2. Creditor protection proceedings

On the Petition Date, after extensive consideration of all other alternatives, with the unanimous authorization of the Nortel board of directors after thorough consultation with its advisors, certain Nortel entities, including NNC and NNL, initiated creditor protection proceedings in multiple jurisdictions under the respective restructuring regimes of Canada, under the Companies' Creditors Arrangement Act ("CCAA") ("CCAA Proceedings"), the U.S. under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11") ("Chapter 11 Proceedings"), U.K. under the Insolvency Act 1986 ("U.K. Administration Proceedings"), and subsequently, Israel under the Israeli Companies Law 1999 ("Israeli Administration Proceedings"). On May 28, 2009, one of Nortel's French subsidiaries, NNSA was placed into secondary proceedings ("French Secondary Proceedings"). The CCAA Proceedings, Chapter 11 Proceedings, U.K. Administration Proceedings, Israeli Administration Proceedings and French Secondary Proceedings are together referred to as the "Creditor Protection Proceedings". On July 14, 2009, Nortel Networks (CALA) Inc. ("NNCI"), a U.S. based subsidiary with operations in the CALA region, also filed a voluntary petition for relief under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware ("U.S. Court") and became a party to the Chapter 11 Proceedings. Nortel initiated the Creditor Protection Proceedings with a consolidated cash balance, as of December 31, 2008, of approximately $2,400, in order to preserve its liquidity and fund operations during the process.

"Debtors" as used herein means: (i) Nortel, together with NNL and certain other Canadian subsidiaries (collectively, "Canadian Debtors") that filed for creditor protection pursuant to the provisions of the CCAA in the Ontario Superior Court of Justice ("Canadian Court"); (ii) Nortel Networks Inc. ("NNI"), Nortel Networks Capital Corporation ("NNCC"), NNCI and certain other U.S. subsidiaries (collectively, "U.S. Debtors") that have filed voluntary petitions under Chapter 11 in the U.S. Court; (iii) the EMEA Debtors that made consequential filings under the Insolvency Act 1986 in the High Court of England and Wales ("English Court") (including NNSA); and certain Israeli subsidiaries that made consequential filings under the Israeli Companies Law 1999 in the District Court of Tel Aviv.

In June, 2009, Nortel determined that selling its businesses was the best path forward. Nortel has completed divestitures of all of its businesses including: (i) the sale of substantially all of its Code Division Multiple Access ("CDMA") business and Long Term Evolution ("LTE") Access assets to Telefonaktiebolaget LM Ericsson ("Ericsson"); (ii) the sale of substantially all of the assets of its Enterprise Solutions ("ES") business globally, including the shares of Nortel Government Solutions Incorporated ("NGS") and DiamondWare, Ltd. ("Diamondware"), to Avaya Inc. ("Avaya"); (iii) the sale of the assets of its Wireless Networks ("WN") business associated with the development of Next Generation Packet Core network components to Hitachi, Ltd. ("Hitachi"); (iv) the sale of certain portions of its Layer 4-7 data portfolio to Radware Ltd.; (v) the sale of substantially all of the assets of its Optical Networking and Carrier Ethernet businesses to Ciena Corporation ("Ciena"); (vi) the sale of substantially all of the assets of its Global System for Mobile communications (GSM)/GSM for Railways ("GSM-R") business to Ericsson and Kapsch CarrierCom AG ("Kapsch"); (vii) the sale of substantially all of the assets of its Carrier VoIP and Application Solutions ("CVAS") business to GENBAND Inc. (now known as GENBAND U.S. LLC ("GENBAND")); (viii) the sale of NNL's 50% plus one share interest in LG-Nortel Co. Ltd. ("LGN"), its Korean joint venture with LG Electronics, Inc. ("LGE"), to Ericsson; (ix) the sale of substantially all of the assets of its global Multi Service Switch ("MSS") business to Ericsson; (x) the sale of substantially all of the assets of Guangdong-Nortel Telecommunications Equipment Co. Ltd. ("GDNT"), to Ericsson Mobile Data Applications Technology Research and Development Guangzhou Company Limited and Ericsson (Guangdong Shunde) Communications Company Limited (collectively, "Ericsson China"); (xi) the sale of its remaining patents and patent applications to a consortium consisting of Apple Inc., EMC Corporation, Ericsson, Microsoft Corporation, Research in Motion Limited and Sony Corporation (collectively the "Consortium"); and (xii) the sale of a small number of its Internet Protocol version 4 addresses.

Approximately $7,730 in net proceeds have been generated through the completed sales of Nortel's businesses and patents and patent applications. Substantially all proceeds received in connection with the completed sales of businesses and assets are being held in escrow, and have been recorded by NNL solely for financial reporting purposes until the final allocation of these proceeds as between various Nortel legal entities is ultimately determined.

While numerous milestones have been met, significant work remains under the Creditor Protection Proceedings. A Nortel business services group ("NBS") was established in 2009 that provided global transitional services to purchasers of Nortel's businesses, in fulfillment of contractual obligations under transition services agreements ("TSAs") entered into in connection with the sales of Nortel's businesses and assets. These services included maintenance of customer and network service levels during the integration process, and provided expertise and infrastructure in finance, supply chain management, information technology ("IT"), research and development ("R&D"), human resources and real estate necessary for the orderly and successful transition of businesses to purchasers over a period of generally up to 24 months from the closing of the sales. NBS also focused on maximizing the recovery of Nortel's remaining accounts receivable, inventory and real estate assets, independent of the TSAs. As of December 31, 2011, Nortel had completed substantially all of its obligations under the TSAs with respect to the business sales. As well, Nortel entered into a TSA in connection with the patent and patent applications sale to the Consortium, which is expected to be completed no later than March 31, 2012.

A core corporate group ("Corporate Group") was also established in 2009 and continues to be focused on a number of key actions to maximize value for stakeholders, including the sale of remaining assets, wind down of global operations and entities, the creditor claims process, and working toward conclusion of the Creditor Protection Proceedings and any eventual distributions to creditors. The Corporate Group also continues to provide administrative and management support to Nortel's consolidated affiliates around the world while completing the orderly wind down of those remaining operations.

With the sale of all of Nortel's businesses, the interdependency between the Debtors under the different Creditor Protection Proceedings has diminished and is expected to continue to diminish, and thus the estates have worked toward separation of various corporate functions to allow each estate to be standalone. Extensive analysis and actions have been performed to segregate most of these functions such that the Canadian Debtors and the U.S. Debtors operate independently of one another. The Debtors continue to work on implementing plans for the separation of IT functions and applications during the first half of 2012.

One of the key remaining matters under the Creditor Protection Proceedings is the determination of allocation of sale proceeds among the various Nortel legal entities that participated in the sales of Nortel's businesses, which include entities subject to the respective Creditor Protection Proceedings in the different jurisdictions as well as entities that are not subject to any court supervision or proceedings.

CCAA Proceedings

On the Petition Date, the Canadian Debtors obtained an initial order from the Canadian Court ("Initial Order") for creditor protection for 30 days, pursuant to the provisions of the CCAA, which has since been extended to April 13, 2012 and is subject to further extension by the Canadian Court. There is no guarantee that the Canadian Debtors will be able to obtain court orders or approvals with respect to motions the Canadian Debtors may file from time to time to extend further the applicable stays of actions and proceedings against them. Pursuant to the Initial Order, the Canadian Debtors received approval to continue to undertake various actions in the normal course in order to maintain stable and continuing operations during the CCAA Proceedings.

Under the terms of the Initial Order, Ernst & Young Inc. was named as the court-appointed monitor under the CCAA Proceedings ("Canadian Monitor"). The Canadian Monitor has reported and will continue to report to the Canadian Court from time to time on the Canadian Debtors' financial and operational position and any other matters that may be relevant to the CCAA Proceedings. In addition, the Canadian Monitor may advise and, to the extent required, assist the Canadian Debtors on matters relating to the Creditor Protection Proceedings. On August 14, 2009, the Canadian Court approved an order that permits the Canadian Monitor to take on an enhanced role with respect to the oversight of the business, sales processes, claims processes and other restructuring activities under the CCAA Proceedings. On May 27, 2009 and July 22, 2009, representative counsel was appointed on behalf of the former employees of the Canadian Debtors and on behalf of the continuing employees of the Canadian Debtors, respectively ("Representative Counsel"). Nortel management and the Canadian Monitor meet regularly with Representative Counsel and creditor groups to provide status updates and share information with them that has been shared with the representatives of other major stakeholders.

As a consequence of the CCAA Proceedings, generally, all actions to enforce or otherwise effect payment or repayment of liabilities of any Canadian Debtor arising prior to the Petition Date and substantially all pending claims and litigation against the Canadian Debtors and their officers and directors have been stayed until April 13, 2012, or such later date as may be ordered by the Canadian Court. In addition, the CCAA Proceedings have been recognized by the U.S. Court as "foreign proceedings" pursuant to the provisions of Chapter 15 of the U.S. Bankruptcy Code, giving effect in the U.S. to the stay granted by the Canadian Court. A cross-border court-to-court protocol (as amended) has also been approved by the U.S. Court and the Canadian Court. This protocol provides the U.S. Court and the Canadian Court with a framework for the coordination of the administration of the Chapter 11 Proceedings and the CCAA Proceedings on matters of concern to both courts.

