UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-34501

JUNIPER NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Delaware		77-0422528
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)
1194 North Mathilda Avenue
Sunnyvale, California 94089		(408) 745-2000
(Address of principal executive offices,		(Registrant’s telephone number,
including zip code)		including area code)

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o		Smaller Reporting Company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     There were approximately 519,918,000 shares of the Company’s Common Stock, par value $0.00001, outstanding as of July 30, 2010.

 

 

Table of Contents

PART I — FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Condensed Consolidated Statements of Operations			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Cash Flows			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			62
Item 4. Controls and Procedures			63
PART II — OTHER INFORMATION			64
Item 1. Legal Proceedings			64
Item 1A. Risk Factors			64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			77
Item 6. Exhibits			78
SIGNATURES			79
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Juniper Networks, Inc.

Condensed Consolidated Statements of Operations

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Net revenues:
Product		$	774,058			$	606,959			$	1,495,259			$	1,194,822
Service			204,242				179,404				395,659				355,724
Total net revenues			978,300				786,363				1,890,918				1,550,546
Cost of revenues:
Product			231,752				207,576				454,133				400,637
Service			86,610				72,405				164,826				141,235
Total cost of revenues			318,362				279,981				618,959				541,872
Gross margin			659,938				506,382				1,271,959				1,008,674
Operating expenses:
Research and development			224,768				183,894				431,762				369,294
Sales and marketing			202,303				176,555				394,678				364,419
General and administrative			45,880				39,175				89,018				78,386
Amortization of purchased intangible assets			1,204				3,539				2,341				7,929
Restructuring charges			264				7,529				8,369				11,758
Acquisition-related charges			541				—				541				—
Total operating expenses			474,960				410,692				926,709				831,786
Operating income			184,978				95,690				345,250				176,888
Interest and other income, net			833				2,898				2,292				4,848
Gain (loss) on equity investments			3,232				(1,625	)			3,232				(3,311	)
Income before income taxes and noncontrolling interest			189,043				96,963				350,774				178,425
Income tax provision			58,700				82,194				55,821				168,116
Consolidated net income			130,343				14,769				294,953				10,309
Adjust for net loss (income) attributable to noncontrolling interest			168				—				(1,327	)			—
Net income attributable to Juniper Networks		$	130,511			$	14,769			$	293,626			$	10,309
Net income per share attributable to Juniper Networks common stockholders:
Basic		$	0.25			$	0.03			$	0.56			$	0.02
Diluted		$	0.24			$	0.03			$	0.55			$	0.02
Shares used in computing net income per share:
Basic			524,463				523,105				522,812				523,754
Diluted			538,947				532,850				537,989				531,624

See accompanying Notes to Condensed Consolidated Financial Statements

Juniper Networks, Inc.

Condensed Consolidated Balance Sheets

		June 30,				December 31,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	1,660,086			$	1,604,723
Short-term investments			563,315				570,522
Accounts receivable, net of allowances			391,545				458,652
Deferred tax assets, net			224,792				196,318
Prepaid expenses and other current assets			59,568				48,744
Total current assets			2,899,306				2,878,959
Property and equipment, net			466,172				455,651
Long-term investments			512,817				483,505
Restricted cash			73,439				53,732
Purchased intangible assets, net			23,360				13,834
Goodwill			3,711,726				3,658,602
Long-term deferred tax assets, net			8,205				10,555
Other long-term assets			49,302				35,425
Total assets		$	7,744,327			$	7,590,263
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	243,228			$	242,591
Accrued compensation			206,528				176,551
Accrued warranty			38,280				38,199
Deferred revenue			544,578				571,652
Income taxes payable			53,577				34,936
Accrued litigation settlements			—				169,330
Other accrued liabilities			134,828				142,526
Total current liabilities			1,221,019				1,375,785
Long-term deferred revenue			223,217				181,937
Long-term income tax payable			94,950				170,245
Other long-term liabilities			33,336				37,531
Commitments and Contingencies – See Note 15
Juniper Networks stockholders’ equity:
Convertible preferred stock, $0.00001 par value; 10,000 shares authorized; none issued and outstanding			—				—
Common stock, $0.00001 par value; 1,000,000 shares authorized; 521,626 shares and 519,341 shares issued and outstanding at June 30, 2010, and December 31, 2009, respectively			5				5
Additional paid-in capital			9,363,244				9,060,089
Accumulated other comprehensive loss			(10,667	)			(1,433	)
Accumulated deficit			(3,181,733	)			(3,236,525	)
Total Juniper Networks stockholders’ equity			6,170,849				5,822,136
Noncontrolling interest			956				2,629
Total equity			6,171,805				5,824,765
Total liabilities and stockholders’ equity		$	7,744,327			$	7,590,263

See accompanying Notes to Condensed Consolidated Financial Statements

Juniper Networks, Inc.

