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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 JUNE 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)
<TABLE>
<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 315,356,976 shares of the Company's Common Stock, par value $.00001,
outstanding on July 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 June 30, 2000 and
December 31, 1999................................................... 3
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2000 and June 30, 1999................ 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and June 30, 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 2. Changes in Securities............................................... 18
Item 4. Submission of Matters to a Vote of Security Holders................. 18
Item 6. Exhibits and Reports on Form 8-K.................................... 18
SIGNATURES................................................................... 20
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JUNIPER NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS (Unaudited) (1)
Current assets:
Cash and cash equivalents $ 797,125 $ 158,043
Short-term investments 384,764 187,915
Accounts receivable, net 60,733 23,950
Prepaid expenses and other current assets 15,792 7,925
----------- -----------
Total current assets 1,258,414 377,833
Property and equipment, net 28,397 12,416
Long-term investments 412,374 97,201
Other long-term assets 131,167 25,928
----------- -----------
Total assets $ 1,830,352 $ 513,378
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,914 $ 15,368
Other accrued liabilities 67,044 21,025
Deferred revenue 30,872 19,270
----------- -----------
Total current liabilities 135,830 55,663
Convertible subordinated notes and other
long-term liabilities 1,165,725 --
Common stock and additional paid-in capital 530,157 513,698
Deferred stock compensation (2,010) (3,001)
Accumulated other comprehensive
income (loss) 25,129 (815)
Accumulated deficit (24,479) (52,167)
----------- -----------
Total stockholders' equity 528,797 457,715
----------- -----------
Total liabilities and stockholders' equity $ 1,830,352 $ 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 Six months ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $113,028 $ 17,556 $176,914 $ 27,600
Cost of revenues 40,752 8,046 65,853 14,393
--------- --------- --------- ---------
Gross profit 72,276 9,510 111,061 13,207
Operating expenses:
Research and development 18,000 7,991 33,990 14,172
Sales and marketing 17,247 3,849 28,752 6,452
General and administrative 4,171 977 7,185 1,753
Amortization of goodwill, purchased
intangibles and deferred stock
compensation(1) 2,315 891 4,706 1,795
Charitable contribution 10,000 -- 10,000 --
--------- --------- --------- ---------
Total operating expenses 51,733 13,708 84,633 24,172
--------- --------- --------- ---------
Operating income/(loss) 20,543 (4,198) 26,428 (10,965)
Interest income 24,634 619 35,164 942
Interest expense (14,758) (171) (18,652) (382)
--------- --------- --------- ---------
Income/(loss) before income taxes 30,419 (3,750) 42,940 (10,405)
Provision for income taxes 10,802 102 15,252 122
--------- --------- --------- ---------
Net income/(loss) $ 19,617 $ (3,852) $ 27,688 $ (10,527)
========= ========= ========= =========
Net Income (loss) per share:
Basic $ 0.06 $ (0.04) $ 0.09 $ (0.11)
========= ========= ========= =========
Diluted $ 0.06 $ (0.04) $ 0.08 $ (0.11)
========= ========= ========= =========
Shares used in computing
net income (loss) per share:
Basic 301,879 107,292 298,712 98,616
========= ========= ========= =========
Diluted 346,411 107,292 346,102 98,616
========= ========= ========= =========
</TABLE>
---------------
(1) Deferred stock compensation relates to the following expense category by
period:
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<S> <C> <C> <C> <C>
Cost of revenues $ 76 $ 131 $ 165 $ 264
Research and development 187 491 404 989
Sales and marketing 139 212 301 427
General and administrative 56 57 121 115
------ ------ ------ ------
Total $ 458 $ 891 $ 991 $1,795
====== ====== ====== ======
</TABLE>
See accompanying notes.
