EXHIBIT 13.1
[JUNIPER NETWORKS LOGO]
JUNIPER NETWORKS, INC.
2001 CONSOLIDATED FINANCIAL STATEMENTS
AND
FINANCIAL REVIEW
JUNIPER NETWORKS, INC.
Market for Common Stock ....................................................................... 3
Selected Consolidated Financial Data .......................................................... 3
Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 4
Consolidated Balance Sheets ................................................................... 11
Consolidated Statements of Operations ......................................................... 12
Consolidated Statement of Stockholders' Equity ................................................ 13
Consolidated Statements of Cash Flows ......................................................... 14
Notes to Consolidated Financial Statements .................................................... 15
Report of Independent Auditors ................................................................ 28
Supplementary Data -- Quarterly Results of Operations ......................................... 29
Note: The information provided herein forms part of and should be read in
conjunction with the Juniper Networks 2001 Annual Report on Form 10-K.
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JUNIPER NETWORKS, INC.
MARKET FOR COMMON STOCK
Juniper Networks, Inc. common stock is quoted on the Nasdaq Stock Market
stock market under the symbol JNPR. The following table sets forth the high and
low closing sale prices as reported on the Nasdaq:
Q1 Q2 Q3 Q4
2000
High $153.50 $147.94 $230.50 $243.00
Low $ 51.29 $ 74.00 $127.00 $ 93.94
2001
High $136.62 $ 65.58 $ 31.76 $ 27.01
Low $ 37.96 $ 28.30 $ 9.70 $ 9.29
All stock prices are closing prices for each period indicated, adjusted
for stock splits. Juniper Networks has never paid cash dividends on its common
stock and has no present plans to do so. There were approximately 1,511
stockholders of record at March 15, 2002.
SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues .......................................... $887,022 $673,501 $102,606 $ 3,807 $ --
Operating income (loss) ............................... 40,863 194,089 (14,620) (32,270) (11,598)
Net income (loss) ..................................... $(13,417) $147,916 $ (9,034) $(30,971) $(10,363)
-------- -------- -------- -------- --------
Net income (loss) per share:
Basic ................................................. $ (0.04) $ 0.49 $ (0.05) $ (0.40) $ (0.20)
-------- -------- -------- -------- --------
Diluted ............................................... $ (0.04) $ 0.43 $ (0.05) $ (0.40) $ (0.20)
-------- -------- -------- -------- --------
Shares used in computing net income (loss) per
share (1):
Basic ................................................. 319,378 304,381 189,322 77,742 51,546
-------- -------- -------- -------- --------
Diluted ............................................... 319,378 347,858 189,322 77,742 51,546
-------- -------- -------- -------- --------
AS OF DECEMBER 31,
------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- -------- ------- -------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments ........................................ $ 989,642 $1,144,743 $345,958 $20,098 $46,227
Working capital ...................................... 883,829 1,132,139 322,170 14,432 44,691
Total assets ......................................... 2,389,588 2,103,129 513,378 36,671 50,210
Total long-term liabilities .......................... 1,150,000 1,156,719 -- 5,204 2,083
Total stockholders' equity ........................... 997,369 730,002 457,715 17,065 46,048
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(1) See Note 12 of Notes to Consolidated Financial Statements for an explanation
of the determination of the shares used to compute net income (loss) per
share.
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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 routers are designed and purpose-built for service
provider networks and offer our customers trusted performance, reliability,
scalability, interoperability and flexibility, and reduced complexity and cost
compared to legacy alternatives.
RESULTS OF OPERATIONS
The SEC recently advised companies to review their critical accounting
policies and practices in the context of their financial statements and
Management's Discussion and Analysis of such financial statements in an effort
to ensure that important information is communicated to facilitate an investor's
understanding of a company's results of operations. (FR60 "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies"). Our most important
accounting policies often require us to make judgments or otherwise involve
estimating uncertain matters that could have a material affect on our reported
results of operations. These policies include those that could impact revenue
such as our revenue recognition policy; those that could impact gross margins
such as valuation of exposures associated with our contract manufacturing
operations and estimating future warranty costs; and those that could impact our
balance sheet such as valuation of non-marketable equity securities. We have
other equally important accounting policies and practices; however, once adopted
these policies either generally do not require us to make significant estimates
or judgments or otherwise only require implementation of the adopted policy, not
a judgment as to policy itself.
NET REVENUES
Our net revenues for 2001 increased to $887.0 million compared with $673.5
million in 2000, an increase of approximately 32%. Three of our five product
platforms (M160, M5 and M10) were introduced during 2000 with the first full
year of shipments for these products occurring in 2001 resulting in an increase
in net revenues for 2001 compared to 2000. The increase in net revenues also was
the result of the continuing increase in market acceptance of our products and,
especially in early 2001, the overall growth in the marketplace due to the
growth of data traffic on the Internet and an increase in the number of
customers and networks.
Our net revenues increased to $673.5 million in 2000 as compared with
$102.6 million in 1999. The increase in net revenues for 2000 over 1999 was
primarily due to the following three factors: the introduction of the three new
product platforms mentioned above; an increase in market acceptance of our
products; and overall growth in the marketplace due to the growth of the data
traffic on the Internet and an increase in the number of customers and networks
throughout the year.
Our revenues for 2001 were derived from sales of all five of our M-Series
Internet routers, the M5, M10, M20, M40 and M160. While we have introduced new
products and features and plan to continue to introduce new products and
features, there can be no assurance that we will be successful in these efforts
or that such products and or features 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. Three customers
accounted for 38% of our net revenues in 2001, one customer accounted for 18% of
our net revenues in 2000, and two customers accounted for 58% of our net
revenues in 1999. 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. International sales
accounted for approximately 31% of our net revenues in 2001 as compared with 35%
in 2000 and 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.
During 2001, the economic downturn adversely impacted our product demand
and made it increasingly difficult to accurately forecast our future revenues
and manufacturing requirements, as evidenced by declining quarterly revenues and
a contract manufacturing charge in the third quarter. The market for Internet
backbone routers is still evolving and that combined with the economic downturn
has made visibility into and prediction of the volume and timing of orders
uncertain and difficult. A customer's decision to purchase our products
typically involves a significant commitment of its 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
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deliberately. Timing of deployment can vary widely. Customers with large
networks usually expand their networks on a periodic basis. Accordingly, we
expect to receive purchase orders on an irregular basis. Because of our
relatively limited operating history and the current economic conditions, we
cannot predict these sales and development cycles. The current economic
conditions, as well as long sales and implementation cycles for our products and
our expectation, based on experience, that customers tend to place orders
sporadically requesting short lead times, may cause future 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, over the past six months, as
customers have been able to take advantage of the existing capacity in their
networks and the shorter lead times for equipment, we have seen more negotiating
pressure, including downward pressure on pricing.
We generally recognize product revenue at the time of shipment, assuming
that collectibility is reasonably assured, unless we have future obligations for
such things as network interoperability or customer acceptance, in which case
revenue and related costs are deferred until those obligations are met.
Assessments and judgments are made regarding the satisfaction of these
obligations relating to network interoperability and customer acceptance which
impact when revenue is recognized. Additionally, the assessment of
collectibility at the onset of an arrangement impacts when revenue is
recognized. Revenue from service obligations is deferred and recognized on a
straight-line basis over the contractual period. Amounts billed in excess of
revenue recognized are included as deferred revenue in the accompanying
consolidated balance sheets.
At December 31, 2001, a total of $36.8 million of revenue was deferred
which consists of both deferred product revenue and deferred service revenue. We
currently expect to recognize this amount in 2002.
Cost of Revenues
The following table shows the cost of revenues and the gross margins for
the years ended December 31, (in thousands, except percentages):
2001 2000 1999
-------- -------- -------
Cost of revenues ............. $372,771 $237,554 $45,272
Gross margins ................ 58.0% 64.7% 55.9%
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 manufacturing support organizations. In addition, in 2001, we incurred a
significant contract manufacturing charge of $39.9 million. The contract
manufacturing charge was the result of an unexpected and significant decrease in
forecasted demand for our products resulting in commitments to our contract
manufacturers for component and related material purchases that were in excess
of our revised demand estimates. Gross margins declined in 2001 primarily due to
the contract manufacturing charge. 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
mix of products and services sold;
demand for products and services;
volume manufacturing pricing we are able to attain from our outsourced
manufacturing;
changes in our pricing policies and those of our competitors;
new product introductions both by us and by our competitors;
build forecast we provide to the contract manufacturers; and
warranty costs.
