SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ____________
COMMISSION FILE NO.: 001-11639
LUCENT TECHNOLOGIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
|(STATE OR OTHER JURISDICTION
INCORPORATION OR ORGANIZATION)
|(I.R.S. EMPLOYER IDENTIFICATION NO.)|
|600 MOUNTAIN AVENUE, MURRAY HILL, NEW JERSEY||07974|
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)||(ZIP CODE)|
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: 908-582-8500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
See attached Schedule A.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
At November 30, 2004, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately $17,250,000,000.
At November 30, 2004, 4,420,635,714 shares of the registrants common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
|(1)|| Portions of the registrants annual report to shareowners for the fiscal year ended September 30, 2004 (Part II).
|(2)|| Portions of the registrants definitive proxy statement for its 2005 annual meeting of shareowners (Part II and III).
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
|Title Of Each Class||Name
Of Each Exchange
On Which Registered
|Common Stock (par
value $.01 per share)
7.25% Notes due July 15, 2006
5.50% Notes due November 15, 2008
6.50% Debentures due January 15, 2028
6.45% Debentures due March 15, 2029
|New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
TABLE OF CONTENTS
|Item 3.||Legal Proceedings||22|
|Item 4.||Submission of Matters to a Vote of Security Holders||23|
|Item 5.||Market for Registrants Common Equity and Related Stockholder Matters||24|
|Item 6.||Selected Financial Data||24|
|Item 7.||Managements Discussion and Analysis of Financial Condition and Results of|
|Item 7A.||Quantitative and Qualitative Disclosures About Market Risk||24|
|Item 8.||Financial Statements and Supplementary Data||25|
|Item 9.||Changes in and Disagreements with Accountants on Accounting and Financial|
|Item 9A.||Controls and Procedures||25|
|Item 9B.||Other Information||25|
|Item 10.||Directors and Executive Officers of the Registrant||26|
|Item 11.||Executive Compensation||26|
|Item 12.||Security Ownership of Certain Beneficial Owners and Management and Related||26|
|Item 13.||Certain Relationships and Related Transactions||27|
|Item 14.||Principal Accounting Fees and Services||27|
|Item 15.||Exhibits and Financial Statement Schedule||28|
This report contains trademarks, service marks and registered marks of us and our subsidiaries, and other companies, as indicated.
Item 1. Business
Technologies Inc. (referred to in this report as the Company, we,
us, our or Lucent) designs and delivers
the systems, services and software that drive next-generation communications
networks. Backed by Bell Labs research and development, we rely on our strengths
in mobility, optical, software, data and voice networking technologies, as well
as services, to create new revenue-generating opportunities for our customers,
while enabling them to quickly deploy and better manage their networks. Our
customer base includes communications service providers, governments and enterprises
incorporated in Delaware in November 1995. We were formed from the systems and
technology units that were formerly a part of AT&T Corp. (AT&T),
including the research and development capabilities of Bell Laboratories (Bell
Labs), and were spun off by AT&T on September 30, 1996. Our principal
executive offices are located at 600 Mountain Avenue, Murray Hill, New Jersey
07974 (telephone number 908-582-8500). Our fiscal year begins October 1 and
ends September 30. Through a link on the Investor Relations section of our Website,
www.lucent.com, we make available, free of charge, our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports as soon as reasonably practicable after such material
is electronically filed with or furnished to the SEC. These reports and other
information are also available, free of charge, at www.sec.gov. Alternatively,
the public may read and copy any materials we file with the SEC at the SECs
Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information
on the operation of the Public Reference Room may be obtained by calling the
SEC at 1-800-SEC-0330.
years of decline in service provider spending, we believe the global telecommunications
networking industry has stabilized and is starting to grow in certain areas.
However, many service providers and telecommunications vendors are just now
emerging from an industry restructuring of unprecedented scale, and some challenges
provider customers operate in a fast-changing environment driven by new technology,
competition and regulatory change. End users are demanding fast, personalized,
easy-to-use communications and are relying on new applications in both their
professional and personal lives. These applications and services are enabled
by technologies such as mobile high-speed data, broadband access, next-generation
optical networking, Voice over Internet Protocol (VoIP) and multimedia
converged services. Our strategy and portfolio are focused on identifying and
capitalizing on these growth opportunities, and we believe that demand for these
new applications and services will drive profitable growth for both the service
providers and Lucent.
the level of our customers success will depend on their ability to meet
end-user demand and generate new revenue, while simultaneously managing capital
expenditures and reducing operating expenses. To do that, we believe service
providers need to introduce new converged lifestyle-driven services
to enhance value for end-users and stimulate growth for their businesses. Therefore,
we believe that choosing an architecture that seamlessly enables next-generation
networks and having a strong portfolio of products and services that enable
convergence will be key factors in our customers success. Lucent is committed
to establishing a leadership role in supplying this next-generation architecture
to our customers.
regions, government mandated regulatory changes continue to influence the telecommunications
industry. These changes in telecommunications law were designed to liberalize
closed markets, encourage competition, create new services and stimulate demand.
Historically, this changing legislative landscape has created uncertainty, particularly
in the United States. Depending on the situation, it has caused acceleration,
postponement or cancellation of major network investments and upgrades by certain
customers. Recent rulings by the FCC in the United States and other government
regulatory bodies in foreign countries appear to provide a favorable environment
for a new breed of high-speed access (broadband) as well as VoIP services.
have resulted in telecommunications operators managing their businesses based
on more moderate revenue forecasts and a generally lower economic outlook. Service
providers continue to focus on cutting operational costs, reducing debt, expanding
new services and improving the security and reliability of their networks as
they look to capitalize on a changing regulatory environment.
that the worldwide service provider capital spending will increase on a percentage
basis in the mid-single digits in aggregate during 2004, with most of the growth
coming from outside the U.S. market. In the United States, we estimate capital
spending will be essentially flat during 2004. These estimates indicate that
the capital spending declines of the past few years have leveled off and are
beginning to increase slightly. We believe that worldwide service provider capital
spending will continue to grow at the same rate in 2005 as compared with 2004.
While it is widely acknowledged that opportunities are more limited and smaller
than in the past, a large market opportunity remains for leading telecommunications
equipment vendors to help customers address their business needs.
our company as uniquely positioned in the marketplace. We have a comprehensive
portfolio that addresses the wireline, wireless, and services markets, a clear
vision of next-generation networking and a strategy to successfully deliver
this vision to our customers.
is about creating networks that deliver communications services that are simple,
seamless, secure, personal and portable, for people at work, home or anywhere
in between. We refer to these services as blended lifestyle-driven
services that greatly enhance the end-user experience in terms of ease of use,
personalization and access to a broad variety of applications regardless of
the type of network used. This next generation of convergence solutions will
deliver Internet Protocol (IP)-based multimedia services to consumers and enterprises
across any access technology such as DSL, cable modem or wireless network. As
Lucent continues to address the demand for convergence, we have adopted an architecture
standard, promoted by the 3G Partnership Program (3GPP) called the IP Multi-Media
Subsystem (IMS), that enables standardization relative to how the core network
interacts with applications, various network layers, and back-office systems.
IMS provides the ability to deliver value added services over next-generation
networks and provides for uniformity in the network by employing the same framework
for any kind of access (wireless, wireline) and any kind of traffic (VoIP, data,
multimedia, etc.). Therefore, IMS provides service providers a framework to
cost effectively offer new services to their customers based upon how
the end-user chooses to access the network.
IMS-based core network architecture is common across both wireline and wireless
network applications. It supports open interfaces to the network (which means
customers can use network infrastructure systems from multiple vendors) and
open interfaces to applications (which enables service providers to engage third-parties
to develop applications for the introduction of new subscriber communications,
information services and entertainment services). Our Accelerate portfolio
of solutions, based on the IMS architecture, is designed to help service providers
deliver a new generation of multimedia communications services over wireless
and wireline networks and migrate their voice networks to IP in order to realize
the capital and operating expense savings provided by IP transport.
three business segments organized around the product and services we sell: Integrated
Network Solutions (INS), Mobility Solutions (Mobility)
and Lucent Worldwide Services (Services). Through these three reportable segments, we are focused on:
have increased our focus with regard to the government sector and some emerging
markets, we remain focused on addressing the needs of the leading telecommunications
service providers throughout the world. We believe spending remains highly concentrated,
with the 50 largest service providers still responsible for approximately 75%
of spending on equipment and services, and 20 countries still accounting for
more than 90% of all capital spending by service providers.
to be our customers partner of choice for providing telecommunications
network products and services. We believe that we have the following strengths
that differentiate us from our competitors:
three business segments organized around the products and services we sell.
INS provides a broad range of software and wireline equipment related to voice
networking (primarily consisting of switching products, which we sometimes refer
to as convergence solutions, and voice messaging products), data and network
management (primarily consisting of access and related data networking equipment
and operating support software) and optical networking. Voice networking, data
and network management and optical networking products are an integral part
of our customers networks and the foundation for Lucents IMS-based
solutions, which deliver multimedia communications services to end-users. Mobility
provides software and wireless equipment to support radio access and core networks.
Services is a worldwide services organization that provides deployment, maintenance,
professional and managed services in support of both our product
offerings as well as multivendor networks. Financial information about each
of these segments is set forth in Note 11 to our consolidated financial statements
and our Managements Discussion and Analysis of Financial Condition and
Results of Operations contained in this report.
are supported by a number of central organizations, including Supply Chain Networks
(SCN), Bell Labs, Global Sales Organization (GSO) and
corporate centers. SCN manages the materials and activities necessary to produce
and deliver products and services to our customers. Bell Labs provides basic
and applied research and development support for our business. GSO is our primary
interface to our customers around the world. The organization is responsible
for managing the relationships with our customers and selling solutions to help
them quickly deploy next-generation communication networks that create new revenue-generating
opportunities and enable them to better manage their networks. Our corporate
centers provide centrally managed but locally deployed corporate support groups
that include cash management, legal, accounting, tax, public relations, insurance,
advertising, human resources and data services.
Integrated Network Solutions
were approximately $3.0 billion during fiscal 2004, of which 50% were from customers
in the United States. Revenues are primarily from large, established service
providers. We sell most of our products through our Global Sales Organization,
with individual teams that support all significant customers, and, to a much
lesser extent, through third-party distributors. As of September 30, 2004, INS
had approximately 5,300 employees, primarily engaged in product development,
marketing and general management activities.
primary focus is on addressing opportunities with our service provider customers,
many of whom are transitioning from legacy to next-generation architectures,
in order to deliver multimedia communications services. For example, customers
are exploring ways to migrate their networks from circuit to packet switching
to support voice and voice/data services over IP, from SONET/SDH optical voice
networks to data-enabled Multiservice Provisioning Platforms, from asynchronous
transfer mode (ATM) and Internet Protocol (IP) transport
to Multi-Protocol Label Switched (MPLS) networks, from narrowband
access to broadband access to support voice/data/video services, and from multiple
network operations support systems to integrated network operating systems.
