Nortel Networks earnings
Nortel Networks Reports Strong Third Quarter Results
- Revenues Up 30% to US$5.4 Billion
- Net Earnings from Operations Up 61% to US$380 Million
- EPS From Operations Up 33% to US$0.28
BRAMPTON, ON, Oct. 26 /CNW/ - Nortel Networks* (NYSE/TSE: NT) today
reported results for the third quarter and first nine months of 1999.
Revenues increased 30 percent to US$5.39 billion for the third quarter of
1999 from US$4.14 billion for the same period in 1998. Net earnings from
operations applicable to common shares (a) for the quarter were US$380
million, or US$0.28 per share, compared to US$236 million, or US$0.21 per
share, for the same period in 1998, an increase in EPS from operations of 33
percent. Including Acquisition Related Costs (a) and one-time gains and
charges, Nortel Networks recorded net earnings applicable to common shares in
the third quarter of 1999 of US$1 million or less than US$0.01 per share.
``We are extremely pleased with our strong growth in the quarter which
reflected continued momentum with our carrier and service provider
customers,' said John Roth, president and chief executive officer, Nortel
Networks. ``The strong demand for our optical, wireless, high speed access
and new Internet Protocol (IP) offerings further confirmed our leadership in
creating a high-performance Internet with new economics and increased speed,
reliability and quality.
Notable highlights since the beginning of third quarter included:
- Announcements related to the deployment of our market leading next
generation Internet capabilities, including
AT&T Wireless Services - Wireless Internet solutions (TDMA) for
five states in the western United States,
Cable & Wireless - open Optical Internet equipment and system
integration for its European network, and nationwide open Optical
Internet solutions for its national network in the United States,
Level 3 Communications - transport, Optical Internet (10 Gigabit)
solutions and network management for its IP optimized end-to-end
international network,
Telia - high performance IP packet network in Sweden,
NET-tel Communications - Internet Telephony, packet voice gateway
and multimedia access platform for transition to next generation
packet network in the United States,
Prism Communications - expansion of its network across 33 markets in
the U.S. with Internet Telephony and high speed access solutions
(DSL-based),
NaviNet - High speed access solutions (CVX1800) for Internet Access
Services,
Bouygues Telecom - General Packet Radio Service (GPRS) trial in
selected areas of Paris,
One-2-One - market trial of GPRS solution in areas of London, to
demonstrate Wireless Internet capabilities using WAP (Wireless
Application Protocol), and
Swisscom (TNet'99) - Optical Internet Solutions, Intranet Services
and prime contractor for the Telecom '99 network.
- Two product announcements concerning the next generation Optical
Internet: the OPTera* Packet Solution, which will bridge optical and packet
networks to deliver advanced optical switching and routing at speeds of up to
19 Terabits per second, and an even higher capacity optical transport using an
80 Gigabit per second platform and supporting up to 6.4 Terabits per second of
traffic on a single fiber. Expected to be available in 2000 and 2001
respectively, both solutions will be scalable from today's offerings.
- The acquisition announcements involving Clarify, a leader in front
office application solutions focussed on customer relationship management for
eBusiness and Periphonics, a leading provider of interactive voice and web
response solutions used in call centers and other network applications.'
``These highlights, together with continued progress on key business
initiatives, including virtual integration of our business operations,
evolution of eBusiness initiatives and realigning the organization to better
serve our customers, will position us well for continued success in 2000,'
Roth said.
Commenting specifically on the Corporation's anticipated U.S. GAAP
financial results for 2000, Frank Dunn, senior vice-president and chief
financial officer, Nortel Networks, said, ``Given the strong quarter and our
strengthening momentum in the marketplace, we now expect that our revenue
growth will exceed the market growth of 14 to 15 percent by about 6 percentage
points, and that our growth in earnings per share from operations will be
faster than our revenue growth'.
Revenue Breakdown
-----------------
Segment revenues for the third quarter increased 32 percent for the
Carrier segment and 27 percent for the Enterprise segment over the same period
in 1998.
Carrier segment revenues reflected continued strong increases in both
optical networks and high speed access solutions in the United States and
Europe. Sales of mobility systems increased significantly in Europe, the
United States and Asia Pacific more than off setting a decline in Brazil.
