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 (State or other jurisdiction of incorporation or organization)		77-0422528 (IRS Employer Identification No.)
1194 North Mathilda Avenue
Sunnyvale, California 94089		(408) 745-2000
(Address of principal executive offices,		(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 523,202,000 shares of the Company’s Common Stock, par value $0.00001, outstanding as of October 29, 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			38
Item 3. Quantitative and Qualitative Disclosures About Market Risk			59
Item 4. Controls and Procedures			60
PART II — OTHER INFORMATION			61
Item 1. Legal Proceedings			61
Item 1A. Risk Factors			61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			72
Item 6. Exhibits			73
SIGNATURES			74
EX-10.1
EX-10.2
EX-10.3
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.

(In thousands, except per share amounts)
(Unaudited)

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

See accompanying Notes to Condensed Consolidated Financial Statements

Juniper Networks, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par values)
(Unaudited)

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

See accompanying Notes to Condensed Consolidated Financial Statements

Juniper Networks, Inc.

(In thousands)
(Unaudited)

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

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 nine months ended September 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 September 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, $6.1 million and $18.7 million of costs reported in the three and nine months ended September 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, Topic 605 — Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). ASU 2009-13 changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable to be based on the relative selling price. 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, Topic 985 — Certain Revenue Arrangements That Include Software Elements (“ASU 2009-14”). ASU 2009-14 excludes software that is contained on a tangible product from the scope of software revenue guidance if the software component and the non-software component function together to deliver the tangible products’ essential functionality. The Company 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.

As a result of the adoption of ASU 2009-13 and ASU 2009-14, net revenues for the three and nine months ended September 30, 2010, were approximately $50 million and $128 million higher, respectively, 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 $31 million and $91 million for the three and nine month periods ended September 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 nine 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 ASU 2009-13.

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

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 creditworthiness of customers as determined by our credit checks and their payment histories. The Company records accounts receivable net of allowance for doubtful accounts, estimated customer returns, and pricing credits.

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.

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.

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

For transactions entered into prior to January 1, 2010, revenue for arrangements with multiple elements, such as sales of products that include services, is allocated to each element using the residual method based on the VSOE of fair value of the undelivered items pursuant to 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 return. A portion of the Company’s sales is made through distributors under agreements allowing for pricing credits or rights of return. Product revenue on sales made through these distributors is recognized upon sell-through, as reported by the distributors to the Company. Deferred revenue on shipments to distributors reflects the effects of distributor pricing credits and the amount of gross margin expected to be realized upon sell-through. Deferred revenue is recorded net of the related product costs of revenue.

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

The Company sells certain interests in accounts receivable on a non-recourse basis as part of customer financing arrangements 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 July 2010, the FASB issued ASU No. 2010-20, Topic 310 — Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”), which improves the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. This guidance is effective for interim and annual reporting periods ending on or after December 15, 2010. ASU 2010-20 relates to disclosure requirements only and as such does not impact the Company’s consolidated results of operations or financial condition.

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 beginning on or after June 15, 2010, and interim periods within those years. Early

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

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 its 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.

Note 3. Business Combination

In the nine months ended September 30, 2010, the Company completed the acquisitions of Ankeena Networks, Inc., (“Ankeena”) and SMobile Systems, Inc. (“SMobile”).

Ankeena Acquisition

On April 19, 2010, the Company acquired 100% of the equity securities of Ankeena, a privately-held provider of new media infrastructure technology. The acquisition of Ankeena 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.

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.

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

SMobile Acquisition

On July 30, 2010, the Company acquired 100% of the equity securities of SMobile, a privately-held software company focused solely on smartphone and tablet security solutions for the enterprise, service provider, and consumer markets. The acquisition of SMobile will allow the Company to extend its security focus through integration of SMobile’s product portfolio with Junos^® Pulse.

