RNS No 3933w
NORTEL NETWORKS CORPORATION
13 September 1999
Nortel Networks to Provide U.S. and Canadian GAAP Reporting effective
January 1, 2000 and provides Outlook for Performance in 2000.
BRAMPTON, Ontario - In anticipation of providing financial reporting in
accordance with both U.S. generally accepted accounting principles (GAAP) and
Canadian GAAP for periods beginning after January 1, 2000, Nortel Networks*
(NYSE/TSE: NT) today issued reported and supplementary financial information
prepared in accordance with U.S. GAAP.
"The decision to provide U.S. GAAP financial reporting in addition to Canadian
GAAP financial reporting was driven by a desire to make it easier for our
shareholders and the investment community to assess our financial performance"
said Frank Dunn, Nortel Networks'senior vice-president and chief financial
officer. "Given that Canadian GAAP is harmonizing with U.S. GAAP in a number of
areas starting in 2000, it makes sense for us to provide complete U.S. GAAP
financial reporting at that time."
Focusing on anticipated U.S. GAAP financial results for 2000, Dunn stated, "We
expect our revenue growth will exceed the market growth rate of 14 to 15 percent
by about 3 percentage points and anticipate growth in our earnings per share
from operations** to be faster than our revenue growth."
Nortel Networks delivers value to customers around the world through Unified
Networks* solutions, spanning mission-critical telephony and IP-optimized
networks. Customers include public and private enterprises and institutions;
Internet service providers; local, long-distance, cellular and PCS
communications companies; cable television carriers; and utilities.
Nortel Networks'common shares are listed on the New York, Toronto, Montreal and
London stock exchanges. Nortel Networks had 1998 Canadian GAAP revenues of
US$17.6 billion and has approximately 70,000 employees worldwide.
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.
* Nortel Networks, the Nortel Networks logo, the Globemark, Unified Networks,
and How the world shares ideas are trademarks of Nortel Networks.
** 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., and all subsequent acquisitions, and the amortization of any
purchased in-process research and development from prior acquisitions) and
one-time gains and charges.
For more information:
Angela McMonagle Jeff Ferry
Nortel Networks Nortel Networks
(905) 863-6044 (703) 712-8339
McMonagle@nortelnetworks.com jferry@nortelnetworks.com
Or visit Nortel Networks' website at www.nortelnetworks.com
NORTEL NETWORKS CORPORATION
Canadian/U.S. GAAP Reconciliation
Supplementary Earnings Per Common Share(*) (unaudited, except as noted)
(in millions of U.S. dollars, except per share information)
Six months ended Three months ended Fiscal periods ended
June 30, June 30, March 31, December 31,
1999 1999 1999 1998 1997
Earnings per common
share(**)
Canadian GAAP - basic .44 .27 .17 .93 .77
Income taxes (1) (.01) (.01) - (.02) (.06)
Stock option benefit(2) (.07) (.04) (.03) (.02) (.03)
Post employment and post
retirement benefits (3) (.01) - (0.1) (.02) (.02)
Financial Instruments (4) - - - (.01) -
U. S. GAAP - basic (6) .35 .22 .13 .86 .66
U.S. GAAP - diluted .34 .22 .12 .83 .64
Revenues
Canadian GAAP $ 9,831 $ 5,413 $ 4,418 $ 17,575 v $15,449 v
Joint venture revenue (5) (332) (180) (152) (841)v (868)v
U.S. GAAP $ 9,499 $ 5,233 $ 4,266 $16,734 $14,581
(*) Reflects the impact of the stock dividend of one common share paid on each
of the issued and outstanding common shares of the Corporation as at the
close of business on August 17, 1999 (the "Stock Dividend').
(**) Excludes the impact of "Acquisition Related Costs" (the amortization of
Intangible assets from the acquisition of Bay Networks Inc., and all
subsequent acquisitions, and the amortization of any purchased in-process
research and development from prior acquisitions) and one-time gains and
charges.
v Audited information.
(1) Under Canadian GAAP, the deferral method is used to record tax expense
whereas U.S. GAAP follows the liability method. The primary difference is
that under the deferral method, tax liabilities are recorded at historical
tax rates and not subsequently readjusted if tax rates change. Under U.S.
GAAP, tax liabilities are restated to reflect current tax rates.
(2) An income tax benefit associated with deductible stock option compensation
is available in connection with the exercise of stock options by U.S.
employees. The income tax benefit is equal to the difference between the
market price on the date of exercise and the grant price. Under Canadian
GAAP, the income tax benefit can be treated as a reduction to the income
tax provision if the stock option compensation costs are not recorded.
