JUNIPER NETWORKS INC (JNPR)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 02/24/2012
Filed Period 12/31/2011
Table of Contents
(Mark One)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
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)
77-0422528
(IRS Employer Identification No.)
1194 North Mathilda Avenue
Sunnyvale, California 94089
(408) 745-2000
(Address of principal executive offices)(Zip Code)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.00001 per share
Name of Each Exchange on Which Registered
New York Stock Exchange LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] 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 [X]
Securities registered pursuant to Section 12(g) of the Act: None
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 [X] 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 [X] 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.
Large Accelerated Filer [X]
Accelerated Filer [ ]
Non-Accelerated Filer [ ]
Smaller Reporting Company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
(Do not check if a smaller reporting company)
The aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $10,841,000,000 as of the end of the Registrant's second fiscal quarter
(based on the closing sale price for the common stock on the New York Stock Exchange on June 30, 2011). For purposes of this disclosure, shares of common stock held or controlled by
executive officers and directors of the registrant and by persons who hold more than 5% of the outstanding shares of common stock have been treated as shares held by affiliates. However,
such treatment should not be construed as an admission that any such person is an “affiliate” of the registrant. The registrant has no non-voting common equity.
As of February 17, 2012, there were approximately 526,371,000 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 2012 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the Registrant's fiscal year ended December 31, 2011.
Table of Contents
PART I
ITEM 1. Business
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Mine Safety Disclosures
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
ITEM 6. Selected Consolidated Financial Data
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11. Executive Compensation
PART III
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. Principal Accountant Fees and Services
ITEM 15. Exhibits, Financial Statement Schedules
PART IV
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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 built on
simplicity, security, openness and scale. 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 well 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 access,
and mobility device security, which is designed by management 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, carrier Ethernet routing portfolio, and Ethernet
switching portfolio. Additionally, the Infrastructure segment offers a complete wireless local area network ("WLAN") solution that provides high reliability,
performance, security, and management for mobile applications. Our SLT segment offers solutions that meet a broad array of our customers' priorities, from
protecting the users, applications and data on the network itself to providing network services across a distributed infrastructure. 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 our customers to convert legacy networks that provide commoditized services into more valuable assets that
provide differentiation, value, and increased performance, reliability, and security to end-users. See Note 13, 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, 2011, we generated net revenues of $4,448.7 million and net income attributable to Juniper Networks of $425.1
million, and conducted business in more than 100 countries around the world. See Item 8 of Part II for more information on our consolidated balance sheets as
of December 31, 2011, and 2010 and our consolidated statements of operations, consolidated statements of changes in equity, and consolidated statements of
cash flows for each of the three years in the period ended December 31, 2011.
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. Our strategy is centered on innovation and customer value. Key elements of our strategy are described below.
Maintain and Extend Technology Leadership
We are recognized around the world as the innovation leader in networking. 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 for 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 and strategic acquisitions 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
We are a pure play in high-performance networking. 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 customer needs. We believe that many customers will deploy networking equipment from only a few vendors, and that the
performance, reliability, and security of our products will provide us with a competitive advantage, which is critical to be selected 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, which has
enabled us 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 products that meet the evolving needs of the marketplace, while enabling customers to reduce costs. We are committed to
investing in R&D at a level that drives our innovation agenda, enabling us to deliver highly differentiated products and outstanding value to our customers.
Enable New IP-Based Services
Our platforms enable network operators to quickly build and secure networks cost-effectively and deploy new differentiated services to drive new sources of
revenue more efficiently than legacy network products. We believe that the secure delivery of IP-based services and applications, including web hosting,
outsourced Internet and intranet services, outsourced enterprise applications, and voice-over IP, will continue to grow and benefit from cost efficiencies
enabled by our high-performance network infrastructure offerings. By enabling these new IP-based services, we have significantly broadened our service
provider business over the last several years while also significantly expanding our presence in the enterprise market.
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 all of their
requirements. Therefore, we believe that it is important that we attract and build relationships with other industry leaders with diverse technologies and
services that extend the value of the network to our customers. These partnerships ensure that our customers 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 an open network infrastructure that invites partner innovation 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. We support most major service
provider networks in the world and our high-performance network infrastructure offerings are designed and built for the performance, reliability, and security
that service providers demand. We believe our networking infrastructure offerings benefit our service provider customers by:
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Reducing capital and operational costs by running multiple services over the same network using our high density and highly reliable
platforms;
Creating new or additional revenue opportunities by enabling new services to be offered to new market segments based on our product
capabilities;
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
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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, 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 advent of datacenter "clouds" that
concentrate business applications in large, IP network connected facilities, and growth in mobile traffic as a result of the increase in mobile device usage
including notebooks, netbooks, smartphones, and tablets.
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. 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. In addition, our solutions:
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Assist in the consolidation and delivery of existing services and applications;
Accelerate the deployment of new services and applications;
Offer integrated security to assist in the protection and recovery of services and applications; and
Offer 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. High-performance enterprises
require networks that are global, distributed, and always available. Network equipment vendors serving these enterprises need to demonstrate performance,
reliability, and security 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.
Customers with Ten Percent of Net Revenues or Greater
No single customer accounted for more than 10% of the Company's total net revenues for 2011. Verizon Communications, Inc. accounted for greater than
10% of our total net revenues in 2010. AT&T, Inc., accounted for greater than 10% of our total net revenues in 2009.
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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 well 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
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T Series, 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
Junos OS to enable consistent, continuous, reliable, and predictable service delivery.
PTX Series: Our PTX Series is a large capacity (8 and 16 tbps) MPLS-optimized packet transport switch for the largest core networks,
especially of content service providers and Tier 1 service providers, with high throughout of packet traffic. MPLS is the technology for building
scalable and flexible cores. The PTX Series is a purpose built packet transport platform with a new generation of ASIC technololgy, the Express
chipset, which is a lower power, high speed chipset that enables service providers to reduce cost. We expect to begin shipping our PTX Series
switches toward the end of the first quarter of 2012.
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 TM software, 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 our Junos Trio chipset with “3D Scaling”
technology, which functions as an Universal Edge platform capable of supporting all types of business, mobile, and residential services
optimized for Ethernet and addresses a wide range of deployments architectures, port densities, and interfaces for both service provider and
enterprise environments.
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 installation and management of business applications across their networks and enhance network
operations without compromising performance.
QFabric Products: The Juniper Networks QFabric family of products offers a revolutionary approach that delivers quantum leap improvements
in data center performance, operating costs, and business agility for enterprises, high-performance computing systems, and large-scale cloud
providers. The QFabric product family implements a single-tier network in the data center, enabling exponential improvements in speed, scale
and efficiency by removing
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legacy barriers and improving business agility.
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WLAN Products: The WLAN product family is an important component in our campus strategy and is critical to Juniper’s differentiation of
delivering end-to-end wired and wireless switching infrastructure. The WLAN product family provides the highest levels of reliability,
performance, security, and management for today's most demanding mobile applications.
SLT Products
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Services Gateway, Integrated Firewall, and VPN Solutions: Our SRX Series of dynamic services gateways, running our Junos software,
provides firewall/VPN performance and scalability and combines routing, switching, and security functionality. The series is designed to meet
network and security requirements for data center consolidation, rapid managed services deployments, and aggregation of security services. 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 product series, which combines LAN/
WAN routing capabilities with unified threat management features such as antivirus, 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 enterprises, carrier
networks, and data centers.
Secure Access Appliances: Our Junos Pulse, Junos Pulse Mobile Security Suite, and SA Series SSL VPN appliances, designed for use in
companies of all sizes, are used to provide secure access to corporate resources for remote and mobile users from any web-enabled device,
regardless of location.
IDP Series Appliances: Our IDP Series appliances utilize advanced intrusion detection methods to increase the detection rate of and prevent
network attacks, as well as 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.
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.
Platform Strategy
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 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. The Junos Platform includes:
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Junos OS - 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 capabilities. 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
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allows network administrators more time to innovate and deliver new revenue-generating applications, helping to advance the economics of high-performance
networking.
The security and stability of Junos 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.
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Junos Space - Our Junos Space network management platform offers an open, Service-Oriented Architecture-based ("SOA") platform for
creating organic and third party network management applications to drive network innovation. Junos Space includes applications for network
infrastructure management and automation that help customers reduce operational cost and complexity and scale services. These include
Network Activate, Ethernet Design, Route Insight, Security Design, Virtual Control, Service Now and Service Insight.
Junos Pulse - Junos Pulse is a dynamic, integrated network client that delivers unified location-aware, identity-enabled network security,
connectivity, access, and acceleration. It simplifies mobility and streamlines fast network and application access regardless of location, while
supporting select third-party application development and integration.
Major Product Development Projects
During 2011, we introduced our network architecture and fabric technology for the data center, QFabric, that enables customers to scale their network faster
and achieve significant improvement in performance, and released the three core components of QFabric-the Node, Interconnect and Director. We unveiled
Converged Supercore solution, the PTX Series, an integrated packet transport system that enables service and content providers to accommodate new levels of
peak bandwidth demand. We expect to begin shipping our PTX Series switches toward the end of the first quarter of 2012. We also released the T4000 Core
Router, a multi-chassis capable system that delivers 4Tbps of traffic in a single half rack routing node. Our software is a key differentiator that drives
customer adoption of our solutions. We introduced our MobileNext software, releasing the GGSN and P Gateway and S Gateway for mobile operators. We
also announced Junos Pulse Mobile Security Suite support on Android devices, Apple iOS devices, the vGW Virtual Gateway virtualized security solution for
private and public clouds and the integration of vGW with our SRX platform, as well as the Security Design application on Junos Space platform for
developing and deploying network applications. Additionally, we launched Junosphere, a cloud offering that allows network operators to create and run
networks on-demand, and delivered an OpenFlow application built on the Junos Software Developer Kit to expand the available toolset for enhancing
network flexibility and programmability.
Customer Service
In addition to our Infrastructure and SLT products, we offer support, professional, 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 support, professional, and educational services to ensure these services are locally delivered.
As of December 31, 2011, we employed 1,289 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, 2011, we employed 296 people in worldwide 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 subcontracted the majority of our manufacturing activity with Celestica Incorporated, Flextronics International LTD, Plexus Corporation, and
Accton Technology. Our manufacturing is primarily conducted through contract manufacturers in the United States, China, Malaysia, Mexico, and Taiwan.
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Our contract manufacturers in all locations are responsible for all phases of manufacturing from prototypes to full production and assist with 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:
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We can quickly deliver products to customers with turnkey manufacturing and drop-shipment capabilities;
We gain economies of scale by leveraging our buying power with our contract manufacturers when we purchase large quantities of components;
We operate with a minimum amount of dedicated space for Manufacturing Operations; and
We can reduce our costs by reducing what would normally be fixed overhead expenses.
Our contract manufacturers manufacture our products based on our rolling product demand forecasts. Each contract manufacturer 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 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.
We also purchase and hold inventory for strategic reasons and to ensure adequate component supplies. The majority of our inventory is production
components. As a result, we may incur additional holding costs and obsolescence charges, particularly in light of current macroeconomic conditions and the
resulting uncertainties in future product demand.
Our ASICs are manufactured primarily by sole or limited sources, such as International Business Machines Corporation (“IBM”), each of which is responsible
for all aspects of ASICs production using our proprietary designs.
By working collaboratively with our suppliers, we 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 other to adoption, the Electronic Industry Code of Conduct (“EICC”). The EICC outlines
standards to ensure that working conditions in the electronics industry supply chain are safe, workers are treated with respect and dignity, and manufacturing
processes are environmentally responsible.
Research and Development
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, software applications and platforms, and embedded operating systems. As of December 31, 2011, we employed 4,138 people in our
worldwide R&D organization.
We believe that strong product development capabilities are essential to our strategy of enhancing our core technology, developing additional applications,
integrating that technology, and maintaining the competitiveness and innovation of our product and service offerings. In our Infrastructure and SLT products,
we are leveraging our software ASIC and systems 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. Expenditures for
R&D were $1,026.8 million , $917.9 million , and $741.7 million in 2011, 2010, and 2009, respectively.
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Sales and Marketing
As of December 31, 2011, we employed 2,568 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, with its structure of sales professionals, system engineers, and marketing and channel teams, is generally split between service
provider and enterprise customers. Within each team, sales team members serve the following three geographic regions: (i) Americas (including United
States, Canada, Mexico, and 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.
See Note 13, 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
Our sales team engages with customers with which we have direct relationships. The terms and conditions of these arrangements are governed either by
customer purchase orders and our acknowledgment of those orders or by purchase contracts. The direct contracts with these customers set forth only general
terms of sale and do not require customers to purchase specified quantities of our products. 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 sales. We employ various channel partners,
including but not limited to:
•
•
•
A global network of strategic distribution relationships, as well as region-specific or country-specific distributors who in turn sell to local value-
added resellers who sell to end-user customers. Our 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 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 worldwide resellers referenced below, 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. Increasingly, our service provider customers also resell our products to their customers or purchase our products for
the purpose of providing managed services to their customers.
Strategic worldwide reseller relationships with Nokia Siemens Networks B.V. ("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.
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•
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.
In addition to our sales that are direct to customers or that are made entirely through channel partners, we have a “direct touch” sales team that works directly
with 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.
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 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, 2011, and 2010, our total product backlog was
approximately $301 million and $330 million, respectively. Our product backlog consists of confirmed orders for products scheduled to be shipped to
customers, generally within the next six months, and excludes orders from distributors as we recognize product revenue on sales made through distributors
upon sell-through to end-users, certain future revenue adjustments for items such as product revenue deferrals, sales return reserves, service revenue
allocations, and early payment discounts.
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 generally experiences 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, Inc. ("Cisco") has historically been the dominant player in the market. However, other companies such
as Alcatel-Lucent, Brocade Communications Systems, Inc. ("Brocade"), Extreme Networks, Inc., Hewlett Packard Company ("HP"), and Huawei
Technologies Co., Ltd. ("Huawei") are also our principal competitors.
Many of our current and potential competitors, such as Cisco, Alcatel-Lucent, HP, and Huawei 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 due to their increased size and breadth of their product portfolios. Many of our
current and potential competitors have greater name recognition and more extensive customer bases that they may leverage to compete more effectively.
Increased competition could result in price reductions, fewer customer orders, reduced gross margins, and loss of market share, negatively affecting 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 Check Point Software Technologies, F5 Networks, Inc., Palo Alto Networks, Inc., and R
iverbed Technology, Inc. These additional competitors tend to be focused on single product line solutions and, therefore, may be considered specialized
compared to our broader product line. 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 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. There continues to be consolidation in this industry,
with smaller companies being acquired by larger, established suppliers of network infrastructure products. We believe this trend is likely to continue.
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As a result, we expect to face increased competition in the future from larger companies with significantly more resources than we have. Although we believe
that our technology and the purpose-built features of our products make them unique and will enable us to compete effectively with these companies, we
cannot guarantee that we will be successful.
Environment
We are subject to regulations that have been adopted with respect to environmental matters, such as the Waste Electrical and Electronic Equipment
(“WEEE”), 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.
To date, compliance with federal, state, local, and foreign laws enacted for the protection of the environment has 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 in 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 in part 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, that we will be able to obtain the necessary intellectual property rights, or that
other parties will not contest our intellectual property rights.
As of December 31, 2011, our worldwide patent portfolio included over 1,300 patents. Patents generally have a term of twenty years from filing. As our
patent portfolio has been built over time, the remaining terms on the individual patents vary.
Employees
As of December 31, 2011, we had 9,129 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 significantly upon the continued service of our key technical, sales, and senior management personnel, none of whom are
bound by an employment agreement requiring service for any defined period of time. The loss 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 key personnel is intense, and in order to attract and retain these
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personnel, we must provide a competitive compensation package, including cash and share-based compensation. Our share-based incentive awards include
stock options, restricted stock units and performance share awards, some of which contain conditions relating to our long-term financial performance that
make the future value of those awards uncertain. If the anticipated value of such share-based incentive awards does not materialize, if our share-based
compensation otherwise ceases to be viewed as a valuable benefit, or if our total compensation package is not viewed as being competitive, our ability to
attract, retain, and motivate key personnel could be weakened. 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
Gerri Elliott
Mitchell Gaynor
Robert Muglia
Gene Zamiska
Age
Position
51
59
50
48
39
56
52
52
50
Chief Executive Officer
Chief Technical Officer and Vice Chairman of the Board
Executive Vice President of Services, Support and Operations
Executive Vice President and Chief Financial Officer
Executive Vice President and General Manager, Platform Systems Group
Executive Vice President and Chief Sales Officer
Executive Vice President, General Counsel and Secretary
Executive Vice President, Software Solutions Division
Vice President, Finance and Corporate Controller
KEVIN R. JOHNSON joined Juniper in September 2008 as Chief Executive Officer and a member of our Board of Directors. Prior to Juniper, Mr. Johnson
was at Microsoft Corporation, a worldwide provider of software, services, and solutions, where he had served as President, Platforms and Services Division
since January 2007. He had been Co-President of the Platforms and Services Division since September 2005. Prior to that role, he held the position of
Microsoft's Group Vice President, Worldwide Sales, Marketing and Services since March 2003. Before that position, Mr. Johnson had been Senior Vice
President, Microsoft Americas since February 2002 and Senior Vice President, U.S. Sales, Marketing, and Services since August 2000. Before joining
Microsoft in 1992, Mr. Johnson worked in IBM's systems integration and consulting business and started his career as a software developer. Mr. Johnson also
serves on the board of directors of Starbucks Corporation, a worldwide coffee retailer.
PRADEEP SINDHU founded Juniper 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. 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 at Xerox Corporation, Palo Alto Research Center, a technology research center. Dr.
Sindhu served as a member of the board of directors of Infinera Corporation, a provider of optical networking equipment, from September 2001 to May 2008.
MARK BAUHAUS joined Juniper in September 2007 and currently serves as Executive Vice President of Services, Support and Operations Group. Before
joining Juniper, Mr. Bauhaus established Bauhaus Productions Consulting, where he served as founder and principal until September 2007, after serving over
20 years at Sun Microsystems ("Sun") in a range of executive level assignments from December 1986 through December 2006, most recently in the position
of Senior Vice President of Service-Oriented Architecture Software. Prior to that, he was Senior Vice President, Java Web Services at Sun and Vice President
and Founder of Global Dot.Com Consulting. Mr. Bauhaus began his career as an environmental engineer for HP. Mr. Bauhaus holds a bachelor's degree in
business management and environmental systems analysis from the University of California at Davis.
ROBYN M. DENHOLM joined Juniper in August 2007 as Executive Vice President and Chief Financial Officer. Prior to joining
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Juniper, Ms. Denholm was at Sun from January 1996 to August 2007, where she served in executive assignments that included Senior Vice President of
Corporate Strategic Planning, Senior Vice President of Finance, Vice President and Corporate Controller (Chief Accounting Officer), Vice President of
Finance, Director of Service Division, and Shared Financial Services APAC and Controller, Australia/New Zealand. Prior to joining Sun, Ms. Denholm
served at Toyota Motor Corporation Australia for seven years and at Arthur Andersen & Company for five years in various finance assignments. Ms.
Denholm is a Fellow of the Institute of Chartered Accountants of Australia and holds a bachelor's degree in economics from the University of Sydney and a
master's degree in commerce from the University of New South Wales. Ms. Denholm also serves on the board of directors of Echelon Corporation, an
international control networks company.
STEFAN DYCKERHOFF joined Juniper in October 2009 and currently serves as our Executive Vice President and General Manager of the Platform Systems
Group. Prior to re-joining Juniper, Mr. Dyckerhoff was at Cisco, from May 2004 to September 2009, serving as Vice President and General Manager of the
Edge Routing Business Unit. From January 1997 to May 2004, Mr. Dyckerhoff was at Juniper serving in various engineering leadership roles. Mr.
Dyckerhoff holds a bachelor's degree in electrical engineering and computer science from Duke University and a master's degree in electrical engineering
from Stanford University.
GERRI ELLIOTT joined Juniper in July 2009 and currently serves as our Executive Vice President and Chief Sales Officer. Before joining Juniper, Ms.
Elliott was at Microsoft, where she was Corporate Vice President, Worldwide Public Sector Organization from July 2004 to December 2008. Prior to
Microsoft, Ms. Elliott spent 22 years at IBM, where she held several senior executive positions in the U.S. and internationally. Ms. Elliott holds a bachelor's
degree in international politics from New York University.
MITCHELL GAYNOR joined Juniper in February 2004 as Vice President, General Counsel, and Secretary and served as Senior Vice President, General
Counsel and Secretary from February 2008 to February 2011 and is currently our Executive Vice President, General Counsel and Secretary. Prior to joining
Juniper, Mr. Gaynor was Vice President, General Counsel, and Secretary of Portal Software, Inc. and Sybase, Inc. In private practice, he was an associate with
the law firm of Brobeck, Phleger & Harrison. Mr. Gaynor holds a law degree from University of California's Hastings College of the Law and a bachelor's
degree in history from the University of California, Berkeley.
ROBERT MUGLIA joined Juniper in October 2011 as Executive Vice President, Software Solutions Division. Before joining Juniper, Mr. Muglia was at
Microsoft from January 1988 through September 2011, where he served in various leadership positions across all of Microsoft's business groups, including
Developer, Office, Mobile Devices, Windows NT and Online Services. Most recently, Mr. Muglia served as President of Microsoft's Server and Tools
Business (STB), where he was responsible for infrastructure software, developer tools and cloud platforms. Mr. Muglia holds a bachelor's degree in computer
and communication science from the University of Michigan.
GENE ZAMISKA joined Juniper in December 2007 as Vice President of Finance and Corporate Controller and in February 2009, was appointed Chief
Accounting Officer of Juniper. Before joining Juniper, Mr. Zamiska was at HP from February 1989 through November 2007, where he served in various roles
in the finance department, most recently serving as Senior Director of Finance - Controller for HP's consulting and integration division and HP's Senior
Director of Finance - Assistant Corporate Controller. Prior to HP, Mr. Zamiska was at Arthur Andersen & Company where he served in various roles in the
audit and assurance practice. Mr. Zamiska is a Certified Public Accountant (inactive) and holds a bachelor's degree in business-accounting from the
University of Illinois, Champaign-Urbana.
Available Information
We file our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, 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 Juniper Networks, 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, 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
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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 our securities involve significant risks. The market price of our stock has historically reflected a higher multiple of 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 in the
past, 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 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 cause our quarterly results to be unpredictable include, but are not limited to: limited visibility into customer spending plans, changes in
the mix of products and services sold, changes in geographies in which our products and services are sold, changing market and economic conditions, 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, particularly in the first and
third quarters.
As a result of these risk factors, we believe that quarter-to-quarter comparisons of operating results are not necessarily a good indication of what our future
performance will be. It is likely that in some future quarters, our operating results may be below the expectations of securities analysts or investors, in which
case the price of our common stock may decline. Such a decline could occur, and has occurred in the past, even when we have met our publicly stated
revenues and/or earnings guidance.
Fluctuating economic conditions make it difficult to predict revenues for a particular period and a shortfall in revenues or increase in costs of production
may harm our operating results.
Our revenues depend significantly on general economic conditions and the demand for products in the markets in which we compete. Economic weakness,
customer financial difficulties, and constrained spending on network expansion and enterprise infrastructure have resulted in certain historical periods, and
may in the future result in decreased revenues and earnings and could make it difficult to forecast sales and operating results and could negatively affect our
ability to provide forecasts to our contract manufacturers and manage our contract manufacturer relationships and other expenses. In addition, economic
weakness, particularly in the United States and Europ e, concerns over the sovereign debt situation in certain countries in the European Union, the downgrade
by Standard and Poor's (S&P) of the U.S. long-term sovereign credit rating, as well as continued turmoil in the geopolitical environment in many parts of the
world, may continue to put pressure on global economic conditions, which could lead to reduced demand for our products and/or higher costs of production.
Continued 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 continued weakness and uncertainty in worldwide credit markets,
including the sovereign debt situation in certain countries in the European Union, 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 and medium
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, failure of our customers and markets to recover from such 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.
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A substantial majority of our net revenues depend on sales to a limited number of customers and distribution partners. Changes in the business requirements,
vendor selection, financial prospects, capital resources, and expenditures, or purchasing behavior (including product mix purchased) of our key customers
could significantly decrease sales to such customers or could lead to delays or cancellations of planned purchases of our products or services, which increases
the risk of quarterly fluctuations in our revenues and operating results. Any of these factors could adversely affect our business, financial condition, and
results of operations.
In addition, in recent years, there has been movement towards consolidation in the telecommunications industry (for example, the acquisitions of Global
Crossing and Qwest Communications and AT&T's failed acquisition of T-Mobile) and that consolidation trend has continued. If our customers or partners are
parties to consolidation transactions they may suspend or indefinitely reduce their purchases of our products or other unforeseen consequences could harm our
business, financial condition, and results of operations.
If we receive 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. In recent years, the volume of orders received late in any given fiscal quarter has
generally continued to increase but remains unpredictable. If orders for certain 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. Additionally,
we determine our operating expenses largely on the basis of anticipated revenues and a high percentage of our expenses are fixed in the short and medium
term. As a result, a failure or delay in generating or recognizing revenue could cause significant variations in our operating results and operating margin from
quarter-to-quarter.
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, particularly new 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 face intense competition that could reduce our revenues and adversely affect our business and financial results.
Competition is intense in the markets that we address. The Infrastructure market has historically been dominated by Cisco with competition coming from
other companies such as Alcatel-Lucent, Brocade, Extreme Networks, Hewlett Packard Company, and Huawei. In the SLT market, we face intense
competition from a broader group of companies such as Check Point, Cisco, F5 Networks, Palo Alto Networks, and Riverbed. In addition, a number of other
small public and private companies have products or have announced plans for new products to address the same challenges and markets that our products
address.
In addition, actual or speculated consolidation among competitors, or the acquisition of our partners and/or resellers by competitors, can increase the
competitive pressures faced by us as customers may delay spending decisions. 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.
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We expect our gross margins to vary over time, and our recent level of product gross margin may not be sustainable.
We expect our product gross margins to vary from quarter-to-quarter, and the gross margins we have recently achieved 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 we do not accurately forecast product demand, warranty related issues,
or our introduction of new products or entry into new markets with different pricing and cost structures.
We rely on value-added and other resellers, as well as distribution partners, to sell our products, and disruptions to, or our failure to effectively develop
and manage our distribution channel and the processes and procedures that support it could adversely affect our ability to generate revenues from the
sale of our products.
Our future success is highly dependent upon establishing and maintaining successful relationships with a variety of value-added and other 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 our 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, was acquired by Alcatel, a competitor of ours. As a result of the merger, Lucent became a competitor, their resale of our products declined, and we
ultimately terminated our reseller agreement with Lucent. 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 develop and maintain relationships with our
partners, fail to develop new relationships with value-added resellers and distributors in new markets, or expand the number of distributors and resellers in
existing markets, fail to manage, train or motivate existing value-added resellers and distributors effectively, or if these partners are not successful in their
sales efforts, sales of our products may decrease, and our business, financial condition, and results of operations would suffer.
In addition, we recognize a portion of our revenues based on a sell-through model using information provided by our distributors. If those distributors provide
us with inaccurate or untimely information, the amount or timing of our revenues could be adversely impacted.
Further, in order to develop and expand our distribution channel, we must continue to scale and improve our processes and procedures that support it, and
those processes and procedures may become increasingly complex and inherently difficult to manage. For example, in 2009, we entered into an OEM
agreement with IBM pursuant to which they rebrand and resell our products as part of their product portfolios. These types of 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 the interfaces between our systems and 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 ("IT") systems, the systems, and processes of third parties, and on the interfaces of
our systems with the systems of third parties. For example, our order entry system feeds information into the systems of our contract manufacturers, which
enables them to build and ship our products. If those systems fail or are interrupted, our processes may function at a diminished level or not at all. This could
negatively impact our ability to ship products or otherwise operate our business, and our financial results could be harmed. For example, although it did not
adversely affect our shipments, an earthquake in late December of 2006 disrupted our 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.
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Telecommunications companies and our other large customers generally require more onerous terms and conditions in our contracts with them. As we
seek to sell more products to such customers, we may be required to agree to terms and conditions that could 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 from us. France Telecom-Orange and
Deutsche Telekom AG have formed a company for the purpose of purchasing products from, and negotiating more favorable contractual terms with,
suppliers. As we seek to sell more products to this class of customer, we may be r equired 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, 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.
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 forecast 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 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 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.
System security risks, data protection breaches, and cyber-attacks could compromise our proprietary information, disrupt our internal operations and
harm public perception of our security products, which could cause our business and reputation to suffer and adversely affect our stock price.
In the ordinary course of business, we store sensitive data, including intellectual property, our proprietary business information and that of our customers,
suppliers and business partners on our networks. The secure maintenance of this information is critical to our operations and business strategy. Increasingly,
companies, including Juniper Networks are subject to a wide variety of attacks on their networks on an ongoing basis. Despite our security measures, Juniper
Networks' information technology and infrastructure may be vulnerable to penetration or attacks by computer programmers and hackers or breached due to
employee error, malfeasance or other disruptions. Any such breach could compromise our networks, creating system disruptions or slowdowns and exploiting
security vulnerabilities of our products, and the information stored on our networks could be accessed, publicly disclosed, lost or stolen. In addition,
sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or
manufacture, including "bugs" and other problems that could unexpectedly interfere with the operation of our networks.
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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. Because the techniques used by computer
programmers and hackers, many of whom are highly sophisticated and well-funded, to access or sabotage networks change frequently and generally are not
recognized until after they are used, we may be unable to anticipate or immediately detect these techniques. This could impede our sales, manufacturing,
distribution or other critical functions. In addition, the economic costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms,
malicious software systems and security vulnerabilities could be significant and may be difficult to anticipate or measure because the damage may differ
based on the identity and motive of the programmer or hacker, which are often difficult to identify.
Regulation of the telecommunications industry could harm our operating results and future prospects.
The traditional telecommunications industry is highly regulated, and our business and financial condition could be adversely affected by changes in
regulations relating to the Internet telecommunications industry. Currently, there are few laws or regulations that apply directly to access to or commerce on
IP networks, but future regulations could include sales taxes on products sold via the Internet and Internet service provider access charges. We could be
adversely affected by regulation of IP networks and commerce in any country where we market equipment and services to service or content providers.
Regulations governing the range of services and business models that can be offered by service providers or content providers could adversely affect those
customers' needs for products designed to enable a wide range of such services or business models. For instance, the U.S. Federal Communications
Commission has issued regulation s governing aspects of fixed broadband networks and wireless networks; these regulations might impact service provider
and content provider business models and as such, providers' needs for Internet telecommunications equipment and services. In addition, many jurisdictions
are evaluating or implementing regulations relating to cyber security, privacy and data protection, which can affect the market and requirements for
networking and security equipment.
In addition, environmental regulations relevant to electronic equipment manufacturing or operations may impact our business and financial condition
adversely. For instance, the European Union has adopted WEEE, ROHS and REACH regulations. In addition, some governments have regulations prohibiting
government entities from purchasing security products that do not meet specified indigenous certification criteria even though those criteria may be in conflict
with accepted international standards. Similar regulations are in effect or under consideration in several jurisdictions where we do business.
The adoption and implementation of such regulations could decrease demand for our products, increase the cost of building and selling our products and
impact our ability to ship products into affected areas and recognize revenue in a timely manner. Any of these impacts could have a material adverse effect on
our business, financial condition, and results of operations.
Governmental regulations affecting the import or export of products or affecting products containing encryption capabilities 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 certification, notifications, review of source code, or the escrow and governmental recovery of private encryption keys. For
example, Russia and China recently have implemented new requirements relating to products containing encryption and India has imposed special warranty
and other obligations associated with technology deemed critical. Governmental regulation of encryption or IP networking 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 import or export privileges or
adversely affect sales to government agencies or government funded projects.
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, it could cause us to lose customers and 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
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assurance that new products or enhancements will achieve widespread market acceptance.
For example, in connection with the acquisitions of Altor and Trapeze in 2010, we are now offering a virtualization security product and a WLAN product.
Additionally, in 2011, we announced our new data center product, the QFabric™ solution, our mobility solutions with our MobileNext software and our
Converged Supercore product, which converges the optical and packet layers of the network. If these or other new products do not gain market acceptance at a
sufficient rate of growth, our ability to meet future financial targets may be adversely affected. In addition, if we fail to achieve 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
our business and financial results.
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.
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; changes in the valuation of our deferred tax assets and
liabilities; expiration of, or lapses in, the R&D tax credit laws applicable to us; transfer pricing adjustments related to certain acquisitions, including the
license of acquired intangibles under our intercompany R&D cost sharing arrangement; tax effects of share-based compensation; costs related to
intercompany restructurings; or 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.
From time to time, we receive preliminary notices of deficiency or notices of proposed adjustments from the IRS claiming that we owe additional taxes, plus
interest and possible penalties. For example, we received a preliminary notice of deficiency in 2011 and one in 2009 for prior tax years based on transfer
pricing transactions related to the license of acquired intangibles under an intercompany R&D cost sharing arrangement. As a result of the preliminary notices
of deficiency received in 2011 and 2009, the incremental tax liability would be approximately $92.0 million and $807.0 million excluding interest and
penalties, respectively. We believe the IRS' position with regard to these matters is inconsistent with applicable tax laws, judicial precedent and existing
Treasury regulations, and that our previously reported income tax provisions for the years in question are appropriate. However, there can be no assurance that
these matters will be resolved in our favor. Regardless of whether these matters are resolved in our favor, the final resolution of these matters could be
expensive and time-consuming to defend and/or settle. While we believe we have provided adequately for these matters, there is a possibility that an adverse
outcome of these matters individually or in the aggregate could have a material effect on our results of operations and financial condition.
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 and the manufacturers order components and plan capacity based on these forecasts. 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, as we did in the third quarter
of 2010 with respect to certain components, 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
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result in delays in shipments and deferral or loss of revenues.
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, these 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 fail to effectively manage our contract manufacturer relationships or if one or more of them experiences 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.
Upgrades to key internal systems and processes, and problems with the design or implementation of these systems and processes could interfere with, and
therefore harm, our business and operations.
We previously 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. In the first quarter of 2010,
we implemented a major upgrade of our CRM system. We have invested, and will continue to invest, significant capital and human resources in the design
and implementation of these systems and processes. 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.
We are a party to lawsuits, proceedings, and other disputes, 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. We have been
served with lawsuits related to employment matters, commercial transactions and patent infringement as well as securities laws, a description of the securities
lawsuits can be found in Note 15, Commitments and Contingencies, in Notes to Consolidated Financial Statements 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 in the future be brought against us, our
officers, and our directors will be resolved favorably or that tentative settlements will become final. Regardless of whether they are resolved, these lawsuits
are, and any future lawsuits or threatened legal proceedings to which we, our officers, or our directors may become a party will likely be, expensive and time-
consuming to defend, settle, and/or resolve. Legal proceedings, threatened legal proceedings or investigations, regardless of their ultimate outcome, could
harm our reputation. 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.
