20-F/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F/A
(Amendment No. 2)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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OR |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2005 |
OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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OR |
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 1-11130
ALCATEL
(Exact name of Registrant as specified in its charter)
ALCATEL
(Translation of Registrants name into English)
Republic of France
(Jurisdiction of incorporation or organization)
54, rue La Boétie
75008 Paris, France
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange |
Title of each class |
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on which registered |
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American Depositary Shares, each representing
one ordinary share,
nominal value
2 per share* |
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New York Stock Exchange |
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* |
Listed, not for trading or quotation purposes, but only in
connection with the registration of the American Depositary
Shares pursuant to the requirements of the Securities and
Exchange Commission. |
Securities registered or to be registered pursuant to
Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close
of the period covered by the annual report.
1,428,541,640 ordinary shares, nominal value
2 per
share
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes þ No o
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Yes o No þ
Note checking the box above will not relieve any
registrant required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 from their
obligations under those sections.
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark which financial statement item the
registrant has elected to follow:
Item 17 o Item 18 þ
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2 of the
Exchange Act).
Yes o No þ
TABLE OF CONTENTS
i
Explanatory Note
This amendment on Form 20-F/A (Amendment No. 2) to our
Annual Report on
Form 20-F for the
fiscal year ended December 31, 2005, filed with the
U.S. Securities and Exchange Commission (the
SEC) on March 31, 2006 (the Original
Report), as amended by Amendment No. 1 thereto, filed
with the SEC on August 4, 2006, is being filed for the
purpose of making a change in the Original Report, as amended by
Amendment No. 1 thereto, pursuant to comments we received
from the Staff of the SEC with respect to the reclassification
of our notes mandatorily redeemable for shares within the
caption Total non-current liabilities in our
classified balance sheet under U.S. GAAP.
We are including in this amendment currently-dated
certifications by our Chief Executive Officer and our Chief
Financial Officer, and an updated consent of our independent
auditors.
Other than the foregoing items, no part of the Original Report,
as amended by Amendment No. 1 thereto, is being amended.
Accordingly, this Amendment No. 2 does not reflect events
occurring after the filing of our Original Report and should not
be understood to mean that any other statements contained
therein are true and complete as of any date subsequent to
March 31, 2006. Investors should not rely upon this
amendment as a reiteration of forward-looking statements that
were made in the Original Report and are reprinted in this
Amendment.
1
PART I
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Item 1. |
Identity of Directors, Senior Management and Advisers |
Not applicable.
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Item 2. |
Offer Statistics and Expected Timetable |
Not applicable.
SELECTED FINANCIAL DATA
Alcatel Selected Consolidated Financial Data
In accordance with a regulation adopted by the European Union,
or EU, in July, 2002, all companies incorporated under the laws
of one of the member states of the EU and whose securities are
publicly traded within the EU are required to prepare their
consolidated financial statements for the fiscal year starting
on or after January 1, 2005 on the basis of accounting
standards issued by the International Accounting Standards
Board. Therefore, in accordance with these requirements, we
converted from using French generally accepted accounting
principles (French GAAP) to International Financial
Reporting Standards (IFRS), as adopted by the EU. As
used in this
Form 20-F, unless
the context otherwise indicates, the terms we,
us, our or similar expressions, as well
as references to Alcatel or the Group,
mean Alcatel and its consolidated subsidiaries.
As a first time adopter of IFRS at January 1, 2004, we have
followed the specific requirements described in IFRS 1
First Time Adoption of IFRS. The options selected
for the purpose of the transition to IFRS are described in the
notes to our 2005 consolidated financial statements included
elsewhere in this document. Impacts of the transition on the
balance sheet at January 1, 2004, the income statement for
the year ended December 31, 2004 and the balance sheet at
December 31, 2004 are presented and discussed in
Note 38 to our 2005 consolidated financial statements.
In accordance with General Instruction G.(c) to
Form 20-F, the
table below represents selected consolidated financial data for
Alcatel for the two-year period ended December 31, 2005 in
IFRS, which have been derived from the audited consolidated
financial statements of Alcatel and for the five-year period
ended December 31, 2005 in accordance with accounting
principles generally accepted in the United States
(U.S. GAAP). The selected consolidated
financial data are qualified by reference to, and should be read
in conjunction with, Alcatels consolidated financial
statements and the notes to those statements and
Item 5 Operating and Financial Review and
Prospects appearing elsewhere in this annual report.
IFRS differs from U.S. GAAP in certain significant
respects. For a discussion of significant differences between
U.S. GAAP and IFRS as they relate to Alcatels
consolidated financial statements and a reconciliation to
U.S. GAAP of net income and shareholders equity for
2005 and 2004, please refer to Notes 39 through 42 to our
2005 consolidated financial statements included elsewhere herein.
2
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At December 31, | |
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2005(1) | |
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2005 | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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(in millions) | |
Income Statement Data Amounts in accordance with IFRS
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Revenues
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$ |
15,554 |
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13,135 |
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12,244 |
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Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
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1,408 |
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1,189 |
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1,179 |
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Restructuring costs
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(130 |
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(110 |
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(324 |
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Income (loss) from operating activities
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1,349 |
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1,139 |
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707 |
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Income(loss) from continuing operations
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1,165 |
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984 |
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503 |
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Net income (loss)
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1,150 |
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971 |
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645 |
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Net income (loss) attributable to equity holders of the parent
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1,101 |
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930 |
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576 |
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Earnings per Ordinary Share
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Net income (loss) attributable to the equity holders of the
parent (before discontinued operations)
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Basic(2)
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0.82 |
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0.69 |
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0.32 |
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Diluted(3)
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0.82 |
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0.69 |
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0.31 |
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Dividends per ordinary
share(4)
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0.19 |
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0.16 |
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Dividend per
ADS(4)
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0.19 |
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0.16 |
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Amounts in accordance with
U.S. GAAP(5)
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Net sales
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$ |
15,547 |
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13,129 |
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12,663 |
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12,528 |
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16,549 |
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25,627 |
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Income (loss) from operations
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1,113 |
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940 |
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550 |
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(1,349 |
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(8,300 |
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(5,285 |
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Net income (loss)
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904 |
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763 |
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550 |
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(1,721 |
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(11,511 |
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(4,937 |
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Basic earnings per ordinary
share(2)
(6):
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Income (loss) before extraordinary items
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0.66 |
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0.56 |
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0.45 |
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(1.46 |
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(7.29 |
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(4.05 |
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Net income (loss)
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0.66 |
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0.56 |
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0.45 |
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(1.42 |
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(9.67 |
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(4.26 |
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Diluted earnings per ordinary
share(3)(6)
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Income (loss) before extraordinary items
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0.66 |
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0.55 |
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0.43 |
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(1.46 |
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(7.29 |
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(4.05 |
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Net income (loss)
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0.66 |
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0.55 |
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0.42 |
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(1.42 |
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(9.67 |
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(4.26 |
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Basic earnings per
ADS(6):
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Income (loss) before extraordinary items
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0.66 |
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0.56 |
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0.45 |
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(1.46 |
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(7.29 |
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(4.05 |
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Net income (loss)
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0.66 |
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0.56 |
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0.45 |
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(1.42 |
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(9.67 |
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(4.26 |
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Diluted earnings per
ADS(6):
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Income (loss) before extraordinary items
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0.66 |
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0.55 |
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0.43 |
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(1.46 |
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(7.29 |
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(4.05 |
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Net income (loss)
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0.66 |
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0.55 |
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0.42 |
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(1.42 |
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(9.67 |
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(4.26 |
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3
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For the Year Ended | |
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December 31, | |
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2005(1) | |
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2005 | |
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2004 | |
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Balance Sheet Data Amounts in accordance with IFRS
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Total assets
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$ |
24,656 |
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20,821 |
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20,342 |
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Marketable securities and cash and cash equivalents
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6,099 |
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5,150 |
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5,163 |
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Bonds, notes issued and other debt Long-term
part
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3,259 |
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2,752 |
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3,491 |
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Current portion of long-term debt
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1,239 |
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1,046 |
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1,115 |
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Capital Stock
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3,383 |
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2,857 |
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2,852 |
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Shareholders equity attributable to the equity holders of
the parent after appropriation
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7,111 |
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6,005 |
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4,920 |
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Minority interests
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565 |
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477 |
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373 |
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At December 31, | |
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2005(1) | |
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2005 | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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(In millions) | |
Amounts in accordance with
U.S. GAAP(5)
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Shareholders equity before appropriation
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$ |
10,325 |
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8,719 |
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6,864 |
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6,414 |
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8,184 |
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20,985 |
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Total
assets(7)
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28,639 |
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24,184 |
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23,888 |
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25,998 |
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30,435 |
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49,046 |
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Long-term debt
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3,450 |
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2,913 |
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3,628 |
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4,713 |
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5,070 |
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6,202 |
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(1) |
Translated solely for convenience into dollars at the noon
buying rate of
1.00 =
U.S. $1.1842 on December 31, 2005. |
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(2) |
Based on the weighted average number of shares issued after
deduction of the weighted average number of shares owned by
consolidated subsidiaries at December 31, without
adjustment for any share equivalent: |
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Ordinary shares: 1,367,994,653 in 2005 for IFRS earnings per
share and 1,367,994,653 for U.S. GAAP earnings per share;
1,349,528,158 in 2004 for IFRS earnings per share (including
120,780,519 shares related to bonds mandatorily redeemable
for ordinary shares) and 1,228,745,770 for U.S. GAAP
earnings per share; 1,211,579,968 in 2003, 1,190,067,515 in 2002
and 1,158,143,038 in 2001 for U.S. GAAP earnings per share. |
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(3) |
Diluted earnings per share takes into account share equivalents
having a dilutive effect after deduction of the weighted average
number of share equivalents owned by our subsidiaries. Net
income is adjusted for after-tax interest expense related to our
convertible bonds. The dilutive effect of stock option plans is
calculated using the treasury stock method. The number of shares
taken into account is as follows: |
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IFRS: ordinary shares: 1,376,576,909 in 2005 and 1,362,377,441
in 2004. |
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U.S. GAAP: ordinary shares: 1,377,183,582 in 2005;
1,363,661,187 in 2004; 1,211,579,968 in 2003; 1,190,067,515 in
2002 and 1,158,143,038 in 2001. |
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(4) |
Under French company law, payment of annual dividends must be
made within nine months following the end of the fiscal year to
which they relate. Our board of directors has announced that it
will propose at the annual shareholders meeting to be held
in 2006 to pay a dividend of
0.16 per
ordinary share and ADS for 2005. |
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(5) |
For information concerning the differences between IFRS and
U.S. GAAP for years 2005 and 2004, see notes 39 to 42
to our 2005 consolidated financial statements included elsewhere
herein. For information concerning the differences between
French GAAP and U.S. GAAP for 2003 through 2001, see the
notes to our prior consolidated financial statements filed as
part of our Annual Reports on Form 20-F for the years ended
December 31, 2004 and 2003. |
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(6) |
All ordinary share and per ordinary share data and all ADS and
per ADS data for the years ended December 31, 2002 and 2001
have been adjusted to reflect the conversion on April 17,
2003 of all of our outstanding Class O shares and
Class O ADSs into our ordinary shares and ADSs, as
applicable, on a
one-to-one basis. We no
longer have Class O shares trading on the Euronext Paris or
Class O ADSs trading on the NASDAQ National Market. |
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(7) |
Advance payments received from customers are not deducted from
the amount of total assets. See note 39(k) to our
consolidated financial statements included elsewhere herein. |
4
Exchange Rate Information
The table below shows the average noon buying rate of euro from
2001 to 2005. As used in this document, the term noon
buying rate refers to the rate of exchange for the euro,
expressed in U.S. dollars per euro, as announced by the
Federal Reserve Bank of New York for customs purposes as the
rate in The City of New York for cable transfers in foreign
currencies.
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Year |
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Average rate(1) | |
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2005
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$ |
1.2400 |
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2004
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$ |
1.2478 |
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2003
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1.1411 |
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2002
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1.0531 |
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2001
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0.8929 |
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(1) |
The average of the noon buying rate for euro on the last
business day of each month during the year. |
The table below shows the high and low noon buying rates
expressed in U.S. dollars per euro for the previous six
months.
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Period |
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High | |
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Low | |
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February 2006
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$ |
1.2100 |
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$ |
1.1860 |
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January 2006
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1.2287 |
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1.1980 |
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December 2005
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1.2041 |
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1.1699 |
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November 2005
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1.2067 |
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1.1667 |
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October 2005
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1.2148 |
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1.1914 |
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September 2005
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1.2538 |
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1.2011 |
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On March 30, 2006, the noon buying rate was
1.00 =
U.S. $1.2132.
RISK FACTORS
Risks Relating to our Operations
Our business, financial condition or results of operations could
suffer material adverse effects due to any of the following
risks. We have described the specific risks that we consider
material to our business but the risks described below are not
the only ones we face. We do not discuss risks that would
generally be equally applicable to companies in other
industries, due to the general state of the economy or the
markets, or other factors. Additional risks not known to us or
that we now consider immaterial may also impair our business
operations.
Renewed weakness in the telecommunications market could
once again have a material adverse effect on our business,
operating results and financial condition, and cause us to incur
net losses in the future.
Our business is extremely sensitive to market conditions in the
telecommunications industry. In the recent past, our operating
results were adversely affected due to unfavorable economic
conditions and reduced capital spending by carriers and
businesses, particularly in the United States and Europe. While
there has been some improvement in capital spending trends since
2003, it is difficult to know whether these trends will
continue. Capital spending for telecommunications equipment and
related services depends upon the extent of existing unused
capacity and the growth rate in voice and data traffic levels,
including growth in Internet and electronic commerce generated
traffic. If this capital spending does not increase from current
levels, or does not at least maintain its current level, the
market for our products may decline or fail to develop as
expected. This would result in reduced sales and the carrying of
excess inventory and may result in our incurring net losses once
again in the future.
5
If we fail to keep pace with rapid changes in technology,
our business could suffer.
Technology in the telecommunications industry continues to
advance at a rapid pace, particularly in the fields of mobile
telecommunication networks and services, data processing and
transmission. Failure to introduce or develop new products and
technologies in a timely manner or failure to respond to changes
in market demand may harm our business.
Our inability to compete effectively with existing or new
competitors could result in reduced revenues, reduced margins
and loss of market share.
The telecommunications equipment manufacturing industry
continues to have excess capacity and there has not been any
significant consolidation. Additionally, new competitors
continue to emerge and grow. Asian-based competitors are now
providing fierce competition not only in Asia but in other
markets as well. Accordingly, the industry remains highly
competitive and pricing pressures are intense across a wide
range of products and services. Some of our competitors have a
stronger position than us with respect to certain products or in
particular markets. Also, the continued strength of the euro
against the U.S. dollar and the major Asian currencies may
give a competitive advantage to those of our competitors that
incur a great portion of their costs outside the euro area.
Gross margins may be adversely affected by increased price
competition, excess capacity, higher material or labor costs,
obsolescence charges, additional inventory write-downs,
introductions of new products, increased levels of customer
services, changes in distribution channels, and changes in
product and geographic mix.
In order to maintain or increase market share and to acquire new
clients we may need to enter into contracts on terms that are
less advantageous to us than what has been our general practice
and as a result, our gross margin may be adversely impacted.
Our business requires significant amounts of cash, and we
may require additional sources of funds if our sources of
liquidity are unavailable or insufficient to fund our
operations.
Our working capital requirements and cash flows historically
have been, and are expected to continue to be, subject to
quarterly and yearly fluctuations, depending on a number of
factors. If we are unable to manage fluctuations in cash flow,
our business, operating results and financial condition may be
materially adversely affected. Factors which could lead us to
suffer cash flow fluctuations include:
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the level of sales; |
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the collection of receivables; |
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the timing and size of capital expenditures; and |
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customer financing obligations. |
In order to finance our business, we have entered into a
syndicated credit facility allowing for the drawdown of
significant levels of debt, but our ability to draw on this
facility is conditioned upon our compliance with a financial
covenant, and we can provide no assurance that we will be in
compliance with such covenant at all times in the future.
In the future, we may need to secure additional sources of
funding if our existing facility and borrowings are not
available or insufficient to finance our business. We can
provide no assurance that such funding will be available on
terms satisfactory to us. If we were to incur high levels of
debt, this would require a larger portion of our operating cash
flow to be used to pay principal and interest on our
indebtedness. The increased use of cash to pay indebtedness
could leave us with insufficient funds to finance our operating
activities, such as research and development expenses and
capital expenditures, which could have a material adverse effect
on our business.
Our short-term debt rating, though improved over the last two
years, allows us a limited access to the commercial paper
market, and the non-French commercial paper market is generally
not available to us on
6
terms and conditions that we find acceptable. Our ability to
access the capital markets and our financing costs are, in part,
dependent on Standard & Poors, Moodys or
similar agencies ratings with respect to our debt and
corporate credit and their outlook with respect to our business.
Our current short-term and long-term credit ratings as well as
any possible future lowering of our ratings may result in higher
financing costs and reduced access to the capital markets. We
can provide no assurance that our credit ratings will not be
reduced in the future by Standard & Poors,
Moodys or similar rating agencies.
Credit and commercial risks and exposures could increase
if the financial condition of customers declines.
A substantial portion of our sales are to customers in the
telecommunications industry. These customers often require their
suppliers to provide extended payment terms, direct loans or
other forms of financial support as a condition to obtaining
commercial contracts. As of December 31, 2005, net of
provisions, we had provided customer financing of approximately
301 million,
and we had outstanding commitments to provide further direct
loans or financial guarantees of approximately
97 million.
We expect to continue to provide or commit to financing where
appropriate for our business. Our ability to arrange or provide
financing for our customers will depend on a number of factors,
including our credit rating, our level of available credit, and
our ability to sell off commitments on acceptable terms.
More generally, as part of our business we routinely enter into
long-term contracts involving significant amounts to be paid by
our customers over time. Pursuant to these contracts, we may
deliver products and services representing an important portion
of the contract price before receiving any payment from the
customer.
As a result of the financing provided to customers and our
commercial risk exposure under long-term contracts, our business
could be adversely affected if the financial condition of our
customers erodes. Over the past few years certain of our
customers have filed with the courts seeking protection under
the bankruptcy or reorganization laws of the applicable
jurisdiction or have experienced financial difficulties. Upon
the financial failure of a customer, we have experienced, and in
the future may experience, losses on credit extended and loans
made to such customer, losses relating to our commercial risk
exposure, as well as the loss of the customers ongoing
business. Should additional customers fail to meet their
obligations to us, we may experience reduced cash flows and
losses in excess of reserves, which could materially adversely
impact our results of operations and financial position.
Our sales are made to a relatively limited number of large
customers. The loss of one of these customers or our inability
to obtain new customers would result in lower sales.
Historically, orders from a relatively limited number of
customers have accounted for a substantial portion of our
revenues and we expect that, for the foreseeable future, this
will continue to be the case. For example, in 2005 our 10
largest customers accounted for 28% of our revenues. However, no
single customer accounted for more than 10% of our revenues. In
addition, even if we are successful in attracting new customers,
new market entrants may not have access to sufficient financing
to purchase our products and equipment.
An increasing amount of our sales, particularly in mobile
networks, is made in emerging markets.
We continue to experience strong sales in emerging markets in
Asia, Africa and Latin America. This is particularly the case
with respect to mobile infrastructure products and related
services. In these markets we are faced with several risks that
are more significant than in other countries. These risks
include economies that may be dependent on only a few products
and therefore subject to significant fluctuations, weak legal
systems which may affect our ability to enforce contractual
rights, possible exchange controls, unstable governments,
privatization actions or other government actions affecting the
flow of goods and currency.
7
Our financial condition and results of operations may be
harmed if we do not successfully reduce market risks through the
use of derivative financial instruments.
Since we conduct operations throughout the world, a substantial
portion of our assets, liabilities, revenues and expenses are
denominated in various currencies other than the euro,
principally the U.S. dollar, and, to a lesser extent, the
British pound. Because our financial statements are denominated
in euros, fluctuations in currency exchange rates, especially
the U.S. dollar against the euro, could continue to have a
material impact on our reported results. From 2003 through 2005,
the relative strength of the euro against the U.S. dollar
had a significant negative impact on our revenues. The weakness
of the dollar against the euro has meant that competition is
particularly intense from competitors with a large part of their
costs outside the euro area. This has put pressure on our
margins and might continue to do so. If the dollar continues to
be weak against the euro in 2006, this may have a further
negative impact on our revenues and our margins. We also
experience other market risks, including changes in interest
rates and in prices of marketable equity securities that we own.
We use derivative financial instruments to reduce certain of
these risks. If our strategies to reduce market risks are not
successful, our financial condition and operating results may be
harmed.
Because of our significant international operations, we
are exposed to a variety of risks, many of which are beyond our
control.
In addition to the currency risks described elsewhere in this
section, our international operations are subject to a variety
of risks arising out of the economy, the political outlook and
the language and cultural barriers in countries where we have
operations or do business, which is virtually every country in
the world.
We have significant operations and sales in many countries
outside of Western Europe and North America, particularly in
Asia. As such, our business activities are exposed to shifting
government policies and legal systems that may not provide full
protection of intellectual property rights or contractual
commitments. Changes in government policies or an inability to
protect our legal rights may have an adverse impact on our
financial conditions.
As a result of being active in many countries we are continually
moving products from one country to another and we often provide
services in one country from a base in another. Accordingly, we
remain vulnerable to abrupt changes in customs and tax regimes
that may have significant negative impacts on our financial
condition and operating results.
We are involved in several significant joint ventures and
are exposed to problems inherent to companies under joint
management.
We are involved in several significant joint venture companies,
some of which are fully consolidated in our accounts. The
related joint venture agreements may require unanimous consent
or the affirmative vote of a qualified majority of the
shareholders to take certain actions, thereby possibly slowing
down the decision-making process.
Risks Relating to Ownership of our ADSs
The trading price of our ADSs may be affected by
fluctuations in the exchange rate for converting euro into
U.S. dollars.
Fluctuations in the exchange rate for converting euro into
U.S. dollars may affect the value of our ADSs.
If a holder of our ADSs fails to comply with the legal
notification requirements upon reaching certain ownership
thresholds under French law or our governing documents, the
holder could be deprived of some or all of the holders
voting rights and be subject to a fine.
French law and our governing documents require any person who
owns our outstanding shares or voting rights in excess of
certain amounts specified in the law or our governing documents
to file a report with us upon crossing this threshold percentage
and, in certain circumstances, with the French stock exchange
8
regulator (Autorité des marchés financiers). If
any shareholder fails to comply with the notification
requirements:
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the shares or voting rights in excess of the relevant
notification threshold may be deprived of voting power on the
demand of any shareholder; |
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all or part of the shareholders voting rights may be
suspended for up to five years by the relevant French commercial
court; and |
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the shareholder may be subject to a fine. |
Holders of our ADSs will have limited recourse if we or
the depositary fail to meet obligations under the deposit
agreement between us and the depositary.
The deposit agreement expressly limits our obligations and
liability and the obligations and liability of the depositary.
Neither we nor the depositary will be liable despite the fact
that an ADS holder may have incurred losses if the depositary:
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is prevented or hindered in performing any obligation by
circumstances beyond our control; |
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exercises or fails to exercise discretion under the deposit
agreement; |
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performs its obligations without negligence or bad faith; |
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takes any action based upon advice from legal counsel,
accountants, any person presenting our ordinary shares for
deposit, any holder or any other qualified person; or |
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relies on any documents it believes in good faith to be genuine
and properly executed. |
This means that there could be instances where you would not be
able to recover losses that you may have suffered by reason of
our actions or inactions or the actions or inactions of the
depositary pursuant to the deposit agreement. In addition, the
depositary has no obligation to participate in any action, suit
or other proceeding in respect of our ADSs unless we provide the
depositary with indemnification that it determines to be
satisfactory.
We are subject to different corporate disclosure standards
that may limit the information available to holders of our
ADSs.
As a foreign private issuer, we are not required to comply with
the notice and disclosure requirements under the Securities
Exchange Act of 1934, as amended, relating to the solicitation
of proxies for shareholder meetings. Although we are subject to
the periodic reporting requirement of the Exchange Act, the
periodic disclosure required of
non-U.S. issuers
under the Exchange Act is more limited than the periodic
disclosure required of U.S. issuers. Therefore, there may
be less publicly available information about us than is
regularly published by or about other public companies in the
United States.
Judgments of U.S. courts may not be enforceable
against us including those predicated on the civil liability
provisions of the federal securities laws of the United States
in French courts.
An investor in the United States may find it difficult to:
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effect service of process within the United States against us
and our
non-U.S. resident
directors and officers; |
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enforce U.S. court judgments based upon the civil liability
provisions of the U.S. federal securities laws against us
and our non-U.S.
resident directors and officers in both the United States and
France; and |
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bring an original action in a French court to enforce
liabilities based upon the U.S. federal securities laws
against us and our
non-U.S. resident
directors and officers. |
9
Preemptive rights may not be available for
U.S. persons.
Under French law, shareholders have preemptive rights to
subscribe for cash issuances of new shares or other securities
giving rights to acquire additional shares on a pro rata basis.
U.S. holders of our ADSs or ordinary shares may not be able
to exercise preemptive rights for their shares unless a
registration statement under the Securities Act of 1933 is
effective with respect to such rights or an exemption from the
registration requirements imposed by the Securities Act is
available. We may, from time to time, issue new shares or other
securities giving rights to acquire additional shares at a time
when no registration statement is in effect and no Securities
Act exemption is available. If so, U.S. holders of our ADSs
or ordinary shares will be unable to exercise their preemptive
rights.
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Item 4. |
Information on the Company |
History and Development
We are a leading, worldwide provider of a wide variety of
telecommunications equipment and services. With revenues of
13.1 billion
in 2005 and approximately 58,000 employees, we operate in more
than 130 countries. Our telecommunications equipment and
services enable our customers to send or receive virtually any
type of voice or data transmission. Our customers include fixed
line and wireless telecommunications operators, sometimes
referred to as carriers, Internet service providers, governments
and businesses.
Alcatel is a French société anonyme, established in
1898, originally as a publicly owned company. Alcatels
corporate existence will continue until June 30, 2086,
which date may be extended by shareholder vote. We are subject
to all laws governing business corporations in France,
specifically the provisions of the commercial code, the
financial and monetary code and decree No. 67-236 of
March 23, 1967, as amended to date.
Our registered office and principal place of business is 54, rue
la Boétie, 75008 Paris, France, our telephone number is 33
(1) 40.76.10.10 and our website address is www.alcatel.com.
The contents of our website are not incorporated into this
Form 20-F. The
address for Steven Sherman, our authorized representative in the
United States, is Alcatel USA, Inc., 3400 West Plano
Parkway, Plano, Texas 75075.
Our total capital expenditures were
638 million
for the year ended December 31, 2005 compared to
579 million
in 2004. Our capital expenditures are incurred in the ordinary
course of our business and operations and are generally funded
out of our cash flow from operations. Further information with
respect to capital expenditures and funding sources is set forth
in Item 5 Operating and Financial Review
and Prospects Liquidity and Capital
Resources.
Overview and Outlook
The telecommunications market continued to recover in 2005, with
a sustained demand for broadband services for data transmission
and voice and data services on wireless infrastructures. The
wireline market, in particular, grew during the second half of
2005, driven by the transformation of carrier networks to
Internet protocol (sometimes referred to as IP) and the
introduction of triple play (meaning voice, data and video)
services in the network. The wireless market also continued to
benefit from growth in emerging markets. The major
telecommunications carriers increased their capital spending to
meet this demand.
As a result of this improved market environment, our revenues
increased by 7.3% in 2005 as compared to 2004. Excluding the
impact of the currency exchange rate between the euro and the
U.S. dollar and other currencies linked to the
U.S. dollar, our revenues would have increased by 8.0%. For
2005, our gross margin was 35.3%, a slight decrease from 2004
reflecting competitive pricing pressure in our key markets, and
our operating margin was 9.1%.
We anticipate that the carrier market will continue to grow in
the mid-single digit range for the full year 2006. The wireline
market should accelerate with the deployment of IP television
services and the continued transformation of carrier networks
towards IP. The wireless market growth rate will most probably
slow down
10
compared to last year and will be focused on emerging market
needs and new applications across all geographical regions.
Alcatels rate of growth in 2006 will depend on a favorable
regulatory environment for fiber deployments, third generation
wireless deployments in China, and the rate at which carrier
networks transform their systems to IP. IP products and services
primarily sold to non-carriers (that is, businesses and
governmental and quasi-governmental entities) should continue to
present opportunities, particularly those business and entities
engaged in transport, energy and defense.
With respect to our business, we expect that the good dynamics
of year-end 2005 will continue into the first quarter of 2006,
with year-over-year revenue growth above 10%. Overall, with the
current limited visibility beyond mid-year, we expect a lower
growth rate for the second half compared to the first half, but
believe that our revenues should outpace the carrier market
growth for the full year 2006.
In terms of full year operating profitability, we anticipate a
slight improvement in the operating margin for 2006, taking into
account continuing competitive pressure in some markets.
On March 24, 2006, we issued a press release confirming
that we are engaged in discussions with Lucent about a potential
merger of equals that is intended to be priced at market. We
stated that there can be no assurances that any agreement will
be reached or that a transaction will be consummated, and that
we will have no further comment until an agreement is reached or
the discussions are terminated.
Highlights of Transactions during 2005
Acquisitions
Acquisition of Native Networks. On March 17, 2005,
we completed the acquisition of Native Networks, Inc., a
provider of optical Ethernet goods and services, for
U.S. $55 million in cash.
Dispositions
Sale of shareholding in Nexans. On March 16, 2005,
we sold our shareholding in Nexans, representing 15.1% of
Nexans share capital, through a private placement.
Sale of electrical power systems business. On
January 26, 2005, we completed the sale of our electrical
power business to Ripplewood, a U.S. private equity firm.
Other Transactions
Amendment of credit facility. On March 15, 2005, we
amended our existing syndicated revolving
1.3 billion
credit facility by extending the maturity date from June 2007 to
June 2009 with a possible extension until 2011, eliminating one
of the two financial covenants, reducing the cost of the
facility and reducing the overall amount to
1.0 billion.
Moodys upgrade of our long-term debt. On
April 11, 2005, Moodys upgraded to Bal from Ba3 the
ratings for our long-term debt on the basis of cost savings
achieved by us and our balance sheet strength.
Merger of space activities. On July 1, 2005, we
completed the merger of our space activities with those of
Finmeccanica, S.p.A., an Italian aerospace and defense company,
through the creation of two sister companies. We own
approximately 67%, and Alenia Spazio, a unit of Finmeccanica,
owns approximately 33%, of the first company, Alcatel Alenia
Space, that combines our respective industrial space activities.
Finmeccanica owns approximately 67%, and we own approximately
33%, of the second company, Telespazio Holding, which combines
our respective satellite operations and service activities.
Exchange of our interest in joint venture with TCL
Communication. On July 18, 2005, we exchanged our
45% shareholding in our joint venture with TCL Communication
Technology Holdings Limited (see Highlights of
Transactions during 2004 Other
Transactions Creation of joint venture for mobile
11
handset business below) for shares of TCL Communication,
which resulted in TCL Communication owning all of the joint
venture company and our owning 141,375,000 shares of TCL
Communication.
Highlights of Transactions during 2004
Acquisitions
Acquisition of Spatial Wireless. On December 16,
2004, we completed the acquisition of Spatial Communications
Technologies, Inc. for consideration consisting of our American
Depositary Shares, or ADSs, having a value of
223 million
(based on the market value of our ADSs on the date of the
acquisition). Spatial develops and markets mobile switching
equipment that can operate using any of the major mobile
technologies and related software. Through this acquisition we
are able to offer next-generation mobile switching equipment and
will facilitate our ability to provide carriers with systems
that can be updated relatively easily in the future.
Acquisition of eDial. On September 17, 2004, we
acquired eDial for consideration consisting of cash and ADSs
having an aggregate value of
22 million
(based on the market value of our ADSs on the date of the
acquisition). eDial provides conferencing and related services
for businesses and carriers. This acquisition complements our
communications software development strategy.
Dispositions
Sale of battery business. On January 14, 2004, we
completed the sale of our battery business, Saft, to Doughty
Hanson, a European private equity firm, for
390 million
in cash.
Other Transactions
Sale of a portion of shareholding in Avanex. On
December 14, 2004, we sold a portion of our shareholding in
Avanex in a block trade market transaction, which reduced our
shareholding in this company to 19.65% of its share capital.
Creation of joint venture for mobile handset business. On
August 31, 2004, our joint venture with TCL Communication
Technology Holdings Limited commenced operations. This joint
venture engaged in research and development, manufacturing, and
sales and distribution of mobile handsets and peripheral
devices. We contributed cash and our mobile handset business
having an approximate aggregate value of
45 million
in exchange for a 45% equity stake in the joint venture, and TCL
Communications contributed cash of
55 million
in exchange for a 55% equity stake in the joint venture.
Creation of joint venture for optical fiber cable
business. On July 1, 2004, we combined our global fiber
and communication cable business with that of Draka Holding,
N.V, a Dutch cable and cable systems producer, and created a new
company, Draka Comteq B.V., owned 50.1% by Draka and 49.9% by us.
Highlights of Transactions during 2003
Acquisitions
Acquisition of iMagicTV. On April 30, 2003, we
acquired, for 3.5 million of our ADSs having a market value
on that date of
26 million,
the 84% of the outstanding shares that we did not own of
iMagicTV, a Canadian supplier of software products and services
that enable service providers to create, deliver and manage
digital television and media services over broadband networks.
This acquisition, together with our acquisition of ThirdSpace
and Packet Video, enabled us to add to our portfolio of content
and systems integration products.
Acquisition of TiMetra. On July 18, 2003, we
acquired, for 18 million ADSs, having a market value on
that date of
145 million,
TiMetra, Inc., a privately held, Silicon Valley-based company
that produces routers (devices that interconnect computer
networks and move information from one network to another). The
customers for our routers are generally carriers.
12
Dispositions
Sale of optical components business. On August 1,
2003, we sold our optical components business to Avanex. Under
the terms of the agreement, we received 28% of Avanexs
stock. We contributed cash in the transaction in the amount of
U.S. $110 million, the majority of which related to
the restructuring of the optical business.
Sale of European factories. In 2003, we sold a number of
manufacturing facilities in Europe. The principal transactions
were: our Saintes, France factory that engaged in cutting,
stamping and general sheet metal work was sold, and 300
employees were transferred, to GMD, a French industrial company;
our Coutances, France factory that specialized in producing
printed circuit boards used in telecommunications applications
was sold in a leveraged management buyout and 220 employees were
transferred; our Hoboken, Belgium factory that produced
electro-mechanical devices was sold, and 241 employees were
transferred, to Scanfil Oyi. These facilities comprised nearly
80,000 square meters.
Sale of shareholding in Atlinks. On February 12,
2003, we exercised our option to sell our 50% shareholding in
Atlinks to Thomson, our joint venture partner. Atlinks is a
manufacturer of residential telephones. The sale price was
68 million.
Other Transactions
Conversion of Class O shares into our ordinary
shares. On February 3, 2003, our board of directors
decided to submit for approval a resolution at our annual
shareholders meeting to convert all outstanding
Class O shares and Class O ADSs into our ordinary
shares and ADSs, as applicable, on a one-for-one basis. This
decision was taken after our board analyzed the market
conditions of the opto-electronic industry and noted that the
conditions were very different than those that existed at the
time the Class O shares were created and that the
conditions in early 2003 negatively affected the Optronics
divisions performance and appeared likely to continue to
do so throughout 2003 and later. Our management believed that
the elimination of the tracking stock would give us more
flexibility as we addressed the future of the Optronics business
and continued to explore strategic alternatives for this
division. On April 17, 2003, our shareholders approved this
resolution and, immediately thereafter, all Class O shares
and Class O ADSs were converted into our ordinary shares
and ADSs, as applicable.
Business Organization
The organizational chart below sets forth our three business
segments and their principal business activities:
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Fixed Communications | |
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Mobile Communications | |
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Private Communications | |
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Access Networks Fixed Solutions Internet Protocol Optical Networks |
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Mobile Radio Mobile Solutions Wireless Transmission |
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Enterprise Solutions Space Solutions Transport Solutions Integration and Services |
For financial information by operating segment and geographic
market, see Note 4 to our consolidated financial statements
and Item 5 Operating and Financial Review
and Prospects.
Fixed Communications
General
Our Fixed Communications segment is comprised of the following
divisions: access networks, fixed solutions, internet protocol
(IP), and optical networks. This segment supplies a broad
portfolio of products and services used by carriers in all
facets of their network operations, from the carriers
central office to the end-user. In 2005, our Fixed
Communications segment had revenues of
5,213 million
(excluding inter-company sales), representing 39.7% of our total
revenues.
13
Access Networks
We are the worldwide leader in (in terms of annual revenues)
broadband access, including digital subscriber lines, or DSL.
Our access products consist of equipment that transports
information at high speeds, using a large bandwidth called
broadband, over existing copper wire telephone
lines. These broadband products enable carriers to generate
additional revenues by providing advanced services to their
residential and business customers. Our newest access Internet
Protocol (or IP)-based product, introduced in 2004, is designed
to accommodate expanding demand for new applications requiring
greater bandwidth. It permits carriers to offer voice, data and
video (triple play functionality), and to deliver to their
customers virtually unlimited broadcast channels, video on
demand, HDTV (high definition TV), VoIP (voice over IP), high
speed Internet, and business access services. Our products
permit carriers to serve the needs of their urban, suburban and
rural customers.
We believe that our large installed DSL base provides us with a
competitive advantage, as most carriers enhance their networks
with fiber-based services. Our fiber-based products enable the
delivery of high quality voice, high-speed data and high
definition interactive video, supporting hundreds of analog and
digital channels. These products are complementary to our DSL
products, depending on network configuration and the area of
installation.
Fixed Solutions
In addition to our broadband access infrastructure products
described above, our Open Media Suite enables carriers to
deliver broadband entertainment, permitting them to generate
potential new revenues from their broadband networks. By
offering carriers the ability to provide IPTV to their
customers, we enable carriers to create and deliver
entertainment services, such as broadcast TV, video on demand,
personal video recorder and other services, which can be
designed and customized for local markets.
We have market-leading positions in many countries in access,
signaling, switching and related equipment for voice
transmission. We are upgrading our voice offerings from both a
performance and a cost perspective. Moreover, we have worked
with carriers over the years to migrate their networks to the
latest technologies. Our next generation networking
(NGN) program addresses carriers needs to enhance
their service offerings, thereby generating new revenues, while
lowering the carriers related costs.
Internet Protocol
Our portfolio of data offerings is led by three
products our multiservice, multiprotocol switching
platform, a service router and our Ethernet service switch. Our
multiservice switching platform has been designed to provide
flexibility to carriers when they build and expand their
networks. This platform is based on a blend of technologies,
which has integrated Internet protocol and multiprotocol
switching functions, thereby allowing carriers to expand their
service offerings at their option and to adapt their networks to
meet the growth of traffic over the Internet. A service router
is a device that interconnects computer networks and moves
information from one network to another. Our Ethernet service
switch, introduced in 2004, enables carriers to deliver virtual
private networks, or VPNs, and triple play offerings (data,
voice and video) using an Ethernet standard. Each of these
products is designed to deliver high margin data services,
including the full variety of network-based virtual private
networks and other data services used for business applications.
The service router features a new generation of processing power
and many customized and scaleable applications designed to
appeal to carriers. It provides high value, differentiated IP
services to businesses. We believe our product provides services
and applications that go well beyond what is possible with the
single purpose routing products that are generally available
today.
We have developed an Internet protocol portfolio of products to
meet our customers varying requirements. For instance, our
multiservice switch platform can interface with our service
router to deliver seamless networking services regardless of
technology. Seamless interfacing between the two products allows
carriers to combine their newer Internet protocol or
Ethernet-based networking products with their older network or
base of services to offer customers a smooth service migration
to these more advanced technologies.
14
Optical Networks
Our optical networks division produces equipment to transport
information for long distances over land (terrestrial) and
undersea (submarine), as well as for short distances in
metropolitan and regional areas. According to industry analyst
OVUM/ RHK, we have had the largest optical networking market
share since 2001.
Terrestrial. Our terrestrial products are designed for
long haul and metropolitan/regional applications. With our
products, carriers can manage voice, data and video traffic
patterns based on different applications or platforms and
benefit from new competitive service offerings by introducing a
wide variety of data-managed services, including different
service quality capabilities, variable service rates and traffic
congestion management. Most importantly, these products allow
our customers to offer these new services without impacting
their existing investment program for their current networks.
Our metro WDM (wave division multiplexing) products address
carriers requirements for cost-effective networks to meet
their growing business and data networking needs. Our products
are scaleable, in that they permit our customers to easily
enlarge their networks as their business and data networking
needs grow. These products provide cost-effective, managed
platforms that support different services and are suitable for
applications in diversified network configurations.
Submarine. We are an industry leader in the development,
manufacture, installation and management of undersea
telecommunications cable networks. Our submarine network systems
can connect continents (using regeneration due to the long
distances), as well as span distances up to 400km (using no
regeneration) to connect mainland and an island, or several
islands together or many points along a coast.
Mobile Communications
General
Our Mobile Communications segment serves the needs of wireless
carriers throughout the world. We provide an extensive range of
mobile communications products and services, including radio
access and core network hardware and software, applications
hardware and software and a wide range of services, including
installation, maintenance and operation systems. In 2005, our
Mobile Communications segment had revenues of
4,096 million
(excluding inter-company sales), accounting for 31.2% of our
total revenues.
Mobile Radio
We develop Evolium mobile radio products for all major mobile
technologies GSM/ GPRS/ EDGE and UMTS. Our mobile
radio products are designed to minimize total cost of ownership
through a continuous re-engineering program and the use of a
highly modular framework that facilitates rapid network
deployment and expansion, flexible network evolution, including
the easy introduction of new technologies and easier
maintenance, and allows for the evolution to a third generation,
or 3G, network without loss of operability.
Global System for Global Communications/ General Packet Radio
Service, or GSM/ GPRS, remains by far the worlds dominant
mobile technology and is increasingly in demand in emerging
countries. Enhanced Data rates for GSM Evolution, or EDGE,
provides a relatively simple, cost-effective development step
beyond GSM/ GPRS that can be an alternative to, or complement,
the implementation of UMTS (described below). Compared to GSM/
GPRS, the main benefits of EDGE are higher data transmission
speeds, better geographic coverage and improved operating
characteristics. EDGE does not support the full range of
services provided by UMTS such as video-telephony and cannot
compete with UMTS data transmission speeds. However, EDGE can be
faster and cheaper to deploy and has better coverage in rural
areas deployments. All of our Evolium base stations have been
shipped fully EDGE-ready since early 2001, enabling EDGE to be
introduced through an easy software upgrade, with no need for
site visits.
UMTS. Universal Mobile Telephone Communications Systems,
commonly referred to as UMTS or 3G, represents an important
evolutionary step over GSM/ GPRS/ EDGE networks in terms of
services, voice quality and data transmission speeds. Our joint
venture with Fujitsu, launched in 2000, provides us with
competitive and comprehensive UMTS mobile radio network
products. Our existing customers that utilize Evolium GSM
15
base stations and that wish to migrate to 3G systems can do so
relatively easily and inexpensively by incorporating our 3G
modules into their systems. Similarly, customers wishing to
migrate their systems to the even more advanced HSDPA (High
Speed Downlink Packet Access), followed next year by HSUPA (High
Speed Uplink Packet Access), will be able to do so through a
relatively simple software upgrade to their existing systems.
In 2004, we formed an alliance with Intel for the development of
end-to-end solutions
using wiMAX standards (Worldwide Interoperability for Microwave
Access) that provide broadband connectivity over wireless
networks. We expect that these wiMAX products, based on our
Evolium portfolio of products, will be available in 2006. These
products will be especially important for emerging countries,
which generally do not have an extensive existing network of
installed landlines. We also have an alliance with Datang Mobile
to foster the development of the 3G mobile standard, TD-SCDMA,
in China. During 2005, we entered into a non-exclusive agreement
with a Chinese equipment vendor, ZTE, under which they provide
us with radio equipment for sale in China. In addition, we have
a number of partnerships for the development of equipment and
services based on Advanced Telecom Computing Architecture
(ATCA), a standard that reduces the cost and complexity of our
customers mobile infrastructure.
Mobile Solutions
Our mobile solutions business consists of core network products
and software applications. In software applications, our
extensive range of platforms and software products enables
mobile operators to deliver new value-added mobile services.
End-user needs addressed by our products include personal
multimedia communication, access to information and
entertainment services, and mobile commerce. We are a leader in
intelligent network platforms and services with over 110
customers worldwide, and we are recognized by industry analysts
for our multimedia services (for instance, mobile music and
mobile video) and convergent payment applications (voice/data,
pre/post-paid).
Pioneering a major industry shift, Alcatel is driving network
transformation across all layers. With the introduction of
IT-based platforms, Alcatel is providing higher capacity and
scalability, built-in modularity to more quickly capture IT
innovation, software-based evolution and simplified operation
and maintenance.
At the network level, we are helping operators evolve toward a
services-enhanced, all-IP environment, thereby reducing network
complexity and costs.
Moreover, our Unlicensed Mobile Access (UMA) products
enable roaming between cellular networks and WiFi and Bluetooth
networks. These products offer both a standalone and combined
NGN-UMA solution, which can be cost-effectively integrated into
legacy and NGN core networks.
At the services level, our next generation network architecture
is IMS-ready, which is a new standard evolving in the wireless
market referring to the IP Multimedia Subsystem. Providing
real-time, IP multimedia communications for mobile networks, our
IMS products can be deployed with minor modifications to the NGN
core.
Wireless Transmission
We offer a comprehensive
point-to-point
portfolio of microwave radio products meeting both European
telecommunications standards (ETSI) and American
standard-based (ANSI) requirements. These products include
high, low and medium capacity microwave systems for
carriers transmission systems, mobile backhauling
applications, fixed broadband applications and private
applications in vertical segments like digital television
broadcasting, defence and security, energy and utilities. As a
complement to optical fiber and other wireline systems, our
portfolio of wireless equipment supports a full range of
network/radio configurations, network interfaces and frequency
bands with high spectrum efficiency. We market wireless
transmission equipment that can be managed by our complementary
software platforms in a fixed or mobile environment.
16
Private Communications
General
Our Private Communications segment develops communications
products, applications and services, which we market to medium
and large communication-intensive businesses and other
organizations, particularly those involved in transportation,
oil/gas and utilities, banking and finance and security, as well
as governmental agencies. Our Private Communications segment
also provides a broad range of satellite systems that include
the high speed transport of voice, data and multimedia
communications. In 2005, our Private Communications segment had
revenues of
3,918 million
(excluding intercompany sales), accounting for 29.8% of our
total revenues.
Enterprise Solutions
We produce hardware and software communications products that we
market to enterprise users and that are designed to improve
their communications systems. Our enterprise product portfolio
includes voice and data applications, such as hybrid Internet
protocol, or IP, telephone systems, call center software and
applications, and IP networking products.
Our enterprise communications products are based on open
industry standards and protocols to support our customers
current systems and future communications needs. We offer our
customers equipment that can be easily upgraded, and we (through
our business partners) provide on-premise installations, support
and related services. Our call center products help businesses
manage customer interactions and communications, as well as
customer service operations and staffing, enabling businesses to
intelligently route all incoming customer interactions in real
time, including phone, email and Web contacts. We were
recognized by several analyst firms, including Gartner and
Forrester Research, as a leading supplier of enterprise voice
and data products in 2005. According to industry analyst,
Infonetics Research (published February 2006), in 2005, we had
the highest revenues of any company for IP private branch
exchanges, or PBXs, in Europe.
We continue to work with our partners resulting from some
significant partnerships we formed in 2004 to support our
enterprise business. For the U.S. market, we work under a
distribution agreement with a major
U.S.-based carrier that
permits it to sell the entire Alcatel portfolio of enterprise
voice and data products. Our contact center software subsidiary
has a strategic agreement with Microsoft to deliver products
that link telephony and instant messaging applications to
deliver real-time voice and data enterprise communications.
Space Solutions
During 2005, we successfully merged our space activities with
those of Finmeccanica, S.P.A., an Italian aerospace and defense
company. We formed two companies as a result of this merger, one
for the production of products for the industrial space sector,
named Alcatel Alenia Space, of which we own 67%, and the second
one named Telespazio Holding, to provide services related to
satellite activities, of which we own 33%. Alcatel Alenia Space
booked orders for four satellites in 2005. The space activities
referred to below in this section are conducted through these
two companies.
We develop a broad range of satellites and related space-based
technology for the private and public sectors for use in
telecommunications, navigation, optical and radar observation,
meteorology, and other scientific fields. We continue to develop
satellite telecommunication products for broadband access,
wireless local loop backhaul, and GSM/ GPRS backhaul. In
addition, we have added satellite Internet protocol applications
to our portfolio of products and services.
For the public sector, we provide space-based products and
services, including applications for telecommunications,
navigation, radar and optical observation. We are also a strong
contributor to the Galileo project (satellite navigation
system), to the GMES project (Global Monitoring for Environment
and Security) and to studies for the development of future
communication satellites.
17
Transport Solutions
We provide control and signaling system products and services
for trains and subways around the world. We have developed a new
generation of train routing systems (electronic interlocking)
and train control systems (European train control systems for
main line and communications based train control for Automated
Metro), that use computer platforms to execute complex safety
related functions in order to improve the safety of rail
networks and at the same time to increase efficiency (more
trains on the same infrastructure), thus improving passenger
service.
We continue to develop strategic new products, such as
radio-based train control (first commercial application
commissioned in Las Vegas in the fourth quarter of 2004) and
urban electronic interlocking (first commercial application in
New York in 2005). We maintained our position as a leader in the
European train control system (ETCS) market and
successfully completed the first commercial, cross-border,
interoperable ETCS solution on the rail corridor between Vienna
and Budapest (which became fully operational in 2005). We have
key roles in the supply of four high speed ETCS lines in Spain.
Integration and Services
We plan, design, install, operate and maintain communication
networks for our carrier and our non-carrier customers. We
tailor these networks to our customers objectives and
infrastructure requirements: voice or data, wireless or
wireline, regional or national, or any combination thereof. The
networks that we serve can consist entirely of our comprehensive
portfolio of products and applications, or can integrate
products or services produced or supplied by others. Through our
network of Regional Support Centers that manage customer
projects, we can deploy, manage and upgrade all aspects of our
customers networks. The integration and services division
provides the following: Network Design and Build
responsible for turnkey communication projects in wireline,
wireless and vertical markets; Outsourcing
responsible for outsourcing and network support services,
including operations and maintenance; and Software and Systems
Integration responsible for software and systems
integration for the management of networks.
