8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) MAY 2, 2008

NORTEL NETWORKS CORPORATION

(Exact name of registrant as specified in its charter)

CANADA	001-07260	98-0535482
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

195 THE WEST MALL, TORONTO, ONTARIO, CANADA	M9C 5K1
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code 905-863-7000

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

On May 2, 2008, Nortel Networks Corporation (the “Company”) issued a press release concerning its financial results for the first quarter of 2008. Such press release is attached hereto as Exhibit 99.1 and furnished in accordance with Item 2.02 of Form 8-K.

Item 9.01 Financial Statements and Exhibits

(c) Exhibits

     99.1     Press release issued by the registrant on May 2, 2008.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

NORTEL NETWORKS CORPORATION
By:	/s/ Gordon A. Davies
	Gordon A. Davies
	Deputy General Counsel and Corporate Secretary
By:	/s/ Anna Ventresca
	Anna Ventresca
	Assistant Secretary

Dated: May 2, 2008

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release issued by the registrant on May 2, 2008.

EX-99.1

Exhibit 99.1

www.nortel.com

FOR IMMEDIATE RELEASE		May 2, 2008
For more information:
Media	Media	Investors
Jay Barta	Mohammed Nakhooda	(888) 901-7286
(972) 685-2381	(905) 863-7407	(905) 863-6049
jbarta@nortel.com	mohammna@nortel.com	investor@nortel.com

Nortel Reports Financial Results for the First Quarter 2008

• Revenue up 11 percent, benefiting from the completion of an LG-Nortel joint venture contract

• Gross margin at 41.6 percent, up 120 bps from prior year period

• Operating margin at 4.7 percent, up 512 bps from prior year period

• Reiterates full year guidance

TORONTO — Nortel* Networks Corporation [NYSE/TSX: NT] announced its results for first quarter 2008, which demonstrated continued progress against the Company’s turnaround strategy. Strong operational progress in margins combined with steady revenue growth kept Nortel on track to meet full year goals. Results were prepared in accordance with United States generally accepted accounting principles (GAAP) in U.S. dollars.

“Nortel had a strong first quarter, driven by the completion of a contract in our LG-Nortel joint venture and continued improvements in gross and operating margins. Nortel’s operating margin, a critical measure of our plan’s traction, expanded for the seventh consecutive quarter year over year, recording a 512 bps improvement to 4.7 percent,” said Mike Zafirovski, Nortel President and Chief Executive Officer. “We except to achieve our full year guidance and we continue to make solid progress against the strategy to turn around the company. Our relentless focus on execution and our determination to deliver value to customers is strengthening the foundation upon which to build our performance over the balance of 2008 and beyond.”

2008 Financial Highlights

• Revenue in the first quarter of $2.76 billion, up by 11 percent year over year, which included a release of deferred revenue associated with the completion of a significant contract in the LG-Nortel joint venture that was previously expected to occur in the second quarter.

• Gross margin in the first quarter of 41.6 percent, up 120 basis points year over year.

• Operating margin in the first quarter of 4.7 percent, up 512 basis points year over year.

• Cash balance, as at March 31, 2008 of $3.22 billion, included a seasonal outflow of cash from operations in the quarter of $260 million, in-line with the 2008 target.

Page 2

Business Highlights

• Nortel launched the industry’s first 40/100G solution — a significant technology milestone enabling four times the network throughput immediately, while providing the foundation to simply and affordably increase capacity tenfold, as required. This equips carriers to keep pace with dramatically increasing demand from high bandwidth applications. Also, Nortel won two related contracts with Neos and TDC; and in a technology first, conducted a live 100G network trial with Comcast.

• Customers such as CTM in Macau, Intercontinental in San Francisco and RMIT University in Australia came to Nortel for Unified Communications solutions that will help them streamline communication and enhance business processes.

