<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) :
December 28, 2000
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Lucent Technologies Inc.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
<TABLE>
<S> <C>
1-11639 22-3408857
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(Commission File Number) (IRS Employer Identification No.)
600 Mountain Avenue, Murray Hill, New Jersey 07974
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(Address of principal executive offices) (Zip Code)
</TABLE>
(908) 582-8500
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(Registrant's Telephone Number)
<PAGE> 2
Item 9. Regulation FD Disclosure.
Earnings Highlights furnished pursuant to Regulation FD.
<PAGE> 3
[Lucent Technologies LOGO]
HIGHLIGHTS
_______________________________________________________________________________
Information Revised
--------------- December 28, 2000
For Investors Supersedes Highlights Issued
October 23, 2000
Pro Forma Revenue from Continuing Operations rose 6.3% to $8,680 million,
for the Fourth Fiscal Quarter 2000
Pro Forma diluted EPS from Continuing Operations declined 58.3% to $0.10,
for the Fourth Fiscal Quarter 2000
Lucent Technologies reported pro forma diluted earnings per share from
continuing operations for its fourth fiscal quarter ended September 30, 2000 of
$0.10 per share, or $341 million. This compares with $0.24 per share, or $768
million in the year-ago quarter. The pro forma continuing operations results
exclude Avaya, which was spun off on September 30, 2000, Consumer Products,
amortization of goodwill and other acquired intangibles, and one-time events,
including purchased in-process research and development (IPRD) (see Notes D, G,
and I).
Pro forma revenue from continuing operations, which excludes Avaya and Consumer
Products, increased 6.3% to $8,680 million versus $8,166 million a year ago (see
Notes D and I). Fourth quarter 2000 revenue from Service Provider Networks
decreased 5.2% and revenue from Microelectronics and Communications Technologies
increased 58.9%, in comparison to the year-ago quarter.
On an as reported basis, revenue from continuing operations increased 4.0% to
$8,680 million this quarter as compared to $8,347 million in the quarter ended
September 30, 1999. After including $131 million (non-tax impacting) (or $0.04
per share) for IPRD related to the Spring Tide acquisition, $335 million of
goodwill and other acquired intangibles amortization, and a $433 million net
loss (or $0.13 loss per diluted share) from discontinued operations related to
the spin-off of Avaya, Lucent's as reported results for the quarter were a net
loss of $484 million, or ($0.14) loss per diluted share, compared with net
income of $947 million, or $0.29 per diluted share in the year-ago quarter.
A Publication Of Investor Relations
<PAGE> 4
Fiscal Year 2000 Results Commentary
For the twelve months ended September 30, 2000, pro forma net income from
continuing operations was $3,093 million, or $0.93 per diluted share. For the
twelve months ended September 30, 1999, pro forma net income from continuing
operations was $3,593 million or $1.12 per diluted share. The pro forma
continuing operations results exclude Avaya, which was spun off on September 30,
2000, Consumer Products, amortization of goodwill and other acquired
intangibles, and one-time events, including IPRD (see Notes D, G, and I).
The company's pro forma revenue from continuing operations, which excludes Avaya
and Consumer Products for the twelve months ended September 30, 2000 grew 12.3%
to $33,577 million as compared with $29,910 million in the twelve month period
ended September 30, 1999 (see Notes D and I). For the year, revenue from within
the United States grew 13.7% in comparison to the prior year and represented
approximately 65.8% of total revenue. Revenue generated outside the United
States grew 9.7% and represented approximately 34.2% of total revenue.
For the twelve months ended September 30, 2000, revenue from Service Provider
Networks increased 6.8% to $26,509 million when compared to $24,833 million for
the twelve months ended September 30, 1999. Revenue from Microelectronics and
Communications Technologies increased 38.3% to $6,953 million for the twelve
months ended September 30, 2000 when compared to $5,026 million for the similar
prior year period.
Pro Forma Revenue from Continuing Operations* (Unaudited; Millions of Dollars)
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------
9/30/00 9/30/99 Change
------- ------- ------
<S> <C> <C> <C>
Service Provider Networks 6,479 6,831 (5.2)%
Microelectronics and Communications Technologies 2,139 1,346 58.9 %
Other and Corporate 62 (11) NM
----- ----- ----
Pro Forma Revenue from Continuing Operations 8,680 8,166 6.3 %
===== ===== ====
</TABLE>
The accompanying notes are an integral part of the financial schedules.
_________
* Excludes Avaya, which was spun off on September 30, 2000 and Consumer Products
(see Notes D and I). NM = Not Meaningful
PRO FORMA REVENUE FROM CONTINUING OPERATIONS for the fourth fiscal quarter 2000
increased 6.3% over the corresponding quarter of 1999. For the three months
ended September 30, 2000, revenue from within the United States grew
approximately 3.1%. Revenue generated outside the United States increased by
approximately 12.1% in comparison to the year-ago period and represented
approximately 37.3% of total revenue.
Revenue from SERVICE PROVIDER NETWORKS decreased $352 million or 5.2% in
comparison to the year-ago quarter. Revenue decreases were primarily due to a
decline in revenues from optical networking products, which primarily resulted
from being late to market with the OC-192 product, which affected the entire
product cycle, from engineering and manufacturing to deployment and launch, and
lower revenues from switching products primarily due to the shift in customer
spending away from circuit switching, pricing pressures and the impact of a
substantial reduction in a major long-term foreign project. These decreases were
partially offset by increased sales of service provider Internet infrastructure
and professional services.
