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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER 0-26339
JUNIPER NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 77-0422528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1194 N. MATHILDA AVENUE, SUNNYVALE, CA 94089
(Address of principal executive offices) (Zip Code)
</TABLE>
(408) 745-2000
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
There were 317,558,250 shares of the Company's Common Stock, par value $.00001,
outstanding on October 31, 2000.
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TABLE OF CONTENTS
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PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999.......................................... 3
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 2000 and 1999................... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999............................ 5
Notes to Condensed Consolidated Financial Statements .............. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 10
Factors That May Affect Future Results.............................. 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................... 18
Item 6. Exhibits and Reports on Form 8-K.................................... 18
SIGNATURES................................................................... 19
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JUNIPER NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
ASSETS (Unaudited) (1)
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Current assets:
Cash and cash equivalents ..................................... $ 571,201 $ 158,043
Short-term investments ........................................ 567,731 187,915
Accounts receivable, net ...................................... 116,319 23,950
Prepaid expenses and other current assets ..................... 20,775 7,925
----------- -----------
Total current assets .................................. 1,276,026 377,833
Property and equipment, net 33,039 12,416
Long-term investments ........................................... 508,630 97,201
Other long-term assets 127,730 25,928
----------- -----------
Total assets .................................................... $ 1,945,425 $ 513,378
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 48,431 $ 15,368
Other accrued liabilities ..................................... 108,105 21,025
Deferred revenue .............................................. 34,770 19,270
----------- -----------
Total current liabilities ............................. 191,306 55,663
Convertible subordinated notes and other long-term liabilities... 1,161,080 --
Common stock and additional paid-in capital ..................... 540,315 513,698
Deferred stock compensation ..................................... (1,595) (3,001)
Accumulated other comprehensive income (loss) ................... 20,727 (815)
Retained earnings (accumulated deficit) ......................... 33,592 (52,167)
----------- -----------
Total stockholders' equity ...................................... 593,039 457,715
----------- -----------
Total liabilities and stockholders' equity ...................... $ 1,945,425 $ 513,378
=========== ===========
</TABLE>
(1) The balance sheet at December 31, 1999 has been derived from the audited
consolidated financial statements at that date, but does not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
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JUNIPER NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(unaudited)
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Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
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Net revenues ....................................... $ 201,201 $ 29,564 $ 378,115 $ 57,164
Cost of revenues ................................... 70,291 12,490 136,144 26,883
--------- --------- --------- ---------
Gross profit ....................................... 130,910 17,074 241,971 30,281
Operating expenses:
Research and development ......................... 23,600 11,510 57,590 25,682
Sales and marketing .............................. 23,385 5,610 52,137 12,062
General and administrative ....................... 5,446 1,701 12,631 3,454
Amortization of goodwill, purchased intangibles
and deferred stock compensation(1) ............. 2,272 802 6,977 2,597
Charitable contribution .......................... -- -- 10,000 --
--------- --------- --------- ---------
Total operating expenses ................. 54,703 19,623 139,335 43,795
--------- --------- --------- ---------
Operating income/(loss) ............................ 76,207 (2,549) 102,636 (13,514)
Interest income .................................... 26,253 1,511 61,418 2,453
Interest expense ................................... (14,608) (146) (33,262) (528)
--------- --------- --------- ---------
Income/(loss) before income taxes .................. 87,852 (1,184) 130,792 (11,589)
Provision for income taxes ......................... 29,781 403 45,033 525
--------- --------- --------- ---------
Net income/(loss) .................................. $ 58,071 $ (1,587) $ 85,759 $ (12,114)
--------- --------- --------- ---------
Net income/(loss) per share:
Basic ........................................... $ 0.19 $ (0.01) $ 0.28 $ (0.08)
--------- --------- --------- ---------
Diluted ......................................... $ 0.17 $ (0.01) $ 0.25 $ (0.08)
--------- --------- --------- ---------
Shares used in computing net
Income/(loss) per share:
Basic ........................................... 307,679 270,918 301,701 156,054
--------- --------- --------- ---------
Diluted ......................................... 349,721 270,918 347,309 156,054
--------- --------- --------- ---------
</TABLE>
------------------
(1) Deferred stock compensation relates to the following cost and expense
categories by period:
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Cost of revenues ............................ $ 79 $ 126 $ 268 $ 408
Research and development .................... 147 418 498 1,354
Sales and marketing ......................... 134 172 456 556
General and administrative .................. 55 86 185 278
------ ------ ------ ------
Total ................................... $ 415 $ 802 $1,407 $2,596
====== ====== ====== ======
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See accompanying notes.
