In order to perform the analysis of the Annual Report we will take the Juniper Networks’ Inc. annual report (also known as Form 10-K) for the fiscal year ended December 31, 2011 as an example. The report provides detailed information on company’s business and its operations, presents analysis of financial statements and risk factors throughout the year, and depicts the structure of corporate governance within the company. Annual Report consists of 4 major parts. Part I defines Juniper’s area of expertise and major milestones in its history, as well as potential risk factors which may affect the price of Juniper’s stock. Part II depicts company’s stock performance throughout the year, provides consolidated financial data (Income Statement, Balance Sheet, Statement of Cash Flows and Statement of Changes in Equity) and its analysis, as well as analysis of the effectiveness of the Control System. Part III gives references to the company’s official documents regarding Corporate Governance, Executive Compensation and Investor Relationship issues. Part IV includes Closing Remarks, Exhibits and Financial Statement Schedules.
Factors which influenced Juniper’s financial performance in 2011 are discussed in the Part II of the report. Company’s management claims that severe macroeconomic environment made a great impact on company’s business in 2011. Debt crisis in Europe forced major customers to reduce their orders. In addition, in 2011 Juniper has entered a new product cycle. As a consequence, customers held off their purchases in anticipation of the new product. Despite tough macroeconomic environment Juniper managed to increase its sales revenue by almost 10% comparing to 2010 figures. Operating income has increased even more dramatically, by more than 30% comparing to the previous year. Juniper’s management attributes such a good performance to successful introduction of the whole range of new products, which justify the big amounts spent on R&D in previous years. On the other hand, Juniper has demonstrated a slight decrease in gross margins compared to 2010, as the proportion of low-margin products in sales increased compared to 2010. Shift in geographic mix, increased overhead and increased inventory related costs also contributed to the decrease of profit margins in 2011.
According to Juniper’s consolidated balance sheet, company’s total assets are valued at $9,984 million. This includes current assets ($4,440 million), property plant and equipment ($599 million), long-term investments ($741 million) and goodwill ($3,928 million). It should be noted that Juniper maintains an investment portfolio of different bonds and maturities. As long as macroeconomic environment is uncertain, the value of these investments is subject to market price volatility. Juniper does not hedge its securities, therefore these investments might significantly decrease in value due to unfavorable economic environment. Juniper’s intangible assets i.e. Goodwill comprise major part in its asset structure. Juniper’s management revises the value of goodwill on an annual basis to provide objective and transparent value of intangible assets. However, goodwill value may decrease because of changes in the legal environment, severe decline in company’s market capitalization, unanticipated competition, etc. The fact that almost half of Juniper’s assets are intangible gives grounds to believe that its market stock price has a potential to be more volatile than of those companies whose value is determined by tangible assets.
According to the report of the independent auditor, Ernst & Young LLP, Juniper Networks, Inc.'s management is responsible for maintaining effective internal control over financial reporting. In addition, an auditor claims that internal controls may not fully prevent fraud or financial misstatements, however Juniper Networks Inc. maintained, in all material respects, effective internal control over financial reporting asof December 31, 2011, based on the COSO criteria. As a result, an independent auditor expressed an unqualified opinion on the financial statements and internal control system of Juniper Networks Inc., which means that financial reports of the company are trustworthy and objectively reflect the financial situation within the company.
Reference List
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2001). Fundamentals of Corporate Finance.
Third Edition. The McGraw-Hill.
U.S. Securities and Exchange Commission. (2011). Commission file number 001-34501. JUNIPER NETWORKS, INC. Retrieved from http://www.sec.gov/Archives/edgar/data/1043604/000104360412000006/juniper201110k.htm#s7C0F23715D8B90A4DA14ADA24FA3E641
