Enterasys Networks files annual report on form 10-K for transition year 2001

Enterasys Networks announced that it has completed its restatements and filed its annual report on form 10-K for the 10-month transition period ended 29 December 2001, with the US Securities and Exchange Commission (SEC). A copy of the filing can be viewed at http://www.enterasys.com/corporate/ir/sec.html.

The company reported revenue and net loss available to common shareholders of $415 million and $715 million, respectively, for transition year 2001, both reflecting restatements related to the seven-month period ended 29 September 2001, decreasing previously reported revenue by $75 million and increasing previously reported net loss available to common shareholders by $69 million.

The fiscal year ended 3 March 2001 had revenue of $784 million and a net loss available to common shareholders of $705 million, respectively, both reflecting restatements decreasing previously reported revenue by $78 million and increasing previously reported net loss available to common shareholders by $76 million. As previously reported, the adjustments reflected in the restatements relate primarily to sales/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.

The company stated that its results for the transition year 2001 and fiscal year 2001 are not indicative of its current or future operations as a standalone entity. Enterasys` current operations have generated quarterly revenue approximating $120 million or more during each of the three quarters through 28 September 2002. The company stated that it has achieved revenue stability through improved sales execution, a renewed focus on its loyal installed customer base, and emphasising product technology that competitively delivers productivity gains to customers.

In addition, the company has significantly reduced its cash usage, from approximately $75 million in each of the first and second quarters of fiscal 2002 to approximately $25 million in the third quarter ended 28 September 2002. The reduced cash usage can be attributed principally to the results of management`s substantial restructuring initiatives which began last April, improvements in supply chain management and increased efficiencies throughout the organisation. The company anticipates making further progress toward its goal of achieving cash positive operations, with fourth quarter cash usage expected to be considerably lower than $25 million. The company`s cash and marketable security balance as of 28 September 2002 was approximately $270 million.

"In April, the board established three top priorities for the new management team at Enterasys: stabilise revenue, reduce costs and resolve the historical revenue recognition issues. Enterasys` revenue and cash usage estimates from the first, second and third quarters of 2002, together with today`s filing of the form 10-K, clearly indicate that the management team has executed solidly against these major objectives," said Jim Davidson, Enterasys Networks Board of Directors member.

"Throughout this financial review, we worked diligently to keep the SEC informed of our progress and conclusions," stated William K O`Brien, Chief Executive Officer of Enterasys Networks. "Reviewing and analysing the accounting issues consumed significant resources and a great deal of management focus over the past several months. I am confident that through our comprehensive review we have put these accounting matters behind us. In addition, we have strengthened our management team, enhanced financial and other processes, and improved our ability to execute."

O`Brien continued: "The filing of the form 10-K allows us to move the company forward on solid footing. The products, customers and people of Enterasys represent enormous strengths to build upon. Our strategy going forward will be to intensify the delivery of value to our customers. I am encouraged by our progress over the past eight months and by the strong customer support we have received. In addition, I am confident in our people`s ability to execute on our go forward strategies."

Mads Lillelund, Executive Vice President of Worldwide Sales, added: "With audited financials and an unqualified opinion from our auditors now in hand, we are excited to have the opportunity to better engage customers on their business and technology challenges, focusing on how our products and technology help them achieve the productivity goals they seek from their networks."

The company currently expects to file quarterly reports on form 10-Q for the quarters ended 30 March 2002 and 29 June 2002 and 28 September 2002 respectively, in sequence beginning in a few weeks. Following these filings, the company anticipates that it will hold a conference call to discuss its fiscal 2002 year to date financial results in more detail.

Management update: The company announced that Richard Haak has formally assumed the role of Chief Financial Officer. In addition, the company announced that Yuda Doron will leave the company on 31 December 2002, upon completing the term of his employment contract. Doron has agreed to be available as requested on a consulting basis after that time. Doron plans to pursue other business opportunities.

"Yuda joined Enterasys to restructure our sales organisation and improve sales execution. He has accomplished this and more. Thanks in part to Yuda`s contributions, we solidified the management team, stabilized revenues, and now, we are moving out from under a cloud of uncertainty as a more agile and customer driven organization," stated O`Brien. "With the internal review behind us, I look forward to becoming more involved in sales and marketing, and will assume the additional title of president."

Enterasys also announced that it received notice of a six-month continued listing review from the New York Stock Exchange (NYSE), based on the company`s 30-day average closing share price going below $1 at 30 October 2002. The company has six months to cure this non-compliance, subject to certain conditions and is presently trading at levels in excess of this price requirement.

Martin May, regional director for sub-Saharan Africa, believes the timely and thorough way in which the accounting discrepancy was handled bodes well for the company`s future.

"Views from within the organisation have been positive, and while our local business was hardly affected by the accounting glitches, we are happy with the conclusion of the restatements.

"News of the resolution has been conveyed to our customers and distribution partners and we are looking forward to continued interest in our products. What has been most pleasing for the team in Africa is the fact that our international R&D facilities have been unaffected by the management`s concentration on the accounting matter and we have been releasing new products which have maintained Enterasys` high standards.

"Now is the time to move forward with an arsenal of top-notch equipment for our client base which has maintained its loyalty and belief in the company throughout the investigative period."