1
EXHIBIT 13.1
JUNIPER NETWORKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the related notes. This discussion may contain forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of certain
factors including the risks discussed in "Risk Factors" and elsewhere in our
Form 10-K.
OVERVIEW
We are a leading provider of Internet infrastructure solutions that
enable Internet service providers and other telecommunications service providers
("Service Providers"), to meet the demands resulting from the rapid growth of
the Internet. Our Internet backbone routers are specifically designed and
purpose-built for service provider networks and offer our customers increased
reliability, performance, scalability, interoperability and flexibility, and
reduced complexity and cost compared to current alternatives.
In September 1998 we began shipping our first product, the M40 Internet
backbone router, with volume shipments beginning in October 1998. We
subsequently introduced the M20 in December 1999, the M160 in March 2000 and the
M5 and M10 product platforms in September 2000. We currently sell our products
to major Service Providers in North America primarily through our direct sales
force, and internationally primarily through value added resellers.
RESULTS OF OPERATIONS
Net Revenues
We began generating net revenues in the fourth quarter of 1998. Our net
revenues increased to $673.5 million in 2000 as compared with $102.6 million and
$3.8 million in 1999 and 1998, respectively. The increase in net revenues in
2000 compared with 1999, was primarily due to the following three factors: the
introduction of new product platforms; an increase in market acceptance of our
products; and overall growth in the marketplace due to the growth of the
Internet and an increase in emerging customers and networks. The increase in net
revenues in 1999 compared with 1998 was primarily due to 1999 being the first
full year of product shipments, as well as increased customer acceptance and
overall growth in the marketplace.
Our revenues for 2000 were derived from sales of our first product, the
M40, as well as sales from our more recent product introductions, the M20, M160,
M5 and M10. While we have introduced new products and plan to continue to
introduce new products, there can be no assurance that we will be successful in
these efforts or that such products will be well-received by our existing and
potential customer base. A limited number of customers have historically
accounted for a substantial portion of our net revenues. One customer accounted
for 18% of our net revenues in 2000, two customers accounted for 58% and 100% of
our net revenues in1999 and 1998, respectively. We expect that a significant
portion of our future net revenues will continue to come from sales of our
products to a relatively small number of customers because our direct sales and
marketing efforts are focused primarily on the world's leading service
providers. Export sales accounted for approximately 35% of our net revenues in
2000 as compared with 22% in 1999. We are seeking to continue to diversify our
customer base, but we cannot be certain that our efforts in this regard will be
successful.
Because the market for Internet backbone routers is new and evolving,
the volume and timing of orders are difficult to predict. A customer's decision
to purchase our products typically involves a significant commitment of their
resources and a lengthy evaluation and product qualification process which
involves technical evaluation, integration, testing, network planning and
implementation and typically takes several months. Even after making the
decision to purchase our products, our customers tend to deploy the products
slowly and deliberately. Timing of deployment can vary widely. Customers with
large networks usually expand their networks in large increments on a periodic
basis. Accordingly, we expect to receive purchase orders for significant dollar
amounts on an irregular basis. Because of our limited operating history, we
cannot predict these sales and development cycles. Long sales and implementation
cycles for our products, as well as the 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. Historically, selling prices in the Internet infrastructure equipment
market have been relatively stable. However, as competitors launch new products,
this pricing trend may change.
We generally recognize product revenue at the time of shipment, assuming
that collectibility is probable, unless we have future obligations for network
interoperability or we have to obtain customer acceptance, in which case revenue
and related costs are deferred until those obligations are met. Revenue from
service obligations is deferred and recognized on a straight-line basis over the
1
2
contractual period. Amounts billed in excess of revenue recognized are included
as deferred revenue and accounts receivable in the accompanying consolidated
balance sheets.
At December 31, 2000, a total of $34.6 million of revenue was deferred,
which we currently expect to recognize in 2001. Our products generally carry a
one year warranty that includes factory repair services as needed for
replacement parts. Estimated expenses for warranty obligations are accrued as
revenue is recognized based on our best estimate of warranty costs for delivered
products.
Cost of Revenues
Cost of revenues for the year ended December 31, 2000, was $237.6
million resulting in a gross margin of 64.7% for the year as compared to cost of
revenues of $45.3 million and gross margin of 55.9% for the year ended December
31, 1999. Cost of revenues for the year ended December 31, 1998 was $4.4
million. The increase in cost of revenues for all periods is primarily related
to the increase in net revenues, as well as headcount increases in our customer
service and support organizations. We expect cost of revenues to continue to
increase as net revenues increase. Our gross margins are highly variable and
dependent on many factors, some of which are outside of our control. Some of the
primary factors affecting gross margins include demand for our products and
services; changes in our pricing policies and those of our competitors; new
product introductions both by us and by our competitors; mix of interfaces sold;
mix of our direct and indirect sales channels; warranty costs; volume
manufacturing pricing we are able to attain from our partner for outsourced
manufacturing; and mix of products and services sold.
Cost of revenues includes the cost of our manufacturing overhead and
customer service and support organizations. We have outsourced our
manufacturing, our repair operations and the majority of our supply chain
management operations. Accordingly, a significant portion of our cost of
revenues consists of payments to our two contract manufacturers. Our contract
manufacturers manufacture our products using quality assurance programs and
standards that we established. Manufacturing engineering and documentation
control are conducted at our facility in Sunnyvale, California.
Research and Development Expenses
Research and development expenses increased to $87.8 million in 2000
from $41.5 million in 1999 and $24.0 million in 1998. Research and development
expenses consist primarily of salaries and related personnel costs,
non-recurring engineering charges and prototype costs related to the design,
development, testing and enhancement of our application specific integrated
circuits (ASICs). Salary and related personnel costs accounted for approximately
40% of the increase from 1999 to 2000 as well as the increase from 1998 to 1999.
Non-recurring engineering and prototype costs accounted for approximately 10% of
the increase from 1999 to 2000 and 20% of the increase from 1998 to 1999.
We expense our research and development costs as they are incurred.
Several components of our research and development effort require significant
expenditures, the timing of which can cause significant quarterly variability in
our expenses. For example, a large number of prototypes are required to build
and test our products and the building and testing process occurs over a short
period of time. Our ASIC development requires a payment for non-recurring
engineering charges at the beginning of the process to design and develop the
ASIC, regardless of whether the integrated circuit works. In addition, a per
unit cost is payable as we purchase ASICs. With several large ASICs in our
architecture, we will incur large non-recurring engineering and prototype
expenses with every enhancement of the existing products and for any new product
development. We expect to continue to devote substantial resources to the
development of new products and the enhancement of existing products. We believe
that research and development is critical to our strategic product development
objectives and that to leverage our leading technology and meet the changing
requirements of our customers, we will need to fund investments in several
development projects in parallel. Although we may experience significant
quarterly variability in our research and development expenses, we expect our
research and development expenses to increase in absolute dollars in the future.
Sales and Marketing Expenses
Sales and marketing expenses increased to $89.0 million in 2000 from
$20.9 million in 1999 and $4.2 million in 1998. The increases from period to
period in sales and marketing expenses were primarily attributable to salaries,
commissions (resulting from increased sales) and related expenses for personnel
engaged in sales, marketing and customer engineering support functions,
including international expansion, as well as costs associated with promotional
and other marketing expenses. To date, we have not incurred significant
advertising expenses.
We intend to continue to expand our direct and indirect sales
operations, both domestically and internationally, in order to increase market
awareness of our products and to better support our existing customers
worldwide. We believe that continued investment in sales and marketing is
critical to our success and expect these expenses to increase in absolute
dollars in the future as we hire additional sales and marketing personnel,
initiate additional marketing programs to support our products and establish
sales offices in new domestic and international locations.
2
3
General and Administrative Expenses
General and administrative expenses increased to $21.2 million in 2000
from $5.2 million in 1999 and $2.2 million in 1998. General and administrative
expenses consist primarily of salaries and related expenses for executive,
finance, accounting, facilities and human resources personnel, as well as
recruiting expenses, professional fees and other corporate expenses. The
increases from period to period in general and administrative expenses were
primarily attributable to the costs associated with additional headcount to
support increased levels of business activity. In addition, the increases were
also due to costs associated with being a publicly traded company for a full
year in 2000. We expect general and administrative expenses to increase in
absolute dollars as we add personnel and incur additional costs related to the
growth of our business.
