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AS FILED ELECTRONICALLY WITH THE SEC ON 12/30/96.
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
( ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended ______________________
OR
(X) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From January 1, 1996 to September 30, 1996
Commission File Number 001-11639
LUCENT TECHNOLOGIES INC.
A DELAWARE I.R.S. EMPLOYER
CORPORATION NO. 22-3408857
600 Mountain Avenue, Murray Hill, New Jersey 07974
Telephone Number 908-582-8500
Securities registered pursuant to Section 12(b) of the Act: See attached
SCHEDULE A.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes....x.... No........
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
At November 30, 1996, the aggregate market value of the voting stock held by
non-affiliates was approximately $32,650,000,000.
At November 30, 1996, 637,131,272 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's annual report to security holders for
the fiscal year (transition period) ended September 30, 1996 (Part II)
(2) Portions of the registrant's definitive proxy statement dated
December 30, 1996, issued in connection with the annual meeting of shareholders
(Part III)
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SCHEDULE A
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock New York Stock Exchange
(Par Value $.01 Per Share)
6.90% Notes due July 15, 2001 New York Stock Exchange
7.25% Notes due July 15, 2006 New York Stock Exchange
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TABLE OF CONTENTS
PART I
Item Description Page
1. Business ........................................................ 1
2. Properties ...................................................... 18
3. Legal Proceedings ............................................... 18
4. Submission of Matters to a Vote of Security-Holders ............. 19
PART II
Description
5. Market for Registrant's Common Equity and Related Stockholder
Matters ....................................................... 20
6. Selected Financial Data ......................................... 20
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 20
8. Financial Statements and Supplementary Data ..................... 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ...................................... 20
PART III
Description
10. Directors and Executive Officers of the Registrant .............. 20
11. Executive Compensation .......................................... 20
12. Security Ownership of Certain Beneficial Owners and Management .. 20
13. Certain Relationships and Related Transactions .................. 20
PART IV
Description
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 20
See page 19 for "Executive Officers of the Registrant."
This Report contains trademarks, service marks and registered marks of the
Company and its subsidiaries, and other companies, as indicated.
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PART I
ITEM 1. BUSINESS.
GENERAL
Lucent Technologies Inc. ("Lucent" or the "Company") was incorporated in
Delaware in November 1995. The Company has its principal executive offices at
600 Mountain Avenue, Murray Hill, New Jersey 07974 (telephone number
908-582-8500). Prior to February 1, 1996, AT&T Corp. ("AT&T") conducted the
Company's business through various divisions and subsidiaries.
The Company was formed following the announcement in September 1995 by AT&T
of its intention to create a separate company comprised of the AT&T systems and
technology businesses and operations. On February 1, 1996, AT&T began
executing its decision to separate the Company into a stand-alone company (the
"Separation") by transferring assets and liabilities to the Company. On April
10, 1996 the Company issued 112,037,037 shares of its Common Stock in an
Initial Public Offering ("IPO"), and on September 30, 1996, AT&T distributed
all of its shares in the Company to AT&T shareholders of record as of September
17, 1996. As used herein, references to the "Company" or "Lucent" include the
historical operating results and activities of the business and operations
which comprise the Company as of the date hereof.
On July 17, 1996, the Company's Board of Directors voted to change the
Company's fiscal year from a calendar year to a year beginning October 1st and
ending September 30th. Accordingly, unless the context otherwise requires,
references herein to the "year 1996," "fiscal 1996," "this year," "1996," or
similar terms mean the nine-month period January 1, 1996 through September 30,
1996.
The Company is one of the world's leading designers, developers and
manufacturers of telecommunications systems, software and products. The
Company is a global market leader in the sale of public telecommunications
systems, and is a supplier of systems or software to most of the world's
largest network operators. The Company is also a global market leader in the
sale of business communications systems and in the sale of microelectronic
components for communications applications to manufacturers of communications
systems and computers. Further, the Company is the largest supplier in the
United States of telecommunications products for consumers. In addition, the
Company has provided engineering, installation, maintenance or operations
support services to over 250 network operators in 75 countries. The Company's
research and development activities are conducted through Bell Laboratories
("Bell Labs"), which consists of approximately three-quarters of the total
resources of AT&T's former Bell Laboratories division, one of the world's
foremost industrial research and development organizations.
SYSTEMS FOR NETWORK OPERATORS
The Company designs, develops, manufactures and services systems and
software which enable network operators to provide wireline and wireless local,
long distance and international voice, data and video services and cable
television service. The Company's networks, which include switching,
transmission and cable systems, are packaged and customized with application
software, operations support systems and associated professional services.
Systems and Services
Telecommunications Networking Systems. The Company designs, develops,
manufactures and services advanced telecommunications networking systems, which
include equipment, software and associated professional services. These
systems connect, route, manage and store voice, data and video in any
combination, and are used for: wireline access; local and long distance
switching; intelligent network services and signaling; wireless communications,
including both cellular and personal communications services ("PCS"); and
high-speed, broadband multifunctional communications.
The Company supplies each of the five broad elements that comprise
telecommunications networks: switching systems, which route information through
the network; transmission systems, which provide the communications path
through the network that carries information between points in the network;
operation support
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systems, which enable service providers to manage the work flow, planning,
surveillance, management, provisioning and continuous testing of their
networks; intelligent network/application software, which enables service
providers to offer a broad array of enhanced and differentiated services; and
cable systems, which provide the transport media between points in a network.
These systems collectively comprise the infrastructure that enables
telecommunications network operators to provide traditional narrowband voice
and data services and that enables both new and traditional network operators
to offer broadband multifunctional services.
The Company has a wireline local access installed base (the number of access
lines serviced by switches manufactured by the Company) of approximately 110
million lines. The Company's primary switching products are the 5ESS(R)
switch for local and long distance switching and international gateways, and the
4ESS(TM) Digital Switch (the "4ESS switch") for long distance and international
switching.
The 5ESS switch is used throughout the world to provide a combination of
network applications, including local and long distance switching and
international gateways, operator services, network signaling, intelligent
networking and wireless switching. As of September 1995, the 5ESS switch, with
the Company's 5E10 software, has enabled network operators to offer
simultaneous wireline and wireless, local, long distance and international
services as well as any combination of voice, data and video.
The 4ESS switch, which was developed for and is primarily deployed in AT&T's
network, is used to provide domestic and international long distance switching.
The 4ESS switch can handle over 775,000 peak hour calls.
The Company designs, develops, manufactures and services a broad range of
transmission access and transport systems. Network operators use these systems
to transport any combination of voice, data and video between subscribers and
the central office or between points within a network engaged in local,
national or international communications.
World standards for transmission systems have undergone rapid technological
change in recent years. The new standards, known as Synchronous Optical
Network ("SONET") in North America and SDH in other markets, maximize
transmission capability and simplify network management for network operators.
The Company markets systems supporting both standards.
The Company offers a broad line of transmission access systems for the
provision of a wide range of services, including traditional telecommunications
service and broadband multifunctional services. Transmission access systems
transport information between the subscriber and the central office. The
Company's products include SLC(R)-2000, a hybrid fiber/copper pair system,
which extends fiber-based optical transmission into the local loop. The
Company's products also include the SDV-2000, a switched digital video system
which extends fiber to the curb, and ASOS, which enables network operators to
manage the work flow, planning, surveillance, provisioning and continuous
testing of their multifunctional networks.
The Company's transmission transport systems are utilized for high capacity
communications between points within a communications network. These products
are primarily digital and provide for the movement of any combination of voice,
data, and video across fiber, coaxial and microwave based media. The Company's
products include fiber transport systems (FT 2000), digital multiplexer systems
(DDM 2000) and the digital access and cross connect systems (DACS family of
products).
The Company's operation support systems enhance a network operator's ability
to activate, manage and maintain its networks. These systems continuously
monitor network performance and activity level, and allow for rapid trouble
identification, load balancing and planning for network utilization. The
Company's systems support the efforts of network operators to reduce operating
costs and minimize labor by automating labor intensive tasks.
The Company's network management systems offer a broad array of modular
software, including element managers designed for traditional telephony, video
and wireless; network managers that monitor, test and optimize the utilization
of a network; service managers that manage work flow; and business managers
that include customer service systems. For example, the Company's NetMinder
system is an advanced network management
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routing system that mitigates network congestion through efficient call routing
and completion.
The Company's A-I-NET(R) intelligent network products enable network
operators to offer new services that can be created, deployed or managed by
themselves, the Company, or third parties. Services created with A-I-NET
products include toll free calling (800 and 888 service in the United States),
call forwarding, call waiting, voice dialing and messaging.
The Company has introduced products to address the growing demand for
emerging broadband multifunctional services which permit the simultaneous
transmission of any combination of voice, data and video, such as its high
capacity Asynchronous Transfer Mode ("ATM") switching product, the
GLOBEVIEW(R)-2000 Broadband System.
In addition, the Company designs, develops, manufactures and services cable
systems, which include optical fiber, fiber optic cable, electronic wire and
cable and apparatus for both fiber and copper cable systems. The Company's
cable systems are used to connect various devices in a network and terminal
devices to public and private networks. These cable systems are deployed for
outside plant and central office wiring, and for traditional telephony, cable
television, wireless networks and broadband applications.
The Company also supplies fiber optic cable systems, high strength, high
performance fiber for underseas cablers and outside plant turnkey systems,
which are generally large capital projects in emerging markets for the
engineering and construction of telecommunications infrastructure. The
Company's TRUEWAVE(TM) optical fiber enables network operators to reduce their
costs by increasing the distance between optical amplifiers.
Wireless Network Systems. The Company designs, develops, manufactures and
services wireless network infrastructure systems, which include the 5ESS
switch, base stations, wireless network software and operation support systems.
These systems provide network operators with the capability to offer a wide
range of cellular and other wireless communications services, including PCS,
wireless data and fixed wireless access.
