Reliant FORM 10-K manual Related party transactions, Other profit sharing agreements

Global profit split

Head office cost

In the ordinary course of business, Nortel Networks S.A. engages in transactions with Nortel Networks and certain of Nortel Networks affiliates. These transactions are measured at their exchange amounts.

Transactions with related parties for the years ended December 31 are summarized as follows:

10. Related party transactions

	2003	2002	2001
Billed to related parties
Revenues	515,478	458,918	439,072
Other income (expense) — net	19,572	43,741	58,389
Billed from related parties
Purchases	127,327	230,763	424,816
Selling, general and administrative expense	19,494	44,085	15,149
Research and development expense	16,536	22,722	18,105
Interest expense	778	4,617	627
Capital acquisitions	88	4,450	23,624
Business transferred to related parties	15,365	33,755	21,905
Issuance of common shares	150,000	485,363	–

The following table shows the balance sheet position in respect of related parties as of December 31:

		2003	2002
Receivables from related parties
Due from Nortel Networks Limited		109,388	152,892
Due from affiliates		145,309	81,179
Payables to related parties
Due to Nortel Networks Limited		1,991	12,529
Due to affiliates		30,011	76,797
Long-term notes receivable from Nortel Networks Limited	€	–	140,010
Notes payable to related parties
Current		160	–
Long-term		70,000	220,000

Nortel Networks S.A. was charged until December 31, 2001 by Nortel Networks for its share of head office costs incurred by Nortel Networks that are attributable to the activities of Nortel Networks S.A. These charges, which are included in selling, general and

administrative expense, amounted to 4,017 in 2001.

Nortel Networks S.A. has€entered into€certain agreements with a related party€under which the profit or loss that the affiliate is€recording on certain contracts with external customers is split on a defined basis between the affiliate and Nortel Networks S.A. The agreements are aimed to produce arm’s length results and pricing for Nortel Networks S.A. and remunerate the know-how that Nortel Networks S.A. is sharing with the affiliate.

Nortel Networks S.A. participates with Nortel Networks and certain of Nortel Networks S.A. affiliates in various agreements with respect to intercompany product sale and purchase transactions, including research and development costs. Prior to 2001, the pricing of intercompany transactions between Nortel Networks S.A. and certain of its affiliates was determined through the application of various methodologies intended to produce arm’s length results and pricing for Nortel Networks S.A. Nortel Networks S.A. also shared in global research and development costs based on the benefits derived from the research and development utilized in its geographic market. Effective January 1, 2001, the global research and development cost sharing methodology was replaced with a global profit split methodology based upon the historical research and development costs of the participants, and further intended to produce arm’s length

results for Nortel Networks S.A. Under that methodology, Nortel Networks S.A. received a charge in 2001 of approximately 114,271, a credit of approximately 65,013 for 2002 and a charge of approximately 58,224 for 2003. These were all allocated to the cost of revenues.

Other profit sharing agreements

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