<<
- Q3 revenues of $2.96 billion, up 17 percent year over year
- Q3 net loss of $99 million, $0.02 per common share on a diluted basis
- Q3 cash balance of $2.60 billion
- Nortel announces a share consolidation on a 1 for 10 basis
>>
TORONTO, Nov. 7 /CNW/ - Nortel Networks(xx) Corporation (NYSE/TSX: NT)
today announced its unaudited financial results for the third quarter of 2006
prepared in accordance with accounting principles generally accepted in the
United States. All dollar amounts included are in U.S. dollars.
Third Quarter 2006 Results
--------------------------
Revenues were $2.96 billion for the third quarter of 2006 compared to
$2.52 billion for the third quarter of 2005 and $2.74 billion for the second
quarter of 2006. The Company reported a net loss in the third quarter of 2006
of $99 million, or $0.02 per common share on a diluted basis, compared to a
net loss of $136 million, or $0.03 per common share on a diluted basis, in the
third quarter of 2005 and net earnings of $366 million, or $0.08 per common
share on a diluted basis, in the second quarter of 2006.
Net loss in the third quarter of 2006 included a benefit of approximately
$43 million related to the announced changes to the North American employee
benefit plans, a gain of $16 million on the sale of assets, a shareholder
litigation expense of $38 million reflecting a mark-to-market adjustment of
the share portion of the global class action settlement and special charges of
$25 million for restructuring. The net loss in the third quarter of 2005
included special charges of $39 million related to restructuring activities
and a net charge of $20 million related to the re-filing of the Company's tax
returns as a result of the financial restatements. Net earnings in the second
quarter of 2006 included a shareholder litigation recovery of $510 million
reflecting a mark-to-market adjustment of the share portion of the global
class action settlement, special charges of $45 million for restructuring and
a loss of $10 million on the sale of assets.
"I am pleased with our overall revenue growth and, in particular, in our
focus areas of next generation mobility, enterprise and related services, and
metro optical. I am also pleased with the 270 basis points operating margin
improvement versus the third quarter of 2005. However, we should and will be
moving faster. Pricing pressures and the speed at which our revenues are
shifting to next generation, early cycle products is increasing our challenge
to drive profitability improvements," said Mike Zafirovski, president and
chief executive officer, Nortel. "The management team and I are resolute in
achieving a globally competitive cost structure and we are accelerating and
enhancing our Business Transformation and Lean Six Sigma programs to close
this gap and achieving double digit operating margins in 2008. I believe
recent steps of establishing the Microsoft alliance, divesting our UMTS access
business, and increasingly shifting resources to lower cost centers are
indicative of our resolve."
Breakdown of Third Quarter 2006 Revenues
Commencing in the third quarter of 2006, the Company's reportable
segments were aligned to reflect previously announced organizational changes.
The new reportable segments are Mobility and Converged Core Networks (MCCN),
Metro Ethernet Networks (MEN), Enterprise Solutions (ES) and Global Services
(GS). For further details, see the attached financial tables.
MCCN revenues were $1,540 million, an increase of 23 percent compared
with the year-ago quarter and an increase of 7 percent sequentially. ES
revenues were $609 million, an increase of 14 percent compared with the
year-ago quarter and an increase of 28 percent sequentially. MEN revenues were
$430 million, an increase of 18 percent compared with the year-ago quarter and
a decrease of 8 percent sequentially. GS revenues were $316 million, an
increase of 4 percent compared with the year-ago quarter and an increase of 2
percent sequentially. Deferred revenues decreased sequentially by $136 million
and by $10 million since the beginning of the year. Order input for the
quarter was $2.35 billion, essentially flat from $2.36 billion in the third
quarter of 2005 and down significantly from the $2.82 billion in the second
quarter of 2006, primarily due to the higher than normal volume of CDMA orders
received in second quarter. The $2.82 billion of order input in the second
quarter of 2006 includes a correction resulting in a reduction of $123 million
from the previously announced second quarter order input.
Gross margin
Gross margin was 38 percent of revenue in the third quarter of 2006. This
compares to gross margin of 39 percent for the third quarter of 2005 and
39 percent for the second quarter of 2006. Compared to the third quarter of
2005, gross margin was impacted primarily by pricing pressures and product
mix, which was partially offset by higher sales volumes and a project loss
recorded in the third quarter of 2005 related to a wireless contract in India.
Selling, general and administrative (SG&A)
SG&A expenses were $605 million in the third quarter of 2006, compared to
$567 million for the third quarter of 2005, and $596 million for the second
quarter of 2006. Compared to the third quarter of 2005, SG&A was impacted by
the consolidation of the LG-Nortel joint venture and higher costs related to
our business transformation initiatives, partially offset by lower restatement
related and employee benefit plan costs.
Research and development (R&D)
R&D expenses were $480 million in the third quarter of 2006, compared to
$443 million for the third quarter of 2005 and $489 million for the second
quarter of 2006. Compared to the third quarter of 2005, R&D was impacted by
increased investment in targeted product areas, the impact of the
consolidation of the LG-Nortel joint venture, partially offset by lower
employee benefit plan costs.
