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adjustments. We believe the procedures followed in determining such estimates were appropriate and reasonable using the best available
information.
Also as a result of the above factors, as well as a likely inability to obtain third party corroboration in certain cases due to the substantial
industry adjustment in the telecommunications industry beginning in 2001, we believe that extensive additional efforts over an extended period
of time would be required to restate our 1999 and 2000 selected financial data. We also believe that selected financial data for these periods
would not be meaningful to investors due to this industry adjustment, which significantly impacted our financial results in 2001 and subsequent
periods and limits the relevance of financial results in periods prior to 2001 for purposes of analysis of trends in subsequent periods. Given the
long delay in filing the Reports, we believed that investor understanding would be better aided by the dedication of our resources to the
preparation of the current financial and other information included in this and future reports. As a result, except for the selected balance sheet
data as at December 31, 2000, financial data for the years ended December 31, 1999 and 2000 has not been restated or presented in the
“Selected Financial Data (Unaudited)” section of this report. This omitted data is normally required to be included in an Annual Report on
Form 10-K.
A number of our and NNL’s past filings with the SEC remain subject to ongoing review by the SEC’s Division of Corporation Finance (which
could result in the need to amend this or our other filings). In addition, the Second Restatement involved the restatement of our consolidated
financial statements for 2001 and 2002 and the first, second and third quarters of 2003. Amendments to our prior filings with the SEC would be
required in order for us to be in full compliance with our reporting obligations under the Exchange Act. However, for the same reasons
discussed above, we do not believe that it would be feasible for us to amend our 2002 Form 10-K/A. In addition, we believe that amended
disclosure in the 2002 Form 10-K/A, 2003 Form 10-Q/As and 2003 Form 10-Q would in large part repeat the disclosure in this report and
expected to be contained in the 2004 Form 10-Qs. Accordingly, we do not plan to amend our 2002 Form 10-K/A, 2003 Form 10-Q/As or 2003
Form 10-Q. We believe that we have included in this report all information needed for current investor understanding and will take similar
steps in our 2004 Form 10-Qs.
Over the course of the Second Restatement process, we, together with D&T, identified a number of reportable conditions, each constituting a
material weakness, in our internal control over financial reporting as at December 31, 2003. In September 2004, management first notified the
Audit Committee of the possibility of additional material weaknesses. Over the remainder of the Second Restatement process, management and
D&T identified a total of six material weaknesses. On January 10, 2005, D&T confirmed to the Audit Committee that it had identified these six
material weaknesses. No other reportable conditions were identified by us or D&T at the time of the Second Restatement. The material
weaknesses identified were:
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M
aterial Weaknesses in Internal Control over Financial Re
p
ortin
g
Identi
f
ied Durin
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the Second Restatemen
t
• lack of compliance with written Nortel Networks procedures for monitoring and adjusting balances related to certain accruals and
provisions, including restructuring charges and contract and customer accruals;
• lack of compliance with Nortel Networks procedures for appropriately applying applicable GAAP to the initial recording of certain
liabilities, including those described in SFAS No. 5, and to foreign currency translation as described in SFAS No. 52;