Document and Company Information (USD $)

In Millions, except Share data in Thousands

Nov. 2, 2009

9 Months Ended
Sep. 30, 2009

Jun. 30, 2008

Document and Company Information [Abstract]

Entity Registrant Name

JUNIPER NETWORKS INC

Entity Central Index Key

0001043604

Document Type

10-Q

Document Period End Date

09/30/2009

Amendment Flag

FALSE

Current Fiscal Year End Date

12/31

Entity Well-known Seasoned Issuer

No

Entity Voluntary Filers

No

Entity Current Reporting Status

Yes

Entity Filer Category

Large Accelerated Filer

Entity Public Float

$ 8,883

Entity Common Stock, Shares Outstanding

525,439

Condensed Consolidated Statements of Operations (Unaudited) (USD $)

In Thousands, except Per Share data

3 Months Ended
Sep. 30, 2009

9 Months Ended
Sep. 30, 2009

3 Months Ended
Sep. 30, 2008

9 Months Ended
Sep. 30, 2008

Net revenues:

Product

$ 634,074

$ 1,828,896

$ 766,969

$ 2,165,100

Service

189,838

545,562

179,993

483,783

Total net revenues

823,912

2,374,458

946,962

2,648,883

Cost of revenues:

Product

206,329

606,966

230,060

636,985

Service

80,379

234,215

77,519

224,711

Total cost of revenues

286,708

841,181

307,579

861,696

Gross margin

537,204

1,533,277

639,383

1,787,187

Operating expenses:

Research and development

185,204

554,498

194,014

551,017

Sales and marketing

177,345

529,163

200,600

576,886

General and administrative

39,877

118,263

37,623

106,866

Amortization of purchased intangible assets

1,330

9,259

5,190

38,318

Restructuring charges

4,493

16,251

0

Other charges

1,000

0

9,000

Total operating expenses

409,249

1,228,434

437,427

1,282,087

Operating income

127,955

304,843

201,956

505,100

Interest and other income, net

1,733

6,581

9,740

40,517

Loss on minority equity investments

0

(3,311)

0

(1,499)

Income before income taxes

129,688

308,113

211,696

544,118

Provision for income taxes

45,902

214,018

63,188

164,845

Net income

83,786

94,095

148,508

379,273

Net income per share:

Basic

0.16

0.18

0.27

0.71

Diluted

0.16

0.18

0.27

0.67

Shares used in computing net income per share:

Basic

523,878

523,802

540,983

534,894

Diluted

538,132

532,686

554,350

561,932

Condensed Consolidated Balance Sheets (Unaudited) (USD $)

In Thousands

Sep. 30, 2009

Dec. 31, 2008

ASSETS

Current assets:

Cash and cash equivalents

$ 1,618,590

$ 2,019,084

Short-term investments

448,986

172,896

Accounts receivable, net of allowances

373,241

429,970

Deferred tax assets, net

160,230

145,230

Prepaid expenses and other current assets

52,724

49,026

Total current assets

2,653,771

2,816,206

Property and equipment, net

449,814

436,433

Long-term investments

531,509

101,415

Restricted cash

54,534

43,442

Purchased intangible assets, net

15,895

28,861

Goodwill

3,658,602

Long-term deferred tax assets, net

14,083

71,079

Other long-term assets

36,239

31,303

Total assets

7,414,447

7,187,341

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

243,585

249,854

Accrued compensation

139,598

160,471

Accrued warranty

37,255

40,090

Deferred revenue

480,832

459,749

Income taxes payable

61,145

33,047

Other accrued liabilities

120,854

113,399

Total current liabilities

1,083,269

1,056,610

Long-term deferred revenue

162,363

130,514

Long-term income tax payable

173,343

78,164

Other long-term liabilities

38,050

20,648

Commitments and Contingencies

Stockholders' equity:

Convertible preferred stock, $0.00001 par value; 10,000 shares authorized; none issued and outstanding

0

Common stock, $0.00001 par value; 1,000,000 shares authorized; 525,342 shares and 526,752 shares issued and outstanding at September 30, 2009, and December 31, 2008, respectively

5

Additional paid-in capital

9,006,351

8,811,497

Accumulated other comprehensive income (loss)

3,461

(4,245)

Accumulated deficit

(3,052,395)

(2,905,852)

Total stockholders' equity

5,957,422

5,901,405

Total liabilities and stockholders' equity

$ 7,414,447

$ 7,187,341

Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) (USD $)

Share data in Thousands, except Per Share data

Sep. 30, 2009

Dec. 31, 2008

Stockholders' equity:

Convertible preferred stock, par value

$ 0.00001

Convertible preferred stock, shares authorized

10,000

Convertible preferred stock, shares issued

0

Convertible preferred stock, shares outstanding

0

Common stock, par value

0.00001

Common stock, shares authorized

1,000,000

Common stock, shares issued

525,342

526,752

Common stock, shares outstanding

525,342

526,752

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)

In Thousands

9 Months Ended
Sep. 30,

2009

2008

Cash flows from operating activities:

Net income

$ 94,095

$ 379,273

Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization

111,803

134,623

Stock-based compensation

101,445

78,877

Loss on minority equity investments

3,311

1,499

Change in excess tax benefits from share-based compensation

673

(38,756)

Deferred income taxes

41,996

(9,208)

Other non-cash charges

0

698

Changes in operating assets and liabilities:

Accounts receivable, net

56,729

11,155

Prepaid expenses and other assets

(11,444)

3,862

Accounts payable

(778)

2,738

Accrued compensation

(20,873)

(29,569)

Income taxes payable

84,813

62,441

Other accrued liabilities

21,790

13,169

Deferred revenue

52,932

49,266

Net cash provided by operating activities

536,492

660,068

Cash flows from investing activities:

Purchases of property and equipment, net

(113,210)

(121,728)

Purchases of available-for-sale investments

(1,164,833)

(384,835)

Proceeds from sales of available-for-sale investments

202,276

95,932

Proceeds from maturities of available-for-sale investments

262,325

231,764

Changes in restricted cash

(11,276)

(8,103)

Purchase of minority equity investments, net

(5,289)

(4,500)

Net cash used in investing activities

(830,007)

(191,470)

Cash flows from financing activities:

Proceeds from issuance of common stock

131,391

115,424

Purchases and retirement of common stock

(241,481)

(562,187)

Net proceeds from customer financing arrangements

3,784

2,083

Redemption of convertible debt

0

(287)

Change in excess tax benefits from share-based compensation

(673)

38,756

Net cash used in financing activities

(106,979)

(406,211)

Net (decrease) increase in cash and cash equivalents

(400,494)

62,387

Cash and cash equivalents at beginning of period

2,019,084

1,716,110

Cash and cash equivalents at end of period

1,618,590

1,778,497

Supplemental disclosure of non-cash investing and financing activities:

Common stock issued in connection with conversion of the Senior Notes

$ 0

$ 399,153

Basis of Presentation

Note 1. Basis of Presentation

The unaudited Condensed Consolidated Financial Statements of Juniper Networks, Inc. (“Juniper Networks” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) 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. GAAP 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, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, 2009, 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, 2008.

Summary of Significant Accounting Policies

Note 2. Summary of Significant Accounting Policies

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-14, Software (Topic 985) Certain Arrangements That Contain Software Elements — a consensus of the FASB Emerging Issues Task Force (“EITF”) (“ASU 2009-14”), which amends the scope of software revenue guidance in Accounting Standards Codification (“ASC”) Subtopic 985-605, Software-Revenue Recognition, to exclude tangible products containing software and non-software components that function together to deliver the product’s essential functionality.