The Canadian Court has also granted charges against some or all of the assets of the Canadian Debtors and any proceeds from any sales thereof, including the following current charges: a charge in favor of the Canadian Monitor, its counsel and counsel to the Canadian Debtors as security for payment of certain professional fees and disbursements; a charge in favor of NNI as security for excess payment by NNI of certain corporate overhead and R&D services provided by NNL to the U.S. Debtors; a charge to support an indemnity for the directors and officers of the Canadian Debtors relating to certain claims that may be made against them in such roles, as further described below; an intercompany charge in favor of: (i) any U.S. Debtor that loans or transfers money, goods or services to a Canadian Debtor; (ii) any EMEA Debtors who provide goods or services to the Canadian Debtors; (iii) NNL for any amounts advanced by NNL to Nortel Networks Technology Corporation ("NNTC") following the Petition Date; and (iv) NNUK for certain payments due by NNL to NNUK out of the allocation of sale proceeds NNL actually receives from future material asset sales, subject to certain conditions. The Canadian Court also approved an additional charge against all of the property of the Canadian Debtors to secure payment of the amounts that have been determined to be payable to participants under the NSIP (as defined below). A further charge has been granted in favor of certain former employees and long term disability employees who are beneficiaries under the Settlement Agreement (as defined below) against all of the property of the Canadian Debtors to secure payment of the medical, dental, income, termination and pension payments agreed to be paid by the Canadian Debtors under the Settlement Agreement.

Chapter 11 Proceedings

Also on the Petition Date, the U.S. Debtors, other than NNCI, filed voluntary petitions under Chapter 11 with the U.S. Court. The U.S. Debtors received approval from the U.S. Court for a number of motions enabling them to continue to operate their businesses generally in the ordinary course. Among other things, the U.S. Debtors received approval to continue paying employee wages and certain benefits in the ordinary course; to generally continue their cash management system; and to continue honoring customer obligations and paying suppliers for goods and services received on or after the Petition Date. On July 14, 2009, NNCI also filed a voluntary petition for relief under Chapter 11 in the U.S. Court and thereby became one of the U.S. Debtors subject to the Chapter 11 Proceedings, although the petition date for NNCI is July 14, 2009. On July 17, 2009, the U.S. Court entered an order of joint administration that provided for the joint administration, for procedural purposes only, of NNCI's case with the pre-existing cases of the other U.S. Debtors.

As required under the U.S. Bankruptcy Code, on January 22, 2009, the United States Trustee for the District of Delaware ("U.S. Trustee") appointed an official committee of unsecured creditors, which currently includes The Bank of New York Mellon, Pension Benefit Guaranty Corporation ("PBGC") and Law Debenture Trust Company of New York ("U.S. Creditors' Committee"). The U.S. Creditors' Committee has the right to be heard on all matters that come before the U.S. Court with respect to the U.S. Debtors. There can be no assurance that the U.S. Creditors' Committee will support the U.S. Debtors' positions on matters to be presented to the U.S. Court. In addition, a group purporting to hold substantial amounts of Nortel's publicly traded debt has organized ("Bondholder Group"). Nortel's management and the Canadian Monitor have met with the Bondholder Group and its advisors to provide status updates and share information with them that has been shared with other major stakeholders. Disagreements between the Debtors and the U.S. Creditors' Committee and the Bondholder Group could protract and negatively impact the Creditor Protection Proceedings.

On December 8, 2009, Nortel announced that NNI had entered into an agreement with John Ray for his appointment as principal officer of each of the U.S. Debtors ("U.S. Principal Officer") and to work with Nortel management, the Canadian Monitor, the U.K. Administrators and various retained advisors, in providing oversight of the conduct of the businesses of the U.S. Debtors in relation to various matters in connection with the Chapter 11 Proceedings. This appointment was approved by the U.S. Court on January 6, 2010.

On June 21, 2010, the U.S. Debtors filed a motion seeking to terminate certain U.S. retiree and LTD benefits effective as of August 31, 2010. The U.S Debtors filed a notice of withdrawal of this motion with the U.S. Court on July 16, 2010. In anticipation that the U.S. Debtors will seek modification or termination of some or all of the U.S. retiree and LTD benefits at a later time, on June 21, 2011, upon the motion of the U.S. Debtors dated June 2, 2011, the U.S. Court entered an order directing the U.S. Trustee to establish a committee of retirees for the U.S. Debtors to consult with before undertaking any modification or termination of the U.S. retiree benefits. Additionally, on June 22, 2011, the U.S. Court entered an order directing the U.S Trustee to establish a committee of LTD employees for the U.S. Debtors to consult with before undertaking any modification or termination of the U.S. LTD benefits. On August 2, 2011, the U.S. Trustee appointed the members of these committees.

On July 12, 2010, the U.S. Debtors filed their proposed plan of reorganization (the "Plan") under Chapter 11 with the U.S. Court. Pursuant to the Plan, each U.S. Debtor will either be reorganized to the extent the U.S. Debtors determine it is necessary or beneficial to do so for the purpose of fulfilling its obligations under the asset sale agreements and TSAs, selling or otherwise disposing of its assets and fulfilling its obligations under the Plan, or will be liquidated. The U.S. Debtors filed a proposed disclosure statement for the Plan with the U.S. Court on September 3, 2010. The effectiveness of the Plan and the U.S. Debtors' exit of the Chapter 11 Proceedings is subject to several conditions, including U.S. Court approval of the disclosure statement, as amended, obtaining the requisite number of votes in favor of the Plan from the solicited creditors of each U.S. Debtor, confirmation of the Plan by order of the U.S. Court and the satisfaction of other conditions precedent.

On September 23, 2011, the U.S. Court established a claims bar date of November 15, 2011 for the filing of certain inter-company claims against the U.S. Debtors, which did not apply to the filing of inter-company claims by the Canadian Debtors, the entities subject to the U.S. EMEA Claims Bar Date (defined below) and majority-owned direct and indirect subsidiaries of the U.S. Debtors. The November 15, 2011 claims bar date also applied to the filing of all indemnification and/or contribution claims of directors and officers who were directors and/or officers as of August 1, 2009 and whose claims arise from service to the U.S. Debtors or any of the U.S. Debtors' non-debtor affiliates. Certain affiliates of the U.S. Debtors in the Asia and CALA regions, which are consolidated in Nortel's results, filed inter-company claims against the U.S. Debtors for an aggregate amount of approximately $58 by the November 15, 2011 bar date. Nortel has established reserves as appropriate for these accounts receivable balances in current and prior periods.

As a consequence of the commencement of the Chapter 11 Proceedings, generally, all actions to enforce or otherwise effect payment or repayment of liabilities of any U.S. Debtor preceding the Petition Date and substantially all pending claims and litigation against the U.S. Debtors have been automatically stayed for the pendency of the Chapter 11 Proceedings (absent any court order lifting the stay). In addition, the U.S. Debtors applied for and obtained an order in the Canadian Court recognizing the Chapter 11 Proceedings in the U.S. as "foreign proceedings" in Canada and giving effect, in Canada, to the automatic stay under the U.S. Bankruptcy Code.

Administration Proceedings

Also on the Petition Date, the EMEA Debtors made consequential filings and each obtained an administration order from the English Court under the Insolvency Act 1986. The filings were made by the EMEA Debtors under the provisions of the European Union's Council Regulation ("EC") No 1346/2000 on Insolvency Proceedings ("EC Regulation") and on the basis that each EMEA Debtor's center of main interests was in England. The U.K. Administration Proceedings currently extend to January 14, 2014, subject to further extension. Under the terms of the orders, a representative of Ernst & Young LLP (in the U.K.) and a representative of Ernst & Young Chartered Accountants (in Ireland) were appointed as joint administrators with respect to the EMEA Debtor in Ireland and representatives of Ernst & Young LLP were appointed as joint administrators for the other EMEA Debtors (collectively, "U.K. Administrators") to manage each of the EMEA Debtors' affairs, business and property under the jurisdiction of the English Court and in accordance with the applicable provisions of the Insolvency Act 1986. The Insolvency Act 1986 provides for a moratorium during which creditors may not, without leave of the English Court or consent of the U.K. Administrators, wind up the company, enforce security, or commence or progress legal proceedings. All of Nortel's operating EMEA subsidiaries except those in the following countries are included in the U.K. Administration Proceedings: Nigeria, Russia, Ukraine, Israel, Norway, Switzerland, South Africa and Turkey.

The U.K. Administration Proceedings have been recognized by the U.S. Court as "foreign main proceedings" pursuant to the provisions of Chapter 15 of the U.S. Bankruptcy Code, giving effect in the U.S. to the moratorium provided by the Insolvency Act 1986.

Certain of Nortel's Israeli subsidiaries ("Israeli Debtors") commenced separate creditor protection proceedings in Israel. On January 19, 2009, the District Court of Tel Aviv ("Israeli Court") appointed administrators over the Israeli Debtors ("Israeli Administrators"). The orders of the Israeli Court provide for a "stay of proceedings" in respect of the Israeli Debtors whose creditors are prevented from taking steps against the companies or their assets and which, subject to further orders of the Israeli Court, remains in effect during the Israeli Administration Proceedings.

On May 28, 2009, at the request of the U.K. Administrators of NNSA, the Commercial Court of Versailles, France ("French Court") ordered the commencement of secondary proceedings in respect of NNSA. The French Secondary Proceedings consist of liquidation proceedings and NNSA is no longer authorized to continue its business operations.