We are a party to litigation and claims regarding intellectual property rights, resolution of which may be time-consuming and expensive, as well as
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, partners, or customers, alleging that our products or services infringe proprietary rights. 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
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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 and adjust our business in response to fluctuating market opportunities and conditions. In periods of market expansion, we have
increased investment in our business by, for example, increasing headcount and increasing our investment in R&D, sales and marketing, and other parts of our
business as we have in the 2010 fiscal year and in the first quarter of 2011. 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 our ability to develop and deliver products and services as planned or impair our ability to realize our current or future business
objectives.
We are subject to risks arising from our international operations, which may adversely affect our business, financial condition, and results of 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 outside of the United States. In addition, a
portion of our R&D and our general and administrative operations are conducted outside the United States. In some countries, we may experience reduced
intellectual property protection.
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, including critical infrastructure protection, 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 and social unrest and difficulties in staffing and managing
international operations. For example, revenue attributable to our customers in Japan generally accounts for five percent to eight percent of our revenue.
Although we did not experience a significant negative impact to our revenue during fiscal year 2011, the March 2011 earthquake and tsunami in Japan may
continue to adversely and unpredictably affect our customers and spending patterns in Japan in the short term. 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. There can be no assurance that our employees, contractors, and agents will not take actions in violation of our policies and
procedures, which are designed to ensure compliance with U.S. and foreign laws and policies. 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, financial condition and results of operations.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.
Because a majority of our business is conducted outside the United States, we face exposure to adverse movements in non-U.S. currency exchange rates.
These exposures may change over time as business practices evolve and could have a material adverse impact on our financial condition and results of
operations.
The majority of our revenues and expenses are transacted in U.S. Dollars. We also have some transactions that are denominated
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in foreign currencies, primarily the British Pound, 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
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.
Integration of 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. For example, in December 2010 we acquired Altor and Trapeze, in
July 2010 we acquired SMobile, and in April 2010 we acquired Ankeena. 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 assu rance 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 and we may not realize the
anticipated revenues or other benefits associated with our acquisitions if we fail to successfully manage and operate the acquired business. 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.
Acquisitions may also require us to issue common stock or assume equity awards that dilute 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.
If we fail to adequately evolve our financial and managerial control and reporting systems and processes, our ability to manage and grow our business
will be negatively affected.
Our ability to successfully offer our products and implement our business plan in a rapidly evolving market depends upon an effective planning and
management process. We will need to continue to improve our financial and managerial control and our reporting systems and procedures in order to manage
our business effectively in the future. If we fail to continue to implement improved systems and processes, our ability to manage our business, financial
condition, and results of operations may be negatively affected.
Our 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. As of December 31, 2011, our goodwill was $3,928.1 million. 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 forecasted future cash flows. In recent years, economic weakness contributed to extreme price and volume fluctuations in
global stock markets that reduced the market price of many technology company stocks,
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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.
Our products are highly technical and if they contain undetected errors or do not meet customer quality expectations, 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, malware, 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,
malware 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 reputation, penalties, 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, malware, 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. 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. Moreover, if our products fail to satisfy our customers' quality expectations for whatever reason, the perception of and the demand for our
products could be adversely affected.
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 must 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 could negatively affect our business, financial condition, and results of operations. In addition, if our products do not interoperate
with those of our customers’ networks, demand for our products could be adversely affected or orders for our products could be cancelled. This could hurt our
operating results, damage our reputation, and seriously harm our business and prospects.
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. The failure to comply with the terms of any license may result in our inability to continue to use such license. 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, if possible, to develop substitute technology or obtain substitute technology of lower quality or performance standards or at a
greater cost, any of which could delay or prevent product shipment and harm our business, financial condition, and results of operations.
We sell our products to customers that use those products to build networks and IP infrastructure, and if the demand for network and IP systems does not
continue to grow, then our business, financial condition, and results of operations could be adversely affected.
A substantial portion of our business and revenues depends on the growth of secure IP infrastructure and on the deployment of our products by customers that
depend on the continued growth of IP services. As a result of changes in the economy 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
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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 delays 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.
While we believe that we currently have adequate internal control over financial reporting, we are exposed to risks from legislation requiring companies
to evaluate those internal controls.
Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our independent auditors to attest to, the effectiveness of our
internal control over financial reporting. We have an ongoing program to perform the system and process evaluation and testing necessary to comply with
these requirements. We have and will continue to incur significant expenses and devote management resources to Section 404 compliance on an ongoing
basis. In the event that our Chief Executive Officer, Chief Financial Officer, or independent registered public accounting firm determine in the future that, our
internal controls over financial reporting are not effective as defined under Section 404, investor perceptions may be adversely affected if our financial
statements are not reliable and could cause a decline in the market price of our stock and otherwise negatively affect our liquidity and financial condition.
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, 2011, we had $2,910.4 million in cash and cash equivalents and $1,382.0 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 at many financial institutions. Our future investment income may fall short of expectations due to changes in interest rates or if the decline
in fair value of our publicly traded debt or equity investments is judged to be other-than-temporary. These market risks associated with our investment
portfolio may have a negative adverse effect on our liquidity, financial condition, and results of operations.
We may be unable to generate the cash flow to service our debt obligations, including the Senior Notes.
In March 2011, we issued senior unsecured notes for an aggregate principle amount of $1.0 billion. We may not be able to generate sufficient cash flow to
enable us to service our indebtedness, including the notes, or to make anticipated capital expenditures. Our ability to pay our expenses and satisfy our debt
obligations, refinance our debt obligations and fund planned capital expenditures will depend on our future performance, which will be affected by general
economic, financial, competitive, legislative, regulatory and other factors beyond our control. Based upon current levels of operations, we believe cash flow
from operations and available cash will be adequate for the foreseeable future to meet our anticipated requirements for working capital, capital expenditures
and scheduled payments of principal and interest on our indebtedness, including the senior notes. However, if we are unable to generate sufficient cash flow
from operations or to borrow sufficient funds in the future to service our debt, we may be required to sell assets, reduce capital expenditures, refinance all or a
portion of our existing debt (including the senior notes) or obtain additional financing. There is no assurance that we will be able to refinance our debt, sell
assets or borrow more money on terms acceptable to us, or at all.
The indenture that governs the senior notes also contains various covenants that limit our ability and the ability of our subsidiaries to, among other things:
•
•
•
incur liens;
incur sale and leaseback transactions; and
consolidate or merge with or into, or sell substantially all of our assets to, another person
As a result of these covenants, we are limited in the manner in which we can conduct our business, and we may be unable to engage in favorable business
activities or finance future operations or capital needs. Accordingly, these restrictions may limit our ability to successfully operate our business. A failure to
comply with these restrictions could lead to an event of default, which could result in an acceleration of the indebtedness. Our future operating results may not
be sufficient to enable compliance with these covenants to remedy any such default. In addition, in the event of an acceleration, we may not have or
25
Table of Contents
be able to obtain sufficient funds to make any accelerated payments, including those under the senior notes.
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 2.5 million square feet worldwide, with approximately 63 percent in North America. Our corporate headquarters is located in
Sunnyvale, California, and consists of buildings totaling approximately 1.1 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 January
2013 and November 2022. We also own approximately 80 acres of land adjacent to our leased corporate headquarters location. To support our growth in a
cost-effective manner, we have begun a phased office campus build-out on land we own adjacent to our current headquarters in Sunnyvale, California. This
will result in net facilities-related capital expenditures between $240 million and $260 million over the next 7 quarters. Additionally, we lease an
approximately 0.2 million square foot facility in Westford, Massachusetts, under leases that expire in March 2018.
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 leases expire at various times through November 30, 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 15, 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 13, 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.
ITEM 3.
Legal Proceedings
The information set forth under the heading “Legal Proceedings” in Note 15, 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.
Mine Safety Disclosures
Not Applicable.
26
Table of Contents
PART II
ITEM 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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 the NYSE for the
years ended December 31, 2011 and 2010, respectively:
NYSE
First quarter
Second quarter
Third quarter
Fourth quarter
Holders
2011
2010
High
Low
High
Low
$
$
$
$
45.01
42.27
33.11
25.61
$
$
$
$
34.20 $
29.03 $
17.21 $
16.67 $
31.32
32.16
31.48
37.95
$
$
$
$
24.06
22.74
22.25
30.06
At February 17, 2012, there were approximately 1,020 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.
Unregistered Securities Sold in Fiscal 2011
None.
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, 2011.
Period
Total Number of
Shares Purchased
Average Price Paid per
Share
Total Number of Shares Purchased
as Part of Publicly Announced
Plans or Programs (1)
Maximum Dollar Value of Shares that May Yet Be
Purchased Under the Plans or Programs (1)
October 1 - October 31,
2011
November 1 -
November 30, 2011
December 1 -
December 31, 2011
Total
—
—
—
—
$
$
—
—
—
—
$
—
—
—
—
213,834,490
213,834,490
213,834,490
(1) In March 2008, the Company's Board of Directors (the “Board”) approved a stock repurchase program (the “2008 Stock Repurchase Program”), which
authorized the Company to purchase up to $1.0 billion of the Company's common stock. In February 2010, the Board approved an additional stock
repurchase program (the “2010 Stock Repurchase Program”), which authorized the Company to purchase up to an additional $1.0 billion of the
Company's common stock. As of December 31, 2011, the 2008 Stock Repurchase Program had no remaining authorized funds available for future stock
repurchases. Future share repurchases under the Company's 2010 Stock Repurchase Program will be subject to a review of the circumstances in place at
that time and will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements.
This program may be discontinued at any time.
27
Table of Contents
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, 2006, in each of
Juniper Networks' common stock, the Standard & Poor's 500 Stock Index (“S&P 500”), the NYSE Dow Jones Industrial Average (“DJI”), and the NASDAQ
Telecommunications Index (“IXUT”). The graph shall not be deemed to be incorporated by reference into other SEC filings; nor deemed to be soliciting
material or filed with the Commission or subject to Regulation 14A or 14C or subject to Section 18 of the Exchange Act. The comparisons in the graph below
are based upon historical data and are not indicative of, or intended to forecast, future performance of our common stock.
Stock Performance Graph
JNPR
S&P 500
DJI
IXUT
2006
2007
2008
2009
2010
2011
$
100.00
$
175.29
$
92.45
$
140.81
$
194.93
$
As of December 31,
100.00
100.00
100.00
103.53
106.43
109.17
63.69
70.42
62.25
78.62
83.67
92.27
88.67
92.89
95.89
107.76
88.67
98.03
83.79
28
Table of Contents
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, 2011, 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
Net revenues
Cost of revenues
Gross margin
Operating expenses
Operating income
Other income and expense, net
Income before income taxes and noncontrolling interest
Provision for income taxes
Consolidated net income
Years Ended December 31,
2011(a)
2010(b)
2009(c)
2008(d)
2007(e)
(In millions, except per share data)
$ 4,448.7 $ 4,093.3 $ 3,315.9 $ 3,572.4 $ 2,836.1
1,580.1
1,351.5
1,132.7
1,136.9
910.3
2,868.6
2,741.8
2,183.2
2,435.5
1,925.8
2,250.1
1,974.2
1,872.5
1,740.5
1,518.7
618.5
(46.8)
571.7
767.6
310.7
695.0
10.6
1.4
33.9
778.2
312.1
728.9
407.1
103.5
510.6
(146.7)
(158.8)
(196.8)
(217.2)
(149.8)
425.0
619.4
115.2
511.7
360.8
Adjust for net (income) loss attributable to noncontrolling interest
0.1
(1.0)
1.8
—
—
Net income attributable to Juniper Networks
425.1
618.4
117.0
511.7
360.8
Net income per share attributable to Juniper Networks common stockholders:
Basic
Diluted
Shares used in computing net income per share:
Basic
Diluted
$
$
0.80 $
1.18 $
0.22 $
0.96 $
0.79 $
1.15 $
0.22 $
0.93 $
0.67
0.62
529.8
541.4
522.4
538.8
523.6
534.0
530.3
551.4
537.8
579.1
(a)
(b)
(c)
(d)
(e)
Includes the following significant pre-tax items: stock-based compensation of $222.2 million, restructuring and other charges of $30.6 million,
acquisition-related charges of $9.6 million, interest expense on debt of $37.7 million, and a net loss on equity investments of $0.3 million.
Includes the following significant pre-tax items: stock-based compensation of $182.0 million, restructuring charges of $10.8 million, acquisition-related
charges of $6.3 million, and a gain on equity investments of $8.7 million. In addition, includes a non-recurring income tax benefit of $54.1 million
recorded in the first quarter from a change in estimate of unrecognized tax benefits related to share-based compensation. The change resulted from the
decision in the first quarter of 2010 of the U.S. Court of Appeals for the Ninth Circuit in Xilinx Inc. v. Commissioner.
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 arrangements for certain U.S. multinational companies due to a
federal appellate court ruling, and $4.6 million related to an investigation by the India tax authorities.
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.
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 Financial Accounting Standards No. 109 Accounting for Income Taxes and Financial Interpretation
No., Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, which were subsequently codified into Accounting
Standard Codification Topic 740 - Income Taxes.
29
Table of Contents
Consolidated Balance Sheet Data
2011
2010
As of December 31,
2009
(In millions)
2008
2007
Cash, cash equivalents, and investments
$
4,292.4 $
2,821.6 $
2,658.7 $
2,293.4 $
Working capital
Goodwill
Total assets
Long-term debt
Total long-term liabilities
Total Juniper Networks stockholders' equity
2,973.0
3,928.1
9,983.8
999.0
428.4
7,089.2
1,742.4
3,927.8
8,467.9
—
387.1
6,608.2
1,503.2
3,658.6
7,590.3
—
389.7
5,822.1
1,759.6
3,658.6
7,187.3
—
229.3
5,901.4
2,015.8
1,175.3
3,658.6
6,885.4
—
151.7
5,353.9
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. ("we," "us," or the “Company”) that are based
on our current expectations, estimates, forecasts, and projections about our business, our results of operations, 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 our 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 share-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. For
further information about our critical accounting policies and estimates, see Note 2, Summary of Significant Accounting Policies, in Notes to Consolidated
Financial Statements in Item 1 of Part I of this Annual Report on Form 10-K, and our “Critical Accounting Policies and Estimates” section included in this
“Management's Discussion and Analysis of Financial Condition and Results of Operations.” 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 business
and market environment. 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.
30
Table of Contents
Business and Market Environment
At Juniper Networks, we focus on architecting the new network. We design, develop, and sell products and services that together provide our customers with
a high-performance network infrastructure built on simplicity, security, openness, and scale. We serve the high-performance networking requirements of
global service providers, enterprises, governments, and research and public sector organizations that view the network as critical to their success. Our broad
product portfolio spans routing, switching, security, application acceleration, identity policy and control, and network management to provide customers high
performance, greater choice and flexibility while reducing overall total cost of ownership.
We do business in three geographic regions: Americas, Europe, Middle East and Africa (“EMEA”), and Asia Pacific (“APAC”), and 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, as well as a complete wireless local area network ("WLAN") solution that provides high reliability, performance, security, and management for mobile
applications. Our SLT segment offers solutions that meet a broad array of our customers' priorities, from protecting the network itself and data on the
network, to maximizing existing bandwidth and acceleration of applications across a distributed network. Both segments offer worldwide services, including
technical support under maintenance contracts and professional services, as well as educational and training programs to our customers.
Over the past two years we have aligned our organization around a common vision for the new network. Together, our high-performance product and service
offerings help our customers to convert legacy networks that provide commoditized services into more valuable assets that provide differentiation, value, and
increased performance, reliability, and security to end-users. We remain dedicated to uncovering new ideas and innovations that will serve the exponential
demands of the networked world and we will continue to build solutions that center on simplification, automation, and open innovation.
During 2011, we continued to experience a challenging macroeconomic environment. The effect of the increased macro volatility escalated especially over
the second half of the year due to sovereign debt concerns in Europe as well as slow down of the economies in APAC and in the Americas. A number of our
largest U.S. customers, including Tier 1 service providers and financial service firms, reduced their spend toward the end of the year. Additionally, our
customers held off their core routing purchases in anticipation of the T4000 Series launch as we entered into a new product cycle. Despite the impact from the
near-term challenges, our revenue grew in 2011. The investments we have made in R&D are delivering on a wave of new products, from our new offerings in
the data center, QFabric, to enterprise mobility and to our Converged Supercore routing technology. The three core components of QFabric-the Node,
Interconnect and Director were released; the next wave of MobileNext features including the S Gateway for mobile operators were announced during the
year; our Converged Supercore solution, PTX Series switches, are expected to begin shipment in the first quarter of 2012; and the T4000 Core Router
commenced shipment in the fourth quarter of 2011. In addition, we have put the right organization structure in place to effectively drive our innovative
portfolio and support our customers' next-generation network requirements.
In the coming year, we will remain focused on balancing the longer-term needs of the business while remaining agile and prudent with our spending in the
short term. We believe the underlying fundamentals of our business remain healthy and we are focused on executing our strategy to address the market trends
of mobile Internet and cloud computing. We believe our strategy aligns well with the driving forces of the Network. We believe innovation will drive long-
term value creation in the networking industry, as customers forgo the complexity and unnecessary costs of old architectures and embrace open systems that
can scale across the multiple dimensions of network growth. With our strategy, our innovation pipeline, and the deeper penetration in both service provider
and enterprise markets, we plan to navigate the challenging near-term environment in 2012 based on the following five operating principles:
•
•
•
•
•
Assume continued uncertainty in the near-term macro environment;
Grow faster than the markets we serve by focusing on new product introductions to accelerate growth as we exit 2012;
Maintain investments that deliver innovation and our product roadmap;
Focus on prudent cost management; and
Generate good cash flows to support our strategic needs and maintain a strong balance sheet.
31
Table of Contents
Financial Results and Key Performance Metrics Overview
The following table provides an overview of our key financial metrics for the years ended December 31, 2011, 2010 and 2009 (in millions, except per share
amounts and percentages):
32
Table of Contents
Net revenues
Gross margin
Percentage of 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 Networks common stockholders:
Basic
Diluted
Operating cash flows
Deferred revenue
Days sales outstanding ("DSO")
Book-to-bill
Years Ended December 31,
Years Ended December 31,
2011
2010
$ Change %Change
2010
2009
$ Change %Change
$ 4,448.7
$ 4,093.3
$ 355.4
9%
$ 4,093.3
$ 3,315.9
$ 777.4
23%
$ 2,868.6
$ 2,741.7
$ 126.8
5%
$ 2,741.7
$ 2,183.2
$ 558.5
26%
64.5%
67.0%
67.0%
65.8%
$
618.5
$
767.6
$ (149.1)
(19)% $
767.6
$
310.7
$ 456.9
147%
13.9%
18.8%
18.8%
9.4%
$
425.1
$
618.4
$ (193.3)
(31)% $
618.4
$
117.0
$ 501.4
429%
9.6%
15.1%
15.1%
3.5%
$
$
$
$
0.80
0.79
$
$
1.18
1.15
$ (0.38)
(32)% $
$ (0.36)
(31)% $
1.18
1.15
$
$
0.22
0.22
$
$
0.96
0.93
436%
423%
986.7
967.0
$
$
812.3
884.4
46
1
45
>1
$ 174.4
21% $
812.3
$
82.6
1
9%
2%
$
884.4
45
>1
$
$
796.1
753.6
$
16.2
$ 130.8
44
>1
1
2%
17%
2%
•
•
•
•
•
•
Net Revenues: Our net revenue increased across all three geographic regions and in both service provider and enterprise markets for year ended
December 31, 2011, compared to the prior year. These increases were primarily driven by increases in revenue from routing and switching products
as well as higher service revenue across both the Infrastructure and SLT segments, partially offset by a slight decrease in our SLT product revenue.
Gross Margin: Gross margin as a percentage of net revenues decreased for year ended December 31, 2011 , compared to the prior year, primarily
due to lower product and service gross margin percentages and a higher proportion of service revenue for which gross margin is generally lower
than product margin. Product gross margin as a percentage of product revenue declined due to a shift in geographic mix, increased overhead and
increased inventory related costs. Service gross margin as a percentage of service revenue declined mainly due to the investment in resources to
support our expanded product portfolio.
Operating Income: Our operating income decreased as a percentage of revenues in the year ended December 31, 2011, compared to 2010, primarily
due to slower revenue growth relative to the increase of investments in Sales and Marketing and Research and Development ("R&D") expenses as
we continue to invest in our innovative portfolio and increase sales coverage for our new products. In addition, we recorded restructuring and other
charges of $30.6 million in the year ended December 31, 2011, primarily related to workforce reduction activities and asset impairments.
Net Income Attributable to Juniper Networks and Net Income Per Share Attributable to Juniper Networks Common Stockholders: The decrease in
net income attributable to Juniper Networks in the year ended December 31, 2011, compared to 2010, reflects the lower operating income discussed
above as well as higher interest expense of $49.5 million primarily attributable to interest on our long-term debt issued in March 2011.
Operating Cash Flows: Operating cash flows in December 31, 2011 increased compared to 2010. Operating cash flows in the prior year included a
$169.3 million litigation settlement payment.
Deferred Revenue: Total deferred revenue increased $82.6 million to $967.0 million as of December 31, 2011, compared to $884.4 million as of
December 31, 2010, due to an increase in deferred service revenue driven by product sales and renewals, slightly offset by a small decrease i n
deferred product revenue. Total deferred service revenue increased $86.1 million compared to December 31, 2010 , primarily due to an increase in
new service contracts and renewal of existing contracts. Deferred gross product revenue as of December 31, 2011 , decreased $15.4 million
compared to December 31, 2010 , primarily due to the release of approximately $62.7 million from various product commitments made as of
December 31, 2010 and delivered during 2011, partially offset by new product commitments and other deferrals.
33
Table of Contents
•
•
•
DSO : DSO as of December 31, 2011 was relatively flat compared to the prior year. DSO is calculated as the ratio of ending accounts receivable,
net of allowances, divided by average daily net sales for the preceding 90 days.
Book-to-Bill: Book-to-bill was one for the quarter ended December 31, 2011, and greater than one for the quarter ended December 31, 2010. Book-
to-bill represents the ratio of product orders booked divided by product revenues during the respective period. Product orders exclude certain future
revenue adjustments for items such as product revenue deferrals, sales return reserves, and service revenue allocations, and early payment
discounts.
Stock Repurchase Plan Activity: Under our stock repurchase program, we repurchased approximately 17.5 million shares of our common stock at
an average price of $30.93 per share for an aggregate purchase price of $541.2 million during the year ended December 31, 2011 .
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 2, 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. Revenue is recognized when all of the following criteria have been met: (1) persuasive evidence of an arrangement exists, (2)
delivery has occurred, (3) sales price is fixed or determinable, and (4) collectability is reasonably assured. We enter into contracts to sell our
products and services, and while some of our sales agreements contain standard terms and conditions, there are agreements that contain multiple
elements or non-standard terms and conditions. As a result, significant contract interpretation may be required to determine the appropriate
accounting, including whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for
revenue recognition purposes, and, if so, how the price should be allocated among the elements and when to recognize revenue for each element.
Changes in the allocation of the sales price between elements may impact the timing of revenue recognition but will not change the total revenue
recognized on the contract.
Under our revenue recognition policies, we allocate revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on
our vendor-specific objective evidence (“VSOE”) if available, or estimated selling price (“ESP”) if neither VSOE nor Third Party Evidence ("TPE") is
available. We establish VSOE of selling price using the price charged for a deliverable when sold separately. ESP is established considering internal factors
such as margin objectives, pricing practices and controls, customer segment pricing strategies and product life cycle. Consideration is also given to market
conditions such as industry pricing strategies and technology life cycles. When determining ESP, we apply management judgment to establish margin
objectives and pricing strategies and to evaluate market conditions and product life cycles. We do not use TPE as we do not consider our products to be
similar or interchangeable to our competitors' products in standalone sales to similarly situated customers. Revenue from maintenance service contracts is
deferred and recognized ratably over the contractual support period, which is generally one to three years. We apply ESP to the majority of our product
revenue and VSOE to our service revenue in 2011 and 2010.
•
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
produce our products using design specifications, quality assurance programs, and standards that we establish, and they procure components and
manufacture our products based on our demand forecasts. These forecasts are our estimates of future demand for our products, based upon
historical trends and 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. Significant judgment is used
in establishing our forecasts of future demand, inventory carrying costs, and obsolete material exposures. If the actual component usage and product
demand are significantly lower than forecast, which may be caused by factors outside of our control, we may incur charges for excess
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components, which 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. As of December 31, 2011 and 2010, our contract manufacturer
liabilities were $14.8 million and $22.7 million , respectively.
•
•
Warranty Reserves. 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 use judgment and estimates when determining warranty costs as part of our cost of sales based on
associated material costs, labor costs for trouble-shooting and repair, 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, if actual product failure rates, use of materials, or service delivery costs differ from estimates,
additional warranty costs may be incurred, which could reduce gross margin. As of December 31, 2011 and 2010, our warranty reserves were $28.3
million and $35.9 million, respectively.
Goodwill and Other Long-Lived Assets. We make significant estimates, assumptions, and judgments when valuing goodwill and other intangible
assets in connection with the initial purchase price allocation of an acquired entity, as well as when evaluating impairment of goodwill and other
intangible assets on an ongoing basis. These estimates are based upon a number of factors, including historical experience, market conditions, and
information obtained from the management of the acquired company. Critical estimates in valuing certain intangible assets include, but are not
limited to, historical and projected customer retention rates, anticipated growth in revenue from the acquired customer and product base, and the
expected use of the acquired assets. These factors are also considered in determining the useful life of the acquired intangible assets. The amounts
and useful lives assigned to identified intangible assets impacts the amount and timing of future amortization expense. The value of our goodwill
and intangible assets could be impacted by future adverse changes such as, but not limited to: (a) a significant adverse change in legal factors or in
the business climate; (b) a substantial decline in our market capitalization, (c) an adverse action or assessment by a regulator; (d) unanticipated
competition; (e) loss of key personnel; (f) a more likely-than-not expectation of sale or disposal of a reporting unit or a significant portion thereof;
(g) a realignment of our resources or restructuring of our existing businesses in response to changes to industry and market conditions; (h) testing
for recoverability of a significant asset group within a reporting unit; or (i) higher discount rate used in the impairment analysis as impacted by an
increase in interest rates.
We evaluate goodwill on an annual basis as of November 1st or more frequently if we believe impairment indicators exist. Goodwill is tested for impairment
at the reporting unit level, which is one level below our operating segment 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 significant judgment based on a combination of the income and the
market approaches. Under the income approach, we estimate fair value of a reporting unit based on the present value of forecasted future cash flows that the
reporting unit is expected to generate over its remaining life. Under the market approach, we estimate fair value of our reporting units based on an analysis
that compares the value of the reporting units to values of publicly-traded companies in similar lines of business. If the fair value of the reporting unit does not
exceed the carrying value of the net assets assigned to the reporting unit, then we perform the second step of the impairment test in order to determine the
implied fair value of the reporting unit's goodwill. When the carrying value of a reporting unit's goodwill exceeds its implied fair value, we record an
impairment loss equal to the difference. Determining the fair value of a reporting unit or a indefinite-lived purchased intangible asset is highly judgmental in
nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, operating trends, risk-adjusted discount rates, future economic and market conditions and determination of
appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently
uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocated shared assets and
liabilities to determine the carrying values for each of our reporting units. As of December 31, 2011, Goodwill recorded for our SLT segment and
Infrastructure segment was $2,282.6 million and $1,645.5 million, respectively. A hypothetical decrease of 5% in the estimated fair value of our reporting
units would result in excess fair value over carrying value of approximately nil for our SLT segment to $7.3 billion for our Infrastructure segment.
We evaluate long-lived assets, such as property, plant and equipment, and purchased intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. Such events or changes in circumstances include, but are not limited to,
a significant decrease in the fair value of the
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underlying asset or asset group, a significant decrease in the benefits realized from the acquired assets, difficulty and delays in integrating the business or a
significant change in the operations of the acquired assets or use of an asset. A long-lived asset is considered impaired if its carrying amount exceeds the
estimated future undiscounted cash flows the asset or asset group is expected to generate. If a long-lived 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.
•
Share-Based Compensation. We recognize share-based compensation expense for all share-based payment awards including employee stock
options, restricted stock units (“RSUs”), performance share awards ("PSAs"), and purchases under our Employee Stock Purchase Plan ("ESPP")
based on each award's fair value on the grant date.
We utilize the Black-Scholes-Merton (“BSM”) option-pricing model in order to determine the fair value of stock options and ESPP. The BSM model requires
various highly subjective assumptions including volatility, expected award 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, and the potential effect from options that have not been exercised. We determine the fair value of
RSUs and PSAs based on the closing market price of our common stock on the grant date. In addition, we use significant judgment in estimating share-based
compensation expense for our PSAs based on the vesting criteria and only recognize expense for the portions in which annual targets have been set.
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 different assumptions are used, our share-based compensation expense
could be materially different in the future. Additionally, we are required to estimate the expected forfeiture rate based on historical experience as well as
judgment and recognize expense only for those expected-to-vest shares. If our actual forfeiture rate is materially different from our estimate, our recorded
share-based compensation expense could be different.
•
Income Taxes. We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rates may differ from the
statutory rate due to factors such as, but not limited to, foreign operations, R&D tax credits, tax audit settlements, changes in the valuation
allowance recorded against deferred tax assets, non-deductible compensation, and transfer pricing adjustments. Our effective tax rate was 25.7%,
20.4%, and 63.1% for 2011, 2010, and 2009, respectively. Significant judgment is required in evaluating our uncertain tax positions and
determining our provision for income taxes. Although we believe our reserves 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. The provision for income taxes includes the effect of reserves and any changes to the reserves that are considered
appropriate, as well as the related net interest and penalties, if applicable.
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. To the extent that we believe any amounts are not more likely than
not to be realized through the reversal of deferred tax liabilities and future income, we record a valuation allowance to reduce our 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 is 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 is 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 our
estimate of whether, and the extent to which, additional taxes will be due.
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 determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with
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a corresponding effect to the provision for income taxes in the period in which such determination is made.
•
Loss Contingencies. We use significant judgment and assumptions to estimate the likelihood of loss or impairment of an asset, or the incurrence of
a liability, 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. For a discussion of current litigation, please see under the heading "Legal Proceedings" in Note 15,
Commitments and Contingencies, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in Notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on
Form 10-K, for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial condition
and results of operations, which is incorporated herein by reference.
Results of Operations
The following table presents product and service net revenues (in millions, except percentages):
Years Ended December 31,
Years Ended December 31,
2011
2010
$ Change
% Change
2010
2009
$ Change
% Change
Net revenues:
Product
$
3,478.3
$
3,258.7
$
219.6
7%
$
3,258.7
$
2,568.0
$
690.7
27%
Percentage of net revenues
78.2%
79.6%
79.6%
77.4%
Service
970.4
834.6
135.8
16%
834.6
747.9
86.7
12%
Percentage of net revenues
21.8%
20.4%
20.4%
22.6%
Total net revenues
$
4,448.7
$
4,093.3
$
355.4
9%
$
4,093.3
$
3,315.9
$
777.4
23%
Our net product revenue increased in 2011 compared to 2010 primarily due to an increase in sales of our Infrastructure routing products, particularly the MX
Series routers, to service provider and enterprise customers across all regions, reflecting our competitive position and customers' demand for our edge
products. Our switching products, including EX Series, QFabric and WLAN products, increased due to strength in our EX Series products, both in data center
and campus deployments. We also recorded initial revenues from the first deployment of our QFabric solution. The increase in Infrastructure revenue was
partially offset by the decline in revenue from the M and T Series routers primarily attributable to weaker overall demand from service providers driven by
uncertain macroeconomic environment as well as an expected pause as we introduce the T4000 router. SLT product revenue also had a slight decrease in
2011, compared to 2010, primarily attributed to the decline in our high-end product lines influenced by the timing of our high-end SRX service provider
deployments and the transition from older enterprise security products to our new security product portfolio. Service revenue increased in 2011, primarily
attributable to sales of our MX Series routers and EX Series switches, primarily attributable to sales and contract renewals for our MX Series routers, EX
Series switches and High-End SRX products.
Our net product revenues increased in 2010 compared to 2009 primarily due to an increase in Infrastructure product sales to service provider and enterprise
customers across all regions, SLT product sales to enterprise customers across all regions and
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SLT product sales to service provider customers in the Americas. The increased revenue was the result of increased demand for our most recent product lines,
the MX Series routers, EX Series switches, and SRX service gateways, as well as the improved macroeconomic environment as compared to 2009.
Additionally our net service revenues increased in 2010 compared to 2009 due to an increase in sales to enterprise customers across all regions and to service
provider customers in the EMEA and APAC regions, which was primarily driven by growth in the installed base and continued strength in contract renewals
for support services.
Net Revenues by Market and Customer
The following table presents the total net revenues by market (in millions, except percentages):
Years Ended December 31,
Years Ended December 31,
Service Provider
Percentage of net revenues
Enterprise
2011
2010
$ Change
% Change
2010
2009
$ Change
% Change
$
2,833.0
$
2,631.5
$
201.5
8%
$
2,631.5
$
2,197.1
$
434.4
20%
63.7%
64.3%
64.3%
66.3%
1,615.7
1,461.8
153.9
11%
1,461.8
1,118.8
343.0
31%
Percentage of net revenues
36.3%
35.7%
35.7%
33.7%
Total
$
4,448.7
$
4,093.3
$
355.4
9%
$
4,093.3
$
3,315.9
$
777.4
23%
We sell our high-performance network products and service offerings from our Infrastructure and SLT segments to two primary markets – service provider
and enterprise. Determination of which market a particular revenue transaction relates to is based primarily upon the customer's industrial classification code,
but may also include judgmental factors such as the intended use of the product. The service provider market generally includes wireline, wireless, and cable
operators, as well as major Internet content and application providers, including those that provide social networking and search engine services. The
enterprise market generally comprises businesses; federal, state, and local governments; and research and education institutions.
Net revenue increased in 2011 attributable to the increase in sales to the service provider market across all three geographic regions, specifically in the
Americas and EMEA regions. The increase was largely attributable to customers' adoption of our Infrastructure products, including the MX Series routers, EX
Series switches and WLAN products, across all three regions, slightly offset by a decline in the SLT products in the Americas.
Net revenues from sales to the service provider market increased in absolute dollars in 2010 compared 2009, primarily due to our customers’ increased
investment in new network build-outs and purchases of additional networking capacity to support network growth.