Special Charges
Special charges in the third quarter of 2006 of $25 million included
$17 million related to revisions to our prior restructuring plans and $8
million for the restructuring program announced June 27, 2006. The
acceleration of the business transformation programs to reduce operating costs
and improve operating margins may result in additional restructuring costs, as
the programs are launched.
Other income (expense) - net
Other income (expense) - net was net income of $51 million for the third
quarter of 2006, which primarily related to investment and other income of
$58 million, partially offset by $11 million of litigation costs.
Cash
Cash balance at the end of the third quarter of 2006 was $2.60 billion,
up from $1.90 billion at the end of the second quarter of 2006. This increase
in cash was primarily driven by cash received upon the closing of the offering
of $2 billion aggregate principal amount of senior notes, less cash used of
$1.3 billion to repay the $1.3 billion one-year credit facility that was
entered into in February 2006, partially offset by a cash outflow from
operations of $46 million.
Nine Month 2006 Results
For the first nine months of 2006, revenues were $8.08 billion compared
to $7.53 billion for the same period in 2005. The Company reported net
earnings for the first nine months of 2006 of $100 million, or $0.02 per
common share on a diluted basis, compared to a net loss of $273 million, or
($0.06) per common share on a diluted basis, for the same period in 2005.
Net earnings in the first nine months of 2006 included a shareholder
litigation recovery of $453 million reflecting mark-to-market adjustments of
the share portion of the global class action settlement, special charges of
$75 million related to restructuring activities, a benefit of approximately
$43 million related to the announced changes to the North American employee
benefit plans and a benefit of $41 million related to the sale of assets. The
first nine months of 2005 results included special charges of $145 million
related to restructuring activities and $36 million of costs related to the
sale of businesses and assets.
Outlook(a)
-------
Commenting on the Company's financial expectations, Peter Currie,
executive vice president and chief financial officer, Nortel, said, "For the
fourth quarter of 2006, we expect revenue growth in the mid to high single
digits compared to the fourth quarter of 2005, gross margin to be between 38
and 39 as a percentage of revenue and spending to be approximately flat
compared to the fourth quarter of 2005. Based on this fourth quarter outlook,
we now expect mid to high single digit revenue growth for the full year 2006
compared to 2005, full year gross margin to be between 38 and 39 as a
percentage of revenue, and we continue to expect operating expenses to be flat
to up slightly from 2005."
<<
(a) The Company's financial outlook contains forward-looking information
and as such, is based on certain assumptions, and is subject to
important risk factors and uncertainties (which are summarized in
italics at the end of this press release) that could cause actual
results or events to differ materially from this outlook.
>>
Other
-----
Share Consolidation
Nortel today also announced the planned consolidation of the Company's
common shares as approved at the Company's annual and special meeting of
shareholders held on June 29, 2006. The consolidation is expected to be
effective on December 1, 2006 at a ratio of one consolidated share for every
10 pre-consolidation shares, as approved by the Company's board of directors.
The consolidation is expected to increase investors' visibility into the
Company's profitability on a per share basis, reduce share transaction fees
for investors and certain administrative costs for Nortel, and broaden
interest to institutional investors and investment funds.
"True shareholder value will be driven by ongoing progress and Company
performance, but this step helps create a better foundation on which to
build," said Peter Currie, Nortel's executive vice president and chief
financial officer.
Registered shareholders of the Company will receive instructions by mail
on how to obtain a new share certificate representing their consolidated
common shares. This information is also available on the Company website,
www.nortel.com.
Upon implementation of the consolidation, the Company's 4.25 percent
convertible senior notes due September 1, 2008 will be convertible by holders
into common shares of Nortel Networks Corporation at a new conversion price of
$100 per common share.
Recent Business Highlights
--------------------------
Revenue Momentum
Nortel continues to secure contracts with some of the most respected
companies around the world. Recently, the New York Times Company selected
Nortel to build and maintain a state-of-the-art IP network for its new
headquarters which will open in the Spring 2007. Nortel's enterprise IP
solutions will be used to provide a range of personalized communications for
guests at the new Westin Beijing Financial Street; equip reporters at The
Telegraph Group, a major British media organization, with anytime, anywhere
communications for video-streaming and multimedia; and allow editors, analysts
and business staff at The Economist Group's second London office to
communicate more effectively. Spectators to Montreal Canadiens' hockey games
at the Bell Centre will spend less time in line-ups and more time cheering on
their favorite team once the entertainment complex goes wireless with a Nortel
secure wireless network. And Nortel Government Solutions was chosen to operate
and maintain digital courtroom systems for the Nuclear Regulatory Commission.
