Nov. 8, 2005
Dear Lucent Employees and Retirees,
Today's story in The New York Times on pension accounting and the comments
by Lucent retiree Herb Zydney are a disappointment to the company and a
distortion of the standards and integrity we exhibit in our pension
accounting and all of our financial disclosures.
Lucent has spent countless hours discussing these issues with Mr. Zydney and
trying to educate the Lucent Retiree Organization leadership on our
practices, but to no avail. I would like to share with you some of the facts
we shared with The New York Times regarding Mr. Zydney's criticism of the
company. I want to reassure you that Lucent's practices are in line with
U.S. Generally Accepted Accounting Principles (GAAP), which all public
companies are required to apply; we remain prudent in our management of
these assets, including a well-diversified portfolio; and Lucent's pensions
remain well-funded under the federally mandated ERISA guidelines.
On the issue of pension disclosures and transparency:
We take our
responsibility to investors very seriously and consistently report our
financial results with transparency and integrity.
consistently reports its earnings in accordance with GAAP and takes
additional measures to provide our investors with robust disclosures.
community is well aware of the impact of our pension credit when
analyzing our company and its prospects, and many in the financial
investment community cite Lucent positively for its detailed
On the issue of
executive compensation and pension impacts:
consistently excluded pension credits as a factor in calculating
executive compensation in the past. In 2003, we decided to clarify and
commit to this practice as a matter of policy.
Due to our
detailed disclosures around the pension credit, the investment
community's consideration of its impact on our financial results, and
its exclusion as a factor in executive compensation, the company has no
incentive to make "risky investments."
On the issue of
pension asset allocations and assumptions:
Lucent's Board of
Directors sets the asset allocation policy of Lucent's pension plan and
reviews that policy on a regular basis.
allocation policy is prudent to meet our current and future pension
obligations. The policy mandates a well-diversified portfolio consistent
with the approach employed by other large U.S. corporate pension plans.
This asset allocation is also disclosed in our regular filings.
The returns on our
pension assets have generally outpaced our assumptions for return on
assets (most recently 8.5 percent). Our actual 10-year annual rate of
return on pension plan assets were 11%, 9.9% and 9.5% during fiscal
2004, 2003 and 2002, respectively.
The percentage of
our pension plan assets invested in "private equity and other" is 8
percent, and has been targeted at 8 percent since 1998.
assets are managed by the Lucent Asset Management Company (LAMCO), a
separate wholly owned subsidiary staffed with investment professionals
whose objective is to maximize returns with a prudent level of risk.
investigation of Lucent's revenue recognition issues was resolved in May
2004, with the announcement of a consent decree. That action concluded
the SEC's investigation of the revenue recognition issues that Lucent
brought to its attention in late 2000.
Unlike some other
companies cited in the article, we are not aware of any SEC
investigation concerning our pension accounting.
hope these points address any concerns you may have about the story in The
New York Times and will help you better understand an issue that has become
an unjustified crusade of a few Lucent retirees.
Chief Financial Officer