Nortel Networks Ltd. suffered a short-term stock plunge last week after announcing it will delay its 2003 annual financial statement filing with the U.S. Securities and Exchange Commission.
The company said it is undertaking an independent review of what led it to restate its earnings in October last year. Nortel understated its profits by more than $900 million, over a three-and-a-half-year span of business. The stock fell 51 cents, representing 7.4 percent, to $6.37 on the New York Stock Exchange. But it rallied by the end of the week to $6.44 after opening at $6.28 on Friday.
“Nortel is re-examining the establishment, timing of, support for and release to income of certain accruals and provisions in prior periods,” said the company.
The company wants to complete the review by March 30, or it will “not be in compliance with its obligations to deliver to relevant parties its SEC filings under their public debt indentures and certain of their support and credit facilities,” according to Nortel.
But the company is not sure if it will meet the deadline.
“Nortel Networks cannot predict at this time when such review will be completed given the volume and complexity of the work involved,” it said.
At the turn of the new year, the company amended financial reports for 2002 and the first two quarters of last year. Nortel said its revenues decreased $17 million for 2000, dropped by $103 million for 2001, but shot up $9 million for 2002, fell $22 million for the first quarter of 2003 and rebounded by $12 million for the second quarter of last year.
The company said its net loss improved $27 million for 2000 and $319 million for 2002, but fell $43 million for the first quarter of 2003 and jumped $51 million for the second quarter of last year.
Nortel said delays in filing its financials will not result in an automatic default and acceleration of its long-term debt. The company has $1.8 billion of notes outstanding, while the parent company still commands $1.8 billion of convertible debt securities outstanding.
The company believes that its public debt securities will not be due and payable because it has restated it financials or exercised delay in filing the 2003 Form 10-K.
“However, if an acceleration of the company’s and NNL’s debt securities were to occur, the company and NNL may be unable to meet their respective payment obligations with respect to the related indebtedness,” said Nortel.
If that happens, the vendor plans to seek alternative financing sources.
Over the past few years, Nortel has undertaken a series of cost-cutting measures that included layoffs and plant closings.
It also shed some activities to focus on what it perceived as its core competencies.
Last October, the Toronto-based vendor said, “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.”