Amortization of Goodwill, Purchased Intangibles and Deferred Stock Compensation
On December 8, 2000, we acquired Micro Magic, Inc. which we accounted
for under the purchase method of accounting. Accordingly, we recorded goodwill
and other intangible assets of $125.7 million representing the excess of the
purchase price paid over the fair value of net tangible assets acquired. In
November 1999, we acquired certain other intellectual property and intangible
assets resulting in our recording of $18.4 million of goodwill and other
intangibles. The goodwill and other intangibles will be amortized over their
respected useful lives, which we have determined to be a three-year period in
each of these acquisitions.
Also as part of the acquisition of Micro Magic, we recorded $121.7
million of deferred compensation relating to the unvested stock options and
restricted stock assumed in the acquisition. In connection with the grant of
certain stock options to employees during 1998 and the three months ended March
31, 1999, we recorded deferred compensation of $6.4 million in 1998 and $1.1
million in 1999 representing the difference between the deemed value of the
common stock for accounting purposes and the exercise price of these options at
the date of grant. Deferred compensation is presented as a reduction of
stockholders' equity and is amortized over the vesting period of the applicable
options using the graded vesting method.
We expensed $23.8 million of goodwill, purchased intangibles and
deferred stock compensation during 2000, $4.3 million in 1999 and $1.2 million
of deferred compensation during 1998. The amortization of goodwill, purchased
intangibles and deferred stock compensation may continue to increase if we make
other acquisitions of companies or technologies.
In-process Research and Development
In connection with the acquisition of Micro Magic, we allocated $10.0
million of the $259.3 million purchase price as in-process research and
development. The applications from the in-process technology project have been
integrated into our products. The efforts required to complete the acquired
in-process technology included the completion of all planning, designing and
testing activities that were necessary to establish that the product can be
produced to meet its design requirements, including functions, features and
technical performance requirements.
The value of the acquired in-process technology was computed using a
discounted cash flow analysis rate of 19% on the anticipated income stream of
the related product revenues. The discounted cash flow analysis was based on
management's forecast of future revenues, cost of revenues, and operating
expenses related to the products and technologies purchased from Micro Magic.
The calculation of value was then adjusted to reflect only the value creation
efforts of Micro Magic prior to the close of the acquisition. At the time of the
acquisition, the product was approximately 88% complete. The majority of the
costs to complete the project will be incurred in fiscal 2001 and the remaining
costs are not material. The resultant value of in-process technology was further
reduced by the estimated value of core technology and was expensed in the period
the transaction was consummated.
Charitable Contribution
We recorded a charge of $10.0 million in the quarter ended June 30, 2000
in connection with stock issued to a charitable foundation. We currently do not
expect to make similar contributions in the foreseeable future.
Interest Income
Interest income includes income on available-for-sale investments.
Interest income was $89.0 million in 2000 as compared with $8.5 million and $2.0
million in 1999 and 1998, respectively. The significant increase in interest
income is a direct result of increased cash and investment balances, resulting
from our equity and debt offerings during 1999 and 2000.
Interest Expense
Interest expense in 2000, 1999 and 1998 was $52.7 million, $528,000 and
$655,000, respectively. Interest expense in 2000 consists entirely of accrued
interest and amortization of debt issuance costs, both attributable to the
convertible subordinated notes which were issued in March 2000. Interest expense
in 1999 and 1998 is related to capital lease obligations.
3
4
Provision for Income Taxes
For 2000, we recorded a tax provision of $82.5 million resulting in an
effective tax rate of 36%. In 1999 and 1998 we recorded tax provisions of $2.4
million and $2,000, respectively. The increase in the tax provision is primarily
due to operating income in 2000 versus operating losses in 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering, we financed operations primarily
through the private placement of convertible preferred stock and capital leases.
In June 1999, we completed the initial public offering of our common stock and
realized net proceeds from that offering of approximately $65.2 million. In
October 1999, we completed a secondary public offering of our common stock and
realized net proceeds from that offering of approximately $324.3 million. In
March 2000, we completed an offering of 4.75% convertible subordinated notes and
realized net proceeds of approximately $1.1 billion.
At December 31, 2000, we had cash and cash equivalents of $563.0
million, short-term investments of $581.7 million and long-term investments of
$450.6 million. We regularly invest excess funds in money market funds,
commercial paper and government and non-government debt securities with
maturities of up to three years.
Net cash provided by operating activities was $269.1 million and $20.5
million in 2000 and 1999, respectively. Net cash used in operating activities
was $24.8 million in 1998. Net cash flows used in operating activities in each
period primarily consisted of increases in accounts receivable, as well as
increases in prepaid expenses and other current and long-term assets. For 1999
and 1998, net losses also contributed to the net cash flows used in operating
activities. Net cash provided by operating activities in each period were
primarily attributed to non-cash charges such as depreciation and amortization,
as well as increases in accounts payable and other liabilities and deferred
revenue. In addition, net income and a tax benefit from employee stock options
also contributed to the net cash provided by operating activities in 2000.
Net cash used in investing activities was $894.2 million and $305.4
million in 2000 and 1999, respectively. Net cash provided by investing
activities was $9.3 million in 1998. Net cash used in investing activities for
all periods primarily consisted of purchases of available for sale investments,
as well as purchases of property and equipment. Net cash used in investing
activities in 2000 and 1999 also include minority investments and business
acquisitions. Net cash provided by investing activities for all periods
consisted entirely of maturities of available-for-sale investments.
Net cash provided by financing activities was $1.0 billion for 2000,
primarily from the net proceeds of our issuance of convertible subordinated
notes, as well as proceeds from employee stock option exercises, partially
offset by the repurchase of one million shares of our common stock. Net cash
provided by financing activities was $422.9 million for the year ended December
31, 1999, primarily from the net proceeds of our initial and secondary public
offerings, as well as our convertible preferred stock offering, partially offset
by payments on lease obligations. Net cash provided by financing activities was
$5.2 million for 1998, primarily from proceeds from sale-leaseback liabilities,
partially offset by payments on lease obligations.
Our capital requirements depend on numerous factors, including market
acceptance of our products; resources we devote to developing, marketing,
selling and supporting our products; and timing and extent of establishing
international operations.
We expect to devote substantial capital resources to continue our
research and development efforts, to hire and expand our sales, support,
marketing and product development organizations, to expand marketing programs,
to establish additional facilities worldwide and for other general corporate
activities. Although we believe that our current cash balances will be
sufficient to fund our operations for at least the next 12 months, there can be
no assurance that we will not require additional financing within this time
frame or that such additional funding, if needed, will be available on terms
acceptable to us or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as
amended, establishes accounting methods for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. We are required to adopt SFAS 133 effective January 1, 2001. Because
we currently do not hold any derivative instruments and do not engage in hedging
activities, we do not currently believe that the adoption of SFAS 133, as
amended, will have a significant impact on our financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. We believe that our current revenue
recognition principles comply with SAB 101.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of APB 25"
("FIN 44"). This Interpretation clarifies (a) the definition of "employee" for
purposes of applying APB 25, (b)
4
5
the criteria for determining whether a plan qualifies as a non compensatory
plan, (c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. This Interpretation
became effective July 1, 2000, but certain conclusions in this Interpretation
cover specific events that occur after either December 15, 1998, or January 12,
2000. To the extent that this Interpretation covers events occurring during the
period after December 15, 1998, or January 12, 2000, but before the effective
date of July 1, 2000, the effects of applying this Interpretation are recognized
on a prospective basis from July 1, 2000. As a result of our adoption of this
guidance in July 2000, we recorded approximately $121.7 million of deferred
stock-based compensation in connection with the Micro Magic acquisition, of
which $11.1 million was expensed in the current period.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary objective of our investment activities is to preserve
principal while at the same time maximizing the income we receive from our
investments without significantly increasing risk. Some of the securities that
we have invested in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents
and short-term and long-term investments in a variety of securities, including
commercial paper, money market funds and government and non-government debt
securities. Based on our investment portfolio and interest rates as of December
31, 2000, an immediate and uniform 10% increase or decrease in interest rates
would result in a decrease or increase of $5.5 million, respectively, in the
fair market value of the portfolio. However, these gains or losses would remain
unrealized unless the investments were sold. See Note 3 to the Consolidated
Financial Statements.
Our convertible subordinated notes were issued at a fixed interest rate
and with fixed conversion rates and therefore do not expose us to the risk of
earnings or cash flow loss due to changes in market interest rates.
FOREIGN CURRENCY RISK
We market and sell our products throughout the world; however to date
our sales have all been made in US dollars. In addition, our operations are
primarily located in the United States. Accordingly, we have had no material
exposure to foreign currency rate fluctuations.
