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    Red Hat Names New CFO as Class-Action Suits Loom

    By
    Steven J. Vaughan-Nichols
    -
    September 2, 2004
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      More than two months after Red Hats chief financial officer resigned and the company announced a change in its accounting methods, the Linux distributor on Thursday named Charles E. Peters Jr. as its new CFO.

      Peters, a CPA with more than 30 years of financial leadership including 20 years in publicly traded companies, will serve as executive vice president and chief financial officer. Most recently, Peters held the position of CFO at multinational Burlington Industries LLC, a leading provider of fabrics and a noted early adopter of Linux.

      Peters joins Raleigh, N.C.-based Red Hat Inc. as the company is facing legal challenges. As a result of its accounting changes, Red Hat is facing the threat of more than a dozen law firms, which have announced their intentions to launch stockholder class-action lawsuits.

      Typically, the firms charge that Red Hat CEO and president Matthew Szulik; former chief financial officer Kevin Thompson, who resigned for personal reasons; and other company officers violated the Securities Exchange Act of 1934.

      The law firms allege that Red Hat failed to disclose or misrepresented facts that it knew or recklessly disregarded; that the company inappropriately recognized subscription revenues; that as a consequence, it manipulated its quarterly earnings so that its net income and operating income were materially overstated; that the companys financial results were in violation of GAAP(Generally Accepted Accounting Principles); that the company lacked adequate internal financial controls; and that its financial results were materially and artificially inflated.

      This all came about after Red Hat, on the advice of its auditor, PricewaterhouseCoopers, changed how it was recognizing revenues for its Linux subscription agreements. Red Hat now recognizes subscription revenue on a daily basis, rather than the previous arrangement in which it recognized the revenue on the first day of the month in which a subscription contract began.

      Because of the change, the company also announced that it would be restating its financial results for the past three fiscal years and its unaudited financial statements for the latest fiscal quarter. The announcement unleashed the flood of proposed class-action lawsuits.

      Red Hat chose to ignore this issue in its Thursday announcement, instead focusing on how the new CFO will help the company grow. “Charlie is a seasoned professional with a unique depth and breadth of experience in international finance in publicly traded companies that will help lead Red Hats next phase of growth,” CEO Szulik said in a statement.

      The news seemed to meet the markets approval, as Red Hat stock rose 6.14 percent on light trading.

      Check out eWEEK.coms Linux & Open Source Center at http://linux.eweek.com for the latest open-source news, reviews and analysis.

      Be sure to add our eWEEK.com Linux news feed to your RSS newsreader or My Yahoo page

      Steven J. Vaughan-Nichols
      I'm editor-at-large for Ziff Davis Enterprise. That's a fancy title that means I write about whatever topic strikes my fancy or needs written about across the Ziff Davis Enterprise family of publications. You'll find most of my stories in Linux-Watch, DesktopLinux and eWEEK. Prior to becoming a technology journalist, I worked at NASA and the Department of Defense on numerous major technological projects.

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