TBR 2Q11 Alcatel-Lucent Initial Response Report

TBR

T EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

Alcatel-Lucent

NETWORK BUSINESS QUARTERLYSM

2Q11 INITIAL RESPONSE

Publish Date: July 28, 2011

Author: Suresh Joseph ([email protected]), NMP Senior Analyst

Content Editor: Chris Antlitz, NMP Analyst

Second Calendar Quarter 2011

Second Fiscal Quarter 2011 Ended June 30, 2011

mailto:[email protected]

TBR

Alcatel-Lucent 2Q11 Initial Response | Network Business Quarterly ©2011 Technology Business Research, Inc. 2

TBR Assessment Corporate Strategic Objectives

Though revenue in the second quarter was largely in line with expectations, growing 2.4% to $5.6 billion on a year-to-year basis, operating income was well below expectations as unfavorable product mix and initiatives to reduce cost depressed income. Alcatel Lucent’s (ALU) second quarter looks all the more challenging, as the company hopes to “catch up” during this time and meet annual targets. With operator spending expected to slow in 2H11, ALU is under increased pressure to execute better operationally and financially during the rest of the year.

Leverage growth from NA and APAC, as the industry braces for reduced operator CapEx in 2H11

Alcatel-Lucent’s North America and APAC regions grew in the double digits, significantly helped by the LTE and 3G rollouts in the respective regions.

Realign to strengthen focus on innovation, strategy and execution

ALU realigned its organization and formed a single Software, Services and Solutions group to better focus on its applications and services strategy. In addition, ALU consolidated R&D and strategy under the leadership of Bell Labs to drive innovation closely tied to overall strategic objectives.

Expedite divestiture of its Enterprise division to refocus on core service provider segment

Private equity firms bid for Genesys, the largest asset in ALU’s Enterprise business unit. Besides bringing in cash to bolster its weak liquidity position, this divestiture will help reallocate and refocus resources to support the company’s core business segments.

While revenues are in line with expectations, weak operating income and anemic operator outlook add pressure for better execution in 2H11

TBR Position

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2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est.

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ALCATEL-LUCENT PROFITABILITY AND GROWTH

Total Revenue Gross Profit

Operating Profit Year-to-Year Revenue Growth

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S SOURCE: TBR ESTIMATES AND ALCATEL-LUCENT

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Key Developments

Europe continues to struggle; however, ROW boosts growth and offers new opportunities

• North America and APAC reported 18% and 14% year-to-year growth, respectively. Rest of World also grew with the CALA region, reporting more than 30% year-to-year growth. Brazil in particular represents a lucrative market, since it generates approximately 40% of the telecom revenues originating from the Latin American region. To tap into this opportunity, ALU announced the opening of a technology showcase center in Sao Paulo, Brazil, to demonstrate and promote its 4G LTE, video applications, cloud and location-based service offerings.

• ALU has been aggressive in its efforts to help Brazilian operators resolve their challenges as they grapple with the explosion of mobile data across their networks. In addition, this launch helps ALU develop a deeper relationship with the operators and tap into the larger opportunity of network upgrades that will be required as the country prepares to host the 2014 World Cup and 2016 Summer Olympics.

ALU’s demand for cash and retention of French staff complicates divestiture of its Enterprise unit

• ALU is seeking to divest its enterprise applications unit, which reported the largest drop among all the business units, falling 6.6% compared to the same period last year. Though profitable, this unit accounts for less than 10% of annual revenues and does not fit well with the company’s primary objective of selling network equipment to the service provider segment.

• Private equity firm Permira extended its $1.3 billion bid to buy Genesys, the largest piece of the enterprise unit with a portfolio of call center and video conferencing software. However, ALU’s demand for cash and employment guarantees for staff in France complicates matters. With its cash position at a negative $0.5 billion this quarter, selling this unit is expected to bring approximately $1.5 billion. TBR believes this divestiture, while providing much-needed cash to fund high-growth opportunities around mobile broadband and M2M, will help ALU realign and refocus on its core telecom operator segment.

