Nortel Warns $48c lossProvides Progress Update on Alignment Plan and Outlook for
Second Quarter Performance
Nortel Networks Plans To Cut 10,000 More Positions >NT
Nortel Networks Says New Job Cuts To Be Completed By 3Q
Nortel Networks Expects 2Q LOss From Ops $1.5B >NT
Nortel Networks Sees 2Q After-Tax Chg Of $830M >NT
Nortel Networks Sees 2Q Gross Margin Cont Ops 27% >NT
Nortel Networks Expects 2Q Loss From Ops 48c/Shr >NT
Nortel Networks Sees Significant Cuts In Equip Buys In 2Q
Nortel Networks Says New Capital Expenditures Curtailed
Nortel Networks: Cost-Cutting Pgms To Save $3.5B >NT
Nortel Networks Expects 2Q Loss $19.2B >NT
Nortel Networks To Discontinue Access Solutions Ops >NT
Nortel Networks Adjusts Intangible Assets Equaling $12.3B
Nortel Networks To Stop Future Payments Of Cmn Shr Div
Nortel Networks Obtains US$2.0 Billion in Additional Committed Credit Facilities....
Business Editors & High-Tech Writers
TORONTO--(BUSINESS WIRE)--June 15, 2001--Nortel Networks
Corporation(a) (NYSE:NT)(TSE:NT) today provided a progress update on
its alignment plan and its expected business performance for the
second quarter of 2001 (U.S. GAAP). Progress highlights include:
implemented cost reduction programs that are expected to result in
estimated annualized cost savings of approximately US$3.5 billion;
streamlining initiatives, including the decision to discontinue the
Company's access solutions operations; and enhanced financing
flexibility through US$2.0 billion of additional committed facilities.
In addition, Nortel Networks announced an adjustment to intangible
assets in the amount of approximately US$12.3 billion. To direct
further investments into the business, Nortel Networks also announced
that it will discontinue the future payment of common share dividends.
For the second quarter, the Company expects revenues from continuing
operations of approximately US$4.5 billion and a net loss from
operations of approximately US$1.5 billion. Combining the operations
outlook for the quarter and the impact of the alignment plan, the
Company expects a net loss of approximately US$19.2 billion in the
second quarter.
"Led by the United States, the global telecom industry is
undergoing a significant adjustment," said John Roth, president and
chief executive officer, Nortel Networks. "After several years of
capital expansion exceeding the pace of business performance, the
capital markets have significantly reduced the flow of funds to
service providers. In response, service providers have made driving
return on invested capital their primary focus. Consequently, new
capital expenditures are being curtailed as service providers look to
drive further efficiencies from the investments they have already
made. As a result, we are seeing a very significant reduction in
equipment purchases in the second quarter of 2001 compared to the
first quarter of 2001 and the second quarter of 2000."
Roth added, "In this challenging environment, Nortel Networks
continues to execute the plan, which was laid out at the time of the
announcement of our first quarter 2001 results, to rapidly align our
cost structure to the current business level; to streamline our
business around our core growth areas of Metro Optical, Optical Long
Haul, Wireless Internet, Core IP/Intelligent Internet and Internet
Telephony; and to focus our investments to deliver the key next
generation networking solutions. We are making excellent progress on
this plan and will continue to take the necessary steps to ensure we
have the right solutions and resources to remain well positioned as we
come out of this difficult period."
Outlook for Second Quarter Performance and Actions to be Taken
For the second quarter of 2001, Nortel Networks expects revenues
from continuing operations of approximately US$4.5 billion and a net
loss per common share from operations(b) of approximately US$0.48,
which excludes the results and charges related to the discontinued
operations described below. The revenue outlook reflects an
anticipated significant sequential decline from the first quarter of
2001 in Optical Inter-city and circuit switching sales, primarily in
the United States. The expected net loss per common share from
operations(b) includes an expected charge of approximately US$950
million (pre-tax) for increased provisions and charges. The expected
charge is comprised of approximately US$650 million (pre-tax)
manufacturing-related costs for excess and obsolete Optical Inter-city
inventory and manufacturing inefficiencies and approximately US$300
million (pre-tax) for bad debts and the write down of certain
investments. Gross margin from continuing operations, before the
manufacturing-related costs noted above, is expected to be
approximately 27 percent in the second quarter.
Nortel Networks expects to take a restructuring charge of
approximately US$830 million (after tax) during the second quarter
associated with the expected completion of the net reduction of
approximately 20,000 positions, which was announced in April 2001, and
the closure of certain facilities related to the workforce reduction
and business streamlining activities. The programs implemented to date
in 2001 are expected to result in estimated cost savings of
approximately US$875 million (pre-tax) per quarter. Nortel Networks
expects to substantially realize that level of savings in the third
quarter.