Under U.S. GAAP, the income tax benefit associated with the stock option
compensation is treated as an increase in share capital.
(3) Under Canadian GAAP, companies may use a pay-as-you-go method (that is,
expenses charged to the income statement as incurred). Under U.S. GAAP,
expenses related to these benefits must be accrued during the years that
employees provide services to the company.
(4) Under U.S. GAAP, companies are required to record mark-to-market
adjustments on financial instruments that do not meet the specific criteria
for hedge accounting. The adjustment represents the difference between
hedge accounting for cross currency coupon swap contracts under Canadian
GAAP, and the recognition of the mark-to-market differential through the
income statement for this specific type of financial instrument.
(5) Under Canadian GAAP, investments in joint ventures are recognized in the
financial statements of the venturer by applying the proportionate
consolidation method of accounting. Under U.S. GAAP, investments in joint
ventures are recognized in the financial statements of the venturer under
the equity method of accounting.
(6) There are other U.S./Canadian GAAP differences which do not effect the
above earnings per share amounts. Under Canadian GAAP, investment tax
credits are accounted for on a cost reduction method and are therefore
treated as a reduction to the research and development expense. Under U.S.
GAAP, investment tax credits are accounted for on a flow-through method
via the tax provision.
NORTEL NETWORKS CORPORATION
Consolidated Statements of Operations and Reconciliation to Supplementary
Net Earnings (1) (audited, except as noted)
(millions of U.S. dollars, except per share figures)
Fiscal periods ended December 31,
1998 1997
As Reported As Reported
Cdn GAAP U.S.GAAP(2) Cdn GAAP U.S.GAAP(2)
Revenues $ 17,575 $ 16,734 $ 15,449 $ 14,581
Cost of Revenues 10,050 9,447 9,111 8,499
Gross profit 7,525 7,287 6,338 6,082
Selling, general and
administrative expense 3,093 2,961 2,714 2,564
Research and development expense 2,453 2,532 2,147 2,221
Amortization of intangibles
Purchased in-process research
and development 1,241 1,756 - -
Acquired technology 228 228 - -
Goodwill 240 423 48 32
Special charges 447 431 95 65
Operating earnings (loss) (177) (1,044) 1,334 1,200
Equity in net earnings (loss) of
associated companies (19) (48) 14 (54)
Investment and other income (expense) 234 226 (14) 2
Interest expense
Long-term debt (117) (107) (131) (119)
Other (115) (115) (38) (38)
Gain on sale of businesses 258 258 102 102
64 (830) 1,267 1,093
Income tax provision 601 420 438 381
Net earnings (loss) (537) (1,250) 829 712
Dividends on preferred shares 32 32 17 17
Net earnings (loss) applicable to
common shares $ (569) $ (1,282) $ 812 $ 695
Add back:
Acquisition related amortization
Purchased in-process research
and development $ 1,241 $ 1,756 $ - $ -
Acquired technology 228 228 - -
Goodwill 161 357 - -
Amortization of deferred taxes
on acquired technology - (83) - -
One-time gains (441) (441) (102) (102)
One-time charges (3) 447 447 95 95
Net tax impact (2) (2) (1) (1)
Supplementary net earnings
applicable to common shares (4) $ 1,065 $ 980 $ 804 $ 687
Supplementary earnings per
common share
- basic .93 (2) .86 (2) .77 (2) .66 (2)
- diluted .83 (2) .64 (2)
Dividends declared per common share .15 (2) .15 (2) .15 (2) .15 (2)
Weighted average number of common
shares outstanding
(millions) - basic 1,144 (2) 1,144 (2) 1,044 (2) 1,044(2)
(1) Reflects the impact of the Stock Dividend
(2) Unaudited information
(3) Under Canadian GAAP, includes special charges related to joint ventures.
Under U.S. GAAP, these amounts are included in equity in net earnings (loss)
of associated companies.
(4) Excludes the impact of Acquisition Related Costs and one-time gains and
charges.