Executive Summary

Divestiture of the enterprise business will help ALU focus on its core service provider business, particularly in high-growth markets

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Executive Summary

Strong demand for mobile broadband and backhaul solutions helps offset the decline within the Services and Applications divisions

Segment Revenue Performance and Strategies

Networks

€2.5 billion

(or $3.6 billion)

• The Networks business unit reported 7.4% growth compared to the year-ago quarter, helped by strong demand for IP/MPLS service routers in its IP division and CDMA/EV-DO in its wireless division.

• During 2Q11, ALU made the world’s first long-distance call using lightRadio, while securing a contract from MegaFon for small cells to improve in-building coverage.

Services

€871 million

(or $1.3 billion)

• Services declined 1.4% year-to-year, as Network Implementation and Maintenance lines of businesses underperformed due to project closeouts and reduced spending in the EMEA regions.

• Managed Services and Integration Services helped offset the decline with contracts at China Unicom and SFR, respectively.

Applications Software

€486 million

(or $700 million)

Applications Software declined 0.5% as the Enterprise Applications business continued to depress overall revenues, further strengthening the case for its divestiture.

€ 2,304 € 2,459 € 2,952

€ 2,418 € 2,475

€ 489 € 499 € 575

€ 451 € 486 € 883 € 948

€ 1,140

€ 809 € 871

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ALCATEL-LUCENT REVENUE BY SEGMENT

Services Applications Software Networks

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SOURCE: TBR AND ALCATEL-LUCENT

€ 3,813

€ 171

€ 3 € 12 € 66

€ 3,903

$3,500

$3,600

$3,700

$3,800

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2Q10

Revenue

Networks Applications

Software

Services Other 2Q11

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ALCATEL-LUCENT SEGMENT REVENUE GROWTH

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Network Segment Revenue Performance and Strategies

Wireless

€1.1 billion

(or $1.6 billion)

• The Wireless division continued to grow as revenues increased 5.7% year-to-year, led by CDMA EV-DO and 4G LTE business in Americas, and 3G in the APAC region.

• ALU announced a partnership with Broadcom to establish a standard for Femto-enabled residential gateways.

Wireline

€357 million

(or $514 million)

• Despite growth in the APAC region, ALU’s Wireline division declined 2.5% year-to-year.

• The drop was caused by fading demand for legacy TDM switching and legacy DSL equipment.

Optics

€645 million

(or $928 million)

• Optics division grew 3.7% with growth in the submarine business, WDM and wireless transmission segments.

• ALU’s WDM platform was selected by Russia’s MTS for its optical transport network.

IP Routing

€406 million

(or $584 million)

IP routing revenue grew 27.7% year-to-year due to continued demand for higher bandwidth.

With the exception of Wireline, all divisions under the Network unit grew, helped by strong demand from America, China and Eastern Europe

Executive Summary

€ 318 € 366 € 508 € 349 € 406

€ 622 € 651 € 815

€ 654 € 645

€ 1,021 € 1,068 € 1,156

€ 1,118 € 1,079

€ 366 € 396

€ 488

€ 309 € 357

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ALCATEL-LUCENT NETWORKS REVENUE BY SUBSEGMENT

Wireline Wireless Optics IP Routing

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SSOURCE: TBR AND ALCATEL-LUCENT

€ 2,304

€ 88 € 23

€ 58 € 9 € 11

€ 2,475

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2Q10 Net.

Rev.

IP Optics Wireless Wireline Other 2Q11 Net.

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ALCATEL-LUCENT NETWORK REVENUE GROWTH

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Revenues Total revenue grew €90 million, or 2.4% year-to-year to €3.9 billion (or $5.6 billion), due to strong global demand for IP and wireless equipment.

Expenses • SG&A comprised 18.2% of total revenue, down 330

basis points year-to-year, driven by improvements in operational efficiency.