In order to ensure maximum flexibility and competitiveness, Nortel
Networks will continue to drive to reset its "break-even point" at the
current business level and return to positive operating cash flow. As
a result, the Company is planning a further reduction of approximately
10,000 positions, which is expected to be completed by the end of
September 2001 and result in workforce reduction and related charges
being recorded in the third quarter of 2001.
As a result of the initiatives to streamline its businesses,
Nortel Networks has also decided to discontinue its access solutions
operations. These operations, which include our narrowband and
broadband access solutions (as well as Nortel Networks membership
interest in Arris Interactive and investment in Elastic Networks)
accounted for approximately 7.7 percent and 6.9 percent of Nortel
Networks revenues for the year 2000 and the first quarter of 2001,
respectively. A charge of approximately US$2.6 billion (after tax) is
expected to be recorded in the second quarter for the closure and
disposition of the various businesses. Approximately US$750 million of
the charge relates to a write down of goodwill associated with the
acquisitions of Promatory Communications and Sonoma Systems. Nortel
Networks expects to exit, dispose of, or otherwise transition its
ownership in these various businesses and investments over the next 12
months.
In light of the adjustment of technology valuations and the
current business outlook, Nortel Networks also expects to take a
charge of approximately US$12.3 billion in the second quarter to
reflect the write down of intangible assets, which are primarily
related to the goodwill associated with the acquisitions of Alteon
WebSystems, the 980 nanometer pump-laser chip business, Xros and
Qtera. This charge will be in addition to the ongoing amortization of
intangibles estimated to be approximately US$2.0 billion in the second
quarter of 2001.
"The result of this action adjusts the asset value on our books
for these stock for stock acquisitions to reflect current market
valuations, or in other words, it is the equivalent of having made
these acquisitions at the current stock prices," Roth noted.
In order to provide greater funding flexibility to meet its
business needs, Nortel Networks has separately announced today that it
has entered into agreements for US$2.0 billion of additional committed
unsecured credit facilities. "These additional credit facilities will
enhance our flexibility and help to position us to execute our work
plan over the next 18 months, " said Frank Dunn, chief financial
officer, Nortel Networks.
Consistent with Nortel Networks focus on directing investments to
drive its next generation portfolio and extending its leadership
position, the Board of Directors of Nortel Networks Corporation has
decided to discontinue future common share dividends after payment of
the currently declared US$0.01875 per common share dividend payable on
June 29, 2001.
Commenting on current market trends, Roth said, "During this
protracted industry adjustment, we expect service providers to
continue to focus on profitability and return on capital to drive
improvements in business fundamentals. Consistent with that focus, we
expect capital spending will only occur to remove network bottlenecks
and for new profitable revenue opportunities. While there can be no
certainty as to the duration or severity of this industry adjustment,
meaningful growth in spending is not expected to occur before the
second half of 2002 after economic concerns subside and
rationalization of the telecom industry is well underway. Our
visibility continues to be impeded for the near term as these market
trends persist and as a result, we will not provide guidance for the
third quarter or full year 2001 at this time."
Certain of the above actions will also impact Nortel Networks
Limited(a) ("NNL"), Nortel Networks Corporation's principal operating
subsidiary. NNL, whose financial results are fully consolidated into
Nortel Networks results, has preferred shares publicly traded in
Canada. For the second quarter of 2001, NNL expects to take a
restructuring charge of approximately US$830 million (after tax)
associated with the expected completion of the workforce reductions
announced in April 2001 and the closure of certain facilities related
to the workforce reduction and business streamlining; a charge of
approximately US$2.2 billion (after tax) for the closure and
disposition of the access solutions operations; and a charge of
approximately US$2.1 billion to reflect the write down of intangible
assets associated with certain of its acquisitions. All such estimated
charges are included in the estimated consolidated Nortel Networks
charges described above. NNL expects to continue to pay dividends on
its preferred shares in accordance with their terms.
Nortel Networks will announce its second quarter 2001 results on
July 19, 2001. Nortel Networks financial results are prepared in
accordance with United States generally accepted accounting
principles.
Nortel Networks is a global Internet and communications leader
with capabilities spanning Optical, Wireless, Local, Personal Internet
and eBusiness. The Company 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, promising a new era of collaboration, communications and
commerce. Visit us at www.nortelnetworks.com. |