In October 2009, FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements — a consensus of the FASB EITF (“ASU 2009-13”), which eliminates the residual method of allocation and requires the relative selling price method when allocating deliverables of a multiple-deliverable revenue arrangement. ASU 2009-13 specifies the best estimate of a selling price is consistent with that used to determine the price to sell the deliverable on a standalone basis.

ASU 2009-14 and ASU 2009-13 are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, and must be adopted in the same period using the same transition method. If adoption is elected in a period other than the beginning of a fiscal year, the amendments in these standards must be applied retrospectively to the beginning of the fiscal year. Full retrospective application of these amendments to prior fiscal years is optional. Companies may elect early adoption of these standards. The Company is currently assessing the timing of adoption and affects that ASU 2009-14 and ASU 2009-13 will have on its consolidated results of operations and financial condition.

In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value (“ASU 2009-05”). ASU 2009-05 amends FASB ASC Topic 820 and provides amendments to FASB ASC Subtopic 820-10, Fair Value Measurements and Disclosures — Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for an identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: (1) a valuation technique that uses: (a) quoted price of the identical liability when traded as an asset, or (b) quoted prices for similar liabilities or similar liabilities when traded as assets, or (2) another valuation technique that is consistent with the principles of FASB ASC Topic 820. The guidance in ASU 2009-05 is effective for the first reporting period (including interim periods) beginning after issuance. The Company’s adoption of ASU 2009-5 in the fourth quarter of 2009 will not materially affect the Company’s consolidated results of operations or financial condition.

In June 2009, the FASB issued ASU No. 2009-01, Topic 105 — Generally Accepted Accounting Principles amendments based upon Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement 162 (“ASU 2009-01”). ASU 2009-1 adopts Statement of Financial Accounting Standards (“SFAS”) No. 168 and establishes the FASB Accounting Standards Codification (“Codification”) as the single source of authoritative accounting principles to be applied to financial statements of nongovernmental entities in conformity with U.S. GAAP. ASU 2009-1 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company’s implementation of ASU 2009-01 during the third quarter of 2009 did not affect its consolidated results of operations or financial condition.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets — An Amendment of FASB Statement No. 140 (“SFAS 166”), which amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”), to eliminate the concept of the qualifying special-purpose entity (“QSPE”) from SFAS 140. SFAS 166 removes the exception from applying FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN 46R”) to QSPE, changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS 166 has not yet been included in the FASB Accounting Standards Codification. SFAS 166 is effective for each entity’s first annual reporting period that begins after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. SFAS 166 must be applied to transfers of financial assets occurring on or after the effective date. Earlier application of SFAS 166 is prohibited. Accordingly, the Company’s transfers of financial assets will be recorded and disclosed following existing GAAP until January 1, 2010. The impact of SFAS 166 on the Company’s consolidated results of operations or financial condition will depend upon the level of activity of financial asset transfers that the Company may consummate after the effective date.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”), which amends FIN 46R. SFAS 167 amends FIN46R by eliminating the QSPE concept in SFAS 166. SFAS 167 amends the provisions on determining whether an entity is a variable interest entity and would require consolidation, as well as requires additional disclosures. SFAS 167 has not yet been included in the FASB Accounting Standards Codification. SFAS 167 is effective for each entity’s first annual reporting period that begins after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application of SFAS 167 is prohibited. Accordingly, the Company will adopt SFAS 167 on January 1, 2010. The impact of SFAS 167 on the Company’s consolidated results of operations or financial condition will depend upon its involvement with variable interest entities as of and subsequent to the adoption date.

Net Income per Share

Note 3. Net Income per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for that period. Diluted net income per share is computed giving effect to all dilutive potential common shares that were outstanding during the period on a weighted average basis. Dilutive potential common shares consist of shares issuable upon conversion of senior notes, if any, and various employee stock awards including, common shares issuable upon exercise of stock options, vesting of restricted stock units (“RSUs”), and vesting of performance shares.

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,
	2009		2008		2009		2008
Numerator:
Net income	$	83.8	$	148.5	$	94.1	$	379.3

Denominator:
Weighted-average shares used to compute basic net income per share		523.9		541.0		523.8		534.9
Effect of dilutive securities:
Shares issuable upon conversion of the Senior Notes		—		—		—		11.8
Employee stock awards		14.2		13.3		8.9		15.2

Weighted average shares used to compute diluted net income per share		538.1		554.3		532.7		561.9

Net income per share:
Basic	$	0.16	$	0.27	$	0.18	$	0.71

Diluted	$	0.16	$	0.27	$	0.18	$	0.67

Employee stock awards for approximately 24.4 million shares and 48.4 million shares of the Company’s common stock were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2009, respectively, because their effect would have been anti-dilutive. For the three and nine months ended September 30, 2008, approximately 25.5 million shares and 21.4 million shares of the Company’s outstanding common stock equivalents, respectively, were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

Cash, Cash Equivalents, and Investments

Note 4. Cash, Cash Equivalents, and Investments

The following table summarizes the Company’s cash and cash equivalents (in millions):


	As of
	September 30,		December 31,
	2009		2008
Cash:
Demand deposits	$	376.1	$	285.9
Time deposits		124.6		125.1

Total cash		500.7		411.0
Cash equivalents:
U.S. government securities		74.4		141.8
Government-sponsored enterprise obligations		35.8		94.8
Commercial paper		63.8		90.4
Money market funds		943.9		1,281.1

Total cash equivalents		1,117.9		1,608.1

Total cash and cash equivalents	$	1,618.6	$	2,019.1

Summary of Investments

The following table summarizes the Company’s unrealized gains and losses, and fair value of investments designated as trading or available-for-sale, as of September 30, 2009, (in millions):


			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated Fair
	Cost		Gains		Losses			Value
Fixed income securities:
U.S. government securities	$	217.8	$	0.1	$	—		$	217.9
Government-sponsored enterprise obligations		229.1		1.3		—			230.4
Foreign government debt securities		88.9		0.3		(0.1	)		89.1
Commercial paper		96.8		—		—			96.8
Corporate debt securities		334.9		2.0		(0.2	)		336.7

Total fixed income securities		967.5		3.7		(0.3	)		970.9
Publicly-traded equity securities		9.5		0.1		—			9.6

Total	$	977.0	$	3.8	$	(0.3	)	$	980.5


Reported as:
Short-term investments	$	447.9	$	1.1	$	—		$	449.0
Long-term investments		529.1		2.7		(0.3	)		531.5

Total	$	977.0	$	3.8	$	(0.3	)	$	980.5

The following table presents the Company’s maturities of its available-for-sale investments and publicly-traded securities, as of September 30, 2009, (in millions):


			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated Fair
	Cost		Gains		Losses			Value
Fixed income securities:
Due within one year	$	438.4	$	1.0	$	—		$	439.4
Due between one and five years		529.1		2.7		(0.3	)		531.5

Total fixed income securities		967.5		3.7		(0.3	)		970.9
Publicly-traded equity securities		9.5		0.1		—			9.6

Total investments	$	977.0	$	3.8	$	(0.3	)	$	980.5

The following table presents the Company’s trading and available-for sale investments that are in an unrealized loss position as of September 30, 2009, (in millions):


	Less than 12 Months					12 Months or Greater				Total
			Unrealized					Unrealized				Unrealized
	Fair Value		Loss			Fair Value		Loss		Fair Value		Loss
Foreign government debt securities	$	39.6	$	(0.1	)	$	—	$	—	$	39.6	$	(0.1	)
Corporate debt securities		157.8		(0.2	)		—		—		157.8		(0.2	)

Total	$	197.4	$	(0.3	)	$	—	$	—	$	197.4	$	(0.3	)

The following table summarizes the Company’s unrealized gains and losses, and fair value of investments designated as trading or available-for-sale, as of December 31, 2008, (in millions):


