RNS Number:4233E
Nortel Networks Corp
25 January 2000
For more information:
Investor Relations: Media Relations:
Angela McMonagle Jeff Ferry
Nortel Networks Nortel Networks
905-863-6044 703-712-8339
mcmona@nortelnetworks.com jferry@nortelnetworks.com
Nortel Networks Reports Record Revenues and Operating Results for the Fourth
Quarter and the year 1999
- Revenues up 21% in the quarter and 26% for 1999
- Net Earnings from Operations up 58% in the quarter and 62% for 1999
- EPS From Operations up 53% in the quarter and 38% for 1999
BRAMPTON, ONT. - Nortel Networks* (NYSE/TSE: NT) today reported results for the
fourth quarter and the year 1999
Fourth Quarter Results
Revenues increased 21% to US$6.99 billion for the fourth quarter of 1999 from
US$5.77 billion for the same period in 1998. Net earnings from operations
applicable to common shares(a) for the quarter were US$755 million, or US$0.55
per share, compared to US$477 million, or US$0.36 per share, for the same period
in 1998, an increase in earnings per share from operations of 53 percent.
Including Acquisition Related Costs (a) and one-time gains and charges, Nortel
Networks recorded net earnings applicable to common shares in the fourth quarter
of 1999 of US$417 million or US$0.30 per share.
The overall increase in net earnings from operations in the quarter was driven
by higher revenues and gross profit and a decrease in the effective tax rate.
"We are extremely pleased with our strong growth in the fourth quarter," said
John Roth, president and chief executive officer, Nortel Networks. "Our strong
financial performance with carrier and service provider customers reflected our
leadership position in creating the high-performance Internet."
1999 Results
For the year 1999, revenues increased 26 percent to US$22.22 billion from
US$17.58 billion for the year 1998. Net earnings from operations applicable to
common shares (a) for the year 1999 were US$1.73 billion, or US$1.28 per share,
compared to US$1.07 billion, or US$0.93 per share for 1998, an increase in
earnings per share from operations of 38 percent. Including Acquisition Related
Costs (a) and one-time gains and charges, Nortel Networks recorded a net loss of
US$197 million, or US$0.15 per share, for 1999.
'We are extremely pleased with the strength in our optical and high-speed
Internet access capabilities as well as the success of our wireless solutions
which overcame volatility in South America early in the year," said John Roth,
president and chief executive officer. "We are proud of our record results
which reflect success in several key Internet markets and geographic areas
while continuing to lay the foundation for continued strong growth at the heart
of the Internet in 2000."
"Highlights for 1999 included:
- Our Optical Internet business grew more than 80% over 1998, driven by
explosive customer demand. We moved into the #1 market share position
globally in SONET/SDH and DWDM, according to Ryan Hankin Kent.
- We made significant inroads in the rapidly growing high-speed Internet
access market. With one of the broadest portfolios available, we were
selected by a variety of service providers for our solutions using
copper, cable or wireless technologies.
- We experienced strong momentum in the wireless infrastructure business
in the second half of the year as customers endorsed our strategy for
the Wireless Internet resulting in several key contract wins and third
generation trials.
- Our ATM/IP carrier routing/switching portfolio built momentum as we
exited the year and overall, we made significant market share gains as
reported by Cahners In-Stat.
- We completed or announced key product introductions and acquisitions
that continue to enhance our market leading Internet capabilities,
including OPTera* 1600G 160 channel optical amplification system,
OPTera* LH open optical platform and the proposed acquisition of
Qtera's* extra long haul regeneration capabilities for the Optical
Internet; OPTera* Packet Solution to deliver highly reliable optical
switching and routing capabilities for carrier networks; Internet
Communications Architecture and Open IP strategies for Enterprise
networking solutions; and Periphonics'* web-enabled Interactive Voice
Response capabilities and our proposed acquisition of Clarify's*
customer relationship management capabilities for second generation
eBusiness solutions.
"Overall, 1999 was a great year. We announced a record number of acquisitions;
entered into more than 20 commitments for Internet backbone networks globally;
began the realignment of our manufacturing to leverage the capabilities of the
outsourcing industry and committed to tripling our Optical Internet
manufacturing capacity. We are extremely pleased with how we have been able to
better serve our customers through our strengths, agility and execution."
