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TORONTO, ONTARIO--(Marketwire - Nov. 11, 2011) -
-- Through the creditor protection process, Nortel has sold all of its
businesses and remaining patents and patent applications generating
approximately $7.7 billion in net proceeds for the benefit of its
creditors, and preserving 16,000 jobs for employees with the purchasers
of the businesses and assets
-- Focus remains on maximizing value for stakeholders, including the sale
of remaining assets, wind down of global operations and entities,
ongoing cost reduction, the provision of transition services to
purchasers, and other significant work toward the conclusion of the
Creditor Protection Proceedings
-- Cash position as of September 30, 2011 continues to reflect
restructuring progress
Financial Presentation and Q3 2011 Results
-- Recognized a gain of $4.5 billion related to the sale of our remaining
patents and patent applications
-- Consolidated results include the results of operations and financial
position of Nortel Networks Corporation, its principal operating
subsidiary Nortel Networks Limited, and their subsidiaries in the Asia,
CALA, and EMEA regions other than those included in the U.S. or EMEA
deconsolidated subsidiaries
-- Cash balance as of September 30, 2011 was $792 million, compared to $790
million as of June 30, 2011, plus restricted cash balance of $7.6
billion consisting primarily of divestiture and IP proceeds
-- Minimal revenues in the third quarter of 2011 related to customer
contracts not transferred with the sales of businesses. We expect
minimal revenues for the remainder of 2011.
Nortel(1) Networks Corporation NRTLQ announced its results for the third quarter of 2011. Results were prepared in accordance with United States generally accepted accounting principles (GAAP) in U.S. dollars.
Nortel's consolidated results include the results of operations and financial position of Nortel Networks Corporation, its principal operating subsidiary Nortel Networks Limited, and their subsidiaries in the Asia, CALA, and EMEA regions other than those included in the U.S. or EMEA deconsolidated subsidiaries. As of June 1, 2010, and October 1, 2010, the EMEA Subsidiaries and U.S. Subsidiaries, respectively, were deconsolidated and accounted for under the cost method of accounting. In the context of the Creditor Protection Proceedings, Nortel continues to evaluate the method of accounting for all of its subsidiaries.
As a result of and following the divestitures of: (1) the Code Division Multiple Access/LTE Access and Enterprise Solutions businesses in the fourth quarter of 2009; (2) the Optical Networking and Carrier Ethernet, and Global System for Mobile communications/GSM for Railways businesses in the first quarter of 2010; (3) the Carrier VoIP and Application Solutions business; and Nortel's interest in the LG-Nortel (LGN) joint venture in the second quarter of 2010; (4) the multiservice switching products and related services business in the first quarter of 2011; and (5) the assets of Guangdong-Nortel Telecommunications Equipment Co. Ltd. (GDNT) in the second quarter of 2011, only the residual contracts not transferred with the businesses are included in Nortel's financial results.
As a result of the business sales, Nortel currently has one reportable segment, being the consolidated entity, as its chief operating decision maker reviews financial and operating results on that basis.
Financial Summary
Nortel's overall financial performance in the third quarter of 2011 was impacted by the sale of all of its businesses in prior quarters.
-- Revenues in the third quarter of $3 million.
-- SG&A expense in the third quarter of $28 million, a decrease of 74.1
percent from the year ago quarter.
-- R&D expense in the third quarter of nil. Nortel does not expect to incur
further R&D charges.
-- Cash balance as of September 30, 2011 was $792 million, compared to $790
million as of June 30, 2011. Restricted cash balance of $7.6 billion
consisting primarily of divestiture and IP proceeds
Revenues
Revenues from continuing operations were $3 million in the third quarter of 2011 compared to $85 million for the third quarter of 2010, resulting from the business divestitures and the deconsolidation of the U.S. subsidiaries.
Discontinued operations revenues in the third quarter of 2011 were nil compared to nil for the third quarter of 2010. Nortel does not expect any further revenues to be generated by the discontinued operations in future reporting periods.
