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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 MARCH 31, 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)
DELAWARE 77-0422528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
385 RAVENDALE DRIVE, MOUNTAIN VIEW, CA 94043
(Address of principal executive offices) (Zip Code)
(650) 526-8000
(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 157,059,534 shares of the Company's Common Stock, par value $.00001,
outstanding on May 5, 2000.
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
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PAGE NO.
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Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 .................................................. 3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and March 31,1999 .......................... 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and March 31, 1999 ......................... 5
Notes to Condensed Consolidated Financial Statements ................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. 9
Factors That May Affect Future Results ................................. 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............. 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings ...................................................... 16
Item 2. Changes in Securities .................................................. 16
Item 6. Exhibits and Reports on Form 8-K ....................................... 16
SIGNATURES ..................................................................... 17
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JUNIPER NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
ASSETS (unaudited) (1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,068,529 $158,043
Short-term investments 281,475 187,915
Accounts receivable, net 29,964 23,950
Prepaid expenses and other current assets 11,844 7,925
---------- --------
Total current assets 1,391,812 377,833
Property and equipment, net 16,694 12,416
Long-term investments 214,545 97,201
Other long-term assets 71,834 25,928
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Total assets $1,694,885 $513,378
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 55,002 $ 36,393
Deferred revenue 19,448 19,270
---------- --------
Total current liabilities 74,450 55,663
Convertible subordinated notes 1,150,000 --
Common stock and additional paid-in capital 517,922 513,698
Deferred stock compensation (2,468) (3,001)
Accumulated other comprehensive loss (923) (815)
Accumulated deficit (44,096) (52,167)
---------- --------
Total stockholders' equity 470,435 457,715
---------- --------
Total liabilities and stockholders' equity $1,694,885 $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)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
2000 1999
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Net revenues $63,886 $10,044
Cost of revenues 25,101 6,347
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Gross profit 38,785 3,697
Operating expenses:
Research and development 15,990 6,181
Sales and marketing 11,505 2,603
General and administrative 3,014 776
Amortization of goodwill, purchased intangibles
and deferred stock compensation 2,391 904
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Total operating expenses 32,900 10,464
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Operating income (loss) 5,885 (6,767)
Interest income, net 6,636 112
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Income (loss) before income taxes 12,521 (6,655)
Provision for income taxes 4,450 20
------- -------
Net income (loss) $ 8,071 $(6,675)
======= =======
Net Income (loss) per share:
Basic $ 0.05 $ (0.15)
======= =======
Diluted $ 0.05 $ (0.15)
======= =======
Shares used in computing net income (loss)
per share:
Basic 147,772 44,970
======= =======
Diluted 175,145 44,970
======= =======
</TABLE>
See accompanying notes.
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JUNIPER NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,071 $ (6,675)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation 2,031 1,051
Amortization of goodwill, purchased
intangibles, deferred stock compensation
and other non-cash transactions 2,709 904
Changes in operating assets and liabilities:
Accounts receivable (6,014) (562)
Other assets (4,351) (165)
Accounts payable and accrued liabilities 18,609 1,577
Deferred revenue 178 2,219
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Net cash provided by (used in) operating activities 21,233 (1,651)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,309) (1,422)
Purchases and maturities of available-for-sale
investments, net (211,012) (502)
Minority interest in equity investments (17,175) --
----------- --------
Net cash used in investing activities (234,496) (1,924)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible subordinated
notes 1,123,325 --
Payments on lease obligations -- (3,412)
Proceeds from issuance of preferred stock -- 33,948
Proceeds from issuance of common stock 424 1,888
----------- --------
Net cash provided by financing activities 1,123,749 32,424
----------- --------
Net increase in cash and cash equivalents 910,486 28,849
Cash and cash equivalents at beginning of period 158,043 20,098
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Cash and cash equivalents at end of period $ 1,068,529 $ 48,947
=========== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ -- $ 138
=========== ========
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 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
March 31, 2000 and the operating results and cash flows for the three months
ended March 31, 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 Securities and Exchange
Commission. 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 months ended March 31, 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. Unrealized losses were
$923,000 and $815,000 as of March 31, 2000 and December 31, 1999, respectively.
Realized gains and losses and declines in value of securities judged to be other
than temporary are included in interest income. Interest and dividends on all
securities are included in interest income.