Significant Business and Other Divestitures

CDMA and LTE Access Assets

On November 13, 2009, Nortel announced that following satisfaction of all closing conditions, it, NNL, and certain of its other subsidiaries, including NNI, had completed the sale of substantially all of the assets of its CDMA business and LTE Access assets to Ericsson for $1,130, subject to certain post closing purchase price adjustments. The purchase price has been finalized with a downward purchase price adjustment of $1. In connection with this transaction and included in the net gain realized for accounting purposes, NNL and NNI paid an aggregate break-up fee of $19.5 plus $3 in expense reimbursements to Nokia Siemens Networks B.V., the party to the "stalking horse" asset sale agreement that was outbid by Ericsson in the "stalking horse" or 363 sales process under Chapter 11. Nortel recognized a cumulative gain on disposal of $1,192 for this divestiture.

The related CDMA business and LTE Access assets financial results of operations were not classified as discontinued operations as they did not meet the definition of a component of an entity as required under U.S. GAAP.

Packet Core Assets

On December 8, 2009, Nortel announced that following satisfaction of all closing conditions, NNL and NNI had completed the sale of Nortel's Packet Core Assets to Hitachi for $10. Nortel recognized a gain on disposal of $8 for this divestiture.

The related Packet Core Assets financial results of operations were not classified as discontinued operations as they did not meet the definition of a component of an entity as required under U.S. GAAP.

Enterprise Solutions Business

On December 18, 2009, Nortel announced that it, NNL, and certain of Nortel's other subsidiaries, including NNI and NNUK, had completed the sale of substantially all of the assets of the ES business globally as well as the shares of NGS and DiamondWare, Ltd. to Avaya for a purchase price of $900 in cash, subject to certain post closing purchase price adjustments, with an additional pool of $15 reserved for an employee retention program. The purchase price was finalized with no adjustments. The sale of certain ES assets held by Israeli subsidiaries was subsequently approved by the Israeli Court on December 21, 2009. All other closing conditions had been satisfied as of December 18, 2009. Nortel recognized a cumulative gain on disposal of $750 for this divestiture.

The related ES business and NGS financial results of operations have been classified as discontinued operations, beginning in the third quarter of 2009, as they met the definition of a component of an entity as required under U.S. GAAP. See note 5.

Optical Networking and Carrier Ethernet Businesses

On March 19, 2010, Nortel announced that it, NNL, and certain of its subsidiaries, including NNI and NNUK, had completed the sale of substantially all of the assets of its Optical Networking and Carrier Ethernet businesses to Ciena for a purchase price of approximately $774. The purchase price has been finalized with downward working capital adjustments of approximately $81. In conjunction with the sale of its Ottawa Carling Campus, Nortel was required to exercise its early termination rights on the facility lease with Ciena and to pay Ciena $33.5 at closing. See the "Sale of Ottawa Carling Campus" section below for further information.

Nortel recognized a cumulative gain on disposal of $546 for this divestiture.

The related Optical Networking and Carrier Ethernet businesses' financial results of operations were not classified as discontinued operations as they did not meet the definition of a component of an entity as required under U.S. GAAP.

LGN Joint Venture

On June 29, 2010, Nortel announced that NNL had completed the sale of its 50% plus one share interest in LGN to Ericsson for a purchase price of $242 in cash, subject to certain purchase price adjustments. The purchase price was finalized with no change to the purchase price. Nortel recognized a gain on disposal of $53 in the year ended December 31, 2010. See note 5.

In addition to the sale proceeds, prior to closing, NNL received approximately 50% of a capital reduction paid out by LGN to its shareholders, NNL and LGE, in the amount of 200 billion Korean Won (approximately CAD $181). NNL received CAD $83, net of withholding taxes.

The related financial results of operations of LGN have been classified as discontinued operations beginning in the second quarter of 2010 as they met the definition of a component of an entity as required under U.S. GAAP.

MSS Business

On March 11, 2011, Nortel announced that it, NNL, and certain of Nortel's other subsidiaries, including NNI and NNUK, had completed the sale to Ericsson of substantially all of its global MSS business and the associated Data Packet Network and Services Edge Router (Shasta) product groups for a purchase price of $65 in cash. The purchase price has been finalized and was subject to a downward price adjustment relating to working capital of $12 in the year ended December 31, 2011. Nortel recorded a gain on disposal of $40, as adjusted for all closing conditions, for this divestiture.

The related financial results of operations of the MSS business were not classified as discontinued operations as they did not meet the definition of a component of an entity as required under U.S. GAAP.

GSM/GSM-R Business

On March 31, 2010, Nortel announced that it had completed the sale of substantially all of the assets of its global GSM/GSM-R business to Ericsson and Kapsch for aggregate proceeds of $103. The purchase price with respect to the sale to Ericsson has been finalized and the sales proceeds were subject to a downward working capital adjustment of $6 recorded in the year ended December 31, 2010. The purchase price with respect to the sale to Kapsch was finalized in the fourth quarter of 2011 and resulted in an upward working capital adjustment of $3. Nortel recognized a cumulative gain on disposal of $125 for this divestiture.

The related GSM/GSM-R business financial results of operations were not classified as discontinued operations as they did not meet the definition of a component of an entity as required under U.S. GAAP.

CVAS Business

On May 28, 2010, Nortel announced that it had completed the sale of substantially all of its assets of the CVAS business globally to GENBAND for a purchase price of $282, subject to balance sheet and other adjustments estimated at the time at approximately $100, resulting in estimated net proceeds of approximately $182. Subsequent to closing, a dispute arose between the parties over the interpretation of a defined term in the asset sale agreement regarding the final purchase price payable to Nortel. In connection with the dispute between the parties over the interpretation of a defined term in the asset sale agreement, Nortel recorded a charge in the first quarter of 2011 of $25 as its best estimate of the probable amount payable to GENBAND based on settlement discussions which were ongoing among the parties. In August 2011, the settlement discussions resulted in the parties reaching agreement on a final purchase price of approximately $157, a difference of approximately $25 from the initial purchase price on closing of $182. This settlement was approved by the Canadian Court and the U.S. Court on August 23, 2011. Nortel recognized a cumulative gain on disposal of $180 for this divestiture.

The related CVAS business financial results of operations were not classified as discontinued operations as they did not meet the definition of a component of an entity as required under U.S. GAAP.

GDNT Joint Venture

On May 12, 2011, Nortel announced that GDNT had concluded the sale of substantially all of its assets to Ericsson China for an aggregate purchase price of approximately $51 in cash, subject to certain purchase price adjustments. The purchase price has been finalized and the parties agreed to an upward purchase price adjustment of approximately $6, which was recorded in the second quarter of 2011. NNL and Nortel China Limited together own 62 percent of GDNT. Nortel China Limited is wholly owned by NNL. It is expected that GDNT will soon commence a process to wind down the entity and deal with its remaining assets and liabilities in accordance with Chinese law. At the conclusion of this process, any funds remaining in GDNT will be distributed to its shareholders. Nortel recognized a gain on disposal of $24 for this divestiture.

The related financial results of operations of GDNT were not classified as discontinued operations as they did not meet the definition of a component of an entity as required under U.S. GAAP.

Intellectual Property

On June 30, 2011, Nortel announced that it, NNL and certain of its other subsidiaries, including NNI and NNUK, concluded a successful auction with the Consortium emerging as the winning bidder for the sale of all of Nortel's remaining patents and patent applications for a cash purchase price of $4,500. In connection with the sale of the patents and patent applications, Nortel received good faith deposits of $108 of which $54 was refunded to the unsuccessful bidders in the third quarter of 2011 and the balance was credited toward the purchase price paid on closing by the Consortium. Nortel also received additional proceeds of $18 related to the sale of certain NNL tax attributes to the Consortium, which have been included as part of cash and cash equivalents.

This sale included more than 6,000 patents and patent applications spanning wireless, wireless 4G, data networking, optical, voice, internet, service provider, semiconductors and other patent portfolios.

On July 11, 2011, NNC, NNL, NNI and certain other subsidiaries obtained orders from the U.S. Court and the Canadian Court at a joint hearing approving the sale agreement. Nortel concluded the sale on July 29, 2011 and recognized a gain on disposal of $4,475. An aggregate break-up fee of $25 plus $4 in expense reimbursements was paid to Google Inc., the unsuccessful "stalking horse" bidder.

Internet Protocol Addresses

Nortel commenced a process, approved by the Canadian Court, to sell certain residual IT assets primarily consisting of about 17 million Internet Protocol version 4 addresses ("IP Addresses") and IT hardware assets including 700 servers. Working together with the Canadian Monitor, Nortel's goal is to maximize the value of these residual IT assets in a timely manner. Any definitive sale agreement will require approval of the Canadian Court.

On February 17, 2012, the Canadian Court approved two sale agreements NNL and NNTC had entered into for the sale of rights in a small number of our IP Addresses. Under one sale agreement CSC Holdings LLC, the operating subsidiary of Cablevision Systems Corporation, is the purchaser of a certain number of the IP Addresses, and under the other sale agreement, Salesforce.com Inc. is the purchaser of a certain number of the IP Addresses. The financial and other terms of each of the sale agreements, including the cash purchase price and the IP Addresses included in each sale, have been sealed by order of the Canadian Court because disclosure of such terms may be detrimental to the Canadian Debtors' interests in seeking to consummate these and other sales of IP Addresses. Both purchasers have obtained approval from the American Registry for Internet Numbers ("ARIN") with respect to the transfer and registration of the IP Addresses in the respective purchasers' name upon closing. Nortel closed these sales in the first quarter of 2012 and the proceeds from the transactions have been deposited into an NNL single purpose bank account. The Canadian Debtors and the U.S. Debtors have agreed that any dispute relating to the rights and claims, if any, of the U.S. Debtors in and to the IP Addresses, including to an allocation of such sale proceeds, will be subject to a joint hearing of the Canadian Court and the U.S. Court prior to the distribution of such sale proceeds and, if appropriate, orders of such courts approving such distributions. Nortel continues to seek buyers for the remainder of its IP Addresses.

