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Juniper Networks Reports Preliminary Third Quarter 2011 Financial Results

SUNNYVALE, CA - (Marketwire - Oct 18, 2011) - Juniper Networks (NYSE: JNPR)

  • Revenue: $1,106 million, up 9% from Q3'10 and down 1% from Q2'11
  • Operating Margin: 12.4% GAAP; 20.0% non-GAAP
  • GAAP Net Income Per Share: $0.16 diluted
  • Non-GAAP Net Income Per Share: $0.28 diluted, down 13% from Q3'10 and down 10% from Q2'11

Juniper Networks (NYSE: JNPR), the industry leader in network innovation, today reported preliminary financial results for the three and nine months ended September 30, 2011, and provided its outlook for the three months ending December 31, 2011.

Net revenues for the third quarter of 2011 increased 9% on a year-over-year basis, and decreased 1% sequentially, to $1,105.8 million.

The Company posted GAAP net income of $83.7 million, or $0.16 per diluted share, and non-GAAP net income of $149.8 million, or $0.28 per diluted share, for the third quarter of 2011. Included in the GAAP diluted income per share for the quarter is a $0.02 dilutive impact associated with restructuring activities.

Non-GAAP net income per diluted share decreased 13% compared to the third quarter of 2010 and decreased 10% compared to the second quarter of 2011. The reconciliation between GAAP and non-GAAP results of operations is provided in a table immediately following the Share-Based Compensation Related Payroll Tax by Category table below.

"Juniper executed well this quarter, and we are seeing strong customer interest in our new innovations in the data center, enterprise mobility and Converged Supercore," said Kevin Johnson, chief executive officer at Juniper Networks. "While the macroeconomic environment dictates we remain agile, Juniper is on the right strategic course to deliver continued growth."

Juniper's operating margin for the third quarter of 2011 decreased to 12.4% on a GAAP basis from 15.3% in the second quarter of 2011, and from 19.3% in the prior year third quarter. Included in the GAAP operating margin is a $16.8 million restructuring charge primarily related to workforce reductions. Non-GAAP operating margin for the third quarter of 2011 decreased to 20.0% from 21.6% in the second quarter of 2011 and from 24.1% in the prior year third quarter.

"The third quarter unfolded as we anticipated, and we achieved the performance objectives we had set for the September quarter," said Robyn Denholm, chief financial officer at Juniper Networks. "We will continue to carefully manage our expense structure with a focus on investing prudently in the resources that support our growth agenda and maintain our commitment to innovation."

Other Financial Highlights

Total cash, cash equivalents and investments as of the third quarter of 2011 was $4,130.3 million, compared to $4,220.5 million as of the second quarter of 2011 and $2,698.5 million as of the third quarter of 2010.

Juniper generated net cash from operations for the third quarter of 2011 of $185.2 million, compared to net cash provided by operations of $318.3 million, in the second quarter of 2011, and $131.4 million in the third quarter of 2010.

Days sales outstanding in accounts receivable ("DSO") was 36 days in the third quarter of 2011, compared to 39 days in the prior quarter and 42 days in the third quarter of 2010.

Juniper repurchased approximately 8.9 million shares in the third quarter of 2011, at an average price of $21.47 per share, or approximately $191.0 million dollars.

Capital expenditures, as well as depreciation and amortization of intangible assets expense during the third quarter of 2011, were $71.9 million and $43.3 million, respectively.

Outlook

While the long-term fundamentals driving demand for networking solutions are healthy, the macro environment and the impact of the environment on customer capex purchases continues to be uncertain.

  • Juniper estimates revenue for the fourth quarter ending December 31, 2011, to be in the range of $1.160 billion to $1.220 billion.
  • Juniper estimates that its non-GAAP gross margin will be in the range of between 65% and 67% in the fourth quarter.
  • Juniper estimates that its non-GAAP operating expenses will increase sequentially and be lower as a percentage of revenue in the fourth quarter.
  • Juniper expects its non-GAAP operating margin for the fourth quarter will be in the range of 21% to 23%.
  • Juniper estimates that its non-GAAP net income per share will range between $0.32 and $0.36 on a diluted basis, assuming a flat share count and estimated non-GAAP tax rate of 27.5%.

All forward-looking non-GAAP measures exclude estimates for amortization of intangible assets, share-based compensation expenses, acquisition related charges, restructuring charges, litigation settlement charges, gain or loss on equity investments, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and income tax effect of non-GAAP exclusions. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis.