The Company's wireless systems are in operation in nine of the top ten
United States Metropolitan Statistical Areas. The Company's primary wireless
system is the AUTOPLEX(R) System 1000 product family, which includes the high
capacity Series II base station. The base station contains the radio
transceiver that establishes wireless communications with a mobile telephone.
Base stations are arranged geographically so that mobile customers can be
"handed off" seamlessly from one base station to the next as they travel. The
network intelligence to accomplish this is housed in the Company's Mobile
Switching Center, which includes the 5ESS switch and which connects the base
stations to the public telephone network. The Company also offers base
stations for start-up applications and smaller markets, a minicell product for
rural and international markets and a microcell for congested, high traffic
areas.
Wireless technology is evolving from analog to digital. The Company
provides networks based on a variety of the leading air interface standards:
AMPS, CDMA, TDMA and GSM.
In addition, the Company designs, develops, manufactures and services fixed
wireless access systems. The Company offers Wireless Subscriber Systems, which
support the AMPS standard, and the new AIRLOOP(TM) Wireless Local Loop system,
which utilizes CDMA technology. Also, as part of the acquisition of the
manufacturing and other operations of certain subsidiaries of Philips
Electronics NV (the "Philips Businesses"), the Company acquired Philips' fixed
wireless system, which is based on the DECT (digital enhanced cordless
telephone) standard. All three systems enable network operators to expand
their networks in markets where traditional wireline systems are not cost
justified, and to provide telephone services as an alternative to traditional
network operators.
The Company designs, develops, manufactures, and services CDPD-based
wireless data systems which enable wireless network operators to offer data
services as an overlay to their existing analog voice infrastructure without
acquiring additional spectrum or upgrading to a digital network. These systems
offer the increased reliability and efficiency of switched digital packet data
systems.
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Due to the complexity of wireless systems, the Company also offers a broad
range of professional services, which include project management, site
acquisition, radio frequency engineering, microwave relocation, construction
management, cellular optimization and wireless data support.
Markets
The principal customers for the Company's systems are network operators that
provide wireline and wireless local, long distance and international
telecommunications services, including local, long distance and international
telecommunications companies and cable television companies. The Company's
systems for network operators are installed to expand the capacity and features
offered by existing networks, to replace older technology in existing networks
and to establish new networks for entrants into deregulated or previously
unserved markets. See "Outlook -- Reliance on Major Customers."
As a result of structural, public policy and technological changes, since
the mid-1980's the telecommunications industry has undergone a period of
significant growth in the number of lines in service and applications offered.
In developed markets, deregulation has permitted new market entrants to
construct networks in previously monopolistic markets. In response, existing
network operators have expanded beyond traditional franchises and are offering
new services. In emerging markets, privatization, competition and economic
expansion have increased demand for networking systems. At the same time,
technological advances also have increased demand by reducing operating costs
and facilitating new applications, including multifunctional services.
The Company markets and sells its products worldwide primarily through a
direct sales force due to the complexity of these systems. Most of the
Company's sales of systems for network operators are made pursuant to general
purchase agreements, which establish the terms and conditions and provide for
price determination to be made on a contract bid basis. In addition, certain
of the large infrastructure projects are conducted under long-term, fixed-price
contracts. See "Outlook -- Multi-Year Contracts" and "-- Seasonality."
As a result of the increased complexity of systems for network operators and
the high cost of developing and maintaining in-house expertise, network
operators demand complete, integrated and turn-key projects. Network operators
increasingly are seeking overall network or systems solutions that require an
increased software content which would enable them to deploy rapidly new and
differentiable services. In response, the Company has formed an organization
focused on turn-key network engineering projects for both public and private
sector customers. The Company markets integrated solutions whereby the Company
assumes full responsibility for the project, and engineers, designs and
installs the network, including equipment and software manufactured by both the
Company and third parties.
Increasingly, as a result of the financial demands of major network
deployments, network operators are looking to their suppliers to arrange for
financing. The ability to provide financing is a requirement to conduct
business in certain emerging U.S. and foreign markets, and in some cases the
Company furnishes or guarantees financing for customers. As a result, the
Company works with its customers to structure and place financing packages.
See "Outlook -- Future Capital Requirements."
In order to market its product line worldwide, the Company has established
wholly owned subsidiaries and joint ventures with local companies in 16
countries.
Competition
The Company believes that its key competitive factors are its broad product
line, large installed base, relationship with key customers, technological
expertise and new product development capabilities. The Company's primary
competitors in the market for telecommunications systems are four very large
European and North American companies which have substantial technological and
financial resources and which offer similar broad product catalogs. These
competitors are Alcatel Alsthom, Northern Telecom Limited, Siemens AG and
Telefonaktiebolaget LM Ericsson. In 1995, the Company and these four
competitors collectively accounted for about 34% of the world's public network
systems sales, of which the Company's sales of systems for network operators
accounted for 9%.
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In addition, in all of the Company's product areas other than switching, the
Company faces significant competition from other companies which do business in
one or a number of such product areas. For example, in wireless systems,
Motorola, Inc. and Nokia Corporation, both of which are very large companies
with substantial technological and financial resources, are significant
competitors. In transmission and cable systems, competition in the markets
includes hundreds of smaller competitors.
BUSINESS COMMUNICATIONS SYSTEMS
The Company designs, develops, manufactures and services communications
systems and products for large and small business customers, home offices and
government agencies. The Company's business communications systems can be
upgraded regularly with new software releases, can support local and wide area
voice and data networking and are often integral components of global
enterprise networks. The Company's systems primarily are customer
premises-based private switching systems and products, call center systems,
voice processing systems, which include voice messaging and voice response
systems, and the associated application software and professional support
services. In addition, the Company has begun to participate in the emerging
multi-media products business. The Company serves over 1.4 million business
locations in the United States and approximately 100,000 business locations in
over 90 other countries.
Systems and Services
The Company's core business communications system products are private
switching systems, generally PBXs and key systems, usually located at the
customer's premises, that permit a number of local telephones or terminals to
communicate with one another, with or without use of the public telephone
network. The Company offers wired and wireless communications systems,
including the DEFINITY(R) family of products for large customers and the MERLIN
LEGEND(R) and PARTNER(R) systems for smaller businesses and home offices. The
DEFINITY Enterprise Communication Server provides real-time voice and
mixed-media call processing. The recently announced FREEWORKS family of
business mobility solutions enables communication throughout the work place
with full freedom of movement.
The Company's messaging and response systems store and forward voice, data
and images and conduct initial call processing, which integrates PBX and
computer functions. In addition, the Company is a technological leader in the
development of speech recognition algorithms, which have been incorporated into
both public and private call processing applications, such as operator
services. The Company's principal systems include the INTUITY(TM) AUDIX(R) and
DEFINITY AUDIX voice messaging systems for use with the Company's or a
competitor's PBX; INTUITY CONVERSANT(R), a multi-lingual interactive voice
response system which can recognize speech in nine languages/dialects; and the
INTUITY Multimedia Messaging System, a system that combines voice messaging and
voice-response technology into a single desktop application.
The Company's call center systems integrate the hardware and software
associated with computing, telephony, and multifunctional messaging and
response applications. Call centers are the initial entry point for customers
to access a business' telephone sales and support operation. The Company's
systems permit the routing and administration of a large volume of incoming
calls, and the integration with business databases of customer and product
information. The Company's call center systems are used by companies in
diverse industries such as financial services, retailing and transportation.
The call center environment in which these companies operate is characterized
by hundreds of telephone service agents located in geographically dispersed
networked sites, processing tens of thousands of calls per hour. For example,
using these systems, businesses can provide their customers with the ability to
check balances or order status, to place orders, and to receive additional
information and support.
In October 1995, the Company introduced the MMCX, the industry's first
multifunctional product to deliver real-time business calling features such as
conferencing, transfer, call coverage, and add/drop to switched voice or data
networking. The MMCX allows customers to migrate their existing network to
multifunction capabilities. This enables the customer to support new
applications and transport technologies, such as ATM.
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In addition, the Company's SYSTIMAX(R) structured wiring system for business
customers provides broadband multifunctional LAN interconnections within a
building or campus. These systems are comprised of fiber optic and copper
cable and associated apparatus.
The Company offers a wide range of professional service options, including
call center design, network engineering, training, remote diagnostics and
dedicated on-site technicians. Their on-demand services involve routine
testing and diagnostics, maintenance and repair, moves and rearrangements, and
software and hardware upgrade installations.
The Company's remote diagnostics and repair capability permits the Company
to monitor, test, maintain and resolve problems from its regional service
centers. Many of the Company's systems are designed with intelligent software
which establishes a real-time link between the customer premises and a regional
service center's expert system. This permits the customer to reduce its system
down-time and enables the Company to automate many maintenance and repair
tasks.
Markets
The Company markets its systems and services to large and small businesses
and government agencies through a large, direct sales force and through a
network of agents, dealers and distributors. In the United States, the Company
effects these sales primarily through the direct sales force, while sales
elsewhere occur primarily through the efforts of dealers and distributors. The
Company's systems are deployed in applications for customer sales and service,
conferencing and collaboration, mobility and distributed work force, messaging
and enterprise networking. The Company fields a large group of application
specialists to design call center, distance learning and other customized
applications.
The Company believes that the premises-based communications market may be
transforming from distinct voice and data networks to multifunctional networks
that will be able to support any combination of voice, video and data
communications simultaneously. The Company is designing certain business
communications systems to enable its customers to simplify their premises
networks by combining separate voice, video and data networks into a single
architecture.
The Company has entered into alliances with Lotus Development Corporation,
to enable multimedia messaging in the Lotus Notes environment, and with Novell,
Inc. to extend multimedia messaging and computer/telephony integration, and
was one of the founders with International Business Machines Corporation, Apple
Computer, Inc., and Siemens AG of VERSIT*, an industry consortium organized to
ensure the interoperability of multivendor multimedia applications. In 1996
the Company acquired Agile Networks, a provider of intelligent data switching
products.
