Reliant FORM 10-K manual Residual profit sharing, Related party revenues and cost of revenues

Residual profit sharing

Adjustments to cost of revenues of Nortel Networks S.A. are primarily due to adjustments to the results of Nortel Networks resulting from the restatements. These adjustments impact the cost of revenues of Nortel Networks S.A. through the global profit split methodology implemented since 2001 (see note 10). The share of Nortel Networks S.A. in the global profit of Nortel Networks was increased by 49,668 and 60,747 for the years ending December 31, 2002 and December 31, 2001 respectively.

Related party revenues and cost of revenues

Adjustments to revenues from related parties of Nortel Networks S.A. are primarily due to errors in the timing of the revenue recognition from a profit split agreement by which Nortel Networks S.A. is entitled to receive a share of the profit recognized by certain affiliated parties. An amount of 9,800 of revenue related to this agreement was recognized in the year ended December 31, 2002 whereas Nortel Networks S.A. determined that this revenue should have been recognized in the year ended December 31, 2001.

The reduction of 9,800 of related party revenues in the year ended December 31, 2002 resulting from this adjustment is partially offset by another adjustment for an amount of 4,438 that was recorded to correct a reduction in related party revenues recorded in the year ended December, 31 2002. The reduction of related party revenue recorded in the year ended December 31, 2002 was a correction of related party revenues recorded in error in the year ended December 31, 2000. The adjustment is reprofiling the reduction of revenues from related parties to the year ended December 31, 2000. An adjustment was recorded to the cost of revenues to related parties (see below) on the same transaction for the same amount resulting in an increase to cost of revenues to related parties by 4,438.

The reduction of €4,856 in cost of revenues to related parties in the year ended December 31, 2001 related mainly to the correction of an amount of 9,900 billed to Nortel Networks S.A. in error under a profit split agreement partially offset by an increase of cost of revenues

to related parties for	4,438 due to the correction of an error recorded in the year ended December, 31 2002 and that was correcting an
error that had taken place in the year ended December 31, 2000. Another adjustment for 365 to cost of revenues to related parties was
recorded to correct certain charges that had not been expensed in error.
€	€
Related party out of balances

As part of the Second Restatement process, Nortel Networks S.A. undertook a review of the inter-company out-of-balance positions. The timing of the significant underlying out-of-balance positions has been identified and corrections recorded in the appropriate periods. The

adjustments for the out-of-balance positions resulted in approximately a 61 and a 75 decrease to the previously reported net loss for the
years ended December 31, 2002 and 2001, respectively.
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(c) Plant and equipment
As a result of the Independent Review, various€	accounts were examined. Certain known errors that were previously not recorded because

the amount of the errors was not material to the financial statements of Nortel Networks S.A. were also corrected. The following table
summarizes the adjustments relative to plant and equipment.					€
€					2002	2001
Net increase (decrease) from other adjustments to above items
	€
Cost of revenues				€	483	8
Selling, general and administrative expense					(3,280)	(2,821)
Research and development expense					–	(319)
Other income (expense) — net					129	(94)
Interest on long-term debt		€	€		3,280	2,821
Net increase (decrease) from other adjustments to above items					612	(405)
		198