UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                

JUNIPER NETWORKS, INC.

Delaware		77-0422528
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)
1194 North Mathilda Avenue Sunnyvale, California 94089		(408) 745-2000
(Address of principal executive offices,		(Registrant’s telephone number,
including zip code)		including area code)

     Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes þ     No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller Reporting Company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ

     There were approximately 527,951,000 shares of the Company’s Common Stock, par value $0.00001, outstanding as of October 31, 2008.

 

 

Table of Contents

PART I — FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Condensed Consolidated Statements of Operations			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Cash Flows			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			51
Item 4. Controls and Procedures			52
PART II — OTHER INFORMATION			53
Item 1. Legal Proceedings			53
Item 1A. Risk Factors			53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			65
Item 6. Exhibits			67
SIGNATURES			68
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Juniper Networks, Inc.

Condensed Consolidated Statements of Operations

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Net revenues:
Product		$	766,969			$	606,769			$	2,165,100			$	1,658,237
Service			179,993				128,279				483,783				368,669
Total net revenues			946,962				735,048				2,648,883				2,026,906
Cost of revenues:
Product			230,060				168,123				636,985				482,956
Service			77,519				64,163				224,711				182,213
Total cost of revenues			307,579				232,286				861,696				665,169
Gross margin			639,383				502,762				1,787,187				1,361,737
Operating expenses:
Research and development			194,014				167,887				551,017				457,682
Sales and marketing			200,600				177,762				576,886				485,263
General and administrative			37,623				29,182				106,866				84,436
Amortization of purchased intangible assets			5,190				20,230				38,318				65,710
Other charges, net			—				(5,062	)			9,000				9,164
Total operating expenses			437,427				389,999				1,282,087				1,102,255
Operating income			201,956				112,763				505,100				259,482
Interest and other income, net			9,740				17,945				40,517				76,365
(Loss) gain on minority equity investments			—				—				(1,499	)			6,745
Income before income taxes			211,696				130,708				544,118				342,592
Provision for income taxes			63,188				45,609				164,845				104,666
Net income		$	148,508			$	85,099			$	379,273			$	237,926
Net income per share:
Basic		$	0.27			$	0.17			$	0.71			$	0.44
Diluted		$	0.27			$	0.15			$	0.67			$	0.41
Shares used in computing net income per share:
Basic			540,983				515,658				534,894				543,094
Diluted			554,350				561,401				561,932				582,780

See accompanying Notes to Condensed Consolidated Financial Statements

Juniper Networks, Inc.

Condensed Consolidated Balance Sheets

		September 30,				December 31,
		2008				2007
ASSETS
Current assets:
Cash and cash equivalents		$	1,778,497			$	1,716,110
Short-term investments			242,440				240,355
Accounts receivable, net of allowances			368,604				379,759
Deferred tax assets, net			172,009				171,598
Prepaid expenses and other current assets			40,741				47,293
Total current assets			2,602,291				2,555,115
Property and equipment, net			427,211				401,818
Long-term investments			110,744				59,329
Restricted cash			43,466				35,515
Goodwill			3,658,602				3,658,602
Purchased intangible assets, net			35,420				77,844
Other long-term assets			113,894				97,183
Total assets		$	6,991,628			$	6,885,406
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	231,129			$	219,101
Accrued compensation			129,142				158,710
Accrued warranty			43,131				37,450
Deferred revenue			433,335				425,579
Income taxes payable			53,239				52,324
Convertible debt			—				399,496
Other accrued liabilities			92,769				87,183
Total current liabilities			982,745				1,379,843
Long-term deferred revenue			129,199				87,690
Long-term income tax payable			82,508				41,482
Other long-term liabilities			20,389				22,531
Commitments and Contingencies — See Note 9
Stockholders’ equity:
Convertible preferred stock, $0.00001 par value; 10,000 shares authorized; none issued and outstanding			—				—
Common stock, $0.00001 par value; 1,000,000 shares authorized; 528,530 shares and 522,815 shares issued and outstanding at September 30, 2008, and December 31, 2007, respectively			5				5
Additional paid-in capital			8,777,987				8,154,932
Accumulated other comprehensive income (loss)			(5,347	)			12,251
Accumulated deficit			(2,995,858	)			(2,813,328	)
Total stockholders’ equity			5,776,787				5,353,860
Total liabilities and stockholders’ equity		$	6,991,628			$	6,885,406

See accompanying Notes to Condensed Consolidated Financial Statements

Juniper Networks, Inc.

Condensed Consolidated Statements of Cash Flows

		Nine Months Ended September 30,
		2008				2007 (1)
Operating Activities:
Net income		$	379,273			$	237,926
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			134,623				143,250
Stock-based compensation			78,877				68,668
Loss (gain) on minority equity investments			1,499				(6,745	)
Excess tax benefit from employee stock option plans			(38,756	)			(15,667	)
Other non-cash charges			698				1,317
Changes in operating assets and liabilities:
Accounts receivable, net			11,155				(20,674	)
Prepaid expenses and other assets			(5,346	)			6,720
Accounts payable			2,738				19,599
Accrued compensation			(29,569	)			9,800
Other accrued liabilities			75,610				30,244
Deferred revenue			49,266				67,727
Net cash provided by operating activities			660,068				542,165
Investing Activities:
Purchases of property and equipment, net			(121,728	)			(110,952	)
Purchases of available-for-sale investments			(384,835	)			(298,615	)
Maturities and sales of available-for-sale investments			327,696				927,029
Changes in restricted cash			(8,103	)			(7,407	)
Payments made in connection with business acquisitions, net			—				(375	)
Minority equity investments			(4,500	)			(75	)
Net cash (used in) provided by investing activities			(191,470	)			509,605
Financing Activities:
Proceeds from issuance of common stock			115,424				308,697
Purchases and retirement of common stock			(562,187	)			(1,623,190	)
Net proceeds from distributor financing arrangement			2,083				—
Redemption of convertible subordinated notes			(287	)			—
Excess tax benefit from employee stock option plans			38,756				15,667
Net cash used in financing activities			(406,211	)			(1,298,826	)
Net increase (decrease) in cash and cash equivalents			62,387				(247,056	)
Cash and cash equivalents at beginning of period			1,716,110				1,596,333
Cash and cash equivalents at end of period		$	1,778,497			$	1,349,277
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Common stock issued in connection with conversion of the Senior Notes		$	399,153			$	—
Common stock issued in connection with acquisitions		$	—			$	14,840

See accompanying Notes to Condensed Consolidated Financial Statements

Juniper Networks, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Description of Business

Juniper Networks, Inc. (“Juniper Networks” or the “Company”) designs, develops and sells products and services that together provide its customers with high performance network infrastructure that creates responsive and trusted environments for accelerating the deployment of services and applications over a single Internet Protocol (“IP”) based network. Beginning in the first quarter of 2008, the Company realigned its business groups which resulted in the following two segments: Infrastructure and Service Layer Technologies (“SLT”). The Company’s Infrastructure segment primarily offers scalable router and Ethernet switching products that are used to control and direct network traffic. The Company’s SLT segment offers networking solutions that meet a broad array of its customers’ priorities, from securing the network and the data on the network, to maximizing existing bandwidth and acceleration of applications across a distributed network. Both segments offer world-wide services, including technical support and professional services, as well as educational and training programs to their customers. Together, these elements provide secure networking solutions to enable customers to convert legacy networks that provide commoditized, best efforts services into more valuable assets that provide differentiation, value and increased reliability, performance and security to end users.

Basis of Presentation

The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information as well as the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008, or any future period. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk” and the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Revenue Recognition

Juniper Networks sells products and services through its direct sales force and through its strategic distribution relationships and value-added resellers. The Company’s products are integrated with software that is essential to the functionality of the equipment. The Company also provides unspecified upgrades and enhancements related to the integrated software through maintenance contracts for most of its products. Accordingly, the Company accounts for revenue in accordance with Statement of Position No. 97-2, Software Revenue Recognition, and all related interpretations. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery or performance has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Evidence of an arrangement generally consists of customer purchase orders and, in certain instances, sales contracts or agreements. Shipping terms and related documents, or written evidence of customer acceptance, when applicable, are used to verify delivery or performance. In instances where the Company has outstanding obligations related to product delivery or the final acceptance of the product, revenue is deferred until all the delivery and acceptance criteria have been met. The Company assesses whether the sales price is fixed or determinable based on payment terms and whether the sales price is subject to refund or adjustment. Collectability is assessed based on the creditworthiness of the customer as determined by credit checks and the customer’s payment history to the

Company. Accounts receivable are recorded net of allowance for doubtful accounts, estimated customer returns and pricing credits.

For arrangements with multiple elements, such as sales of products that include services, the Company allocates revenue to each element using the residual method based on vendor specific objective evidence of fair value of the undelivered items. Under the residual method, the amount of revenue allocated to delivered elements equals the total arrangement consideration less the aggregate fair value of any undelivered elements. Vendor specific objective evidence of fair value is based on the price charged when the element is sold separately. If vendor specific objective evidence of fair value of one or more undelivered items does not exist, revenue is deferred and recognized at the earlier of (i) delivery of those elements or (ii) when fair value can be established unless maintenance is the only undelivered element, in which case, the entire arrangement fee is recognized ratably over the contractual support period. The Company accounts for multiple agreements with a single customer as one arrangement if the contractual terms and/or substance of those agreements indicate that they may be so closely related that they are, in effect, parts of a single arrangement.

For sales to direct end-users and value-added resellers, the Company recognizes product revenue upon transfer of title and risk of loss, which is generally upon shipment. It is the Company’s practice to identify an end-user prior to shipment to a value-added reseller. For end-users and value-added resellers, the Company has no significant obligations for future performance such as rights of return or pricing credits. A portion of the Company’s sales are made through distributors under agreements allowing for pricing credits and/or rights of return. Product revenue on sales made through these distributors is recognized upon sell-through as reported by the distributors to the Company. Deferred revenue on shipments to distributors reflects the effects of distributor pricing credits and the amount of gross margin expected to be realized upon sell-through.

