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

For the quarterly period ended June 30, 2007

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

For the transition period from          to

JUNIPER NETWORKS, INC.

Delaware		77-0422528
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)
1194 North Mathilda Avenue		(408) 745-2000
Sunnyvale, California 94089		(Registrant’s telephone number,
(Address of principal executive offices,		including area code)
including zip 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  þ     Accelerated Filer  o     Non-Accelerated Filer  o

     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 514,100,000 shares of the Company’s Common Stock, par value $0.00001, outstanding as of July 31, 2007.

 

 

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			26
Item 3. Quantitative and Qualitative Disclosures About Market Risk			42
Item 4. Controls and Procedures			42
PART II — OTHER INFORMATION			43
Item 1. Legal Proceedings			43
Item 1A. Risk Factors			45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			55
Item 4. Submission of Matters to a Vote of Security Holders			55
Item 6. Exhibits			56
SIGNATURES			57
EXHIBIT 10.2
EXHIBIT 31
EXHIBIT 32

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Juniper Networks, Inc.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Net revenues:
Product		$	541,695			$	468,790			$	1,051,468			$	942,915
Service			123,227				98,679				240,390				191,268
Total net revenues			664,922				567,469				1,291,858				1,134,183
Cost of revenues:
Product			159,891				139,439				314,833				280,434
Service			60,883				49,484				118,050				93,436
Total cost of revenues			220,774				188,923				432,883				373,870
Gross margin			444,148				378,546				858,975				760,313
Operating expenses:
Research and development			148,702				116,222				289,795				229,910
Sales and marketing			156,845				136,001				307,501				265,430
General and administrative			27,996				24,166				55,254				47,265
Amortization of purchased intangible assets			22,740				23,187				45,480				46,408
Impairment of goodwill and intangible assets			—				1,283,421				—				1,283,421
Other charges, net			1,642				4,350				14,226				5,754
Total operating expenses			357,925				1,587,347				712,256				1,878,188
Operating income (loss)			86,223				(1,208,801	)			146,719				(1,117,875	)
Interest and other income			26,729				23,989				60,706				44,756
Interest and other expense			(1,222	)			(813	)			(2,286	)			(1,902	)
Gain on minority equity investment			6,745				—				6,745				—
Income (loss) before income taxes			118,475				(1,185,625	)			211,884				(1,075,021	)
Provision for income taxes			32,295				20,831				59,057				55,672
Net income (loss)		$	86,180			$	(1,206,456	)		$	152,827			$	(1,130,693	)
Net income (loss) per share:
Basic		$	0.16			$	(2.13	)		$	0.27			$	(2.00	)
Diluted		$	0.15			$	(2.13	)		$	0.26			$	(2.00	)
Shares used in computing net income (loss) per share:
Basic			544,224				566,098				556,811				566,013
Diluted			580,736				566,098				592,317				566,013

See accompanying Notes to the Condensed Consolidated Financial Statements

Juniper Networks, Inc.

(Unaudited)

		June 30,				December 31,
		2007				2006
ASSETS
Current assets:
Cash and cash equivalents		$	860,070			$	1,596,333
Short-term investments			342,956				443,910
Accounts receivable, net			258,838				249,445
Deferred tax assets, net			158,852				179,989
Prepaid expenses and other current assets			49,570				52,129
Total current assets			1,670,286				2,521,806
Property and equipment, net			380,041				349,930
Long-term investments			173,017				574,061
Restricted cash			32,129				45,610
Goodwill			3,651,240				3,624,652
Purchased intangible assets, net			120,983				169,202
Long-term deferred tax assets, net			57,983				51,499
Other long-term assets			30,971				31,635
Total assets		$	6,116,650			$	7,368,395
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	176,669			$	179,553
Accrued compensation			113,526				110,451
Deferred revenue			381,928				312,253
Debt			399,944				—
Other accrued liabilities			130,672				160,360
Total current liabilities			1,202,739				762,617
Long-term deferred revenue			68,755				73,326
Other long-term liabilities			44,672				17,424
Long-term debt			—				399,944
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.00001 par value; 10,000 shares authorized; none issued and outstanding			—				—
Common stock, $0.00001 par value, 1,000,000 shares authorized; 507,851 shares and 569,234 shares issued and outstanding as of June 30, 2007 and December 31, 2006, respectively			5				6
Additional paid-in capital			7,814,942				7,646,047
Accumulated other comprehensive income			10,674				1,266
Accumulated deficit			(3,025,137	)			(1,532,235	)
Total stockholders’ equity			4,800,484				6,115,084
Total liabilities and stockholders’ equity		$	6,116,650			$	7,368,395

See accompanying Notes to the Condensed Consolidated Financial Statements

Juniper Networks, Inc.

Condensed Consolidated Statements of Cash Flows

		Six Months Ended June 30,
		2007				2006
Operating Activities:
Net income (loss)		$	152,827			$	(1,130,693	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization			95,194				84,992
Stock-based compensation			47,441				46,241
Impairment of goodwill and intangible assets			—				1,283,421
Gain on minority equity investment			(6,745	)			—
Excess tax benefits from employee stock plans			(3,792	)			(3,789	)
Non-cash portion of debt issuance costs and disposal of property and equipment			954				750
Changes in operating assets and liabilities:
Accounts receivable, net			(4,760	)			18,558
Prepaid expenses and other assets			14,918				13,261
Accounts payable			(6,142	)			(28,847	)
Accrued compensation			3,075				(5,013	)
Other accrued liabilities			(1,434	)			21,141
Deferred revenue			65,104				56,440
Net cash provided by operating activities			356,640				356,462
Investing Activities:
Purchases of property and equipment			(75,051	)			(43,415	)
Purchases of available-for-sale investments			(298,615	)			(325,760	)
Maturities and sales of available-for-sale investments			814,245				292,451
Changes in restricted cash			2,593				18,878
Minority equity investments			—				(3,090	)
Payment for business acquisitions			(375	)			(13,063	)
Net cash provided by (used in) investing activities			442,797				(73,999	)
Financing Activities:
Proceeds from issuance of common stock			83,703				69,349
Purchases and subsequent retirement of common stock			(1,623,195	)			(186,388	)
Excess tax benefits from employee stock plans			3,792				3,789
Net cash used in financing activities			(1,535,700	)			(113,250	)
Net (decrease) increase in cash and cash equivalents			(736,263	)			169,213
Cash and cash equivalents at beginning of period			1,596,333				918,401
Cash and cash equivalents at end of period		$	860,070			$	1,087,614

See accompanying Notes to the Condensed Consolidated Financial Statements

Juniper Networks, Inc.

Notes to the Condensed Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Description of Business

Juniper Networks, Inc. (“Juniper Networks” or the “Company”) designs and sells products and services that together provide its customers with Internet Protocol (“IP”) networking solutions. The Company organizes its business groups into the following three reportable segments: Infrastructure, Service Layer Technologies (“SLT”), and Service. The Company’s Infrastructure segment primarily offers scalable router products that are used to control and direct network traffic. The Company’s SLT segment offers networking solutions that meet a broad array of its customers’ priorities, from securing the network and the data on the network, to maximizing existing bandwidth and acceleration of applications across a distributed network. Together, its secure networking solutions help enable its customers to convert networks that provide commoditized best efforts services into more valuable assets that provide differentiation, value and increased reliability and security to end users. The Company’s Service segment delivers world-wide services, including technical support and professional services, as well as a number of education and training programs, to customers of the Infrastructure and SLT segments.

Basis of Presentation

The Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles 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, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. 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, 2006.

Revenue Recognition

Juniper Networks sells products and services through its direct sales force and through its strategic distribution relationships and value-added resellers. The Company’s products are integrated with software that is essential to the functionality of the equipment. Additionally, the Company provides unspecified upgrades and enhancements related to the integrated software through maintenance contracts for most of its products. Accordingly, the Company accounts for revenue in accordance with Statement of Position No. 97-2, Software Revenue Recognition, and all related interpretations. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery or performance has occurred, the sales price is fixed or determinable and collectibility is reasonably assured. Evidence of an arrangement generally consists of customer purchase orders and, in certain instances, sales contracts or agreements. Shipping terms and related documents, or written evidence of customer acceptance, when applicable, are used to verify delivery or performance. In instances where the Company has outstanding obligations related to product delivery or the final acceptance of the product, system, or solution is specified by the customer, revenue is deferred until all the delivery and acceptance criteria have been met. The Company assesses whether the sales price is fixed or determinable based on payment terms and whether the sales price is subject to refund or adjustment. Collectibility is assessed based on the creditworthiness of the customer as determined by credit checks and the customer’s payment history to the Company. Accounts receivable are recorded net of allowance for doubtful accounts, estimated customer returns and pricing credits.

For arrangements with multiple elements, such as sales of products that include services, the Company allocates revenue to each element using the residual method based on vendor specific objective evidence of fair value of the undelivered items. 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. Vendor specific objective evidence of fair value is based on the price charged when the element is sold separately. If vendor specific objective evidence of fair value of one or more undelivered items does not exist, revenue 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.

For sales to direct end-users and value-added resellers, 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 end-users and value-added resellers, the Company has no significant obligations for future performance such as rights of return or pricing credits. A portion of the Company’s sales are made through distributors under agreements allowing for pricing credits and/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. The Company sells certain interests in accounts receivables as part of a distributor accounts receivable financing arrangement which was established by the Company with a major financing company. Accounts receivables sold under this arrangement in advance of revenue recognition are accounted for as debt financing activity and were immaterial as of June 30, 2007 and December 31, 2006. 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.

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.

Shipping charges billed to customers are included in product revenue and the related shipping costs are included in cost of product revenues. Costs associated with cooperative advertising programs are estimated and recorded as a reduction of revenue at the time the related sales are recognized.