2
<PAGE> 5
Revenue generated from service providers in the United States decreased
approximately 10.5% for the fourth fiscal quarter of 2000 in comparison to the
same period of 1999. Sales generated outside the United States increased
approximately 5.7% over the year-ago quarter as sales growth was impacted by the
substantial reduction of a major long-term foreign project. Excluding the impact
of this project, growth outside the United States would have been 23.7% higher
than the year-ago quarter.
Revenue from MICROELECTRONICS AND COMMUNICATIONS TECHNOLOGIES increased $793
million or 58.9% over the comparable quarter of fiscal 1999. Revenue growth
included increased sales of optoelectronic components, optical fiber, and power
systems, as well as customized chips for high-speed communications and wired and
wireless LAN systems.
Revenue from within the United States increased approximately 80.9% in
comparison to the year-ago quarter. Revenue gains from outside the United States
increased approximately 34.6% in comparison to the year-ago quarter and
reflected increases in the Asia/Pacific and Caribbean/Latin America regions and
Canada.
3
<PAGE> 6
Pro Forma Income Statement from Continuing Operations*
(Unaudited; Millions of Dollars, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended
As Reported Pro Forma
9/30/00 9/30/00 9/30/99 CHANGE**
------- ------- ------- ------
<S> <C> <C> <C> <C>
Revenue $8,680 $8,680 $8,166 6.3 %
Costs 5,436 5,436 4,458 21.9 %
------- ------ ------ -----
Gross Margin 3,244 3,244 3,708 (12.5)%
Selling, general and administrative,
before amortization of goodwill and
other acquired intangibles 1,674 1,674 1,460 14.7 %
Amortization of goodwill and other
acquired intangibles 335 - - NA
------- ------ ------ -----
Total Selling, General and Administrative 2,009 1,674 1,460 14.7 %
Research and Development 1,039 1,039 1,066 (2.5)%
IPRD 131 - - NA
------- ------ ------ -----
Total Operating Expenses 3,179 2,713 2,526 7.4 %
------- ------ ------ -----
Operating income 65 531 1,182 (55.1)%
Other income, net 15 15 74 (79.7)%
Interest expense 106 106 92 15.2 %
------- ------ ------ -----
Income (loss) from Continuing Operations
before Income Taxes (26) 440 1,164 (62.2)%
Income tax expense 25 99 396 (75.0)%
------- ------ ------ -----
Income (loss) from Continuing Operations, net (51) 341 768 (55.6)%
======= ====== ====== =====
Earnings (loss) per Share from Continuing
Operations - Diluted ($0.01) $0.10 $0.24 (58.3)%
Effective Tax Rate (%) - Continuing Operations (96.2)% 22.5% 34.0% (11.5)pts.
Income (loss) from Discontinued Operations, net (433) - - NA
Earnings (loss) per Share from Discontinued
Operations - Diluted ($0.13) - - NA
Net Income (loss) (484) - - NA
Earnings (loss) per Share - Diluted ($0.14) - - NA
</TABLE>
-----------
The accompanying notes are an integral part of the financial schedules.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
*Excludes Avaya, which was spun off on September 30, 2000, Consumer Products,
amortization of goodwill and other acquired intangibles and
one-time items, including IPRD. (see Notes D, G, and I).
**Change between the pro forma 3-month periods ending 9/30/00 and 9/30/99.
NA = Not Applicable
4
<PAGE> 7
Pro Forma Percentage-of-Revenue Analysis from Continuing Operations*
(Unaudited)
For the Three Months Ended
--------------------------------------
9/30/00 9/30/99 Change
------- ------- ------
Costs 62.6% 54.6% 8.0
------- ------- ------
Gross Margin 37.4% 45.4% (8.0)
------- ------- ------
SG&A 19.3% 17.9% 1.4
Research and Development 12.0% 13.0% (1.0)
------- ------- ------
Total Operating Expenses 31.3% 30.9% 0.4
------- ------- ------
Operating Income 6.1% 14.5% (8.4)
======= ======= ======
----------
The accompanying notes are an integral part of the financial schedules.
*Excludes Avaya, which was spun off on September 30, 2000, Consumer Products,
amortization of goodwill and other acquired intangibles and one-time items,
including IPRD. (see Notes D, G, and I).
Income Statement Discussion and Related Items for Pro Forma Continuing
Operations
The current and year-ago quarters are presented on a pro forma continuing
operations basis and exclude Avaya, Consumer Products, amortization of goodwill
and other acquired intangibles and one-time items, including IPRD (see Notes D,
G, and I).
GROSS MARGIN for the quarter was $3,244 million, a decrease of $464 million or
(12.5)% over the year-ago quarter. As a percentage of revenue, gross margin for
the quarter was 37.4%, a decrease of 6.1 percentage points from the third
quarter of this year, and a decrease of 8.0 percentage points over the year-ago
quarter. The margin erosion was primarily due to: decreased volumes and margins
in the optical networking and switching businesses; increased pricing pressures
in our other businesses; and Lucent's expansion into overseas markets.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $1,674 million, an increase of
$214 million or 14.7% from the year-ago quarter. The increase was primarily due
to specific credit concerns in the emerging service provider market that led to
increasing reserves for bad debt related to trade receivables. As a percentage
of revenue, SG&A was 19.3% for the quarter, an increase of 1.4 percentage points
from the year-ago period, and an increase of 3.5 percentage points sequentially.
