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LUCENT TECHNOLOGIES INC.
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On July 10, 2006, Lucent Technologies Inc. issued the following update to
employees:
LUCENT TECHNOLOGIES
SENIOR LEADERSHIP UPDATE
July 10, 2006
IN THIS ISSUE: Lucent and Alcatel provide update on ongoing integration work;
Lucent comments on preliminary results for third quarter of fiscal 2006
Today Lucent issued two news releases, the first being a joint announcement with
Alcatel, in which we provided an update on our ongoing integration work. In the
announcement, we also said that we are on track to complete our merger by the
end of calendar year 2006, which is within the six- to 12-month timeframe
originally announced on April 2. This release also contained updates on the
combined company's organization structure, regulatory milestones and cost
synergies.
The second news release announced that we expect revenues for the third quarter
of fiscal 2006, which ended June 30, to be approximately $2.04 billion, subject
to the completion of our quarterly closing process. This compares with revenues
of $2.14 billion in the second quarter of fiscal 2006 and $2.34 billion in the
year-ago quarter.
Following are the news releases, talking points and Q&A that you can use to
discuss this news with your employees and answer their questions. Employees will
be receiving an email note from Pat Russo and Serge Tchuruk.
Integration Work Milestones announcement
Press Release - To read the Lucent Alcatel news release, click
http://www.lucent.com/press/0706/060710.coc.html here
Talking Points
* We believe we are on track to complete the merger transaction by the end
of calendar year 2006, which is within the six- to 12-month timeframe originally
announced on April 2.
* In recent weeks, we have achieved a number of significant milestones,
including satisfying some regulatory conditions to the proposed merger, in our
ongoing integration work.
* Working together, we have developed an organization structure that we
believe will best drive the operations of the combined company and best serve
our customers
* The combined company will include a carrier business group that includes
wireless, wireline and convergence, as well as services and enterprise groups.
* This merger will create a world-class management team that will deliver
the best of both companies to customers around the world and will create
enhanced value for shareholders.
Q&A
1. What did we announce today with Alcatel?
In a joint news release, Alcatel and Lucent provided an update on the timing of
the proposed merger and the integration process related to the proposed merger
transaction and unveiled additional details of the combined company's
organization and business structure, leadership team and expected synergies.
2. When do you expect the merger transaction to be completed?
We believe we are on track to complete the merger transaction by the end of
calendar year 2006, which is within the six- to 12-month timeframe originally
announced on April 2.
3. Why do we believe the merger transaction will be completed by calendar
year-end?
In recent weeks, we have achieved a number of significant milestones, including
satisfying some regulatory conditions to the proposed merger.
* On June 7, 2006, Lucent and Alcatel were notified that they had received
early termination under the Hart-Scott-Rodino US Antitrust Improvements Act of
1976 (HSR) as it pertains to the merger.
* On June 16, 2006, the companies filed for European antitrust approval.
4. Is the transaction subject to any other regulatory approvals?
The merger remains subject to additional customary regulatory reviews as well as
approval by shareholders of both Alcatel and Lucent at shareholder meetings
scheduled for Sept. 7, and other customary conditions.
ORGANIZATION AND BUSINESS STRUCTURE
5. What is the organizational structure of the combined company?
Lucent and Alcatel collectively have developed an organization structure that we
believe will enable us to operate effectively and efficiently throughout the
world and provide best-in-class service to our customers. It will include a
carrier business group that includes wireless, wireline and convergence, as well
as services and enterprise groups.
We also will have four geographical regions:
* Europe and North, which includes the United Kingdom, Nordics, Benelux,
Germany, Russia and Eastern European countries;
* Europe and South, which includes France, Italy, Spain and other Southern
European countries, Africa, Middle East, India and Latin America;
* North America, which includes the United States of America, Canada and
the Caribbean; and
* Asia Pacific, which includes China, Northeast Asia, South East Asia and
Australia.
6. Who will run each of the business groups?
The combined company will have a world-class management team that will deliver
the best of both companies to customers around the world and create enhanced
value for shareholders. The Carrier Business Groups, headed by Etienne Fouques,
will consist of:
* Wireless, headed by Mary Chan,
* Wireline, headed by Michel Rahier,
* Convergence, headed by Marc Rouanne,
The Enterprise Business Group will be headed by Hubert de Pesquidoux.
The Service Business Group will be headed by John Meyer.