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JUNIPER NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
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<CAPTION>
Nine months ended September 30,
-------------------------------
2000 1999
----------- -----------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) ............................................. $ 85,759 $ (12,114)
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation ............................................ 7,041 3,759
Amortization of goodwill, purchased intangibles,
deferred stock compensation and other non-cash
transactions .......................................... 9,199 3,043
Charitable contribution charge .......................... 10,000 --
Changes in operating assets and liabilities:
Accounts receivable ................................... (92,369) (5,567)
Other assets .......................................... (14,767) (3,463)
Accounts payable and other accrued liabilities ........ 120,143 12,496
Deferred revenue ...................................... 15,500 9,720
----------- -----------
Net cash provided by operating activities ..................... 140,506 7,874
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................ (27,664) (5,409)
Purchases of available-for-sale investments ................... (1,206,354) (84,339)
Maturities of available-for-sale investments .................. 418,573 --
Purchase of equity investments ................................ (48,045) --
----------- -----------
Net cash used in investing activities ......................... (863,490) (89,748)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible subordinated notes ...... 1,123,325 --
Payments on lease obligations ................................. -- (7,381)
Proceeds from issuance of preferred stock ..................... -- 33,948
Proceeds from issuance of common stock ........................ 12,817 71,684
----------- -----------
Net cash provided by financing activities ..................... 1,136,142 98,251
----------- -----------
Net increase in cash and cash equivalents ..................... 413,158 16,377
Cash and cash equivalents at beginning of period .............. 158,043 20,098
----------- -----------
Cash and cash equivalents at end of period .................... $ 571,201 $ 36,475
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest ........................................ $ 28,375 $ 477
----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Common stock issued in connection with the acquisition
of goodwill and purchased intangibles ...................... $ 3,800 $ --
----------- -----------
Deferred stock compensation ................................... $ -- $ 1,114
----------- -----------
</TABLE>
See accompanying notes
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JUNIPER NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared by
Juniper Networks, Inc., pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") and include the accounts of Juniper Networks,
Inc. and its wholly-owned subsidiaries ("Juniper Networks" or collectively, the
"Company"). Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. While in the opinion of the Company, the unaudited financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position at
September 30, 2000 and the operating results and cash flows for the three and
nine months ended September 30, 2000 and 1999, these financial statements and
notes should be read in conjunction with the Company's audited consolidated
financial statements and notes for the year ended December 31, 1999 included in
the Company's Annual Report on Form 10-K filed March 29, 2000 with the SEC. The
condensed balance sheet at December 31, 1999 has been derived from audited
financial statements as of that date.
The results of operations for the three and nine months ended September 30,
2000 are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year ending December 31, 2000.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND LONG-TERM INVESTMENTS
Cash and cash equivalents consist of cash on deposit with banks, money
market instruments, commercial paper and debt securities with original
maturities of 90 days or less. Short and long-term investments consist of
government, corporate, and asset-backed debt securities with original maturities
between three months and three years.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and evaluates such designation as of each
balance sheet date. To date, all debt securities have been classified as
available-for-sale and are carried at fair value with material unrealized gains
and losses, if any, included in stockholders' equity. As of September 30, 2000,
the Company had an unrealized gain on available-for-sale investments of $2.6
million compared with an unrealized loss of $815,000 as of December 31, 1999.
Realized gains and losses, if any, and declines in value of securities judged to
be other than temporary, if any, are included in interest income. Interest and
dividends on all securities are included in interest income.
EQUITY INVESTMENTS
Equity investments in private companies in which the Company has less than
20% interest and on which it does not have the ability to exercise significant
influence are carried at the lesser of cost or estimated realizable value.