Commenting on his outlook for 2000, Mr, Roth said: "Our strong customer
relationships and industry leading position in high-growth Internet markets
reinforces my confidence in our continued success in 2000. We will continue to
optimize our operations model and realign our workforce throughout 2000 around
the Internet growth engines. We enter the new millennium with a strong order
book and customer momentum across the high-growth segments of our business."
Revenue Breakdown
Segment revenues for the fourth quarter of 1999 increased 31 percent for the
Carrier segment and decreased 5 percent for the Enterprise segment over the
same period in 1998. For the full year 1999, Carrier segment revenues increased
26 percent and Enterprise segment revenues increased 33 percent compared to
1998.
Carrier segment revenues reflected strong growth in both Optical Internet and
high-speed Internet access solutions in the United States, Europe and Latin
America in the quarter and for the year compared to the same periods in 1998.
Mobility revenues were strong in the quarter in the United States, Europe,
Latin America and Asia Pacific and, overall, grew significantly in the year.
Enterprise segment revenues decreased in the quarter compared to the same period
in 1998 primarily due to lower data networking revenues. For the full year 1999,
Enterprise segment revenues increased, primarily driven by the increase in data
networking revenues due to the Bay Networks merger.
Geographic revenues for the fourth quarter of 1999 compared to the fourth
quarter of 1998 increased 30 percent outside the United States and Canada, and
20 percent in the United States, while revenues in Canada declined 12 percent.
For the full year 1999, revenues increased 30 percent in the United States, 26
percent outside the United States and Canada, and 5 percent in Canada.
Expenses
Selling, general and administrative ("SG&A") expenses in the quarter were
US$1.23 billion, or 17.6 percent of revenue, compared with US$1.03 billion, or
17.8 percent of revenue, in the fourth quarter of 1998. For the full year
1999, SG&A expenses were US$4.10 billion, or 18.5 percent of revenue, compared
with US$3.09 billion, or 17.6 percent of revenue, for 1998. The SG&A expenses
in the quarter reflected investments to support Nortel Networks global growth
and, as a percentage of revenues, reflected the impact of ongoing workforce
realignment.
Research and development ("R&D) expenses were US$786 million, or 11.2 percent
of revenue, in the quarter, compared with US$652 million, or 11.3 percent of
revenue, in the fourth quarter of 1998. For the full year 1999, R&D expenses
were US$2.91 billion, or 13.1 percent of revenue, compared with US$2.45
billion, or 14 percent of revenue, for 1998. The increased R&D expenses in the
quarter reflected planned expenses 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 1999 revenues of US$22.2 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.
Factor 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 logo, the Globemark, Unified Networks,
OPTera and How the world shares ideas are trademarks of Nortel Networks.
Qtera is a trademark of Qtera Corporation. Clarify is a trademark of Clarify
Inc. Periphonics is a trademark of Periphonics Corporation.
NORTEL NETWORKS CORPORATION
Consolidated Results (unaudited)
(millions of U.S. dollars except per share figures)
CDN GAAP CDN GAAP
Three months ended Twelve months ended
December 31, December 31,
1999 1998 1999 1998
Revenues $ 6,993 $ 5,768 $ 22,217 $ 17,575
Cost of revenues 3,928 3,239 12,597 10,050
Gross profit 3,065 2,529 9,620 7,525
Selling, general and administrative
expense 1,229 1,029 4,102 3,093
Research and development expense 786 652 2,908 2,453
Amortization of intangibles
Purchased in-process research and
development 50 528 722 1,241
Acquired technology 173 171 686 228
Goodwill 177 141 639 240
Special charges 44 27 209 447
606 (19) 354 (177)
Equity in net loss of associated
companies - (22) (13) (19)
Other income - net 122 42 357 492
Interest expense
Long-term debt (24) (30) (101) (117)
Other (31) (34) (71) (115)
Earnings (loss) before income taxes 673 (63) 526 64
Income tax provision 250 269 696 601
Net earnings (loss) 423 (332) (170) (537)
Dividends on preferred shares 6 9 27 32
Net earnings (loss) applicable to
common shares $ 417 $ (341) $ (197) $ (569)
Earnings (loss) per common share $ .30 $ (.26) $ (.15) $ (.50)
Net earnings applicable to common
shares from operations * $ 755 $ 477 $ 1,725 $ 1,065
Earnings per common share from
operations * $ .55 $ .36 $ 1.28 $ .93
Dividends declared per common share $ .0375 $ .0375 $ .15 $ .15
Effective tax rate + 23.9%++ 35.5% 28.0%++ 35.5%
Weighted average number of common
shares outstanding (millions) 1,370 1,327 1,353 1,144
* 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.