RESEARCH AND DEVELOPMENT EXPENSES were $1,039 million, a decrease of $27 million
or 2.5% over the year-ago quarter. As a percentage of revenue, quarterly R&D
spending was 12.0%, a decrease of 1.0 percentage point from the year-ago period,
and an increase of 0.4 percentage points sequentially.
OPERATING INCOME decreased $651 million - to $531 million - resulting in an
operating margin of 6.1%. For the year-ago quarter, the Company reported an
operating margin of 14.5% on operating income of $1,182 million.
OTHER INCOME - NET decreased $59 million - to $15 million for the quarter as
compared with $74 million in the year-ago quarter. The decrease primarily
reflects lower gains from sales of equity investments.
5
<PAGE> 8
INTEREST EXPENSE increased $14 million to $106 million for the quarter from $92
million in the year-ago quarter largely due to higher debt levels, higher
weighted average commercial paper balances and higher interest rates.
PRO FORMA EFFECTIVE INCOME TAX RATE for the quarter was 22.5%, a decrease of
11.5 percentage points from 34.0% in the year-ago quarter, primarily due to
increased research tax credits and the tax impact of non-U.S. activity.
PRO FORMA NET INCOME FROM CONTINUING OPERATIONS decreased $427 million to $341
million, or $0.10 per diluted share, for the quarter versus pro forma net income
from continuing operations for the year-ago quarter of $768 million, or $0.24
per diluted share.
Balance Sheet Discussion and Related Items
Pursuant to Generally Accepted Accounting Principles (GAAP), the September 30,
1999 Balance Sheet has been reclassified and segregates the assets and
liabilities of Avaya. The net assets of Avaya are reflected on one line "Net
Assets from Discontinued Operations". As of the spin-off date, the net assets of
Avaya were reclassified through equity.
TOTAL ASSETS increased $13.4 billion or 37.9% from September 30, 1999 to $48.8
billion as of September 30, 2000 largely due to the increase of $9.0 billion in
goodwill related to recent acquisitions. In addition, receivables increased $0.8
billion or 8.6% from September 30, 1999 and decreased $0.5 billion, or 5.4%
compared with June 30, 2000. During the current quarter, approximately $550
million of receivables for one large non-U.S. customer were sold.
Inventories increased $1.4 billion or 33.9% from September 30, 1999 to $5.7
billion as of September 30, 2000 and $741 million or 15.0% when compared to June
30, 2000. Prepaid pension costs increased $1 billion or 18.0% from September 30,
1999 to $6.4 billion, primarily due to higher rates of return on plan assets.
Contracts in process, net increased $0.8 billion from $1.1 billion on September
30, 1999 to $1.9 billion as of September 30, 2000 due to the start-up of several
long-term projects. Other assets increased $1.0 billion or 46.2% largely due to
increased investments and the capitalization of internal use software.
TOTAL LIABILITIES As of September 30, 2000, total liabilities were $22.6
billion, an increase of $1.2 billion or 5.5% from September 30, 1999. This
increase was driven by increased commercial paper balances.
TOTAL SHAREOWNERS' EQUITY Total shareowners' equity was $26.2 billion as of
September 30, 2000, an increase of $12.2 billion or 87.8% from September 30,
1999. The increase was primarily due to increases in additional paid-in capital
associated with the issuance of stock for business acquisitions and the exercise
of stock options.
DEBT TO CAPITAL RATIO The Company's debt ratio at September 30, 2000 was 20.0%.
On September 30, 1999, the Company's debt ratio was 29.6%. The decrease was
directly related to the increase in shareowners' equity partially offset by the
increase in total debt. Debt ratio is defined as the ratio of total debt to
total capital (debt plus equity).
6
<PAGE> 9
NET DEBT TO CAPITAL RATIO The Company's net debt to total capital ratio at
September 30, 2000, was 16.3%. On September 30, 1999, the ratio was 23.1%. The
net debt to total capital ratio is defined as the ratio of total debt less cash
to total capital less cash.
TOTAL EMPLOYMENT as of September 30, 2000 was approximately 126,000. This figure
reflects employees from Lucent continuing operations and excludes the employees
of Avaya.
7
<PAGE> 10
Consolidated Balance Sheets
(Unaudited; Millions of Dollars, except share and per share amounts)
9/30/00 9/30/99 Change
-------- -------- --------
ASSETS
Cash and cash equivalents 1,467 1,686 (13.0)%
Receivables 9,558 8,799 8.6 %
less allowances of $501 and $318
Inventories 5,677 4,240 33.9 %
Contracts in process, net 1,881 1,102 70.7 %
Deferred income taxes, net 1,165 1,472 (20.9)%
Other current assets 1,742 1,941 (10.3)%
------- ------- -------
Total Current Assets 21,490 19,240 11.7 %
Property, plant, and equipment, net 7,084 6,219 13.9 %
Prepaid pension costs 6,440 5,459 18.0 %
Capitalized software development costs 688 436 57.8 %
Goodwill and other acquired intangibles, ne 9,945 960 NM
Other assets 3,145 2,151 46.2 %
Net assets from discontinued operations - 907 (100.0)%
------- ------- -------
Total Assets 48,792 35,372 37.9 %
======= ======= =======
LIABILITIES
Accounts payable 2,813 2,537 10.9 %
Payroll and benefit-related liabilities 1,210 1,788 (32.3)%
Debt maturing within one year 3,483 1,705 104.3 %
Other current liabilities 3,371 3,120 8.0 %
------- ------- -------
Total Current Liabilities 10,877 9,150 18.9 %
Post-retirement and post-employment benefit 5,548 5,651 (1.8)%
Liabilities
Long-term debt 3,076 4,162 (26.1)%
Deferred income taxes, net 1,266 870 45.5 %
Other liabilities 1,853 1,603 15.6 %
------- ------- -------
Total Liabilities 22,620 21,436 5.5 %
SHAREOWNERS' EQUITY
Common stock* 34 31 9.7 %
Additional paid-in capital 20,390 7,994 155.1 %
Guaranteed ESOP obligations (16) (33) 51.5 %
Retained earnings 6,129 6,188 (1.0)%
Accumulated other comprehensive income (loss) (365) (244) (49.6)%
------- ------- -------
Total Shareowners' Equity 26,172 13,936 87.8 %
------- ------- -------
Total Liabilities and Shareowners' Equity 48,792 35,372 37.9 %
======= ======== ========
----------
The accompanying notes are an integral part of the financial schedules.