• R&D decreased 3.7% year-to-year, as ALU scaled down spending to focus on development, primarily in IP and wireless.

Margins • Reported gross margin declined marginally to 35.8%

on unfavorable geographical and product mix and efforts to reduce costs.

• Services reported the highest adjusted operating margins with 6.1%, followed by Applications and Networks at 3.9% and 1.9%, respectively.

• Profitable growth in Managed Services and Integration Services helped augment margins within the services business.

While lower margins raise concerns, ALU improved marginally from a revenues and cost perspective

Financial Model Strategy

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ALCATEL-LUCENT ADJUSTED OPERATING MARGINBY SEGMENT

Networks Applications Software Services

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€ 2,304 € 2,459

€ 2,952 € 2,418 € 2,475

€ 489 € 499

€ 575

€ 451 € 486

€ 883

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ALCATEL-LUCENT REVENUE BY SEGMENT AND GROWTH

Services Applications Software

Carrier Year-to-year Revenue Growth

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S SOURCE: TBR AND ALCATEL-LUCENT

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Networks Applications Software Services

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€ 2,304 € 2,459

€ 2,952 € 2,418 € 2,475

€ 489 € 499

€ 575

€ 451 € 486

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ALCATEL-LUCENT REVENUE BY SEGMENT AND GROWTH

Services Applications Software

Carrier Year-to-year Revenue Growth

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S SOURCE: TBR AND ALCATEL-LUCENT

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ALU is finally finding traction in femtocells as operators look for quick fixes to capacity issues

Go-to-Market & Product Strategies

Key Developments

Wir

elin

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ALU will provide its IP multimedia subsystem to China Telecom in six provinces, marking the first commercial deployment of IMS for China Telecom as it continues the process of evolving its PTSN network to an all-IP infrastructure.

Wir

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• ALU is providing femto-based small cells to Russian mobile operator MegaFon, thereby improving in-building coverage throughout the network. MegaFon will deploy the small cells on its own, as they are easily installed and activated.

• Femtocell uptake from operators has been slow since the technology’s introduction, partly due to the high cost of materials, which are passed on to the buyer. Additionally, most operators, while recognizing the need to improve coverage in difficult-to-reach places, are more concerned with adding base stations to their networks to harness the revenue from the growth in mobile data traffic.

• ALU is capturing operators’ attention with its push to use femtocells to add capacity in urban markets, as the company has done with the MegaFon deal. Operators are beginning to realize installing small cells is a simple and quick fix to capacity issues that arise in highly populated areas.

Op

tics

France’s Completel is using ALU’s 100G optical solution to increase network capacity and performance. Using its Converged Backbone Transformation approach, of which 100G is a part, ALU will integrate the IP and optical layers in Completel’s network.

IP

• ALU’s IP business is driven by operators in the Americas and APAC looking to migrate their legacy networks to all-IP.

• Russian operator MTS deployed ALU’s IP/MPLS mobile backhaul solution to prepare its urban network for the increase in data traffic.

• ALU introduced its 3G network processor, FP3. The FP3 is the first processor to support data speeds of 400 Gbps, while cutting power consumption up to 50%. The chipset will be available commercially in 2012.

TBR


Enterprise Applications business continues to innovate and remain profitable with the success of Genesys, though a sale is imminent

Go-to-Market & Product Strategies

Key Developments

Application Software

• ALU is determined to drive its applications enablement strategy forward, announcing initiatives to push its Open API platform and encourage applications developers by providing the necessary tools for development.

• Though ALU’s Enterprise Applications unit is up for sale and its revenues are decreasing, its Genesys customer contact center business is a bright spot to potential buyers. Over 1,000 customers worldwide have deployed Genesys through either the hosted or software as a service models. Enterprises enjoy the minimal capital expenditure associated with Genesys software. Much of Genesys’ success is attributed to ALU’s strong network of service provider partners, which number over 20 and include AT&T, DT, CenturyLink and Verizon.

