Juniper Networks (JNPR) 8-K Results of Operations and Financial Condition

Investor Relations:	Media Relations:
Kathleen Bela	David Shane
Juniper Networks	Juniper Networks
(408) 936-7804	(408) 936-4872
kbela@juniper.net	dshane@juniper.net

JUNIPER NETWORKS REPORTS PRELIMINARY THIRD QUARTER
2010 FINANCIAL RESULTS

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•
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• Record Revenue of $1,012.4 million, up 23% year-over-year and up 3% sequentially
Operating Margin: 19.3% GAAP; 24.1% non-GAAP
GAAP Net Income Per Share:  $0.25 diluted
Non-GAAP Net Income Per Share: $0.32 diluted, up 39% year-over-year and up 7% sequentially

SUNNYVALE, Calif., October 19, 2010- Juniper Networks (NYSE: JNPR) today reported preliminary financial results for the three months ended September 30, 2010.

Net revenues for the third quarter of 2010 increased 23% on a year-over-year basis, and increased 3% sequentially, to $1,012.4 million. The Company posted GAAP net income of $134.5 million, or $0.25 per diluted share, and non-GAAP net income of $171.5 million, or $0.32 per diluted share, for the third quarter of 2010. Non-GAAP net income per diluted share increased 39% compared to the third quarter of 2009 and increased 7% compared to last quarter. The reconciliation between GAAP and non-GAAP results of operations is provided in a table immediately following the Net Revenues by Market table below.

“Juniper’s results reflect our ability to deliver on the promise of the New Network with cost effective solutions that scale to meet growing network demand,” said Kevin Johnson, Juniper’s chief executive officer. “We anticipate customer demand to remain healthy and are well-positioned to drive further gains as we enable the deployment of secure, scalable wireless networks and deliver solutions to the growing cloud computing market.”

Juniper’s operating margin for the third quarter of 2010 increased to 19.3% on a GAAP basis from 18.9% in the second quarter of 2010, and increased from 15.5% in the prior year third quarter. Non-GAAP operating margin for the third quarter of 2010 increased to 24.1% from 23.9% in the second quarter of 2010 and increased from 20.8% in the prior year third quarter.

Juniper generated net cash from operations for the third quarter of 2010 of $131.4 million, compared to net cash provided by operations of $221.3 million, in the second quarter of 2010, and $223.9 million in the same quarter of the prior year.

Capital expenditures, as well as depreciation and amortization expense during the third quarter of 2010, were $54.3 million and $39.6 million, respectively.

During the quarter, Juniper acquired SMobile Systems, Inc. for $69 million, a privately-held software company focused solely on smartphone and tablet security solutions for the enterprise, service provider, and consumer markets. With SMobile’s product portfolio integrated with Junos® Pulse, the Company has extended its security focus.

“We continue to execute well against the operating principles that we set at the beginning of the year,” said Robyn Denholm, Juniper’s chief financial officer.  “We exited this quarter with strong demand metrics and good momentum and we are on track to deliver 20% or higher revenue growth for the full year.”

Juniper Networks will host a conference call web cast today, October 19, 2010 at 1:45 p.m. (Pacific Time), to be broadcast live over the Internet at:http://www.juniper.net/company/investor/conferencecall.html.

To participate via telephone, in the U.S. the toll free dial-in number is 877-407-8033; outside of the U.S. dial 201-689-8033. Please call ten minutes prior to the scheduled conference call time. The webcast replay of the conference call will be archived on the Juniper Networks website until December 14, 2010.

About Juniper Networks
Juniper Networks is in the business of network innovation. From devices to data centers, from consumers to cloud providers, Juniper Networks delivers the software, silicon and systems that transform the experience and economics of networking. The company serves customers and partners worldwide, generating revenues exceeding $3 billion over the last year. Additional information can be found atwww.juniper.net.

Juniper Networks and Junos are registered trademarks of Juniper Networks, Inc. in the United States and other countries. The Juniper Networks and Junos logos are trademarks of Juniper Networks, Inc. All other trademarks, service marks, registered trademarks, or registered service marks are the property of their respective owners.