5
6
JUNIPER NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
---------------------------
2000 1999
----------- -------
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 563,005 $158,043
Short-term investments ................................................ 581,738 187,915
Accounts receivable, net of allowance for doubtful
accounts of $3,727 in 2000 ($632 in 1999) .......................... 176,535 23,950
Prepaid expenses and other current assets ............................. 27,269 7,925
----------- --------
Total current assets .................................................... 1,348,547 377,833
Property and equipment, net ............................................. 36,440 12,416
Long-term investments ................................................... 450,568 97,201
Goodwill and other purchased intangible assets, net ..................... 136,047 17,355
Other long-term assets .................................................. 131,527 8,573
----------- --------
Total assets ............................................................ $ 2,103,129 $513,378
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 72,347 $ 15,368
Accrued compensation and related liabilities .......................... 21,644 5,371
Accrued warranty ...................................................... 35,394 9,641
Interest payable ...................................................... 16,118 --
Income tax payable .................................................... 12,725 2,259
Other accrued liabilities ............................................. 23,555 3,754
Deferred revenue ...................................................... 34,625 19,270
----------- --------
Total current liabilities ............................................... 216,408 55,663
Convertible subordinated notes and other long-term liabilities .......... 1,156,719 --
Commitments
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; 318,085
and 311,878 shares issued and outstanding at December 31, 2000 and
1999 ................................................................ 3 3
Additional paid-in capital ............................................ 735,100 513,695
Deferred stock compensation ........................................... (111,813) (3,001)
Accumulated other comprehensive income (loss) ......................... 10,963 (815)
Retained earnings (accumulated deficit) ............................... 95,749 (52,167)
----------- --------
Total stockholders' equity .............................................. 730,002 457,715
----------- --------
Total liabilities and stockholders' equity .............................. $ 2,103,129 $513,378
=========== ========
See accompanying notes.
6
7
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
--------- --------- --------
Net revenues .............................................. $ 673,501 $ 102,606 $ 3,807
Cost of revenues .......................................... 237,554 45,272 4,416
--------- --------- --------
Gross profit (loss) ....................................... 435,947 57,334 (609)
Operating expenses:
Research and development ................................ 87,833 41,502 23,987
Sales and marketing ..................................... 89,029 20,931 4,216
General and administrative .............................. 21,176 5,235 2,223
Amortization of deferred stock compensation (1) ......... 12,900 3,265 1,235
Amortization of goodwill and purchased intangibles ...... 10,920 1,021 --
In-process research and development ..................... 10,000 -- --
Charitable contribution ................................. 10,000 -- --
--------- --------- --------
Total operating expenses ........................ 241,858 71,954 31,661
--------- --------- --------
Operating income (loss) ................................... 194,089 (14,620) (32,270)
Interest income ........................................... 88,960 8,539 1,956
Interest expense .......................................... (52,677) (528) (655)
--------- --------- --------
Income (loss) before income taxes ......................... 230,372 (6,609) (30,969)
Provision for income taxes ................................ 82,456 2,425 2
--------- --------- --------
Net income (loss) ......................................... $ 147,916 $ (9,034) $(30,971)
========= ========= ========
Net income (loss) per share:
Basic ..................................................... $ 0.49 $ (0.05) $ (0.40)
========= ========= ========
Diluted ................................................... $ 0.43 $ (0.05) $ (0.40)
========= ========= ========
Shares used in computing net income (loss) per share:
Basic ..................................................... 304,381 189,322 77,742
========= ========= ========
Diluted ................................................... 347,858 189,322 77,742
========= ========= ========
(1) Deferred stock compensation is allocable as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
------- ------ ------
Cost of revenues $ 382 $ 473 $ 163
Research and development 9,170 1,826 806
Sales and marketing 3,086 773 189
General and administrative 262 193 77
------- ------ ------
Total $12,900 $3,265 $1,235
======= ====== ======
See accompanying notes.
7
8
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TREASURY STOCK
--------------------- ------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- --------- ------- ------- -------- ---------
Balance at December 31, 1997 .................... 10,717 $ -- 114,728 $ -- -- $ --
Exercise of stock options by
employees, net of repurchases ................. -- -- 8,736 1 -- --
Deferred stock compensation ..................... -- -- -- -- -- --
Amortization of deferred stock
compensation .................................. -- -- -- -- -- --
Net loss ........................................ -- -- -- -- -- --
------- --------- ------- ------- -------- ---------
Balance at December 31, 1998 .................... 10,717 -- 123,464 1 -- --
Issuance of Series D and D-1
preferred stock to investors .................. 3,080 -- -- -- -- --
Conversion of preferred stock to
common stock .................................. (13,797) -- 153,588 2 -- --
Issuance of common stock, net of
issuance costs of $1,885 ...................... -- -- 23,226 -- -- --
Exercise of common stock
warrants ...................................... -- -- 1,558 -- -- --
Exercise of stock options by
employees, net of repurchases ................. -- -- 9,776 -- -- --
Issuance of common stock and
options in connection with the
acquisition of intellectual
property and other
intangibles ................................... -- -- 266 -- -- --
Deferred stock compensation ..................... -- -- -- -- -- --
Amortization of deferred stock
compensation .................................. -- -- -- -- -- --
Other comprehensive loss:
Change in unrealized loss on
available-for-sale
securities .................................. -- -- -- -- -- --
Net loss ...................................... -- -- -- -- -- --
Comprehensive loss .............................. -- -- -- -- -- --
------- --------- ------- ------- -------- ---------
Balance at December 31, 1999 .................... -- -- 311,878 3 -- --
Issuance of common stock in
connection with the Employee
Stock Purchase Program ....................... -- -- 627 -- -- --
Issuance of common stock in
connection with the acquisition of
Pacific Advantage Limited ..................... -- -- 66 -- -- --
Charitable contribution ......................... -- -- 135 -- -- --
Stock repurchase ................................ -- -- -- (1,000) (130,000)
Issuance of common stock and
options in connection with the
acquisition of Micro Magic, Inc. .............. -- -- -- -- 828 107,685
Exercise of stock options by
employees, net of repurchases ................. -- -- 5,379 -- 172 22,315
Amortization of deferred stock
compensation .................................. -- -- -- -- -- --
Tax benefits from employee stock
option plans ................................. -- -- -- -- -- --
Other comprehensive gain:
Change in unrealized gain on available-for-sale
securities, net of tax effect ................ -- -- -- -- -- --
Net income .................................... -- -- -- -- -- --
Comprehensive income ............................ -- -- -- -- -- --
------- --------- ------- ------- -------- ---------
Balance at December 31, 2000 .................... -- $ -- 318,085 $ 3 -- $ --
======= ========= ======= ======= ======== =========
ACCUMULATED
ADDITIONAL DEFERRED OTHER TOTAL
PAID-IN STOCK COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
CAPITAL COMPENSATION GAIN (LOSS) DEFICIT EQUITY
---------- ------------ ------------- ----------- -------------
Balance at December 31, 1997 .................... $ 58,210 $ -- $ -- $ (12,162) $ 46,048
Exercise of stock options by
employees, net of repurchases ................. 752 -- -- -- 753
Deferred stock compensation ..................... 6,388 (6,388) -- -- --
Amortization of deferred stock
compensation .................................. -- 1,235 -- -- 1,235
Net loss ........................................ -- -- -- (30,971) (30,971)
-------- --------- -------- --------- ---------
Balance at December 31, 1998 .................... 65,350 (5,153) -- (43,133) 17,065
Issuance of Series D and D-1
preferred stock to investors .................. 33,948 -- -- -- 33,948
Conversion of preferred stock to
common stock .................................. -- -- -- -- 2
Issuance of common stock, net of
issuance costs of $1,885 ...................... 389,453 -- -- -- 389,453
Exercise of common stock
warrants ...................................... -- -- -- -- --
Exercise of stock options by
employees, net of repurchases ................. 6,870 -- -- -- 6,870
Issuance of common stock and
options in connection with the
acquisition of intellectual
property and other
intangibles ................................... 16,960 -- -- -- 16,960
Deferred stock compensation ..................... 1,114 (1,114) -- -- --
Amortization of deferred stock
compensation .................................. -- 3,266 -- -- 3,266
Other comprehensive loss:
Change in unrealized loss on
available-for-sale
securities .................................. -- -- (815) -- (815)
Net loss ...................................... -- -- -- (9,034) (9,034)
---------
Comprehensive loss .............................. -- -- -- -- (9,849)
-------- --------- -------- --------- ---------
Balance at December 31, 1999 .................... 513,695 (3,001) (815) (52,167) 457,715
Issuance of common stock in
connection with the Employee
Stock Purchase Program ....................... 3,429 -- -- -- 3,429
Issuance of common stock in
connection with the acquisition of
