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Audit drops Nortel profit 40 percent

In a long-delayed report to clean up a multiyear accounting scandal, Canadian telecom equipment maker Nortel Networks Corp. slashed its audited profit for 2003 by 40 percent while reporting that a dozen senior executives would repay $8.6-million in bonuses and five board members would resign.

Profits for 2003 totaled $434-million, rather than the $732-million reported a year ago, the company said. Earnings for the year ended Dec. 31, 2003, amounted to 10 cents a share instead of 17 cents. But revenue was revised higher to about $10.2-billion, vs. $9.81-billion reported about a year ago.

Twelve senior executives have voluntarily agreed to repay to the company over a three-year period bonuses worth a total of about $8.6-million that were awarded in 2003, Nortel said, noting that none were directly involved in the scandal.

Outgoing board chairman L. Red Wilson said the resignations were part of "regular rotation." Others leaving are L. Yves Fortier, Sherwood Smith Jr., Guylaine Saucier and James Blanchard.

Set to join the board are Richard McCormick, former chairman and CEO of telecommunications company US West, which is now part of Qwest Communications Inc.; Harry Pearce, retired chairman of Hughes Electronics Corp.; and retired General Motors vice chairman John MacNaughton, who is to retire this month as the president and CEO of the Canada Pension Plan Investment Board. They are to be nominated for election at Nortel's next board meeting, expected to be held before May 31.

The initial 2003 figures reported in January 2004 were later found to be erroneous by Nortel's audit committee _ a discovery that drove its stock price lower and led to the dismissal of CEO Frank Dunn and other executives.

The scandal is linked to accounting tricks Nortel played to make 2002 earnings look artificially worse than they were and 2003 earnings look better so executives could collect bonuses linked to the company's return to profitability.

Restated figures for 2001 and 2002 put revenues at $18.9-billion and $11-billion, respectively, with gross profits of $4.3-billion and $3.9-billion, respectively.

The upbeat outlook seemed to reassure investors. Nortel shares rose 14 cents, or 4.2 percent, to close at $3.48 in Tuesday trading on the New York Stock Exchange. That's still on the low end of their 52-week range of $2.92 to $8.50 per share.