			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated Fair
	Cost		Gains		Losses			Value
Fixed income securities:
U.S. government securities	$	86.6	$	0.1	$	—		$	86.7
Government-sponsored enterprise obligations		70.4		1.6		(0.1	)		71.9
Corporate debt securities		110.4		0.4		(0.5	)		110.3

Total fixed income securities		267.4		2.1		(0.6	)		268.9
Publicly-traded equity securities		5.4		—		—			5.4

Total	$	272.8	$	2.1	$	(0.6	)	$	274.3


Reported as:
Short-term investments	$	172.5	$	0.6	$	(0.2	)	$	172.9
Long-term investments		100.3		1.5		(0.4	)		101.4

Total	$	272.8	$	2.1	$	(0.6	)	$	274.3

The Company had 30 and 26 investments that were in an unrealized loss position as of September 30, 2009, and December 31, 2008, respectively. The gross unrealized losses related to these investments were due to changes in interest rates. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. For fixed income securities that have unrealized losses, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. The Company did not consider these investments to be other-than-temporarily impaired as of September 30, 2009, and December 31, 2008, respectively. The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company aggregates its investments by category and length of time the securities have been in a continuous unrealized loss position to facilitate its evaluation.

Minority Equity Investments

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.

As of September 30, 2009, and December 31, 2008, the carrying values of the Company’s minority equity investments in privately-held companies of $15.2 million and $14.2 million, respectively, were included in other long-term assets in the condensed consolidated balance sheets. Due to events and circumstances that significantly affected the fair value of two of its minority equity investments in the first half of 2009, which are normally carried at cost, the Company measured the fair value of these minority equity investments using an analysis of the financial condition and near-term prospects of the investees, including recent financing activities and their capital structure. As a result, during the nine months ended September 30, 2009, the Company recognized a loss of $3.3 million due to the impairment of its minority equity investments in privately-held companies that the Company judged to be other than temporary. The Company invested $6.3 million and $4.5 million in privately-held companies during the nine months ended September 30, 2009, and 2008, respectively. In addition, during the nine months ended September 30, 2009, the Company had a minority equity investment of $2.0 million in a privately-held company that was acquired by a publicly-traded company for which the Company received a cash payment of $1.0 million and $1.0 million in common stock of the acquiring company.

Fair Value Measurements

Note 5. Fair Value Measurements

Fair Value Hierarchy

The Company determines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

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 the Company’s assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables provide the assets and liabilities, if any, measured at fair value on a recurring basis (in millions):


	Fair Value Measurements at September 30, 2009, Using
	Quoted Prices in		Significant Other		Significant Other
	Active Markets		Observable		Unobservable
	For Identical		Remaining		Remaining
	Assets		Inputs		Inputs		Total
	(Level 1)		(Level 2)		(Level 3)
Assets measured at fair value:
U.S. government securities	$	109.9	$	234.1	$	—	$	344.0
Government-sponsored enterprise obligations		221.1		45.1		—		266.2
Foreign government debt securities		26.6		62.5		—		89.1
Corporate debt securities		—		336.7		—		336.7
Commercial paper		—		160.6		—		160.6
Money market funds		943.9		—		—		943.9
Publicly-traded securities		9.6		—		—		9.6
Derivative asset		—		1.0		—		1.0

Total	$	1,311.1	$	840.0	$	—	$	2,151.1


	Fair Value Measurements at December 31, 2008, Using
	Quoted Prices in		Significant Other		Significant Other
	Active Markets		Observable		Unobservable
	For Identical		Remaining		Remaining
	Assets		Inputs		Inputs		Total
	(Level 1)		(Level 2)		(Level 3)
Assets measured at fair value:
U.S. government securities	$	26.3	$	202.2	$	—	$	228.5
Government-sponsored enterprise obligations		71.9		94.8		—		166.7
Corporate debt securities		—		110.3		—		110.3
Commercial paper		—		90.4		—		90.4
Money market funds		1,281.1		—		—		1,281.1
Publicly-traded securities		5.4		—		—		5.4
Derivative asset		—		2.6		—		2.6

Total	$	1,384.7	$	500.3	$	—	$	1,885.0

Assets measured at fair value on a recurring basis are presented on the Company’s condensed consolidated balance sheets as follows (in millions):


	Fair Value Measurements at September 30, 2009, Using
	Quoted Prices in		Significant Other		Significant Other
	Active Markets		Observable		Unobservable
	For Identical		Remaining		Remaining
	Assets		Inputs		Inputs		Total
	(Level 1)		(Level 2)		(Level 3)
Reported as:
Cash equivalents	$	943.9	$	174.0	$	—	$	1,117.9
Short-term investments		146.9		302.1		—		449.0
Long-term investments		170.2		361.3		—		531.5
Prepaid expenses and other assets		50.1		2.6		—		52.7

Total	$	1,311.1	$	840.0	$	—	$	2,151.1

Assets measured at fair value on a recurring basis are presented on the Company’s condensed consolidated balance sheets as follows (in millions):


	Fair Value Measurements at December 31, 2008, Using
	Quoted Prices in		Significant Other		Significant Other
	Active Markets		Observable		Unobservable
	For Identical		Remaining		Remaining
	Assets		Inputs		Inputs		Total
	(Level 1)		(Level 2)		(Level 3)
Reported as:
Cash equivalents	$	1,281.1	$	327.0	$	—	$	1,608.1
Short-term investments		57.1		115.8		—		172.9
Long-term investments		46.5		54.9		—		101.4
Prepaid expenses and other current assets		—		2.6		—		2.6

Total	$	1,384.7	$	500.3	$	—	$	1,885.0

Assets Measured at Fair Value on a Nonrecurring Basis

The following table presents the Company’s assets that were measured at fair value on a nonrecurring basis and the impairment charges recorded to loss on minority equity investments (in millions):


									Impairment		Impairment
			Fair Value Measurements Using						Charges for		Charges for
	Net Carrying		Quoted Prices in		Significant Other		Significant Other		the Three		the Nine
	Value as of		Active Markets		Observable		Unobservable		Months Ended		Months Ended
	September 30,		For Identical		Remaining		Remaining		September 30,		September 30,
	2009		Assets		Inputs		Inputs		2009		2009
			(Level 1)		(Level 2)		(Level 3)
Assets:
Minority equity investments	$	1.7	$	—	$	—	$	1.7	$	—	$	(3.3	)

Total	$	1.7	$	—	$	—	$	1.7	$	—	$	(3.3	)

The following table presents the Company’s Level 3 asset activities during the three and nine months ended September 30, 2009, (in millions):


	Minority Equity Investments
	Three Months		Nine Months
	Ended		Ended
	September 30, 2009		September 30, 2009
Level 3 asset activities:
Beginning balance	$	1.7	$	—
Transfers in to Level 3		—		5.0
Total loss recognized in statements of operations		—		(3.3	)

Ending balance	$	1.7	$	1.7

In the nine months ended September 30, 2009, due to events and circumstances that significantly affected the fair value of two of its minority equity investments, which are normally carried at cost, the Company measured the fair value of these minority equity investments, at the time of impairment, using an analysis of the financial condition and near-term prospects of the investees, including recent financing activities and their capital structure. As a result, the Company recognized an impairment loss of $3.3 million during the nine months ended September 30, 2009, and classified the investments as a Level 3 asset due to the absence of quoted market prices and inherent lack of liquidity.

The Company had no liabilities that were measured at fair value on a nonrecurring basis during the three and nine months ended September 30, 2009.