Enterprise segment revenues increased in the quarter, primarily driven by
the increase in enterprise data revenues due to the Bay Networks merger. Sales
of enterprise applications also increased in the United States and Europe more
than offsetting a decline in Canada.
Geographic revenues for the third quarter of 1999 increased 39 percent in
the United States and 24 percent outside the United States and Canada over the
third quarter 1998, while revenues in Canada declined 3 percent.
The overall increase in net earnings from operations for the quarter was
driven by revenue growth, higher gross profit and a decrease in the effective
tax rate.
The third quarter 1999 earnings specifically included one-time pre-tax
net gains of US$110 million (primarily related to the divestiture and
outsourcing of certain operations as part of the strategy to streamline
operations announced in January 1999), one-time pre-tax charges of US$103
million (primarily related to asset writedowns and severance costs associated
with the Enterprise segment) and Acquisition Related Costs of US$384 million
(primarily related to the Bay Networks intangible assets).
Nine-Month Results
------------------
For the first nine months of 1999, revenues increased 29 percent to
US$15.22 billion from US$11.81 billion for the same period in 1998. Net
earnings from operations applicable to common shares (a) for the first nine
months were US$970 million, or US$0.72 per share, compared to US$588 million,
or US$0.54 per share, for the same period in 1998, an increase in EPS from
operations of 33 percent. Including Acquisition Related Costs and one-time
gains and charges, Nortel Networks recorded a net loss of US$614 million, or
US$0.46 per share, for the first nine months of 1999.
Expenses
--------
Selling, general and administrative (``SG&A') expenses in the quarter
were US$979 million, or 18.2 percent of revenue, compared with US$728 million,
or 17.6 percent of revenue, in the third quarter of 1998. For the first nine
months of 1999, SG&A expenses were US$2.87 billion, or 18.9 percent of
revenue, compared with US$2.06 billion, or 17.5 percent of revenues, in the
first nine months of 1998. The increased SG&A expenses in the quarter
primarily reflected the higher SG&A expenses associated with Enterprise
operations that have traditionally higher spending levels, increased levels of
customer financing activity and investments to support Nortel Networks'
enhanced global marketing programs.
Research and development (``R&D') expenses were US$755 million, or 14.0
percent of revenue, in the quarter, compared with US$616 million, or 14.9
percent of revenue, in the third quarter of 1998. For the first nine months
of 1999, R&D expenses were US$2.12 billion, or 13.9 percent of revenues,
compared with US$1.80 billion, or 15.3 percent of revenue, in the first nine
months of 1998. The increased R&D investments in the quarter reflected
planned increases in the Carrier and Enterprise segments focused on data
networking and IP technologies.
Nortel Networks is a global leader in telephony, data, wireless and
wireline solutions for the Internet. The Company had 1998 revenues of US$17.6
billion and serves carrier, service provider and enterprise customers
globally. Today, Nortel Networks is creating a high-performance Internet that
is more reliable and faster than ever before. It is redefining the economics
and quality of networking and the Internet through Unified Networks* that
promise a new era of collaboration, communications and commerce. Visit us at
www.nortelnetworks.com.
Certain information included in this press release is forward-looking and
is subject to important risks and uncertainties. The results or events
predicted in these statements may differ materially from actual results or
events. Factors which could cause results or events to differ from current
expectations include, among other things: the impact of price and product
competition; the dependence on new product development; the impact of rapid
technological and market change; the ability of Nortel Networks to integrate
the operations and technologies of acquired businesses in an effective manner;
general industry and market conditions and growth rates; international growth
and global economic conditions, particularly in emerging markets and including
interest rate and currency exchange rate fluctuations; unanticipated impact of
Year 2000 issues; and the impact of consolidations in the telecommunications
industry. For additional information with respect to certain of these and
other factors, see the reports filed by Nortel Networks with the United States
Securities and Exchange Commission. Nortel Networks disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
(a) Net earnings from operations applicable to common shares is defined
as reported net earnings applicable to common shares before
``Acquisition Related Costs' (the amortization of intangible assets
from the acquisition of Bay Networks, Inc. (``Bay Networks') and all
subsequent acquisitions, and the amortization of any purchased
in-process research and development from prior acquisitions) and
one-time gains and charges.
