TORONTO, ONTARIO -- (Marketwire) -- 03/08/12 -- Nortel(1) Networks Corporation (OTCBB: NRTLQ) -
-- 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, creditor claims process, allocation of sales
proceeds amongst the Nortel estates, and other significant work toward
the conclusion of the Creditor Protection Proceedings.
Financial Presentation and Q4 2011 Results
-- 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 December 31, 2011 was $751 million, compared to $792
million as of September 30, 2011, plus restricted cash balance of $7.6
billion consisting primarily of divestiture and IP proceeds.
-- Minimal revenues in the fourth quarter of 2011 related to customer
contracts not transferred with the sales of businesses. We expect
minimal revenues in 2012.
Nortel(i) Networks Corporation announced its results for the fourth quarter and full year 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 our businesses, 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.
Our historical financial performance is not indicative of our future financial performance.
Financial Summary
Nortel's overall financial performance in the fourth quarter of 2011 reflects the sale of all of its businesses in prior quarters.
-- Revenues in the fourth quarter of $3 million.
-- SG&A expense in the fourth quarter of $38 million, a decrease of 64.2
percent from the year ago quarter.
-- R&D expense in the fourth quarter of nil. Nortel does not expect to
incur further R&D expenses.
-- Cash balance as of December 31, 2011 was $751 million, compared to $792
million as of September 30, 2011. Restricted cash balance of $7.6
billion consisting primarily of divestiture and patents and patent
applications sales proceeds.
Revenues
Revenues were $3 million in the fourth quarter of 2011 related to remaining customer contracts, compared to $28 million for the fourth quarter of 2010 related to the multiservice switching products and related services business and remaining customer contracts. The decrease resulted from the business divestitures and the deconsolidation of the U.S. subsidiaries.
Operating Expenses
Operating Expenses B/(W)
--------------------------------------------------------
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Q4 2011 YoY
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SG&A $ 38 64.2%
R&D 0 100.0%
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Total Operating Expenses $ 38 64.5%
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A focus on reducing costs, the divesting of our businesses and the deconsolidation of the U.S. subsidiaries resulted in lower operating expenses compared to the year ago quarter. SG&A expense was $38 million in the fourth quarter of 2011, compared to $106 million for the fourth quarter of 2010. R&D expense was nil in the fourth quarter of 2011, compared to $1 million for the fourth quarter of 2010.
Net Loss
The Company reported a net loss in the fourth quarter of 2011 of $170 million compared to a net loss of $2.3 billion in the fourth quarter of 2010.
The net loss in the fourth quarter of 2011 included interest expense of $83 million and reorganization items of $46 million, partially offset by other operating income of $8 million comprised primarily of a settlement related to a customer contract and other income - net of $9 million comprised primarily of a foreign exchange gain of $7 million.
Reorganization items of $46 million were primarily comprised of professional fees of $13 million and $25 million due to certain settlements related to the Creditor Protection Proceedings.
The net loss in the fourth quarter of 2010 included reorganization items of $2.2 billion and interest expense of $79 million, partially offset by other operating income of $31 million primarily related to billings under transition services agreements and other income - net of $48 million.
Reorganization items of $2.2 billion primarily related to a charge of $2.2 billion resulting from the deconsolidation of the U.S. Subsidiaries. Other income - net of $48 million was comprised primarily of a currency exchange gain of $43 million and rental income of $9 million.
Cash
The cash balance as of December 31, 2011 was $751 million, compared to a cash balance of $792 million as of September 30, 2011. Restricted cash was $7.6 billion primarily related to the business divestiture and IP proceeds. The cash balance decreased primarily due to cash outflows related to general operations.
Full Year 2011 Results
For 2011, revenues were $27 million compared to $620 million for 2010. Nortel reported net earnings for 2011 of $3.7 billion, compared to a net loss of $4.2 billion for the year 2010.
Net earnings for 2011 included reorganization items of $4.2 billion and other operating income of $57 million comprised primarily of billings under transition services agreements, partially offset by interest expense of $324 million and other expense - net of $45 million comprised primarily of a foreign exchange loss of $35 million.
Reorganization items of $4.2 billion were comprised primarily of $4.5 billion related to a gain on the sale of remaining patents and patent applications, partially offset by employee-related expenses of $190 million resulting from the court approval of employee claims, $70 million for professional fees, and reimbursements from escrow to non-Canadian estates no longer consolidated of $59 million.
The net loss for 2010 included reorganization items of $3.7 billion and interest expense of $306 million, partially offset by other operating income of $281 million primarily related to billings under transition services agreements and other income - net of $57 million.
