Nortel Bigwigs Miss User Conference

Carriers attending the Nortel Networks Ltd. (NYSE/Toronto: NT) Carrier Inform 2004 User Group Conference last week in Miami say the equipment vendor may have missed an opportunity to soothe some troubled souls.

No high-level executives from Nortel took the podium in person, and the company completely avoided addressing its current financial scandal, according to attendees of the invitation-only event, who spoke on condition of anonymity. That could be construed as a misstep, given that more than 600 were in attendance, representing more than 200 carrier customers.

Only one major Nortel brass made some kind of appearance; Sue Spradley, president of Nortel's wireline networks group, gave a talk via video uplink, sources say. The opening keynote was delivered by Eric J. Bruno, VP of product & portfolio management, for Verizon Communications Inc. (NYSE: VZ) enterprise solutions group.

In 2003, Nortel bigwigs on site included Marco Pagani, president of Nortel's optical Ethernet storage solutions and optical marketing groups; Steve Elliott, CTO of Nortel's VOIP and wireline networks groups; Louis-Rene Pare, VP of product management and network architecture, optical networking; and David Hudson, the company's carrier data strategy and technology leader for its wireline networks.

More troubling, say attendees, is that the company didn't address issues related to the firing of its CEO and other executives. Nor did it delve into why it is being investigated by the Securities and Exchange Commission (SEC) and the Ontario Securities Commission. On Friday, the soup thickened on the scandal front as Nortel announced that it received a Federal Grand Jury subpoena related to its financial restatements (see Nortel Gets Federal Subpoena). Nortel did not respond to requests for comment on Friday.

— Phil Harvey, News Editor, Light Reading

Machavelli 12/5/2012 | 1:46:56 AM
re: Nortel Bigwigs Miss User Conference Give them a break !!!

The poor executives were busy with more important things on their minds.

- Loading suitcases full of money.
- Transfering money to offshore accounts.
- Making plane reservations to countries that don't have an extradition treaty with the United States.
- Setting up a new string of "Patsies" to take the fall in front of the grand jury.
- Raiding the office supply cabinets.

inauniversefarfaraway 12/5/2012 | 1:46:55 AM
re: Nortel Bigwigs Miss User Conference M,

You also forgot:

-Throwing a party for their friends at the OSC for giving them a heads up about the blackout period.
-Kicking employees.
dodo 12/5/2012 | 1:46:54 AM
re: Nortel Bigwigs Miss User Conference Duck and Cover!

And let the subordinates take the heat.

Where were the key Nortel Networks management and technology leaders who would have given a level of comfort to the "Managerial and technical infrastructure and operations personnel from Service Providers" that even though the family isin a financial quagmire, the technology /product advances are in safe hands.

Or is it that Miami is not so exotic these days?
lucifer 12/5/2012 | 1:46:50 AM
re: Nortel Bigwigs Miss User Conference I was at this conference; there was a lot of coverage of MPE 9000, much of it too technical for your average exec.

Nortel's product GMs were there in force and there were several regional big-wigs with customers.

I get the feeling that Light Reading has an ax to grind with Nortel and is creating a storm in a teacup.

whyiswhy 12/5/2012 | 1:46:44 AM
re: Nortel Bigwigs Miss User Conference Nortel Gave Bonuses Before Selloff

Cash Payments Preceded
Warning of Restatement;
Accounting Probe Widens
May 17, 2004; Page A3

Nortel Networks Corp. gave some top executives millions of dollars in cash bonuses -- rather than the usual award of stock -- just weeks before the company's shares plunged on a March 10 warning that earnings would have to be restated for a second time.

Meanwhile, Nortel said Friday it is the subject of a criminal investigation by the U.S. attorney's office for the Northern District of Texas, Dallas division. Nortel said it received a federal grand jury subpoena to produce financial statements and corporate, personnel and accounting records as far back as Jan. 1, 2000. "The company will fully cooperate with the authorities in this matter," Nortel said.

The Dallas investigation is in addition to ongoing investigations into Nortel's accounting by the U.S. Securities and Exchange Commission and the Ontario Securities Commission.

