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Reliant FORM 10-K manual

Models: FORM 10-K

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Page 116

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

Refer to “Market risk” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Image 116

Reliant FORM 10-K manual

Contents

Washington, D.C Annual report pursuant to or 15dSecurities Exchange Act For the transition period fromExplanatory Note Table of Contents Item 9A Part Item 1. Business OverviewDevelopments in 2003 Business environmentPage 2003 Strategic planOther business developments Networking solutions Networking solutionsNetworking Network componentsWireless Networks ProductsCore networking Network accessProduct development Markets CustomersCompetition Circuit and packet voice solutionsEnterprise Networks Data networking and security solutions Wireline Networks Circuit and packet voice solutions Markets Optical Networks Product development Markets Sales and distribution BacklogProduct standards, certification and regulations Sources and availability of materialsSeasonality Strategic alliances, acquisitions and minority investmentsResearch and development Intellectual propertyEmployee relations Environmental matters Financial information by geographic areaWorking capital Risk factorsItem 2. Properties Type of SiteNumber of Sites Owned Leased Geographic LocationsItem 3. Legal Proceedings Page Page Environmental matters Item 4. Submission of Matters to a Vote of Security Holders High LowDividends Canadian tax mattersSales of unregistered securities DividendsItem 6. Selected Financial Data Unaudited 2003 2002 2001 2000 Revenues and cost of revenues adjustments TotalOther adjustments Business overview Accounting changes and recent accounting pronouncements Our segments Business overviewOur business Our business environment How we measure performance Our strategic plan and outlook Consolidated results summary Comprehensive Review and First RestatementYears ended December 31, 2002 Independent ReviewSecond Restatement Revenues and cost of revenues Foreign exchange Intercompany balancesSpecial charges OtherDis operations First, second and third quartersReclassifications Page Revenues and cost of revenues Intercompany balances EDC Support Facility Revenue Independent ReviewPersonnel actions Credit facilities and security agreements Debt securitiesShelf registration statement Credit ratingsRegulatory actions and pending litigation Stock-based compensation plansShareholder rights plan Evolution of our supply chain strategyOther business developments Ownership adjustment in our French and German operations Customer financing commitmentsSale of Entrust shares Real estateResults of operations continuing operations Customer financing arrangementsSegment revenues Geographic revenues2004 2003 vs2002 vs Wireless Networks revenues 2002 vs Enterprise Networks revenues 2002 vs Wireline Networks revenues Optical Networks revenues 2002 vs Wireless Networks Gross profit and gross marginSegment gross profit and gross margin For the years ended December 2003 vs 2002 vs 2001Optical Networks Wireline NetworksEnterprise Networks Selling, general and administrative expense Segment selling, general and administrative expenseOperating expenses For the years ended December 2003 vs 2002 vs 2001 $ ChangeResearch and development expense Segment research and development expense Segment contribution margin Segment Management EBTAmortization of intangibles Deferred stock option compensationSpecial charges Page Gain loss on sale of businesses and assets Other income expense netResults of operations dis operations Interest expenseIncome tax benefit expense Net earnings loss from continuing operations2003 2002 Liquidity and capital resourcesCash flows Page Uses of liquidity Contractual cash obligations Purchase obligationsOutsourcing contracts Obligations under special chargesJDS purchase arrangement Customer financingPension, post-retirement and post-employment obligations Other long-term liabilities reflected on the balance sheetsJoint ventures/minority interests Dis operationsSources of liquidity Credit facilitiesShelf registration statement and base shelf prospectus Bid, performance related and other bonds Off-balance sheet arrangementsCredit ratings Other indemnifications or guarantees Application of critical accounting estimates Revenue recognitionProvisions for doubtful accounts Provisions for inventory Income taxes Tax asset valuationTax contingencies Goodwill valuationPension and post-retirement benefits Special charges Change in AssumptionAccounting changes Accounting changes and recent accounting pronouncementsOther contingencies Recent accounting