Nortel to Restate Results Again After Discovering New Errors

Nortel Networks, North America's biggest maker of telephone equipment, surprised investors with yet another restatement of earnings on Thursday, but said its fourth-quarter results won't be affected by the move.

Nortel, which has struggled to shore up its profitability as well as investor confidence, will delay the filing of its 2006 annual report until later this month and will restate results for 2004, 2005 and the first nine months 2006.

"This is certainly not what we want to be announcing," chief executive Mike Zafirovski told analysts in a conference call before the markets opened.

The restatements come as the company's chief financial officer, Peter Currie, prepares to step down effective April 30.

"The confidence of investors is going to be shaken once again," said Mark Sue, telecom equipment analyst at RBC Capital Markets in New York.

Investors reacted swiftly, driving down Nortel's shares .

Sue noted the size of the mistakes in the company's financials is getting smaller, but said: "It is still discouraging to see after everything that we're getting yet another restatement from Nortel."

The Toronto-based company also updated preliminary fourth-quarter figures and said revenue should hit $3.32 billion, up from the $3.26 billion it forecast at the beginning of February, when it also announced layoffs of 2,900 people.

It said gross margin is expected to be "slightly above" 40% of revenue in the quarter, with a strong contribution from its joint venture with LG Electronics as well as its CDMA wireless segment. Spending on selling, general, administrative and research and development expenses is pegged to be about $1.18 billion.

Nortel said the restatement will primarily correct third party actuarial calculation errors. It will also fix mistakes for revenue which should have been recorded in later periods.

This will be the fourth time in four years that Nortel has been forced to fix its results, corrections that first began in November 2003.

Many errors surfaced as management tried to tighten internal controls over financial reporting. Earlier, restatements came as Nortel grappled with an accounting scandal, closely followed by a barrage of shareholder lawsuits.

The latest restatement will boost revenue by $24 million for the first nine months of 2006 and increase net earnings by $15 million.

In 2005, the adjustments will cut sales by about $28 million and increase the net loss by $87 million. For 2004, the revisions will trim revenue by $33 million and add $42 million to the net loss.

For financial results prior to 2004, the changes will reduce sales by $27 million and hurt earnings by about $5 million.

Nortel also said it understated its pension expense by about $104 million over several years, which will inflate certain previously reported losses in 2006, 2005 and 2004.

Despite the mistakes, Zafirovski told analysts he is confident Nortel remains on track in its turnaround plans, which have seen it cut its workforce, its real-estate portfolio and sell off a part of its business.

"This does not slow our progress even for a second and we remain 100% focused on driving our business transformation plan and our business strategy," he told analysts.

Nortel expects to file its 2006 annual report no later than March 16, and report results on its fourth quarter at the same time of its filing.