• Nortel won a 4G contract with Charles Street Partners to bring wireless broadband to rural citizens of Florida and Arizona, and secured a trial agreement with Loxley of Thailand to demonstrate mobile VoIP, high-definition video and other interactive applications. In addition, Nortel achieved several technology milestones, including, with LG Electronics, the world’s first demo of mobile LTE while traveling in a vehicle at 110 kilometers per hour with data rates of up to 50 Mbps, fast enough to support mobile multimedia applications.

• Market demand for 2G and 3G infrastructure continued and Nortel won key deals with operators around the world, including a $100 million contract with India’s BSNL and a five-year contract extension with US Cellular.

• Nortel also announced a Telepresence and video conferencing resale agreement with TANDBERG, further enabling the delivery of a fully-managed Telepresence solution with an open-architecture, a key competitive differentiator, to help businesses decrease their travel costs, increase their productivity and significantly reduce their carbon footprint.

Revenue

Revenue was $2.76 billion for the first quarter of 2008 compared to $2.48 billion for the first quarter of 2007 and $3.20 billion for the fourth quarter of 2007. In the first quarter of 2008, revenue increased by 11 percent compared with the year ago quarter and decreased by 14 percent compared to the fourth quarter of 2007. The first quarter of 2008 included the release of deferred revenue associated with the completion of a large contract in the LG-Nortel joint venture.

Revenue B/(W)

	Q1 2008		YoY			QoQ
Carrier Networks	$	1,218		21	%		(10	%)
Enterprise Solutions	$	641		7	%		(16	%)
Global Services	$	516		15	%		(15	%)
Metro Ethernet Networks	$	327		(12	%)		(24	%)
Other	$	56		0	%		0	%
Total	$	2,758		11	%		(14	%)

Carrier Networks (CN) revenue in the first quarter of 2008 was $1,218 million, an increase of 21 percent compared with the year ago quarter and a decrease of 10 percent sequentially. Compared to the year ago quarter, CN revenue benefited from the
LG-Nortel joint venture contract completion, partially offset by a slight decline in CDMA and lower legacy switching sales.

Enterprise Solutions (ES) revenue in the first quarter of 2008 was $641 million, an increase of 7 percent compared with the year ago quarter and a decrease of 16 percent sequentially. Compared to the year ago quarter, ES revenues were positively impacted by higher voice and applications revenues, primarily from customer migration to unified communications, partially offset by a decline in the data networking business primarily from lower sales in the North American and EMEA regions and significant contract completions in the first quarter of 2007, not repeated to the same extent in the first quarter of 2008.

Page 3

Global Services (GS) revenue in the first quarter of 2008 was $516 million, an increase of 15 percent compared with the year ago quarter and a decrease of 15 percent sequentially. The first quarter showed strong growth in network implementation services and managed services, partially offset by a decline in network support services. Compared to the year ago quarter, GS revenue benefited from the LG-Nortel joint venture contract completion and other growth in implementation services primarily in the Asia region.

Metro Ethernet Networks (MEN) revenue in the first quarter of 2008 was $327 million, a decrease of 12 percent compared with the year ago quarter and a decrease of 24 percent sequentially. The year over year decrease in revenue was primarily due to decreases in optical and data revenue resulting from the completion of large contracts in the first quarter of 2007 not repeated to the same extent in the first quarter of 2008.

Deferred Revenue

Deferred revenue balances decreased by $266 million during the first quarter of 2008 compared to an increase of $32 million in the first quarter of 2007.

Gross margin

Gross margin was 41.6 percent of revenue in the first quarter of 2008. This compared to gross margin of 40.4 percent for the first quarter of 2007 and 43.7 percent for the fourth quarter of 2007. Compared to the first quarter of 2007, gross margins benefited primarily from productivity improvements partially offset by unfavourable product mix and lower margin deferred revenue releases.

Operating Expenses

Operating Expenses B/(W)

	Q1 2008		YoY			QoQ
SG&A	$	597		1	%		12	%
R&D	$	420		(3	%)		12	%
Total Operating Expenses	$	1,017		(0	%)		12	%
% of Revenue		36.9%	394 bps			(82 bps)

Operating expenses were $1,017 million in the first quarter of 2008. This compares to operating expenses of $1,013 million for the first quarter of 2007 and $1,153 million for the fourth quarter of 2007.