Transition Services Agreements

Nortel entered into TSAs in connection with certain of the divestitures discussed above and is contractually obligated under such TSAs to provide transition services to certain purchasers of its businesses and assets, such as IT, order management, supply chain, service and technical support, finance and certain back office services. Nortel has, subject to certain limitations, agreed to indemnify purchasers for losses in connection with a breach of its obligations under the TSAs or for certain other claims or losses that might arise under the TSAs. Nortel receives income from the TSAs, which is reported in its financial statements under "Billings under TSAs", part of Other income (expense) – net. As of December 31, 2011, Nortel had completed substantially all of its obligations under the TSAs with respect to the business sales. As well, Nortel entered into a TSA in connection with the patent and patent applications sale to the Consortium, which is expected to be completed no later than March 31, 2012.

Sale of Ottawa Carling Campus

On December 17, 2010, Nortel announced that its principal operating subsidiary NNL and NNTC completed the sale of its Ottawa Carling Campus to Public Works and Government Services Canada (PWGSC), for a cash purchase price of CAD$208.

The sale agreement provides for Nortel to continue to occupy parts of the Ottawa Carling Campus for varying periods of time to facilitate its continuing work on its global restructuring including work under the TSAs with the various buyers of its sold businesses. All other existing leases were assumed by PWGSC, including leases with buyers of its sold businesses. With respect to the lease with Ciena, the purchaser of the Optical Networking and Carrier Ethernet business, Nortel was directed by PWGSC under the sale agreement to exercise, on closing, its early termination rights under the lease, shortening the lease from 10 years to 5 years. This resulted, pursuant to the lease with Ciena, in the repayment to Ciena of $33.5 from the escrowed proceeds from the business divestiture and thus a reduction on the related gain on sale.

The sale agreement further provided that at closing title would be delivered free and clear of all encumbrances, including a charge in favor of NNI with respect to an intercompany loan agreement, under which $75 plus accrued interest was outstanding and due on December 31, 2010. NNL repaid this outstanding amount with the proceeds from the sale of the Ottawa Carling Campus prior to December 31, 2010.

Divestiture Proceeds Received

As of December 31, 2011, approximately $7,730 in net proceeds have been generated and received through the completed sales of businesses and assets. These divestiture proceeds include the following approximate amounts:

(a)

$1,070 from the sale of substantially all of Nortel's CDMA business and LTE Access assets;

(b)

$18 from the sale of Nortel's Layer 4-7 data portfolio;

(c)

$10 from the sale of Nortel's Packet Core Assets;

(d)

$932 from the sale of substantially all of the assets of Nortel's ES business, including the shares of DiamondWare, Ltd. and NGS;

(e)

$638 from the sale of substantially all of the assets of Nortel's Optical Networking and Carrier Ethernet businesses;

(f)

$67 from the sale of Nortel's North American GSM business;

(g)

$36 from the sale of Nortel's GSM business outside of North America (excluding its GSM business in CALA) and its global GSM-R business;

(h)

$149 from the sale of substantially all of Nortel's CVAS business;

(i)

$234 from the sale of Nortel's 50% plus one share interest in LGN;

(j)

$45 from the sale of substantially all of Nortel's MSS business;

(k)

$56 from the sale of substantially all of the GDNT assets (proceeds recorded in cash and cash equivalents);

(l)

$4,470 from the sale of Nortel's remaining patents and patent applications; and

(m)

$5 from the sale of various other business assets.

As of December 31, 2011, $7,250 of proceeds received from divestitures is being held in escrow and an additional $229, representative of proceeds from the sale of LGN, is included in non-current restricted cash and cash equivalents, all of which is currently reported in NNL solely for financial reporting purposes (including with respect to any gain recorded on such divestitures). The difference between the net proceeds received and the amount in escrow at December 31, 2011 is as a result of amounts that, from time to time, have been distributed, with the consent of each of the Debtors' estates and court approvals, as applicable from the escrow accounts to satisfy: 1) various obligations arising from the divestitures, whether through payments to third party vendors, or to reimburse the Debtors or non-consolidated subsidiaries for costs incurred, or 2) payments to the Debtors or non-consolidated subsidiaries related to settlements reached in respect of certain agreements involving proceeds allocation. The ultimate determination of the final allocation of such proceeds among the various Nortel legal entities, including entities that are not consolidated in these financial statements, has not yet occurred and may be materially different from the NNL classification and related amounts shown in these financial statements. The Interim Funding and Settlement Agreement ("IFSA") and the escrow agreements for sales divestiture proceeds entered into by NNL, NNI and other Nortel legal entities provide for the processes for determining the final allocation of divestiture proceeds among such entities, either through joint agreement or, failing such agreement, other dispute resolution proceedings. Adjustments to the NNL classification and any related amounts arising from the ultimate allocation will be recognized when finalized. The NNL classification and related amounts shown in these financial statements are not determinative of, and have not been accepted by any debtor estate, any party in interest in the Creditor Protection Proceedings or any court overseeing such proceedings, for purposes of deciding the final allocation of divestiture proceeds.

As of December 31, 2011, a further $97 in connection with the divestitures of substantially all of Nortel's CDMA business and LTE Access assets, the assets of Nortel's Optical Networking and Carrier Ethernet businesses, substantially all of Nortel's global GSM/GSM-R and CVAS businesses, and substantially all of the assets of Nortel's MSS business, is currently unrecorded and will be recognized subject to agreement between Nortel and each of the various buyers that obligations under the TSAs have been completed. Such amounts, when and if received, will also be held in escrow until the final allocation of these proceeds as between various Nortel legal entities, including the U.S. and EMEA subsidiaries, is ultimately determined. Subsequent to December 31, 2011, our escrow agent has received $5 of the $97, which relates to the release of an escrow amount in connection with the sale of the CVAS business.

Allocation of Divestiture Proceeds and Other Inter-Estate Matters

At various times during the second half of 2009 and the first quarter of 2010, the Canadian Debtors, the U.S. Debtors and the U.K. Administrators, with the involvement of the Canadian Monitor, the U.S. Principal Officer, the U.S. Creditors' Committee and the Bondholder Group engaged in negotiations regarding the scope and terms of a proposed protocol for resolving disputes concerning the allocation of sale proceeds ("Allocation Protocol"), as required by the terms of the IFSA. However, it became apparent that the parties had differing views concerning the allocation of the sale proceeds, inter-company claims and the scope of the Allocation Protocol. In order to address this impasse, the Canadian Debtors, the U.S. Debtors and the U.K. Administrators agreed to temporarily suspend negotiations on the Allocation Protocol and instead focussed on a process to facilitate a comprehensive settlement to resolve all material outstanding inter-estate matters, including the allocation of the sale proceeds and the settlement of inter-company claims. To this end, the parties met on several occasions to outline, on a confidential and without prejudice basis, their respective allocation methodologies and potential inter-company claims that may be asserted.

As a result of these meetings and the complexity of the issues that were raised, the Canadian Debtors, the U.S. Debtors, the EMEA Debtors, the U.K. Administrators, the Canadian Monitor the U.S. Principal Officer, the U.S. Creditors' Committee, the Bondholder Group and certain other interested parties (the "Mediation Parties") agreed that these inter-estate negotiations would be aided by the appointment of a neutral mediator to review and mediate the issues. The parties selected Layn R. Phillips, a former U.S. federal district court judge and experienced commercial mediator, to serve as mediator and review the positions and viewpoints of the various parties on allocation and unresolved inter-estate matters. A confidential, non-binding mediation was held in November 2010. The mediation session did not result in the resolution of the issues presented.

As a result of the November 2010 mediation session, and positions taken in the CCAA Proceedings, it became apparent that the U.K. Administrators and certain other parties, who were also substantial creditors of the EMEA Debtors, were alleging a number of significant potential claims against the Canadian Debtors as well as the U.S. Debtors. These potential claims are integral to the allocation positions of these parties and include allegations of proprietary and trust-type claims. Consequently, the Canadian Monitor and the Canadian Debtors determined that, absent reaching a comprehensive settlement of allocation and inter-company claims issues, these specific claims needed to be resolved first. Accordingly, the Canadian Debtors obtained an order of the Canadian Court establishing a process for the calling of claims by EMEA Creditors. See "Creditor Protection Proceedings Claims" below. Notwithstanding the commencement of this process, the Mediation Parties continued to engage in discussions regarding the resumption of mediation and another confidential, non-binding mediation was held in April 2011. On April 13, 2011, Nortel announced that the mediation process that had been commenced in respect of the allocation of sale proceeds of its various business and asset divestitures and other inter-estate matters, including inter-company claims, has ended without resolution of the matters in dispute. In light of the unsuccessful conclusion of the mediation process, Nortel announced that delays in the ultimate resolution of allocation and inter-company claims matters potentially could be significant, and that such delays would result in a corresponding significant delay in the timing of distributions to holders of validated claims of the various estates.

