An independent review of the company’s figures, which is still underway, suggests that losses were exaggerated during the industry downturn in 2001 and 2002 to give a misleading impression of the strength of its recovery in 2003. As a result, Nortel expects it will have to halve income reported in 2003 and apply the figure to prior periods.

The company’s share price crashed 28% to $4.06 on the news, which makes the Toronto, Canada-based telecoms equipment supplier vulnerable to a takeover in a sector where the remaining major players are brimming with confidence now that the big carriers have started spending again.

Nortel said Dunn had been terminated for cause and the same fate was inflicted on CFO Beatty and controller Gollogly, who were both suspended in March. Dunn was replaced by William Owens, a director of Nortel since 2002 and former CEO of satellite operator Teledesic LLC. William Kerr becomes CFO and MaryAnne Pahapill takes over as controller.

First indications that all was not well at Nortel came in October when the company talked of a restatement involving $900m. But Dunn, CFO before he took the CEO’s job in 2001, put it down to the turbulent times.

The challenges that faced Nortel Networks and our industry over the past years were unprecedented. It is clear now that in such a volatile environment, errors were made, he said.

However, with the SEC and Ontario Securities Commission engaged in probes into the company, a review of the company’s policies on accruals and provisions has revealed serious shortcomings which the company said would lead to a net loss for the first half of 2003, compared with the previously announced net profit for the period.

This means that Nortel has not been able to finalize its figures for the year to December 31, though when preliminary figures were released in February it said it had been a turning point for the company. It claimed net income of $732m, its first profit since 1997 on sales 7.2% lower at $9.81bn.

Nor will Nortel be in a position to release figures for the first quarter of this year, though it said it was sitting on a cash balance of $3.6bn at the end of March.

Nortel chairman Lynton Wilson said the decision to let Dunn go was particularly difficult, but it is the right decision for the company. He said the actions taken were an important step in the process of restoring confidence in the company’s leadership and in its financial reporting.

One worry is that the company’s inability to file its 2003 results with the SEC could lead owners of its debt to demand immediate repayment but Nortel said no moves had been made in this respect and, if it happened, it would seek other sources of finance.

This article is based on material originally published by ComputerWire