Manuel d'utilisation / d'entretien du produit FORM 10-K du fabricant Reliant
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UNI TED STATES SECURITIES A ND EXCH ANGE COMM ISSION Wash ington, D. C. 20549 FORM 10-K For t he fiscal year e nded Decembe r 31, 200 3 For t he transit ion period fro m to Com m is si on f ile nu m b.
EXPLANATORY NOTE Norte l Ne two rks Corpora tion previous ly announc e d t he need to rest ate it s consoli dated financ ial s tatemen ts for the ye ars end ed December 31 , 2002 and 200 1 and each of it s firs t three qua rterly pe riods for 2003.
TAB LE OF C ONTENTS PART I i ITEM 1. Busin ess 1 Ov ervi ew 1 Deve lopmen ts in 2003 and 20 04 2 Networ king solutio ns 5 Wirel ess Networks 6 En ter pri se N e two rk s 9 Wirel ine Network s 11 Optic.
All dol lar amounts in thi s doc ument are in United States doll ars unles s otherwis e s t ated. NORTEL NETWORKS, NOR TEL NETWORKS LOGO, NT, the GLOBEMAR K, BUSINESS WITH OUT BOUNDARIES, DMS, OP TE RA and UNIVERSAL EDGE are trademark s of Norte l Net works.
PART I Overvie w Norte l Ne two rks Corpora tion is a recogniz ed lead er in deli vering com munic ations ca pabil ities tha t enhanc e the human exp erience, i gni te and power gl oba l c ommerce, a nd secure and prot e ct the world’s most crit ical informat ion.
Brampt on, Ontario L6T 5P6. Inform ation co ntaine d on our websit e is not in corporat ed by refere nce into ou r annual rep ort on Form 10-K. Development s in 2003 and 20 04 B usiness envi ronment I.
The need fo r the Second Rest a t ement result ed in dela ys in fil ing our an d NNL ’s 2003 Annua l Report s on Form 10-K, or the 2003 Annual Repo rts, a nd Quarterl y Reports on Form 10-Q for the firs t, seco nd and third qua rters of 200 4, or the 2004 Quart erly Repo rts, beyond th e S EC’s r equire d fi ling dates in 2004.
Strategic p lan On August 19 , 2004, we first a nnounced a ne w strategi c plan, whi ch conta ins the follo wing principal c ompone nts: Our str a t egic pla n also in cludes a work pla n invol ving f.
For i nformat ion on th ese and othe r developmen ts in 2003, se e “Speci al cha rges” in note 7, “Acquisi ti ons, di vesti tur es and closure s ” in note 10, “L ong-t erm debt, c redit an d.
as semble d at the dest ination. T his enable s large n umbers of com municati ons signals t o be direct ed or routed s imul taneousl y and more effi c i ently tha n in circu it networki ng. Our data networking s olu tions c onsist of produ cts and services desi gned to ena ble the tra nsport ation of dat a informati on a c ross a network.
N etwo r k acc ess Radi o network ac cess equ ipment u ses radio wa ves to provi de wirele ss acc ess to the subs cribe r ’s devic e , enab ling the wirele ss subscr iber to conne ct to the n e two rk to send and rece ive dat a, voic e and multimedi a communicat ions.
Mark ets We anti c i pate tha t demand for wire less net worki ng equipment will be drive n by continue d subscrib er and t raffic growt h, and the effecti ve n ess of 2 .5G and 3G wireless net worki ng systems . There are two key as pects to the mi gra t ion from 2G wirel ess communica ti ons technol ogies to 2.
Competitio n Our maj or competit ors in the global wire l e ss infras truct ure busin ess have t raditi onally incl uded Telefon aktiebola get LM Ericss on, Nokia Corpora t i on, Si emens Akti engesells chaft , Motor ola, Inc . a nd L ucent T echnol ogies Inc .
D ata net working a nd secu rity solut ions We offer a broad rang e of data networki ng (packet swi tching a nd routi ng) and securi ty solut ions for our ente rprise customers.
Globa lly, enter prise c ustomers con tin ue to invest in e quipment for th eir communi c a tions ne twor ks, primar ily for network securi ty a n d r esilie nc y , for voic e over IP, WLANs and f or virt ual pr ivate ne twork s.
Circuit and pack et voice solutions We are a le ad er in th e develo pm ent a nd deploym ent of hi ghly sc alabl e c i rcuit s witc hed and secure voi c e ov e r pac ket so lut ions su ch as voic e over IP for wirelin e a nd wire les s serv ice provi de rs aro und the world.
Mark ets With the g rowth of dat a , voice an d multimed ia communica tions ov e r the publi c telephone net work, t he publ ic Inter net and priv ate voic e a n d dat a communicat i ons ne tworks, th.
pr oviders are also f ocus ed on implement ing voice over IP technol ogy to enable opport uniti es for addi tional growth, n etwor k effi c i ency and r evenue-g enerat ing se rvices. T here is als o a growing deman d for voic e over IP techno logy among cable operat ors in CALA.
Our op tical n etwor king sol uti ons are desi gned to provi de metr opoli tan, re gio nal and long-h aul, hi gh-ca pa c ity tran s po rt and switchi ng of da t a, vo ice an d multim ed ia communi c ati ons signal s.
We cont inue to deve lop and enha nce our Opti c al Net w orks po rtfol io, inc ludi ng by: We also con tinue to invest in c ore tec hnologie s , su ch as effici ent se rvice a daptat ion , aggregati .
We are al so f ocused o n enterpri ses and we con tin ue to pro vide o ptica l solut i ons for priva te ent e rpr ise networking and als o for servic e providers to buil d a nd ope rate cust om dedicat e d network s for ente rprises.
to inc l ud ing orders in backlog , customers mus t have appr oved cred it status . However , from time to time, s ome custome rs may become un able to pay for or fin ance their pur chases in which case t he order is removed from our bac klog.
Throu g h our exi sting manu facturi ng model , we are generally a ble to obta in suffic ient m ateri als and compone nts from globa l sources t o meet the ne eds of our four reporta ble segment s.
Our inve s t ment acti vit y remained a t a low level in 2003 an d in 2004. We may make selecti ve minority i nvest ments in s tart-u p ventures and ce rta in othe r compa nies whe re we be lieve t he relation s hi p could lay the f oun dation for fut ure alli ances th at would sup port our custom er sol uti ons.
f ail to provi de us with sign ificant compe ti tive adva ntage s. See “Ris k factors/ forward looki ng statemen ts ” in the MD&A se ction of thi s report .
At Decemb er 31, 2003, labor c ontract s covered ap proximate ly five percent of our employ ees world wide. At the same date, fi ve labor co ntract s cove red approxi mately ten per c ent of our emplo.
Worki ng capit al For a dis cussion of our worki ng capit a l pr actic es, see “Long-t e r m debt, credi t and support fac ilit ies” in note 11 of the accompanyi ng cons olida ted f inanci al st atement s and “Liquidi ty a n d capita l reso urc es ” in the MD&A se ction of thi s report .
At Decemb er 31, 2003, we opera te d 20 8 sites aro und the world occ upying appr oximately 13.7 mil lion square feet . The followin g table set s f orth addit ional inform ation re ga rdi ng thes e s.
Sub sequent to t he February 15, 2 001 announce ment in which Nort e l Networks provi ded revis ed guida nce for fina ncial perfo rmance for the 2001 fis cal ye ar and the first quarter of 2001 , Nort.
ma teria ls pendi ng the repl acement o f the repres enta t i ve plain tiffs. On Februar y 19, 2004, the pl a i ntiffs’ c ounsel adv ised t he Court o f a potenti al new repr e sen ta t ive pla int iff.
Cal iforn ia Suprem e Court se eking permission to appe a l t he Cour t of Appea l decisi on. On October 22, 2 003, the Cali forni a Supreme Cou rt deni e d, with out opinion, the defe ndants’ p etiti on for review.
inde terminate a mounts o r could res ult in fines a nd penalt ies. No rte l Network s cannot det e rmin e whe t her th ese acti ons, s uits , clai ms and pr oceed ings will , individua lly or coll e cti vely, have a m ateri al adver s e e ffect on th e business, resul ts of opera ti ons, fin ancial con dit ion and liq uidity of Nortel Net works.
and ev olut ion of enviro nm e ntal la ws and regul ation s , and the ide ntif icat ion of pre sent ly unknown remedia tion require m ents . Cons equent ly, Nor tel N et w orks li abi lit y cou l d be gr eat er th a n its c ur ren t es tima te . Not appl icable.
Divid ends On June 15 , 2001, Norte l Networks Co rporati on announce d that it s Board of Directo rs deci ded to dis continu e the declar a t ion and payment o f commo n share divide nds.
The se lecte d financ ial data presente d below was deriv ed from Nortel Ne tworks Corp oration’s audit ed c on solid a t ed financ ial st atemen ts and r elated notes t her eto incl uded else w here i n this Annua l Report on Form 10-K ex cept for the summ arized b alance s heet data as of December 31, 2001 and 200 0.
See no t e s 4, 7 an d 10 to th e acco mpanyi ng consoli dated f inan cial st atements for the i mpac t of acco unti ng chang es, speci al char ges an d acq uisiti on s, d ivest iture s a nd cl osur es, re spect ivel y, t hat aff ect the co mpara bility of th e above s elect ed fi nanci al data .
The fo llowing inf ormati on provides detai led dis clos ure in res pect of each m ateri al compo nent of the Sec ond Rest atemen t a dj ustment s to the ac cumula ted defici t as of December 31, 2000.
undel i v ered element . T o correct for thes e items , related cost p rovisi ons were reverse d and revenues and ass ociat ed cost of reve nues were r ecogni zed in the a ppropr iate pe riods when a ll ele ments had be en deliv e re d.
35 ITEM 7. Manag eme nt’s Disc ussion an d Anal ysis of Fina ncial Co ndi tion and Re sults of O p eration s — Table of Con tents Bu siness ov erview 37 Our bus in ess 37 Our s egments 37 Our bus .
36 Amort izat ion of intang ibles 68 Defe rred stock opti on compensation 68 Special charges 69 Gain ( loss) on sale o f busi nesses and asset s 71 Other inc ome (ex p ense ) — ne t 71 In te r est e.
Manag ement ’s Dis cussion an d Anal ysis of F inancial C ondi tion and R esult s of Oper ations You shoul d r ead thi s Manage ment’s Discu ssi on and Analysi s of Finan cial Condi ti on and Resu.