On April 25, 2011, the U.S. Debtors and the U.S. Creditors' Committee filed a joint motion for an order establishing an allocation protocol for the sale proceeds as between various Nortel legal entities ("Original Protocol Motion"), and for related relief. Subsequently, as a result of further discussions, the U.S. Debtors and the U.S. Creditors' Committee together with the Canadian Debtors jointly filed an amended and restated version of the Original Protocol Motion and agreed to collectively seek an order establishing an allocation protocol before the Canadian Court and the U.S. Court. The proposed order would have had the U.S. Court and the Canadian Court establish procedures and an expedited schedule for the cross-border resolution by the U.S. Court and the Canadian Court on the allocation of proceeds from the sales of Nortel's businesses and from the sale of its patent portfolio. The motion was heard at a joint hearing of the U.S. Court and Canadian Court on June 7, 2011. On June 20, 2011, Nortel announced that the Canadian Court and the U.S. Court had reserved their decisions on the motions heard by such courts on June 7, 2011, and directed NNC, NNL and the other Canadian Debtors, NNI and the other U.S. Debtors, the EMEA Debtors, as well as certain other parties, to participate in a joint mediation of the issues raised in the motions. The directions provided that the Canadian Court and the U.S. Court together would appoint a sole mediator by supplemental order and that the mediator would determine the time, date, place and protocol of the mediation.

On June 17, 2011, and as supplemented on June 29, 2011, the Canadian Court and the U.S. Court appointed The Honourable Warren K. Winkler, Chief Justice of Ontario, as the sole mediator (the Mediator) for the mediation. The mediation was ordered because of both courts' concern that the time required to prepare their decisions would also delay allocation proceedings and, therefore, distributions to creditors of the various Nortel estates.

The Mediator has the authority, in consultation with the parties to the mediation, to determine the scope of the mediation, as he deems appropriate, including the issue of allocation of the sale proceeds of Nortel's various businesses and patent portfolio, and global issues relating to allocation and claims. Participation in this mediation is mandatory. The mediation process will be terminated (i) by a declaration by the Mediator that a settlement has been reached (any such settlement would be subject to the approval of the Canadian Court and the U.S. Court, on notice to parties in interest), (ii) by a declaration by the Mediator that further efforts at mediation are no longer considered worthwhile, or (iii) for any other reason as determined by the Mediator. At the request of the U.S. Court, the commencement of the mediation has been delayed pending the outcome of the October 14, 2011 hearing (discussed in more detail below).

The Canadian Court approved a claims process with regard to the significant inter-company claims made by the EMEA Debtors against the Canadian Debtors, which process included a requirement that claims be filed by March 18, 2011. In response to this call for claims, representatives of the U.K. Administrators, on behalf of the EMEA Debtors, filed 84 proofs of claims against the Canadian Debtors and unspecified directors and officers of NNC and NNL (the EMEA Claims). The EMEA Claims contain broad ranging claims set out with limited specificity. The EMEA Claims also include a number of large priority claims, which if allowed, would significantly reduce the potential proceeds available for distribution to unsecured creditors of the Canadian Debtors. Nortel is currently unable to quantify the total potential amounts claimed under the EMEA Claims, as many of the claims were not quantified. Of the EMEA Claims quantified, they total approximately CAD$9.8 billion. In addition, the U.K. Pension Trust Limited and the Board of the Pension Protection Fund in the U.K. filed an estimated claim of CAD$3.7 billion in respect of an alleged deficit in the U.K. pension plan ("the U.K. Pension Claim"). Should the EMEA Claims and the U.K. Pension Claim ultimately be allowed in the CCAA Proceedings on the basis filed, they could have the effect of doubling (or more) the estimated CCAA claims pool and, accordingly, significantly reduce potential distributions to other unsecured creditors of the Canadian Debtors. Further, counsel for 131 former employees of NNSA have submitted a letter indicating they would file proofs of claims in connection with an action that is currently before the courts in France.

On September 30, 2009, the EMEA Debtors and certain of their affiliates (collectively the "EMEA Claimants") filed over 350 proofs of claim against the U.S. Debtors and unspecified directors and officers of the U.S. Debtors in the U.S. Court. On May 10, 2011, the U.S. Court entered an order requiring the EMEA Claimants to file more definite statements of their previously-filed claims, and to file any other pre-petition claims against the U.S. Debtors, by June 1, 2011, absent which any of their pre-petition claims would be disallowed. The deadline for filing amended proofs of claim was later extended on request of certain of the EMEA Claimants to June 3, 2011 ("U.S. EMEA Claims Bar Date"). The EMEA Claimants filed 38 amended proofs of claim on June 3, 2011. The remaining proofs of claim that had been filed by the EMEA Claimants and were not amended on a timely basis have been disallowed and expunged pursuant to the terms of the U.S. Court's May 10, 2011 order.

On July 15 and 22, 2011, the U.S. Debtors and the U.S. Creditors' Committee filed joint objections and motions to dismiss the claims of NNUK, NNSA and Nortel Networks (Ireland) Limited and the French Liquidator. On August 3, 2011, the U.S. Court issued an order that set October 13 and 14, 2011 as the hearing dates for these motions. The order also requested the Mediator to consider postponing the mediation discussed above until after these hearings and the U.S. Court's decision on the motions to dismiss. On August 9, 2011, the Mediator advised the parties to the mediation that he was postponing the initial procedural meeting to a date to be determined after the U.S. Court releases its decision. The U.S. Court heard the motions on October 14, 2011 and has reserved judgment.

Creditor Protection Proceedings Claims Processes

On August 4, 2009, the U.S. Court approved a claims process in the U.S. for claims that arose prior to the Petition Date. Pursuant to this claims process, proofs of claim, except in relation to NNCI, had to be received by the U.S. Claims Agent, Epiq Bankruptcy Solutions, LLC ("Epiq") by September 30, 2009 (subject to certain exceptions as provided in the order establishing the claims bar date). On December 2, 2009, the U.S. Court approved January 25, 2010 as the deadline for receipt by Epiq of proofs of claim against NNCI (subject to certain exceptions as provided in the order establishing the claims bar date).

On July 30, 2009, the Canadian Court approved a claims process in Canada in connection with the CCAA Proceedings. Pursuant to this claims process, subject to certain exceptions, proofs of claim for claims arising prior to the Petition Date had to be received by the Canadian Monitor by no later than September 30, 2009. This claims bar date did not apply to certain claims, including inter-company claims as between the Canadian Debtors or as between any of the Canadian Debtors and their direct or indirect subsidiaries and affiliates (other than joint ventures), compensation claims by current or former employees or directors of any of the Canadian Debtors, and claims of current or former directors or officers for indemnification and/or contribution, for which claims notification deadlines have yet to be set by the Canadian Court. Proofs of claim for claims arising on or after the Petition Date as a result of the restructuring, termination, repudiation or disclaimer of any lease, contract or other agreement or obligation had to be received by the Canadian Monitor by the later of September 30, 2009 or 30 days after a proof of claim package was sent by the Canadian Monitor to the person in respect of such claim. On September 16, 2010, the Canadian Court approved a methodology for the review and determination of claims filed against the Canadian Debtors. Also on September 16, 2010, the Canadian Court and U.S. Court approved a cross-border claims protocol to address the level of cooperation and consultation on issues between the Canadian Debtors and the U.S. Debtors with respect to overlapping and same-creditors' claims between the two debtor estates. The U.K. Administrators commenced an informal creditor claim submission and evaluation process in July 2010. Creditors will also have the opportunity to take part in a formal claims admission and proving process in accordance with English insolvency law provisions in due course.

On January 14, 2011, the Canadian Court approved a claims process with regard to the significant inter-company claims made by the EMEA Debtors against the Canadian Debtors. The claims process implements a 'call for claims' that required the EMEA Debtors to file their claims by March 18, 2011, and establishes a process for the proving and resolution of such claims so that this category of claims also moves forward through the claims process.

On October 6, 2011, the Canadian Court approved a methodology and procedure for compensation related claims in Canada. A bar date of January 6, 2012 for such claims was set. Approximately 16,000 of the Canadian Debtors' employees, former employees, pensioners and survivors including long-term disability ("LTD") beneficiaries, may have employment-related claims, with a total value of such claims currently estimated to be approximately CAD$1.06 billion (see notes 8, 9 and 11). The order includes a methodology based upon categories of employees for the calculation of compensation claims, as well as a streamlined process, to address such claims intended to provide a fair, reasonable, efficient and orderly process beneficial to both employees and the Canadian Debtors. The methodology was agreed upon after extensive discussions among the Canadian Debtors, the Canadian Monitor, Representative Counsel, LTD beneficiaries' representative counsel, Canadian Auto Workers's ("CAW") counsel and their respective actuarial and financial advisors.

The compensation claims are valued based on: (a) identified and agreed-upon benefits and agreed categories of claims, including post-retirement benefits; (b) agreed-upon actuarial assumptions and calculations, including with respect to income benefits, other benefits for LTD beneficiaries, post-retirement benefits and non-registered pension plan benefits and, with respect to adjustments relating to administrative costs and income tax, as applicable, agreed upon increase or "gross up" claim amounts; and (c) agreed-upon formulae relating to termination and severance pay claims. The order also calls for grievance claims, director compensation claims and indemnification claims that were excluded from prior claims processes of the Canadian Debtors. For more information on the employee compensation claims, refer to notes 8, 9 and 11.

