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FORM 10-K
JUNIPER NETWORKS INC - JNPR
Filed: February 26, 2010 (period: December 31, 2009)
Annual report which provides a comprehensive overview of the company for the past year
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
�
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
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 001-34501
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
New York Stock Exchange LLC
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 � 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 � 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 �
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes � No �
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 �
Non-accelerated filer � Smaller reporting company �
Accelerated filer �
(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 � No �
The aggregate market value of the common stock held by non-affiliates of the Registrant was approximately
$8,114,000,000 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, 2009). 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
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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equity.
As of February 22, 2010, there were approximately 521,197,000 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 2010 Annual Meeting of
Stockholders, which is expected to be filed not later than 120 days after the Registrant’s fiscal year ended December 31,
2009.
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Table of Contents
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosure about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
Controls and Procedures
Other Information
ITEM 10.
ITEM 11.
ITEM 12.
Directors and Executive Officers of the Registrant
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
ITEM 13.
ITEM 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
ITEM 15.
EX-10.47
EX-10.48
EX-10.49
EX-10.50
EX-10.51
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
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Table of Contents
ITEM 1. Business
Overview
PART I
We design, develop, and sell innovative 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 network. We serve the high-performance networking
requirements of global service providers, enterprises, and public sector organizations that view the network as
critical to their success. We believe we are uniquely positioned in the networking industry based on our core
competencies in architecture, silicon design, and our open cross-network software platform that includes the
Junos® operating system (“Junos OS”), Junos Space network application platform, and Junos Pulse integrated
network client. We offer a broad product portfolio that spans routing, switching, security, application
acceleration, identity policy and control, and management designed to provide performance, choice, and
flexibility while reducing overall total cost of ownership. In addition, through strong industry partnerships, we
are fostering innovation across the network.
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 Internet Protocol (“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 customers’ priorities, from protecting the network itself, and
protecting 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 our customers. Together, our high-performance
product and service offerings help enable our customers to convert legacy networks that provide
commoditized, 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 financial
information regarding each of our Infrastructure and SLT segments, which is incorporated herein by
reference.
During our fiscal year ended December 31, 2009, we generated net revenues of $3.32 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, 2009, and 2008 and our consolidated statements 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, 2009.
We were incorporated in California in 1996 and reincorporated in Delaware in 1998. Our corporate
headquarters 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 network infrastructure by
transforming the experience and economics of networking. Key elements of our strategy are described below.
Maintain and Extend Technology Leadership
Our Junos OS, 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 research and development (“R&D”), supplemented by
external partnerships, including strategic alliances, that would allow us to deliver a broad range of products
and services to customers in target markets.
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Leverage Position as Supplier of High-Performance Network Infrastructure
From inception, we have focused on designing, developing, and building high-performance network
infrastructure 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
understanding 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, 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, value-added resellers, and original equipment manufacturer (“OEM”) partners 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:
• Reducing capital and operational costs by running multiple services over the same network using our
high density, highly reliable platforms;
• Promoting generation of additional revenues by enabling new services to be offered to new market
segments based on our product capabilities;
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• 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
• 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 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 and 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.
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 and public
sector organizations such as 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:
• Assisting in the consolidation and delivery of existing services and applications;
• Accelerating the deployment of new services and applications;
• Offering integrated security to assist in the protection and recovery of services and applications; and
• Offering operational improvements that enable cost reductions, including lower administrative,
training, customer care, and labor costs.
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 SRX Services Gateways that consolidate switching,
routing, and security services in a single device, Integrated Security Gateway (“ISG”) products that combine
firewall/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.
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Customers with Ten Percent of Net Revenues or Greater
AT&T, Inc., accounted for greater than 10% of our total net revenues in 2009. No single customer
accounted for more than 10% of our total net revenues in 2008. Nokia-Siemens Networks B.V. (“NSN”)
accounted for greater than 10% of our total net revenues in 2007.
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-performance, 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
• T-Series, TX, JCS, and M-Series: Our T-series core routers are primarily designed for core IP
infrastructures and are also being sold into the multi-service environment. 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. The T-series and M-series products
leverage our ASIC technology and the same Junos OS to enable consistent, continuous, reliable, and
predictable service delivery. The TX and TX Plus products connect multiple T-series chassis to deliver
multi-chassis scale in a single network node for world’s largest core routing applications. The JCS
product reduces complexity and operating cost for our customers by virtualizing the network
infrastructure to allow multiple independent network services to run on top of the same physical
network infrastructure.
• 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 JUNOSe 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.
• MX-Series: The MX-Series is a product family developed to address emerging Ethernet network
architectures and services in service provider and enterprise networks. Using our Junos OS, the MX
platforms provide the carrier-class performance, scale, and reliability to enable service providers and
enterprises to support large-scale Ethernet deployments. The MX Series also leverages the recently
announced Junos Trio chipset with “3D Scaling” technology to enable networks to scale dynamically
for more bandwidth, subscribers, and services.
• EX-Series: Our EX-series family extends our product portfolio running our Junos OS 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 compromising performance.
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SLT Products
• 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 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 combine routing, switching,
and security functionality to meet the network and security requirements for data center consolidation,
rapid managed services deployments, and aggregation of security services.
• 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.
• IDP Appliances: Our IDP appliances utilize advanced intrusion detection methods to increase the
detection rate 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.
• Application Acceleration Platforms: Our 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.
• 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 Platform
In addition to our major product families, our extended software portfolio, known as Junos Platform, is a
key technology element in our strategy to be the leader in high-performance networking. The Junos Platform
includes the Junos Space network application platform and Junos Pulse integrated, multi-service network
client, which have been built with the same core design principles, integration approach, and development
discipline. The Junos Platform enables our customers to expand network software into the application space,
deploy software clients to control delivery, and accelerate the pace of innovation with an ecosystem of
developers.
At the heart of the Junos Platform is Junos OS. We believe Junos OS is fundamentally superior to other
network operating systems in not only its design, but also in its development. The advantages of Junos OS
include:
• One modular operating system with single source base of code and a single, consistent implementation
for each control plane feature;
• One software release train extended through a highly disciplined and firmly scheduled development
process; and
• One common modular software architecture that scales across all Junos-based platforms.
Junos OS is designed to maintain continuous systems and improve the availability, performance, and
security of business applications running across the network. Junos OS 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.
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The security and stability of Junos OS, combined with its modular architecture and single source code
base, provides a foundation for delivering performance, reliability, security, and scale at a lower total cost of
ownership than multiple operating code base environments. With an increasing number of our platforms able
to leverage Junos OS, including routing, switching, and security products, we believe Junos OS provides us a
competitive advantage over other major network equipment vendors.
Major Product Development Projects
In 2009, we announced two significant product development efforts: Project Stratus and Project Falcon.
Project Stratus is our initiative to develop a single data center fabric designed to significantly advance scale,
performance and simplicity, while lowering energy consumption and reducing overall operating costs
compared to currently existing data center solutions. Project Falcon is an effort to develop mobility solutions
for service provider customers based on our MX 3D Series Universal Edge Routers and the Junos software
platform.
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, 2009, we employed 891 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, 2009, we employed 244 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 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:
• We can quickly deliver products to customers with turnkey manufacturing and drop-shipment
capabilities;
• 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;
• We operate without dedicating significant space to manufacturing operations; and
• 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 remain unused or the products remain unsold for specified
period, we may incur carrying charges or obsolete material
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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 International Business
Machines (“IBM”) Corporation each of which 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 collaboratively 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 others, of the Electronic Industry Code of Conduct (“EICC”). The EICC 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, 2009, we employed 3,308 people in our worldwide R&D organization. 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 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 R&D 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 R&D 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, 2009, we employed 2,101 people in our worldwide sales and marketing
organization. These sales and marketing employees operate in different locations around the world in support
of our customers.
Our sales organization is generally split between service provider and enterprise customers, with each
separate team ensuring focus on key customers in these respective markets. From a geographic perspective,
the organization is grouped into three geographic regions, which 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, as well as major
account teams, to ensure we operate close to our customers. There is a structure of sales professionals, system
engineers, and marketing and channel teams each focused on the respective service provider and enterprise
markets.
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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 distributors and 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.
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:
• 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 end-user customers. 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.
• 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 agreements 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.
• Strategic worldwide reseller relationships with NSN, Ericsson Telecom 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.
• OEM relationships with Dell Corporation and IBM. Our OEM arrangements with these partners allow
them to rebrand and resell certain of our product lines 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.
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.
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Backlog
Our sales are made primarily pursuant to purchase orders under framework agreements with our
customers. At any given time, we have backlog orders for products that have not been shipped. Because
customers may cancel purchase orders or change delivery schedules without significant penalty, we believe
that our backlog at any given date may not be a reliable indicator of future operating results. As of
December 31, 2009, and 2008, our total backlog orders was approximately $270 million and $250 million,
respectively. Our backlog consists of confirmed orders for products scheduled to be shipped to customers
generally within six months. Our backlog excludes orders from distributors as we recognize product revenue
on sales made through distributors upon sell-through to end-users.
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.
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., Hewlett Packard Company, and Huawei Technologies Co., Ltd. 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 2007, Ericsson acquired Redback Networks, and in 2009, Brocade
acquired Foundry 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., and Riverbed Technology,
Inc. These additional competitors tend to be focused on single product line solutions and, therefore, are
generally specialized 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,
and 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
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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”), Restriction of the Use of Certain Hazardous
Substances in Electrical and Electronic Equipment (“RoHS”), and Registration, Evaluation, Authorization,
and Restriction of Chemicals (“Reach”) regulations adopted by the European Union. In addition, we
participate 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.
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
substantially 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.
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 license additional technology from third parties to develop new products or product enhancements. 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, 2009, we had 7,231 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
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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. Competition for such personnel is intense, and there can be no assurance that we can retain our key
personnel in the future.
Executive Officers of the Registrant
The following sets forth certain information regarding our executive officers as of the filing of this
Annual Report on Form 10-K.
Name
Kevin R. Johnson
Pradeep Sindhu
Mark Bauhaus
Robyn M. Denholm
Stefan Dyckerhoff
Mitchell Gaynor
John Morris
Michael J. Rose
Gene Zamiska
Age
49 Chief Executive Officer
Position
57
Chief Technical Officer and Vice Chairman of the
Board
Executive Vice President and General Manager,
Service Layer Technology Business Group
46 Executive Vice President and Chief Financial Officer
48
37
Executive Vice President and General Manager,
Infrastructure Products Group
49
50 Senior Vice President, General Counsel and Secretary
Executive Vice President, Worldwide Sales and
Services
Executive Vice President of Service, Support and
Operations
57
48 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 September 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 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
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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 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.
STEFAN DYCKERHOFF joined Juniper Networks in October 2009 and serves as our Executive Vice
President and General Manager, Infrastructure Products Group. From May 2004 to September 2009,
Mr. Dyckerhoff was at Cisco Systems serving as Vice President and General Manager of the Edge Routing
Business Unit. From January 1997 to May 2004, Mr. Dyckerhoff was at Juniper Networks serving in various
roles in the engineering organization. Mr. Dyckerhoff holds a Bachelors degree in Electrical Engineering
from Duke University and a Masters degree in Electrical Engineering from Stanford University.
MITCHELL GAYNOR is Senior Vice President, General Counsel, and Secretary and joined Juniper
Networks in February 2004. 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 Operating 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.
MICHAEL J. ROSE joined Juniper Networks in November 2008 as Executive Vice President of Service,
Support and Operations. From December 2005 to November 2008, Mr. Rose was an independent business
consultant. From September 2001 to December 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. In February 2009, Mr. Zamiska was appointed as Chief Accounting Officer of Juniper Networks.
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.
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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, as amended, 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 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. Our Corporate Governance Standards, the
charters of our Audit Committee, Compensation Committee, Stock Committee and Nominating and
Corporate Governance Committee, as well as our Worldwide Code of Business Conduct and Ethics are also
available on our 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, changes in geographies
in which our products are 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
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expansion have recently 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 and Europe, 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 continued reduced demand
for our products and/or higher costs of production. The current economic weakness may also lead to longer
collection cycles for payments due from our customers, an increase in customer bad debt, 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 is, and will continue to be, fixed in the short-term. Uncertainty about 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, AT&T, Inc., accounted for greater than 10% of our net revenues in fiscal
year 2009. 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
recession’s impact on 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 acquisition of Redback by
Ericsson, the joint venture of NSN, and the acquisition of Foundry Networks by Brocade). Such consolidation
may cause our customers who are involved in these transactions 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 and
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.
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 infrastructure market has historically been
dominated by Cisco with other companies such as Alcatel-Lucent, Brocade, Ericsson, Extreme Networks,
Hewlett-Packard Company, and Huawei 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 such as CheckPoint,
Cisco, Fortinet, F5 Networks, and Riverbed. In addition, a number of other small public and private
companies have
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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/or resellers by competitors, can increase the competitive pressures faced by us. In this regard, Ericsson
acquired Redback in 2007 and Brocade acquired Foundry Networks in 2009. 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.
We rely on value-added resellers, distribution, and original equipment manufacturer 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, including our worldwide strategic partners such as
Ericsson, IBM, and NSN. 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 2006, one of our largest resellers, Lucent, merged with Alcatel, a
competitor of ours. As a result of becoming a competitor, their resales of our products declined subsequent to
the merger, and we ultimately terminated our reseller agreement. 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 and develop 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. For example, we recently entered into an agreement to form a
joint venture with NSN to develop and resell joint carrier Ethernet solutions and entered into OEM
agreements with Dell and IBM where they will rebrand and resell our products as part of their product
portfolios. These relationships are complex and require additional processes and procedures that may be
challenging and costly to implement, maintain and 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.
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, 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
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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.
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 multi-year project to upgrade certain key internal systems and processes, including
our company-wide human resources management system, our customer relationship management (“CRM”)
system and enterprise 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.
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
but failed to deliver certain 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 require us to defer revenue recognition from such sales, which may negatively affect our
business, financial condition, and results of operations.
For arrangements with multiple elements, our accounting policies require vendor-specific objective
evidence (“VSOE”) of fair value of the undelivered to separate the components and to account for elements of
the arrangement separately. VSOE 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 VSOE of fair value for the undelivered elements to a similar group of customers, the result
of which could cause us
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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.
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.
If we do not successfully anticipate market needs and opportunities, and develop products and product
enhancements that meet those needs and opportunities, or if those products are not made available in a
timely manner or 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 and opportunities or be able to
develop new products or product enhancements to meet such needs or opportunities in a timely manner or at
all. If we fail to anticipate market requirements or fail 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 2008, we announced new products designed to address the Ethernet switching market, a
market in which we had not had a historical presence. In addition, in 2009 we announced plans to develop and
introduce new data center products with our Project Stratus and mobility solutions with our Project Falcon. If
these or other new products do not gain market acceptance at a sufficient rate of growth, our ability to meet
future financial targets and aspirations may be adversely affected. In addition, if we fail to deliver new or
announced products to the market in a timely manner, it could adversely affect the market acceptance of those
products and harm our competitive position and business and financial results.
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 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.
For example, in 2009, we received a proposed adjustment from the IRS claiming that we owe additional
taxes, plus interest and possible penalties, for the 2004 tax year based on a transfer pricing transaction related
to the license of acquired intangibles under an intercompany R&D cost sharing arrangement. As a result of
the proposed
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adjustment, the incremental tax liability would be approximately $807.0 million excluding interest and
penalties. We strongly believe the IRS’ position with regard to this matter is inconsistent with applicable tax
laws and existing Treasury regulations, and that our previously reported income tax provision for the year in
question is appropriate. However, there can be no assurance that this matter will be resolved in our favor.
Regardless of whether this matter is resolved in our favor, the final resolution of this matter could be
expensive and time-consuming to defend and/or settle. While we believe we have provided adequately for this
matter, there is still a possibility that an adverse outcome of the matter could have a material effect on our
results of operations and financial condition.
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.
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, materials, and/or 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.
During periods of high demand for electronic products, component shortages are possible, and the
predictability of the availability of such components may be limited. Any future 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 components, including ASICs, from single
or limited sources. The development of alternate sources for those components 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.
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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 manufacturer 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 are a party to lawsuits, which are costly to 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 are a party to a number of patent infringement and
other lawsuits. In addition, 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 13, 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 or that tentative settlements will become
final. 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 defend, settle, and/or resolve.
Such costs of 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.
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.
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
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investment in our business by, for example, increasing headcount and increasing our investment in R&D and
other parts of our business. Conversely, during 2009, in response to downward trending industry and market
conditions, we restructured our business, rebalanced our workforce, and reduced our real estate portfolio.
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.
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
network deployments 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 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 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
next generation networks. 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.
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 our network or 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.
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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. 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 R&D and our general and administrative
(“G&A”) operations are conducted in the United States as well as other countries.
As a result of our international operations, we are affected by economic, regulatory, social, and political
conditions in foreign countries, including changes in general IT spending, the imposition of government
controls, changes or limitations in trade protection laws, 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, unfavorable changes in tax treaties or laws, natural disasters,
epidemic disease, labor unrest, earnings expatriation restrictions, misappropriation of intellectual property,
military actions, acts of terrorism, political or social unrest, and difficulties in staffing and managing
international operations. In particular, in some countries, we may experience reduced intellectual property
protection. Any or all of these factors could have a material adverse impact on our business, financial
condition, and results of operations.
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.
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 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
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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 introduction of new products, and negatively impact our ability to market,
sell, or support our products.
In addition, we rely upon equity compensation to help recruit, retain and motivate our employees. At our
2010 annual meeting of stockholders, we plan to ask our stockholders to authorize additional shares for grant
under our 2006 Equity Incentive Plan (the “2006 Plan”), which is the only plan under which we currently
grant stock options, restricted stock units and performance shares to our employees. If more shares, or not
enough shares, are not authorized by our stockholders for grant under the 2006 Plan, we will be significantly
limited in our ability to grant 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.
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.
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
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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.
Integration of 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 privately-held 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 may acquire is likely 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 any acquisition integration efforts and are unable to efficiently operate as a
combined organization utilizing common information and communication systems, operating procedures,
financial controls, and human resources practices, our business, financial condition, and results of operations
may be adversely affected.
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 13, 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” 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
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civil litigation related to the stock option matters. In February 2009, we entered into an agreement in principle
to settle the class action litigations claims related to our historical stock option granting practices. Under the
proposed settlement, which is subject to the approval of the board of trustees of the lead plaintiffs and the
court, the claims against us and our officers and directors will be dismissed with prejudice and released in
exchange for a $169 million cash payment by us. 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 and the related costs of defense, as
well as any losses resulting from these claims or final settlement of these claims, could significantly increase
our expenses and could harm our business, financial condition, and results of operations.
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. Future declines in our stock price, 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.
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 (“CEO”), chief
financial officer (“CFO”), 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
26
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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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, 2009, we had $1,604.7 million in cash and cash equivalents and $1,054.0 million in
short- and long-term investments. We have invested these amounts primarily in U.S. government securities,
government-sponsored enterprise obligations, foreign government debt 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.
ITEM 2. Properties
We lease approximately 2.0 million square feet worldwide, with nearly 70 percent being in North
America. Our corporate headquarters is located in Sunnyvale, California, and consists of buildings totaling
approximately 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 primary corporate
headquarters buildings expire between June 2020 and November 2022. 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, under leases that 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 regions, 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 November 2022. Our current offices are in good condition and appropriately
support our business needs.
For additional information regarding obligations under our operating leases, see Note 13, Commitments
and Contingencies, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report
on Form 10-K, which is incorporated by reference herein. For additional information regarding properties by
operating segment, 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, which is incorporated by reference herein.
27
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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ITEM 3. Legal Proceedings
The information set forth under the heading “Legal Proceedings” in Note 13, Commitments and
Contingencies, in 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
Effective October 29, 2009, we transferred our listing from the NASDAQ Global Select Market
(“NASDAQ”) to the New York Stock Exchange LLC (“NYSE”) and continue to list under the symbol
“JNPR.” On December 31, 2009, the last trading day of our fiscal year, the closing price of our common stock
on the NYSE was $26.67 per share.
Price Range of Common Stock
The following table sets forth the high and low bid prices for our common stock of the two most recently
completed years as reported on NASDAQ for each quarterly period through October 28, 2009, and the high
and low sales price for our common stock as reported on the NYSE from October 29, 2009 through
December 31, 2009:
NASDAQ
First quarter
Second quarter
Third quarter
Fourth quarter
NYSE
Fourth quarter
Holders
2009
2008
High
Low
High
Low
$ 18.84 $ 12.43 $ 33.30 $ 23.43
$ 25.44 $ 14.75 $ 29.49 $ 21.92
$ 28.05 $ 22.45 $ 27.65 $ 20.58
$ 28.74 $ 25.05 $ 20.80 $ 13.29
$ 27.90 $ 24.04
N/A
N/A
At January 29, 2010, there were approximately 1,200 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.
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.”
28
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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, 2009.
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Average
Price Paid
per Share
Programs
Maximum Dollar
Value of Shares
that May Yet Be
Purchased
Under the Plans or
Programs(1)
Total Number
of Shares
Purchased(1)
1,141,271 $
27.05
1,141,271 $
500,138,399
4,542,379
25.67
4,542,379
383,533,943
2,443,613
8,127,263 $
26.57
26.14
2,443,613
8,127,263
318,598,578
Period
October 1 — October 31,
2009
November 1 —
November 30, 2009
December 1 —
December 31, 2009
Total
(1) In March 2008, the Board approved a stock repurchase program (the “2008 Stock Repurchase Program”)
which authorized us to purchase up to $1.0 billion of our common stock. During the three and twelve
months ended December 31, 2009, we repurchased and retired 8,127,263 shares and 20,696,771 shares
of common stock at an average price of $26.14 and $21.91 per share, respectively, under the 2008 Stock
Repurchase Program. All shares of common stock purchased under the 2008 Stock Repurchase Program
have been retired. Future share repurchases under our stock repurchase programs 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.
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, 2004, in each of Juniper Networks’ common stock, the Standard &
Poor’s 500 Stock Index (“S&P 500”), the NASDAQ Telecommunications Index (“IXUT”), and the NYSE
Dow Jones Industrial Average (“DJI”). 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
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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29
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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JNPR
S&P 500
IXUT
DJI
2004
2005
As of December 31,
2006
2007
2008
2009
$ 100.00 $
100.00
100.00
100.00
82.02 $
69.66 $ 122.10 $ 64.40 $
103.00
92.79
99.39
117.03
118.55
115.58
121.16
129.42
123.02
74.53
73.79
81.39
98.09
92.01
109.39
96.71
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, 2009, see “Notes to Consolidated Financial Statements” in Item 8 of Part II
of this Annual Report on Form 10-K.
Consolidated Statements of Operations Data
2009(a)
2008(b)
Years Ended December 31,
2007(c)
(In millions, except per share data)
2006(d)
2005(e)
$
Net revenues
Cost of revenues
Gross margin
Operating expenses
Operating income (loss)
Other income and expense, net
Income (loss) before income
taxes and noncontrolling
interest
Provision for income taxes
Consolidated net income (loss)
Net loss attributable to
noncontrolling interest
Net income (loss) attributable
to Juniper Networks
Net income (loss) per share
attributable to Juniper
Networks common
stockholders:
Basic
Diluted
Shares used in computing net
income (loss) per share:
Basic
Diluted
3,315.9 $
1,157.8
2,158.1
1,847.4
310.7
1.4
3,572.4 $
1,166.0
2,406.4
1,711.4
695.0
33.9
2,836.1 $
927.6
1,908.5
1,501.4
407.1
103.5
2,303.6 $
754.3
1,549.3
2,547.1
(997.8)
100.7
2,064.0
653.5
1,410.5
969.5
441.0
56.5
312.1
(196.8)
115.2
728.9
(217.2)
511.7
510.6
(149.8)
360.8
(897.0)
(104.4)
(1,001.4)
497.5
(146.8)
350.7
1.8
—
—
—
—
117.0
511.7
360.8
(1,001.4)
350.7
$
$
0.22 $
0.22 $
0.96 $
0.93 $
0.67 $
0.62 $
(1.76) $
(1.76) $
0.63
0.58
523.6
534.0
530.3
551.4
537.8
579.1
567.5
567.5
554.2
600.2
(a) Includes the following significant pre-tax items: stock-based compensation of $139.7 million, litigation
settlement charges of $182.3 million, write-down of privately-held equity investments of $5.5 million,
and restructuring charges of $19.5 million. In addition, includes the following significant tax items:
$61.8 million related to the write-off of certain net deferred tax assets resulting from a change in
California income tax law, $52.1 million related to a change in the tax treatment of stock-based
compensation expense in transfer pricing
30
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arrangements for certain U.S. multinational companies due to a recent federal appellate court ruling and
$4.6 million related to an investigation by the India tax authorities.
(b) Includes the following significant pre-tax items: stock-based compensation of $108.1 million,
write-down of privately-held equity investments of $11.3 million, other-than-temporary decline in
publicly-traded equity investment of $3.5 million, and litigation settlement charge of $9.0 million.
(c) 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 privately-held equity investment of $6.7 million, and a net litigation 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 ASC Topic 740 (formerly, Statement of
Financial Accounting Standards (“SFAS”) No. 109 Accounting for Income Taxes (“SFAS 109”) and
Financial Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes-an interpretation
of FASB Statement No. 109 (“FIN 48”)).
(d) 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.
(e) Includes the following significant pre-tax items: stock-based compensation expense of $22.3 million,
in-process R&D 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.
Consolidated Balance Sheet Data
Cash, cash equivalents, and
marketable securities
Working capital
Goodwill
Total assets
Total long-term liabilities
Total stockholders’ equity
2009
2008
As of December 31,
2007
(In millions)
2006
2005
$ 2,658.7 $ 2,293.4 $ 2,015.8 $ 2,614.3 $ 2,047.1
1,261.4
4,879.7
8,183.6
468.0
1,759.2
3,624.7
7,368.4
490.7
1,503.2
3,658.6
7,590.3
389.7
1,759.6
3,658.6
7,187.3
229.3
1,175.3
3,658.6
6,885.4
151.7
attributable to Juniper Networks
5,822.1
5,901.4
5,353.9
6,115.1
7,088.2
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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,”
“would,” “could,” “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 based on reasonable expectations of our management 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
(“U.S. GAAP”). 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, expenses, and related disclosure of contingencies. On an ongoing
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 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.