MINORITY INTEREST IN EQUITY INVESTMENTS
Minority interest in equity investments in which the Company has less than
20% interest and does not have the ability to exercise significant influence are
carried at the lesser of cost or estimated realizable value. Minority interest
in equity investments, which are recorded in other long-term assets, were
approximately $25.2 million and $8.0 million as of March 31, 2000 and December
31, 1999, respectively.
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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. Amounts billed in excess of revenue
recognized are included as deferred revenue and accounts receivable in the
accompanying condensed consolidated balance sheets.
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 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 that are subject to repurchase. Diluted net income (loss)
per share includes common stock equivalent shares outstanding during the period,
if dilutive.
The following table presents the calculation of basic and diluted net
income (loss) per share (in thousands, except per share data):
<TABLE>
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Three months ended
March 31,
---------------------
2000 1999
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(unaudited)
<S> <C> <C>
Numerator:
Net income (loss) ....................................... $ 8,071 $ (6,675)
========= ========
Denominator:
Weighted-average shares of common stock outstanding .. 156,363 62,761
Weighted-average shares subject to repurchase ........ (8,591) (17,791)
--------- --------
Denominator for basic net income (loss) per share ....... 147,772 44,970
Common stock equivalents ............................. 27,373 --
--------- --------
Denominator for diluted net income (loss) per share ..... 175,145 44,970
========= ========
Net income (loss) per share:
Basic ................................................... $ 0.05 $ (0.15)
========= ========
Diluted ................................................. $ 0.05 $ (0.15)
========= ========
</TABLE>
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NOTE 3. CONVERTIBLE SUBORDINATED NOTES
The Company's registration statement on Form S-1 registering $1.15 billion
(including a $150 million over-allotment option) in principal amount of 4.75%
Convertible Subordinated Notes Due 2007 (the "Convertible Notes"), was declared
effective on March 2, 2000. The Company completed the public offering of $1.0
billion and $150 million of the Convertible Notes on March 8, 2000 and March 13,
2000, respectively. In connection with the issuance of the Convertible Notes,
the Company recorded approximately $26.7 million of debt issuance costs in other
long-term assets and is amortizing the debt issuance cost over the life of the
debt. As of March 31, 2000, $26.4 million of debt issuance costs remain in other
long-term assets.
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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 Internet infrastructure solutions
that enable Internet service providers and other telecommunications service
providers, (collectively described as "Service Providers"), to meet the demands
resulting from the rapid growth of the Internet. 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.
In September 1998 the Company began shipping its first product, the M40
Internet backbone router, with volume shipments beginning in October 1998. The
Company began shipping the M20 in December 1999, and the M160 in March 2000. The
Company currently sells its products to Service Providers in North America
through a direct sales force and to international customers primarily through
value added resellers.
Since the Company's inception, it has incurred significant losses, and as
of March 31, 2000, had an accumulated deficit of $44.1 million. The Company
achieved its first quarter of profitability in the quarter ended December 31,
1999. In order to maintain profitability, the Company will need to generate
significantly higher revenues to offset the necessary increases in research and
development, sales and marketing and general and administrative expenses as the
business and operations continue to grow.
RESULTS OF OPERATIONS
NET REVENUES
Net revenues were $63.9 million for the three months ended March 31, 2000,
and $10.0 million for the three months ended March 31, 1999. The increase in net
revenues was primarily due to (1) increased market acceptance of the Company's
products, (2) overall growth in the marketplace, and (3) expanded product
offerings. In the quarter ended March 31, 2000, two customers accounted for more
than 10% of net revenues compared to three customers in the same period a year
ago.
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2000 were $25.1
million as compared with cost of revenues for the three months ended March 31,
1999 of $6.3 million. The increase in cost of revenues is primarily related to
the increase in net revenues, as well as headcount increases in the Company's
customer service and support organizations. The
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Company expects cost of revenues to continue to increase as net revenues
increase. 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.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $16.0 million for the three months
ended March 31, 2000, an increase of $9.8 million over the comparable quarter of
1999. The increase was due primarily to significant increases in headcount to
support the Company's product development efforts. Additionally, product
development expenses such as prototype expenses and non-recurring engineering
costs accounted for approximately 35% of the increase for the quarter ended
March 31, 2000 compared to the quarter ended March 31, 1999. Research and
development is essential to the Company's future success and the Company expects
that research and development expense will continue to increase in absolute
dollars in future periods.
SALES AND MARKETING EXPENSES
Sales and marketing expenses were $11.5 million for the three months ended
March 31, 2000, an increase of $8.9 million over the comparable quarter of 1999.