Selling, general and administrative (SG&A) expenses were $597 million in the first quarter of 2008, compared to $604 million for the first quarter of 2007, and $678 million for the fourth quarter of 2007. Compared to the first quarter of 2007, SG&A was favourably impacted primarily by savings from previously announced restructuring programs, partially offset by investments in sales and marketing and negative foreign exchange impacts.

Research and development (R&D) expenses were $420 million in the first quarter of 2008, compared to $409 million for the first quarter of 2007 and $475 million for the fourth quarter of 2007. Compared to the first quarter of 2007, R&D was favourably impacted primarily by savings from previously announced restructuring programs, partially offset by negative foreign exchange impacts and investments in new technologies.

Operating Margin

Operating margin was 4.7 percent in the first quarter of 2008, compared to (0.4) percent for the first quarter of 2007 and 7.6 percent for the fourth quarter of 2007. The first quarter of 2008 operating margin increased by 512 basis points compared to the year ago quarter, marking the seventh consecutive quarter of year over year improvement. The improvement was driven by higher gross margin and lower operating expense to revenue.

Page 4

Other

Special charges in the first quarter of 2008 of $88 million related to costs associated with previously announced restructuring plans.

Other income (expense) — net was $37 million of income for the first quarter of 2008, compared to income of $66 million in the first quarter of 2007 and income of $93 million in the fourth quarter of 2007. Other income included interest and dividend income of $38 million, a foreign exchange loss of $19 million and a $16 million gain on an interest rate swap.

Minority interest was an expense of $78 million in the first quarter of 2008, compared to an expense of $22 million for the first quarter of 2007 and an expense of $39 million for the fourth quarter of 2007. Minority interest expense included an expense of $11 million related to the ongoing payment of preferred shares dividends, but was primarily driven by the profitability of the LG-Nortel joint venture.

Interest expense was $80 million in the first quarter of 2008, compared to $96 million for the first quarter of 2007 and $80 million for the fourth quarter of 2007.

Income tax expense was $36 million in the first quarter of 2008, compared to an expense of $13 million for the first quarter of 2007 and an expense of $1,040 million for the fourth quarter of 2007 which included an increase to the valuation allowance against the deferred tax asset of $1,043 million.

Earnings

The Company reported a net loss in the first quarter of 2008 of $138 million, or $0.28 per common share on a basic and diluted basis, compared to net loss of $103 million, or $0.23 per common share on a basic and diluted basis, in the first quarter of 2007 and net loss of $844 million, or $1.70 per common share on a diluted basis, in the fourth quarter of 2007.

Significant Impact Items and Tax Impact

	Q1 2008			Q1 2007			Q4 2007
Net Earnings / (Loss)		($138	)		($103	)		($  844	)
Restructuring Charges		$  88			$  80			$    38
Litigation Settlement Mark to Market					($ 54	)
Loss (Gain) on Sale		($   2	)		($   1	)		($    23	)
Currency Exchange Loss (Gain)		$  19						($    40	)
Income Tax — Adjustment to Deferred Tax Asset								$1,043
Investment Impairment		$    8
Patent Litigation Settlement		$  12
Other Income — Loss (Gain) from Swap		($ 16	)					($   15	)
Total Tax Impact of above items		($   6	)		($   1	)		($    5	)

The net loss in the first quarter of 2008 of $138 million included special charges of $88 million for restructurings, a loss of $19 million due to changes in foreign exchange rates, a charge of $12 million related to a patent lawsuit settlement and a gain of $16 million primarily from mark-to-market gains on interest rate swaps. The net loss in the first quarter of 2007 of $103 million included a shareholder litigation gain of $54 million reflecting a mark-to-market adjustment of the share portion of the class action settlement and special charges of $80 million for restructuring. The net loss in the fourth quarter of 2007 of $844 million included a reduction of the deferred tax asset of $1,043 million, special charges of $38 million for restructurings, a gain of $23 million on the sale of assets, a gain of $40 million due to favourable effects of changes in foreign exchange rates and a gain due to a market value adjustment of $15 million on an interest rate swap.