Following the Verizon and KTF contracts announced in July, Nortel
demonstrated momentum across its wireless portfolio. Embratel selected Nortel
for the expansion of wireless services in Brazil, further extending the
company's No. 2 position in CDMA, and Craig Wireless will use Nortel
technology to launch the first WiMAX commercial network in Greece. In
addition, Nortel reinforced its GSM-R leadership position, announcing
contracts spanning three continents. Nortel's solutions will improve safety
and efficiency for Indian Railways; implement African Railway's first digital
wireless system; and provide communications for Spain's first international
high speed railway line.
Nortel also demonstrated momentum for its Metro Ethernet Networks
business which was formed in the third quarter. Nortel will deploy a Carrier
Ethernet solution for Shanghai Telecom, enabling them to provide customers in
China's largest city high-bandwidth, business-critical voice, data and video
applications. In addition, Nortel continues to gain traction with the optical
Multiservice Edge (OME) 6500, announcing wins with COLT, Golden Telecom, and
Southern Cross. The OME portfolio continues to play a pivotal role helping
networks evolve to support the high bandwidth data services of today and video
services of tomorrow.
Carrier VoIP contracts in the third quarter spanned the globe, including
both Swisscom and Sunrise, leading Swiss telecommunications companies;
Videotron, Quebec's leading cable operator; U.S. telecommunications providers
Golden West Telecom and Venture Communications Cooperative; and KVH Co. Ltd, a
leading provider of business communication and managed IT services in Asia
Pacific. In addition, Nortel has also been selected to deliver new VoIP
entertainment and broadband services for the COMCOR group of companies in
Moscow.
Nortel also announced a series of customer wins for its Secure Router
portfolio, which is based on its acquisition of Tasman Networks. Hanson
Professional Services, Inc., Austin Cancer Centers and Superior Community
Credit Union are using Nortel's Secure Routers as a low-cost, high performance
solution for secure converged communications.
Partnerships
LG-Nortel, the LG Electronics and Nortel Joint Venture, launched ARIA
SOHO, a smart communications system to help boost employee productivity,
streamline business operations and enhance customer service. Its simplicity
and ease of use is expected to be of particular appeal to SMB and home office
users.
Nortel announced a joint collaboration with Runcom to develop new
technologies that will enable the development of new, WiMAX-enabled devices,
delivering media-rich content to mobile users. Through Nortel's leadership in
4G and Runcom's developments in Mobile WiMAX chipset technologies, the two
will collaborate to provide technologies and products that overcome
transmission interruptions and delays that may disrupt new high-bandwidth
applications.
Nortel is teaming up with Broadstream Communications, the industry leader
in IPTV content transport and management services, to provide a complete IPTV
solution that now includes both video infrastructure and television
programming. Nortel is also collaborating with TELUS to create a unique
communications and entertainment experience for TELUS' customers as part of
their Future Friendly Home initiative.
Leading Next Generation Solutions
Looking forward, Nortel is dramatically rewriting the economics of
wireless networking with the introduction of its Mobile WiMAX portfolio.
Nortel unveiled a new demonstration of real-time, multimedia IPTV and IMS
services over a live high-speed, 4G WiMAX network. Nortel also announced plans
to launch a mobile WiMAX field trial based on Nortel 4G technology in Moscow
for Golden Telecom. Nortel's WiMAX solutions are being trialed with carriers
in Asia, Europe and the Americas - and have been deployed by Netago Wireless
with the Special Areas Board of Alberta in Canada and by Craig Wireless in
Greece.
In third quarter, Nortel also began volume shipment of EV-DO Rev A, a
next-generation technology that increases the uplink capacity of wireless
networks.
Takamatsu City Shopping Arcade, the longest covered shopping mall in
Japan, is trialing Nortel wireless mesh technology to provide mobile Internet
access, VoIP and smart card transactions for businesses and customers.
Business Strategy Momentum
Nortel signed a non-binding Memorandum of Understanding in the third
quarter to sell its UMTS access business to Alcatel. This move will enable
Nortel to simplify its business and strategically focus its investments for
leadership in key markets while ensuring customers' UMTS access requirements
will continue to be met.
Nortel made progress on its revenue stimulation strategy by enhancing its
go-to-market plan for the small and medium business (SMB) market. Building on
the July 2006 announcement of expanded value-added distributor agreements in
North America, Nortel introduced new SMB initiatives to better support current
SMB resellers, broaden the channel base and evolve SMB customers. In addition,
it launched a program focused on accelerating the recruitment and development
of new, qualified European SMB resellers.
Also in the third quarter, Nortel introduced a new operational model for
its Global Services business unit, to better focus on global business
development, drive vertical market solutions, and expand its services partner
ecosystem. Nortel is also investing in the evolution of its services tools and
core processes using a Lean Six Sigma approach. Regionally, Nortel
strengthened services delivery by establishing local accountability for skills
development and acquisition, sales effectiveness, and customer satisfaction.
This is expected to make Nortel more nimble in responding to the needs of
global enterprise customers like London-based Rolls-Royce and service
providers like India's Bharti Airtel Limited, each of which recently signed
long-term managed services agreements with Nortel.
