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F-62
Nortel Networks has agreed to indemnify its counterparties in receivables securitization transactions. The indemnifications
provided to counterparties in these types of transactions may require Nortel Networks to compensate counterparties for costs
incurred as a result of changes in laws and regulations (including tax legislation) or in the interpretations of such laws and
regulations, or as a result of regulatory penalties that may be suffered by the counterparty as a consequence of the transaction.
Certain receivables securitization transactions include indemnifications requiring the repurchase of the receivables if the particular
transaction becomes invalid. As of December 31, 2003, Nortel Networks had approximately $327 of securitized receivables which
were subject to repurchase under this provision, in which case Nortel Networks would assume all rights to collect such receivables.
The indemnification provisions generally expire upon expiration of the securitization agreements, which extend through 2005, or
collection of the receivable amounts by the counterparty.
Nortel Networks is generally unable to estimate the maximum potential liability for all of these types of indemnification guarantees
as certain agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent
events, the nature and likelihood of which cannot be determined at this time.
Historically, Nortel Networks has not made any significant indemnification payments or receivable repurchases under such
agreements and no significant liability has been accrued in the consolidated financial statements with respect to the obligations
associated with these guarantees.
(f) Other indemnification a
g
reements
Nortel Networks has also entered into other agreements that provide indemnifications to counterparties in certain transactions
including investment banking agreements, guarantees related to the administration of capital trust accounts, guarantees related to
the administration of employee benefit plans, indentures for its outstanding public debt and asset sale agreements (other than the
business sale agreements noted above). These indemnification agreements generally require Nortel Networks to indemnify the
counterparties for costs incurred as a result of changes in laws and regulations (including tax legislation) or in the interpretations of
such laws and regulations and/or as a result of losses from litigation that may be suffered by the counterparties arising from the
transactions. These types of indemnification agreements normally extend over an unspecified period of time from the date of the
transaction and do not typically provide for any limit on the maximum potential payment amount.
The nature of such agreements prevents Nortel Networks from making a reasonable estimate of the maximum potential amount it
could be required to pay to its counterparties. The difficulties in assessing the amount of liability result primarily from the
unpredictability of future changes in laws, the inability to determine how laws apply to counterparties and the lack of limitations on
the potential liability.
Historically, Nortel Networks has not made any significant indemnification payments under such agreements and no significant
liability has been accrued in the consolidated financial statements with respect to the obligations associated with these guarantees.
Product warranties
The following summarizes the accrual for product warranties that was recorded as part of other accrued liabilities in the consolidated
balance sheets as of December 31:
2003 2002
Balance at the beginning of the year $ 408 $ 469
Payments (347) (370)
Warranties issued 337 317
Revisions (11) (8)
Balance at the end of the year $ 387 $ 408
14. Commitments
Bid,
p
erformance related and other bonds
Nortel Networks has entered into bid, performance related and other bonds associated with various contracts. Bid bonds generally have a
term of less than twelve months, depending on the length of the bid period for the applicable contract.