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September 25, 2002
Nortel Networks Revises its Outlook for the Third Quarter of 2002 and Announces Plan to Consolidate its Common Shares
TORONTO - Nortel Networks* Corporation [NYSE/TSX:NT] announced that it now expects revenues from continuing operations in the third quarter of 2002 to be lower than second quarter 2002 revenues from continuing operations by approximately 15%. This compares to its previously stated guidance of expected sequentially lower revenues in the third quarter of 2002 of “up to approximately 10%.” Further deterioration in spending by service providers, generally in the United States and for wireless networks in Asia, has resulted in the revised outlook.
Despite the current revenue outlook, the Company continues to expect that the impact of its ongoing restructuring will result in a lower cost structure in the third quarter of 2002. Factoring the uncertainty about the timing of a meaningful recovery in the telecom market into its quarterly review procedures regarding the potential realization of the income tax assets on its balance sheet, the Company at this time anticipates recognizing significantly lower than expected income taxes against its loss for the third quarter. As a result, the Company expects a marginally larger pro forma net loss from continuing operations(a) per share in the third quarter of 2002 compared to the second quarter of 2002. Frank Dunn, president and chief executive officer, Nortel Networks reiterated, “Despite the continued challenging market environment, our top priority remains to return to profitability by the end of June of 2003. We are progressing well in our restructuring plan, and we will continue to monitor the market and the spending environment and take additional actions, as appropriate, to achieve our profitability goals.” In addition, the Company continues to assess its overall liquidity needs and expects to enter into discussions with its banks regarding its existing credit facilities (all of which are currently undrawn). The Company also announced that it plans to present a proposal to its shareholders for a consolidation of its outstanding common shares (also known as a “reverse stock split”) at its annual meeting planned for spring 2003. The consolidation ratio will be set by the Company’s Board of Directors in early 2003 at a level which would be expected at that time to result in an initial post-consolidation common share price in the range of US$10 to US$20, assuming receipt of shareholder and regulatory approvals. As of the close of trading today, the 30-day average closing share price for the Company’s common shares has fallen below the minimum continued listing requirements of the New York Stock Exchange. The planned share consolidation proposal is intended to satisfy such continued listing requirements. 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. 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; the approval by shareholders of the proposal referred to herein; 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 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, 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 are excluded because they are 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.
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
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