Nortel
NYSE : NT
TSX : NT

Nortel

May 02, 2008 06:01 ET

Nortel Reports Financial Results for the First Quarter 2008

- Revenue up 11 percent, benefiting from the completion of an LG-Nortel joint venture contract - Gross margin at 41.6 percent, up 120 bps from prior year period - Operating margin at 4.7 percent, up 512 bps from prior year period - Reiterates full year guidance

TORONTO, ONTARIO--(Marketwire - May 2, 2008) - Nortel(1) Networks Corporation (TSX:NT)(NYSE:NT) announced its results for first quarter 2008, which demonstrated continued progress against the Company's turnaround strategy. Strong operational progress in margins combined with steady revenue growth kept Nortel on track to meet full year goals. Results were prepared in accordance with United States generally accepted accounting principles (GAAP) in U.S. dollars.

"Nortel had a strong first quarter, driven by the completion of a contract in our LG-Nortel joint venture and continued improvements in gross and operating margins. Nortel's operating margin, a critical measure of our plan's traction, expanded for the seventh consecutive quarter year over year, recording a 512 bps improvement to 4.7 percent," said Mike Zafirovski, Nortel president and chief executive officer. "We expect to achieve our full year guidance and we continue to make solid progress against the strategy to turn around the company. Our relentless focus on execution and our determination to deliver value to customers is strengthening the foundation upon which to build our performance over the balance of 2008 and beyond."

2008 Financial Highlights

- Revenue in the first quarter of $2.76 billion, up by 11 percent year over year, which included a release of deferred revenue associated with the completion of a significant contract in the LG-Nortel joint venture that was previously expected to occur in the second quarter.

- Gross margin in the first quarter of 41.6 percent, up 120 basis points year over year.

- Operating margin in the first quarter of 4.7 percent, up 512 basis points year over year.

- Cash balance, as at March 31, 2008 of $3.22 billion, included a seasonal outflow of cash from operations in the quarter of $260 million, in-line with the 2008 target.

Business Highlights

- Nortel launched the industry's first 40/100G solution - a significant technology milestone enabling four times the network throughput immediately, while providing the foundation to simply and affordably increase capacity tenfold, as required. This equips carriers to keep pace with dramatically increasing demand from high bandwidth applications. Also, Nortel won two related contracts with Neos and TDC; and in a technology first, conducted a live 100G network trial with Comcast.

- Customers such as CTM in Macau, Intercontinental in San Francisco and RMIT University in Australia came to Nortel for unified communications solutions that will help them streamline communication and enhance business processes.

- Nortel won a 4G contract with Charles Street Partners to bring wireless broadband to rural citizens of Florida and Arizona, and secured a trial agreement with Loxley of Thailand to demonstrate mobile VoIP, high-definition video and other interactive applications. In addition, Nortel achieved several technology milestones, including, with LG Electronics, the world's first demo of mobile LTE while traveling in a vehicle at 110 kilometers per hour with data rates of up to 50 Mbps, fast enough to support mobile multimedia applications.

- Market demand for 2G and 3G infrastructure continued and Nortel won key deals with operators around the world, including a $100 million contract with India's BSNL and a five-year contract extension with US Cellular.

- Nortel also announced a telepresence and video conferencing resale agreement with TANDBERG, further enabling the delivery of a fully-managed telepresence solution with an open-architecture, a key competitive differentiator, to help businesses decrease their travel costs, increase their productivity and significantly reduce their carbon footprint.

Revenue

Revenue was $2.76 billion for the first quarter of 2008 compared to $2.48 billion for the first quarter of 2007 and $3.20 billion for the fourth quarter of 2007. In the first quarter of 2008, revenue increased by 11 percent compared with the year ago quarter and decreased by 14 percent compared to the fourth quarter of 2007. The first quarter of 2008 included the release of deferred revenue associated with the completion of a large contract in the LG-Nortel joint venture.