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. Our contract
manufacturers retain title to the underlying components and finished goods
inventory until our customers take title of the assembled final product upon
shipment at the contract manufacturers' facility. Accordingly we do not carry
inventory. However, we do have potential contractual liabilities and exposures
to our contract manufacturers, such as carrying costs for excess material, if
they procure components and build products based on build forecasts we provide
them and the actual component usage and product sales are significantly lower
than forecast. In the third quarter of 2001, we accrued $39.9 million relating
to an excess materials exposure. The amount was paid in fourth quarter of 2001
and the first quarter of 2002.
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Our products generally carry a one year warranty that includes factory
repair services and as needed replacement parts. We accrued estimated costs for
the warranty obligation as revenue is recognized based on our best estimate of
future warranty costs for delivered product. We estimate the costs to service
our warranty obligations based on historical experience and expectation of
future costs. If actual warranty costs are significantly different from our
estimates, we may need to revise our warranty accrual and the impact could be
material to our operating results for a given period.
Research and Development Expense
Research and development expenses increased to $155.5 million in 2001 from
$87.8 million in 2000 and $41.5 million in 1999. Research and development
expenses consist primarily of salaries and related personnel costs,
non-recurring engineering charges and prototype and testing lab costs related to
the design, development, testing and enhancement of our application specific
integrated circuits (ASICs) and products. Salary and related personnel costs
accounted for approximately 25% of the increase from 2000 to 2001 and
approximately 40% of the increase from 1999 to 2000. Non-recurring engineering
and prototype costs accounted for approximately 45% of the increase from 2000 to
2001 and 10% of the increase from 1999 to 2000.
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 when we purchase the prototype ASICs. With several large
ASICs in our architecture, we will incur large non-recurring engineering and
prototype expenses with each 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
annual research and development expenses to increase in absolute dollars in the
future.
Sales and Marketing Expenses
Sales and marketing expenses increased to $140.4 million in 2001 from
$89.0 million in 2000 and $20.9 million in 1999. The increases from period to
period in sales and marketing expenses were primarily attributable to salaries,
commissions and related expenses for personnel engaged in sales, marketing and
customer engineering support functions. In addition, costs associated with
promotional and other marketing activities such as product launches and
equipment for demonstration and competitive labs contributed to the increase. To
date, we have not incurred significant advertising expenses.
We intend to continue to focus and expand our sales and marketing efforts
in the core, access, cable and mobile markets, 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 remain flat to slightly increase in absolute dollars in the future
as we hire additional sales and marketing personnel and initiate additional
marketing programs to support our products and market segments.
General and Administrative Expenses
General and administrative expenses increased to $37.6 million in 2001 from
$21.2 million in 2000 and $5.2 million in 1999. General and administrative
expenses consist primarily of salaries and related expenses for executive,
finance, accounting, and human resources personnel, as well as recruiting
expenses, professional fees, bad debt provisions 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, as well as increases in the bad
debt provision. We expect that general and administrative expenses will decrease
slightly in the future.
Amortization of Goodwill, Purchased Intangibles and Deferred Stock Compensation
On December 14, 2001, we acquired Pacific Broadband Communications
("Pacific Broadband") and on December 8, 2000, we acquired Micro Magic Inc.
("Micro Magic"). We accounted for both of these acquisitions under the purchase
method of accounting. Accordingly, we recorded goodwill and other intangible
assets of $137.5 million and $125.7 million, respectively, 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 were being amortized over
their respective useful lives, which we determined to be between two and three
years. In accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets", there was no goodwill
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amortization related to the Pacific Broadband acquisition in 2001 and beginning
on January 1, 2002, there will no longer be amortization of the goodwill
relating to the Micro Magic acquisition.
Also as part of the acquisitions of Pacific Broadband and Micro Magic, we
recorded $25.3 million and $121.7 million, respectively, of deferred stock
compensation relating to the intrinsic value of unvested stock options and
restricted stock assumed in the acquisitions. In connection with the grant of
certain stock options to employees during 1998 and the three months ended March
31, 1999, we recorded deferred stock 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 stock 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 $46.6 million of goodwill, $2.7 million of purchased
intangibles and $74.1 million of deferred stock compensation during 2001. In
2000, we expensed $10.7 million of goodwill, $228,000 of purchased intangibles
and $12.9 million of deferred stock compensation. In 1999, we expensed $1.0
million of goodwill and $3.3 million of deferred stock compensation. Goodwill
will no longer be amortized going forward. The amortization of purchased
intangibles and deferred stock compensation may continue to increase if we make
other acquisitions of companies or technologies.
RESTRUCTURING CHARGES
On June 8, 2001, we announced a restructuring program in an effort to
better align our business operations with the current market and service
provider industry conditions. The restructuring program included a worldwide
workforce reduction, consolidation of excess facilities and restructuring of
certain business functions.
The costs associated with the restructuring program totaled $12.3 million
and were recorded during the three months ended June 30, 2001 as operating
expenses. As a result of the restructuring program, we had pre-tax savings of
approximately $8.2 million in 2001 and we expect pre-tax savings in operating
expenses will approximate $9.0 million for 2002.
Worldwide Workforce Reduction. The restructuring program resulted in the
reduction of approximately 100 employees across all business functions and
geographic regions. Impacted employees were terminated in June 2001. In
connection with the reduction in workforce, we recorded a charge of
approximately $3.2 million relating primarily to severance and fringe benefits.
Consolidation of Excess Facilities and Other Related Charges. We recorded
a restructuring charge of $6.9 million relating to the consolidation of excess
facilities and other related charges. The consolidation of excess facilities
includes the closure of certain corporate facilities and sales offices in all
regions that were deemed in excess and are being exited. We recorded a
restructuring charge of approximately $4.7 million for excess facilities
relating primarily to non-cancelable lease costs, partially offset by estimated
sublease income. Our estimated costs to exit these facilities are based on
available commercial rates. The actual loss incurred in exiting these facilities
could exceed our estimates. Property and equipment that was disposed of or
removed from operations resulted in a charge of $1.4 million and consisted
primarily of leasehold improvements, computer equipment and furniture and
fixtures. We also recorded other restructuring costs of approximately $775,000
relating primarily to payments to suppliers and vendors in connection with
restructuring activities.
Impairment of Purchased Intangible Assets. In connection with the
restructuring program, we reevaluated certain of our businesses and realigned
resources in an effort to focus on strategic opportunities. As a result, we
recorded a charge of $2.3 million related to the impairment of intangible assets
acquired, measured as the amount by which the carrying amount exceeded the
present value of the estimated future cash flows.
In-process Research and Development
In connection with the acquisition of Pacific Broadband, we allocated $4.2
million of the $148.3 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 30% 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 Pacific Broadband. The calculation of value was then adjusted to
reflect only the value creation efforts of Pacific Broadband prior to the close
of the acquisition. At the time of the acquisition, the product was
approximately 75% complete. The majority of the costs to complete the project
will be incurred in fiscal 2002 and are not expected to be 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.
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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 and the project was completed in 2001. 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 have not made any
similar contributions in 2001 and we currently do not expect to make similar
contributions in the foreseeable future.
Interest Income
Interest income consists of income on available-for-sale investments.
Interest income was $94.7 million in 2001 as compared with $89.0 million and
$8.5 million in 2000 and 1999, respectively. The $5.7 million increase in 2001
as compared to 2000 is the result of larger cash and investment balances
throughout 2001, partially offset by a decline in interest rates. The
significant increase in interest income in 2000 as compared to 1999 is a direct
result of significant increases in the cash and investment balances, resulting
from our equity and debt offerings during 1999 and 2000.
Interest Expense
Interest expense in 2001, 2000 and 1999 was $61.4 million, $48.1 million
and $528,000, respectively. Interest expense in 2001 and 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 is related to capital lease obligations.
Loss on Investments
In 2001 and 2000 we recorded impairment write-downs of our minority equity
investments of $53.6 million and $4.6 million, respectively. No impairment
write-downs were made in 1999. Our ability to recover our investments in
minority equity securities in non-publicly traded companies and to earn a return
on these investments is largely dependent on equity market conditions and the
occurrence of liquidity events, such as initial public offerings, mergers, and
private sales. All of these factors are difficult to predict, particularly in
the current economic environment. Future downturns in the equity markets and/or
failures of the investees to achieve key business objectives could further
impair our investments and cause us to take additional charges in future
periods.
