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Juniper Dusts Off Its Eraser

The stock-options scandal and a likely goodwill writedown could lead to charges against earnings, the company says

Juniper Networks Inc. (Nasdaq: JNPR)'s bottom line is set to take a hammering by the ongoing stock-options scandal and a probable goodwill writedown, company officials announced during the vendor's second-quarter earnings call late Wednesday afternoon. (See Juniper Reports Earnings.)

An internal audit committee "has reached a preliminary conclusion that the actual measurement dates, for financial accounting purposes, of certain stock option grants issued in the past differ from the recorded grant dates of such awards," CEO Scott Kriens said on Juniper's call with analysts late Wednesday.

In other words, the audit, which is ongoing, uncovered evidence of possible back-dating. Juniper is one of several companies being investigated for possibly back-dating stock options, and some of those companies have said they'll restate earnings -- Broadcom Corp. (Nasdaq: BRCM) being among the latest. (See Backdating Could Bite Juniper Execs and Broadcom to Restate Earnings.)

Juniper didn't mention restatements, but Kriens did say the company might have to take charges to its earnings. But it's hard to say what will happen as Juniper hasn't heard much else about the committee's findings.

"They have not elaborated beyond that," Kriens said. "We don't know, until they do, the extent of these charges and whether or not they will be material."

That's not the only adjustment in Juniper's future, though. Due to the stock's decline in the past quarter -- to $14.14 per share as of yesterday's closing, from $19.12 on March 31 -- Juniper officials said they're re-evaluating the company's $4.9 billion in goodwill.

On the call, CFO Robert Dykes said that will likely result in a $1.3 billion writeoff in the second quarter -- possibly more, if Juniper's stock continues to drop. Juniper isn't filing its full second quarter report until the stock options audit is completed.

Goodwill adjustments -- usually the result of acquisitions whose value drops -- don't affect a company's cash holdings, but they get docked from a company's net income, according to generally accepted accounting principles (GAAP).

Oh, but there's more: Juniper gave revenue forecasts that appear short of analyst expectations. Juniper predicted third quarter revenues of $570 million to $575 million and fourth quarter revenues of $585 million to $595 million. A Reuters Research tally has analysts predicting revenues of $580.9 million and $620.4 million, respectively, for the two quarters.

Despite this, Juniper's stock edged up in after-hours trading Wednesday night. Having closed at $14.14, the share price climbed by 17 cents, more than 1 percent, to $14.31 after the earnings call.

That lift was likely the result of the outsourcing deal Juniper announced at 6pm Eastern with contract manufacturer Flextronics Corp. (Nasdaq: FLEX), and news that its board has authorized a $1 billion share buyback. (See Flextronics Wins Juniper Deal.)

For its second quarter, which ended June 30, Juniper reported revenues of $567.5 million, on par with the $567.2 million predicted by analysts polled by Reuters. Revenues were up slightly from the first quarter figure of $566.7 million.

Juniper didn't report net income due to the stock-options issue. Analysts had expected GAAP net income of $88.2 million, or 15 cents per share, according to Reuters.

For its second quarter a year ago, Juniper reported GAAP net income of $89 million, 15 cents per share, on revenues of $493 million.

Siemens AG (NYSE: SI; Frankfurt: SIE) represented approximately 15 percent of Juniper's second quarter revenues, and Verizon Communications Inc. (NYSE: VZ) represented 10 percent, officials said. That doesn't include $25 million to $35 million in Verizon revenues being deferred into 2007, as Juniper noted last quarter. (See Juniper Defends Core Business in Q1.)

— Craig Matsumoto, Senior Editor, Light Reading

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