Lucent cash increase to $5.4 billion; Margins up to 23.5%; generates positive operating cash flow; Lowers breakeaven to $3.5 billion; plans to lower its EPS breakeven further; plans to reduce head count by 7,000 resulting in additional $700 million annual savings
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Tuesday July 23, 6:46 am Eastern Time
Press Release
SOURCE: Lucent Technologies
Lucent Technologies Reports Results For Third Fiscal Quarter 2002
* Reports pro forma(1) loss per share(2) of $1.86, which includes a valuation allowance for deferred tax assets resulting in a non-cash charge of $1.70 per share * Pro forma loss per share, excluding tax charge, would have been 16 cents * Improves pro forma gross margin to 23.5 percent and generates positive operating cash flow(3) on revenues of $2.95 billion * Records restructuring charge and goodwill impairment charge in the quarter * Current actions will result in EPS breakeven revenue of $3.5 billion; the company plans to lower its EPS breakeven further
MURRAY HILL, N.J., July 23 /PRNewswire-FirstCall/ -- Lucent Technologies (NYSE: LU - News) today reported results for the third fiscal quarter of 2002.
The company recorded pro forma revenues of $2.95 billion for the third fiscal quarter of 2002, a sequential decline of approximately 16 percent from the $3.52 billion in revenues that Lucent recorded in the second fiscal quarter of 2002. The company recorded $5.37 billion in pro forma revenues in the year-ago quarter.
The pro forma loss per share from continuing operations was a loss of $1.86, which includes a non-cash charge of $1.70 per share to increase the valuation allowance on deferred tax assets. Without this charge, the pro forma loss per share from continuing operations would have been 16 cents versus a loss of 20 cents recorded in the second fiscal quarter, which included a six-cent tax charge. The company recorded a pro forma loss of 39 cents per share in the year-ago quarter.
"The market continues to be very challenging. Capital spending constraints have intensified and remained in place much longer than anyone would have predicted," said Lucent's Chief Executive Officer, Patricia Russo. "Despite this, we are pleased to have generated a sequential improvement in our gross margin and positive operating cash flow(3). And while our bottom line was negatively impacted by a non-cash tax charge we recorded this quarter, we continue to see improvements in the operating fundamentals of our business. This speaks to the effectiveness of our restructuring efforts.
"During this prolonged market downturn, we've concentrated on: working closely with our customers to position the full breadth of our products and services; significantly reducing our cost structure; driving to reduce our EPS breakeven revenue figure; and improving our balance sheet so that Lucent will be well-positioned to capitalize on the market when it rebounds."
NON-CASH VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
Lucent recorded a non-cash charge of $5.83 billion, or $1.70 per share, to provide a full valuation allowance on its remaining net deferred tax assets at June 30, 2002. This charge was partially offset by a third quarter income tax benefit of $282 million on a pro forma basis, and $505 million on an as-reported basis.
Deferred tax assets, such as those resulting from net operating losses, reduce taxable income in future years. Statement of Financial Accounting Standards (SFAS) No. 109(4) requires an assessment of a company's current and previous performance and other relevant factors when determining the need for a valuation allowance. Factors such as current and previous operating losses are given substantially more weight than the outlook for future profitability.
"As we were closing the quarter, a review of the changes we saw in our third quarter, combined with the cumulative losses we've recorded, caused us to conclude that it would be appropriate to record a non-cash charge related to our deferred tax assets," said Lucent Chief Financial Officer Frank D'Amelio. "Recording this charge is not a reflection on the future prospects of our business or the industry. Over time, we believe the market will turn, positioning us to fully utilize these assets as we achieve profitability," he said.
GROSS MARGIN
The company reported a pro forma gross margin of 23.5 percent, a sequential improvement of nearly 1 percentage point. "We are pleased with our gross margin performance despite a significant decline in revenues this quarter. Our ongoing cost reductions, including improvements in supply chain management, and a favorable product mix continue to have a positive impact on our gross margin," said D'Amelio.
