Nortel battles accounting problems

Taking Stock

Your Money

December 19, 2004|By ANDREW LECKEY

I have money invested in shares of Nortel Networks Corp. What is the latest with this company?

- A.D., via the Internet

Maybe we should flip a coin on this one, since any company incapable of filing reliable financial statements should have an enormous question mark hovering over its head.

An audit of the giant Canadian telecommunications equipment manufacturer this year turned up $250 million in phony reported sales from 1999 and 2000, with $300 million in bogus profit reported last year.

At the heart of the problem: The company booked revenue months before products were shipped. Chief Executive Officer Frank Dunn and 10 employees lost their jobs for their part in the accounting scandal, which prompted lawsuits and criminal investigations in the United States and Canada.

New CEO Bill Owens, a former U.S. admiral, was the CEO of Teledesic LLC, a satellite communications network. A revamping of the firm's board is expected.

The firm delayed its Nov. 19 filing deadline to restate results from previous years and third-quarter numbers. Export Development Canada, with which Nortel has a $750 million line of credit, has granted the company four filing waivers. The New York Stock Exchange has said the company will undergo a listing review if it doesn't file its 2003 report by the end of this year.

To cut costs, the company is eliminating 3,250 jobs, including 1,400 in the United States, by June. It will reduce occupied real estate by 2 million square feet by the end of next year.

Shares of Nortel Networks (NT) are down 20 percent this year, after last year's 163 percent gain.

Nortel says its accounting woes have not hurt its customer relations. It is soldiering on, with plans to expand operations in China to battle low-cost competitors. It already has 3,500 employees there.

The firm is the leader in optical-networking systems, and worldwide capital spending at telecom carriers seems to be reviving, industry observers say. Nearly half of Nortel's sales are outside North America.

Nonetheless, optical networking is always last to recover, and Nortel says its overall 2004 revenue growth will trail the industry.

Amid the turmoil, Nortel's stock merits a consensus "hold" from analysts who track it, according to the Boston-based Thomson First Call research firm. That consists of one "strong buy," six "buys," 26 "holds," two "sells" and one "strong sell."

The projected five-year annualized growth rate for Nortel is 10 percent.

Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney@

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