Goodwill and Purchased Intangible Assets

Note 6. Goodwill and Purchased Intangible Assets

Goodwill

The following table presents goodwill by segment as of September 30, 2009, and December 31, 2008, (in millions):


Segments
Infrastructure	$	1,500.5
Service Layer Technologies		2,158.1

Total	$	3,658.6

There were no changes to goodwill during the three and nine months ended September 30, 2009.

Purchased Intangible Assets

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


			Accumulated
	Gross		Amortization			Net
As of September 30, 2009:
Technologies and patents	$	380.0	$	(374.8	)	$	5.2
Other		68.9		(58.2	)		10.7

Total	$	448.9	$	(433.0	)	$	15.9


As of December 31, 2008:
Technologies and patents	$	379.6	$	(365.4	)	$	14.2
Other		68.9		(54.3	)		14.6

Total	$	448.5	$	(419.7	)	$	28.8

Amortization of purchased intangible assets included in operating expenses and cost of product revenues totaled $2.7 million and $6.5 million for the three months ended September 30, 2009, and 2008, respectively, and $13.4 million and $37.4 million for the nine months ended September 30, 2009, and 2008, respectively. In addition, during 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. There was no impairment charge with respect to the purchased intangible assets in the three and nine months ended September 30, 2009.

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
2009 (remaining three months)	$	2.1
2010		4.0
2011		2.1
2012		1.2
2013		1.1
Thereafter		5.4

Total	$	15.9

Other Financial Information

Note 7. Other Financial Information

Restricted Cash

As of September 30, 2009, and December 31, 2008, restricted cash was $54.5 million and $43.4 million, respectively, which consisted of escrow accounts required by certain acquisitions completed in 2005, the India Gratuity Trust, which covers statutory severance obligations in the event of termination of the Company’s India employees who have provided five or more years of continuous service, and the Directors & Officers (“D&O”) indemnification trust.

Warranties

The Company provides for the estimated cost of product warranties at the time revenue is recognized. This provision is reported as accrued warranty within current liabilities on the Company’s condensed consolidated balance sheets. Changes in the Company’s warranty reserve were as follows (in millions):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Beginning balance	$	35.8		$	41.8		$	40.1		$	37.5
Provisions made during the period, net		14.7			3.8			33.4			16.0
Change in estimate		(1.1	)		—			(4.5	)		—
Actual costs incurred during the period		(12.1	)		(2.5	)		(31.7	)		(10.4	)

Ending balance	$	37.3		$	43.1		$	37.3		$	43.1

Deferred Revenue

Details of the Company’s deferred revenue were as follows (in millions):


	As of
	September 30,			December 31,
	2009			2008
Deferred product revenue:
Deferred gross product revenue	$	328.4		$	268.0
Deferred cost of product revenue		(138.0	)		(110.0	)

Deferred product revenue, net		190.4			158.0
Deferred service revenue		452.8			432.3

Total	$	643.2		$	590.3

Reported as:
Current	$	480.8		$	459.8
Long-term		162.4			130.5

Total	$	643.2		$	590.3

Restructuring Liabilities

During the first nine months of 2009, the Company implemented a restructuring plan (the “2009 Restructuring Plan”) in an effort to better align its business operations with the current market and macroeconomic conditions. The restructuring plan included a restructuring of certain business functions that resulted in reductions of workforce and facilities. The Company recorded $4.5 million and $16.3 million in restructuring charges during the three and nine months ended September 30, 2009, associated with the 2009 Restructuring Plan. The Company paid $2.8 million and $6.0 million for severance related charges associated with the 2009 Restructuring Plan during the three and nine months ended September 30, 2009. During the three and nine months ended September 30, 2008, the Company incurred no restructuring charges and paid an immaterial amount associated with past restructuring plans. As of September 30, 2009, the restructuring liability was $8.3 million.

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.

Other Charges

The Company recorded $1.0 million as other charges in the three and nine months ended September 30, 2009, related to an arbitration of a legal dispute. In the three and nine months ended September 30, 2008, the Company recorded nil and $9.0 million, respectively, as other charges for the settlement of its derivative lawsuits.

Interest and Other Income, Net

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


	Three Months Ended September 30,					Nine Months Ended September 30,
	2009		2008			2009		2008
Interest income and expense, net	$	1.6	$	12.8		$	5.2	$	44.6
Other income and expense, net		0.1		(3.1	)		1.4		(4.1	)

Total interest and other income, net	$	1.7	$	9.7		$	6.6	$	40.5

Interest income and expense, net, primarily includes interest income from the Company’s cash, cash equivalents, and investments as well as interest expense from customer financing arrangements. Other income and expense, net, primarily includes foreign exchange gains and losses and other miscellaneous expenses such as bank fees.

Financing Arrangements

Note 8. Financing Arrangements

The Company has customer financing arrangements to sell its accounts receivable to a major third-party financing provider. 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, proceeds from the financing provider are due to the Company 30 days from the sale of the receivable. In these transactions with the 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 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 receivables of $122.5 million and $139.8 million during the three months ended September 30, 2009, and 2008, respectively, and $294.9 million and $306.9 million during the nine months ended September 30, 2009, and 2008, respectively. During the three months ended September 30, 2009, and 2008, the Company received cash proceeds of $101.5 million and $125.6 million, respectively, and $277.2 million and $257.7 million during the nine months ended September 30, 2009, and 2008, respectively, from the financing provider. The amount owed by the financing provider recorded as accounts receivable on the Company’s condensed consolidated balance sheets as of September 30, 2009, and December 31, 2008, was $84.3 million and $73.9 million, respectively.

The portion of the receivable financed that has not been recognized as revenue is accounted for as a financing arrangement. As of September 30, 2009, and December 31, 2008, cash received from the financing provider that has not been recognized as revenue was approximately $36.7 million and $33.0 million, respectively.

Derivative Instruments

Note 9. Derivative Instruments

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

Cash Flow Hedges

The Company uses foreign currency forward or option contracts to hedge certain forecasted foreign currency transactions relating to cost of services and operating expenses. The derivatives are intended to protect the U.S. Dollar equivalent of the Company’s planned cost of services and operating expenses denominated in foreign currencies. These derivatives are designated as cash flow hedges. Execution of these cash flow hedge derivatives typically occurs every month with 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 (loss), and upon occurrence of the forecasted transaction, is subsequently reclassified into the cost of services or operating expense line item to which the hedged transaction relates. The Company records any ineffectiveness of the hedging instruments, which was immaterial during the three and nine months ended September 30, 2009, and the comparable periods in 2008 in interest and other income, net on its condensed consolidated statements of operations. Cash flows from such hedges are classified as operating activities. All amounts within other comprehensive income (loss) are expected to be reclassified into income within the next 12 months.

Non-Designated Hedges

The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in foreign currencies. These hedges do not qualify for special hedge accounting treatment. 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. The derivatives have maturities of approximately two months.

The following table summarizes the total fair value of the Company’s derivative instruments as of September 30, 2009, (in millions):

Asset Derivatives

Liability Derivatives

Balance Sheet

Fair

Balance Sheet

Fair

Location

Value

Location

Value

Derivatives designated as hedging instruments:

Foreign exchange forward contracts

Other current assets

$

1.2

Other current liabilities

$

0.1

Total

$

1.2

$

0.1

The Company has no non-designated derivatives as of September 30, 2009.