Revenues from sales to the enterprise market also increased in 2011, compared to 2010, reflecting demand for routing and switching products including the
MX Series routers, EX Series switches, and WLAN products driven by the value proposition we offer to customers as well as our strategy of expanding
presence in the enterprise market. The increase in enterprise revenues in 2011, was experienced across all three geographic regions. Net revenues from sales
to the enterprise market increased in absolute dollars and as a percentage of total net revenues in 2010 compared to 2009, primarily due to our expanded
portfolio of products and our continued investments to expand our footprint in the enterprise market.
No customers accounted for greater than 10% of our net revenues for the year ended December 31, 2011. Verizon Communications, Inc., accounted for 10.6%
of our net revenues for the year ended December 31, 2010. AT&T, Inc., accounted for 10.4% of our net revenues for the year ended December 31, 2009.
Net Revenues by Geographic Region
The following table presents the total net revenues by geographic region (in millions, except percentages):
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Americas:
United States
Other
Total Americas
Percentage of net revenues
Years Ended December 31,
Years Ended December 31,
2011
2010
$ Change
% Change
2010
2009
$ Change
% Change
$
2,015.8
$
1,890.1
$
222.2
2,238.0
205.5
2,095.6
50.3%
51.2%
125.7
16.7
142.4
7%
8%
7%
$
1,890.1
$
1,515.1
$
205.5
2,095.6
172.8
1,687.9
51.2%
50.9%
375.0
32.7
407.7
25%
19%
24%
Europe, Middle East, and Africa
1,339.8
1,189.3
150.5
13%
1,189.3
953.2
236.1
25%
Percentage of net revenues
Asia Pacific
Percentage of net revenues
Total
30.1%
29.1%
870.9
808.4
62.5
19.6%
19.7%
$
4,448.7
$
4,093.3
$
355.4
8%
9%
29.1%
28.7%
808.4
674.8
133.6
20%
19.7%
20.4%
$
4,093.3
$
3,315.9
$
777.4
23%
Net revenues in the Americas increased in absolute dollars during 2011, compared to 2010, primarily due to increased sales in the United States attributable to
the demand for our routing and switching products and services from enterprise and service provider customers. Net revenues in the Americas decreased as a
percentage of total revenue from 2010 to 2011, primarily due to the relative strength in EMEA.
Net revenues in the Americas region increased in absolute dollars and as a percentage of total net revenues in 2010 compared to 2009, primarily due to
increased demand in the United States. In the United States, net revenues increased in absolute dollars and increased as a percentage of total net revenues, in
2010 compared to 2009, due to the relative strength of the enterprise and service provider markets in the United States.
Net revenues in EMEA increased, in absolute dollars and as a percentage of total net revenues, in 2011, compared to 2010, driven by service provider and
enterprise demand for our routing and switching products and related services, in both service provider and enterprise markets. The increases were largely
attributable to Sweden, Eastern Europe, and the Netherlands. In addition, we initiated the first revenue from a top service provider in Eastern Europe spanning
a broad range of our product portfolio.
Net revenues in EMEA increased in absolute dollars and as a percentage of total net revenues in 2010 compared to 2009, primarily due to increased demand
in Russia, Germany, and the United Kingdom. This increase was largely driven by product sales to both the enterprise and service provider markets.
Net revenues in APAC increased in 2011, compared to 2010, due to the increase in revenues from our routing, switching, and SLT products and services, in
both service provider and enterprise markets. Revenue increased in Southeast Asia and Australia, partially offset by continued weakness in Japan and push out
of some demand in China. Net revenues as a percentage of total revenues remain relatively flat in 2011 compared to 2010.
Net revenues in APAC increased in absolute dollars in 2010 compared to 2009, primarily due to increased demand in Japan, China, and Australia. This
increase was primarily driven by product sales to enterprise customers and service sales to service provider customers.
Gross Margins
The following table presents gross margins (in millions, except percentages):
Gross margin:
Product gross margin
Percentage of product revenues
Service gross margin
Percentage of service revenues
Total gross margin
Percentage of net revenues
Years Ended December 31,
Years Ended December 31,
2011
2010
$ Change
% Change
2010
2009
$ Change
% Change
$
2,323.0
$
2,257.8
$
65.2
3%
$
2,257.8
$
1,726.3
$
531.5
31%
66.8%
69.3%
69.3%
67.2%
545.6
484.0
61.6
13%
484.0
456.9
27.1
6%
56.2%
58.0%
58.0%
61.1%
$
2,868.6
$
2,741.8
$
126.8
5%
$
2,741.8
$
2,183.2
$
558.6
26%
64.5%
67.0%
67.0%
65.8%
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Product gross margin percentage decreased in 2011, compared to 2010, primarily due to a lower proportion of router revenue, a shift in the geographic mix of
revenue from Americas, increased fixed overhead and inventory-related costs. As of December 31, 2011, and 2010, we had 296 and 273 employees,
respectively, in our manufacturing and operations organization that primarily manage relationships with our independent contract manufacturers, manage our
supply chain, orchestrate new product introductions, and monitor and manage product testing and quality.
Product gross margin and product gross margin as a percentage of product revenues in 2010 compared to 2009 increased primarily due to a change in product
mix that favored higher margin products and our continued efforts to manage costs.
Service gross margin increased in absolute dollars in 2011, compared to 2010, mainly attributed to the 16% growth in service revenue. Service gross margin
percentage decreased in 2011, compared to 2010, primarily due to a growth in headcount of 21% to 1,289 employees as of December 31, 2011, compared to
1,064 employees as of December 31, 2010.The higher headcount was due to the increase both service and support resources for our expanded product
portfolio.
Service gross margin increased in 2010 compared to 2009 in absolute dollars primarily due to increased service revenues, and service gross margin as a
percentage of service revenues decreased primarily due to a shift in mix that was driven by an increase in value-added service related revenue.
Operating Expenses
The following table presents operating expenses and operating expenses as a percentage of net revenues (in millions, except percentages):
Research and development
Percentage of net revenues
Sales and marketing
Percentage of net revenues
General and administrative
Percentage of net revenues
Amortization of purchased intangible assets
Percentage of net revenues
Restructuring and other charges
Percentage of net revenues
Acquisition-related and other charges
Percentage of net revenues
Litigation settlement charges
Percentage of net revenues
Total operating expenses
Percentage of net revenues
Years Ended December 31,
Years Ended December 31,
2011
2010
$ Change
% Change
2010
2009
$ Change
% Change
$
1,026.8
$
917.9
$
108.9
12%
$
917.9
$
741.7
$
176.2
24%
23.1%
22.4%
22.4%
22.4%
1,001.1
857.1
144.0
17%
857.1
759.1
98.0
13%
22.5%
20.9%
20.9%
22.8%
179.1
177.9
1.2
1%
177.9
159.5
18.4
12%
4.0%
5.4
0.1%
4.3%
4.2
0.1%
1.2
29%
30.6
10.8
19.8
183%
0.7%
7.1
0.2%
—
—%
0.3%
6.3
0.2%
—
—%
0.8
13%
—
—%
4.3%
4.2
0.1%
10.8
0.3%
6.3
0.2%
—
—%
4.8%
10.4
0.3%
19.5
0.6%
—
—%
(6.2)
(59)%
(8.7)
(44)%
6.3
N/M
182.3
(182.3)
(100)%
5.5%
$
2,250.1
$
1,974.2
$
275.9
14%
$
1,974.2
$
1,872.5
$
101.7
5%
50.6%
48.2%
48.2%
56.4%
Personnel-related costs, including wages, commissions, bonuses, vacation, benefits, share-based compensation, and travel, have historically been the primary
driver of our operating expenses, and we expect this trend to continue. Facility and information technology (“IT”) departmental costs are allocated to other
departments based on usage and headcount. Facility and IT related headcount was 375, 388, and 294 as of December 31, 2011, 2010, and 2009, respectively.
We had 9,129, 8,772, and 7,231 employees as of December 31, 2011, 2010, and 2009, respectively. The year-over-year increase in 2011 was due to growth
across all of our organizations as a result of our efforts to grow the business.
R&D expenses increased in 2011, compared to 2010, primarily due to an increase in personnel-related expenses of $75.7 million. Also contributing to the
increase was higher consulting, facilities and IT costs associated with our R&D projects to support our new product initiatives including the data center,
mobility,and core solutions. This increase was partially offset by lower variable compensation in 2011. Our R&D headcount was relatively flat at 4,138 as of
December 31, 2011, compared to the prior year, as a result of our restructuring activities in the second half of 2011.
R&D expenses increased in 2010 compared to 2009, primarily due to additional headcount and strategic initiatives to expand
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our product portfolio. In particular, we focused on delivering optical capabilities and a packet-optimized transport system that will help service providers
better support packet and IP-based services, such as video, mobility and cloud computing. Personnel-related costs increased $111.6 million in 2010, primarily
due to a 25% increase in headcount in our engineering organization, from 3,308 to 4,132 employees, to support product innovation intended to capture
anticipated future network infrastructure growth and opportunities. Additionally, our outside consulting, facilities, and IT costs related to R&D expenses
increased to support our R&D efforts.
Sales and marketing expenses increased in 2011, compared to 2010, primarily due to an increase in personnel-related expenses of $128.5 million.
Additionally, contributing to the increase in 2011 was an increase in commission expense driven by higher revenue and an increase in outside services
incurred to support our sales and marketing activities. As a result of our restructuring activities in the second half of 2011, sales and marketing headcount
increased only 4% from 2,466 employees as of December 31, 2010 to 2,568 employees as of December 31, 2011.
Sales and marketing expenses increased in 2010, compared to the same period in 2009, primarily due to our 2010 advertising campaign, events for new
product launches, and an increase in personnel-related costs of $95.8 million. The increase in personnel-related costs was primarily due to a 17% increase in
our sales and marketing headcount from 2,101 to 2,466 employees, an increase in variable compensation driven by growth in our revenues, and an increase in
outside services to support our sales and marketing programs. As a percentage of net revenues, sales and marketing expenses decreased slightly in 2010 due to
our focus on managing expenses and creating efficiency in our sales activities.
General and administrative ("G&A") expense was relatively flat in 2011, compared to 2010, as costs associated with the G&A headcount growth of 3% from
449 at December 31, 2010 to 463 at December 31, 2011, were largely offset by lower variable compensation.
G&A expenses increased in 2010 compared to 2009, primarily due to an increase in personnel-related expenses. As a percentage of net revenues, G&A
expenses decreased slightly in 2010 due to our continued focus on managing expenses. Personnel-related costs increased $25.0 million in 2010, primarily due
to a 14% increase in headcount, from 393 to 449 employees in our worldwide G&A functions to support expected future growth of the business, as well as
higher variable compensation driven by growth in revenues. Additionally, facilities and IT expenses related to our G&A infrastructure increased to support
our growing business.
Amortization of purchased intangible assets increased in, 2011, compared to 2010, due to the addition of intangible assets from acquisitions during 2011 and
2010. Amortization of purchased intangible assets decreased in 2010 compared to 2009, primarily due to certain purchased intangible assets reaching the end
of their amortization period during 2009. We had no impairment of our goodwill or our purchased intangible assets in 2011 and 2010.
We incurred $30.6 million of net restructuring and other charges in 2011 primarily related to a restructuring plan (the "2011 Restructuring Plan") implemented
in the third quarter of 2011 to align our business operations with macroeconomic and other market conditions. Restructuring charges of $17.1 million was
primarily related to workforce reductions. Remaining liabilities in the 2011 Restructuring Plan, are expected to be paid out in the first half of 2012. As we
complete the alignment over the next two quarters, we may incur additional severance and facility costs. Such costs, primarily facility related, may range from
$14 million to $21 million. Included in other charges, was a $13.5 million charge related to the impairment of an abandoned in-process internal use software
project.
In 2010 and 2009, we recorded $10.8 million and $19.5 million, respectively, as a result of a restructuring plan to reduce our real estate portfolio and
workforce in targeted areas of the Company. As of December 31, 2011, the 2009 Restructuring Plan was complete. See Note 9, 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.
In 2011 and 2010, we recorded $7.1 million and $6.3 million, respectively, in direct and indirect acquisition-related costs such as financial advisory, legal, due
diligence, and integration costs from acquisitions completed in 2011 and 2010.
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. See Note 15, 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. No such charges were incurred in
2010 and 2011.
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Share-Based Compensation
Share-based compensation expense associated with stock options, employee stock purchases, restricted stock units ("RSUs"), and performance share awards
("PSAs") was recorded in the following cost and expense categories (in millions, except percentages):
Cost of revenues - Product
Cost of revenues - Service
Research and development
Sales and marketing
General and administrative
Total
Years Ended December 31,
Years Ended December 31,
2011
2010
$ Change
% Change
2010
2009
$ Change
% Change
$
4.6 $
4.4 $
15.7
97.7
70.9
33.3
13.5
78.5
54.9
30.7
$
222.2 $
182.0 $
0.2
2.2
19.2
16.0
2.6
40.2
5%
16%
24%
29%
8%
22%
$
4.4 $
3.9
$
13.5
78.5
54.9
30.7
10.5
59.3
43.1
22.9
$
182.0 $
139.7
$
0.5
3.0
19.2
11.8
7.8
42.3
13%
29%
32%
27%
34%
30%
Share-based compensation expense increased in 2011, compared to 2010, primarily due to the increase in award grants driven by headcount growth and
higher fair value of equity awards attributable to the increase in the market value of our common stock for those awards. Share-based compensation expense
increased in 2010 compared to 2009 due to an increase in RSU and PSA grants during the period primarily resulting from an increase in the number of
participants.
Other Income and Expense, Net and Income Tax Provision
The following table presents other income and expense, net and income tax provision (in millions, except percentages):
Years Ended December 31,
Years Ended December 31,
2011
2010
$ Change
% Change
2010
2009
$ Change
% Change
Interest income
Interest expense
Other
$
9.7
$
(49.5)
(7.0)
Total other (expense) income, net
$
(46.8)
$
10.5
(8.7)
8.7
10.6
$
$
(0.8)
(40.8)
(15.7)
(57.4)
(8)%
469%
(180)%
(542)%
$
$
10.5
(8.7)
8.8
10.6
$
11.8
$
(6.0)
(4.6)
$
1.4
$
(1.3)
(2.7)
13.4
9.2
(11)%
45%
(291)%
657%
Percentage of net revenues
(1.1)%
0.3%
0.3%
—%
Income tax provision
Effective tax rate
$
146.7
$
158.8
$
(12.1)
(8)%
$
158.8
$
196.8
$
(38.0)
(19)%
25.7 %
20.4%
20.4%
63.1%
Interest income primarily includes interest income from our cash, cash equivalents, and investments. Interest expense increased in 2011, compared to 2010,
primarily due to the $37.7 million interest expense on the debt issued in March 2011. Other typically consists of investment and foreign exchange gains and
losses and other non-operational income and expense items. In 2011, other included certain legal expenses unrelated to current or recent operations of
approximately $7.0 million . In 2010, we recognized a total gain of $8.7 million, primarily due to acquisitions of our privately-held equity investments in
Ankeena and Altor. During 2009 we recognized an impairment loss of $5.5 million on our equity investments for changes in fair value that we believed were
other-than-temporary.
Our effective tax rates were 25.7%, 20.4%, and 63.1% in 2011, 2010, and 2009, respectively. The effective rate for 2011 differed 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. The effective tax
rate for 2011 differed from 2010 as a result of the items referenced below, which were recognized in 2010.
The decrease in overall rate in 2010 compared to 2009, and the federal statutory rate of 35%, was primarily due to the federal R&D credit, the benefit of
earnings in foreign jurisdictions, which are subject to lower tax rates, and a $54.1 million income tax benefit in 2010 resulting from a change in the
Company's estimate of unrecognized tax benefits due to the taxpayer favorable ruling by the U.S. Court of Appeals for the Ninth Circuit (the “Court”) in
Xilinx Inc. v. Commissioner related to share-based compensation.
The effective tax rate in 2009 was higher than the federal statutory rate of 35% 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-
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based compensation; 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.
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 14, 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 Business, in 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 13, Segment Information, in Notes to the Consolidated Financial Statements in
Item 8 of Part II of this Annual Report on Form 10-K.
Select segment financial data for each of the three years in the period ended December 31, 2011, is as follows (in millions, except percentages and units):
Infrastructure
Infrastructure revenues:
Routers - Product
Routers - Service
Infrastructure revenue - Routers
Percentage of net revenues
Switches - Product
Switches - Service
Infrastructure revenue - Switches
Percentage of net revenues
Years Ended December 31,
Years Ended December 31,
2011
2010
$ Change
% Change
2010
2009
$ Change
% Change
$
2,287.4
$
2,134.5
$
152.9
607.0
2,894.4
521.3
2,655.8
65.0%
64.9%
493.1
35.1
528.2
377.1
17.4
394.5
85.7
238.6
116.0
17.7
133.7
7%
16%
9%
31%
101%
34%
$
2,134.5
$
1,767.9
$
366.6
521.3
2,655.8
476.4
2,244.3
64.9%
67.7%
377.1
17.4
394.5
191.3
6.0
197.3
44.9
411.5
185.8
11.4
197.2
21%
9%
18%
97%
188%
100%
11.9%
9.6%
9.6%
6.0%
Total Infrastructure segment revenues
$
3,422.6
$
3,050.3
$
372.3
12%
$
3,050.3
$
2,441.6
$
608.7
25%
Percentage of net revenues
76.9%
74.5%
74.5%
73.6%
Infrastructure chassis revenue units (1)
Infrastructure ports shipped (1)
22,010
1,008,265
14,115
563,275
7,895
444,990
56%
79%
14,115
563,275
12,578
437,278
1,537
125,997
12%
29%
Infrastructure operating income (2)
Percentage of Infrastructure revenues
$
718.3
$
773.7
$
(55.4)
(7)%
$
773.7
$
541.4
$
232.3
43%
21.0%
25.4%
25.4%
22.2%
_______________________________
(1)
Chassis revenue units represent the number of chassis on which revenue was recognized during the period. The number of ports on a module varies widely depending on the functionality
and throughput offered by the module. Excludes modular and fixed configuration EX Series Ethernet switching products, circuit-to-packet products, and timing servers.
(2) A reconciliation of total segment operating income to income before taxes and noncontrolling interest can be found in Note 13, Segments, in Notes to Consolidated Financial Statement
in Item 8 of this Form 10-K.
In 2011, Infrastructure products revenue increased across all three regions in both the service provider and enterprise markets. These increases were primarily
from sales of our routing and switching products such as MX Series routers, EX Series switches and WLAN. The increase in Infrastructure service revenue in
2011, was primarily driven by strong contract renewals for support services and increased installed base from our Infrastructure product sales.
Infrastructure operating income decreased as a percent of Infrastructure revenue in 2011, compared to 2010, was largely due to the decline in product margins
and higher operating expenses, partially offset by lower variable compensation in 2011.
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
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represent the number of chassis on which revenue was recognized during the period. Infrastructure chassis revenue units increased in 2011, compared to 2010,
primarily due to the increase in shipments of our MX Series routers, particularly the mid-range MX product lines. The increase in shipments of the mid-range
MX product lines, which generally contain a higher number of ports per chassis, drove the higher number of ports shipped in 2011, compare to 2010.
In 2010, Infrastructure products revenue experienced growth in the enterprise and service provider markets across all regions compared to 2009. This increase
was primarily attributable to revenue growth from our MX Series routers and EX Series switches. The increased demand for our products was primarily due
to growing network demand attributable to increased reliance on digital devices connected to the network, and to a lesser extent, the improved
macroeconomic environment.
Infrastructure chassis revenue units increased in 2010 compared to 2009, which was commensurate with Infrastructure product revenue growth during the
year. Infrastructure port shipments increased in 2010 compared to 2009, primarily due to the continued growth in sales of MX Series products, which
generally contain a higher number of ports per chassis.
A majority of our service revenue is earned from customers that purchase our products and enter into support services contracts for support. Infrastructure
service revenues increased in 2010 compared to 2009, which was primarily driven by increased revenue from new product sales and strong contract renewals
for support services. From a geographical and market perspective, the increase in Infrastructure service revenues was primarily due to an increase in enterprise
business across all regions and service provider business in the EMEA and APAC regions. These increases were partially offset by a decrease in service
revenue in the Americas service provider market.
Infrastructure operating income increased as a percent of Infrastructure revenue in 2010 compared to 2009, primarily due to a higher gross margin percentage,
which was attributable to changes in product mix that favored higher margin products. Additionally, although Infrastructure sales and marketing expenses
increased in absolute dollars as we increased our efforts to reach enterprise and service provider customers, they decreased as a percentage of Infrastructure
revenues.
SLT
SLT segment revenues:
SLT product revenue
Percentage of net revenues
SLT service revenue
Percentage of net revenues
Years Ended December 31,
Years Ended December 31,
2011
2010
$ Change
% Change
2010
2009
$ Change
% Change
(in millions, except percentages and units)
$
697.7
$
747.1
$
(49.4)
(7)%
$
747.1
$
608.8
$
138.3
23%
15.7%
328.4
7.4%
18.3%
18.3%
18.4%
295.9
32.5
11%
295.9
265.5
30.4
11%
7.2%
7.2%
8.0%
Total SLT segment revenues
$
1,026.1
$
1,043.0
$
(16.9)
(2)%
$
1,043.0
$
874.3
$
168.7
19%
Percentage of net revenues
23.1%
25.5%
25.5%
26.4%
SLT revenue units
252,848
231,365
21,483
9%
231,365
208,907
22,458
11%
SLT operating income (1)
Percentage of SLT revenues
$
199.0
$
208.0
$
(9.0)
(4)%
$
208.0
$
127.0
$
81.0
64%
19.4%
19.9%
19.9%
14.5%
_______________________________
(1) A reconciliation of total segment operating income to income before taxes and noncontrolling interest can be found in Note 13, Segments, in Notes to Consolidated Financial Statement
in Item 8 of this Form 10-K.
SLT product revenues decreased in 2011, compared to 2010, which was largely driven by a decrease in revenue from our High-End SRX, High-End Firewall
and Branch Firewall products, partially offset by an increase in our Branch SRX revenue. The decline was primarily experienced in the Americas service
provider market. Although SLT product revenue decreased in 2011, revenue units increased due to the higher sales of our lower priced branch products.
The increase in SLT service revenue in 2011, compared to 2010, was primarily driven by strong contract renewals for support services in both the service
provider and enterprise markets across all regions.
SLT operating income decreased as a percent of revenue in 2011, compared to 2010, primarily due to decline in revenue and shift to lower margin products.
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We experienced an increase in SLT product revenue in the year ended December 31, 2010, compared to the same period in 2009, primarily due to increased
demand for our branch and high-end SRX service gateway products. From a geographical and market perspective, we experienced revenue growth in the
Americas service provider market and across all regions in the enterprise market in 2010.
SLT revenue units increased in 2010 compared to 2009, which was commensurate with growth in SLT product revenue. The percentage increase in SLT
revenue units was less than the increase in SLT product revenues due to a product mix that favored higher average selling prices.
The increase in SLT service revenue in 2010 compared to 2009, was primarily driven by increased revenue from new product sales and strong contract
renewals for support services. From a geographical and market perspective, the increase in SLT service revenues was due to growth in the enterprise and
service provider markets across all regions.
SLT operating income increased as a percent of revenue in 2010 compared to 2009, primarily due to a decrease in operating expenses as a percent of SLT
revenue as we continued our efforts to carefully manage costs. Additionally, the increase was attributable to higher gross margin percentage resulting from
changes in product mix and efficiencies achieved from the higher 2010 revenues.
Liquidity and Capital Resources
Historically, we have funded our business primarily through our operating activities and the issuance of our common stock, and more recently, the issuance of
long-term debt. The following table shows our capital resources (in millions, except percentages and days sales outstanding):
Working capital
Days sales outstanding
Cash and cash equivalents
Short-term investments
Long-term investments
Total cash, cash equivalents and investments
Long-term debt
Net cash, cash equivalents, and investments
________________________________
N/M - Not meaningful
As of
December 31,
2011
December 31,
2010
Change
% Change
$
$
$
2,973.0 $
1,742.4
$
1,230.6
46
45
1
2,910.4 $
1,811.9
$
1,098.5
641.3
740.7
4,292.4
999.0
474.5
535.2
2,821.6
—
3,293.4 $
2,821.6 $
166.8
205.5
1,470.8
999.0
471.8
71%
2%
61%
35%
38%
52%
N/M
17%
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 short-term deferred revenue. Working capital increased by $1,230.6 million in the year ended December 31, 2011, primarily
due to a higher cash and cash equivalent balance as a result of our $1.0 billion debt offering in March 2011.
Summary of Cash Flows
As of December 31, 2011, our cash and cash equivalents increased by $1,098.5 million from December 31, 2010. This increase was mainly the result of cash
generated by our operating and financing activities of $986.7 million and $819.0 million, respectively, partially offset by cash used in investing activities of
$707.2 million.
Operating Activities
Net cash provided by operating activities was $986.7 million, $812.3 million, and $796.1 million, for 2011, 2010, and 2009, respectively. Cash flows from
operations increased by $174.4 million in 2011, compared to the prior year, primarily due to the one-time litigation settlement payment of $169.3 million in
2010 which did not occur in 2011. The increase was partially offset by lower consolidated net income in 2011. For 2010, operating cash flows increased by
$16.2 million from 2009, primarily due to higher consolidated net income, partially offset by litigation settlement payments, prepaid taxes, and higher
accounts
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receivable.
Investing Activities
Net cash used in investing activities was $707.2 million, $532.8 million, and $948.3 million, in 2011, 2010, and 2009, respectively. During 2011, we invested
the proceeds from our March 2011 debt offering in available-for-sale securities and purchased property and equipment for the build-out of our new
headquarter campus in Sunnyvale, CA. The change in net cash used in investing activities from 2009 to 2010 was primarily due to net cash paid for
acquisitions in 2010.
Financing Activities
Net cash generated in financing activities was $819.0 million in 2011, and net cash used were $72.4 million , and $262.2 million for 2010, and 2009,
respectively. We generated additional cash from financing activities in 2011 compared to 2010 primarily due to the issuance of our long-term debt on March
5, 2011, partially offset by the repurchase of our outstanding common stock. For further discussion of our long-term debt, see Note 10, Financing , in the
Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
In 2010, we used additional cash in financing activities to repurchase our outstanding common stock through our stock repurchase programs, partially offset
by cash proceeds from issuance of common stock to employees as a result of higher stock prices.
Stock Repurchase Activities
In February 2010, our Board of Directors (the "Board") approved a stock repurchase program (the “2010 Stock Repurchase Program”), which authorized us to
repurchase up to $1.0 billion of our common stock. This authorization was in addition to the stock repurchase program approved by the Board in March 2008
(the “2008 Stock Repurchase Program”), which also enabled us to repurchase up to $1.0 billion of our common stock.
We repurchased and retired approximately 17.5 million shares of our common stock at an average price of $30.93 per share for an aggregate purchase price of
$541.2 million during the year ended December 31, 2011 , under our 2010 Stock Repurchase Program. As of December 31, 2011 , there were no remaining
authorized funds under the 2008 Stock Repurchase Program and $213.8 million remaining authorized funds under the 2010 Stock Repurchase Program.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of December 31, 2011, and 2010.
Contractual Obligations
Our principal commitments 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, 2011, 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 (1)
Purchase commitments (2)
Tax liabilities (3)
Long-term debt (4)
Interest payment on long-term debt (4)
Other contractual obligations (5)
$
352.7 $
150.6 $
57.9
150.6
108.5
1,000.0
873.1
73.1
—
—
46.9
63.3
$
167.9 $
70.7 $
56.2
$ —
—
—
—
93.8
9.8
—
—
300.0
88.8
—
—
—
—
108.5
$ —
700.0
643.6
—
—
—
Total
$ 2,558.0 $
318.7
$
271.5 $
459.5 $
1,399.8
$ 108.5
________________________________
(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 2.5 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 on November 30, 2022 .
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
(2)
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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, 2011, we had
accrued $14.8 million based on our estimate of such charges. Total purchase commitments as of December 31, 2011, consisted of $150.6 million of NCNR orders.
(3)
Tax liabilities include $108.5 million of long-term liabilities in the consolidated balance sheet for unrecognized tax positions. At this time, we are unable to make a reasonably reliable
estimate of the timing of payments related to this amount due to uncertainties in the timing of tax audit outcomes.
In March 2011, we issued $300.0 million aggregate principal amount of 3.10% senior notes due 2016 (the "2016 notes"), $300.0 million aggregate principal amount of 4.60% senior
notes due 2021 (the "2021 notes"), and $400.0 million aggregate principal amount of 5.95% senior notes due 2041 (the "2041 notes" and, together with the 2016 notes and the 2021 notes
the "notes"). Interest on the notes is payable in cash semiannually. We may redeem the notes, at any time in whole or from time to time in part, subject to a make-whole premium, and, in
the event of a change in control, the holders of the notes may require us to repurchase for cash all or part of the notes at a purchase price equal to 101% of the aggregate principle amount,
plus accrued and unpaid interest, if any. The indenture that governs the notes also contains various covenants, including limitations on the our ability to incur liens or enter into sale-
leaseback transactions over certain dollar thresholds.
(4)
(5) Other contractual obligations primarily consisted of $25.1 million in indemnity-related and service related escrows, required by certain acquisitions completed in 2005, 2010 and 2011, $30.7
million in campus build-out obligations, and other miscellaneous commitments.
Guarantees
We have entered into agreements with customers that contain indemnification provisions relating to potential situations where claims could be alleged that our
products infringe the intellectual property rights of a third-party. We also have financial guarantees consisting of guarantees of product and service
performance, guarantees related to third-party customer-financing arrangements, customs and duties guarantees, and standby letters of credit for certain lease
facilities. As of December 31, 2011 , and 2010, we had $19.9 million and $21.6 million , respectively, in bank guarantees and standby letters of credit related
to these financial guarantees.
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 that we have
made or we may make in the future. Additionally, if we were to repurchase additional shares of our common stock under the 2010 Stock Repurchase Program,
our liquidity may be impacted. As of December 31, 2011 , 49% of our cash and investment balances are held outside of the U.S., which may be subject to
U.S. taxes if repatriated.
In August 2010, we filed a $1.5 billion shelf registration with the SEC. In March 2011, we issued notes in the amount of $1.0 billion under the shelf
registration statement. Therefore, while we have no current plans to do so, we may issue up to $500 million in additional securities under the shelf registration
statement. The shelf registration is intended to give us flexibility to take advantage of financing opportunities as needed or deemed desirable in light of market
conditions. Any additional offerings of securities under the shelf registration statement will be made pursuant to a prospectus.
We have been focused on managing our annual equity usage as a percentage of the common stock outstanding to align with peer group competitive levels and
have made changes in recent years to reduce the number of shares underlying the equity awards we grant. Our intention for fiscal year 2011 was to target the
number of shares underlying equity awards granted on an annual basis at less than three percent (3%) of our common stock outstanding. Based upon shares
underlying our grants to date of options, RSUs, and PSAs (counting only the on-target measure of such PSA s), we achieved the goal for 2011. We have also
managed our equity compensation programs to reduce the overall number of shares subject to outstanding awards over the past two years. The total number of
common shares subject to our outstanding option, RSU, and PSA awards was 58.2 million, 63.5 million, and 76.5 million shares as of December 31, 2011,
2010, and 2009, respectively, reflecting a consecutive decline for the three years ended December 31, 2011.
Based on past performance and current expectations, we believe that our existing cash and cash equivalents, short-term, and long-term investments (which
includes the proceeds of the issuance of the notes), together with cash generated from operations as well as 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:
•
•
•
•
level and mix of our 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 and related interest obligations;
47
Table of Contents
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
litigation expenses, settlements, and judgments, or similar items related to resolution of tax audits;
volume price discounts and customer rebates;
accounts receivable levels that we maintain;
acquisitions and/or funding of other businesses, assets, products, or technologies;
changes in our compensation policies;
capital improvements for new and existing facilities;
technological advances;
our competitors' responses to our products and/or pricing;
our relationships with supplies, partners, and customers;
possible future investments in raw material and finished goods inventories;
expenses related to future restructuring plans, if any;
tax expense associated with share-based awards;
issuance of share-based awards and the related payment in cash for withholding taxes in the current year and possibly during future years;
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.
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 is subject to market price volatility. In addition,
as of December 31, 2011, 49% of our cash, cash equivalents, 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, 2011, 2010, and 2009, related to the sales of our investments.
The following tables present hypothetical changes in fair value of the financial instruments held at December 31, 2011, and 2010, that are sensitive to changes
in interest rates (in millions):
48
Table of Contents
Government treasury and
agencies
Valuation of Securities Given an Interest Rate Decrease of X BPS Fair Value as of December 31, 2011 Valuation of Securities Given an Interest Rate Increase of X BPS
(150 BPS)
(100 BPS)
(50 BPS)
50 BPS
100 BPS
150 BPS
$
740.4
$
737.6
$
734.8 $
731.9
$
729.2
$
726.4
$
723.6
Corporate bonds and notes
516.8
514.1
511.4
Other
Total
1,572.0
1,571.4
1,570.8
$
2,829.2
$
2,823.1
$
2,817.0 $
508.7
1,570.3
2,810.9
506.0
503.3
1,569.7
1,569.1
500.5
1,568.7
$
2,804.9
$
2,798.8
$
2,792.8
Valuation of Securities Given an Interest Rate Decrease of X BPS Fair Value as of December 31, 2010 Valuation of Securities Given an Interest Rate Increase of X BPS
(150 BPS)
(100 BPS)
(50 BPS)
50 BPS
100 BPS
150 BPS
$
457.4
$
456.3
$
455.1 $
454.1
$
452.8
$
451.7
$
450.5
Government treasury and
agencies
Corporate bonds and notes
Foreign government debt
securities
469.9
47.8
467.2
47.5
464.4
47.3
Other
Total
1,291.6
1,291.2
1,290.7
$
2,266.7
$
2,262.2
$
2,257.5 $
461.7
47.0
1,290.1
2,252.9
459.0
46.8
456.2
46.5
453.5
46.3
1,289.7
1,289.2
1,288.7
$
2,248.3
$
2,243.6
$
2,239.0
These instruments are not leveraged and are held for purposes other than trading. The modeling technique used measures the changes in fair value arising
from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis
points (“BPS”), 100 BPS, and 150 BPS, which are representative of the historical movements in the Federal Funds Rate.
Foreign Currency Risk and Foreign Exchange Forward Contracts
Periodically, we use derivatives to hedge against fluctuations in foreign exchange rates. We do not enter into derivatives for speculative or trading purposes.
We use foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and
liabilities denominated in non-functional currencies. These derivatives are carried at fair value with changes recorded in other income (expense) in the same
period as the changes in the fair value from the re-measurement of the underlying assets and liabilities. These foreign exchange contracts have maturities of
one year or less.
