Nortel

Nortel

March 18, 2005 21:59 ET

Nortel Files Third Quarter 2004 Financial Statements


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: NORTEL

NYSE, TSX SYMBOL: NT

MARCH 18, 2005 - 21:59 ET

Nortel Files Third Quarter 2004 Financial Statements

TORONTO--(CCNMatthews - Mar 18, 2005) -

Nortel Networks Corporation (NYSE:NT)(TSX:NT) today announced that it
and its principal operating subsidiary, Nortel Networks Limited ("NNL"),
have filed their unaudited financial statements for the third quarter of
2004 prepared in accordance with United States generally accepted
accounting principles, and related Quarterly Reports on Form 10-Q and
corresponding Canadian filings. Annexed to this press release is certain
selected unaudited financial information of the Company for such
quarterly period.

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. Serving both
service provider and enterprise customers, Nortel delivers innovative
technology solutions encompassing end-to-end broadband, Voice over IP,
multimedia services and applications, and wireless broadband designed to
help people solve the world's greatest challenges. 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 information included in this press release is forward-looking
and is subject to important risks and uncertainties. The results or
events predicted in these statements may differ materially from actual
results or events.

Factors which could cause results or events to differ from current
expectations include, among other things: the outcome of regulatory and
criminal investigations and civil litigation actions related to Nortel's
restatements and the impact any resulting legal judgments, settlements,
penalties and expenses could have on Nortel's results of operations,
financial condition and liquidity; the findings of Nortel's independent
review and implementation of recommended remedial measures; the outcome
of the independent review with respect to revenues for specific
identified transactions, which review will have a particular emphasis on
the underlying conduct that led to the initial recognition of these
revenues; the restatement or revisions of Nortel's previously announced
or filed financial results and resulting negative publicity; the
existence of material weaknesses in Nortel's internal controls over
financial reporting; the impact of Nortel's and NNL's failure to timely
file their financial statements and related periodic reports, including
breach of its support facility and public debt obligations and Nortel's
inability to access its shelf registration statement filed with the
United States Securities and Exchange Commission ("SEC"); ongoing SEC
reviews, which may result in changes to our public filings; the
potential delisting or suspension of Nortel's and NNL's publicly traded
securities; the impact of management changes, including the termination
for cause of Nortel's former CEO, CFO and Controller in April 2004; the
sufficiency of Nortel's restructuring activities, including the work
plan announced on August 19, 2004 as updated on September 30, 2004,
including the potential for higher actual costs to be incurred in
connection with restructuring actions compared to the estimated costs of
such actions;

cautious or reduced spending by Nortel's customers; fluctuations in
Nortel's operating results and general industry, economic and market
conditions and growth rates; fluctuations in Nortel's cash flow, level
of outstanding debt and current debt ratings; Nortel's ability to
recruit and retain qualified employees; the use of cash collateral to
support Nortel's normal course business activities; the dependence on
Nortel's subsidiaries for funding; the impact of Nortel's defined
benefit plans and deferred tax assets on results of operations and
Nortel's cash flow; the adverse resolution of class actions, litigation
in the ordinary course of business, intellectual property disputes and
similar matters; Nortel's dependence on new product development and its
ability to predict market demand for particular products; Nortel's
ability to integrate the operations and technologies of acquired
businesses in an effective manner; the impact of rapid technological and
market change; the impact of price and product competition; barriers to
international growth and global economic conditions, particularly in
emerging markets and including interest rate and currency exchange rate
fluctuations; the impact of rationalization and consolidation in the
telecommunications industry; changes in regulation of the Internet; the
impact of the credit risks of Nortel's customers and the impact of
customer financing and commitments; stock market volatility generally
and as a result of acceleration of the settlement date or early
settlement, which is currently not available, of Nortel's forward
purchase contracts; the impact of Nortel's supply and outsourcing
contracts that contain delivery and installation provisions, which, if
not met, could result in the payment of substantial penalties or
liquidated damages; and the future success of Nortel's strategic
alliances.

For additional information with respect to certain of these and other
factors, see the most recent Annual Report on Form 10-K and Quarterly
Report on Form 10-Q filed by Nortel 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.

Nortel, the Nortel logo and the Globemark are trademarks of Nortel.



NORTEL NETWORKS CORPORATION
Consolidated Statements of Operations (unaudited)

Three months ended Nine months ended
September 30, September 30,
-------------------- -----------------
(US GAAP; millions of U.S.
dollars, except per share
amounts) 2004 2003 2004 2003
--------- ---------- ------- ---------
As As
restated restated

Revenues $2,179 $2,344 $7,213 $6,927
Cost of revenues 1,393 1,214 4,319 4,020
--------- ---------- ------- ---------
Gross profit 786 1,130 2,894 2,907

Selling, general and
administrative expense 512 527 1,596 1,458
Research and development
expense 501 455 1,465 1,440
Amortization of acquired
technology and other 2 32 7 98
Deferred stock option
compensation - 1 - 16
Special charges 93 80 99 198
(Gain) loss on sale of
businesses and assets (39) (17) (114) (6)
--------- ---------- ------- ---------
Operating earnings (loss) (283) 52 (159) (297)