Page 5

Cash balance at the end of the first quarter of 2008 was $3.22 billion, down from $3.53 billion at the end of the fourth quarter of 2007. The decrease in cash was primarily driven by a cash outflow from operating activities of $260 million, cash used in investing activities of $44 million and cash used in financing activities of $14 million. The cash outflow from operating activities of $260 million included a net loss of $138 million and outflows of $264 million primarily related to the payment of 2007 bonuses and fourth quarter sales compensation, $121 million related to pension funding, $51 million cash payments related to our previously announced restructuring plans, partially offset by net cash inflows of $99 million of working capital and non-cash additions including $82 million of amortization and depreciation and $78 million of minority interest primarily related to profitability of the
LG-Nortel joint venture.

Outlook^(a)

Nortel reiterates its financial outlook for the full year 2008, and continues to expect:

• Revenue to grow in the low single digits compared to 2007

• Gross Margin to be about the business model target of 43 percent of revenue

• Operating Margin as a percentage of revenue to increase by about 300 basis points compared to 2007

^(a)  The Company’s financial outlook contains forward-looking information and as such, is based on certain assumptions, and is subject to important risk factors and uncertainties (which are summarized in italics at the end of this press release) that could cause actual results or events to differ materially from this outlook.

About Nortel

Nortel is a recognized leader in delivering communications capabilities that make the promise of Business Made Simple a reality for our customers. Our next generation technologies, for both service provider and enterprise networks, support multimedia and business critical applications. Nortel’s technologies are designed to help eliminate today’s barriers to efficiency, speed and performance by simplifying networks and connecting people to the information they need, when they need it. Nortel does business in more than 150 countries around the world. For more information, visit Nortel on the Web at www.nortel.com. For the latest Nortel news, visit www.nortel.com/news.

Certain statements in this press release may contain words such as “could”, “expects”, “may”, “anticipates”, “believes”, “intends”, “estimates”, ”targets”, “envisions”, “seeks” and other similar language and are considered forward-looking statements or information under applicable securities legislation. These statements are based on Nortel’s current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which Nortel operates. These statements are subject to important assumptions, risks and uncertainties, which are difficult to predict and the actual outcome may be materially different. Nortel has made various assumptions in the preparation of its financial outlook in this press release, including the following company specific assumptions: no further negative impact to Nortel’s results of operations, financial condition and liquidity arising from Nortel’s restatements of its financial results; increase in sales to Nortel’s enterprise customers and wireless service provider customers in the Asia Pacific region as a result of Nortel’s joint venture with LG Electronics Inc.; improvement in Nortel’s product costs due to favourable supplier pricing, offset by higher costs associated with customer deployments in emerging markets; cost reductions resulting from the 2008 and 2007 restructuring plans; increased employee costs relative to expected cost of living adjustments and employee bonuses; and the effective execution of Nortel’s strategy, including the execution of Nortel’s supply chain strategy and the implementation of its Business Transformation initiatives in 2008. Nortel has also made certain macroeconomic and general industry assumptions in the preparation of its financial guidance including: global service provider capital expenditures in 2008 reflecting low to mid single digit growth as compared to mid to high single digit growth in 2007; global growth rate to remain stable with investments in next generation products and services to exceed declines in purchases of legacy equipment; and a moderate impact as a result of expected industry consolidation among service providers in various geographic regions, particularly in North America and EMEA. The above assumptions, although considered reasonable by Nortel at the date of this press release, may prove to be inaccurate and consequently Nortel’s actual results could differ materially from its expectations set out in this press release.