Equity in Net Loss of Joint Venture
Equity in net loss of joint venture of $4.1 million in 2001 reflects our
share of the net losses of our joint venture formed with Ericsson in June 2001,
which is accounted for under the equity method of accounting. We have a 40%
ownership interest and Ericsson has a 60% ownership interest. To date, we have
funded the joint venture in the amount of $4.9 million. Ericsson is also a
significant reseller of ours representing greater than 10% of our revenues for
2001.
Provision for Income Taxes
We recorded a tax provision of $30.0 million in 2001 resulting in an
effective tax rate of 181%. In 2000 and 1999, we recorded tax provisions of
$82.5 million (36%) and $2.4 million (-37%), respectively. The tax rate for 2001
includes the effects of write-downs in equity investments and acquisition
related charges for goodwill and in-process research and development which are
non-deductible.
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.
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At December 31, 2001, we had cash and cash equivalents of $606.8 million,
short-term investments of $382.8 million and long-term investments of $708.2
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 $ 292.8 million, $269.1
million and $20.5 million in 2001, 2000 and 1999, respectively. Net cash
provided by operating activities in 2001 were primarily attributed to non-cash
charges such as amortization of goodwill, purchased intangibles and deferred
stock compensation, write-down of minority investments, depreciation and a tax
benefit from employee stock option plans, as well as decreases in accounts
receivable. Net cash used in operating activities in 2001 consisted of net
decreases in accounts payable and other accrued liabilities (excluding the
impact of acquisitions), a net loss and decreases in accrued warranty. Net cash
provided by operating activities in 2000 were primarily attributed to the net
income, increases in accounts payable and other accrued liabilities, a tax
benefit from employee stock option plans and non-cash charges such as
amortization of goodwill, purchased intangibles and deferred stock compensation.
Net cash used in operating activities in 2000 consisted of increases in accounts
receivable and other assets. Net cash provided by operating activities in 1999
were primarily attributed to increases in accounts payable and other accrued
liabilities, deferred revenue and accrued warranty. Net cash used in operating
activities in 1999 consisted of increases in accounts receivable and other
assets, as well as the net loss.
Net cash used in investing activities was $307.4 million, $894.2 million
and $305.4 million in 2001, 2000 and 1999, respectively. 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
and minority equity investments. The 2001 increase in fixed assets includes the
purchase of approximately 80 acres of land in Sunnyvale, California. Net cash
used in investing activities in 2000 and 1999 also include minority interest
investments and business acquisitions. Net cash provided by investing activities
for all periods consisted of maturities of available-for-sale investments.
Net cash provided by financing activities was $58.5 million for 2001,
which consisted of proceeds from employee stock option exercises and the
employee stock purchase plan. 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 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.
Our capital resource 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 expanding our 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, 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. (See Notes 5 and 6 to the Consolidated
Financial Statements for details of our future commitments and debt payment
obligations.)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, "Business Combinations", and No. 142,
"Goodwill and Other Intangible Assets" (SFAS 141 and SFAS 142). SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS 141 also includes guidance on
the initial recognition and measurement of goodwill and other intangible assets
arising from business combinations completed after June 30, 2001. SFAS 142
prohibits the amortization of goodwill and intangible assets with indefinite
useful lives. SFAS 142 requires that these assets be reviewed for impairment at
least annually. Intangible assets with finite lives will continue to be
amortized over their estimated useful lives. Additionally, SFAS 142 requires
that goodwill included in the carrying value of equity method investments no
longer be amortized.
We will apply SFAS 142 beginning in the first quarter of 2002. Application
of the nonamortization provisions of SFAS 142 is expected to result in an
increase in net income of $46.9 million in 2002. We will test goodwill for
impairment using the two-step process prescribed in SFAS 142. The first step is
a screen for potential impairment, while the second step measures the amount of
the impairment, if any. We expect to perform the first of the required
impairment tests of goodwill as of January 1, 2002 in the first quarter of 2002.
Any impairment charge resulting from these transitional impairment tests will be
reflected as the cumulative effect of a change in
9
accounting principle in the first quarter of 2002. We have not yet determined
what the effect of these tests will be on our earnings and financial position.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, (SFAS 143), "Accounting for Asset
Retirement Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It also applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. We are required to
adopt SFAS 143 in fiscal 2002 and we do not believe that the adoption of SFAS
143 will have a material effect on our financial position or results of
operations.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, (SFAS 144), "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses the financial
accounting and reporting for the impairment of long-lived assets. This statement
supersedes Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
and the accounting and reporting provisions for the disposal of a segment of a
business of APB Opinion No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." We are required to
adopt SFAS 144 in fiscal 2002 and we have not yet determined what effect, if
any, the adoption of FAS 144 will have on our financial position or results of
operations.
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. We have an investment
portfolio comprised of fixed income securities, which are subject to market
risk. In an effort to manage the risk, we maintain these fixed income securities
with high-quality institutions and only invest in high-quality credit
instruments. The fair value of these securities will fluctuate as a result of a
change in the prevailing interest rates. Based on our investment portfolio and
interest rates as of December 31, 2001, an immediate and uniform increase or
decrease in interest rates of 50 basis points would result in an increase or
decrease of approximately $6.5 million, respectively, in the fair market value
of the portfolio. However, these gains or losses would remain unrealized unless
the investments were sold prior to maturity. See Note 4 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 been made primarily in US dollars. In addition, our operations are
primarily located in the United States. Accordingly, at this time, we have had
no material exposure to foreign currency rate fluctuations.
10
JUNIPER NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 31,
------------------------
2001 2000
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents ........................................................ $ 606,845 $ 563,005
Short-term investments ........................................................... 382,797 581,738
Accounts receivable, net of allowance for doubtful
accounts of $8,991 in 2001 ($3,727 in 2000) ................................... 103,524 176,535
Prepaid expenses and other current assets ........................................ 32,882 27,269
---------- ----------
Total current assets ............................................................... 1,126,048 1,348,547
Property and equipment, net ........................................................ 251,811 36,440
Long-term investments .............................................................. 708,232 450,568
Goodwill and other purchased intangible assets, net ................................ 222,034 136,047
Other long-term assets ............................................................. 81,463 131,527
---------- ----------
Total assets ....................................................................... $2,389,588 $2,103,129
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................. $ 76,417 $ 72,347
Accrued compensation and related liabilities ..................................... 23,974 21,644
Accrued warranty ................................................................. 31,137 35,394
Interest payable ................................................................. 16,118 16,118
Other accrued liabilities ........................................................ 57,731 36,280
Deferred revenue ................................................................. 36,842 34,625
---------- ----------
Total current liabilities .......................................................... 242,219 216,408
Convertible subordinated notes and other long-term liabilities ..................... 1,150,000 1,156,719
Commitments and contingencies
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; 329,146 and 318,085
shares issued and outstanding at December 31, 2001 and 2000 .................... 3 3
Additional paid-in capital ....................................................... 959,681 735,100
Deferred stock compensation ...................................................... (63,065) (111,813)
Accumulated other comprehensive income ........................................... 18,418 10,963
Retained earnings ................................................................ 82,332 95,749
---------- ----------
Total stockholders' equity ......................................................... 997,369 730,002
---------- ----------
Total liabilities and stockholders' equity ......................................... $2,389,588 $2,103,129
========== ==========
See accompanying notes.
11
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Net revenues ........................................ $ 887,022 $ 673,501 $ 102,606
Cost of revenues .................................... 372,771 237,554 45,272
--------- --------- ---------
Gross profit ........................................ 514,251 435,947 57,334
Operating expenses:
Research and development .......................... 155,530 87,833 41,502
Sales and marketing ............................... 140,407 89,029 20,931
General and administrative ........................ 37,554 21,176 5,235
Amortization of deferred stock compensation (1) ... 74,080 12,900 3,265
Amortization of goodwill and purchased intangibles 49,277 10,920 1,021
Restructuring costs ............................... 12,340 -- --
In-process research and development ............... 4,200 10,000 --
Charitable contribution ........................... -- 10,000 --
--------- --------- ---------
Total operating expenses .................. 473,388 241,858 71,954
--------- --------- ---------
Operating income (loss) ............................. 40,863 194,089 (14,620)
Interest income ..................................... 94,747 88,960 8,539
Interest expense .................................... (61,377) (48,102) (528)
Loss on investments ................................. (53,620) (4,575) --
Equity in net loss of joint venture ................. (4,076) -- --
--------- --------- ---------
Income (loss) before income taxes ................... 16,537 230,372 (6,609)
Provision for income taxes .......................... 29,954 82,456 2,425
--------- --------- ---------
Net income (loss) ................................... $ (13,417) $ 147,916 $ (9,034)
========== ========= =========
Net income (loss) per share:
Basic ............................................... $ (0.04) $ 0.49 $ (0.05)
========== ========= =========
Diluted ............................................. $ (0.04) $ $0.43 $ (0.05)
========== ========= =========
Shares used in computing net income (loss) per share:
Basic ............................................... 319,378 304,381 189,322
========== ========= =========
Diluted ............................................. 319,378 347,858 189,322
========= ========= =========
(1) Deferred stock compensation is allocable as follows:
Year Ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Cost of revenues ..................................... $ 405 $ 382 $ 473
Research and development ............................. 65,388 9,170 1,826
Sales and marketing .................................. 7,958 3,086 773
General and administrative ........................... 329 262 193
-------- -------- --------
Total $ 74,080 $ 12,900 $ 3,265
======== ======== ========
See accompanying notes.
