<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) :
October 23, 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 LETTERHEAD]
HIGHLIGHTS
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INFORMATION OCTOBER 23, 2000
-------------
FOR INVESTORS
PRO FORMA REVENUE FROM CONTINUING OPERATIONS ROSE 14.6% TO $9,359 MILLION,
FOR THE FOURTH FISCAL QUARTER 2000
PRO FORMA EPS FROM CONTINUING OPERATIONS DECLINED 25.0% TO $0.18,
FOR THE FOURTH FISCAL QUARTER 2000
Lucent Technologies reported today pro forma earnings per share from continuing
operations for its fourth fiscal quarter ended September 30, 2000 of $0.18 per
share, or $600 million. This compares with $0.24 per share, or $768 million in
the year-ago quarter. The pro forma continuing operations results exclude the
Enterprise Networks Group which was spun off on September 30, 2000, Consumer
Products, amortization of goodwill and acquired technology, 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 the Enterprise
Networks Group and Consumer Products, increased 14.6% to $9,359 million versus
$8,166 million a year ago (see Notes D and I). Fourth quarter 2000 revenue from
Service Provider Networks increased 4.8% 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 12.1% to
$9,359 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 purchased in-process research and development related to the
Spring Tide acquisition, $335 million of goodwill and acquired technology
amortization, and a $433 million net loss (or $0.13 loss per share) from
discontinued operations related to the spin-off of the Enterprise Networks
Group, Lucent's as reported results for the quarter were a net loss of $225
million, or ($0.07) loss per share, compared with net income of $947 million, or
$0.29 per share in the year-ago quarter.
"We are clearly disappointed in our results for fiscal year 2000," said Henry
Schacht, who was named Lucent Chairman and CEO today. "We are looking at fiscal
year 2001 as a transition and rebuilding year for Lucent. Lucent remains a
company with world-class products, people
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<PAGE> 4
and knowledge of networks, and we are fortunate to compete in one of the world's
leading growth markets."
"We are undertaking a number of initiatives to sharpen our execution, reduce
complexity and increase our efficiencies," said Deborah Hopkins, Lucent's chief
financial officer. Hopkins said that these initiatives include consolidating
Lucent's corporate infrastructure, re-deploying the company's marketing and
sales resources to align them with the highest growth opportunities, improving
supply chain management and implementing a new customer ordering system. As
previously announced, the company expects to take a restructuring charge in the
quarter ending December 31, 2000 to cover these activities.
"We intend to create a new Lucent -- a dynamic company that, in the long term,
will be stronger, more focused and better positioned to capitalize on the
opportunities that exist in this robust and growing market," Hopkins added.
REVISED EXPECTATIONS FOR FIRST FISCAL QUARTER OF 2001
Hopkins said that Lucent expects pro forma revenues from continuing operations
will decline about 7 percent from the prior year, and pro forma earnings per
share from continuing operations will break even for the first fiscal quarter of
2001. The company also said it expects results from operations to improve each
quarter for the rest of the fiscal year. This guidance does not include the
effect of plans for a business restructuring charge. She noted that the company
will provide revised guidance for fiscal year 2001 when it reports its first
fiscal quarter earnings in January.
These revised expectations reflect: the continuing issues related to the
deployment of the OC-192 optical system; the continuing decline in switching
hardware and software sales; the anticipated revenue impact of realigning sales
resources; and aggressively investing in the next generation of wireless,
optical and data products.
FISCAL YEAR 2000 RESULTS COMMENTARY
For the twelve months ended September 30, 2000, pro forma net income from
continuing operations was $3,352 million, or $1.01 per share. For the twelve
months ended September 30, 1999, pro forma net income from continuing operations
was $3,593 million or $1.12 per share. The pro forma continuing operations
results exclude the Enterprise Networks Group which was spun off on September
30, 2000, Consumer Products, amortization of goodwill and acquired technology
and one-time events, including purchased in-process research and development
(see Notes D, G, and I).
The company's pro forma revenue from continuing operations, which excludes the
Enterprise Networks Group and Consumer Products for the twelve months ended
September 30, 2000 grew 14.5% to $34,256 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 16.9% in comparison to
the prior year and represented approximately 66.4% of
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<PAGE> 5
total revenue. Revenue generated outside the United States grew 10.1% and
represented approximately 33.6% of total revenue.