• The Enterprise Application unit’s weakness lies in legacy services, such as Enterprise telephony and data networks, but it is nonetheless an attractive operating segment. Enterprise Applications remained profitable in 2Q11 and saw strong uptake in its switching business, specifically the Omniswitch 10k, a 10-gigabit Ethernet switch.

Services

• ALU’s managed services unit won contracts with China Unicom and Etisalat Nigeria business in the second quarter, with revenues increasing more than 20% from the year-ago quarter. In addition, the Etisalat contract pulled additional professional services business for ALU’s network and systems integration business unit.

• Revenues fell within the network implementation and maintenance business this quarter. The political unrest in Africa and continued softness within the overall EMEA region contributed to this poor performance.

• ALU’s multivendor business reported a decline as projects were closed and strategic repositioning impacted others.

• To revive growth ALU formed a new group, wherein Services will be consolidated along with Software & Solutions. TBR believes this consolidation diminishes the role of the Services unit within the overall company, possibly resulting in Vivek Mohan resigning to pursue other opportunities.

TBR


Resource Management Strategy

ALU shifted the responsibilities of several top executives to accommodate the new Software, Services & Solutions business unit Resource Management Performance and Strategy

A July management shake-up resulted in the following:

• A new business unit named Software, Services & Solutions, led by Adolfo Hernandez.

• Stephen Carter will replace Hernandez as president of EMEA, but will continue in his role as head of Global Marketing and Communications.

• Jeong Kim will lead Corporate Strategy and continue as president of Bell Labs.

• Robert Vrij, President of the Americas region, will also be responsible for strategic alliances.

• Vivek Mohan, president of Services, will leave the company.

Strategy ALU reshuffled its management as part of the company’s strategic plan to focus on applications and services. The company merged its Services unit into a new business group, Software, Services & Solutions. TBR believes poor performance in Services may have prompted ALU to consolidate this unit. This merged unit will attempt to bring a more cohesive set of offerings to market, in which services are more closely tied to and enhance the value for its high-margins solutions business.

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ALCATEL-LUCENT HEADCOUNT AND HEADCOUNT SEQUENTIAL CHANGE

Number of Employees Sequential Change

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SOURCE: TBR AND JUNIPER NETWORKS

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$241.0 $250.9 $279.9 $290.6 $306.9

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Income Statement ALCATEL-LUCENT

Consolidated Income Statement

(in € Thousands)

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est.

FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est.Revenue € 3,813,000 € 4,074,000 € 4,862,000 € 3,740,000 € 3,903,000 € 4,359,180

Cost of Sales 2,436,000 2,697,000 3,103,000 2,386,000 2,505,000 2,777,910

Gross Profit € 1,377,000 € 1,377,000 € 1,759,000 € 1,354,000 € 1,398,000 € 1,581,270

SG&A 751,000 718,000 742,000 746,000 709,000 742,970

Research and Development 671,000 670,000 696,000 663,000 646,000 680,050

Operating Income (€ 45,000) (€ 11,000) € 321,000 (€ 55,000) € 43,000 € 158,250

Restructuring Costs 110,000 71,000 60,000 31,000 50,000 53,000

Impairment charges/Litigation & settlement 10,000 (10,000) 22,000 (4,000) - -

Post-retirement benefit plans amendment - (30,000) - (69,000) 2,000 -

Gain/(loss) on disposal of consolidated entities - - (65,000) (4,000) 2,000 -

Income (Loss) from operating activities (€ 165,000) (€ 42,000) € 304,000 (€ 9,000) (€ 11,000) € 105,250

Financial Result (17,000) 61,000 54,000 17,000 19,000 -

Shares in net income (loss) of equity affi l iates 7,000 4,000 2,000 - 2,000 -

EBITD (€ 175,000) € 23,000 € 360,000 € 8,000 € 10,000 € 105,250

Income Tax Expense (4,000) 23,000 (9,000) (12,000) 47,000 15,788

Income (loss) from continuing operations (€ 179,000) € 46,000 € 351,000 (€ 4,000) € 57,000 € 121,038