Reorganization items of $3.7 billion primarily related to a charge of $3.6 billion resulting from the deconsolidation of the U.S. and EMEA Subsidiaries. Other income - net of $57 million was comprised primarily of rental income of $59 million.
As previously announced, Nortel does not expect that the Company's common shareholders or the NNL preferred shareholders will receive any value from the 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-canada.com.
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 remaining transition services agreement obligations in connection with divestiture of businesses and assets; 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 and assets 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; maintain adequate cash on hand in each of its jurisdictions to fund remaining work 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; 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, the Canadian creditors' committee, the U.S. Creditors' Committee, the U.S. Principal Officer, and work effectively with the U.K. Administrators and French Administrator 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 as may be needed; 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 prescribed 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 remaining restructuring work 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 fourth 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 Twelve months
ended ended
---------------------- ---------------------
December December December December
31, 2011 31, 2010 31, 2011 31, 2010
---------------------- ---------------------
Revenues:
Products $ 2 $ 23 $ 22 $ 501
Services 1 5 5 119
---------------------- ---------------------
3 28 27 620
---------------------- ---------------------
Cost of revenues
Products 8 34 23 486
Services 9 6 18 46
---------------------- ---------------------
17 40 41 532
---------------------- ---------------------
Gross profit (loss) (14) (12) (14) 88
Selling, general and
administrative expense 38 106 157 515
Research and development
expense - 1 - 107
---------------------- ---------------------
Management operating margin (52) (119) (171) (534)
Loss on sale of businesses and
assets 1 - 3 3
Other operating income - net (8) (31) (57) (281)
---------------------- ---------------------
Total operating expenses 31 76 103 344
---------------------- ---------------------
Operating loss (45) (88) (117) (256)
Other income (expense) - net 9 48 (45) 57
Interest expense
Long-term debt (83) (79) (324) (306)
---------------------- ---------------------
Loss from operations before
reorganization items, income
taxes, equity in net earnings
of associated companies and
EMEA Subsidiaries (119) (119) (486) (505)
Reorganization items - net (46) (2,211) 4,187 (3,694)
---------------------- ---------------------
Earnings (loss) from
operations before incomes
taxes and equity in net
earnings of associated
companies and EMEA
Subsidiaries (165) (2,330) 3,701 (4,199)
Income tax benefit (expense) (2) 3 (9) 40
---------------------- ---------------------
Earnings (loss) from
continuing operations before
equity in net earnings of
associated companies and EMEA
Subsidiaries (167) (2,327) 3,692 (4,159)
Equity in net loss of
associated companies - net of
tax - - - (1)
Equity in net loss of EMEA
Subsidiaries (a) - - - (50)
---------------------- ---------------------
Net earnings (loss) from
continuing operations (167) (2,327) 3,692 (4,210)
Net earnings (loss) from
discontinued operations - net
of tax (c) - (4) (1) 24
---------------------- ---------------------
Net earnings (loss) (167) (2,331) 3,691 (4,186)
Income attributable to
noncontrolling interests (3) (3) (21) (14)
---------------------- ---------------------
Net earnings (loss)
attributable to Nortel
Networks Corporation $ (170) $(2,334) $3,670 $(4,200)
---------------------- ---------------------
---------------------- ---------------------
Average shares outstanding
(millions) - Basic 499 499 499 499
Average shares outstanding
(millions) - Diluted 499 499 536 499
Basic earnings (loss) per
common share - continuing
operations $(0.34) $ (4.67) $ 7.36 $ (8.47)
Basic earnings (loss) per
common share - discontinued
operations $ 0.00 $ (0.01) $ 0.00 $ 0.05
---------------------- ---------------------
Total basic earnings (loss)
per common share $(0.34) $ (4.68) $ 7.36 $ (8.42)
---------------------- ---------------------
---------------------- ---------------------
Diluted earnings (loss) per
common share - continuing
operations $(0.34) $ (4.67) $ 6.91 $ (8.47)
Diluted earnings (loss) per
common share - discontinued
operations $ 0.00 $ (0.01) $ 0.00 $ 0.05
---------------------- ---------------------
Total diluted earnings (loss)
per common share $(0.34) $ (4.68) $ 6.91 $ (8.42)
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(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 discontinued
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)
-------------------------
December December
31, 2011 31, 2010(a)
----------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 751 $ 807
Restricted cash and cash equivalents 93 158
Accounts receivable - net 174 260
Inventories - net - 4
Other current assets 79 154
Assets held for sale - 39
Assets of discontinued operations - 4