For the twelve months ended September 30, 2000, revenue from Service Provider
Networks increased 9.5% to $27,188 million when compared to $24,833 million in
the period ended September 30, 1999. Revenue from Microelectronics and
Communications Technologies increased 38.3% to $6,953 million for the period
ended September 30, 2000 when compared to $5,026 million for the 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 7,158 6,831 4.8%
MICROELECTRONICS AND COMMUNICATIONS TECHNOLOGIES 2,139 1,346 58.9%
OTHER AND CORPORATE 62 (11) NM
---------------------------------------
PRO FORMA REVENUE FROM CONTINUING OPERATIONS 9,359 8,166 14.6%
</TABLE>
The accompanying notes are an integral part of the financial schedules.
* Excludes the Enterprise Networks Group 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 14.6% over the corresponding quarter of 1999. For the three months
ended September 30, 2000, revenue from within the United States grew
approximately 15.2%. Revenue generated outside the United States increased by
approximately 13.6% in comparison to the year-ago period and represented
approximately 35.0% of total revenue.
Revenue from SERVICE PROVIDER NETWORKS increased $327 million or 4.8% in
comparison to the year-ago quarter. Revenue growth primarily reflected increased
sales of service provider Internet infrastructure and professional services.
Revenue generated from service providers in the United States increased
approximately 3.4% for the fourth fiscal quarter of 2000 in comparison to the
same period of 1999, and included revenue gains from incumbent local exchange
carriers, and competitive local exchange carriers. Sales generated outside the
United States increased approximately 7.6% 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 22.7% 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 9,359 9,359 $ 8,166 14.6%
COSTS 5,690 5,690 4,458 27.6%
GROSS MARGIN 3,669 3,669 3,708 (1.1)%
SELLING, GENERAL AND ADMINISTRATIVE 1,674 1,674 1,460 14.7%
AMORTIZATION OF GOODWILL AND 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)%
IN-PROCESS RESEARCH AND DEVELOPMENT (IPRD) 131 -- -- NA
TOTAL OPERATING EXPENSES 3,179 2,713 2,526 7.4%
OPERATING INCOME 490 956 1,182 (19.1)%
OTHER INCOME, NET 15 15 74 (79.7)%
INTEREST EXPENSE 106 106 92 15.2%
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME 399 865 1,164 (25.7)%
TAXES
INCOME TAX EXPENSE 191 265 396 (33.1)%
INCOME FROM CONTINUING OPERATIONS, NET 208 600 768 (21.9)%
EARNINGS PER SHARE FROM CONTINUING OPERATIONS - DILUTED
$ 0.06 $ 0.18 $ 0.24 (25.0)%
EFFECTIVE TAX RATE (%) - CONTINUING OPERATIONS 47.9% 30.6% 34.0% (3.4 PTS.)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET (433) -- -- NA
EARNINGS (LOSS) PER SHARE FROM DISCONTINUED OPERATIONS -
DILUTED (0.13) -- -- NA
NET INCOME (LOSS) (225) -- -- NA
EARNINGS (LOSS) PER SHARE - DILUTED ($ 0.07) -- -- 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 the Enterprise Networks Group which was spun off on September 30,
2000, Consumer Products, amortization of goodwill and acquired technology and
one-time items, including purchased in-process research and development (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)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------
9/30/00 9/30/99 CHANGE
-----------------------------
<S> <C> <C> <C>
COSTS 60.8% 54.6% 6.2
GROSS MARGIN 39.2% 45.4% (6.2)
SG&A 17.9% 17.9% 0.0
RESEARCH AND DEVELOPMENT 11.1% 13.0% (1.9)
TOTAL OPERATING EXPENSES 29.0% 30.9% (1.9)
OPERATING INCOME 10.2% 14.5% (4.3)
</TABLE>
The accompanying notes are an integral part of the financial schedules.
*Excludes the Enterprise Networks Group which was spun off on September 30,
2000, Consumer Products, amortization of goodwill and acquired technology and
one-time items, including purchased in-process research and development (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 THE ENTERPRISE NETWORKS GROUP WHICH WAS SPUN OFF ON
SEPTEMBER 30, 2000, CONSUMER PRODUCTS, AMORTIZATION OF GOODWILL AND ACQUIRED
TECHNOLOGY AND ONE-TIME ITEMS, INCLUDING PURCHASED IN-PROCESS RESEARCH AND
DEVELOPMENT (SEE NOTES D, G, AND I).
