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F-57
Su
pp
ort facilit
y
On February 14, 2003, Nortel Networks principal operating subsidiary, NNL, entered into an agreement with Export Development
Canada (“EDC”) regarding arrangements to provide for support, on a secured basis, of certain performance related obligations arising out
of normal course business activities for the benefit of Nortel Networks (the “EDC Support Facility”). On July 10, 2003, NNL and EDC
amended the terms of the EDC Support Facility by extending the termination date of the facility to December 31, 2005 from June 30,
2004 (see notes 23 and 24).
As of December 31, 2003, the EDC Support Facility provided for up to $750 in support including $300 of committed revolving support
for performance bonds or similar instruments, of which $151 was utilized, $150 of uncommitted support for receivables sales and/or
securitizations, of which none was utilized, and $300 of uncommitted support for performance bonds and/or receivables sales and/or
securitizations, of which $183 was utilized (see note 23).
On February 14, 2003, NNL’s obligations under the EDC Support Facility became secured on an equal and ratable basis under the
security agreements entered into by NNL and various of its subsidiaries that pledged substantially all of the assets of NNL in favor of the
banks under the Five Year Facilities and the holders of Nortel Networks public debt securities. This security became effective in favor of
the banks and the public debt holders on April 4, 2002 (for additional information relating to the EDC Support Facility and the related
security agreements, see notes 23 and 24).
12.
F
inancial instruments and hed
g
in
g
activities
Risk mana
g
emen
t
Nortel Networks net earnings (loss) and cash flows may be negatively impacted by fluctuating interest rates, foreign exchange rates and
equity prices. To effectively manage these market risks, Nortel Networks enters into foreign currency forwards, foreign currency swaps,
foreign currency option contracts, interest rate swaps and equity forward contracts. Nortel Networks does not hold or issue derivative
financial instruments for trading purposes.
Forei
g
n currenc
y
risk
Nortel Networks enters into option contracts to limit its exposure to exchange fluctuations on future revenue or expenditure streams
expected to occur within the next twelve months, and forward contracts, which are denominated in various currencies, to limit its
exposure to exchange fluctuations on existing assets and liabilities and on future revenue or expenditure streams expected to occur within
the next twelve months. Option and forward contracts used to hedge future revenue or expenditure streams are designated as cash flow
hedges and hedge specific exposures. Option and forward contracts that do not meet the criteria for hedge accounting are also used to
economically hedge the impact of fluctuations in exchange rates on existing assets and liabilities and on future revenue and expenditure
streams.
The following table provides a summary of the total notional amounts of option and forward contracts as of December 31:
Currency 2003
(a)
2002
(b)
Options
Canadian dollar $37 $52
Forwards
Canadian dollar 375 920
British pound 435 8
Euro 74 555
Other 206 75
$ 1,127 $ 1,610
(a) All notional amounts of option and forward contracts matured no later than the end of 2004.
(b) All notional amounts of option and forward contracts matured no later than the end of 2003.
Interest rate risk
Nortel Networks enters into interest rate swap contracts to minimize the impact of interest rate fluctuations on the fair value of its long-
term debt. These contracts swap fixed interest rate payments for floating rate payments and certain swaps are designated as fair value
hedges. The fair value adjustment related to the effective portion of interest rate