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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

For the Transition Period From __________________ to ___________________

Commission file number 000-30758

Nortel Networks Limited

Registrant’s telephone number including area code (905) 863-0000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.

Yes ü                 No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ü          No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as at October 31, 2003

1,460,978,638 without nominal or par value

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EXPLANATORY NOTE

Nortel Networks Limited previously announced it would restate its consolidated financial statements for the years ended December 31, 2000, 2001 and 2002 and the quarters ended March 31, 2003 and June 30, 2003. The consolidated statements of operations for the three and nine months ended September 30, 2002, the consolidated balance sheet as at December 31, 2002 and the consolidated statement of cash flows for the nine months ended September 30, 2002, including the applicable notes, contained in this Quarterly Report on Form 10-Q have been restated. For a description of the restatements, see “Restatements” in note 2 to the accompanying unaudited consolidated financial statements and “Developments in 2003 — Restatements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q. In addition, at the earliest possible time in the fourth quarter of 2003, Nortel Networks Limited expects to file an amended Annual Report on Form 10-K/A for the year ended December 31, 2002 and amended Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2003 and June 30, 2003 containing restated financial statements for the other relevant periods.

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PART I
FINANCIAL INFORMATION

PART II
OTHER INFORMATION

All dollar amounts in this document are in United States dollars unless otherwise stated.

NORTEL NETWORKS, NORTEL NETWORKS LOGO, NT and the GLOBEMARK are trademarks of Nortel Networks.
MOODY’S is a trademark of Moody’s Investor Services, Inc.
S&P, S&P 100, S&P 500 and STANDARD & POOR’S are trademarks of The McGraw-Hill Companies, Inc.

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PART I
FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements (unaudited)

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NORTEL NETWORKS LIMITED

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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NORTEL NETWORKS LIMITED

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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NORTEL NETWORKS LIMITED

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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NORTEL NETWORKS LIMITED
Notes to Consolidated Financial Statements (unaudited)
(millions of U.S. dollars, except per share amounts, unless otherwise stated)

1.

Significant accounting policies

Basis of presentation

The accompanying unaudited consolidated financial statements of Nortel Networks Limited (“Nortel Networks”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for the preparation of interim financial information. They do not include all information and notes required by GAAP in the preparation of annual consolidated financial statements. The accounting policies used in the preparation of the accompanying unaudited consolidated financial statements are the same as those described in Nortel Networks audited consolidated financial statements prepared in accordance with GAAP for the year ended December 31, 2002, except as described in note 3. Although Nortel Networks is headquartered in Canada, the accompanying unaudited consolidated financial statements are expressed in United States dollars as the greater part of Nortel Networks financial results and net assets are denominated in United States dollars.

As described in note 2, the consolidated statements of operations for the three months and nine months ended September 30, 2002, the consolidated balance sheet as at December 31, 2002 and the consolidated statement of cash flows for the nine months ended September 30, 2002, including the applicable notes, were restated. At the earliest possible time in the fourth quarter of 2003, Nortel Networks expects to file with the SEC an amended Annual Report on Form 10-K/A for the year ended December 31, 2002 (“Nortel Networks Form 10-K/A”). In addition, the results of operations and cash flows for the six months ended June 30, 2003, as reflected in the consolidated statements of operations and cash flows for the nine months ended September 30, 2003, were restated. At the earliest possible time in the fourth quarter of 2003, Nortel Networks also expects to file with the SEC amended Quarterly Reports on Form 10-Q/A for the quarterly periods ended March 31, 2003 and June 30, 2003.

In the opinion of management, all adjustments necessary for a fair statement of the results for the periods presented have been made and all such adjustments were of a normal recurring nature. The financial results for the three months and nine months ended September 30, 2003 are not necessarily indicative of financial results for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with Nortel Networks Annual Report on Form 10-K for the year ended December 31, 2002 filed with the SEC on March 10, 2003 and, when filed with the SEC, the Nortel Networks Form 10-K/A (collectively, “Nortel Networks Annual Report”), subject to the restated financial information described above.

Comparative figures

Certain 2002 figures in the accompanying unaudited consolidated financial statements have been reclassified to conform to the 2003 presentation and have been restated as set out in note 2.

2.

Restatements

In 2001, Nortel Networks entered into an unprecedented period of business realignment in response to a significant adjustment in the telecommunications industry. Industry demand for networking equipment dramatically declined in response to the industry adjustment, severe economic downturns in various regions around the world and a tightening in global capital markets. Nortel Networks implemented a company-wide restructuring plan to streamline its operations and activities around core markets and operations, which included significant workforce reductions, global real estate closures and dispositions, substantial write-downs of its capital assets, goodwill and other intangible assets and extensive contract settlements with customers and suppliers around the world. As a result of these actions, Nortel Networks workforce declined significantly from January 1, 2001 to September 30, 2003 and over the same time period Nortel Networks significantly reduced its facilities.

Nortel Networks initiated, and disclosed in its Quarterly Report on Form 10-Q for the period ended June 30, 2003, a comprehensive review and analysis of its assets and liabilities. On October 23, 2003, Nortel Networks announced it would restate its consolidated financial statements for the years ended December 31, 2000, 2001 and 2002 and for the quarters ended March 31, 2003 and June 30, 2003.

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Based on the completion of the comprehensive review and certain related reviews (collectively, the “comprehensive review”), Nortel Networks has determined that approximately $948 of certain liabilities (primarily accruals and provisions) carried on its previously reported consolidated balance sheet as at June 30, 2003 needed to be released to income in prior periods as part of the restatements. These provisions were either initially recorded incorrectly in prior periods or not properly released or adjusted for changes in estimates in the appropriate periods. In certain cases, costs were incorrectly charged to operations rather than to the appropriate provisions. Following its determination to restate certain consolidated financial statements, Nortel Networks also determined that it would correct certain known errors that were previously not recorded because the amount of the errors was not material to the consolidated financial statements. Specifically, among other items, Nortel Networks has made certain revenue adjustments to reflect revenue which should have been deferred instead of recognized in a particular period. Also, as part of the restatements, Nortel Networks made adjustments to correct errors related to its deferred income tax assets and foreign currency translation accounts. In addition, Nortel Networks made reclassification adjustments within the consolidated balance sheet to better reflect the underlying nature of certain items; these reclassifications did not impact the net assets as at the end of any period. The net effect of all of these adjustments was a reduction in accumulated deficit as at June 30, 2003 of $492.

Nortel Networks has also undertaken a series of physical counts and reconciliations of plant and equipment. While Nortel Networks believes that the portion of the work completed to date supports the carrying value of the plant and equipment recorded in its consolidated balance sheet as at September 30, 2003, the conclusion of this work could result in adjustments to the carrying value of certain assets.

The following presents Nortel Networks accumulated deficit as previously reported and after giving effect to the restatement adjustments as at June 30, 2003, March 31, 2003, December 31, 2002, December 31, 2001 and December 31, 2000:

Accumulated deficit

The following presents the impact on revenues and earnings (loss) of the restatement adjustments for the quarterly periods ended June 30, 2003 and March 31, 2003 and the years ended December 31, 2002, 2001 and 2000:

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Restated revenues and earnings (loss)