The increase was due primarily to a significant increase in headcount, as well
as an increase in commission expenses resulting from the increase in net
revenues. The Company expects to continue increasing sales and marketing
headcount and, if net revenues increase, there will be a resulting increase in
commission expenses; therefore, sales and marketing expenses are expected to
continue to increase in absolute dollars in future periods.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totaled $3.0 million for the three
months ended March 31, 2000, an increase of $2.2 million over the comparable
quarter 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 $2.4 million of
goodwill, purchased intangibles and deferred compensation during the quarter
ended March 31, 2000, and $904,000 of deferred compensation during the quarter
ended March 31, 1999.
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INTEREST INCOME, NET
Net interest income includes income on cash investments partially offset
by expenses related to financing obligations. Net interest income was $6.6
million in the three months ended March 31, 2000 and $112,000 in the three
months ended March 31, 1999. The significant increase in net interest income is
a direct result of increased cash and investment balances, resulting from the
Company's debt and equity offerings during 1999 and 2000.
PROVISION FOR INCOME TAXES
The Company has recorded a tax provision of $4.5 million for the three
months ended March 31, 2000 or an effective rate of 36%. The effective tax rate
varies from the U.S. statutory rate primarily due to the impact of nondeductible
goodwill and the geographic mix of income.
Utilization of net operating loss and credit carryforwards may be subject
to an annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986, as amended, and similar state provisions. The
annual limitation may result in the expiration of the net operating loss and
credit carryforwards before utilization.
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 the 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 the offering of
approximately $324.3 million. In March 2000, the Company completed a $1.15
billion offering of 4.75% convertible subordinated notes and realized net
proceeds from that offering of approximately $1.12 billion.
At March 31, 2000, the Company had cash and cash equivalents of
approximately $1.1 billion, short-term investments of $281.5 million and
long-term investments of $214.5 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 three months ended March
31, 2000 was $21.2 million and net cash used in operating activities for the
three months ended March 31, 1999 was $1.7 million. Cash provided by operating
activities for the quarter ended March 31, 2000 was primarily the result of
increases in accounts payable and other accrued liabilities, net income, and
adjustments for certain non-cash charges, partially offset by increases in
accounts receivable and other assets. Cash used in operating activities for the
quarter ended March 31, 1999, was primarily the result of the net loss and an
increase in accounts receivable, partially offset by increases in deferred
revenues, accounts payable and other accrued liabilities and adjustments for
certain non-cash charges.
Net cash used in investing activities for the three months ended March 31,
2000 and 1999 was $234.5 million and $1.9 million, respectively. Cash used in
investing activities in the three months ended March 31, 2000 was due primarily
to the purchase of available-for-sale investments, as well as the purchase of
minority equity investments and fixed assets. Cash used in investing activities
in the three months ended March 31, 1999 was due to the purchase of fixed assets
and available-for-sale investments.
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Net cash provided by financing activities for the three months ended March
31, 2000 and 1999 was $1.1 billion and $32.4 million, respectively. Cash
provided by financing activities in the three months ended March 31, 2000 was
due primarily to the proceeds from the offering of 4.75% convertible
subordinated notes of $1.1 billion. Cash provided by financing activities in the
three months ended March 31, 1999 was primarily due to proceeds from capital
equipment leases, partially offset by payments on lease obligations.
The Company expects to devote substantial capital resources to continue
its research and development efforts, to hire and expand the sales, support,
marketing and product development organizations, to expand marketing programs,
to 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
the Company will not require additional financing within this time frame or that
such additional funding, if needed, will be available on acceptable terms.
FACTORS THAT MAY AFFECT FUTURE RESULTS
THE COMPANY'S FAILURE TO CONTINUE TO INCREASE ITS REVENUES WILL PREVENT THE
COMPANY FROM MAINTAINING PROFITABILITY. The Company has incurred significant
losses since inception and although net revenues have grown from zero in the
quarter ended September 30, 1998 to $63.9 million in the quarter ended March 31,
2000, there can be no assurances that net revenues will continue to grow. 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 in order to maintain profitability the Company will
need to generate significantly higher revenues.
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 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
will substantially decrease market acceptance and sales of the Company's present
and future products which will 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
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the Company's future products to achieve market acceptance could adversely
affect the business and financial results.