+ Excludes the impact of Acquisition Related Costs.
++ The decrease in the effective tax rate for the three months and twelve
months ended December 31, 1999, compared to the same periods for 1998, was a
consequence of a higher United States tax deduction related to the exercise
of stock options.
All reference to earnings (loss) per common share, earnings per common share
from operations, dividends declared per common share, and weighted average
number of common shares outstanding, have been restated to reflect the
impact of the stock dividend of one common share paid to shareholders of
record as of the close of business on August 17, 1999.
Certain comparative figures have been reclassified to conform to the current
period's presentation.
NORTEL NETWORKS CORPORATION
Consolidated Results (unaudited)
Supplementary Information
(millions of U.S. dollars except per share figures)
CDN GAAP
For the three months ended
12/31/99 12/31/99 12/31/98 Change
(As Reported) A B C
Revenues $ 6,993 $ 6,993 $ 5,768 21%
Cost of revenues 3,928 3,928 3,239 21%
Gross profit 3,065 3,065 2,529 21%
Selling, general and
administrative expense 1,229 1,229 1,029
Research and development expense 786 786 652
Amortization of intangibles
Purchased in-process research
and development 50 - -
Acquired technology 173 - -
Goodwill 177 24 20
Special charges 44 - -
606 1,026 828
Equity in net loss of associated
companies - - (22)
Other income - net 122 25 12
Interest expense
Long-term debt (24) (24) (30)
Other (31) (31) (34)
Earnings before income taxes 673 996 754 32%
Income tax provision 250 235 268
Net earnings 423 761 486 57%
Dividends on preferred shares 6 6 9
Net earnings applicable to common
shares $ 417 $ 755 $ 477 58%
Earnings per common share $ .30 $ .55 $ .36 53%
A - Excludes net charges of $338 for the impact of Acquisition Related Costs
and after tax one-time gains and charges.
B - Excludes net charges of $818 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 December 31,
1999 and December 31, 1998, which exclude the adjustments discussed in
points A and B above.
NORTEL NETWORKS CORPORATION
Consolidated Results (unaudited)
Supplementary Information
(millions of U.S. dollars except per share figures)
CDN GAAP
For the twelve months ended
12/31/99 12/31/99 12/31/98 Change
(As Reported) A B C
Revenues $ 22,217 $ 22,217 $ 17,575 26%
Cost of revenues 12,597 12,597 10,050 25%
Gross profit 9,620 9,620 7,525 28%
Selling, general and
administrative expense 4,102 4,102 3,093
Research and development expense 2,908 2,908 2,453
Amortization of intangibles
Purchased in-process research
and development 722 - -
Acquired technology 686 - -
Goodwill 639 86 79
Special charges 209 - -
354 2,524 1,900
Equity in net loss of associated
companies (13) (13) (19)
Other income - net 357 93 51
Interest expense
Long-term debt (101) (101) (117)
Other (71) (71) (115)
Earnings before income taxes 526 2,432 1,700 43%
Income tax provision 696 680 603
Net earnings (loss) (170) 1,752 1,097 60%
Dividends on preferred shares 27 27 32
Net earnings (loss) applicable
to common shares $ (197) $ 1,725 $ 1,065 62%
Earnings (loss) per common
share - basic $ (.15) $ 1.28 $ .93 38%
A - Excludes net charges of $1,922 for the impact of Acquisition Related Costs
and after tax one-time gains and charges.
B - Excludes net charges of $1,634 for the impact of Acquisition Related Costs
and after tax one-time gains and charges.
C - Represents the change between the twelve month periods ended December 31,
1999 and December 31, 1998, which exclude the adjustments discussed in
points A and B above.