Condensed Consolidated Statements of Cash Flows

		Six Months Ended June 30,
		2010				2009
Cash flows from operating activities:
Consolidated net income		$	294,953			$	10,309
Adjustments to reconcile consolidated net income to net cash from operating activities:
Depreciation and amortization			72,748				75,355
Share-based compensation			85,164				67,091
(Gain) loss on equity investments			(3,232	)			3,311
Change in excess tax benefits from share-based compensation			(28,287	)			7,197
Deferred income taxes			(25,594	)			69,288
Changes in operating assets and liabilities:
Accounts receivable, net			67,168				840
Prepaid expenses and other assets			(15,712	)			(6,116	)
Accounts payable			(6,331	)			(10,488	)
Accrued compensation			29,977				(10,774	)
Accrued litigation settlements			(169,330	)			—
Income taxes payable			(683	)			37,412
Other accrued liabilities			(4,987	)			10,796
Deferred revenue			14,035				58,325
Net cash provided by operating activities			309,889				312,546
Cash flows from investing activities:
Purchases of property and equipment, net			(83,157	)			(79,424	)
Purchases of trading investments			(1,690	)			—
Purchases of available-for-sale investments			(932,004	)			(811,449	)
Proceeds from sales of available-for-sale investments			354,890				109,820
Proceeds from maturities of available-for-sale investments			557,363				137,050
Payment for business acquisition, net of cash and cash equivalents acquired			(64,215	)			—
Changes in restricted cash			(12,296	)			(1,275	)
Purchases of privately-held equity investments, net			(727	)			(1,191	)
Net cash used in investing activities			(181,836	)			(646,469	)
Cash flows from financing activities:
Proceeds from issuance of common stock			176,662				50,678
Purchases and retirement of common stock			(253,672	)			(169,370	)
Change in customer financing arrangements			(20,967	)			(5,121	)
Change in excess tax benefits from share-based compensation			28,287				(7,197	)
Return of capital to noncontrolling interest			(3,000	)			—
Net cash used in financing activities			(72,690	)			(131,010	)
Net increase (decrease) in cash and cash equivalents			55,363				(464,933	)
Cash and cash equivalents at beginning of period			1,604,723				2,019,084
Cash and cash equivalents at end of period		$	1,660,086			$	1,554,151

See accompanying Notes to Condensed Consolidated Financial Statements

Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Basis of Presentation

The unaudited Condensed Consolidated Financial Statements of Juniper Networks, Inc. (“Juniper Networks” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information as well as the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010, or any future period. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

As of June 30, 2010, the Company owned a 60 percent interest in a joint venture with Nokia Siemens Networks B.V. (“NSN”). Given the Company’s majority ownership interest in the joint venture, the accounts of the joint venture have been consolidated with the accounts of the Company, and a noncontrolling interest has been recorded for the noncontrolling investor’s interests in the net assets and operations of the joint venture.

Reclassifications

In the first quarter of 2010, the Company reclassified certain selling and marketing costs that were previously reported as cost of service revenues as sales and marketing expense. Accordingly, $6.0 million and $12.6 million of costs reported in the three and six months ended June 30, 2009, respectively, have been reclassified from cost of service revenues to sales and marketing expense to conform to the current period’s presentation. The reclassification did not impact the Company’s previously reported net revenues, segment results, operating income, net income, or earnings per share.

Note 2. Summary of Significant Accounting Policies

Recent Accounting Policy Changes

Revenue Recognition

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”). ASU 2009-13 changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable to be based on the relative selling price. Under the new standard, the Company allocates the total arrangement consideration to each separable element of an arrangement based upon the relative selling price of each element. Arrangement consideration allocated to undelivered elements is deferred until delivery. Concurrently with issuing ASU 2009-13, the FASB also issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements” (“ASU 2009-14”). ASU 2009-14 excludes software that is contained on a tangible product from the scope of software revenue guidance if the software component and the non-software component function together to deliver the tangible products’ essential functionality. The Company early adopted these standards on a prospective basis as of the beginning of fiscal 2010 for new and materially modified arrangements originating after December 31, 2009.

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

As a result of the adoption of ASU 2009-13 and ASU 2009-14, net revenues for the three and six months ended June 30, 2010 were approximately $53 million and $78 million higher than the net revenues that would have been recorded under the previous accounting rules. The increase in revenues was due to recognition of revenue for products booked and shipped during these periods which consisted primarily of $38 million and $60 million for the three- and six-month periods ended June 30, 2010, respectively, related to undelivered product commitments for which the Company was unable to demonstrate fair value pursuant to the previous accounting standards. The remainder of the increase in revenue for the three- and six-month periods was due to products sold into multiple-year service arrangements which were recognized ratably under the previous accounting standards and for the change in the Company’s allocation methodology from the residual method to the relative selling price method as prescribed by the new standard.

Revenue is recognized when all of the following criteria have been met:

	•		Persuasive evidence of an arrangement exists. The Company generally relies upon sales contracts, or agreements, and customer purchase orders to determine the existence of an arrangement.
	•		Delivery has occurred. The Company uses shipping terms and related documents, or written evidence of customer acceptance, when applicable, to verify delivery or performance. In instances where the Company has outstanding obligations related to product delivery or the final acceptance of the product, revenue is deferred until all the delivery and acceptance criteria have been met.
	•		Sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment.
	•		Collectability is reasonably assured. The Company assesses collectability based on the creditworthiness of the customer as determined by our credit checks and the customer’s payment history. The Company records accounts receivable net of allowance for doubtful accounts, estimated customer returns and pricing credits.