Income (loss) from discontinued operations (4,000) - 1,000 (1,000) 1,000 -

Net Income (€ 183,000) € 46,000 € 352,000 (€ 5,000) € 58,000 € 121,038

Net income attributable to minority interests 1,000 21,000 12,000 5,000 15,000 13,250

Net income attributable to equity holders

of the parent (€ 184,000) € 25,000 € 340,000 (€ 10,000) € 43,000 € 121,038

PERCENTAGE OF REVENUERevenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of Sales 63.9% 66.2% 63.8% 63.8% 64.2% 63.7%

Gross Profit 36.1% 33.8% 36.2% 36.2% 35.8% 36.3%

SG&A 19.7% 17.6% 15.3% 19.9% 18.2% 17.0%

Research and Development 17.6% 16.4% 14.3% 17.7% 16.6% 15.6%

Operating Income -1.2% -0.3% 6.6% -1.5% 1.1% 3.6%

EBITD -4.6% 0.6% 7.4% 0.2% 0.3% 2.4%

Net Income -4.8% 1.1% 7.2% -0.1% 1.5% 2.8%

YEAR-TO-YEAR GROWTHRevenue -2.4% 10.5% 22.6% 15.2% 2.4% 7.0%

Cost of Sales -6.7% 9.9% 23.4% 9.0% 2.8% 3.0%

Gross Profit 6.5% 11.8% 21.1% 28.0% 1.5% 14.8%

SG&A -2.3% 2.7% 9.6% 7.2% -5.6% 3.5%

Research and Development 2.6% 10.0% 22.3% 6.1% -3.7% 1.5%

Operating Income 65.4% 85.5% 55.1% 79.1% 195.6% 1538.6%

Net Income -9250.0% 125.7% 270.5% 99.0% 131.7% 163.1%

NOTE: ADJUSTED PRO FORMA RESULTS

SOURCE: TBR ESTIMATES AND ALCATEL-LUCENT

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Income Statement ALCATEL-LUCENTConsolidated Income Statement (in $ Thousands)

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est.FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est.

Revenue 4,854,050$ 5,260,944$ 6,603,908$ 5,116,548$ 5,618,101$ 6,274,741$

Cost of Sales 3,101,093 3,482,760 4,214,711 3,264,193 3,605,776 3,998,611

Gross Profit 1,752,958 1,778,183 2,389,197 1,852,355 2,012,325 2,276,130

SG&A 956,043 927,186 1,007,836 1,020,573 1,020,557 1,069,454

Research and Development 854,201 865,202 945,356 907,024 929,873 978,885

Operating Income (57,286)$ (14,205)$ 436,005$ (75,243)$ 61,896$ 227,790$

Restructuring Costs 140,033 91,686 81,496 42,410 71,972 76,290

Impairment charges/Litigation & settlement 12,730 -12,913 29,882 -5,472 - -

Post-retirement benefit plans amendment - (38,740) - (94,396) 2,879 -

Gain/(loss) on disposal of consolidated entities - - (88,288) (5,472) 2,879 -

Income (Loss) from operating activities (210,049)$ (54,237)$ 412,914$ (12,313)$ (15,834)$ 151,501$

Financial Result (21,641) 78,772 73,347 23,257 27,349 -

Shares in net income (loss) of equity affi l iates 8,911 5,165 2,717 - 2,879 -

EBITD (222,780)$ 29,701$ 488,977$ 10,944$ 14,394$ 151,501$

Income Tax Expense (5,092) 29,701 (12,224) (16,417) 67,653 22,725

Income (loss) from continuing operations (227,872)$ 59,402$ 476,753$ (5,472)$ 82,048$ 174,226$

Income (loss) from discontinued operations (5,092) - 1,358 (1,368) 1,439 -

Net Income (232,964)$ 59,402$ 478,111$ (6,840)$ 83,487$ 174,226$

Net income attributable to minority interests 1,273 27,118 16,299 6,840 21,591 19,072

