In an announcement with possible implications for laid-off employees, plant closings and investors, Nortel Networks Ltd. said it is undertaking a comprehensive review of its financial profile for the past three-and-a-half fiscal years.
Unlike the recent trend of overstating incomes, Nortel said it overstated its losses. Although this review is by no means complete, the company said approximately $900 million in losses were charged in error.
“It is clear now that in such a volatile environment, errors were made,” said Frank Dunn, chief executive officer of Nortel. “I want to assure Nortel Networks stakeholders that we are committed to working to identify the causes of the mistakes and to implement the appropriate measures to ensure that the problems do not recur in the future.”
During the 2000-2003 period, Nortel represented one of the major telecom companies that bled financially and undertook a series of cost-cutting measures that entailed slashing its work force in about half and its facilities to about 250 from 700, as well canceling perks such as first-class travel for its executives.
“The comprehensive review has been undertaken across all of our businesses and geographic regions,” said Doug Beatty, chief financial officer at Nortel.
On whether Nortel would have undertaken its restructuring to the extent it did, Jane Zweig, chief executive officer of the Shosteck Group, said it is difficult to say, but emphasized that the vendor had to have embarked on its restructuring given the meltdown in the industry in those years. Nortel had secured a number of acquisitions and expansions that required review during those years, said Zweig. Like Lucent Technologies Inc., it had to do away with some of its businesses to focus on its core competencies.
“Whether or not they overstated their losses, some of the restructuring was necessary,” she said, although she would not speculate on shareholder response to the news.
In view of the review, its third-quarter results are preliminary, according to the company. But spokeswoman Tina Warren said definitive third-quarter results should be available around Nov. 17.
In a written response to RCR Wireless News inquiries, she emphasized that “management voluntarily made the decision to undertake the comprehensive review following an unprecedented period of business realignment in response to a significant adjustment in the telecommunications industry globally.”
She also noted that Nortel will initiate an independent review to examine the facts and circumstances leading to the need to restate its financial statements for the relevant periods and to consider improvements to processes and procedures.
Nortel recorded a net income of $179 million, or 4 cents per share, for the quarter. Revenues totaled $2.27 billion. For its wireless networks, revenues stood at $1.01 billion, while its enterprises segment recorded $579 million in revenues.
“The company expects to file its Form 10-Q with the relevant regulatory authorities within the periods permitted for timely filings by mid-November in the United States and late November in Canada,” wrote Warren. “At such time, we will also announce the impact of the comprehensive review on our year-to-date results.”
The company emphasized its inroads in UMTS and CDMA2000 contracts and data worldwide.
“The preliminary results announced today reflect our continued progress in an environment of cautious capital spending by our customers,” said Dunn.
