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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1194 NORTH MATHILDA AVENUE, SUNNYVALE, CA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(408) 745-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
COMMON STOCK, $.00001 PAR VALUE
-------------------------------
(TITLE OF CLASS)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 12, 2001, there were 319,643,790 shares of the Registrant's
Common Stock outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant (based on the closing price for the Common
Stock on the Nasdaq National Market on March 12, 2001) was approximately
$13,530,869,740.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to
specified portions of the Registrant's definitive Proxy Statement to be issued
in conjunction with the Registrant's 2001 Annual Meeting of Stockholders, which
is expected to be filed not later than 120 days after the Registrant's fiscal
year ended December 31, 2000.
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JUNIPER NETWORKS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1 Business.................................................................................... 3
Item 2 Properties.................................................................................. 17
Item 3 Legal Proceedings........................................................................... 18
Item 4 Submission of Matters to a Vote of Security Holders......................................... 18
Executive Officers of the Registrant........................................................ 18
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters........................ 20
Item 6. Selected Financial Data..................................................................... 20
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations....... 20
Item 7A Quantitative and Qualitative Disclosures about Market Risk.................................. 21
Item 8 Financial Statements and Supplementary Data................................................. 21
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 21
PART III
Item 10 Directors and Executive Officers of the Registrant.......................................... 22
Item 11 Executive Compensation...................................................................... 22
Item 12 Security Ownership of Certain Beneficial Owners and Management.............................. 22
Item 13 Certain Relationships and Related Transactions.............................................. 22
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................................................................ 23
Signatures.................................................................................. 25
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PART I
ITEM 1 BUSINESS
OVERVIEW
We are a leading provider of purpose-built Internet infrastructure
solutions that meet the scalability, performance, density and compatibility
requirements of rapidly evolving, optically-enabled Internet Protocol (IP)
networks. Unlike conventional routers, originally developed for enterprise
applications and increasingly inadequate for service provider use in public
networks, our products are specifically designed, or purpose-built, for service
provider networks and to accommodate the size and scope of the Internet. Our
next generation Internet backbone routers offer our customers increased
reliability, performance, scalability, interoperability and flexibility, and
reduced complexity and cost compared to current alternatives. Our products
combine high performance ASIC-based packet forwarding technology, the features
of our JUNOS Internet software and an Internet-optimized architecture into a
purpose-built solution for the service provider market.
INDUSTRY BACKGROUND
The Internet has evolved from an academic research project into a
network of hundreds of separately administered, public and private networks
interconnected using IP. IP traffic is growing exponentially, driven by
increasing numbers of new users, connected devices and Internet transactions.
The result of the widespread use of IP is a ubiquitous network that today
carries a large and growing amount of data traffic enabling millions of users to
share information and conduct electronic commerce. Industry research firms
forecast continued dramatic growth worldwide in the Internet and Internet
traffic. The importance of IP continues to increase as the number of users,
connected devices and transactions over the Internet grows.
The rapid adoption of the Internet and the tremendous growth of IP
traffic have prompted service providers to construct large scale data networks.
These networks are being optimized to transport data traffic as compared to
traditional telephone networks, which were optimized to transport voice traffic.
The architecture of these next generation networks is being driven by two key
technologies: packet/cell switching and optical networking.
Advantages of Packet/Cell Switching. Packet/cell switching technology,
which divides data traffic into distinct units called packets or cells and
routes each packet or cell independently, provides superior use of available
network capacity compared to traditional circuit switching technology. In a
circuit switched network, each data stream, such as a voice telephone call
between two points, is provided with a dedicated channel, or circuit, for the
duration of the telephone call. This approach leads to inefficient use of
network resources because a channel is fully dedicated to each transaction,
whether or not data is actually flowing at any given moment. As a result, a
circuit switched architecture is highly inefficient for Internet applications
which tend to create large bursts of data traffic followed by long periods of
silence. Packet/cell switching architectures enable greater utilization out of a
fixed capacity circuit by combining traffic that has different capacity demands
of the circuit at different times. Packet/cell switches more efficiently fill
the available network bandwidth with packets of data from many users, thereby
reducing the wasted bandwidth due to silence from any one particular user. The
use of packet/cell switching is driving the architecture of the Internet to be
fundamentally different from traditional circuit switched voice based networks.
In packet/cell switched networks, IP has emerged as the de facto standard for
providing services to end users. Primary packet/cell switching products include
frame relay switches, ATM switches and routers.
Rapid Advances in Optical Networking. Optical networking technology uses
pulses of light, rather than pulses of electricity, to transmit data in a
network, and uses fiber optic connections instead of wires. Optical networking
can be used to transmit much more information over a given connection than
electrical signals can convey. Optical networking advances, such as dense
wavelength division multiplexing, or DWDM, which allows transmission of several
frequencies of light over one strand of optical fiber, have enabled still higher
data transmission rates and improved efficiency of bandwidth utilization.
Packet/Cell Technologies Have Not Kept Up With Optical Technologies.
Many service providers are installing DWDM equipment and are increasingly
focusing on combining IP and optical networking technologies. However,
traditional packet switching equipment is not capable of forwarding packets at
rates sufficient to keep pace with optical transmission speeds.
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As affordable fiber optic transmission capacity becomes widely available, the
performance and complexity of current packet/cell switching architectures is
increasingly constraining the growth of the Internet.
FUNDAMENTAL REQUIREMENTS FOR THE INTERNET
The reliability and performance of current Internet infrastructure
equipment have become and continue to be critical issues for service providers
as they support dramatic growth in IP traffic and increasingly seek to offer new
revenue generating, mission-critical and other services. The need for high
reliability, high performance, high performance under stressful conditions,
scalability, interoperability and cost effectiveness are fundamental
requirements in meeting the needs associated with the growth in IP traffic. New
requirements will continue to arise for next generation networks which will
drive a set of new requirements for Internet infrastructure equipment.
High Reliability. As businesses and consumers increasingly rely on the
Internet for mission-critical applications, high network reliability becomes
essential. Service providers are increasingly expected to provide a similar
degree of reliability on the Internet that users have become accustomed to on
the traditional telephone network. The "five nines" (99.999%) reliability
standard of the traditional telephone network is becoming the target to which
suppliers of next-generation Internet platforms are being compared. As service
providers begin to bundle voice and data on their networks, this high degree of
reliability is becoming even more critical.
High Performance. To handle the rapid growth in IP traffic, today's
networks increasingly require routers that can operate at higher speeds. The
processing of data packets at these high speeds requires sophisticated
forwarding technology to inspect each packet and assign it to a destination
based on priority, data type and other considerations. Since a large number of
IP packets, many of which perform critical administrative functions, are small
in size, high performance Internet routers need to achieve their specified
transmission speeds even for small packet sizes. Since smaller packets increase
packet processing demands, routing large numbers of smaller packets tends to be
more resource intensive than routing of larger packets. A wire speed router,
which achieves its specified transmission rate for any type of traffic passing
through it, can accomplish this task. Thus, provisioning of mission-critical
services increasingly requires the high performance enabled by wire speed
processing.
High Performance Under Stressful Conditions. In a large and complex
network, individual components inevitably fail. However, the failure of an
individual device or link must not compromise the network as a whole. In a
typical network, when a failure occurs, the network loses some degree of
capacity and, in turn, a greater load falls on the remaining network routers,
which must provide alternate routes. Routers must quickly adjust to the new
state of the network to maintain packet forwarding rates and avoid dropping
significant numbers of packets when active routes are lost or when large numbers
of routes change. Routing protocols are used to accomplish this convergence, a
process that places even greater stress on the router. Given the complexity of
Internet infrastructure, particularly compared to enterprise networks, the
convergence process is far more complex and places a far greater load on the
routing software, thereby requiring a much more sophisticated device.
Scalability. Due to the rapid growth in Internet users and IP traffic,
service providers must continuously expand their networks, both in terms of
increased numbers of access points of presence (PoPs), and also greater capacity
per PoP. To facilitate this expansion process, Internet infrastructure equipment
must be highly scalable. Next generation routers therefore need to be
upgradeable and configurable to function within constantly changing networks
while incurring minimal downtime.