12
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL
---------------------- --------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- -------- -------- -------- -------- --------- ----------
Balance at December 31, 1998 ......... 10,717 -- 123,464 1 -- -- 65,350
Issuance of Series D and D-1
preferred stock to investors ....... 3,080 -- -- -- -- -- 33,948
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 -- -- -- 389,453
Exercise of common stock warrants .... -- -- 1,558 -- -- -- --
Exercise of stock options by
employees, net of repurchases ...... -- -- 9,776 -- -- -- 6,870
Issuance of common stock and
options in connection with the
acquisition of intellectual
property and other intangibles ..... -- -- 266 -- -- -- 16,960
Deferred stock compensation .......... -- -- -- -- -- -- 1,114
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 -- -- 513,695
Issuance of common stock in
connection with the Employee
Stock Purchase Program ............ -- -- 627 -- -- -- 3,429
Issuance of common stock in
connection with the acquisition of
Pacific Advantage Limited .......... -- -- 66 -- -- -- 3,800
Charitable contribution .............. -- -- 135 -- -- -- 10,000
Stock repurchase ..................... -- -- -- (1,000) (130,000) --
Issuance of common stock and
options in connection with the
acquisition of Micro Magic, Inc. ... -- -- -- -- 828 107,685 111,519
Exercise of stock options by
employees, net of repurchases ...... -- -- 5,379 -- 172 22,315 10,971
Amortization of deferred stock
compensation ....................... -- -- -- -- -- -- --
Tax benefits from employee stock
option plans ...................... -- -- -- -- -- -- 81,686
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 -- $ -- $735,100
======== ======== ======== ======== ======== ========= ========
Issuance of common stock in
connection with the Employee
Stock Purchase Program ............ -- -- 178 -- -- -- 5,940
Exercise of stock options by
employees, net of repurchases ...... -- -- 6,271 -- -- -- 52,557
Compensation charge in connection
with the restructuring ............ -- -- -- -- -- -- 761
Issuance of common stock in
connection with the acquisition of
Pacific Broadband Communications ... -- -- 4,612 -- -- -- 140,328
Amortization of deferred stock
compensation ....................... -- -- -- -- -- -- --
Tax benefits from employee stock
option plans ...................... -- -- -- -- -- -- 24,995
Other comprehensive gain (loss):
Change in unrealized gain on
available-for-sale securities, net
of tax effect .................... -- -- -- -- -- -- --
Net loss ........................... -- -- -- -- -- -- --
Comprehensive loss ................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- --------- --------
Balance at December 31, 2001 ......... -- $ -- 329,146 $ 3 -- $ -- $959,681
======== ======== ======== ======== ======== ========= ========
13
ACCUMULATED RETAINING
DEFERRED OTHER EARNINGS TOTAL
STOCK COMPREHENSIVE (ACCUMULATED STOCKHOLDERS'
COMPENSATION INCOME (LOSS) DEFICIT) EQUITY
------------ ------------- ------------ -------------
Balance at December 31, 1998 ......... (5,153) -- (43,133) 17,065
Issuance of Series D and D-1
preferred stock to investors ....... -- -- -- 33,948
Conversion of preferred stock to
common stock ....................... -- -- -- 2
Issuance of common stock, net of
issuance costs of $1,885 ........... -- -- -- 389,453
Exercise of common stock warrants .... -- -- -- --
Exercise of stock options by
employees, net of repurchases ...... -- -- -- 6,870
Issuance of common stock and
options in connection with the
acquisition of intellectual
property and other intangibles ..... -- -- -- 16,960
Deferred stock compensation .......... (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 ......... (3,001) (815) (52,167) 457,715
Issuance of common stock in
connection with the Employee
Stock Purchase Program ............ -- -- -- 3,429
Issuance of common stock in
connection with the acquisition of
Pacific Advantage Limited .......... -- -- -- 3,800
Charitable contribution .............. -- -- -- 10,000
Stock repurchase ..................... -- -- -- (130,000)
Issuance of common stock and
options in connection with the
acquisition of Micro Magic, Inc. ... (121,712) -- -- 97,492
Exercise of stock options by
employees, net of repurchases ...... -- -- -- 33,286
Amortization of deferred stock
compensation ....................... 12,900 -- -- 12,900
Tax benefits from employee stock
option plans ...................... -- -- -- 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 ......... $(111,813) $10,963 $ 95,749 $ 730,002
========= ======= ======== =========
Issuance of common stock in
connection with the Employee
Stock Purchase Program ............ -- -- -- 5,940
Exercise of stock options by
employees, net of repurchases ...... -- -- -- 52,557
Compensation charge in connection
with the restructuring ............ -- -- -- 761
Issuance of common stock in
connection with the acquisition of
Pacific Broadband Communications ... (25,332) -- -- 114,996
Amortization of deferred stock
compensation ....................... 74,080 -- -- 74,080
Tax benefits from employee stock
option plans ...................... -- -- -- 24,995
Other comprehensive gain (loss):
Change in unrealized gain on
available-for-sale securities, net
of tax effect .................... -- 7,455 -- 7,455
Net loss ........................... -- -- (13,417) (13,417)
---------
Comprehensive loss ................... -- -- -- (5,962)
--------- ------- -------- ---------
Balance at December 31, 2001 ......... $ (63,065) $18,418 $ 82,332 $ 997,369
========= ======= ======== =========
See accompanying notes.
14
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended December 31,
-------------------------------------
2001 2000 1999
----------- ----------- ---------
OPERATING ACTIVITIES:
Net income (loss) ............................................................ $ (13,417) $ 147,916 $ (9,034)
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Depreciation ............................................................... 24,321 10,975 5,306
Amortization of goodwill, purchased intangibles
and deferred stock compensation .......................................... 123,357 23,820 4,933
Amortization of debt related charges ....................................... 3,811 3,206 --
Tax benefit of employee stock option plans ................................. 24,995 81,686 --
Issuance of stock as a charitable contribution ............................. -- 10,000 --
In-process research and development charge ................................. 4,200 10,000 --
Restructuring costs ........................................................ 4,465 -- --
Write-down of minority equity investments .................................. 53,620 4,575 --
Changes in operating assets and liabilities:
Accounts receivable ...................................................... 73,011 (152,585) (15,894)
Prepaid expenses and other current assets ................................ (1,108) (19,344) (7,892)
Other long-term assets ................................................... 5,235 (11,761) (398)
Accounts payable and other current liabilities ........................... (10,021) 103,214 16,593
Accrued warranty ......................................................... (4,257) 25,753 8,957
Accrued compensation and related liabilities ............................. 2,330 16,273 4,257
Deferred revenue ......................................................... 2,217 15,355 13,631
Other long-term liabilities .............................................. -- -- --
----------- ----------- ---------
Net cash provided by operating activities .................................... 292,759 269,083 20,459
INVESTING ACTIVITIES:
Purchases of property and equipment, net ..................................... (241,129) (34,999) (10,020)
Purchases of available-for-sale investments .................................. (1,592,317) (1,437,406) (324,437)
Maturities of available-for-sale investments ................................. 1,531,507 718,714 38,506
Minority equity investments .................................................. (8,205) (100,496) (8,000)
Acquisition of businesses, inclusive of intellectual
property and other intangibles, net of cash acquired ....................... 2,728 (39,974) (1,456)
----------- ----------- ---------
Net cash used in investing activities ........................................ (307,416) (894,161) (305,407)
FINANCING ACTIVITIES:
Payments on lease obligations ................................................ -- -- (7,381)
Proceeds from issuance of convertible subordinated notes ..................... -- 1,123,325 --
Proceeds from issuance of preferred stock .................................... -- -- 33,948
Proceeds from issuance of common stock ....................................... 58,497 36,715 396,326
Repurchase of common stock ................................................... -- (130,000) --
----------- ----------- ---------
Net cash provided by financing activities .................................... 58,497 1,030,040 422,893
----------- ----------- ---------
Net increase in cash and cash equivalents .................................... 43,840 404,962 137,945
Cash and cash equivalents at beginning of period ............................. 563,005 158,043 20,098
----------- ----------- ---------
Cash and cash equivalents at end of period ................................... $ 606,845 $ 563,005 $ 158,043
----------- ----------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ....................................................... $ 54,625 $ 28,375 $ 477
=========== =========== =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Deferred stock compensation .................................................. $ 25,332 $ 121,712 $ 1,114
=========== =========== =========
Common stock issued in connection with acquisition of goodwill and intangibles $ 137,532 $ 129,486 $ 16,960
=========== =========== =========
See accompanying notes.
