Nortel Networks

Nortel Files 2005 Financial Statements

    Toronto (ots/PRNewswire) -

@@start.t1@@      - Q4 2005 Revenues of US$3.0 billion, Net Loss of US$2.3 billion,
         including a US$2.5 billion litigation expense
      - 2005 Revenues of US$10.5 billion and Net Loss of US$2.6 billion
      - Restatements Completed; Total Revenue Adjustments of US$1.5 billion;
         Deferred Revenue balance of US$3.56 billion as at December 31, 2005@@end@@

    Nortel Networks(x) Corporation (NYSE/TSX: NT)announced that today it has  completed the filing of its audited financial statements for the year 2005  prepared in accordance with United States generally accepted accounting  principles in U.S. dollars, and related Annual Report on Form 10-K and  corresponding Canadian filings. The filings reflect the restatement of the  years ended 2003 and 2004, and the first nine months of 2005. The filing of  the 2005 audited financial statements and related filings of the Company's  principal operating subsidiary, Nortel Networks Limited ("NNL"), are in  process. Annexed to this press release is certain selected financial  information.

    "The restatements have been completed and we have filed the Company's 2005 Annual Report on Form 10-K. I now look forward to completing our first quarter 2006 reporting and moving back to being a timely filer," said Mike Zafirovski, president and chief executive officer, Nortel. "Despite this delay, we have remained focused on our short term priorities of business transformation, integrity renewal, growth imperatives and on re-creating a  great company, and I look forward to updating you on our progress in a planned mid-May business update."

    Restatement Impacts

    -------------------

    Revisions to the Company's previously reported 2003 and 2004 financial results reflect negative impacts on revenue of US$261 million and US$312 million and on net earnings/loss of US$141 million and US$156 million, respectively, as well as revisions to the Company's previously reported 2005 nine month results reflecting negative impacts on revenue of US$520 million and on net earnings/loss of US$164 million in the aggregate. With respect to financial results prior to 2003, the revisions reflect negative impacts on  revenue of US$384 million and on net earnings/loss of US$70 million in the aggregate. These revenue adjustments resulted in the deferral to later periods of revenue that was previously recognized in prior periods.

    Fourth Quarter 2005 Results

    ---------------------------

    Revenues were US$3.00 billion for the fourth quarter of 2005 compared to US$2.51 billion for the fourth quarter of 2004. Nortel reported a net loss in the fourth quarter of US$2.30 billion, or US$0.53 per common share on a diluted basis, compared to net earnings of US$102 million, or US$0.02 per common share on a diluted basis, in the fourth quarter of 2004. The fourth quarter of 2005 results included a litigation expense of US$2,474 million, as a result of the agreement reached in principle for the proposed settlement of certain shareholder class action litigation, a tax benefit of approximately US$140 million related to a liability release as a result of new information regarding transfer pricing issues, special charges of US$25 million related  to restructuring activities and US$11 million of costs related to the sale of businesses and assets.

    Year 2005 Results

    -----------------

    For the year 2005, revenues were US$10.52 billion compared to US$9.52 Billion for the year 2004. Nortel reported a net loss of US$2.58 billion, or US$0.59 per common share on a diluted basis, for the year 2005, compared to a net loss of US$207 million, or US$0.05 per common share on a diluted basis, for the year 2004. The year 2005 results included a litigation expense of US$2,474 million, as a result of the agreement reached in principle for the proposed settlement of certain shareholder class action litigation, special charges of US$170 million related to restructuring activities and US$47 million of costs related to the sale of businesses and assets.

    As previously announced, the Company expects to file its and NNL's first  quarter 2006 Quarterly Reports on Form 10-Q, and the corresponding filings  under Canadian securities laws, no later than the week of June 5,  2006. The Company plans to hold a teleconference/audio webcast on May 16,  2006 at 8:30 am EDT to provide a business update. Details of the call will be disclosed in advance of the event.

    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",  "plans",
"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. Although Nortel  believes
expectations reflected in such forward-looking statements are
reasonable based upon certain assumptions, they 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  (including the anticipated
delay in filing the Quarterly Reports on Form 10-Q  for the first
quarter of 2006) causing them to breach their public debt  indentures
and obligations under their credit facilities with the possibility
that the holders of their public debt or NNL's lenders would seek to
accelerate the maturity of that debt, and causing a breach of NNL's
support  facility with EDC with the possibility that EDC would refuse
to issue  additional support under the facility, terminate its
commitments under the  facility or require NNL to cash collateralize
all existing support; 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 finalization and  approval of its proposed class action
settlement, or if such proposed class  action settlement is not
finalized, any larger settlements or awards of  damages in respect of
such class actions; 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  restatement 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;
any default in Nortel's filing obligations  extending beyond July 15,
2006 for the First Quarter 2006 Form 10-Qs, causing  any Canadian
securities regulatory authority to impose an order to cease all
trading in Nortel's securities within the applicable jurisdiction or
to impose  such an order sooner if Nortel fails to comply with the
alternate information  guidelines of such regulatory authorities;
(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; 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;  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 acceleration under their public debt
indentures and  credit facilities, which may result in Nortel and NNL
being unable to meet  their respective payment obligations; 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 credit 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 credit
facilities; 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 any future 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 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.