Statements in this release concerning Juniper Networks’ business outlook, economic and market outlook, future financial and operating results, and overall future prospects are forward-looking statements that involve a number of uncertainties and risks. Actual results or events could differ materially from those anticipated in those forward-looking statements as a result of certain factors, including: general economic conditions globally or regionally; business and economic conditions in the networking industry; changes in overall technology spending; the network capacity requirements of communication service providers; contractual terms that may result in the deferral of revenue; increases in and the effect of competition; the timing of orders and their fulfillment; manufacturing and supply chain constraints; ability to establish and maintain relationships with distributors, resellers and other partners; variations in the expected mix of products sold; changes in customer mix; changes in geography mix; customer and industry analyst perceptions of Juniper Networks and its technology, products and future prospects; delays in scheduled product availability; market acceptance of Juniper Networks products and services; rapid technological and market change; adoption of regulations or standards affecting Juniper Networks products, services or the networking industry; the ability to successfully acquire, integrate and manage businesses and technologies; product defects, returns or vulnerabilities; the ability to recruit and retain key personnel; significant effects of tax legislation and judicial or administrative interpretation of tax regulations; currency fluctuations; litigation; and other factors listed in Juniper Networks’ most recent report on Form 10-Q filed with the Securities and Exchange Commission. All statements made in this press release are made only as of the date set forth at the beginning of this release. Juniper Networks undertakes no obligation to update the information in this release in the event facts or circumstances subsequently change after the date of this press release.

Juniper Networks believes that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to the company’s financial condition and results of operations. For further information regarding why Juniper Networks believes that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the discussion below.

Juniper Networks, Inc.
Preliminary Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010			2009
Net revenues:
Product	$	801,183	$	634,074	$	2,296,442		$	1,828,896
Service		211,224		189,838		606,883			545,562
Total net revenues		1,012,407		823,912		2,903,325			2,374,458
Cost of revenues:
Product		247,033		206,329		701,166			606,966
Service		87,587		74,300		252,413			215,535
Total cost of revenues		334,620		280,629		953,579			822,501
Gross margin		677,787		543,283		1,949,746			1,551,957
Operating expenses:
Research and development		231,151		185,204		662,913			554,498
Sales and marketing		204,704		183,424		599,382			547,843
General and administrative		43,773		39,877		132,791			118,263
Amortization of purchased intangible assets		917		1,330		3,258			9,259
Restructuring charges		181		4,493		8,550			16,251
Acquisition-related and other charges		1,525		1,000		2,066			1,000
Total operating expenses		482,251		415,328		1,408,960			1,247,114
Operating income		195,536		127,955		540,786			304,843
Interest and other income, net		205		1,733		2,497			6,581
Gain (loss) on equity investments		—		—		3,232			(3,311	)
Income before income taxes and noncontrolling interest		195,741		129,688		546,515			308,113
Income tax provision		61,404		45,902		117,225			214,018
Consolidated net income		134,337		83,786		429,290			94,095
Adjust for net loss (income) attributable to noncontrolling interest		206		—		(1,121	)		—
Net income attributable to Juniper Networks	$	134,543	$	83,786	$	428,169		$	94,095
Net income per share attributable to Juniper Networks common stockholders:
Basic	$	0.26	$	0.16	$	0.82		$	0.18
Diluted	$	0.25	$	0.16	$	0.80		$	0.18
Shares used in computing net income per share:
Basic		520,581		523,878		522,069			523,802
Diluted		534,880		538,132		537,158			532,686

Juniper Networks, Inc.
Stock-Based Compensation by Category
(in thousands)
(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Cost of revenues – Product	$	991	$	910	$	3,093	$	2,832
Cost of revenues – Service		3,155		2,615		9,891		7,565
Research and development		19,315		14,327		54,980		43,988
Sales and marketing		13,439		10,964		39,020		31,808
General and administrative		7,491		5,538		22,571		15,252
Total	$	44,391	$	34,354	$	129,555	$	101,445