The following represents the Company’s top three outstanding derivative positions by currency as of September 30, 2009, (in millions):

Buy

Foreign currency forward contracts:

EUR

GBP

INR

Notional amount of foreign currency

35.2

11.1

1,565.5

U.S Dollar equivalent

$

50.9

$

18.1

$29.0

Weighted average maturity

2 months

The effective portion of the Company’s derivative instruments on its condensed consolidated statements of operations during the three and nine months ended September 30, 2009, was as follows (in millions):

Three Months Ended September 30, 2009

Nine Months Ended September 30, 2009

Gain Reclassified

Gain

Location of Gain

from

Gain

from

Recognized in

Reclassified from

Accumulated

Recognized in

Location of Gain

Accumulated

Accumulated Other

Other

Accumulated

Reclassified from

Other

Comprehensive

Other

Accumulated Other

Comprehensive

Income to

Comprehensive

Income to

Income

Statements of

Income

Income to Statements

Statements of

(Effective

Operations

(Effective

of Operations

Operations

Portion)

(Effective Portions)

(Effective Portion)

Portion)

(Effective Portion)

Foreign exchange forward contracts

$

2.1

Operating expense

$

3.3

$

1.4

Operating expense

$

1.6

Total

$

2.1

$

3.3

$

1.4

$

1.6

The ineffective portion of the Company’s derivative instruments on its condensed consolidated statements of operations was immaterial during the three and nine months ended September 30, 2009.

Gains on the Company’s non-designated derivative instruments recognized in its condensed consolidated statements of operations during the three and nine months ended September 30, 2009, were as follows (in millions):

Gain Recognized in

Statements of Operations

Three Months

Nine Months

Location of Gain

Ended

in Statements of

September 30,

Operations

2009

Derivatives not designated as hedging instruments:

Foreign exchange forward contracts

Other income, net

$

1.8

$

5.0

Total

$

1.8

$

5.0

Stockholders Equity

Stockholders' Equity

Note 10. Stockholders’ Equity

Stock Repurchase Activities

In March 2008, the Company’s Board of Directors (the “Board”) approved a stock repurchase program (the “2008 Stock Repurchase Program”), which authorized the Company to purchase up to $1.0 billion of its common stock. Under this program, the Company repurchased approximately 2.9 million shares of its common stock, at an average price of $24.67 per share for a total purchase price of $71.9 million in the three months ended September 30, 2009, and approximately 12.6 million shares of its common stock at an average price of $19.18 per share for a total purchase price of $241.1 million in the nine months ended September 30, 2009. As of September 30, 2009, the Company has repurchased and retired approximately 22.3 million shares of common stock under the 2008 Stock Repurchase Program and the program has remaining authorized funds of $531.0 million.

All shares of common stock purchased under the 2008 Stock Repurchase Program 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 that 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.

Comprehensive Income

Comprehensive income consists of the following (in millions):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009		2008
Net income	$	83.8		$	148.5		$	94.1	$	379.3
Change in net unrealized gains (losses) on investments, net of tax of nil		(0.9	)		(4.4	)		1.7		(7.8	)
Change in foreign currency translation adjustment, net of tax of nil		4.9			(10.7	)		6.0		(9.8	)

Total comprehensive income	$	87.8		$	133.4		$	101.8	$	361.7

Accumulated Deficit

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


	Nine Months Ended
	September 30, 2009
Balance, December 31, 2008	$	(2,905.8	)
Retirement of common stock		(240.7	)
Net income		94.1

Balance, September 30, 2009	$	(3,052.4	)

Employee Benefit Plans

Note 11. Employee Benefit Plans

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 automatic, non-discretionary awards of nonstatutory stock options and RSUs 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 expire 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 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, and except for a limited number of shares allowed under the 2006 Plan, 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 on the date 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 stockholder 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 RSUs for a number of shares equal to the Annual Value (as defined below), and (ii) each non-employee director who was not a non-employee director on the date of the prior year’s annual stockholder meeting shall receive a RSU award for a number of shares determined by multiplying the Annual Value by a fraction, the numerator of which is the number of days since the non-employee director received their First Option, and the denominator of which is 365, rounded down to the nearest whole share. Each RSU award specified in (i) and (ii) are referred to herein as an “Annual Award.” The Annual Value means the number of RSUs equal to $125,000 divided by the average daily closing price of the Company’s common stock over the six month period ending on the last day of the fiscal year preceding the date of grant (for example, the period from July 1, 2008 — December 31, 2008 for Annual Awards granted in May 2009). 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 Award shall vest 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 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 were 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 were 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, 2009, there were approximately 2.1 million shares of common stock subject to outstanding awards under plans assumed through past acquisitions. There was no restricted stock subject to repurchase as of September 30, 2009, and December 31, 2008. There were no restricted stock repurchases during the three and nine months ended September 30, 2009, and 2008.

Stock Option Activities

A summary of the Company’s stock option activity and related information as of and for the nine months ended September 30, 2009, 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)
Balance at January 1, 2009		73,637		$	21.24
Options granted		8,271			16.27
Options canceled		(1,870	)		21.62
Options exercised		(6,661	)		14.05
Options expired		(1,326	)		24.83

Balance at September 30, 2009		72,051		$	21.55		4.50	$	493,893


As of September 30, 2009:
Vested or expected-to-vest options		64,111		$	21.66		4.37	$	439,830
Exercisable options		46,948			22.22		3.86		315,381

In the three and nine months ended September 30, 2009, the Company granted stock options covering approximately 0.7 million and 8.3 million shares of common stock, respectively, under the 2006 Plan. Total fair value of options vested for the three and nine months ended September 30, 2009, was $22.3 million and $66.1 million, respectively.

Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $27.02 as of September 30, 2009, 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 $36.2 million and $63.4 million for the three and nine months ended September 30, 2009, respectively.

Restricted Stock Units and Performance Share Awards Activities

RSUs generally vest over a period of three to four years from the date of grant and performance share awards generally vest from 2009 through 2012 provided that certain annual performance targets and other vesting criteria are met. Until vested, RSUs and performance share awards do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding. The following table summarizes information about the Company’s RSUs and performance share awards as of and for the nine months ended September 30, 2009:


	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, 2009		6,692		$	24.59
RSUs and performance share awards granted		4,175			26.24
RSUs and performance share awards vested		(1,324	)		25.67
RSUs and performance share awards canceled		(751	)		23.24

Balance at September 30, 2009		8,792		$	21.50		1.7	$	237,560


As of September 30, 2009:
Vested and expected-to-vest RSUs and performance share awards		5,701		$	21.54		1.7	$	154,035

In the three months ended September 30, 2009, the Company granted RSUs and performance share awards covering approximately 0.1 million and 0.5 million shares of common stock, respectively, under the 2006 Plan. In the nine months ended September 30, 2009, the Company granted RSUs and performance share awards covering approximately 1.5 million and 2.7 million shares of common stock, respectively, under the 2006 Plan. During the three and nine months ended September 30, 2009, RSUs and performance share awards covering approximately 0.2 million and 1.3 million shares of common stock, respectively, vested.

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 1.6 million shares of common stock through the 1999 Purchase Plan at an average price of $12.04 per share in the nine months ended September 30, 2009. 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. Effective February 1, 2009, immediately following the conclusion of the offering period ended January 30, 2009, the 1999 Purchase Plan was discontinued, and no shares remained available for future issuance under such plan.

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 replaced the 1999 Purchase Plan, which terminated immediately following the conclusion of the offering period ended 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, the Company’s stockholders must approve any increases to the number of shares reserved for issuance. The first offering period of the 2008 Purchase Plan commenced on the first trading day after February 1, 2009. Employees purchased approximately 1.6 million shares of common stock through the 2008 Purchase Plan at an average price of $12.28 per share in the three and nine months ended September 30, 2009.

Shares Available for Grant

The following table presents the total number of shares available for grant under the 2006 Plan as of September 30, 2009:


	Number of
	Shares
	(in thousands)
Balance at January 1, 2009		28,589
RSUs and performance share awards granted (1)		(8,768	)
Options granted		(8,271	)
RSUs canceled (1)		1,466
Options canceled (2)		1,870
Options expired (2)		1,316

Balance at September 30, 2009		16,202


(1)		RSUs and performance share awards with a per share or unit purchase price lower than 100% of the fair market value of the Company’s common stock on the day of the grant under the 2006 Plan are counted against shares authorized under the plan as two and one-tenth shares of common stock for each share subject to such award.