Other income (expense) - net 44 148 112 302
Interest expense
Long-term debt (45) (45) (132) (136)
Other (3) (8) (18) (22)
--------- ---------- ------- ---------
Earnings (loss) from continuing
operations before income
taxes, minority interests and
equity in net loss of
associated companies (287) 147 (197) (153)
Income tax benefit (expense) 30 (36) 32 4
--------- ---------- ------- ---------
(257) 111 (165) (149)
Minority interests - net of tax (7) (10) (29) (52)
Equity in net loss of associated
companies - net of tax - (13) (2) (38)
--------- ---------- ------- ---------
Net earnings (loss) from
continuing operations (264) 88 (196) (239)
Net earnings (loss) from
discontinued operations - net
of tax 5 43 12 157
--------- ---------- ------- ---------
Net earnings (loss) before
cumulative effect of
accounting change (259) 131 (184) (82)
Cumulative effect of accounting
change - net of tax - - - (12)
--------- ---------- ------- ---------
Net earnings (loss) $(259) $131 $(184) $(94)
--------- ---------- ------- ---------

Basic earnings (loss) per
common share
- from continuing operations $(0.06) $0.02 $(0.04) $(0.06)
- from discontinued operations 0.00 0.01 0.00 0.04
--------- ---------- ------- ---------
Basic earnings (loss) per
common share $(0.06) $0.03 $(0.04) $(0.02)
--------- ---------- ------- ---------
Diluted earnings (loss) per
common share
- from continuing operations $(0.06) $0.02 $(0.04) $(0.06)
- from discontinued operations 0.00 0.01 0.00 0.04
--------- ---------- ------- ---------
Diluted earnings (loss) per
common share $(0.06) $0.03 $(0.04) $(0.02)
--------- ---------- ------- ---------

Please refer to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 including the Notes to the Consolidated
Financial Statements (unaudited) and Management's Discussion and
Analysis of Financial Condition and Results of Operations.





NORTEL NETWORKS CORPORATION
Consolidated Balance Sheets (unaudited)

September 30, December 31,
(US GAAP; millions of U.S. dollars) 2004 2003
----------------------------------- --------------- ------------

ASSETS
Current assets
Cash and cash equivalents $3,390 $3,997
Restricted cash and cash equivalents 77 63
Accounts receivable - net 2,134 2,505
Inventories - net 1,503 1,190
Income taxes recoverable 53 90
Deferred income taxes - net 229 369
Other current assets 312 315
------------- ------------
Total current assets 7,698 8,529

Investments 170 244
Plant and equipment - net 1,591 1,656
Goodwill 2,304 2,305
Intangible assets - net 79 86
Deferred income taxes - net 3,610 3,397
Other assets 337 374
------------- ------------
Total assets $15,789 $16,591
------------- ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $13 $17
Trade and other accounts payable 703 861
Payroll and benefit-related liabilities 507 764
Contractual liabilities 636 530
Restructuring liabilities 190 206
Other accrued liabilities 2,400 2,505
Long-term debt due within one year 13 119
------------- ------------
Total current liabilities 4,462 5,002

Long-term debt 3,862 3,891
Deferred income taxes - net 170 191
Other liabilities 2,938 2,945
------------- ------------
Total liabilities 11,432 12,029
------------- ------------

Minority interests in subsidiary companies 619 617

Commitments and contingencies

SHAREHOLDERS' EQUITY
Common shares, without par value - Authorized
shares: unlimited; Issued and outstanding
shares: 4,272,671,213 as of
September 30, 2004 and 4,166,714,475 as
of December 31, 2003 33,840 33,674
Additional paid-in capital 3,261 3,341
Accumulated deficit (32,716) (32,532)
Accumulated other comprehensive loss (647) (538)
-------------------------
Total shareholders' equity 3,738 3,945
-------------------------
Total liabilities and shareholders' equity $15,789 $16,591
-------------------------

Please refer to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 including the Notes to the Consolidated
Financial Statements (unaudited) and Management's Discussion and
Analysis of Financial Condition and Results of Operations.





NORTEL NETWORKS CORPORATION
Consolidated Statements of Cash Flows (unaudited)
-------------------------------------------------

Nine months ended September 30,
-------------------------------
(US GAAP; millions of U.S. dollars) 2004 2003
----------------------------------- -------------- ----------------
As restated
Cash flows from (used in) operating
activities
Net earnings (loss) from continuing
operations $(196) $(239)
Adjustments to reconcile net earnings
(loss) from continuing operations to
net cash from (used in) operating
activities, net of effects from
acquisitions and divestitures of
businesses:
Amortization and depreciation 260 429
Non-cash portion of special charges
and related asset write downs - 87
Equity in net loss of associated
companies 2 38
Stock option compensation 55 35
Deferred income taxes (12) (17)
Other liabilities 190 94
Gain on repurchases of outstanding
debt securities - (4)
(Gain) loss on sale or write down of
investments and businesses (147) (8)
Other - net (288) (618)
Change in operating assets and
liabilities (325) (82)
-------------- ----------------
Net cash from (used in) operating
activities of continuing operations (461) (285)
-------------- ----------------