In 2005, we continued our strategy to improve and expand our
service portfolio to include network outsourcing for carriers
and system integration of important communication networks for
non-carriers. These two strategic directions are intended to
improve and expand the services we offer. By outsourcing their
network activities to us, our customers seek to shift their
focus from managing infrastructure to developing new customer
services and optimizing their processes to gain efficiency.
Marketing and Competition
Marketing and Distribution
We sell substantially all of our products, other than our
private branch exchange products which are sold by distributors,
through our direct sales force worldwide, except in China where
our products are also marketed through joint ventures that we
have formed with Chinese companies.
Competition
We have one of the broadest product and services offerings in
the telecommunications service provider market, both for the
carrier and non-carrier markets. Our addressable market segment
is very broad and our competitors include large companies, such
as Avaya, Cisco, Ericsson, Fujitsu, Huawei, Lucent, Motorola,
Nokia, Nortel and Siemens. There are also a number of smaller
companies that we consider to be competitors, in one segment or
another.
We believe that technological advancement, quality, reliable
on-time delivery, product cost, flexible manufacturing
capacities, local field presence and long-standing customer
relationships are the main factors that distinguish competitors
of each of our segments in their respective markets.
18
Research and Development and Intellectual Property
Research and Development
As of December 31, 2005, 15,600 of our employees occupied
research and development positions, of which 19% were based in
North America, 32% were based in Western Europe, 30% were based
in Eastern Europe, Asia and India and the remainder were based
elsewhere. In 2005, our research and development expenses were
1,443 million,
representing 11.0% of our 2005 revenues after the impact of the
capitalization of development expenses
(1,544 million,
or 11.8% of 2005 revenues, before capitalization of development
expenses). For a detailed discussion of our research and
development expenditures for the past three years and certain
accounting policies relating to our research and development and
acquired technologies, see Item 5
Operating and Financial Review and Prospects.
Research and development is one of our key priorities,
particularly the development of key technologies for the carrier
telecommunications market. We continue to reduce spending on
mature technologies, discontinue non-competitive programs and
non-core programs, slow down research and development in
non-urgent programs, such as the development of advanced optical
technologies, and reduce capital expenditures relating to
investments in platforms, test tools, and certain development
efforts. We also adopted measures intended to promote the reuse
of existing technology, particularly among our business
segments, the introduction of new processes to increase
efficiency, especially in the area of software production; and
to focus on mid-term customer requirements to develop products
and services that will increase our customers revenues.
Our research centers are now built around six centers worldwide:
three in Europe (France, Belgium, Germany), two in North America
(Canada and the United States), and one in Asia (China).
In addition to our continued focus on cost efficiency, key
priorities in 2005 included pursuing developments in broadband
access, second and third generation technology in mobile
communications, next generation transmission technologies, IP
and converged fixed/mobile applications.
Most of our research and development effort is under the direct
control of our business groups and divisions in order to provide
flexible and customer-oriented development and rapid utilization
of innovations in new products and applications.
Intellectual Property
We rely on patent, trademark, trade secret and copyright laws
both to protect our proprietary technology and to protect us
against claims from others. We believe that we have direct
intellectual property rights or rights under licensing
arrangements covering substantially all of our material
technologies. However, there can be no assurance that claims of
infringement will not be asserted against us or against our
customers in connection with their use of our systems and
products, nor can there be any assurance as to the outcome of
any such claims, given the technological complexity of our
systems and products.
We consider patent protection to be particularly important to
our businesses due to the emphasis on research and development
and intense competition in our markets. We filed 700 patent
applications in 2005 and have a patent portfolio of
approximately 10,000 patent families. We do not believe that any
single patent or group of related patents is material to our
business as a whole.
Sources and Availability of Materials
We make significant purchases of electronic components,
aluminum, steel, precious metals, plastics and other materials
and components from many domestic and foreign sources. We
continue to develop and maintain alternative sources of supply
for essential materials and components. We believe that we will
be able to obtain sufficient materials and components from
European and other world market sources to meet our production
requirements.
19
Properties
We have administrative, production, manufacturing and research
and development facilities worldwide. A substantial portion of
our production and research activities in all business areas is
conducted in France and China. We also have operating affiliates
and production plants in many other countries, including
Germany, Italy, Spain, Belgium, Denmark, the United Kingdom,
India, the United States, Brazil and Mexico. As of
December 31, 2005, our total global productive capacity was
approximately 398,000 square meters (of which,
approximately 80% is owned and the remainder is leased), as
described below.
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North | |
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Rest of | |
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Business Group |
|
Europe | |
|
America | |
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World | |
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Total | |
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| |
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| |
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| |
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| |
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|
(in thousands of square meters) | |
Fixed Communications
|
|
|
141 |
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|
|
5 |
|
|
|
24 |
|
|
|
170 |
|
Mobile Communications
|
|
|
37 |
|
|
|
34 |
|
|
|
31 |
|
|
|
102 |
|
Private Communications
|
|
|
124 |
|
|
|
2 |
|
|
|
|
|
|
|
126 |
|
|
|
|
|
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|
|
|
|
|
|
|
|
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Group Total
|
|
|
302 |
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|
|
41 |
|
|
|
55 |
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|
|
398 |
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|
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|
|
|
We believe that our current facilities are in good condition and
adequate to meet the requirements of our present and foreseeable
future operations.
We have been largely outsourcing the manufacturing of many of
our telecommunications products in an effort to obtain greater
flexibility to adapt quickly to economic and market changes. In
order to decrease our costs, we are focused on shifting our
production to utilize contract manufacturers.
Our Activities in Certain Countries
We operate in more than 130 countries, some of which have been
accused of human rights violations, are subject to economic
sanctions by the U.S. Treasury Departments Office of
Foreign Assets Control or have been identified by the
U.S. State Department as state sponsors of terrorism. Some
U.S.-based pension
funds and endowments have announced their intention to divest
the securities of companies doing business in some of these
countries and some state and local governments have adopted, or
are considering adopting, legislation that would require their
state and local pension funds to divest their ownership of
securities of companies doing business in those countries. Our
net revenues attributable to these countries represented less
than one percent of our total net revenues. We estimate that
U.S.-based pension
funds and endowments own approximately 1.4% of our outstanding
stock, and most of these institutions have not indicated that
they intend to effect such divestment.
Environmental Matters
We are subject to national and local environmental and health
and safety laws and regulations that affect our operations,
facilities and products in each of the jurisdictions in which we
operate. These laws and regulations impose limitations on the
discharge of pollutants into the air and water, establish
standards for the treatment, storage and disposal of solid and
hazardous waste and may require us to clean up a site at
significant cost. We have incurred significant costs to comply
with these laws and regulations and we expect to continue to
incur significant compliance costs in the future.
It is our policy to comply with environmental requirements and
to provide workplaces for employees that are safe and
environmentally sound and that will not adversely affect the
health or environment of communities in which we operate.
Although we believe that we are in substantial compliance with
all environmental and health safety laws and regulations and
that we have obtained all material environmental permits
required for our operations and all material environmental
authorizations required for our products, there is a risk that
we may have to incur expenditures significantly in excess of our
expectations to cover environmental liabilities, to maintain
compliance with current or future environmental and health and
safety laws and regulations or to undertake any necessary
remediation.
20
Seasonality
Our quarterly results reflect seasonality in the sale of our
services and products. Sales are generally stable over the first
three quarters of the year, with the strongest sales in the
fourth quarter.
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Item 4A. |
Unresolved Staff Comments |
Not applicable.
|
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Item 5. |
Operating and Financial Review and Prospects |
Forward-Looking Information
This Form 20-F,
including the discussion of our Operating and Financial Review
and Prospects contains forward-looking statements based on
beliefs of our management. We use the words
anticipate, believe, expect,
may, intend, should,
plan, project, or similar expressions to
identify forward-looking statements. Such statements reflect our
current views with respect to future events and are subject to
risks and uncertainties. Many factors could cause the actual
results to be materially different, including, among others,
changes in general economic and business conditions, changes in
currency exchange rates and interest rates, introduction of
competing products, lack of acceptance of new products or
services and changes in business strategy. Such forward-looking
statements include, but are not limited to, the forecasts and
targets set forth in this
Form 20-F, such as
the discussion in Item 4 Information on
the Company History and Development
Overview and below in this Item 5 under the heading
Overall Perspective with respect to (i) our
anticipation that the carrier market will continue to grow in
the mid-single digit range for the full year 2006, (ii) our
expectation that for the first quarter of 2006 we will have a
year-over-year revenue growth above 10%, and that for the second
half of the year we will have a lower growth rate than for the
first half, (iii) our view that our revenues should outpace
the carrier market growth for the full year 2006, and that our
operating margin for such period will reflect a slight
improvement, (iv) expected cash receipts, capital
expenditures and other cash outlays in 2006 and (v) the
amount we would be required to pay in the future pursuant to our
existing contractual obligations and off-balance sheet
contingent commitments, included below in this Item 5 in
this discussion under the heading Contractual obligations
and off-balance sheet contingent commitments.
Presentation of Financial Information
The following discussion of our financial condition and results
of operations should be read in conjunction with our
consolidated financial statements and the related notes
presented elsewhere in this document. Our consolidated financial
statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by
the European Union, which differ in certain significant ways
from accounting principles generally accepted in the
United States (U.S. GAAP). IFRS, as
adopted by the European Union, differs in certain respects from
the International Financial Reporting Standards issued by the
International Accounting Standards Board. However, our
consolidated financial statements for the year presented in this
document in accordance with IFRS would be no different if we had
applied International Financial Reporting Standards issued by
the International Accounting Standards Board. References to
IFRS in this
Form 20-F refer to
IFRS as adopted by the European Union. The most significant
differences that affect the presentation of our financial
results relate to the accounting treatment of business
combinations before the date of transition to IFRS
(January 1, 2004), capitalization of development costs,
accounting of post-employment benefits, accounting for
share-based payment transactions, accounting of compound
financial instruments, accounting for sale and leaseback
transactions and accounting for restructuring costs. For a
discussion of the significant differences between IFRS and
U.S. GAAP as they relate to our consolidated financial
statements, and a reconciliation of our net income (loss) for
the period ended December 31, 2005 and shareholders
equity as of that date to U.S. GAAP, please refer to
Notes 39 through 42 in our consolidated financial
statements included elsewhere in this document.
As permitted by release
No. 33-8567
First-time application of International Financial Reporting
Standards issued by the U.S. Securities and
Exchange Commission (the SEC), we are filing for our
first
21
year of reporting under IFRS in this Annual Report on
Form 20-F for the
fiscal year ended December 31, 2005 two years rather than
three years of statements of income, changes in
shareholders equity and cash flows prepared in accordance
with IFRS, with appropriate related disclosure required by this
SEC release concerning exceptions to IFRS and reconciliation to
previous generally accepted accounting principles applied by us.
Changes in Accounting Standards as of January 1, 2005
Before January 1, 2005 our consolidated financial
statements were prepared in accordance with French GAAP.
Effective January 1, 2005 we adopted IFRS, along with other
European listed companies, in accordance with European Union
regulations. This requires us to present our 2005 consolidated
financial statements, together with 2004 comparative
information, in accordance with IFRS.
As indicated in our consolidated financial statements included
elsewhere in this document, our accounts for 2005 and
comparative data for 2004 were prepared by applying IFRS, as
adopted by the European Union. IFRS includes the International
Accounting Standards (IASs) approved by the
International Accounting Standards Board (IASB) and
the accounting interpretations issued by the International
Financial Reporting Interpretations Committee
(IFRIC) or the former Standing Interpretations
Committee (SIC).
The principal areas that have been affected by the change from
French GAAP to IFRS are described in the section Main
Areas Affected by the Change from French GAAP to IFRS, on
page 42 of this document, and the exemptions to IFRS that
we elected as a first time adopter of IFRS are described in the
section Exemptions to IFRS on page 46 of this
document.
Critical Accounting Policies
Our Operating and Financial Review and Prospects is based on our
consolidated financial statements, which are prepared in
accordance with IFRS as described in Note 1 to our
consolidated financial statements. As noted above, the principal
differences between IFRS and U.S. GAAP are detailed in the
Notes to our consolidated financial statements. Some of the
accounting methods and policies used in preparing our
consolidated financial statements under IFRS and the
reconciliation of our net income and shareholders equity
to U.S. GAAP are based on complex and subjective
assessments by our management or on estimates based on past
experience and assumptions deemed realistic and reasonable based
on the circumstances concerned. The actual value of our assets,
liabilities and shareholders equity and of our earnings
could differ from the value derived from these estimates if
conditions changed and these changes had an impact on the
assumptions adopted.
We believe that the accounting methods and policies listed below
are the most likely to be affected by these estimates and
assessments:
Valuation allowance for inventories and work in
progress
Inventories and work in progress are measured at the lower of
cost or net realizable value. Valuation allowances for
inventories and work in progress are calculated based on an
analysis of foreseeable changes in demand, technology or the
market, in order to determine obsolete or excess inventories and
work in progress.
The valuation allowances are accounted for in cost of sales or
in restructuring costs depending on the nature of the amounts
concerned.
Significant write-downs of inventories and work in progress were
accounted for in the past because of difficult market conditions
and the abandonment of certain product lines. The impact of
these write-downs on our income before tax was a net charge of
18 million
in 2005, representing new write-downs taken in 2005 which more
than offset the reversal of existing provisions of
120 million
due to asset sales that occurred in 2005, compared to a net gain
of
20 million
in 2004.
Because of the revival in the telecommunications market, our
future results could continue to be positively impacted by the
reversal of valuation allowances previously made.
22
Impairment of customer receivables and loans
An impairment loss is recorded for customer receivables and
loans if the present value of the future receipts is below the
nominal value. The amount of the impairment loss reflects both
the customers ability to honor their debts and the age of
the debts in question. A higher default rate than estimated or
the deterioration of our major customers creditworthiness
could have an adverse impact on our future results. Impairment
losses on customer receivables were
228 million
at December 31, 2005
(284 million
at December 31, 2004). The impact of impairment losses for
customer receivables and loans on income before tax was a net
gain of
19 million
in 2005 (a net gain of
43 million
in 2004).
Impairment losses on customer loans and other financial assets
(assets essentially relating to customer financing arrangements)
were
897 million
at December 31, 2005
(908 million
at December 31, 2004). The impact of these impairment
losses on income before tax was a net gain of
25 million
in 2005 (a net gain of
77 million
in 2004).
Capitalized development costs, goodwill and other
intangible assets
The criteria for capitalizing development costs are set out in
Note 1f. Once capitalized, these costs are amortized over
the estimated lives of the products concerned.
We must therefore evaluate the commercial and technical
feasibility of these projects and estimate the useful lives of
the products resulting from the projects. Should a product fail
to substantiate these assumptions, we may be required to impair
or write off some of the capitalized development costs in the
future.
We also have intangible assets acquired for cash or through
business combinations and the goodwill resulting from such
combinations.
As indicated in Note 1g to our consolidated financial
statements included elsewhere herein, in addition to the annual
goodwill impairment tests, timely impairment tests are carried
out in the event of indications of reduction in value of
intangible assets held. Possible impairments are based on
discounted future cash flows and/or fair values of the assets
concerned. A change in the market conditions or the cash flows
initially estimated can therefore lead to a review and a change
in the impairment loss previously recorded.
Net goodwill was
3,772 million
at December 31, 2005
(3,774 million
at December 31, 2004). Other intangible assets, net were
819 million
at December 31, 2005
(705 million
at December 31, 2004).
Impairment of property, plant and equipment
In accordance with IAS 36 Impairment of Assets, when
events or changes in market conditions indicate that tangible or
intangible assets may be impaired, such assets are reviewed in
detail to determine whether their carrying value is lower than
their recoverable value, which could lead to recording an
impairment loss (recoverable value is the higher of its value in
use and its fair value less costs to sell) (see Note 1g to
our consolidated financial statements included elsewhere
herein). Value in use is estimated by calculating the present
value of the future cash flows expected to be derived from the
asset. Fair value less costs to sell is based on the most
reliable information available (market statistics, recent
transactions, etc.).
The planned closing of certain facilities, additional reductions
in personnel and reductions in market outlooks have been
considered impairment triggering events in prior years. No
significant impairment losses were recorded in 2005 or 2004.
When determining recoverable value of property, plant and
equipment, assumptions and estimates are made, based primarily
on market outlooks, obsolescence and sale or liquidation
disposal values. Any change in these assumptions can have a
significant effect on the recoverable amount and could lead to a
revision of recorded impairment losses.
23
Provision for warranty costs and other product sales
reserves
Provisions for product sales cover probable liabilities arising
from past and current sales contracts and are mainly related to
claims made by customers for non-fulfillment of contractual
obligations, warranty and retrofits, fines and penalties.
Provisions are recorded for warranties given to customers on our
products or for expected losses and for penalties incurred in
the event of failure to meet contractual obligations on
construction contracts. These provisions are calculated based on
historical return rates and warranty costs expensed as well as
on estimates. These provisions and subsequent changes to the
provisions are recorded in cost of sales either when revenue is
recognized (provision for customer warranties) or, for
construction contracts, when revenue and expenses are recognized
by reference to the stage of completion of the contract
activity. Costs and penalties that will be effectively paid can
differ considerably from the amounts initially reserved and
could therefore have a significant impact on future results.
Product sales reserves represented
753 million
at December 31, 2005, of which
173 million
related to construction contracts (see Note 18 to our
consolidated financial statements included elsewhere herein)
(933 million
and
271 million,
respectively, at December 31, 2004). For further
information on the impact on net income (loss) of the change in
these provisions, see Consolidated Results of Operations for the
Year Ended December 31, 2005 Compared to the Year Ended
December 31, 2004, Income (loss) from operating activities
before restructuring, share-based payments, impairment of
capitalized development costs and gain on disposal of
consolidated entities in this section and Notes 18 and 27
to our consolidated financial statements included elsewhere
herein.
Deferred taxes
Deferred tax assets relate primarily to tax loss carryforwards
and to deductible temporary differences between reported amounts
and the tax bases of assets and liabilities. The assets relating
to the tax loss carryforwards are recognized if it is probable
that the Group will dispose of future taxable profits against
which these tax losses can be set off.
At December 31, 2005, deferred tax assets were
1,606 million
(of which
850 million
related to the United States and
369 million
to France). Evaluation of our capacity to utilize tax loss
carryforwards relies on significant judgment. We analyze the
positive and negative elements of certain economic factors that
may affect our business in the foreseeable future and past
events to conclude as to the probability of utilization in the
future of these tax loss carry-forwards, which also consider the
factors indicated in Note 1n to our consolidated financial
statements included elsewhere herein. This analysis is carried
out regularly in each tax jurisdiction where significant
deferred tax assets are recorded.
If future taxable results are considerably different from those
forecast that support recording deferred tax assets, we will be
obliged to revise downwards or upwards the amount of the
deferred tax assets, which would have a significant impact on
our balance sheet and net income (loss).
Pension and retirement obligations and other employee and
post-employment benefit obligations
As indicated in Note 1k to our consolidated financial
statements included elsewhere herein, we participate in defined
contribution and defined benefit plans for employees.
Furthermore, certain other post-employment benefits, such as
life insurance and health insurance (mainly in the United
States), are also reserved. All these obligations are measured
based on actuarial calculations relying upon assumptions, such
as the discount rate, return on plan assets, future salary
increases, employee turnover and mortality tables.
These assumptions are generally updated annually. The
assumptions adopted for 2005 and how they have been determined
are detailed in Note 25 to our consolidated financial
statements included elsewhere herein. Using the
corridor method, only actuarial gains and losses in
excess of the greater of 10% of the present value of the defined
benefit obligation or 10% of the fair value of any plan assets
are recognized over the expected average remaining working lives
of the employees participating in the plan. In accordance with
the option available under IFRS 1, cumulative actuarial
gains and losses at the transition date have been recognized in
shareholders equity. The corridor method is therefore only
applied as from January 1, 2004.
24
We consider that the actuarial assumptions used are appropriate
and supportable but any future changes could, however, have a
significant impact on the amount of such obligations and the
Groups net income (loss). An increase of 0.5% in the
discount rate at December 31, 2004 (or a reduction of 0.5%)
would have a positive impact on 2005 net income of
8 million
(or a negative impact of
8 million
on net income). An increase of 0.5% in the assumed rate of
return on plan assets for 2005 (or a reduction of 0.5%) would
have a positive impact on 2005 net income of
11 million
(or a negative impact of
11 million
on net income).
Revenue recognition
As indicated in Note 1o to our consolidated financial
statements included elsewhere herein, revenue is measured at the
fair value of the consideration received or to be received when
the company has transferred the significant risks and rewards of
ownership of a product to the buyer.
For revenues and expenses generated from construction contracts,
we apply the percentage of completion method of accounting,
provided certain specified conditions are met, based either on
the achievement of contractually defined milestones or on costs
incurred compared with total estimated costs. The determination
of the stage of completion and the revenues to be recognized
rely on numerous estimations based on costs incurred and
acquired experience. Adjustments of initial estimates can,
however, occur throughout the life of the contract, which can
have significant impacts on net income (loss).
For arrangements to sell software licenses with services,
software license revenue is recognized separately from the
related service revenue, provided the transaction adheres to
certain criteria (as prescribed by the Statement of Practice
(SOP) 97-2) of the American Institute of Certified Public
Accountants, or the AICPA, such as the existence of sufficient
vendor-specific objective evidence to determine the fair value
of the various elements of the arrangement. Determination of the
fair value of the various elements of the arrangement relies
also on estimates, which, if they had to be corrected, would
have an impact on revenues and net income (loss).
In the context of the present telecommunications market, it can
be difficult to evaluate our capacity to recover receivables.
Such evaluation is based on the customers creditworthiness
and on our capacity to sell such receivables without recourse.
If, subsequent to revenue recognition, the recoverability of a
receivable that had been initially considered as likely becomes
doubtful, a provision for an impairment loss is then recorded.
Derecognition of financial assets
A financial asset, as defined under IAS 32 Financial
Instruments: Disclosure and Presentation, is either
totally or partially derecognized (removed from the balance
sheet) when (i) we expect that no further cash flow will be
generated by it, (ii) we transfer substantially all risks
and rewards attached to the asset or (iii) we retain no control
of the asset.
With respect to trade receivables, a transfer without recourse
in case of payment default by the debtor is regarded as a
transfer of substantially all risks and rewards of ownership,
thus making such receivables eligible for derecognition, on the
basis that risk of late payment is considered marginal.
Potential new interpretations in the future of the concept of
substantial transfer of risks and rewards could lead
us to modify our current accounting treatment.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Overall Perspective
Overview of 2005. The telecommunications market continued
to recover in 2005, primarily as a result of an increased demand
for broadband services for data transmission and voice and data
services in wireless infrastructures. The wireline market, in
particular, grew during the second half of 2005, driven by the
transformation of carrier networks to IP and the introduction of
triple play services in the network. The wireless market also
continued to benefit from growth in emerging markets. The major
telecommunications carriers increased their capital spending to
meet this demand.
25
As a result of this improved market environment, our revenues
increased by 7.3% in 2005 as compared to 2004. Excluding the
impact of the currency exchange rate between the euro and the
U.S. dollar and other currencies linked to the
U.S. dollar, our revenues would have increased by 8.0%. For
2005, our gross margin was 35.3% and our operating margin was
9.1%, a slight decrease over 2004, reflecting competitive
pricing pressure in our key markets.
We had net income attributable to the equity holders of the
parent of
930 million
for 2005, even after taking into account
110 million
in restructuring costs for continuing restructuring programs in
France, Germany and Spain.
For 2005 our revenues and profitability were at significantly
improved levels and we ended the year with a strengthened net
cash position of
1.5 billion,
resulting from
0.2 billion
in cash flow provided by operating activities less capital
expenditures. By mid-year 2005, we had experienced a turnaround
in our wireline business due to the success of our triple play
strategy coupled with an acceptance by our customers of our IP
carrier data products. In addition, we experienced continued
expansion in our wireless business fueled by our radio
multistandard product strategy and a very efficient research and
development program. In 2005 our carrier business increased by
over 10%, outpacing the market growth. In our private business,
trends were mixed, with a weakness in our satellite business,
but with momentum growing both in enterprise and in the vertical
markets.
As a result of our improved performance in 2005, our board of
directors has announced that it will propose at the annual
shareholders meeting to be held in 2006 to pay a dividend
of 0.16 per
ordinary share and ADS for 2005.
Outlook for 2006. We anticipate that the carrier market
will continue to grow in the mid-single digit range for the full
year 2006. The wireline market should accelerate with the
deployment of IP television services and the transformation of
carrier networks towards IP. The wireless market growth rate
will most probably slow down compared to last year and will be
focused on emerging market needs and new applications across all
geographical regions. Our growth rate in 2006 will depend on a
favorable regulatory environment for fiber deployments, third
generation deployments in China, and the rate that carrier
networks transform their systems to IP. IP products and services
primarily sold to non-carriers (that is, businesses and
governmental and quasi-governmental entities) should continue to
present opportunities, particularly those businesses and
entities engaged in transport, energy and defense.
With respect to our business, we expect that the good dynamics
of year-end 2005 will continue into the first quarter of 2006,
with year-over-year revenue growth above 10%. Overall, with the
current limited visibility beyond mid-year, we expect a lower
growth rate for the second half compared to the first half, but
believe that our revenues should outpace the carrier market
growth for the full year 2006.
In terms of full year operating profitability, we anticipate a
slight improvement in the operating margin for 2006, taking into
account continuing competitive pressure in some markets.
On March 24, 2006, we issued a press release confirming
that we are engaged in discussions with Lucent about a potential
merger of equals that is intended to be priced at market. We
stated that there can be no assurances that any agreement will
be reached or that a transaction will be consummated, and that
we will have no further comment until an agreement is reached or
the discussions are terminated.
Highlights of Transactions during 2005. On March 17,
2005, we completed the acquisition of Native Networks, Inc., a
provider of optical Ethernet transport solutions, for
U.S. $55 million in cash. On March 16, 2005 we
sold our shareholding in Nexans, representing 15.1% of
Nexans share capital, through a private placement. On
January 26, 2005, we completed the sale of our electrical
power business to Ripplewood, a U.S. private equity firm.
On March 15, 2005, we amended our existing syndicated
revolving
1.3 billion
credit facility by extending the maturity date from June 2007 to
June 2009 with a possible extension until 2011, eliminating
26
one of the two financial covenants, reducing the cost of the
facility and reducing the overall amount to
1.0 billion.
On April 11, 2005, Moodys upgraded to Bal from Ba3
the ratings for our long-term debt on the basis of cost savings
achieved by us and our balance sheet strength.
On July 1, 2005, we completed the merger with of our space
activities with those of Finmeccanica, S.p.A., an Italian
aerospace and defense company, through the creation of two
sister companies. We own approximately 67%, and Alenia Spazio, a
unit of Finmeccanica, owns approximately 33%, of the first
company, Alcatel Alenia Space, that combines our respective
industrial space activities. Finmeccanica owns approximately
67%, and we own approximately 33%, of the second company,
Telespazio Holding, which combines our respective satellite
operations and service activities.
In July 2005, we exchanged our 45% shareholding in our joint
venture with TCL Communication Technology Holdings Limited (see
Highlights of Transactions during 2004 below) for
shares of TCL Communication, which resulted in TCL Communication
owning all of the joint venture company and our owning
141,375,000 shares of TCL Communication.
Highlights of Transactions during 2004. On
December 16, 2004, we completed the acquisition of Spatial
Communications Technologies, Inc. for consideration consisting
of our ADSs having a value of
223 million
(based on the market value of our ADSs on the date of the
acquisition). Spatial develops and markets mobile switching
equipment that can operate using any of the major mobile
technologies and related software. Through this acquisition we
can offer next-generation mobile switching equipment, thereby
providing carriers with systems that can be updated relatively
easily in the future. On September 17, 2004, we acquired
eDial for consideration consisting of cash and ADSs having an
aggregate value of
22 million
(based on the market value of our ADSs on the date of the
acquisition). eDial provides conferencing and related services
for businesses and carriers.
In January 2004 we completed the sale of Saft, our battery
business, to Doughty Hanson, a European private equity firm, for
390 million
in cash. On December 14, 2004, we sold a portion of our
shareholding in Avanex in a block trade market transaction,
which reduced our shareholding in this company to 19.65% of its
share capital. From the date of this sale we do not treat Avanex
as an equity affiliate, since we consider that we no longer
exercise significant influence on the company.
In August 2004, we formed a joint venture with TCL
Communication, which was owned 55% by TCL Communication and 45%
by us. We contributed cash and our mobile handset business
having an approximate aggregate value of
45 million,
to the joint venture and TCL contributed
55 million
in cash. In July, 2004, we combined our global fiber and
communication cable business with that of Draka Holding, N.V, a
Dutch cable and cable systems producer, and created a new
company, Draka Comteq B.V., owned 50.1% by Draka and 49.9% by
us. Draka Comteq B.V. holds the global optical fiber and
communication cable business previously owned by the parties.
Consolidated Results of Operations for the Year Ended
December 31, 2005 Compared to the Year Ended
December 31, 2004
Revenues. Consolidated revenues increased by 7.3% to
13,135 million
for 2005, primarily driven by the mobile communications segment,
compared to
12,244 million
for 2004. Approximately 40% of our consolidated revenues are
denominated in or linked to the U.S. dollar. When we
translate these revenues into euros for accounting purposes,
there is an exchange rate impact based on the relative value of
the U.S. dollar and the euro. During 2005, the decreases in
the value of the U.S. dollar relative to the euro had a
negative impact on our revenues. If there had been a constant
euro/ U.S. dollar exchange rate in 2005 as compared to
2004, our consolidated revenues would have increased by
approximately 8.0%. This is based on applying (i) to our
sales made directly in U.S. dollars or currencies linked to
U.S. dollars effected during 2005, the average exchange
rate that applied in 2004, instead of the average exchange rate
that applied in 2005, and (ii) to our exports (mainly from
Europe) effected during 2005 which are denominated in
U.S. dollars and for which we enter into hedging
transactions, our average euro/ U.S. dollar hedging rate
that applied in 2004. Our
27
management believes that providing our investors with our
consolidated net revenues in constant euro/ U.S. dollar
exchange rates facilitates the comparison of the evolution of
our revenues with that of the industry. The table below sets
forth our revenues as reported, the conversion and hedging
impact of the euro/ U.S. dollar and our revenues at a
constant rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
% of change | |
|
|
| |
|
| |
|
| |
Revenues as reported
|
|
|
13,135 |
|
|
|
12,244 |
|
|
|
7.3 |
% |
Conversion impact euro/ U.S. dollar
|
|
|
2 |
|
|
|
|
|
|
|
|
% |
Hedging impact euro/ U.S. dollar
|
|
|
78 |
|
|
|
|
|
|
|
0.7 |
% |
Revenues at constant rate
|
|
|
13,215 |
|
|
|
12,244 |
|
|
|
8.0 |
% |
Revenues (measured by location of subsidiary that recorded such
revenues) in Europe increased to
8,784 million
in 2005 from
8,125 million
in 2004; revenues in North America increased to
1,930 million
in 2005 from
1,814 million
in 2004; revenues in Asia increased to
1,481 million
in 2005 from
1,424 million
in 2004; and revenues in the rest of the world increased to
940 million
in 2005 from
881 million
in 2004. In 2005, Europe, North America, Asia and the rest of
the world accounted for 66.8%, 14.7%, 11.3% and 7.2%,
respectively, of our total revenues compared with the following
percentages of revenues for 2004: Europe 66.4%, North America
14.8%, Asia 11.6% and the rest of the world 7.2%.
Gross Profit. Gross profit of
4,632 million
in 2005 represented 35.3% of revenues compared to 37.7%, or
4,613 million,
in 2004. The decrease in gross profit margin was primarily due
to competitive pricing pressures in our carrier markets.
Administrative and Selling Expenses. Administrative and
selling expenses were
2,000 million
for 2005 compared to
1,944 million
in 2004. As a percentage of revenues, administrative and selling
expenses were 15.2% of revenues in 2005 compared to 15.9% of
revenues in 2004, decreasing despite the increase in revenues
primarily due to the decrease in our fixed costs resulting from
our restructuring efforts.
Research and Development Costs. Research and development
costs were
1,443 million
in 2005 compared to
1,490 million
in 2004. As a percentage of revenues, research and development
costs amounted to 11.0% in 2005 as compared to 12.2% in 2004.
Income (Loss) from Operating Activities Before Restructuring,
Share-Based Payments, Impairment of Capitalized Development
Costs and Gain on Disposal of Consolidated Entities. We
recorded income from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities of
1,189 million
for 2005 compared to
1,179 million
for 2004. Income from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities as a
percentage of revenues was 9.1% for 2005 compared to 9.6% in
2004. This decrease resulted from the competitive pricing
environment that impacted our gross profit despite decreases in
our fixed costs.
Provision reversals impacted income (loss) from operating
activities before restructuring, share-based payments,
impairment of capitalized development costs and gain on disposal
of consolidated entities by
267 million
in 2005 of which
236 million
related to product sales reserves
(306 million
and
229 million
respectively in 2004). Of the
236 million,
136 million
mainly related to reductions in probable penalties due to
contract delays or other contractual issues or in estimated
amounts based upon statistical and historical evidence. The
remaining
100 million
related to reversals of warranty provisions due to revision of
our original estimate for warranty provisions regarding warranty
period and costs. This revision in turn was due mainly to the
earlier than expected renewal of products by the customer, as a
result of technological obsolescence, or to better product
performance than anticipated.
In the same period additional product sales reserves were
recorded for an amount of
305 million
representing a net negative impact on the Income (loss) from
operating activities before restructuring, share-based payments,
impairment of capitalized development costs and gain on disposal
of consolidated entities of
69 million
(253 million
of additional product sales reserves and a net negative impact
of
24 million
respectively in 2004).
28
Share-based Payments (Stock Option Plans). Share-based
payments representing expensed employee stock options amounted
to
69 million
in 2005 compared to
60 million
in 2004.
Restructuring Costs. We recorded
110 million
for restructuring costs in 2005 compared to
324 million
in 2004. The restructuring costs for 2005 reflected new
restructuring plans in 2004, attributable to continuing head
count reductions in Germany, Spain and France. The decrease was
as a result of the substantial completion of our earlier major
restructurings.
Impairment of Capitalized Development Costs. In 2005 we
did not record any impairment of capitalized development costs.
However,
88 million
was recorded in 2004, primarily linked to our fixed
communication segment.
Gain (Loss) on Disposal of Consolidated Entities. We
recorded a gain on the disposal of consolidated entities of
129 million
related to the merger of our satellite activities with those of
Finmecannica.
Income (Loss) from Operating Activities. Income from
operating activities amounted to
1,139 million
in 2005 compared to
707 million
in 2004. This increase was due primarily to a lower
restructuring cost in 2005 compared to 2004, the gain in
connection with the merger of our satellite activities and the
absence of an impairment of capitalized development costs in
2005.
Finance Costs. Finance costs were
96 million
in 2005 compared to
121 million
in 2004 and included financial interest paid on gross financial
debt of
218 million
and financial interest received on cash and cash equivalents of
122 million.
The decrease in financial costs was due to a decrease in our
financial debt in 2005 compared to 2004 and an increase in our
net cash position.
Other Financial Income (Loss). Other financial income was
46 million
in 2005 compared to
14 million
in 2004. This increase was due primarily to capital gains
resulting from the disposal of shares that we owned in Nexans
(69 million)
and Mobilrom
(45 million),
offset in part by the financial component of pensions, net
exchange losses and impairment losses of financial assets.
Share in Net Income (Losses) of Equity Affiliates. Share
in net losses of equity affiliates was a loss of
14 million
compared to a loss of
61 million
in 2004. The main cause of the decrease reflected the fact that
Avanex was no longer an equity affiliate in 2005 due to the sale
of a portion of our shareholdings in Avanex in December 2004.
Income Before Tax and Discontinued Operations. Income
before tax and discontinued operations was
1,075 million
in 2005 compared to
539 million
in 2004.
Income Tax Expense. Income tax expense was
91 million
in 2005 compared to
36 million
in 2004. The charge for 2005 resulted from a current income tax
expense of
52 million
(compared with a current income tax benefit of
82 million
in 2004 mainly due to the favorable outcome of tax litigations)
and from a deferred income tax charge of
39 million
(compared with a deferred income tax charge of
118 million
in 2004).
Income (Loss) from Continuing Operations. Income from
continuing operations was
984 million
compared to
503 million
in 2004.
Income (Loss) from Discontinued Operations. Loss from
discontinued operations was
13 million
in 2005 principally as a result of the adjustment of the selling
price of businesses sold during 2004 compared to an income of
142 million
in 2004.
Minority Interests. Minority interests were
41 million
in 2005 compared to
69 million
in 2004, due primarily to lower results from Alcatel Shanghai
Bell.
Net Income (Loss) Attributable to the Equity Holders of the
Parent. As a result of the foregoing, we recorded net income
(group share) of
930 million
in 2005 compared to
576 million
in 2004.
29
Results of Operations by Business Segment for the Year Ended
December 31, 2005 Compared to the Year Ended
December 31, 2004
The table below sets forth the consolidated revenues (before
elimination of inter-segment revenues, except for Total
Group results and Other and Eliminations),
income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities and capital
expenditures for tangible and intangible assets for each of our
business segments for fiscal 2005 and for fiscal 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
Mobile | |
|
Private | |
|
Other and | |
|
|
|
|
Communications | |
|
Communications | |
|
Communications | |
|
Eliminations | |
|
Total Group | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
5,213 |
|
|
|
4,096 |
|
|
|
3,918 |
|
|
|
(92 |
) |
|
|
13,135 |
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
579 |
|
|
|
436 |
|
|
|
274 |
|
|
|
(100 |
) |
|
|
1,189 |
|
|
Capital expenditures for tangible and intangible assets
|
|
|
160 |
|
|
|
269 |
|
|
|
140 |
|
|
|
69 |
|
|
|
638 |
|
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
5,125 |
|
|
|
3,313 |
|
|
|
3,946 |
|
|
|
(140 |
) |
|
|
12,244 |
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
576 |
|
|
|
418 |
|
|
|
267 |
|
|
|
(82 |
) |
|
|
1,179 |
|
|
Capital expenditures for tangible and intangible assets
|
|
|
163 |
|
|
|
208 |
|
|
|
143 |
|
|
|
65 |
|
|
|
579 |
|
Fixed Communications
Revenues of our fixed communications segment were
5,213 million
for 2005, compared to
5,125 million
for 2004, an increase of 1.7%. This increase was primarily due
to an increase in revenues of our optical business, driven by
new submarine projects, as well as sustained demand in the
terrestrial metro sector coming from the preparation by our
carrier customers for deployment of triple play (voice, data and
video) services, and growth in our IP business that supplies
products to transmit data through high bandwidth in the
networks. Our fixed line voice switching business continued to
decline as our customers transition to next generation networks
and therefore reduce their capital expenditures for narrow band
switching.
Even though we continued to increase our line deliveries in our
broadband access business (21.6 million in 2005, as
compared to 19.6 million in 2004), our broadband revenues
declined slightly due to substantial pricing pressures.
Our fixed communications segments income from operating
activities before restructuring, share-based payments,
impairment of capitalized development costs and gain on disposal
of consolidated entities was
579 million
for 2005, compared to
576 million
in 2004. The increases in profitability from our optical and IP
businesses were offset by the decline in our fixed line voice
switching business, resulting in a stable level of income from
operating activities before restructuring, share-based payments,
impairment of capitalized development costs and gain on disposal
of consolidated entities compared to 2004.
30
Mobile Communications
Revenues of our mobile communications segment were
4,096 million
for 2005, compared to
3,313 million
in 2004, an increase of 23.6%. This increase was primarily due
to significant increases in all businesses, particularly as a
result of the continuing growth of our presence in emerging
countries with our 2/2.5G radio access products.
The mobile communications segments income from operating
activities before restructuring, share-based payments,
impairment of capitalized development costs and gain on disposal
of consolidated entities was
436 million
for 2005, compared to
418 million
in 2004. The intensely competitive pricing environment impacted
profitability in the mobile radio division.
Private Communications
Revenues of our private communications segment were
3,918 million
for 2005, compared to
3,946 million
in 2004, a decrease of 0.7%. The decrease in our satellite
business more than offset the growth in all other business
divisions. The decline resulted from a low 2004 order backlog
and some delays in the 2005 order intake in both commercial and
institutional space programs.
Our private communications segments income from operating
activities before restructuring, share-based payments,
impairment of capitalized development costs and gain on disposal
of consolidated entities was
274 million
for 2005, compared to
267 million
in 2004. This increase was primarily due to an increase in our
transport and integration and services businesses, offset, in
part, by a decline in the enterprise and satellite divisions.
Liquidity and Capital Resources
Liquidity
|
|
|
Cash Flow for the Years Ended December 31, 2005 and
2004. |
Cash and cash equivalents decreased by
101 million
in 2005 to
4,510 million
at December 31, 2005. This decrease was mainly due to the
use of
887 million
for financing activities, due primarily to the cash repayment of
long term debt, including repurchased debt, that was largely
offset by net cash provided by operating activities of
849 million.
Net Cash Provided (Used) by Operating Activities. Net
cash provided by operating activities before changes in working
capital, interest and taxes was
984 million
compared to
650 million
for 2004. This increase was primarily due to our net income of
971 million
in 2005 as compared with net income of
645 million
in 2004. The
971 million
of net income is adjusted for financial, tax and non-cash items,
primarily depreciation and amortization, net gain on disposal of
non-current assets, changes in fair values and share based
payments, and adjusted further for cash outflows that had been
previously reserved for (mainly for ongoing restructuring
programs). The net gain on disposal of non-current assets was
mainly due to a gain of
129 million
related to the merger of 33% of Alcatel Spaces satellite
industrial activity with that of Finmeccanica and to a gain of
114 million
upon the disposal of our holdings in Nexans and Mobilrom. The
cash outflows for restructuring amounted to
414 million
in 2005 compared to
606 million
in 2004. Net cash provided by operating activities was
849 million
in 2005 compared to
58 million
in 2004. These amounts take into account the cash used by the
increase in operating working capital, which amounted to
198 million
in 2005 and
414 million
in 2004, reflecting our increased revenues as well as our
expectations for revenue growth in the coming quarters.
Net Cash Provided (Used) by Investing Activities. Net
cash used by investing activities was
181 million
in 2005 compared to
114 million
in 2004. This increase in net cash used was mainly due to the
increase in capital expenditures to
638 million
in 2005 compared with
579 million
in 2004. Cash proceeds from loan repayments from our customers
decreased in 2005 with net proceeds of
108 million
in 2005 compared with net proceeds of
569 million
in 2004, due mainly to a decrease in our vendor financing
31
activities. This decrease was more than offset by changes in
shares of consolidated and non consolidated entities and
marketable securities which represented net cash proceeds of
184 million
in 2005 (due mainly to the merger of 33% of Alcatel Spaces
satellite industrial activity with that of Finmeccanica)
compared with net cash used of
321 million
in 2004 (due mainly to our investments made in short term
investments). Proceeds from disposal of fixed assets amounted to
165 million
in 2005 compared to
217 million
in 2004 due mainly to disposal of various real estate assets.
Net Cash Provided (Used) by Financing Activities. Net
cash used by financing activities amounted to
887 million
in 2005 compared to net cash used of
1,251 million
in 2004. The main reason for this change was the more limited
use of cash to decrease our short-term and long-term debt
(879 million
in 2005 compared with
1,716 million
in 2004), including by repurchasing debt, somewhat offset in
2004 by
462 million
of proceeds from the issuance of long-term debt.
Disposed of or discontinued operations. Disposed of or
discontinued operations represented net cash used of
5 million
in 2005 (mainly due to adjustments to the sale price of
activities disposed of in 2004) compared with
67 million
used in 2004 (of which, net proceeds of
390 million
from the disposal of our battery business were more than offset
by the capital contributed to the optical fiber division prior
to the establishment of our joint venture with Draka and other
cash payments made for discontinued operations).
Capital Resources
Resources and Cash Flow Outlook. We derive our capital
resources from a variety of sources, including the generation of
positive cash flow from on-going operations, the issuance of
debt and equity in various forms, and banking facilities
including the revolving credit facility of
1,000 million
maturing in June 2009 and on which we have not drawn (see
Syndicated Facility below). Our ability to draw upon
these resources is dependent upon a variety of factors,
including our customers ability to make payments on
outstanding accounts receivable, the perception of our credit
quality by debtors and investors, our ability to meet the
financial covenant for our revolving facility and debt and
equity market conditions generally.
Our short-term cash requirements are primarily related to
funding our operations, including our restructuring program,
capital expenditures and short-term debt repayments. We believe
that our cash, cash equivalents and marketable securities,
including short-term investments of
5,150 million
as of December 31, 2005, are sufficient to fund our cash
requirements for the next 12 months.
During 2006 we expect to make cash outlays for our restructuring
programs of approximately
250 million,
and to make capital expenditures of approximately
700 million,
including research and development capitalization. We also
expect to repay short-term debt that will not be renewed, such
as the
462 million
principal amount of our 7.00% Notes due in December 2006
that were not repurchased in the exchange offer that closed in
April 2005. (See Long-term Debt for a further
discussion of the exchange offer.) In addition, our expected
growth in revenues in 2006 compared to 2005 may result in
additional cash requirements linked to an increase in our
working capital needs. During 2006, depending upon market and
other conditions, we intend to also continue our bond repurchase
program in order to redeem our outstanding bonds with maturities
within the next three years.
We can provide no assurance that our actual cash requirements
will not exceed the currently expected cash outlays. If we
cannot generate sufficient cash from operations to meet cash
requirements in excess of our current expectations, we might be
required to obtain supplemental funds through additional
operating improvements or through external sources, such as
capital market proceeds (if conditions are considered favorable
by us), assets sales or financing from third parties, the
availability of which is dependent upon a variety of factors, as
noted above.
Credit Ratings. As of March 30, 2006, our credit
ratings were as follows:
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|
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|
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|
Rating Agency |
|
Long-term Debt | |
|
Short-term Debt | |
|
Outlook/Credit Watch |
|
Last Update |
|
|
| |
|
| |
|
|
|
|
Standard & Poors
|
|
|
BB |
|
|
|
B |
|
|
Negative credit watch |
|
March 24, 2006 |
Moodys
|
|
|
Ba1 |
|
|
|
Not Prime |
|
|
Positive outlook |
|
April 11, 2005 |
32
Standard & Poors. On March 10, 2006,
Standard & Poors revised its outlook on us from
stable to positive. However, on March 24, 2006, upon our
confirming that we are engaged in discussions with Lucent about
a potential merger, Standard & Poors removed its
positive outlook on us and placed us on credit watch with
negative implications, stating that if the merger goes forward,
Standard & Poors may lower our
long-term corporate
credit and senior unsecured debt rating due to its view that the
merged entities would present a weaker financial profile. On
November 10, 2004, Standard & Poors upgraded
our long-term corporate credit and senior unsecured debt rating
to BB on the basis of our stabilized sales, adequate cost
structure positioning and strong cash level, as well as
healthier market conditions for the telecom equipment industry
and our severe cost cutting. Standard & Poors
outlook for us continues to be stable and it also affirmed our
short-term B corporate credit rating. The rating grid of
Standard & Poors ranges from AAA (the strongest
rating) to D (the weakest rating). Our BB rating is in the BB
category, which also includes BB+ and BB- ratings.
Standard & Poors gives the following definition
to the BB category: [a]n obligation rated BB
is less vulnerable to nonpayment than other speculative issues.
However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could
lead to the obligors inadequate capacity to meet its
financial commitment on the obligation.
Moodys. On March 24, 2006, Moodys
informed us that it had taken note of the current discussions
between Lucent and us but that, given the preliminary nature of
these discussions, it was not taking any rating action at this
stage. On April 11, 2005, Moodys upgraded to Bal from
Ba3 the rating for our long-term debt on the basis of cost
savings achieved by us and our balance sheet strength.
Moodys maintained its positive outlook. The not
prime rating of our short-term debt was reaffirmed. The
rating grid of Moodys ranges from Aaa, which is considered
to carry the smallest degree of investment risk, to C, which is
the lowest rated class. Our Ba1 rating is in the Ba category,
which also includes Ba2 and Ba3 ratings. Moodys gives the
following definition of its Ba category, debt which is
rated Ba is judged to have speculative elements and is subject
to substantial credit risk.
We can provide no assurances that our credit ratings will not be
lowered in the future by Standard & Poors,
Moodys or similar rating agencies. In addition, a security
rating is not a recommendation to buy, sell or hold securities,
and each rating should be evaluated separately of any other
rating. Our current short-term and long-term credit ratings as
well as any possible future lowering of our ratings may result
in additional higher financing costs and in reduced access to
the capital markets.
Our short-term debt rating allows us a very limited access to
commercial paper, and the non-French commercial paper market is
generally not available to us on terms and conditions that we
find acceptable.
At December 31, 2005, our total financial debt, gross
amounted to
3,798 million
compared to
4,606 million
at December 31, 2004.
Short-term Debt. At December 31, 2005, we had
1,046 million
of short-term financial debt outstanding, which included
462 million
of 7.00% Notes due 2006 and
127 million
in commercial paper, with the remainder representing other bank
loans and lines of credit and other financial debt and accrued
interest payable.
Long-term Debt. At December 31, 2005 we had
2,752 million
of long-term financial debt outstanding.
On April 7, 2004, we closed an exchange offer for our
7.00% Notes due 2006, of which
995 million
principal amount was then outstanding, for new notes of a longer
maturity. The main objective of the exchange offer was to
lengthen our average debt maturity. We issued
412 million
principal amount of our new 6.375% Notes due 2014 in
exchange for
366 million
principal amount of our 7.00% Notes due 2006. We also
issued and sold an additional
50 million
principal amount of our new 6.375% Notes due 2014. Interest
on the 6.375% Notes is payable annually.
Rating Clauses Affecting our Debt. Our outstanding
bonds do not contain clauses that would trigger an accelerated
repayment in the event of a lowering of our credit ratings.
