . . . . . . . . . . . . . .
Other charges, net(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.2% 21.3% 22.2%
(1.2)% (3.2)% (4.2)%
(3.0)% (3.1)% (3.8)%
(0.1)% (0.3)% (0.1)%
(0.1)% — (55.7)%
(0.3)% (0.3)% (1.7)%
Total operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.5% 14.4% (43.3)%
4.4%
3.6%
0.9%
Income (loss) before income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .
20.4% 18.0% (38.9)%
(1) Prior year amounts have been reclassified to reflect the 2008 segment structure, which now includes service
revenues and operating results in Infrastructure and SLT segments.
(2) Other corporate charges includes workforce-rebalancing charges primarily for severance and related costs.
Workforce-rebalancing activities are considered part of our normal operations as we continue to optimize our
cost structure. Workforce-rebalancing costs are not included in our business segment results, and we may incur
additional workforce-rebalancing costs in the future.
(3) Other charges, net, for 2008 includes loss on litigation settlement. Other charges, net, for 2007 includes charges
such as restructuring, acquisition-related charges, stock option investigation costs, as well as stock amendment
and tax-related charges. Other charges, net, for 2006 includes charges such as restructuring, acquisition-related
charges, stock option investigation costs and tax-related charges, as well as certain restructuring charges in cost
of product revenues.
Infrastructure Segment
An analysis of the change in revenues for the Infrastructure segment, and the change in revenue units, can be
found above in the section titled “Net Revenues.”
Infrastructure segment operating income increased in 2008 compared to 2007, primarily due to revenue growth
from our router product families and, to a lesser extent, our new Ethernet switching product family, which outpaced
50
expense growth. Infrastructure product gross margin increased in absolute dollars in 2008 compared to 2007,
primarily due to revenues from richly configured high-end T- and M-series router products as well as high-margin
port shipments. The Infrastructure gross margin percentage decreased slightly in 2008 compared to 2007, primarily
due to product mix, particularly from an increase in the mix of lower-margin E-series products in 2008.
We continued to invest in research and development efforts to continue our innovation of products and expand
our Infrastructure product portfolio, but our research and development expense decreased as a percentage of
Infrastructure net revenues in 2008 compared to 2007, primarily due to cost control initiatives that resulted in
revenue growing faster than expenses. We will continue to make investments to expand our product features and
functionality based upon the trends in the marketplace. Additionally, our sales and marketing expenses decreased
slightly as a percentage of Infrastructure net revenues, but increased in absolute dollars in 2008 compared to 2007,
as we increased our efforts to reach enterprise and service provider customers. We allocate sales and marketing,
general and administrative, as well as facility and information technology expenses to the Infrastructure segment
generally based upon revenue, usage, and headcount.
Infrastructure segment operating income increased in 2007 compared to 2006, primarily due to revenue growth
from our router product families, which outpaced expense growth. Our increase in revenue was partially offset by
our continued investments in research and development efforts as we sought to continue our innovation of products
and expand our Infrastructure product portfolio. In 2007, our sales and marketing expenses decreased slightly as a
percentage of net revenues, but increased in absolute dollars as we increased our efforts to reach enterprise and
service provider customers.
SLT Segment
An analysis of the change in revenues for the SLT segment, and the change in units, can be found above in the
section titled “Net Revenues.”
SLT segment operating income increased in 2008 compared to 2007, primarily due to revenue growth in our
Firewall and J-series products and the growth in our installed equipment base for service contracts, which outpaced
the increase in SLT expenses. SLT product gross margin and gross margin percentage increased in 2008 compared
to 2007, primarily due to product mix, particularly from an increase in the mix of higher-margin Firewall and
J-series products in 2008. Research and development related costs increased in absolute dollars, but decreased as a
percentage of SLT revenues in 2008 compared to 2007, primarily due to the addition of headcount in regions with
lower operating costs and revenue growing faster than research and development expenses. Additionally, sales and
marketing as well as general and administrative expenses decreased as a percentage of SLT net revenues in 2008
compared to 2007, primarily due to our focused execution. We allocate sales and marketing, general and
administrative, as well as facility and information technology expenses to the SLT segment generally based on
revenue, usage, and headcount. In the past, we have generally experienced quarterly seasonality and fluctuations in
the demand for our SLT products, particularly in the fourth quarter, which may result in greater variations in our
quarterly operating results.
SLT segment operating income increased slightly in 2007 compared to 2006, primarily due to revenue growth,
which outpaced the increase in SLT expenses. SLT product gross margin and gross margin percentage increased in
2007 compared to 2006, primarily due to product mix, particularly from an increase that favored higher-margin
products. The increase in SLT operating expenses was due primarily to the increase in information technology
expenses allocated to the SLT segment and the higher variable compensation expenses associated with company-
wide revenue growth. Additionally, we strategically invested in our research and development efforts to develop
technologies and products for the JUNOS platform. In an effort to control costs, we moved a significant portion of
the SLT development organization to lower cost regions while expanding our product portfolio. SLT segment
operating income was affected by continued investments in our sales and distribution channels. SLT gross margin
decreased slightly in 2007 compared to 2006, due to higher manufacturing costs associated with new and more
complex products. Higher manufacturing costs were partially offset by our cost-reduction efforts to move more
manufacturing to lower cost regions. The increases in SLT operating expenses were partially offset by our revenue
growth especially in the fourth quarter of 2007 due to increased customer demand for security products, particularly
Firewall, and due to typical quarterly seasonality.
51
Stock-Based Compensation and Related Payroll Taxes
Stock-based compensation expense increased in 2008 compared to 2007. The increase was primarily
attributable to new stock options and RSU grants during 2008 and the timing of the recognition of stock-based
compensation expense for RSUs granted in the last month of the fourth quarter of 2007. Stock-based compensation
related payroll tax expense, which represents employment taxes we incurred in connection with our employee stock
programs decreased in 2008 compared to 2007. Changes in such expenses are primarily attributable to the timing
and volume of stock options exercises by our employees. We experienced a considerable decrease in these expenses
due to the decrease in our share price during 2008.
Stock-based compensation expense increased in 2007 compared to 2006. The increase was primarily
attributable to new stock options and RSU grants, partially offset by the lower stock option expense in 2007
resulting from the acceleration of vesting of certain unvested and “out-of-the-money” stock options completed in
December 2005 (“2005 stock option vesting acceleration”). Stock-based compensation related payroll tax expense
increased in 2007 compared to 2006. We experienced a considerable increase in these expenses due to the increase
in our share price during 2007. In contrast, employee stock option exercises were restricted during the majority of
2006 due to our stock option investigation.
Key Performance Measures
In addition to the financial metrics included in the consolidated financial statements, we use the following key
performance measures to assess operating results:
Years Ended
December 31,
2007
2006
2008
Days sales outstanding (“DSO”)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
Book-to-bill ratio(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H1 H1 H1
42
42
(1) DSO is calculated as the ratio of ending accounts receivable, net of allowances, divided by average daily net
sales for the preceding 90 days.
(2) Book-to-bill ratio represents the ratio of product orders booked divided by product revenues during the
respective period.
Liquidity and Capital Resources
The following sections discuss the effects of changes in our consolidated balance sheet and cash flows,
contractual obligations, other commitments, and our stock repurchase program on our liquidity and capital
resources.
Overview
Historically, we have funded our business primarily through our operating activities and the issuance of our
common stock. The following table shows our capital resources (in millions, except percentages):
As of December 31,
2008
2007
$ Change % Change
Working capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,759.6
$1,175.3
$584.3
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . .
2,019.1
172.9
101.4
1,716.1
240.4
59.3
303.0
(67.5)
42.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,293.4
$2,015.8
$277.6
50%
18%
(28)%
71%
14%
The significant components of our working capital are cash and cash equivalents, short-term investments, and
accounts receivable, reduced by accounts payable, accrued liabilities, and deferred revenue. The increase in
52
working capital from December 31, 2007, to December 31, 2008, is primarily due to the increase in cash and cash
equivalents, and the non-cash settlement of the current portion of long-term debt due to the maturity of our senior
convertible notes in June 2008. See Note 8 — Debt in Notes to Consolidated Financial Statements in Item 8 of
Part II of this Annual Report on Form 10-K, for discussion of our senior convertible notes. The increase in cash and
cash equivalents during 2008 is primarily due to cash generated by our operating activities of $875.2 million along
with the issuance of common stock for $119.5 million through stock option exercises and the employee stock
purchase plan purchases, partially offset by repurchases of our common stock of $604.7 million.
Summary of Cash Flows
Operating Activities
Net cash provided by operating activities was $875.2 million, $786.5 million, and $755.6 million for 2008,
2007, and 2006, respectively. The cash provided by operating activities for each period was due to our net income
(loss) adjusted by:
(cid:129) Non-cash charges of $255.8 million, $257.5 million, and $1,536.4 million for 2008, 2007, and 2006,
respectively. These non-cash charges primarily related to depreciation and amortization expenses, stock-
based compensation, excess tax benefits from employee stock-based compensation, and gain/loss on equity
investments. In 2006, non-cash charges also included charges of $1,283.4 million related to the impairment
of goodwill and intangible assets.
(cid:129) Net changes in operating assets and liabilities of $107.6 million, $168.2 million, and $220.6 million for
2008, 2007, and 2006, respectively, were generated in the normal course of business. These changes were
primarily due to increases in accounts payable, accrued compensation, taxes payable, and deferred revenue,
partially offset by accounts receivable. The increase in accounts payable was due to the timing of payments
to contract manufacturers and the growth of our business. The increase in accrued compensation was due to
increases in headcount. Additionally, the increase in accrued compensation in 2007 compared to 2006, was
due to the removal of a suspension on employee purchases of shares under the Employee Stock Purchase
Plan. The increase in taxes payable was due to the increase in the tax provision, movement of deferred tax
assets, and the timing of payments. The increase in deferred revenue was due to the growing installed base
and customer payments in advance of product acceptance. In addition, these increases in cash flows from
operations were partially offset by a negative cash flow due to an increase in net accounts receivable, which
was primarily due to the growth in our business and net revenues.
Investing Activities
Net cash used in investing activities was $149.8 million for 2008 as compared to net cash generated by
investing activities of $571.8 million in 2007. In 2006, cash generated by investing activities was $11.9 million. The
changes between periods was primarily due to the movement of cash from short- and long-term investments to cash
and cash equivalents during 2007 in anticipation of stock repurchases under the 2006 Stock Repurchase Program.
Financing Activities
Net cash used in financing activities was $422.4 million, $1,238.5 million and $89.6 million for 2008, 2007,
and 2006, respectively. In 2008, we used $604.7 million to repurchase our common stock, partially offset by cash
proceeds of $119.5 million from common stock issued to employees, compared to the $1,623.2 million of common
stock repurchases in 2007, partially offset by cash proceeds of $355.0 million from common stock issued to
employees. In 2006, we used $186.4 million to repurchase our common stock, partially offset by cash proceeds of
$87.1 million from common stock issued to employees.
Off-Balance Sheet Arrangements
None
53
Contractual Obligations
Our principal commitments primarily consist of obligations outstanding under operating leases, purchase
commitments, tax liabilities, and other contractual obligations. The following table summarizes our principal
contractual obligations as of December 31, 2008, and the effect such obligations are expected to have on our
liquidity and cash flow in future periods (in millions):
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
Other
Operating leases, net of
committed subleases(1) . . . . . . $208.6
86.8
91.2
68.9
Purchase commitments(2) . . . . . .
Tax liabilities(3) . . . . . . . . . . . . .
Other contractual obligations(4) . .
$ 50.8
86.8
13.0
30.6
Total . . . . . . . . . . . . . . . . . . . . . . $455.5
$181.2
$124.1
—
—
36.4
$160.5
$29.8
—
—
1.9
$31.7
$3.9
—
—
—
$3.9
$ —
—
78.2
—
$78.2
(1) Our contractual obligations under operating leases primarily relate to our leased facilities under our non-
cancelable operating leases. Rent payments are allocated to costs and operating expenses in our consolidated
statements of operations. We occupy approximately 1.9 million square feet worldwide under operating leases.
The majority of our office space is in North America, including our corporate headquarters in Sunnyvale,
California. Our longest lease expires in January 2017.
(2) In order to reduce manufacturing lead times and ensure adequate component supply, our contract manufacturers
place non-cancelable, non-returnable (“NCNR”) orders for components based on our build forecasts. The
contract manufacturers use the components to build products based on our forecasts and on purchase orders we
have received from our customers. Generally, we do not own the components and title to the products transfers
from the contract manufacturers to us and immediately to our customers upon delivery at a designated shipment
location. If the components go unused or the products go unsold for specified periods of time, we may incur
carrying charges or obsolete materials charges for components that our contract manufacturers purchased to
build products to meet our forecast or customer orders. As of December 31, 2008, we had accrued $30.4 million
based on our estimate of such charges. Total purchase commitments as of December 31, 2008, consisted of
$86.8 million NCNR orders.
(3) Tax liabilities include the current and long-term liabilities in the consolidated balance sheet for unrecognized
tax positions. It is reasonably possible that we may reach agreement with certain issues and, as a result, the
amount of the liability for unrecognized tax benefits may decrease by approximately $13.0 million within the
next 12 months. At this time, we are unable to make a reasonably reliable estimate of the timing of payments
related to the additional $78.2 million in liabilities due to uncertainties in the timing of tax audit outcomes.
(4) Other contractual obligations consist of an acquisition-related escrow amount of $2.3 million, a joint devel-
opment agreement requiring quarterly payments of $3.5 million through January 2010, a software subscription
for $22.7 million requiring payments through January 2011, and a data center hosting agreement for
$26.4 million, requiring payment through April 2013.
Guarantees
We have entered into agreements with some of our customers that contain indemnification provisions relating
to potential situations where claims could be alleged that our products infringe on the intellectual property rights of
a third party. Other guarantees or indemnification arrangements include guarantees of product and service
performance and standby letters of credit for certain lease facilities. We have not recorded a liability related to
these indemnification and guarantee provisions, and our guarantees and indemnification arrangements have not had
any significant impact on our consolidated financial condition, results of operations, or cash flows.
54
Stock Repurchase Activities
In 2008, we repurchased $604.7 million or 25.1 million shares of common stock, under the following two stock
repurchase programs authorized by our Board:
Under the $2.0 billion stock repurchase program approved in 2006 and 2007 (the “2006 Stock Repurchase
Program”), we repurchased approximately 15.4 million shares of its common stock at an average price of $24.53 per
share for a total purchase price of $376.8 million during 2008. As of December 31, 2008, we have repurchased and
retired approximately 84.8 million shares of our common stock under the 2006 Stock Repurchase Program at an
average price of $23.58 per share, and the program had no remaining authorized funds available for future stock
repurchases.
The Board approved another $1.0 billion stock repurchase program in March 2008 (the “2008 Stock
Repurchase Program”). Under this program, we repurchased approximately 9.7 million shares of our common
stock at an average price of $23.43 per share for a total purchase price of $227.9 million in 2008. As of
December 31, 2008, the 2008 Stock Repurchase Program had remaining authorized funds of $772.1 million.
All shares of common stock purchased under the 2006 and 2008 Stock Repurchase Programs have been retired.
Future share repurchases under our 2008 Stock Repurchase Program will be subject to a review of the circumstances
in place at the 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. This program may be discontinued at any time. See Note 14 —
Subsequent Events in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on
Form 10-K, for discussion of our stock repurchase activity in 2009.
Liquidity and Capital Resource Requirements
Liquidity and capital resources may be impacted by our operating activities as well as acquisitions and
investments in strategic relationships we may make in the future. Additionally, if we were to repurchase additional
shares of our common stock under our 2008 Stock Repurchase Program, our liquidity may be impacted. We also
have a substantial portion of our cash and investment balances held overseas and may be subject to U.S. taxes if
repatriated.
Based on past performance and current expectations, we believe that our existing cash and cash equivalents,
short-term and long-term investments, together with cash generated from operations and cash generated from the
exercise of employee stock options and purchases under our employee stock purchase plan will be sufficient to fund
our operations, debt, and growth for at least the next 12 months. We believe our working capital is sufficient to meet
our liquidity requirements for capital expenditures, commitments, and other liquidity requirements associated with
our existing operations during the same period. However, our future liquidity and capital requirements may vary
materially from those now planned depending on many factors, including:
(cid:129) the overall levels of sales of our products and gross profit margins;
(cid:129) our business, product, capital expenditures, and research and development plans;
(cid:129) the market acceptance of our products;
(cid:129) repurchases of our common stock;
(cid:129) issuance and repayment of debt;
(cid:129) litigation expenses, settlements, and judgments;
(cid:129) volume price discounts and customer rebates;
(cid:129) the levels of accounts receivable that we maintain;
(cid:129) acquisitions of other businesses, assets, products, or technologies;
(cid:129) changes in our compensation policies;
(cid:129) capital improvements for new and existing facilities;
55
(cid:129) technological advances;
(cid:129) our competitors’ responses to our products;
(cid:129) our relationships with suppliers, partners, and customers;
(cid:129) possible future investments in raw material and finished goods inventories;
(cid:129) expenses related to our future restructuring plans, if any;
(cid:129) tax expense associated with stock-based awards;
(cid:129) issuance of stock-based awards and the related payment in cash for withholding taxes in the current year and
possibly during future years;
(cid:129) the level of exercises of stock options and stock purchases under our equity incentive plans; and
(cid:129) general economic conditions and specific conditions in our industry and markets, including the effects of
disruptions in global credit and financial markets, international conflicts, and related uncertainties.
ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk
We maintain an investment portfolio of various holdings, types, and maturities. In addition, a portion of our
cash and marketable securities are held in non-U.S. domiciled countries. Our marketable securities are generally
classified as available-for-sale and, consequently, are recorded on our consolidated balance sheet at fair value with
unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss).
At any time, a rise in interest rates could have a material adverse impact on the fair value of our investment
portfolio. Conversely, declines in interest rates could have a material impact on interest earnings of our investment
portfolio. We do not currently hedge these interest rate exposures.
The following tables present hypothetical changes in fair value of the financial instruments held at Decem-
ber 31, 2008, and 2007, that are sensitive to changes in interest rates (in millions):
Valuation of Securities Given an
Interest
Rate Decrease of X Basis Points
(BPS)
(150 BPS)
(100 BPS)
(50 BPS)
Fair Value as of
December 31,
2008
Valuation of Securities Given an
Interest
Rate Increase of X BPS
50 BPS
100 BPS
150 BPS
Government treasury and
agencies . . . . . . . . . . . . . . . . .
Corporate bonds and notes . . . . .
Other . . . . . . . . . . . . . . . . . . . . .
$117.1
83.1
477.8
$116.6
82.6
477.6
$116.2
82.0
477.5
Total . . . . . . . . . . . . . . . . . . . . .
$678.0
$676.8
$675.7
$115.7
81.5
477.3
$674.5
$115.2
81.0
477.2
$114.8
80.4
477.0
$114.3
79.9
476.9
$673.4
$672.2
$671.1
Valuation of Securities Given an
Interest
Rate Decrease of X Basis Points
(BPS)
(150 BPS)
(100 BPS)
(50 BPS)
Fair Value as of
December 31,
2007
Valuation of Securities Given an
Interest
Rate Increase of X BPS
50 BPS
100 BPS
150 BPS
Government treasury and
agencies . . . . . . . . . . . . . . . . .
Corporate bonds and notes . . . . .