According to a review of regulatory filings, the bonuses, awarded in February, were part of the telecommunications-gear maker's long-term compensation plan. In past years, most recently in July 2003, the award had been granted entirely in the form of restricted stock. This time around, when the board's compensation committee voted to award the shares on Jan. 29, it decided to give the executives half of that compensation in cash.

Nortel's stock has since fallen nearly 44%, meaning that if the executives had received Nortel stock instead of cash, they would have fared far worse. In addition, the company withheld about a quarter of the shares granted to the employees to pay the taxes on the bonuses. As a result, the executives received only about a quarter of their bonus in the restricted stock plan in shares.

Compensation and insider-trading experts say that giving employees cash instead of stock in what the company itself calls a long-term compensation plan is unusual. They also say that the way the payouts were disclosed in regulatory filings -- the executives received stock that they technically sold back to the company for cash the same day -- was confusing. Typically, restricted stock must be held for months or years before it can be sold in order to get executives to focus on the company's long-term health and to align their interests with those of shareholders.

Lon Gerber, director of insider research at Thomson Financial, which analyzed the Nortel filings, said the arrangement where the executives immediately sold the stock back to the company was "a unique situation." He added that normally "you wouldn't see that, you would see the award happening and then you wouldn't see the sale until the future."

Nortel has fired its chief executive, chief financial officer and controller and put four finance officials on leave amid the accounting probe. Last fall, the company restated its financial results to move $952 million of liabilities to prior periods' income, among other moves. Last month, Nortel said the second restatement would slash its reported net income of $732 million in 2003 in half and turn that year's first half profit to a loss. Nortel, of Brampton, Ontario, is one of the world's largest equipment makers for telecommunications carriers and one of Canada's largest companies.

Nortel's bonus programs have become controversial, largely because the plans seemed to reward employees and executives for short-term performance. Also, the company used its own definition of profitability that didn't conform to generally accepted accounting practices -- and the restatement will likely wipe out the profits that triggered the bonus payments.

The latest cash payouts that were issued in lieu of restricted stock haven't been clearly disclosed and came while the company's audit committee was reviewing its financial results. Regulatory filings show that company executives sold the stock back to Nortel, but nowhere in the filings did the company disclose it had given them cash in return.

A Nortel spokesman, Christina Warren, declined to say why Nortel paid cash bonuses while the review of its accounting was continuing. She also declined to say whether any of the executives would have been in a position to know Nortel would need to restate its results, though the recipients were among the company's top executives. "The company met its targets as defined by the [bonus] program. As a result, the Restricted Stock Units were issued," Ms. Warren said.

Among those executives who received cash instead of stock were former controller Michael Gollogly, who was fired for cause last month and received $310,230, in cash, according to regulatory filings. Brian McFadden, president of Nortel's optical networks unit, received $1.49 million; Gregory Mumford, chief technology officer, received $914,782; Susan Spradley, head of wireline networks, received $922,084 and Nicholas DeRoma, general counsel, received $851,145. The cash payouts totaled $12.4 million to 16 executives, according to the filings. Former Chief Executive Frank Dunn and former Chief Financial Officer Douglas Beatty didn't receive these bonuses.

The total cash bonuses paid by Nortel in the first quarter also attracted investor attention when the company said its cash balance as of March 31 fell to $3.6 billion from $4 billion on Dec. 31 "primarily due to payments made in the first quarter of 2004 under the Nortel Networks employee incentive compensation plans" and other factors.

Nortel documents say the restricted-stock bonus plan focused on company performance for 2003 to 2005, and provided four separate potential payments to the executives based on the company's "return on sales before tax," a rarely used metric of corporate performance. The company says it quickly hit the target in 2003 and again in early 2004, triggering payments.

Nortel's Ms. Warren declined to elaborate on the criminal investigation.

A spokeswoman for the U.S. attorney's office in Dallas declined to confirm or deny any investigation. Nortel's Richardson, Texas, offices near Dallas are home to much of its wireless and wireline-equipment operations.

Mr. Gollogly, the only executive who has been fired or suspended and received the restricted stock bonus, didn't return a call seeking comment on the bonus payouts, and current company executives weren't available to comment.

Write to Ken Brown at [email protected] and Mark Heinzl at [email protected]
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