For fiscal 2010 and future periods, pursuant to the guidance of ASU 2009-13, when a sales arrangement contains multiple elements and software and non-software components function together to deliver the tangible products’ essential functionality, the Company allocates revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”) if available, third party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. The Company then recognizes revenue on each deliverable in accordance with its policies for product and service revenue recognition. VSOE of selling price is based on the price charged when the element is sold separately. In determining VSOE, the Company requires that a substantial majority of the selling prices fall within a reasonable range based on historical discounting trends for specific products and services. TPE of selling price is established by evaluating largely interchangeable competitor products or services in stand-alone sales to similarly situated customers. However, as the Company’s products contain a significant element of proprietary technology and its solutions offer substantially different features and functionality, the comparable pricing of products with similar functionality typically cannot be obtained. Additionally, as the Company is unable to reliably determine what competitors products’ selling prices are on a stand-alone basis, the Company is not typically able to determine TPE. The best estimate of selling price is established considering multiple factors including, but not limited to pricing practices in different geographies and through different sales channels, gross margin objectives, internal costs, competitor pricing strategies, and industry technology lifecycles.

In multiple element arrangements where more-than-incidental software deliverables are included, revenue is allocated to each separate unit of accounting for each of the non-software deliverables and to the software deliverables as a group using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. If the arrangement contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is then allocated to each software deliverable using the guidance for recognizing software revenue, as amended.

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

The Company limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products or services, future performance obligation, or subject to customer-specific return or refund privileges. The Company evaluates each deliverable in an arrangement to determine whether they represent separate units of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value and there are no customer-negotiated refunds or return rights for the delivered elements. If the arrangement includes a customer-negotiated refund or return right relative to the delivered item, and the delivery and performance of the undelivered item is considered probable and substantially in the Company’s control, the delivered element constitutes a separate unit of accounting. In circumstances when the aforementioned criteria are not met, the deliverable is combined with the undelivered elements, and the allocation of the arrangement consideration and revenue recognition is determined for the combined unit as a single unit. Allocation of the consideration is determined at arrangement inception on the basis of each unit’s relative selling price. The new standards do not generally change the units of accounting for the Company’s revenue transactions. The Company cannot reasonably estimate the effect of adopting these standards on future financial periods as the impact will vary depending on the nature and volume of new or materially modified deals in any given period.

For transactions entered into prior to January 1, 2010, revenues for arrangements with multiple elements, such as sales of products that include services, are allocated to each element using the residual method based on the VSOE of fair value of the undelivered items pursuant to Accounting Standards Codification (“ASC”) Topic 985-605, Software – Revenue Recognition. Under the residual method, the amount of revenue allocated to delivered elements equals the total arrangement consideration less the aggregate fair value of any undelivered elements. If VSOE of one or more undelivered items does not exist, revenue from the entire arrangement is deferred and recognized at the earlier of: (i) delivery of those elements or (ii) when fair value can be established unless maintenance is the only undelivered element, in which case, the entire arrangement fee is recognized ratably over the contractual support period.

The Company accounts for multiple agreements with a single customer as one arrangement if the contractual terms and/or substance of those agreements indicate that they may be so closely related that they are, in effect, parts of a single arrangement. The Company’s ability to recognize revenue in the future may be affected if actual selling prices are significantly less than fair value. In addition, the Company’s ability to recognize revenue in the future could be impacted by conditions imposed by its customers.

For sales to direct end-users, value-added resellers, and original equipment manufacturer (“OEM”) partners, the Company recognizes product revenue upon transfer of title and risk of loss, which is generally upon shipment. It is the Company’s practice to identify an end-user prior to shipment to a value-added reseller. For the Company’s end-users and value-added resellers, there are no significant obligations for future performance such as rights of return or pricing credits. The Company’s agreements with its OEM partners may allow future rights of returns. A portion of the Company’s sales is made through distributors under agreements allowing for pricing credits or rights of return. Product revenue on sales made through these distributors is recognized upon sell-through as reported by the distributors to the Company. Deferred revenue on shipments to distributors reflects the effects of distributor pricing credits and the amount of gross margin expected to be realized upon sell-through. Deferred revenue is recorded net of the related product costs of revenue.

The Company records reductions to revenue for estimated product returns and pricing adjustments, such as rebates and price protection, in the same period that the related revenue is recorded. The amount of these reductions is based on historical sales returns and price protection credits, specific criteria included in rebate agreements, and other factors known at the time. Should actual product returns or pricing adjustments differ from estimates, additional reductions to revenue may be required. In addition, the Company reports revenues net of sales taxes. Service revenues include revenue from maintenance, training, and professional services. Maintenance is offered under renewable contracts. Revenue from maintenance service contracts is deferred and is recognized ratably over the contractual support period, which is generally one to three years. Revenue from training and professional services is recognized as the services are completed or ratably over the contractual period, which is generally one year or less.