@@start.t2@@      (x) Nortel, the Nortel logo and the Globemark are trademarks of Nortel.
                                        NORTEL NETWORKS CORPORATION
                                Consolidated Statements of Operations
            (US GAAP; millions of U.S. dollars, except per share amounts)
      -------------------------------------------------------------------------
                                                  Three Months Ended                  Year Ended
                                          December  September  December  December  December
                                          31, 2005    30, 2005  31, 2004  31, 2005  31, 2004
                                                              (As          (As                          (As
                                                          restated)  restated)                 restated)
      -------------------------------------------------------------------------
                                                                  (US GAAP; millions of U.S. dollars,
                                                                                  except per share amounts)
      Revenues                         $  2,997  $  2,518  $  2,513  $ 10,523  $  9,516
      Cost of revenues                 1,815        1,540        1,369        6,217        5,574
      -------------------------------------------------------------------------
      Gross profit                        1,182          978        1,144        4,306        3,942
      Selling, general and
        administrative expense         680          567          527        2,413        2,133
      Research and development
        expense                                 451          443          498        1,856        1,960
      Amortization of
        intangibles                              6              7              3            17              9
      Special charges                        25            39            81          170          181
      (Gain) loss on sale of
        businesses and assets            11              3            22            47          (91)
      Shareholder litigation
        settlement expense            2,474              -              -        2,474              -
      -------------------------------------------------------------------------
      Operating earnings
        (loss)                              (2,465)         (81)          13      (2,671)        (250)
      Other income - net                 122            53          124          303          212
      Interest expense
         Long-term debt                    (52)         (54)         (61)        (207)        (192)
         Other                                    (4)          (3)            8          (11)         (10)
      -------------------------------------------------------------------------
      Earnings (loss) from
        continuing operations
        before income taxes,
        minority interests and
        equity in net earnings
        (loss) of associated
        companies                         (2,399)         (85)          84      (2,586)        (240)
      Income tax benefit
        (expense)                              102          (39)          (4)          56            30
      -------------------------------------------------------------------------
                                                (2,297)        (124)          80      (2,530)        (210)
      Minority interests -
        net of tax                              (4)         (15)         (17)         (50)         (46)
      Equity in net earnings
        (loss) of associated
        companies - net of tax            1              1              2              4              -
      -------------------------------------------------------------------------
      Net earnings (loss) from
        continuing operations      (2,300)        (138)          65      (2,576)        (256)
      Net earnings (loss) from
        discontinued operations -
        net of tax                              (2)            2            37              1            49
      -------------------------------------------------------------------------
      Net earnings (loss)        $ (2,302) $    (136) $      102  $ (2,575) $    (207)
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      Average Shares
        outstanding ('000s) -
        Basic                                 4,338        4,338        4,337        4,338        4,337
      Average Shares
        outstanding ('000s) -
        Diluted                              4,338        4,338        4,342        4,338        4,337
      -------------------------------------------------------------------------
      Basic earnings (loss)
        per common share
         - from continuing
              operations              $  (0.53) $  (0.03) $    0.01  $  (0.59) $  (0.06)
         - from discontinued
              operations                  (0.00)        0.00         0.01         0.00         0.01
      -------------------------------------------------------------------------
      Basic earnings (loss)
        per common share                (0.53)      (0.03)        0.02        (0.59)      (0.05)
      -------------------------------------------------------------------------
      Diluted earnings (loss)
        per common share
         - from continuing
              operations              $  (0.53) $  (0.03) $    0.01  $  (0.59) $  (0.06)
         - from discontinued
              operations                  (0.00)        0.00         0.01         0.00         0.01
      -------------------------------------------------------------------------
      Diluted earnings (loss)
        per common share                (0.53)      (0.03)        0.02        (0.59)      (0.05)
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
              Please refer to our Annual Report on Form 10-K for the year
                    ended December 31, 2005 including the Notes to the
                                 Consolidated Financial Statements.
                                        NORTEL NETWORKS CORPORATION
                                        Consolidated Balance Sheets
            (US GAAP; millions of U.S. dollars, except per share amounts)
      -------------------------------------------------------------------------
                                                                          December  September  December
                                                                          31, 2005    30, 2005  31, 2004
                                                                                                (As          (As
                                                                                            restated) restated)
      -------------------------------------------------------------------------
                                                                         (U.S. GAAP, millions of U.S.
                                                                    dollars, except for share amounts)
                                                        ASSETS
      Current assets
      Cash and cash equivalents                              $  2,951  $  2,996  $  3,685
      Restricted cash and cash equivalents                      77            73            80
      Accounts receivable - net                                  2,862        2,347        2,510
      Inventories - net                                                1,804        1,932        1,962