Changes to Previously Announced Fiscal 2009 Fourth Quarter and U.S. GAAP Annual Results
Subsequent to the January 28, 2010 announcement of our preliminary fourth quarter and full fiscal year
results for 2009, we recorded additional litigation settlement charges of $169.3 million in our reported results.
On February 5, 2010, we entered into a proposed agreement in principle to the federal securities class action
litigation pending against us and certain of our current and former officers and directors relating to our
historical stock option granting practices. This litigation settlement charge resulted in an increase in total
operating expense and a reduction in operating income, income before income taxes and noncontrolling
interest, provision for income taxes, consolidated net income, net income attributable to Juniper Networks,
and net income per share attributable to Juniper Networks. See further discussion in Note 13, Commitments
and Contingencies, under “Legal Proceedings” in Notes to Consolidated Financial Statements in Item 8 of
Part II of this Annual Report on Form 10-K.
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Set forth below is a reconciliation of the January 28, 2010 announcement of our preliminary results press
release to amounts reported in this Annual Report on Form 10-K which reflects the above mentioned
adjustment (in millions, except per share amounts):
Three Months Ended December 31, 2009
Year Ended December 31, 2009
Previously
Announced
Net
Change
Reported in
Annual Report on
Form 10-K
Previously
Announced
Net
Change
Reported in
Annual Report on
Form 10-K
Litigation settlement
charges
Total operating
expenses
Operating income
Income before income
taxes and
noncontrolling
interest
Provision for income
taxes
Consolidated net
income
Net income
attributable to
Juniper Networks
Net income per share
attributable to
Juniper Networks:
Basic
Diluted
$
$
$
$
$
$
12.0 $
169.3 $
181.3 $
13.0 $
169.3 $
182.3
449.7 $
175.1 $
169.3 $
(169.3) $
619.0 $
5.8 $
1,678.1 $
480.0 $
169.3 $
(169.3) $
1,847.4
310.7
173.2 $
(169.3) $
3.9 $
481.4 $
(169.3) $
44.1 $
(61.3) $
(17.2) $
258.1 $
(61.3) $
129.2 $
(108.1) $
21.1 $
223.3 $
(108.1) $
312.1
196.8
115.2
$
131.0 $
(108.1) $
22.9 $
225.1 $
(108.1) $
117.0
$
$
0.25 $
0.24 $
(0.21) $
(0.20) $
0.04 $
0.04 $
0.43 $
0.42 $
(0.21) $
(0.20) $
0.22
0.22
Executive Overview
Our performance for the fiscal year 2009 reflects the weakness in market demand for networking and
security products, compared to the fiscal year 2008, primarily due to our customers’ reaction to the weakened
global economy. The decrease in revenues was primarily due to the slowdown in the Europe, Middle East,
and Africa (“EMEA”); and Asia Pacific (“APAC”) service provider market. While the global economy
continues to challenge the marketplace, our portfolio-selling strategy enabled us to expand our depth and
breadth in the enterprise and service provider markets during the second half of 2009. As a result, the fourth
quarter of 2009 was our strongest quarter in the enterprise market as well as in the service provider market in
the U.S. In addition, we were able to navigate through challenging economic conditions by controlling
operating costs while continuing to invest in innovation and customer satisfaction.
The following table provides an overview of our key financial metrics for the years ended December 31,
2009, and 2008 (in millions, except per share amounts and percentages):
2009
2008
$ Change
% Change
Net revenues
Operating income
Percentage of net revenues
Net income attributable to Juniper Networks $
Percentage of net revenues
Net income per share attributable to Juniper
$ 3,315.9
310.7
$
$ 3,572.4
695.0
$
19.5%
$
$
9.4%
117.0
$
3.5%
511.7
14.3%
$
(256.5)
(384.3)
(394.7)
(7)%
(55)%
(77)%
Networks common stock holders:
Basic
Diluted
$
$
0.22
0.22
$
$
0.96
0.93
$
$
(0.74)
(0.71)
(77)%
(76)%
33
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• Net Revenues: Our net revenues decreased in 2009 compared to 2008, primarily due to reduced
demand for our products particularly in the Infrastructure segment, which is consistent with the overall
decline in the global economy, partially offset by an increase in service revenue from both the
Infrastructure and SLT segments. Net revenues from enterprise customers increased 11% while net
revenues from service providers decreased 14% in 2009, compared to 2008. Net revenues decreased in
all regions in 2009 compared to 2008.
• Operating Income: Our operating income as well as operating margin as a percentage of net revenues
decreased in 2009 compared to 2008. These decreases were, in large part, due to the decrease in
revenues and an increase in litigation settlement charges, partially offset by our efforts to control
expenses and improve operational efficiencies in 2009 compared to 2008.
• Net Income Attributable to Juniper Networks and Net Income Per Share Attributable to Juniper
Networks Common Stock Holders: The decrease in net income attributable to Juniper Networks (“net
income”) and net income per share attributable to Juniper Networks common stock holders (“net
income per share”) in 2009 compared to 2008, is primarily due to a decrease in revenue, an increase in
litigation settlement charges, and total non-recurring income tax charges of $118.5 million incurred
during 2009. Of the $118.5 million, $61.8 million related to the write-off of certain net deferred tax
assets resulting from a change in California income tax law, $52.1 million related to a change in the tax
treatment of stock-based compensation expense in transfer pricing arrangements for certain
U.S. multinational companies due to a recent federal appellate court ruling and $4.6 million related to
an investigation by the India tax authorities.
• Other Financial Highlights: Total deferred revenue increased $163.3 million in 2009, primarily due to
the growth in our installed equipment base for maintenance and customer support contracts and an
increase in channel inventory. In 2009, we repurchased approximately 20.7 million shares of our
common stock under our 2008 Stock Repurchase Program, at an average price of $21.91 per share for
a total purchase price of $453.5 million.
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 network. We serve the high-performance networking
requirements of global service providers, enterprises, and research and public sector organizations 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 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 2009, we continued to deliver new and innovative, high-performance network infrastructure solutions.
We extended our Junos software platform to include Junos Space network application platform and Junos
Pulse integrated, multi-service network client. The launch of our next generation silicon, Trio, enables 3-D
scaling and positions our MX-series routers as a “universal” edge platform for the networking market. We
announced the TX Matrix Plus, a multi-chassis system for the T1600 core router, which in conjunction with
the JCS12000 Control Plane System brings virtualization to the core of the Internet. Additionally, we
announced a significant technological advance with 100 Gigabit Ethernet interface cards for our T1600 core
router. We also delivered our Adaptive Threat Management solution, designed to help customers identify and
respond to security incidents to help reduce overall risk. We introduced a new solution for the Intelligent
Services Edge with the StreamScope eRM integrated video monitoring and analysis product, which is
designed to enable customers to extend the capabilities of our M- and MX-series routers to enhance the
quality of video services over cable, wireless, and Internet Protocol Television networks.
Our Ethernet switching portfolio added the EX2200 switch platform, the EX8208, a modular switching
platform, and the EX8216, a high-capacity modular switching platform designed for deployment in large
enterprise data centers. In addition, our next-generation network infrastructure includes four new models of
our SRX family of dynamic services gateways. We expanded our SRX family of dynamic services gateways
with the introduction of
34
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the SRX3000, and extended the infrastructure for enterprises and started shipping the SRX100 dynamic
service gateway platforms. Our SRX services gateways are sold into service provider and mobile packet core
security markets as well as the enterprise market.
On the partnership front, we announced entry into OEM agreements with Dell to offer our networking
solutions under Dell’s PowerConnect brand, and with IBM to resell our Ethernet networking products and
support to IBM’s data center customers. In addition we entered in to a joint venture with Nokia Siemens
Networks B.V. (“NSN”) to develop and resell joint carrier Ethernet solutions.
The recent weakness in the global economy has affected the purchasing behavior of our customers,
particularly among service providers, and caused delays or reductions in purchase decisions, which led to
lower revenues in 2009 compared to 2008, as well as limited visibility regarding future business. If economic
growth in the U.S. and other countries’ economies declines and/or fails to recover, our customers may further
delay or reduce their purchases, which could result in reductions in sales of our products, longer sales cycles,
slower adoption of new technologies, and increased price competition. We continue to plan to both invest in
key R&D projects that we believe will lead to future growth and remain focused on continuing our efforts to
contain other costs and allocate resources effectively.
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 standard product costs. The independent contract manufacturers produce our products using
design specifications, quality assurance programs, and standards that we establish. Our independent contract
manufacturers manufacture our products primarily in China, Malaysia, Mexico, and the United States. 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. As of
December 31, 2009, and 2008, we had 244 and 230 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. 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 has been manufactured in Asia, and we anticipate
that a larger percentage of our products will be produced outside the U.S in the future. Our contracts generally
provide for passage of title and risk of loss at the designated point of shipment to our 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 as well as those customers. In an ongoing effort
to balance our and our 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 affect shipping costs and the
timing of revenue recognition of those shipments.
Our operating expenses include R&D, sales and marketing, and G&A expenses. R&D 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 R&D 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 R&D costs as they are incurred. Sales and marketing expenses include costs
for selling and promoting our products and services, demonstration 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 2009, 2008, and 2007. G&A expenses include
professional fees, bad debt provisions, and other corporate expenses. Professional fees include legal, audit,
tax, accounting, and certain corporate strategic services.
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Employee-related costs have historically been the primary driver of our cost of service revenue and
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 7,231, 7,014,
and 5,879 employees as of December 31, 2009, 2008, and 2007, respectively. The year-over-year increases
were primarily attributable to increases in our R&D and customer service organizations. Our headcount is
expected to increase in 2010 as we continue to expand these functions.
Facility and information technology (“IT”) departmental costs are allocated to other departments based
on usage and headcount, respectively. Despite an increase in headcount in 2009, these costs decreased due to
our cost reduction initiatives. Facilities and IT departmental costs increased in 2008 and 2007, due to
increases in headcount and new facility leases added to support our growth. Facility and IT related headcount
was 294, 267, and 224 as of December 31, 2009, 2008, and 2007, respectively. In 2010, we expect to continue
to invest in our company-wide IT infrastructure as we implement our operational excellence initiatives.
Our cost of service revenues and 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 cost of service
revenues and 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 decrease in cost of service
revenues and operating expenses including R&D, sales and marketing, as well as G&A expenses, due to
foreign currency fluctuations was approximately 2% in 2009. The increase in cost of service revenues and
operating expenses including R&D, sales and marketing, as well as G&A expenses, due to foreign currency
fluctuations was approximately 1% and 2% in 2008 and 2007, respectively.
Other Event — Listing on the New York Stock Exchange
On October 6, 2009, we submitted an application to transfer the listing of our Company’s common stock
to the NYSE from NASDAQ. Effective October 29, 2009, we transferred our listing from NASDAQ to the
NYSE under the symbol “JNPR.”
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP 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 circumstances, 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 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 consolidated results of operations may be
affected.
• 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 Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 985-605, Software — Revenue
Recognition (formerly, Statement of Position No. 97-2, Software Revenue Recognition).
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Revenue is recognized when all of the following criteria have been met:
• 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.
• 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.
• 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.
• 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.
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. In determining VSOE, we require that a substantial majority of the selling prices fall within a
reasonable range based on historical discounting trends for specific products and services. 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. We account 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. 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, value-added resellers, and OEM partners, 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 or to an OEM partner. For our end-users and value-added
resellers, there are no significant obligations for future performance such as rights of return or pricing credits.
Our agreements with our OEM partners may allow future rights of returns or pricing credits. A portion of our
sales is 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.
Service revenues include revenue from 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.
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We sell certain interests in accounts receivable on a non-recourse basis as part of a customer financing
arrangement primarily with one major financing company. We record cash received under this arrangement in
advance of revenue recognition as short-term debt.
• Contract Manufacturer Liabilities. We outsource most of our manufacturing, repair, and supply chain
management 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.
• 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 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.
• Goodwill and Purchased Intangible Assets. We make significant estimates and assumptions when
evaluating impairment of goodwill and other intangible assets on an ongoing basis, as well as when
valuing goodwill and other intangible assets in connection with the initial purchase price allocation of
an acquired entity. The amounts and useful lives assigned to identified intangible assets impacts the
amount and timing of future amortization expense. 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 and intangible
assets is subjective and requires significant judgment at many points during the analysis. 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. Under the market approach, we
estimate fair value of our reporting units based on market multiples of revenue or earnings for
comparable companies. Under the income approach, we calculate fair value of a reporting unit based
on the present value of estimated future cash flows. If the fair value of the reporting unit exceeds the
carrying value of the net assets assigned to that unit, goodwill is not impaired and we are not required
to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds
the fair value of the reporting unit, then we must perform the second step of the impairment test in
order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a
reporting unit’s goodwill exceeds its implied fair value, then we record an impairment loss equal to the
difference. We performed impairment test for our goodwill as of November 1, 2009, 2008 and 2007,
and concluded that there was no goodwill impairment, or reporting units at risk of failing the first step
of the impairment test. Intangible assets are evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets 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.
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We assess the recoverability of our 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 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.
• 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 in accordance with FASB ASC Topic
718 (formerly, Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based
Payment (“SFAS 123(R)”)). Stock-based 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.
We utilize the Black-Scholes-Merton (“BSM”) option-pricing model in order to determine the fair value
of stock-based awards. 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.
• 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 carry-forwards. 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. 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 FASB ASC Topic — Income Taxes (“FASB ASC Topic 740”)
(formerly, SFAS No. 109, Accounting for Income Taxes and Financial Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 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 an adjustment to earnings 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 and measure potential liabilities based upon criteria set forth in FASB
ASC Topic 740. Based upon these criteria, we estimate 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 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
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determination as to the amount of deferred tax assets that can be realized, as occurred in connection with the
California tax law change in the first quarter of 2009, 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. For
further discussion of the California tax law change refer to Note 12, Income Taxes, in Notes to Consolidated
Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
Significant judgment is also required in evaluating our uncertain tax positions under FASB ASC Topic
740 and determining our provision for income taxes. Although we believe our reserves under FASB ASC
Topic 740 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 from the amounts recorded, such
differences will affect the provision for income taxes in the period in which such determination is made as it
was during the second quarter of 2009, when we recorded a non-recurring income tax charge as a result of a
federal appellate court ruling in Xilinx, Inc. v. Commissioner. The provision for income taxes includes the
effect of reserves under FASB ASC Topic 740 and any changes to the reserves that are considered
appropriate, as well as the related net interest and penalties, if applicable.
• 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 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 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 affect 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.
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Results of Operations
The following table presents product and service net revenues (in millions, except percentages):
2009
2008
$ Change
% Change
2008
2007
$ Change
% Change
Years Ended December 31,
Years Ended December 31,
Net revenues:
Product
Percentage of net
revenues
Service
Percentage of net
revenues
Total net
$ 2,568.0
$ 2,911.0
$
(343.0)
(12)% $ 2,911.0
$ 2,327.0
$
584.0
25%
77.4%
81.5%
747.9
661.4
22.6%
18.5%
86.5
13%
661.4
509.1
152.3
30%
81.5%
82.0%
18.5%
18.0%
revenues
$ 3,315.9
$ 3,572.4
$
(256.5)
(7)% $ 3,572.4
$ 2,836.1
$
736.3
26%
Our net product revenues decreased in 2009 compared to 2008 primarily due to decreased revenue from
our routing products to service provider customers whose spending patterns were affected by the weakened
global economy, partially offset by increased revenues from our EX-series switching products. Our net
service revenues increased in 2009 compared to 2008, primarily due to the increase in professional services
and maintenance revenue from our expanding installed base of equipment under service contracts.
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 next generation 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.
Infrastructure Segment Revenues
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 circuit-to-packet products. The
following table presents 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,
Years Ended December 31,
2009
2008
$ Change
%Change
2008
2007
$ Change
%Change
Net Infrastructure
segment revenues:
Infrastructure
product revenues $
1,959.2
$
2,301.9
$
(342.7)
(15)% $
2,301.9
$
1,753.2
$
548.7
31%
Percentage of net
revenues
Infrastructure
59.1%
64.4%
64.4%
61.8%
service revenues
482.4
424.0
58.4
14%
424.0
320.1
103.9
32%
Percentage of net
revenues
Total
Infrastructure
segment
revenues
Percentage of net
revenues
14.5%
11.9%
11.9%
11.3%
$
2,441.6
$
2,725.9
$
(284.3)
(10)% $
2,725.9
$
2,073.3
$
652.6
31%
73.6%
76.3%
76.3%
73.1%
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Infrastructure — Product
Infrastructure product revenues decreased in 2009 compared to 2008, primarily due to decreased revenue in
M-, T-, and E-series product families attributable to our customers’ reduced demand due to the global
economic environment, partially offset by revenue growth from our EX-series switching products and
MX-series products. In 2009, we experienced a 23% decrease in product revenue from the service provider
market and a 40% increase in product revenue from the enterprise market compared to the same period in
2008. The decrease in the service provider market was primarily due to decreased capital spending in that
market, and the increase in the enterprise market was primarily due to the growth in our EX-series switching
business and our continued focus on selling Infrastructure products into the enterprise market, which resulted
in growth of enterprise revenues in Americas and APAC. Geographically, Infrastructure product revenue
decreased in all three regions in 2009.
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 a 28% increase in product revenue from
the service provider market and a 59% increase in product revenue from the enterprise market compared to the
same period in 2007. From a geographical perspective, in 2008, 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 modular 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 chassis on which revenue was recognized during the period. The following table
presents Infrastructure revenue units and ports shipped:
Years Ended December 31,
Years Ended December 31,
2009
2008
Unit Change
% Change
2008
2007
Unit Change
% Change
Infrastructure
chassis
revenue
units(1)
Infrastructure
ports
shipped(1)
12,578
13,745
(1,167)
(8)%
13,745
11,195
2,550
23%
437,278
397,907
39,371
10%
397,907
225,452
172,455
76%
(1) Excludes modular and fixed configuration EX-series switching products and circuit to packet products.
Infrastructure chassis revenue units decreased in 2009 compared to 2008, primarily due to reduced
customer demand because of the weakened global economy. The port shipments increased in 2009 compared
to 2008, primarily due to an increase in the MX-series products, which generally contain a higher number of
ports per chassis.
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.
Infrastructure — Service
Infrastructure service revenues increased in 2009 compared to 2008, primarily due to an increase in our
installed base of equipment being serviced and service renewals. In 2009, we experienced a 12% increase in
service revenue from the service provider market and a 30% increase in service revenue from the enterprise
market
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compared to the same period in 2008. Geographically, Infrastructure service revenue increased in all regions
in 2009. A majority of our service revenues is earned from customers that purchase our products and enter
into service contracts for support 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. In 2008, we experienced a 37% increase in service revenue from the
service provider market and a 3% increase in service revenue from the enterprise market compared to the
same period in 2007. We also experienced increased professional service revenues due to consulting projects.
From a geographical perspective, in 2008, we experienced revenue growth in all three regions, with particular
strength in the Americas region.
SLT Segment Revenues
Our SLT segment consists primarily of products and services related to our Firewall/VPN (“Firewall”)
systems and appliances, SRX Series services gateways, SSL VPN appliances, IDP appliances, the J-series
router product family, and WAN optimization platforms. The following table presents 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,
2009
2008
$ Change
%Change
2008
2007
$ Change
%Change
Net SLT segment
revenues:
SLT product
revenues
Percentage of
$ 608.8
$ 609.1
$
(0.3)
—
$ 609.1
$ 573.8
$
35.3
6%
net revenues
18.4%
17.1%
17.1%
20.2%
SLT service
revenues
Percentage of
265.5
237.4
28.1
12%
237.4
189.0
48.4
26%
8.0%
6.6%
6.6%
6.7%
net revenues
Total SLT
segment
revenues $ 874.3
$ 846.5
$
27.8
3% $ 846.5
$ 762.8
$
83.7
11%
Percentage of
net revenues
26.4%
23.7%
23.7%
26.9%
SLT — Product
SLT product revenues was relatively flat in 2009 compared to 2008, primarily due to an increase in
revenue from our SRX services gateways offset by a decrease in revenue from our high-end and branch
firewall products. In 2009, we experienced a 26% increase in revenue from the service provider market and a
8% decrease in revenue from the enterprise market compared to 2008. Geographically, SLT product revenue
decreased in the EMEA and APAC regions and increased in the Americas region.
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 products, gained further
traction in the market place with revenues from these product lines growing in 2008 compared to 2007. In
2008, we experienced a 1% increase in revenue from the service provider market and a 8% increase in
revenue from the enterprise market compared to 2007. Geographically, revenues increased in the EMEA and
APAC regions and decreased in the Americas region.
The following table presents SLT revenue units recognized:
2009
Years Ended December 31,
2008
Unit Change
% Change
2008
2007
Unit Change
% Change
Years Ended December 31,
SLT
revenue
units
208,907
241,504
(32,597)
(13)%
241,504
239,021
2,483
1%
43
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SLT revenue units decreased in 2009 compared to 2008. The percentage decrease in revenue units was
greater than the percentage decrease in SLT product revenues, primarily due to the product mix that favored
products with higher average selling prices. 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.
SLT — Service
SLT service revenues increased in 2009 compared to 2008, primarily due to an increase in our installed
base of equipment being serviced and service renewals. In 2009, we experienced a 20% increase in service
revenue from the service provider market and a 10% increase in service revenue from the enterprise market
compared to 2008. Geographically, SLT service revenue increased in all regions in 2009. A majority of our
service revenues is earned from customers that purchase our products and enter into support service contracts.
SLT service revenues increased in 2008 compared to 2007, primarily due to an increase in our installed
base of equipment being serviced. In 2008, we experienced a 33% increase in service revenue from the service
provider market and a 24% increase in service revenue from the enterprise market compared to 2007.
Geographically, SLT service revenue increased in all regions in 2008.
Total Net Revenues by Geographic Region
The following table presents the total net revenues by geographic region (in millions, except percentages):
2009
2008
$ Change
% Change
2008
2007
$ Change
% Change
Years Ended December 31,
Years Ended December 31,
Americas:
United States
Other
Total Americas
Percentage of net
revenues
EMEA
Percentage of net
revenue
APAC
Percentage of net
revenues:
Total
$ 1,515.1
172.8
1,687.9
$ 1,537.5
228.7
1,766.2
$
(22.4)
(55.9)
(78.3)
(1)% $ 1,537.5
228.7
1,766.2
(24)%
(4)%
$ 1,215.8
124.7
1,340.5
$
321.7
104.0
425.7
26%
83%
32%
50.9%
49.4%
953.2
1,077.7
28.7%
30.2%
674.8
728.5
(124.5)
(12)%
1,077.7
918.0
159.7
17%
49.4%
47.3%
(53.7)
(7)%
728.5
577.6
150.9
26%
30.2%
32.4%
20.4%
20.4%
$
20.4%
20.3%
$
$ 3,315.9
$ 3,572.4
(256.5)
(7)% $ 3,572.4
$ 2,836.1
736.3
26%
Net revenues in the Americas region decreased in absolute dollars, but increased as a percentage of total net
revenues in 2009 compared to 2008, primarily due to a revenue decrease from the service provider market,
partially offset by an increase in net revenues from the enterprise market. In particular, the United States,
Mexico, and Brazil accounted for more than half of the decline in net revenue in the Americas region. 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 decreased in absolute dollars and increased as a percentage of total net
revenues, in 2009 compared to 2008, primarily due to the relative strength of sales in the United States
compared to EMEA and APAC. 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 EMEA decreased in absolute dollars and as a percentage of total net revenues in 2009
compared to 2008, primarily due to reduced demand in the service provider market, partially offset by a slight
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increase in revenue from the enterprise market. In particular Sweden, Germany, Belgium, and United Kingdom
attributed more than half of the decline in net revenues in EMEA. 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 APAC decreased in absolute dollars in 2009 compared to 2008, primarily due to reduced
demand in the service provider, partially offset by a slight increase in revenue from the enterprise market. In
particular, over half of the decline in APAC net revenues was attributable to Japan. Net revenues in APAC as a
percentage of total net revenues decreased slightly, primarily due to the relative strength of the enterprise
market in the United States. 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 next generation networks, partially offset by a decrease in revenues from Australia.
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 provider and enterprise. 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
institutions. The following table presents the total net revenues by markets (in millions, except percentages):
Service Provider
Percentage of net
revenues
Enterprise
Percentage of net
revenues
Total
2009
2008
$ Change
% Change
2008
2007
$ Change
% Change
Years Ended December 31,
Years Ended December 31,
$ 2,197.1
$ 2,568.2
$
(371.1)
(14)% $ 2,568.2
$ 2,014.7
$
553.5
27%
66.3%
71.9%
71.9%
1,118.8
1,004.2
114.6
11%
1,004.2
71.0%
821.4
182.8
22%
33.7%
28.1%
$
28.1%
29.0%
$
$ 3,315.9
$ 3,572.4
(256.5)
(7)% $ 3,572.4
$ 2,836.1
736.3
26%
Net revenues from the service provider market decreased in absolute dollars and as a percentage of total net
revenues in 2009 compared to 2008, primarily due to our customers’ delayed investment in new network
build-outs and purchases of additional networking capacity in reaction to the weak global macroeconomic
environment. The decline in service provider revenue as a percentage of net revenues was also attributable to
the relative strength of our revenue from the enterprise market. Net revenues from the service provider market
increased in absolute dollars and as a percentage of total net revenues in 2008 compared to 2007, primarily due
to service provider network build-outs as a result of bandwidth demand.
Net revenues from the enterprise market increased in absolute dollars and as a percentage of total net
revenues in 2009 compared to 2008, primarily due to revenue growth from our EX-series switching products.
Net revenues from the enterprise market increased in absolute dollars and as a percentage of total net revenues
in 2008 compared to 2007, primarily due to our strategy of cross-selling to the enterprise market and the
introduction of our SRX service gateways and our EX-series switching products.
