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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, lack of availability
of supporting records and the turnover of finance personnel. 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 adjustments. Nortel Networks S.A. believes the procedures followed in determining such estimates
were appropriate and reasonable using the best available information.
The following tables present the impact of the Second Restatement adjustments (and Pooling of Interest adjustments, see notes 2 and 9)
to Nortel Networks S.A.’s previously reported consolidated statements of operations and a summary of the adjustments from the Second
Restatement for the years ended December 31, 2002 and 2001. The Second Restatement adjustments related primarily to the following
items, each of which reflect a number of related adjustments that have been aggregated for disclosure purposes, and are described in the
paragraphs following the tables below:
• Accruals and provisions
• Related party transactions
• Plant and equipment
Consolidated Statement of O
p
erations for the
y
ear ended December 31, 2002
As Second Pooling o
f
As
previously Restatement interest pooled and
reported Adjustments Adjustments restated
Revenues — external 214,922
–
141,394 356,316
— related parties 473,223 (5,362) (8,943) 458,918
688,145 (5,362) 132,451 815,234
Cost of revenues 595,637 (45,011) 49,741 600,367
Gross profit 92,508 39,649 82,710 214,867
Selling, general and administrative expense 31,998 (3,700) 41,184 69,482
Research and development expense 257,585 6,690 – 264,275
Special charges — other special charges 58,854 2,646 21,927 83,427
(Gain) loss on sale of businesses and assets –
–
16,171 16,171
Operating earnings (loss) (255,929) 34,013 3,428 (218,488)
Other income (ex
p
enses)
—
ne
t
18,962 (1,486) 5,562 23,038
Foreign exchange gain (loss) (1,557) 331 (4,305) (5,531)
Interest expense (6,524) (3,280) (81) (9,885)
Earnings (loss) before income taxes and minority interest (245,048) 29,578 4,604 (210,866)
Minority interest — net of tax –
–
3,052 3,052
Income tax benefit 1,680
–
(40) 1,640
Net earnings (loss) (243,368) 29,578 7,616 (206,174)