Interoperability. Service providers do not have the time or inclination
to change their existing networks to favor introduction of new products; rather,
new products must be compatible with the existing environment. Given the open
and inter-connected nature of the Internet, the complexity of running an
Internet backbone network requires a service provider to control and police
relations with other service providers. For example, service providers must
carefully control what traffic is accepted under what conditions from other
providers. The software in each router must offer 100% compatibility with the
interior protocols and standards used within each service provider's backbone
network. The compatibility level must be maintained despite changes to software
equipment configuration and network architecture and upgrades to the various
protocol standards. Thus, routing software must be flexible and quickly
upgradeable to support any necessary revisions. This level of compatibility, in
turn, cannot impact the performance, scalability or reliability of the
equipment. Attaining this sophisticated level of interoperability is highly
challenging and requires significant testing to ensure compatibility.
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Cost Effectiveness. Exponential growth in IP traffic and intense price
competition in the telecommunications market is increasingly requiring service
providers to seek solutions that significantly reduce the capital expenditures
required to build and operate their networks. In addition to the basic cost of
equipment such as routers, service providers incur substantial ancillary costs
in terms of space required to deploy the equipment, power consumption and
on-going operations and maintenance. Service providers therefore want to deploy
dense and varied equipment configurations in limited amounts of rack and floor
space. Therefore, in order to continue to scale their networks toward higher
data speeds in a cost effective manner, service providers need the ability to
mix and match easily many different speed connections at appropriate densities,
without significantly increasing the consumption of space or power.
There is a clear need for next generation routers that can support high
speeds and offer new IP-based services. Network operators are eagerly seeking
new solutions that increase the level of scalability and reliability within
their networks and reduce the cost of their architectures.
THE JUNIPER NETWORKS SOLUTION
We developed, marketed and sold the first commercially available
purpose-built Internet backbone router optimized for the specific high
performance needs of service providers. As the need for core bandwidth
continued to increase, the need for service rich platforms at the edge of the
network was created. Our products are designed to address the needs at the core
and at the edge of the network by combining the features of high-performance
ASIC-based packet forwarding technology, our JUNOS Internet software and an
Internet-optimized architecture.
Our product platforms share common software and services, and common
ASIC technology for full compatibility and scalability. Critical service
provider applications including high-speed access, peering, and hosting are
served by our platforms. Physical interfaces are interchangeable between
platforms, increasing user flexibility and allowing common sparing. Our solution
provides several key benefits to our customers: carrier class reliability, wire
speed performance, scalability, interoperability, flexibility, reduced
complexity and cost effectiveness.
JUNOS Internet Software. Our Internet software, called JUNOS, is
designed to meet the IP network routing, operations and control requirements of
the world's largest service providers and is an integral embedded component of
our product family system architecture. The ability of JUNOS to manage the
complex network sharing relationships among service providers allows our
products to be placed at critical points in the core of a service provider's
network. The JUNOS Internet software allows our products to have widespread
network placement due to its interoperability with Cisco's Internetwork
Operating System, or IOS, currently the most broadly deployed routing operating
system.
Unconstrained by legacy routing software, we developed JUNOS using a
modular design, in which distinct functions are implemented as separate modules
with well defined interfaces and interactions, simplifying troubleshooting and
maintenance. JUNOS operates in protected memory mode. These features keep
functionality distinct, and minimize the impact of any failure that may occur to
the specific software application in which the failure occurs. Also, we believe
JUNOS' software modularity will enable the continuous upgrade of new enhanced
capabilities, while protecting reliability and compatibility with existing
networks.
High Performance ASIC-based Packet Forwarding Technology. Our products
utilize high performance ASIC-based technology. The result is a platform that is
substantially faster than today's general purpose microprocessor based routers
in its ability to process and forward IP packets, allowing our products to
deliver high performance at wire speed. The ability to enhance and implement
large scale ASICs will be a long-term differentiator for us, particularly as the
sophistication required to forward traffic across higher speed networks
increases. We expect to continue to leverage our existing ASIC technology in
future products and continue to capitalize on our advanced ASIC design
capabilities.
Internet Optimized Architecture. As purpose-built Internet backbone
routers, our products employ an architecture designed exclusively for the
Internet. The system architecture provides a clean separation between the
routing and packet-forwarding functions. Separating these two functions enables
us to develop independently a full-featured routing protocol and traffic
engineering functionality through our JUNOS Internet software and wire speed
packet forwarding performance through high performance ASICs. Furthermore, with
the routing and forwarding functions segregated, the products do not sacrifice
performance, even when there is a failure in the network. When a failure occurs,
JUNOS detects the failure and is
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able to quickly converge to the new state of the network while the ASICs
continue to forward packets at wire speed until they receive updated routes from
JUNOS.
THE JUNIPER NETWORKS STRATEGY
Our objective is to become the primary supplier of high performance
Internet backbone infrastructure. The key elements of our strategy are described
below.
Maintain and Extend Technology Leadership. Our ASIC technology, JUNOS
Internet software and Internet-optimized architecture have been key elements to
establishing our technology leadership. We believe that these elements are
highly leverageable into future products we are currently developing. We intend
to maintain and extend our technological leadership in the Internet
infrastructure market through continued significant investment to enhance the
feature richness of our products and to develop future differentiated offerings
for service providers.
Leverage Early Lead as Supplier of Purpose-Built Internet
Infrastructure. From inception we have focused solely on designing and building
Internet infrastructure for service providers. We have integrated purpose-built
software and hardware into an Internet optimized architecture that specifically
meets service providers' needs and have seen significantly positive initial
responses from our existing and potential customers. We believe that many of
these customers will deploy Internet backbone infrastructure equipment from only
a few vendors. The purpose-built advantages of our products provide us with a
time-to-market lead, which is a critical advantage in gaining rapid penetration
as one of these selected vendors. Once our products are widely deployed in a
service provider's network as the primary or even secondary Internet backbone
infrastructure equipment, we believe we create a significant barrier to entry to
potential competitors who do not currently offer commercially-viable next
generation routing solutions.
Work Very Closely with Key Customers. In developing our products,
including our JUNOS Internet software, we worked very closely with customers to
design and build a product specifically to meet their complex needs. Since JUNOS
has been available and used by our customers for over two years, we understand
clearly the challenges facing these carriers, enabling us to subsequently design
additional features and capabilities into both our software and hardware. We
believe our close relationships with, and constant feedback from, our customers
have been key elements in our design wins and rapid deployment to date. We plan
to continue to work very closely with our key customers to implement
enhancements to current products as well as to design future products that
specifically meet their evolving needs. We are also actively involved with these
customers in developing key standards, such as MPLS, and are an active
participant in standards organizations such as the Internet Engineering Task
Force and the Optical Internetworking Forum.
Increase Penetration at Major Service Providers. Our initial focus has
been to penetrate several of the largest service providers, where operators have
the technical sophistication, resources and desire to test and evaluate our
solution against potential alternatives. We believe that there is a significant
opportunity to further penetrate these large and complex networks given the
advantages of our products. As the growth of the Internet requires these major
service providers to continue to build their networks and replace outdated
equipment, we will pursue further opportunities to capture greater market share
within these large accounts.
Leverage Early Successes to Penetrate New Customers Rapidly. We believe
that the Internet infrastructure equipment buying patterns of the medium and
smaller-sized service providers typically lag behind those of the larger service
providers. Since the network challenges that the large service providers face
today are likely to be the problems encountered by smaller service providers in
the near future, we believe smaller service providers are likely to deploy
equipment similar to larger service providers. Furthermore, smaller service
providers often lack the technical resources to thoroughly test different
vendors' products. Therefore, they typically piggyback on larger service
providers' evaluation efforts by purchasing the same platforms deployed by the
larger service providers. Since we have begun to sell to several of the largest
service providers, we intend to leverage this success by allocating our
marketing efforts towards a greater number of medium and smaller-sized service
providers.