Investments in publicly traded equity securities are marketable securities and
are designated as available-for-sale. Marketable securities are carried at fair
market value with unrealized gains and losses, net of tax, included in
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stockholder's equity. Equity investments, including marketable securities, which
are recorded in other long-term assets, were approximately $80.2 million and
$8.0 million as of September 30, 2000 and December 31, 1999, respectively. As of
September 30, 2000, the unrealized gain relating to Juniper Networks' marketable
securities was $29.2 million (none as of December 31, 1999). The unrealized gain
was attributable entirely to one of the Company's investments which recently
went public. The investment is in a high technology company whose stock price is
subject to substantial volatility. Accordingly, it is possible that the market
price of the investment could decline substantially and quickly, which could
result in a material reduction in the carrying value of these assets. If there
is a permanent decline in the value of this investment, below cost, the Company
would report this decline in its statement of operations.
REVENUE RECOGNITION
Juniper Networks generally recognizes product revenue at the time of
shipment, assuming that collectibility is probable, unless Juniper Networks has
future obligations for network interoperability or has to obtain customer
acceptance, in which case revenue is deferred until these obligations are met.
Revenue from service obligations is deferred and recognized on a straight-line
basis over the contractual period, generally one year. Amounts billed in excess
of revenue recognized are included as deferred revenue and accounts receivable
in the accompanying condensed consolidated balance sheets.
CUSTOMER CONCENTRATION
In the quarter ended September 30, 2000, four customers individually
accounted for more than 10% of net revenues, compared with three customers
individually accounting for more than 10% in the same period a year ago.
WARRANTY RESERVES
Juniper Networks' products generally carry a one-year warranty that
includes factory repair services as needed for replacement of parts. Estimated
expenses for warranty obligations are accrued as revenue is recognized.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share and diluted net income (loss) per share
are presented in conformity with the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS
128), for all periods presented. In accordance with FAS 128, basic net income
(loss) per share has been computed using the weighted-average number of shares
of common stock outstanding during the period, less the weighted-average number
of shares of common stock that are subject to repurchase. Diluted net income per
share additionally includes common stock equivalent shares outstanding during
the period, if dilutive. The 4.75% Convertible Subordinated Notes, which were
issued in March 2000, are anti-dilutive and therefore not included in the
calculation below.
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The following table presents the calculation of basic and diluted net
income (loss) per share (in thousands, except per share data):
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<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(unaudited) (unaudited)
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Numerator:
Net income (loss) ....................................... $ 58,071 $ (1,587) $ 85,759 $ (12,114)
========= ========= ========= =========
Denominator:
Weighted-average shares of common stock outstanding .. 316,131 299,856 314,417 188,400
Weighted-average shares subject to repurchase ........ (8,452) (28,938) (12,716) (32,346)
--------- --------- --------- ---------
Denominator for basic net income (loss) per share ....... 307,679 270,918 301,701 156,054
Common stock equivalents ............................. 42,042 -- 45,608 --
--------- --------- --------- ---------
Denominator for diluted net income (loss) per share ..... 349,721 270,918 347,309 156,054
========= ========= ========= =========
Net income (loss) per share:
Basic ................................................... $ 0.19 $ (0.01) $ 0.28 $ (0.08)
========= ========= ========= =========
Diluted ................................................. $ 0.17 $ (0.01) $ 0.25 $ (0.08)
========= ========= ========= =========
</TABLE>
NOTE. 3. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are as follows, (in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- ---------
(unaudited) (unaudited)
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Net income (loss) .......................................... $ 58,071 $ (1,587) $ 85,759 $ (12,114)
Unrealized gains on securities ........................ 3,177 -- 3,464 --
Unrealized gain (loss) on equity investments........... (12,224) -- 29,158 --
-------- -------- --------- ---------
Total comprehensive income/(loss)........................... $ 49,024 $ (1,587) $ 118,381 $ (12,114)
======== ======== ========= =========
</TABLE>
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NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended by Statement of Financial
Accounting Standards No. 137 and No. 138 (referred to hereafter as "FAS 133").
FAS 133 establishes methods of accounting for derivative financial instruments
and hedging activities related to those instruments as well as other hedging
activities, and is effective for fiscal years beginning after June 15, 2000.
