October 11, 2002
Further Restructuring, Guidance and Pension Plan Charge
Conference Call Notes and Observations
Lucent Technologies, Inc.
please see Disclaimer at bottom of report
Lucent Technologies, Inc. designs and delivers networks for the world’s largest communications service
providers. Backed by Bell Labs research and development, Lucent, claims to rely on their
strengths in mobility, optical, data and voice networking technologies, as well
as software and services, to develop next-generation networks. Lucent, claims that their systems,
services and software are designed to help customers quickly deploy and better
manage their networks and create new, revenue-generating services that help
businesses and consumers.
Notes From Conference Call
Pat Russo, CEO :
1. Operating and assumption is that industry will eventually recover. They just don’t know when. Called it being in the eye of a storm.
2. Revenue breakeven to be lowered to $2.50 billion and working to take that lower.
3. Planning for revenue decline in F2003 of 20 %.
4. Lucent is not planning for massive revenue declines in F2003 as was seen in F2002.
5. Cash and Short Term Investments at end of F2002 is $4.90 billion. Expects F2003 cash to be in excess of $2.0 billion. Lucent feels very comfortable with that number at a minimum. Claims that this calculation has been seriously stress tested.
6. Workforce to be reduced to 35,000.
7. Claims that track record of expense reduction plans have been consistence with stated plans.
8. Will look to partner end to end solutions on various services.
9. Claims traction in Optical. Will focus on services.
Frank D’Amelio, CFO
1. There will be significant charges to Q4’02 including inventory charges.
2. Will be a charge to equity for decline of management pension plan assets.
3. Cancelled $1.50 billion credit facility. Expected that they would have defaulted on covenants. Discussing with bankers a new facility.
4. Expects $2.00 billion in cash at end of F2003.
Question and Answers
1. Question as to gross margin and breakeven. This will be answered at earnings call.
2. Paul Sagawa of Sanford Bernstein asks about “less important” areas of development. What will focus on future be ? Pat discussed that mobility is being fully funded. Increasing focus in services. Supporting existing access customers, looking for profitability in Access area. Focusing on optical. Circuit to Packet strategy continues to be important.
3. Does not look like any cash contribution to be necessary for pension plan in F2003. This will be based on ERISA requirements.
4. Asked for clarification of revenue projections for F2003. This was clarified as revenues of approximately $9.60 billion. (I need to re-listen for exact numbers, but this is close).
5. Lucent is looking at various alternatives now that credit facility has been cancelled. They were directly asked if a bond buyback would be possible. Lucent commented that they are exploring various avenues including a bond buyback.
What we heard today was hardly a surprise. Our initial thoughts are that it was a positive call. We heard distinct revenue guidance and goals of return to profitability at some point in F2003. We have been concerned with the status of the retirement plan. Lucent has lost $ 3 billion in Plan Assets due to the investment climate. The magnitude of this reduction will have to be analyzed when data comes out to determine its future affect on liquid assets. This is not an immediate concern of ours. Our immediate concern is the viability of Lucent and its hopeful continuation as a Going Concern. We were hoping that Lucent identified any potential Bankruptcy restructuring. It is obvious that Lucent does not intend to file for Bankruptcy Protection, yet it is on many an investors and analysts mind. We would very much prefer that Lucent outright discuss this issue. We have seen claims of liquidity prior to filing bankruptcy from Global Crossing, WorldCom and Exodus Communications. Based on prior claims from these companies, we would like to hear Lucent directly discuss this issue. It would be a great source of information for Lucent to outline their intentions in detail of avoiding a bankruptcy filing. Please refer to our article dated October 2, 2002 which discusses the hints of bankruptcy in the price of Lucent’s bonds.
If you are a client of ours, and if you have questions regarding Lucent, please call our office. If you are not a client of Redfield, Blonsky & Co. LLC Investment Management Division and are reading this report, we urge you to do your own research. We will not be responsible for any person making an investment decision based on this report. This report is a “by-product” of our research. We are not responsible for the accuracy of this report. We are not responsible for errors that may occur in this report. Please do not rely on us to monitor or update this or any other report we may issue. In theory, we could come across some type of data or idea, which causes us to eliminate Lucent from our portfolios. This report has undergone revisions starting on October 11, 2002. We will not notify readers of future revisions. We are not responsible to keep readers of this report updated for changes or material errors or for any reason whatsoever. This report is dated October 11, 2002 ; it is possible that by October 11, 2002 we could have eliminated our entire Lucent position without giving notice to any reader of this report. We manage portfolios for clients, and those clients are our greatest concern as it relates to investing. Certain clients of Redfield, Blonsky & Co LLC may not have Lucent Technologies in their portfolios. There could be various reasons for this. Again, if you would like to discuss Lucent Technologies, please contact Ronald R. Redfield, CPA, PFS (partner in charge of investment management division).
Information herein is believed to be reliable, but its accuracy and completeness cannot be guaranteed. Opinions, estimates, and projections constitute our judgment and are subject to change without notice. This publication is provided to you for information purposes only and is not intended as an offer or solicitation. Redfield, Blonsky & Co. LLC and Ronald R Redfield, CPA, PFS, may hold a position or act as an advisor on any investments mentioned in a report or discussion.