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full compliance by 2006. It is expected that these laws will require Nortel Networks to incur additional compliance costs. Although costs
relating to environmental matters have not resulted in a material adverse effect on the business, results of operations, financial condition
and liquidity in the past, there can be no assurance that Nortel Networks will not be required to incur such costs in the future. Nortel
Networks has a corporate environmental management system standard and an environmental program to promote such compliance.
Moreover, Nortel Networks has a periodic, risk-based, integrated environment, health and safety audit program.
Nortel Networks environmental program focuses its activities on design for the environment, supply chain and packaging reduction
issues. Nortel Networks works with its suppliers and other external groups to encourage the sharing of non-proprietary information on
environmental research.
Nortel Networks is exposed to liabilities and compliance costs arising from its past and current generation, management and disposal of
hazardous substances and wastes. As of December 31, 2003, the accruals on the consolidated balance sheet for environmental matters
were $33. Based on information available as of December 31, 2003, management believes that the existing accruals are sufficient to
satisfy probable and reasonably estimable environmental liabilities related to known environmental matters. Any additional liability that
may result from these matters, and any additional liabilities that may result in connection with other locations currently under
investigation, are not expected to have a material adverse effect on the business, results of operations, financial condition and liquidity of
Nortel Networks.
Nortel Networks has remedial activities under way at 12 sites which are either currently or previously owned or occupied facilities. An
estimate of Nortel Networks anticipated remediation costs associated with all such sites, to the extent probable and reasonably estimable,
is included in the environmental accruals referred to above in an approximate amount of $33.
Nortel Networks is also listed as a potentially responsible party (“PRP”) under the U.S. Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”) at six Superfund sites in the U.S. An estimate of Nortel Networks share of the anticipated
remediation costs associated with such Superfund sites is expected to be de minimis and is included in the environmental accruals of $33
referred to above.
Liability under CERCLA may be imposed on a joint and several basis, without regard to the extent of Nortel Networks involvement. In
addition, the accuracy of Nortel Networks estimate of environmental liability is affected by several uncertainties such as additional
requirements which may be identified in connection with remedial activities, the complexity and evolution of environmental laws and
regulations, and the identification of presently unknown remediation requirements. Consequently, Nortel Networks liability could be
greater than its current estimate.
2
3. Subse
q
uent events
Nortel Networks Audit Committee Inde
p
endent Review
;
restatements
;
related matters
As previously announced by Nortel Networks in October 2003, in late October 2003 the Nortel Networks Audit Committee initiated the
Independent Review of the facts and circumstances leading to the First Restatement and engaged WCPHD to advise it in connection with
the Independent Review.
On March 10, 2004, Nortel Networks announced that as a result of the work done to date in connection with the Independent Review, it
was re-examining the establishment, timing of, support for and release to income of certain accruals and provisions in prior periods.
Further, it was likely that Nortel Networks would need to revise its previously announced unaudited results for the year ended
December 31, 2003, and the results reported in certain of its quarterly reports for 2003, and to restate its previously filed financial results
for one or more earlier periods. Nortel Networks announced on March 15, 2004 that the filing of Nortel Networks and NNL’s annual
reports on Form 10-K for the year ended December 31, 2003 (the “2003 Annual Reports”) would be delayed beyond March 30, 2004.
On April 5, 2004, Nortel Networks announced that the SEC had issued a formal order of investigation in connection with Nortel
Networks previous restatement of its financial results for certain periods, as announced in October 2003, and Nortel Networks
announcements in March 2004 regarding the likely need to revise certain previously announced results and restate previously filed
financial results for one or more earlier periods. The matter had been the subject of an informal SEC inquiry. On April 13, 2004, Nortel
Networks announced that it had received a letter from the staff of the Ontario Securities Commission (“OSC”) advising that there is an
OSC Enforcement Staff investigation into the same matters that are the subject of the SEC investigation.