The following table provides an overview of our financial results and key financial metrics (in millions, except per share amounts, percentages, and days sales outstanding, or DSO):
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and the accompanying notes. On an ongoing basis, we evaluate our estimates and assumptions. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenues, and expenses that are not readily apparent from other sources.
The following table presents operating expenses (in millions, except percentages):
Our effective tax rate may fluctuate significantly on a quarterly basis and may be adversely affected byto the extent earnings are lower than anticipated earnings in countries that have lower statutory rates orand higher than anticipated earnings in countries that have higher statutory rates, by the effect of U.S. income tax on certain foreign earnings and through the imposition of base-erosion prevention measures, which may limit the deduction of certain transfer pricing payments.rates. Our effective tax rate may also fluctuate due to changes in the valuation of our deferred tax assets or liabilities, or by changes in tax laws, regulations, or accounting principles, as well as certain discrete items. See the "Risk Factors" section of Item 1A of Part III, "Risk Factors" of this Report for a description of relevant risks which may adversely affect our results.
We have funded our business primarily through our operating activities and the issuance of our long-term debt. The following table presents our capital resources (in millions, except percentages):
The following table summarizes cash flow activity from our Condensed Consolidated Statements of Cash Flows (in millions, except percentages):
Capital Return
In January 2018, our Board of Directors, which we refer to as the Board, approved a $2.0 billion share repurchase program to replace our prior authorization, which we refer to as the 2018 Stock Repurchase Program. As part ofIn October 2019, the Board authorized a $1.0 billion increase to the 2018 Stock Repurchase Program in February 2018, we entered into an ASR to repurchase $750.0 millionfor a total of our common stock. We made an up-front payment of $750.0 million pursuant to the ASR to repurchase our common stock. The aggregate number of shares ultimately repurchased of 29.3 million shares of common stock was determined based on a volume weighted average repurchase price, less an agreed upon discount, of $25.62 per share.$3.0 billion.
On April 29,In October 2019, we entered into an ASR, to repurchase an aggregate of approximately $300.0$200.0 million of our outstanding common stock. During the second quarter ofthree months ended December 31, 2019, we made an up-front payment of $300.0 million pursuant to the ASR and received and retired an initial 8.6 million shares of our common stock for an aggregate price of $240.0 million based on the market value of our common stock on the date of the transaction. During the third quarter of 2019, the ASR was completed, and we received and retired an additional 3.0 million shares, based on volume weighted average repurchase price, less an agreed upon discount, of $25.79 per share. The completion of the ASR resulted in a total repurchase of 11.6 million shares of our common stock.
During the third quarter of 2019, we also repurchased 2.1 million shares of our common stock in the open market for an aggregate purchase price of $50.0 million at an average price of $23.63 per share.
As of September 30, 2019, there was approximately $900.0 million of authorized funds remaining under the 2018 Stock Repurchase Program.
On October 24, 2019, we announced that the Board authorized the repurchase of up to an additional $1.0 billion of common stock under the 2018 Stock Repurchase Program. On October 28, 2019, we entered into an ASR with a financial institution to repurchase an aggregate of $200.0 million of our outstanding common stock (the “October 2019 ASR”). We made an up-front payment of $200.0 million pursuant to the October 2019 ASR and received and retired an initial 6.4 million shares of our common stock for an aggregate price of $160.0 million, based on the market valueprice of $25.15 per share of our common stock on the date of the transaction. We haveDuring the three months ended March 31, 2020, the ASR was completed, and an additional 1.8 million shares were received for a total repurchase of 8.2 million shares of our common stock at a volume weighted average repurchase price of $24.44 per share, net of an agreed upon discount. The shares received by us were retired, accounted for as a reduction to stockholder’s equity in the Condensed Consolidated Balance Sheets, and treated as a repurchase of common stock for purposes of calculating earnings per share.
During the nine months ended September 30, 2020, we repurchased 14.5 million shares of our common stock in the open market for an aggregate purchase price of $1.7$300.0 million at an average price of $23.86 per share.
As of September 30, 2020, there was approximately $1.4 billion of authorized funds remaining under the 2018 Stock Repurchase Program, as of the filing of this Quarterly Report on Form 10-Q.Program.
Future share repurchases under the 2018 Stock Repurchase Program will be subject to a review of the circumstances 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. Our 2018 Stock Repurchase Program does not have a specified termination date but may be discontinued at any time. See Note 10,8, Equity, in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report for further discussion of our share purchaserepurchase program. We expect to remain opportunistic with respect to share repurchases.
We declared and paid a quarterly cash dividend of $0.19$0.20 per share, totaling $64.7$66.2 million and $196.4$197.9 million during the three and nine months ended September 30, 2019,2020, respectively. AnyAlthough we remain committed to paying our dividend, any future dividends, and the establishment of record and payment dates, are subject to approval by the Board or an authorized committee thereof. See Note 16,14, Subsequent Events, in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report for discussion of our dividend declaration subsequent to September 30, 2019.2020.
Contractual Obligations
As of September 30, 2019, our principal commitments consist of obligations under operating leases, purchase commitments, debt, and other contractual obligations. There have been no significant changes to these obligations, during the three months ended September 30, 2019 compared to the contractual obligations disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, other than the obligations listed in the table below (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
3.750% fixed-rate notes(*) | $ | 500.0 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 500.0 |
|
| |
(*)
| See Note 9, Debt, in Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report for additional information regarding our debt.
|
Revolving Credit Facility
In April 2019, we entered into a new credit agreement with certain institutional lenders that provides for a five-year $500.0 millionWe have an unsecured revolving credit facility, (the “Revolving Credit Facility”),which enables borrowings of up to $500.0 million, with an option to increase the Revolving Credit Facilityamount of the credit facility by up to an additional $200.0 million, subject to the lenders' approval. The Prior Revolving Credit Facility was terminated substantially concurrently with our entering into the Revolving Credit Facility. The Revolving Credit Facilitycredit facility will terminate in April 2024, subject to twoa one-year maturity extension options, on the terms and conditions as set forth in the credit agreement.option. As of September 30, 2019,2020, we were in compliance with all covenants in the Credit Agreement, and no amounts were outstanding.outstanding under our credit facility.
Liquidity and Capital Resource Requirements
Liquidity and capital resources may be impacted by our operating activities as well as acquisitions, investments in strategic relationships, repurchases of additional shares of our common stock, and payment of cash dividends on our common stock. FollowingSince the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), we have repatriated approximately $3.0 billiona significant amount of our cash, cash equivalents, and investments balance from outside of the U.S. as of September 30, 2019. We expect the new territorial tax system, and plan to provide us with lower cost accesscontinue to nearly all of our global free cash flowrepatriate on an ongoing basis. Free cash flow is calculated as net cash provided by operating activities less capital expenditures.basis, subject to our consideration of strategic overseas investments. We intend to use the repatriated cash to invest in the business, support value-enhancing merger and acquisitions, or M&A, and fund our return of capital to stockholders. See Note 16,
Subsequent Events, in Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report for our subsequent events impacting liquidity.
Based on past performance and current expectations, we believe that our existing cash and cash equivalents, short-term, and long-term investments, together with cash generated from operations and access to capital markets and the revolving credit facility will be sufficient to fund our operations; planned stock repurchases and dividends; capital expenditures; commitments and other liquidity requirements; and anticipated growth for at least the next twelve months. However, our future liquidity and capital requirements may vary materially from those now planned depending on many factors, including, but not limited to, our growth rate; the timing and amount we spend to support development efforts; the expansion of sales and marketing activities; the introduction of new and enhanced products and services; the costs to acquire or invest in businesses and technologies; an increase in manufacturing or component costs; and the risks and uncertainties detailed in the “Risk Factors” section of Item 1A of Part II of this Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposures to market risk have not changed materially since December 31, 2018.2019. For quantitative and qualitative disclosures about market risk, see Item 7A Quantitative and Qualitative Disclosures about Market Risk, in our Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Attached as exhibits to this Report are certifications of our principal executive officer and principal financial officer, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and related evaluations referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this Report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the third quarter of 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any significant impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. The design of our processes and controls allow for remote execution with accessibility to secure data. We are continually monitoring and assessing the COVID-19 situation to minimize the impact, if any, on the design and operating effectiveness on our internal controls.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under the “Legal Proceedings” section in Note 15,13, Commitments and Contingencies, in Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report, is incorporated herein by reference.
Item 1A. Risk Factors
Factors That May Affect Future Results
InvestmentsWe operate in our securities involve significant risks. Even small changes in investor expectations for our future growthrapidly changing economic and earnings, whether as a resulttechnological environments that present numerous risks, many of actualwhich are driven by factors that we cannot control or rumored financial or operating results, changespredict. Some of these risks are highlighted in the mixfollowing discussion, and in Management’s Discussion and Analysis of the productsFinancial Condition and services sold, acquisitions, industry changes, or other factors, could trigger,Results of Operations and have triggered in the past, significant fluctuations in the market price of our common stock.Quantitative and Qualitative Disclosures About Market Risk. Investors in our securities should carefully consider all of the relevant factorsrisks disclosed by us including, butbefore investing in our securities. The occurrence of any of these risks or additional risks and uncertainties not limitedpresently known to the following factors,us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, operating results, and stock price.
RISKS RELATED TO OUR BUSINESS STRATEGY AND INDUSTRY
The COVID-19 pandemic has significantly affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain. The COVID-19 pandemic has, and may continue to, negatively affect our operations, including as a result of external factors beyond our control such as restrictions on the physical movement of our employees, contract manufacturers, partners, and customers to limit the spread of COVID-19. Since March 2020, the majority of our global workforce has been working remotely resulting from shelter-in-place requirements and travel restrictions. We continue to follow the guidance of local and national governments, including monitoring the health of employees who have returned to our offices and limiting the gathering size of employee groups in indoor spaces. If the COVID-19 pandemic has a substantial impact on our employees, partners or customers health, attendance or productivity, our results of operations and overall financial performance may be adversely impacted.
Moreover, the conditions caused by the pandemic may affect the overall demand environment for our products and services and could adversely affect our customers’ ability or willingness to purchase our products or services or to make payments on existing contracts with us, delay prospective customers’ purchasing decisions, delay the provisioning of our offerings, lengthen payment terms, or affect attrition rates, all of which could adversely affect our future sales, operating results and overall financial performance. Further, the pandemic has and could continue to adversely affect our ability to provide or deliver products and on-site services to our customers. For example, during the first three quarters of fiscal 2020, the COVID-19 pandemic caused us to experience supply constraints due to both constrained manufacturing capacity as well as component parts shortages as our component vendors also faced manufacturing challenges. These challenges resulted in extended lead-times to our customers and increased logistics costs, which negatively impacted on our ability to recognize revenue and decreased our gross margins for these periods. While our manufacturing capacity has improved, we expect several of our component suppliers will remain challenged in the near term. Further, the spread of COVID-19 has and is likely to continue to affect the shipment of goods globally.
The duration and extent of the impact from the COVID-19 pandemic on our business depends on future developments that cannot be accurately forecasted at this time, such as the transmission rate and geographic spread of the disease, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers, partners, and vendors. If we are not able to respond to and manage the impact of such events effectively and if the macroeconomic conditions of the general economy or the industries in which we operate do not improve, or worsen from present levels, our business, operating results, financial condition and cash flows could continue to be adversely affected.
Our quarterly results are unpredictable and subject to substantial fluctuations; as a result, we may fail to meet the expectations of securities analysts and investors, which could adversely affect the trading price of our common stock.
investors. Our revenues and operating results may vary significantly from quarter-to-quarter due to a number of factors, many of which are outside of our controlcontrol. If our quarterly financial results or our predictions of future financial results fail to meet the expectations of securities analysts and anyinvestors, the trading price of whichour securities could be negatively affected. Our operating results for prior periods may causenot be effective predictors of our stock price to fluctuate.future performance.
The factors that
Factors associated with our industry, the operation of our business, and the markets for our products and services may cause our quarterly results to vary quarter by quarter and be unpredictablefluctuate, include but are not limited to:
•unpredictable ordering patterns and limited or reduced visibility into our customers’ spending plans and associated revenue;
•changes in our customer mix;
changes in the demand for our products and services;
changes inmix, the mix of products and services sold;
changes insold, and the mix of geographies in which our products and services are sold;
•changes in the demand for our products and services, including seasonal fluctuations in customer spending;
•changing market and economic conditions, including the impact of tariffs;conditions;
current and potential customer, partner and supplier consolidation and concentration;
•price and product competition;
long sales, qualification and implementation cycles;•ineffective legal protection of our intellectual property rights in certain countries;
success in new and evolving markets and emerging technologies;
•how well we execute on our strategy and operating plans and the impact of changes in our business model that could result in significant restructuring charges;model;
ability of our customers, channel partners, contract manufacturers and suppliers to purchase, market, sell, manufacture or supply our products (or components of our products) and services;
•financial stability of our customers, including the solvency of private sector customers, and which may be impacted by the COVID-19 pandemic;
•statutory authority for government customers to purchase goods and services;
our ability to achieve targeted cost reductions;
•executive orders, tariffs, changes in tax laws or regulations and accounting rules, or interpretations thereof;
changes in the amount and frequency of share repurchases or dividends;
•regional economic and political conditions; andconditions which may be aggravated by unanticipated global events;
seasonality.
For example, we, and many companies•disruptions in our industry, experience adverse seasonal fluctuations in customer spending, particularly inbusiness operations or target markets caused by, among other things, terrorism or other intentional acts, outbreaks of disease, such as the first quarter. In addition, while we may have backlog orders for products that have not shipped, we believe that our backlog may not be a reliable indicator of future operating results for a number of reasons, including, but not limited to, project delays, changes in project scope and the fact that our customers may cancel purchase ordersCOVID-19 pandemic, or change delivery schedules without significant penalty. Furthermore, market trends, competitive pressures, commoditization of products, rebates and discounting, increased component, manufacturingearthquakes, floods, or logistics costs, issues with product or service quality (including the quality of our components), regulatory impacts, tariffsother natural disasters; and other factors may result in reductions in revenue or pressure on gross margins in a given period, which may necessitate adjustments to our operations. Such adjustments may be difficult or impossible to execute in the short or medium term.unanticipated extraordinary externalities.
As a result of the factors described above, as well as other variables affecting our operating results, weWe believe that quarter-to-quarter comparisons of operating results are not necessarily a good indication of what our future performance will be. In some prior periods, our operating results have been below our guidance, our long-term financial model or the expectations of securities analysts or investors, which has at times coincided with a decline in the price of our common stock.investors. This may happen again, in the future, in which caseand the price of our common stock may decline. SuchIn addition, our failure to pay quarterly dividends to our stockholders or the failure to meet our commitments to return capital to our stockholders could have a decline could also occur, and has occurred in the past, even when we have metmaterial adverse effect on our publicly stated revenues and/or earnings guidance.stock price.
We expect our gross margins and operating margins to vary over time.