pronouncements Market risk Equity price risk Risks relating to our restatements and related matters Legal proceedingsRisk factors/forward looking statements Page Operations, financial condition and liquidity Page Page Page Page Risks relating to our business Page Page Page Page 104 Page Page Page Page Page Page Page Index to Consolidated Financial Statements Report of Independent Registered Chartered Accountants Nortel Networks Corporation Consolidated Balance Sheets as of December AssetsTotal comprehensive income loss for the year Cash flows from used in operating activities Nortel Networks Corporation Significant accounting policiesBasis of presentation Principles of consolidationTranslation of foreign currencies Revenue recognitionResearch and development Income taxes Earnings loss per common shareCash and cash equivalents Restricted cash and cash equivalentsPlant and equipment Receivables salesInvestments Long-lived assets held and used GoodwillWarranty costs Intangible assetsPension, post-retirement and post-employment benefits Derivative financial instrumentsStock-based compensation 2003 2002 2001 2003 2002 2001 Black-Scholes weighted-average assumptionsWeighted-average stock option fair value per option granted Comparative figures Recent accounting pronouncementsSecond Restatement RestatementFirst Restatement Page Page 121 Total restatement adjustments 289 183 314 272 Page Revenues and cost of revenues Revenue recognition adjustments Other adjustmentsApplication of SAB 101 or SOP Revenues Cost of revenues 2002 2001Other revenue recognition adjustments Presentation errorsReseller transactions Foreign exchangeOther errors Functional currency designationIntercompany transaction designation Goodwill impairment 980 Nplc business acquisitionOther Goodwill impairment other acquisitionsOther special charges Selling, general and administrative expense 2002 2001 Other adjustmentsCost of revenues Research and development expenseOther income expense net Interest expenseIncome taxes and minority interests ReclassificationsDis operations Decrease to net loss on disposal of operations net of taxOther adjustments Balance sheetAccounting changes GuaranteesConsolidated Balance Sheet as of December 31 Asset retirement obligations Consolidation of variable interest entitiesPage Determining whether an arrangement contains a lease Pensions and other post-retirement benefitsStock-based compensation Accounting for goodwill and other intangible assets23,270 Consolidated statements of operations Derivative financial instrumentsConsolidated financial statement details Consolidated balance sheets Accounts receivable netInventories net Other current assetsWireless Enterprise Wireline GoodwillIntangible assets net Other accrued liabilitiesInterest and taxes paid recovered Other liabilitiesMinority interests in subsidiary companies Change in operating assets and liabilitiesReceivables sales Segment information General descriptionSegments Product revenues2003 2002 2001 Revenues Contribution marginGeographic information Long-lived assetsSpecial charges Year ended December 31During December 2003 Lease costs a Accrued Costs Payments Adjustments Balance as Incurred MadeJanuary Year ended December 31 Income taxes 2003 2002 2001 Credits b Total Employee benefit plansNet Operating Capital Tax Losses Page 2003 2002 Change in benefit obligation Change in plan assetsDefined benefit plans 20032002 2003 2002 2001 Pension expenseAllocation of net pension expense 2003 2002 2001 Post-retirement benefit cost 2003 2002 Target ActualPage Other acquisitions Net tangible Deferred Closing date PurchaseAcquisition Price Goodwill Technology CompensationService commerce operations DivestituresSale of Arris Group, Inc. investment High speed module operationsSale of Clarify ClosuresLong-term debt, credit and support facilities Long-term debtCredit facilities Support facility Financial instruments and hedging activitiesRisk management Foreign currency riskEquity price risk Fair value2003 2002 Interest rate swap contracts Cross currency coupon swap contractsCredit risk Other derivativesReceivables sales FairIntellectual property indemnification obligations GuaranteesBusiness sale and business combination agreements Lease agreements Third party debt agreementsOther indemnification agreements Product warrantiesCommitments Bid, performance related and other bondsCustomer financing Venture capital financingPurchase commitments Operating leases and other commitmentsOperating Outsourcing Leases Contracts Charges IncomeRestricted cash and cash equivalents Capital stock Common sharesPrepaid forward purchase contracts Preferred shares DividendsShareholder rights plan Earnings loss per common shareAccumulated