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Enable New IP-based Services. Our platform enables service providers to
build networks cost effectively and to offer new differentiated services for
their customers more efficiently than conventional products. While we believe
that current service providers are likely to be the largest and most successful
IP network operators in the near term, many new service providers are likely to
emerge oriented around the delivery of IP-based services. These services, which
include web hosting, outsourced Internet and intranet services, VPNs, outsourced
enterprise applications and voice-over IP, are cost-effectively enabled by our
Internet infrastructure platform. Although the market for our products today is
driven primarily by the need for traditional Internet network capacity, as other
IP-based services and applications continue to grow in importance, the total
potential market for our products will continue to grow commensurately.
TECHNOLOGY
Our core technology consists of our Internet backbone router
architecture, JUNOS Internet software and ASIC hardware expertise. Our
general-purpose architecture was initially embodied in the M40, but also is
designed to serve as the platform for our M20, M160, M5, M10 and for future
generations of products.
PRODUCT ARCHITECTURE
The architecture of our products is exemplified by the M40. The M40
architecture delivers the forwarding rates and network control necessary to
scale Internet backbones rapidly and reliably. The M40 system includes a Routing
Engine, or RE, and a Packet Forwarding Engine, or PFE. The clean separation of
the routing and forwarding functions ensures that the two functions do not
compete for the same resources.
The Routing Engine. The RE consists of the JUNOS Internet software
operating on an Intel-based platform. The JUNOS Internet software features
Internet-scale protocol support, with flexible policy software that enables
maximum control over the acceptance, modification and advertisement of route
prefixes. In addition, the JUNOS Internet software offers a range of
configuration management tools that simplify the configuration process and help
protect against operator error. The RE conducts the processing intensive
activity of maintaining the routing table, from which the forwarding table
residing in the PFE is derived. The RE is connected to the PFE through a
dedicated 100 Mbps link. After constructing or updating the forwarding table,
the RE downloads a copy of the table to the PFE. Updates to the forwarding table
are done atomically in small incremental steps so that packet forwarding is not
interrupted by routing changes.
The Packet Forwarding Engine. The M40 delivers wire speed packet
forwarding using our ASIC designs. All links between ASICs are oversized,
dedicated channels, and the PFE architecture is free from the bottlenecks faced
by traditional crossbar switches, which use intelligent agent software to
perform both routing and forwarding functions over multiple connections to
either parts of the network. Bottlenecks can occur in a crossbar switch because
the routing and forwarding functions are not separated. The heart of the PFE is
the Internet Processor ASIC.
All lookup rates reflect longest-match route table lookups for all
packets and all lookups are performed in hardware. There is no caching
mechanism, which is a mechanism by which critical information, such as
destinations for traffic, is stored in rapidly accessible memory to make the
process of looking up traffic destinations faster. In addition there is no risk
of cache misses in the system which can result in slower storage access and thus
considerably slower traffic delivery. In addition, the forwarding table can be
updated without affecting forwarding rates. The Internet Processor is
programmable to support up to four different forwarding tables (layer 2 and/or
layer 3) simultaneously. Supported forwarding protocols currently include
unicast and multicast IPv4 and MPLS. Finally, the Internet Processor maintains
its performance regardless of length of lookups or table size.
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The PFE also features a shared memory system with single-stage
buffering, so packets are written to and read from memory only once.
Single-stage buffering greatly reduces the complexities and throughput delays
associated with multistage buffering systems. The pooled memory is distributed
across the Flexible PIC Concentrator, or FPC, cards, allowing memory to scale as
interfaces are added. The Internet Processor also features prefix accounting
mechanisms that operate at rates in excess of 20 Mpps.
JUNOS INTERNET SOFTWARE: TRAFFIC ENGINEERING AND CONTROL
JUNOS Internet software offers a full suite of Internet-scale,
Internet-tested routing protocols. Protocols and software tools, which are used
to control and direct network traffic, are critical to an Internet backbone
routing solution. Software control is made more important by the fact that the
size and complexity of backbone networks are increasing at a time when service
providers are looking to differentiate themselves through value-added service
offerings.
JUNOS Internet software features implementations of all major Internet
protocols, including BGP4, DVMRP, PIM, IS-IS, Open Shortest Path First. IS-IS
and Open Shortest Path First are algorithms broadly used in enterprise networks
and by service providers to determine and update the running state of the
network and available destinations in the network. These implementations were
developed in-house by our design team which has extensive experience in
addressing the scaling issues of rapidly growing service providers.
JUNOS Internet software also provides a new level of traffic engineering
capabilities with its implementation of MPLS. Developed in conjunction with the
Internet Engineering Task Force, our MPLS capability offers enhanced visibility
into traffic patterns and the ability to control the path traffic takes through
the network. Path selection enables service providers to engineer traffic for
efficient use of network capacity and avoidance of congestion. We expect MPLS
and its traffic engineering capabilities to become a crucial tool for service
providers as they scale their networks.
JUNOS Internet software features a modular design, with separate
programs running in protected memory space in conjunction with an independent
operating system. Unlike monolithic, unprotected operating system designs, which
are prone to system wide failure, the protected, modular approach improves
reliability by ensuring that modifications made to one module have no unwanted
side-effects on other sections of the software. In addition, having clean
software interfaces between modules facilitates software development and
maintenance, enabling faster response to customer needs and delivery of new
features.
JUNOS Internet software has been extensively tested in multiple service
provider networks to ensure compatibility with Cisco's IOS. Since each major
service provider's network is different, this extensive testing is necessary to
ensure seamless introduction into existing service provider environments.
CUSTOMERS
Our customers include end users, value added resellers and an original
equipment manufacturer. We recognize revenue from the shipment of products at
the time of shipment unless we have future obligations for network
interoperability or if we have to obtain customer acceptance. In those cases, we
defer recognition of the revenue and related costs until we have met our
obligations.
One customer, WorldCom, Inc., accounted for approximately 18% of our
recognized revenues for the year ended December 31, 2000.
SALES AND MARKETING
We sell and market our products primarily through our direct sales
organization, value-added resellers and an original equipment manufacturer.
Direct Sales. Our North American direct sales organization is divided
into regional operations with our direct sales efforts focused on the largest
service providers. The direct sales account managers cover the market on an
assigned account basis and work as a team with account oriented systems
engineers. They are directed by a regional operations manager who reports to the
North American Vice President of Sales. We also have technical
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engineers that consult with and provide our customers with guidance and
assistance on the evolution of their networks as it relates to the deployment of
our products. These consulting engineers also help in defining the features that
are required for our products to be successful in specific applications. A key
feature of our sales effort is the relationship we establish at various levels
in our customers' organization. Our sales team maintains contact with key
individuals who have service planning and infrastructure buildout
responsibility.
Value Added Resellers. We have complemented our direct sales effort in
the United States through the addition of several highly focused value added
resellers. Our arrangements with value added resellers typically have been
non-exclusive and provide the value added reseller with discounts based upon the
volume of their orders.
Original Equipment Manufacturer Partner. We have established a strategic
distribution relationship with Ericsson. We believe that Ericsson has
significant customer relationships in place and offers products which complement
ours. Ericsson will provide the first level of support to its customers. Our
agreement with Ericsson allows it to distribute our products on a worldwide,
non-exclusive basis with discounts based upon the volume of orders it receives.
International Resellers. In order to further our international sales
objectives, we have established a number of country specific value added
resellers. These resellers have expertise in deploying complex Internet
infrastructure equipment in their respective markets and provide the first level
of support required by our international customers. In addition, we have
established strategic value added reseller relationships with Alcatel and Nortel
to sell and service our products on a worldwide non-exclusive basis.
As of December 31, 2000, we employed 290 people in our sales and
marketing organizations.
CUSTOMER SERVICE AND SUPPORT
We believe that a broad range of support services is essential to the
successful installation and ongoing support of our products and we have hired
support engineers with proven Internet experience to provide those services. We
offer the following services: 24 hours a day, seven days a week technical
assistance (on-line, telephone and on-site), professional services, educational
services, logistics services and web-based information.
We offer a variety of flexible and comprehensive support programs,
including basic hardware and software warranty services, next day onsite parts
and labor, 24 hours a day, seven days a week same day parts and labor and
on-site resident engineers. We deliver these services directly to major end
users and also utilize a multi-tiered support model, leveraging the capabilities
of our partners and third party organizations. We also train our partners in the
delivery of education and support services.
