Washington, D.C. 20549
[X] |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2004 |
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . |
Agere Systems Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
22-3746606 (I.R.S. Employer Identification No.) |
|||||
1110
American Parkway N.E. Allentown, Pennsylvania |
18109 |
|||||
(Address of
principal executive offices) |
(Zip
Code) |
Registrants telephone number, including area code: 610-712-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of
Each Class |
Name of Each Exchange on Which Registered |
|||||
Class A Common
Stock, $.01 par value |
New
York Stock Exchange |
|||||
Class B Common
Stock, $.01 par value |
New
York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None.
DOCUMENTS INCORPORATED BY REFERENCE
Agere Systems Inc.
Form 10-K
For the Year Ended September 30,
2004
PART
I |
||||||||||
Item
1. |
Business |
1 | ||||||||
Item
2. |
Properties |
8 | ||||||||
Item
3. |
Legal Proceedings |
9 | ||||||||
Item
4. |
Submission of Matters to a Vote of Security Holders |
9 | ||||||||
Executive Officers of the Registrant |
9 | |||||||||
PART
II |
||||||||||
Item
5. |
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
10 | ||||||||
Item
6. |
Selected Financial Data |
11 | ||||||||
Item
7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||||||||
Item
7A. |
Quantitative and Qualitative Disclosures About Market Risk |
29 | ||||||||
Item
8. |
Financial Statements and Supplementary Data |
31 | ||||||||
Item
9. |
Change in and Disagreements with Accountants on Accounting and Financial Disclosure |
65 | ||||||||
Item
9A. |
Controls and Procedures |
65 | ||||||||
Item
9B. |
Other Information |
66 | ||||||||
PART
III |
||||||||||
Item
10. |
Directors and Executive Officers of the Registrant |
66 | ||||||||
Item
11. |
Executive Compensation |
66 | ||||||||
Item
12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
67 | ||||||||
Item
13. |
Certain Relationships and Related Transactions |
67 | ||||||||
Item
14. |
Principal Accountant Fees and Services |
67 | ||||||||
PART
IV |
||||||||||
Item
15. |
Exhibits, Financial Statement Schedules |
68 |
FORWARD-LOOKING STATEMENTS
PART I
Storage
Mobility
|
Digital signal processors for speech compression and encoding and transmission of voice and data; |
|
Conversion signal processors to convert signals between frequencies used in digital signal processors and frequencies used for radio transmission; and |
|
Software that controls the communication process. |
Enterprise and Networking
2
Telecommunications
|
Wireline telecommunications equipment, including: |
|
Network communications equipment, which facilitates the transmission and management of data and voice traffic within communications networks; and |
|
Network access equipment, such as data communications equipment, which allows devices to connect with communications networks. |
|
Wireless telecommunications equipment, such as a cellular base station, which transmits and receives data and voice communications through radio waves. |
3
Customers, Sales And Distribution
Apple Computer,
Inc. |
Maxtor Corp. |
|||||
Cisco Systems,
Inc. |
NEC
Corporation |
|||||
Hewlett-Packard
Company |
Nokia Corporation |
|||||
Hitachi Global
Storage Technologies |
Samsung Electronics Co., Ltd. |
|||||
Lucent
Technologies Inc. |
Seagate Technology, Inc. |
4
Manufacturing
5
Competition
|
Rapid technological change; |
|
Evolving standards; |
|
Short product life cycles; and |
|
Price erosion. |
Storage |
Mobility |
Enterprise and Networking |
Telecommunications |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Infineon
Technologies AG |
Koninklijke Philips |
Broadcom Corp. |
Applied Micro Circuits Corp. |
|||||||||||
Marvell Technology |
Electronics N.V. |
Conexant Systems |
Infineon Technologies AG |
|||||||||||
Group Ltd. |
Freescale Semiconductor, Inc. |
International Business Machines |
Intel Corp. |
|||||||||||
STMicroelectronics N.V. |
QUALCOMM Inc. |
LSI Logic Corp. |
Freescale Semiconductor, Inc. |
|||||||||||
Texas Instruments |
Skyworks Solutions, Inc. |
Marvell Technology |
PMC-Sierra, Inc. |
|||||||||||
Incorporated |
STMicroelectronics N.V. |
Group Ltd. |
STMicroelectronics N.V. |
|||||||||||
Texas Instruments Incorporated |
Texas
Instruments Incorporated |
Vitesse Semiconductor Corporation |
||||||||||||
Wintegra, Inc. |
|
Performance and reliability; |
|
Price; |
|
Compatibility of products with other products and communications standards used in communications networks; |
|
Product size; |
|
Ability to offer integrated solutions; |
|
Time to market; |
|
Breadth of product line; |
|
Customer support; |
|
Logistics and planning systems; and |
|
Quality of manufacturing processes. |
6
Research and development
Patents, Trademarks And Other Intellectual Property
|
Integrated circuit and optoelectronic manufacturing processes; |
|
Integrated circuits for use in products such as modems, digital signal processors, wireless communications, network processors and communication protocols; and |
|
Optoelectronic products including lasers, optical modulators, optical receivers and optical amplifiers. |
Government Regulation
7
Employees
Backlog
Environmental, Health And Safety Matters
Item 2. Properties
8
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant
Name |
Age |
Position |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
John T.
Dickson |
58 |
President and Chief Executive Officer |
||||||||
John W.
Gamble, Jr. |
41 |
Executive Vice President and Chief Financial Officer |
||||||||
Peter
Kelly |
47 |
Executive Vice President, Operations Group |
||||||||
Sohail A.