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. Approximately 76% of such costs and
operating expenses are denominated in U.S. Dollars. Periodically, we use foreign currency forward and/or option contracts to hedge certain forecasted foreign
currency transactions to reduce variability in cost of service revenue and operating expenses caused by non-U.S. Dollar denominated operating expense and
costs. In designing a specific hedging approach, we consider several factors, including offsetting exposures, significance of exposures, costs associated with
entering into a particular hedge instrument, and potential effectiveness of the hedge. 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, 2011,
2010, and 2009, respectively, in other income (expense) on our consolidated statements of operations. The change in operating expenses including cost of
service revenue, R&D, sales and marketing, and G&A expenses, due to foreign currency fluctuations was approximately 1%, 1%, and 2% in 2011, 2010, and
2009, respectively.
If overall foreign currency exchange rates in comparison to the U.S. Dollar uniformly changes by 10%, the amount of cash, cash equivalents and marketable
securities we would report in U.S. Dollars would change by less than 1%, assuming constant foreign currency cash, cash equivalents, and marketable
securities balances.
Equity Price Risk
Our portfolio of publicly-traded equity securities and our non-qualified deferred compensation (“NQDC”) plan, which may
49
Table of Contents
also hold publicly-traded equity securities, are inherently exposed to equity price risk as the stock market fluctuates. Our publicly-traded equity securities are
classified as available-for-sale securities on our consolidated balance sheets. Investments under the NQDC plan are considered trading securities and are also
reported at fair value on our consolidated balance sheet. We do not purchase our publicly-traded equity securities with the intent to use them for speculative
purposes. As of December 31, 2011, and 2010, the total investments under the NQDC plan were $9.3 million and $8.1 million, respectively. A hypothetical
30% adverse change on the total investments under the NQDC plan as of December 31, 2011, and 2010 would result in an immaterial loss.
We have also invested in privately-held companies. These investments are carried at cost. In 2011, there were impairment charge of $1.8 million on our
investments in privately-held companies that we judged to be other than temporary as discussed in Note 5, Fair Value Measurements, in Notes to
Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. There were no such charges in 2010. The aggregate cost of our
investments in privately-held companies was $51.8 million and $22.1 million as of December 31, 2011, and 2010, respectively.
50
Table of Contents
ITEM 8. Financial Statements and Supplementary Data
Index of Consolidated Financial Statements for the years ended December 31, 2011, 2010, and 2009
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 Changes in Equity
Notes to Consolidated Financial Statements
51
Page
52
53
54
55
56
57
58
59
Table of Contents
The Board of Directors and Stockholders of Juniper Networks, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Juniper Networks, Inc. as of December 31, 2011 and 2010, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. 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, 2011, and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,
2011, 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.
As discussed in Note 2, 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, in fiscal year 2010, Juniper Networks, Inc. changed its method of accounting for revenue recognition with the adoption of amendments to the
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") resulting from Accounting Standards Update No. 2009-13,
Multiple-Deliverable Revenue Arrangements, and Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That Include Software
Elements, both adopted effective January 1, 2010.
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, 2011, 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 24, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 24, 2012
52
Table of Contents
The Board of Directors and Stockholders of Juniper Networks, Inc.
Report of Independent Registered Public Accounting Firm
We have audited Juniper Networks, Inc.'s internal control over financial reporting as of December 31, 2011, 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 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, 2011, 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, 2011, and 2010 and the related consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2011, of Juniper Networks, Inc. and our report dated February 24, 2012, expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 24, 2012
53
Table of Contents
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, 2011, 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, 2011, 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, 2011, 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, 2011.
54
Table of Contents
Juniper Networks, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Net revenues:
Product
Service
Total net revenues
Cost of revenues:
Product
Service
Total cost of revenues
Gross margin
Operating expenses:
Research and development
Sales and marketing
General and administrative
Amortization of purchased intangible assets
Litigation settlement charges
Restructuring and other charges
Acquisition-related and other charges
Total operating expenses
Operating income
Other (expense) income, net
Income before income taxes and noncontrolling interest
Income tax provision
Consolidated net income
Adjust for net (income) loss attributable to noncontrolling interest
Years Ended December 31,
2011
2010
2009
$ 3,478,264 $ 3,258,651 $ 2,567,992
970,445
834,615
747,920
4,448,709
4,093,266
3,315,912
1,155,283
1,000,865
424,836
350,654
841,722
290,987
1,580,119
1,351,519
1,132,709
2,868,590
2,741,747
2,183,203
1,026,790
1,001,060
179,132
5,366
—
30,564
7,154
917,855
857,072
177,859
4,230
—
10,805
6,342
741,708
759,131
159,459
10,416
182,331
19,463
—
2,250,066
1,974,163
1,872,508
618,524
(46,808)
571,716
146,704
425,012
124
767,584
310,695
10,570
778,154
158,781
619,373
(971)
1,366
312,061
196,833
115,228
1,771
Net income attributable to Juniper Networks
$
425,136 $
618,402 $
116,999
Net income per share attributable to Juniper Networks common stockholders:
Basic
Diluted
Shares used in computing net income per share:
Basic
Diluted
$
$
0.80 $
0.79 $
1.18 $
1.15 $
0.22
0.22
529,768
522,444
523,603
541,417
538,790
534,015
See accompanying Notes to Consolidated Financial Statements
55
Table of Contents
Juniper Networks, Inc.
Consolidated Balance Sheets
(In thousands, except par values)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $9,523 for 2011 and $10,110 for 2010
Deferred tax assets, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Long-term investments
Restricted cash and investments
Purchased intangible assets, net
Goodwill
Other long-term assets
Total assets
Current liabilities:
Accounts payable
Accrued compensation
Deferred revenue
Income taxes payable
Other accrued liabilities
Total current liabilities
Long-term debt
Long-term deferred revenue
Long-term income taxes payable
Other long-term liabilities
LIABILITIES AND EQUITY
Commitments and contingencies (Note 15)
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; 526,409 shares and 525,378 shares issued and outstanding at
December 31, 2011, and 2010, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Juniper Networks stockholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements
56
December 31,
2011
December 31,
2010
$2,910,420 $1,811,887
641,323
474,514
577,386
596,622
154,310
161,535
156,222
169,812
4,439,661 3,214,370
598,581
493,881
740,659
535,178
78,307
119,346
123,114
121,803
3,928,144 3,927,807
75,354
55,466
9,983,820 8,467,851
324,843
292,270
223,018
256,746
712,663
660,264
12,545
25,000
193,634
237,696
1,466,703 1,471,976
999,034
—
254,364
224,165
108,471
103,823
65,590
59,087
—
5
—
5
10,079,169 9,717,783
(17,590)
(1,251)
(2,972,402) (3,108,337)
7,089,182 6,608,200
476
600
7,089,658 6,608,800
$9,983,820 $8,467,851
Table of Contents
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
Amortization
Non-cash portion of share-based compensation
Deferred income taxes
Loss/(gain) on equity investments
Excess tax benefits from share-based compensation
Other charges
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net
Prepaid expenses and other assets
Accounts payable
Accrued compensation
Accrued litigation settlements
Income tax payable
Other accrued liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of trading investments
Purchases of available-for-sale investments
Proceeds from sales of available-for-sale investments
Proceeds from maturities of available-for-sale investments
Payment for business acquisitions, net of cash and cash equivalents acquired
Changes in restricted cash
Purchases of privately-held and other equity investments, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock
Purchases and retirement of common stock
Issuance of long-term debt, net
Change in customer financing arrangements
Excess tax benefit from share-based compensation
Return of capital to noncontrolling interest
Net cash provided by (used in) financing activities
Net increase (decrease) 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
Years Ended December 31,
2011
2010
2009
$
425,012 $
619,373 $
115,228
142,160
27,878
217,761
7,225
326
(44,961)
13,462
18,633
28,488
33,871
(32,228)
146,757
8,531
177,825
64,035
(8,653)
(48,500)
—
(129,199)
(129,292)
48,217
78,071
—
(169,330)
53,213
13,639
82,247
986,726
25,193
1,413
127,894
812,335
132,946
15,427
139,659
9,436
5,562
(3,510)
—
(28,682)
(8,520)
(2,422)
16,079
169,330
43,672
28,566
163,326
796,097
(266,314)
(185,291)
(153,101)
(5,214)
(2,754)
—
(2,297,363)
(1,577,758)
(1,461,532)
1,281,236
537,916
645,362
(30,720)
(1,174)
(33,051)
1,086,514
(374,765)
(12,424)
(4,188)
285,379
398,435
—
(11,276)
(6,205)
(707,238)
(532,750)
(948,300)
346,951
(548,590)
991,556
(15,833)
44,961
—
819,045
1,098,533
451,039
(565,473)
—
(3,487)
48,500
(3,000)
(72,421)
207,164
164,207
(453,888)
—
19,613
3,510
4,400
(262,158)
(414,361)
1,811,887
1,604,723
2,019,084
$
2,910,420 $
1,811,887 $
1,604,723
$
35,655 $
8,799 $
5,417
Cash (received) paid for taxes
Capitalized interest
$
$
(2,080) $
155,700 $
139,969
1,230 $
— $
—
See accompanying Notes to Consolidated Financial Statements
57
Table of Contents
Balance at December 31, 2008
Consolidated net income (loss)
Change in unrealized loss on investments, net
Change in foreign currency translation adjustments,
net
Consolidated comprehensive income
Purchase of subsidiary shares by noncontrolling
interest
Issuance of shares in connection with Employee
Stock Purchase Plan
Issuance of shares in connection with vesting of
restricted share units
Exercise of stock options by employees, net of
repurchases
Repurchase and retirement of common stock
Share-based compensation expense
Adjustment related to tax benefit from employee
stock option plans
Balance at December 31, 2009
Consolidated net income
Change in unrealized loss on investments, net
Change in foreign currency translation adjustments,
net
Consolidated comprehensive income
Return of capital to noncontrolling interest
Issuance of shares in connection with Employee
Stock Purchase Plan
Issuance of shares in connection with vesting of
restricted share units
Exercise of stock options by employees, net of
repurchases
Shares assumed in connection with business
acquisitions
Repurchase and retirement of common stock
Repurchases related to net issuances
Share-based compensation expense
Adjustment related to tax benefit from employee
stock option plans
Balance at December 31, 2010
Consolidated net income (loss)
Change in unrealized loss on investments, net
Change in foreign currency translation adjustments,
net
Consolidated comprehensive income
Issuance of shares in connection with Employee
Stock Purchase Plan
Issuance of shares in connection with vesting of
restricted share units
Exercise of stock options by employees, net of
repurchases
Repurchase and retirement of common stock
Repurchases related to net issuances
Share-based compensation expense
Adjustment related to tax benefit from employee
stock option plans
Balance at December 31, 2011
Juniper Networks, Inc.
Consolidated Statements of Changes in Equity
(In thousands)
Juniper Networks
Shares
Amount
Additional Paid-In Capital
Accumulated Other Comprehensive
Income (Loss)
Accumulated Deficit
Noncontrolling Interest
Total Equity
526,752 $
—
—
—
—
—
3,221
1,432
8,651
(20,715)
—
—
519,341
—
—
—
—
—
1,974
2,224
21,568
—
(19,654)
(75)
—
—
525,378
—
—
—
—
2,400
2,431
13,904
(17,500)
(204)
—
—
5
$
8,811,497
$
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
39,164
—
126,284
(6,216)
139,659
(50,299)
9,060,089
—
—
—
—
—
41,829
—
409,395
2,355
(75,242)
(17)
177,825
101,549
9,717,783
—
—
—
—
51,687
—
293,856
(256,372)
(3,017)
217,761
57,471
(4,245)
—
(2,757)
5,569
—
—
—
—
—
—
—
—
(1,433)
—
(317)
499
—
—
—
—
—
—
—
—
—
—
(1,251)
—
(9,980)
(6,359)
—
—
—
—
—
—
—
—
$
(2,905,852)
$
116,999
—
(1,771)
$ 5,901,405
115,228
—
—
—
—
—
—
—
(447,672)
—
—
(3,236,525)
618,402
—
—
—
—
—
—
—
—
(488,284)
(1,930)
—
—
(3,108,337)
425,136
—
—
—
—
—
—
(284,866)
(4,335)
—
—
—
—
—
4,400
—
—
—
—
—
—
2,629
971
—
—
—
(3,000)
—
—
—
—
—
—
—
—
600
(124)
—
—
—
—
—
—
—
—
—
—
(2,757)
5,569
118,040
4,400
39,164
—
126,284
(453,888)
139,659
(50,299)
5,824,765
619,373
(317)
499
619,555
(3,000)
41,829
—
409,395
2,355
(563,526)
(1,947)
177,825
101,549
6,608,800
425,012
(9,980)
(6,359)
408,673
51,687
—
293,856
(541,238)
(7,352)
217,761
57,471
526,409 $
5
$
10,079,169
$
(17,590)
$
(2,972,402)
$
476
$ 7,089,658
See accompanying Notes to Consolidated Financial Statements
58
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements
Note 1. Description of Business and Basis of Presentation
Description of Business
Juniper Networks, Inc (the “Company” or “Juniper”) designs, develops, and sells products and services that together provide customers with a high-
performance network infrastructure built on simplicity, security, openness, and scale. The Company serves the high-performance networking requirements of
global service providers, enterprises, governments, and research and public sector organizations that view the network as critical to their success.
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.
As of December 31, 2011 , the Company owned a 60 percent interest in a joint venture with Nokia Siemens Networks B.V. (“NSN”). 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. In July 2011, NSN and
the Company entered into an agreement to cease operation of and terminate the joint venture and subsequently NSN has assumed the activities of the joint
venture. The Company is in the process of winding down this joint venture and the termination of this joint venture is not expected to have a material effect on
the Company's financial position or results of operations.
Foreign Currency Translations
Assets and liabilities of foreign operations with non-U.S. Dollar functional currency are translated to U.S. Dollars using exchange rates in effect at the end of
the period. Revenue and expenses are translated to U.S. Dollars using average exchange rates for the period. Foreign currency translation gains and losses
were not material for the years ended December 31, 2011, 2010 and 2009.
Reclassifications
In the first quarter of 2010, the Company reclassified certain selling and marketing costs that were previously reported as cost of service revenues as sales and
marketing expense. Accordingly, $25.1 million of costs reported in the year ended December 31, 2009, have been reclassified from cost of service revenues to
sales and marketing expense to conform to the current period's presentation. The reclassification did not impact the Company's previously reported net
revenues, segment results, operating income, net income, or earnings per share.
Note 2. Summary of Significant Accounting Policies
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. To the extent there are material differences between our estimates and the
actual results, our future consolidated results of operation may be affected.
Fair Value
Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts,
and considers assumptions that market participants would use
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
when pricing the asset or liability. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three
levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly
through market corroboration, for substantially the full term of the financial instrument. These inputs are valued using market based approaches.
Level 3 – Inputs are unobservable inputs based on the Company’s assumptions. These inputs, if any, are valued using internal financial models.
Cash, Cash Equivalents and Investments
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
Investments with stated maturities of greater than three months are classified as short-term or long-term investments. Management determines the appropriate
classification of securities at the time of purchase and re-evaluates such classification as of each balance sheet date.
The Company's investments in publicly-traded debt 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 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 are reported in the consolidated statements of operations.
Privately-Held Investments
The Company has 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 measures the fair value of
privately-held investments using an analysis of the financial conditions and near term prospects of the investees, including recent financing activities and their
capital structure. Realized gains and losses, if any, are reported in the consolidated statements of operations.
Derivatives
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 other (expense) 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 one year or less.
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. These derivatives are carried at fair value and the effective
portion of the derivative's gain or loss is initially reported as a component of accumulated other comprehensive 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 2011, 2010, and 2009, in other (expense) income, net, on its consolidated statements
of operations. Cash flows from such hedges are classified as operating activities.
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, available-for-sale investments in fixed
income securities, and money market funds with several high-quality institutions. Deposits held with banks, including those held in foreign branches of global
banks, may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand and, therefore, bear minimal risk.
Generally, credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company's customer base and their
dispersion across different geographic locations throughout the world. The Company performs ongoing credit evaluations of its customers and generally does
not require collateral on accounts receivable. The Company maintains reserves for potential bad debt and historically such losses have been within
management's expectations. No single customer accounted for more than 10% of the Company's total net revenues for 2011. Verizon Communications, Inc.,
and AT&T, Inc., accounted for 10.6%, and 10.4% of the Company's total net revenues for 2010 and 2009, respectively.
The Company relies on sole suppliers for certain of its components such as ASICs and custom sheet metal. Additionally, the Company relies primarily on a
limited number of significant independent contract manufacturers for the production of all of its products. The inability of any supplier or manufacturer to
fulfill supply requirements of the Company could negatively impact future operating results.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful
lives of the assets of one and half years to five years for computers, equipment and software, five years for furniture and fixtures, seven to forty years for
building and building improvements, and ten to forty years for land improvements. Leasehold improvements are amortized using the straight-line method over
lease term, for a maximum of ten years. Construction in progress is related to the construction or development of property and equipment that have not yet
been placed in service for their intended use. Depreciation for equipment commences once it is placed in service and depreciation for buildings and leasehold
improvements commences once they are ready for their intended use.
Goodwill and Other Long-Lived Assets
Goodwill represents the purchase price over estimated fair value of net assets of businesses acquired in a business combination. Goodwill and other intangible
assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually
during the fourth quarter. Such goodwill and other intangible assets may also be tested for impairment between annual tests in the presence of impairment
indicators such as, but not limited to: (a) a significant adverse change in legal factors or in the business climate; (b) a substantial decline in our market
capitalization, (c) an adverse action or assessment by a regulator; (d) unanticipated competition; (e) loss of key personnel; (f) a more likely-than-not
expectation of sale or disposal of a reporting unit or a significant portion thereof; (g) a realignment of our resources or restructuring of our existing businesses
in response to changes to industry and market conditions; (h) testing for
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
recoverability of a significant asset group within a reporting unit; or (i) higher discount rate used in the impairment analysis as impacted by an increase in
interest rates.
The Company performs its annual goodwill impairment analysis at its reporting unit level, which is one level below its operating segment level during the
fourth quarter of each year. The fair value of the Company's reporting units is determined using both the income and market valuation approaches. Under the
income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows that the reporting unit is expected to generate
over its remaining life. Under the market approach, the value of the reporting unit is based on an analysis that compares the value of the reporting unit to
values of publicly traded companies in similar lines of business. In the application of the income and market valuation approaches, the Company is required to
make estimates of future operating trends and judgments on discount rates and other variables. Actual future results related to assumed variables could differ
from these estimates.
Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or circumstances include, but are not
limited to, a significant decrease in the fair value of the underlying business, a significant decrease in the benefits realized from an acquired business,
difficulties or delays in integrating the business or a significant change in the operations of an acquired business. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset, or asset group, to estimated undiscounted future cash flows expected to be generated by the
asset, or asset group. An impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value.
The Company amortizes intangible assets with estimable useful lives on a straight-line basis over their useful lives.
Revenue Recognition
Revenue is recognized when all of the following criteria have been met:
•
•
•
•
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.
Sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on the payment terms and
whether the sales price is subject to refund or adjustment.
Collectability is reasonably assured. The Company assesses collectability based on creditworthiness of customers as determined by our credit
checks and their payment histories. The Company records accounts receivable net of allowance for doubtful accounts, estimated customer returns,
and pricing credits.
In 2010, the Company adopted, on a prospective basis, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2009-13, Topic 605 - Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). ASU 2009-13 changes the requirements for establishing separate
units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable to be based on the relative
selling price. Concurrently with issuing ASU 2009-13, the FASB also issued ASU No. 2009-14, Topic 985 - Certain Revenue Arrangements That Include
Software Elements (“ASU 2009-14”). ASU 2009-14 excludes software that is contained on a tangible product from the scope of software revenue guidance if
the software component and the non-software component function together to deliver the tangible products' essential functionality. The Company applied
these two standards for new and materially modified arrangements originating after December 31, 2009.
When a sales arrangement contains multiple elements and software and non-software components function together to deliver the tangible products' essential
functionality, the Company allocates revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-
specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE
nor TPE is available. The Company then recognizes revenue on each deliverable in accordance with its policies for product and service revenue recognition.
VSOE of selling price is based on the price charged when the element is sold separately. In determining VSOE, the Company requires that a substantial
majority of the selling prices fall within a reasonable range based on historical discounting
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
trends for specific products and services. TPE of selling price is established by evaluating largely interchangeable competitor products or services in stand-
alone sales to similarly situated customers. However, as the Company's products contain a significant element of proprietary technology and its solutions offer
substantially different features and functionality, the comparable pricing of products with similar functionality typically cannot be obtained. Additionally, as
the Company is unable to reliably determine what competitors products' selling prices are on a stand-alone basis, the Company is not typically able to
determine TPE. The ESP is established considering multiple factors including, but not limited to pricing practices in different geographies and through
different sales channels, gross margin objectives, internal costs, competitor pricing strategies, and industry technology lifecycles.
In multiple element arrangements where software deliverables are included, revenue is allocated to each separate unit of accounting for each of the non-
software deliverables and to the software deliverables as a group using the relative selling prices of each of the deliverables in the arrangement based on the
aforementioned selling price hierarchy. If the arrangement contains more than one software deliverable, the arrangement consideration allocated to the
software deliverables as a group is then allocated to each software deliverable using the guidance for recognizing software revenue.
The Company limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products or
services or subject to customer-specific return or refund privileges. The Company evaluates each deliverable in an arrangement to determine whether they
represent separate units of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value and there are no customer-
negotiated refunds or return rights for the delivered elements. If the arrangement includes a customer-negotiated refund or return right relative to the delivered
item, and the delivery and performance of the undelivered item is considered probable and substantially in the Company's control, the delivered element
constitutes a separate unit of accounting. In circumstances when the aforementioned criteria are not met, the deliverable is combined with the undelivered
elements, and the allocation of the arrangement consideration and revenue recognition is determined for the combined unit as a single unit. Allocation of the
consideration is determined at arrangement inception on the basis of each unit's relative selling price. The new standards do not generally change the units of
accounting for the Company's revenue transactions.
Prior to 2010, and for current software sales, the Company allocated revenue to each element using the residual method when the VSOE of fair value of the
undelivered items for arrangements with multiple elements, such as sales of products that include services and software, exists. Under the residual method, the
amount of revenue allocated to delivered elements equals the total arrangement consideration less the aggregate fair value of any undelivered elements. If
VSOE of one or more undelivered items does not exist, revenue from the entire arrangement is deferred and recognized at the earlier of: (i) delivery of those
elements or (ii) when fair value can be established unless maintenance is the only undelivered element, in which case, the entire arrangement fee is recognized
ratably over the contractual support period.
The Company accounts for multiple agreements with a single customer as one arrangement if the contractual terms and/or substance of those agreements
indicate that they may be so closely related that they are, in effect, parts of a single arrangement. For sales to direct end-users, value-added resellers, and
original equipment manufacturer ("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. For the Company's end-users and value-added
resellers, there are no significant obligations for future performance such as rights of return. The Company's agreements with its OEM partners may allow
future rights of returns or pricing credits. A portion of the Company's sales is 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 is based on historical sales returns and price protection credits, specific criteria outlined in
rebate agreements, and other factors known at the time.
Service revenues include revenue from maintenance, training, and professional services. Maintenance is offered under renewable contracts. Revenue from
maintenance service contracts is deferred and recognized ratably over the contractual support period, which is generally one to three years. Revenue from
training and professional services is recognized as services are completed or ratably over the contractual period, which is generally one year or less.
The Company sells certain interests in accounts receivable on a non-recourse basis as part of customer financing arrangements
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
primarily with one major financing company. Cash received under this arrangement in advance of revenue recognition is recorded as a secured borrowing
within other current liabilities.
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 Reserves
The Company 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. Warranty costs are accrued as part of the Company's cost of sales based on associated material costs, labor costs, and overhead at the time
revenue is recognized. Material costs are estimated primarily based upon the historical costs to repair or replace product returns within the warranty period.
Labor and overhead costs are estimated primarily based upon historical trends in the cost to support customer cases within the warranty period.
Contract Manufacturer Liabilities
The Company 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 produce the Company's products using design
specifications, quality assurance programs, and standards established by the Company, and they procure components and manufacture the products based on
the Company's demand forecasts. These forecasts are the Company's estimates of future demand for its products, based upon historical trends and 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.
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 incurred between achieving technological feasibility and
product general availability 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 $17.2 million, $17.1 million, and $11.4 million, for 2011,
2010, and 2009, 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.
Share-Based Compensation
The Company utilizes the Black-Scholes-Merton (“BSM”) option-pricing model in order to estimate the fair value of its share-
64
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
based payment awards on the date of grant. Share-base compensation expense for expected-to-vest share-based awards is valued under the single-option
approach and and amortized on a straight-line basis, net of estimated forfeitures, and RSUs and PSAs are amortized on a ratable 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 period.
The BSM model requires various highly subjective assumptions that represents management's best estimates of 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.
Provision for Income Taxes
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. To the extent that the Company believes any amounts are not more likely than not to be realized
through the reversal of the deferred tax liabilities and future income, the Company records a valuation allowance to reduce its 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
and measures potential liabilities based on its estimate of whether, and the extent to which, additional taxes will be due.
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 includes the components of comprehensive income (loss) as part of its consolidated statements of changes in equity. Accumulated
other comprehensive income (loss) includes net unrealized gains (losses) on available-for-sale securities and on derivatives designated as cash flow hedges
that are excluded from net income, and net foreign currency translations.
Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU No. 2011-04, Topic 820 - Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which amends current fair value measurement and disclosure
guidance to converge with International Financial Reporting Standards ("IFRS") and provides increased transparency around valuation inputs and investment
categorization. This guidance is effective for fiscal years and interim periods, beginning after December 15, 2011. Early application by public companies is
not permitted. The Company's adoption of ASU 2011-04 will not have an impact on its consolidated results of operations or financial condition.
In June 2011, the FASB issued ASU No. 2011-05, Topic 220 - Presentation of Comprehensive Income (“ASU 2011-05”), which requires an entity to present
total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of
comprehensive income or in two separate but consecutive statements and eliminates the option to present the components of other comprehensive income as
part of the statement of changes in stockholders' equity. This guidance is effective for fiscal years and interim periods, beginning after December 15, 2011.
The Company's adoption of ASU 2011-05 will not have an impact on its consolidated results of operations or financial condition.
In September 2011, the FASB issued ASU No. 2011-08, Topic 350 - Intangibles - Goodwill and Other ("ASU 2011-08"), which amends Topic 350 to allow
an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity would
not be required to calculate the fair value of a reporting unit unless the entity determines, based the qualitative assessment, that it is more likely than not that
its fair value is less than its carrying amount. This guidance is effective for annual and interim goodwill tests performed for years beginning after December
15,
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
2011. Early adoption is permitted. The Company's adoption of ASU 2011-08 is not expected to have an impact on its consolidated results of operations or
financial condition.
In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-12, Topic 220 - Comprehensive Income ("ASU 2011-12"), which
indefinitely deferred certain provisions of ASU 2011-05, including the requirement to present reclassification adjustments out of accumulated other
comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is
presented. This amendment is effective for both annual and interim financial statements beginning after December 15, 2011. The Company's adoption of ASU
2011-12 will not have an impact on its consolidated results of operations or financial condition.
In December 2011, the FASB issued ASU No. 2011-11, Topic 2010 - Balance Sheet ("ASU 2011-11"), which contains new disclosure requirements regarding
the nature of an entity's rights of set off and related arrangements associated with its financial instruments and derivative instruments. Under U.S. GAAP,
certain derivative and repurchase agreement arrangements are granted exceptions from the general off-setting model. To facilitate comparison between
financial statements prepared under U.S. GAAP and IFRS, the new disclosure requirement will provide financial statement users information regarding both
gross and net exposures. This guidance is effective for annual and interim financial statements beginning on or after January 1, 2013. Retrospective
application is required. The Company does not set off related arrangements associated with its financial instruments and derivative instruments. Its adoption
of ASU 2011-11 is not expected to have an impact on its consolidated results of operations or financial condition.
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Note 3. Net Income per Share
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company computed basic and diluted net income per share attributable to Juniper Networks common stockholders as follows (in millions, except per
share amounts):
Numerator:
Net income attributable to Juniper Networks
Denominator:
Weighted-average shares used to compute basic net income per share
Dilutive effect of employee stock awards
Weighted-average shares used to compute diluted net income per share
Net income per share attributable to Juniper Networks common stockholders:
Basic
Diluted
Years Ended December 31,
2011
2010
2009
$
425.1 $
618.4 $
117.0
529.8
11.6
541.4
522.4
16.4
538.8
523.6
10.4
534.0
$
$
0.80 $
1.18 $
0.79 $
1.15 $
0.22
0.22
Basic net income per share is computed using net income available to common stockholders and the weighted-average number of common shares outstanding
for the period. Diluted net income per share is computed using net income available to common stockholders and the weighted-average number of common
shares outstanding plus potentially dilutive common shares outstanding during the period. Dilutive potential common shares consist of common shares
issuable upon exercise of stock options, employee stock purchase plan, vesting of restricted stock units ("RSUs"), and vesting of performance share awards
("PSAs").
The Company excludes both outstanding stock options with exercise prices that are greater than the average market price and RSUs with grant date fair
market value that are greater than the average market price from the calculation of diluted net income per share because their effect would be anti-dilutive.
The Company includes the common shares underlying PSAs in the calculation of diluted net income per share when they become contingently issuable and
excludes such shares when they are not contingently issuable. Potentially dilutive common shares of approximately 17.4 million, 14.0 million, and 38.9
million shares were outstanding but were not included in the computation of diluted earnings per share for the years ended December 31, 2011, 2010, and
2009, respectively.
Note 4. 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
67
As of December 31,
2011
2010
$
633.7
$
926.0
1,559.7
—
24.5
10.0
1,316.2
1,350.7
$
2,910.4
$
413.0
273.3
686.3
76.7
5.0
4.0
1,039.9
1,125.6
1,811.9
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Investments in Available-for-Sale and Trading Securities
The following table summarizes unrealized gains and losses related to the Company's investments with stated maturities of greater than three months
designated as available-for-sale and trading securities, as of December 31, 2011, and 2010 (in millions):
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
As of December 31, 2011:
Fixed income securities:
U.S. government securities
Government-sponsored enterprise obligations
Foreign government debt securities
Certificates of deposit
Asset-backed securities
Corporate debt securities
Total fixed income securities
Total available-for-sale securities
Trading securities:
Mutual funds (1)
Total trading securities
Total
Reported as:
Short-term investments
Long-term investments
Total
$
301.1
$
406.3
—
31.8
124.7
508.2
1,372.1
1,372.1
9.3
9.3
$
$
$
1,381.4
$
640.9
$
740.5
1,381.4
$
—
0.3
—
—
0.1
1.0
1.4
1.4
—
—
1.4
0.4
1.0
1.4
$
$
$
$
$
(0.1)
(0.1)
—
—
(0.1)
(0.5)
(0.8)
(0.8)
—
—
301.0
406.5
—
31.8
124.7
508.7
1,372.7
1,372.7
9.3
9.3
(0.8)
$
1,382.0
—
(0.8)
(0.8)
$
$
641.3
740.7
1,382.0
________________________________
(1)
Balance includes the Company's non-qualified deferred compensation plan assets. For additional information, see Note 12, Employee Benefits Plans , under the section Deferred
Compensation Plan.
68
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
As of December 31, 2010:
Fixed income securities:
U.S. government securities
Government-sponsored enterprise obligations
Foreign government debt securities
Certificates of deposit
Commercial paper
Asset-backed securities
Corporate debt securities
Total fixed income securities
Total available-for-sale securities
Trading securities:
Mutual funds (1)
Total trading securities
Total
Reported as:
Short-term investments
Long-term investments
Total
$
158.2
$
213.8
46.8
20.9
9.5
90.1
459.7
999.0
999.0
8.1
8.1
$
$
$
1,007.1
$
473.6
$
533.5
1,007.1
$
0.2
0.4
0.2
0.1
—
—
2.2
3.1
3.1
—
—
3.1
0.9
2.2
3.1
$
$
$
$
$
—
(0.2)
—
—
—
(0.1)
(0.2)
(0.5)
(0.5)
—
—
158.4
214.0
47.0
21.0
9.5
90.0
461.7
1,001.6
1,001.6
8.1
8.1
(0.5)
$
1,009.7
—
(0.5)
(0.5)
$
$
474.5
535.2
1,009.7
________________________________
(1)
Balance includes the Company's non-qualified deferred compensation plan assets. For additional information, see Note 12, Employee Benefits Plans, under the section Deferred
Compensation Plan.
The following table presents the maturities of the Company's available-for-sale securities, as of December 31, 2011 (in millions):
Due within one year
Due between one and five years
Total
$
$
$
631.6
740.5
1,372.1
$
0.4
1.0
1.4
$
$
—
(0.8)
(0.8)
$
$
632.0
740.7
1,372.7
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
The following tables present the Company's available-for-sale investments that are in an unrealized loss position as of December 31, 2011 , and December 31,
2010 (in millions):
As of December 31, 2011
Corporate debt securities
U.S. government securities
Government-sponsored enterprise obligations
Asset-backed securities
Total
Less than 12 Months
12 Months or Greater
Total
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
$
189.9 $
186.7
146.0
76.8
$
599.4 $
(0.5)
(0.1)
(0.1)
(0.1)
(0.8)
$
$
—
—
—
*
0.3
0.3
$
$
— $
189.9 $
—
—
—
186.7
146.0
77.1 *
— $
599.7 $
(0.5)
(0.1)
(0.1)
(0.1)
(0.8)
________________________________
* Balance includes investments that were in an immaterial unrealized loss position as of December 31, 2011.
69
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2010
Corporate debt securities
Government-sponsored enterprise obligations
Foreign government debt securities
Commercial paper
Asset-backed securities
Total
Less than 12 Months
12 Months or Greater
Total
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
$
104.3 $
57.8
—
5.0 *
54.7
$
221.8 $
(0.2)
(0.2)
—
—
(0.1)
(0.5)
$
28.8 *
$
— $
133.1 * $
—
6.2 *
—
—
—
—
—
—
57.8
6.2 *
5.0 *
54.7
$
35.0
$
— $
256.8 $
(0.2)
(0.2)
—
—
(0.1)
(0.5)
________________________________
* Balance includes investments that were in an immaterial unrealized loss position as of December 31, 2010.
There were no material realized gains or losses from the sale of available-for-sale and trading securities in 2011, 2010, and 2009. The Company generated
cash proceeds of $1,926.6 million, $1,624.4 million, and $683.8 million from maturities and sales of our available-for-sale investments during 2011, 2010,
and 2009, respectively.
