Thursday, December 21, 2006

Juniper Identifies the Hit From Options Backdating

High tech equipment manufacturer Juniper Networks, Inc., disclosed that its internal investigation of options issuance practices shows that award were backdated and that there are "serious concerns regarding certain former management."  The company said it would take a $900 million charge, as a press release (here) explains:

[T]he actual measurement dates for financial accounting purposes of numerous stock option grants issued in the past differ from the recorded grant dates of such awards. The Audit Committee determined that there were numerous instances in which grant dates were chosen with the benefit of hindsight as to the price of the Company’s stock, so as to give favorable prices. In this regard, the Audit Committee identified serious concerns regarding certain former management. In addition, formal documentation often lagged the referenced grant date and there was insufficient exercise by management of responsibility for the stock option process. The Company currently anticipates that it will record additional non-cash charges for stock-based compensation expense of approximately $900 million, 99.9 percent of which relate to options granted between June 9, 1999 and December 31, 2003.

There are lots of nice euphemisms in there that can be easily translated: the options were issued with backdated documentation, and one or more former managers have been fingered by the company's internal investigators. 

The press release notes that Juniper CEO Scott Kriens received two options awards with the backdated issuance date, but that those options were canceled unexercised in 2001 and he has not exercised any options since 1998.  Like many companies caught in the tech collapse when the bubble burst in 2001, most of its options issued prior to mid-2000 were likely worthless by 2001 even with the beneficial price adjustments through the backdating.  Juniper earlier disclosed that the U.S. Attorney's Office for the Eastern District of New York (Brooklyn) is investigating its options issuance practices, and prosecutors will be quite interested in those "serious concerns" revealed in the internal investigation. (ph)

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Investigations, Securities | Permalink

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