Asset backed securities and
$ 68.4
108.3
$ 68.1
107.5
$ 67.7
106.7
other . . . . . . . . . . . . . . . . . . .
370.3
370.1
370.0
Total . . . . . . . . . . . . . . . . . . . . .
$547.0
$545.7
$544.4
$ 67.4
105.9
369.9
$543.2
$ 67.0
105.1
$ 66.7
104.3
$ 66.3
103.5
369.7
369.6
369.5
$541.8
$540.6
$539.3
56
These instruments are not leveraged and are held for purposes other than trading. The modeling technique used
measures the changes in fair value arising from selected potential changes in interest rates. Market changes reflect
immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (“BPS”), 100 BPS, and
150 BPS, which are representative of the historical movements in the Federal Funds Rate.
Foreign Currency Risk and Foreign Exchange Forward Contracts
Periodically, we use derivatives to hedge against fluctuations in foreign exchange rates. We do not enter into
derivatives for speculative or trading purposes.
We use 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 income (expense) in the same period as the changes in the
fair value from the re-measurement of the underlying assets and liabilities. These foreign exchange contracts have
maturities between one and two months.
Our sales and costs of revenues are primarily denominated in U.S. dollars. Our operating expenses are
denominated in U.S. dollars as well as other foreign currencies including the British Pound, the Euro, Indian Rupee,
and Japanese Yen. Periodically, we use foreign currency forward and/or option contracts to hedge certain forecasted
foreign currency transactions relating to operating expenses. These derivatives are designated as cash flow hedges
and have maturities of less than one year. 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 line item in the consolidated statements of operations to which the hedged
transaction relates. We record any ineffectiveness of the hedging instruments, which was immaterial during the
years ended December 31, 2008, 2007, and 2006, respectively, in other income (expense) on our consolidated
statements of operations. The increase in operating expenses including research and development, sales and
marketing, as well as general and administrative expenses, due to foreign currency fluctuations was approximately
1% in 2008.
Equity Price Risk
Our portfolio of publicly-traded equity securities is inherently exposed to equity price risk as the stock market
fluctuates. We monitor our equity investments for impairment on a periodic basis. In the event that the carrying
value of the equity investments exceeds its fair value, and we determine the decline in value to be other than
temporary, we reduce the carrying value to its current fair value. In 2008, we realized an impairment charge of
$3.5 million on a publicly-traded equity security due to a sustained decline in the fair value, in excess of six months,
of the investment below its cost basis that we judged to be other than temporary. We do not purchase our equity
securities with the intent to use them for trading or speculative purposes. The aggregate fair value of our marketable
equity securities was $4.4 million and $8.6 million as of December 31, 2008, and 2007, respectively. A hypothetical
30% adverse change in the stock prices of our portfolio of publicly-traded equity securities would result in an
immaterial loss.
In addition to publicly-traded securities, we have also invested in privately-held companies. These investments
are carried at cost. In 2008, we realized an impairment charge of $11.3 million on minority equity investments in
privately-held companies that we judged to be other than temporary. The aggregate cost of our investments in
privately-held companies was $14.2 million and $23.3 million as of December 31, 2008, and 2007, respectively.
57
ITEM 8. Financial Statements and Supplementary Data
Index of Consolidated Financial Statements for the years ended December 31, 2008, 2007, and 2006.
Contents
Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
59
60
61
62
63
64
65
66
58
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Juniper Networks, Inc.
We have audited the accompanying consolidated balance sheets of Juniper Networks, Inc. as of December 31,
2008, and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule
listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Juniper Networks, Inc. at December 31, 2008, and 2007, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material
respects, the information set forth therein.
As discussed in Note 1 to the Consolidated Financial Statements, Juniper Networks, Inc. changed its method of
accounting for uncertain tax positions as of January 1, 2007.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Juniper Networks, Inc.’s internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Orga-
nizations of the Treadway Commission and our report dated March 2, 2009 expressed an unqualified opinion
thereon.
San Jose, California
March 2, 2009
/s/ Ernst & Young LLP
59
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Juniper Networks, Inc.
We have audited Juniper Network, Inc.’s internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Juniper Networks, Inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Juniper Networks, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the accompanying consolidated balance sheets as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2008 of Juniper Networks, Inc. and our report dated March 2, 2009 expressed an unqualified
opinion thereon.
San Jose, California
March 2, 2009
/s/ Ernst & Young LLP
60
Management’s Report on Internal Control Over Financial Reporting
The management of Juniper Networks, Inc. (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. The Company’s internal control over financial
reporting is a process designed under the supervision of the Company’s principal executive and principal financial
officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the
Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting
principles.
The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance with autho-
rizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a
material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008, based on the framework set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control — Integrated Framework. Based on that assessment,
management concluded that, as of December 31, 2008, the Company’s internal control over financial reporting
was effective.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008, has
been audited by Ernst & Young LLP, the independent registered public accounting firm that audits the Company’s
consolidated financial statements, as stated in their report preceding this report, which expresses an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008.
61
Juniper Networks, Inc.
Consolidated Statements of Operations
Years Ended December 31,
2006
2007
2008
(In thousands, except per share amounts)
Net revenues:
Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,910,960
661,416
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,326,983
509,105
$ 1,893,328
410,252
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,572,376
2,836,088
2,303,580
Cost of revenues:
Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
867,595
298,371
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,165,966
676,258
251,380
927,638
555,077
199,213
754,290
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
2,406,410
1,908,450
1,549,290
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangible assets . . . . . . . . . . . . . .
Impairment of goodwill and intangible assets . . . . . . . . . . . . .
Other charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
731,151
782,940
144,837
38,529
4,979
9,000
622,961
666,688
116,489
85,896
—
9,354
480,247
557,990
97,077
91,823
1,283,421
36,514
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,711,436
1,501,388
2,547,072
Operating income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) gain on equity investments . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
694,974
48,749
(14,832)
728,891
217,142
407,062
96,776
6,745
510,583
149,753
(997,782)
100,733
—
(897,049)
104,388
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 511,749
$ 360,830
$(1,001,437)
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.96
0.93
$
$
0.67
0.62
$
$
(1.76)
(1.76)
Shares used in computing net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
530,337
537,767
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
551,433
579,145
567,454
567,454
See accompanying Notes to Consolidated Financial Statements
62
Juniper Networks, Inc.
Consolidated Balance Sheets
December 31,
2008
2007
(In thousands, except par values)
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $9,738 for
2008 and $8,323 for 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,019,084
172,896
$ 1,716,110
240,355
429,970
145,230
49,026
2,816,206
436,433
101,415
43,442
28,861
3,658,602
71,079
31,303
379,759
171,598
47,293
2,555,115
401,818
59,329
35,515
77,844
3,658,602
59,025
38,158
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,187,341
$ 6,885,406
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and Contingencies (Note 7)
Stockholders’ equity:
Convertible preferred stock, $0.00001 par value; 10,000 shares authorized;
none issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.00001 par value, 1,000,000 shares authorized; 526,752 and
522,815 shares issued and outstanding at December 31, 2008, and 2007,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
249,854
160,471
40,090
459,749
33,047
—
113,399
1,056,610
130,514
78,164
20,648
$
219,101
158,710
37,450
425,579
52,324
399,496
87,183
1,379,843
87,690
41,482
22,531
—
—
5
8,811,497
(4,245)
(2,905,852)
5
8,154,932
12,251
(2,813,328)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,901,405
$ 7,187,341
5,353,860
$ 6,885,406
See accompanying Notes to Consolidated Financial Statements
63
Juniper Networks, Inc.
Consolidated Statements of Cash Flows
2008
Years Ended December 31,
2007
(In thousands)
2006
OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 511,749
Adjustments to reconcile net income (loss) to net cash from
$
360,830
$(1,001,437)
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring, impairments, and special charges . . . . . . . . . . . .
Loss (gain) on equity investments . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from employee stock option plans . . . . . . . . .
Other non-cash charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
167,474
108,133
4,979
14,832
(40,182)
613
(50,211)
13,775
19,770
1,761
2,640
49,554
(6,702)
76,994
Net cash provided by operating activities . . . . . . . . . . . . . .
875,179
INVESTING ACTIVITIES:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . .
Purchases of available-for-sale investments . . . . . . . . . . . . . . . . . .
Maturities and sales of available-for-sale investments . . . . . . . . . .
Change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made in connection with business acquisitions, net. . . . .
Net cash (used in) provided by investing activities . . . . . . .
FINANCING ACTIVITIES:
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . .
Purchases and retirement of common stock . . . . . . . . . . . . . . . . . .
Excess tax benefit from employee stock option plans . . . . . . . . . .
Redemption of convertible Senior Notes . . . . . . . . . . . . . . . . . . . .
Net proceeds from distributor financing arrangement . . . . . . . . . . .
(164,604)
(474,007)
499,351
(8,094)
(2,458)
—
(149,812)
119,450
(604,700)
40,182
(288)
22,963
193,166
87,990
—
(6,745)
(19,686)
2,765
(120,904)
10,719
34,938
48,259
2,622
71,403
(6,524)
127,690
786,523
(146,858)
(298,615)
1,029,081
(7,407)
(4,075)
(375)
571,751
355,007
(1,623,190)
19,686
—
10,000
Net cash used in financing activities . . . . . . . . . . . . . . . . .
(422,393)
(1,238,497)
Net increase in cash and cash equivalents . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . .
302,974
1,716,110
119,777
1,596,333
173,490
87,645
1,283,421
—
(9,650)
1,512
20,745
22,969
13,644
12,712
(514)
8,934
9,367
132,766
755,604
(102,093)
(516,144)
632,075
20,464
(7,274)
(15,102)
11,926
87,140
(186,388)
9,650
—
—
(89,598)
677,932
918,401
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $2,019,084
$ 1,716,110
$ 1,596,333
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash paid for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,224
147,999
$
1,495
57,856
$
—
64,005
Supplemental Disclosure of Non-Cash Financing Activities:
Common stock issued in connection with conversion of the
Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 399,208
$
448
$
15
See accompanying Notes to Consolidated Financial Statements
64
Juniper Networks, Inc.
Consolidated Statements of Stockholders’ Equity
Common Stock
Shares Amount
Additional
Paid-In
Capital
Deferred
Stock
Compensation
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Stockholders’
Equity
$ 6
$7,458,662
$(17,700)
$ (8,324)
$ (344,410)
$ 7,088,234
(In thousands)
Balance at December 31, 2005 . . . . . . . . . . . . . . . . . . . . 568,243
Elimination of unearned deferred compensation upon adoption
of FAS 123R . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of shares in connection with Employee Stock Purchase
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options by employees, net of repurchases . . . .
Release of escrow related to an acquisition, net of cancelled
escrow shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elimination of additional paid-in capital in connection with
modification of stock options . . . . . . . . . . . . . . . . . . .
Issuance of shares in connection with conversion of the
convertible senior notes . . . . . . . . . . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . .
Tax benefit from employee stock option plans . . . . . . . . . . .
Adjustment to deferred tax liabilities in connection with
elimination of unearned deferred compensation balance and
other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss:
Change in unrealized gain on investments, net of tax of nil
. .
Foreign currency translation gains, net of tax of nil . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,748
9,313
—
—
1
(10,071)
—
—
—
—
—
—
Balance at December 31, 2006 . . . . . . . . . . . . . . . . . . . . 569,234
Cumulative effect from the adoption of FIN 48. . . . . . . . . . .
—
Issuance of shares in connection with Employee Stock Purchase
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options by employees, net of repurchases . . . .
Release of escrow related to an acquisition, net of cancelled
615
22,399
escrow shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15)
Issuance of shares in connection with vesting of restricted share
units
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Issuance of shares in connection with conversion of the
convertible senior notes . . . . . . . . . . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . .
Tax benefit from employee stock option plans . . . . . . . . . . .
Other comprehensive income:
Change in unrealized gain on investments, net of tax of nil
. .
Foreign currency translation gains, net of tax of nil . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . .
22
(69,443)
—
—
—
(1)
—
—
—
—
—
Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . 522,815
Issuance of shares in connection with Employee Stock Purchase
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options by employees, net of repurchases . . . .
Exercise of warrants in connection with acquisitions . . . . . . . .
Issuance of shares in connection with vesting of restricted share
1,590
5,701
8
units
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,904
Issuance of shares in connection with conversion of the
convertible senior notes . . . . . . . . . . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . .
Tax benefit from employee stock option plans . . . . . . . . . . .
Other comprehensive income:
Change in unrealized gain on investments, net of tax of nil
. .
Foreign currency translation loss, net of tax of nil . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,822
(25,088)
—
—
—
—
—
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
6
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
(17,700)
17,700
22,831
64,309
10,343
(6,114)
15
—
87,645
19,890
6,166
—
—
—
7,646,047
—
10,502
345,585
14,840
—
448
(461)
94,453
43,518
—
—
—
8,154,932
35,879
82,608
—
—
399,208
(427)
108,133
31,164
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,199
4,391
—
1,266
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(186,388)
—
—
—
22,831
64,309
10,343
(6,114)
15
(186,388)
87,645
19,890
—
6,166
—
—
(1,001,437)
(1,532,235)
(19,195)
—
—
—
—
5,199
4,391
(1,001,437)
(991,847)
6,115,084
(19,195)
10,502
345,585
14,840
—
—
(1,622,728)
—
—
448
(1,623,190)
94,453
43,518
3,169
7,816
—
—
—
360,830
3,169
7,816
360,830
371,815
12,251
(2,813,328)
5,353,860
—
—
—
—
—
—
—
—
2,547
(19,043)
—
—
—
—
—
—
(604,273)
—
—
—
—
511,749
35,879
82,608
—
—
399,208
(604,700)
108,133
31,164
2,547
(19,043)
511,749
495,253
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . 526,752
$ 5
$8,811,497
$
—
$ (4,245)
$(2,905,852)
$ 5,901,405
See accompanying Notes to Consolidated Financial Statements
65
Juniper Networks, Inc.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Description of Business
Juniper Networks, Inc. (“Juniper Networks” or the “Company”) designs, develops, and sells products and
services that together provide its customers with high-performance network infrastructure that creates responsive
and trusted environments for accelerating the deployment of services and applications over a single Internet
Protocol (“IP”)-based network. Beginning in the first quarter of 2008, the Company realigned its business groups,
which resulted in the following two segments: Infrastructure and SLT. The Company’s Infrastructure segment
primarily offers scalable router and Ethernet switching products that are used to control and direct network traffic.
The Company’s SLT segment offers networking solutions that meet a broad array of its customers’ priorities, from
securing the network and the data on the network, to maximizing existing bandwidth and acceleration of
applications across a distributed network. Both segments offer worldwide services, including technical support
and professional services, as well as educational and training programs to their 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. All inter-company balances and
transactions have been eliminated.
Use of Estimates
The preparation of the financial statements and related disclosures requires management to make judgments,
assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Estimates are used for revenue recognition, allowance for sales returns, allowance for
doubtful accounts, allowance for contract manufacturer obligations, allowance for warranty costs, stock-based
compensation, goodwill and other impairments, income taxes, litigation and settlement costs, and other loss
contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various
other factors that it believes to be reasonable under the circumstances, to determine the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results experienced by the Company may differ
materially from management’s estimates.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of three months or less are classified as 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 deposit, and corporate
debt securities, which are readily convertible into, cash.
Investments
Management determines the appropriate classification of securities at the time of purchase and re-evaluates
such classification as of each balance sheet date. The Company’s investments in publicly-traded debt and equity
securities are classified as available-for-sale. Available-for-sale investments are initially recorded at cost and
periodically adjusted to fair value in the Consolidated Balance Sheets. Unrealized gains and losses on these
investments are reported as a separate component of accumulated other comprehensive income (loss). Realized
gains and losses and declines in value judged to be other than temporary are determined based on the specific
identification method and are reported in the Consolidated Statements of Operations.
The Company recognizes an impairment charge for available-for-sale investments when a decline in the fair
value of its investments below the cost basis is determined to be other than temporary. The Company considers
various factors in determining whether to recognize an impairment charge, including the length of time the
66
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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 fair value is other than temporary, the difference is recognized as an impairment loss in its
Consolidated Statements of Operations.
The Company’s non-qualified compensation plan, which invests in mutual funds are classified as trading
securities and reported at fair value. The realized and unrealized holding gains and losses, as well as the offsetting
compensation expense, are reported in the Consolidated Statements of Operations.
Privately-Held Equity Investments
The Company has minority equity investments in privately-held companies. These investments are included in
other long-term assets in the Consolidated Balance Sheets and are carried at cost, adjusted for any impairment, as
the Company does not have a controlling interest and does not have the ability to exercise significant influence over
these companies. These investments are inherently high risk as the market for technologies or products manu-
factured by these companies are usually early stage at the time of the investment by the Company and such markets
may never be significant. The Company monitors these investments for impairment by considering financial,
operational, and economic data and makes appropriate reductions in carrying values when necessary.
Fair Value Measurement
The Company records its financial instruments that are accounted for under Statement of Financial Accounting
Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities, (“SFAS 115”), and
derivative contracts at fair value. The determination of fair value is based upon the fair value framework established
by SFAS No. 157, Fair Value Measurements, (“SFAS 157”). SFAS 157 provides that a fair value measurement
assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or
liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The carrying
value of the Company’s financial instruments including cash and cash equivalents, accounts receivable, accrued
compensation, and other accrued liabilities, approximates fair market value due to the relatively short period of time
to maturity. The fair value of investments is determined using quoted market prices for those securities or similar
financial instruments.
Concentrations
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 instru-
ments and maintains its cash, cash equivalents, and available-for-sale investments in fixed income securities, and
money market funds with 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. These deposits may be
redeemed upon demand and therefore bear minimal risk.
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. The Company maintains reserves for potential bad debt and historically such losses have been within
management’s expectations. No single customer accounted for more than 10% of the Company’s total net revenues
for 2008. One customer accounted for 12.8% and 14.3% of total net revenues during 2007 and 2006, respectively.
The Company relies on sole suppliers for certain of its components such as ASICs and custom sheet metal.
Additionally, the Company relies primarily on a limited number of significant independent contract manufacturers
for the production of all of its products. The inability of any supplier or manufacturer to fulfill supply requirements
of the Company could negatively impact future operating results.
67
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using
the straight-line method over the lesser of the estimated useful life, generally one and half to five years, or the lease
term of the respective assets. The Company depreciates leasehold improvements over the lesser of the expected life
of the lease or the assets, up to a maximum of ten years. Land is not subject to depreciation.
Goodwill and Purchased Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable
intangible assets acquired in a business combination. Intangible assets resulting from the acquisitions of entities
accounted for using the purchase method of accounting are estimated by management based on the fair value of
assets received. Identifiable intangible assets are comprised of purchased trademarks, developed technologies,
customer relationships, maintenance contracts, and other intangible assets. Goodwill is not subject to amortization
but is subject to annual assessment, at a minimum, for impairment by applying fair-value based tests. Future
goodwill impairment tests could result in a charge to earnings. Purchased intangible assets with finite lives are
amortized on a straight-line basis over their respective estimated useful lives ranging from two to nineteen years.
Impairment
The Company evaluates long-lived assets held for use for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is considered
impaired if its carrying amount exceeds the future net cash flow the asset is expected to generate. If an asset is
considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the asset
exceeds its fair value. The Company assesses the recoverability of its long-lived and intangible assets by
determining whether the unamortized balances are greater than the sum of undiscounted future net cash flows
of the related assets. The amount of impairment, if any, is measured based on projected discounted future net cash
flows.