Juniper Networks does not currently hold any derivatives and does not expect
this pronouncement to materially impact the results of its operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101). SAB 101 summarizes
certain areas of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. In June 2000, the SEC
issued SAB No. 101B which defers the implementation date of SAB 101 until no
later than the fourth fiscal quarter of fiscal years beginning after December
15, 1999, with earlier adoption encouraged. The Company is required to and will
adopt SAB 101 in the fourth quarter of fiscal 2000. Juniper Networks believes
that its current revenue recognition policy complies with SAB 101.
In March 2000, the FASB issued Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25" (Interpretation No. 44).
Interpretation No. 44 is effective July 1, 2000. The interpretation clarifies
the application of APB Opinion No. 25 for certain issues, specifically, (a) the
definition of an employee, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange or stock compensation awards in a business
combination. The Company does not anticipate that the adoption of Interpretation
No. 44 will have a material impact on its financial position or its results of
operations.
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This report for Juniper Networks contains forward-looking statements made
within the meaning of the Securities Laws. These statements are not guarantees
of future performance and are subject to certain risks and uncertainties that
could cause actual results to differ materially from those expressed or
forecasted. Readers should not rely on forward-looking statements, which reflect
only the opinion of Juniper Networks as of the date hereof.
The following information should be read in conjunction with the Company's
Annual Report on Form 10-K filed on March 29, 2000 with the Securities and
Exchange Commission and "Factors That May Affect Future Results" herein.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading provider of IP infrastructure solutions that
enable Internet service providers and other telecommunications service
providers, (collectively described as "Service Providers"), to meet the demands
of rapidly evolving optically enabled IP networks. The Company's Internet
backbone routers are specifically designed and purpose-built for Service
Provider networks and offer customers increased reliability, performance,
scalability, interoperability and flexibility, and reduced complexity and cost
compared to current alternatives. The Company began volume shipments of its
product in October 1998 and operates primarily through a direct sales force in
North America and through value added resellers internationally.
RESULTS OF OPERATIONS
NET REVENUES
Net revenues were $201.2 million in the quarter ended September 30, 2000
compared to $29.6 million in the third quarter of fiscal 1999. Net revenues for
the nine-month period ended September 30, 2000 were $378.1 million, compared
with $57.2 million for the same nine-month period of fiscal 1999. The increases
in net revenues for both the three-month period and the nine-month period in
2000 as compared to the comparable 1999 periods were primarily due to expanded
product offerings, increased market acceptance of the Company's products, and
overall growth in the Internet infrastructure marketplace. In the quarter ended
September 30, 2000, four customers individually accounted for more than 10% of
net revenues, compared with three customers in the same period a year ago.
COST OF REVENUES
Cost of revenues for the three months ended September 30, 2000 were $70.3
million, compared with $12.5 million for the three months ended September 30,
1999. Cost of revenues for the nine-month period ended September 30, 2000 were
$136.1 million, compared with $26.9 million for the same nine-month period of
fiscal 1999. The increase in cost of revenues is primarily related to the
increase in net revenues, as well as headcount increases in both the Company's
customer service and support, and operations organizations. The Company expects
cost of revenues to continue to increase as net revenues increase. Cost of
revenue, and the resulting gross margins, are highly variable and dependent on
many factors, some of which are outside the Company's control, such as the
demand for the Company's products and mix of products sold.
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RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $23.6 million for the three-month
period ended September 30, 2000, an increase of $12.1 million over the
comparable period of 1999, and were $57.6 million in the nine months ended
September 30, 2000, an increase of $31.9 million over the comparable period of
1999. The increases in both the three-month and nine-month periods ended
September 30, 2000 as compared to the comparable fiscal 1999 periods were due
primarily to significant increases in headcount to support the Company's various
product development efforts. Additionally, product development expenses, such as
prototype expenses and non-recurring engineering costs, increased in both
periods ending September 30, 2000 as compared to the comparable 1999 periods.
Research and development is essential to the Company's future success and the
Company expects research and development expenses to continue to increase in
absolute dollars in future periods.