However, the
1,200 million
7.00% Notes due in December 2006, of which only
462 million
remains, includes a step up rating change clause,
which provides that the interest rate will be increased by
150 basis points if our ratings fall below investment
grade. This clause was triggered when our credit ratings were
lowered to below investment grade
33
status in July 2002. The 150 basis point increase in the
interest rate from 7% to 8.5% became effective in December 2002,
and applied to the payment of the December 2003, 2004 and 2005
coupons. This bond issue also contains a step down rating
change clause that provides that the interest rate will be
decreased by 150 basis points if our ratings move back to
investment grade level. However, since the condition related to
our ratings was not met before December 7, 2005, no step
down ratings change will occur. Our new 6.375% Notes due
2014, which we exchanged for a portion of our 7.00% Notes
due 2006, as described above, do not provide for a step up
rating change.
Syndicated Facility. On June 21, 2004, we closed a
1,300 million
syndicated three-year revolving credit facility that replaced
the then existing undrawn
1,375 million
syndicated facility maturing in April 2005. On
March 15, 2005, we amended this facility by extending
its maturity to June 2009 (with a possible extension until
2011), reducing its amount to
1,000 million,
and eliminating one of the two then applicable financial
covenants.
The availability of this syndicated revolving credit facility
does not depend upon our credit ratings. At December 31,
2005, this facility had not been drawn and remained undrawn on
February 1, 2006, the date our board of directors approved
the 2005 financial statements. Our ability to draw on this
facility is conditioned upon our compliance with certain
financial covenants. Until its amendment on March 15, 2005,
the facility contained two financial covenants: the first was a
gearing ratio (net debt/equity including minority interests) and
the second is a ratio linked to our capacity to generate cash to
reimburse our debt. The March 15th amendment
eliminated the gearing ratio covenant. We tested the
cash-generation covenant every quarter. We were in compliance
with this covenant at every quarter during 2005, including
December 31, 2005 (the date of the last published financial
statements); as we had cash and cash equivalents in excess of
our gross financial debt at December 31, 2005, the ratio
was actually not applicable at year-end. We will continue to
test the cash-generation covenant quarterly. We can provide no
assurance that we will remain compliant with such financial
covenant in the future.
Contractual obligations and off-balance sheet contingent
commitments
Contractual obligations. We have certain contractual
obligations that extend beyond 2006. Among these obligations we
have long-term debt and interest thereon, finance leases,
operating leases, commitments to purchase fixed assets and other
unconditional purchase obligations. Our total contractual cash
obligations at December 31, 2005 for these items are
presented below based upon the minimum payments we will have to
make in the future under such contracts and firm commitments.
Amounts related to financial debt and capital lease obligations
are fully reflected in our consolidated balance sheet included
in this document.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Deadline | |
|
|
| |
|
|
Before | |
|
|
|
|
December 31, | |
|
|
|
2011 | |
|
|
Contractual Payment Obligations |
|
2006 | |
|
2007-2008 | |
|
2009-2010 | |
|
and after | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Financial debt (excluding finance leases)
|
|
|
986 |
|
|
|
468 |
|
|
|
887 |
|
|
|
1,397 |
|
|
|
3,738 |
|
Finance lease obligations
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal included in our balance sheet
|
|
|
1,046 |
|
|
|
468 |
|
|
|
887 |
|
|
|
1,397 |
|
|
|
3,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
150 |
|
|
|
264 |
|
|
|
182 |
|
|
|
350 |
|
|
|
946 |
|
Commitments to purchase fixed assets
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
Finance costs on financial debt
|
|
|
164 |
|
|
|
200 |
|
|
|
152 |
|
|
|
89 |
|
|
|
605 |
|
Other unconditional purchase
obligations(a)
|
|
|
81 |
|
|
|
15 |
|
|
|
3 |
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal not included in our balance sheet
|
|
|
423 |
|
|
|
479 |
|
|
|
337 |
|
|
|
439 |
|
|
|
1,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
|
1,469 |
|
|
|
947 |
|
|
|
1,224 |
|
|
|
1,836 |
|
|
|
5,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Other unconditional purchase obligations result mainly from
obligations related to multi-year equipment supply contracts
linked to the sale of businesses or plants to third parties. |
34
Off-balance sheet commitments and contingencies. On
December 31, 2005, our off-balance sheet commitments and
contingencies amounted to
2,755 million,
consisting primarily of
2,034 million
in guarantees on long-term contracts for the supply of
telecommunications equipment and services by our consolidated
and un-consolidated subsidiaries. Generally we provide these
guarantees to back performance bonds issued to customers through
financial institutions. These performance bonds and
counter-guarantees are standard industry practice and are
routinely provided in long-term supply contracts. If certain
events occur subsequent to our including these commitments
within our off-balance sheet contingencies, such as the delay in
promised delivery or claims related to an alleged failure by us
to perform on our long-term contracts, or the failure by one of
our customers to meet its payment obligations, we reserve the
estimated risk on our consolidated balance sheet under the line
items Provisions or Amounts due to/from our
customers on construction contracts, or in inventory
reserves. Not included in the
2,755 million
of off-balance sheet commitments and contingencies is a
639 million
guarantee granted to the bank implementing our cash pooling
program. This guarantee covers any intraday debit position that
could result from the daily transfers between our central
treasury account and our subsidiaries accounts. Also not
included in the
2,755 million
is our contingent liability pursuant to the securitization of
other accounts receivable and the sale of a carryback receivable
described below.
Only performance guarantees issued by us to financial
institutions are presented in the table below.
Off-balance sheet contingent commitments (excluding our
commitment to provide further customer financing, as described
below) given in the normal course of business are as follows:
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|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Guarantees given on contracts made by Group entities and by
non-consolidated
subsidiaries(1)
|
|
|
2,034 |
|
|
|
1,742 |
|
Discounted notes
receivables(2)
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
Other contingent
commitments(3)
|
|
|
624 |
|
|
|
793 |
|
|
|
|
|
|
|
|
Subtotal Contingent
commitments(4)
|
|
|
2,658 |
|
|
|
2,540 |
|
Secured
borrowings(5)
|
|
|
97 |
|
|
|
156 |
|
|
|
|
|
|
|
|
Total off-balance sheet commitments and secured
borrowings(4)
|
|
|
2,755 |
|
|
|
2,696 |
|
|
|
|
|
|
|
|
|
|
(1) |
This amount is not reduced by any amounts that may be recovered
under recourse or similar provisions, guarantees received, or
insurance proceeds, as explained more fully below. Of this
amount,
216 million
as of December 31, 2005 and
258 million
as of December 31, 2004 represent undertakings we provided
on contracts of non-consolidated companies. |
|
(2) |
This contingent liability relates to our obligation pursuant to
the applicable law of certain jurisdictions (mainly France) to
repurchase discounted notes receivable in certain circumstances,
such as if there is a payment default. |
|
(3) |
Included in the
624 million
are:
101 million
of guarantees provided to tax authorities in connection with tax
assessments contested by us,
3 million
of commitments of our banking subsidiary, Electro Banque, to
third parties providing financing to non-consolidated
subsidiaries,
90 million
of commitments related to leasing or sale and leaseback
transactions, and
430 million
of various guarantees given by certain subsidiaries in the
Group. Included in the
793 million
are:
90 million
of guarantees provided to tax authorities in connection with tax
assessments contested by us,
3 million
of commitments of our banking subsidiary, Electro Banque, to
third parties providing financing to non-consolidated
subsidiaries,
90 million
of commitments related to leasing or sale and leaseback
transactions, and
610 million
of various guarantees given by certain subsidiaries in the Group. |
|
(4) |
Excluding our commitment to provide further customer financing,
as described below. |
|
(5) |
The amounts in this item represent borrowings and advance
payments received which are secured through security interests
or similar liens granted by us. The borrowings are reflected in
the Contractual Payment Obligations table above in the line
item Financial debt (excluding capital leases). |
The amounts of guarantees given on contracts reflected in the
preceding table represent the maximum potential amounts of
future payments (undiscounted) we could be required to make
under current guarantees granted by us. These amounts do not
reflect any amounts that may be recovered under recourse,
collateralization provisions in the guarantees or guarantees
given by customers for our benefit. In addition, most of the
parent company guarantees and performance bonds given to our
customers are insured; therefore,
35
the estimated exposure related to the guarantees set forth in
the preceding table may be reduced by insurance proceeds that we
may receive in case of a claim.
Commitments related to product warranties and pension and
post-retirement benefits are not included in the preceding
table. These commitments are fully reflected in our 2005 audited
consolidated financial statements. Contingent liabilities
arising out of litigation, arbitration or regulatory actions are
not included in the preceding table either, with the exception
of those linked to the guarantees given on our long-term
contracts.
Commitments related to contracts that have been cancelled or
interrupted due to the default or bankruptcy of the customer are
included in the above mentioned Guarantees given on
contracts made by Group entities and by non-consolidated
subsidiaries as long as the legal release of the guarantee
is not obtained.
Guarantees given on third-party long-term contracts could
require us to make payments to the guaranteed party based on a
non-consolidated companys failure to perform under an
agreement. The fair value of these contingent liabilities,
corresponding to the premium to be received by the guarantor for
issuing the guarantee, was
2 million
as of December 31, 2005
(3 million
as of December 31, 2004).
Customer Financing. Based on standard industry practice,
from time to time we extend financing to our customers by
granting extended payment terms, making direct loans, and
providing guarantees to third-party financing sources. As of
December 31, 2005, net of reserves we had provided customer
financing of approximately
301 million.
This amount includes
278 million
of customer deferred payments and accounts receivable, and
19 million
of other financial assets. In addition, we had outstanding
commitments to make further direct loans or provide guarantees
to financial institutions in an amount of approximately
97 million.
More generally, as part of our business we routinely enter into
long-term contracts involving significant amounts to be paid by
our customers over time.
SVF Trust Program. In 1999, we established a
securitized customer financing (SVF) program arranged by
Citibank, which was amended in June 2000, May 2002 and May 2003.
In accordance with IFRS, the SVF trust was consolidated
beginning January 1, 2004.
In April 2004, as part of a reassessment of our financing
requirements and credit facilities, and with a view to
optimizing our financial costs, we decided to cancel this
securitized program. As a result, the banks no longer have any
financing commitments in this respect, and we bought back from
the SVF trust all outstanding receivables at their nominal value
during the second quarter of 2004. The cancellation of the
program did not have a significant impact on our results and
financial position.
Sale of carryback receivable. In May 2002, we sold to a
credit institution a carryback receivable with a face value of
200 million
resulting from the choice to carry back tax losses from prior
years. The cash received from this sale amounted to
149 million,
corresponding to the discounted value of this receivable, which
matures in five years. Under IFRS, the carryback receivable is
not removed from the balance sheet but is reported on the asset
side of the balance sheet as an other non current
asset, at its discounted value using the discount rate
applied in the sale transaction by the credit institution who
purchased the receivable and as a other long term
debt at its discounted value using the French state
bonds discount rate, on the liability side of the balance
sheet.
We are required to indemnify the purchaser in case of any error
or inaccuracy concerning the amount or nature of the carry-back
receivable sold. The sale would be retroactively cancelled if
future changes in law resulted in a substantial change in the
rights attached to the carryback receivable sold.
Securitization of accounts receivables. In December 2003,
we entered into a further securitization program for the sale of
customer receivables without recourse. Eligible receivables are
sold to a special purpose vehicle, which benefits from a bank
financing, and from a subordinated financing from us
representing an over-collateralization determined on the basis
of the risk profile of the portfolio of receivables sold. This
special purpose vehicle is fully consolidated under IFRS. The
receivables sold at December 31,
36
2005, which amounted to
61 million
(82 million
as of December 31, 2004), are therefore maintained in our
consolidated balance sheet. At December 31, 2005, the
maximum amount of bank financing that we could obtain through
the sale of receivables was
150 million.
The actual amount of such funding for each receivable is a
percentage of the amount of the receivable and the percentage
varies depending on the quality of the receivables sold. The
purpose of this securitization program is to optimize the
management and recovery of receivables, in addition to providing
extra financing.
Customer Credit Approval Process and Risks. We engage in
a thorough credit approval process prior to providing financing
to our customers or guarantees to financial institutions, which
provide financing to our customers. Any significant undertakings
have to be approved by a central Risk Assessment Committee,
independent from our commercial departments. We continually
monitor and manage the credit we have extended to our customers,
and attempt to limit credit risks by, in some cases, obtaining
security interests or by securitizing or transferring to banks
or export credit agencies a portion of the risk associated with
this financing.
Although, as discussed above, we engage in a rigorous credit
approval process and have taken actions to limit our exposure to
customer credit risks, the global downturn and deterioration of
the telecommunications industry through 2003 caused certain of
our customers to experience financial difficulties and others to
file for protection under the bankruptcy laws. Upon the
financial failure of a customer, we realized losses on credit we
extended and loans we made to our customers, on guarantees
provided for our customers, losses relating to our commercial
risk exposure under long-term contracts, as well as the loss of
our customers ongoing business. If economic conditions and
the telecommunications industry in particular deteriorate once
again, we may in the future realize similar losses. In such a
context, should additional customers fail to meet their
obligations to us, we may experience reduced cash flows and
losses in excess of reserves, which could materially adversely
impact our results of operations and financial position.
Capital Expenditures. We expect that our capital
expenditures in 2006 will be approximately
700 million,
including gross capitalization of research and development
expenses. We believe that our current cash and cash equivalents,
cash flows and funding arrangements provide us with adequate
flexibility to meet our short-term and long-term financial
obligations and to pursue our capital expenditure program as
planned. We base this assessment on current and expected future
economic and market conditions. Should economic and market
conditions deteriorate, we may be required to engage in
additional restructuring efforts and seek additional sources of
capital, which may be difficult if there is no continued
improvement in the market environment and given our limited
ability to access the fixed income market at this point. In
addition, as mentioned in Capital Resources
above, if we do not meet the financial covenant contained in our
syndicated facility, we may not be able to rely on this funding
arrangement to meet our cash needs.
Qualitative and Quantitative Disclosures About Market Risk
We enter into derivative financial instruments primarily to
manage our exposure to fluctuations in interest rates and
foreign currency exchange rates. Our policy is not to take
speculative positions. Our strategies to reduce exchange and
interest rate risk have served to mitigate, but not eliminate,
the positive or negative impact of exchange and interest rate
fluctuations.
Derivative financial instruments held by us at December 31,
2005 were mostly hedges of existing or future financial or
commercial transactions or were related to issued debt.
The most important part of our issued debt is in euro. Interest
rate derivatives are used to convert the fixed rate debt into
floating rate in order to cover the interest rate risk.
Since we conduct commercial and industrial operations throughout
the world, we are exposed to foreign currency risk, principally
with respect to the U.S. dollar, but to a lesser extent
with respect to the British pound and the Canadian dollar. We
use derivative financial instruments to protect ourselves
against fluctuations of foreign currencies which have an impact
on our assets, liabilities, revenues and expenses.
37
Future transactions mainly relate to firm commercial contracts
and commercial bids. Firm commercial contracts and other firm
commitments are hedged using forward exchange contracts, while
commercial bids are hedged using mainly currency options. The
duration of future transactions that are not firmly committed
does not usually exceed 18 months.
For our derivative financial instruments, we are exposed to
credit risk if a counterparty defaults on its financial
commitments to us. This risk is monitored on a daily basis,
within strict limits based on the ratings of counterparties. The
exposure of each market counterparty is calculated taking into
account the nature and the duration of the transactions and the
volatilities and fair value of the underlying market
instruments. Counterparties are generally major international
banks.
Derivative foreign exchange instruments are mainly used to hedge
future sales denominated in non-euro currencies.
Since we are a net seller of non-euro currencies, the rise of
the euro against these currencies would have a positive impact
on the fair value of the hedges. However, most of the change in
fair value of derivative financial instruments would be offset
by a change in the fair value of the underlying exposure.
In the event of an interest rate decrease, the fair value of our
fixed-rate debt would increase and it would be more costly for
us to repurchase it (not taking into account that an increased
spread of credit reduces the value of the debt).
In the table below, the potential change in fair value for
interest rate sensitive instruments is based on a hypothetical
and immediate one percent fall or rise for 2005 and 2004, in
interest rates across all maturities and for all currencies.
Interest rate sensitive instruments are fixed-rate, long-term
debt or swaps.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Fair value | |
|
Fair value | |
|
|
|
Fair value | |
|
Fair value | |
|
|
|
|
variation if | |
|
variation if | |
|
|
|
variation if | |
|
variation if | |
|
|
Booked | |
|
Fair | |
|
rates fall | |
|
rates rise | |
|
Booked | |
|
Fair | |
|
rates fall | |
|
rates rise | |
|
|
value | |
|
value | |
|
by 1% | |
|
by 1% | |
|
value | |
|
value | |
|
by 1% | |
|
by 1% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
641 |
|
|
|
641 |
|
|
|
0 |
|
|
|
0 |
|
|
|
549 |
|
|
|
549 |
|
|
|
0 |
|
|
|
0 |
|
Cash and cash
equivalents(1)
|
|
|
4,509 |
|
|
|
4,509 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,611 |
|
|
|
4,611 |
|
|
|
0 |
|
|
|
0 |
|
|
Liabilities(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds
|
|
|
(901 |
) |
|
|
(1,099 |
) |
|
|
(56 |
) |
|
|
53 |
|
|
|
(886 |
) |
|
|
(1,079 |
) |
|
|
(64 |
) |
|
|
60 |
|
Other bonds and other financial debt
|
|
|
(2,897 |
) |
|
|
(3,042 |
) |
|
|
(82 |
) |
|
|
77 |
|
|
|
(3,720 |
) |
|
|
(3,847 |
) |
|
|
(108 |
) |
|
|
102 |
|
Interest rate derivative
|
|
|
107 |
|
|
|
108 |
|
|
|
82 |
|
|
|
(77 |
) |
|
|
178 |
|
|
|
178 |
|
|
|
122 |
|
|
|
(112 |
) |
(Debt)/ Cash position
|
|
|
1,459 |
|
|
|
1,117 |
|
|
|
(56 |
) |
|
|
53 |
|
|
|
732 |
|
|
|
412 |
|
|
|
(50 |
) |
|
|
50 |
|
|
|
(1) |
For bank overdrafts, the booked value is considered as a good
estimation of the fair value. |
|
(2) |
Over 90% of our bonds have been issued with fixed rates. At
year-end 2005 and 2004, the fair value of our long-term debt is
higher than its booked value due to a fall in interest rates. |
|
|
|
Assumptions and Calculations |
The fair value of the instruments in the table above is
calculated with market standard financial software according to
the market parameters prevailing on December 31, 2005.
38
The ineffective portion of changes in fair value hedge was a
loss of
9 million
at December 31, 2005, compared with a loss of
2 million
at December 31, 2004. We did not have any amount excluded
from the measure of effectiveness. There was no impact of
contract cancellation in the income statement at
December 31, 2005 and 2004.
We have stopped using investment hedges in foreign subsidiaries.
At December 31, 2005 and 2004, there were no derivatives
that qualified as investment hedges.
We may use derivative instruments to manage the equity
investments in listed companies that we hold in our portfolio.
We may sell call options on shares held in our portfolio and any
profit would be measured by the difference between our book
value for such securities and the exercise price of the option,
plus the premium received.
We may also use derivative instruments on Alcatel shares held in
treasury. Such transactions are authorized as part of the stock
buy back program approved at our shareholders general
meeting held on May 20, 2005.
Since April 2002, we have not had any derivative instruments in
place on investments in listed companies or on Alcatel shares
held in treasury.
Additional information regarding market and credit risks,
including the hedging instruments used, is provided in
Note 28 to our consolidated financial statements included
elsewhere herein.
Research and Development
Expenditures. In 2005, our research and development
expenditures before capitalization of development expenses
totaled
1,544 million
(11.8% of 2005 revenues) compared to expenditures of
1,620 million
in 2004 (13.2% of 2004 revenues).
Accounting policies. In accordance with IAS 38
Intangible Assets, research and development expenses
are recorded as expenses in the year in which they are incurred,
except for:
|
|
|
|
|
development costs, which are capitalized as an intangible asset
when they strictly comply with the following criteria: |
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|
|
the project is clearly defined, and the costs are separately
identified and reliably measured; |
|
|
|
the technical feasibility of the project is demonstrated; |
|
|
|
the intention exists to finish the project and use or sell the
products created during the project; |
|
|
|
a potential market for the products created during the project
exists or their usefulness, in case of internal use, is
demonstrated; and |
|
|
|
adequate resources are available to complete the project. |
These development costs are amortized over the estimated useful
lives of the projects concerned. Specifically for software,
useful life is determined as follows:
|
|
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|
|
in case of internal use: over its probable service lifetime; and |
|
|
|
in case of external use: according to prospects for sale, rental
or other forms of distribution. |
The amortization of capitalized development costs begins as soon
as the product in question is released. Capitalized software
development costs are those incurred during the programming,
codification and testing
39
phases. Costs incurred during the design and planning, product
definition and product specification stages are accounted for as
expenses.
|
|
|
|
|
customer design engineering costs (recoverable amounts disbursed
under the terms of contracts with customers) are included in
work in progress on construction contracts. |
With regard to business combinations, we allocate a portion of
the purchase price to in-process research and development
projects that may be significant. As part of the process of
analyzing these business combinations, we may make the decision
to buy technology that has not yet been commercialized rather
than develop the technology internally. Decisions of this nature
consider existing opportunities for us to stay at the forefront
of rapid technological advances in the telecommunications-data
networking industry.
The fair value of in-process research and development acquired
in business combinations is based on present value calculations
of income, an analysis of the projects accomplishments and
an evaluation of the overall contribution of the project, and
the projects risks.
The revenue projection used to value in-process research and
development is based on estimates of relevant market sizes and
growth factors, expected trends in technology, and the nature
and expected timing of new product introductions by us and our
competitors. Future net cash flows from such projects are based
on managements estimates of such projects cost of
sales, operating expenses and income taxes.
The value assigned to purchased in-process research and
development is also adjusted to reflect the stage of completion,
the complexity of the work completed to date, the difficulty of
completing the remaining development, costs already incurred,
and the projected cost to complete the projects.
Such value is determined by discounting the net cash flows to
their present value. The selection of the discount rate is based
on our weighted average cost of capital, adjusted upward to
reflect additional risks inherent in the development life cycle.
Capitalized development costs considered as assets (either
generated internally and capitalized or reflected in the
purchase price of a business combination) are generally
amortized over three to seven years.
In accordance with IAS 36 Impairment of Assets,
whenever events or changes in market conditions indicate a risk
of impairment of intangible assets, a detailed review is carried
out in order to determine whether the net carrying amount of
such assets remains lower than their recoverable amount, which
is defined as the greater of fair value (less costs to sell) and
value in use. Value in use is measured by discounting the
expected future cash flows from continuing use of the asset and
its ultimate disposal.
If the recoverable value is lower than the net carrying value,
the difference between the two amounts is recorded as an
impairment loss. Impairment losses for intangible assets with
finite useful lives can be reversed if the recoverable value
becomes higher than the net carrying value (but not exceeding
the loss initially recorded).
In August 2001, the Financial Accounting Standards Board issued
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144).
SFAS 144 supersedes SFAS No. 121,
Accounting for the Impairment of
Long-Lived Assets and
for Long-Lived Assets
to Be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the
Results of OperationsReporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the
disposal of a segment of a business. The provisions of
SFAS 144 are required to be applied for fiscal years
beginning after December 15, 2001.
During the year ended December 31, 2002, we performed an
assessment of the carrying values of acquired technology, booked
in our consolidated statements reconciled to U.S. GAAP,
pursuant to SFAS 144 in connection with the DSC
Communications, Genesys, Kymata, Innovative Fibers and Newbridge
acquisitions. The assessment was performed due to sustained
negative economic conditions impacting our operations and
expected future revenues. As a result, we recorded impairment
charges of
553 million
related to acquired technology to reflect, in our consolidated
statements reconciled to U.S. GAAP, these assets at
40
their current estimated fair values. The impairments represent
the amount by which the carrying values of these assets exceeded
their fair values.
During the year ended December 31, 2005, no trigger events
occurred that would require us to reassess the carrying values
of acquired technology.
Application of accounting policies to certain significant
acquisitions. In accounting for, and reconciling under
U.S. GAAP, our acquisitions of Spatial in 2004, Timetra in
2003 and Genesys and Newbridge in 2000, we allocated a
significant portion of the purchase price of each acquisition to
in-process research and development projects.
Set forth below is a description of our methodology for
estimating the fair value of the in-process research and
development of Genesys, Newbridge, Timetra and Spatial at the
time of their acquisition. We cannot give assurances that the
underlying assumptions used to estimate expected project
revenues, development costs or profitability, or the events
associated with such projects, as described below, will take
place as estimated.
Genesys. At the acquisition date, Genesys was conducting
design, development, engineering and testing activities
associated with the completion of several projects related to
Genesys release 6. The allocation of U.S. $100 million
of the purchase price to the in-process research and development
projects represented their estimated fair values using the
methodology described above.
Newbridge. At the acquisition date, Newbridge was
conducting design, development, engineering and testing
activities associated with the completion of numerous projects
aimed at developing next-generation technologies that were
expected to address emerging market demands for the
telecommunications equipment market. The allocation of
U.S. $750 million of the purchase price to these
in-process research and development projects represented their
estimated fair value using the methodology described above. More
specifically, the development, engineering and testing
activities associated with the following technologies were
allocated portions of the purchase price: switching and routing
(U.S. $505 million) and access
(U.S. $245 million).
Timetra. At the acquisition date, Timetra was developing
routers to handle data traffic at what is known as the network
edge, the part of the data network that links offices, homes and
other buildings to the long distance core network.
In June 2003, Timetra introduced its first product, a family of
service routers for next generation carrier networks. The
allocation of U.S. $5.5 million of the purchase price
to these in-process research and development projects
represented their estimated fair values using the methodology
described above.
Approximately U.S. $42 million had been spent on
research and development projects as the valuation date. Costs
to complete the projects were estimated at approximately
U.S. $9 million over 24 months following the
acquisition. Management estimated that the aforementioned
projects were in various stages of development and were
approximately 80% complete, in the aggregate, based on
development costs.
Estimated total revenues from the acquired in-process technology
are expected to peak in 2006 and 2007 and steadily decline
thereafter as other new products and technologies were expected
to be introduced by us.
The estimated costs of goods sold as well as operating expenses
as a percentage of revenues for Timetra were expect to be
materially consistent with historical levels, primarily due to
the extremely competitive nature of the industry and the need to
continue to spend heavily on research and development.
A discount rate of 35% was used for determining the value of the
in-process research and development. This rate is higher than
the implied weighted average cost of capital for the acquisition
due to inherent uncertainties surrounding the successful
development of the purchased in-process technology, the useful
life of such technology, the profitability levels of such
technology, and the uncertainty of technological advances that
were unknown at that time. However, we believe that expenses
incurred to date associated with the development and integration
of the in-process research and development projects are
consistent with our estimates at the time of acquisition.
41
Spatial. We used the purchase method of accounting for
Spatial, whereby the excess of cost over the net amounts
assigned to assets acquired and liabilities assumed is allocated
to goodwill and intangible assets based on their estimated fair
values. Such intangible assets identified by us include
U.S. $62.5 million allocated to developed technology
and know how (developed technology) and
U.S. $14.5 million allocated to in-process research
and development.
At the acquisition date, Spatial was selling its distributed
mobile switching solution; a centralized call server that
manages call/session control for mobile voice and data services,
commonly referred to as a softswitch. In March 2002,
Spatial introduced its
Atriumtm
product, the industrys first next-generation mobile core
switch that supports 2/2 5/3G GSM and CDMA networks. The
allocation of U.S. $62.5 million of the purchase price
to the developed technology encompassed the call server
technology.
In addition, at the time of acquisition, Spatial was developing
new software functionalities that integrate UMTS (Universal
Mobile Telecommunications System) and Wi-Fi technology into our
wireless softswitch technology platform. It was estimated that
this project had incurred approximately
U.S. $4 million in costs as of the valuation date.
Cost to complete the project was estimated at approximately
U.S. $650,000 over four months following the acquisition.
Management estimated that the project was approximately 80%
complete, in the aggregate, based on development costs.
Estimated total revenues from the acquired developed technology
and know how and in-process technology are expected to peak in
2006 and 2008, respectively, and steadily decline thereafter, as
other new products and technologies are introduced by Spatial.
The estimated costs of goods sold as well as operating expenses
as a percentage of revenues for Spatial were expected to be
materially consistent with historical levels, primarily due to
the extremely competitive nature of the industry and the need to
continue to spend heavily on research and development.
A discount rate of 30% was used for determining the value of the
in-process research and development, while a rate of 18% was
employed for determining the value of the developed technology
and know how. The in-process research and development rate is
higher than the implied weighted average cost of capital for the
acquisition due to inherent uncertainties surrounding the
successful development of the purchased in-process technology,
the useful life of such technology, the profitability levels of
such technology, and the uncertainty of technological advances
that were unknown at that time.
Main Areas affected by the Change from French GAAP to IFRS
The principal areas that have been affected by the change from
French GAAP to IFRS are described below.
Property, plant and equipment
The application of IAS (International Accounting Standard) 16
(Property, Plant and Equipment) and IAS 36 (Impairment of
Assets) did not have a significant impact on our financial
statements prepared in accordance with IFRS. We elected not to
choose the option provided by IFRS 1 (First-time Adoption of
IFRS) that allows certain property, plant and equipment to be
recorded at fair value in the opening balance sheet.
Furthermore, the rules governing depreciation methods
(determination of the estimated useful life of the asset,
inclusion of residual values and related matters) are either
already applied by us or did not have a major impact on our
opening balance sheet. Marine vessels represent the main
category of our property, plant and equipment that required
restatement in order to comply with IFRS.
The application of IAS 36 did not have a major impact on us with
respect to impairment losses. We performed impairment tests of
our property, plant and equipment in 2002, 2003 and 2004, using
methods comparable to those required by IFRS, and, as a result,
significant impairments had been recognized.
Our fixed assets used in the context of financial leasing
contracts were already recognized as assets in our consolidated
financial statements prepared in accordance with French GAAP in
accordance with the
42
criteria defined in IAS 17 (Leases) and we do not own any
significant property within the scope of
IAS 40 (Investment Property).
Fixed assets to be sold, as defined in IFRS 5 (Non-current
Assets Held for Sale and Discontinued Operations), are recorded
as non-current assets and are no longer depreciated. This change
did not have a significant impact on our 2004 consolidated net
income remeasured under IFRS and did not have a significant
impact on our 2005 consolidated net income.
Construction contracts
The principles of IAS 11 (Construction Contracts) are very close
to those already used under French GAAP to account for
construction contracts (or long-term contracts). In particular,
the percentage of completion method of accounting that we
applied to our French GAAP 2004 consolidated financial
statements complies with IAS 11. Contract segmentation and
combination rules under IFRS are also very close to the
accounting principles we used under French GAAP. The methods for
recognizing reserves for penalties (changes are recorded in
contract revenues under IFRS but in contract costs in our French
GAAP 2004 consolidated financial statements), and accounting for
the financial impact on net sales of deferred payments when they
are material, has a limited effect on the presentation of our
income statement and no effect on either our gross profit or our
opening shareholders equity using IFRS.
The presentation of assets and liabilities related to
construction contracts under specific balance sheet captions,
and the application of specific offset rules as required by
IAS 11, reduced our working capital due to the fact that
certain reserves for product sales were presented as a deduction
of this amount under French GAAP.
Research and development costs
Under French GAAP, research and development costs were generally
expensed, with the exception of certain software development
costs. The application of the principles defined in IAS 38
(Intangible Assets) required us to capitalize a part of the
development costs. This increased significantly the intangible
assets and shareholders equity in our January 1, 2004
opening balance sheet prepared in accordance with IFRS. However,
full retroactive application of this standard was not possible
due to the lack of prior period information; under IAS 38,
availability of such information would have enabled us to meet
the eligibility criteria for the capitalization of certain
expenditures.
Assuming a constant volume of research work, the capitalization
of certain development costs in accordance with IAS 38 should
not have a material impact on our net income. For two or three
years starting in 2005, this capitalization will have a positive
impact, which will gradually dissipate. The impact on our
capitalization is presented in our IFRS consolidated financial
statements under a specific income statement caption,
Impact of capitalization of development expenses, to
better isolate the
ramp-up effect of the
capitalization of development costs.
Convertible bonds or notes mandatorily redeemable for
shares
The convertible bonds (OCEANE) and notes mandatorily
redeemable for shares (ORANE) issued by us in 2002 and 2003
are compound financial instruments (according to IAS
32) that include a debt component and an equity component.
The first-time adoption of IFRS has the effect of recording all
of these notes and a part of these convertible bonds as of
January 1, 2004 in shareholders equity and part of
the convertible bonds (OCEANE) in financial debt. Under
French GAAP, the notes mandatorily redeemable for shares
(ORANE) were recorded in other equity and the convertible
bonds (OCEANE) were recorded primarily as financial debt,
and a lesser portion was recorded in shareholders equity.
The IFRS standard has both a positive and a negative effect on
the future level of financial expense due, on the one hand, to
accounting for prepaid expenses in shareholders equity as
of January 1, 2004 (ORANE) and, on the other hand, to
accreting the debt component and increasing financial expense
(OCEANE).
43
Goodwill and business combinations
In connection with major stock-for-stock acquisitions in the
past, we used the special exemption provided by
paragraph 215 of Regulation 99-02 adopted by the
Comité de la Réglementation Comptable,
which permits the difference between the purchase price of the
business acquired and the corresponding share of net assets to
be recorded directly in our shareholders equity.
Insofar as we have elected to adopt the IFRS 1 option not to
restate business combinations that do not comply with IFRS 3
(Business Combinations) and which occurred prior to
January 1, 2004, first-time adoption of IFRS did not result
in any changes to the accounting methods previously applied.
In addition, for business combinations prior to January 1,
2004, regardless of the accounting method used, the review of
assets and liabilities recorded in the context of these
combinations and the analysis of their compliance with IFRS
accounting principles had no material impact on our
shareholders equity, with the exception of the accounting
treatment of stock options existing in the acquired company on
the date of acquisition. Provision was made under French GAAP
based on the intrinsic value of these items, a treatment that
does not comply with the IFRS 2 (Share-based Payment) and IFRS 3
rules.
Other acquired assets and liabilities, in particular intangible
assets recorded in our French GAAP 2004 consolidated financial
statements resulting from business combinations, were generally
in compliance with IFRS. We did not identify any significant
unrecorded intangible assets that should have been recorded in
accordance with IFRS, other than the goodwill in the business
combinations.
With respect to goodwill recorded as of December 31, 2003,
the application of an impairment test based on the criteria
defined in IAS 36 did not result in any significant impairment
loss in the opening balance sheet. Starting January 1,
2004, goodwill is no longer amortized but is tested for
impairment annually.
Financial instruments
Under IFRS, financial assets available for sale (as defined in
IAS 39) are recorded at fair value in the 2004 IFRS opening
balance sheet. For listed securities, the restatement consisted
of recording, in opening shareholders equity, the
difference between the carrying value and the market value, net
of any possible deferred tax impacts. Since we own some listed
securities, and because we valued marketable securities at the
lower of cost and market value in our French GAAP 2004
consolidated financial statements, the impact on
shareholders equity in IFRS is positive.
With respect to customer receivables sold without recourse (see
Note 15 to our French GAAP 2004 consolidated financial
statements), the derecognition (that is, the
transfer) of these receivables from our balance sheet under
French GAAP did not result in a significant restatement upon
transition to IFRS, insofar as we considered that, for trade
receivables sold without recourse, in case of non-payment,
substantially all of the risks and rewards associated with the
asset had been effectively transferred to the buyer.
In accordance with the provisions of IAS 39 on financial
instruments (which we have chosen to apply starting
January 1, 2004), derivatives are recorded at fair value in
the balance sheet.
Most of our interest rate derivatives are fair value hedges, and
the changes in their value were largely offset in income by
revaluations of the underlying debt.
We use currency derivatives to hedge future cash flows, firm
commitments and commercial bids.
Derivatives used to hedge firm commitments are treated as fair
value hedges.
In addition, from April 1, 2005 onwards, we identify and
document highly probable future streams of revenue with respect
to which we enter into hedge transactions. The corresponding
derivatives are eligible for cash flow hedge accounting. Changes
in fair value of the effective part of these financial
instruments are recognized directly in equity and reclassified
in profit or loss (cost of sales) in the same period during
which the hedged revenue is accounted for; the ineffective part
is recorded in financial income (expense).
44
Derivatives related to commercial bids are not considered as
eligible for hedge accounting and are accounted for as trading
financial instruments. Changes in fair values of such
instruments are therefore included in the income statement in
the cost of sales (in the business segment other).
Retirement and other employee benefits
The methods for determining pensions and other post-employment
benefits, as described in Notes 1(i) and 24 to our French
GAAP 2004 consolidated financial statements, were in compliance
with IAS 19 (Employee Benefits), insofar as we have applied,
starting January 1, 2004, recommendation 2003-R01 of the
Conseil National de la Comptabilité (the
CNC). The impact of applying this recommendation as
of January 1, 2004, particularly on shareholders
equity, was presented in Note 24 to our French GAAP 2004
consolidated financial statements.
Share-based payment
The application of IFRS 2 (Share-based Payment) modifies the
method of accounting for stock options granted to our employees.
Only stock option plans established after November 2002, and
whose stock options had not yet vested at December 31,
2004, have been restated. This affects our 2003 and 2004 plans
and the plans resulting from business combinations completed
after November 2002, under which the stock options had not yet
vested at December 31, 2004. We decided not to adopt the
full retroactive application option provided for in this
standard, since the fair values of the stock options granted in
the past had not been published and the method of valuing the
stock options for determining the pro forma income per share in
accordance with U.S. GAAP is not identical to that adopted
for the application of IFRS 2.
The impact on 2004 net income, restated in accordance with
IFRS, corresponds to the allocation of the fair value over the
vesting period of the stock options granted that fall within the
scope of IFRS 2. This impact is presented under a specific
income statement caption, Share-based payment (Stock
Option Plans), in our IFRS income statement.
Since the compensation expense does not result in an outflow of
cash and since the counter-entry to the expense is recorded in
consolidated reserves, the application of this standard had no
impact on IFRS shareholders equity.
Off-balance sheet commitments and
derecognition (that is, transfer) of financial
assets and liabilities
The accounting of our off-balance sheet commitments under French
GAAP are described in Note 31 to our French GAAP 2004
consolidated financial statements. On December 31, 2003, we
participated in two structured securitization programs (the SVF
program and a customer receivable securitization program),
described in Note 31 to our French GAAP 2004 consolidated
financial statements. The special purpose vehicle used in the
SVF program was consolidated as of January 1, 2004,
following changes in French accounting regulations as indicated
in Note 31 to our French GAAP 2004 consolidated financial
statements. The impact on the IFRS 2004 opening balance sheet is
described in Note 38 IV E of our 2005 consolidated
financial statements. The special purpose entity used in the
customer receivables securitization program was already
consolidated at December 31, 2003 and the application of
IFRS to this program, therefore, had no impact on our IFRS
consolidated financial statements. In addition, the carryback
receivable sold in 2002, as explained in Note 31 to our
French GAAP 2004 consolidated financial statements, is recorded
as an asset at discounted value in the IFRS opening balance
sheet, as security for the corresponding financial liability
that results from the consideration received.
Reserves for restructuring and other liabilities
We applied CNC regulation 00-06 to liabilities since
January 1, 2002 in our French GAAP consolidated financial
statements. Since this regulation is very similar to IAS 37
(Provisions, Contingent Liabilities and Contingent Assets), IAS
37 did not have any material impact on our IFRS 2004 opening
balance sheet.
45
Presentation of financial statements
The application of IAS 1 (as revised in December 2003) and, to a
lesser extent, the application of IAS 7 (Cash Flow Statements),
IAS 14 (Segment Reporting) and IFRS 5 (Non-current Assets Held
for Sale and Discontinued Operations) had significant
consequences on the manner of presenting our financial
information.
IFRS requires a distinction to be made between current and
non-current items in the balance sheet, which is different from
the past French GAAP presentation that was based on the type
and/or liquidity of assets and liabilities. In addition, certain
specific rules governing the offsetting of assets and
liabilities (for example, certain reserves for product sales
relating to construction contracts that have to be deducted from
contract assets) result in reclassifications compared to
previous practice.
The removal of the concept of extraordinary income or loss in
IFRS resulted in the reclassification in income from operating
activities and/or financial income of certain revenues and
expenses recorded under French GAAP by us in other
revenue/expense (see Notes 1m, n, o and Note 7 to our
French GAAP 2004 consolidated financial statements). The extent
of the changes in presentation is such that we have made
specific comments in our reconciliation schedules (see
Note 38 to our 2005 consolidated financial statements).
Other standards
The other requirements of IFRS do not call for any specific
comment, and we had no major impact on our IFRS opening balance
sheet as a result of applying these other standards. This is the
case for IAS 2 (Inventories), IAS 12 (Income Taxes), IAS 18
(Revenue), IAS 20 (Accounting for Government Grants and
Disclosure of Government Assistance), IAS 21 (Effects of Changes
in Foreign Exchange Rates), IAS 23 (Borrowing Costs), IAS 27
(Consolidated and Separate Financial Statements), IAS 28
(Investments in Associates), IAS 29 (Financial Reporting in
Hyperinflationary Economies), and IAS 31 (Interests in Joint
Ventures). Moreover, we had previously applied some
International Accounting Standards under French GAAP, notably
IAS 19 (Employee Benefits), IAS 33 (Earnings Per Share), and IAS
24 (Related Party Disclosures).
A more extensive description of our accounting policies applied
is given in Note 1 to our 2005 consolidated financial
statements, and the reconciliation between 2004 consolidated
financial statements under IFRS and French GAAP is set forth in
Note 38 to our 2005 consolidated financial statements.
Exemptions to IFRS
As a first time adopter of IFRS, we have elected some exemptions
to IFRS as permitted by IFRS 1, section 13. These
exemptions are described below.
Business combinations
We elected not to apply IFRS 3 (Business Combinations)
retrospectively for all business combinations that occurred
before the date of transition (January 1, 2004).
As indicated in the section Changes in Accounting
Standards as of January 1, 2005 Goodwill and
business combinations and in Note 12 to our 2005
consolidated financial statements, major past business
combinations were accounted for using the French pooling
of interest method, instead of the purchase accounting
method as prescribed by IFRS 3. These business combinations were
not restated in our IFRS consolidated financial statements.
If we had restated past business combinations to comply with
IFRS 3, shareholders equity and the amount of
goodwill under IFRS as of January 1, 2004 would have been
materially greater. We estimate that the impact would have been
comparable to the adjustment between French GAAP and
U.S. GAAP consolidated financial statements as of
December 31, 2003 as described and valued in
Notes 37(a) and 38(b) to our French GAAP 2004 consolidated
financial statements.
46
Employee benefits
We elected to recognize all cumulative actuarial gains and
losses at the date of transition to IFRS (January 1, 2004)
for all employee benefit plans, but we elected to use the
corridor approach for actuarial gains and losses
arising beginning January 1, 2004 in our IFRS consolidated
financial statements. Taking into account that in the long term
actuarial gains and losses may offset one another, the
applicable IAS standard permits an entity to leave some
actuarial gains and losses within a range (or
corridor) around the best estimate of
post-employment benefit obligations unrecognized.
The impact of this election on our shareholders equity at
the date of transition to IFRS, as indicated in Note 38 to
our 2005 consolidated financial statements included elsewhere
herein, was negative amount of approximately
200 million.
The estimated impact on 2004 net income was comparable to
the adjustment between French GAAP and U.S. GAAP
consolidated financial statements as of December 31, 2004,
as described and valued in Notes 37(d) and 38(a) to our
French GAAP 2004 consolidated financial statements.
Cumulative translation differences
We elected the exemption related to cumulative translation
differences. As indicated in IFRS 1 paragraph 22:
If a first-time adopter uses this exemption:
|
|
|
|
(a) |
the cumulative translation differences for all foreign
operations are deemed to be zero at the date of transition to
IFRSs; and |
|
|
|
|
(b) |
the gain or loss on a subsequent disposal of any foreign
operation shall exclude translation differences that arose
before the date of transition to IFRSs and shall include later
translation differences. |
This exemption had no impact on shareholders equity at the
date of transition to IFRS and no material impact on
2004 net income as no material disposals of foreign
operations were accounted for during the 2004 fiscal year.
Compound financial instruments
We elected the exemption related to compound financial
instruments as permitted by IFRS 1 paragraph 23. Therefore,
the two portions in equity (the portion related to the cumulated
interests accreted on the liability component, and the portion
related to the original equity component) of our ORANE (notes
mandatorily redeemable for shares) have not been separated, as
the liability component was no longer outstanding at the
transition date. A description of the IFRS accounting treatment
of compound financial instruments is set forth in
Note 38 IV B to our 2005 consolidated financial
statements included elsewhere herein.
We did not elect any other exemption to IFRS.
|
|
Item 6. |
Directors, Senior Management and Employees |
In accordance with French company law governing a
société anonyme, our business is managed by our board
of directors and by our Chairman and Chief Executive Officer.
Board of Directors
The following table sets forth, as of March 31, 2006, the
following information for each of our directors: name, age, year
of election to the board, year in which the term on the board
expires, principal business activities performed outside of
Alcatel (including other principal directorships) and the number
of Alcatel securities owned.
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year | |
|
Year | |
|
|
|
|
|
|
|
|
Initially | |
|
Term | |
|
Principal Business Activities |
|
Number of |
Name |
|
Age | |
|
Appointed | |
|
Expires | |
|
Outside of Alcatel |
|
Securities Held |
|
|
| |
|
| |
|
| |
|
|
|
|
Serge Tchuruk
|
|
|
68 |
|
|
|
1995 |
|
|
|
2007 |
|
|
Director of Thales and Total; Member of the Board of Directors
of the Ecole Polytechnique, Chairman of Alcatel USA Holdings
Corp., and Member of the Supervisory Board of Alcatel
Deutschland GmbH |
|
236,150 ordinary shares
209 FCP
3A(1) |
|
Daniel Bernard
|
|
|
60 |
|
|
|
1997 |
|
|
|
2007 |
|
|
Director of Saint-Gobain and Cap Gemini; Chairman of Provestis |
|
141,125 ordinary shares |
|
Philippe Bissara
|
|
|
64 |
|
|
|
1997 |
|
|
|
2008 |
|
|
Honorary Managing Director of ANSA (National Association of
Limited Liability Companies); Honorary instructing judge at the
Conseil dÉtat (the highest administrative court of
France); Member of the Académie de Comptabilité;
Member of the Board of Directors of the French branch of the
International Fiscal Association |
|
53,645 ordinary shares
4,469 FCP
3A(1) |
|
W. Frank Blount
|
|
|
67 |
|
|
|
1999 |
|
|
|
2008 |
|
|
Chairman and CEO of JI Ventures Inc. and TTS Management Corp.;
Director of Entergy Corporation, Caterpillar Inc., Adtran Inc.
and Hanson Plc |
|
1,000 ADSs |
|
Jozef Cornu
|
|
|
61 |
|
|
|
2000 |
|
|
|
2008 |
|
|
Chairman of Alcatel Bell NV and Tijd NV; Director of Alcatel
CIT; Member of the Supervisory Board of Alcatel SEL AG; Director
of Taiwan International Standard Electronics Ltd, Barco, KBC,
Agfa Gevaert and Arinsa International; Chairman of the
Information Society Technologies Group of the European Commission |
|
20,500 ordinary shares
1,734 FCP 3A |
|
Jean-Pierre Halbron
|
|
|
69 |
|
|
|
1999 |
|
|
|
2008 |
|
|
Director of Electro Banque; Chairman of the Alcatel Ethics
Committee |
|
18,670 ordinary shares
1,969 FCP 3A |
David Johnston
|
|
|
64 |
|
|
|
2001 |
|
|
|
2009 |
|
|
President of the University of Waterloo (Canada); Director of
CGI, Masco and Sustainable Development Technology Foundation |
|
3,336 ordinary shares |
|
Daniel Lebègue
|
|
|
62 |
|
|
|
2003 |
|
|
|
2007 |
|
|
Director of Crédit Agricole SA, Scor and Technip; Member of
the Supervisory Board of Areva; Chairman of the Institut
Français des Administrateurs, Transparency International
(France) and the Institut dÉtudes Politiques (Lyon) |
|
500 ordinary shares |
|
Pierre-Louis Lions
|
|
|
49 |
|
|
|
1996 |
|
|
|
2009 |
|
|
Professor at the Collège de France and the Ecole
Polytechnique; Chairman of the Conseil Scientifique dEDF,
the CEA-DAM and of France Telecom, Member of the Académie
des technologies, the Académie des sciences, the Conseil
Scientifique de la Défense, the Société de
mathématique de France, and the Société de
mathématiques appliquées et industrielles; consultant
to EADS Launch Vehicles, Paribas et CAI; Director of
the Sark Fund; Member of the American Mathematical Society, the
European Mathematical Society, the International Association in
Mathematical Physics, the Istituto Lombardo, the Academia
Europea and the Acad. Naz. Lincei |
|
520 ordinary shares |
|
Thierry de Loppinot
|
|
|
62 |
|
|
|
1997 |
|
|
|
2006 |
|
|
Legal counsel at Alcatels Head Office; Chairman of the
Supervisory Board of the Actionnariat Alcatel Unit
Trust (FCP 3A); Chairman of Formalec |
|
6,091 ordinary shares
4,901 FCP3A |
|
Peter Mihatsch
|
|
|
65 |
|
|
|
2002 |
|
|
|
2008 |
|
|
Chairman of the Supervisory Board of Giesecke and Devrient;
Member of the Supervisory Board of Vodafone GmbH,
Vodafone-Mobilfunk, ARCOR-Vodafone, and Rheinmetal AG; Board
Member of 3i p.l.c. |
|
1,200 ordinary shares |
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year | |
|
Year | |
|
|
|
|
|
|
|
|
Initially | |
|
Term | |
|
Principal Business Activities |
|
Number of |
Name |
|
Age | |
|
Appointed | |
|
Expires | |
|
Outside of Alcatel |
|
Securities Held |
|
|
| |
|
| |
|
| |
|
|
|
|
|
Bruno Vaillant
|
|
|
62 |
|
|
|
1997 |
|
|
|
2006 |
|
|
Engineer at Alcatel Alenia Space (Information Systems Division);
Member of the Supervisory Board of the Actionnariat
Alcatel Unit Trust (FCP 3A); Expert at the Toulouse Court
of Appeal; Vice President of the Compagnie des
Experts-judiciaires près la Cour dAppel et du
Tribunal Administratif de Toulouse |
|
1,850 ordinary shares
5,349 FCP 3A |
|
Marc Viénot
|
|
|
77 |
|
|
|
1987 |
|
|
|
2007 |
|
|
Honorary Chairman and Director of Société
Générale; Member of the Supervisory Board of Groupe
Barrière; Director of Société Générale
Marocaine de Banque and of Ciments Français; Member of the
Board of the Association Française des Entreprises
Privées |
|
4,950 ordinary shares |
|
|
(1) |
FCP 3A is the unit trust of our employees governed by
Article 20 of French law dated December 23, 1988. Our
articles of association and bylaws require that two members of
our board be employed by us, and that they participate in a FCP
at the time of their appointment to our board and during their
terms of office as directors. |
The following table sets forth the amount of compensation paid
by us during 2005 to each of the individuals who were, during
2005, members of our board of directors, in connection with such
persons service as a director and, if applicable, an
executive of Alcatel.
|
|
|
|
|
Director |
|
Amount | |
|
|
| |
Daniel Bernard
|
|
|
66,604 |
|
Philippe Bissara
|
|
|
40,884 |
|
Frank Blount
|
|
|
49,524 |
|
Jozef Cornu
|
|
|
44,606 |
|
Jean-Pierre Halbron
|
|
|
44,606 |
|
David Johnston
|
|
|
44,606 |
|
Daniel Lebègue
|
|
|
60,489 |
|
Pierre-Louis Lions
|
|
|
50,720 |
|
Thierry de
Loppinot(1)
|
|
|
146,953 |
|
Peter Mihatsch
|
|
|
45,802 |
|
Serge
Tchuruk(2)
|
|
|
2,848,483 |
|
Bruno
Vaillant(3)
|
|
|
129,030 |
|
Marc Viénot
|
|
|
62,948 |
|
Philippe
Germond(4)
|
|
|
5,066,206 |
|
|
|
(1) |
102,347 of this
amount consisted of Mr. de Loppinots salary and the
remainder consisted of directors fees. |
|
(2) |
2,839,363 of
this amount consisted of Mr. Tchuruks salary (of
which 1,314,873
was a bonus) and the remainder consisted of benefits in kind. |
|
(3) |
84,425 of this
amount consisted of Mr. Vaillants salary and the
remainder consisted of directors fees. |
|
(4) |
1,958,334 of
this amount consisted of Mr. Germonds salary (of
which 1,543,750
was a bonus with respect to the fiscal years 2004 and (pro rata)
2005), 3,105,017
consisted of his termination payment and accrued vacation
payable upon termination, and the remainder consisted of
benefits in kind. Mr. Germond ceased to be President, Chief
Operating Officer and a director on April 19, 2005. |
The amount of directors fees paid for 2005 totaled
600,000. A
portion of the directors fees is distributed equally among
all directors and a portion is distributed among the members of
the board based on the number of board and committee meetings
and on attendance at such meetings by the directors.