Cash flows from (used in) investing
activities
Expenditures for plant and equipment (194) (105)
Proceeds on disposals of plant and
equipment 10 22
Acquisitions of investments and
businesses - net of cash acquired (7) (53)
Proceeds on sale of investments and
businesses 143 51
-------------- ----------------
Net cash from (used in) investing
activities of continuing operations (48) (85)
-------------- ----------------

Cash flows from (used in) financing
activities
Increase (decrease) in notes payable -
net (2) (39)
Repayments of long-term debt (107) (267)
Repayments of capital leases payable (5) (9)
Dividends paid by subsidiaries to
minority interests (24) (26)
Issuance of common shares 30 2
-------------- ----------------
Net cash from (used in) financing
activities of continuing operations (108) (339)
-------------- ----------------
Effect of foreign exchange rate
changes on cash and cash equivalents (6) 97
-------------- ----------------
Net cash from (used in) continuing
operations (623) (612)
Net cash from (used in) discontinued
operations 16 389
-------------- ----------------
Net increase (decrease) in cash and
cash equivalents (607) (223)
Cash and cash equivalents at beginning
of period 3,997 3,790
-------------- ----------------
Cash and cash equivalents at end of
period $3,390 $3,567
-------------- ----------------

Please refer to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 including the Notes to the Consolidated
Financial Statements (unaudited) and Management's Discussion and
Analysis of Financial Condition and Results of Operations.





Segment revenues

The following table summarizes our revenues for the three and nine
months ended September 30, 2004 and 2003, respectively, by segment:


(US GAAP; millions For the three months ended September 30,
of U.S. dollars) 2004 2003 $Change % Change
------------------------ ----------- --------- ----------- ---------

Wireless Networks $1,054 $1,111 $(57) (5)
Enterprise Networks 591 545 46 8
Wireline Networks 379 423 (44) (10)
Optical Networks 155 260 (105) (40)
Other (a) - 5 (5) (100)
------------------------ ----------- --------- ----------- ---------
Consolidated $2,179 $2,344 $(165) (7)
------------------------ ----------- --------- ----------- ---------

(US GAAP; millions For the nine months ended September 30,
of U.S. dollars) 2004 2003 $Change % Change
------------------------ ----------- --------- ---------- ---------

Wireless Networks $3,560 $2,953 $607 21
Enterprise Networks 1,703 1,650 53 3
Wireline Networks 1,262 1,433 (171) (12)
Optical Networks 680 865 (185) (21)
Other (a) 8 26 (18) (69)
------------------------ ----------- --------- ---------- ---------
Consolidated $7,213 $6,927 $286 4
------------------------ ----------- --------- ---------- ---------

(a) "Other" represented miscellaneous business activities and
corporate functions.





Geographic revenues

The following table summarizes our geographic revenues for the three
and nine months ended September 30, 2004 and 2003, respectively, based
on the location of the customer:

(US GAAP; millions For the three months ended September 30,
of U.S. dollars) 2004 2003 $Change % Change
-------------------- ------------ --------- --------- ---------

United States $1,114 $1,175 $(61) (5)
EMEA (a) 581 545 36 7
Canada 122 124 (2) (2)
Asia Pacific 227 360 (133) (37)
CALA (b) 135 140 (5) (4)
-------------------- ------------ --------- --------- ---------
Consolidated $2,179 $2,344 $(165) (7)
-------------------- ------------ --------- --------- ---------

(US GAAP; millions For the nine months ended September 30,
of U.S. dollars) 2004 2003 $Change % Change
--------------------- ----------- --------- --------- ---------

United States $3,653 $3,483 $170 5
EMEA (a) 1,820 1,680 140 8
Canada 413 389 24 6
Asia Pacific 904 992 (88) (9)
CALA (b) 423 383 40 10
--------------------- ----------- --------- --------- ---------
Consolidated $7,213 $6,927 $286 4
--------------------- ----------- --------- --------- ---------

(a) The Europe, Middle East and Africa region, or EMEA.

(b) The Caribbean and Latin America region, or CALA.

Please refer to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 including the Notes to the Consolidated
Financial Statements (unaudited) and Management's Discussion and
Analysis of Financial Condition and Results of Operations.



The table below sets forth selected unaudited results for the third
quarter of 2004. Also provided are the previously announced limited
unaudited estimates for the third quarter of 2004.



(billions of U.S. dollars, except per share amounts)

Q3 2004
-----------------------------
Previously
Announced
Estimates As Reported

Revenue 2.27 2.179

Gross Margin $ 0.84 0.786
% 37% 36%

SG&A
1.05 1.013
R&D

(L)EPS Cont. Ops. (0.06) (0.06)
(L)EPS Disc. Ops. 0.00 0.00
(L)EPS (0.06) (0.O6)
---------- ----------
Cash 3.4 3.390
---------- ----------

Please refer to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 including the Notes to the Consolidated
Financial Statements (unaudited) and Management's Discussion and
Analysis of Financial Condition and Results of Operations.



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