SALES AND MARKETING EXPENSES
Sales and marketing expenses were $23.4 million for the three-month period
ended September 30, 2000, an increase of $17.8 million over the comparable
period of 1999, and were $52.1 million in the nine months ended September 30,
2000, an increase of $40.1 million over the comparable period of 1999. The
increases in both fiscal 2000 periods as compared to the comparable fiscal 1999
periods were due primarily to a significant increase in headcount and commission
expenses resulting from the increase in net revenues. The Company expects to
continue increasing headcount in the sales and marketing organization and if net
revenues increase, commission expenses will also increase. Accordingly, the
Company expects sales and marketing expenses to increase in absolute dollars in
the foreseeable future.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totaled $5.4 million for the
three-month period ended September 30, 2000, an increase of $3.7 million over
the comparable period of 1999, and were $12.6 million in the nine months ended
September 30, 2000, an increase of $9.2 million over the comparable period of
1999. The increase was due primarily to increases in headcount to support
increasing levels of business activity and costs associated with being a
publicly traded company. The Company expects general and administrative expense
to continue to increase in absolute dollars in future periods as a result of
expansion of business activity.
AMORTIZATION OF GOODWILL, PURCHASED INTANGIBLES AND DEFERRED STOCK COMPENSATION
In connection with the grant of certain stock options to employees during
1998 and the three months ended March 31, 1999, the Company recorded deferred
compensation of $6.4 million in 1998 and $1.1 million in 1999 representing the
difference between the deemed value of the common stock for accounting purposes
and the exercise price of these options at the date of grant. Deferred
compensation is presented as a reduction of stockholders' equity and is
amortized over the vesting period of the applicable options using the graded
vesting method. This compensation expense relates to stock options granted to
individuals in all operating expense categories. In November 1999 and January
2000, the Company acquired certain intellectual property and intangible assets
resulting in the recording of $18.4 million and $3.9 million of goodwill and
other intangibles, respectively. The goodwill and other intangibles are being
amortized over a three-year period. The Company expensed $2.3 million of
goodwill, purchased intangibles and deferred compensation during the quarter
ended September 30, 2000, and $802,000 of deferred compensation during the
quarter ended September 30, 1999.
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INTEREST INCOME
Interest income includes income on available-for-sale investments. Interest
income was $26.3 million in the three months ended September 30, 2000 and $61.4
million in the nine months ended September 30, 2000. This compares with interest
income of $1.5 million in the three months ended September 30, 1999 and $2.5
million in the nine months ended September 30, 1999. The significant increase in
interest income in the three-month and nine-month periods ended September 30,
2000 as compared to the same fiscal 1999 periods is a direct result of increased
cash and investment balances, resulting from the Company's equity and debt
offerings during 1999 and 2000.
INTEREST EXPENSE
Interest expense for the three-month period and nine-month period ended
September 30, 2000 was $14.6 million and $33.3 million, respectively. Interest
expense in these periods consists entirely of accrued interest and amortization
of debt issuance costs, both attributable to the 4.75% Convertible Subordinated
Notes that were issued in March 2000. Interest expense for the three-month
period and nine-month period ended September 30, 1999 was $146,000 and $528,000,
respectively, and related to the Company's capital lease obligations.
PROVISION FOR INCOME TAXES
The Company has recorded tax provisions of $29.8 million and $45.0 million
for the three-month and nine-month periods ended September 30, 2000 or an
effective rate of 33% and 34%, respectively. The 1999 tax provision of $403,000
and $525,000 for the three and nine months ended September 30, 1999 reflect the
inability to benefit from operating losses in those periods.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Company's initial public offering, operations were financed
primarily through the private placement of convertible preferred stock and
capital leases. In June 1999, the Company completed the initial public offering
of its common stock and realized net proceeds from that offering of
approximately $65.2 million. In October 1999, the Company completed a secondary
public offering of its common stock and realized net proceeds from that offering
of approximately $324.3 million. In March 2000, the Company completed an
offering of 4.75% Convertible Subordinated Notes and realized net proceeds of
approximately $1.12 billion.
At September 30, 2000, the Company had cash and cash equivalents of $571.2
million, short-term investments of $567.7 million and long-term investments of
$508.6 million. The Company regularly invests excess funds in money market
funds, commercial paper and government and non-government debt securities.
