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Nortel to restate more past financials

Telecom-equipment maker Nortel Networks Corp., whose past accounting problems have come under federal investigation, on Friday reported a $2.21 billion fourth-quarter loss and said it will restate more past financial statements because of accounting mistakes.
/ Source: The Associated Press

Telecom-equipment maker Nortel Networks Corp. posted a preliminary fourth-quarter loss of $2.21 billion Friday, most of it related to the settlement of class-action lawsuits, and warned it could default on $1.3 billion in debt.

The Brampton, Ontario-based company announced it would delay filing its 2005 annual report until the end of April. Nortel said it would be unable to meet its debt obligations if they came due earlier than expected, and it is working to get waivers.

Nortel also said it and its principal operating unit will restate financial results for 2003, 2004 and the first nine months of 2005, and will have adjustments to periods prior to 2003, mainly due to revenue incorrectly recognized in prior periods that should have been deferred to future periods.

The company, which is struggling to recover from an accounting scandal, said it recorded a $2.21 billion loss in the fourth quarter of 2005 and revenue of $2.95 billion, a 14 percent gain from the $2.59 billion in revenue a year earlier.

The fourth-quarter loss amounted to 51 cents per diluted share, compared with net earnings of $107 million, or 2 cents per share, in the fourth quarter of 2004. It also included a litigation expense of almost $2.47 billion, or 57 cents per share, as a result of an agreement reached in principle to settle two shareholder class-action lawsuits over the company’s accounting scandal.

Under the proposed settlement announced last month, Nortel said it would pay $575 million in cash, issue 628.7 million shares, or 14.5 percent of its current equity, and contribute half of any funds it recovers from suits against former senior officers whom the company fired in April 2004.

The restatement adjustments were identified as a result of a review undertaken to compensate for previously reported internal control deficiencies and through discussions with independent auditors as part of the audit of the 2005 financial results.

“Our priority is to have accurate financial information,” said Nortel’s president and CEO, Mike Zafirovski. “Although the need to restate certain financial statements is unfortunate, it’s the right thing to do. This revenue is real — it was recognized in the wrong periods. The restatements do not affect the company’s cash position.”

Nortel expects to revise its previously reported 2003 and 2004 financial results, cutting revenue by $157 million and $77 million respectively, and reducing net income by $91 million and $93 million, respectively.

The company, which is the subject of ongoing U.S. and Canadian criminal and regulatory investigations, also expects to revise previously reported 2005 nine-month results cutting revenue by $162 million and net income by $95 million overall.

With respect to financial results prior to 2003, the company expects revisions will cut revenue by $470 million and net income by $99 million.

In addition, Nortel said it will postpone its annual shareholders’ meeting, which was scheduled for May 2, because of its restatement.

Meanwhile, Nortel said it is working to improve the business and build shareholder value. The company’s stock has traded between $2.26 and $3.57 over the past 52 weeks.