Competition
The Company considers its working relationships with its customers and
knowledge of their individual business needs to be important competitive
factors. The Company competes principally with three other large companies
with substantial technological and financial resources in the sale of business
communication systems. These competitors are Northern Telecom Limited, Siemens
AG (through its subsidiary Siemens Rolm Communications, Inc.) and Alcatel
Alsthom. Together with the Company, in 1995 these competitors accounted for
approximately 52% of the sales of business communications systems globally,
with the Company accounting for approximately 11%. In addition, as the market
transforms to multifunctional systems, the Company expects that it also may
encounter competition from companies that design and manufacture data network
equipment.
The Company believes that key competitive factors in this market are service
support, the ability to upgrade existing systems for new applications, price
and reliability.
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* Lotus Notes is a registered trademark of Lotus Development Corporation;
VERSIT is a trademark of the consortium's founders.
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MICROELECTRONICS PRODUCTS
The Company designs, manufactures and sells integrated circuits ("ICs"),
electronic power systems and optoelectronic components for communications
applications. These microelectronic products are important components of many
of the Company's own systems and products. The Company also supplies these
components to other manufacturers of communications systems and computers. The
Company offers products in several IC product areas critical to communications
applications, including digital signal processors ("DSPs") for digital cellular
phones and standard-cell application specific integrated circuits ("ASICs").
Products
The Company's ICs are designed to provide advanced communications and
control functions for a wide variety of electronic products and systems. The
Company focuses on IC products that are used in communications and computing
and that require high-performance and low power chip architectures; complex
large-scale chip design in digital, analog and mixed-signal technologies; DSP
architectures and algorithms; high-frequency and high-voltage technologies; and
high speed data and signal processing. The Company offers a wide variety of
standard, semi-custom and custom products for cellular equipment,
communications networks, computers and computer peripherals, modems and
consumer communications products. Products include DSPs, ASICs, field
programmable gate arrays and communications ICs. The Company's products are
manufactured using a variety of technologies, from low-power, low-voltage
submicron CMOS (complementary metal oxide semiconductors) to high-frequency and
high-voltage bipolar processes.
The Company designs, develops and manufactures energy systems, electronic
power supplies and associated magnetic components for the telecommunications
and electronic data processing industries. These products serve applications
ranging from modems for personal computers to large telephone central offices.
Products include DC/DC converters, AC/DC switching power supplies,
transformers, inductors and energy systems that provide alarm, control, and
backup power management.
The Company designs, develops and manufactures optoelectronic products which
convert electricity to light (emitters) and light to electricity (detectors),
thereby facilitating optical transmission of information. These products
include semiconductor lasers, photodetectors, integrated transmitters and
receivers, and advanced-technology erbium-doped fiber amplifiers. The Company
provides these products worldwide to manufacturers serving the
telecommunications, cable television and network computing markets.
Optoelectronic products extend the transmission capacity of fiber to meet the
requirements of such applications as video-on-demand, interactive video,
teleconferencing, image transmission and remote database searching. The
Company markets a number of advanced products, including critical
optoelectronic components that support telecommunication transmission;
long-wavelength optical data modules for data networking; and analog lasers for
use in cable television fiber optic transmission. The Company believes that
its optoelectronic products have higher photonics reliability than those of its
competitors due to their low field failure rate and the Company's evaluation
methodologies in manufacturing that allow the detection and elimination of
early failures.
In December 1996, the Company sold its operations for the design and
manufacture of printed circuit boards and backplanes.
Markets
The Company's microelectronic products are sold globally to manufacturers of
communications systems and computers. In addition, the Company's energy power
systems are sold directly to U.S. and foreign telephone companies. The
Company's customers are competing in markets characterized by rapid
technological changes, decreasing product life cycles, price competition and
increased user applications. These markets have experienced significant
expansion in the number and types of products they offer to end-users,
particularly in personal computing and portable access communication devices.
As a result, the Company's customers continue to demand components which are
smaller, require less power, are more complex, provide greater functionality,
and are produced with shorter design cycles and less manufacturing lead time.
In 1995, the Company also introduced a GSM hardware platform based upon a
highly integrated multiple-chip design for digital cellular phones that
performs all the key
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handset functions between the microphone and the antenna in both voice and data
services. The Company also sells the associated software product elements
necessary to support the GSM standard.
In fiscal 1996, more than half of the Company's microelectronic production
was sold to customers other than the Company. The Company's microelectronic
products are also key components of its systems for network operators, business
communications systems, and consumer products. The Company's microelectronics
products compete with products of third-party manufacturers for inclusion in
the Company's systems and products.
Competition
The Company considers its technological leadership, product leadership, and
relationships with key customers to be important competitive factors. The
market for microelectronic products is global and generally highly fragmented.
The Company's competitors differ widely among product categories. The
Company's competitors in certain IC product categories include Motorola, Inc.
and Texas Instruments Incorporated; in electronic power systems include Astec
Industries, Inc. and Unitech plc (through its subsidiary, NEMEC-Lambda); and
in optoelectronics include Fujitsu Limited and Northern Telecom Limited.
The Company believes that key competitive factors in the microelectronics
marketplace are the early involvement in customers' future application
requirements, the speed of product and technological innovation, price,
customer service, and manufacturing capacity. Other important competitive
factors include quality, reliability and local manufacturing presence.
CONSUMER PRODUCTS
The Company designs, manufactures, services and leases communications
products for consumer, small office and home office use.
Products
The Company has a broad selection of telephone products for the consumer
market. Cordless telephones are a significant portion of the Company's
consumer product line. The Company offers Cordless telephones based on the
traditional 46/49 frequency, as well as the 900 MHz bandwidth. The latest
introduction is the 9510 Digital Spread Spectrum model with the clearest sound
and longest range of any telephone in the Company's product line. The Company
also offers a broad line of analog, digital, stand-alone and integrated
telephone answering systems, which are offered in corded and cordless versions.
The Company participates in the full spectrum of corded telephones including
basic, designer and feature telephones. The Company's TRIMLINE(R) telephone
continues to be the highest volume telephone in the industry.
The Company plans to offer a line of cellular and PCS phones which conform to
both of the North American Digital Standards (TDMA and CDMA). The Company's
product development efforts are focused on the creation of a high quality,
flexible and cost effective architecture for these products in order to meet
the rapidly evolving needs of customers.
The Company is implementing a common design for its consumer products,
which includes a common look, feel, feature placement and feature use. As part
of this process, the Company expects to reduce the number of different
components and casings used in its product line. The Company believes this
uniformity will reduce costs, reinforce its brand identity, and increase
manufacturing flexibility. The Company expects that up to 70 percent of its
product line in 1997 will be new or redesigned products. In addition, the
Company has undertaken a program to increase the percentage of the products
designed and manufactured in its own facilities. Under the Brand License
Agreement (as defined herein), the Company has the right to market certain
consumer products under the "AT&T" name alone, and in combination with the
Company's name, each for certain specified periods. See "Separation Agreements
- -- Brand License and Related Matters."
Markets
The Company distributes its products in the United States through
approximately 900 retailers representing over 17,000 retail outlets, including
such national retailers as
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Wal-Mart Stores, Inc., Sears, Roebuck and Co., Circuit City Stores, Inc., Best
Buy Co., Inc. and Service Merchandise Company. In 1996, as previously
announced, the Company closed all of its Phone Center stores as part of its
reorganization efforts. The Company also offers consumers a rental option for
selected products, and currently serves over three and one-half million rental
customers. Recently, the Company's practices have been challenged in
connection with rental of products.
Competition
The Company believes that its position in the consumer communications
products industry is due to the quality and reliability of its products, the
"AT&T" brand name, its strong distribution channels and its broad product line.
The Company's competitors in consumer products are traditional consumer
electronic manufacturers. The industry is characterized by significant
consolidation within each product category, although the principal competitors
in each are different. In traditional telephone products, the Company's
principal competitors are Thomson Consumer Electronics (marketing under the GE
brand), U.S. Electronics, Inc. (marketing under the BellSouth brand), Panasonic
Co., USA and Sony Corporation which, together with the Company, accounted for
about 68% of market sales in 1995, of which the Company accounted for 31%. In
wireless terminal products, the Company's principal competitors are Motorola
and Nokia which, together with the Company, accounted for over 65% of market
sales in 1995, of which the Company accounted for 7%.
OTHER SYSTEMS AND PRODUCTS
The Company designs, develops and manufactures advanced technology systems
which support the United States federal government's need for specially
designed integrated systems for military and civilian use. The Company offers
a full range of products on a direct funding basis from the United States
government. These systems focus on undersea sensor systems, information
processing and secure communications. The funded research has generated
commercial by-products in lightwave transmission equipment, wireless
communications systems and multifunctional compression algorithms.
The Company in 1996 sold its subsidiary, Paradyne, which designed and
manufactured modems and other data communications equipment.
BELL LABORATORIES
The Company has been and will continue to be supported by the technological
expertise provided by Bell Labs, one of the world's foremost industrial
research and development organizations. Bell Labs consists of all of the
operations of AT&T's former Bell Laboratories division which support the
businesses of the Company, and basic research capability, which together
comprise approximately three quarters of the total resources of AT&T's former
Bell Laboratories division. Bell Labs has made significant discoveries and
advances in communications science and technology, software design and
engineering, and networking. These contributions include the invention of the
transistor and the design and development of ICs and many types of lasers.
Areas of Bell Labs research and development work in recent years include:
networking software; lightwave transmission, which offers greater transmission
capacity than other transmission systems; electronic switching technology,
which enables rapid call processing, increased reliability and reduced network
costs; and microelectronics components, which bring the latest advantages of
very large scale integration to the full range of products offered by the
Company.