Customer service and support provide front line product support and is
the problem resolution interface to our partners and direct end users. If
customer service and support are unable to resolve an issue themselves, they
duplicate the problem scenario and provide the failure information, such as
logs, dumps, traces and system configuration to appropriate subject matter
experts in our engineering department.
Based on the severity of the problem and the impact to our customers'
network, there are strict escalation guidelines to ensure that the appropriate
technical resource and management attention is brought to bear on the problem in
a timeframe commensurate with problem priority. The overall goal is to fix the
problem, at the appropriate level, in the right timeframe in order to ensure our
customers' satisfaction.
As of December 31, 2000, we employed 134 people in our customer service
and support organization, with the majority located in our Sunnyvale, California
corporate headquarters.
RESEARCH AND DEVELOPMENT
We have assembled a team of skilled engineers with extensive experience
in the fields of high end computing, network system design, Internet routing
protocols and embedded software. These individuals have been drawn from leading
computer data networking and telecommunications companies. In addition to
building complex hardware and software systems, the engineering team has
experience in delivering very large, highly integrated ASICs and extremely
scalable Internet software.
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Our research and development department is organized into teams that
work in parallel on several projects in a manner similar to the development of
successive generations of complex microprocessors. As a result, we will seek to
offer our customers next generation products as they are needed.
We believe that strong product development capabilities are essential to
our strategy of enhancing our core technology, developing additional
applications, incorporating that technology and maintaining the competitiveness
of our product and service offerings. We are leveraging our first generation
ASICs, developing additional network interfaces targeted to our customer
applications and continuing to develop next generation technology to support the
anticipated growth in network bandwidth requirements. We continue to expand the
functionality of our JUNOS Internet software to improve performance and
scalability, and to provide an enhanced user interface.
Our research and development process is driven by the availability of
new technology, market demand and customer feedback. We have invested
significant time and resources in creating a structured process for undertaking
all product development projects. This process involves all functional groups
and all levels within our company. Following an assessment of market demand, our
research and development team develops a full set of comprehensive functional
product specifications based on inputs from the product management and sales
organizations. This process is designed to provide a framework for defining and
addressing the steps, tasks and activities required to bring product concepts
and development projects to market.
As of December 31, 2000, we employed 305 people in our research and
development organization.
Our research and development expenses totaled $87.8 million for the year
ended December 31, 2000, $41.5 million for the year ended December 31, 1999 and,
$24.0 million for the year ended December 31, 1998.
MANUFACTURING
Our manufacturing operation is entirely outsourced. We have developed
manufacturing relationships with Solectron and Celestica, under which we have
subcontracted our manufacturing activity. This subcontracting activity extends
from prototypes to full production and includes activities such as material
procurement, final assembly, test, control and shipment to our customers. We
design, specify and monitor all of the tests that are required to meet internal
and external quality standards. These arrangements provide us with the following
benefits:
- we operate without dedicating any space to manufacturing operations;
- we conserve the working capital that would be required for funding
inventory;
- we can adjust manufacturing volumes quickly to meet changes in demand;
and
- we can quickly deliver products to customers with turnkey
manufacturing and drop shipment capabilities.
Our ASICs are manufactured by IBM who is responsible for all aspects of
the production of the ASICs using our proprietary designs.
COMPETITION
Competition in the Internet infrastructure market is intense. The market
historically has been dominated by Cisco Systems, Inc., with other companies
such as Nortel Networks and Lucent Technologies Inc. providing products to a
smaller segment of the market. In addition, a number of public and private
companies have announced plans for new products to address the same problems
which our products address.
Cisco traditionally has been the dominant supplier of solutions to this
market. We believe this is the result of its early leadership position in the
enterprise router market. As the Internet has grown rapidly, Cisco has leveraged
this position and has developed a broad product line of routers which support
all major local area and wide area interfaces. We believe that our ability to
compete with Cisco depends upon our ability to demonstrate that our products are
superior in meeting the needs of service providers and are extremely compatible
with Cisco's current and future products. Although we believe that we are
currently among the top providers of Internet infrastructure solutions
worldwide, we cannot assure you that we will be able to compete successfully
with Cisco, currently the leading provider in this market.
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We expect that, over time, large companies with significant resources,
technical expertise, market experience, customer relationships and broad product
lines, such as Lucent and Nortel, will introduce new products which are designed
to compete more effectively in this market. As a result, we expect to face
increased competition in the future from larger companies with significantly
more resources than we have. Although we believe that our technology and the
purpose-built features of our products make them unique and will enable us to
compete effectively with these companies, we cannot assure you that we will be
successful.
Many of our current and potential competitors, such as Cisco, Lucent and
Nortel, have significantly broader product lines than we do and may bundle their
products with other networking products in a manner that may discourage
customers from purchasing our products. Also, many of our current and potential
competitors have greater name recognition and more extensive customer bases that
could be leveraged. Increased competition could result in price reduction, fewer
customer orders, reduced gross margins and loss of market share, any of which
could seriously harm our operating results.
There are also many small public and private companies which claim to
have products with greater capabilities than our products. Consolidation in this
industry has begun, with one or more of these smaller private companies being
acquired by large, established suppliers of Internet infrastructure products,
and we believe it is likely to continue. As a result, we expect to face
increased competition in the future from larger companies with significantly
more resources than we have.
Several companies also provide solutions which can substitute for some
uses of routers. For example, high bandwidth asynchronous transfer mode (ATM)
switches, are used in the core of certain major backbone service providers. ATM
switches can carry a variety of traffic types, including voice, video and data,
using fixed, 53 byte cells. Companies that use ATM switches are enhancing their
products with new software technologies such as multi-protocol label switching,
or MPLS, which can potentially simplify the task of mixing routers and switches
in the same network. These substitutes can reduce the need for large numbers of
routers.
INTELLECTUAL PROPERTY
Our success and ability to compete are substantially dependent upon our
internally developed technology and knowhow. We have two patents issued relating
to high speed switching devices. These patents will expire in 2016. In addition
we have over 40 patent applications pending in the United States relating to the
design of our products. Our engineering teams have significant expertise in ASIC
design and we own all rights to the design of the ASICs which form the core of
our products. Our JUNOS Internet software was developed internally and is
protected by United States and other copyright laws.
While we rely on patent, copyright, trade secret and trademark law to
protect our technology, we also believe that factors such as the technological
and creative skills of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are essential to establishing and
maintaining a technology leadership position. There can be no assurance that
others will not develop technologies that are similar or superior to our
technology.
Our success will depend upon our ability to obtain necessary
intellectual property rights and protect our intellectual property rights. While
we have filed patent applications, we cannot be certain that these applications
will issue into patents, that we will be able to obtain the necessary
intellectual property rights or that other parties will not contest our
intellectual property rights.
EMPLOYEES
As of December 31, 2000, we had 927 full-time employees, 305 of whom
were engaged in research and development, 290 in sales and marketing, 134 in
customer support and 198 in finance, administration, IT and operations. None of
our employees are represented by a labor union. We have not experienced any work
stoppages and we consider our relations with our employees to be good.
Our future performance depends in significant part upon the continued
service of our key technical, sales and senior management personnel, none of
whom is bound by an employment agreement requiring service for any defined
period of time. The loss of the services of one or more of our key employees
could have a material adverse effect on our business, financial condition and
results of operations. Our future success also depends on our continuing ability
to attract, train and
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retain highly qualified technical, sales and managerial personnel. Competition
for such personnel is intense, and there can be no assurance that we can retain
our key personnel in the future.
RISK FACTORS
WE FACE INTENSE COMPETITION THAT COULD REDUCE OUR MARKET SHARE OR SLOW THE RATE
OF INCREASE IN 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 other small public and private companies
have announced plans for new products to address the same problems which our
products address. If we are unable to compete successfully against existing and
future competitors, we could be required to reduce prices, resulting in reduced
gross margins, and we could experience loss of market share or a reduction in
the rate of increase of market share, each of which could materially and
adversely affect our business, operating results and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP PRODUCTS AND PRODUCT ENHANCEMENTS
THAT WILL ACHIEVE MARKET ACCEPTANCE.