The Company evaluates goodwill, at a minimum, on an annual basis and whenever events and changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment of goodwill is
tested at the reporting unit level by comparing the reporting unit’s carrying value, including goodwill, to the fair
value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income
approach and the market approach. If the carrying value of the reporting unit exceeds its fair value, goodwill is
considered impaired, and a second step is performed to measure the amount of the impairment loss, if any. As
discussed in Note 5, in the second quarter of 2006, the Company concluded that the carrying value of goodwill was
impaired and recorded an impairment charge for the period. The Company conducted its annual impairment test as
of November 1, 2008, 2007, and 2006, and determined that the carrying value of its remaining goodwill was not
impaired. Future impairment indicators, including sustained declines in the Company’s market capitalization or a
decrease in revenue or profitability levels, could require additional impairment charges to be recorded.
Revenue Recognition
Juniper Networks sells products and services through its direct sales force and through its strategic distribution
relationships and value-added resellers. The Company’s products are integrated with software that is essential to the
functionality of the equipment. The Company also provides unspecified upgrades and enhancements related to the
integrated software through maintenance contracts for most of its products. Accordingly, the Company accounts for
revenue in accordance with Statement of Position No. 97-2, Software Revenue Recognition, and all related
interpretations. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery or
performance has occurred, the sales price is fixed or determinable, and collectability is reasonably assured.
Evidence of an arrangement generally consists of sales contracts, or agreements, and customer purchase orders.
Shipping terms and related documents, or written evidence of customer acceptance, when applicable, are used to
68
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
verify delivery or performance. In instances where the Company has outstanding obligations related to product
delivery or the final acceptance of the product, revenue is deferred until all the delivery and acceptance criteria have
been met. The Company assesses whether the sales price is fixed or determinable based on payment terms and
whether the sales price is subject to refund or adjustment. Collectability is assessed based on the creditworthiness of
the customer as determined by credit checks and the customer’s payment history to the Company. Accounts
receivable are recorded net of allowance for doubtful accounts, estimated customer returns and pricing credits.
For arrangements with multiple elements, such as sales of products that include services, the Company
allocates revenue to each element using the residual method based on VSOE of fair value of the undelivered items.
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. VSOE of fair value is based on the price
charged when the element is sold separately. If VSOE of fair value of one or more undelivered items does not exist,
revenue is deferred and recognized at the earlier of: (i) delivery of those elements or (ii) when fair value can be
established unless maintenance is the only undelivered element, in which case, the entire arrangement fee is
recognized ratably over the contractual support period. The Company accounts for multiple agreements with a
single customer as one arrangement if the contractual terms and/or substance of those agreements indicate that they
may be so closely related that they are, in effect, parts of a single arrangement.
For sales to direct end-users and value-added resellers, the Company recognizes product revenues upon
transfer of title and risk of loss, which is generally upon shipment. It is the Company’s practice to identify an end-
user prior to shipment to a value-added reseller. For end-users and value-added resellers, the Company has no
significant obligations for future performance such as rights of return or pricing credits. A portion of the Company’s
sales are made through distributors under agreements allowing for pricing credits or rights of return. 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 and the
amount of gross margin expected to be realized upon sell-through. Deferred revenue is recorded net of the related
product costs of revenues.
The Company sells certain interests in accounts receivable on a non-recourse basis as part of a distributor
accounts receivable financing arrangement primarily with one major financing company. The Company recognizes
the sale of accounts receivable to the financing provider according to SFAS No. 140, Accounting for Transfers of
Financial Assets and Extinguishment of Liabilities, a replacement of FAS 125. The Company records cash received
under this arrangement in advance of revenue recognition as short-term debt with a balance of $33.0 million and
$10.0 million as of December 31, 2008, and 2007, respectively.
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 included in rebate agreements, and
other factors known at the time. In addition, the Company reports revenues net of sales taxes.
Shipping charges billed to customers are included in product revenues and the related shipping costs are
included in cost of product revenues. Costs associated with cooperative advertising programs are estimated and
recorded as a reduction of revenues at the time the related sales are recognized.
Services include maintenance, training, and professional services. In addition to providing unspecified
upgrades and enhancements on a when and if available basis, the Company’s maintenance contracts include
24-hour technical support as well as hardware repair and replacement parts. Maintenance is offered under
renewable contracts. Revenue from maintenance contracts is deferred and is generally recognized ratably over
the contractual support period, which is generally one to three years. Revenue from training and professional
services is recognized as the services are completed or ratably over the contractual period, which is generally one
year or less.
69
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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 allowance and potential write-offs by considering factors such as historical experience, credit
quality, age of the accounts receivable balances, and current economic conditions that may affect a customer’s
ability to pay.
Warranties
Juniper Networks generally offers a one-year warranty on all of its hardware products and a 90-day warranty
on the media that contains the software embedded in the products. The warranty generally includes parts and labor
obtained through the Company’s 24-hour service center. On occasion, the specific terms and conditions of those
warranties vary. The Company accrues for warranty costs as part of its cost of revenues based on associated material
costs, labor costs for customer support, and overhead at the time revenue is recognized. Material cost is estimated
primarily based upon the historical costs to repair or replace product returns within the warranty period. Technical
support labor and overhead costs are estimated primarily based upon historical trends in the cost to support the
customer cases within the warranty period. Factors that affect the Company’s warranty liability include the number
of installed units, its estimates of anticipated rates of warranty claims, costs per claim, and estimated support labor
costs and the associated overhead. The Company periodically assesses the adequacy of its recorded warranty
liabilities and adjusts the amounts as necessary.
Contract Manufacturer Liabilities and Inventories
The Company outsources most of its manufacturing, repair, and supply chain management operations to its
independent contract manufacturers and a significant portion of its cost of revenues consists of payments to them.
Its independent contract manufacturers procure components and manufacture the Company’s products based on the
Company’s demand forecasts. These forecasts are based on the Company’s estimates of future demand for the
Company products, which are in turn based on historical trends and an analysis from the Company’s sales and
marketing organizations, adjusted for overall market conditions. The Company establishes accrued liabilities,
included in other current accrued liabilities on its consolidated balance sheets, for carrying costs and obsolete
material exposures for excess components purchased based on historical trends.
In addition, the Company purchases a small amount of strategic component inventory, which is included in
other assets, and stated at the lower of cost or market. Costs associated with products shipped to distributors not yet
recognized as revenue is recorded net of the related deferred product revenue. Service related spares and
demonstration equipment are expensed to costs of service revenue and sales and marketing expense, respectively,
when purchased.
Research and Development
Costs to research, design, and develop the Company’s products are expensed as incurred. Software devel-
opment costs are capitalized beginning when a product’s technological feasibility has been established and ending
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 subsequent to achieving technological
feasibility have not been significant, and all software development costs have been expensed as incurred.
Advertising
Advertising costs are charged to sales and marketing expense as incurred. Advertising expense was
$5.0 million, $4.8 million, and $6.8 million, for 2008, 2007, and 2006, respectively.
70
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 or impairment of 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 its
management to determine whether such accruals should be adjusted and whether new accruals are required.
From time to time, the Company is involved in disputes, litigation, and other legal actions. The Company
records a charge equal to at least the minimum estimated liability for a loss contingency only when both of the
following conditions are met: (i) information available prior to issuance of the financial statements indicates that it
is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements, and
(ii) the range of loss can be reasonably estimated. The actual liability in any such matters may be materially
different from the Company’s estimates, which could result in the need to adjust the liability and record additional
expenses.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with SFAS 123R, which requires the
measurement and recognition of compensation expense for all stock-based awards made to employees and directors
including employee stock options, restricted stock units (“RSUs”), performance share awards, and employee stock
purchases under the Company’s Employee Stock Purchase Plan based on estimated fair values. SFAS 123R requires
companies to estimate the fair value of stock-based awards on the date of grant using an option pricing model. The
Company uses the Black-Scholes-Merton option pricing model and incorporates a Monte Carlo simulation when
appropriate to determine the fair value of stock-based awards under SFAS 123R. The value of the portion of the
award that is ultimately expected to vest is recognized as expense over the requisite service periods in the
Company’s Consolidated Statements of Operations for the years ended December 31, 2008, 2007, and 2006.
Stock-based compensation expense recognized in the Company’s Consolidated Statements of Operations for
the years ended December 31, 2008, 2007, and 2006, included: (i) compensation expense for stock-based awards
granted prior to, but not yet vested as of, December 31, 2005, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123 and (ii) compensation expense for the stock-based awards granted
subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of
SFAS 123R. Compensation expense for expected-to-vest stock-based awards that were granted on or prior to
December 31, 2005, was valued under the multiple-option approach and will continue to be amortized using the
accelerated attribution method. Subsequent to December 31, 2005, compensation expense for expected-to-vest
stock-based awards is valued under the single-option approach and amortized on a straight-line basis, net of
estimated forfeitures.
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 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 interest and other income, net. Changes in the fair value
of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. Cash flows from
such derivatives are classified as operating activities. These foreign exchange forward contracts have maturities
between one and two months.
71
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The Company also uses foreign currency forward or option contracts to hedge certain forecasted foreign
currency transactions relating to operating expenses. These derivatives are designated as cash flow hedges and have
maturities of less than one year. 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 operating expense line item to which the hedged transaction relates. The
Company records any ineffectiveness of the hedging instruments, which was immaterial during 2008, 2007, and
2006, in interest and other income, net on its Consolidated Statements of Operations. Cash flows from such hedges
are classified as operating activities.
Provision for Income Taxes
Estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the
recoverability of certain deferred tax assets, which arise from temporary differences and carryforwards. Deferred
tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for
the years in which those tax assets are expected to be realized or settled. The Company regularly assesses the
likelihood that its deferred tax assets will be realized from recoverable income taxes or recovered from future
taxable income based on the realization criteria set forth under SFAS 109. To the extent that the Company believes
any amounts are not more likely than not to be realized, the Company records a valuation allowance to reduce its
deferred tax assets. The Company believes it is more likely than not that future income from the reversal of the
deferred tax liabilities and forecasted income will be sufficient to fully recover the remaining deferred tax assets. In
the event the Company determines that all or part of the net deferred tax assets are not realizable in the future, an
adjustment to the valuation allowance would be charged to earnings in the period such determination is made.
Similarly, if the Company subsequently realizes deferred tax assets that were previously determined to be
unrealizable, the respective valuation allowance would be reversed, resulting in a positive adjustment to earnings
or a decrease in goodwill in the period such determination is made. In addition, the calculation of tax liabilities
involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes
potential liabilities based on its estimate of whether, and the extent to which, additional taxes will be due.
On January 1, 2007, the Company adopted the Financial Accounting Standards Board (“FASB”) Financial
Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109
(“FIN 48”), which is a change in accounting for income taxes. FIN 48 contains a two-step approach to recognizing
and measuring uncertain tax positions accounted for in accordance with SFAS 109, and it seeks to reduce the
diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes.
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. Additionally, FIN 48 provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosures, and transition. The application of
FIN 48 may increase an entity’s future effective tax rates and its future intra-period effective tax rate volatility. As of
January 1, 2007, the Company’s cumulative effect of applying FIN 48 was a $19.2 million increase to the opening
balance of accumulated deficit and a $1.0 million increase to goodwill.
Comprehensive Income
Comprehensive income is defined as the change in equity during a period from transactions and other events
and circumstances from non-owner sources. The Company has presented its comprehensive income as part of its
Consolidated Statements of Stockholders’ Equity. Other comprehensive income includes net unrealized gains
(losses) on available-for-sale securities and net foreign currency translation gains (losses) that are excluded from net
income, and unrealized gains (losses) on derivatives designated as cash flow hedges.
72
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Foreign Currency Translation
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 weighted-average exchange rates for the period. Foreign currency translation gains and losses
were not material for the years ended December 31, 2008, 2007, and 2006. The effect of exchange rate changes on
cash balances held in foreign currencies was immaterial in the years presented.
Recent Accounting Pronouncements
In December 2008, the FASB issued FASB Staff Position (“FSP”) FAS 140-4 and FASB Interpretation No.
(“FIN”) 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in
Variable Interest Entities (“FSP 140-4 and FIN 46(R)-8”), which amends SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”), to require public entities to
provide additional disclosures about transfers of financial assets. It also amends FIN 46 (revised December 2003),
Consolidation of Variable Interest Entities (“FIN 46(R)”), to require public enterprises, including sponsors that
have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with
variable interest entities. The provisions of the FSP that amend SFAS 140 and FIN 46(R)-8 are effective for the first
reporting period ended after December 15, 2008. The implementation of this standard did not impact the
Company’s consolidated results of operations or financial condition.
In October 2008, the FASB issued FSP 157-3, Determining Fair Value of a Financial Asset in a Market That Is
Not Active (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS No. 157, Fair Value Measurements, in an
inactive market. It demonstrates how the fair value of a financial asset is determined when the market for that
financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial
statements had not been issued. The implementation of this standard did not impact the Company’s consolidated
results of operations or financial condition.
In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and
Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification
of the Effective Date of FASB Statement No. 161 (“FSP FAS 133-1 and FIN 45-4”). FSP FAS 133-1 and FIN 45-4
amends Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (“SFAS 133”), to require disclosures by sellers of credit derivatives, including credit derivatives
embedded in hybrid instruments. FSP FAS 133-1 and FIN 45-4 also amend FIN 45, Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others (“FIN 45”),
to require additional disclosure about the current status of the payment/performance risk of a guarantee. The
provisions of the FSP that amend SFAS 133 and FIN 45 are effective for reporting periods ending after
November 15, 2008. FSP FAS 133-1 and FIN 45-4 also clarifies the effective date in SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities (“SFAS 161”). Disclosures required by SFAS 161 are effective
for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The
Company does not expect its adoption of FSP FAS 133-1 and FIN 45-4 on January 1, 2009, will impact its
consolidated results of operations or financial condition.
In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1, Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB
14-1”). FSPAPB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other
assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the
instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. FSPAPB 14-1 must be applied
retrospectively to previously issued convertible instruments that may be settled in cash or partial cash as well as
prospectively to newly issued instruments. FSP APB 14-1 is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The Company evaluated the requirements of FSP APB 14-1 and
determined that the Company’s retired convertible debt was not subject to the requirements of FSP APB 14-1. The
73
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Company does not expect its adoption of FSP APB 14-1 on January 1, 2009, will impact its consolidated results of
operations or financial condition.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles
(“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS 162 is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company
does not expect its adoption of SFAS 162 on January 1, 2009, will impact its consolidated results of operations or
financial condition.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP
FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension
assumptions used in determining the useful life of a recognized intangible asset under Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to
intangible assets that are acquired individually or with a group of other assets in business combinations and asset
acquisitions. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008, and early adoption is
prohibited. The impact of FSP FAS 142-3 will depend upon the nature, terms, and size of the acquisitions the
Company consummates after the effective date.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities — an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 enhances required disclosures
regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses
derivative instruments, (b) derivative instruments and related hedged items are accounted for under SFAS 133, and
(c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and
cash flows. SFAS 161 is effective for the fiscal years beginning after November 15, 2008. The Company does not
expect its adoption of SFAS 161 on January 1, 2009, will impact its consolidated results of operations or financial
condition.
In February 2008, the FASB issued FSP FAS 157-2, Effective date of SFAS No. 157 (“FSP FAS 157-2”). FSP
FAS 157-2 delays the effective date for SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial statements on a recurring basis to the fiscal years
beginning after November 15, 2008, and interim periods within those fiscal years. The Company does not expect its
adoption of SFAS 157 for nonfinancial assets and liabilities on January 1, 2009, will impact its consolidated results
of operations or financial condition.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements — an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 addresses the
accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s
ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between
the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years
beginning after December 15, 2008. The adoption of SFAS 160 on January 1, 2009, will not have a material effect
on the Company’s consolidated results of operations or financial condition.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”).
SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the
business combination and determines what information to disclose to enable users of the financial statement to
evaluate the nature and financial effects of the business combination. SFAS 141R is effective for financial
74
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
statements issued for fiscal years beginning after December 15, 2008. Earlier application of SFAS 141R is
prohibited. Accordingly, any business combinations the Company may engage in will be recorded and disclosed
following existing GAAP until January 1, 2009. The impact of SFAS 141R will depend upon the nature, terms, and
size of the acquisitions the Company consummates after the effective date.
Reclassifications
In 2008, the Company realigned its organizational structure to include its Service business as a component of
the related Infrastructure or SLT business groups. Prior year amounts have been reclassified to reflect the 2008
segment structure, which now includes service revenues and operating results in Infrastructure and SLT segments.
Accordingly, the Company has revised the presentation of its segment information for the years ended December 31,
2007, and 2006, in Note 11 — Segment Information. None of the changes impacts the Company’s previously
reported consolidated financial condition, results of operations, or cash flows.
Note 2. Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing income (loss) available to common stockholders by
the weighted average number of common shares outstanding for that period. Diluted net income per share is
computed giving effect to all dilutive potential shares that were outstanding during the period. Dilutive potential
common shares consist of shares issuable upon conversion of the Senior Notes, common shares issuable upon
exercise of stock options, and vesting of restricted stock units.
The following table presents the calculation of basic and diluted net income (loss) per share (in millions, except
per share data):
Years Ended December 31,
2006
2007
2008
Numerator:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $511.7
$360.8
$(1,001.4)
Denominator:
Weighted-average shares used to compute basic net income (loss)
per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
530.3
537.8
567.5
Effect of dilutive securities:
Shares issuable upon conversion of the Senior Notes . . . . . . . . . .
Employee stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.8
12.3
19.8
21.5
—
—
Weighted-average shares used to compute diluted net income
(loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
551.4
579.1
567.5
Net income (loss) per share
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.96
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.93
$ 0.67
$ 0.62
$
$
(1.76)
(1.76)
The Company excludes stock options with exercise prices that are greater than the average market price from
the calculation of diluted net income per share because their effect would be anti-dilutive. For the years ended
December 31, 2008, and 2007, approximately 33.0 million and 11.5 million common stock equivalents, respec-
tively, were excluded in the computation of diluted net income per share because their effect would have been anti-
dilutive.
As a result of the net loss for the year ended December 31, 2006, all dilutive potential common shares were
excluded in the computation of diluted net loss per share because their effect would have been anti-dilutive.
75
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Note 3. Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and investments consist of the following (in millions):
As of December 31,
2008
2007
Cash and cash equivalents:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 285.9
125.1
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 316.9
—
Total cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
411.0
316.9
Cash equivalents:
U.S. government securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government sponsored-enterprise obligations . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
141.8
94.8
90.4
1,281.1
1,608.1
2,019.1
59.9
72.8
81.6
1,184.9
1,399.2
1,716.1
Investments:
Fixed income securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government sponsored-enterprise obligations . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Publicly-traded equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86.7
71.9
110.3
268.9
5.4
274.3
29.6
58.4
203.1
291.1
8.6
299.7
Total cash, cash equivalents, and investments . . . . . . . . . . . . . . . . . . . . . . . . . $2,293.4
$2,015.8
76
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Summary of Investments
The following table summarizes unrealized gains and losses related to our investments designated as available-
for-sale, as of December 31, 2008, (in millions):
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
Fixed income securities:
U.S. government securities . . . . . . . . . . . . . . . .
Government-sponsored enterprise obligations . .
Corporate debt securities . . . . . . . . . . . . . . . . .
Total fixed income securities . . . . . . . . . . . . .
Publicly-traded equity securities . . . . . . . . . . . .