Net income attributable to equity holders

of the parent (234,237)$ 32,284$ 461,812$ (13,681)$ 61,896$ 174,226$

PERCENTAGE OF REVENUE

Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of Sales 63.9% 66.2% 63.8% 63.8% 64.2% 63.7%

Gross Profit 36.1% 33.8% 36.2% 36.2% 35.8% 36.3%

SG&A 19.7% 17.6% 15.3% 19.9% 18.2% 17.0%

Research and Development 17.6% 16.4% 14.3% 17.7% 16.6% 15.6%

Operating Income -1.2% -0.3% 6.6% -1.5% 1.1% 3.6%

EBITD -4.6% 0.6% 7.4% 0.2% 0.3% 2.4%

Net Income -4.8% 1.1% 7.2% -0.1% 1.5% 2.8%

YEAR-TO-YEAR CHANGE

Revenue -2.4% 10.5% 22.6% 15.2% 2.4% 7.0%

Cost of Sales -6.7% 9.9% 23.4% 9.0% 2.8% 3.0%

Gross Profit 6.5% 11.8% 21.1% 28.0% 1.5% 14.8%

SG&A -2.3% 2.7% 9.6% 7.2% -5.6% 3.5%

Research and Development 2.6% 10.0% 22.3% 6.1% -3.7% 1.5%

Operating Income 65.4% 85.5% 55.1% 79.1% 195.6% 1538.6%

Net Income -9250.0% 125.7% 270.5% 99.0% 131.7% 163.1%


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TBR


Balance Sheet ALCATEL-LUCENT

Consolidated Balance Sheets

(in € Thousands)

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11

FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 ASSETS

Goodwill and intangible assets, net € 6,937,000 € 6,407,000 € 6,426,000 € 6,113,000 € 5,971,000

Goodwill 4,583,000 4,311,000 4,370,000 4,219,000 4,183,000

Intangible assets, net 2,354,000 2,096,000 2,056,000 1,894,000 1,788,000

Property, Plant & Equipment, Net 1,309,000 1,207,000 1,311,000 1,224,000 1,200,000

Share in net assets of equity affi l iates 57,000 56,000 9,000 9,000 10,000

Other non-current financial assets, net 461,000 430,000 400,000 379,000 388,000

Deferred tax assets 930,000 922,000 948,000 920,000 942,000

Prepaid pension costs 2,902,000 2,803,000 2,746,000 2,510,000 2,575,000

Other non-current assets 306,000 220,000 257,000 236,000 364,000

Total Non-Current Assets € 12,902,000 € 12,045,000 € 12,097,000 € 11,391,000 € 11,450,000

Inventories and Work in Progress, net 2,669,000 2,567,000 2,295,000 2,294,000 2,252,000

Trade receivables and related accounts, net 3,467,000 3,323,000 3,664,000 3,301,000 3,337,000

Advances and progress payments 74,000 88,000 75,000 78,000 79,000

Other current assets 1,248,000 1,126,000 885,000 1,043,000 915,000

Assets held for sale 80,000 219,000 3,000 6,000 4,000

Current income taxes 187,000 161,000 168,000 167,000 147,000

Marketable securities, net 1,788,000 1,197,000 649,000 661,000 554,000

Cash and cash equivalents 3,053,000 3,227,000 5,040,000 3,796,000 3,474,000

Total Current Assets € 12,566,000 € 11,908,000 € 12,779,000 € 11,346,000 € 10,762,000

Total Assets € 25,468,000 € 23,953,000 € 24,876,000 € 22,737,000 € 22,212,000

LIABILITIES AND EQUITYShareholders' equity- attributable to the equity holders of

the parent € 2,473,000 € 2,377,000 € 3,545,000 € 3,490,000 € 3,420,000

Minority Interest 675,000 631,000 660,000 624,000 630,000

Total Shareholders' Equity € 3,148,000 € 3,008,000 € 4,205,000 € 4,114,000 € 4,050,000