Juniper Networks, Inc.
Stock-Based Compensation Related Payroll Tax by Category
(in thousands)
(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Cost of revenues – Product	$	20	$	32	$	131	$	48
Cost of revenues – Service		53		89		370		145
Research and development		228		353		1,413		540
Sales and marketing		153		276		1,735		669
General and administrative		39		38		247		81
Total	$	493	$	788	$	3,896	$	1,483

Juniper Networks, Inc.
Net Revenues by Reportable Segment
(in thousands)
(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Infrastructure – Product	$	607,593	$	471,976	$	1,753,932	$	1,396,220
Infrastructure – Service		136,475		123,229		389,188		350,074
Total Infrastructure	$	744,068	$	595,205	$	2,143,120	$	1,746,294
Service Layer Technologies – Product	$	193,590	$	162,098	$	542,510	$	432,676
Service Layer Technologies – Service		74,749		66,609		217,695		195,488
Total Service Layer Technologies	$	268,339	$	228,707	$	760,205	$	628,164
Total	$	1,012,407	$	823,912	$	2,903,325	$	2,374,458

Juniper Networks, Inc.
Net Revenues by Geographic Region
(in thousands)
(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Americas	$	532,747	$	422,842	$	1,515,436	$	1,173,375
Europe, Middle East, and Africa		275,927		243,149		829,505		698,319
Asia Pacific		203,733		157,921		558,384		502,764
Total	$	1,012,407	$	823,912	$	2,903,325	$	2,374,458

Juniper Networks, Inc.
Net Revenues by Market
(in thousands)
(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Service Provider	$	633,998	$	523,999	$	1,847,645	$	1,557,800
Enterprise		378,409		299,913		1,055,680		816,658
Total	$	1,012,407	$	823,912	$	2,903,325	$	2,374,458

Juniper Networks, Inc.
Reconciliation between GAAP and non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
GAAP Cost of revenues — Product		$	247,033			$	206,329			$	701,166			$	606,966
Stock-based compensation expense	C		(991	)			(910	)			(3,093	)			(2,832	)
Stock-based compensation related payroll tax	C		(20	)			(32	)			(131	)			(48	)
Amortization of purchased intangible assets	A		(1,414	)			(1,369	)			(1,747	)			(4,107	)
Non-GAAP Cost of revenues — Product			244,608				204,018				696,195				599,979
GAAP Cost of revenues — Service			87,587				74,300				252,413				215,535
Stock-based compensation expense	C		(3,155	)			(2,615	)			(9,891	)			(7,565	)
Stock-based compensation related payroll tax	C		(53	)			(89	)			(370	)			(145	)
Non-GAAP Cost of revenues — Service			84,379				71,596				242,152				207,825
GAAP Gross margin — Product			554,150				427,745				1,595,276				1,221,930
Stock-based compensation expense	C		991				910				3,093				2,832
Stock-based compensation related payroll tax	C		20				32				131				48
Amortization of purchased intangible assets	A		1,414				1,369				1,747				4,107
Non-GAAP Gross margin — Product			556,575				430,056				1,600,247				1,228,917
GAAP Product gross margin as a % of product revenue			69.2		%		67.5		%		69.5		%		66.8		%
Stock-based compensation expense as a % of product revenue	C		0.1		%		0.1		%		0.1		%		0.2		%
Stock-based compensation related payroll tax as a % of product revenue	C		—		%		—		%		—		%		—		%
Amortization of purchased intangible assets as a % of product revenue	A		0.2		%		0.2		%		0.1		%		0.2		%
Non-GAAP Product gross margin as a % of product revenue			69.5		%		67.8		%		69.7		%		67.2		%
GAAP Gross margin — Service			123,637				115,538				354,470				330,027
Stock-based compensation expense	C		3,155				2,615				9,891				7,565
Stock-based compensation related payroll tax	C		53				89				370				145
Non-GAAP Gross margin — Service		$	126,845			$	118,242			$	364,731			$	337,737