Khan |
50 |
Executive Vice President and Chief Strategy and Development Officer |
||||||||
Ahmed
Nawaz |
55 |
Executive Vice President, Worldwide Sales Group |
9
PART II
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Fiscal 2003 |
High |
Low |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Quarter Ended
December 31, 2002 |
$ | 1.74 | $ | 0.50 | ||||||
Quarter ended
March 31, 2003 |
$ | 2.04 | $ | 1.35 | ||||||
Quarter ended
June 30, 2003 |
$ | 2.70 | $ | 1.29 | ||||||
Quarter ended
September 30, 2003 |
$ | 3.71 | $ | 2.28 |
Fiscal 2004 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Quarter ended
December 31, 2003 |
$ | 4.45 | $ | 2.70 | ||||||
Quarter ended
March 31, 2004 |
$ | 4.14 | $ | 2.89 | ||||||
Quarter ended
June 30, 2004 |
$ | 3.46 | $ | 1.98 | ||||||
Quarter ended
September 30, 2004 |
$ | 2.30 | $ | 1.00 |
Fiscal 2003 |
High |
Low |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Quarter ended
December 31, 2002 |
$ | 1.74 | $ | 0.51 | ||||||
Quarter ended
March 31, 2003 |
$ | 2.01 | $ | 1.33 | ||||||
Quarter ended
June 30, 2003 |
$ | 2.60 | $ | 1.19 | ||||||
Quarter ended
September 30, 2003 |
$ | 3.52 | $ | 2.19 |
Fiscal 2004 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Quarter ended
December 31, 2003 |
$ | 3.75 | $ | 2.56 | ||||||
Quarter ended
March 31, 2004 |
$ | 3.88 | $ | 2.83 | ||||||
Quarter ended
June 30, 2004 |
$ | 3.33 | $ | 1.89 | ||||||
Quarter ended
September 30, 2004 |
$ | 2.17 | $ | 0.89 |
10
Item 6. Selected Financial Data
Year Ended September 30, |
|||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions except per share
amounts) |
2004 (1) |
2003 |
2002 (2) |
2001 (3) |
2000 |
||||||||||||||||||||||||||||||||
(unaudited) |
|||||||||||||||||||||||||||||||||||||
Statement
of operations information: |
|||||||||||||||||||||||||||||||||||||
Revenue |
$ | 1,912 | $ | 1,839 | $ | 1,923 | $ | 2,886 | $ | 3,515 | |||||||||||||||||||||||||||
Gross
profit |
866 | 579 | 494 | 915 | 1,574 | ||||||||||||||||||||||||||||||||
Income (loss)
from continuing operations |
(90 | ) | (371 | ) | (803 | ) | (1,454 | ) | 104 | ||||||||||||||||||||||||||||
Basic and
diluted earnings (loss) per share: (4) |
|||||||||||||||||||||||||||||||||||||
Income (loss)
from continuing operations |
$ | (0.05 | ) | $ | (0.22 | ) | $ | (0.49 | ) | $ | (1.09 | ) | $ | 0.10 | |||||||||||||||||||||||
Weighted
average shares outstanding basic and diluted (millions) |
1,712 | 1,667 | 1,637 | 1,334 | 1,035 | ||||||||||||||||||||||||||||||||
September 30, |
|||||||||||||||||||||||||||||||||||||
2004 |
2003 |
2002 (2) |
2001 (3) |
2000 |
|||||||||||||||||||||||||||||||||
Balance
sheet information: |
|||||||||||||||||||||||||||||||||||||
Total
assets |
$ | 2,272 | $ | 2,388 | $ | 2,864 | $ | 6,562 | $ | 7,067 | |||||||||||||||||||||||||||
Short-term
debt |
147 | 195 | 197 | 2,516 | 14 | ||||||||||||||||||||||||||||||||
Long-term
debt |
420 | 451 | 486 | 33 | 46 |
(1) | During fiscal 2004 we recorded an $86 million reversal for tax and interest contingencies resulting from settlements of certain prior year tax audits. This relates to the companys tax sharing agreement with Lucent and covers periods the company operated as either a division of AT&T Corp. or Lucent. |
(2) | During fiscal 2002, our short-term debt decreased significantly as we repaid $2.5 billion of borrowings under a credit facility. Also, our total assets decreased significantly as we used $1.6 billion of cash on hand to partially repay the credit facility and recorded significant impairments of property, plant and equipment, as well as goodwill and acquired intangible assets. |
(3) | During fiscal 2001, we received approximately $3.4 billion of net proceeds from our initial public offering and recorded a $2.8 billion impairment of goodwill and acquired intangible assets. We also assumed $2.5 billion of debt from Lucent, consisting of short-term borrowings under a credit facility provided by financial institutions. We did not receive any of the proceeds of this short-term debt. |
(4) | Basic and diluted earnings (loss) per common share are calculated by dividing income (loss) from continuing operations by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding on a historical basis includes the retroactive recognition to October 1, 1999 of the 1,035,100,000 shares owned by Lucent prior to our initial public offering in fiscal 2001. |
11
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
Separation from Lucent
Operating Environment
12
Restructuring and Decommissioning Activities
|
Sold our optoelectronic components business, including the manufacturing facilities associated with that business; |
|
Reduced our total headcount by approximately 9,700 employees; |
|
Consolidated our operations into fewer facilities, resulting in the closure of over 25 smaller manufacturing, administrative, support and warehouse facilities; and |
|
Closed integrated circuit wafer manufacturing facilities in Allentown and Reading, Pennsylvania and Madrid, Spain. |
13
Application of Critical Accounting Policies and Estimates
14
15
Sale of Optoelectronic Components Business
Purchased In-process Research and Development
16
Results of Operations
Year Ended September 30, |
Change |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
$ |
% |
||||||||||||||||
(dollars in millions) |
|||||||||||||||||||
Revenue by
Segment: |
|||||||||||||||||||
Consumer
Enterprise: |
|||||||||||||||||||
Storage |
$ | 635 | $ | 623 | $ | 12 | 2 | % | |||||||||||
Mobility |
496 | 417 | 79 | 19 | |||||||||||||||
Enterprise
& Networking |
513 | 560 | (47 | ) | (8 | ) | |||||||||||||
Consumer
Enterprise |
1,644 | 1,600 | 44 | 3 | |||||||||||||||
Telecommunications |
268 | 239 | 29 | 12 | |||||||||||||||
Total
Revenue |
$ | 1,912 | $ | 1,839 | $ | 73 | 4 | % |
17
18
Year Ended September 30, |
Change |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2002 |
$ |
% |
||||||||||||||||
(dollars in millions) |
|||||||||||||||||||
Revenue by
Segment: |
|||||||||||||||||||
Consumer
Enterprise: |
|||||||||||||||||||
Storage |
$ | 623 | $ | 558 | $ | 65 | 12 | % | |||||||||||
Mobility |
417 | 428 | (11 | ) | (3 | ) | |||||||||||||
Enterprise
& Networking |
560 | 615 | (55 | ) | (9 | ) | |||||||||||||
Consumer
Enterprise |
1,600 | 1,601 | (1 | ) | | ||||||||||||||
Telecommunications |
239 | 322 | (83 | ) | (26 | ) | |||||||||||||
Total
Revenue |
$ | 1,839 | $ | 1,923 | $ | (84 | ) | (4 | )% |
19
20
Liquidity and Capital Resources
21
22
Fiscal Years |
|||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total |
2005 |
2006 and 2007 |
2008 and 2009 |
2010 and Later |
|||||||||||||||||||||||||||
(dollars in millions) |
|||||||||||||||||||||||||||||||
Contractual
obligations: |
|||||||||||||||||||||||||||||||
Convertible
subordinated notes |
$ | 410 | $ | | $ | | $ | 410 | $ | | |||||||||||||||||||||
Accounts
receivable securitization (1) |
122 | 122 | | | | ||||||||||||||||||||||||||
Capital
leases |
39 | 27 | 12 | | | ||||||||||||||||||||||||||
Operating
leases |
126 | 42 | 34 | 26 | 24 | ||||||||||||||||||||||||||
Purchase
obligations (2) |
149 | 59 | 74 | 15 | 1 | ||||||||||||||||||||||||||
Other
long-term liabilities (3) |
11 | 6 | 5 | | | ||||||||||||||||||||||||||
Total |
$ | 857 | $ | 256 | $ | 125 | $ | 451 | $ | 25 |
(1) | The accounts receivable securitization expired on October 1, 2004 and all outstanding borrowings were repaid from cash on hand. |
(2) | Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable pricing provisions; and the approximate timing of the transactions. These obligations primarily relate to software licenses and services, wafer production and equipment maintenance services. The amounts are based on our contractual commitments; however, it is possible we may be able to negotiate lower payments if we choose to exit these contracts earlier. |
(3) | Other long-term liabilities consist of miscellaneous taxes. |
Recent Pronouncements
23
Factors Affecting Our Future Performance
Because our sales are concentrated on a limited number of key customers, our revenue may materially decline if one or more of our key customers do not continue to purchase our existing and new products in significant quantities.