$ 86.6
70.4
110.4
267.4
5.4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$272.8
Reported as:
Short-term investments . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . .
$172.5
100.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$272.8
$0.1
1.6
0.4
2.1
—
$2.1
$0.6
1.5
$2.1
$ —
(0.1)
(0.5)
(0.6)
—
$(0.6)
$(0.2)
(0.4)
$(0.6)
$ 86.7
71.9
110.3
268.9
5.4
$274.3
$172.9
101.4
$274.3
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
Due within one year . . . . . . . . . . . . . . . . . . . . .
Due between one and five years . . . . . . . . . . . .
Total fixed income securities . . . . . . . . . . . . .
Publicly-traded equity securities . . . . . . . . . . . .
$167.1
100.3
$267.4
5.4
Total investments . . . . . . . . . . . . . . . . . . . . .
$272.8
$0.6
1.5
$2.1
—
$2.1
$(0.2)
(0.4)
$(0.6)
—
$(0.6)
$167.5
101.4
$268.9
5.4
$274.3
The following table summarizes unrealized gains and losses related to our investments designated as available-
for-sale, as of December 31, 2007, (in millions):
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
Fixed income securities:
U.S. government securities . . . . . . . . . . . . . . . .
Government-sponsored enterprise obligations . .
Corporate debt securities . . . . . . . . . . . . . . . . .
Total fixed income securities . . . . . . . . . . . . .
Publicly-traded equity securities . . . . . . . . . . . .
$ 29.3
58.2
202.9
290.4
12.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$302.9
Reported as:
Short-term investments . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . .
$244.2
58.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$302.9
$0.3
0.2
0.4
0.9
1.0
$1.9
$1.3
0.6
$1.9
$ —
—
(0.2)
(0.2)
(4.9)
$(5.1)
$(5.1)
—
$(5.1)
$ 29.6
58.4
203.1
291.1
8.6
$299.7
$240.4
59.3
$299.7
77
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
Due within one year . . . . . . . . . . . . . . . . . . . . .
Due between one and five years . . . . . . . . . . . .
Total fixed income securities . . . . . . . . . . . . .
Publicly-traded equity securities . . . . . . . . . . . .
$231.7
58.7
$290.4
12.5
Total investments . . . . . . . . . . . . . . . . . . . . .
$302.9
$0.3
0.6
$0.9
1.0
$1.9
$(0.2)
—
$(0.2)
(4.9)
$(5.1)
$231.8
59.3
$291.1
8.6
$299.7
In 2008, the Company realized an impairment charge of $3.5 million on a publicly-traded equity security due
to a sustained decline in the fair value of the investment below its cost basis that the Company judged to be other
than temporary. There was no significant realized gain or loss from the sale of available-for-sale securities in 2008,
2007, and 2006. The Company generated cash proceeds of $499.4 million, $1,029.1 million, and $632.1 million
from maturities and sales of our available-for-sale investments during 2008, 2007, and 2006, respectively.
As of December 31, 2008, the Company had approximately 26 investments that were in an unrealized loss
position. As of December 31, 2007, the Company had approximately 46 investments that were in an unrealized loss
position. The gross unrealized losses related to these investments were due to changes in interest rates. The
contractual terms of these investments do not permit the issuer to settle the securities at a price less than the
amortized cost of the investment. Given that the Company has the ability and intent to hold each of these
investments until a recovery of the fair values, which may be maturity, the Company did not consider these
investments to be other-than-temporarily impaired as of December 31, 2008, and 2007. The Company reviews its
investments to identify and evaluate investments that have an indication of possible impairment. The Company
aggregated its investments by category and length of time the securities have been in a continuous unrealized loss
position.
The following table shows a summary of the fair value and unrealized losses of the Company’s investments as
of December 31, 2008, (in millions):
Less Than 12 Months
Fair Value
Unrealized
Loss
12 Months or Greater
Unrealized
Loss
Fair Value
U.S. government securities . . . . . . . . . . . .
Government sponsored-enterprise
obligations . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . .
$ 23.0
$ —
19.8
67.8
(0.1)
(0.5)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$110.6
$(0.6)
$—
—
—
$—
$—
—
—
$—
Total
Fair Value
Unrealized
Loss
$ 23.0
$ —
19.8
67.8
(0.1)
(0.5)
$110.6
$(0.6)
Minority Equity Investments
As of December 31, 2008, and 2007, the carrying values of the Company’s minority equity investments in
privately-held companies of $14.2 million and $23.3 million, respectively, were included in other long-term assets
in the consolidated balance sheets. In 2008, 2007, and 2006, the Company invested a total of $4.6 million,
$4.1 million, and $7.3 million, respectively, in privately-held companies.
The Company’s minority equity investments in privately-held companies are carried at cost as the Company
does not have a controlling interest and does not have the ability to exercise significant influence over these
companies. The Company adjusts its minority equity investments for any impairment if the fair value exceeds the
carrying value of the respective assets.
78
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
In 2008, the Company recognized losses of $11.3 million due to the impairment of minority equity investments
in privately-held companies that the Company judged to be other than temporary. In addition, the Company had a
minority equity investment of $2.4 million in a privately-held company that was acquired by a third party for which
the Company received a payment of $2.1 million as of December 31, 2008, and anticipates the receipt of the
remaining $0.3 million in 2009. In 2007, one of the Company’s minority equity investments completed an initial
public offering (“IPO”). Upon completion of the IPO, the Company reclassified the minority equity investment to
available-for-sale investments and realized a gain of $6.7 million, based upon the market value at the time of IPO
and the Company’s cost basis, during 2007. Subsequent to the IPO, the Company’s investment in this publicly-
traded entity is included in available-for-sale investments.
Note 4. Fair Value Measurements
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. SFAS 157 assumes that the transaction to
sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability and
establishes that the fair value of an asset or liability shall be determined based on the assumptions that market
participants would use in pricing the asset or liability.
Fair Value Hierarchy
The Company determines the fair values of its financial instruments based on the fair value hierarchy
established in SFAS 157, which requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. A financial asset or liability’s classification within the hierarchy is
based upon the lowest level input that is significant to the fair value measurement. The fair value hierarchy
prioritizes the inputs into three broad levels:
Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs are 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.
Level 3 — Inputs are unobservable inputs based on our own assumptions.
79
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table provides the assets carried at fair value measured on a recurring basis as of December 31,
2008, (in millions):
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable
Remaining
Inputs
(Level 2)
Significant Other
Unobservable
Remaining
Inputs
(Level 3)
Total
Assets measured at fair value: . . . . . . . . . . . .
U.S. government securities . . . . . . . . . . . .
Government sponsored enterprise
obligations . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . .
Publicly-traded securities . . . . . . . . . . . . . .
Derivative asset . . . . . . . . . . . . . . . . . . . . .
$
26.3
$202.2
$—
$ 228.5
71.9
—
—
1,281.1
5.4
—
94.8
110.3
90.4
—
—
2.6
—
—
—
—
—
—
166.7
110.3
90.4
1,281.1
5.4
2.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,384.7
$500.3
$—
$1,885.0
Assets measured at fair value on a recurring basis were presented on the Company’s consolidated balance sheet
as of December 31, 2008, as follows:
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable
Remaining
Inputs
(Level 2)
Significant Other
Unobservable
Remaining
Inputs
(Level 3)
Reported as: . . . . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . .
Prepaid expenses and other current assets. .
$1,281.1
57.1
46.5
—
Total assets measured at fair value . . . . .
$1,384.7
$327.0
115.8
54.9
2.6
$500.3
$—
—
—
—
$—
Total
$1,608.1
172.9
101.4
2.6
$1,885.0
Long-term debt is reported at amortized cost in accordance with SFAS No. 107, Disclosures about Fair Value
of Financial Instruments. The fair value of long-term debt, based on quoted market prices (Level 1), was
$659.2 million at December 31, 2007. As of December 31, 2008, all of the Company’s Senior Convertible Notes
were settled in cash or converted into shares of the Company’s common stock. See Note 8 — Debt.
Note 5. Goodwill and Purchased Intangible Assets
Goodwill
In the first quarter of 2008, the Company realigned its organizational structure to eliminate its Service segment
and to include its service business into the related Infrastructure and SLT segments. As a result, the Company, with
the assistance of an external service provider, reallocated goodwill of the former Service segment to the
Infrastructure and SLT segments based on a relative fair value approach. Fair value was based on comparative
80
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
market values and discounted cash flows. There was no indication of impairment when goodwill was reallocated to
the new reporting segments.
The changes in the carrying amount of goodwill during the three years ended December 31, 2008, are as
follows (in millions):
Segments
Balance at
December 31,
2007
Infrastructure . . . . . . . . . . . . . . . . . . . .
Service Layer Technologies . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . .
$ 976.6
1,879.7
802.3
Reallocation
$ 523.9
278.4
(802.3)
Total . . . . . . . . . . . . . . . . . . . . . . . .
$3,658.6
$ —
Adjustments
to Existing
Goodwill
Escrow and
Other
Additions
Balance at
December 31,
2008
$—
—
—
$—
$—
—
—
$—
$1,500.5
2,158.1
—
$3,658.6
Segments
Balance at
December 31,
2006
Acquisitions
Adjustments
to Existing
Goodwill
Escrow and
Other
Additions
Balance at
December 31,
2007
Infrastructure . . . . . . . . . . . . . . . . . . . .
Service Layer Technologies . . . . . . . . .
Service. . . . . . . . . . . . . . . . . . . . . . . . .
$ 971.0
1,856.3
797.4
Total
. . . . . . . . . . . . . . . . . . . . . . . .
$3,624.7
$—
—
—
$—
$ —
1.1
—
$1.1
$ 5.6
22.3
4.9
$32.8
$ 976.6
1,879.7
802.3
$3,658.6
Segments
Balance at
December 31,
2005
Acquisitions
Adjustments
to Existing
Goodwill
Escrow and
Other
Additions
Balance at
December 31,
2006
Infrastructure . . . . . . . . . . . . . . . . . . . .
Service Layer Technologies . . . . . . . . .
Service. . . . . . . . . . . . . . . . . . . . . . . . .
$ 971.0
3,111.3
797.4
Total
. . . . . . . . . . . . . . . . . . . . . . . .
$4,879.7
$—
—
—
$—
—
$
(1,280.0)
—
$(1,280.0)
$ —
25.0
—
$25.0
$ 971.0
1,856.3
797.4
$3,624.7
In 2008, there were no additions to goodwill. In 2007, goodwill increased $33.9 million primarily due to
payments from escrow accounts of $32.8 million upon resolution of acquisition-related indemnity issues, as well as
the distribution, from an escrow account, of approximately 0.8 million shares of its common stock, with an
aggregate fair value of $14.8 million. Additionally, goodwill increased by $1.0 million as the Company recorded the
cumulative effect of applying FIN 48 in 2007. In 2006, the goodwill increase of $25.0 million was primarily
attributable to the settlements of the Company’s escrow obligations. The Company released from its escrow
accounts 0.8 million shares of common stock, with a total market value of $10.3 million, and $2.0 million of its
restricted cash for the indemnity obligations associated with past acquisitions. The Company also distributed
$13.1 million of its restricted cash for the escrow obligations associated with the acquisition of Redline.
The Company performed a goodwill impairment review as of November 1, 2008, 2007, and 2006, and
concluded that there was no impairment in 2008 and 2007. In 2006, the Company concluded that the carrying value
of goodwill for the SLT segment was impaired and recorded an impairment charge of $1,280.0 million, which was
included in operating expenses. A significant portion of the goodwill was initially recorded based on stock prices at
the time the related merger agreements were executed and announced. The impairment of goodwill in 2006 was
primarily attributable to the decline in the Company’s market capitalization that occurred over a period of
approximately six months prior to the impairment review as of May 31, 2006 and, to a lesser extent, a decrease in the
forecasted future cash flows used in the income approach.
81
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The first step of the 2006 impairment review was to compare the fair value of each reporting unit to its carrying
value, including the goodwill related to the respective reporting units. When performing the 2006 goodwill
impairment review, the Company determined that it had four reporting units at the time of the impairment
calculation, consisting of Infrastructure and Service, which are the same as the respective segments, as well as
Security and Application Acceleration, which were the two components of SLT segment. The Company with the
assistance of an external service provider, calculated the fair value of the reporting units using a combination of the
income and market approaches. The income approach requires estimates of expected revenue, gross margin, and
operating expenses in order to discount the sum of future cash flows using each particular business’ weighted
average cost of capital. The Company’s growth estimates were based on historical data and internal estimates
developed as part of its long-term planning process. The Company tested the reasonableness of the inputs and
outcomes of its discounted cash flow analysis by comparing to available market data. In determining the carrying
value of the reporting unit, the Company allocated the fair values of shared tangible net assets to each reporting unit
based on revenue derived by that reporting unit. As the fair values of the Security and Application Acceleration
reporting units were lower than the allocated book values, goodwill was considered impaired. As a result, the
Company performed step two of the goodwill impairment calculation for those two reporting units within the SLT
segment in order to calculate the extent of the goodwill impairment.
During the second step of the 2006 goodwill impairment review, management calculated the fair value of the
Company’s tangible and intangible net assets with the assistance of an external service provider. Identified
intangible assets were valued specifically for each reporting unit tested. The difference between the calculated fair
value of each reporting unit and the sum of the identified net assets results in the residual value of goodwill. Future
impairment indicators, including sustained declines in the Company’s market capitalization, could require addi-
tional impairment charges.
Purchased Intangible Assets
The following table presents details of the Company’s purchased intangible assets with definite lives
(in millions):
Gross
Accumulated
Amortization
Impairment
Net
As of December 31, 2008:
Technologies and patents . . . . . . . . . . . . . . . . . . . . . . $379.6
68.9
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(361.1)
(53.6)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $448.5
$(414.7)
As of December 31, 2007:
Technologies and patents . . . . . . . . . . . . . . . . . . . . . . $379.6
68.9
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(326.0)
(44.7)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $448.5
$(370.7)
$(4.3)
(0.7)
$(5.0)
$ —
—
$ —
$14.2
14.6
$28.8
$53.6
24.2
$77.8
Amortization expense related to definite-lived purchased intangible assets was $44.0 million, $91.4 million,
and $97.3 million in 2008, 2007, and 2006, respectively. Amortization expense of purchased intangible assets of
$38.5 million and $5.5 million were included in operating expenses and cost of product revenues in 2008. During
2008, the Company recorded an impairment charge of $5.0 million in operating expenses due to the phase-out of its
DX products. During 2007, the Company had no impairment on its purchased intangible assets. During 2006, the
Company recorded an impairment charge of $3.4 million in operating expenses due to a significant decrease in
forecasted revenues associated with Session Border Control (“SBC”) products.
82
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes estimated future amortization expense of purchased intangible assets with
definite lives for the future fiscal years (in millions):
Years Ending December 31,
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
$15.4
3.9
2.0
1.2
1.1
5.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$28.8
Note 6. Other Financial Information
Property and Equipment
Property and equipment consist of the following (in millions):
As of December 31,
2008
2007
Computers and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 399.7
58.1
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
143.2
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20.9
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
192.4
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 301.5
40.2
125.6
18.5
192.4
Property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
814.3
(377.9)
678.2
(276.4)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 436.4
$ 401.8
Depreciation expense was $123.5 million, $101.8 million, and $76.2 million in 2008, 2007, and 2006,
respectively.
Restricted Cash
Restricted cash as of December 31, 2008, consisted of escrow accounts required by certain acquisitions
completed in 2005, the Directors & Officers (“D&O”) indemnification trust, and the India Gratuity Trust. The India
Gratuity Trust was established in 2008 to cover statutory severance obligations in the event of termination of its
India employees who have provided five or more years of continuous service. The D&O trust was established to
secure the Company’s indemnification obligations to certain directors, officers, and other specified employees,
arising from their activities as such, in the event that the Company does not provide or is financially incapable of
providing indemnification. In 2008, the Company made no distributions from restricted cash and increased its
restricted cash by $8.1 million to fund both the India Gratuity and D&O Trusts due to overall growth of the
Company.
In 2007, the Company distributed $11.5 million, $1.6 million, and $4.6 million of its restricted cash upon the
settlement of certain escrow obligations associated with the acquisitions of Funk Software, Acorn Packet Solutions,
and Kagoor Networks, respectively. The Company also added $8.9 million to its D&O insurance trust to increase
coverage due to the overall growth of the Company.
83
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
In 2006, the Company reduced restricted cash by $5.9 million as its deposit requirements for standby letters of
credits issued for facility leases was removed. The Company also distributed $13.1 million and $2.0 million of its
restricted cash upon the settlement of certain escrow obligations associated with the Redline Networks and Kagoor
Networks acquisitions, respectively.
Deferred Revenue
Amounts billed in excess of revenue recognized are included as deferred revenue in the accompanying
consolidated balance sheets. Product deferred revenue, net of the related deferred cost of revenue, includes
shipments to end-users, value-add resellers, and distributors. Below is a breakdown of the Company’s deferred
revenue (in millions):
As of December 31,
2007
2008
Product:
Deferred gross product revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 268.0
(110.0)
Deferred cost of product revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$242.0
(96.0)
Deferred product revenue, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
158.0
432.3
146.0
367.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 590.3
$513.3
Reported as:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 459.8
130.5
Long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$425.6
87.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 590.3
$513.3
Accrued Warranty
The Company provides for the estimated cost of product warranties at the time revenue is recognized. This
provision is reported as accrued warranty within current liabilities on the accompanying consolidated balance
sheets. Changes in the Company’s accrued warranty are as follows (in millions):
Beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals for estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual costs incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 37.5
47.8
(45.2)
$ 34.8
43.3
(40.6)
End of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40.1
$ 37.5
Years Ended
December 31,
2008
2007
84
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Other Charges, Net
Other charges, net, consists of the following (in millions):
Restructuring and acquisition-related expenses, net. . . . . . . . . . . . . . . . . . . . —
Stock option investigation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Stock option amendment and tax-related charges . . . . . . . . . . . . . . . . . . . . . —
9.0
Loss (gain) on litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.7
6.0
8.0
(5.3)
5.9
20.5
10.1
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9.0
$ 9.4
$36.5
Years Ended December 31,
2008
2006
2007
The Company had no restructuring and acquisition-related expenses in 2008. Restructuring and acquisition-
related expenses of $0.7 million in 2007, primarily consisted of a $1.1 million bonus accrual payable to employees
of a past acquisition, net of $0.4 million in adjustments made to restructuring liabilities. Restructuring and
acquisition-related expenses of $5.9 million in 2006 primarily consisted of the $5.6 million bonus and earn-out
accrual associated with the Funk and Acorn acquisitions and $0.3 million in net restructuring charges and
acquisition-related restructuring charges.
In 2007 and 2006, the Company incurred $6.0 million and $20.5 million, respectively, in professional fees for
the costs of external service providers used in the completion of its internal stock option investigation. The
Company did not incur any such costs in 2008.
The Company recognized stock option amendment and tax-related charges of $8.0 million and $10.1 million in
2007 and 2006, respectively, pertaining to the amendment of stock options and to the settlement with the IRS for
employment tax assessments primarily related to the timing of tax deposits related to employee stock option
exercises. The Company did not incur any such charges in 2008.
In 2008, the Company incurred a $9.0 million expense for the settlement of its shareholder derivative lawsuits.
See Note 7 — Commitments and Contingencies under “Legal Proceedings.” In 2007, the Company recorded a net
legal settlement gain of $5.3 million, which consisted of cash proceeds of $6.2 million, net of transaction costs of
$0.9 million.