The leadership for the combined company's four geographic regions are:
* Vince Molinaro -- Europe and North,
* Olivier Picard -- Europe and South,
* Cindy Christy -- North America,
* Frederic Rose -- Asia-Pacific.
The company will have a management committee that will be headed by Pat Russo,
chief executive officer. The members of this committee will include Etienne
Fouques, senior executive vice president of the Carrier Group; Frank D'Amelio,
senior executive vice president Integration and chief administrative officer;
Jean-Pascal Beaufret, chief financial officer; Claire Pedini, senior vice
president, Human Resources and Communication and Mike Quigley. Mike Quigley has
decided for personal reasons to assume a different role for the combined
company. He will focus on the strategic direction of the company and will become
president, Science, Technology and Strategy. In this capacity he will devote his
attention to assuring that strategic investments align with evolving market
opportunities.
In addition the combined company will have several corporate center functions
supporting the entire company, including a worldwide integrated supply chain and
procurement organization. The leaders for the corporate center functions will be
named at a later date in the near future.
7. Will the combined company's financial results be reported under the
business groups and geographical areas?
The combined company's segment breakout for financial reporting purposes has not
yet been determined.
COST SYNERGIES
8. Do we still expect to achieve the targeted cost synergies of Euro 1.4
billion (USD 1.7 billion) within three years?
We remain confident in our ability to achieve the previously announced Euro 1.4
billion (USD 1.7 billion) of pre-tax cost synergies within three years. And we
continue to expect about 70 percent of these savings to be achieved in the first
two years post closing.
9. In what areas do we expect to achieve these synergies?
We expect that about 30 percent will come from cost of goods sold and the
remainder out of operating expenses.
10. What will be the workforce reduction? Where do we expect these reductions
to occur?
We expect a reduction of the combined workforce of about 9,000 people across the
businesses and across the regions, excluding the 11,000 people who will be
transferred to Thales as part of the proposed transaction between Alcatel and
Thales.
11. Why are the cost savings from Real Estate, Supply Chain and Procurement
and Platform Convergence described in the release less than the Euro 1.4 billion
(USD 1.7 billion) of targeted expected synergies?
It's important to note that the synergies from Real Estate, Supply Chain and
Procurement, and Platform Convergence are three examples of our plans in
progress and do not represent the entirety of the current work of the
integration teams.
As we stated on April 2, we have identified several areas that would drive the
expected synergies, including overlapping functions in such areas as corporate
activities, information technology, sales and marketing, services and R&D, as
well as opportunities to optimize supply chain and procurement processes and to
consolidate facilities.
Preliminary Results for Third Quarter announcement
News Release - To read today's release please click here
http://www.lucent.com/press/0706/060710.cob.html
Talking Points
* Subject to completion of our quarterly earnings process, we expect
revenues for the third quarter of Fiscal 2006 to be about $2.04 billion, as
compared with $2.14 billion in the prior quarter, and $2.34 billion in the
year-ago quarter.
* The sequential and year-over-year declines were due primarily to lower
sales of current-generation wireless solutions to North American mobility
customers. Overall, our year-to-date results also have been affected to some
extent by delays in spending that we believe are attributable to the
consolidation efforts of certain customers.
* On a preliminary basis, we expect to report earnings of approximately 2
cents per diluted share for Q306, as compared with earnings of 4 cents per share
in the second quarter of fiscal 2006 and earnings of 7 cents per diluted share
in the year-ago quarter.
* Our industry is undergoing a great deal of change. Consolidation among
some of our largest customers and the transition period that always accompanies
the adoption of next-generation technologies are just two of the factors that
are putting pressure on our revenues.
* These are disappointing results, but we cannot lose sight of the fact
that telecom is an industry still ripe with tremendous opportunity. For example,
we expect investment in both CDMA and UMTS to increase going forward, driven by
the introduction of EV-DO RevA and HSDPA solutions.
* We expect that mobility deployments in North America will enable us to
make the fourth quarter our highest quarterly revenue period for fiscal year
2006 by a significant margin, assuming that our EV-DO RevA and HSDPA rollouts
remain on track.
* We believe that the consolidation will lead to not only challenges, but
also opportunities going forward as service providers look to us to help them
integrate their large, complex networks.
* It is critical that we work together to deliver a strong fourth quarter.