If we fail to keep pace with technological advances in our industry or if we pursue technologies that do not become commercially accepted, customers may not buy our products and our results of operations may be adversely affected.
|
rapid, and sometimes disruptive, technological developments; |
|
evolving industry standards; |
|
changes in customer requirements; |
|
limited ability to accurately forecast future customer orders; |
|
frequent new product introductions and enhancements; and |
|
short product life cycles with declining prices over the life cycle of the product. |
The integrated circuit industry is intensely competitive, and our failure to compete effectively could result in reduced revenue.
24
Our revenue and operating results may fluctuate because we expect to derive most of our revenue from semiconductor devices and the integrated circuits industry is highly cyclical, and because of other characteristics of our business, and these fluctuations may cause our stock price to fall.
If we do not achieve adequate manufacturing utilization, yields or volumes or sufficient product reliability, our gross margins will be reduced.
Because we are subject to order and shipment uncertainties, any significant cancellations or deferrals could cause our revenue to decline or fluctuate.
25
A joint venture and third parties manufacture some of our products for us. If these suppliers are unable to fill our orders on a timely and reliable basis, our revenue may be adversely affected.
|
that they may not be able to develop manufacturing methods appropriate for our products; |
|
that manufacturing costs will be higher than planned; |
|
that reliability of our products will decline; |
|
that they may be unwilling to devote adequate capacity to produce our products; |
|
that they may not be able to maintain continuing relationships with our suppliers; and |
|
that we may have reduced control over delivery schedules and costs of our products. |
Because many of our current and planned products are highly complex, they may contain defects or errors that are detected only after deployment in commercial applications, and if this occurs, it could harm our reputation and result in reduced revenues or increased expenses.
|
cancellation of orders; |
|
product returns, repairs or replacements; |
|
diversion of our resources; |
|
legal actions by our customers or our customers end-users; |
|
increased insurance costs; and |
|
other losses to us or to our customers or end-users. |
26
We are expanding, and may seek in the future to expand, into new areas, and if we are not successful, our results of operations may be adversely affected.
We are upgrading our enterprise financial management system, and it is possible that we may have a defect in the design of the system that may result in the generation of incorrect financial information, an adverse impact on the processing of customer orders or some other adverse impact on our business.
A widespread outbreak of an illness or other health issue could negatively affect our manufacturing, assembly and test, design or other operations, making it more difficult and expensive to meet our obligations to our customers, and could result in reduced demand from our customers.
We have relatively high gross margin on the revenue we derive from the licensing of our intellectual property, and a decline in this revenue would have a greater impact on our net income than a decline in revenue from the sale of our integrated circuits products.
27
If our customers do not qualify our products or manufacturing lines or the manufacturing lines of our third-party suppliers for volume shipments, our results of operations may be adversely affected.
We conduct a significant amount of our sales activity and manufacturing efforts outside the United States, which subjects us to additional business risks and may adversely affect our results of operations due to increased costs.
|
our brand may not be recognized locally, which may cause us to spend significant amounts of time and money to build a brand identity; |
|
unexpected changes in regulatory requirements; |
|
inadequate protection of intellectual property in some countries outside of the United States; |
|
currency exchange rate fluctuations; |
|
international trade disputes; |
|
political and economic instability; and |
|
disruptions in international air transport systems. |
We are subject to environmental, health and safety laws, which could increase our costs and restrict our operations in the future.
We may be subject to intellectual property litigation and infringement claims, which could cause us to incur significant expenses or prevent us from selling our products. If we are unable to protect our intellectual property rights, our business and prospects may be harmed.
28
If we fail to attract, hire and retain qualified personnel, we may not be able to develop, market or sell our products or successfully manage our business.
Because of differences in voting power and liquidity between our Class A common stock and Class B common stock, the market price of the Class A common stock may be different from the market price of the Class B common stock.
The development and evolution of markets for our integrated circuits are dependent on factors over which we have no control. For example, if our customers adopt new or competing industry standards with which our products are not compatible or fail to adopt standards with which our products are compatible, our existing products would become less desirable to our customers and our sales would suffer.
Class action litigation due to stock price volatility or other factors could cause us to incur substantial costs and divert our managements attention and resources.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Risk Management
29
30
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements: |
||||||
Report of
Independent Registered Public Accounting Firm |
32 | |||||
Consolidated
Statements of Operations for the years ended September 30, 2004, 2003 and 2002 |
33 | |||||
Consolidated
Balance Sheets as of September 30, 2004 and 2003 |
34 | |||||
Consolidated
Statements of Changes in Stockholders Equity and Total Comprehensive Loss for the years ended September 30, 2004, 2003 and 2002 |
35 | |||||
Consolidated
Statements of Cash Flows for the years ended September 30, 2004, 2003 and 2002 |
36 | |||||
Notes to
Consolidated Financial Statements |
37 |
31
Report of Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Florham Park, New Jersey
October 21,
2004
32
Year Ended September 30, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
Revenue |
$ | 1,912 | $ | 1,839 | $ | 1,923 | |||||||||
Costs |
1,046 | 1,260 | 1,429 | ||||||||||||
Gross
profit |
866 | 579 | 494 | ||||||||||||
Operating
expenses: |
|||||||||||||||
Selling,
general and administrative |
272 | 294 | 326 | ||||||||||||
Research and
development |
496 | 467 | 625 | ||||||||||||
Amortization
of goodwill and acquired intangible assets |
7 | 8 | 34 | ||||||||||||
Purchased
in-process research and development |
13 | | | ||||||||||||
Restructuring
and other charges net |
197 | 131 | 503 | ||||||||||||
Gain on sale
of operating assets net |
(4 | ) | (21 | ) | (299 | ) | |||||||||
Total
operating expenses |
981 | 879 | 1,189 | ||||||||||||
Operating
loss |
(115 | ) | (300 | ) | (695 | ) | |||||||||
Other income
net |
8 | 22 | 76 | ||||||||||||
Interest
expense |
43 | 47 | 121 | ||||||||||||
Loss from
continuing operations before provision for income taxes |
(150 | ) | (325 | ) | (740 | ) | |||||||||
(Benefit)
provision for income taxes |
(60 | ) | 46 | 63 | |||||||||||
Loss from
continuing operations |
(90 | ) | (371 | ) | (803 | ) | |||||||||
Discontinued
operations: |
|||||||||||||||
Income (loss)
from operations of discontinued business (net of taxes) |
| 8 | (1,008 | ) | |||||||||||
Gain on
disposal of discontinued business (net of taxes) |
| 30 | | ||||||||||||
Income (loss)
from discontinued operations |
| 38 | (1,008 | ) | |||||||||||
Loss before
cumulative effect of accounting change |
(90 | ) | (333 | ) | (1,811 | ) | |||||||||
Cumulative
effect of accounting change (net of benefit for income taxes of $0 for the year ended September 30, 2003) |
| (5 | ) | | |||||||||||
Net
loss |
$ | (90 | ) | $ | (338 | ) | $ | (1,811 | ) | ||||||
Basic and
diluted income (loss) per share information: |
|||||||||||||||
Loss from
continuing operations |
$ | (0.05 | ) | $ | (0.22 | ) | $ | (0.49 | ) | ||||||
Income (loss)
from discontinued operations |
| 0.02 | (0.62 | ) | |||||||||||
Loss before
cumulative effect of accounting change |
(0.05 | ) | (0.20 | ) | (1.11 | ) | |||||||||
Cumulative
effect of accounting change |
| | | ||||||||||||
Net
loss |
$ | (0.05 | ) | $ | (0.20 | ) | $ | (1.11 | ) | ||||||
Weighted
average shares outstanding basic and diluted (in millions) |
1,712 | 1,667 | 1,637 |
See Notes to Consolidated Financial Statements.