Interest and Other Income, Net
Interest and other income, net, consists of the following (in millions):
Interest income and expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income and expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$49.6
(0.9)
$99.2
(2.4)
$102.9
(2.2)
Total interest and other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48.7
$96.8
$100.7
Years Ended December 31,
2008
2006*
2007
Interest income and expense, net, primarily includes interest income from our cash, cash equivalents, and
investments, short-term debt expenses, and debt issuance cost amortization. Other income and expense, net,
primarily includes foreign exchange losses and other miscellaneous expenses such as bank fees.
85
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Note 7. Commitments and Contingencies
Commitments
The following table summarizes the Company’s principal contractual obligations as of December 31, 2008, (in
millions):
Total
2009
2010
2011
2012
2013
Thereafter Other
Operating leases . . . . . . . . . . . . $210.0
(1.4)
Sublease rental income . . . . . . .
86.8
Purchase commitments . . . . . . .
91.2
Tax liabilities . . . . . . . . . . . . . .
68.9
Other contractual obligations . .
$ 51.6 $48.3 $41.1
(0.6) —
—
—
13.5
(0.8)
86.8
13.0
30.6
—
—
17.3
$35.3 $18.9
—
—
—
1.9
—
—
—
5.6
Total . . . . . . . . . . . . . . . . . . $455.5
$181.2 $65.0 $54.6
$40.9 $20.8
$14.8
—
—
—
—
$14.8
$ —
—
—
78.2
—
$78.2
Operating Leases
The Company leases its facilities under operating leases that expire at various times, the longest of which
expires in January 2017. Future minimum payments under the non-cancelable operating leases, net of committed
sublease income, totaled $208.6 million as of December 31, 2008. Rental expense for 2008, 2007, and 2006 was
approximately $58.0 million, $48.7 million, and $40.3 million, respectively.
Purchase Commitments
In order to reduce manufacturing lead times and ensure adequate component supply, the Company’s contract
manufacturers place non-cancelable, non-returnable (“NCNR”) orders for components based on the Company’s
build forecasts. As of December 31, 2008, there were NCNR component orders placed by the contract manufac-
turers with a value of $86.8 million. The contract manufacturers use the components to build products based on the
Company’s forecasts and on purchase orders the Company has received from customers. Generally, the Company
does not own the components and title to the products transfers from the contract manufacturers to the Company and
immediately to the Company’s customers upon delivery at a designated shipment location. If the components go
unused or the products go unsold for specified periods of time, the Company may incur carrying charges or obsolete
materials charges for components that the contract manufacturers purchased to build products to meet the
Company’s forecast or customer orders. As of December 31, 2008, the Company had accrued $30.4 million
based on its estimate of such charges.
Tax Liabilities
As of December 31, 2008, the Company had $91.2 million included in current and long-term liabilities in the
consolidated balance sheet for unrecognized tax positions. It is reasonably possible that the Company may reach
agreement on certain issues and, as a result, the amount of the liability for unrecognized tax benefits may decrease
by approximately $13.0 million within the next 12 months. At this time, the Company is unable to make a
reasonably reliable estimate of the timing of payments related to the additional $78.2 million in liability due to
uncertainties in the timing of tax audit outcomes.
Other Contractual Obligations
As of December 31, 2008, the Company had indemnity-related escrow obligations of $2.3 million and a joint
development agreement requiring quarterly payments of $3.5 million through January 2010. In 2008, the Company
entered into a five-year, $36.4 million data center hosting agreement. As of December 31, 2008, $26.4 million
remained unpaid under the data center hosting agreement with the remaining commitment expected to be paid
86
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
through the end of April 2013. Additionally, in 2008, the Company entered into a three-year, $22.7 million software
subscription agreement to replace a previous software subscription requiring payment of $5.0 million in January
2009. As of December 31, 2008, $22.7 million remained unpaid under the software subscription agreement with the
remaining commitment expected to be paid through the end of January 2011.
Guarantees and Letters of Credit
The Company has entered into agreements with some of its customers that contain indemnification provisions
relating to potential situations where claims could be alleged that the Company’s products infringe the intellectual
property rights of a third party. Other guarantees or indemnification arrangements include guarantees of product and
service performance and standby letters of credit for certain lease facilities. The Company has not recorded a
liability related to these indemnification and guarantee provisions and its guarantees and indemnification arrange-
ments have not had any significant impact on the Company’s consolidated financial condition, results of operations,
or cash flows.
Legal Proceedings
The Company is subject to legal claims and litigation arising in the ordinary course of business, such as
employment or intellectual property claims, including the matters described below. The outcome of any such
matters is currently not determinable. Although the Company does not expect that any such legal claims or litigation
will ultimately have a material adverse effect on its consolidated financial condition or results of operations, an
adverse result in one or more of such matters could negatively affect the Company’s consolidated financial results in
the period in which they occur.
Federal Derivative Lawsuits
Between May 24, 2006, and August 17, 2006, seven purported shareholder derivative actions were filed in the
United States District Court for the Northern District of California against the Company and certain of its current
and former officers and directors. The lawsuits alleged that the Company’s officers and directors either participated
in illegal back-dating of stock option grants or allowed it to happen. On October 19, 2006, the Court ordered the
consolidation of these actions as In Re Juniper Derivative Actions, No. 06-03396, and appointed as the lead
plaintiffs Timothy Hill, Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund, and Indiana State District
Council of Laborers and HOD Carriers Pension Fund. Lead plaintiffs filed a consolidated complaint on April 11,
2007. The consolidated complaint asserted causes of action for violations of federal securities laws, violations of
California securities laws, breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty, abuse of
control, corporate waste, breach of contract, unjust enrichment, gross mismanagement, and insider selling and
misappropriation of information. The consolidated complaint also demanded an accounting and rescission of
allegedly improper stock option grants. The Company formed a Special Litigation Committee to determine whether
it was in the best interest of Juniper Networks and its shareholders to pursue any of the claims asserted in the
derivative litigation. The Special Litigation Committee was authorized to pursue, settle, or release such claims. The
plaintiffs and the Company reached an agreement on a settlement of the federal derivative litigation and the state
derivative litigation discussed below. The Company accrued an aggregate of $9.0 million expense, which was paid
by December 31, 2008, in connection with both of these settlements. On August 26, 2008, plaintiffs filed the
stipulation of settlement and a motion for preliminary approval of the settlement. On September 8, 2008, the Court
entered an Order preliminarily approving the derivative settlement and providing for notice to shareholders. On
November 13, 2008, the Court entered an Order granting final approval for the derivative settlement and dismissing
the federal derivative action.
87
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
State Derivative Lawsuits — California
On May 24, 2006, and June 2, 2006, two purported shareholder derivative actions were filed in the Santa Clara
County Superior Court in the State of California against the Company and certain of its current and former officers
and directors. These two actions were consolidated as In re Juniper Networks Derivative Litigation,
No. 1:06CV064294, by order dated June 20, 2006. An amended consolidated complaint was filed on April 9,
2007. The amended consolidated complaint alleged that certain of the Company’s current and former officers and
directors either participated in illegal back-dating of stock options or allowed it to happen. The complaint asserted
causes of action for unjust enrichment, breach of fiduciary duties, abuse of control, gross mismanagement, waste of
corporate assets, insider selling and misappropriation of information, and violations of California securities laws.
Plaintiffs also demanded an accounting and rescission of allegedly improper stock options grants, and a constructive
trust of proceeds derived from allegedly illicit stock options. The Company formed a Special Litigation Committee
to determine whether it was in the best interest of Juniper Networks and its shareholders to pursue any of the claims
asserted in the derivative litigation. The Special Litigation Committee was authorized to pursue, settle, or release
such claims. The plaintiffs and the Company reached an agreement on a settlement of the federal derivative
litigation discussed above and the state derivative litigation. The Company accrued an aggregate of $9.0 million
expense, which was paid by December 31, 2008, in connection with both of these settlements. On December 3,
2008, the Company’s Special Litigation Committee filed a stipulation of settlement in the state derivative actions,
and the Court approved the stipulation on December 4, 2008.
Federal Securities Class Action
On July 14, 2006, and August 29, 2006, two purported class actions were filed in the Northern District of
California against the Company and certain of the Company’s current and former officers and directors. On
November 20, 2006, the Court consolidated the two actions as In re Juniper Networks, Inc. Securities Litigation,
No. C06-04327-JW, and appointed the New York City Pension Funds as lead plaintiffs. The lead plaintiffs filed a
Consolidated Class Action Complaint on January 12, 2007, and filed an Amended Consolidated Class Action
Complaint on April 9, 2007. The Amended Consolidated Complaint alleges that the defendants violated federal
securities laws by manipulating stock option grant dates to coincide with low stock prices and issuing false and
misleading statements including, among others, incorrect financial statements due to the improper accounting of
stock option grants. The Amended Consolidated Complaint asserts claims for violations of the Securities Act of
1933 and the Securities Exchange Act of 1934 on behalf of all persons who purchased or otherwise acquired Juniper
Networks’ publicly-traded securities from July 12, 2001, through and including August 10, 2006. On June 7, 2007,
the defendants filed a motion to dismiss certain of the claims, and a hearing was held on September 10, 2007. On
March 31, 2008, the Court issued an order granting in part and denying in part the defendants’ motion to dismiss.
The order dismissed with prejudice plaintiffs’ section 10(b) claim to the extent it was based on challenged
statements made before July 14, 2001. The order also dismissed, with leave to amend, plaintiffs’ section 10(b) claim
against Pradeep Sindhu. The order upheld all of plaintiffs’ remaining claims. Plaintiffs did not amend their
complaint. Defendants filed their answer on June 23, 2008.
Calamore Proxy Statement Action
On March 28, 2007, an action titled Jeanne M. Calamore v. Juniper Networks, Inc., et al., No. C-07-1772-JW,
was filed by Jeanne M. Calamore in the Northern District of California against the Company and certain of the
Company’s current and former officers and directors. The complaint alleges that the proxy statement for the
Company’s 2006 Annual Meeting of Stockholders contained various false and misleading statements in that it failed
to disclose stock option backdating information. As a result, plaintiff seeks preliminary and permanent injunctive
relief with respect to the Company’s 2006 Equity Incentive Plan, including seeking to invalidate the plan and all
equity awards granted and grantable thereunder. On May 21, 2007, the Company filed a motion to dismiss, and
plaintiff filed a motion for preliminary injunction. On July 19, 2007, the Court issued an order denying plaintiff’s
motion for a preliminary injunction and dismissing the complaint in its entirety with leave to amend. Plaintiff filed
88
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
an amended complaint on August 27, 2007, and the defendants filed a motion to dismiss on October 9, 2007. On
August 13, 2008, the Court issued an Order granting defendants’ motion to dismiss with prejudice, and entered final
judgment in favor of defendants. On September 9, 2008, plaintiff filed a Notice of Appeal in the United States Court
of Appeals for the Ninth Circuit. Plaintiff filed her opening appellate brief on January 26, 2009. Defendants’
answering brief is due March 11, 2009.
IPO Allocation Case
In December 2001, a class action complaint was filed in the United States District Court for the Southern
District of New York against the Goldman Sachs Group, Inc., Credit Suisse First Boston Corporation, FleetBoston
Robertson Stephens, Inc., Royal Bank of Canada (Dain Rauscher Wessels), SG Cowen Securities Corporation, UBS
Warburg LLC (Warburg Dillon Read LLC), Chase (Hambrecht & Quist LLC), J.P. Morgan Chase & Co., Lehman
Brothers, Inc., Salomon Smith Barney, Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated (collectively, the
“Underwriters”), Juniper Networks and certain of Juniper Networks’ officers. This action was brought on behalf of
purchasers of the Company’s common stock in its initial public offering in June 1999 and the Company’s secondary
offering in September 1999.
Specifically, among other things, this complaint alleged that the prospectus pursuant to which shares of
common stock were sold in the Company’s initial public offering and the Company’s subsequent secondary offering
contained certain false and misleading statements or omissions regarding the practices of the Underwriters with
respect to their allocation of shares of common stock in these offerings and their receipt of commissions from
customers related to such allocations. Various plaintiffs have filed actions asserting similar allegations concerning
the initial public offerings of approximately 300 other issuers. These various cases pending in the Southern District
of New York have been coordinated for pretrial proceedings as In re Initial Public Offering Securities Litigation, 21
MC 92. In April 2002, plaintiffs filed a consolidated amended complaint in the action against the Company, alleging
violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. Defendants in the coordinated
proceeding filed motions to dismiss. In October 2002, the Company’s officers were dismissed from the case without
prejudice pursuant to a stipulation. On February 19, 2003, the Court granted in part and denied in part the motion to
dismiss, but declined to dismiss the claims against the Company.
In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including the
Company, was submitted to the Court for approval. On August 31, 2005, the Court preliminarily approved the
settlement. In December 2006, the Appellate Court overturned the certification of classes in the six test cases that
were selected by the underwriter defendants and plaintiffs in the coordinated proceedings (the action involving the
Company is not one of the six test cases). Because class certification was a condition of the settlement, it was
unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order
terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have
filed amended master allegations and amended complaints in the six focus cases. On March 26, 2008, the Court
largely denied the defendants’ motion to dismiss the amended complaints in the six test cases.
16(b) Demand
On October 3, 2007, a purported Juniper Networks shareholder filed a complaint for violation of Section 16(b)
of the Securities Exchange Act of 1934, which prohibits short-swing trading, against the Company’s IPO
underwriters. The complaint, Vanessa Simmonds v. The Goldman Sachs Group, et al., Case No. C07-015777,
in District Court for the Western District of Washington, seeks the recovery of short-swing profits. The Company is
named as a nominal defendant. No recovery is sought from the Company in this matter.
IRS Notices of Proposed Adjustments
In 2007, the IRS opened an examination of the Company’s U.S. federal income tax and employment tax returns
for the 2004 fiscal year. Subsequently, the IRS extended their examination of the Company’s employment tax
89
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
returns to include fiscal years 2005 and 2006. The IRS has not yet concluded its examinations of these returns. In
September 2008, as part of its on-going audit of the U.S. federal income tax return, the IRS issued a Notice of
Proposed Adjustment (“NOPA”) regarding the Company’s business credits. The Company is considering its
response to the proposed adjustment by the IRS. The Company believes that it has adequately provided for any
reasonably foreseeable outcome related to this proposed adjustment and the ultimate resolution of this matter is
unlikely to have a material effect on the Company’s consolidated financial condition and results of operations.
The IRS has concluded an audit of the Company’s federal income tax returns for fiscal years 1999 and 2000.
During 2004, the Company received a NOPA from the IRS. While the final resolution of the issues raised in the
NOPA is uncertain, the Company does not believe that the outcome of this matter will have a material adverse effect
on the Company’s consolidated financial condition and results of operations. The Company is also under routine
examination by certain state and non-U.S. tax authorities. The Company believes that it has adequately provided for
any reasonably foreseeable outcome related to these audits.
Note 8. Debt
Senior Convertible Notes
In 2003, the Company received $392.8 million of net proceeds from an offering of $400.0 million aggregate
principal amount of Zero Coupon Convertible Senior Notes due June 15, 2008 (the “Senior Notes”). The Senior
Notes were senior unsecured obligations, ranked on parity in right of payment with all of the Company’s existing
and future senior unsecured debt, and ranked senior to all of the Company’s existing and future debt that expressly
provided that it was subordinated to the notes. The Senior Notes bore no interest, but were convertible into shares of
the Company’s common stock, subject to certain conditions, at any time prior to maturity or their prior repurchase
by the Company. The conversion rate was 49.6512 shares per each $1,000 principal amount of convertible notes,
subject to adjustment in certain circumstances. This was equivalent to a conversion price of approximately $20.14
per share. As of December 31, 2007, the holders of Senior Notes with a face value of approximately $0.5 million had
converted these notes into shares of the Company’s common stock. In 2008, holders of approximately
$399.2 million in aggregate principal amount of Senior Notes had converted these notes into approximately
19.8 million shares of the Company’s common stock. The Company settled the remaining Senior Notes, with a face
value of $0.3 million principal amount at maturity, for cash. As of December 31, 2008, all of the Company’s Senior
Notes were retired.
The carrying amounts and fair values of the Senior Notes were (in millions):
As of
December 31,
2007
2008
Carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$— $399.5
$— $659.2
Distributor Financing Arrangement
The Company recognizes the sale of accounts receivable primarily to one major financing provider according
to SFAS 140. The Company introduced its distributor financing program in 2006 to strengthen its channel business
by promoting greater distributor volume and improved customer service. The program does not, and is not intended
to, affect the timing of revenue recognition because the Company only recognizes revenue upon sell-through. Under
the financing arrangements, proceeds from the financing provider are due to the Company 30 days from the sale of
the receivable. The Company pays the financing provider a financing fee based on the spread over LIBOR or
SIBOR. In these transactions with a major financing provider, the Company has surrendered control over the
transferred assets. The accounts receivable have been isolated from the Company and put beyond the reach of
creditors, even in the event of bankruptcy. The purchaser of the accounts receivable balances has the right to pledge
90
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
or exchange the assets transferred. 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 receivable financing arrangements for the sale of receivables, the Company sold net receivables
of $427.2 million and $130.4 million in 2008 and 2007, respectively. In 2008 and 2007, the Company received cash
proceeds of $392.7 million and $95.4 million, respectively. The amounts owed by the financing provider recorded
as accounts receivable on the Company’s consolidated balance sheets as of December 31, 2008, and December 31,
2007, were $73.9 million and $40.4 million, respectively.
The Company has determined that the portion of the receivable financed that has not been recognized as
revenue should be accounted for as a financing transaction pursuant to EITF Issue 88-18, Sales of Future Revenues.
As of December 31, 2008, and December 31, 2007, the estimated amounts of cash received from the financing
provider that has not been recognized as revenue from its distributors was $33.0 million and $10.0 million,
respectively.
Note 9. Stockholders’ Equity
Stock Repurchase Activities
In 2008, the Company repurchased $604.7 million, or 25.1 million shares of common stock, under two stock
repurchase programs that were authorized by its Board of Directors (the “Board”).
Under the $2.0 billion stock repurchase program approved in 2006 and 2007 (the “2006 Stock Repurchase
Program”), the Company repurchased approximately 15.4 million shares of its common stock at an average price of
$24.53 per share for a total purchase price of $376.8 million in 2008. As of December 31, 2008, the Company has
repurchased and retired approximately 84.8 million shares of its common stock under the 2006 Stock Repurchase
Program at an average price of $23.58 per share, and the program has no remaining authorized funds available for
future stock repurchases.
The Board approved another $1.0 billion stock repurchase program in March 2008 (the “2008 Stock
Repurchase Program”). Under this program, the Company repurchased approximately 9.7 million shares of its
common stock at an average price of $23.43 per share for a total purchase price of $227.9 million during 2008. As of
December 31, 2008, the 2008 Stock Repurchase Program had remaining authorized funds of $772.1 million.
All shares of common stock purchased under the 2006 and 2008 Stock Repurchase Programs have been retired.
Future share repurchases under the Company’s 2008 Stock Repurchase Program will be subject to a review of the
circumstances in place at the 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. This program may be discontinued at any
time. See Note 14 — Subsequent Events for discussion of our stock repurchase activity in 2009.
Convertible Preferred Stock
There are 10,000,000 shares of convertible preferred stock with a par value of $0.00001 per share authorized
for issuance. No preferred stock was issued and outstanding as of December 31, 2008, and December 31, 2007.
