Enterasys to Restate Earnings Amid Probe

The Rochester, N.Y.-based computer networking company also said its CFO has resigned and announced other management changes.

Enterasys said Tuesday evening that it has identified problems requiring adjustments for the 10-month period that ended Dec. 29, 2001, and for the fiscal year that ended March 3, 2001.

At issue was when the company recorded revenue related to investment transactions and the amount and timing of revenue associated with sales to certain distributors. The company did not specify amounts to be restated for those periods, but said it plans over the next several weeks "to file restated financial results containing significant adjustments to revenue recorded."

Enterasys also revised its revenue estimate for the first fiscal quarter that ended March 30 of this year, to $122 million to $127 million from an original estimate of $110 million to $120 million.

At the request of its board of directors, Enterasys said William K. O'Brien, who was appointed interim CEO April 1 when Enrique Fiallo abruptly resigned, has been given the job permanently.

Robert J. Gagalis has resigned as CFO "to pursue other opportunities." Richard S. "Rip" Haak Jr., who joined the company as vice president of finance in October 2001, will take over for Gagalis. The company also said Christine A. Varney has resigned from its board of directors after serving since last October.

Enterasys says the restatements are not expected to affect the company's current cash position and should not affect its services. The company said it is continuing to cooperate with a separate SEC investigation of its finances.

"We have identified the issues, improved our business processes and are making substantial progress toward putting these matters behind us," O'Brien says.

Enterasys has been hampered for months by the accounting scandal, and it faces several lawsuits by investors.

The lawsuits accuse Enterasys, Fiallo and Gagalis of deceiving investors about the company's revenues and earnings to keep its stock price artificially high. They also accuse Fiallo of benefiting personally by selling his shares at inflated prices.

Enterasys stock has lost 85 percent of its value since the company disclosed Feb. 4 that it found discrepancies in how it recorded a $4 million sales contract in Asia. Shares closed at 90 cents on Tuesday on the New York Stock Exchange.

Fiallo and two other top executives resigned in April.

Enterasys is a spinoff of the former Cabletron Systems.

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