The Company sells certain interests in accounts receivable on a non-recourse basis as part of a distributor accounts receivable financing arrangement which was established by the Company with a major financing company. Accounts receivable sold under this arrangement in advance of revenue recognition are accounted for as short-term debt and had a balance of $12.1 million and $10.0 million as of September 30, 2008, and December 31, 2007, respectively. Deferred revenue on shipments to distributors reflects these effects of distributor pricing credits and the amount of gross margin expected to be realized upon sell-through. Deferred revenue is recorded net of the related product costs of revenue.

The Company records reductions to revenue for estimated product returns and pricing adjustments, such as rebates and price protection, in the same period that the related revenue is recorded. The amount of these reductions is based on historical sales returns and price protection credits, specific criteria included in rebate agreements, and other factors known at the time. In addition, the Company reports revenue net of sales taxes.

Shipping charges billed to customers are included in product revenue and the related shipping costs are included in cost of product revenues. Costs associated with cooperative advertising programs are estimated and recorded as a reduction of revenue at the time the related sales are recognized.

Services include maintenance, training and professional services. In addition to providing unspecified upgrades and enhancements on a when and if available basis, the Company’s maintenance contracts include 24-hour technical support and hardware repair and replacement parts. Maintenance is offered under renewable contracts. Revenue from maintenance contracts is deferred and is generally recognized ratably over the contractual support period, which is generally one to three years. Revenue from training and professional services is recognized as the services are completed or ratably over the contractual period, which is generally one year or less.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (“SFAS 123R”) which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors including employee stock options, restricted stock units (“RSUs”), performance share awards and employee stock purchases under the Company’s Employee Stock Purchase Plan based on estimated fair values. SFAS 123R requires

companies to estimate the fair value of stock-based awards on the date of grant using an option pricing model. The Company uses the Black-Scholes-Merton option pricing model and incorporates a Monte Carlo simulation when appropriate to determine the fair value of stock based awards under SFAS 123R. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s condensed consolidated statements of operations.

Stock-based compensation expense recognized in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2008 and 2007, included compensation expense for stock-based awards granted prior to, but not yet vested as of the adoption of SFAS 123R, based on the grant date fair value estimated in accordance with the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (“SFAS 123”) and compensation expense for the stock-based awards granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Compensation expense for expected-to-vest stock-based awards that were granted on or prior to December 31, 2005, was valued under the multiple-option approach and will continue to be amortized using the accelerated attribution method. Subsequent to December 31, 2005, compensation expense for expected-to-vest stock-based awards is valued under the single-option approach and amortized on a straight-line basis, net of estimated forfeitures.

Goodwill and Purchased Intangible Assets

Goodwill is not subject to amortization but is assessed annually, at a minimum, for impairment by applying a fair value based test. Future goodwill impairment tests could result in a charge to earnings. Purchased intangible assets with finite lives are amortized on a straight-line basis over their respective estimated useful lives.

Impairment

The Company evaluates goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Juniper Networks conducted its annual impairment test as of November 1, 2007, and determined that the carrying value of its goodwill was not impaired. There were no events or circumstances from that date through September 30, 2008, that would impact this assessment. Future impairment indicators, including sustained declines in the Company’s market capitalization or a decrease in revenue or profitability levels, could require impairment charges to be recorded.

The Company evaluates long-lived assets held-for-use for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairments for the three months ended September 30, 2008 and 2007. For the nine months ended September 30, 2008, the Company recognized an impairment charge of $5.0 million, included in amortization of purchased intangible assets, in connection with the phase out of its DX product, and nil for the nine months ended September 30, 2007.

Warranties

Juniper Networks generally offers a one-year warranty on all of its hardware products and a 90-day warranty on the media that contains the software embedded in the products. The warranty generally includes parts and labor obtained through the Company’s 24-hour service center. On occasion, the specific terms and conditions of those warranties vary. The Company accrues for warranty costs based on estimates of the costs that may be incurred under its warranty obligations, including material costs, technical support labor costs and associated overhead. The warranty accrual is included in the Company’s cost of revenues and is recorded at the time revenue is recognized. Factors that affect the Company’s warranty liability include the number of installed units, its estimates of anticipated rates of warranty claims, costs per claim and estimated support labor costs and the associated overhead. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Concentrations

Financial instruments, including those held in foreign branches of global banks, that subject Juniper Networks to concentrations of credit risk consist primarily of cash and cash equivalents, investments and accounts receivable. Juniper Networks maintains its cash, cash equivalents and available-for-sale investments in fixed income securities and money market funds with high-quality institutions and only invests in high quality credit instruments. Deposits held with banks, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and therefore bear minimal risk.

Generally, credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company’s customer base and their dispersion across different geographic locations throughout the world. Juniper Networks performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. Juniper Networks maintains reserves for potential credit losses and historically such losses have been within management’s expectations.

The Company relies on sole suppliers for certain of its components such as application-specific integrated circuits (“ASICs”) and custom sheet metal. Additionally, Juniper Networks relies primarily on a limited number of significant independent contract manufacturers for the production of all of its products. The inability of any supplier or manufacturer to fulfill supply requirements of Juniper Networks could negatively impact future operating results.

Fair Value Accounting

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 expands the use of fair value accounting to eligible financial assets and liabilities. SFAS 159 is effective beginning on January 1, 2008. The Company evaluated its existing financial instruments and elected not to adopt the fair value option on its financial instruments. However, because the SFAS 159 election is based on an instrument-by-instrument election at the time the Company first recognizes an eligible item or enters into an eligible firm commitment, the Company may decide to exercise the option on new items when business reasons support doing so in the future. As a result, SFAS 159 did not have any impact on the Company’s consolidated financial condition or results of operations as of and for the three and nine months ended September 30, 2008.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”), which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. This statement applies to accounting pronouncements that require or permit fair value measurements with certain exclusions. The statement provides that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. SFAS 157 defines fair value based upon an exit price model. The Company adopted the effective portions of SFAS 157 on January 1, 2008.

The FASB issued FASB Staff Positions (“FSP”) 157-1, 157-2, and 157-3. FSP 157-1 amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases, (“SFAS 13”) and its related interpretive accounting pronouncements that address leasing transactions. FSP 157-2 delays the effective date of the application of SFAS 157 to fiscal years beginning after November 15, 2008, for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. Non-recurring nonfinancial assets and nonfinancial liabilities for which the Company has not applied the provisions of SFAS 157 include those measured at fair value in goodwill impairment tests, intangible assets measured at fair value for impairment, asset retirement obligations initially measured at fair value, and those initially measured at fair value in a business combination. FSP 157-3 clarifies the application of SFAS 157 in an inactive market. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. Because the Company does not hold financial assets for which the market is inactive, the implementation of this standard did not impact our consolidated results of operations or financial condition.

SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to fair value measurement. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

For disclosure purposes, the Company is required to measure the fair value of outstanding debt on a recurring basis. Long-term debt is reported at amortized cost in accordance with SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The fair value of long-term debt, based on quoted market prices (Level 1), was $659.2 million at December 31, 2007. The Company’s Senior Convertible Notes were converted into shares of the Company’s common stock during the nine months ended September 30, 2008. See Note 4 — Other Financial Information under “Senior Convertible Notes.”

The following table provides the assets carried at fair value measured on a recurring basis as of September 30, 2008 (in millions):

						Quoted Prices in				Significant Other				Significant Other
						Active Markets				Observable				Unobservable
Assets Measured at						For Identical				Remaining				Remaining
Fair Value on a Recurring Basis		Total				Assets				Inputs				Inputs
						(Level 1)				(Level 2)				(Level 3)
Derivatives		$	(3.1	)		$	—			$	(3.1	)		$	—
Total cash, cash equivalents, and available-for-sale investments
Commercial paper		$	163.6			$	—			$	163.6			$	—
Corporate debt securities			147.4				—				147.4				—
Government securities			324.6				111.4				213.2				—
Money market funds			1,003.7				1,003.7				—				—
Publicly-traded securities			6.1				6.1				—				—
Cash equivalents, and available-for-sale investments			1,645.4				1,121.2				524.2				—
Cash			486.3				—				—				—
Total cash, cash equivalents, and available-for-sale investments		$	2,131.7			$	1,121.2			$	524.2			$	—

		As of
		September 30, 2008
Reported as:
Cash and cash equivalents		$	1,778.5
Short-term investments			242.5
Long-term investments			110.7
Total cash, cash equivalents, and available-for-sale investments		$	2,131.7

The Company classifies investments within Level 1 if quoted prices are available in active markets. Level 1 assets include instruments valued based on quoted market prices in active markets which generally include money market funds, corporate equity securities publicly traded on major exchanges and U.S. Treasury notes with quoted prices on active markets.

The Company classifies items in Level 2 if the investments are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. These investments include: U.S. T-Bills, government agencies, corporate bonds and commercial paper. Investments are held by a custodian who obtains investment prices from a third party pricing provider that uses standard inputs to models which vary by asset class. The Company classifies all derivatives in Level 2 using observable market inputs and standard valuation techniques.

The Company did not hold financial assets and liabilities which were recorded at fair value in the Level 3 category as of September 30, 2008.

Seasonality

Many companies in the networking industry experience adverse seasonal fluctuations in customer spending patterns, particularly in the first and third quarters. In addition, the Company’s SLT segment has experienced seasonally strong customer demand in the fourth quarter. This historical pattern should not be considered a reliable indicator of the Company’s future net revenues or financial performance.

