Nortel Plans to Raise $1 Billion Through Convertible Note Offering

Company also filed restated financial statements with the SEC.
CFO StaffAugust 10, 2001

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BRAMPTON, Ontario – – Nortel Networks Corp. late Wednesday announced plans to raise $1 billion through a private offering of convertible senior notes.

Nortel (NT) said in a prepared statement that it “intends to lend all or substantially all of the proceeds … to its principal direct operating subsidiary, Nortel Networks Ltd., which will use the funds for its general corporate purposes and those of its subsidiaries.”

The notes will be convertible into common shares of Nortel Networks Corp. and guaranteed by Nortel Networks Ltd., which is Nortel Networks Corp.’s principal operating subsidary and whose preferred shares are publicly traded in Canada.

The announcement of Nortel Network Corp.’s offering comes a week after rival Lucent Technologies Inc. (LU) disclosed plans to raise $1 billion through a private offering of redeemable convertible preferred stock. The offering, held Thursday, was a red- hot item and eventually raised $1.9 billion for the cash-strapped telecommunications- equipment giant.

Nortel’s convertible senior notes will be offered to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933.

The company added that it made a filing with the Securities and Exchange Commission which makes available financial statements which have been restated “solely to reflect the treatment of certain businesses as discontinued operations as originally announced by the companies on June 15.” Then, Nortel announced it would close its access solutions operations and slash another 10,000 jobs from its payroll.

The revised financial statements are for the years 1998 through 2000 and the first quarter of 2001, and also include “previously announced discontinued operations” and “its investment in Arris Group Inc. (ARRS) and equity investment in (former unit) Elastic Networks Inc. (ELAS),” Nortel said in the SEC filing.

The restructuring moves are part of Nortel’s ongoing program to reduce costs by about $3.5 billion annually. So far this year, the company has eliminated more than 23,000 positions of the 30,000 planned to be laid off and closed its digital-subscriber-line division and certain facilities. Nortel had 94,500 employees at the start of this year, when the company first began cutting jobs.

Last month, Nortel reported a second- quarter net loss of $19.43 billion. The huge figure was largely from restructuring charges, acquisition-related expenses and discontinued operations.

Along with filing the restated results with the SEC, the company filed its second-quarter report.

It disclosed that Nortel doesn’t expect meaningful growth in spending by its service- provider customers before the second half of 2002. The company said growth will only happen “after economic concerns subside and anticipated rationalization of the telecom industry is well underway,” since spending by service providers is being restricted by their high debt levels, economic concerns and an inability to tap capital markets for funding.

Nortel added that it can’t provide specific guidance for its financial performance in the third and fourth quarters.

The second-quarter report also said the lawsuit filed against the company by certain Entrust Technologies Inc. (ENTU) shareholders was dismissed without prejudice on July 31. Nortel spun off Entrust in 1997 and continues to hold a minority stake.

The lawsuit was filed in February by people who had purchased Entrust common stock between October 1999 and July 2000. The plaintiffs alleged that Entrust, certain Entrust officers and Nortel violated the Securities and Exchange Act of 1934 in certain statements made by Entrust. The lawsuit claimed Entrust didn’t disclose revenue shortfalls because it wanted to keep the stock price artificially high.

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