NORTEL NETWORKS CORPORATION
Consolidated Statements of Operations and Reconciliation to Supplementary
Net Earnings (1) (unaudited)
(millions of U.S. dollars, except per share figures)
Three months ended
June 30, 1999 March 31, 1999
As Reported As Reported
Cdn GAAP U.S.GAAP Cdn GAAP U.S.GAAP
Revenues $ 5,413 $ 5,233 $ 4,418 $ 4,266
Cost of Revenues 3,075 2,951 2,495 2,395
Gross profit 2,338 2,282 1,923 1,871
Selling, general and
administrative expense 1,038 1,007 856 823
Research and development expense 701 728 666 683
Amortization of intangibles
Purchased in-process research
and development 203 184 398 -
Acquired technology 171 171 171 171
Goodwill 157 300 143 287
Special charges 62 62 - -
Operating earnings (loss) 6 (170) (311) (93)
Investment and other income 63 60 16 1
Interest expense
Long term debt (22) (20) (28) (27)
Other (14) (14) (15) (15)
Gain on sale of businesses - - - -
33 (144) (338) (134)
Income tax provision 171 124 125 67
Net earnings (loss) (138) (268) (463) (201)
Dividends on preferred shares 7 7 7 7
Net earnings (loss)
applicable to common shares $ (145) $ (275) $ (470) $ (208)
Add back:
Acquisition related amortization
Purchased in-process research
and development $ 203 $ 184 $ 398 $ -
Acquired technology 171 171 171 171
Goodwill 135 282 123 270
Amortization of deferred taxes
on acquired technology - (63) - (62)
One-time gains ( 57) ( 57) - -
One-time charges 62 62 - -
Net tax impact (1) (1) - -
Supplementary net earnings
applicable to common shares (2) $ 368 $ 303 $ 222 $ 171
Supplementary earnings per
common share
- basic .27 .22 .17 .13
- diluted .22 .12
Dividends declared per common share .0375 .0375 .0375 .0375
Weighted average number of common
shares outstanding
(millions) - basic 1,350 1,350 1,331 1,331
(1) Reflects the impact of the Stock Dividend
(2) Excludes the impact of Acquisition Related Costs and one-time gains and
charges.
NORTEL NETWORKS CORPORATION
Consolidated Statements of Operations and Reconciliation to
Supplementary Net Earnings (1) (unaudited)
(millions of U.S. dollars, except per share figures)
Three months ended
June 30, 1998 March 31, 1998
As Reported As Reported
Cdn GAAP U.S. GAAP Cdn GAAP U.S. GAAP
Revenues $ 4,156 $ 3,971 $ 3,510 $ 3,320
Cost of revenues 2,419 2,281 2,046 1,908
Gross profit 1,737 1,690 1,464 1,412
Selling, general and
administrative expense 723 692 613 581
Research and development
expense 610 622 575 580
Amortization of intangibles
Purchased in-progress
research and development 220 223 172 329
Acquired technology - - - -
Goodwill 22 18 15 12
Special charges 32 28 - -
Operating earnings (loss) 130 107 89 (90)
Investment and other income 51 34 14 5
Interest expense
Long-term debt (28) (26) (31) (29)
Other (30) (30) (15) (15)
Loss on sale of businesses (2) (2) - -
121 83 57 (129)
Income tax provision 121 114 81 68
Net loss - (31) (24) (197)
Dividends on preferred
shares 7 7 8 8
Net loss applicable to
common shares $ (7) $ (38) $ (32) $ (205)
Add back:
Acquisition related
amortization
Purchased in-process
research and
development $ 220 $ 223 $ 172 $ 329
Acquired technology - - - -
Goodwill - - - -
Amortization of deferred
taxes on acquired
technology - - - -
One-time gains (34) (34) - -
One-time charges (2) 32 32 - -
Net tax impact 1 1 - -
Supplementary net earnings
applicable to common
shares (3) $ 212 $ 184 $ 140 $ 124
Supplementary earnings
per common share
- basic .20 .17 .13 .12
- diluted .17 .11
Dividends declared per
common share .0375 .0375 .0375 .0375
Weighted average number
of common shares
outstanding (millions)
- basic 1,054 1,054 1,048 1,048
(1) Reflects the impact of the Stock Dividend.
(2) Under Canadian GAAP, includes special charges related to joint ventures.
Under U.S. GAAP, these amounts are included in investment and other income.
(3) Excludes the impact of Acquisition Related Costs and one-time gains and
charges.