* $0.01 per share par value; 10,000,000,000 authorized shares; 3,384,332,104
outstanding shares on 9/30/00.
3,142,537,636 outstanding shares on 9/30/99.
NM = Not Meaningful
8
<PAGE> 11
Pro Forma Quarterly Income Statement From Continuing Operations*
(Unaudited; Millions Of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
For The Three Months Ended
--------------------------------------------------------------------------------------------
9/30/00 6/30/00 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99 12/31/98
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $8,680 $8,713 $8,279 $7,905 $8,166 $7,245 $6,694 $7,805
Costs 5,436 4,923 4,829 4,223 4,458 3,743 3,406 3,501
------ ------ ------ ------ ------ ------ ------ ------
Gross Margin 3,244 3,790 3,450 3,682 3,708 3,502 3,288 4,304
Operating Expenses
Selling, General and Admin. 1,674 1,376 1,339 1,184 1,460 1,286 1,224 1,148
Research and Development 1,039 1,015 1,032 921 1,066 1,056 1,134 902
------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses 2,713 2,391 2,371 2,105 2,526 2,342 2,358 2,050
------ ------ ------ ------ ------ ------ ------ ------
Operating Income 531 1,399 1,079 1,577 1,182 1,160 930 2,254
Other Income (Expense), Net 15 119 (32) 62 74 11 (47) 87
Interest Expense 106 79 82 81 92 97 73 56
------ ------ ------ ------ ------ ------ ------ ------
Income from Continuing Operations
Before Taxes 440 1,439 965 1,558 1,164 1,074 810 2,285
Income Tax Expense 99 432 295 483 396 342 257 745
------ ------ ------ ------ ------ ------ ------ ------
Income From Continuing Operations,
Net 341 1,007 670 1,075 768 732 553 1,540
====== ====== ====== ====== ====== ====== ====== ======
Earnings Per Share From Continuing
Operations --
Diluted $0.10 $0.30 $0.20 $0.33 $0.24 $0.23 $0.17 $0.49
---------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Effective Tax Rate 22.5% 30.0% 30.6% 31.0% 34.0% 31.8% 31.7% 32.6%
<CAPTION>
For Twelve Months Ended
-------------------------------
9/30/00 9/30/99 9/30/98
-------------------------------
<S> <C> <C> <C>
Revenue $33,577 $29,910 $24,367
Costs 19,411 15,108 12,938
------- ------- -------
Gross Margin 14,166 14,802 11,429
Operating Expenses
Selling, General and Admin. 5,573 5,118 4,319
Research and Development 4,007 4,158 3,667
------- ------- -------
Total Operating Expenses 9,580 9,276 7,986
------- ------- -------
Operating Income 4,586 5,526 3,443
Other Income (Expense), Net 164 125 211
Interest Expense 348 318 143
------- ------- -------
Income from Continuing Operations
before Taxes 4,402 5,333 3,511
Income Tax Expense 1,309 1,740 1,205
------- ------- -------
Income From Continuing Operations,
Net 3,093 3,593 2,306
======= ======= =======
Earnings Per Share From Continuing
Operations --
Diluted $0.93 $1.12 $0.74
----------- ----------- -----------
Effective Tax Rate 29.7% 32.6% 34.3%
</TABLE>
---------
The accompanying notes are an integral part of the financial schedules.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
*Pro forma continuing operations excludes Avaya, Consumer Products, amortization
of goodwill and other acquired intangibles and one-time items, including IPRD
(see Notes D, G, and I).
9
<PAGE> 12
Pro Forma Quarterly Revenue Analysis From Continuing Operations*
(Unaudited; Millions Of Dollars)
<TABLE>
<CAPTION>
For The Three Months Ended
------------------------------------------------------------------------------
9/30/00 6/30/00 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99 12/31/98
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service Provider Networks $6,479 $6,885 $6,682 $6,463 $6,831 $5,923 $5,499 $6,580
Microelectronics and Communications
Technologies 2,139 1,809 1,578 1,427 1,346 1,306 1,176 1,198
Other and Corporate 62 19 19 15 (11) 16 19 27
------ ------ ------ ------ ------ ------ ------ ------
*Total Pro Forma Revenue From
Continuing Operations* $8,680 $8,713 $8,279 $7,905 $8,166 $7,245 $6,694 $7,805
====== ====== ====== ====== ====== ====== ====== ======
For Twelve Months Ended
---------------------------------
9/30/00 9/30/99 9/30/98
---------------------------------
<S> <C> <C> <C>
Service Provider Networks $26,509 $24,833 $20,116
Microelectronics and Communications
Technologies 6,953 5,026 4,134
Other and Corporate 115 51 117
------- ------- -------
*Total Pro Forma Revenue From
Continuing Operations* $33,577 $29,910 $24,367
======= ======= =======
</TABLE>
---------
The accompanying notes are an integral part of the financial schedules.