GROSS MARGIN for the quarter was $3,669 million, a decrease of $39 million or
(1.1)% over the year-ago quarter. As a percentage of revenue, gross margin for
the quarter was 39.2%, a decrease of 4.3 percentage points from the third
quarter of this year, and a decrease of 6.2 percentage points over the year-ago
quarter. The margin erosion was primarily due to: decreased volumes and margins
in the optical 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 17.9% for the quarter, unchanged from the year-ago period,
and an increase of 2.1 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 11.1%, a decrease of 1.9 percentage points from the year-ago
period, and a decrease of 0.5 percentage points sequentially.
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<PAGE> 8
OPERATING INCOME decreased $226 million - to $956 million - resulting in an
operating margin of 10.2%. 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.
INTEREST EXPENSE increased $14 million to $106 million for the quarter from $92
million in the year-ago quarter largely due to higher average commercial paper
balances and higher interest rates.
PRO FORMA EFFECTIVE INCOME TAX RATE for the quarter was 30.6%, a decrease of 3.4
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 $168 million to $600
million, or $0.18 per share, for the quarter versus pro forma net income from
continuing operations for the year-ago quarter of $768 million, or $0.24 per
share.
PRELIMINARY-SUBJECT TO CHANGE
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 THE ENTERPRISE NETWORKS GROUP, WHICH WAS SPUN OFF ON SEPTEMBER
30, 2000. THE NET ASSETS OF THIS BUSINESS ARE REFLECTED ON ONE LINE "NET ASSETS
FROM DISCONTINUED OPERATIONS". AS OF THE SPIN-OFF DATE, THE NET ASSETS OF THIS
BUSINESS WERE RECLASSIFIED THROUGH EQUITY.
TOTAL ASSETS increased $13.5 billion or 38.2% from September 30, 1999 to $48.9
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 $1.3
billion, or 14.6% from September 30, 1999 and were flat on a sequential basis.
During the current quarter, approximately $550 million of receivables for one
large non-U.S. customer were sold.
Inventories increased $1.2 billion or 27.9% from September 30, 1999 to $5.4
billion as of September 30, 2000 and $487 million or 9.9% 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 $779 million from 1.1 billion on September
30, 1999 to $1.9 billion as of September 30, 2000 due to the start-up of some
long term North American 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 $22.5
billion, an increase of $1.0 billion or 4.8% from September 30, 1999. This
increase was driven by increased commercial paper balances.
6
<PAGE> 9
TOTAL SHAREOWNERS' EQUITY Total shareowners' equity was $26.4 billion as of
September 30, 2000, an increase of $12.5 billion or 89.7% 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 19.9%.
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).
NET DEBT TO CAPITAL RATIO The Company's net debt to total capital ratio at
September 30, 2000, was 16.2%. 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 the Enterprise Networks Group which was spun off on September 30, 2000.
7
<PAGE> 10
PRELIMINARY - SUBJECT TO CHANGE
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
9/30/00 9/30/99 CHANGE
------- -------- ------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents 1,467 1,686 (13.0)%
Receivables
less allowances of $501 and $318 10,086 8,799 14.6%
Inventories 5,423 4,240 27.9%
Contracts in process, net 1,881 1,102 70.7%
Deferred income taxes, net 1,165 1,472 (20.9)%
Other current assets 1,576 1,941 (18.8)%
TOTAL CURRENT ASSETS 21,598 19,240 12.3%
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 acquired intangibles, net 9,945 960 NM
Other assets 3,145 2,151 46.2%
Net assets from discontinued operations -- 907 (100.0)%
TOTAL ASSETS 48,900 35,372 38.2%
LIABILITIES
Accounts payable 2,813 2,537 10.9%
Payroll and benefit-related liabilities 1,122 1,675 (33.0)%
Post-retirement and post-employment benefit
Liabilities 88 113 (22.1)%
Debt maturing within one year 3,483 1,705 NM
Other current liabilities 3,141 3,120 0.7%
TOTAL CURRENT LIABILITIES 10,647 9,150 16.4%
Post-retirement and post-employment benefit
Liabilities 5,548 5,651 (1.8%)
Long-term debt 3,076 4,162 (26.1)%
Other liabilities 3,198 2,473 29.3%
TOTAL LIABILITIES 22,469 21,436 4.8%
SHAREOWNERS' EQUITY
Common stock* 34 31 9.7%
Additional paid-in capital 20,390 7,994 NM
Guaranteed ESOP obligations (22) (33) 33.3%
Retained earnings 6,396 6,188 3.4%
Accumulated other comprehensive income (loss) (367) (244) (50.4)%
TOTAL SHAREOWNERS' EQUITY 26,431 13,936 89.7%
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY 48,900 35,372 38.2%
</TABLE>
The accompanying notes are an integral part of the financial schedules.
