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Nortel reports financial results for Q4 and full year 2007
As you’ve probably seen already, earlier today Nortel announced 4Q and full year 2007 financial results. Media headlines covering our announcement have obviously focused on two main items - the $1.1B non-cash charge we took against our Canadian Deferred Tax Asset, and the announcement of further restructuring that includes a 2,100 net reduction in employees. But behind those headlines are indications that the underlying fundamentals of Nortel’s operations are trending up:
- 2007 revenues were up 2% YoY when you account for the divestiture of the UMTS business that happened at the end of 2006.
- Nortel has now shown six consecutive quarters of strong year over year improvement in operating margin. OM is now at the highest levels for the company since 2000, with further improvements expected in 2008.
- Cash flow was positive for 4Q.
There were several articles today that I thought provided good, detailed coverage of our news and Mike Z’s comments in this morning’s conference call, including these articles from the Canadian Press, CRN, and Reuters.
One area where I’ve heard several questions was around what exactly the $1.1B non-cash charge is. Here’s a quick explanation…
- Nortel recorded a non-cash charge of US$1.1 billion to adjust the total value of the Company’s Canadian Deferred Tax Assets.
- Deferred tax assets at their simplest level are tax benefits that can reduce a company’s future taxes, and they can carry forward from quarter to quarter.
- Every quarter, for accounting purposes, companies routinely assesses accumulated deferred tax assets and makes adjustments in value as required by accounting rules.
- Nortel’s write-down reflects changes during 2007 such as: decreases in Canada’s corporate tax rate from 19 percent to 15 percent, increases in the value of the Canadian dollar by 18 percent compared to U.S. currency from 2006 through to the end of 2007, and other expectations related to the timing of Nortel’s Canadian taxable income.
The key point here is that this is a non-cash charge and has no bearing on Nortel’s financial fundamentals or cash position, or our ability to deliver next-gen solutions for our customers. In fact, Nortel has multiple wins in 4Q for advanced technologies, such as with Verizon for both a 40 gig optical network and an LTE 4G wireless trial, and AT&T deploying Nortel IP products for the core of their wireless network.