THE COMPANY HAS A LIMITED NUMBER OF CUSTOMERS 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 small 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 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 IS DEPENDENT ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR SEVERAL
KEY COMPONENTS. 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 PRIMARILY ON ONE CONTRACT MANUFACTURER, AND IF THE
COMPANY HAS TO QUALIFY A NEW CONTRACT MANUFACTURER IT MAY LOSE REVENUE AND
DAMAGE ITS CUSTOMER RELATIONSHIPS. Solectron, a third party manufacturer for
numerous companies, manufactures the Company's products on a purchase order
basis and is the Company's primary manufacturer. The Company currently does not
have a long-term supply contract with Solectron. If the Company should fail to
effectively manage its relationship with Solectron, or if Solectron 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
has begun the process to qualify a new third party contract manufacturer;
however, qualifying a new contract manufacturer and commencing volume production
is expensive and time consuming. If the Company is required or chooses to change
contract manufacturers, it may lose revenue and damage its customer
relationships.
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 its control and any of which may cause its
stock price to fluctuate.
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.
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IF THE COMPANY'S PRODUCTS DO NOT INTEROPERATE WITH THE CUSTOMERS' NETWORKS,
INSTALLATIONS WILL BE DELAYED OR CANCELLED AND COULD RESULT IN SUBSTANTIAL
PRODUCT RETURNS WHICH COULD HARM THE BUSINESS. The Company's products are
designed to interface with the customers' existing networks, each of which has
different specifications and utilizes multiple protocol standards. Many of the
customers' networks contain multiple generations of products that have been
added over time as these networks have grown and evolved. The Company's products
must interoperate with all of the products within these networks as well as
future products in order to meet the customers' requirements. If the products do
not interoperate with those of the Company's customers' networks, installations
could be delayed, orders for the products could be cancelled or the products
could be returned. This would also seriously harm the Company's reputation,
which could adversely affect the Company's business and prospects as well as
financial results.
IF THE COMPANY FAILS TO MANAGE EXPANSION EFFECTIVELY, ITS BUSINESS, FINANCIAL
CONDITION AND PROSPECTS COULD BE SERIOUSLY HARMED. The Company's ability to
successfully offer its products and implement its business plan in a rapidly
evolving market requires an 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 this year. 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 financial and managerial controls, reporting systems and procedures,
and will need to continue to expand, train and manage its work force worldwide.
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.
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 and 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.
14
<PAGE> 15
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 March 31, 2000 and December 31, 1999. This table does not include money
market funds because those funds are not subject to market risk.
(In thousands)
<TABLE>
<CAPTION>
MATURING MATURING MATURING
WITHIN 1 YEAR WITHIN 2 YEARS WITHIN 3 YEARS
------------- -------------- --------------
<S> <C> <C> <C>
As of March 31, 2000:
Cash equivalents...................... $545,157 $ -- $ --
Weighted-average interest rate...... 6.04% -- --
Investments........................... $211,718 $188,920 $29,624
Weighted-average interest rate...... 5.89% 6.31% 6.67%
-------- -------- -------
Total................................. $756,875 $188,920 $29,624
======== ======== =======
Weighted-average interest rate...... 6.00% 6.31% 6.67%
</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>
EXCHANGE RATE SENSITIVITY
The Company operates primarily in the United States, and all sales to date
have been made in US dollars. Accordingly, the Company has had no material
exposure to foreign currency rate fluctuations.
15
<PAGE> 16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
On January 24, 2000, the Company issued an aggregate of 33,000
unregistered shares of common stock to the shareholders of Pacific Advantage
Limited ("PAL") in connection with the merger of PAL with a wholly-owned
subsidiary of the Company. The issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.
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
16
<PAGE> 17
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: May 12, 2000
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,068,529
<SECURITIES> 496,020
<RECEIVABLES> 29,964
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,391,812
<PP&E> 26,898
<DEPRECIATION> 10,204
<TOTAL-ASSETS> 1,694,885
<CURRENT-LIABILITIES> 74,450
<BONDS> 1,150,000
0
0
<COMMON> 2
<OTHER-SE> 470,433
<TOTAL-LIABILITY-AND-EQUITY> 1,694,885
<SALES> 63,886
<TOTAL-REVENUES> 63,886
<CGS> 25,101
<TOTAL-COSTS> 25,101
<OTHER-EXPENSES> 32,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,895
<INCOME-PRETAX> 10,530
<INCOME-TAX> 4,450
<INCOME-CONTINUING> 8,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,071
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