We believe the key priorities for service providers during these transitions
include generation of new revenues, management of capital expenses and reduction
of operating expenses as they build standards-compliant networks.
During 2004, we realigned
our portfolio of network infrastructure products for wireline and wireless networks
to comply with the IMS architecture.
INS develops and offers products in the following areas:
Voice Networking Products
used for voice communications, circuit switches transmit, or switch,
communications from one location to another within the network over dedicated
paths through the network. Circuit switching has been used in telephone networks
for decades. In a traditional circuit-switched telephone call, the telephone
network creates dedicated connections so that the person placing the call can
communicate with the person receiving the call.
architectures are evolving to incorporate packet switching; a technology developed
for data communications. IP switching is a specific type of packet switching
in which information is divided into small segments called packets in IP networks,
which are then sent independently, through the network from the originating
end of the transmission to the destination. As the packets arrive at the destination,
they are reassembled into the original information.
switching allows information streams to more efficiently share network resources,
because a path is not dedicated to each information stream, as in circuit switching.
However, packet switching can have lower transmission quality than circuit switching
because packets may get delayed or lost in transit. New protocols, or procedures,
between packet switches allow the network to maintain the quality of transmission
of information by tagging each information packet with a description of the
type and importance of its content. MPLS is such a protocol for regulating the
transmission of data through a packet network. MPLS allows multiple types of
traffic (data, voice and video) to cross a packet-switched network with improved
actively engaged with our traditional voice networking customers to help them
evolve their 5ESS® circuit-switched platforms to increase capacity, lower
the cost of operations, accelerate new feature introductions, and lay the groundwork
for the introduction of packet-based IP transport and IMS-based services. For
example, our iMerge IP Centrex solution adds interfaces on the 5ESS® circuit
switch to connect packet-based end-user devices for voice traffic. This allows
service providers to serve new types of terminals and offer new services with
a small additional investment, while significantly reducing operating expenses.
The Lucent Multimedia Portal gives service providers and end-users one-click
access to all advanced phone and voice/data services and is being deployed
to our customers residential and business customers.
software complies with the IMS architecture and enables our customers to support
multimedia communications in an IP environment. We believe our development of
a new software switching base has distinct competitive advantages over the alternative
of porting decades-old circuit switching code that was designed to support voice
in a circuit-switched environment. Code built for the circuit-switched environment
cannot support the establishment and management of multimedia communications
IP sessions that are required to deliver services such as voice, data and video.
Purpose-built softswitches that support one kind of network access inevitably
increase service provider expenses and are unable to support the variety of
new access devices and network services that will be required in the marketplace
(e.g., seamless handoff of a communications session from a third generation
(3G) network to a WiFi/WiMax network on business premises or at
the systems used in traditional voice networking can be reused as components
of Accelerate Next-Generation Networking solutions.
For example, 5E-XC access frames can be put under software control, saving service
providers from buying new network gateways.
a new internationalized version of the 5E-XC software that contains support
for Personal Handyphone Systems (PHS) used in China and Japan. PHS
is an extension of a wireline network that uses a wireless telephone similar
to a cordless phone and provides mobility and extended-range voice and data
services. Our revenues generated from the sale of these systems increased in
China during fiscal 2004. However, the acceleration of 3G developments in China
and Japan may cause our revenues from these systems to decline in the future.
developed a card that supports session initiation protocol, or SIP an
industry-wide protocol that simplifies the development and delivery of IP services
and an optical interface unit that reduces equipment space by 75% and power
consumption by 70% in a central office. It also provides a ten-fold increase
in the number of trunks per cabinet or rack that the switch supports.
2004, we completed the acquisition of Telica, a private manufacturer of VoIP
solutions for network service providers. The acquisition of Telica supports
our IMS-based architecture and brings to Lucent what we believe is the most
dense high-capacity media gateway in the industry. Telica also provides important
capabilities in network controllers and signaling gateways. In addition, the
Telica architecture enables a service provider to assemble each component into
a single, cost-effective compact switch for smaller markets or to
distribute and scale the components in independent frames to support very large
networks. Each compact switch installation can grow seamlessly to support demand
and subscriber usage increases.
software technology enables users to store, retrieve, forward and otherwise
manage incoming and outgoing voice, fax, email and video messages. In 2004 we
introduced the AnyPath Content Delivery System to bring the AnyPath portfolio
into the mobile data space. We expect to introduce the AnyPath video mail portfolio
in early 2005 to meet growing market demands for end-user applications.
Data and Network Management Products
network management products provide a means of connecting the end user to the
rest of the network. Voice traffic has traditionally been, and continues to
be, connected to circuit switches through circuit-switched access products.
This allows one voice call per pair of copper wires. More recent access technologies,
such as DSL, allow faster transmission of data, multiple voice connections and
even video streams over one pair of copper wires. INS has three families of
access products, two fully specialized at providing DSL service with high speeds
at low cost and the other aimed at providing a flexible mix between traditional
voice access and DSL access. Other access technologies allow packet-and circuit-switched
networks to communicate with each other. An example is our Universal Gateway
line of products, which allow end users to dial over a circuit-switched connection
(traditional phone call) and then interface with a packet-switched network,
such as the Internet.
Operations Software solutions manage network performance, reliability and provisioning
for wireline and wireless service providers, as well as their customers.
Our software allows providers to ensure end-customer service quality, to control
operating expenses, to optimize network utilization, and to enable multimedia
converged services to scale to support large numbers of customers. In 2004 we
delivered significant enhancements to our software and launched new service
quality management products to support IP-based multivendor mobile, optical
and data networks.
committed to helping our customers migrate to MPLS networks in a packet-switched
network core. MPLS is a protocol or procedure for regulating the transmission
of data such as frame relay, ATM and IP through a network so that
service providers can deliver data traffic at specific, negotiated Quality of
Service (QoS) levels.
our new CBX 3500 Multiservice Edge Switch in June 2004. This switch is designed
for seamless insertion into operating networks to minimize operating expenses
during network expansion. A full suite of higher-capacity cards for the CBX
3500 are expected to provide additional capabilities to support high-bandwidth
IP, ATM and frame relay edge services.
an IP module, developed by Juniper Networks, for our large embedded base of
CBX 500 Multiservice Edge Switches. This module enables service providers to
add IP/MPLS capability to the CBX 500, an alternative to adding a separate router
to their networks, while maintaining the same Navis network management system
they are using to support existing subscriber data services.
also partnering with Microsoft to jointly pursue the IP TV market segment by
combining our Stinger DSLAM and ADSL2+ modems with Microsoft video servers,
set-top boxes and software. We believe the Stinger family is ideally suited
for IP video broadcast and pay-per-view deployments because of its multicast
capabilities and because it limits the amount of optical bandwidth that carriers
must provide between the central office and the remote, thereby reducing expenses.
Optical Networking Products
networking products include laser-based transmission systems that transport
information between and among switches and other network components by the release
of light particles. These systems include core backbone high-capacity systems,
the central portion of network equipment, as well as lower-capacity metropolitan
systems (local networks).
networking systems expand and speed optical signals over fiber cable for the
core, or central portion, of a service providers network and
allow the service provider to increase the amount of traffic transmitted over
its fiber optic network. The core network equipment is responsible for moving
voice, data and video traffic from origin to destination and connecting radio
base stations to the public voice and data networks.
networking systems, another group of optical networking products, are designed
to aggregate and increase the use of fiber optic systems for both voice and
data traffic for local carriers or networks located in metropolitan areas. This
family of optical networking products gives service providers fast, efficient
information transport over fiber optic lines.
metropolitan area networking optical systems provide a simple, differentiated
way for our customers to data-enable the installed base of SONET/SDH systems.
In 2004, we added Ethernet, Gigabit Ethernet and Storage Area Network interfaces
to our metropolitan area optical networking systems. These interfaces give our
customers the ability to generate new revenues by supporting Ethernet data transport
over SONET/SDH networks that formerly were used to carry only voice traffic.
during fiscal 2004 were approximately $4.0 billion. A significant portion of
Mobilitys revenues was derived from a few large service providers in the
U.S. Verizon Wireless and Sprint accounted for 61% and 52% of total Mobility
revenues during fiscal 2004 and 2003, respectively. As of September 30, 2004,
Mobility had approximately 4,500 full-time employees engaged mainly in product
development, general management and marketing activities.
is focused on providing CDMA and UMTS spread-spectrum solutions, which includes
WCDMA, to wireless service providers. These are commonly referred to as 3G networks.
We are also working on creating relationships with other equipment vendors to
help us offer best-in-class, end-to-end solutions and products. CDMA is a globally
deployed wireless technology, predominantly used in North America and Asia Pacific.
WCDMA is a variant of CDMA that uses a wider frequency band and is predominantly
used in Europe. GSM is a globally deployed wireless technology, predominantly
used in Europe and Asia Pacific.
also continually evaluates opportunities to leverage its strengths in new technologies.
The most important products in Mobilitys CDMA and UMTS portfolios are
developed internally, including radio access products, circuit and packet core
backbone networks, and network management, application and service delivery
systems. Mobility also taps into INSs strengths in voice networking, data
and network management and optical networking, and leverages the expertise of
our strength and track record in spread-spectrum technologies has uniquely positioned
Mobility for the global migration of our customers and potential customers to
3G wireless networks. Mobilitys emphasis is on providing the equipment
and services that our customers need to evolve from their current second-generation
(2G and 2.5G) technology to the 3G spread-spectrum technologies
of CDMA2000 and UMTS. CDMA2000 is the 3G standard for CDMA technology. Both
2G and 3G wireless technologies are digital. The main differences between the
technologies are capacity and data transmission speed. To be considered 3G,
a network must deliver improved system capacity and spectrum efficiency over
a 2G network and support data services at specified transmission rates in mobile
and fixed environments.