We expect ourOur product and service gross margins are expected to vary, both in the near-term and in the long-term, and may be adversely affected in the future by numerous factors, some of which have occurred and may occur in the future, including, but not limited to, customer, vertical, product and geographic mix shifts, an increase or decrease in our software sales or services we provide, increased price competition in one or more of the markets in which we compete, changes in the actions of our competitors or their pricing strategies, which may be difficult to predict and respond to, modifications to our pricing strategy in order to gain footprint in certain markets or with certain customers, currency fluctuations that impact our costs or the cost of our products and services to our customers, increases in material, labor, logistics, warranty costs, or inventory carrying costs, excess product component or obsolescence charges from our contract manufacturers, issues with manufacturing or component availability, issues relating to the distribution of our products and provision of our services, quality or efficiencies, increased costs due to changes in component pricing or charges incurred due to inaccurately forecasting product demand, warranty related issues, the impact of tariffs, or our introduction of new products and enhancements or entry into new markets with different pricing and cost structures. For example, in fiscal year 2018, our margins decreased as compared to fiscal year 2017, primarily due to lower net revenues and product mix. In fiscal year 2017, our margins decreased as compared to fiscal year 2016, primarily due to lower product net revenues and product mix, resulting from the year-over-year decline in routing revenues, our customers' architectural shifts, and higher costs of certain memory components. In fiscal year 2016, our margins decreased compared to fiscal year 2015, primarily due to elevated pricing pressure and product mix. Failure to sustain or improve our gross margins reduces our profitability and may have a material adverse effect on our business and stock price.
Further, while we will continue to remain diligent in our long-term financial objective to increase revenue and operating margins and manage our operating expenses as a percentage of revenue, we expect that our margins will vary with our ability to achieve these goals. We can provide no assurance that we will be able to achieve all or any of the goals of these plans or meet our announced expectations, in whole or in part, or that our plans will have the intended effect of improving our margins on the expected timeline, or at all.
A limited number of our customers comprisederive a material portion of our revenues and any changes in the way they purchase products and services from us could affect our business. In addition, there is an ongoing trend toward consolidation in the industry in whicha limited number of our customers, and partners operate. Any decrease in revenues from our customers or partners could have an adverse effect on our net revenues and operating results.
compete in industries that continue to experience consolidation. A material portion of our net revenues, across each customer vertical, depends on sales to a limited number of customers. If such customers and distribution partners. Changes in thechange their business requirements or focus, vendor selection, project prioritization, financial prospects, capital resources, and expenditures, or purchasing behavior (including product mix purchased or delays in deployment) of our key customers could significantly decrease our salesare parties to such customersconsolidation transactions, they may delay, suspend, reduce or could lead to delays or cancellations of plannedcancel their purchases of our products or services and our business, financial condition, and results of operations may be adversely affected.
If we are unable to compete effectively, our business and financial results could be harmed. The markets that we serve are rapidly evolving and highly competitive and include a number of well-established companies. We also compete with other public and private companies that are developing competing technologies to our products. In addition, actual or speculated consolidation among competitors, or the acquisition by, or of, our partners and/or resellers by competitors can increase the competitive pressures faced by us as customers may delay spending decisions or not purchase our products at all. Our partners and resellers generally sell or resell competing products on a non-exclusive basis and consolidation could delay spending or require us to increase discounts to compete, which increasescould also adversely affect our business. Several of our competitors have substantially greater resources and can offer a wider range of products and services for the riskoverall network equipment market than we do. Other competitors have become more integrated, including through consolidation and vertical integration, and offer a broader range of quarterly fluctuationsproducts and services, which could make their solutions more attractive to our customers. Many of our competitors also sell networking products as bundled solutions with other IT products. If we are unable to compete effectively against existing or future competitors, we could experience a loss in market share and a reduction in revenues and/or be required to reduce prices, which could reduce our revenuesgross margins, and operating results. Any of these factorswhich could materially and adversely affect our business, financial condition, and results of operations.
In addition, in recent years, there has been movement towards consolidation in the telecommunications industry (for example, CenturyLink, Inc.'s acquisition
Table of Level 3 Communications, Inc., Vodafone India’s acquisition of Idea Cellular Ltd. and T-Mobile US, Inc.'s proposed acquisition of Sprint Corp., which was recently approved by the U.S. Justice Department.) and that consolidation trend has continued. Certain telecommunications companies have also moved towards vertical consolidation through acquisitions of media and content companies, such as Verizon’s acquisition of Yahoo, AT&T’s acquisition of Time Warner, and Comcast's acquisition of Sky. If our customers or partners are parties to consolidation transactions they may delay, suspend or indefinitely reduce or cancel their purchases of our products or other direct or indirect unforeseen consequences could harm our business, financial condition, and results of operations.Contents
Fluctuating economic conditions make it difficult to predict revenues and gross margin for a particular period and a shortfall in revenues or increase in costs of production may harm our operating results.
Our revenues and gross margin depend significantly on general economic conditions and the demand for products in the markets in which we compete. Economic weakness or uncertainty, customer financial difficulties, and constrained spending on network
expansion and enterprise infrastructure have in the past resulted in, and may in the future result in, decreased revenues and earnings. Such factors could make it difficult to accurately forecast revenues and operating results and could negatively affect our ability to provide accurate forecasts to our contract manufacturers and manage our contract manufacturer relationships and other expenses.expenses and to make decisions about future investments. In addition, economic instability or uncertainty, as well as continued turmoil in the geopolitical environment in many parts of the world and other events beyond our control, such as the COVID-19 pandemic, have, and may continue to, put pressure on economic conditions, which has led and could lead, to reduced demand for our products, to delays or reductions in network expansions or infrastructure projects, and/or higher costs of production. More generally-speaking, economic weakness may also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, restructuring initiatives and associated expenses, and impairment of investments. Furthermore, instability in the global markets may adversely impact the ability of our customers to adequately fund their expected expenditures, which could lead to delays or cancellations of planned purchases of our products or services. Our operating expenses are largely based on anticipated revenue trends and a high percentage of our expenses is, and will continue to be, fixed in the short and medium term. Uncertainty about future economic conditions also makes it difficult to forecast operating results and to make decisions about future investments. Future or continued economic weakness, failure of our customers and markets to recover from such weakness, customer financial difficulties, increases in costs of production, and reductions in spending on network maintenance and expansion could result in price concessions in certain markets or have a material adverse effect on demand for our products and consequently on our business, financial condition, and results of operations.
Our success depends upon our ability to effectively plan and manage our resources and restructure our business through rapidly fluctuating economic and market conditions, and such actions may have an adverse effect on our financial and operating results.
business. Our ability to successfully offer our products and services in a rapidly evolving market requires an effective planning, forecasting, and management process to enable us to effectively scale and adjust our business and business models in response to fluctuating market opportunities and conditions.
From time to time, we have increased investment in our business by for example, increasing headcount, acquiring companies, and increasing our investment in R&D,research and development, sales and marketing, and other parts of our business. Conversely, in 2017, 2018,the last few years and 2019,in 2020, we have initiated restructuring plans to realign our workforce as a result of organizational and leadership changes align our execution priorities, increase operational efficiencies, and to consolidate facilities which resulted in restructuring charges in each of these years. Some of our expenses related to such efforts are fixed costs that cannot be rapidly or easily adjusted in response to fluctuations in our business or numbers of employees. Rapid changes in the size, alignment or organization of our workforce, including sales account coverage, could adversely affect our ability to develop and deliver products and services as planned or impair our ability to realize our current or future business and financial objectives.charges. Our ability to achieve the anticipated cost savings and other benefits from our restructuringthese initiatives within the expected time frame is subject to many estimates and assumptions, which are subject to significant economic, competitive and other uncertainties, some of which are beyonduncertainties. If our control. If these estimates and assumptions are incorrect or if we are unsuccessful at implementing changes, or if other unforeseen events occur, our business and results of operations could be adversely affected.
We face intense competition thatIntegration of acquisitions could reduce our revenues and adversely affectdisrupt our business and harm our financial results.condition and stock price and may dilute the ownership of our stockholders. We have made, and may continue to make, acquisitions in order to enhance our business and invest significant resources to integrate the businesses we acquire. The success of each acquisition depends in part on our ability to realize the business opportunities and manage numerous risks, including, but not limited to, problems combining the purchased operations, technologies or products, unanticipated costs, higher operating expenses, liabilities, litigation, and diversion of management's time and attention, adverse effects on existing business relationships with suppliers and customers, risks associated with entering markets in which we have no or limited prior experience, and where competitors in such markets have stronger market positions, initial dependence on unfamiliar supply chains, failure of our due diligence processes to identify significant problems, liabilities or other challenges of an acquired company or technology, and the potential loss of key employees, customers, distributors, vendors, and other business partners of the companies we acquire.
Competition is intenseThere can be no assurance that we will be able to successfully integrate any businesses, products, technologies, or personnel that we might acquire or that the transaction will advance our business strategy, and we may not realize anticipated revenues or other benefits associated with our acquisitions. In addition, we have divested, and may in the marketsfuture, divest businesses, product lines, or assets. These initiatives may also require significant separation activities that could result in the diversion of management’s time and attention, loss of employees, substantial separation costs, and accounting charges for asset impairments.
In connection with certain acquisitions, we serve. The routingmay agree to issue common stock, or assume equity awards, that dilute the ownership of our current stockholders, use a substantial portion of our cash resources, assume liabilities (both known and switching markets have historically been dominated by Cisco Systems, Inc.unknown), or Cisco, with competition coming from other companies such as Nokia Corporation, Arista Networks, Inc.,record goodwill and Huawei Technologies Co., Ltd. In the security market, we face intense competition from Cisco and Palo Alto Networks, Inc.,amortizable intangible assets as well as companies such as Check Point Software Technologies, Ltd.,restructuring and Fortinet, Inc. Further, a number of other small public and private companies have products or have announced plans for new products to address the same challenges and markets that our products address.
In addition, actual or speculated consolidation among competitors, or the acquisition by, or of, our partners and/or resellers by competitors can increase the competitive pressures faced by us as customersrelated expenses. We may delay spending decisions or not purchase our products at all. A number of our competitors have substantially greater resources and can offer a wider range of products and services for the overall network equipment market than we do. In addition, some of our competitors have become more integrated, including through consolidation and vertical integration, and offer a broader range of products and services,incur additional acquisition-related debt, which could make their solutions more attractive toincrease our customers. Many of our competitors sell networking products as bundled solutions with other IT products, such as computerleverage and storage systems. If we are unable to compete successfully against existing and future competitors on the basis of product offerings or price, we could experience a loss in market share and revenues and/or be required to reduce prices, which could reduce our gross margins, and which could materially and adverselypotentially negatively affect our business,credit ratings resulting in more restrictive borrowing terms or increased borrowing costs thereby limiting our ability to borrow. Any of the foregoing, and other factors, could harm our ability to achieve anticipated levels of profitability or other financial condition, and resultsbenefits from our acquired or divested businesses, product lines or assets or to realize other anticipated benefits of operations. Our partners and resellers generally selldivestitures or resell competing products on a non-exclusive basis and consolidation could delay spending or require us to increase discounts to compete, which could also adversely affect our business.acquisitions.
The longLong sales and implementation cycles for our products and short lead times to fill large customer orders may cause our revenues and operating results to vary significantly from quarter-to-quarter. We experience lengthy sales cycles because our customers' decisions to purchase certain of our products, particularly new products, involve a significant commitment of their resources and a lengthy evaluation and product qualification process. Customers design and implement large network deployments following lengthy procurement processes, which may impact expected future orders. Following a purchase, customers may also deploy our products slowly and deliberately. Customers with large networks often expand their networks in large increments on a periodic basis and place large orders on an irregular basis. These sales and implementation cycles, as well as our expectation that some customers will sporadically place large orders with short lead times, may cause our revenues and operating results to vary significantly from quarter-to-quarter.
A customer's decision
Our ability to purchase certain of our products, particularly new products, involvesrecognize revenue in a significant commitment of its resources and a lengthy evaluation and product qualification process. As a result, the sales cycle may be lengthy. In particular customers making critical decisions regarding the design and implementation of large network deployments may engage in very lengthy procurement processes that may delay or impact expected future orders. Throughout the sales cycle, we may spend considerable time educating and providing information to prospective customers regarding the use and benefits of our products. Even after making the decision to purchase, customers may deploy our products slowly and deliberately. Timing of deployment can vary widely and dependsperiod is contingent on the skill set of the customer, the size of the network deployment, the complexity of the customer's network environment, and the degree of hardware and operating system configuration necessary to deploy the products. Customers with large networks usually expand their networks in large increments on a periodic basis. Accordingly, we may receive purchase orders for significant dollar amounts on an irregular basis. These long cycles, as well as our expectation that customers will tend to sporadically place large orders with short lead times, both of which may be exacerbated by the impact of global economic weakness, may cause revenues and operating results to vary significantly and unexpectedly from quarter-to-quarter.
The timing of product orders and deliveries and/or our reliance on revenue from sales of certain software or subscriptions and professional, support and maintenance services may cause us to recognize revenue inservices. In some of our businesses, our quarterly sales have periodically reflected a different period than the onepattern in which a transaction takes place.
Due todisproportionate percentage of each quarter's total sales occurs towards the cost, complexity and custom natureend of configurations required by our customers,the quarter. Further, we generally build our network equipmentcertain products asonly when orders are received. TheSince the volume of orders received late in any given fiscal quarter remains unpredictable. Ifunpredictable, if orders for certaincustom products are received late in any quarter, we may not be able to recognize revenue for these orders in the same period which could adversely affect our ability toor meet our expected revenues for such quarter.quarterly revenues. Similarly, if we were to take actions to encourage customers to place orders or accept deliveries earlier than anticipated, our ability to meet our expected revenues in future quarters could be adversely affected. We also determine our operating expenses based on our anticipated revenues and technology roadmap and a high percentage of our expenses are fixed in the short and medium term. Any failure or delay in generating or recognizing revenue could cause significant variations in our operating results and operating margin from quarter-to-quarter.
In addition, services revenue accounts for a significant portion of our revenue, comprising 33%35%, 31%33%, and 29%31% of total revenue in fiscal year 2019, 2018, and 2017, and 2016, respectively. SalesWe expect our sales of new or renewal professional services, support, and maintenance contracts may decline and/orto fluctuate as a result of a number of factors, includingdue to end-customers’ level of satisfaction with our products and services, the prices of our products and services or those offered by our competitors, and reductions in our end-customers’ spending levels. We recognize professional services when delivered and support, and maintenance revenue periodically over the term of the relevant service period.
The introduction of new software products and services is part of our intended strategy to expand our software business, andFurther, we recognize certain software revenues may be recognized periodically over the term of the relevant use period or subscription period. Asperiods and as a result, certainthe related software, subscription and support, and maintenance revenue we report each fiscal quarter is derived from the recognition of deferred revenue from contracts entered into during previous fiscal quarters. Consequently, a declineAny fluctuation in such new or renewed contracts in any one fiscal quarter willmay not be fully or immediately reflected in revenue in that fiscal quarter but willand could negatively affect our revenue in future fiscal quarters. Accordingly, the effect of significant downturns in new or renewed sales of certain software products, subscriptions or support and maintenance is not reflected in full in our operating results until future periods. Also, it is difficult for us to rapidly increase such software or services revenue through additional sales in any period, as revenue from those software, subscription and support and maintenance contracts must be recognized over the applicable period.
Additionally, we determine our operating expenses largely on the basis of our anticipated revenues and technology roadmap and a high percentage of our expenses are fixed in the short and medium term. As a result, a failure or delay in generating or recognizing revenue could cause significant variations in our operating results and operating margin from quarter-to-quarter.RISKS RELATED TO OUR TECHNOLOGY AND BUSINESS OPERATIONS
We sell our products to customers that use those products to build networks and IP infrastructure, and ifIf the demand for network and IP systems does not continue to grow, our business, financial condition, and results of operations could be adversely affected.