Revenue B/(W)

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----------------------------------------------------------------
Q1 2008 YoY QoQ
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Carrier Networks $1,218 21% (10%)
Enterprise Solutions $ 641 7% (16%)
Global Services $ 516 15% (15%)
Metro Ethernet Networks $ 327 (12%) (24%)
Other $ 56 0% 0%
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Total $2,758 11% (14%)
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Carrier Networks (CN) revenue in the first quarter of 2008 was $1,218 million, an increase of 21 percent compared with the year ago quarter and a decrease of 10 percent sequentially. Compared to the year ago quarter, CN revenue benefited from the LG-Nortel joint venture contract completion, partially offset by a slight decline in CDMA and lower legacy switching sales.

Enterprise Solutions (ES) revenue in the first quarter of 2008 was $641 million, an increase of 7 percent compared with the year ago quarter and a decrease of 16 percent sequentially. Compared to the year ago quarter, ES revenues were positively impacted by higher voice and applications revenues, primarily from customer migration to unified communications, partially offset by a decline in the data networking business primarily from lower sales in the North American and EMEA regions and significant contract completions in the first quarter of 2007, not repeated to the same extent in the first quarter of 2008.

Global Services (GS) revenue in the first quarter of 2008 was $516 million, an increase of 15 percent compared with the year ago quarter and a decrease of 15 percent sequentially. The first quarter showed strong growth in network implementation services and managed services, partially offset by a decline in network support services. Compared to the year ago quarter, GS revenue benefited from the LG-Nortel joint venture contract completion and other growth in implementation services primarily in the Asia region.

Metro Ethernet Networks (MEN) revenue in the first quarter of 2008 was $327 million, a decrease of 12 percent compared with the year ago quarter and a decrease of 24 percent sequentially. The year over year decrease in revenue was primarily due to decreases in optical and data revenue resulting from the completion of large contracts in the first quarter of 2007 not repeated to the same extent in the first quarter of 2008.

Deferred Revenue

Deferred revenue balances decreased by $266 million during the first quarter of 2008 compared to an increase of $32 million in the first quarter of 2007.

Gross margin

Gross margin was 41.6 percent of revenue in the first quarter of 2008. This compared to gross margin of 40.4 percent for the first quarter of 2007 and 43.7 percent for the fourth quarter of 2007. Compared to the first quarter of 2007, gross margins benefited primarily from productivity improvements partially offset by unfavourable product mix and lower margin deferred revenue releases.

Operating Expenses



Operating Expenses B/(W)

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Q1 2008 YoY QoQ
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SG&A $ 597 1% 12%
R&D $ 420 (3%) 12%
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Total Operating Expenses $1,017 (0%) 12%
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% of Revenue 36.9% 394 bps (82 bps)
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Operating expenses were $1,017 million in the first quarter of 2008. This compares to operating expenses of $1,013 million for the first quarter of 2007 and $1,153 million for the fourth quarter of 2007.

Selling, general and administrative (SG&A) expenses were $597 million in the first quarter of 2008, compared to $604 million for the first quarter of 2007, and $678 million for the fourth quarter of 2007. Compared to the first quarter of 2007, SG&A was favourably impacted primarily by savings from previously announced restructuring programs, partially offset by investments in sales and marketing and negative foreign exchange impacts.

Research and development (R&D) expenses were $420 million in the first quarter of 2008, compared to $409 million for the first quarter of 2007 and $475 million for the fourth quarter of 2007. Compared to the first quarter of 2007, R&D was favourably impacted primarily by savings from previously announced restructuring programs, partially offset by negative foreign exchange impacts and investments in new technologies.

Operating Margin

Operating margin was 4.7 percent in the first quarter of 2008, compared to (0.4) percent for the first quarter of 2007 and 7.6 percent for the fourth quarter of 2007. The first quarter of 2008 operating margin increased by 512 basis points compared to the year ago quarter, marking the seventh consecutive quarter of year over year improvement. The improvement was driven by higher gross margin and lower operating expense to revenue.

Other

Special charges in the first quarter of 2008 of $88 million related to costs associated with previously announced restructuring plans.

Other income (expense) - net was $37 million of income for the first quarter of 2008, compared to income of $66 million in the first quarter of 2007 and income of $93 million in the fourth quarter of 2007. Other income included interest and dividend income of $38 million, a foreign exchange loss of $19 million and a $16 million gain on an interest rate swap.