Mr. Tchuruk does not receive directors fees from our
company.
In February 2003, in view of the corporate governance
requirements or recommendations contained in the Sarbanes-Oxley
Act of 2002, in The New York Stock Exchanges then proposed
revised listing standards and in the AFEP-MEDEF report (a
French report relating to corporate governance standards), our
board of directors modified its charter and adopted internal
regulations governing our board of directors functions and
the conduct of our directors. In accordance with the provisions
of this charter and internal regulations, our board of directors
regularly considers the functions of the board and the
independence of its members.
49
At its meeting held on March 30, 2006, our board of
directors evaluated the independence of its members and
determined that eight of its members (which represents more than
half of the members of the board) are independent under the
independence criteria set by the board and those set by The New
York Stock Exchange. Such members are Messrs. Bernard,
Bissara, Blount, Johnston, Lebègue, Lions, Mihatsch and
Viénot.
Senior Management
The table below sets forth, as of March 31, 2006, the
following information for each of our senior executives: name,
age, current position with our company and the year in which
such person was appointed a member of our Alcatel executive
committee.
|
|
|
|
|
|
|
Name |
|
Age | |
|
Current Position and Year Appointed to Executive Committee |
|
|
| |
|
|
Serge Tchuruk
|
|
|
68 |
|
|
Chairman and Chief Executive Officer (1995) |
Mike Quigley
|
|
|
53 |
|
|
President and Chief Operating Officer (2001) |
Jean-Pascal Beaufret
|
|
|
55 |
|
|
Chief Financial Officer (2002) |
Jacques Dunogué
|
|
|
55 |
|
|
Executive Vice President of Alcatel and President of Alcatel
Europe and South (2002) |
Etienne Fouques
|
|
|
57 |
|
|
Executive Vice President of Alcatel and President of Mobile
Communications Group (2001) |
Olivier Houssin
|
|
|
53 |
|
|
Executive Vice President of Alcatel and President of Private
Communications Group (2000) |
Claire Pedini
|
|
|
40 |
|
|
Senior Vice President of Alcatel and Corporate Human Resources
(2005) |
Christian Reinaudo
|
|
|
51 |
|
|
Executive Vice President of Alcatel and President of Alcatel
Asia-Pacific (2000) |
There are no family relationships between any director and
senior executive. No director or senior executive was elected or
appointed as a result of any arrangement or understanding with
any third party. At December 31, 2005, none of our senior
executives owned more than one percent of the total outstanding
number of our ordinary shares.
Compensation
For the year ended December 31, 2005, the aggregate amount
of compensation, including benefits, that we paid to those
persons who were senior executives on December 31, 2005 as
a group, for services in all capacities, was
14 million.
The compensation for senior executives consists of both a base
salary and a bonus, which is determined based partly on our
performance and partly on the executives performance,
pursuant to criteria reviewed by the nominating and compensation
committee. For 2005, the bonus was based on our revenues, our
net income and our working capital needs for 2004. Of the total
compensation paid to our senior executives in 2005,
7.2 million
was paid in base salary and
6.8 million
was paid in bonus, which represents 48.6% of their total salary.
Non-recurring compensation paid to retiring or departing
executives totaled
5.3 million
in 2005. Directors fees that senior executives receive
from various companies as a result of their employment with us
are deducted from their salary. Our directors and senior
executives exercised 37,186 stock options in 2005 at an average
price of
6.77 per
ordinary share.
In 2005, Mr. Tchuruk was paid a base salary of
1,524,490. This
amount has remained unchanged since 2000. A bonus of
1,314,873 was
paid to Mr. Tchuruk in 2005 with respect to our 2004 fiscal
year. Generally, Mr. Tchuruks bonus for each fiscal
year is set by the board of directors upon a recommendation of
the nomination and compensation committee. Such bonus is
determined in accordance with a method that is reviewed each
year by the board of directors and that takes into account the
prospects of growth and prospective results of our Group for the
following fiscal year. Mr. Tchuruks bonus is paid
during the fiscal year following the fiscal year to which the
bonus relates, after approval by the shareholders of the
financial statements of our Group for the preceding fiscal year.
50
At its meeting held on March 10, 2005, our board of
directors decided that, in order to determine the amount of the
bonus for fiscal year 2005, it would refer to the same criteria
as those referred to in setting the amount of the bonus for
fiscal year 2004: consolidated net income before goodwill
amortization and minority interests.
At its meeting held on March 30, 2006, our board of
directors therefore set the amount of the bonus to be paid to
Mr. Tchuruk in 2006 with respect to the 2005 fiscal year at
1,105,255, which
represents 72.5% of the fixed compensation received by
Mr. Tchuruk for the 2005 fiscal year. This is compared to
his bonus of
1,314,873 for
the 2004 fiscal year, which represented 86.25% of the fixed
compensation received for that year.
Our board of directors further decided that, in order to
determine the amount of Mr. Tchuruks bonus for fiscal year
2006 to be paid in 2007, it will refer to the criteria to be
applied to all of our executives, that is, 30% by reference to
our consolidated revenues, 40% by reference to our net income
attributable to the equity holders of the parent, and 30% by
reference to our free cash flow, proportionately on the basis of
the time spent as our Chief Executive Officer in 2006.
Pursuant to his request, Mr. Tchuruk did not receive any
options under the stock option plans approved by our board of
directors in March 2005 and in March 2006. Mr. Tchuruk
invested the full amount of the net bonus paid to him in 2005
for fiscal year 2004 in Alcatel ordinary shares, acquiring
130,700 shares in the stock market in June 2005 for total
consideration of
1,201,050.
Upon ceasing to be our Chairman and Chief Executive Officer, and
consistent with the terms agreed upon his nomination,
Mr. Tchuruk will be entitled to receive a termination
payment equal to twice the average of his two highest total
annual remunerations during the last five years and will be
entitled to retirement benefits under the terms of a plan
covering approximately 80 executives of the Group. Due to the
benefits Mr. Tchuruk accrued pursuant to this plan, as well
as the benefits he accrued prior to his employment with the
Group, we will not need to make any payments pursuant to the
guarantee that our board of directors gave Mr. Tchuruk that
his retirement benefits would equal, on an annual basis, 40% of
the average of his two highest total annual remunerations during
the five years preceding his ceasing to be our Chairman and
Chief Executive Officer.
The board of directors met on April 19, 2005 and
authorized, upon the recommendation of the nomination and
compensation committee, the execution of an agreement between us
and Mr. Germond concerning the cessation of his
responsibilities as the Groups President and Chief
Operating Officer. The main provisions of this agreement
clarified the contractual obligations of Mr. Germond and of
the Group due to Mr. Germonds departure in the first
half of the year. It determined the actual amount of the
termination payment owed to Mr. Germond, calculated
pursuant to the terms of his employment contract as executed
upon his joining the Group, such amount being
3,000,000. The
agreement also reduced the notice period for termination to
three months, and set his bonus compensation for the 2005 fiscal
year, pro rata to his departure date, at
250,000.
The aggregate amount of the benefit obligation related to
pension, retirement or similar benefits for our directors listed
in the table under the heading Board of Directors
above and our senior executives listed in the table under the
heading Senior Management above, as a group, as of
December 31, 2005, was approximately
57.4 million.
The corresponding amount of pension reserve accounted for,
taking into account plan assets and unrecognized actuarial
loss/gain amounted to
33.4 million
as of December 31, 2005.
Committees of the Board
In February 2003, in light of the corporate governance
requirements or recommendations contained in the Sarbanes-Oxley
Act of 2002, in The New York Stock Exchange proposed revised
listing standards and in the French AFEP-MEDEF report,
our board of directors adopted charters governing our audit
committee, nomination and compensation committee and strategy
planning committee.
51
Audit Committee
Currently, the audit committee consists of three members: Daniel
Lebègue, chairman of the committee (served since 2003),
Marc Viénot (served since 1995) and Daniel Bernard (served
since 1997). Our board has determined that each of the members
of the audit committee is independent under the
applicable rules promulgated by the Securities and Exchange
Commission and by The New York Stock Exchange. The audit
committee reviews all subjects of an accounting or financial
nature (including closing of the financial statements, relevance
of accounting methods and review of internal audit procedures
and plans and external auditors independence and fees) and
issues opinions on the renewal or appointment of auditors. For
more information regarding the audit committees policies
and procedures for the appointment of outside auditors, see
Item 16C. Principal Accounting Fees and
Services.
Nomination and Compensation Committee
The board of directors established the nomination and
compensation committee on July 25, 2001. Currently, the
nomination and compensation committee consists of three members:
Daniel Bernard, chairman of the committee, Philippe Bissara and
Frank Blount. Our board of directors has determined that each of
the members of the nomination and compensation committee is
independent as such term is defined under the
applicable rules of The New York Stock Exchange. Serge Tchuruk
may attend and participate in the meetings of the nomination and
compensation committee, but may not be present at any
deliberation of the committee that concern him. The nomination
and compensation committee is responsible for studying issues
related to the composition, organization, and operation of the
board of directors and its committees. It also determines
procedures governing the nomination of directors and the
evaluation of their performance. In addition, the nomination and
compensation committee advises the board of directors on issues
related to the compensation of corporate officers, including
compensation of the Chairman, stock purchase and stock option
plans and capital increases reserved for employees.
Strategic Planning Committee
The board of directors has a strategic planning committee that
currently consists of three members: Serge Tchuruk, chairman of
the committee, Pierre-Louis Lions and Peter Mihatsch. Our board
of directors has determined that Mr. Lions and
Mr. Mihatsch are independent as such term is
defined under the applicable rules of The New York Stock
Exchange. The strategic planning committee is responsible for
considering our strategic orientation, identifying investment
opportunities and monitoring our performance.
Statement on Business Practices, Ethics Committee, Code of
Ethics and Chief Compliance Officer
Our statement on business practices, adopted in 1997 and revised
in 2003, is a code of conduct that defines our vision of
appropriate business behavior. It covers many areas, from
business ethics and corporate governance to human rights and
environmental concerns. Our statement on business practices
provides that our policy is to conduct our worldwide operations
in accordance with the highest business ethical considerations,
to comply with the laws of the countries in which we operate and
to conform to locally accepted standards of good corporate
citizenship.
We have established an ethics committee to enforce our statement
on business practices. The ethics committee is chaired by
Jean-Pierre Halbron, and it includes members of our management.
The ethics committee reports to our Chairman and Chief Executive
Officer.
In addition, in 2004, our board of directors adopted a code of
ethics that applies to our Chief Executive Officer, President,
Chief Operating Officer, Chief Financial Officer and Corporate
Controller.
In the beginning of 2006, we created the position of Chief
Compliance Officer. The Chief Compliance Officer is charged with
overseeing regulatory compliance according to international laws
and standards and our corporate governance and business
practices. The Chief Compliance Officer is a member of our
Ethics Committee and reports to our Chairman and Chief Executive
Officer.
52
Employees
As reported, at December 31, 2005, we employed 57,699
people worldwide, primarily in Europe, compared with 55,718 at
December 31, 2004 and 60,486 at December 31, 2003. The
tables below show the geographic locations and the business
segments in which our employees worked at December 31,
2003, 2004 and 2005 after taking into account the discontinuance
in 2003 of our battery and optical components businesses and in
2004 of our optical fiber, mobile phones and electrical power
systems businesses. As restated to exclude the employees of
these discontinued businesses, we employed 56,690 people at
December 31, 2003.
Total number of employees and the breakdown of this number by
business segments is determined by taking into account all of
the employees at year-end who work for fully consolidated
companies and a percentage of those employees at year-end who
work for subsidiaries consolidated using proportionate
consolidation based on the percentage of interest in such
companies (see Note 36 to our consolidated financial
statements included elsewhere herein).
The breakdown by geographical areas gives the headcount of
employees who work for fully consolidated companies and
companies in which we own 50% or more of the equity. The impact
of taking into account headcount of subsidiaries consolidated
using proportionate consolidation only for the percentage of
interests in these entities is isolated in the
proportionate consolidation impact column. This
impact is related to the creation of two joint ventures with
Finmeccanica in the space business as explained in Note 2
to our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
Mobile | |
|
Private | |
|
|
|
Total | |
|
|
Communications | |
|
Communications | |
|
Communications | |
|
Other | |
|
Group | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
2003
|
|
|
23,461 |
|
|
|
13,355 |
|
|
|
19,282 |
|
|
|
592 |
|
|
|
56,690 |
|
2004
|
|
|
18,446 |
|
|
|
15,350 |
|
|
|
21,367 |
|
|
|
555 |
|
|
|
55,718 |
|
2005
|
|
|
17,311 |
|
|
|
17,700 |
|
|
|
22,138 |
|
|
|
550 |
|
|
|
57,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proportionate | |
|
|
|
|
|
|
|
|
|
|
Asia | |
|
|
|
|
|
consolidation | |
|
Total | |
|
|
France | |
|
Germany | |
|
Rest of Europe | |
|
Pacific | |
|
North America | |
|
Rest of World | |
|
impact | |
|
Group | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2003
|
|
|
17,206 |
|
|
|
6,736 |
|
|
|
12,502 |
|
|
|
8,110 |
|
|
|
8,811 |
|
|
|
3,325 |
|
|
|
|
|
|
|
56,690 |
|
2004
|
|
|
16,161 |
|
|
|
5,951 |
|
|
|
11,918 |
|
|
|
8,338 |
|
|
|
8,783 |
|
|
|
4,567 |
|
|
|
|
|
|
|
55,718 |
|
2005
|
|
|
16,037 |
|
|
|
5,288 |
|
|
|
14,108 |
|
|
|
9,109 |
|
|
|
9,009 |
|
|
|
6,094 |
|
|
|
(1,946 |
)(1) |
|
|
57,699 |
|
|
|
(1) |
This consolidation impact is a reduction of 1,362 in our
employee headcount in France, and a reduction of 584 in the rest
of Europe. |
Membership of our employees in trade unions varies from country
to country. Although differing from country to country, we
believe that relations with our employees are satisfactory. The
number of temporary workers at December 31, 2005 was 1,568.
Share Ownership
Directors and Senior Executives
Our articles of association and bylaws provide that each of our
directors must own at least 500 shares. As of
December 31, 2005, none of our directors or senior
executives beneficially owned, or held options to purchase, 1%
or more of our ordinary shares.
Shares. As of March 31, 2006 our directors,
including directors who were also senior executives, and other
senior executives, as a group, beneficially held an aggregate of
494,919 ordinary shares (including ADSs) and 23,283 FCP 3A
interests.
53
Options. As of March 31, 2006 our directors listed
in the table under the heading Board of Directors
above and our senior executives listed in the table under the
heading Senior Management above, as a group,
beneficially owned the following options:
|
|
|
|
|
for 1,005,000 ordinary shares granted pursuant to a share
subscription plan approved by our board in March 2000 at an
exercise price of
48 per
share expiring on December 31, 2005 or 2007, depending on
whether the beneficiary is an employee of a company with a
registered office in France; |
|
|
|
for 1,344 ordinary shares pursuant to options awarded to
participants in a share subscription plan in connection with a
capital increase reserved for employees in March 2000, at an
exercise price of
48 per
share expiring on June 30, 2004 or 2006, depending on
whether the beneficiary is an employee of a company with a
registered office in France; |
|
|
|
for 15,000 ordinary shares granted pursuant to a share
subscription plan approved by our board in December 2000 at an
exercise price of
65 per
share expiring on December 31, 2005 or 2007, depending on
whether the beneficiary is an employee of a company with a
registered office in France; |
|
|
|
for 889,900 ordinary shares granted pursuant to a share
subscription plan approved by our board in March 2001 at an
exercise price of
50 per
share expiring on March 6, 2009; |
|
|
|
for 1,074,300 ordinary shares granted pursuant to a share
subscription plan approved by our board in December 2001 at an
exercise price of
20.80 per
share expiring on December 18, 2009; |
|
|
|
for 200 ordinary shares granted to those persons who
participated in our March 2000 and March 2001 capital increases,
pursuant to a share subscription plan approved by our board in
December 2001 at an exercise price of
20.80 per
share expiring on December 31, 2005 or 2006, depending on
whether the beneficiary is an employee of a company with a
registered office in France; |
|
|
|
for 956,200 ordinary shares granted pursuant to share
subscription plans approved by our board in March 2003 at an
exercise price of
6.70 per
share expiring on or prior to March 6, 2011; |
|
|
|
for 56 ordinary shares granted to those persons who participated
in our March 2000 and March 2001 capital increases, pursuant to
a share subscription plan approved by our board in March 2003,
at an exercise price of
6.70 per
share expiring on June 30, 2007 or 2008, depending on
whether the beneficiary is an employee of a company with a
registered office in France; |
|
|
|
for 50,000 ordinary shares granted pursuant to a share
subscription plan approved by our Chief Executive Officer in
September 1, 2003 at an exercise price of
9.30 per
share expiring on August 31, 2011; |
|
|
|
for 1,021,000 ordinary shares granted pursuant to share
subscription plans approved by our board in March 2004 at an
exercise price of
13.20 per
share expiring on or prior to March 9, 2012; |
|
|
|
for 711,000 ordinary shares granted pursuant to share
subscription plans approved by our board in March 2005 at an
exercise price of
10 per
share expiring on or prior to March 9, 2013; and |
|
|
|
for 750,000 ordinary shares granted pursuant to share
subscription plans approved by our board in March 2006 at an
exercise price of
11.70 per
share expiring on or prior to March 7, 2014. |
During 2005, a total of 37,186 options were exercised by our
directors or senior executives at an average price of
6.77.
Employee stock options
At December 31, 2005, there were 131,953,837 options
outstanding pursuant to existing share subscription plans and
existing share purchase plans, each option giving a right to
acquire one ordinary share.
Our board of directors and Chief Executive Officer have granted
stock options to specialists, high-potential employees and
future executives as well as members of senior management
pursuant to the share subscription plans and share purchase
plans listed below. In order to maintain in all circumstances
the stability of the activities of our Group and the personnel
that is key to our development, our board of
54
directors has the ability to render outstanding options under
our share subscription plans immediately exercisable in the
event of a merger pursuant to which Alcatel is merged into
another company, a tender offer for our shares or a withdrawal
of our shares from public listing (a going private
transaction), regardless of any delay in the vesting of such
options provided for in the initial terms of the plans. However,
any such acceleration would not apply to stock options held by
any member of our board of directors, our Chief Executive
Officer or any deputy executive officer, that is, by a
mandataire social, as such term is defined in
French law, who was a mandataire social
either at the date of the grant of the option or at the date of
the decision of the board of directors to accelerate vesting.
Share Subscription Plans. At our shareholders
meeting held on May 20, 2005, our shareholders authorized
our board of directors to grant options to our employees and
executives to subscribe for a number of new shares not to exceed
6% of the total number of shares comprising the capital of the
company.
The following table sets forth information as at
December 31, 2005 with respect to share subscription plans
approved by our board of directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
|
|
|
|
|
|
|
options | |
|
Number of | |
|
Number of | |
|
Exercise period | |
|
|
|
|
authorized | |
|
options | |
|
recipients at | |
|
| |
|
Exercise | |
Date of approval of plan |
|
at grant date | |
|
outstanding | |
|
grant date | |
|
From | |
|
To | |
|
price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
12/097/1998
|
|
|
11,602,500 |
|
|
|
9,884,750 |
|
|
|
2,025 |
|
|
|
12/09/2003 |
|
|
|
12/31/2005 |
|
|
|
20.52 |
|
09/08/1999
|
|
|
545,000 |
|
|
|
421,250 |
|
|
|
141 |
|
|
|
09/08/2004 |
|
|
|
12/31/2005 |
|
|
|
28.40 |
|
03/29/2000
|
|
|
15,239,250 |
|
|
|
12,862,305 |
|
|
|
3,887 |
|
|
|
04/01/2003 |
(1) |
|
|
12/31/2005 |
(1) |
|
|
48.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/01/2005 |
(2) |
|
|
12/31/2007 |
(2) |
|
|
|
|
03/29/2000
|
|
|
3,317,808 |
(3) |
|
|
3,258,704 |
|
|
|
58,957 |
|
|
|
07/01/2005 |
(2) |
|
|
06/30/2006 |
(2) |
|
|
48.00 |
|
12/13/2000
|
|
|
1,235,500 |
|
|
|
1,003,850 |
|
|
|
478 |
|
|
|
12/13/2003 |
(1) |
|
|
12/31/2005 |
(1) |
|
|
65.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/13/2005 |
(2) |
|
|
12/31/2007 |
(2) |
|
|
|
|
12/13/2000
|
|
|
306,700 |
|
|
|
197,500 |
|
|
|
340 |
|
|
|
12/13/2001 |
(4) |
|
|
12/12/2008 |
|
|
|
64.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/13/2004 |
(2)(4) |
|
|
|
|
|
|
|
|
03/07/2001
|
|
|
37,668,588 |
|
|
|
27,121,370 |
|
|
|
30,790 |
|
|
|
03/07/2002 |
(4) |
|
|
03/06/2009 |
|
|
|
50.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03/07/2005 |
(2)(4) |
|
|
|
|
|
|
|
|
03/07/2001
|
|
|
275,778 |
(5) |
|
|
77,550 |
|
|
|
2,024 |
|
|
|
07/01/2005 |
(2) |
|
|
06/30/2006 |
(2) |
|
|
50.00 |
|
12/19/2001
|
|
|
27,871,925 |
|
|
|
18,983,365 |
|
|
|
25,192 |
|
|
|
12/19/2002 |
(4) |
|
|
12/18/2009 |
|
|
|
20.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/19/2005 |
(2)(4) |
|
|
|
|
|
|
|
|
12/19/2001
|
|
|
565,800 |
|
|
|
336,905 |
|
|
|
521 |
|
|
|
12/19/2002 |
(4) |
|
|
12/18/2009 |
|
|
|
9.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/19/2005 |
(2)(4) |
|
|
|
|
|
|
|
|
12/19/2001
|
|
|
935,660 |
(6) |
|
|
893,990 |
|
|
|
45,575 |
|
|
|
01/01/2005 |
(1) |
|
|
12/31/2005 |
(1) |
|
|
20.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/01/2006 |
(2) |
|
|
12/31/2006 |
(2) |
|
|
|
|
03/07/2003
|
|
|
25,626,865 |
|
|
|
19,627,155 |
|
|
|
23,650 |
|
|
|
03/07/2004 |
(1)(4) |
|
|
03/06/2011 |
(1) |
|
|
6.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03/07/2007 |
(2)(4) |
|
|
|
|
|
|
|
|
03/07/2003
|
|
|
827,348 |
(6) |
|
|
808,797 |
|
|
|
31,600 |
|
|
|
07/01/2006 |
(1) |
|
|
06/30/2007 |
(1) |
|
|
6.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
07/01/2007 |
(2) |
|
|
06/30/2008 |
(2) |
|
|
|
|
03/10/2004
|
|
|
18,094,315 |
|
|
|
16,352,513 |
|
|
|
14,810 |
|
|
|
03/10/2005 |
(1) |
|
|
03/09/2012 |
(1) |
|
|
13.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/10/2008 |
(2) |
|
|
|
|
|
|
|
|
03/10/2005
|
|
|
16,756,690 |
|
|
|
16,049,480 |
|
|
|
9,470 |
|
|
|
03/10/2006 |
(1) |
|
|
03/09/2013 |
(1) |
|
|
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03/10/2009 |
(2) |
|
|
|
|
|
|
|
|
03/08/2006
|
|
|
17,009,320 |
|
|
|
17,009,320 |
|
|
|
8,001 |
|
|
|
03/08/2007 |
(1) |
|
|
03/07/2014 |
(1) |
|
|
11.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03/08/2010 |
(2) |
|
|
|
|
|
|
|
|
|
|
(1) |
Options granted to employees of any of our subsidiaries with a
registered office outside France. |
|
(2) |
Options granted to employees of any of our subsidiaries with a
registered office in France. |
|
(3) |
On March 29, 2000, our board of directors approved a
capital increase reserved for employees. In connection
therewith, 2,226,451 ordinary shares were issued on
June 29, 2000 at a price of
48 per
share, and for each share subscribed, the participant received
an option to purchase four additional shares. |
55
|
|
(4) |
One quarter of these options vest upon the first anniversary of
the grant date and the remaining options vest thereafter at a
monthly rate of 1/48th of the total number of options
initially granted. |
|
(5) |
On March 7, 2001, our board of directors approved a capital
increase reserved for employees In connection therewith, 91,926
ordinary shares were issued at a price of
50 per
share, and for each share subscribed the participant received an
option to purchase three additional shares. |
|
(6) |
Options granted to recipients who subscribed to the capital
increases of March 2000 and March 2001, and remain our employees. |
In 2001, 2002, 2003, 2004 and 2005, our Chief Executive Officer
approved certain share subscription plans pursuant to authority
delegated to him by our board of directors. Pursuant to this
delegation of authority, our Chief Executive Officer may grant
certain stock subscription options to our, or to our
affiliates new employees or, under exceptional
circumstances, to our or to our affiliates existing
employees.
The following table sets forth information as at
December 31, 2005 with respect to share subscription plans
approved by our Chief Executive Officer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
|
|
|
|
|
|
|
options | |
|
Number of | |
|
Number of | |
|
Exercise period | |
|
|
|
|
authorized | |
|
options | |
|
recipients | |
|
| |
|
Exercise | |
Date of approval of plan |
|
at grant date | |
|
outstanding | |
|
at grant date | |
|
From | |
|
To | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
04/02/2001
|
|
|
48,850 |
|
|
|
12,250 |
|
|
|
13 |
|
|
|
04/02/2002 |
(1) |
|
|
04/01/2009 |
|
|
|
41.00 |
|
04/02/2001
|
|
|
2,500 |
|
|
|
2,500 |
|
|
|
1 |
|
|
|
04/02/2002 |
(1) |
|
|
04/01/2009 |
|
|
|
39.00 |
|
06/15/2001
|
|
|
977,410 |
|
|
|
767,640 |
|
|
|
627 |
|
|
|
06/15/2002 |
(1) |
|
|
06/14/2009 |
|
|
|
32.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/15/2005 |
(1)(2) |
|
|
|
|
|
|
|
|
09/03/2001
|
|
|
138,200 |
|
|
|
103,800 |
|
|
|
58 |
|
|
|
09/03/2002 |
(1) |
|
|
09/02/2009 |
|
|
|
19.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09/03/2005 |
(1)(2) |
|
|
|
|
|
|
|
|
11/15/2001
|
|
|
162,000 |
|
|
|
106,000 |
|
|
|
16 |
|
|
|
11/15/2002 |
(1) |
|
|
11/14/2009 |
|
|
|
9.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/15/2005 |
(1)(2) |
|
|
|
|
|
|
|
|
02/15/2002
|
|
|
123,620 |
|
|
|
72,830 |
|
|
|
37 |
|
|
|
02/15/2003 |
(1) |
|
|
02/14/2010 |
|
|
|
17.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/15/2006 |
(1)(2) |
|
|
|
|
|
|
|
|
04/02 2002
|
|
|
55,750 |
|
|
|
34,750 |
|
|
|
24 |
|
|
|
04/02/2003 |
(1) |
|
|
04/01/2010 |
|
|
|
16.90 |
|
05/13/2002
|
|
|
54,300 |
|
|
|
41,300 |
|
|
|
23 |
|
|
|
05/13/2003 |
(1) |
|
|
05/12/2010 |
|
|
|
14.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/13/2006 |
(1)(2) |
|
|
|
|
|
|
|
|
06/03/2002
|
|
|
281,000 |
|
|
|
231,979 |
|
|
|
176 |
|
|
|
06/03/2003 |
(1) |
|
|
06/02/2010 |
|
|
|
13.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/03/2006 |
(1)(2) |
|
|
|
|
|
|
|
|
09/02/2002
|
|
|
1,181,050 |
|
|
|
410,401 |
|
|
|
226 |
|
|
|
09/02/2003 |
(1) |
|
|
09/01/2010 |
|
|
|
5.20 |
|
10/07/2002
|
|
|
30,500 |
|
|
|
10,459 |
|
|
|
16 |
|
|
|
10/07/2003 |
(1) |
|
|
10/06/2010 |
|
|
|
3.20 |
|
11/14/2002
|
|
|
111,750 |
|
|
|
51,224 |
|
|
|
26 |
|
|
|
11/14/2003 |
(1) |
|
|
11/13/2010 |
|
|
|
4.60 |
|
12/02/2002
|
|
|
54,050 |
|
|
|
11,635 |
|
|
|
16 |
|
|
|
12/02/2003 |
(1) |
|
|
12/01/2010 |
|
|
|
5.40 |
|
06/18/2003
|
|
|
338,200 |
|
|
|
278,478 |
|
|
|
193 |
|
|
|
06/18/2004 |
(1) |
|
|
06/17/2011 |
|
|
|
7.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/18/2007 |
(1)(2) |
|
|
|
|
|
|
|
|
07/01/2003
|
|
|
53,950 |
|
|
|
22,250 |
|
|
|
19 |
|
|
|
07/01/2007 |
(1)(2) |
|
|
06/30/2011 |
|
|
|
8.10 |
|
09/01/2003
|
|
|
149,400 |
|
|
|
137,929 |
|
|
|
77 |
|
|
|
09/01/2004 |
(1) |
|
|
08/31/2011 |
|
|
|
9.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09/01/2007 |
(1)(2) |
|
|
|
|
|
|
|
|
10/01/2003
|
|
|
101,350 |
|
|
|
61,683 |
|
|
|
37 |
|
|
|
10/01/2004 |
(1) |
|
|
09/30/2011 |
|
|
|
10.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/01/2007 |
(1)(2) |
|
|
|
|
|
|
|
|
11/14/2003
|
|
|
63,600 |
|
|
|
60,100 |
|
|
|
9 |
|
|
|
11/14/2004 |
(1) |
|
|
11/13/2011 |
|
|
|
11.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/14/2007 |
(1)(2) |
|
|
|
|
|
|
|
|
12/01/2003
|
|
|
201,850 |
|
|
|
134,487 |
|
|
|
64 |
|
|
|
12/01/2004 |
(1) |
|
|
11/30/2011 |
|
|
|
11.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/01/2007 |
(1)(2) |
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
|
|
|
|
|
|
|
options | |
|
Number of | |
|
Number of | |
|
Exercise period | |
|
|
|
|
authorized | |
|
options | |
|
recipients | |
|
| |
|
Exercise | |
Date of approval of plan |
|
at grant date | |
|
outstanding | |
|
at grant date | |
|
From | |
|
To | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
04/01/2004
|
|
|
48,100 |
|
|
|
29,458 |
|
|
|
19 |
|
|
|
04/01/2005 |
(1) |
|
|
03/31/2012 |
|
|
|
13.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/01/2008 |
(1)(2) |
|
|
|
|
|
|
|
|
05/17/2004
|
|
|
65,100 |
|
|
|
56,500 |
|
|
|
26 |
|
|
|
05/17/2008 |
(1) |
|
|
05/16/2012 |
|
|
|
12.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/17/2005 |
(1)(2) |
|
|
|
|
|
|
|
|
07/01/2004
|
|
|
313,450 |
|
|
|
277,500 |
|
|
|
187 |
|
|
|
07/01/2005 |
(1) |
|
|
06/30/2012 |
|
|
|
11.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
07/01/2008 |
(1)(2) |
|
|
|
|
|
|
|
|
09/01/2004
|
|
|
38,450 |
|
|
|
37,150 |
|
|
|
21 |
|
|
|
09/01/2005 |
(1) |
|
|
08/31/2012 |
|
|
|
9.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09/01/2008 |
(1)(2) |
|
|
|
|
|
|
|
|
10/01/2004
|
|
|
221,300 |
|
|
|
193,300 |
|
|
|
85 |
|
|
|
10/01/2005 |
(1) |
|
|
09/30/2012 |
|
|
|
9.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/01/2008 |
(1)(2) |
|
|
|
|
|
|
|
|
11/12/2004
|
|
|
69,600 |
|
|
|
68,800 |
|
|
|
20 |
|
|
|
11/12/2005 |
(1) |
|
|
11/11/2012 |
|
|
|
11.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/12/2008 |
(1)(2) |
|
|
|
|
|
|
|
|
12/01/2004
|
|
|
42,900 |
|
|
|
37,900 |
|
|
|
11 |
|
|
|
12/01/2005 |
(1) |
|
|
11/30/2012 |
|
|
|
11.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/01/2008 |
(1)(2) |
|
|
|
|
|
|
|
|
01/03/2005
|
|
|
497,500 |
|
|
|
480,100 |
|
|
|
183 |
|
|
|
01/03/2006 |
(1) |
|
|
01/02/2013 |
|
|
|
11.41 |
|
06/01/2005
|
|
|
223,900 |
|
|
|
215,100 |
|
|
|
96 |
|
|
|
06/01/2006 |
(1) |
|
|
05/31/2013 |
|
|
|
8.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/01/2009 |
(1)(2) |
|
|
|
|
|
|
|
|
09/01/2005
|
|
|
72,150 |
|
|
|
72,150 |
|
|
|
39 |
|
|
|
09/01/2006 |
(1) |
|
|
08/31/2013 |
|
|
|
9.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09/01/2009 |
(1)(2) |
|
|
|
|
|
|
|
|
11/14/2005
|
|
|
54,700 |
|
|
|
54,700 |
|
|
|
23 |
|
|
|
11/14/2006 |
(1) |
|
|
11/13/2013 |
|
|
|
10.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/14/2009 |
(1)(2) |
|
|
|
|
|
|
|
|
|
|
(1) |
One quarter of these options vests upon the first anniversary of
the grant date and the remaining options vest thereafter at a
monthly rate of 1/48th of the total number of options
initially granted. |
|
(2) |
Options granted to employees of any of our subsidiaries with a
registered office in France are not exercisable during the first
four years after grant. |
Under certain of the share subscription plans described above,
options granted to employees of our companies with a registered
office in Belgium may become exercisable or vest, as applicable,
over a longer period, as in France.
Share Purchase Plans. Our share purchase plans are
comprised of options to purchase existing, and not newly issued,
ordinary shares. If the options are exercised, we will sell the
optionees ordinary shares that we had acquired in connection
with our buy-back program approved by our board of directors on
September 21, 1998 and subject to the annual approval of
our shareholders. Under a December 1998 plan, options to
purchase up to 11,602,500 ordinary shares were granted with an
exercise period from December 9, 2003 to December 31,
2005 at an exercise price of
20.52. As at
December 31, 2005, there were options to purchase up to
9,884,750 ordinary shares outstanding under the December 1998
plan. Our board of directors also approved a share purchase plan
in September 1999 and granted options to purchase up to 545,000
ordinary shares with an exercise period from September 8,
2004 to December 31, 2005 and at an exercise price of
28.40 per
share. As at December 31, 2005, there were options to
purchase up to 421,250 ordinary shares outstanding under the
September 1999 plan. We currently have no share purchase plans,
since the exercise period for all our share purchase plans
expired on December 31, 2005.
57
Option plans for acquired companies
Option plans of companies that we acquired now provide for the
issuance of ordinary shares or ADSs upon exercise of options
granted under such plans, in lieu of the issuance of shares of
the acquired companies. Except in the case of Astral Point,
Telera, Imagic TV, TiMetra and Spatial, we will not issue new
ordinary shares (or ADSs) to satisfy these options, but rather,
will use outstanding ADSs held by us. In addition, Alcatel USA,
Inc. has also adopted share purchase plans for executives and
employees of our U.S. and Canadian subsidiaries. In total,
options to purchase up to 10,058,615 ADSs or ordinary shares
were outstanding as of December 31, 2005 under the assumed
stock option plans and the share purchase plans of Alcatel USA,
Inc. The following table sets forth information as of
December 31, 2005 with respect to option plans of our
acquired companies and the share purchase plans of Alcatel USA,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options | |
|
|
|
|
| |
|
Exercisable Options | |
|
|
|
|
Weighted | |
|
|
|
| |
|
|
Exercise price | |
|
Number | |
|
remaining | |
|
Weighted | |
|
Amount | |
|
Weighted | |
|
|
(giving right to | |
|
outstanding | |
|
exercise | |
|
average | |
|
exercisable | |
|
average | |
|
|
one ordinary | |
|
at | |
|
period | |
|
exercise | |
|
at | |
|
exercise | |
Company |
|
share or ADS) | |
|
12/31/2005 | |
|
(years) | |
|
price | |
|
12/31/2005 | |
|
price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Packet Engines
|
|
|
0.29-0.86 USD |
|
|
|
10,372 |
|
|
|
2.10 |
|
|
|
0.59 |
|
|
|
10,372 |
|
|
|
0.59 |
|
Xylan
|
|
|
0.05-18.14 USD |
|
|
|
1,393,928 |
|
|
|
2.21 |
|
|
|
9.08 |
|
|
|
1,393,928 |
|
|
|
9.08 |
|
Internet Devices Inc.
|
|
|
0.26-1.17 USD |
|
|
|
23,980 |
|
|
|
2.88 |
|
|
|
0.92 |
|
|
|
23,980 |
|
|
|
0.92 |
|
DSC
|
|
|
16.57-44.02 USD |
|
|
|
45,690 |
|
|
|
1.25 |
|
|
|
20.40 |
|
|
|
45,690 |
|
|
|
20.40 |
|
Genesys
|
|
|
0.01-41.16 USD |
|
|
|
3,018,403 |
|
|
|
3.25 |
|
|
|
20.70 |
|
|
|
3,018,403 |
|
|
|
20.70 |
|
Newbridge
|
|
|
11.72-52.48 USD |
|
|
|
4,253 |
|
|
|
2.40 |
|
|
|
12.73 |
|
|
|
4,253 |
|
|
|
12.73 |
|
Astral Point
|
|
|
0.29-58.71 EUR |
|
|
|
74,510 |
|
|
|
4.29 |
|
|
|
16.57 |
|
|
|
74,510 |
|
|
|
16.57 |
|
Telera
|
|
|
0.43-6.36 EUR |
|
|
|
136,161 |
|
|
|
4.88 |
|
|
|
5.15 |
|
|
|
135,759 |
|
|
|
5.14 |
|
Imagic TV
|
|
|
2.84-64.68 EUR |
|
|
|
78,506 |
|
|
|
1.74 |
|
|
|
18.69 |
|
|
|
78,069 |
|
|
|
18.77 |
|
TiMetra
|
|
|
0.53-7.97 EUR |
|
|
|
1,703,423 |
|
|
|
4.96 |
|
|
|
5.91 |
|
|
|
1,152,000 |
|
|
|
5.10 |
|
Spatial Communications Technologies Inc.
|
|
|
0.24-9.1 EUR |
|
|
|
858,123 |
|
|
|
8.24 |
|
|
|
2.97 |
|
|
|
248,177 |
|
|
|
2.99 |
|
Alcatel USA Inc.
|
|
|
21.40-84.88 USD |
|
|
|
10,058,615 |
|
|
|
4.13 |
|
|
|
53.98 |
|
|
|
10,058,615 |
|
|
|
53.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of options
|
|
|
|
|
|
|
17,405,964 |
|
|
|
|
|
|
|
|
|
|
|
16,243,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 7. |
Major Shareholders and Related Party Transactions |
Major Shareholders
At December 31, 2005, to our knowledge, no shareholder
beneficially owned 5% or more of either our ordinary shares or
ADSs.
The table below lists our principal shareholders as of
December 31, 2005:
|
|
|
|
|
|
|
|
|
Principal Shareholders |
|
Capital | |
|
Voting Rights | |
|
|
| |
|
| |
Caisse des Dépôts et Consignations
|
|
|
4.12 |
% |
|
|
4.22 |
% |
Employee Investment Fund (FCP 3A)
|
|
|
1.89 |
% |
|
|
3.14 |
% |
Société Générale Group
|
|
|
0.75 |
% |
|
|
1.28 |
% |
Shares held by Alcatel subsidiaries
|
|
|
1.77 |
% |
|
|
|
|
Treasury Stock
|
|
|
2.35 |
% |
|
|
|
|
Public(1)
|
|
|
89.12 |
% |
|
|
91.36 |
% |
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
(1) |
Includes shares owned by Brandes Investment Partners, L.P. as
more fully described below. |
Each fully paid ordinary share that is held in registered form
by the same holder for at least three years entitles the holder
to double voting rights at any of our shareholder meetings. The
dual voting right will automatically terminate for any share
which has been subject to conversion into a bearer share or for
which
58
ownership has been transferred. Regardless of the number of
ordinary shares held, the total voting rights per shareholder
cannot exceed 8% of the total voting rights present or
represented at any of our shareholder meetings (16% if double
voting rights apply). For further details about voting rights of
our shares please refer to Item 10
Additional Information Description of Ordinary
Shares.
The number of ordinary shares held by the Caisse des
Dépôts et Consignations Group (the CDC
Group) as of December 31, 2003, December 31,
2004 and December 31, 2005 was 74,340,807, 68,100,807 and
58,867,807 respectively.
According to Amendment Number 5 to a Schedule 13G filed
with the SEC on February 14, 2006, Brandes Investment
Partners, L.P. was, as of December 31, 2005, the beneficial
owner of 60,737,851 ADSs and 91,636,167 ordinary shares,
representing 10.7% of our capital. Brandes Investment Partners,
L.P. is an investment adviser registered under the Investment
Advisers Act of 1940. The ordinary shares and ADSs owned by
Brandes Investment Partners, L.P. are included in the line item
Public in the table above.
As of December 31, 2005, 128,314,387 ADSs were outstanding
in the United States, representing approximately 9.0% of the
total outstanding ordinary shares. At such date, the number of
registered ADS holders in the United States was 3,157.
We are not directly or indirectly owned or controlled by another
corporation, by any foreign government or by any other natural
or legal person. We are not aware of any arrangements that may
result in a change of control of Alcatel.
Related Party Transactions
In December 1999, we entered into an amended agreement
(originally entered into in 1998) with Thales, a company in
which Mr. Tchuruk serves as a director, pursuant to which
we agreed to cooperate with Thales on strategic and operational
matters. We currently have a 9.46% interest in Thales.
The board of directors met on April 19, 2005 and
authorized, upon the recommendation of the nomination and
compensation committee, the execution of an agreement between us
and Mr. Germond concerning the cessation of his
responsibilities as the Groups President and Chief
Operating Office. The main provisions of this agreement
clarified the contractual obligations of Mr. Germond and of
the Group due to Mr. Germonds departure in the first
half of the year. It determined the actual amount of the
termination payment owed to Mr. Germond, calculated
pursuant to the terms of his employment contract as executed
upon his joining the Group, such amount being
3,000,000. The
agreement also reduced the notice period for termination to
three months, and set his bonus compensation for the 2005 fiscal
year, pro rata to his departure date, at
250,000.
|
|
Item 8. |
Financial Information |
Consolidated statements and other financial information
See our consolidated financial statements elsewhere in this
annual report.
Legal matters
In addition to legal proceedings incidental to the conduct of
our business (including employment-related collective actions in
France and the United States), which our management believes are
adequately reserved against in our financial statements or will
not result in any significant costs to us, we are involved in
the following legal proceedings:
France Telecom. Since 1993, a legal investigation has
been ongoing concerning overbillings which are
alleged to have been committed at Alcatel CIT to the detriment
of its principal client, France Telecom, based on an audit of
production costs conducted in 1989 in the transmission division
and in 1992 in the switching division (which are now the part of
the Fixed Communications segment).
59
We entered into two settlement agreements with France Telecom,
one in 1993, in relation to the transmission division, and the
other in May 2004, in relation to the switching activity and the
financial impact of which has been fully reserved in our
December 31, 2004 financial statements. In the context of
the latter settlement, France Telecom acknowledged that the
parties dispute on pricing did not involve fraud by
Alcatel CIT.
In April 1999, we learned that the criminal investigation had
been extended to determine whether our corporate funds as well
as those of Alcatel CIT had been misused. As a consequence, both
Alcatel CIT and we have filed civil complaints to preserve our
respective rights with respect to this investigation.
In January 2000, the investigating magistrate declared his
investigation closed on the alleged overbillings.
Since then, there have been several procedural developments,
including appeals relating to the closing of the investigation
phase by an indicted defendants. At the end of November 2004,
the investigating magistrate again declared his investigation
closed. By a decision dated June 29, 2005, which has not
become final, the division of the Paris Court of Appeals dealing
with issues arising in the context of criminal investigation
definitely rejected a final request for annulment. As a result,
the investigating magistrate may now close his judicial inquiry
at any time.
Class A and Class O Shareholders. Several
purported class action lawsuits were filed in the
United States District Court for the Southern District of
New York since May 2002 against us and certain of our officers
and directors, asserting various claims under the federal
securities laws. These actions have been consolidated. The
consolidated action challenges the accuracy of certain public
disclosures that were made in the prospectus for the initial
public offering for Class O shares and other public
statements regarding Alcatel, and in particular, our former
Optronics division.
The complaint purports to bring claims on behalf of the lead
plaintiffs and a class of persons consisting of persons who
(i) acquired Class O shares in or traceable to the
initial public offering of ADSs conducted by us in October 2000,
(ii) purchased Class A or Class O shares in the
form of ADSs between October 20, 2000 and May 29,
2001, and (iii) purchased Class A shares in the form
of ADSs between May 1, 2000 and May 29, 2001. The
amount of damages sought has not been specified.
We are defending this action vigorously and deny any liability
or wrongdoing with respect to this litigation. We filed a motion
to dismiss this action on January 31, 2003, and a decision
on the motion was rendered on March 4, 2005. The judge
rejected a certain number of the plaintiffs demands with
prejudice. He also rejected all the remaining claims under the
federal securities laws for lack of specificity in the
pleadings, but with leave to file a further amended complaint.
This was filed, and fully briefed as of August 5, 2005. The
parties are now waiting for the judges decision.
Costa Rica. Beginning in early October 2004, we learned
that investigations had been launched in Costa Rica by the Costa
Rican Attorney General and the National Congress regarding
payments alleged to have been made by consultants on behalf of
Alcatel de Costa Rica to various state and local officials in
Costa Rica, two political parties in Costa Rica and
representatives of ICE, the state owned telephone company, in
connection with the procurement of one or more contracts for
network equipment and services from ICE. Upon learning of these
allegations, we immediately commenced and are continuing an
investigation into this matter.
In Costa Rica and other countries, we retain consultants to
assist us with our local operations and contracts. Our contracts
with persons through whom we deal locally strictly prohibit the
provision of any pecuniary or other advantage in contravention
of applicable laws. In addition, we have a strict Statement of
Business Practice (a copy of which is available on our web site,
www.alcatel.com, under the heading Sustainable
Development Values and Charters) that imposes the
highest standards of legal and ethical conduct on our employees.
We rigorously enforce this Statement of Business Practice across
the entire company and, when violations occur, we take prompt
and appropriate action against the persons involved.
We have terminated the employment of the president of Alcatel de
Costa Rica and a vice
president-Latin America
of a French subsidiary. We are also in the process of pursuing
criminal actions against the former president of Alcatel de
Costa Rica, the local consultants and the employee of the French
subsidiary based on our suspicion of their complicity in an
improper payment scheme and misappropriation
60
of funds. The contracts with the local consultants were limited
to the specific projects involved and are no longer in effect or
have been terminated, and any payments due under those contracts
have been suspended. Our internal investigation is continuing.
We contacted the United States Securities and Exchange
Commission and the United States Department of Justice and
informed them that we will cooperate fully in any inquiry or
investigation into these matters. The SEC is conducting an
inquiry into the allegations. If the Department of Justice or
the SEC determines that violations of law have occurred, it
could seek civil or, in the case of the Department of Justice,
criminal sanctions, including monetary penalties against us.
Neither the Department of Justice nor the SEC has informed us
what action, if any, it will take.