Bell Labs' research and development activities continue to focus on the core
technologies critical to the Company's success, which are software, network
design and engineering, microelectronics and photonics.
Bell Labs is a leader in software research, development and engineering for
communications applications. For example, its innovations in fault-tolerant
software have enabled the Company to achieve a level of system reliability with
off-the-shelf commercial processors that allows the Company to reduce its
reliance on custom microprocessors.
Bell Labs has contributed many innovations in voice quality, is a leader in
the development of digital signal processing, and has developed a number of
innovative algorithms for high-quality speech and audio. These innovations
have contributed to the Company's implementation of speech processing
applications which include text-to-
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speech synthesis, speech recognition and automatic translation of speech from
one language to another.
Bell Labs also has led in the development of software-based networking
technologies that support the Company's systems and products. Recently, it has
developed systems for digital cellular, PCS, mobile computing and wireless
LANs, and its research in ATM led to the Company's offering of the first large
ATM switch in 1993.
Similarly, Bell Labs' advances extend to the microlasers used in today's
broadband multifunctional transmission systems, and to today's optical
amplifiers and TRUEWAVE(R) fiber. Current photonic research includes work on
passive optical networks, photonic switching and quantum wire lasers.
BACKLOG
The Company's backlog, calculated as the aggregate of the sales price
of orders received from customers less revenue recognized, was approximately
$12,100 million and $7,500 million on September 30, 1996 and December 31, 1995,
respectively (approximately 3% and 4% of which, respectively, represented
backlog of orders from AT&T). Approximately $6,200 million of orders included
in the September 30, 1996 backlog are scheduled for delivery after September
30, 1997. However, all orders are subject to possible rescheduling by
customers. Although the Company believes that the orders included in the
backlog are firm, some orders may be canceled by the customer without penalty,
and the Company may elect to permit cancellation of orders without penalty
where management believes that it is in the Company's best interest to do so.
About $6,700 million of the amount at September 30, 1996 is under large,
multi-year contracts of which about $5,000 million is scheduled for delivery
after September 30, 1997 and is included in the $6,200 million referred to
above. Approximately $4,000 million at September 30, 1996 and $3,400 million
at December 31, 1995 are under large, long-term contracts with the Ministry of
Post and Telecommunications of Saudi Arabia which require annual appropriations
of the Saudi Arabian government.
SOURCES AND AVAILABILITY OF MATERIALS
The Company makes significant purchases of electronic components, copper,
silicon, precious metals, aluminum, and other materials and components from
many domestic and foreign sources. The Company has been able to obtain
sufficient materials and components from sources around the world to meet its
needs. The Company also develops and maintains alternative sources for
essential materials and components. Occasionally, special inventories of
components are maintained to minimize the effects of shortages. The Company
does not have a concentration of sources of supply of materials, labor or
services that, if suddenly eliminated, could severely impact its operations.
PATENTS AND TRADEMARKS
From January 1, 1996 to September 30, 1996, the Company was issued 552
patents in the United States and 1,497 in foreign countries. The Company owns
approximately 8,200 patents in the United States and 14,000 in foreign
countries. These foreign patents are counterparts of the Company's United
States patents. Many of the patents owned by the Company are licensed to
others and the Company is licensed to use certain patents owned by others. In
connection with the Separation, the Company has entered into an extensive
cross-licensing agreement with AT&T and NCR Corporation ("NCR"). See
"Separation Agreements -- Patent Licenses and Related Matters."
The Company intends to market its products under its own name and mark,
except with respect to certain consumer products and business communications
systems, which may be marketed under the "AT&T" name alone until April 10, 1997
or in combination with the Company's name until April 10, 2000. In addition,
certain leased products or maintenance contracts may be marketed under the
"AT&T" name until October 10, 2001. See "Separation Agreements -- Brand
License and Related Matters."
The Company considers its many trademarks to be valuable assets. Most of
its trademarks are registered throughout the world.
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OUTLOOK
Forward Looking Statements
This Outlook section and other sections of this Form 10-K report contain
forward-looking statements that are based on current expectations, estimates
and projections about the industries in which the Company operates,
management's beliefs and assumptions made by management. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
Future Factors include increasing price and product/services competition by
foreign and domestic competitors, including new entrants; rapid technological
developments and changes; the ability to continue to introduce competitive new
products and services on a timely, cost effective basis; the mix of
products/services; the achievement of lower costs and expenses; domestic and
foreign governmental and public policy changes which may affect the level of
new investments and purchases made by customers; changes in environmental and
other domestic and foreign governmental regulations; protection and validity of
patent and other intellectual property rights; reliance on large customers;
technological, implementation and cost/financial risks in increasing use of
large, multi-year contracts; the cyclical nature of the Company's business; the
outcome of pending and future litigation and governmental proceedings and
continued availability of financing, financial instruments and financial
resources in the amounts, at the times and on the terms required to support the
Company's future business. These are representative of the Future Factors that
could affect the outcome of the forward-looking statements. In addition, such
statements could be affected by general industry and market conditions and
growth rates, general domestic and international economic conditions including
interest rate and currency exchange rate fluctuations and other Future Factors.
Competition
The Company currently faces significant competition in its markets and
expects that the level of price and product competition will increase. In
addition, as a result of both the trend toward global expansion by foreign and
domestic competitors and technological and public policy changes, the Company
anticipates that new and different competitors will enter its markets. These
competitors may include entrants from the telecommunications, software and data
networking industries. Existing competitors have, and new competitors may
have, strong financial capability, technological expertise and well-recognized
brand names.
Dependence On New Product Development
The markets for the Company's principal products are characterized by
rapidly changing technology, evolving industry standards, frequent new product
introductions and evolving methods of building and operating telecommunications
systems for network operators and business customers. The Company's operating
results will depend to a significant extent on its ability to continue to
introduce new systems, software and services successfully on a timely basis and
to reduce costs of existing systems, software and services. The success of
these and other new offerings is dependent on several factors, including proper
identification of customer needs, cost, timely completion and introduction,
differentiation from offerings of the Company's competitors and market
acceptance. In addition, new technological innovations generally require a
substantial investment before any assurance is available as to their commercial
viability, including, in some cases, certification by international and
domestic standards-setting bodies.
Reliance On Major Customers
Historically, the Company has relied on a limited number of customers for a
substantial portion of its total revenues. In terms of total revenues, the
Company's
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largest customer has been AT&T, although other large customers may purchase
more of any particular system or product line. The contribution of AT&T to the
Company's total revenues and percentage of total revenues for the nine months
ended September 30, 1996 and years ended December 31, 1995 and 1994 was $1,970
million (12.4%), $2,119 million (9.9%) and $2,137 million (10.8%),
respectively.
In addition, sales to approximately ten network operators (including AT&T),
some of which may vary from year to year, constituted approximately 38%, 41%
and 42% of total revenues in the years ended December 31, 1995, 1994, and 1993,
respectively. The Company has diversified its customer base in the past
several years and expects this trend to continue. Nevertheless, the Company
expects that a significant portion of its future revenues will continue to be
generated by a limited number of customers. See "Business." The loss of any of
these customers or any substantial reduction in orders by any of these
customers could materially adversely affect the Company's operating results.
The United States government is, in the aggregate, also a large customer of the
Company. Given the current pressures on the government to reduce its overall
level of spending, there can be no assurance that government purchases from the
Company will not decrease in the future.
Multi-Year Contracts
In recent years, the purchasing behavior of the Company's large customers
has increasingly been characterized by the use of fewer, larger contracts.
This trend is expected to intensify, and contributes to the variability of the
Company's results. Such larger purchase contracts typically involve longer
negotiating cycles, require the dedication of substantial amounts of working
capital and other resources, and in general require investments which may
substantially precede recognition of associated revenues. Moreover, in return
for larger, longer-term purchase commitments, customers often demand more
stringent performance and acceptance criteria which can also cause revenue
recognition delays and contract termination, as well as financing from the
Company. Certain multi-year contracts may involve new technologies which may
not have been previously deployed on a large-scale commercial basis. The
Company may incur significant initial cost overruns and losses on such
contracts which would be recognized in the quarter in which they became
ascertainable. Further, profit estimates on such contracts are revised
periodically over the lives of the contracts, and such revisions can have a
significant impact on reported earnings in any one quarter.
The Company has several significant contracts for the sale of infrastructure
systems to network operators which extend over a multi-year period, and expects
to enter into similar contracts in the future, with the uncertainties discussed
above. One of the Company's multi-year contracts is with Pacific Bell for the
provision of a broadband network based on hybrid fiber-coaxial cable
technology. In July 1996, the Company and Pacific Bell agreed to modify the
terms of the contract so as to resolve issues and potential claims which may
have arisen due to implementation difficulties and cost overruns under the
contract. The Company's financial statements include reserves to reflect these
contract modifications. The Company will continue to assess the adequacy of
these reserves.
Seasonality
The Company's sales are highly seasonal with revenue and net income
historically concentrated in the fourth quarter of the calendar year. Many of
the Company's large customers have historically delayed a disproportionate
percentage of their capital expenditures until the fourth quarter of the
calendar year. The Company has placed an increased focus on the completion of
software releases by mid-year to allow for commercial availability and delivery
in the fourth quarter of the calendar year. These software releases require
significant research and development expenditures early in the year, with
minimal offsetting revenues, but are key contributors to the Company's profits
during the fourth quarter of the calendar year. Additionally, sales of
consumer products are generally stronger in the fourth quarter, corresponding
to holiday buying.
The growing competitive pressures among network operators, along with the
increase in software revenues, have resulted in an increasing trend toward
seasonality. Consequently, the Company's results of operations for the first
three quarters of each calendar year historically have, in the aggregate, been
significantly less profitable than the fourth quarter. The Company has
reported net losses in the first quarter of
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each calendar year. The change in the Company's fiscal year to the year ending
September 30th will place the historically most profitable quarter as the first
fiscal quarter.