Telecommunications Union, an international standards body that operates as part
of the United Nations, has been instrumental in promulgating a vision of 3G
that embraces a wide variety of spread-spectrum technologies, including those
we have helped develop. We continue to be the global leader in CDMA spread-spectrum
networks, with more than 120,000 base stations providing commercial service
around the world. Approximately 70,000 of those base stations provide 3G services
for our customers today. We have built 33 3G networks in 17 countries, equal
to 29% of the 114 3G commercial networks deployed. We are also conducting ongoing
UMTS customer trials with Cingular, China Netcom and Chinas Ministry of
We have already brought
to market spread-spectrum CDMA2000 networks in North America, South America,
China, India, Asia, Eastern Europe and Russia, and we expect continued progress
with our UMTS offerings.
the existing 3G plans from leading service providers around the world, we expect
that the majority of future 3G mobile users will access voice and high-speed
data services through CDMA2000 or UMTS networks. While we are certain that the
3G wireless networks will be dominated by these spread-spectrum technologies,
there are other potential new technologies (e.g. OFDM & WiMax) that may
be introduced as competitive alternatives for mobile customers. Given the technical
maturity of the spread-spectrum technologies, time to market advantages will
benefit the technologys adoption over the next 24 months. Additionally,
demand for enterprise mobile data services is a major driver behind CDMA2000
and UMTS spending, and the consumer market for high-speed data services is now
beginning to develop.
market opportunities are separated into two categories: low teledensity countries
(e.g. Southeastern Asia) with a need for wireless voice and basic data services
and higher-end application and service growth markets ushering in new end-user
solutions leveraging high speed data and IP technology. While the large CDMA2000
build-outs are less frequent today, we continue to drive footprint growth in
new spectrum and leverage our embedded base for growth in advanced services.
our competitors continue to invest heavily in 3G alternatives in the United
States, and these alternatives continue to pressure our products. We regard
these alternative technologies as complementary to 3G. For example, we are developing
offerings that integrate 3G wide-area cellular with Wi-Fi (wireless fidelity)
for seamless, secure roaming service. Some of our competitors invested heavily
in GSM and the future evolution of TDMA-based technology to 2.5G (GPRS) and
EDGE, a technology path in which we have decided not to invest. These competitors
have developed products to help their GSM service provider customers migrate
to 3G through technology swap outs, rather than deploy new 3G networks. Cingular
has chosen this path. However, they continue to plan for UMTS. We believe that
EDGE will have a limited impact on the value of UMTS, as spread-spectrum will
provide superior performance both technically and economically.
forecasts for investment in 3G networks over the next three years continue to
vary widely. Financial and market conditions have driven some service providers
to delay their 3G deployments or abandon their plans to deploy 3G. Operators
are under pressure to achieve a positive cash-flow position, which has increased
competitive pricing and slowed investment.
that the 3G infrastructure market is gaining momentum as operators continue
to adopt our strategy of initially focusing on enterprise customers. Several
networks based on both UMTS and CDMA2000 have launched high speed data services
focused on the business market. All of these offerings include access to mobile
data services via a laptop enabled by an air interface modem card that can be
inserted into any standard laptop computer. In North America, initial interest
in high-speed data services has contributed to the decision of several of our
customers to accelerate the upgrade of their networks from CDMA2000 1x to CDMA2000
products provide the radio links that transmit and receive wireless subscriber
calls and manage handoffs as customers move from cell to cell (a cell is the
area in which calls are handled by a particular base station). Each radio base
station covers a specific geographic area and has the capacity to handle a certain
amount of subscriber traffic. Typically, base station equipment represents a
significant portion of capital equipment cost for a mobile operator. Base station
equipment also supports CDMA and UMTS technologies and addresses the form, fit
and function of future assemblies in a modular fashion. Therefore, current investment
is not likely to be lost as the cell evolves to include expanded capacity for
wireless voice and/or data transmissions. Core network equipment connects base
stations to the public voice and data networks. The primary element of the core
network for voice traffic is the mobile switching center (MSC).
MSCs transfer calls within the wireless network and interface to the public
switched telephone networks. The majority of these voice and packet data core
network products are developed by the INS segment.
switch has advanced switching, signaling and administrative capabilities to
deliver standard MSC functionality cost effectively. It is a multipurpose, flexible
modular platform capable of supporting both wireline and wireless telecommunications
applications. For our existing wireless customers, we expect to continue to
support the 5ESS®-based MSC and provide
a smooth transition to the new softswitch-based technology. Softswitch-based
3G MSC provides integrated voice and data services that use open application
programming interfaces (applications for which the code is published), enabling
providers to create new, innovative services for the mobile Internet.
and maintenance software systems allow service providers to provision, diagnose
and administer their wireless networks. We utilize our Navis®
network operations platforms, as well as third-party systems, to provide these
products. Our MiLife applications platforms allow
a wireless service provider to easily introduce personalized mobile services.
These platforms are used to support mobile applications and services developed
by us and by third parties.
Lucent Worldwide Services
revenues during fiscal 2004 were approximately $1.9 billion. As of September
30, 2004, Services had approximately 10,000 employees dedicated to professional services,
managed services, deployment services and maintenance services. Services also
maintains a direct sales force that supplements the sales effort from the Global
that service providers are faced with the need to converge their existing voice
and data networks onto a single, packet-based network to meet the increasing
demand from end users for fast and seamless communication. Convergence is complicated;
it will happen across multiple layers; applications, infrastructures and back-office
environments and will involve multiple components, not all of which we supply.
Our customers success depends on the evolution of their business models
and their networks.
design, optimization, integration and management services are critical to simplifying
convergence and empowering service providers to bring profitable lifestyle-changing
services to end users, while driving increased revenues.
our customers spend about $40 billion annually on services performed themselves
or by third parties. Services leverages its core competencies, drawing on the
expertise and the innovation of Bell Labs to address this opportunity.
offerings are provided in combination with Lucent products, as well as services
that are offered stand-alone or based on other vendors products. We intend
to increase our international presence and capabilities and have plans to penetrate
new markets adjacent to the core service provider market, such as government,
enterprise, and cable markets.
Services has one of the industrys largest concentrations of skilled technicians,
consultants, engineers and installers to address our customers challenges
and offers multitechnology and multivendor services solutions focused in the
help our customers identify network areas where they can capitalize on high-margin
opportunities, apply proven tools and techniques to optimize performance and
reduce operating expenses, and plan evolution to protect their network investment
and increase profits. Enhanced engineering services help our customers determine
the best configuration for maximizing traffic capacity and for achieving other
operational efficiencies. These services also provide our customers with in
service upgrades to help them migrate to new technologies. Enhanced technical
services help carriers maintain a high-performing network by identifying and
correcting network performance issues, balancing traffic loads and integrating
new multivendor equipment and software into a live system. Services improves
our customers network quality by troubleshooting, by reporting and resolving
problems and by providing on-the-job training to their staff. Professional
services revenues accounted for approximately 25% of fiscal 2004 Services revenues.
help our customers bring their equipment online in an efficient manner and allow
them to begin generating revenues more quickly. Equipment and field engineering
services provide analysis, identification and documentation of detailed hardware
and software specifications for new multivendor networking equipment to help
ensure smooth deployments. Services builds and expands wireline and wireless
networks globally and provides on-site configuration, testing and network connectivity
of the equipment following installation. Our site location and construction
services business provides a complete network deployment solution and includes
site acquisition, construction management, architecture and engineering, site
construction, inspection service and network infrastructure support. Deployment
services revenues accounted for approximately 35% of fiscal 2004 Services revenues.
help our customers maximize the performance of their multivendor networks and
maintain network reliability and availability to ensure quality of service.
We have the capability to provide technical support either remotely via phone
or modem for rapid response, diagnosis and resolution or on-site through technical
specialists supplementing the service providers staff. Maintenance services
revenues accounted for approximately 40% of fiscal 2004 Services revenues.
consist of a wide range of outsourced network operations and network transformation
services that help our clients reduce their operating expenses while preserving
and enhancing network reliability. Services provides a seamless transition to
an outsourced environment utilizing state-of-the-art tools and technology plus
highly skilled technicians to provide ongoing network management of our customers
networks. These functions can be performed at our global network operations
centers or at the customers network operations center. We currently provide
network operation services to more than 25 customers around the world. Although
these revenues do not represent a significant portion of Services revenues,
managed services are often embedded in maintenance and professional services.
on the global multivendor expertise and field-proven processes of Services,
our customers can leverage their installed base of assets across multiple
technologies and vendors, quickly implement new technologies and applications
to expand presence in target markets, and simplify operations through customized
support to design, build, and manage communication networks.
telecommunications networking industry is highly competitive. Our current principal
competitors include Alcatel, Ciena Corporation, Cisco Systems, Inc., LM Ericsson
Telephone Company, Fujitsu Limited, Huawei Technologies, Marconi Corporation
plc, Motorola Inc., NEC Corporation, Nokia Corporation, Nortel Networks Corporation,
Samsung Networks Inc., Siemens AG, and UTStarcom, Inc. Some of our competitors,
such as Alcatel and Nortel, compete across many of our product lines, while
others compete in a smaller subset of our products.
that the level of competition will intensify, for several reasons. First, most
industry participants will seek to strengthen their relationships with large
service providers, as these providers represent approximately 75% of global
carrier spending. In addition, carrier consolidation continues, resulting in
fewer customers. Competition is accelerating around converged network technologies
as carriers are shifting capital to areas that will enable network migration.
Furthermore, competitors providing low-cost products and services from Asia
are gaining market share worldwide.
Many factors influence our ability to compete successfully in our industry, including:
among the top suppliers of products and services to wireline and wireless service
providers. A number of our competitors are very large companies with substantial
technical, engineering and financial resources, brand recognition and established
relationships with service providers. We may from time to time face new competitors,
including entrants from the telecommunications, computer software, data networking
and semiconductor industries. These competitors may be able to offer lower prices,
additional products or services or other incentives that we cannot or will not
match or do not offer.
operations in foreign countries, including manufacturing facilities and system
integration centers, sales personnel and customer support operations. We derived
39% of our revenues from sales outside the United States during fiscal 2004.
We are dependent on international suppliers for many of our parts and for the
manufacturing of some of our products. We intend to continue to pursue opportunities
in markets outside the United States, giving careful consideration to the nature
of each opportunity and the choice of each market. Therefore, we will continue
to be subject to the risks inherent in doing business in foreign countries.
In many non-U.S. markets, long-standing relationships among our potential customers
and our competitors, as well as protective regulations (including local content
requirements), create barriers to our entry and can adversely affect our ability
to capitalize on the opportunities in these markets. Also, pursuit of non-U.S.
opportunities may require us to make significant investments for an extended
period before we can realize returns on such investments, if any. Our ability
to compete and our investments in some countries can be adversely affected by
difficulties with respect to protecting intellectual property, exchange controls,
currency fluctuations, investment policies, repatriation of cash, nationalization,
social and political risks, taxation and other factors, depending on the country.
We have an ongoing program to mitigate these risks that includes significant
investments in systems infrastructure and the implementation of a commissionaire
model where appropriate.
Mobility and Services segments are supported by the technological expertise
of Bell Labs, one of the worlds largest research and development organizations
focused on the needs of large telecommunications service providers. Bell Labs
provides basic and applied research and development support for our business.
Bell Labs mission is to develop technically advanced products and services
that will keep us at the forefront of communications, to conduct fundamental
research in scientific fields important to communications and to create innovations
that can be put to use in our new communications products and services. Bell
Labs R&D activities continue to focus on the technologies we view
as central to our business strategy: software, network design and engineering,
network services, photonics, optical, data networking and wireless communications.
has increased its work on technologies to further the development of our IMS
architecture. We plan to continue to invest in the R&D efforts of Bell Labs
because we believe it gives us a competitive advantage in developing innovative
technologies. There are more than 9,000 employees in Bell Labs, which includes
R&D, services and technical staff. Most of these employees serve in R&D
roles in our INS and Mobility segments. There are approximately 1,100 employees
supporting R&D efforts within Bell Labs core research group.