Pensions, retirement indemnities and other post-

retirement benefits 6,596,000 6,014,000 5,090,000 4,513,000 4,513,000

Bonds and Notes Issues, long-term 3,710,000 3,479,000 4,037,000 3,886,000 3,869,000

Other long-term debt 61,000 61,000 75,000 62,000 140,000

Deferred tax l iabilities 1,232,000 1,127,000 1,126,000 1,008,000 1,003,000

Other non-current l iabilities 229,000 247,000 259,000 243,000 239,000

Total Non-Current Liabilities € 11,828,000 € 10,928,000 € 10,587,000 € 9,712,000 € 9,764,000

Provisions 2,265,000 1,969,000 1,858,000 1,689,000 1,590,000

Current portion of long-term debt 1,040,000 1,146,000 1,266,000 413,000 418,000

Customers' Deposits and Advances 858,000 915,000 803,000 972,000 805,000

Trade Payables and Related Accounts 4,392,000 4,173,000 4,325,000 3,980,000 3,948,000

Current income tax l iabilities 116,000 68,000 137,000 119,000 107,000

Other current l iabilities 1,821,000 1,746,000 1,695,000 1,738,000 1,530,000

Total Current Liabilities € 10,492,000 € 10,017,000 € 10,084,000 € 8,911,000 € 8,398,000

Total Liabilities and Shareholders' Equity € 25,468,000 € 23,953,000 € 24,876,000 € 22,737,000 € 22,212,000

FINANCIAL RATIOSDay Sales Outstanding 81.83 73.41 67.82 79.44 76.95

Turns on Inventory 4.01 4.12 5.11 4.16 4.41

Days Inventory Outstanding 90.93 88.58 71.49 87.75 82.80

Fixed Asset Turnover 11.77 12.95 15.45 11.80 12.88

Days Cash Outstanding 114.26 97.73 105.31 107.25 92.88

Total Asset Turnover 0.61 0.66 0.80 0.63 0.69

Debt/Asset Ratio 0.41 0.42 0.43 0.45 0.45

Current Ratio 1.86 1.83 1.94 1.81 1.75

Return on Assets -0.7% 0.2% 1.4% 0.0% 0.2%

Return on Equity -4.5% 1.2% 9.4% -0.1% 1.6%

Annualized Revenue per Employee - Euro 189,325€ 194,304€ 206,068€ 212,419€ 213,235€

Annualized Revenue per Employee - USD 241,016$ 250,914$ 279,895$ 290,602$ 306,937$

Employee Count 77,500 77,000 78,000 78,000 78,000

Exchange Rate ($US to Euro) 1.273 1.291 1.358 1.368 1.439


TBR

TBR


Balance Sheet ALCATEL-LUCENT

Consolidated Balance Sheets

(in $ Thousands)

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11

FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11

ASSETS

Goodwill and intangible assets, net 8,830,986$ 8,273,654$ 8,728,242$ 8,362,957$ 8,594,845$

Goodwill 5,834,281 5,566,993 5,935,639 5,771,849 6,021,141

Intangible assets, net 2,996,705 2,706,661 2,792,603 2,591,107 2,573,703

Property, Plant & Equipment, Net 1,666,392 1,558,655 1,780,692 1,674,507 1,727,318

Share in net assets of equity affiliates 72,563 72,315 12,224 12,313 14,394

Other non-current financial assets, net 586,865 555,279 543,308 518,495 558,499

Deferred tax assets 1,183,915 1,190,621 1,287,640 1,258,616 1,355,944

Prepaid pension costs 3,694,323 3,619,643 3,729,809 3,433,833 3,706,536

Other non-current assets 389,546 284,096 349,075 322,862 523,953

Total Non-Current Assets 16,424,589$ 15,554,263$ 16,430,990$ 15,583,582$ 16,481,489$