Recent Accounting Pronouncements

In October 2008, the FASB issued FSP 157-3, Determining Fair Value of a Financial Asset in a Market That Is Not Active (“FSP 157-3”). FSP 157-3 clarifies the application of Statement of Financial Accounting Standards No. 157, Fair Value Measurements, in an inactive market. It demonstrates how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The Company’s implementation of this standard did not impact its consolidated results of operations or financial condition.

In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (“FSP FAS 133-1 and FIN 45-4”). FSP FAS 133-1 and FIN 45-4 amends Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), to require disclosures by sellers of credit derivatives, including credit derivatives embedded in hybrid instruments. FSP FAS 133-1 and FIN 45-4 also amend FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others (“FIN 45”), to require additional disclosure about the current status of the payment/performance risk of a guarantee. The provisions of the FSP that amend SFAS 133 and FIN 45 are effective for reporting periods ending after November 15, 2008. FSP FAS 133-1 and FIN 45-4 also clarifies the effective date in Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). Disclosures required by SFAS 161 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company’s adoption of FSP FAS 133-1 and FIN 45-4 on January 1, 2009, will not impact its consolidated results of operations or financial condition.

In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 must be applied retrospectively to previously issued convertible instruments that may be settled in cash or partial cash as well as prospectively to newly issued instruments. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company has evaluated the requirements of FSP APB 14-1 and determined that the Company’s convertible debt was not subject to the requirements of FSP APB 14-1. The Company’s adoption of FSP APB 14-1 on January 1, 2009, will not impact its consolidated results of operations or financial condition.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008, and early adoption is prohibited. The impact of FSP FAS 142-3 will depend upon the nature, terms, and size of the acquisitions the Company consummates after the effective date.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments, (b) derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for the fiscal years beginning after November 15, 2008, and will be adopted by the Company on January 1, 2009. The Company’s adoption of SFAS 161 on January 1, 2009, will not impact its consolidated results of operations or financial condition.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 addresses the accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008, and will be adopted by the Company on January 1, 2009. The Company does not expect the adoption of SFAS 160 to have a material effect on its consolidated results of operations or financial condition.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R establishes principles and requirements for the acquirer of a business to recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. Earlier application of SFAS 141R is prohibited. Accordingly, any business combinations the Company may engage in will be recorded and disclosed following existing GAAP until January 1, 2009. The impact of SFAS 141R will depend upon the nature, terms, and size of the acquisitions the Company consummates after the effective date.

Reclassifications

Certain reclassifications have been made to prior period balances in order to conform to the current period’s presentation.

Note 2. Investments

The following is a summary of the Company’s available-for-sale investments, at fair value (in millions):

		As of
		September 30,				December 31,
		2008				2007
Fixed income securities:
Government securities		$	174.1			$	88.0
Corporate debt securities			147.4				203.1
Commercial paper			26.2				—
Total fixed income securities			347.7				291.1
Publically traded equity securities			5.5				8.6
Total		$	353.2			$	299.7
Reported as:
Short-term investments		$	242.5			$	240.4
Long-term investments			110.7				59.3
Total		$	353.2			$	299.7

		Estimated Fair
		Value As
		of September 30, 2008
Due within one year		$	237.0
Due between one and five years			110.7
Total available-for-sale investments		$	347.7

Note 3. Goodwill and Purchased Intangible Assets

Goodwill

In the first quarter of 2008, the Company realigned its organizational structure to eliminate its Service segment and to include its service business into the related Infrastructure and SLT segments. As a result, the Company, with the assistance of an external service provider, reallocated goodwill of the former Service segment to the Infrastructure and SLT segments based on a relative fair value approach. Fair value was based on comparative market values and discounted cash flows. There was no indication of impairment when goodwill was reallocated to the new reporting segments.

The following table presents changes in goodwill by segment during the nine months ended September 30, 2008 (in millions):

		Balance at								Balance at
		December 31,								September 30,
Segments		2007				Reallocation				2008
Infrastructure		$	976.6			$	523.9			$	1,500.5
Service Layer Technologies			1,879.7				278.4				2,158.1
Service			802.3				(802.3	)			—
Total		$	3,658.6			$	—			$	3,658.6

Purchased Intangible Assets

The following table presents details of the Company’s purchased intangible assets with definite lives (in millions):

						Accumulated
		Gross				Amortization				Impairment				Net
As of September 30, 2008:
Technologies and patents		$	379.6			$	(356.6	)		$	(4.3	)		$	18.7
Other			68.9				(51.5	)			(0.7	)			16.7
Total		$	448.5			$	(408.1	)		$	(5.0	)		$	35.4
As of December 31, 2007:
Technologies and patents		$	379.6			$	(326.0	)		$	—			$	53.6
Other			68.9				(44.7	)			—				24.2
Total		$	448.5			$	(370.7	)		$	—			$	77.8

There were no additions to purchased intangible assets during the three and nine months ended September 30, 2008, and 2007.

Amortization of purchased intangible assets of $6.5 million and $21.6 million were included in operating expenses and cost of product revenues for the three months ended September 30, 2008, and 2007, respectively, and $42.4 million and $69.8 million were included in operating expenses and cost of product revenues for the nine months ended September 30, 2008, and 2007, respectively. There was no impairment charge in the three months ended September 30, 2008. In the nine months ended September 30, 2008, the Company recorded an impairment charge of $5.0 million, included in its amortization of purchased intangible assets, due to the phase out of its DX products. The estimated future amortization expense of purchased intangible assets with definite lives for future periods is as follows (in millions):

Years Ending December 31,		Amount
2008 (remaining three months)		$	6.6
2009			15.4
2010			3.9
2011			2.0
2012			1.2
Thereafter			6.3
Total		$	35.4

Note 4. Other Financial Information

Restricted Cash

As of September 30, 2008, and December 31, 2007, restricted cash of $43.5 million and $35.5 million, respectively, consisted of escrow accounts required by certain acquisitions completed in 2005, the India Gratuity Trust and the Directors & Officers (“D&O”) indemnification trust. During the three and nine months ended September 30, 2008, the Company increased its restricted cash by $0.5 million and $1.3 million to fund the India Gratuity Trust, which covers statutory severance obligations in the event of termination of its India employees who have provided five or more years of continuous service. Juniper Networks established the D&O trust to secure its indemnification obligations to certain directors, officers, and other specified employees, arising from their activities as such, in the event that the Company does not provide or is financially incapable of providing indemnification. During the three and nine months ended September 30, 2008, the Company also increased its restricted cash balance by $4.9 million and $6.7 million, respectively, to provide additional coverage under its D&O trust as the Company grows. During the three and nine months ended September 30, 2008, the Company made no releases from restricted cash for escrow payments associated with past acquisitions.

Minority Equity Investments

As of September 30, 2008, and December 31, 2007, the carrying values of the Company’s minority equity investments in privately held companies of $26.3 million and $23.3 million, respectively, were included in other long-term assets in the condensed consolidated balance sheets. During the three and nine months ended September 30, 2008, the Company invested a total of $2.5 million and $4.5 million, respectively, in privately-held companies. During the nine months ended September 30, 2008, the Company recognized a loss of $1.5 million related to investments in privately-held companies.

The Company’s minority equity investments in privately held companies are carried at cost as the Company does not have a controlling interest and does not have the ability to exercise significant influence over these companies. The Company adjusts its minority equity investments for any impairment if the fair value exceeds the carrying value of the respective assets.

Other Long-Term Assets

Details of the Company’s other long-term assets are as follows (in millions):

		As of
		September 30,				December 31,
		2008				2007
Deferred tax assets		$	67.8			$	59.0
Long-term assets			46.1				38.2
Total		$	113.9			$	97.2

Warranties

Changes in the Company’s warranty reserve were as follows (in millions):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Beginning balance		$	41.8			$	35.7			$	37.5			$	34.8
Provisions made during the period, net			3.8				10.6				16.0				31.9
Actual costs incurred during the period			(2.5	)			(10.1	)			(10.4	)			(30.5	)
Ending balance (current)		$	43.1			$	36.2			$	43.1			$	36.2

Deferred Revenue

Amounts billed in excess of revenue recognized are included as deferred revenue and accounts receivable in the accompanying condensed consolidated balance sheets. Product deferred revenue, net of the related cost of revenue, includes shipments to end-users, value-added resellers, and distributors. The portion of deferred revenue that the Company anticipates will be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as long-term deferred revenue. The Company may reclassify amounts between current and long-term deferred revenue based upon its assessment of when all revenue recognition criteria are expected to be met. Details of the Company’s deferred revenue are as follows (in millions):

		As of
		September 30,				December 31,
		2008				2007
Service		$	404.1			$	367.3
Product			158.4				146.0
Total		$	562.5			$	513.3
Reported as:
Current		$	433.3			$	425.6
Long-term			129.2				87.7
Total		$	562.5			$	513.3

Restructuring and Acquisition Related Reserves

Restructuring

Restructuring charges were based on the Company’s restructuring plans that were committed to by management. Any changes in the estimates of executing the approved plans will be reflected in the Company’s results of operations.

In the three and nine months ended September 30, 2008, the Company paid $0.1 million and $0.5 million, respectively, for facility charges associated with its restructuring plans initiated in prior years. As of September 30, 2008, and December 31, 2007, the restructuring reserve of $0.1 million and $0.6 million, respectively, was related to future facility charges. Amounts related to the net facility charges are included in other accrued liabilities and will be paid over the remaining respective lease term through April 2009. The difference between the actual future rent payments and the net present value will be recorded as operating expenses when incurred. During the three and nine months ended September 30, 2008 and 2007, the Company had no additional restructuring charges.

Acquisition Related Restructuring Reserves

Acquisition related restructuring reserves pertain to the restructuring reserves established in connection with the Company’s past acquisitions. In conjunction with various acquisitions, the Company accrued for acquisition related restructuring charges primarily related to severance and facility charges.