A substantial portion of our business and revenues depends on the growth of secure IP infrastructure andas well as customers that depend on the continued growth of IP services to deploy our products in their networks and IP infrastructures. As a result of changes in the economy, capital spending or the building of network capacity in excess of demand (all of which, have in the past, particularly affected telecommunications service providers), spending on IP infrastructure can vary, which could have a material adverse effect
on our business, financial condition, and results of operations. In addition, a number of our existing customers are evaluating the build-out of their next generation networks. During the decision-making period when our customers are determining the design of those networks and the selection of the software and equipment they will use in those networks, such customers may greatly reduce or suspend their spending on secure IP infrastructure. For example, in recent years, our switching and routing results were adversely affected byAny reduction or suspension of spending delays from our largest Cloud customers, who we believe are in the process of implementing a networking architectural shift. The duration of the delayon IP infrastructure is difficult to predict, and may be due to events beyond our control, such as the COVID-19 pandemic. This, in part because each Cloud customer will migrate their network architecture based on their own constraints. Such delays in purchasesturn, can make it more difficult to accurately predict revenues from customers, can cause fluctuations in the level of spending by customers and, even where our products are ultimately selected, can have a material adverse effect on our business, financial condition, and results of operations.
If we do not successfully anticipate technological shifts, market needs and opportunities, and develop products, product enhancements and business strategies that meet those technological shifts, needs and opportunities, or if those products are not made available or strategies are not executed in a timely manner or do not gain market acceptance, we may not be able to compete effectively and our ability to generate revenues will suffer.
The markets for our productsIf we are characterized by rapid technological change, frequent new product introductions, changes in customer requirements, continuous pricing pressures and a constantly evolving industry. We may not be ableunable to anticipate future technological shifts, market needs, and opportunities or be able to develop new products, product enhancements or business strategies to meet such technological shifts, needs or opportunities in a timely manner or at all. For example, the move from traditional wide area network, or WAN, infrastructures towards software-defined WAN, or SD-WAN, has been receiving considerable attention. In our view, it will take several years to see the full impact of SD-WAN, and we believe the successful products and solutions in this market will combine hardware and software elements. If we fail to anticipate market requirements or opportunities or fail to develop and introduce new products, product enhancements or business strategies to meet those requirements or opportunities in a timely manner or at all, it could cause us to lose customers, and such failure could substantially decrease or delay market acceptance and sales of our present and future products and services, which wouldand significantly harm our business, financial condition, and results of operations. In addition, if we invest time, energy and resources in developing products for a market that does not develop, it could likewise significantly harm our business, financial condition, and results of operations. Even if we are able to anticipate, develop, and commercially introduce new products, enhancements or business strategies, there can be no assurance that any new products, enhancements or business strategies will achieve widespread market acceptance.
In recent years, we have announced a number of new products and enhancements toFurther, our hardware and software products across routing, switching and security. The success of our new products depends on several factors, including, but not limited to, component costs, timely completion and introduction of these products, prompt resolution of any defects or bugs in these products, our ability to support these products, differentiation of new products from those of our competitors and market acceptance of these products.
The introduction of new software productsstrategy is part of our intended strategy to expand our software business. We have also begun to disaggregate certain software from certain hardware products, such that customers would be able to purchase or license our hardware and software products independently, which we expect could in time enable our hardware to be deployed with third- party networking applications and services and our software to be used with third-party hardware. The success of our strategy to expand our software business, including our strategy to disaggregate software from certain hardware products, is subject to a number of risks and uncertainties, including:
•the additional development efforts and costs required to create new software products and/orand to make our disaggregated products compatible with multiple technologies;
•the possibility that our new software products or disaggregated products may not achieve widespread customer adoption;
•the possibility that our strategy could erode our revenue and gross margins;
•the impact on our financial results of longer periods of revenue recognition for certain types of software products
and changes in tax treatment associated with software sales;
•the additional costs associated with regulatory compliance and changes we need to make to our distribution chain in connection with increased software sales;
•the ability of our disaggregated hardware and software products to operate independently and/or to integrate with current and future third-party products; and
•issues with third-party technologies used with our disaggregated products, which may be attributed to us.
If any of our new products or business strategies do not gain market acceptance or meet our expectations for growth, our ability to meet future financial targets may be adversely affected and our competitive position and our business and financial results could be harmed.
If our products do not interoperate with our customers’ networks, installations will be delayed or cancelled and could harm our business. Our products are designed to interface with our customers’ existing networks, each of which have different specifications and utilize multiple protocol standards and products from other vendors. Many of our customers’ networks contain multiple generations of products that have been added over time as these networks have grown and evolved. Our products must interoperate with many or all of the products within these networks as well as future products to meet our customers’ requirements. If we find errors in the existing software or defects in the hardware used in our customers’ networks, we may need to modify our software or hardware to fix or overcome these errors so that our products will interoperate and scale with the existing software and hardware, which could be costly and could negatively affect our business, financial condition, and results of operations. In addition, if our products do not interoperate with those of our customers’ networks, demand for our products could be adversely affected or orders for our products could be cancelled. This could hurt our operating results, damage our reputation, and seriously harm our business and prospects.
Our products incorporate and rely upon licensed third-party technology. We integrate licensed third-party technology into certain of our products. From time to time, we may be required to renegotiate our current third-party licenses or license additional technology from third parties to develop new products or product enhancements or to facilitate new business models. Third-party licenses may not be available or continue to be available to us on commercially reasonable terms and some of our agreements with our licensors may be terminated for convenience by them. In addition, we cannot be certain that our licensors are not infringing on the intellectual property rights of third parties or that our licensors have sufficient rights to the licensed intellectual property in all jurisdictions in which we may sell our products. Third-party technology we incorporate into our products that is deemed to infringe on the intellectual property of others may result, and in some cases has resulted, in limitations on our ability to source technology from those third parties, restrictions on our ability to sell products that incorporate the infringing technology, increased exposure to liability that we will be held responsible for incorporating the infringing technology in our products and increased costs involved in removing that technology from our products or developing substitute technology. Our inability to comply with, maintain or re-license any third-party licenses required in our products or our inability to obtain third-party licenses necessary to develop new products and product enhancements, could require us to develop substitute technology or obtain substitute technology of lower quality or performance standards or at a greater cost, any of which could delay or prevent product shipment and harm our business, financial condition, and results of operations.
We may face difficulties enforcing our proprietary rights, which could adversely affect our ability to compete. We rely on a combination of patents, copyrights, trademarks, trade secret laws and contractual restrictions on disclosure of confidential and proprietary information, to protect our proprietary rights. Although we have been issued numerous patents and other patent applications are currently pending, there can be no assurance that any of our patent applications will result in issued patents with the scope of the claims we seek or that any of our patents or other proprietary rights will not be challenged, invalidated, infringed or circumvented or that our rights will, in fact, provide competitive advantages to us or protect our technology. If we cannot protect our intellectual property rights, we could incur costly product redesign efforts, discontinue certain product offerings and experience other competitive harm.
Unauthorized parties may also attempt to copy aspects of our products or obtain and use our proprietary information. We generally enter into confidentiality or license agreements with our employees, consultants, vendors, and customers, and generally limit access to and distribution of our proprietary information. However, we cannot assure you that we have entered into such agreements with all parties who may have or have had access to our confidential information or that these agreements
will not be breached. We cannot guarantee that any of the measures we have taken will prevent misappropriation of our technology. We are dependentalso vulnerable to third parties who illegally distribute or sell counterfeit, stolen or unfit versions of our products, which has happened in the past and could happen in the future. Such sales could have a negative impact on our reputation and business.
In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the U.S. The outcome of any actions taken in these foreign countries may be different than if such actions were determined under the laws of the U.S. If we are unable to protect our proprietary rights, we may be at a competitive disadvantage to others who need not incur the substantial expense, time, and effort required to create innovative products that have enabled our success.
We depend on contract manufacturers with whomand original design manufacturers as well as single-source and limited source suppliers. Our operations depend on our ability to anticipate our needs for components, products and services, as well as the ability of our manufacturers, original design manufacturers, and suppliers to deliver sufficient quantities of quality components, products and services at reasonable prices and in time for us to meet critical schedules for the delivery of our own products and services. Given the wide variety of solutions that we do not have long-term supply contracts,offer, the large and changesdiverse distribution of our manufactures, and suppliers, and the long lead times required to or disruptionsmanufacture, assemble and deliver certain products, problems could arise in those relationships or manufacturing processes, expected or unexpected, may result in delaysproduction, planning and inventory management that could seriously harm our business. Any delay in our ability to produce and deliver our products could cause usour customers to lose revenuespurchase alternative products from our competitors. In addition, our ongoing efforts to optimize the efficiency of our supply chain could cause supply disruptions and damagebe more expensive, time-consuming and resource-intensive than expected. Other manufacturing and supply problems that we could face are described below.
•Manufacturing Issues. We may experience supply shortfalls or delays in shipping products to our customer relationships.
We depend on independentcustomers if our manufacturers experience delays, disruptions, or quality control problems in their manufacturing operations, or if we have to change or add additional manufacturers or contract manufacturers (each of which is a third-party manufacturer for numerous companies) to manufacture our products.manufacturing locations. Although we have contracts with our contract manufacturers, these contracts do not require them to manufacture our products on a long-term basis in any specific quantity or at any specific price. In addition, it is time-consuming and costly to qualify and implement additional contract manufacturer relationships. Therefore, if we fail to effectively manage our contract manufacturer relationships, which could include failing to provide accurate forecasts of our requirements, or if one or more of them experiences delays, disruptions, or quality control problems in their manufacturing operations, or if we had to change or add additional contract manufacturers or contract manufacturing sites, our ability to ship products to our customers could be delayed. We have experienced in the past and may experience in the future an increase in the expected time required to manufacture our products or ship products. Suchproducts, including delays could result in supply shortfalls that damage our abilitydue to meet customer demand for those productsthe manufacturing restrictions, travel restrictions and could cause our customersshelter-in-place orders to purchase alternative products from our competitors. Also,control the additionspread of manufacturing locations or contract manufacturers or the introduction of new products by us would increase the complexity of our supply chain management.COVID-19. Moreover, a significant portion of our manufacturing is performed in China, Malaysia and other foreign countries and is therefore subject to risks associated with doing business outside of the United States,U.S., including import tariffs, export restrictions, disruptions to our supply chain, pandemics, regional climate-related events, or regional conflicts. For example, the United States recently imposed a tariff on networking products imported from China; this includes certain products that we import into and sell within the United States. If we cannot fully mitigate the impact of the tariffs, the increased cost could translate into higher prices for our customers, reduced customer demand or increased cost of goods sold. Similarly, many of the products that we source from China are transported by air cargo from Hong Kong, which has experienced recent political demonstrations that have resulted in cancellations or delays in flights in and out of Hong Kong. If these demonstrations and their impact on air shipments continue, we could experience delays in product deliveries or be required to change our shipping practices. In addition, increased costs of production or delays in production caused by any relocation of contract manufacturing facilities or delays in product deliveries could impact the global competitiveness of our products. Each of these factors could adversely affect our business, financial condition and results of operations.
We are dependent on sole source and limited source suppliers, including for key components, which makes us susceptible to shortages, quality issues or price fluctuations in our supply chain, and we may face increased challenges in supply chain management in the future.
•Single-Source Suppliers. We rely on single or limited sources for many of our components due to technology, availability, price, quality, scale or customization needs. In addition, there has been consolidation among certain suppliers of our components. During periods of high demand for electronic products, component shortages are possible, andConsolidation among suppliers can result in the predictabilityreduction of the availabilitynumber of independent suppliers of components available to us, which could negatively impact our ability to access certain component parts or the prices we have to pay for such parts and may impact our gross margins. Additionally, if certain components that we receive from our suppliers have defects or other quality issues, we may have to replace or repair such components, mayand we could be limited. For example, we have experienced industry-widesubject to claims based on warranty, product liability, epidemic or delivery failures that could lead to significant expenses.
•Supply-chain Disruption. Any disruptions to our supply constraints relatedchain or significant increase in component costs could decrease our sales, earnings and liquidity or otherwise adversely affect our business and result in increased costs. Such a disruption could occur as a result of any number of events, including, but not limited to, power management components.an extended closure of or any slowdown at our supplier's plants or shipping delays due to efforts to limit the spread of COVID-19, increases in prices, the imposition of regulations, quotas or embargoes on components, labor stoppages, transportation delays or failures affecting the supply chain and shipment of materials and finished goods, third-party interference in the integrity of the products sourced through the supply chain, the unavailability of raw materials, severe weather conditions, adverse effects of climate change, natural disasters, geopolitical developments, war or terrorism and disruptions in utilities and other services. In addition, some components used in our networking solutions have in the past and maydevelopment, licensing, or acquisition of new products in the future experience extended lead timesmay increase the complexity of supply chain management. Failure to effectively manage the supply of components and higher pricing, given theproducts would adversely affect our business.
•Component Supply Forecast. We provide demand forecasts for our products to our manufacturers, who order components and plan capacity based on these forecasts. If we overestimate our requirements, our manufacturers may assess charges, or we may have liabilities for excess inventory, each of which could negatively affect our gross margins. If we underestimate our requirements, our contract manufacturers may have inadequate time, materials, and/or components required to produce our products. This could increase costs or delay or interrupt manufacturing of our products, resulting in the market.delays in shipments and deferral or loss of revenues and could negatively impact customer
satisfaction. Any future spike in growth in our business, in the use of certain components we share in common with other companies, in IT spending, or in the economy in general, is likely to create greater short-term pressurespressure on us and our suppliers to accurately forecast overall component demand and to establish optimal component inventories. If shortages or delays persist, we may not be able to secure enough components at reasonable prices or of acceptable quality to build and deliver products in a timely manner, and our revenues, gross margins and customer relationships could suffer. Additionally, if certain components that we receive from our suppliers have defects or other quality issues, we may have to replace or repair such components, and we could be subject to claims based on warranty, product liability, epidemic or delivery failures that could lead to significant expenses. We maintain product liability insurance, but there is no guarantee that such insurance will be available or adequate to protect against all such claims. We have experienced, and from time-to-time may experience, component shortages or quality issues that resulted, or could result, in delays
•Alternative Sources of product shipments, revenue charges that impact our gross margins, and/or warranty or other claims or costs. We also currently purchase numerous key components, including ASICs and other semiconductor chips, from single or limited sources and many of our component suppliers are concentrated in China and Korea. In addition, there has been consolidation among certain suppliers of our components. For example, GLOBALFOUNDRIES acquired IBM’s semiconductor manufacturing business, Avago Technologies Limited acquired Broadcom Corporation and Intel Corporation acquired Altera Corporation. Consolidation among suppliers can result in the reduction of the number of independent suppliers of components available to us, which could negatively impact our ability to access certain component parts or the prices we have to pay for such parts which may impact our gross margins. In addition, our suppliers may determine not to continue a business relationship with us for other reasons
that may be beyond our control or may seek to impose significant price increases. Any disruptions to our supply chain or significant increase in components cost could decrease our sales, earnings and liquidity or otherwise adversely affect our business and result in increased costs. Such a disruption could occur as a result of any number of events, including, but not limited to, increases in wages that drive up prices, the imposition of regulations, quotas or embargoes on components, labor stoppages, transportation failures affecting the supply chain and shipment of materials and finished goods, third-party interference in the integrity of the products sourced through the supply chain, the unavailability of raw materials, severe weather conditions, natural disasters, civil unrest, military conflicts, geopolitical developments, war or terrorism and disruptions in utility and other services.