* Nortel Networks, the Nortel Networks Globemark, Unified Networks,
OPTera and How the world shares ideas are trademarks of Nortel Networks.
<<
NORTEL NETWORKS CORPORATION
Condensed Consolidated Results (unaudited)
(millions of U.S. dollars except per share figures)
--------------------- --------------------
CDN GAAP CDN GAAP
Three months ended Nine months ended
September 30, September 30,
--------------------- --------------------
1999 1998 1999 1998
---------- -------- --------- ---------
Revenues................... $ 5,393 $ 4,141 $15,224 $11,807
Cost of revenues........... 3,099 2,346 8,669 6,811
---------- -------- --------- ---------
Gross profit............... 2,294 1,795 6,555 4,996
Selling, general and
administrative expense.... 979 728 2,873 2,064
Research and development
expense................... 755 616 2,122 1,801
Amortization of intangibles
Purchased in-process R&D. 71 321 672 713
Acquired technology...... 171 57 513 57
Goodwill................. 162 62 462 99
Special charges............ 103 388 165 420
---------- -------- --------- ---------
53 (377) (252) (158)
Investment and other income
- net..................... 33 130 112 195
Interest expense
Long-term debt........... (27) (28) (77) (87)
Other.................... (11) (36) (40) (81)
Gain on sale of businesses. 110 260 110 258
---------- -------- --------- ---------
Earnings (loss) before
income taxes.............. 158 (51) (147) 127
Income tax provision....... 150 130 446 332
---------- -------- --------- ---------
Net earnings (loss)........ 8 (181) (593) (205)
Dividends on preferred
shares.................... 7 8 21 23
---------- -------- --------- ---------
Net earnings (loss)
applicable to common
shares.................... $ 1 $ (189) $ (614) $ (228)
---------- -------- --------- ---------
---------- -------- --------- ---------
Earnings (loss) per
common share.............. $ - $ (.17) $ (.46) $ (.21)
---------- -------- --------- ---------
---------- -------- --------- ---------
Net earnings applicable
to common shares from
operations *............ $ 380 $ 236 $ 970 $ 588
---------- -------- --------- ---------
---------- -------- --------- ---------
Earnings per common share
from operations *....... $ .28 $ .21 $ .72 $ .54
---------- -------- --------- ---------
---------- -------- --------- ---------
Dividends declared per
common share.............. $ .0375 $ .0375 $ .1125 $ .1125
---------- -------- --------- ---------
---------- -------- --------- ---------
Effective tax rate (xx).... 27.8%(+) 35.5% 31.0%(+) 35.5%
Weighted average number of
common shares outstanding
(millions)................ 1,359 1,144 1,347 1,082
* Excludes the impact of Acquisition Related Costs (the amortization
of intangible assets from Bay Networks, Inc. (``Bay Networks'), and
all subsequent acquisitions, and the amortization of purchased
in-process research and development from prior acquisitions) and
one-time gains and charges.
(xx) Excludes the impact of Acquisition Related Costs.
(+) The decrease in the effective tax rate for the three months and
nine months ended September 30, 1999, was a consequence of a higher
United States tax deduction related to the exercise of stock
options.
Certain comparative figures have been reclassified to conform with
the current period's presentation.
NORTEL NETWORKS CORPORATION
Condensed Consolidated Results (unaudited)
Supplementary Information
(millions of U.S. dollars except per share figures)
CDN GAAP
------------------------------------
For the three months ended
------------------------------------
9/30/99 9/30/99 9/30/98 Change
------ ------ ------ ------
(As Reported) A B C
Revenues................ $5,393 $5,393 $4,141 30%
Cost of revenues........ 3,099 3,099 2,346 32%
------ ------ ------
Gross profit............ 2,294 2,294 1,795 28%
Selling, general and
administrative
expense................ 979 979 728
Research and
development expense.... 755 755 616
Amortization of
intangibles
Purchased
in-process R&D....... 71 - -
Acquired technology... 171 - -
Goodwill.............. 162 20 22
Special charges......... 103 - -
------ ------ ------
53 540 429
Investment and other
income - net........... 33 33 13
Interest expense
Long-term debt........ (27) (27) (28)
Other................. (11) (11) (36)
Gain on sale of
businesses............. 110 - -
------ ------ ------
Earnings before income
taxes.................. 158 535 378 42%
Income tax provision.... 150 148 134
------ ------ ------
Net earnings............ 8 387 244 59%
Dividends on preferred
shares................. 7 7 8
------ ------ ------
Net earnings applicable
to common shares....... $ 1 $ 380 $ 236 61%
------ ------ ------
------ ------ ------
Earnings per common
share.................. $ - $ .28 $ .21 33%
------ ------ ------
------ ------ ------
A - Excludes net charges of $379M for the impact of Acquisition Related
Costs and after tax one-time gains and charges.