      Deferred income taxes - net                                  377          371          255
      Other current assets                                              796          573          358
      -------------------------------------------------------------------------
      Total current assets                                          8,867        8,292        8,850
      Investments                                                            244          311          299
      Plant and equipment - net                                  1,564        1,572        1,640
      Goodwill                                                              2,592        2,519        2,303
      Intangible assets - net                                         172          147            78
      Deferred income taxes - net                                3,629        3,610        3,738
      Other assets                                                        1,044          952          867
      -------------------------------------------------------------------------
      Total assets                                                  $ 18,112  $ 17,403  $ 17,775
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                LIABILITIES AND SHAREHOLDERS' EQUITY
      Current liabilities
      Trade and other accounts payable                  $  1,180  $      971  $      989
      Payroll and benefit-related liabilities                801          536          515
      Contractual liabilities                                         346          425          571
      Restructuring liabilities                                        95          131          254
      Other accrued liabilities                                  4,200        3,335        3,592
      Long-term debt due within one year                    1,446        1,452            14
      -------------------------------------------------------------------------
      Total current liabilities                                  8,068        6,850        5,935
      Long-term debt                                                    2,439        2,428        3,852
      Deferred income taxes - net                                  104          227          144
      Other liabilities                                                5,935        3,967        3,578
      -------------------------------------------------------------------------
      Total liabilities                                              16,546      13,472      13,509
      -------------------------------------------------------------------------
      Minority interests in subsidiary companies          780          637          626
                                            SHAREHOLDERS' EQUITY
      Common shares, without par value -
      Authorized shares: unlimited; Issued
      and outstanding shares 4,339,162,932
      for 2005 and 4,272,671,213 for 2004                 33,932      33,932      33,840
      Additional paid-in capital                                 3,281        3,253        3,283
      Accumulated deficit                                         (35,525)  (33,223)  (32,950)
      Accumulated other comprehensive loss                  (902)        (668)        (533)
      -------------------------------------------------------------------------
      Total shareholders' equity                                    786        3,294        3,640
      -------------------------------------------------------------------------
      Total liabilities and shareholders' equity  $ 18,112  $ 17,403  $ 17,775
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
              Please refer to our Annual Report on Form 10-K for the year
                    ended December 31, 2005 including the Notes to the
                                  Consolidated Financial Statements
                                        NORTEL NETWORKS CORPORATION
                                Consolidated Statements of Cash Flows
                                 (US GAAP; millions of U.S. dollars)
      -------------------------------------------------------------------------
                                                  Three Months Ended                  Year Ended
                                          December  September  December  December  December
                                          31, 2005    30, 2005  31, 2004  31, 2005  31, 2004
                                                                (As          (As                          (As
                                                            restated) restated)                 restated)
      -------------------------------------------------------------------------
      Cash flows from (used
        in) operating
        activities
         Net earnings (loss)
          from continuing
          operations                 $ (2,300) $    (138)        $ 65  $ (2,576) $    (256)
         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:
            Non cash portion of
            shareholder litigation
            settlement expense        1,899              -              -        1,899              -
            Amortization and
              depreciation                    69            73            79          302          340
            Non-cash portion of
              special charges
              and related asset
              write downs                      24              1              6            27              6
            Equity in net
              (earnings) loss of
              associated
              companies                         (1)          (1)          (2)          (4)            -
            Stock option
              compensation                    30            22            22            88            77
            Deferred income
              taxes                            (135)          44          (32)         (79)         (46)
            Other liabilities              38            75            88          294          271
            (Gain) loss on sale
              or write down of
              investments,
              businesses and
              assets                            (40)            3            36          (20)        (110)
            Other - net                      113            70            67          106          194
            Change in operating
              assets and
              liabilities                    420         (293)         (60)        (217)        (655)
      -------------------------------------------------------------------------
         Net cash from (used
          in) operating
          activities of
          continuing operations        117         (144)         269         (180)        (179)
      -------------------------------------------------------------------------
      Cash flows from (used
        in) investing
        activities
         Expenditures for plant
          and equipment                    (82)         (52)         (82)        (258)        (276)
         Proceeds on disposals
          of plant and
          equipment                              -              -              -            10            10
         Restricted cash and
          cash equivalents                 (5)                          (3)            4          (17)
         Acquisitions of
          investments and
          businesses - net of
          cash acquired                  (202)          (1)            2         (651)          (5)
         Proceeds on sale of
          investments and
          businesses                         162          141              7          470          150