Juniper Networks, Inc.
Reconciliation between GAAP and non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
GAAP Service gross margin as a % of service revenue			58.5		%		60.9		%		58.4		%		60.5		%
Stock-based compensation expense as a % of service revenue	C		1.6		%		1.4		%		1.6		%		1.4		%
Stock-based compensation related payroll tax as a % of service revenue	C		—		%		—		%		0.1		%		—		%
Non-GAAP Service gross margin as a % of service revenue			60.1		%		62.3		%		60.1		%		61.9		%
GAAP Gross margin		$	677,787			$	543,283			$	1,949,746			$	1,551,957
Stock-based compensation expense	C		4,146				3,525				12,984				10,397
Stock-based compensation related payroll tax	C		73				121				501				193
Amortization of purchased intangible assets	A		1,414				1,369				1,747				4,107
Non-GAAP Gross margin			683,420				548,298				1,964,978				1,566,654
GAAP Gross margin as a % of revenue			66.9		%		65.9		%		67.2		%		65.4		%
Stock-based compensation expense as a % of revenue	C		0.5		%		0.4		%		0.4		%		0.4		%
Stock-based compensation related payroll tax as a % of revenue	C		—		%		—		%		—		%		—		%
Amortization of purchased intangible assets as a % of revenue	A		0.1		%		0.2		%		0.1		%		0.2		%
Non-GAAP Gross margin as a % of revenue			67.5		%		66.5		%		67.7		%		66.0		%
GAAP Research and development expense			231,151				185,204				662,913				554,498
Stock-based compensation expense	C		(19,315	)			(14,327	)			(54,980	)			(43,988	)
Stock-based compensation related payroll tax	C		(228	)			(353	)			(1,413	)			(540	)
Non-GAAP Research and development expense			211,608				170,524				606,520				509,970
GAAP Sales and marketing expense			204,704				183,424				599,382				547,843
Stock-based compensation expense	C		(13,439	)			(10,964	)			(39,020	)			(31,808	)
Stock-based compensation related payroll tax	C		(153	)			(276	)			(1,735	)			(669	)
Non-GAAP Sales and marketing expense			191,112				172,184				558,627				515,366
GAAP General and administrative expense			43,773				39,877				132,791				118,263
Stock-based compensation expense	C		(7,491	)			(5,538	)			(22,571	)			(15,252	)
Stock-based compensation related payroll tax	C		(39	)			(38	)			(247	)			(81	)
Non-GAAP General and administrative expense			36,243				34,301				109,973				102,930
GAAP Operating expense			482,251				415,328				1,408,960				1,247,114
Stock-based compensation expense	C		(40,245	)			(30,829	)			(116,571	)			(91,048	)
Stock-based compensation related payroll tax	C		(420	)			(667	)			(3,395	)			(1,290	)
Amortization of purchased intangible assets	A		(917	)			(1,330	)			(3,258	)			(9,259	)
Restructuring charges	B		(181	)			(4,493	)			(8,550	)			(16,251	)
Acquisition-related and other charges	A,B		(1,525	)			(1,000	)			(2,066	)			(1,000	)
Non-GAAP Operating expense		$	438,963			$	377,009			$	1,275,120			$	1,128,266

Juniper Networks, Inc.
Reconciliation between GAAP and non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)