Effe ctive Oc t ob e r 1, 200 4, we establis hed a n ew strea mlin ed organiz a t ional s tructu re that inc luded, among oth er things, co m binin g the bus inesse s of our four segments int o two busine ss organiz ation s : (i ) Carrier Ne tworks and Global Ope ration s , and (i i) Enterp rise Networks .
r estate ment (e ffected in Dec ember 200 3) of our consol idated financi al state m ent s for the yea rs ended Dece mber 31, 2002, 2001 a nd 2000 and f or the quart ers ended Marc h 31, 2003 a nd June 30, 20 03, or the Fir st Rest a t ement.
Repo rts have b een dela yed, and be c aus e both c ont ributio n margin and Ma na g ement E B T were av ailable to t he f ormer chie f o perati ng decisi on ma ker during 2003, we have det e rmine d that it is appropri a t e to disclos e both con tribution mar gin and Mana gement EBT for the pe rio ds pr esente d.
I n addi tion t o the above , w e al so e xpect t o i ncur c a pi tal cash c osts of appro ximat ely $ 50 in 2005 for facil it y i mprove ments relat ed to th e r eal es tate a c t ions.
cont rol over fina ncial r eportin g (throug hout th is r eport, unl ess other wise in dicated, “r eporta ble condi tion” and “mate rial weakness” h ave the me anings as fo rmerly s et forth unde r s t andards esta blished by the Amer ican Inst itute of Certi fied Public Acco untants , or AICPA).
Reve nues and cos t of revenue s were impa cted by vari ous error s related t o revenue re cognit ion, corre ction s to foreig n exchang e accountin g, int ercompany rela ted ite m s, spe c ial c ha rge s and othe r adjus tment s, inc luding fi nancia l sta tement rec las sific ation s .
As par t of the plan to addre s s a materia l we akne s s rep orted in our Quart e rl y Report on Form 10-Q for th e period end ed Septembe r 30, 2003, a r eview of foreign exc hange a ccount ing was underta ke n. The net impact wa s a decrease to pre-t ax los s of $63 and $132 for the years end ed Dece mber 31, 2 002 a nd 2001 , respective l y .
The a djust ment to i ncome tax ben efit, s ubst antia lly all as a result of th e S ec ond Re sta tem ent adjus tme nts, wa s an incr ease of $15 and a dec reas e of $401 for the yea rs ended De cember 31, 200 2 and 2001, res pecti vely.
Consol idated Statemen t of Operation s dat a for the th ree months en ded June 3 0, 2003 Con so lida ted S tat emen t of Op era ti ons d ata for t he th ree m on ths en de d Sept emb er 3 0, 200 3 46.
Consol idated Statemen t of Operation s dat a for the nin e months end ed September 30, 2003 Reve nues and cos t of revenue s were impa cted by vari ous error s related t o revenue re cognit ion, corr.
His torica ll y, we had certai n interc ompany ba lances t hat did not el imin a te upon con s o lidati on, or out-o f -b alance pos ition s , and had reco rded pr ovisi ons accordi ngly. As part of the Secon d Restate m ent, we revi ewed the se provisi ons and determ ined tha t they s hould not have been r ecorde d.
Upon com pleti on of management’s ass essment of our i nternal c ontrol ove r financial re porting a s at December 31, 2 004 pursuant to SOX 404, we curre ntl y expec t to con c lu de that th e first fi ve of the se six Materi al Weakne sses c ontinue t o exist a t December 31, 2004.
As we and NNL will not have fi led all of t he Reports by Janua ry 15, 2005, EDC will ha ve the right , on such date , (absent a fur ther waive r in r elati on to the del aye d fil ings and t he Rela .
r esult in a hol de r or a group of re lated holde rs holdi ng 25% or more o f the out standing pri ncipa l amount of thes e notes . Se e “Liq uidi ty and ca pital re sources” and “R isk factors/ forward looki ng s tat e men ts”.
E volution of o u r sup ply chain strat e gy Over the l ast fi ve years, we ha ve divest e d most of ou r manufactur ing a c tivit ies to Electronic Manufa cturi ng S ervi c es, or EMS, suppl ier s.
On Septe m ber 18, 2003 , consis tent with ou r overall gl obal busines s strate gy, we realigne d our business act ivities in Franc e and Germany by inc re a sing our owne rship in our core bus ines ses in thes e countri e s.
On Dece mber 15 and 16, 2004, we sold c ertai n notes re ceiva ble and co nvertib le notes receivab le that ha d been recei ve d as a resu lt of the r estruct uring of a customer fi na ncing a rra n gement for ca sh proceeds of $116. The net ca rrying amount of the note s receiva ble and conve rtib le no tes re c e ivable was $5 6.
Our cons oli dated reve nue s dec li ned 7% in 2003 compa red to 2002. Th ere were subs tanti a l decl i ne s in Wirel ine Networks an d Optical Networ ks while Wire less Net works incr eased 5% and Ente rpri se Networks in creased 7%.
The per iod of rela t i ve indus try sta bil ity that h ad charact e ri zed the sec ond half of 2003 c on tin ued into 2004. F o r 2005, we expect re venue gr owth over 2004 prim aril y due to conti nued growth in the abov e areas.
sub s tant ial decli ne i n Canada an d a dec line in the U.S. as cu s tom ers cont inued to experi ence capi tal sp ending re st rictions a s a res ult of th eir cont inued focus on capi tal and cas h flow manag ement.
globa lly also contri buted to th e TDMA revenue decline s. In 2002, we continu ed t o ex perien c e sign ificant pricin g press ures on our TDMA tec hnol ogies in the U. S. re sul ting from the incr eased c ompeti tion for customers. TDMA revenue s conti nued to be a small e r port i on of Wire less Networ ks in 2002 comp ared to 2001 .
inc re a se in revenue s of $150 in 2003. In a ddition , t he re was a substa ntial i nc r ease in reve nues assoc iated with our Int ernet Pr otocol , or IP, tel e p hony solut i ons as cus tome rs cont inued to migra te towards c on verged pac ket voic e solut ion s.
ca pit al expen dit ures and ope ratin g costs. Als o, w e ant icipa te that de mand wil l con tinue to de c l ine fo r our trad iti onal ci rcui t switc hin g products , howeve r, it is d i ffi cult to de termine the ext ent to whic h future dec lin es in deman d will occur a s a result of the migration t o voice over pa cket tec hnologi es.
The 41 % dec li ne in Wireli ne Networks re venues in 2002 c om pare d to 2001 was primar ily due to a substanti al reducti on in capit al spe nding by our s e rv ic e p rov i der c u st om er s.
hal f of 2003 and contin ued capita l spending res tric tions in the U.S. , Canad a and EMEA as cus tome rs continue d to focus on maxim izin g return on inve s t ed capita l by increasing th e capacit y util izat ion ra tes and effi c ienc y of exist ing networks .
During 200 4, our m ajo r custom ers in th e optica l long-haul p orti on of Optical Network s remaine d focuse d on maximizing re turn on their inve sted capita l by increa sing th e capacit y util izat ion rates and effi cienc y of exist i ng ne tworks.
Wirel ess Networks gros s margin im prov ed by approxima tely 15 perc entag e points i n 2002 compared t o 2001 primari ly due to: Ent erpr ise Networks g ross margi n improve d by approxim ately 4 pe.
Optic a l Ne tworks gross m a rgin decl ined by appro ximately 5 percenta ge point s in 2002 compare d to 2001 primar ily due to : Operat in g expenses SG&A expe nse decli ned $614 in 2003 compar .
Ent erpr ise Networks SG&A expens e dec reased in 2003 c ompare d to 2002 and decrea s ed sub stan tiall y in 2002 compar ed to 2001 primar ily due to: Wirel i ne Network s SG&A expense decre .
We expe ct that ou r R &D expe nse as a perce ntage of rev e nue in 2004 wil l be simil ar to 2003 and 2005 wil l be lower tha n 2004 as we seek to ac hieve ongo ing cost reduc tions i n R&D as part o f our strat e gi c plan firs t announc e d i n August 2004.
As a resul t of the gr oss margi n and SG&A expense chang e s dis cusse d above, our to tal segment contr ibution marg in improve d by $1,0 50 in 2003 com pared to 20 02 and by $3,175 in 2002 c ompare d to 2001. See “Se gment i nformation” i n note 6 of the accom panyin g consol idate d f inanci al st atem ents.
pr imari ly due to the com pleti on of the deferre d compens ation amort ization ass ocia ted with ce rtain empl oye es’ st ock option ves ting peri ods and the c ancel lati on of unvest ed stoc k opti ons that were he ld by emplo yees whose e mployment w as term inate d.
I n additio n to the s e cha rges were r evi sions to prior acc ruals of $1 9 result ing prima ril y from c han ges in es tima te s for subl ease income and costs to vac ate certa in pro pertie s, across a ll segments . During 2003, t h e pro vision bala nce for contract set t l ement and le ase costs was draw n down by ca sh payment s of $275.
Gain ( loss) on sale of bu si nesses and asse ts I n 2003, gain on sal e of busine sses and ass ets of $4 was primari ly due to the re cognit ion of the remainin g unamorti zed defe rred gain re late d to the sal e of substa nti ally all of the as sets of our Coge nt Defence Syst ems, or CDS, busine ss during the yea r ended Decemb er 31, 2001.
ec onomic e nvironme nt. Publi c c ompa ny inves tment s were genera lly writt e n down again s t earn ings to their t hen curren t market val ue. Privat e com pany inve stments were written down to t.
our disconti nued opera tio ns and recorde d any resulti ng ga i ns or losse s in net earni ngs (los s) from disc onti nued opera tions i n the peri od in which t he y occur re d.
I n 2003, we conti nued to stren gthen our liq uidity posi tion. As of Decembe r 31, 2003 , our primary sour ce of liqui dity was c ash. At Dece mber 31, 2003, we ha d cash of $3,997 ex c l uding $6 3 of restri cted ca sh and cash equiv alents.
U.S. Cash flows used in financin g activi ti es were $359 and were prim arily due t o $270 used to re duce our long-t er m debt, a reduc tion of ou r notes paya ble by a net amou nt of $45 and $35 used in conn e ctio n with the paym ent of divi de nd s to NNL’s preferr ed sharehol de rs.
Pur c has e obligat ion amounts in the above table repre s ent th e m inim um oblig a t ion under our s u pply arrang e ment s relate d to product an d/or se rvice s enter ed into in the norma l cours e of our busine ss.
During 200 3, we made cash con tributi ons to our defi ned bene fit pens ion plans of approximat ely $300. In 200 4, we m a de cash con tributi ons of appro ximately $140 to our de fined bene fit p en.
