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and Mexico joined VoltDelta. Nortel Networks recorded a gain on sale of businesses and assets of approximately $50 in the third quarter
of 2004.
Evolution of Nortel Networks su
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chain strate
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On June 29, 2004, Nortel Networks announced an agreement with Flextronics International Ltd. (“Flextronics”), regarding the divestiture
of substantially all of Nortel Networks remaining manufacturing operations, including product integration, testing and repair operations
carried out in Nortel Networks Systems Houses in Calgary and Montreal, Canada and Campinas, Brazil, as well as certain activities
related to these locations, including the management of the supply chain, related suppliers, and third-party logistics. In Europe,
Flextronics has made an offer to purchase similar operations at the Nortel Networks Monkstown, Northern Ireland and Chateaudun,
France Systems Houses, subject to the completion of the required information and consultation process.
Under the terms of the agreement and offer, Flextronics will also acquire Nortel Networks global repair services, as well as certain design
assets in Ottawa and Monkstown related to hardware and embedded software design, and related product verification for certain
established optical products.
Nortel Networks and Flextronics have entered into a four year supply agreement for manufacturing services (whereby Flextronics will
manage approximately $2,500 of Nortel Networks annual cost of sales) and a three year supply agreement for design services. The
portion of the transaction related to the optical design activities in Ottawa and Monkstown was completed on November 1, 2004. The
portions of the transaction related to the manufacturing activities in Montreal and Calgary are expected to close in the first and second
quarters of 2005, respectively. The balance of the transaction is expected to close on separate dates occurring during the first half of
2005. These transactions are subject to customary conditions and regulatory approvals.
The successful completion of the agreement and offer with Flextronics will result in the transfer of approximately 2,500 employees from
Nortel Networks to Flextronics. Nortel Networks expects to receive cash proceeds ranging from approximately $675 to $725, which will
be allocated to each separate closing and, with respect to each closing, will be paid on an installment basis up to nine months thereafter.
Such payments will be subject to a number of adjustments, including potential post-closing date asset valuations and potential post-
closing indemnity payments. Flextronics also has the ability in certain cases to exercise rights to sell back to Nortel Networks certain
inventory and equipment after the expiration of a specified period (of up to fifteen months) following each respective closing date. Nortel
Networks does not expect such rights to be exercised with respect to any material amount of inventory and/or equipment. The cash
proceeds estimate is comprised of approximately $475 to $525 for inventory and equipment and $200 for intangible assets. The cash
proceeds would be partially offset by related estimated transaction costs (including transition, potential severance, and information
technology implementation and real estate costs) of approximately $200.
Other
On January 8, 2004, Nortel Networks renegotiated an agreement with a certain customer and reduced Nortel Networks aggregate
undrawn customer financing commitments from $177 to $69.
On February 3, 2004, Nortel Networks sold approximately 7 million common shares of Entrust Inc. (“Entrust”) for cash consideration of
$33, resulting in a gain of $18. As a result of this transaction, Nortel Networks no longer holds any equity interest in Entrust.
On March 1, 2004, Nortel Networks purchased land and two buildings for $87 that were previously leased by Nortel Networks. As a
result, Nortel Networks extinguished a debt of $87.
On May 7, 2004, Nortel Networks received $80 in proceeds from the sale of certain assets in connection with a customer contract
settlement in Latin America. This resulted in a gain of $78, which will be included in (gain) loss on sale of businesses and assets for the
three months ended June 30, 2004.
In August 2004, Nortel Networks entered into a contract with Bharat Sanchar Nigram Limited to establish a wireless network in India.
Nortel Networks commitments to date for orders received under this contract have resulted in an estimated project loss of approximately
$130, which has been recorded in the third quarter of 2004.