The consolidated financial statements for the year ended December 31, 2011 generally do not include the final outcome of any current or future claims relating to the Creditor Protection Proceedings, other than as described in these financial statements. Certain claims filed may have priority over those of the Debtors' unsecured creditors. The Debtors are reviewing all claims filed and continue the claims reconciliation process. Differences between claim amounts determined by the Debtors and claim amounts filed by creditors will be investigated and resolved pursuant to a claims resolution process approved by the relevant court or, if necessary, the relevant court will make a final determination as to the amount, nature and validity of claims. Certain claims that have been filed may be duplicative (particularly given the multiple jurisdictions involved in the Creditor Protection Proceedings), based on contingencies that have not occurred, or may be otherwise overstated, and would therefore be subject to revision or disallowance. The settlement of claims cannot be finalized until the relevant creditors and courts approve a plan. In light of the number of creditors of the Debtors, the claims resolution process may take considerable time to complete. See note 20 for additional information about claims.

Interim and Final Funding and Settlement Agreements

Historically, Nortel had deployed its cash through a variety of intercompany borrowing and transfer pricing arrangements to allow it to operate on a global basis and to allocate profits, losses and certain costs among the corporate group. In particular, the Canadian Debtors allocated profits, losses and certain costs, among the corporate group through transfer pricing agreement payments ("TPA Payments"). Other than one $30 payment made by NNI to NNL in respect of amounts that could arguably be owed in connection with the transfer pricing agreement, TPA Payments were suspended since the Petition Date. However, the Canadian Debtors and the U.S. Debtors, with the support of the U.S. Creditors' Committee and the Bondholder Group, as well as the EMEA Debtors (other than NNSA), entered into an Interim Funding and Settlement Agreement ("IFSA") dated June 9, 2009 under which NNI paid $157 to NNL, in four installments during the period ended September 30, 2009 in full and final settlement of TPA Payments for the period from the Petition Date to September 30, 2009. Similarly, except for two shortfall payments totaling $20, the IFSA provides for a full and final settlement of any and all TPA Payments owing between certain EMEA entities and the U.S. and Canada for the period from the Petition Date through December 31, 2009. A portion of this funding may be repayable by NNL to NNI in certain circumstances. The IFSA was approved by the U.S. Court and Canadian Court on June 29, 2009 and on June 23, 2009, the English Court confirmed that the U.K. Administrators were at liberty to enter into the IFSA on behalf of each of the EMEA Debtors (except for NNSA which was authorized to enter into the IFSA by the French Court on July 7, 2009). NNSA acceded to the IFSA on September 11, 2009.

On December 23, 2009, Nortel announced that it, NNL, NNI, and certain other Canadian Debtors and U.S. Debtors entered into a Final Canadian Funding and Settlement Agreement ("FCFSA"). The FCFSA provides, among other things, for the settlement of certain intercompany claims, including in respect of amounts determined to be owed by NNL to NNI under Nortel's transfer pricing arrangements for the years 2001 through 2005. As part of the settlement, NNL agreed to the establishment of a pre-filing claim in favor of NNI in the CCAA Proceedings in the net amount of approximately $2,063 ("FCFSA Claim"), which claim will not be subject to any offset. The FCFSA also provides that NNI would pay to NNL approximately $190, which was received, over the course of 2010, including the contribution of NNI and certain U.S. affiliates towards certain estimated costs to be incurred by NNL, on their behalf, for the duration of the Creditor Protection Proceedings. The FCFSA also provides for the allocation of certain other anticipated costs to be incurred by the parties, including those relating to the divestiture of Nortel's various businesses. On January 21, 2010, Nortel obtained approvals from the Canadian Court and the U.S. Court of the FCFSA and the creation and allowance of the FCFSA Claim. In addition, Nortel obtained various other approvals from the Canadian Court and U.S. Court including authorization for NNL and NNI to enter into advance pricing agreements with the U.S. and Canadian tax authorities to resolve certain transfer pricing issues, on a retrospective basis, for the taxable years 2001 through 2005. In addition, in consideration of a settlement payment of $37.5, the United States Internal Revenue Service ("IRS") released all of its claims against NNI and other members of NNI's consolidated tax group for the years 1998 through 2008. As a result of this settlement, the IRS stipulated that its claim against NNI filed in the Chapter 11 Proceedings in the amount of approximately $3,000 was reduced to the $37.5 settlement payment. This settlement was a condition of the FCFSA and was approved by the U.S. Court on January 21, 2010. NNI made the settlement payment to the IRS on February 22, 2010.

On August 23, 2011, the Canadian Court approved a Q1 2010 Transfer Pricing Settlement Agreement among NNL, NNI, NNUK, certain other Debtors and the U.K. Administrators whereby certain inter-company matters were resolved, including NNL remitting $4.7 to NNUK. Further, the Canadian Court approved on the same date an Agreement on Transfer Pricing Amendments and Certain Other Matters among the same parties as well as the French Liquidator. Under this agreement, and related agreements, transfer pricing arrangements ceased among all Nortel entities, and as a result any subsequent inter-company transactions is on a cost plus basis.

APAC Debt Restructuring Agreement

To enable certain Nortel subsidiaries ("APAC Agreement Subsidiaries") in the Asia Pacific ("APAC") region to continue their respective business operations and to facilitate the business divestitures, the Debtors (other than the Israeli Debtors) had entered into an Asia Restructuring Agreement ("APAC Agreement"). Under the APAC Agreement, the APAC Agreement Subsidiaries have paid a portion of certain of the APAC Agreement Subsidiaries net intercompany debt outstanding as of the Petition Date ("Pre-Petition Intercompany Debt") to the Debtors (other than the Israeli Debtors). Further portions of the Pre-Petition Intercompany Debt have been repaid and continue to be repayable from time to time only to the extent of any such APAC Agreement Subsidiary's net cash balance at the relevant time, and subject to certain reserves and provisions. All required court approvals with respect to the APAC Agreement have been obtained in the U.S. and Canada.

Debt Instruments and Other Contracts

Nortel's filings under Chapter 11 and the CCAA constituted events of default or otherwise triggered repayment obligations under the instruments governing substantially all of the indebtedness issued or guaranteed by NNC, NNL, NNI and NNCC. In addition, Nortel may not be in compliance with certain other covenants under indentures and other debt or lease instruments, and the obligations under those agreements may have been accelerated. Nortel believes that any efforts to enforce such payment obligations against the U.S. Debtors are stayed as a result of the Chapter 11 Proceedings. Although the CCAA does not provide an automatic stay, the Canadian Court has granted a stay to the Canadian Debtors that currently extends to April 13, 2012. Pursuant to the U.K. Administration Proceedings, a moratorium has commenced during which creditors may not, without leave of the English Court or consent of the U.K. Administrators, enforce security, or commence or progress legal proceedings.

The Creditor Protection Proceedings may have also constituted events of default under other contracts and leases of the Debtors. In addition, the Debtors may not be in compliance with various covenants under other contracts and leases. Depending on the jurisdiction, actions taken by counterparties or lessors based on such events of default and other breaches may be unenforceable as a result of the Creditor Protection Proceedings.

In addition, the Creditor Protection Proceedings may have caused, directly or indirectly, defaults or events of default under the debt instruments and/or contracts and leases of certain of our non-Debtor entities. These events of default (or defaults that become events of default) could give counterparties the right to accelerate the maturity of this debt or terminate such contracts or leases.

Directors' and Officers' Compensation and Indemnification

The Canadian Court in the CCAA Proceedings has approved a charge against the property of the Canadian Debtors, to an aggregate amount not exceeding CAD$45, to indemnify directors and officers of the Canadian Debtors for claims that may be made against them relating to failure of the Canadian Debtors to comply with certain statutory payment and remittance obligations.

In addition, in conjunction with the Creditor Protection Proceedings, NNC established a directors' and officers' trust ("D&O Trust") in the amount of approximately CAD$12. The purpose of the D&O Trust is to provide a trust fund for the payment of liability claims (including defense costs) that may be asserted against individuals who serve as directors and officers of NNC, or as directors and officers of other entities at NNC's request (such as subsidiaries and joint venture entities), by reason of that association with NNC or other entity, to the extent that such claims are not paid or satisfied out of insurance maintained by NNC and NNC is unable to indemnify the individual.

Certain Nortel entities have not filed for bankruptcy protection ("Cascade Subsidiaries"). Under the laws of various jurisdictions in which the Cascade Subsidiaries operate, the directors, officers and agents of the Cascade Subsidiaries may be subject to personal liability. In order to protect individuals serving as directors on the boards of the Cascade Subsidiaries and to facilitate participation by the Cascade Subsidiaries in Nortel's sales of businesses and assets, NNL and NNI have contributed to a trust ("Trust"), which will indemnify individuals serving as directors on the boards and as officers or agents of the Cascade Subsidiaries and their successors, if any, for any claims resulting from their service as a director, officer or agent of a Cascade Subsidiary, subject to limited exceptions. The Trust was approved by the Canadian Court and the U.S. Court on March 31, 2010.

Workforce Reductions; Employee Compensation Programs

Nortel has taken and expects to take further, ongoing workforce and other cost reduction actions as it works through the Creditor Protection Proceedings. On the Petition Date, Nortel employed approximately 30,300 employees globally. Through the sales of its businesses and cost reduction activities, Nortel's workforce was approximately 190 employees as of December 31, 2011, which includes employees in Canada and those employed by our consolidated subsidiaries. Therefore, this number excludes employees employed by any U.S. subsidiary or an EMEA subsidiary. Given the Creditor Protection Proceedings, Nortel has discontinued all remaining activities under its previously announced restructuring plans as of the Petition Date. See note 8 for further information.