Minority interest was an expense of $78 million in the first quarter of 2008, compared to an expense of $22 million for the first quarter of 2007 and an expense of $39 million for the fourth quarter of 2007. Minority interest expense included an expense of $11 million related to the ongoing payment of preferred shares dividends, but was primarily driven by the profitability of the LG-Nortel joint venture.

Interest expense was $80 million in the first quarter of 2008, compared to $96 million for the first quarter of 2007 and $80 million for the fourth quarter of 2007.

Income tax expense was $36 million in the first quarter of 2008, compared to an expense of $13 million for the first quarter of 2007 and an expense of $1,040 million for the fourth quarter of 2007 which included an increase to the valuation allowance against the deferred tax asset of $1,043 million.

Earnings

The Company reported a net loss in the first quarter of 2008 of $138 million, or $0.28 per common share on a basic and diluted basis, compared to net loss of $103 million, or $0.23 per common share on a basic and diluted basis, in the first quarter of 2007 and net loss of $844 million, or $1.70 per common share on a diluted basis, in the fourth quarter of 2007.



Significant Impact Items and Tax Impact

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Q1 2008 Q1 2007 Q4 2007
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Net Earnings / (Loss) ($138) ($103) ($844)
Restructuring Charges $88 $80 $38
Litigation Settlement Mark to Market ($54)
Loss (Gain) on Sale ($2) ($1) ($23)
Currency Exchange Loss (Gain) $19 ($40)
Income Tax - Adjustment to Deferred Tax Asset $1,043
Investment Impairment $8
Patent Litigation Settlement $12
Other Income - Loss (Gain) from Swap ($16) ($15)
Total Tax Impact of above items ($6) ($1) ($5)
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The net loss in the first quarter of 2008 of $138 million included special charges of $88 million for restructurings, a loss of $19 million due to changes in foreign exchange rates, a charge of $12 million related to a patent lawsuit settlement and a gain of $16 million primarily from mark-to-market gains on interest rate swaps. The net loss in the first quarter of 2007 of $103 million included a shareholder litigation gain of $54 million reflecting a mark-to-market adjustment of the share portion of the class action settlement and special charges of $80 million for restructuring. The net loss in the fourth quarter of 2007 of $844 million included a reduction of the deferred tax asset of $1,043 million, special charges of $38 million for restructurings, a gain of $23 million on the sale of assets, a gain of $40 million due to favourable effects of changes in foreign exchange rates and a gain due to a market value adjustment of $15 million on an interest rate swap.

Cash balance at the end of the first quarter of 2008 was $3.22 billion, down from $3.53 billion at the end of the fourth quarter of 2007. The decrease in cash was primarily driven by a cash outflow from operating activities of $260 million, cash used in investing activities of $44 million and cash used in financing activities of $14 million. The cash outflow from operating activities of $260 million included a net loss of $138 million and outflows of $264 million primarily related to the payment of 2007 bonuses and fourth quarter sales compensation, $121 million related to pension funding, $51 million cash payments related to our previously announced restructuring plans, partially offset by net cash inflows of $99 million of working capital and non-cash additions including $82 million of amortization and depreciation and $78 million of minority interest primarily related to profitability of the LG-Nortel joint venture.

Outlook(a)

Nortel reiterates its financial outlook for the full year 2008, and continues to expect:

- Revenue to grow in the low single digits compared to 2007

- Gross Margin to be about the business model target of 43 percent of revenue

- Operating Margin as a percentage of revenue to increase by about 300 basis points compared to 2007

(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.