We cannot ensure that we 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 our present and future products which would significantly harm the business
and financial results. Even if we are 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 our
future products to achieve market acceptance could adversely affect the business
and financial results.
OUR FAILURE TO INCREASE OUR REVENUES WOULD PREVENT US FROM MAINTAINING
PROFITABILITY.
Although our net revenues have grown from $102.6 million for the year
ended December 31, 1999 to $673.5 million for the year ended December 31, 2000,
we cannot be certain that our revenues will continue to grow. We have large
fixed expenses and expect 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
we will maintain profitability.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT.
As a result of our 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, our
operating expenses are largely based on anticipated revenue trends and a high
percentage of our expenses are, and will continue to be, fixed in the
short-term. If we do not achieve our expected revenues, our operating results
will be below our 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 our products can vary widely and
depends on various factors. Customers with large networks usually expand their
networks in large increments on a periodic basis. We expect to receive
significant orders on an irregular basis. Because of our limited operating
history, we cannot predict these sales and development cycles. These long
cycles, as well as our expectation that customers will tend to sporadically
place large orders with short lead times, may cause our revenues and operating
results to vary significantly and unexpectedly from quarter to quarter.
Further, we have experienced and expect to continue to experience in the
foreseeable future limited visibility as to our customers' spending plans and
capital budgets. This limited visibility complicates the forecasting process
further.
ALTHOUGH OUR CUSTOMER BASE HAS INCREASED SUBSTANTIALLY, THERE IS STILL A LIMITED
NUMBER OF CUSTOMERS WHICH COMPRISE A SIGNIFICANT PORTION OF OUR REVENUES AND ANY
DECREASE IN REVENUE FROM THESE CUSTOMERS COULD HAVE AN ADVERSE EFFECT.
We expect that a large portion of our 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 our net revenues and results of
operations.
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IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY WE COULD SERIOUSLY HARM OUR BUSINESS,
FINANCIAL CONDITION AND PROSPECTS.
Our ability to successfully implement our business plan, develop and
offer our products and manage expansion in a rapidly evolving market requires a
comprehensive and effective planning and management process. We continue to
increase the scope of our operations domestically and internationally and have
grown headcount substantially. The growth in business, headcount and
relationships with customers and other third parties has placed and will
continue to place a significant strain on our management systems and resources.
We will need to continue to improve our operational, managerial and financial
controls, reporting systems and procedures, and will need to continue to expand,
train and manage our work force worldwide.
THE LONG SALES AND IMPLEMENTATION CYCLES FOR OUR PRODUCTS, AS WELL AS OUR
EXPECTATION THAT CUSTOMERS WILL SPORADICALLY PLACE LARGE ORDERS WITH SHORT LEAD
TIMES MAY CAUSE REVENUES AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM
QUARTER TO QUARTER.
A customer's decision to purchase our products involves a significant
commitment of its resources and a lengthy evaluation and product qualification
process. As a result, our sales cycle may be lengthy. Throughout the sales
cycle, we often spend considerable time educating and providing information to
prospective customers regarding the use and benefits of the products. Even after
making the decision to purchase, our customers tend to deploy the products
slowly and deliberately. Timing of deployment can vary widely and depends on the
skill set of the customer, the size of the network deployment, the complexity of
the customer's network environment and the degree of hardware and software
configuration necessary to deploy the products. Customers with large networks
usually expand their networks in large increments on a periodic basis.
Accordingly, we expect to receive purchase orders for significant dollar amounts
on an irregular basis. Because of our limited operating history, we cannot
predict these sales and development cycles. These long cycles, as well as our
expectation that customers will tend to sporadically place large orders with
short lead times, may cause our revenues and operating results to vary
significantly and unexpectedly from quarter to quarter.
WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET AND IF WE ARE UNABLE TO HIRE ADDITIONAL PERSONNEL, OUR ABILITY
TO SELL PRODUCTS COULD BE HARMED.
Our future success depends upon the continued services of our 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.
We also will need to continue to hire engineering and other personnel in
the future, and we believe our success depends, in large part, upon our 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 our key employees, the inability to attract or retain qualified personnel
in the future or delays in hiring required personnel, particularly engineers,
could delay the development and introduction of our products.
In addition, we believe that our future success is dependent upon
establishing successful relationships with a variety of distribution partners.
We have entered into agreements with several value added resellers, some of whom
also sell products that compete with our products. We cannot be certain that we
will be able to reach agreement with additional resellers on a timely basis or
at all, or that they will devote adequate resources to selling our products.
WE ARE DEPENDENT ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR SEVERAL KEY
COMPONENTS.
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With the current demand for electronic products, component shortages are
possible and the predictability of the availability of such components is
limited. We currently purchase several key components, including ASICs, from a
single source. We may not be able to develop an alternate or second source in a
timely manner, which could hurt our ability to deliver product to customers. If
we are unable to buy these components on a timely basis, we may not be able to
deliver product to our customers, which would seriously impact present and
future sales which would, in turn, adversely affect our business.
WE CURRENTLY DEPEND ON CONTRACT MANUFACTURERS WITH WHOM WE DO NOT HAVE LONG-TERM
SUPPLY CONTRACTS, AND IF WE UNEXPECTEDLY HAVE TO QUALIFY A NEW CONTRACT
MANUFACTURER WE MAY LOSE REVENUE AND DAMAGE OUR CUSTOMER RELATIONSHIPS.
We depend on third party contract manufacturers to manufacture our
products. We do not have a long-term supply contract with such manufacturers and
if we should fail to effectively manage our contract manufacturer relationships
or if one or more of them should experiences delays, disruptions or quality
control problems in our manufacturing operations, our ability to ship products
to our customers could be delayed which could adversely affect our business and
financial results.
IF WE FAIL TO ACCURATELY PREDICT OUR MANUFACTURING REQUIREMENTS, WE COULD INCUR
ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS.
We provide forecasts of our demand to our contract manufacturers up to
six months prior to scheduled delivery of products to our customers. If we
overestimate our requirements, the contract manufacturer may have excess
inventory, which would increase our costs. If we underestimate our requirements,
the contract manufacturer may have an inadequate inventory, which could
interrupt manufacturing of our products and result in delays in shipments and
revenues. In addition, lead times for materials and components we order vary
significantly and depend on factors such as the specific supplier, contract
terms and demand for each component at a given time. We also may experience
shortages of certain components from time to time, which also could delay the
manufacturing of our products.
THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT THE TRADING
PRICE OF OUR COMMON STOCK.
Our revenues and operating results will vary significantly from quarter
to quarter due to a number of factors, including many which are outside of our
control and any of which may cause our stock price to fluctuate.
The factors that may impact the unpredictability of our quarterly
results include the long sales and implementation cycle and the continuing
increase in operating expenses in anticipation of increased revenues. As a
result, we believe 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 our common stock may fall.
Our operating expenses are largely based on anticipated revenue trends and a
high percentage of our expenses are, and will continue to be, fixed in the short
term. As a result, a delay in generating or recognizing revenue for the reasons
set forth above, or for any other reason, could cause significant variations in
our operating results from quarter to quarter and could result in substantial
operating losses.
IF OUR PRODUCTS DO NOT INTEROPERATE WITH OUR CUSTOMERS' NETWORKS, INSTALLATIONS
WILL BE DELAYED OR CANCELLED AND COULD RESULT IN SUBSTANTIAL PRODUCT RETURNS
WHICH COULD HARM OUR BUSINESS.
Our products are designed to interface with our customers' existing
networks, each of which has different specifications and utilizes multiple
protocol standards. Many of our customers' networks contain multiple generations
of products that have been added over time as these networks have grown and
evolved. Our products must interoperate with all of the products within these
networks as well as future products in order to meet our customers'
requirements. If we find errors in the existing software used in our customers'
networks, we must modify our JUNOS Internet software to fix or overcome these
errors so that our products will interoperate and scale with the existing
software and hardware. If our products do not interoperate with those of our
customers' networks, installations could be delayed, orders for our products
could be cancelled or our products could be returned. This would also seriously
harm our reputation, which could seriously harm our business and prospects.
