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guarantees and the lack of limitations on the potential liability. Historically, Nortel Networks S.A. has not made any significant
indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements
with respect to these indemnification guarantees.
Other indemnification a
g
reements
Nortel Networks S.A. has also entered into other agreements that provide indemnifications to counterparties in certain transactions
including investment banking agreements and asset sale agreements. These indemnification agreements generally require Nortel
Networks S.A. to indemnify the counterparties for costs incurred as a result of changes in laws and regulations (including tax legislation)
or in the interpretations of such laws and regulations and/or as a result of losses from litigation that may be suffered by the counterparties
arising from the transactions. These types of indemnification agreements normally extend over an unspecified period of time from the
date of the transaction and do not typically provide for any limit on the maximum potential payment amount.
The nature of such agreements prevents Nortel Networks S.A. from making a reasonable estimate of the maximum potential amount it
could be required to pay to its counterparties. The difficulties in assessing the amount of liability result primarily from the
unpredictability of future changes in laws, the inability to determine how laws apply to counterparties and the lack of limitations on the
potential liability.
Historically, Nortel Networks S.A. has not made any significant indemnification payments under such agreements and no significant
liability has been accrued in the consolidated financial statements with respect to the obligations associated with these guarantees.
Product warranties
The following summarizes the accrual for product warranties that was recorded as part of other accrued liabilities in the consolidated
balance sheets as of December 31:
2003 2002
Balance at beginning of the year 14,311 31,223
Payments (37,697) (43,092)
Warranties issued 34,537 26,180
Balance at the end of the year 11,151 14,311
13. Commitments
Bid
,p
erformance related and other bonds
Nortel Networks S.A. has entered into bid, performance related and other bonds associated with various contracts. Bid bonds generally
have a term of less than twelve months, depending on the length of the bid period for the applicable contract. Performance related and
other bonds generally have a term of twelve months and are typically renewed, as required, over the term of the applicable contract. The
various contracts to which these bonds apply generally have terms ranging from two to five years. Any potential payments which might
become due under these bonds would be related to Nortel Networks S.A. non-performance under the applicable contract. Historically,
Nortel Networks S.A. has not had to make material payments under these types of bonds and does not anticipate that any material
payments will be required in the future. The total amount of the bonds that were available and undrawn was
31,719, as of December 31,
2003,
31,674, as of December 31, 2002 and 29,398 as of December 31, 2001.
Joint ventures/minorit
y
interests/dis
p
osed business
Nortel Networks France entered into an agreement on December 31, 1997 under which Financière Matra Communication (“Fimacom”)
(a subsidiary of Nortel Networks France) was sold to a third party. Fimacom’s business was to finance Nortel Networks France’s
customers and certain volume commitments were undertaken by Nortel Networks France to the purchaser for the following ten years.
Through December 31, 2003, the cumulative actual volumes realized by the purchaser are above the commitments of Nortel Networks
France but, because the commitments are larger each year and the business has been shrinking for the last three years, it is probable that
the targeted cumulative volumes for 2004 and the following years will not be met. Depending on the actual volume booked by the
purchaser in 2004, Nortel Networks France could be obliged to pay up to a maximum of
6,629 to the purchaser as a result of the
transaction (in 2004 or in any subsequent year until December 31, 2007). In this regard, an amount of
5,055 was accrued during 2003,
the related liability is included within “Other liabilities”.