On October 22, 2002 we sent out some information to all Locals and as many retirees as we could, trying to explain the difficulties and realities that the bargaining teams are facing.

Yesterday, Lucent announced to Wall Street analysts that the fiscal fourth quarter resulted in its 10th consecutive quarterly loss. Lucent also said that revenues from continuing operations slumped to $2.28 billion from $4.75 billion last year and were off 23% from the previous quarter.

In this update, you will find additional bullet points concerning Lucent’s financial circumstances that may help everyone understand what we are dealing with at the bargaining table.

Please be assured that we are doing everything we can to limit the hardships on the 85,782 retirees and 6,200 represented employees, while trying to help Lucent survive. President Bahr has contacted virtually every telecom company urging them to speed up capital expenditures and do business with Lucent.

Lucent’s customers should have a huge concern as to whether Lucent remains in business. Lucent provides some of the best telecommunications products in the world and has an industry-leading product portfolio. It is the only company that has a technical installation workforce with a country-wide footprint.

Lucent and analysts believe that the LWS Organization and Bell Labs are what separates Lucent from its competitors and that the LWS Services Organization must find a means to regain lost market shares and grow. Of course, the survival of Lucent is based on competitive pricing and a return to profitability.

Many of you have asked, “What happens to pensions, Retiree Health, and the contracts in place if the worst happens?”

Pensions are protected by law and the fund is solvent. Healthcare for retirees and the contract provisions are not protected, and if a Chapter 11 bankruptcy filing becomes necessary, the Bankruptcy Courts deal with such matters.

We regret that this point in time has come, but now our responsibility to employees and retirees is to make the best of the delicate balancing act that has been forced upon us.

BULLET POINTS ON LUCENT’S FINANCIAL SITUATION

• Lucent’s $2.9 billion in revenues in the 3rd quarter 2002 (ending June 2002) were down almost 50% from the $5.9 billion in the same quarter in 2001. The June 2002 quarter revenues were only 40% of Lucent’s $7.4 billion in revenues for the same quarter in 2000. Some analysts are now predicting that Lucent’s total revenues for fiscal 2003 (October 2002 through September 2003) will be below $10 billion, down from about $21 billion in FY 2001 and $29 billion in FY 2000.

• From all reports, Lucent’s customers continue to slash their purchasing plans. For example, SBC has again cut its capital spending budget (by 25% to 38%) and Verizon, BellSouth and others are expected to follow suit. Also, AT&T Wireless recently implied that it will delay rolling out 3G wireless, due to lack of demand. As telecom analyst, Paul Sagawa, recently put it: “The carriers are on what I term a hunger strike.”

• Recent articles have speculated about a possible Lucent bankruptcy. Reuters, in an article about investor concerns about a potential Lucent bankruptcy, quoted an analyst for one of Lucent’s largest stockholders as saying, “If things do not improve in the end market, then these guys could potentially go bankrupt. There’s not much room for error.” (Shawn Campbell, Northern Trust Corp’s asset management division). The same article quoted another money manager as saying that “stocks don’t trade at 65 cents for no reason at all. This is a company that’s fighting for its life.” (Alex Vallecillo, senior portfolio manager, Armanda Funds). And while Pat Russo has strongly denied that the company is considering bankruptcy, Reuters quoted another money manager that holds Lucent stock as saying “We’ve heard too many companies say that they won’t go bankrupt and they did – very quickly after they said they wouldn’t.”

• Much of this concern centers around Lucent’s cash position. As of June 30, 2002, Lucent had about $5.4 billion in cash (and equivalents, including short-term investments), but it had burned through $1 billion in the previous three months. A Merrill Lynch analyst recently projected that Lucent’s cash could dwindle to only $175 million by the end of September 2003 if its margins do not improve (Tai Liani and Simon Leopold, September 26). The Merrill Lynch analysts said that, even if Lucent’s margins do improve as they expect, the company will have only $600 million in cash on September 30, 2003 and $300 million at the end of September 2004.

• Compounding concerns about Lucent’s future, in mid-October, Standard & Poor's further lowered the company’s credit rating to “junk” status and placed the company on its CreditWatch list, “with negative implications.” The rating agency said that it is “concerned that distressed industry conditions may challenge Lucent's ability to return to profitability and positive cash flows over the coming year, even after the latest downsizing.” S&P analyst Bruce Hyman added that Lucent's continued cash consumption at this rate is “unsupportable.”

• Lucent recently canceled a $1.5 billion line of credit, reportedly because it feared violating the financial covenants of this lending agreement.

• Lucent continues to slash jobs. The company has just announced that it will cut another 10,000 jobs by March 2003, leaving only 35,000 Lucent employees. This is only 23% of the 153,000 employees Lucent had just three years ago. [Note: the 23% doesn’t count the remaining Avaya, Agere, OFS, Celestica employees.]

• Lucent’s stock is trading at well under $1, down from its all-time-high of about $80 just three years ago. The recently announced “reverse stock split” is a desperation measure designed to prevent the company’s stock from being “de-listed” on the New York Stock Exchange.

• Lucent has had ten straight quarters of losses and has booked billions of dollars in “one-time” restructuring charges over the past two years.

• The company still has a huge debt load, about $8.2 billion as of June 30. In addition, it has almost $2 billion in obligations it may be forced to cough up on its convertible stock in 2004 (this depends on whether or not holders force it to re-purchase these securities, something that will largely depend on Lucent’s stock price at that point).

In Unity,

Ralph Maly, Vice President
Robert G. Richhart, Administrative Assistant to the Vice President
Ruth Marriott, CWA Representative
Mary Jo Sherman, CWA Representative
Gerald Souder, CWA Representative
Tom Bruhn, President, Local 3790
Dean Haskett, President, Local 3695
Anne Johnson, Vice President, Local 3250
Joseph Kanan, President, Local 1365
Mike Klein, President, Local 4090
Chuck Mitchell, President, Local 7790
Brian Reilly, President, Local 1062
Marcella Vincent, President, Local 1366
Pete Vukovich, President, Local 4790

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