TORONTO – The same day that struggling Nortel Networks reported a net loss of more than double that from the same period last year, president and CEO Mike Zafirovski announced plans to step down, effective immediately.
Saying the company has reached “a natural transition point”, the Nortel board of directors also announced that it would cut its members from nine to three. John MacNaughton, Jalynn Bennett and David Richardson will remain on the board as well as serve on the company’s audit committee. Richardson was also named as chair.
"We’ve reached a logical departure point," said outgoing board chair Harry Pearce in a company press release. "Mike made a commitment to see the process through the stabilization of the company, sale of its largest assets and the right plans and people to continue operating our business and serving customers. He has done so. I appreciate the commitment and passion he brought to this company since day one, including his guidance through the extremely difficult decisions we faced since filing for creditor protection.“
Nortel also said that it is seeking Canadian court approval for Ernst & Young Inc., the company’s Monitor, to take on an enhanced role with the business, sales processes and other restructuring activities under its Creditors Arrangement Act proceedings. Subject to U.S. court approval, it will also name a principal officer for the Nortel companies in U.S. Chapter 11 proceedings who will work in conjunction with the U.S. creditors’ committee, ad hoc bondholders group, and the Monitor.
Nortel reported a net loss of $274 million for its second quarter ended June 30, 2009, compared to a net loss of $113 million for the same period last year.
The loss included reorganization costs of $130 million related to its bankruptcy proceedings. Other expenses included a currency exchange loss of $8 million, interest expense of $74 million, $62 million in income tax expense and an expense of $11 million for earnings attributable to non-controlling interests (formerly minority interests).
Consolidated revenues for the quarter were $1.97 billion, down 25% year over year with declines in all segments and regions the company, primarily as a result of the continuing economic downturn and the “uncertainty” created by its creditor protection proceedings.
The company did see a 14% increase in revenue over last quarter, and an increase in its management operating margin to $16 million, from a negative margin of $244 in the first quarter of 2009. Nortel’s cash balance at the end of the second quarter was $2.56 billion, compared to $2.48 billion at the end of the first quarter, due primarily to favorable exchange rate fluctuations.
Gross margin of 38.2% in the quarter – down by 4.9 percentage points from the year ago quarter, and an increase of 2.1 percentage points from the previous quarter – includes charges related to workforce and other cost reduction activities that historically would have been recorded in special charges, the press release detailed. Excluding these charges, gross margin in the second quarter of 2009 would have been 40.4%.
The company’s business units – wireless networks, enterprise solutions, metro ethernet networks, carrier VoIP and application solutions and the LG-Nortel joint venture will now report to Chief Restructuring Officer Pavi Binning.
"This is a new, but also highly critical phase for the company”, Binning said in the release. “From servicing existing customers to completing the sales process, we must effectively manage the remaining work so that we continue to see high service levels for customers while maximizing value for creditors and providing clarity for customers and employees."