Change Of Company Brand Name
In connection with the Separation, the Company will, rapidly in the case of
some products and over specified periods of time in the case of other products,
change the trademarks and trade names under which it conducts its business.
The Company believes that its sale of business communications systems to small
businesses and sales of consumer products have benefitted from the use of the
"AT&T" brand name. The impact of the change in trademarks and trade names and
other changes (including, without limitation, restrictions on the use of the
"AT&T" brand name and related trade dress) on the Company's business and
operations cannot be fully predicted. See "Separation Agreements -- Brand
License and Related Matters."
Future Capital Requirements
The Company's working capital requirements and cash flow provided by (or
used in) operating activities can vary greatly from quarter to quarter,
depending on the volume of production, the timing of deliveries, the build-up
of inventories, and the payment terms offered to customers.
Network operators, domestically and internationally, increasingly have
required their suppliers to arrange or provide long-term financing for them as
a condition to obtaining or bidding on infrastructure projects. These projects
may require financing in amounts ranging from modest sums to over a billion
dollars. In this regard, the Company entered into a credit agreement in
October 1996 to provide Sprint Spectrum LP long-term financing of $1,800
million for purchasing equipment and services for its PCS network. Payment of
quarterly interest on each borrowing may be deferred at the borrower's option
for up to two years. (See Note 14 of Notes to Consolidated Financial
Statements for a summary of other terms.) The Company is currently discussing
with financial institutions potential alternatives to sell loans it may make
under the credit agreement, which will depend, among other things, on the
market conditions and requirements at the time. The Company has committed to,
and is proposing, to provide financing where appropriate for its business, in
addition to the Sprint Spectrum LP credit agreement. The ability of the
Company to arrange or provide financing for network operators will depend on a
number of factors, including the Company's capital structure and level of
available credit.
The Company believes that its credit facilities, cash flow from operations
and long- and short-term debt financings, will be sufficient to satisfy its
future working capital, capital expenditure, research and development and debt
service requirements. The Company has a shelf registration statement to
register the possible offering from time to time of up to $2,000 million of
long-term debt at September 30, 1996. Although the Company believes that it
will be able to access the capital markets on terms and in amounts that will be
satisfactory to it, and that it will be able to obtain bid and performance
bonds, to arrange or provide customer financing as necessary, and to engage in
hedging transactions on commercially acceptable terms, there can be no
assurance that the Company will be successful in this regard.
International Growth And Foreign Exchange
The Company intends to continue to pursue growth opportunities in
international markets. In many international markets, long-standing
relationships between potential customers of the Company and their local
providers, and protective regulations, including local content requirements and
type approvals, create barriers to entry. In addition, pursuit of such
international growth opportunities may require significant investments for an
extended period before returns on such investments, if any, are realized. Such
projects and investments could be adversely affected by reversals or delays in
the opening of foreign markets to new competitors, exchange controls, currency
fluctuations, investment policies, repatriation of cash, nationalization,
social and political risks, taxation, and other factors, depending on the
country in which such opportunity arises.
- -------------------
* SPRINT SPECTRUM is a service mark of Sprint Communications Company, L.P.
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A significant change in the value of the dollar against the currency of one
or more countries where the Company recognizes substantial revenue or earnings
may materially adversely affect the Company's results. The Company attempts to
mitigate any such effects through the use of foreign currency contracts,
although there can be no assurances that such attempts will be successful.
Intellectual Property
The Company relies on patent, trademark, trade secret and copyright laws
both to protect its proprietary technology and to protect the Company against
claims from others. The Company believes that it has direct intellectual
property rights or rights under cross-licensing arrangements covering
substantially all of its material technologies. Given the technological
complexity of the Company's systems and products, however, there can be no
assurance that claims of infringement will not be asserted against the Company
or against the Company's customers in connection with their use of the
Company's systems and products, nor can there be any assurance as to the
outcome of any such claims. The Company was assigned ownership of the
substantial majority of AT&T's patents in connection with the Separation.
Pursuant to the patent license agreement entered into among the Company, AT&T
and NCR, the Company has been given rights, subject to specified limitations,
to pass through to its customers certain rights under approximately 400 patents
retained by AT&T. There can be no assurance that the Company's customers and
potential customers will be satisfied with the pass-through rights available to
them under the patents retained by AT&T or with any indemnification commitments
the Company may be willing to provide in connection therewith. See "Separation
Agreements -- Patent Licenses and Related Matters" and "-- Technology Licenses
and Related Matters."
OPERATING REVENUE, RESEARCH AND DEVELOPMENT EXPENSE AND FOREIGN AND DOMESTIC
OPERATIONS
For information about the consolidated operating revenues contributed by the
Company's major classes of products and services, consolidated research and
development expenses, and foreign and domestic operations, see revenue tables
and discussion on pages 41 through 44, Consolidated Statements of Income on
page 49 and Note 8 thereto on pages 60 and 61 of the Company's annual report
to security holders for the fiscal year ended September 30, 1996. Such
information is incorporated herein by reference pursuant to General Instruction
G(2).
EMPLOYEE RELATIONS
At September 30, 1996, the Company employed approximately 124,000 persons,
of whom 79% were located in the United States. Of these domestic employees,
46% are represented by unions, primarily the Communications Workers of
America and the International Brotherhood of Electrical Workers ("IBEW"). The
Company's labor agreements with these unions expire on May 30, 1998. Such
unions have made claims against AT&T on behalf of the Company's employees they
represent for severance pay as a result of the Distribution and related
transactions. The procedure under the labor contracts that these unions have
initiated is for the unions to file grievances to be followed by arbitration
under the contracts if the matter is not resolved. The IBEW claims are pending
decision following hearings in an arbitration proceeding. Under the Separation
and Distribution Agreement among AT&T, the Company and NCR dated as of February
1, 1996, and amended and restated as of March 29, 1996, the Company assumed
responsibility for liabilities for severance pay which might result from such
claims, subject to sharing arrangements under such Agreement. The Company has
continued to honor its labor agreements with these unions. Although these
claims could be material, if upheld, the Company believes that such claims are
without merit and intends to defend against the claims vigorously.
ENVIRONMENTAL MATTERS
The Company's current and historical manufacturing and research operations
are subject to a wide range of environmental protection laws in the United
States and other countries. In the United States, these laws often require
parties to fund remedial action regardless of fault. The Company has remedial
and investigatory activities underway at 46 current and former facilities. In
addition, the Company was named a successor to AT&T as a potentially
responsible party ("PRP") at numerous "Superfund" sites pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") or comparable state statutes. Under the terms of the Separation
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and Distribution Agreement, the Company is responsible for all liabilities
primarily resulting from or related to the operation of the Company's Business
as conducted at any time prior to, on or after the Separation including related
businesses discontinued or disposed of prior to the Separation, and the
Company's assets including, without limitation, those associated with these
sites. In addition, under the Separation and Distribution Agreement, the
Company is required to pay a portion of contingent liabilities paid out in
excess of certain amounts by AT&T and NCR, including environmental liabilities.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. The Company records an environmental
reserve when it is probable that a liability has been incurred and the amount
of the liability is reasonably estimable. This practice is followed whether
the claims are asserted or unasserted. Management expects that the amounts
reserved for will be paid out over the period of remediation for the applicable
site which ranges from 5 to 30 years. Reserves for estimated losses from
environmental remediation are, depending on the site, based primarily upon
internal or third party environmental studies, and estimates as to the number,
participation level and financial viability of any other PRPs, the extent of
the contamination and the nature of required remedial actions. Accruals are
adjusted as further information develops or circumstances change. The amounts
provided for in the Company's consolidated financial statements in respect of
environmental reserves are the gross undiscounted amount of such reserves,
without deductions for insurance or third party indemnity claims. In those
cases where insurance carriers or third party indemnitors have agreed to pay
any amounts and management believes that collectibility of such amounts is
probable, the amounts are reflected as receivables in the financial statements.
Although the Company believes that its reserves are adequate, there can be no
assurance that the amount of capital expenditures and other expenses which will
be required relating to remedial actions and compliance with applicable
environmental laws, will not exceed the amounts reflected in the Company's
reserves or will not have a material adverse effect on the financial condition
of the Company or the Company's results of operations or cash flows. Any
amounts of environmental costs that may be incurred in excess of those provided
for at September 30, 1996 cannot be determined.
On July 31, 1991, the United States Environmental Protection Agency Region
III issued a complaint pursuant to Section 3008a of the Resource Conservation
and Recovery Act of 1976 alleging violations of various waste management
regulations at the Company's Richmond Works in Richmond, Virginia. The
complaint alleges violations relating to training, solder dross management, the
facility's waste analysis plan and the handling of gold ion exchange resins.
The complaint seeks a total of $4.2 million in penalties. The Company is
contesting both liability and the penalties.
In addition, on July 31, 1991, the United States Environmental Protection
Agency filed a civil complaint in the U.S. District Court for the Southern
District of Illinois against AT&T (with respect to the Company's businesses)
and nine other parties seeking enforcement of its CERCLA Section 106 cleanup
order, issued in November 1990 for the NL Granite City Superfund site in
Granite, Illinois. This complaint seeks past costs, civil penalties of $25,000
per day and treble damages related to certain United States costs. The Company
is contesting liability.
During 1994, AT&T Nassau Metals Corporation ("Nassau"), a wholly owned
subsidiary of the Company, and the New York State Department of Environmental
Conservation (the "NYSDEC") were engaged in negotiations over a study and
cleanup of the Nassau plant located on Richmond Valley Road in Staten Island,
New York. During these negotiations, in June 1994, NYSDEC presented Nassau
with a draft consent order which included not only provisions for site
investigation and remediation but also a provision for payment of a $3.5
million penalty for alleged violations of hazardous waste management
regulations. NYSDEC claims that Nassau improperly engaged in landfilling and
storing of lead dust. No formal proceeding has been commenced by NYSDEC.