AT&T, Inc., accounted for 10.4% of our net revenues for the year ended December 31, 2009. No single
customer accounted for 10% or more of our net revenues for the year ended December 31, 2008. NSN
accounted for 12.8% of our net revenues in 2007.
45
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Cost of Revenues and Gross Margin
The following table presents cost of product and service revenues and the related gross margins (in millions,
except percentages):
Years Ended December 31,
Years Ended December 31,
2009
2008
$ Change
% Change
2008
2007
$ Change
% Change
Cost of revenues:
$
Product
Percentage of
841.7
$
867.6
$
(25.9)
(3)% $
867.6
$
676.2
$
191.4
28%
net revenues
25.4%
24.3%
24.3%
23.8%
Service
Percentage of
net revenues
Total cost of
revenues
$
Percentage of
316.1
298.4
17.7
6%
298.4
251.4
47.0
19%
9.5%
8.3%
8.3%
8.9%
1,157.8
$
1,166.0
$
(8.2)
(1)% $
1,166.0
$
927.6
$
238.4
26%
net revenues
34.9%
32.6%
32.6%
32.7%
Gross margin:
Product gross
margin
Percentage of
product
revenues
Service gross
margin
Percentage of
service
revenues
Total gross
margin
Percentage of
$
1,726.3
$
2,043.4
$
(317.1)
(16)% $
2,043.4
$
1,650.7
$
392.7
24%
67.2%
70.2%
70.2%
70.9%
431.8
363.0
68.8
19%
363.0
257.7
105.3
41%
57.7%
54.9%
54.9%
50.6%
$
2,158.1
$
2,406.4
$
(248.3)
(10)% $
2,406.4
$
1,908.4
$
498.0
26%
net revenues
65.1%
67.4%
67.4%
67.3%
The cost of product revenues and product gross margin decreased in absolute dollars in 2009 compared to
2008, primarily due to lower revenue level. The decrease in product gross margin as a percentage of revenues
in 2009 compared to 2008, is primarily attributable to product mix that favored products with lower gross
margin, such as our switching and MX-series products, geographical mix, and pricing. 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.
The cost of service revenues and service gross margin increased in 2009 compared to 2008. The increase in
cost of service revenues was attributable to increased headcount and increased spending on service-related
spares. Service gross margin increased primarily due to our continued efforts to manage costs. The cost of
service revenues and service gross margin increased in 2008 compared to 2007. The increase corresponded
with the growth in revenues in absolute dollars attributable to the growth in our installed equipment base.
Service-related headcount increased by 108 employees, or 14%, to 891 employees in 2009, compared to 783 in
2008. Total personnel-related charges as a percentage of service revenues were approximately 18% for 2009
and 20% for 2008. The decrease in personnel-related charges in 2009 as a percentage of service revenues is
primarily due to the overall increase in service revenues. Our outside service expense also increased in 2009,
primarily to support the expanding installed equipment base. Additionally, facilities and IT expenses related to
cost of service revenues increased in connection with the growth of service business as a portion of our overall
operations.
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Operating Expenses
The following table presents operating expenses and operating income (in millions, except percentages):
Research and development $
Sales and marketing
General and
administrative
Amortization of purchased
intangible assets
Litigation settlement
charges (gain)
Restructuring charges
Other charges
Total operating expenses
Operating income
$
$
2009
Years Ended December 31,
$ Change
2008
% Change
2008
Years Ended December 31,
$ Change
2007
% Change
741.7 $
734.0
731.2 $
782.9
10.5
(48.9)
1% $
(6)%
731.2 $
782.9
623.0 $
666.7
108.2
116.2
159.5
144.8
14.7
10%
144.8
116.4
28.4
17%
17%
24%
10.4
43.5
(33.1)
(76)%
43.5
85.9
(42.4)
(49)%
182.3
19.5
—
1,847.4 $
9.0
—
—
1,711.4 $
173.3
19.5
—
136.0
N/M
N/M
—
8% $
9.0
—
—
1,711.4 $
(5.3)
0.7
14.0
1,501.4 $
14.3
(0.7)
(14.0)
210.0
270%
(100)%
(100)%
14%
310.7 $
695.0 $
(384.3)
(55)% $
695.0 $
407.1 $
287.9
71%
The following table highlights our operating expenses and operating income as a percentage of net
revenues:
Research and development
Sales and marketing
General and administrative
Amortization of purchased intangible assets
Litigation settlement charges (gain)
Restructuring charges
Other charges
Total operating expenses
Operating income
Years Ended December 31,
2008
2009
2007
22.4%
22.1%
4.8%
0.3%
5.5%
0.6%
—
20.5%
21.9%
4.0%
1.2%
0.3%
—
—
55.7%
47.9%
9.4%
19.5%
22.0%
23.5%
4.1%
3.0%
(0.2)%
—
0.5%
52.9%
14.4%
R&D expenses increased in 2009 compared to 2008, primarily due to additional headcount and strategic
initiatives to expand our product portfolio and maintain our technological advantage over competitors. In
particular, in 2009, we continued to expand our EX-series switching product portfolio and increased our
investments in Project Stratus, which is our initiative to deliver the next-generation data center fabric, and
Project Falcon, which is our effort to develop mobility solutions for service provider customers.
Personnel-related charges, consisting of salaries, bonus, fringe benefits expenses, and stock-based
compensation expenses, increased $25.6 million, or 6%, to $453.3 million in 2009 primarily due to a 4%
increase in headcount in our engineering organization, from 3,194 to 3,308 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.
Additionally, facilities and IT expenses related to R&D expenses increased to support these engineering
efforts.
R&D 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 invest in our EX-series switching products, our SRX dynamic services gateways, and our
intelligent services edge offering that advances the M- and MX-series platforms. R&D 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
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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. Additionally, facilities and IT expenses related to R&D expenses increased to
support these engineering efforts.
Sales and marketing expenses decreased in 2009 compared to 2008, primarily due to a decrease in
personnel-related expenses and travel expenses. As a percentage of net revenues, sales and marketing
expenses increased slightly in 2009 due to the increased spending related to the corporate re-branding and
channel marketing campaigns, partially offset by 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, decreased $15.8 million, or 3%, to $474.0 million in 2009, primarily due
to a 4% decrease in headcount from 2,190 employees at the end of 2008 to 2,101 employees at the end of
2009. In addition, commission expense decreased by $12.0 million, or 10%, due to lower net revenues in
2009 compared to 2008. As our sales force decreased, we also decreased facilities and IT expenses related to
the sales and marketing organizations in 2009 compared to 2008.
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 IT expenses related to the sales and marketing organizations in 2008 compared to 2007.
G&A expenses increased in 2009 compared to 2008, primarily due to an increase in personnel-related
expenses and outside professional services. As a percentage of net revenues, G&A expenses decreased
slightly in 2009 due to our focus on managing expenses. Personnel-related charges, consisting of salaries,
bonus, fringe benefits, and stock-based compensation expenses, increased $7.2 million, or 10%, to
$78.4 million in 2009 compared to 2008, primarily due to a 12% increase in headcount, from 350 to
393 employees, in our worldwide G&A functions to support expected future growth of the business. Outside
professional service fees increased in 2009 compared to 2008 as a result of increased legal fees. Additionally,
facilities and IT expenses related to our G&A infrastructure increased to support our growing business.
G&A expenses also 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, G&A 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 G&A 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 IT expenses related to our G&A
infrastructure increased to support our growing business.
Amortization of purchased intangible assets decreased in 2009 compared to 2008, primarily due to
certain purchased intangible assets reaching the end of their amortization period during the second quarter of
2009. 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. We had no impairment against our goodwill or our purchased intangible assets in
2009. In 2008, we had no impairment against our goodwill and 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 against our goodwill or our purchased intangible assets in 2007.
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In 2009, we recorded litigation settlement charges of $182.3 million, which included $169.0 million
related to our agreement in principle reached in February 2010, to settle the securities class action litigation
pending against us and certain of our current and former officers and directors, $13.0 million related to the
resolution of a dispute in connection with certain real estate in Sunnyvale California purchased in 2000 and
$0.3 million related to another settlement recorded in the fourth quarter of 2009. Of these amounts,
$181.3 million was recorded in the fourth quarter of 2009. In 2008, we recorded a litigation settlement loss of
$9.0 million related to our shareholder derivative lawsuit. In 2007, we recognized a net litigation 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. See Note 13, Commitments and Contingencies, in Notes
to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, for more
information.
In 2009, we recorded restructuring charges of $19.5 million as a result of a restructuring plan to reduce
our real estate portfolio and workforce in targeted areas of the Company. We expect to incur additional
charges of approximately $8 million to $10 million relating to additional facilities and employee restructuring
under the 2009 Restructuring Plan in 2010. There were no restructuring charges in 2008. In 2007, we
recorded restructuring 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.
See Note 6, Other Financial Information, in Notes to Consolidated Financial Statements in Item 8 of Part II
of this Annual Report on Form 10-K, for more information regarding our restructuring liabilities.
Other charges are summarized as follows:
• Stock Option Investigation Costs. There were no stock option investigation costs recorded in 2009 and
2008. We recorded expenses of $6.0 million in 2007 related to professional fees and other costs in
connection with our investigation into historical stock option granting practices.
• Stock Option Amendment and Tax-Related Charges. There were no stock option amendment and
tax-related charges recorded in 2009 and 2008. We recorded $8.0 million in operating expense during
2007 in relation to the amendment of stock options and to the payment of certain taxes and penalties
associated with employee stock option exercises.
Interest and Other Income, net, (Loss) Gain on Equity Investments, and Income Tax Provision
The following table presents interest and other income, net, (loss) gain on equity investments, and income
tax provision (in millions, except percentages):
2009
2008
$ Change
% Change
2008
2007
$ Change
% Change
Years Ended December 31,
Years Ended December 31,
Interest and
other income,
net
$
Percentage of
6.9
$
48.7
$
(41.8)
(86)% $
48.7
$
96.8
$
(48.1)
(50)%
net revenues
0.2%
1.4%
1.4%
3.4%
(Loss) gain on
equity
investments
Percentage of
(5.5)
(14.8)
9.3
63%
(14.8)
6.7
(21.5)
(321)%
net revenues
(0.2)%
(0.4)%
(0.4)%
0.2%
Income tax
provision
Percentage of
196.8
217.2
(20.4)
(9)%
217.2
149.8
67.4
45%
net revenues
5.9%
6.1%
6.1%
5.3%
Net interest and other income decreased in 2009 compared to 2008, primarily due to lower interest rates
and an increase in customer financing charges during 2009. Net interest and other income decreased in 2008
compared to 2007, primarily due to lower interest rates during 2008.
During 2009 and 2008, we recognized impairment losses of $5.5 million and $14.8 million, respectively,
on our investments in privately-held companies for changes in fair value that we believed were
other-than-temporary. In 2007, one of the companies in which we had a privately-held equity investment
completed an initial public
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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.
Our effective tax rates were 63.1%, 29.8%, and 29.3% in 2009, 2008, and 2007, respectively. The increase
in the overall rate in 2009 compared to 2008 and the federal statutory rate of 35%, was primarily due to the
following income tax charges: (i) a $61.8 million discrete and other related charge that resulted from changes
in California income tax laws that were enacted during 2009; (ii) a $52.1 million charge that resulted from a
change in our unrecognized tax benefits related to share-based compensation due to the uncertainty regarding
the status of a decision reached by the U.S. Court of Appeals for the Ninth Circuit in Xilinx Inc. v.
Commissioner; and (iii) a $4.6 million charge which related to an investigation by the India tax authorities.
The effective rate impact from these charges was partially offset by the federal R&D credit and the benefit of
earnings in foreign jurisdictions, which are subject to lower tax rates. 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 R&D credits in the U.S. The 2008 and 2007 effective tax rates differ from the federal statutory rate of
35% primarily due to the federal R&D credit and the benefit of earnings in foreign jurisdictions, which are
subject to lower tax rates.
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 Notes to 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 can also be found in
Note 11, Segment Information, in 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, 2009, for comparative purposes.
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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,
2009
2008
$ Change % Change
2008
2007
$ Change % Change
Net revenues:
Infrastructure:
Product
Service
Total Infrastructure
revenues
Service Layer
Technologies:
Product
Service
Total Service Layer
Technologies
revenues
$
1,959.2 $
482.4
2,301.9 $
424.0
(342.7)
58.4
(15)% $
14%
2,301.9 $
424.0
1,753.2 $
320.1
548.7
103.9
2,441.6
2,725.9
(284.3)
(10)%
2,725.9
2,073.3
652.6
608.8
265.5
609.1
237.4
(0.3)
28.1
N/M
12%
609.1
237.4
573.8
189.0
35.3
48.4
874.3
846.5
27.8
3%
846.5
762.8
83.7
Total net revenues
3,315.9
3,572.4
(256.5)
(7)%
3,572.4
2,836.1
736.3
31%
32%
31%
6%
26%
11%
26%
35%
Operating income:
Infrastructure
Service Layer
Technologies
Total segment operating
income
Other corporate(1)
Total management
operating income
Amortization of purchased
intangible assets
Stock-based compensation
expense
Stock-based payroll tax
expense
Litigation settlement
charges (gain)
Restructuring charges
Other charges(2)
Total operating income
Interest and other income, net
(Loss) gain on equity
investments
Income before income
taxes and noncontrolling
interest
$
N/M Not meaningful.
541.4
806.0
(264.6)
(33)%
806.0
597.8
208.2
127.0
65.8
61.2
93%
65.8
5.8
60.0
N/M
668.4
—
871.8
(7.9)
(203.4)
7.9
(23)%
N/M
871.8
(7.9)
603.6
—
268.2
(7.9)
44%
N/M
668.4
863.9
(195.5)
(23)%
863.9
603.6
260.3
43%
(15.4)
(49.0)
33.6
(69)%
(49.0)
(91.4)
42.4
(46)%
(139.7)
(108.1)
(31.6)
29%
(108.1)
(88.0)
(20.1)
23%
(0.8)
(2.8)
2.0
(71)%
(2.8)
(7.7)
4.9
(64)%
(182.3)
(19.5)
—
310.7
6.9
(9.0)
—
—
695.0
48.7
(173.3)
(19.5)
—
(384.3)
(41.8)
N/M
N/M
—
(55)%
(86)%
(9.0)
—
—
695.0
48.7
5.3
(0.7)
(14.0)
407.1
96.8
(14.3)
0.7
14.0
287.9
(48.1)
270%
(100)%
(100)%
71%
(50)%
(5.5)
(14.8)
9.3
(63)%
(14.8)
6.7
(21.5)
321%
312.1 $
728.9 $
(416.8)
(57)% $
728.9 $
510.6 $
218.3
43%
(1) Other corporate charges included severance and related costs associated with workforce-rebalancing
activities, which are not included in our business segment results.
(2) Other charges for 2007 includes stock option investigation costs, as well as stock amendment and
tax-related charges.
51
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The following table shows financial information for each segment as a percentage of total net revenues:
Net revenues:
Infrastructure:
Product
Service
Total Infrastructure revenues
Service Layer Technologies:
Product
Service
Total Service Layer Technologies revenues
Total net revenues
Operating income:
Infrastructure
Service Layer Technologies
Total segment operating income
Other corporate(1)
Total management operating income
Amortization of purchased intangible assets
Stock-based compensation expense
Stock-based payroll tax expense
Litigation settlement charges (gain)
Restructuring charges
Other charges(2)
Total operating income
Interest and other income, net
(Loss) gain on equity investments
Income before income taxes and noncontrolling interest
Years Ended December 31,
2008
2009
2007
59.1%
14.5%
73.6%
18.4%
8.0%
26.4%
100.0%
16.4%
3.8%
20.2%
—
20.2%
(0.5)%
(4.2)%
—
(5.5)%
(0.6)%
—%
9.4%
0.2%
(0.2)%
9.4%
64.4%
11.9%
76.3%
17.1%
6.6%
23.7%
100.0%
22.6%
1.8%
24.4%
(0.2)%
24.2%
(1.3)%
(3.0)%
(0.1)%
(0.3)%
—
—%
19.5%
1.3%
(0.4)%
20.4%
61.8%
11.3%
73.1%
20.2%
6.7%
26.9%
100.0%
21.1%
0.2%
21.3%
—
21.3%
(3.2)%
(3.1)%
(0.3)%
0.2%
—
(0.5)%
14.4%
3.4%
0.2%
18.0%
(1) Other corporate charges included severance and related costs associated with workforce-rebalancing
activities, which are not included in our business segment results.
(2) Other charges for 2007 includes stock option investigation costs, as well as stock amendment and
tax-related charges.
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 decreased in 2009 compared to 2008, primarily due to a
decrease in revenues in M-, T- and E-series product families due to reduced demand in the service provider
market in reaction to the weak global economic environment, partially offset by revenue growth from
EX-series switching products as well as MX-series products. Infrastructure product gross margin in absolute
dollars and as a percentage Infrastructure revenue decreased in 2009, compared to 2008, primarily due to
product mix and pricing.
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In 2009, we continued to invest in R&D efforts to expand our Infrastructure product portfolio and to
continue our innovation of products. We will continue to make investments to expand our product features
and functionality based upon the trends in the marketplace. R&D expense as a percentage of Infrastructure net
revenues increased in 2009 compared to 2008, primarily due to lower net revenues relative to expenses.
Additionally, our sales and marketing expenses increased slightly as a percentage of Infrastructure net
revenues in 2009 compared to 2008, as we increased our efforts to reach enterprise and service provider
customers. We allocate sales and marketing, G&A, as well as facility and IT expenses to the Infrastructure
segment generally based upon revenue, usage, and headcount.
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 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.
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 2009 compared to 2008, primarily due to the 3% growth in
SLT revenues driven by product and service revenue increases, while lowering expenses through cost control
initiatives and engineering effectiveness measures. SLT gross margin in absolute dollars and as a percentage
of SLT revenue increased in 2009 compared to 2008, primarily due to an increase in service margin.
R&D related costs as a percentage of SLT net revenues decreased in 2009 compared to 2008, primarily
due to our cost control initiatives and the growth in net revenues relative to expenses. Additionally, sales and
marketing expenses also decreased as a percentage of SLT net revenues in 2009 compared to 2008, primarily
due to the growth in SLT net revenues and reductions in discretionary spending. 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 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.
Stock-Based Compensation and Related Payroll Taxes
Stock-based compensation expense increased in 2009 compared to 2008, primarily attributable to new
stock option and RSU grants during 2009 and an increase in performance-based RSU grants as a result of the
strong operating results in the fourth quarter of 2009. Stock-based compensation related payroll tax expense,
which represents employment taxes we incurred in connection with our employee stock programs, decreased
in 2009 compared to 2008. The decrease in payroll tax expense was primarily attributable to the timing and
lower volume of stock options exercises by our employees in 2009 due to the lower share price during the
year. Stock-based compensation expense increased in 2008 compared to 2007, primarily due 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 decreased in 2008 compared to 2007, as a result of the decrease in our share price during 2008.
For discussion of amortization of purchased intangible assets, litigation settlement charges (gain),
restructuring charges, other charges, interest and other income, net, and (loss) gain on equity investments,
refer to
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Operating Expenses and Interest and Other Income, net, (Loss) Gain on Equity Investments and Income Tax
Provision sections above.
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,
2009
2008
2007
Days sales outstanding (“DSO”)(1)
Book-to-bill ratio(2)
44
>1
42
>1
42
>1
(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 sheets and statements
of cash flows, contractual obligations, and our stock repurchase program on our liquidity and capital
resources.
Overview
Historically, we have funded our business primarily through our operating activities and, to a lesser
extent, the issuance of our common stock. The following table shows our capital resources (in millions,
except percentages):
Working capital
Cash and cash equivalents
Short-term investments
Long-term investments
Total cash, cash equivalents, and
investments
As of December 31,
2009
2008
$ Change
% Change
$ 1,503.2
$ 1,759.6 $
(256.4)
$ 1,604.7
570.5
483.5
$ 2,019.1 $
172.9
101.4
(414.4)
397.6
382.1
(15)%
(21)%
230%
377%
$ 2,658.7
$ 2,293.4 $
365.3
16%
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 decrease
in working capital from December 31, 2008, to December 31, 2009, is primarily due to the increase in short
term deferred revenue, partially offset by the increase in short-term investments. Total cash, cash equivalents,
and investments increased in 2009, primarily due to net cash generated from operations, partially offset by
cash used in our common stock repurchases and fixed asset investments.
Stock Repurchase Activities
In March 2008, the Board approved the 2008 Stock Repurchase Program under which we are authorized
to repurchase up to $1.0 billion of our Company’s common stock. Under this program, we repurchased
20.7 million shares of our common stock at an average price of $21.91 per share for a total purchase price of
$453.5 million in 2009. As of December 31, 2009, the 2008 Stock Repurchase Program had remaining
authorized funds of $318.6 million.
In 2008, we repurchased $604.7 million or 25.1 million shares of common stock at an average price of
$24.10 per share under the 2008 Stock Repurchase Program and the $2.0 billion stock repurchase program
approved
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in 2006 and 2007 (the “2006 Stock Repurchase Program”). As of December 31, 2008, the 2006 Stock
Repurchase Program had no remaining authorized funds available for future stock repurchases.
All shares of common stock purchased under the 2006 and 2008 Stock Repurchase Programs have been
retired.
In addition, in February 2010, our Board approved a new stock repurchase program (the “2010 Stock
Repurchase Program ”) under which we are authorized to repurchase up to $1.0 billion of our Company’s
common stock. Future share repurchases under our stock repurchase programs 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. These programs may be
discontinued at any time. See Note 16, 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 2010.
Summary of Cash Flows
In the year ended December 31, 2009, cash and cash equivalents decreased by $414.4 million. This
decrease was the result of cash used in our investing and financing activities of $948.3 million and
$262.2 million, respectively, partially offset by cash that was generated from our operating activities of
$796.1 million.
Operating Activities
Net cash provided by operating activities was $796.1 million, $875.2 million, and $786.5 million for
2009, 2008, and 2007, respectively. The cash provided by operating activities for each period was due to our
consolidated net income adjusted by:
• Non-cash charges of $299.5 million, $255.8 million, and $257.5 million for 2009, 2008, and 2007,
respectively. These non-cash charges primarily related to depreciation and amortization expenses,
stock-based compensation, deferred income taxes, gain/loss on equity investments, and excess tax
benefits from employee stock-based compensation.
• Net changes in operating assets and liabilities of $381.3 million, $107.6 million, and $168.2 million for
2009, 2008, and 2007, respectively, were generated in the normal course of business. These changes
were primarily due to increases in deferred revenue, income tax payable, accrued compensation and
other accrued liabilities, partially offset by an increase in accounts receivable. The increase in deferred
revenue was due to the increase in product revenue yet to be recognized and the growing installed base
which resulted in additional support contracts. The increase in income taxes payable was due to the
increase in the tax provision and the timing of payments. The increase in accrued compensation was
due to our variable compensation and bonus program. The increase in other accrued liabilities was
primarily due to the increase in the accrual for litigation settlements. In 2009, the Company accrued
$169.0 million for a proposed settlement of our securities class action lawsuit reached in February
2010, which was paid prior to the filing of this report. 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. In 2008 and 2007, positive cash flows
from operating assets and liabilities were due to increases in deferred revenue and income taxes
payable.
Investing Activities
Net cash used in investing activities was $948.3 million for 2009 as compared to net cash generated by
investing activities of $149.8 million in 2008. In 2007, cash generated by investing activities was
$571.8 million. The changes between periods were primarily due to the movement of cash from short- and
long-term investments to cash and cash equivalents as the result of the Company’s investment strategy.
Financing Activities
Net cash used in financing activities was $262.2 million, $422.4 million, and $1,238.5 million for 2009,
2008, and 2007, respectively. In 2009, we used $453.9 million to repurchase our common stock through our
2008 Stock Repurchase Program and, to a lesser extent, from our employees in connection with net issuance
of shares to satisfy our tax withholding obligations for vesting of certain RSU and performance share awards,
partially offset by cash proceeds of $164.2 million from common stock issued to employees and proceeds of
$4.4 million from non-
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controlling interest. In 2008, we used $604.7 million for common stock repurchases, partially offset by cash
proceeds of $119.5 million from common stock issued to employees. In 2007, we used $1,623.2 million to
repurchase our common stock, partially offset by cash proceeds of $355.0 million from common stock issued
to employees.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of December 31, 2009, and 2008.
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, 2009, 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)
Purchase commitments(2)
Tax liabilities(3)
Other contractual
obligations(4)
Total
$ 303.3 $
139.5
177.0
51.0 $
139.5
1.5
106.6 $
—
—
60.2 $
—
—
85.5 $
—
—
—
—
175.5
39.3
$ 659.1 $
18.3
210.3 $
21.0
127.6 $
—
60.2 $
—
85.5 $
—
175.5
(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 2.0 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 November 2022.
(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 product 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, 2009, we had accrued $27.8 million based on our estimate of such charges.
Total purchase commitments as of December 31, 2009, consisted of $139.5 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 tax
authorities and, as a result, the amount of the liability for unrecognized tax benefits may decrease by
approximately $1.5 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 $175.5 million in liabilities due to
uncertainties in the timing of tax audit outcomes.
(4) Other contractual obligations consists of an indemnity-related escrow amount of $1.3 million,
$19.1 million that remains unpaid under the data center hosting agreement with the remaining
commitment expected to be paid through the end of April 2013, and $15.4 million that remains unpaid
under the software subscription agreement with the remaining commitment expected to be paid through
the end of January 2011, and $3.5 million that remains under the joint development agreement.
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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, guarantees related to third-party customer financing arrangements and
standby letters of credit for certain lease facilities. As of December 31, 2009, we had $34.0 million in
guarantees and standby letters of credit and recorded a liability of $21.9 million related to a third-party
customer-financing guarantee. As of December 31, 2008, we had not recorded a liability related to our
guarantees and indemnification arrangements.
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 stock repurchase programs, our liquidity may be impacted.