Supply Chain Networks
Chain Networks, or SCN, manages our end-to-end global supply chain, which is
needed to produce and deliver our products and services to our worldwide customers.
The organization designs, implements and optimizes the supply chain for our
products, with the goal of establishing product cost, product cycle and interval,
and quality that meet our objectives and those of our customers.
functions of SCN include planning for and managing the execution of the contractual
commitments we made to our customers and business partners; identifying the
sources of raw materials, sub-assemblies and finished goods that are needed
to support our product lines; establishing and managing relationships with component
vendors and our electronic manufacturing service providers to ensure continuity
of supply at the required price and quality; managing the customer demand planning
activities and translating demand plans into supply plans to meet their needs;
managing end-to-end inventory balances to ensure optimum working capital and
cycle turns while positioning product to meet customer needs; managing the customer
order through delivery, including execution in our systems integration centers
and in the distribution network required to deliver products and services to
our customers; designing and managing the functional and system level tests
and test tools that assure the quality and reliability of our products; and
driving the engineering effort across the product life cycle by working closely
with our product management and development teams to ensure lowest-cost designs
through low-cost and standardized component selection, by optimizing sourcing
strategies, by managing new product introductions from controlled introduction
through volume manufacturing, and by maximizing post-development cost reduction
significant purchases of components and other materials from many U.S. and non-U.S.
sources. While there have been some shortages in components and some other materials
in technology commodities common across the industry, we have generally been
able to obtain sufficient materials and components from sources around the world
to meet our needs. We also develop and maintain alternative sources for essential
materials and components. We do not have a concentration of sources of supply
of materials, labor or services that, if suddenly eliminated, could severely
impact our operations.
use contract manufacturers to supply most of our product lines. Our contract
manufacturers include Celestica, Solectron, Jabil, Sanmina and other local companies
in various regions. SCN controls the source selection for all significant or
strategic components. Our contract manufacturers use their leverage and global
buying power to negotiate the best prices from vendors we approve. SCN monitors
their performance and works closely with them to ensure process and technical
product specifications are met.
was $2.1 billion and $2.2 billion as of September 30, 2004 and 2003, respectively.
Substantially all of the orders included in the September 30, 2004 backlog are
scheduled for delivery during fiscal 2005. However, all orders are subject to
possible rescheduling by customers. Although we believe that the orders included
in the backlog are firm, customers may be able to cancel some orders without
penalty, and we may elect to permit cancellation of orders without penalty where
management believes that it is in our best interest to do so. In addition, some
customers may become unable to finance their purchases as a result of deterioration
in their financial position.
Our revenues and earnings have not demonstrated consistent seasonal characteristics.
Patents, Trademarks and Other Intellectual Property Rights
patents to protect some of our innovations and proprietary products and technology.
We market our products and services primarily under our own names and marks.
We consider our patents and trademarks to be valuable assets. Many of our trademarks
are registered throughout the world. We currently own approximately 6,800 patents
in the United States and 7,300 patents in foreign countries. The foreign patents
are, for the most part, counterparts of our U.S. patents.
property licensing division licenses, protects and maintains our intellectual
property and enforces our intellectual property rights. This responsibility
includes licensing our patents and technology to third parties and negotiating
agreements regarding our licensing of intellectual property from others. Many
of our patents are licensed to other companies with large patent portfolios,
and we are licensed to use patents owned by these other companies, including
our former affiliates, Agere, AT&T, Avaya and NCR. The terms of these cross-licenses
may vary company by company.
on patent, trademark, trade secret and copyright laws both to protect our intellectual
property, including our proprietary technology, and to protect us against claims
from others. We believe that we have direct intellectual property rights or
rights under cross-licensing arrangements covering substantially all of our
material technologies. However, third parties may assert infringement claims
against us or against our customers in connection with their use of our systems
and products. When infringement claims are made against our customers or us,
the outcomes of these claims are sometimes difficult to predict because of the
technological complexity of our systems and products.
report on Form 10-K and other documents we file with the SEC contain forward-looking
statements that are based on current expectations, estimates, forecasts and
projections about us, our future performance, the industries in which we operate,
our beliefs and our managements assumptions. In addition, other written
or oral statements that constitute forward-looking statements may be made by
us or on our behalf. Words such as expects, anticipates,
targets, goals, projects, intends,
plans, believes, seeks, and estimates,
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions that are difficult
to predict or assess. Therefore, actual outcomes and results may differ materially
from what is expressed or forecast in such forward-looking statements. Except
as required under the federal securities laws and the rules and regulations
of the SEC, we do not have any intention or obligation to update publicly any
forward-looking statements after the distribution of this Form 10-K, whether
as a result of new information, future events, changes in assumptions or otherwise.
Risks Related to Our Business
our future performance and forward-looking statements are affected by general
industry and market conditions and growth rates, general U.S. and non-U.S. economic
and political conditions (including the global economy), interest rate and currency
exchange rate fluctuations and other events. The following items are representative
of the risks, uncertainties and other conditions that can impact our business,
our future performance and the forward-looking statements that we make in this
report or that we may make in the future.
Telecommunications Market Fluctuates and Is Impacted By Many Factors, Including
Decisions By Service Providers Regarding Their Deployment of Technology and
Their Timing of Purchases, as Well as Demand and Spending for Communications
Services By Businesses and Consumers.
in fiscal 2001 and continuing through fiscal 2003, the global telecommunications
market deteriorated significantly, reflecting a significant decrease in the
competitive local exchange carrier market, failures of many other start-up telecommunications
service providers and a significant reduction in capital spending by established
service providers. In 2004, the market stabilized but is still subject to fluctuations.
investment by service providers improves at a slower pace than we anticipate,
our revenues and profitability may be adversely affected. The level of demand
by service providers can change quickly and can vary over short periods of time,
including from month to month. As a result of the uncertainty and variations
in our markets, accurately forecasting revenues, results and cash flow remains
our sales volume and product mix impact our gross margin. Therefore, if our
sales volume does not improve, or we have an unfavorable product mix, we may
not achieve the gross margin rate we expect, resulting in lower than expected
results of operations. These factors may fluctuate from quarter to quarter.
We Operate in a Highly Competitive Industry. Our Failure to Compete Effectively Would Harm Our Business.
in which we operate is highly competitive, and we expect that this level of
competition on pricing and product offerings will continue. Factors that could
affect our ability to compete successfully in the industry include the quality,
performance, price, reliability, mix and market acceptance of our products;
market acceptance of our competitors products; efficiency and quality
of the production and implementation of our products; and our customer support
a number of existing competitors, some of which are very large, with substantial
technological and financial resources, brand recognition and established relationships
with global service providers and some of our competitors have very low cost
structures and support from governments in their home countries. In addition,
new competitors may enter the industry as a result of shifts in technology.
These new competitors, as well as existing competitors, may include entrants
from the telecommunications, computer software, computer services, data networking
and semiconductor industries. We cannot assure you that we will be able to compete
successfully against existing or future competitors. Competitors may be able
to offer lower prices, additional products or services or a more attractive
mix of products or services, or services or other incentives that we cannot
or will not match or do not offer. These competitors may be in a stronger position to respond quickly to new or emerging technologies and may be able to
undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential customers, employees and
strategic partners. Because we have a unionized workforce at some locations
and because many of our main competitors are not unionized to the same extent,
or at all, our costs and expenses may be higher and our profitability may be
lower than those of our competitors.
We Fail to Maintain a Product Portfolio That Is Attractive to Our Customers,
Enhance Our Existing Products and Keep Pace with Technological Advances in Our
Industry, or If We Pursue Technologies That Do Not Become Commercially Accepted,
Customers May Not Buy Our Products, and Our Revenues, Profitability and Cash
Flow May Be Adversely Affected.
for our products can change quickly and in ways that we may not anticipate because
markets for our principal products are characterized by the following conditions:
rapid, sometimes disruptive technological developments; evolving industry and
certification standards; frequent new product introductions and enhancements;
changes in customer requirements and a limited ability on our part to accurately
forecast future customer orders; evolving methods of building and operating
telecommunications systems for our customers; and short product life cycles
with declining prices over the lives of products.
results depend to a significant extent on our ability to maintain a product
portfolio that is attractive to our customers, to enhance our existing products,
and to continue to introduce new products successfully and on a timely basis.
New technological innovations generally require a substantial investment before
any assurance can be given as to their commercial viability, which depends,
in some cases on certification by U.S. and non-U.S. standards-setting bodies.
If we fail to make sufficient investments or if we focus on technologies that
do not become widely adopted, other technologies could render our current and
planned products obsolete.
Small Number of Our Customers Account for a Substantial Portion of Our Revenues,
and Our Revenues Are Concentrated on the Telecommunications Service Provider
Market. The Loss of One or More Key Customers or Reduced Spending in our Single
Market Could Significantly Reduce Our Revenues, Profitability and Cash Flow.
on a few large customers to provide a substantial portion of our revenues. These
customers include: BellSouth, China Unicom, Sprint, Verizon and Verizon Wireless.
Verizon and Verizon Wireless together accounted for approximately 27% of our
fiscal 2004 revenues, 22% of our fiscal 2003 revenues and 19% of our fiscal
2002 revenues. The telecommunications industry has recently experienced a consolidation
of both U.S. and non-U.S. companies, as evidenced by the merger of AT&T
Wireless and Cingular. As a result of these factors, it is possible that in
fiscal 2005 and subsequent years an even greater percentage of our revenues
will be attributable to a limited number of large service providers than in
or delays in or cancellations of orders from one or more of our significant
customers or the loss of one or more significant customers in any period could
have an adverse effect on our revenues, profitability and cash flow. In addition,
our concentration of business in the telecommunications service provider market
makes us extremely vulnerable to downturns or slowdowns in spending in that
working to expand our revenue base to include more government and enterprise
revenue as well as to increase sales in markets outside of the U.S. However,
we cannot provide assurance that we will succeed in expanding our revenue base
or that we will materially reduce customer concentration.
We Are Exposed to the Credit Risk of Our Customers.
exposure to our customers makes us vulnerable to downturns in the economy or
in the industry and to adverse changes in our customers businesses. Many
of the customers to whom we provided financing or with whom we have contracts
were negatively affected by the continued softening in the telecommunications
market. Some have filed for bankruptcy or been declared insolvent. As a result,
we wrote off some of our accounts receivable and many of our customer financings
and sold others at significant discounts. We also recorded reserves or write-offs
in our financial statements and may have to record additional reserves or write-offs
in the future. As we continue to enter new markets and work with new customers
who may not have established credit and strong financial resources, we will
continue to have risk of collecting our accounts receivable from these customers.
