Nortel predicts ’03 restatement will wipe out profit

Nortel Networks Corp. predicted Tuesday that a restatement of its 2003 financial results would substantially wipe out all of its net earnings for the year, with one-third of the reductions impacting the second half of the year.

The Canadian telecommunications company, which has been mired in recalculations for numerous quarters following revelations that it messaged past financial results, released the predictions as part of a series of biweekly status updates it is required to submit to the Ontario Securities Commission. Both Canadian and U.S. securities regulators have launched investigations into the company’s accounting practices.

Nortel said that the reductions are expected to turn the previously reported net earnings for the first-half of 2003 into a net loss, and slash the net earnings and earning from continuing operations for the second half of the year.

The company said that it has “identified a reduction of approximately 50 per cent in previously announced earnings for 2003, arising principally from restatement work.”

The 2003 restatements are based on preliminary calculations. Final figures are set to be released in the third quarter of this year, after review by Nortel’s internal audit committee and independent auditors.

The company also said that it expects to release limited preliminary results for the first two quarters of 2004 in mid-August and predicted that its previously announced cash balance of US$3.6 billion as of March 31, 2004 will remain the same as of June 30, 2004.

News of Nortel’s accounting problems first came to light late last year when the company announced that it would be restating financial results for 2000, 2001, 2002 and the first two quarters of 2003 as part of an ongoing review of its assets and liabilities.

In April, Nortel fired its chief executive officer, chief financial officer and comptroller, and delayed its results for the first quarter of 2004, following investigations that revealed that its past accounting had been manipulated.

But despite the recent rocky ride, Nortel president and CEO Bill Owens said in a statement Tuesday that he was pleased with the progress the company has made with its financial reporting activities and that he expected the company’s 2004 revenues to grow faster than the market, which he expected to grow in the low to mid single digits.

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