33
September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
||||||||||
Assets |
|||||||||||
Cash and cash
equivalents |
$ | 778 | $ | 744 | |||||||
Cash held in
trust |
19 | 21 | |||||||||
Trade
receivables, less allowances of $3 and $6 at September 30, 2004 and 2003, respectively |
285 | 265 | |||||||||
Inventories |
150 | 122 | |||||||||
Other current
assets |
41 | 52 | |||||||||
Total
current assets |
1,273 | 1,204 | |||||||||
Property,
plant and equipment net |
682 | 778 | |||||||||
Goodwill |
119 | 109 | |||||||||
Acquired
intangible assets net of accumulated amortization |
6 | 13 | |||||||||
Other
assets |
192 | 284 | |||||||||
Total
assets |
$ | 2,272 | $ | 2,388 | |||||||
Liabilities |
|||||||||||
Accounts
payable |
$ | 195 | $ | 245 | |||||||
Payroll and
related benefits |
101 | 109 | |||||||||
Short-term
debt |
147 | 195 | |||||||||
Income taxes
payable |
218 | 328 | |||||||||
Restructuring
reserve |
60 | 47 | |||||||||
Deferred
income |
78 | 31 | |||||||||
Other current
liabilities |
67 | 67 | |||||||||
Total
current liabilities |
866 | 1,022 | |||||||||
Pension and
postretirement benefits |
485 | 288 | |||||||||
Long-term
debt |
420 | 451 | |||||||||
Other
liabilities |
80 | 116 | |||||||||
Total
liabilities |
1,851 | 1,877 | |||||||||
Commitments
and contingencies |
|||||||||||
Stockholders Equity |
|||||||||||
Preferred
stock, par value $1.00 per share, 250,000,000 shares authorized and no shares issued and outstanding |
| | |||||||||
Class A
common stock, par value $0.01 per share, 5,000,000,000 shares authorized and 816,245,321 shares issued and outstanding as of September 30, 2004 after deducting 4,281 shares in treasury and 785,090,755 shares issued and outstanding as of September 30, 2003 after deducting 4,281 shares in treasury |
8 | 8 | |||||||||
Class B
common stock, par value $0.01 per share, 5,000,000,000 shares authorized and 907,994,888 shares issued and outstanding as of September 30, 2004 and 2003 after deducting 105,112 shares in treasury |
9 | 9 | |||||||||
Additional
paid-in capital |
7,409 | 7,337 | |||||||||
Accumulated
deficit |
(6,781 | ) | (6,691 | ) | |||||||
Accumulated
other comprehensive loss |
(224 | ) | (152 | ) | |||||||
Total
stockholders equity |
421 | 511 | |||||||||
Total
liabilities and stockholders equity |
$ | 2,272 | $ | 2,388 |
See Notes to Consolidated Financial Statements.
34
Year Ended September 30, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
Class A
Common Stock |
|||||||||||||||
Beginning
balance |
$ | 8 | $ | 7 | $ | 7 | |||||||||
Issuance of
Class A common stock |
| 1 | | ||||||||||||
Ending
balance |
8 | 8 | 7 | ||||||||||||
Class B
Common Stock |
9 | 9 | 9 | ||||||||||||
Additional
Paid-in Capital |
|||||||||||||||
Beginning
balance |
7,337 | 7,243 | 6,996 | ||||||||||||
Issuance of
common stock Massana Limited acquisition |
| 26 | | ||||||||||||
Issuance of
common stock TeraBlaze, Inc. acquisition |
21 | | | ||||||||||||
Issuance of
common stock pension plan contributions |
| 30 | | ||||||||||||
Issuance of
common stock net of expense |
35 | 24 | 11 | ||||||||||||
Issuance of
common stock equity-based compensation |
16 | 14 | 9 | ||||||||||||
Transfers to
Lucent Technologies Inc. |
| | 127 | ||||||||||||
Transfers
from Lucent Technologies Inc. |
| | 100 | ||||||||||||
Ending
balance |
7,409 | 7,337 | 7,243 | ||||||||||||
Accumulated Deficit |
|||||||||||||||
Beginning
balance |
(6,691 | ) | (6,353 | ) | (4,542 | ) | |||||||||
Net
loss |
(90 | ) | (338 | ) | (1,811 | ) | |||||||||
Ending
balance |
(6,781 | ) | (6,691 | ) | (6,353 | ) | |||||||||
Accumulated Other Comprehensive Loss |
|||||||||||||||
Beginning
balance |
(152 | ) | (174 | ) | (9 | ) | |||||||||
Minimum
pension liability adjustment |
(81 | ) | 18 | (170 | ) | ||||||||||
Foreign
currency translations |
| | (3 | ) | |||||||||||
Reclassification adjustment for realized foreign currency translation losses |
3 | | 35 | ||||||||||||
Unrealized
gain on cash flow hedges |
5 | 4 | 3 | ||||||||||||
Reclassification adjustment for cash flow hedges |
1 | | | ||||||||||||
Reclassification adjustment for realized holding gains |
| | (30 | ) | |||||||||||
Ending
balance |
(224 | ) | (152 | ) | (174 | ) | |||||||||
Total
stockholders equity |
$ | 421 | $ | 511 | $ | 732 | |||||||||
Total
Comprehensive Loss |
|||||||||||||||
Net
loss |
$ | (90 | ) | $ | (338 | ) | $ | (1,811 | ) | ||||||
Other
comprehensive income (loss) |
(72 | ) | 22 | (165 | ) | ||||||||||
Total
comprehensive loss |
$ | (162 | ) | $ | (316 | ) | $ | (1,976 | ) |
See Notes to Consolidated Financial Statements.