Pacific Advantage Limited ..................... 3,800 -- -- -- 3,800
Charitable contribution ......................... 10,000 -- -- -- 10,000
Stock repurchase ................................ -- -- -- -- (130,000)
Issuance of common stock and
options in connection with the
acquisition of Micro Magic, Inc. .............. 111,519 (121,712) -- -- 97,492
Exercise of stock options by
employees, net of repurchases ................. 10,971 -- -- -- 33,286
Amortization of deferred stock
compensation .................................. -- 12,900 -- -- 12,900
Tax benefits from employee stock
option plans ................................. 81,686 -- -- -- 81,686
Other comprehensive gain:
Change in unrealized gain on available-for-sale
securities, net of tax effect ................ -- -- 11,778 -- 11,778
Net income .................................... -- -- -- 147,916 147,916
---------
Comprehensive income ............................ -- -- -- -- 159,694
-------- --------- -------- --------- ---------
Balance at December 31, 2000 .................... $735,100 $(111,813) $ 10,963 $ 95,749 $ 730,002
======== ========= ======== ========= =========
8
9
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------------------
2000 1999 1998
----------- --------- --------
OPERATING ACTIVITIES:
Net income (loss) ......................................................... $ 147,916 $ (9,034) $(30,971)
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Depreciation ............................................................ 10,975 5,306 2,171
Amortization of goodwill, purchased intangibles
and deferred stock compensation ....................................... 23,820 4,933 1,602
Amortization of debt related charges .................................... 3,206 -- --
Tax benefit of employee stock option plans .............................. 81,686 -- --
Issuance of stock for consulting services ............................... -- -- 30
Issuance of stock as a charitable contribution .......................... 10,000 -- --
In-process research and development charge .............................. 10,000 -- --
Write-down of minority equity investments ............................... 4,575 -- --
Changes in operating assets and liabilities:
Accounts receivable ................................................... (152,585) (15,894) (8,056)
Prepaid expenses and other current assets ............................. (19,344) (7,892) (504)
Other long-term assets ................................................ (11,761) (398) (10)
Accounts payable and other current liabilities ........................ 103,214 16,593 4,084
Accrued warranty ...................................................... 25,753 8,957 684
Accrued milestone payment ............................................. -- -- (423)
Accrued compensation and related liabilities .......................... 16,273 4,257 869
Deferred revenue ...................................................... 15,355 13,631 5,639
Other long-term liabilities ........................................... -- -- 43
----------- --------- --------
Net cash provided by (used in) operating activities ....................... 269,083 20,459 (24,842)
INVESTING ACTIVITIES:
Purchases of property and equipment, net .................................. (34,999) (10,020) (6,531)
Purchases of available-for-sale investments ............................... (1,437,406) (324,437) (3,501)
Maturities of available-for-sale investments .............................. 718,714 38,506 19,286
Minority equity investments ............................................... (100,496) (8,000) --
Acquisition of businesses, inclusive of intellectual
property and other intangibles, net of cash acquired .................... (39,974) (1,456) --
----------- --------- --------
Net cash provided by (used in) investing activities ....................... (894,161) (305,407) 9,254
FINANCING ACTIVITIES:
Proceeds from sale-leaseback liabilities .................................. -- -- 5,705
Payments on lease obligations ............................................. -- (7,381) (1,157)
Proceeds from issuance of convertible subordinated notes .................. 1,123,325 -- --
Proceeds from issuance of preferred stock ................................. -- 33,948 --
Proceeds from issuance of common stock .................................... 36,715 396,326 696
Repurchase of common stock ................................................ (130,000) -- --
----------- --------- --------
Net cash provided by financing activities ................................. 1,030,040 422,893 5,244
----------- --------- --------
Net increase (decrease) in cash and cash equivalents ...................... 404,962 137,945 (10,344)
Cash and cash equivalents at beginning of period .......................... 158,043 20,098 30,442
----------- --------- --------
Cash and cash equivalents at end of period ................................ $ 563,005 $ 158,043 $ 20,098
=========== ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest .................................................... $ 28,375 $ 477 $ 592
=========== ========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of property and equipment under capital lease ................. $ -- $ -- $ 5,692
=========== ========= ========
Deferred stock compensation ............................................... $ 121,712 $ 1,114 $ 6,388
=========== ========= ========
Common stock issued in connection with acquisitions ....................... $ 129,486 $ 16,960 $ --
=========== ========= ========
See accompanying notes.
9
10
JUNIPER NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Juniper Networks, Inc. ("Juniper Networks" or the "Company") was
incorporated in the state of California on February 2, 1996. Effective March 15,
1998, Juniper Networks was reincorporated in the state of Delaware. Juniper
Networks was established for the purpose of providing Internet infrastructure
solutions to Internet service providers and other telecommunication service
providers. Juniper Networks develops next generation Internet backbone routers.
In September 1998, Juniper Networks began shipping its first product,
the M40 Internet backbone router, with volume shipments beginning in October
1998. Juniper Networks subsequently introduced the M20 in December 1999, the
M160 in March 2000 and the M5 and M10 product platforms in September 2000.
Juniper Networks currently sells its products to major service providers in
North America through its direct sales force and sells to international
customers primarily through value added resellers.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Juniper
Networks and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States, requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Examples of
Juniper Networks' estimates include, but are not limited to, doubtful account
provisions and warranty costs. Despite the Company's intention to establish
accurate estimates and assumptions, actual results could differ materially from
those estimates.
RECLASSIFICATIONS
Certain reclassifications, none of which affected operating or net
income (loss), have been made to prior year amounts to conform to the current
year presentation.
CASH AND CASH EQUIVALENTS
Juniper Networks considers all highly liquid investments with original
maturity dates of 90 days or less at the date of acquisition to be cash
equivalents. Cash equivalents consist of money market funds, commercial paper,
government securities, certificates of deposit, and corporate securities.
INVESTMENTS
The Company's marketable securities are classified as available-for-sale
as of the balance sheet dates and are reported at fair value, with unrealized
gains and losses, net of tax, recorded in stockholders' equity. Realized gains
or losses and declines in value determined to be other than temporary, if any,
on available-for-sale securities will be reported in other income or expense as
incurred.
Juniper Networks also has certain other minority equity investments in
non-publicly traded companies. These investments are included in other assets on
the balance sheet and are generally carried at cost as Juniper Networks owns
less than 20% of the voting equity and does not have the ability to exercise
significant influence over these companies. As of December 31, 2000 and 1999,
$88.9 million and $8.0 million of these investments are included in other
long-term assets. 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 Juniper Networks and such markets may never be
significant. Juniper Networks could lose its entire investment in certain or all
of these companies. Juniper Networks monitors these investments for impairment
and makes appropriate reductions in carrying values when necessary. During 2000,
Juniper Networks wrote-down these investments by $4.6 million. No write-downs
were recorded in 1999.
10
11
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATIONS
The carrying value of the Company's cash and cash equivalents,
investments and accounts receivable approximates fair market value due to the
short period of time to maturity. The carrying amounts and fair value of the
Company's convertible subordinated notes was $1.15 billion and $1.17 billion,
respectively, at December 31, 2000. The fair value of the convertible
subordinated notes is based upon quoted market rates. Financial instruments that
subject Juniper Networks to concentrations of credit risk consist primarily of
cash and cash equivalents, investments and trade accounts receivable. Part of
the Company's investment portfolio includes minority equity investments in
publicly traded companies, the values of which are subject to significant market
price volatility. Juniper Networks maintains its cash and cash equivalents and
investments with six high quality financial institutions. The Company's customer
base consists of businesses throughout the world. Juniper Networks performs
ongoing credit evaluations of its customers and generally does not require
collateral on accounts receivable. Juniper Networks maintains reserves for
potential credit losses and historically, such losses have been within
management's expectations.
The Company's net revenues for 2000 were derived from the sale of five
product platforms, the M5, M10, M20, M40 and M160 Internet routers. Net revenues
for 1999 and 1998 were derived from the sale of one product, the M40. For 2000,
one customer, customer A, accounted for 18% of net revenues. For 1999, two
customers, customers A and C, accounted for 32% and 26% of net revenues. For
1998, two customers, customers A and B, accounted for 78% and 22% of net
revenues. For 2000 and 1999, export sales accounted for a total of 35% and 22%,
respectively, of net revenues.