Negotiations and discussions regarding the matter are continuing.
SEPARATION AGREEMENTS
For the purposes of governing certain of the relationships between the
Company and AT&T (including NCR) following the Separation and the Distribution,
the Company, AT&T and NCR entered into the Separation and Distribution
Agreement and the Ancillary Agreements to which they are parties (collectively,
the "Separation Agreements"). The Ancillary Agreements include the Interim
Services and Systems Replication Agreement;
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the General Purchase Agreement and the supplemental agreements related thereto;
the Employee Benefits Agreement; the Brand License Agreement; the Patent
License Agreement and other patent-related agreements; the Technology License
Agreement and other technology-related agreements; the Tax Sharing Agreement
and other tax-related agreements; certain agreements providing for the
assignment of, and the establishment of transitional arrangements with respect
to, real property; and agreements pursuant to which AT&T will provide
communications services to the Company and NCR will sell certain products to
the Company. Certain of the Separation Agreements, including certain of the
Agreements summarized below, have been filed as exhibits to this Form 10-K.
Reference is made to such exhibits for the full text of the provisions of those
Agreements, and the agreement summaries below are qualified in their entirety
by reference to the full text of such Agreements. Capitalized terms used in
this section and not otherwise defined in this Form 10-K shall have their
respective meanings set forth in the Separation and Distribution Agreement
(except that the term "Company" is used in lieu of the term "Lucent") or other
Separation Agreement.
Separation And Distribution Agreement
Under the Separation and Distribution Agreement, the Company assumed or
agreed to assume, and agreed to perform and fulfill, all the "Lucent
Liabilities" (as defined in such Agreement) in accordance with their respective
terms. Without limitation, the Lucent Liabilities generally include all
liabilities and contingent liabilities relating to Lucent's present and former
business and operations, and contingent liabilities otherwise assigned to
Lucent; contingent liabilities related to AT&T's discontinued computer
operations (other than those of NCR) were assigned to the Company. The
Separation and Distribution Agreement provides for the sharing of contingent
liabilities not allocated to one of the parties in specified proportions, and
also provides that each party will share specified portions of contingent
liabilities related to the business of any of the other parties that exceed
specified levels.
Ability to Terminate Certain Rights. The Separation and Distribution
Agreement provides that certain rights granted to the Company and the members
of the Company Group will be subject to the following provisions. Except as
otherwise expressly provided, in the event that, at any time prior to February
1, 2001, the Company or any member of the Company Group offers, furnishes or
provides any Telecommunications Services of the type offered by the AT&T
Services Business as of the Closing Date, then AT&T may, in its sole
discretion: (a) terminate all or any portion of the rights granted by AT&T
under the Brand License Agreement; (b) terminate all or any remaining portion
of the purchase commitments made by AT&T and the members of the AT&T Group in
the General Purchase Agreement; (c) exercise the right to require the Company
to transfer to AT&T certain personnel, information, technology and software
under the Supplemental Agreements; (d) terminate all or any portion of the
rights to patents and technology of AT&T or any member of the AT&T Group
granted to the Company and the members of the Company Group pursuant to the
Patent License Agreement and the Technology License Agreement; and (e) direct
the Company and the members of the Company Group to reconvey to AT&T all
interests in any and all patents and technology in which the Company or any
member of the Company Group was granted an undivided one-half interest pursuant
to the Patent Assignments or the Technology Assignment and Joint Ownership
Agreements. The Company and the members of the Company Group will not be
deemed to offer, furnish or provide any Telecommunications Services (and the
foregoing provisions will not apply) solely by virtue of certain specified
investments in Persons that offer, furnish or provide Telecommunications
Services or by virtue of offering, furnishing or providing Telecommunications
Services below a specified de minimis amount.
Employee Benefits Agreement
AT&T and the Company entered into the Employee Benefits Agreement that
governs the employee benefit obligations of the Company, including both
compensation and benefits, with respect to active employees and retirees
assigned to the Company. Pursuant to the Employee Benefits Agreement, the
Company assumed and agreed to pay, perform, fulfill and discharge, in
accordance with their respective terms, all Liabilities (as defined) to, or
relating to, former employees of AT&T or its affiliates employed by the Company
and its affiliates and certain former employees of AT&T or its affiliates
(including retirees) who either were employed in the Company Business (as
defined) or who otherwise are assigned to the Company for purposes of
allocating employee benefit obligations (including all retirees of Bell Labs).
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Brand License And Related Matters
The Company and AT&T entered into the Brand License Agreement pursuant to
which the Company has rights, on a royalty-free basis, to continue to use the
AT&T brand (including the AT&T globe design) for specified transition periods
following April 10, 1996. Under the Brand License Agreement, the Company will
be entitled to use the AT&T brand, alone or in combination with the Company's
brand, for the sale of consumer products and services and business
communications systems and services until April 10, 1997. The Company will be
entitled to continue to use the AT&T brand on these products, systems and
services, but only in combination with the Company's brand, for an additional
three-year period. The right to use the AT&T brand, alone or in combination
with the Company's brand, in connection with certain leased products or
maintenance contracts will extend until October 10, 2001. In addition, the
Company may use the AT&T brand after these time periods to the extent necessary
to deplete pre-existing inventory. Subject to certain conditions set forth in
the Brand License Agreement, the Company may also extend these rights to use
the AT&T brand to authorized dealers of the Company's products, systems and
services.
Neither the Company nor any of its authorized dealers is permitted to,
during the period it is using the AT&T brand, provide, offer or market
telecommunications services provided by any person other than AT&T with certain
exceptions. AT&T may terminate the Brand License Agreement in the event of a
significant breach (as defined therein), including in the event of a change of
control of the Company.
Patent Licenses And Related Matters
The Company, AT&T and NCR executed and delivered assignments and other
agreements, including a patent license agreement, related to patents then owned
or controlled by AT&T and its subsidiaries. The patent assignments divided
ownership of patents, patent applications and foreign counterparts among the
Company, AT&T and NCR, with the substantial portion of those then owned or
controlled by AT&T and its subsidiaries (other than NCR) being assigned to the
Company. A small number of the patents assigned to the Company are jointly
owned with either AT&T or NCR. Certain of the patents that the Company jointly
owns with AT&T are subject to a joint ownership agreement under which each of
the Company and AT&T has full ownership rights in the patents. The other
patents that the Company jointly owns with AT&T, and the patents that the
Company jointly owns with NCR, are subject to defensive protection agreements
with AT&T and NCR, respectively, under which the Company holds most ownership
rights in the patents exclusively. Under these defensive protection
agreements, AT&T or NCR, as the case may be, has the ability, subject to
specified restrictions, to assert infringement claims under the patents against
companies that assert patent infringement claims against them, and has consent
rights in the event the Company wishes to license the patents to certain third
parties or for certain fields of use under specified circumstances. The
defensive protection agreements also provide for one-time payments from AT&T
and NCR to the Company.
The patent license agreement entered into by the Company, AT&T and NCR
provides for royalty-free cross-licenses to each company, under each of the
other company's patents that are covered by the licenses, to use, lease, sell
and import any and all products and services of the businesses in which the
licensed company (including specified related companies) is now or hereafter
engaged. The cross-licenses also permit each company, subject to specified
limitations, to have third parties make items under the other companies'
patents, as well as to pass through to customers certain rights under the other
companies' patents with respect to products and services furnished to customers
by the licensed company. In addition, the rights granted to the Company and
AT&T include the right to license third parties under each of the other
company's patents to the extent necessary to meet existing patent licensing
obligations and AT&T has the right, subject to specified restrictions and
procedures, to seek sublicensing of a limited number of identified patents to
be assigned to the Company.
Technology Licenses And Related Matters
The Company, AT&T and NCR executed and delivered assignments and other
agreements, including the Technology License Agreement, related to technology
then owned or controlled by AT&T and its subsidiaries. Technology includes
copyrights, mask works and other intellectual property other than trademarks,
trade names, trade dress, service marks and patent rights. The technology
assignments divide ownership of
17
21
technology among the Company, AT&T and NCR, with the Company and AT&T owning
technology that was developed by or for, or purchased by, the Company's
business or AT&T's services business, respectively, and NCR owning technology
that was developed by or for, or purchased by, NCR. Technology that is not
covered by any of these categories is owned jointly by the Company and AT&T or,
in the case of certain specified technology, owned jointly by the Company, AT&T
and NCR.
The Technology License Agreement entered into by the Company, AT&T and NCR
provides for royalty-free cross-licenses to each company to use the other
companies' technology existing as of April 10, 1996, except for specified
portions of each company's technology as to which use by the other companies is
restricted or prohibited.
ITEM 2. PROPERTIES.
At September 30, 1996, the Company operated 58 manufacturing and repair
sites, of which 23 were located in the United States, occupying in excess of
20.0 million square feet, of which approximately 1.1 million square feet were
leased. The remaining 35 sites were located in 19 countries.
At September 30, 1996, the Company operated 109 warehouse sites, of which 82
were located in the United States, occupying in excess of 3.0 million square
feet, substantially all of which were leased. The remaining 27 sites were
located in 16 countries.
At September 30, 1996, the Company operated 882 office sites
(administration, sales, field service), of which 677 were located in the United
States, occupying in excess of 19.0 million square feet, substantially all of
which were leased. The remaining 205 sites were located in 47 countries.
At September 30, 1996, the Company operated additional sites in 15 cities,
of which 14 were located in the United States, with significant research and
development activities, occupying in excess of 9.0 million square feet, of
which approximately 1.4 million square feet were leased.
The Company believes its plants and facilities are suitable and adequate,
and have sufficient productive capacity, to meet its current needs.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims, including proceedings under laws and regulations
related to environmental and other matters. (Also see Item 1. "Business --
Separation Agreements -- Separation and Distribution Agreement" regarding the
assumption by the Company of certain liabilities and contingent liabilities.)