As of December 31, 2009, we have over 50% of our cash and investment balances held outside of the U.S.,
which 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 and anticipated 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:
• the overall levels of sales of our products, the mix of product sales, and gross profit margins;
• our business, product, capital expenditures, and R&D plans;
• repurchases of our common stock;
• incurrence and repayment of debt;
• litigation expenses, settlements, and judgments, or similar items related to resolution of tax audits;
• volume price discounts and customer rebates;
• the levels of accounts receivable that we maintain;
• acquisitions of other businesses, assets, products, or technologies;
• changes in our compensation policies;
• capital improvements for new and existing facilities;
• our competitors’ responses to our products;
• our relationships with suppliers, partners, and customers;
• possible future investments in raw material and finished goods inventories;
• expenses related to our future restructuring plans, if any;
• tax expense associated with stock-based awards;
• issuance of stock-based awards and the related payment in cash for withholding taxes in the current
year and possibly during future years;
• the level of exercises of stock options and stock purchases under our equity incentive plans; and
• 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.
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ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk
We maintain an investment portfolio of various holdings, types, and maturities. The value of our
investments are subject to market price volatility. In addition, as of December 31, 2009, over 50% 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, a decline in interest rates could have a material impact on interest income
from our investment portfolio. We do not currently hedge these interest rate exposures. We recognized
immaterial gains and losses during the years ended December 31, 2009, 2008, and 2007, related to the sales of
our investments.
The following tables present hypothetical changes in fair value of the financial instruments held at
December 31, 2009, and 2008, that are sensitive to changes in interest rates (in millions):
Valuation of Securities Given an
Interest
Rate Decrease of X BPS
(100 BPS)
(150 BPS)
(50 BPS)
Fair Value as of
December 31,
2009
Valuation of Securities Given an
Interest
Rate Increase of X BPS
100 BPS
50 BPS
150 BPS
Government
treasury and
agencies
Corporate bonds
and notes
Foreign
$
461.3
$
460.0
$
458.7 $
457.3 $
456.1
$
454.8
$
453.4
495.4
493.5
491.6
489.8
487.9
486.0
484.2
government
debt securities
Other
Total
$
98.2
1,099.7
2,154.6
$
97.7
1,099.7
2,150.9
$
97.2
1,099.7
2,147.2 $
96.7
1,099.7
2,143.5 $
96.2
1,099.6
2,139.8
$
95.7
1,099.6
2,136.1
$
95.2
1,099.6
2,132.4
Valuation of Securities Given an
Interest
Rate Decrease of X BPS
(100 BPS)
(150 BPS)
(50 BPS)
Fair Value as of
December 31,
2008
Valuation of Securities Given an
Interest
Rate Increase of X BPS
100 BPS
50 BPS
150 BPS
Government
treasury and
agencies
Corporate bonds
and notes
Other
Total
$
160.1
$
159.6
$
159.1 $
158.7 $
158.2
$
157.7
$
157.3
111.7
1,651.2
1,923.0
$
111.2
1,651.0
1,921.8
$
110.8
1,650.8
1,920.7 $
$
110.3
1,650.6
1,919.6 $
109.8
1,650.4
1,918.4
$
109.3
1,650.3
1,917.3
$
108.8
1,650.1
1,916.2
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
58
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fair value from the re-measurement of the underlying assets and liabilities. These foreign exchange contracts
have maturities of approximately two months.
Our sales and costs of product revenues are primarily denominated in U.S. Dollars. Our cost of service
revenue and 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 cost of service
revenue and 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 (loss) 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 the ineffectiveness of the hedging instruments, which was immaterial during the
years ended December 31, 2009, 2008, and 2007, respectively, in other income (expense) on our consolidated
statements of operations. The decrease in operating expenses including cost of service revenue, R&D, sales and
marketing, and G&A expenses, due to foreign currency fluctuations was approximately 2% in 2009. In 2008
and 2007, the increase in cost of service revenue, operating expenses including R&D, sales and marketing, and
G&A, due to foreign currency fluctuations was approximately 1% and 2%, respectively.
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 publicly-traded equity investments for impairment on a periodic basis. In the
event that the carrying value of a public-traded equity investment 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
excess of six months, in the fair value of the investment below its cost basis that we judged to be other than
temporary. There was no such charge in 2009. We do not purchase our publicly-traded equity securities with
the intent to use them for trading or speculative purposes. They are classified as available-for-sale securities on
our consolidated balance sheets. The aggregate fair value of our marketable equity securities was $5.4 million
and $4.4 million as of December 31, 2009, and 2008, respectively. Additionally, our non-qualified deferred
compensation (“NQDC”) plan may also hold publicly traded securities. Investments under the NQDC plan are
considered trading securities and are reported at fair value on our consolidated balance sheet. As of
December 31, 2009, and 2008, the total investments under the NQDC plan was $4.7 million and $1.0 million,
respectively. A hypothetical 30% adverse change in the stock prices of our portfolio of publicly-traded equity
securities would result in an immaterial loss.
Our investments in privately-held companies are carried at cost. In 2009 and 2008, we realized an
impairment charge of $5.5 million and $11.3 million, respectively, on minority equity investments in
privately-held companies that we judged to be other than temporary as discussed in Note 4, Fair Value
Measurements, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on
Form 10-K. The aggregate cost of our investments in privately-held companies was $13.9 million and
$14.2 million as of December 31, 2009, and 2008, respectively.
59
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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ITEM 8. Financial Statements and Supplementary Data
Index of Consolidated Financial Statements for the years ended December 31, 2009, 2008, and 2007.
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
60
Page
61
62
63
64
65
66
67
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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, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the
financial statement schedule listed in the Index at Item 15(a)2. 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, 2009 and 2008, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended
December 31, 2009, 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, presents fairly in all material respects the information set forth therein.
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,
2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2010 expressed an
unqualified opinion thereon.
San Jose, California
February 26, 2010
/s/ ERNST & YOUNG LLP
61
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Juniper Networks, Inc.
We have audited Juniper Networks, Inc.’s internal control over financial reporting as of December 31,
2009, 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, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Juniper Networks, Inc. as of December 31, 2009 and
2008 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2009 of Juniper Networks, Inc. and our report dated
February 26, 2010 expressed an unqualified opinion thereon.
San Jose, California
February 26, 2010
/s/ ERNST & YOUNG LLP
62
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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 authorizations 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, 2009, 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, 2009, 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, 2009,
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, 2009.
63
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Net revenues:
Product
Service
Total net revenues
Cost of revenues:
Product
Service
Total cost of revenues
Gross margin
Operating expenses:
Juniper Networks, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
2009
Years Ended December 31,
2008
2007
$ 2,567,992 $ 2,910,960 $ 2,326,983
509,105
2,836,088
747,920
3,315,912
661,416
3,572,376
Research and development
Sales and marketing
General and administrative
Amortization of purchased intangible assets
Litigation settlement charges (gain)
Restructuring charges
Other charges
Total operating expenses
Operating income
Interest and other income, net
(Loss) gain on equity investments
Income before income taxes and noncontrolling interest
Provision for income taxes
Consolidated net income
Plus: Net loss attributable to noncontrolling interest
Net income attributable to Juniper Networks
Net income per share attributable to Juniper Networks
common stockholders:
Basic
Diluted
Shares used in computing net income per share:
Basic
Diluted
$
$
$
841,722
316,080
1,157,802
2,158,110
867,595
298,371
1,165,966
2,406,410
741,708
734,038
159,459
10,416
182,331
19,463
—
1,847,415
310,695
6,928
(5,562)
312,061
196,833
115,228
1,771
116,999 $
731,151
782,940
144,837
43,508
9,000
—
—
1,711,436
694,974
48,749
(14,832)
728,891
217,142
511,749
—
511,749 $
676,258
251,380
927,638
1,908,450
622,961
666,688
116,489
85,896
(5,278)
691
13,941
1,501,388
407,062
96,776
6,745
510,583
149,753
360,830
—
360,830
0.22 $
0.22 $
0.96 $
0.93 $
0.67
0.62
523,603
530,337
534,015
551,433
537,767
579,145
See accompanying Notes to Consolidated Financial Statements
64
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Juniper Networks, Inc.
Consolidated Balance Sheets
(In thousands, except par values)
Current assets:
ASSETS
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $9,116 for 2009
$
1,604,723
570,522
$
2,019,084
172,896
December 31,
2009
2008
and $9,738 for 2008
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
Total assets
$
LIABILITIES AND STOCKHOLDERS’ EQUITY
$
Current liabilities:
Accounts payable
Accrued compensation
Accrued warranty
Deferred revenue
Income taxes payable
Accrued litigation settlements
Other accrued liabilities
Total current liabilities
Long-term deferred revenue
Long-term income tax payable
Other long-term liabilities
Commitments and contingencies (Note 13)
Juniper Networks 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; 519,341 and
526,752 shares issued and outstanding at December 31, 2009, and 2008,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Juniper Networks stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and stockholders’ equity
$
458,652
196,318
48,744
2,878,959
455,651
483,505
53,732
13,834
3,658,602
10,555
35,425
7,590,263
242,591
176,551
38,199
571,652
34,936
169,330
142,526
1,375,785
181,937
170,245
37,531
429,970
145,230
49,026
2,816,206
436,433
101,415
43,442
28,861
3,658,602
71,079
31,303
7,187,341
249,854
160,471
40,090
459,749
33,047
—
113,399
1,056,610
130,514
78,164
20,648
$
$
—
—
5
9,060,089
(1,433)
(3,236,525)
5,822,136
2,629
5,824,765
7,590,263
5
8,811,497
(4,245)
(2,905,852)
5,901,405
—
5,901,405
7,187,341
$
See accompanying Notes to Consolidated Financial Statements
65
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Juniper Networks, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Consolidated net income
Adjustments to reconcile consolidated net income to net cash from
operating activities:
Depreciation and amortization
Stock-based compensation
Loss (gain) on equity investments
Excess tax benefits from share-based compensation
Deferred income taxes
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
Accrued litigation settlements
Other accrued liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of available-for-sale investments
Proceeds from sales of available-for-sale investments
Proceeds from maturities of available-for-sale investments
Changes in restricted cash
Purchases of privately-held equity investments, net
Payments made in connection with business acquisitions, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock
Purchases and retirement of common stock
Net proceeds from customer financing arrangements
Redemption of convertible debt
Excess tax benefits from share-based compensation
Proceeds from noncontrolling interest
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for taxes
Supplemental disclosure of non-cash financing activities:
Common stock issued in connection with conversion of the senior
notes
Years Ended December 31,
2008
2009
2007
$
115,228 $
511,749 $
360,830
148,373
139,659
5,562
(3,510)
9,436
—
(28,682)
(8,520)
(2,422)
16,079
(1,891)
43,672
169,330
30,457
163,326
796,097
(153,101)
(1,461,532)
285,379
398,435
(11,276)
(6,205)
—
(948,300)
172,453
108,133
14,832
(40,182)
14,314
613
(50,211)
(539)
19,770
1,761
2,640
49,554
—
(6,702)
76,994
875,179
(164,604)
(474,007)
130,237
369,114
(8,094)
(2,458)
—
(149,812)
193,166
87,990
(6,745)
(19,686)
865
2,765
(120,904)
(3,934)
34,938
48,259
2,622
85,191
—
(6,524)
127,690
786,523
(146,858)
(298,615)
684,666
344,415
(7,407)
(4,075)
(375)
571,751
164,207
(453,888)
19,613
—
3,510
4,400
(262,158)
(414,361)
2,019,084
1,604,723 $ 2,019,084 $
119,450
(604,700)
22,963
(288)
40,182
—
(422,393)
302,974
1,716,110
355,007
(1,623,190)
10,000
—
19,686
—
(1,238,497)
119,777
1,596,333
1,716,110
5,417 $
5,224 $
139,969
147,999
1,495
57,856
— $
399,208 $
448
$
$
$
See accompanying Notes to Consolidated Financial Statements
66
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Juniper Networks, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
Juniper Networks
Common Stock
Shares
Amount
Additional
Paid-In Capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Noncontrolling
Interest
Total
Stockholders’
Equity
569,234 $
6 $
7,646,047 $
1,266 $
(1,532,235) $
— $
6,115,084
— —
—
—
(19,195)
—
(19,195)
615 —
10,502
—
—
—
10,502
22,399 —
345,585
—
—
—
345,585
(15) —
14,840
—
—
—
14,840
3 —
—
—
—
—
—
22 —
(69,443)
(1)
448
(461)
—
—
—
448
—
(1,622,728)
—
(1,623,190)
— —
94,453
—
—
—
94,453
— —
— —
43,518
—
—
—
—
360,830
—
—
43,518
360,830
— —
— —
—
—
3,169
7,816
—
—
—
—
3,169
7,816
371,815
522,815
5
8,154,932
12,251
(2,813,328)
—
5,353,860
1,590 —
35,879
—
—
—
35,879
5,701 —
82,608
—
—
—
82,608
8 —
—
—
—
—
1,904 —
—
—
—
—
19,822 —
399,208
(25,088) —
(427)
— —
108,133
— —
— —
31,164
—
—
—
—
—
—
—
(604,273)
—
—
511,749
— —
— —
—
—
2,547
(19,043)
—
—
—
—
—
—
—
—
—
—
—
399,208
(604,700)
108,133
31,164
511,749
2,547
(19,043)
495,253
526,752
5
8,811,497
(4,245)
(2,905,852)
—
5,901,405
3,221 —
39,164
—
—
—
39,164
Balance at December 31,
2006
Cumulative effect from the
adoption of ASC Topic
740-10 (formerly 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 escrow shares
Issuance of shares in
connection with vesting
of restricted share units
Issuance of shares in
connection with
conversion of the
convertible senior notes
Repurchase and retirement
of common stock
Stock-based compensation
expense
Adjustment related to tax
benefit from employee
stock option plans
Net income
Other comprehensive
income:
Change in unrealized gain
on investments, net tax
of nil
Foreign currency translation
gains, net tax of nil
Comprehensive income
Balance at December 31,
2007
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 units
Issuance of shares in
connection with
conversion of the
convertible senior notes
Repurchase and retirement
of common stock
Stock-based compensation
expense
Adjustment related to tax
benefit from employee
stock option plans
Net income
Other comprehensive loss:
Change in unrealized gain
on investments, net tax
of nil
Foreign currency translation
loss, net tax of nil
Comprehensive income
Balance at December 31,
2008
Issuance of shares in
connection with
Employee Stock Purchase
Plan
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Exercise of stock options by
employees, net of
repurchases
Issuance of shares in
connection with vesting
of restricted share units
Purchase of subsidiary
shares by noncontrolling
interest
Repurchase and retirement
of common stock
Stock-based compensation
expense
Adjustment related to tax
benefit from employee
stock option plans
Net income (loss)
Other comprehensive
income:
Change in unrealized loss on
investments, net tax of nil
Foreign currency translation
gain, net tax of nil
Consolidated comprehensive
income
Adjust for comprehensive
loss attributable to
noncontrolling interest
Comprehensive income
attributable to Juniper
Networks
Balance at December 31,
2009
8,651 —
126,284
—
—
—
126,284
1,432 —
—
—
—
—
—
— —
—
(20,715) —
(6,216)
— —
139,659
— —
— —
(50,299)
—
—
—
—
—
—
—
4,400
4,400
(447,672)
—
—
—
(453,888)
139,659
—
116,999
—
(1,771)
(50,299)
115,228
— —
— —
—
—
(2,757)
5,569
—
—
—
—
(2,757)
5,569
118,040
1,771
119,811
519,341 $
5 $
9,060,089 $
(1,433) $
(3,236,525) $
2,629 $
5,824,765
See accompanying Notes to Consolidated Financial Statements
67
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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 innovative
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 network. The Company has the following two segments: Infrastructure and Service Layer
Technologies (“SLT”). The Infrastructure segment primarily offers scalable Internet Protocol (“IP”)-router and
Ethernet switching products that are used to control and direct network traffic. The 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 (“U.S. GAAP”). All inter-company
balances and transactions have been eliminated. The information included in this Annual Report on Form 10-K
should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” “Risk Factors,” and “Quantitative and Qualitative Disclosures About Market Risk.”
In 2009, the Company held a majority interest in a joint venture with Nokia Siemens Networks B.V.
(“NSN”). As of December 31, 2009, the Company owned a 60 percent interest in the joint venture. Given the
Company’s majority ownership interest in the joint venture, the accounts of the joint venture have been
consolidated with the accounts of the Company, and a noncontrolling interest has been recorded for the
noncontrolling investor’s interests in the net assets and operations of the joint venture.
Use of Estimates
The preparation of the financial statements and related disclosures in conformity with U.S. GAAP requires
the Company to make judgments, assumptions, and estimates that affect the amounts reported in the
consolidated financial statements and the accompanying notes. The Company bases its estimates and
assumptions on current facts, historical experience, and various other factors that it believes are reasonable
under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent
from other sources. 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 consolidated results of operations may be affected.
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 in Available-for-Sale and Trading Securities
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
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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 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 in the consolidated balance sheets. 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 manufactured 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. Realized gains and losses, if any, are reported in the
consolidated statements of operations.
Fair Value Measurement
The Company records its financial instruments and derivative contracts at fair value. The fair value
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
instruments 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
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
receivable. The Company maintains reserves for potential bad debt and historically such losses have been
within management’s expectations. AT&T, Inc., accounted for 10.4% of the Company’s total net revenues for
2009. No single customer accounted for more than 10% of the Company’s total net revenues for 2008, and
NSN accounted for 12.8% of total net revenues during 2007.
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.
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 a 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. The Company conducted its annual impairment test as of November 1, 2009, 2008, and 2007, 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.
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Revenue Recognition
The Company’s products are generally integrated with software that is essential to the functionality of the
equipment. Additionally, the Company provides unspecified upgrades and enhancements related to the
integrated software through maintenance contracts for most of its products. Revenue is recognized when all of
the following criteria have been met:
• Persuasive evidence of an arrangement exists. The Company generally relies upon sales contracts, or
agreements, and customer purchase orders to determine the existence of an arrangement.
• Delivery has occurred. The Company uses shipping terms and related documents, or written evidence
of customer acceptance, when applicable, to 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.
• Sales price is fixed and determinable. The Company assesses whether the sales price is fixed or
determinable based on the payment terms and whether the sales price is subject to refund or
adjustment.
• Collectability is reasonably assured. The Company assesses collectability based on the
creditworthiness of the customer as determined by our credit checks and the customer’s payment
history. The Company records accounts receivable 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 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.
The Company then recognizes revenue on each deliverable in accordance with our policies for product and
service revenue recognition. In determining VSOE, we require that a substantial majority of the selling prices
fall within a reasonable range based on historical discounting trends for specific products and services. 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. The ability to recognize revenue in the future may be
affected if actual selling prices are significantly less than fair value. In addition, the Company’s ability to
recognize revenue in the future could be impacted by conditions imposed by its customers.
For sales to direct end-users, value-added resellers, and OEM partners, the Company recognizes product
revenue 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 or to an OEM partner. For the Company’s
end-users and value-added resellers, there are no significant obligations for future performance such as rights
of return or pricing credits. The Company’s agreements with its OEM partners may allow future rights of
returns 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 revenue.
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
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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
estimates, additional reductions to revenue may be required. In addition, the Company reports revenues net of
sales taxes.
Service revenues include revenue from 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.
The Company sells certain interests in accounts receivable on a non-recourse basis as part of a customer
financing arrangement primarily with one major financing company. Cash received under this arrangement in
advance of revenue recognition is recorded as short-term debt.
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.
Warranty Costs
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 Company accrues for
warranty costs as part of its 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 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.
Contract Manufacturer Liabilities
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. The 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 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 the Company’s control, it could have an
adverse impact on the Company’s gross margins and profitability. Supply chain management remains an area
of focus as the Company balances the risk of material obsolescence and supply chain flexibility in order to
reduce lead times.
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Research and Development
Costs to research, design, and develop the Company’s products are expensed as incurred. Software
development 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
$11.4 million, $5.0 million, and $4.8 million, for 2009, 2008, and 2007, respectively.
Loss Contingencies
The Company is subject to the possibility of various loss contingencies arising in the ordinary course of
business. Management considers the likelihood of loss related to an asset, or the incurrence of a liability, as
well as its ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated
loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred
and the amount of loss can be reasonably estimated. The Company records a charge equal to the minimum
estimated liability or a loss contingency only when both of the following conditions are met: (i) information
available prior to issuance of the 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 be reasonably estimated. The Company regularly evaluates current information available 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
is aggressively defending its current litigation matters. However, there are many uncertainties associated with
any litigation, and these actions or other third-party claims against the Company may cause the Company to
incur costly litigation and/or substantial settlement charges. In addition, the resolution of any future
intellectual property litigation may require the Company to make royalty payments, which could adversely
affect gross margins in future periods. If any of those events were to occur, the Company’s business, financial
condition, results of operations, and cash flows could be adversely affected. The actual liability in any such
matters may be materially different from the Company’s estimates, which could result in the need to adjust
the liability and record additional expenses.
Stock-Based Compensation
The Company recognizes stock-based compensation expense for all share-based payment awards
including employee stock options, restricted stock units (“RSUs”), performance share awards, and purchases
under the Company’s Employee Stock Purchase Plan in accordance with Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 (“ASC Topic 718”) (formerly
SFAS No. 123(R), Share-Based Payment). Stock-based 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. 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, 2009, 2008, and 2007.
We utilize the Black-Scholes-Merton (“BSM”) option-pricing model in determining the fair value of
stock-based awards. 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
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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.
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 of approximately two months.
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 (loss), 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 2009, 2008, and 2007, 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 in FASB ASC Topic —
Income Taxes (“FASB ASC Topic 740”) (formerly, SFAS No. 109, Accounting for Income Taxes and
Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB
Statement No. 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 an adjustment to earnings 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.
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Comprehensive Income (Loss)
Comprehensive income (loss) 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 (loss) as part of its consolidated statements of stockholders’ equity. Other comprehensive income
(loss) 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.
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, 2009, 2008, and 2007. The effect of exchange rate
changes on cash balances held in foreign currencies was immaterial in the years presented.
Recent Accounting Pronouncements
In June 2009, the FASB issued ASU No. 2009-01, Topic 105 — Generally Accepted Accounting
Principles amendments based upon Statement of Financial Accounting Standards No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a
replacement of FASB Statement 162 (“ASU 2009-01”). ASU 2009-1 establishes the FASB ASC as the single
source of authoritative accounting principles to be applied to financial statements of nongovernmental entities
in conformity with U.S. GAAP. ASU 2009-1 was effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The Company’s adoption of ASU 2009-01 did not affect its
consolidated results of operations or financial condition.
In December 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-17, Topic 810 —
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU
2009-17”), which incorporated the revised accounting guidance of variable interest entities, initially issued by
the FASB in June 2009, into the FASB ASC Topic 810, Consolidation. The revised guidance eliminates the
qualifying special-purpose entities (“QSPE”) concept, amends the provisions on determining whether an
entity is a variable interest entity and would require consolidation, and requires additional disclosures. This
guidance is effective for each entity’s first annual reporting period that begins after November 15, 2009, for
interim periods within the first annual reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. Accordingly, the Company will adopt this guidance on January 1,
2010. The impact of adoption on the Company’s consolidated results of operations or financial condition will
depend upon its involvement with variable interest entities as of and subsequent to the adoption date.
In December 2009, the FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets
(“ASU 2009-16”), which incorporated the revised accounting guidance for the transfers of financial assets,
initially issued by the FASB in June 2009, into FASB ASC Topic 860, Transfers and Servicing. The revised
guidance eliminates the concept of QSPE, removes the scope exception for QSPE when applying the
accounting guidance related to variable interest entities, changes the requirements for derecognizing financial
assets, and requires additional disclosures. This accounting guidance was effective for each entity’s first
annual and interim reporting periods that begin after November 15, 2009. This accounting guidance is applied
to transfers of financial assets occurring on or after the effective date. Earlier application is prohibited. The
impact of adoption on the Company’s consolidated results of operations or financial condition will depend
upon the level of activity of financial asset transfers that the Company may consummate after the effective
date.
In October 2009, the FASB issued ASU No. 2009-14, Software (Topic 985) Certain Arrangements That
Contain Software Elements — a consensus of the FASB Emerging Issues Task Force (“EITF”) (“ASU
2009-14”).
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
ASU 2009-14 amends the scope of software revenue guidance in FASB ASC Subtopic 985-605,
Software-Revenue Recognition, to exclude tangible products containing software and non-software
components that function together to deliver the product’s essential functionality and ASU No. 2009-13,
Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements — a consensus of the FASB
EITF (“ASU 2009-13”). ASU 2009-13 eliminates the residual method of allocation and requires the relative
selling price method when allocating deliverables of a multiple-deliverable revenue arrangement. ASU
2009-13 specifies the best estimate of a selling price is consistent with that used to determine the price to sell
the deliverable on a standalone basis. ASU 2009-14 and ASU 2009-13 are effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, and must
be adopted in the same period using the same transition method. If adoption is elected in a period other than
the beginning of a fiscal year, the amendments in these standards must be applied retrospectively to the
beginning of the fiscal year. Full retrospective application of these amendments to prior fiscal years is
optional. Companies may elect early adoption of these standards. The Company is currently assessing the
timing of adoption and evaluating the impact ASU 2009-14 and ASU 2009-13 will have on its consolidated
results of operations and financial condition.
In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic
820) — Measuring Liabilities at Fair Value (“ASU 2009-05”), which amends the fair value measurements of
liabilities within FASB ASC Topic 820. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for an identical liability is not available, a reporting entity is required to
measure fair value using one or more of the following techniques: (1) a valuation technique that uses: quoted
price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar
liabilities when traded as assets, or (2) another valuation technique that is consistent with the principles of
FASB ASC Topic 820. The guidance in ASU 2009-05 was effective for the interim and annual reporting
periods beginning after issuance. The adoption of ASU 2009-05 has no material impact on the Company’s
consolidated results of operations or financial condition.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (“FSP FAS 115-2 and FAS 124-2”), which was subsequently
incorporated into FASB ASC Topic 320, Investments — Debt and Equity Securities. ASC 320 amended
other-than-temporary accounting of debt securities to make it more operational and to improve the
presentation and disclosure of other-than-temporary impairments on debt and equity securities. These
provisions were effective for interim and annual reporting periods ending after June 15, 2009. The
Company’s adoption of ASC 320 did not affect its consolidated results of operations or financial condition.