The Company had 135 and 73 investments in unrealized loss positions as of December 31, 2011, and December 31, 2010, respectively. The gross unrealized
losses related to these investments were primarily due to changes in market interest rates. For the fixed income securities that have unrealized losses, the
Company 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, 2011, and December 31, 2010. 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 and Investments
The Company classifies cash and investments as restricted cash and investments on its consolidated balance sheet for: (i) amounts held in escrow accounts, as
required by certain acquisitions; (ii) the India Gratuity Trust and Israel Retirement Trust, which cover statutory severance obligations in the event of
termination of the Company's India and Israel employees, respectively; and (iii) the Directors and Officers ("D&O") indemnification trust. During the year
ended December 31, 2011 , the Company distributed approximately $42.0 million of restricted cash, mainly related to the 2010 acquisitions.
In 2010, the Company increased its restricted cash and cash investments by $261.9 million , primarily for the escrow accounts required by the acquisitions
completed in 2010, and to a lesser extent for the Israel Retirement Trust established in the first quarter of 2010. The increases in restricted cash were partially
offset by distributions of approximately $196.5 million , mainly related to the 2010 acquisitions.
In connection with the 2010 acquisition of Ankeena Networks, Inc. ("Ankeena"), the Company agreed to pay from escrow a total amount of $10.7 million,
representing the cash value of unvested restricted shares of Ankeena common stock as of April 8, 2010, held by certain former Ankeena employees. Through
December 31, 2011, the Company has released $9.8 million from escrow and expects to release the remaining $0.9 million from escrow over the next nine
months.
The following table summarizes the Company's cash and investments that are classified as restricted cash and investments in the consolidated balance sheets
(in millions):
70
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Restricted cash:
Demand deposits
Total restricted cash
Restricted investments:
U.S. government securities
Corporate debt securities
Mutual funds
Money market funds
Total restricted investments
Total restricted cash and investments
As of December 31,
2011
2010
$
$
$
0.6
0.6
—
1.6
1.0
75.1
77.7
78.3
$
1.7
1.7
0.6
2.7
—
114.3
117.6
119.3
As of December 31, 2011, and 2010, the unrealized gains and losses related to restricted investments were immaterial.
Privately-Held Investments
The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company adjusts its privately-
held equity investments for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis.
As of December 31, 2011, and December 31, 2010, the carrying values of the Company’s privately-held and other equity investments of $51.8 million and
$22.1 million, respectively, were included in other long-term assets in the consolidated balance sheets. In 2011, 2010, and 2009, the Company invested a total
of $33.1 million, $13.3 million, and $7.2 million, respectively, in privately-held equity investments. In 2010, as a result of the acquisitions of Ankeena and
Altor Networks, Inc ("Altor"), the Company recognized a gain of $3.2 million and $2.1 million, respectively, from its minority equity investments in those
companies.
In the year ended December 31, 2011, the Company recognized a loss of $1.8 million from the impairment of a privately-held investment that the Company
judged to be other than temporary, partially offset by gains on other privately-held investments. In 2010, the Company determined there were no impairments
to its privately-held equity investments During the year ended December 31, 2009, the Company recognized an impairment loss of $5.5 million on its
investments in privately-held companies determined to be other than temporary.
Note 5. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables provide a summary of assets measured at fair value on a recurring basis and as reported in the consolidated balance sheets (in millions):
71
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Fair Value Measurements at December 31, 2011 Using:
Quoted Prices in Active Markets For
Identical Assets
Significant Other Observable
Remaining Inputs
Significant Other Unobservable
Remaining Inputs
(Level 1)
(Level 2)
(Level 3)
Total
Assets measured at fair value:
Available-for-sale debt
securities:
U.S. government securities
$
Government-sponsored
enterprise obligations
Commercial paper
Corporate debt securities (1)
Certificate of deposit
Asset-backed securities
Money market funds (2)
Total available-for-sale debt
securities
Total available-for-sale
securities
Trading securities:
Mutual funds (3)
Total trading securities
Derivative assets:
Foreign exchange contracts
Total derivative assets
Total assets measured at
fair value
Liabilities measured at fair value:
Derivative liabilities:
Foreign exchange contracts
Total derivative liabilities
Total liabilities measured at
fair value
$
$
$
149.3
314.2
—
—
—
—
1,391.3
1,854.8
1,854.8
10.3
10.3
—
—
1,865.1
—
—
—
$
$
$
$
151.7
116.8
10.0
510.3
31.8
124.7
—
945.3
945.3
—
—
0.4
0.4
945.7
(9.6)
(9.6)
(9.6)
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 301.0
431.0
10.0
510.3
31.8
124.7
1,391.3
2,800.1
2,800.1
10.3
10.3
0.4
0.4
$2,810.8
$
$
(9.6)
(9.6)
(9.6)
________________________________
(1)
(2)
(3)
Balance includes $1.6 million of restricted investments measured at fair market value, related to the Company's India Gratuity Trust.
Balance includes $75.1 million of restricted investments measured at fair market value, related to the Company's D&O trust and acquisition related escrows.
Balance includes $9.3 million of the Company's non-qualified deferred compensation plan assets and $1.0 million of restricted investments measured at fair market value, related to the
Company's India Gratuity Trust.
72
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Fair Value Measurements at December 31, 2011 Using:
Quoted Prices in Active Markets For
Identical Assets
Significant Other Observable
Remaining Inputs
Significant Other Unobservable
Remaining Inputs
(Level 1)
(Level 2)
(Level 3)
Total
Total assets measured at fair
value, reported as:
Cash equivalents
Short-term investments
Long-term investments
Restricted cash and
investments
Prepaid expenses and other
current assets
Total assets measured at
fair value
Total liabilities measured at fair
value, reported as:
Other accrued liabilities
Total liabilities measured at
fair value
$
$
$
$
1,316.2
168.9
303.9
76.1
—
1,865.1
—
—
$
$
$
$
34.5
472.4
436.8
1.6
0.4
945.7
(9.6)
(9.6)
$
$
$
$
—
—
—
—
—
—
—
—
$1,350.7
641.3
740.7
77.7
0.4
$2,810.8
$
$
(9.6)
(9.6)
Fair Value Measurements at December 31, 2010 Using:
Quoted Prices in Active Markets For
Identical Assets
Significant Other Observable
Remaining Inputs
Significant Other Unobservable
Remaining Inputs
(Level 1)
(Level 2)
(Level 3)
Total
Assets measured at fair value:
Available-for-sale debt
securities:
U.S. government securities (1) $
Government-sponsored
enterprise obligations
Foreign government debt
securities
Commercial paper
Corporate debt securities (2)
Certificate of deposit
Asset-backed securities
Money market funds (3)
Total available-for-sale debt
securities
Total available-for-sale
securities
Trading securities:
Mutual funds
Total trading securities
Derivative assets:
Foreign exchange contracts
Total derivative assets
$
54.9
208.9
21.0
—
2.7
—
—
1,154.2
1,441.7
1,441.7
8.1
8.1
—
—
$
180.8
10.1
26.0
13.5
461.7
21.0
90.0
—
803.1
803.1
—
—
0.4
0.4
Total assets measured at fair
value
$
1,449.8
$
803.5
$
Liabilities measured at fair value:
Derivative liabilities:
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 235.7
219.0
47.0
13.5
464.4
21.0
90.0
1,154.2
2,244.8
2,244.8
8.1
8.1
0.4
0.4
$2,253.3
Foreign exchange contracts
Total derivative liabilities
Total liabilities measured at
fair value
$
$
—
—
—
$
$
(2.6)
(2.6)
(2.6)
$
$
—
—
—
$
$
(2.6)
(2.6)
(2.6)
________________________________
(1)
Balance includes $0.6 million of restricted investments measured at fair market value, related to an acquisition completed in 2005. For additional information regarding the Company's
restricted investments, see Note 4, Cash, Cash Equivalents, and Investments , under the heading “Restricted Cash
73
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
and Investments.” Restricted investments are included in the restricted cash balance in the consolidated balance sheet.
(2)
(3)
Balance includes $2.7 million of restricted investments measured at fair market value, related to the Company's India Gratuity Trust.
Balance includes $114.3 million of restricted investments measured at fair market value, related to the Company's D&O trust and acquisition related escrows.
Fair Value Measurements at December 31, 2010 Using:
Quoted Prices in Active Markets For
Identical Assets
Significant Other Observable
Remaining Inputs
Significant Other Unobservable
Remaining Inputs
(Level 1)
(Level 2)
(Level 3)
Total
Total assets measured at fair
value, reported as:
Cash equivalents
Short-term investments
Long-term investments
Restricted cash
Prepaid expenses and other
current assets
Total assets measured at
fair value
Total liabilities measured at
fair value, reported as:
Other accrued liabilities
Total liabilities measured
at fair value
$
$
$
$
1,039.9
150.7
142.2
117.0
—
1,449.8
—
—
$
$
$
$
85.7
323.8
393.0
0.6
0.4
803.5
(2.6)
(2.6)
$
$
$
$
—
—
—
—
—
—
—
—
$1,125.6
474.5
535.2
117.6
0.4
$2,253.3
$
$
(2.6)
(2.6)
The Company's policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 as of the actual date of the events or change in
circumstances that caused the transfer. During the years ended December 31, 2011 , and 2010, the Company had no transfers between levels of the fair value
hierarchy of its assets or liabilities measured at fair value.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
As of December 31, 2011, and December 31, 2010, the carrying value of privately-held equity investments measured at fair value on a nonrecurring basis was
$0.4 million and $0.8 million, respectively. These privately-held equity investments, which are normally carried at cost, were measured at fair value due to
events and circumstances that the Company identified as significantly impacting the fair value of the investments. The Company measured the fair value of its
privately held equity investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and
their capital structure. As a result, the Company recognized an impairment loss of $1.8 million and $5.5 million, in years ended December 31, 2011 and 2009,
respectively, and classified the investment as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity. There were no such
charges in the year ended December 31, 2010.
The Company had no liabilities measured at fair value on a nonrecurring basis as of December 31, 2011 and December 31, 2010.
Assets and Liabilities Not Measured at Fair Value
The carrying amounts of the Company's accounts receivable, financing receivables, accounts payable, and other accrued liabilities approximate fair value due
to their short maturities. The fair value of the Company’s long-term debt is disclosed in Note 10, Financing, and was determined using quoted market prices
(Level 1).
74
Table of Contents
Note 6. Derivative Instruments
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company uses derivatives to partially offset its market exposure to fluctuations in certain foreign currencies and does not enter into derivatives for
speculative or trading purposes.
The notional amount of Company's foreign currency derivatives are summarized as follows (in millions):
Cash flow hedges
Non-designated hedges
Total
Cash Flow Hedges
As of December 31,
2011
2010
$
$
184.3
122.7
307.0
$
$
110.4
74.4
184.8
The Company uses foreign currency forward 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 one year or less. The effective portion of the derivative's gain or loss is initially reported as a component of accumulated other comprehensive
income (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 in other (expense) income, net in 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 earnings within the next 12 months.
The total fair value of the Company’s derivative assets located in other current assets on the consolidated balance sheet as of December 31, 2011 and
December 31, 2010 , was $0.4 million and $0.4 million , respectively. The total fair value of the Company’s derivative liabilities located in other accrued
liabilities on the consolidated balance sheet as of December 31, 2011 and December 31, 2010 , was $9.6 million and $2.6 million , respectively.
During the year ended December 31, 2011, the Company recognized a loss of $7.9 million in accumulated other comprehensive income for the effective
portion of its derivative instruments and reclassified a gain of $0.7 million from other comprehensive income to operating expense in the consolidated
statements of operations. During the year ended December 31, 2010, the Company recognized a loss of $3.0 million in accumulated other comprehensive
income for the effective portion of its derivative instruments and reclassified a loss of $2.1 million from other comprehensive income to operating expense in
the consolidated statements of operations. During the year ended December 31, 2009, the Company recognized a gain of $0.6 million in accumulated other
comprehensive income for the effective portion of its derivative instruments and reclassified a gain of $4.2 million from other comprehensive income to
operating expense in the consolidated statements of operations.
The ineffective portion of the Company's derivative instruments recognized in its consolidated statements of operations was immaterial during the years ended
December 31, 2011, 2010 and 2009.
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 other income and expense, net. Changes in the fair value of these derivatives are largely offset within the consolidated
statement of operations by re-measurement of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. The
derivatives have maturities of one year or less.
The Company recognized a gain of $1.5 million, a loss of $0.3 million, and a gain of $4.9 million on non-designated derivative instruments within other
(expense) income, net, in its consolidated statements of operations during the years ended December 31, 2011, 2010, and 2009, respectively.
75
Table of Contents
Note 7. Business Combinations
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company's consolidated financial statements include the operating results of acquired businesses from the date of each acquisition. Pro forma results of
operations for these acquisitions have not been presented as the financial impact to the Company's consolidated results of operations, both individually and in
aggregate, is not material. Additional information existing as of the acquisition dates but unknown to the Company may become known during the remainder
of the measurement period, not to exceed 12 months from the acquisition date, which may result in changes to the amounts and allocations recorded.
The Company completed two business combinations in 2011 and four business combinations in 2010 for either cash consideration or cash consideration along
with vested share-based awards assumed of approximately $30.5 million and $394.5 million , respectively. There were no acquisitions in 2009. Total purchase
consideration for these acquisitions at the acquisition dates was allocated as follows (in millions):
Allocation of purchase consideration:
Net tangible assets acquired
Intangible assets acquired
Goodwill
Total
2011 Acquisitions
2010 Acquisitions
$
$
1.7
28.4
0.4
30.5
$
$
8.8
116.5
269.2
394.5
The Company recognized $9.6 million and $6.3 million of acquisition-related costs in the years ended December 31, 2011 and 2010, respectively. These
acquisition related charges were expensed in the period incurred and reported in the Company's consolidated statement of operations within cost of revenues
and operating expense.
The goodwill recognized for the 2011 acquisitions is attributable primarily to expected synergies. None of the goodwill is deductible for U.S. federal income
tax purposes for acquisitions completed in 2011. Approximately $88.9 million of the acquired goodwill from a 2010 acquisition is deductible for income tax
purposes.
Fiscal 2011 Acquisitions
On February 9, 2011, the Company acquired certain IP assets of OpNext for $26.0 million in cash, which was accounted for as a business combination. The
acquisition of OpNext's ASIC technology is expected to help further Juniper's next-generation development of converged packet optical solutions for the
Company's service provider customers. In connection with this acquisition, the Company acquired net assets of $25.7 million, and recognized goodwill of
$0.3 million, which was assigned to the Company's Infrastructure segment.
On February 18, 2011, the Company acquired certain assets, including all the intellectual property ("IP"), of Brilliant, a supplier of next-generation packet-
based, network synchronization equipment and monitoring solutions, for $4.5 million in cash. This IP is expected to assist the Company in extending its
market position by delivering solutions that offer greater flexibility for service providers as they continue to deploy 3G and 4G networks. In connection with
this acquisition, the Company acquired net assets of $4.4 million, and recognized goodwill of $0.1 million, which was assigned to the Company's
Infrastructure segment.
Fiscal 2010 Acquisitions
In 2010, the Company completed the acquisitions of Ankeena, SMobile Systems, Inc. (“SMobile”), Altor, and Trapeze Networks ("Trapeze").
Total purchase consideration for these acquisitions is summarized as follows (in millions):
Net cash
Assumed stock option and RSU awards allocated to purchase price (1)
Total
________________________________
76
Ankeena
SMobile
Altor
Trapeze
Total
$
$
66.5 $
69.5 $
104.0 $
152.1 $
392.1
2.4
—
—
—
2.4
68.9 $
69.5 $
104.0 $
152.1 $
394.5
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
(1)
The fair value of the stock option and RSU awards assumed was based on the acquired company's determined value on the acquisition date.
Ankeena Acquisition
On April 19, 2010, the Company acquired 100% of the equity securities of Ankeena, a privately-held provider of new media infrastructure technology. In
connection with the acquisition of Ankeena, the Company acquired net assets of $3.6 million, including cash and cash equivalents of $2.3 million, and
recognized goodwill of $53.1 million, which was assigned to the Company's Infrastructure segment.
Prior to the acquisition, the Company had a $2.0 million , or a 7.7% ownership interest in Ankeena, and accounted for it as a privately-held equity investment.
As of the acquisition-date, the fair value of the equity interest in Ankeena was $5.2 million based on a noncontrolling interest fair value and was included in
the purchase price. The Company recognized a $3.2 million gain, which was reported within gain (loss) on equity investments in its consolidated statement of
operations.
SMobile Acquisition
On July 30, 2010, the Company acquired 100% of the equity securities of SMobile, a privately-held software company focused solely on smartphone and
tablet security solutions for the enterprise, service provider, and consumer markets. In connection with the acquisition of SMobile, the Company assumed net
liabilities of $5.2 million, including cash and cash equivalents of $0.4 million, and recognized goodwill of $48.1 million, which was assigned to the
Company's Service Layer Technology ("SLT") segment.
Altor Acquisition
On December 6, 2010, the Company acquired 100% of the equity securities of Altor, a privately-held provider of virtualization security. In connection with
the acquisition of Altor, the Company acquired net assets of $4.5 million , including cash and cash equivalents of $6.4 million , and recognized goodwill of
$78.2 million , which was assigned to the Company's SLT segment.
Prior to the acquisition, the Company had a $2.0 million, or a 5.0% ownership interest in Altor, accounted for as a privately-held equity investment. As of the
acquisition-date, the fair value of the equity interest in Altor was $4.1 million based on a noncontrolling interest fair value and was included in the purchase
price. The Company recognized a $2.1 million gain, which was reported within gain (loss) on equity investments in its consolidated statement of operations.
Trapeze Acquisition
On December 16, 2010, the Company acquired 100% of the equity securities of Trapeze, a subsidiary of Belden Inc. and a provider of enterprise wireless
local area network ("WLAN") solutions. In connection with the acquisition of Trapeze, the Company acquired net assets of $5.9 million, including cash and
cash equivalents of $0.8 million, and recognized goodwill of $89.8 million, which was assigned to the Company's Infrastructure segment.
Intangible Assets Acquired
The following table presents details of the intangible assets acquired through the business combinations completed in 2011, as of December 31, 2011 (in
millions, except years):
Existing or Core technology
Support agreements and related relationships
Patents
Total
2011 Acquisitions
Estimated Useful Life (In Years)
Amount
10
4
5
$
$
21.9
5.1
1.4
28.4
The following table presents details of the intangible assets acquired through the business combinations completed during 2010, as of December 31, 2011 (in
millions, except years):
77
Table of Contents
Existing technology
In-process research
and development
Core technology
Customer contracts
and related
relationships
Support agreements
and related
relationships
Non-compete
agreements
OEM customer
contracts
Total
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
2010 Acquisitions
Ankeena
SMobile
Altor
Trapeze
Estimated Useful
Life (In Years)
Amount Estimated Useful
Life (In Years)
Amount Estimated Useful
Life (In Years)
Amount Estimated Useful
Life (In Years)
Amount Total Amount
4.0
—
4.0
—
—
—
—
$
9.0
—
3.2
—
5.0
—
—
6.0
$ 24.3
—
—
2.1
—
6.0
0.1
—
—
2.0
—
0.1
—
6.0
—
6.0
—
—
—
—
$ 13.9
2.8
4.6
—
5.0
—
—
7.0
$ 45.0 $
—
—
8.6
92.2
2.8
7.8
10.7
—
7.0
2.6
2.7
—
—
—
2.0
—
0.2
0.1
0.2
$ 12.2
$ 26.6
$ 21.3
$ 56.4 $
116.5
Acquired in-process research and development (“IPR&D”) consists of existing research and development projects at the time of the acquisition. Projects that
qualify as IPR&D assets represent those that have not yet reached technological feasibility and have no alternative future use. After initial recognition,
acquired IPR&D assets are accounted for as indefinite-lived intangible assets. Development costs incurred after acquisition on acquired development projects
are expensed as incurred. Upon completion of development, acquired IPR&D assets are considered amortizable intangible assets. If the IPR&D project is
abandoned, the Company writes off the related purchased intangible asset in the period it is abandoned.
Note 8. Goodwill and Purchased Intangible Assets
Goodwill
The following table summarizes the Company's goodwill activities by segment (in millions):
December 31, 2009
Adjustment to goodwill
Additions due to business combinations
December 31, 2010
Adjustments to goodwill
Additions due to business combinations
December 31, 2011
Infrastructure
SLT
Total
1,500.5
$
2,158.1
$
—
142.9
1,643.4
1.7
0.4
0.2
126.1
2,284.4
(1.8)
—
3,658.6
0.2
269.0
3,927.8
(0.1)
0.4
1,645.5
$
2,282.6
$
3,928.1
$
$
The adjustments to goodwill during the year ended December 31, 2011, were related to adjustments in net tangible assets assumed from certain businesses
acquired in 2010 and 2011. There were no impairments to goodwill during the years ended December 31, 2011, 2010 and 2009. As of December 31, 2011,
accumulated impairment losses were $1,280.0 million, all of which were associated with the SLT segment.
Purchased Intangible Assets
Changes to the Company’s purchased intangible assets were as follows (in millions):
78
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2011:
Intangible assets with finite lives:
Technologies and patents
Other
Total intangible assets with finite lives
IPR&D with indefinite lives
Total purchased intangible assets
As of December 31, 2010:
Intangible assets with finite lives:
Technologies and patents
Other
Total intangible assets with finite lives
IPR&D with indefinite lives
Total purchased intangible assets
Gross
Accumulated Amortization
Net
$
499.5 $
91.5
591.0
2.8
$
593.8 $
$
471.1 $
86.4
557.5
7.9
$
565.4 $
(404.2)
(66.5)
(470.7)
—
(470.7)
(381.4)
(62.2)
(443.6)
—
(443.6)
$
$
$
$
95.3
25.0
120.3
2.8
123.1
89.7
24.2
113.9
7.9
121.8
During the year ended December 31, 2011, the Company added $28.4 million of purchased intangible assets as a result of acquisitions completed during 2011.
During the year ended December 31, 2010, the Company added $116.5 million, of purchased intangible assets as a result of acquisitions completed during
2010. Amortization of purchased intangible assets included in operating expenses and cost of product revenues totaled $27.1 million, $8.6 million and $15.4
million for the years ended December 31, 2011, 2010 and 2009, respectively.
The estimated future amortization expense of purchased intangible assets with finite lives is as follows (in millions):
Years Ending December 31,
Amount
2012
2013
2014
2015
2016
Thereafter
Total
Note 9. Other Financial Information
Inventories, net
$
$
27.4
27.2
25.3
20.4
7.7
12.3
120.3
The Company's inventories are stated at the lower of standard cost or market, which approximates actual cost. Inventories, net are reported within prepaid
expenses and other current assets on the consolidated balance sheet and consist of the following (in millions):
Inventories, net
Production materials
Finished goods
Total inventories, net
As of December 31,
2011
2010
$
$
52.4
16.7
69.1
$
$
5.8
15.8
21.6
79
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Property and Equipment
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Property and equipment consist of the following (in millions):
Computers and equipment
Software
Leasehold improvements
Furniture and fixtures
Building and building improvements
Land and land improvements
Construction-in-process
Property and equipment, gross
Accumulated depreciation
Property and equipment, net
As of December 31,
2011
2010
604.6
110.2
204.1
27.4
6.2
208.2
99.7
1,260.4
(661.8)
598.6
$
$
514.3
101.6
179.0
24.9
—
203.7
41.9
1,065.4
(571.5)
493.9
$
$
Depreciation expense was $142.2 million, $146.8 million, and $133.0 million in 2011, 2010, and 2009, respectively. In 2011, the Company recorded a $13.5
million asset impairment charge in restructuring and other charges on the consolidated statement of operations related to an abandoned in-process internal use
software project.
Deferred Revenue
Details of the Company's deferred revenue were as follows (in millions):
Deferred product revenue:
Undelivered product commitments and other product deferrals
Distributor inventory and other sell-through items
Deferred gross product revenue
Deferred cost of product revenue
Deferred product revenue, net
Deferred service revenue
Total
Reported as:
Current
Long-term
Total deferred revenue
As of December 31,
2011
2010
$
288.1
$
134.0
422.1
(136.9)
285.2
681.8
$
$
$
967.0
$
712.6
$
254.4
967.0
$
294.1
143.4
437.5
(148.8)
288.7
595.7
884.4
660.2
224.2
884.4
Deferred product revenue primarily represents unrecognized revenue related to shipments to distributors that have not sold through to end-users, undelivered
product commitments, and other shipments that have not met all revenue recognition criteria. Deferred product revenue is recorded net of the related costs of
product revenue. Deferred service revenue represents customer payments made in advance for services, which include technical support, hardware and
software maintenance, professional services, and training.
Warranties
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. This provision is reported as accrued warranty within other current liabilities on the consolidated balance sheets. Changes in the
Company’s warranty reserve were as follows (in millions):
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Beginning balance
Provisions made during the period, net
Change in estimate
Actual costs incurred during the period
Ending balance
Restructuring Liabilities
As of December 31,
2011
2010
$
$
35.9
52.5
(12.6)
(47.5)
28.3
$
$
38.2
49.9
(3.0)
(49.2)
35.9
In the third quarter of 2011, the Company implemented a restructuring plan (the "2011 Restructuring Plan") in an effort to better align its business operations
with the current market and macroeconomic conditions. The 2011 Restructuring Plan primarily consisted of certain workforce reductions, and to a lesser
extent, contract terminations.
During 2009, the Company implemented a restructuring plan (the "2009 Restructuring Plan") in an effort to better align its business operations with the
market and macroeconomic conditions. The 2009 Restructuring Plan included restructuring of certain business functions that resulted in reductions of
workforce and facilities. The Company recorded the majority of the restructuring charges associated with this plan during the years ended 2010 and 2009.
The Company recorded net restructuring charges of $ 17.1 million in the year ended December 31, 2011, primarily due to the implementation of its 2011
Restructuring Plan, and recorded $10.8 million and $19.5 million in restructuring charges during the years ended December 31, 2010, and 2009, respectively,
associated with the 2009 Restructuring Plan. As of December 31, 2011 , remaining restructuring liability under the 2011 Restructuring Plan was related to
severance costs to be paid out in the first half of 2012, as well as facilities related charges under the 2009 Restructuring Plan, which is expected to be
completed through February 2015.
Restructuring charges were based on the Company's restructuring plans that were committed by management. Any changes in the estimates of executing the
approved plans will be reflected in the Company's results of operations. The following tables provide a summary of changes in the Company’s restructuring
liability, which is reported in current and long-term liabilities on its consolidated balance sheets, for 2011 and 2010 (in millions):
Remaining Liability as of
December 31, 2010
Charges Cash payments Non-cash Settlements and Other Adjustments Remaining Liability as of
December 31, 2011
Facilities
Severance, contractual commitments, and
other charges
Total
$
$
7.7
0.2
7.9
$
0.2 $
(5.3)
$
16.9
(13.3)
$ 17.1 $
(18.6)
$
(1.6)
(0.7)
(2.3)
$
$
1.0
3.1
4.1
Remaining Liability as of
December 31, 2009
Charges Cash payments Non-cash Settlements and Other Adjustments Remaining Liability as of
December 31, 2010
Facilities
Severance, contractual
commitments, and other charges
Total
$
$
4.9
4.5
9.4
$
6.9 $
3.9
$
(2.5)
(5.5)
$ 10.8 $
(8.0)
$
(1.6)
(2.7)
(4.3)
$
$
7.7
0.2
7.9
Other Expense and Income, Net
Other expense and income, net consists of the following (in millions):
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Interest income
Interest expense
Other income and expense, net
Other (expense) income, net
Years Ended December 31,
2011
2010
2009
$
$
9.7
(49.5)
(7.0)
(46.8)
$
$
10.5
(8.7)
8.8
10.6
$
$
11.8
(6.0)
(4.6)
1.4
Interest income primarily includes interest earned on the Company’s cash, cash equivalents, and investments. Interest expense primarily includes interest
expense from long-term debt and customer financing arrangements. Other income and expense typically consists of investment and foreign exchange gains
and losses and other non-operational income and expense items.
In 2011, the Company recognized $37.7 million in interest expense in connection with its long-term debt issued in March 2011. In 2011, other income and
expense, net, included certain legal expenses unrelated to current or recent operations of approximately $7.0 million . In 2010, the Company recognized a total
gain of $8.7 million , primarily due to acquisitions of its privately-held equity investments in Ankeena and Altor. During 2009, the Company recognized an
impairment loss of $5.6 million on its equity investments for changes in fair value that the Company believed were other-than-temporary.
Note 10. Financing
Long-Term Debt
In March 2011, the Company issued $300.0 million aggregate principal amount of 3.10% senior notes due 2016 ("2016 Notes"), $300.0 million aggregate
principal amount of 4.60% senior notes due 2021 ("2021 Notes"), and $400.0 million aggregate principal amount of 5.95% senior notes due 2041 ("2041
Notes" and, together with the 2016 Notes and the 2021 Notes, the "Notes"). Interest on the Notes is payable in cash semiannually. The Company may redeem
the Notes, at any time in whole or from time to time in part, subject to a make-whole premium, and, in the event of a change in control, the holders of the
Notes may require the Company to repurchase for cash all or part of the Notes at a purchase price equal to 101% of the aggregate principle amount, plus
accrued and unpaid interest, if any. The indenture that governs the Notes also contains various covenants, including limitations on the Company's ability to
incur liens or enter into sale-leaseback transactions over certain dollar thresholds.
The following table summarizes the Company's long-term debt entered into in 2011 (in millions, except percentages):
3.10% fixed-rate Notes, due 2016
4.60% fixed-rate Notes, due 2021
5.95% fixed-rate Notes, due 2041
Total Notes
Unaccreted discount
Total long-term debt
As of
December 31, 2011
Amount
Effective Interest Rate
$
$
300.0
300.0
400.0
1,000.0
(1.0)
999.0
3.12%
4.63%
6.01%
The effective rates for the Notes include the interest on the Notes, accretion of the discount, and amortization of issuance costs. At December 31, 2011, the
estimated fair value of the Notes included in long-term debt was approximately $1,069.8 million based on quoted market prices (Level 1).
Customer 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 surrendered control over the transferred assets. The accounts receivable were isolated from the Company and put beyond the reach of creditors,
even in
82
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 $738.2 million , $637.5 million and $449.8 million
during the years ended December 31, 2011 , 2010 and 2009, respectively. The Company received cash proceeds from the financing provider of $686.5
million , $595.7 million and $426.3 million during the years ended December 31, 2011 , 2010 and 2009, respectively. The amounts owed by the financing
provider recorded as accounts receivable on the Company’s consolidated balance sheets as of December 31, 2011 , and December 31, 2010 , were $162.9
million and $127.4 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 and other long-term liabilities in the consolidated balance sheet. As of December 31, 2011 and December 31, 2010, the estimated cash received
from the financing provider not recognized as revenue from distributors was $33.3 million and $49.1 million, respectively.
Note 11. Equity
Stock Repurchase Activities
In February 2010, the Company’s Board of Directors (the “Board”) approved a stock repurchase program (the “2010 Stock Repurchase Program”) which
authorized the Company to repurchase up to $1.0 billion of its common stock. This authorization was in addition to the stock repurchase program approved by
the Board in March 2008 (the “2008 Stock Repurchase Program”), which also enabled the Company to repurchase up to $1.0 billion of the Company’s
common stock.
The Company repurchased and retired approximately 17.5 million shares of its common stock at an average price of $30.93 per share for an aggregate
purchase price of $541.2 million during year ended December 31, 2011 under its 2010 Stock Repurchase Program. The Company repurchased approximately
19.7 million shares of its common stock at an average price of $28.67 per share for a total purchase price of $563.5 million in the year ended December 31,
2010 under the two stock repurchase programs. There are no remaining authorized funds under the 2008 Stock Repurchase Program and $213.8 million
remaining authorized funds under the 2010 Stock Repurchase Program as of December 31, 2011.
In addition to repurchases under the Company’s stock repurchase programs, there were also broker-transacted repurchases of common stock from the
Company's employees in connection with net issuance of shares to satisfy tax withholding obligations for the vesting of certain RSUs and PSAs. There were
broker-transacted repurchases of approximately 0.2 million shares of common stock at an average price of $35.98 per share for an aggregate purchase price of
$7.4 million in connection with the net issuances during the year ended December 31, 2011. There were broker-transacted repurchases of approximately 0.1
million shares of common stock at an average price of $25.75 per share for an aggregate purchase price of $1.9 million in connection with the net issuances
during the year ended December 31, 2010.
All shares of common stock repurchased under the Company’s 2008 and 2010 stock repurchase programs and from its employees in connection with net
issuances have been retired. Future share repurchases under the Company’s 2010 Stock Repurchase Program will be subject to a review of the circumstances
in place at that time and will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal
requirements. This program may be discontinued at any time. See Note 17, Subsequent Events , for discussion of the Company's stock repurchase activity in
2012.
Comprehensive Income Attributable to Juniper Networks
Comprehensive income attributable to Juniper Networks consists of the following (in millions):
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Consolidated net income
Other comprehensive income (loss), net:
Change in unrealized gain (loss) on investments, net
Change in foreign currency translation adjustment, net
Total other comprehensive income (loss), net
Consolidated comprehensive income
Years Ended December 31,
2011
2010
2009
$ 425.0 $ 619.4 $ 115.2
(9.9)
(6.4)
(16.3)
(0.3)
(2.8)
0.5
0.2
5.6
2.8
408.7
619.6
118.0
Adjust for comprehensive loss (income) attributable to noncontrolling interest, net
0.1
(1.0)
1.8
Comprehensive income attributable to Juniper Networks
$ 408.8 $ 618.6 $ 119.8
Note 12. Employee Benefit Plans
Share-Based Compensation Plans
The Company’s share-based compensation plans include the 2006 Equity Incentive Plan (the “2006 Plan”), the 2000 Nonstatutory Stock Option Plan (the
“2000 Plan”), the Amended and Restated 1996 Stock Plan (the “1996 Plan”), various equity incentive plans assumed through acquisitions, the 2008 Employee
Stock Purchase Plan (the “2008 Purchase Plan”), and the 1999 Employee Stock Purchase Plan ("1999 Purchase Plan"). Under these plans, the Company has
granted (or in the case of acquired plans, assumed) stock options, RSUs, and PSAs.
As of December 31, 2011, a total of approximately 105.2 million shares of common stock were reserved for future issuance upon exercise of stock options
and for the future grant of share-based compensation awards under the Company's equity incentive plans and the 2008 Purchase Plan.