15
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 a wide range of core backbone, edge, mobile
and cable Internet routing platforms.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Juniper
Networks and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated. Investments in which Juniper Networks intends
to maintain more than a temporary 20% to 50% interest, or otherwise has the
ability to exercise significant influence, are accounted for under the equity
method. Investments in which the Company has less than 20% interest and/or do
not have the ability to exercise significant influence are carried at the lower
of cost or estimated realizable value.
USE OF ESTIMATES
The preparation of the consolidated financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States requires management to establish accounting policies which contain
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. These policies include those that
could impact revenue such as the revenue recognition policy; those that could
impact gross margins such as valuation of exposures associated with the contract
manufacturing operations and estimating future warranty costs; and those that
could impact the balance sheet such as valuation of non-marketable equity
securities. The Company has other equally important accounting policies and
practices; however, once adopted these policies either generally do not require
the Company to make significant estimates or assumptions or otherwise only
require implementation of the adopted policy not a judgment as to policy itself.
Despite the Company's intention to establish accurate estimates and assumptions,
actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Juniper Networks considers all highly liquid investments with an original
maturity 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 recorded in stockholders' equity. Realized gains or losses and
declines in value determined to be other than temporary on available-for-sale
securities are reported in other income or expense as incurred. In 2001, Juniper
Networks wrote down an available-for-sale investment by $2.8 million as a result
of a decline in value determined to be other than temporary. No write-downs were
made in 2000 and 1999.
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, 2001 and 2000,
$49.3 million and $88.9 million of these investments are included in other
long-term assets with one investment making up a significant portion of the
total. 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 2001 and 2000,
Juniper Networks wrote down these investments by $50.8 million and $4.6 million,
respectively. No write-downs were recorded during 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, investments
and accounts receivable approximates fair market value due to the relatively
short period of time to maturity. The carrying amounts and fair value of the
Company's convertible
16
subordinated notes was $1.15 billion and $861 million, respectively, at December
31, 2001. The fair value of the convertible subordinated notes is based upon
quoted market rates.
CONCENTRATIONS
Financial instruments that subject Juniper Networks to concentrations of
credit risk consist primarily of cash and cash equivalents, investments and
trade accounts receivable. Juniper Networks maintains its cash and cash
equivalents and investments in fixed income securities with high-quality
institutions. Deposits held with banks may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand
and therefore bear minimal risk. 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. Generally, credit risk
with respect to accounts receivable is diversified due to the number of entities
comprising the Company's customer base and their dispersion across different
geographic locations throughout the world. 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 2001 and 2000 were derived from the sale of
five product platforms, the M5, M10, M20, M40 and M160 Internet routers. Net
revenues for 1999 were derived from the sale of one product, the M40. For 2001,
three customers accounted for 14%, 13% and 11% of net revenues. For 2000, one
customer accounted for 18% of net revenues. For 1999, two customers accounted
for 32% and 26% of net revenues. For 2001, 2000 and 1999, international sales
accounted for a total of 31%, 35% and 22%, respectively, of net revenues.
Juniper Networks relies on sole suppliers for certain of its components
such as ASICs and custom sheet metal. 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.
DERIVATIVES
Juniper Networks adopted Statement of Financial Accounting Standard (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133) on January 1, 2001. SFAS 133, as amended, establishes accounting methods
and related disclosures for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
Because Juniper Networks currently does not hold any derivative instruments and
does not currently engage in hedging activities, the adoption of SFAS 133, as
amended, did not have an impact on its financial position or results of
operations.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the lesser of the
estimated useful life, generally three to five years, or the lease term of the
respective assets. The land that was acquired in January 2001 for the future
corporate campus is not being depreciated. Property and equipment consist of the
following (in thousands):
December 31,
---------------------
2001 2000
--------- ---------
Computers and equipment ......... $ 59,805 $ 34,511
Purchased software .............. 14,629 9,688
Leasehold improvements .......... 27,370 9,010
Furniture and fixtures .......... 4,073 2,379
Land ............................ 189,403 --
--------- ---------
Total ........................... 295,280 55,588
Less accumulated depreciation ... (43,469) (19,148)
--------- ---------
Property and equipment, net ..... $ 251,811 $ 36,440
========= =========
GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill and purchased intangible assets are carried at cost less
accumulated amortization. For business combinations consummated before July 1,
2001, goodwill was amortized through December 31, 2001, using the straight-line
method over an estimated useful life of three years. Goodwill is not amortized
for business combinations consummated after June 30, 2001. Amortization of
purchased intangibles is computed using the straight-line method over the
expected useful life of two to three years. Goodwill and purchased intangible
assets consist of the following (in thousands):
December 31,
---------------------
2001 2000
--------- ---------
Goodwill ........................................ $ 267,141 $ 139,786
Purchased intangible assets ..................... 16,109 8,100
--------- ---------
Total ........................................... 283,250 147,886
Less accumulated amortization ................... (61,216) (11,839)
--------- ---------
Goodwill and purchased intangible assets, net ... $ 222,034 $ 136,047
========= =========
17
VALUATION OF LONG-LIVED ASSETS, CERTAIN IDENTIFIABLE INTANGIBLES AND GOODWILL
In accordance with 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, certain
identifiable intangibles and goodwill for impairment, when events and
circumstances indicate that the book value of an asset may not be recoverable.
During 2001, in connection with the restructuring program, the Company took an
impairment charge of $2.3 million in relation to certain acquired intangible
assets (see Note 3). If, in the future, management determines the existence of
impairment indicators, the Company would use undiscounted cash flows to
initially determine whether impairment should be recognized. If necessary, the
Company would perform a subsequent calculation to measure the amount of the
impairment loss based on the excess of the carrying value over the fair value of
the impaired assets. If quoted market prices for the assets are not available,
the fair value would be calculated using the present value of estimated expected
future cash flows. The cash flow calculations would be based on management's
best estimates, using appropriate assumptions and projections at the time.
Long-lived assets include intangible assets acquired in business combinations.
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 reasonably assured, unless Juniper Networks
has future obligations for such things as network interoperability or customer
acceptance, in which case revenue and related costs are deferred until those
obligations are met. Revenue from service obligations is deferred and 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 sales
returns and other allowances based on its best estimate of future returns and
other allowances.
WARRANTY COSTS
Juniper Networks accrues estimated costs for warranty obligations as
revenue is recognized based on its best estimate of future warranty costs for
delivered product. The Company estimates the costs to service its warranty
obligations based on historical experience and expectation of future costs.
RESEARCH AND DEVELOPMENT
Costs to develop the Company's products are expensed as incurred in
accordance with SFAS No. 2, "Accounting for Research and Development Costs,"
which establishes accounting and reporting standards for research and
development.
Software development costs, which are required to be capitalized pursuant
to SFAS No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed," have not been material to date.
Juniper Networks follows SOP 98-1 "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use", 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
Advertising costs are charged to sales and marketing expense as incurred
and the totals have been insignificant to date. Marketing development
obligations for customers are charged to sales and marketing expense in the
period the related revenue is recognized 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 SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123").
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.
18
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, "Business Combinations", and No. 142,
"Goodwill and Other Intangible Assets" (SFAS 141 and SFAS 142). SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS 141 also includes guidance on
the initial recognition and measurement of goodwill and other intangible assets
arising from business combinations completed after June 30, 2001. SFAS 142
prohibits the amortization of goodwill and intangible assets with indefinite
useful lives. SFAS 142 requires that these assets be reviewed for impairment at
least annually. Intangible assets with finite lives will continue to be
amortized over their estimated useful lives. Additionally, SFAS 142 requires
that goodwill included in the carrying value of equity method investments no
longer be amortized.