Have Long-Term Sales Agreements with a Number of Our Large Customers. Some of
These Agreements May Prove Unprofitable As Our Costs and Product Mix Shift Over
the Lives of the Agreements.
entered into long-term sales agreements with a number of our large customers,
and will probably continue to do so in the future. Some of these sales agreements
require us to sell products and services at fixed prices over the lives of the
agreements, and some require, or may in the future require, us to sell products
and services that we would otherwise discontinue, thereby diverting our resources
from developing more profitable or strategically important products. The costs
we incur in fulfilling some of our sales agreements may vary substantially from
our initial cost estimates. Any cost overruns that we cannot pass on to our
customers could adversely affect our results of operations.
We Have Risks Related to Our Pension and Postretirement Benefit Plans.
maintain U.S. pension plans under the U.S. Employee Retirement Income Security
Act of 1974 (ERISA) that cover various categories of employees and
retirees in the U.S. Liabilities related to 20,000 active employees and 125,000
retired employees make up approximately 90% of the total obligations under these
pension plans. The remaining 10% of the liabilities are attributable to approximately
87,000 beneficiaries and former employees with deferred vested pension rights.
A separate trust is maintained to hold assets to fund pension obligations for
management participants and for occupational participants. The funding obligations
for our pension plans are impacted by the performance of the financial markets,
particularly the equity markets, and interest rates. Funding obligations are
determined under ERISA and subsequent legislation and are measured as of January
1 of each year based on the value of assets and liabilities on that date.
financial markets do not provide the long-term returns that are expected under
the ERISA funding calculation, the likelihood of our being required to make
contributions will increase. The equity markets can be, and recently have been,
very volatile, and therefore our estimate of future contribution requirements
can change dramatically in relatively short periods of time. Similarly, changes
in interest rates can impact our contribution requirements. In a low-interest-rate
environment, the likelihood of required contributions in the future increases.
to the management pension plan, we are not required to make a contribution in
fiscal 2005 or fiscal 2006. However, because of the volatility of the financial
markets and fluctuations in interest rates, we could be required to make contributions
as early as fiscal 2007. With respect to the occupational pension plan, we do
not currently foresee a need to make contributions, but this could change if
the equity markets decline substantially.
119,000 of our current retirees are also covered by postretirement health care
benefit plans. With respect to management retirees, we expect our fiscal 2005
funding requirements to be approximately $200 million. Although it is difficult
to estimate these expected future payments, our current view is that the annual
funding requirement will remain at approximately $200 million for management
retirees for fiscal 2006. With respect to represented retirees, we do not expect
to have to make cash payments until fiscal 2006 because assets are currently
held in a separate trust to fund these payments. Our tentative labor agreement
with the CWA and IBEW caps the amount the Company will pay for retiree health
care for formerly represented retirees that retired on or after March 1, 1990.
This tentative agreement also requires us to fund $400 million to a new trust
by September 30, 2012. The exact amounts and timing of annual contributions
will be determined by the Company, but the minimum amount of each annual contribution,
beginning in 2005, is $25 million. Under the agreement, the unions and the Company
agreed to seek an amendment to Section 420 of the Internal Revenue Code for
various changes including the elimination of the maintenance of cost requirements
associated with the transfer of excess pension assets for retiree health care.
If satisfactory legislation is not enacted into law by September 1, 2006, the
Company will be able to exercise its discretion in determining the amount of
retiree health care subsidy on or after December 31, 2006.
of providing postretirement health care benefits continues to rise. We have
taken some steps and expect to take additional action to reduce the overall
cost of providing postretirement health care benefits and the share of these
costs borne by us, consistent with legal requirements and our collective bargaining
obligations. There can be no assurance that we will be successful in reducing
these costs and these actions may lead to additional claims against us.
If we are
required to make significant contributions to fund pension plans or make larger
cash payments for retiree health care benefits, our cash flow available for
other uses may be significantly reduced.
Conduct a Significant Proportion of Our Operations Outside the United States,
Which Subjects Us To Social, Political and Economic Risks of Doing Business
in Foreign Countries and May Cause Our Profitability to Decline Due to Increased
significant operations in foreign countries, including manufacturing facilities,
sales personnel and customer support operations. For fiscal 2004 and 2003, we
derived approximately 39% and 40%, respectively, of our revenues from sales
outside the U.S., including in China, Germany, India and various countries
in the Middle East, such as Iraq and Israel. We manufacture a portion of our
products outside the United States. We are also dependent on international suppliers
for some of our components and subassemblies and for assembly of some of our
products. We are concentrating on sales and marketing, product development,
services and supply chain resources to meet the global needs of the worlds
largest service providers and to follow the geographic footprint of our large
service provider customers around the world. We are, therefore, subject to the
risks inherent in doing business in foreign countries. These risks include tariffs
and duties, price controls, restrictions on foreign currencies and trade barriers
imposed by foreign countries; exchange controls and fluctuations in currency
exchange rates; difficulties in staffing and managing international operations;
political or social unrest or economic instability; the risk of nationalization
of private enterprises by foreign governments; adverse tax consequences, including
imposition of withholding or other taxes on payments by subsidiaries; and the
risks associated with terrorism and insurrections.
in some foreign financial markets and economies could also inhibit demand from
our customers in the affected countries. Any or all of these factors could have
a material adverse impact on our global business operations. Although we attempt
to manage our exposure to risks from fluctuations in foreign currency exchange
rates, through our regular operating and financing activities and, when deemed
appropriate, through derivative financial instruments, our attempts may not
always be successful. A significant change in the value of the U.S. dollar against
the currency of one or more countries where we sell products to local customers
or make purchases from local suppliers may materially adversely affect our operating
Rely on Third Parties to Manufacture Most of Our Products and to Provide Substantially
All of Our Components. If These Third Parties Fail to Deliver Quality Products
and Components at Reasonable Prices on a Timely Basis, We May Alienate Some
of Our Customers, and Our Revenues, Profitability and Cash Flow May Decline.
contract manufacturers significantly as an alternative to manufacturing our
products ourselves. If these contract manufacturers do not fulfill their obligations
to us, or if we do not properly manage these arrangements, our customer relationships
may suffer. In addition, since we rely more heavily now than previously on contract
manufacturers, we may have fewer employees with the expertise needed to manage
these third-party arrangements. In relying more on third parties, we run the
risk that the reputation and competitiveness of our products and services may
deteriorate because we have less control over quality and delivery schedules.
We also may experience supply interruptions, cost escalations and competitive
disadvantages if our contract manufacturers fail to develop, implement or maintain
manufacturing methods appropriate for our products and customers.
our supply chain and manufacturing process relies on accurate forecasting to
provide us with optimal product margins and profitability. However, because
of market fluctuations, accurate forecasting is very difficult.
If We Fail to Generate Positive Operating Cash Flow, Our Ability to Satisfy Our Cash Requirements May Decline.
fiscal 2004, we experienced several years of significant negative cash flow
that totaled billions of dollars. In fiscal 2004, we generated positive cash
flow from operating activities. However, we do not have a demonstrated history
of generating positive operating cash flow. If we do not continue to generate
positive cash flow from operating activities, we may have difficulty meeting
our obligations, including our debt service requirements, postretirement health
care obligations and making the investments in research and development that
are necessary to remain competitive.
Are a Party to Lawsuits, Which, If Determined Adversely to Us, Could Result
in the Imposition of Damages Against Us and Could Harm Our Business and Financial
defendants in various lawsuits, covering such matters as commercial disputes,
claims regarding product discontinuance, asbestos claims, labor, employment
and benefit claims, and others. There can be no assurance that actions that
have been or will be brought against us will be resolved in our favor or, if
significant monetary judgments are rendered against us, that we will have the
ability to pay such judgments. Any losses resulting from these claims could
adversely affect our profitability and cash flow.
If We Fail to Protect Our Intellectual Property Rights, Our Business and Prospects May Be Harmed.
property rights, such as patents, are vital to our business, and developing
new products and technologies that are unique to us is critical to our success.
We have numerous U.S. and foreign patents and numerous pending patents, but
we cannot predict whether any patents, issued or pending, will provide us with
any competitive advantage or will not be challenged by third parties. Moreover,
our competitors may already have applied for patents that, once issued, could
prevail over our patent rights or otherwise limit our ability to sell our products.
Our competitors also may attempt to design around our patents or copy or otherwise
obtain and use our proprietary technology. In addition, patent applications
that we have currently pending may not be granted. If we do not receive the
patents we seek or if other problems arise with our intellectual property, our
competitiveness could be significantly impaired, which would limit our future revenues and harm our prospects.
Are Subject to Intellectual Property Litigation and Infringement Claims, Which
Could Cause Us to Incur Significant Expenses or Prevent Us from Selling Our
to time, we receive notices from third parties of potential infringement and
receive claims of potential infringement when we attempt to license our intellectual
property to others. Intellectual property litigation can be costly and time-consuming
and can divert the attention of management and key personnel from other business
issues. The complexity of the technology involved and the uncertainty of intellectual
property litigation increase these risks. A successful claim by a third party
of patent or other intellectual property infringement by us could compel us
to enter into costly royalty or license agreements or force us to pay significant
damages and could even require us to stop selling certain products.
of Our Current and Planned Products Are Highly Complex and May Contain Defects
or Errors That Are Detected Only After Deployment in Telecommunications Networks.
If That Occurs, Our Reputation May Be Harmed.
are highly complex, and there is no assurance that our extensive product development,
manufacturing and integration testing will be adequate to detect all defects,
errors, failures and quality issues that could impact customer satisfaction.
As a result, we could have to replace certain components and/or provide remediation
in response to the discovery of defects in products that are shipped. Most of
these occurrences can be rectified without incident, as has been the case historically.
However, the occurrence of any defects, errors, failures or quality issues could
result in cancellation of orders, product returns, diversion of our resources,
legal actions by our customers or our customers end users and other losses
to us or to our customers or end users. These occurrences could also result
in the loss of or delay in market acceptance of our products and loss of sales,
which would harm our business and adversely affect our revenues and profitability.
Changes to Existing Regulations or Technical Standards or The Implementation
of New Regulations or Technical Standards Relating to Products and Services
Not Previously Regulated Could Be Disruptive, Time-Consuming and Costly to Us.
our products and services are developed in reliance upon existing regulations
and technical standards, our interpretation of unfinished technical standards
or the lack of such regulations and standards. Changes to existing regulations
and technical standards, or the implementation of new regulations and technical
standards relating to products and services not previously regulated, could
adversely affect the development of, demand for, and sale and warranty of our
products and services, thus increasing our costs and decreasing the demand for
our products and services.