In connection with the acquisition of SMobile, the Company assumed net liabilities of $5.0 million, including cash and cash equivalents of $0.4 million, and recognized goodwill of $47.9 million, which was assigned to the Company’s Service Layer Technology (“SLT”) segment. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of SMobile, and the economies of scale expected from combining the operations of SMobile and the Company. None of the goodwill is expected to be deductible for income tax purposes.

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

The Company’s consolidated financial statements include the operating results of both businesses from the date of each acquisition. Pro forma results of operations for these acquisitions have not been presented because the financial impact to the Company’s consolidated results of operations, both individually and in aggregate, is not material.

Total purchase consideration for these acquisitions is summarized as follows (in millions):

		Ankeena				SMobile				Total
Cash		$	66.5			$	69.5			$	136.0
Assumed stock option and RSU awards allocated to purchase price (1)			2.4				—				2.4
Total		$	68.9			$	69.5			$	138.4

Allocation of the purchase consideration for acquisitions completed during the nine months ended September 30, 2010, is summarized as follows (in millions):

		Ankeena				SMobile				Total
Net assets (liabilities) assumed		$	3.6			$	(5.0	)		$	(1.4	)
Intangible assets acquired			12.2				26.6				38.8
Goodwill			53.1				47.9				101.0
Total		$	68.9			$	69.5			$	138.4

The Company recognized $1.5 million and $2.1 million of acquisition-related costs in the three and nine months ended September 30, 2010, respectively, as a result of both acquisitions. These costs were expensed in the period incurred and reported in the Company’s condensed consolidated statement of operations as acquisition-related and other charges.

The following table presents details of the intangible assets acquired through the business combinations completed during the nine months ended September 30, 2010 (in millions, except years):

		Ankeena								SMobile
		Estimated Useful								Estimated Useful
		Life (In Years)				Amount				Life (In Years)				Amount				Total Amount
Existing technology			4.0			$	5.2				5.0			$	24.3			$	29.5
In-process research and development			4.0				3.8				—				—				3.8
Core technology			4.0				3.2				—				—				3.2
Customer contracts and related relationships			—				—				6.0				2.1				2.1
Support agreements and related relationships			—				—				6.0				0.1				0.1
Non-compete agreements			—				—				2.0				0.1				0.1
Total			4.0			$	12.2				5.0			$	26.6			$	38.8

Note 4. Net Income per Share

Basic net income per share is 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 vesting of 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 common stockholders (in millions, except per share amounts):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Numerator:
Net income attributable to Juniper Networks		$	134.5			$	83.8			$	428.2			$	94.1
Denominator:
Weighted-average shares used to compute basic net income per share			520.6				523.9				522.1				523.8
Effect of dilutive securities:
Employee stock awards			14.3				14.2				15.1				8.9
Weighted-average shares used to compute diluted net income per share			534.9				538.1				537.2				532.7
Net income per share attributable to Juniper Networks common stockholders:
Basic		$	0.26			$	0.16			$	0.82			$	0.18
Diluted		$	0.25			$	0.16			$	0.80			$	0.18

The Company excludes outstanding stock 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 common shares underlying PSAs in the calculation of diluted net income per share when they become contingently issuable and excludes such shares when they are not contingently issuable. Employee stock option awards and PSAs covering approximately 16.8 million and 16.4 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 nine months ended September 30, 2010, respectively, because their effect would have been anti-dilutive. Employee stock awards covering approximately 24.4 million and 48.4 million shares of the Company’s common stock in the three and nine months ended September 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.

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

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
		September 30, 2010				December 31, 2009
Cash and cash equivalents:
Cash:
Demand deposits		$	430.0			$	427.2
Time deposits			276.3				127.9
Total cash			706.3				555.1
Cash equivalents:
U.S. government securities			7.0				—
Certificate of deposit			5.0				—
Commercial paper			10.0				17.0
Money market funds			732.6				1,032.6
Total cash equivalents			754.6				1,049.6
Total cash and cash equivalents		$	1,460.9			$	1,604.7

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 September 30, 2010, and December 31, 2009 (in millions):