Net cash provided by operating activities for the nine months ended
September 30, 2000 and 1999 was $140.5 million and $7.9 million, respectively.
Cash provided by operating activities for the nine months ended September 30,
2000 was primarily the result of net income, increases in accounts payable and
other accrued liabilities, and adjustments for certain non-cash charges,
partially offset by increases in accounts receivable and other assets. Cash
provided by operating activities for the nine months ended September 30, 1999
was primarily the result of increases in accounts payable and other accrued
liabilities, increases in deferred revenue, and adjustments for certain non-cash
charges, partially offset by the net loss and increases in accounts receivable
and other assets.
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Net cash used in investing activities for the nine months ended September
30, 2000 and 1999 were $863.5 million and $89.7 million, respectively. Cash used
in investing activities in the nine months ended September 30, 2000 was due to
the purchase of available-for-sale investments, as well as the purchase of
equity investments and fixed assets. Cash used in investing activities in the
nine months ended September 30, 1999 was due to the purchase of
available-for-sale investments and fixed assets.
Net cash provided by financing activities for the nine months ended
September 30, 2000 and 1999 were approximately $1.1 billion and $98.3 million,
respectively. Cash provided by financing activities in the nine months ended
September 30, 2000 was due primarily to the proceeds from the offering of 4.75%
Convertible Subordinated Notes of approximately $1.1 billion. Cash provided by
financing activities in the nine months ended September 30, 1999 was due to
proceeds from the issuance of common and preferred stock, partially offset by
payments on lease obligations.
The Company expects to devote substantial capital resources to continue its
research and development efforts, hire and expand the sales, support, marketing
and product development organizations, expand marketing programs, establish
additional facilities worldwide and for other general corporate activities,
including strategic equity investments and possible acquisitions. Although the
Company believes that current cash balances will be sufficient to fund
operations for at least the next 12 months, there can be no assurance that if
the Company were to need additional funding that such additional funding would
be available either in the capital markets or on acceptable terms.
13
<PAGE> 14
FACTORS THAT MAY AFFECT FUTURE RESULTS
THE COMPANY'S FAILURE TO MANAGE EXPANSION EFFECTIVELY COULD SERIOUSLY HARM ITS
BUSINESS, FINANCIAL CONDITION AND PROSPECTS. The Company's ability to
successfully implement its business plan, develop and offer its products and
manage expansion in a rapidly evolving market requires a comprehensive and
effective planning and management process. The Company continues to increase the
scope of its operations domestically and internationally and has grown headcount
substantially. In addition, the Company plans to continue to hire a significant
number of employees in the foreseeable future. The growth in business, headcount
and relationships with customers and other third parties has placed and will
continue to place a significant strain on the Company's management systems and
resources. The Company will need to continue to improve its operational,
managerial and financial controls, reporting systems and procedures, and will
need to continue to expand, train and manage its work force worldwide.
THE COMPANY'S SUCCESS DEPENDS ON ITS ABILITY TO DEVELOP PRODUCTS AND PRODUCT
ENHANCEMENTS THAT WILL ACHIEVE MARKET ACCEPTANCE. The Company cannot ensure that
it will be able to develop new products or product enhancements in a timely
manner or at all. Any failure to develop new products or product enhancements
could substantially decrease market acceptance and sales of the Company's
present and future products which would significantly harm the business and
financial results. Even if the Company is able to develop and commercially
introduce new products and enhancements, there can be no assurance that new
products or enhancements will achieve widespread market acceptance. Any failure
of the Company's future products to achieve market acceptance could adversely
affect the business and financial results.
THE COMPANY FACES INTENSE COMPETITION THAT COULD REDUCE ITS MARKET SHARE.
Competition in the Internet infrastructure market is intense. This market has
historically been dominated by Cisco with other companies such as Nortel
Networks and Lucent Technologies providing products to a smaller segment of the
market. In addition, a number of private companies have announced plans for new
products to address the same problems which the Company's products address. If
the Company is unable to compete successfully against its existing and future
competitors, it could be required to reduce prices, resulting in reduced gross
margins and could experience loss of market share, each of which could
materially and adversely affect its business, operating results and financial
condition.