Our job is to focus on finding new revenue opportunities - and maximizing the
existing ones - so we can come to Day One of our merger with Alcatel with the
wind at our backs
* We have the right people, products and services to capitalize on the
opportunities before us.
* This team needs to remain focused and energized in the months ahead. With
the exciting prospect of the merger transaction with Alcatel on the horizon and
moving closer to completion, we still need to keep our eyes on the road.
Qs&As
12. What do we expect Lucent's Q306 revenue to be?
We currently expect Q306 revenues to be about $2.04 billion, subject to the
completion of our quarterly closing process, as compared with $2.14 billion in
the prior quarter and $2.34 billion in the year-ago quarter.
13. What caused the sequential and year-over-year revenue declines?
The sequential and year-over-year declines were due primarily to a slowdown in
spending on some of our current-generation wireless solutions by North American
mobility customers. Overall, our year-to-date results also have been affected to
some extent by delays in spending that we believe are attributable to the
consolidation efforts of certain customers.
14. Is this a market issue or a Lucent issue?
We continue to believe that the industry is in the early stages of a multiyear
transformation to next-generation networks. Our customers continue investing in
the next generation of networks that will be based on IMS, and despite this
quarter's results, we continue to see opportunities in the market that align
with our strengths and investments in IMS, 3G mobile, services, next-gen optical
and access, and applications.
We expect to provide more details on our view of the market when we announce our
quarterly results on Wednesday, July 26.
15. We stated in our last earnings release that the fundamentals for our
North America wireless business remained solid. Is that still the case?
We continue to believe the fundamentals of our North America wireless business
remain solid. We expect investment in both CDMA and UMTS to increase going
forward as customers move toward the next phase of mobile high-speed data,
driven by the introduction of EV-DO RevA and HSDPA solutions. And in fact, we've
recently announced contracts with Verizon Wireless and Telecom New Zealand for
our EV-DO RevA solution, which we expect to make commercially available in late
September.
Assuming that our EV-DO RevA and HSDPA rollouts remain on track, we expect that
mobility deployments in North America will enable us to make the fourth quarter
our highest quarterly revenue period for fiscal year 2006 by a significant
margin.
16. Were third quarter results impacted by the pending merger with Alcatel?
It is difficult to quantify the impact of the pending merger with Alcatel on our
Q306 results.
We believe we are on track to complete the merger by the end of calendar year
2006, which is within the six- to 12-month period following the announcement on
April 2, 2006.
17. What gives us the confidence that Q406 will be the highest quarterly
revenue period for fiscal year 2006? What specific product lines and geographies
do you expect to drive the Q406 revenue strength?
We have no further comment beyond what we have provided in the news release.
We expect investment in both CDMA and UMTS to increase going forward, driven by
the introduction of EV-DO RevA and HSDPA solutions. As a result, assuming that
our EV-DO RevA and HSDPA rollouts remain on track, we expect that mobility
deployments in North America
will enable us to make the fourth quarter our highest quarterly revenue period
for fiscal year 2006 by a significant margin.
Lucent Technologies Senior Leadership Update is a proprietary publication of
Lucent Technologies Public Relations. For additional information, please contact
Mary Ward mailto:maryward@lucent.com telephone: 908-582-7658; facsimile:
908-582-4552; mail: 600 Mountain Ave. Room 3C411, Murray Hill, NJ 07974
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SAFE HARBOR FOR FORWARD LOOKING STATEMENTS AND OTHER IMPORTANT INFORMATION
This document contains statements regarding the proposed transaction between
Lucent and Alcatel, the expected timetable for completing the transaction,
future financial and operating results, benefits and synergies of the proposed
transaction and other statements about Lucent and Alcatel's managements' future
expectations, beliefs, goals, plans or prospects that are based on current
expectations, estimates, forecasts and projections about Lucent and Alcatel and
the combined company, as well as Lucent's and Alcatel's and the combined
company's future performance and the industries in which Lucent and Alcatel
operate and the combined company will operate, in addition to managements'
assumptions. Words such as "expects," "anticipates," "targets," "goals,"
"projects," "intends," "plans," "believes," "seeks," "estimates," variations of
such words and similar expressions are intended to identify such forward-looking
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statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to assess. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. These risks and uncertainties are based upon
a number of important factors including, among others: the ability to consummate