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

The Company sells certain interests in accounts receivable on a non-recourse basis as part of customer financing arrangements primarily with one major financing company. Cash received under this arrangement in advance of revenue recognition is recorded as short-term debt.

Recent Accounting Pronouncements

In May 2010, the FASB issued ASU No. 2010-19, Topic 830 — Foreign Currency Issues: Multiple Foreign Currency Exchange Rates—An announcement made by the staff of the U.S. Securities and Exchange Commission (“ASU 2010-19”), which incorporates the SEC Staff Announcement made at the March 18, 2010 meeting of the FASB Emerging Issues Task Force (“EITF”). The Staff Announcement provided the SEC staff’s view on certain foreign currency issues related to investments in Venezuela. This guidance is effective as of the announcement date, March 18, 2010. The Company’s adoption of ASU 2010-19 did not have an impact on the Company’s consolidated results of operations or financial condition.

In April 2010, the FASB issued ASU No. 2010-17, Topic 605 — Revenue Recognition – Milestone Method (“ASU 2010-17”), which provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. The amendments in ASU 2010-17 are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years beginning on or after June 15, 2010. Early adoption is permitted; however, if a Company elects to early adopt, the amendment must be applied retrospectively from the beginning of the year of adoption. The Company’s adoption of ASU 2010-17 is not expected to have an impact on the Company’s consolidated results of operations or financial condition.

In April 2010, the FASB issued ASU No. 2010-13, Topic 718 — Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (“ASU 2010-13”), which provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment award that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those years beginning on or after December 15, 2010. The Company’s adoption of ASU 2010-13 is not expected to have an impact on the Company’s consolidated results of operations or financial condition.

In January 2010, the FASB issued ASU No. 2010-06, Topic 820 — Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which provides additional fair value measurement disclosures and clarifies certain existing disclosure requirements. Except for the requirement to disclose purchases, sales, issuances, and settlements of Level 3 measurements on a gross basis, the disclosure and clarification requirements are effective for interim and annual reporting periods beginning after December 15, 2009. The requirement to separately disclose purchases, sales, issuances, and settlements of recurring Level 3 measurements on a gross basis is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. ASU 2010-06 relates to disclosure requirements only and as such does not impact the Company’s consolidated results of operations or financial condition.

In December 2009, the FASB issued ASU No. 2009-17, Topic 810 — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”), which incorporated the revised accounting guidance of variable interest entities into FASB ASC Topic 810, Consolidation. Initially issued by the FASB in June 2009, the revised guidance eliminates the qualifying special-purpose entities (“QSPE”) concept, amends the provisions on determining whether an entity is a variable interest entity and would require consolidation, and requires additional disclosures. This guidance is effective for a company’s first annual reporting period that begins after November 15, 2009, interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. The Company’s adoption of ASU 2009-17 during the first quarter of 2010 did not impact its consolidated results of operations or financial condition.

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

In December 2009, the FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets (“ASU 2009-16”), which incorporated the revised accounting guidance for the transfers of financial assets into FASB ASC Topic 860, Transfers and Servicing. Initially issued by the FASB in June 2009, the revised guidance eliminates the concept of QSPE, removes the scope exception for QSPE when applying the accounting guidance related to variable interest entities, changes the requirements for derecognizing financial assets, and requires additional disclosures. This accounting guidance is effective for a company’s first annual and interim reporting periods that begin after November 15, 2009. This accounting guidance is applied to transfers of financial assets occurring on or after the effective date. The Company’s adoption of ASU 2009-16 during the first quarter of 2010 did not impact its consolidated results of operations or financial condition.

Note 3. Business Combination

On April 19, 2010 (the “acquisition date”), the Company acquired 100% of the equity securities of Ankeena Networks, Inc. (“Ankeena”), a privately-held provider of new media infrastructure technology. The acquisition will provide the Company with strong video delivery capabilities, as Ankeena’s products optimize web-based video delivery, provide key components of a content delivery network architecture/solution, improve consumers’ online video experience, and reduce service provider and carrier service provider infrastructure costs for providing web-based video.

As of the acquisition date, fair value of the consideration related to the acquisition consisted of the following (in millions):

		Amount
Total consideration:
Cash		$	66.5
Assumed stock option and RSU awards allocated to purchase price(1)			2.4
Total		$	68.9

The results of Ankeena’s operations have been included in the consolidated financial statements since the acquisition date. The financial impact of Ankeena from the acquisition date to the period ending June 30, 2010, was immaterial to the Company’s consolidated income statement.

In connection with the acquisition of Ankeena, the Company assumed net assets of $3.6 million, including cash and cash equivalents of $2.3 million, and recognized goodwill of $53.1 million, which was assigned to the Company’s Infrastructure segment. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of Ankeena, and the economies of scale expected from combining the operations of Ankeena and the Company. None of the goodwill is expected to be deductible for income tax purposes.

In addition, the Company recorded $12.2 million in purchased intangible assets from the Ankeena acquisition. The following table presents details of the acquired intangible assets (in millions, except years):

		Estimated Useful
		Life (In Years)				Amount
Existing technology			4.0			$	5.2
In-process research and development			4.0				3.8
Core technology			4.0				3.2
Total			4.0			$	12.2

Existing technology consists of an acquired product that had reached technological feasibility and was valued using the discounted cash flow method (“DCF”) which involved estimating the sum of the present value of cash flow attributable to the technology.