* Excludes Avaya and Consumer Products (see Notes D and I).
Pro Forma Quarterly Percentage-Of-Revenue Analysis From Continuing Operations*
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
-----------------------------------------------------------------------------------------
9/30/00 6/30/00 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99 12/31/98
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue 100% 100% 100% 100% 100% 100% 100% 100
Costs 62.6% 56.5% 58.3% 53.4% 54.6% 51.7% 50.9% 44.9%
------ ------ ------ ------ ------ ------ ------ ------
Gross Margin 37.4% 43.5% 41.7% 46.6% 45.4% 48.3% 49.1% 55.1%
Operating Expenses
Selling, General and Admin. 19.3% 15.8% 16.2% 15.0% 17.9% 17.7% 18.3% 14.7%
Research and Development 12.0% 11.6% 12.4% 11.6% 13.0% 14.6% 16.9% 11.6%
------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses 31.3% 27.4% 28.6% 26.6% 30.9% 32.3% 35.2% 26.3%
------ ------ ------ ------ ------ ------ ------ ------
Operating Income 6.1% 16.1% 13.0% 20.0% 14.5% 16.0% 13.9% 28.9%
Income From Continuing Operations, Net 3.9% 11.6% 8.1% 13.6% 9.4% 10.1% 8.3% 19.7%
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
For Twelve Months Ended
--------------------------------
9/30/00 9/30/99 9/30/98
--------------------------------
<S> <C> <C> <C>
Revenue 100% 100% 100%
Costs 57.8% 50.5% 53.1%
------- ------- -------
Gross Margin 42.2% 49.5% 46.9%
Operating Expenses
Selling, General And Admin. 16.6% 17.1% 17.7%
Research And Development 11.9% 13.9% 15.1%
------- ------- -------
Total Operating Expenses 28.5% 31.0% 32.8%
------- ------- -------
Operating Income 13.7% 18.5% 14.1%
Income From Continuing Operations, Net 9.2% 12.0% 9.5%
======= ======= =======
</TABLE>
----------
The accompanying notes are an integral part of the financial schedules.
*Pro forma continuing operations excludes Avaya, Consumer Products, amortization
of goodwill and other acquired intangibles and one-time items, including IPRD
(see Notes D, G, and I)
10
<PAGE> 13
Fiscal Year 2000 Pro Forma Revenue from Continuing Operations*
(Unaudited; Millions of Dollars)
For the Twelve Months Ended
----------------------------
9/30/00 9/30/99 Change
-------- ------- ------
Service Provider Networks 26,509 24,833 6.8 %
Microelectronics and
Communications Technologies 6,953 5,026 38.3 %
Other and Corporate 115 51 NM
------ ------ ----
Pro Forma Revenue from Continuing
Operations* 33,577 29,910 12.3 %
====== ====== ====
---------
The accompanying notes are an integral part of the financial schedules.
* Excludes Avaya and Consumer Products (see Notes D and I).
NM = Not Meaningful
Fiscal Year 2000 Pro Forma Income Statement from Continuing Operations*
(Unaudited; Millions of Dollars, except per share amounts)
For the Twelve Months Ended
----------------------------------------
As Reported Pro Forma
----------- ---------------------------
9/30/00 9/30/00 9/30/99 Change**
Revenue $33,813 $33,577 $29,910 12.3 %
Costs 19,539 19,411 15,108 28.5 %
------- ------- ------- ------
Gross Margin 14,274 14,166 14,802 (4.3)%
Selling, general and
administrative, before
amortization of goodwill and
other acquired intangibles 5,715 5,573 5,118 8.9 %
Amortization of goodwill and
other acquired intangibles 551 - - NA
------- ------- ------- ------
Total Selling, General and
Administrative 6,266 5,573 5,118 8.9 %
Research and Development 4,018 4,007 4,158 (3.6)%
In-process Research and
Development 1,005 - - NA
------- ------- ------- ------
Total Operating Expenses 11,289 9,580 9,276 3.3 %
------- ------- ------- ------
Operating Income 2,985 4,586 5,526 (17.0)%
Other Income, net 366 164 125 31.2 %
Interest Expense 348 348 318 9.4 %
------- ------- ------- ------
Income from Continuing
Operations before
Income Taxes 3,003 4,402 5,333 (17.5)%
Income Tax Expense 1,322 1,309 1,740 (24.8)%
------- ------- ------- ------
Income from Continuing
Operations, net 1,681 3,093 3,593 (13.9)%
Earnings per Share from Continuing
Operations - Diluted $0.51 $0.93 $1.12 (17.0)%
Income (Loss) from
Discontinued Operations, net (462) - - NA
Earnings per Share from
Discontinued Operations
Diluted ($0.14) - - NA
Net Income $1,219 - - NA
Earnings per Share -- Diluted $0.37 - - NA
--------
The accompanying notes are an integral part of the financial schedules.