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JUNIPER NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 27,688 $ (10,527)
Adjustments to reconcile net income/(loss) to net cash
provided by (used in) operating activities:
Depreciation 4,882 2,350
Amortization of goodwill, purchased intangibles,
deferred stock compensation and other non-cash
transactions 5,975 1,795
Charitable contribution charge 10,000 --
Changes in operating assets and liabilities:
Accounts receivable (36,783) (9,256)
Other assets (9,783) (604)
Accounts payable and other accrued liabilities 68,565 6,082
Deferred revenue 11,602 7,176
----------- -----------
Net cash provided by (used in) operating activities 82,146 (2,984)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (20,863) (3,746)
Purchases of available-for-sale investments (824,517) (22,873)
Maturities of available-for-sale investments 312,782 --
Purchase of equity investments (36,450) --
----------- -----------
Net cash used in investing activities (569,048) (26,619)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible subordinated
notes 1,123,325 --
Payments on lease obligations -- (3,707)
Proceeds from issuance of preferred stock -- 33,948
Proceeds from issuance of common stock 2,659 71,693
----------- -----------
Net cash provided by financing activities 1,125,984 101,934
----------- -----------
Net increase in cash and cash equivalents 639,082 72,331
Cash and cash equivalents at beginning of period 158,043 20,098
----------- -----------
Cash and cash equivalents at end of period $ 797,125 $ 92,429
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ -- $ 331
=========== ===========
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 June
30, 2000 and the operating results and cash flows for the three and six months
ended June 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 six months ended June 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. Unrealized losses were
$528,000 and $815,000 as of June 30, 2000 and December 31, 1999, respectively.
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 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. Unrealized gains and losses, net of tax,
if any, are included in stockholders' equity. Equity investments, which are
recorded in other long-term assets, were approximately $85.8 million and $8.0
million as of June 30, 2000 and December 31, 1999, respectively. As of June 30,
2000, the unrealized gain relating to Juniper Networks' equity investments and
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included in other long-term assets was $41.4 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. According, 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.
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 June 30, 2000, three customers accounted for more than
10% of net revenues, for a total of 46.7%, compared with two customers
accounting for more than 10%, totaling 72.4% of net revenues, 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.
STOCK SPLITS
Juniper Networks effected a two-for-one stock split in the form of a 100%
common stock dividend paid on June 15, 2000. All share and per share amounts
have been adjusted to reflect the splits.
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 that are subject to repurchase. Diluted net income (loss)
per share additionally includes common stock equivalent shares outstanding
during the period, if dilutive.
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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):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss)............................................ $ 19,617 $ (3,852) $ 27,688 $(10,527)
======== ======== ======== ========
Denominator:
Weighted-average shares of common stock outstanding....... 314,392 139,812 313,559 132,666
Weighted-average shares subject to repurchase............. (12,513) (32,520) (14,847) (34,050)
-------- -------- -------- --------
Denominator for basic net income (loss) per share............ 301,879 107,292 298,712 98,616
Common stock equivalents.................................. 44,532 -- 47,390 --
-------- -------- -------- --------
Denominator for diluted net income (loss) per share.......... 346,411 107,292 346,102 98,616
======== ======== ======== ========
Net income (loss) per share:
Basic........................................................ $ 0.06 $ (0.04) $ 0.09 $ (0.11)
======== ======== ======== ========
Diluted...................................................... $ 0.06 $ (0.04) $ 0.08 $ (0.11)
======== ======== ======== ========
</TABLE>
NOTE. 3. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are as follows, (in
thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income (loss)............................................... $ 19,617 $ (3,852) $ 27,688 $(10,527)
Unrealized gains on securities............................... 395 -- 286 --
Unrealized gains on equity investments....................... 41,382 -- 41,382 --
-------- -------- -------- --------
61,394 (3,852) 69,356 (10,527)
Income tax effect related to gains on items of other
comprehensive income (loss).................................. (15,725) -- (15,725) --
-------- -------- -------- --------
Total comprehensive income (loss)............................... $ 45,669 $ (3,852) $ 53,631 $(10,257)
======== ======== ======== ========
</TABLE>
NOTE 4. CHARITABLE CONTRIBUTION
In the second quarter of fiscal 2000, employees of the Company, including
senior management, made an initial contribution of approximately $13 million to
a donor-advised charitable fund with the Community Foundation of Silicon Valley
established to benefit causes such as education, community and social services,
and emergency relief programs. The Company contributed approximately $10 million
to the fund in the form of 135,140 shares of common stock. Juniper Networks has
accounted for this Company contribution as a one-time charge in the period the
contribution was made, in accordance with the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 136, "Transfers of Assets
to a Not-for-Profit Organization or Charitable Trust That Raises or Holds
Contributions for Others."