Note 2. Net Income Per Share
Basic net income per share is computed by dividing net income 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 common shares that were outstanding during the period on a
weighted average basis. Dilutive potential common shares consist of shares issuable upon conversion of
senior notes, if any, and various employee stock awards, including common shares issuable upon exercise of
stock options, vesting of RSUs, and vesting of performance shares.
76
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The following table presents the calculation of basic and diluted net income per share attributable to
Juniper Networks (in millions, except per share amounts):
Numerator:
Net income attributable to Juniper Networks:
Years Ended December 31,
2008
2009
2007
$ 117.0 $ 511.7 $ 360.8
Denominator:
Weighted-average shares used to compute basic net income per share
Effect of dilutive securities:
Shares issuable upon conversion of the Senior Notes
Employee stock awards
Weighted-average shares used to compute diluted net income per share
Net income per share attributable to Juniper Networks common
523.6
530.3
537.8
—
10.4
534.0
8.8
12.3
551.4
19.8
21.5
579.1
stockholders:
Basic
Diluted
$
$
0.22 $
0.22 $
0.96 $
0.93 $
0.67
0.62
Employee stock awards of approximately 38.9 million shares and 33.0 million shares of the Company’s
common stock were not included in the computation of diluted earnings per share for the years ended
December 31, 2009, and December 31, 2008, respectively, because their effect would have been anti-dilutive.
Note 3. Cash, Cash Equivalents, and Investments
Cash and Cash Equivalents
The following table summarizes the Company’s cash and cash equivalents (in millions):
Cash:
Demand deposits
Time deposits
Total cash
Cash equivalents:
U.S. government securities
Government-sponsored enterprise obligations
Commercial paper
Money market funds
Total cash equivalents
Total cash and cash equivalents
77
As of December 31,
2009
2008
$
427.2
127.9
555.1
—
—
17.0
1,032.6
1,049.6
$ 1,604.7
$
285.9
125.1
411.0
141.8
94.8
90.4
1,281.1
1,608.1
$ 2,019.1
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Investments in Available-for-Sale and Trading Securities
The following table summarizes the Company’s unrealized gains and losses, and fair value of
investments designated as trading or available-for-sale, as of December 31, 2009, and 2008 (in millions):
As of December 31, 2009:
Fixed income securities:
U.S. government securities
Government-sponsored enterprise
obligations
Foreign government debt securities
Corporate debt securities
Total fixed income securities
Publicly-traded equity securities
Total
Reported as:
Short-term investments
Long-term investments
Total
As of December 31, 2008:
Fixed income securities:
U.S. government securities
Government-sponsored enterprise
obligations
Corporate debt securities
Total fixed income securities
Publicly-traded equity securities
Total
Reported as:
Short-term investments
Long-term investments
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
$
245.0 $
0.1 $
— $
245.1
212.0
96.4
488.2
1,041.6
10.1
1,051.7 $
569.5 $
482.2
1,051.7 $
$
$
$
0.6
0.3
2.0
3.0
—
3.0 $
1.0 $
2.0
3.0 $
(0.3)
(0.1)
(0.3)
(0.7)
—
(0.7) $
— $
(0.7)
(0.7) $
212.3
96.6
489.9
1,043.9
10.1
1,054.0
570.5
483.5
1,054.0
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
$
86.6 $
0.1 $
— $
70.4
110.4
267.4
5.4
272.8 $
172.5 $
100.3
272.8 $
78
$
$
$
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
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The following table presents the Company’s maturities of its available-for-sale investments and trading
securities, as of December 31, 2009, and 2008 (in millions):
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
As of December 31, 2009:
Fixed income securities:
Due within one year
Due between one and five years
Total fixed income securities
Publicly-traded equity securities
Total investments
As of December 31, 2008:
Fixed income securities:
Due within one year
Due between one and five years
Total fixed income securities
Publicly-traded equity securities
Total investments
$
$
559.4 $
482.2
1,041.6
10.1
1,051.7 $
1.0 $
2.0
3.0
—
3.0 $
— $
(0.7)
(0.7)
—
(0.7) $
560.4
483.5
1,043.9
10.1
1,054.0
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
$
$
167.1 $
100.3
267.4
5.4
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 presents the Company’s trading and available-for-sale investments that are in an
unrealized loss position as of December 31, 2009 (in millions):
Less than 12 Months
12 Months or Greater
Total
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Government-sponsored
enterprise obligations
Corporate debt securities
Other investments(1)
Total
$
$
38.9 $
157.7
126.2
322.8 $
(0.3) $
(0.3)
(0.1)
(0.7) $
— $
—
—
— $
— $
—
—
— $
38.9 $
157.7
126.2
322.8 $
(0.3)
(0.3)
(0.1)
(0.7)
(1) Other investments consist of U.S. and foreign government securities.
The Company had no impairment charges to its publicly-traded equity investments in 2009. 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. No such charges were incurred in 2007. There were no material realized gains or losses from
the sale of available-for-sale securities in 2009, 2008, and 2007. The Company generated cash proceeds of
$683.8 million, $499.4 million, and $1,029.1 million from maturities and sales of our available-for-sale
investments during 2009, 2008, and 2007, respectively.
79
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The Company had 52 and 26 investments that were in an unrealized loss position as of December 31,
2009, and December 31, 2008, respectively. 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. For fixed income securities that have
unrealized losses, the Company has determined that (i) it does not have the intent to sell any of these
investments, and (ii) it is not more likely than not that it will be required to sell any of these investments
before recovery of the entire amortized cost basis. The Company did not consider these investments to be
other-than-temporarily impaired as of December 31, 2009, and December 31, 2008, respectively. The
Company reviews its investments to identify and evaluate investments that have an indication of possible
impairment. The Company aggregates its investments by category and length of time the securities have been
in a continuous unrealized loss position to facilitate its evaluation.
Restricted Cash
Restricted cash as of December 31, 2009, consisted of escrow accounts required by certain acquisitions
completed in 2005, the 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 2009, the Company distributed $1.0 million of its restricted cash in connection
with the escrow fund associated with the acquisition of Funk Software. The Company also increased its
restricted cash by an aggregate of $11.3 million to fund both its India Gratuity and D&O Trusts due to overall
growth of the Company. In 2008, the Company made no distributions from restricted cash and increased its
restricted cash by an aggregate of $8.1 million to fund both the India Gratuity and D&O Trusts due to overall
growth of the Company.
The following table summarizes the Company’s restricted cash as reported in the consolidated balance
sheets (in millions):
Restricted cash:
Demand deposits
Time deposits
Total restricted cash
Restricted investments:
U.S. government securities
Government-sponsored enterprise obligations
Corporate debt securities
Money market funds
Total restricted investments
Total restricted cash and investments
As of December 31,
2008
2009
$
3.8
—
3.8
19.8
—
—
30.1
49.9
$ 53.7
$
0.8
—
0.8
1.6
20.0
6.0
15.0
42.6
$ 43.4
As of December 31, 2009, and 2008, the unrealized gain and losses related to restricted investments were
immaterial.
80
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Privately-Held Equity Investments
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 privately-held equity investments for any impairment if the
fair value exceeds the carrying value of the respective assets.
As of December 31, 2009, and 2008, the carrying values of the Company’s minority equity investments
in privately-held companies of $13.9 million and $14.2 million, respectively, were included in other
long-term assets in the consolidated balance sheets. In 2009, 2008, and 2007, the Company invested a total of
$7.2 million, $4.6 million, and $4.1 million, respectively, in privately-held companies.
Due to events and circumstances that significantly affected the fair value of three of its privately-held
equity investments in 2009, which are normally carried at cost, the Company measured the fair value of these
privately-held equity investments using an analysis of the financial condition and near-term prospects of the
investees, including recent financing activities and their capital structure. As a result, during the year ended
December 31, 2009, the Company recognized a loss of $5.5 million due to the impairment of its minority
equity investments in privately-held companies that the Company judged to be other than temporary. In
addition, during year ended December 31, 2009, the Company had a minority equity investment of
$2.0 million in a privately-held company that was acquired by a publicly-traded company for which the
Company received $1.0 million in cash and $1.0 million in common stock of the acquiring company. 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 in 2008 and $0.3 million in 2009.
Note 4. Fair Value Measurements
Fair Value Hierarchy
The Company determines the fair values of its financial instruments based on the fair value hierarchy,
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. Fair value is defined 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. The
fair value 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. The
classification of a financial asset or liability 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 levels that
may be used to measure fair value:
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 the Company’s assumptions.
81
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables provide a summary of the assets and liabilities measured at fair value on a recurring
basis (in millions):
Quoted Prices in
Active Markets
Fair Value Measurements at December 31, 2009, Using
Significant Other
Observable
Remaining
Inputs
(Level 2)
Significant Other
Unobservable
Remaining
Inputs
(Level 3)
for Identical
Assets
(Level 1)
Total
$
72.6 $
192.3 $
— $
264.9
193.3
26.3
—
—
1,062.7
10.1
1,365.0
—
19.0
70.3
489.9
17.0
—
—
788.5
(1.3)
—
—
—
—
—
—
—
—
212.3
96.6
489.9
17.0
1,062.7
10.1
2,153.5
(1.3)
$
1,365.0 $
787.2 $
— $ 2,152.2
Assets measured at fair value:
U.S. government securities(1)
Government-sponsored
enterprise obligations
Foreign government debt
securities
Corporate debt securities
Commercial paper
Money market funds(2)
Publicly-traded securities
Total assets
Liabilities measured at fair value:
Derivative liability
Total liabilities
Total
(1) Balance includes $19.8 million of restricted investments measured at fair market value, related to the
Company’s Directors and Officers (“D&O”) indemnification trust. For additional information regarding
the D&O trust, see Note 3, Cash, Cash Equivalents, and Investments, under the heading “Restricted
Cash.” Restricted investments are included in the restricted cash balance in the consolidated balance
sheet.
(2) Balance includes $30.1 million of restricted investments measured at fair market value, related to the
Company’s D&O trust.
82
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Quoted Prices in
Active Markets
Fair Value Measurements at December 31, 2008, Using
Significant Other
Observable
Remaining
Inputs
(Level 2)
Significant Other
Unobservable
Remaining
Inputs
(Level 3)
for Identical
Assets
(Level 1)
Total
Assets measured at fair value:
U.S. government securities(1)
Government-sponsored
$
enterprise obligations(2)
Corporate debt securities(3)
Commercial paper
Money market funds(4)
Publicly-traded securities
Derivative asset
Total
$
26.3 $
203.8 $
— $
230.1
71.9
—
—
1,296.1
5.4
—
1,399.7 $
114.8
116.3
90.4
—
—
2.6
527.9 $
186.7
—
116.3
—
90.4
—
1,296.1
—
5.4
—
—
2.6
— $ 1,927.6
(1) Balance includes $1.6 million of restricted investments measured at fair market value, related to an
acquisition completed in 2005.
(2) Balance includes $20.0 million of restricted investments measured at fair market value, related to the
Company’s D&O trust.
(3) Balance includes $6.0 million of restricted investments measured at fair market value, related to the
Company’s D&O trust.
(4) Balance includes $15.0 million of restricted investments measured at fair market value, related to the
Company’s D&O trust.
Assets and liabilities measured at fair value on a recurring basis are presented on the Company’s
consolidated balance sheets as follows (in millions):
Fair Value Measurements at December 31, 2009, 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
Reported as:
Cash equivalents
Short-term investments
Long-term investments
Restricted cash
Other accrued liabilities
Total
$
$
1,032.6 $
101.3
181.2
49.9
—
1,365.0 $
83
17.0 $
469.2
302.3
—
(1.3)
787.2 $
— $ 1,049.6
570.5
—
483.5
—
49.9
—
—
(1.3)
— $ 2,152.2
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Quoted Prices in
Active Markets
Fair Value Measurements at December 31, 2008, Using
Significant Other
Observable
Remaining
Inputs
(Level 2)
Significant Other
Unobservable
Remaining
Inputs
(Level 3)
for Identical
Assets
(Level 1)
Total
Reported as:
Cash equivalents
Short-term investments
Long-term investments
Restricted cash
Other assets
Total
$
$
1,281.1 $
57.1
46.5
15.0
—
1,399.7 $
327.0 $
115.8
54.9
27.6
2.6
527.9 $
— $ 1,608.1
172.9
—
101.4
—
42.6
—
2.6
—
— $ 1,927.6
Assets Measured at Fair Value on a Nonrecurring Basis
The following table presents the Company’s assets that were measured at fair value on a nonrecurring
basis and the related impairment charges recorded for loss on minority equity investments for the year ended
December 31, 2009 (in millions):
Fair Value Measurements Using
Net Carrying
Value as of
December 31,
Quoted Prices in
Active Markets
for Identical
Significant Other
Observable
Remaining
2009
Assets
(Level 1)
Inputs
(Level 2)
Significant Other
Unobservable
Remaining
Inputs
(Level 3)
Impairment
Charges for
the Year Ended
December 31,
2009
$
$
0.5 $
0.5 $
— $
— $
— $
— $
0.5 $
0.5 $
(5.5)
(5.5)
Assets:
Privately-held
equity
investments
Total
In the year ended December 31, 2009, due to events and circumstances that significantly affected the fair
value of three of its privately-held equity investments, which are normally carried at cost, the Company
measured the fair value of these privately-held equity investments, at the time of impairment, using an
analysis of the financial condition and near-term prospects of the investees, including recent financing
activities and their capital structure. As a result, the Company recognized an impairment loss of $5.5 million
during the year ended December 31, 2009, and classified the investments as a Level 3 asset due to the absence
of quoted market prices and inherent lack of liquidity.
The Company had no liabilities that were measured at fair value on a nonrecurring basis during the year
ended December 31, 2009.
84
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Note 5. Goodwill and Purchased Intangible Assets
Goodwill
The changes in the carrying amount of goodwill during the two years ended December 31, 2009, are as
follows (in millions):
Segments
Infrastructure
Service Layer
Technologies
Total
Segments
Infrastructure
Service Layer
Technologies
Service
Total
Balance at
December 31,
Adjustments
to Existing
Escrow and
Other
Balance at
December 31,
2008
Acquisitions
Goodwill
Additions
2009
$
1,500.5 $
— $
— $
— $
1,500.5
2,158.1
3,658.6 $
$
—
— $
—
— $
—
— $
2,158.1
3,658.6
Balance at
December 31,
Adjustments
to Existing
Escrow and
Other
Balance at
December 31,
2007
Reallocation
Goodwill
Additions
2008
$
976.6 $
523.9 $
— $
— $
1,500.5
1,879.7
802.3
3,658.6 $
278.4
(802.3)
— $
$
—
—
— $
—
—
— $
2,158.1
—
3,658.6
In 2009 and 2008, there were no additions to 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 market values and discounted
cash flows. There was no indication of impairment when goodwill was reallocated to the new reporting
segments.
The Company performed goodwill impairment reviews as of November 1, 2009 and 2008, and concluded
that there was no impairment in the years ended 2009 and 2008.
Purchased Intangible Assets
The following table presents the Company’s purchased intangible assets with definite lives (in millions):
As of December 31, 2009:
Technologies and patents
Other
Total
As of December 31, 2008:
Technologies and patents
Other
Total
Gross
Accumulated
Amortization
Impairment
Net
$
$
$
$
380.0 $
68.9
448.9 $
379.6 $
68.9
448.5 $
(376.0) $
(59.1)
(435.1) $
(361.1) $
(53.6)
(414.7) $
4.0
— $
—
9.8
— $ 13.8
(4.3) $ 14.2
(0.7)
14.6
(5.0) $ 28.8
Amortization of purchased intangible assets included in operating expenses and cost of product revenues
totaled $15.4 million and $44.0 million in 2009 and 2008, respectively. During 2008, the Company recorded
an
85
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
impairment charge of $5.0 million included in its amortization of purchased intangible assets due to the
phase-out of its DX products. During 2009 and 2007, the Company had no impairment on its purchased
intangible assets.
The estimated future amortization expense of purchased intangible assets with definite lives for future
periods is as follows (in millions):
Years Ending December 31,
2010
2011
2012
2013
2014
Thereafter
Total
Note 6. Other Financial Information
Property and Equipment
Property and equipment consist of the following (in millions):
Computers and equipment
Software
Leasehold improvements
Furniture and fixtures
Land
Property and equipment, gross
Accumulated depreciation
Property and equipment, net
Amount
$
$
4.0
2.1
1.3
1.2
1.0
4.2
13.8
As of December 31,
2009
2008
492.4
58.3
158.0
21.5
192.4
922.6
(466.9)
455.7
$
$
399.7
58.1
143.2
20.9
192.4
814.3
(377.9)
436.4
$
$
Depreciation expense was $133.0 million, $123.5 million, and $101.8 million in 2009, 2008, and 2007,
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
86
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
shipments to end-users, value-added resellers, and distributors. Below is a breakdown of the Company’s
deferred revenue (in millions):
Product:
Deferred gross product revenue
Deferred cost of product revenue
Deferred product revenue, net
Deferred service revenue
Total
Reported as:
Current
Long-term
Total
Warranties
As of December 31,
2009
2008
$
$
$
$
391.3
(150.0)
241.3
512.3
753.6
571.7
181.9
753.6
$
$
$
$
268.0
(110.0)
158.0
432.3
590.3
459.8
130.5
590.3
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 its consolidated balance sheets.
Changes in the Company’s accrued warranty are as follows (in millions):
Beginning balance
Provisions made during the period, net
Change in estimate
Actual costs incurred during the period
Ending balance
Restructuring Liabilities
Years Ended
December 31,
2009
2008
$
$
40.1
46.9
(5.6)
(43.2)
38.2
$
$
37.5
47.8
—
(45.2)
40.1
During 2009, the Company implemented a restructuring plan (the “2009 Restructuring Plan”) in an effort
to better align its business operations with the current market and macroeconomic conditions. The
restructuring plan included a restructuring of certain business functions that resulted in reductions of
workforce and facilities. The Company recorded $19.5 million in restructuring charges during the year ended
December 31, 2009, associated with the 2009 Restructuring Plan. The Company paid $7.5 million for
severance related charges associated with the 2009 Restructuring Plan during the year ended December 31,
2009. During the years ended December 31, 2008 and 2007, the Company incurred restructuring charges of
nil and $0.7 million, respectively, associated with past restructuring plans. The Company expects to incur
additional charges of approximately $8 million to $10 million relating to additional facilities and employee
restructuring under the 2009 Restructuring Plan in 2010.
Restructuring charges were based on the Company’s restructuring plans that were committed to by
management. Any changes in the estimates of executing the approved plans will be reflected in the
Company’s results of
87
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
operations. The following tables illustrate changes in the restructuring liabilities during 2009 and 2008,
respectively (in millions):
Remaining
Liability as of
December 31,
2008
Charges
Cash
Payments
Remaining
Liability as of
December 31,
Adjustment
2009
$
— $
7.2 $
(0.8) $
(1.5) $
Facilities
Severance, contractual
commitments, and other
charges
Total restructuring charges
$
—
— $
12.3
19.5 $
(7.5)
(8.3) $
(0.3)
(1.8) $
4.9
4.5
9.4
Remaining
Liability as of
December 31,
2007
Charges
Cash
Payments
Remaining
Liability as of
December 31,
Adjustment
2008
Facilities
Total restructuring charges
$
$
0.6 $ — $
0.6 $ — $
(0.6) $
(0.6) $
— $
— $
—
—
Litigation Settlements
In 2009, the Company incurred a $169.0 million expense related to the Company’s agreement in
principle reached in February 2010, to settle the securities class action litigations pending against the
Company and certain of its current and former officers and directors, related to our historical stock option
granting practices, a $13.0 million expense for a legal settlement regarding the Menlo Equity arbitration, and
a $0.3 million expense related to settlement of another matter recorded in the fourth quarter of 2009. See
Note 13, Commitments and Contingencies, under the heading “Legal Proceedings.” In 2008, the Company
incurred a $9.0 million expense for the settlement of its shareholder derivative lawsuits. In 2007, the
Company recorded a net litigation settlement gain of $5.3 million, which consisted of cash proceeds of
$6.2 million, net of transaction costs of $0.9 million.
Other Charges
In 2007, the Company incurred $6.0 million 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 for 2009 or 2008. In addition, the Company recognized stock option amendment and tax-related
charges of $8.0 million in 2007, pertaining to the amendment of stock options and to the settlement with the
Internal Revenue Service (“IRS”) for employment tax assessments primarily related to the timing of tax
deposits related to employee stock option exercises. The Company did not incur such charges in 2009 or
2008.
Interest and Other Income, Net
Interest and other income, net, consists of the following (in millions):
Years Ended December 31,
2008
2007
2009
Interest income and expense, net
Other income and expense, net
Total interest and other income, net
88
$ 5.8 $ 49.6 $ 99.2
(2.4)
$ 6.9 $ 48.7 $ 96.8
(0.9)
1.1
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Interest income and expense, net, primarily includes interest income from the Company’s cash, cash
equivalents, and investments, as well as customer financing charges. Other income and expense, net,
primarily includes foreign exchange gains and losses and other miscellaneous expenses such as bank fees.
Note 7. Financing Arrangements
The Company has customer financing arrangements to sell its accounts receivable to a major third-party
financing provider. 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. In these
transactions with the 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 Company does not maintain effective control over the transferred assets through
obligations or rights to redeem, transfer, or repurchase the receivables after they have been transferred.
Pursuant to the financing arrangements for the sale of receivables, the Company sold net receivables of
$449.8 million and $427.2 million in 2009 and 2008, respectively. In 2009 and 2008, the Company received
cash proceeds of $426.3 million and $392.7 million, respectively. The amounts owed by the financing
provider recorded as accounts receivable on the Company’s consolidated balance sheets as of December 31,
2009, and December 31, 2008, were $89.8 million and $73.9 million, respectively.
The portion of the receivable financed that has not been recognized as revenue is accounted for as a
financing arrangement and is included in other accrued liabilities in the consolidated balance sheet. As of
December 31, 2009, and December 31, 2008, the estimated amounts of cash received from the financing
provider that has not been recognized as revenue from its distributors was $52.6 million and $33.0 million,
respectively.
Note 8. Derivative Instruments
The Company uses derivatives partially to offset its market exposure to fluctuations in certain foreign
currencies and does not enter into derivatives for speculative or trading purposes.
Cash Flow Hedges
The Company uses foreign currency forward or option contracts to hedge certain forecasted foreign
currency transactions relating to cost of services and operating expenses. The derivatives are intended to
protect the U.S. Dollar equivalent of the Company’s planned cost of services and operating expenses
denominated in foreign currencies. These derivatives are designated as cash flow hedges. Execution of these
cash flow hedge derivatives typically occurs every month with maturities of 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 (loss), and upon occurrence of the forecasted transaction, is subsequently reclassified
into the cost of services or operating expense line item to which the hedged transaction relates. The Company
records any ineffectiveness of the hedging instruments, which was immaterial during each of the three years
ended December 31, 2009, in interest and other income, net on its consolidated statements of operations. Cash
flows from such hedges are classified as operating activities. All amounts within other comprehensive income
(loss) are expected to be reclassified into income within the next 12 months.
Non-Designated Hedges
The Company also uses foreign currency forward contracts to mitigate variability in gains and losses
generated from the re-measurement of certain monetary assets and liabilities denominated in foreign
currencies. These hedges do not qualify for special hedge accounting treatment. 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. The derivatives have maturities of approximately two
months.
89
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the total fair value of the Company’s derivative instruments as of
December 31, 2009, (in millions):
Asset Derivatives
Balance Sheet
Location
Fair
Value
Liability Derivatives
Balance Sheet
Location
Fair
Value
Derivatives designated
as hedging
instruments:
Foreign exchange
forward contracts
Total
Other current assets $
$
0.2
0.2
Other current liabilities $
$
1.5
1.5
The following represents the Company’s top three outstanding derivative positions by currency as of
December 31, 2009, (in millions):
Buy
EUR
Buy
GBP
Buy
INR
Foreign currency forward contracts:
Notional amount of foreign currency
U.S. Dollar equivalent
Weighted average maturity
$
26.9
39.4 $
2 months
2 months
9.8
16.1 $
1,622.1
34.6
2 months
The effective portion of the Company’s derivative instruments on its consolidated statements of
operations during the year ended December 31, 2009, was as follows (in millions):
Gain Recognized in
Accumulated Other
Comprehensive
Income (Effective
Portion)
Location of Gain
Reclassified from
Accumulated Other
Comprehensive
Income to
Statements of
Operations
(Effective
Portions)
Gain Reclassified
from Accumulated
Other Comprehensive
Income to
Statements of
Operations
(Effective Portion)
Foreign exchange forward
contracts
Total
$
$
0.6
0.6
Operating expense $
$
4.2
4.2
The ineffective portion of the Company’s derivative instruments on its consolidated statements of
operations was immaterial during the year ended December 31, 2009.
Gains on the Company’s non-designated derivative instruments recognized in its consolidated statements
of operations during the year ended December 31, 2009, were as follows (in millions):
Derivatives not designated as hedging
instruments:
Foreign exchange forward contracts
Total
Location of Gain in
Statements of
Operations
Gain Recognized in
Statements of Operations
Other income, net $
$
4.9
4.9
90
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Note 9. Stockholders’ Equity
Stock Repurchase Activities
In March 2008, the Company’s Board of Directors (the “Board”) approved a $1.0 billion stock
repurchase program (the “2008 Stock Repurchase Program”). Under this program, the Company repurchased
approximately 20.7 million shares of our common stock at an average price of $21.91 per share for a total
purchase price of $453.5 million in 2009. As of December 31, 2009, the 2008 Stock Repurchase Program had
remaining authorized funds of $318.6 million.