Services include maintenance, training and professional services. In addition to providing unspecified upgrades and enhancements on a when and if available basis, the Company’s maintenance contracts include 24-hour technical support, and hardware repair and replacement parts. Maintenance is offered under renewable contracts. Revenue from maintenance contracts is deferred and is generally recognized ratably over the contractual support period, which is generally one to five 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.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors including employee stock options, restricted stock units (“RSUs”) and employee stock purchases under the Company’s Employee Stock Purchase Plan based on estimated fair values. SFAS 123R requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model. The Company uses the Black-Scholes-Merton option pricing model to determine the fair value of stock based awards under SFAS 123R. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of operations.

Stock-based compensation expense recognized in the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2007 and 2006 included compensation expense for stock-based payment awards granted prior to, but not yet vested as of the adoption of SFAS 123R, based on the grant date fair value estimated in accordance with the provisions of SFAS 123 and compensation expense for stock-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Compensation expense for expected-to-vest stock-based awards that were granted on or prior to December 31, 2005 was valued under the multiple-option approach and will continue to be amortized using the accelerated attribution method. Subsequent to December 31, 2005, compensation expense for expected-to-vest stock-based awards is valued under the single-option approach and amortized on a straight-line basis, net of estimated forfeitures.

Goodwill and Purchased Intangible Assets

Goodwill is not subject to amortization but is assessed annually, or as impairment indicators exist, for impairment by applying a fair-value based test. Future goodwill impairment tests could result in a charge to earnings. Purchased intangibles with finite lives are amortized on a straight-line basis over their respective estimated useful lives.

Impairment

The Company evaluates goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company evaluates long-lived assets held-for-use for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses the recoverability of its long-lived and intangible assets by determining whether the unamortized balances can be recovered through undiscounted future net cash flows of the related assets. The amount of impairment, if any, is measured based on projected discounted future net cash flows.

Concentrations

Financial instruments that subject Juniper Networks to concentrations of credit risk consist primarily of cash and cash equivalents, investments and accounts receivable. Juniper Networks maintains its cash, cash equivalents and available-for-sale investments in fixed income securities with high-quality institutions and only invests in high quality credit instruments. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and therefore bear minimal risk.

Generally, credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company’s customer base and their dispersion across different geographic locations throughout the world. Juniper Networks performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. Juniper Networks maintains reserves for potential credit losses and historically such losses have been within management’s expectations.

The Company relies on sole suppliers for certain of its components such as application-specific integrated circuits (“ASICs”) and custom sheet metal. Additionally, Juniper Networks relies primarily on a limited number of significant independent contract manufacturers for the production of all of its products. The inability of any supplier or manufacturer to fulfill supply requirements of Juniper Networks could negatively impact future operating results.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FASB Statement No. 115, (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. The objective of SFAS 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS 159, an entity may elect to use fair value to measure eligible items including accounts receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, and issued debt. SFAS 159 is required to be adopted by the Company in the first quarter of fiscal 2008. The Company currently is assessing the impact, if any, SFAS 159 will have on its consolidated results of operations and financial condition.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is required to be adopted by the Company in the first quarter of fiscal 2008. The Company is currently assessing the impact, if any, that SFAS 157 will have on its consolidated results of operations and financial position.

The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (“FIN 48”) on January 1, 2007, the first day of fiscal 2007. FIN 48 is an interpretation of FASB Statement 109, Accounting for Income Taxes, and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that an entity takes or expects to take in a tax return. Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. Under FIN 48, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. The Company’s cumulative effect of applying FIN 48 was a $23.0 million increase to the opening balance of accumulated deficit as of January 1, 2007 and a $1.0 million increase to goodwill. See Note 8 “Income Taxes” for additional information.

Reclassifications

Certain reclassifications have been made to prior year balances in order to conform to the current year’s presentation.

Note 2. Investments

The following is a summary of the Company’s available-for-sale investments, at fair value (in millions):

		As of
		June 30,				December 31,
		2007				2006
Government securities		$	164.2			$	310.9
Corporate debt securities			290.5				620.9
Asset-backed securities and other			48.2				85.4
Equity investments in publicly traded companies			13.1				0.8
Total		$	516.0			$	1,018.0
Reported as:
Short-term investments		$	343.0			$	443.9
Long-term investments			173.0				574.1
Total		$	516.0			$	1,018.0

Note 3. Goodwill and Purchased Intangible Assets

Goodwill

Changes in the carrying amount of goodwill as of and for the six months ended June 30, 2007 are as follows (in millions):

		Balance at								Adjustments				Escrow and				Balance at
		December 31,								to Existing				other				June 30,
Reportable Segments		2006				Acquisitions				Goodwill				additions				2007
Infrastructure		$	971.0			$	—			$	—			$	5.6			$	976.6
Service Layer Technologies			1,856.3				—				1.1				16.0				1,873.4
Service			797.4				—				—				3.8				801.2
Total		$	3,624.7			$	—			$	1.1			$	25.4			$	3,651.2

In the first six months of 2007, the Company increased goodwill by $26.5 million. During the three and six months ended June 30, 2007, the Company paid $1.6 million and $11.4 million, respectively, upon resolution of acquisition related indemnity obligations. Of these payments made in the three and six months ended June 30, 2007, $1.6 million and $11.0 million, respectively, were released from the Company’s escrow funds. In addition, during the six months ended June 30, 2007, the Company distributed from its escrow account approximately 0.8 million shares of common stock, with an aggregate fair value of $14.1 million, in connection with the expiration of certain indemnity obligations related to a past acquisition.

In the six months ended June 30, 2006, the Company released $27.6 million of escrow funds and shares of the Company’s common stock held in escrow upon the resolution of indemnity obligations associated with past acquisitions and increased goodwill by the corresponding amount.

The Company allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their fair values. The excess purchase price over those fair values is recorded as goodwill. Such amount is then allocated to each reportable segment based upon the underlying business of the acquired companies. In the three and six months ended June 30, 2006, the Company concluded that the carrying value of goodwill for the SLT segment was impaired and recorded an impairment charge of $1,280.0 million. The impairment of goodwill was primarily attributable to the decline in the Company’s market capitalization that occurred over the first six months of 2006 and, to a lesser extent, a decrease in the forecasted future cash flows used in the impairment assessment. When performing the goodwill impairment review for the six months ended June 30, 2006, the Company determined that it had four reporting units, consisting of Infrastructure and Service segments, and the Security Product Group (“SPG”) and Application Acceleration Product Group (“APG”), comprising the SLT segment. The first step of the impairment review compared the fair value of each reporting unit to its carrying value, including the goodwill related to the respective reporting units at the time of the impairment. The Company utilized independent external service providers to assist in the determination of the fair value of the reporting units using a combination of the market and income approaches. The income approach requires estimates of expected revenue, gross margin and operating expenses in order to discount the sum of future cash flows using each particular reporting unit’s

weighted average cost of capital. The Company’s growth estimates were based on historical data and internal estimates developed as part of its long-term planning process. The Company tested the reasonableness of the inputs and outcomes of its discounted cash flow analysis by comparing these items to available market data. In determining the carrying value of the reporting units, the Company allocated the fair values of shared tangible net assets to each reporting unit based on revenue. As the fair values of the Security and Application Acceleration reporting units were lower than the allocated book values, the Company performed step two of the goodwill impairment calculation for those two reporting units within the SLT segment.

During the second step of the goodwill impairment review, management estimated the fair value of the Company’s tangible and intangible net assets with the assistance of independent external service providers. Identified intangible assets were valued specifically for each reporting unit tested. The difference between the estimated fair value of each reporting unit and the sum of the fair value of the identified net assets results in the residual value of goodwill.

Juniper Networks conducted its annual impairment test as of November 1, 2006 and determined that the carrying value of its goodwill was not impaired. There were no events or circumstances from that date through June 30, 2007 that would impact this assessment and, therefore, there were no impairment charges recognized for the three and six months ended June 30, 2007.

In the first quarter of 2007, certain management changes and an organization realignment resulted in the elimination of the separate APG and SPG reporting units within the SLT reportable segment. Accordingly, the goodwill of the APG and SPG reporting units were combined into the SLT reportable segment and the Company’s reporting units and reportable segments are now the same.

Future impairment indicators, including declines in the Company’s market capitalization or a decrease in revenue or profitability levels, could require impairment charges to be recorded.

Purchased Intangible Assets

The following is a summary of the Company’s purchased intangibles assets with definite lives (in millions):

						Accumulated
		Gross				Amortization				Net
As of June 30, 2007:
Technologies and patents		$	379.6			$	(288.0	)		$	91.6
Other			68.9				(39.5	)			29.4
Total		$	448.5			$	(327.5	)		$	121.0
As of December 31, 2006:
Technologies and patents		$	379.6			$	(242.6	)		$	137.0
Other			68.9				(36.7	)			32.2
Total		$	448.5			$	(279.3	)		$	169.2

There were no additions to purchased intangible assets during the three and six months ended June 30, 2007 and 2006. In the three and six months ended June 30, 2006, the Company recorded an impairment charge of $3.4 million due to a significant decrease in forecasted cash flows associated with its stand-alone session border control (“SBC”) products.

Amortization expense of purchased intangible assets of $24.1 million and $24.6 million for the three months ended June 30, 2007 and 2006, respectively, and $48.2 million and $49.1 million for the six months ended June 30, 2007 and 2006, respectively, were included in operating expenses and cost of product revenues.

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

Year Ending December 31,		Amount
2007 (remaining six months)		$	43.1
2008			46.2
2009			17.9
2010			4.2
2011			2.0
Thereafter			7.6
Total		$	121.0

Note 4. Other Financial Information

Restricted Cash

As of June 30, 2007 and December 31, 2006, restricted cash of $32.1 million and $45.6 million, respectively, consisted of escrow accounts required by certain acquisitions completed in 2005 and the Directors & Officers (“D&O”) trust. Juniper Networks established the D&O trust to secure its indemnification obligations to certain directors and officers arising from their activities in the event that the Company does not provide or is financially incapable of providing indemnification. During the three and six months ended June 30, 2007, the Company released $1.6 million and $11.0 million, respectively, from restricted cash for escrow payments associated with past acquisitions. In addition, the Company reduced restricted cash by $2.8 million during the six months ended June 30, 2007 to adjust its D&O and escrow balances.

