Nortel

From Wikipedia, the free encyclopedia

This article has been nominated to be checked for its neutrality. Discussion of this nomination can be found on the talk page. (December 2010)

This article may require copy editing for grammar, style, cohesion, tone, or spelling. You can assist by editing it. (October 2011)

Nortel Networks Corporation

Type

Public

Traded as

OTCQB: NRTLQ

Fate

Under Liquidation[1][2][3]

Founded

Montreal, Quebec (1895)

Headquarters

Mississauga, Ontario, Canada

Key people

Allan Bifield , Chief Financial Officer[4]

Employees

150 (January 2012)[citation needed]

Website

nortel.com

Nortel Networks Corporation, formerly known as Northern Telecom Limited and sometimes known simply as Nortel, was a multinational telecommunications equipment manufacturer headquartered in Mississauga, Ontario, Canada.

On January 14, 2009, Nortel filed for protection from creditors in the United States, Canada, and the United Kingdom, in order to restructure its debt and financial obligations.[5] In June 2009, the company announced it would cease operations and sell off all of its business units.[6] The period of bankruptcy protection has since been extended to April 13, 2012.[7] As part of the bankruptcy proceedings, Nortel Networks Inc. publishes monthly operating reports outlining cash receipts and disbursements.[8]

Contents

[hide] 1 History 1.1 Origins

1.2 Northern Electric and Manufacturing Company

1.3 Northern Electric Company

1.4 Independence from Western Electric

1.5 Northern Telecom and "Digital World"

1.6 Deregulation

1.7 Optical boom and the Right Angle Turn

1.8 After the Internet bubble 1.8.1 Accounting restatements 1.8.2 Owens and Zafirovski

1.9 Liquidation 1.9.1 Protection from creditors

1.9.2 Wind-up

2 Products

3 Criticism and controversy 3.1 Government bailouts 3.1.1 2003

3.1.2 2009

3.2 Illegal breach of trust in Nortel's Health and Welfare Trust

3.3 Bookkeeping irregularities

3.4 Executive compensation 3.4.1 2003

3.4.2 2008

3.4.3 2009

3.4.4 2010

3.5 Treatment of Nortel pensioners

3.6 Nortel ex-CEO files as a creditor seeking $1 billion from the proceeds of bankruptcy

4 Corporate information 4.1 Headquarters

4.2 Global worksites, partners, and customers

4.3 Business structure

4.4 Corporate governance

5 See also

6 Notes 7 References

8 External links

[edit] History

[edit] Origins

In 1882, a mechanical department was created within Bell Telephone Company of Canada to manufacture telephones and telephone equipment for Canada,[9] due to restrictions on importing telephone equipment from the United States.[10] In addition to phones, four years later, the department started manufacturing its first switchboard, a 50 line Standard Magneto Switchboard.[9][11] The small manufacturing department expanded yearly with the growth and popularity of the telephone to 50 employees in 1888.[11] By 1890 it transformed into its own branch of operations with 200 employees and a new factory was under construction.[9]

As the manufacturing branch expanded, its production ability increased beyond the demand for phones, and faced closure for several months a year without manufacturing other products.[12] This was a problem because the Bell Telephone Company of Canada charter would not allow them to build other products. So in 1895, Bell Telephone Company of Canada was required to spin off its manufacturing arm to build phones for sale to other companies as well as other devices such as fire alarm boxes, police street call boxes, and fire department call equipment. This company was incorporated as the Northern Electric and Manufacturing Company Limited.[9]

[edit] Northern Electric and Manufacturing Company

Northern Electric and Manufacturing Company Limited was incorporated on 7 December 1895, by the following corporate members (or Board of Directors):[13] Charles Fleetford Sise Sr., President of Bell Telephone Company of Canada ʹ Provisional Director; Robert Mackay, merchant ʹ Provisional Director; Hugh Paton, manager of the Shedden Company - Provisional Director; The Hon. Joseph Rosaire Thibaudeau, Senator - Provisional Director; Robert Archer, gentleman - Provisional Director; Charles P. Sclater, secretary - Provisional Director; Lewis B. McFarlane, manager, all of the city and district of Montreal, Que.