The Company paid $0.2 million and $0.8 million for the three and nine months ended September 30, 2008, respectively, and $0.4 million and $1.4 million for the three and nine months ended September 30, 2007, respectively, primarily for facility related charges. The Company recorded nil adjustments to its existing acquisition related restructuring reserves for the three and nine months ended September 30, 2008, and recorded nil and $0.3 million adjustments to its acquisition related restructuring reserves for facility related charges in the three and nine months ended September 30, 2007, respectively. As of September 30, 2008, approximately $0.7 million remained unpaid, of which $0.3 million was recorded in other long-term liabilities in the condensed consolidated balance sheet. As of December 31, 2007, approximately $1.6 million remained unpaid, of which $0.6 million was recorded in other long-term liabilities in the condensed consolidated balance sheet. All remaining restructuring reserves were associated with future facility charges and will be paid over the remaining respective lease terms through March 2011. The difference between the actual future rent payments and the restructuring reserves will be recorded as operating expenses when incurred. During the three and nine months ended September 30, 2008 and 2007, the Company had no new acquisition related restructuring charges.

Derivatives

The Company uses derivatives to partially offset its market exposure to fluctuations in certain foreign currencies. The Company does not enter into derivatives for speculative or trading purposes.

The Company uses foreign currency forward contracts to mitigate gains and losses generated from the re-measurement of certain foreign currency denominated monetary assets and liabilities. These derivatives are carried at fair value with changes recorded in interest and other income, net. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. These foreign exchange forward contracts have maturities between one and two months.

The Company also uses foreign currency forward and/or option contracts to hedge certain forecasted foreign currency transactions relating to operating expenses. These derivatives are designated as cash flow hedges and have maturities of less than one year. The effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income, and upon occurrence of the forecasted transaction, is subsequently reclassified into the operating expense line item to which the hedged transaction relates. The Company records ineffectiveness of the hedging instruments, which was immaterial during the three and nine months ended

September 30, 2008 and 2007, in other income (expense) on its condensed consolidated statements of operations. Cash flows from such hedges are classified as operating activities.

Debt

Senior Convertible Notes

In 2003, the Company received $392.8 million of net proceeds from an offering of $400.0 million aggregate principal amount of Zero Coupon Convertible Senior Notes due June 15, 2008 (the “Senior Notes”). The Senior Notes were senior unsecured obligations, ranked on parity in right of payment with all of the Company’s existing and future senior unsecured debt, and ranked senior to all of the Company’s existing and future debt that expressly provided that it was subordinated to the notes. The Senior Notes bore no interest, but were convertible into shares of the Company’s common stock, subject to certain conditions, at any time prior to maturity or their prior repurchase by the Company. The conversion rate was 49.6512 shares per each $1,000 principal amount of convertible notes, subject to adjustment in certain circumstances. This was equivalent to a conversion price of approximately $20.14 per share. The holders of Senior Notes with a face value of approximately $0.5 million had converted these notes prior to maturity into shares of the Company’s common stock as of December 31, 2007. As of June 16, 2008, holders of approximately $399.2 million in aggregate principal amount of Senior Notes had converted these notes into approximately 19.8 million shares of the Company’s common stock. The Company settled the remaining Senior Notes, with a face value of $0.3 million principal amount at maturity, for cash. As of September 30, 2008, all of the Company’s Senior Notes were retired.

The carrying amounts and fair values of the Senior Notes were (in millions):

		As of
		September 30, 2008				December 31, 2007
Carrying amount		$	—			$	399.5
Fair value		$	—			$	659.2

Distributor Financing Arrangement

The Company recognizes the sales of accounts receivable to a financing provider according to FASB Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125. The Company introduced its distributor financing program in 2006 to strengthen its channel business by promoting greater distributor volume and improved customer service. The program does not, and is not intended to, affect the timing of revenue recognition because the Company only recognizes revenue upon sell-through. Under the financing arrangements, the proceeds from the financing provider are due to the Company 30 days from the sale of the receivable. The Company pays the financing provider a financing fee based on the spread over LIBOR or SIBOR. In these transactions with a major financing provider, the Company has surrendered control over the transferred assets. The accounts receivable have been isolated from the Company and put beyond the reach of creditors, even in the event of bankruptcy. The purchaser of the accounts receivable balances has the right to pledge or exchange the assets transferred. The Company does not maintain effective control over the transferred assets through obligations or rights to redeem, transfer or repurchase the receivables after they have been transferred.

Pursuant to the receivable financing arrangements for the sale of receivables, the Company sold net receivables of $139.8 million and $22.8 million during the three months ended September 30, 2008, and 2007, respectively, and $306.9 million and $61.4 million during the nine months ended September 30, 2008, and 2007, respectively. During the three months ended September 30, 2008 and 2007, the Company received cash proceeds of $125.6 million and $18.3 million, respectively, and $257.7 million and $53.9 million during the nine months ended September 30, 2008 and 2007, respectively. The amounts owed by the financing provider recorded as accounts receivable on the Company’s condensed consolidated balance sheets as of September 30, 2008, and December 31, 2007, were $82.5 million and $40.4 million, respectively.

The portion of the receivable financed that has not been recognized as revenue is accounted for as a financing pursuant to FASB Emerging Issues Task Force Issue 88-18, Sales of Future Revenues. As of September 30, 2008,

and December 31, 2007, the estimated amounts of cash received from the financing provider that has not been recognized as revenue from its distributors was $12.1 million and $10.0 million, respectively.

Comprehensive Income

Comprehensive income consists of the following (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Net income		$	148.5			$	85.1			$	379.3			$	237.9
Change in net unrealized gains (losses) on investments, net of tax of nil			(4.4	)			(0.1	)			(7.8	)			5.6
Change in foreign currency translation adjustment, net of tax of nil			(10.7	)			1.8				(9.8	)			5.5
Total comprehensive income		$	133.4			$	86.8			$	361.7			$	249.0

Accumulated Deficit

The following table summarizes the activity in the Company’s accumulated deficit account (in millions):

		Nine Months
		Ended
		September 30, 2008
Balance, December 31, 2007		$	(2,813.3	)
Retirement of common stock (see Note 6)			(561.9	)
Net income			379.3
Balance, September 30, 2008		$	(2,995.9	)

Stock-Based Compensation Expense

Amortization of stock-based compensation was included in the following cost and expense categories (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Cost of revenues — Product		$	0.8			$	0.5			$	2.2			$	1.5
Cost of revenues — Service			2.4				1.8				7.0				7.0
Research and development			12.8				9.2				34.9				28.6
Sales and marketing			10.9				6.6				26.8				21.9
General and administrative			1.9				3.1				8.0				9.7
Total		$	28.8			$	21.2			$	78.9			$	68.7

Other Charges, Net

Other charges recognized consisted of the following (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Restructuring adjustments		$	—			$	(0.1	)		$	—			$	(0.4	)
Acquisition related compensation charges			—				0.3				—				0.9
Stock option investigation costs			—				—				—				6.0
Tax related charges			—				—				—				8.0
Loss (gain) on litigation settlement			—				(5.3	)			9.0				(5.3	)
Total		$	—			$	(5.1	)		$	9.0			$	9.2

In the nine months ended September 30, 2008, the Company accrued $9.0 million for the potential settlement of its derivative lawsuits. See Note 9 — Commitments and Contingencies under “Legal Proceedings.”

In conjunction with various acquisitions, the Company accrued for acquisition related restructuring charges primarily related to severance and facility charges. The Company had no adjustments to its existing acquisition

related restructuring reserves for the three and nine months ended September 30, 2008, and recorded adjustments of $0.1 million and $0.4 million to its acquisition related restructuring reserves for facility related charges in the three and nine months ended September 30, 2007, respectively.

In connection with a past acquisition, the Company recorded bonus obligations of $0.3 million and $0.9 million for the three and nine months ended September 30, 2007, respectively.

In the three and nine months ended September 30, 2007, the Company incurred nil and $6.0 million, respectively, in professional fees for the costs of external service providers used in the completion of its internal stock option investigation.

On March 12, 2007, the Company commenced a tender offer to amend certain options granted under the Juniper Networks, Inc. Amended & Restated 1996 Stock Plan and the Juniper Networks, Inc. 2000 Nonstatutory Stock Option Plan that had original exercise prices per share that were less than the fair market value per share of the common stock underlying the option on the option’s grant date, as determined by the Company for financial accounting purposes. Under this tender offer, employees subject to taxation in the United States and Canada had the opportunity to increase their strike price on affected options to the appropriate fair market value per share on the date of grant so as to avoid unfavorable tax consequences under United States Internal Revenue Code Section 409A or applicable Canadian tax laws and regulations. In exchange for increasing the strike price of these options, the Company committed to make a cash payment to employees participating in the offer so as to make employees whole for the incremental strike price as compared to their original option exercise price. In connection with the offer, the Company amended options to purchase 4.3 million shares of the Company’s common stock and committed to make aggregate cash payments of $7.6 million to offer participants. The Company accrued nil and $7.6 million in the three and nine months ended September 30, 2007, respectively.

In addition, the Company entered into a separate agreement with two executives in the three months ended June 30, 2007, to amend their unexercised stock options covering 0.1 million shares of the Company’s common stock in order to cure the 409A issue associated with such options. As a result, the Company committed to make aggregate cash payments of approximately $0.4 million and recorded nil and $0.4 million for the payment liability in operating expense for the three and nine months ended September 30, 2007, respectively.

