Enterasys Delays Earnings Report Until July

Enterasys Networks

The networking hardware vendor delayed reporting results for the 10-month period ending Dec. 29, 2001, and for the quarter ended March 30, 2002, after discovering accounting irregularities related to revenue recognition.

Enterasys said it also will restate previously reported quarterly results for 2001.

The company said it plans to achieve break-even operating cash flow by the fourth quarter of 2002.

Since it launched the internal review in February, Enterasys ousted its CEO, executive vice president and its COO.

The company in April cut 30 percent of its staff to align its cost structure with its revenue base after warning of a significant revenue drop in its first quarter. The networking hardware vendor said it expects revenue for the first quarter ended March 30 to come in between $110 million and $120 million, down dramatically from an estimated $145 million to $155 million in revenue estimated for the fourth quarter ended Dec. 29.

The company said it lowered its earnings estimate because of revenue-recognition issues in the Asia-Pacific region and a comprehensive analysis of revenue recognition in the remaining regions of the company. The prolonged market slowdown and an SEC investigation of the company also contributed to the revenue decline, the company said.

A company spokesperson said the projected revenue shortfall prompted the April resignations of Henry Fiallo, chairman, CEO and president; J.E. Riddle, vice chairman and executive vice president of worldwide marketing; and Jerry Shanahan, COO.

The company appointed William O'Brien as interim CEO and director and Yuda Doron as president. O'Brien was a global managing partner at PricewaterhouseCoopers until 2000. Doron was formerly manager of Computer Associates International's channel sales operation, Enterasys said.

Enterasys in late February terminated three senior employees in its Asia-Pacific operations in response to its internal investigation of accounting irregularities. The employees had been on administrative leave since Feb. 1, when Enterasys discovered irregularities in at least one contract, valued at $4 million, in its Asia-Pacific unit.

Enterasys said that while preparing its fourth-quarter earnings it discovered that its independent auditor, KPMG, was provided with a version of the $4 million contract with terms that supported revenue recognition, while the vendor's own version of the contract did not.

Scheduled to report its earnings Feb. 5, Enterasys delayed its earnings report for the fiscal fourth quarter and the 10-month year ended Dec. 29, 2001, when it learned of the Asia-Pacific situation.