Because our products are complex and are deployed in complex environments, they
may have errors or defects that we find only after full deployment, which could
seriously harm our business.
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Our products are highly complex and designed to be deployed in very
large and complex networks. Although we have thoroughly tested our products,
because of the nature of the product, it can only be fully tested when deployed
in very large networks with high amounts of traffic. To date, our products have
been deployed only on a limited basis. Consequently, our customers may discover
errors or defects in the hardware or the software after it has been fully
deployed. If we are unable to fix errors or other problems that may be
identified in full deployment, we could experience, among other things, loss of
or delay in revenues and loss of market share, loss of customers, diversion of
development resources and increased service and warranty costs.
CUSTOMER PRODUCT LIABILITY CLAIMS BASED ON ERRORS IN OUR SOFTWARE OR MISTAKES IN
PERFORMING OUR SERVICES COULD RESULT IN COSTLY LITIGATION AGAINST US.
We may be subject to claims based on errors in our software or mistakes
in performing our services, including claims relating to damages to our
customers' internal systems. Our contracts with our customers generally contain
provisions designed to limit our exposure to potential product liability claims,
such as disclaimers of warranties and limitations on liability for special,
consequential and incidental damages. We believe our product liability insurance
is adequate to cover potential product liability claims. However, a product
liability claim, whether successful or not, could seriously impact our capital
reserves, harm our reputation, and direct the attention of key personnel away
from our business, any of which could harm our business.
PROBLEMS ARISING FROM USE OF OUR PRODUCTS IN CONJUNCTION WITH OTHER VENDORS'
PRODUCTS COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION.
Service providers typically use our products in conjunction with
products from other vendors. As a result, when problems occur, it may be
difficult to identify the source of the problem. These problems may cause us to
incur significant warranty and repair costs, divert the attention of our
engineering personnel from our product development efforts and cause significant
customer relations problems.
OUR PRODUCTS ARE NEW AND FACE RAPID TECHNOLOGICAL CHANGES AND EVOLVING STANDARDS
AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR BUSINESS COULD BE HARMED.
The Internet infrastructure market is characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and evolving industry standards. In developing our products, we
have made, and will continue to make, assumptions with respect to which
standards will be adopted by our customers and competitors. If the standards
adopted are different from those which we have chosen to support, market
acceptance of our products may be significantly reduced or delayed and our
business will be seriously harmed. In addition, the introduction of products
embodying new technologies and the emergence of new industry standards could
render our existing products obsolete.
In addition, in order to introduce products embodying new technologies
and new industry standards, we must be able to gain access to the latest
technologies of our suppliers such as IBM. Any failure to gain access to the
latest technologies could harm our business and operating results.
OUR FAILURE TO ESTABLISH AND MAINTAIN KEY CUSTOMER RELATIONSHIPS MAY RESULT IN
DELAYS IN INTRODUCING NEW PRODUCTS OR CAUSE CUSTOMERS TO FOREGO PURCHASING OUR
PRODUCTS.
Our future success will also depend upon our ability to develop and
manage key customer relationships in order to introduce a variety of new
products and product enhancements that address the increasingly sophisticated
needs of our customers. Our failure to establish and maintain these customer
relationships may adversely affect our ability to develop new products and
product enhancements. In addition, we may experience delays in releasing new
products and product enhancements in the future. Material delays in introducing
new products and enhancements or our inability to introduce competitive new
products may cause customers to forego purchases of our products and purchase
those of our competitors, which could seriously harm our business.
IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS WE COULD INCUR SUBSTANTIAL COSTS IN
DEFENDING OURSELVES.
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Companies in our industry whose employees accept positions with
competitors frequently claim that their competitors have engaged in unfair
hiring practices. We have received claims of this kind in the past and we cannot
assure you that we will not receive claims of this kind in the future as we seek
to hire qualified personnel or that those claims will not result in material
litigation. We could incur substantial costs in defending ourselves against
these claims, regardless of their merits.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS FROM THIRD-PARTY CHALLENGES.
We rely on a combination of patent, copyright, trademark and trade
secret laws and restrictions on disclosure to protect our intellectual property
rights. We also enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our software, documentation and other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology.
Monitoring unauthorized use of our products is difficult and we cannot be
certain that the steps we have taken will prevent unauthorized use of our
technology, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States.
NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE TO US OR MAY
BE VERY EXPENSIVE.
From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that third party licenses will be available to us on commercially reasonable
terms, if at all. The inability to obtain any third-party license required to
develop new products and product enhancements could require us to obtain
substitute technology of lower quality or performance standards or at greater
cost either of which could seriously harm our business, financial condition and
results of operations.
WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS
WHICH COULD SERIOUSLY HARM OUR BUSINESS.
In recent years, there has been significant litigation in the United
States involving patents and other intellectual property rights. Although we are
not involved in any intellectual property litigation, we may be a party to
litigation in the future to protect our intellectual property or as a result of
an alleged infringement of others' intellectual property. Claims for alleged
infringement and any resulting lawsuit, if successful, could subject us to
significant liability for damages and invalidation of our proprietary rights.
These lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and would divert management time and attention. Any
potential intellectual property litigation could also force us to do one or more
of the following:
- stop selling, incorporating or using our products that use the
challenged intellectual property;
- obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not
be available on reasonable terms, or at all; or
- redesign those products that use such technology.
If we are forced to take any of the foregoing actions, our business may be
seriously harmed. Although we carry general liability insurance, our insurance
may not cover potential claims of this type or may not be adequate to indemnify
us for all liability that may be imposed.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS THAT COULD HARM OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We market, sell and service our products in the United States and
internationally. We have established offices throughout Europe and in the Asia
Pacific region. We will continue to expand our international operations and
enter new international markets. This expansion will require significant
management attention and financial resources to develop successfully direct and
indirect international sales and support channels. We may not be able to
maintain or increase international market demand for our products.
International operations are subject to inherent risks, including
greater difficulty in accounts receivable collection and longer collection
periods, difficulties and costs of staffing and managing foreign operations, the
impact of recessions in economies outside the United States, unexpected changes
in regulatory requirements, certification requirements, reduced
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protection for intellectual property rights in some countries, potentially
adverse tax consequences, and political and economic instability.
Our international revenues were $235.8 million for the year ended
December 31, 2000 and are denominated in U.S. dollars. Consequently, we do not
currently engage in currency hedging activities. However, a portion of our
international revenues may be denominated in foreign currencies in the future.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.
We intend to make investments in complementary companies, products or
technologies. In the event of any such investments or acquisitions, we could
issue stock that would dilute our current stockholders' percentage ownership,
incur debt, assume liabilities, incur amortization expenses related to goodwill
and other intangible assets, or incur large and immediate write-offs.
These acquisitions also involve numerous risks, including problems
combining the purchased operations, technologies or products, unanticipated
costs, diversion of management's attention from our core business, adverse
effects on existing business relationships with suppliers and customers, risks
associated with entering markets in which we have no or limited prior
experience, and potential loss of key employees, particularly those of the
acquired organizations. We cannot assure you that we will be able to
successfully integrate any businesses, products, technologies or personnel that
we might acquire in the future.
RISKS RELATED TO THE 4.75% SUBORDINATED CONVERTIBLE NOTES DUE MARCH 15, 2007
Last year the Company completed an offering (the "Debt Offering") of
4.75% Subordinated Convertible Notes Due March 15, 2007 (the "Convertible
Notes"). In connection with the Convertible Notes, the Company is subject to
certain risks in addition to those described above. Those additional risks
include the following.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH FLOW.
As a result of the Debt Offering we have a substantial amount of
outstanding indebtedness. As a result of this indebtedness, our principal and
interest payment obligations have increased substantially. There is the
possibility that we may be unable to generate cash sufficient to pay the
principal of, interest on and other amounts due with respect to the Convertible
Notes when due. We may also add additional equipment loans and lease lines to
finance capital expenditures and may obtain additional long-term debt, working
capital lines of credit and lease lines.
