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undelivered element. To correct for these items, related cost provisions were reversed and revenues and associated cost of revenues were
recognized in the appropriate periods when all elements had been delivered.
Revenues were recognized upon product delivery to a certain reseller who lacked economic substance apart from Nortel Networks. Revenue
should have been deferred and only recognized by Nortel Networks upon sale by the reseller to an end customer. Correction of this resulted in
revenues and cost of revenues being deferred with ultimate recognition in 2001.
Other adjustments included corrections related to errors in the application of percentage-of-completion accounting for certain contracts,
specific contracts with reciprocal arrangements that should have been treated as a reduction of revenues, and other errors related to non-cash
incentives and concessions provided to customers and other calculation errors.
Other adjustments
The income tax benefit as a result of the restatement decreased the accumulated deficit by $623. The determination of the functional currency
for certain entities was re-examined, and as a result Nortel Networks determined that the accounting for certain global headquarter functions
needed to be restated back to 1986 to reflect a U.S. dollar functional currency designation. This resulted in an increase of $186 to accumulated
deficit and a decrease to accumulated other comprehensive loss as of December 31, 2000. Other adjustments of $296 included the corrections
of errors in respect to each of intercompany related items, the accounting associated with sales of receivables, the calculation of the valuation
of deferred compensation on certain acquisitions and various other adjustments. Reflected in these adjustments were reclassifications of certain
items to or from cost of revenues.
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