1119664--3/16/2007--NORTEL_NETWORKS

related topics

{financial, litigation, operation}

{debt, indebtedness, cash}

{acquisition, growth, future}

{capital, credit, financial}

{product, market, service}

{cost, contract, operation}

{customer, product, revenue}

{stock, price, share}

{system, service, information}

{personnel, key, retain}

{operation, international, foreign}

{condition, economic, financial}

{control, financial, internal}

{regulation, change, law}

{property, intellectual, protect}

{tax, income, asset}

We may be materially and adversely affected by cautious capital spending or a change in technology focus by our customers, particularly certain key customers. Rationalization and consolidation among our customers may lead to increased competition and harm our business. We operate in highly dynamic and volatile industries. If we are unable to develop new products rapidly and accurately predict, or effectively react to, market opportunities, our ability to compete effectively in our industry, and our sales, market share and customer relationships, could be materially and adversely affected. Our performance may be materially and adversely affected if our expectations regarding market demand for particular products prove to be wrong. We continue to restructure and transform our business. The assumptions underlying these efforts may prove to be inaccurate, or we may fail to achieve the expected benefits from these efforts, and we may have to restructure or transform our business again in the future. Negative developments associated with our suppliers and contract manufacturers, including our reliance on certain suppliers for key optical networking solutions components, and on a sole supplier for the majority of our manufacturing and design functions, may materially and adversely affect our business, results of operations, financial condition and customer relationships. We may be required to pay significant penalties or liquidated damages, or our customers may be able to cancel contracts, in the event that we fail to meet delivery and installation deadlines, which could have a material adverse effect on our revenues, operating results, cash flows and relationships with our customers. Defects, errors or failures in our products could result in higher costs than we expect and could harm our reputation and adversely affect our business, results of operations and financial condition. Fluctuations in foreign currency exchange rates could negatively impact our business, results of operations and financial condition. If we fail to manage the higher operational and financial risks associated with our international expansion efforts, it could have a material adverse effect on our business, results of operations and financial condition. If market conditions deteriorate or future results of operations are less than expected, an additional valuation allowance may be required for all or a portion of our deferred tax assets. If we fail to protect our intellectual property rights, or if we are subject to adverse judgments or settlements arising out of disputes regarding intellectual property rights, our business, results of operations and financial condition could be materially and adversely affected. If we are unable to maintain the integrity of our information systems, our business and future prospects may be harmed. Changes in regulation of the Internet or other regulatory changes may affect the manner in which we conduct our business and may materially and adversely affect our business, operating results and financial condition. We have made, and may continue to make, strategic acquisitions. If we are not successful in operating or integrating these acquisitions, our business, results of operations and financial condition may be materially and adversely affected. Our business may suffer if our strategic alliances are not consummated or are not successful. We may not be able to attract or retain the personnel necessary to achieve our business objectives. Our risk management strategy may not be effective or commensurate to the risks we are facing. Risks Relating to Our Liquidity, Financing Arrangements and Capital Cash flow fluctuations may affect our ability to fund our working capital requirements and achieve our business objectives in a timely manner. Additional sources of funds may not be available on acceptable terms or at all. Our high level of debt could materially and adversely affect our business, results of operations, financial condition and liquidity. Covenants in the indenture governing certain of our senior notes impose operating and financial restrictions on us, which may prevent us from issuing new debt and from capitalizing on business opportunities. Our credit ratings are below investment grade which may adversely affect our liquidity. An increased portion of our cash and cash equivalents may be restricted as cash collateral if we are unable to secure alternative support for certain obligations arising out of our normal course business activities. An inability of our subsidiaries to provide us with funding in sufficient amounts could adversely affect our ability to meet our obligations. We may need to make larger contributions to our defined benefit plans in the future, which could have a material adverse impact on our liquidity and our ability to meet our other obligations. Our exposure to our customers credit risk under customer financing arrangements could increase. Risks Relating to Our Restatements and Related Matters Our current restatement of our consolidated financial statements and related events, and possible future restatements, may have a material adverse effect on us. We are subject to ongoing regulatory and criminal investigations in the U.S. and Canada, which could require us to pay substantial fines or other penalties or subject us to sanctions that may have material adverse effects on us. The Global Class Action Settlement requires us to pay a substantial cash amount and will result in a significant dilution of existing equity positions. We are subject to additional pending civil litigation actions, which are not encompassed by the Global Class Action Settlement and which, if decided against us or as a result of settlement, could require us to pay significant judgments or settlements and could result in the dilution of existing equity positions, and we cannot predict the timing of developments in these matters. We and our independent registered chartered accountants have identified a material weakness related to our internal control over financial reporting and concluded that our internal control over financial reporting was ineffective as at December 31, 2006. This material weakness could impact our ability to report our results of operations and financial condition accurately and in a timely manner. We are currently unable to access our shelf registration statement filed with the SEC, which may adversely affect our financial flexibility. If in the future we are unable to report our results of operations and financial condition accurately and in a timely manner, the holders of our debt could accelerate the maturity of that debt, which could leave us unable to meet our payment obligations, and the NYSE and TSX could commence suspension or delisting procedures in respect of NNC common shares or other of our or NNC s listed securities.

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1119664--3/16/2007--NORTEL_NETWORKS_LTD