Juniper Networks purchases certain of its components from sole
suppliers. Additionally, Juniper Networks relies on two contract manufacturers
for the production of all of its products. The inability of any supplier or
manufacturer to fulfill supply requirements of Juniper Networks could negatively
impact future operating results.
PROPERTY AND EQUIPMENT
Property and equipment, including equipment leased under capital leases,
are recorded at cost less accumulated depreciation. Depreciation is calculated
using the straight-line method over the lesser of the estimated useful life,
generally three to five years, or the lease term of the respective assets.
GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill and purchased intangible assets are carried at cost less
accumulated amortization. Amortization is computed using the straight-line
method over the expected useful life of three years. As of December 31, 2000 and
1999, accumulated amortization of goodwill and purchased intangible assets
totaled $11.9 million and $1.0 million, respectively.
VALUATION OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," Juniper Networks periodically evaluates the carrying
value of long-lived assets and certain identifiable intangibles for impairment,
when events and circumstances indicate that the book value of an asset may not
be recoverable. An impairment loss is recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable. Since
inception through December 31, 2000, no impairment losses have been identified.
REVENUE RECOGNITION
Juniper Networks generally recognizes product revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable, and collectibility is probable, unless Juniper Networks has future
obligations for network interoperability or has to obtain customer acceptance,
in which case revenue and related costs are deferred until those obligations are
met. Revenue from service obligations is deferred and generally recognized
ratably over the period of the obligation. Amounts billed in excess of revenue
recognized are included as deferred revenue and accounts receivable in the
accompanying consolidated balance sheets. Juniper Networks accrues for warranty
costs, sales returns, and other allowances based on its best estimate of costs
that will be incurred on delivered product.
11
12
RESEARCH AND DEVELOPMENT
Costs to develop the Company's products are expensed as incurred in
accordance with Statement of Financial Accounting Standards No. 2, "Accounting
for Research and Development Costs," which establishes accounting and reporting
standards for research and development.
Juniper Networks adopted SOP 98-1 "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use" during 1999, which requires
that all costs related to the development of internal use software be expensed
as incurred, other than those incurred during the application development stage.
Costs incurred during the application development stage were insignificant for
all periods presented.
ADVERTISING COSTS
Advertising costs are expensed as incurred and the totals have been
insignificant to date.
STOCK-BASED COMPENSATION
Juniper Networks accounts for its stock options and equity awards in
accordance with the provisions of the Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and has elected to follow the
"disclosure only" alternative prescribed by FASB SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123").
STOCK SPLITS
Juniper Networks effected a three-for-two stock split of its common
stock on each of June 27, 1997 and October 2, 1998, a three-for-one stock split
in the form of a 200% common stock dividend paid on January 14, 2000 and a
two-for-one stock split in the form of a 100% common stock dividend paid on June
15, 2000. All share and per share amounts have been adjusted to reflect the
splits.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated in accordance with SFAS No.
128, "Earnings per Share." Under the provisions of SFAS No. 128, basic net
income (loss) per share is computed by dividing the net income (loss) available
to common stockholders' for the period by the weighted average number of common
shares outstanding during the period, excluding shares subject to repurchase.
Diluted net income (loss) per share is computed by dividing the net income
(loss) for the period by the weighted average number of common and potential
common shares outstanding during the period if their effect is dilutive.
Potential common shares comprise restricted common stock and incremental common
shares issuable upon the exercise of stock options.
SEGMENT AND GEOGRAPHIC INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). This Statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. In accordance with the provisions of SFAS 131, Juniper Networks has
determined that it does not have separately reportable operating segments.
Juniper Networks operates in one principal business segment across domestic and
international markets.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended,
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Juniper
Networks is required to adopt SFAS 133 effective January 1, 2001. Because
Juniper Networks currently does not hold any derivative instruments and does not
engage in hedging activities, Juniper Networks does not currently believe that
the adoption of SFAS 133, as amended, will have a significant impact on its
financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. Juniper Networks believes that its current
revenue recognition principles comply with SAB 101.
12
13
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of APB 25".
This Interpretation clarifies (a) the definition of employee for purposes of
applying APB 25, (b) the criteria for determining whether a plan qualifies as a
non compensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. This
Interpretation became effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. To the extent that this Interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000. In July
2000, in accordance with Interpretation No. 44, Juniper Networks recorded
approximately $121.7 million of deferred stock-based compensation in connection
with the Micro Magic, Inc. acquisition of which $11.1 million was expensed in
the current year.
2. ACQUISITION OF MICRO MAGIC, INC.
On December 8, 2000, Juniper Networks acquired Micro Magic, Inc.,
("Micro Magic"), an integrated circuit solutions company. The acquisition was
accounted for using the purchase method of accounting and accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values on the acquisition date. Since December 8,
2000, Micro Magic's results of operations have been included in the Company's
Consolidated Statements of Operations. The fair value of the intangible assets
was determined based upon a valuation using a combination of methods, including
a cost approach for the assembled workforce and an income approach for the core
technology.
The purchase price of approximately $259.3 million consisted of an
exchange of approximately 828,000 shares of the Company's common stock with a
fair value of approximately $125.7 million, assumed stock options with a fair
value of approximately $93.5 million, approximately $40.0 million in cash, and
other acquisition related expenses of approximately $150,000 consisting of
payments for professional fees. Of the total purchase price, approximately $1.9
million was allocated to the net tangible assets acquired, approximately $121.7
million was recorded as deferred compensation, and the remainder was allocated
to intangible assets, including in-process technology of $10.0 million, core
technology of $7.3 million, assembled workforce of $900,000 and goodwill of
approximately $117.5 million. The deferred compensation charge relates to the
intrinsic value of unvested stock options and restricted stock assumed in the
transaction. The applications from the in-process technology project have been
integrated into Juniper Networks' products. The efforts required to complete the
acquired in-process technology included the completion of all planning,
designing and testing activities that were necessary to establish that the
product can be produced to meet its design requirements, including functions,
features and technical performance requirements.
The value of the acquired in-process technology was computed using a
discounted cash flow analysis rate of 19% on the anticipated income stream of
the related product revenues. The discounted cash flow analysis was based on
management's forecast of future revenues, cost of revenues, and operating
expenses related to the products and technologies purchased from Micro Magic.
The calculation of value was then adjusted to reflect only the value creation
efforts of Micro Magic prior to the close of the acquisition. At the time of the
acquisition, the product was approximately 88% complete. The majority of the
costs to complete the project will be incurred in fiscal 2001 and the remaining
costs are not material. The resultant value of in-process technology was further
reduced by the estimated value of core technology and was expensed in the period
the transaction was consummated. The deferred compensation is presented as a
reduction of stockholders' equity and is being amortized over the vesting period
of the applicable options or restricted stock using the graded vesting method.
The acquired intangible assets are being amortized over their estimated useful
lives of three years. Goodwill is being amortized using the straight-line method
over three years, resulting in an aggregate quarterly charge of $9.8 million
during the amortization period. At December 31, 2000, cumulative amortization of
goodwill, other intangible assets and deferred compensation associated with this
acquisition totaled $14.6 million.
The following is a summary of the allocation of the purchase price in
the acquisition of Micro Magic (in thousands):
Net assets acquired ..................... $ 1,930
In-process research and development ..... 10,000
Assembled workforce ..................... 900
Purchased technology .................... 7,300
Goodwill ................................ 117,486
Deferred compensation on unvested
stock and stock options ............... 121,711
--------
Total $259,327
========
13
14
The following unaudited pro forma summary presents the Company's
consolidated results of operations for the year ended December 31, 2000 and 1999
as if the Micro Magic acquisition had been consummated at the beginning of each
period. The pro forma consolidated results of operations include certain pro
forma adjustments, including amortization of goodwill and other intangible
assets, amortization of deferred compensation and the elimination of the charge
for acquired in process research and development.
Unaudited pro forma results for the years ended December 31, are as
follows (in thousands, except per share amounts):
2000 1999
-------- ---------
Net revenues ............................. $677,400 $ 106,050
Net income (loss) ........................ 45,079 (130,454)
Basic net income (loss) per share ........ $ 0.15 $ (0.69)
Diluted net income (loss) per share ...... $ 0.13 $ (0.69)
The pro forma results are not necessarily indicative of those that would
have actually occurred had the acquisitions taken place at the beginning of the
periods presented.