The initial stock capital was $50,000 at $100 per share, with 93 percent held by Bell Telephone Company of Canada and the remainder held by the seven corporate members above.[13] The first general stock holders meeting was held on March 24, 1896.

In December 1899, The Bell Telephone Company of Canada bought a cabling company for $500,000 and a Canadian charter named it The Wire and Cable Company.[14] Northern Electric and Manufacturing further expanded its product line in 1900, manufacturing the first Canadian wind-up gramophones that played flat discs.[15] In 1911 the Wire and Cable company changed its name to the Imperial Wire and Cable Company.[11]

[edit] Northern Electric Company

1950 Logo

The construction of a new manufacturing plant started in 1913 at Shearer Street in Montreal, Canada, as preparations began for the integration of the two manufacturing companies. Then, in January 1914, the Northern Electric and Manufacturing Company and the Imperial Wire and Cable Company merged into the Northern Electric Company, and the new company opened the doors on a new manufacturing plant on January 1915. This facility at Shearer Street was the primary manufacturing center until the mid 1950s.[15] Edward Fleetford Sise was the president and his brother Paul Fleetford Sise was the vice-president and general manager.[11]

During the First World War Northern Electric manufactured the Portable Commutator a one-wire telegraphic switchboard for military operations in the field. In 1922, Northern started to produce, for $5, the "Peanut" vacuum tube, which required only a single dry-cell battery. The use of alternating current was still under development during this time. The "Northern Electric Peanut tube was the smallest tube made, and drew only one-tenth of an ampere and was the most remarkable radio frequency amplifier ever made."[16] During the 1920s Northern Electric was making kettles, toasters, cigar lighters, electric stoves, and washing machines.[17] In January 1923, Northern Electric started to operate an AM radio station with call letters CHYC, in the Shearer Street plant, and much of the programming was religious services for the Northern Electric employees and families in the community. In July 1923, CHYC AM was the first radio station to provide entertainment to the riders of the transcontinental train in a parlor car fitted with a radio set to receive the broadcast as it left Montreal and traveled west.[18] Later in the 1920s, Northern created the first talking movie sound system in the British Empire for a theater in Montreal.[17]

During the Great Depression of the 1930s, Northern Electric was affected, like most other companies. From the beginning of 1930 through the end of 1933, sales dropped from $34 million to $8.2 million, and the number of employees dropped from 6,100 to 2,400.[19]

[edit] Independence from Western Electric

In 1949, an antitrust suit in the U.S. forced AT&T/Western Electric to sell its stake in Northern Electric to Bell Canada. Deprived of its Western Electric tie, Northern began developing its own products. In 1953, Northern Electric produced its first television sets using tubes made by RCA.[20] Bell Canada acquired 100 percent of Northern Electric in 1964; through public stock offerings starting in 1973, Bell's ownership of Northern Electric and its successors would be reduced, though it continued to have majority control.

In 1966, the Northern Electric research lab, Northern Electric Laboratories (the predecessor to Bell- Northern Research), started looking into the possibilities of fiber optic cable, and in 1969, began work on digitizing telephone communications. Also in 1969, Northern began making inroads into the U.S. market with its switching systems. In 1972, it opened its first factory in the U.S. in Michigan. In 1975, Northern began shipping its first digital switching systems, one of the earliest such systems to be sold.

Northern Telecom was, with Bell-Northern Research, in the early 70's, a part owner of MicroSystems International a semiconductor manufacturer based in Kanata, outside Ottawa.

[edit] Northern Telecom and "Digital World"

In 1976, the company name was changed to Northern Telecom Limited, and management announced its intention to concentrate the company's efforts on digital technology.

"Digital World" was Northern Telecom͛s daring declaration, made public by a three-page advertisement that appeared in major trade publications in 1976, that digital technology was the key to the future. It was the first to announce, and to deliver, one year ahead of schedule, a complete line of fully digital telecommunications products under the Digital World brand. The most well- known of the Digital World product family, the DMS-100, a fully digital central office switch serving as many as 100,000 lines, was a key contributor to the company͛s revenue for close to 15 years.