* $0.01 per share par value; 10,000,000,000 authorized shares; 3,388,113,630
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 $9,359 $ 8,713 $ 8,279 $ 7,905 $ 8,166 $ 7,245 $ 6,694 $ 7,805
Costs 5,690 4,923 4,829 4,223 4,458 3,743 3,406 3,501
GROSS MARGIN 3,669 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 956 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 865 1,439 965 1,558 1,164 1,074 810 2,285
Income Tax Expense 265 432 295 483 396 342 257 745
Income from Continuing Operations,
Net 600 1,007 670 1,075 768 732 553 1,540
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS - DILUTED $ 0.18 $ 0.30 $ 0.20 $ 0.33 $ 0.24 $ 0.23 $ 0.17 $ 0.49
------- ------- ------- -------- ------- ------- ------- --------
EFFECTIVE TAX RATE 30.6% 30.0% 30.6% 31.0% 34.0% 31.8% 31.7% 32.6%
</TABLE>
<TABLE>
<CAPTION>
FOR TWELVE MONTHS
ENDED
-------------------------------
9/30/00 9/30/99 9/30/98
------- ------- -------
<S> <C> <C> <C>
REVENUE $34,256 $29,910 $24,367
Costs 19,665 15,108 12,938
GROSS MARGIN 14,591 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 5,011 5,526 3,443
Other Income (Expense), Net 164 125 211
Interest Expense 348 318 143
Income from Continuing Operations
Before Taxes 4,827 5,333 3,511
Income Tax Expense 1,475 1,740 1,205
Income from Continuing Operations,
Net 3,352 3,593 2,306
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS - DILUTED $ 1.01 $ 1.12 $ 0.74
------- ------- -------
EFFECTIVE TAX RATE 30.6% 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 the Enterprise Networks Group which
was spun off on September 30, 2000, Consumer Products, amortization of goodwill
and acquired technology and one-time items, including purchased in-process
research and development (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 $ 7,158 $ 6,885 $ 6,682 $ 6,463 $ 6,831 $ 5,923 $ 5,499 $ 6,580
Microelectronics and Communications 2,139 1,809 1,578 1,427 1,346 1,306 1,176 1,198
Technologies
Other and Corporate 62 19 19 15 (11) 16 19 27
TOTAL PRO FORMA REVENUE FROM $ 9,359 $ 8,713 $ 8,279 $ 7,905 $ 8,166 $ 7,245 $ 6,694 $ 7,805
CONTINUING OPERATIONS*
</TABLE>
<TABLE>
<CAPTION>
FOR TWELVE MONTHS
ENDED
-----------------------------
9/30/00 9/30/99 9/30/98
------- ------- -------
<S> <C> <C> <C>
Service Provider Networks $27,188 $24,833 $20,116
Microelectronics and Communications 6,953 5,026 4,134
Technologies
Other and Corporate 115 51 117
TOTAL PRO FORMA REVENUE FROM $34,256 $29,910 $24,367
CONTINUING OPERATIONS*
</TABLE>
The accompanying notes are an integral part of the financial schedules.
* Excludes the Enterprise Networks Group which was spun off on September 30,
2000 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 60.8% 56.5% 58.3% 53.4% 54.6% 51.7% 50.9% 44.9%
GROSS MARGIN 39.2% 43.5% 41.7% 46.6% 45.4% 48.3% 49.1% 55.1%
Operating Expenses
Selling, General and Admin. 17.9% 15.8% 16.2% 15.0% 17.9% 17.7% 18.3% 14.7%
Research and Development 11.1% 11.6% 12.4% 11.6% 13.0% 14.6% 16.9% 11.6%
TOTAL OPERATING EXPENSES 29.0% 27.4% 28.6% 26.6% 30.9% 32.3% 35.2% 26.3%
Operating Income 10.2% 16.1% 13.0% 20.0% 14.5% 16.0% 13.9% 28.9%
INCOME FROM CONTINUING OPERATIONS, NET 6.4% 11.6% 8.1% 13.6% 9.4% 10.1% 8.3% 19.7%
</TABLE>
<TABLE>
<CAPTION>
FOR TWELVE MONTHS
ENDED
---------------------------
9/30/00 9/30/99 9/30/98
------- ------- -------
<S> <C> <C> <C>
REVENUE 100% 100% 100%
Costs 57.4% 50.5% 53.1%
GROSS MARGIN 42.6% 49.5% 46.9%
Operating Expenses
Selling, General and Admin. 16.3% 17.1% 17.7%
Research and Development 11.7% 13.9% 15.1%
TOTAL OPERATING EXPENSES 28.0% 31.0% 32.8%
Operating Income 14.6% 18.5% 14.1%
INCOME FROM CONTINUING OPERATIONS, NET 9.8% 12.0% 9.5%
</TABLE>
The accompanying notes are an integral part of the financial schedules.