B - Excludes net charges of $425M for the impact of Acquisition Related
Costs and after tax one-time gains and charges.
C - Represents the change between the three month periods ended
September 30, 1999 and September 30, 1998, which exclude the
adjustments discussed in points A and B above.
NORTEL NETWORKS CORPORATION
Condensed Consolidated Results (unaudited)
Supplementary Information
(millions of U.S. dollars except per share figures)
CDN GAAP
------------------------------------
For the nine months ended
------------------------------------
9/30/99 9/30/99 9/30/98 Change
------ ------ ------ ------
(As Reported) A B C
Revenues................ $15,224 $15,224 $11,807 29%
Cost of revenues........ 8,669 8,669 6,811 27%
------ ------ ------
Gross profit............ 6,555 6,555 4,996 31%
Selling, general
and administrative
expense................ 2,873 2,873 2,064
Research and development
expense................ 2,122 2,122 1,801
Amortization of
intangibles
Purchased
in-process R&D....... 672 - -
Acquired technology... 513 - -
Goodwill.............. 462 62 59
Special charges......... 165 - -
------ ------ ------
(252) 1,498 1,072
Investment and other
income - net........... 112 55 42
Interest expense
Long-term debt........ (77) (77) (87)
Other................. (40) (40) (81)
Gain on sale of
businesses............. 110 - -
------ ------ ------
Earnings (loss) before
income taxes........... (147) 1,436 946 52%
Income tax provision.... 446 445 335
------ ------ ------
Net earnings (loss)..... (593) 991 611 62%
Dividends on preferred
shares................. 21 21 23
------ ------ ------
Net earnings (loss)
applicable to
common shares......... $ (614) $ 970 $ 588 65%
------ ------ ------
------ ------ ------
Earnings (loss) per
common share - basic... $ (.46) $ .72 $ .54 33%
------ ------ ------
------ ------ ------
A - Excludes net charges of $1,584M for the impact of Acquisition
Related Costs and after tax one-time gains and charges.
B - Excludes net charges of $816M for the impact of Acquisition Related
Costs and after tax one-time gains and charges.
C - Represents the change between the nine month periods ended
September 30, 1999 and September 30, 1998, which exclude the
adjustments discussed in points A and B above.
NORTEL NETWORKS CORPORATION
Condensed Consolidated Results (unaudited)
(millions of U.S. dollars except per share figures)
U.S. GAAP U.S. GAAP
------------------ ------------------
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
-------- ------- -------- --------
Revenues ...................... $ 5,027 $ 3,960 $14,526 $11,251
Cost of revenues .............. 2,851 2,215 8,197 6,404
-------- ------- -------- --------
Gross profit .................. 2,176 1,745 6,329 4,847
Selling, general and
administrative expense ....... 926 698 2,756 1,971
Research and development
expense ...................... 767 627 2,178 1,829
Amortization of intangibles
Purchased in-process R&D ... - 995 184 1,547
Acquired technology ........ 171 57 513 57
Goodwill ................... 306 106 893 136
Special charges ............... 103 377 165 405
-------- ------- -------- --------
(97) (1,115) (360) (1,098)
Investment and other income
- net ........................ 63 115 124 154
Interest expense
Long-term debt ............. (27) (26) (74) (81)
Other ...................... (11) (36) (40) (81)
Gain on sale of businesses .... 110 260 110 258
-------- ------- -------- --------
Earnings (loss) before
income taxes ................. 38 (802) (240) (848)
Income tax provision .......... 110 90 262 259
-------- ------- -------- --------
Net loss ...................... (72) (892) (502) (1,107)
Dividends on preferred
shares ....................... 7 8 21 23
-------- ------- -------- --------
Net loss applicable to
common shares ................ $ (79) $ (900) $ (523) $(1,130)
-------- ------- -------- --------
-------- ------- -------- --------
Loss per common share
- basic ...................... $ (.06) $ (.79) $ (.39) $ (1.04)
-------- ------- -------- --------
- diluted ................... $ (.06) $ (.79) $ (.39) $ (1.04)
-------- ------- -------- --------
Net earnings applicable to
common shares from
operations * .............. $ 314 $ 225 $ 827 $ 546
-------- ------- -------- --------
Earnings per common share from
operations * - basic ...... $ .23 $ .20 $ .61 $ .50
-------- ------- -------- --------
- diluted .... $ .22 $ .19 $ .59 $ .49
-------- ------- -------- --------
Dividends declared per
common share ................ $.0375 $.0375 $.1125 $.1125
-------- ------- -------- --------
Effective tax rate (xx) ...... 34.6% 33.3% 34.6% 33.3%
Weighted average number
of common shares outstanding
(millions) - basic .......... 1,359 1,144 1,347 1,082
- diluted ........ 1,410 1,182 1,398 1,122
* Excludes the impact of Acquisition Related Costs and one-time gains
and charges.
