Enterasys delays Aprisma spinoff amid SEC investigation

PORTSMOUTH, N.H. - Enterasys Networks Monday announced it would postpone its planned spinoff of network management software subsidiary Aprisma Management Technologies.

In a conference call Monday morning, Chairman and CEO Henry Fiallo and Chief Financial Officer Bob Gagalis said Enterasys recently discovered discrepancies between different contracts pertaining to the same $4 million account within its Asia Pacific region.

The company also reported that the U.S. Securities and Exchange Commission is investigating Enterasys and certain affiliated companies. Fiallo said Enterasys discovered the Asia Pacific contract issue and was informed of the SEC investigation after the close of business Jan. 31. He added that he believes the two issues are "apparently unrelated." The company received "a formal order, with no indication of scope" from the SEC, Fiallo said.

Enterasys hired Deloitte's foresenic auditing team in Singapore to conduct an independent audit and review the sales practices and revenue recognition in the Asia Pacific region, which has represented about 13% of the company's worldwide revenue. The company will delay reporting its fourth-quarter earnings until the audit is complete.

"We have new management in our Asia Pacific region, and we are confident about our ability to compete in that market," Fiallo said. "It's too early to tell about any potential restructuring, but the transition period could take up to one or two quarters. We will know more when the review is complete."

Because Aprisma will be included in the SEC investigation as part of Enterasys, Enterasys delayed Aprisma's spinoff, which just last week was set for Feb. 13. Fiallo says Enterasys has $258 million in cash, excluding the $90 million in cash on hand Aprisma had at the end of December. Aprisma officials deferred comments to Enterasys executives.

Enterasys' stock closed at $4 a share Tuesday, down more than 60% from last week's high.