Interest and Other Income, Net

Interest and other income, net, consist of the following (in millions):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Interest income and expense, net		$	12.8			$	18.3			$	44.6			$	77.9
Other income and expense, net			(3.1	)			(0.4	)			(4.1	)			(1.5	)
Total interest and other income, net		$	9.7			$	17.9			$	40.5			$	76.4

Note 5. Net Income per Share

The following table presents the calculation of basic and diluted net income per share (in millions, except per share amounts):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Numerator:
Net income		$	148.5			$	85.1			$	379.3			$	237.9
Denominator:
Denominator for basic net income per share			541.0				515.7				534.9				543.1
Shares issuable upon conversion of the Senior Notes			—				19.9				11.8				19.9
Employee stock awards			13.3				25.8				15.2				19.8
Denominator for diluted net income per share			554.3				561.4				561.9				582.8
Net income per share:
Basic		$	0.27			$	0.17			$	0.71			$	0.44
Diluted		$	0.27			$	0.15			$	0.67			$	0.41

Employee stock awards for approximately 25.5 million shares and 21.4 million shares of the Company’s common stock in the three and nine months ended September 30, 2008, respectively, were outstanding, but were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. For the three and nine months ended September 30, 2007, approximately 3.4 million and 17.6 million shares of the Company’s common stock equivalents, respectively, were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

Note 6. Stockholders’ Equity

Stock Repurchase Activities

During the three and nine months ended September 30, 2008, the Company repurchased $440.9 million and $562.2 million, or 18.0 million and 22.7 million shares of its common stock, respectively, under two stock repurchase programs that were authorized by its Board of Directors.

Under the $2.0 billion stock repurchase program approved in 2006 and 2007 (the “2006 Stock Repurchase Program”), the Company repurchased approximately 13.2 million shares of its common stock at an average price of $24.52 per share for a total purchase price of $323.7 million during the three months ended September 30, 2008, and approximately 15.4 million shares of its common stock at an average price of $24.53 per share for a total purchase price of $376.8 million during the nine months ended September 30, 2008. As of September 30, 2008, the Company has repurchased and retired approximately 84.8 million shares of its common stock under the 2006 Stock Repurchase Program at an average price of $23.58 per share, and the program has no remaining authorized funds available for future stock repurchases.

The Board of Directors approved another $1.0 billion stock repurchase program in March 2008 (the “2008 Stock Repurchase Program”). Under this program, the Company repurchased approximately 4.8 million shares of its common stock at an average price of $24.66 per share for a total purchase price of $117.2 million during the three months ended September 30, 2008, and approximately 7.3 million shares of its common stock at an average price of $25.42 per share for a total purchase price of $185.4 million during the nine months ended September 30, 2008. As of September 30, 2008, the 2008 Stock Repurchase Program had remaining authorized funds of $814.6 million.

All shares of common stock purchased under the 2006 and 2008 Stock Repurchase Programs have been retired. Future share repurchases under the Company’s 2008 Stock Repurchase Program will be subject to a review of the circumstances in place at the time and will be made from time to time in private transactions or open market

purchases as permitted by securities laws and other legal requirements. This program may be discontinued at any time.

Stock Option Plans

2006 Equity Incentive Plan

On May 18, 2006, the Company’s stockholders adopted the Company’s 2006 Equity Incentive Plan (the “2006 Plan”) to enable the granting of incentive stock options, nonstatutory stock options, RSUs, restricted stock, stock appreciation rights, performance shares, performance units, deferred stock units and dividend equivalents to the employees and consultants of the Company. The 2006 Plan also provides for the automatic, non-discretionary award of nonstatutory stock options to the Company’s non-employee members of the Board.

The maximum aggregate number of shares authorized under the 2006 Plan is 64,500,000 shares of common stock, plus the addition of any shares subject to outstanding options under the Company’s Amended and Restated 1996 Stock Plan (the “1996 Plan”) and the Company’s 2000 Nonstatutory Stock Option Plan (the “2000 Plan”) that subsequently expired unexercised after May 18, 2006, up to a maximum of 75,000,000 additional shares of common stock.

Options granted under the 2006 Plan have a maximum term of five to seven years from the grant date, and generally vest and become exercisable over a four-year period. Subject to the terms of change of control severance agreements, restricted stock, performance shares, RSUs or deferred stock units that vest solely based on continuing employment or provision of services will vest in full no earlier than the three-year anniversary of the grant date, or in the event vesting is based on factors other than continued future provision of services, such awards will vest in full no earlier than the one-year anniversary of the grant date.

The 2006 Plan provides each non-employee director an automatic grant of an option to purchase 50,000 shares of common stock upon the date on which such individual first becomes a director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy (the “First Option”). In addition, at each of the Company’s annual stockholders meetings (i) each non-employee director who was a non-employee director on the date of the prior year’s annual stockholder meeting shall be automatically granted an option to purchase 20,000 shares of common stock, and (ii) each non-employee director who was not a non-employee director on the date of the prior year’s annual stockholders meeting shall receive an option to purchase a pro-rata portion of the 20,000 shares of the common stock determined by the time elapsed since the individual’s First Option grant (the “Annual Option”). The First Option vests monthly over approximately three years from the grant date subject to the non-employee director’s continuous service on the Board. The Annual Option shall vest monthly over approximately one year from the grant date subject to the non-employee director’s continuous service on the Board. Under the 2006 Plan, options granted to non-employee directors have a maximum term of seven years.

2000 Nonstatutory Stock Option Plan

In July 2000, the Board adopted the Juniper Networks 2000 Plan. The 2000 Plan provided for the granting of nonstatutory stock options to employees, directors and consultants. Options granted under the 2000 Plan generally become exercisable over a four-year period beginning on the date of grant and have a maximum term of ten years. The Company had authorized 90,901,437 shares of common stock for issuance under the 2000 Plan. Effective May 18, 2006, additional equity awards under the 2000 Plan have been discontinued and new equity awards are being granted under the 2006 Plan. Remaining authorized shares under the 2000 Plan that were not subject to outstanding awards as of May 18, 2006, were canceled on May 18, 2006. The 2000 Plan will remain in effect as to outstanding equity awards granted under the plan prior to May 18, 2006.

Amended and Restated 1996 Stock Plan

The 1996 Plan provided for the granting of incentive stock options to employees and nonstatutory stock options to employees, directors and consultants. On November 3, 2005, the Board adopted an amendment to the 1996 Plan to add the ability to issue RSUs under the 1996 Plan. Options granted under the 1996 Plan generally become

exercisable over a four-year period beginning on the date of grant and have a maximum term of ten years. The Company had authorized 164,623,039 shares of common stock for issuance under the 1996 Plan. Effective May 18, 2006, additional equity awards under the 1996 Plan have been discontinued and new equity awards are being granted under the 2006 Plan. Remaining authorized shares under the 1996 Plan that were not subject to outstanding awards as of May 18, 2006 were canceled on May 18, 2006. The 1996 Plan will remain in effect as to outstanding equity awards granted under the plan prior to May 18, 2006.

Plans Assumed Upon Acquisition

In connection with past acquisitions, the Company assumed options and restricted stock under the stock plans of the acquired companies. The Company exchanged those options and restricted stock for Juniper Networks’ options and restricted stock and, in the case of the options, authorized the appropriate number of shares of common stock for issuance pursuant to those options. As of September 30, 2008, there were approximately 2.8 million common shares subject to outstanding awards under plans assumed through past acquisitions. There was no restricted stock subject to repurchase as of September 30, 2008 and December 31, 2007. There were no restricted stock repurchases during the three and nine months ended September 30, 2008 and 2007.

Equity Award Activities

In the three and nine months ended September 30, 2008, the Company granted RSUs covering approximately 0.3 million shares and 1.2 million shares, respectively, of common stock to its employees under the 2006 Plan. The Company also granted performance share awards to eligible executives covering up to 0.9 million and 1.5 million shares of common stock in the three and nine months ended September 30, 2008, respectively, that generally vest from 2009 through 2012 provided certain annual performance targets and other vesting criteria are met. RSUs generally vest over a period of three to five years from the date of grant. Until vested, RSUs and performance share awards do not have the voting rights of common stock and the shares underlying the awards are not considered issued and outstanding. No restricted stock was issued in the same periods during 2008. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares of the Company’s common stock at the date of grant, ratably over the period during which the restrictions lapse. The Company estimated the stock compensation expense for its performance share awards based on the vesting criteria and only recognized stock compensation expense for the portions of such awards for which annual targets have been set. The Company accrued stock compensation expense of $0.5 million and $1.0 million for the three and nine months ended September 30, 2008, respectively, and $0.1 million and $0.3 million for the three and nine months ended September 30, 2007, respectively, in connection with such performance shares. In addition to RSUs and performance share awards, the Company also granted stock options covering approximately 3.2 million shares and 11.5 million shares of common stock under the 2006 Plan in the three and nine months ended September 30, 2008, respectively.

Net income for the three and nine months ended September 30, 2008, included pre-tax stock-based compensation expense of $28.8 million and $78.9 million, respectively, related to stock options, RSUs, performance share awards and employee stock purchases under the Company’s 1999 Employee Stock Purchase Plan reflecting the fair value recognition provisions under SFAS 123R. Net income for the three and nine months ended September 30, 2007, included pre-tax stock-based compensation expense of $21.2 million and $68.7 million, respectively, related to stock options, RSUs, performance share awards, and employee stock purchases reflecting the fair value recognition provisions under SFAS 123R.

A summary of the Company’s equity award activity and related information for the nine months ended September 30, 2008, is set forth in the following table:

						Outstanding Options(4)
														Weighted
										Weighted-				Average
		Shares								Average				Remaining
		Available				Number of				Exercise				Contractual				Aggregate
		For Grant(1)				Shares				Price				Term				Intrinsic Value
		(In thousands)				(In thousands)				(In dollars)				(In years)				(In thousands)
Balance at January 1, 2008			46,022				66,928			$	20.36
RSUs and performance share awards granted (2)			(5,651	)			—				—
Options granted			(11,467	)			11,467				25.59
RSUs canceled (2)			896				—				—
Options canceled (3)			1,824				(1,833	)			21.93
Options exercised			—				(5,308	)			15.06
Options expired (3)			650				(666	)			30.67
Balance at September 30, 2008 (4)			32,274				70,588			$	21.47				5.1			$	215,854

A summary of the Company’s vested or expected-to-vest options and exercisable options as of September 30, 2008, is set forth in the following table:

Weighted

Weighted-

Average

Average

Remaining

Number of

Exercise

Contractual

Aggregate

Shares

Price

Term

Intrinsic Value

(In thousands)

(In dollars)

(In years)

(In thousands)

Vested or expected-to-vest options

63,918

$

21.32

5.0

$

206,348

Exercisable options

45,891

20.41

4.6

185,859

As of September 30, 2008, options covering approximately 45.9 million shares of common stock were exercisable at a weighted-average exercise price of $20.41 per share. As of December 31, 2007, options covering approximately 44.8 million shares of common stock were exercisable at a weighted-average exercise price of $20.01 per share.

Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $21.07 as of September 30, 2008, and the exercise price multiplied by the number of related options. The pre-tax intrinsic value of options exercised, representing the difference between the fair market value of the Company’s common stock on the date of the exercise and the exercise price of each option, was $15.0 million and $62.5 million for the three and nine months ended September 30, 2008, respectively.

Total fair value of options vested for the three and nine months ended September 30, 2008, was $16.7 million and $53.8 million, respectively. As of September 30, 2008, approximately $153.6 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options is expected to be recognized over a weighted-average period of approximately 2.9 years.

Restricted Stock Units and Performance Share Awards Activities

The following schedule summarizes information about the Company’s RSUs and performance share awards for the nine months ended September 30, 2008:

		Outstanding RSUs and Performance Share Awards
										Weighted
						Weighted-				Average
						Average				Remaining
		Number of				Grant Date				Contractual				Aggregate
		Shares				Fair Value				Term				Intrinsic Value
		(In thousands)				(In dollars)				(In years)				(In thousands)
Balance at January 1, 2008			6,284			$	22.40
RSUs and performance share awards granted			2,691				25.56
RSUs and performance share awards vested			(1,639	)			18.35
RSUs and performance share awards canceled			(486	)			20.71
Balance at September 30, 2008			6,850			$	24.73				1.7			$	144,326

The weighted-average grant date fair value of RSUs granted during the three and nine months ended September 30, 2008, was $26.51 per share and $25.55 per share, respectively, and was $32.29 per share and $19.79 per share for the three and nine months ended September 30, 2007, respectively. The weighted-average grant date fair value of performance share awards granted during the three and nine months ended September 30, 2008, was $25.90 per share and $25.57 per share, respectively, and was $18.27 per share for the three and nine months ended September 30, 2007, respectively. As of September 30, 2008, approximately $72.2 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested RSUs and non-vested performance share awards is expected to be recognized over a weighted-average period of approximately 2.6 years.

The following schedule summarizes information about the Company’s RSUs and performance share awards as of September 30, 2008:

Weighted

Weighted-

Average

Average

Remaining

Number of

Exercise

Contractual

Aggregate

Shares

Price

Term

Intrinsic Value

(In thousands)

(In dollars)

(In years)

(In thousands)

Shares subject to outstanding RSUs and performance share awards

6,850

$

—

1.7

$

144,326

Vested and expected-to-vest RSUs and performance share awards

4,822

—

1.6

101,606

Approximately 0.2 million RSUs and 1.6 million RSUs, respectively, became vested during the three and nine months ended September 30, 2008, respectively. There were no RSUs vested during the three and nine months ended September 30, 2007.

Employee Stock Purchase Plan

In April 1999, the Board of Directors approved the adoption of the Juniper Networks 1999 Employee Stock Purchase Plan (the “1999 Purchase Plan”). The 1999 Purchase Plan permits eligible employees to acquire shares of the Company’s common stock through periodic payroll deductions of up to 10% of base compensation. Each employee may purchase no more than 6,000 shares in any twelve-month period, and in no event may an employee purchase more than $25,000 worth of stock, determined at the fair market value of the shares at the time such option is granted, in one calendar year. The 1999 Purchase Plan is implemented in a series of offering periods, each six months in duration, or a shorter period as determined by the Board. The price at which the common stock may be

purchased is 85% of the lesser of the fair market value of the Company’s common stock on the first or last trading day of the applicable offering period. Employees purchased approximately 0.9 million and 1.6 million shares of common stock through the 1999 Purchase Plan at an average price of $22.13 and $22.57 per share in the three and nine months ended September 30, 2008, respectively. Employees purchased approximately 0.6 million shares of common stock through the 1999 Purchase Plan at an average price of $17.08 per share in the nine months ended September 30, 2007. There were no employee purchases under the 1999 Purchase Plan due to the suspension of the Purchase Plan from August 2006 through March 2007. In connection with the 1999 Purchase Plan, compensation expense of $3.6 million and $10.2 million was recorded in operating expenses for the three and nine months ended September 30, 2008, respectively, and $2.4 million and $4.8 million for the three and nine months ended September 30, 2007, respectively. No compensation expense was recorded in the first quarter of 2007 due to the temporary suspension of the 1999 Purchase Plan. As of September 30, 2008, approximately 8.7 million shares had been issued since inception and 12.3 million shares remained available for future issuance under the 1999 Purchase Plan. The 1999 Purchase Plan will be discontinued effective February 1, 2009.

In May 2008, the Company’s stockholders approved the adoption of the Juniper Networks 2008 Employee Stock Purchase Plan (the “2008 Purchase Plan”). The 2008 Purchase Plan was adopted to replace the 1999 Purchase Plan, which will be terminated immediately following the conclusion of the offering period ending January 30, 2009. The Board has reserved an aggregate of 12,000,000 shares of the Company’s common stock for issuance under the 2008 Purchase Plan. The 2008 Purchase Plan is generally similar to the 1999 Purchase Plan, except that under the 2008 Purchase Plan any increases to the number of shares reserved for issuance must be approved by the Company’s stockholders. The first offering period of the 2008 Purchase Plan will commence on the first trading day on or after February 1, 2009.

Common Stock Reserved for Future Issuance

As of September 30, 2008, the Company had reserved an aggregate of approximately 122.0 million shares of common stock for future issuance under its stock option plans and the 1999 Purchase Plan.

Valuation of Stock-Based Compensation

SFAS 123R requires the use of a valuation technique, such as an option-pricing model, to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life, and risk-free interest rates. The expected volatility is based on the implied volatility of market traded options on the Company’s common stock, adjusted for other relevant factors including historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The expected life of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees, as well as the potential effect from options that had not been exercised at the time.

Since 2006, the Company has granted stock option awards that have a maximum contractual life of seven years from the date of grant. Prior to 2006, stock option awards generally had a ten-year contractual life from the date of grant.

In 2007, the government of India implemented a new fringe benefit tax that applies to equity awards granted to India taxpayers. This fringe benefit tax is payable by the issuer of the equity awards; however, the law allows an issuer to recover from individual award holders the fringe benefit taxes the issuer paid on their applicable equity awards. Beginning in January 2008, the Company amended its equity award agreements for future grants made to its employees in India to provide for the Company to be reimbursed for fringe benefit taxes paid in relation to applicable equity awards. The Company has elected to use a Black-Scholes-Merton option-pricing model that incorporates a Monte Carlo simulation to calculate the fair value of stock-based awards issued under the amended equity award agreements. The assumptions used in this valuation are included below.

The assumptions used and the resulting estimates of fair value or weighted-average fair value per share of awards granted and employee stock purchases under the Purchase Plan during those periods were:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Employee Stock Options:
Volatility factor			45% - 47	%			37% - 42	%			43% - 48	%			34% - 42	%
Risk-free interest rate			2.2% - 4.1	%			4.2% - 4.9	%			1.7% -4.4	%			4.2% - 5.1	%
Expected life (years)			3.6 - 5.7				3.5				3.6 - 5.7				3.5 - 3.7
Dividend yield			—				—				—				—
Fair value per share		$	8.49 - $10.45			$	9.05 - $12.83			$	8.32 - $10.88			$	6.42 - $13.28
Employee Stock Purchase Plan:
Volatility factor			46	%			37	%			47	%			38	%
Risk-free interest rate			1.9	%			5.0	%			2.0	%			5.0	%
Expected life (years)			0.5				0.5				0.5				0.4
Dividend yield			—				—				—				—
Weighted-average fair value per share		$	7.39			$	8.24			$	7.60			$	6.52

Note 7. Segments

The Company’s chief operating decision maker (“CODM”) allocates resources and assesses performance based on financial information by the Company’s business groups. In the first quarter of 2008, the Company realigned its organizational structure to include its Service business as a component of the related Infrastructure or SLT business groups. Accordingly, the previously reported Service segment has been combined into the Company’s two reportable segments as follows: Infrastructure and SLT. The Infrastructure segment includes products from the E-, M-, MX-, and T-series router product families, EX-series switching products, as well as the circuit-to-packet products. The SLT segment consists primarily of Firewall virtual private network (“Firewall”) systems and appliances, secure sockets layer virtual private network (“SSL”) appliances, intrusion detection and prevention appliances (“IDP”), the J-series router product family and wide area network (“WAN”) optimization platforms.

The primary financial measure used by the CODM in assessing performance of the segments is segment operating income, which includes certain cost of revenues, research and development expenses, sales and marketing expenses, and general and administrative expenses. In the three and nine months ended September 30, 2008, the CODM did not allocate certain miscellaneous expenses to its segments even though such expenses were included in the Company’s management operating income.

For arrangements with both Infrastructure and SLT products and services, revenue is attributed to the segment based on the underlying purchase order, contract or sell-through report. Direct costs and operating expenses, such as standard costs, research and development and product marketing expenses, are generally applied to each segment. Indirect costs, such as manufacturing overhead and other cost of sales, are allocated based on standard costs. Indirect operating expenses, such as sales, marketing, business development, and general and administrative expenses are generally allocated to each segment based on factors including headcount, usage and revenue. The CODM does not allocate stock-based compensation, amortization of purchased intangible assets, impairment, gain or loss on minority equity investments, interest income and expense, other income and expense, income taxes, as well as certain other charges to the segments.