The Company will apply SFAS 142 beginning in the first quarter of 2002.
Application of the nonamortization provisions of SFAS 142 is expected to result
in an increase in net income of $46.9 million in 2002. The Company will test
goodwill for impairment using the two-step process prescribed in SFAS 142. The
first step is a screen for potential impairment, while the second step measures
the amount of the impairment, if any. The Company expects to perform the first
of the required impairment tests of goodwill as of January 1, 2002 in the first
quarter of 2002. Any impairment charge resulting from these transitional
impairment tests will be reflected as the cumulative effect of a change in
accounting principle in the first quarter of 2002. The Company has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, (SFAS 143), "Accounting for Asset
Retirement Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It also applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. The Company is
required to adopt FAS 143 in fiscal 2002 and does not believe that the adoption
of FAS 143 will have a material effect on its financial position or results of
operations.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, (SFAS 144), "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses the financial
accounting and reporting for the impairment of long-lived assets. This statement
supersedes Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
and the accounting and reporting provisions for the disposal of a segment of a
business of APB Opinion No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." The Company is
required to adopt SFAS 144 in fiscal 2002 and has not yet determined what
effect, if any, the adoption of FAS 144 will have on its financial position or
results of operations.
2. ACQUISITIONS
Pacific Broadband Communications
On December 14, 2001, Juniper Networks acquired 100% of the outstanding
stock of privately held Pacific Broadband Communications, ("Pacific Broadband"),
a developer of standards-based next-generation cable modem termination systems
(CMTS) in which Juniper Networks previously held a minority interest. As a
result of the acquisition, Juniper Networks expects to gain access into the
cable market of the new public network, a new market to Juniper Networks. 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 14, 2001, Pacific Broadband's results of operations have
been included in the Company's Consolidated Statements of Operations.
The initial purchase price, including our prior investment of $4.0
million, was approximately $148.3 million consisting of an exchange of
approximately 4,612,000 shares of the Company's common stock with a fair value
of approximately $109.8 million, assumed stock options with a fair value of
approximately $30.5 million, and other acquisition related expenses of
approximately $4.0 million consisting of workforce reduction costs, excess
facilities costs, filing fees, as well as payments for professional fees. The
terms of the acquisition also included an earn-out provision, payable in shares
of the Company's common stock, wherein the former stockholders and employee
option holders of Pacific Broadband could receive additional consideration of up
to $59.0 million, upon achieving certain product development milestones and
revenue targets during 2002. The fair value of the common stock given was
determined using the average market price of the Company's common stock over the
period including two days before and after the terms of the acquisition were
agreed to and announced. The fair value of the options given was determined
using the Black-Scholes option model.
19
The following table summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the date of acquisition (in thousands):
Cash and cash equivalents ................................ $ 2,729
Other current assets ..................................... 4,505
Long-term assets ......................................... 5,574
Research and development assets .......................... 4,200
Intangible assets subject to amortization (two year life):
Core technology ..................................... 8,900
Supply agreement .................................... 1,276
Goodwill ................................................. 127,356
Deferred stock compensation .............................. 25,332
---------
Total assets acquired .................................... 179,872
Current liabilities ...................................... (31,539)
---------
Net assets acquired ...................................... $ 148,333
=========
The $4.2 million assigned to research and development assets was written
off as in-process research and development at the date of acquisition in
accordance with FASB Interpretation No. 4 "Applicability of FASB Statement No. 2
to Business Combinations Accounted for by the Purchase Method". 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 30% 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
Pacific Broadband. The calculation of value was then adjusted to reflect only
the value creation efforts of Pacific Broadband prior to the close of the
acquisition. At the time of the acquisition, the product was approximately 75%
complete. The majority of the costs to complete the project will be incurred in
fiscal 2002 and are not expected to be material. The resultant value of
in-process technology was further reduced by the estimated value of core
technology.
The fair value of the intangible assets was determined based upon a
valuation using a combination of methods, including an income approach for the
core technology and a cost approach for the supply agreements. The goodwill
represents the excess of the purchase price paid over the fair value of net
tangible and intangible assets acquired, none of which is expected to be
deductible for tax purposes. In accordance with SFAS 141 and SFAS 142 goodwill
was not and will not be amortized. The deferred compensation charge relates to
the intrinsic value of unvested stock options and restricted stock assumed in
the transaction. 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.
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 fair value of the common stock given was
determined using the average market price of Juniper Networks' common shares
over the period including two days before and after the terms of the acquisition
were agreed to and announced. The basis of determining the fair value of the
options given was the Black-Scholes method. 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
20
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 and the project was
completed in 2001. 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. From the date of acquisition through the end of fiscal
2001, goodwill was amortized using the straight-line method over three years,
resulting in an aggregate quarterly charge of $9.8 million during the
amortization period. Beginning January 1, 2002, goodwill will no longer be
amortized in accordance with SFAS 142. At December 31, 2001 and 2000, cumulative
amortization of goodwill, other intangible assets and deferred compensation
associated with this acquisition totaled $127.0 million and $14.6 million,
respectively.
The following unaudited pro forma summary presents the Company's
consolidated results of operations for the year ended December 31, 2001 and 2000
as if the Pacific Broadband acquisition had been consummated at the beginning of
each period, and also as if the Micro Magic acquisition had been consummated at
the beginning of 2000. 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):
2001 2000
-------- --------
Net revenues .......................... $887,425 $667,400
Net income (loss) ..................... (84,019) 6,332
Basic net income (loss) per share ..... $ (0.26) $ 0.02
Diluted net income (loss) per share ... $ (0.26) $ 0.02
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. RESTRUCTURING CHARGES
On June 8, 2001, Juniper Networks announced a restructuring program in an
effort to better align its business operations with the current market and
service provider industry conditions. The restructuring program included a
worldwide workforce reduction, consolidation of excess facilities and
restructuring of certain business functions.
The costs associated with the restructuring program totaled $12.3 million
and were recorded during the three months ended June 30, 2001 as operating
expenses.
Worldwide Workforce Reduction. The restructuring program resulted in the
reduction of approximately 100 employees across all business functions and
geographic regions. Impacted employees were terminated in June 2001. In
connection with the reduction in workforce, the Company recorded a charge of
approximately $3.2 million relating primarily to severance and fringe benefits.
Consolidation of Excess Facilities and Other Related Charges. The Company
recorded a restructuring charge of $6.9 million relating to the consolidation of
excess facilities and other related charges. The consolidation of excess
facilities includes the closure of certain corporate facilities and sales
offices in all regions that were deemed in excess and are being exited. The
Company recorded a restructuring charge of approximately $4.7 million for excess
facilities relating primarily to non-cancelable lease costs partially offset by
estimated sub-lease income. Property and equipment that was disposed or removed
from operations resulted in, a charge of $1.4 million and consisted primarily of
leasehold improvements, computer equipment and furniture and fixtures. The
Company also recorded other restructuring costs of approximately $775,000
relating primarily to payments to suppliers and vendors in connection with
restructuring activities.
Impairment of Purchased Intangible Assets. In connection with the
restructuring program, the Company reevaluated certain operations and realigned
resources in an effort to focus on core opportunities. As a result, the Company
recorded a charge of $2.3 million related to the impairment of intangible assets
acquired, measured as the amount by which the carrying amount exceeded the
present value of the estimated future cash flows.
A summary of the restructuring charges is outlined as follows (in
thousands):
Remaining
Reserve
as of
Total Non-Cash Cash December
Charge Charges Payments 31, 2001
------- ------- ------- -------
Workforce reduction .......................... $ 3,171 $ (761) $(2,410) $ --
Lease termination charges and other .......... 5,465 -- (777) 4,688
Impairment of property and equipment ......... 1,437 (1,437) -- --
Impairment of intangible assets .............. 2,267 (2,267) -- --
------- ------- ------- -------
Total ........................................ $12,340 $(4,465) $(3,187) $ 4,688
======= ======= ======= =======
21
Amounts related to the lease termination charges will be paid over the
respective lease terms through fiscal 2009. The Company's estimated costs to
exit these facilities are based on available commercial rates. The actual loss
incurred in exiting these facilities could be different from the Company's
estimates.