Several investigations have been launched in Costa Rica
concerning this matter by both the Costa Rican Attorney General
and the Costa Rican National Congress. On November 25,
2004, the Costa Rican Attorney Generals Office commenced a
civil lawsuit against Alcatel CIT to seek compensation for the
pecuniary damage caused by the alleged payments described above
to the people and the Treasury of Costa Rica, and for the loss
of prestige suffered by the Nation of Costa Rica. On
February 1, 2005, ICE commenced a lawsuit against Alcatel
CIT to seek compensation for the pecuniary damage caused by the
alleged payments described above to ICE and its customers, and
for the harm to the reputation of ICE resulting from these
events. The amount of damages sought by these lawsuits has not
yet been specified. We intend to defend these actions vigorously
and deny any liability or wrongdoing with respect to these
litigations.
We are unable to predict the outcome of these investigations and
civil lawsuit and their effect on our business. If the Costa
Rican authorities conclude criminal violations have occurred, we
may be banned from participating in government procurement
contracts in Costa Rica for a certain period and fines or
penalties may be imposed on us in an amount which we are not
able to determine at this time. We expect to generate
approximately
10 million in revenue from Costa Rican contracts in 2006.
Based on the amount of revenue received from these contracts, we
do not believe a loss of business in Costa Rica would have a
material adverse effect on us as a whole. However, these events
may have a negative impact on the image of our company in Latin
America.
Taiwan. Certain employees of Taisel, a Taiwanese
subsidiary of Alcatel, and Siemens Taiwan, along with a few
suppliers and a legislative aide, have been the subject of an
investigation by the Taipei Investigators Office of the
Ministry of Justice relating to an axle counter supply contract
awarded to Taisel by Taiwan Railways in 2003. It has been
alleged that persons in Taisel and Siemens Taiwan and
subcontractors hired by them were involved in a bid rigging and
payment arrangement for the Taiwan Railways contract.
Upon learning of these allegations, we immediately commenced and
are continuing an investigation into this matter. We terminated
the former president of Taisel. A director of international
sales and marketing development of a German subsidiary who was
involved in the Taiwan Railways contract has resigned.
On November 15, 2005, the Taipei criminal district court
found Taisel not guilty of the alleged violation of the
Government Procurement Act. The former President of Taisel was
not judged because he was not present or represented at the
proceedings. The court found two Taiwanese businessmen involved
in the matter guilty of violations of the Business Accounting
Act.
The prosecutor has filed an appeal with the Taipei court of
appeal. Should the higher court find Taisel guilty of the
bid-rigging allegations in the indictment, Taisel may be banned
from participating in government procurement contracts within
Taiwan for a certain period and fines or penalties may be
imposed on us, in an amount not to exceed
25,000.
Other allegations made in connection with this matter may still
be under ongoing investigation by the Taiwanese authorities.
We expect to generate approximately
126 million of revenue from Taiwanese contracts in 2006, of
which only a part will be from governmental contracts. Based on
the amount of revenue expected from these
61
contracts, we do not believe a loss of business in Taiwan would
have a material adverse effect on Alcatel as a whole.
Effect of the investigations. Our policy is to conduct
our business with transparency, and in compliance with all laws
and regulations, both locally and internationally. We cooperate
with all governmental authorities in connection with the
investigation of any violation of those laws and regulations.
Although it is not possible at this stage of these cases to
predict their outcome with certainty, we do not believe that the
ultimate outcome of these proceedings will have a material
adverse effect on our consolidated financial position or results
from our operations. We are not aware of any other proceedings
that would or may have a significant effect on our activities,
financial position or assets.
Dividend policy
General. Under French law, our board of directors must
first propose the distribution of any dividend to a general
meeting of all our shareholders, voting together as a single
class. A majority of the holders of our ordinary shares must
then approve the distribution. Under French law, the aggregate
amount of any dividends paid on our ordinary shares will, for
any year, be limited to our distributable profits
(bénéfice distribuable) for that year. In any fiscal
year, our distributable profits will equal the sum of the
following:
|
|
|
|
|
our profits for the fiscal year, less |
|
|
|
our losses for the fiscal year, less |
|
|
|
any required contribution to our legal reserve fund under French
law, plus |
|
|
|
any additional profits that we reported, but did not distribute
in our prior fiscal year. |
|
|
|
In the future, we may offer our shareholders the option to
receive any dividends in shares instead of cash. |
See Item 10 Additional
Information Taxation for a summary of certain
U.S. federal and French tax consequences to holders of
Alcatel shares or ADSs. Holders of Alcatel shares or ADSs should
consult their own tax advisors with respect to the tax
consequences of an investment in Alcatel shares or ADSs.
Dividends paid to holders of ADSs will be subject to a charge by
the Depositary for any expenses incurred by the Depositary in
the conversion of euro to U.S. dollars. You should refer to
Item 10 Additional
Information Description of ADSs for a further
discussion of the payment of dividends on the ADSs.
Dividends in 2006. On February 2, 2006, we announced
that our board of directors will propose a resolution at our
annual shareholders meeting to be held in 2006 to pay a
dividend of
0.16 per
ordinary share and ADS for 2005.
|
|
Item 9. |
The Offer and the Listing |
General
In September 2000, the Paris Bourse (SBF) SA, or the
SBF, the Amsterdam Exchange and the Brussels
Exchange merged to create Euronext, the first Pan-European
exchange. Securities quoted on exchanges participating in
Euronext are traded over a common Euronext platform, with
central clearinghouse, settlement and custody structures.
However, these securities remain listed on their local
exchanges. As part of Euronext, the SBF retains responsibility
for the admission of shares to the Paris Bourses trading
markets as well as the regulation of those markets.
Since February 18, 2005, Premier, Second and Nouveau
Marchés of Euronext Paris merged to create one market,
Eurolist by Euronext. Prior to this change, our ordinary shares
were traded on the Premier Marché. All shares and bonds are
now traded on the same market and listed alphabetically.
The principal trading market for our ordinary shares is the
Eurolist. Our ordinary shares have been traded on the Euronext
Paris SA since June 3, 1987. The ordinary shares are also
listed on Euronext Amsterdam, Antwerp, Basle, Euronext Brussels,
Frankfurt, Geneva, Tokyo and Zurich exchanges and are
62
quoted on SEAQ International in London. In addition, our ADSs
have been listed on The New York Stock Exchange since May 1992.
The following table sets forth, for the periods indicated, the
high and low prices on the Euronext Paris SA for our ordinary
shares:
|
|
|
|
|
|
|
|
|
|
|
|
Price per share | |
|
|
| |
|
|
High | |
|
Low | |
|
|
| |
|
| |
2001
|
|
|
72.35 |
|
|
|
11.34 |
|
2002
|
|
|
21.62 |
|
|
|
2.05 |
|
2003
|
|
|
11.89 |
|
|
|
4.16 |
|
2004
|
|
|
14.82 |
|
|
|
8.77 |
|
|
First Quarter
|
|
|
14.82 |
|
|
|
10.25 |
|
|
Second Quarter
|
|
|
14.10 |
|
|
|
10.88 |
|
|
Third Quarter
|
|
|
12.86 |
|
|
|
8.77 |
|
|
Fourth Quarter
|
|
|
12.38 |
|
|
|
9.49 |
|
2005
|
|
|
11.70 |
|
|
|
8.14 |
|
|
First Quarter
|
|
|
11.70 |
|
|
|
9.35 |
|
|
Second Quarter
|
|
|
9.69 |
|
|
|
8.14 |
|
|
Third Quarter
|
|
|
11.12 |
|
|
|
8.47 |
|
|
Fourth Quarter
|
|
|
11.35 |
|
|
|
9.45 |
|
2005
|
|
|
11.35 |
|
|
|
10.35 |
|
|
September
|
|
|
11.12 |
|
|
|
9.53 |
|
|
October
|
|
|
11.35 |
|
|
|
9.45 |
|
|
November
|
|
|
10.62 |
|
|
|
9.65 |
|
|
December
|
|
|
10.93 |
|
|
|
10.35 |
|
2006
|
|
|
12.01 |
|
|
|
10.38 |
|
|
January
|
|
|
11.59 |
|
|
|
10.38 |
|
|
February
|
|
|
12.01 |
|
|
|
10.98 |
|
Trading in the United States
The Bank of New York serves as the Depositary with respect to
the ADSs traded on The New York Stock Exchange. Each ADS
represents one ordinary share.
63
The following table sets forth, for the periods indicated, the
high and low prices on The New York Stock Exchange for the ADSs:
|
|
|
|
|
|
|
|
|
|
|
|
ADS | |
|
|
price per share | |
|
|
| |
|
|
High | |
|
Low | |
|
|
| |
|
| |
2001
|
|
$ |
66.94 |
|
|
$ |
10.53 |
|
2002
|
|
|
19.14 |
|
|
|
2.02 |
|
2003
|
|
|
13.68 |
|
|
|
4.60 |
|
2004
|
|
|
18.32 |
|
|
|
10.76 |
|
|
First Quarter
|
|
|
18.32 |
|
|
|
13.06 |
|
|
Second Quarter
|
|
|
17.08 |
|
|
|
13.09 |
|
|
Third Quarter
|
|
|
15.30 |
|
|
|
10.76 |
|
|
Fourth Quarter
|
|
|
16.20 |
|
|
|
11.98 |
|
2005
|
|
|
15.75 |
|
|
|
10.44 |
|
|
First Quarter
|
|
|
15.75 |
|
|
|
12.06 |
|
|
Second Quarter
|
|
|
12.22 |
|
|
|
10.45 |
|
|
Third Quarter
|
|
|
13.42 |
|
|
|
10.44 |
|
|
Fourth Quarter
|
|
|
13.51 |
|
|
|
11.50 |
|
2005
|
|
|
13.51 |
|
|
|
12.17 |
|
|
September
|
|
|
13.42 |
|
|
|
11.91 |
|
|
October
|
|
|
13.51 |
|
|
|
11.51 |
|
|
November
|
|
|
12.49 |
|
|
|
11.50 |
|
|
December
|
|
|
13.09 |
|
|
|
12.17 |
|
2006
|
|
|
14.45 |
|
|
|
12.68 |
|
|
January
|
|
|
14.07 |
|
|
|
12.68 |
|
|
February
|
|
|
14.45 |
|
|
|
13.25 |
|
|
|
Item 10. |
Additional Information |
Memorandum and articles of association
Our purpose. Our purposes can be found in Article 2
of our articles of association and bylaws. Generally, our
purpose in all countries is to take any and all types of actions
relating to electricity, telecommunications, computer,
electronics, the space industry, nuclear power, metallurgy and
generally to all types of energy and communications production
and transmission systems. In addition, we may create companies
regardless of activity, own stock in other companies and manage
shares and securities. We are listed in the Paris Trade Register
under number 542 019 096 and our APE code is 741 J.
Information Concerning Directors
General. Our articles of association and bylaws stipulate
that our directors shall be elected by our shareholders and that
our board of directors shall consist of no fewer than six and no
more than 18 directors. Our board of directors presently
consists of 13 directors. Two directors are required to be
our employees or employees of our subsidiaries and participants
in a mutual fund for our employees that holds our shares (an
FCP). Directors elected after May 2000 are elected
for terms of up to four years, which term can only be renewed by
the vote of our shareholders. However, directors may be elected
to multiple, and consecutive, terms. Our board of directors
appoints, and has the power to remove, the chairman and Chief
Executive Officer. The chairman serves for the term determined
by the board when the chairman is elected, which may
64
not exceed the chairmans term as a director. Our governing
documents also provide for one or more vice-chairmen, who may be
elected by the board.
Directors can be individuals or entities, including
corporations. If an entity is a director, it must appoint an
individual to act as its permanent representative.
Our articles of association and bylaws provide that the board of
directors is responsible for managing the company. In accordance
with article 17 of our articles of association and bylaws, the
board of directors has the discretion to determine whether the
management of the company will be performed by the chairman of
the board of directors or by a Chief Executive Officer. On
April 24, 2002 and on April 17, 2003, our board of
directors determined that Mr. Tchuruk will exercise the
functions of both the chairman of the board of directors and the
Chief Executive Officer.
In February 2003, our board of directors adopted internal rules
requiring our directors to notify the board of any situation
involving a potential conflict of interest between them and
Alcatel. In addition, our directors are precluded from voting on
matters relating to such conflicts of interest.
Shareholdings. Each director must own at least
500 shares. Two directors must be our employees and must
participate in an FCP at the time of appointment.
Retirement. Generally, the maximum age for holding a
directorship is 70. However, this age limit does not apply if
less than one-third, rounded up to the nearest whole number, of
serving directors has reached the age of 70. No director over 70
may be appointed if, as a result of the appointment, more than
one-third of the directors would be over 70.
If for any reason more than one-third of the number of serving
directors are over 70, then the oldest director shall be deemed
to have retired at the ordinary shareholders meeting
called to approve our accounts for the fiscal year in which the
one-third threshold was exceeded, unless the board proportion is
reestablished prior to the meeting.
If a company or other legal entity has the right to appoint a
director and that director reaches 70, the company or legal
entity must replace the director by the date of the ordinary
shareholders meeting called to approve our accounts for
the fiscal year in which such director reached 70.
The retirement age for the Chief Executive Officer is 68. As
noted above (see Information Concerning Directors),
currently the Chief Executive Officer is also the chairman of
the board of directors. In the event in the future our board of
directors decides to separate the function of chairman of the
board from that of Chief Executive Officer, then the maximum age
for holding the chairmanship of the board will be 70.
Description of Ordinary Shares
Form of shares. Under French company law, ownership of
ordinary shares is not represented by share certificates. Bearer
shares are recorded in the books of an accredited financial
intermediary in an account opened in the name of the shareholder
at EUROCLEAR France (formerly Sicovam SA) (an accredited
financial intermediary is a French broker, bank or authorized
financial institution registered as such in France). Upon our
request, EUROCLEAR France will disclose to us the name,
nationality, address and number of shares held by each
shareholder who holds them in bearer form. This information may
only be requested by us and may not be communicated to third
parties.
Ordinary shares that are fully
paid-up may be held in
registered or bearer form at the option of the holder, subject
to the next paragraph. Ownership of ordinary shares in
registered form is recorded in books maintained by us or our
appointed agent. A holder of ordinary shares in registered form
may manage its own ordinary shares or appoint an accredited
financial intermediary. Ordinary shares held in bearer form by a
person who is not a resident of France may, at the request of
such holder, be physically delivered in the form of bearer
certificates representing such ordinary shares, provided that
the ordinary shares are held and traded outside France. In
determining whether or not to issue physical certificates in
these circumstances, the accredited financial intermediary
considers certification practices in foreign markets and may
consult with us.
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Registration of shares. Any holder owning 3% of the total
number of ordinary shares (including ADSs) must request, within
five trading days of reaching that ownership level, registration
of the shares in non-transferable form. In addition, this
registration requirement will apply to all ordinary shares
(including ADSs) that the holder may subsequently acquire each
time a holder of 3% or more of the total number of shares
increases its holding by 1%, up to and including 50%. The holder
is required to notify us of any such subsequent acquisition
within two weeks and such notice shall set forth the number of
shares held, the acquisition date and a certification that all
shares owned by such holder are reported. Compliance with this
requirement is deemed to be in compliance with the notification
requirements described below under Holdings exceeding
certain percentages. Failure to comply with this
requirement may, upon petition of one or more shareholders
representing 3% or more of our share capital, result in the loss
of the voting rights attached to the shares in excess of the
relevant threshold.
Transfer of shares. Ordinary shares held in registered
form are transferred by means of an entry recorded in the
transfer account maintained by us or on our behalf for this
purpose. In order for ordinary shares in registered form to be
traded on a stock exchange in France, the shares must first be
converted into bearer form by a financial intermediary upon
receipt of a selling order from the holder. Upon completion of
the trade, the new holder is required to register the shares in
its name within five trading days, only if such trade causes the
holder to cross the 3% threshold specified by our articles of
association and bylaws. Bearer shares are held and recorded in
the securities account of the holder and may be traded without
any further requirement. Ordinary shares held in bearer form by
a person who is not a resident of France are transferable
outside France by delivery of the bearer certificates
representing the ordinary shares.
Holdings exceeding certain percentages. Under French law,
any individual or entity, acting alone or in concert with
others, who becomes the owner of more than 5%, 10%, 15%, 20%,
331/3%,
50%,
662/3%,
90% or 95% of our outstanding share capital or voting rights
(including through ADSs), or whose holding subsequently falls
below any of these thresholds, must notify us of the number of
ordinary shares it holds within five trading days of the date
the relevant threshold was crossed. The individual or entity
must also notify the French stock exchange and securities
regulator (Autorité des marchés financiers)
within five trading days of the date the threshold was
crossed.
In addition, our articles of association and bylaws provide that
any individual or entity which at any time owns, directly or
indirectly, a number of shares equal to or more than 2% of our
issued share capital, or whose holding falls below any of these
thresholds, must within five days of exceeding this threshold,
notify us by letter, fax or telex of the total number of each
class of shares owned. When this threshold is reached, every
further increase of 1% must be reported. Failure to provide
timely written notice to us may, upon petition of one or more
shareholders representing 3% or more of our share capital,
result in the loss of the voting rights attached to the shares
in excess of the relevant threshold.
French company law and the regulations of the French stock
exchange and securities regulator impose additional reporting
requirements on any person or persons acting alone or in concert
who acquire more than 10% or 20% of our share capital or voting
rights. An acquiror exceeding those thresholds must file a
statement with us, the French securities regulator and stock
exchange regulator. The notice must specify the acquirers
intentions for the
12-month period
following the acquisition of its 10% or 20% stake, including
whether or not it intends to (1) increase its stake,
(2) acquire a controlling interest in us or (3) seek
the election of nominees to our board of directors. The
statement must be filed within 10 trading days after the date
either of these thresholds was crossed. The statement is
published by the French stock exchange and securities regulator.
Similar reporting requirements must be complied with if the
acquirors intentions have changed due to material events.
In addition, under French law and the regulations of the French
stock exchange and securities regulator, any person or persons,
acting alone or in concert, who enter into an agreement
containing provisions granting preferential treatment, with
respect to the sale of shares, voting rights, or otherwise, for
shares representing 0.5% or more of our share capital or voting
rights must file such provisions with the French stock exchange
and securities regulator.
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Under French law and the regulations of the French stock
exchange and securities regulator, and subject to limited
exemptions granted by it, any person or persons, acting alone or
in concert, who acquires shares representing one-third or more
of our share capital or voting rights must initiate a public
tender offer for the balance of our share capital and all other
outstanding securities (such as convertible bonds) that are
convertible into or exchangeable for our share capital.
If a shareholder (including a holder of ADSs) fails to comply
with these notification requirements, the shareholder will be
deprived of voting rights attached to the shares it holds in
excess of the relevant threshold. The shareholder will be
deprived of its voting rights at all shareholders meetings
held until the end of a two-year period following the date on
which the shareholder has complied with the notification
requirements. Furthermore, any shareholder who fails to comply
with these requirements, including the notification requirements
of our articles of association and bylaws, may have all or part
of its voting rights (and not only with respect to the shares in
excess of the relevant threshold) suspended for up to five years
by court decree at the request of our chairman, any of our
shareholders or the French stock exchange and securities
regulator. Such shareholder may also be subject to criminal
penalties.
In order to permit shareholders to give the notice required by
law and our articles of association and bylaws, we are obligated
to publish in the French official newspaper (Bulletin des
annonces légales obligatoires, or BALO), not later than
15 calendar days after our annual ordinary shareholders
meeting, information with respect to the total number of votes
available as of the date of the meeting. In addition, if we are
aware that the number of available votes has changed by at least
five percent since the last publication of the number of
available votes, we must publish the number of votes then
available in the BALO within 15 calendar days of that
change and provide the French stock exchange regulator with
written notice.
Shareholder Meetings. Annual ordinary and extraordinary
meetings of our shareholders are convened and held in accordance
with French law. Any shareholder may attend a properly convened
meeting of shareholders in person or by proxy upon confirmation
of such shareholders identity and ownership of shares at
least three days before the shareholders meeting, which
period may be reduced at the discretion of our board of
directors.
Voting rights. Each ordinary share entitles a holder to
one vote at all meetings of our shareholders subject to the
provisions concerning double voting rights described below. For
each ordinary share fully paid and registered in the name of the
same person for at least three years, the holder will be
entitled to double voting rights with respect to such ordinary
share at any of our meetings, whether ordinary or extraordinary.
The double voting right will automatically terminate for any
share which has been subject to conversion into a bearer share
or for which ownership has been transferred. Any transfer of
shares as a result of inheritance, division of community
property by spouses or donation to a spouse or heir shall not
affect a shares double voting rights.
Regardless of the number of ordinary shares held, the total
voting rights per shareholder cannot exceed 8% of the total
voting rights present or represented at any meeting of
shareholders (16% if double voting rights apply). This limit
applies whether or not the shares are voted directly or by
proxy. However, this limit does not apply if a shareholder,
acting alone or in concert, owns at least
662/3%
or more of our outstanding shares as a result of a public tender
offer or exchange offer for all our shares. In addition, this
limit does not apply to the votes cast by the chairman of the
meeting pursuant to a blank proxy.
Preemptive rights. Under French law, shareholders will
have preemptive rights to subscribe on a pro rata basis for
additional shares of any equity securities or other securities
giving a right, directly or indirectly, to equity securities
issued by us for cash. During the subscription period relating
to a particular offering of shares, shareholders may transfer
preferential subscription rights that they have not previously
waived. In order to issue additional ordinary shares without
preemptive rights, beyond issuances already approved, we must
obtain the approval of two-thirds of the voting rights present
or represented by proxy at an extraordinary meeting of our
shareholders, voting together as a single class.
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Liquidation. Upon our liquidation, after payment of all
prior claims, holders of ordinary shares will be entitled to
receive a pro rata amount of all our net assets. The pro rata
amount will be calculated, first to repay the
paid-up and
non-liquidated capital and any surplus will be divided among all
shareholders, subject to any applicable rights arising from the
different classes of shares.
Dividends. You should refer to Item 8
Dividend Policy for a description of how dividends
are calculated and paid on our ordinary shares.
Changes in Share Capital
Capital increases. In accordance with French law and
subject to the exceptions discussed below, our share capital may
be increased only with the approval of a two-thirds vote of the
shareholders present or represented by proxy voting together as
a single class at an extraordinary meeting. The shareholders may
delegate to our board of directors, which in turn may delegate
to the chairman of the board of directors, the power required to
effect, in one or more phases, certain increases in share
capital previously approved by our shareholders.
Our share capital may be increased by the issuance of additional
shares or by an increase in the nominal value of our existing
shares. Our share capital may also be increased through the
capitalization of existing reserves, profits or premium, in
which case we must obtain the approval of a majority of the
shareholders present or represented by proxy voting together as
a single class at an extraordinary meeting of our shareholders.
In case of an increase in our share capital by capitalization of
reserves, profits or premium, shares attributed to a shareholder
will be allocated pro rata based on the respective total nominal
value of the ordinary shares held by such shareholder. The
shares received by a shareholder will be of the same class as
those owned by such shareholder.
Share dividends may be approved by the shareholders, in lieu of
payment of cash dividends, at an ordinary meeting.
Additional ordinary shares may be issued:
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for cash; |
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in satisfaction of or set off against liabilities, including
indebtedness; |
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for assets contributed to us in kind; or |
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upon the conversion, exchange or redemption of securities or
upon exercise of warrants to purchase ordinary shares. |
Capital decreases. Our share capital may generally only
be decreased with the approval of two-thirds of the shareholders
present or represented by proxy voting together as a single
class at an extraordinary meeting. Reductions in share capital
may be made either by decreasing the nominal value of the shares
or reducing the number of shares. The number of shares may be
reduced if we either exchange or repurchase and cancel shares.
As a general matter, reductions of capital occur pro rata among
all shareholders, except (1) in the case of a share buyback
program, or a public tender offer to repurchase shares (offre
publique de rachat dactions (OPRA)), where such a
reduction occurs pro rata only among tendering shareholders; and
(2) in the case where all shareholders unanimously consent
to an unequal reduction.
Cross shareholdings and holding of our shares by our
subsidiaries. French law prohibits a company from holding
our shares if we hold more than 10% of that companys share
capital. French law also prohibits us from owning any interest
in a French company holding more than 10% of our share capital.
In the event of a cross-shareholding that violates this rule,
the company owning the smaller percentage of shares in the other
company must sell its interest. Until sold, these shares are not
entitled to voting rights. Failure by the officers or directors
of a company to sell these shares is a criminal offense. In the
event that one of our
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subsidiaries holds our shares, these shares are not entitled to
voting rights. However, French law does not require the
subsidiary to sell the shares.
Description of ADSs
The following is a summary of certain provisions of the deposit
agreement for the ADSs and is qualified in its entirety by
reference to the deposit agreement among Alcatel, The Bank of
New York as depositary, and the holders from time to time of
ADRs and the form of ADR itself, copies of which are attached as
an exhibit to the registration statement on
Form F-6 that we
filed with the Securities and Exchange Commission on
March 19, 2003. Additional copies of the deposit agreement
are also available for inspection at the principal office of The
Bank of New York, which is located at 101 Barclay Street, New
York, New York 10286, and at the principal office of
the custodian, Société Générale, located at
32, rue du Champ de Tir, 44312 Nantes, France.
American depositary receipts. Each ADS represents one
ordinary share. An American depositary receipt (ADR) may
evidence any whole number of ADSs. The ordinary shares
underlying the ADRs will be deposited with the custodian or any
successor custodian, under the terms of the deposit agreement.
Under French law and our articles of association and bylaws,
shareholders must disclose the amount of their shareholding in
certain circumstances.
Deposit and withdrawal of ordinary shares. As used in
this discussion, deposited securities means the
ordinary shares deposited under the deposit agreement and all
other securities, property and cash received by The Bank of New
York or the custodian in respect or in lieu of the ordinary
shares.
If ordinary shares are deposited with the custodian, or at The
Bank of New Yorks principal office for forwarding to the
custodian, The Bank of New York will issue ADRs representing a
whole number of ADSs. Upon the payment of required taxes,
charges and fees and the receipt of all required certifications,
The Bank of New York will register the ADRs in the name of the
person or persons specified by the depositor of the ordinary
shares. No ordinary shares will be accepted for deposit unless
accompanied by evidence satisfactory to The Bank of New York
that any necessary approval has been granted by (a) the
French governmental agency, if any, that regulates currency
exchange and (b) the French governmental authority, if any,
that regulates foreign ownership of French companies. We will
not, and will not permit any of our subsidiaries to, deposit
ordinary shares for which any necessary approval has not been
granted.
Upon surrender of ADRs at The Bank of New Yorks principal
office, and upon payment of the fees provided for in the deposit
agreement, the ADR holder is entitled to the whole number of
deposited ordinary shares that underlie the ADSs evidenced by
the surrendered ADRs. The Bank of New York will deliver the
underlying deposited ordinary shares to an account designated by
the ADR holder. At the ADR holders request, risk and
expense, The Bank of New York will deliver at its principal
office certificates or other documents of title for the
deposited securities, as well as any other property represented
by the ADSs.
Pre-release of ADRs. The Bank of New York may, unless we
instruct it not to, issue ADRs prior to the receipt of ordinary
shares. This is called a pre-release. In addition,
The Bank of New York may also deliver ordinary shares upon the
receipt and cancellation of ADRs, even if the ADRs were issued
as a pre-release for which ordinary shares have not been
received. In addition, The Bank of New York may receive ADRs in
lieu of ordinary shares in satisfaction of a pre-release. Before
or at the time of such a transaction, the person to whom ADRs or
ordinary shares are delivered must represent that it or its
customer:
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owns the ordinary shares or ADRs to be delivered to The Bank of
New York; |
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assigns to The Bank of New York in trust all rights to the
ordinary shares or ADRs; and |
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will not take any action inconsistent with the transfer of
ownership of the ordinary shares or ADRs. |
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In addition, each transaction must be:
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fully collateralized (marked to market daily) with cash,
U.S. government securities or other collateral of
comparable safety and liquidity; |
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terminable by The Bank of New York on not more than five
business days notice; and |
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subject to further indemnities and credit regulations as The
Bank of New York deems appropriate. |
The Bank of New York will generally limit the number of ordinary
shares represented by pre-release ADRs to 30% of the ordinary
shares on deposit with the custodian under the ordinary deposit
agreement.
Dividends, Other Distributions and Rights
The Bank of New York is responsible for making sure that it or
the custodian, as the case may be, receives all dividends and
distributions in respect of deposited ordinary shares.
Amounts distributed to ADR holders will be reduced by any taxes
or other governmental charges required to be withheld by the
custodian or The Bank of New York. If The Bank of New York
determines that any distribution in cash or property is subject
to any tax or governmental charges that The Bank of
New York or the custodian is obligated to withhold, The
Bank of New York may use the cash or sell or otherwise dispose
of all or a portion of that property to pay the taxes or
governmental charges. The Bank of New York will then distribute
the balance of the cash and/or property to the ADR holders
entitled to the distribution, in proportion to their holdings.
Cash dividends and cash distributions. The Bank of New
York will convert into dollars all cash dividends and other cash
distributions that it or the custodian receives, to the extent
that it can do so on a reasonable basis, and transfer the
resulting dollars to the United States within one day. The Bank
of New York will distribute to the ADR holder the amount it
receives, after deducting any currency conversion expenses. If
The Bank of New York determines that any foreign currency it
receives cannot be converted and transferred on a reasonable
basis, it may distribute the foreign currency (or an appropriate
document evidencing the right to receive the currency), or hold
that foreign currency uninvested, without liability for
interest, for the accounts of the ADR holders entitled to
receive it.
Distributions of ordinary shares. If we distribute
ordinary shares as a dividend or free distribution, The Bank of
New York may, with our approval, and will, at our request,
distribute to ADR holders new ADRs representing the ordinary
shares. The Bank of New York will distribute only whole ADRs. It
will sell the ordinary shares that would have required it to use
fractional ADRs and then distribute the proceeds in the same way
it distributes cash. If The Bank of New York deposits the
ordinary shares but does not distribute additional ADRs, the
existing ADRs will also represent the new ordinary shares.
If holders of ordinary shares have the option of receiving a
dividend in cash or in ordinary shares, we may also grant that
option to ADR holders.
Other distributions. If The Bank of New York or the
custodian receives a distribution of anything other than cash or
ordinary shares, The Bank of New York will distribute the
property or securities to the ADR holder, in proportion to such
holders holdings. If The Bank of New York determines that
it cannot distribute the property or securities in this manner
or that it is not feasible to do so, then, after consultation
with us, it may distribute the property or securities by any
means it thinks is fair and practical, or it may sell the
property or securities and distribute the net proceeds of the
sale to the ADR holders.
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Rights to subscribe for additional ordinary shares and other
rights. If we offer our holders of shares any rights to
subscribe for additional ordinary shares or any other rights,
The Bank of New York will, if requested by us:
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make the rights available to all or certain holders of ADRs, by
means of warrants or otherwise, if lawful and feasible; or |
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if it is not lawful or feasible to make the rights available,
attempt to sell those rights or warrants or other instruments. |
In that case, The Bank of New York will allocate the net
proceeds of the sales to the account of the ADR holders entitled
to the rights. The allocation will be made on an averaged or
other practicable basis without regard to any distinctions among
holders.
If registration under the Securities Act of 1933, as amended, is
required in order to offer or sell to the ADR holders the
securities represented by any rights, The Bank of New York will
not make the rights available to ADR holders unless a
registration statement is in effect or such securities are
exempt from registration. We do not, however, have any
obligation to file a registration statement or to have a
registration statement declared effective. If The Bank of New
York cannot make any rights available to ADR holders and cannot
dispose of the rights and make the net proceeds available to ADR
holders, then it will allow the rights to lapse, and the ADR
holders will not receive any value for them.
Record dates. The Bank of New York will fix a record date
any time:
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a dividend or distribution is to be made; |
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rights are issued; or |
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The Bank of New York receives notice of any meeting of holders
of ordinary shares or other securities represented by the ADRs. |
The persons who are ADR holders on the record date will be
entitled to receive the dividend, distribution or rights, or to
exercise the right to vote.
Notices and reports. When we give notice, by publication
or otherwise, of a shareholders meeting or of the taking
of any action regarding any dividend, distribution or offering
of any rights, we will also transmit to the custodian a copy of
the notice, in the form given or to be given to holders of
deposited securities. The Bank of New York will arrange for the
mailing to ADR holders of copies of those notices in English, as
well as other reports and communications that are received by
the custodian as the holder of deposited securities.
Voting of the underlying ordinary shares. Under the
deposit agreement, an ADR holder is entitled, subject to any
applicable provisions of French law, our articles of association
and bylaws and the deposited securities, to exercise voting
rights pertaining to the ordinary shares represented by its
ADSs. The Bank of New York will send to ADR holders
English-language summaries of any materials or documents
provided by us for the purpose of exercising voting rights. The
Bank of New York will also send to ADR holders directions as to
how to give it voting instructions, as well as a statement as to
how the underlying ordinary shares will be voted if it receives
blank or improperly completed voting instructions.
The voting rights per holder of ADSs cannot exceed 8% of the
total number of voting rights present or represented at a
meeting of shareholders (16% if double voting rights apply).
ADSs will represent ordinary shares in bearer form unless the
ADR holder notifies The Bank of New York that it would like the
ordinary shares to be held in registered form.
If The Bank of New York receives properly completed voting
instructions, on or before the date specified, it will either
vote the deposited securities in accordance with the
instructions or forward the instructions to the custodian. If
the voting instructions are forwarded to the custodian, the
custodian will endeavor, insofar as practicable and permitted
under applicable provisions of French law, our articles of
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association and bylaws and the deposited securities, to vote, or
cause to be voted, the deposited securities in accordance with
any nondiscretionary instructions. The Bank of New York will
only vote ordinary shares or other securities that the ADRs
represent in accordance with the ADR holders instructions.
If it receives a blank proxy or improperly completed voting
instructions, it will vote in accordance with a default position
that will be stated in the proxy materials.
Inspection of transfer books. The Bank of New York will
keep books at its principal office in New York City for the
registration and transfer of ADRs. Those books are open for
inspection by ADR holders at all reasonable times, except that
inspection is not permitted for purposes of communicating with
holders of ADRs on matters that are not related to our business,
the deposit agreement or the ADRs.
Changes affecting deposited securities. If there is any
change in nominal value or any split-up, consolidation,
cancellation or other reclassification of deposited securities,
or any recapitalization, reorganization, merger or consolidation
or sale of assets involving us, then any securities that The
Bank of New York receives in respect of deposited securities
will become new deposited securities. Each ADR will
automatically represent its share of the new deposited
securities, unless The Bank of New York delivers new ADRs as
described in the following sentence. The Bank of New York may,
with our approval, and will, at our request, distribute new ADRs
or ask ADR holders to surrender their outstanding ADRs in
exchange for new ADRs describing the new deposited securities.
Charges of The Bank of New York. The Bank of New York
will charge ADR holders the following fees and expenses:
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fees for the registration of ADRs, the transfer,
splitting-up or
combination of ADRs, and the delivery of dividends,
distributions or rights; |
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taxes and other governmental charges; |
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cable, telex, facsimile transmission and delivery expenses; |
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expenses of conversions of foreign currency into
U.S. dollars; and |
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a fee of U.S. $5.00 (or less) per each 100 ADSs (or portion
thereof) for the execution and delivery of ADRs and for the
surrender of ADRs and withdrawal of deposited securities. |
Amendment of the deposit agreement. The Bank of New York
and we may agree to amend the form of the ADRs and the deposit
agreement at any time, without the consent of the ADR holders.
If the amendment adds or increases any fees or charges (other
than taxes or other governmental charges) or prejudices an
important right of ADR holders, it will not take effect as to
outstanding ADRs until three months after The Bank of New York
has sent the ADR holders a notice of the amendment. At the
expiration of that three-month period, each ADR holder will be
considered by continuing to hold its ADRs to agree to the
amendment and to be bound by the deposit agreement as so
amended. The Bank of New York and we may not amend the deposit
agreement or the form of ADRs to impair the ADR holders
right to surrender its ADRs and receive the ordinary shares and
any other property represented by the ADRs, except to comply
with mandatory provisions of applicable law.
Termination of the deposit agreement. The Bank of New
York will terminate the deposit agreement if we ask it to do so
and will notify the ADR holders at least 30 days before the
date of termination. The Bank of New York may likewise terminate
the deposit agreement if it resigns and a successor depositary
has not been appointed by us and accepted its appointment within
90 days after The Bank of New York has given us notice of
its resignation. After termination of the deposit agreement, The
Bank of New York will no longer register transfers of ADRs,
distribute dividends to the ADR holders, accept deposits of
ordinary shares, give
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any notices, or perform any other acts under the deposit
agreement whatsoever, except that The Bank of New York will
continue to:
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collect dividends and other distributions pertaining to
deposited securities; |
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sell rights as described under the heading
Dividends, other distributions and
rights Rights to subscribe for additional ordinary
shares and other rights above; and |
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deliver deposited securities, together with any dividends or
other distributions received with respect thereto and the net
proceeds of the sale of any rights or other property, in
exchange for surrendered ADRs. |
One year after termination, The Bank of New York may sell the
deposited securities and hold the proceeds of the sale, together
with any other cash then held by it, for the pro rata benefit of
ADR holders that have not surrendered their ADRs. The Bank of
New York will not have liability for interest on the sale
proceeds or any cash it holds.
Transfer of ADRs. ADRs are transferable upon surrender by
the ADR holder, if the ADRs are properly endorsed and
accompanied by the proper instruments of transfer. The Bank of
New York will execute and deliver a new ADR to the person
entitled to it. The Bank of New York may not suspend the
surrender of ADRs and withdrawal of deposited securities, except
for:
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temporary delays caused by the closing of transfer books
maintained by The Bank of New York, us or our transfer agent or
registrar; |
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temporary delays caused by the deposit of ordinary shares in
connection with voting at a shareholders meeting or the
payment of dividends; |
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the payment of fees, taxes and similar charges; or |
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compliance with laws or governmental regulations relating to the
Class A ADRs or to the withdrawal of deposited securities. |
The Bank of New York may refuse to deliver ADRs or to register
transfers of ADRs when the transfer books maintained by The Bank
of New York or our transfer agent or registrar are closed, or at
any time that The Bank of New York or we think it is advisable
to do so.
Governing Law. The deposit agreement and the ADRs are
governed by the laws of the State of New York.
Ownership of shares by non-French persons
Under French law and our articles of association and bylaws, no
limitation exists on the right of
non-French residents or
non-French shareholders to own or vote our securities.
Both E.U. and non-E.U. residents must file an administrative
notice (déclaration administrative) with French
authorities in connection with the acquisition of a controlling
interest in any French company. Under existing administrative
rulings, ownership of 20% or more of a listed companys
share capital or voting rights is regarded as a controlling
interest; however, a lower percentage may be held to be a
controlling interest in certain circumstances depending upon
such factors as the acquiring partys intentions, its
ability to elect directors or financial reliance by the French
company on the acquiring party.
The payment of all dividends to foreign shareholders must be
effected through an accredited intermediary. All registered
banks and credit establishments in France are accredited
intermediaries.
You should refer to Description of Ordinary Shares
above for a description of the filings required based on
shareholdings.
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Material contracts
We have not entered into any material contracts requiring
disclosure under this heading.
Exchange controls
Under current French exchange control regulations, no limits
exist on the amount of payments that we may remit to residents
of the United States. Laws and regulations concerning foreign
exchange controls do require, however, that an accredited
intermediary must handle all payments or transfer of funds made
by a French resident to a non-resident.
Taxation
The following is a general summary of the material
U.S. federal income tax and French tax consequences to you
if you acquire, hold and dispose of our ordinary shares or ADSs.
It does not address all aspects of U.S. and French tax laws that
may be relevant to you in light of your particular situation. It
is based on the applicable tax laws, regulations and judicial
decisions as of the date of this annual report, and on the
Convention between the United States of America and the Republic
of France for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with respect to Taxes on Income and
Capital dated as of August 31, 1994 (the
Treaty) entered into force on December 30,
1995, all of which are subject to change, possibly with
retroactive effect, or different interpretations.
This summary may only be relevant to you if all of the following
five points apply to you:
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You own, directly or indirectly, less than 10% of our capital, |
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You are any one of (a), (b), (c) or (d) below: |
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(a) |
an individual who is a citizen or resident of the United States
for U.S. federal income tax purposes, |
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(b) |
a corporation, or other entity taxable as a corporation that is
created in or organized under the laws of the United States or
any political subdivision thereof, |
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(c) |
an estate, the income of which is subject to U.S. federal
income tax regardless of its source, or |
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(d) |
a trust, if a court within the United States is able to exercise
a primary supervision over its administration and one or more
U.S. persons have the authority to control all of the
substantial decisions of such trust, |
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You are entitled to the benefits of the Treaty under the
limitations on benefits article contained in the
Treaty, |
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You hold our ordinary shares or ADSs as capital assets, and |
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Your functional currency is the U.S. dollar. |
You generally will not be eligible for the reduced withholding
tax rates under the Treaty if you hold our ordinary shares in
connection with the conduct of business through a permanent
establishment or the performance of services through a fixed
base in France, or you are a nonresident in the United States
for U.S. tax purposes.
The following description of tax consequences should be
considered only as a summary and does not purport to be a
complete analysis of all potential tax effects of the purchase
or ownership of our ordinary shares or ADSs. Special rules may
apply to U.S. expatriates, insurance companies, tax-exempt
organizations, financial institutions, persons subject to the
alternative minimum tax, securities broker-dealers, traders in
securities that elect to use a
mark-to-market method
of accounting for the securities holdings and persons
74
holding their ordinary shares or ADSs as part of a hedging,
straddle or conversion transaction, among others. Those special
rules are not discussed in this annual report. Because this
summary does not address all potential tax implications, you
should consult your tax advisor concerning the overall
U.S. federal, state and local tax consequences, as well as
the French tax consequences, of your ownership of our ordinary
shares or ADRs and ADSs represented thereby.
For purposes of the Treaty and the U.S. Internal Revenue
Code of 1986, as amended (the Code), if you own ADSs
evidenced by ADRs, you will be treated as the owner of the
ordinary shares represented by such ADSs.
Withholding Tax and Tax Credit. In France, companies may
only pay dividends out of income remaining after tax has been
paid. When shareholders resident in France receive dividends
from French companies, they historically were entitled to a tax
credit, known as the avoir fiscal tax credit. However,
the French Finance Law of 2004 eliminated the avoir fiscal
mechanism and the related précompte mechanism.
The avoir fiscal tax credit is no longer available for
dividends paid after January 1, 2004 to corporate
shareholders and after January 1, 2005 to individual
shareholders.
To compensate for the abolition of the avoir fiscal, for
dividends paid as from January 1, 2005, French resident
individuals will be subject to taxation on only 50 percent
of the dividends received by them from both French and foreign
companies, which rate is increased to 60 percent for
dividends paid on or after January 1, 2006. This exemption
will apply to any dividend distributed by a company that is
subject to corporation tax or an equivalent tax and that is
located in an EU member state or a country that has signed a tax
treaty with France.
In addition, French resident individuals will receive a tax
credit equal to 50 percent of the dividends (which we refer
to as the Tax Credit), capped at
115 for single
individuals or married persons subject to separate taxation and
230 for married
couples and members of a union agreement subject to joint
taxation.
French companies normally must deduct a 25% French withholding
tax from dividends paid to nonresidents of France. Under the
Treaty, this withholding tax is reduced to 15% if your ownership
of our ordinary shares or ADSs is not effectively connected with
a permanent establishment or a fixed base that you have in
France.
If your ownership of the ordinary shares or ADSs is not
effectively connected with a permanent establishment or a fixed
base that you have in France, we will withhold tax from your
dividend at the reduced rate of 15%, provided that you
(i) complete the French Treasury Form entitled
Certificate of Residence which establishes that you
are a resident of the U.S. under the Treaty, (ii) have
it certified either by the Internal Revenue Service or the
financial institution that is in charge of the administration of
the ordinary shares or ADSs, and (iii) send it to us before
the date of payment of the dividend.
If you have not completed and sent the Certificate of
Residence before the dividend payment date, we will deduct
French withholding tax at the rate of 25%. In that case, you may
claim a refund from the French tax authorities of any excess
withholding tax in accordance with the following procedures.
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1. |
If you are an eligible U.S. holder as defined
below, you must complete French Treasury Form RF1 A
EU-No. 5052, entitled Application for Refund of
French Taxes on Dividends Entitled to the Tax Credit, and
send it to us early enough to enable us to file it with the
French tax authorities before December 31st of the year
following the year during which the dividend is paid. |
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2. |
If you are not an eligible U.S. holder but
nonetheless qualify as a resident of the United States under the
Treaty, you must complete French Treasury Form RF1 B
EU-No. 5053, entitled Application for Refund of
French Taxes on Dividends where the Recipient is not Entitled to
the |
75
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Tax Credit, and send it to us early enough to enable us to
file it with the French tax authorities before
December 31st of the year following the year during which
the dividend is paid. |
You are eligible if any one of the following four
points applies to you:
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1. |
You are an individual or other noncorporate holder that is a
resident of the United States for purposes of the Treaty; |
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2. |
You are a U.S. corporation, other than a regulated
investment company; |
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3. |
You are a U.S. corporation which is a regulated investment
company, provided that less than 20% of your ordinary shares or
ADSs are beneficially owned by persons who are neither citizens
nor residents of the United States; or |
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4. |
You are a partnership or trust that is a resident of the
U.S. for purposes of the Treaty, but only to the extent
that your partners, beneficiaries or grantors would qualify as
eligible under point 1 or point 2 above. |
You can obtain the certificate, the forms and their respective
instructions from the Depositary, the Internal Revenue Service
or the French Centre des Impôts des non-résidents
the address of which is 9 rue dUzès,
75094 Paris Cedex 2, France. If you are a U.S. holder
of ADSs, the Depositary will file your completed certificate or
form as long as you deliver it to the Depositary within the time
period specified in the distribution to registered
U.S. holders of ADSs.
Any French withholding tax refund is generally expected to be
paid within 12 months after you file the relevant French
Treasury Form. However, it will not be paid before
January 15, following the end of the calendar year in which
the related dividend is paid.
Prior to the French tax reform described above, an
eligible U.S. individual holder could also
claim the avoir fiscal tax credit (net of applicable
withholding tax) in addition to the reduced rate of withholding
tax. Instead, qualifying nonresident individuals who were
previously entitled to a refund of the avoir fiscal tax
credit may benefit, under the same conditions as for the
avoir fiscal tax credit, from a refund of the Tax Credit
(net of applicable withholding tax). Thus, if you are an
eligible U.S. individual holder, you may be
entitled to a refund of the Tax Credit (less a 15% withholding
tax), provided that you are subject to U.S. federal income
tax on the Tax Credit and the related dividend.
U.S. holders that are legal entities, pension fund or other
tax-exempt holders are no longer entitled to tax credit payments
from the French Treasury.
For U.S. federal income tax purposes, the gross amount of
any distribution (including any related Tax Credit) will be
included in your gross income as dividend income to the extent
paid or deemed paid out of our current or accumulated earnings
and profits as calculated for U.S. federal income tax
purposes. You must include this amount in income in the year
payment is received by you, which, if you hold ADSs, will be the
year payment is received by the Depositary. Dividends paid by us
will not give rise to any dividends-received deduction allowed
to a U.S. corporation under Section 243 of the Code.
They will generally constitute foreign source
passive income for foreign tax credit purposes (or,
for some holders, foreign source financial services
income for tax years beginning before January 1, 2007).
For tax years beginning before January 1, 2009, a maximum
U.S. federal income tax rate of 15% will apply to dividend
income received by an individual (as well as certain trusts and
estates) from a U.S. corporation or from a qualified
foreign corporation provided certain holding period
requirements are met. A
non-U.S. corporation
(other than a passive foreign investment company) generally will
be considered to be a qualified foreign corporation if
(i) the shares of the
non-U.S. corporation
are readily tradable on an established securities market in the
United States, or (ii) the
non-U.S. corporation
is eligible for the benefits of a comprehensive U.S. income
tax treaty determined to be satisfactory to the United States
Department of the Treasury. The United States Department of the
Treasury and the Internal Revenue Service have
76
determined that the Treaty is satisfactory for this purpose. In
addition, the United States Department of the Treasury and the
Internal Revenue Service have determined that ordinary shares,
or an American Depositary Receipt in respect of such shares
(which would include the ADSs), is considered readily tradable
on an established securities market if it is listed on an
established securities market in the United States such as the
New York Stock Exchange. Information returns reporting dividends
paid to U.S. persons will identify the amount of dividends
eligible for the reduced tax rates.
Also, for U.S. federal income tax purposes, the amount of
any dividend paid in a foreign currency such as euros, including
any French withholding taxes, will be equal to the
U.S. dollar value of the euros on the date the dividend is
included in income, regardless of whether you convert the
payment into U.S. dollars. If you hold ADSs, this date will
be the date the payment is received by the Depositary. You will
generally be required to recognize U.S. source ordinary
income or loss when you sell or dispose of the euros. You may
also be required to recognize foreign currency gain or loss if
you receive a refund of tax withheld from a dividend in excess
of the 15% rate provided for under the Treaty. This foreign
currency gain or loss will generally be U.S. source
ordinary income or loss.
To the extent that any dividends paid exceed our current and
accumulated earnings and profits as calculated for
U.S. federal income tax purposes, the distribution will be
treated as follows:
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First, as a tax-free return of capital to the extent of your
basis in your ordinary shares or ADSs, which will reduce the
adjusted basis of your ordinary shares or ADSs. This adjustment
will increase the amount of gain, or decrease the amount of
loss, which you will recognize if you later dispose of those
ordinary shares or ADSs. |
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|
Second, the balance of the distribution in excess of the
adjusted basis will be taxed as capital gain. |
French withholding tax imposed on the dividends you receive on
your ordinary shares or ADSs at 15% under the Treaty is treated
as payment of a foreign income tax eligible for credit against
your federal income tax liability. Under the Code, the
limitation on foreign taxes eligible for credit is not
calculated with respect to all worldwide income, but instead is
calculated separately with respect to specific classes of
income. For this purpose, the dividends you receive on your
ordinary shares or ADSs generally will constitute
passive income (or, for some holders, foreign source
financial services income for tax years beginning
before January 1, 2007). Foreign tax credits allowable with
respect to each class of income cannot exceed the
U.S. federal income tax otherwise payable with respect to
such class of income. The consequences of the separate
limitation calculation will depend in general on the nature and
sources of your income and deductions. Alternatively, you may
claim all foreign taxes paid as an itemized deduction in lieu of
claiming a foreign tax credit. A deduction does not reduce
U.S. tax on a dollar-for-dollar basis like a tax credit.
The deduction, however, is not subject to the limitations
described above.