Note 10. Employee Benefit Plans
Stock Option Plans
2006 Equity Incentive Plan
On May 18, 2006, the Company’s stockholders adopted the Company’s 2006 Equity Incentive Plan (the “2006
Plan”) to enable the granting of incentive stock options, nonstatutory stock options, RSUs, restricted stock, stock
appreciation rights, performance shares, performance units, deferred stock units, and dividend equivalents to the
91
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
employees and consultants of the Company. The 2006 Plan also provides for the automatic, non-discretionary
award of nonstatutory stock options to the Company’s non-employee members of the Board.
The maximum aggregate number of shares authorized under the 2006 Plan is 64,500,000 shares of common
stock, plus the addition of any shares subject to outstanding options under the Company’s Amended and Restated
1996 Stock Plan (the “1996 Plan”) and the Company’s 2000 Nonstatutory Stock Option Plan (the “2000 Plan”) that
subsequently expired unexercised after May 18, 2006, up to a maximum of 75,000,000 additional shares of common
stock.
Options granted under the 2006 Plan have a maximum term of five to seven years from the grant date, and
generally vest and become exercisable over a four-year period. Subject to the terms of change of control severance
agreements, and except for a limited number of shares allowed under the 2006 Plan, restricted stock, performance
shares, RSUs, or deferred stock units that vest solely based on continuing employment or provision of services will
vest in full no earlier than the three-year anniversary of the grant date, or in the event vesting is based on factors
other than continued future provision of services, such awards will vest in full no earlier than the one-year
anniversary of the grant date.
The 2006 Plan provides each non-employee director an automatic grant of an option to purchase 50,000 shares
of common stock upon the date on which such individual first becomes a director, whether through election by the
stockholders of the Company or appointment by the Board to fill a vacancy (the “First Option”). In addition, at each
of the Company’s annual stockholder meetings (i) each non-employee director who was a non-employee director on
the date of the prior year’s annual stockholder meeting shall be automatically granted RSUs for a number of shares
equal to the Annual Value (as defined below), and (ii) each non-employee director who was not a non-employee
director on the date of the prior year’s annual stockholder meeting shall receive a RSU award for a number of shares
determined by multiplying the Annual Value by a fraction, the numerator of which is the number of days since the
non-employee director received their First Option, and the denominator of which is 365, rounded down to the
nearest whole share. Each RSU award specified in (i) and (ii) are referred to herein as an “Annual Award.” The
Annual Value means the number of RSUs equal to $125,000 divided by the average daily closing price of the
Company’s common stock over the six month period ending on the last day of the fiscal year preceding the date of
grant (for example, the period from July 1, 2008 — December 31, 2008 for Annual Awards granted in May 2009).
The First Option vests monthly over approximately three years from the grant date subject to the non-employee
director’s continuous service on the Board. The Annual Award shall vest approximately one year from the grant date
subject to the non-employee director’s continuous service on the Board. Under the 2006 Plan, options granted to
non-employee directors have a maximum term of seven years.
2000 Nonstatutory Stock Option Plan
In July 2000, the Board adopted the Juniper Networks 2000 Nonstatutory Stock Option Plan (“2000 Plan”).
The 2000 Plan provided for the granting of nonstatutory stock options to employees, directors, and consultants.
Options granted under the 2000 Plan generally become exercisable over a four-year period beginning on the date of
grant and have a maximum term of ten years. The Company had authorized 90,901,437 shares of common stock for
issuance under the 2000 Plan. Effective May 18, 2006, additional equity awards under the 2000 Plan have been
discontinued and new equity awards are being granted under the 2006 Plan. Remaining authorized shares under the
2000 Plan that were not subject to outstanding awards as of May 18, 2006, were canceled on May 18, 2006. The
2000 Plan will remain in effect as to outstanding equity awards granted under the plan prior to May 18, 2006.
Amended and Restated 1996 Stock Plan
The 1996 Plan provided for the granting of incentive stock options to employees and nonstatutory stock
options to employees, directors, and consultants. On November 3, 2005, the Board adopted an amendment to the
1996 Plan to add the ability to issue RSUs under the 1996 Plan. Options granted under the 1996 Plan generally
become exercisable over a four-year period beginning on the date of grant and have a maximum term of ten years.
92
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The Company had authorized 164,623,039 shares of common stock for issuance under the 1996 Plan. Effective
May 18, 2006, additional equity awards under the 1996 Plan have been discontinued and new equity awards are
being granted under the 2006 Plan. Remaining authorized shares under the 1996 Plan that were not subject to
outstanding awards as of May 18, 2006, were canceled on May 18, 2006. The 1996 Plan will remain in effect as to
outstanding equity awards granted under the plan prior to May 18, 2006.
Plans Assumed Upon Acquisition
In connection with past acquisitions, the Company assumed options and restricted stock under the stock plans
of the acquired companies. The Company exchanged those options and restricted stock for Juniper Networks’
options and restricted stock and, in the case of the options, authorized the appropriate number of shares of common
stock for issuance pursuant to those options. As of December 31, 2008, there were approximately 2.6 million
common shares subject to outstanding awards under plans assumed through past acquisitions. There was no
restricted stock subject to repurchase as of December 31, 2008, and 2007. There were no restricted stock
repurchases during 2008 and 2007. During 2006, the Company repurchased an immaterial amount of restricted
common stock in connection with employee terminations.
Equity Award Activity
In 2008, the Company granted RSUs covering approximately 1.5 million shares of common stock to its
employees under the 2006 Plan and performance share awards to eligible executives covering approximately
1.5 million shares of common stock. RSUs generally vest over a period of three to five years from the date of grant.
Performance share awards generally vest from 2009 through 2012 provided that certain annual performance targets
and other vesting criteria are met. Until vested, RSUs and performance share awards do not have the voting rights of
common stock and the shares underlying the awards are not considered issued and outstanding. The Company
expenses the cost of RSUs, which is determined to be the fair market value of the shares of the Company’s common
stock at the date of grant, ratably over the period during which the restrictions lapse. The Company estimated stock
compensation expense for its performance share awards based on the vesting criteria and only recognized expense
for the portions of such awards for which annual targets have been set. The Company accrued stock compensation
expense of $2.2 million in operating expenses for 2008 in connection with its performance share awards. In addition
to RSUs and performance share awards, during 2008, the Company also granted employee stock options covering
15.7 million shares of common stock under the 2006 Plan.
93
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Equity award activities and related information as of and for the three years ended December 31, 2008, are
summarized as follows:
Shares
Available
for Grant(1)
(In thousands)
78,478
Number of
Shares
(In thousands)
85,153
Outstanding Options(5)
Weighted
Average
Remaining
Contractual
Term
(In years)
Weighted-
Average
Exercise
Price
(In dollars)
$17.79
Aggregate
Intrinsic Value(6)
(In thousands)
Balance at December 31, 2005 . . .
RSUs and performance share
awards granted(4) . . . . . . . . .
RSUs canceled . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . .
Options exercised . . . . . . . . . . .
Options canceled(2) . . . . . . . . . .
Options expired(2) . . . . . . . . . . .
Shares discontinued(3) . . . . . . . .
Shares authorized under the
2006 Plan . . . . . . . . . . . . . . .
Balance at December 31, 2006 . . .
RSUs and performance share
awards granted(4) . . . . . . . . .
RSUs canceled . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . .
Options exercised . . . . . . . . . . .
Options canceled(2) . . . . . . . . . .
Options expired(2) . . . . . . . . . . .
Balance at December 31, 2007 . . .
RSUs and performance share
awards granted(4) . . . . . . . . .
RSUs canceled . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . .
Options exercised . . . . . . . . . . .
Options canceled(2) . . . . . . . . . .
Options expired(2) . . . . . . . . . . .
(4,356)
149
(15,097)
—
3,377
3,733
(70,242)
64,500
60,542
(7,573)
534
(14,745)
—
2,734
4,530
46,022
(6,346)
1,357
(15,717)
—
2,420
853
Balance at December 31, 2008 . . .
28,589
—
—
15,097
(9,313)
(4,950)
(3,895)
—
—
82,092
—
—
14,745
(22,399)
(2,879)
(4,631)
66,928
—
—
15,717
(5,701)
(2,429)
(878)
73,637
—
—
17.49
6.91
16.77
25.55
—
—
18.66
—
—
22.91
15.43
19.19
24.56
20.36
—
—
23.08
14.49
22.03
28.75
$21.24
4.9
$121,603
(1) Shares available for grant under the 1996 Plan, the 2000 Plan, and the 2006 Plan, as applicable.
(2) Canceled or expired options under the 1996 Plan, the 2000 Plan, and the stock plans of the acquired companies
are no longer available for future grant under such plans, except for shares subject to outstanding options under
the 1996 Plan and the 2000 Plan that subsequently expired unexercised after May 18, 2006, up to a maximum of
75,000,000 additional shares of common stock, become available for grant under the 2006 Plan.
(3) Upon the adoption of the 2006 Plan on May 18, 2006, authorized shares not subject to outstanding awards under
the 1996 Plan and the 2000 Plan were discontinued.
94
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
(4) RSUs and performance share awards 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 2006 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.
(5) Outstanding options information does not include RSUs and performance share awards outstanding as of
December 31, 2008. See details under “Restricted Stock Units and Performance Share Awards Activities”
below.
(6) Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last
trading day of the fiscal period, which was $17.51 as of December 31, 2008, and the exercise price multiplied by
the number of related options.
The following schedule summarizes information about stock options outstanding under all option plans as of
December 31, 2008:
Range of Exercise Price
$0.31 - $10.31 . . . . . . . . . . . .
$10.54 - $16.75 . . . . . . . . . . .
$16.78 - $18.01 . . . . . . . . . . .
$18.03 - $21.42 . . . . . . . . . . .
$21.55 - $23.53 . . . . . . . . . . .
$23.69 - $24.59 . . . . . . . . . . .
$24.73 - $26.05 . . . . . . . . . . .
$26.09 - $30.34 . . . . . . . . . . .
$30.35 - $50.00 . . . . . . . . . . .
$51.29 - $183.06 . . . . . . . . . .
Number
Outstanding
(In thousands)
10,270
8,073
8,563
8,065
7,993
7,394
7,684
7,532
7,484
579
$0.31 - $183.06 . . . . . . . . . . .
73,637
Options Outstanding
Weighted-Average
Remaining
Contractual Life
Weighted-
Average
Exercise Price
3.2
5.0
5.7
4.6
6.2
5.8
6.1
5.4
3.1
1.3
4.9
$ 7.95
14.82
17.61
19.27
22.66
24.14
25.32
27.65
33.50
75.11
$21.24
Options Exercisable
Number
Exercisable
(In thousands)
10,263
5,108
2,549
4,782
6,597
6,604
2,148
3,453
5,093
579
47,176
Weighted-
Average
Exercise Price
$ 7.95
14.82
17.85
19.17
22.65
24.10
25.67
28.37
33.77
75.11
$20.59
As of December 31, 2008, approximately 47.2 million shares of common stock were exercisable at an average
exercise price of $20.59 per share. As of December 31, 2007, approximately 44.8 million shares of common stock
were exercisable at an average exercise price of $20.01 per share.
The Company’s vested or expected-to-vest stock options and exercisable stock options as of December 31,
2008, are summarized below:
Vested or expected-to-vest options . . . . . . .
Exercisable options . . . . . . . . . . . . . . . . . .
Weighted-
Average
Exercise
Price
(In dollars)
$21.13
20.59
Weighted
Average
Remaining
Contractual
Term
(In years)
4.8
4.4
Number of
Shares
(In thousands)
65,499
47,176
Aggregate
Intrinsic Value
(In thousands)
$118,512
111,975
The intrinsic value of options exercised was $66.7 million, $291.7 million, and $107.8 million for 2008, 2007,
and 2006, respectively. This intrinsic value represents 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.
95
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Total fair value of options vested during 2008 was $70.3 million. As of December 31, 2008, approximately
$151.4 million of total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested
stock options was expected to be recognized over a weighted-average period of approximately 2.9 years.
Restricted Stock Units and Performance Share Awards Activities
The following schedule summarizes information about the Company’s RSUs and performance share awards
for the three years ended December 31, 2008:
Outstanding RSUs and Performance Share Awards
Number of
Shares
(In thousands)
Balance at December 31, 2005 . . . . . . . . . . . . . . . . .
RSUs and performance share awards granted. . . . .
RSUs and performance share awards vested . . . . .
RSUs and performance share awards canceled . . . .
Balance at December 31, 2006 . . . . . . . . . . . . . . . . .
RSUs and performance share awards granted. . . . .
RSUs and performance share awards vested . . . . .
RSUs and performance share awards canceled . . . .
Balance at December 31, 2007 . . . . . . . . . . . . . . . . .
RSUs and performance share awards granted. . . . .
RSUs and performance share awards vested . . . . .
RSUs and performance share awards canceled . . . .
4
3,574
—
(357)
3,221
3,606
(3)
(540)
6,284
3,022
(1,904)
(710)
Balance at December 31, 2008 . . . . . . . . . . . . . . . . .
6,692
Weighted-
Average
Grant-Date
Fair Value
(In dollars)
$21.90
18.45
—
18.70
$18.43
25.39
21.90
18.73
$22.40
24.51
18.37
21.49
$24.59
Weighted
Average
Remaining
Contractual
Term
(In years)
Aggregate
Intrinsic Value
(In thousands)
1.6
$117,169
The weighted-average grant-date fair value of RSUs and performance share awards granted during 2008, 2007,
and 2006 was $24.51, $25.39, and $18.45 per share, respectively. As of December 31, 2008, approximately
$62.2 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested RSUs
and non-vested performance share awards was expected to be recognized over a weighted-average period of
approximately 2.5 years.
The Company’s vested or expected-to-vest outstanding RSUs and performance share awards as of Decem-
ber 31, 2008, are summarized below:
Weighted-
Average
Exercise
Price
(In dollars)
Weighted
Average
Remaining
Contractual
Term
(In years)
Number of
Shares
(In thousands)
Aggregate
Intrinsic Value
(In thousands)
Shares subject to outstanding RSUs and
performance share awards . . . . . . . . . . .
6,692
Vested and expected-to-vest RSUs and
performance Share awards . . . . . . . . . . .
4,405
$—
—
1.6
1.5
$117,169
77,132
RSUs covering approximately 1.9 million shares of common stock became vested during 2008. An immaterial
number of outstanding RSUs vested during 2007.
96
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Extension of Stock Option Exercise Periods for Former Employees
The Company could not issue any securities under its registration statements on Form S-8 during the period in
which it was not current in its SEC reporting obligations to file periodic reports under the Securities Exchange Act
of 1934. As a result, during parts of 2006 and 2007, options vested and held by certain former employees of the
Company could not be exercised until the completion of the Company’s stock option investigation and the
Company’s public filings obligations had been met (the “trading black-out period”). The Company extended the
expiration date of these stock options to April 7, 2007, the end of a 30-day period subsequent to the Company’s
filing of its required regulatory reports. As a result of the extensions, the fair values of such stock options had been
reclassified to current liabilities subsequent to the modification and were subject to mark-to-market provisions at
the end of each reporting period until the earlier of final settlement or April 7, 2007. Stock options covering
approximately 660,000 shares of common stock were scheduled to expire and could not be exercised as a result of
the trading black-out period restriction during the first quarter of 2007. The Company measured the fair value of
these stock options using the Black-Scholes-Merton option valuation model and recorded an expense of approx-
imately $4.3 million in the first quarter of 2007. In addition, the Company recorded an expense of $4.4 million in the
first quarter of 2007 associated with the approximately 1,446,000 shares covered by such options which had
exercise periods extended in 2006 as a result of the trading black-out period restriction. As of December 31, 2007,
all of these extended stock options were either exercised or expired un-exercised. All previously recorded liabilities
associated with such extensions were reclassified to additional paid-in capital by the second quarter of 2007.
Amendment of Certain Stock Options
In 2007, the Company completed a tender offer to amend certain options granted under the 1996 Plan and the
2000 Plan that had original exercise prices per share that were less than the fair market value per share of the
common stock underlying the option on the option’s grant date, as determined by the Company for financial
accounting purposes. Under this tender offer, employees subject to taxation in the United States and Canada had the
opportunity to increase their strike price on affected options to the appropriate fair market value per share on the
date of grant so as to avoid unfavorable tax consequences under United States Internal Revenue Code Section 409A
(“409A issue”) or Canadian tax laws and regulations. In exchange for increasing the strike price of these options, the
Company committed to make a cash payment to employees participating in the offer so as to make employees whole
for the incremental strike price as compared to their original option exercise price. In connection with this offer, the
Company amended options to purchase 4.3 million shares of its common stock and committed to make aggregate
cash payments of $7.6 million to offer participants and recorded such amount as operating expense in 2007.
In addition, the Company entered into a separate agreement with two executives in 2007 to amend their
unexercised stock options covering 0.1 million shares of the Company’s common stock in order to cure the 409A
issue associated with such stock options. As a result, the Company committed to make aggregate cash payments of
$0.4 million and recorded this payment liability as operating expense in 2007.
Employee Stock Purchase Plan
In April 1999, the Board approved the adoption of Juniper Networks 1999 Employee Stock Purchase Plan (the
“1999 Purchase Plan”). The 1999 Purchase Plan permits eligible employees to acquire shares of the Company’s
common stock through periodic payroll deductions of up to 10% of base compensation. Each employee may
purchase no more than 6,000 shares in any twelve-month period, and in no event, may an employee purchase more
than $25,000 worth of stock, determined at the fair market value of the shares at the time such option is granted, in
one calendar year. The 1999 Purchase Plan is implemented in a series of offering periods, each six months in
duration, or a shorter period as determined by the Board. The price at which the common stock may be purchased is
85% of the lesser of the fair market value of the Company’s common stock on the first day of the applicable offering
period or on the last day of the applicable offering period. As a result of the Company’s failure to file its Quarterly
Reports on Form 10-Q for the second and third quarters of 2006, the Company had suspended its employee payroll
97
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
withholdings for the purchase of its common stock under the 1999 Purchase Plan from August 2006 through
March 2007. In January 2007, the Board approved a delay of the start of the next offering period from February 1,
2007 to April 1, 2007. Such offering period ended on July 31, 2007.
Compensation expense related to the common stock issued under the 1999 Purchase Plan was $13.2 million,
$7.6 million and $6.6 million in 2008, 2007, and 2006, respectively.
Employees purchased approximately 1.6 million, 0.6 million, and 1.7 million shares of common stock through
the 1999 Purchase Plan at an average exercise price of $22.57, $17.08 and $13.06 per share during fiscal years 2008,
2007, and 2006, respectively. As of December 31, 2008, approximately 8.1 million shares had been issued since
inception, and 12.3 million shares remained available for future issuance under the 1999 Purchase Plan. The 1999
Purchase Plan was discontinued effective February 1, 2009. As of December 31, 2007, approximately 7.1 million
shares had been issued and 10.9 million shares remained available for future issuance under the 1999 Purchase Plan.
In May 2008, the Company’s stockholders approved the adoption of the Juniper Networks 2008 Employee
Stock Purchase Plan (the “2008 Purchase Plan”). The 2008 Purchase Plan replaced the 1999 Purchase Plan, which
was terminated immediately following the conclusion of the offering period ended January 30, 2009. The Board has
reserved an aggregate of 12,000,000 shares of the Company’s common stock for issuance under the 2008 Purchase
Plan. The 2008 Purchase Plan is generally similar to the 1999 Purchase Plan, except that under the 2008 Purchase
Plan any increases to the number of shares reserved for issuance must be approved by the Company’s stockholders.