		Three Months Ended							Nine Months Ended
		September 30,							September 30,
		2010			2009				2010				2009
GAAP Operating income		$	195,536		$	127,955			$	540,786			$	304,843
Stock-based compensation expense	C		44,391			34,354				129,555				101,445
Stock-based compensation related payroll tax	C		493			788				3,896				1,483
Amortization of purchased intangible assets	A		2,331			2,699				5,005				13,366
Restructuring charges	B		181			4,493				8,550				16,251
Acquisition-related and other charges	A,B		1,525			1,000				2,066				1,000
Non-GAAP Operating income			244,457			171,289				689,858				438,388
GAAP Operating margin			19.3	%		15.5		%		18.6		%		12.8		%
Stock-based compensation expense as a % of revenue	C		4.4	%		4.2		%		4.5		%		4.3		%
Stock-based compensation related payroll tax as a % of revenue	C		—	%		0.1		%		0.1		%		0.1		%
Amortization of purchased intangible assets as a % of revenue	A		0.2	%		0.3		%		0.2		%		0.6		%
Restructuring charges as a % of revenue	B		—	%		0.6		%		0.3		%		0.7		%
Acquisition-related and other charges as a % of revenue	A,B		0.2	%		0.1		%		0.1		%		—		%
Non-GAAP Operating margin			24.1	%		20.8		%		23.8		%		18.5		%
GAAP Other income and expense, net			205			1,733				5,729				3,270
(Gain) loss on equity investments	B		—			—				(3,232	)			3,311
Non-GAAP Other income and expense, net			205			1,733				2,497				6,581
GAAP Income tax provision			61,404			45,902				117,225				214,018
Non-recurring income tax adjustment	B		—			(4,559	)			54,069				(56,683	)
Valuation allowance on deferred tax assets	B		—			—				—				(61,755	)
Income tax effect of non-GAAP exclusions	B		11,932			9,162				38,039				31,498
Non-GAAP Provision for income tax			73,336			50,505				209,333				127,078
Non-GAAP Income tax rate			30.0	%		29.2		%		30.2		%		28.6		%
Non-GAAP Income before income taxes and noncontrolling interest*		$	244,662		$	173,022			$	692,355			$	444,969

*Consists of non-GAAP operating income plus non-GAAP net other income and expense.

Juniper Networks, Inc.
Reconciliation between GAAP and non-GAAP Financial Measures
(in thousands, except per share amounts and percentages)
(unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
GAAP Net income attributable to Juniper Networks		$	134,543			$	83,786			$	428,169			$	94,095
Stock-based compensation expense	C		44,391				34,354				129,555				101,445
Stock-based compensation related payroll tax	C		493				788				3,896				1,483
Amortization of purchased intangible assets	A		2,331				2,699				5,005				13,366
Restructuring charges	B		181				4,493				8,550				16,251
Acquisition-related and other charges	A,B		1,525				1,000				2,066				1,000
(Gain) loss on equity investments	B		—				—				(3,232	)			3,311
Non-recurring income tax adjustments	B		—				4,559				(54,069	)			56,683
Valuation allowance on deferred tax assets	B		—				—				—				61,755
Income tax effect of non-GAAP exclusions	B		(11,932	)			(9,162	)			(38,039	)			(31,498	)
Non-GAAP Net income		$	171,532			$	122,517			$	481,901			$	317,891
Non-GAAP Net income per share:
Basic	D	$	0.33			$	0.23			$	0.92			$	0.61
Diluted	D	$	0.32			$	0.23			$	0.90			$	0.60
Shares used in computing non-GAAP net income per share:
Basic	D		520,581				523,878				522,069				523,802
Diluted	D		534,880				538,132				537,158				532,686
GAAP Net income attributable to Juniper Networks as a % of revenue			13.3		%		10.2		%		14.7		%		4.0		%
Stock-based compensation expense as a % of revenue	C		4.4		%		4.2		%		4.5		%		4.3		%
Stock-based compensation related payroll tax as a % of revenue	C		—		%		0.1		%		0.1		%		0.1		%
Amortization of purchased intangible assets as a % of revenue	A		0.2		%		0.3		%		0.2		%		0.6		%
Restructuring charges as a % of revenue	B		—		%		0.6		%		0.3		%		0.6		%
Acquisition-related and other charges as a % of revenue	A,B		0.2		%		0.1		%		0.1		%		—		%
(Gain) loss on equity investments	B		—		%		—		%		(0.1	)	%		0.1		%
Non-recurring income tax adjustments as a % of revenue	B		—		%		0.6		%		(1.9	)	%		2.4		%
Valuation allowance on deferred tax assets as a % of revenue	B		—		%		—		%		—		%		2.6		%
Income tax effect of non-GAAP exclusions as a % of revenue	B		(1.2	)	%		(1.2	)	%		(1.3	)	%		(1.3	)	%
Non-GAAP Net income as a % of revenue			16.9		%		14.9		%		16.6		%		13.4		%