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

Acquired in-process research and development (“IPR&D”) consists of existing research and development projects at the time of the acquisition. Projects that qualify as IPR&D assets represent those that have not yet reached technological feasibility and have no alternative future use. IPR&D acquired was valued using the DCF method, which involved estimating the sum of the present value of cash flow attributable to the technology. After initial recognition, acquired IPR&D assets are accounted for as indefinite-lived intangible assets. Development costs incurred after acquisition on acquired developmental projects are expensed as incurred. Upon completion of development, acquired IPR&D assets are considered amortizable finite-lived assets. At the close of the acquisition, total IPR&D assets related to the Ankeena acquisition was $3.8 million and estimated future cost to complete these IPR&D projects was $1.6 million.

Core technology represents a combination of processes and trade secrets that were used for existing products and planned future releases. It was valued using the profit allocation method, which involved estimating the profit saved due to ownership of an asset or license to the asset versus paying for the right to use that asset.

Purchased intangibles with finite lives will be amortized on a straight-line basis over their respective estimated useful lives.

The Company recognized $0.5 million of acquisition-related costs that were expensed in the current period. These costs are reported in its condensed consolidated income statement as acquisition-related charges.

Prior to the acquisition, the Company had a $2.0 million, or a 7.7% ownership interest in Ankeena and accounted for it as a privately-held equity investment. As of the acquisition-date, the fair value of this equity interest in Ankeena was $5.2 million based on a noncontrolling interest fair value and was included in the purchase price. The Company recognized a $3.2 million gain, which was reported within gain (loss) on equity investments in the condensed consolidated income statement.

Note 4. Net Income per Share

Basic net income per share and diluted net income per share are computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for that period. Diluted net income per share is computed giving effect to all dilutive potential shares that were outstanding during the period. Dilutive potential common shares consist of common shares issuable upon exercise of stock options, vesting of restricted stock units (“RSUs”), and performance share awards (“PSAs”).

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

The following table presents the calculation of basic and diluted net income per share attributable to Juniper Networks (in millions, except per share amounts):

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Numerator:
Net income attributable to Juniper Networks		$	130.5			$	14.8			$	293.6			$	10.3
Denominator:
Weighted-average shares used to compute basic net income per share			524.5				523.1				522.8				523.8
Effect of dilutive securities:
Employee stock awards			14.4				9.8				15.2				7.8
Weighted-average shares used to compute diluted net income per share			538.9				532.9				538.0				531.6
Net income per share attributable to Juniper Networks common stockholders:
Basic		$	0.25			$	0.03			$	0.56			$	0.02
Diluted		$	0.24			$	0.03			$	0.55			$	0.02

The Company excludes options with exercise prices that are greater than the average market price from the calculation of diluted net income per share because their effect would be anti-dilutive. The Company includes the shares underlying PSA awards in the calculation of diluted net income per share when they become contingently issuable and excludes such shares when they are not contingently issuable. Employee stock option awards and PSAs covering approximately 22.0 million and 22.4 million shares of the Company’s common stock were outstanding but were not included in the computation of diluted earnings per share for the three and six months ended June 30, 2010, respectively, because their effect would have been anti-dilutive. Employee stock awards covering approximately 43.5 million shares and 60.5 million shares of the Company’s common stock in the three and six months ended June 30, 2009, respectively, were outstanding, but were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

Note 5. Cash, Cash Equivalents, and Investments

Cash and Cash Equivalents

The following table summarizes the Company’s cash and cash equivalents (in millions):

		As of
		June 30,				December 31,
		2010				2009
Cash and cash equivalents:
Cash:
Demand deposits		$	455.9			$	427.2
Time deposits			220.7				127.9
Total cash			676.6				555.1
Cash equivalents:
U.S. government securities			107.6				—
Government-sponsored enterprise obligations			12.0				—
Certificate of deposit			10.0				—
Commercial paper			44.0				17.0
Money market funds			809.9				1,032.6
Total cash equivalents			983.5				1,049.6
Total cash and cash equivalents		$	1,660.1			$	1,604.7

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

Investments in Available-for-Sale and Trading Securities

The following tables summarize the Company’s unrealized gains and losses, and fair value of investments designated as trading or available-for-sale, as of June 30, 2010, and December 31, 2009 (in millions):

						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated Fair
		Cost				Gains				Losses				Value
As of June 30, 2010:
Fixed income securities:
U.S. government securities		$	231.8			$	0.3			$	—			$	232.1
Government-sponsored enterprise obligations			225.9				0.6				—				226.5
Foreign government debt securities			52.4				0.2				—				52.6
Certificate of deposit			37.1				—				—				37.1
Commercial paper			22.1				—				—				22.1
Asset-backed securities			42.1				—				—				42.1
Corporate debt securities			451.6				2.2				(0.2	)			453.6
Total fixed income securities			1,063.0				3.3				(0.2	)			1,066.1
Publicly-traded equity securities			11.4				—				(1.4	)			10.0
Total		$	1,074.4			$	3.3			$	(1.6	)		$	1,076.1
Reported as:
Short-term investments		$	563.6			$	1.1			$	(1.4	)		$	563.3
Long-term investments			510.8				2.2				(0.2	)			512.8
Total		$	1,074.4			$	3.3			$	(1.6	)		$	1,076.1

