Nortel CFO, Controller Step Aside

With Nortel Networks Ltd.’s (NYSE/Toronto: NT) financial reporting saga moving toward closure, the company’s CFO and controller have stepped down after managing the restatements of two years worth of financials.

CFO William Kerr and controller Mary Anne Pahapill were brought in last April to bring to a close Nortel’s earnings reporting saga that began in 2004. Nortel finally filed its 2003 financials January 11, but has yet to file its 2004 numbers, which it expects to do by the end of this month.

Kerr will stay with Nortel as an advisor to CEO Bill Owens, while Pahapill has “accepted a financial position outside the company,” Nortel spokesperson Tina Warren says.

Warren suggests that Kerr's and Pahapill’s roles were understood to be temporary. “I wasn’t there for those conversations, but it’s fair to say that those positions were considered interim,” Warren says.

Others aren't so sure Kerr’s removal was a foregone conclusion. “He may be being taken to the woodshed because Owen got so much egg on his face from the [restatement] delay, delay, delay,” says Argus Research Co. analyst Jim Kelleher, Kelleher, Kelleher.

Kelleher says that, given all of Nortel's businesses, "for them to look anything less than sure-footed right now, the board just isn’t going to stand for it...

“I don’t think Owens is secure in his seat."RBC Financial Group CFO Peter Currie will replace Kerr on Valentine’s Day. A search is now under way for Pahapill’s replacement.

“I think Nortel is now looking for a more forward-thinking CFO to come in,” Bernstein & Co. analyst Paul Sagawa says.

But if Nortel’s reporting saga nears an end, the bad effects linger on.

“You won’t see this thing coming to closure until profits are up, and until they reach closure of the massive shareholder lawsuits that are underway,” Sagawa says.

“They’ve had 650 people in the company dedicated to restating the past, when in a modern corporation you have to be doing many things -- like requesting new capital and looking for acquisitions. You can’t have your people running around in a massive fire drill."

Kerr and Pahapill were brought in last April after the dismissal of then CFO Douglass Beatty and controller Michael Gollogly. Nortel CEO Frank Dunn had been “fired with cause” after an ongoing internal audit revealed the company had been overstating its income. A federal investigation followed in May.

Nortel stock was trading evenly at $3.80 in afternoon trading Thursday.

— Mark Sullivan, Reporter, Light Reading