3. CASH EQUIVALENTS, SHORT-TERM AND LONG-TERM INVESTMENTS
Cash equivalents, short-term and long-term investments consist of the
following (in thousands):
DECEMBER 31, 2000
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ----------- ----------
Money market funds ........................ $ 281,380 $ -- $ -- $ 281,380
Commercial paper .......................... 200,722 -- -- 200,722
Certificates of deposit ................... 19,281 -- -- 19,281
Government securities ..................... 292,144 2,085 (9) 294,220
Corporate debt securities ................. 631,946 4,898 (303) 636,541
Asset-backed securities ................... 63,807 148 -- 63,955
Equity securities ......................... 10,000 10,863 -- 20,863
---------- -------- ----------- ----------
$1,499,280 $ 17,994 $ (312) $1,516,962
========== ======== =========== ==========
Included in cash and cash equivalents ..... $ 484,637 $ 19 $ -- $ 484,656
Included in short-term investments ........ 579,520 2,464 (246) 581,738
Included in long-term investments ......... 435,123 15,511 (66) 450,568
---------- -------- ----------- ----------
$1,499,280 $ 17,994 $ (312) $1,516,962
========== ======== =========== ==========
Due within one year ....................... $1,064,157 $ 2,483 $ (246) $1,066,394
Due between one year and two years ........ 337,662 13,915 (62) 351,515
Due between two years and three years ..... 97,461 1,596 (4) 99,053
---------- -------- ----------- ----------
$1,499,280 $ 17,994 $ (312) $1,516,962
========== ======== =========== ==========
DECEMBER 31, 1999
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ----------- ----------
Money market funds ........................ $ 56,034 $ -- $ -- $ 56,034
Commercial paper .......................... 79,862 -- -- 79,862
Certificates of deposit ................... 66 -- -- 66
Government securities ..................... 135,325 5 (181) 135,149
Corporate debt securities ................. 151,829 12 (651) 151,190
Asset-backed securities ................... 8,000 -- -- 8,000
---------- -------- ----------- ----------
$ 431,116 $ 17 $ (832) $ 430,301
========== ======== =========== ==========
Included in cash and cash equivalents ..... $ 145,179 $ 6 $ -- $ 145,185
Included in short-term investments ........ 188,170 11 (266) 187,915
Included in long-term investments ......... 97,767 -- (566) 97,201
---------- -------- ----------- ----------
$ 431,116 $ 17 $ (832) $ 430,301
========== ======== =========== ==========
Due within one year ....................... $ 333,349 $ 17 $ (266) $ 333,100
Due between one year and two years ........ 94,500 -- (537) 93,963
Due between two years and three years ..... 3,267 -- (29) 3,238
---------- -------- ----------- ----------
$ 431,116 $ 17 $ (832) $ 430,301
========== ======== =========== ==========
14
15
4. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following (in thousands):
DECEMBER 31,
-------------------------
2000 1999
-------- --------
Computers and equipment .................................... $ 34,511 $ 14,953
Purchased software ......................................... 9,688 4,252
Leasehold improvements ..................................... 9,010 --
Furniture and fixtures ..................................... 2,379 1,383
-------- --------
Total ...................................................... 55,588 20,588
Less accumulated depreciation and lease amortization ....... (19,148) (8,172)
-------- --------
Property and equipment, net ................................ $ 36,440 $ 12,416
======== ========
5. COMMITMENTS
Juniper Networks leases its facilities under operating leases that
expire in 2012. Rental expense for the years ended December 31, 2000, 1999 and
1998, was approximately $5.1 million, $1.8 million and $937,000, respectively.
Future minimum payments under the noncancellable operating leases
consist of the following (in thousands):
DECEMBER 31,
2000
------------
2001........................................... $ 13,486
2002........................................... 18,615
2003........................................... 18,829
2004........................................... 17,872
2005........................................... 18,004
Thereafter..................................... 135,029
---------
Total minimum lease payments.............. $ 221,835
=========
6. LONG-TERM DEBT
In March 2000, Juniper Networks received $1.12 billion of net proceeds
from an offering of $1.15 billion aggregate principal amount 4.75% Convertible
Subordinated Notes (convertible notes) due March 15, 2007. Interest on the
convertible notes accrues at 4.75% per year and is payable on March 15 and
September 15 each year in cash. The convertible notes are subordinate in right
of payment to all senior debt. The convertible notes are convertible into shares
of Juniper Networks common stock at any time prior to maturity or their prior
redemption or repurchase by Juniper Networks. The conversion rate is 6.0992
shares per each $1,000 principal amount of convertible notes, subject to
adjustment in certain circumstances. On or after the third business day after
March 15, 2003, Juniper Networks has the option to redeem the convertible notes
at the following redemption price (expressed as percentages of principle
amount):
REDEMPTION
Period PRICE
----------
Beginning on the third business day after March 15, 2003 and
ending on March 14, 2004 .......................................... 102.714%
Beginning on March 15, 2004 and ending on March 14, 2005 ............ 102.036
Beginning on March 15, 2005 and ending on March 14, 2006 ............ 101.357
Beginning on March 15, 2006 and ending on March 14, 2007 ............ 100.679
7. STOCKHOLDERS' EQUITY
COMMON STOCK
Juniper Networks is authorized to issue up to 1,000,000,000 shares of
its common stock. At December 31, 2000 and 1999, approximately 318,085,000 and
311,878,000 shares were issued and outstanding. Prior to the adoption of the
1996 Stock Option Plan, Juniper Networks issued shares of common stock to
founders, investors and employees. The shares issued to investors were fully
vested upon purchase. Generally, shares issued to founders and employees were
sold pursuant to restricted stock purchase agreements containing provisions
established by the Board of Directors. These provisions give Juniper Networks
the right to repurchase the shares at the original sales price. This right
expires at the rate of 25% after one year and 2.0833% per month thereafter. At
December 31, 1999 1,680,002 shares issued outside of the 1996 Stock Option Plan
remained subject to repurchase (none at December 31, 2000).
15
16
STOCK REPURCHASE
On December 6, 2000, Juniper Networks repurchased 1,000,000 shares of
its common stock at a cost of approximately $130.0 million. All shares
repurchased were subsequently reissued later in December 2000 with the
difference between the repurchase price and the re-issuance price charged to
additional paid-in capital.
STOCK OPTION PLANS
Amended and Restated 1996 Stock Option Plan
The Company's Amended and Restated 1996 Stock Option Plan (the "1996
Plan") provides for the granting of incentive stock options to employees and
nonstatutory stock options to employees, directors and consultants. Incentive
stock options are granted at an exercise price of not less than the fair value
per share of the common stock on the date of grant. Nonstatutory stock options
may be granted at an exercise price of not less than 85% of the fair value per
share on the date of grant; however, no nonstatutory stock options have been
granted for less than fair market value on the date of grant. Vesting and
exercise provisions are determined by the Board of Directors. Options granted
under the 1996 Plan generally become exercisable over a four-year period
beginning on the date of grant. Options granted under the 1996 Plan have a
maximum term of ten years. Options granted to consultants are in consideration
for the fair value of services previously rendered, are not contingent upon
future events and are expensed in the period of grant. Juniper Networks has
authorized 130,718,778 shares of common stock for issuance under the 1996 Plan.
At December 31, 2000, 12,370,543 shares were available for future option grants
or stock sales under the 1996 Plan.
The 1996 Plan also provides for the sale of shares of common stock to
employees and consultants at the fair value per share of the common stock.
Shares issued to consultants are for the fair value of services previously
rendered and are not contingent upon future events. Shares sold to employees are
made pursuant to restricted stock purchase agreements containing provisions
established by the Board of Directors. These provisions give Juniper Networks
the right to repurchase the shares at the original sales price upon termination
of the employee. This right expires at a rate determined by the Board of
Directors, generally at the rate of 25% after one year and 2.0833% per month
thereafter. No shares were issued under the 1996 Plan in 2000 and 1999. At
December 31, 2000 and 1999, 3,840,162 shares and 18,316,104 shares were subject
to repurchase rights under the 1996 Plan. At December 31, 2000 and 1999,
3,660,605 and 2,533,018 shares, respectively, had been repurchased under the
1996 Plan in connection with employee terminations.
2000 Nonstatutory Stock Option Plan
In July 2000, the Board of Directors adopted the Juniper Networks 2000
Nonstatutory Stock Option Plan (the "2000 Plan"). The 2000 Plan provides for the
granting of nonstatutory stock options to employees, directors and consultants.
Nonstatutory stock options may be granted at an exercise price of not less than
85% of the fair value per share on the date of grant; however, no nonstatutory
stock options have been granted for less than fair market value on the date of
grant. Vesting and exercise provisions are determined by the Board of Directors.