Discussion of Non-GAAP Financial Measures

The table above includes the following non-GAAP financial measures from our Preliminary Condensed Consolidated Statements of Operations: cost of product revenue; cost of service revenue; product gross margin, product gross margin as a percentage of product revenue; service gross margin; service gross margin as a percentage of service revenue; gross margin; gross margin as a percentage of revenue; research and development expense; sales and marketing expense; general and administrative expense; operating expense; operating income; operating margin; net other income and expense; income before income taxes and noncontrolling interest; provision for income taxes; income tax rate; net income; net income per share and net income as a percentage of revenue. These measures are not presented in accordance with, nor are they a substitute for, U.S. generally accepted accounting principles, or GAAP. In addition, these measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes. The non-GAAP financial measures used in the table above should not be considered in isolation from measures of financial performance prepared in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future.

We utilize a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, forecasting and planning for future periods, and determining payments under compensation programs. We consider the use of the non-GAAP measures presented above to be helpful in assessing the performance of the continuing operation of our business. By continuing operations we mean the ongoing revenue and expenses of the business excluding certain items that render comparisons with prior periods or analysis of on-going operating trends more difficult, such as expenses not directly related to the actual cash costs of development, sale, delivery or support of our products and services, or expenses that are reflected in periods unrelated to when the actual amounts were incurred or paid. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance. In addition, we have historically reported non-GAAP results to the investment community and believe that continuing to provide non-GAAP measures provides investors with a tool for comparing results over time. In assessing the overall health of our business for the periods covered by the tables above and, in particular, in evaluating the financial line items presented in the table above, we have excluded items in the following three general categories, each of which are described below: Acquisition-Related Charges, Other Items, and Stock-Based Compensation Related Items. We also provide additional detail below regarding the shares used to calculate our non-GAAP net income per share. Notes identified for line items in the table above correspond to the appropriate note description below. Additionally, with respect to future financial guidance provided on a non-GAAP basis, we have excluded estimates for stock based compensation expense and related payroll taxes, amortization of intangible assets, restructuring charges and acquisition-related and other charges.

Note A: Acquisition-Related Charges. We exclude certain expense items resulting from acquisitions including the following, when applicable: (i) amortization of purchased intangible assets associated with our acquisitions; (ii) compensation related to acquisitions; and (iii) acquisition-related charges. The amortization of purchased intangible assets associated with our acquisitions results in our recording expenses in our GAAP financial statements that were already expensed by the acquired company before the acquisition and for which we have not expended cash. Moreover, had we internally developed the products acquired, the amortization of intangible assets, and the expenses of uncompleted research and development would have been expensed in prior periods. Accordingly, we analyze the performance of our operations in each period without regard to such expenses. In addition, acquisitions result in non-continuing operating expenses, which would not otherwise have been incurred by us in the normal course of our business operations. For example, we have incurred deferred compensation charges related to assumed options and transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees. We believe that providing non-GAAP information for acquisition-related expense items in addition to the corresponding GAAP information allows the users of our financial statements to better review and understand the historic and current results of our continuing operations, and also facilitates comparisons to less acquisitive peer companies.

