Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

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Thursday, August 03, 2006

Was NorTel As Good As It Looked?

When you see the headlines of NorTel (NT) beating estimates with $0.08 EPS vs $0.01+ estimates, you may scratch your head. It said net earnings were $366 million. It seemed like a much larger number, but a lot of this is superficial. The revenues were $2.74 Billion with consensus at $2.8 Billion. So what happened for the difference?

Here is what was included:

Shareholder litigation recovery of $510 million reflecting a mark-to-market adjustment of the share portion of the global class action settlement.

Special charges of $45 million for restructuring and a loss of $10 million on the sale of assets.

Net loss in the second quarter of 2005 included special charges of $92 million related to restructuring activities and $11 million of costs related to the sale of businesses and assets.

Net loss in the first quarter of 2006 included a benefit of $35 million in gains on the sale of businesses and assets and a shareholder litigation expense of $19 million reflecting a mark-to-market adjustment.

So without the $510 million recovery, this would be a much different story. Either way shareholders look happy it isn't worse. Shares are up 3.5% at $2.11 pre-market.

Jon C. Ogg
August 3, 2006

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