Minority Equity Investments

As of June 30, 2007 and December 31, 2006, the carrying values of the Company’s minority equity investments in privately held companies of $19.3 million and $20.4 million, respectively, were included in other long-term assets in the condensed consolidated balance sheets. During the three and six months ended June 30, 2007, the Company made no minority equity investments in privately-held companies.

In June 2007, one of the Company’s minority equity investments completed an initial public offering (“IPO”). Upon completion of the IPO, the Company realized a gain of $6.7 million, based upon the market value at the time of IPO and the Company’s cost basis, during the three and six months ended June 30, 2007. Subsequent to the IPO, the Company’s investment in this publicly traded entity is included in available-for-sale investments and any changes in the fair value are included in other comprehensive income.

Other Short-Term Accrued Liabilities

Details of the Company’s other short-term accrued liabilities are as follows (in millions):

		As of
		June 30,				December 31,
		2007				2006
Accrued warranty		$	35.7			$	34.8
Income taxes payable			14.2				38.5
Other accrued liabilities			80.8				87.1
Total		$	130.7			$	160.4

Accrued Warranty

Changes in the Company’s warranty reserve are as follows (in millions):

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Beginning balance		$	35.3			$	35.8			$	34.8			$	35.3
Provisions made during the period			9.6				12.9				21.3				20.5
Changes in estimates			—				(1.6	)			—				(3.3	)
Actual costs incurred during the period			(9.2	)			(11.9	)			(20.4	)			(17.3	)
Ending balance		$	35.7			$	35.2			$	35.7			$	35.2
Reported as:
Current		$	35.7			$	27.8			$	35.7			$	27.8
Non-current			—				7.4				—				7.4
Ending balance		$	35.7			$	35.2			$	35.7			$	35.2

Other Long-Term Accrued Liabilities

Details of the Company’s other long-term accrued liabilities are as follows (in millions):

		As of
		June 30,				December 31,
		2007				2006
Income taxes payable		$	28.3			$	—
Other accrued liabilities			16.4				17.4
Total		$	44.7			$	17.4

Deferred Revenue

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

		As of
		June 30,				December 31,
		2007				2006
Service		$	323.1			$	282.8
Product			127.6				102.8
Total		$	450.7			$	385.6
Reported as:
Current		$	381.9			$	312.3
Non-current			68.8				73.3
Total		$	450.7			$	385.6

Accumulated Deficit

The following table summarizes the activity in the Company’s accumulated deficit account (in millions):

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Beginning Balance		$	(1,517.7	)		$	(455.0	)		$	(1,532.2	)		$	(344.4	)
Cumulative effect of adoption of FIN 48 (see Note 8)			—				—				(23.0	)			—
Retirement of common stock (see Note 6)			(1,593.6	)			—				(1,622.7	)			(186.4	)
Net income (loss)			86.2				(1,206.5	)			152.8				(1,130.7	)
Ending Balance		$	(3,025.1	)		$	(1,661.5	)		$	(3,025.1	)		$	(1,661.5	)

Stock-Based Compensation Expense

Amortization of stock-based compensation was included in the following cost and expense categories (in millions):

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Cost of revenues – Product		$	0.5			$	0.5			$	1.0			$	1.0
Cost of revenues – Service			2.1				1.5				5.2				2.8
Research and development			8.3				9.4				19.3				19.4
Sales and marketing			7.7				8.5				15.3				16.1
General and administrative			2.9				3.3				6.6				6.9
Total		$	21.5			$	23.2			$	47.4			$	46.2

Other Charges

Other charges recognized consist of the following (in millions):

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Restructuring (adjustments) charges		$	(0.3	)		$	0.4			$	(0.3	)		$	0.4
Acquisition related compensation charges			0.3				1.4				0.6				2.8
Stock option investigation costs			1.3				2.5				6.0				2.5
Tax related charges			0.3				—				7.9				—
Total		$	1.6			$	4.3			$	14.2			$	5.7

Restructuring Reserves

The following table summarizes changes in the Company’s restructuring reserves within other liabilities (in millions):

		Remaining												Remaining
		liability as of												liability as of
		December 31,				Cash								June 30,
		2006				payments				Adjustment				2007
Restructuring reserves – Facilities		$	1.5			$	(0.5	)		$	—			$	1.0
Reported as:
Short-term		$	0.9			$	(0.1	)		$	—			$	0.8
Long-term			0.6				(0.4	)			—				0.2
Total		$	1.5			$	(0.5	)		$	—			$	1.0

All restructuring reserves as of June 30, 2007 and December 31, 2006 were associated with future facility charges and will be paid over the remaining respective lease terms through July 2008. The difference between the actual future rent payments and the restructuring reserves will be recorded as operating expenses when incurred.

Acquisition Related Restructuring Reserves

The following table summarizes changes in the Company’s acquisition related restructuring reserves within other liabilities (in millions):

		Remaining												Remaining
		liability as of												liability as of
		December 31,				Cash								June 30,
		2006				payments				Adjustment				2007
Facilities		$	3.3			$	(1.0	)		$	(0.3	)		$	2.0
Other charges			0.3				—				—				0.3
Total		$	3.6			$	(1.0	)		$	(0.3	)		$	2.3
Reported as:
Short-term		$	2.1			$	(0.4	)		$	(0.3	)		$	1.4
Long-term			1.5				(0.6	)			—				0.9
Total		$	3.6			$	(1.0	)		$	(0.3	)		$	2.3

The majority of the acquisition related restructuring reserves as of June 30, 2007 and December 31, 2006 were associated with future facility charges and will be paid over the remaining respective lease terms through March 2011. The difference between the actual future rent payments and the restructuring reserves will be recorded as operating expenses when incurred.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of the following (in millions):

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Net income (loss)		$	86.2			$	(1,206.5	)		$	152.8			$	(1,130.7	)
Change in net unrealized gains (losses) on investments			4.4				(1.0	)			5.7				(2.0	)
Change in foreign currency translation adjustment			2.7				1.1				3.7				1.9
Total comprehensive income (loss)		$	93.3			$	(1,206.4	)		$	162.2			$	(1,130.8	)

Derivatives

Derivatives used to mitigate transaction gains and losses generated by certain foreign currency denominated monetary assets and liabilities are carried at fair value with changes recorded in other expense. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. These foreign exchange forward contracts have maturities between one and two months.

Derivatives used to hedge certain forecasted foreign currency transactions relating to operating expenses are designated as cash flow hedges and have maturities of less than one year. The effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income and, upon occurrence of the forecasted transaction, is subsequently reclassified into the consolidated statements of operations line item to which the hedged transaction relates. The Company records any ineffectiveness of the hedging instruments, which was immaterial during the three and six months ended June 30, 2007 and 2006, respectively, in interest and other expense in its condensed consolidated statements of operations.

Note 5. Net Income (Loss) per Share

The calculation of basic and diluted net income (loss) per share is summarized as follows (in millions, except per share amounts):

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Numerator:
Net income (loss)		$	86.2			$	(1,206.5	)		$	152.8			$	(1,130.7	)
Denominator:
Denominator for basic net income (loss) per share			544.2				566.1				556.8				566.0
Common stock equivalents from convertible debt			19.9				—				19.9				—
Common stock equivalents from employee stock awards			16.6				—				15.6				—
Denominator for diluted net income (loss) per share			580.7				566.1				592.3				566.0
Net income (loss) per share:
Basic		$	0.16			$	(2.13	)		$	0.27			$	(2.00	)
Diluted		$	0.15			$	(2.13	)		$	0.26			$	(2.00	)

For the three and six months ended June 30, 2007, approximately 37.0 million and 50.4 million common stock equivalents, respectively, were not included in the computation of diluted net income per share because the effect would have been anti-dilutive. For the three and six months ended June 30, 2006, approximately 85.6 million and 84.0 million common stock equivalents were not included in the computation of diluted net loss per share because the effect would have been anti-dilutive.

Note 6. Stockholders’ Equity

Stock Repurchase Activities

In July 2006, the Company’s Board approved a new stock repurchase program (“2006 Stock Repurchase Program”) authorizing the Company to repurchase up to $1.0 billion of Juniper Networks’ common stock under this program. In February 2007, the Company’s Board approved an increase of $1.0 billion under this stock repurchase program. Coupled with the prior authorization of $1.0 billion

announced in July 2006, the Company is now authorized to repurchase up to a total of $2.0 billion of its common stock under the 2006 Stock Repurchase Program. Purchases under the 2006 Stock Repurchase Program are made from time to time as permitted by securities laws and other legal requirements and are subject to a review of the circumstances in place at the time. During the three and six months ended June 30, 2007, the Company repurchased 67.9 million and 69.4 million shares of common stock via open market purchases at an average price of $23.47 per share and $23.37 per share, respectively. The total purchase price of $1,594.1 million and $1,623.2 million was reflected as an increase to accumulated deficit and a decrease to additional paid-in capital for the three and six months ended June 30, 2007, respectively. Common stock repurchases under the program were recorded based upon the settlement date of the applicable trade for accounting purposes. All common shares repurchased under this program have been retired. The Company has not made subsequent repurchases under this program through the report filing date. As of the filing of this report, the 2006 Stock Repurchase Program has remaining authorized funds of $376.8 million and a total of 69.4 million common shares have been repurchased and retired since the inception of this program, for approximately $1,623.2 million at an average price of $23.37 per share. Additional purchases under this stock repurchase program may be made from time to time and are subject to a review of circumstances in place at the time. This program may be discontinued at any time.

