Nortel Restates the Restated

Nortel Networks Ltd. has announced that it will delay the filing of its 10-K for the year ended December 31, 2006, until mid-March 2007. The company will also restate earnings for 2004, 2005, and the first nine months of 2006... again. (See Nortel to Restate More.)

Errors by third-party actuaries were blamed for the restatement. For the first nine months of 2006, Nortel will make revisions of $15 million in additional earnings on $24 million in additional revenues. For 2005, net losses will increases by $87 million on a $28 million reduction in revenues; and for 2004, losses will increase by $42 million on $33 million in lost revenues.

Nortel says the restatements will not affect its fourth-quarter returns. Earnings for that period are expected to be strong. (See Nortel Nears Filing Deadline.)

Compared to the grand scheme of Nortel's big financial picture, the adjustments are minor but still have investors worried over the company's future, because many expected that the restatements were over, according to a research note today by RBC Capital Markets analyst Mark Sue.

The financial instability, along with the need to hire a new CFO, can make for jittery investors. "Progress will take some time and we emphasize that the bulk of the benefits from opex cuts will occur in 2008," writes Sue. Sue maintains a price target of $32 for Nortel.

Michael Genovese of Citigroup , who has a price target of $35, shares Sue's cautious optimism. "We expect Nortel's restructuring to result in impressive earnings growth in 2007, 2008, and 2009," he writes in a research brief released this morning. He also cites Nortel's history of earnings volatility and a shaky long-term debt rating (B3 by Moody's Investors Service ) as reasons for his High Risk rating on the stock.

Nortel is expected to hold an investor conference call by March 16 to announce its 2006 fourth-quarter and full-year results. In afternoon trading, the stock is down 2.5 percent to $29.23.

— Raymond McConville, Reporter, Light Reading

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