35
Year Ended September 30, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
Operating
Activities |
|||||||||||||||
Net
loss |
$ | (90 | ) | $ | (338 | ) | $ | (1,811 | ) | ||||||
Less: Income
(loss) from discontinued operations |
| 38 | (1,008 | ) | |||||||||||
Cumulative
effect of accounting change |
| (5 | ) | | |||||||||||
Loss from
continuing operations |
(90 | ) | (371 | ) | (803 | ) | |||||||||
Adjustments
to reconcile loss from continuing operations to net cash provided (used) by operating activities from continuing operations, net of effects for
acquisitions of businesses: |
|||||||||||||||
Depreciation
and amortization |
215 | 329 | 412 | ||||||||||||
Restructuring
expense net of cash payments |
115 | 12 | 346 | ||||||||||||
Purchased
in-process research and development |
13 | | | ||||||||||||
Provision for
inventory write-downs |
7 | | 31 | ||||||||||||
(Benefit)
provision for deferred income taxes |
(40 | ) | 17 | 40 | |||||||||||
Impairment of
non-consolidated investments |
1 | | 4 | ||||||||||||
Equity losses
(earnings) from investments |
5 | (13 | ) | (40 | ) | ||||||||||
Dividends
received from equity investments |
61 | | | ||||||||||||
Gain on
disposition of businesses |
| (16 | ) | (301 | ) | ||||||||||
Amortization
of debt issuance costs |
2 | 2 | 46 | ||||||||||||
Decrease
(increase) in receivables |
24 | (18 | ) | 69 | |||||||||||
(Increase)
decrease in inventories |
(35 | ) | 43 | (1 | ) | ||||||||||
Decrease in
accounts payable |
(50 | ) | (4 | ) | (81 | ) | |||||||||
Increase
(decrease) in payroll and benefit liabilities |
1 | 26 | (18 | ) | |||||||||||
Decrease in
income taxes payable |
(88 | ) | (43 | ) | (20 | ) | |||||||||
Changes in
other operating assets and liabilities |
30 | 16 | (85 | ) | |||||||||||
Other
adjustments for non-cash items net |
(5 | ) | (3 | ) | (27 | ) | |||||||||
Net cash
provided (used) by operating activities from continuing operations |
166 | (23 | ) | (428 | ) | ||||||||||
Net cash used
by operating activities from discontinued operations |
| (86 | ) | (232 | ) | ||||||||||
Net cash
provided (used) by operating activities |
166 | (109 | ) | (660 | ) | ||||||||||
Investing
Activities |
|||||||||||||||
Capital
expenditures |
(97 | ) | (116 | ) | (195 | ) | |||||||||
Proceeds from
the sale or disposal of property, plant and equipment |
3 | 38 | 142 | ||||||||||||
Sales of
investments |
4 | 9 | 55 | ||||||||||||
Net proceeds
from disposition of businesses |
| 64 | 382 | ||||||||||||
Acquisitions
of businesses net of cash acquired |
| (1 | ) | | |||||||||||
Cash
designated as held in trust |
2 | (5 | ) | (16 | ) | ||||||||||
Net cash
(used) provided by investing activities |
(88 | ) | (11 | ) | 368 | ||||||||||
Financing
Activities |
|||||||||||||||
Principal
repayments on long-term debt |
(53 | ) | (65 | ) | (19 | ) | |||||||||
Proceeds from
issuance of stock net of expense |
41 | 26 | 11 | ||||||||||||
Proceeds from
the issuance of long-term debt net of expenses |
| 20 | 396 | ||||||||||||
Net
(repayments) proceeds from short-term debt |
(32 | ) | (9 | ) | 163 | ||||||||||
Principal
repayments of credit facility |
| | (2,500 | ) | |||||||||||
Payment of
credit facility fees |
| | (21 | ) | |||||||||||
Net cash
used by financing activities |
(44 | ) | (28 | ) | (1,970 | ) | |||||||||
Effect of
exchange rate changes on cash |
| 1 | 1 | ||||||||||||
Net increase
(decrease) in cash and cash equivalents |
34 | (147 | ) | (2,261 | ) | ||||||||||
Cash and
cash equivalents at beginning of year |
744 | 891 | 3,152 | ||||||||||||
Cash and
cash equivalents at end of year |
$ | 778 | $ | 744 | $ | 891 |
See Notes to Consolidated Financial Statements.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions except per
share amounts)
1. Background and Basis of
Presentation
2. Summary of Significant Accounting Policies
Principles of Consolidation
Use of Estimates
Revenue Recognition
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Research and Development Costs
Income Taxes
Loss Per Share
Other Comprehensive Income (Loss)
Foreign Currency Translation
Cash and Cash Equivalents
Inventories
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Property, Plant and Equipment
Impairment of Property, Plant and Equipment
Internal Use Software
Goodwill and Acquired Intangible Assets
Investments
Reclassifications
Stock Compensation Plans
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Year Ended September 30, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
Net
loss: |
|||||||||||||||
As
reported |
$ | (90 | ) | $ | (338 | ) | $ | (1,811 | ) | ||||||
Add:
Stock-based employee compensation expense determined under APB 25 intrinsic value method and included in reported net loss |
| 2 | 3 | ||||||||||||
Deduct:
Stock-based employee compensation expense determined under SFAS 123 fair value based method |
137 | 138 | 200 | ||||||||||||
Pro forma
(1) |
$ | (227 | ) | $ | (474 | ) | $ | (2,008 | ) | ||||||
Basic and
diluted loss per share: |
|||||||||||||||
As
reported |
$ | (0.05 | ) | $ | (0.20 | ) | $ | (1.11 | ) | ||||||
Pro forma
(1) |
$ | (0.13 | ) | $ | (0.28 | ) | $ | (1.23 | ) |
(1) | The pro forma amounts shown above include compensation expense determined under the fair value method for all Agere stock options, including Lucent options that were converted to Agere options on the date of the Distribution. Also included is compensation expense determined under the fair value method for the options embedded in the Agere shares under the ESPP. |