4. 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 .......................... $ 302,511 $ -- $ -- $ 302,511
Commercial paper ............................ 36,006 -- -- 36,006
Certificates of deposit ..................... 53 -- -- 53
Government securities ....................... 390,198 2,727 (416) 392,509
Corporate debt securities ................... 751,032 12,504 (340) 763,196
Asset-backed securities ..................... 68,914 368 (89) 69,193
Equity securities ........................... 9,172 3,791 (128) 12,835
----------- ----------- ----------- -----------
$ 1,557,886 $ 19,390 $ (973) $ 1,576,303
=========== =========== =========== ===========
Included in cash and cash equivalents ....... $ 484,414 $ 970 $ (109) $ 485,275
Included in short-term investments .......... 378,395 4,416 (15) 382,796
Included in long-term investments ........... 695,077 14,004 (849) 708,232
----------- ----------- ----------- -----------
$ 1,557,886 $ 19,390 $ (973) $ 1,576,303
=========== =========== =========== ===========
Due within one year ......................... $ 862,810 $ 5,385 $ (124) $ 868,071
Due between one year and two years .......... 431,821 11,181 (244) 442,758
Due between two years and three years ....... 263,255 2,824 (605) 265,474
----------- ----------- ----------- -----------
$ 1,557,886 $ 19,390 $ (973) $ 1,576,303
=========== =========== =========== ===========
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
=========== =========== =========== ===========
The Company recognized realized gains from the sale of available-for-sale
securities of $5.5 million and $1.5 million for 2001 and 2000, respectively.
5. COMMITMENTS AND CONTINGENCIES
Juniper Networks leases its facilities under operating leases that expire
in at various times, the longest of which expires in 2014. Rental expense for
2001, 2000 and 1999, was approximately $15.0 million, $5.1 million and $1.8
million, respectively.
Future minimum payments under the noncancellable operating leases consist
of the following (in thousands):
December 31,
2001
------------
2002 ............................... $ 17,989
2003 ............................... 19,229
2004 ............................... 18,310
2005 ............................... 18,439
2006 ............................... 18,371
Thereafter ......................... 118,995
--------
Total minimum lease payments .. $211,333
========
22
Legal Proceedings
The Company is subject to legal claims and litigation arising in the
ordinary course of business. While the outcome of these matters is currently not
determinable, management, after consultation with legal counsel, does not expect
that the ultimate costs to resolve these matters will have a material adverse
effect on the Company's consolidated financial position, results of operations,
or cash flows.
In December 2001, a class action complaint was filed in the United States
District Court for the Southern District of New York against the Goldman Sachs
Group, Inc., Credit Suisse First Boston Corporation, Fleetboston Robertson
Stephens, Inc., Royal Bank of Canada (Dain Rauscher Wessels), SG Cowen
Securities Corporation, UBS Warburg LLC (Warburg Dillon Read LLC), Chase
(Hambrecht & Quist LLC), J.P. Morgan Chase & Co., Lehman Brothers, Inc., Salomon
Smith Barney, Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, the
Company and certain of the Company's officers. This action was brought on behalf
of purchasers of the Company's common stock in the Company's initial public
offering in June 1999 and its secondary offering in September 1999.
Specifically, among other things, this complaint alleged that the prospectus
pursuant to which shares of common stock were sold in the Company's initial
public offering and its subsequent secondary offering contained certain false
and misleading statements or omissions regarding the practices of the Company's
underwriters with respect to their allocation of shares of common stock in these
offerings and their receipt of commissions from customers related to such
allocations. The Company believes the claim is without merit and intends to
defend the action vigorously.
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 prices (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
STOCK OPTION EXCHANGE PROGRAM
On October 25, 2001, the Company announced a voluntary stock option
exchange program for its employees. Under the program, Juniper Networks
employees were given the opportunity, if they chose, to cancel certain
outstanding stock options previously granted to them with an exercise price
equal to or greater than $10.00 in exchange for an equal number of replacement
options to be granted at a future date, at least six months and one day from the
cancellation date, which was November 26, 2001. Options granted to certain
employees in two 50% increments in April 2001 and July 2001 were not eligible
for exchange and, if an employee who received such grants elected to participate
in the exchange program, those options were cancelled in their entirety as a
condition to exchanging eligible options for replacement options. In addition,
those employees electing to participate in the exchange program were required to
exchange all options granted to such employees during the six-month period prior
to the cancellation date (except for those options grants cancelled as described
above). Under the exchange program, options for 23,827,037 shares of the
Company's common stock were tendered and canceled, of which 21,054,076 were
eligible for replacement option grants. Each participant employee will receive,
for each eligible option included in the exchange, a one-for-one replacement
option. The exercise price of each replacement option will be the fair market
value of the Company's common stock on date of grant. The replacement options
will have terms and conditions that are substantially the same as those of the
canceled options. The exchange program is not expected to result in any
additional compensation charges or variable plan accounting.
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.
23
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 146,623,039 shares of common stock for issuance under the 1996 Plan.
At December 31, 2001, 43,147,185 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 2001 and 2000. At
December 31, 2001 and 2000, 475,520 shares and 3,840,162 shares were subject to
repurchase rights under the 1996 Plan. At December 31, 2001 and 2000, 3,853,574
and 3,660,605 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. As of
December 31, 2001, Juniper Networks had authorized 27,904,261 shares of common
stock for issuance under the 2000 Plan. At December 31, 2001, 22,004,181 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. 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 common stock for issuance under the
MMI Plans. No shares are available for future option grants under the MMI Plans.
Pacific Broadband Communications, Inc. 2000 Stock Incentive Plan and 2000
Subplan
In connection with the acquisition of Pacific Broadband Communications,
Inc. ("PBC") in December 2001, the Company assumed all outstanding options under
the PBC 2000 Stock Incentive Plan and 2000 Subplan (collectively, the "PBC
Plans"). Options under the PBC 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 1,443,374 shares of
common stock for issuance under the PBC Plans. No shares are available for
future option grants under the PBC Plans.
24
Option activity under all Plans is summarized as follows:
Outstanding Options
---------------------------------
Number Weighted-Average
of Shares Exercise Price
--------- ----------------
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
Options granted and assumed ....... 15,060,163 $33.22
Options exercised ................. (6,487,771) $ 8.14
Options canceled .................. (28,967,818) $69.25
Balance at December 31, 2001 ...... 32,485,558 $16.97
The following schedule summarizes information about stock options
outstanding under all Plans as of December 31, 2001:
Options Outstanding
Weighted-Average Options Exercisable
---------------------------------------------------- ----------------------------------
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
$ 0.02 -- $ 0.82 6,878,253 6.56 $ 0.32 4,903,611 $ 0.28
$ 1.47 -- $ 3.50 7,835,866 7.34 $ 2.81 3,605,190 $ 2.67
$ 4.67 -- $ 29.19 7,756,094 9.02 $ 17.81 1,197,859 $ 14.38
$ 30.00 -- $ 30.34 379,200 7.74 $ 30.29 194,299 $ 30.30
$ 30.35 -- $ 183.06 9,636,145 7.93 $ 39.18 4,616,701 $ 37.01
$ 0.02 -- $ 183.06 32,485,558 7.75 $ 16.97 14,517,660 $ 14.12
As of December 31, 2000, 8,932,772 options were exercisable at an average
exercise price of $10.85 and as of December 31, 1999, 3,133,192 options were
exercisable at an average exercise price of $0.52.
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, 2001, a total of 805,267 shares had been issued under
the Purchase Plan at an average price of $11.64 per share, and 8,194,733 shares
remained available for future issuance under the Purchase Plan.
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.
25
The fair value of each option granted through December 31, 2001 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: 2001 2000 1999
- ----------------------- ---------- ----------- ----------
Dividend yield ............. -- -- --
Volatility factor .......... 117% 110% 80%
Risk-free interest rate .... 4.06% 5.31% 5.49%
Expected life .............. 3.0 years 3.0 years 3.0 years
Year Ended December 31,
-------------------------------------------------
Purchase Plan: 2001 2000 1999
- ----------------------- ---------- ----------- ----------
Dividend yield ............. -- -- n/a
Volatility factor .......... 117% 110% n/a
Risk-free interest rate .... 3.72% 6.32% n/a
Expected life .............. 1.0 years 1.0 years 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 2001, 2000 and 1999 was $24.42, $56.17 and $8.99
per share, respectively. The weighted average estimated fair value of shares
granted under the Purchase Plan during 2001 and 2000 was $56.30 and $3.71,
respectively.