In July, Nortel announced part of its strategy to drive new growth for
the business - a strategic alliance with Microsoft. The agreement spans
technology, marketing and business - and includes joint product development,
solutions and systems integration, and go-to-market initiatives for Unified
Communications.
About Nortel
Nortel is a recognized leader in delivering communications capabilities
that enhance the human experience, ignite and power global commerce, and
secure and protect the world's most critical information. Our next-generation
technologies, for both service providers and enterprises, span access and core
networks, support multimedia and business-critical applications, and help
eliminate today's barriers to efficiency, speed and performance by simplifying
networks and connecting people with information. Nortel does business in more
than 150 countries. For more information, visit Nortel on the Web at
www.nortel.com. For the latest Nortel news, visit www.nortel.com/news.
Certain statements in this press release may contain words such as
"could", "expects", "may", "anticipates", "believes", "intends", "estimates",
"targets", "envisions", "seeks" and other similar language and are considered
forward-looking statements or information under applicable securities
legislation. These statements are based on Nortel's current expectations,
estimates, forecasts and projections about the operating environment,
economies and markets in which Nortel operates. These statements are subject
to important assumptions, risks and uncertainties, which are difficult to
predict and the actual outcome may be materially different. Nortel has made
various assumptions in the preparation of its financial outlook in this press
release, including the following company specific assumptions: no further
negative impact to Nortel's results of operations, financial condition and
liquidity arising from Nortel's restatements of its financial results;
Nortel's prices increasing at or above the rate of price increases for similar
products in geographic regions in which Nortel sells its products; increase in
sales to Nortel's enterprise customers and wireless service provider customers
in the Asia Pacific region as a result of Nortel's joint venture with LG
Electronics Inc.; anticipated growth in sales to enterprise customers,
including the full year impact to Nortel's revenues from its acquisition of
PEC Solutions, Inc., (now Nortel Government Solutions Incorporated);
improvement in Nortel's product costs due to favorable supplier pricing
substantially offset by higher costs associated with initial customer
deployments in emerging markets; cost reductions resulting from the completion
of Nortel's significant financial restatements and 2004 restructuring plan; a
moderate increase in costs over 2005 related to investments in the finance
organization and remedial measures related to Nortel's material weaknesses in
internal controls; increased employee costs relative to expected cost of
living adjustments and employee bonuses offset by a significant reduction in
executive recruitment and severance costs incurred in 2005; and the effective
execution of Nortel's strategy. Nortel has also made certain macroeconomic and
general industry assumptions in the preparation of its financial guidance
including: a modest growth rate in the gross domestic product of global
economies in the range of 3.9% which is higher than the growth rate in 2005;
global service provider capital expenditures in 2006 reflecting mid to high
single digit growth as compared to low double digit growth in 2005; a general
increase in demand for broadband access, data traffic and wireless
infrastructure and services in emerging markets with the rate of growth in
developed markets beginning to slow; and a moderate impact as a result of
expected industry consolidation among service providers in various geographic
regions, particularly in North America and EMEA. The above assumptions,
although considered reasonable by Nortel at the date of this press release,
may prove to be inaccurate and consequently Nortel's actual results could
differ materially from its expectations set out in this press release.
Further, actual results or events could differ materially from those
contemplated in forward-looking statements as a result of the following (i)
risks and uncertainties relating to Nortel's restatements and related matters
including: Nortel's most recent restatement and two previous restatements of
its financial statements and related events; the negative impact on Nortel and
NNL of their most recent restatement and delay in filing their financial
statements and related periodic reports; legal judgments, fines, penalties or
settlements, or any substantial regulatory fines or other penalties or
sanctions, related to the ongoing regulatory and criminal investigations of
Nortel in the U.S. and Canada; any significant pending civil litigation
actions not encompassed by Nortel's proposed class action settlement; any
substantial cash payment and/or significant dilution of Nortel's existing
equity positions resulting from the approval of its proposed class action
settlement; any unsuccessful remediation of Nortel's material weaknesses in
internal control over financial reporting resulting in an inability to report
Nortel's results of operations and financial condition accurately and in a
timely manner; the time required to implement Nortel's remedial measures;