*Pro forma continuing operations excludes the Enterprise Networks Group which
was spun off on September 30, 2000, Consumer Products, amortization of goodwill
and acquired technology and one-time items, including purchased in-process
research and development (see Notes D, G, and I).
10
<PAGE> 13
FISCAL YEAR 2000 PRO FORMA REVENUE FROM CONTINUING OPERATIONS*
(UNAUDITED; MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED
----------------------------------------
9/30/00 9/30/99 CHANGE
------- ------- ------
<S> <C> <C> <C>
SERVICE PROVIDER NETWORKS 27,188 24,833 9.5%
MICROELECTRONICS AND COMMUNICATIONS TECHNOLOGIES 6,953 5,026 38.3%
OTHER AND CORPORATE 115 51 NM
------- ------- ------
PRO FORMA REVENUE FROM CONTINUING OPERATIONS * 34,256 29,910 14.5%
</TABLE>
The accompanying notes are an integral part of the financial schedules.
* Excludes the Enterprise Networks Group which was spun off on September 30,
2000 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)
<TABLE>
<CAPTION>
--------------FOR THE TWELVE MONTHS ENDED--------------
AS REPORTED ---------------PRO FORMA-------------
9/30/00 9/30/00 9/30/99 CHANGE**
------- ------- ------- --------
<S> <C> <C> <C> <C>
REVENUE $34,492 $34,256 $29,910 14.5%
COSTS 19,793 19,665 15,108 30.2%
GROSS MARGIN 14,699 14,591 14,802 (1.4)%
SELLING, GENERAL AND ADMINISTRATIVE 5,715 5,573 5,118 8.9%
AMORTIZATION OF GOODWILL AND 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 3,410 5,011 5,526 (9.3)%
OTHER INCOME, NET 366 164 125 31.2%
INTEREST EXPENSE 348 348 318 9.4
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 3,428 4,827 5,333 (9.5)%
INCOME TAX EXPENSE 1,488 1,475 1,740 (15.2)%
INCOME FROM CONTINUING OPERATIONS, NET 1,940 3,352 3,593 (6.7)%
EARNINGS PER SHARE FROM CONTINUING OPERATIONS - DILUTED
$ 0.58 $ 1.01 $ 1.12 (9.8)%
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET (462) -- -- NA
EARNINGS PER SHARE FROM DISCONTINUED OPERATIONS - DILUTED ($ 0.14) -- -- NA
NET INCOME $1,478 -- -- NA
EARNINGS PER SHARE - DILUTED $0.44 -- -- NA
</TABLE>
The accompanying notes are an integral part of the financial schedules.
*Excludes the Enterprise Networks Group, which was spun off on September 30,
2000, Consumer Products, amortization of goodwill and acquired technology and
one-time items, including purchased in-process research and development (see
Notes D, G, and 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
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<PAGE> 14
FISCAL YEAR 2000 PRO FORMA PERCENTAGE-OF-REVENUE ANALYSIS FROM CONTINUING
OPERATIONS* (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED
-------------------------------------
9/30/00 9/30/99 CHANGE
------- ------- ------
<S> <C> <C> <C>
COSTS 57.4% 50.5% 6.9
GROSS MARGIN 42.6% 49.5% (6.9)
SG&A 16.3% 17.1% (0.8)
RESEARCH AND DEVELOPMENT 11.7% 13.9% (2.2)
TOTAL OPERATING EXPENSES 28.0% 31.0% (3.0)
OPERATING INCOME 14.6% 18.5% (3.9)
</TABLE>
The accompanying notes are an integral part of the financial schedules.