Conference Call Web Cast

Juniper Networks will host a conference call web cast today, October 18, 2011, at 2:00 p.m. (Pacific Time), to be broadcast live over the Internet at: https://www.juniper.net/company/investor/conferencecall.html.

To participate via telephone, in the U.S. the toll free dial-in number is 877-407-8033; outside of the U.S. dial +1-201-689-8033. Please call ten minutes prior to the scheduled conference call time. The webcast replay of the conference call will be archived on the Juniper Networks website until December 13, 2011.

About Juniper Networks

Juniper Networks is in the business of network innovation. From devices to data centers, from consumers to cloud providers, Juniper Networks delivers the software, silicon and systems that transform the experience and economics of networking. Additional information can be found at Juniper Networks (www.juniper.net).

Juniper Networks and Junos are registered trademarks of Juniper Networks, Inc. in the United States and other countries. The Juniper Networks and Junos logos and Converged Supercore are trademarks of Juniper Networks, Inc. All other trademarks, service marks, registered trademarks, or registered service marks are the property of their respective owners.

Statements in this release concerning Juniper Networks' business outlook, economic and market outlook, future financial and operating results, and overall future prospects are forward-looking statements that involve a number of uncertainties and risks. Actual results or events could differ materially from those anticipated in those forward-looking statements as a result of certain factors, including: general economic conditions globally or regionally; business and economic conditions in the networking industry; changes in overall technology spending and spending by communication service providers; the network capacity requirements of communication service providers; contractual terms that may result in the deferral of revenue; increases in and the effect of competition; the timing of orders and their fulfillment; manufacturing and supply chain constraints; ability to establish and maintain relationships with distributors, resellers and other partners; variations in the expected mix of products sold; changes in customer mix; changes in geography mix; customer and industry analyst perceptions of Juniper Networks and its technology, products and future prospects; delays in scheduled product availability; market acceptance of Juniper Networks products and services; rapid technological and market change; adoption of regulations or standards affecting Juniper Networks products, services or the networking industry; the ability to successfully acquire, integrate and manage businesses and technologies; product defects, returns or vulnerabilities; the ability to recruit and retain key personnel; significant effects of tax legislation and judicial or administrative interpretation of tax regulations; currency fluctuations; litigation; and other factors listed in Juniper Networks' most recent report on Form 10-Q filed with the Securities and Exchange Commission. All statements made in this press release are made only as of the date set forth at the beginning of this release. Juniper Networks undertakes no obligation to update the information in this release in the event facts or circumstances subsequently change after the date of this press release.

Juniper Networks believes that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to the company's financial condition and results of operations. For further information regarding why Juniper Networks believes that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the discussion below.

   
Juniper Networks, Inc.  
Preliminary Condensed Consolidated Statements of Operations  
(in thousands, except per share amounts)  
(unaudited)  
   
    Three Months Ended   Nine Months Ended  
    September 30,   September 30,  
    2011     2010   2011     2010  
Net revenues:                              
  Product   $ 861,935     $ 801,183   $ 2,630,803     $ 2,296,442  
  Service     243,861       211,224     697,149       606,883  
    Total net revenues     1,105,796       1,012,407     3,327,952       2,903,325  
Cost of revenues:                              
  Product     286,609       247,033     844,746       701,166  
  Service     107,583       87,587     313,551       252,413  
    Total cost of revenues     394,192       334,620     1,158,297       953,579  
Gross margin     711,604       677,787     2,169,655       1,949,746  
Operating expenses:                              
  Research and development     257,096       231,151     776,325       662,913  
  Sales and marketing     254,933       204,704     747,859       599,382  
  General and administrative     44,455       43,773     133,639       132,791  
  Amortization of purchased intangible assets     1,263       917     4,139       3,258  
  Restructuring     16,813       181     15,550       8,550  
  Acquisition-related and other charges     18       1,525     6,804       2,066  
    Total operating expenses     574,578       482,251     1,684,316       1,408,960  
Operating income     137,026       195,536     485,339       540,786  
Other (expense) income, net     (15,957 )     205     (36,107 )     5,729  
Income before income taxes and noncontrolling interest     121,069       195,741     449,232       546,515  
Income tax provision     37,398       61,404     120,383       117,225  
Consolidated net income     83,671       134,337     328,849       429,290  
Adjust for net (income) loss attributable to noncontrolling interest     (8 )     206     124       (1,121 )
Net income attributable to Juniper Networks   $ 83,663     $ 134,543   $ 328,973     $ 428,169  
                               