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NOTE 5. 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" (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, as amended by Statement of Financial
Accounting Standards No. 137. 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 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. We do not anticipate that the adoption of Interpretation No. 44
will have a material impact on our financial position or the results of our
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 the 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.
In September 1998 the Company began shipping the M40(TM) Internet backbone
router, its first product, with volume shipments beginning in October 1998. The
Company began shipping the M20(TM) Internet backbone router in December 1999,
and the M160(TM) Internet backbone router in March 2000. The Company currently
sells its products to Service Providers in North America primarilly 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 June 30, 2000, had an accumulated deficit of $24.5 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
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 grew to $113.0 million in the quarter ended June 30, 2000 from
$17.6 million in the second quarter of fiscal 1999. Net revenues for the
six-month period ended June 30, 2000 were $176.9 million, compared with $27.6
million for the same six-month period of fiscal 1999. The increases in net
revenues for both the two three-month periods and the two six-month 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 June 30, 2000, three customers accounted for
more than 10% of net revenues, for a total of 46.7%, compared with two customers
accounting for more than 10%, totaling 72.4% of net revenues, in the same period
a year ago.
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COST OF REVENUES
Cost of revenues for the three months ended June 30, 2000 were $40.8
million as compared with $8.0 million for the three months ended June 30, 1999.
Cost of revenues for the six-month period ended June 30, 2000 were $65.9
million, compared with $14.4 million for the same six-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. 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 $18.0 million for the three-month
period ended June 30, 2000, an increase of $10.0 million or 125% over the
comparable period of 1999, and were $34.0 million in the six months ended June
30, 2000, an increase of $19.8 million or 139% 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 significant increases in headcount to
support the Company's multiple product development efforts. Additionally,
product development expenses, such as prototype expenses and non-recurring
engineering costs, increased in both periods ending June 30, 2000 as compared to
the comparable 1999 periods. The Company expects that prototype expenses will
increase over the next several quarters. 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 $17.2 million for the three-month period
ended June 30, 2000, an increase of $13.4 million over the comparable period of
1999, and were $28.8 million in the six months ended June 30, 2000, an increase
of $22.3 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 a significant 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 $4.2 million for the
three-month period ended June 30, 2000, an increase of $3.2 million over the
comparable period of 1999, and were $7.2 million in the six months ended June
30, 2000, an increase of $5.4 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.
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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 June 30, 2000, and $891,000 of deferred compensation during the quarter
ended June 30, 1999.
CHARITABLE CONTRIBUTION
The Company recorded a one-time charge of $10.0 million in the quarter
ended June 30, 2000 in connection with a stock issuance to a charitable
foundation. The Company currently does not expect to make similar contributions
in the foreseeable future.
INTEREST INCOME
Interest income includes income on available-for-sale investments. Interest
income was $24.6 million in the three months ended June 30, 2000 and $35.2
million in the six months ended June 30, 2000. This compares with interest
income of $619,000 in the three months ended June 30, 1999 and $942,000 in the
six months ended June 30, 1999. The significant increase in interest income in
both fiscal 2000 periods as compared to the 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 quarter ended and six-month period ended June 30,
2000 was $14.8 million and $18.7 million, respectively. Interest expense in
these periods consists entirely of accrued interest and amortization of debt
issuance costs, both attributable to the convertible subordinated notes which
were issued in March 2000. Interest expense for the quarter ended and six-month
period ended June 30, 1999 was $171,000 and $382,000, respectively, and related
to the Company's capital lease obligations.
PROVISION FOR INCOME TAXES
The Company has recorded tax provisions of $10.8 million and $15.3 million
for the three and six months ended June 30, 2000 or an effective rate of 35.5%
for both periods. On income before amortization of goodwill, purchased
intangibles, deferred stock compensation and charitable contribution the
effective tax rate is 33% and 32% for these periods. The 1999 tax provision of
$20,000 and $102,000 for the three and six months ended June 30, 1999 reflect
the inability to benefit operating losses in those periods.