other comprehensive loss Stock-based compensation plans Stock optionsMaximum Restricted stock unit plan OptionsDirectors’ deferred share compensation plans Employee stock purchase plansDis operations Activity 2003 2002 2001 Cash flows from used in dis operationsActivity Related party transactions ContingenciesPage Page Environmental matters Subsequent events EDC Support Facility Credit facilities and security agreements Directory and operator services business Debt securitiesStock-based compensation plans Stock exchangesEvolution of Nortel Networks supply chain strategy Supplemental consolidating financial information Nortel Non Nortel Non 612 450 15,364 380 Supplemental Consolidating Balance Sheets as of December 31 182 240 413 388 262 16,961 Nortel Non Networks 818 592 487 525 768 572 111 648 206 Quarterly Financial Data Unaudited Report of Independent Registered Chartered Accountants Schedule Consolidated AdditionsCharged Beginning To costs EndItem 9A. Controls and Procedures 114 Scope of the Independent Review Summary of Findings of the Independent Review Page Page Page Governing Principles for Remedial Measures Page Page Page Page Additional Background Page Second Restatement Independent Review Second Restatement Process Page Fixed or determinable fees-An increase of $133 million Page Principal Adjustments Page Page Revenue Independent Review Remedial Measures Page Name Age Position with the Company Page Page Page Year Name and age Office and position currently held AppointmentSubsequent appointment Beneficial ownership reporting compliance Audit committee financial expertAudit committee Code of ethics and other corporate governance mattersItem 11. Executive Compensation Summary compensation tableLong Term Compensation Name Principal Position YearAnnual Compensation Salary Bonus147 148 149 150 Annual cash incentive awards Option grants in 2004Common Value of UnexercisedIn-the-Money Realized $ Exercisable152 Dunn Debon Spradley Bolouri DeRoma Exercisable UnexercisableLong-term incentive plans awards in last two fiscal years Maturation or Payout Threshold# Target# Maximum# #12Retirement plans Page Total Earnings Certain employment arrangements Page Compensation of directors Compensation committee interlocks and insider participation Security ownership of directors and managementName of Beneficial Owner Title of Class of Security163 Equity compensation plan information Plan categoryItem 13. Certain Relationships and Related Transactions Indebtedness of managementItem 14. Principal Accountant Fees and Services Table of Indebtedness of Directors and Executive OfficersAudit Fees January 1All Other Fees Audit-Related FeesTax Fees Reports on Form 8-K Page Page Page Number Description Exhibit IndexExhibit Number Description Number Description Number Description Number Description Number Description Subsidiary of Nortel Networks Limited Report of Independent Registered Public Accounting Firm 182 183 184 Nortel Networks S.A Nortel Networks S.A Use of estimates Research and development Cash and cash equivalents Plant and equipment State sponsored pension plans Financial instruments192 Restatement Second Pooling Previously InterestReported RestatedAccruals Interest Pooled ReportedAccruals and provisions Net increase decrease to net loss2002 2001 Increase decrease of cost of revenues Net increase decrease of cost of revenuesOther expenses Related party transactions2002 2001 Increase decrease of research and development Net increase decrease of research and developmentResidual profit sharing Related party revenues and cost of revenuesRelated party out of balances Plant and equipmentCosts of revenues, research and development expense Interest on long- term debtGuarantees Consolidated Balance Sheets as of December 31Asset retirement obligations Consolidation of variable interest entitiesAccounting for goodwill and other intangible assets Determining whether an arrangement contains a leaseStock-based compensation Derivative financial instruments 204 Wireless Wireline OpticalInvestment at cost net NetworksLong-term debt Segment information General description Major customers Geographic information Long-lived assets2003 2002 2001 External revenues ContractExpected sublease revenue on leases Income taxes Acquisitions and divestitures Acquisitions Northern Telecom FranceNortel Networks France Matra Nortel Communication DistributionOther profit sharing agreements Financing transactions RoyaltiesSale of investment Financial instruments Share pledgeJoint ventures/minority interests/disposed business Shareholders’ equity Leases ContractsPlan a Outstanding Weighted Options Nortel Networks Company Savings Plan Security agreements Page Signatures Directors