Inventories and Work in Progress, net 3,397,708 3,314,885 3,117,229 3,138,332 3,241,599

Trade receivables and related accounts, net 4,413,583 4,291,143 4,976,701 4,515,969 4,803,383

Advances and progress payments 94,204 113,638 101,870 106,709 113,715

Other current assets 1,588,737 1,454,056 1,202,069 1,426,888 1,317,080

Assets held for sale 101,842 282,805 4,075 8,208 5,758

Current income taxes 238,056 207,907 228,189 228,466 211,596

Marketable securities, net 2,276,172 1,545,741 881,517 904,288 797,445

Cash and cash equivalents 3,886,550 4,167,174 6,845,680 5,193,159 5,000,585

Total Current Assets 15,996,852$ 15,377,348$ 17,357,330$ 15,522,019$ 15,491,161$

Total Assets 32,421,442$ 30,931,611$ 33,788,321$ 31,105,602$ 31,972,650$

LIABILITIES AND EQUITY

Shareholders' equity- attributable to the equity holders

of the parent 3,148,195$ 3,069,529$ 4,815,067$ 4,774,533$ 4,922,855$

Minority Interest 859,293 814,839 896,458 853,670 906,842

Total Shareholders' Equity € 4,007,488 € 3,884,369 € 5,711,525 € 5,628,203 € 5,829,697

Pensions, retirement indemnities and other post-

retirement benefits 8,396,884 7,766,155 6,913,594 6,174,059 6,496,154

Bonds and Notes Issues, long-term 4,722,929 4,492,593 5,483,335 5,316,285 5,569,160

Other long-term debt 77,655 78,772 101,870 84,820 201,520

Deferred tax liabilities 1,568,369 1,455,347 1,529,412 1,379,005 1,443,750

Other non-current liabilities 291,523 318,962 351,792 332,439 344,024

Total Non-Current Liabilities 15,057,359$ 14,111,829$ 14,380,003$ 13,286,608$ 14,054,608$

Provisions 2,883,405 2,542,660 2,523,665 2,310,655 2,288,696

Current portion of long-term debt 1,323,948 1,479,883 1,719,570 565,009 601,682

Customers' Deposits and Advances 1,092,257 1,181,582 1,090,691 1,329,755 1,158,742

Trade Payables and Related Accounts 5,591,133 5,388,787 5,874,517 5,444,883 5,682,875

Current income tax liabilities 147,671 87,812 186,083 162,799 154,019

Other current liabilities 2,318,181 2,254,690 2,302,267 2,377,690 2,202,330

Total Current Liabilities 13,356,595$ 12,935,413$ 13,696,793$ 12,190,791$ 12,088,345$

Total Liabilities and Shareholders' Equity 32,421,442$ 30,931,611$ 33,788,321$ 31,105,602$ 31,972,650$

FINANCIAL RATIOS

Day Sales Outstanding 81.83 73.41 67.82 79.44 76.95

Turns on Inventory 4.01 4.12 5.11 4.16 4.41

Days Inventory Outstanding 90.93 88.58 71.49 87.75 82.80

Fixed Asset Turnover 11.77 12.95 15.45 11.80 12.88

Days Cash Outstanding 114.26 97.73 105.31 107.25 92.88

Total Asset Turnover 0.61 0.66 0.80 0.63 0.69

Debt/Asset Ratio 0.41 0.42 0.43 0.45 0.45

Current Ratio 1.86 1.83 1.94 1.81 1.75

Return on Assets -0.7% 0.2% 1.4% 0.0% 0.2%

Return on Equity -4.5% 1.2% 9.4% -0.1% 1.6%

Average Annual Revenue per Employee - USD 241,016$ 250,914$ 279,895$ 290,602$ 306,937$

Employee Count 77,500 77,000 78,000 78,000 78,000

Exchange Rate ($US to Euro) 1.273 1.291 1.358 1.368 1.439


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TBR 2Q11 Alcatel-Lucent Initial Response Report

Business

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