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In 2001, we incurred a goodwill write down of $11,426. In 2001, we performed an assessment of the carrying values of goodwill associated
with our acquisitions. The assessment during that period was performed in light of the significant negative industry and economic trends
impacting our operations and expected future growth rates, and the adjustment of technology valuations. The conclusion of our assessment was
that the decline in market conditions within the industry was significant and other than temporary. The write downs were primarily related to
the goodwill within Enterprise Networks, Optical Networks and Other. Fair value was determined based on discounted future cash flows for
the businesses within these reportable segments that had separately distinguishable goodwill balances and whose operations had not yet been
fully integrated. The cash flow periods used were five years, the discount rate used was 20%, and the terminal values were estimated based
upon terminal growth rates ranging from 5% to 11%. The discount rate was based on our weighted average cost of capital, adjusted for the
risks associated with the operations.
The carrying value of goodwill was $2,305 as of December 31, 2003 and $2,199 as of December 31, 2002. The increase in goodwill primarily
related to our acquisition of the minority interests in our French and German operations as discussed in “Developments in 2003 and 2004”. For
additional information on this transaction, including the allocation of the purchase price, see “Nortel Networks Germany and Nortel Networks
France” in note 10 of the accompanying consolidated financial statements.
P
ension and post-retirement benefits
We maintain various pension and post-retirement benefit plans for our employees globally. These plans include significant pension and post-
retirement benefit obligations which are calculated based on actuarial valuations. Key assumptions are made in determining these obligations
and related expenses, including expected rates of return on plan assets and discount rates.
For 2003, the expected long-term rate of return on plan assets used to estimate pension expenses was 7.8% on a weighted average basis, which
was the rate determined at September 30, 2002. The expected long-term rate of return on plan assets remained unchanged from 2002. The
discount rates used to estimate the net pension obligations and expenses for 2003 were 5.8% and 6.3%, respectively, on a weighted average
basis, compared to 6.3% and 6.7%, respectively, in 2002.
The key assumptions used to estimate the post-retirement costs for 2003 were an expected long-term rate of return on plan assets of 8.0% and a
discount rate of 6.0% and 6.8% for the obligations and costs, respectively, both on a weighted average basis. The expected long-term rate of
return on plan assets remained unchanged from 2002. The discount rates for the obligations and costs decreased in 2003 to 6.0% and 6.8%,
respectively, from 6.8% and 7.0%, respectively, in 2002 due to the decline experienced in global interest rates during 2001 through 2002.
The difference between the expected long-term rate of return on plan assets and the discount rate reported for the net pension obligations and
expenses and those rates reported for the net post-retirement benefit obligations and costs is due to the weighted-average calculation as a result
of the number of countries in which we offer either pension or pension and post-retirement benefits. In developing these assumptions, we
evaluated, among other things, input from our actuaries, expected long-term market returns and current high-quality bond rates.
Changes in net periodic pension and post retirement benefit expense may occur in the future due to changes in our expected rate of return on
plan assets and discount rate resulting from economic events. The following table highlights the sensitivity of our pension and post retirement
benefit expense to changes in these assumptions, assuming all other assumptions remain constant:
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