We expe ct to fund sub stantia lly all of our curre nt re ma ini ng undrawn commi tment s of $69 in 2004 or 20 05. However, we als o expec t that we will be abl e to arrange for third party l enders to assum e thes e obli gatio ns in the s ame timefra m e.
Decem ber 31, 2006. The EDC Su pport Facil ity does not materi ally restr ict NNL’s abili ty to sell an y of its asse ts (subje c t t o certa in m axim um amounts ) or to purch a se or pre-p ay any of its curre ntl y outst anding deb t .
Credit rati ngs On April 28, 20 04, S&P downgrade d its ratings on NNL , i ncludi ng its long-t erm corporat e credi t rating fro m “B” to “B–” and it s prefe rred sha res ra ting fr om “C CC” to “CCC–”. At t he same ti me, it revi sed it s outloo k to develop i ng from nega tive.
as se c uri ty for th ese types of b onds. See “Av a il able s uppo rt facil it y” f or additi onal informa tio n on the EDC Suppo rt Facility and the securi ty agre emen ts and see “Deve lopmen.
I n 2003, we di d not make a ny signi ficant payment s under an y of thes e indemni fications or guara ntee s. In cert a i n cases , due t o the nature of the agre e men t, we ha ve not b een able t o estimate o ur maxim um potent ial los s or the maxi mum potent ial loss ha s not be en s peci fied.
r evenue i s not recogniz ed until t he earl ier of (i ) the undeli vered el ement is d elive re d or (ii ) fai r value of the und elive re d e lement exi sts, unl e ss the un delivered e lement is a servi ce, in which case r evenue i s recog nized as the servic e is per formed once the se rvice is the only undeli vered elem en t.
ac counts re ceiv able amount s that are gre ater tha n 365 days are full y provisione d for and amounts gre ater th a n 180 days a re 50% provision ed f or. In subsequ ent peri ods, we may be require d to make adjust m ents once further info rm ati on be com es availa bl e or actual eve nts occur.
As of December 31, 2 003, our inve ntory provisio ns as a percenta ge of gross inve ntory was 51 %. In the futur e, we may be required t o make si gnif icant a djust ments to the se provi sions for the sale a nd/o r dispos ition of inventory tha t was previous l y provided for.
addi tional tax valua t i on allowa nce for all or a po rti on of the net deferre d tax asse ts, whi ch may have a materia l adverse e ffect on our bus ines s, r esult s of ope ratio ns and fina nc i al condi tion.
I n 2001, we incurr ed a goodwill wri te down of $11,42 6. In 2001, we performe d an assessment of t he carryi ng values of goodwi ll assoc iated with our acquisiti ons.
Pl an asse ts were primar ily compris ed of d ebt and equity s ecuri ties. Include d in the equi ty sec uritie s of the defi ned bene fit plan wer e common sha res of Norte l Networks Corpora ti on with an aggre gate marke t value of $13 (0 .2 % of total plan ass ets) as of De cember 31, 2003 a nd $3 ( 0.
and pl a nt and equi pment write downs to ens ure that t hese acc ruals are s till ap propriate. As of Decemb er 31, 2003, we had $64 in ac crual s r elate d to workfor ce reducti on charges and $4 56.
R ecen t acco unt ing pron oun cem ent s On Dece mber 8, 2003, the Medic a r e Prescripti on Drug, Improvement and Mode rnizat ion Ac t o f 2003, or th e MPDIM Ac t , was signe d into law in the U.
our post-ret i re ment benefi t plans q ualify as ac tuaria l l y equival en t to the benef it pr ovided unde r the MPDIM Act, for which i t e xpect s to receiv e f ederal sub s idie s. W e expe ct that o ther p ortions o f the pl ans will n ot be actu arial ly equiva lent.
expos ur e to intern a t ional marke ts, we regularly monitor al l of our mate rial fore ign currency ex posures. We c annot pred i c t whether we wil l inc ur foreign e xcha nge gains or los ses in t he fu ture.
Legal proceedings Norte l Networks and/o r certain of our dire ctors a nd offic e r s have been name d as de fendant s i n vari ous cla ss acti on lawsuits.
We are s ubject to ongoing reg ulatory and crim inal investigations in the U.S. and Canada , which could require us to pa y substantial fines or other penal t ies.
op erati ons, financia l c o ndit ion and liq uidity. We are s ubject to significan t pending civil li t igation, whi ch if decided a gainst us, coul d require us to pay sub stantial judgm ents, settle ments or ot h er penal ties.
Upon com pleti on of management’s assessm ent of our inte rna l c ontrol ove r financial re porting a s at December 31, 2 004 pursuant to SOX 404, we curre ntl y expec t to conclu de that th e first.
I n additio n, star ting with our fiscal yea r 2004 Annual Repor t on F or m 10-K, we must comply with S ecti on 404(a) of the Sar banes-Ox ley Act of 2002, a nd the r elate d SEC rules, whic h requir.
any r elev ant se rie s of debt s ec urities prov ide no tice of this non-compli ance and we or NNL, as a pp licab le , fail to fil e a n d deli ver t he relev a nt Repo rt within 90 days a ft er t he.
Th e delay in fi li ng certain of our Reports coul d cause t he Toron to Stock Exchan ge and/ or the New York S tock Excha nge to commenc e su sp ension or del is ti n g p ro ce dur es in r espe ct of Norte l Networ ks Cor pora ti on co mmo n sha re s o r oth er of o ur or N NL’s li st ed se curit i es.
I n connect ion with the de lay in fil ing our 2003 Annual Report s, as of M arc h 10, 2004, we susp ended the pu rchas e of our common shares unde r th e sto ck purchas e pl ans for eligi ble e mploy.
As a resul t, the c osts act ually in curred in connec tion with t he restruc turing effor ts may be highe r than origi na l ly planne d and may not lea d to the a nti cipat ed cost sa vings a nd/or i mproved resu lts.
ca used us to rec ord an expense ove r the st ock option ve sting peri od, based on the fa ir value a t the dat e the opti ons are gra nted, a nd could have a si gnif icant ne gativ e e ffe ct on our report e d re sult s .
Lowe r than expecte d gross marg ins would ne gative ly affec t our operat ing resu lts and c ould contr ibute to volat ility i n the market pri c e of our pub lic ly t rad ed s ecu ri ti es. Cash flow fluctuations may affect our ability to fund our working ca pital requirements or achieve our business ob j ectives in a timely manner.
the s e custom ers, coul d ha ve a mate rial adverse effec t on our busine ss, resul ts of opera tions a nd financ ial cond ition. Our busi ness may be materia lly and adversely aff ected by our high leve l of debt.
val ua t ions, whi ch thems elves are ba sed on certa in assum ptions about the long-t er m operation of the p lans, includ i ng empl oyee turno ve r an d r etirement rates, the pe rformance of the f inanc ial market s and int e re st rat es.
I n the past , we acqui red comp anies that we belie ved would e nha nce the e xpans ion of our business a nd produc ts. We may ma ke selec ti ve opport unistic acqu isitions of compan ies or business es with resou rces and produc t or service of ferings cap a bl e of providing us with a ddit ional pr oduct and /or market stre ngths.
coul d be materia ll y and adverse ly affec ted. I n additio n, unanti c i pated c hanges in ma rket demand for pro ducts based on a spec ific te chnolog y, particul arl y lower than a nticip a t ed, .
Diffic ulties in f oreign fina ncia l m arket s and econom ies and of forei gn financial ins ti tutions , part i cu larly in e merging mark e t s, could adve rsel y affe ct de mand from custome rs i n t he af fe c ted c ount ries .
deve lop ment, i ncrea sed fina ncia l stren g th, o r a broader bas e of c ustomers, c re ati ng even more powerf ul or aggressive c ompet ito rs. We may als o see ra tiona lizatio n among e quipment /c o m ponent supp liers.
st atement ) fil ed with the SEC (with respe c t t o the common shares t o be delivere d) that cont ains a rela ted current pro s p ectus. Unde r the terms of the P urchase C ontract and Unit Agr eeme.
tec hnol ogies curre ntl y being deve loped, or which we have not y et commer ciall y deploye d, or which requ ire us to bui ld networks . Some of the s e sup ply contra c t s conta in deli very and i.
Refe r to “Marke t risk” i n Manageme nt’s Discussi on and Ana l ysis of F inan c i al Condit ion a n d Result s of Operations . 111 ITEM 7 A. Q uanti tative a nd Q uali tative Discl osures abou.
PART II ITEM 8. C onsolid ated Fina ncia l Stat emen ts a nd Su pple mentar y D ata INDEX TO C ONSOLIDATED FI NANCIAL STATEMENTS 112 P AGE Repo rt of Inde p endent Re gist e re d Charter ed Ac c ounta.
REPORT OF I N DEPENDENT REGI STERED CHARTERED ACCOUNTANTS To the Sha rehold e rs and Board of Direc tors of Nort el Networks Corpora tion We have a udit ed the ac companyin g consol idate d balanc e s.
NORTEL NETWORKS CORPORATI ON Consol idated Statemen ts of Operat ions fo r the years e nded Decembe r 31 * Se e note 3 The ac c ompanying not es are an integral pa r t o f t he se consol ida ted finan ci a l state men ts F-2 (milli ons o f U .
NORTEL NETWORKS CORPORATI ON Co n sol idate d Balan c e She ets as of Decem ber 31 * Se e note 3 The ac c ompanying not es are an integral pa r t o f t he se consol ida ted finan ci a l state men ts.
NORTEL NETWORKS CORPORATI ON Consol idated Stateme nts of Changes in Equit y and Compr e hensiv e Income (Los s) * Se e note 3 The ac c ompanying not es are an integral pa r t o f t he se consol ida ted finan ci a l state men ts F-4 (milli ons o f U .
NORTEL NETWORKS CORPORATI ON Consol idate d Statemen ts of Cash Flows f or the years ended Decembe r 31 * Se e note 3 The ac c ompanying not es are an integral pa r t o f t he se consol ida ted finan ci a l state men ts F-5 (milli ons o f U .
NORTEL NETWORKS CORPORATI ON Notes to Consolidate d Financial Statements ( milli ons of U.S. dollar s, exc ept per sh are amoun ts, un less oth erwise s tate d) F-6 1.
F-7 am ounts of rev enues and expe nses duri ng t he report ing period. Act ual result s may dif fer from those est imat es. Estim ates are used when accounti ng for ite ms an d matte rs suc h as reve.
F-8 For arr an gemen ts that i nclu de h ardwar e an d soft ware whe re soft ware i s co nsid er ed m ore t han in cid ent al to th e ha rdwar e, pr ovided tha t the software i s not e ss entia l to t.