Are Subject to Environmental, Health and Safety Laws, the Compliance with and
Liabilities Pursuant to Which Could Be Costly and Could Restrict Our Operations.
are subject to a wide range of environmental, health and safety laws, including
laws relating to the use, disposal, clean-up of, and human exposure to hazardous
substances. In the United States, these laws often require parties to fund remedial
action regardless of fault. Although we believe our reserves are adequate to
cover our environmental liabilities, factors such as the discovery of additional
contaminants, the extent of remediation and compliance expenses and the imposition
of additional cleanup obligations at Superfund and other sites could cause our
capital expenditures and other expenses relating to remediation activities to
exceed the amount reflected in our environmental reserve and adversely affect
our results of operations and cash flows. Compliance with existing or future
environmental, health and safety laws could subject us to future liabilities,
cause the suspension of production, restrict our ability to expand facilities
or require us to acquire costly pollution control equipment or incur other significant
expenses, including the expense of modifying manufacturing processes.
Success Depends on Our Ability to Recruit and Retain Key Personnel.
depends in large part on our ability to recruit and retain highly skilled technical,
managerial, sales and marketing personnel. Competition for these personnel is
intense. In addition, our recent workforce reductions have increased our dependence
on our remaining workforce, as we are relying on our current personnel to assume
additional responsibilities. The loss of services of any of our key personnel
or our failure to attract and retain qualified personnel in the future could
make it difficult for us to meet our key objectives, such as timely product
As of September
30, 2004, we had approximately 31,800 employees, of whom approximately 20,000,
or 63%, were located in the United States. Of these U.S. employees, approximately
3,500, or 18%, were represented by unions, primarily the Communications Workers
of America (CWA).
Executive Officers of the Registrant
information about our executive officers is included herein in accordance with
Part III, Item 10 and is as of November 30, 2004.
|Patricia F. Russo||52||Chairman and Chief Executive Officer||01/02|
|James K. Brewington||61||President, Developing Markets||10/02|
|William R. Carapezzi, Jr.||47||Senior Vice President, General Counsel and Secretary||06/04|
|Cynthia Christy-Langenfeld||38||President, Mobility Solutions||03/04|
|Frank A. DAmelio||46||Executive Vice President and Chief Financial Officer||05/01|
|Janet G. Davidson||48||President, Integrated Network Solutions||10/02|
|John A. Kritzmacher||44||Senior Vice President and Controller||08/01|
|Jose A. Mejia||44||President, Supply Chain Networks||10/03|
|John A. Meyer||48||President, Lucent Worldwide Services||10/03|
|William T. OShea||57||President, Bell Labs and Executive Vice President, Corporate Strategy and Business Development||10/99|
|Robert Warstler||62||President, Global Sales||10/03|
the executive officers have held high-level managerial positions with us for
more than the past five years, except for Ms. Russo and Messrs. Mejia, Meyer
and Warstler. Ms. Russo held executive officer positions with us from our formation
in 1996 until August 2000. Prior to becoming our president and chief executive
January 2002, Ms. Russo was chairman of Avaya Inc. from December
2000 to January 2002 and president and chief operating officer of Eastman Kodak
Company from April 2001 to January 2002. Mr. Mejia was hired by Lucent in 1999.
Prior to his employment with Lucent, Mr. Mejia was with Bay Networks, which
he joined in 1996 as vice president of component engineering, supplier management
and external manufacturing. He remained with Bay Networks until 1999. Prior
to joining Lucent, Mr. Meyer was an executive with EDS, one of the worlds
leading IT outsourcing and technology consulting firms, for nearly 20 years
prior to joining us and was the president of its division serving Europe, the
Middle East and Africa. Mr. Warstler was president and chief operating officer
of Advanced Telecom Group from 1999 to 2002 and had previously held senior management
positions with Network Equipment Technology and Hitachi Data Systems.
Officers are not elected or appointed for a fixed term of office.
and historical operations are subject to a wide range of environmental protection
laws. In the United States, these laws often require parties to fund remedial
action regardless of fault. We have remedial and investigatory activities under
way at numerous current and former facilities. In addition, we were named a
successor to AT&T as a potentially responsible party at numerous Superfund
sites pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA) or comparable state statutes. Under
our Separation and Distribution Agreement with AT&T, we are responsible
for all liabilities primarily resulting from or relating to our assets and the
operation of our business as conducted at any time prior to or after the separation
from AT&T, including related businesses discontinued or disposed of prior
to our separation from AT&T. Furthermore, under that Separation and Distribution
Agreement, we are required to pay a portion of contingent liabilities
in excess of certain amounts paid out by AT&T and NCR, including environmental
liabilities. In our separation agreements with Agere and Avaya, those companies
have agreed, subject to certain exceptions, to assume all environmental liabilities
related to their respective businesses.
impact of environmental matters, including potential liabilities, is often difficult
to estimate. We record an environmental reserve when it is probable that a liability
has been incurred and the amount of the liability is reasonably estimable. This
practice is followed whether the claims are asserted or unasserted. Management
expects that the amounts reserved will be paid out over the periods of remediation
for the applicable sites, which typically range from five to 30 years.
information about our environmental matters, see Note 13 to our consolidated
financial statements contained in this report.
with our separation from AT&T in 1996, we, AT&T and NCR Corp. entered
into a Separation and Distribution Agreement and related ancillary agreements,
including an employee benefits agreement, technology-related agreements, a tax-sharing
agreement and other tax-related agreements. We entered into similar agreements
with Avaya and Agere in connection with our spin-off of each of these companies.
to these various agreements, we and our former affiliates have separately agreed
to assume all liabilities, including contingent liabilities, related to our
and their respective businesses and operations. In some instances, these agreements
also provide for the sharing of certain contingent liabilities, specifically,
(1) any contingent liabilities that are not primarily our contingent liabilities
or contingent liabilities associated with the businesses attributed to our former
affiliate, (2) certain specifically identified liabilities, including liabilities
relating to terminated, divested or discontinued businesses or operations, and
(3) shared contingent liabilities and excess liabilities as specified in the
agreements with AT&T and Avaya.
Item 2. Properties
As of September
30, 2004, we operated in 184 facilities in the United States totaling 20.2 million
square feet, of which 8.9 million was owned and 11.3 million was leased. In
addition, we operated in 140 facilities in 46 other countries totaling 5.0 million
square feet, of which 1.4 million was owned and 3.6 million was leased. Our
properties include systems integration/manufacturing sites, warehouse sites,
offices sites (administration, sales,
field service), and research and development
sites. Included above are 3.1 million square feet that have been vacated under
our restructuring actions. Most of the properties listed above are used jointly
by our reporting segments. We believe our facilities are suitable and adequate
to meet our current needs.
Item 3. Legal Proceedings
subject to legal proceedings, lawsuits and other claims, including proceedings
by government authorities. In addition, we may be subject to liabilities to
some of our former affiliates under separation agreements with them (see Item
1. Separation Agreements). Legal proceedings are subject to uncertainties,
and the outcomes are difficult to predict. Consequently, we are unable to estimate
the ultimate aggregate amount of monetary liability or financial impact with
respect to these matters as of September 30, 2004. We have reached an agreement
for the settlement of our securities, ERISA, derivative and related litigation,
and the amount of this settlement is reflected in our financial results. We
believe that the remainder of the cases will not have a material financial impact
on us after final disposition. However, because of the uncertainties of legal
proceedings, one or more of these proceedings could ultimately result in material
monetary payments by us.
Refer to Note 13 to our consolidated financial statements contained in this report for additional information about legal proceedings involving us.
Litigation and Lawsuits
Litigation, lawsuits and similar claims involving the Company include the following types of matters:
above, we have reached an agreement for the settlement of our primary securities
and related cases and are awaiting final distribution of the settlement proceeds.
Some individual securities cases for plaintiffs that have opted out of the settlement
are ongoing. Following is an overview of the other litigation and legal proceedings
to which we are subject.
normal course of business, we are involved in commercial disputes with customers,
suppliers, subcontractors and others. These matters generally involve claims
for monetary damages for breach of contract or breach of warranty or similar
claims. While many of these disputes are settled amicably without litigation,
some will result in lawsuits being filed against us. The recent downturn in
the telecommunications market and the insolvency or failure of numerous service
providers has led to more claims and disputes that result in litigation.
defendants in various cases in which third parties have claimed we are infringing
their patents, including certain cases where infringement claims have been made
against our customers in connection with products we have provided to them.
We also occasionally institute actions against third parties whom we believe
are infringing our intellectual property rights, and these actions sometimes
lead to counterclaims by the opposing parties.
subject to various employment-related claims regarding employee dismissals,
benefits, compensation and other matters. As a result of our recent restructuring
actions and plans for the future, we have reduced our workforce significantly
and may make further reductions in the future. These workforce reductions have
increased the number of employment-related claims, and this trend may continue.
We have taken and may continue to take steps to reduce the cost of providing
postretirement health care benefits. These actions may increase claims made
against us as well, and lawsuits have been filed against us in connection with
the elimination of the death benefit in our U.S. Management Pension Plan. In
addition, the Equal Employment Opportunity Commission has initiated a suit against
us regarding certain policies used by our predecessors prior to 1980.
a defendant in various lawsuits involving alleged exposure to asbestos. These
cases involve exposure to asbestos in premises owned or operated by us or by
the predecessors of our business, such as AT&T or Western Electric, or from
exposure to products manufactured or sold by us or our predecessors that allegedly
contained asbestos. Historically, we have not paid any material amounts related
to asbestos claims, and currently do not expect these cases to have a significant
impact on us in the future. However, asbestos claims are on the rise generally
in the United States and more cases are being asserted against owners or operators
of premises or companies that manufactured or sold products allegedly containing
asbestos, and we have observed a rise in the number of matters asserted against
us. Accordingly, we cannot give assurance that asbestos-related claims will
not have a material adverse impact on us in the future.
21, 2000, we announced that we had identified an issue affecting our revenues
in the fourth quarter of fiscal 2000. We informed the SEC and initiated a review
by our outside counsel and independent accountants. A final judgment and consent
decree with the SEC was entered for this matter in May 2004. Under the terms
of the consent decree, we paid a $25 million civil penalty in the third quarter
of fiscal 2004 but were not required to make any financial restatements. Without
admitting or denying any wrongdoing, we consented to the settlement, which enjoins
us from future violations of specific provisions of the federal securities laws.
2002, the U.S. Attorneys Office in New Jersey informed us that the office
was conducting an investigation into certain of the matters related to the events
described in the previous paragraph. The U.S. Attorneys Office has informed
us that the Company is not a target of this investigation. We are cooperating
fully with the U.S. Attorneys investigation.
2003, the U.S. Department of Justice and the SEC informed us that they had each
commenced an investigation into possible violations of the Foreign Corrupt Practices
Act. These investigations follow allegations made by National Group for Communications
and Computers Ltd. in an action filed against us on August 8, 2003. In April
2004, we reported to the DOJ and the SEC that a FCPA compliance audit and an
outside counsel investigation found incidents and internal control deficiencies
in our operations in China that potentially involve FCPA violations. We are
cooperating with both agencies.
