Lucent Technologies

CHAPTER 2 The Balance Sheet 79 The following is an excerpt from Lucent Technologies’ Management’s Discussion andAnalysis of Financial Condition and Results of Operations:Executive Summary We design and deliver the systems, software and services that drive next-generation communications networks. Backed by Bell Labs research and development, we use our strengths in mobility, optical, access, data and voice networking technologies, as well as services, to create new revenue-generating opportunities for our customers, while enabling them to quickly deploy and better manage their networks. Our customer base includes communications service providers, governments and enterprises worldwide. We have three segments organized around the products and services we sell. The reportable segments are Integrated Network Solutions (“INS”), Mobility Solutions (“Mobility”) and Lucent Worldwide Services (“Services”). INS provides a broad range of software and wireline equipment related to voice networking (primarily consistingof switching products, which we sometimes refer to as convergence solutions, and voice messaging products), data and network management (primarily consisting of access and related data networking equipment and operating support software) and optical networking. Mobility provides software and wireless equipment to support radio access and core networks. Services provides deployment, maintenance, professional and managed services in support of both our product offerings as well as multi-vendor networks. Beginning in fiscal 2001, the global telecommunications market deteriorated, resulting from a decrease in the competitive local exchange carrier market and a significant reduction in capital spending by established service providers.This trend intensified during fiscal 2002 and continued into fiscal 2003. Reasons for the market deterioration included general economic slowdown, network overcapacity, customer bankruptcies, network build-out delays and limited availability of capital. We believe that the market for telecommunications equipment has stabilized and is starting to grow in certain areas. The growing demands of enterprises and consumers for additional services tailored to their needs is creating the need for a new convergence of networks, technologies and applications.

Required

1. Using the Consolidated Balance

Sheets for Lucent Technologies for  September 30, 2004 and 2003, prepare a common-size balance sheet.

2. Evaluate the asset, debt, and equity

structure of Lucent Technologies, as well as trends and changes found on the common-size balance sheet.

3. What concerns would investors and

creditors have based on only this information?

4. What additional financial and nonfinancial information would investors and creditors need to make investing and lending decisions for Lucent Technologies?

C A S E S

Case 2.1 Lucent Technologies

Understanding Financial Statements,Eighth Edition, by Lyn M. Fraser and Aileen Ormiston. Published by Prentice Hall. Copyright © 2007 by Pearson Education, Inc.

ISBN: 0-536-48044-3

80 CHAPTER 2 The Balance Sheet

LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in Millions, Except per Share Amounts)

September 30, September 30,

2004 2003

Assets

Cash and cash equivalents $ 3,379 $ 3,821

Marketable securities 858 686

Receivables 1,359 1,511

Inventories 822 632

Other current assets 1,813 1,213

Total current assets 8,231 7,863

Marketable securities 636 –

Property, plant, and equipment, net 1,376 1,593

Prepaid pension costs 5,358 4,659

Goodwill and other acquired intangibles, net 434 188

Other assets 928 1,608

Total assets $ 16,963 $ 15,911

Liabilities

Accounts payable $ 872 $ 1,072

Payroll and benefit-related liabilities 1,232 1,080

Debt maturing within one year 1 389

Other current liabilities 2,361 2,393

Total current liabilities 4,466 4,934

Postretirement and postemployment benefit liabilities 4,881 4,669

Pension liabilities 1,874 2,494

Long-term debt 4,837 4,439

Liability to subsidiary trust issuing preferred securities 1,152 1,152

Other liabilities 1,132 1,594

Total liabilities 18,342 19,282

Commitments and contingencies

8.00% redeemable convertible preferred stock – 868

Shareowners’ Deficit

Preferred stock-par value $1.00 per share; authorized shares:

250; issued and outstanding: none – –

Common stock-par value $.01 per share;Authorized shares:

10,000; 4,396 issued and 4,395 outstanding shares as of

September 30, 2004,and 4,170 issued and 4,169

outstanding shares as of September 30, 2003 44 42

Additional paid-in capital 23,005 22,252

Accumulated deficit (20,793) (22,795)

Accumulated other comprehensive loss (3,635) (3,738)

Total shareowners’ deficit (1,379) (4,239)

Total liabilities, redeemable convertible preferred stock

and shareowners’ deficit $ 16,963 $ 15,911

See notes to consolidated financial statements.