In 2008, the Company repurchased $604.7 million, or 25.1 million shares of common stock, at an average
purchase price of $24.10 per share, under the 2008 Stock Repurchase Program and the $2.0 billion stock
repurchase program approved in 2006 and 2007 (the “2006 Stock Repurchase Program”). As of December 31,
2008, the 2006 Stock Repurchase Program had no remaining authorized funds available for future stock
repurchases.
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 16, Subsequent Events, for discussion of our stock repurchase activity in
2010.
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, 2009, and
December 31, 2008.
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 employees and consultants of the Company. The 2006 Plan also provides for automatic,
non-discretionary awards of nonstatutory stock options and RSUs 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”) to the extent that they expire 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 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 on the date 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
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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91
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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. 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 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 were 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. 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 were 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, 2009, there were
approximately 2.0 million shares of common stock subject to outstanding awards under plans assumed
through past acquisitions. There was no restricted stock subject to repurchase as of December 31, 2009, and
2008. There were no restricted stock repurchases during 2009, 2008, and 2007.
92
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Stock Option Activities
A summary of the Company’s stock option activity and related information as of and for the three years
ended December 31, 2009, is set forth in the following table:
Outstanding Options
Weighted-
Average
Exercise
Price
(In dollars)
Weighted
Average
Remaining
Contractual
Term
(In years)
Number of
Shares
(In thousands)
Aggregate
Intrinsic Value
(In thousands)
Balance at December 31, 2006
Options granted
Options exercised
Options canceled
Options expired
Balance at December 31, 2007
Options granted
Options exercised
Options canceled
Options expired
Balance at December 31, 2008
Options granted
Options exercised
Options canceled
Options expired
Balance at December 31, 2009
As of December 31, 2009:
82,092 $
14,745
(22,399)
(2,879)
(4,631)
66,928
15,717
(5,701)
(2,429)
(878)
73,637
9,887
(8,651)
(2,295)
(5,217)
67,361 $
18.66
22.91
15.43
19.19
24.56
20.36
23.08
14.49
22.03
28.75
21.24
17.86
14.59
21.57
34.91
20.84
4.6 $
451,238
Vested or expected-to-vest options
Exercisable options
59,840 $
44,012
20.82
20.91
4.5 $
4.0
405,065
302,384
Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last
trading day of the fiscal period, which was $26.67 as of December 31, 2009, and the exercise price multiplied
by the number of related options. The pre-tax intrinsic value of options exercised, representing the difference
between the fair market value of the Company’s common stock on the date of the exercise and the exercise
price of each option, was $83.6 million, $66.7 million, and $291.7 million for 2009, 2008, and 2007,
respectively. Total fair value of options vested during 2009, 2008, and 2007 was $88.9 million, $70.3 million,
and $78.8 million, respectively.
93
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes information about stock options outstanding under all option plans as of
December 31, 2009:
Range of Exercise Price
$0.31 - $10.31
$10.54 - $15.09
$15.17 - $18.01
$18.03 - $21.56
$21.73 - $23.53
$23.69 - $24.61
$24.73 - $25.73
$25.93 - $28.17
$28.30 - $135.67
$183.06 - $183.06
$0.31 - $183.06
Options Outstanding
Weighted-Average
Remaining
Weighted-
Average
Options Exercisable
Number
Weighted-
Average
Number
Outstanding
(In thousands)
Contractual Life
Exercise Price
(In years)
(In dollars)
Exercisable
(In thousands)
Exercise Price
(In dollars)
6,798
12,137
8,291
7,025
6,933
6,836
6,945
6,988
5,404
4
67,361
2.4 $
5.3
4.6
3.8
5.2
4.9
5.2
5.4
3.5
0.7
4.6 $
8.62
14.83
17.30
19.37
22.66
24.17
25.25
26.93
36.87
183.06
20.84
6,798 $
4,258
4,520
5,441
6,172
6,130
3,408
3,505
3,775
4
$
44,011
8.62
14.59
17.31
19.24
22.65
24.13
25.31
27.18
38.87
183.06
20.91
As of December 31, 2009, approximately 44.0 million shares of common stock were exercisable at an
average exercise price of $20.91 per share. 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.
94
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Restricted Stock Units and Performance Share Awards Activities
RSUs generally vest over a period of three to four years from the date of grant and performance share
awards granted 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 and
dividend participation rights of common stock and the shares underlying the awards are not considered issued
and outstanding. The following table summarizes information about the Company’s RSUs and performance
share awards for the three years ended December 31, 2009:
Outstanding RSUs and Performance Share Awards
Weighted-
Average
Grant-Date
Fair Value
(In dollars)
Weighted
Average
Remaining
Contractual
Term
(In years)
Number of
Shares
(In thousands)
Aggregate
Intrinsic Value
(In thousands)
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
Balance at December 31, 2008
RSUs and performance share awards
granted
RSUs and performance share awards
vested
RSUs and performance share awards
canceled
Balance at December 31, 2009
As of December 31, 2009:
Vested and expected-to-vest RSUs and
performance share awards
3,221 $
18.43
3,606
25.39
(3)
21.90
(540)
6,284 $
18.73
22.40
3,022
24.51
(1,904)
18.37
(710)
6,692 $
21.49
24.59
4,797
17.98
(1,432)
21.19
(934)
9,123 $
23.57
21.76
$
243,323
5,913 $
21.80
1.5
157,706
In the three years ended December 31, 2009, 2008, and 2007, the Company granted RSUs covering
approximately, 1.8 million, 1.5 million, and 2.9 million shares of common stock, respectively. Additionally,
the Company granted performance shares, covering approximately, 3.0 million, 1.5 million, and 0.7 million
shares of common stock in the three years ended December 31, 2009, 2008, and 2007, respectively. The
number of shares subject to performance share awards granted represents the maximum number of shares that
may be issued pursuant to the award over its full term.
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
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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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 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 offering period from February 1, 2007, to April 1, 2007. Such
offering period ended on July 31, 2007.
95
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
In May 2008, the Company’s stockholders approved the adoption of the Juniper Networks 2008
Employee Stock Purchase Plan (the “2008 Purchase Plan”), which replaced the 1999 Purchase Plan. 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 after February 1, 2009.
Employees purchased approximately 3.2 million, 1.6 million, and 0.6 million shares of common stock
through the 2008 Purchase Plan and 1999 Purchase Plan at an average exercise price of $12.16, $22.57, and
$17.08 per share during fiscal years 2009, 2008, and 2007, respectively. As of December 31, 2009,
approximately 1.6 million shares had been issued under the 2008 Purchase Plan, and 10.4 million shares
remained available for future issuance under the 2008 Purchase Plan. 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. Effective February 1, 2009, immediately following the
conclusion of the offering period ended January 30, 2009, the 1999 Purchase Plan was discontinued, and no
shares remained available for future issuance under such plan.
Shares Available for Grant
The following table presents the total number of shares available for grant under the 2006 Plan as of
December 31, 2009:
Balance at January 1, 2009
RSUs and performance share awards granted(1)
Options granted
RSUs canceled(1)
Options canceled(2)
Options expired(2)
Balance at December 31, 2009
Number of Shares
(In thousands)
28,589
(10,073)
(9,887)
1,845
2,295
5,198
17,967
(1) 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. The number of shares subject to performance share awards granted represents the
maximum number of shares that may be issued pursuant to the award over its full term.
(2) Includes canceled or expired options under the 1996 Plan and the 2000 Plan that expired unexercised
after May 18, 2006.
Common Stock Reserved for Future Issuance
As of December 31, 2009, the Company had reserved an aggregate of approximately 104.8 million shares
of common stock for future issuance under its stock awards plans and the 2008 Purchase Plan.
Stock-Based Compensation Expense
The Company has elected to use the BSM option-pricing model, which incorporates various assumptions
including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock
option awards and common shares issues under the 1999 and 2008 Purchase Plans. 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
96
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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.
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 elected to use a BSM
option-pricing model that incorporated a Monte Carlo simulation to calculate the fair value of stock-based
awards issued under the amended equity award agreements. In August 2009, the government of India
repealed the fringe benefit tax that applied to equity awards granted to India taxpayers. As of the effective
date of the repeal, the Company discontinued the Monte Carlo simulation into its BSM option-pricing model
to calculate the fair value of stock-based awards granted to its India employees subsequent to the repeal.
The assumptions used and the resulting estimates of fair value for employee stock options during the
three years ended December 31, 2009, were:
Employee Stock Options:
Volatility factor
Risk-free interest rate
Expected life (years)
Dividend yield
Fair value per share
2009
Years Ended December 31,
2008
2007
42%- 58%
0.4%- 4.2%
4.3- 5.8
43%- 60%
1.1%- 4.4%
3.6- 5.9
34%- 46%
3.3%- 5.1%
3.5- 3.7
—
—
—
$6.02- $10.49
$6.76- $10.88
$6.42- $13.28
The assumptions used and the resulting estimates of weighted average fair value per share under the
employee stock purchase plan during the three years ended December 31, 2009, were:
Years Ended December 31,
2009
2008
2007
Employee Stock Purchase Plan:
Volatility factor
Risk-free interest rate
Expected life (years)
Dividend yield
Weighted-average fair value per share
46%- 58%
2.8%- 3.9%
0.5
—
$4.51- $7.35
46%- 48%
1.9%- 2.2%
38%
5.0%
0.4
—
$7.40- $7.80 $ 6.52
0.5
—
The Company determines the fair value of its RSUs and performance share awards based upon the fair
market value of the shares of the Company’s common stock at the date of grant. The Company expenses the
cost of RSUs ratably over the period during which the restrictions lapse. In addition, the Company estimates
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 weighted
average fair value per share of RSUs and performance share awards granted during these periods were:
Weighted-average fair value per share:
RSUs
Performance share awards
97
Years Ended December 31,
2008
2009
2007
$ 17.87 $ 23.51 $ 27.08
$ 18.05 $ 25.61 $ 18.28
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The Company’s stock-based compensation expense associated with stock options, employee stock
purchases, RSUs, and performance share awards is recorded in the following cost and expense categories for
the three years ended December 31, 2009, (in millions):
Years Ended December 31,
2008
2009
2007
Cost of revenues — Product
Cost of revenues — Service
Research and development
Sales and marketing
General and administrative
Total
$
3.9 $
2.1
8.7
36.6
27.9
12.7
$ 139.7 $ 108.1 $ 88.0
3.0 $
9.2
47.0
36.2
12.7
11.7
59.3
41.9
22.9
During the three years ended December 31, 2009, 2008, and 2007, the Company recorded stock-based
compensation expense related to employee stock options in the amount of $81.2 million, $59.7 million and
$58.2 million, respectively. As of December 31, 2009, approximately $129.4 million of unrecognized
compensation cost, adjusted for estimated forfeitures, related to unvested stock options will be recognized
over a weighted average period of approximately 2.5 years.
The Company recorded stock-based compensation expense related to its employee stock purchase plans
in the amount of $14.4 million, $13.2 million, and $7.6 million for the three years ended December 31, 2009,
2008, 2007, respectively.
The Company recognized stock compensation expense of $44.1 million, $35.2 million, and $22.2 million
for the three years ended December 31, 2009, 2008, and 2007, respectively, in connection with RSUs and
performance share awards. As of December 31, 2009, approximately $60.9 million of unrecognized
compensation cost, adjusted for estimated forfeitures, related to unvested RSUs and unvested performance
share awards will be recognized over a weighted-average period of approximately 2.2 years.
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 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 BSM option valuation model and
recorded an expense of approximately $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.
98
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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.
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. The Company currently matches 25% of all eligible employee contributions. All matching
contributions vest immediately. The Company’s matching contributions to the plan totaled $11.9 million,
$10.7 million, and $9.5 million in 2009, 2008, and 2007, respectively.
Deferred Compensation Plan
In July 2008, the Company formed a non-qualified deferred compensation (“NQDC”) plan, which is an
unfunded and unsecured deferred compensation arrangement. Under the NQDC plan, officers and other
senior employees may elect to defer a portion of their compensation and contribute such amounts to one or
more investment funds. The 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 are recorded in interest and other income, net, and the offsetting compensation expense
are recorded operating expenses in the consolidated statements of operations. As of December 31, 2009, and
2008, the deferred compensation liability under this plan was approximately $4.7 million and $1.0 million,
respectively.
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. The Company’s operations are organized
into two reportable segments: 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, SRX services gateways, secure socket layer (“SSL”) virtual private
network (“VPN”) appliances, intrusion detection and prevention (“IDP”) appliances, the J-series router
product family and wide area network (“WAN”) optimization platforms.
99
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The primary financial measure used by the CODM in assessing performance of the segments is segment
operating income, which includes certain cost of revenues, R&D expenses, sales and marketing expenses, and
general and administrative expenses. The CODM does not allocate certain miscellaneous expenses to its
segments even though such expenses are 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 (“R&D”), 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, restructuring and impairment charges, gains or losses on equity
investments, other net income and expense, income taxes, as well as certain other charges to the segments.
The following table summarizes financial information for each segment used by the CODM (in millions):
Years Ended December 31,
2008
2009
2007
Net revenues:
Infrastructure:
Product
Service
Total Infrastructure revenues
Service Layer Technologies:
Product
Service
Total Service Layer Technologies revenues
Total net revenues
Operating income:
Infrastructure
Service Layer Technologies
Total segment operating income
Other corporate(1)
Total management operating income
Amortization of purchased intangible assets(2)
Stock-based compensation expense
Stock-based compensation related payroll tax expense
Litigation settlement (charges) gain
Restructuring charges
Other charges(3)
Total operating income
Interest and other income, net
(Loss) gain on equity investments
Income before income taxes and noncontrolling interest
$
100
$ 1,959.2 $ 2,301.9 $ 1,753.2
320.1
2,073.3
482.4
2,441.6
424.0
2,725.9
608.8
265.5
874.3
3,315.9
609.1
237.4
846.5
3,572.4
573.8
189.0
762.8
2,836.1
541.4
127.0
668.4
—
668.4
(15.4)
(139.7)
(0.8)
(182.3)
(19.5)
—
310.7
6.9
(5.5)
312.1 $
806.0
65.8
871.8
(7.9)
863.9
(49.0)
(108.1)
(2.8)
(9.0)
—
—
695.0
48.7
(14.8)
728.9 $
597.8
5.8
603.6
—
603.6
(91.4)
(88.0)
(7.7)
5.3
(0.7)
(14.0)
407.1
96.8
6.7
510.6
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
(1) Other corporate charges include severance and related costs associated with workforce-rebalancing
activities, which are not included in the business segment results.
(2) Amount includes amortization expense of purchased intangible assets in operating expenses and in costs
of revenues.
(3) Other charges for 2007 includes stock option amendment and tax-related charges. There were no such
charges for 2009 and 2008.
AT&T, Inc., accounted for 10.4% of the Company’s total net revenues for 2009. No single customer
accounted for more than 10% of the Company’s total net revenues for 2008. NSN and its predecessor
companies accounted for 12.8% of the Company’s net revenues for 2007.
The Company attributes revenues to geographic regions based on the customer’s ship-to location. The
following table presents net revenues by geographic region (in millions):
Years Ended December 31,
2008
2009
2007
Americas:
United States
Other
Total Americas
Europe, Middle East, and Africa
Asia Pacific
Total
$ 1,515.1 $ 1,537.5 $ 1,215.8
124.7
1,340.5
918.0
577.6
$ 3,315.9 $ 3,572.4 $ 2,836.1
228.7
1,766.2
1,077.7
728.5
172.8
1,687.9
953.2
674.8
The Company tracks assets by physical location. The majority of the Company’s assets, excluding cash
and cash equivalents and investments, as of December 31, 2009, and 2008 were attributable to
U.S. operations. As of December 31, 2009, and 2008, property and equipment, held in the U.S. as a
percentage of total property and equipment was 81% and 82%, respectively. 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 and noncontrolling interest are
summarized as follows (in millions):
Domestic
Foreign
Total income before provision for income taxes and noncontrolling
interest
Years Ended December 31,
2008
2009
2007
$
50.1 $ 363.7 $ 225.9
284.7
365.2
262.0
$ 312.1 $ 728.9 $ 510.6
101
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
The provision for income taxes is summarized as follows (in millions):
Current Provision:
Federal
State
Foreign
Total current provision
Deferred expense/(benefit):
Federal
State
Foreign
Total deferred expense/(benefit)
Income tax benefits attributable to employee stock plan activity
Total provision for income taxes
Years Ended December 31,
2008
2009
2007
$ 123.8 $
21.4
43.5
188.7
96.6 $
35.8
39.3
171.7
52.9
15.2
48.0
116.1
(42.7)
55.7
(5.9)
7.1
1.0
(0.5)
(5.7)
(3.6)
(9.8)
43.5
$ 196.8 $ 217.2 $ 149.8
21.4
(4.4)
(2.7)
14.3
31.2
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,
2008
2009
2007
Expected provision at 35% rate
State taxes, net of federal benefit
Foreign income at different tax rates
R&D credits
Stock-based compensation
Temporary differences not currently benefited
Other
Total provision for income taxes
102
$ 109.2 $ 255.1 $ 178.7
6.5
(21.7)
(18.6)
1.2
—
3.7
$ 196.8 $ 217.2 $ 149.8
16.6
(51.2)
(12.1)
2.4
—
6.4
(1.6)
(33.8)
(14.4)
62.1
72.8
2.5
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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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):
Deferred tax assets:
Net operating loss carry-forwards
Foreign tax credit carry-forwards
Research and other credit carry-forwards
Deferred revenue
Stock-based compensation
Reserves and accruals not currently deductible
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property and equipment basis differences
Purchased intangibles
Unremitted foreign earnings
Other
Total deferred tax liabilities
Net deferred tax assets
As of December 31,
2009
2008
6.2
34.1
66.0
66.3
68.3
264.5
25.8
531.2
(112.8)
418.4
(25.1)
(37.8)
(148.3)
(0.3)
(211.5)
206.9
$
$
7.7
27.8
53.5
60.5
84.8
170.4
19.7
424.4
(41.5)
382.9
(12.6)
(39.3)
(114.7)
—
(166.6)
216.3
$
$
As of December 31, 2009, and 2008, the Company had a valuation allowance on its U.S. domestic
deferred tax assets of approximately $112.8 million and $41.5 million, respectively. The balance at
December 31, 2009, consisted of approximately $70.7 million against certain California deferred assets and
approximately $42.1 million relates to capital losses that will carry forward to offset future capital gains. The
valuation allowance increased $71.3 million in the year ended December 31, 2009. The 2009 increase was
primarily due to changes in California income tax law which impacted the future taxable income within
California and the tax rates that will apply to taxable income for the years in which the deferred tax assets are
expected to be realized or settled. The valuation allowance increased $7.2 million in the year ended
December 31, 2008, primarily due to investment losses currently disallowed for income tax purposes.
As of December 31, 2009, the Company had federal and California net operating loss carry-forwards of
approximately $11.8 million and $21.2 million, respectively. The Company also had California tax credit
carry-forwards of approximately $120.0 million. Approximately $12.5 million of the benefit from 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 ASC Topic 718. Unused net
operating loss carry-forwards will expire at various dates beginning in the year 2012. 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 $902.9 million of cumulative undistributed earnings of
certain foreign subsidiaries through December 31, 2009, because it is the Company’s intention to permanently
reinvest such
103
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
earnings. If such earnings were distributed, the Company would accrue additional income taxes expense of
approximately $274.5 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, 2009, and 2008, the total amount of gross unrecognized tax benefits was
$183.6 million and $113.5 million, respectively. As of December 31, 2009, approximately $118.6 million of
the $183.6 million gross unrecognized tax benefits, if recognized, would affect the effective tax rate.
A reconciliation of the beginning and ending amount of the Company’s total gross unrecognized tax
benefits for the years ended December 31, 2009, and 2008 is as follows (in millions):
Balance beginning of the year
Tax positions related to current year:
Additions
Reductions
Tax positions related to prior years:
Additions
Reductions
Settlements
Lapses in statutes of limitations
Balance end of the year
2009
2008
$ 113.5
$
94.7
12.7
—
17.9
—
73.5
(1.0)
(12.8)
(2.3)
$ 183.6
1.3
—
(0.4)
—
$ 113.5
As of December 31, 2009, and 2008, the Company had accrued interest expense and penalties related to
unrecognized tax benefits of $23.5 million and $8.7 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 and penalties expense of
$14.8 million and $2.9 million in its consolidated statements of operations during the years ending
December 31, 2009, and 2008, 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. However, an estimate of the range of
possible change cannot be made at this time due to the high uncertainty of the resolution and/or closure on
open audits. 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.
During 2009, the Company recorded unrecognized tax benefits related to share-based compensation due
to a decision reached by the U.S. Court of Appeals for the Ninth Circuit (“the Court”) in Xilinx Inc. v.
Commissioner. On January 13, 2010, the Court withdrew their decision in a one-line order. The Court
indicated that it will be taking further actions on this case, but did not indicate what actions it intended to take
or the timing of such actions. There are several possible actions that the Court may take including: (a) issue
another order that affirms the lower Tax Court’s decision; (b) issue a new opinion that either affirms the Tax
Court decision or reverses the Tax Court decision (e.g., based on different analysis); or (c) grant Xilinx’s
petition for a rehearing en banc, or for a re-hearing by the same three-judge panel that issued the original
Ninth Circuit Court ruling. At this time, the Company has no indication as to which of these options the Court
will pursue. Given the holding articulated in the Court’s now withdrawn opinion, it is possible that the Court
will pursue a course of action that will ultimately hold against Xilinx. As a result, the Company’s judgment
has not changed with regard to this particular unrecognized tax benefit. Should the Court conclude on this
matter within the next 12 months, it is reasonably possible that the Company’s unrecognized tax benefits will
change by approximately $73 million.
104
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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, and non-U.S. income tax examinations for years before 2004, although
carry-forward attributes that were generated prior to 2004 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 through 2006 tax years. The
Company is also subject to two separate ongoing examinations by the India tax authorities for the 2004 and
2004 through 2008 tax years, respectively, and has received an inquiry from the Hong Kong tax authorities
for the 2002 through 2006 tax years. 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 is not aware of any other
examination by taxing authorities in any other major jurisdictions in which it files income tax returns as of
December 31, 2009.
In 2009, as part of the on-going 2004 IRS audit, the Company received a proposed adjustment related to
the license of acquired intangibles under an intercompany R&D cost sharing arrangement. In March 2009, the
Company received an assessment from the Hong Kong tax authorities specifically related to an inquiry of the
2002 tax year. In December 2008, the Company received a proposed adjustment from the India tax authorities
related to the 2004 tax year.
In July 2009, the India tax authorities commenced a separate investigation of our 2004 through 2008 tax
returns and are disputing the Company’s determination of taxable income due to the cost basis of certain fixed
assets. The Company recorded $4.6 million in penalties and interest in 2009 relevant to this matter. The
Company understands that the India tax authorities may issue an initial assessment that is substantially higher
than this amount. As a result, in accordance with the administrative and judiciary process in India, the
Company may be required to make payments that are substantially higher than the amount accrued in order to
ultimately settle this issue. The Company strongly believes that any assessment it may receive in excess of the
amount accrued would be inconsistent with applicable India tax laws and intends to defend this position
vigorously.
The Company is pursuing all available administrative procedures relative to the matters referenced above.
The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to
these proposed adjustments and the ultimate resolution of these matters is unlikely to have a material effect on
its consolidated financial condition or results of operations; however there is still a possibility that an adverse
outcome of these matters could have a material effect on its consolidated financial condition and results of
operations. For more information, please see Note 13, Commitments and Contingencies, under the heading
“IRS Notices of Proposed Adjustments.”
105
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Note 13. Commitments and Contingencies
Commitments
The following table summarizes the Company’s principal contractual obligations as of December 31,
2009, (in millions):
Operating leases
Sublease rental income
Purchase commitments
Tax liabilities
Other contractual
obligations
Total
Operating Leases
Total
2010
2011
2012
2013
2014
Thereafter
Other
$
303.9 $
(0.6)
139.5
177.0
51.6 $ 42.3 $ 36.7 $ 27.6 $ 23.8 $
(0.6) — — — —
139.5 — — — —
1.5 — — — —
39.3
659.1 $
$
18.3
1.9 —
5.6
210.3 $ 55.8 $ 42.3 $ 29.5 $ 23.8 $
13.5
121.9 $
—
—
—
—
121.9 $
—
—
—
175.5
—
175.5
The Company leases its facilities under operating leases that expire at various times, the longest of which
expires in November 2022. Future minimum payments under the non-cancelable operating leases, net of
committed sublease income, totaled $303.3 million as of December 31, 2009. Rent expense for 2009, 2008,
and 2007 was approximately $56.6 million, $58.0 million, and $48.7 million, respectively.
In October 2009, the Company amended three existing leases for the Company’s corporate headquarters
facilities in Sunnyvale, California. Each lease was amended to: (i) extend the underlying lease term, and
(ii) establish new monthly base rent payments for periods after November 1, 2009. The new monthly base
rent payments represent a significant reduction in base rent that would have been payable for the previously
remaining terms of each of the underlying leases.
Purchase Commitments
In order to reduce manufacturing lead times and ensure adequate component supply, contract
manufacturers utilized by the Company place non-cancelable, non-returnable (“NCNR”) orders for
components based on the Company’s build forecasts. As of December 31, 2009, there were NCNR
component orders placed by the contract manufacturers with a value of $139.5 million. The contract
manufacturers use the components to build products based on the Company’s forecasts and on purchase
orders that 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 remain unused or
the products remain unsold for specified periods, 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, 2009, the Company had accrued $27.8 million
based on its estimate of such charges.
Tax Liabilities
As of December 31, 2009, the Company had $177.0 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 $1.5 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
$175.5 million in liability due to uncertainties in the timing of tax audit outcomes.