THE COMPANY DEPENDS ON KEY PERSONNEL TO MANAGE ITS BUSINESS EFFECTIVELY IN A
RAPIDLY CHANGING MARKET AND IF IT IS UNABLE TO HIRE ADDITIONAL PERSONNEL, ITS
ABILITY TO SELL PRODUCTS COULD BE HARMED. The Company's future success depends
upon the continued services of its executive officers and other key engineering,
sales, marketing and support personnel. None of the officers or key employees is
bound by an employment agreement for any specific term.
The Company also intends to hire a significant number of engineering, sales,
marketing and support personnel in the future, and it believes its success
depends, in large part, upon its ability to attract and retain these key
employees. Competition for these persons is intense, especially in the San
Francisco Bay area. The loss of the services of any of its key employees, the
inability to attract or retain qualified personnel in the future or delays in
hiring required personnel, particularly engineers and sales personnel, could
delay the development and introduction of and negatively impact the Company's
ability to sell its products.
THE COMPANY IS DEPENDENT ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR SEVERAL
KEY COMPONENTS. With the current demand for electronic products, component
shortages are
14
<PAGE> 15
possible and the predictability of the availability of such components is
limited. The Company currently purchases several key components, including ASICs
and power supplies, from single or limited sources. The Company may not be able
to develop an alternate or second source in a timely manner, which could hurt
its ability to deliver product to customers. If the Company is unable to buy
these components on a timely basis, it will not be able to deliver product to
its customers, which would seriously impact present and future sales which
would, in turn, adversely affect its business.
THE COMPANY CURRENTLY DEPENDS ON CONTRACT MANUFACTURERS WITH WHOM IT DOES NOT
HAVE LONG-TERM SUPPLY CONTRACTS, AND IF THE COMPANY UNEXPECTEDLY HAS TO QUALIFY
A NEW CONTRACT MANUFACTURER IT MAY LOSE REVENUE AND DAMAGE ITS CUSTOMER
RELATIONSHIPS. The Company depends on third party contract manufacturers (each
of whom is a third party manufacturer for numerous companies), to manufacture
its products. The Company does not have a long-term supply contract with such
manufacturers and if the Company should fail to effectively manage its contract
manufacturer relationships or if one or more of them should experiences delays,
disruptions or quality control problems in its manufacturing operations, the
Company's ability to ship products to its customers could be delayed which could
adversely affect the Company's business and financial results.
THE COMPANY'S FAILURE TO CONTINUE TO INCREASE ITS REVENUES MAY PREVENT THE
COMPANY FROM MAINTAINING PROFITABILITY. The Company has large fixed expenses and
expects to continue to incur significant and increasing sales and marketing,
engineering and product development and administrative expenses and there can be
no assurances that net revenues will continue to grow or that the Company will
maintain profitability.
LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT. As a result of the
Company's limited operating history, it is difficult to accurately forecast
revenues and there is limited meaningful historical financial data upon which to
base planned operating expenses. In addition, the Company's operating expenses
are largely based on anticipated revenue trends and a high percentage of its
expenses are, and will continue to be, fixed in the short-term. If the Company
does not achieve its expected revenues, its operating results will be below its
expectations and those of investors and market analysts, which could cause the
price of the common stock to decline.
In addition, timing of deployment of the Company's products can vary widely and
depends on various factors. Customers with large networks usually expand their
networks in large increments on a periodic basis. The Company expects to receive
significant orders on an irregular basis. Because of the Company's limited
operating history, it cannot predict these sales and development cycles. These
long cycles, as well as the Company's expectation that customers will tend to
sporadically place large orders with short lead times, may cause its revenues
and operating results to vary significantly and unexpectedly from quarter to
quarter.
THE COMPANY'S CUSTOMER BASE HAS INCREASED SUBSTANTIALLY, HOWEVER THERE IS STILL
A LIMITED NUMBER OF CUSTOMERS WHICH COMPRISE A SIGNIFICANT PORTION OF THE
COMPANY'S REVENUES AND ANY DECREASE IN REVENUE FROM THESE CUSTOMERS COULD HAVE
AN ADVERSE EFFECT. The Company expects that a large portion of its net revenues
will continue to depend on sales to a limited number of customers. Any downturn
in the business of these customers or potential new customers could
significantly decrease sales to such customers which could adversely affect the
Company's net revenues and results of operations.