Note B: Other Items. We exclude certain other items that are the result of either unique or unplanned events including the following, when applicable: (i) restructuring and related costs; (ii) impairment charges; (iii) gain or loss on legal settlement, net of related transaction costs; (iv) retroactive impacts of certain tax settlements; (v) significant effects of tax legislation and judicial or administrative interpretation of tax regulations; (vi) gain or loss on equity investments; and (vii) the income tax effect on our financial statements of excluding items related to our non-GAAP financial measures. It is difficult to estimate the amount or timing of these items in advance. Restructuring and impairment charges result from events, which arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Although these events are reflected in our GAAP financials, these unique transactions may limit the comparability of our on-going operations with prior and future periods. In the case of legal settlements, these gains or losses are recorded in the period in which the matter is concluded or resolved even though the subject matter of the underlying dispute may relate to multiple or different periods. As such, we believe that these expenses do not accurately reflect the underlying performance of our continuing operations for the period in which they are incurred. Similarly, the retroactive impacts of certain tax settlements and significant effects of retroactive tax legislation are unique events that occur in periods that are generally unrelated to the level of business activity to which such settlement or legislation applies.  We believe this limits comparability with prior periods and that these expenses do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred. Whether we realize gains or losses on equity investments is based primarily on the performance and market value of those independent companies. Accordingly, we believe that these gains and losses do not reflect the underlying performance of our continuing operations. We also believe providing financial information with and without the income tax effect of excluding items related to our non-GAAP financial measures provide our management and users of the financial statements with better clarity regarding the on-going performance and future liquidity of our business. Because of these factors, we assess our operating performance both with these amounts included and excluded, and by providing this information, we believe the users of our financial statements are better able to understand the financial results of what we consider our continuing operations.

Note C: Stock-Based Compensation Related Items. We provide non-GAAP information relative to our expense for stock-based compensation and related payroll tax. We began to include stock-based compensation expense in our GAAP financial measures in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”), in January 2006. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, which affect the calculations of stock-based compensation, we believe that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies. Further, we believe that excluding stock-based compensation expense allows for a more accurate comparison of our financial results to previous periods during which our equity-based awards were not required to be reflected in our income statement. Stock-based compensation is very different from other forms of compensation. A cash salary or bonus has a fixed and unvarying cash cost. For example, the expense associated with a $10,000 bonus is equal to exactly $10,000 in cash regardless of when it is awarded and who it is awarded by. In contrast, the expense associated with an award of an option for 1,000 shares of stock is unrelated to the amount of compensation ultimately received by the employee; and the cost to the company is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time and that does not reflect any cash expenditure by the company because no cash is expended. Furthermore, the expense associated with granting an employee an option is spread over multiple years unlike other compensation expenses which are more proximate to the time of award or payment. For example, we may be recognizing expense in a year where the stock option is significantly underwater and is not going to be exercised or generate any compensation for the employee. The expense associated with an award of an option for 1,000 shares of stock by us in one quarter may have a very different expense than an award of an identical number of shares in a different quarter. Finally, the expense recognized by us for such an option may be very different than the expense to other companies for awarding a comparable option, which makes it difficult to assess our operating performance relative to our competitors. Similar to stock-based compensation, payroll tax on stock option exercises is dependent on our stock price and the timing and exercise by employees of our stock-based compensation, over which our management has little control, and as such does not correlate to the operation of our business. Because of these unique characteristics of stock-based compensation and the related payroll tax, management excludes these expenses when analyzing the organization’s business performance. We also believe that presentation of such non-GAAP information is important to enable readers of our financial statements to compare current period results with periods prior to the adoption of FASB ASC Topic 718.

Note D: Non-GAAP Net Income Per Share Items. We provide basic non-GAAP net income per share and diluted non-GAAP net income per share. The basic non-GAAP net income per share amount was calculated based on our non-GAAP net income and the weighted-average number of shares outstanding during the reporting period. The diluted non-GAAP income per share included additional dilution from potential issuance of common stock, except when such issuances would be anti-dilutive.