F-9 Re sear ch an d de ve lopm en t (“R& D ”) cos ts ar e ch arge d to n et ea rn ing s (lo ss) in t he p eri ods in w hic h the y are i ncu rr ed.
F-10 I nventori es are valu ed at the lower of cost (calcul a t ed generall y on a firs t-in, fi rst-o ut basis) or marke t. The cost of fini shed good s an d work i n proc ess is com prise d of mat eri al, lab or an d man ufac turin g ove rhe ad.
F-11 L on g -liv e d ass ets held and us ed Norte l Ne two rks tests long-l ived assets or asse t g roups hel d a nd used for re covera bilit y when events or change s in circumst ances indi cate that thei r c a rryin g amount may not be reco ve rable .
F-12 o f the repor t ing unit to be a llo ca ted to the und erlying a ssets and liabi li ti es of that r eportin g unit, resul ting in an im pli ed fa ir val ue of goodwil l.
F-13 Norte l Ne two rks net earni ngs (loss ) and cash flows may be nega tiv ely impacted by fl uc t uating i nterest ra tes, foreign excha nge rate s and eq uity prices.
F-14 f air valu e based method for ex pense reco gnition of empl oyee awards resulte d in $26 (net of tax of nil) of stoc k opti on expe nse durin g 2003. St ock-based a wards tha t are sett led or may be se ttled i n cash or share s purcha sed on the o pen market at t he option of e mploye es or dire c t ors are record ed as liabi lities.
F-15 (v ) R ecen t accou nti n gp ro noun cem ent s ( i) On December 8, 2003, the Me dicar e Prescri ption Drug, Im provement a nd Moderniz a t ion Act of 2003 (the “ MPDIM Act”) was si gned into la w in the U .
F-16 3 . R es ta te me nt First Res tatemen t I n May 2003, Nortel Networ ks commence d certai n balance s heet revie w s at the di recti on of certai n members of fo rmer managem ent that led t o a c.
F-17 com munic ations and relate d account ing entri es over multipl e fisc al perio ds . In addition, t he revie w of accrual s and provisi ons and the appl ication of ac counti ng literatu re to cer.
Consolidated St atement of Operations for the year ended Dec ember 31, 2002 F-18 As pre viousl y repo rted A djustme nts A s resta ted Revenues $ 10 ,5 69 $ 439 $ 11 ,0 08 Co st of reve nues 6, 798 30.
Summary of Re stat ement Adjustments for the year end e d December 31, 2002: F-19 Revenues Inter - Dis - an d cos t o f For eign c ompany Spe cia l Recla ssifi- cont inu ed Total re venues e xchange b.
Consolidated St atement of Operations for the year ended Dec ember 31, 2001 F-20 As pre viousl y repo rted A djustme nts A s resta ted Revenues $ 17 ,4 08 $ 1 ,492 $ 18,9 00 Co st of reve nues 14,0 14.
Summary of Re stat ement Adjustments for the year end e d December 31, 2001: Addit ionally, th e cumulative e ffe ct of the Secon d Resta tement a djustments w as a (d ecrea se) inc rease to additiona.
A pplica tion of SAB 101 or SOP 97-2 Ti tl e and deliver y Reve nues wer e recogni zed on cer tain sa les (pr imari l y pri or to 2001) for whic h it was subs equent ly deter m i ned that t he crite r.
F-23 cont inued to be defer red up to the amount of t he maximum pote nti al liqui dated damages unt il eit he r th e earli er of when the damag e s were inc urred, or there was no long er the possi bilit y of incurring a ny d amages .
F-24 For a pe rio d of six c onsecuti ve quarters e nded J un e 30, 20 02, foreig n exchange ga i ns or lo sses wer e recorde d to vari ous compone nts of the c onsoli da t ed state ments of ope ra t ions rather t ha n as pa rt of other inc om e (expe nse) — net .
F-25 purch a se pri ce was origin a lly rec orded as $2,81 8, payable in c ommon shares of Nort el Networks, $ 2, 31 8 of which was delive red upon clo s ing and $50 0 of which was deferre d. The deferre d considera tion cou l d be reduce d to zero if Nort e l Networks m et ce rtain pe rformance cri te r ia und er the OEM Ag reement.
F-26 Cost of re venu es For t he year ended December 31 , 2002, the decre ase to cost of rev enues of $64 was compris ed primaril y of reducti ons of approx imately $43 to inve nt ory provisi ons and .
F-27 Other income ( expense) — net For t he year ended December 3 1 , 2002, the decreas e of $1 9 in othe r expens e was prim arily th e re sul t of a $10 reversal o f an ite m pr eviously e xpe n s.
F-28 Discontin ued operations As a resul t of the restate m ent proc ess, t he initi a l pro visio n for loss on di s posa l of the acc ess so lutions disconti nued opera tions re corded i n Jun e 2001, and th e subseque nt acti vity durin g 2001 throu gh 2004 we re r e-exami ned.
F-29 Other adjustmen ts I n periods subse que n t to the secon d quarter of 2001, adjustment s were necess ary to record gai ns and losses from the reass essment of the r emaining di scontinu ed operat ions provi sions in ne t e a rning s (loss) from dis conti nued operatio ns, in a c cordan c e wit h APB No.
F-30 4 . A ccounti n g chan g es (a) G uarant ees I n Novem ber 200 2, the FASB issue d FIN 45, “Guarantor’ s Acc ounting and Dis closu re Req uirement s for Guar a nt ees, Includi ng I ndirec t G u arante e s of Indebte dness of Others — an in te rpre ta tio n of FA SB St at emen t s No.
F-31 57 and 107 an d resci ssion of FASB int erpret a t ion No. 34” (“FIN 45”) . FIN 45 define s a guarante e as a contract t ha t cont ingently r equire s a guarantor to pa y a guarant eed part.
F-32 Effe ctive Jul y 1, 2003, Norte l Networks pr ospecti vely bega n cons olida ti ng two VIEs for w h ich Nortel Network s was consider e d the pr imary be nefic ia r y following the guidanc e of F.
F-33 ( g ) Am endm ent of SFAS 133 on derivative instruments and hed g in g activities I n April 2003, the FASB is sued SFAS No. 1 49, “Amendment of SF AS No.
F-34 The fo llo wing table p re se nts the i mpact on net earni ngs (loss ) and on basic and di l ut ed earni ngs (loss ) per common share for th e yea r ended Decemb er 31, 2001 from bot h continu in.
F-35 (m) Derivati ve financial instrum ents Effe ctive Ja nuary 1, 2001, N o rtel Netwo rks adopt ed SFAS 133, and the corre spondi ng amendments under SFAS No. 138, “Ac c o unti ng for Certai n Deri vative In s tr uments a nd Certai n Hedging Acti vit ies — an amen dment of SFAS No.
F-36 Con solidated bal ance sheet s A ccounts receivable — net: I nvent ories — ne t: Ot he r c ur re nt a ss et s: P lant and e qui pment — n et: 2003 20 02 Trad e recei vable s $ 2 ,117 $ 1 ,8.
F-37 Goodwill: The fo llowing ta ble o utl ines goo dwill by report ab le seg ment: During the year ended Dec ember 31, 2003, Nor tel Networks perform ed its a nnual goodwi l l i mpairmen t test and con cluded t hat there w as no imp airment.
F-39 Other liabilities: M inority interests in subsidiary companies: Consolidated statements of cas h flows Change in operating assets and liabilitie s: Cash an d cash equivalents at end of year: A cq.
F-40 6. Se g me nt i n f ormation General des cri p tio n During 200 3 and up to Sept ember 30, 2004, Nor tel N etwor ks operatio ns were organiz e d ar ound four re portabl e segments c onsisti ng of Wirel ess Networks , E nterpri se Net w orks, Wirelin e Ne t works and Optical Networ ks.
F-40 Se gme n ts The fo llo wing table s set forth i nformation by segmen t for the year s ended Decembe r 31: Pr oduct revenu es The fo llo wing table s ets forth external r e ve nues by produ ct for.
F-41 During the yea rs e nded De c emb er 31, 20 03, 200 2 and 2001, no custo m ers had r e venue s greater than 10 perc ent of cons olida ted reve nues.
F-42 7. S p eci al ch ar g es During 200 3, Nortel Networks cont inue d to implement i t s res truct uring work plan initi ated in 20 01. In addit ion, as des cribed below, ce rtain exit ac tivit ies were ini tiate d in 2003 .
F-43 Of fsetting t he se c harges were revis ions t o prior accru als of $44 whic h were primari ly relat ed to termina ti on benefi ts where act ual costs were l ower than the es tima ted amounts across all segme nts.
F-44 Fair value was de termi ned usi ng quote d marke t pric es or the a nticipat ed cash flows disco unted at a rate c omm e nsurat e with t he risk s invol ved.
F-45 Goodwil l and ot her in tangibl e asse ts i mpair m ent charge s t otale d $11,833 d uring t he ye a r ended December 31 , 2001. In additi on to the cha rge of $11,727 de s cri be d be low, this .
F-46 Altho ugh the outc ome of t he APA appli cati ons are unc erta in, Nortel Ne tworks doe s not b eliev e the u ltima te r esolu tio n of these negot iations will ha ve a materi al adve rse effect o n its consol idate d fina ncial po siti on, result s of operat ions or ca sh flows.
F-47 9 . E m p lo y ee bene f it p lans Norte l Ne two rks mainta ins var ious retirement prog ra ms cove ring substanti ally al l of it s employees , consis ting of defi ne d be nefit, d efined cont ributio n and inves tmen t plans .
F-48 defi ne d benef it pension plans (the “Tradit ional Program”) which a re closed t o new entrant s in the U.K. and port ions of whic h are close d to new ent rants i n the U.
F-49 The fo llowing de tails the unfunded s tat us of the def ined benefit pl ans and post- r etire ment be nefits other tha n pensio ns, and th e a ss ociat e d am ounts recogni zed in the consol ida.
F-50 The fo llowing de tails the net pens ion ex pense and the underlyi ng assumpt ion s for th e defi ned bene fit plans for the y ears ended De ce mb er 31: 2003 20 02 20 01 Pensio n expe nse: Ser v.
F-51 The fo llo wing detai l s the ne t cost com ponents , all re late d to continu ing operation s, and underly ing assumpti ons of post -r etire ment bene fit s other than pe nsions for the yea rs e.
F-52 ins tru ments are cons idere d investment gra de. Included in equ ity sec uriti es are devel oped and emer ging market stocks o f companies at a vari e t y of capitali z a tion lev els.