Net income per share attributable to Juniper Networks common stockholders:                              
  Basic   $ 0.16     $ 0.26   $ 0.62     $ 0.82  
  Diluted   $ 0.16     $ 0.25   $ 0.60     $ 0.80  
Shares used in computing net income per share:                              
  Basic     529,286       520,581     530,994       522,069  
  Diluted     536,583       534,880     544,086       537,158  
                                 


 
Juniper Networks, Inc.
Preliminary Net Revenues by Reportable Segment
(in thousands)
(unaudited)
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2011   2010   2011   2010
Infrastructure:                        
  Routers - Product   $ 550,391   $ 510,453   $ 1,780,859   $ 1,495,199
  Routers - Service     152,609     132,097     432,637     376,871
    Infrastructure Revenue - Routers     703,000     642,550     2,213,496     1,872,070
  Switches - Product     121,852     97,140     336,096     258,733
  Switches - Service     9,687     4,378     23,742     12,317
    Infrastructure Revenue - Switches     131,539     101,518     359,838     271,050
      Total Infrastructure Revenue   $ 834,539   $ 744,068   $ 2,573,334   $ 2,143,120
                         
Service Layer Technologies:                        
  Service Layer Technologies - Product   $ 189,692   $ 193,590   $ 513,848   $ 542,510
  Service Layer Technologies - Service     81,565     74,749     240,770     217,695
    Total Service Layer Technologies Revenue   $ 271,257   $ 268,339   $ 754,618   $ 760,205
                         
      Total Revenue   $ 1,105,796   $ 1,012,407   $ 3,327,952   $ 2,903,325
                               


 
Juniper Networks, Inc.
Preliminary Net Revenues by Geographic Region
(in thousands)
(unaudited)
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2011   2010   2011   2010
Americas   $ 556,573   $ 532,747   $ 1,716,892   $ 1,515,436
Europe, Middle East, and Africa     311,255     275,927     940,167     829,505
Asia Pacific     237,968     203,733     670,893     558,384
Total   $ 1,105,796   $ 1,012,407   $ 3,327,952   $ 2,903,325
                         


 
Juniper Networks, Inc.
Preliminary Net Revenues by Market
(in thousands)
(unaudited)
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2011   2010   2011   2010
Service Provider   $ 685,013   $ 633,998   $ 2,156,530   $ 1,847,645
Enterprise     420,783     378,409     1,171,422     1,055,680
Total   $ 1,105,796   $ 1,012,407   $ 3,327,952   $ 2,903,325
                         
 
Juniper Networks, Inc.
Share-Based Compensation by Category
(in thousands)
(unaudited)
                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2011   2010   2011   2010
Cost of revenues - Product   $ 1,241   $ 991   $ 3,400   $ 3,093
Cost of revenues - Service     3,705     3,155     12,110     9,891
Research and development     26,540     19,315     75,453     54,980
Sales and marketing     20,572     13,439     52,969     39,020
General and administrative     8,410     7,491     25,701     22,571
Total   $ 60,468   $ 44,391   $ 169,633   $ 129,555
                         


 
Juniper Networks, Inc.
Share-Based Compensation Related Payroll Tax by Category
(in thousands)
(unaudited)
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2011   2010   2011   2010
Cost of revenues - Product   $ 4   $ 20   $ 299   $ 131
Cost of revenues - Service     9     53     938     370
Research and development     35     228     3,385     1,413
Sales and marketing     79     153     4,048     1,735
General and administrative     8     39     493     247
Total   $ 135   $ 493   $ 9,163   $ 3,896
                         


   
Juniper Networks, Inc.  
Reconciliation between GAAP and non-GAAP Financial Measures  
(in thousands, except percentages)  
(unaudited)  
   
        Three Months Ended     Nine Months Ended  
        September 30,     September 30,  
        2011     2010     2011     2010  
GAAP Cost of revenues - Product       $ 286,609     $ 247,033     $ 844,746     $ 701,166  
Share-based compensation expense   C     (1,241 )     (991 )     (3,400 )     (3,093 )
Share-based compensation related payroll tax   C     (4 )     (20 )     (299 )     (131 )
Amortization of purchased intangible assets   A     (5,438 )     (1,414 )     (16,074 )     (1,747 )
Acquisition-related and other charges   A,B     --       --       (2,487 )     --  
Non-GAAP Cost of revenues - Product         279,926       244,608       822,486       696,195  
                                     