OUR SUBSTANTIAL LEVERAGE COULD HAVE SIGNIFICANT NEGATIVE
CONSEQUENCES, INCLUDING:
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing;
- requiring the dedication of a substantial portion of our expected cash
flow from operations to service our indebtedness, thereby reducing the
amount of our expected cash flow available for other purposes,
including capital expenditures;
- limiting our flexibility in planning for, or reacting to, changes in
our business and the industry in which we compete; and
- placing us at a possible competitive disadvantage relative to less
leveraged competitors and competitors that have better access to
capital resources.
ITEM 2 PROPERTIES
We lease approximately 144,000 and 122,000 square feet in two buildings
located in Sunnyvale, California. We have entered into a lease for a third
building of approximately 122,000 square feet also in Sunnyvale, California. The
lease on the office space for 144,000 square feet commenced on July 1, 2000 and
it will expire on June 30, 2012, with certain options for extension and
expansion and the lease for the 122,000 square feet commenced February 1, 2001
and expires
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February 14, 2013.
We currently have offices in the following locations:
NORTH AMERICA SOUTH AMERICA EUROPE ASIA PACIFIC
- ------------- ----------------------- ------ ------------
Sunnyvale, California Sao Paulo, Brazil Leatherhead, U.K. Hong Kong
Atlanta, Georgia Amsterdam, The Netherlands New Delhi, India
Charlotte, North Carolina Brussels, Belgium Beijing, PRC
Columbia, Maryland Dublin, Ireland Kuala Lumpur, Malaysia
Denver, Colorado Frankfurt, Germany Seoul, Korea
Lisle, Illinois Madrid, Spain Singapore
Raleigh, North Carolina Milan, Italy Sydney, Australia
Reston, Virginia Paris, France Taipei, Taiwan
Tulsa, Oklahoma Zurich, Switzerland Tokyo, Japan
Waltham, Massachusetts
Toronto, Ontario, Canada
Vancouver, B.C., Canada
Mexico City, Mexico
The commercial real estate market in the San Francisco Bay area is
volatile and unpredictable in terms of available space, rental fees, occupancy
rates and preferred locations. We cannot be certain that additional space will
be available when we require it, or that it will be affordable or in a preferred
location. See Note 5 of the Notes to the Consolidated Financial Statements in
Exhibit 13.1 hereto.
ITEM 3 LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security-holders during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers and their ages, as of December 31, 2000, are as
follows:
NAME AGE POSITION
- ---- --- --------
Scott Kriens.......... 43 President, Chief Executive Officer and Chairman of the Board
Pradeep Sindhu........ 48 Chief Technical Officer and Vice Chairman of the Board
Marcel Gani........... 48 Chief Financial Officer
Steven Haley.......... 46 Vice President of Worldwide Sales and Service
Peter L. Wexler....... 45 Vice President of Engineering
- ----------
SCOTT KRIENS has served as President, Chief Executive Officer and
Chairman of the board of directors of Juniper Networks since October 1996. From
April 1986 to January 1996, Mr. Kriens served as Vice President of Sales and
Vice President of Operations at StrataCom, Inc., a telecommunications equipment
company, which he co-founded in 1986. Mr. Kriens received a B.A. in Economics
from California State University, Hayward. Mr. Kriens also serves on the boards
of directors of Equinix, Inc. and Verisign, Inc.
PRADEEP SINDHU co-founded Juniper Networks in February 1996 and served
as Chief Executive Officer and Chairman of the board of directors until
September 1996. Since then, Dr. Sindhu has served as Vice Chairman of the board
of directors and Chief Technical Officer of Juniper Networks. From September
1984 to February 1991, Dr. Sindhu worked as a Member of the Research Staff, and
from March 1987 to February 1996, as the Principal Scientist, and from February
1994 to February 1996, as Distinguished Engineer at the Computer Science Lab,
Xerox Corporation, Palo Alto Research Center, a technology research center. Dr.
Sindhu holds a B.S.E.E. from the Indian Institute of Technology in Kanpur, an
M.S.E.E. from the University of Hawaii and a Masters in Computer Science and
Ph.D. in Computer Science from Carnegie-Mellon University.
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19
MARCEL GANI joined Juniper Networks as Chief Financial Officer in
February 1997. From January 1996 to January 1997, Mr. Gani served as Vice
President and Chief Financial Officer of NVIDIA Corporation, a 3D graphic
processor company. Mr. Gani also held the positions of Vice President and Chief
Financial Officer at Grand Junction Networks, a data networking company acquired
by Cisco Systems, Inc., from March 1995 to January 1996, and at Primary Access
Corporation, a data networking company acquired by 3Com Corporation, from March
1993 to March 1995. Mr. Gani holds an M.B.A. from the University of Michigan.
Mr. Gani also serves on the board of directors of AirFiber, Inc.
STEVEN HALEY joined Juniper Networks as Vice President of Worldwide
Sales and Service in August 1997. Prior to joining Juniper Networks, Mr. Haley
served as Vice President of Sales at Cisco Systems, Inc., a data networking
company, from July 1996 to August 1997. From February 1990 to July 1996, he
worked for StrataCom, Inc., serving in a variety of management roles from
Managing Director, Europe to Vice President of Sales, Americas. He holds a B.S.
in Marketing from the University of Massachusetts, Amherst.
PETER L. WEXLER joined Juniper Networks as Vice President of Engineering
in January 1997. From April 1995 to January 1997, Mr. Wexler served as Vice
President of Engineering at Bay Networks, a data networking company. From April
1993 to April 1995, Mr. Wexler served as Director of High-End Platform
Development at Wellfleet Communications, a predecessor to Bay Networks and a
manufacturer of high-performance routers. He holds a B.S.E. from State
University of New York at Stony Brook, an M.S.E. from the University of Illinois
and an M.B.A. from Boston University.
19
20
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
Our common stock has been quoted on the Nasdaq National Market under the
symbol "JNPR" since June 25, 1999. Prior to that time, there was no public
market for the common stock. All stock information has been adjusted to reflect
the three-for-one split, effected in the form of a stock dividend to each
stockholder of record as of December 31, 1999 and a two-for-one split, effected
in the form of a stock dividend to each stockholder of record as of May 15,
2000. Juniper Networks has never paid cash dividends on its common stock and has
no present plans to do so. There were approximately 833 stockholders of record
at March 9, 2001. The following table sets forth the high and low closing bid
prices as reported on the NASDAQ:
Q1 Q2 Q3 Q4
------- ------- ------- -------
1999
High ...... N/A $ 24.83 $ 37.83 $ 59.08
Low ....... N/A $ 16.48 $ 20.83 $ 30.35
2000
High ...... $153.50 $147.94 $230.50 $243.00
Low ....... $ 51.29 $ 74.00 $127.00 $ 93.94
On December 8, 2000, the Company issued an aggregate of 828,351
unregistered shares of common stock to the shareholders of Micro Magic, Inc.
("MMI") in connection with the merger of MMI into the Company. The issuance was
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 6 SELECTED FINANCIAL DATA
PERIOD FROM
INCEPTION
(FEBRUARY 2,
YEAR ENDED DECEMBER 31, 1996) TO
------------------------------------------------------- DECEMBER 31,
2000 1999 1998 1997 1996
-------- -------- -------- ------ -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues ...................... $673,501 $102,606 $ 3,807 $ -- $ --
Operating income (loss) ........... 194,089 (14,620) (32,270) (11,598) (1,939)
Net income (loss) ................. $147,916 $ (9,034) $(30,971) $(10,363) $(1,799)
======== ======== ======== ======== =======
Net income (loss) per share:
Basic ............................. $ 0.49 $ (0.05) $ (0.40) $ (0.20) $ (0.08)
======== ======== ======== ======== =======
Diluted ........................... $ 0.43 $ (0.05) $ (0.40) $ (0.20) $ (0.08)
======== ======== ======== ======== =======
Shares used in computing net income
(loss) per share (1):
Basic ............................. 304,381 189,322 77,742 51,546 23,748
======== ======== ======== ======== =======
Diluted ........................... 347,858 189,322 77,742 51,546 23,748
======== ======== ======== ======== =======
AS OF DECEMBER 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- -------- ------- ------- -------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments ............................. $1,144,743 $345,958 $20,098 $46,227 $ 9,468
Working capital ........................... 1,132,139 322,170 14,432 44,691 9,315
Total assets .............................. 2,103,129 513,378 36,671 50,210 10,388
Total long-term liabilities ............... 1,156,719 -- 5,204 2,083 408
Stockholders' equity ...................... 730,002 457,715 17,065 46,048 9,728
- ----------
(1) See Note 11 of Notes to Consolidated Financial Statements in Exhibit 13.1
hereto for an explanation of the determination of the shares used to compute
net loss per share.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
For the information required by this Item, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the 2000
Annual Report to Stockholders in Exhibit 13.1 hereto.