F-53 pu t and call opti ons and an increase of $4 5 in intangi ble assets and $79 i n goodwil l. The inta ngible asse ts of $45 rela ted p rimar ily t o cus tomer cont ra c ts and custom er relat ion .
F-54 I n connection w ith the a cquis ition of the 980 NPLC busines s from JDS, Nortel Network s Corporat ion issue d approxim atel y 65.7 mil lio n com mon shares.
F-55 Sal e o f Clari fy On Novemb er 28, 2001, Nort el Networks s old subs tanti a l ly all of the a ssets of its then wholl y owned subsidi a ry , Clarif y, including pat e nt s, int elle ctual pro pe rt y and trade marks, to Amdocs L i mite d for approxim atel y $200 in cas h, resulti ng in a gain of $16.
F-56 On August 15 , 2001, Norte l Networks c omple ted an offer ing of $1,800 of 4. 2 5 % convert i bl e Senior No tes (the “Se nio r Notes”) , due on Septe mber 1, 2008. The Senior N ote s pay intere s t on a semi-annua l basis on March 1 and Septe mber 1, which bega n March 1, 2002.
F-57 Su pp ort facilit y On Febr uary 14, 2003, N orte l Ne t works princ ipal ope rating s ubsidi ary, NNL, ente red into a n agreement with Ex port Devel opment Cana da (“E DC ” ) regardi ng arr.
F-58 swa ps and the corre s p onding fai r value adj ustm ent to the hedge d debt oblig ation inclu de d wit hin l o ng-term debt are re cor ded to inte rest expe nse wit hin th e consolida ted statemen ts of opera tio ns. These s wap contra cts have rema i ni ng terms to maturi ty between 2 and 2.
F-59 The fo llo wing table p rovides the carry ing amoun ts and fair v alues for financial as sets and l iabil ities for whic h fair value differed fro m the ca rryin g amount and fair value s recor d.
F-60 As of Decem ber 31, 2003 and 200 2, total a ccount s receiva bl e securit ized and under Nortel Netw orks managem ent were $359 and $423, re sp ec ti v el y .
F-61 The natu re of the inte llectual prope rty indemnif icat ion obliga tions general ly preven t s Nor tel Network s from making a reasona bl e es tima te of the maximum p ote ntial a mount it could be r equired to pay to it s custom ers and suppl iers .
F-62 Norte l Networks ha s agree d to indemnify its c ount erpart ies in rece ivable s securiti z a tion t ra nsaction s . T he i ndemni ficat ions pr ovided to c ounterpa rti es in these typ e s of t.
F-63 Perform ance re late d and other bonds gen erall y have a term of twelve m onths an d are ty pical ly ren ewed, as r equire d, over t he t erm of the appl icable contra ct. Th e various cont racts to whic h these bonds apply gene ra lly have t erms rangin g from two to five years .
F-64 f irm. Nortel Net works had remaini ng comm i tmen ts, if re quested, of $24 and $30 a s of December 31, 2003 an d 2002, respec tiv ely. Thes e commi tments e xpire at va rious da t e s through 2012.
F-65 Expe nses rel ated to out sourc ing contra cts for t h e years ende d December 31, 2 003, 200 2 and 2001 a mounte d to $308, $364 and $498 , r espect ively, a nd were for servic e s provi de d t .
F-66 gr eater o f Canadian $2.5 0 per common share and 95 percent o f the weight ed-ave rage trading pri c e p er common share of Nortel Ne tworks Corpora t i on on the TSX for the 10 tra ding days i mmedia tely pre ceding th e date on which su ch common share s were issued in t he exch ang e.
F-67 The U. S. tre asury stri ps were purcha sed dire ctly by a representa tive of the u nderwr iters f rom the gross pr oceeds of the e quity unit offer ing a n d were deliv e re d to a third part y actin g as a custodian on be half of t he equit y unit holde rs.
F-68 18. A ccumulated othe r com p rehensiv e loss The c ompone nts of a ccumula ted other com prehens ive los s, net of tax , we re a s fo llo ws: 2003 20 02 2001 Ac cumulat ed fo reign curre ncy tra.
F-69 Optio ns granted unde r the 2000 Plan an d 1986 Plan may be grante d with or without a SAR. A SAR entitl e s the h older to recei ve payment of a n amount e quiv alent t o the exce ss of the ma r.
F-70 The fo llo wing is a summary of the tot al number of outs ta nding st ock optio ns and the maximu m number of stock opti ons ava ilable for gra n t: Weighted - O utst an ding a ver age Av ailabl e opt ion s e xercise fo r grant (t ho usa nds) p rice (t housa nds) Bal an ce at De cembe r 31, 2000 325, 38 0 $ 32 .
F-71 purch ased on the ope n market, or at the disc ret ion of th e Committee, or at the el ecti on of the hol der i n cert ain cir cumstances, cash in lie u of sh ar es . The nu mber of RSUs (in mill ions) allo cated as of Decembe r 31, 2003 , 2002 and 2001 was appro ximat ely 20, 2 and 2, res pecti ve l y.
2 0. D isco ntinued o p erations During th e ye a r ended Dec ember 31, 2003, Nor t el Network s conti nued to wind down its access solu tions operatio ns and the re was no cha nge to the in iti al dispos a l st ra t egy or inten t to exit the b usine s s whic h was approv ed by the Norte l Networks Board of Directors on Jun e 14, 2001.
Consolidated statements of cas h flows: (d ) Inc lude d accruals of $6 and $6 3 as of De cember 31, 20 03 and 200 2, respect ivel y. The accrua ls consi sted of fut ure con t rac t u al obl igat i o n.
F-74 During th e ye a r ended December 31, 2002, Nortel Network s reasses sed its rema ining provi sions for disc onti nued opera tions and r ecorded a net a dditio nal loss of $97.
F-75 On August 3, 2001, Norte l N etwor ks announced t he complet ion of the previ ously a nnounce d transfe r of its owner ship int e res t in Arris I nteracti ve t o Arri s Group, ANTEC Corporati on’s new parent com pany. As a re sult , as of Decem ber 31, 2 001, Nortel Ne twork s owned a 49.
F-76 Ontar io lawsuit. T he p lainti ffs in two of these proc eedings in Que be c ob taine d court approv al for dis continu ances of their proc e eding s on Ja nuary 17, 2002 .
F-77 the Pla n. A second purport ed class acti on lawsuit, on beha lf of the Plan and Plan part icipants for whose indivi dual ac coun ts the Pla n purch a sed Nort el Networks Corpo ra t ion common s.
F-78 ce rta in of its qua rter ly reports for 2003, and to res tate i ts previ ously fi le d fi na n cial re sults for one or more earl ier periods , Nortel Networ ks and certa in of its then curr ent and former offi cers and dire ctors were na med as defendan ts in 27 purport ed class ac tio n lawsuits .
F-79 f ull comp lianc e by 2006. I t is expect e d th a t th ese law s will re quire N o rtel Networks t o incur addi tional com plianc e costs. Although cost s r elati ng to enviro nm enta l m att e .
F-80 On April 28, 20 04, Nortel Networks announced tha t the Inde pe nd ent Revi ew was extende d to include the second half of 2003 a n d it was det e rmine d that the previous ly announc e d una udi.
F-81 Net wo rks and N NL ’s prio r fi nan c ial r esu lts ( the “ Re la ted B rea ch e s”). T he w aiv er w as to re ma in in e ff ec t unt il th e ea rli es t of ce rta in eve nts or May 29, 200 4.
F-82 As a resul t of the termin ation of the Fi ve Year Faci li ties , cert ain forei gn secur ity agreem ent s ente red into by NNL and va rious of it s sub sidia ries un der which share s of certai n subsidia ries of NNL incorpo rated out side of th e U.
F-83 and Mex ic o j oined Volt D elt a . No rte l Networks re cor ded a gain on sal e of busine sses and as sets of app roximatel y $50 in the thi rd quart er of 2 004. Evolution of Nortel Networks su pp l y chain s trate gy On June 29 , 2004, Norte l Networks announ ced an agreem ent with Fle xt ronics In ter nationa l Ltd.
F-84 On Octobe r 26, 2004 , Nortel Networks e ntere d into an agre ement with Foundr y Networks, I nc. (“Fou ndry”) to se ttle ou tstandi ng patent infri ngement claims and count e rc laims by the part ies.
Sup pleme ntal Consol idating S tatemen t s of Operat io ns for the year ended Dec ember 31, 2003: F-85 Nort el No rtel Non- Networks Ne tw ork s Guarantor Guarantor (milli ons o f U .
Sup pleme ntal Consol idating S tatemen t s of Operat io ns for the year ended Dec ember 31, 2002: F-86 Nort el No rtel Non- Networks Ne tw ork s Guarantor Guarantor (milli ons o f U .
Sup pleme ntal Consol idating S tatemen t s of Operat io ns for the year ended Dec ember 31, 2001: F-87 Nort el No rtel Non- Networks Ne tw ork s Guarantor Guarantor (milli ons o f U .
Sup pleme ntal Consol idating Bal ance She ets as of December 31, 2003: F-88 Nort el No rtel Non- Networks Ne tw ork s Guarantor Guarantor (milli ons o f U .
Sup pleme ntal Consol idating Bal ance She ets as of December 31, 2002: F-89 Nort el No rtel Non- Networks Ne tw ork s Guarantor Guarantor (milli ons o f U .
Sup pleme ntal Consol idating Stat e men t s of Cash Flows for t he year ended December 31 , 2003: F-90 Nort el No rtel Non- Networks Ne tw ork s Guarantor Guarantor (milli ons o f U .
Sup pleme ntal Consol idating Stat e men t s of Cash Flows for t he year ended December 31 , 2002: F-91 Nort el No rtel Non- Networks Ne tw ork s Guarantor Guarantor (milli ons o f U .
Sup pleme ntal Consol idating Stat e men t s of Cash Flows for t he year ended December 31 , 2001: F-92 Nort el No rtel Non- Networks Ne tw ork s Guarantor Guarantor (milli ons o f U .
Quarterly Financial Data (Unaudit ed) See not e s 4, 7 and 10 to t he accompa nying cons olida ted fina nc i al state m ent s for the impac t of accoun ting changes, spe c i al charg es and ac quisit ions, dive stit ure s and clo sures, re s p ecti vely, th at affect the c ompar abilit y of the above se le c ted fina ncial dat a.
REPORT OF INDEP ENDENT REGISTERED CH ARTERED ACCO UNTANTS To the Share holders of Nor tel Network s Corporation We have audit e d t he consolid ated financia l s tat ements of Nort el Networks Corpo r.