106
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Other Contractual Obligations
As of December 31, 2009, other contractual obligations consists of an indemnity-related escrow amount of
$1.3 million, a five-year $36.4 million data center hosting agreement, a three-year $22.7 million software
subscription, and a joint development agreement with a third-party for development of network-related
technology, which requires quarterly payments of $3.5 million through January 2010. The Company records
the quarterly payment to the third-party developer as R&D expense in its consolidated statements of operations
until the technology under development has reached technological feasibility. Pursuant to the joint
development agreement, in exchange for each party’s respective contributions to the development effort as
well as the consideration payable by the Company, each party will obtain a license to the technology that result
from the development for use in certain of their respective product lines. As of December 31, 2009,
$19.1 million remained unpaid under the data center hosting agreement with the remaining commitment
expected to be paid through the end of April 2013, and $15.4 million remained unpaid under the software
subscription agreement with the remaining commitment expected to be paid through the end of January 2011,
and $3.5 million remained under the joint development agreement.
Guarantees
The Company enters into agreements with customers that contain indemnification provisions relating to
potential situations where claims could be alleged that the Company’s products infringe the intellectual
property rights of a third party. Other guarantees or indemnification arrangements include guarantees of
product and service performance, guarantees related to third-party customer financing arrangements, and
standby letters of credit for certain lease facilities. As of December 31, 2009, the Company had $34.0 million
in guarantees and standby letters of credit and recorded a liability of $21.9 million related to a third-party
customer-financing guarantee. As of December 31, 2008, the Company had not recorded a liability related to
its guarantees and indemnification arrangements.
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 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. Plaintiffs seek unspecified damages in an unspecified amount. 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
107
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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.
On September 25, 2009, the Court certified a plaintiff class consisting of all persons and entities who
purchased or otherwise acquired the Company’s securities from July 11, 2003 to August 10, 2006 inclusive,
and were damaged thereby, including those who received or acquired Juniper Networks’ common stock issued
pursuant to the registration statement on SEC Form S-4, dated March 10, 2004, for the Company’s merger
with NetScreen Technologies Inc.; and purchasers of Zero Coupon Convertible Senior Notes due June 15,
2008 issued pursuant to a registration statement on SEC Form S-3 dated November 20, 2003. Excluded from
the Class are the Defendants and the current and former officers and directors of the Company, their
immediate families, their heirs, successors, or assigns and any entity controlled by any such person.
On February 5, 2010, the Company and the lead plaintiffs entered into an agreement in principle to settle
the claims against the Company and each of the Company’s current and former officers and directors. The
settlement is contingent upon approval by the Boards of Trustees of the lead plaintiffs and approval by the
Court. Under the proposed settlement, the claims against the Company and its officers and directors will be
dismissed with prejudice and released in exchange for a $169.0 million cash payment by the Company. The
Company considers the proposed payment to be probable and reasonably estimable and, therefore, recorded
the cash settlement amount as a pre-tax operating expense in its consolidated statement of operations for the
fourth quarter ended December 31, 2009.
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, the 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 the plaintiff filed a motion for preliminary injunction. On
July 19, 2007, the Court issued an order denying the plaintiff’s motion for a preliminary injunction and
dismissing the complaint in its entirety with leave to amend. The plaintiff filed 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 the Company’s motion to dismiss with prejudice, and entered final judgment in
favor of the Company. On September 9, 2008, the plaintiff filed a Notice of Appeal in the United States Court
of Appeals for the Ninth Circuit. The plaintiff’s appeal was fully briefed and the Court of Appeals heard oral
argument on the appeal on October 7, 2009. On February 5, 2010, the Ninth Circuit issued a memorandum
decision affirming the District Court’s dismissal with prejudice. On February 19, 2010, plaintiff filed a Petition
for Rehearing and Suggestion for Rehearing En Banc.
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.
108
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
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, the 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. The 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. The 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.
The parties have reached a global settlement of the litigation. On October 5, 2009, the Court entered an
Opinion and Order granting final approval of the settlement. Under the settlement, the insurers are to pay the
full amount of settlement share allocated to the Company, and the Company will bear no financial liability.
The Company, as well as the officer and director defendants who were previously dismissed from the action
pursuant to tolling agreements, will receive complete dismissals from the case. Certain objectors have
appealed the Court’s October 5, 2009, final order to the Second Circuit Court of Appeals.
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.
Menlo Equities
In December 2008, Menlo Equities Development Company II, LLC (“Menlo Equities”) initiated in an
arbitration proceeding against the Company. Menlo Equities and the Company are members of Menlo/Juniper
Networks LLC and are parties to an Operating Agreement and a Development Services Agreement relating to
certain real estate in Sunnyvale, California purchased in 2000. The dispute related to whether the Company
would be obligated to pay Menlo Equities certain fees under the agreements, if and when the real estate is
developed or sold. Menlo Equities asserted that it is entitled to immediate payment of damages of
approximately $29.0 million plus attorney’s fees as a result of a repudiation and breach of the agreements. The
Company denied Menlo Equities’ allegations. An arbitration hearing was conducted in June 2009, and the
arbitrator issued an interim decision in September that ruled in Menlo’s favor in most areas. On December 28,
2009, the parties resolved the dispute through an amendment of the underlying agreements whereby the
Company acquired Menlo Equities’ interest in the LLC pursuant to the amended buy out provisions of the
Operating Agreement for $13.0 million, which the
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Company recorded as litigation settlement charges within operating expenses on the consolidated statement of
operations for the year ended December 31, 2009, and each party was relieved of all obligations under the
Development Services Agreement. In addition, the Company was released from all claims and the parties
agreed to terminate the arbitration.
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 returns to include fiscal years 2005 and 2006. As of December 31, 2009, the IRS has not yet
concluded its examinations of these returns. In September 2008, as part of its ongoing 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 believes that it has adequately provided for any reasonable foreseeable
outcome related to this proposed adjustment.
In July 2009, the Company received a NOPA from the IRS claiming that the Company owes additional
taxes, plus interest and possible penalties, for the 2004 tax year based on a transfer pricing transaction related
to the license of acquired intangibles under an intercompany R&D cost sharing arrangement. The asserted
changes to the Company’s 2004 tax year would affect the Company’s income tax liabilities in tax years
subsequent to 2003. Because of the NOPA, the estimated incremental tax liability would be approximately
$807.0 million, excluding interest and penalties. The Company has filed a protest to the proposed deficiency
with the IRS, which will cause the matter to be referred to the Appeals Division of the IRS. The Company
strongly believes the IRS’ position with regard to this matter is inconsistent with applicable tax laws and
existing Treasury regulations, and that its previously reported income tax provision for the year in question is
appropriate. However, there can be no assurance that this matter will be resolved in the Company’s favor.
Regardless of whether this matter is resolved in the Company’s favor, the final resolution of this matter could
be expensive and time-consuming to defend and/or settle. While the Company believes it has provided
adequately for this matter, there is still a possibility that an adverse outcome of the matter could have a
material effect on its results of operations and financial condition.
The Company has not reached a final resolution with the IRS on an adjustment the IRS proposed for the
1999 and 2000 tax years. 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 14. Selected Quarterly Financial Data (Unaudited)
The table below sets forth selected unaudited financial data for each quarter of the two years ended
December 31, 2009, (in millions, except per share amounts):
Year Ended December 31, 2009
Net revenues:
Product
Service
Total net revenues
Cost of revenues:
Cost of revenues — Product
Cost of revenues — Service
Total cost of revenues
Gross margin
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
$
587.8 $
176.3
764.1
607.0 $
179.4
786.4
634.1 $
189.8
823.9
193.0
75.4
268.4
495.7
207.6
78.4
286.0
500.4
206.3
80.4
286.7
537.2
739.1
202.4
941.5
234.8
81.9
316.7
624.8
110
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Year Ended December 31, 2009
Operating expenses:
Research and development
Sales and marketing
General and administrative
Amortization of purchased intangibles
Litigation settlement charges
Restructuring charges
Total operating expenses
Operating income
Other income and expense, net
Income before income taxes and noncontrolling
interest
Provision for income taxes
Consolidated (loss) net income
Plus: Net loss attributable to noncontrolling interest
Net (loss) income attributable to Juniper Networks
$
Net (loss) income per share attributable to Juniper
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
185.4
181.2
39.2
4.4
—
4.3
414.5
81.2
0.3
183.9
170.6
39.2
3.5
—
7.5
404.7
95.7
1.3
185.2
177.3
39.9
1.3
1.0
4.5
409.2
128.0
1.7
81.5
85.9
(4.4)
—
(4.4) $
97.0
82.2
14.8
—
14.8 $
129.7
45.9
83.8
—
83.8 $
187.2
204.9
41.2
1.2
181.3
3.2
619.0
5.8
(1.9)
3.9
(17.2)
21.1
1.8
22.9
Networks common stockholders:
Basic (loss) income per share
Diluted (loss) income per share
(0.01) $
(0.01) $
0.03 $
0.03 $
0.16 $
0.16 $
0.04
0.04
$
$
111
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
Year Ended December 31, 2008
Net revenues:
Product
Service
Total net revenues
Cost of revenues:
Cost of revenues — Product
Cost of revenues — Service
Total cost of revenues
Gross margin
Operating expenses:
Research and development
Sales and marketing
General and administrative
Amortization of purchased intangibles
Litigation settlement charges
Total operating expenses
Operating income
Other income and expense, net
Income before income taxes and noncontrolling
interest
Provision for income taxes
Net income attributable to Juniper Networks
Basic income per share attributable to Juniper
Networks
Diluted income per share attributable to Juniper
Networks
$
$
$
Note 15. Joint Venture
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
$
674.2 $
148.7
822.9
723.9 $
155.1
879.0
767.0 $
180.0
947.0
191.8
73.0
264.8
558.1
170.7
186.0
33.6
25.1
—
415.4
142.7
17.6
215.1
74.1
289.2
589.8
186.4
190.3
35.6
8.0
9.0
429.3
160.5
11.6
230.1
77.5
307.6
639.4
194.0
200.6
37.6
5.2
—
437.4
202.0
9.7
160.3
49.9
110.4 $
172.1
51.7
120.4 $
211.7
63.2
148.5 $
745.9
177.6
923.5
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
132.4
0.21 $
0.23 $
0.27 $
0.25
0.20 $
0.22 $
0.27 $
0.25
In 2009, the Company entered into an agreement to form a joint venture to provide a combined carrier
Ethernet-based solution with NSN. At inception, the Company contributed $6.6 million for a 60 percent
interest in the joint venture. Both NSN and Juniper Networks are entitled to appoint two board members to
the Board of the joint venture. The Board shall consist of four board members at all times.
Given the Company’s majority ownership interest in the joint venture, the venture’s financial results have
been consolidated with the accounts of the Company, and a noncontrolling interest has been recorded to
reflect the noncontrolling investor’s interest in the venture’s results. All intercompany transactions have been
eliminated, with the exception of the noncontrolling interest.
Note 16. Subsequent Event
Stock Repurchases
Subsequent to December 31, 2009, through the filing of this report, the Company repurchased 2.1 million
shares of its common stock, for $55.3 million at an average purchase price of $26.28 per share, under its 2008
Stock Repurchase Program. As of the filing of this Annual Report on Form 10-K, the Company’s 2008 Stock
Repurchase Programs had remaining authorized funds of $263.3 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.
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements — (Continued)
In February 2010, the Company’s Board approved a new stock repurchase program which authorized the
Company to repurchase up to $1.0 billion of its common stock. This new authorization is in addition to the
Company’s 2008 Stock Repurchase Program. Share repurchases under the Company’s stock repurchase
programs 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. These programs may be discontinued at any time.
113
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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 63 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 62 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 2009 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
114
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about the likelihood of future events. Projections of any evaluation of controls effectiveness to 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.
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
committee financial expert, appearing in our definitive Proxy Statement to be filed with the SEC in
connection with the 2010 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
Compensation” 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
“Compensation Committee Report” is incorporated herein by reference.
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.
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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
Schedule II — Valuation and Qualifying Account
Page
119
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 120 of this report.
(b) Exhibits
See Exhibit Index on page 120 of this report.
(c) None
116
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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 26th day of February 2010.
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)
By: /s/ Gene Zamiska
Gene Zamiska
Vice President, Finance and Corporate Controller
(Duly Authorized Officer and Principal Accounting
Officer)
117
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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
Chief Executive Officer and Director
(Principal Executive Officer)
February 26,
2010
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Vice President, Finance and Corporate
Controller (Principal Accounting
Officer)
Chairman of the Board
February 26,
2010
February 26,
2010
February 26,
2010
Chief Technical Officer and Vice
Chairman of the Board
February 26,
2010
/s/ Robert M. Calderoni
Director
Robert M. Calderoni
/s/ Mary B. Cranston
Director
Mary B. Cranston
/s/ Michael Lawrie
Michael Lawrie
Director
/s/ William F. Meehan
Director
William F. Meehan
/s/ Stratton Sclavos
Stratton Sclavos
Director
/s/ William R. Stensrud
Director
William R. Stensrud
118
February 26,
2010
February 26,
2010
February 26,
2010
February 26,
2010
February 26,
2010
February 26,
2010
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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US GAAP element Schedule Of Valuation And Qualifying Accounts Disclosure
Juniper Networks, Inc.
Schedule II — Valuation and Qualifying Account
Years Ended December 31, 2009, 2008, and 2007
Balance at
Beginning of
Year
Charged to
(Reversed from)
Costs and
Expenses
Recoveries
(Deductions),
Net
Balance at
End of Year
Year ended December 31, 2009
Allowance for doubtful accounts
Sales returns reserve
Year ended December 31, 2008
Allowance for doubtful accounts
Sales returns reserve
Year ended December 31, 2007
Allowance for doubtful accounts
Sales returns reserve
$
$
$
$
$
$
9.7 $
36.8 $
8.3 $
25.1 $
7.3 $
15.0 $
119
(In millions)
(0.6) $
84.1 $
1.7 $
89.0 $
0.4 $
56.8 $
— $
(75.3) $
(0.3) $
(77.3) $
0.6 $
(46.7) $
9.1
45.6
9.7
36.8
8.3
25.1
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Exhibit Index
Exhibit No.
Exhibit
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
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++
10.18 Neoteris 2001 Stock Plan++
10.19
Kagoor Networks, Inc. 2003 General Stock
Option Plan++
Kagoor Networks, Inc. 2003 Israel Stock
Option Plan++
10.20
Incorporated by Reference
Exhibit
Filing
10-K
8-K
No.
File No.
File Date
3.1
3.1
000-26339
3/27/2001
000-26339
11/24/2008
10-Q
10.1
000-26339
11/14/2003
8-K 10.1
10-Q
10.16
000-26339 11/09/2005
11/2/2004
000-26339
8-K
10.2
000-26339
11/09/2005
S-8
10.1
333-92086
7/9/2002
10-K
10.6
000-26339
3/4/2005
10-K
10.738
000-26339
3/2/2009
8-K
10.2
000-26339
5/24/2006
S-8
10.3
000-26339
5/24/2006
10-K
10.20
000-26339
2/29/2008
10-K
10.21
000-26339
2/29/2008
10-Q
10.2
000-26339
5/9/2008
10-Q
10.2
000-26339
5/9/2008
S-8
10.1
333-92090
7/9/2002
S-1+
10.2
333-71048
10/5/2001
S-1+
10.3
333-71048
12/10/2001
S-8
4.7
333-114688
4/21/2004
S-8+ 4.1
4.1
S-8
333-110709 11/24/2003
333-124572
5/3/2005
S-8
4.2
333-124572
5/3/2005
10.21 Redline Networks 2000 Stock Plan++
10.22 Peribit Networks 2000 Stock Plan++
10.23
Amended and Restated Juniper Networks 1999
Employee Stock Purchase Plan++
S-8
S-8
10-Q
4.1
99.1
10.2
333-124610 5/4/2005
333-126404 7/6/2005
8/9/2007
000-26339
120
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Exhibit No.
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
10.44
10.45
10.46
Exhibit
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++
Option Amendment Agreement by and
between the Registrant and Kim Perdikou++
Severance Agreement by and between the
Registrant and Robyn M. Denholm++
Summary of Compensatory Arrangements
for Certain Officers adopted on March 9,
2007++
Summary of Compensatory Arrangements
for Certain Officers announced on
August 14, 2007++
Summary of Compensatory Plans and
Arrangements for Certain Officers adopted
on February 26, 2008++
Summary of Compensatory Arrangements
for Certain Officers adopted on February 11,
2009++
Summary of Compensatory Arrangements
for Certain Officers adopted on March 2,
2009++
Summary of Compensatory Arrangements
for Certain Officers adopted on
November 12, 2009++
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++
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
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
121
Incorporated by Reference
Exhibit
No.
File No.
File Date
4.3
333-151669
6/16/2008
Filing
S-8
10-K
10.25
000-26339
3/2/2009
S-8
4.4
333-151669
6/16/2008
10-K
10.27
000-26339
3/2/2009
10-Q
10.4
000-26339
11/10/2008
8-K
99.2
000-26339
5/2/2007
10-K
10.33
000-26339
3/2/2009
8-K
99.1
000-26339
3/12/2007
8-K
Item 5.02
000-26339
8/14/2007
8-K
99.1
000-26339
2/28/2008
8-K
Item 5.02
000-26339
2/18/2009
8-K
Item 5.02
000-26339
3/6/2009
8-K
Item 5.02
001-34501
11/18/2009
10-Q
10.1
000-26339
11/10/2008
10-Q
10.2
000-26339
11/10/2008
10-K
10.38
000-26339
3/2/2009
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
S-1
10.10
333-76681
6/23/1999
10-K
10.9
000-26339
3/27/2001
10-Q
10.15
000-26339
11/2/2004
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Table of Contents
Exhibit No.
10.47
10.48
10.49
10.50
10.51
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101
Exhibit
Filing
No.
File No.
File Date
Incorporated by Reference
Exhibit
First Amendment to Lease between Sunnyvale
Office Park, L.P. and the Registrant dated
January 24, 2002*
First Amendment to Lease between Sunnyvale
Office Park, L.P. and the Registrant dated
February 28, 2000*
First Amendment to Lease between Sunnyvale
Office Park, L.P. and the Registrant dated
October 14, 2009*
Second Amendment to Lease between Sunnyvale
Office Park, L.P. and the Registrant dated
October 14, 2009*
Amendment No. 2 to Lease between Sunnyvale
Office Park, L.P. and the Registrant dated
October 14, 2009*
Subsidiaries of the Company*
Consent of Independent Registered Public
Accounting Firm*
Power of Attorney (see page 118)
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**
The following materials from Juniper Networks
Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2009, formatted in XBRL
(Extensible Business Reporting Language):
(i) the Consolidated Statements of Operations,
(ii) the Consolidated Balance Sheets, and (iii) the
Consolidated Statements of Cash Flows, and
(iv) Notes to Consolidated Financial Statements,
tagged as blocks of text
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation
Linkbase Document
XBRL Taxonomy Extension Label Linkbase
Document
XBRL Taxonomy Extension Presentation
Linkbase Document
XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB
101.PRE
101.DEF
* Filed herewith
** Furnished herewith
+ Filed by NetScreen Technologies, Inc.
++ Indicates management contract or compensatory plan, contract or arrangement.
122
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Exhibit 10.47
This AMENDMENT NO. 1 TO LEASE (this “Amendment”) is dated as of this 24
MATHILDA ASSOCIATES II LLC, a California limited liability company (“Landlord”), and JUNIPER NETWORKS, INC., a
Delaware corporation (“Tenant”).
th day of January, 2002, by and between
AMENDMENT NO. 1 TO LEASE
RECITALS
A. Landlord and Tenant entered into that certain Lease Agreement dated August 15, 2000 (the “Lease”) for premises located in the
City of Sunnyvale, County of Santa Clara, State of California, commonly known as 1220 Mathilda Avenue, comprised of 158,075
rentable square feet of floor area (the “Leased Premises”). Capitalized terms used in this Amendment and not otherwise defined shall
have the meanings assigned to them in the Lease.
B. Landlord and Tenant acknowledge and agree that Landlord will be able to achieve Substantial Completion of the Tenant
Improvements (as defined in the Work Letter), and will be able to deliver possession of the Leased Premises to Tenant, in the
condition required by the Lease, by no later than May 1, 2002, in which event the Lease Commencement Date would be June 1, 2002.
C. Notwithstanding the foregoing, Tenant has requested that Landlord delay Substantial Completion of the Tenant Improvements
and delay delivery of possession of the Leased Premises until September 3, 2002; and Landlord is willing to do so provided that the
Lease Commencement Date not be delayed and otherwise on the terms and conditions set forth herein.
D. Landlord and Tenant now desire to amend the Lease according to the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant hereby agree as follows:
1. Recitals. The foregoing Recitals are hereby incorporated into this Amendment.
2. Intended Delivery Date. The term “Intended Delivery Date” which is defined as “May 1, 2002” in Article 1 of the Lease, is
hereby redefined to be “September 3, 2002.”
3. Rentable Square Footage of Leased Premises. Landlord and Tenant hereby agree that the rentable square footage of Leased
Premises is 158,075.
4. Lease Commencement Date. Section 2.3 of the Lease is hereby amended in its entirety to read as follows:
“2.3 Lease Commencement Date And Lease Term. The term of this Lease shall begin, and the Lease Commencement Date
shall be deemed to have occurred, on June 1,
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2002. The term of this Lease shall in all events end on the Lease Expiration Date (as set forth in Article 1). The Lease Term shall be
that period of time commencing on the Lease Commencement Date and ending on the Lease Expiration Date (the “Lease Term”).”
5. Performance Of Tenant Improvements; Acceptance Of Possession. Section 2.5 of the Lease is hereby amended in its entirety
to read as follows:
“Landlord shall, pursuant to the work letter attached to and made a part of this Lease (the “Work Letter”), perform the work
and make the installations in the Leased Premises substantially as set forth in the Work Letter (such work and installations
hereinafter referred to as the “Tenant Improvements”). It is agreed that by occupying the Leased Premises, Tenant formally
accepts same and acknowledges that the Leased Premises are in the condition called for hereunder, subject to reasonable
punchlist items and latent defects specified by Tenant to Landlord in writing within ten (10) days of such occupancy.”
6. Cost Of Building Core. Landlord, at Tenant’s request, has performed construction work on the Building core and has charged
the cost thereof against the Tenant Improvement Allowance. The work and cost detail has previously been provided to and approved
by Tenant.
7. Surrender Of Possession. The first sentence of Section 2.6 of the Lease is hereby amended in its entirety to read as follows:
“Immediately prior to the expiration or upon the sooner termination of this Lease, Tenant shall remove all of Tenant’s signs
from the exterior of the Building and shall remove all of Tenant’s equipment, trade fixtures, furniture, supplies, wall
decorations and other personal property from within the Leased Premises, the Building and the Outside Areas, and shall
vacate and surrender the Leased Premises, the Building, the Outside Areas and the Property to Landlord in the same condition,
broom clean, as existed at the Delivery Date, damage by casualty or condemnation (which events shall be governed by
Articles 10 and 11) and reasonable wear and tear excepted.”
8. Landlord’s Duty To Restore. The second sentence of Section 10.1 of the Lease is hereby amended in its entirety to read as
follows:
“If this Lease is not so terminated, then upon the issuance of all necessary governmental permits, Landlord shall commence
and diligently prosecute to completion the restoration of the Leased Premises, the Building or the Outside Area, as the case
may be, to the extent then allowed by law, to substantially the same condition in which it existed as of the Delivery Date.”
9. Condition Precedent To Lease Amendment. Landlord’s obligations hereunder are subject to the receipt by Landlord, no later
than fifteen (15) business days after the date hereof, of the Lender’s Consent, as hereinafter defined. Landlord hereby agrees to use
diligent efforts to obtain the Lender’s Consent by such date; however, if Landlord does not receive the
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Lender’s Consent by such date, this Amendment shall, at Landlord’s option, thereupon be deemed terminated and of no further force
or effect, and neither party shall have any further rights, obligations, or liabilities hereunder. As used herein, the term “Lender’s
Consent” means a written consent to this Amendment in form reasonably satisfactory to Landlord, executed by the holder of the
promissory note secured by that certain Deed of Trust (encumbering the fee interest in the real property of which the Leased Premises
are a part) recorded on December 29, 2000 in the Official Records of Santa Clara County, California, at Series No. 15512549.
10. Ratification. The Lease, as amended by this Amendment, is hereby ratified by Landlord and Tenant and Landlord and Tenant
hereby agree that the Lease, as so amended, shall continue in full force and effect.
11. Miscellaneous.
(a) Voluntary Agreement. The parties have read this Amendment and on the advice of counsel they have freely and voluntarily
entered into this Amendment.
(b) Attorney’s Fees. If either party commences an action against the other party arising out of or in connection with this
Amendment, the prevailing party shall be entitled to recover from the losing party reasonable attorney’s fees and costs of suit.
(c) Successors. This Amendment shall be binding on and inure to the benefit of the parties and their successors.
(d) Counterparts. This Amendment may be signed in two or more counterparts. When at least one such counterpart has been
signed by each party, this Amendment shall be deemed to have been fully executed, each counterpart shall be deemed to be an
original, and all counterparts shall be deemed to be one and the same agreement.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date first written above.
TENANT:
JUNIPER NETWORKS, INC., a Delaware
corporation
By:
Title:
/s/ [ILLEGIBLE]
VP General Counsel & Secretary
[SIGNATURES CONTINUED ON NEXT PAGE]
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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[SIGNATURES CONTINUED FROM PRIOR PAGE]
LANDLORD:
MATHILDA ASSOCIATES II LLC, a California limited liability
company
By:
Menlo Equities LLC, a California
limited liability company, Manager
By:
Diamant Investments LLC, a Delaware
limited liability company, Member
By:
/s/ Richard J. Holmstrom
Richard J. Holmstrom, Manager
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Exhibit 10.48
This FIRST AMENDMENT TO LEASE (this “Amendment”) is dated as of this 28
MATHILDA ASSOCIATES LLC, a California limited liability company (“Landlord”), and JUNIPER NETWORKS, INC., a
Delaware corporation (“Tenant”).
th day of February, 2000 by and between
FIRST AMENDMENT TO LEASE
A. Landlord and Tenant entered into a Lease dated June 18, 1999 (the “Lease”), for premises (the “Leased Premises”) with a street
address of 1194 Mathilda Avenue, Sunnyvale, California, and more particularly described in the Lease;
B. Landlord and Tenant now desire to amend the Lease on the terms and conditions set forth herein. Capitalized terms used in this
Amendment and not otherwise defined shall have the meanings assigned to them in the Lease.
