Reliant FORM 10-K manual Derivative financial instruments, 2001

The following table presents the impact on net earnings (loss) for the year ended December 31, 2001 of the SFAS 142 requirement to cease the amortization of goodwill as if the standard had been in effect beginning January 1, 2001.

	2001
Net earnings (loss) — reported	(339,539)
Amortization of goodwill	3,434
Net earnings (loss) — adjusted	(336,105)

(j)Impairment or disposal of long-lived assets (plant and equipment)

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addressed financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 is applicable to certain long-lived assets, including those reported as discontinued operations, and develops one accounting model for long-lived assets to be disposed of by sale. SFAS 144 superseded SFAS No. 121, “Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of”, and APB No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB 30”), for the disposal of a segment of a business. Nortel Networks S.A. adopted the provisions of SFAS 144 effective January 1, 2002.

SFAS 144 requires that long-lived assets to be disposed of by sale be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet been incurred. SFAS 144 also broadened the reporting of discontinued operations to include the disposal of a component of an entity provided that the operations and cash flows of the component will be eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the component. The adoption of SFAS 144 did not have a material impact on Nortel Networks S.A. results of operations and financial condition.

(k)Derivative financial instruments

Effective January 1, 2001, Nortel Networks S.A. 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”).

The adoption of SFAS 133 did not have a material impact on Nortel Networks S.A. results of operations and financial condition.

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

Research and development expense:

	2003	2002	2001
R&D expense	236,967	264,275	249,603
R&D costs incurred on behalf of others(a)	5,445	9,098	2,885
Total	242,412	273,373	252,488

(a)These costs included R&D charged to customers of Nortel Networks S.A. 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.

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