In the six months ended June 30, 2006, the Company repurchased 10.1 million common shares at an average price of $18.51 per share as part of the $250.0 million stock repurchase program approved in July 2004 (“2004 Stock Repurchase Program”). No shares were repurchased in the second quarter of 2006. The Company has completed the 2004 Stock Repurchase Program and repurchased a total of 12.9 million common shares since the inception of this program, for approximately $250.0 million at an average price of $19.32 per share. All common shares repurchased under this program have been retired.

Stock Option Plans

2006 Equity Incentive Plan

On May 18, 2006, the Company’s stockholders adopted the 2006 Equity Incentive Plan (“2006 Plan”) to enable the granting of incentive stock options, nonstatutory stock options, RSUs, restricted stock, stock appreciation rights, performance shares, performance units, deferred stock units or dividend equivalents to the employees and consultants of the Company. The 2006 Plan also provides for the automatic, non-discretionary award of nonstatutory stock options to the Company’s non-employee members of the Board (“outside directors”).

The maximum aggregate number of shares authorized under the 2006 Plan is 64,500,000 shares of common stock, plus the addition of any shares subject to outstanding options under the Amended and Restated 1996 Stock Plan (“1996 Plan”) and the 2000 Nonstatutory Stock Option Plan (“2000 Plan”) that subsequently expired unexercised after May 18, 2006 up to a maximum of 75,000,000 additional shares of the common stock. Restricted stock or RSUs with a per share or unit purchase price lower than 100% of the market price of the Company’s common stock on the day of the grant shall be counted as two and one-tenth shares for every one share. In the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of grant. Such shares could be subject to vesting provisions based on time or other conditions specified by the Board or an authorized committee of the Board. The Company would have the right to repurchase unvested shares subject to a restricted stock or performance share award if the grantee’s service to the Company terminated prior to full vesting of the award. Until repurchased, such unvested shares would be considered outstanding for dividend, voting and other purposes. No unvested shares were subject to repurchase as of June 30, 2007.

To the extent a 2006 Plan award is settled in cash rather than stock, such cash payment shall not reduce the number of shares available for issuance under the 2006 Plan. No restricted stock, stock appreciation right, deferred stock unit or dividend equivalent had been issued as of June 30, 2007. Under the 2006 Plan, the Company had issued stock options covering 17.4 million shares of its common stock as well as RSUs and performance shares covering 2.7 million shares of its common stock as of June 30, 2007.

Incentive stock options are granted at an exercise price of not less than the fair market value of the Company’s common stock on the date such option is granted. The exercise price of an incentive stock option granted to a 10% or greater stockholder may not be less than 110% of the fair market value of the common stock on the grant date. Vesting and exercise provisions are determined by the Board, or an authorized committee of the Board. Stock options granted under the 2006 Plan generally vest and become exercisable over a four year period. Restricted stock, performance shares, RSUs or deferred stock units that vest solely based on continuing employment or provision of services will vest in full no earlier than the three year anniversary of the grant date. In the event vesting is based on factors other than continued future provision of services, such awards will vest in full no earlier than the one year anniversary of the grant date. Options granted under the 2006 Plan have a maximum term of seven years from the grant date while incentive stock options granted to a 10% or greater stockholder have a maximum term of five years from the grant date.

The 2006 Plan provides each outside director an automatic grant of an option to purchase 50,000 shares of common stock upon the date on which such individual first becomes an outside director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy (the “First Option”). In addition, at each of the Company’s annual stockholder meetings (i) each outside director who was an outside director on the date of the prior year’s annual stockholder meeting shall be automatically granted an option to purchase 20,000 shares of common stock, and (ii) each outside director who was not an outside director on the date of the prior year’s annual stockholder meeting shall receive an option to purchase a pro-rata portion of the 20,000 shares of common stock determined by the time elapsed since the individual’s First Option grant (“the Annual Option”). The First Option vests monthly over approximately three years from the grant date subject to the outside director’s continuous service on the Board. The Annual Option shall vest monthly over approximately one year from the grant date subject to the outsider director’s continuous service on the Board. Under the 2006 Plan, options granted to outside directors have a maximum term of seven years.

Plans Assumed Upon Acquisitions

In connection with past acquisitions, the Company assumed options and restricted stock under the stock plans of the acquired companies. The Company exchanged those options and restricted stock for Juniper Networks’ options and restricted stock and, in the case of the options, authorized the appropriate number of shares of common stock for issuance pursuant to those options. As of June 30, 2007, there were approximately 5.8 million common shares subject to options outstanding under plans assumed through past acquisitions. None of the restricted stock was subject to repurchase as of June 30, 2007. There were no restricted stock repurchases during the three and six months ended June 30, 2007.

Equity Award Activity

In the three and six months ended June 30, 2007, the Company granted RSUs covering approximately 41,000 shares and 2.0 million shares, respectively, of common stock to its employees under the 2006 Plan. Such awards generally vest over a period of three or four years from the date of grant. Until vested, RSUs do not have the voting rights of common stock and the shares underlying the RSUs are not considered issued and outstanding. The Company expenses the cost of RSUs, which is determined to be the fair market value of the shares of the Company’s common stock at the date of grant, ratably over the period during which the restrictions lapse. In addition to RSUs, the Company also granted employee stock options covering 1.8 million and 10.8 million shares of common stock under the 2006 Plan during the three and six months ended June 30, 2007, respectively. In the first quarter of 2007, the Board also granted performance share awards to eligible executives covering 0.7 million shares of common stock that vest in 2010 provided certain annual performance targets and other vesting criteria are met. No new performance share awards were granted to the Company’s executives in the second quarter of 2007. The Company accrued stock compensation expense of $0.1 million and $0.2 million for the three and six months ended June 30, 2007, respectively, in connection with such performance shares. No restricted stock was issued in the three and six months ended June 30, 2007.

The Company’s equity award activities and related information as of and for the six months ended June 30, 2007 is summarized as follows:

						Outstanding Options
														Weighted
										Weighted-				Average
		Shares								Average				Remaining
		Available				Number of				Exercise				Contractual				Aggregate
		For Grant(1)				Shares(4)				Price				Term				Intrinsic Value(4)
		(In thousands)				(In thousands)				(In dollars)				(In years)				(In thousands)
Balance at January 1, 2007			60,542				82,092			$	18.75
RSUs and performance share awards granted(2)			(4,248	)			—				—
Options granted			(10,809	)			10,809				19.35
RSUs canceled			318				—				—
Options canceled (3)			1,817				(1,950	)			19.36
Options exercised			—				(8,061	)			11.34
Options expired(3)			3,611				(3,711	)			24.38
Balance at June 30, 2007			51,231				79,179			$	19.31				5.81			$	552,881

A summary of the Company’s vested or expected-to-vest options and exercisable options as of June 30, 2007 is set forth in the following table:

Weighted

Weighted-

Average

Average

Remaining

Number of

Exercise

Contractual

Aggregate

Shares

Price

Term

Intrinsic Value

(In thousands)

(In dollars)

(In years)

(In thousands)

Vested or expected-to-vest options

73,765

$

19.38

5.8

$

516,014

Exercisable options

56,323

19.68

5.6

397,379

As of June 30, 2007, options covering approximately 56 million shares of common stock were exercisable at a weighted average exercise price of $19.68 each. As of June 30, 2006, options covering approximately 62.7 million shares of common stock were exercisable at a weighted average exercise price of $18.98 each. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the reporting period, which was $25.17 per share as of June 30, 2007, and the exercise price multiplied by the number of shares subject to the related options. The pre-tax intrinsic value of options exercised, representing the difference between the fair market value of the Company’s common stock on the date of the exercise and the exercise price of each option, was $70.2 million and $86.6 million for the three and six months ended June 30, 2007, respectively.

The total fair value of options that vested during the three and six months ended June 30, 2007 was $20.3 million and $45.4 million, respectively. As of June 30, 2007, approximately $151 million of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted-average period of three years, of which approximately $40 million was estimated to be forfeited prior to the vesting of such awards and has been excluded from the preceding cost.

Restricted Stock Units and Performance Share Awards Activities

The following schedule summarizes information about the Company’s RSUs and performance share awards as of June 30, 2007:

Weighted-

Weighted-

Average

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Shares

Price

Term

Value

(In thousands)

(In dollars)

(In years)

(In thousands)

Shares subject to outstanding RSUs and performance share awards

4,894

—

1.7

$

123,182

Vested and expected to vest RSUs and performance share awards

3,544

—

1.6

89,198

None of the outstanding RSUs or performance share awards were vested or exercisable as of June 30, 2007. The shares subject to these outstanding RSUs and performance share awards have been deducted from the shares available for grant under the Company’s stock option plans. The weighted average grant date fair value of restricted stock units and, if applicable, performance share awards, granted was $21.36 and $18.50 each for the three and six months ended June 30, 2007, respectively, and was $17.29 and $18.79 each for the three and six months ended June 30, 2006, respectively. As of June 30, 2007, approximately $74 million of total unrecognized compensation cost related to RSUs and performance share awards was expected to be recognized over a weighted-average period of 2.6 years, of which approximately $22 million was estimated to be forfeited prior to the vesting of such awards. Aggregate intrinsic value for RSUs and performance share awards represents the difference between the Company’s closing stock price on the last trading

day of the reporting period, which was $25.17 per share as of June 30, 2007, multiplied by the number of shares subject to the related RSUs and performance share awards.

