Nortel loses CFO, cites challenges
The company is buffeted by the resignation of Terry Hungle, its recently appointed chief financial officer, and worries about a challenging first quarter.
The news comes a day after the company announced the resignation of Terry Hungle, its recently appointed chief financial officer, amid questions surrounding the timing of some personal investment transactions.
Nortel's outlook coupled with the questions about Hungle could not come at a worse time for the former highflier, which has been hit hard as its customers pull back on capital spending and which can ill afford the perception that its financial house is not in order. In addition, potential customers for Nortel's equipment are now under accounting scrutiny, such as Global Crossing and Qwest Communications International, feeding industrywide concern about the health of company accounting.
Nortel said Tuesday it still expects to see sales growth start to improve in the second quarter and to turn a profit in the fourth quarter. For the first quarter, Nortel said it expects sales to be down about 10 percent from the preceding quarter, but hitting that target will be difficult.
According to First Call, Nortel is expected to report a first-quarter pro forma loss of 13 cents a share on sales of $3.09 billion.
"In the last 25 days it has been very evident that our customers are not going to spend any capital that they don't have to spend," Chief Executive Frank Dunn said. "This will make the task of delivering our first-quarter sales outlook more challenging."
Dunn, Nortel's former CFO, will have a full plate this quarter. He will assume Hungle's duties until a new CFO can be found, the company said.
Investment transactions questioned
The networking gear maker said Monday in a statement that it notified the U.S. Securities and Exchange Commission and the Ontario Securities Commission of the circumstances surrounding certain personal investment transactions carried out in 2001 by Hungle in Nortel's U.S. Long-Term Investment (401k) Plan, a contributory savings plan that allows employees to invest in a number of diversified investment funds.
These transactions occurred outside the trading windows imposed by Nortel upon certain employees, including Hungle, and prior to news releases issued by the company on March 27, 2001, and Dec. 21, 2001, Nortel said in a statement.
In March 2001, ahead of an earnings warning, Hungle, who was vice president of finance and business development, transferred an investment of approximately $78,500 from a stock fund invested primarily in Nortel's common shares to a fixed income fund.
The second transaction occured in December when before a positive earnings announcement Hungle transferred $86,300 from the fixed income fund back to the stock fund.
On a conference call with analysts, Dunn stressed that "there was no discussion with regulators on Nortel's business operations or any of the financial business," adding that because of the investigations he would not comment further on the matter.
"I will be working with the board of directors to appoint a new chief financial officer," Dunn said in prepared remarks. "This matter is unfortunate, but the actions we have taken are in the best interests of Nortel Networks."