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July 18, 2002
Nortel Networks Reports Results for Second Quarter of 2002
- Results in line with guidance - revenues down 4.8% and bottom line improvement over Q1 2002
- Strong cash balance of US$4.9 billion
- Outlook – expect Q3 2002 revenues to be essentially flat to Q2 2002; continued bottom line improvement through 2002
TORONTO – Nortel Networks* Corporation [NYSE/TSX: NT] reported results for the second quarter and the first six months of 2002 prepared in accordance with United States generally accepted accounting principles, except as noted with respect to pro forma results(a).
Revenues from continuing operations were US$2.77 billion for the second quarter of 2002 compared to US$4.61 billion in the same period in 2001. Nortel Networks reported a net loss in the second quarter of 2002 of US$697 million, or US$0.20 per common share, compared to a net loss of US$19.4 billion, or US$6.08 per common share, in the second quarter of 2001(b). Pro forma net loss from continuing operations(a) for the second quarter of 2002 was US$323 million, or US$0.09 per common share, compared to pro forma net loss from continuing operations(a) of US$1.55 billion, or US$0.48 per common share, in the second quarter of 2001. Included in the pro forma net loss from continuing operations(a) for the second quarter of 2002 was an incremental charge of approximately US$100 million (pre-tax) for potentially uncollectable trade receivables. Pro forma net loss from continuing operations(a) for the second quarter of 2002 excluded US$374 million (after-tax), comprised of special charges (US$327 million (after-tax)) primarily related to restructuring, and certain costs related to acquisitions (US$47 million (after-tax)).
The company recorded a strong cash balance at the end of the second quarter of 2002 of approximately US$4.9 billion, which increased from approximately US$3.1 billion at the end of the first quarter of 2002. The June 30, 2002 balance included the net proceeds to Nortel Networks of approximately US$1.5 billion from recent equity offerings.
“I’m pleased with the progress we have made amidst the challenging industry contraction,” said Frank Dunn, president and chief executive officer, Nortel Networks. “Our actions this quarter have solidified our balance sheet while we continued to make significant progress in repositioning our business model and addressing our priorities to:
- return to profitability in the near term;
- focus on meeting customer needs with quality solutions; and
- drive for market leadership through technology innovation.”
Commenting on the company’s business focus and outlook, Dunn said, “Going forward, we expect there will be ongoing pressure on customer capital spending well into 2003. Focusing on our top priority of returning to profitability in the near term, we will continue to actively review our previously announced US$3.2 billion break even model (not including costs related to acquisitions and any special charges and gains) to reduce or redirect costs that are not warranted. We expect our revenues in the third quarter of 2002 to be essentially flat to second quarter 2002 revenues and ongoing sequential improvement in our bottom line results in both the third and fourth quarters of 2002.”
Dunn continued, “Our focus continues to be ensuring we are a winner in the market share re-allocation which we expect as customers shift spending to solutions that help to increase revenues or reduce costs.”
Some market progress highlights in the quarter included:
- Continued momentum in wireless data
- 3G contract announcements with T Mobile (UMTS); US Cellular, ALLtel, and Ratelindo (cdma2000 1X); and Triton PCS and Edge Wireless (GSM/GPRS);
- Extended Nortel Networks presence with the top global wireless service providers;
- Extended lead in Voice over Packet transformation
- Key deployment with Verizon for the initial packet voice transformation in two tandem switch locations, adding to the more than US$2 billion of estimated Nortel Networks VoP awards to date;
- Built on Optical Networking leadership
- Metro optical wins with China Unicom and strong demand from enterprises drove sequential growth in metro optical, building on our market leading position in metro DWDM solutions; and
- Momentum in Enterprise solutions
- Launched VoIP solution (CSE-MX) and two new switch routing products (BayStack* 380 and 470); and received top honor awards for Convergence (CSE-MX) and VPN (Contivity* SRT) solutions.
Breakdown of Second Quarter 2002 Revenues from Continuing Operations
Reported revenues reflect the realignment of the metro optical portion of the Metro and Enterprise Networks segment into the Optical Long Haul Networks segment, which is now called Optical Networks.
Compared to the first quarter of 2002, Metro and Enterprise Networks segment revenues decreased 10 percent, reflecting a considerable decrease in the packet switching and routing portion of the segment in Europe and a modest decrease in the United States, partially offset by a significant increase in Asia. Revenues for the circuit to packet portion of the segment also decreased, due to lower legacy circuit sales, reflecting a considerable decline in Latin America and modest decreases in the United States and Europe which were partially offset by a considerable increase in Asia. Overall Wireless Networks segment revenues decreased 1 percent, with a significant increase in the United States, which was offset by a considerable decline in Asia and a modest decrease in Europe. Optical Networks segment revenues were flat, with considerable increases in the United States and Canada, and a modest increase in Asia, offset by substantial declines in Europe and Latin America.
Compared to the second quarter of 2001, Metro and Enterprise Networks segment revenues decreased 39 percent, Wireless Networks segment revenues decreased 31 percent and Optical Networks segment revenues decreased 46 percent, each reflecting significant declines across all major regions. Other revenues declined 91 percent, primarily reflecting the impact of divested businesses.
Geographic revenues for the second quarter of 2002 compared to first quarter of 2002 increased 6 percent in the United States, decreased 16 percent outside the United States and Canada, and decreased 8 percent in Canada. Compared to the second quarter of 2001, revenues decreased 32 percent in the United States, 50 percent outside of the United States and Canada, and 16 percent in Canada.