RECITALS
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant hereby agree as follows:
1. Security Deposit. The amount of the Security Deposit set forth in Article 1 of the Lease is hereby changed to $1,000,000. The
amount of the Security Deposit shall remain subject to reduction as set forth in Paragraph 3.7 of the Lease.
2. Expansion Rights. Concurrently herewith, Landlord and Tenant have entered into a new lease (the “1184 Lease”) for 1184
Mathilda Avenue, Sunnyvale, California, referred to in the Lease as the “1184 Building.” Landlord and Tenant agree that
notwithstanding any provision in the Lease to contrary, Tenant’s lease of the 1184 Building shall be on all of the terms set forth in the
1184 Lease, and accordingly, upon full execution of the 1184 Lease, the First Expansion Option contained in Article 16 of the Lease
shall be null and void.
3. Lease Commencement Date. The Intended Commencement Date set forth in Article 1 of the Lease is deleted and replaced with
“July 1, 2000.” The first sentence of Paragraph 2.3 is deleted and replaced with the following:
Subject to Paragraph 2.4 below, the term of this Lease shall begin, and the Lease Commencement Date shall be deemed to have
occurred on the date which is sixty (60) days after the actual Delivery Date, as determined pursuant to Section 2.4 below.
4. Base Monthly Rent. The Base Monthly Rent set forth in Article 1 of the Lease is hereby deleted and replaced with the
following:
Base Monthly Rent: The term “Base Monthly Rent” shall mean the following:
Period
7/1/00-5/31/01
Monthly Amount
$
360,787.50
At the end of the 11th month after the actual Delivery Date and at the end of each 12 month period
thereafter (until the Lease Expiration Date), Base Monthly Rent shall be increased at a rate of 3.5%
per annum compounded annually.
5. Commencement Date Certificate. The following provision is added to the end of Paragraph 2.3 of the Lease:
In the event the actual Lease Commencement Date is different than the Intended Commencement Date, Landlord and Tenant
agree to execute a Lease Commencement Date Certificate in the form attached as Exhibit C setting forth the actual Lease
Commencement Date and the Lease Expiration Date (such that the length of the Lease Term is the same as set forth in Article 1)
and an adjustment to the schedule of Base Monthly Rent to reflect the change in the Lease Commencement Date and Lease
Expiration Date. For purposes of adjusting the schedule of Base Monthly Rent set forth in Article 1 above, the annual date on
which the Base Monthly Rent shall increase shall be that date which is eleven (11) months after the actual Lease Commencement
Date and at the end of each twelve (12) month period thereafter.
6. Cross-Default. A new subparagraph 12.1(i) is added to Article 12 as follows:
(i) Tenant shall be in default of its obligations under any other Lease between Landlord and Tenant.
1
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7. Notices. The following party is added to Paragraph 13.10 for receipt of copies of notices sent to Landlord:
Beacon Capital Partners Inc.
One Federal Street, 26th Floor
Boston, Massachusetts 02110
Attention: General Counsel
8. Condition Precedent To Lease Amendment. This Amendment and the parties’ obligations hereunder are subject to the receipt
by Landlord, no later than twenty one (21) business days after the date hereof, of the Lender’s Consent, as hereinafter defined.
Landlord hereby agrees to use diligent efforts to obtain the Lender’s Consent by such date; however, if Landlord does not receive the
Lender’s Consent by such date, this Amendment shall thereupon be deemed terminated and of no further force or effect, and neither
party shall have any further rights, obligations, or liabilities hereunder. As used herein, the term “Lender’s Consent” means a written
consent to this Amendment in form reasonably satisfactory to Landlord, executed by the holder of the promissory note secured by that
certain Deed of Trust (encumbering the fee interest in the real property of which the Leased Premises are a part) recorded on
November 11, 1999 in the Official Records of Santa Clara County, California, at Series No. 15042012.
9. Ratification. The Lease, as amended by this Amendment, is hereby ratified by Landlord and Tenant and Landlord and Tenant
hereby agree that the Lease, as so amended, shall continue in full force and effect.
10. Miscellaneous.
(a) Voluntary Agreement. The parties have read this Amendment and on the advice of counsel they have freely and voluntarily
entered into this Amendment.
(b) Attorneys’ Fees. If either party commences an action against the other party arising out of or in connection with this
Amendment, the prevailing party shall be entitled to recover from the losing party reasonable attorney’s fees and costs of suit.
(c) Successors. This Amendment shall be binding on and inure to the benefit of the parties and their successors.
(d) Counterparts. This Amendment may be signed in two or more counterparts. When at least one such counterpart has been
signed by each party, this Amendment shall be deemed to have been fully executed, each counterpart shall be deemed to be an
original, and all counterparts shall be deemed to be one and the same agreement.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date first written above.
LANDLORD:
MATHILDA ASSOCIATES LLC, a California limited
liability company
By:
By:
Menlo Equities LLC, a California limited liability
company, its Manager
Diamant Investments LLC, a Delaware limited
liability company, Member
By:
/s/ Richard J. Holmstrom
Richard J. Holmstrom, Manager
TENANT:
JUNIPER NETWORKS, INC., a Delaware corporation
/s/ [ILLEGIBLE]
By:
Title: Chief Financial Officer
/s/ [ILLEGIBLE]
By:
Title: General Counsel & Secretary
2
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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EXHIBIT 10.49
FIRST AMENDMENT TO LEASE
(1184 Building)
THIS FIRST AMENDMENT TO LEASE (this “Amendment”) is made as of October 14, 2009 the (“Effective Date”) by and
between SUNNYVALE OFFICE PARK, L.P., Delaware limited partnership (“Landlord”), and JUNIPER NETWORKS, INC., a
Delaware corporation (“Tenant”), with reference to the following facts:
RECITALS
A. Landlord, as successor in interest to CSHV Mathilda I, LLC, successor to the original landlord, and Tenant are parties to that
certain Lease dated as of February 28, 2000 for the office building commonly known as 1184 Mathilda Avenue, Sunnyvale, California
(the “Lease”).
B. Landlord and Tenant desire to extend the term of the Lease to October 31, 2021 and modify the base rent payable thereunder for
the remainder of such term, all as more particularly provided in this Amendment.
NOW, THEREFORE, with reference to the foregoing Recitals and for other good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Definitions. All capitalized terms used but not defined in this Amendment have the meanings given such terms in the Lease.
2. Amendments to Lease. The Lease is hereby amended as follows:
2.1 Term. Article 1, Paragraph 1.1 of the Lease is amended to delete the term “Lease Term” therefrom. “Lease Term” shall
continue to have the meaning set forth in Paragraph 2.3 of the Lease.
2.2 Lease Expiration Date. In Article I, Paragraph 1.1 of the Lease, the definition of the term “Lease Expiration Date” is
amended and restated as follows:
“October 31, 2021, unless earlier terminated in accordance with the terms of the Lease, or extended by Tenant pursuant to
Article 15.”
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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2.3 Base Monthly Rent. In Article 1, Paragraph 1.1, the definition of “Base Monthly Rent” is amended and restated as follows:
“The term ‘Base Monthly Rent’ shall mean the following:
Period
8/1/01 — 7/31/02
$327,888.58
At the end of the 12th month after the actual Lease Commencement Date and at the end of each 12 month period thereafter
(until October 31, 2009), Base Monthly Rent shall be increased at a rate of 3.5% per annum compounded annually.
Monthly Amount
Thereafter, commencing on the November 1, 2009 and continuing through October 31, 2021, the “Base Monthly Rent” shall
be as follows:
Period
11/1/09-6/30/11
7/1/11-6/30/12
7/1/12-6/30/13
7/1/13-6/30/14
7/1/14-6/30/15
7/1/15-6/30/16
7/1/16-6/30/17
7/1/17-6/30/18
7/1/18-6/30/19
7/1/19-6/30/20
7/1/20-6/30/21
7/1/21-10/31/21
Monthly Amount
$328,336.89
$338,290.86
$348,543.44
$359,103.61
$369,980.57
$381,183.85
$392,723.22
$404,608.78
$416,850.90
$429,460.29
$442,447.95
$455,825.25”
2.4 Landlord’s Liability. Article 12, Paragraph 12.4 is hereby amended and restated as follows:
“Limitation of Tenant’s Recourse. The liability of Landlord for Landlord’s obligations under the Lease, as amended from time
to time, and any other documents executed by Landlord and Tenant in connection with the Lease, as amended from time to
time (collectively, the “Lease Documents”), shall be limited to Landlord’s interest in the Building and Tenant shall not look to
any other property or assets of Landlord or the property or assets of any direct or indirect partner, member, manager,
shareholder, director, officer, principal, employee or agent of Landlord (collectively, the “Landlord Parties”) in
2
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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seeking either to enforce Landlord’s obligations under the Lease Documents or to satisfy a judgment for Landlord’s failure to
perform such obligations; and none of the Landlord Parties shall be personally liable for the performance of Landlord’s
obligations under the Lease Documents.”
3. Rent Credit. For the month of November 2009 only, Tenant shall receive a credit against the Base Monthly Rent in the amount
of $103,858.66.
4. Brokers. Tenant hereby represents and warrants to Landlord that except for Jones Lang LaSalle Brokerage, Inc. (“Tenant’s
Broker”), Tenant has had no dealings with any real estate broker or agent in connection with the negotiation of this Amendment.
Landlord shall pay each of Tenant’s Broker and landlord’s broker (Tishman Speyer Properties, L.P.) a commission in the amount, and
on the terms and subject to the conditions, set forth in separate written agreements between Landlord and each such broker. Tenant
shall indemnify, defend and hold Landlord harmless from and against any claims, demands, losses, liabilities, judgments, costs and
expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent
compensation alleged to be owed or owing to (i) Tenant’s Broker, to the extent exceeding the amount payable under the agreement
between Landlord and Tenant’s Broker, and (ii) any other broker, agent or other person claiming to have acted on Tenant’s behalf.
5. No Other Amendments. The Lease has not been amended other than by this Amendment and, as amended by this Amendment,
the Lease is and remains in full force and effect and is hereby ratified by Landlord and Tenant. In the event of any conflict between
this Amendment and the Lease, the terms of this Amendment shall prevail.
6. Counterparts. This Amendment may be executed in counterparts, each of which shall be an original and all of which counterparts
taken together shall constitute but one and the same agreement.
7. Condition Precedent. This Amendment is contingent upon Landlord and Tenant concurrently entering into amendments to the
leases for the buildings located at 1194 and 1220 Mathilda Avenue, Sunnyvale, California, respectively, in the forms agreed upon the
parties.
8. Miscellaneous.
8.1 Voluntary Agreement. The parties have read this Amendment and on the advice of counsel they have freely and voluntarily
entered into this Amendment.
8.2 Attorneys Fees. If either party commences an action against the other party arising out of or in connection with this
Amendment, the prevailing party shall be entitled to recover from the losing party reasonable attorney’s fees and costs of suit.
8.3 Successors. This Amendment shall be binding upon and inure to the benefit of the parties’ respective successors or assigns.
3
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.
LANDLORD:
TENANT:
SUNNYVALE OFFICE PARK, L.P.,
a Delaware limited partnership
By:
Sunnyvale Office Park GP, L.L.C.,
a Delaware limited liability company,
General Partner
By:
/s/ Steven R. Wechsler
Name: Steven R. Wechsler
Title: Sr. Managing Director
JUNIPER NETWORKS, INC.,
a Delaware corporation
By:
/s/ Robyn M. Denholm
Name: Robyn M. Denholm
Title: Executive VP & CFO
By:
/s/ Mitchell L. Gaynor
Name: Mitchell L. Gaynor
Title: Senior VP & General Counsel
4
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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EXHIBIT 10.50
SECOND AMENDMENT TO LEASE
(1194 Building)
THIS SECOND AMENDMENT TO LEASE (this “Amendment”) is made as of October 14, 2009 the (“Effective Date”) by and
between SUNNYVALE OFFICE PARK, L.P., Delaware limited partnership (“Landlord”), and JUNIPER NETWORKS, INC., a
Delaware corporation (“Tenant”), with reference to the following facts:
RECITALS
A. Landlord, as successor in interest to CSHV Mathilda II, LLC, successor in interest to the original landlord, and Tenant are
parties to that certain Lease dated as of June 18, 1999, as amended by that certain First Amendment to Lease dated as of February 28,
2002, for the office building commonly known as 1194 Mathilda Avenue, Sunnyvale, California (as so amended, the “Lease”).
B. Landlord and Tenant desire to extend the term of the Lease to June 30, 2020 and modify the base rent payable thereunder for the
remainder of such term, all as more particularly provided in this Amendment.
NOW, THEREFORE, with reference to the foregoing Recitals and for other good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Definitions. All capitalized terms used but not defined in this Amendment have the meanings given such terms in the Lease.
2. Amendments to Lease. The Lease is hereby amended as follows:
2.1 Term. Article 1, Paragraph 1.1 of the Lease is amended to delete the term “Lease Term” therefrom. “Lease Term” shall
continue to have the meaning set forth in Paragraph 2.3 of the Lease.
2.2 Lease Expiration Date. In Article 1, Paragraph 1.1 of the Lease, the definition of the term “Lease Expiration Date” is
amended and restated as follows:
“June 30, 2020, unless earlier terminated in accordance with the terms of the Lease, or extended by Tenant pursuant to
Article 15.”
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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2.3 Base Monthly Rent. In Article 1, Paragraph 1.1 of the Lease, the definition of “Base Monthly Rent” is amended and restated
as follows:
“The term ‘Base Monthly Rent’ shall mean the following:
Period
7/1/00 - 5/31/01
Monthly Amount
$360,787.50
At the end of the 11th month after the actual Delivery Date and at the end of each 12 month period thereafter (until
October 31, 2009), Base Monthly Rent shall be increased at a rate of 3.5% per annum compounded annually.
Thereafter, commencing on November 1, 2009 and continuing through June 30, 2020, the ‘Base Monthly Rent’ shall be as
follows:
Period
11/1/09-6/30/11
7/1/11-6/30/12
7/1/12-6/30/13
7/1/13-6/30/14
7/1/14-6/30/15
7/1/15-6/30/16
7/1/16-6/30/17
7/1/17-6/30/18
7/1/18-6/30/19
7/1/19-6/30/20
Monthly Amount
$369,457.59
$380,670.86
$392,220.54
$404,116.70
$416,369.75
$428,990.39
$441,989.65
$455,378.89
$469,169.80
$483,374.44”
2.4 Landlord’s Liability. Article 12, Paragraph 12.4 of the Lease is hereby amended and restated as follows:
“Limitation of Tenant’s Recourse. The liability of Landlord for Landlord’s obligations under the Lease, as amended from time
to time, and any other documents executed by Landlord and Tenant in connection with the Lease, as amended from time to
time (collectively, the “Lease Documents”), shall be limited to Landlord’s interest in the Building and Tenant shall not look to
any other property or assets of Landlord or the property or assets of any direct or indirect partner, member, manager,
shareholder, director, officer, principal, employee or agent of Landlord (collectively, the “Landlord Parties”) in seeking either
to enforce Landlord’s obligations under the Lease Documents or to satisfy a judgment for Landlord’s failure to perform such
obligations; and none of the Landlord
2
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Parties shall be personally liable for the performance of Landlord’s obligations under the Lease Documents.”
3. Rent Credit. For the month of November 2009 only, Tenant shall receive a credit against the Base Monthly Rent in the amount
of $122,656.56.
4. Brokers. Tenant hereby represents and warrants to Landlord that except for Jones Lang LaSalle Brokerage, Inc. (“Tenant’s
Broker”), Tenant has had no dealings with any real estate broker or agent in connection with the negotiation of this Amendment.
Landlord shall pay each of Tenant’s Broker and Landlord’s broker (Tishman Speyer Properties, L.P.) a commission in the amount,
and on the terms and subject to the conditions, set forth in separate written agreements between Landlord and each such broker.
Tenant shall indemnify, defend and hold Landlord harmless from and against any claims, demands, losses, liabilities, judgments, costs
and expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent
compensation alleged to be owed or owing to (i) Tenant’s Broker, to the extent exceeding the amount payable under the agreement
between Landlord and Tenant’s Broker, and (ii) any other broker, agent or other person claiming to have acted on Tenant’s behalf.
5. No Other Amendments. The Lease has not been amended other than by this Amendment and, as amended by this Amendment,
the Lease is and remains in full force and effect and is hereby ratified by Landlord and Tenant. In the event of any conflict between
this Amendment and the Lease, the terms of this Amendment shall prevail.
6. Counterparts. This Amendment may be executed in counterparts, each of which shall be an original and all of which counterparts
taken together shall constitute but one and the same agreement.
7. Condition Precedent. This Amendment is contingent upon Landlord and Tenant concurrently entering into amendments to the
leases for the buildings located at 1184 and 1220 Mathilda Avenue, Sunnyvale, California, respectively, in the forms agreed upon by
the parties.
8. Miscellaneous.
8.1 Voluntary Agreement. The parties have read this Amendment and on the advice of counsel they have freely and voluntarily
entered into this Amendment.
8.2 Attorneys Fees. If either party commences an action against the other party arising out of or in connection with this
Amendment, the prevailing party shall be entitled to recover from the losing party reasonable attorney’s fees and costs of suit.
8.3 Successors. This Amendment shall be binding upon and inure to the benefit of the parties’ respective successors or assigns.
3
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.
LANDLORD:
TENANT:
SUNNYVALE OFFICE PARK, L.P.,
a Delaware limited partnership
By:
Sunnyvale Office Park GP, L.L.C.,
a Delaware limited liability company,
General Partner
By:
/s/ Steven R. Wechsler
Name: Steven R. Wechsler
Title: Sr. Managing Director
JUNIPER NETWORKS, INC.,
a Delaware corporation
By:
/s/ Robyn M. Denholm
Name: Robyn M. Denholm
Title: Executive VP & CFO
By:
/s/ Mitchell L. Gaynor
Name: Mitchell L. Gaynor
Title: Senior VP & General Counsel
4
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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EXHIBIT 10.51
AMENDMENT NO. 2 TO LEASE
(1220 Building)
THIS AMENDMENT NO. 2 TO LEASE (this “Amendment”) is made as of October 14, 2009 the (“Effective Date”) by and
between SUNNYVALE OFFICE PARK, L.P., Delaware limited partnership (“Landlord”), and JUNIPER NETWORKS, INC., a
Delaware corporation (“Tenant”), with reference to the following facts:
RECITALS
A. Landlord, as successor in interest to CSHV Mathilda III, LLC, as successor in interest to the original landlord, and Tenant are
parties to that certain Lease dated as of August 15, 2000, as amended by that certain Amendment No. 1 to Lease dated as of
January 24, 2002, for the office building commonly known as 1220 Mathilda Avenue, Sunnyvale, California (as so amended, the
“Lease”).
B. Landlord and Tenant desire to extend the term of the Lease to November 30, 2022 and modify the base rent payable thereunder
for the remainder of such term, all as more particularly provided in this Amendment.
NOW, THEREFORE, with reference to the foregoing Recitals and for other good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Definitions. All capitalized terms used but not defined in this Amendment have the meanings given such terms in the Lease.
2. Amendments to Lease. The Lease is hereby amended as follows:
2.1 Term. Article 1, Paragraph 1.1 of the Lease is amended to delete the term “Lease Term” therefrom. “Lease Term” shall
continue to have the meaning set forth in Paragraph 2.3 of the Lease.
2.2 Lease Expiration Date. In Article 1, Paragraph 1.1 of the Lease, the definition of the term “Lease Expiration Date” is
amended and restated as follows:
“November 30, 2022, unless earlier terminated in accordance with the terms of the Lease, or extended by Tenant pursuant to
Article 15.”
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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2.3 Base Monthly Rent. In Article 1, Paragraph 1.1 of the Lease, the definition of “Base Monthly Rent” is amended and restated
as follows:
“The term ‘Base Monthly Rent’ shall mean the following:
Period
Months 1-12
Base Monthly Rent per
Rentable Square Foot
$ 2,812
Commencing with Month 13 of the Lease Term and at the end of each 12 month period thereafter (until October 31, 2009),
Base Monthly Rent shall be increased at a rate of 3.5% per annum compounded annually.
Thereafter, commencing on November 1, 2009 and continuing through November 30, 2022, the ‘Base Monthly Rent’ shall be
as follows:
Period
11/1/09-6/30/11
7/1/11-6/30/12
7/1/12-6/30/13
7/1/13-6/30/14
7/1/14-6/30/15
7/1/15-6/30/16
7/1/16-6/30/17
7/1/17-6/30/18
7/1/18-6/30/19
7/1/19-6/30/20
7/1/20-6/30/21
7/1/21-6/30/22
7/1/22-11/30/22
Monthly Amount
$445,351.30
$458,819.29
$472,691.32
$486,979.51
$501,696.35
$516,854.69
$532,467.78
$548,549.26
$565,113.19
$582,174.04
$599,746.71
$617,846.56
$636,489.41”
2.4 Landlord’s Liability. Article 12, Paragraph 12.4 of the Lease is hereby amended and restated as follows:
“Limitation of Tenant’s Recourse. The liability of Landlord for Landlord’s obligations under the Lease, as amended from time
to time, and any other documents executed by Landlord and Tenant in connection with the Lease, as amended from time to
time (collectively, the “Lease Documents”), shall be limited to Landlord’s interest in the Building and Tenant shall not look to
any other property or assets of Landlord or the property or assets of any direct or indirect partner, member, manager,
shareholder, director, officer, principal, employee or
2
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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agent of Landlord (collectively, the “Landlord Parties”) in seeking either to enforce Landlord’s obligations under the Lease
Documents or to satisfy a judgment for Landlord’s failure to perform such obligations; and none of the Landlord Parties shall
be personally liable for the performance of Landlord’s obligations under the Lease Documents.”
3. Rent Credit. For the month of November 2009 only, Tenant shall receive a credit against the Base Monthly Rent in the amount
of $120,557.20.
4. Brokers. Tenant hereby represents and warrants to Landlord that except for Jones Lang LaSalle Brokerage, Inc. (“Tenant’s
Broker”), Tenant has had no dealings with any real estate broker or agent in connection with the negotiation of this Amendment.
Landlord shall pay each of Tenant’s Broker and Landlord’s broker (Tishman Speyer Properties, L.P.) a commission in the amount,
and on the terms and subject to the conditions, set forth in separate written agreements between Landlord and each such broker.
Tenant shall indemnify, defend and hold Landlord harmless from and against any claims, demands, losses, liabilities, judgments, costs
and expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent
compensation alleged to be owed or owing to (i) Tenant’s Broker, to the extent exceeding the amount payable under the agreement
between Landlord and Tenant’s Broker, and (ii) any other broker, agent or other person claiming to have acted on Tenant’s behalf.
5. No Other Amendments. The Lease has not been amended other than by this Amendment and, as amended by this Amendment,
the Lease is and remains in full force and effect and is hereby ratified by Landlord and Tenant. In the event of any conflict between
this Amendment and the Lease, the terms of this Amendment shall prevail.
6. Counterparts. This Amendment may be executed in counterparts, each of which shall be an original and all of which counterparts
taken together shall constitute but one and the same agreement.
7. Conditions Precedent. This Amendment is contingent upon Landlord and Tenant concurrently entering into amendments to the
leases for the buildings located at 1184 and 1194 Mathilda Avenue, Sunnyvale, California, respectively, in the forms agreed upon by
the parties.
8. Miscellaneous.
8.1 Voluntary Agreement. The parties have read this Amendment and on the advice of counsel they have freely and voluntarily
entered into this Amendment.
8.2 Attorneys Fees. If either party commences an action against the other party arising out of or in connection with this
Amendment, the prevailing party shall be entitled to recover from the losing party reasonable attorney’s fees and costs of suit.
3
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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8.3 Successors. This Amendment shall be binding upon and inure to the benefit of the parties’ respective successors or assigns.
[SIGNATURES ON NEXT PAGE]
4
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.
LANDLORD:
TENANT:
SUNNYVALE OFFICE PARK, L.P.,
a Delaware limited partnership
By:
Sunnyvale Office Park GP, L.L.C.,
a Delaware limited liability company,
General Partner
By:
/s/ Steven R. Wechsler
Name: Steven R. Wechsler
Title: Sr. Managing Director
JUNIPER NETWORKS, INC.,
a Delaware corporation
By:
/s/ Robyn M. Denholm
Name: Robyn M. Denholm
Title: Executive VP & CFO
By:
/s/ Mitchell L. Gaynor
Name: Mitchell L. Gaynor
Title: Senior VP & General Counsel
5
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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SUBSIDIARIES OF THE COMPANY AS OF DECEMBER 31, 2009*
NAME
Juniper Networks (Cayman) Limited
Juniper Networks Ireland
Juniper Networks (Hong Kong), Ltd.
Juniper Networks (US), Inc.
EXHIBIT 21.1
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.
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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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 February 26, 2010, 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, 2009.
/s/ Ernst & Young LLP
Exhibit 23.1
San Jose, California
February 26, 2010
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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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: February 26, 2010
/s/ Kevin R. Johnson
Kevin R. Johnson
Chief Executive Officer
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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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: February 26, 2010
/s/ Robyn M. Denholm
Robyn M. Denholm
Executive Vice President and Chief Financial Officer
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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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
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, 2009, 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.
Exhibit 32.1
/s/ Kevin R. Johnson
Kevin R. Johnson
Chief Executive Officer
February 26, 2010
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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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
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, 2009, 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.
Exhibit 32.2
/s/ Robyn M. Denholm
Robyn M. Denholm
Executive Vice President and Chief Financial Officer
February 26, 2010
Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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Source: JUNIPER NETWORKS INC, 10-K, February 26, 2010
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