The first offering period of the 2008 Purchase Plan commenced on the first trading day on or after February 1, 2009.
Common Stock Reserved for Future Issuance
As of December 31, 2008, the Company had reserved an aggregate of approximately 121.2 million shares of
common stock for future issuance under all of its stock option plans and the 1999 Employee Stock Purchase Plan.
Stock-Based Compensation
Stock-based compensation expense incurred in the three years ended December 31, 2008, are summarized as
follows (in millions):
Years Ended December 31,
2008
2006
2007
Cost of revenues — Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues — Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.0
9.2
47.0
36.2
12.7
$ 2.1
8.7
36.6
27.9
12.7
$ 1.9
5.6
35.8
31.3
13.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$108.1
$88.0
$87.6
Valuation of Stock-Based Compensation
SFAS 123R requires the use of a valuation technique, such as an option-pricing model, to calculate the fair
value of stock-based awards. The Company has elected to use the Black-Scholes-Merton option-pricing model,
which incorporates various assumptions including volatility, expected life, dividend, and risk-free interest rates.
The expected volatility is 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. The expected life of
an award is based on historical experience and on the terms and conditions of the stock awards granted to
employees, as well as the potential effect from options that had not been exercised at the time.
98
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Since 2006, the Company began granting stock option awards that have a contractual life of seven years from
the date of grant. Prior to 2006, stock option awards generally had a ten-year contractual life from the date of grant.
In 2007, the government of India implemented a new fringe benefit tax that applies to equity awards granted to
India taxpayers. This fringe benefit tax is payable by the issuer of the equity awards; however, the issuer is allowed
to recover from individual award holders the fringe benefit taxes the issuer paid on their applicable equity awards.
Beginning in January 2008, the Company amended its equity award agreements for future stock-based awards made
to its employees in India to provide for the Company to be reimbursed for fringe benefit taxes paid in relation to
applicable equity awards. The Company has elected to use a Black-Scholes-Merton option-pricing model that
incorporates a Monte Carlo simulation to calculate the fair value of stock-based awards issued under the amended
equity award agreements. The assumptions used and the resulting estimates of weighted-average fair value per
share of options granted and for employee stock purchases under the ESPP during those periods are summarized as
follows:
2008
Years Ended December 31,
2007
2006
Employee Stock Options:
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility factor . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate. . . . . . . . . . . . . . . . . . . . .
Expected life (years) . . . . . . . . . . . . . . . . . . . . .
Fair value per share . . . . . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan:
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility factor(1) . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate(1) . . . . . . . . . . . . . . . . . .
Expected life (years) . . . . . . . . . . . . . . . . . . . . .
Weighted-average fair value per share(1) . . . . . .
—
43% - 60%
1.1% - 4.4%
3.6 - 5.9
$6.76 - $10.88
—
34% - 46%
3.3% - 5.1%
3.5 - 3.7
$6.42 - $13.28
—
38% - 42%
4.5% - 5.1%
3.5 -- 3.6
$5.01 - $7.24
—
46% - 48%
1.9% - 2.2%
0.5
$7.40 - 7.80
—
38%
5.0%
0.4
$6.52
—
33%
4.2%
0.5
$5.19
(1) No range of assumptions is expressed for 2007 and 2006, because there was only one purchase period in each of
those years due to the temporary suspension of the ESPP between August 2006 and March 2007.
401(k) Plan
Juniper Networks maintains a savings and retirement plan qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended. Employees meeting the eligibility requirement, as defined, may contribute up
to the statutory limits of the year. The Company has matched employee contributions since January 1, 2001.
Effective January 1, 2007, the Company matches 25% of all eligible employee contributions up to an annual
maximum of $3,750. All matching contributions vest immediately. The Company’s matching contributions to the
plan totaled $10.7 million, $9.5 million, and $5.8 million in 2008, 2007, and 2006, respectively.
Deferred Compensation Plan
In July 2008, the Company formed a non-qualified compensation plan (“NQDC”), which is an unfunded and
unsecured deferred compensation arrangement. Under the NQDC, officers and other senior employees may elect to
defer a portion of their compensation and contribute such amounts to one or more investment funds. The plan assets
are included within investments and offsetting obligations are included within accrued compensation on the
consolidated balance sheet. The investments are considered trading securities and are reported at fair value. The
realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation
99
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
expense are recorded in the results of operations. The deferred compensation liability under this plan was
approximately $1.0 million as of December 31, 2008.
Note 11. Segment Information
The Company’s chief operating decision maker (“CODM”) allocates resources and assesses performance
based on financial information by the Company’s business groups. In 2008, the Company realigned its organi-
zational structure to include its Service business as a component of the related Infrastructure or SLT business
groups. Accordingly, the previously reported Service segment has been combined into the Company’s two
reportable segments as follows: Infrastructure and SLT. The Infrastructure segment includes products from the
E-, M-, MX-, and T-series router product families, EX-series switching products, as well as the circuit-to-packet
products. The SLT segment consists primarily of Firewall virtual private network (“Firewall”) systems and
appliances, SSL VPN appliances, intrusion detection and prevention appliances (“IDP”), the J-series router product
family and wide area network (“WAN”) optimization platforms.
The primary financial measure used by the CODM in assessing performance of the segments is segment
operating income, which includes certain cost of revenues, research and development expenses, sales and marketing
expenses, and general and administrative expenses. In 2008, the CODM did not allocate certain miscellaneous
expenses to its segments even though such expenses were included in the Company’s management operating
income.
For arrangements with both Infrastructure and SLT products and services, revenue is attributed to the segment
based on the underlying purchase order, contract or sell-through report. Direct costs and operating expenses, such as
standard costs, research and development expenses, and product marketing expenses, are generally applied to each
segment. Indirect costs, such as manufacturing overhead and other cost of revenues, are allocated based on standard
costs. Indirect operating expenses, such as sales, marketing, business development, and general and administrative
expenses are generally allocated to each segment based on factors including headcount, usage, and revenue. The
CODM does not allocate stock-based compensation, amortization of purchased intangible assets, impairment, gain
or loss on equity investments, interest income and expense, other income and expense, income taxes, as well as
certain other charges to the segments.
100
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Further changes to this organizational structure may result in changes to the segments disclosed. The Company
has restated the previously reported segment revenues and segment operating results to reflect the changes in its
segments. Financial information for each segment used by the CODM is summarized as follows (in millions):
Years Ended December 31,
2007(1)
2006(1)
2008
Net revenues:
Infrastructure
Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,301.9
424.0
$1,753.2
320.1
$ 1,413.4
266.7
Total Infrastructure revenues . . . . . . . . . . . . . . . . . . . . . .
2,725.9
2,073.3
1,680.1
Service Layer Technologies
Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Service Layer Technologies revenues . . . . . . . . . . .
609.1
237.4
846.5
573.8
189.0
762.8
479.9
143.6
623.5
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,572.4
2,836.1
2,303.6
Operating income:
Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service Layer Technologies . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment operating income . . . . . . . . . . . . . . . . . . . . .
Other corporate(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total management operating income . . . . . . . . . . . . . . . . . .
Amortization of purchased intangible assets(3) . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation related payroll tax expense . . . . . . .
Impairment of goodwill and intangible assets . . . . . . . . . . . . .
Other charges, net(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating (loss) income . . . . . . . . . . . . . . . . . . . . . . .
Other income and expense, net . . . . . . . . . . . . . . . . . . . . . . . . . .
806.0
65.8
871.8
(7.9)
863.9
(44.0)
(108.1)
(2.8)
(5.0)
(9.0)
695.0
33.9
597.8
5.8
603.6
—
505.9
5.2
511.1
—
603.6
(91.4)
(88.0)
(7.7)
511.1
(97.3)
(87.6)
(2.7)
— (1,283.4)
(37.9)
(9.4)
407.1
103.5
(997.8)
100.7
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . .
$ 728.9
$ 510.6
$ (897.1)
(1) Prior period amounts have been reclassified to reflect the 2008 segment structure, which now includes service
revenues and operating results in Infrastructure and SLT segments.
(2) Other corporate charges include workforce-rebalancing charges primarily for severance and related costs.
Workforce-rebalancing costs are not included in the Company’s segment operating income.
(3) Amount includes amortization expense of purchased intangible assets in operating expenses and in costs of
revenues.
(4) Other charges, net for 2008 includes loss for a litigation settlement. Other charges, net for 2007 includes
charges such as restructuring, acquisition-related charges, stock option investigation costs, as well as stock
option amendment and tax-related charges. Other charges, net for 2006 includes charges such as restructuring,
acquisition-related charges, stock option investigation costs and tax-related charges, as well as certain
restructuring costs included in cost of revenues.
101
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
No single customer accounted for more than 10% of the Company’s total net revenues for 2008. Nokia-
Siemens Networks B.V. (“NSN”) and its predecessor companies accounted for 12.8%, and 14.3% of the Company’s
net revenues for 2007, and 2006, respectively. The revenue attributed to this significant customer was derived from
the sale of products and services in both the Infrastructure and SLT segments.
The Company attributes sales to geographic regions based on the customer’s ship-to location. The following
table shows net revenues by geographic region (in millions):
Years Ended December 31,
2007
2006
2008
Americas:
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,537.5
228.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,215.8
124.7
$ 950.3
83.0
Total Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe, Middle East, and Africa . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,766.2
1,077.7
728.5
1,340.5
918.0
577.6
1,033.3
817.4
452.9
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,572.4
$2,836.1
$2,303.6
The Company tracks assets by physical location. The majority of the Company’s assets, including property and
equipment, as of December 31, 2008, and 2007, were attributable to its U.S. operations. Although management
reviews asset information on a corporate level and allocates depreciation expense by segment, the CODM does not
review asset information on a segment basis.
Note 12.
Income Taxes
The components of income (loss) before the provision for income taxes are summarized as follows
(in millions):
Years Ended December 31,
2006
2007
2007
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $363.7
365.2
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$225.9
284.7
$(1,146.0)
249.0
Total income before provision for income taxes . . . . . . . . . . . . . . $728.9
$510.6
$ (897.0)
102
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The provision for income taxes is summarized as follows (in millions):
Years Ended December 31,
2008
2006
2007
Current Provision:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96.6
35.8
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39.3
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 52.9
15.2
48.0
$ 17.9
13.6
29.0
Total current provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
171.7
116.1
60.5
Deferred expense/(benefit):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred expense/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefits attributable to employee stock plan activity . . . . . .
21.4
(4.4)
(2.7)
14.3
31.2
(0.5)
(5.7)
(3.6)
(9.8)
43.5
24.1
(4.5)
3.7
23.3
20.6
Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . $217.2
$149.8
$104.4
The provision for income taxes differs from the amount computed by applying the federal statutory rate to
income (loss) before provision for income taxes as follows (in millions):
Years Ended December 31,
2007
2006
2008
Expected provision at 35% rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign income at different tax rates. . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development credits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible goodwill and in-process research and development . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$255.1
16.6
(51.2)
(12.1)
—
2.4
6.4
$178.7
6.5
(21.7)
(18.6)
—
1.2
3.7
$(314.0)
3.8
(25.3)
(7.3)
438.2
4.2
4.8
Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
$217.2
$149.8
$ 104.4
103
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 deferred tax assets and liabilities are as follows (in millions):
As of December 31,
2008
2007
Deferred tax assets:
Net operating loss carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign tax credit carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and other credit carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment basis differences . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves and accruals not currently deductible . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.7
27.8
53.5
60.5
—
84.8
170.4
19.7
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Property and equipment basis differences . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unremitted foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
424.4
(41.5)
382.9
(12.6)
(39.3)
(114.7)
—
$ 10.8
20.6
47.1
50.6
2.4
73.0
171.1
18.4
394.0
(34.3)
359.7
—
(49.3)
(79.3)
(0.5)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(166.6)
(129.1)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 216.3
$ 230.6
As of December 31, 2008, and 2007, the Company had a valuation allowance on its U.S. domestic deferred tax
assets of approximately $41.5 million and $34.3 million, respectively, which relates to capital losses that will carry
forward to offset future capital gains. The valuation allowance increased $7.2 million and decreased $4.4 million in
the years ended December 31, 2008, and 2007, respectively. The 2008 increase was attributable primarily to
investment losses currently disallowed for income tax purposes. The 2007 reduction was attributable primarily to
the reversal of investment losses previously disallowed for income tax purposes.
As of December 31, 2008, the Company had Federal and California net operating loss carry-forwards of
approximately $20.3 million and $21.2 million, respectively. The Company also had Federal and California tax
credit carry-forwards of approximately $11.9 million and $100.7 million, respectively. The benefits of approx-
imately $11.9 million of the Federal tax credit carry-forwards and $12.3 million of the California tax credit carry-
forwards will be credited to additional paid in capital when utilized on the Company’s income tax returns since they
have not met the utilization criteria of SFAS 123R. Unused net operating loss carry-forwards will expire at various
dates beginning in the year 2012. The Federal tax credits will expire in 2029, and the California tax credit carry-
forwards will carry forward indefinitely.
The Company provides U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’
earnings are considered indefinitely reinvested outside of the United States. The Company has made no provision
for U.S. income taxes on approximately $705.2 million of cumulative undistributed earnings of certain foreign
subsidiaries through December 31, 2008, because it is the Company’s intention to permanently reinvest such
earnings. If such earnings were distributed, the Company would accrue additional income taxes expense of
104
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
approximately $214.3 million. These earnings are considered indefinitely invested in operations outside of the U.S.,
as we intend to utilize these amounts to fund future expansion of our international operations.
As of December 31, 2008, and 2007, the total amount of gross unrecognized tax benefits was $113.5 million
and $94.7 million, respectively. As of December 31, 2008, approximately $97.7 million of the $113.5 million gross
unrecognized tax benefits, if recognized, would affect the effective tax rate.
The following is a rollforward of the Company’s total gross unrecognized tax benefit liabilities for the years
ended December 31, (in millions):
2008
2007
Balance beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 94.7
Tax positions related to current year:
$85.2
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.9
—
Tax positions related to prior years:
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapses in statutes of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3
—
(0.4)
—
9.5
—
—
—
—
—
Balance end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $113.5
$94.7
As of December 31, 2008, and 2007, the Company had accrued interest expense and penalties related to
unrecognized tax benefits of $8.7 million and $5.9 million, respectively, within other long-term liabilities in the
consolidated balance sheets. In accordance with the Company’s accounting policy, accrued interest and penalties
related to unrecognized tax benefits are recognized as a component of tax expense in the consolidated statements of
operations. The Company recognized net interest expense of $2.9 million and $1.7 million in its consolidated
statements of operations during the years ending December 31, 2008, and 2007, respectively.
The Company engages in continuous discussion and negotiation with tax authorities regarding tax matters in
various jurisdictions. As a result, it is reasonably possible that the amount of the liability for unrecognized tax
benefits may change within the next 12 months. The Company does not expect complete resolution of any IRS
audits or other audits within significant foreign or state jurisdictions within the next 12 months. However, it is
reasonably possible that certain issues related to the Company’s business credits and foreign audits may be resolved
in the next 12 months. Accordingly, the Company believes that its existing unrecognized tax benefits may be
reduced by approximately $13.0 million in the next 12 months.
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 Ireland, Hong Kong, U.K., France, Germany, The Netherlands, Japan, China, Australia,
India, and the U.S. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or
non-U.S. income tax examinations for years before 2003, although carry-forward attributes that were generated
prior to 2003 may still be adjusted upon examination by the IRS if the attributes either have been or will be used in a
future period.
The Company is currently under examination by the IRS for the 2004 tax year, the Indian tax authorities for the
2004 tax year, and the German tax authorities for the 2005 tax year. Additionally, the Company has not reached a
final resolution with the IRS on an adjustment it proposed for the 1999 and 2000 tax years. The Company was not
under examination by any other major jurisdictions in which the Company files its income tax returns as of
December 31, 2008.
105
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
In September 2008, as part of the on-going 2004 IRS audit, the Company received a proposed adjustment
related to our business credit carry-forwards, which if agreed, would reduce our business credit carry-forwards. In
December 2008, the Company received a proposed adjustment from the Indian tax authorities related to the 2004
tax year. The Company is pursuing all available administrative procedures relative to these matters. In December
2008, the Company reached a tentative settlement with the German tax authorities for the 2005 tax year. The
Company believes that we have 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 our
consolidated financial condition or results of operations.
Note 13. Selected Quarterly Financial Data (Unaudited)
The table below sets forth selected unaudited financial data for each quarter of the two years ended
December 31, 2008, (in millions, except per share amounts):
Year Ended December 31, 2008
Net revenues:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$674.2
148.7
$723.9
155.1
$767.0
180.0
$745.9
177.6
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
822.9
879.0
947.0
923.5
Cost of revenues:
Cost of revenues — Product. . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues — Service . . . . . . . . . . . . . . . . . . . . . . .
191.8
73.0
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . .
264.8
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development
. . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles . . . . . . . . . . . . . . .
Other charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
558.1
170.7
186.0
33.6
25.1
—
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . .
415.4
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income and expense, net . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
142.7
17.6
160.3
49.9
215.1
74.1
289.2
589.8
186.4
190.3
35.6
8.0
9.0
429.3
160.5
11.6
172.1
51.7
230.1
77.5
307.6
639.4
194.0
200.6
37.6
5.2
—
437.4
202.0
9.7
211.7
63.2
230.6
73.8
304.4
619.1
180.1
206.0
38.0
5.2
—
429.3
189.8
(5.0)
184.8
52.4
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$110.4
$120.4
$148.5
$132.4
Basic income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted income per share . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.21
$ 0.20
$ 0.23
$ 0.22
$ 0.27
$ 0.27
$ 0.25
$ 0.25
106
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Year Ended December 31, 2007
Net revenues:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$509.8
117.1
$541.7
123.2
$606.8
128.3
$668.7
140.5
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
626.9
664.9
735.1
809.2
Cost of revenues:
Cost of revenues — Product. . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues — Service . . . . . . . . . . . . . . . . . . . . . . .
154.9
57.2
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . .
212.1
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development
. . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles . . . . . . . . . . . . . . .
Other charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
414.8
141.1
150.6
27.3
22.7
12.6
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . .
354.3
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income and expense, net . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
60.5
32.9
93.4
26.8
159.9
60.9
220.8
444.1
148.7
156.9
28.0
22.7
1.6
357.9
86.2
32.3
118.5
32.3
168.1
64.2
232.3
502.8
167.9
177.8
29.2
20.2
(5.1)
390.0
112.8
17.9
130.7
45.6
193.3
69.2
262.5
546.7
165.3
181.4
32.0
20.2
0.2
399.1
147.6
20.4
168.0
45.1
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 66.6
$ 86.2
$ 85.1
$122.9
Basic income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted income per share . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.12
$ 0.11
$ 0.16
$ 0.15
$ 0.17
$ 0.15
$ 0.24
$ 0.22
Note 14. Subsequent Events
Stock Repurchases
Through the end of February 2009, the Company repurchased 7.3 million shares of its common stock, for
$116.8 million at an average purchase price of $16.05 per share, under its 2008 Stock Repurchase Program. As of
February 28, 2009, the Company’s 2008 Stock Repurchase Programs had remaining authorized funds of $655.4 million.
