Nortel Reports Financial Results for the First Quarter 2011

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May 16, 2011

Financial Presentation and Q1 2011 Results

TORONTO - Nortel* Networks Corporation [OTC: NRTLQ] announced its results for the first 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 that do not form part of the U.S. or EMEA deconsolidated estates.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 (CDMA)/LTE Access and Enterprise Solutions (ES) businesses in the fourth quarter of 2009; (2) the

Optical Networking and Carrier Ethernet, and Global System for Mobile communications (GSM)/GSM for Railways (GSM-R) businesses in the first quarter of 2010; (3) the Carrier VoIP and Application Solutions (CVAS) business and Nortel’s interest in the LGN joint venture in the second quarter of 2010; and (4)

the multiservice switching products and related services (MSS) business in the first quarter of 2011,

only the residual contracts related to those businesses are included in Nortel’s financial results.

As announced on December 1, 2010, Nortel China and other third parties entered into an asset sale agreement with Ericsson China for the sale of substantially all of the assets of

Guangdong-Nortel Telecommunications Equipment Co. Ltd. (GDNT). Nortel announced the closing of the sale on May 12, 2011.

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, inclusive of residual contracts.

Financial Summary

Nortel’s overall financial performance in the first quarter of 2011 was impacted by the sale of substantially all of its businesses in prior quarters.

Revenues

Revenues from continuing operations were $20 million in the first quarter of 2011 compared to $362 million for the first quarter of 2010, reflecting a reduction of 94.5 percent as a result of the business divestitures and the deconsolidation of the U.S. Subsidiaries.

Discontinued operations revenues in the

first quarter of 2011 were

nil, a decrease of

100

percent compared with the year ago quarter as a result of the sale of NNL’s interest in LGN in the second quarter of 2010. Nortel does not expect any further revenues to be generated by the discontinued operations in future reporting periods.

Gross Margin

Gross margin declined to negative10percent of revenues in the first quarter of 2011 compared to26.8percent for the first quarter of 2010, primarily as a result of the business divestitures and the deconsolidation of the U.S. Subsidiaries.

Operating Expenses 

Operating Expenses B/(W)

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 $38 million in the first quarter of 2011, compared to $166 million for the first quarter of 2010. R&D expense was nil in the first quarter of 2011, compared to $82 million for the first quarter of 2010.

Net Loss

The Company reported a net loss in the first quarter of 2011 of $105 million compared to net earnings of $355 million in the first quarter of 2010.

The net loss included interest expense of $79 million, other expense - net of $12 million, partially offset by other operating income of $25 million comprised primarily of billings under transition services agreements and reorganization items of $6 million. 

Other expense of $12 million was comprised primarily of a currency exchange loss of $10 million. Reorganization items of $5 million were comprised of a downward purchase price adjustment of $25 million related to the sale of the CVAS business, and professional fees of $18 million, partially offset by the gain of $41 million on the divestiture of the MSS business.

The net earnings in the first quarter of 2010 of $355 million included reorganization items of $496 million primarily related to the gain on the divestitures of the Optical Networking and Carrier Ethernet businesses and GSM/GSM-R business, other operating income of $60 million primarily of billings under transition services agreements, and other income - net of $60 million, comprised in part of a currency exchange gain of $44 million and rental income of $13 million.

Cash

The cash balance as of March 31, 2011 was $775 million compared to a cash balance of $807 million as of December 31, 2010 and restricted cash as of March 31, 2011 was $3.2 billion primarily related to the business divestiture proceeds. The cash balance was impacted by cash used in operating activities of $50 partially offset by a net favorable foreign exchange impact of $9 million, and cash from investing activities of $9 million related to proceeds from the sale of the MSS business of $49 million, which was almost entirely offset by an increase in restricted cash of $40 million.

About Nortel

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", "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 pending and future divestitures; ability to satisfy transition services agreement obligations in connection with divestiture of operations; successfully conclude ongoing discussions for the sale of Nortel's other 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 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; continue to have cash management arrangements and 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; raise capital to satisfy claims, including 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 under the new organizational structure, and in consultation with the Canadian Monitor, and the U.S. Creditors' Committee and work effectively with the U.K. Administrators, French Administrator 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 that could adversely affect Nortel's relationships with customers, suppliers, partners and employees; retain and incentivize key employees as may be needed; retain, or if necessary, replace major 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 business including fluctuations in foreign currency exchange rates; a high level of debt, arduous or restrictive terms and conditions related to accessing certain sources of funding; the sufficiency of workforce and cost reduction initiatives; a failure to protect Nortel's intellectual property rights; 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.

Note that Nortel will not be hosting a teleconference/audio webcast to discuss first quarter 2011 results.

Contacts for Press and Analysts:

Media Relations

MediaRelations@nortel.com

Additional Media & Analyst Contacts

News Source : Nortel Reports Financial Results for the First Quarter 2011