Schedule II Consol idated NORTEL NETWORKS CORPORATI ON Valu ation an d Quali fying Accounts and Reser ves Pr ovisi on For Uncollecti b l es (a) ( mill ions of U. S. dollar s) 179 Additions Ba lance a t cha rged B ala nce a t begi nn in g o f to costs end o f U.
I n ligh t of the re levanc e of th e findi ngs of t he Ind epende nt Revie w to the matt ers ad dressed i n this Ite m 9A, this I tem 9A firs t set s forth i n full the “Summ ary of Findi ngs and o.
SUMMARY O F FINDINGS AND OF REC OMMEN DED R EMED IAL M EASU RES OF THE INDEPEND ENT REVIEW SUBMITTED T O THE AUDI T COMMIT TEE OF THE BOAR DS OF D IRECTORS OF NORTEL NETWORKS COR PORATION AND NO RTEL NETWO RKS LI MITED 114 Wilm er Cutler Pickerin g Ha le an d Do rr LLP 2445 M Street, N.
I n late October 20 03, Nortel Networks Corpor ation (“Nor tel” o r the “Comp any”) annou nced tha t it inte nde d t o resta te approx imately $900M of lia bilitie s carried on its previo usly r eporte d bal ance shee t as of J un e 30, 20 03, followi ng a comprehen sive in ternal re view of these l iabilit ies (“Fi rst Restat ement”).
WCPHD and Huron re ported reg ula rly to the Audit Committee on the progress of the inve stiga ti on. Most , or all, of th e indepe ndent and non- ma nagement Bo ard members at tended t hese Audit Commi tt ee brief ings.
Norte l posted signifi cant l osses i n 2001 and 2002 and downsiz e d it s work force by nearl y two-t hirds . The remaining e mploye es were asked to under take signi ficant a dditi onal r esponsi bilities with no increase i n pay and no bonus es.
Four th quarte r, 2002 . By mid-2002, e mploye es thro ughout the Compa ny w ere being re c ru ited by othe r c ompa nies a n d morale was low . Corpora t e ma nagement s ough t to retai n these em pl.
Whe n prese nting the pr elimi na ry result s fo r the quar ter t o the Audit Com mitt ee, the Cont roller in accurate ly repres ente d that the vast ma jor ity of t hese re lease s were “b usiness a s usual” and in comp lianc e with U.
Gove rning Princi ples for R emedial M e asur es The Audit Committ ee a sked WCPHD to re c o mmend go ve rni ng princi ples , based o n its indepen de nt inqui ry, t o prevent recurr ence of the ina p.
The B oard of Direct ors must make cle a r th a t it has not toler a ted, a nd will not in th e future tol e rate , a c counti ng c on duct tha t involves the mi sappl icati on of U.
A basi c component o f sound corpora te overs ight is the control s tructu re. Inte rna l c ontrols — the Co m pany’s accounti ng policies, or ganiz ationa l structure, s yste m s, pr oc es ses, emplo yees, leade rship, and cult ure — working t ogether, fos ter a c curate fi nanci a l re porting and sou nd disclosure i n a tim ely manner .
The se gove rning pri ncipl e s are a n effort t o forge a fr a mework for rebui lding the Nortel fi na n ce envir onment. Equal ly import ant, the Board, the CEO, and the C FO must continue to promote high et hical stand ards thro ughout the Compa ny.
Cur rent Ma nagement Con c l usions Conc erning Disclo s u re Control s and Proce dures I n January 2005, we c arried out an eva luati on under the supervis i on and wit h the parti cipat i on of mana.
The se new conclu sions a re i n contrast t o conclusio ns reac hed as a result of pre vious evaluat ions ca rried out und er the sup ervis ion and with the part icipati on of man agement, inc luding the former chief e xecuti ve officer and former c hief fina nc i al offic er.
and in c ome sta teme nt were much larger. Spe cific a l ly, what woul d have been rela tivel y minor amount s in prior per iods may be consi dered to be ma teria l to cur rent peri ods.” As not ed in the Inde pe nd ent Revi ew Summary, “Nortel pos ted si gnifica nt l osses in 2001 and 2002 a nd downsiz ed its work force by nearly two-t hi rds.
D&T concl uded, in re spect of this report able con dition, t hat it was unc lear, due to th e lack of documenta tion regardi ng support for c e rt ain pr ovisi ons and accru als, the passage of ti me and the turn over of per sonnel , as to what adj ustment s, if an y, shoul d have been made in prio r yea rs.
.. . targets. Whil e the doll ar value of mos t of the indivi dual provi sions w as rela tively smal l, t he aggre gate val ue of the provi sions m ade th e diffe re n ce between a profit a nd a repor.
I n ligh t of the t otal m agnit ude of these re venue ad justments, we pre s ent below an ove rview of the pr incipal rev e nue adj us t ment s require d in the Secon d Restate ment to corre ct account ing e r rors rela ted to revenue r ecognition a nd the general c ircum stances tha t gave rise to them.
were re cogniz ed upon deli ve ry of in terim product so lut ions pen ding the ava ilabi li ty of the lat er genera ti on optica l produ ct that the cu stom er had orde red .
r evenue s we receive d on the sal e of produc ts or s ervi c e s, the a mounts we paid the c ustomer under the re c i procal a rrangeme nt s h ould ha ve been tre a te d as a reduct ion of rev enues.
r eport and (i i) the fi nanci al state ment s, and other fin ancial info rmation inc luded in this report , fairly pre sent in al l m ate rial respe c t s our f inanci al conditi on, resu lts of operations and cash flows as at, and for, the pe rio ds presented in this repo rt.
For addit ion al i nformation concerni ng a djust ment s made in t he S econd Res tateme nt, s ee note s 3 and 2 3 t o the acc ompanyi ng aud ited cons olida ted f inanci al st atement s and “—Deve lopmen ts in 2004—Resta tements” i n the MD&A section of this report .
adj ustments. W e beli eve the pr ocedures f ollowed in de termi ning suc h esti m ate s were app ropriate and reas onable u s i ng the be st ava ilabl e inform atio n.
The fo re go ing mate rial wea knesse s contr i but ed to the nee d for the Se cond Resta te ment. Upon com pleti on of our ass essment of our internal cont rol over financi al r eportin g as at Decem.
Reve nue In depende nt Revie w will ha ve a parti cular emphas is on t he underl ying conduct tha t led to the i nit ial rec ogniti on of these reve nue s.
As no ted a b ove , we co nti nu e to id ent ify , dev elo p and b egin to imp l emen t rem ed ial m ea sur es, i ncl udi ng t he de vel opm en t of a d etai led p la n an d tim etab l e for th e implement a ti on of the re c o mmendat ions of the Independe nt Review.
Directors of the registrant Direc tor s are elec ted at the annua l meeting of sha reholde rs, excep t that we can appoint di re ctors in certai n circumst ances bet ween annu al me etings .
139 DR. MANFRED BISCHOF F , 62, S tarnbe rg, Fe deral Re public of Germa ny, was app ointed a s a director of the Co mpany and Nortel Ne tworks Limite d on April 29, 2004. Dr. Bis choff has be e n Chairman of the Board of Europ ean Aeronauti c Defence and Space Compa ny EADS N.
140 JOHN A. MacNAUGHTON , C .M., 59, Toronto, Onta rio, Canada, has been nom i nate d fo r ele c t ion as a dire ctor of the Compa ny a nd Nort el Networks Limi ted for the first t ime.
We would lik e to acknowledge the many years of con tributi on a nd serv ice to the Com p any and Norte l Networks Lim ited by Messr s. Lynton Rona ld W ils on, L. Yve s Fortie r, Sherwo od H. Smit h, Jr. , Mrs. Guyla ine S auc ier and the Honorable J ames Johns ton Bl ancha rd.
Executive officers and certain other non-executive board appointed of fi cers of the Registrant The exec uti ve office rs and certa in ot her non-exe cutive b oard appoi nted offic e rs of the Co mpany are appo inted, and may be removed, by t he Board of Directors of the Co mpany.
Subs e que nt appointme nt Susa n E. Shepard , 61, will succee d Mr. W.F. Mc Cauley i n the posi tion of Chief Ethi c s a nd Compl ia n ce Office r effect ive Fe bruary 21, 2005. Mr . McCauley will wo rk with Ms. Shepard to tr ansition t he posit ion of Chief E thics and Compli ance Officer.
Secti on 16(a ) beneficial ownership reporting compliance Sect ion 16(a) of the Uni ted Stat es Secur ities E xcha nge Ac t o f 1934 requi res dir e c tors and e xecuti ve offi cers of t he C ompan y .
The Gui de to Ethica l Busine ss Pra ctice s, the A udit Co m mit t e e Mandate s, the C ommitte e on Directors Manda te, the Joi nt Lead ershi p Resourc e s Mandat e, and the St atement of Gove rnance Gui delin es, as well as any future a m endm ents to t hese doc uments , are ava ilabl e fre e of cha rge on our website a t www.
2004 146 Long Term Compensation Awards Payouts Annual Compensation Secu rities Name O t h er Ann ual Un de rlying LTIP All Other And Princip al Sala ry Bonus Compensatio n Op tio n s Payo uts Compensa tion Posit ion Year ($) ($ )(1) ($) (#) (# ) ($) W.
147 (3 ) Rep resen ts a tax r eimbur sem ent payment i n co nne ctio n with cert ain perm anen t trans fer expens e s. (4) Cer tain pay ment s paid in eur os hav e been c onve rted to Un ited Sta tes dol lars and i nclud ed in th is amoun t.
148 (1 2) Repr esen ts cont rib utions made u nder the Nortel Ne t wo rks Limi ted Inves tment Plan f or Employees — Can ada. (1 3) Repr esen ts the U nit ed Stat es do llar equ ivalent of paym ents actual ly ear ned or p aid in Can adian dol lar s.
2003 149 Long Term Compensation Annual Compensation Awards Payouts Name And Princip al Posit ion Year Sala ry ($) Bonus ($)(1) O the r Ann ual Compensation ($) Secu rit ies Un de rlying Op tio n s (#) LTIP Payouts (#) All Other Compensation ($) F.
150 under th e incentiv e plan f or the re main ing four seg ment s. Altho ugh the joi nt lea dership r eso urces co mmitt ee dete rmin ed that c ertain o f the dis tinct perfo rmance ob jectives we r.
Annual cash incen tive awards Annual c ash bonus awa rds under t he SUCCESS Plan are ba sed on achie ving corpora te and ind ivi dual perfor mance obje ctive s for a calenda r year .