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21
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For the information required by this Item, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the 2000
Annual Report to Stockholders in Exhibit 13.1 hereto.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the information required by this Item, see the Consolidated
Financial Statements and Notes thereto in the 2000 Annual Report to Stockholders
in Exhibit 13.1 hereto.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
21
22
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.
22
23
PART IV
ITEM 14 EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- As of December 31, 2000 and 1999
Consolidated Statements of Operations -- For the Three Years
Ended December 31, 2000
Consolidated Statement of Stockholders' Equity -- For the Three
Years Ended December 31, 2000
Consolidated Statements of Cash Flows -- For the Three Years
Ended December 31, 2000
Notes to Consolidated Financial Statements
Report of Independent Auditors
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of Juniper Networks is filed
as part of this Report and should be read in conjunction with the Financial
Statements of Juniper Networks.
PAGE
----
Schedule II: Valuation and Qualifying Accounts and Reserves 26
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
b) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
2.1 Agreement and Plan of Reorganization dated as of November 27, 2000
between Juniper Networks, Inc. and Micro Magic, Inc. (incorporated
herein by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K dated December 8, 2000 and filed with
Securities and Exchange Commission on December 21, 2000)
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Amended and Restated Bylaws of the Registrant
4.1 Form of Indenture by and between Registrant and Norwest Bank
Minnesota, N.A. (incorporated herein by reference to Exhibit 4.3
to the Registrant's Registration Statement on Form S-1 No.
333-96171)
10.1 Form of Indemnification Agreement entered into by the Registrant
with each of its directors, officers and certain employees
(incorporated herein by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-1 No. 333-76681)
10.2 Amended and Restated 1996 Stock Plan (incorporated herein by
reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.3 1999 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.4 2000 Nonstatutory Stock Option Plan (incorporated herein by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 No. 333-44148)
10.5 Change of Control Agreement between Scott Kriens and the
Registrant dated October 1, 1996 (incorporated herein by reference
to Exhibit 10.6 to the Registrant's Registration Statement on Form
S-1 No. 333-76681)
10.6 Change of Control Agreement between Marcel Gani and the Registrant
dated February 18, 1997
23
24
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
(incorporated herein by reference to Exhibit 10.7 to the
Registrant's Registration Statement on Form S-1 No. 333-76681)
10.7 Agreement for ASIC Design and Purchase of Products between IBM
Microelectronics and the Registrant dated August 26, 1997 and
Amendments One and Two to the agreement dated January 5, 1998 and
March 2, 1998, respectively (incorporated herein by reference to
Exhibit 10.8, 10.8.1 and 10.8.2, respectively, to the Registrant's
Registration Statement on Form S-1 No. 333-76681)
10.8 Lease between Mathilda Associates LLC and the Registrant dated
June 18, 1999 (incorporated herein by reference to Exhibit 10.10
to the Registrant's Registration Statement on Form S-1 No.
333-76681)
10.9 Lease between Mathilda Associates LLC and the Registrant dated
February 28, 2000
13.1 2000 Annual Report to Stockholders (deemed to be filed to the
extent that information is specifically incorporated by reference)
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see page 25)
- ----------
c) REPORTS ON FORM 8-K
We filed a Current Report on Form 8-K dated December 8, 2000 to report
under Item 2 thereof the acquisition of Micro Magic, Inc. The following
financial statements were included with the filing: Micro Magic, Inc. Financial
Statements as of December 31, 1998 and 1999 (Audited); and Juniper Networks,
Inc. Supplementary Consolidated Financial Statements (Unaudited).
24
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 27th day of
March, 2001.
JUNIPER NETWORKS, INC.
By: /s/ Marcel Gani
---------------------------------
Marcel Gani
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Lisa C. Berry and Marcel Gani, and
each of them individually, as his attorney-in-fact, each with full power of
substitution, for him in any and all capacities to sign any and all amendments
to this Report on Form 10-K, and to file the same with, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his or her substitute, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Scott Kriens President, Chief Executive Officer and March 27, 2001
- ---------------------------- Chairman of the Board
Scott Kriens (Principal Executive Officer)
/s/ Marcel Gani Chief Financial Officer March 27, 2001
- ---------------------------- (Principal Financial and Accounting Officer)
Marcel Gani
/s/ Pradeep Sindhu Chief Technical Officer and Vice March 27, 2001
- ---------------------------- Chairman of Board
Pradeep Sindhu
/s/ William R. Hearst III Director March 27, 2001
- ----------------------------
William R. Hearst III
/s/ Vinod Khosla Director March 27, 2001
- ----------------------------
Vinod Khosla
/s/ C. Richard Kramlich Director March 27, 2001
- ----------------------------
C. Richard Kramlich
/s/ Stratton Sclavos Director March 27, 2001
- ----------------------------
Stratton Sclavos
/s/ William Stensrud Director March 27, 2001
- ----------------------------
William Stensrud
25
26
JUNIPER NETWORKS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR
- ----------- ------------ ---------- ----------- -----------
Year ended December 31, 2000
Allowance for doubtful accounts........ $632 $3,095 $-- $3,727
Year ended December 31, 1999
Allowance for doubtful accounts........ $ -- $ 632 $-- $ 632
Year ended December 31, 1998
Allowance for doubtful accounts........ $ -- $ -- $-- $ --
26
27
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
2.1 Agreement and Plan of Reorganization dated as of November 27, 2000
between Juniper Networks, Inc. and Micro Magic, Inc. (incorporated
herein by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K dated December 8, 2000 and filed with
Securities and Exchange Commission on December 21, 2000)
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Amended and Restated Bylaws of the Registrant
4.1 Form of Indenture by and between Registrant and Norwest Bank
Minnesota, N.A. (incorporated herein by reference to Exhibit 4.3
to the Registrant's Registration Statement on Form S-1 No.
333-96171)
10.1 Form of Indemnification Agreement entered into by the Registrant
with each of its directors, officers and certain employees
(incorporated herein by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-1 No. 333-76681)
10.2 Amended and Restated 1996 Stock Plan (incorporated herein by
reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.3 1999 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.4 2000 Nonstatutory Stock Option Plan (incorporated herein by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 No. 333-44148)
10.5 Change of Control Agreement between Scott Kriens and the
Registrant dated October 1, 1996 (incorporated herein by reference
to Exhibit 10.6 to the Registrant's Registration Statement on Form
S-1 No. 333-76681)
10.6 Change of Control Agreement between Marcel Gani and the Registrant
dated February 18, 1997 (incorporated herein by reference to
Exhibit 10.7 to the Registrant's Registration Statement on Form
S-1 No. 333-76681)
10.7 Agreement for ASIC Design and Purchase of Products between IBM
Microelectronics and the Registrant dated August 26, 1997 and
Amendments One and Two to the agreement dated January 5, 1998 and
March 2, 1998, respectively (incorporated herein by reference to
Exhibit 10.8, 10.8.1 and 10.8.2, respectively, to the Registrant's
Registration Statement on Form S-1 No. 333-76681)
10.8 Lease between Mathilda Associates LLC and the Registrant dated
June 18, 1999 (incorporated herein by reference to Exhibit 10.10
to the Registrant's Registration Statement on Form S-1 No.
333-76681)
10.9 Lease between Mathilda Associates LLC and the Registrant dated
February 28, 2000
13.1 2000 Annual Report to Stockholders (deemed to be filed to the
extent that information is specifically incorporated by reference)
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see page 25)