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Offsetting these charges were revisions to prior accruals of $44 which were primarily related to termination benefits where actual costs
were lower than the estimated amounts across all segments. During 2003, the workforce reduction provision balance was drawn down by
cash payments of $274 and by a non-cash pension settlement loss of $41. The remaining provision is expected to be substantially drawn
down by the end of 2004.
Contract settlement and lease costs of $64 consisted of negotiated settlements to cancel or renegotiate contracts and net lease charges
related to leased facilities (comprised of office, warehouse and manufacturing space) and leased furniture that were identified as no
longer required across all segments. These lease costs, net of anticipated sublease income, included non-cancelable lease terms from the
date leased facilities ceased to be used and termination penalties. In addition to these charges were revisions to prior accruals of $19
resulting primarily from changes in estimates for sublease income and costs to vacate certain properties, across all segments. During
2003, the provision balance for contract settlement and lease costs was drawn down by cash payments of $275. The remaining provision,
net of approximately $317 in estimated sublease income, is expected to be substantially drawn down by the end of 2013.
Included in the above contract settlement and lease costs and net revisions to prior accruals were charges related to activities initiated by
Nortel Networks in 2003 to exit certain leased facilities and leases for assets no longer used, across all segments. The table below
summarizes the total costs estimated to be incurred as a result of these activities, which have met the criteria described in SFAS 146, the
balance of these accrued expenses as of December 31, 2003 and the movement in these accruals. These costs have been valued using the
estimated fair value method prescribed under SFAS 146. Nortel Networks expects to have completed these activities by mid-2022, based
on existing lease terms.
Plant and equipment charges of $74 were largely related to current period write downs to fair value less costs to sell for various leasehold
improvements and excess Optical Networks equipment held for sale. Offsetting these charges were revisions of $28 to prior write downs
of assets held for sale related primarily to adjustments to original plans or estimated amounts for certain facility closures.
Year ended December 31, 2002
For the year ended December 31, 2002, Nortel Networks recorded total special charges of $2,095, which were net of revisions of $179
relatedtoprioraccruals.
Workforce reduction charges of $952 were related to severance and benefit costs associated with approximately 12,700 employees
notified of termination. The workforce reduction was primarily in the U.S., Canada and EMEA and extended across all segments.
Offsetting these charges were revisions to prior accruals of $132 which were primarily related to termination benefits where actual costs
were lower than the estimated amounts across all segments. Workforce reduction charges included $124 for pension and post-retirement
benefits other than pension, settlement and curtailment costs. During 2002, the workforce reduction provision balance was drawn down
by cash payments of $788 and by $100 of non-cash pension and post-retirement benefits other than pension, settlement and curtailment
costs attributable to the notified employee group charged against the provision.
Contract settlement and lease costs of $225 consisted of negotiated settlements to cancel or renegotiate contracts and net lease charges
related to leased facilities (comprised of office, warehouse and manufacturing space) and leased manufacturing equipment that were no
longer required, across all segments. In addition to these charges were revisions to prior accruals of $8 resulting primarily from changes
in estimates for sublease income and costs to vacate certain properties, across all segments. During the year ended December 31, 2002,
the provision balance for contract settlement and lease costs was drawn down by cash payments of $286. The remaining provision
balance was net of approximately $402 in estimated sublease income.
Plant and equipment charges of $475 were related to current period write downs to fair value less costs to sell for various owned facilities
and plant and manufacturing related equipment. These charges for facilities and equipment included $358 related to specialized plant
infrastructure and equipment within Optical Networks with the remaining charges for facilities and equipment arising across all
segments.
Accrued Costs Payments Adjustments Accrued
balance as incurred made made balance as
of January during during during of December
1, 2003 2003 2003 2003 31, 2003
Lease costs
(a)
$ – $ 50 $ (8) $ (6) $ 36
(a) Total estimated costs, net of estimated sublease income, associated with these accruals are $62.