(xx) Excludes the impact of Acquisition Related Costs.
Certain comparative figures have been reclassified to conform
with the current period's presentation.
NORTEL NETWORKS CORPORATION
Condensed Consolidated Results (unaudited)
Supplementary Information
(millions of U.S. dollars except per share figures)
U.S. GAAP
------------------------------------
For the three months ended
------------------------------------
9/30/99 9/30/99 9/30/98 Change
------------------------------------
A B C
Revenues................ $5,027 $5,027 $3,960 27%
Cost of revenues........ 2,851 2,851 2,215 29%
------ ------ ------
Gross profit............ 2,176 2,176 1,745 25%
Selling, general and
administrative
expense............... 926 926 698
Research and development
expense................ 767 767 627
Amortization of
intangibles
Purchased
in-process R&D....... - - -
Acquired technology... 171 - -
Goodwill.............. 306 17 19
Special charges......... 103 - -
------ ------ ------
(97) 466 401
Investment and other
income - net........... 63 63 9
Interest expense
Long-term debt....... (27) (27) (26)
Other................ (11) (11) (36)
Gain on sale of
businesses............. 110 - -
------ ------ ------
Earnings before income
taxes.................. 38 491 348 41%
Income tax provision.... 110 170 115
------ ------ ------
Net earnings (loss)..... (72) 321 233 38%
Dividends on preferred
shares................. 7 7 8
------ ------ ------
Net earnings (loss)
applicable to
common shares......... $ (79) $ 314 $ 225 40%
------ ------ ------
------ ------ ------
Earnings (loss) per common
share - basic......... $(.06) $ .23 $ .20 15%
------ ------ ------
------ ------ ------
- diluted....... $(.06) $ .22 $ .19 16%
------ ------ ------
------ ------ ------
A - Excludes net charges of $393M for the impact of Acquisition
Related Costs and after tax one-time gains and charges.
B - Excludes net charges of $1,125M for the impact of Acquisition
Related Costs and after tax one-time gains and charges.
C - Represents the change between the three month periods ended
September 30, 1999 and September 30, 1998, which exclude the
adjustments discussed in points A and B above.
NORTEL NETWORKS CORPORATION
Condensed Consolidated Results (unaudited)
Supplementary Information
(millions of U.S. dollars except per share figures)
U.S. GAAP
--------------------------------------
For the nine months ended
--------------------------------------
9/30/99 9/30/99 9/30/98 Change
------- -------- ------- -------
A B C
Revenues................ $14,526 $14,526 $11,251 29%
Cost of revenues........ 8,197 8,197 6,404 28%
------ ------ ------
Gross profit............ 6,329 6,329 4,847 31%
Selling, general and
administrative
expense................ 2,756 2,756 1,971
Research and development
expense................ 2,178 2,178 1,829
Amortization of
intangibles
Purchased
in-process R&D....... 184 - -
Acquired technology... 513 - -
Goodwill.............. 893 52 49
Special charges......... 165 - -
------ |