The Précompte Tax. For taxable years ending before
January 1, 2005, a French company is required to pay an
equalization tax known as the précompte tax to the
French tax authorities if it distributes dividends out of:
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|
profits which have not been taxed at the ordinary corporate
income tax rate, or |
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profits which have been earned and taxed more than five years
before the distribution. |
The amount of the précompte tax is equal to 50% of
the net dividend before withholding tax.
Under the French Finance Law of 2004, distributions made by
French companies from 2005 on will no longer be subject to the
précompte tax. However, an exceptional levy of 25%
will be imposed on distributions of untaxed earnings paid in
2005. Although the base for the exceptional levy will be the
same as that for the précompte tax, the levy will
apply to all distributions of earnings, including exceptional
distributions from company reserves. The exceptional levy will
not be refundable to shareholders.
Distributions made from 2006 on will not give rise to
précompte tax or the exceptional levy.
77
|
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Taxation of Capital Gains |
If you are a resident of the United States for purposes of the
Treaty, you will not be subject to French tax on any gain if you
sell your ordinary shares or ADSs unless you have a permanent
establishment or fixed base in France and such ordinary shares
or ADSs were part of the business property of that permanent
establishment or fixed base. Special rules apply to individuals
who are residents of more than one country.
In general, for U.S. federal income tax purposes, you will
recognize capital gain or loss if you sell or otherwise dispose
of your ordinary shares or ADSs based on the difference between
the amount realized on the disposition and your tax basis in the
ordinary shares or ADSs. Any gain or loss will generally be
U.S. source gain or loss. If you are a noncorporate holder,
any capital gain will generally be subject to U.S. federal
income tax at preferential rates if you meet certain minimum
holding periods. Long-term capital gains realized upon a sale or
other disposition of the ordinary shares or ADSs before the end
of a taxable year which begins before January 1, 2009
generally will be subject to a maximum U.S. federal income
tax rate of 15%.
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|
Transfer Tax on Sale of Ordinary Shares or ADSs |
A 1% transfer tax capped
at 3,049 per
transfer applies to certain transfers of ordinary shares or ADSs
in French corporations. On January 1, 2006, the rate was
increased to 1.10% and the cap was increased
to 4,000.
The transfer tax does not apply to transfers of ordinary shares
or ADSs in French publicly-traded companies that are not
evidenced by a written agreement, or where that agreement is
executed outside France. Therefore, you should not be liable to
pay the transfer tax on the sale or disposition of your ordinary
shares or ADS provided such sale or disposition is not evidenced
by a written agreement or such agreement is not executed in
France.
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French Estate and Gift Taxes |
Under The Convention Between the United States of America
and the French Republic for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Respect to Taxes on
Estates, Inheritance and Gifts of November 24, 1978,
if you transfer your ordinary shares or ADSs by gift, or if they
are transferred by reason of your death, that transfer will be
subject to French gift or inheritance tax only if one of the
following applies:
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|
you are domiciled in France at the time of making the gift, or
at the time of your death, or |
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|
you used the ordinary shares or ADSs in conducting a business
through a permanent establishment or fixed base in France, or
you held the ordinary shares or ADS for that use. |
The French wealth tax generally does not apply to you if you are
a resident of the United States for purposes of the
Treaty.
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|
U.S. Information Reporting and Backup
Withholding |
In general, if you are a non-corporate U.S. holder of our
ordinary shares or ADSs (or do not come within certain other
exempt categories), information reporting requirements will
apply to distributions paid to you and proceeds from the sale,
exchange, redemption or disposal of your ordinary shares or ADSs.
Additionally, if you are a non-corporate U.S. holder of our
ordinary shares or ADSs (or do not come within certain other
exempt categories) you may be subject to backup withholding at a
current rate of 28% (increased to 31% for taxable years 2011 and
thereafter) with respect to such payments, unless you provide a
correct taxpayer identification number (your social security
number or employer identification number), certify
78
that you are not subject to backup withholding and otherwise
comply with applicable requirements of the backup withholding
rules. Generally, you will provide such certification on
Internal Revenue Service
Form W-9
(Request for Taxpayer Identification Number and
Certification) or a substitute
Form W-9.
If you do not provide your correct taxpayer identification
number, you may be subject to penalties imposed by the Internal
Revenue Service, as well as backup withholding. However, any
amount withheld under the backup withholding rules may be
allowable as a credit against your U.S. federal income tax
liability (which might entitle you to a refund), provided that
you furnish the required information to the Internal Revenue
Service.
A non-U.S. holder
of our ordinary shares or ADSs generally will be exempt from
information reporting requirements and backup withholding, but
may be required to comply with certification and identification
procedures in order to obtain an exemption from information
reporting and backup withholding.
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U.S. State and Local Taxes |
In addition to U.S. federal income tax, you may be subject
to U.S. state and local taxes with respect to your ordinary
shares or ADSs. You should consult your own tax advisor
concerning the U.S. state and local tax consequences of
holding your ordinary shares or ADSs.
Documents on display
We file reports with the Securities and Exchange Commission that
contain financial information about us and our results or
operations. You may read or copy any document that we file with
the Securities and Exchange Commission at the Securities and
Exchange Commissions Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. You may obtain
information about the Public Reference Room by calling the
Securities and Exchange Commission for more information at
1-800-SEC-0330. All of
our Securities and Exchange Commission filings made after
February 4, 2002 are available to the public at the SEC web
site at http://www.sec.gov. Our web site at
http://www.alcatel.com includes information about our business
and also includes some of our Securities and Exchange Commission
filings prior to February 4, 2002. The contents of our
website are not incorporated by reference into this
Form 20-F. You may
also inspect any reports and other information we file with the
Securities and Exchange Commission at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York
10005.
79
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Item 11. |
Quantitative and Qualitative Disclosures About Market Risk |
See Item 5 under Qualitative and Quantitative
Disclosures About Market Risk.
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Item 12. |
Description of Securities Other than Equity Securities |
Not applicable.
PART II
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Item 13. |
Defaults, Dividend Arrearages and Delinquencies |
Not applicable.
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Item 14. |
Material Modifications to the Rights of Security Holders |
Not applicable.
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Item 15. |
Controls and Procedures |
(a) We performed an evaluation of the effectiveness of our
disclosure controls and procedures that are designed to ensure
that the material financial and non-financial information
required to be disclosed on
Form 20-F and
filed with the Securities and Exchange Commission is recorded,
processed, summarized and reported timely. Based on our
evaluation, our management, including our Chief Executive
Officer and Chief Financial Officer, have concluded that our
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and 15d-15(e) of the
Securities Exchange Act of 1934, as amended) as of the end of
the period covered by this report are effective. Notwithstanding
the foregoing, there can be no assurance that our disclosure
controls and procedures will detect or uncover all failures of
persons within Alcatel to disclose material information
otherwise required to be set forth in our reports, although our
management, including our Chief Executive Officer and Chief
Financial Officer, have concluded that, as of the end of the
period covered by this report, our disclosure controls and
procedures provide reasonable assurance of achieving their
objectives.
(b) As disclosed in Item 8 of this report and
Note 34 to our consolidated financial statements, we noted
some weaknesses with respect to our internal controls over
financial reporting in certain of our foreign operations, which
may involve the U.S. Foreign Corrupt Practices Act. We
believe these weaknesses do not have a material impact on our
financial results. We have taken actions which our management
believes will enhance our internal controls over financial
reporting in these and other foreign operations.
Other than as noted in the preceding paragraph, there have been
no significant changes in our internal controls or in other
factors that could significantly affect our internal controls
over financial reporting subsequent to the date of the
evaluation thereof.
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Item 16A. |
Audit Committee Financial Expert |
Our board of directors has determined that Daniel Lebègue
is an audit committee financial expert and that he
is independent under the applicable rules promulgated by the
Securities and Exchange Commission and the New York Stock
Exchange.
80
On February 4, 2004, our board of directors adopted a Code
of Ethics for Senior Financial Officers that applies to our
Chief Executive Officer and President, Chief Operating Officer,
Chief Financial Officer and corporate controller. A copy of our
Code of Ethics for Senior Financial Officers has been posted on
our Internet website, http://www.alcatel.com. This Code of
Ethics is in addition to our statement on business practices
which also applies to our senior financial officers (see
Item 6 Directors, Senior Management and
Employees Statement on Business Practices, Ethics
Committee, Code of Ethics and Chief Compliance Officer).
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Item 16C. |
Principal Accounting Fees and Services |
Under French law, we are required to have two auditors, and we
have appointed Barbier Frinault & Autres
(Ernst & Young) and Deloitte & Associés to act
in that capacity. These firms received approximately 89% of the
total audit fees that we and our consolidated subsidiaries paid
during 2005.
The table below summarizes the audit fees paid by us and our
consolidated subsidiaries during each of 2005 and 2004. Fees
paid by our subsidiaries in the space business and consolidated
using proportionate consolidation are taken into account only as
to the percentage interest we hold in these companies. Fees paid
by our non-consolidated subsidiaries are not reflected in this
table and represent less than 5% of our total audit fees.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
Barbier Frinault | |
|
|
|
Barbier Frinault | |
|
|
|
|
& Autres | |
|
|
|
& Autres | |
|
|
Deloitte & Associés | |
|
(Ernst & Young) | |
|
Deloitte & Associés | |
|
(Ernst & Young) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(in thousands of euros) | |
|
|
|
|
|
|
Audit
Fees(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
|
6,875 |
|
|
|
87.3 |
% |
|
|
4,454 |
|
|
|
88.4 |
% |
|
|
5,162 |
|
|
|
70.4 |
% |
|
|
3,506 |
|
|
|
58.3 |
% |
Audit-Related
Fees(2)
|
|
|
689 |
|
|
|
8.8 |
% |
|
|
525 |
|
|
|
10.4 |
% |
|
|
1,041 |
|
|
|
14.2 |
% |
|
|
2,090 |
|
|
|
34.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
7,564 |
|
|
|
96.1 |
% |
|
|
4,979 |
|
|
|
98.8 |
% |
|
|
6,203 |
|
|
|
84.5 |
% |
|
|
5,597 |
|
|
|
93.0 |
% |
Other Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Fees(3)
|
|
|
303 |
|
|
|
3.8 |
% |
|
|
35 |
|
|
|
0.7 |
% |
|
|
967 |
|
|
|
13.2 |
% |
|
|
342 |
|
|
|
5.7 |
% |
All Other
Fees(4)
|
|
|
7 |
|
|
|
0.1 |
% |
|
|
26 |
|
|
|
0.5 |
% |
|
|
167 |
|
|
|
2.3 |
% |
|
|
77 |
|
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
310 |
|
|
|
3.9 |
% |
|
|
61 |
|
|
|
1.2 |
% |
|
|
1,134 |
|
|
|
15.5 |
% |
|
|
419 |
|
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,874 |
|
|
|
100.0 |
% |
|
|
5,040 |
|
|
|
100.0 |
% |
|
|
7,337 |
|
|
|
100.0 |
% |
|
|
6,015 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Audit fees are fees related to (a) statutory
audits using applicable sets of accounting standards,
(b) audits of the implementation of IFRS, (c) services
associated with AMF and SEC reports, (d) attestations of
management reports on internal controls or other services as
required by law to be provided by the independent auditors and
(e) accounting or disclosure treatment consultations. |
|
(2) |
Audit-related fees are fees generally related to
(a) due diligence investigations, (b) audits of
combined financial statements prepared for purposes of the
contemplated disposal of certain of our activities or of
combined financial statements of companies that we acquired,
(c) assignments relating to IFRS, (d) the
Sarbanes-Oxley Act management review and (e) internal
accounting functions and procedures. |
|
(3) |
Tax fees are fees for professional services rendered
by our auditors for tax compliance, tax advice on actual or
contemplated transactions, tax consulting associated with
international transfer prices and employee tax services. |
|
(4) |
All other fees are principally fees related to
environmental report review, information technology and training
and support services. |
81
|
|
|
Audit Committees pre-approval policies and
procedures. |
The audit committee of our board of directors chooses and
engages our independent auditors to audit our financial
statements, subject to the approval of our shareholders.
According to the audit and non-audit pre-approval policy
implemented in 2003, the audit committee gives its approval
before engaging our auditors to provide any other audit or
permitted non-audit services to us or our subsidiaries. This
policy, which is designed to assure that such engagements do not
impair the independence of our auditors, requires the audit
committee to pre-approve various audit and non-audit services
that may be performed by our auditors. In addition, the audit
committee limited the aggregate amount of fees our auditors may
receive under the pre-approval policy for 2005 for non-audit
services in certain categories; fees in excess of such aggregate
amount require specific approval.
On a quarterly basis, we inform the audit committee of the
pre-approved services actually provided by our auditors.
Services of a type that are not pre-approved by the audit
committee require pre-approval by the audit committees
chairman on a case-by-case basis. The chairman of our audit
committee is not permitted to approve any engagement of our
auditors if the services to be performed either fall into a
category of services that are not permitted by applicable law or
the services would be inconsistent with maintaining the
auditors independence.
|
|
Item 16D. |
Exemptions from the Listing Standards for Audit Committee |
Not Applicable.
|
|
Item 16E. |
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers |
At our annual meeting of shareholders held on May 20, 2005,
our shareholders approved a resolution authorizing us, prior to
the annual shareholders meeting to be held in 2006 and at
the discretion of our board of directors, to purchase our shares
and to hold up to 10% of our share capital. This resolution
superseded a similar resolution approved by our shareholders at
the annual shareholders meeting held in 2004. Although
such authorizations were in place, during 2005 neither we nor
any of our subsidiaries purchased any of our shares. As of
December 31, 2005, we held directly 25,343,255 of our
ordinary shares, and our subsidiaries held a total of 33,601,350
of our ordinary shares.
PART III
|
|
Item 17. |
Financial Statements |
See Item 18.
82
|
|
Item 18. |
Financial Statements |
The following consolidated financial statements of Alcatel,
together with the report of Deloitte & Associés
for the years ended December 31, 2004 and 2005, are filed
as part of this annual report.
|
|
|
|
|
|
|
Page | |
|
|
| |
|
|
|
F-1 |
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-5 |
|
|
|
|
F-7 |
|
Notes to Consolidated Financial Statements:
|
|
|
|
|
All schedules have been omitted since they are not required
under the applicable instructions or the substance of the
required information is shown in the financial statements.
1.1 Statuts (Articles of Association and
By-Laws) of Alcatel (English translation) (incorporated by
reference to Alcatels Report of Foreign Issuer on
Form 6-K filed
September 27, 2005).
2.1 Form of Amended and Restated Deposit
Agreement, as further amended and restated as of March 19,
2003, among Alcatel, The Bank of New York, as Depositary, and
the holders from time to time of the ADRs issued thereunder,
including the form of ADR (incorporated by reference to
Exhibit A to Alcatels Registration Statement on
Form F-6) (File
No. 333-103885).
8. List of subsidiaries (see Note 36
to our consolidated financial statements included elsewhere
herein).
10.1 Consent of Independent Registered Public Accounting
Firm.
12.1 Certification of the Chief Executive Officer pursuant
to §302 of the Sarbanes-Oxley Act of 2002.
12.2 Certification of the Chief Financial Officer pursuant
to §302 of the Sarbanes-Oxley Act of 2002.
13.1 Certification of the Chief Executive Officer pursuant
to 18 U.S.C. Section 1350.
13.2 Certification of the Chief Financial Officer pursuant
to 18 U.S.C. Section 1350.
83
SIGNATURE
The registrant hereby certifies that it meets all of the
requirements for filing on
Form 20-F/A and
that it has duly caused and authorized the undersigned to sign
this amendment to its 2005 annual report, as amended by
Amendment No. 1 thereto, on its behalf.
|
|
|
|
By: |
/s/ Jean-Pascal Beaufret
|
|
|
|
Name: Jean-Pascal Beaufret |
|
Title: Chief Financial Officer |
August 7, 2006
84
ALCATEL AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Alcatel:
We have audited the accompanying consolidated balance sheets of
Alcatel and subsidiaries (the Group) as of
December 31, 2005 and 2004, and the related consolidated
statements of income, changes in equity, and cash flows for each
of the two years in the period ended December 31, 2005 (all
expressed in euros). These consolidated financial statements are
the responsibility of the Groups management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Group is not
required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits
included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances but not for the purpose of
expressing an opinion on the effectiveness of the Groups
internal control over financial reporting. Accordingly, we
express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Alcatel and its subsidiaries as of December 31, 2005 and
2004, and the results of their operations and their cash flows
for each of the two years in the period ended December 31,
2005, in conformity with International Financial Reporting
Standards (IFRS) as adopted by the European Union.
IFRS as adopted by the European Union vary in certain
significant respects from accounting principles generally
accepted in the United States of America. The application of the
latter would have affected the determination of net income for
each of the two years in the period ended December 31, 2005
and the determination of equity and financial position at
December 31, 2005 and 2004, to the extent summarized in
Notes 39 to 42.
Deloitte &
Associés
Neuilly-sur-Seine, France
March 30, 2006
F-1
ALCATEL AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note | |
|
2005(a) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(in millions except per share | |
|
|
|
|
information) | |
Revenues
|
|
|
(4) & (5) |
|
|
$ |
15,554 |
|
|
|
13,135 |
|
|
|
12,244 |
|
Cost of sales
|
|
|
|
|
|
|
(10,069 |
) |
|
|
(8,503 |
) |
|
|
(7,631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
5,485 |
|
|
|
4,632 |
|
|
|
4,613 |
|
Administrative and selling expenses
|
|
|
|
|
|
|
(2,368 |
) |
|
|
(2,000 |
) |
|
|
(1,944 |
) |
|
Research and development expenses before capitalization of
development expenses
|
|
|
|
|
|
|
(1,828 |
) |
|
|
(1,544 |
) |
|
|
(1,620 |
) |
|
Impact of capitalization of development expenses
|
|
|
|
|
|
|
120 |
|
|
|
101 |
|
|
|
130 |
|
R&D costs
|
|
|
(6) |
|
|
|
(1,709 |
) |
|
|
(1,443 |
) |
|
|
(1,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
(4) |
|
|
|
1,408 |
|
|
|
1,189 |
|
|
|
1,179 |
|
Share-based payments (stock option plans)
|
|
|
(23) |
|
|
|
(82 |
) |
|
|
(69 |
) |
|
|
(60 |
) |
Restructuring costs
|
|
|
(27) |
|
|
|
(130 |
) |
|
|
(110 |
) |
|
|
(324 |
) |
Impairment of capitalized development costs
|
|
|
(7) |
|
|
|
|
|
|
|
|
|
|
|
(88 |
) |
Gain/(loss) on disposal of consolidated entities
|
|
|
|
|
|
|
153 |
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities
|
|
|
|
|
|
|
1,349 |
|
|
|
1,139 |
|
|
|
707 |
|
|
Financial interest on gross financial debt
|
|
|
|
|
|
|
(258 |
) |
|
|
(218 |
) |
|
|
(226 |
) |
|
Financial interest on cash and cash equivalents
|
|
|
|
|
|
|
144 |
|
|
|
122 |
|
|
|
105 |
|
Finance costs
|
|
|
(8) |
|
|
|
(114 |
) |
|
|
(96 |
) |
|
|
(121 |
) |
Other financial income (loss)
|
|
|
(8) |
|
|
|
54 |
|
|
|
46 |
|
|
|
14 |
|
Share in net income (losses) of equity affiliates
|
|
|
(16) |
|
|
|
(17 |
) |
|
|
(14 |
) |
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before tax and discontinued operations
|
|
|
|
|
|
|
1,273 |
|
|
|
1,075 |
|
|
|
539 |
|
Income tax expense
|
|
|
(9) |
|
|
|
(108 |
) |
|
|
(91 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
1,165 |
|
|
|
984 |
|
|
|
503 |
|
Income (loss) from discontinued operations
|
|
|
(10) |
|
|
|
(15 |
) |
|
|
(13 |
) |
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
|
|
|
$ |
1,150 |
|
|
|
971 |
|
|
|
645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
|
|
|
|
1,101 |
|
|
|
930 |
|
|
|
576 |
|
Minority interests
|
|
|
|
|
|
|
49 |
|
|
|
41 |
|
|
|
69 |
|
Net income (loss) attributable to the equity holders of the
parent per share (in euros)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
(11) |
|
|
|
0.81 |
|
|
|
0.68 |
|
|
|
0.43 |
|
Diluted earnings per share
|
|
|
(11) |
|
|
|
0.81 |
|
|
|
0.68 |
|
|
|
0.42 |
|
Net income (loss) (before discontinued operations)
attributable to the equity holders of the parent per share (in
euros)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
0.82 |
|
|
|
0.69 |
|
|
|
0.32 |
|
Diluted earnings per share
|
|
|
|
|
|
|
0.82 |
|
|
|
0.69 |
|
|
|
0.31 |
|
Net income (loss) of discontinued operations per share (in
euros)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
0.11 |
|
Diluted earnings per share
|
|
|
|
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
0.11 |
|
|
|
(a) |
Translation of amounts from
into
U.S. $ has been made merely for the convenience of the
reader at the Noon Buying Rate
of 1 = U.S. $1.1842
on December 31, 2005. |
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-2
ALCATEL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note | |
|
2005(a) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Goodwill, net
|
|
|
(12) |
|
|
$ |
4,467 |
|
|
|
3,772 |
|
|
|
3,774 |
|
Intangible assets, net
|
|
|
(13) |
|
|
|
970 |
|
|
|
819 |
|
|
|
705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets, net
|
|
|
|
|
|
|
5,437 |
|
|
|
4,591 |
|
|
|
4,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(14) |
|
|
|
5,396 |
|
|
|
4,557 |
|
|
|
4,674 |
|
Depreciation
|
|
|
(14) |
|
|
|
(4,081 |
) |
|
|
(3,446 |
) |
|
|
(3,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
1,316 |
|
|
|
1,111 |
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share in net assets of equity affiliates
|
|
|
(16) |
|
|
|
718 |
|
|
|
606 |
|
|
|
604 |
|
Other non-current financial assets, net
|
|
|
(17) |
|
|
|
362 |
|
|
|
306 |
|
|
|
554 |
|
Deferred tax assets
|
|
|
(9) |
|
|
|
2,094 |
|
|
|
1,768 |
|
|
|
1,638 |
|
Prepaid pension costs
|
|
|
(25) |
|
|
|
348 |
|
|
|
294 |
|
|
|
287 |
|
Other non-current assets
|
|
|
(21) |
|
|
|
554 |
|
|
|
468 |
|
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT ASSETS
|
|
|
|
|
|
|
10,828 |
|
|
|
9,144 |
|
|
|
8,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories and work in progress, net
|
|
|
(18) & (19) |
|
|
|
1,703 |
|
|
|
1,438 |
|
|
|
1,273 |
|
Amounts due from customers on construction contracts
|
|
|
(18) |
|
|
|
1,086 |
|
|
|
917 |
|
|
|
729 |
|
Trade receivables and related accounts, net
|
|
|
(18) & (20) |
|
|
|
4,050 |
|
|
|
3,420 |
|
|
|
2,693 |
|
Advances and progress payments
|
|
|
(18) |
|
|
|
147 |
|
|
|
124 |
|
|
|
90 |
|
Other current assets
|
|
|
(21) |
|
|
|
979 |
|
|
|
827 |
|
|
|
1,418 |
|
Assets held for sale
|
|
|
(10) |
|
|
|
59 |
|
|
|
50 |
|
|
|
196 |
|
Current income taxes
|
|
|
|
|
|
|
53 |
|
|
|
45 |
|
|
|
78 |
|
Marketable securities, net
|
|
|
(17) & (26) |
|
|
|
758 |
|
|
|
640 |
|
|
|
552 |
|
Cash and cash equivalents
|
|
|
(26) |
|
|
|
5,341 |
|
|
|
4,510 |
|
|
|
4,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
|
|
|
|
14,176 |
|
|
|
11,971 |
|
|
|
11,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
$ |
25,004 |
|
|
|
21,115 |
|
|
|
20,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Translation of amounts from
into
U.S. $ has been made merely for the convenience of the
reader at the Noon Buying Rate
of 1 = U.S. $1.1842
on December 31, 2005. |
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-3
ALCATEL AND SUBSIDIARIES
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note | |
|
2005(a) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Capital stock (2
nominal value: 1,428,541,640 ordinary shares issued at
December 31, 2005 and 1,305,455,461 ordinary shares issued
and 120,780,519 shares to be issued related to Orane at
December 31, 2004)
|
|
|
(23) |
|
|
$ |
3,383 |
|
|
|
2,857 |
|
|
|
2,852 |
|
Additional paid-in capital
|
|
|
|
|
|
|
9,838 |
|
|
|
8,308 |
|
|
|
8,226 |
|
Less treasury stock at cost
|
|
|
|
|
|
|
(1,865 |
) |
|
|
(1,575 |
) |
|
|
(1,607 |
) |
Retained earnings, fair value and other reserves
|
|
|
|
|
|
|
(5,282 |
) |
|
|
(4,460 |
) |
|
|
(4,944 |
) |
Cumulative translation adjustments
|
|
|
|
|
|
|
206 |
|
|
|
174 |
|
|
|
(183 |
) |
Net income (loss) attributable to the equity holders
of the parent
|
|
|
(11) & (22) |
|
|
|
1,101 |
|
|
|
930 |
|
|
|
576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity attributable to the
equity holders of the parent
|
|
|
(23) |
|
|
|
7,382 |
|
|
|
6,234 |
|
|
|
4,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
(23) |
|
|
|
565 |
|
|
|
477 |
|
|
|
373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
(23) & (24) |
|
|
|
7,947 |
|
|
|
6,711 |
|
|
|
5,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions, retirement indemnities and other post-retirement
benefits
|
|
|
(25) |
|
|
|
1,730 |
|
|
|
1,461 |
|
|
|
1,459 |
|
Bonds and notes issued, long-term
|
|
|
(26) |
|
|
|
2,834 |
|
|
|
2,393 |
|
|
|
3,089 |
|
Other long-term debt
|
|
|
(26) |
|
|
|
425 |
|
|
|
359 |
|
|
|
402 |
|
Deferred tax liabilities
|
|
|
(9) |
|
|
|
192 |
|
|
|
162 |
|
|
|
132 |
|
Other non-current liabilities
|
|
|
(21) |
|
|
|
349 |
|
|
|
295 |
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
5,530 |
|
|
|
4,670 |
|
|
|
5,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions
|
|
|
(27) |
|
|
|
1,920 |
|
|
|
1,621 |
|
|
|
2,049 |
|
Current portion of long-term debt
|
|
|
(26) |
|
|
|
1,239 |
|
|
|
1,046 |
|
|
|
1,115 |
|
Customers deposits and advances
|
|
|
(18) & (29) |
|
|
|
1,355 |
|
|
|
1,144 |
|
|
|
973 |
|
Amounts due to customers on construction contracts
|
|
|
(18) |
|
|
|
163 |
|
|
|
138 |
|
|
|
133 |
|
Trade payables and related accounts
|
|
|
(18) |
|
|
|
4,447 |
|
|
|
3,755 |
|
|
|
3,350 |
|
Liabilities related to disposal groups held for sale
|
|
|
(10) |
|
|
|
|
|
|
|
|
|
|
|
97 |
|
Current income tax liabilities
|
|
|
|
|
|
|
117 |
|
|
|
99 |
|
|
|
179 |
|
Other current liabilities
|
|
|
(21) |
|
|
|
2,287 |
|
|
|
1,931 |
|
|
|
2,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
|
|
|
|
11,527 |
|
|
|
9,734 |
|
|
|
10,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
$ |
25,004 |
|
|
|
21,115 |
|
|
|
20,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Translation of amounts from
into
U.S. $ has been made merely for the convenience of the
reader at the Noon Buying Rate
of 1 = U.S. $1.1842
on December 31, 2005. |
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-4
ALCATEL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005(a) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(millions) | |
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the equity holders
of the parent
|
|
$ |
1,101 |
|
|
|
930 |
|
|
|
576 |
|
Minority interests
|
|
|
49 |
|
|
|
41 |
|
|
|
69 |
|
Adjustments
|
|
|
15 |
|
|
|
13 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities before
changes in working capital, interest and taxes
|
|
|
1,165 |
|
|
|
984 |
|
|
|
650 |
|
|
|
|
|
|
|
|
|
|
|
Net change in current assets and liabilities (excluding
financing):
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in inventories and work in
progress
|
|
|
(8 |
) |
|
|
(7 |
) |
|
|
(154 |
) |
Decrease (increase) in trade receivables and related
accounts
|
|
|
(589 |
) |
|
|
(497 |
) |
|
|
(231 |
) |
Decrease (increase) in advances and progress payments
|
|
|
(37 |
) |
|
|
(31 |
) |
|
|
8 |
|
Increase (decrease) in trade payables and related
accounts
|
|
|
213 |
|
|
|
180 |
|
|
|
90 |
|
Increase (decrease) in customers deposits and
advances
|
|
|
186 |
|
|
|
157 |
|
|
|
(127 |
) |
Other current assets and liabilities (excluding
financing)
|
|
|
122 |
|
|
|
103 |
|
|
|
(139 |
) |
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by operating activities before
interest and taxes
|
|
|
1,053 |
|
|
|
889 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
Interest received
|
|
|
137 |
|
|
|
116 |
|
|
|
113 |
|
Interest paid
|
|
|
(169 |
) |
|
|
(143 |
) |
|
|
(175 |
) |
Taxes (paid)/received
|
|
|
(15 |
) |
|
|
(13 |
) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
1,005 |
|
|
|
849 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of tangible and intangible assets
|
|
|
195 |
|
|
|
165 |
|
|
|
217 |
|
Capital expenditures
|
|
|
(756 |
) |
|
|
(638 |
) |
|
|
(579 |
) |
|
Of which impact of capitalization of development costs
|
|
|
(413 |
) |
|
|
(349 |
) |
|
|
(326 |
) |
Decrease (increase) in loans and other non-current financial
assets
|
|
|
128 |
|
|
|
108 |
|
|
|
569 |
|
Cash expenditures for acquisition of consolidated and
non-consolidated companies
|
|
|
(81 |
) |
|
|
(68 |
) |
|
|
(120 |
) |
Cash proceeds from sale of previously consolidated and
non-consolidated companies
|
|
|
334 |
|
|
|
282 |
|
|
|
64 |
|
(Increase) in marketable securities
|
|
|
(36 |
) |
|
|
(30 |
) |
|
|
(265 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
(214 |
) |
|
|
(181 |
) |
|
|
(114 |
) |
|
|
|
|
|
|
|
|
|
|
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005(a) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(millions) | |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance/(repayment) of short-term debt
|
|
|
(88 |
) |
|
|
(74 |
) |
|
|
(733 |
) |
Issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
462 |
|
Repayment/repurchase of long-term debt
|
|
|
(953 |
) |
|
|
(805 |
) |
|
|
(983 |
) |
Proceeds from issuance of shares
|
|
|
15 |
|
|
|
13 |
|
|
|
12 |
|
Proceeds from disposal/(acquisition) of treasury stock
|
|
|
6 |
|
|
|
5 |
|
|
|
|
|
Dividends paid
|
|
|
(31 |
) |
|
|
(26 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
(1,050 |
) |
|
|
(887 |
) |
|
|
(1,251 |
) |
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by operating activities of
discontinued operations
|
|
|
(22 |
) |
|
|
(19 |
) |
|
|
(247 |
) |
Cash provided (used) by investing activities of
discontinued operations
|
|
|
17 |
|
|
|
14 |
|
|
|
210 |
|
Cash provided (used) by financing activities of
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
Net effect of exchange rate changes
|
|
|
146 |
|
|
|
123 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(120 |
) |
|
|
(101 |
) |
|
|
(1,424 |
) |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period/ year
|
|
|
5,460 |
|
|
|
4,611 |
|
|
|
6,035 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period/ year
|
|
$ |
5,341 |
|
|
|
4,510 |
* |
|
|
4,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
This amount
includes 337 million
of cash and cash equivalents held in countries subject to
exchange control restrictions. Such restrictions can limit the
use of such cash and cash equivalents by other group
subsidiaries. |
|
|
(a) |
Translation of amounts from
into
U.S. $ has been made merely for the convenience of the
reader at the Noon Buying Rate
of 1 =
U.S. $1.1842 on December 31, 2005. |
|
(b) |
The consolidated statements of cash flows are presented so as to
isolate cash flows relating to disposed of or discontinued
operations (see note 10). |
|
(c) |
The corporate tax paid for 2004 amounted
to 40 million
(14 million
for 2003
and 30 million
for 2002) and the gross financial charges amounted
to 179 million
(294 million
for 2003
and 674 million
for 2002). |
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-6
ALCATEL AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable | |
|
|
|
|
|
|
|
|
|
|
|
|
Additional | |
|
|
|
Changes in fair | |
|
|
|
Cumulative | |
|
Net | |
|
to the equity | |
|
|
|
|
|
|
|
|
Number of | |
|
Capital | |
|
paid-in | |
|
Retained | |
|
value and | |
|
Treasury | |
|
translation | |
|
income | |
|
holders of | |
|
Minority | |
|
|
|
|
Note |
|
shares | |
|
stock | |
|
capital | |
|
earnings | |
|
other reserves | |
|
stock | |
|
adjustments | |
|
(loss) | |
|
the parent | |
|
interests | |
|
TOTAL | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros except for number of shares outstanding) | |
Balance at January 1, 2004
|
|
|
|
|
1,342,622,184 |
|
|
|
2,810 |
|
|
|
7,966 |
|
|
|
(4,951 |
) |
|
|
50 |
|
|
|
(1,730 |
) |
|
|
|
|
|
|
|
|
|
|
4,145 |
|
|
|
388 |
|
|
|
4,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
32 |
|
Cumulative translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(183 |
) |
|
|
|
|
|
|
(183 |
) |
|
|
(34 |
) |
|
|
(217 |
) |
Cash flow hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) changes directly recognized in
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
(183 |
) |
|
|
|
|
|
|
(151 |
) |
|
|
(34 |
) |
|
|
(185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
576 |
|
|
|
576 |
|
|
|
69 |
|
|
|
645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of accounted expenses and revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
(183 |
) |
|
|
576 |
|
|
|
425 |
|
|
|
35 |
|
|
|
460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Spatial Wireless
|
|
|
|
|
17,783,297 |
|
|
|
36 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
212 |
|
Other capital increases
|
|
|
|
|
3,258,280 |
|
|
|
6 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
26 |
|
Deferred share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
60 |
|
Net change in treasury stock of shares owned by consolidated
subsidiaries
|
|
|
|
|
2,310,066 |
|
|
|
|
|
|
|
|
|
|
|
(88 |
) |
|
|
|
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
35 |
|
Other adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
(50 |
) |
|
|
(33 |
) |
Appropriation of net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 after appropriation
|
|
|
|
|
|
|
|
|
2,852 |
|
|
|
8,226 |
|
|
|
(4,450 |
) |
|
|
82 |
|
|
|
(1,607 |
) |
|
|
(183 |
) |
|
|
|
|
|
|
4,920 |
|
|
|
373 |
|
|
|
5,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69 |
) |
|
|
|
|
|
|
(69 |
) |
Cumulative translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
357 |
|
|
|
|
|
|
|
357 |
|
|
|
72 |
|
|
|
429 |
|
Cash flow hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Other adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) changes directly recognized in
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
(67 |
) |
|
|
|
|
|
|
357 |
|
|
|
|
|
|
|
308 |
|
|
|
72 |
|
|
|
380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
930 |
|
|
|
930 |
|
|
|
41 |
|
|
|
971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of accounted expenses and revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
(67 |
) |
|
|
|
|
|
|
357 |
|
|
|
930 |
|
|
|
1,238 |
|
|
|
113 |
|
|
|
1,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other capital increases
|
|
|
|
|
2,305,660 |
|
|
|
5 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
18 |
|
Deferred share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
69 |
|
Net change in treasury stock of shares owned by consolidated
subsidiaries
|
|
|
|
|
1,341,444 |
|
|
|
|
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
Other adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(9 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 before appropriation
|
|
|
|
|
1,369,620,931 |
|
|
|
2,857 |
|
|
|
8,308 |
|
|
|
(4,475 |
) |
|
|
15 |
|
|
|
(1,575 |
) |
|
|
174 |
|
|
|
930 |
|
|
|
6,234 |
|
|
|
477 |
|
|
|
6,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposed appropriation of net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(930 |
) |
|
|
(229 |
) |
|
|
|
|
|
|
(229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 after appropriation
|
|
|
|
|
|
|
|
|
2,857 |
|
|
|
8,308 |
|
|
|
(3,774 |
) |
|
|
15 |
|
|
|
(1,575 |
) |
|
|
174 |
|
|
|
|
|
|
|
6,005 |
|
|
|
477 |
|
|
|
6,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-7
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alcatel is a French public limited liability company that is
subject to the French Commercial Code and to all the legal
requirements governing commercial companies in France. Alcatel
was incorporated on June 18, 1898 and will be dissolved on
June 30, 2086, except if dissolved earlier or except if its
life is prolonged. Alcatels headquarters are situated at
54, rue la Boétie, 75008 Paris, France. Alcatel is listed
principally on the Paris and New York stock exchanges.
The consolidated financial statements reflect the results and
financial position of Alcatel and its subsidiaries (the
Group) as well as its investments in associates
(equity affiliates) and joint ventures. They are
presented in Euros rounded to the nearest million.
The Group develops and integrates technologies, applications and
services to offer innovative global communications solutions.
On February 1, 2006, the Board of Directors authorized for
issue the consolidated financial statements at December 31,
2005. The consolidated financial statements will only be final
once approved by the Annual Shareholders Meeting.
Note 1 Summary of accounting policies
Due to the listing of Alcatels securities on the Euronext
Paris and in accordance with the European Unions
regulation No. 1606/2002 of July 19, 2002, the 2005
consolidated financial statements of the Group are prepared in
accordance with IFRSs (International Financial Reporting
Standards), as adopted by the European Union. IFRSs as adopted
by the EU differ in certain respects from IFRSs as issued by the
International Accounting Standards Board (IASB).
However the Group accounts for the years presented would be no
different had the Group applied IFRSs as issued by the IASB.
References to IFRS hereafter should be construed as
reference to IFRSs as adopted by the EU. They include the
standards approved by the International Accounting Standards
Board (IASB), that is, IFRSs, International
Accounting Standards (IASs) and the accounting
interpretations issued by the International Financial Reporting
Interpretations Committee (IFRIC) or the former
Standing Interpretations Committee (SIC).
Between 1999 and 2004, the consolidated financial statements of
the Group were prepared in accordance with French generally
accepted accounting principles (French GAAP) in
compliance with the Principles and accounting methodology
relative to consolidated financial statements regulation
No. 99-02 of the Comité de la
Réglementation Comptable approved by the decree dated
June 22, 1999.
As a first-time adopter, Alcatel has followed IFRS 1 regulations
governing the first-time adoption of IFRSs by companies. At the
transition date (January 1, 2004), the following options
were selected:
|
|
|
|
|
business combinations that were completed before the transition
date have not been restated, |
|
|
|
the accumulated total of translation adjustments at the
transition date has been deemed to be zero, |
|
|
|
the accumulated unrecognized actuarial gains and losses at the
transition date relating to pension and retirement obligations
and other employee and post-employment benefit obligations have
been recorded in shareholders equity, |
|
|
|
property, plant and equipment has not been revalued, |
|
|
|
only stock options issued after November 7, 2002 and not
fully vested at January 1, 2005 are accounted for in
accordance with IFRS 2, |
|
|
|
all the Groups subsidiaries, equity affiliates and joint
ventures adopted IFRSs at the same date as the parent company, |
F-8
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
all the requirements of IAS 32 Financial Instruments:
Disclosure and Presentation, IAS 39 Financial
Instruments: Recognition and Measurement and IFRS 5
Non-current Assets Held for Sale and Discontinued
Operations have been applied since January 1, 2004, |
|
|
|
early application, as from January 1, 2004, of
interpretations IFRIC 4 Determining whether an Arrangement
contains a Lease and IFRIC 6 Liabilities arising
from Participating in a Specific Market Waste
Electrical and Electronic Equipment. |
Reconciliation schedules of the 2004 consolidated net income,
consolidated statement of cash flows and consolidated
shareholders equity at both January 1, 2004 and
December 31, 2004 between IFRSs and those prepared
previously in accordance with French GAAP are presented in
note 38. Accounting standards or amendments to accounting
standards existing at December 31, 2005, whose effective
date is on or after January 1, 2006, have not been applied.
All standards and interpretations applied by Alcatel in these
consolidated financial statements are in compliance with both
the European directives and the IFRSs adopted by the European
Union.
As IFRSs evolved during 2005 and as certain restatements of the
2004 financial statements to IFRSs were only completed at the
end of 2005, the audited opening balance sheet at
January 1, 2004, from which the 2005 consolidated financial
statements have been prepared, the quarterly, half-yearly and
annual 2004 IFRS results and the balance sheet at
December 31, 2004, presented hereafter, have been changed
during 2005. The definitive figures relating to the 2004
quarters are given in note 37.
The nature of the changes made to the previously published
figures for 2004 are described in the introduction to the
reconciliation schedules between French GAAP and IFRSs
(note 38). The changes made, both individually and in
total, have only a marginal impact on the figures previously
published.
The consolidated financial statements have been prepared under
the historical cost convention, with the exception of certain
categories of assets and liabilities, in accordance with IFRSs.
The categories concerned are detailed in the following notes.
|
|
(b) |
Consolidation methods |
Companies over which the Group has control are fully
consolidated.
Companies over which the Group has joint control are accounted
for using proportionate consolidation.
Companies over which the Group has a significant influence
(investments in associates or equity affiliates) are
accounted for under the equity method. Significant influence is
assumed when the Groups interest in the voting rights is
greater than or equal to 20%.
All significant intra-group transactions are eliminated.
|
|
(c) |
Business combinations |
Regulations governing first-time adoption:
Business combinations that were completed before January 1,
2004, the transition date to IFRSs, have not been restated, as
permitted by the optional exemption included in IFRS 1. Goodwill
has therefore not been accounted for business combinations
occurring prior to January 1, 2004, which were previously
accounted for in accordance with article 215 of
Regulation N° 99-02 of the Comité de la
Réglementation Comptable. According to this
regulation, the assets and liabilities of the acquired company
are maintained at their carrying value at the date of the
acquisition, adjusted for the Groups accounting policies,
and the difference between this value and the acquisition cost
of the shares is adjusted directly against shareholders
equity.
F-9
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Business combinations after January 1, 2004:
These business combinations are accounted for in accordance with
the purchase method. Once control is obtained over a company,
its assets, liabilities and contingent liabilities are measured
at their fair value at the acquisition date in accordance with
IFRS requirements. Any difference between the fair value and the
carrying value is accounted for in the respective underlying
asset or liability, including both the Group interest and
minority interests. Any excess between the purchase price and
the Groups share in the fair value of such net assets is
recognized as goodwill (see intangible and tangible assets).
The accounting treatment of stock options of companies acquired
in the context of a business combination is described in
note 1w below.
|
|
(d) |
Translation of financial statements denominated in foreign
currencies |
The balance sheets of consolidated subsidiaries having a
functional currency different from the euro are translated into
euros at the closing exchange rate (spot exchange rate at the
balance sheet date), and their income statements and cash flow
statements are translated at the average exchange rate. The
resulting translation adjustments are included in
shareholders equity under the caption Cumulative
translation adjustments.
Goodwill and fair value adjustments arising from the acquisition
of a foreign entity are considered as assets and liabilities of
that entity. They are therefore listed in the entitys
functional currency and translated using the closing exchange
rate.
Regulations governing first-time adoption: In
accordance with the option available under IFRS 1, the
accumulated total of translation adjustments at the transition
date has been deemed to be zero. This amount has been reversed
against consolidated reserves, leaving the amount of
shareholders equity unchanged. Translation adjustments
that predate the IFRS transition will therefore not be included
when calculating gains or losses arising from the future
disposal of consolidated subsidiaries or equity affiliates.
|
|
(e) |
Translation of foreign currency transactions |
Foreign currency transactions are translated at the rate of
exchange applicable on the transaction date. At period-end,
foreign currency monetary assets and liabilities are translated
at the rate of exchange prevailing on that date. The resulting
exchange gains or losses are recorded in the income statement in
other financial income (loss).
Exchange gains or losses on foreign currency financial
instruments that represent an economic hedge of a net investment
in a foreign subsidiary are reported as translation adjustments
in shareholders equity under the caption Cumulative
translation adjustments until the disposal of the
investment. Refer to Note 1d above for information on the
recognition of translation adjustments at the transition date.
In order for a currency derivative to be eligible for hedge
accounting treatment (cash flow hedge or fair value hedge), its
hedging role must be defined and documented and it must be seen
to be effective for the entirety of its period of use. Fair
value hedges allow companies to protect themselves against
exposure to changes in fair value of their assets, liabilities
or firm commitments. Cash flow hedges allow companies to protect
themselves against exposure to changes in future cash flows (for
example, revenues generated by the companys assets).
The value used for derivatives is their fair value. Changes in
the fair value of derivatives are accounted for as follows:
|
|
|
|
|
For derivatives treated as cash flow hedges, changes in their
fair value are accounted for in shareholders equity and
then reclassified to income (cost of sales) when the hedged
revenue is accounted for. The ineffective portion is recorded in
other financial income (loss). |
F-10
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
For derivatives treated as fair value hedges, changes in their
fair value are recorded in the income statement where they
offset the changes in fair value of the hedged assets,
liabilities and firm commitments. |
In addition to derivatives used to hedge firm commitments
documented as fair value hedges, from April 1, 2005
onwards, the Group has designated and documented highly probable
future streams of revenue with respect to which the Group has
entered into hedge transactions. The corresponding derivatives
are accounted for in accordance with the requirements governing
cash flow hedge accounting.
Derivatives related to commercial bids are not considered
eligible for hedge accounting treatment and are accounted for as
trading financial instruments. Changes in fair values of such
instruments are included in the income statement in cost of
sales (in the business segment other).
Once a commercial contract is effective, the corresponding firm
commitment is hedged with a derivative treated as a fair value
hedge. Revenues made pursuant to such a contract are then
accounted for, throughout the duration of the contract, using
the spot rate prevailing on the date on which the contract was
effective, insofar as the exchange rate hedging is effective.
|
|
(f) |
Research and development expenses |
In accordance with IAS 38 Intangible Assets,
research and development expenses are recorded as expenses in
the year in which they are incurred, except for:
|
|
|
|
|
development costs, which are capitalized as an intangible
asset when they strictly comply with the following criteria: |
|
|
|
|
|
the project is clearly defined, and the costs are separately
identified and reliably measured; |
|
|
|
the technical feasibility of the project is demonstrated; |
|
|
|
the intention exists to finish the project and use or sell the
products created during the project; |
|
|
|
a potential market for the products created during the project
exists or their usefulness, in case of internal use, is
demonstrated; and |
|
|
|
adequate resources are available to complete the project. |
These development costs are amortized over the estimated useful
life of the projects concerned.
Specifically for software, useful life is determined as follows:
|
|
|
|
|
in case of internal use: over its probable service lifetime, |
|
|
|
in case of external use: according to prospects for sale, rental
or other forms of distribution. |
The amortization of capitalized development costs begins as soon
as the product in question is released.
Capitalized software development costs are those incurred during
the programming, codification and testing phases. Costs incurred
during the design and planning, product definition and product
specification stages are accounted for as expenses.
|
|
|
|
|
customer design engineering costs (recoverable amounts
disbursed under the terms of contracts with customers), are
included in work in progress on construction contracts. |
With regard to business combinations, Alcatel allocates a
portion of the purchase price to in-process research and
development projects that may be significant. As part of the
process of analyzing these business combinations, Alcatel may
make the decision to buy technology that has not yet been
commercialized rather
F-11
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
than develop the technology internally. Decisions of this nature
consider existing opportunities for Alcatel to stay at the
forefront of rapid technological advances in the
telecommunications-data networking industry.
The fair value of in-process research and development acquired
in business combinations is based on present value calculations
of income, an analysis of the projects accomplishments and
an evaluation of the overall contribution of the project, and
the projects risks.
The revenue projection used to value in-process research and
development is based on estimates of relevant market sizes and
growth factors, expected trends in technology, and the nature
and expected timing of new product introductions by Alcatel and
its competitors. Future net cash flows from such projects are
based on managements estimates of such projects cost
of sales, operating expenses and income taxes.
The value assigned to purchased in-process research and
development is also adjusted to reflect the stage of completion,
the complexity of the work completed to date, the difficulty of
completing the remaining development, costs already incurred,
and the projected cost to complete the projects.
Such value is determined by discounting the net cash flows to
their present value. The selection of the discount rate is based
on Alcatels weighted average cost of capital, adjusted
upward to reflect additional risks inherent in the development
life cycle.
Capitalized development costs considered as assets (either
generated internally and capitalized or reflected in the
purchase price of a business combination) are generally
amortized over 3 to 7 years. Impairment tests are carried
out, using the methods described in the following paragraph.
|
|
(g) |
Goodwill, intangible assets and property, plant and
equipment |
In accordance with IAS 16 Property, Plant and
Equipment and with IAS 38 Intangible Assets,
only items whose cost can be reliably measured and for which
future economic benefits are likely to flow to the Group are
recognized as assets.
In accordance with IAS 36 Impairment of Assets,
whenever events or changes in market conditions indicate a risk
of impairment of intangible assets and property, plant and
equipment, a detailed review is carried out in order to
determine whether the net carrying amount of such assets remains
lower than their recoverable amount, which is defined as the
greater of fair value (less costs to sell) and value in use.
Value in use is measured by discounting the expected future cash
flows from continuing use of the asset and its ultimate disposal.
In the event that the recoverable value is lower than the net
carrying value, the difference between the two amounts is
recorded as an impairment loss. Impairment losses for property,
plant and equipment or intangible assets with finite useful
lives can be reversed if the recoverable value becomes higher
than the net carrying value (but not exceeding the loss
initially recorded).
Goodwill
Since transition to IFRSs, goodwill is no longer amortized in
accordance with IFRS 3 Business Combinations. Before
January 1, 2004, goodwill was amortized using the
straight-line method over a period, determined on a case-by-case
basis, not exceeding 20 years.
Each goodwill item is tested for impairment at least annually
during the second quarter of the year. The impairment test
methodology is based on a comparison between the recoverable
amounts of each of the Groups business divisions with the
business divisions net asset carrying value (including
goodwill). Such recoverable amounts are mainly determined using
discounted cash flows over five years and a discounted residual
value. The discount rate used was the Groups weighted
average cost of capital of 10.8% for 2004 and 9.5% for 2005.
