Revenues from continuing operations were US$3.69 billion for the third quarter of 2001 compared to US$6.73 billion in the same period in 2000. Pro forma net loss from continuing operations(a) for the third quarter of 2001, excluding incremental provisions and other charges, was US$854 million or US$0.27 per common share. Including the incremental provisions and other charges, pro forma net loss from continuing operations(a) for the third quarter of 2001 was US$2.18 billion, or US$0.68 per common share, compared to pro forma net earnings of US$597 million, or US$0.19 per common share on a diluted basis, for the same period in 2000.

In the quarter, incremental charges included in the pro forma net loss from continuing operations(a) were comprised of: US$750 million (pre-tax) for excess and obsolete inventory, primarily related to Optical Inter-City; US$767 million (pre-tax) for increased provisions related to trade receivables and customer financing; and US$380 million (pre-tax) primarily related to charges associated with certain third party investments. The Company also recorded: a US$801 million (pre-tax) charge for restructuring associated with the completion of the workforce reductions and facilities closures announced in June 2001; and a US$223 million (pre-tax) charge primarily related to the approximately 50 percent reduction in manufacturing capacity of its Photonics Components business.

Including Acquisition Related Costs(a), stock option compensation from acquisitions and divestitures, and one-time gains and charges, Nortel Networks recorded a net loss from continuing operations in the third quarter of 2001 of US$3.47 billion or US$1.08 per common share.

Revenues for the quarter reflected the challenges presented as the telecom industry adjusted to new levels of spending, said John Roth, president and chief executive officer Nortel Networks. Our bottom line results reflected the impact of actions we have taken to adjust to the new business levels. During the third quarter of 2001, Nortel Networks continued to aggressively implement its work plan to reduce its cost structure and streamline operations. The Company is in the final stages of implementing a cost structure to drive break even at a quarterly revenue level well below US$4 billion. The structure is expected to be in place in the first quarter of 2002.

Commenting on cash management in the quarter, Frank Dunn said, We are extremely pleased with the results that have been generated from our focus on cash management, which drove a significant improvement in cash and contributed to positive cashflow from operations. In addition, the Company further increased its financial flexibility by completing a highly successful US$1.8 billion convertible debt issue which, combined with positive operating cash performance from continuing operations and a significant reduction in short term debt, has significantly enhanced our strong liquidity position. Given the industry correction and actions we have taken over the last two quarters, Nortel Networks balance sheet is well positioned.

While we believe we are beginning to see early indications that capital spending by service providers is approaching sustainable levels, it still remains difficult to predict. In light of this and the uncertainty regarding the potential impacts of events taking place in the wake of the September 11, 2001 tragedies and their effect on economies and businesses around the world, we are not providing guidance for the fourth quarter of 2001 or the full year 2002 at this time, concluded Dunn.

Network Infrastructure revenues decreased 48 percent in the third quarter of 2001 compared to the third quarter of 2000. Wireless Internet solutions grew substantially in Canada and slightly in Asia, which was more than offset by a considerable decline in Latin America, a slight decline in the United States and a decline in Europe. Optical Inter-city revenues were down sharply in the United States, Europe and Latin America, minimally offset by growth in Asia. Local Internet revenues were down substantially in the United States, Europe, Canada and Latin America, which were minimally offset by an increase in Asia.

Photonic Components segment revenues were down 93 percent in the third quarter compared to the same period last year. The sharp decline in the segment was largely due to considerably lower sales of Nortel Networks Optical Inter-city solutions compared to the third quarter of 2000.

Other revenues declined 29 percent in the third quarter compared to the same period last year. Substantial growth in Global Professional Services in Europe and Asia, and strong growth in the United States, was more than offset by considerable declines in legacy voice solutions for corporations across all regions and wireless OEM revenues in most regions.

Commensurate with its announcement on October 2, 2001 to align its resources around three businesses (Metro Networks, Wireless Networks and Optical Long Haul Networks), Nortel Networks will evolve its financial reporting to reflect the new organization beginning in the fourth quarter of 2001.

Geographic revenues for the third quarter of 2001 compared to the same period in 2000 decreased 54 percent in the United States, 53 percent in Canada and 30 percent outside the United States and Canada.

For the first nine months of 2001, revenues from continuing operations were US$14.06 billion compared to US$19.75 billion for the same period in 2000. Pro forma net loss from continuing operations(a) for the first nine months of 2001 was US$4.01 billion, or US$1.26 per common share, compared to pro forma net earnings of US$1.57 billion, or US$0.51 per common share on a diluted basis, for the same period in 2000. Including the net loss from discontinued access solutions operations, Acquisition Related Costs(a), stock option compensation from acquisitions and divestitures, one-time gains and charges, and the write down of intangible assets, Nortel Networks recorded a net loss of US$25.48 billion, or US$8.01 per common share, for the first nine months of 2001.

The Company continued to make rapid progress to reduce its cost structure. Compared to the Company’s year-end 2000 cost structure, exclusive of incremental provisions and charges, the Company’s cost structure at the end of the third quarter of 2001 is lower by approximately US$1 billion.

Gross margin for the third quarter of 2001 was approximately 1 percent reflecting incremental charges of approximately US$750 million related to excess and obsolete inventory resulting from the expected decrease in sales due to the continued downturn in the market. Excluding the impact of these incremental and other contract-related charges, gross margin for the third quarter of 2001 was approximately 25 percent, compared to approximately 26 percent in the second quarter of 2001.

SOURCE: COMPANY PRESS RELEASE