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Nortel Networks maintains various retirement programs covering substantially all of its employees, consisting of defined benefit, defined
contribution and investment plans.
Nortel Networks has four kinds of capital accumulation and retirement programs: balanced capital accumulation and retirement programs
(the “Balanced Program”) and investor capital accumulation and retirement programs (the “Investor Program”) available to substantially
all of its North American employees; flexible benefits plan, which includes a group personal pension plan (the “Flexible Benefits Plan”),
available to substantially all of its employees in the U.K.; and traditional capital accumulation and retirement programs that include
The following table shows the significant components included in deferred income taxes as of December 31:
Subsequent to 2003, Nortel Networks determined that it expects to settle certain income tax matters which will result in a reduction of its
provisions and reserves liability along with an offsetting reduction in its tax benefit of loss carryforwards and tax credits of approximately
$140. The balance of the provisions and reserves liability relates to certain tax credit and transfer pricing matters, including the
retroactive application of the APA.
Nortel Networks has not provided for foreign withholding taxes or deferred income tax liabilities for temporary differences related to the
undistributed earnings of foreign subsidiaries since Nortel Networks does not currently expect to repatriate these earnings. It is not
practical to reasonably estimate the amount of additional deferred income tax liabilities or foreign withholding taxes that may be payable
should these earnings be distributed in the future.
As of December 31, 2003, Nortel Networks had the following net operating and capital loss carryforwards and tax credits which are
scheduled to expire in the following years:
2003 2002
Assets:
Tax benefit of loss carryforwards and tax credits $ 5,633 $ 4,602
Provisions and reserves 714 1,735
Post-retirement benefits other than pensions 234 104
Plant and equipment 122 72
Pension plan liabilities 433 285
Deferred compensation 277 32
Unrealized losses on investments
–
3
7,413 6,833
Valuation allowance (3,344) (3,024)
4,069 3,809
Liabilities:
Acquired technology – 38
Provisions and reserves 341 679
Plant and equipment 48 6
Other 105 51
494 774
Net deferred income tax assets $ 3,575 $ 3,035
Net
Operating Capital Tax
losses losses
(a)
credits
(b)
Total
2004 - 2006 $ 102 $ – $ 268 $ 370
2007 - 2009 776 – 319 1,095
2010 - 2016 1,806 80 550 2,436
2017 - 2023 3,251 – 243 3,494
Indefinitely 1,784 4,426 23 6,233
$ 7,719 $ 4,506 $ 1,403 $ 13,628
(a) The capital losses related primarily to the U.K. and may only be used to offset future capital gains. Nortel Networks has recorded a full valuation allowance against
this future tax benefit.
(b) Global investment tax credits of $41, $78 and $154 have been applied against the income tax provision in 2003, 2002 and 2001, respectively. Unused tax credits can
be utilized to offset future income taxes payable primarily in Canada.