the proposed transaction; difficulties and delays in obtaining regulatory
approvals for the proposed transaction; difficulties and delays in achieving
synergies and cost savings; potential difficulties in meeting conditions set
forth in the definitive merger agreement entered into by Lucent and Alcatel;
fluctuations in the telecommunications market; the pricing, cost and other risks
inherent in long-term sales agreements; exposure to the credit risk of
customers; reliance on a limited number of contract manufacturers to supply
products we sell; the social, political and economic risks of our respective
global operations; the costs and risks associated with pension and
postretirement benefit obligations; the complexity of products sold; changes to
existing regulations or technical standards; existing and future litigation;
difficulties and costs in protecting intellectual property rights and exposure
to infringement claims by others; and compliance with environmental, health and
safety laws. For a more complete list and description of such risks and
uncertainties, refer to Lucent's annual report on Form 10-K for the year ended
September 30, 2005 and quarterly reports on Form 10-Q for the periods ended
December 31, 2005 and March 31, 2006 and Alcatel's annual report on Form 20-F
for the year ended December 31, 2005 as well as other filings by Lucent and
Alcatel with the U.S. Securities and Exchange Commission (the "SEC"). Except as
required under the U.S. federal securities laws and the rules and regulations of
the SEC, Lucent and Alcatel disclaim any intention or obligation to update any
forward-looking statements after the distribution of this document, whether as a
result of new information, future events, developments, changes in assumptions
or otherwise.
IMPORTANT ADDITIONAL INFORMATION FILED WITH THE SEC
In connection with the proposed transaction between Lucent and Alcatel, Alcatel
has filed a registration statement on Form F-4 (File no. 33-133919) (the "Form
F-4") to register the Alcatel ordinary shares underlying the Alcatel American
Depositary Shares ("ADS") to be issued in the proposed transaction. Alcatel and
Lucent have also filed, and intend to continue to file, additional relevant
materials with the SEC, including a registration statement on Form F-6 (the
"Form F-6" and together with the Form F-4, the "Registration Statements") to
register the Alcatel ADSs to be issued in the proposed transaction. The
Registration Statements and the related proxy statement/prospectus contain and
will contain important information about Lucent, Alcatel, the proposed
transaction and related matters. Investors and security holders are urged to
read the Registration Statements and the related proxy statement/prospectus
carefully, and any other relevant documents filed with the SEC, including all
amendments, because they contain important information. Investors and security
holders may obtain free copies of the documents filed with the SEC by Lucent and
Alcatel (including the Form F-4 and, when filed, the Form F-6) through the web
site maintained by the SEC at www.sec.gov. In addition, investors and security
holders may obtain free copies of materials filed with the SEC by Lucent and
Alcatel (including the Form F-4 and, when filed, the Form F-6) by contacting
Investor Relations at www.lucent.com, by mail to 600 Mountain Avenue, Murray
Hill, New Jersey 07974 or by telephone at 908-582-8500 and from Alcatel by
contacting Investor Relations at www.alcatel.com, by mail to 54, rue La Boetie,
75008 Paris, France or by telephone at 33-1-40-76-10-10.
Lucent and its directors and executive officers also may be deemed to
be participants in the solicitation of proxies from the stockholders of Lucent
in connection with the transaction described herein. Information regarding the
special interests of these directors and executive officers in the transaction
described herein is included in the Form F-4 (and will be included in the
definitive proxy statement/prospectus for the proposed transaction). Additional
information regarding these directors and executive officers is also included in
Lucent's proxy statement for its 2006 annual meeting of stockholders, which was
filed with the SEC on or about January 3, 2006. This document is available free
of charge at the SEC's web site at www.sec.gov and from Lucent by contacting
Investor Relations at www.lucent.com, by mail to 600 Mountain Avenue, Murray
Hill, New Jersey 07974 or by telephone at 908-582-8500.
Alcatel and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from the stockholders of Lucent in
connection with the transaction described herein. Information regarding the
special interests of these directors and executive officers in the transaction
described herein is included in the Form F-4 (and will be included in the
definitive proxy statement/prospectus for the proposed transaction). Additional
information regarding these directors and executive officers is also included in
Alcatel's annual report on Form 20-F filed with the SEC on March 31, 2006. This
document is available free of charge at the SEC's web site at www.sec.gov and
from Alcatel by contacting Investor Relations at www.alcatel.com, by mail to 54,
rue La Boetie, 75008 Paris, France or by telephone at 33-1-40-76-10-10.