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On August 3, 2001, Nortel Networks announced the completion of the previously announced transfer of its ownership interest in Arris
Interactive to Arris Group, ANTEC Corporation’s new parent company. As a result, as of December 31, 2001, Nortel Networks owned a
49.2 percent non-controlling interest in Arris Group, compared to the previous 81.25 percent controlling interest in Arris Interactive,
including a subordinate redeemable preferred interest in Arris Interactive. Nortel Networks recorded a pre-tax gain of $113 on the
transaction.
On July 25, 2001, Nortel Networks completed a transaction with GE Industrial Systems Technology Management Inc., a division of
General Electric Company, to sell the Lentronics JungleMUX SONET multiplexer and TN-1U SDH multiplexer products for cash
proceeds of $13, which resulted in a gain of $13.
2
1.
R
elated
p
art
y
transactions
In the ordinary course of business, Nortel Networks engages in transactions with certain of its equity-owned investees that are under or
are subject to Nortel Networks significant influence and with joint ventures of Nortel Networks. These transactions are sales and
purchases of goods and services under usual trade terms and are measured at their exchange amounts.
Transactions with related parties for the years ended December 31 are summarized as follows:
2003 2002 2001
Revenues $1$8$–
Purchases $–$–$16
As at December 31, 2003 and 2002, receivables from and payable to related parties were insignificant.
In 2001, Nortel Networks completed the sale of substantially all of the assets in the Cogent Defence Systems (“CDS”) business to EADS
Telecom. At that time, Nortel Networks held a 41 percent ownership interest in EADS Telecom and EADS held the remaining
59 percent. Under the terms of the agreement, Nortel Networks sold substantially all of its assets in the CDS business including: fixed
assets; accounts receivable; inventory; intellectual property; and licenses (but excluding cash on hand as at the closing date) for
consideration of approximately $143, comprised of a loan note due in 2002 and a call option to acquire an additional approximate
7 percent ownership interest in NNF beginning in 2004. Nortel Networks recorded a gain on the sale of approximately $37 which was
included in (gain) loss on sale of businesses and assets, and a deferred gain of $26, which is amortized into (gain) loss on sale of
businesses and assets over the life of the assets sold to EADS Telecom. In 2002, in connection with negotiations with EADS, the loan
note and call option were cancelled and a new loan note was issued to satisfy the remaining consideration owing in 2003. As a result,
Nortel Networks recorded an additional gain on the sale of approximately $30, which was included in (gain) loss on sale of businesses
and assets and a further deferred gain of $21, which is amortized into (gain) loss on sale of businesses and assets over the remaining life
of the assets sold to EADS Telecom in 2001. During the years ended December 31, 2003 and 2002, $13 and $11, respectively, of the
deferred gains were amortized into (gain) loss on sale of businesses and assets.
On September 18, 2003 as a result of the sale of Nortel Networks 41 percent interest in EADS Telecom (see note 10), the remaining
unamortized deferred gain of $23 related to the sale of substantially all of the assets in the CDS business during the year ended
December 31, 2001, was recognized and included in (gain) loss on sale of businesses and assets.
2
2. Contin
g
encies
Subsequent to the February 15, 2001 announcement in which Nortel Networks provided revised guidance for financial performance for
the 2001 fiscal year and the first quarter of 2001, Nortel Networks and certain of its then current officers and directors were named as
defendants in more than twenty-five purported class action lawsuits. These lawsuits in the U.S. District Courts for the Eastern District of
New York, for the Southern District of New York and for the District of New Jersey and the provinces of Ontario, Quebec and British
Columbia in Canada, on behalf of shareholders who acquired Nortel Networks Corporation securities as early as October 24, 2000 and as
late as February 15, 2001, allege, among other things, violations of U.S. federal and Canadian provincial securities laws. These matters
also have been the subject of review by Canadian and U.S. securities regulatory authorities. On May 11, 2001, the defendants filed
motions to dismiss and/or stay in connection with the three proceedings in Quebec primarily based on the factual allegations lacking
substantial connection to Quebec and the inclusion of shareholders resident in Quebec in the class claimed in the