THE UNPREDICTABILITY OF THE COMPANY'S QUARTERLY RESULTS MAY ADVERSELY AFFECT THE
TRADING PRICE OF ITS COMMON STOCK. The Company's revenues and operating results
will vary significantly from quarter to quarter due to a number of factors,
including many which are outside of the Company's control and any of which may
cause its stock price to fluctuate.
15
<PAGE> 16
The factors that may impact the unpredictability of the Company's quarterly
results include the long sales and implementation cycle and the continuing
increase in operating expenses in anticipation of increased revenues. As a
result, the Company believes that quarter-to-quarter comparisons of operating
results are not a good indication of future performance. It is likely that in
some future quarters, operating results may be below the expectations of public
market analysts and investors. In this event, the price of the Company's common
stock may fall.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing the income the Company receives from
its investments without significantly increasing risk. Some of the securities
that the Company has invested in may be subject to market risk. This means that
a change in prevailing interest rates may cause the principal amount of the
investment to fluctuate. For example, if the Company holds a security that was
issued with a fixed interest rate at the then-prevailing rate and the prevailing
interest rate later rises, the principal amount of the investment will probably
decline. To minimize this risk, the Company maintains its portfolio of cash
equivalents, short-term and long-term investments in a variety of securities,
including commercial paper, money market funds and government and non-government
debt securities. In general, money market funds are not subject to market risk
because the interest paid on such funds fluctuates with the prevailing interest
rate.
The following table presents the amounts of cash equivalents and
investments that are subject to market risk and the weighted-average interest
rates, by year of expected maturity for the Company's investment portfolios as
of September 30, 2000 and December 31, 1999. This table does not include money
market funds because those funds are not subject to market risk.
<TABLE>
<CAPTION>
(In thousands)
MATURING MATURING MATURING
WITHIN 1 YEAR WITHIN 2 YEARS WITHIN 3 YEARS
------------- -------------- --------------
<S> <C> <C> <C>
As of September 30, 2000:
Cash equivalents ................................ $ 198,356 $ -- $ --
Weighted-average interest rate ................ 6.42% -- --
Investments ..................................... $ 567,731 $ 422,058 $ 86,572
Weighted-average interest rate ................ 6.61% 6.82% 6.91%
----------- ----------- ----------
Total ........................................... $ 766,087 $ 422,058 $ 86,572
=========== =========== ==========
Weighted-average interest rate ................ 6.56% 6.82% 6.91%
</TABLE>
<TABLE>
<CAPTION>
MATURING MATURING MATURING
WITHIN 1 YEAR WITHIN 2 YEARS WITHIN 3 YEARS
------------- -------------- --------------
<S> <C> <C> <C>
As of December 31, 1999:
Cash equivalents ................................ $ 89,151 $ -- $ --
Weighted-average interest rate ................ 5.68% -- --
Investments ..................................... $ 187,915 $ 93,963 $ 3,238
Weighted-average interest rate ................ 5.96% 6.23% 7.01%
----------- ----------- ----------
Total ........................................... $ 277,066 $ 93,963 $ 3,238
=========== =========== ==========
Weighted-average interest rate ................ 5.87% 6.23% 7.01%
</TABLE>
16
<PAGE> 17
EXCHANGE RATE SENSITIVITY
The Company operates primarily in the United States, and all sales,
worldwide, have been made in US dollars. Accordingly, the Company has had no
material exposure to foreign currency rate fluctuations.
17
<PAGE> 18
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
<TABLE>
<CAPTION>
Number Exhibit Description
------ -------------------
<S> <C>
27.1 Financial Data Schedule (Filed Electronically)
</TABLE>
(b) Reports on Form 8-K: None
18
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JUNIPER NETWORKS, INC.
/s/ Marcel Gani
----------------------------------------
Marcel Gani
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Dated: November 9, 2000
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