						Gross Unrealized
		Amortized Cost				Gains				Gross Unrealized Losses				Estimated Fair Value
As of September 30, 2010:
Fixed income securities:
U.S. government securities		$	288.4			$	0.3			$	—			$	288.7
Government-sponsored enterprise obligations			246.8				0.7				—				247.5
Foreign government debt securities			52.1				0.4				—				52.5
Certificate of deposit			18.6				—				—				18.6
Commercial paper			16.5				—				—				16.5
Asset-backed securities			74.1				0.1				(0.1	)			74.1
Corporate debt securities			522.5				3.5				(0.1	)			525.9
Total fixed income securities			1,219.0				5.0				(0.2	)			1,223.8
Publicly-traded equity securities			11.3				2.5				—				13.8
Total		$	1,230.3			$	7.5			$	(0.2	)		$	1,237.6
Reported as:
Short-term investments		$	634.9			$	3.7			$	(0.1	)		$	638.5
Long-term investments			595.4				3.8				(0.1	)			599.1
Total		$	1,230.3			$	7.5			$	(0.2	)		$	1,237.6

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

						Gross Unrealized
		Amortized Cost				Gains				Gross Unrealized Losses				Estimated Fair 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

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

						Gross Unrealized
		Amortized Cost				Gains				Gross Unrealized Losses				Estimated Fair Value
Fixed income securities:
Due within one year		$	623.6			$	1.2			$	(0.1	)		$	624.7
Due between one and five years			595.4				3.8				(0.1	)			599.1
Total fixed income securities			1,219.0				5.0				(0.2	)			1,223.8
Publicly-traded equity securities			11.3				2.5				—				13.8
Total		$	1,230.3			$	7.5			$	(0.2	)		$	1,237.6

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

		Less than 12 Months								12 Months or Greater								Total
		Fair Value				Unrealized Loss				Fair Value				Unrealized Loss				Fair Value				Unrealized Loss
Corporate debt securities		$	101.6			$	(0.1	)		$	19.5			$	—			$	121.1			$	(0.1	)
U.S. government securities			6.0				—				—				—				6.0				—
Government-sponsored enterprise obligations			17.2				—				5.0				—				22.2				—
Foreign government debt securities			1.2				—				5.0				—				6.2				—
Asset-backed securities			46.2				(0.1	)			—				—				46.2				(0.1	)
Total		$	172.2			$	(0.2	)		$	29.5			$	—			$	201.7			$	(0.2	)

The Company had 46 and 52 investments in unrealized loss positions as of September 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 investments. 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 September 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.

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

Privately-Held and Other Equity Investments

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

As of September 30, 2010, and December 31, 2009, the carrying values of the Company’s privately-held and other equity investments of $22.5 million and $13.9 million, respectively, were included in other long-term assets in the condensed consolidated balance sheets. During the three and nine months ended September 30, 2010, the Company invested $4.6 million and $9.8 million, respectively, in privately-held and other equity investments. In the nine months ended September 30, 2010, the Company recognized a gain of $3.2 million from its minority equity investment in Ankeena upon the acquisition of Ankeena.

During the three and nine months ended September 30, 2009, the Company recognized a loss of nil 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 $6.3 million in privately-held companies during the nine months ended September 30, 2009. Additionally, during the nine months ended September 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 common stock of the acquiring company of $1.0 million, which is classified as an available-for-sale investment. The Company had no minority equity investments in publicly-held companies during the three and nine months ended September 30, 2009.

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 and Officers (“D&O”) indemnification trust. During the three and nine months ended September 30, 2010, the Company increased its restricted cash by $69.6 million and $150.1 million, respectively, primarily for the escrow accounts required by the acquisition of Ankeena and SMobile that were completed in the second and third quarter of 2010, respectively, and to a lesser extent for the Israel Retirement Trust established in the first quarter of 2010. During the three and nine months ended September 30, 2010, the Company distributed approximately $64.1 million and $124.9 million, respectively, from its restricted accounts, mainly resulting from the Ankeena and SMobile acquisitions. In connection with the Ankeena 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 September 30, 2010, the Company expects to release $8.1 million from escrow as these restricted shares vest over the next two years.