Year Ended September 30, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
Dividend
yield |
0.00 | % | 0.00 | % | 0.00 | % | |||||||||
Volatility |
94.9 | % | 95.0 | % | 79.4 | % | |||||||||
Risk-free
interest rate |
2.48 | % | 2.29 | % | 3.59 | % | |||||||||
Expected
holding period (in years) |
2.8 | 2.8 | 3.1 |
3. Recent Pronouncements
4. Restructuring and Other Charges Net
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Asset Retirement Obligation
Restructuring Actions
|
Sold its optoelectronic components business, including the manufacturing facilities associated with that business; |
|
Reduced total headcount by approximately 9,700 employees; |
|
Consolidated operations into fewer facilities, resulting in the closure of over 25 smaller manufacturing, administrative, support and warehouse facilities; and |
|
Closed integrated circuit wafer manufacturing facilities in Allentown and Reading, Pennsylvania and Madrid, Spain. |
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Year Ended September 30, 2004 |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, 2003 |
September 30, 2004 |
||||||||||||||||||||||
Restructuring Reserve |
Add Charges |
Deduct Non-Cash Charges |
Deduct Cash Payments |
Restructuring Reserve |
|||||||||||||||||||
2001
Manufacturing Rationalization and Resizing |
|||||||||||||||||||||||
Workforce
reductions |
$ | 11 | $ | 16 | $ | | $ | 22 | $ | 5 | |||||||||||||
Facility
Lease Terminations |
26 | 4 | | 10 | 20 | ||||||||||||||||||
Other
Charges |
10 | 17 | | 21 | 6 | ||||||||||||||||||
Total |
$ | 47 | $ | 37 | $ | | $ | 53 | $ | 31 | |||||||||||||
2004
Business Resizing |
|||||||||||||||||||||||
Workforce
reductions |
$ | | $ | 39 | $ | 18 | $ | | $ | 21 | |||||||||||||
Asset
Impairments |
| 2 | 2 | | | ||||||||||||||||||
Other
Charges |
| 5 | 3 | | 2 | ||||||||||||||||||
Total |
$ | | $ | 46 | $ | 23 | $ | | $ | 23 | |||||||||||||
Closure of
the Orlando Manufacturing Facility |
|||||||||||||||||||||||
Workforce
reductions |
$ | | $ | 77 | $ | 71 | $ | | $ | 6 | |||||||||||||
Grand
Total |
$ | 47 | $ | 160 | $ | 94 | $ | 53 | $ | 60 |
2001 Manufacturing Rationalization and Resizing
2004 Business Resizing
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Closure of the Orlando Manufacturing Facility
Restructuring Reserve Balances as of September 30, 2004
2001 Manufacturing Rationalization and Resizing
2004 Business Resizing
Closure of the Orlando Manufacturing Facility
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Year Ended September 30, 2003 |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, 2002 |
September 30, 2003 |
||||||||||||||||||||||
Restructuring Reserve |
Add Net Charges |
Deduct Net Non-Cash Charges |
Deduct Cash Payments |
Restructuring Reserve |
|||||||||||||||||||
Workforce
reductions |
$ | 60 | $ | 60 | $ | 45 | $ | 64 | $ | 11 | |||||||||||||
Asset
Impairments |
| 27 | 27 | | | ||||||||||||||||||
Increased
Depreciation |
| 15 | 15 | | | ||||||||||||||||||
Facility
Lease Terminations |
17 | 15 | | 6 | 26 | ||||||||||||||||||
Other
Charges |
85 | (2 | ) | | 73 | 10 | |||||||||||||||||
Total |
$ | 162 | $ | 115 | $ | 87 | $ | 143 | $ | 47 | |||||||||||||
Continuing
operations |
$ | 131 | $ | 96 | $ | 119 | |||||||||||||||||
Discontinued
operations |
(16 | ) | (9 | ) | 24 | ||||||||||||||||||
Total |
$ | 115 | $ | 87 | $ | 143 |
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
5. Acquisitions
Massana Limited
Current
assets |
$ | 1 | ||||
Property,
plant and equipment |
1 | |||||
Goodwill |
26 | |||||
Other
acquired intangibles |
4 | |||||
Current
liabilities |
(4 | ) | ||||
Total |
$ | 28 |
TeraBlaze, Inc.
Goodwill |
$ | 10 | ||||
In-process
research and development |
13 | |||||
Current
liabilities |
(2 | ) | ||||
Total |
$ | 21 |
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
6. Discontinued Operations
7. Debt
Convertible Subordinated Notes
Accounts Receivable Securitization
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Collateral Installment Loan
Other Debt
8. Accounting Changes
9. Investment in Silicon Manufacturing Partners
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
September 30, |
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
|
|||||||||||||
Assets |
|||||||||||||||
Current
assets |
$ | 100 | $ | 181 | |||||||||||
Noncurrent
assets |
162 | 308 | |||||||||||||
Liabilities |
|||||||||||||||
Current
liabilities |
$ | 22 | $ | 162 | |||||||||||
Noncurrent
liabilities |
| 85 |
Year Ended September 30, |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||||||
Revenue |
$ | 353 | $ | 301 | $ | 198 | |||||||||||||
Gross
profit |
66 | 24 | 50 | ||||||||||||||||
Income from
continuing operations |
48 | 10 | 15 | ||||||||||||||||
Net
income |
$ | 48 | $ | 10 | $ | 15 |
10. Supplemental Financial Information
Statement of Operations Information
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
was no amount recorded in restructuring and other charges net for fiscal 2004. Recorded in discontinued operations for fiscal 2002 was $26. There were no amounts recorded in discontinued operations for fiscal 2004 or 2003. This increased depreciation is reflected in net loss and resulted in a $0.00, $0.05 and $0.04 per share increase in the net loss for fiscal 2004, 2003 and 2002, respectively.