These discount rates are after-tax rates applied to after-tax
cash flows. The use of such
F-12
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
rates results in recoverable values that are identical to those
that would be obtained by using, as required by IAS 36,
before-tax rates applied to before-tax cash flows. A single
discount rate has been used on the basis that risks specific to
certain products or markets have been reflected in determining
the cash flows. Management believes the assumptions used
concerning sales growth and residual values are reasonable and
in line with market data available for each business division.
Further impairment tests are carried out if events occur
indicating a potential impairment. Goodwill impairment losses
cannot be reversed.
Equity affiliate goodwill is included with the related
investment in share in net assets of equity
affiliates. The requirements of IAS 39 are applied to
determine whether any impairment loss must be recognized with
respect to the net investment in equity affiliates. The
impairment loss is calculated according to IAS 36 requirements.
Intangible assets
Intangible assets mainly include capitalized development costs
and those assets acquired in business combinations, primarily
software-related costs. Intangible assets are generally
amortized on a straight-line basis over a 3 to 7 year
period. However, software amortization methods can be adjusted
to take into account how the product is marketed. Amortization
and impairment losses are accounted for in the income statement
under cost of sales, research and development expenses or
administrative and selling expenses, depending on the
designation of the asset. No intangible assets are considered to
have indefinite useful lives. All intangible assets, with the
exception of goodwill, are amortized over their estimated useful
lives.
Property, plant and equipment
Property, plant and equipment are valued at historical cost for
the Group less accumulated depreciation expenses and any
impairment losses. Depreciation expense is generally calculated
over the following useful lives:
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Industrial buildings, plant and equipment
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buildings for industrial use
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20 years |
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infrastructure and fixtures
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10-20 years |
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equipment and tools
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5-10 years |
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small equipment and tools
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3 years |
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Buildings for administrative and commercial use
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20-40 years |
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Depreciation expense is determined using the straight-line
method.
Fixed assets acquired through finance lease arrangements or
long-term rental arrangements that transfer substantially all
the risks and rewards associated with ownership of the asset to
the Group (tenant) are capitalized.
Residual value, if considered to be significant, is included
when calculating the depreciable amount. Property, plant and
equipment are segregated into their separate components if there
is a significant difference in their expected useful lives, and
depreciated accordingly.
Depreciation and impairment losses are accounted for in the
income statement under cost of sales, research and development
costs or administrative and selling expenses, depending on the
nature of the asset.
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(h) |
Non-consolidated investments and other non-current financial
assets |
In accordance with IAS 39 Financial Instruments:
Recognition and Measurement, investments in
non-consolidated companies are classified as available-for-sale
and therefore measured at their fair value. The fair value for
listed securities is their market price. If a reliable fair
value cannot be established, securities are
F-13
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
valued at cost. Fair value changes are accounted for directly in
shareholders equity. When objective evidence of impairment
of a financial asset exists (for instance, a significant or
prolonged decline in the value of an asset), an irreversible
impairment loss is recorded. This loss can only be released upon
the sale of the securities concerned.
Loans are measured at amortized cost. Loans may suffer
impairment losses if there is objective evidence of a loss in
value. The impairment represented by the difference between net
carrying amount and recoverable value is recognized in the
income statement and can be reversed if recoverable value rises
in the future.
The portfolio of non-consolidated securities and other financial
assets is examined at each quarter-end to detect any objective
evidence of impairment. When this is the case, an impairment
loss is recorded. Impairment losses on securities accounted for
at quarter-ends are considered definitive and are not reversed
before disposal of the securities.
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(i) |
Inventories and work in progress |
Inventories and work in progress are valued at the lower of cost
(including indirect production costs where applicable) or net
realizable value. Cost is primarily calculated on a weighted
average price basis.
Net realizable value is the estimated sales revenue for a normal
period of activity less expected selling costs.
Treasury shares owned by Alcatel or its subsidiaries are valued
at their cost price and are deducted from shareholders
equity. Proceeds from the sale of such shares are included
directly in shareholders equity and have no impact on the
income statement.
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(k) |
Pension and retirement obligations and other employee and
post-employment benefit obligations |
Post-employment benefits:
In accordance with the laws and practices of each country, the
Group participates in employee benefit plans.
For defined contribution plans, the Group expenses contributions
as and when they are due. As the Group is not liable for any
legal or constructive obligations under the plans beyond the
contributions paid, no provision is made. Provisions for defined
benefit plans and other long-term employee benefits are
determined as follows:
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using the Projected Unit Credit Method (with projected final
salary), each period of service gives rise to an additional unit
of benefit entitlement and each unit is measured separately to
calculate the final obligation. Actuarial assumptions such as
mortality rates, rates of employee turnover and projection of
future salary levels are used to calculate the obligation; |
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using the corridor method, only actuarial gains and
losses in excess of either 10% of the present value of the
defined benefit obligation or 10% of the fair value of any plan
assets, whichever is greater, are recognized over the expected
average remaining working lives of the employees participating
in the plan. |
The expense resulting from the change in net pension and other
post-retirement obligations is recorded in income (loss) from
operating activities or in other financial income (loss)
depending upon the nature of the underlying obligation.
F-14
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Regulations governing first-time adoption: In
accordance with the option available under IFRS 1, the
accumulated unrecognized actuarial gains and losses at the
transition date have been recorded in shareholders equity.
The corridor method has been applied starting January 1,
2004.
Certain other post-employment benefits such as life insurance
and health insurance (particularly in the United States) or
long-service medals (bonuses awarded to employees for long
service particularly in French and German companies), are also
recognized as provisions, which are determined by means of an
actuarial calculation similar to the one used for retirement
provisions.
The accounting treatment used for employee stock options is
detailed in note 1w below.
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(l) |
Provisions for restructuring and restructuring costs |
Provisions for restructuring costs are made when restructuring
programs have been finalized and approved by Group management
and have been announced before the balance sheet date
(December 31) of the Groups financial
statements, resulting in an obligating event of the Group to
third parties. Such costs primarily relate to severance
payments, early retirement, costs for notice periods not worked,
training costs of terminated employees, and other costs linked
to the closure of facilities. Other costs (removal costs,
training costs of transferred employees, etc.) and write-offs of
fixed assets, inventories and work in progress and other assets
and directly linked to restructuring measures, are also
accounted for in restructuring costs.
The amounts reserved for anticipated severance payments made in
the context of restructuring programs are valued at their
present value in cases where the settlement date is beyond the
normal operating cycle of the company and the time value of
money is deemed to be significant. The impact of the passage of
time on the present value of the payments is included in other
financial income (loss).
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(m) |
Financial debt compound financial instruments |
Some financial instruments contain both a liability and an
equity component. This is the case with the bonds issued by the
Group in 2003 (Oceane Obligation Convertible ou
Echangeable en Actions Nouvelles ou Existantes, bonds that
can be converted into or exchanged for new or existing shares)
and in 2002 (Orane Obligation Remboursable en
Actions Nouvelles ou Existantes, notes mandatorily
redeemable for new or existing shares). The different components
of these instruments are accounted for in shareholders
equity and in bonds and notes issued according to their
classification, as defined in IAS 32 Financial
Instruments: Disclosure and Presentation.
The component classified as a financial liability is valued on
the issuance date at present value (taking into account the
credit risk at issuance date) of the future cash flows
(including interest and repayment of the nominal value) of a
bond with the same characteristics (maturity, cash flows) but
without any equity component. The portion included in
shareholders equity results from the difference between
the debt issue amount and the financial liability component.
Deferred taxes are computed in accordance with the liability
method for all temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts,
including the reversal of entries recorded in individual
accounts of subsidiaries solely for tax purposes. All amounts
resulting from changes in tax rates are recorded in
shareholders equity or in net income (loss) for the year
in which the tax rate change is enacted.
Deferred tax assets are recorded in the consolidated balance
sheet when it is more likely than not that the tax benefit will
be realized in the future. Deferred tax assets and liabilities
are not discounted.
F-15
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
To assess the ability of the Group to recover deferred tax
assets, the following factors are taken into account:
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forecasts of future tax results, |
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the impact of non-recurring costs included in income or loss in
recent years that are not expected to be repeated in the future, |
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historical data concerning recent years tax
results, and |
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if required, tax planning strategy, such as the planned disposal
of undervalued assets. |
Revenues include net sales and service revenues from the
Groups principal business activities, net of value added
taxes (VAT), income due from licensing fees and from income
grants, net of VAT.
Revenue is recognized when the company has transferred the
significant risks and rewards of ownership of a product to the
buyer.
Revenue is measured at the fair value of the consideration
received or to be received. Where a deferred payment has a
significant impact on the calculation of fair value, it is
accounted for by discounting future payments. Product rebates or
quantity discounts are deducted from revenues with the exception
of promotional activities giving rise to free products, which
are accounted for in cost of sales and provided for in
accordance with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets, or IAS 11 Construction
Contracts.
In general, the Group recognizes revenue from the sale of goods
and equipment when persuasive evidence of an arrangement with
its customer exists, delivery has occurred, the amount of
revenue can be measured reliably and it is probable that the
economic benefits associated with the transaction will flow to
the Group. For arrangements where the customer specifies formal
acceptance of the goods, equipment, services or software,
revenue is generally deferred until all the acceptance criteria
have been met.
Under IAS 11, construction contracts are defined as
contracts specifically negotiated for the construction of an
asset or a combination of assets that are closely interrelated
or interdependent in terms of their design, technology and
function or their ultimate purpose of use (primarily those
related to customized network solutions and network build-outs
with a duration of more than two quarters). For revenues
generated from construction contracts, the Group applies the
percentage of completion method of accounting in application of
the above principles, provided certain specified conditions are
met, based either on the achievement of contractually defined
milestones or on costs incurred compared with total estimated
costs. Any probable construction contract losses are recognized
immediately in cost of sales. If uncertainty exists regarding
customer acceptance, or the contracts duration is
relatively short, revenues are recognized only to the extent of
costs incurred that are recoverable, or on completion of the
contract. Work in progress on construction contracts is stated
at production cost, excluding administrative and selling
expenses. Under IAS 11, changes in provisions for penalties
for delayed delivery or poor contract execution are reported in
revenues and not in cost of sales.
Advance payments received on construction contracts, before
corresponding work has been carried out, are recorded in
customers deposits and advances. Costs incurred to date
plus recognized profits less the sum of recognized losses (in
the case of provisions for contract losses) and progress
billings, are determined on a contract-by-contract basis. If the
amount is positive, it is included as an asset under
amount due from customers on construction contracts.
If the amount is negative, it is included as a liability under
amount due to customers on construction contracts.
F-16
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For revenues generated from licensing, selling or otherwise
marketing software solutions, the Group recognizes revenue
generally upon delivery of the software and on the related
services as and when they are performed, in application of the
principles described above. For arrangements to sell software
licenses with services, software license revenue is recognized
separately from the related service revenue, providing the
transaction adheres to certain criteria (as prescribed by the
AICPAs
SOP 97-2), such as
the existence of sufficient vendor-specific objective evidence
of fair value to permit allocation of the revenue to the various
elements of the arrangement. If the arrangement does not meet
the specified criteria, revenue is deferred and recognized
ratably over the service period. For arrangements to sell
services only, revenue from training or consulting services is
recognized when the services are performed. Maintenance service
revenue, including post-contract customer support, is deferred
and recognized ratably over the contracted service period.
For product sales made through retailers and distributors,
revenue is recognized upon shipment to the distribution channel,
assuming all other revenue recognition criteria have been met.
Such sales are not contingent on the distributor selling the
product to third parties, as the distribution contracts contain
no right of return.
The Group accrues warranty costs, sales returns and other
allowances based on contract terms and its historical experience.
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(p) |
Income (loss) from operating activities |
We have considered it relevant to the understanding of the
companys financial performance to present on the face of
the income statement a subtotal inside the income (loss) from
operating activities. This subtotal, named Income (loss)
from operating activities before restructuring, share-based
payments, impairment of capitalized development costs and gain
on disposal of consolidated entities, excludes those
elements that have little predictive value due to their nature,
frequency and/or materiality.
Those elements can be divided in two categories:
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Elements that are both very infrequent and material, such as a
major impairment of an asset (as the impairment of capitalized
development costs accounted for in 2004 following our decision
to stop a specific product line), a disposal of investments (as
the capital gain related to the Space business accounted for in
2005) or the settlement of a litigation. |
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Elements that are by nature unpredictable in their amount and
/or in their frequency, if they are material. We consider that
materiality must be assessed not only by comparing the amount
concerned with the income (loss) from operating activities of
the period, but also in terms of changes in the item from one
period to the other. It is for instance the case for our
restructuring charges due to the dramatic changes from one
period to the other. It is also the case for share-based
payments, as their value is determined based, in part, upon the
volatility and the price of the companys shares and as,
for example, in any given year we may make substantially
increased share-based payments in the context of the acquisition
of a business, due to the fact that it is Alcatels
practice to convert outstanding options of the acquired business
into options for Alcatel shares. |
Share-based payments were also isolated in 2005 and 2004 due to
the fact that this type of expense was not yet recognized in
other generally accepted accounting standards used by some of
our main competitors. In view of the relative lack of
materiality of these payments and the evolution of the other
accounting standards towards the same principle as is applied
under IFRS, we will not continue this presentation in the
future, starting with the year 2006: share-based payments will
no longer be isolated, but will be allocated by function.
Income (loss) from operating activities includes gross margin,
administrative and selling expenses and research and development
costs (see note 1f) and, in particular, pension costs
(except for the financial component, see note 1k), employee
profit sharing, fair value changes of derivative instruments
related to
F-17
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
commercial bids and capital gains (losses) from the disposal of
intangible assets and property, plant and equipment, and all
other operating expenses or income regardless of their
predictive value in terms of nature, frequency and/or
materiality.
Income (loss) from operating activities is calculated before
financial income (loss), which includes the financial component
of retirement expenses, financing costs and capital gains
(losses) from disposal of financial assets (shares in a
non-consolidated company or company consolidated under the
equity method and other non-current financial assets, net), and
before income tax, share in net income (losses) of equity
affiliates and income (loss) from discontinued operations.
This item includes interest charges and interest income relating
to net consolidated debt, which consists of bonds, the liability
component of compound financial instruments such as OCEANE,
other long-term debt (including lease-financing liabilities),
and all cash assimilated items (cash, cash equivalents and
marketable securities).
Borrowing costs that are directly attributable to the
acquisition, construction or production of an asset are
capitalized as part of the cost of that asset.
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(r) |
Structure of consolidated balance sheet |
Most of the Groups activities in the various business
segments have long-term operating cycles. As a result, the
consolidated balance sheet combines current assets (inventories
and work in progress and trade receivables and related accounts)
and current liabilities (provisions, customers deposits
and advances, trade payables and related accounts) without
distinction between the amounts due within one year and those
due after one year.
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(s) |
Financial instruments and derecognition of financial
assets |
The Group uses financial instruments to manage and reduce its
exposure to fluctuations in interest rates and foreign currency
exchange rates.
The accounting policies applied to currency hedge-related
instruments are detailed in note 1e.
Financial instruments for interest rate hedges are subject to
fair value hedge accounting. Financial liabilities hedged using
interest rate swaps are measured at the fair value of the
obligation linked to interest rate movements. Fair value changes
are recorded in the income statement for the year and are offset
by equivalent changes in the interest rate swaps for the
effective part of the hedge.
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Derecognition of financial assets: |
A financial asset as defined under IAS 32 Financial
Instruments: Disclosure and Presentation is either totally
or partially derecognized (removed from the balance sheet) when
the Group expects no further cash flow to be generated by it and
retains no control of the asset or transfers substantially all
risks and rewards attached to it.
In the case of trade receivables, a transfer without recourse in
case of payment default by the debtor is regarded as a transfer
of substantially all risks and rewards of ownership, thus making
such receivables eligible for derecognition, on the basis that
risk of late payment is considered marginal.
The amount of receivables sold without recourse is given in
note 18.
F-18
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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(t) |
Cash and cash equivalents |
In accordance with IAS 7 Cash Flow Statements, cash
and cash equivalents in the consolidated statements of cash
flows includes cash (cash funds and term deposits) and cash
equivalents (short-term investments that are very liquid and
readily convertible to known amounts of cash and are only
subject to negligible changes of value). Cash and cash
equivalents in the statement of cash flows does not include
investments in listed securities, investments with an initial
maturity date exceeding three months and without an early exit
clause, or bank accounts restricted in use, other than
restrictions due to regulations applied in a specific country or
sector of activities (exchange controls, etc.).
Bank overdrafts are considered as financing and are also
excluded from cash and cash equivalents.
Cash and cash equivalents in the balance sheet correspond to the
cash and cash equivalents defined above.
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(u) |
Marketable securities |
Marketable securities are quoted market funds with original
maturities exceeding three months and/or with underlying assets
such as listed shares. In accordance with IAS 39 Financial
Instruments: Recognition and Measurement, marketable
securities are valued at their fair value. No securities are
classified as
held-to-maturity.
For securities designated as at fair value through profit or
loss, changes in fair value are recorded in the income statement
(in other financial income (loss)). For available-for-sale
securities, changes in fair value are recorded in
shareholders equity, or in the income statement (other
financial income (loss)), if there is objective evidence of a
more than temporary decline in the fair value, or in connection
with a disposal of such securities.
The Group undertakes two types of customer financing:
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financing relating to the operating cycle and directly linked to
actual contracts; |
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longer-term financing (beyond the operating cycle) through
customer loans, minority investments or other forms of financing. |
The first category of financing is accounted for in current
assets. Changes in net loans receivable are presented in net
change in current assets of the consolidated statement of cash
flows.
The second category of financing is accounted for in other
non-current financial assets, net. Changes in net loans
receivable are included in cash flows from investing activities
(decrease/increase in loans and other non-current financial
assets) in the consolidated statement of cash flows.
Furthermore, the Group may give guarantees to banks in
connection with customer financing. These are included in off
balance sheet commitments.
In accordance with the requirements of IFRS 2 Share-based
Payment, stock options granted to employees are included
in the financial statements using the following principles: the
stock options fair value, which is considered to be a
reflection of the fair value of the services provided by the
employee in exchange for the option, is determined on the grant
date. It is accounted for in additional paid-in capital
(credit) at grant date, with a counterpart in deferred
compensation (debit) (also included in additional paid-in
capital). During the vesting period, deferred compensation is
amortized in the income statement (in the caption
share-based payments).
F-19
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock option fair value is calculated using the
Cox-Ross-Rubinstein binomial model. This model permits to take
into consideration the options characteristics, such as
exercise price and expiry date, market data at the time of
acquisition such as the interest rate on risk-free securities,
share price, volatility and expected dividends, and behavioral
factors of the beneficiary, such as expected early exercise.
Only options issued after November 7, 2002 and not fully
vested at January 1, 2005 are accounted for according to
IFRS 2.
The impact of applying IFRS 2 on net income (loss) is accounted
for in share-based payments (stock option plans) in the income
statement.
Outstanding stock options at the acquisition date of a company
acquired in a business combination are usually converted into
options to purchase Alcatel shares using the same exchange ratio
as for the acquired shares of the target company. In accordance
with IFRS 3 Business Combinations and IFRS 2
Share-based Payment requirements, the fair value of
stock options acquired at the time of acquisition is accounted
for in the caption additional paid-in capital.
Unvested options at the acquisition date are accounted for at
their fair value as deferred compensation in shareholders
equity (included in additional paid-in capital). The counter
value of these two amounts, equivalent to the fair value of
vested options, is taken into account in the acquisition price
allocation.
Only acquisitions made after January 1, 2004 and for which
unvested stock options as of December 31, 2004 existed at
the acquisition date are accounted for as described above.
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(x) |
Assets held for sale and discontinued operations |
A non-current asset or disposal group (group of assets or a cash
generating unit) is considered as held for sale if its carrying
amount will be recovered through a sale transaction rather than
through continuing use. For this to be the case, the asset must
be available for sale and its sale must be highly probable.
These assets or disposal groups classified as held for sale are
measured at the lower of carrying amount and fair value less
costs to sell.
A discontinued operation is a separate major line of business or
geographical area of operations for the Group that is either
being sold or is being held for sale. The net income (loss),
balance sheet and statement of cash flow elements relating to
such discontinued operations are presented in specific captions
in the consolidated financial statements for all periods
presented.
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(y) |
Accounting standards and interpretations that have been
published but are not yet effective |
The IFRS accounting standards and interpretations that have been
issued and are not yet effective, but which have been applied
earlier than the effective date, are detailed in the
introductory paragraph to this note 1
Accounting policies.
Other IFRS accounting standards and interpretations have been
issued by the approval date of these financial statements that
are not yet effective and for which the Group has not elected
early application. Those standards and interpretations that are
likely to affect the Group are as follows:
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Amendment to IAS 19 Employee Benefits
Actuarial Gains and Losses, Group Plans and Disclosures,
effective for annual periods beginning on or after
January 1, 2006; |
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Amendment to IAS 39 Financial Instruments: Recognition and
Measurement The Fair Value Option, effective
for annual periods beginning on or after January 1, 2006; |
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IFRS 7 Financial Instruments
Disclosures, effective for annual periods beginning on or
after January 1, 2007 ; and |
F-20
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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IFRIC 8 Scope of IFRS 2, effective for annual
periods beginning on or after May 1, 2006. |
The Group is currently assessing the potential impacts that
application of these standards and interpretations will have on
consolidated net income (loss), financial position, changes in
cash and cash equivalents and notes to the consolidated
financial statements. At this stage, we do not currently
anticipate any significant impact for the Group.
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Note 2 |
Principal uncertainties regarding the use of estimates |
The preparation of consolidated financial statements in
accordance with IFRSs (International Financial Reporting
Standards) implies that the Group makes a certain number of
estimates and assumptions that are considered realistic and
reasonable. However, subsequent facts and circumstances could
lead to changes in these estimates or assumptions, which would
affect the value of the Groups assets, liabilities,
shareholders equity and net income (loss).
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(a) |
Valuation allowance for inventories and work in progress |
Inventories and work in progress are measured at the lower of
cost or net realizable value. Valuation allowances for
inventories and work in progress are calculated based on an
analysis of foreseeable changes in demand, technology or the
market, in order to determine obsolete or excess inventories and
work in progress.
The valuation allowances are accounted for in cost of sales or
in restructuring costs depending on the nature of the amounts
concerned.
Significant provisions for write-down of inventories and work in
progress were accounted for in the past because of difficult
market conditions and the abandonment of certain product lines.
The impact of these provisions on our income before tax is a net
charge
of 18 million
in 2005 (a net gain
of 20 million
in 2004).
Because of the revival in the telecommunications market, our
future results could continue to be positively impacted by the
reversal of provisions previously made.
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(b) |
Impairment of customer receivables and loans |
An impairment loss is recorded for customer receivables and
loans if the present value of the future receipts is below the
nominal value. The amount of the impairment loss reflects both
the customers ability to honor their debts and the age of
the debts in question. A higher default rate than estimated or
the deterioration of our major customers creditworthiness
could have an adverse impact on our future results. Impairment
losses on customer receivables
were 228 million
at December 31, 2005
(284 million
at December 31, 2004). The impact of impairment losses for
customer receivables and loans on income before tax is a net
gain
of 19 million
in 2005 (a net gain
of 43 million
in 2004).
Impairment losses on customer loans and other financial assets
(assets essentially relating to customer financing arrangements)
were 897 million
at December 31, 2005
(908 million
at December 31, 2004). The impact of these impairment
losses on income before tax is a net gain
of 25 million
in 2005 (a net gain
of 77 million
in 2004).
|
|
(c) |
Capitalized development costs, goodwill and other intangible
assets |
The criteria for capitalizing development costs are set out in
note 1f. Once capitalized, these costs are amortized over
the estimated lives of the products concerned.
The Group must therefore evaluate the commercial and technical
feasibility of these projects and estimate the useful lives of
the products resulting from the projects. Should a product fail
to substantiate these
F-21
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assumptions, the Group may be required to impair or write off
some of the capitalized development costs in the future.
The Group also has intangible assets acquired for cash or
through business combinations and the goodwill resulting from
such combinations.
As indicated in note 1g, in addition to the annual goodwill
impairment tests, timely impairment tests are carried out in the
event of indications of reduction in value of intangible assets
held. Possible impairments are based on discounted future cash
flows and/or fair values of the assets concerned. A change in
the market conditions or the cash flows initially estimated can
therefore lead to a review and a change in the impairment loss
previously recorded.
Net goodwill
is 3,772 million
at December 31, 2005
(3,774 million
at December 31, 2004). Other intangible assets, net
were 819 million
at December 31, 2005
(705 million
at December 31, 2004).
|
|
(d) |
Impairment of property, plant and equipment |
In accordance with IAS 36 Impairment of Assets, when
events or changes in market conditions indicate that tangible or
intangible assets may be impaired, such assets are reviewed in
detail to determine whether their carrying value is lower than
their recoverable value, which could lead to recording an
impairment loss (recoverable value is the higher of its value in
use and its fair value less costs to sell) (see note 1g).
Value in use is estimated by calculating the present value of
the future cash flows expected to be derived from the asset.
Fair value less costs to sell is based on the most reliable
information available (market statistics, recent transactions,
etc.).
The planned closing of certain facilities, additional reductions
in personnel and reductions in market outlooks have been
considered impairment triggering events in prior years. No
significant impairment losses were recorded in 2005 and 2004.
When determining recoverable value of property, plant and
equipment, assumptions and estimates are made, based primarily
on market outlooks, obsolescence and sale or liquidation
disposal values. Any change in these assumptions can have a
significant effect on the recoverable amount and could lead to a
revision of recorded impairment losses.
|
|
(e) |
Provision for warranty costs and other contractual
obligations |
Provisions are recorded for warranties given to customers on our
products or for expected losses and for penalties incurred in
the event of failure to meet contractual obligations on
construction contracts. These provisions are calculated based on
historical return rates and warranty costs expensed as well as
on estimates. These provisions and subsequent changes to the
provisions are recorded in cost of sales either when revenue is
recognized (provision for customer warranties) or, for
construction contracts, when revenue and expenses are recognized
by reference to the stage of completion of the contract
activity. Costs and penalties that will be effectively paid can
differ considerably from the amounts initially reserved and
could therefore have a significant impact on future results.
Provisions for contractual obligations
represent 753 million
at December 31, 2005, of
which 173 million
relate to construction contracts (see note 18)
(933 million
and 271 million
respectively at December 31, 2004). For further information
on the impact on net income (loss) of the change in these
provisions, see notes 18 and 27.
Deferred tax assets relate primarily to tax loss carry forwards
and to deductible temporary differences between reported amounts
and the taxes bases of assets and liabilities. The assets
relating to the tax loss carry
F-22
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
forwards are recognized if it is probable that the Group will
dispose of future taxable profits against which these tax losses
can be set off.
At December 31, 2005, deferred tax assets
were 1,606 million
(of
which 850 million
relate to the United States
and 369 million
to France). Evaluation of the Groups capacity to utilize
tax loss carry forwards relies on significant judgment. The
Group analyzes the positive and negative elements to conclude as
to the probability of utilization in the future of these tax
loss carry forwards, which also consider the factors indicated
in note 1 n. This analysis is carried out regularly in each
tax jurisdiction where significant deferred tax assets are
recorded.
If future taxable results are considerably different from those
forecast that support recording deferred tax assets, the Group
will be obliged to revise downwards or upwards the amount of the
deferred tax assets, which would have a significant impact on
our balance sheet and net income (loss).
|
|
(g) |
Pension and retirement obligations and other employee and
post-employment benefit obligations |
As indicated in note 1k, the Group participates in defined
contribution and defined benefit plans for employees.
Furthermore, certain other post-employment benefits, such as
life insurance and health insurance (mainly in the United
States), are also reserved. All these obligations are measured
based on actuarial calculations relying upon assumptions, such
as the discount rate, return on plan assets, future salary
increases, employee turnover and mortality tables.
These assumptions are generally updated annually. The
assumptions adopted for 2005 and how they have been determined
are detailed in note 25. Using the corridor
method, only actuarial gains and losses in excess of the greater
of 10% of the present value of the defined benefit obligation or
10% of the fair value of any plan assets are recognized over the
expected average remaining working lives of the employees
participating in the plan. In accordance with the option
available under IFRS 1, cumulative actuarial gains and
losses at the transition date have been recognized in
shareholders equity. The corridor method is therefore only
applied as from January 1, 2004.
The Group considers that the actuarial assumptions used are
appropriate and supportable but changes that will be made to
them in the future could however have a significant impact on
the amount of such obligations and the Groups net income
(loss). An increase of 0.5% in the discount rate at
December 31, 2004 (or a reduction of 0.5%) has a positive
impact on 2005 net income
of 8 million
(or a negative impact
of 8 million
on net income). An increase of 0.5% in the assumed rate of
return on plan assets for 2005 (or a reduction of 0.5%) has a
positive impact on 2005 net income
of 11 million
(or a negative impact
of 11 million
on net income).
As indicated in note 1 o, revenue is measured at the
fair value of the consideration received or to be received when
the company has transferred the significant risks and rewards of
ownership of a product to the buyer.
For revenues and expenses generated from construction contracts,
the Group applies the percentage of completion method of
accounting, provided certain specified conditions are met, based
either on the achievement of contractually defined milestones or
on costs incurred compared with total estimated costs. The
determination of the stage of completion and the revenues to be
recognized rely on numerous estimations based on costs incurred
and acquired experience. Adjustments of initial estimates can
however occur throughout the life of the contract, which can
have significant impacts on future net income (loss).
For arrangements to sell software licenses with services,
software license revenue is recognized separately from the
related service revenue, providing the transaction adheres to
certain criteria (as prescribed
F-23
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
by the AICPAs
SOP 97-2), such as
the existence of sufficient vendor-specific objective evidence
to determine the fair value of the various elements of the
arrangement. Determination of the fair value of the various
elements of the arrangement relies also on estimates, which if
they would have to be corrected, would have an impact on
revenues and net income (loss).
In the context of the present telecommunications market, it can
be difficult to evaluate the Groups capacity to recover
receivables. Such evaluation is based on the customers
creditworthiness and on the Groups capacity to sell such
receivables without recourse. If, subsequent to revenue
recognition, the recoverability of a receivable that had been
initially considered as likely becomes doubtful, a provision for
an impairment loss is then recorded (see note 2b above).
Note 3 Changes in consolidated companies
The main changes in consolidated companies for 2005 were as
follows:
|
|
|
|
|
On March 2, 2005, Alcatel announced the acquisition of 100%
of Native Networks, a provider of carrier-class optical Ethernet
transport solutions, for a purchase price of
USD 55 million. The purchase price was allocated
USD 20 million to depreciable intangible assets and
USD 38 million to goodwill (the net assets of this
company being negative USD 3 million at the
acquisition date). The contribution from this company had no
impact on Alcatels 2005 income. |
|
|
|
On May 17, 2005, TCL Corp. and Alcatel announced the end of
their handset partnership. Alcatel agreed to swap its 45% stake
in the joint venture for TCL Communication Holdings Ltd shares
(these shares are listed on the Hong Kong market). |
|
|
|
On July 1, 2005, Alcatel and Finmeccanica announced the
successful creation of two joint ventures that had been
described in a memorandum of understanding signed by the parties
on June 24, 2004: Alcatel Alenia Space (Alcatel holds 67%
and Finmeccanica 33%) and Telespazio Holding (Finmeccanica holds
67% and Alcatel 33%). These joint ventures are consolidated
using the proportionate consolidation method starting
July 1, 2005. |
Alcatel analyzes this transaction as a sale to Finmeccanica of
33% of Alcatel Spaces satellite industrial activity and
67% of its service activity and as an acquisition of 67% of
Alenia Spazio (the industrial space systems of Finmeccanica) and
of 33% of Telespazio (service activities for Finmeccanicas
space systems).
The values assigned to this transaction are
1,530 million
for Alenia Space and
215 million
for Telespazio, resulting in a gain to Alcatel on the sale
before tax of
129 million
in 2005 and in goodwill not yet allocated of
143 million.
Alcatel received from Finmeccanica an equalization payment of
109 million.
Net cash resulting from the activities acquired and disposed of
is
15 million
at the transaction date.
Proportionately consolidating the combined space activities of
the two partners did not have a significant impact on
Alcatels revenues, operating margin and total balance
sheet. However, this consolidation method resulted in
recognizing a deferred tax charge of
38 million
due to the removal from the French tax consolidation of the
companies transferred to the joint ventures in the context of
the transaction described above.
The main changes in consolidated companies for 2004 were as
follows:
|
|
|
|
|
On January 14, 2004, Alcatel, pursuant to its announcement
in October 2003, finalized the sale of SAFT, a subsidiary of the
Group that specialized in battery operations, to Doughty Hanson
for
390 million.
The gain on disposal amounted to
256 million
and was recorded in 2004 under the caption income (loss)
from discontinued operations (see note 10). |
F-24
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
On April 26, 2004, Alcatel and TCL Communication Technology
Holdings Limited announced the execution of a memorandum of
understanding to form a joint venture mobile handset company.
The joint venture company officially started operations on
August 31, 2004 and was 55% owned by TCL and 45% owned by
Alcatel. It was consolidated under the equity method in
Alcatels accounts from September 1, 2004. The mobile
phone business has been accounted for as a discontinued
operation as from January 1, 2004 (see note 10). The
gain on disposal was recorded in 2004 under the caption
income (loss) from discontinued operations (see
note 10). |
|
|
|
On May 17, 2004, Alcatel announced that it had signed
definitive binding documentation with Draka Holding N.V.
(Draka) in relation to the proposed combination of
their respective global optical fiber and communication cable
businesses. The final agreement was signed on July 2, 2004.
Draka owns 50.1% and Alcatel owns 49.9% of the new company,
Draka Comteq B.V. This company was consolidated under the equity
method as of July 1, 2004. Alcatels optical fiber
activity has been accounted for as a discontinued operation as
of and after January 1, 2004 (see note 10). As the
2004 financial statements for Draka Comteq BV were not available
at the closing date of Alcatels financial statements, an
estimated gain/loss on the sale and an estimated share in the
net result of Draka Comteq BV were taken into account in the
income statement at December 31, 2004. The definitive
financial statements of Draka Comteq BV were received during the
second quarter of 2005 and the gain/loss was adjusted
accordingly. The amount of the loss recorded in 2004 and the
positive adjustment that was recorded in 2005 is
(16) million
and
8 million
respectively. |
|
|
|
On June 18, 2004, Alcatel and Finmeccanica announced the
execution of a memorandum of understanding to merge their space
activities through the creation of two sister companies, to
which both partners will contribute their respective satellite
industrial and service activities. |
The first company, Alcatel Alenia Space, of which Alcatel will
hold 67% and Finmeccanica 33%, will combine Alcatel Space and
Alenia Spazios industrial activities. This company will
concentrate on the design, development, and manufacture of space
systems, satellites, equipment, instruments, payloads and
associated ground systems. The management team of Alcatel Alenia
Space will be located in France. The company will operate
through five business divisions (Telecommunications, Optical
Observation and Science, Observation Systems and Radar,
Navigation, Infrastructure and Transportation).
The second company, of which Finmeccanica will hold 67% and
Alcatel 33%, will combine Telespazio (Finmeccanica group) with
Alcatel Spaces operations and services activities. This
company will concentrate on operations and services for
satellite solutions, which includes control and exploitation of
space systems as well as value-added services for networking,
multimedia and earth observation. Its management team will be
located in Italy.
The definitive agreement relating to the creation of these two
new companies was signed on January 28, 2005, subject to
the required approvals from the regulatory authorities, which
were obtained in 2005.
|
|
|
|
|
On September 17, 2004, Alcatel announced that it had
acquired privately held,
U.S.-based eDial Inc.,
a leading provider of conferencing and collaboration services
for businesses and telephone companies. The purchase price was
22 million
(based on the market value at that date of Alcatels
American Depositary Shares) and was paid for in Alcatel ADSs and
in
3.4 million
of cash. The goodwill acquired in this business combination is
16 million,
after recognizing
8 million
of depreciable intangible assets and
2 million
of other net acquired liabilities (including approximately
1 million
of cash). The contribution from this company had no impact on
Alcatels 2004 income. |
|
|
|
On September 17, 2004, Alcatel signed an agreement with a
private equity firm, Ripplewood, to divest all of its electrical
power system activities (Saft Power Systems). The closing of
this sale took |
F-25
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
place on January 25, 2005. The results of this business
were recorded as a discontinued operation in 2004 (see
note 10). The gain/loss on disposal of the shares was
recorded in discontinued operations in the first six months of
2005. |
|
|
|
On December 14, 2004, Alcatel announced that it had sold
7.1 million Avanex shares, bringing the Groups stake
in this company to below 20%. With this partial sale of its
investment and in the absence of a seat on Avanexs board
of directors, the Group considers that it no longer exercises
significant influence on Avanex and, as a result, as from this
date, the remaining net book value of the shares has been
accounted for in other non-current financial assets and no
longer in share in net assets of equity affiliates. |
|
|
|
On December 16, 2004, Alcatel completed the acquisition of
the privately-held,
U.S.-based Spatial
Communications (known as Spatial Wireless), a leading provider
of software-based and multi-standard distributed mobile
switching solutions. All of Spatial Wireless shares were
acquired for 17.4 million Alcatels ADSs, representing
a purchase price of
207 million.
The total cost of this acquisition is
223 million,
after recognizing costs of acquisition and the fair value of
equity instruments granted to Spatial Wireless employees in
return for services rendered. The goodwill acquired in this
business combination is
175 million,
after recognizing
62 million
of depreciable intangible assets and
14 million
of other net acquired liabilities (including approximately
2 million
of cash). The contribution from this company had no impact on
Alcatels 2004 income. |
The financial impacts of other business combinations not
referred to above are insignificant, either individually or in
the aggregate.
Note 4 Information by business segment and
by geographical segment
The tables below present information for the business segments
described hereunder.
The first two business segments, Fixed Communications and Mobile
Communications, serve the telecom service provider markets and
comprise:
|
|
|
|
|
infrastructure equipment divisions responsible for network
equipment and pre and post commissioning tasks; these divisions
have a strong focus on network solutions in their respective
markets; and |
|
|
|
a division focusing on applied solutions, which includes
application software activities and which interacts with the
equipment divisions. |
The third business segment, Private Communications, fulfills a
dual function:
|
|
|
|
|
it is responsible for all communication markets other than
telecom operator markets and is organized along vertical market
segment lines covering equipment, network solutions and applied
solutions; and |
|
|
|
it provides network services supporting the entire portfolio of
Alcatel customers. |
The segment Other includes miscellaneous businesses outside
Alcatels core businesses, such as corporate purchasing,
reinsurance and banking activities and corporate holding
companies accounting mainly for corporate expenses. None of
these activities are sufficiently significant to be disclosed as
reportable segments.
The information by segment follows the same accounting policies
as those used and described in these consolidated financial
statements.
All inter-segment commercial relations are conducted on an
arms length basis on terms and conditions identical to
those prevailing for the supply of goods and services to third
parties.
F-26
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The performance measure of each business segment is based on the
income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities.
The business segments presented are identical to those appearing
in the information given to the Board of Directors. At
December 31, 2005, no individual business division making
up the business segments represents more than 10% of
Alcatels revenues, income (loss) from operating activities
before restructuring, share-based payments, impairment of
capitalized development costs and gain on disposal of
consolidated entities, and total assets.
F-27
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(a) |
Information by business segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
Mobile | |
|
Private | |
|
|
|
|
|
Total | |
|
|
Communications | |
|
Communications | |
|
Communications | |
|
Other | |
|
Eliminations | |
|
Group | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segments
|
|
|
5,213 |
|
|
|
4,096 |
|
|
|
3,918 |
|
|
|
3 |
|
|
|
(95 |
) |
|
|
13,135 |
|
between segments
|
|
|
(15 |
) |
|
|
(7 |
) |
|
|
(73 |
) |
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
5,198 |
|
|
|
4,089 |
|
|
|
3,845 |
|
|
|
3 |
|
|
|
|
|
|
|
13,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments and capital gain on disposal of
consolidated entities
|
|
|
579 |
|
|
|
436 |
|
|
|
274 |
|
|
|
(100 |
) |
|
|
|
|
|
|
1,189 |
|
Share-based payments
|
|
|
(18 |
) |
|
|
(12 |
) |
|
|
(22 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
(69 |
) |
Restructuring costs
|
|
|
(27 |
) |
|
|
(2 |
) |
|
|
(54 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
(110 |
) |
Capital gain on disposal of consolidated entities
|
|
|
|
|
|
|
|
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities
|
|
|
534 |
|
|
|
422 |
|
|
|
327 |
|
|
|
(144 |
) |
|
|
|
|
|
|
1,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (tangible and intangible assets)
|
|
|
137 |
|
|
|
213 |
|
|
|
150 |
|
|
|
81 |
|
|
|
|
|
|
|
581 |
|
Provisions made (reversed) included in Income (loss) from
operating activities before restructuring, share-based payments,
impairment of capitalized development costs and gain on disposal
of consolidated entities*
|
|
|
(34 |
) |
|
|
128 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
147 |
|
Share in net income (losses) of equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
(14 |
) |
Capital expenditures (tangible and intangible assets)
|
|
|
160 |
|
|
|
269 |
|
|
|
140 |
|
|
|
69 |
|
|
|
|
|
|
|
638 |
|
Net tangible assets
|
|
|
271 |
|
|
|
197 |
|
|
|
286 |
|
|
|
357 |
|
|
|
|
|
|
|
1,111 |
|
Shares in equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
606 |
|
|
|
|
|
|
|
606 |
|
Operating assets (assets included in operating working capital)**
|
|
|
2,154 |
|
|
|
2,062 |
|
|
|
1,688 |
|
|
|
30 |
|
|
|
|
|
|
|
5,934 |
|
Operating liabilities (liabilities included in operating working
capital)***
|
|
|
(1,898 |
) |
|
|
(1,696 |
) |
|
|
(2,036 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
(5,652 |
) |
F-28
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
Mobile | |
|
Private | |
|
|
|
|
|
Total | |
|
|
Communications | |
|
Communications | |
|
Communications | |
|
Other | |
|
Eliminations | |
|
Group | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segments
|
|
|
5,125 |
|
|
|
3,313 |
|
|
|
3,946 |
|
|
|
13 |
|
|
|
(153 |
) |
|
|
12,244 |
|
between segments
|
|
|
(40 |
) |
|
|
(9 |
) |
|
|
(104 |
) |
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
5,085 |
|
|
|
3,304 |
|
|
|
3,842 |
|
|
|
13 |
|
|
|
|
|
|
|
12,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments and impairment of capitalized development
costs
|
|
|
576 |
|
|
|
418 |
|
|
|
267 |
|
|
|
(82 |
) |
|
|
|
|
|
|
1,179 |
|
Share-based payments
|
|
|
(19 |
) |
|
|
(9 |
) |
|
|
(18 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
(60 |
) |
Restructuring costs
|
|
|
(91 |
) |
|
|
(46 |
) |
|
|
(54 |
) |
|
|
(133 |
) |
|
|
|
|
|
|
(324 |
) |
Impairment of capitalized development costs
|
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities
|
|
|
378 |
|
|
|
363 |
|
|
|
195 |
|
|
|
(229 |
) |
|
|
|
|
|
|
707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (tangible and intangible assets)
|
|
|
146 |
|
|
|
153 |
|
|
|
146 |
|
|
|
100 |
|
|
|
|
|
|
|
545 |
|
Provisions made (reversed) included in Income (loss) from
operating activities before restructuring, share-based payments,
impairment of capitalized development costs and gain on disposal
of consolidated entities*
|
|
|
69 |
|
|
|
(138 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
(75 |
) |
Share in net income (losses) of equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61 |
) |
|
|
|
|
|
|
(61 |
) |
Capital expenditures (tangible and intangible assets)
|
|
|
163 |
|
|
|
208 |
|
|
|
143 |
|
|
|
65 |
|
|
|
|
|
|
|
579 |
|
Net tangible assets
|
|
|
325 |
|
|
|
159 |
|
|
|
297 |
|
|
|
314 |
|
|
|
|
|
|
|
1,095 |
|
Shares in equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604 |
|
|
|
|
|
|
|
604 |
|
Operating assets (assets included in operating working capital)**
|
|
|
1,770 |
|
|
|
1,613 |
|
|
|
1,533 |
|
|
|
7 |
|
|
|
|
|
|
|
4,923 |
|
Operating liabilities (liabilities included in operating working
capital)***
|
|
|
(1,781 |
) |
|
|
(1,412 |
) |
|
|
(2,023 |
) |
|
|
(40 |
) |
|
|
|
|
|
|
(5,256 |
) |
|
|
|
|
* |
Provisions for product sales (see note 27), impairment
losses on inventories and work in progress and customer
receivables (including those recorded in amounts due from/ to
customers on construction contracts, see note 18). |
|
|
|
|
** |
Operating assets comprise inventories and work in progress and
customer receivables (including those recorded in amounts due
from/ to customers on construction contracts) and advances and
progress payments. These captions are presented in note 18. |
|
|
*** |
Operating liabilities comprise trade payables and related
accounts, customers deposits and advances and provisions
for product sales (including those provisions recorded in
amounts due from/ to customers on construction contracts). These
captions are presented in notes 18 and 27. |
F-29
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(b) |
Information by geographical segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Western | |
|
Rest of | |
|
Asia | |
|
North | |
|
Rest of | |
|
|
|
|
France | |
|
Germany | |
|
Europe | |
|
Europe | |
|
Pacific | |
|
America | |
|
world | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
by geographical market
|
|
|
1,661 |
|
|
|
820 |
|
|
|
2,919 |
|
|
|
952 |
|
|
|
1,915 |
|
|
|
1,895 |
|
|
|
2,973 |
|
|
|
13,135 |
|
|
by subsidiary location
|
|
|
4,599 |
|
|
|
1,318 |
|
|
|
2,607 |
|
|
|
260 |
|
|
|
1,481 |
|
|
|
1,930 |
|
|
|
940 |
|
|
|
13,135 |
|
Other information by geographical segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
227 |
|
|
|
176 |
|
|
|
176 |
|
|
|
33 |
|
|
|
110 |
|
|
|
406 |
|
|
|
61 |
|
|
|
1,189 |
|
Operating assets (assets included in operating working capital)
|
|
|
2,353 |
|
|
|
374 |
|
|
|
1,060 |
|
|
|
118 |
|
|
|
908 |
|
|
|
450 |
|
|
|
671 |
|
|
|
5,934 |
|
Total assets
|
|
|
10,585 |
|
|
|
764 |
|
|
|
3,464 |
|
|
|
205 |
|
|
|
2,395 |
|
|
|
2,674 |
|
|
|
1,028 |
|
|
|
21,115 |
|
Capital expenditures (tangible and intangible assets)
|
|
|
291 |
|
|
|
38 |
|
|
|
68 |
|
|
|
8 |
|
|
|
81 |
|
|
|
138 |
|
|
|
14 |
|
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Western | |
|
Rest of | |
|
Asia | |
|
North | |
|
Rest of | |
|
|
|
|
France | |
|
Germany | |
|
Europe | |
|
Europe | |
|
Pacific | |
|
America | |
|
world | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
by geographical market
|
|
|
1,677 |
|
|
|
799 |
|
|
|
2,711 |
|
|
|
895 |
|
|
|
1,867 |
|
|
|
1,768 |
|
|
|
2,527 |
|
|
|
12,244 |
|
|
by subsidiary location
|
|
|
4,371 |
|
|
|
1,191 |
|
|
|
2,309 |
|
|
|
254 |
|
|
|
1,424 |
|
|
|
1,814 |
|
|
|
881 |
|
|
|
12,244 |
|
Other information by geographical segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
291 |
|
|
|
108 |
|
|
|
240 |
|
|
|
30 |
|
|
|
146 |
|
|
|
329 |
|
|
|
35 |
|
|
|
1,179 |
|
Operating assets (assets included in operating working capital)
|
|
|
2,172 |
|
|
|
357 |
|
|
|
815 |
|
|
|
115 |
|
|
|
722 |
|
|
|
276 |
|
|
|
466 |
|
|
|
4,923 |
|
Total assets
|
|
|
11,517 |
|
|
|
761 |
|
|
|
3,104 |
|
|
|
235 |
|
|
|
2,033 |
|
|
|
2,240 |
|
|
|
739 |
|
|
|
20,629 |
|
Capital expenditures (tangible and intangible assets)
|
|
|
291 |
|
|
|
37 |
|
|
|
70 |
|
|
|
6 |
|
|
|
63 |
|
|
|
106 |
|
|
|
6 |
|
|
|
579 |
|
F-30
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 5 Revenues
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
Product sales (construction contracts)
|
|
|
3,256 |
|
|
|
3,135 |
|
Other equipment sales and service revenues
|
|
|
9,766 |
|
|
|
8,969 |
|
License revenues
|
|
|
36 |
|
|
|
67 |
|
Rental income and other revenues
|
|
|
77 |
|
|
|
73 |
|
|
|
|
|
|
|
|
Total
|
|
|
13,135 |
|
|
|
12,244 |
|
|
|
|
|
|
|
|
Note 6 Research and development costs
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Research costs
|
|
|
57 |
|
|
|
83 |
|
Development costs
|
|
|
1,386 |
|
|
|
1,407 |
|
|
|
|
|
|
|
|
Research and development costs, net
|
|
|
1,443 |
|
|
|
1,490 |
|
|
|
|
|
|
|
|
As a percentage of revenues
|
|
|
11.0 |
% |
|
|
12.2 |
% |
Customer design engineering costs
|
|
|
193 |
|
|
|
237 |
|
Capitalized development costs
|
|
|
101 |
|
|
|
130 |
|
|
|
|
|
|
|
|
Research and development effort
|
|
|
1,737 |
|
|
|
1,857 |
|
|
|
|
|
|
|
|
As a percentage of revenues
|
|
|
13.2 |
% |
|
|
15.2 |
% |
In accordance with IFRSs, development costs meeting certain
criteria described in note 1f are capitalized.
The net impact of capitalization (capitalization of eligible
expenses and cumulative amortization of previously capitalized
expenses) is presented on the line impact of
capitalization of development expenses in the income
statement.
As certain capitalization criteria required by IAS 38
Intangible Assets could not be met for 2002 and
prior years, full retrospective application of IAS 38 has not
been possible due primarily to the lack of information systems
monitoring development costs and testing their eligibility for
capitalization. Such systems were put in place during 2003.
To facilitate an analysis of the Groups accounts and to
better appreciate the
ramp-up effect of the
capitalization of development costs, the net capitalization
impact (expenses capitalized less amortization of previously
capitalized expenses) is presented in impact of
capitalization of development expenses in the income
statement and is also separately identified in the net
cash provided (used) by operating activities before changes
in working capital (impact of amortization of capitalized
expenses) and in the net cash provided (used) by
investing activities (impact of capitalization of
development expenses during the period).