About Nortel

Nortel is a recognized leader in delivering communications capabilities that make the promise of Business Made Simple a reality for our customers. Our next generation technologies, for both service provider and enterprise networks, support multimedia and business critical applications. Nortel's technologies are designed to help eliminate today's barriers to efficiency, speed and performance by simplifying networks and connecting people to the information they need, when they need it. Nortel does business in more than 150 countries around the world. 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; 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.; improvement in Nortel's product costs due to favourable supplier pricing, offset by higher costs associated with customer deployments in emerging markets; cost reductions resulting from the 2008 and 2007 restructuring plans; increased employee costs relative to expected cost of living adjustments and employee bonuses; and the effective execution of Nortel's strategy, including the execution of Nortel's supply chain strategy and the implementation of its Business Transformation initiatives in 2008. Nortel has also made certain macroeconomic and general industry assumptions in the preparation of its financial guidance including: global service provider capital expenditures in 2008 reflecting low to mid single digit growth as compared to mid to high single digit growth in 2007; global growth rate to remain stable with investments in next generation products and services to exceed declines in purchases of legacy equipment; 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 business including: significant competition, competitive pricing practice, cautious capital spending by customers as a result of factors including current economic uncertainties, 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; any material, adverse affects on Nortel's performance if its expectations regarding market demand for particular products prove to be wrong; the sufficiency of recently announced restructuring actions; any negative developments associated with Nortel's suppliers and contract manufacturing agreements including our reliance on certain suppliers for key optical networking solutions components; potential penalties, damages or cancelled customer contracts from failure to meet delivery and installation deadlines and any defects or errors in Nortel's current or planned products; fluctuations in foreign currency exchange rates; potential higher operational and financial risks associated with Nortel's efforts to expand internationally; potential additional valuation allowances for all or a portion of Nortel's deferred tax assets if market conditions deteriorate or future results of operations are less than expected; a failure to protect Nortel's intellectual property rights, or any adverse judgments or settlements arising out of disputes regarding intellectual property; any negative effect of a failure to maintain integrity of Nortel's information systems; changes in regulation of the telecommunications industry or other aspects of the industry; any failure to successfully operate or integrate strategic acquisitions, or failure to consummate or succeed with strategic alliances; Nortel's potential inability to attract or retain the personnel necessary to achieve its business objectives or to maintain an effective risk management strategy;
(ii) risks and uncertainties relating to Nortel's liquidity, financing arrangements and capital including: 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 senior notes covenants, or on obtaining additional secured debt pursuant to the provisions of indentures governing certain of Nortel's public debt issues; Nortel's below investment grade credit rating; 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; or any negative impact on Nortel's ability to make future acquisitions, raise capital, issue debt and retain employees arising from stock price volatility and any declines in the market price of Nortel's publicly traded securities; and
(iii) risks and uncertainties relating to Nortel's prior restatements and related matters including: any negative impact on Nortel and NNL of such restatements; legal judgments, fines, penalties or settlements related to the ongoing criminal investigations of Nortel in the U.S. and Canada; the significant dilution of Nortel's existing equity positions resulting from the approval of its class action settlement; or any significant pending or future civil litigation actions not encompassed by Nortel's class action settlement. For additional information with respect to certain of these and other factors, see Nortel's Annual Report on Form10-K and other securities filings with the United States Securities and Exchange Commission. 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.

(1)Nortel, the Nortel logo and the Globemark are trademarks of Nortel Networks.

Nortel will host a teleconference/audio webcast to discuss First Quarter 2008 Results:



Date: Friday, May 2, 2008
Time: 8:30 a.m. ET

To take part in the audio Webcast, please visit:
www.nortel.com/q1earnings2008

To participate in the audio teleconference and Q&A, please call:

- North America 1-866-225-6564
- International 1-416-641-6139

--- Please dial in at least 15 minutes prior to the start of the event ---

Replay: A replay of the audio teleconference will be available at
11:00 a.m. ET at:
- North America 1-800-408-3053 Passcode: 3256865#
- International 1-416-695-5800 Passcode: 3256865#

Audio webcast replay: www.nortel.com/q1earnings2008



NORTEL NETWORKS CORPORATION
Condensed Consolidated Statements of Operations
(unaudited)
(U.S. GAAP; Millions of U.S. dollars, except per share amounts)

Three months ended
---------------------------------------
March 31, December 31, March 31,
2008 2007 2007
---------------------------------------

Revenues:
Products $ 2,471 $ 2,861 $ 2,169
Services 287 337 314
---------------------------------------
2,758 3,198 2,483
---------------------------------------

