The acquisitions of companies like Qtera and Bay networks did notbankrupt Nortel Networks, and nor did its investor lawsuit three yearsago. So why should a recession next year bankrupt the Canadian telecomequipment maker?

A rumour last month that Nortelwas seeking legal advice on a possible bankruptcy wasfollowed by a UBSnewsletter this week saying the company should considerseeking creditor protection. Given the history of Nortel over the last10 years, this begs the question: Why now?

First,just because you ask your lawyer about something that might happen,doesn’t mean it’s going to happen. Second, Nortel’s worst days areprobably behind it. That’s not a well-though-out prediction. It meansit’s hard to imagine how 2009 could be as bad for Nortel as the earlierpart of the decade.

A century after it was spun off as aseparate company from Bell Canada, Nortel made money in 1996 and againin 1997, when it reported net earnings of $829 million on revenues of$15.5 billion. That’s real profit, not “pro forma” or EBIDTA. But 1997was when profitability ceased to be a regular occurrence for Nortel. In1998, Nortel’s revenues went up to $17 billion but it lost $537million. All figures are in US dollars.

That year, Nortelbought Bay Networks in 1998 for $9 billion. At the time,executives predicted the acquisition would boost revenues by US$50billion by 2002 by cross selling products and integrating Bay’sproducts into Nortel’s IP technology.

The company lost moneythe next two years as well: $170 million in 1999 and $351 million in2000. Though the losses were no secret (all figures were taken fromarchives of Nortel’s press releases on Canada Newswire), they were thebest kept secret in the investment community, because the share pricesoared from $89 in the spring of 1997 to more than $200 in March, 2000.And this was after a share split in August of 1999, so that representsa 450 per cent jump in less than three years.

The tech bubbleburst in 2000, Nortel’s stock plummeted and that’s when reportersfinally started reading Nortel’s press releases past the headlines andfigured out the manufacturer was actually reporting losses.

Thefinancial figures in 2001, when it reported $27 billion in losses,reflect more on the company’s performance in the previous years, beforethe chickens born in the grand expansion came home to roost. In what’scolloquially known by accountants as a bloodbath, the report for 2001included nearly $16 billion in restructuring charges and $5 billion inwriting down the value of assets.

Things started getting murkyafter CEO John Roth was replaced by Frank Dunn, who was later fired andhas been charged with falsely reporting financial statements.

Norteldid report a profit in 2003, after redoing financial statements, lostmoney in 2004 and 2005 ($247 million and $2.6 billion respectively) andthen made a $28 million profit in 2006.

About three years ago,it was hit with a lawsuit in which it was ordered to pay $2.47 billionin damages over false statements. After the board of directors dumpedDunn, the company was headed by retired Admiral William Owens, who wasforced to focus a lot of his attention on cleaning up the books. ThoughOwens had tech experience, he had spent most of his life as a U.S. Navyofficer, and was replaced by Motorola’s Mike Zafirovski.

By thetime Zafirovski came aboard, the previous problems were behind thecompany. Not only has it been focusing on products and technology (suchas unified communications), but it is putting its metro Ethernetdivision on the auction block, laying off thousands and cutting anentire division.

This is not to say its previous problems areeasy to fix. During the first nine months of 2008 it had $237 millionin interest charges, and debt payments sucked away a total of $675million in cash. Its long-term debt is $4.4 billion and it has anadditional $1 billion in pension liabilities.

But even in arecession, companies will still need to communicate and serviceproviders will still need to upgrade an replace equipment. Nortel maybe bleeding, but it is nowhere close to cardiac arrest.

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