*Excludes Avaya, Consumer Products, amortization of goodwill and other
acquired intangibles and one-time items, including IPRD (see Notes D, G, &
I) and the cumulative effect of accounting change of $1,308 million (net of
tax of $842 million) in fiscal year 1999.
**Change between the pro forma 12-month periods ending 9/30/00 and 9/30/99.
NA = Not Applicable
11
<PAGE> 14
Fiscal Year 2000 Pro Forma Percentage-of-Revenue Analysis from Continuing
operations* (Unaudited)
For the Twelve Months Ended
--------------------------------------
9/30/00 9/30/99 Change
------- ------- ------
Costs 57.8% 50.5% 7.3
----- ----- -----
Gross Margin 42.2% 49.5% (7.3)
SG&A 16.6% 17.1% (0.5)
Research AND development 11.9% 13.9% (2.0)
----- ----- -----
Total Operating Expenses 28.5% 31.0% (2.5)
----- ----- -----
Operating Income 13.7% 18.5% (4.8)
===== ===== =====
-----------
The accompanying notes are an integral part of the financial schedules.
*Excludes Avaya, Consumer Products, amortization of goodwill and other acquired
intangibles and other one-time items, including IPRD (see Notes D, G, and I).
12
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL SCHEDULES
A) Acquisitions
The following tables present information about certain acquisitions. All charges
were recorded in the quarter in which the transaction was completed. On a pro
forma basis, if the following acquisitions had occurred on October 1, 1999, the
amortization of goodwill and other acquired intangibles would have increased by
approximately $931 million for the twelve months ended September 30, 2000. The
charges below have been excluded from the financial schedules above.
FISCAL YEAR 2000 ACTIVITIES:
<TABLE>
<CAPTION> Financial Statement
Transaction and Quarter Aggregate IPRD Impact on Impact
Completed Description Purchase Price diluted EPS ("As Reported")
----------------------- ----------- -------------- -------------- -------------------
<S> <C> <C> <C> <C>
ACQUISITIONS
SpringTide Networks Provider in network $1.3 billion in $131 million (non-tax Charge recorded to IPRD
Completed September 30, switching equipment stock and options impacting) charge for IPRD
2000 ($0.04 per share)
Chromatis Networks, Leader in metro $4.8 billion in $428 million (non-tax Charge recorded to IPRD
completed June 30, 2000 optical networking stock and options impacting) charge for IPRD
systems. ($0.13 per share)
Herrmann Technology, Supplier of devices $432 million in $34 million (non-tax Charge recorded to IPRD
completed June 30, 2000 for next-generation stock and options impacting) charge for IPRD
DWDM optical ($0.01 per share)
networks.
Agere, Developer of $377 million in $94 million (non-tax Charge recorded to IPRD
Completed June 30, 2000 programmable stock and options impacting) charge for IPRD
network processor ($0.03 per share)
technology.
Ortel, Developer of $3.0 billion in $307 million (non-tax Charge recorded to IPRD
Completed June 30, 2000 optoelectronic stock impacting) charge for IPRD
components for and options ($0.10 per share)
cable TV networks.
DeltaKabel, Developer of cable $52 million in cash None None
Completed June 30, 2000 modem and Internet
Telephony (IP)
solutions
VTC, Supplier of $104 million in cash $7 million charge ($11 Charge recorded to IPRD
Completed March 31, 2000. semiconductor million pretax) for IPRD
components to ($0.00 per share)
computer disk drive
manufacturers.
</TABLE>
B) Internal Use Software - Continuing Operations
Effective October 1, 1999, Lucent adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). As a result, certain costs of computer software
developed or obtained for internal use have been capitalized and will be
amortized over a three-year period. The impact of adopting SOP 98-1 was a
reduction of costs and operating expenses of approximately $61 million and $252
million during the three and twelve months ended September 30, 2000,
respectively.
13
<PAGE> 16
C) Diluted Earnings Per Share (EPS) Discussion
All share and earnings per share data for the periods presented have been
restated to reflect the two-for-one split of the Company's common stock which
became effective on April 1, 1999.
Weighted average shares and earnings per share on Pro Forma Income from
continuing operations, have been provided in the following tables:
Weighted Pro Forma Net
Period Average Income from
Shares Continuing
(Millions) Operations Per
Share - Diluted*
--------- ----------- -----------------
For the Three Months Ended 12/31/98 3,172.3 $0.49
3/31/99 3,213.5 $0.17
6/30/99 3,230.4 $0.23
9/30/99 3,249.5 $0.24
12/31/99 3,268.0 $0.33
3/31/00 3,273.7 $0.20
6/30/00 3,331.2 $0.30
9/30/00 3,423.9 $0.10
For The Twelve Months Ended 9/30/98 3,110.6 $0.74
9/30/99 3,218.5 $1.12
9/30/00 3,325.9 $0.93
-----------
*Excludes Avaya, which was spun off on September 30, 2000, Consumer Products,
amortization of goodwill and other acquired intangibles and one-time items,
including IPRD (see Notes D, G, and I).
D) Consumer Products Business
On October 1, 1997, Lucent contributed its Consumer Products business to a new
venture formed by Lucent and Philips Electronics N.V. ("Philips") in exchange
for 40% ownership of PCC. In December 1998, Lucent and Philips ended the PCC
venture and regained control of their original businesses. The results of
operations and net assets of the remaining businesses Lucent previously
contributed to PCC were consolidated as of October 1, 1998. This revenue is
included in Other and Corporate. In December 1998, Lucent sold certain assets of
its wireless handset business to Motorola. During the quarter ended March 31,
2000, Lucent completed the sale of its remaining consumer products business.