Employee Stock Purchase Plan

In April 1999, the Board of Directors approved the adoption of Juniper Networks 1999 Employee Stock Purchase Plan (the “ESPP”). The ESPP permits eligible employees to acquire shares of the Company’s common stock through periodic payroll deductions of up to 10% of base compensation. Each employee may purchase no more than 6,000 shares in any twelve-month period, and in no event may an employee purchase more than $25,000 worth of stock, determined at the fair market value of the shares at the time such option is granted, in one calendar year. The ESPP is implemented in a series of offering periods, each six months in duration, or a shorter period as determined by the Board. The price at which the common stock may be purchased is 85% of the lesser of the fair market value of the Company’s common stock on the first day of the applicable offering period or on the last day of the applicable offering period. On December 16, 2005, the Board amended the ESPP to eliminate the ability of a participant under the ESPP to increase the rate of the participants’ payroll deductions during any offering period (as defined in the ESPP). This change was effective beginning with the offering period commencing on February 1, 2006. The Company had suspended its employee payroll withholdings for the purchase of its common stock under the ESPP offering period from August 2006 through January 31, 2007. In January 2007, the Board of Directors approved a delay of the start of the next offering period from February 1, 2007 to April 1, 2007 (such offering period ended on July 31, 2007). Pre-tax compensation expense of $2.3 million was recorded in the three months ended June 30, 2007 for stock costs associated with the ESPP. No expense was recorded in the first quarter of 2007 due to the temporary suspension of the Plan. As of June 30, 2007, approximately 6,490,500 shares had been issued and 11,509,510 shares remained available for future issuance under the ESPP.

Valuation of Stock-Based Compensation

SFAS No. 123R requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected term, and risk-free interest rates. The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected term of the Company’s stock options, adjusted for other relevant factors including implied volatility of market traded options on the Company’s common stock. The expected term of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees, as well as the potential effect from options that had not been exercised at the time.

In 2006, the Company began granting stock option awards that have a contractual life of seven years from the date of grant. Prior to 2006, stock option awards generally had a ten year contractual life from the date of grant. As a result, the expected term assumption used in the three and six months ended June 30, 2007 and June 30, 2006, respectively, reflects the shorter contractual life of the new option awards granted during the period.

The assumptions used and the resulting estimates of weighted-average fair value per share of options granted and for employee stock purchases under the ESPP during the periods referenced below are summarized as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Employee Stock Options:
Dividend yield			—				—				—				—
Volatility factor			34.7	%			40.0	%			38.8	%			38.8	%
Risk-free interest rate			4.8	%			5.0	%			4.6	%			4.7	%
Expected life (years)			3.6				3.5				3.7				3.5
Weighted-average per share fair value of options granted during the periods		$	7.5			$	5.9			$	6.8			$	6.3
Employee Stock Purchase Plan:
Dividend yield			—				—				—				—
Volatility factor			37.7	%			—				37.7	%			33.0	%
Risk-free interest rate			5.1	%			—				5.1	%			3.7	%
Expected life (years)			0.3				—				0.3				0.5
Weighted-average fair value of employee stock purchases during the periods		$	4.8			$	—			$	4.8			$	5.9
Weighted-average per share fair value of RSUs granted during the periods		$	21.4			$	17.3			$	18.5			$	18.8

Extension of Stock Option Exercise Periods for Former Employees

The Company could not issue any securities under its registration statements on Form S-8 during the period in which it was not current in its SEC reporting obligations to file periodic reports under the Securities Exchange Act of 1934. As a result, during parts of 2006 and 2007, options vested and held by certain former employees of the Company could not be exercised until the completion of the Company’s stock option investigation and the Company’s public filings obligations had been met (the “trading black-out period”). The Company extended the expiration date of these stock options to April 7, 2007, the end of a 30–day period subsequent to the Company’s filing of its required regulatory reports. As a result of the extensions, the fair value of such stock options had been reclassified to current liabilities subsequent to the modification and were subject to mark-to-market provisions at the end of each reporting period until the earlier of final settlement or April 7, 2007. Stock options covering approximately 660,000 shares of common stock were scheduled to expire and could not be exercised as a result of the trading black-out period restriction during the first quarter of 2007. The Company measured the fair value of these stock options using the Black-Scholes-Merton option valuation model and recorded an expense of approximately $4.3 million in the first quarter of 2007. In addition, the Company recorded an expense of $4.4 million in the first quarter of 2007 associated with the approximately 1,446,000 shares covered by such options which had exercise periods extended in 2006 as a result of the trading black-out period restriction. As of June 30, 2007, all of these extended stock options were either exercised or expired un-exercised. All previously recorded liabilities associated with such extensions were reclassified to additional paid-in capital in the first six months of 2007.

Amendment of Certain Stock Options

In the six months ended June 30, 2007, the Company completed a tender offer to amend certain options granted under the 1996 Stock Plan and the 2000 Plan that had original exercise prices per share that were less than the fair market value per share of the common stock underlying the option on the option’s grant date, as determined by the Company for financial accounting purposes. Under this tender offer, employees subject to taxation in the United States and Canada had the opportunity to increase their strike price on affected options to the appropriate fair market value per share on the date of grant so as to avoid unfavorable tax consequences under United States Internal Revenue Code Section 409A (“409A issue”) or Canadian tax laws and regulations. In exchange for increasing the strike price of these options, the Company committed to make a cash payment to employees participating in the offer so as to make employees whole for the incremental strike price as compared to their original option exercise price. In connection with the offer, the Company amended options to purchase 4.3 million shares of its common stock and committed to make aggregate cash payments of $7.6 million to offer participants and recorded such amount in operating expense for the six months ended June 30, 2007.

In addition, the Company entered into a separate agreement with two executives in the three months ended June 30, 2007 to amended their unexercised stock options covering 0.1 million shares of the Company’s common stock in order to cure the 409A issue associated with such stock options. As a result, the Company committed to make aggregate cash payments of $0.4 million and recorded this payment liability in operating expense for the three and six months ended June 30, 2007.

Note 7. Segment Information

The Company’s chief operating decision maker (“CODM”) and senior management team (together, “management”) allocate resources and assess performance based on financial information by the Company’s business groups which are categorized into the following three reportable segments: Infrastructure, SLT, and Service.

The Infrastructure segment includes products from the E-, M-, T- and MX-series router product families as well as the circuit-to-packet products and SBC products. The SLT segment consists primarily of firewall and virtual private network (“VPN”) systems and appliances, secure sockets layer VPN appliances, intrusion detection and prevention appliances (“IDP”), application front end platforms, the J-series router product family, Odyssey products and wide area network (“WAN”) optimization platforms. The Service segment delivers world-wide services to customers of the Infrastructure and the SLT segments.

The primary financial measure used by the management in assessing performance and allocating resources to the segments is management operating income, which includes certain cost of revenues, research and development expenses, sales and marketing expenses, and general and administrative expenses. Direct costs, such as standard costs, research and development, and product marketing expenses, are generally applied to each reportable segment. Indirect costs, such as manufacturing overhead and other cost

of sales, are allocated based on standard costs. Indirect operating expenses, such as sales, marketing, business development, and general and administrative expenses are generally allocated to each reportable segment based on factors including headcount and revenue. The CODM does not allocate stock-based compensation, amortization, impairment, other charges, interest income and expense, other income and expense, income taxes, as well as certain other charges to segments. With the ever-evolving business environment such as changes in products or markets, acquisitions, long-term growth strategies, and the experience and bandwidth of the senior executives in charge, the Company may periodically reorganize its segments consistent with corresponding changes in its organizational structure.

Financial information for each reportable segment used by management to make financial decisions and allocate resources is summarized as follows (in millions):

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006*				2007				2006*
Net Revenues:
Infrastructure		$	402.9			$	352.2			$	788.1			$	715.2
Service Layer Technologies			138.8				116.6				263.4				227.7
Service			123.2				98.7				240.4				191.3
Total net revenues		$	664.9			$	567.5			$	1,291.9			$	1,134.2
Operating income (loss):
Management operating income (loss):
Infrastructure		$	109.1			$	108.2			$	210.5			$	228.1
Service Layer Technologies			(4.1	)			(3.9	)			(12.3	)			(7.3	)
Service			30.5				23.3				60.4				48.2
Total management operating income			135.5				127.6				258.6				269.0
Amortization of purchased intangible assets			(24.1	)			(24.6	)			(48.2	)			(49.1	)
Stock-based compensation expense			(21.5	)			(23.2	)			(47.4	)			(46.2	)
Stock-based compensation related payroll tax			(2.1	)			(0.9	)			(2.1	)			(2.5	)
Impairment of goodwill and intangibles			—				(1,283.4	)			—				(1,283.4	)
Other charges, net			(1.6	)			(4.3	)			(14.2	)			(5.7	)
Total operating income (loss)			86.2				(1,208.8	)			146.7				(1,117.9	)
Interest and other income			33.5				24.0				67.5				44.8
Interest and other expense			(1.2	)			(0.8	)			(2.3	)			(1.9	)
Income (loss) before income taxes		$	118.5			$	(1,185.6	)		$	211.9			$	(1,075.0	)

The Company attributes sales to geographic region based on the customer’s ship-to location. The following table shows net revenue by geographic region (in millions):

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006*				2007				2006*
Americas:
United States		$	289.7			$	239.6			$	569.2			$	480.1
Other			25.5				24.2				41.4				45.6
Total Americas			315.2				263.8				610.6				525.7
Europe, Middle East and Africa			197.8				192.5				407.2				399.0
Asia Pacific			151.9				111.2				274.1				209.5
Total		$	664.9			$	567.5			$	1,291.9			$	1,134.2

Nokia-Siemens Networks B.V. (“NSN”) and its predecessor companies accounted for 18% of the Company’s net revenues for the three months ended June 30, 2007. NSN and Verizon Communications, Inc. individually accounted for 15% and 11%, respectively, of the Company’s net revenues for the six months ended June 30, 2007. The revenues attributed to both customers were derived from the sale of products and services in all three reportable segments.

Siemens AG and Verizon individually accounted for 15% and 10% of the Company’s net revenues for the three months ended June 30, 2006, respectively. Siemens individually accounted for 15% of the Company’s net revenues for the six months ended June 30, 2006. The revenue attributed to Siemens was derived from the sale of products and services in all three reportable segments. The revenue attributed to Verizon during the three and six months ended June 30, 2006 was derived from the sale of Infrastructure products and services.

