Reliant FORM 10-K manual Segment information General description

6.Segment information General description

During 2003 and up to September 30, 2004, Nortel Networks S.A. operations (including the operations of Northern Telecom France and Nortel Networks France (see note 2)) were organized around four reportable segments consisting of Wireless Networks, Enterprise Networks, Wireline Networks and Optical Networks. Wireless Networks included network access and core networking products for voice and data communications that span second and third generation wireless technologies and most major global standards for mobile networks and related professional services. Enterprise Networks included circuit and packet voice solutions, data networking and security solutions and the related professional services used by enterprise customers. Wireline Networks included circuit and packet voice solutions, data networking and security solutions and the related professional services used by service provider customers. Optical Networks included metropolitan, regional and long-haul optical transport and switching solutions and managed broadband services and related professional services for both service provider and enterprise customers.

“Other” represented miscellaneous business activities and corporate functions. None of these activities meet the quantitative criteria to be disclosed as reportable segments.

Effective October 1, 2004, a new streamlined organizational structure was established that involved, among other things, combining the businesses of Nortel Networks S.A. four segments into two business organizations: (i) Carrier Networks and Global Operations, and (ii) Enterprise Networks. Nortel Networks S.A. is reviewing the impact of these changes on its reportable segments.

Nortel Networks S.A. president and chief executive officer together with the president of Nortel Networks France have been identified as the chief operating decision makers (the “Decision Makers”) in assessing the performance of the segments and the allocation of resources to the segments. The Decision Makers rely on the information derived directly from the Nortel Networks Corporation management reporting system. The primary financial measure used by the Decision Makers in assessing performance and allocating resources is management earnings (loss) before income taxes (“Management EBT”), a measure that includes contribution margin, R&D expense, interest expense, other income (expense) — net and minority interest. Previously, the primary financial measure used by the Decision Makers in assessing performance and allocating resources was contribution margin, a measure that was comprised of gross profit less SG&A. As both contribution margin and Management EBT were available to the Decision Makers during 2003, Nortel Networks S.A. has determined that it is appropriate to disclose both contribution margin and Management EBT for the periods presented.

Costs associated with shared services and other corporate costs are allocated to the segments based on usage determined generally by headcount. Costs not allocated to the segments are primarily related to corporate compliance and other non-operational activities and are included in “other”. In addition, the Decision Makers do not review asset information on a segmented basis in order to assess performance and allocate resources. The accounting policies of the reportable segments are the same as those applied to the consolidated financial statements.

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