Operating Expenses
Operating Expenses B/(W)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Q3 2011 YoY
----------------------------------------------------------------------------
SG&A $ 28 74.1%
R&D 0 100.0%
----------------------------------------------------------------------------
Total Operating Expenses $ 28 74.8%
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A focus on reducing costs, the business divestitures and the deconsolidation of the U.S. subsidiaries resulted in lower operating expenses compared to the year ago quarter. SG&A expense was $28 million in the third quarter of 2011, compared to $108 million for the third quarter of 2010. R&D expense was nil in the third quarter of 2011, compared to $3 million for the third quarter of 2010.
Net Earnings
The Company reported net earnings in the third quarter of 2011 of $4.1 billion compared to a net loss of $649 million in the third quarter of 2010.
The net earnings in the third quarter of 2011 included reorganization items of $4.2 billion and other operating income of $6 million comprised primarily of billings under transition services agreements, partially offset by interest expense of $82 million and other expense of $54 million.
Reorganization items of $4.2 billion were comprised of a gain on the sale of the remaining patents and patent applications of $4.5 billion, partially offset by charges incurred for employee-related expenses related to the court approval of employee claims of $182 million, distributions to non-Canadian estates no longer consolidated of $59 million, and professional fees of $18 million.
The net loss in the third quarter of 2010 included reorganization items of $529 million, interest expense of $77 million and other expense - net of $18 million, partially offset by other operating income of $94 million primarily related to billings under transition services agreements.
Reorganization items of $529 million primarily resulted from charges of $451 million primarily related to the remeasurement of liabilities related to Nortel's Canadian defined pension plans triggered by the cessation of all future pension accruals immediately prior to the transfer of the plans to a replacement administrator appointed by the Office of the Superintendent of Financial Services pursuant to the terms of the previously announced court-approved Settlement Agreement regarding former Canadian employees. The remeasurement utilized wind-up basis assumptions resulting in a significant increase in the liabilities. Reorganization items also included professional fees of $47 million and a loss of $25 million related to purchase price adjustments from business divestitures. Other expense of $18 million was comprised primarily of a currency exchange loss of $44 million partially offset by rental income of $21 million.
Cash
The cash balance as of September 30, 2011 was $792 million, compared to a cash balance of $790 million as of June 30, 2011. Restricted cash was $7.6 billion primarily related to the business divestiture and IP proceeds. The cash balance was essentially flat.
As previously announced, Nortel does not expect that the Company's common shareholders or the Nortel Networks Limited preferred shareholders will receive any value from Nortel's creditor protection proceedings and expects that the proceedings will result in the cancellation of these equity interests.
About Nortel
For more information, visit Nortel on the Web at www.nortel.com. For the latest Nortel news, visit www.nortel.com/news.
About Nortel
Certain statements in this press release may contain words such as "could", "expects", "may", "should", "will", "anticipates", "believes", "intends", "estimates", "targets", "plans", "envisions", "seeks" and other similar language and are considered forward-looking statements or information under applicable securities laws. 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 that are difficult to predict, and the actual outcome may be materially different. Nortel's 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 the expectations set out herein.
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 the Creditor Protection Proceedings including: (a) risks associated with Nortel's ability to: obtain required approvals and successfully consummate remaining divestitures; ability to satisfy transition services agreement obligations in connection with divestiture of operations; successfully conclude ongoing discussions for the sale of Nortel's remaining assets; develop, obtain required approvals for, and implement a court approved plan; allocation of the sale proceeds of our businesses among the various Nortel entities participating in these sales may take considerable time to resolve; resolve ongoing issues with creditors and other third parties whose interests may differ from Nortel's; generate cash from operations and maintain adequate cash on hand in each of its jurisdictions to fund operations within the jurisdiction during the Creditor Protection Proceedings; obtain any further required approvals from the Canadian Monitor, the U.K. Administrators, the U.S. Principal Officer, the U.S. Creditors' Committee, or other third parties; Nortel's ability to sell assets to satisfy claims against Nortel; realize full or fair value for any assets or business that are divested; utilize net operating loss carryforwards and certain other tax attributes in the future; avoid the substantive consolidation of NNI's assets and liabilities with those of one or more other U.S. Debtors;
