Nortel Restatement To Slash 2003 Earnings

The announcement apparently reassured investors, who pushed Nortel's shares up more than 12 percent.

The Brampton, Ontario-based telecom equipment maker has given periodic financial updates since it fired its CEO and two other top executives in April. At the time, it said it would restate earnings going back to 2001.

Nortel gave details Tuesday, saying the restatement would wipe out all its earnings from continuing operations in 2003. The restatement will also erase all earnings for the first half of that year, and the company will instead show a loss for that period.

But Nortel president and CEO Bill Owens said he expects the company's revenues to grow faster than the market in 2004.

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He said he is increasingly focused on Nortel's strategic direction, adding, "It has become clear that we will need to put into place an improved cost structure to drive financial performance."

U.S.-traded shares in Nortel rose 53 cents, or 12.5 percent, to close at $4.76 on the New York Stock Exchange.

"The big questions are, do they have a fundamentally sound business, do they have customers, do they have cash?" said Albert Lin, a telecom analyst at American Technology Research. "Those we can answer."

Nortel could cut jobs, consolidate systems from past acquisitions and cut research-and-development spending, Lin said.

Analysts have speculated that the firings in April and the planned restatement stem from accounting tricks Nortel played to make 2002 earnings look artificially worse than they were and 2003 earnings look better so executives could collect bonuses linked to the company's return to profitability.

Nortel said July 2 it would sue executives for the return of the bonuses, which analysts estimated totaled $20 million, if it found they had been improperly awarded.

Other details announced Tuesday:

&#149 Nortel's cash position as of Dec. 31, 2003, would not be affected. The company also said its cash balance as of June 30 was about $3.6 billion.

&#149 One-third of the earnings reduction for 2003 will hit the second half of the year, reducing net earnings and earnings from continuing operations.

&#149 The restatement will not change reported revenues significantly. The company said revenue adjustments it had found are less than 2 percent of previously announced annual revenues. But it did find instances where revenue was moved from one quarter to another. &#149 Nortel expects to announce unaudited financial statements for the first and second quarters of 2004 by mid-August.

The company has not released audited financial reports since last July, and investors have been eager for the company to commit to a date when it will report. A previous restatement, last October, led to a relatively small adjustment in earnings.

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