All such matters are subject to many uncertainties and outcomes are not
predictable with assurance. Consequently, the Company is unable to ascertain
the ultimate aggregate amount of monetary liability or financial impact with
respect to these matters at September 30, 1996. While these matters could
affect operating results of any one quarter when resolved in future periods
and, while there can be no assurance with respect thereto, it is management's
opinion that after final disposition, any monetary liability or financial
impact to the Company beyond that provided in the consolidated balance sheet at
September 30, 1996 would not be material to the Company's annual consolidated
financial statements.
On February 14, 1996, Bell Atlantic Corporation and DSC Communications
Corporation filed a complaint against AT&T and the Company in the United States
District Court for the Eastern District of Texas. The complaint alleges, among
other things, that AT&T or the Company has monopolized or attempted to
monopolize alleged markets for communications transmission equipment, related
software and caller identification services. The complaint seeks injunctive
relief and damages, after trebling, in excess of $3,500 million. AT&T and the
Company do not believe that the complaint has merit and intend to defend the
lawsuit vigorously. This matter has been set for trial in March 1997.
See also the discussion in Item 1. "Business -- Employee Relations" and "--
Environmental Matters" for additional legal proceedings, and environmental
matters and proceedings.
18
22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matter was submitted to a vote of security holders in the final quarter
of the fiscal year covered by this report.
Executive Officers of the Registrant
(as of December 1, 1996)
Became
Lucent
Executive
Officer
On
Name Age
---- ---
Henry B. Schacht*. . . . . . 62. . .Chairman of the Board and. . . . . . . . .2-96
Chief Executive Officer
Richard A. McGinn* . . . . . 50. . .President and Chief. . . . . . . . . . . .2-96
Operating Officer
Curtis R. Artis. . . . . . . 48. . .Senior Vice President, . . . . . . . . . .2-96
Human Resources
Gerald J. Butters. . . . . . 53. . .President, North American. . . . . . . . .2-96
Region, Network Systems
Joseph S. Colson, Jr.. . . . 49. . .President, AT&T Customer . . . . . . . . .2-96
Business Unit, Network Systems
Curtis J. Crawford . . . . . 49. . .President, Microelectronics. . . . . . . .2-96
Carleton S. Fiorina. . . . . 42. . .President, Consumer Products . . . . . . .2-96
William T. O'Shea. . . . . . 49. . .President, International,. . . . . . . . .2-96
Network Systems
Donald K. Peterson . . . . . 47. . .Executive Vice President and . . . . . . .2-96
Chief Financial Officer
Richard J. Rawson. . . . . . 44. . .Senior Vice President, . . . . . . . . . .2-96
General Counsel and Secretary
Patricia F. Russo(1) . . . . 44. . .Executive Vice President and . . . . . . .2-96
Chief Staff Officer
Daniel C. Stanzione. . . . . 51. . .President, Network Systems;. . . . . . . .2-96
President, Bell Laboratories
- ---------------
* Member of the Board of Directors.
(1) Also, continuing as President, Business Communications Systems, for an
interim period.
All of the above executive officers have held high level managerial
positions with the Company and prior thereto with AT&T or its affiliates for
more than the past five years, except in the case of Messrs. Schacht, Butters
and Peterson since February 1, 1996, January 15, 1994 and September 1, 1995,
respectively. Mr. Schacht was Chief Executive Officer (1973-1994) and Chairman
of the Board (1977-1995) of Cummins Engine Company, Inc., a manufacturer of
diesel engines, and a member of the AT&T Board of Directors (1981-1996). Prior
to joining AT&T, Mr. Butters was President of Northern Telecom, Inc., a
telecommunications company, from January 1993 to January 1994 and prior thereto
was Executive Vice President, Sales and Service, from February 1992 to January
1993 and Executive Vice President, Public Networks, from January 1991 to
February 1992, both of Northern Telecom, Inc. Mr. Peterson held various senior
executive positions at Northern Telecom, Inc. which included President of Nortel
19
23
Communications Systems, Inc. (from January 1993 to September 1995), Vice
President of Finance of Northern Telecom, Inc. (from January 1991 to January
1993) and Group Vice President of Northern Telecom, Inc. (from September 1987
to January 1991).
Officers are not elected for a fixed term of office but hold office until
their successors have been elected.
PART II
Items 5. through 8.
The information required by these items is included in pages 38 through 68
of the Company's annual report to security holders for the fiscal year ended
September 30, 1996. The referenced pages of the Company's annual report to
security holders have been filed as Exhibit 13 to this document. Such
information is incorporated herein by reference, pursuant to General
Instruction G(2). As of November 30, 1996, there were approximately 1,900,000
shareholders of record.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
Items 10. through 13.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and officers to file reports of holdings and transactions in the
Company's Common Shares with the Securities and Exchange Commission ("SEC") and
the New York Stock Exchange. Based on Company records and other information,
the Company believes that all SEC filing requirements applicable to its
Directors and officers with respect to the Company's fiscal year ending
September 30, 1996 were complied with except one filing by Curtland E. Fields,
a former Director of the Company, who inadvertently filed late because he did
not receive timely information about his Section 16 responsibilities when he
was named by AT&T to replace another AT&T nominee who resigned from the Company
Board.
Information regarding executive officers required by Item 401 of Regulation
S-K is furnished in a separate disclosure in Part I of this report because the
Company did not furnish such information in its definitive proxy statement
prepared in accordance with Schedule 14A.
The other information required by Items 10 through 13 is included in the
Company's definitive proxy statement dated December 30, 1996, on page 7 and
page 10 through page 29.Such information is incorporated herein by reference,
pursuant to General Instruction G(3).
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as a part of the report:
(1) Financial Statements:
Pages
Report of Management ................................
Report of Independent Auditors ...................... *
- -----------------
* Incorporated herein by reference to the appropriate portions in pages 48
through 67 of the Company's annual report to security holders for the fiscal
year ended September 30, 1996. (See Part II.)
20
24
Statements:
Consolidated Statements of Income ................ *
Consolidated Balance Sheets ...................... *
Consolidated Statements of Changes in
Shareowner's Equity.............................. *
Consolidated Statements of Cash Flows ............ *
Notes to Consolidated Financial Statements ....... *
(2) Financial Statement Schedules:
Report of Independent Auditors ...................... 23
Schedules:
II -- Valuation and Qualifying Accounts ............. 24
Separate financial statements of subsidiaries not consolidated and 50 percent
or less owned persons are omitted since no such entity constitutes a
"significant subsidiary" pursuant to the provisions of Regulation S-X, Article
3-09.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the SEC,
are incorporated herein by reference as exhibits hereto.
Exhibit
Number
(3)(i) Articles of Incorporation of the registrant, as amended April 8,
1996 (Exhibit 3(i) to Form 8-K dated July 18, 1996, File No.
001-11639).
(3)(ii) By-Laws of the registrant, as amended July 17, 1996 (Exhibit 3(ii)
to Form 8-K dated July 18, 1996, File No. 001-11639).
(4)(a) Indenture dated as of April 1, 1996 between Lucent Technologies
Inc. and the Bank of New York, as Trustee (Exhibit 4A to
Registration Statement on Form S-3 No. 333-01223).
(4)(b) Other instruments in addition to Exhibit 4(a) which define the
rights of holders of long term debt, of the registrant and all of
its consolidated subsidiaries, are not filed herewith pursuant to
Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, the registrant hereby agrees to furnish a copy of any
such instrument to the SEC upon request.
(10)(i)1 Separation and Distribution Agreement by and among Lucent
Technologies Inc., AT&T Corp. and NCR Corporation, dated as of
February 1, 1996 and amended and restated as of March 29, 1996
(Exhibit 10.1 to Registration Statement on Form S-1 No. 333-00703).
(10)(i)2 Tax Sharing Agreement by and among Lucent Technologies Inc., AT&T
Corp. and NCR Corporation, dated as of February 1, 1996 and amended
and restated as of March 29, 1996 (Exhibit 10.6 to Registration
Statement on Form S-1 No. 333-00703).
(10)(i)3 Employee Benefits Agreement by and between AT&T and Lucent
Technologies Inc., dated as of February 1, 1996 and amended and
restated as of March 29, 1996 (Exhibit 10.2 to Registration
Statement on Form S-1 No. 333-00703).
(10)(i)4 Lucent Technologies Inc. Operating Agreement between Lucent
Technologies and AT&T Capital Corporation, dated as of April 2,
1996 (Exhibit 10.13 to Registration Statement on Form S-1 No.
333-00703).
(10)(i)5 Rights Agreement between Lucent Technologies Inc. and First Chicago
Trust Company of New York, as Rights Agent, dated as of April 4,
1996 (Exhibit 4.2 to Registration Statement on Form S-1 No.
333-00703).
21
25
(10)(ii)(B)1 General Purchase Agreement by and between AT&T Corp. and Lucent
Technologies Inc., dated February 1, 1996 and amended and restated
as of March 29, 1996 (Exhibit 10.3 to Registration Statement on
Form S-1 No. 333-00703).
(10)(ii)(B)2 Interim Services and Systems Replication Agreement by and among
AT&T, Lucent Technologies Inc. and NCR, dated as of February 1,
1996 and amended and restated as of March 29, 1996 (Exhibit 10.4 to
Registration Statement on Form S-1 No. 333-00703).
(10)(ii)(B)3 Brand License Agreement by and between Lucent Technologies Inc. and
AT&T, dated as of February 1, 1996 (Exhibit 10.5 to Registration
Statement on Form S-1 No. 333-00703).
(10)(ii)(B)4 Patent License Agreement among AT&T, NCR and Lucent Technologies
Inc., effective as of March 29, 1996 (Exhibit 10.7 to Registration
Statement on Form S-1 No. 333-00703).