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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 June 30, 2000, the Company had cash and cash equivalents of $797.1
million, short-term investments of $384.8 million and long-term investments of
$412.4 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 six months ended June 30,
2000 was $82.1 million and net cash used in operating activities for the six
months ended June 30, 1999 was $3.0 million. Cash provided by operating
activities for the six months ended June 30, 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
six months ended June 30, 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 six months ended June 30,
2000 and 1999 were $569.0 million and $26.6 million, respectively. Cash used in
investing activities in the six months ended June 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 six
months ended June 30, 1999 was due to the purchase of available-for-sale
investments and fixed assets.
Net cash provided by financing activities for the six months ended June 30,
2000 and 1999 were approximately $1.1 billion and $101.9 million, respectively.
Cash provided by financing activities in the six months ended June 30, 2000 was
due primarily to the proceeds from the offering of 4.75% convertible
subordinated notes of approximately $1.12 billion. Cash provided by financing
activities in the six months ended June 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, 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
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 PRIMARILY ON ONE CONTRACT MANUFACTURER, AND IF THE
COMPANY UNEXPECTEDLY 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 is in the process of qualifying a new third
party contract manufacturer; however, the qualification process and commencing
volume production is time consuming.
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
15
<PAGE> 16
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.
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 June 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 June 30, 2000:
Cash equivalents......................... $ 466,481 $ -- $ --
Weighted-average interest rate........ 6.46% -- --
Investments.............................. $ 380,164 $ 355,513 $ 56,860
Weighted-average interest rate........ 6.54% 6.75% 6.92%
--------- --------- ---------
Total.................................... $ 846,645 $ 355,513 $ 56,860
========= ========= =========
Weighted-average interest rate........ 6.49% 6.75% 6.92%
MATURING MATURING MATURING
WITHIN 1 YEAR WITHIN 2 YEARS WITHIN 3 YEARS
------------- -------------- --------------
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 to date
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 2. CHANGES IN SECURITIES
At the Annual Meeting of Stockholders of the Company held May 4, 2000, the
stockholders of the Company approved an amendment to the Certificate of
Incorporation of the Company increasing the authorized number of shares of
Common Stock from 200,000,000 shares to 1,000,000,000 shares. The amendment was
filed with the Delaware Secretary of State on May 8, 2000. The amendment to the
Certificate of Incorporation allows the Board of Directors to issue or reserve
for issuance up to 1,000,000,000 shares of Common Stock without further action
or authorization by the stockholders, except as required by applicable law or
the rules of any stock exchange or national securities association trading
system on which the Common Stock is then listed or quoted.
On May 11, 2000, the Company issued an aggregate of 135,140 unregistered
shares of common stock to the Community Foundation Silicon Valley as a one-time
charitable contribution. The issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Juniper Networks, Inc. was held on
May 4, 2000 at The Historic Del Monte Building, 100 South Murphy Street, Third
Floor, Sunnyvale, California 94086. Of the 156,504,433 shares outstanding as of
April 30, 2000, the record date, 130,732,765 shares (83.5%) were present or
represented by proxy at the meeting.
1. The table below presents the results of the election to the Company's
board of directors.
<TABLE>
<CAPTION>
Votes For Withheld
----------- ---------
<S> <C> <C>
Scott Kriens 129,685,772 1,046,993
William Stensrud 129,683,739 1,049,026
</TABLE>
2. The stockholders approved the Amendment to the Certificate of
Incorporation of the Company. This proposal received 124,014,335 votes for,
6,578,926 votes against and 139,504 shares abstaining.
3. The stockholders ratified the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ended December 31, 2000. This
proposal received 130,620,575 votes for, 11,454 votes against and 100,736 shares
abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
<TABLE>
<CAPTION>
Number Exhibit Description
------ -------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation
27.1 Financial Data Schedule (Filed Electronically)
</TABLE>
18
<PAGE> 19
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated May 5, 2000 to report,
under Item 5 thereof, that the Company's stockholders approved the increase in
authorized shares enabling the Company to effect the two-for-one stock split in
the form of a stock dividend, payable on June 15, 2000 to stockholders of record
as of May 15, 2000.
19
<PAGE> 20
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: August 10, 2000
20
<PAGE> 21
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Number Exhibit Description
------ -------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation
27.1 Financial Data Schedule (Filed Electronically)
</TABLE>
21
