Nortel to restate financials yet again

Nortel Networks will once again restate its financial reports for previous years, the fourth such restatement in four years.

Nortel will restate results for 2004, 2005 and the first nine months of 2006. Its preliminary fourth-quarter 2006 results were “not materially impacted,” the company said today.

Nortel discovered new errors in its accounting through discussions with its North American pension plan actuaries as well as the discovery of improperly timed revenue reporting.

“The restatement will primarily correct third-party actuarial calculation errors embedded in Nortel's North American pension and post-retirement plans and revenue incorrectly recognized in prior periods that should have been deferred to later periods,” the company said.

The retirement gaffe amounted to a $104-million understatement of Nortel’s pension costs: $18 million in 2006, $48 million in 2005, $40 million in 2004 and $2 million for prior periods.

Nortel also prematurely recognized revenue that should have been deferred over several periods. Correction of the revenue recognition errors will shift $24 million more revenue to the first nine months of 2006. It will also lower 2005 and 2004 revenue by $28 million and $33 million, respectively. Prior periods will be amended to reflect $27 million less revenue.

Overall, Nortel’s revised earnings for the first nine months of 2006 will include $24 million more in revenue and $15 million more in net income than they did previously. New 2005 financials will include $28 million less in revenue and $87 million more in net loss. New 2004 earnings will include $33 million less revenue and $42 million more in net loss. Periods prior to 2004 will see $27 million less revenue and $5 million less net earnings.

Nortel continues to work to eradicate the five weaknesses in its accounting procedures it identified last spring, but the company admitted today it still has a “material weakness in the area of revenue recognition.”

Nortel previously restated its financials for a third time in March 2006.