William K. O’Brien to remain as CEO
Enterasys Networks, Inc. (NYSE: ETS) today announced a preliminary revenue estimate of $120 to $125 million for the second fiscal quarter ended June 29, 2002. The Company also announced that it had increased its revenue estimate for the first fiscal quarter ended March 30, 2002 to $122 to $127 million, from an original estimate of $110 to $120 million for the first quarter. The Company anticipates filing its Form 10-K for the period ended December 29, 2001, and restated financial results for certain previously reported periods, within the next several weeks. The restated results are expected to contain significant adjustments to, among other things, revenue recorded during the ten month period ended December 29, 2001 and the fiscal year ended March 3, 2001.
The Company’s revenue estimate for the second quarter reflects continued stability in its business and customer base. Despite a challenging economic and business environment, Enterasys continued to win new accounts in the second quarter in addition to winning significant business from its installed base. Customer wins included: Massachusetts Institute of Technology, New York City Department of Environmental Protection, St. John’s Hospital, University of Rochester Medical Center, University of Milan, San Diego Community College, France TELECOM, and TELEMADRID. The Company continues to execute on its product roadmaps by developing and delivering products and solutions to address the needs of enterprise customers.
“Since April, we have made substantial progress on our objectives of stabilising the business, improving execution, and resolving revenue recognition issues from prior periods,” stated Bill O’Brien, CEO of Enterasys Networks. O’Brien continued, “I am encouraged by our customers’ loyalty, our employees’ determination, and our second quarter performance, which affirms Enterasys’ position as a leading provider of broad line networking solutions for enterprise-class customers.”
As of June 29, 2002, Enterasys had cash and marketable securities of approximately $295 million. The Company’s cash and marketable securities position at June 29, 2002 reflects $110 million of previously announced federal income tax refunds received during the second quarter, and the use of approximately $75 million of cash which includes non-recurring cash uses of approximately $18 million of severance payments relating to a 30% work force reduction and approximately $10 million of expenses incurred in connection with the Company’s previously announced internal review and the investigation by the Securities and Exchange Commission. The Company reiterated that it is targeting breakeven operating cash flow by the fourth quarter of 2002.
The Company also provided additional details of its internal review of historical revenue recognition practices, which as previously reported is being led by legal counsel, Ropes & Gray and the forensic accounting group of Deloitte & Touche. The Company indicated that it has identified issues requiring adjustments for the ten month period ended December 29, 2001 and for the fiscal year ended March 3, 2001, primarily involving revenue recognised in connection with investment transactions, the amount and timing of revenue associated with sales to certain distributors who were granted rights of return or extended payment terms, and certain other matters impacting revenue recognition.
As a result of the issues it has identified, the Company expects to file restated financial results containing significant adjustments to revenue recorded during the ten-month period ended December 29, 2001 and the fiscal year ended March 3, 2001. The Company is in the process of completing its internal review and certain audit procedures and finalising the treatment of certain matters involving complex accounting issues, and is consulting actively with the Securities and Exchange Commission in this regard. The Company expects to complete and file the following financial reports over the course of the next several weeks:
· Form 10-K for the ten month period ended December 29, 2001, including changes to the periods ended June 2001, August 2001 and September 2001;
· Amendments to the Form 10-K for the fiscal year ended March 3, 2001; and,
· Amendments to certain Form 10-Qs within the fiscal year ended March 3, 2001.
“We have identified the issues, improved our business processes and are making substantial progress toward putting these matters behind us. We do not expect the problems that have been identified to impact our ability to continue serving our customers and the enterprise market successfully,” stated Bill O’Brien.
The anticipated restatement of prior period results is not expected to have an impact on the Company's current cash position and should not affect adversely Enterasys’ customers or services. The Company stated that it continues to cooperate with the Securities and Exchange Commission’s investigation, and has been keeping the SEC informed of the Company’s findings and the progress of its internal review.