Supply.The development of alternate sources for components is time-consuming, difficult, and costly. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules. Also, long-term supply and maintenance obligations to customers increase the duration for which specific components are required, which may further increase the risk of component shortages or the cost of carrying inventory. In the event of a component shortage, supply interruption or significant price increase from these suppliers, we may not be able to develop alternate or second sources in a timely manner. If we are unable to buy these components in quantities sufficient to meet our requirements on a timely basis, we will not be able to deliver products and services to our customers, which would seriously affect present and future sales, whichand would, in turn, adversely affect our business, financial condition, and results of operations.
In addition,•COVID-19 Impact. Delays in production or in product deliveries due to the development, licensing, or acquisition of new products in the futureCOVID-19 pandemic have adversely affected and may increase the complexity of supply chain management. Failurecontinue to effectively manage the supply of components and products would adversely affect our business.
Ifbusiness, financial condition, and results of operations. For example, during the first three quarters of fiscal 2020, the COVID-19 pandemic caused us to experience supply constraints due to both constrained manufacturing capacity, particularly in China and Malaysia, as well as component parts shortages as our component vendors were also facing manufacturing challenges, and increased logistics costs due to air travel and transport restrictions that limited the availability of flights on which we failship our products. These challenges resulted in extended lead-times to accurately predict our customers and had a negative impact on our ability to recognize associated revenue in the first three quarters. We continue to work with government authorities and implement safety measures to ensure that we are able to continue manufacturing requirements, we could incur additional costs or experience manufacturing delays, which would harm our business.
We provide demand forecasts forand distributing our products during the COVID-19 pandemic. However, uncertainty resulting from the pandemic could result in an unforeseen disruption to our contract manufacturerssupply chain (for example a closure of a key manufacturing or distribution facility or the inability of a key supplier or transportation supplier to source and original design manufacturers, who order components and plan capacity based on these forecasts. If we overestimatetransport materials) that could impact our requirements, our original design or contract manufacturers may assess charges, or we may have liabilities for excess inventory, each of which could negatively affect our gross margins. For example, in certain prior quarters, our gross margins were reduced as a result of an inventory charge resulting from inventory we held in excess of forecasted demand. In addition, some optical modules we use are experiencing faster product transitions than our other products, which increases the risk that we could have excess inventory of those modules. Conversely, lead times for required materials and components vary significantly and depend on factors such as the specific supplier, contract terms, and the demand for each component at a given time. Given that our contract manufacturers are third-party manufacturers for numerous other companies, if we underestimate our requirements, as we have in certain prior quarters with respect to certain products, our contract manufacturers may have inadequate time, materials, and/or components required to produce our products. This could increase costs or delay or interrupt manufacturing of our products, resulting in delays in shipments and deferral or loss of revenues and could negatively impact customer satisfaction.operations.
System security risks, data protection breaches, and cyber-attackscyberattacks could compromise our and our customers’ proprietary information, disrupt our internal operations and harm public perception of our products, which could cause our business and reputation to suffer and adversely affect our stock price.
products. In the ordinary course of business, we store sensitive data, including intellectual property, personal data, our proprietary business information and that of our employees, contractors, customers, suppliers, vendors, and other business partners on our networks. In addition, we store sensitive data through cloud-based services that may be hosted by third parties and in data center infrastructure maintained by third parties. The secureSecure maintenance of this information is critical to our operations and business strategy. The growing cyber risk environment means that individuals, companies,On an ongoing and organizations of all sizes, including Juniper,regular basis, we have been, and are increasinglyexpect to be, subject to attackscyberattacks and attempted intrusions including recent attempts, on their and their vendors'our networks and systems by a wide range of actors, including but not limited to nation states, criminal enterprises, and terrorist organizations, onand other organizations or individuals, as well as errors, wrongful conduct or malfeasance by employees and third-party service providers (collectively, “malicious parties”). The continued occurrence of high-profile data breaches provides evidence of an ongoing and regular basis. environment increasingly hostile to information security.
Despite our security measures, and those of our third-party vendors, our information technology and infrastructure hashave experienced breaches and may be subject to or vulnerable in the future to breaches or attacks by computer programmers, hackers or sophisticated nation-state and nation-state supported actors or breaches due to employee error or wrongful conduct, malfeasance, or other disruptions.in the future. If any breach or attack compromises our networks or those of our vendors',vendors, creates system disruptions or slowdowns or exploits security vulnerabilities of our products, the information stored on our networks or thosethe networks of our customers, suppliers or business partners could be accessed and modified, publicly disclosed, lost, destroyed or stolen, and we may be subject to claims for contractual, tort or equitable liability to our customers, suppliers, business partners and others, including regulatory entities, and suffer reputational and financial harm. In addition, malicious parties may compromise our manufacturing supply chain to embed malicious hardware, components and software (including operating system software) and applications that we produce or procure from third parties may contain defects in design or manufacture, including "bugs", vulnerabilities and other problems that could unexpectedly interfere with the operation of our networks, or expose us or our products to cyber attacks, or be exploited to gain unauthorized access to our or our customers’ systems or information we maintain. This can be true even for
“legacy” products that have been determined to have reached an end of life engineering status but will continue to operate for a limited amount of time. Furthermore, third parties may attempt to exfiltrate data through the introduction into the Information and Communications Technology supply chain of malicious products and components that are designed to defeat or circumvent encryption and other cybersecurity measures to interfere with the operation of our networks, expose us or our products to cyberattacks, or gain unauthorized access to our or our customers’ systems and if successful,information. If such actions are successful, they could diminish customer trust in our products, harm our business reputation, and adversely affect our business and financial condition.
When vulnerabilities are discovered, we evaluate the risk, apply patches or take other remediation actions and notify customers, business partners, and suppliers as appropriate. All of this requires significant resources and time and attention from management and our employees.
As a result of any actual or perceived breach of network security that occurs in our network or in the network of a customer of our products, regardless of whether the breach is attributable to our products, the market perception of the effectiveness of our products and our overall reputation could be harmed. As a large, well known provider of networking products, cyber attackers regularly and specifically target our products or attempt to imitate us or our products in order to compromise a network. Because the techniques used by attackers, many of whom are highly sophisticated and well-funded,malicious parties to access or sabotage networks change frequently and generally are not recognized until after they are used, we may be unable to anticipate or immediately detect these techniques or the vulnerabilities they have caused. Further, when vulnerabilities are discovered, we evaluate the risk, apply patches or take other remediation actions and notify customers, business partners, and suppliers as appropriate.
All of this requires significant resources and attention from management and our employees, and the economic costs to us to eliminate or alleviate these issues could be significant and may be difficult to anticipate or measure. The market perception of
the effectiveness of our products and our overall reputation could also be harmed as a result of any actual or perceived breach of security that occurs in our network or in the network of a customer of our products, regardless of whether the breach is attributable to our products or to actions of malicious parties. This could impede our sales, manufacturing, distribution or other critical functions, which could have an adverse impact on our financial results. The economic costsThese risks to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious softwareour systems and security vulnerabilities could be significant and may be difficult to anticipate or measure, becauseincreased during the damage may differ based onCOVID-19 pandemic as the identityhealth of our internal security team members who monitor and motive ofaddress cyber threats and attacks against us and our employees around the attacker, which are often difficult to pinpoint. world is also at risk.
Additionally, we could be subject to measures that regulate the security of the types of products we sell, such as the California Internet of Things (IoT) security law (SB-327), which became enforceable in 2020. Such regulations may result in increased costs and delays in product releases and changes in features to achieve compliance which may impact customer demand for our products, and result in regulatory investigations, potential fines, and litigation in connection with a compliance concern, security breach or related issue, and be liablepotential liability to third parties arising from such breaches. Further, in response to actual or anticipated cybersecurity regulations or contractual security requirements negotiated with our customers, we may need to make changes to existing policies, processes and supplier relationships that could impact product offerings, release schedules and service response times, which could adversely affect the demand for these typesand sales of breaches.
We rely on value-added and other resellers, as well as distribution partners, to sell our products and disruptionsservices. We maintain product liability insurance, but there is no guarantee that such insurance will be available or adequate to protect against all such claims. If our business liability insurance coverage is inadequate, or future coverage is unavailable on acceptable terms or at all, our failure to effectively developfinancial condition and manage,results of operations could be harmed.
Disruption in our distribution channelchannels could seriously harm our future revenue and the processesfinancial condition and procedures that support it could adversely affectincrease our ability to generate revenues from the sale of our products.
Our future success is highly dependent upon establishingcosts and maintaining successful relationships with a variety of value-added and other reseller and distribution partners, including our worldwide strategic partners such as Ericsson, IBM, Dimension Data and NEC Corporation. expenses. The majority of our revenues are derived through value-added resellers and distributors, most of which also sell our competitors’ products, and some of which sell their own competing products. Our revenues depend in part on the performance of these partners. The loss of or reduction in sales to our resellers or distributors could materially reduce our revenues. Our competitors may in some cases be effective in leveraging their market share positions or in providing incentives to current or potential resellers and distributors to favor their products or to prevent or reduce sales of our products. If we failare unable to develop and maintain relationships with our partners, fail to develop new relationships with value-added resellers and distributors in new markets, fail to expand the number of distributors and resellers in existing markets, fail to manage, train or motivate existing value-added resellers and distributors effectively, determine that we cannot continue to do business with these partners for any reason or if these partners are not successful in their sales efforts, sales of our products may decrease, and our business, financial condition, and results of operations would suffer.
In addition, we We recognize a portion of our revenues at the time we sell products to our distributors. If these sales are made based on inaccurate or untimely information, the amount or timing of our revenues could be adversely impacted. Further, our distributors may increase orders during periods of product shortages, cancel orders if their inventory is too high, or delay orders in anticipation of new products. They also may adjust their orders in response to the supply of our products and the products of our competitors that are available to them, and in response to seasonal fluctuations in end-user demand.
We are also vulnerable to third parties who illegally distribute or sell counterfeit, stolen or unfit versions of our products, which has happened in the past and could happen in the future. Such sales could have a negative impact on our reputation and business.
Further, in order toTo develop and expand our distribution channel, we must continue to offer attractive channel programs to potential partners and scale and improve our processes and procedures that support the channel. As a result, our programs, processes and procedures may become increasingly complex and inherently difficult to manage. We have previously entered into OEM agreements with partners pursuant to which they rebrand and resell our products as part of their product portfolios. These types of relationships are complex and require additional processes and procedures that may be costly or challenging and costly to implement, maintain, and manage. Our failure to successfully manage and develop our distribution channel and the programs, processes and procedures that support it could adversely affect our ability to generate revenues from the sale of our products. We also depend on our global channel partners to comply with applicable legal and regulatory requirements. To the extent that they failAny failure by our partners to do so, thatcomply with these requirements, could have
a material adverse effect on our business, operating results, and financial condition.
Our ability to process orders and ship products in a timely manner is dependent in partWe rely on the performance of our business systems and performance of thethird-party systems and processes of third parties as well as the interfaces between our systems and the systems of such third parties. Dependence on outsourced information technology and other administrative functions may impair our ability to operate effectively.
processes. Some of our business processes depend upon our IT systems, the systems and processes of and IT services provided by third parties, and the interfaces between the two. For example, on December 31, 2018, we entered intoIBM provides us with a Master Services Agreementbroad range of information technology services, such as applications, including support, development and certain Statements of Work with IBM pursuant to which we will outsource significant portions of our ITmaintenance; infrastructure management and other administrative functions following a transition period.support, including for server storage and network devices, and end user support including service desk. These cloud providers, third party providers, and off-site facilities are vulnerable to damage, interruption, including performance problems from earthquakes, hurricanes, floods, fires, power loss, telecommunications failures, equipment failure, adverse events caused by operator error, cybersecurity attacks, pandemics, and similar events. In addition, because we lease off-site data center facilities, we cannot be assured that we will be able to expand our data center infrastructure to meet user demand in a timely manner, or on favorable economic terms. If we have issues receiving and processing data, this may delay our ability to provide products and services to our customers and business partners and damage our business. We also rely upon the performance of the systems and processes of our contract manufacturers to build and ship our products. If those systems and processes experience interruption or delay, our ability to build and ship our products in a timely manner may be harmed. Since IT is critical to our operations, any failure to perform on the part of our IT providers could impair our ability to operate effectively. Inin addition to the risks outlined above, problems with any of the third parties we rely on for our IT systems and services could result in liabilities to our customers and business partners, lower revenue and unexecuted efficiencies, and impact our results of operations and our stock price.
Integration of acquisitions We could disruptalso face significant additional costs or business disruption if our businessarrangements with these third parties are terminated or impaired and harm our financial condition and stock price and may dilute the ownership of our stockholders.
We have made, and may continuewe cannot find alternative services or support on commercially reasonable terms or on a timely basis or if we are unable to make, acquisitionshire new employees in order to enhanceprovide these services in-house.
Our ability to develop, market, and sell products could be harmed if we are unable to retain or hire key personnel or if our business. For example,existing personnel were harmed by COVID-19. Our future success and ability to maintain a technology leadership position depends upon our ability to recruit and retain key management, engineering, technical, sales and marketing, and support personnel as well as to maintain the health of our personnel during a pandemic, including the COVID-19 pandemic. The supply of highly qualified individuals with technological and creative skills, in particular engineers, in specialized areas with the expertise to develop new products and enhancements for our current products, and provide reliable product maintenance, or salespeople with industry expertise, is limited. Competition for people with the specialized technical skills we acquired Mist Systems in 2019, HTBase in 2018 and Cyphort in 2017. Acquisitions involve numerous risks, including, but not limited to, problems combining the purchased operations, technologiesrequire is significant. None of our officers or products, unanticipated costs, liabilities, litigation, and diversion of management's attention from our core businesses, adverse effects on existing business relationships with suppliers and customers, risks associated with entering markets in which we have no or limited prior experience, and where competitors in such markets have stronger market positions, initial dependence on unfamiliar supply chains or relatively small supply partners, and the potential loss of key employees customers, distributors, vendorsis bound by an employment agreement for any specific term. If we fail to attract new personnel or to retain and othermotivate our current personnel, the development and introduction of new products could be delayed, our ability to market, sell, or support our products could be impaired, and our business, partnersresults of the companies we acquire.operations and future growth prospects could suffer. There can be no assurance that others will not develop technologies that are similar or superior to our technology, or that we will be ablenot lose the services of employees due to integrate successfully any businesses, products, technologies, or personnel that we might acquire. The integration of businesses that we may acquire is likely to be a complex, time-consuming, and expensive process and we may not realize the anticipated revenues or other benefits associated with our acquisitions. If we fail to successfully manage, operate or integrate any acquired business or if we are unable to efficiently operate as a combined organization, including through the use of common information and communication systems, operating procedures, financial controls, and human resources practices, our business, financial condition, and results of operations may be adversely affected.COVID-19.
