Just when you thought it was safe to declare Nortel Networks to be over its accounting scandal, it stuns Wall Street with yet another restatement.
Officials at the telecom-equipment maker said the company will revise its results for 2003, 2004, and the first nine months of 2005, and adjust its financials for periods prior to 2003, primarily due to revenue-recognition errors. The company explained that revenue incorrectly recognized in prior periods should have been deferred to future periods.
The revisions will reduce revenues by $396 million for the nearly three-year period and have a negative impact on Nortel’s earnings-loss ratio of $279 million. In addition, the company said that for periods prior to 2003, it will cut revenue by $470 million and take a $99 million hit to its net earnings/loss.
Officials at Nortel said the errors were identified primarily through two efforts, the first being an extensive contract review undertaken as part of remedial efforts to compensate for previously reported internal-control deficiencies; the second was via discussions with its independent auditors that were held as part of the company’s 2005 audit.
The stunning announcement came about one month after the company said it agreed to pay nearly $2.5 billion in cash and stock to settle some lawsuits stemming from a prior accounting scandal. “Our priority is to have accurate financial information,” says Mike Zafirovski, president and chief executive officer. “Although the need to restate certain financial statements is unfortunate, it’s the right thing to do. This revenue is real — it was recognized in the wrong periods.”
Zafirovski added that the restatements do not affect the company’s cash position.
In other restatement news, officials at Tenet Healthcare said the company will restate its financial results from 1999 through 2004, its second revision announcement since January. The company said the new revisions relate to $39 million of prior-period reserves released during 2003, and $14 million of prior-period reserves released during 2004 that should have been released as of 2002 or earlier.
The prior-period reserves were primarily set up to fund bad debts, cost-report settlements, lease costs, litigation costs, and restructuring charges, among other future charges. The reserve funds related to several different activities, including business combinations and acquisitions, sales of assets and facilities, and previously capitalized start-up costs.
Tenet is at least the second company this week to restate its results after announcing previous revisions in recent months. For example, Loews Corp. and its CNA Financial Corp. property/casualty insurance affiliate announced their third restatements in less than a year.