Reliant FORM 10-K manual 192

to the settlement date are recorded in net earnings (loss) in the period incurred. The payment amount is established for Stock Appreciation Rights (“SARs”) on the date of exercise of the award by the employee, for Restricted Stock Units (“RSUs”) on the vesting date of the award. Stock-based awards which are substantively discretionary in nature are recorded in the period that the issuance and settlement of the award is approved.

Under various stock option programs of Nortel Networks Corporation (“NNC”), the ultimate parent company of Nortel Networks S.A., options may be granted to various eligible employees and directors of Nortel Networks S.A. to purchase common shares of Nortel Networks Corporation.

NNC has stock purchase plans for eligible employees in eligible countries (including France), to facilitate the acquisition of the common shares of Nortel Networks Corporation at a discount (“ESPPs”). Nortel Networks S.A. contribution to the ESPPs is recorded as compensation expense on a quarterly basis as the obligation to contribute is incurred.

Had Nortel Networks S.A. applied the fair value based method to all stock-based awards in all periods, reported net earnings (loss) would have been adjusted to the pro forma amounts indicated below for the following years ended December 31:

	2003	2002		2001
Net earnings (loss) — reported	(138,889)	(206,174)	(339,539)
Stock-based compensation — reported(a)	2,133	463		917
Stock-based compensation — pro forma(b)	(10,435)	(34,685)		(45,134)
Net earnings (loss) — pro forma	(147,191)	(240,396)		(383,756)

(a)Stock-based compensation — reported, included, for the years ended December 31, 2003, 2002 and 2001:

	i.	Stock option expense of 1,333, nil and nil, respectively, which was net of tax of nil in each period;
	ii.	Employer portion of ESPPs contributions expense of 314, 463 and 917, respectively, which was net of tax of 25, 51 and 72, respectively;
	iii.	RSUs expense of 486, nil and nil, respectively, which was net of tax of 98, nil and nil respectively.
(b)	Stock-based compensation — pro forma expense for the years ended December 31, 2003, 2002 and 2001, which was net of tax of nil.

In March 2004, the EITF reached€€consensus on Issue No.€03-€1, “The€Meaning€of Other-Than-Temporary€Impairment€€and Its Application to Certain Investments” (“EITF 03-1”). EITF 03-1 provides guidance on determining when an investment is considered impaired, whether that impairment is other than temporary and the measurement of an impairment loss. EITF 03-1 is applicable to marketable debt and equity securities within the scope of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”), and SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations”, and equity securities that are not subject to the scope of SFAS 115 and not accounted for under the equity method of accounting. In September 2004, the FASB issued FSP EITF 03-1-1, “Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”, which delays the effective date for the measurement and recognition criteria contained in EITF 03-1 until final application guidance is issued. The delay does not suspend the requirement to recognize other-than-temporary impairments as required by existing authoritative literature. The adoption of EITF 03-1 is not expected to have a material impact on Nortel Networks S.A. results of operations and financial position.

The following weighted average assumptions were used in computing the fair value of stock options for purposes of expense recognition and pro forma disclosures, as applicable, for the following periods:

		2003		2002		2001
Black-Scholes weighted-average assumptions
Expected dividend yield		0.00%		0.00%		0.00%
Expected volatility		92.49%		71.33%		70.36%
Risk-free interest rate		2.81%		4.49%		4.49%
Expected option life in years		4		4		4
Weighted-average stock option fair value per option granted (U.S.$)	$	1.6	$	3.5	$	8.4

(t) Recent accounting pronouncements

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