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Reliant FORM 10-K manual Working capital, Risk factors

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Working capital

For a discussion of our working capital practices, see “Long-term debt, credit and support facilities” in note 11 of the accompanying consolidated financial statements and “Liquidity and capital resources” in the MD&A section of this report.

Risk factors

THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING INFORMATION THAT IS SUBJECT TO IMPORTANT RISKS AND UNCERTAINTIES. THE RESULTS OR EVENTS PREDICTED IN THESE STATEMENTS MAY DIFFER MATERIALLY FROM ACTUAL RESULTS OR EVENTS. RESULTS OR EVENTS COULD DIFFER FROM CURRENT EXPECTATIONS AS A RESULT OF A WIDE RANGE OF RISK FACTORS. FOR INFORMATION REGARDING SOME OF THE RISK FACTORS INVOLVED IN OUR BUSINESS AND OPERATIONS, SEE “RISK FACTORS/FORWARD LOOKING STATEMENTS” IN THE MD&A SECTION OF THIS REPORT.

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Reliant FORM 10-K manual Working capital, Risk factors

Contents

For the transition period from Washington, D.CAnnual report pursuant to or 15d Securities Exchange ActExplanatory Note Table of Contents Item 9A Item 1. Business Overview PartBusiness environment Developments in 2003Page Strategic plan Other business developments2003 Network components Networking solutionsNetworking solutions NetworkingProducts Wireless NetworksNetwork access Product developmentCore networking Customers MarketsCircuit and packet voice solutions Enterprise NetworksCompetition Data networking and security solutions Wireline Networks Circuit and packet voice solutions Markets Optical Networks Product development Markets Backlog Sales and distributionSources and availability of materials Product standards, certification and regulationsStrategic alliances, acquisitions and minority investments SeasonalityIntellectual property Research and developmentEmployee relations Financial information by geographic area Environmental mattersRisk factors Working capitalGeographic Locations Item 2. PropertiesType of Site Number of Sites Owned LeasedItem 3. Legal Proceedings Page Page Environmental matters High Low Item 4. Submission of Matters to a Vote of Security HoldersDividends DividendsCanadian tax matters Sales of unregistered securitiesItem 6. Selected Financial Data Unaudited 2003 2002 2001 2000 Total Revenues and cost of revenues adjustmentsOther adjustments Business overview Accounting changes and recent accounting pronouncements Business overview Our businessOur segments Our business environment How we measure performance Our strategic plan and outlook Comprehensive Review and First Restatement Consolidated results summaryIndependent Review Second RestatementYears ended December 31, 2002 Revenues and cost of revenues Other Foreign exchangeIntercompany balances Special chargesFirst, second and third quarters ReclassificationsDis operations Page Revenues and cost of revenues Intercompany balances Revenue Independent Review Personnel actionsEDC Support Facility Debt securities Credit facilities and security agreementsStock-based compensation plans Shelf registration statementCredit ratings Regulatory actions and pending litigationEvolution of our supply chain strategy Other business developmentsShareholder rights plan Real estate Ownership adjustment in our French and German operationsCustomer financing commitments Sale of Entrust sharesGeographic revenues Results of operations continuing operationsCustomer financing arrangements Segment revenues2003 vs 2002 vs2004 Wireless Networks revenues 2002 vs Enterprise Networks revenues 2002 vs Wireline Networks revenues Optical Networks revenues 2002 vs For the years ended December 2003 vs 2002 vs 2001 Wireless NetworksGross profit and gross margin Segment gross profit and gross marginWireline Networks Enterprise NetworksOptical Networks For the years ended December 2003 vs 2002 vs 2001 $ Change Selling, general and administrative expenseSegment selling, general and administrative expense Operating expensesResearch and development expense Segment research and development expense Deferred stock option compensation Segment contribution marginSegment Management EBT Amortization of intangiblesSpecial charges Page Other income expense net Gain loss on sale of businesses and assetsNet earnings loss from continuing operations Results of operations dis operationsInterest expense Income tax benefit expenseLiquidity and capital resources Cash flows2003 2002 Page Uses of liquidity Obligations