      -------------------------------------------------------------------------
         Net cash from (used
          in) investing
          activities of
          continuing operations      (127)          88          (76)        (425)        (138)
      -------------------------------------------------------------------------
      Cash flows from (used
        in) financing
        activities
         Dividends paid by
          subsidiaries to
          minority interests            (10)          (9)          (9)         (43)         (33)
         Increase in notes
          payable                                11            21            27            70            92
         Decrease in notes
          payable                              (19)         (18)         (17)         (83)         (84)
         Repayments of
          long-term debt                                                                      -         (107)
         Repayments of capital
          leases payable                    (2)          (3)          (4)         (10)          (9)
         Issuance of common
          shares                                  2              3              1              6            31
      -------------------------------------------------------------------------
         Net cash from
          (used in) financing
          activities of
          continuing operations        (18)          (6)          (2)         (60)        (110)
      -------------------------------------------------------------------------
         Effect of foreign
          exchange rate changes
          on cash and cash
          equivalents                        (16)          (1)          94         (102)          88
      -------------------------------------------------------------------------
      Net cash from (used in)
        continuing operations          (44)         (63)         285         (767)        (339)
      Net cash from (used in)
        operating activities of
        discontinued operations         (1)            -              6            33            22
      -------------------------------------------------------------------------
      Net increase (decrease)
        in cash and cash
        equivalents                          (45)         (63)         291         (734)        (317)
      Cash and cash
        equivalents at
        beginning of period          2,996        3,059        3,394        3,685        4,002
      -------------------------------------------------------------------------
      Cash and cash
        equivalents at end of
        period                          $  2,951  $  2,996  $  3,685  $  2,951  $  3,685
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
              Please refer to our Annual Report on Form 10-K for the year
                    ended December 31, 2005 including the Notes to the
                                 Consolidated Financial Statements.
                                        NORTEL NETWORKS CORPORATION
                                 (US GAAP; millions of U.S. dollars)
      Segmented revenues
      -------------------------------------------------------------------------
                                                  Three Months Ended                  Year Ended
                                          December  September  December  December  December
                                          31, 2005    30, 2005  31, 2004  31, 2005  31, 2004
                                                                (As          (As                          (As
                                                            restated) restated)                 restated)
      -------------------------------------------------------------------------
      Revenues
      Carrier Packet
        Networks                        $      791  $      715  $      657  $  2,828  $  2,589
      CDMA Networks                         617          544          589        2,321        2,216
      GSM and UMTS Networks            940          580          646        2,799        2,411
      Enterprise Networks                648          677          622        2,570        2,289
      -------------------------------------------------------------------------
      Total reportable
        segments                            2,996        2,516        2,514      10,518        9,505
      Other                                         1              2            (1)            5            11
      -------------------------------------------------------------------------
      Total revenues                $  2,997  $  2,518  $  2,513  $ 10,523  $  9,516
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      Geographic revenues
      -------------------------------------------------------------------------
                                                  Three Months Ended                  Year Ended
                                          December  September  December  December  December
                                          31, 2005    30, 2005  31, 2004  31, 2005  31, 2004
                                                              (As          (As                          (As
                                                          restated) restated)                 restated)
      -------------------------------------------------------------------------
      U.S.                                $  1,363  $  1,252  $  1,124  $  5,206  $  4,646
      EMEA(a)                                  768          618          764        2,725        2,496
      Canada                                    138          161          150          576          553
      Asia Pacific                          542          312          318        1,405        1,261
      CALA(b)                                  186          175          157          611          560
      -------------------------------------------------------------------------
      Consolidated                  $  2,997  $  2,518  $  2,513  $ 10,523  $  9,516
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (a) The Europe, Middle East and Africa region, or EMEA.
      (b) The Caribbean and Latin America region, or CALA.
      Restatement Impacts
      -------------------------------------------------------------------------
                                                                      Nine
                                                                    Months
                                                                      Ended
                                          2005                 September        Year Ended        Prior
                              Q3          Q2          Q1    30, 2005      2004        2003    Periods
      -------------------------------------------------------------------------
      Revenue         $(137)    $(236)    $(147)    $(520)    $(312)    $(261)    $(384)
      Gross Profit    (29)      (101)        (45)      (175)      (136)      (132)        (61)
      Operating
        Earnings
        (Loss)            (20)        (96)        (63)      (179)      (139)      (171)        (90)
      Net Earnings
        (Loss)            (31)        (78)        (55)      (164)      (156)      (141)        (70)@@end@@

ots Originaltext: Nortel Networks
Im Internet recherchierbar: http://www.presseportal.ch

Contact:
Media: Jay Barta, +1-972-685-2381, jbarta@nortel.com; Investors:
+1-888-901-7286 or +1-905-863-6049,  
investor@nortel.com



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