Page 6

Further, actual results or events could differ materially from those contemplated in forward-looking statements as a result of the following (i) risks and uncertainties relating to Nortel’s business including: significant competition, competitive pricing practice, cautious capital spending by customers as a result of factors including current economic uncertainties, industry consolidation, rapidly changing technologies, evolving industry standards, frequent new product introductions and short product life cycles, and other trends and industry characteristics affecting the telecommunications industry; any material, adverse affects on Nortel’s performance if its expectations regarding market demand for particular products prove to be wrong; the sufficiency of recently announced restructuring actions; any negative developments associated with Nortel’s suppliers and contract manufacturing agreements including our reliance on certain suppliers for key optical networking solutions components; potential penalties, damages or cancelled customer contracts from failure to meet delivery and installation deadlines and any defects or errors in Nortel’s current or planned products; fluctuations in foreign currency exchange rates; potential higher operational and financial risks associated with Nortel’s efforts to expand internationally; potential additional valuation allowances for all or a portion of Nortel’s deferred tax assets if market conditions deteriorate or future results of operations are less than expected; a failure to protect Nortel’s intellectual property rights, or any adverse judgments or settlements arising out of disputes regarding intellectual property; any negative effect of a failure to maintain integrity of Nortel’s information systems; changes in regulation of the telecommunications industry or other aspects of the industry; any failure to successfully operate or integrate strategic acquisitions, or failure to consummate or succeed with strategic alliances; Nortel’s potential inability to attract or retain the personnel necessary to achieve its business objectives or to maintain an effective risk management strategy; (ii) risks and uncertainties relating to Nortel’s liquidity, financing arrangements and capital including: any inability of Nortel to manage cash flow fluctuations to fund working capital requirements or achieve its business objectives in a timely manner or obtain additional sources of funding; high levels of debt, limitations on Nortel capitalizing on business opportunities because of senior notes covenants, or on obtaining additional secured debt pursuant to the provisions of indentures governing certain of Nortel’s public debt issues; Nortel’s below investment grade credit rating; any increase of restricted cash requirements for Nortel if it is unable to secure alternative support for obligations arising from certain normal course business activities, or any inability of Nortel’s subsidiaries to provide it with sufficient funding; any negative effect to Nortel of the need to make larger defined benefit plans contributions in the future or exposure to customer credit risks or inability of customers to fulfill payment obligations under customer financing arrangements; or any negative impact on Nortel’s ability to make future acquisitions, raise capital, issue debt and retain employees arising from stock price volatility and any declines in the market price of Nortel’s publicly traded securities; and (iii) risks and uncertainties relating to Nortel’s prior restatements and related matters including: any negative impact on Nortel and NNL of such restatements; legal judgments, fines, penalties or settlements related to the ongoing criminal investigations of Nortel in the U.S. and Canada; the significant dilution of Nortel’s existing equity positions resulting from the approval of its class action settlement; or any significant pending or future civil litigation actions not encompassed by Nortel’s class action settlement. For additional information with respect to certain of these and other factors, see Nortel’s Annual Report on Form 10-K and other securities filings with the United States Securities and Exchange Commission. Unless otherwise required by applicable securities laws, Nortel disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

-end-

*Nortel, the Nortel logo and the Globemark are trademarks of Nortel Networks.

Nortel will host a teleconference/audio webcast to discuss First Quarter 2008 Results:

Date:   Friday, May 2, 2008
Time:  8:30 a.m. ET

To take part in the audio Webcast, please visit: www.nortel.com/q1earnings2008

To participate in the audio teleconference and Q&A, please call:

• North America  1-866-225-6564

• International     1-416-641-6139

*** Please dial in at least 15 minutes prior to the start of the event ***

Replay: A replay of the audio teleconference will be available at 11:00 a.m. ET at:

• North America  1-800-408-3053         Passcode:  3256865#

• International     1-416-695-5800         Passcode:  3256865#

Audio webcast replay: www.nortel.com/q1earnings2008

NORTEL NETWORKS CORPORATION
Condensed Consolidated Statements of Operations (unaudited)
(U.S. GAAP; Millions of U.S. dollars, except per share amounts)