Further changes to this organizational structure may result in changes to the segments disclosed. The Company has restated the previously reported segment revenues and segment operating results to reflect the changes in its segments. Financial information for each segment used by the CODM is summarized as follows (in millions):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007 (1)				2008				2007 (1)
Net revenues:
Infrastructure:
Product		$	610.3			$	464.7			$	1,714.9			$	1,252.8
Service			119.0				79.5				308.7				233.1
Total Infrastructure revenues			729.3				544.2				2,023.6				1,485.9
Service Layer Technologies:
Product			156.7				142.1				450.2				405.4
Service			61.0				48.7				175.1				135.6
Total Service Layer Technologies revenues			217.7				190.8				625.3				541.0
Total net revenues			947.0				735.0				2,648.9				2,026.9
Operating income:
Infrastructure			216.9				164.2				603.5				423.7
Service Layer Technologies			20.7				(9.3	)			39.2				(10.0	)
Total segment operating income			237.6				154.9				642.7				413.7
Other corporate (2)			—				—				(4.7	)			—
Total management operating income			237.6				154.9				638.0				413.7
Amortization of purchased intangible assets			(6.5	)			(21.6	)			(42.4	)			(69.8	)
Stock-based compensation expense			(28.8	)			(21.2	)			(78.9	)			(68.7	)
Stock-based payroll tax expense			(0.3	)			(4.4	)			(2.6	)			(6.5	)
Other charges, net			—				5.1				(9.0	)			(9.2	)
Total operating income			202.0				112.8				505.1				259.5
Interest and other income, net			9.7				17.9				39.0				83.1
Income before income taxes		$	211.7			$	130.7			$	544.1			$	342.6

Depreciation expense allocated to the Infrastructure segment was $22.7 million and $64.3 million in the three and nine months ended September 30, 2008, respectively, and $19.0 million and $52.3 million in the three and nine months ended September 30, 2007, respectively. The depreciation expense allocated to the SLT segment was $9.6 million and $27.9 million in the three and nine months ended September 30, 2008, respectively, and $7.4 million and $21.1 million in the three and nine months ended September 30, 2007, respectively.

The Company attributes sales to geographic region based on the customer’s ship-to location. The following table shows net revenues by geographic region (in millions):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Americas:
United States		$	424.8			$	306.6			$	1,138.2			$	875.9
Other			53.7				38.8				146.9				80.1
Total Americas			478.5				345.4				1,285.1				956.0
Europe, Middle East and Africa			277.6				239.1				803.3				646.4
Asia Pacific			190.9				150.5				560.5				424.5
Total		$	947.0			$	735.0			$	2,648.9			$	2,026.9

Verizon accounted for 13.3% of the Company’s net revenues for the three months ended September 30, 2008, and no single customer accounted for 10.0% or more of the Company’s net revenues for the nine months ended September 30, 2008. Nokia — Siemens Networks B.V. (“NSN”) and its predecessor companies accounted for 11.5%

and 13.5% of the Company’s net revenues for the three and nine months ended September 30, 2007. The revenue attributed to each significant customer was derived from the sale of products and services in both segments.

The Company tracks assets by physical location. The majority of the Company’s assets, including property and equipment, were attributable to its U.S. operations as of September 30, 2008, and December 31, 2007. Although management reviews asset information on a corporate level and allocates depreciation expense by segment, the CODM does not review asset information on a segment basis.

Note 8. Income Taxes

The Company recorded tax provisions of $63.2 million and $45.6 million, or effective tax rates of 30% and 35%, for the three months ended September 30, 2008 and 2007, respectively. The Company recorded tax provisions of $164.8 million and $104.7 million, or effective tax rates of 30% and 31%, for the nine months ended September 30, 2008 and 2007, respectively. The effective tax rates for the three and nine months ended September 30, 2008, differ from the federal statutory rate of 35% primarily due to earnings in foreign jurisdictions which are subject to lower rates. The effective tax rate for the three and nine months ended September 30, 2007, differ from the federal statutory rate of 35% primarily due to earnings in foreign jurisdictions which are subject to lower rates and the federal research and development credit offset by the disallowance of stock option charges incurred within certain jurisdictions during the three months ended September 30, 2007. The Company’s income taxes payable for federal and state purposes were reduced by the tax benefit from employee stock option transactions. This benefit totaled $10.5 million and $29.6 million for the three and nine months ended September 30, 2008, respectively, and was reflected as an increase to additional paid-in capital.

The Company is currently under examination by the Internal Revenue Service (“IRS”) for the 2004 tax year, the German tax authorities for the 2005 tax year, and the Indian tax authorities for the 2004 and 2005 tax years. Additionally, the Company has not reached final resolution with the IRS on an adjustment it proposed for the 1999 and 2000 tax years. The Company was not under examination by any other major jurisdictions in which the Company files its income tax returns as of September 30, 2008. Although the timing of the resolution and/or closure of any audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining subject to examination and the number of matters being examined, the Company is unable to estimate the range of possible adjustments to the balance of gross unrecognized tax benefits.

The gross unrecognized tax benefits increased by approximately $10.1 million for the nine months ended September 30, 2008, of which $8.6 million, if recognized, would affect the effective tax rate. Interest and penalties accrued for the same period were immaterial.

Note 9. Commitments and Contingencies

Commitments

The following table summarizes the Company’s principal contractual obligations as of September 30, 2008 (in millions):

		Total				2008				2009				2010				2011				2012				Thereafter				Other
Operating leases		$	227.2			$	14.1			$	52.3			$	48.8			$	41.5			$	35.7			$	34.8			$	—
Sublease rental income			(1.8	)			(0.4	)			(0.8	)			(0.6	)			—				—				—				—
Purchase commitments			98.9				98.9				—				—				—				—				—				—
Tax liabilities			82.5				—				—				—				—				—				—				82.5
Other contractual obligations			56.4				7.6				25.7				9.7				5.9				5.6				1.9				—
Total		$	463.2			$	120.2			$	77.2			$	57.9			$	47.4			$	41.3			$	36.7			$	82.5

Operating Leases

Juniper Networks leases its facilities under operating leases that expire at various times, the longest of which expires in January 2017. Future minimum payments under the non-cancelable operating leases, net of committed sublease income, totaled $225.4 million as of September 30, 2008. Rent expense for the three months ended September 30, 2008 and 2007 was $14.4 million and $13.0 million, respectively, and $43.3 million and $35.0 million for the nine months ended September 30, 2008 and 2007, respectively.

Purchase Commitments

In order to reduce manufacturing lead times and ensure adequate component supply, contract manufacturers utilized by the Company place non-cancelable, non-returnable (“NCNR”) orders for components based on the Company’s build forecasts. As of September 30, 2008, there were NCNR component orders placed by the contract manufacturers with a value of $98.9 million. The contract manufacturers use the components to build products based on the Company’s forecasts and on purchase orders the Company has received from customers. Generally, the Company does not own the components, and title to the products transfers from the contract manufacturers to the Company and immediately to the Company’s customers upon delivery at a designated shipment location. If the components go unused or the products go unsold for specified periods of time, the Company may incur carrying charges or obsolete materials charges for components that the contract manufacturers purchased to build products to meet the Company’s forecast or customer orders. As of September 30, 2008, the Company had accrued $28.5 million based on its estimate of such charges.

Tax Liabilities

As of September 30, 2008, the company had $82.5 million included in long-term liabilities in the condensed consolidated balance sheet for unrecognized tax positions. At this time, the Company is unable to make a reasonably reliable estimate of the timing and amount of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.

Other Contractual Obligations

As of September 30, 2008, other contractual obligations consisted primarily of an indemnity-related escrow amount of $2.3 million, a software subscription requiring payments of $5.0 million in January 2009, and a joint development agreement requiring quarterly payments of $3.5 million to be paid through January 2010. Additionally, in the second quarter of 2008, the Company entered into a five year, $34.0 million data center hosting agreement which was amended in the third quarter of 2008, increasing the amounts payable under agreement to $36.4 million. As of September 30, 2008, $28.1 million remained unpaid under the data center hosting agreement of which $1.9 million is required to be paid by the fourth quarter of 2008. The remaining commitment under this agreement is expected to be paid through the end of April 2013.

Guarantees

The Company enters into agreements with customers that contain indemnification provisions relating to potential situations where claims could be alleged that the Company’s products infringe the intellectual property rights of a third party. Other guarantees or indemnification arrangements include guarantees of product and service performance and standby letters of credit for certain lease facilities. The Company has not recorded a liability related to these guarantee and indemnification provisions and these guarantees and indemnification arrangements have not had any significant impact on the Company’s consolidated financial position, results of operations, or cash flows.

Legal Proceedings

The Company is subject to legal claims and litigation arising in the ordinary course of business, such as employment or intellectual property claims, including the matters described below. The outcome of any such matters is currently not determinable.

An adverse result in one or more of such matters could negatively affect the Company’s results of operations, cash balances or cash flows.