operate effectively, and in consultation with the Canadian Monitor, and the U.S. Creditors' Committee and the U.S. Principal Officer and work effectively with the U.K. Administrators, French Administrator and French Liquidator and Israeli Administrators in their respective administration of the EMEA businesses subject to the Creditor Protection Proceedings; continue as a going concern; actively and adequately communicate on and respond to events, media and rumors associated with the Creditor Protection Proceedings; retain and incentivize key employees; retain, or if necessary, replace suppliers on acceptable terms and avoid disruptions in Nortel's supply chain regarding our remaining stranded contracts; obtain court orders or approvals with respect to motions filed from time to time; resolve claims made against Nortel in connection with the Creditor Protection Proceedings for amounts not exceeding Nortel's recorded liabilities subject to compromise; prevent third parties from obtaining court orders or approvals that are contrary to Nortel's interests; and (b) risks and uncertainties associated with: limitations on actions against any Debtor during the Creditor Protection Proceedings; the values, if any, that will be ascribed pursuant to any court approved plan to outstanding Nortel securities and, in particular, that Nortel does not expect that any value will be prescribed to the NNC common shares or the NNL preferred shares in any such plan; the delisting of NNC common shares from the NYSE; and the delisting of NNC common shares and NNL preferred shares from the TSX; and (ii) risks and uncertainties relating to Nortel's business including fluctuations in foreign currency exchange rates; the sufficiency of workforce and cost reduction initiatives; any adverse legal judgments, fines, penalties or settlements related to any significant pending or future litigation actions; failure to maintain integrity of Nortel's information systems; and Nortel's potential inability to maintain an effective risk management strategy.
For additional information with respect to certain of these and other factors, see Nortel's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q 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.
(1)Nortel, the Nortel logo and the Globemark are trademarks of Nortel Networks.
Note that Nortel will not be hosting a teleconference/audio webcast to discuss third quarter 2011 results.
NORTEL NETWORKS CORPORATION
(Under Creditor Protection Proceedings as of January 14, 2009)
Condensed Consolidated Statements of Operations (unaudited)
(U.S. GAAP; Millions of U.S. dollars, except per share amounts)
Three months ended Nine months ended
----------------------------------------------------
September September September September
30, 2011 30, 2010 30, 2011 30, 2010
----------------------------------------------------
Revenues:
Products $ 3 $ 72 $ 20 $ 478
Services - 13 4 114
----------------------------------------------------
3 85 24 592
----------------------------------------------------
Cost of revenues
Products (9) 81 15 452
Services 6 7 9 40
----------------------------------------------------
(3) 88 24 492
----------------------------------------------------
Gross profit (loss) 6 (3) - 100
Selling, general and
administrative expense 28 108 119 409
Research and development
expense - 3 - 106
----------------------------------------------------
Management operating
margin (22) (114) (119) (415)
Loss on sale of
businesses and assets 1 - 2 3
Other operating income -
net (6) (94) (49) (250)
----------------------------------------------------
Total operating expenses 23 17 72 268
----------------------------------------------------
Operating loss (17) (20) (72) (168)
Other income (expense) -
net (54) (18) (61) 14
Interest expense
Long-term debt (82) (77) (241) (227)
----------------------------------------------------
Loss from operations
before reorganization
items, income taxes,
equity in net earnings
of associated companies
and EMEA Subsidiaries (153) (115) (374) (381)
Reorganization items -
net 4,224 (529) 4,240 (1,488)
----------------------------------------------------
Earnings (loss) from
operations before
incomes taxes and
equity in net earnings
of associated companies
and EMEA Subsidiaries 4,071 (644) 3,866 (1,869)
Income tax benefit
(expense) (6) 4 (7) 37
----------------------------------------------------
Earnings (loss) from
continuing operations
before equity in net
earnings of associated
companies and EMEA
Subsidiaries 4,065 (640) 3,859 (1,832)
Equity in net earnings
(loss) of associated
companies - net of tax - - - (1)
Equity in net earnings
(loss) of EMEA
Subsidiaries (a) - - - (50)
----------------------------------------------------
Net earnings (loss) from
continuing operations 4,065 (640) 3,859 (1,883)
Net earnings (loss) from
discontinued operations