Nortel's inability to access, in its current form, its shelf registration
filed with the United States Securities and Exchange Commission (SEC), and
Nortel's below investment grade credit rating and any further adverse effect
on its credit rating due to Nortel's restatements of its financial statements;
any adverse affect on Nortel's business and market price of its publicly
traded securities arising from continuing negative publicity related to
Nortel's restatements; Nortel's potential inability to attract or retain the
personnel necessary to achieve its business objectives; any breach by Nortel
of the continued listing requirements of the NYSE or TSX causing the NYSE
and/or the TSX to commence suspension or delisting procedures; (ii) risks and
uncertainties relating to Nortel's business including: yearly and quarterly
fluctuations of Nortel's operating results; reduced demand and pricing
pressures for its products due to global economic conditions, significant
competition, competitive pricing practice, cautious capital spending by
customers, increased industry consolidation, rapidly changing technologies,
evolving industry standards, frequent new product introductions and short
product life cycles, and other trends and industry characteristics affecting
the telecommunications industry; the sufficiency of recently announced
restructuring actions, including the potential for higher actual costs to be
incurred in connection with these restructuring actions compared to the
estimated costs of such actions and the ability to achieve the targeted cost
savings and reductions of Nortel's unfunded pension liability deficit; any
material and adverse affects on Nortel's performance if its expectations
regarding market demand for particular products prove to be wrong or because
of certain barriers in its efforts to expand internationally; any reduction in
Nortel's operating results and any related volatility in the market price of
its publicly traded securities arising from any decline in its gross margin,
or fluctuations in foreign currency exchange rates; any negative developments
associated with Nortel's supply contract and contract manufacturing agreements
including as a result of using a sole supplier for key optical networking
solutions components, and any defects or errors in Nortel's current or planned
products; any negative impact to Nortel of its failure to achieve its business
transformation objectives, including completion of the sale of its UMTS access
business to Alcatel; additional valuation allowances for all or a portion of
its deferred tax assets; Nortel's failure to protect its intellectual property
rights, or any adverse judgments or settlements arising out of disputes
regarding intellectual property; changes in regulation of the Internet and/or
other aspects of the industry; Nortel's failure to successfully operate or
integrate its strategic acquisitions, or failure to consummate or succeed with
its strategic alliances; any negative effect of Nortel's failure to evolve
adequately its financial and managerial control and reporting systems and
processes, manage and grow its business, or create an effective risk
management strategy; and (iii) risks and uncertainties relating to Nortel's
liquidity, financing arrangements and capital including: the impact of
Nortel's most recent restatement and two previous restatements of its
financial statements; any inability of Nortel to manage cash flow fluctuations
to fund working capital requirements or achieve its business objectives in a
timely manner or obtain additional sources of funding; high levels of debt,
limitations on Nortel capitalizing on business opportunities because of
support facility covenants, or on obtaining additional secured debt pursuant
to the provisions of indentures governing certain of Nortel's public debt
issues and the provisions of its support facility; any increase of restricted
cash requirements for Nortel if it is unable to secure alternative support for
obligations arising from certain normal course business activities, or any
inability of Nortel's subsidiaries to provide it with sufficient funding; any
negative effect to Nortel of the need to make larger defined benefit plans
contributions in the future or exposure to customer credit risks or inability
of customers to fulfill payment obligations under customer financing
arrangements; any negative impact on Nortel's ability to make future
acquisitions, raise capital, issue debt and retain employees arising from
stock price volatility and further declines in the market price of Nortel's
publicly traded securities, or the planned share consolidation resulting in a
lower total market capitalization or adverse effect on the liquidity of
Nortel's common shares. For additional information with respect to certain of
these and other factors, see Nortel's Annual Report on Form 10-K/A, Quarterly
Report on Form 10-Q and other securities filings with the SEC. Unless
otherwise required by applicable securities laws, Nortel disclaims any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
<<
(xx) Nortel, the Nortel logo and the Globemark are trademarks of Nortel
Networks.
Nortel will host a teleconference/audio webcast to discuss
Third Quarter 2006 Results.
TIME: 8:00 AM - 9:00 AM EDT on Tuesday, November 7th, 2006
To participate, please call the following at least 15 minutes prior to
the start of the event.
Teleconference: Webcast:
North America: 1-888-211-4395 http://www.nortel.com/q3earnings2006
International: 1-416-620-2417
Replay:
(Available one hour after the conference call)
North America: 1-800-383-0935 Passcode: 21307163
followed by the number sign
International: 1-402-530-5545 Passcode: 21307163
followed by the number sign
Webcast: http://www.nortel.com/q3earnings2006
NORTEL NETWORKS CORPORATION
Condensed Consolidated Statements of Operations (unaudited)
(U.S. GAAP; Millions of U.S. dollars, except per share amounts)
Three months ended Nine months ended
-------------------------------- ---------------------
September June 30, September September September
30, 2006 2006 30, 2005 30, 2006 30, 2005
-------------------------------- ---------------------
As As
restated restated
Revenues:
Products $ 2,640 $ 2,421 $ 2,193 $ 7,141 $ 6,684
Services 315 323 325 940 842
-------------------------------- ---------------------
Total revenues 2,955 2,744 2,518 8,081 7,526
-------------------------------- ---------------------
Cost of Revenues:
Products 1,646 1,502 1,350 4,453 3,941
Services 184 176 190 529 461
-------------------------------- ---------------------
Total cost of
revenues 1,830 1,678 1,540 4,982 4,402
-------------------------------- ---------------------
Gross profit 1,125 1,066 978 3,099 3,124
Selling, general
and administrative
expense 605 596 567 1,796 1,733
Research and
development expense 480 489 443 1,447 1,405
Amortization of
intangibles 8 6 7 19 11
In-process research
and development
expense - 16 - 16 -
Special charges 25 45 39 75 145
(Gain) loss on sale
of businesses and
assets (16) 10 3 (41) 36
Shareholder litigation
settlement (recovery) 38 (510) - (453) -
-------------------------------- ---------------------
Operating earnings
(loss) (15) 414 (81) 240 (206)
Other income - net 51 51 53 171 181
Interest expense
Long-term debt (85) (59) (54) (190) (155)
Other (20) (11) (3) (55) (7)
-------------------------------- ---------------------
Earnings (loss) from
continuing operations
before income taxes,
minority interests
and equity in net
earnings (loss) of
associated companies (69) 395 (85) 166 (187)
Income tax expense (9) (27) (39) (59) (46)
-------------------------------- ---------------------
(78) 368 (124) 107 (233)
Minority interests
- net of tax (19) 1 (15) (9) (46)
Equity in net
earnings (loss)
of associated
companies -
net of tax (2) (3) 1 (7) 3
-------------------------------- ---------------------
Net earnings (loss)
from continuing
operations (99) 366 (138) 91 (276)
Net earnings (loss)
from discontinued
operations -
net of tax - - 2 - 3
-------------------------------- ---------------------
Net earnings (loss)
before cumulative
effect of accounting
change (99) 366 (136) 91 (273)
Cumulative effect
of accounting
change - net
of tax - - - 9 -
-------------------------------- ---------------------
Net earnings
(loss) $ (99) $ 366 $ (136) $ 100 $ (273)
-------------------------------- ---------------------
-------------------------------- ---------------------
Average shares
outstanding
(millions) -
Basic 4,339 4,339 4,339 4,339 4,338
Average shares
outstanding
(millions) -
Diluted 4,339 4,340 4,339 4,340 4,338
Basic and diluted
earnings (loss)
per common share
- from continuing
operations $ (0.02) $ 0.08 $ (0.03) $ 0.02 $ (0.06)
- from discontinued
operations 0.00 0.00 0.00 0.00 0.00
-------------------------------- ---------------------
Basic earnings
(loss) per common
share $ (0.02) $ 0.08 $ (0.03) $ 0.02 $ (0.06)
-------------------------------- ---------------------
-------------------------------- ---------------------
NORTEL NETWORKS CORPORATION
Condensed Consolidated Balance Sheets (unaudited)
(U.S. GAAP; Millions of U.S. dollars, except for share amounts)
----------------------------------------
September 30, June 30, December 31,
2006 2006 2005
------------- ------------ -------------
ASSETS
Current assets
Cash and cash equivalents $ 2,600 $ 1,904 $ 2,951
Restricted cash and cash
equivalents 628 646 77
Accounts receivable - net 2,804 2,785 2,862
Inventories - net 1,834 2,035 1,804
Deferred income taxes - net 405 348 377
Other current assets 755 833 796
------------- ------------ -------------
Total current assets 9,026 8,551 8,867
Investments 211 209 244
Plant and equipment - net 1,559 1,574 1,564
Goodwill 2,589 2,588 2,592
Intangible assets - net 184 205 172
Deferred income taxes - net 3,651 3,728 3,629
Other assets 979 971 1,044
------------- ------------ -------------
Total assets $ 18,199 $ 17,826 $ 18,112
------------- ------------ -------------
------------- ------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade and other accounts payable $ 949 $ 1,065 $ 1,180
Payroll and benefit-related
liabilities 793 861 801
Contractual liabilities 233 258 346
Restructuring liabilities 93 111 95
Other accrued liabilities 4,356 4,517 4,200
Long-term debt due within one year 18 18 1,446
------------- ------------ -------------
Total current liabilities 6,442 6,830 8,068
Long-term debt 4,446 3,752 2,439
Deferred income taxes - net 107 107 104
Other liabilities 5,147 5,238 5,935
------------- ------------ -------------
Total liabilities 16,142 15,927 16,546
------------- ------------ -------------
Minority interests in subsidiary
companies 742 738 780
SHAREHOLDERS' EQUITY
Common shares, without par value -
Authorized shares: unlimited;
Issued and outstanding shares:
4,339,356,226 as of
September 30, 2006,
4,339,368,770 as of
June 30, 2006 and
4,339,162,932 as of
December 31, 2005 33,936 33,932 33,932