under special charges Contractual cash obligationsPurchase obligations Outsourcing contractsOther long-term liabilities reflected on the balance sheets JDS purchase arrangementCustomer financing Pension, post-retirement and post-employment obligationsCredit facilities Joint ventures/minority interestsDis operations Sources of liquidityShelf registration statement and base shelf prospectus Off-balance sheet arrangements Credit ratingsBid, performance related and other bonds Other indemnifications or guarantees Revenue recognition Application of critical accounting estimatesProvisions for doubtful accounts Provisions for inventory Tax asset valuation Income taxesGoodwill valuation Tax contingenciesPension and post-retirement benefits Change in Assumption Special chargesAccounting changes and recent accounting pronouncements Other contingenciesAccounting changes Recent accounting pronouncements Market risk Equity price risk Legal proceedings Risk factors/forward looking statementsRisks relating to our restatements and related matters 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 Assets Consolidated Balance Sheets as of DecemberTotal comprehensive income loss for the year Cash flows from used in operating activities Principles of consolidation Nortel Networks CorporationSignificant accounting policies Basis of presentationRevenue recognition Translation of foreign currenciesResearch and development Restricted cash and cash equivalents Income taxesEarnings loss per common share Cash and cash equivalentsReceivables sales InvestmentsPlant and equipment Goodwill Long-lived assets held and usedDerivative financial instruments Warranty costsIntangible assets Pension, post-retirement and post-employment benefitsStock-based compensation 2003 2002 2001 Black-Scholes weighted-average assumptions Weighted-average stock option fair value per option granted2003 2002 2001 Recent accounting pronouncements Comparative figuresRestatement First RestatementSecond Restatement Page Page 121 Total restatement adjustments 289 183 314 272 Page Revenues and cost of revenues Revenues Cost of revenues 2002 2001 Revenue recognition adjustmentsOther adjustments Application of SAB 101 or SOPForeign exchange Other revenue recognition adjustmentsPresentation errors Reseller transactionsGoodwill impairment 980 Nplc business acquisition Other errorsFunctional currency designation Intercompany transaction designationGoodwill impairment other acquisitions Other special chargesOther Research and development expense Selling, general and administrative expense2002 2001 Other adjustments Cost of revenuesReclassifications Other income expense netInterest expense Income taxes and minority interestsDecrease to net loss on disposal of operations net of tax Dis operationsBalance sheet Other adjustmentsGuarantees Consolidated Balance Sheet as of December 31Accounting changes Consolidation of variable interest entities Asset retirement obligationsPage Accounting for goodwill and other intangible assets Determining whether an arrangement contains a leasePensions and other post-retirement benefits Stock-based compensation23,270 Derivative financial instruments Consolidated financial statement detailsConsolidated statements of operations Other current assets Consolidated balance sheetsAccounts receivable net Inventories netOther accrued liabilities Wireless Enterprise WirelineGoodwill Intangible assets netChange in operating assets and liabilities Interest and taxes paid recoveredOther liabilities Minority interests in subsidiary companiesSegment information General description Receivables salesContribution margin SegmentsProduct revenues 2003 2002 2001 RevenuesLong-lived assets Geographic informationYear ended December 31 Special chargesAccrued Costs Payments Adjustments Balance as Incurred Made JanuaryDuring December 2003 Lease costs a Year ended December 31 Income taxes 2003 2002 2001 Employee benefit plans Net Operating Capital Tax LossesCredits b Total Page Change in plan assets 2003 2002 Change in benefit obligation2003 2002 2001 Pension expense Allocation of net pension expenseDefined benefit plans 20032002 2003 2002 Target Actual 2003 2002 2001 Post-retirement benefit costPage Compensation Other acquisitionsNet tangible Deferred Closing date Purchase Acquisition Price Goodwill TechnologyHigh speed module operations Service commerce operationsDivestitures Sale of Arris Group, Inc. investmentLong-term debt Sale of ClarifyClosures Long-term debt, credit and support facilitiesCredit facilities Foreign currency