Lucent continues to target a 35 percent gross margin during fiscal year 2003 through a combination of improved product mix, reduction of inventory-related charges, continued cost reductions, market and product rationalization work, and the introduction of new products.
EXPENSES
On a sequential basis, Lucent's pro forma operating expenses declined 4 percent to $1.28 billion. Excluding provisions for bad debt and customer financing, Lucent's pro forma selling, general and administrative (SG&A) expenses decreased by approximately 1 percent to $610 million and the company's pro forma research and development (R&D) spending decreased 8 percent to $480 million, sequentially.
THIRD FISCAL QUARTER 2002 RESULTS ON AN AS-REPORTED BASIS
On an as-reported basis, revenue for the third fiscal quarter of 2002 declined 50 percent to $2.95 billion compared with $5.89 billion in the year-ago quarter. The loss from continuing operations for the third fiscal quarter of 2002 was $7.84 billion, or $2.30 per basic and diluted share, compared with a loss of $1.88 billion, or 55 cents per basic and diluted share recorded in the year-ago quarter.
The loss from continuing operations for the third fiscal quarter of 2002 includes $808 million of business restructuring charges, $75 million of amortization of goodwill and other acquired intangibles, an $837 million impairment charge primarily related to goodwill for the Spring Tide acquisition made in September 2000, and all of the related tax impacts of these items, for which a full valuation allowance was provided. The continued and more recent sharp decline in the telecommunications market prompted an assessment of all key assumptions underlying our goodwill valuation judgments, including those relating to short- and long-term growth rates. As a result, the company determined that a goodwill impairment charge was required.
The loss from continuing operations for the year-ago quarter includes $684 million of business restructuring charges, $233 million of amortization of goodwill and other acquired intangibles, $182 million of pretax income from Lucent's optical fiber business, which was sold in the first fiscal quarter of 2002, and all of the related tax impacts of these items.
On an as-reported basis, the net loss for the third fiscal quarter of 2002 was $7.91 billion, or $2.31 per basic and diluted share, compared with a net loss of $3.24 billion or 95 cents per basic and diluted share recorded in the year-ago quarter. The net loss in the current quarter includes a loss of $27 million related to discontinued operations. The net loss in the year-ago quarter includes a loss from discontinued operations of $1.36 billion or 40 cents per basic and diluted share.
UPDATE ON BUSINESS RESTRUCTURING
Due to continuing market declines, the company has committed to further restructuring actions that have resulted in an additional business restructuring charge of $808 million, which was recorded in the third fiscal quarter. Of the total charge, $335 million is expected to be cash. This is expected to result in approximately $700 million in annual savings.
This charge includes plans to further reduce headcount by approximately 7,000, the majority of which is expected to be completed by Dec. 31, 2002. As of June 30, 2002, the company had 53,000 employees.
COMPANY LOWERS EPS BREAKEVEN
These additional restructuring actions will result in EPS breakeven revenue of $3.5 billion with a gross margin level in the low 30s. Lucent is actively developing plans to further reduce its EPS breakeven revenue to below $3.5 billion during fiscal 2003. This will involve further actions and an additional restructuring charge, which likely will be recorded in the fourth fiscal quarter of 2002.
UPDATE ON BALANCE SHEET, VENDOR FINANCING AND OPERATING CASH FLOW
"Our liquidity remains strong," said D'Amelio. As of June 30, 2002, Lucent's cash and short-term investments totaled $5.4 billion and the company had no outstanding balance under its credit facility. The total amount available under this facility is $1.5 billion.
Lucent's accounts receivable declined by $592 million compared with March 31, 2002. Days sales outstanding (the number of days required to collect a receivable) remained somewhat flat on a sequential basis. Inventory declined by $432 million during the same period.
In addition, the company reduced its total vendor financing commitments to $1.95 billion from $2.22 billion at March 31, 2002.
