Optical Companies Challenged by SEC
The CEOs and CFOs of ten of the 40 companies on the Light Reading Index have been asked by the U.S. Securities and Exchange Commission to vouch for their financials. So far, only Corning has responded positively.
On June 27, the SEC issued an order requesting senior officers at 947 publicly traded U.S. companies with greater than $1.2 billion in annual sales to sign statements under oath that all their financial reports, including yearly and quarterly SEC filings, proxy statements, and any amendments to these, are accurate. Alternatively, execs who can't swear to the accuracy of their books must explain why they can't. Companies have until August 14 to respond to the order, unless they have an extension. CFOs and CEOs of each company must sign separate certifications, they can't file jointly.
The SEC's list includes the following optical networking companies:
- Agilent Technologies Inc. (NYSE: A)
- ADC Telecommunications Inc. (Nasdaq: ADCT)
- Corning Inc. (NYSE: GLW)
- Cisco Systems Inc. (Nasdaq: CSCO)
- Ciena Corp. (Nasdaq: CIEN)
- JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU)
- Lucent Technologies Inc. (NYSE: LU)
- Molex Inc. (Nasdaq: MOLX/MOLXA)
- Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA)
- Xilinx Inc. (Nasdaq: XLNX).
Some non-Index firms involved in the optical market also made the SEC's list, including Acterna Corp. (Nasdaq: ACTR). A range of carriers are included as well, such as AT&T Corp. (NYSE: T), BellSouth Corp. (NYSE: BLS), Broadwing Inc. (NYSE: BRW), Genuity Inc. (Nasdaq: GENU), Level 3 Communications Inc. (Nasdaq: LVLT), Qwest Communications International Inc. (NYSE: Q).
Conspicuously absent are some firms that do large amounts of business in the U.S. but are headquartered internationally, including Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Fujitsu Ltd. (KLS: FUJI.KL), Marconi PLC (Nasdaq/London: MONI), Nortel Networks Corp. (NYSE/Toronto: NT), and Siemens AG (NYSE: SI; Frankfurt: SIE).
Companies on the list say they're doing all they can to get their certifications in on time. "We'll meet the requirements. I think it's important to reassure investors," says Rob Clark, a spokesman for ADC. But he says ADC has until September to submit its certification thanks to its fiscal calendar, in which the year starts in November.
Some responses seem vague. "We are fully confident in our financials and are working to comply with the order," says a spokesperson for Lucent.
At first glance, however, it seems the vouchers aren't going to materially affect investor activity in index companies. Despite being among the first handful of respondents to the SEC's order, Corning shares fell more than 20 percent today, trading at $2.48 late this afternoon.
Corning's case indicates that investors aren't too concerned that their main companies report back to the SEC. Indeed, some analysts say the reports are virtually meaningless as far as Wall Street's concerned.
Indeed, Corning's sworn statement that its earnings are accurate hasn't made a dent on Wall Street. The company's latest earnings report (see Corning: 'We'll Do What It Takes') and news of a dilutive stock sale (see Corning Makes Stock Offering) left investors cold. Moody's Investors Service and Standard & Poor’s have cut its debt rating (see Moody's Cuts Corning), and analysts such as Morgan Stanley Dean Witter & Co. have downgraded its stock.
Still, some analysts see the SEC's move as an important one. "It is encouraging to see management vouch for their financials. I do think that in this environment that is very important to investors," writes Max Schuetz of Credit Suisse First Boston Corp. in an email. "I believe that Corning is a company where very few would question their integrity -- just their end market demand and their cost structure."
The SEC is keeping a running tally of the respondents and will post their vouchers as they come in. See the full list here.
— Mary Jander, Senior Editor, Light Reading