GAAP Cost of revenues - Service         107,583       87,587       313,551       252,413  
Share-based compensation expense   C     (3,705 )     (3,155 )     (12,110 )     (9,891 )
Share-based compensation related payroll tax   C     (9 )     (53 )     (938 )     (370 )
Non-GAAP Cost of revenues - Service         103,869       84,379       300,503       242,152  
                                     
GAAP Gross margin - Product         575,326       554,150       1,786,057       1,595,276  
Share-based compensation expense   C     1,241       991       3,400       3,093  
Share-based compensation related payroll tax   C     4       20       299       131  
Amortization of purchased intangible assets   A     5,438       1,414       16,074       1,747  
Acquisition-related and other charges   A,B     --       --       2,487       --  
Non-GAAP Gross margin - Product         582,009       556,575       1,808,317       1,600,247  
                                     
GAAP Product gross margin as a % of product revenue         66.7 %     69.2 %     67.9 %     69.5 %
Share-based compensation expense as a % of product revenue   C     0.1 %     0.1 %     0.1 %     0.1 %
Share-based compensation related payroll tax as a % of product revenue   C     -- %     -- %     -- %     -- %
Amortization of purchased intangible assets as a % of product revenue   A     0.7 %     0.2 %     0.6 %     0.1 %
Acquisition-related and other charges as a % of product revenue   A,B     -- %     -- %     0.1 %     -- %
Non-GAAP Product gross margin as a % of product revenue         67.5 %     69.5 %     68.7 %     69.7 %
                                     
GAAP Gross margin - Service         136,278       123,637       383,598       354,470  
Share-based compensation expense   C     3,705       3,155       12,110       9,891  
Share-based compensation related payroll tax   C     9       53       938       370  
Non-GAAP Gross margin - Service       $ 139,992     $ 126,845     $ 396,646     $ 364,731  
                                     
GAAP Service gross margin as a % of service revenue         55.9 %     58.5 %     55.0 %     58.4 %
Share-based compensation expense as a % of service revenue   C     1.5 %     1.6 %     1.8 %     1.6 %
Share-based compensation related payroll tax as a % of service revenue   C     -- %     -- %     0.1 %     0.1 %
Non-GAAP Service gross margin as a % of service revenue         57.4 %     60.1 %     56.9 %     60.1 %
                                     


   
Juniper Networks, Inc.  
Reconciliation between GAAP and non-GAAP Financial Measures  
(in thousands, except percentages)  
(unaudited)  
   
        Three Months Ended     Nine Months Ended  
        September 30,     September 30,  
        2011     2010     2011     2010  
GAAP Gross margin       $ 711,604     $ 677,787     $ 2,169,655     $ 1,949,746  
Share-based compensation expense   C     4,946       4,146       15,510       12,984  
Share-based compensation related payroll tax   C     13       73       1,237       501  
Amortization of purchased intangible assets   A     5,438       1,414       16,074       1,747  
Acquisition-related and other charges   A,B     --       --       2,487       --  
Non-GAAP Gross margin         722,001       683,420       2,204,963       1,964,978  
                                     
GAAP Gross margin as a % of revenue         64.4 %     66.9 %     65.2 %     67.2 %
Share-based compensation expense as a % of revenue   C     0.4 %     0.5 %     0.5 %     0.4 %
Share-based compensation related payroll tax as a % of revenue   C     -- %     -- %     -- %     -- %
Amortization of purchased intangible assets as a % of revenue   A     0.5 %     0.1 %     0.5 %     0.1 %
Acquisition-related and other charges as a % of revenue   A,B     -- %     -- %     0.1 %     -- %
Non-GAAP Gross margin as a % of revenue         65.3 %     67.5 %     66.3 %     67.7 %
                                     
GAAP Research and development expense         257,096       231,151       776,325       662,913  
Share-based compensation expense   C     (26,540 )     (19,315 )     (75,453 )     (54,980 )
Share-based compensation related payroll tax   C     (35 )     (228 )     (3,385 )     (1,413 )
Non-GAAP Research and development expense         230,521       211,608       697,487       606,520  
                                     
GAAP Sales and marketing expense         254,933       204,704       747,859       599,382  
Share-based compensation expense   C     (20,572 )     (13,439 )     (52,969 )     (39,020 )
Share-based compensation related payroll tax   C     (79 )     (153 )     (4,048 )     (1,735 )
Non-GAAP Sales and marketing expense         234,282       191,112       690,842       558,627  
                                     