	Three months ended
	March 31, 2008			December 31, 2007			March 31, 2007
Revenues:
Products	$	2,471		$	2,861		$	2,169
Services		287			337			314
		2,758			3,198			2,483
Cost of revenues
Products		1,459			1,626			1,303
Services		153			175			178
		1,612			1,801			1,481
Gross profit		1,146			1,397			1,002
		41.6	%		43.7	%		40.4	%
Selling, general and administrative expense		597			678			604
Research and development expense		420			475			409
Operating Margin		129			244			(11	)
		4.7	%		7.6	%		-0.4	%
Amortization of intangibles		12			13			12
In-process research and development expense		—			—			—
Special charges		88			38			80
Gain on sale of businesses and assets		(2	)		(23	)		(1	)
Shareholder litigation settlement recovery		—			—			(54	)
Regulatory investigation expense		—			—			—
Other operating charges (income) — net		13			(6	)		(10	)
Operating earnings (loss)		18			222			(38	)
Other income — net		(37	)		(93	)		(66	)
Interest expense
Long-term debt		74			74			85
Other		6			6			11
Loss from operations before income taxes, minority interests and equity in net earnings (loss) of associated companies		(25	)		235			(68	)
Income tax expense		36			1,040			13
		(61	)		(805	)		(81	)
Minority interests — net of tax		78			39			22
Equity in net earnings (loss) of associated companies — net of tax		(1	)		—			—
Net earnings (loss)	$	(138	)	$	(844	)	$	(103	)
Average shares outstanding (millions) — Basic		498			498			442
Average shares outstanding (millions) — Diluted		498			498			442
Basic and diluted earnings (loss) per common share		($0.28	)		($1.70	)		($0.23	)

NORTEL NETWORKS CORPORATION
Condensed Consolidated Balance Sheets (unaudited)
(U.S. GAAP; Millions of U.S. dollars, except per share amounts)

	March 31, 2008			December 31, 2007			March 31, 2007
ASSETS
Current assets
Cash and cash equivalents	$	3,223		$	3,532		$	4,555
Restricted cash and cash equivalents		58			76			44
Accounts receivable — net		2,338			2,583			2,359
Inventories — net		1,818			2,002			2,048
Deferred income taxes — net		535			487			367
Other current assets		472			467			490
Total current assets		8,444			9,147			9,863
Investments		193			194			201
Plant and equipment — net		1,510			1,532			1,515
Goodwill		2,570			2,559			2,530
Intangible assets — net		188			213			229
Deferred income taxes — net		2,774			2,868			3,785
Other assets		574			555			599
Total assets	$	16,253		$	17,068		$	18,722
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade and other accounts payable	$	1,070		$	1,187		$	1,051
Payroll and benefit-related liabilities		545			690			524
Contractual liabilities		259			272			227
Restructuring liabilities		143			100			135
Other accrued liabilities		3,497			3,825			3,795
Long-term debt due within one year		696			698			21
Total current liabilities		6,210			6,772			5,753
Long-term debt		3,838			3,816			5,591
Deferred income taxes — net		30			17			48
Other liabilities		2,706			2,875			3,836
Total liabilities		12,784			13,480			15,228
Minority interests in subsidiary companies		883			830			790
SHAREHOLDERS’ EQUITY
Common shares, without par value — Authorized shares: unlimited; Issued and outstanding shares: 438,029,916 as of March 31, 2008, 437,423,006 as of December 31, 2007 and 436,874,114 as of March 31, 2007		34,043			34,028			34,015
Additional paid-in capital		5,033			5,025			4,957
Accumulated deficit		(36,705	)		(36,532	)		(35,678	)
Accumulated other comprehensive loss		215			237			(590	)
Total shareholders’ equity		2,586			2,758			2,704
Total liabilities and shareholders’ equity	$	16,253		$	17,068		$	18,722

NORTEL NETWORKS CORPORATION
Condensed Consolidated Statements of Cash Flows (unaudited)
(U.S. GAAP; Millions of U.S. dollars)