NORTEL NETWORKS CORPORATION
Consolidated Statements of Operations and Reconciliation to
Supplementary Net Earnings (1) (unaudited)
(millions of U.S. dollars, except per share figures)
Three months ended
December 31 1998 September 30, 1998
As Reported As Reported
Cdn GAAP U.S. GAAP Cdn GAAP U.S. GAAP
Revenues $ 5,768 $ 5,483 $ 4,141 $ 3,960
Cost of revenues 3,239 3,043 2,346 2,215
Gross profit 2,529 2,440 1,795 1,745
Selling, general and
administrative expense 1,029 990 728 698
Research and development
expense 652 703 616 627
Amortization of intangibles
Purchased in-progress
research and
development 528 209 321 995
Acquired technology 171 171 57 57
Goodwill 141 287 62 106
Special charges 27 26 388 377
Operating earnings (loss) (19) 54 (377) (1,115)
Investment and other income 20 24 130 115
Interest expense
Long-term debt (30) (26) (28) (26)
Other (34) (34) (36) (36)
Gain on sale of businesses - - 260 260
(63) 18 (51) (802)
Income tax provision 269 142 130 96
Net loss (332) (124) (181) (898)
Dividends on preferred
shares 9 9 8 8
Net loss applicable to
common shares $ (341) $ (133) $ (189) $ (906)
Add back:
Acquisition related
amortization
Purchased in-process
research and
devlopment $ 528 $ 209 $ 321 $ 995
Acquired technology 171 171 57 57
Goodwill 121 270 40 87
Amortization of deferred
taxes on acquired
technology - (62) - (21)
One-time gains (30) (30) (377) (377)
One-time charges (2) 27 27 388 388
Net tax impact 1 1 (4) (4)
Supplementary net earnings
applicable to common
shares (3) $ 477 $ 453 $ 236 $ 219
Supplementary earnings
per common share
- basic .36 .34 .21 .19
- diluted .33 .19
Dividends declared per
common shares .0375 .0375 .0375 .0375
Weighted average number
of common shares
outstanding (millions)
- basic 1,327 1,327 1,144 1,144
(1) Reflects the impact of the Stock Dividend.
(2) Under Canadian GAAP, includes special charges related to joint ventures.
Under U.S. GAAP, these amounts are included in investment and other income.
(3) Excludes the Impact of Acquisition Related Costs and one-time gains and
charges.
NORTEL NETWORKS CORPORATION
Consolidated Balance Sheets (unaudited, except as noted)
(in millions of U.S. dollars)
June 30,1999 March 31,1999 December 31,1998
As Reported As Reported As Reported
Cdn GAAP U.S.GAAP Cdn GAAP U.S.GAAP Cdn GAAP U.S.GAAP
(audited)
ASSETS
Current assets
Cash and cash
equivalents $ 927 $ 898 $ 1,520 $ 1,504 $ 2,281 $ 2,230
Accounts
receivable 6,463 6,153 5,596 5,315 5,462 5,150
Inventories 2,212 2,109 1,995 1,896 1,687 1,595
Prepaid
expenses 238 228 252 243 223 214
Deferred income
taxes 658 657 629 633 664 672
------ ----- ----- ----- ----- ------
10,498 10,045 9,992 9,591 10,317 9,861
Long-term
receivables 922 877 720 669 573 519
Investments at
cost and
associated
companies at
equity 890 1,212 523 826 521 877
Plant and
equipment
- net 2,258 2,154 2,239 2,141 2,263 2,161
Long-term
deferred taxes - 418 - 335 - 342
Intangible assets
Purchased in-process
research and
development
- net 96 - 114 - 509 -
Acquired
technology
- net 1,481 1,481 1,651 1,651 1,822 1,822
Goodwill - net 3,116 5,379 3,104 5,504 3,289 5,802
----- ----- ----- ----- ----- -----
4,693 6,860 4,869 7,155 5,620 7,624
Other assets 416 406 420 412 438 429
Total assets $19,677 $21,972 $18,763 $21,129 $19,732 $21,813
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 200 $ 176 $ 203 $ 178 $ 186 $ 168
Accounts payable
and accrued
liabilities 5,671 5,345 5,113 4,803 5,435 5,116
Income taxes
payable 204 207 11 13 253 255
Long-term debt
due within one
year 15 15 17 15 19 15
Deferred income
taxes - 2 - 2 - 2
------- ------ ------- ------ ------ ------
6,090 5,745 5,344 5,011 5,893 5,556
Long-term
liabilities
Deferred income 57 40 61 59 77 58
Long-term
debt 1,513 1,412 1,596 1,504 1,648 1,514
Deferred
income taxes 114 893 212 958 94 893
Other
liabilities 384 922 402 930 366 914
------ ----- ------ ----- ------ ------
8,158 9,012 7,615 8,462 8,078 8,935
Minority interest
in subsidiary
companies 87 87 87 87 89 89
Shareholders equity
Preferred
shares 609 609 609 609 609 609
Common shares 9,278 11,465 8,732 10,919 8,553 10,740
Retained
earnings 1,841 938 2,037 1,264 2,568 1,533
Additional
paid-in
capital 143 298 172 274 199 265
Foreign
currency
translation
adjustment (439) (437) (489) (486) (364) (358)
------- ------ ------ ------ ------- ------
11,432 12,873 11,061 12,580 11,565 12,789
Total liabilities and
shareholders'
equity $19,677 $21,972 $18,763 $21,129 $19,732 $21,813
END
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