Aggregate option ex ercises in 2004 and 2 003 and y ear-end option v alues No option s were exerci sed by any named exe cutive officers for 2004 dur ing the fis cal ye ar ended Decembe r 31, 2004 and no optio ns were exe rci sed by any named exe cutive officer s for 2003 during the fiscal year end e d Decem ber 31, 2003.
152 * On Ap ril 27, 200 4, Mr . Dunn’s emp loyme nt as Pr esident and Chi ef Executi ve Off icer of the Compan y and No rtel Networ ks L imited w as te rmi nated for cau se .
2003 153 41, 999 of th e stoc k opti o n s gra nted t o M s. S prad l e y i n 2 002 we re gr ante d pur suan t to th e volun t a ry stock op t ion e xchange p r o gram. All of thos e op tion s w ere e xercis able as of Dece mber 31, 20 04. (7 ) As a re su lt of th e termi na tion of Mr .
Long -term incentiv e plans — awards in last tw o fiscal ye ars No long- ter m incentiv e s were grante d under any long-t e r m incentiv e plan to any of the named e xecuti ve office rs for 2004 durin g the fiscal yea r ended Decemb er 31, 2004.
Retireme nt plans The Co mpany has seve ral pensio n plan s. The follo w ing desc ript io ns relate t o pension pl ans to which the n amed exec uti ve officers for 20 04 and th e named executi ve officers fo r 2003 are eli gible to parti cipat e.
Def i ned B en ef it Pe ns ion P lan — U nit ed S ta te s A define d be ne fit pens ion plan , the Norte l Networ ks Reti rement Inco me Plan, is mai ntained for eli gib le employe es and exec uti ves in the Unite d S tat e s.
Pens ion be nefits from the SER P are funde d from th e general a ss ets of, re spe c t ively, Nor te l Ne twork s Limite d and NNTC in C anada and Nor tel N e tw ork s In c.
Tab le I I On April 27, 200 4, the Company a nd Norte l Networks Limit ed terminate d for cause the e mployment of e ach of thei r then pres id ent and chi e f exe cuti ve officer, chief f inan c i al office r and co ntrolle r.
lea ders hip resou rces committe e of the boards of dire ctors o f the Company and Nort el Networks Limi ted, and was not rene wed subsequ ent to Marc h 2002.
Compensation of directors Effe ctive Ja nua r y 1, 2002, each non-e mployee direc tor of th e Company and Norte l Networks Lim ited el ected to rec eive a ll compens ation f or se rvices ren de red as.
cha irman of th e board of direc tor s of the Com pany a nd Nortel Networks L imit ed, in the f or m of share un its unt il such tim e as the sha re ow nership guide lines are met.
A pe rson is de emed to be a be n eficia l owner o f a common sha re if that per son has, or shares, th e powe r t o direct th e vote or inve stment of the c ommon shar e.
163 *** M r. Dun n cease d to be Pres iden t and C hief Exe cutive Of ficer o f the Comp any and Nort el Networ ks Li mited o n Apri l 27, 20 04 an d cease d to be a dire ctor of the Com p any a nd Nort el N etwo rks Lim it ed on May 21, 200 4. *** * A named exe cutive of fi cer i n 2003 onl y.
Equi ty co mpe nsati on pl an inf orma tion 2004 The t able below provi des informati on as of December 31, 200 4 with respect t o common shar es of the Company tha t may be issue d under the fol lowi.
The t able doe s not provid e informa tion with re s p ect to equity c om p ensatio n plans th at have ex pired or are no lo nger in effe ct. The Comp any and it s subsid iaries mainta in other equity.
to the o ve ra ll reloc ation po licy. Effecti ve Jul y 30, 2002, and in acc ordance wi th the Unite d States Sarbane s -Ox ley Act of 2002, t he Company no l onger offers its e xe c utive office rs hous ing lo a ns a s p art of t heir relo catio n assista nc e .
2002, re spec tivel y, for the fol lowing audit servi c e s: (i) aud its of the annua l conso lidate d financ ial statement s of the Compan y and Norte l Networ ks Limite d includ ed i n an nual repor.
PART IV All other schedules ar e omit ted bec ause t hey ar e inappli c abl e or not req uired. I ndiv idual fin ancial stat emen ts of enti ti es account e d for by th e equity m ethod hav e been omitt e d be cause no such ent ity consti tutes a “s ignif icant subsid iary ” r equirin g such dis closure a t De cember 31, 2003.
Norte l Ne two rks Corpora tio n filed a Current Re port on Form 8-K date d April 14, 2004 rel ated to a pres s rele ase updati ng the stat us of Ontari o Se curiti es Comm i ssi on inquiry.
Norte l Ne two rks Corpora tion filed a Curre nt Report on F orm 8-K date d August 19, 2004 re late d to a press rel ease provi ding a sta tus upda te on its f in anci al r est at emen t p roc es s an d oth e r rel ated ma tt ers.
Norte l Ne two rks Corpora tion filed a Curre nt Report on F orm 8-K date d D ecember 22, 20 04 rela ted to a press re l eas e providin g a stat us upd ate on it s fi nan cia l re stat em ent p roce ss a n d oth er r elat ed ma tt ers.
The i tems lis ted as Exh ibi ts 10.2 t o 10.7, 10.2 7 to 10.45 and it e m 10.49 re l a te to manage ment contra c t s or compens atory pla ns or arra ngements . Exhibit 172 4. Exhibit Ind ex Number De scription *2. Amended a nd Restate d A rrang e ment Agr e e ment involvi ng BCE Inc.
173 Number De scription *4.6 Ins trument of Resign a t ion, Appoint m ent a n d Accept a nce en tered int o as of December 19, 20 02, effecti ve as of January 2, 2003 , am ong Nortel Net works Limit ed, as is suer and gu a rantor , Nortel Net works Capita l Corporation, a s issue r, Citi ba n k, N.
174 Number De scription *10. 11 U.S. Gua rantee and S ecurit y Agreement date d as of the first da y of the “Coll ateral Peri od” (as defi ne d th erein) a mong Nortel Networ ks Limited, Nortel Ne twork s Inc. and cert ain of their subsidi a ri es and JPMorgan Cha se Ba nk, a s Col late ral Agent (file d as Exhi bit 9 9.
175 Number De scription *10. 22 For eign Pledg e Agre eme nt date d as of April 4, 200 2 between Nort el Networks Inte rnational Fi nance & Holdin g B.
176 Number De scription *10. 33 Resol utions of the Board of Director s of Nortel Networks Lim ited da ted Decemb er 17, 1993, as amended by re solut ions of the Board of Dir ectors of Norte l Network.
177 Number De scription *10. 46 Mas ter Faci lit y Agreement da ted as of Fe bruary 14, 2003 be twe en Nortel Net works Limit ed and Expo rt Develop ment Canada ( fil ed as Exhibi t 99.2 to Nor tel Networ ks Corpora tio n’s Curre nt Report on F orm 8-K date d February 14, 2003 ).
NORTEL NE TWORKS S.A. (A Su bsidiary of Nor tel Networks Limit ed) For t he three years ended De ce mber 31, 2003 180.
REPORT OF INDEP ENDENT REGI STERED P UBLIC ACCOUNTING F IRM To the Sha rehold e rs and Board of Direc tors of Nort el Networks S.A. We have a udit ed the ac companyin g consol idated bala nce s heets o f Nortel Ne twork s S.
NORTEL NE TWORKS S.A. (a S ubs i diary of Norte l Networ ks L imi ted) Consolidated Statements of Oper ations for the years ended December 31 *S e e n o t e3 The a ccomp anying not es are an integ ral.
NORTEL NE TWORKS S.A. (a S ubs i diary of Norte l Networ ks L imi ted) Consolidated Bal ance Sheets as at D ecember 31 *S e e n o t e3 The a ccomp anying not es are an integ ral part of the se fina nc.
NORTEL NE TWORKS S.A. (a S ubs i diary of Norte l Networ ks L imi ted) Consolidated S tatements of Shareh olders’ Equity *S e e n o t e3 A Sta t em ent of Othe r Compr ehens ive Incom e (Los s) has n ot been prese nted as there ar e no oth er compr ehens ive i nc ome (l oss) it ems.
NOR TEL NETWORK S S.A. (a Subsidia ry of Nortel Networks Limited) Consol idate d Statemen ts of Cash Flows f or the years ended Decembe r 31 *S e e n o t e3 The a ccomp anying not es are an integ ral .
NOR TEL NETWORK S S.A. (a Subsidia ry of Nortel Networks Limited) Notes to Consolidate d Financial Statements (thousands of euros, unless otherwi se stated) 186 1.
187 expe cted re sidua l returns . Interc ompany account s and trans actio ns are elim inate d upon conso lid ation and un reali zed inte rcompany gai ns and loss es are eli minat ed when account ing under the equi ty meth od. (b ) Us e o f es tim at es Norte l Networks S.
188 r ecogni zed under SOP 97-2 and revenue re late d to the hardwa re element is recognized under SOP 81-1 or SAB 101. For a ccount ing uni ts rel ated to cu stomize d network solut ions and certai n network buil d outs, re venues are reco gnized und e r SOP 81-1 us i ng the percent a ge-of-com pleti on m ethod .
189 I n esta bli shing the appropria te inco me tax valua tion all owan ces, N o rte l Net works S. A. a ss ess es the re aliz abili ty of it s net def e rre d tax a ssets and based on all ava il able.
190 (l ) P la nt and e q ui p ment Pl ant and eq uipmen t are sta ted at c ost le s s ac cumul a te d dep recia tio n. Deprec iatio n is gen er al ly ca lcu la ted o n a st raig ht-l ine basis over th e e xp ected use ful lives of the plan t a nd e quipme nt.
191 The i mpair m ent te st f or goodwil l is a two-st ep proces s. Ste p one c onsis ts of a c ompa rison of the fair value o f a reporting un it with its carrying amount, includi ng the goodwil l a l locat e d t o the reporti ng unit.
192 to the s ettl e me nt date ar e recorde d in net earn ings (loss ) in the peri od incurred. The pay ment amount i s estab lishe d for Stoc k Apprec iati on Rights (“ SARs”) on t he date of exercise of the awa rd by the e m ploye e , fo r Restri cted Stoc k Units (“RS Us ”) o n the ves ting dat e of the award .
193 Com p arative fi g ures Cert ain 2002 and 200 1 figures i n the consoli dated financia l statements have been reclass if ied to confor m to the 2003 present ation and hav e been res tat ed as s et ou t in no te 3. 3 . R es ta te me nt First Res tatemen t I n May 2003, NNC and i ts subsidia ri es ( includi ng Nortel Networks S .