GAAP General and administrative expense         44,455       43,773       133,639       132,791  
Share-based compensation expense   C     (8,410 )     (7,491 )     (25,701 )     (22,571 )
Share-based compensation related payroll tax   C     (8 )     (39 )     (493 )     (247 )
Non-GAAP General and administrative expense         36,037       36,243       107,445       109,973  
                                     
GAAP Operating expense         574,578       482,251       1,684,316       1,408,960  
Share-based compensation expense   C     (55,522 )     (40,245 )     (154,123 )     (116,571 )
Share-based compensation related payroll tax   C     (122 )     (420 )     (7,926 )     (3,395 )
Amortization of purchased intangible assets   A     (1,263 )     (917 )     (4,139 )     (3,258 )
Restructuring   B     (16,813 )     (181 )     (15,550 )     (8,550 )
Acquisition-related and other charges   A,B     (18 )     (1,525 )     (6,804 )     (2,066 )
Non-GAAP Operating expense       $ 500,840     $ 438,963     $ 1,495,774     $ 1,275,120  
                                     


 
Juniper Networks, Inc.
Reconciliation between GAAP and non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)
 
      Three Months Ended     Nine Months Ended  
      September 30,     September 30,  
        2011       2010       2011       2010  
GAAP Operating income     $ 137,026     $ 195,536     $ 485,339     $ 540,786  
Share-based compensation expense C     60,468       44,391       169,633       129,555  
Share-based compensation related payroll tax C     135       493       9,163       3,896  
Amortization of purchased intangible assets A     6,701       2,331       20,213       5,005  
Restructuring B     16,813       181       15,550       8,550  
Acquisition-related and other charges A,B     18       1,525       9,291       2,066  
Non-GAAP Operating income       221,161       244,457       709,189       689,858  
                           
GAAP Operating margin       12.4 %     19.3 %     14.6 %     18.6 %
Share-based compensation expense as a % of revenue C     5.5 %     4.4 %     5.1 %     4.5 %
Share-based compensation related payroll tax as a % of revenue C     -- %     -- %     0.3 %     0.1 %
Amortization of purchased intangible assets as a % of revenue A     0.6 %     0.2 %     0.5 %     0.2 %
Restructuring as a % of revenue B     1.5 %     -- %     0.5 %     0.3 %
Acquisition-related charges as a % of revenue A,B     -- %     0.2 %     0.3 %     0.1 %
Non-GAAP Operating margin       20.0 %     24.1 %     21.3 %     23.8 %
                           
GAAP Other (expense) income, net E     (15,957 )     205       (36,107 )     5,729  
Loss/(gain) on equity investments B     1,116       --       982       (3,232 )
Non-GAAP Other (expense) income, net E     (14,841 )     205       (35,125 )     2,497  
                           
GAAP Income tax provision       37,398       61,404       120,383       117,225  
Non-recurring income tax adjustment B     --       --       --       54,069  
Income tax effect of non-GAAP exclusions B     19,152       11,932       59,297       38,039  
Non-GAAP Provision for income tax       56,550       73,336       179,680       209,333  
Non-GAAP Income tax rate       27.4 %     30.0 %     26.7 %     30.2 %
Non-GAAP Income before income taxes and noncontrolling interest*     $ 206,320     $ 244,662     $ 674,064     $ 692,355  
                                           


   
   
Juniper Networks, Inc.  
Reconciliation between GAAP and non-GAAP Financial Measures  
(in thousands, except per share amounts and percentages)  
(unaudited)  
   
        Three Months Ended     Nine Months Ended  
        September 30,     September 30,  
        2011     2010     2011     2010  
GAAP Net income attributable to Juniper Networks       $ 83,663     $ 134,543     $ 328,973     $ 428,169  
Share-based compensation expense   C     60,468       44,391       169,633       129,555  
Share-based compensation related payroll tax   C     135       493       9,163       3,896  
Amortization of purchased intangible assets   A     6,701       2,331       20,213       5,005  
Restructuring   B     16,813       181       15,550       8,550  
Acquisition-related and other charges   A,B     18       1,525       9,291       2,066  
Loss/(gain) on equity investments   B     1,116       --       982       (3,232 )
Non-recurring income tax adjustments   B     --       --       --       (54,069 )
Income tax effect of non-GAAP exclusions   B     (19,152 )     (11,932 )     (59,297 )     (38,039 )
Non-GAAP Net income       $ 149,762     $ 171,532     $ 494,508     $ 481,901  
                                     