Additional paid-in capital 3,352 3,326 3,281
Accumulated deficit (35,425) (35,326) (35,525)
Accumulated other
comprehensive loss (548) (771) (902)
------------- ------------ -------------
Total shareholders' equity 1,315 1,161 786
------------- ------------ -------------
Total liabilities and
shareholders' equity $ 18,199 $ 17,826 $ 18,112
------------- ------------ -------------
------------- ------------ -------------
NORTEL NETWORKS CORPORATION
Condensed Consolidated Statements of Cash Flows (unaudited)
(U.S. GAAP; Millions of U.S. dollars)
Three months ended Nine months ended
-------------------------------- ---------------------
September June 30, September September September
30, 2006 2006 30, 2005 30, 2006 30, 2005
-------------------------------- ---------------------
As As
restated restated
Cash flows from
(used in) operating
activities
Net earnings
(loss) $ (99) $ 366 $ (136) $ 100 $ (273)
Adjustments to
reconcile net
earnings (loss)
to net cash from
(used in) operating
activities from
continuing
operations, net
of effects from
acquisitions and
divestitures of
businesses:
Amortization and
depreciation 86 76 73 222 233
Non-cash portion
of shareholder
litigation
settlement
expense (recovery) 38 (510) - (453) -
Non-cash portion
of special
charges and
related asset
write downs 12 - 1 12 3
Non-cash portion
of in-process
research and
development
expense - 16 - 16 -
Equity in net
(earnings)
loss of
associated
companies 2 3 (1) 7 (3)
Stock option
compensation 30 28 22 83 58
Deferred income
taxes 20 38 44 74 56
Cumulative effect
of accounting
change - - - (9) -
Net (earnings)
loss from
discontinued
operations - - (2) - (3)
Other liabilities 81 86 75 240 256
(Gain) loss on
sale or write
down of
investments,
businesses and
assets (9) 8 3 (35) 20
Other - net 40 183 70 326 (7)
Change in operating
assets and
liabilities (247) (402) (293) (911) (637)
-------------------------------- ---------------------
Net cash from
(used in) operating
activities of
continuing
operations (46) (108) (144) (328) (297)
-------------------------------- ---------------------
Cash flows from
(used in) investing
activities
Expenditures for
plant and
equipment (83) (78) (52) (260) (176)
Proceeds on
disposals of
plant and
equipment 36 2 - 125 10
Restricted cash
and cash
equivalents - net 21 (570) - (546) 9
Acquisitions of
investments and
businesses - net
of cash acquired (9) (4) (1) (134) (449)
Proceeds on sale
of investments
and businesses 88 81 141 199 308
-------------------------------- ---------------------
Net cash from
(used in) investing
activities of
continuing
operations 53 (569) 88 (616) (298)
-------------------------------- ---------------------
Cash flows from
(used in) financing
activities
Dividends paid
by subsidiaries
to minority
interests (15) (13) (9) (46) (33)
Increase in
notes payable 61 23 21 88 59
Decrease in
notes payable (18) (9) (18) (30) (64)
Proceeds from
issuance of
long-term debt 2,000 - - 3,300 -
Repayment of
long-term debt (1,300) (150) - (2,725) -
Debt issuance
cost (42) - - (42) -
Decrease in
capital leases
payable (3) (4) (3) (12) (8)
Issuance of
common shares - - 3 1 4
-------------------------------- ---------------------
Net cash from
(used in) financing
activities of
continuing
operations 683 (153) (6) 534 (42)
-------------------------------- ---------------------
Effect of foreign
exchange rate
changes on cash
and cash equivalents 6 39 (1) 59 (86)
-------------------------------- ---------------------
Net cash from
(used in) continuing
operations 696 (791) (63) (351) (723)
Net cash from
(used in) operating
activities of
discontinued
operations - - - - 34
-------------------------------- ---------------------
Net increase
(decrease) in
cash and cash
equivalents 696 (791) (63) (351) (689)
Cash and cash
equivalents at
beginning of period 1,904 2,695 3,059 2,951 3,685
-------------------------------- ---------------------
Cash and cash
equivalents at
end of period $ 2,600 $ 1,904 $ 2,996 $ 2,600 $ 2,996
-------------------------------- ---------------------
-------------------------------- ---------------------
NORTEL NETWORKS CORPORATION
Consolidated Financial Information (unaudited)
(U.S. GAAP; Millions of U.S. dollars)
Segmented revenues
The following table summarizes our revenue by reportable segment for:
Three months ended Nine months ended
-------------------------------- ---------------------
September June 30, September September September
30, 2006 2006 30, 2005 30, 2006 30, 2005
-------------------------------- ---------------------
As As
restated restated
Revenues
Mobility and
Converged Core
Networks $ 1,540 $ 1,433 $ 1,251 $ 4,255 $ 3,953
Enterprise Solutions 609 475 534 1,523 1,608
Metro Ethernet
Networks 430 465 363 1,201 998
Global Services 316 309 305 916 883
-------------------------------- ---------------------
Total reportable
segments 2,895 2,682 2,453 7,895 7,442
Other 60 62 65 186 84
-------------------------------- ---------------------
Total revenues $ 2,955 $ 2,744 $ 2,518 $ 8,081 $ 7,526
-------------------------------- ---------------------
-------------------------------- ---------------------
Geographic revenues
The following table summarizes our geographic revenues based on the
location of the customer for:
Three months ended Nine months ended
-------------------------------- ---------------------
September June 30, September September September
30, 2006 2006 30, 2005 30, 2006 30, 2005
-------------------------------- ---------------------
As As