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Total current assets 1,097 1,426
Restricted cash 7,479 3,061
Plant and equipment - net - 30
Other assets 52 65
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Total assets $ 8,628 $ 4,582
----------- ------------
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Trade and other accounts payable $ 319 $ 385
Payroll and benefit-related liabilities 17 42
Contractual liabilities 19 69
Restructuring liabilities 1 1
Other accrued liabilities 17 55
Liabilities held for sale - 10
Liabilities of discontinued operations 1 5
----------- ------------
Total current liabilities 374 567
Long-term liabilities
Deferred income taxes - net 7 -
Other liabilities 17 31
----------- ------------
Total long-term liabilities 24 31
Liabilities subject to compromise 10,905 10,565
Liabilities subject to compromise of discontinued
operations 34 35
----------- ------------
Total liabilities 11,337 11,198
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SHAREHOLDERS' DEFICIT
Common shares, without par value - Authorized
shares: unlimited; 35,604 35,604
Issued and outstanding shares: 498,206,366 as of
December 31, 2011 and December 31, 2010
Additional paid-in capital 3,597 3,597
Accumulated deficit (42,406) (46,076)
Accumulated other comprehensive income (143) (362)
----------- ------------
Total Nortel Networks Corporation shareholders'
deficit (3,348) (7,237)
----------- ------------
Noncontrolling interest 639 621
----------- ------------
Total shareholders' deficit (2,709) (6,616)
----------- ------------
Total liabilities and shareholders' deficit $ 8,628 $ 4,582
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(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 Annual Report on Form 10-K
for the year ended December 31, 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 Twelve months
ended ended
-------------------- ---------------------
December December December December
31, 2011 31, 2010 31, 2011 31, 2010
-------------------- ---------------------
Cash flows from (used in)
operating activities
Net earnings (loss)
attributable to Nortel
Networks Corporation $ (170) $(2,334) $ 3,670 $(4,200)
Net earnings (loss) from
discontinued operations - net
of tax - 4 1 (24)
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 6 24 33 75
Equity in net loss of
associated companies - net
of tax - - - 1
Equity in net loss of EMEA
Subsidiaries - - - 50
Deferred income taxes (2) - 7 (6)
Pension and other accruals 13 18 55 101
Loss on sales of business and
impairment of assets - net - - - 2
Income attributable to
noncontrolling interests -
net of tax 3 3 21 14
Reorganization items - non
cash 29 2,191 (4,276) 3,533
Other - net (21) (2) 11 422
Change in operating assets
and liabilities: Other 61 51 186 185
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Net cash from (used in)
operating activities of
continuing operations (81) (45) (292) 153
Net cash from (used in)
operating activities of
discontinued operations - (8) - (385)
-------------------- ---------------------
Net cash from (used in)
operating activities (81) (53) (292) (232)
-------------------- ---------------------
Cash flows from (used in)
investing activities
Expenditures for plant and
equipment - (1) - (9)
Proceeds on disposal of plant
and equipment - 203 - 203
Change in restricted cash and
cash equivalents 35 8 (4,353) (1,213)
Decrease in short-term and
long-term investments - - - 24
Acquisitions of investments and
businesses - net of cash
acquired - - - (3)
Proceeds from sales of
investments and businesses and
assets - net 4 7 4,602 994
-------------------- ---------------------
Net cash from (used in)
investing activities of
continuing operations 39 217 249 (4)
Net cash from (used in)
investing activities of
discontinued operations - 8 - 211
-------------------- ---------------------
Net cash from (used in)
investing activities 39 225 249 207
-------------------- ---------------------
Cash flows from (used in)
financing activities
Dividends paid, including paid
by subsidiaries to
noncontrolling interests - - (2) (19)
Decrease in notes payable - (75) - (75)
Repayment of capital leases - - - (4)
-------------------- ---------------------
Net cash from (used in)
financing activities of
continuing operations - (75) (2) (98)
Net cash from (used in)
financing activities of
discontinued operations - - - (77)
-------------------- ---------------------
Net cash from (used in)
financing activities - (75) (2) (175)
-------------------- ---------------------
Effect of foreign exchange rate
changes on cash and cash
equivalents 1 (10) (11) 1
Reduction of cash and cash
equivalents of deconsolidated
subsidiaries - (966) - (992)
-------------------- ---------------------
Net cash from (used in)
continuing operations (41) (879) (56) (940)
Net cash from (used in)
discontinued operations - - - (251)
-------------------- ---------------------
Net increase (decrease) in cash
and cash equivalents (41) (879) (56) (1,191)
Cash and cash equivalents at
beginning of period 792 1,686 807 1,998
-------------------- ---------------------
Cash and cash equivalents at end
of period $ 751 $ 807 $ 751 $ 807
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Contacts:
Nortel
Media Relations
MediaRelations@nortel.com
www.nortel-canada.com