The 2006 Plan, adopted and approved by the Company’s stockholders in May 2006, had an initial authorized share reserve of 64.5 million shares of common
stock plus the addition of any shares subject to options under the 2000 Plan and the 1996 Plan that were outstanding as of May 18, 2006, and that
subsequently expire unexercised, up to a maximum of an additional 75.0 million shares. In the second quarters of 2011 and 2010, the Company’s
stockholders’ approved amendments to the 2006 Plan that increased the number of shares reserved for issuance thereby increasing the authorized share
reserve by 30.0 million shares in May 2011 and 2010. As of December 31, 2011 , the 2006 Plan had 58.2 million shares subject to currently outstanding
equity awards and 41.1 million shares available for future issuance. 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, RSUs or PSAs that vest solely based on continuing employment or provision of services will vest in
full no earlier than three years from 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 one year from the grant date.
In connection with past acquisitions, the Company assumed stock option and RSU awards under the stock plans of the acquired companies. The Company
exchanged those awards for Juniper Networks' stock options and RSUs. As of December 31, 2011, stock options and RSUs covering approximately 1.4
million shares of common stock were outstanding under awards assumed through the Company's past acquisitions.
The Company adopted the 2008 Purchase Plan, in May 2008, which replaced the 1999 Purchase Plan. The Board reserves an aggregate of 12.0 million shares
of the Company's common stock for issuance under this 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 2008 Purchase Plan
permits eligible employees to acquire shares of the Company’s common stock at a 15% discount to the offering price (as determined in the 2008 Purchase
Plan) through periodic payroll deductions of up to 10% of base compensation, subject to individual purchase limits of 6,000 shares in any twelve-month
period or $25,000 worth of stock, determined at the fair market value of the shares at the time the stock purchase option is granted, in one calendar year.
In December 2005, the Board amended the Juniper Networks 1999 Employee Stock Purchase Plan that was approved by the Board in April 1999. Under the
1999 Purchase Plan, the Board authorized a maximum number of 12.0 million shares, plus an
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
annual increase to be added on the first day of the Company's fiscal year beginning in 2000 equal to the lesser of (1) 3.0 million shares or (2) 1% of the
outstanding shares on such date or (3) a lesser amount determined by the Board. 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.
Stock Option Activities
Since 2006, the Company has granted stock option awards that have a maximum contractual life of seven years from the date of grant. Prior to 2006, stock
option awards generally had a ten-year contractual life from the date of grant. The following table summarizes the Company’s stock option activity and
related information as of and for the three years ended December 31, 2011 (in millions, except for per share amounts and years):
Number of Shares Weighted Average
Exercise Price per Share
Weighted Average Remaining Contractual Term (In
Years)
Aggregate Intrinsic Value
Outstanding Options
Balance at December 31, 2008
Options granted
Options canceled
Options exercised
Options expired
Balance at December 31, 2009
Options granted
Options assumed (1)
Options canceled
Options exercised
Options expired
Balance at December 31, 2010
Options granted
Options canceled
Options exercised
Options expired
Balance at December 31, 2011
73.6
9.9
(2.3)
(8.6)
(5.2)
67.4
6.2
0.5
(2.3)
(21.6)
(0.8)
49.4
5.6
(1.9)
(13.9)
(0.6)
38.6
$
$
21.24
17.86
21.57
14.59
34.91
20.84
29.15
31.65
22.03
18.99
61.48
21.90
37.17
26.76
21.13
34.32
23.98
As of December 31, 2011:
Vested or expected-to-vest options
36.9
$
23.66
Exercisable options
21.51
Stock options assumed in connection with the acquisition of Ankeena and Altor.
26.1
$
(1)
4.6
$
451.2
4.1
3.7
3.7
3.0
$
744.5
$
$
$
75.3
74.2
61.7
Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $20.41 per
share as of December 31, 2011 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 $249.8 million, $260.3 million, and $83.6 million for 2011, 2010, and 2009, respectively. Total fair value of options vested during 2011, 2010, and 2009
was $80.7 million, $83.2 million, and $88.9 million, respectively.
85
Table of Contents
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, 2011:
Range of Exercise Price Number Outstanding
Weighted-Average
Remaining Contractual Life
Weighted-Average Exercise Price Number Exercisable
Weighted-Average Exercise Price
(In millions)
(In years)
(In dollars)
(In millions)
(In dollars)
Options Outstanding
Options Exercisable
$0.33 - $14.91
$15.00 - $15.09
$15.32 - $18.96
$19.45 - $22.74
$22.97 - $25.16
$25.19 - $26.90
$26.97 - $29.89
$29.93 - $38.93
$40.26 - $44.00
4.3
4.0
4.4
4.0
5.7
4.6
4.9
3.2
3.5
38.6
2.2
3.5
2.5
3.8
3.1
3.9
4.8
4.3
6.2
3.7
$
$
10.84
15.07
17.69
21.27
24.47
26.33
28.58
33.35
41.87
23.98
$
3.7
2.7
3.9
2.7
5.3
3.2
2.5
2.1
—
26.1
$
10.45
15.06
17.78
21.36
24.44
26.35
28.46
32.77
—
21.51
As of December 31, 2011, approximately 26.1 million shares of common stock were exercisable at an average exercise price of $21.51 per share. As of
December 31, 2010, approximately 32.1 million shares of common stock were exercisable at a weighted-average exercise price of $20.96 per share.
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 PSAs generally vest over three years provided that certain annual
performance targets and other vesting criteria are met. Until vested, RSUs and PSAs do not have the voting and dividend participation rights of common stock
and the shares underlying the awards are not considered issued and outstanding.
The following table summarizes the Company’s RSU and PSA activity and related information as of and for the three years ended December 31, 2011 (in
millions, except per share amounts and years):
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Number of Shares Weighted Average Grant-Date Fair Value per
Share
Weighted Average Remaining
Contractual Term (In Years)
Aggregate Intrinsic Value
Outstanding RSUs and PSAs
Balance at January 1, 2009
RSUs granted
PSAs granted
RSUs vested
PSAs vested
RSUs canceled
PSAs canceled
Balance at December 31, 2009
RSUs granted
RSUs assumed (1)
PSAs granted
RSUs vested
PSAs vested
RSUs canceled
PSAs canceled
Balance at December 31, 2010
RSUs granted
PSAs granted (2)
RSUs vested
PSAs vested
RSUs canceled
PSAs canceled
Balance at December 31, 2011
As of December 31, 2011:
Vested and expected-to-vest
RSUs and PSAs
6.7
1.8
2.9
(1.3)
(0.1)
(0.7)
(0.2)
9.1
4.0
0.5
3.8
(1.8)
(0.4)
(0.6)
(0.4)
14.2
7.3
4.5
(1.7)
(0.8)
(1.0)
(2.9)
19.6
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.59
17.87
18.05
21.05
26.90
24.67
19.12
21.76
30.19
32.09
29.25
25.30
20.64
24.87
22.57
25.94
31.75
38.64
23.26
24.76
31.57
30.72
30.27
16.7
$
29.97
1.6
$
243.3
1.7
$
522.9
1.5
1.3
$
400.5
$
341.0
________________________________
(1)
(2)
RSUs assumed in connection with the acquisitions of Ankeena and Altor.
The number of shares subject to PSAs granted represents the aggregate maximum number of shares that may be issued pursuant to the award over its full term. The aggregate number of
shares subject to these PSAs that would be issued if performance goals determined by the Compensation Committee are achieved is estimated at 1.9 million shares. Depending on
achievement of such performance goals, the range of shares that could be issued under these awards is 0 to 4.5 million shares.
Shares Available for Grant
The following table presents the stock grant activity and the total number of shares available for grant under the 2006 Plan as of December 31, 2011 (in
millions):
Balance at January 1, 2011
Additional authorized share reserve approved by stockholders
RSUs and PSAs granted (1)
Options granted
RSUs and PSAs canceled (1)
Options canceled (2)
Options expired (2)
Balance at December 31, 2011
________________________________
(1)
RSUs and PSAs with a per share or unit purchase price lower than 100% of the fair market value of the Company's common stock on the day of the grant under the 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 PSAs granted
represents the maximum number of shares that may be issued pursuant to the award over its full term.
Includes canceled or expired options under the 1996 Plan and the 2000 Plan that expired unexercised after May 18, 2006, which become available for grant under the 2006 Plan
according to its terms.
(2)
87
Number of Shares
30.7
30.0
(24.6)
(5.6)
8.1
1.9
0.6
41.1
Table of Contents
Employee Stock Purchase Plan
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company's 2008 Purchase Plan is implemented in a series of offering periods, each six months in duration, or a shorter period as determined by the
Board. Employees purchased approximately 2.4 million, 2.0 million, and 3.2 million shares of common stock through the 2008 Purchase Plan and 1999
Purchase Plan at an average exercise price of $21.53, $21.20, and $12.16 per share during fiscal years 2011, 2010, and 2009, respectively.
As of December 31, 2011, approximately 6.0 million shares had been issued and 6.0 million shares remained available for future issuance under the 2008
Purchase Plan.
Share-Based Compensation Expense
The weighted-average assumptions used and the resulting estimates of fair value for employee stock options and the employee stock purchase plan during the
three years ended December 31, 2011 were:
Employee Stock Options:
Volatility factor
Risk-free interest rate
Expected life (years)
Dividend yield
Weighted-average fair value per share
Employee Stock Purchase Plan:
Volatility factor
Risk-free interest rate
Expected life (years)
Dividend yield
Weighted-average fair value per share
Years Ended December 31,
2011
2010
2009
43%
1.5%
4.1
—
$13.17
41%
0.2%
0.5
—
$7.48
38%
2.0%
4.3
—
$9.77
35%
0.2%
0.5
—
$6.55
50%
1.6%
4.2
—
$7.41
54%
0.4%
0.5
—
$5.54
88
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company’s share-based compensation expense associated with stock options, employee stock purchases, RSUs, and PSAs is recorded in the following
cost and expense categories for the three years ended December 31, 2011 (in millions):
Cost of revenues - Product
Cost of revenues - Service
Research and development
Sales and marketing
General and administrative
Total
Years Ended December 31,
2011
2010
2009
4.6
$
4.4
$
15.7
97.7
70.9
33.3
13.5
78.5
54.9
30.7
3.9
10.5
59.3
43.1
22.9
222.2
$
182.0
$
139.7
$
$
The following table summarizes share-based compensation expense by award type (in millions):
Options
Assumed options
RSUs and PSAs
Assumed RSUs
Employee stock purchase plan
Other acquisition-related compensation
Total
Years Ended December 31,
2011
2010
2009
$
76.2 $
81.5 $
—
123.1
—
18.5
4.4
0.8
81.8
0.6
13.1
4.2
81.2
—
44.1
—
14.4
—
$
222.2 $
182.0 $
139.7
As of December 31, 2011, approximately $94.8 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock
options will be recognized over a weighted-average period of approximately 2.3 years while approximately $247.4 million of unrecognized compensation
cost, adjusted for estimated forfeitures, related to unvested RSUs and PSAs will be recognized over a weighted-average period of approximately 2.1 years.
401(k) Plan
The Company maintains a savings and retirement plan qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. Employees meeting
the eligibility requirements, as defined, may contribute up to the statutory limits of the year. The Company has matched employee contributions since
January 1, 2001, currently matching 25% of all eligible employee contributions. All matching contributions vest immediately. The Company’s matching
contributions to the plan totaled $16.3 million , $13.2 million , and $11.9 million in the years ended December 31, 2011, 2010 and 2009, respectively.
Deferred Compensation Plan
The Company’s non-qualified deferred compensation (“NQDC”) plan is an unfunded and unsecured deferred compensation arrangement. Under the NQDC
plan, officers and other senior employees may elect to defer a portion of their compensation and contribute such amounts to one or more investment funds.
The NQDC plan assets are included within short-term 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 other (expense) income, net, and the offsetting compensation expense are recorded as operating expenses in the consolidated
results of operations. The deferred compensation liability under the NQDC plan was approximately $9.3 million and $8.1 million as of December 31, 2011,
and December 31, 2010, respectively. For additional information regarding the Company's NQDC, see Note 4, Cash, Cash Equivalents, and Investments.
89
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Note 13. Segments
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 Service Layer Technology ("SLT"). The
Infrastructure segment consists of routing and switching products and services. Routing includes products and services from the E, M, MX, PTX, and T Series
router families, and the network application platform, Junos Space. Switching primarily consists of products and services for EX Series and wireless local area
network solutions, as well as, QFabric. The SLT segment includes SRX services and vGW virtual gateways, Firewall virtual private network systems and
appliances, secure socket layer virtual private network appliances, the J Series router product family, intrusion detection and prevention appliances, wide area
network optimization platforms, and Junos Pulse.
The primary financial measure used by the CODM in assessing performance of the segments is segment operating income, which includes certain cost of
revenues, research and development (“R&D”) expenses, sales and marketing expenses, and general and administrative (“G&A”) 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, 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 G&A expenses are generally allocated to each segment based on factors including headcount, usage, and
revenue. The CODM does not allocate share-based compensation, amortization of purchased intangible assets, restructuring and impairment charges, gains or
losses on equity investments, other net income and expense, income taxes, or certain other charges to the segments.
90
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes financial information for each segment used by the CODM for the three years ended December 31, 2011 (in millions):
Net revenues:
Infrastructure:
Routers
Switches
Total Infrastructure
SLT
Total net revenues
Segment operating income:
Infrastructure
SLT
Total segment operating income
Amortization of purchased intangible assets (1)
Share-based compensation expense
Share-based payroll tax expense
Restructuring and other charges
Acquisition-related and other charges (2)
Total operating income
Other (expense) income, net
Years Ended December 31,
2011
2010
2009
$
2,894.4 $
2,655.7 $
2,244.2
528.2
3,422.6
1,026.1
394.6
3,050.3
1,043.0
197.4
2,441.6
874.3
4,448.7 $
4,093.3 $
3,315.9
$
$
718.3 $
773.7 $
199.0
917.3
(27.1)
208.0
981.7
(8.6)
(222.2)
(182.0)
(9.3)
(30.6)
(9.6)
618.5
(46.8)
(6.4)
(10.8)
(6.3)
767.6
10.6
541.4
127.0
668.4
(15.4)
(139.7)
(0.8)
(19.5)
(182.3)
310.7
1.4
312.1
Income before income taxes and noncontrolling interest
$
571.7 $
778.2 $
________________________________
(1) Amount includes amortization expense of purchased intangible assets in operating expenses and in cost of revenues.
(2) Amount includes acquisition-related costs in operating expenses and in cost of revenues.
Depreciation expense allocated to the Infrastructure segment was $110.0 million, $108.9 million, and $94.0 million in the years ended December 31, 2011,
2010, and 2009, respectively. The depreciation expense allocated to the SLT segment was $32.2 million, $37.9 million, and $39.0 million in the years ended
December 31, 2011, 2010, and 2009, respectively.
The Company attributes revenues to geographic region based on the customer’s ship-to location. The following table shows net revenues by geographic
region (in millions):
Americas:
United States
Other
Total Americas
Europe, Middle East, and Africa
Asia Pacific
Total
Years Ended December 31,
2011
2010
2009
$
$
2,015.8 $
1,890.1 $
222.2
2,238.0
1,339.8
870.9
205.5
2,095.6
1,189.3
808.4
4,448.7 $
4,093.3 $
1,515.1
172.8
1,687.9
953.2
674.8
3,315.9
During the year ended December 31, 2011, no single customer accounted for 10% or more of net revenues. Verizon Communications, Inc. accounted for
10.6% of the Company's total net revenues for 2010 and AT&T, Inc. accounted for 10.4% of the Company's total net revenues for 2009.
The majority of the Company’s assets, excluding cash and cash equivalents and investments, as of December 31, 2011 , and December 31, 2010 , were
attributable to U.S. operations. For both of the years ended December 31, 2011 , and December 31, 2010 , gross property and equipment held in the U.S., as a
percentage of total property and equipment, was approximately 80% .
91
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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 14. Income Taxes
The components of income 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
The provision for income taxes is summarized as follows (in millions):
Current provision (benefit):
Federal
State
Foreign
Total current provision
Deferred provision (benefit):
Federal
State
Foreign
Total deferred provision
Income tax benefits attributable to employee stock plan activity
Total provision for income taxes
Years Ended December 31,
2011
2010
2009
$
$
218.4 $
370.6 $
353.3
407.6
571.7 $
778.2 $
50.1
262.0
312.1
Years Ended December 31,
2011
2010
2009
$
19.5
$
(8.4)
$
123.8
0.9
47.8
68.2
23.0
0.6
(3.6)
20.0
58.5
1.0
44.2
36.8
57.5
14.0
(7.5)
64.0
58.0
21.4
43.5
188.7
(42.7)
55.7
(5.9)
7.1
1.0
$
146.7
$
158.8
$
196.8
The provision for income taxes differs from the amount computed by applying the federal statutory rate to income before provision for income taxes as
follows (in millions):
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
$
Years Ended December 31,
2011
2010
2009
$
200.1
2.0
(50.4)
(21.3)
16.7
—
(0.4)
$
272.4
6.2
(71.5)
(18.6)
(40.2)
10.2
0.3
109.2
(1.6)
(33.8)
(14.4)
62.1
72.8
2.5
$
146.7
$
158.8
$
196.8
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):
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Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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
Deferred tax assets, net of valuation allowance
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,
2011
2010
$
4.4
48.7
86.3
94.0
91.2
255.9
31.0
611.5
(145.2)
466.3
(87.0)
(53.2)
(210.5)
—
(350.7)
115.6
$
14.1
40.3
68.2
86.1
75.6
227.6
26.8
538.7
(122.2)
416.5
(47.1)
(58.5)
(175.1)
(0.1)
(280.8)
135.7
$
$
As of December 31, 2011, and 2010, the Company had a valuation allowance on its U.S. domestic deferred tax assets of approximately $145.2 million and
$122.2 million, respectively. The balance at December 31, 2011 consisted of approximately $94.3 million and $9.7 million against the Company's California
and Massachusetts deferred tax assets, respectively, which will not be utilized in the future years, and approximately $41.2 million related to losses that are
capital in nature and may carry forward to offset future capital gains. The valuation allowance increased $23.0 million and $9.4 million in the years ended
December 31, 2011, and 2010, respectively. Approximately $13.7 million and $9.7 million of the 2011 increase was due to changes in income apportioned to
California and Massachusetts, respectively, and approximately $9.4 million of the 2010 increase relates to the income apportioned to California. The income
apportioned to Massachusetts and California impacts the future taxable income within these states for the years in which the deferred tax assets are expected
to be realized or settled.
As of December 31, 2011, the Company had federal and California net operating loss carry-forwards of approximately $9.6 million and $39.6 million,
respectively. The Company also had California tax credit carry-forwards of approximately $159.8 million. Approximately $21.3 million of the benefit from
the California tax credit carry-forwards will be credited to additional paid-in capital when realized on the Company's income tax returns. Unused net operating
loss carry-forwards will expire at various dates beginning in the year 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 $1,462.6 million of cumulative undistributed
earnings of certain foreign subsidiaries through December 31, 2011, because it is the Company's intention to permanently reinvest such earnings. If such
earnings were distributed, the Company would accrue additional income tax expense of approximately $447.3 million. These earnings are considered
indefinitely invested in operations outside of the U.S., as we intend to utilize these amounts to fund future expansion of our international operations.
As of December 31, 2011, 2010, and 2009 the total amount of gross unrecognized tax benefits was $132.2 million , $116.4 million , and $183.6 million ,
respectively. As of December 31, 2011, approximately $117.2 million of the $132.2 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, 2011, 2010,
and 2009 was as follows (in millions):
93
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Balance beginning of the year
Tax positions related to current year:
Additions
Tax positions related to prior years:
Additions
Reductions
Settlements
Lapses in statutes of limitations
Balance end of the year
As of December 31,
2011
2010
2009
$
116.4
$
183.6
$
113.5
17.6
6.4
—
(5.4)
(2.8)
13.9
—
(73.8)
(1.6)
(5.7)
$
132.2
$
116.4
$
12.7
73.5
(1.0)
(12.8)
(2.3)
183.6
As of December 31, 2011, 2010, and 2009 the Company had accrued interest and penalties related to unrecognized tax benefits of $17.3 million, $18.9
million, and $23.5 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 a benefit for net interest and penalties of $1.6 million, and $4.6 million, and an expense of $14.8 million in its
consolidated statements of operations during the years ended December 31, 2011, 2010, and 2009, respectively.
The Company engages in continuous discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. It is reasonably possible
that the balance of the gross unrecognized tax benefits will decrease by approximately
$3.5 million within the next twelve months due to lapses of applicable statutes of limitation in multiple jurisdictions that the Company operated in. However,
at this time, the Company is unable to make a reasonably reliable estimate of the timing of payments related to the remaining unrecognized tax liabilities due
to uncertainties in the timing of tax audit outcomes.
During the fourth quarter of 2011, the Company resolved an audit by a state tax authority for the years from 2002 through 2004. As the result of the
settlement, the Company recorded a tax benefit of approximately $7.0 million including interest and penalties.
During 2010, the Company recognized approximately $73.4 million of tax benefits related to share based compensation, which the Company had previously
recorded as unrecognized tax benefits in 2009. On March 22, 2010, the Court overturned its May 27, 2009 decision in Xilinx v. Commissioner and affirmed
the original U.S. Tax Court decision, which held in favor of the taxpayer. While Juniper Networks was not a named party to the case, the Court's decision
eliminates the uncertainty regarding the benefit of the tax position taken by the Company in certain years prior to fiscal 2004 relative to the allocable transfer
price of share-based compensation related to the Company's intangible development costs. The Court's decision affirms that the value of share-based
compensation related to share-based compensation grants made prior to 2004 is not required to be included in cost sharing agreements between related parties.
In light of the Court's decision, the Company has determined that the tax benefit recognized under its prior tax position is more likely than not to be sustained.
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 Internal Revenue Service ("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 2009 tax years. The Company is also subject to two separate ongoing
examinations by the India tax authorities for the 2004 tax year and 2004 through 2009 tax years, respectively. 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, 2011.
In May 2011, as part of the 2005 and 2006 IRS audit, the Company received a proposed adjustment related to its intercompany R&D cost sharing arrangement
for the license of intangibles acquired in 2005. In 2009, as part of the 2004 IRS audit, the
94
Table of Contents
Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
Company received a similar proposed adjustment related to the license of intangibles acquired in 2004. In December 2008, the Company received a proposed
adjustment from the India tax authorities related to the 2004 tax year.
In 2009, the India tax authorities commenced a separate investigation of 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 accrued $4.6 million in penalties and interest in 2009 related 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 judicial process in India, the Company may be required to make payments that are substantially higher than the amount accrued in
order to ultimately settle this issue. The Company strongly believes that any assessment it may receive in excess of the amount accrued would be inconsistent
with applicable India tax laws and intends to defend this position vigorously.
The Company is pursuing all available administrative 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 15, Commitments and
Contingencies, under the heading “IRS Notices of Proposed Adjustments.”
Note 15. Commitments and Contingencies
Commitments
The following table summarizes the Company’s future principal contractual obligations as of December 31, 2011 (in millions):
Operating leases
Purchase commitments
Tax liabilities
Long-term debt
Interest payment on long-term debt
Other contractual obligations
Total
Operating Leases
Years Ending December 31,
Total
2012
2013
2014
2015
2016
Thereafter
Other
$
352.7 $
57.9 $
50.8 $
63.8 $
53.4 $
26.6 $
100.2 $
150.6
108.5
1,000.0
873.1
73.1
150.6
—
—
46.9
63.3
—
—
—
46.9
4.8
—
—
—
46.9
3.0
—
—
—
46.9
2.0
—
—
300.0
41.9
—
—
—
700.0
643.6
—
—
—
108.5
—
—
—
$
2,558.0 $
318.7 $
102.5 $
113.7 $
102.3 $
368.5 $
1,443.8 $
108.5
The Company leases its facilities under operating leases that expire at various times, the longest of which expires on November 30, 2022. Future minimum
payments under the non-cancelable operating leases totaled $352.7 million as of December 31, 2011. Rent expense for 2011, 2010, and 2009 was
approximately $65.7 million, $55.9 million, and $56.5 million, respectively.
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, 2011 , there were NCNR component orders
placed by the contract manufacturers with a value of $150.6 million . The contract manufacturers use the components to build products based on the
Company’s forecasts and customer purchase orders received by the Company. 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, 2011 , the
Company had accrued $14.8 million based on its estimate of such charges.
Tax Liabilities
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2011, the Company had $108.5 million included in long-term liabilities in the consolidated balance sheet for unrecognized tax positions.
At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments related to the $108.5 million due to uncertainties in the
timing of tax audit outcomes.
Long-Term Debt and Interest Payment on Long-Term Debt
As of December 31, 2011 , the Company held long-term debt with a carrying value of $999.0 million . Of these Notes, $300.0 million will mature in 2016 and
bears interest at a fixed rate of 3.10% , $300.0 million will mature in 2021 and bears interest at a fixed rate of 4.60% , and $400.0 million will mature in 2041
and bears interest at 5.95% . Interest on the Notes is payable semiannually. See Note 10, Financing , for further discussion of the Company's long-term debt.
Other Contractual Obligations
As of December 31, 2011, other contractual obligations primarily consisted of $25.1 million in indemnity-related and service related escrows, required by
certain acquisitions completed in 2005, 2010 and 2011, $30.7 million in obligations related to a office campus build-out adjacent to the Company's
headquarters, and other miscellaneous commitments.
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. The Company also has financial guarantees consisting of guarantees of
product and service performance, guarantees related to third-party customer-financing arrangements, customs and duties guarantees, and standby letters of
credit for certain lease facilities. As of December 31, 2011 , and 2010, the Company had $19.9 million and $21.6 million , respectively, in bank guarantees
and standby letters of credit related to these financial guarantees.
Legal Proceedings
The Company is involved in disputes, litigation, and other legal actions, including, but not limited to, the matters described below. The Company is
aggressively defending its current litigation matters, and while the Company currently believes that there are no existing claims or proceedings that are likely
to have a material adverse effect on its financial position, the outcome of these matters is currently not determinable. 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 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.
IPO Allocation Case
In December 2001, a class action complaint was filed in the United States District Court for the Southern District of New York against the Goldman Sachs
Group, Inc., Credit Suisse First Boston Corporation, FleetBoston Robertson Stephens, Inc., Royal Bank of Canada (Dain Rauscher Wessels), SG Cowen
Securities Corporation, UBS Warburg LLC (Warburg Dillon Read LLC), Chase (Hambrecht & Quist LLC), J.P. Morgan Chase & Co., Lehman Brothers, Inc.,
Salomon Smith Barney, Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated (collectively, the “Underwriters”), Juniper Networks and certain of Juniper
Networks' officers. This action was brought on behalf of purchasers of the Company's common stock in its initial public offering in June 1999 and the
Company's secondary offering in September 1999. Specifically, among other things, this complaint alleged that the prospectus pursuant to which shares of
common stock were sold in the Company's initial public offering and the Company's subsequent secondary offering contained certain false and misleading
statements or omissions regarding the practices of the Underwriters with respect to their allocation of shares of common stock in these offerings and their
receipt of commissions from customers related to such allocations. Various plaintiffs have filed actions asserting similar allegations concerning the initial
public offerings of approximately 300 other issuers. These various cases pending in the Southern District of New York have been coordinated for pretrial
proceedings as In re Initial Public Offering Securities Litigation , 21 MC 92. In April 2002, 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. On February 19, 2003, the Court granted in part and denied in part the motion to dismiss,
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
but declined to dismiss the claims against the Company.
The parties have reached a global settlement of the litigation. 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 and other defendants will receive complete dismissals from the case. In October
2009, the Court entered an Opinion and Order granting final approval of the settlement. Certain objectors appealed; these appeals have now been dismissed or
withdrawn. As a result, the case is now settled.
2011 Federal Securities Class Action
On August 15, 2011, a purported securities class action lawsuit, captioned City of Royal Oak Retirement System v. Juniper Networks, Inc., et al., Case No. 11-
cv-04003-LHK, was filed in the United States District Court for the Northern District of California naming the Company and certain of its officers and
directors as defendants. The complaint alleges that the defendants made false and misleading statements regarding the Company's business and prospects. On
January 9, 2012 the Court appointed City of Omaha Police and Fire Retirement System and City of Bristol Pension Fund as lead plaintiff. Lead plaintiff filed
an amended complaint on February 13, 2012. The amended complaint alleges that defendants made false and misleading statements about Juniper's business
and future prospects, and failed to adequately disclose the impact of certain changes in accounting rules. The amended complaint purports to assert claims for
violations of Sections 10(b), 20(a) and 20A of the Securities Exchange Act of 1934 and SEC Rule 10b-5 on behalf of those who purchased or otherwise
acquired Juniper's common stock between July 20, 2010 and July 26, 2011, inclusive.
2011 California State Derivative Lawsuits
Between August 22 and September 9, 2011, four purported shareholder derivative actions were filed in the Superior Court of the State of California, County
of Santa Clara, naming certain of the Company's officers and directors as defendants. The Company is named only as a nominal defendant in the actions. The
actions were consolidated as In re Juniper Networks, Inc. Shareholder Litigation, Case No. 1-11-CV-207701 (Lead Case), by order dated September 12,
2011. The complaints are generally based upon the disclosures and alleged omissions challenged in the securities class action. The complaints purport to
assert claims against the defendants for breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets.
The complaints seek, among other relief, damages in an unspecified amount, restitution, and attorneys' fees and costs.
2011 Federal Derivative Lawsuit
On September 27, 2011 and December 28, 2011, two purported shareholder derivative actions, captioned Ratinova v. Johnson, et al., Case No. 11-cv-04792
and Lisa E. Coppola, ERA v. Johnson, et al., Case No. 11-cv-06667, respectively, were filed in the United States District Court for the Northern District of
California naming certain of the Company's officers and directors as defendants. The Company is named only as a nominal defendant in the action. Like the
state derivative actions, the federal derivative lawsuits are generally based upon the disclosures and alleged omissions challenged in the securities class action.
The complaints purport to assert claims against the defendants for breach of fiduciary duties and unjust enrichment. The complaints seek, among other relief,
damages in an unspecified amount, restitution, and attorneys' fees and costs. By order dated January 30, 2012, the Court consolidated the actions as In re
Juniper Networks, Inc. Shareholder Derivative Litigation, Master File No. 11-cv-04792-LHK. On February 3, 2012, the parties filed a stipulation in which the
parties requested that the Court stay the action until such time as the Court entered an order denying a motion to dismiss in the related federal securities class
action described above. On February 6, 2012, the Court granted the parties' stipulation.
IRS Notices of Proposed Adjustments
In May 2011, as a result of its audit of the Company's U.S. federal income tax returns for the 2005 and 2006 fiscal years, the IRS issued a Preliminary Notice
of Deficiency (“PNOD”) regarding the Company's transfer pricing transactions under its intercompany R&D cost sharing arrangement related to the license of
intangibles acquired in 2005. The asserted changes would affect the Company's income tax liabilities for tax years subsequent to 2004. Because of the PNOD,
the estimated incremental tax liabilities for all relative tax years would be approximately $92.0 million , excluding interest and penalties. The Company has
filed a protest to the proposed deficiency with the IRS, which is under review by the Appeals Division of the IRS.
In 2009, the Company received a PNOD 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
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
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. In addition, the Company has not reached a final resolution with the IRS on an adjustment the IRS proposed for the
1999 and 2000 tax years. Because of the PNOD, 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 is under review by the Appeals Division of the IRS.
The Company strongly believes the IRS' position with regard to transfer pricing transactions for the Company's 2004 through 2006 fiscal years are
inconsistent with applicable tax laws, judicial precedent and existing Treasury regulations, and that the Company's previously reported income tax provisions
for the years in question are appropriate. However, there can be no assurance that these matters will be resolved in the Company's favor. Regardless of
whether these matters are resolved in the Company's favor, the final resolution of these matters could be expensive and time-consuming to defend and/or
settle. While the Company believes it has provided adequately for these matters, there is still a possibility that an adverse outcome from these matters could
have a material effect on its results of operations and financial condition.
In September 2008, as part of its ongoing audit of the U.S. federal income tax return for the 2004 fiscal year, 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.
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.
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Note 16. Selected Quarterly Financial Data (Unaudited)
The table below sets forth selected unaudited financial data for each quarter of the two years ended December 31, 2011 (in millions, except per share
amounts):
Year Ended December 31, 2011
First Quarter Second Quarter
Third Quarter Fourth Quarter
Net revenues:
Product
Service
Total net revenues
Cost of revenues:
Product (2)
Service
Total cost of revenues
Gross margin
Operating expenses:
Research and development
Sales and marketing
General and administrative
Amortization of purchased intangibles
Restructuring and other charges (1)
Acquisition-related and other charges (2)
Total operating expenses
Operating income
Interest and other income (expense), net
Income before income taxes and noncontrolling interest
Income tax provision
Consolidated net income
Adjust for net loss attributable to noncontrolling interest
Net income attributable to Juniper Networks
Net income per share attributable to Juniper Networks common stockholders: (3)
Basic
Diluted
$
$
877.4
224.2
1,101.6
891.4
229.1
1,120.5
$
861.9
243.9
1,105.8
$
847.5
273.3
1,120.8
265.7
100.0
365.7
735.9
262.0
246.3
44.9
1.5
(0.3)
4.1
558.5
177.4
(6.5)
170.9
41.3
129.6
0.1
292.4
105.9
398.3
722.2
257.3
246.6
44.3
1.3
(0.9)
2.7
551.3
170.9
(13.7)
157.2
41.7
115.5
286.6
107.6
394.2
711.6
257.1
254.9
44.5
1.3
16.8
—
574.6
137.0
(15.9)
121.1
37.4
83.7
—
—
$
$
$
129.7
$
115.5
$
83.7
$
0.24
0.24
$
$
0.22
0.21
$
$
0.16
0.16
$
$
310.6
111.3
421.9
698.9
250.5
253.2
45.5
1.2
15.0
0.3
565.7
133.2
(10.7)
122.5
26.3
96.2
—
96.2
0.18
0.18
(1) Restructuring and other charges consisted of restructuring charges and asset impairment charges. In the third quarter of 2011, the Company implemented the 2011 Restructuring Plan for
workforce reduction and recorded restructuring charges of $16.8 million. In the fourth quarter of 2011, the Company recorded a charge of $13.5 million associated with an abandoned in-
process internal used software project.
(2) Acquisition-related and other charges comprised of direct and indirect costs such as financial advisory, legal, and due diligence, as well as integration costs related to the acquisitions
completed in 2010 and 2011.
(3) Net income per share attributable to Juniper Network stockholders is computed independently. Therefore, the sum of the quarterly net income per share may not equal the total computed for
the fiscal year or any cumulative interim period.