The Company tracks assets by physical location. The majority of the Company’s assets, including property and equipment, were attributable to its U.S. operations as of June 30, 2007 and December 31, 2006. The CODM does not review asset information on a segment basis in order to assess performance and allocate resources, nonetheless, the CODM allocates depreciation to segments based on revenue.

Note 8. Income Taxes

The Company recorded tax provisions of $32.3 million and $20.8 million for the three months ended June 30, 2007 and 2006, or effective tax rates of 27% and -2% respectively. The Company recorded tax provisions of $59.1 million and $55.7 million for the six months ended June 30, 2007 and 2006, or effective tax rates of 28% and -5%, respectively. The effective tax rates for the three and six months ended June 30, 2007 differ from the federal statutory rate primarily due to income earned in foreign jurisdictions which are subject to lower rates and research and development credits in the United States. The effective tax rates for the three and six months ended June 30, 2006 differ from the federal statutory rate primarily due to the non-deductibility of a substantial portion of the goodwill impairment charge recorded in the first six months of 2006. The change in the effective tax rate for the first six months of 2007, compared to the same period in 2006, was primarily related to the goodwill impairment charge, which is non-deductible for income tax purposes. The Company’s income taxes currently payable for federal and state purposes have been reduced by the tax benefit from employee stock option transactions. These benefits totaled $7.6 million and $9.9 million for the three and six months ended June 30, 2007, respectively, and were reflected as an increase to additional paid-in capital.

The Company adopted the provisions of FIN 48 on January 1, 2007, the first day of fiscal 2007. The cumulative effect of applying FIN 48 was a $23.0 million increase to the opening balance of accumulated deficit as of January 1, 2007 and a $1.0 million increase to goodwill. Upon adoption, the total amount of gross unrecognized tax benefits was $90.0 million. Included in this balance were approximately $75 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. The recognition of the remaining unrecognized tax benefits would affect goodwill for resolution of uncertain tax positions related to pre-acquisition periods. With the exception of the Internal Revenue Service’s (“IRS”) audit of our 1999 — 2000 federal income tax returns referenced below, the Company was not under examination by any major jurisdictions in which the Company files its income tax returns as of June 30, 2007. It is possible that the amount of the liability for unrecognized tax benefits, including the unrecognized tax benefit position related to the IRS audit referenced below, may change within the next 12 months. However, an estimate of the range of possible change cannot be made at this time.

In accordance with the Company’s accounting policy, it recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. This policy did not change as a result of the adoption of FIN 48. The Company had accrued interest expense and penalties of $4.1 million as of the date of adoption of FIN 48.

The change in the gross unrecognized tax benefits increased by approximately $7.0 million for the six months ended June 30, 2007, and the interest and penalties incurred for the same period were approximately $1.0 million.

The Company conducts business globally and, as a result, Juniper Networks or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Ireland, Hong Kong, U.K., France, Germany, The Netherlands, Japan, China, Australia, and the U.S. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2003, although carryforward attributes that were generated prior to 2003 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period.

The IRS has concluded an audit of the Company’s federal income tax returns for fiscal years 1999 and 2000. During 2004, the Company received a Notice of Proposed Adjustment (“NOPA”) from the IRS. While the final resolution of the issues raised in the NOPA is uncertain, the Company believes it has made adequate provisions in the accompanying Condensed Consolidated Financial Statements for any adjustments that the IRS has proposed with respect to these tax returns.

In conjunction with the IRS income tax audit, certain of the Company’s U.S. payroll tax returns were examined for fiscal years 1999 — 2001, and the Company received a second NOPA in the amount of $11.7 million for employment tax assessments primarily related to the timing of tax deposits related to employee stock option exercises. The Company agreed to settle this issue with the IRS through the appeals process for approximately $2.7 million and made this payment in the second quarter of 2007. The Company accrued and recognized in operating expense $2.5 million and $0.2 million in the fourth quarter of 2006 and the first quarter of 2007, respectively.

Subsequent to June 30, 2007, the IRS opened an examination of the Company’s U.S. federal income tax and employment tax returns for the 2004 fiscal year.

Note 9. Commitments and Contingencies

Commitments

The following table summarizes the Company’s principal contractual obligations as of June 30, 2007 (in millions):

		Total				2007				2008				2009				2010				2011				Thereafter
Operating leases, net of committed subleases		$	181.7			$	23.0			$	40.3			$	31.6			$	28.0			$	24.0			$	34.8
Senior notes			399.9				—				399.9				—				—				—				—
Purchase commitments			96.5				96.5				—				—				—				—				—
Other contractual obligations			19.8				9.8				5.0				5.0				—				—				—
Total		$	697.9			$	129.3			$	445.2			$	36.6			$	28.0			$	24.0			$	34.8

Operating Leases

Juniper Networks leases its facilities under operating leases that expire at various times, the longest of which expires in 2016. Rent and related expenses paid to a related party were $1.3 million and $1.5 million for the three months ended June 30, 2007 and 2006, respectively, and $2.3 million and $2.6 million for the six months ended June 30, 2007 and 2006, respectively.

Senior Notes

As of June 30, 2007, the Company’s Zero Coupon Convertible Senior Notes (“Senior Notes) had a carrying value of $399.9 million. The Senior Notes are due on June 15, 2008. The Company reclassified its Senior Notes from long-term liabilities to short-term liabilities during the second quarter of 2007 because the Senior Notes are due within the next 12 months.

Credit Facility

In June 2007, the Company entered into a senior secured margin lending agreement with a third party financial institution for a maximum loan value of $400.0 million, or 90% of the fair market value of the underlying collateral, to establish a flexible draw down facility to fund additional stock repurchases, as necessary. This credit facility bears a floating interest rate equal to the three-month USD LIBOR plus 40 basis points per annum and, if utilized, would be secured by the Company’s publicly traded fixed income securities portfolio equivalent to 111% of any outstanding balance. This credit facility is due to expire on November 30, 2007. As of the filing of this report, no amounts have been drawn down on this credit facility.

Purchase Commitments

The Company does not have firm purchase commitments with its contract manufacturers. In order to reduce manufacturing lead times and ensure adequate component supply, the contract manufacturers place non-cancelable, non-returnable (“NCNR”) orders, which were valued at $96.5 million as of June 30, 2007, based on the Company’s build forecasts. The Company does not take ownership of the components and the NCNR orders do not represent firm purchase commitments pursuant to Juniper Networks’ agreements with the contract manufacturers. The components are used by the contract manufacturers to build products based on purchase orders the Company has received from its customers or its forecast. The Company may incur a liability for products built by the contract manufacturers if the components go unused for specified periods of time and, in the meantime, the Company may be assessed carrying charges. As of June 30, 2007, the Company had accrued $22.2 million included in other accrued liabilities in the condensed consolidated balance sheet based on its estimate of such charges.

Other Contractual Obligations

As of June 30, 2007, other contractual obligations consisted primarily of the escrow amount of $8.9 million in connection with past acquisitions for indemnity obligations expiring in 2007 and a software subscription requiring payments of $5.0 million in both January 2008 and January 2009.

In addition, as of June 30, 2007, the Company had $28.3 million of long-term liabilities in its condensed consolidated balance sheet for unrecognized tax positions. However, the periods of cash settlement with the respective tax authority cannot be reasonably estimated.

Guarantees

The Company has entered into agreements with some of its customers that contain indemnification provisions relating to potential situations where claims could be alleged that the Company’s products infringe the intellectual property rights of a third party. Other guarantees or indemnification arrangements include guarantees of product performance and standby letters of credits for certain lease facilities. The Company has not recorded a liability related to these guarantee and indemnification provisions and its guarantees and indemnification arrangements have not had any significant impact on the Company’s financial position, results of operations, or cash flows.

Legal Proceedings

The Company is subject to legal claims and litigation arising in the ordinary course of business, such as employment or intellectual property claims, including the matters described below. The outcome of any such matters is currently not determinable. Although the Company does not expect that any such legal claims or litigation will ultimately have a material adverse effect on its consolidated financial position or results of operations, an adverse result in one or more matters could negatively affect the Company’s results in the period in which they occur.

Stock Option Lawsuits

Federal Derivative Lawsuits

Between May 24, 2006 and August 17, 2006, seven purported shareholder derivative actions were filed in the United States District Court for the Northern District of California against the Company and certain of its current and former officers and directors. The lawsuits allege that the Company’s officers and directors either participated in illegal back-dating of stock option grants or allowed it to happen. On October 19, 2006, the Court ordered the consolidation of these actions as In Re Juniper Derivative Actions, No. 06-03396, and appointed as the lead plaintiffs Timothy Hill, Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund, and Indiana State District Council of Laborers and HOD Carriers Pension Fund. Lead plaintiffs filed a consolidated complaint on April 11, 2007. The consolidated complaint asserts causes of action for violations of federal securities laws, violations of California securities laws, breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty, abuse of control, corporate waste, breach of contract, unjust enrichment, gross mismanagement, and insider selling and misappropriation of information. The consolidated complaint also demands an accounting and rescission of allegedly improper stock option grants.

State Derivative Lawsuits — California

On May 24, 2006 and June 2, 2006, two purported shareholder derivative actions were filed in the Santa Clara County Superior Court in the State of California against the Company and certain of its current and former officers and directors. These two actions were consolidated as In re Juniper Networks Derivative Litigation, No. 1:06CV064294, by order dated June 20, 2006. An amended consolidated complaint was filed on April 9, 2007. The amended consolidated complaint alleges that certain of the Company’s current and former officers and directors either participated in illegal back-dating of stock options or allowed it to happen. The complaint asserts causes of action for unjust enrichment, breach of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, insider selling and misappropriation of information, and violations of California securities laws. Plaintiffs also demand an accounting and rescission of allegedly improper stock options grants, and a constructive trust of proceeds derived from allegedly illicit stock options.

