Larry Carter has officially given up his post as chief financial officer at Cisco Systems Inc. Carter has served as CFO at the San Jose, California-based maker of network routers for more than eight years.
Dennis Powell, who was formerly Cisco’s senior vice president of corporate finance, takes over as CFO. Before joining the company in 1997, Powell spent 26 years at accounting firm Coopers & Lybrand. He holds an accounting degree from Oregon State University.
Powell’s appointment comes as no surprise. He was widely expected to become Cisco’s next CFO last August, when Carter announced he would be stepping aside sometime this year. Carter will remain with the company as a director and senior vice president, advising the company on special topics, said Cisco management.
Powell, who is reportedly an avid tennis and golf player, said he would focus on creating sustained profitability, driving disciplined financial decision-making, and maintaining financial transparency. “I want to use our financial health to enhance shareholder value,” he told Reuters. He also indicated that Cisco’s stock buyback program and investment in new technologies would continue under his tenure.
Observers expect Cisco’s new finance chief to maintain a tight lid on the company’s finances, and to make conservative accounting a cornerstone of his tenure.
“On a scale of 1 to 10—with 10 being the most conservative within the framework of GAAP—we’re going to be a 10,” Powell told Reuters in a recent telephone interview. In an effort to reinforce investor confidence in a post-Enron environment, he added: “The burden of proof—that a company has conservative accounting and transparent reporting—is on the company.”
While Cisco is generally known for solid financial reporting, some analysts have expressed concerns about its dilutive stock option plans, pro forma accounting, and highly acquisitive track record. Some believe those things could eventually hurt the company’s balance sheet.
Nutmeg Securities analyst Andy Schopick, for one, has expressed some reservations about Cisco’s accounting. “I do not believe Cisco’s financial results and accounting have come under as serious or critical a review as perhaps they should have,” he told Reuters.
But other analysts appear less skeptical. Bill Kornitzer, a senior analyst with USAA Investment Management, which does not own Cisco shares, told Reuters he has few concerns about the company’s reporting.
Have a Cow: Gateway Being Probed by U.S. Attorney
In a quarterly Securities and Exchange Commission filing, management at Gateway revealed that the U.S. Attorney’s office had opened an investigation into the computer maker’s accounting.
The news wasn’t overly surprising: Gateway’s treatment of packaged deals with AOL Internet services has been under close scrutiny since December 2000, when the SEC unleashed a probe of its own. The U.S. Attorney’s office is now looking into the same issue, according to a Reuters report.
Gateway management has reportedly provided the SEC with information related to its fiscal year 2000—the period in question—and has voluntarily restated results for 2000 and 2001.
The company first disclosed the SEC’s investigation in November 2002. Last month, Gateway announced it was lowering its reported income for 1999, 2000, and 2001. Management then indicated it was reducing its recognized income for costs incurred for the bundled service with AOL by $8 million in 1999, $337 million in 2000, and $131 million in the first quarter of 2001.
This Harvey Not Invisible
Harvey Pitt isn’t throwing in the towel quite yet. The latest venture for the former chairman of the SEC: advising companies on a host of new corporate reform rules the commission issued under his leadership.
Pitt—who resigned in November partly because of about his selection of former FBI director William Webster to head the Public Company Accounting Oversight Board—was general counsel of the SEC from 1975 to 1978. He then became a partner in the Washington office of New York—based law firm Fried, Frank, Harris, Shriver & Jacobson before signing on as SEC chairman in August 2001.
At this point little is known about Pitt’s new venture, named Kalorama Partners (after a Washington neighborhood where he reportedly owns a home). Apparently the company will specialize in advising both domestic and international companies on new rules governing corporate accountability.
Under government ethics rules, Pitt isn’t allowed to represent clients before the SEC, but providing them with advice is perfectly legal.
“I think we are willing to provide what I hope will be very constructive consulting services,” Pitt told the Washington Post.
Two sources familiar with the matter told reporters at Law.com that Pitt is expected to bring in two partners, including Terry Lenzner, chairman of the Washington, D.C.-based private fraud-investigation firm Investigative Group International.
Tyco Pays Big Bucks to Keep D&O Policy
Tyco International has reportedly agreed to pay $92 million to continue liability insurance coverage for most of the company’s officers and directors. Given the company’s recent track record, keeping the insurance appears to be a prudent move.
Tyco and its former directors—including CEO Dennis Kozlowski and CFO Mark Swartz—are facing several shareholder lawsuits. Those suits claim, among other things, that the directors violated securities laws. Kozlowski and Swartz have also been indicted for allegedly stealing $600 million of corporate funds to help cover extravagant personal expenses. The two former Tyco executives have pleaded not guilty to all charges.
Tyco disclosed the directors’ and officers’ payment in an earnings release two weeks ago, but the company’s management did not elaborate.
Meanwhile, a unit of Chubb Corp.—Tyco’s primary provider of D&O insurance coverage—is suing to rescind coverage for 15 former or current Tyco officers and directors, according to the Associated Press. Chubb claims the coverage was provided based on misleading information given by Tyco management.
In other Tyco-related news, former director Frank Walsh Jr., who pleaded guilty to concealing $20 million in payments for himself, now claims that the guilty plea does not mean he committed fraud. Reportedly, Walsh’s publicist and lawyers said a carefully crafted agreement with Manhattan prosecutors specifically avoided the word “fraud” when Walsh pleaded guilty in December to violating a section of the Martin Act. That section encompasses a broad range of criminal activities, including fraud, deception, and concealment and suppression while promoting the sale of securities.
Hedge Fund Operators: Don’t Tread on Us
At a contentious roundtable discussion yesterday, hedge fund industry advocates told SEC regulators that the $600 billion industry is sound and needs no major regulatory clampdown.
But chairman William Donaldson warned participants that the discussion did not represent an end to the SEC’s inquiries about potential reforms.
One hot-button issue participants at the discussion are expected to tackle: whether hedge funds should be required to register with the SEC. Asked if the commission would push for the measure, commissioner Roel Campos told Reuters: “It’s one thing we’ll consider.”
But Robert Schulman, CEO at Tremont Advisers, a hedge fund consulting group, reportedly said it would be “death” to the industry if it were required to disclose its investment positions as some critics have suggested.
Hedge fund advocates participating in discussions with the SEC claimed that their industry was sometimes unfairly represented as opaque and evasive.
For their part, SEC participants said they were concerned about a recent increase in fraud actions brought against hedge funds. In 2002, 12 such cases were initiated, up from 5 or less between 1998 and 2001.