Nortel Cost of Sales Accounting change

The following note was published on the Nortel web site. As noted the change will result in a non-cash charge of $2 billion. I hope that means the change will not impact the estate cash available for settling outstanding claims.

Nortel cost of sales

NORTEL ANNOUNCES CHANGE IN ACCOUNTING FOR U.S. SUBSIDIARIES

January 13, 2011

Nortel* Networks Corporation (OTCBB:NRTLQ) and Nortel Networks Limited (together, Nortel) announced they have now determined that Nortel’s U.S. subsidiaries and the subsidiaries they control will be deconsolidated and accounted for under the cost method of accounting, effective as of October 1 2010.

This change is largely based on Nortel’s work toward standalone debtor estates due to the diminishing interdependency between the estates primarily resulting from the sale of substantially all of Nortel’s global businesses. The change in accounting is currently expected to result in a fourth quarter 2010 non-cash charge of over US$2 billion, subject to finalization of Nortel’s year end close process. The charge is primarily related to the recognition of intercompany liabilities between the Canadian estate and U.S. estate that previously were eliminated upon consolidation of the financial results.

The estates continue to work together toward fulfilling Nortel’s obligations under the transition services agreements with purchasers of its sold businesses, as well as in other areas such as efforts to optimize the value of Nortel’s intellectual property portfolio.

As previously reported, Nortel will continue to evaluate the method of accounting for all its subsidiaries.

For more information, visit Nortel on the Web at www.nortel.com . For the latest Nortel news, visit www.nortel.com/news .