In connection with certain acquisitions, we may agree to issue common stock , or assume equity awards, that dilute the ownershipA number of our current stockholders, use a substantial portion of our cash resources, assume liabilities (both knownteam members are foreign nationals who rely on visas and unknown), record goodwill and amortizable intangible assets that will be subjectentry permits in order to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to certain intangible assets, and incur large and immediate write-offs and restructuringlegally work in the U.S. and other related expenses, allcountries. In recent years, the U.S. has increased the level of which could harm our financial condition and results of operations.
We are a party to lawsuits, investigations, proceedings,scrutiny in granting H-1B, L-1 and other disputes, which are costly to defendbusiness visas. Compliance with new and if determined adversely to us,unexpected U.S. immigration and labor laws could also require us to pay finesincur additional unexpected labor costs and expenses or damages, undertake remedial measurescould restrain our ability to retain and attract skilled professionals. Additionally, pandemics, such as the COVID-19 pandemic, may interfere with our ability to hire or prevent us from taking certain actions, any or all of which could harm our business, results of operations, financial condition or cash flows.
We, and certain of our current and former officers and current and former members of our Board of Directors, have been or are subject to various lawsuits. We have been served with lawsuits related to employment matters, commercial transactions and patent infringement, as well as securities laws. In addition, the U.S. Securities and Exchange Commission, or the SEC, and the U.S. Department of Justice, or the DOJ, previously conducted investigations into possible violations by the Company of the U.S. Foreign Corrupt Practices Act, or the FCPA, in a number of countries which ultimately resulted in the Company, without admitting or denying any fault or wrongdoing, entering into a settlement with the SEC in August 2019. The SEC settlement concerned alleged conduct in two specific countries, found that the specific accounting controls over customer entertainment and travel were ineffective during the period from 2009 through 2013, and required the Company to make a payment of $11.8 million.
Generally, we cannot predict the duration, scope, outcome or consequences of litigation and government investigations. In connection with any government investigations, if the government takes action against us or we agree to settle the matter, we may be required to pay substantial fines and incur other sanctions, which may be material, and suffer reputational harm. In addition, if we fail to comply with the terms of any settlement agreement, we could face more substantial fines or sanctions. The lawsuits and investigations are expensive and time-consuming to defend, settle, and/or resolve, and may require us to implement certain remedial measures that could prove costly or disruptive to our business and operations. The unfavorable resolution of one or moreretain personnel. Any of these mattersrestrictions could have a material adverse effect on our business, results of operations and financial condition or cash flows.conditions.
LEGAL, REGULATORY, AND COMPLIANCE RISKS
We are a party to litigation and claims regarding intellectual property rights, resolution of which may be time-consuming and expensive, as well as require a significant amount of resources to prosecute, defend, or make our products non-infringing.
Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patentlawsuits, investigations, and other intellectual property rights. disputes. We expect thathave been named a party to litigation involving employment matters, commercial transactions, patent infringement, claims may increase as the number of products and competitors in our market increases and overlaps occur. Third parties have asserted and may in the future assert claims or initiate litigation related to patent, copyright, trademark,copyrights, trademarks, and other intellectual property rights to technologies and related standards that are relevant to our products.products, as well as governmental claims, and securities laws, and we may be named in additional litigation. For example, certain U.S. governmental agencies previously conducted investigations into possible violations by us of the U.S. Foreign Corrupt Practices Act, or the FCPA, which ultimately resulted in the Company entering into a settlement with the SEC that involved making a payment of $11.8 million in August 2019. The asserted claims and/or initiated litigation may include claims against us or our manufacturers, suppliers, partners, or customers, alleging that our products or services infringe proprietary rights. The expense of initiating and defending, and in some cases settling, such litigation and investigations may be costly, and may cause us to suffer reputational harm, divert management’s attention from day-to-day operations of our business, and may require us to implement certain remedial measures that could disrupt our business and operations. In addition, if we fail to comply with the terms of any settlement agreement, we could face more substantial penalties. An unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations, financial condition or cash flows.
Further, increased patent litigation brought by non-practicing entities in recent years may result, and in some cases has resulted, in our customers requesting or requiring us to absorb a portion of the costs of such litigation or providing broader indemnification for litigation, each of which could increase our expenses and negatively affect our business, financial condition, and results of operations. Regardless of the merit of these claims, they have been and can be time-consuming, result in costly litigation, and may require us to develop non-infringing technologies, enter into license agreements, or cease engaging in certain activities or offering certain products or services. Furthermore, even arguably unmeritorious claims may be settled at significant costs to us because of the potential for high awards of damages or injunctive relief that are not necessarily predictable, even arguably unmeritorious claims may be settled for significant amounts of money. relief.
If any infringement or other intellectual property claim made against us or anyone we are required to indemnify by any third-party is successful ifand we are required to pay significant monetary awards or damages to settle litigation, for significant amountsenter into royalty or licensing arrangements, or satisfy indemnification obligations that we have with some of money, ifour customers, or we fail to develop non-infringing technology ifand we incorporate infringing technology in our products, or if we license required proprietary rights at material expense, our business, financial condition, and results of operations could be materially and adversely affected.
As we seek to sell more products to telecommunications, cable and cloud service provider companies and other large customers, we may be required to agree to terms and conditions that could have an adverse effect on our business or impact the amount of revenues to be recognized.
Telecommunications, cable and cloud service provider companies, which comprise a significant portion of our customer base, and other large companies, generally have greater purchasing power than smaller entities and, accordingly, often request and receive more favorable terms from suppliers. As we seek to sell more products to this class of customer, we may be required to agree to such terms and conditions, which may include terms that affect the timing of our ability to recognize revenue, increase our costs and have an adverse effect on our business, financial condition, and results of operations. Consolidation among such large customers can further increase their buying power and ability to require onerous terms.
In addition, service providers have purchased products from other vendors who promised but failed to deliver certain functionality and/or had products that caused problems or outages in the networks of these customers. As a result, these customers may request additional features from us and require substantial penalties for failure to deliver such features or may require substantial penalties for any network outages that may be caused by our products. These additional requests and penalties, if we are required to agree to them, may impact the amount of revenue recognition from such sales, which may negatively affect our business, financial condition and results of operations. In addition, increased patent litigation brought against customers in recent years, may result, and in some cases has resulted, in customers requesting or requiring vendors to absorb a portion of the costs of such litigation or providing broader indemnification for litigation, each of which could increase our expenses and negatively affect our business, financial condition, and results of operations.
Non-standard contract terms with telecommunications, cable and cloud service provider companies and other large customers, could have an adverse effect on our business or impact the amount of revenues to be recognized. Telecommunications, cable and cloud service provider companies, and other large companies, generally have greater purchasing power than smaller entities and often request and receive more favorable terms from suppliers. We may be required to agree to such terms and conditions, which may include terms that affect the timing of or our ability to recognize revenue,
increase our costs, and have an adverse effect on our business, financial condition, and results of operations. Consolidation among such large customers can further increase their buying power and ability to require onerous terms from us.
In addition, other vendors may have promised but failed to deliver certain functionality to these types of customers and/or had products that caused problems or outages in their networks. As a result, these customers may request additional features from us and require substantial penalties for failure to deliver such features or for any network outages that may or may not have been caused by our products. If we are required to agree to these requests or incur penalties, the amount of revenue recognized from such sales may be negatively impacted and as a result, may negatively affect our business, financial condition and results of operations.
Regulation of our industry in general and the telecommunications industry in particularor those of our customers could harm our operating results and future prospects.
We are subject to laws and regulations affecting the sale of our products in a number of areas. For example, some governments have regulations prohibiting government entities from purchasing security products that do not meet country-specific safety, conformance or security certification criteria or in-country test requirements. Other regulations that may negatively impact our business include local content or local manufacturing requirements most commonly applicable for government, state-owned enterprise or regulated industry procurements. These types of regulations are in effect or under consideration in several jurisdictions where we do business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act includes disclosure requirements applicableSEC requires us, as a public company who uses certain raw materials that are considered to public companies regarding the use ofbe “conflict minerals” minedin our products, to report publicly on the extent to which "conflict minerals" are in our supply chain. As a provider of hardware end-products, we are several steps removed from the Democratic Republicmining, smelting or refining of Congoany conflict minerals. Accordingly, our ability to determine with certainty the origin and adjoining countries, whichchain of custody of these raw materials is limited. Our relationships with customers and suppliers could suffer if we referare unable to collectivelydescribe our products as the DRC, and procedures regarding a manufacturer's efforts to prevent the sourcing of such “conflict minerals.“conflict-free.” These minerals are presentWe may also face increased costs in our products. In addition, the European Union reached agreement in late 2016 on an EU-widecomplying with conflict minerals rule under which most EU importers of tin, tungsten, tantalum, gold and their ores will have to conduct due diligence to ensure the minerals do not originate from conflict zones and do not fund armed conflicts. Large manufacturers also will have to disclose how they plan to monitor their sources to comply with the rules. The regulation was adopted in 2017 with compliance required by 2021.disclosure requirements.
In addition, environmental laws and regulations relevant to electronic equipment manufacturing or operations, including laws and regulations governing the hazardous material content of our products and laws relating to the collection of and recycling of electrical and electronic equipment, may adversely impact our business and financial condition. TheseIn particular, we face increasing complexity in our product design and procurement operations as we adjust to new and future requirements relating to the chemical and material composition of our products, their safe use, the energy consumption associated with those products, climate change laws, and regulations include, among others, the European Union, or EU, Restriction on the Use of Certain Hazardous Substances Directive, or RoHS. The EU RoHS and the similar laws of other jurisdictions limit the content of certain hazardous materials, such as lead, mercury, and cadmium, in electronic equipment, including our products. Currently, our products comply with the EU RoHS requirements. However, certain exemptions are scheduled to lapse. The lapse of any exemption, further changes to this or other laws, or passage of similar laws in the EU or other jurisdictions, wouldproduct take-back legislation, which could require us to cease selling non-compliant products and to reengineer our products to use compliant components compatible with these regulations. This reengineering and component substitutionwhich could result in additional costs to us, disrupt our operations, or logistics, and result in an adverse impact on our operating results. In addition, in validating the compliance ofIf we were to violate or become liable under environmental laws or if our products become non-compliant with applicable hazardous materials restrictions, we rely substantially on affirmations by our component suppliers as to the compliance of their products with respect to those same restrictions. Failure by our component suppliers to furnish accurate and timely information could subject us to penalties or liability for violation of such hazardous materials restrictions, interrupt our supply of products to the EU, and result inenvironmental laws, our customers refusing or being unablemay refuse to purchase our products. Additionally, the EUproducts and a numberwe could incur substantial costs or face other sanctions, which may include restrictions on our products entering certain jurisdictions. The amount and timing of other jurisdictions have adopted regulations requiring producers of electrical and electronic equipmentcosts to assume certain responsibilities for collecting, treating, recycling and disposing of products when they have reached the end of their useful life. Finally, the EU REACH regulations regulate the handling of certain chemical substances that may be used in our products.comply with environmental laws are difficult to predict.
In addition, as a contractor and subcontractor to the U.S. government, departments and agencies, we are subject to federal regulations pertaining to our IT systems. For instance, as a subcontractor to the U.S. Department of Defense, or DOD, the Defense Federal Acquisition Regulation Supplement, or DFARS, required that our IT systems complywhich requires compliance with thecertain security and privacy controls described in National Institute of Standards and Technology Special Publication 800-171, or NIST SP 800-171. The DFARS also requires that we flow the security control requirement down to certain of our own subcontractors.controls. Failure to comply with these requirements could result in a loss of federal government business, subject us to claims or other remedies for non-compliance, andor negatively impact our business, financial condition, and results of operations.
TheMoreover, our customers in the telecommunications industry is highly regulated,may be subject to regulations and our business and financial condition could be adversely affected by changes in such regulations relating to the Internet telecommunications industry. Similarly, while there are currently fewaffecting our customers. Further, we could be affected by new laws or regulations that apply directly toon access to or commerce on IP networks future regulations could include sales taxes on products sold via the Internet and Internet service provider access charges. We could be adversely affected by regulation of IP networks and commerce in any countryjurisdictions where we market equipment and services to service providers or cloud provider companies.our solutions. Regulations governing the range of services and business models that can be offered by service providers or cloud provider companies could adversely affect those customers' needs for products. For instance, in December 2017, the U.S. Federal Communications Commission repealed its 2015 regulations governing aspects of fixed broadband networks and wireless networks. This change in regulatory treatment of networks might impact service provider and cloud provider business models and their need for Internet telecommunications equipment and services. At the same time, several states have enacted their own laws and regulations governing certain aspects of fixed and wireless networks in the manner of the 2015 FCC regulations. These laws and regulations enacted by the states are or will be subject to legal challenges from the federal government and/or regulated providers. Also, many
jurisdictions are evaluating or implementing regulations relating to cyber security,cybersecurity, supply chain integrity, privacy and data protection, any of which can affect the market and requirements for networking and security equipment.
The adoption and implementation of additional regulations could reduce demand for our products, increase the cost of building and selling our products, result in product inventory write-offs, impact our ability to ship products into affected areas and recognize revenue in a timely manner, require us to spend significant time and expense to comply with, and subject us to fines and civil or criminal sanctions or claims if we were to violate or become liable under such regulations. Any of these impacts could have a material adverse effect on our business, financial condition, and results of operations.
Governmental regulations and economic sanctions affecting the import or export of products generally or affecting products containing encryption capabilities in particular, could negatively affect our revenues and operating results.
The United StatesU.S. and various foreignother governments have imposed controls and restrictions on the import and export of, among other things, certain telecommunications products and components, particularly those that contain or use encryption technology. Most of our products are telecommunications
products and contain or use encryption technology and, consequently, are subject to such controls, requirements and restrictions. Certain governments, like those of Russia and China, control importation and in-country use of encryption items and technology. The scope, nature, and severity of such controls vary widely across different countries and may change frequently over time.
Increasingly, governments have begun using exportIn many cases, these government restrictions require a license prior to importing or exporting a good. Such licensing requirements can introduce delays into our operations as we must apply for the license and wait for government officials to process it; it is possible that lengthy delays will lead to the cancellation of orders by customers. Moreover, if we fail to obtain necessary licenses prior to importing or exporting covered goods, we can be subject to government sanctions, including monetary penalties. Government restrictions on the import controls not only to further national security objectives but also to protect local industries and restrict proliferation of locally developed “emerging or foundational technology." For example, in 2018 the U.S. enacted the Export Control Reform Act, which expands the power of the Commerce Department to use export controls to protect domestic industry and to restrict the export of emerging and foundational technologies not currently subject to controls. In furtherance of that law, on November 19, 2018, the United States Department of Commerce sought public comment on how to define emerging technologies. Ourtechnology can restrict our ability to marketmanufacture and sell our products, overseas may be impacted by such export controls.which can affect negatively our revenues and operating results.
In addition, the U.S. and other governments have especially broad sanctions and embargoes prohibiting provision of goods or services to certain countries, and territories, and to certain sanctioned governments, legal entitiesbusinesses, and individuals. Some of these restrictions have been imposed not just to protect national security but also to protect domestic industries and to achieve political aims. For instance, the U.S. Department of Commerce in 2018 added to its Entity List a Chinese semiconductor manufacturer on the express basis that it threatens the viability of U.S. competitors; the Entity List traditionally is used to restrict exports to end users that pose a security risk. Particularly far reaching and complex are restrictions imposed by the U.S. and EU on exports to Russia and, in particular, to the disputed region of Crimea. We have implemented systems to detect and prevent sales into these restricted countries or to prohibited entities or individuals, but there can be no assurance that our third party, downstream resellers and distributors will abide by these restrictions or have processes in place to ensure compliance, especially where local government regulation might prohibit adherence to such restrictions.compliance.
