Networking vendor Enterasys revising revenue

As an internal review continues into its revenue reporting since 2001, Enterasys Networks Inc. has announced that it's revising revenue estimates upward for the fiscal first quarter ended March 30.

The Andover, Mass.-based networking company said in a statement that its fiscal first-quarter revenue is now estimated at US$122 million to $127 million, up from an original estimate of $110 million to $120 million. Because of the ongoing financial review, the first-quarter numbers still have not been finalized and the company has not yet filed its annual 10-K report for 2001 with the U.S. Securities and Exchange Commission.

The company also reported a preliminary revenue estimate of $120 million to $125 million for the second fiscal quarter that ended June 29.

When the 10-K is filed within the next several weeks, the company said it expects "significant adjustments," including changes to revenue recorded during the 10-month period ending Dec. 29, 2001 and the fiscal year that ended March 3, 2001. The adjustments will primarily involve revenue recognized in connection with investment transactions, the amount and timing of revenue associated with sales to distributors who were granted rights of return or extended payment terms, and other matters affecting revenue recognition, according to the company.

Gerry Haines, executive vice president of strategic affairs for the company, said the two time periods are being reviewed separately because Enterasys changed its fiscal-year reporting calendar during the period. "We would anticipate certain downward adjustments to revenue," but the final results won't be fully known until the internal review is done, he said.

The company had said in February that it discovered financial accounting questions related to the terms of a $4 million sales contract recorded by its Asia Pacific operations. Three senior employees were fired as a result of the investigation into the accounting practices.

The company announced in May that it is cooperating with the SEC, which is conducting a formal, nonpublic investigation of historical revenue recognition issues at Enterasys and its affiliates, including its subsidiary Aprisma Management Technologies Inc.

In April Enterasys lowered its preliminary revenue estimate for the fourth quarter ending last Dec. 29 to $145 million to $155 million due to revenue recognition issues in the Asia Pacific region and a comprehensive analysis of revenue recognition in the remaining parts of the company.

William O'Brien, CEO of Enterasys, said that despite the ongoing financial reviews, the company's $120 million to $125 million revenue estimate for the second quarter shows stability in sales and its customer bases.

"Since April, we have made substantial progress on our objectives of stabilizing the business, improving execution and resolving revenue recognition issues from prior periods," O'Brien said in a statement. "I am encouraged by our customers' loyalty, our employees' determination and our second-quarter performance."

In a related action, Enterasys also announced that O'Brien, who was appointed interim CEO on April 1, has been tapped for the job permanently. Meanwhile, Robert Gagalis announced he is resigning as chief financial officer "to pursue other opportunities."

He will be replaced by Richard "Rip" Haak, Jr., who has been the vice president of finance since October.

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