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,
-------------------------------------------------------
2001 2000 1999
----------- ----------- -----------
Net income (loss):
As reported ........................... $ (13,417) $ 147,916 $ (9,034)
Pro forma ............................. (182,897) (170,670) (43,488)
Basic net income (loss) per share:
As reported ........................... (0.04) 0.49 (0.05)
Pro forma ............................. (0.57) (0.56) (0.23)
Diluted net income (loss) per share:
As reported ........................... (0.04) 0.43 (0.05)
Pro forma ............................. $ (0.57) $ (0.56) $ (0.23)
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At December 31, 2001, Juniper Networks had reserved an aggregate of
112,845,737 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
Networks. Under the plan, employees may contribute up to 20% of their pretax
salaries per year but not more than the statutory limits. Beginning January 1,
2001 Juniper Networks began matching employee contributions. The matching
formula is $0.50 on the dollar up to 6% of eligible pay (up to a maximum of
$2,000). All matching contributions vest immediately. The Company's matching
contributions to the plan totaled $1.4 million in 2001, none in 2000 or 1999.
9. JOINT VENTURE
During the quarter ended June 30, 2001, Juniper Networks and Ericsson AB,
through their respective subsidiaries, entered into a joint venture agreement to
develop and market products for the wireless mobile Internet infrastructure
market, and Juniper Networks began recording its 40% share of the joint
venture's loss. During 2001, the Company's share of the joint venture's loss
totaled approximately $4.1 million, and is recorded as a single line item in the
other income section of the income statement. To date, Juniper Networks has
funded the joint venture in the amount of $4.9 million. In addition to this
joint venture, Ericsson is also a significant reseller of Juniper Networks
representing greater than 10% of our revenues for 2001.
26
10. INCOME TAXES
Significant components of the provision (benefit) for income taxes
attributable to operations are as follows for the year ended December 31, (in
thousands):
2001 2000 1999
------- ------- -------
Federal - Current ..................................... $ 1,181 $ -- $ 700
State - Current ....................................... 1,086 2 800
Foreign - Current ..................................... 2,681 768 925
Income tax benefits attributable to employee stock
plan activity allocated to shareholders' equity 25,006 81,686 --
------- ------- -------
Total provision for income taxes ..................... $29,954 $82,456 $ 2,425
======= ======= =======
Pretax income/(loss) from foreign operations was $13.8 million, ($27.6)
million, and ($10.6) million for fiscal years 2001, 2000, and 1999,
respectively.
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):
2001 2000
--------- ---------
Deferred tax assets:
Net operating loss carryforwards ......................... $ 61,000 $ 92,000
Research and other credit carryforwards .................. 41,013 6,549
Deferred revenue ......................................... 2,217 17,655
Property and equipment basis differences ................. 14,356
Reserves and accruals not currently deductible ........... 69,958 33,594
Other temporary differences .............................. 3,181 2,802
--------- ---------
Total deferred tax assets ..................................... 191,725 152,600
Valuation allowance ........................................... (171,835) (118,994)
--------- ---------
Net deferred tax asset ........................................ 19,890 33,606
Deferred tax liability -- deferred compensation and other (19,890) (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 2008 and 2012,
respectively. The Company has provided a valuation allowance on its net deferred
tax assets because of uncertainty regarding its realizability due to tax losses
caused by employee stock option exercises. The net valuation allowance increased
by $52.8 million in 2001, and by $87.9 million and $13.1 million in 2000 and
1999, respectively. At December 31, 2001, 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):
2001 2000 1999
-------- -------- --------
Expected provision (benefit) at 35% ........................... $ 5,788 $ 80,630 $ (2,313)
Federal alternative minimum tax ............................... -- -- 700
State taxes, net of federal benefit ........................... 1,531 9,000 800
Foreign income at different tax rates ......................... (3,034) -- 925
Nondeductible goodwill and in-process R&D ..................... 17,612 7,700 --
(Benefited) / unbenefited operating and investment losses ..... 16,557 (10,612) 2,313
Research and development credits .............................. (8,756) (4,000) --
Other ......................................................... 256 (262) --
-------- -------- --------
Total ......................................................... $ 29,954 $ 82,456 $ 2,425
======== ======== ========
11. SEGMENT INFORMATION
Juniper Networks operates in one segment, the development, marketing and
technical support 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.
27
Information regarding geographic areas for the years ended December 31 is as
follows (in thousands):
2001 2000 1999
-------- -------- --------
Revenues:
United States ..... $607,610 $437,720 $ 79,904
International ..... 279,412 235,781 22,702
-------- -------- --------
Total ....... $887,022 $673,501 $102,606
======== ======== ========
Revenues are attributed to regions based on the location of the customers.
12. 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,
-------------------------------------------------
2001 2000 1999
--------- --------- ---------
Net income (loss) ...................................... $ (13,417) $ 147,916 $ (9,034)
--------- --------- ---------
Basic and diluted:
Weighted-average shares of common stock
outstanding ....................................... 321,625 315,252 219,304
Less: weighted-average shares subject to
repurchase ........................................ (2,247) (10,871) (29,982)
--------- --------- ---------
Weighted-average shares used in computing basic
net income (loss) per share ....................... 319,378 304,381 189,322
--------- --------- ---------
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 ....................... 319,378 347,858 189,322
--------- --------- ---------
Basic net income (loss) per share .................... $ (0.04) $ 0.49 $ (0.05)
========= ========= =========
Diluted net income (loss) per share .................. $ (0.04) $ 0.43 $ (0.05)
========= ========= =========
For 2001, Juniper Networks has excluded 16,570,000 common stock equivalents
consisting of outstanding stock options and shares subject to repurchase from
the calculation of diluted loss per share because all such securities are
antidilutive in that period due to the net loss. For 1999, Juniper Networks has
excluded 136,552,000 common stock equivalents consisting of 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 that period due to the
net loss. For 2001 and 2000, the convertible subordinate notes were also
excluded from the calculation of diluted loss per share because of the effect of
the assumed conversion of the notes is antidilutive.
13. SUBSEQUENT EVENTS
Beginning on February 13, 2002, a number of purported shareholder class
action lawsuits were filed in the United States District Court for the Northern
District of California against the Company and certain of its officers and
former officers. The lawsuits are essentially identical and purport to bring
suit on behalf of those who purchased the Company's publicly traded securities
between April 12, 2001 and June 7, 2001. The plaintiffs allege that the
defendants made false and misleading statements, assert claims for violations of
the federal securities laws and seek unspecified compensatory damages and other
relief. The Company believes the claims are without merit and intends to defend
the actions vigorously.
28
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, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2001. 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, 2001 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
January 14, 2002,
Except for Note 13, as to which the date is
February 13, 2002
29
JUNIPER NETWORKS, INC.
SUPPLEMENTARY DATA
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
QUARTER ENDED
-------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
2001 2001 2001 2001
---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues.............................................. $ 151,033 $ 201,703 $ 202,181 $ 332,105
Cost of revenues.......................................... 58,783 119,767(1) 80,480 113,741
---------- ----------- ----------- -----------
Gross profit............................................ 92,250 81,936 121,701 218,364
Operating expenses:
Research and development................................ 32,565 37,897 42,077 42,991
Sales and marketing..................................... 29,531 33,591 35,963 41,322
General and administrative.............................. 8,462 9,185 9,439 10,468
Amortization of goodwill, purchased
intangibles and deferred stock
compensation......................................... 27,691 27,966 31,117 36,583
In-process research and development..................... 4,200 -- -- --
Restructuring charge.................................... -- -- 12,340 --
---------- ----------- ----------- -----------
Total operating expenses........................ 102,449 108,639 130,936 131,364
---------- ----------- ----------- -----------
Operating income (loss)................................... (10,199) (26,703) (9,235) 87,000
Other income and expense, net and provision for income
taxes................................................... 5,073 (3,023) (27,896) (28,434)
---------- ----------- ----------- -----------
Net income (loss)......................................... $ (5,126) $ (29,726) $ (37,131) $ 58,566
========== =========== =========== ===========
Basic net income (loss) per share......................... $ (0.02) $ (0.09) $ (0.12) $ 0.19
========== =========== =========== ===========
Diluted net income (loss) per share....................... $ (0.02) $ (0.09) $ (0.12) $ 0.17
========== =========== =========== ===========
(1) The cost of revenues for the quarter ended September 30, 2001 includes a
$39.9 million contract manufacturer charge
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
Other income and expense, net and provision for income
taxes...................................................... (29,297) (18,136) (926) 2,186
---------- ----------- ----------- -----------
Net income................................................... $ 62,157 $ 58,071 $ 19,617 $ 8,071
========== =========== =========== ===========
Basic net income per share................................... $ 0.20 $ 0.19 $ 0.06 $ 0.03
========== =========== =========== ===========
Diluted net income per share................................. $ 0.18 $ 0.17 $ 0.06 $ 0.02
========== =========== =========== ===========
30