Non-GAAP Net income per share:                                    
Basic   D   $ 0.28     $ 0.33     $ 0.93     $ 0.92  
Diluted   D   $ 0.28     $ 0.32     $ 0.91     $ 0.90  
Shares used in computing non-GAAP net income per share:                                    
Basic   D     529,286       520,581       530,994       522,069  
Diluted   D     536,583       534,880       544,086       537,158  
                                     
GAAP Net income attributable to Juniper Networks as a % of revenue         7.6 %     13.3 %     9.9 %     14.7 %
Share-based compensation expense as a % of revenue   C     5.5 %     4.4 %     5.1 %     4.5 %
Share-based compensation related payroll tax as a % of revenue   C     -- %     -- %     0.3 %     0.1 %
Amortization of purchased intangible assets as a % of revenue   A     0.6 %     0.2 %     0.6 %     0.2 %
Restructuring as a % of revenue   B     1.5 %     -- %     0.5 %     0.3 %
Acquisition-related and other charges as a % of revenue   A,B     -- %     0.2 %     0.3 %     0.1 %
Loss/(gain) on equity investments   B     0.1 %     -- %     -- %     (0.1 )%
Non-recurring income tax adjustments as a % of revenue   B     -- %     -- %     -- %     (1.9 )%
Income tax effect of non-GAAP exclusions as a % of revenue   B     (1.8 )%     (1.2 )%     (1.8 )%     (1.3 )%
Non-GAAP Net income as a % of revenue         13.5 %     16.9 %     14.9 %     16.6 %
                                     


Discussion of Non-GAAP Financial Measures

The table above includes the following non-GAAP financial measures derived from our Preliminary Condensed Consolidated Statements of Operations: cost of product revenue; cost of service revenue; product gross margin, product gross margin as a percentage of product revenue; service gross margin; service gross margin as a percentage of service revenue; gross margin; gross margin as a percentage of revenue; research and development expense; sales and marketing expense; general and administrative expense; operating expense; operating income; operating margin; net other income and expense; income before income taxes and noncontrolling interest; provision for income taxes; income tax rate; net income; net income per share and net income as a percentage of revenue. These measures are not presented in accordance with, nor are they a substitute for U.S. generally accepted accounting principles or GAAP. In addition, these measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes. The non-GAAP financial measures used in the table above should not be considered in isolation from measures of financial performance prepared in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future.

We utilize a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, forecasting and planning for future periods, and determining payments under compensation programs. We consider the use of the non-GAAP measures presented above to be helpful in assessing the performance of the continuing operation of our business. By continuing operations we mean the ongoing revenue and expenses of the business excluding certain items that render comparisons with prior periods or analysis of on-going operating trends more difficult, such as expenses not directly related to the actual cash costs of development, sale, delivery or support of our products and services, or expenses that are reflected in periods unrelated to when the actual amounts were incurred or paid. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance. In addition, we have historically reported non-GAAP results to the investment community and believe that continuing to provide non-GAAP measures provides investors with a tool for comparing results over time. In assessing the overall health of our business for the periods covered by the table above and, in particular, in evaluating the financial line items presented in the table above, we have excluded items in the following three general categories, each of which are described below: Acquisition-Related Charges, Other Items, and Share-Based Compensation Related Items. We also provide additional detail below regarding the shares used to calculate our non-GAAP net income per share. Notes identified for line items in the table above correspond to the appropriate note description below. Additionally, with respect to future financial guidance provided on a non-GAAP basis, we have excluded estimates for amortization of intangible assets, share based compensation expenses, acquisition related charges, restructuring charges, litigation settlement charges, gain or loss on equity investments, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and income tax effect of non-GAAP exclusions.

Note A: Acquisition-Related Charges. We exclude certain expense items resulting from acquisitions including the following, when applicable: (i) amortization of purchased intangible assets associated with our acquisitions; (ii) compensation related to acquisitions; and (iii) acquisition-related charges. The amortization of purchased intangible assets associated with our acquisitions results in our recording expenses in our GAAP financial statements that were already expensed by the acquired company before the acquisition and for which we have not expended cash. Moreover, had we internally developed the products acquired, the amortization of intangible assets, and the expenses of uncompleted research and development would have been expensed in prior periods. Accordingly, we analyze the performance of our operations in each period without regard to such expenses. In addition, acquisitions result in non-continuing operating expenses, which would not otherwise have been incurred by us in the normal course of our business operations. For example, we have incurred deferred compensation charges related to assumed options and transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees. We believe that providing non-GAAP information for acquisition-related expense items in addition to the corresponding GAAP information allows the users of our financial statements to better review and understand the historic and current results of our continuing operations, and also facilitates comparisons to less acquisitive peer companies.