For purposes of making comparable year-over-year comparisons of Lucent's
continuing business, the following represent the EXTERNAL revenue for Lucent's
total consumer products business for the indicated quarters and fiscal year.
<TABLE>
<CAPTION>
12/31/98 3/31/99 6/30/99 9/30/99 FY1999 12/31/99 3/31/00
---------- --------- --------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$231M $137M $158M $181M $707M $160M $76M
</TABLE>
E) Customer Financing - Continuing Operations
As of September 30, 2000, Lucent had made commitments or entered into agreements
to extend credit to certain customers, including PCS and wireless operators, for
an aggregate of approximately $6.7 billion. Excluding amounts that are not
available because customers have not yet satisfied the conditions precedent for
borrowing, at September 30, 2000, approximately $3.3 billion in loan commitments
was available for borrowing and undrawn and approximately $1.3 billion had been
advanced and was outstanding. In addition, Lucent had made
14
<PAGE> 17
commitments to guarantee customer debt of about $1.4 billion at September 30,
2000. Excluding amounts not available for guarantee because conditions precedent
have not been satisfied, approximately $600 million of guarantees was available
and undrawn and approximately $770 million was outstanding on
September 30, 2000.
F) Recent Events
Spring Tide Networks
On September 18, 2000, Lucent acquired Spring Tide Networks, a privately-held
Maynard, Massachusetts-based leader in network switching equipment. As part of
the transaction, Lucent issued approximately 25 million common shares and
assumed employee stock options covering an additional 3 million common shares.
The acquisition was accounted for as a purchase and resulted in a $131 million,
one-time charge against earnings for IPRD during the fourth fiscal quarter, and
$1.2 billion in goodwill and other acquired intangibles to be amortized over a
period of seven years.
Microelectronics Spinoff
On July 20, 2000, Lucent announced its intention to spin off its
microelectronics business, which includes the optoelectronics components and
integrated circuits divisions, into a separate and independent company. The new
company is called Agere Systems Inc. ("Agere Systems"). On December 11, 2000, a
Form S-1 registration statement was filed with the SEC in anticipation of an
initial public offering ("IPO") of Agere Systems and Lucent intends to
distribute the remaining shares in a tax-free distribution. In connection with
the spin-off, Lucent may be adjusting its capital structure including a possible
reduction in the amount of debt outstanding. The IPO is expected to be completed
in the quarter ending March 31, 2001, and completion of the spin-off is expected
by the end of the 2001 fiscal year. This document does not constitute the
offering of any securities which will be made only by a prospectus filed with
the SEC. The IPO and spin-off are subject to certain conditions, including a
favorable tax ruling by the IRS.
Sale of Power business
On May 3, 2000 Lucent announced it is seeking a buyer for its Power Systems
business, a leading supplier of power products for the telecommunications and
computer industries. On November 13, 2000, Lucent entered into an agreement to
sell its power systems business to Tyco International Ltd., a diversified
manufacturing and service company, for $2,500 million in cash. The sale, which
is subject to regulatory approval and other customary closing conditions, is
expected to close by December 31, 2000.
Enterprise Networks Group
On March 1, 2000, Lucent announced plans to spin off its enterprise networks
business to shareowners, forming a separate company that will focus directly and
independently on the enterprise networking market. On June 27, 2000, the new
company announced that it would be named Avaya. The spin-off was accomplished
through a tax-free distribution of shares to Lucent's shareowners on
September 30, 2000.
Expectations for First Fiscal Quarter of 2001
For the first fiscal quarter of 2001, Lucent anticipates a substantial decline
in revenues compared to the year-ago quarter, and a substantial loss from
continuing operations. This reflects a significant sales decline in North
America due to an overall softening in the competitive local exchange carrier
market, slowdown in capital spending by established service providers, lower
software sales and a more focused use of vendor financing by Lucent.
15
<PAGE> 18
Lowered Credit Ratings
On December 21, 2000, Moody's Investors Service lowered Lucent's credit rating
on senior unsecured long-term debt from A2 to A3 and on commercial paper from
Prime-1 to Prime-2; the A3 rating remains on review for possible further
downgrade, and Moody's concluded the review of the commercial paper rating. Also
on December 21, 2000, Standard & Poor's lowered Lucent's credit rating on senior
unsecured long-term debt from A to BBB+ and the commercial paper rating from A-1
to A-2, both of which remain on CreditWatch with the possibility of further
downgrades. Lucent believes that it will have sufficient capital resources to
fulfill its own operational and capital needs, as well as to extend credit to
customers when appropriate, although there can be no assurance that this will
occur.
G) Pro Forma Net Income from Continuing Operations
Pro forma net income from continuing operations for the September 30, 2000
quarter excludes amortization of goodwill and other acquired intangibles of $335
million, and $131 million (non-tax impacting) (or $0.04 per share) for IPRD
associated with the Spring Tide acquisition. Pro forma net income from
continuing operations for the September 30, 1999 quarter excludes amortization
of goodwill and other acquired intangibles of $172 million, and $152 million
($84 million after-tax) of one-time costs primarily associated with Ascend,
Livingston, and Nexabit, and a gain of $274 million ($167 million after-tax)
associated with the sale of an equity investment.
