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The following is an excerpt from Lucent Technologies’ Management?

The following is an excerpt from Lucent Technologies’ Management? 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 consisting of 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? 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 $ 15911 * 1 month ago

Public Comments

1. Looking at the change in figures from 2003 t0 2004 the total assets have increased by $1,052,000 while total liabilities have decreased by $940,000 indicating a net worth increase of $1,992,000 ( of which $753,000 was from additional paid in capital). This indicates that the company must have made a profit of $1,239,000 ($1,992,000-$753,000),in the twelve months to 30 Sept 2004. The return on total assets based on this figure is ROTA = Profit/Total Assets x 100 ROTA = 1,239,000 / 16,963,000 x 100 ROTA = 7.3% approximately This could be considered a reasonable return but needs to be compared with the industry average to draw any conclusions. The ROTA is a good measure of management's handling of company affairs. A poor return reflects against management as shareholders will want to know why the company holds assets that do not give a reasonable return on the investment. Potential investors would need to see the Revenue statements. The figures here do not give any indication of whether sales revenues or profits are going up or down from 2003 to 2004. Inventories have increased from 2003 to 2004 by 190,000 or 30%. This could mean that sales have dropped considerably during the previous twelve months. This could indicate the beginning of a downward cycle which does not augur well for the future. Looking at the liquidity of the company it has current assets of $8,231,000 and current liabilities of $4,466,000. This is slightly below the 2:1 ratio that is considered a save margin. The quick ratio (or acid test ratio) is also below the required 1:1, $4,237,000: $4,466,000. This company could have trouble meeting its debts as they fall due, especially as it appears that sales revenues have dropped (reflected in the increase in inventories).
2. I've sent the Excel file to the email address you gave me.