Note B: Other Items. We exclude certain other items that are the result of either unique or unplanned events including the following, when applicable: (i) restructuring and related costs; (ii) impairment charges; (iii) gain or loss on legal settlement, net of related transaction costs; (iv) retroactive impacts of certain tax settlements; (v) significant effects of tax legislation and judicial or administrative interpretation of tax regulations; (vi) gain or loss on equity investments; and (vii) the income tax effect on our financial statements of excluding items related to our non-GAAP financial measures. It is difficult to estimate the amount or timing of these items in advance. Restructuring and impairment charges result from events, which arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Although these events are reflected in our GAAP financials, these unique transactions may limit the comparability of our on-going operations with prior and future periods. In the case of legal settlements, these gains or losses are recorded in the period in which the matter is concluded or resolved even though the subject matter of the underlying dispute may relate to multiple or different periods. As such, we believe that these expenses do not accurately reflect the underlying performance of our continuing operations for the period in which they are incurred. Similarly, the retroactive impacts of certain tax settlements and significant effects of retroactive tax legislation are unique events that occur in periods that are generally unrelated to the level of business activity to which such settlement or legislation applies. We believe this limits comparability with prior periods and that these expenses do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred. Whether we realize gains or losses on equity investments is based primarily on the performance and market value of those independent companies. Accordingly, we believe that these gains and losses do not reflect the underlying performance of our continuing operations. We also believe providing financial information with and without the income tax effect of excluding items related to our non-GAAP financial measures provide our management and users of the financial statements with better clarity regarding the on-going performance and future liquidity of our business. Because of these factors, we assess our operating performance both with these amounts included and excluded, and by providing this information, we believe the users of our financial statements are better able to understand the financial results of what we consider our continuing operations.

Note C: Share-Based Compensation Related Items. We provide non-GAAP information relative to our expense for share-based compensation and related payroll tax. We began to include share-based compensation expense in our GAAP financial measures in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718, Compensation - Stock Compensation ("FASB ASC Topic 718"), in January 2006. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, which affect the calculations of share-based compensation, we believe that the exclusion of share-based compensation allows for more accurate comparisons of our operating results to our peer companies. Further, we believe that excluding share-based compensation expense allows for a more accurate comparison of our financial results to previous periods during which our equity-based awards were not required to be reflected in our income statement. Share-based compensation is very different from other forms of compensation. A cash salary or bonus has a fixed and unvarying cash cost. For example, the expense associated with a $10,000 bonus is equal to exactly $10,000 in cash regardless of when it is awarded and who it is awarded by. In contrast, the expense associated with an award of an option for 1,000 shares of share is unrelated to the amount of compensation ultimately received by the employee; and the cost to the company is based on a share-based compensation valuation methodology and underlying assumptions that may vary over time and that does not reflect any cash expenditure by the company because no cash is expended. Furthermore, the expense associated with granting an employee an option is spread over multiple years unlike other compensation expenses which are more proximate to the time of award or payment. For example, we may be recognizing expense in a year where the stock option is significantly underwater and is not going to be exercised or generate any compensation for the employee. The expense associated with an award of an option for 1,000 shares of stock by us in one quarter may have a very different expense than an award of an identical number of shares in a different quarter. Finally, the expense recognized by us for such an option may be very different than the expense to other companies for awarding a comparable option, which makes it difficult to assess our operating performance relative to our competitors. Similar to share-based compensation, payroll tax on stock option exercises is dependent on our stock price and the timing and exercise by employees of our share-based compensation, over which our management has little control, and as such does not correlate to the operation of our business. Because of these unique characteristics of share-based compensation and the related payroll tax, management excludes these expenses when analyzing the organization's business performance. We also believe that presentation of such non-GAAP information is important to enable readers of our financial statements to compare current period results with periods prior to the adoption of FASB ASC Topic 718.

Note D: Non-GAAP Net Income Per Share Items. We provide basic non-GAAP net income per share and diluted non-GAAP net income per share. The basic non-GAAP net income per share amount was calculated based on our non-GAAP net income and the weighted-average number of shares outstanding during the reporting period. The diluted non-GAAP income per share included additional dilution from potential issuance of common stock, except when such issuances would be anti-dilutive.