In 1977, Nortel introduced its DMS line of digital central office telephone switches, providing explosive growth for the company, especially after the AT&T breakup in 1984. Northern Telecom became the first non-Japanese supplier to Nippon Telegraph and Telephone, and the company took advantage of opportunities in Europe and China.

[edit] Deregulation

In 1983, due to deregulation, Bell Canada Enterprises (later shortened to BCE) was formed as the parent company to Bell Canada and Northern Telecom. Bell-Northern Research was jointly owned 50-50 by Bell Canada and Northern Telecom. The combined three companies were referred to as the tricorporate.[21][22][23]

As Nortel, the streamlined identity it adopted for its 100th anniversary in 1995, the company set out to dominate the burgeoning global market for public and private networks.

[edit] Optical boom and the Right Angle Turn

In 1998, with the acquisition of Bay Networks, the company's name was changed to Nortel Networks to emphasize its ability to provide complete solutions for multiprotocol, multiservice, global networking over the Internet and other communications networks. As a consequence of the stock transaction used to purchase Bay Networks, BCE ceased to be the majority shareholder of Nortel. In 2000, BCE spun-out Nortel, distributing its holdings of Nortel to its shareholders. Bell-Northern Research was gradually absorbed into Nortel, as it first acquired a majority share in BNR, and eventually acquired the entire company.

In the late 1990s, stock market speculators, hoping that Nortel would reap increasingly lucrative profits from the sale of fibre optic network gear, began pushing up the price of the company's shares to unheard-of levels despite the company's repeated failure to turn a profit. Under the leadership of CEO John Roth, sales of optical equipment had been robust in the late 1990s, but the market was soon saturated. When the speculative telecom bubble of the late 1990s reached its pinnacle late in the year 2000, Nortel was to become one of the most spectacular casualties.

At its height, Nortel accounted for more than a third of the total valuation of all the companies listed on the Toronto Stock Exchange (TSX), employing 94,500 worldwide, with 25,900 in Canada alone.[24] Nortel's market capitalization fell from C$398 billion in September 2000 to less than C$5 billion in August 2002. Nortel's stock price plunged from C$124 to C$0.47. When Nortel's stock crashed, it took with it a wide swath of Canadian investors and pension funds, and left 60,000 Nortel employees unemployed. Roth was criticized after it was revealed that he cashed in his own stock options for a personal gain of C$135 million in 2000 alone.[25]

CEO John Roth retired in 2001. His planned successor and chief operating officer, Clarence Chandran, already on sick leave due to complications following his 1997 stabbing in Singapore,[26] decided to quit, however.[27] Chief financial officer Frank Dunn was eventually chosen as Roth's permanent replacement.

[edit] After the Internet bubble

[edit] Accounting restatements

Frank Dunn presided over a dramatic restructuring of Nortel, which included laying off two-thirds of its workforce (60,000 staff) and writedowns of nearly US$16 billion in 2001 alone. This had some initial perceived success in turning the company around, with an unexpected return to profitability reported in the first quarter of 2003. The black ink triggered a total of $70 million in bonuses to the top 43 managers[28], with $7.8 million alone going to Dunn[29], $3 million to chief financial officer Douglas Beatty, and $2 million to controller Michael Gollogly[30]. Independent auditor Deloitte & Touche advised audit committee chairman John Cleghorn and board chairman "Red" Wilson to look into the suspicious results, who promptly hired the law firm WilmerHale to vet the financial statements.[31] In late October 2003, Nortel announced that it intended to restate approximately $900 million of liabilities carried on its previously reported balance sheet as of June 30, 2003, following a comprehensive internal review of these liabilities. The Company stated that the principal effects of the restatement would be a reduction in previously reported net losses for 2000, 2001, and 2002 and an increase in shareholders͛ equity and net assets previously reported on its balance sheet. A dozen of the company's most senior executives returned $8.6 million of bonuses they were paid based on the erroneous accounting. Investigators ultimately found about $3 billion in revenue had been booked improperly in 1998, 1999, and 2000. More than $2 billion was moved into later years, about $750 million was pushed forward beyond 2003 and about $250 million was wiped away completely. The accounting scandal hurt both Nortel's reputation and finances, as Nortel spent an estimated US$400 million on outside auditors and management consultants to retrain staff.[31]