Nortel Files 2005 Financial Statements
Toronto (ots/PRNewswire)
- 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, 2005Nortel 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.
(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)Contact:
Media: Jay Barta, +1-972-685-2381, jbarta@nortel.com; Investors:
+1-888-901-7286 or +1-905-863-6049,
investor@nortel.com