The following table summarizes the Company’s cash and investments that are classified as restricted cash in the condensed consolidated balance sheets (in millions):

		As of
		September 30,				December 31,
		2010				2009
Restricted cash:
Demand deposits		$	25.8			$	3.8
Total restricted cash			25.8				3.8
Restricted investments:
U.S. government securities			0.6				19.8
Corporate debt securities			2.7				—
Money market funds			50.0				30.1
Total restricted investments			53.3				49.9
Total restricted cash and investments		$	79.1			$	53.7

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

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

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 September 30, 2010 Using
		Quoted Prices in				Significant Other				Significant Other
		Active Markets For				Observable				Unobservable
		Identical Assets				Remaining Inputs				Remaining Inputs
		(Level 1)				(Level 2)				(Level 3)				Total
Trading securities:
Mutual funds		$	7.2			$	—			$	—			$	7.2
Total trading securities			7.2				—				—				7.2
Available-for-sale debt securities:
U.S. government securities (1)		$	111.1			$	185.2			$	—			$	296.3
Government-sponsored enterprise obligations			226.7				20.8				—				247.5
Foreign government debt securities			21.2				31.3				—				52.5
Commercial paper			—				26.5				—				26.5
Corporate debt securities (2)			2.7				525.9				—				528.6
Certificate of deposit			—				23.6				—				23.6
Asset-backed securities			—				74.1				—				74.1
Money market funds (3)			782.6				—				—				782.6
Total available-for-sale debt securities			1,144.3				887.4				—				2,031.7
Available-for-sale equity securities:
Technology securities			6.6				—				—				6.6
Total available-for-sale equity securities			6.6				—				—				6.6
Total available-for-sale securities			1,150.9				887.4				—				2,038.3
Derivative assets:
Foreign exchange contracts			—				1.7				—				1.7
Total derivative assets			—				1.7				—				1.7
Total assets measured at fair value		$	1,158.1			$	889.1			$	—			$	2,047.2

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

		Fair Value Measurements at September 30, 2010 Using
		Quoted Prices in				Significant Other				Significant Other
		Active Markets For				Observable				Unobservable
		Identical Assets				Remaining Inputs				Remaining Inputs
		(Level 1)				(Level 2)				(Level 3)				Total
Reported as:
Cash equivalents		$	732.6			$	22.0			$	—			$	754.6
Short-term investments			198.6				439.9				—				638.5
Long-term investments			174.2				424.9				—				599.1
Restricted cash			52.7				0.6				—				53.3
Prepaid expenses and other current assets			—				1.7				—				1.7
Total assets measured at fair value		$	1,158.1			$	889.1			$	—			$	2,047.2

		Fair Value Measurements at December 31, 2009 Using
		Quoted Prices in				Significant Other				Significant Other
		Active Markets For				Observable				Unobservable
		Identical Assets				Remaining Inputs				Remaining Inputs
		(Level 1)				(Level 2)				(Level 3)				Total
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

As of September 30, 2010 and December 31, 2009, the Company had nil and $1.5 million, respectively, of derivative liabilities measured at fair value on a recurring basis. The Company recorded the derivative liabilities, which related to its foreign exchange contracts, within other accrued liabilities in its condensed consolidated balance sheets. These liabilities were measured using significant other observable remaining inputs (Level 2) pursuant to the fair value hierarchy.