Juniper Networks, Inc.
Preliminary Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)

	September 30,			December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	1,460,914		$	1,604,723
Short-term investments		638,523			570,522
Accounts receivable, net of allowances		473,953			458,652
Deferred tax assets, net		181,955			196,318
Prepaid expenses and other current assets		111,466			48,744
Total current assets		2,866,811			2,878,959
Property and equipment, net		484,802			455,651
Long-term investments		599,036			483,505
Restricted cash		79,080			53,732
Purchased intangible assets, net		47,629			13,834
Goodwill		3,759,631			3,658,602
Long-term deferred tax assets, net		—			10,555
Other long-term assets		53,908			35,425
Total assets	$	7,890,897		$	7,590,263
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	251,431		$	242,591
Accrued compensation		184,941			176,551
Accrued warranty		36,360			38,199
Deferred revenue		594,437			571,652
Income taxes payable		29,762			34,936
Accrued litigation settlements		—			169,330
Other accrued liabilities		143,836			142,526
Total current liabilities		1,240,767			1,375,785
Long-term deferred revenue		190,701			181,937
Long-term income tax payable		98,198			170,245
Other long-term liabilities		44,332			37,531
Commitments and Contingencies
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; 521,141 shares and 519,341 shares issued and outstanding at September 30, 2010, and December 31, 2009, respectively		5			5
Additional paid-in capital		9,449,553			9,060,089
Accumulated other comprehensive income (loss)		4,427			(1,433	)
Accumulated deficit		(3,137,836	)		(3,236,525	)
Total Juniper Networks stockholders’ equity		6,316,149			5,822,136
Noncontrolling interest		750			2,629
Total equity		6,316,899			5,824,765
Total liabilities and stockholders’ equity	$	7,890,897		$	7,590,263

Juniper Networks, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Nine Months Ended September 30,
	2010			2009
Cash flows from operating activities:
Consolidated net income	$	429,290		$	94,095
Adjustments to reconcile consolidated net income to net cash from operating activities:
Depreciation and amortization		112,366			111,803
Stock-based compensation		129,555			101,445
(Gain) loss on equity investments		(3,232	)		3,311
Change in excess tax benefits from share-based compensation		(32,932	)		673
Deferred income taxes		26,425			41,996
Changes in operating assets and liabilities:
Accounts receivable, net		(15,093	)		56,729
Prepaid expenses and other assets		(67,813	)		(11,444	)
Accounts payable		8,464			(778	)
Accrued compensation		8,390			(20,873	)
Accrued litigation settlements		(169,330	)		—
Income tax payable		(16,900	)		84,813
Other accrued liabilities		836			21,790
Deferred revenue		31,274			52,932
Net cash provided by operating activities		441,300			536,492
Cash flows from investing activities:
Purchases of property and equipment, net		(137,481	)		(113,210	)
Purchases of trading investments		(2,338	)		—
Purchases of available-for-sale investments		(1,361,510	)		(1,164,833	)
Proceeds from sales of available-for-sale investments		440,788			202,276
Proceeds from maturities of available-for-sale investments		744,464			262,325
Payment for business acquisition, net of cash and cash equivalents acquired		(133,333	)		—
Changes in restricted cash		(12,432	)		(11,276	)
Purchases of privately-held and other equity investments, net		(5,288	)		(5,289	)
Net cash used in investing activities		(467,130	)		(830,007	)
Cash flows from financing activities:
Proceeds from issuance of common stock		257,693			131,391
Purchases and retirement of common stock		(388,698	)		(241,481	)
Change in customer financing arrangements		(16,906	)		3,784
Change in excess tax benefits from share-based compensation		32,932			(673	)
Return of capital to noncontrolling interest		(3,000	)		—
Net cash used in financing activities		(117,979	)		(106,979	)
Net decrease in cash and cash equivalents		(143,809	)		(400,494	)
Cash and cash equivalents at beginning of period		1,604,723			2,019,084
Cash and cash equivalents at end of period	$	1,460,914		$	1,618,590

Juniper Networks, Inc.
Cash, Cash Equivalents, Trading, and Available-For-Sale Investments
(in thousands)
(unaudited)

	September 30,		December 31,
	2010		2009
Cash and cash equivalents	$	1,460,914	$	1,604,723
Short-term investments		638,523		570,522
Long-term investments		599,036		483,505
Total	$	2,698,473	$	2,658,750