Cost of revenues
Products 1,459 1,626 1,303
Services 153 175 178
---------------------------------------
1,612 1,801 1,481
---------------------------------------
Gross profit 1,146 1,397 1,002
41.6% 43.7% 40.4%

Selling, general and administrative
expense 597 678 604
Research and development expense 420 475 409
---------------------------------------
Operating Margin 129 244 (11)
4.7% 7.6% -0.4%

Amortization of intangibles 12 13 12
In-process research and development
expense - - -
Special charges 88 38 80
Gain on sale of businesses and
assets (2) (23) (1)
Shareholder litigation settlement
recovery - - (54)
Regulatory investigation expense - - -
Other operating charges (income)
- net 13 (6) (10)
---------------------------------------
Operating earnings (loss) 18 222 (38)

Other income - net (37) (93) (66)

Interest expense
Long-term debt 74 74 85
Other 6 6 11
---------------------------------------
Loss from operations before income
taxes, minority interests and
equity in net earnings (loss) of
associated companies (25) 235 (68)
Income tax expense 36 1,040 13
---------------------------------------
(61) (805) (81)
Minority interests - net of tax 78 39 22
Equity in net earnings (loss) of
associated companies - net of tax (1) - -
---------------------------------------
Net earnings (loss) $ (138) $ (844) $ (103)
---------------------------------------
---------------------------------------

Average shares outstanding
(millions) - Basic 498 498 442
Average shares outstanding
(millions)- Diluted 498 498 442
---------------------------------------
Basic and diluted earnings (loss)
per common share ($0.28) ($1.70) ($0.23)
---------------------------------------
---------------------------------------



NORTEL NETWORKS CORPORATION
Condensed Consolidated Balance Sheets
(unaudited)
(U.S. GAAP; Millions of U.S. dollars, except per share amounts)

---------------------------------------
March 31, December 31, March 31,
2008 2007 2007
---------------------------------------

ASSETS

Current assets
Cash and cash equivalents $ 3,223 $ 3,532 $ 4,555
Restricted cash and cash
equivalents 58 76 44
Accounts receivable - net 2,338 2,583 2,359
Inventories - net 1,818 2,002 2,048
Deferred income taxes - net 535 487 367
Other current assets 472 467 490
---------------------------------------
Total current assets 8,444 9,147 9,863

Investments 193 194 201
Plant and equipment - net 1,510 1,532 1,515
Goodwill 2,570 2,559 2,530
Intangible assets - net 188 213 229
Deferred income taxes - net 2,774 2,868 3,785
Other assets 574 555 599
---------------------------------------
Total assets $ 16,253 $ 17,068 $ 18,722
---------------------------------------
---------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Trade and other accounts payable $ 1,070 $ 1,187 $ 1,051
Payroll and benefit-related
liabilities 545 690 524
Contractual liabilities 259 272 227
Restructuring liabilities 143 100 135
Other accrued liabilities 3,497 3,825 3,795
Long-term debt due within one year 696 698 21
---------------------------------------
Total current liabilities 6,210 6,772 5,753

Long-term debt 3,838 3,816 5,591
Deferred income taxes - net 30 17 48
Other liabilities 2,706 2,875 3,836
---------------------------------------
Total liabilities 12,784 13,480 15,228
---------------------------------------
Minority interests in subsidiary
companies 883 830 790

SHAREHOLDERS' EQUITY

Common shares, without par value
- Authorized shares: unlimited;
Issued and outstanding shares:
438,029,916 as of March 31, 2008,
437,423,006 as of December 31, 2007
and 436,874,114 as of March 31, 2007 34,043 34,028 34,015
Additional paid-in capital 5,033 5,025 4,957
Accumulated deficit (36,705) (36,532) (35,678)
Accumulated other comprehensive loss 215 237 (590)
---------------------------------------
Total shareholders' equity 2,586 2,758 2,704
---------------------------------------
Total liabilities and
shareholders' equity $ 16,253 $ 17,068 $ 18,722
---------------------------------------
---------------------------------------


NORTEL NETWORKS CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
(U.S. GAAP; Millions of U.S. dollars)