Certain governments also impose special local content, certification, testing, source code review, escrow and governmental recovery of private encryption keys, or other cybersecurity feature requirements to protect network equipment and software procured by or for the government. Similar requirements also may be imposed in procurements by state owned entities (“SOE’s”) or even private companies forming part of “critical network infrastructure” or supporting sensitive industries. For example, China, Vietnam
In recent years, U.S. government officials have had concerns with the security of products and India have promulgated cybersecurity regulations affecting networking products that may impair our ability to profitably marketservices from certain telecommunications and sell our products there. China,video providers based in particular, is expected to require implementation of non-standard Chinese encryption algorithms in products sold into certain government, SOE, critical infrastructure and sensitive industry (such as financial institutions) markets. In the U.S., there are new restrictionsChina. As a result, Congress has enacted bans on the use of certain Chinese-origin components or systems either (1) in items sold to the U.S. government or (2) in the internal networks of government contractors and subcontractors (even if those networks are not used for government-related projects). The U.S. government might also might restrict or ban the use of certain Chinese-origin components and systems in next generation mobile communications networks (e.g. 5G). In November 2019, the U.S. Department of Commerce, or Commerce Department, proposed a rule that would subject to government review, the acquisition or use of information and communication technology, and goods and services from entities owned by, controlled by, or subject to the jurisdiction of a foreign adversary. The proposal would be retroactive and apply to transactions dating back to May 15, 2019. If implemented as proposed, the rule could subject acquisition of components, modules, other parts, and any services to lengthy government review processes. This would introduce significant uncertainty into our supply chain planning as we would not be certain which potential acquisitions the government would permit and which it would reject.
In addition, governments sometimes impose additional taxes on certain imported products. For example, the United StatesU.S. and Chinese governments each have imposed tariffs on certain products, including information and communication technology products originating from the other country. In 2018, the United States imposed tariffs on a large variety of products of China origin. As a result, beginning September 24, 2018,country, which resulted in a large portion of Juniperour products manufactured in China becamebecoming subject to a 10% tarifftariffs on importation into the U.S. pursuant to the U.S. government’s List 3 tariff proceeding. The U.S. President announced on May 5, 2019, that the 25% rate would go into effect on May 10, 2019 due to the lack of negotiation progress. On August 1, 2019, the President stated his intent to increase the List 3 tariff to 30%, which he announced would occur on October 15, 2019; this planned increase to 30% has been postponed indefinitely. Similarly, in July 2019, the U.S. President reiterated his readiness to impose - tariffs on all remaining Chinese imports (List 4 tariff proceeding) if US-China negotiations remained unresolved. In August 2019, he announced that he would impose a 15% tariff on all remaining
Chinese imports effective September 1, 2019. Depending upon their duration and implementation, as well as our ability to mitigate their impact, these tariffs could materially affect our business, including in the form of increased cost of goods sold, increased pricing for customers, and reduced sales.
On May 30, 2019, the U.S. President announced his intention to impose a tariff on imports from Mexico effective June 10, 2019. The tariff rate was to start at 5% and gradually increase to 25% over the course of several months unless and until Mexico took steps to reduce the number of migrant crossings over the US-Mexico border. While the President subsequently announced a delay of the tariff, he left open the possibility that the United States could impose a tariff in the near future. As the President never issued an order imposing the tariff, its exact scope was not known. Juniper does obtain products having Mexico as their country-of-origin, so it is possible that we would be subject to any such tariff. Should the United States impose the tariff, we will determine its impact on our operations and conditions.
Governmental regulation of encryption orour IP networking, encryption technology and regulation of imports or exports, or our failure to obtain required import or export approval for our products, or related economic sanctions could harm our international and domestic sales and adversely affect our revenues and operating results. In addition, failure to comply with such regulations could result in harm to our reputation and ability to compete in international markets, penalties, costs, seizure of assets (including source code) and restrictions on import or export privileges or adversely affect sales to government agencies or government-funded projects.
Our actual or perceived failure to adequately protect personal data could adversely affect our business, financial condition, and results of operations.
A wide variety of provincial, state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These privacy-privacy and data protection-related laws and regulations are evolving, with new or modified lawsextensive, complex, and regulations proposedinclude inconsistencies and implemented frequently and existing laws and regulations subject to new or different interpretations. Further, our legal and regulatory obligations in foreign jurisdictions are subject to unexpected changes, including the potential for regulatory or other governmental entities to enact new or additional laws or regulations, to issues rulings that invalidate prior laws or regulations, or to increase penalties significantly.uncertainties. Compliance with these laws and regulations can be costly and can delay or impede the development and offering of new products and services. Examples of recent and anticipated developments that have or could impact our business include the following:
For example, the•The General Data Protection Regulation, (“GDPR”), which became effective in May 2018, imposes more stringent data protection requirements, and provides for significantly greater penalties for noncompliance, than the EU laws that previously applied. Additionally, California recently enacted
•In July 2020, the Court of Justice of the European Union released a decision in the Schrems II case (Data Protection Commission v. Facebook Ireland, Schrems), declaring the EU-U.S. Privacy Shield invalid and calling into question
data transfers carried out under the European Commission’s Standard Contractual Clauses. As a result of the decision, we may face additional scrutiny from EU regulators in relation to the transfer of personal data from the EU to the U.S. Noncompliance with the GDPR can trigger fines of up to the greater of €20 million or 4% of global annual revenues.
•Data protection legislation is also becoming increasingly common in the U.S. at both the federal and state level. The California Consumer Privacy Act (“CCPA”), which will becomebecame effective January 1, 2020. The CCPA will,and enforceable in 2020 requires, among other requirements, requirethings, covered companies to provide new disclosures to California consumers, gives California residents expanded rights to access their personal information that has been collected and allowallows such consumers new abilities to opt-out of certain sales of personal information. Legislators have stated that they intend to propose amendments to the CCPA before the effective date. It remains unclear the extent or timinginformation sharing, receive detailed information about how their personal information is used, and require deletion of any modifications that will be made to the CCPA, or how such modifications will be interpreted.their personal information. The effects of the CCPA potentially are significant and other similar laws may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. WeThe CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may alsoincrease the frequency and cost associated with data breach litigation.
•The Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. In addition, we may be or become subject to additional obligations relating to personal data by contractlocalization laws mandating that industry standards apply to our practices. data collected in a foreign country be processed and stored within that country.
•Both U.S. and non-U.S. governments are considering regulating artificial intelligence and machine learning.
Our actual or perceived failure to comply with applicable laws and regulations or other obligations to which we may be subject relating to personal data, or to protect personal data from unauthorized access, use, or other processing, could result in enforcement actions and regulatory investigations against us, claims for damages by customers and other affected individuals, fines, damage to our reputation, and loss of goodwill, any of which could have a material adverse effect on our operations, financial performance, and business. Further, evolving and changing definitions of personal data and personal information, within the EU, the U.S., U.K., and elsewhere, including the classification of IP addresses, machine identification information, location data, and other information, may limit or inhibit our ability to operate or expand our business, including limiting business relationships and partnerships that may involve the sharing or uses of data, and may require significant costs, resources, and efforts in order to comply.
Our ability to develop, market, and sell products could be harmed if we are unable to retain or hire key personnel.FINANCIAL RISKS
Our future success depends upon our ability to recruit and retain the services of executive, engineering, sales and marketing, and support personnel. The supply of highly qualified individuals, in particular engineers in very specialized technical areas, or sales people with specialized industry expertise, is limited and competition for such individuals is intense. None of our officers or key employees is bound by an employment agreement for any specific term. The loss of the services of any of our key employees, the inability to attract or retain personnel in the future or delays in hiring required personnel, engineers and sales people, and the complexity and time involved in replacing or training new employees, could delay the development and introduction of new products, and negatively impact our ability to market, sell, or support our products.
A number of our team members are foreign nationals who rely on visas and entry permits in order to legally work in the United States and other countries. In recent years, the United States has increased the level of scrutiny in granting H-1(B), L-1 and other business visas. In addition, the current U.S. administration has made immigration reform a priority. Compliance with United States immigration and labor laws could require us to incur additional unexpected labor costs and expenses or could restrain our ability to retain skilled professionals. Any of these restrictions could have a material adverse effect on our business, results of operations and financial conditions.
Our financial condition and results of operations could suffer if there is an impairment of goodwill or otherpurchased intangible assets. As of September 30, 2020, our goodwill was $3,337.1 million, and our purchased intangible assets with indefinite lives.
were $151.9 million. We are required to test intangible assets with indefinite lives, including goodwill, annually or, in certain instances, more frequently, if certain circumstances change that would more likely than not reduce the fair value of a reporting unit and intangible assets below their carrying values. As of September 30, 2019, our goodwill was $3,338.3 million and our intangible assets with indefinite lives was $49.0 million. When the carrying value of a reporting unit’s goodwill exceeds its implied fair value of goodwill, or if the carrying amount of an intangible asset with an indefinite life exceeds its fair value, a chargemay be required to operations is recorded. Either event would result in incremental expenses for that quarter,record impairment charges, which would reduce any earnings or increase any loss for the period in which the impairment was determined to have occurred. We have in the past recorded goodwill impairment charges. Declines in our level of revenues or declines in our operating margins, or sustained declines in our stock price, increase the risk that goodwill and intangible assets with indefinite lives may become impaired in future periods.
Our goodwill impairment analysis is sensitive to changes in key assumptions used in our analysis, such as expected future cash flows, the degree of volatility in equity and debt markets, and our stock price.analysis. If the assumptions used in our analysis are not realized, it is possible that an impairment charge may need to be recorded in the future. We cannot accurately predict the amount and timing of any impairment of goodwill or other intangible assets. However, any such impairment would have an adverse effect on our results of operations.
Changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results.
Our future effective tax rates and the amount of our taxable income could be subject to volatility or adversely affected by the following: earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates; changes in the valuation of our deferred tax assets and liabilities; expiration of, or lapses in, the R&D tax credit laws applicable to us; transfer pricing adjustments related to certain acquisitions, including the license of acquired intangibles under our intercompany R&D cost sharing arrangement; costs related to intercompany restructuring; tax effects of share-based compensation; challenges to our methodologies for valuing developed technology or intercompany arrangements; limitations on the deductibility of net interest expense; or changes in tax laws, regulations, accounting principles, or interpretations thereof. For example, on July 24, 2018, the Ninth Circuit Court of Appeals, or the Court, issued an opinion in Altera Corp. v. Commissioner requiring related parties in an intercompany cost-sharing arrangement to share expenses related to share-based compensation. On June 7, 2019, the Court upheld the cost-sharing regulations. On July 22, 2019, Altera petitioned the Court for a rehearing. Pending final resolution of the Altera case, the Company’s position on cost-sharing of share-based compensation remains unchanged. If the final judicial decision is not in favor of Altera, we expect our effective tax rate and current income tax payable to be higher. We are monitoring this case and any impact the final resolution may have on our financial statements. In addition, the Tax Act made significant changes to the taxation of U.S. business entities, that may have a meaningful impact to our provision for income taxes. These changeswhich included a reduction to the federal corporate income tax rate, the current taxation of certain foreign earnings, the imposition of base-erosion prevention measures which may limit the deduction of certain transfer pricing payments, and possible limitations on the deductibility of net interest expense or corporate debt obligations. Accounting for the income tax effects of the Tax Act required significant judgments and estimates that are based on current interpretations of the Tax Act. The U.S. Department of the Treasury continues to issue regulations that affect various components of the Act. Our future effective tax rate may be impacted by changes in interpretation of the regulations, as well as additional legislation and guidance regarding the Tax Act.
Furthermore, on October 5, 2015, the Organisation for Economic Co-operation and Development, or OECD, an international association of 3537 countries including the U.S., published final proposals under its Base Erosion and Profit Shifting, or BEPS, Action Plan. The BEPS Action Plan includes fifteen Actions to address BEPS in a comprehensive manner and represents a significant
change to the international corporate tax landscape. These proposals, as adopted by countries, may increase tax uncertainty and adversely affect our provision for income taxes.
In addition, we are generally subject to the continuous examination of our income tax returns by the Internal Revenue Service, or IRS, and other tax authorities. It is possible that tax authorities may disagree with certain positions we have taken and any adverse outcome of such a review or audit could have a negative effect on our financial position and operating results. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes, but the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made. There can be no assurance that the outcomes from continuous examinations will not have an adverse effect on our business, financial condition, and results of operations.
We may face difficulties enforcing our proprietary rights, which could adversely affect our ability to compete.
We generally rely on a combination of patents, copyrights, trademarks, and trade secret laws and contractual restrictions on disclosure of confidential and proprietary information, to establish and maintain proprietary rights in our technology and products. Although we have been issued numerous patents and other patent applications are currently pending, there can be no assurance that any of our patent applications will result in issued patents or that any of our patents or other proprietary rights will not be challenged, invalidated, infringed or circumvented or that our rights will, in fact, provide competitive advantages to us or protect our technology, any of which could result in costly product redesign efforts, discontinuance of certain product offerings and other competitive harm.
In addition, despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. We generally enter into confidentiality or license agreements with our employees, consultants, vendors, and customers, and generally limit access to and distribution of our proprietary information. However, we cannot assure you that we have entered into such agreements with all parties who may have or have had access to our confidential information or that the agreements we have entered into will not be breached. We cannot guarantee that any of the measures we have taken will prevent misappropriation of our technology.
Furthermore, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States. The outcome of any actions taken in these foreign countries may be different than if such actions were determined under the laws of the United States. Although we are not dependent on any individual patents or group of patents for particular segments of the business for which we compete, if we are unable to protect our proprietary rights in a market, we may find ourselves at a competitive disadvantage to others who need not incur the substantial expense, time, and effort required to create innovative products that have enabled our success.
We are subject to risks arising from our international operations, which may adversely affect our business, financial condition, and results of operations.
We derive a substantial portion of our revenues from our international operations, and we plan to continue expanding our business in international markets. We conduct significant sales and customer support operations directly and indirectly through our distributors and value-added resellers in countries throughout the world and depend on the operations of our contract manufacturers and suppliers that are located outside of the United States.U.S. In addition, a portion of our R&D and our general and administrative operations are conducted outside the United States. In some countries, we may experience reduced intellectual property protection.
U.S. As a result of our international operations, we are affected by economic, business regulatory, social, and political conditions in foreign countries, including the following:
•changes in general IT spending,spending;
•the impact of the recent COVID-19 pandemic, and any other adverse public health developments, epidemic disease or other pandemic in the countries in which we operate or where our customers are located;
•the imposition of government controls, inclusive of critical infrastructure protection;
•changes or limitations in trade protection lawscontrols, economic sanctions, or other regulatory requirements,international trade regulations, which may affect our ability to import or export our products to or from various countries;
•laws that restrict sales of products that are developed, manufactured, or manufactured outside of the country;incorporate components or assemblies from certain countries to specific customers (e.g., U.S. federal government departments and agencies) and industry segments, or for particular uses or more generally;
•varying and potentially conflicting laws and regulations;regulations, changes in laws and interpretation of laws, misappropriation of intellectual property and reduced intellectual property protection;
•political uncertainty, including demonstrations, that could have an impact on product delivery from and into the China region.delivery;
•fluctuations in local economies;
wage inflation or a tightening of the labor market;•fluctuations in currency exchange rates (see Quantitative and Qualitative Disclosures about Market Risk for more information);
•tax policies, treaties or laws that could have aan unfavorable business impact;
import tariffs imposed by •the United Statesnegotiation and reciprocal tariffs imposed by foreign countries;implementation of free trade agreements between the U.S. and other nations;
•data privacy rules and other regulations that affect cross border data flow; and
the impact•theft or unauthorized use or publication of the following on customer spending patterns: political considerations, unfavorable changes in tax treaties or laws, natural disasters, epidemic disease, labor unrest, earnings expatriation restrictions, misappropriation ofour intellectual property military actions, acts of terrorism, political and social unrest and difficulties in staffing and managing international operations.other confidential business information.