Nortel continued the Nortel Networks Limited Annual Incentive Plan ("Incentive Plan") in 2011 and will continue the Incentive Plan in 2012 for all eligible employees. The Incentive Plan permits quarterly award determinations and payouts for the business units and the Asia region, and semi-annual award determinations and semi-annual or annual payouts for the Corporate Group and NBS, as applicable.

Where required, Nortel has obtained court approvals for retention and incentive compensation plans for certain key eligible employees deemed essential to the business during the Creditor Protection Proceedings. In March 2009, Nortel obtained U.S. Court and Canadian Court approvals for a key employee incentive and retention program for employees in North America, CALA and Asia. The program consisted of the Nortel Networks Corporation Key Executive Incentive Plan and the Nortel Networks Corporation Key Employee Retention Plan.

On March 4, 2010, Nortel obtained U.S. Court approval and on March 8, 2010 Nortel obtained Canadian Court approval for the Nortel Special Incentive Plan ("NSIP"), which is designed to retain personnel at all levels of Corporate Group and NBS critical to complete Nortel's remaining work. The NSIP was developed in consultation with independent expert advisors taking into account the availability of more stable and competitive employment opportunities available to these employees elsewhere. The NSIP was supported by the Canadian Monitor, U.S. Creditors' Committee and the Bondholders Group. Representative Counsel to former Canadian employees was also advised of the NSIP prior to its approval by the Canadian Court and U.S. Court. The NSIP covered the period from January 1, 2010 to December 31, 2011.

As there remain significant milestones to complete the wind-down of Nortel's operations and conclude the CCAA Proceedings, a new retention plan ("Retention Plan") for employees of Nortel and certain of its affiliates in the APAC and CALA regions in which Nortel has an economic interest, was established by Nortel in consultation with the Canadian Monitor to cover the 2012 calendar year. The Retention Plan was approved by the Canadian Court on December 14, 2011. The Retention Plan includes approximately 150 employees in Canada, and the APAC and CALA regions, and the costs of the Retention Plan will be funded by the Nortel entity that employs a particular employee. Retaining the remaining employees is critical to Nortel's ability to complete its restructuring efforts, repatriate cash from affiliates in the APAC and CALA regions and complete the wind-down of those global entities, complete the estate segregation activities with respect to the IT infrastructure and applications, assist in the creditor claims processes including resolution of inter-company, trade and compensation related claims, assist in the sales proceeds allocation process, compliance with ongoing public reporting and tax compliance, and ultimately complete and implement a plan of arrangement.

On February 27, 2009, Nortel obtained Canadian Court approval to terminate its equity-based compensation plans (the Nortel 2005 Stock Incentive Plan, As Amended and Restated ("2005 SIP"), the Nortel Networks Corporation 1986 Stock Option Plan, As Amended and Restated ("1986 Plan") and the Nortel Networks Corporation 2000 Stock Option Plan ("2000 Plan")) and certain equity plans assumed in prior acquisitions, including all outstanding equity under these plans (stock options, stock appreciation rights ("SARs"), restricted stock units ("RSUs") and performance stock units ("PSUs")), whether vested or unvested. Nortel sought this approval given the decreased value of Nortel Networks common shares ("NNC common shares") and the administrative and associated costs of maintaining the plans to Nortel as well as the plan participants. As a consequence, all options under the remaining equity-based compensation plans assumed in prior acquisitions had expired.

Settlement Agreement with Former and Disabled Canadian Employee Representatives

On February 8, 2010, the Canadian Debtors reached an agreement on certain employment related matters regarding former Canadian Nortel employees, including Nortel's Canadian registered pension plans and benefits for Canadian pensioners and Nortel employees on long term disability ("LTD"). Nortel entered into a settlement agreement with court-appointed representatives of its former Canadian employees, pensioners and LTD beneficiaries, Representative Counsel, the Canadian Auto Workers' union and the Canadian Monitor ("Settlement Agreement"). The Settlement Agreement, as amended, was approved by the Canadian Court on March 31, 2010.

The Settlement Agreement provided that Nortel would continue to administer the Nortel Networks Limited Managerial and Non-Negotiated Pension Plan and the Nortel Networks Negotiated Pension Plan (collectively, the "Canadian Pension Plans" and individually, a "Canadian Pension Plan") until September 30, 2010, at which time the Canadian Pension Plans were transitioned, in accordance with the Ontario Pension Benefits Act, to Morneau Sheppell Ltd. (formerly known as Morneau Sobeco Limited Partnership), a replacement administrator appointed by the Ontario Superintendent of Financial Services ("Ontario Superintendent"). Nortel, as well as the Canadian Monitor, took all reasonable steps to complete the transfer of the administration of the Canadian Pension Plans to the new administrator. Nortel continued to fund the Canadian Pension Plans consistent with the current service and special payments Nortel had been making during the course of the CCAA Proceedings through March 31, 2010, and thereafter continued to make current service payments until September 30, 2010. On January 17, 2011, the Ontario Superintendent issued a Notice of Intended Decision stating that he intended to order the wind up of the Canadian Pension Plans effective October 1, 2010. See note 11.

For the remainder of 2010, Nortel continued to pay medical and dental benefits to Nortel pensioners and survivors and Nortel LTD beneficiaries in accordance with the current benefit plan terms and conditions. Life insurance benefits continued unchanged until December 31, 2010 and continued to be funded consistent with 2009 funding. Further, Nortel paid income benefits to the LTD beneficiaries and to those receiving survivor income benefits and survivor transition benefits through December 31, 2010. The employment of the LTD beneficiaries terminated on December 31, 2010. Under the Settlement Agreement, the parties agreed to work toward a court-approved distribution of the assets of Nortel's Health and Welfare Trust, the vehicle through which Nortel generally has historically funded these benefits, with the exception of the income benefits described above, which Nortel has paid directly. On November 9, 2010, the Canadian Court approved the Canadian Monitor's motion regarding a proposed allocation methodology with respect to the funds held in the Health and Welfare Trust for distribution to beneficiaries of the trust. Leave to appeal that order, which was sought by a group of 39 LTD beneficiaries, was denied by the Ontario Court of Appeal on January 7, 2011. By a series of Canadian Court orders dated December 15, 2010, May 3, 2011 and June 21, 2011, interim distributions out of the Health and Welfare Trust were approved and cumulative interim distributions of approximately CAD$24 were made to approximately 760 beneficiaries between January and July 2011. An additional interim distribution in the amount of approximately CAD$1.9 was made to LTD beneficiaries on or about September 30, 2011. On November 8, 2011, the Canadian Court approved a fifth distribution in the amount of CAD$22.2, substantially all of which was made on or about November 30, 2011 to over 8,000 LTD, pensioner and other beneficiaries. A sixth interim distribution was approved by the Canadian Court on March 2, 2012 in the amount of CAD$10.4. Nortel continues to work with the Canadian Monitor and Representative Counsel to finalize outstanding matters to allow a final distribution from the Health and Welfare Trust.

The Settlement Agreement also provides that Nortel establish a fund of CAD$4.3 for termination payments of up to CAD$0.003 per employee to be made to eligible terminated employees as an advance against their claims under the CCAA Proceedings, of which approximately CAD$4.3 has been paid. See information on employee compensation claims in the "Creditor Protection Proceedings Claims Processes" above.

A charge in the maximum amount of CAD$57 against the Canadian Debtors' assets has been established as security in support of the payments to be made by Nortel under the Settlement Agreement, which amount will be reduced by the amount of payments made. The Settlement Agreement also sets out the relative priority for claims to be made in respect of the deficiency in the Canadian Pension Plans and Nortel's Health and Welfare Trust. Under the Settlement Agreement, these claims will rank as ordinary unsecured claims in the CCAA Proceedings.

See note 11 for further information on Nortel's pension and employee benefits plans.

Other Developments

Under the CCAA Proceedings, the Canadian Debtors have filed a motion for an order authorizing and directing the Canadian Debtors to cease performing any remediation at or in relation to five sites (Belleville, Brampton, Brockville, Kingston and London, Ontario), and that any claims in relation to such remediation be subject to the court approved claims process under the CCAA Proceedings. Nortel brought the motion to disclaim any further obligation for such properties that are no longer owned or used by Nortel and that Nortel and its creditors derive no benefit from any further remediation. Subsequent to the filing of the motion, NNL entered into a transition agreement regarding the Brampton site that facilitated a gradual cessation of NNL's environmental risk related tasks at that site, which tasks have now been completed. The Ministry of the Environment (the "MOE") has made remediation orders with respect to the four other sites. The motion was heard in September 2011 in the Canadian Court wherein the Canadian Debtors sought advice and direction that the MOE remediation orders are in breach of the CCAA stay. A decision on that motion is pending. To date, the MOE has not sought to enforce the remediation orders while the Canadian Court's decision is outstanding and NNL has continued to undertake environmental risk assessments and remediation related tasks at those sites.

On November 1, 2011, NNL announced that in light of its ongoing Creditor Protection Proceedings and the other factors mentioned, NNL would not be following the notification procedures set out in the provisions attached to its Cumulative Redeemable Class A Preferred Shares Series 5 ("Series 5 Preferred Shares") in connection with the right of holders of Series 5 Preferred Shares to elect to convert such shares, on December 1, 2011, into Cumulative Redeemable Class A Preferred Shares Series 6 ("Series 6 Preferred Shares"), nor would a fixed dividend rate be set for purposes of the dividend rights attaching to the Series 6 Preferred Shares (none of which are currently outstanding). The principal distinction between the Series 5 Preferred Shares and Series 6 Preferred Shares, aside from their conversion rights, is that the former provide for floating adjustable dividends while the latter provide for fixed dividends, in either case, as and when declared payable by NNL's board of directors. NNL suspended the declaration of all dividends on its preferred shares in November 2008 and currently is not lawfully able to declare or pay dividends on its preferred shares, nor does it expect to resume the declaration or payment of dividends on its preferred shares at any time in the future. Further, as previously announced, NNL does not expect that holders of its preferred shares (of any series) will receive any value from the Creditor Protection Proceedings and expects that these proceedings will result in the cancellation of such shares.