During the quarter, Lucent's operating cash flow(3) was positive $739 million, which includes a $616 million tax refund that was received during the quarter. This compares with positive operating cash flow of $185 million recorded in the second fiscal quarter, which included a tax refund of $337 million.
GUIDANCE
Due to ongoing market uncertainty, the company is not providing guidance for the fourth fiscal quarter of 2002. The company continues to target a return to profitability in late fiscal 2003.
REVIEW OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2002
On a sequential basis, pro forma revenues in the U.S. declined 15 percent to $2.05 billion and international revenues declined 18 percent to $898 million. Compared with the year-ago quarter, revenues in the U.S. declined 42 percent and international revenues decreased 52 percent. This decline was primarily due to continuing reductions in capital spending by service providers, as well as some customers experiencing weakening financial conditions.
Integrated Network Solutions (INS)
Revenues for the third fiscal quarter of 2002 were $1.41 billion, a decrease of 21 percent sequentially and a decrease of 61 percent compared with the year-ago quarter.
Despite market conditions, Lucent has continued to announce significant contracts for its optical products, its IP network-based offerings and its Softswitch. Recent highlights include:
SBC Communications choosing Lucent to provide an Internet protocol (IP) Centrex solution that will allow its business customers to take advantage of new cutting-edge central office-based services.
A five-year contract to provide general network services and support to British Telecom's United Kingdom network.
Comcast choosing Lucent VitalAccess(TM) Device Provisioning and Subscriber Management software to help accelerate deployment of its Voice over Internet protocol (VoIP) primary line phone service.
eircom, the leading telecommunications provider in Ireland, selecting the Lucent NavisRadius(TM) platform to upgrade its IP-based business services network.
Tiscali in France and Spain successfully deploying the Lucent SoftSwitch, which is now carrying live network traffic.
Edison Carrier announcing it would be the first service provider in the United States to commercially deploy the Lucent LambdaUnite(TM) MultiService Switch in its network that also includes the Lucent Metropolis DMX® Access Multiplexer.
Mobility Solutions
Revenues for the third fiscal quarter of 2002 were $1.45 billion, a decrease of 8 percent sequentially and a decrease of approximately 2 percent compared with the year-ago quarter.
During the past quarter, Lucent's Mobility business continued to demonstrate its market leadership in CDMA and solid progress with its UMTS offer. Recent highlights include:
Announcing an industry-leading milestone -- the 25,000th Lucent base station equipped with CDMA2000 technology. At the same time, the company announced commercial availability of next-generation CDMA base stations called 3G CDMA2000 1xEV DO, which supports mobile data services at speeds of up to 2.4 Megabits per second.
Significant contracts for advanced CDMA 2000 network equipment with Telcel BellSouth in Venezuela, Telus Mobility in Canada, and KTF, a leading wireless service provider in Korea.
Successfully completing the industry's first packet-data call using commercial UMTS infrastructure and a commercial-grade UMTS handset from Qualcomm.
A strategic initiative with Agere Systems (ORiNOCO Wireless Networks), Hewlett-Packard Company, iPass, ipUnplugged and Sierra Wireless to jointly sell Lucent's new portfolio of solutions that allow business customers to securely access e-mail, corporate data bases, internal Web applications and other high-speed applications via CDMA2000 and UMTS wireless networks, as well as WiFi/wireless LAN networks.
Unveiling a Bell Labs breakthrough that dramatically increases the efficiency of a critical chip used in 3G UMTS equipment. This will help substantially increase network capacity and reduce costs for mobile operators.
DISCONTINUED OPERATIONS
Lucent completed the spinoff of Agere on June 1, 2002, and has accounted for the financial results of Agere as discontinued operations. Lucent's financial information for discontinued operations will differ from the information reported by Agere due to different assumptions and allocations required to be made by the two companies.
The quarterly earnings conference call will take place today at 8:30 a.m. (EDT) and be broadcast live over the Internet at lucent.com. It will be maintained on the site for replay through July 30. |