- net of tax (c) - (5) (1) 28
----------------------------------------------------
Net earnings (loss) 4,065 (645) 3,858 (1,855)
Income attributable to
noncontrolling
interests (5) (4) (18) (11)
----------------------------------------------------
Net earnings (loss)
attributable to Nortel
Networks Corporation $ 4,060 $ (649) $ 3,840 $ (1,866)
----------------------------------------------------
----------------------------------------------------
Average shares
outstanding (millions)
- Basic 499 499 499 499
Average shares
outstanding (millions)
- Diluted 535 499 535 499
Basic earnings (loss)
per common share -
continuing operations $ 8.14 $ (1.29) $ 7.70 $ (3.80)
Basic earnings (loss)
per common share -
discontinued operations $ 0.00 $ (0.01) $ 0.00 $ 0.06
----------------------------------------------------
Total basic earnings
(loss) per common share $ 8.14 $ (1.30) $ 7.70 $ (3.74)
----------------------------------------------------
----------------------------------------------------
Diluted earnings (loss)
per common share -
continuing operations $ 7.61 $ (1.29) $ 7.22 $ (3.80)
Diluted earnings (loss)
per common share -
discontinued operations $ 0.00 $ (0.01) $ 0.00 $ 0.06
----------------------------------------------------
Total diluted earnings
(loss) per common share $ 7.61 $ (1.30) $ 7.22 $ (3.74)
----------------------------------------------------
----------------------------------------------------
(a) Nortel determined that, as of the Petition Date, the presentation of
the EMEA Subsidiaries under the equity method of accounting was more
appropriate based on the conclusion that Nortel exercised significant
influence over those entities. The equity method of accounting resulted
in the financial position and results of operations of the EMEA
Subsidiaries being presented net on a single line on the balance sheet
and statement of operations, versus being combined gross into each
individual line item. As of May 31, 2010, the EMEA Subsidiaries are
accounted for under the cost method of accounting.
(b) Nortel determined that, as of October 1, 2010, the U.S. Debtors, and
their subsidiaries (U.S. Subsidiaries), should be accounted for under
the cost method of accounting.
(c) The ES business as well as the shares of NGS and DiamondWare are
presented as discontinued operations beginning with the quarter ended
September 30, 2009. The LGN business is presented as discountined
operations beginning with the quarter ended June 30, 2010. Accordingly,
comparative periods have been recast to give effect for the changes in
presentation.
NORTEL NETWORKS CORPORATION
(Under Creditor Protection Proceedings as of January 14, 2009)
Condensed Consolidated Balance Sheets (unaudited)
(U.S. GAAP; Millions of U.S. dollars, except per share amounts)
----------------------------------
September 30, December 31,
2011 2010(a)
----------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 792 $ 807
Restricted cash and cash equivalents 114 158
Accounts receivable - net 192 260
Inventories - net - 4
Other current assets 88 154
Assets held for sale - 39
Assets of discontinued operations - 4
----------------------------------
Total current assets 1,186 1,426
Restricted cash and cash equivalents 7,493 3,061
Plant and equipment 5 30
Other assets 49 65
----------------------------------
Total assets $ 8,733 $ 4,582
----------------------------------
----------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Trade and other accounts payable $ 323 $ 385
Payroll and benefit-related liabilities 19 42
Contractual liabilities 21 69
Restructuring liabilities 1 1
Other accrued liabilities 40 55
Liabilities held for sale - 10
Liabilities of discontinued operations 5 5
----------------------------------
Total current liabilities 409 567
Long-term liabilities
Deferred income taxes 9 -
Other liabilities 18 31
----------------------------------
Total long-term liabilities 27 31
Liabilities subject to compromise 10,765 10,565
Liabilities subject to compromise of
discontinued operations 35 35
----------------------------------
Total liabilities 11,236 11,198
----------------------------------
SHAREHOLDERS' DEFICIT
Common shares, without par value -
Authorized shares: unlimited; 35,604 35,604
Issued and outstanding shares:
498,206,366 as of September 30, 2011
and December 31, 2010
Additional paid-in capital 3,597 3,597
Accumulated deficit (42,237) (46,076)
Accumulated other comprehensive income (103) (362)
----------------------------------
Total Nortel Networks Corporation
shareholders' deficit (3,139) (7,237)
----------------------------------
Noncontrolling interest 636 621
----------------------------------
Total shareholders' deficit (2,503) (6,616)
----------------------------------
Total liabilities and shareholders'
deficit $ 8,733 $ 4,582
----------------------------------
----------------------------------
(a) Nortel has recast its balance sheet for the year ended December 31,
2010 as a result of becoming aware of NNL contractual guarantees
provided in connection with real estate leases entered into by certain
EMEA Subsidiaries and U.S. Subsidiaries. See the Quarterly Report on
Form 10-Q for the nine months ended September 30, 2011 for additional
details.