Year Ended September 30, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
INCLUDED IN
COSTS AND OPERATING EXPENSES: |
|||||||||||||||
Depreciation
and amortization of property, plant and equipment |
$ | 186 | $ | 308 | $ | 354 | |||||||||
OTHER INCOME
NET: |
|||||||||||||||
Interest
income |
$ | 8 | $ | 10 | $ | 30 | |||||||||
Equity
earnings (losses) from investments |
(5 | ) | 13 | 40 | |||||||||||
Gain on sale
of an investment |
4 | | | ||||||||||||
Gain (loss)
on foreign currency transactions |
| (3 | ) | 3 | |||||||||||
Impairment of
non-consolidated investments |
(1 | ) | | (4 | ) | ||||||||||
Other income
(loss) |
2 | 2 | 7 | ||||||||||||
Other income
net |
$ | 8 | $ | 22 | $ | 76 |
September 30, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
|||||||||||||
INVENTORIES |
||||||||||||||
Finished
goods |
$ | 51 | $ | 38 | ||||||||||
Work in
process |
92 | 77 | ||||||||||||
Raw
materials |
7 | 7 | ||||||||||||
Inventories |
$ | 150 | $ | 122 | ||||||||||
PROPERTY,
PLANT AND EQUIPMENT NET |
||||||||||||||
Land and
improvements |
$ | 36 | $ | 35 | ||||||||||
Buildings and
improvements |
430 | 431 | ||||||||||||
Machinery,
electronic and other equipment |
1,669 | 1,659 | ||||||||||||
Total
property, plant and equipment |
2,135 | 2,125 | ||||||||||||
Less:
accumulated depreciation and amortization |
(1,453 | ) | (1,347 | ) | ||||||||||
Property,
plant and equipmentnet |
$ | 682 | $ | 778 |
Year Ended September 30, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
ALLOWANCE FOR
DOUBTFUL ACCOUNTS |
|||||||||||||||
Balance at
beginning of period |
$ | 6 | $ | 9 | $ | 33 | |||||||||
Charged
(Credited) to Operating Expenses |
(2 | ) | (1 | ) | (4 | ) | |||||||||
Other
(1) |
(1 | ) | (2 | ) | (20 | ) | |||||||||
Balance at
end of period |
$ | 3 | $ | 6 | $ | 9 |
(1) | Amounts written off as uncollectible, payments or recoveries. |
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Cash Flow Information
11. Divestitures of Businesses
Sale of FPGA Business
Sale of Wireless Local Area Network Equipment Business
Sale of Analog Line Card Business
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
12. Income Taxes
Year Ended September 30, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
U.S. federal
statutory income tax rate |
35.0 | % | 35.0 | % | 35.0 | % | |||||||||
State and
local income taxes, net of federal income tax effect |
0.9 | 0.6 | 2.8 | ||||||||||||
Effect of
non-U.S. earnings |
(17.0 | ) | (19.7 | ) | (13.3 | ) | |||||||||
Research
credits |
2.6 | | 0.8 | ||||||||||||
Reversal of
tax and interest contingencies associated with audit settlements |
57.1 | | | ||||||||||||
Valuation
allowance |
(30.4 | ) | (27.9 | ) | (35.0 | ) | |||||||||
Purchased
in-process research and development |
(2.9 | ) | | | |||||||||||
Other
differences net |
(5.1 | ) | (2.2 | ) | 1.2 | ||||||||||
Effective
income tax rate |
40.2 | % | (14.2 | )% | (8.5 | )% |
Year Ended September 30, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
LOSS BEFORE
INCOME TAXES |
|||||||||||||||
United
States |
$ | (114 | ) | $ | (222 | ) | $ | (623 | ) | ||||||
Non-U.S |
(36 | ) | (103 | ) | (117 | ) | |||||||||
Loss before
income taxes |
$ | (150 | ) | $ | (325 | ) | $ | (740 | ) | ||||||
(BENEFIT)
PROVISION FOR INCOME TAXES |
|||||||||||||||
Current |
|||||||||||||||
Federal |
$ | (34 | ) | $ | 20 | $ | 4 | ||||||||
State and
local |
| 1 | (1 | ) | |||||||||||
Non-U.S |
14 | 8 | 20 | ||||||||||||
Sub-total |
(20 | ) | 29 | 23 | |||||||||||
Deferred |
|||||||||||||||
Federal |
(43 | ) | 11 | 29 | |||||||||||
State and
local |
| 1 | 4 | ||||||||||||
Non-U.S |
3 | 5 | 7 | ||||||||||||
Sub-total |
(40 | ) | 17 | 40 | |||||||||||
(Benefit)
Provision for income taxes |
$ | (60 | ) | $ | 46 | $ | 63 |
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
||||||||||
Deferred
Tax Assets |
|||||||||||
Net operating
loss/credit carryforwards |
$ | 943 | $ | 833 | |||||||
Valuation
allowance |
(1,364 | ) | (1,087 | ) | |||||||
Other benefit
obligations |
104 | 91 | |||||||||
Pension
obligation |
95 | 46 | |||||||||
Reserves and
allowances |
82 | 87 | |||||||||
Property,
plant and equipment |
23 | 4 | |||||||||
Intangible
assets |
118 | 21 | |||||||||
Other |
| 9 | |||||||||
Total
deferred tax assets |
$ | 1 | $ | 4 | |||||||
Deferred
Tax Liabilities |
$ | | $ | |
Year Ended September 30, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
Deferred
Tax Asset Valuation Allowance |
|||||||||||||||
Balance at
beginning of period |
$ | 1,087 | $ | 997 | $ | 537 | |||||||||
Charged
(Credited) to Costs and Expenses |
46 | 90 | 630 | ||||||||||||
Charged
(Credited) to Other Accounts (1) (2) |
29 | (23 | ) | 66 | |||||||||||
Other (3)
(4) |
202 | 23 | (236 | ) | |||||||||||
Balance at
end of period |
$ | 1,364 | $ | 1,087 | $ | 997 |
(1) | Fiscal 2004 and 2002 amounts offset deferred tax asset associated with future tax deductions upon payment of pension liabilities. |
(2) | Fiscal 2003 amount offsets decrease in deferred tax assets associated with future tax deductions upon payment of pension liabilities. |
(3) | Fiscal 2004 amount represents additions (deductions) to prior year valuation allowance related to U.S. tax return filings, audit settlements with Lucent and Singapore deferred tax assets as a result of an expired tax holiday. A full valuation allowance was recorded for the Singapore deferred tax assets as realization of these assets is uncertain. |
(4) | Fiscal 2003 and 2002 amounts represent additions (deductions) to prior year valuation allowance based on tax return filings. |
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
13. Comprehensive Income (Loss)
Foreign Currency Translation |
Unrealized Holding Gains |
Unrealized Gains (Losses) on Cash Flow Hedges |
Minimum Pension Liability Adjustment |
Total Accumulated Other Comprehensive Income (Loss) |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Ending
balance September 30, 2001 |
$ | (26 | ) | $ | 30 | $ | (13 | ) | $ | | $ | (9 | ) | |||||||||
Fiscal 2002