The Company’s policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 as of the actual date of the events or change in circumstances that caused the transfer. During the three and nine months ended September 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 Prices in				Significant Other				Significant Other
		Carrying Value as				Active Markets For				Observable				Unobservable				Total Loss for the				Total Loss for the
		of September 30,				Identical Assets				Remaining Inputs				Remaining Inputs				Three Months Ended				Nine Months Ended
		2010				(Level 1)				(Level 2)				(Level 3)				September 30, 2010				September 30, 2010
Privately-held equity investments		$	0.7			$	—			$	—			$	0.7			$	—			$	—
Total		$	0.7			$	—			$	—			$	0.7			$	—			$	—

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

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

Privately-held equity investments, which are normally carried at cost, were measured at fair value due to events and circumstances that the Company identified as significantly impacting the fair value of the investments. The Company measured the fair value of its privately-held equity investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and their capital structure. As a result, the Company recognized an impairment loss of $3.3 million during the nine months ended September 30, 2009, 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 nine months ended September 30, 2010.

Note 7. Goodwill and Purchased Intangible Assets

Goodwill

The following table summarizes the Company’s goodwill activities by segment in the nine months ended September 30, 2010 (in millions):

		Infrastructure				SLT				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	)
Carrying value at January 1, 2010			1,500.5				2,158.1				3,658.6
Goodwill acquired during the nine months ended September 30, 2010			53.1				47.9				101.0
Balance as of September 30, 2010
Goodwill			1,553.6				3,486.0				5,039.6
Accumulated impairment losses			—				(1,280.0	)			(1,280.0	)
Carrying value at September 30, 2010		$	1,553.6			$	2,206.0			$	3,759.6

During the three and nine months ended September 30, 2010, the Company recorded goodwill of $47.9 million and $101.0 million, respectively, as a result of its acquisitions of Ankeena and SMobile. 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 nine months ended September 30, 2010, and 2009.

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

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 September 30, 2010:
Technologies and patents		$	380.0			$	(378.6	)		$	32.7			$	34.1
Other			68.9				(61.5	)			6.1				13.5
Total		$	448.9			$	(440.1	)		$	38.8			$	47.6
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

During the three and nine months ended September 30, 2010, the Company recorded $26.6 million and $38.8 million, respectively, of purchased intangible assets as a result of its acquisitions of Ankeena and SMobile. For further discussion, see Note 3, Business Combinations, in the Notes to Condensed Consolidated Financial Statements.

Amortization of purchased intangible assets included in operating expenses and cost of product revenues totaled $2.4 million and $2.7 million for the three months ended September 30, 2010, and 2009, respectively, and $5.0 million and $13.4 million for the nine months ended September 30, 2010, and 2009, respectively. There were no impairment charges with respect to the purchased intangible assets in the three and nine months ended September 30, 2010, and 2009.

The estimated future amortization expense of purchased intangible assets with definite lives for future periods is as follows (in millions):

Years Ending December 31,		Amount
2010 (remaining three months)		$	2.9
2011			10.4
2012			9.6
2013			9.4
2014			7.6
Thereafter			7.7
Total		$	47.6

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

Note 8. Other Financial Information

Warranties

The Company provides for the estimated cost of product warranties at the time revenue is recognized. This provision is reported as accrued warranty within current liabilities on the condensed consolidated balance sheets. Changes in the Company’s warranty reserve were as follows (in millions):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Beginning balance		$	38.3			$	35.8			$	38.2			$	40.1
Provisions made during the period, net			13.7				14.7				37.9				33.4
Change in estimate			(1.9	)			(1.1	)			(2.4	)			(4.5	)
Actual costs incurred during the period			(13.7	)			(12.1	)			(37.3	)			(31.7	)
Ending balance		$	36.4			$	37.3			$	36.4			$	37.3

Deferred Revenue

Details of the Company’s deferred revenue were as follows (in millions):

		As of
		September 30, 2010				December 31, 2009
Deferred product revenue:
Undelivered product commitments and other product deferrals		$	277.7			$	254.7
Distributor inventory and other sell-through items			128.2				136.6
Deferred gross product revenue			405.9				391.3
Deferred cost of product revenue			(147.7	)			(150.0	)
Deferred product revenue, net			258.2				241.3
Deferred service revenue			526.9				512.3
Total		$	785.1			$	753.6
Reported as:
Current		$	594.4			$	571.7
Long-term			190.7				181.9
Total		$	785.1			$	753.6