(10)(ii)(B)5 Amended and Restated Technology License Agreement among AT&T, NCR
and Lucent Technologies Inc., effective as of March 29, 1996
(Exhibit 10.8 to Registration Statement on Form S-1 No. 333-00703).
(10)(iii)(A)1 Lucent Technologies Inc. Long Term Incentive Program.
(10)(iii)(A)2 Lucent Technologies Inc. Deferred Compensation Plan for
Non-Employee Directors.
(10)(iii)(A)3 Pension Plan for Lucent Non-Employee Directors (Exhibit 10.11 to
Registration Statement on Form S-1 No. 333-00703).
(10)(iii)(A)4 Lucent Technologies Inc. Stock Retainer Plan for Non-Employee
Directors (Exhibit 10.12 to Registration Statement on Form S-1 No.
333-00703).
(10)(iii)(A)5 Lucent Technologies Inc. Excess Benefit and Compensation Plan.
(10)(iii)(A)6 Lucent Technologies Inc. Mid-Career Pension Plan.
(10)(iii)(A)7 Lucent Technologies Inc. Non-Qualified Pension Plan.
(10)(iii)(A)8 Lucent Technologies Inc. Officer Long-Term Disability and Survivor
Protection Plan.
(10)(iii)(A)9 Lucent Technologies Inc. Officer Incentive Award Deferral Plan.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Specified portions (pages 38 through 68) of the Company's Annual
Report to security holders for the year ended September 30, 1996.
(21) List of subsidiaries of Lucent Technologies Inc.
(23) Consent of Coopers & Lybrand L.L.P.
(24) Powers of Attorney executed by officers and directors who signed
this report.
(27) Financial Data Schedule.
22
26
The Company will furnish, without charge, to a security holder upon request
a copy of the annual report to security holders and the proxy statement,
portions of which are incorporated herein by reference thereto. The Company
will furnish any other exhibit at cost.
(b) Reports on Form 8-K:
Form 8-K dated July 18, 1996 was filed pursuant to Items 5 (Other
Events), 7(c) (Exhibits), and 8 (Change in Fiscal Year).
Form 8-K dated September 6, 1996 was filed pursuant to Item 7(c)
(Exhibits).
REPORT OF INDEPENDENT AUDITORS
To the Shareowners of Lucent Technologies Inc.:
Our report on the consolidated financial statements of Lucent Technologies
Inc. and subsidiaries has been incorporated by reference in this Form 10-K
from page 48 of the 1996 Annual Report to the Shareowners of Lucent
Technologies Inc. In connection with our audits of such financial statements,
we have also audited the related consolidated financial statement schedule
listed in the index on page 21 of this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to
be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
October 24, 1996
23
27
Lucent Technologies Inc.
Schedule II - Valuation and Qualifying Accounts
In Millions
Column A Column B Column C Column D Column E
----------------------------------------- ------------ ----------------------- ---------- ---------
-------Additions-------
Balance at Charged to Charged to Balance at
Description Beginning of Costs & Other End
Period Expenses Accounts Deductions(a) of Period
- ------------------------------------------------------------------------------------------------------------------------
Year 1996
Allowance for doubtful accounts 248 64 - 39 273
Reserves related to business restructuring
and facility consolidation 1,907 (98)(b) - 520(b) 1,289
Deferred tax asset valuation allowance 142 7 102(d) 43 208
Inventory valuation 790 92 9 247 644
Year 1995
Allowance for doubtful accounts 206 94 (3) 49 248
Reserves related to business restructuring
and facility consolidation 133 1,774 - - 1,907
Deferred tax asset valuation allowance 96 46 - - 142
Inventory valuation 591 336(c) - 137 790
Year 1994
Allowance for doubtful accounts 143 82 17 36 206
Reserves related to business restructuring
and facility consolidation 205 - 26 98 133
Deferred tax asset valuation allowance 123 - - 27 96
Inventory valuation 521 174 - 104 591
(a) Amounts written off as uncollectible, payments or reversals.
(b) See Note 4 of the Notes to Consolidated Financial Statements for background
information.
(c) Includes $194 related to business restructuring in the fourth quarter of
1995.
(d) Relates to net asset additions and net liability reductions from AT&T. See
Note 1 of the Notes to Consolidated Financial Statements for background
information.
24
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
By James S. Lusk
Vice President and Controller
December 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Principal Executive Officer: #
#
Henry B. Schacht Chairman #
of the Board and #
Chief Executive #
Officer #
#
Principal Financial Officer: #
#
Donald K. Peterson Executive #
Vice President and #
Chief Financial #
Officer #
#
Principal Accounting Officer: #
#
James S. Lusk Vice President ## By James S. Lusk
and Controller # (attorney-in-fact)*
#
Directors: #
# December 30, 1996
#
Paul A. Allaire #
Carla A. Hills #
Drew Lewis #
Richard A. McGinn #
Paul H. O'Neill #
Donald S. Perkins #
Henry B. Schacht #
Franklin A. Thomas #
John A. Young #
#
#
# * As Principal Accounting
# Officer and by power of
# attorney
#
#
25
29
Exhibit Index
Exhibits identified in parentheses below, on file with the SEC,
are incorporated herein by reference as exhibits hereto.
Exhibit
Number
(3)(i) Articles of Incorporation of the registrant, as amended April 8,
1996 (Exhibit 3(i) to Form 8-K dated July 18, 1996, File No.
001-11639).
(3)(ii) By-Laws of the registrant, as amended July 17, 1996 (Exhibit 3(ii)
to Form 8-K dated July 18, 1996, File No. 001-11639).
(4)(a) Indenture dated as of April 1, 1996 between Lucent Technologies
Inc. and the Bank of New York, as Trustee (Exhibit 4A to
Registration Statement on Form S-3 No. 333-01223).
(4)(b) Other instruments in addition to Exhibit 4(a) which define the
rights of holders of long term debt, of the registrant and all of
its consolidated subsidiaries, are not filed herewith pursuant to
Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, the registrant hereby agrees to furnish a copy of any
such instrument to the SEC upon request.
(10)(i)1 Separation and Distribution Agreement by and among Lucent
Technologies Inc., AT&T Corp. and NCR Corporation, dated as of
February 1, 1996 and amended and restated as of March 29, 1996
(Exhibit 10.1 to Registration Statement on Form S-1 No. 333-00703).
(10)(i)2 Tax Sharing Agreement by and among Lucent Technologies Inc., AT&T
Corp. and NCR Corporation, dated as of February 1, 1996 and amended
and restated as of March 29, 1996 (Exhibit 10.6 to Registration
Statement on Form S-1 No. 333-00703).
(10)(i)3 Employee Benefits Agreement by and between AT&T and Lucent
Technologies Inc., dated as of February 1, 1996 and amended and
restated as of March 29, 1996 (Exhibit 10.2 to Registration
Statement on Form S-1 No. 333-00703).
(10)(i)4 Lucent Technologies Inc. Operating Agreement between Lucent
Technologies and AT&T Capital Corporation, dated as of April 2,
1996 (Exhibit 10.13 to Registration Statement on Form S-1 No.
333-00703).
(10)(i)5 Rights Agreement between Lucent Technologies Inc. and First Chicago
Trust Company of New York, as Rights Agent, dated as of April 4,
1996 (Exhibit 4.2 to Registration Statement on Form S-1 No.
333-00703).
30
(10)(ii)(B)1 General Purchase Agreement by and between AT&T Corp. and Lucent
Technologies Inc., dated February 1, 1996 and amended and restated
as of March 29, 1996 (Exhibit 10.3 to Registration Statement on
Form S-1 No. 333-00703).
(10)(ii)(B)2 Interim Services and Systems Replication Agreement by and among
AT&T, Lucent Technologies Inc. and NCR, dated as of February 1,
1996 and amended and restated as of March 29, 1996 (Exhibit 10.4 to
Registration Statement on Form S-1 No. 333-00703).
(10)(ii)(B)3 Brand License Agreement by and between Lucent Technologies Inc. and
AT&T, dated as of February 1, 1996 (Exhibit 10.5 to Registration
Statement on Form S-1 No. 333-00703).
(10)(ii)(B)4 Patent License Agreement among AT&T, NCR and Lucent Technologies
Inc., effective as of March 29, 1996 (Exhibit 10.7 to Registration
Statement on Form S-1 No. 333-00703).
(10)(ii)(B)5 Amended and Restated Technology License Agreement among AT&T, NCR
and Lucent Technologies Inc., effective as of March 29, 1996
(Exhibit 10.8 to Registration Statement on Form S-1 No. 333-00703).
(10)(iii)(A)1 Lucent Technologies Inc. Long Term Incentive Program.
(10)(iii)(A)2 Lucent Technologies Inc. Deferred Compensation Plan for
Non-Employee Directors.
(10)(iii)(A)3 Pension Plan for Lucent Non-Employee Directors (Exhibit 10.11 to
Registration Statement on Form S-1 No. 333-00703).
(10)(iii)(A)4 Lucent Technologies Inc. Stock Retainer Plan for Non-Employee
Directors (Exhibit 10.12 to Registration Statement on Form S-1 No.
333-00703).
(10)(iii)(A)5 Lucent Technologies Inc. Excess Benefit and Compensation Plan.
(10)(iii)(A)6 Lucent Technologies Inc. Mid-Career Pension Plan.
(10)(iii)(A)7 Lucent Technologies Inc. Non-Qualified Pension Plan.
(10)(iii)(A)8 Lucent Technologies Inc. Officer Long-Term Disability and Survivor
Protection Plan.
(10)(iii)(A)9 Lucent Technologies Inc. Officer Incentive Award Deferral Plan.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Specified portions (pages 38 through 68) of the Company's Annual
Report to security holders for the year ended September 30, 1996.
(21) List of subsidiaries of Lucent Technologies Inc.
(23) Consent of Coopers & Lybrand L.L.P.
(24) Powers of Attorney executed by officers and directors who signed
this report.
(27) Financial Data Schedule.