Note E: Other Income and Expense. GAAP and non-GAAP other (expense) income, net, consist primarily of interest income, interest expense and other non-operational income and expense items. As noted in Note B above, we exclude gains or losses from equity investments in our computation of non-GAAP other (expense) income.

 
Juniper Networks, Inc.
Preliminary Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 
  September 30,
2011
  December 31,
2010
ASSETS          
Current assets:          
  Cash and cash equivalents $ 2,722,449   $ 1,811,887
  Short-term investments   632,396     474,514
  Accounts receivable, net of allowances   444,000     596,622
  Deferred tax assets, net   167,549     161,535
  Prepaid expenses and other current assets   165,196     169,812
    Total current assets   4,131,590     3,214,370
Property and equipment, net   576,415     493,881
Long-term investments   775,457     535,178
Restricted cash   90,546     119,346
Purchased intangible assets, net   130,034     121,803
Goodwill   3,928,525     3,927,807
Other long-term assets   74,525     55,466
    Total assets $ 9,707,092   $ 8,467,851
           
LIABILITIES AND EQUITY          
Current liabilities:          
  Accounts payable $ 262,594   $ 292,270
  Accrued compensation   192,621     256,746
  Accrued warranty   38,946     35,931
  Deferred revenue   668,824     660,264
  Income taxes payable   36,742     25,000
  Other accrued liabilities   166,953     201,765
    Total current liabilities   1,366,680     1,471,976
Long-term debt   998,997     --
Long-term deferred revenue   216,968     224,165
Long-term income tax payable   111,642     103,823
Other long-term liabilities   74,621     59,087
Total liabilities   2,768,908     1,859,051
Total equity   6,938,184     6,608,800
    Total liabilities and equity $ 9,707,092   $ 8,467,851
           


Juniper Networks, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
    Nine Months Ended September 30,
    2011     2010
Cash flows from operating activities:              
Consolidated net income   $ 328,849     $ 429,290
Adjustments to reconcile consolidated net income to net cash from operating activities:              
  Depreciation and amortization     125,986       112,366
  Non-cash portion of share-based compensation     165,236       129,555
  Loss/(gain) on equity investments     982       (3,232)
  Excess tax benefits from share-based compensation     (44,524 )     (32,932)
  Deferred income taxes     (6,014 )     26,425
  Amortization of debt issuance costs     509       --
Changes in operating assets and liabilities:              
  Accounts receivable, net     152,019       (15,093)
  Prepaid expenses and other assets     14,103       (67,813)
  Accounts payable     (25,962 )     8,464
  Accrued compensation     (62,625 )     8,390
  Accrued litigation settlements     --       (169,330)
  Income tax payable     70,241       (16,900)
  Other accrued liabilities     23,309       836
  Deferred revenue     1,012       31,274
    Net cash provided by operating activities     743,121       441,300
               
Cash flows from investing activities:              
Purchases of property and equipment, net     (187,886 )     (137,481)
Purchases of trading investments     (4,575 )     (2,338)
Purchases of available-for-sale investments     (1,893,474 )     (1,361,510)
Proceeds from sales of available-for-sale investments     1,050,936       440,788
Proceeds from maturities of available-for-sale investments     446,150       744,464
Payment for business acquisition, net of cash and cash equivalents acquired     (31,101 )     (133,333)
Changes in restricted cash     (1,144 )     (12,432)
Purchases of privately-held and other equity investments, net     (32,402 )     (5,288)
  Net cash used in investing activities     (653,496 )     (467,130)
               
Cash flows from financing activities:              
Proceeds from issuance of common stock     341,063       257,693
Purchases and retirement of common stock     (548,590 )     (388,698)
Issuance of long-term debt     991,556       --
Change in customer financing arrangements     (7,616 )     (16,906)
Excess tax benefits from share-based compensation     44,524       32,932
Return of capital to noncontrolling interest     --       (3,000)
  Net cash provided by (used in) financing activities     820,937       (117,979)
  Net increase (decrease) in cash and cash equivalents     910,562       (143,809)
Cash and cash equivalents at beginning of period     1,811,887       1,604,723
Cash and cash equivalents at end of period   $ 2,722,449     $ 1,460,914
               


Juniper Networks, Inc.
Cash, Cash Equivalents, and Investments
(in thousands)
(unaudited)
 
  September 30,
2011
  December 31,
2010
Cash and cash equivalents $ 2,722,449   $ 1,811,887
Short-term investments   632,396     474,514
Long-term investments   775,457     535,178
  Total $ 4,130,302   $ 2,821,579