For purposes of making equivalent year-over-year comparisons of Lucent's pro
forma results from continuing operations, the following are the continuing
operations' IPRD expenses and amortization of goodwill and other acquired
intangibles amounts over the last eight quarters and two fiscal years.
In-Process Research and Development Expense - Pre-Tax
<TABLE>
<CAPTION>
12/31/98 3/31/99 6/30/99 9/30/99 FY1999 12/31/99 3/31/00 6/30/00 9/30/00 FY 2000
-------- ------- ------- ------- ------ -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$295M $(6)M - $3M $292M - $11M $863M $131M $1,005M
</TABLE>
Amortization of goodwill and other acquired intangibles - Pre-Tax
<TABLE>
<CAPTION>
12/31/98 3/31/99 6/30/99 9/30/99 FY1999 12/31/99 3/31/00 6/30/00 9/30/00 FY 2000
-------- ------- ------- ------- ------ -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$45M $47M $46M $172M* $310M $50M $48M $118M $335M $551M
</TABLE>
__________
* Includes a $109 million write-off of Livingston goodwill and other acquired
intangibles.
H) Pro Forma Operating Income from Continuing Operations*
(Unaudited; Millions of Dollars)
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------
9/30/00 9/30/99 Change
------- ------- ------
<S> <C> <C> <C>
Service Provider Networks (98) 1,020 NM
Microelectronics and Communications Technologies 652 164 NM
Total Reportable Segments 554 1,184 (53.2)%
Other and Corporate (23) (2) NM
--- ----- -----
Operating Income 531 1,182 (55.1)%
=== ===== =====
</TABLE>
_________
* Excludes Avaya, Consumer Products, amortization of goodwill and
other acquired intangibles and one-time items, including IPRD (see
Notes D, G, and I).
NM = Not Meaningful
16
<PAGE> 19
I) Discontinued Operations
Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
("APB30"), the consolidated financial statements of Lucent have been
reclassified to reflect the spin-off of Avaya. Accordingly, the revenue, costs
and expenses, assets and liabilities of this business have been segregated in
the Consolidated Statements of Income and the September 30, 1999 Consolidated
Balance Sheet. The net operating results and net assets of this business have
been reported as "Discontinued Operations" in those financial statements.
Summarized financial information for the discontinued operations is as follows:
For the Three Months Ended
-------------------------------------
9/30/00 9/30/99
---------- ---------
Income from Discontinued
Operations
(after applicable income
taxes of $95 million) -- 248
Loss on Disposal of
BUSINESS
(after applicable income
tax benefit of $210 million) (433) --
(Loss) income from
Discontinued Operations (433) 248
==== ===
The loss on disposal of Avaya recorded in the Company's results for the fourth
quarter ended September 30, 2000 reflects the additional costs directly
associated with the disposition, the loss of Avaya between the measurement date
and the spin date of September 30, 2000, and an estimate previously reflected in
the prior quarter. The costs reflect those components of the Avaya business
reorganization plan, including a business restructuring charge, along with
transaction costs for the spin-off. Major components of the reorganization plan
included employee separation, real estate consolidation and computer information
costs.
Please note, the discontinued operations financial results presented by Lucent
will differ from the results reported by Avaya because of different assumptions
and allocations required to be made by the two companies.
J) Special Purpose Trust
In September 2000, Lucent and a third party financial institution arranged for
the creation of a non-consolidated Special Purpose Trust (the "Trust") for the
purpose of allowing Lucent from time to time to sell on a limited-recourse basis
up to a maximum of $970 million of customer finance loans and receivables (the
"Loans") at any given point in time through a wholly-owned bankruptcy-remote
subsidiary who in turn will sell the Loans to the Trust. Lucent has also agreed,
in the case of foreign currency denominated Loans and Loans with a fixed
interest rate, to indemnify the Trust for foreign exchange losses and losses due
to movements in interest rates (if any), if hedging instruments have not been
entered into for such Loans. Lucent will receive a fee from the Trust for either
arranging hedging instruments or providing the indemnity. Lucent will continue
to service, administer and collect the Loans on behalf of the Trust and
17
<PAGE> 20
receive a fee for performance of these services. Lucent will also receive a fee
for referring Loans to the Trust that it purchases from Lucent. At September 30,
2000, Lucent had sold $579 million of Loans into the Trust. The impact of this
transaction increased cash flows from operating activities by $575 million.
This document contains forward-looking statements based on current expectations,
forecasts and assumptions that involve risks and uncertainties that could cause
actual outcomes and results to differ materially. These risks and uncertainties
include price and product competition, dependence on new product development,
reliance on major customers and suppliers, customer demand for our products and
services, the ability to successfully integrate acquired companies, availability
of manufacturing capacity, components and materials, control of costs and
expenses, international growth, credit concerns in the emerging service provider
market, our credit rating and ability to provide customer financing when
appropriate, general industry and market conditions and growth rates and general
domestic and international economic conditions including interest rate and
currency exchange rate fluctuations. For a further list and description of such
risks and uncertainties, see the reports filed by Lucent with the Securities and
Exchange Commission. Lucent disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
18
<PAGE> 21
SIGNATURE
Pursuant to the requirements 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.
Date: December 28, 2000 By: /s/ Mark G. Gibbens
--------------------------------
Name: Mark G. Gibbens
Title: Assistant Treasurer