194 ac cruals a nd prov isions and the appli cation of account ing litera ture to ce rtain matt e rs in the S e cond Resta te ment, inc ludi ng revenue r ecogni tio n, foreign e xchange , specia l c h.
195 Sum ma r y of Restatement A d j ustme nts for t he y ear ended December 31, 2002: Accruals and Related p arty Plant and Total prov isi on s tran sact ion s equi pm ent ad jus tme nt s Rev enu es .
196 Sum ma r y of Restatement A d j ustme nts for t he y ear ended December 31, 2001: Accruals and Related p arty Plant and Total prov isi on s tran sact ion s equi pm ent ad jus tme nt s Rev enu es .
197 Sel lin g, g eneral and administrative ex p ense The va ri ations to selling , general and a dminist rative expe nse were d ue to the foll owing factors : 2002 20 01 Incr ease (d ecrea se) of s el.
198 R esidual p ro f it sharin g Adjus tmen ts to cost of re venues of Nortel Ne tworks S.A. are pri m aril y due to adjust m ents to the results of Nort el Networks res ulti ng f rom the rest a t ements. T he se adjus tment s impact t he cos t of revenue s of Nortel Net works S.
199 Costs o f reven ues , research and de velo p ment ex p en se Ad justmen ts t o cost o f re venu es a nd res ear c h and de vel opment we re mainl y dri ven by cor rec ti ons of e rro rs in th e de.
200 Consolidated Balance Sheets as of Decem ber 31, 2002 As Seco nd Pooling o f As prev i o usly Re stat ement in terest poo led an d r epo rted Ad jus tme nts Adj ust me nts res tat ed ASSETS Curre n.
201 is sued or modifi e d after De cember 31, 200 2. The adoptio n of FIN 45 did not have a materi a l i mpact on the result s of operat ions and f inanci al condi tion of Nortel N etwor ks S.A. (see not e 12). (b ) A sse t ret ir emen t o bl i g ations I n June 2001, the FAS B is sued SFAS No.
202 SOP 97-2 . The adoptio n of EITF 00-21 and EITF 03-5 did not ha ve a material im pact on Nort el Networks S.A. re sult s of operation s and f ina nci al co ndi tion . ( f) Amendment of SFAS 133 on derivativ e instruments and hed g in g activi ties I n April 2003, the FASB is sued SFAS No.
203 The fo llo wing table p re se nts the i mpact on net earni ngs (los s) for the year en de d Decembe r 31, 2001 of the SFAS 142 requ irement to ce ase the amort izati on of goodwi ll as if th e standard had bee n in effect b eginnin g January 1, 2001.
204 Other income (ex p ense ) — n et : 2003 20 02 20 01 Royalti es (a) —n e t (4, 479 ) 16 ,5 59 29, 888 Othe r — ne t 6 ,494 6, 479 24,11 0 Oth er income (exp enses) — net 2, 015 23,0 38 53 ,9 98 (a ) Cert ain af fi liated e ntities pay r oyal ty fees to No rtel Net works S.
205 P lant and e q ui p ment — n et : 2003 20 02 Cost: La n d and b ui ldin gs 10 4,81 0 11 4,66 0 Lea sehold impr o vemen ts 31 ,2 43 38 ,310 Mach i n ery and e quipme nt 219, 81 8 20 3,55 3 Fur ni.
206 Other accrued liabilities: 2003 20 02 Put o ption (a) – 77 ,500 Selli ng, gen eral a nd adm inistra tive r elated 4 ,565 9 ,079 Customer d e p osit 9,676 19,9 94 Pr oduct r e lated 4,77 2 10 ,53.
207 6. Se g me nt i n f ormation General des cri p tio n During 200 3 and up to Sept ember 30, 2004, Nor t e l Networks S.A. ope ra tions (includ ing the operati ons of Northern Tele c om France a nd .
208 Se g men ts The fo llo wing table s set forth i nformation by segmen t for the year s ended Decembe r 31: 2003 20 02 20 01 Revenues Wireles s Net works 21 4,73 2 16 4,82 9 202, 74 1 Enterprise Net.
209 Geo g ra p hic in f ormati on The fo llowing table se ts forth exte rnal reve nues by ge ographic re gi on based on th e location of the cust omer for the years ended De ce mb er 31: 2003 20 02 20.
210 Year ended December 31, 2003 For t he year ended December 31 , 2003, Nortel Netwo rks S.A. recorde d total spec ial charge s of 24,563. Workforc e reduction charge s of 19,1 33 were rela ted to sever ance and bene fit costs a sso ciate d with the ap proxi mate ly 193 empl oyees noti fied of termin ation.
211 8. I ncome taxes The fo llowing is a reconcil ia t ion of i ncome taxes, calcula ted at the F renc h income t ax rate , to the income t ax benef it (expen se) inc luded in the cons ol idate d statem ents of operat ions for the yea rs ended December 31: 2003 20 02 20 01 In come tax es at Fre nch rates (2 003 - 35.
212 9 . A c q uisitions and divestitu res Ac q uisit ions N o rth ern Tel ecom Fra nc e On June 24 , 2003, Nortel Networks S. A. acqui red the outst anding sh ares of Nort he rn T elecom Fran ce from NNI for a pu rchase pric e o f 8 3,8 00 i n ca sh .
213 10. R elated p art y trans actions I n the ordinar y course of busi ness, Nort el Networks S .A. engages in tra nsacti ons with Norte l Networks and ce rtain of Nort el Networks af fi liate s. Th ese tr ans acti ons ar e mea sured a t the ir exch an ge a mou nts .
214 I n acc orda nce with t hese a gree m e nt s Nort el Netw ork s S.A . re cord ed rel at ed pa rty r e ven ues of appro ximat ely 35,903, 3,000, an d 28,9 63 in the yea rs 2003, 2002, and 2001 respecti vely. No cost of reven ues to rel ated par ties are di rectly lin ke d to t hese trans act ions.
215 11. F inanci al instruments Share p led g e The se curity ag reements that were ent ered int o in connect ion with the De cember 2001 364-d a y syndi cated credit fa cilit ies of Nortel Networ ks .
216 guara ntees an d the la c k of limita ti ons on t he pot e nt ial liabi li ty. Hi stori cally , Nortel Net works S.A. ha s not mad e any sign ifica nt inde m n ifica tio n payments und er such a g.
217 On Septe m ber 30, 2001 , Nortel Net works Franc e sold its subs idiar y MNCD to a third party. Un der this t ransact ion, Norte l Networks Fra nce has taken c ertai n commitment s relativ e to the amount of th e net assets of MNCD as of Septembe r 30, 2001.
218 On June 30 , 2001 the share holders m eet ing of Nort el Networks Fr ance approve d a divi de nd pa yment of 61,8 12 payable i n EADS Te lecom sha res that res ulte d in t he r educti on of ret ained earni ngs of 21,9 12 and minority in t er est of 27,8 16.
219 The fo llowing is a summary of th e total nu m ber of outs tanding stock opt ions issue d to employ ees of Norte l Networks S. A.: Outstanding We ighted opt ion s aver age exerci se (t ho usa nds) p rice (U. S .$) Bal an ce at De cembe r 31, 2000 6, 976 $ 38 .
220 em ployee s may have up to 10 percen t of their e l igi ble compensa tion deducte d from their p ay during ea ch offerin g period to cont rib ute towar ds the purchase of Nortel Networks C orpo ration c o mmon share s.
221 On Ma y 17, 2004, NN C announce d t hat t he OS C had issue d a t emporary order tha t prohibit s all trading b y direct ors, officers and ce rtain curre nt and former employees i n the sec urit ies of Nort el Networks and NNC, whi ch temporar y order was rep laced wi th a final order is sued on May 31, 2004.
222 to purc ha se sim il ar operat ions a t the Nortel Network s Monksto wn, Northern Ire land and Cha teaud un, France Sys tems Houses , sub ject to the c om p letio n of the req uired infor mation and c o nsulta ti on proc ess. Th e Chate audun Sys tem House i s a property of Nortel Networ ks S.
SIGNATURES Pursu ant to the require ments of Section 13 or 15(d) of the Securi ties Exchange Act of 1934, the registr ant has duly caused this repor t to be signed on its be half by the un dersigned, thereunto dul y authorized, in the C ity of Br a mpton, On tario, Canada on the 10 t h day of Jan uary, 2 005.
Di recto rs 224 M. B I S CHOF F * (M. BISCHOFF) R. A. I NG R AM * (R . A. IN GR A M ) J.J. B LA NCHARD * (J .J . BL A N CH A RD ) J. M ANLEY * ( J. M ANLEY) R. E. B RO W N * (R . E. B RO W N ) W.A. O WEN S * (W .A . O W EN S ) J.E. C LEG HORN * ( J.E.
Un point important après l'achat de l'appareil (ou même avant l'achat) est de lire le manuel d'utilisation. Nous devons le faire pour quelques raisons simples:
Si vous n'avez pas encore acheté Reliant FORM 10-K c'est un bon moment pour vous familiariser avec les données de base sur le produit. Consulter d'abord les pages initiales du manuel d'utilisation, que vous trouverez ci-dessus. Vous devriez y trouver les données techniques les plus importants du Reliant FORM 10-K - de cette manière, vous pouvez vérifier si l'équipement répond à vos besoins. Explorant les pages suivantes du manuel d'utilisation Reliant FORM 10-K, vous apprendrez toutes les caractéristiques du produit et des informations sur son fonctionnement. Les informations sur le Reliant FORM 10-K va certainement vous aider à prendre une décision concernant l'achat.
Dans une situation où vous avez déjà le Reliant FORM 10-K, mais vous avez pas encore lu le manuel d'utilisation, vous devez le faire pour les raisons décrites ci-dessus,. Vous saurez alors si vous avez correctement utilisé les fonctions disponibles, et si vous avez commis des erreurs qui peuvent réduire la durée de vie du Reliant FORM 10-K.
Cependant, l'un des rôles les plus importants pour l'utilisateur joués par les manuels d'utilisateur est d'aider à résoudre les problèmes concernant le Reliant FORM 10-K. Presque toujours, vous y trouverez Troubleshooting, soit les pannes et les défaillances les plus fréquentes de l'apparei Reliant FORM 10-K ainsi que les instructions sur la façon de les résoudre. Même si vous ne parvenez pas à résoudre le problème, le manuel d‘utilisation va vous montrer le chemin d'une nouvelle procédure – le contact avec le centre de service à la clientèle ou le service le plus proche.
