NETWORKS

TORONTO, CANADA -- Nortel Networks Corporation (NYSE:NT) today reported results for the third quarter and first nine months of 2001 prepared in accordance with US generally accepted accounting principles. 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 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 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 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, 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." Frank Dunn, the Company's new president and chief executive officer effective November 1, 2001, said, "Nortel Networks is focusing its investments and its organization to drive continued leadership across three businesses: Metro Networks, which encompasses metro optical networking, IP networking, IP services and voice over IP solutions for service providers and enterprises; Wireless Networks; and Optical Long Haul Networks. In the quarter, our product programs continued to advance as we focused on building on our industry-leading portfolio of solutions. We also continued to work with our customers to help them plan and deploy the solutions that will position them to drive reductions in their cost of operations and enable them to take advantage of opportunities for new revenue streams. Some key milestones over the past 120 days included: -- the First North American ILEC began the circuit to packet transition with the deployment of our carrier-grade softswitch; -- Announced Metro DWDM wins in the United States, Europe and Japan; -- Announced Multiservice backbone awards (ATM, IP, MPLS) in China, Germany and Asia; -- Continued progress on 3G Wireless Internet infrastructure deployments and completed the first commercial UMTS test calls and the first CDMA2000 1X mobile IP call; -- Introduced advances in IP solutions, including an integrated Layer 4-7 content switching capability on our Layer 2-3 Edge Switch Router; and -- Completed hardware design, significantly advanced software integration and began production of OPTera Connect HDX solution." As announced on October 2, 2001, the Company expects to have an overall workforce of approximately 45,000 after the completion of its work plan. Notifications to employees impacted by workforce reductions are expected to be substantially completed by the end of October 2001. A workforce reduction and related charge will be recorded in the fourth quarter of 2001. Over the next few quarters, the Company also expects to continue to divest non-core businesses in accordance with its work plan. The number of positions which will be impacted by this divesture activity (including the impact of divestures announced or completed to date) is expected to ultimately approach 10,000 positions. 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.