Reliant FORM 10-K Derivative financial instruments, Consolidated financial statement details

(m) Derivative financial instruments

Effective January 1, 2001, Nortel Networks adopted SFAS 133, and the corresponding amendments under SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities — an amendment of SFAS No. 133” (“SFAS 138”). See note 2(t) for further information regarding the accounting for derivatives under SFAS 133.

For the year ended December 31, 2001, the adoption of SFAS 133 resulted in a cumulative decrease in net loss of $15 (net of tax of $9), which has been reported as cumulative effect of accounting changes — net of tax, and a charge to OCI of $7 (net of tax of $4). The decrease in net loss is primarily attributable to embedded derivatives. The charge to OCI is primarily attributable to the effective portion of option and forward contracts related to the Canadian dollar hedge program that are designated as cash flow hedges. The adoption of SFAS 133 did not materially affect either the basic or diluted loss per common share.

5.Consolidated financial statement details

The following consolidated financial statement details are presented as of December 31 for the consolidated balance sheets and for each of the years ended December 31 for the consolidated statements of operations and consolidated statements of cash flows.

Consolidated statements of operations

Selling, general and administrative expense:

Selling, general and administrative (“SG&A”) expense included bad debt recoveries of $180 and expense of $291 and $1,791 in the years ended December 31, 2003, 2002 and 2001, respectively.

Research and development expense:

		2003		2002		2001
R&D expense	$	1,960	$	2,083	$	3,116
R&D costs incurred on behalf of others(a)		72		49		68
Total	$	2,032	$	2,132	$	3,184

(a)These costs included R&D charged to customers of Nortel Networks pursuant to contracts that provided for full recovery of the estimated cost of development, material, engineering, installation and other applicable costs, which were accounted for as contract costs.

Other income (expense) — net:

		2003		2002		2001
Interest income	$	75	$	88	$	133
Gain (loss) on sale or write down of investments		143		(39)		(368)
Currency exchange gains (losses)		105		(65)		(152)
Other — net		122		11		(119)
Other income (expense) — net	$	445	$	(5)	$	(506)

During the year ended December 31, 2003, reversals of provisions of $87 relating to a customer bankruptcy settlement reduced cost of revenues and SG&A expense by $53 and $4, respectively, and increased other income (expense) — net by $30.

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