Three months ended
---------------------------------------
March 31, December 31, March 31,
2008 2007 2007
---------------------------------------

Cash flows from (used in) operating
activities
Net earnings (loss) $ (138) $ (844) $ (103)
Adjustments to reconcile net
earnings (loss) to net cash
from (used in) operating
activities, net of effects from
acquisitions and divestitures of
businesses:
Amortization and depreciation 82 97 79
Non-cash portion of shareholder
litigation settlement expense
(recovery) - - (54)
Non-cash portion of special charges
and related asset write downs 2 10 -
Equity in net (earnings) loss of
associated companies (1) - -
Share based compensation expense 21 19 25
Deferred income taxes 12 1,027 5
Pension and other accruals 32 77 92
Gain on sale or write down of
investments, businesses and assets 6 (23) (1)
Minority interests 78 39 22
Other - net (23) (18) 18
Change in operating assets and
liabilities, excluding Global Class
Action Settlement - net (331) 33 (59)
Global Class Action Settlement
- net - - (585)
---------------------------------------
Net cash from (used in) operating
activities (260) 417 (561)
---------------------------------------
Cash flows from (used in) investing
activities
Expenditures for plant and
equipment (51) (95) (56)
Proceeds on disposals of plant and
equipment - 1 14
Restricted cash and cash
equivalents 18 (12) 595
Acquisitions of investments and
businesses - net of cash acquired (29) (4) (14)
Proceeds on sale of investments and
businesses 18 104 (39)
---------------------------------------
Net cash from (used in) investing
activities (44) (6) 500
---------------------------------------
Cash flows from (used in) financing
activities
Dividends paid by subsidiaries to
minority interests (11) (17) (10)
Increase in notes payable 28 29 10
Decrease in notes payable (25) (29) (12)
Increase in loan payable - - 1,150
Debt issuance costs - - (22)
Decrease in capital leases payable (6) (6) (5)
Issuance of common shares - - 7
---------------------------------------
Net cash from (used in) financing
activities (14) (23) 1,118
---------------------------------------
Effect of foreign exchange rate
changes on cash and cash
equivalents 9 16 6
---------------------------------------
Net increase (decrease) in cash and
cash equivalents (309) 404 1,063
Cash and cash equivalents at
beginning of period 3,532 3,128 3,492
---------------------------------------
Cash and cash equivalents at end of
period $ 3,223 $ 3,532 $ 4,555
---------------------------------------
---------------------------------------


NORTEL NETWORKS CORPORATION
Consolidated Financial Information
(unaudited)
(U.S. GAAP; Millions of U.S. dollars)

Segmented revenues
The following table summarizes our revenue and operating margin by
segment for:


Three months ended
---------------------------------------
March 31, December 31, March 31,
2008 2007 2007
---------------------------------------

Revenues

Carrier Networks $ 1,218 $ 1,346 $ 1,009
Enterprise Solutions 641 762 597
Global Services 516 605 448
Metro Ethernet Networks 327 429 373
---------------------------------------
Total reportable segments 2,702 3,142 2,427
Other 56 56 56
---------------------------------------
Total revenues $ 2,758 $ 3,198 $ 2,483
---------------------------------------
---------------------------------------

Operating Margin
Carrier Networks 259 342 154
Enterprise Solutions (24) (1) (9)
Global Services 72 130 75
Metro Ethernet Networks (25) (11) (20)
---------------------------------------
Total reportable segments 282 460 200
Other (153) (216) (211)
---------------------------------------
Total operating margin 129 244 (11)

Amortization of intangible assets 12 13 12
Special charges 88 38 80
Gain (loss) on sales of businesses
and assets (2) (23) (1)
Shareholder litigation settlement
(expense) recovery - - (54)
Other operating charges (income) - net 13 (6) (10)
Other income - net (37) (93) (66)
Interest expense 80 80 96
Income tax expense 36 1,040 13
Minority interests - net of tax 78 39 22
Equity in net earnings (loss) of
associated companies - net of tax (1) - -
---------------------------------------
Net earnings (loss) $ (138) $ (844) $ (103)
---------------------------------------
---------------------------------------