Federal Securities Class Action

On July 14, 2006 and August 29, 2006, two purported class actions were filed in the Northern District of California against the Company and certain of its current and former officers and directors. On November 20, 2006, the Court consolidated the two actions as In re Juniper Networks, Inc. Securities Litigation, No. C06-04327-JW, and appointed the New York City Pension Funds as lead plaintiffs. The lead plaintiffs filed a Consolidated Class Action Complaint on January 12, 2007, and filed an Amended Consolidated Class Action Complaint on April 9, 2007. The Amended Consolidated Complaint alleges that the defendants violated federal securities laws by manipulating stock option grant dates to coincide with low stock prices and issuing false and misleading statements including, among others, incorrect financial statements due to the improper accounting of stock option grants. The Amended Consolidated Complaint asserts claims for violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 on behalf of all persons who purchased or otherwise acquired Juniper Networks’ publicly traded securities from July 12, 2001 through and including August 10, 2006. On June 7, 2007, the defendants filed a motion to dismiss certain of the claims. The motion is scheduled for hearing on September 10, 2007.

Calamore Proxy Statement Action

On March 28, 2007 an action titled Jeanne M. Calamore v. Juniper Networks, Inc., et al., No. C-07-1772-JW, was filed by Jeanne M. Calamore in the Northern District of California against the Company and certain of its current and former officers and directors. The complaint alleges that the proxy statement for the Company’s 2006 Annual Meeting of Stockholders contained various false and misleading statements in that it failed to disclose stock option backdating information. As a result, plaintiff seeks preliminary and permanent injunctive relief with respect to the Company’s 2006 Equity Incentive Plan, including seeking to invalidate the plan and all equity awards granted and grantable thereunder. On May 21, 2007, the Company filed a motion to dismiss and plaintiff filed a motion for preliminary injunction. On July 19, 2007, the Court issued an order denying plaintiff’s motion for a preliminary injunction and dismissing the complaint in its entirety with leave to amend. Plaintiff has until August 20, 2007 to file an amended complaint.

Other Matters

IPO Allocation Case

In December 2001, a class action complaint was filed in the United States District Court for the Southern District of New York against the Goldman Sachs Group, Inc., Credit Suisse First Boston Corporation, FleetBoston Robertson Stephens, Inc., Royal Bank of Canada (Dain Rauscher Wessels), SG Cowen Securities Corporation, UBS Warburg LLC (Warburg Dillon Read LLC), Chase (Hambrecht & Quist LLC), J.P. Morgan Chase & Co., Lehman Brothers, Inc., Salomon Smith Barney, Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated (collectively, the “Underwriters”), Juniper Networks and certain of Juniper Networks’ officers. This action was brought on behalf of purchasers of the Company’s common stock in its initial public offering in June 1999 and its secondary offering in September 1999.

Specifically, among other things, this complaint alleged that the prospectus pursuant to which shares of common stock were sold in the Company’s initial public offering and the Company’s subsequent secondary offering contained certain false and misleading statements or omissions regarding the practices of the Underwriters with respect to their allocation of shares of common stock in these offerings and their receipt of commissions from customers related to such allocations. Various plaintiffs have filed actions asserting similar allegations concerning the initial public offerings of approximately 300 other issuers. These various cases pending in the Southern District of New York have been coordinated for pretrial proceedings as In re Initial Public Offering Securities Litigation, 21 MC 92. In April 2002, plaintiffs filed a consolidated amended complaint in the action against the Company, alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. Defendants in the coordinated proceeding filed motions to dismiss. In October 2002, the Company’s officers were dismissed from the case without prejudice pursuant to a stipulation. On February 19, 2003, the court granted in part and denied in part the motion to dismiss, but declined to dismiss the claims against the Company.

In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including the Company, was submitted to the court for approval. On August 31, 2005, the court preliminarily approved the settlement. In December 2006, the appellate court overturned the certification of classes in the six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Because class certification was a condition of the settlement, it was unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have indicated that they will seek to amend their allegations and file amended complaints. It is uncertain whether there will be any revised or future settlement.

Toshiba Patent Infringement Litigation

On November 13, 2003, Toshiba Corporation filed suit in the United States District Court in Delaware against the Company, alleging that certain of the Company’s products infringed several Toshiba patents, and seeking an injunction and unspecified damages. A Markman hearing was held in April 2006, and a ruling favorable to the Company was issued on June 28, 2006. Based on the ruling, Toshiba stipulated to non-infringement of the asserted patents and subsequently appealed the ruling to the United States Court of Appeals for the Federal Circuit. The appeal was heard by the Court of Appeals on July 11, 2007.

IRS Notices of Proposed Adjustments

The IRS has concluded an audit of the Company’s federal income tax returns for fiscal years 1999 and 2000. During 2004, the Company received a Notice of Proposed Adjustment (“NOPA”) from the IRS. While the final resolution of the issues raised in the NOPA is uncertain, the Company does not believe that the outcome of this matter will have a material adverse effect on the Company’s consolidated financial position or results of operations. The Company is also under routine examination by certain state and non-US tax authorities. The Company believes that it has adequately provided for any reasonably foreseeable outcome related to these audits.

In conjunction with the IRS income tax audit, certain of the Company’s US payroll tax returns were examined for fiscal years 1999 — 2001, and the Company received a second NOPA in the amount of $11.7 million for employment tax assessments primarily related to the timing of tax deposits related to employee stock option exercises. The Company agreed to settle this issue with the IRS through the appeals process for approximately $2.7 million, and made the payment in the second quarter of 2007.

Subsequent to June 30, 2007, the IRS opened an examination of the Company’s U.S. federal income tax and employment tax returns for the 2004 fiscal year.

Note 10. Related Party Transactions

The Company reimburses its CEO, Mr. Scott Kriens, for ordinary operating costs relating to his use of a personal aircraft for business purposes up to a maximum amount per year. The Company incurred $0.1 million and $0.2 million in related expenses for the three and six months ended June 30, 2007, respectively, and $0.1 million and $0.2 million for the three and six months ended June 30, 2006, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q (“Report”), including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as ‘expects,’ ‘anticipates,’ ‘targets,’ ‘goals,’ ‘projects,’ ‘intends,’ ‘plans,’ ‘believes,’ ‘seeks,’ ‘estimates,’ variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Report under the section entitled “Risk Factors” in Item 1A of Part II and elsewhere, and in other reports the Company files with the Securities and Exchange Commission (“SEC”), specifically the most recent Annual Report on Form 10-K. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

The following discussion is based upon our Condensed Consolidated Financial Statements included elsewhere in this report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. In the course of operating our business, we routinely make decisions as to the timing of the payment of invoices, the collection of receivables, the manufacturing and shipment of products, the fulfillment of orders, the purchase of supplies, and the building of inventory and spare parts, among other matters. Each of these decisions has some impact on the financial results for any given period. In making these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives. On an on-going basis, we evaluate our estimates, including those related to sales returns, pricing credits, warranty costs, allowance for doubtful accounts, impairment of long-term assets, especially goodwill and intangible assets, contract manufacturer exposures for carrying and obsolete material charges, assumptions used in the valuation of stock-based compensation, and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Overview of the Results of Operations

Executive Overview

Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to aid readers of our financial statements in understanding our operating results for the three and six months ended June 30, 2007 and 2006. We have provided a brief summary of our performance relative to certain key financial metrics as of and for the three and six months ended June 30, 2007 compared to the three and six months ended June 30, 2006 (in thousands, except diluted net income (loss) per share and average days sales outstanding (“DSO”)). This executive overview should be read in conjunction with the more detailed discussion and analysis of our financial condition and results of operations in this Item 2, our “Risk Factors” section included in Item 1A, and our unaudited condensed consolidated financial statements and notes included in Item 1 of this quarterly report.

	•		Revenues: Our net revenues for the three and six months ended June 30, 2007 increased 17% and 14%, respectively, from the same comparable periods in 2006. Revenues increased in each of our three reportable segments for the three and six months ended June 30, 2007 compared to the same periods in 2006. Increases in revenues were attributable to the market acceptance of our existing and expanding portfolio of our router and security products and services. We saw continued growth in our Infrastructure revenues from our T-Series and TX Matrix products as well as growth in our E320, M120 and MX960 edge routers for the three and six months ended June 30, 2007, compared to the same periods last year. Our SLT products also continued to grow with revenue increases in our Firewall/VPN, SSL VPN and our DX and WX application performance products in the three and six months ended June 30, 2007, compared to the same periods last year. Our service revenues increased in the three and six months ended June 30, 2007, compared to the same periods last year, primarily due to the expansion of our installed base of equipment under service contracts.
	•		Gross Margin: Gross margin of 66.8% and 66.5% for the three and six months ended June 30, 2007, respectively, was relatively consistent with the comparable periods in 2006.

	•		Operating Margin: Our operating margin increased to 13% and 11% for the three and six months ended June 30, 2007, respectively, compared to -213% and -99% for the three and six month periods ended June 30, 2006, respectively. The increases in operating margin for the three and six months ended June 30, 2007, as compared to same periods of 2006, were substantially due to the goodwill impairment of $1,280.0 million we recorded in the second quarter of 2006, partially offset by increases in research and development expenses and other charges in 2007. We increased research and development expenses during 2007 in an effort to expand our product portfolio. Other charges in the three and six months ended June 30, 2007 were primarily related to the stock option investigation and tender offer to amend certain employees’ stock options. We expect total operating expenses to increase but at a slower rate than revenue, and therefore, our operating margin is expected to increase slightly through the remainder of 2007.
	•		Net Income (Loss) Per Share: Our diluted net income per share improved to $0.15 and $0.26 for the three and six months ended June 30, 2007, respectively, compared to diluted net loss per share of $2.13 and $2.00 for the comparable periods in 2006. The increases in diluted net income per share in 2007 were substantially due to our goodwill impairment of $1,280.0 in 2006 partially offset by increases in research and development expenses and other charges in 2007. There was no significant impact on net income per share from the stock repurchase activity discussed below as the benefits in the reduction in shares outstanding were offset by reductions in interest income from lower cash, cash equivalents and investment balances.
	•		Other Financial Highlights: Our cash, cash equivalents and available-for-sale investments decreased by $1,238.3 million or 47% in the six months ended June 30, 2007 primarily due to our stock repurchases, partially offset by cash generated from operating activities of $356.6 million. We used cash of $1,594.1 million and $1,623.2 million to repurchase shares of our common stock in the three and six months ended June 30, 2007, respectively. Cash generated from operations was generally consistent with cash generated from operations in the comparable six month period in the prior year. DSO improved to 35 days as of June 30, 2007, as compared to 38 days as of December 31, 2006 primarily as a result of improved shipment linearity.