change |
32 | (30 | ) | 3 | (170 | ) | (165 | ) | ||||||||||||||
Ending
balance September 30, 2002 |
6 | | (10 | ) | (170 | ) | (174 | ) | ||||||||||||||
Fiscal 2003
change |
| | 4 | 18 | 22 | |||||||||||||||||
Ending
balance September 30, 2003 |
6 | | (6 | ) | (152 | ) | (152 | ) | ||||||||||||||
Fiscal 2004
change |
3 | | 6 | (81 | ) | (72 | ) | |||||||||||||||
Ending
balance September 30, 2004 |
$ | 9 | $ | | $ | | $ | (233 | ) | $ | (224 | ) |
14. Stock Compensation Plans
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Shares (000s) |
Weighted Average Exercise Price |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
LUCENT
OPTIONS OUTSTANDING AT SEPTEMBER 30, 2001 |
45,480 | $ | 32.59 | |||||||
Granted |
| | ||||||||
Exercised |
(1,890 | ) | 1.97 | |||||||
Forfeited or
Expired |
(5,368 | ) | 6.47 | |||||||
LUCENT
OPTIONS OUTSTANDING AT MAY 31, 2002 |
38,222 | 33.33 | ||||||||
Agere
spin-off adjustments (1) |
18,916 | (11.04 | ) | |||||||
AGERE OPTIONS
SUBSTITUTED FOR LUCENT OPTIONS, OUTSTANDING AT JUNE 1, 2002 |
57,138 | $ | 22.29 | |||||||
AGERE OPTIONS
OUTSTANDING AT SEPTEMBER 30, 2001 |
142,750 | $ | 5.81 | |||||||
Granted |
5,649 | 5.11 | ||||||||
Agere options
substituted for Lucent options (1) |
57,138 | 22.29 | ||||||||
Exercised |
(41 | ) | 1.18 | |||||||
Forfeited or
Expired |
(32,050 | ) | 13.06 | |||||||
AGERE OPTIONS
OUTSTANDING AT SEPTEMBER 30, 2002 |
173,446 | 9.87 | ||||||||
Granted |
67,185 | 1.43 | ||||||||
Exercised |
(738 | ) | 1.53 | |||||||
Forfeited or
Expired |
(46,787 | ) | 7.82 | |||||||
AGERE OPTIONS
OUTSTANDING AT SEPTEMBER 30, 2003 |
193,106 | 7.47 | ||||||||
Granted |
64,824 | 3.49 | ||||||||
Exercised |
(4,234 | ) | 1.43 | |||||||
Forfeited or
Expired |
(19,648 | ) | 6.24 | |||||||
AGERE OPTIONS
OUTSTANDING AT SEPTEMBER 30, 2004 |
234,048 | $ | 6.58 |
(1) | Effective with the Distribution on June 1, 2002, the Lucent options outstanding were converted to Agere options. The number of Agere shares covered by substituted options was adjusted and all exercise prices were decreased immediately following the Distribution to preserve the economic values of the options that existed prior to the Distribution. |
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Stock Options Outstanding |
Stock Options Exercisable |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices |
Shares (000s) |
Weighted Average Remaining Contractual Life (Years) |
Weighted Average Exercise Price |
Shares (000s) |
Weighted Average Exercise Price |
||||||||||||||||||
$0.08 to
$2.00 |
54,272 | 5.1 | $ | 1.40 | 22,981 | $ | 1.39 | ||||||||||||||||
$2.01 to
$5.15 |
64,792 | 6.0 | 3.55 | 3,681 | 3.85 | ||||||||||||||||||
$5.16 to
$5.85 |
38,901 | 3.8 | 5.59 | 30,790 | 5.59 | ||||||||||||||||||
$5.86 to
$6.00 |
44,021 | 3.4 | 6.00 | 39,178 | 6.00 | ||||||||||||||||||
$6.01 to
$10.30 |
4,929 | 3.1 | 7.84 | 4,713 | 7.85 | ||||||||||||||||||
$10.31 to
$15.50 |
8,362 | 4.2 | 12.12 | 7,893 | 12.14 | ||||||||||||||||||
$15.51 to
$36.00 |
10,071 | 4.6 | 26.09 | 10,024 | 26.14 | ||||||||||||||||||
$36.01 to
$51.56 |
8,700 | 5.3 | 40.27 | 8,700 | 40.27 | ||||||||||||||||||
Total |
234,048 | 4.7 | $ | 6.58 | 127,960 | $ | 9.37 |
15. Loss Per Common Share
16. Benefit Obligations
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(dollars in
millions except per share amounts)
Year Ended September 30, 2004 |
Year Ended September 30, 2003 |
Four Months Ended September 30, 2002 |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pension Benefits |
Postretirement Benefits |
Pension Benefits |
Postretirement Benefits |
Pension Benefits |
Postretirement Benefits |
||||||||||||||||||||||
Agere
Net Periodic Benefit Cost |
|||||||||||||||||||||||||||
Service
cost |
$ | 24 | $ | 2 | $ | 24 | $ | 2 | $ | 12 | $ | 1 | |||||||||||||||
Interest
cost |
71 | 18 | 73 | 18 | 23 | 5 | |||||||||||||||||||||
Expected
return on plan assets |
(88 | ) | (5 | ) | (96 | ) | (4 | ) | (41 | ) | (4 | ) | |||||||||||||||
Amortization
of prior service cost |
2 | 10 | 3 | 4 | 2 | | |||||||||||||||||||||
Recognized
net actuarial loss (gain) |
1 | | | 1 | (2 | ) | | ||||||||||||||||||||
Transition
asset |
| | | | (1 | ) | | ||||||||||||||||||||
International
pension adjustment |
5 | | | | | | |||||||||||||||||||||
Net periodic
benefit cost (credit) |
15 | 25 | 4 | 21 | (7 | ) | 2 | ||||||||||||||||||||
Special
termination benefits |
45 | 3 | 7 | | 165 | 5 | |||||||||||||||||||||
Curtailment
charges |
3 | 42 | 25 | 9 | 16 | 27 | |||||||||||||||||||||
Settlement
charge |
| | 14 | | | | |||||||||||||||||||||
Total benefit
cost |
$ | 63 | $ | 70 | $ | 50 | $ | 30 | $ | 174 | $ | 34 |
Year Ended September 30, 2004 |
Year Ended September 30, 2003 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pension Benefits |
Postretirement Benefits |
Pension Benefits |
Postretirement Benefits |
||||||||||||||||
Change in
benefit obligation |
|||||||||||||||||||
Benefit
obligation at October 1 |
$ | 1,168 | $ | 331 | $ | 1,198 | $ | 278 | |||||||||||
Service
cost |
24 | 2 | 24 | 2 | |||||||||||||||
Interest
cost |
71 | 18 | 73 | 18 | |||||||||||||||
Amendments |
(20 | ) | (18 | ) | 1 | 59 | |||||||||||||
Actuarial
(gain)/loss |
63 | (24 | ) | 69 | (12 | ) | |||||||||||||
Benefits
paid |
(94 | ) | (23 | ) | (223 | ) | (19 | ) | |||||||||||
Special
termination benefits |
45 | 7 | 7 | | |||||||||||||||
Curtailments |
(6 | ) | (6 | ) | 19 | 5 | |||||||||||||
International
pension adjustment |
11 | | | | |||||||||||||||
Benefit
obligation at September 30 |
$ | 1,262 | $ | 287 | $ | 1,168 | $ | 331 | |||||||||||
Change in
plan assets |
|||||||||||||||||||
Fair value of
plan assets at October 1 |
$ | 988 | $ | 73 | $ | 1,010 | $ | 75 | |||||||||||
Actual gain
on plan assets |
70 | 3 | 170 | 11 | |||||||||||||||
Employer
contributions |
3 | 6 | 31 | 6 | |||||||||||||||
Benefits
paid |
(94 | ) | (23 | ) | (223 | ) | (19 | ) | |||||||||||
International
pension adjustment |
5 | | | | |||||||||||||||
Fair value of
plan assets at September 30 |
$ | 972 | $ | 59 | $ |