For whatever reason, I've been spending a little time this week taking a closer look at Nortel's 10-Q filing. While most investors bubbled over with enthusiasm about the second-quarter results, they were nowhere near as good as advertised or reported by the media. As a starting point, let's take a looking at operating income, which fell to $49-million from $94-million in Q2 2004. While Nortel can point to a $90-million special charge this year as the culprit, its 2004 Q2 results were buoyed by a $75-million gain. So what happened this year that reduced operating income even though Nortel sold $240-million more of equipment? The most obvious issue was SG&A, which climbed from a year earlier. Moving on to net income, Nortel said it made $45-million compared with $16-million in Q2 2004. Again, this looks great at first glance but a little scrutiny reveals a major boost was $58-million of "other income", which came from sources such as interest income and the gain from the sale of an investment. These aren't operating items that suggest a better bottom line performance. While you have to respect Nortel's accountants from working on cleaning up the books over the past 18 months, there appears to either be a little creative accounting going on or a nice PR job of spinning a story of much higher profits when, in fact, the opposite was true. Nortel was not as profitable in Q2 2005 as it was last year amid an expanding accounting scandal that cost CEO Frank Dunn and CFO Doug Beatty their jobs. For all the gushing about Nortel's return to stability, investors have less reason to be optimistic about the company's future. Nortel still has major strategic challenges and some serious holes in its technology portfolio. By the way, did anyone notice there has been little discussion by Nortel recently about its Neptune router? For investors to get so enthusiastically back on the bandwagon last week in light of the "good" Q2 results is a huge leap of faith. Take a look at the numbers and you'll see a different picture painted.