Red Hat Names New CFORed Hat Names New CFO

There's a new CFO in town at Red Hat Inc., and while the company continues to be perceived as one of the leading Linux providers, he's got his work cut out for him when it comes to restoring investor confidence. Charles E. Peters Jr. joined Red Hat on Thursday as executive VP and CFO. Peters has worked as a financial executive for a number of companies in a career that has spanned more than 30 years.

Peters' most recent CFO position was with Burlington Industries Inc., a Greensboro, N.C., fabric maker that in 2001 filed for bankruptcy and in 2003 was sold for $614 million to private-equity firm W.L. Ross & Co. Before Burlington, Peters spent four years as VP of finance for Boston Edison Co.

Peters' appointment follows the June 14 announcement that Red Hat CFO Kevin Thompson would resign. Thompson, along with CEO Matthew Szulik, has been named in 14 class-action lawsuits charging company executives with various infractions of securities laws and misleading investors. These suits stem from Red Hat's shift from monthly to daily revenue accounting for subscriptions. This shift had the effect of moving revenue that was previously recognized in the first quarter of a subscription into the final quarter of the agreement, Red Hat officials said in June.

The company's auditors, PricewaterhouseCoopers, recommended the change in June. As a result of the accounting change, Red Hat will restate earnings for its 2002, 2003, and 2004 fiscal years, which ended the last day of February.

Neither accounting nor personnel changes have hurt Red Hat's image as a provider of Linux software and services. For its first quarter of 2005, ended May 31, Red Hat reported net income of $10.7 million on revenue of $41.6 million, up from net income of $1.5 million on $27.2 million in revenue a year ago. The company will report its second-quarter results on Sept. 20.

But investors have been less impressed. "The stock has been a disaster over the last couple of months," says Dion Cornett, managing director at equity-research firm Decatur Jones Equity Partners. Indeed, Red Hat's stock dropped from a closing price of $20.35 per share on July 12 to $15.73 per share on July 13. It closed Wednesday at $12.55 but was back above $13 on Thursday.

"All of these announcements are extraneous to the company's core business," Cornett says. "Red Hat is retaining its leadership position as a pure-play Linux company."