Stock option problems cost Juniper $900M

Juniper Networks expects to record a $900-million charge as a result of improprieties in its stock option granting practices, the company revealed late Wednesday.

A seven-month review of Juniper’s stock option grants performed by the company’s audit committee concluded that, in numerous instances, grant dates were chosen “with the benefit of hindsight as to the price of the company’s stock, so as to give favorable prices,” the company said. “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 said.

The $900-million charge relate essentially to options granted between June 1999 and December 2003.

Juniper’s chief executive officer, Scott Kriens, received two stock option awards with measurement date problems, the company said, but both were cancelled unexercised in 2001. Kriens has not exercised any stock options since 1998, about a year before the company went public, Juniper said.

In the statement released late Wednesday by the company, its audit committee and board of directors reaffirmed their confidence in Kriens, who apologized for the mess.

Kriens’ retention was a relief to analysts, who feared the possibility of his departure as a result of the investigation. (Stock option granting problems, which have plagued many other companies, have resulted in some CEO resignations.)

“Juniper can now focus on execution,” UBS analyst Nikos Theodosopoulos wrote in a note this morning. The company plans to file its last two quarterly financial reports (delayed because of the investigation) early next year.

At the end of March, Juniper had more than $904 million in cash and equivalents.

The news comes a day after analysts began predicting Juniper would lose some revenue as one of its key partners, Ericsson, offered to acquire edge router vendor Redback Networks, potentially siphoning away edge router revenue that Juniper would otherwise have seen from Ericsson’s distribution.