NORTEL NETWORKS CORPORATION
Consolidated Results (unaudited)
(millions of U.S. dollars except per share figures)
U.S. GAAP U.S. GAAP
Three months Twelve months
ended Dec 31, ended Dec 31,
1999 1998 1999 1998 1997
Revenues $ 6,573 $ 5,522* $ 21,287* $ 16,857* $ 14,581
Cost of revenues 3,662 3,082 12,063* 9,645* 8,501*
Gross profit 2,911 2,440 9,224 7,212 6,080
Selling, general and
administrative expense 1,190 990 3,979* 2,961 2,564
Research and development
expense 814 703 2,992 2,532 2,221
Amortization of
intangibles
Purchased in-process
research and development 68 209 252 1,756 -
Acquired technology 173 171 686 228 -
Goodwill 314 287 1,207 423 32
Special charges 44 (1)* 160* 313* 12*
308 81 (52) (1,001) 1,251
Equity in net loss of
associated companies (2) (4) (2) (48) (54)
Other income - net 186 1* 420 441* 53*
Interest expense
Long-term debt (19) (26) (93) (107) (119)
Other (31) (34) (71) (115) (38)
Earnings (loss) before
income taxes 442 18 202 (830) 1,093
Income tax provision 264 161** 526 420 381
Net earnings (loss) 178 (143) (324) (1,250) 712
Dividends on preferred
shares 6 9 27 32 17
Net earnings (loss)
applicable to common
shares $ 172 $ (152) $ (351) $ (1,282) $ 695
Earnings (loss) per common
share - basic $ .13 $ (.11) $ (.26) $ (1.12) $ .67
- diluted $ .12 $ (.11) $ (.26) $ (1.12) $ .65
Net earnings applicable
to common shares
from operations *** $ 607 $ 434 $ 1,434 $ 980 $ 687
Earnings per common
share from operations ***
- basic $ .44 $ .33 $ 1.06 $ .86 $ .66
- diluted $ .43 $ .32 $ 1.04 $ .83 $ .64
Dividends declared per
common share $ .0375 $ .0375 $ .15 $ .15 $ .15
Effective tax rate + 33.8% 33.3% 34.3% 33.3% 35.2%
Weighted average number
of common shares
outstanding (millions)
- basic 1,370 1,327 1,353 1,144 1,044
- diluted 1,428 1,364 1,382 1,181 1,067
* Represents reclassifications in accordance with United States GAAP. In
addition, revenues for the first, second, and third quarters of 1999 and 1998
have been adjusted to $4,286, $5,281, and $5,147, and to $3,341, $4,004, $3,990,
respectively. These revenue adjustments were reflected in cost of revenues.
** For the purposes of reporting under United States GAAP, companies are
required to estimate the annual tax rate and apply this rate to their earnings
or loss on a quarterly basis. For 1999 and 1998, the quarterly financial
statement profile was adjusted to reflect this practice. This adjustment
impacts the income tax provision on the statements of operations with an offset
to income taxes payable on the balance sheets. The adjustments had a $19 impact
on the Corporation's income tax provision for the fourth quarter of 1998 and a
nil impact on net earnings (loss) on the statements of operations and the
balance sheets for the fiscal periods ended, and as at, December 31, 1999 and
1998.
*** Excludes the impact of Acquisition Related Costs and one-time gains and
charges.
+ Excludes the impact of Acquisition Related Costs.
All references to earnings (loss) per common share, earnings per common share
from operations, dividends declared per common share, and weighted average
number of common shares outstanding, have been restated to reflect the impact of
the stock dividend of one common share paid to shareholders of record as of the
close of business on August 17, 1999.
Certain comparative figures have been reclassified to conform to the current
period's presentation.
NORTEL NETWORKS CORPORATION
Consolidated Results (unaudited)
Supplementary Information
(millions of U.S. dollars except per share figures)
U.S. GAAP
For the three months ended
12/31/99 12/31/99 12/31/98 Change
As Reported A B C
Revenues $6,573 $6,573 $5,522 19%
Cost of revenues 3,662 3,662 3,082 19%
Gross profit 2,911 2,911 2,440 19%
Selling, general and
administrative expense 1,190 1,190 990
Research and development expense 814 814 703
Amortization of intangibles
Purchased in-process research
and development 68 - -
Acquired technology 173 - -
Goodwill 314 18 17
Special charges 44 - -
308 889 730
Equity in net loss of associated
companies (2) (2) (3)
Other income (expense) - net 186 89 (2)
Interest expense
Long-term debt (19) (19) (26)
Other (31) (31) (34)
Earnings before income taxes 442 926 665 39%
Income tax provision 264 313 222
Net earnings 178 613 443 38%
Dividends on preferred shares 6 6 9
Net earnings applicable to
common shares $ 172 $ 607 $ 434 40%
Earnings per common share
- basic $ .13 $ .44 $ .33 33%
- diluted $ .12 $ .43 $ .32 34%
A - Excludes net charges of $435 for the impact of Acquisition Related Costs and
after tax one-time gains and charges.
