Nortel Reports Q1

Nortel Networks reports results for the first quarter 2007, prepared in accordance with United States GAAP in US dollars

May 3, 2007

3 Min Read

TORONTO -- Nortel* Networks Corporation's [NYSE/TSX: NT] continued focus on growth initiatives and organizational simplification delivered measurable progress as the Company announced results for the first quarter of 2007, prepared in accordance with United States generally accepted accounting principles (GAAP) in U.S. dollars.

"I am very pleased with our revenue and gross margin performance to start the year. Our first quarter revenues grew 4 percent year over year or 12 percent if you consider that we divested our UMTS Access business at the end of last year, and we showed positive cash flow from operations for the second quarter in a row excluding the impact of the litigation settlement" said Mike Zafirovski, President and CEO, Nortel. "While our first quarter results demonstrated significantly improved financial performance, we must and will continue our relentless pursuit of customer satisfaction and business transformation to deliver on our 2007 business plan."

First Quarter 2007 Results

Revenues were $2.48 billion for the first quarter of 2007 compared to $2.39 billion for the first quarter of 2006 and $3.32 billion for the fourth quarter of 2006. The Company reported a net loss in the first quarter of 2007 of $103 million, or $0.23 per common share on a diluted basis, compared to a net loss of $171 million, or $0.39 per common share on a diluted basis, in the first quarter of 2006 and a net loss of $80 million, or $0.19 per common share on a diluted basis, in the fourth quarter of 2006.

The net loss in the first quarter of 2007 of $103 million included a shareholder litigation gain of $54 million reflecting a mark-to-market adjustment of the share portion of the class action settlement and special charges of $80 million for restructuring. The net loss in the first quarter of 2006 of $171 million included an income tax expense of approximately $25 million, a shareholder litigation loss of $19 million reflecting a mark-to-market adjustment of the share portion of the class action settlement, and a benefit of $39 million in gains related to the sale of businesses and assets. The net loss in the fourth quarter of 2006 of $80 million included a gain of $164 million on the sale of assets, a shareholder litigation expense of $234 million reflecting a mark-to-market adjustment of the share portion of the class action settlement and special charges of $29 million for restructuring.

Deferred revenues increased sequentially by $32 million from the fourth quarter of 2006. Order input for the quarter was $2.59 billion, down from $2.66 billion in the first quarter of 2006 (Note that first quarter of 2006 UMTS Access orders associated with the assets sold was approximately $175 million), and down from $3.43 billion in the fourth quarter of 2006.

As previously reported, in the first quarter of 2007, Nortel completed its services resegmentation to include network implementation services in the Global Services segment and, as well, has renamed the Mobility and Converged Core Networks segment Carrier Networks. The historical quarterly financial information in the attached tables reflects these changes.

Carrier Networks (CN) revenues in the first quarter of 2007 were $1.01 billion, a decrease of 6 percent compared with the year-ago quarter and a decrease of 32 percent sequentially. In the first quarter, the strong growth in CDMA was more than offset by declines in the GSM/UMTS and in the circuit and packet voice businesses. Excluding the impact of the UMTS Access divestiture, CN revenues increased by 5 percent in the first quarter of 2007 compared with the year-ago quarter.(a)

Nortel Networks Ltd.

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