Options granted under the 2000 Plan generally become exercisable over a
four-year period beginning on the date of grant. Options granted under the 2000
Plan have a maximum term of ten years. Options granted to consultants are in
consideration for the fair value of services previously rendered, are not
contingent upon future events and are expensed in the period of grant. Juniper
Networks has authorized 12,000,000 shares of common stock for issuance under the
2000 Plan. At December 31, 2000, 5,442,751 shares were available for future
option grants under the 2000 Plan.
Micro Magic 1995 Stock Option Plan and 2000 Stock Option Plan
In connection with the acquisition of Micro Magic, Inc. in December
2000, the Company assumed all outstanding options under the Micro Magic, Inc.
1995 Stock Option Plan and the Micro Magic, Inc. 2000 Stock Option Plan
(collectively, the "MMI Plans"). The MMI Plans have been terminated except with
respect to the options outstanding at the time of the acquisition. The MMI Plans
provided for the granting of incentive stock options to employees and
nonstatutory stock options to employees, directors and consultants. Incentive
stock options were granted at an exercise price of not less than the fair value
per share of the common stock on the date of grant. Nonstatutory stock options
could be granted at an exercise price of not less than 85% of the fair value per
share on the date of grant. Vesting and exercise provisions were determined by
the Board of Directors of Micro Magic, Inc. Options under the MMI Plans
generally become exercisable over a four-year period beginning on the date of
grant and have a maximum term of 10 years. Juniper Networks has authorized an
aggregate of 626,187 shares of
16
17
common stock for issuance under the MMI Plans. No shares are available for
future option grants under the MMI Plans.
Option activity under all Plans is summarized as follows:
OUTSTANDING OPTIONS
------------------------------
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
---------- ----------------
Balance at December 31, 1997 ..... 10,340,321 $ 0.03
----------
Options granted .................. 21,074,880 $ 0.31
Options exercised ................ (9,043,896) $ 0.08
Options canceled ................. (730,056) $ 0.04
----------
Balance at December 31, 1998 ..... 21,641,249 $ 0.28
----------
Options granted .................. 33,674,012 $16.88
Options exercised ................ (9,870,180) $ 0.57
Options canceled ................. (952,930) $ 3.89
----------
Balance at December 31, 1999 ..... 44,492,151 $12.56
----------
Options granted and assumed ...... 17,875,906 $89.05
Options exercised ................ (7,139,401) $ 4.98
Options canceled ................. (2,347,672) $20.41
----------
Balance at December 31, 2000 ..... 52,880,984 $39.96
==========
The following schedule summarizes information about stock options
outstanding under all Plans as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ----------- ---------------- ---------------- ----------- -----------------
$ 0.02 -- $ 0.82 9,507,689 7.46 $ 0.32 3,627,057 $ 0.26
$ 1.47 -- $ 3.50 10,219,378 8.32 $ 2.80 2,208,698 $ 2.59
$ 4.67 -- $ 30.34 2,462,264 8.53 $ 9.95 488,127 $ 9.85
$30.35 -- $ 30.35 11,762,775 8.76 $ 30.35 2,204,300 $30.35
$31.81 -- $ 79.03 8,917,279 9.16 $ 64.85 404,490 $45.71
$87.59 -- $183.06 10,011,599 6.44 $ 112.02 100 $93.94
---------- ---------
$ 0.02 -- $183.06 52,880,984 8.06 $ 39.96 8,932,772 $10.85
========== =========
As of December 31, 1999, 3,133,192 options were exercisable at an average
exercise price of $0.52 and as of December 31, 1998, 651,216 options were
exercisable at an average exercise price of $0.03.
During the year ended December 31, 1998 and the three months ended March
31, 1999, in connection with the grant of certain stock options to employees,
Juniper Networks recorded deferred stock compensation of $6.4 million and $1.1
million representing the difference between the exercise price and the deemed
fair value of Juniper Networks' common stock on the date such stock options were
granted. Such amount is included as a reduction of stockholders' equity and is
being amortized by charges to operations on a graded vesting method. Juniper
Networks recorded amortization of deferred stock compensation expense of $1.8
million and $3.3 million for 2000 and 1999. At December 31, 2000 and 1999,
Juniper Networks had a total of $1.2 million and $3.0 million remaining to be
amortized over the corresponding vesting period of each respective option,
generally four years. In addition, the Company has recorded $121.7 million of
deferred compensation in connection with the acquisition of Micro Magic, Inc.,
of which $11.1 million has been expensed in 2000.
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, the Board of Directors approved the adoption of Juniper
Networks 1999 Employee Stock Purchase Plan (the Purchase Plan). A total of
3,000,000 shares of common stock were originally reserved for issuance under the
1999 Purchase Plan, plus, commencing on January 1, 2000, annual increases equal
to the lesser of 3,000,000 shares, or 1% of the outstanding common shares on
such date or a lesser amount determined by the Board of Directors. 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. No more than 6,000 shares may be purchased by each employee in any
twelve-month period, and in no event, may an employee purchase more than $25,000
worth of stock, determined at the fair market value of the shares at the time
such option is granted, in one calendar year. The Purchase Plan is implemented
in a series of offering periods, each six months in duration; provided, however,
that the first offering period was approximately thirteen months in duration,
ending on July 31, 2000. The price at which the common stock may be purchased is
85% of the lesser of the fair market value of the Company's common stock on the
first day of the applicable offering period or on the last day of the respective
offering period.
As of December 31, 2000, a total of 627,514 shares had been issued under
the Purchase Plan at an average price of $5.46 per share, and 5,372,486 shares
remained available for future issuance under the Purchase Plan.
17
18
STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock-based compensation plans. Because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income (loss) and net income (loss)
per share has been determined as if Juniper Networks had accounted for its
employee stock options (including shares issued under the Purchase Plan) under
the fair value method prescribed by FAS 123. The resulting effect on pro forma
net loss disclosed is not likely to be representative of the effects on net
income (loss) on a pro forma basis in future years, due to subsequent years
including additional grants and years of vesting.
The fair value of each option granted through December 31, 2000 was
estimated on the date of grant using the minimum value (before the Company went
public) or the Black-Scholes method. The fair value of the Company's stock-based
awards was estimated using the following weighted-average assumptions:
YEAR ENDED DECEMBER 31,
----------------------------------------
EMPLOYEE STOCK OPTIONS: 2000 1999 1998
- ----------------------- --------- --------- ---------
Dividend yield.................................... -- -- --
Volatility factor................................. 110% 80% --
Risk-free interest rate........................... 5.31% 5.49% 5.23%
Expected life..................................... 3.0 years 3.0 years 4.5 years
YEAR ENDED DECEMBER 31,
----------------------------------------
PURCHASE PLAN: 2000 1999 1998
- -------------- --------- --------- ---------
Dividend yield.................................... -- n/a n/a
Volatility factor................................. 110% n/a n/a
Risk-free interest rate........................... 6.32% n/a n/a
Expected life..................................... 1.0 years n/a n/a
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. The Black-Scholes model requires the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock-based awards have characteristics significantly different
from those in traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards. The weighted average
estimated fair value of employee stock options granted during 2000, 1999 and
1998 was $56.17, $8.99 and $0.19 per share, respectively. The weighted average
estimated fair value of shares granted under the Purchase Plan during 2000 was
$3.71.
For purposes of pro forma disclosures, the estimated fair value of
options is amortized to pro forma expense over the options' vesting period. Pro
forma information follows (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
---------- --------- ---------
Net income (loss):
As reported ............................ $ 147,916 $ (9,034) $(30,971)
Pro forma .............................. (170,670) (43,488) (31,143)
Basic net income (loss) per share:
As reported ............................ 0.49 (0.05) (0.40)
Pro forma .............................. (0.56) (0.23) (0.40)
Diluted net income (loss) per share:
As reported ............................ 0.43 (0.05) (0.40)
Pro forma .............................. $ (0.56) $ (0.23) $ (0.40)
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At December 31, 2000, Juniper Networks had reserved an aggregate of
84,231,071 shares of common stock for future issuance under all its Stock Option
Plans, the 1999 Employee Stock Purchase Plan and for future issuance upon
conversion of convertible subordinated notes.
8. 401(k) PLAN
Juniper Networks maintains a savings and retirement plan qualified under
Section 401(k) of the Internal Revenue Code of 1986, as amended. All employees
are eligible to participate on their first day of employment with Juniper
18
19
Networks. Under the plan, employees may contribute up to 20% of their pretax
salaries per year but not more than the statutory limits. Juniper Networks does
not contribute to the plan.
