As it continues to grapple with accounting woes, Nortel Networks Ltd. dashed market expectations last week by failing to announce its second-quarter results.
The inaction drove down the company’s stock by 6.1 percent to $3.83 from a pre-open position of $4.25, indicative of the constant pressure the financial crisis has inflicted on the wireless vendor.
The company said it is still reviewing its financials with its internal audit committee even as the U.S. Securities and Exchange Commission and the Canadian regulatory bodies also examine the company’s books.
“This has been a challenging time for the company, our investors, customers and employees. We will get through it in good shape,” said Bill Owens, president and chief executive officer, who replaced Frank Dunn, ousted by the company’s board of directors “for cause” in late April.
“At the same time, we are encouraged to be seeing good business momentum and support from our customers with growing demand for our next-generation networking solutions.”
At the same time the company ousted Dunn, it also fired its chief financial officer, Douglas Beatty, and controller, Michael Gollogly. The company, which is still reeling under a series of class-action lawsuits, upset Wall Street when it announced it had overstated its net earnings for 2003 by 50 percent and overstated its losses in 2001 and 2002. The wireless player has indicated that the net profit of $732 million released for last year may have been overstated by more than 50 percent.
The vendor has, however, showed resilience in its technology offerings, racking up contracts and unveiling compelling solutions in the market, including Voice over Internet Protocol and CDMA2000 equipment.
Nortel said it has also engaged the services of outside consultants to scale its accounting hurdles, which will include reviewing and assessing the company’s financial organization and processes as well as systems. One of the companies working with Nortel is Ernst & Young L.L.P., according to the company.
The telecom supplier believes the troubles have not substantially vitiated its financial strength. “Our market momentum continues,” said Bill Kerr, current CFO. “Our strong cash position, solutions portfolio and market position stand the company in good stead as we work to complete the financial statements.”
The CEO, CFO and controller were not alone as fall guys of the company’s accounting fiasco. The Ontario Securities Commission also slammed an order on about 160 current and former executives and board members of the company. The decision indicated that the investigation into the vendor’s finances is pervasive.
The investigation became criminal when a Federal Grand Jury subpoena demanded certain documents on behalf of the U.S. Attorney’s office for the Northern District of Texas. The Canadian Mounted Police also notified Nortel it is conducting a review of its accounting system to determine the need for a criminal investigation.
Owens, however, maintains the accounting problems will not detract from the company’s business operations. “Over the coming weeks and months, I will be focused on the business model that will make this company successful, including revenue growth, cash flow and financial accountability,” he said.