Any or all of these factors has or could have a materialan adverse impact on our business, financial condition, and results of operations.
In addition, the U.K.’s's formal exit from the EU on January 31, 2020, commonly referred to as Brexit, has caused, and may continue to cause, uncertainty in the global markets. The consequences for the economies of the U.K. and EU member states as a result of the U.K.'s withdrawal from the EU remain unknown and unpredictable. Any impact from Brexit if implemented,on the Company will take some perioddepend, in part, on the outcome of time to completetariff, trade and could result in regulatory changes that impact our business.other negotiations. For example, changes to the way service providers conduct business and transmit data between the U.K. and the EU could require us to make changes to the way we handle customer data. We will also review the impact of any resulting changes to EU or U.K. law that could affect our operations, such as labor policies, financial planning, product manufacturing, and product distribution. Political and regulatory responses to the vote are still developing and we are in the process of assessing the impact the vote may have on our business as more information becomes available. Nevertheless, because we conduct business in the EU includingand the U.K., any of the effects of Brexit, including labor
policies, financial planning, product manufacturing, product distribution, and those effects we cannot anticipate, could have a material adverse effect on our business, business opportunities, operating results, financial condition and cash flows.
There remains significant risk that the U.K. will exit from the EU without agreement between the EU and U.K. on terms addressing customs and trade matters. The U.K.’s new Prime Minister has indicated that the U.K. must prepare for a no-deal Brexit. If it occurs, this “Hard Brexit” scenario would mean, among other things, that U.K. Customs would have to clear a far greater daily volume of imports than it has ever had to before. If U.K. Customs is not able to handle such increased volume, significant delays in imports may very well result, thereby potentially producing a short-term material adverse effect on our business. Hard Brexit could result in further short-term uncertainty and currency volatility. Additional currency volatility could drive a weaker British pound, which increases the cost of goods imported into our U.K. operations and may decrease the profitability of our U.K. operations. A weaker British pound versus the U.S. dollar also causes local currency results of our U.K. operations to be translated into fewer U.S. dollars during a reporting period. Any adjustments we make to our business and operations as a result of Brexit could result in significant time and expense to complete.
Our business is also impacted by the negotiation and implementation of free trade agreements between the United States and other nations. Such agreements can reduce barriers to international trade and thus the cost of conducting business overseas. For instance, the United States recently reached a new trilateral trade agreement with the Governments of Canada and Mexico to replace the North American Free Trade Agreement (NAFTA). If the United States either withdraws from NAFTA or fails to ratify the new agreement, known as the United States-Mexico-Canada Agreement (U.S.MCA), our cost of doing business within the three countries could increase.
Many of the products that we have manufactured in China are transported by air cargo from Hong Kong. Recently, there have been political demonstrations in Hong Kong that have resulted in cancellations or delays in flights in and out of China. If these demonstrations and their impact on air shipments continue, we could experience delays in product deliveries from China or be required to change our shipping practices, which could adversely impact our business.
Moreover, local laws and customs in many countries differ significantly from or conflict with those in the United StatesU.S. or in other countries in which we operate. In many foreign countries, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S. regulations applicable to us. There can be no assurance that our employees, contractors, channel partners, and agents will not take actions in violation of our policies and procedures, which are designed to ensure compliance with U.S. and foreign laws and policies. Violations of laws or key control policies by our employees, contractors, channel partners, or agents could result in termination of our relationship, financial reporting problems, fines, and/or penalties for us, or prohibition on the importation or exportation of our products and could have a material adverse effect on our business, financial condition and results of operations.
Our productsThere are highly technical and if they contain undetected defects, errors or malware or do not meet customer quality expectations, our business could be adversely affected, and we may be subject to additional costs or lawsuits or be required to pay damages in connection with any alleged or actual failure of our products and services.
Our products are highly technical and complex, are critical to the operation of many networks, and, in the case of our security products, provide and monitor network security and may protect valuable information. Our products have contained and may contain one or more undetected errors, defects, malware, or security vulnerabilities. These errors may arise from hardware or software we produce or procure from third parties. Some errors in our products may only be discovered after a product has been installed and used by end-customers.
Any errors, defects, malware or security vulnerabilities discovered in our products after commercial release could result in monetary penalties, negative publicity, loss of revenues or delay in revenue recognition, loss of customers, loss of future business and reputation, penalties, and increased service and warranty cost, any of which could adversely affect our business, financial condition, and results of operations. In addition, in the event an error, defect, malware, or vulnerability is attributable to a component supplied by a third-party vendor, we may not be able to recover from the vendor all of the costs of remediation that we may incur. In addition, we could face claims for product liability, tort, or breach of warranty or indemnification. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention. If our business liability insurance coverage is inadequate, or future coverage is unavailable on acceptable terms or at all, our financial condition and results of operations could be harmed. Moreover, if our products fail to satisfy our customers' quality expectations for whatever reason, the perception of and the demand for our products could be adversely affected.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.
Because a substantial portion of our business is conducted outside the United States, we face exposure to adverse movements in non-U.S. currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial condition and results of operations.
The majority of our revenues and expenses are transacted in U.S. Dollars. We also have some transactions that are denominated in foreign currencies, primarily the British Pound, Chinese Yuan, Euro, and Indian Rupee related to our sales and service operations outside of the United States. An increase in the value of the U.S. Dollar could increase the real cost to our customers of our products in those markets outside the United States in which we sell in U.S. Dollars. This could negatively affect our ability to meet our customers' pricing expectations in those markets and may result in erosion of gross margin and market share. A weakened U.S. Dollar could increase the cost of local operating expenses and procurement of raw materials to the extent we must purchase components in foreign currencies.
Currently, we hedge currency exposuresrisks associated with certain assetsour outstanding and liabilities denominated in nonfunctional currencies and periodically hedge anticipated foreign currency cash flows, with the aim of offsetting the impact of currency fluctuations on these exposures. However, hedge activities can be costly, and hedging cannot fully offset all risks, including long-term declines or appreciation in the value of the U.S. Dollar. If our attempts to hedge against these risks are not successful, or if long-term declines or appreciation in the value of the U.S. Dollar persist, our financial condition and results of operations could be adversely impacted.
If we fail to adequately evolve our financial and managerial control and reporting systems and processes, our ability to manage and grow our business will be negatively affected.
Our ability to successfully offer our products and implement our business plan in a rapidly evolving market requires an effective planning, forecasting, and management process to enable us to effectively scale and adjust our business and business models in response to fluctuating market opportunities and conditions. We will need to continue to improve our financial and managerial control and our reporting systems and procedures in order to manage our business effectively in the future. If we fail to effectively improve our systems and processes or we fail to monitor and ensure that these systems and processes are being used correctly, our ability to manage our business, financial condition, and results of operations may be negatively affected.
If our products do not interoperate with our customers’ networks, installations will be delayed or cancelled and could harm our business.
Our products are designed to interface with our customers’ existing networks, each of which have different specifications and utilize multiple protocol standards and products from other vendors. Many of our customers’ networks contain multiple generations of products that have been added over time as these networks have grown and evolved. Our products must interoperate with many
or all of the products within these networks as well as future products in order to meet our customers’ requirements. If we find errors in the existing software or defects in the hardware used in our customers’ networks, we may need to modify our software or hardware to fix or overcome these errors so that our products will interoperate and scale with the existing software and hardware, which could be costly and could negatively affect our business, financial condition, and results of operations. In addition, if our products do not interoperate with those of our customers’ networks, demand for our products could be adversely affected or orders for our products could be cancelled. This could hurt our operating results, damage our reputation, and seriously harm our business and prospects.
Our products incorporate and rely upon licensed third-party technology, and if licenses of third-party technology do not continue to be available to us or are not available on terms acceptable to us, our revenues and ability to develop and introduce new products could be adversely affected.
We integrate licensed third-party technology into certain of our products. From time to time, we may be required to renegotiate our current third-party licenses or license additional technology from third-parties to develop new products or product enhancements or to facilitate new business models. Third-party licenses may not be available or continue to be available to us on commercially reasonable terms. The failure to comply with the terms of any license, including free open source software, may result in our inability to continue to use such license. Some of our agreements with our licensors may be terminated for convenience by them. In addition, we cannot be certain that our licensors are not infringing the intellectual property rights of third parties or that our licensors have sufficient rights to the licensed intellectual property in all jurisdictions in which we may sell our products. Third- party technology we incorporate into our products that is deemed to infringe on the intellectual property of others may result, and in some cases has resulted, in limitations on our ability to source technology from those third parties, restrictions on our ability to sell products that incorporate the infringing technology, increased exposure to liability that we will be held responsible for incorporating the infringing technology in our products and increased costs involved in removing that technology from our products or developing substitute technology. Our inability to maintain or re-license any third-party licenses required in our products or our inability to obtain third-party licenses necessary to develop new products and product enhancements, could require us, if possible, to develop substitute technology or obtain substitute technology of lower quality or performance standards or at a greater cost, any of which could delay or prevent product shipment and harm our business, financial condition, and results of operations.
We rely on the availability and performance of information technology services provided by third parties, including IBM which will manage a significant portion of our systems.
Under the terms of our recent Master Services Agreement and certain Statements of Work, following a transition period, IBM will provide us with a broad range of information technology services, such as applications, including support, development and maintenance; infrastructure management and support, including for servers storage and network devices; and end user support including service desk. We expect that our businesses will become dependent on the services provided and systems operated for us by IBM and its third-party providers. The failure of one or more of these entities to meet our performance standards and expectations, including with respect to data security, may have a material adverse effect on our business, results of operations or financial condition.
Our success is dependent on our ability to maintain effective relationships with IBM and other third-party technology and service providers as well as the ability of IBM and any other third-party providers to perform as expected. We may terminate our agreement with IBM and any and all Statements of Work at any time on short notice for cause, convenience, certain specific performance failures, a breach of warranties by IBM, failure to transition, failure to transform, changes in law, force majeure, or a change in the control of either IBM or us. Depending on the type and timing of a termination, we may be required to pay certain termination amounts to IBM. IBM's only right to terminate the Master Services Agreement is based on our failure to comply with certain terms applying to disputed payments.
Our ability to realize the expected benefits of this arrangement is subject to various risks, some of which are not within our control. These risks include, but are not limited to, disruption in services and the failure to protect the security and integrity of our data under the terms of the agreement. We are unable to provide assurances that some or all of these risks will not occur. Failure to effectively mitigate these risks, if they occur, could have a material adverse effect on our operations and financial results. In addition, we could face significant additional costs or business disruption if our arrangement with IBM is terminated or impaired and we cannot find alternative IT services or support on commercially reasonable terms or on a timely basis or if we are unable to hire new employees in order to return these services in-house.
We are required to evaluate the effectiveness of our internal control over financial reporting and publicly disclose material weaknesses in our controls. Any adverse results from such evaluation may adversely affect investor perception, and our stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to assess the effectiveness of our internal control over financial reporting and to disclose in our filing if such controls were unable to provide assurance that a material error would be prevented or detected in a timely manner. We have an ongoing program to review the design of our internal controls framework in keeping with changes in business needs, implement necessary changes to our controls design and test the system and process controls necessary to comply with these requirements. If in the future, our internal controls over financial reporting are determined to be not effective resulting in a material weakness or significant deficiency, investor perceptions regarding the reliability of our financial statements may be adversely affected which could cause a decline in the market price of our stock and otherwise negatively affect our liquidity and financial condition.
Failure to maintain our credit ratings could adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets.
The major credit rating agencies routinely evaluate our indebtedness. This evaluation is based on a number of factors, which include financial strength as well as transparency with rating agencies and timeliness of financial reporting. There can be no assurance that we will be able to maintain our credit ratings and failure to do so could adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets.
We may be unable to generate the cash flow to satisfy our expenses, make anticipated capital expenditures or service our debt obligations, including the Notes and the Revolving Credit Facility.
As of September 30, 2019,2020, we have issuedhad $1,700.0 million in aggregate principal amount of senior notes which we refer to collectively as the Notes, and had $1,687.6 million in total outstanding debt.(the "Notes"). In April 2019, we entered into a new credit agreement (the “Credit Agreement”) with certain institutional lenders that provides for a five-year $500.0 million unsecured revolving credit facility which we refer to as the Revolving(the “Revolving Credit Facility, with an option to increase the Revolving Credit Facility by up to an additional $200.0 million, subject to the lenders' approval. The credit agreement will terminate in April 2024, at which point all amounts borrowed must be repaid (subject to two one-year maturity extension options)Facility”).
We may not be able to generate sufficient cash flow to enable us to satisfy our expenses, make anticipated capital expenditures or service our indebtedness, including the Notes and the Revolving Credit Facility (if drawn upon).Notes. Our ability to pay our expenses, satisfy our debt obligations, refinance our debt obligations and fund planned capital expenditures will depend onis dependent upon our future performance which will be affected by general economic, financial, competitive, legislative, regulatory and other factors beyond our control. Based upon current levels of operations, we believe cash flow from operations and available cash willdiscussed in this section. However, there can be adequate for at least the next twelve months to meet our anticipated requirements for working capital, capital expenditures and scheduled payments of principal and interest on our indebtedness, including the Notes and the Revolving Credit Facility (if drawn upon). However, if we are unable to generate sufficient cash flow from operations or to borrow sufficient funds in the future to service our debt, we may be required to sell assets, reduce capital expenditures, refinance all or a portion of our existing debt (including the Notes) or obtain additional financing. There is no assurance that we will be able to refinance our debt, sell assets or borrow more money on terms acceptable to us, or at all.manage any of these risks successfully.
The indenturesindenture that governgoverns the Notes contain various covenants that limit our ability and the ability of our subsidiaries to, among other things:
incur liens;
liens, incur sale and leaseback transactions;transactions, and
consolidate or merge with or into, or sell substantially all of our assets to another person.
The Further, the Credit Agreement contains two financial covenants along with customary affirmative and negative covenants that include the following:
•maintenance of a leverage ratio no greater than 3.0x (provided that if a material acquisition has been consummated,
we are permitted to maintain a leverage ratio no greater than 3.5x for up to four quarters) and an interest coverage ratio no less than 3.0x3.0x; and
•covenants that limit or restrict the ability of the Company and its subsidiaries to, among other things, grant liens, merge or consolidate, dispose of all or substantially all of its assets, change their accounting or reporting policies, change their business and incur subsidiary indebtedness, in each case subject to customary exceptions for a credit facility of this size and type.