(2)		Includes canceled or expired options under the 1996 Plan and the 2000 Plan that expired unexercised after May 18, 2006.

Common Stock Reserved for Future Issuance

As of September 30, 2009, the Company had reserved an aggregate of approximately 107.4 million shares of common stock for future issuance under its stock award plans and the 2008 Purchase Plan.

Stock-Based Compensation Expense

The Company has elected to use the Black-Scholes-Merton (“BSM”) option-pricing model, which incorporates various assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards and common shares issues under the 1999 and 2008 Purchase Plans. 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.

In 2007, the government of India implemented a new fringe benefit tax that applied to equity awards granted to India taxpayers. This fringe benefit tax was payable by the issuer of the equity awards; however, the law allowed an issuer to recover from individual award holders the fringe benefit taxes the issuer paid on their applicable equity awards. 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 elected to use a BSM 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. In August 2009, the government of India repealed the fringe benefit tax that applied to equity awards granted to India taxpayers. As of the effective date of the repeal, the Company discontinued the Monte Carlo simulation into its BSM option-pricing model to calculate the fair value of stock-based awards granted to its India employees subsequent to the repeal.

The assumptions used and the resulting estimates of fair value for employee stock options during the three and nine months ended September 30, 2009, and 2008, were:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Employee Stock Options:
Volatility factor		43% - 46	%		45% - 47	%		43% - 58	%		43% - 48	%
Risk-free interest rate		0.4% - 4.2	%		2.2% - 4.1	%		0.4% -4.2	%		1.7% - 4.4	%
Expected life (years)		4.3 - 5.7			3.6 - 5.7			4.3 - 5.8			3.6 - 5.7
Dividend yield		—			—			—			—
Fair value per share	$	9.52 - $10.25		$	8.49 - $10.45		$	6.02 - $10.49		$	8.32 - $10.88

The assumptions used and the resulting estimates of weighted average fair value per share under the employee stock purchase plan during the three and nine months ended September 30, 2009, and 2008, were:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Employee Stock Purchase Plan:
Volatility factor		46	%		46	%		54	%		47	%
Risk-free interest rate		0.3	%		1.9	%		0.4	%		2.0	%
Expected life (years)		0.5			0.5			0.5			0.5
Dividend yield		—			—			—			—
Weighted-average fair value per share	$	7.35		$	7.39		$	5.54		$	7.60

The Company determines the fair value of its RSUs and performance share awards based upon the fair market value of the shares of the Company’s common stock at the date of grant. The Company expenses the cost of RSUs ratably over the period during which the restrictions lapse. In addition, the Company estimates stock compensation expense for its performance share awards based on the vesting criteria and only recognized expense for the portions of such awards for which annual targets have been set. The weighted average fair value per share of RSUs and performance share awards granted during these periods were:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Weighted-average fair value per share:
RSUs	$	25.86	$	26.51	$	16.09	$	25.55
Performance share awards	$	26.30	$	25.90	$	17.18	$	25.57

The Company’s stock-based compensation expense associated with stock options, employee stock purchases, RSUs, and performance share awards is recorded in the following cost and expense categories for the three and nine months ended September 30, 2009, and 2008, (in millions):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Cost of revenues — Product	$	0.9	$	0.8	$	2.8	$	2.2
Cost of revenues — Service		2.9		2.4		8.5		7.0
Research and development		14.3		12.8		44.0		34.9
Sales and marketing		10.7		10.9		30.9		26.8
General and administrative		5.5		1.9		15.2		8.0

Total	$	34.3	$	28.8	$	101.4	$	78.9

During the three and nine months ended September 30, 2009, the Company recorded stock-based compensation expense related to employee stock options in the amount of $20.5 million and $60.0 million, respectively, and during the three and nine months ended September 30, 2008, the Company recorded stock-based compensation expense related to employee stock options in the amount of $15.1 million and $42.5 million, respectively. As of September 30, 2009, approximately $137.0 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options will be recognized over a weighted average period of approximately 2.7 years.

The Company recorded stock-based compensation expense related to its employee stock purchase plans in the amount of $3.5 million and $11.1 million for the three and nine months ended September 30, 2009, respectively, and $3.6 million and $10.2 million for the three and nine months ended September 30, 2008, respectively.

The Company recognized stock compensation expense of $10.3 million and $30.3 million for the three and nine months ended September 30, 2009, and $10.1 million and $26.2 million for the three and nine months ended September 30, 2008, respectively, in connection with RSUs and performance share awards. As of September 30, 2009, approximately $59.2 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs and unvested performance share awards will be recognized over a weighted-average period of approximately 2.4 years.

401(k) Plan

Juniper Networks maintains a savings and retirement plan qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. Employees meeting the eligibility requirement, as defined, may contribute up to the statutory limits of the year. The Company has matched employee contributions since January 1, 2001. The Company currently matches 25% of all eligible employee contributions. All matching contributions vest immediately. In the three and nine months ended September 30, 2009, the Company’s matching contributions to the plan totaled $2.8 million and $9.8 million, respectively. In the three and nine months ended September 30, 2008, the Company’s matching contributions to the plan totaled $2.6 million and $9.1 million, respectively.

Deferred Compensation Plan

In July 2008, the Company formed a non-qualified deferred compensation plan (“NQDC”) plan, which is an unfunded and unsecured deferred compensation arrangement. Under the NQDC plan, officers and other senior employees may elect to defer a portion of their compensation and contribute such amounts to one or more investment funds. The plan assets are included within investments and offsetting obligations are included within accrued compensation on the condensed consolidated balance sheet. The investments are considered trading securities and are reported at fair value. The realized and unrealized holding gains and losses related to these investments are recorded in interest and other income, net and the offsetting compensation expense are recorded in operating expenses in the consolidated statements of operations. The deferred compensation liability under this plan was approximately $4.1 million and $1.0 million as of September 30, 2009, and December 31, 2008, respectively.

Segments

Note 12. Segments

The Company’s chief operating decision maker (“CODM”) allocates resources and assesses performance based on financial information by the Company’s business groups. The Company’s operations are organized into two reportable segments: Infrastructure and Service Layer Technologies (“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, dynamic services gateways, 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, 2009, and 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 revenues, 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, restructuring and impairment charges, gains or losses on equity investments, other net income and expense, income taxes, as well as certain other charges to the segments.

The following table summarizes financial information for each segment used by the CODM (in millions):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Net revenues:
Infrastructure:
Product	$	472.0		$	610.3		$	1,396.2		$	1,714.9
Service		123.2			119.0			350.1			308.7

Total Infrastructure revenues		595.2			729.3			1,746.3			2,023.6
Service Layer Technologies:
Product		162.1			156.7			432.7			450.2
Service		66.6			61.0			195.5			175.1

Total Service Layer Technologies revenues		228.7			217.7			628.2			625.3

Total net revenues		823.9			947.0			2,374.5			2,648.9
Operating income:
Infrastructure		126.9			216.9			358.8			603.5
Service Layer Technologies		44.4			20.7			79.6			39.2

Total segment operating income		171.3			237.6			438.4			642.7
Other corporate (1)		—			—			—			(4.7	)

Total management operating income		171.3			237.6			438.4			638.0
Amortization of purchased intangible assets		(2.7	)		(6.5	)		(13.4	)		(42.4	)
Stock-based compensation expense		(34.3	)		(28.8	)		(101.4	)		(78.9	)
Stock-based payroll tax expense		(0.8	)		(0.3	)		(1.5	)		(2.6	)
Restructuring charges		(4.5	)		—			(16.3	)		—
Other charges		(1.0	)		—			(1.0	)		(9.0	)

Total operating income		128.0			202.0			304.8			505.1
Interest and other income, net		1.7			9.7			6.6			40.5
Loss on minority equity investments		—			—			(3.3	)		(1.5	)

Income before income taxes	$	129.7		$	211.7		$	308.1		$	544.1


(1)		Other corporate charges include severance and related costs associated with workforce rebalancing activities, which are not included in business segment results.