Business Overview

We design and sell hardware and software products and services that together provide our customers with secure and assured Internet Protocol (“IP”) networking solutions. Our purpose-built, high performance IP platforms enable customers to support many different networking and security services and applications at scale. Service providers, enterprises, governments, and research and education institutions worldwide rely on us to deliver products for building networks that are tailored to the specific needs of their users, services and applications. Our portfolio of networking and security solutions supports the complex scale, security and performance requirements of many of the world’s most demanding networks. We sell our products and services through our direct sales organization, value-added resellers and distributors. The users of our products and services are within the service provider and enterprise markets. Our operations are organized into the following three reportable segments:

	•		Infrastructure: Our Infrastructure segment primarily offers scalable router products that are used to control and direct network traffic. Control has growing importance due to the increasing size and complexity of IP networks at a time when service providers are looking to differentiate their organizations through value-added service offerings. In addition we announced a portfolio of Session and Resource Control (“SRC”) solutions for setting and controlling network policy. These products supply the intelligence service providers need to help ensure a high quality user experience for multi-play and mobile services. Customers continued to demand scalable and reliable policy control solutions which we provide through our IP infrastructure solutions.
	•		Service Layer Technologies (“SLT”): Our SLT segment offers solutions that meet a broad array of our customer’s critical information management needs. Our products help to enable customers in protecting their information network, protecting data on the network, maximizing existing bandwidth and accelerating applications across a distributed network. Our secure networking solutions empower customers to convert commoditized, best effort networks, into market differentiated, value-added services with increased reliability and security to end users.
	•		Service: Our Service segment delivers world-wide technical support, professional services and education to customers of the Infrastructure and SLT segments.

For the three months ended June 30, 2007, Infrastructure, SLT and Service represented 61%, 21% and 18% of the total net revenues, respectively. From a geographic perspective, the Americas region represented 47% of total net revenues, Europe, Middle East and

Africa (“EMEA”) contributed 30% and the remaining 23% of the total net revenues was generated in the Asia Pacific (“APAC”) region.

Stock Repurchase Activity

In the three and six months ended June 30, 2007, we repurchased and retired 67.9 million and 69.4 million common shares, at an average price of $23.47 per share and $23.37 per share for a total of $1,594.1 million and $1,623.2 million, respectively, as part of our common stock repurchase program approved by our board (the “2006 Stock Repurchase Program”). We have not made share repurchases under this program subsequent to June 30, 2007 through the date of this report. As of the filing of this report, our 2006 Stock Repurchase Program had remaining authorized funds of $376.8 million.

Stock Option Investigation and Amendment of Certain Stock Options

In the first quarter of 2007, we completed the restatement of our historical financial statements as a result of our independent stock option investigation and review of historical stock compensation practices. In addition, we regained compliance with listing standards of the NASDAQ Global Select Market. We recorded $1.3 million and $6.0 million in operating expense during the three and six months ended June 30, 2007, respectively, in connection with this stock option investigation.

In the first six months of 2007, we completed a tender offer to amend certain options granted under the Juniper Networks, Inc. Amended & Restated 1996 Stock Plan and the Juniper Networks, Inc. 2000 Nonstatutory Stock Option Plan that had original exercise prices per share that were less than the fair market value per share of the common stock underlying the option on the option’s grant date, as determined by us for financial accounting purposes. Under this tender offer, employees subject to taxation in the United States and Canada had the opportunity to increase their strike price on affected options to the appropriate fair market value per share on the date of grant so as to avoid unfavorable tax consequences under United States Internal Revenue Code Section 409A (“409A issue”) or Canadian tax laws and regulations. In exchange for increasing the strike price of these options, we committed to make a cash payment to employees participating in the offer so as to make employees whole for the incremental strike price as compared to their original option exercise price. In connection with the offer, we amended options to purchase 4.3 million shares of our common stock and committed to make aggregate cash payments of $7.6 million to offer participants. We accrued this aggregate payment liability and recognized an operating expense for the corresponding amount during the first six months of 2007.

In addition, we entered into a separate agreement with two executives in the three months ended June 30, 2007 to amended their unexercised stock options covering 0.1 million shares of the Company’s common stock in order to cure the 409A issue associated with such stock options. As a result, we committed to make aggregate cash payments of $0.4 million and accrued this payment liability in the three and six months ended June 30, 2007.

Adoption of FIN 48

We adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (“FIN 48”) on January 1, 2007, the first day of fiscal 2007. Under FIN 48, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. The cumulative effect of applying FIN 48 was a $23.0 million increase to the opening balance of accumulated deficit as of January 1, 2007 and a $1.0 million increase to goodwill.

Backlog

Our sales are made primarily pursuant to standard purchase orders for delivery of products or services or purchase orders under framework agreements with our customers. At any given time, we have orders for products that have not been shipped and for services that have not yet been performed for various reasons. Because of industry practice that allows customers to cancel or change orders with limited advance notice prior to shipment or performance, as well as our history of allowing such changes and cancellations, we do not consider this backlog to be firm.

Nature of Expenses

The majority of our manufacturing, repair and supply chain operations are outsourced to independent contract manufacturers and service providers. Accordingly, most of our costs of product revenues consist of payments to our independent contract manufacturers for the standard costs of our products. Independent contract manufacturers build our products using design specifications, quality assurance programs and standards that we establish. Key controls around manufacturing, engineering and documentation are

conducted at our facilities in Sunnyvale, California and Westford, Massachusetts. Our independent contract manufacturers have facilities primarily in Canada, China, Malaysia, and the United States. We generally do not own the inventory as title to products transfers from the contract manufacturers to us and immediately to our customers upon shipment.

The contract manufacturers procure components based on our build forecasts. If actual component usage is lower than our forecasts, we may be and have been in the past, liable for carrying or obsolete material charges. We record reserves for these charges within our financial statements.

Costs of service revenues include employee related expenses, service component expenses, outside service expense and equipment expenses as well as other expenses such as facility and overhead charges.

Employee related costs have historically been the primary driver of our operating expenses and we expect this trend to continue. These costs include items such as wages, stock-based compensation, commissions, bonuses, vacation, benefits, travel and the related facility and information technology costs. We increased our headcount to 5,435 employees as of June 30, 2007 from 4,347 employees as of June 30, 2006 primarily due to increases in research and development, sales and customer service activities. Our headcount is expected to increase through the remainder of 2007 as we continue to expand these areas.

We allocate facility and information technology costs to departments based on factors including headcount and revenue. These costs have increased in each of the last two years due to increases in headcount and facility costs. We expanded our domestic and international operations and internal system development to support our growth. We made capital additions of $42.7 million and $75.1 million in the three and six months ended June 30, 2007, respectively, compared to capital additions of $25.2 million and $43.4 million in the same periods in 2006. The increases are primarily due to the continued investments in our global development, test centers, and applications to support our operations. We expect our capital spending as a percentage of total net revenues to be consistent through the remainder of 2007.

Research and development expenses include costs of developing our products from concept to prototype. Several components of our research and development effort require significant expenditures, such as the development of new components and building prototype equipment, the timing of which can cause quarterly variability in our expenses. These costs also include outside services for items such as certifications of new products and expenditures associated with testing. We expense our research and development costs as they are incurred.

Sales and marketing expenses include costs for developing customer relationships, promoting our products offerings, demonstration equipment and advertising. These costs vary quarter-to-quarter depending on revenues, product launches and marketing initiatives. We plan to continue to develop our distribution channel and to promote our products through the remainder of 2007 in an effort to expand and grow our presence in our targeted markets.

General and administrative expenses include the cost to support our operations including employee related costs, professional fees, bad debt provisions, and other corporate expenses. Professional fees include accounting, audit, legal, tax and certain corporate strategic activities including planning and leadership development.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements as well as revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions. We base our estimates and assumptions on current facts and historical experience that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future operating results will be affected.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements:

	•		Revenue Recognition;
	•		Allowance for Doubtful Accounts;

	•		Purchase Commitments;
	•		Warranty Reserve;
	•		Goodwill and Purchased Intangible Assets;
	•		Stock-Based Compensation;
	•		Income Taxes;
	•		Litigation and Settlement Costs; and
	•		Loss Contingencies.

We adopted FIN 48 on January 1, 2007, the first day of fiscal 2007. FIN 48 is an interpretation of FASB Statement 109, Accounting for Income Taxes, and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that an entity takes or expects to take in a tax return. Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. Under FIN 48, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. This policy did not change as a result of our adoption of FIN 48.

Management believes that there have been no other significant changes during the three and six months ended June 30, 2007 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2006.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Condensed Financial Statements in Item 1 of Part I for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.

Results of Operations

Net Revenues

The following table shows product and service revenues (dollars in millions):

		Three Months Ended June 30,																Six Months Ended June 30,
		2007				2006				$ Change				% Change				2007				2006				$ Change				% Change
Net revenues:
Product		$	541.7			$	468.8			$	72.9				16	%		$	1,051.5			$	942.9			$	108.6				12	%
Percentage of net revenues			81	%			83	%											81	%			83	%
Service			123.2				98.7				24.5				25	%			240.4				191.3				49.1				26	%
Percentage of net revenues			19	%			17	%											19	%			17	%
Total net revenues		$	664.9			$	567.5			$	97.4				17	%		$	1,291.9			$	1,134.2			$	157.7				14	%