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Year Ended December 31, 2010
First Quarter Second Quarter
Third Quarter Fourth Quarter
Net revenues:
Product
Service
Total net revenues
Cost of revenues:
Product
Service
Total cost of revenues
Gross margin
Operating expenses:
Research and development
Sales and marketing
General and administrative
Amortization of purchased intangibles
Restructuring charges (1)
Acquisition-related charges (2)
Total operating expenses
Operating income
Other income (expense), net
Income before income taxes and noncontrolling interest
Income tax (benefit) provision
Consolidated net income
Adjust for net (income) loss attributable to noncontrolling interest
Net income attributable to Juniper Networks
Net income per share attributable to Juniper Networks common stockholders: (3)
Basic
Diluted
$
$
$
$
$
721.2
191.4
912.6
222.4
78.2
300.6
612.0
207.0
192.4
43.1
1.1
8.1
—
451.7
160.3
1.4
161.7
(2.9)
164.6
(1.5)
774.1
204.2
978.3
231.8
86.6
318.4
659.9
224.8
202.3
45.9
1.2
0.2
0.5
474.9
185.0
4.0
189.0
58.7
130.3
0.2
$
801.2
$
211.2
1,012.4
962.2
227.8
1,190.0
247.0
87.6
334.6
677.8
231.2
204.7
43.8
0.9
0.2
1.5
482.3
195.5
0.2
195.7
61.4
134.3
0.2
299.7
98.3
398.0
792.0
254.9
257.7
45.1
0.9
2.3
4.3
565.2
226.8
4.8
231.6
41.5
190.1
0.1
190.2
0.36
0.35
163.1
$
130.5
$
134.5
$
0.31
0.30
$
$
0.25
0.24
$
$
0.26
0.25
$
$
(1) Restructuring costs are typically comprised of employee severance costs, costs of consolidating duplicate facilities and contract termination costs. In the first quarter of 2010, the Company
implemented a plan that resulted in reduction in workforce and facilities in certain business operations.
(2) Acquisition-related and other charges comprised of direct and indirect costs such as financial advisory, legal, due diligence, and integration costs from the four acquisitions completed in
2010.
(3) Net income per share attributable to Juniper Network stockholders is computed independently. Therefore, the sum of the quarterly net income per share may not equal the total computed for
the fiscal year or any cumulative interim period.
Note 17. Subsequent Event
Stock Repurchases
Subsequent to December 31, 2011, through the filing of this report, the Company repurchased 2.4 million shares of its common stock, for $51.6 million at an
average purchase price of $21.75 per share, under its 2010 Stock Repurchase Program. As of the filing of this Annual Report on Form 10-K, the Company's
2010 Stock Repurchase Program had remaining authorized funds of $162.2 million. Purchases under the Company's 2010 Stock Repurchase Program are
subject to a review of the circumstances in place at the time and will be made from time to time as permitted by securities laws and other legal requirements.
This program may be discontinued at any time.
Business Acquisition
On February 13, 2012, the Company acquired Mykonos Software, a provider of Intrusion Deception Systems that protect websites and web applications, for
cash consideration of approximately $80.0 million. This acquisition enables the Company to
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Juniper Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
extend its security portfolio with the intrusion deception system that is capable of detecting an attacker before an attack is in progress. The Company is in the
process of determining the net assets acquired and goodwill associated with this acquisition.
Segment Changes
In the first quarter of 2012, the Company has aligned its organization structure to focus on its platform and software strategy. Beginning 2012, the Company
will conform its reportable segments to this new business structure.
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 54 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 53 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
There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2011 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 these controls.
The design of any system of controls is based in part on certain assumptions about the likelihood of future events. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over
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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, Executive Officers and Corporate Governance
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.”
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 2012 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.
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.
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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) The following documents are filed as part of this report:
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
106
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 107 of this report.
(b) Exhibits
See Exhibit Index on page 107 of this report.
(c) None
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SIGNATURES
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 24th day of February 2012.
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)
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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 Annual 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
Chief Executive Officer and Director
Kevin R. Johnson
(Principal Executive Officer)
/s/ Robyn M. Denholm
Executive Vice President and
Robyn M. Denholm
Chief Financial Officer
(Principal Financial Officer)
February 24, 2012
February 24, 2012
/s/ Gene Zamiska
Vice President, Finance and Corporate Controller (Principal Accounting Officer)
February 24, 2012
Gene Zamiska
/s/ Scott Kriens
Chairman of the Board
Scott Kriens
February 24, 2012
/s/ Pradeep Sindhu
Chief Technical Officer and Vice Chairman of the Board
February 24, 2012
Pradeep Sindhu
/s/ Robert M. Calderoni
Director
Robert M. Calderoni
/s/ Mary B. Cranston
Director
Mary B. Cranston
/s/ Mercedes Johnson
Director
Mercedes Johnson
/s/ Michael Lawrie
Director
Michael Lawrie
/s/ William F. Meehan
Director
William F. Meehan
/s/ David Schlotterbeck
Director
David Schlotterbeck
/s/ William R. Stensrud
Director
William R. Stensrud
105
February 24, 2012
February 24, 2012
February 24, 2012
February 24, 2012
February 23, 2012
February 24, 2012
February 24, 2012
Table of Contents
Juniper Networks, Inc.
Schedule II - Valuation and Qualifying Account
Years Ended December 31, 2011, 2010, and 2009
Balance at Beginning of Year
Charged to (Reversed from) Costs and
Expenses
Recoveries (Deductions), Net Balance at End of Year
Year ended December 31, 2011
Allowance for doubtful
accounts
Sales returns reserve
Year ended December 31, 2010
Allowance for doubtful
accounts
Sales returns reserve
Year ended December 31, 2009
Allowance for doubtful
accounts
Sales returns reserve
$
$
$
$
$
$
10.1
52.8
9.1
45.6
9.7
36.8
$
$
$
$
$
$
(In millions)
(0.2)
108.8
1.2
104.4
(0.6)
84.1
$
$
$
$
$
$
(0.4)
(109.6)
(0.2)
(97.2)
—
(75.3)
$
$
$
$
$
$
9.5
52.0
10.1
52.8
9.1
45.6
106
Table of Contents
Exhibit Index
Incorporated by Reference
Exhibit No.
Exhibit
Filing Exhibit No. File No.
File Date
3.1
3.2
4.1
Juniper Networks, Inc. Amended and Restated Certificate of Incorporation
10-K 3.1
000-26339 3/27/2001
Amended and Restated Bylaws of Juniper Networks, Inc.*
Indenture, dated March 3, 2011, by and between Juniper Networks, Inc. and The Bank of New
8-K 4.1
001-34501 3/4/2011
York Mellon Trust Company, N.A., as trustee
4.8
First Supplemental Indenture, dated March 3, 2011, by and between Juniper Networks, Inc. and
10-Q 4.8
001-34501 3/4/2011
The Bank of New York Mellon Trust Company, N.A., as trustee
4.9
Form of Note for Juniper Networks, Inc.'s 3.100% Senior Notes due 2016 (incorporated by
10-Q 4.9
001-34501 3/4/2011
reference to Exhibit 4.8 hereto)
4.10
Form of Note for Juniper Networks, Inc.'s 4.600% Senior Notes due 2021 (incorporated by
10-Q 4.10
001-34501 3/4/2011
reference to Exhibit 4.8 hereto)
4.11
Form of Note for Juniper Networks, Inc.'s 5.950% Senior Notes due 2041 (incorporated by
10-Q 4.11
001-34501 3/4/2011
reference to Exhibit 4.8 hereto)
10.1
Form of Indemnification Agreement entered into by the Registrant with each of its directors,
10-Q 10.1
000-26339 11/14/2003
10.2
10.3
officers and certain employees
Amended and Restated 1996 Stock Plan++
8-K 10.1
000-26339 11/9/2005
Form of Stock Option Agreement for the Juniper Networks, Inc. Amended and Restated 1996
10-Q 10.16
000-26339 11/2/2004
Stock Plan++
10.4
Form of Notice of Grant and Restricted Stock Unit Agreement for the Juniper Networks, Inc.
8-K 10.2
000-26339 11/9/2005
Amended and Restated 1996 Stock Plan++
10.5
10.6
10.7
10.8
10.9
Juniper Networks 2000 Nonstatutory Stock Option Plan++
S-8
10.1
333-92086 7/9/2002
Form of Option Agreement for the Juniper Networks 2000 Nonstatutory Stock Option Plan++ 10-K 10.6
000-26339 3/4/2005
Juniper Networks, Inc. 2006 Equity Incentive Plan, as amended May 18, 2011++
8-K 10.7
000-34501 5/23/2011
Form of Stock Option Agreement for the Juniper Networks, Inc. 2006 Equity Incentive Plan++ 8-K 10.2
000-26339 5/24/2006
Form of Non-Employee Director Stock Option Agreement for the Juniper Networks, Inc. 2006
8-K 10.3
000-26339 5/24/2006
Equity Incentive Plan++
10.10
Form of Notice of Grant and Restricted Stock Unit Agreement for the Juniper Networks, Inc.
10-K 10.20
000-26339 2/29/2008
2006 Equity Incentive Plan++
10.11
Form of Notice of Grant and Performance Share Agreement for the Juniper Networks, Inc.
10-K 10.21
000-26339 2/29/2008
2006 Equity Incentive Plan++
10.12
Form of India Stock Option Agreement under the Juniper Networks, Inc. 2006 Equity
10-Q 10.2
000-26339 5/9/2008
Incentive Plan
10.13
Form of India Restricted Stock Unit Agreement under the Juniper Networks, Inc. 2006 Equity
10-Q 10.3
000-26339 5/9/2008
Incentive Plan
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Unisphere Networks, Inc. Second Amended and Restated 1999 Stock Incentive Plan++
S-8
10.1
333-92090 7/9/2002
NetScreen Technologies, Inc. 1997 Equity Incentive Plan++
NetScreen Technologies, Inc. 2001 Equity Incentive Plan++
NetScreen Technologies, Inc. 2002 Stock Option Plan++
Neoteris 2001 Stock Plan++
Kagoor Networks, Inc. 2003 General Stock Option Plan++
Kagoor Networks, Inc. 2003 Israel Stock Option Plan++
Redline Networks 2000 Stock Plan++
Peribit Networks 2000 Stock Plan++
Amended and Restated Juniper Networks 1999
Employee Stock Purchase Plan++
107
S-1+ 10.2
333-71048 10/5/2001
S-1+ 10.3
333-71048 12/10/2001
S-8
4.7
S-8+ 4.1
333-114688 4/21/2004
333-110709 11/24/2003
S-8
S-8
S-8
S-8
4.1
4.2
4.1
333-124572 5/3/2005
333-124572 5/3/2005
333-124610 5/4/2005
99.1
333-126404 7/6/2005
10-Q 10.2
000-26339 8/9/2007
Table of Contents
Exhibit No.
Exhibit
Juniper Networks, Inc. 2008 Employee Stock Purchase Plan++
Incorporated by Reference
Filing Exhibit No.
File No.
File Date
S-8
4.3
333-151669 6/16/2008
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
Sub-plan to the Juniper Networks, Inc. 2008 Employee Stock Purchase Plan For Employees
10-K 10.25
000-26339 3/2/2009
Located in the European Economic Area
Juniper Networks, Inc. Deferred Compensation Plan++
S-8
4.4
333-151669 6/16/2008
Form of Executive Officer Change of Control Agreement, as amended++
10-K 10.27
000-26339 3/2/2009
Form of Executive Officer Severance Agreement, as amended++
10-Q 10.4
000-26339 11/10/2008
Option Amendment Agreement by and between the Registrant and Kim Perdikou++
8-K 99.2
000-26339 5/2/2007
Severance Agreement by and between the Registrant and Robyn M. Denholm++
10-K 10.33
000-26339 3/2/2009
Summary of Compensatory Arrangements for Certain Officers adopted on March 9, 2007++
8-K 99.1
000-26339 3/12/2007
Summary of Compensatory Arrangements for Certain Officers announced on August 14,
8-K Item 5.02 000-26339 8/14/2007
2007++
10.33
Summary of Compensatory Plans and Arrangements for Certain Officers adopted on
8-K 99.1
000-26339 2/28/2008
February 26, 2008++
10.34
Summary of Compensatory Arrangements for Certain Officers adopted on February 11,
8-K Item 5.02 000-26339 2/18/2009
2009++
10.35
10.36
10.37
10.38
10.39
10.40
10.41
Summary of Compensatory Arrangements for Certain Officers adopted on March 2, 2009++
8-K Item 5.02 000-26339 3/6/2009
Summary of Compensatory Arrangements for Certain Officers adopted on November 12,
8-K Item 5.02 001-34501 11/18/2009
2009++
Offer Letter by and between Juniper Networks, Inc. and John Morris++
10-Q 10.1
000-26339 11/10/2008
Employment Agreement by and between Juniper Networks, Inc. and Kevin Johnson++
10-Q 10.2
000-26339 11/10/2008
Offer Letter by and between Juniper Networks, Inc. and Michael J. Rose++
10-K 10.38
000-26339 3/2/2009
Tolling Agreement by and between Juniper Networks, Inc. and Scott Kriens++
10-Q 10.3
000-26339 11/10/2008
Agreement for ASIC Design and Purchase of Products between IBM Microelectronics and the
S-1
10.8
333-76681 6/18/1999
Registrant dated August 26, 1997
10.42
Amendment One dated January 5, 1998 to Agreement for ASIC Design and Purchase of
S-1
10.8.1
333-76681 4/23/1999
Products between IBM Microelectronics and the Registrant dated August 26, 1997
10.43
Amendment Two dated March 2, 1998 to Agreement for ASIC Design and Purchase of
S-1
10.8.2
333-76681 4/23/1999
Products between IBM Microelectronics and the Registrant dated August 26, 1997
10.44
10.45
10.46
Lease between Mathilda Associates LLC and the Registrant dated June 18, 1999
S-1
10.10
333-76681 6/23/1999
Lease between Mathilda Associates LLC and the Registrant dated February 1, 2000
10-K 10.9
000-26339 3/27/2001
Lease between Mathilda Associates II LLC and the Registrant dated August 15, 2000
10-Q 10.15
000-26339 11/2/2004
108
Table of Contents
Incorporated by Reference
Exhibit No.
Exhibit
Filing Exhibit No.
File No.
File Date
10.47
First Amendment to Lease between Sunnyvale Office Park, L.P. and the Registrant dated
10-K 10.47
000-34501 2/26/2010
January 24, 2002
10.48
First Amendment to Lease between Sunnyvale Office Park, L.P. and the Registrant dated
10-K 10.48
000-34501 2/26/2010
February 28, 2000
10.49
First Amendment to Lease between Sunnyvale Office Park, L.P. and the Registrant dated
10-K 10.49
000-34501 2/26/2010
October 14, 2009
10.50
Second Amendment to Lease between Sunnyvale Office Park, L.P. and the Registrant dated
10-K 10.50
000-34501 2/26/2010
October 14, 2009
10.51
Amendment No. 2 to Lease between Sunnyvale Office Park, L.P. and the Registrant dated
10-K 10.51
000-34501 2/26/2010
October 14, 2009
Ankeena Networks, Inc. 2008 Stock Plan++
Altor Networks, Inc. 2007 Stock Plan and 2009 Israeli Equity Incentive Sub Plan++
S-8
S-8
4.3
10.1
333-166248 4/23/2010
333-171299 12/12/2010
Australian Addendum to the Juniper Networks, Inc. 2006 Equity Incentive Plan, as amended+
10-Q 10.2
000-34501 11/5/2010
10.52
10.53
10.54
+
10.55
Australian Addendum to the Juniper Networks, Inc. 2008 Employee Stock Purchase Plan, as
10-Q 10.3
000-34501 11/5/2010
amended++
10.56
10.57
Employee Agreement between Juniper Networks, Inc. and Robert Muglia++
10-Q 10.3
001-34501 11/4/2011
Form of Severance Agreement for Certain Officers adopted on February 14, 2012*++
10.58
Form of Change of Control Agreement for Certain Officers adopted on February 14, 2012*++
12.1
21.1
23.1
24.1
31.1
Computation of Ratio of Earnings to Fixed Charges*
Subsidiaries of the Company*
Consent of Independent Registered Public Accounting Firm*
Power of Attorney (see page 105)
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934*
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934*
32.1
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002**
32.2
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002**
101
The following materials from Juniper Networks Inc.'s Annual Report on Form 10-K for the
year ended December 31, 2011, 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
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith
** Furnished herewith
+ Filed by NetScreen Technologies, Inc.
++
Indicates management contract or compensatory plan, contract or arrangement.
109
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
JUNIPER NETWORKS, INC.
(As amended February 14, 2012)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the Corporation shall be 1209 Orange Street, in the City of Wilmington, County of New Castle, State of
Delaware, 19801. The name of the registered agent of the Corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In
the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation. The board of
directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held
solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the
meeting, directors shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the (i) board of directors acting pursuant to a resolution adopted by
a majority of the Whole Board, (ii) the chairman of the board, (iii) the president, or (iv) the chief executive officer, but a special
meeting may not be called by any other person or persons. For purposes of these bylaws, the term “Whole Board” shall mean the total
number of authorized directors whether or not there exist any vacancies in previously authorized directorships. The board of directors,
acting pursuant to a resolution adopted by the majority of the Whole Board, may cancel, postpone or reschedule any previously
scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders.
If a special meeting is called by any person other than the board of directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered
mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary
of the corporation. No business may be transacted at such special meeting otherwise than specified in such
notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons
who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.6 of
these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at
such meeting. The notice shall specify the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER BUSINESS AND DIRECTOR NOMINATIONS BY STOCKHOLDERS
(i) At an annual meeting of stockholders, only such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting business must brought: (A) pursuant to the Corporation's proxy materials
with respect to such meeting, (B) by or at the direction of the board of directors, or (C) by a stockholder of the Corporation who (1) is
a stockholder of record at the time of the giving of the notice required by this Section 2.5(i) and on the record date for the
determination of stockholders entitled to vote at the annual meeting and (2) has timely complied in proper written form with the notice
procedures set forth in this Section 2.5(i). In addition, for business to be properly brought before an annual meeting by a stockholder,
such business must be a proper matter for stockholder action pursuant to these bylaws and applicable law. For the avoidance of doubt,
clause (C) above shall be the exclusive means for a stockholder to bring business before an annual meeting of stockholders.
(a) To comply with clause (C) of Section 2.5(i) above, a stockholder's notice must set forth all information
required under this Section 2.5(i) and must be timely received by the secretary of the Corporation. To be timely, a stockholder's notice
must be received by the secretary at the principal executive offices of the Corporation not later than the 45th day nor earlier than the
75th day before the one-year anniversary of the date on which the Corporation first mailed its proxy materials or a notice of
availability of proxy materials (whichever is earlier) for the preceding year's annual meeting; provided, however, that in the event that
no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days prior to or
delayed by more than 60 days after the one-year anniversary of the date of the previous year's annual meeting, then, for notice by the
stockholder to be timely, it must be so received by the secretary not earlier than the close of business on the 120th day prior to such
annual meeting and not later than the close of business on the later of (i) the 90th day prior to such annual meeting, or (ii) the tenth day
following the day on which Public Announcement (as defined below) of the date of such annual meeting is first made. In no event
shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving
of a stockholder's notice as described in this Section 2.5(i)(a). “Public Announcement” shall mean disclosure in a press release
released on Business Wire and/or reported by the Dow Jones News Service, Associated Press or a comparable national news and/or
wire service or in a document publicly filed by the Corporation with the Securities and Exchange Commission (the “Commission”)
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended, or any successor thereto (the “1934 Act”).
(b) To be in proper written form, a stockholder's notice to the secretary must set forth as
to each matter of business the stockholder intends to bring before the annual meeting: (1) a brief description of the business intended
to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (2) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such business and any Stockholder Associated Person (as
defined below), (3) the class and number of shares of the Corporation that are held of record or are beneficially owned by the
stockholder or any Stockholder Associated Person and any derivative positions held or beneficially held by the stockholder or any
Stockholder Associated Person, (4) whether and the extent to which any hedging or other transaction or series of transactions has been
entered into by or on behalf of such stockholder or any Stockholder Associated Person with respect to any securities of the
Corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing
or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit from share price changes for,
or to increase or decrease the voting power of, such stockholder or any Stockholder Associated Person with respect to any securities of
the Corporation, (5) any material interest of the stockholder or a Stockholder Associated Person in such business, and (6) a statement
whether either such stockholder or any Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of
at least the percentage of the Corporation's voting shares required under applicable law to carry the proposal (such information
provided and statements made as required by clauses (1) through (6), a “Business Solicitation Statement”). In addition, to be in proper
written form, a stockholder's notice to the secretary must be supplemented not later than ten days following the record date to disclose
the information contained in clauses (3) and (4) above as of the record date. For purposes of this Section 2.5, a “Stockholder
Associated Person” of any stockholder shall mean (i) any person controlling, directly or indirectly, or acting in concert with, such
stockholder, (ii) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder and on
whose behalf the proposal or nomination, as the case may be, is being made, or (iii) any person controlling, controlled by or under
common control with such person referred to in the preceding clauses (i) and (ii).
(c) Without exception, no business shall be conducted at any annual meeting except in accordance with the
provisions set forth in this Section 2.5(i) and, if applicable, Section 2.5(ii). In addition, business proposed to be brought by a
stockholder may not be brought before the annual meeting if such stockholder or a Stockholder Associated Person, as applicable, takes
action contrary to the representations made in the Business Solicitation Statement applicable to such business or if the Business
Solicitation Statement applicable to such business contains an untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine
and declare at the annual meeting that business was not properly brought before the annual meeting and in accordance with the
provisions of this Section 2.5(i), and, if the chairperson should so determine, he or she shall so declare at the annual meeting that any
such business not properly brought before the annual meeting shall not be conducted.
(ii) Notwithstanding anything in these bylaws to the contrary, only persons who are nominated in accordance with the
procedures set forth in this Section 2.5(ii) shall be eligible for election or re-election as directors at an annual meeting of stockholders.
Nominations of persons for election to the board of directors of the Corporation shall be made at an annual meeting of stockholders
only (A) by or at the direction of the board of directors or (B) by a stockholder of the Corporation who (1) was a stockholder of record
at the time of the giving of the notice required by this Section 2.5(ii) and on the record date for the determination of stockholders
entitled to vote at the annual meeting and (2) has complied with the notice procedures set forth in this Section 2.5(ii). In addition to
any other applicable requirements, for a nomination to be made by a stockholder, the stockholder must have given timely notice
thereof in proper written form to the secretary of the Corporation.
(a) To comply with clause (B) of Section 2.5(ii) above, a nomination to be made by a
stockholder must set forth all information required under this Section 2.5(ii) and must be received by the secretary of the Corporation
at the principal executive offices of the Corporation at the time set forth in, and in accordance with, the final three sentences of
Section 2.5(i)(a) above.
(b) To be in proper written form, such stockholder's notice to the secretary must set forth:
(1) as to each person (a “nominee”) whom the stockholder proposes to nominate for election or re-election
as a director: (A) the name, age, business address and residence address of the nominee, (B) the principal occupation or employment
of the nominee, (C) the class and number of shares of the Corporation that are held of record or are beneficially owned by the nominee
and any derivative positions held or beneficially held by the nominee, (D) whether and the extent to which any hedging or other
transaction or series of transactions has been entered into by or on behalf of the nominee with respect to any securities of the
Corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing
or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or
to increase or decrease the voting power of the nominee, (E) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are
to be made by the stockholder, (F) a written statement executed by the nominee acknowledging that as a director of the Corporation,
the nominee will owe a fiduciary duty under Delaware law with respect to the Corporation and its stockholders, and (G) any other
information relating to the nominee that would be required to be disclosed about such nominee if proxies were being solicited for the
election of the nominee as a director, or that is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act
(including without limitation the nominee's written consent to being named in the proxy statement, if any, as a nominee and to serving
as a director if elected); and
(2) as to such stockholder giving notice, (A) the information required to be provided pursuant to clauses
(2) through (5) of Section 2.5(i)(b) above, and the supplement referenced in the second sentence of Section 2.5(i)(b) above (except
that the references to “business” in such clauses shall instead refer to nominations of directors for purposes of this paragraph), and
(B) a statement whether either such stockholder or Stockholder Associated Person will deliver a proxy statement and form of proxy to
holders of a number of the Corporation's voting shares reasonably believed by such stockholder or Stockholder Associated Person to
be necessary to elect such nominee(s) (such information provided and statements made as required by clauses (A) and (B) above, a
“Nominee Solicitation Statement”).
(c) At the request of the board of directors, any person nominated by a stockholder for election as a director must
furnish to the secretary of the Corporation (1) that information required to be set forth in the stockholder's notice of nomination of
such person as a director as of a date subsequent to the date on which the notice of such person's nomination was given and (2) such
other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as
an independent director of the Corporation or that could be material to a reasonable stockholder's understanding of the independence,
or lack thereof, of such nominee; in the absence of the furnishing of such information if requested, such stockholder's nomination shall
not be considered in proper form pursuant to this Section 2.5(ii).
(d) Without exception, no person shall be eligible for election or re-election as a director of the Corporation at an
annual meeting of stockholders unless nominated in accordance with the provisions set forth in this Section 2.5(ii). In addition, a
nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action
contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or if the Nominee Solicitation
Statement applicable to such nominee contains an untrue statement of a material fact or omits to state a material fact necessary to
make the statements therein not misleading. The chairperson of the
annual meeting shall, if the facts warrant, determine and declare at the annual meeting that a nomination was not made in accordance
with the provisions prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the annual
meeting, and the defective nomination shall be disregarded.
(iii) Advance Notice of Director Nominations for Special Meetings.
(a) For a special meeting of stockholders at which directors are to be elected pursuant to Section 2.3, nominations
of persons for election to the board of directors shall be made only (1) by or at the direction of the board of directors or (2) by any
stockholder of the Corporation who (A) is a stockholder of record at the time of the giving of the notice required by this Section
2.5(iii) and on the record date for the determination of stockholders entitled to vote at the special meeting and (B) delivers a timely
written notice of the nomination to the secretary of the Corporation that includes the information set forth in Sections 2.5(ii)(b) and (ii)
(c) above. To be timely, such notice must be received by the secretary at the principal executive offices of the Corporation not later
than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which Public
Announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at
such meeting. A person shall not be eligible for election or re-election as a director at a special meeting unless the person is nominated
(i) by or at the direction of the board of directors or (ii) by a stockholder in accordance with the notice procedures set forth in this
Section 2.5(iii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated
Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such
nominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein not misleading.
(b) The chairperson of the special meeting shall, if the facts warrant, determine and declare at the meeting that a
nomination or business was not made in accordance with the procedures prescribed by these bylaws, and if the chairperson should so
determine, he or she shall so declare at the meeting, and the defective nomination or business shall be disregarded.
(iv) Other Requirements and Rights.
In addition to the foregoing provisions of this Section 2.5, a stockholder must also comply with all applicable requirements of state
law and of the 1934 Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.5. Nothing in
this Section 2.5 shall be deemed to affect any right of the Corporation to omit a proposal from the Corporation's proxy statement
pursuant to Rule 14a-8 (or any successor provision) under the 1934 Act and nothing in this Section 2.5 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed
to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the secretary or an assistant secretary
or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or
by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then
either (i) the
chairman of the meeting, or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have
been transacted at the meeting as originally noticed.
When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon
which, by express provisions of the statutes, the Certificate of Incorporation, these Bylaws, the applicable stock exchange or the rules
of the Securities Exchange Act of 1934, as amended, a different vote is required, in which case such express provision shall govern
and control the decision of the question.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of
Sections 2.12 and 2.14 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of
Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share
of capital stock held by such stockholder.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of
Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Notwithstanding the following provisions of this Section 2.11, effective upon the listing of the Common Stock of the Corporation on
the Nasdaq Stock Market and the registration of any class of securities of the Corporation pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, the stockholders of the Corporation may not take action by written consent without a
meeting but must take any such actions at a duly called annual or special meeting.
Except as otherwise provided in this Section 2.11, any action required by this chapter to be taken at any annual or special meeting of
stockholders of a Corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the
holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a
certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a
meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning
any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General
Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action.
If the board of directors does not so fix a record date, the fixing of such record date shall be governed by the provisions of Section 213
of the General Corporation Law of Delaware.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the
secretary of the Corporation, but no such proxy shall be voted or acted upon after 3 years from its date, unless the proxy provides for a
longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a
proxy that states on its face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a Corporation shall prepare and make, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The stock ledger shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The
stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each
such stockholder.
2.15 CONDUCT OF BUSINESS
Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his absence by the president, or in his
absence by a vice president, or in the absence of the foregoing persons by a chairman designated by the board of directors, or in the
absence of such designation by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting of
stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the
manner of voting and conduct of business.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and any limitations in the Certificate of Incorporation or these
Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the
Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER AND ELECTION
The authorized number of directors of the Corporation shall be ten (10). No reduction of the authorized number of directors shall have
the effect of removing any director before that director's term of office expires.
Effective as of the first meeting of stockholders at which the directors will be elected following the 2012 annual meeting of
stockholders, each director shall be elected by the vote of the majority of the votes cast with respect to the nominee at any meeting for
the election of directors at which a quorum is present, provided that, the directors shall be elected by the vote of a plurality of the votes
cast on the election of directors at the 2012 annual meeting of stockholders and at any meeting for which (i) the Secretary receives a
notice of a stockholder's intention to nominate a person or persons for election to the board of directors in compliance with the
advance notice provisions of Section 2.5 of these Bylaws and (ii) such nomination has not been withdrawn by such stockholder on or
before the fourteenth (14th) day preceding the date the Corporation first mails its notice of meeting for such meeting of stockholders.
For purposes of this Section, a majority of the votes cast means that the number of shares voted “for” a director must exceed the
number of votes cast “against” that director.
3.3 CLASSES OF DIRECTORS
At such time as a Registration Statement regarding the sale of the Corporation's Common Stock to the public is declared effective by
the Securities and Exchange Commission, the Directors shall be divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I
Directors shall expire and Class I Directors shall be elected for a full term of three years. At the second annual meeting of stockholders
following the closing of the Initial Public Offering, the term of office of the Class II Directors shall expire and Class II Directors shall
be elected for a full term of three years. At the third annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class III Directors shall expire and Class III Directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, Directors shall be elected for a full term of three years to succeed the Directors of
the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each Director shall serve until his successor is duly elected and qualified or
until his earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten
the term of any incumbent Director.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the Corporation. Stockholders may remove directors with or without cause.
Any vacancy occurring in the board of directors with or without cause may be filled by a majority of the remaining members of the
board of directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and
each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced.
Unless otherwise provided in the Certificate of Incorporation or these Bylaws:
(i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions
of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility
for the person or estate of a stockholder, may apply to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase),
then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the
shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election
shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the board of directors, or any committee
designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be
determined by the board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the
president, any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be (i) delivered personally by hand, by courier or by telephone to each director,
(ii) sent by first-class mail, postage prepaid, (iii) sent by facsimile, or (iv) sent by electronic mail, directed to each director at that
director's address, telephone number, facsimile number or electronic mail address, as the case may be, as it is shown on the records of
the Corporation.
If the notice is mailed, it shall be deposited in the United States mail at least 4 days before the time of the holding of the meeting. If
the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile, or (iii) sent by electronic mail, it shall
be delivered or sent at least 24 hours before the time of the holding of the meeting. Any oral notice may be communicated to the
director. The notice need not specify the place of the meeting, if the meeting is to be held at the principal executive office of the
Corporation, or the purpose of the meeting.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. A meeting at which a
quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of
Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation or these Bylaws.
3.10 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a quorum is present.
3.11 CONDUCT OF BUSINESS
Meetings of the board of directors shall be presided over by the chairman of the board, if any, or in his absence by the chief executive
officer, or in their absence by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting shall determine
the order of business and the procedures at the meeting.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any
meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, or by electronic transmission and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the board or committee. Such filing shall be in paper form if
the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors
and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
3.14 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of
directors. If at any time a class or series of shares is entitled to elect one or more directors, the provisions of this Article 3.14 shall
apply to the vote of that class or series and not to the vote of the outstanding shares as a whole.
3.15 DIRECTOR INDEPENDENCE
At least two-thirds of the members of the board of directors must be independent as defined by the requirements of the exchange on
which the Corporation's securities are listed and any other requirements of applicable law, provided, that in the event one or more
directors become non-independent or resign and such change causes the proportion of independent directors to be less than two-thirds
of the board of directors, the Corporation shall have 150 days from the effective date of such determination or resignation to elect a
new independent director. For purposes of this Section 3.15, “independence” shall be determined in accordance with the then
applicable rules and regulations of the Securities and Exchange Commission and the primary stock exchange on which the
Corporation's stock is traded.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each
committee to consist of one or more of the directors of the Corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the
board of directors or in the Bylaws of the Corporation, shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers that may require it; but no such committee shall have the power or authority to (i) amend the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock
adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the
preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other
class or classes of stock of the Corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution,
or (v) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the Certificate
of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the
issuance of stock, or to
adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these
Bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and
notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment and notice of adjournment), Section 3.11
(conduct of business) and 3.12 (action without a meeting), with such changes in the context of those Bylaws as are necessary to
substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular
meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the Corporation shall be a chief executive officer, one or more vice presidents, a secretary and a chief financial officer.
The Corporation may also have, at the discretion of the board of directors, a chairman of the board, a president, a chief operating
officer, one or more executive, senior or assistant vice presidents, assistant secretaries and any such other officers as may be appointed
in accordance with the provisions of
Section 5.2 of these Bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
Except as otherwise provided in this Section 5.2, the officers of the Corporation shall be appointed by the board of directors, subject to
the rights, if any, of an officer under any contract of employment. The board of directors may appoint, or empower an officer to
appoint, such officers and agents of the business as the Corporation may require (whether or not such officer or agent is described in
this Article V), each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these
Bylaws or as the board of directors may from time to time determine. Any vacancy occurring in any office of the Corporation shall be
filled by the board of directors or may be filled by the officer, if any, who appointed such officer.
5.3 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause,
by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of
an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of
directors or, in the case of an officer appointed by another officer, by such other officer.
Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the
receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a
party.
5.4 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and
perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed
by these Bylaws. If there is no chief executive officer, then the chairman of the board shall also be the chief executive officer of the
Corporation and shall have the powers and duties prescribed in Section 5.5 of these Bylaws.
5.5 CHIEF EXECUTIVE OFFICER
The Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision,
direction and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the stockholders
and, in the absence or nonexistence of a Chairman of the Board at all meetings of the Board of Directors. He or she shall have the
general powers and duties of management usually vested in the chief executive officer of a Corporation, including general supervision,
direction and control of the business and supervision of other officers of the Corporation, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the authority to execute bonds, mortgages and other contracts requiring a
seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the
Corporation.
