Restatement Talk Rattles Nortel

Wall Street analysts had expected the company to post a break-even quarter on revenue of $2.3 billion, going by the Thomson First Call consensus.

Nortel says it expects to see sequential revenue growth for the fourth quarter and that it hopes to post an annual profit for 2004. Nortel shares dropped 28 cents to $4.18.

Accounting Issues

Nortel also released some details of a series of accounting missteps that it said would force it to restate 2000, 2001 and 2002 results. The "principal expected impacts of restatement" will be a reduction in net losses for 2000, 2001 and 2002, and an increase in shareholders' equity and net assets, the company said.

The company said the restatment stemmed from its booking of restructuring costs over the past two-plus years, a thorough revamping that resulted in $31 billion of losses and some 60,000 job cuts. Nortel said an early review found that about $900 million of liabilities (including accruals and provisions) carried on its previously reported balance sheet as of June 30, 2003, should be released into prior periods in the restatements.

Nortel said its analysis has indicated that "these provisions were either recorded incorrectly in prior periods or not properly released, or adjusted for changes in estimates, in the appropriate periods. In certain cases, costs were incorrectly charged to operations rather than to the appropriate provisions."

The company also said that "related reviews identified that aggregate revenue of approximately $92 million recognized in 2000, 2001, 2002 and the first and second quarters of 2003 related to certain contracts should have been deferred to later periods."

Curiously, several select Nortel executives have as much as $50 million in so-called "return-to-profit" bonuses on the line if the company can achieve a full-year profit as measured by earnings from continuing operations.

The company didn't say whether any of the restatements would change its 2003 earnings performance, and a company rep said: "Any return to profitability award arising from the third quarter results will be considered at a later date."

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