						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated Fair
		Cost				Gains				Losses				Value
As of December 31, 2009:
Fixed income securities:
U.S. government securities		$	245.0			$	0.1			$	—			$	245.1
Government-sponsored enterprise obligations			212.0				0.6				(0.3	)			212.3
Foreign government debt securities			96.4				0.3				(0.1	)			96.6
Corporate debt securities			488.2				2.0				(0.3	)			489.9
Total fixed income securities			1,041.6				3.0				(0.7	)			1,043.9
Publicly-traded equity securities			10.1				—				—				10.1
Total		$	1,051.7			$	3.0			$	(0.7	)		$	1,054.0
Reported as:
Short-term investments		$	569.5			$	1.0			$	—			$	570.5
Long-term investments			482.2				2.0				(0.7	)			483.5
Total		$	1,051.7			$	3.0			$	(0.7	)		$	1,054.0

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

The following table presents the Company’s maturities of its available-for-sale investments and publicly-traded securities as of June 30, 2010 (in millions):

						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated Fair
		Cost				Gains				Losses				Value
Fixed income securities:
Due within one year		$	552.2			$	1.1			$	—			$	553.3
Due between one and five years			510.8				2.2				(0.2	)			512.8
Total fixed income securities			1,063.0				3.3				(0.2	)			1,066.1
Publicly-traded equity securities			11.4				—				(1.4	)			10.0
Total		$	1,074.4			$	3.3			$	(1.6	)		$	1,076.1

The following table presents the Company’s trading and available-for sale investments that are in an unrealized loss position as of June 30, 2010 (in millions):

		Less than 12 Months								12 Months or Greater								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Loss				Fair Value				Loss				Fair Value				Loss
Corporate debt securities		$	83.8			$	(0.1	)		$	19.5			$	(0.1	)		$	103.3			$	(0.2	)
U.S. government securities (1)			84.0				—				—				—				84.0				—
Government-sponsored enterprise obligations (1)			27.1				—				3.0				—				30.1				—
Foreign government debt securities (1)			12.4				—				—				—				12.4				—
Certificate of deposit (1)			14.1				—				—				—				14.1				—
Commercial paper (1)			5.0				—				—				—				5.0				—
Asset-backed securities (1)			12.6				—				—				—				12.6				—
Publicly-traded equity securities			4.1				(1.4	)			—				—				4.1				(1.4	)
Total		$	243.1			$	(1.5	)		$	22.5			$	(0.1	)		$	265.6			$	(1.6	)

The Company had 41 and 52 investments that were in an unrealized loss position as of June 30, 2010, and December 31, 2009, respectively. The gross unrealized losses related to these investments were primarily due to changes in interest rates. The contractual terms of fixed income securities do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. For the fixed income securities and publicly-traded equity securities that have unrealized losses, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. The Company did not consider these investments to be other-than-temporarily impaired as of June 30, 2010, and December 31, 2009, respectively. The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company aggregates its investments by category and length of time the securities have been in a continuous unrealized loss position to facilitate its evaluation.

Privately-Held Equity Investments

The Company’s minority equity investments in privately-held companies are carried at cost, as the Company does not have a controlling interest and does not have the ability to exercise significant influence over these companies. The Company adjusts its privately-held equity investments for any impairment if the fair value exceeds the carrying value of the respective assets.

As of June 30, 2010, and December 31, 2009, the carrying values of the Company’s minority equity investments in privately-held companies of $17.1 million and $13.9 million, respectively, were included in other long-term assets in the condensed consolidated balance sheets. During the three and six months ended June 30, 2010, the Company

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

invested $0.5 million and $5.2 million in privately-held companies, respectively, and recognized a gain of $3.2 million from its minority equity investments in Ankeena upon the acquisition of Ankeena.

During the three and six months ended June 30, 2009, the Company recognized a loss of $1.6 million and $3.3 million, respectively, due to the impairment of its minority equity investments in privately-held companies that the Company judged to be other than temporary. The Company invested $2.2 million in privately-held companies during the six months ended June 30, 2009. Additionally, during the six months ended June 30, 2009, the Company had a minority equity investment in a privately-held company that was acquired by a publicly-traded company for which the Company received a cash payment of $1.0 million and $1.0 million in common stock of the acquiring company, which is classified as an available-for-sale investment.