Purchases under this program are subject to a review of the circumstances in place at the time. Acquisitions under the
Company’s share repurchase program may be made from time to time as permitted by securities laws and other legal
requirements. This program may be discontinued at any time.
107
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
ITEM 9A. Controls and Procedures
(a) Management’s Annual Report on Internal Control Over Financial Reporting: Please see Management’s
Annual Report on Internal Control over Financial Reporting under Item 8 on page 61 of this Form 10-K, which
report is incorporated herein by reference.
(b) For the “Report of Independent Registered Public Accounting Firm,” please see the report under Item 8 on
page 64 of this Form 10-K, which report is incorporated herein by reference.
Evaluation of Disclosure Controls and Procedures
Attached as exhibits to this report are certifications of our principal executive officer and principal financial
officer, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and related
evaluations referred to in the certifications, and it should be read in conjunction with the certifications for a more
complete understanding of the topics presented.
We carried out an evaluation, under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based
upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of
the period covered in this report, our disclosure controls and procedures were effective to ensure that information
required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in Securities and Exchange Commission rules and
forms and is accumulated and communicated to our management, including our principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
In 2007, we initiated a multi-year implementation to upgrade certain key internal systems and processes,
including our company-wide human resources management system, customer relationship management (“CRM”)
system, and our enterprise resource planning (“ERP”) system. This project is the result of our normal business
process to evaluate and upgrade or replace our systems software and related business processes to support our
evolving operational needs. There were no changes in our internal control over financial reporting that occurred
during the fourth quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), does
not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error
and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met. Our controls and procedures are designed to
provide reasonable assurance that our control system’s objective will be met and our CEO and CFO have concluded
that our disclosure controls and procedures are effective at the reasonable assurance level. The design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and
instances of fraud, if any, within the company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of controls is based in part on certain assumptions
108
about the likelihood of future events. Projections of any evaluation of the effectiveness of controls in future periods
are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in
the degree of compliance with policies or procedures.
ITEM 9B. Other Information
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant
We have adopted a Worldwide Code of Business Conduct and Ethics that applies to our principal executive
officer and all other employees. This code of ethics is posted on our Website at www.juniper.net, and may be found
as follows:
1. From our main Web page, first click on “Company” and then on “Investor Relations Center.”
2. Next, select Corporate Governance and then click on “Worldwide Code of Business Conduct and
Ethics.”
Alternatively, you may obtain a free copy of this code of ethics by contacting the Investor Relations
Department at our corporate offices by calling (888) 586-4737 or by sending an e-mail message to investor-
relations@juniper.net.
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or
waiver from, a provision of this code of ethics by posting such information on our Website, at the address and
location specified above.
In February 2009, our board of directors appointed William F. Meehan to serve as a Class II member of the
board. Mr. Meehan’s appointment was effected through use of a unanimous written consent of the board of
directors.
For information with respect to Executive Officers, see Part I, Item 1 of this Annual Report on Form 10-K,
under “Executive Officers of the Registrant.”
Information concerning directors, including director nominations, and our audit committee and audit com-
mittee financial expert, appearing in our definitive Proxy Statement to be filed with the SEC in connection with the
2009 Annual Meeting of Stockholders (the “Proxy Statement”) under “Corporate Governance Principles and Board
Matters,” “Director Compensation” and “Election of Directors” is incorporated herein by reference.
Information concerning Section 16(a) beneficial ownership reporting compliance appearing in the Proxy
Statement under “Section 16(a) Beneficial Ownership Reporting Compliance,” is incorporated herein by reference.
ITEM 11. Executive Compensation
Information concerning executive compensation appearing in the Proxy Statement under “Executive Com-
pensation” is incorporated herein by reference.
Information concerning compensation committee interlocks and insider participation appearing in the Proxy
Statement under “Compensation Committee Interlocks and Insider Participation” is incorporated herein by
reference.
Information concerning the compensation committee report appearing in the Proxy Statement under “Com-
pensation Committee Report” is incorporated herein by reference.
109
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information concerning the security ownership of certain beneficial owners and management appearing in the
Proxy Statement, under “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters,” is incorporated herein by reference.
Information concerning our equity compensation plan information appearing in the Proxy Statement, under
“Equity Compensation Plan Information,” is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information appearing in the Proxy Statement under the heading “Certain Relationships and Related
Transactions” is incorporated herein by reference.
The information appearing in the Proxy Statement under the heading “Board Independence” is incorporated
herein by reference.
ITEM 14. Principal Accountant Fees and Services
Information concerning principal accountant fees and services and the audit committee’s preapproval policies
and procedures appearing in the Proxy Statement under the headings “Principal Accountant Fees and Services” is
incorporated herein by reference.
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a) 1. Consolidated Financial Statements
See Index to Consolidated Financial Statements at Item 8 herein.
2. Financial Statement Schedules
The following financial statement schedule is included as part of this Annual Report on Form 10-K:
Schedule
Page
Schedule II — Valuation and Qualifying Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
113
Schedules not listed above have been omitted because the information required to be set forth therein is not
applicable or is shown in the financial statements or notes herein.
3. Exhibits
See Exhibit Index on page 114 of this report.
(b) Exhibits
See Exhibit Index on page 114 of this report.
(c) None
110
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in this City of
Sunnyvale, State of California, on the 2nd day of March 2009.
SIGNATURES
Juniper Networks, Inc.
By: /s/ Robyn M. Denholm
Robyn M. Denholm
Executive Vice President and Chief Financial
Officer (Duly Authorized Officer and Principal
Financial Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Mitchell Gaynor and Robyn M. Denholm, and each of them individually, as his or her
attorney-in-fact, each with full power of substitution, for him or her in any and all capacities to sign any and all
amendments to this Report on Form 10-K, and to file the same with, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his or her substitute, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Kevin R. Johnson
Kevin R. Johnson
/s/ Robyn M. Denholm
Robyn M. Denholm
/s/ Gene Zamiska
Gene Zamiska
/s/ Scott Kriens
Scott Kriens
/s/ Pradeep Sindhu
Pradeep Sindhu
/s/ Robert M. Calderoni
Robert M. Calderoni
/s/ Mary B. Cranston
Mary B. Cranston
/s/ Michael Lawrie
Michael Lawrie
Chief Executive Officer and Director
(Principal Executive Officer)
March 2, 2009
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
March 2, 2009
Vice President, Finance and Corporate
Controller (Principal Accounting Officer)
March 2, 2009
Chairman of the Board
March 2, 2009
Chief Technical Officer and Vice Chairman
of the Board
March 2, 2009
Director
March 2, 2009
Director
March 2, 2009
Director
March 2, 2009
111
Signature
William F. Meehan
/s/ Stratton Sclavos
Stratton Sclavos
/s/ William R. Stensrud
William R. Stensrud
Title
Director
Date
Director
March 2, 2009
Director
March 2, 2009
112
Juniper Networks, Inc.
Schedule II — Valuation and Qualifying Account
Years Ended December 31, 2008, 2007, and 2006
Balance at
Beginning of
Year
Charged to
(Reversed from)
Costs and
Expenses
Recoveries
(Deductions),
Net
Balance at
End of Year
(In millions)
Year ended December 31, 2008
Allowance for doubtful accounts . . . . . . .
Sales returns reserve . . . . . . . . . . . . . . . .
Year ended December 31, 2007
Allowance for doubtful accounts . . . . . . .
Sales returns reserve . . . . . . . . . . . . . . . .
Year ended December 31, 2006
Allowance for doubtful accounts . . . . . . .
Sales returns reserve . . . . . . . . . . . . . . . .
$ 8.3
$25.1
$ 7.3
$15.0
$ 7.7
$16.7
$ 1.7
$89.0
$ 0.4
$56.8
$ (0.2)
$34.3
$ (0.3)
$(77.3)
$ 0.6
$(46.7)
$ (0.2)
$(36.0)
$ 9.7
$36.8
$ 8.3
$25.1
$ 7.3
$15.0
113
Exhibit No.
Exhibit
Exhibit Index
Incorporated by Reference
Filing
Exhibit
No.
File No.
File Date
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
S-8
8-K
8-K
10-K
10-K
10-Q
8-K
10-Q
Juniper Networks, Inc. Amended and Restated
Certificate of Incorporation
Amended and Restated Bylaws of Juniper Networks,
Inc.
Form of Indemnification Agreement entered into by the
Registrant with each of its directors, officers and certain
employees
Amended and Restated 1996 Stock Plan++
Form of Stock Option Agreement for the Juniper
Networks, Inc. Amended and Restated 1996 Stock
Plan++
Form of Notice of Grant and Restricted Stock Unit
Agreement for the Juniper Networks, Inc. Amended and
Restated 1996 Stock Plan++
Juniper Networks 2000 Nonstatutory Stock Option
Plan++
Form of Option Agreement for the Juniper Networks
2000 Nonstatutory Stock Option Plan++
Juniper Networks, Inc. 2006 Equity Incentive Plan, as
amended++*
Form of Stock Option Agreement for the Juniper
Networks, Inc. 2006 Equity Incentive Plan++
Form of Non-Employee Director Stock Option
Agreement for the Juniper Networks, Inc. 2006 Equity
Incentive Plan++
Form of Notice of Grant and Restricted Stock Unit
Agreement for the Juniper Networks, Inc. 2006 Equity
Incentive Plan++
Form of Notice of Grant and Performance Share
Agreement for the Juniper Networks, Inc. 2006 Equity
Incentive Plan++
Form of India Stock Option Agreement under the
Juniper Networks, Inc. 2006 Equity Incentive Plan
Form of India Restricted Stock Unit Agreement under
the Juniper Networks, Inc. 2006 Equity Incentive Plan
Unisphere Networks, Inc. Second Amended and
Restated 1999 Stock Incentive Plan++
NetScreen Technologies, Inc. 1997 Equity Incentive
Plan++
NetScreen Technologies, Inc. 2001 Equity Incentive
Plan++
NetScreen Technologies, Inc. 2002 Stock Option Plan++ S-8
S-8+
Neoteris 2001 Stock Plan++
S-8
Kagoor Networks, Inc. 2003 General Stock Option
Plan++
Kagoor Networks, Inc. 2003 Israel Stock Option Plan++ S-8
S-8
Redline Networks 2000 Stock Plan++
10-Q
10-K
10-K
10-Q
S-1+
S-1+
8-K
S-8
S-8
114
3.1
000-26339
3/27/2001
3.1
000-26339 11/24/2008
10.1 000-26339 11/14/2003
10.1 000-26339 11/09/2005
11/2/2004
10.16 000-26339
10.2 000-26339 11/09/2005
10.1 333-92086
7/9/2002
10.6 000-26339
3/4/2005
10.2 000-26339
5/24/2006
10.3 000-26339
5/24/2006
10.20 000-26339
2/29/2008
10.21 000-26339
2/29/2008
10.2 000-26339
5/9/2008
10.2 000-26339
5/9/2008
10.1 333-92090
7/9/2002
10.2 333-71048
10/5/2001
10.3 333-71048 12/10/2001
4/21/2004
4.7 333-114688
4.1 333-110709 11/24/2003
5/3/2005
4.1 333-124572
4.2 333-124572
4.1 333-124610
5/3/2005
5/4/2005
Exhibit No.
Exhibit
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
Peribit Networks 2000 Stock Plan++
Amended and Restated Juniper Networks 1999
Employee Stock Purchase Plan++
Juniper Networks, Inc. 2008 Employee Stock Purchase
Plan++
Sub-plan to the Juniper Networks, Inc. 2008 Employee
Stock Purchase Plan For Employees Located in the
European Economic Area*
Juniper Networks, Inc. Deferred Compensation Plan++
Form of Executive Officer Change of Control
Agreement, as amended++*
Form of Executive Officer Severance Agreement, as
amended++
Summary of Compensatory Arrangements for Certain
Officers adopted on March 9, 2007++
Summary of Compensatory Plans and Arrangements for
Certain Officers adopted on February 26, 2008++
Summary of Compensatory Arrangements for Certain
Officers announced on August 14, 2007++
Option Amendment Agreement by and between the
Registrant and Kim Perdikou++
Severance Agreement by and between the Registrant
and Robyn M. Denholm++*
Description of Compensatory Arrangements for Edward
Minshull++
Description of Compensatory Arrangements for Edward
Minshull++
Offer Letter by and between Juniper Networks, Inc. and
John Morris++
Employment Agreement by and between Juniper
Networks, Inc. and Kevin Johnson++
Offer Letter by and between Juniper Networks, Inc. and
Michael J. Rose++*
Amended and Restated Aircraft Reimbursement
Policy++
Tolling Agreement by and between Juniper Networks,
Inc. and Scott Kriens++
Agreement for ASIC Design and Purchase of Products
between IBM Microelectronics and the Registrant dated
August 26, 1997
Amendment One dated January 5, 1998 to Agreement
for ASIC Design and Purchase of Products between
IBM Microelectronics and the Registrant dated
August 26, 1997
Amendment Two dated March 2, 1998 to Agreement for
ASIC Design and Purchase of Products between IBM
Microelectronics and the Registrant dated August 26,
1997
115
Incorporated by Reference
Exhibit
No.
File No.
File Date
99.1 333-126404
10.2 000-26339
7/6/2005
8/9/2007
Filing
S-8
10-Q
S-8
4.3 333-151669
6/16/2008
S-8
4.4 333-151669
6/16/2008
10-Q
10.4 000-26339 11/10/2008
8-K
8-K
99.1 000-26339
3/12/2007
99.1 000-26339
2/28/2008
8-K Item 5.02 000-26339
8/14/2007
8-K
99.2 000-26339
5/2/2007
8-K Item 5.02 000-26339
5/14/2008
8-K Item 5.02 000-26339
9/23/2008
10-Q
10.1 000-26339 11/10/2008
10-Q
10.2 000-26339 11/10/2008
10-K
10.23 000-26339
3/4/2005
10-Q
10.3 000-26339 11/10/2008
S-1
10.8 333-76681
6/18/1999
S-1
10.8.1 333-76681
4/23/1999
S-1
10.8.2 333-76681
4/23/1999
Incorporated by Reference
Exhibit
No.
File No.
File Date
10.10 333-76681
6/23/1999
Filing
S-1
10-K
10.9 000-26339
3/27/2001
10-Q
10.15 000-26339
11/2/2004
Exhibit No.
Exhibit
10.44
10.45
10.46
12.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Lease between Mathilda Associates LLC and the
Registrant dated June 18, 1999
Lease between Mathilda Associates LLC and the
Registrant dated February 1, 2000
Lease between Mathilda Associates II LLC and the
Registrant dated August 15, 2000
Computation of Ratio of Earnings to Fixed Charges*
Subsidiaries of the Company*
Consent of Independent Registered Public Accounting
Firm*
Power of Attorney (see page 111)
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934*
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934*
Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002**
Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002**
* Filed herewith
** Furnished herewith
+ Filed by NetScreen Technologies, Inc.
++ Indicates management contract or compensatory plan, contract or arrangement.
116
Juniper Networks, Inc.
Statements of Computation of Ratio of Earnings to Fixed Charges
(in millions, except ratios)
2008 (a)
2007 (a)(d)
2006(b)(d)
2005(a)(d)
2004(a)(d)
Years Ended December 31,
EXHIBIT 12.1
Earnings for Computation of Ratio:
Pre-tax income (loss) from continuing operations
before adjustment for minority interests in
consolidated subsidiaries or income or (loss) from
equity investees
Distributed income from equity investee
Fixed charges
Total earnings (loss)
Fixed Charges:
Interest expense and debt cost amortization (c)
Estimate of interest within rental expense
Total fixed charges
$ 743.7
$ 503.9
—
23.2
$ 766.9
—
17.6
$ 521.5
$ (897.0)
—
13.5
$ (883.5)
$ 496.2
—
12.4
$ 508.6
$
$
5.8
17.4
23.2
$
$
3.0
14.6
17.6
$
$
1.4
12.1
13.5
$
$
1.5
10.9
12.4
Ratio of earnings to fixed charges
33.0
29.6
—
41.2
$ 211.0
—
13.0
$ 224.0
$
$
4.1
8.9
13.0
17.2
(a) For these ratios, “earnings” represents (i) income before taxes before adjustment for minority interests in equity investees and (ii) fixed
charges.
(b) The pre-tax losses from continuing operations for the year ended December 31, 2006, are not sufficient to cover fixed charges by a total
of approximately $897.0 million. As a result, the ratio of earnings to fixed charges has not been computed for this period.
(c) Estimated interest on tax liabilities of $3.6 million, $2.2 million, $1.3 million $1.7 million, and $1.2 million was not included in total
fixed charges for 2008, 2007, 2006, 2005, and 2004, respectively, as the Company classified such interest as part of its income tax
provision before and after the adoption of FIN 48 on January 1, 2007.
(d) Prior period pre-tax income (loss) from continuing operations before adjustment for minority interests in consolidated subsidiaries or
income or (loss) from equity investees has been revised to exclude income or (loss) from equity investees. The income or (loss) excluded
from equity investees was $6.7 million, nil, $1.3 million, and $(2.9) million, for the years ended December 31, 2007, 2006, 2005, and
2004, respectively.
SUBSIDIARIES OF THE COMPANY AS OF DECEMBER 31, 2008*
NAME
Juniper Networks (Cayman) Limited
Juniper Networks Ireland
Juniper Networks (Hong Kong), Ltd.
Juniper Networks (US), Inc.
JURISDICTION OF
INCORPORATION
Cayman Islands
Ireland
Hong Kong
California, USA
*
All other subsidiaries would not in the aggregate constitute a “significant subsidiary” as defined in Regulation S-X.
EXHIBIT 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements (Form S-8 Nos. 333-151669, 333-141211, 333-132260,
333-126404, 333-124610, 333-124572, 333-118340, 333-114688, 333-92086, 333-92088, 333-92090, 333-85387, 333-32412, 333-44148, 333-
52258, 333-57860, 333-57862, 333-57864, and 333-75770 and Form S-3 No. 333-110714) of Juniper Networks, Inc. of our reports dated
March 2, 2009, with respect to the consolidated financial statements and schedule of Juniper Networks, Inc., and the effectiveness of internal
control over financial reporting of Juniper Networks, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2008.
Exhibit 23.1
San Jose, California
March 2, 2009
/s/ Ernst & Young LLP
EXHIBIT 31.1
I, Kevin R. Johnson, certify that:
1. I have reviewed this Annual Report on Form 10-K of Juniper Networks, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 2, 2009
/s/ Kevin R. Johnson
Kevin R. Johnson
Chief Executive Officer
EXHIBIT 31.2
I, Robyn M. Denholm, certify that:
1. I have reviewed this Annual Report on Form 10-K of Juniper Networks, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 2, 2009
/s/ Robyn M. Denholm
Robyn M. Denholm
Executive Vice President and Chief Financial Officer
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350 As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
I, Kevin R. Johnson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that the Annual Report of Juniper Networks, Inc. on Form 10-K for the fiscal year ended December 31, 2008, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form
10-K fairly presents, in all material respects, the financial condition and results of operations of Juniper Networks, Inc.
/s/ Kevin R. Johnson
Kevin R. Johnson
Chief Executive Officer
March 2, 2009
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
I, Robyn M. Denholm, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that the Annual Report of Juniper Networks, Inc. on Form 10-K for the fiscal year ended December 31, 2008, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form
10-K fairly presents in all material respects the financial condition and results of operations of Juniper Networks, Inc.
/s/ Robyn M. Denholm
Robyn M. Denholm
Executive Vice President and Chief Financial Officer
March 2, 2009