As a result of these covenants, we are limited in the manner in which we can conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs. Accordingly, these restrictions may limit our ability to successfully operate our business. A failure to comply with these restrictions could lead to an event of default, which could result in an acceleration of the indebtedness, which could result in an event of default under our other debt instruments. Our future operating results may not be sufficient to enable compliance with these covenants to remedy any such default. In addition, in the event of an acceleration, we may not have or be able to obtain sufficient funds to make any accelerated payments, including those under the Notes,applicable U.S. tax laws and the Revolving Credit Facility (if drawn upon).
In addition, certain changes under the Tax Act may result inregulations, there are limitations on the deductibility of our net business interest expenses. The Tax Act generally limits the annual deduction for net business interest expense to an amount equal to 30% of adjusted taxable income. As a result, if our taxable income were to decline, we may not be able to fully deduct our net interest expense. These changes, among others under the Tax Act, could result in increases to our future U.S. tax expenses,expense, which could have a material impact on our business.
A portion of the transaction considerationFurther, we receivedreceive debt ratings from the divestiture of our Junos Pulse product portfolio ismajor credit rating agencies in the formU.S. Factors that influence our credit ratings include financial strength as well as transparency with rating agencies and timeliness of a non-contingent seller promissory note and we may not receive the amount owed to us (including accrued interest), including in the time frame contemplated, by the buyer under the note.
In the fourth quarter of fiscal 2014, we completed the sale of our Junos Pulse product portfolio to an affiliate of Siris Capital, a private equity firm, for total consideration of $230.7 million, of which $125.0 million was in the form of an 18-month non-contingent interest-bearing promissory note issued to the Company. On May 1, 2017, we received a principal payment in the amount of $75.0 million and outstanding interest on the note, and we and the issuer agreed to further amend the terms of the note with respect to the remaining approximately $58.0 million to, among other things, extend the maturity date from December 31, 2018 to September 30, 2022, provided that interest duefinancial reporting. There can be paid in kind by increasing the outstanding principal amount of the note and subordinate the note to other debt issued by senior lenders. Since a portion of the transaction consideration is in the form of a non-contingent seller promissory note and the note is subordinated to debt issued by senior lenders, there is the risk that we may not receive the amount owed to us (including accrued interest), including in the time frame contemplated, under the note. In the event that the promissory note is not repaid on the terms we contemplate, any collection or restructuring efforts we undertake may be costly and require significant time and attention from our management and there is no guaranteeassurance that we will be able to recover the amounts owed to us in full.
Ourmaintain our credit ratings and failure to pay quarterly dividends todo so could adversely affect our stockholders or the failure to meet our commitments to return capital to our stockholders could have a material adverse effect on our stock price.
Our ability to pay quarterly dividends or achieve our intended capital return policy will be subject to, among other things, our financialcost of funds and related margins, liquidity, competitive position and results of operations, available cash and cash flow,access to capital and debt service requirements, use of cash for acquisitions and other factors. Any failure to pay or increase future dividends as announced, or a reduction or discontinuation of quarterly dividends could have a material adverse effect on our stock price.markets.
In January 2018, we announced that our Board of Directors approved a new $2.0 billion buyback authorization, which replaced our prior authorization and in October 2019, the Board authorized the repurchase of up to an additional $1.0 billion of common stock under the 2018 Stock Repurchase Program. In January 2019, our Board of Directors declared an increase to our quarterly cash dividend to $0.19 per share. In October 2019, we entered into an ASR for an amount up to $200.0 million under the 2018 Stock Repurchase Program. Any failure to meet our commitments to return capital to our stockholders could have a material adverse effect on our stock price.
The investment of our cash balance and ourOur investments in government and corporate debt securities and equity securities are subject to risks, which may cause losses and affect the liquidity of these investments.
At September 30, 2019, we had $1,204.8 million in cash and cash equivalents and $1,621.9 million in short-and long-term investments. We have invested these amounts primarilysubstantial investments in asset-backed securities, certificates of deposit, commercial paper, corporate debt securities, foreign government debt securities, money market funds, mutual funds, time deposits, U.S. government agency securities, and U.S. government securities. We also have $94.4 million in other long-term assets for our investments in privately-held companies. Certain of our investments are subject to general credit, liquidity, market, sovereign debt, and interest rate risks. Our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value related to creditworthiness of our publicly traded debt or equity investments is judged to be other-than-temporary. Thesematerial. In addition, should financial market conditions worsen in the future, investments in some financial instruments may be subject to risks associated with our investment portfolio mayarising from market liquidity and credit concerns, which could have a material adverse effect on our liquidity, financial condition, and results of operations.
Changes in the method of determining the London Interbank Offered Rate, or LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect our financial condition and results of operations.
current or future indebtedness. Certain of our financial obligations and instruments, including our credit facility, Pulse note, supplierRevolving Credit Facility, accounts receivable finance programs, and floating rate notes that we
have invested in, as well as interest rate swapsderivatives that we use as fair value and cash flow hedges, of our fixed-rate 2041 Notes, are or may be made at variable interest rates that use LIBOR (or metrics derived from or related to LIBOR) as a benchmark for establishing the interest rate. On July 27,In 2017, the United Kingdom’s Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. These reformsIf LIBOR ceases to exist, we may causeneed to renegotiate our debt arrangements that extend beyond 2021 that utilize LIBOR to perform differently thanas a factor in determining the past or to disappear entirely. These reformsinterest rate, which may also result in new methodsnegatively impact the terms of calculating LIBOR to be established, or alternative reference rates to be established. For example, the Federal Reserve Bank of New York has begun publishing a Secured Overnight Funding Rate, or SOFR, which is intended to replace U.S. dollar LIBOR, and central banks in several other jurisdictions have also announced plans for alternative reference rates for other currencies. The potential consequences of these actions cannot be fully predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us.such indebtedness. Changes in market interest rates may influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and cash flows. In addition, any transition processthe overall financial markets may involve, among other things, increased volatilitybe disrupted as a result of the phase out or illiquidity in markets for instruments that rely on LIBOR, reductionsreplacement of LIBOR. Disruption in the value of certain instruments or the effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent processes. Thisfinancial markets could materially and adversely affecthave an adverse effect on our financial position, results of operations, cash flows, and liquidity.
GENERAL RISK FACTORS
Failing to adequately evolve our financial and managerial control and reporting systems and processes, or any weaknesses in our internal controls may adversely affect investor perception, and our stock price. We will need to continue to improve our financial and managerial control and our reporting systems and procedures to manage and grow our business effectively in the future. We are required to assess the effectiveness of our internal control over financial reporting annually and to disclose in our filing if such controls were unable to provide assurance that a material error would be prevented or detected in a timely manner. If in the future, our internal controls over financial reporting are determined to not be effective, resulting in a material weakness, investor perceptions regarding the reliability of our financial statements may be adversely affected which could cause a decline in the market price of our stock and otherwise negatively affect our liquidity and financial condition.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
forum. Our amended and restated bylaws provide that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or if the Court of Chancery does not have jurisdiction, the U.S. District Court for the District of Delaware) is the sole and exclusive forum for (i) any derivative action or proceeding brought oncertain actions and proceedings as specified in our behalf; (ii) any action asserting a claim of breach of fiduciary duty owed by any of our current or former directors, officers, or other employees to us or to our stockholders; (iii) any action asserting a claim arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation, or our bylaws; (iv) any action or proceeding asserting a claim as to which Delaware General Corporation Law confers jurisdiction on the Court of Chancery or (v) any action asserting a claim governed by the internal affairs doctrine.bylaws. The exclusive forum provisions in our bylaws may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our current or former directors, officers, or other employees, which may discourage such lawsuits against us and our current or former directors, officers, and other employees. Alternatively, if a court were to find the exclusive forum provisions contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material and adverse impact on our business.
Uninsured losses could harm our operating results.
We self-insure against many business risks and expenses, such as intellectual property litigation, cybersecurity and our medical benefit programs, where we believe we can adequately self-insure against the anticipated exposure and risk or where insurance is either not deemed cost-effective or is not available. We also maintain a program
failures that may occur. Losses not covered by insurance could be substantial and unpredictable and could adversely affect our financial condition and results of operations.
Our stock price may fluctuate.
Historically, our common stock has experienced substantial price volatility, particularly as a result of variations between our actual financial results and the published expectations of analysts and as a result of announcements by our competitors and us. Furthermore, speculation in the press or investment community about our strategic position, financial condition, results of operations, business, security of our products, liabilities or significant transactions can cause changes in our stock price. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies in particular and that have often been unrelated to the operating performance of these companies. From time to time, economic weakness has contributed to extreme price and volume fluctuations in global stock markets that have also reduced the market price of many technology company stocks, including ours. These factors, as well as general economic and political conditions and the announcement of proposed and completed acquisitions or other significant transactions, or any difficulties associated with such transactions, by us or our current or potential competitors, may materially adversely affect the market price of our common stock in the future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides stock repurchase activity during the three months ended September 30, 20192020 (in millions, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number
of Shares
Purchased(*) | | Average
Price Paid
per Share(*) | | Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs(*) | | Approximate Dollar
Value of Shares
that May Yet Be
Purchased
Under the Plans or
Programs(*) |
| July 1 - July 31, 2020 | | — | | | $ | — | | | — | | | $ | 1,500.0 | |
| August 1 - August 31, 2020 | | 2.6 | | | $ | 24.50 | | | 2.6 | | | $ | 1,437.3 | |
| September 1 - September 30, 2020 | | 1.6 | | | $ | 23.03 | | | 1.6 | | | $ | 1,400.0 | |
| Total | | 4.2 | | | | | 4.2 | | | |
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share (1)(2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) |
| July 1 - July 31, 2019 | | — |
| | $ | — |
| | — |
| | $ | 1,010.0 |
|
| August 1 - August 31, 2019 | | 5.1 |
| | $ | 24.90 |
| | 5.1 |
| | $ | 900.0 |
|
| September 1 - September 30, 2019 | | — |
| | $ | — |
| | — |
| | $ | 900.0 |
|
| Total | | 5.1 |
| | $ | — |
| | 5.1 |
| |
|
________________________________
| |
(1)
| (*) Shares were repurchased under our Board approved 2018 Stock Repurchase Program, which authorized us to purchase an aggregate of up to $2.0 billion of our common stock. Future share repurchases 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, including Rule 10b-18 promulgated under the Exchange Act. This program may be discontinued at any time. See Note 16, Subsequent Events, for discussion of the Company's stock repurchase activity, increased repurchase authorization and ASR subsequent to September 30, 2019. For the majority of restricted stock units granted to executive officers of the Company, the number of shares issued on the date the restricted stock units vest is net of shares withheld to meet applicable tax withholding requirements. Although these withheld shares are not issued or considered common stock repurchases under our stock repurchase program and therefore are not included in the preceding table, they are treated as common stock repurchases in our financial statements as they reduce the number of shares that would have been issued upon vesting, see Note 10, Equity, in Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report. |
| |
(2)
| Represents the average price per share of the ASR and open market purchases. |
As part of the 2018 Stock Repurchase Program, on April 29, 2019, we entered into an ASRwhich authorizes us to repurchasepurchase an aggregate of approximately $300.0 million of our outstanding common stock. During the second quarter of 2019, we made an up-front payment of $300.0 million pursuantup to the ASR and received and retired an initial 8.6 million shares$3.0 billion of our common stock. Future share repurchases 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, including Rule 10b-18 promulgated under the Exchange Act. This program may be discontinued at any time. For the majority of restricted stock for an aggregate priceunits granted to executive officers of $240.0 million, based on the market priceCompany, the number of $27.94 per share of our common stockshares issued on the date the restricted stock units vest is net of the transaction. During the third quarter of 2019, the ASR was completed and we received and retired an additional 3.0 million shares based on volume weighted average repurchase price, less an agreed upon discount, of $25.79 per share. The completion of the ASR resulted in a total repurchase of 11.6 millionwithheld to meet applicable tax withholding requirements. Although these withheld shares of our common stock.
During the three months ended September 30, 2019, the Company also repurchased 2.1 million shares of itsare not issued or considered common stock repurchases under our stock repurchase program and therefore are not included in the open market for an aggregate purchase price of $50.0 million at an average price of $23.63 per share, under the 2018 Stock Repurchase Program.
The shares received by us were retired, accounted for as a reduction to stockholder’s equity in the Condensed Consolidated Balance Sheets, andpreceding table, they are treated as a repurchase of common stock for purposesrepurchases in our financial statements as they reduce the number of calculating earnings per share. For further explanation of our ASR,shares that would have been issued upon vesting, see Note 10, 8, Equity,, in Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report.
Item 5. Other Information
The Company previously entered into change of control agreements and severance agreements with certain of its senior management beginning in August 2017, which agreements will automatically expire pursuant to their respective terms on January 1, 2021.
In connection with the expiration of such agreements and following the regular review of executive severance by the Compensation Committee (the “Committee”) of the Board of Directors of the Company, the Committee, after considering the recommendations of its independent compensation consultant, approved, effective as of November 2, 2020, (i) an updated form of change of control agreement (the “Change of Control Agreement”) and the use of such agreement for Rami Rahim, the Company’s Chief Executive Officer, and certain members of the Company’s senior management, including Ken Miller, Manoj Leelanivas, Anand Athreya, and Brian Martin, and (ii) an updated form of severance agreement (the “Severance Agreement”) and the use of such agreement for Messrs. Rahim, Miller, Leelanivas, Athreya and Martin.
The Change of Control Agreement will replace the existing change of control agreements for members of senior management and includes, among other things, the following changes: (i) a change to the expiration date from January 1, 2021 to January 1, 2024, (ii) a change in the period of time following a change of control during which the benefits of the agreement will apply from 12-months to 18-months, (iii) removal of an employee non-competition covenant, and (iv) updates to the form of release of claims. The Severance Agreement will replace the existing severance agreements for members of senior management and includes, among other things, the following changes: (i) a change to the expiration date from January 1, 2021 to January 1, 2024, and (ii) updates to the form of release of claims. The foregoing summaries of the Change of Control Agreement and Severance Agreement do not purport to be complete and are qualified in their entirety by reference to the text of the agreements, which are attached as Exhibits 10.1 and 10.2, respectively, and are incorporated herein by reference.
| | | | | | | | |
Exhibit
Number | | Description of Document |
| 10.1 | | |
| | |
Exhibit
Number
10.2 | | Description of Document |
4.1 | | |
| | |
4.231.1 | | |
| | |
10.1 | | |
| | |
31.1 | | |
| | |
| 31.2 | | |
| | |
| 32.1 | | |
| | |
| 32.2 | | |
| | |
| 101 | | The following materials from Juniper Network Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019,2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Changes in Stockholders' Equity, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text* |
| | |
101.INS104 | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
101.SCH | | XBRL Taxonomy Extension Schema Document* |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document* |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document* |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document* |
| | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document* |
| | |
104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019,2020, formatted in Inline XBRL (included in Exhibit 101).* |
|
| |
| *Filed herewith. |
| **Furnished herewith. |
+Indicates ++Indicates management contract or compensatory plan, contract or arrangement.contract. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | Juniper Networks, Inc. |
| | | |
| November 2, 2020 | | Juniper Networks, Inc. |
| By: | | | |
November 6, 2019 | | By: | /s/ Thomas A. Austin |
| | | Thomas A. Austin |
| | | Vice President, Corporate Controller and Chief Accounting Officer (Duly Authorized Officer and Principal Accounting Officer) |