As disclosed in an 8-K filing on November 8, 2004, our former Chairman
and Chief Executive Officer, Richard McGinn, the former head of our Saudi Arabia
operations, John Heindel, and a third former employee received Wells
notices from the staff of the SEC. These Wells notices state that the staff
of the SEC is considering recommending that civil actions be taken against these
three former employees for violations of the Foreign Corrupt Practices Act (FCPA).
The allegations against these individuals include violations of the anti-bribery
provisions of the FCPA and aiding and abetting the Companys alleged violations
of requirements under the FCPA to keep accurate books and records and to maintain
a proper system of internal accounting controls. The Company has not received
a Wells notice at this time, but the investigation is continuing.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of fiscal 2004, no matters were submitted to a vote of our security holders.
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Market Price, Holders and Dividend Information
stock is traded on the New York Stock Exchange (NYSE) under the
symbol LU. The following table presents the high and low sales prices of our
common stock as reported on the NYSE:
|YEAR ENDED SEPTEMBER 30, 2004|
|Quarter ended December 31, 2003||$3.44||$2.08|
|Quarter ended March 31, 2004||4.91||2.87|
|Quarter ended June 30, 2004||4.52||2.99|
|Quarter ended September 30, 2004||3.80||2.70|
|YEAR ENDED SEPTEMBER 30, 2003|
|Quarter ended December 31, 2002||$1.99||$0.55|
|Quarter ended March 31, 2003||2.00||1.28|
|Quarter ended June 30, 2003||2.57||1.41|
|Quarter ended September 30, 2003||2.41||1.60|
On November 30, 2004, there were approximately 1,345,697 shareowners of record of our common stock.
We currently do not pay cash dividends on our common stock and have no plans to reinstate a dividend on our common stock.
During the three months ended September 30, 2004, we did not issue any common shares that were not registered under the Securities Act of 1933.
(b) Not applicable
(c) No repurchases of the Companys equity securities were made during the fourth quarter of fiscal 2004.
Item 6. Selected Financial Data
required by this item is included in page F-36 of our annual report to shareowners
for the year ended September 30, 2004. This page of the annual report to shareowners
is included in Exhibit 13 to this report.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
required by this item is included in pages F-2 to F-35 of our annual report
to shareowners for the year ended September 30, 2004. These pages of the annual
report to shareowners are included in Exhibit 13 to this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
required by this item is included in pages F-33 to F-35 of our annual report
to shareowners for the year ended September 30, 2004. These pages of the annual
report to shareowners are included in Exhibit 13 to this report.
Item 8. Financial Statements and Supplementary Data
required by this item is included in pages F-39 to F-82 of our annual report
to shareowners for the year ended September 30, 2004. These pages of the annual
report to shareowners are included in Exhibit 13 to this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
We periodically review the design and effectiveness of our disclosure controls and internal control over financial reporting worldwide, including compliance with various laws and regulations that apply to our operations both inside and outside the United States. We make modifications to improve the design and effectiveness of our disclosure controls and internal control structure, and may take other corrective action, if our reviews identify a need for such modifications or actions. In designing and evaluating the disclosure controls and procedures and internal control of financial reporting, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
An evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and timely reported as provided in the Securities and Exchange Commission rules and forms. No changes occurred during the quarter ended September 30, 2004 in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Item 10. Directors and Executive Officers of the Registrant
required by this item for executive officers is set forth under the heading
Executive Officers of the Registrant in Part I, Item 1, of this
report. The other information required by Item 10 is included in our definitive
proxy statement for our 2005 annual meeting of shareowners to be held on February
16, 2005, and is incorporated herein by reference.
Item 11. Executive Compensation
required by this item is included in our definitive proxy statement for our
2005 annual meeting of shareowners to be held on February 16, 2005, and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
table provides information as of September 30, 2004 with respect to shares
of our common stock that may be issued under our existing equity compensation
plans, including the 2001 Employee Stock Purchase Plan (the ESPP),
the Lucent Technologies Inc. 2003 Long-Term Incentive Program (the 2003
Plan) and the 2004 Equity Compensation Plan for Non-Employee Directors.
does not include information with respect to shares subject to outstanding options
granted under equity compensation plans under which the right to grant options
has expired prior to September 30, 2004 and equity compensation plans assumed
by the Company in connection with mergers and acquisitions of the companies
that originally granted those options. Footnotes (4) and (5) to the
table set forth the total number of shares of our common stock issuable upon
the exercise of options under the expired plans and assumed options, respectively,
as of September 30, 2004, and the weighted average exercise price of those
options. No additional options may be granted under those expired and assumed
securities to be
exercise price of
Number of securities
remaining available for
future issuance under equity
reflected in column A)
|Equity compensation plans approved by|
|Equity compensation plans not approved by|
|(1)||Consists of the 2003 Plan and the ESPP.|
Excludes purchase rights accruing under the ESPP, which has a shareowner approved reserve of 250,000,000 shares. Under the ESPP, each eligible employee may purchase up to 4,000 shares of our common stock at semi-annual intervals at a purchase price per share equal to 85% of the lower of the fair market value of our common stock on either the first or last trading day of a purchase period.
Includes shares available for future issuance under the ESPP. As of September 30, 2004, an aggregate of 210,404,805 shares of our common stock were available for issuance under the ESPP.
The table does not include information for equity compensation plans that have expired. The Founders Grant Stock Option Plan expired on December 31, 1996. As of September 30, 2004, a total of 20,406,154 shares of our common stock were issuable upon the exercise of outstanding options granted under the expired plan. The 1998 Global Stock Option Plan expired on April 1, 2000. As of September 30, 2004, a
total of 7,826,641 shares of our common stock were issuable upon the exercise of outstanding options granted under the expired plan. The 1996 Long Term Incentive Program expired on February 28, 2004. As of September 30, 2004, a total of 81,995,177 shares of our common stock were issuable upon the exercise of outstanding options granted under the expired plan. The 1997 Long-Term Incentive Plan (the 1997 Plan), expired on December 31, 2003. As of September 30, 2004, a total of 262,972,217 shares of our common stock were issuable upon the exercise of outstanding options granted under the expired plan. The 1999 Stock Compensation Plan for Non-Employee Directors (Non-Employee Directors Plan), expired on February 1, 2004. As of September 30, 2004, a total of 363,072 shares of our common stock were issuable upon the exercise of outstanding options granted under the expired plan. The weighted average exercise price of those outstanding options granted under these five plans is $11.16 per share. No additional options may be granted under these expired plans.
The table does not include information for equity compensation plans assumed by Lucent in connection with our separation from AT&T and subsequent mergers and acquisitions of the companies which originally established those plans. As of September 30, 2004, a total of 13,770,027 shares of our common stock were issuable upon exercise of outstanding options granted under those assumed plans. The weighted average exercise price of those outstanding options is $11.29 per share. No additional options may be granted under those assumed plans.
information required by Item 12 is included in our definitive proxy statement
for our 2005 annual meeting of shareowners to be held on February 16, 2005,
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
required by this item is included in our definitive proxy statement for our
2005 annual meeting of shareowners to be held on February 16, 2005, and is incorporated
herein by reference.
Item 14. Principal Accounting Fees and Services
required by this item is included in our definitive proxy statement for our
2005 annual meeting of shareowners to be held on February 16, 2005, and is incorporated
herein by reference.
Item 15. Exhibits and Financial Statement Schedule
(a) The following documents are filed as part of this report:
|(1) Consolidated Financial Statements:|
|(i) Consolidated Statements of Operations||*|
|(ii) Consolidated Balance Sheets||*|
|(iii) Consolidated Statements of Changes in Shareowners (Deficit) Equity||*|
|(iv) Consolidated Statements of Cash Flows||*|
|(v) Notes to Consolidated Financial Statements||*|
|(2) Five-Year Summary of Selected Financial Data||*|
Incorporated by reference to the appropriate portions in pages F-36 through F-82 of our annual report to shareowners for the fiscal year ended September 30, 2004 (see Part II and Exhibit 13).
financial statements of subsidiaries not consolidated and 50 percent or less
owned persons are omitted since no such entity constitutes a significant
subsidiary pursuant to the provisions of Regulation S-X, Article 3-09.
Index on page 30 for a description of the documents that are filed as exhibits
to this report on Form 10-K or incorporated by reference herein. Any document
incorporated by reference is identified by a parenthetical referencing the SEC
filing that included the document.
furnish, without charge, to a security holder upon request a copy of our definitive
proxy statement for our 2005 annual meeting of shareowners, portions of which
are incorporated herein by reference. We will furnish any other exhibit at cost.
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
LUCENT TECHNOLOGIES INC.
|By:||/s/ JOHN A. KRITZMACHER|
Senior Vice President and Controller
(Principal Accounting Officer)
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
|/s/ PATRICIA F. RUSSO|
|PRINCIPAL EXECUTIVE OFFICER|
|Patricia F. Russo|
|Chairman and Chief Executive Officer|
|/s/ FRANK A. DAMELIO|
|PRINCIPAL FINANCIAL OFFICER|
|Frank A. DAmelio|
|Executive Vice President and Chief Financial Officer|
|/s/ JOHN A. KRITZMACHER|
|PRINCIPAL ACCOUNTING OFFICER|
|John A. Kritzmacher|
|Senior Vice President and Controller|
Daniel S. Goldin
Edward E. Hagenlocker
Carla A. Hills
Karl J. Krapek
Richard C. Levin
Patricia F. Russo
Henry B. Schacht
Franklin A. Thomas
Ronald A. Williams
John A. Young
|By:||/s/ JOHN A. KRITZMACHER|
The following documents are filed as exhibits to this report on Form 10-K or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.
Certificate of Incorporation of the registrant, as amended, effective February 16, 2000, (Exhibit 3.1 to Registration Statement on Form S-4, No. 333-31400).
Certificate of Amendment of Restated Certificate of Incorporation of the registrant dated February 26, 2004 (Exhibit 3(i) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
By-Laws of the registrant, as amended through February 18, 2004 (Exhibit 3(ii) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
Form of the registrants Common Stock Certificate (Exhibit 4(iv) to Quarterly Report on Form 10-Q for the quarter ended December 31, 2001).
Indenture, dated as of April 1, 1996, between Lucent Technologies Inc. and The Bank of New York, as trustee (Exhibit 4A to Registration Statement on Form S-3, No. 333-01223).
First Supplemental Indenture, dated as of April 17, 2000, to Indenture dated April 1, 1996, (Exhibit 4 to the Current Report on Form 8-K filed May 5, 2000).
Amended and Restated Trust Agreement, dated as of March 19, 2002, among the registrant, as depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware), as Delaware trustee, and the individuals named therein, as administrative trustees, relating to Lucent Technologies Capital Trust I. (Exhibit 4(v)1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).
Form of certificate for preferred securities of Lucent Technologies Capital Trust I, designated as 7.75% Cumulative Convertible Trust Preferred Securities (liquidation preference $1,000 per preferred security) (Exhibit 4(v)2 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).
Indenture, dated as of March 19, 2002, between the registrant and The Bank of New York, as indenture trustee (Exhibit 4(v) 3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).