Condensed Combined Debtors Financial Statements

The financial statements contained within this note have been prepared in accordance with the guidance of ASC 852 and represent the condensed combined financial statements of the Canadian Debtors and U.S. Debtors ("Debtors' financial statements") that are included in the consolidated financial statements for the years ended December 31, 2011 and 2010. The results of operations of the U.S. Debtors have been included in the Debtors' financial statements for the periods presented, consistent with the basis of accounting reflected in the consolidated financial statements. Refer to note 1 for additional information. The condensed combined statements of operations exclude the Canadian Debtors' and U.S. Debtors' interests in the results of operations of non-Debtor subsidiaries.

Intercompany Transactions

Intercompany transactions and balances with Nortel's non-Debtor subsidiaries and affiliates have not been eliminated in the Debtors' financial statements.

Contractual Interest Expense on Outstanding Long-Term Debt

During the year ended December 31, 2011, Nortel has continued to accrue for interest expense of $326 ($301 for the year ended December 31, 2010) in its normal course of operations related to debt issued by NNC and NNL in Canada until it obtains a claims determination order that adjudicates the claims. During the pendency of the Creditor Protection Proceedings Nortel generally has not and does not expect to make payments to satisfy any of the interest obligations of the Debtors. Nortel has continued to accrue interest on its $1,000 floating rate notes that matured on July 15, 2011until it obtains a claims determination order that adjudicates the claim.

Foreign Currency Denominated Liabilities

ASC 852 requires pre-petition liabilities of the Canadian Debtors that are subject to compromise to be reported at the claim amounts expected to be allowed, even if they may be settled for lesser amounts. For foreign currency denominated liabilities, the CCAA requires allowable claims to be translated at the exchange rate in effect as of the Petition Date unless otherwise provided for in a court-approved plan. The claims process approved by the Canadian Court provides that foreign currency denominated claims must be calculated by the Canadian Monitor in Canadian dollars using a January 13, 2009 exchange rate. However, the claims process order specifically recognizes the ability of the Canadian Debtors to utilize a different exchange rate in any proposed plan. Therefore, given the impact that fixing exchange rates may have on the amounts ultimately settled, in Canada, foreign currency denominated balances, including Nortel's U.S. dollar denominated debt, will not be accounted for using the Petition Date exchange rate but rather will continue to be accounted for in accordance with FASB ASC 830 "Foreign Currency Matters ("ASC 830"). To date, the Canadian Debtors have not developed any plan or proposed an alternative exchange rate and any plan would be subject to creditor approval prior to the Canadian Court's approval.

Cash Restrictions

As a result of the Creditor Protection Proceedings, cash and cash equivalents are generally available to fund operations in particular jurisdictions, but generally are not available to be freely transferred between jurisdictions, regions, or outside joint ventures, other than for normal course post Petition Date intercompany trade and pursuant to specific agreements approved by the Canadian Court.

Proceeds from the various business and asset divestitures, as discussed above, are being held in escrow until the applicable jurisdictions can determine the proceeds allocations and are not available to fund operations.

CONDENSED COMBINED STATEMENTS OF OPERATIONS

(Millions of U.S. Dollars)


	2011			2010
Product revenues:
Third party	$	-		$	311
Non-Debtor subsidiaries		1			34
Service revenues (Third party)		-			112

Total revenues		1			457

Product cost of revenues:
Third party		6			333
Non-Debtor subsidiaries		1			36
Service cost of revenues (Third party)		-			45

Total cost of revenues		7			414

Gross profit (loss)		(6	)		43
Selling, general and administrative expense		107			443
Research and development expense		-			113
Loss on sales of businesses and assets and impairment of assets		1			1
Other operating income - net		(46	)		(250	)

Operating loss		(68	)		(264	)
Other income (expense) - net		(14	)		128
Interest expense		(323	)		(304	)

Loss from continuing operations before reorganization items, income taxes and equity in net loss of debtor subsidiaries		(405	)		(440	)
Reorganization items - net^(a)		3,837			(3,045	)

Earnings (loss) from continuing operations before income taxes and equity in net loss of debtor subsidiaries		3,432			(3,485	)
Income tax benefit (expense)		(10	)		35

Earnings (loss) from continuing operations before equity in net loss of debtor subsidiaries		3,422			(3,450	)
Equity in net loss of debtor subsidiaries - net of tax		-			(72	)

Net earnings (loss) from continuing operations attributable to
Debtors, including noncontrolling interests		3,422			(3,522	)
Net earnings (loss) from discontinued operations - net of tax		(1	)		27

Net earnings (loss) attributable to Debtors		3,421			(3,495	)
including noncontrolling interests
Income attributable to noncontrolling interests		(12	)		(10	)

Net earnings (loss) attributable to Debtors	$	3,409		$	(3,505	)

(a) Includes a charge of $320 recognized in the year ended December 31, 2011 for the impairment of certain investments in consolidated non-debtor subsidiaries accounted for under the cost method for the purpose of these condensed combined financial statements only.

CONDENSED COMBINED BALANCE SHEETS

(Millions of U.S. Dollars)


	2011			2010
ASSETS
Current assets
Cash and cash equivalents	$	306		$	289
Restricted cash and cash equivalents		59			81
Accounts receivable - net:
Third parties		12			1
Non-Debtor subsidiaries		387			401
U.S. Debtors subsidiaries		93			92
EMEA Debtors subsidiaries		9			14
Inventories - net		-			1
Other current assets		30			84
Assets held for sale		-			7
Assets of discontinued operations		-			4

Total current assets		896			974
Restricted cash and cash equivalents		7,479			3,061
Investments in non-Debtors / Debtor subsidiaries ^(a)		62			382
Plant and equipment - net		-			23
Other assets		50			65

Total assets	$	8,487		$	4,505

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Trade and other accounts payable:
Third parties	$	2		$	6
Non-Debtor subsidiaries		134			169
U.S. Debtors subsidiaries		18			19
EMEA Debtors subsidiaries		10			25
Payroll and benefit-related liabilities		13			24
Contractual liabilities		-			1
Other accrued liabilities		6			11
Liabilities held for sale		-			3
Liabilities of discontinued operations		-			4

Total current liabilities		183			262
Long-term liabilities
Deferred income taxes - net		7			-
Other liabilities		7			15

Total long-term liabilities		14			15
Liabilities subject to compromise		11,527			11,108
Liabilities subject to compromise of discontinued operations		34			35

Total liabilities		11,758			11,420

SHAREHOLDERS' DEFICIT
Total shareholders' deficit of Debtors		(3,840	)		(7,472	)
		-			-
Noncontrolling interests in Debtors		569			557

Total shareholders' deficit		(3,271	)		(6,915	)

Total liabilities and shareholders' deficit	$	8,487		$	4,505

(a) Carrying amount reduced by $320 in the year ended December 31, 2011 for the impairment of certain investments in consolidated non-debtor subsidiaries accounted for under the cost method for the purpose of these condensed combined financial statements only.

CONDENSED COMBINED STATEMENTS OF CASH FLOWS

(Millions of U.S. Dollars)


	2011			2010
Cash flows from (used in) operating activities
Net earnings (loss) attributable to Debtors	$	3,409		$	(3,505	)
Net (earnings) loss from discontinued operations		1			(27	)
Adjustments to reconcile net loss from continuing operations to net cash from (used in) operating activities:
Reorganization items - net		(3,931	)		2,879
Other adjustments ^(a)		385			797

Net cash from (used in) operating activities - continuing operations		(136	)		144
Net cash used in operating activities - discontinued operations		-			(283	)

Net cash used in operating activities		(136	)		(139	)

Cash flows from (used in) investing activities
Expenditures for plant and equipment		-			(9	)
Proceeds on disposal of plant and equipment		-			203
Change in restricted cash and cash equivalents		(4,396	)		(1,151	)
Decrease in short and long-term investments		-			24
Proceeds from the sales of investments, businesses and assets - net		4,550			905

Net cash from (used in) investing activities - continuing operations		154			(28	)
Net cash from investing activities - discontinued operations		-			283

Net cash from investing activities		154			255

Cash flows from (used in) financing activities
Decrease in notes payable		-			(75	)
Repayments of capital lease obligations		-			(4	)

Net cash used in financing activities - continuing operations		-			(79	)
Net cash used in financing activities - discontinued operations		-			-

Net cash used in financing activities		-			(79	)

Effect of foreign exchange rate changes on cash and cash equivalents		(1	)		17
Reduction of cash and cash equivalents of deconsolidated subsidiaries		-			(897	)

Net cash from (used in) continuing operations		17			(843	)
Net cash from (used in) discontinued operations		-			-

Net increase (decrease) in cash and cash equivalents		17			(843	)
Cash and cash equivalents at beginning of the year		289			1,132

Cash and cash equivalents at end of the year	$	306		$	289

(a) The operating section of the condensed combined statement of cash flows has been presented on a summarized basis and, as a result, Other adjustments represent all adjustments to reconcile net earnings (loss) to net cash from (used in) operating activities, with the exception of Reorganization items — net.