Depreciation expense allocated to the Infrastructure segment was $24.1 million and $69.1 million in the three and nine months ended September 30, 2009, respectively, and $22.7 million and $64.3 million in the three and nine months ended September 30, 2008, respectively. The depreciation expense allocated to the SLT segment was $9.7 million and $29.4 million in the three and nine months ended September 30, 2009, respectively, and $9.6 million and $27.9 million in the three and nine months ended September 30, 2008, respectively.

The Company attributes revenues 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,
	2009		2008		2009		2008
Americas:
United States	$	380.3	$	421.3	$	1,045.4	$	1,135.3
Other		42.5		57.2		128.0		149.8

Total Americas		422.8		478.5		1,173.4		1,285.1
Europe, Middle East and Africa		243.2		277.6		698.3		803.3
Asia Pacific		157.9		190.9		502.8		560.5

Total	$	823.9	$	947.0	$	2,374.5	$	2,648.9

Verizon accounted for 10.4% of the Company’s net revenues for the three months ended September 30, 2009, and no single customer accounted for 10% or more of the Company’s net revenues for the nine months ended September 30, 2009. 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.

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, 2009, and December 31, 2008. 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.

Income Taxes

Note 13. Income Taxes

The Company recorded tax provisions of $45.9 million and $63.2 million for the three months ended September 30, 2009, and 2008, or effective tax rates of 35% and 30%, respectively. The Company recorded tax provisions of $214.0 million and $164.8 million for the nine months ended September 30, 2009, and 2008, or effective tax rates of 69% and 30%, respectively. The effective tax rate for the three months ended September 30, 2009, is substantially similar to the federal statutory rate of 35% and differs from the effective tax rate for the same period in 2008, primarily due to a $4.6 million income tax charge resulting from an investigation by the India tax authorities. The effective tax rate for the nine months ended September 30, 2009, differs from the federal statutory rate of 35% and the rate for the same period in 2008, primarily due to the following income tax charges: (i) the $4.6 million related to the investigation by the India tax authorities; (ii) $52.1 million resulted from a change in the Company’s unrecognized tax benefits related to share-based compensation due to a decision reached by the U.S. Court of Appeals for the Ninth Circuit in Xilinx Inc. v. Commissioner in the Company’s second quarter of 2009; and (iii) $61.8 million resulted from changes in California income tax laws that were enacted during the Company’s first quarter of 2009. The effective rate impact from these charges was partially offset by the federal Research and Development (“R&D”) credit and the benefit of earnings in foreign jurisdictions, which are subject to lower tax rates during the three and nine months ended September 30, 2009. The effective tax rate for the three and nine months ended September 30, 2008, differed from the federal statutory rate of 35% primarily due to the benefit of earnings in foreign jurisdictions, which are subject to lower tax rates.

The gross unrecognized tax benefits increased by approximately $67.5 million for the nine months ended September 30, 2009, of which $66.2 million, if recognized, would affect the effective tax rate. Gross unrecognized tax benefits have decreased approximately $6.6 million during the three months ended September 30, 2009. The decrease relates to a $12.8 million adjustment by the Internal Revenue Service (“IRS”) to the Company’s fiscal year 2004 research credit carryforwards offset primarily by additional charges related to share-based compensation. Interest and penalties accrued for the nine months ended September 30, 2009, were approximately $13.7 million. Approximately $4.6 million of the increase in interest and penalties, occurred during the three months ended September 30, 2009, and is related to the India tax matter discussed below.

The Company is currently under examination by the IRS for the 2004 tax year, and in July 2009, the IRS informed the Company that it intends to open an audit for the 2005 and 2006 tax years. The Company is also subject to two separate ongoing examinations by the India tax authorities for the 2004 and 2004 through 2008 tax years, respectively, and has received an inquiry from the Hong Kong tax authorities for the 2002 through 2006 tax years. Additionally, the Company has not reached a final resolution with the IRS on an adjustment it proposed for the 1999 and 2000 tax years. The Company is not aware of any other examination by taxing authorities in any other major jurisdictions in which it files income tax returns as of September 30, 2009.

In 2009, as part of the on-going 2004 IRS audit, the Company received a proposed adjustment related to the license of acquired intangibles under an intercompany R&D cost sharing arrangement. In March 2009, the Company received an assessment from the Hong Kong tax authorities specifically related to an inquiry of the 2002 tax year. In December 2008, the Company received a proposed adjustment from the India tax authorities related to the 2004 tax year.

In July 2009, the India tax authorities commenced a separate investigation of our 2004 through 2008 tax returns and are disputing the Company’s determination of taxable income due to the cost basis of certain fixed assets. As referenced above, the Company recorded $4.6 million in penalties and interest in the quarter ended September 30, 2009 relevant to this matter. The Company understands that the India tax authorities may issue an initial assessment that is substantially higher than this amount. As a result, in accordance with the administrative and judiciary process in India, the Company may be required to make payments that are substantially higher than the amount accrued in order to ultimately settle this issue. The Company strongly believes that any assessment it may receive in excess of the amount accrued would be inconsistent with applicable India tax laws and intends to defend this position vigorously.

The Company is pursuing all available administrative procedures relative to the matters referenced above. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to these proposed adjustments and the ultimate resolution of these matters is unlikely to have a material effect on its consolidated financial condition or results of operations; however there is still a possibility that an adverse outcome of these matters could have a material effect on its consolidated financial condition and results of operations. For more information, please see Note 14 — Commitments and Contingencies under the heading “IRS Notices of Proposed Adjustments.”

The Company does not expect complete resolution of any IRS, or other audits in significant foreign or state jurisdictions within the next 12 months. However, it is reasonably possible that the Company may reach agreement with certain issues and as a result, the amount of the liability for unrecognized tax benefits may decrease by approximately $4.6 million within the next 12 months.

Commitments and Contingencies

Note 14. Commitments and Contingencies

Commitments

The following table summarizes the Company’s principal contractual obligations as of September 30, 2009, (in millions):


	Total			2009			2010			2011		2012		2013		Thereafter		Other
Operating leases	$	185.4		$	13.8		$	52.7		$	44.5	$	37.6	$	20.9	$	15.9	$	—
Sublease rental income		(0.8	)		(0.2	)		(0.6	)		—		—		—		—		—
Purchase commitments		120.3			120.3			—			—		—		—		—		—
Tax liabilities		173.3			—			4.6			—		—		—		—		168.7
Other contractual obligations		45.6			7.3			17.3			13.5		5.6		1.9		—		—

Total	$	523.8		$	141.2		$	74.0		$	58.0	$	43.2	$	22.8	$	15.9	$	168.7

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 $184.6 million as of September 30, 2009. Rent expense for the three months ended September 30, 2009, and 2008 was $14.2 million and $14.4 million, respectively, and $42.6 million and $43.3 million for the nine months ended September 30, 2009, and 2008, respectively. Subsequent to September 30, 2009, the Company amended three existing lease agreements for the Company’s corporate headquarters facilities located in Sunnyvale, California. See Operating Lease Extensions in Note 15 — Subsequent Events in Notes to Condensed Consolidated Financial Statements in Item I of this Form 10-Q for further discussion of amended lease obligations.

