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For additional information concerning adjustments made in the Second Restatement, see notes 3 and 23 to the accompanying audited
consolidated financial statements and “—Developments in 2004—Restatements” in the MD&A section of this report.
As described above, two material weaknesses in our internal control over financial reporting were identified at the time of the First
Restatement. During the Second Restatement process, a number of additional material weaknesses in our internal control over financial
reporting were identified, as described below. Due to, among other factors, these material weaknesses, the significant turnover in our finance
personnel, changes in accounting systems, documentation weaknesses and the passage of time generally, the Second Restatement involved the
efforts of hundreds of our finance personnel and a number of outside consultants and advisors. As described above, the process required the
review and verification of a substantial number of documents and communications, and related accounting entries, over multiple fiscal periods.
In addition, the review of accruals and provisions and the application of accounting literature to certain matters in the Second Restatement,
including revenue recognition, foreign exchange, special charges and discontinued operations, was complicated by the passage of time, the lack
of availability of supporting records and the turnover of finance personnel noted above. As a result of this complexity, estimates and
assumptions that impact both the quantum of the various recorded adjustments and the fiscal period to which they were attributed were
required in the determination of certain of the Second Restatement
133
• Correction of certain inter-company balances that did not properly eliminate upon consolidation and related provisions resulted in a
decrease of $36 million and an increase of $42 million to pre-tax loss for 2002 and 2001, respectively.
• Adjustments to previously recorded special charges relating to goodwill, inventory impairment, contract settlement costs and other
charges resulted in a total decrease to special charges of $78 million in 2002 and $845 million in 2001. These adjustments consisted
primarily of the following:
• goodwill impairment and amortization charges were reduced, and cost of revenues were increased, as a result of the re-
examination of the accounting for the deferred consideration associated with our acquisition of the 980 NPLC business from
JDS;
• goodwill recorded from certain acquisitions was reduced due to corrections to purchase accounting allocations, which in turn
reduced the subsequent goodwill impairment charges and amortization that were a component of special charges;
• inventory impairments incorrectly classified as special charges were reclassified to cost of revenues; and
• contract settlement costs and other items were adjusted primarily due to changes in estimates and/or assumptions that were
previously recorded in the incorrect period.
• Corrections to various accruals, provisions or other transactions, primarily due to the incorrect application of U.S. GAAP to the
initial recording of such liabilities, or the failure to subsequently adjust such liabilities in the correct period, resulted in a decrease o
f
$314 million and an increase of $59 million in our net loss in 2002 and 2001, respectively.
• Adjustments to the accounting treatment of certain components of discontinued operations, initially recorded by us in June 2001,
resulted in an increase of $121 million and a decrease of $529 million to the net loss from discontinued operations — net of tax in
2002 and 2001, respectively.
Use of Estimates in Financial Reporting; Omission of 1999 and 2000 Selected Financial Data; Decision Not to Amend Certain
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