Executive Management Changes:
The Company also announced that at the request of the board of directors, William K. O’Brien, who was appointed Interim Chief Executive officer on April 1, 2002 has agreed to assume the role of Chief Executive Officer. Accordingly, the interim designation will be removed from his title. Separately, the Company announced that Robert J. Gagalis has notified the Company of his intention to resign from his position as Chief Financial Officer in order to pursue other opportunities. Richard S. “Rip” Haak, Jr., who joined the Company as vice president of finance in October of 2001, will assume the role of chief financial officer upon Gagalis’ departure.
Gagalis, who joined the Company late in 2001, has agreed that he will remain with the Company for a transition period in order to assist with completion of the pending audit and the finalisation of the Company’s financial statements, which will be filed with the Securities and Exchange Commission. “Bob has made a significant contribution in helping the Company address the difficult financial reporting issues it has faced over the recent months. Rip will now spearhead the completion of these processes and build a strong financial team going forward,” said Bill O’Brien
The Company also stated that Christine A. Varney has resigned from its board of directors, due to the time constraints associated with her other responsibilities at the law firm of Hogan & Hartson LLP, where she heads the firm's Internet Practice Group. Varney has served on the Enterasys Board of Directors since October 2001.
About Enterasys Networks
Enterasys Networks (NYSE: ETS) is a leading worldwide provider of broadline intelligent data networking infrastructures for enterprise-class customers. Enterasys’ networking hardware and software offerings deliver the innovative security, availability and mobility solutions required by Global 2000 organisations coupled with the industry’s strongest service and support. For more information on Enterasys and its products, including multilayer switches and routers, wireless LANs, VPN, network management, and intrusion detection systems (IDS), visit http://www.enterasys.com
This press release contains projections and other forward-looking statements regarding the future cash flows and other financial performance of the Company or other future events and circumstances, and actual results, events and circumstances could differ materially. These forward-looking statements are not historical facts or guarantees of future performance, and are based on current estimates and numerous assumptions. These estimates and assumptions reflect subjective judgments concerning future events and circumstances and may be incomplete or incorrect, and unanticipated events or circumstances may occur causing these estimates and assumptions to be wrong. Risks that could cause actual events or results to differ materially from those described in the projections or forward-looking statements include business disruption and market perceptions associated with the company’s internal and the Securities and Exchange Commission’s investigation relating to the Company’s fin!
ancial reporting, economic trends associated with the recent terrorist activities experienced in the United States and any continuation or repercussions thereof or responses thereto, as well as risks associated with competitive conditions, pricing and margin pressures as a result of product shifts and changes in market dynamics, greater use of, and expenses associate with, distributors and resellers, limited management resources and recent management turnover, the Company's acquisition strategy, extension or deterioration of prevailing economic conditions, risks related to the timing, completion and results of the Company’s independent audit, internal review, and investigation being conducted by the Securities and Exchange Commission, volatility in the stock markets and market valuations being placed on communications infrastructure and service companies, technological changes, intellectual property protection and related issues, dependence on suppliers and contract manufact!
urers, and potential volatility in operating results, among others. The Company's estimates that it will achieve breakeven cash flow from operations by the fourth quarter of 2002 and that its existing cash balance will be sufficient to meet its on-going cash needs for the foreseeable future are based on projections of, among other things, revenues, margins, costs and expenses, any of which could be adversely affected by many of the factors described above. Adverse changes in assumptions relating to revenues, margins, costs and expenses could have the effect of delaying the Company's achievement of breakeven cash flow from operations beyond 2002, if at all. For a more detailed discussion of these and other risks and uncertainties related to the company's business, please refer to the most recent filings of Enterasys Networks, Inc. and Cabletron Systems Inc. with the Securities and Exchange Commission, including Cabletron’s annual report on Form 10-K for the fiscal year end!
ed March 3, 2001 and their other more recent reports on Form 10-Q and Form 8-K.
Review copies, interviews, screen shots and information on all Enterasys products are available from Martin Brindley and Adrian Brophy at MCC International.
Martin Brindley/Adrian Brophy
MCC International Ltd
Tel: +44 1962 888100
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