9. INCOME TAXES
Significant components of the provision (benefit) for income taxes
attributable to operations are as follows (in thousands):
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
------- ------ ----
Federal
Current .......................................................... $ -- $ 700 $--
Deferred ......................................................... -- -- --
State
Current .......................................................... 2 800 2
Deferred ......................................................... -- -- --
Foreign
Current .......................................................... 768 925 --
Deferred ......................................................... -- -- --
Income tax benefits attributable to employee stock plan activity
allocated to stockholders' equity .................................... 81,686 -- --
------- ------ ---
Total provision for income taxes .................................... $82,456 $2,425 $ 2
======= ====== ===
Deferred income taxes reflect the net tax effects of tax carryforward
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 at December 31 (in thousands):
2000 1999 1998
--------- -------- --------
Deferred tax assets:
Net operating loss carryforwards .................. $ 92,000 $ 14,000 $ 13,470
Research credit carryforwards ..................... 6,549 2,830 1,490
Deferred revenue .................................. 17,655 6,200 2,700
Reserves and accruals not currently
deductible .................................. 33,594 7,250 500
Other temporary differences ....................... 2,802 840 (110)
--------- -------- --------
Total deferred tax assets .............................. 152,600 31,120 18,050
Valuation allowance .................................... (118,994) (31,120) (18,050)
--------- -------- --------
Net deferred tax asset ................................. 33,606 -- --
--------- -------- --------
Deferred tax liability -- deferred compensation and
other .................................................. (33,606) -- --
--------- -------- --------
Net deferred tax assets ................................ $ -- $ -- $ --
========= ======== ========
Unused net operating loss and research and development tax credit
carryforwards will expire at various dates beginning in the years 2005 and 2012,
respectively. Juniper Networks has provided a valuation allowance on its net
deferred tax assets because of uncertainty regarding their realizability due to
future employee stock option exercises. The net valuation allowance increased by
$87.9 million in 2000, and by $13.1 million and $12.8 million in 1999 and 1998,
respectively. At December 31, 2000, substantially all of the valuation allowance
shown above relates to the tax benefits of stock option deductions that will be
credited to equity when realized.
The provision for income taxes differs from the provision calculated by
applying the federal statutory tax rate to income (loss) before taxes because of
the following (in thousands):
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
-------- ------- --------
Expected provision (benefit) at 35% ............................... $ 80,630 $(2,313) $(10,839)
Federal alternative minimum tax ................................... -- 700 --
State taxes, net of federal benefit ............................... 9,000 800 2
Foreign taxes ..................................................... -- 925 --
Nondeductible goodwill and in-process research and
development ..................................................... 7,700 -- --
(Benefited) unbenefited operating losses .......................... (10,612) 2,313 10,839
19
20
Research and development credits .................................. (4,000) -- --
Other ............................................................. (262) -- --
-------- ------- --------
Provision for income taxes ........................................ $ 82,456 $ 2,425 $ 2
======== ======= ========
10. SEGMENT INFORMATION
Juniper Networks adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", (SFAS 131), in 1999. SFAS 131 supercedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise" and
establishes standards for reporting information about operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.
Juniper Networks operates in one segment, the development and marketing
of Internet infrastructure equipment. Juniper Networks markets its products in
the United States and in foreign countries through its sales personnel and its
subsidiaries. The Company's management evaluates resource allocation decisions
and operational performance based upon revenue by the geographic regions of the
segment and does not receive discrete financial information about asset
allocation and expense allocation on a disaggregated basis. There are no
significant long-lived assets held outside the United States.
Information regarding geographic areas for the years ended December 31
are as follows (in thousands):
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
-------- -------- ------
Revenues:
United States ..... $437,720 $ 79,904 $3,807
International ..... 235,781 22,702 --
-------- -------- ------
Total ....... $673,501 $102,606 $3,807
======== ======== ======
Revenues are attributed to regions based on the location of the
customers.
11. NET INCOME (LOSS) PER SHARE
The following table presents the calculation of basic and diluted net
income (loss) per share (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31,
---------------------------------------------
2000 1999 1998
--------- --------- ---------
Net income (loss) ...................................... $ 147,916 $ (9,034) $ (30,971)
========= ========= =========
Basic and diluted:
Weighted-average shares of common stock
outstanding ....................................... 315,252 219,304 118,146
Less: weighted-average shares subject to
repurchase ........................................ (10,871) (29,982) (40,404)
--------- --------- ---------
Weighted-average shares used in computing basic
net income (loss) per share ....................... 304,381 189,322 77,742
========= ========= =========
Effect of dilutive securities:
Shares subject to repurchase ..................... 10,871 -- --
Employee stock options ........................... 32,606 -- --
--------- --------- ---------
Weighted-average shares used in computing diluted
net income (loss) per share ....................... 347,858 189,322 77,742
========= ========= =========
Basic net income (loss) per share .................... $ 0.49 $ (0.05) $ (0.40)
========= ========= =========
Diluted net income (loss) per share .................. $ 0.43 $ (0.05) $ (0.40)
========= ========= =========
For 1999 and 1998, Juniper Networks has excluded all convertible
preferred stock, warrants for convertible preferred stock, outstanding stock
options and shares subject to repurchase from the calculation of diluted loss
per share because all such securities are antidilutive in those periods. For
2000, the convertible subordinate notes were also excluded from the calculation
of diluted loss per share because the effect of the assumed conversion of the
notes is antidilutive.
20
21
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Juniper Networks, Inc.
We have audited the accompanying consolidated balance sheets of Juniper
Networks, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
January 15, 2001
21
22
JUNIPER NETWORKS, INC.
SUPPLEMENTARY DATA
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
QUARTER ENDED
---------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
2000 2000 2000 2000
------------ ------------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues ..................................... $ 295,386 $ 201,201 $ 113,028 $ 63,886
Cost of revenues ................................. 101,410 70,291 40,752 25,101
--------- --------- --------- --------
Gross profit ................................... 193,976 130,910 72,276 38,785
Operating expenses:
Research and development ....................... 30,243 23,600 18,000 15,990
Sales and marketing ............................ 36,892 23,385 17,247 11,505
General and administrative ..................... 8,545 5,446 4,171 3,014
Amortization of goodwill, purchased
intangibles and deferred stock
compensation ................................ 16,842 2,272 2,315 2,391
In-process research and development ............ 10,000 -- -- --
Charitable contribution ........................ -- -- 10,000 --
--------- --------- --------- --------
Total operating expenses ............... 102,522 54,703 51,733 32,900
--------- --------- --------- --------
Operating income ................................. 91,454 76,207 20,543 5,885
Interest income and provision for income
taxes, net ..................................... (29,297) (18,136) (926) 2,186
--------- --------- --------- --------
Net income (loss) ................................ $ 62,157 $ 58,071 $ 19,617 $ 8,071
========= ========= ========= ========
Basic net income (loss) per share ................ $ 0.20 $ 0.19 $ 0.06 $ 0.03
========= ========= ========= ========
Diluted net income (loss) per share .............. $ 0.18 $ 0.17 $ 0.06 $ 0.02
========= ========= ========= ========
QUARTER ENDED
---------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1999 1999 1999 1999
------------ ------------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues ..................................... $ 45,442 $ 29,564 $ 17,556 $ 10,044
Cost of revenues ................................. 18,389 12,490 8,046 6,347
--------- --------- --------- --------
Gross profit ................................... 27,053 17,074 9,510 3,697
Operating expenses:
Research and development ....................... 15,820 11,510 7,991 6,181
Sales and marketing ............................ 8,869 5,610 3,849 2,603
General and administrative ..................... 1,781 1,701 977 776
Amortization of goodwill and purchased
intangibles and deferred stock
compensation ................................ 1,689 802 891 904
--------- --------- --------- --------
Total operating expenses ............... 28,159 19,623 13,708 10,464
--------- --------- --------- --------
Operating loss ................................... (1,106) (2,549) (4,198) (6,767)
Interest income and provision for income
taxes, net ..................................... 4,186 962 346 92
--------- --------- --------- --------
Net income (loss) ................................ $ 3,080 $ (1,587) $ (3,852) $ (6,675)
========= ========= ========= ========
Basic net income (loss) per share ................ $ 0.01 $ (0.01) $ (0.04) $ (0.07)
========= ========= ========= ========
Diluted net income (loss) per share .............. $ 0.01 $ (0.01) $ (0.04) $ (0.07)
========= ========= ========= ========
22