*Excludes the Enterprise Networks Group, which was spun off on September 30,
2000, Consumer Products, amortization of goodwill and acquired technology and
other one-time items, including purchased in-process research and development
(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 acquired technology 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
Completed Description Purchase Price Impact on 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
2000 purchased in-process R&D
($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
systems. purchased in-process R&D
($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
DWDM optical purchased in-process R&D
networks. ($0.01 per share)
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
network processor purchased in-process R&D
technology. ($0.03 per share)
Ortel, Developer of $3.0 billion in $307 million (non-tax Charge recorded to IPRD
Completed June 30, 2000 optoelectronic stock impacting) charge for
components for and options purchased in-process R&D
cable TV networks. ($0.10 per share)
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
components to purchased in-process R&D
computer disk drive ($0.00 per share)
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:
<TABLE>
<CAPTION>
Pro Forma Net
Weighted Income from
Average Continuing
Shares Operations Per
Period (Millions) Share - Diluted*
------ ---------- ----------------
<S> <C> <C> <C>
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 $0.18
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 $1.01
</TABLE>
*Excludes the Enterprise Networks Group which was spun off on September 30,
2000, Consumer Products, amortization of goodwill and acquired intangibles and
one-time items, including purchased in-process research and development (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
14
<PAGE> 17
approximately $7.0 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 $1.6 billion had been advanced and
was outstanding. In addition, Lucent had made commitments to guarantee customer
debt of about $1.1 billion at September 30, 2000. Excluding amounts not
available for guarantee because conditions precedent have not been satisfied,
approximately $490 million of guarantees was available and undrawn and
approximately $560 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 of goodwill and acquired technology to be amortized over a period
of seven years.
MICROELECTRONICS SPINOFF
On July 20, 2000, Lucent announced that it would spin off its microelectronics
business, which includes the optoelectronics components and integrated circuits
divisions, into a separate company. Lucent anticipates an initial public
offering (IPO) for up to 20 percent of the new company and intends to spin-off
the remaining shares in a tax-free distribution. The IPO is expected to be
completed in the quarter ended March 31, 2001, and the spin-off should be
completed by the end of fiscal year 2001. The spin-off is subject to certain
conditions, including a favorable tax ruling.
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. Lucent has identified a number of potential buyers for the
business and expects the sale to be completed by the end of this calendar year.
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.
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 acquired technology of $335
million, and $131 million (non-tax impacting) (or $0.04 per share) for purchased
in-process research and development associated with the Spring Tide acquisition.
Pro forma net income from continuing operations for the September 30, 1999
quarter excludes amortization of goodwill and acquired intangibles of $172
million, and $152 million ($84 million after-tax) of one-time costs primarily
associated with
15
<PAGE> 18
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' purchased in-process research and development expenses and
amortization of goodwill and 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 ACQUIRED TECHNOLOGY - 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 acquired
technology.
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 327 1,020 (67.9)%
MICROELECTRONICS AND COMMUNICATIONS TECHNOLOGIES 652 164 NM
TOTAL REPORTABLE SEGMENTS 979 1,184 (17.3)%
OTHER AND CORPORATE (23) (2) NM
OPERATING INCOME 956 1,182 (19.1)%
</TABLE>
*Excludes the Enterprise Networks Group which was spun off on September 30,
2000, Consumer Products, amortization of goodwill and acquired intangibles and
one-time items, including purchased in-process research and development (see
Notes D, G, and I).
NM = Not Meaningful
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 the Enterprise Networks Group (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:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------
9/30/00 9/30/99
------- -------
<S> <C> <C>
</TABLE>
16
<PAGE> 19
<TABLE>
<S> <C> <C>
INCOME FROM DISCONTINUED OPERATIONS -- 248
(AFTER APPLICABLE INCOME TAXES OF $95
MILLION)
(LOSS) ON DISPOSAL OF BUSINESS (433) --
(AFTER APPLICABLE INCOME TAX BENEFIT OF
$187 MILLION)
NET INCOME (LOSS) FROM DISCONTINUED (433) 248
OPERATIONS
</TABLE>
The loss on disposal of the enterprise networks business recorded in the
Company's results for the fourth quarter ended September 30, 2000 reflects the
additional costs directly associated with the disposition, the net loss of the
enterprise networks business 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 enterprise networks 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 receive
a fee for performance of these services. Lucent will also receive a fee for
referring
17
<PAGE> 20
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, 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.
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<PAGE> 21
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<PAGE> 22
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: October 23, 2000 By: /s/ James S. Lusk
-----------------------------
Name: James S. Lusk
Title: Senior Vice President and
Controller