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, 2009, there were NCNR component orders placed by the contract manufacturers with a value of $120.3 million. The contract manufacturers use the components to build products based on the Company’s forecasts and purchase orders that 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 remain unused or the products remain unsold for specified period, 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, 2009, the Company had accrued $29.9 million based on its estimate of such charges.

Tax Liabilities

As of September 30, 2009, the Company had $173.3 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 of payments related to $168.7 million of such liabilities due to uncertainties in the timing of tax audit outcomes.

Other Contractual Obligations

As of September 30, 2009, other contractual obligations consisted primarily of an indemnity-related escrow amount of $2.3 million, a five-year $36.4 million data center hosting agreement, a three-year $22.7 million software subscription, and a joint development agreement with a third-party for development of network-related technology, which requires quarterly payments of $3.5 million through January 2010. The Company records the quarterly payment to the third-party developer as research and development expense in its condensed consolidated statements of operations until the technology under development has reached technological feasibility. Pursuant to the joint development agreement, in exchange for each party’s respective contributions to the development effort as well as the consideration payable by the Company, each party will obtain a license to the technology that result from the development for use in certain of their respective product lines. As of September 30, 2009, $21.0 million remained unpaid under the data center hosting agreement with the remaining commitment expected to be paid through the end of April 2013 and $15.3 million remained unpaid under the software subscription agreement with the remaining commitment expected to be paid through the end of January 2011.

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, guarantees related to third-party customer financing arrangements, and standby letters of credit for certain lease facilities. As of September 30, 2009, the Company had $34.4 million in guarantees and standby letters of credit and recorded a liability of $23.5 million related to a third-party customer-financing guarantee. As of December 31, 2008, the Company had not recorded a liability related to its guarantees and indemnification arrangements.

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. Although the Company does not expect that any such legal claims or litigation will ultimately have a material adverse effect on its consolidated financial condition or results of operations, an adverse result in one or more of such matters could negatively affect the Company’s consolidated financial results in the period in which they occur.

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. Plaintiffs seek monetary damages in an unspecified amount. 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. The order gave plaintiffs until May 1, 2008, to file an amended complaint. Plaintiffs chose not to amend their complaint.

On September 25, 2009, the Court certified a plaintiff class consisting of all persons and entities who purchased or otherwise acquired the Company’s securities from July 11, 2003 to August 10, 2006 inclusive, and were damaged thereby, including those who received or acquired Juniper Networks’ common stock issued pursuant to the registration statement on SEC Form S-4, dated March 10, 2004, for the Company’s merger with NetScreen Technologies Inc.; and purchasers of Zero Coupon Convertible Senior Notes due June 15, 2008 issued pursuant to a registration statement on SEC Form S-3 dated November 20, 2003. Excluded from the Class are the Defendants and the current and former officers and directors of the Company, their immediate families, their heirs, successors, or assigns and any entity controlled by any such person.

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, the 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 the plaintiff filed a motion for preliminary injunction. On July 19, 2007, the Court issued an order denying the plaintiff’s motion for a preliminary injunction and dismissing the complaint in its entirety with leave to amend. The 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 the defendants’ motion to dismiss with prejudice, and entered final judgment in favor of defendants. On September 9, 2008, the plaintiff filed a Notice of Appeal in the United States Court of Appeals for the Ninth Circuit. The plaintiff’s appeal was fully briefed and the Court of Appeals heard oral argument on the appeal on October 7, 2009. No decision has been issued yet by the Court of Appeals.

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, the 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. The 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. The 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.

The parties have reached a global settlement of the litigation. On October 5, 2009, the Court entered an Opinion and Order granting final approval of the settlement. Under the settlement, the insurers are to pay the full amount of settlement share allocated to the Company, and the Company will bear no financial liability. The Company, as well as the officer and director defendants who were previously dismissed from the action pursuant to tolling agreements, will receive complete dismissals from the case. It is likely certain persons will seek to appeal the order approving the settlement.

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.

Menlo Equities

In December 2008, Menlo Equities Development Company II, LLC (“Menlo Equities”) initiated in an arbitration proceeding against the Company. Menlo Equities and the Company are members of Menlo/Juniper Networks LLC and are parties to an Operating Agreement and a Development Services Agreement relating to certain real estate in Sunnyvale, California purchased in 2000. The dispute relates to whether the Company would be obligated to pay Menlo Equities certain fees under the agreements, if and when the real estate is developed or sold. Menlo Equities asserted that it is entitled to immediate payment of damages of approximately $29.0 million plus attorney’s fees as a result of a repudiation and breach of the agreements. The Company denies Menlo Equities’ allegations. An arbitration hearing was conducted in June 2009, and the arbitrator issued an interim decision in September that ruled in Menlo’s favor in most areas. However, the interim decision contained no specific monetary award and concluded that the Company should pay the buy out amounts under the agreements, if and when the contract contingencies on which they become due occur. The parties are seeking clarification of the interim award: (i) Menlo Equities contends that it is entitled to immediate payment of approximately $8.3 million, and (ii) the Company contends that no amount is due under the interim award. In addition, Menlo Equities has requested attorney’s fees of approximately $0.5 million. A final decision is expected prior to the end of the calendar year.

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. As of September 30, 2009, 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 believes that it has adequately provided for any reasonable foreseeable outcome related to this proposed adjustment.

In July 2009, the Company received a NOPA from the IRS claiming that the Company owes additional taxes, plus interest and possible penalties, for the 2004 tax year based on a transfer pricing transaction related to the license of acquired intangibles under an intercompany R&D cost sharing arrangement. The asserted changes to the Company’s 2004 tax year would affect the Company’s income tax liabilities in tax years subsequent to 2003. Because of the NOPA, the estimated incremental tax liability would be approximately $807.0 million, excluding interest and penalties. The Company has filed a protest to the proposed deficiency with the IRS, which will cause the matter to be referred to the Appeals Division of the IRS. The Company strongly believes the IRS’ position with regard to this matter is inconsistent with applicable tax laws and existing Treasury regulations, and that its previously reported income tax provision for the year in question is appropriate. However, there can be no assurance that this matter will be resolved in the Company’s favor. Regardless of whether this matter is resolved in the Company’s favor, the final resolution of this matter could be expensive and time-consuming to defend and/or settle. While the Company believes it has provided adequately for this matter, there is still a possibility that an adverse outcome of the matter could have a material effect on its results of operations and financial condition.

The Company has not reached a final resolution with the IRS on an adjustment the IRS proposed for the 1999 and 2000 tax years. The Company is also under routine examination by certain state and non-U.S. tax authorities. The Company believes that it has adequately provided for any reasonably foreseeable outcome related to these audits.

Subsequent Event

Note 15. Subsequent Event

Stock Repurchases

Subsequent to September 30, 2009, through the filing of this report, the Company repurchased and retired approximately 1.6 million shares of its common stock for approximately $42.0 million under its 2008 Stock Repurchase program at an average purchase price of $26.69 per share. The Company’s 2008 Stock Repurchase Program had remaining authorized funds of $489.0 million as of the report filing date. Purchases under the Company’s 2008 Stock Repurchase Program 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. This program may be discontinued at any time.

Operating Lease Extensions

In October 2009, the Company amended three existing leases for the Company’s corporate headquarters facilities in Sunnyvale, California. Each lease was amended to: (i) extend the underlying lease term, and (ii) establish new monthly base rent payments for periods after November 1, 2009. The new monthly base rent payments represent a significant reduction in base rent that would have been payable for the previously remaining terms of each of the underlying leases. The Company’s operating lease obligations will increase by $128.1 million under these amended lease agreements with expiration dates ranging from June 2020 through November 2022.