risk Support facilityFinancial instruments and hedging activities Risk managementCross currency coupon swap contracts Equity price riskFair value 2003 2002 Interest rate swap contractsFair Credit riskOther derivatives Receivables salesGuarantees Business sale and business combination agreementsIntellectual property indemnification obligations Third party debt agreements Lease agreementsBid, performance related and other bonds Other indemnification agreementsProduct warranties CommitmentsVenture capital financing Customer financingLeases Contracts Charges Income Purchase commitmentsOperating leases and other commitments Operating OutsourcingCapital stock Common shares Restricted cash and cash equivalentsPrepaid forward purchase contracts Earnings loss per common share Preferred sharesDividends Shareholder rights planStock-based compensation plans Stock options Accumulated other comprehensive lossMaximum Options Restricted stock unit planEmployee stock purchase plans Directors’ deferred share compensation plansDis operations 2003 2002 2001 Cash flows from used in dis operations ActivityActivity Contingencies Related party transactionsPage Page Environmental matters Subsequent events EDC Support Facility Credit facilities and security agreements Stock exchanges Directory and operator services businessDebt securities Stock-based compensation plansEvolution 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 Beginning To costs End Schedule ConsolidatedAdditions ChargedItem 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 Name and age Office and position currently held Appointment YearSubsequent appointment Code of ethics and other corporate governance matters Beneficial ownership reporting complianceAudit committee financial expert Audit committeeSummary compensation table Item 11. Executive CompensationSalary Bonus Long Term Compensation Name Principal PositionYear Annual Compensation147 148 149 150 Option grants in 2004 Annual cash incentive awardsRealized $ Exercisable CommonValue of Unexercised In-the-Money152 Exercisable Unexercisable Dunn Debon Spradley Bolouri DeRomaMaturation or Payout Threshold# Target# Maximum# #12 Long-term incentive plans awards in last two fiscal yearsRetirement plans Page Total Earnings Certain employment arrangements Page Compensation of directors Security ownership of directors and management Compensation committee interlocks and insider participationTitle of Class of Security Name of Beneficial Owner163 Plan category Equity compensation plan informationIndebtedness of management Item 13. Certain Relationships and Related TransactionsJanuary 1 Item 14. Principal Accountant Fees and ServicesTable of Indebtedness of Directors and Executive Officers Audit FeesAudit-Related Fees Tax FeesAll Other Fees Reports on Form 8-K Page Page Page Exhibit Index ExhibitNumber Description 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 Financial instruments State sponsored pension plans192 Restatement Restated Second Pooling PreviouslyInterest ReportedInterest Pooled Reported AccrualsNet increase decrease of cost of revenues Accruals and provisionsNet increase decrease to net loss 2002 2001 Increase decrease of cost of revenuesNet increase decrease of research and development Other expensesRelated party transactions 2002 2001 Increase decrease of research and developmentPlant and equipment Residual profit sharingRelated party revenues and cost of revenues Related party out of balancesInterest on long- term debt Costs of revenues, research and development expenseConsolidated Balance Sheets as of December 31 GuaranteesConsolidation of variable interest entities Asset retirement obligationsDetermining whether an arrangement contains a lease Stock-based compensationAccounting for goodwill and other intangible assets Derivative financial instruments 204 Networks WirelessWireline Optical Investment at cost netLong-term debt Segment information General description Major customers Contract Geographic informationLong-lived assets 2003 2002 2001 External revenuesExpected sublease revenue on leases Income taxes Matra Nortel Communication Distribution Acquisitions and divestitures AcquisitionsNorthern Telecom France Nortel Networks FranceOther profit sharing agreements Royalties Sale of investmentFinancing transactions Share pledge Financial instrumentsJoint ventures/minority interests/disposed business Leases Contracts Shareholders’ equityPlan a Outstanding Weighted Options Nortel Networks Company Savings Plan Security agreements Page Signatures Directors