Restricted Cash

Restricted cash consists of cash and investments held for escrow accounts required by certain acquisitions completed in 2005 and 2010, the India Gratuity Trust and the Israel Retirement Trust which cover statutory severance obligations in the event of termination of the Company’s India and Israel employees, respectively, and the Directors & Officers (“D&O”) indemnification trust. During the three and six months ended June 30, 2010, the Company increased its restricted cash by $78.9 million and $80.5 million, respectively, primarily for the escrow account required by the acquisition of Ankeena that was completed in April 2010, and to a lesser extent for the Israel Retirement Trust established in the first quarter of 2010 to satisfy statutory severance obligations in the event of termination of the Company’s Israeli employees. During the three and six months ended June 30, 2010, the Company distributed approximately $60.8 million from its restricted accounts, mainly due to the Ankeena acquisition. In connection with the acquisition, the Company agreed to pay from escrow a total amount of $10.7 million, representing the cash value of unvested restricted shares in Ankeena as of April 8, 2010, to certain former Ankeena employees. As of June 30, 2010, the Company expects to release $9.5 million from escrow as these restricted shares vest over the course of the next two years.

The following table summarizes the Company’s restricted cash as reported in the condensed consolidated balance sheets (in millions):

		As of
		June 30,				December 31,
		2010				2009
Restricted cash:
Demand deposits		$	20.2			$	3.8
Total restricted cash			20.2				3.8
Restricted investments:
U.S. government securities			0.6				19.8
Corporate debt securities			2.6				—
Money market funds			50.0				30.1
Total restricted investments			53.2				49.9
Total restricted cash and investments		$	73.4			$	53.7

As of June 30, 2010, and December 31, 2009, the unrealized gains and losses related to restricted investments were immaterial.

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

Note 6. Fair Value Measurements

The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. These inputs are valued using market based approaches.

Level 3 – Inputs are unobservable inputs based on the Company’s assumptions. These inputs, if any, are valued using internal financial models.

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables provide a summary of assets measured at fair value on a recurring basis and their presentation on the Company’s condensed consolidated balance sheets (in millions):

		Fair Value Measurements at June 30, 2010 Using
						Significant				Significant
		Quoted Prices in				Other				Other
		Active Markets				Observable				Unobservable
		For Identical				Remaining				Remaining
		Assets				Inputs				Inputs				Total
		(Level 1)				(Level 2)				(Level 3)
Trading securities:
Mutual funds		$	5.9			$	—			$	—			$	5.9
Total trading securities			5.9				—				—				5.9
Available-for-sale debt securities:
U.S. government securities (1)			101.8				238.5				—				340.3
Government sponsored enterprise obligation			207.5				31.0				—				238.5
Foreign government debt securities			21.3				31.3				—				52.6
Commercial paper			—				66.1				—				66.1
Corporate debt securities (2)			2.6				453.6				—				456.2
Certificate of deposit			—				47.1				—				47.1
Asset backed securities			—				42.1				—				42.1
Money market funds (3)			859.9				—				—				859.9
Total available-for-sale debt securities			1,193.1				909.7				—				2,102.8
Available-for-sale equity securities:
Technology securities			4.1				—				—				4.1
Total available-for-sale equity securities			4.1				—				—				4.1
Total available-for-sale securities			1,197.2				909.7				—				2,106.9
Derivative assets:
Foreign exchange contracts			—				0.2				—				0.2
Total derivative assets			—				0.2				—				0.2
Total assets measured at fair value		$	1,203.1			$	909.9			$	—			$	2,113.0

		Fair Value Measurements at June 30, 2010 Using
		Quoted Prices in				Significant Other				Significant Other
		Active Markets				Observable				Unobservable
		For Identical				Remaining				Remaining
		Assets				Inputs				Inputs				Total
		(Level 1)				(Level 2)				(Level 3)
Reported as:
Cash equivalents		$	809.9			$	173.6			$	—			$	983.5
Short-term investments			165.1				398.2				—				563.3
Long-term investments			175.5				337.3				—				512.8
Restricted cash			52.6				0.6				—				53.2
Prepaid expenses and other current assets			—				0.2				—				0.2
Total assets measured at fair value		$	1,203.1			$	909.9			$	—			$	2,113.0

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

		Fair Value Measurements at December 31, 2009 Using
		Quoted Prices in				Significant Other				Significant Other
		Active Markets				Observable				Unobservable
		For Identical				Remaining				Remaining
		Assets				Inputs				Inputs				Total
		(Level 1)				(Level 2)				(Level 3)
Reported as:
Cash equivalents		$	1,032.6			$	17.0			$	—			$	1,049.6
Short-term investments			101.3				469.2				—				570.5
Long-term investments			181.2				302.3				—				483.5
Restricted cash			49.9				—				—				49.9
Total assets measured at fair value		$	1,365.0			$	788.5			$	—			$	2,153.5

The following tables provide a summary of the liabilities measured at fair value on a recurring basis and their presentation on the Company’s condensed consolidated balance sheets (in millions):

		Fair Value Measurements at June 30, 2010 Using
		Quoted
		Prices in								Significant
		Active				Significant Other				Other
		Markets For				Observable				Unobservable
		Identical				Remaining				Remaining
		Liabilities				Inputs				Inputs				Total
		(Level 1)				(Level 2)				(Level 3)
Derivative liabilities:
Foreign exchange contracts		$	—			$	(1.4	)		$	—			$	(1.4	)
Total derivative liabilities			—				(1.4	)			—				(1.4	)
Total liabilities measured at fair value		$	—			$	(1.4	)		$	—			$	(1.4	)