Geographic revenues
The following table summarizes our geographic revenues based on the
location of the customer for:

Three months ended
---------------------------------------
March 31, December 31, March 31,
2008 2007 2007
---------------------------------------

Revenues

United States $ 1,081 $ 1,428 $ 1,216
EMEA(a) 591 819 578
Canada 166 267 173
Asia 787 513 382
CALA(b) 133 171 134
---------------------------------------
Total revenues $ 2,758 $ 3,198 $ 2,483
---------------------------------------
---------------------------------------
(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
---------------------------------------
March 31, December 31, March 31,
2008 2007 2007
---------------------------------------

Revenues

Carrier Networks
CDMA solutions $ 555 $ 771 $ 568
GSM and UMTS solutions 536 359 271
Circuit and packet voice solutions 127 216 170
---------------------------------------
1,218 1,346 1,009
Enterprise Solutions
Circuit and packet voice solutions 458 529 375
Data networking and security solutions 183 233 222
---------------------------------------
641 762 597

Global Services 516 605 448

Metro Ethernet Networks
Optical networking solutions 247 332 263
Data networking and security solutions 80 97 110
---------------------------------------
327 429 373

Other 56 56 56
---------------------------------------
Total revenues $ 2,758 $ 3,198 $ 2,483
---------------------------------------
---------------------------------------


NORTEL NETWORKS CORPORATION
Consolidated Financial Information
(unaudited)
(U.S. GAAP; Millions of U.S. dollars)

The following tables summarize our historical revenues, operating margin
and operating margin percentage for each of our reportable segments for:


Three months ended
--------------------------------------------------------------------
December September June March December September June March
31, 30, 30, 31, 31, 30, 30, 31,
2007 2007 2007 2007 2006 2006 2006 2006
--------------------------------------------------------------------

Revenues

Carrier
Networks $1,346 $1,080 $1,058 $1,009 $1,487 $1,337 $1,262 $1,071
Enterprise
Solutions 762 671 590 597 788 571 478 455
Global
Services 605 540 494 448 540 541 545 506
Metro
Ethernet
Networks 429 360 363 373 449 416 433 293
Other 56 54 57 56 58 61 62 65
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Total
revenues $3,198 $2,705 $2,562 $2,483 $3,322 $2,926 $2,780 $2,390
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Three months ended
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December September June March December September June March
31, 30, 30, 31, 31, 30, 30, 31,
2007 2007 2007 2007 2006 2006 2006 2006
--------------------------------------------------------------------

Operating
Margin

Carrier
Networks $342 $169 $175 $154 $244 $105 $72 $56
Enterprise
Solutions (1) 11 (9) (9) 65 (17) (57) (36)
Global
Services 130 105 75 75 58 90 105 84
Metro
Ethernet
Networks (11) 2 10 (20) - 32 43 (20)
Other (216) (153) (217) (211) (226) (146) (207) (248)
--------------------------------------------------------------------
Total
operating
margin $244 $134 $34 $(11) $141 $64 $(44) $(164)
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Three months ended
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Sept- Sept-
December ember June March December ember June March
31, 30, 30, 31, 31, 30, 30, 31,
2007 2007 2007 2007 2006 2006 2006 2006
--------------------------------------------------------------------

Operating
Margin
Percentage

Carrier
Net-
works 25.4% 15.6% 16.5% 15.3% 16.4% 7.9% 5.7% 5.2%
Enter-
prise
Solut-
ions -0.1% 1.6% -1.5% -1.5% 8.2% -3.0% -11.9% -7.9%
Global
Serv-
ices 21.5% 19.4% 15.2% 16.7% 10.7% 16.6% 19.3% 16.6%
Metro
Ethernet
Net-
works -2.6% 0.6% 2.8% -5.4% 0.0% 7.7% 9.9% -6.8%
Other -385.7% -283.3% -380.7% -376.8% -389.7% -239.3% -333.9% -381.5%
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Total
Operat-
ing
margin
percent-
age 7.6% 5.0% 1.3% -0.4% 4.2% 2.2% -1.6% -6.9%
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