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(
g
) Amendment of SFAS 133 on derivative instruments and hed
g
in
g
activities
In April 2003, the FASB issued SFAS No. 149, “Amendment of SFAS No. 133 on Derivative Instruments and Hedging
Activities” (“SFAS 149”). SFAS 149 amends and clarifies the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities under SFAS 133. In particular, SFAS 149: clarifies under what
circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS 133; clarifies
when a derivative contains a financing component; amends the definition of an “underlying” to conform it to the language used in
FIN 45; and amends certain other existing pronouncements. SFAS 149 is effective for contracts entered into or modified after
June 30, 2003, except as stated below, and for hedging relationships designated after June 30, 2003.
The provisions of SFAS 149 that relate to guidance in SFAS 133 that have been effective for fiscal quarters which began prior to
June 15, 2003 continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to
forward purchases or sales of when-issued securities or other securities that do not yet exist are applied to both existing contracts as
well as new contracts entered into after June 30, 2003.
Effective July 1, 2003, Nortel Networks applied the requirements of SFAS 149 on a prospective basis to contracts entered into or
modified after June 30, 2003. The adoption of SFAS 149 did not have a material impact on Nortel Networks results of operations
and financial condition.
(h) Determinin
g
whether an arran
g
ement contains a lease
In May 2003, the EITF reached a consensus on Issue No. 01-8, “Determining Whether an Arrangement Contains a Lease” (“EITF
01-8”). EITF 01-8 provides guidance on how to determine whether an arrangement contains a lease that is within the scope of
FASB Statement No. 13, “Accounting for Leases”. The guidance in EITF 01-8 is based on whether the arrangement conveys to the
purchaser (or the lessee) the right to use or control the use of a specific asset, and is effective for Nortel Networks for arrangements
entered into or modified after June 30, 2003. As of December 31, 2003, Nortel Networks recorded embedded lease assets and
liabilities of $2 included in each of plant and equipment — net (see note 5) and long-term debt (see note 11), respectively. The
impact of EITF 01-8 on Nortel Networks future results of operations and financial condition will depend on the terms contained in
contracts signed or contracts amended in the future.
(i) Pensions and other
p
ost-retirement benefits
On December 23, 2003, the FASB issued SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other
Postretirement Benefits” (“SFAS 132R”). SFAS 132R is a replacement of SFAS No. 132, “Employers’ Disclosures about Pensions
and Other Postretirement Benefits (“SFAS 132”). It is effective for fiscal years ended after December 15, 2003 and the applicable
current year requirements have been applied in the presentation of the consolidated financial statements. SFAS 132R requires
additional disclosures regarding defined benefit pension plan and other post-retirement benefit plan assets, obligations, cash flows
and net cost as well as retaining a number of disclosures required by SFAS 132.
(
j
) Stock-based com
p
ensation
In December 2002, the FASB issued SFAS 148, which amended the transitional provisions of SFAS 123 for companies electing to
recognize employee stock-based compensation using the fair value based method. Effective January 1, 2003, Nortel Networks
elected to expense employee stock-based compensation using the fair value based method prospectively for all awards granted,
modified, or settled on or after January 1, 2003 (see note 2(u)).
(k) Accountin
g
for
g
oodwill and other intan
g
ible assets
In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), effective for fiscal years
beginning after December 15, 2001. SFAS 142 changed the accounting for goodwill from an amortization method to an
impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations and
amortization of intangibles with an indefinite life, ceased upon adoption of SFAS 142. For any acquisitions completed after
June 30, 2001, goodwill and intangible assets with an indefinite life are not amortized. Nortel Networks adopted the provisions of
SFAS 142 effective January 1, 2002.