Federal Derivative Lawsuits

Between May 24, 2006 and August 17, 2006, seven purported shareholder derivative actions were filed in the United States District Court for the Northern District of California against the Company and certain of its current and former officers and directors. The lawsuits allege that the Company’s officers and directors either participated in illegal back-dating of stock option grants or allowed it to happen. On October 19, 2006, the Court ordered the consolidation of these actions as In Re Juniper Derivative Actions, No. 06-03396, and appointed as the lead plaintiffs Timothy Hill, Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund, and Indiana State District Council of Laborers and HOD Carriers Pension Fund. Lead plaintiffs filed a consolidated complaint on April 11, 2007. The consolidated complaint asserts causes of action for violations of federal securities laws, violations of California securities laws, breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty, abuse of control, corporate waste, breach of contract, unjust enrichment, gross mismanagement, and insider selling and misappropriation of information. The consolidated complaint also demands an accounting and rescission of allegedly improper stock option grants. The Company formed a Special Litigation Committee, consisting of directors Michael Rose and Michael Lawrie, to determine whether it is in the best interest of Juniper Networks and its shareholders to pursue any of the claims asserted in the derivative litigation. The Special Litigation Committee is authorized to pursue, settle, or release such claims. The plaintiffs and the Company have agreed in principle on a settlement of the federal derivative litigation and the state derivative litigation discussed below, and any such settlements would require approval of the court. The Company has accrued an aggregate of $9 million expense in connection with both of these potential settlements. On August 26, 2008, plaintiffs filed the stipulation of settlement and a motion for preliminary approval of the settlement. On September 8, 2008, the Court entered an Order preliminarily approving the derivative settlement and providing for notice to shareholders. A settlement hearing for final approval of the derivative settlement will be held on November 10, 2008.

State Derivative Lawsuits — California

On May 24 and June 2, 2006, two purported shareholder derivative actions were filed in the Santa Clara County Superior Court in the State of California against the Company and certain of its current and former officers and directors. These two actions were consolidated as In re Juniper Networks Derivative Litigation, No. 1:06CV064294, by order dated June 20, 2006. An amended consolidated complaint was filed on April 9, 2007. The amended consolidated complaint alleges that certain of the Company’s current and former officers and directors either participated in illegal back-dating of stock options or allowed it to happen. The complaint asserts causes of action for unjust enrichment, breach of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, insider selling and misappropriation of information, and violations of California securities laws. Plaintiffs also demand an accounting and rescission of allegedly improper stock options grants, and a constructive trust of proceeds derived from allegedly illicit stock options. The Company formed a Special Litigation Committee, consisting of directors Michael Rose and Michael Lawrie, to determine whether it is in the best interest of Juniper Networks and its shareholders to pursue any of the claims asserted in the derivative litigation. The Special Litigation Committee is authorized to pursue, settle, or release such claims. The plaintiffs and the Company have agreed in principle on a settlement of the federal derivative litigation discussed above and the state derivative litigation and any such settlements would require approval of the court. The Company has accrued an aggregate of $9 million expense in connection with both of these potential settlements.

Federal Securities Class Action

On July 14, 2006 and August 29, 2006, two purported class actions were filed in the Northern District of California against the Company and certain of the Company’s current and former officers and directors. On November 20, 2006, the Court consolidated the two actions as In re Juniper Networks, Inc. Securities Litigation, No. C06-04327-JW, and appointed the New York City Pension Funds as lead plaintiffs. The lead plaintiffs filed a Consolidated Class Action Complaint on January 12, 2007, and filed an Amended Consolidated Class Action Complaint on April 9, 2007. The Amended Consolidated Complaint alleges that the defendants violated federal securities laws by manipulating stock option grant dates to coincide with low stock prices and issuing false and misleading statements

including, among others, incorrect financial statements due to the improper accounting of stock option grants. The Amended Consolidated Complaint asserts claims for violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 on behalf of all persons who purchased or otherwise acquired Juniper Networks’ publicly traded securities from July 12, 2001, through and including August 10, 2006. On June 7, 2007, the defendants filed a motion to dismiss certain of the claims, and a hearing was held on September 10, 2007. On March 31, 2008, the Court issued an order granting in part and denying in part the defendants’ motion to dismiss. The order dismissed with prejudice plaintiffs’ section 10(b) claim to the extent it was based on challenged statements made before July 14, 2001. The order also dismissed, with leave to amend, plaintiffs’ section 10(b) claim against Pradeep Sindhu. The order upheld all of plaintiffs’ remaining claims.

Calamore Proxy Statement Action

On March 28, 2007, an action titled Jeanne M. Calamore v. Juniper Networks, Inc., et al., No. C-07-1772-JW, was filed by Jeanne M. Calamore in the Northern District of California against the Company and certain of the Company’s current and former officers and directors. The complaint alleges that the proxy statement for the Company’s 2006 Annual Meeting of Stockholders contained various false and misleading statements in that it failed to disclose stock option backdating information. As a result, plaintiff seeks preliminary and permanent injunctive relief with respect to the Company’s 2006 Equity Incentive Plan, including seeking to invalidate the plan and all equity awards granted and grantable thereunder. On May 21, 2007, the Company filed a motion to dismiss and plaintiff filed a motion for preliminary injunction. On July 19, 2007, the Court issued an order denying plaintiff’s motion for a preliminary injunction and dismissing the complaint in its entirety with leave to amend. Plaintiff filed an amended complaint on August 27, 2007, and the defendants filed a motion to dismiss on October 9, 2007. On August 13, 2008, the Court issued an Order granting defendants’ motion to dismiss with prejudice, and entered final judgment in favor of defendants. On September 9, 2008, plaintiff filed a Notice of Appeal in the United States Court of Appeals for the Ninth Circuit. Plaintiffs’ opening appellate brief is due December 26, 2008, and defendants’ answering brief is due January 26, 2009.

IPO Allocation Case

In December 2001, a class action complaint was filed in the United States District Court for the Southern District of New York against the Goldman Sachs Group, Inc., Credit Suisse First Boston Corporation, FleetBoston Robertson Stephens, Inc., Royal Bank of Canada (Dain Rauscher Wessels), SG Cowen Securities Corporation, UBS Warburg LLC (Warburg Dillon Read LLC), Chase (Hambrecht & Quist LLC), J.P. Morgan Chase & Co., Lehman Brothers, Inc., Salomon Smith Barney, Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated (collectively, the “Underwriters”), Juniper Networks and certain of Juniper Networks’ officers. This action was brought on behalf of purchasers of the Company’s common stock in its initial public offering in June 1999 and the Company’s secondary offering in September 1999.

Specifically, among other things, this complaint alleged that the prospectus pursuant to which shares of common stock were sold in the Company’s initial public offering and the Company’s subsequent secondary offering contained certain false and misleading statements or omissions regarding the practices of the Underwriters with respect to their allocation of shares of common stock in these offerings and their receipt of commissions from customers related to such allocations. Various plaintiffs have filed actions asserting similar allegations concerning the initial public offerings of approximately 300 other issuers. These various cases pending in the Southern District of New York have been coordinated for pretrial proceedings as In re Initial Public Offering Securities Litigation, 21 MC 92. In April 2002, plaintiffs filed a consolidated amended complaint in the action against the Company, alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. Defendants in the coordinated proceeding filed motions to dismiss. In October 2002, the Company’s officers were dismissed from the case without prejudice pursuant to a stipulation. On February 19, 2003, the court granted in part and denied in part the motion to dismiss, but declined to dismiss the claims against the Company.

In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including the Company, was submitted to the court for approval. On August 31, 2005, the court preliminarily approved the settlement. In December 2006, the appellate court overturned the certification of classes in the six test cases that were selected by

the underwriter defendants and plaintiffs in the coordinated proceedings (the action involving the Company is not one of the six test cases). Because class certification was a condition of the settlement, it was unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have filed amended master allegations and amended complaints in the six focus cases. On March 26, 2008, the Court largely denied the defendants’ motion to dismiss the amended complaints in the six test cases.

16(b) Demand

On October 3, 2007, a purported Juniper Networks shareholder filed a complaint for violation of Section 16(b) of the Securities Exchange Act of 1934, which prohibits short-swing trading, against the Company’s IPO underwriters. The complaint, Vanessa Simmonds v. The Goldman Sachs Group, et al., Case No. C07-015777, in District Court for the Western District of Washington, seeks the recovery of short-swing profits. The Company is named as a nominal defendant. No recovery is sought from the Company in this matter.

IRS Notices of Proposed Adjustments

In 2007, the IRS opened an examination of the Company’s U.S. federal income tax and employment tax returns for the 2004 fiscal year. Subsequently, the IRS extended their examination of the Company’s employment tax returns to include fiscal years 2005 and 2006. The IRS has not yet concluded its examinations of these returns. In September 2008, as part of its on-going audit of the U.S. federal income tax return, the IRS issued a Notice of Proposed Adjustment (“NOPA”) regarding the Company’s business credits. The Company is considering its response to the proposed adjustment by the IRS. The Company believes that is has adequately provided for any reasonably foreseeable outcome related to this proposed adjustment and the ultimate resolution of this matter is unlikely to have a material effect on the Company’s consolidated financial position.

The IRS has concluded an audit of the Company’s federal income tax returns for fiscal years 1999 and 2000. During 2004, the Company received a NOPA from the IRS. While the final resolution of the issues raised in the NOPA is uncertain, the Company does not believe that the outcome of this matter will have a material adverse effect on the Company’s consolidated financial position or results of operations. The Company is also under routine examination by certain state and non-US tax authorities. The Company believes that it has adequately provided for any reasonably foreseeable outcome related to these audits.

Note 10. Related Party Transactions

The Company reimburses its Chairman of the Board of Directors and former CEO, Mr. Scott Kriens, for ordinary operating costs relating to his use of a personal aircraft for business purposes up to a maximum amount per year. The Company incurred $0.1 million and $0.2 million in related expenses for the three and nine months ended September 30, 2008, respectively, and $0.1 million and $0.2 million in the three and nine months ended September 30, 2007, respectively.

Note 11. Subsequent Event

Stock Repurchases

Subsequent to September 30, 2008, through the filing of this report, the Company repurchased and retired approximately 1.1 million shares of its common stock for approximately $21.0 million under the 2008 Stock Repurchase program at an average purchase price of $18.73 per share. The Company’s 2008 Stock Repurchase Program had remaining authorized funds of $793.6 million as of the report filing date. Purchases under the Company’s stock repurchase programs are subject to a review of the circumstances in place at the time and will be made from time to time as permitted by securities laws and other legal requirements.