B - Excludes net charges of $586 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 December 31,
1999 and December 31, 1998, which exclude the adjustments discussed in points A
and B above.
NORTEL NETWORKS CORPORATION
Consolidated Results (unaudited)
Supplementary Information
(millions of U.S. dollars except per share figures)
U.S. GAAP
For the three months ended
12/31/99 12/31/99 12/31/98 Change
As Reported A B C
Revenues $12,287* $21,287 $16,857 26%
Cost of revenues 12,063* 12,047 9,570 26%
Gross profit 9,224 9,240 7,287 27%
Selling, general and
administrative expense 3,979* 3,946 2,961
Research and development expense 2,992 2,992 2,532
Amortization of intangibles
Purchased in-process research
and development 252 - -
Acquired technology 686 - -
Goodwill 1,207 70 66
Special charges 160* - -
(52) 2,232 1,728
Equity in net loss of associated
companies (2) (2) (32)
Other income - net 420 156 43
Interest expense
Long-term debt (93) (93) (107)
Other (71) (71) (115)
Earnings before income taxes 202 2,222 1,517 46%
Income tax provision 526 761 505
Net earnings (loss) (324) 1,461 1,012 44%
Dividends on preferred shares 27 27 32
Net Earnings (loss)applicable to
common shares $ (351) $1,434 $ 980 46%
Earnings (loss)per common share
- basic $ (.26) $ 1.06 $ .86 23%
- diluted $ (.26) $ 1.04 $ .83 25%
A - Excludes net charges of $1,785 for the impact of Acquisition Related Costs
and after tax one-time gains and charges.
B - Excludes net charges of $2,262 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 December 31,
1999 and December 31, 1998, which exclude the adjustments discussed in points A
and B above.
* Represents reclassifications in accordance with United States GAAP.
NORTEL NETWORKS CORPORATION
Consolidated Results (unaudited)
Supplementary Information
(U.S. dollars, millions)
CDN GAAP
Three months ended Twelve months ended
Revenues December 31, December 31,
% Change % Change
1999 1998 from 1998 1999 1998 from 1998
By Geographic Areas:
(1)United States $3,911 $3,255 20% $12,758 $9,839 30%
Canada 375 425 (12%) 1,434 1,362 5%
Other Countries 2.707 2.088 30% 8,025 6.374 26%
Total $6,993 $5,768 21%5 $22,217 $17.575 26%
BY Segment(2):
Service Provider and
Carrier $5,526 $4,212 31% $16.7615 $13,338 26%
Enterprise 1,452 1,532 (5%) 5,376 4,040 33%
Corporate and Other 15 24 (38%) 80 197 (59%)
Total 56,993 $5,768 21% $22,217 $ 17.575 26%
(1) Revenues by geographic area have been restated to reflect the evolution of
certain non-operating businesses within the management structure.
(2) Revenues by segment have been restated to reflect the evolution of
certain businesses within the management structure. The primary effect of
this reclassification was to move certain businesses between Service Provider
and Carrier, Enterprise, and Other to more closely align the businesses with
their primary customers.
(U.S. dollars, billions)
CDN GAAP U.S. GAAP
As at As at As at As at
December 31,December 31,December 31,December 31,
Balance Sheet Items 1999 1998 1999 1998
Cash and Cash
Equivalents $2.26 $2.28 $2.16 $2,23
Accounts Receivable $6.79 $5.46 $6.10 $5.15
Inventories $ 2.96 $1.69 $2.82 $1.60
Total Assets $22.60 $19.73 $23.98 $21.81
Long-term Debt $1.69 $1.67 $1.43 $1.53
Shareholders'
Equity $12.5 $ 11.57 $13.66 $ 12.79
END
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