	Three months ended
	March 31, 2008			December 31, 2007			March 31, 2007
Cash flows from (used in) operating activities
Net earnings (loss)	$	(138	)	$	(844	)	$	(103	)
Adjustments to reconcile net earnings (loss) to net cash from (used in) operating activities, net of effects from acquisitions and divestitures of businesses:
Amortization and depreciation		82			97			79
Non-cash portion of shareholder litigation settlement expense (recovery)		—			—			(54	)
Non-cash portion of special charges and related asset write downs		2			10			—
Equity in net (earnings) loss of associated companies		(1	)		—			—
Share based compensation expense		21			19			25
Deferred income taxes		12			1,027			5
Pension and other accruals		32			77			92
Gain on sale or write down of investments, businesses and assets		6			(23	)		(1	)
Minority interests		78			39			22
Other — net		(23	)		(18	)		18
Change in operating assets and liabilities, excluding Global Class Action Settlement — net		(331	)		33			(59	)
Global Class Action Settlement — net		—			—			(585	)
Net cash from (used in) operating activities		(260	)		417			(561	)
Cash flows from (used in) investing activities
Expenditures for plant and equipment		(51	)		(95	)		(56	)
Proceeds on disposals of plant and equipment		—			1			14
Restricted cash and cash equivalents		18			(12	)		595
Acquisitions of investments and businesses — net of cash acquired		(29	)		(4	)		(14	)
Proceeds on sale of investments and businesses		18			104			(39	)
Net cash from (used in) investing activities		(44	)		(6	)		500
Cash flows from (used in) financing activities
Dividends paid by subsidiaries to minority interests		(11	)		(17	)		(10	)
Increase in notes payable		28			29			10
Decrease in notes payable		(25	)		(29	)		(12	)
Increase in loan payable		—			—			1,150
Debt issuance costs		—			—			(22	)
Decrease in capital leases payable		(6	)		(6	)		(5	)
Issuance of common shares		—			—			7
Net cash from (used in) financing activities		(14	)		(23	)		1,118
Effect of foreign exchange rate changes on cash and cash equivalents		9			16			6
Net increase (decrease) in cash and cash equivalents		(309	)		404			1,063
Cash and cash equivalents at beginning of period		3,532			3,128			3,492
Cash and cash equivalents at end of period	$	3,223		$	3,532		$	4,555

NORTEL NETWORKS CORPORATION
Consolidated Financial Information (unaudited)
(U.S. GAAP; Millions of U.S. dollars)

Segmented revenues

The following table summarizes our revenue and operating margin by segment for:

	Three months ended
	March 31, 2008			December 31, 2007			March 31, 2007
Revenues
Carrier Networks	$	1,218		$	1,346		$	1,009
Enterprise Solutions		641			762			597
Global Services		516			605			448
Metro Ethernet Networks		327			429			373
Total reportable segments		2,702			3,142			2,427
Other		56			56			56
Total revenues	$	2,758		$	3,198		$	2,483
Operating Margin
Carrier Networks		259			342			154
Enterprise Solutions		(24	)		(1	)		(9	)
Global Services		72			130			75
Metro Ethernet Networks		(25	)		(11	)		(20	)
Total reportable segments		282			460			200
Other		(153	)		(216	)		(211	)
Total operating margin		129			244			(11	)
Amortization of intangible assets		12			13			12
Special charges		88			38			80
Gain (loss) on sales of businesses and assets		(2	)		(23	)		(1	)
Shareholder litigation settlement (expense) recovery		—			—			(54	)
Other operating charges (income) — net		13			(6	)		(10	)
Other income —net		(37	)		(93	)		(66	)
Interest expense		80			80			96
Income tax expense		36			1,040			13
Minority interests — net of tax		78			39			22
Equity in net earnings (loss) of associated companies — net of tax		(1	)		—			—
Net earnings (loss)	$	(138	)	$	(844	)	$	(103	)

Geographic revenues

The following table summarizes our geographic revenues based on the location of the customer for:

	Three months ended
	March 31, 2008		December 31, 2007		March 31, 2007
Revenues
United States	$	1,081	$	1,428	$	1,216
EMEA (a)		591		819		578
Canada		166		267		173
Asia		787		513		382
CALA (b)		133		171		134
Total revenues	$	2,758	$	3,198	$	2,483

(a)	Europe, Middle East and Africa
(b)	Caribbean and Latin America

Network Solutions revenues

The following table summarizes our revenues by category of network solutions for each of our reportable segments for:

	Three months ended
	March 31, 2008		December 31, 2007		March 31, 2007
Revenues
Carrier Networks
CDMA solutions	$	555	$	771	$	568
GSM and UMTS solutions		536		359		271
Circuit and packet voice solutions		127		216		170
		1,218		1,346		1,009
Enterprise Solutions
Circuit and packet voice solutions		458		529		375
Data networking and security solutions		183		233		222
		641		762		597
Global Services		516		605		448
Metro Ethernet Networks
Optical networking solutions		247		332		263
Data networking and security solutions		80		97		110
		327		429		373
Other		56		56		56
Total revenues	$	2,758	$	3,198	$	2,483

NORTEL NETWORKS CORPORATION
Consolidated Financial Information (unaudited)
(U.S. GAAP; Millions of U.S. dollars)

The following tables summarize our historical revenues, operating margin and operating margin percentage for each of our reportable segments for:

	Three months ended
	December 31, 2007		September 30, 2007		June 30, 2007		March 31, 2007		December 31, 2006		September 30, 2006		June 30, 2006		March 31, 2006
Revenues
Carrier Networks	$	1,346	$	1,080	$	1,058	$	1,009	$	1,487	$	1,337	$	1,262	$	1,071
Enterprise Solutions		762		671		590		597		788		571		478		455
Global Services		605		540		494		448		540		541		545		506
Metro Ethernet Networks		429		360		363		373		449		416		433		293
Other		56		54		57		56		58		61		62		65
Total revenues	$	3,198	$	2,705	$	2,562	$	2,483	$	3,322	$	2,926	$	2,780	$	2,390

	Three months ended
	December 31, 2007			September 30, 2007			June 30, 2007			March 31, 2007			December 31, 2006			September 30, 2006			June 30, 2006			March 31, 2006
Operating Margin
Carrier Networks	$	342		$	169		$	175		$	154		$	244		$	105		$	72		$	56
Enterprise Solutions		(1	)		11			(9	)		(9	)		65			(17	)		(57	)		(36	)
Global Services		130			105			75			75			58			90			105			84
Metro Ethernet Networks		(11	)		2			10			(20	)		—			32			43			(20	)
Other		(216	)		(153	)		(217	)		(211	)		(226	)		(146	)		(207	)		(248	)
Total operating margin	$	244		$	134		$	34		$	(11	)	$	141		$	64		$	(44	)	$	(164	)

	Three months ended
	December 31, 2007			September 30, 2007			June 30, 2007			March 31, 2007			December 31, 2006			September 30, 2006			June 30, 2006			March 31, 2006
Operating Margin Percentage
Carrier Networks		25.4	%		15.6	%		16.5	%		15.3	%		16.4	%		7.9	%		5.7	%		5.2	%
Enterprise Solutions		-0.1	%		1.6	%		-1.5	%		-1.5	%		8.2	%		-3.0	%		-11.9	%		-7.9	%
Global Services		21.5	%		19.4	%		15.2	%		16.7	%		10.7	%		16.6	%		19.3	%		16.6	%
Metro Ethernet Networks		-2.6	%		0.6	%		2.8	%		-5.4	%		0.0	%		7.7	%		9.9	%		-6.8	%
Other		-385.7	%		-283.3	%		-380.7	%		-376.8	%		-389.7	%		-239.3	%		-333.9	%		-381.5	%
Total operating margin percentage		7.6	%		5.0	%		1.3	%		-0.4	%		4.2	%		2.2	%		-1.6	%		-6.9	%