On Jan. 24, network equipment designer Juniper Networks (Nasdaq: JNPR) released earnings for the 2007 fiscal year, a period ended Dec. 31.

  • The company took a goodwill impairment charge for $1.28 billion in 2006, which sank almost the entire income statement into a red-ink bath. Without that non-cash item, we'd be comparing against $282 million in non-GAAP net income and a 12.2% net margin.
  • Juniper hasn't been debt-free since 2000, when the company took on a $1.1 billion loan to buy back some shares and make short-term investments. Call it a recapitalization move, if you will, but the effects of it have now been entirely reversed.
  • The capital strategy today looks quite different, with the company selling short-term investments to finance generous share buybacks.
  • No matter the financial tactics, it appears that the small fry in this networking pond have a hard time matching up with sector leaders such as Cisco Systems (Nasdaq: CSCO) and, to a lesser degree, Juniper. CAPS stars fall from the sky because the earnings aren't there.

(Figures in millions, except per-share data)

Income Statement Highlights

FY 2007

FY 2006

Change

Sales

$2,836

$2,304

23.1%

Net Profit

$361

($1,001)

N/A

Earnings Per Share

$0.62

($1.76)

N/A

Diluted Shares

579.1

567.5

2.1%

Get back to basics with the income statement.

Margin Checkup

FY 2007

FY 2006

Change*

Gross Margin

67.3%

67.3%

0.0

Operating Margin

14.4%

(43.3%)

57.7

Net Margin

12.7%

(43.5%)

56.2

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

FY 2007

FY 2006

Change

Cash + Short-Term Investments

$1,956

$2,040

(4.1%)

Accounts Receivable

$380

$249

52.2%

Liabilities

FY 2007

FY 2006

Change

Accounts Payable

$219

$180

22.0%

Long-Term Debt

$0

$400

N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

FY 2007

FY 2006

Change

Cash From Operations

$798

$756

5.6%

Capital Expenditures

$147

$102

43.8%

Free Cash Flow

$651

$654

(0.4%)

Owner Earnings

$400

$353

13.3%

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating

Cisco Systems (Nasdaq: CSCO)

$152,160

19.9

****

Juniper

$14,003

50.5

***

Alcatel-Lucent (NYSE: ALU)

$14,300

N/A

**

Nortel Networks (NYSE: NT)

$5,690

N/A

*

CIENA (Nasdaq: CIEN)

$2,120

N/A

**

Data uses the latest reported numbers from Capital IQ, a division of Standard & Poor's. Keep your partners close and the competition in your vest pocket.

Related Foolishness:

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund had no position in any company mentioned. Fool rules are here.