		Fair Value Measurements at June 30, 2010 Using
		Quoted Prices in				Significant Other				Significant Other
		Active Markets				Observable				Unobservable
		For Identical				Remaining				Remaining
		Liabilities				Inputs				Inputs				Total
		(Level 1)				(Level 2)				(Level 3)
Reported as:
Other accrued liabilities		$	—			$	(1.4	)		$	—			$	(1.4	)
Total liabilities measured at fair value		$	—			$	(1.4	)		$	—			$	(1.4	)

		Fair Value Measurements at December 31, 2009 Using
		Quoted Prices in				Significant Other				Significant Other
		Active Markets				Observable				Unobservable
		For Identical				Remaining				Remaining
		Liabilities				Inputs				Inputs				Total
		(Level 1)				(Level 2)				(Level 3)
Reported as:
Other accrued liabilities		$	—			$	(1.3	)		$	—			$	(1.3	)
Total liabilities measured at fair value		$	—			$	(1.3	)		$	—			$	(1.3	)

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

The Company’s policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstances that caused the transfer. During the three and six months ended June 30, 2010, the Company had no transfers between levels of the fair value hierarchy of its assets or liabilities measured at fair value.

Assets Measured at Fair Value on a Nonrecurring Basis

The following table presents the Company’s assets that are measured at fair value on a nonrecurring basis at least annually or on a quarterly basis, if impairment is indicated (in millions):

Fair Value Measurements Using

Quoted

Total (Losses)

Total (Losses)

Prices in

Significant

Significant

for

for

Active

Other

Other

the Three

the Six

Carrying

Markets

Observable

Unobservable

Months

Months

Value as of

for Identical

Remaining

Remaining

Ended

Ended

June 30, 2010

Assets

Inputs

Inputs

June 30, 2010

June 30, 2010

(Level 1)

(Level 2)

(Level 3)

Privately-held equity investments

$

0.7

$

—

$

—

$

0.7

$

—

$

—

Total

$

0.7

$

—

$

—

$

0.7

$

—

$

—

						Fair Value Measurements Using
						Quoted												Total (Losses)				Total (Losses)
						Prices in				Significant				Significant				for				for
						Active				Other				Other				the Three				the Six
		Carrying				Markets				Observable				Unobservable				Months				Months
		Value as of				for Identical				Remaining				Remaining				Ended				Ended
		June 30, 2009				Assets				Inputs				Inputs				June 30, 2009				June 30, 2009
						(Level 1)				(Level 2)				(Level 3)
Privately-held equity investments		$	1.7			$	—			$	—			$	1.7			$	(1.6	)		$	(3.3	)
Total		$	1.7			$	—			$	—			$	1.7			$	(1.6	)		$	(3.3	)

The privately-held equity investments in the preceding tables, which are normally carried at cost, were measured at fair value due to events and circumstances that the Company identified as significantly impacting the fair value of the investments during the quarter. The Company measured the fair value of its privately-held equity investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and their capital structure. As a result, the Company recognized an impairment loss of $1.6 million and $3.3 million during the three and six months ended June 30, 2009, respectively, and classified the investments as a Level 3 asset due to the absence of quoted market prices and inherent lack of liquidity. The Company had no impairment charges against its privately-held equity investments during the three and six months ended June 30, 2010.

Juniper Networks, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)

Note 7. Goodwill and Purchased Intangible Assets

Goodwill

The change in the carrying amount of goodwill for the six months ended June 30, 2010, is summarized as follows (in millions):

		Infrastructure				Service Layer Technologies				Total
Balance as of January 1, 2010
Goodwill		$	1,500.5			$	3,438.1			$	4,938.6
Accumulated impairment losses			—				(1,280.0	)			(1,280.0	)
Goodwill – Carrying value at January 1, 2010			1,500.5				2,158.1				3,658.6
Goodwill acquired during the year			53.1				—				53.1
Balance as of June 30, 2010
Goodwill			1,553.6				3,438.1				4,991.7
Accumulated impairment losses			—				(1,280.0	)			(1,280.0	)
Goodwill – Carrying value at June 30, 2010		$	1,553.6			$	2,158.1			$	3,711.7

During the second quarter of 2010, goodwill increased by $53.1 million as a result of the Company’s acquisition of Ankeena. For further discussion, see Note 3, Business Combinations, in the Notes to Condensed Consolidated Financial Statements. There were no impairments to goodwill during the three and six months ended June 30, 2010 and 2009.

Purchased Intangible Assets

The following table presents the Company’s purchased intangible assets with definite lives (in millions):

						Accumulated
		Gross				Amortization				Additions				Net
As of June 30, 2010:
Technologies and patents		$	380.0			$	(376.9	)		$	8.4			$	11.5
Other			68.9				(60.8	)			3.8				11.9
Total		$	448.9			$	(437.7	)		$	12.2			$	23.4
As of December 31, 2009:
Technologies and patents		$	380.0			$	(376.0	)		$	—			$	4.0
Other			68.9				(59.1	)			—				9.8
Total		$	448.9			$	(435.1	)		$	—			$	13.8