Form of the registrants 7.75% convertible subordinated debentures due 2017 (Exhibit 4(v) 4 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).
Guarantee Agreement, dated as of March 19, 2002, between the registrant, as guarantor, and The Bank of New York, as guarantee trustee (Exhibit 4(v) 5 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).
Indenture, dated as of June 4, 2003, between Lucent Technologies Inc. and The Bank of New York, as trustee (Exhibit 4.1 to Current Report on Form 8-K filed June 25, 2003).
First Supplemental Indenture, dated as of June 4, 2003, between Lucent Technologies Inc. and The Bank of New York, as trustee (Exhibit 4.2 to the Current Report on Form 8-K filed June 25, 2003).
Indenture dated as of November 24, 2003, between Lucent Technologies Inc. and the Bank of New York as trustee (Exhibit 4(ii)11 to Annual Report on Form 10-K for the year ended September 30, 2003).
Form of registrants 8% convertible subordinated debenture due 2031 (Exhibit A to the Indenture attached as Exhibit 4(ii)11).
Other instruments in addition to exhibits under 4(ii) that define the rights of holders of long-term debt of the registrant and all of its consolidated subsidiaries are not filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the registrant agrees to furnish a copy of any such instrument to the SEC upon request.
Separation and Distribution Agreement, by and among Lucent Technologies Inc., AT&T Corp. and NCR Corporation, dated as of February 1, 1996, and amended and restated as of March 29, 1996, (Exhibit 10.1 to Registration Statement on Form S-1 No. 333-00703).
Tax Sharing Agreement, by and among Lucent Technologies Inc., AT&T Corp. and NCR Corporation, dated as of February 1, 1996, and amended and restated as of March 29, 1996, (Exhibit 10.6 to Registration Statement on Form S-1 No. 333-00703).
Employee Benefits Agreement, by and between AT&T Corp. and Lucent Technologies Inc., dated as of February 1, 1996, and amended and restated as of March 29, 1996, (Exhibit 10.2 to Registration Statement on Form S-1 No. 333-00703).
Rights Agreement, between Lucent Technologies Inc. and The Bank of New York (successor to First Chicago Trust Company of New York), as rights agent, dated as of April 4, 1996, (Exhibit 4.2 to Registration Statement on Form S-1 No. 333-00703).
Amendment to Rights Agreement, between Lucent Technologies Inc. and The Bank of New York (successor to First Chicago Trust Company of New York), dated as of February 18, 1998.
Letter Agreement, dated as of October 16, 2002, among Lucent Technologies Inc. and certain of its subsidiaries, and JPMorgan Chase Bank, as collateral agent (Exhibit 99.1 to the Current Report on Form 8-K filed on October 23, 2002).
Letter of Credit Issuance and Reimbursement Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent (Exhibit 99.1 to the Current Report on Form 8-K filed May 28, 2003).
External Sharing Debt Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase
Bank, as administrative agent (Exhibit 99.2 to the Current Report on Form 8-K filed May 28, 2003).
Amended and Restated Guarantee and Collateral Agreement, dated as of May 28, 2003, made by Lucent Technologies Inc. and certain of its subsidiaries in favor of JPMorgan Chase Bank, as collateral agent (Exhibit 99.3 to the Current Report on Form 8-K filed May 28, 2003).
Amended and Restated Collateral Sharing Agreement, dated as of May 28, 2003, made by Lucent Technologies Inc. and certain of its subsidiaries in favor of JPMorgan Chase Bank, as collateral agent (Exhibit 99.4 to the Current Report on Form 8-K filed May 28, 2003).
First Amendment, dated as of June 6, 2003, to (i) Letter of Credit Issuance and Reimbursement Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent, (ii) External Sharing Debt Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent, (iii) Amended and Restated Guarantee and Collateral Agreement, dated as of May 28, 2003, made by Lucent Technologies Inc. and certain of its subsidiaries in favor of JPMorgan Chase Bank, as collateral agent, and (iv) Amended and Restated Collateral Sharing Agreement, dated as of May 28, 2003, made by Lucent Technologies Inc. and certain of its subsidiaries in favor of JPMorgan Chase Bank, as collateral agent (Exhibit 99.1 to the Current Report on Form 8-K filed July 16, 2003).
Second Amendment, dated as of July 7, 2003, to (i) Letter of Credit Issuance and Reimbursement Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent, and (ii) External Sharing Debt Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent (Exhibit 99.2 to the Current Report on Form 8-K filed July 16, 2003).
Third Amendment, dated as of December 22, 2003, to (i) Letter of Credit Issuance and Reimbursement Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent, and (ii) External Sharing Debt Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent (Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended December 31, 2003).
Fourth Amendment, dated as of February 4, 2004, to (i) Letter of Credit Issuance and Reimbursement Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent, and (ii) External Sharing Debt Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent (Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended December 31, 2003).
Fifth Amendment, dated as of March 26, 2004, to (i) Letter of Credit Issuance and Reimbursement Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent, and (ii) External Sharing Debt Agreement, dated as of May 28, 2003, among Lucent Technologies Inc., several banks and other
parties thereto and JPMorgan Chase Bank, as administrative agent (Exhibit (10)(i)(1) to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
Amended and Restated Letter of Credit Issuance and Reimbursement Agreement, dated as of October 1, 2004, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent (Exhibit 99.1 to the Current Report on Form 8-K filed on October 7, 2004).
Amended and Restated External Sharing Debt Agreement, dated as of October 1, 2004, among Lucent Technologies Inc., several banks and other parties thereto and JPMorgan Chase Bank, as administrative agent (Exhibit 99.2 to the Current Report on Form 8-K filed on October 7, 2004).
Amended and Restated Guarantee and Collateral Agreement, dated as of October 1, 2004, made by Lucent Technologies Inc. and certain of its subsidiaries in favor of JPMorgan Chase Bank, as collateral agent (Exhibit 99.3 to the Current Report on Form 8-K filed on October 7, 2004).
Amended and Restated Collateral Sharing Agreement, dated as of October 1, 2004, made by Lucent Technologies Inc. and certain of its subsidiaries in favor of JPMorgan Chase Bank, as collateral agent (Exhibit 99.4 to the Current Report on Form 8-K filed on October 7, 2004).
Brand License Agreement, by and between Lucent Technologies Inc. and AT&T, dated as of February 1, 1996, (Exhibit 10.5 to Registration Statement on Form S-1 No. 333-00703).
Patent License Agreement, among AT&T Corp., NCR Corporation and Lucent Technologies Inc., effective as of March 29, 1996, (Exhibit 10.7 to Registration Statement on Form S-1 No. 333-00703).
Amended and Restated Technology License Agreement, among AT&T Corp., NCR Corporation and Lucent Technologies Inc., effective as of March 29, 1996, (Exhibit 10.8 to Registration Statement on Form S-1 No. 333-00703).
|10(iii)(A) 1|| Lucent Technologies Inc. Short Term Incentive Program.*
Lucent Technologies Inc. 2003 Long Term Incentive Plan (Exhibit 10.2 to Current Report on Form 8-K filed April 11, 2003).*
|10(iii)(A) 3|| First Amendment to the Lucent Technologies Inc. 2003 Long Term Incentive Plan.*
Form of Lucent Technologies Inc. 2003 Long Term Incentive Program (Plan) Performance Award Agreement (Exhibit (10)(iii)(A) 22 to the Annual Report on Form 10-K for the year ended September 30, 2003).*
Lucent Technologies Inc. 2004 Equity Compensation Plan for Non-Employee Directors (Exhibit (10)(iii)(1) to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.*
|10(iii)(A) 6|| First Amendment to the Lucent Technologies Inc. 2004 Equity Compensation Plan for Non-Employee Directors.*
|10(iii)(A) 7|| Lucent Technologies Inc. Deferred Compensation Plan.*
|10(iii)(A) 8|| Lucent Technologies Inc. Supplemental Pension Plan.*
Employment Agreement, dated January 6, 2002, between Patricia F. Russo and Lucent Technologies Inc. (Exhibit (10)(iii)(A)(1) to Quarterly Report on Form 10-Q for the quarter ended December 31, 2001).*
Officer Severance Policy for James K. Brewington, dated January 23, 2001 (Exhibit 10)(iii)(A)(13) to the Annual Report on Form 10-K for the year ended September 30, 2003).*
Officer Severance Policy for Janet G. Davidson, dated January 23, 2001 (Exhibit 10)(iii)(A)(14) to the Annual Report on Form 10-K for the year ended September 30, 2003).*
Officer Severance Policy for William T. OShea, dated February 14, 2001 (Exhibit (10)(iii)(A) 16 to the Annual Report on Form 10-K for the year ended September 30, 2001).*
Henry Schacht letter to William T. OShea, dated December 3, 2001 (Exhibit (10)(iii)(A) 20 to the Annual Report on Form 10-K for the year ended September 30, 2001).*
Henry Schacht letter to Frank A. DAmelio, dated March 13, 2001 (Exhibit (10)(iii)(A) 18 to the Annual Report on Form 10-K for the year ended September 30, 2002).*
Henry Schacht letter to James K. Brewington, dated March 13, 2001 (Exhibit 10)(iii)(A)(18) to the Annual Report on Form 10-K for the year ended September 30, 2003).*
Henry Schacht letter to Janet G. Davidson, dated March 13, 2001(Exhibit 10)(iii)(A)(19) to the Annual Report on Form 10-K for the year ended September 30, 2003).*
Pam Kimmet letter to Frank A. DAmelio, dated September 12, 2001, (Exhibit (10)(iii)(A) 19 to the Annual Report on Form 10-K for the year ended September 30, 2001).*
|10(iii)(A) 18|| Lucent Technologies Executive Officer Severance Policy.*
Computation of Deficiency of Earnings to Cover Combined Fixed Charges and Preferred Stock Dividend Requirements and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements.
Selected portions (pages F-1 to F-82) of Lucent Technologies Inc.s Annual Report to Shareowners for the year ended September 30, 2004.
Lucent Technologies Code of Ethics for Chief Executive Officer and Senior Financial Officers (Exhibit 14 to the Annual Report on Form 10-K for the year ended September 30, 2003).
|21|| List of subsidiaries of Lucent Technologies Inc.
|23|| Consent of PricewaterhouseCoopers LLP.
|24|| Powers of Attorney executed by directors who signed this report.
|31.1|| Certification of Patricia F. Russo required by Rule 13a-14(a) (17 C.F.R. 240.13a-14(a)).
|31.2|| Certification of Frank A. DAmelio required by Rule 13a-14(a) (17 C.F.R. 240.13a-14(a)).
|32|| Certification of Patricia F. Russo and Frank A. DAmelio pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Description of capital stock (Exhibit 99(i) to Quarterly Report on Form 10-Q for the quarter ended December 31, 2001).
* Management contract or compensatory plan or arrangement.