5.6 PRESIDENT
Subject to such supervisory powers as may be given by these Bylaws or the Board of Directors to the Chairman of the Board or the
Chief Executive Officer, if there be such officers, the president shall have general supervision, direction and control of the business
and supervision of other officers of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of
Directors or these Bylaws. In the event a Chief Executive Officer shall not be appointed, the President shall have the duties of such
office.
5.7 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if
not ranked, a vice president designated by the board of directors, shall perform all the duties of the chief executive officer and when so
acting shall have all the powers of, and be subject to all the restrictions upon, the chief executive officer. The vice presidents shall
have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of
directors, these Bylaws, the chief executive officer or the chairman of the board.
5.8 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The
minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice
given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing
the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates
evidencing such shares,
and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be
given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these Bylaws. He shall
keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these Bylaws.
5.9 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The chief financial officer shall deposit all money and other valuables in the name and to the credit of the Corporation with such
depositaries as may be designated by the board of directors. He shall disburse the funds of the Corporation as may be ordered by the
board of directors, shall render to the chief executive officer and directors, whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or these Bylaws.
5.10 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of
directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers
of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from
time to time prescribe.
5.11 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform
such duties in the management of the business of the Corporation as may be designated from time to time by the board of directors or
the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of
the Corporation) by reason of the fact that the person is or was a director, officer, employee or an agent of the Corporation, or is or
was serving at the request of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, as a director
or officer of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the
Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of
the
Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
The Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of
the Corporation) by reason of the fact that the person is or was a director, officer, employee or an agent of the Corporation, or is or
was serving at the request of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, as an
employee or agent of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the
Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of
the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation, any predecessor of the Corporation, or any subsidiary of the
Corporation, to procure a judgment in its favor by reason of the fact that he is or was a director or officer of Corporation, any
predecessor of the Corporation, or any subsidiary of the Corporation, or is or was serving at the request of the Corporation, any
predecessor of the Corporation, or any subsidiary of the Corporation, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit if he acted in good faith and in manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation,
and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, unless and only to
the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.
The Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation, any predecessor of the Corporation, or any subsidiary of the
Corporation, to procure a judgment in its favor by reason of the fact that he is or was an employee or agent of the Corporation, any
predecessor of the Corporation, or any subsidiary of the Corporation, or is or was serving at the request of the Corporation, any
predecessor of the Corporation, or any subsidiary of the Corporation, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses (including attorney's fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit if he acted in good faith and in manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation,
and except that no indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation, any predecessor of the Corporation, or any subsidiary
of the Corporation, unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court
shall deem proper.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the Corporation, any predecessor of the Corporation, or any subsidiary of
the Corporation, has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1
and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that the indemnification of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (1) by the
board of Directors or the Executive Committee by a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) or if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent
to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in
this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted pursuant to the other subsections of this section shall not be
deemed exclusive of any other rights or limiting any other rights to which those seeking indemnification or advancement of expenses
may be entitled under any by-law, certificate of incorporation, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another while holding such office.
6.7 INSURANCE INDEMNIFICATION
The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, or is or was serving at
the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to “the Corporation” shall include, in addition to the resulting Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that any person who is was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under
and subject to the provisions of this Article VI (including, without limitation the provisions of Section 6.4) with respect to the
resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had
continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to “other enterprises” shall include employee benefit plans; references to “fines” shall
include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the
Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he reasonably deemed to have acted in a manner “not opposed to
the best interests of the Corporation” as referred to in this Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advanced of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
6.11 INDEMNITY FUND
Upon resolution passed by the Board, the Corporation may create a trust fund, grant a security interest and/or use other means
(including, without limitation, letters of credit, surety bonds and/or similar arrangements), to ensure the payment of certain of its
obligations arising under this Article VI and/or agreements which may be entered into between the Corporation and its officers and/or
directors from time to time.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The Corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a
record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of
these Bylaws as amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof,
have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its
stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who
seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes
the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its
registered office in Delaware or at its principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders and
its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with
the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the
Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or
extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award
such other and further relief as the Court may deem just and proper.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, any vice president, the chief financial officer, the secretary or assistant
secretary of this Corporation, or any other person authorized by the board of directors or the chief executive officer or a vice president,
is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the
authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the
Corporation, and only the persons so authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter
into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided that the board of directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution
shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the
adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice-
chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of such Corporation representing the number of shares registered in certificate form. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate has to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration
to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and
records of the Corporation in the case of
uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same
class, but only upon the basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the
designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or
back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the
Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the
relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the
corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on
certificates pursuant to this Section 8.4 or Sections 156, 202(a) or 218(a) of the General Corporation Law of Delaware or with respect
to this Section 8.4 a statement that the corporation will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights
and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of
the same class and series shall be identical.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General
Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term “person” includes both a Corporation and a natural person.
8.7 DIVIDENDS
The directors of the Corporation, subject to any restrictions contained in the Certificate of Incorporation, may declare and pay
dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in
property, or in shares of the Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves
for any proper purpose and may abolish any such reserve. Such purposes
shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting
contingencies.
8.8 FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.
8.9 SEAL
The Corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate or
uncertificated shares to the person entitled thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more
classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by
such stockholders in any manner not prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of
another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The original or other Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided,
however, that the Corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal Bylaws upon the
directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit
their power to adopt, amend or repeal Bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of directors of the Corporation that the Corporation should be dissolved,
the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall
cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of
stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the Corporation
entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in
accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences
of
the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the
General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General
Corporation Law of Delaware, the Corporation shall be dissolved.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the
Corporation is insolvent, to be receivers, of and for the Corporation when:
(i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors
whose terms have expired or would have expired upon qualification of their successors; or
(ii) the business of the Corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting
the management of the affairs of the Corporation that the required vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the Corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute
its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of
Delaware, but the authority of the custodian shall be to continue the business of the Corporation and not to liquidate its affairs and
distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or
352(a)(2) of the General Corporation Law of Delaware.
ARTICLE XII
LOANS TO OFFICERS
Subject to applicable law, the Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other
employee of the Corporation or of its subsidiaries, including any officer or employee who is a Director of the Corporation or its
subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the Corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in
such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation.
Nothing in this Bylaw shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
JUNIPER NETWORKS, INC.
SEVERANCE AGREEMENT
EXHIBIT 10.57
This Severance Agreement (the “Agreement”) is made and entered into by and between ______________ (the
“Employee”) and Juniper Networks, Inc., a Delaware Corporation (the “Company”), effective as of ___________, 2012 (the
“Effective Date”).
RECITALS
The Compensation Committee believes that it is imperative to provide the Employee with certain severance benefits upon
certain terminations of employment. These benefits will provide the Employee with enhanced financial security and incentive and
encouragement to remain with the Company.
Certain capitalized terms used in the Agreement are defined below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1.
Term of Agreement. This Agreement shall terminate upon the later of (i) January 1, 2015 or (ii) if Employee is
terminated involuntarily by Company without Cause prior to January 1, 2015, the date that all of the obligations of the parties hereto
with respect to this Agreement have been satisfied.
2.
At-Will Employment. The Company and the Employee acknowledge that the Employee's employment is and shall
continue to be at-will, as defined under applicable law, except as may otherwise be specifically provided by applicable law or under
the terms of any written formal employment agree-ment or offer letter between the Company and the Employee (an “Employment
Agreement”). This Agreement does not constitute an agreement to employ Employee for any specific time.
3.
Severance Benefits.
(a)
In the event the Employee is terminated involuntarily by Company without Cause, as defined below, and
provided the Employee executes and does not revoke a full release of claims with the Company (in a form satisfactory to the Company
and effective no later than March 15 of the year following the year in which the termination occurs) (the “Release”), the Employee
will be entitled to receive the severance benefits set out in subsections (i) and (ii). For purposes of this Agreement, “Cause” is defined
as: (i) willfully engaging in gross misconduct that is demonstrably injurious to Company; (ii) willful act or acts of dishonesty or
malfeasance undertaken by the individual; (iii) conviction of or a plea of nolo contendere to a felony; or (iv) willful and continued
refusal or failure to substantially perform duties with Company (other than incapacity due to physical or mental illness); provided that
the action or conduct described in clause (iv) above will constitute “Cause” only if such failure continues after the Company's CEO,
COO or Board of Directors has provided the individual with a written demand for substantial performance setting forth in detail the
specific respects in which it believes the individual has willfully and not substantially performed the individual's duties thereof and has
been provided a reasonable opportunity (to be not less than 30 days) to cure the same.
(i)
A cash payment in a lump sum (less any withholding taxes) equal to [12 months for Grade 15,
15 months for Grade 16, 16.5 months for Grade 17] months of base salary (as in effect immediately prior to the termination).
(ii)
In lieu of continuation of benefits, Employee shall receive $18,000 (whether
or not Employee elects COBRA).
(b)
Release Effectiveness . The receipt of any severance pursuant to Section 3(a) will be subject to Employee signing
and not revoking the Release and provided that such Release is effective within sixty (60) days following the termination of
employment. No severance pursuant to such Section will be paid or provided until the Release becomes effective. In the event the
termination occurs at a time during the calendar year where it would be possible for the Release to become effective in the calendar
year following the calendar year in which the Employee's termination occurs, any severance that would be considered Deferred
Compensation Separation Benefits (as defined in Section 3(d)) will be paid on the first payroll date to occur during the calendar year
following the calendar year in which such termination occurs.
(c)
Timing of Severance Payments. Any cash severance payment to which Employee is entitled shall be paid by the
Company to Employee in a single lump sum in cash on the Release's effective date.
(d)
Change of Control Benefits. In the event the Employee receives severance and other benefits pursuant to a
change in control agreement that are greater than or equal to the amounts payable hereunder, then the Employee shall not be entitled to
receive severance or any other benefits under this Agreement.
(e)
Section 409A.
(i)
Notwithstanding anything to the contrary in this Agreement, if Employee is a “specified employee”
within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the final regulations and any
guidance promulgated thereunder (“Section 409A”) at the time of Employee's termination (other than due to death) or resignation,
then the severance payable to Employee, if any, pursuant to this Agreement, when considered together with any other severance
payments or separation benefits that are considered deferred compensation under Section 409A (together, the “Deferred Compensation
Separation Benefits”) that are payable within the first six (6) months following Employee's termination of employment, will become
payable on or within ten days following the first payroll date that occurs on or after the date six (6) months and one (1) day following
the date of Employee's termination of employment. All subsequent Deferred Compensation Separation Benefits, if any, will be
payable in accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the
contrary, if Employee dies following his termination but prior to the six (6) month anniversary of his termination, then any payments
delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of
Employee's death and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule
applicable to each payment or benefit. Each payment and benefit payable under this Agreement is intended to constitute separate
payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.
Any amount paid under this Agreement that satisfies the requirements of the “short-term deferral” rule
set forth in Section 1.409A-1(b)(4) of the Treasury Regulations shall not constitute Deferred Compensation Separation Benefits for
purposes of clause (i) above.
(ii)
(iii)
Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntary
separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that do not exceed the Section 409A Limit
shall not constitute Deferred Compensation Separation Benefits for purposes of clause (i) above. “Section 409A Limit” will mean the
lesser of two (2) times: (i) Employee's annualized compensation based upon the annual rate of pay paid to Employee during the
Employee's taxable year preceding the Employee's taxable year of Employee's termination of employment as determined under, and
with such adjustments as are set forth in, Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance
issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section
401(a)(17) of the Code for the year in which Employee's employment is terminated.
(iv)
The foregoing provisions are intended to comply with the requirements of Section 409A so that none of
the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and
any ambiguities herein will be interpreted to so comply. The Company and Employee agree to work together in good faith to consider
amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition
of any additional tax or income recognition prior to actual payment to Employee under Section 409A.
4.
Successors.
(a)
The Company's Successors. Any successor to the Company (whether direct or indirect and whether by
purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall
assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner
and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes
under this Agreement, the term “Company” shall include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Section 4(a) or which becomes bound by the terms of this Agreement by operation
of law. The term “Company” shall also include any direct or indirect that is majority owned by Juniper Networks, Inc.
The Employee's Successors. The terms of this Agreement and all rights of the Employee hereunder shall
inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
(b)
5.
Notice. All notices and other communications required or permitted here-under shall be in writing, shall be
effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the
U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered
by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or
(d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class
mail, postage prepaid, and shall be addressed (i) if to Employee, at his or her last known residential address and (ii) if to the Company,
at the address of its principal corporate offices (attention: Secretary), or in any such case at such other address as a party may
designate by ten (10) days' advance written notice to the other party pursuant to the provisions above.
6.
Miscellaneous Provisions.
(a)
No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment
contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any
other source.
(b)
Waiver. No provision of this Agreement shall be modified, waived or discharged unless the
modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at
another time.
(c)
Headings. All captions and section headings used in this Agreement are for convenient reference only
and do not form a part of this Agreement.
Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto and supersedes
in their entirety all prior representations, understandings, undertakings or agreements (whether oral or written and whether expressed
or implied) of the parties with respect to the subject matter hereof.
(d)
(e)
Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of California. The Superior Court of Santa Clara County and/or the United States District Court for
the Northern District of California shall have exclusive jurisdiction and venue over all controversies in connection with this
Agreement.
(f)
Severability . The invalidity or unenforceability of any provision or provisions of this Agreement shall
not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(g)
Withholding . All payments made pursuant to this Agreement will be subject to withholding of
applicable income and employment taxes.
original, but all of which together will constitute one and the same instrument.
(h)
Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly
authorized officer, as of the day and year set forth below.
COMPANY JUNIPER NETWORKS, INC.
By:
Name: ____________________________________
Title:
EMPLOYEE
Name:
JUNIPER NETWORKS, INC.
CHANGE OF CONTROL AGREEMENT
EXHIBIT 10.58
This Change of Control Agreement (the “Agreement”) is made and entered into by and between ___________ (the
“Employee”) and Juniper Networks, Inc., a Delaware Corporation (the “Company”), effective as of _____________, 2012 (the
“Effective Date”).
RECITALS
1. It is expected that the Company from time to time will consider the possibility of an acquisition by another company or
other change of control. The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction
to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in
the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity
of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein) of the Company.
2. The Board believes that it is in the best interests of the Company and its stockholders to provide the Employee with an
incentive to continue his or her employment and to motivate the Employee to maximize the value of the Company upon a Change of
Control for the benefit of its stockholders.
3. The Board believes that it is imperative to provide the Employee with certain severance benefits upon certain
terminations of employment following a Change of Control. These benefits will provide the Employee with enhanced financial
security and incentive and encouragement to remain with the Company notwithstanding the possibility of a Change of Control.
4. Certain capitalized terms used in the Agreement are defined in Section 6 below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1.
Term of Agreement. This Agreement shall terminate upon the later of (i) January 1, 2015 or (ii) if a Change of
Control has occurred on or before January 1, 2015 (or if a definitive agreement relating to a Change in Control has been signed by the
Company on or before January 1, 2015 and the closing of that transaction occurs on or before March 31, 2015), the date that all of the
obligations of the parties hereto with respect to this Agreement have been satisfied.
2.
At-Will Employment. The Company and the Employee acknowledge that the Employee's employment is and shall
continue to be at-will, as defined under applicable law, except as may otherwise be specifically provided under the terms of any
written formal employment agree-ment or offer letter between the Company and the Employee (an “Employment Agreement”). If the
Employee's employment terminates for any reason, including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement
or under his or her Employment Agreement, or as may otherwise be available in accordance with the Company's established employee
plans.
3.
Severance Benefits.
Change of Control Period. If (i) between the date that is four (4) months following a
(a)
Involuntary Termination Other than for Cause or Voluntary Termination for Good Reason Following a
Change of Control and the date that is twelve (12) months following a Change of Control the Employee terminates his or her
employment with the Company (or any parent or subsidiary of the Company) for “Good Reason” (as defined herein), provided
however, that the grounds for Good Reason may arise at anytime within the twelve (12) months following the Change of Control, or
(ii) within twelve (12) months following a Change of Control the Company (or any parent or subsidiary of the Company) terminates
the Employee's employment for other than “Cause” (as defined herein), and the Employee signs and does not revoke a standard
release of claims with the Company (in a form acceptable to the Company and effective no later than March 15 of the year following
the year in which the termination occurs) (the “Release”), then the Employee shall receive the following severance from the Company:
Severance Payment. The Employee shall be entitled to receive a lump-sum severance payment
(less applicable withholding taxes) equal to 100% of the Employee's annual base salary (as in effect immediately prior to (A) the
Change of Control, or (B) the Employee's termination, whichever is greater) plus 100% of the Employee's target bonus for the fiscal
year in which the Change of Control or the Employee's termination occurs, whichever is greater).
(i)
(ii)
Equity Compensation Acceleration. One hundred percent (100%) of Employee's then unvested
outstanding stock options, stock appreciation rights, restricted stock units and other Company equity compensation awards (the
“Equity Compensation Awards”) that vest based on time (such as an option that vests 25% on the first anniversary of grant and 1/48 th
monthly thereafter) shall immediately vest and became exercisable (and any rights of repurchase by the Company or restriction on sale
shall lapse). With respect to Equity Compensation Awards that vest wholly or in part based on factors other than time, such as
performance (whether individual or based on external measures such as Company performance, market share, stock price, etc.), (i) any
portion for which the measurement or performance period or performance measures have been completed and the resulting quantities
have been determined or calculated, shall immediately vest and become exercisable (and any rights of repurchase by the Company or
restriction on sale shall lapse) and (ii) the remaining portions shall immediately vest and become exercisable (and any rights of
repurchase by the Company or restriction on sale shall lapse) in an amount equal to the number that would be calculated if the
performance measures were achieved at the target level (for example, if the employee were granted 300 three year performance
shares, where (a) the amount that can be earned is determined each year based on performance against annual performance targets but
the entire amount vests at the end of the three years and (b) at target performance levels the employee could earn 1/3 of the amount
each year and (c) the first year had been completed and the performance resulted in a calculation that 85 shares were earned and
(d) the employee is terminated prior to the completion of year 2, then the amount that would vest and become immediately exercisable
would be 285 shares -- representing the 85 shares calculated for year 1 and the target amount of 100 shares for each of year 2 and year
3); provided however, that if there is no “target” number, then the number that vest shall be 100% of the amounts that could vest with
respect to that measurement period. Any Company stock options and stock appreciation rights shall thereafter remain exercisable
following the Employee's employment termination for the period prescribed in the respective option and stock appreciation right
agreements.
(iii)
Continued Employee Benefits . In lieu of continuation of benefits, Employee shall receive
$36,000 (whether or not Employee elects COBRA).
(b)
Timing of Severance Payments .
(i)
Payment Timing . One half of the severance payment to which Employee is entitled shall be paid
by the Company to Employee in cash on the 60th calendar day after Employee's termination of employment, but in no case prior to the
effective date of the Release. The other half of the severance payment to which Employee is entitled shall be paid by the Company to
Employee in cash not later than six months after Employee's termination of employment, but in no case prior to the effective date of
the Release. If the Employee should die before all amounts have been paid, such unpaid amounts shall be paid in a lump-sum payment
(less any withholding taxes) to the Employee's designated beneficiary, if living, or otherwise to the personal representative of the
Employee's estate.
(ii)
Release Effectiveness. The receipt of any severance pursuant to Section 3(a) will be subject to
Employee signing and not revoking the Release and provided that such Release is effective within sixty (60) days following the
termination of employment. No severance pursuant to such Section will be paid or provided until the Release becomes effective. In the
event the termination occurs at a time during the calendar year where it would be possible for the Release to become effective in the
calendar year following the calendar year in which the Employee's termination occurs, any severance that would be considered
Deferred Compensation Separation Benefits (as defined in Section 3(f)) will be paid on the first payroll date to occur during the
calendar year following the calendar year in which such termination occurs, or such later time as required by the payment schedule
applicable to each payment or benefit, or Section 3(f)
(c)
Voluntary Resignation; Termination for Cause. If the Employee's employ-ment with the Company
terminates (i) voluntarily by the Employee other than for Good Reason, or (ii) for Cause by the Company, then the Employee shall not
be entitled to receive severance or other benefits except for those (if any) as may then be established under the Company's then
existing severance and benefits plans and practices or pursuant to other written agreements with the Company.
(d)
Termination Outside of Change of Control Period. In the event the Employee's employment is terminated
for any reason, either prior to the occurrence of a Change of Control or after the twelve (12) month period following a Change of
Control, or if the Employee terminates for Good Reason within four months after a Change in Control, then the Employee shall be
entitled to receive severance and any other benefits only as may then be established under the Company's existing written severance
and benefits plans and practices or pursuant to other written agreements with the Company.
(e)
Section 409A.
(i)
Notwithstanding anything to the contrary in this Agreement, if Employee is a “specified
employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the final
regulations and any guidance promulgated thereunder (“Section 409A”) at the time of Employee's termination (other than due to
death) or resignation, then the severance payable to Employee, if any, pursuant to this Agreement, when considered together with any
other severance payments or separation benefits that are considered deferred compensation under Section 409A (together, the
“Deferred Compensation Separation Benefits”) that are payable within the first six (6) months following Employee's termination of
employment, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the
date of Employee's termination of employment. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in
accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if
Employee dies following his termination but prior to the six (6) month anniversary of his termination, then any payments delayed in
accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of Employee's
death and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to
each payment or benefit. Each payment and benefit payable under this Agreement is intended to constitute separate payments for
purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.
(ii)
Any amount paid under this Agreement that satisfies the requirements of the “short-term
deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations shall not constitute Deferred Compensation Separation
Benefits for purposes of clause (i) above.
(iii)
Any amount paid under this Agreement that qualifies as a payment made as a result of an
involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that do not exceed the Section
409A Limit shall not constitute Deferred Compensation Separation Benefits for purposes of clause (i) above. “Section 409A Limit”
will mean the lesser of two (2) times: (i) Employee's annualized compensation based upon the annual rate of pay paid to Employee
during the Employee's taxable year preceding the Employee's taxable year of Employee's termination of employment as determined
under, and with such adjustments as are set forth in, Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service
guidance issued with respect thereto; or (ii) the maximum amount
that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Employee's
employment is terminated.
(iv)
The foregoing provisions are intended to comply with the requirements of Section 409A so that
none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section
409A, and any ambiguities herein will be interpreted to so comply. The Company and Employee agree to work together in good faith
to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid
imposition of any additional tax or income recognition prior to actual payment to Employee under Section 409A.
4.
Conditional Nature of Severance Payments and Benefits.
(a)
Noncompete. Employee acknowledges that the nature of the Company's business is such that if
Employee were to become employed by, or substantially involved in, the business of a competitor of the Company during the twelve
(12) months following the termination of Employee's employment with the Company, it would be very difficult for Employee not to
rely on or use the Company's trade secrets and confidential information. Thus, to avoid the inevitable disclosure of the Company's
trade secrets and confidential information, Employee agrees and acknowledges that Employee's right to receive the severance benefits
set forth in Section 3(a) (to the extent Employee is otherwise entitled to such payments) shall be conditioned upon Employee not
directly or indirectly engaging in (whether as an employee, consultant, agent, proprietor, principal, partner, stockholder, corporate
officer, director or otherwise), nor having any ownership interested in or participating in the financing, operation, management or
control of, any person, firm, corporation or business in Competition (as defined herein) with Company. Notwithstanding the
foregoing, Employee may, without violating this Section 4, own, as a passive investment, shares of capital stock of a corporation or
other entity that engages in Competition where the number of shares of such corporation's capital stock that are owned by Employee
represent less than three percent of the total number of shares of such entity's capital stock outstanding.
(b)
Non-Solicitation. Until the date twelve (12) months after the termination of Employee's employment
with the Company for any reason, Employee agrees and acknowledges that Employee's right to receive the severance payments set
forth in Section 3(a) (to the extent Employee is otherwise entitled to such payments) shall be conditioned upon Employee neither
directly nor indirectly soliciting, inducing, recruiting or encouraging an employee to leave his or her employment either for Employee
or for any other entity or person with which or whom Employee has a business relationship.
Understanding of Covenants. Employee represents that he (i) is familiar with the foregoing covenants
not to compete and not to solicit, and (ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness
of the length of time, scope and geographic coverage of these covenants.
(c)
(d)
Remedy for Breach. Upon any breach of this section by Employee, all severance payments and benefits
pursuant to this Agreement shall immediately cease and any stock options or stock appreciation rights then held by Employee shall
immediately terminate and be without further force and effect, and Employee shall return all of the consideration paid by the
Company under this Section 3 and remit any shares of Restricted Stock or shares purchased under stock options to the extent vesting
accelerated under Section 3 above (or the profits from the sale of such shares if they are or have been sold).
5.
Golden Parachute Excise Tax Best Results. In the event that the severance and other benefits provided for in this
agreement or otherwise payable to Employee (a) constitute “parachute payments” within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the “Code”) and (b) would be subject to the excise tax imposed by Section 4999 of the Code,
then such benefits shall be either be:
(i)
(ii)
delivered in full, or
delivered as to such lesser extent which would result in no portion of such severance benefits
being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal, state and local income and
employment taxes and the excise tax imposed by Section 4999, results in the receipt by Employee, on an after-tax basis, of the greatest
amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. Unless
the Company and Employee otherwise agree in writing, any determination required under this Section 5 will be made in writing by a
national “Big Four” accounting firm selected by the Company or such other person or entity to which the parties mutually agree (the
“Accountants”), whose determination will be conclusive and binding upon Employee and the Company for all purposes. For purposes
of making the calculations required by this Section 5, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and
4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations contemplated by this Section 5. Any reduction in payments
and/or benefits required by this Section 5 shall occur in the following order: (1) reduction of cash payments; and (2) reduction of other
benefits paid to Employee. In the event that acceleration of vesting of equity awards is to be reduced, such acceleration of vesting shall
be cancelled in the reverse order of the date of grant for Employee's equity awards.
6.
Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:
(a)
Cause. “Cause” shall mean:
employee and intended to result in substantial personal enrichment of the Employee; or
(i)
an act of personal dishonesty taken by the Employee in connection with his responsibilities as an
(ii)
(iii)
Employee being convicted of, or pleading nolo contendere to a felony; or
a willful act by the Employee which constitutes gross misconduct and which is injurious to the
Company; or
following delivery to the Employee of a written demand for performance from the Company
which describes the basis for the Company's reasonable belief that the Employee has not substantially performed his duties, continued
violations by the Employee of the Employee's obligations to the Company which are demonstrably willful and deliberate on the
Employee's part.
(iv)
(b)
Change of Control. “Change of Control” means the occurrence of any of the following:
Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting
securities; or
(i)
(ii)
Any action or event occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the
Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or
(iii)
The consummation of a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least
fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or
(iv)
The consummation of the sale, lease or other disposition by the Company of all or substantially
all the Company's assets.
(c)
Competition. means the development, marketing or sale of networking equipment or
network security software or products in the United. For the avoidance of doubt, Competition includes, but is not limited to, Cisco
Systems, Huawei, Alcatel, Checkpoint, and Foundry.
(d)
Disability . “Disability” shall mean that the Employee has been unable to perform his or her Company
duties as the result of his incapacity due to physical or mental illness, and such inability, at least twenty-six (26) weeks after its
commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the
Employee or the Employee's legal representative (such agreement as to acceptability not to be unreasonably withheld). Termination
resulting from Disability may only be effected after at least thirty (30) days' written notice by the Company of its intention to
terminate the Employee's employment. In the event that the Employee resumes the performance of substantially all of his or her duties
hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be
deemed to have been revoked.
Good Reason . “Good Reason” means Employee's termination of employment following the expiration
of any cure period (discussed below) following the occurrence, without Employee's express written consent, of one or more of the
following:
(e)
(i)
a material reduction of the Employee's duties, title, authority or responsibilities, relative to the
Employee's duties, title, authority or responsibilities as in effect immediately prior to such reduction; provided, however, that a
reduction in duties, title, authority or responsibilities solely by virtue of the Company being acquired and made part of a larger entity
(as, for example, when the Chief Financial Officer of the Company remains the Chief Financial Officer of the subsidiary or business
unit substantially containing the Company's business following a Change of Control) shall not by itself constitute grounds for a
“Voluntary Termination for Good Reason” or
(ii)
a substantial reduction of the facilities and perquisites (including office space and
location) available to the Employee immediately prior to such reduction; or
(iii)
a reduction by the Company in the base compensation or total target cash compensation of the
Employee as in effect immediately prior to such reduction; or
a material reduction by the Company in the kind or level of benefits to which the Employee
was entitled immediately prior to such reduction with the result that such Employee's overall benefits package is significantly reduced;
or
(iv)
(v)
Employee's then present location.
the relocation of the Employee to a facility or a location more than forty (40) miles from such
Employee will not resign for Good Reason without first providing the Company with written notice within
sixty (60) days of the event that Employee believes constitutes “Good Reason” specifically identifying the acts or omissions
constituting the grounds for Good Reason and a reasonable cure period of not less than thirty (30) days following the date of such
notice.
7.
Successors.
(a)
The Company's Successors. Any successor to the Company (whether direct or indirect and whether by
purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall
assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner
and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes
under this Agreement, the term “Company” shall include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Section 7(a) or which becomes bound by the terms of this Agreement by operation
of law.
The Employee's Successors. The terms of this Agreement and all rights of the Employee hereunder shall
inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
(b)
8.
Notice.
(a)
General. All notices and other communications required or permitted here-under shall
be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days
after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon
delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile
transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to Employee, at his or her last known
residential address and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or in any such case
at such other address as a party may designate by ten (10) days' advance written notice to the other party pursuant to the provisions
above.
(b)
Notice of Termination. Any termination by the Company for Cause or by the Employee for Good Reason
or Disability or as a result of a voluntary resignation shall be communi-cated by a notice of termination to the other party hereto given
in accordance with Section 8(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the
provision so indicated, and shall specify the termination date (which shall be not more than thirty (30) days after the giving of such
notice). The failure by the Employee to include in the notice any fact or circumstance which contributes to a showing of Good Reason
or Disability shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance
in enforcing his or her rights hereunder.
9.
Miscellaneous Provisions.
No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment
contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any
other source.
(a)
(b)
Waiver. No provision of this Agreement shall be modified, waived or discharged unless the
modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at
another time.
(c)
Headings. All captions and section headings used in this Agreement are for convenient reference only
and do not form a part of this Agreement.
Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto and supersedes
in their entirety all prior representations, understandings, undertakings or agreements (whether oral or written and whether expressed
or implied) of the parties with respect to the subject matter hereof.
(d)
(e)
Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of California. The Superior Court of Santa Clara County and/or the United States District Court for
the Northern District of California shall have exclusive jurisdiction and venue over all controversies in connection with this
Agreement.
(f)
Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not
affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(g)
Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable
income and employment taxes.
original, but all of which together will constitute one and the same instrument.
(h)
Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly
authorized officer, as of the day and year set forth below.
COMPANY JUNIPER NETWORKS, INC.
By:
Name: ____________________________________
Title:
EMPLOYEE
Name:
Juniper Networks, Inc.
Statements of Computation of Ratio of Earnings to Fixed Charges
(in millions, except ratios)
EXHIBIT 12.1
Years ended December 31,
2011 (a) 2010 (a) 2009 (a) 2008 (a) 2007 (a)
Earnings for computation of ratio:
Pre-tax income (loss) from continuing operations before adjustment for minority interests in
consolidated subsidiaries or income or (loss) from equity investees
$ 572.0 $ 769.5 $ 317.6 $ 743.7 $ 503.8
Fixed charges
Less:
Interest capitalized
Minority interest in pre-tax income of subsidiaries that have not incurred fixed charges
Total earnings (loss)
69.2
16.8
17.0
23.2
17.6
(1.2)
—
—
(1.3)
—
—
—
—
—
—
$ 640.0 $ 785.0 $ 334.6 $ 766.9 $ 521.4
Fixed charges:
Interest expensed and debt cost amortization
Amortized premiums, discounts, and capitalized expenses relating to indebtedness
Estimate of interest within rental expense
Total fixed charges
$ 48.9 $ — $ — $
5.8 $
0.6
—
—
—
19.7
16.8
17.0
17.4
$ 69.2 $ 16.8 $
17.0 $
23.2 $
2.9
—
14.6
17.5
Ratio of earnings to fixed charges
9.2
46.8
19.7
33.0
29.7
(a)
For these ratios, "earnings" represents income before taxes before adjustment for minority interests in equity investments and fixed charges, adjusted for interest capitalized and minority
interest in pre-tax income of subsidiaries that have not incurred fixed charges.
SUBSIDIARIES OF THE COMPANY AS OF DECEMBER 31, 2011*
NAME
Juniper Networks (Cayman) Limited
Juniper Networks Ireland
Juniper Networks (Hong Kong), Ltd.
Juniper Networks (US), Inc.
____________
* All other subsidiaries would not in the aggregate constitute a “significant subsidiary” as defined in Regulation S-X.
EXHIBIT 21.1
JURISDICTION OF
INCORPORATION
Cayman Islands
Ireland
Hong Kong
California, USA
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements (Form S-8 Nos. 333-176171, 333-171299, 333-168734, 333-166248,
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. 333-168733) of Juniper Networks, Inc. of our
reports dated February 24, 2012, 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) of Juniper Networks, Inc., for the year ended
December 31, 2011.
EXHIBIT 23.1
/s/ Ernst & Young LLP
San Jose, California
February 24, 2012
CERTIFICATION
EXHIBIT 31.1
I, Kevin R. Johnson, certify that:
1. I have reviewed this Annual Report on Form 10-K of Juniper Networks, Inc.;
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)
(b)
(c)
(d)
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;
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;
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
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)
(b)
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
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 24, 2012
/s/ Kevin R. Johnson
Kevin R. Johnson
Chief Executive Officer
CERTIFICATION
EXHIBIT 31.2
I, Robyn M. Denholm, certify that:
1. I have reviewed this Annual Report on Form 10-K of Juniper Networks, Inc.;
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)
(b)
(c)
(d)
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;
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;
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
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)
(b)
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
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.
Da te: February 24, 2012
/s/ Robyn M. Denholm
Robyn M. Denholm
Executive Vice President and Chief Financial Officer
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350 As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.1
I, Kevin R. Johnson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Juniper Networks, Inc. on Form 10-K for the fiscal year ended December 31, 2011, fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the
financial condition and results of operations of Juniper Networks, Inc.
/s/ Kevin R. Johnson
Kevin R. Johnson
Chief Executive Officer
February 24, 2012
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.2
I, Robyn M. Denholm, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Juniper Networks, Inc. on Form 10-K for the fiscal year ended December 31, 2011, fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the
financial condition and results of operations of Juniper Networks, Inc.
/s/ Robyn M. Denholm
Robyn M. Denholm
Executive Vice President and Chief Financial Officer
February 24, 2012