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F-24
For a period of six consecutive quarters ended June 30, 2002, foreign exchange gains or losses were recorded to various components of
the consolidated statements of operations rather than as part of other income (expense) — net. This presentation has been adjusted with
no effect on net earnings (loss) in any period.
Functional currency designation
The determination of the functional currency for certain entities was re-examined, based on the guidance under SFAS No. 52, “Foreign
Currency Translation” (“SFAS 52”). As a result, Nortel Networks identified four instances in which the functional currency designation
of an entity was incorrect. These revisions resulted in increases or decreases to other income (expense) — net.
I
ntercompany transaction designation
Nortel Networks identified two instances of incorrect treatment of significant foreign currency translation gains and losses arising from
intercompany positions. Under SFAS 52, intercompany foreign currency transactions that were long-term in nature should have been
recorded in accumulated other comprehensive loss on the balance sheet when translated rather than recorded as a transactional gain or
loss in the statement of operations. The net impact of the adjustments was an increase or decrease to other income (expense) — net, with
an offset to accumulated other comprehensive loss.
Other errors
Other errors identified were related to translation of foreign denominated intercompany transactions, revaluation of certain foreign
denominated intercompany transactions and accounting for mark-to-market adjustments for foreign exchange contracts as required under
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”).
Intercompany balances
Historically, Nortel Networks had certain intercompany balances that did not eliminate upon consolidation (“out-of-balance positions”),
and provisions had been recorded accordingly. As part of the Second Restatement, Nortel Networks reviewed these provisions and
determined that they should not have been recorded. Adjustments were recorded in the appropriate periods to reverse these provisions
and to correct the significant out-of-balance positions. The adjustments to reverse the provisions affected the second quarter of 2003 and
periods prior to 2000. The net impact of the adjustments to correct the significant out-of-balance positions was a decrease of $36 and an
increase of $42 to the previously reported pre-tax loss for the years ended December 31, 2002 and 2001, respectively.
Special charges
As part of the Second Restatement, the components of special charges were re-examined and decreases to special charges of $78 and
$845 for the years ended December 31, 2002 and 2001, respectively, were recorded. The following table summarizes the adjustments,
which are discussed below:
Goodwill impairment — 980 NPLC business acquisition
As a result of issues raised in connection with the Independent Review, the accounting for the deferred consideration associated with the
acquisition of the JDS Zurich, Switzerland based subsidiary and related assets in Poughkeepsie, New York (the “980 NPLC business”)
from JDS (the “Purchase Agreement”) and the related OEM Purchase and Sale Agreement (the “OEM Agreement”) in February 2001
was re-examined as part of the Second Restatement. The
2002 2001
Goodwill impairment
980 NPLC business acquisition $–$473
Other acquisitions – 222
Total decrease from goodwill impairment $–$695
Other special charges
Inventory impairment reclassification $89 $ –
Other adjustments (11) 150
Total decrease other special charges $78 $150
Total decrease to special charges $ 78 $ 845