NORTEL NETWORKS CORPORATION
(Under Creditor Protection Proceedings as of January 14, 2009)
Condensed Consolidated Statements of Cash Flows
(U.S. GAAP; Millions of U.S. dollars)
Three months ended Nine months ended
----------------------------------------------------
September September September September
30, 2011 30, 2010 30, 2011 30, 2010
----------------------------------------------------
Cash flows from (used
in) operating
activities
Net earnings (loss)
attributable to
Nortel Networks
Corporation $ 4,060 $ (649) $ 3,840 $ (1,866)
Net earnings (loss)
from discontinued
operations - net of
tax - 5 1 (28)
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 7 15 27 51
Equity in net loss
of associated
companies - net of
tax - - - 1
Equity in net loss
of EMEA
Subsidiaries - - - 50
Deferred income
taxes 9 - 9 (6)
Pension and other
accruals 14 30 42 83
Loss on sales of
business and
impairment of
assets - net - - - 2
Income (loss)
attributable to
noncontrolling
interests - net of
tax 5 4 18 11
Reorganization items
- non cash (4,248) 481 (4,312) 1,347
Other - net 62 32 32 424
Change in operating
assets and
liabilities: Other (134) 125 132 129
----------------------------------------------------
Net cash from (used
in) operating
activities of
continuing operations (225) 43 (211) 198
Net cash from (used
in) operating
activities of
discontinued
operations - (36) - (377)
----------------------------------------------------
Net cash from (used
in) operating
activities (225) 7 (211) (179)
----------------------------------------------------
Cash flows from (used
in) investing
activities
Expenditures for plant
and equipment - (1) - (8)
Change in restricted
cash and cash
equivalents (4,237) (43) (4,388) (1,221)
Decrease in short-term
and long-term
investments - - - 24
Acquisitions of
investments and
businesses - net of
cash acquired - (1) - (3)
Proceeds from sales of
investments and
businesses and assets
- net 4,491 17 4,598 987
----------------------------------------------------
Net cash from (used
in) investing
activities of
continuing operations 254 (28) 210 (221)
Net cash from (used
in) investing
activities of
discontinued
operations - 36 - 203
----------------------------------------------------
Net cash from (used
in) investing
activities 254 8 210 (18)
----------------------------------------------------
Cash flows from (used
in) financing
activities
Dividends paid,
including paid by
subsidiaries to
noncontrolling
interests (2) (8) (2) (19)
Repayment of capital
leases - (1) - (4)
----------------------------------------------------
Net cash from (used
in) financing
activities of
continuing operations (2) (9) (2) (23)
Net cash from (used
in) financing
activities of
discontinued
operations - - - (77)
----------------------------------------------------
Net cash from (used
in) financing
activities (2) (9) (2) (100)
----------------------------------------------------
Effect of foreign
exchange rate changes
on cash and cash
equivalents (25) 12 (12) 11
Reduction of cash and
cash equivalents of
deconsolidated
subsidiaries - - - (26)
----------------------------------------------------
Net cash from (used in)
continuing operations 2 18 (15) (61)
Net cash from (used in)
discontinued operations - - - (251)
----------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents 2 18 (15) (312)
Cash and cash
equivalents at
beginning of period 790 1,668 807 1,998
----------------------------------------------------
Cash and cash
equivalents at end of
period 792 1,686 792 1,686
Less cash and cash
equivalents of
discontinued operations
at end of period - - - -
----------------------------------------------------
Cash and cash
equivalents of
continuing operations
at end of period $ 792 $ 1,686 $ 792 $ 1,686
----------------------------------------------------
----------------------------------------------------
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