restated restated
Revenues
United States $ 1,311 $ 1,114 $ 1,254 $ 3,557 $ 3,846
EMEA(a) 809 894 618 2,334 1,956
Canada 224 139 160 522 438
Asia 474 449 312 1,224 861
CALA(b) 137 148 174 444 425
-------------------------------- ---------------------
Total revenues $ 2,955 $ 2,744 $ 2,518 $ 8,081 $ 7,526
-------------------------------- ---------------------
-------------------------------- ---------------------
(a) Europe, Middle East and Africa
(b) Caribbean and Latin America
Network Solutions revenues
The following table summarizes our revenues by category of network
solutions for each of our reportable segments for:
Three months ended Nine months ended
-------------------------------- ---------------------
September June 30, September September September
30, 2006 2006 30, 2005 30, 2006 30, 2005
-------------------------------- ---------------------
As As
restated restated
Revenues
Mobility and
Converged Core
Networks
CDMA solutions $ 704 $ 542 $ 514 $ 1,722 $ 1,606
GSM and UMTS
solutions 563 664 522 1,796 1,704
Circuit and
packet voice
solutions 273 227 215 737 643
-------------------------------- ---------------------
1,540 1,433 1,251 4,255 3,953
Enterprise Solutions
Circuit and
packet voice
solutions 430 321 357 1,054 1,122
Data networking
and security
solutions 179 154 177 469 486
-------------------------------- ---------------------
609 475 534 1,523 1,608
Metro Ethernet
Networks
Optical
networking
solutions 312 295 259 828 709
Data networking
and security
solutions 118 170 104 373 289
-------------------------------- ---------------------
430 465 363 1,201 998
Global Services 316 309 305 916 883
Other 60 62 65 186 84
-------------------------------- ---------------------
Total revenues $ 2,955 $ 2,744 $ 2,518 $ 8,081 $ 7,526
-------------------------------- ---------------------
-------------------------------- ---------------------
NORTEL NETWORKS CORPORATION
Consolidated Financial Information (unaudited)
(U.S. GAAP; Millions of U.S. dollars)
Segmented revenues
The following table summarizes our historical revenue reflecting the new
reportable segments:
Three months ended
----------------------------------------------
2005
----------------------------------------------
March 31 June 30 September 30 December 31
----------------------------------------------
As As As
restated restated restated
Revenues
Mobility and Converged Core
Networks
CDMA solutions $ 505 $ 587 $ 514 $ 577
GSM and UMTS solutions 673 509 522 884
Circuit and packet
voice solutions 191 237 215 255
----------------------------------------------
1,369 1,333 1,251 1,716
Enterprise Solutions
Circuit and packet voice
solutions 308 457 357 355
Data networking and
security solutions 157 152 177 147
----------------------------------------------
465 609 534 502
Metro Ethernet Networks
Optical networking
solutions 198 252 259 309
Data networking and
security solutions 91 94 104 120
----------------------------------------------
289 346 363 429
Global Services 265 313 305 287
Other 1 18 65 63
----------------------------------------------
Total revenues $ 2,389 $ 2,619 $ 2,518 $ 2,997
----------------------------------------------
----------------------------------------------
Three months ended
----------------------------------
2006
----------------------------------
March 31 June 30 September 30
----------------------------------
Revenues
Mobility and Converged Core
Networks
CDMA solutions $ 476 $ 542 $ 704
GSM and UMTS solutions 569 664 563
Circuit and packet
voice solutions 237 227 273
----------------------------------
1,282 1,433 1,540
Enterprise Solutions
Circuit and packet voice
solutions 303 321 430
Data networking and
security solutions 136 154 179
----------------------------------
439 475 609
Metro Ethernet Networks
Optical networking
solutions 221 295 312
Data networking and
security solutions 85 170 118
----------------------------------
306 465 430
Global Services 291 309 316
Other 64 62 60
----------------------------------
Total revenues $ 2,382 $ 2,744 $ 2,955
----------------------------------
----------------------------------
MCCN provides mobility networking solutions using (i) CDMA solutions, and
GSM and UMTS solutions and (ii) carrier circuit and packet voice
solutions. MEN combines our optical networking solutions and the carrier
portion of our data networking solutions. ES provides (i) enterprise
circuit and packet voice solutions, and (ii) data networking and security
solutions, which supply data, voice and multimedia communications
solutions to our enterprise customers and software solutions for multi-
media messaging, conferencing and call centers. GS provides a broad range
of services to address the requirements of our carrier and enterprise
customers and is organized into four main service groups; (i) Network
implementation services (Network integration, planning, installation,
optimization and security services), (ii) Network Support Services
(Technical support, hardware maintenance, equipment spares logistics and
on-site engineers), (iii) Network managed services (Monitor and manage
customer networks and provide a range of network managed service options)
and (iv) Network Application Services (Applications development,
integration and web services).
Revenue from networking services consisting of planning, engineering and
installation are generally bundled with product sales and are not
currently included in the revenues of GS.
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