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Reliant FORM 10-K manual Accruals and provisions, Net increase decrease to net loss

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Summary of Restatement Adjustments for the year ended December 31, 2001:

	Accruals and			Related party	Plant and					Total
			provisions	transactions	equipment			adjustments


Revenues — external			–	–			–			–
Revenues — related parties			–	9,800						9,800


			–	9,800			–	9,800
Cost of revenues	(13,700)			(60,747)	8			(74,439)


Gross profit	13,700			70,547	(8)			84,239
Selling, general and administrative expense	(55)			–	(2,821)			(2,876)
Research and development expense	(13,358)			–	(319)			(13,677)
Special charges — other special charges	(8,095)			–			–	(8,095)
Other income (expense) — net	(435)			75	94			(266)
Interest expense			–	–	(2,821)			(2,821)


Total restatement adjustments			34,773	70,622			405			105,800

(a)Accruals and provisions

The adjustments primarily correct certain accruals, provisions or other transactions which were either initially recorded incorrectly in prior periods or not properly released or adjusted for changes in estimates and/or assumptions in the appropriate periods. The adjustments primarily impacted cost of revenues, selling, general and administrative expense, research and development expense, special charges and other expense and resulted in an increase to the net loss in the year ending December 31, 2002 and a decrease to the net loss for the year ended December 31, 2001. These adjustments are described below.

	2002	2001


Increase (decrease) from adjustments of accruals and provisions
Cost of revenues	9,030	(13,700)
Selling, general and administrative expense	(420)	(55)
Research and development expense	6,690	(13,358)
Special charges	2,646	(8,095)
Other expense	1,541	435
Foreign exchange	(306)	–

Net increase (decrease) to net loss	19,181	(34,773)

Details of the items listed above are provided in the following tables.

Cost of revenues

The variations to cost of revenues were due to the following factors:

	2002	2001


Increase (decrease) of cost of revenues
Product related	1,036	(4,194)
Customer related	(1,042)	(743)
Related party	(157)	(500)
Employee related	4,423	(4,330)
Other accounts payable	2,010	(920)
Tax	2,645	(3,110)
Other	115	97


Net increase (decrease) of cost of revenues	9,030	(13,700)

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Reliant FORM 10-K Accruals and provisions, Net increase decrease to net loss, Net increase decrease of cost of revenues

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 Other business developments Strategic plan2003 Network components Networking solutionsNetworking solutions NetworkingProducts Wireless NetworksProduct development Network accessCore networking Customers MarketsEnterprise Networks Circuit and packet voice solutionsCompetition 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 Our business Business overviewOur segments Our business environment How we measure performance Our strategic plan and outlook Comprehensive Review and First Restatement Consolidated results summarySecond Restatement Independent ReviewYears ended December 31, 2002 Revenues and cost of revenues Other Foreign exchangeIntercompany balances Special chargesReclassifications First, second and third quartersDis operations Page Revenues and cost of revenues Intercompany balances Personnel actions Revenue Independent ReviewEDC Support Facility Debt securities Credit facilities and security agreementsStock-based compensation plans Shelf registration statementCredit ratings Regulatory actions and pending litigationOther business developments Evolution of our supply chain strategyShareholder 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 revenues2002 vs 2003 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 marginEnterprise Networks Wireline 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 expenseCash flows Liquidity and capital resources2003 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 Credit ratings Off-balance sheet arrangementsBid, 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 chargesOther contingencies Accounting changes and recent accounting pronouncementsAccounting changes Recent accounting pronouncements Market risk Equity price risk Risk factors/forward looking statements Legal proceedingsRisks 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 equivalentsInvestments Receivables salesPlant and equipment Goodwill Long-lived assets held and usedDerivative financial instruments Warranty costsIntangible assets Pension, post-retirement and post-employment benefitsStock-based compensation Weighted-average stock option fair value per option granted 2003 2002 2001 Black-Scholes weighted-average assumptions2003 2002 2001 Recent accounting pronouncements Comparative figuresFirst Restatement 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 designationOther special charges Goodwill impairment other acquisitionsOther 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 adjustmentsConsolidated Balance Sheet as of December 31 GuaranteesAccounting 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 Consolidated financial statement details Derivative financial instrumentsConsolidated 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 chargesJanuary Accrued Costs Payments Adjustments Balance as Incurred MadeDuring December 2003 Lease costs a Year ended December 31 Income taxes 2003 2002 2001 Net Operating Capital Tax Losses Employee benefit plansCredits b Total Page Change in plan assets 2003 2002 Change in benefit obligationAllocation of net pension expense 2003 2002 2001 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 salesBusiness sale and business combination agreements GuaranteesIntellectual 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 FeesTax Fees Audit-Related FeesAll Other Fees Reports on Form 8-K Page Page Page Exhibit Exhibit IndexNumber 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 obligationsStock-based compensation Determining whether an arrangement contains a leaseAccounting 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 Sale of investment RoyaltiesFinancing 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