Six-Month Results
For the first half of 2002, revenues from continuing operations were US$5.68 billion compared to US$10.36 billion for the same period in 2001. Nortel Networks reported a net loss for the first six months of 2002 of US$1.54 billion, or US$0.46 per common share, compared to US$22.0 billion, or US$6.94 per common share, in the first six months of 2001(b). Pro forma net loss from continuing operations(a) for the first half of 2002 was US$786 million, or US$0.24 per common share, compared to pro forma net loss from continuing operations(a) of US$1.82 billion, or US$0.58 per common share, for the same period in 2001. Pro forma net loss from continuing operations(a) for the first six months of 2002 excluded US$752 million (after tax), mainly comprised of special charges (US$656 million (after tax)) and certain costs related to acquisitions (US$98 million (after tax)).
Expenses
Selling, general and administrative (“SG&A”) expenses in the second quarter of 2002 were US$767 million, which included an incremental charge of approximately US$100 million related to potentially uncollectable trade receivables. Excluding the incremental charge, SG&A expenses were down by approximately US$77 million, compared to first quarter 2002 SG&A expenses of US$744 million, primarily reflecting the impact of restructuring and streamlining activities. Nortel Networks expects an ongoing reduction in SG&A expenses as it moves through the remainder of 2002.
Research and development (“R&D”) expenses were US$579 million in the second quarter of 2002. The R&D expenses in the quarter reflected focused investments to drive continued market leadership in our core businesses.
Nortel Networks is an industry leader and innovator focused on transforming how the world communicates and exchanges information. The company is supplying its service provider and enterprise customers with communications technology and infrastructure to enable value-added IP data, voice and multimedia services spanning Metro and Enterprise Networks, Wireless Networks and Optical Networks. As a global company, Nortel Networks does business in more than 150 countries. More information about Nortel Networks can be found on the Web at www.nortelnetworks.com.
The following notes are important to a reader’s understanding of the information contained herein, including the pro forma information:
- Pro forma loss from continuing operations is defined as reported net loss from continuing operations before any “Acquisition Related Costs” (in–process research and development expense, as applicable, and the amortization of acquired technology and goodwill from all acquisitions subsequent to July 1998, as applicable), stock option compensation from acquisitions and divestitures, all special charges (which includes restructuring), any gain or loss on sale of businesses, one time gains associated with certain investment sales, and any associated items as included in the income or loss of our equity accounted for investments. This pro forma measure is not a recognized measure for financial statement presentation under United States generally accepted accounting principles (U.S. GAAP). Non-U.S. GAAP earnings measures (such as this pro forma measure) do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other issuers. This pro forma measure is provided to assist readers in evaluating the operating performance of Nortel Networks ongoing business and each of the items listed above were excluded because they were considered to be of a non-operational nature in the applicable period. Investors are encouraged to consider this pro forma measure in the context of Nortel Networks U.S. GAAP results (a reconciliation to which is set out in the attached tables).
- Effective January 1, 2002, Nortel Networks adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”. Footnote (2) to the attached consolidated results (unaudited) tables discloses the effect on both the reported net loss and reported basic and diluted loss per common share for the three months and six months ended June 30, 2001 of the Statement’s requirement to cease amortization of goodwill had the Statement been in effect beginning January 1, 2001.
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 severity and duration of the industry adjustment; the sufficiency of our restructuring activities, including the potential for higher actual costs to be incurred in connection with restructuring actions compared to the estimated costs of such actions; fluctuations in operating results and general industry, economic and market conditions and growth rates; the ability to recruit and retain qualified employees; fluctuations in cash flow; the level of outstanding debt and debt ratings; the ability to meet financial covenants contained in our credit agreements; the ability to make acquisitions and/or 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; international growth and global economic conditions, particularly in emerging markets and including interest rate and currency exchange rate fluctuations; the impact of rationalization in the telecommunications industry; the dependence on new product development; the uncertainties of the Internet; the impact of the credit risks of our customers and the impact of increased provision of customer financing and commitments; stock market volatility; the entrance into an increased number of supply, turnkey, and outsourcing contracts which contain delivery, installation, and performance provisions, which, if not met, could result in the payment of substantial penalties or liquidated damages; the ability to obtain timely, adequate and reasonably priced component parts from suppliers and internal manufacturing capacity; the future success of our strategic alliances; and the adverse resolution of litigation. For additional information with respect to certain of these and other factors, see the reports filed by Nortel Networks Corporation and Nortel Networks Limited with the United States Securities and Exchange Commission. Unless otherwise required by applicable securities laws, Nortel Networks Corporation and Nortel Networks Limited disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
*Nortel Networks, BayStack, Contivity, the Nortel Networks logo and the Globemark are trademarks of Nortel Networks.
Nortel Networks will host a teleconference/audio webcast to discuss Q2 Results.
TIME: 5:00 PM – 6:00 PM EDT on Thursday, July 18, 2002
To participate, please call the following at least 15 minutes prior to the start of the event.
Teleconference:
North America: 888-211-4395
International: 212-231-6049
Webcast:
www.nortelnetworks.com/2q2002
Replay:
(Available one hour after the conference until 11:59 pm EDT, July 31, 2002)
North America: 800-633-8625
Passcode: 20248819#
International: 402-977-9141
Passcode: 20248819#
Webcast:
www.nortelnetworks.com/2q2002
Contact for Press and Analysts:
Investors:
Nortel Networks
888-901-7286
905-863-6049
investor@nortel.com
U.S. Business media:
David Chamberlin
Nortel Networks
972-685-4648
ddchamb@nortel.com
Canadian Business media:
Tina Warren
Nortel Networks
905-863-4702
tinawarr@nortel.com
Additional Media & Analyst Contacts
 Consolidated Results (82.3 KB)
Consolidated Balance Sheet (73.1 KB)
Consolidated Statements of Cash Flows (73 KB)
Supplementary Information (72.5 KB)
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