F-31
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 7 Impairment losses on assets
recognized in the income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
Mobile | |
|
Private | |
|
|
|
|
|
Total | |
|
|
Communications | |
|
Communications | |
|
Communications | |
|
Other | |
|
Eliminations | |
|
Group | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses for goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses for capitalized development costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses for other intangible assets
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Impairment losses for property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses for shares in equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses for financial assets
|
|
|
11 |
|
|
|
(10 |
) |
|
|
(11 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NET
|
|
|
11 |
|
|
|
(13 |
) |
|
|
(11 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of which reversal of impairment loss*
|
|
|
11 |
|
|
|
6 |
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
34 |
|
* Recorded in income statement caption
Other financial income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
Mobile | |
|
Private | |
|
|
|
|
|
Total | |
|
|
Communications | |
|
Communications | |
|
Communications | |
|
Other | |
|
Eliminations | |
|
Group | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses for goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses for capitalized development costs
|
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88 |
) |
Impairment losses for other intangible assets
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18 |
) |
Impairment losses for property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
(10 |
) |
Impairment losses for shares in equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
(30 |
) |
Impairment losses for financial assets
|
|
|
|
|
|
|
6 |
|
|
|
48 |
|
|
|
(24 |
) |
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NET
|
|
|
(106 |
) |
|
|
6 |
|
|
|
44 |
|
|
|
(60 |
) |
|
|
|
|
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of which reversal of impairment loss*
|
|
|
|
|
|
|
6 |
|
|
|
67 |
|
|
|
8 |
|
|
|
|
|
|
|
81 |
|
|
|
|
|
* |
Recorded in income statement caption Impairment of
capitalized development costs. |
|
|
** |
Recorded in income statement caption Other financial
income (loss). |
F-32
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 8 Financial income (loss)
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Finance costs
|
|
|
(96 |
) |
|
|
(121 |
) |
|
|
|
|
|
|
|
Dividends
|
|
|
4 |
|
|
|
6 |
|
Provisions for financial risks
|
|
|
|
|
|
|
2 |
|
Impairment losses on financial assets*
|
|
|
(22 |
) |
|
|
30 |
|
Net exchange gain (loss)
|
|
|
(18 |
) |
|
|
(31 |
) |
Financial component of pension costs
|
|
|
(46 |
) |
|
|
(50 |
) |
Actual and potential capital gain/(loss) on financial assets
(shares of equity affiliates or non-consolidated securities and
financial receivables) and marketable securities**
|
|
|
137 |
|
|
|
36 |
|
Other
|
|
|
(9 |
) |
|
|
21 |
|
Other financial income (loss)
|
|
|
46 |
|
|
|
14 |
|
|
|
|
|
|
|
|
Total financial income (loss)
|
|
|
(50 |
) |
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
* |
Impairment loss of
23 million
on the Avanex shares recorded in the first and second quarters
of 2005 due to an unfavorable change in market price. |
|
|
** |
Net gain on disposal of Alcatels stake in Nexans for
69 million
during the first quarter 2005 and net gain on disposal of
Mobilrom shares for
45 million
during the second quarter of 2005. |
Note 9 Income tax
|
|
(a) |
Analysis of income tax (charge) benefit |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Current income tax (charge) benefit
|
|
|
(52 |
) |
|
|
82 |
|
Deferred income tax (charge) benefit, net
|
|
|
(39 |
) |
|
|
(118 |
) |
|
|
|
|
|
|
|
Income tax (charge) benefit
|
|
|
(91 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
Based on tax results forecasted, net deferred tax assets of
87 million
were recorded during the first half of 2005, mainly in Europe
and in North America. A deferred income tax charge of
63 million
has been accounted for during the third quarter 2005
corresponding to the utilization of deferred tax assets in North
America and as a result of Alcatel Spaces exit from the
French tax consolidation following its alliance with Alenia, a
subsidiary of Finmeccanica (see note 3). A deferred tax
charge of
63 million
was recorded during the fourth quarter 2005 corresponding to the
utilization of deferred tax assets primarily in North America.
The current income tax charge of
52 million
relates to countries in which the Group has no tax loss carry
forwards and to changes in provisions for tax litigation. In
2004, the current income tax benefit resulted mainly from
changes in provisions for tax litigation.
F-33
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(b) |
Effective income tax rate |
The effective tax rate can be analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Income (loss) before taxes from continuing operations
|
|
|
1,075 |
|
|
|
539 |
|
|
|
|
|
|
|
|
Average income tax rate
|
|
|
32.2 |
% |
|
|
26.0 |
% |
|
|
|
|
|
|
|
Expected tax (charge) benefit
|
|
|
(346 |
) |
|
|
(140 |
) |
|
|
|
|
|
|
|
Impact on tax (charge) benefit of:
|
|
|
|
|
|
|
|
|
reduced taxation of certain revenues
|
|
|
|
|
|
|
|
|
utilization of/ (unrecognized) tax loss carry
forwards
|
|
|
297 |
|
|
|
(60 |
) |
effect of tax rate changes
|
|
|
(5 |
) |
|
|
(20 |
) |
tax credits
|
|
|
5 |
|
|
|
12 |
|
other permanent differences
|
|
|
(42 |
) |
|
|
172 |
|
|
|
|
|
|
|
|
Actual income tax (charge) benefit
|
|
|
(91 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
Effective tax rate
|
|
|
8.47 |
% |
|
|
6.68 |
% |
Average income tax rate is the sum of income (loss) before
taxes, multiplied by the local statutory rate for each
subsidiary, divided by consolidated income (loss) before taxes
from continuing operations.
|
|
(c) |
Deferred tax balances |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Balances:
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
deferred tax assets recognizable
|
|
|
7,042 |
|
|
|
6,105 |
|
of which not recognized
|
|
|
(5,274 |
) |
|
|
(4,467 |
) |
Net deferred tax assets recognized
|
|
|
1,768 |
|
|
|
1,638 |
|
|
|
|
|
|
|
|
Net deferred tax (liabilities)
|
|
|
(162 |
) |
|
|
(132 |
) |
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
|
1,606 |
|
|
|
1,506 |
|
|
|
|
|
|
|
|
F-34
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Analysis of deferred tax by temporary differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact | |
|
Impact | |
|
|
|
|
|
|
|
|
|
|
|
|
on net | |
|
on share- | |
|
|
|
Change in | |
|
|
|
|
|
|
December 31, | |
|
income | |
|
holders | |
|
Translation | |
|
consolidated | |
|
|
|
December 31, | |
|
|
2004 | |
|
(loss) | |
|
equity | |
|
adjustments | |
|
companies | |
|
Other | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Fair value adjustments of tax assets and liabilities resulting
from business combinations
|
|
|
(12 |
) |
|
|
5 |
|
|
|
|
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
4 |
|
|
|
(8 |
) |
Provisions
|
|
|
603 |
|
|
|
(82 |
) |
|
|
|
|
|
|
24 |
|
|
|
(3 |
) |
|
|
5 |
|
|
|
547 |
|
Property, plant and equipment and intangible assets
|
|
|
241 |
|
|
|
(152 |
) |
|
|
|
|
|
|
35 |
|
|
|
38 |
|
|
|
54 |
|
|
|
216 |
|
Temporary differences arising from other balance sheet captions
|
|
|
283 |
|
|
|
(53 |
) |
|
|
1 |
|
|
|
42 |
|
|
|
26 |
|
|
|
(10 |
) |
|
|
289 |
|
Tax loss carry forwards and tax credits
|
|
|
4,858 |
|
|
|
380 |
|
|
|
|
|
|
|
210 |
|
|
|
(169 |
) |
|
|
557 |
|
|
|
5,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, gross (liabilities)
|
|
|
5,973 |
|
|
|
98 |
|
|
|
1 |
|
|
|
308 |
|
|
|
(110 |
) |
|
|
610 |
|
|
|
6,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets not recognized
|
|
|
(4,467 |
) |
|
|
(137 |
) |
|
|
(1 |
) |
|
|
(172 |
) |
|
|
137 |
|
|
|
(634 |
) |
|
|
(5,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
|
1,506 |
|
|
|
(39 |
) |
|
|
|
|
|
|
136 |
|
|
|
27 |
|
|
|
(24 |
) |
|
|
1,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which directly included in shareholders equity
|
|
|
(50 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43 |
) |
Change during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact | |
|
Impact | |
|
|
|
|
|
|
|
|
|
|
|
|
on net | |
|
on share- | |
|
|
|
Change in | |
|
|
|
|
|
|
December 31, | |
|
income | |
|
holders | |
|
Translation | |
|
consolidated | |
|
|
|
December 31, | |
|
|
2004 | |
|
(loss) | |
|
equity | |
|
adjustments | |
|
companies | |
|
Other | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Deferred tax assets recognized
|
|
|
1,638 |
|
|
|
(18 |
) |
|
|
|
|
|
|
147 |
|
|
|
30 |
|
|
|
(29 |
) |
|
|
1,768 |
|
Deferred tax liabilities
|
|
|
(132 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
(3 |
) |
|
|
5 |
|
|
|
(162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
|
1,506 |
|
|
|
(39 |
) |
|
|
|
|
|
|
136 |
|
|
|
27 |
|
|
|
(24 |
) |
|
|
1,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes not recognized relating to temporary differences
on investments in subsidiaries, equity affiliates and joint
ventures were zero at December 31, 2005 and
December 31, 2004.
The dividend distribution proposed to the Annual
Shareholders Meeting (see note 22) will have no tax
consequences.
F-35
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(d) |
Tax losses carried forward and temporary differences |
Total tax losses carried forward represent a potential tax
saving of
5,836 million
at December 31, 2005
(4,858 million
at December 31, 2004). The potential tax savings relate to
tax losses carried forward that expire as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized | |
|
Unrecognized | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
4 |
|
|
|
10 |
|
|
|
14 |
|
2007
|
|
|
6 |
|
|
|
114 |
|
|
|
120 |
|
2008
|
|
|
38 |
|
|
|
38 |
|
|
|
76 |
|
2009
|
|
|
26 |
|
|
|
13 |
|
|
|
39 |
|
2010 and thereafter
|
|
|
1,482 |
|
|
|
4,105 |
|
|
|
5,587 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,556 |
|
|
|
4,280 |
|
|
|
5,836 |
|
|
|
|
|
|
|
|
|
|
|
In addition, temporary differences were
1,044 million
at December 31, 2005
(1,115 million
at December 31, 2004), of which
50 million
have been recognized and
994 million
have not been recognized
(20 million
and
1,095 million
respectively at December 31, 2004).
|
|
Note 10 |
Discontinued operations, assets held for sale and liabilities
related to disposal groups held for sale |
Discontinued operations for 2005 and 2004 are as follows:
|
|
|
|
|
In 2005: no discontinued operations. Initial capital gain (loss)
on discontinued operations that were sold in 2004 was adjusted
in 2005 due to ongoing legal proceedings related to these
disposals. |
|
|
|
In 2004: disposal of Saft announced in October 2003 and
finalized in January 2004, sale of the optical fiber activity
announced in May 2004 and completed in July 2004, disposal of
the mobile phones activity announced in April 2004 and completed
in August 2004 and disposal of the electrical power systems
activity (Saft Power Systems), announced in September 2004 and
completed in January 2005; |
Other assets held for sale concern real estate property sales in
progress at December 31, 2005 and December 31 2004.
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Income statement:
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
(13 |
) |
|
|
142 |
|
|
|
|
|
|
|
|
F-36
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income statements of discontinued operations for 2005 and 2004
in accordance with IFRSs are as follows:
Income statements of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Revenues
|
|
|
|
|
|
|
571 |
|
Cost of sales
|
|
|
|
|
|
|
(476 |
) |
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
|
|
|
|
(93 |
) |
Research and development costs
|
|
|
|
|
|
|
(61 |
) |
Net capital gain (loss) on disposal of discontinued operations
|
|
|
(13 |
) |
|
|
211 |
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
(13 |
) |
|
|
152 |
|
|
|
|
|
|
|
|
Other operating income (loss)
|
|
|
|
|
|
|
(7 |
) |
Financial income (loss)
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
(13 |
) |
|
|
142 |
|
|
|
|
|
|
|
|
Balance sheet
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Assets of disposal groups
|
|
|
|
|
|
|
124 |
|
Other assets held for sale
|
|
|
50 |
|
|
|
72 |
|
|
|
|
|
|
|
|
Assets held for sale
|
|
|
50 |
|
|
|
196 |
|
|
|
|
|
|
|
|
|
Liabilities related to disposal groups held for sale
|
|
|
|
|
|
|
(97 |
) |
|
|
|
|
|
|
|
The cash flows of discontinued operations for 2005 and 2004 in
accordance with IFRSs are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Net income (loss)
|
|
|
(13 |
) |
|
|
142 |
|
Net cash provided (used) by operating activities before
changes in working capital
|
|
|
(19 |
) |
|
|
(122 |
) |
Other net increase (decrease) in net cash provided
(used) by operating activities
|
|
|
|
|
|
|
(125 |
) |
Net cash provided (used) by operating activities(1)
|
|
|
(19 |
) |
|
|
(247 |
) |
Net cash provided (used) by investing activities(2)
|
|
|
14 |
|
|
|
210 |
|
Net cash provided (used) by financing activities(3)
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
Total(1) + (2) + (3)
|
|
|
(5 |
) |
|
|
(67 |
) |
|
|
|
|
|
|
|
F-37
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 11 Earnings per Share
Basic earnings per share is computed using the number of shares
issued after deduction of the weighted average number of shares
owned by consolidated subsidiaries and the weighting effect of
shares issued during the year. Regarding the Newbridge
acquisition, the entire issuance of Alcatel shares is taken into
account for the earnings per share calculation (including shares
exchangeable within five years for ADSs).
In accordance with IAS 33 revised (paragraph 23), the
weighted average number of shares to be issued upon conversion
of bonds redeemable for shares is included in the calculation of
basic earnings per share.
Diluted earnings per share takes into account share equivalents
having a dilutive effect, after deducting the weighted average
number of share equivalents owned by consolidated subsidiaries,
but not share equivalents that do not have a dilutive effect.
Net income (loss) is adjusted for after-tax interest expense
relating to convertible bonds.
The dilutive effects of stock option and stock purchase plans
are calculated using the treasury stock method,
which provides that proceeds to be received from exercise or
purchase are assumed to be used first to purchase shares at
market price. The dilutive effects of convertible bonds and
notes mandatorily redeemable for shares are calculated on the
assumption that the bonds and notes will be systematically
redeemed for shares (the if converted method).
The tables below reconcile basic earnings per share to diluted
earnings per share for the four periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | |
|
Number of | |
|
Per share | |
|
|
(loss) | |
|
shares | |
|
amount | |
|
|
| |
|
| |
|
| |
|
|
(in million of euros) | |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share, attributable to the equity holders of
the parent
|
|
|
930 |
|
|
|
1,367,994,653 |
(1) |
|
|
0.68 |
|
Stock option plans
|
|
|
|
|
|
|
8,582,256 |
|
|
|
|
|
Convertible bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, attributable to the equity
holders of the parent
|
|
|
930 |
|
|
|
1,376,576,909 |
|
|
|
0.68 |
|
|
|
|
|
|
|
|
|
|
|
(1) See note 23a.
Ordinary shares:
Consolidated subsidiaries of the Group owned 59,323,183 Alcatel
ordinary shares (weighted average number) and no share
equivalents.
Shares subject to future issuance:
The number of stock options not exercised as of
December 31, 2005 amounted to 149,359,801 shares. Only
8,582,256 share equivalents have been taken into account
for the calculation of the diluted earnings per share, as the
remaining share equivalents had an anti-dilutive effect.
Furthermore, 63,192,027 new or existing Alcatel ordinary shares,
which are issuable in respect of Alcatels convertible
bonds (OCEANE) issued on June 12, 2003, have not been
taken into account in the calculation of the diluted earnings
per share amount due to their anti-dilutive effect.
F-38
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | |
|
Number of | |
|
Per share | |
|
|
(loss) | |
|
shares | |
|
amount | |
|
|
| |
|
| |
|
| |
|
|
(in million of euros) | |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share, attributable to the equity holders of
the parent
|
|
|
576 |
|
|
|
1,349,528,158 |
(1) |
|
|
0.43 |
|
Stock option plans
|
|
|
|
|
|
|
12,849,283 |
|
|
|
|
|
Convertible bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, attributable to the equity
holders of the parent
|
|
|
576 |
|
|
|
1,362,377,441 |
|
|
|
0.42 |
|
|
|
|
|
|
|
|
|
|
|
(1) See note 23a.
Ordinary shares:
Consolidated subsidiaries of the Group owned 61,839,627 Alcatel
ordinary shares (weighted average number) and no share
equivalents.
Shares subject to future issuance:
The number of stock options not exercised as of
December 31, 2004 amounted to 150,715,229 shares. Only
12,849,283 share equivalents have been taken into account
for the calculation of the diluted earnings per share, as the
remaining share equivalents had an anti-dilutive effect.
Furthermore, 63,192,027 new or existing Alcatel ordinary shares,
which are issuable in respect of Alcatels convertible
bonds (OCEANE) issued on June 12, 2003, have not been
taken into account in the calculation of the diluted earnings
per share amount due to their anti-dilutive effect.
F-39
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 12 Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization | |
|
|
|
|
|
|
and | |
|
|
|
|
Gross | |
|
impairment | |
|
|
|
|
value | |
|
losses | |
|
Net | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Goodwill at January 1, 2004
|
|
|
10,011 |
|
|
|
(6,381 |
) |
|
|
3,630 |
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
214 |
|
|
|
|
|
|
|
214 |
|
Disposals and discontinued operations
|
|
|
(21 |
) |
|
|
14 |
|
|
|
(7 |
) |
Impairment losses for the period
|
|
|
(16 |
) |
|
|
15 |
|
|
|
(1 |
) |
Reversals of impairment losses resulting from disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of exchange rate changes
|
|
|
(145 |
) |
|
|
86 |
|
|
|
(59 |
) |
Other changes
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
Goodwill at December 31, 2004
|
|
|
10,043 |
|
|
|
(6,269 |
) |
|
|
3,774 |
|
Additions
|
|
|
173 |
|
|
|
|
|
|
|
173 |
|
Disposals and discontinued operations
|
|
|
(372 |
) |
|
|
72 |
|
|
|
(300 |
) |
Changes during goodwill allocation period
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Impairment losses for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversals of impairment losses resulting from disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of exchange rate changes
|
|
|
319 |
|
|
|
(196 |
) |
|
|
123 |
|
Other changes
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Goodwill at December 31, 2005
|
|
|
10,165 |
|
|
|
(6,393 |
) |
|
|
3,772 |
|
|
|
|
|
|
|
|
|
|
|
Additions to goodwill recorded in 2005 relate primarily to the
acquisitions of Native Networks and the industrial activities
(Alenia Spazio) and service activities (Telespazio) of
Finmeccanica (see note 3).
Reduction in goodwill presented in the caption disposals
and discontinued operations relates to the proportionate
consolidation of the satellite industrial activity goodwill
(fully consolidated in 2004 but now consolidated at 67%) (see
note 3).
All goodwill recognized in 2005 and 2004 has been allocated to
cash generating units by the accounting year-ends concerned.
The goodwill amounts relating to business combinations, for
which the initial accounting period has not yet been completed
at December 31, 2005, are not definitive.
One impairment test of goodwill was carried out at the IFRS
transition date. This impairment test led to recording no
impairment losses.
An additional impairment test was carried out at
December 31, 2005 on the SSD business division (Space
Solutions Division), as a result of the business combination
that occurred during the year (see note 3). The test did
not lead to the recording of any impairment losses.
An impairment loss of
30 million
was recorded in 2004 for the goodwill included in shares in
equity affiliates, due to an unfavorable change in the market
value of the shares of a company consolidated under the equity
method.
The 2005 annual impairment tests of goodwill (performed in May/
June 2005 on the basis of published data at March 31, 2005)
resulted in recording no impairment losses in 2005.
F-40
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In those cash generating units (CGU) in which there
is significant goodwill, the data and assumptions used for the
goodwill impairment tests were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference between | |
|
|
|
|
|
|
|
|
recoverable | |
|
|
|
|
|
|
Net carrying | |
|
amount and the | |
|
|
|
|
|
|
amount of | |
|
carrying amount | |
|
Discount | |
|
|
|
|
goodwill | |
|
of the net assets | |
|
Rate | |
|
Valuation method |
|
|
| |
|
| |
|
| |
|
|
2005 Test
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CGU OND (Optical Network Division)
|
|
|
1,387 |
|
|
|
790 |
|
|
|
9.45 |
% |
|
Discounted cash flows and other data** |
CGU SSD (Space Solutions Division)
|
|
|
885 |
|
|
|
325 |
* |
|
|
9.45 |
% |
|
Same as above** |
Other CGU
|
|
|
1,502 |
|
|
|
|
|
|
|
9.45 |
% |
|
Same as above** |
|
|
|
|
|
|
|
|
|
|
|
|
Total net
|
|
|
3,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
The fair value of SSD is that used in the context of the
business combination described in note 3. |
|
|
** |
Future cash flows for 5 years and disposal value. Other
data: market capitalizations and transactions. Growth rates are
those used in the Groups budgets and industry rates for
the subsequent periods. Perpetual growth rates used for the
residual values are between 0% and 4% depending on the CGU. |
Note 13 Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized | |
|
Other | |
|
|
|
|
development | |
|
intangible | |
|
|
|
|
costs | |
|
assets | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
At January 1, 2004
|
|
|
828 |
|
|
|
342 |
|
|
|
1,170 |
|
|
|
|
|
|
|
|
|
|
|
Capitalization
|
|
|
326 |
|
|
|
|
|
|
|
326 |
|
Additions
|
|
|
|
|
|
|
27 |
|
|
|
27 |
|
Assets held for sale, discontinued operations and disposals
|
|
|
(4 |
) |
|
|
(18 |
) |
|
|
(22 |
) |
Business combinations
|
|
|
|
|
|
|
80 |
|
|
|
80 |
|
Net effect of exchange rate changes
|
|
|
(8 |
) |
|
|
(20 |
) |
|
|
(28 |
) |
Other changes
|
|
|
(120 |
) |
|
|
43 |
|
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
1,022 |
|
|
|
454 |
|
|
|
1,476 |
|
Capitalization
|
|
|
349 |
|
|
|
|
|
|
|
349 |
|
Additions
|
|
|
|
|
|
|
27 |
|
|
|
27 |
|
Assets held for sale, discontinued operations and disposals
|
|
|
(67 |
) |
|
|
(22 |
) |
|
|
(89 |
) |
Impairment losses for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversals of impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Business combinations
|
|
|
|
|
|
|
33 |
|
|
|
33 |
|
Net effect of exchange rate changes
|
|
|
23 |
|
|
|
37 |
|
|
|
60 |
|
Other changes
|
|
|
(48 |
) |
|
|
(32 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
1,279 |
|
|
|
497 |
|
|
|
1,776 |
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets include primarily technologies acquired
in business combinations, patents and licenses.
F-41
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(b) |
Amortization and impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized | |
|
Other | |
|
|
|
|
development | |
|
intangible | |
|
|
|
|
costs | |
|
assets | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
At January 1, 2004
|
|
|
(290 |
) |
|
|
(297 |
) |
|
|
(587 |
) |
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
(196 |
) |
|
|
(32 |
) |
|
|
(228 |
) |
Impairment losses for the period
|
|
|
(88 |
) |
|
|
(18 |
) |
|
|
(106 |
) |
Reversals of impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale, discontinued operations and disposals
|
|
|
4 |
|
|
|
18 |
|
|
|
22 |
|
Business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of exchange rate changes
|
|
|
5 |
|
|
|
12 |
|
|
|
17 |
|
Other changes
|
|
|
119 |
|
|
|
(8 |
) |
|
|
111 |
|
At December 31, 2004
|
|
|
(446 |
) |
|
|
(325 |
) |
|
|
(771 |
) |
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
(248 |
) |
|
|
(49 |
) |
|
|
(297 |
) |
Impairment losses for the period
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
Reversals of impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale, discontinued operations and disposals
|
|
|
54 |
|
|
|
21 |
|
|
|
75 |
|
Business combinations
|
|
|
|
|
|
|
(9 |
) |
|
|
(9 |
) |
Net effect of exchange rate changes
|
|
|
(9 |
) |
|
|
(24 |
) |
|
|
(33 |
) |
Other changes
|
|
|
50 |
|
|
|
31 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
(599 |
) |
|
|
(358 |
) |
|
|
(957 |
) |
|
|
|
|
|
|
|
|
|
|
F-42
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized | |
|
Other | |
|
|
|
|
development | |
|
intangible | |
|
|
|
|
costs | |
|
assets | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
At January 1, 2004
|
|
|
538 |
|
|
|
45 |
|
|
|
583 |
|
|
|
|
|
|
|
|
|
|
|
Capitalization
|
|
|
326 |
|
|
|
|
|
|
|
326 |
|
Additions
|
|
|
|
|
|
|
27 |
|
|
|
27 |
|
Amortization
|
|
|
(196 |
) |
|
|
(32 |
) |
|
|
(228 |
) |
Impairment losses for the period
|
|
|
(88 |
) |
|
|
(18 |
) |
|
|
(106 |
) |
Reversals of impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale, discontinued operations and disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
Business combinations
|
|
|
|
|
|
|
80 |
|
|
|
80 |
|
Net effect of exchange rate changes
|
|
|
(3 |
) |
|
|
(8 |
) |
|
|
(11 |
) |
Other changes
|
|
|
(1 |
) |
|
|
35 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
576 |
|
|
|
129 |
|
|
|
705 |
|
Capitalization
|
|
|
349 |
|
|
|
|
|
|
|
349 |
|
Additions
|
|
|
|
|
|
|
27 |
|
|
|
27 |
|
Amortization
|
|
|
(248 |
) |
|
|
(49 |
) |
|
|
(297 |
) |
Impairment losses for the period
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
Reversals of impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale, discontinued operations and disposals
|
|
|
(13 |
) |
|
|
(1 |
) |
|
|
(14 |
) |
Business combinations
|
|
|
|
|
|
|
24 |
|
|
|
24 |
|
Net effect of exchange rate changes
|
|
|
14 |
|
|
|
13 |
|
|
|
27 |
|
Other changes
|
|
|
2 |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
680 |
|
|
|
139 |
|
|
|
819 |
|
|
|
|
|
|
|
|
|
|
|
F-43
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 14 Property, plant and equipment
|
|
(a) |
Changes in property, plant and equipment, gross |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant, | |
|
|
|
|
|
|
|
|
|
|
equipment and | |
|
|
|
|
|
|
Land | |
|
Buildings | |
|
tools | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
At January 1, 2004
|
|
|
148 |
|
|
|
1,634 |
|
|
|
3,533 |
|
|
|
777 |
|
|
|
6,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
12 |
|
|
|
134 |
|
|
|
80 |
|
|
|
226 |
|
Assets held for sale, discontinued operations and disposals
|
|
|
(60 |
) |
|
|
(481 |
) |
|
|
(1,003 |
) |
|
|
(125 |
) |
|
|
(1,669 |
) |
Business combinations
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
Net effect of exchange rate changes
|
|
|
(1 |
) |
|
|
(26 |
) |
|
|
(79 |
) |
|
|
(3 |
) |
|
|
(109 |
) |
Reclassifications and other changes
|
|
|
(6 |
) |
|
|
59 |
|
|
|
156 |
|
|
|
(81 |
) |
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
81 |
|
|
|
1,198 |
|
|
|
2,747 |
|
|
|
648 |
|
|
|
4,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
3 |
|
|
|
12 |
|
|
|
152 |
|
|
|
95 |
|
|
|
262 |
|
Assets held for sale, discontinued operations and disposals
|
|
|
(13 |
) |
|
|
(255 |
) |
|
|
(522 |
) |
|
|
(76 |
) |
|
|
(866 |
) |
Business combinations
|
|
|
9 |
|
|
|
69 |
|
|
|
42 |
|
|
|
8 |
|
|
|
128 |
|
Net effect of exchange rate changes
|
|
|
4 |
|
|
|
56 |
|
|
|
171 |
|
|
|
10 |
|
|
|
241 |
|
Reclassifications and other changes
|
|
|
1 |
|
|
|
(48 |
) |
|
|
100 |
|
|
|
(72 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
85 |
|
|
|
1,032 |
|
|
|
2,690 |
|
|
|
613 |
|
|
|
4,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(b) |
Changes in accumulated depreciation of property, plant and
equipment and impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant, | |
|
|
|
|
|
|
|
|
|
|
equipment and | |
|
|
|
|
|
|
Land | |
|
Buildings | |
|
tools | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
At January 1, 2004
|
|
|
(21 |
) |
|
|
(1,016 |
) |
|
|
(2,988 |
) |
|
|
(631 |
) |
|
|
(4,656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation charge
|
|
|
(1 |
) |
|
|
(69 |
) |
|
|
(207 |
) |
|
|
(40 |
) |
|
|
(317 |
) |
Impairment losses
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(10 |
) |
Assets held for sale, discontinued operations and disposals
|
|
|
14 |
|
|
|
347 |
|
|
|
930 |
|
|
|
102 |
|
|
|
1,393 |
|
Business combinations
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
Net effect of exchange rate changes
|
|
|
|
|
|
|
12 |
|
|
|
67 |
|
|
|
2 |
|
|
|
81 |
|
Reclassifications and other changes
|
|
|
(1 |
) |
|
|
13 |
|
|
|
(123 |
) |
|
|
44 |
|
|
|
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
(12 |
) |
|
|
(715 |
) |
|
|
(2,329 |
) |
|
|
(523 |
) |
|
|
(3,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation charge
|
|
|
(1 |
) |
|
|
(55 |
) |
|
|
(193 |
) |
|
|
(35 |
) |
|
|
(284 |
) |
Impairment losses
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Assets held for sale, discontinued operations and disposals
|
|
|
1 |
|
|
|
176 |
|
|
|
463 |
|
|
|
64 |
|
|
|
704 |
|
Business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of exchange rate changes
|
|
|
|
|
|
|
(25 |
) |
|
|
(143 |
) |
|
|
(7 |
) |
|
|
(175 |
) |
Reclassifications and other changes
|
|
|
(2 |
) |
|
|
65 |
|
|
|
(50 |
) |
|
|
13 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
(14 |
) |
|
|
(555 |
) |
|
|
(2,252 |
) |
|
|
(488 |
) |
|
|
(3,309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(c) |
Changes in property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant, | |
|
|
|
|
|
|
|
|
|
|
equipment and | |
|
|
|
|
|
|
Land | |
|
Buildings | |
|
tools | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
At January 1, 2004
|
|
|
127 |
|
|
|
618 |
|
|
|
545 |
|
|
|
146 |
|
|
|
1,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
12 |
|
|
|
134 |
|
|
|
80 |
|
|
|
226 |
|
Depreciation charge
|
|
|
(1 |
) |
|
|
(69 |
) |
|
|
(207 |
) |
|
|
(40 |
) |
|
|
(317 |
) |
Impairment losses
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(10 |
) |
Assets held for sale, discontinued operations and disposals
|
|
|
(46 |
) |
|
|
(134 |
) |
|
|
(73 |
) |
|
|
(23 |
) |
|
|
(276 |
) |
Business combinations
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Net effect of exchange rate changes
|
|
|
(1 |
) |
|
|
(14 |
) |
|
|
(12 |
) |
|
|
(1 |
) |
|
|
(28 |
) |
Reclassifications and other changes
|
|
|
(7 |
) |
|
|
72 |
|
|
|
33 |
|
|
|
(37 |
) |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
69 |
|
|
|
483 |
|
|
|
418 |
|
|
|
125 |
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
3 |
|
|
|
12 |
|
|
|
152 |
|
|
|
95 |
|
|
|
262 |
|
Depreciation charge
|
|
|
(1 |
) |
|
|
(55 |
) |
|
|
(193 |
) |
|
|
(35 |
) |
|
|
(284 |
) |
Impairment losses
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Assets held for sale, discontinued operations and disposals
|
|
|
(12 |
) |
|
|
(79 |
) |
|
|
(59 |
) |
|
|
(12 |
) |
|
|
(162 |
) |
Business combinations
|
|
|
9 |
|
|
|
69 |
|
|
|
42 |
|
|
|
8 |
|
|
|
128 |
|
Net effect of exchange rate changes
|
|
|
4 |
|
|
|
31 |
|
|
|
28 |
|
|
|
3 |
|
|
|
66 |
|
Reclassifications and other changes
|
|
|
(1 |
) |
|
|
17 |
|
|
|
50 |
|
|
|
(59 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
71 |
|
|
|
477 |
|
|
|
438 |
|
|
|
125 |
|
|
|
1,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2005 figures presented in the caption Assets held for
sale, discontinued operations and disposals relate
primarily to property, plant and equipment of the space
activity, which following the business combination with Alenia,
are now proportionately consolidated at 67%.
Note 15 Finance leases and operating
leases
|
|
(a) |
Finance leases (IFRS) |
Property, plant and equipment held under finance leases have a
net carrying amount of
54 million
at December 31, 2005
(49 million
at December 31, 2004). Such finance leases relate primarily
to plant and equipment.
Future minimum lease payments under non-cancelable finance
leases are shown in note 31a Off balance sheet
commitments.
The main finance lease contract concerns a company consolidated
proportionately at 51%, Alda Marine, which leases four vessels
as part of its activity of laying and maintaining submarine
cables. The net carrying amount of these vessels recognized in
property, plant and equipment was
53 million
at December 31, 2005. The corresponding obligation to pay
future lease payments was
59 million
at December 31, 2005.
F-46
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future minimum lease payments under non-cancelable operating
leases are shown in note 31a Off balance sheet
commitments.
Future minimum sublease payments expected to be received under
non-cancelable operating subleases were
27 million
at December 31, 2005
(7 million
at December 31, 2004).
Lease payments under operating leases recognized as an expense
in the income statement are analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Lease payments minimum
|
|
|
97 |
|
|
|
49 |
|
Lease payments conditional
|
|
|
42 |
|
|
|
61 |
|
Sublease rental income
|
|
|
(10 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
Total recognized in the income statement
|
|
|
129 |
|
|
|
105 |
|
|
|
|
|
|
|
|
Note 16 Share in net assets of equity
affiliates and joint ventures
|
|
(a) |
Share in net assets of equity affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage | |
|
|
|
|
owned | |
|
Value | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(in millions | |
|
|
|
|
|
|
of euros) | |
Thales(1)
|
|
|
9.5 |
% |
|
|
9.5 |
% |
|
|
334 |
|
|
|
288 |
|
Draka Comteq
BV(2)
|
|
|
49.9 |
% |
|
|
49.9 |
% |
|
|
127 |
|
|
|
132 |
|
TAMP(3)
|
|
|
|
|
|
|
45.0 |
% |
|
|
|
|
|
|
33 |
|
Other (less than
50 million)
|
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share in net assets of equity affiliates
|
|
|
|
|
|
|
|
|
|
|
606 |
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Although Alcatel only has a 9.5% stake in Thales, Alcatel is
nevertheless the largest private shareholder of this group, with
three seats on Thales Board of Directors. Due to the
Groups continuing significant influence on this company,
Alcatel still accounts for Thales using the equity method. At
December 31, 2005, Alcatels stake was 9.5% (12.8% in
voting rights). |
|
(2) |
Under the agreement, dated July 2, 2004, between Alcatel
and Draka Holding BV concerning the business combination of the
optical fiber and communication cable activities of the two
groups, a new company Draka Comteq BV was created. Alcatel owns
49.9% of this new company, which is consolidated under the
equity method beginning July 1, 2004 (see note 3). |
|
(3) |
Under the agreement, dated August 31, 2004, between Alcatel
and TCL Communication Technology Holdings Limited concerning the
creation of a new joint venture for mobile handsets, a new
company, TAMP, was created. Alcatel owned 45% of this company,
which was consolidated under the equity method from
September 1, 2004 to July 18, 2005, when Alcatel
swapped its 45% stake in the joint venture for shares in TCL
Communication Holding Ltd, representing 4.8% of this listed
company in which the Group has no significant influence (see
note 3). |
Alcatels share in the market capitalization of listed
equity affiliates at December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Thales
|
|
|
624 |
|
|
|
575 |
|
F-47
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(b) |
Change in share of net assets of equity affiliates |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Carrying amount at January 1
|
|
|
604 |
|
|
|
501 |
|
|
|
|
|
|
|
|
Change in equity affiliates
|
|
|
(16 |
) |
|
|
195 |
|
Share of net income (loss)*
|
|
|
(14 |
) |
|
|
(61 |
) |
Net effect of exchange rate changes
|
|
|
28 |
|
|
|
(11 |
) |
Other changes
|
|
|
4 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
Carrying amount at December 31
|
|
|
606 |
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
* |
Including
30 million
of impairment losses in 2004 relating to equity affiliate
goodwill (see note 7). |
(c) Summarized financial
information for equity affiliates
Summarized financial information for Thales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
January 1, | |
|
December 31, | |
|
|
2005(1) | |
|
2005(2) | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
4,224 |
|
|
|
4,190 |
|
|
|
4,239 |
|
Current assets
|
|
|
9,663 |
|
|
|
9,428 |
|
|
|
9,262 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
13,887 |
|
|
|
13,618 |
|
|
|
13,501 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
2,103 |
|
|
|
1,741 |
|
|
|
1,601 |
|
Non-current liabilities
|
|
|
2,583 |
|
|
|
2,555 |
|
|
|
2,553 |
|
Current liabilities
|
|
|
9,201 |
|
|
|
9,322 |
|
|
|
9,346 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
13,887 |
|
|
|
13,618 |
|
|
|
13,501 |
|
|
|
|
|
|
|
|
|
|
|
Income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
10,263 |
|
|
|
|
|
|
|
10,283 |
|
Income (loss) from operating activities
|
|
|
549 |
|
|
|
|
|
|
|
571 |
|
Net income (loss) attributable to equity holders of the parent
|
|
|
334 |
|
|
|
|
|
|
|
326 |
|
|
|
(1) |
In view of the timing of the publication of Thales
financial statements, and as this equity affiliate is listed on
a securities exchange, the Groups share of net income
(loss) is calculated based on the most recently published
financial statements under IFRSs. It does not therefore include,
due to the rules of communication applicable to listed
companies, any possible non-published information between two
publication dates that may have been obtained by the directors
representing Alcatel on the Thales Board of Directors. As
Thales financial data for 2005 was not available at the
date of authorisation for issue of Alcatels financial
statements, the Groups share of net income (loss) has been
calculated on the basis of Thales latest available
financial statements at June 30, 2005. |
|
(2) |
The accounting options made by Thales governing the first-time
adoption of IFRSs are similar to those made by Alcatel, except
for the timing of the first application of the standards, IAS 32
and 39, relating to financial instruments (Alcatel first applied
these at January 1, 2004 and Thales at January 1,
2005). As it is not possible to restate the 2004 accounts of
Thales for the impact of the application of these standards,
Alcatels share of the change in shareholders equity
resulting from this first application has been recognized in
2005 in net income (loss) changes recognized directly in
equity. |
F-48
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Aggregated financial information for other equity affiliates as
if those entities were fully consolidated:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Total assets
|
|
|
1,195 |
|
|
|
1,248 |
|
Liabilities (excluding shareholders equity)
|
|
|
563 |
|
|
|
573 |
|
Shareholders equity
|
|
|
632 |
|
|
|
675 |
|
Revenues
|
|
|
1,146 |
|
|
|
712 |
|
Net income (loss) attributable to equity holders of the parent
|
|
|
(68 |
) |
|
|
(96 |
) |
|
|
(d) |
Aggregated financial information for joint ventures |
Aggregated financial information for the Groups share in
the net assets of joint ventures proportionately consolidated
(Alcatel Alenia Space, Telespazio, Alda Marine and Evolium in
2005 and Alda Marine and Evolium in 2004) are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Balance sheet data
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
1,314 |
|
|
|
209 |
|
Current assets
|
|
|
773 |
|
|
|
6 |
|
Shareholders equity
|
|
|
983 |
|
|
|
90 |
|
Other non-current liabilities
|
|
|
135 |
|
|
|
47 |
|
Current liabilities
|
|
|
969 |
|
|
|
78 |
|
Income statement data*
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
560 |
|
|
|
9 |
|
Cost of sales
|
|
|
(367 |
) |
|
|
65 |
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
(3 |
) |
|
|
(1 |
) |
Net income (loss) attributable to equity holders of the parent
|
|
|
44 |
|
|
|
(5 |
) |
Cash flow statement data*
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
80 |
|
|
|
60 |
|
Net cash provided (used) by investing activities
|
|
|
(62 |
) |
|
|
(53 |
) |
Net cash provided (used) by financing activities
|
|
|
11 |
|
|
|
(9 |
) |
|
|
* |
Aggregated financial information for Alcatel Alenia Space and
Telespazio only relates to six months of activity in 2005 (see
note 3). |
F-49
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 17 Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Other non- | |
|
|
|
Other non- | |
|
|
|
|
current financial | |
|
Marketable | |
|
|
|
current financial | |
|
Marketable | |
|
|
|
|
assets* | |
|
Securities | |
|
Total | |
|
assets | |
|
Securities | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Financial assets available for sale
|
|
|
122 |
|
|
|
|
|
|
|
122 |
|
|
|
213 |
|
|
|
105 |
|
|
|
318 |
|
Financial assets at fair value through profit or loss
|
|
|
|
|
|
|
640 |
|
|
|
640 |
|
|
|
|
|
|
|
447 |
|
|
|
447 |
|
Financial assets at amortized cost
|
|
|
184 |
|
|
|
|
|
|
|
184 |
|
|
|
341 |
|
|
|
|
|
|
|
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
306 |
|
|
|
640 |
|
|
|
946 |
|
|
|
554 |
|
|
|
552 |
|
|
|
1,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Of which
21 million
matures within one year. |
No financial asset is considered as being held to maturity.
|
|
(a) |
Financial assets available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Other non- | |
|
|
|
Other non- | |
|
|
|
|
current financial | |
|
Marketable | |
|
|
|
current financial | |
|
Marketable | |
|
|
|
|
assets* | |
|
Securities | |
|
Total | |
|
assets | |
|
Securities | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Net carrying amount at January 1
|
|
|
213 |
|
|
|
105 |
|
|
|
318 |
|
|
|
215 |
|
|
|
92 |
|
|
|
307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions/(disposals)
|
|
|
(4 |
) |
|
|
(49 |
) |
|
|
(53 |
) |
|
|
23 |
|
|
|
5 |
|
|
|
28 |
|
Fair value changes
|
|
|
(13 |
) |
|
|
(56 |
) |
|
|
(69 |
) |
|
|
23 |
|
|
|
8 |
|
|
|
31 |
|
Impairment losses*
|
|
|
(47 |
) |
|
|
|
|
|
|
(47 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
(44 |
) |
Other changes
|
|
|
(27 |
) |
|
|
|
|
|
|
(27 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount at December 31
|
|
|
122 |
|
|
|
|
|
|
|
122 |
|
|
|
213 |
|
|
|
105 |
|
|
|
318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which: - at fair value
|
|
|
36 |
|
|
|
|
|
|
|
36 |
|
|
|
70 |
|
|
|
105 |
|
|
|
175 |
|
-
at cost
|
|
|
86 |
|
|
|
|
|
|
|
86 |
|
|
|
143 |
|
|
|
|
|
|
|
143 |
|
|
|
* |
See note 7 of which
23 million
in 2005 relates to the Avanex shares due to an unfavorable
change in the market price. |
F-50
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial assets available for sale are stated at fair value,
except for non-listed financial assets, which are stated at
cost, if no reliable fair value exists.
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Fair value changes
|
|
|
|
|
|
|
|
|
Fair value changes recognized directly in shareholders
equity
|
|
|
(13 |
) |
|
|
32 |
|
Changes resulting from gains (losses) previously recognized in
shareholders equity now recognized in net income (loss)
due to:
|
|
|
|
|
|
|
|
|
|
disposals*
|
|
|
(56 |
) |
|
|
|
|
|
|
* |
Relates to the sale of the Nexans shares during the first
quarter of 2005 (see note 8). |
|
|
(b) |
Financial assets at fait value through profit or loss |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Net carrying amount at January 1
|
|
|
447 |
|
|
|
174 |
|
|
|
|
|
|
|
|
Additions/ (disposals )
|
|
|
148 |
|
|
|
264 |
|
Fair value changes
|
|
|
19 |
|
|
|
6 |
|
Impairment losses
|
|
|
|
|
|
|
|
|
Other changes
|
|
|
26 |
|
|
|
3 |
|
|
|
|
|
|
|
|
Net carrying amount at December 31
|
|
|
640 |
|
|
|
447 |
|
|
|
|
|
|
|
|
|
|
(c) |
Financial assets at amortized cost |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Net carrying amount at January 1
|
|
|
341 |
|
|
|
829 |
|
|
|
|
|
|
|
|
Additions/ (disposals )
|
|
|
(94 |
) |
|
|
(569 |
) |
Impairment losses*
|
|
|
25 |
|
|
|
74 |
|
Other changes (reclassifications)
|
|
|
(88 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
Net carrying amount at December 31
|
|
|
184 |
|
|
|
341 |
|
|
|
|
|
|
|
|
* See note 7
F-51
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 18 Operating working capital
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
Inventories and work in progress, net
|
|
|
1,438 |
|
|
|
1,273 |
|
Trade receivables and related accounts, net
|
|
|
3,420 |
|
|
|
2,693 |
|
Advances and progress payments
|
|
|
124 |
|
|
|
90 |
|
Customers deposits and advances
|
|
|
(1,144 |
) |
|
|
(973 |
) |
Trade payables and related accounts
|
|
|
(3,755 |
) |
|
|
(3,350 |
) |
Amounts due from customers on construction contracts
|
|
|
917 |
|
|
|
729 |
|
Amounts due to customers on construction contracts
|
|
|
(138 |
) |
|
|
(133 |
) |
Currency derivatives on working capital other assets
|
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
|
Operating working capital, net
|
|
|
862 |
|
|
|
431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
Analysis of amounts due from/to customers on construction
contracts
|
|
|
|
|
|
|
|
|
Amounts due from customers on construction contracts
|
|
|
917 |
|
|
|
729 |
|
Amounts due to customers on construction contracts
|
|
|
(138 |
) |
|
|
(133 |
) |
|
|
|
|
|
|
|
Total
|
|
|
779 |
|
|
|
596 |
|
|
|
|
|
|
|
|
Work in progress on construction contracts, gross
|
|
|
281 |
|
|
|
291 |
|
Work in progress on construction contracts, depreciation
|
|
|
(29 |
) |
|
|
(30 |
) |
Customer receivables on construction contracts
|
|
|
700 |
|
|
|
606 |
|
Product sales reserves construction contracts
|
|
|
(173 |
) |
|
|
(271 |
) |
|
|
|
|
|
|
|
Total
|
|
|
779 |
|
|
|
596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in | |
|
Translation | |
|
|
|
|
December 31, | |
|
|
|
consolidated | |
|
adjustments | |
|
December 31, | |
|
|
2004 | |
|
Cash flow | |
|
companies | |
|
and other | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Inventories and work in
progress(1)
|
|
|
2,029 |
|
|
|
7 |
|
|
|
148 |
|
|
|
(71 |
) |
|
|
2,113 |
|
Trade receivables and related accounts
(1)
|
|
|
3,583 |
|
|
|
497 |
|
|
|
(69 |
) |
|
|
337 |
|
|
|
4,348 |
|
Advances and progress payments
|
|
|
90 |
|
|
|
31 |
|
|
|
(1 |
) |
|
|
4 |
|
|
|
124 |
|
Customers deposits and advances
|
|
|
(973 |
) |
|
|
(157 |
) |
|
|
16 |
|
|
|
(30 |
) |
|
|
(1,144 |
) |
Trade payables and related accounts
|
|
|
(3,350 |
) |
|
|
(180 |
) |
|
|
(46 |
) |
|
|
(179 |
) |
|
|
(3,755 |
) |
Currency derivatives on working capital other assets
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
(102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating working capital, gross
|
|
|
1,481 |
|
|
|
198 |
|
|
|
48 |
|
|
|
(41 |
) |
|
|
1,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales reserves construction contracts(1)
|
|
|
(271 |
) |
|
|
|
|
|
|
29 |
|
|
|
69 |
|
|
|
(173 |
) |
Impairment losses
|
|
|
(779 |
) |
|
|
|
|
|
|
9 |
|
|
|
119 |
|
|
|
(651 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating working capital, net
|
|
|
431 |
|
|
|
198 |
|
|
|
86 |
|
|
|
147 |
|
|
|
862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(1) |
Including amounts relating to construction contracts presented
in the balance sheet captions amounts due from/to
customers on construction contracts |
Receivables sold without recourse
Balances
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
Receivables sold without
recourse(1)
|
|
|
999 |
|
|
|
841 |
|
|
|
(1) |
See accounting policies in note 1s. |
Changes in receivables sold without recourse
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Impact on cash flows from operating activities
|
|
|
158 |
|
|
|
(57 |
) |
Note 19 Inventories and work in progress
|
|
(a) |
Analysis of net value |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Raw materials and goods
|
|
|
467 |
|
|
|
501 |
|
Work in progress excluding construction contracts
|
|
|
712 |
|
|
|
592 |
|
Finished products
|
|
|
653 |
|
|
|
645 |
|
|
|
|
|
|
|
|
Gross value (excluding construction contracts)
|
|
|
1,832 |
|
|
|
1,738 |
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(394 |
) |
|
|
(465 |
) |
|
|
|
|
|
|
|
Net value (excluding construction contracts)
|
|
|
1,438 |
|
|
|
1,273 |
|
|
|
|
|
|
|
|
Work in progress on construction contracts, gross*
|
|
|
281 |
|
|
|
291 |
|
Valuation allowance*
|
|
|
(29 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
|
Work in progress on construction contracts, net
|
|
|
252 |
|
|
|
261 |
|
|
|
|
|
|
|
|
Total, net
|
|
|
1,690 |
|
|
|
1,534 |
|
|
|
|
|
|
|
|
|
|
* |
Included in the amounts due from/to customers on construction
contracts. |
|
|
(b) |
Change in valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
At January 1
|
|
|
(495 |
) |
|
|
(978 |
) |
|
|
|
|
|
|
|
(Additions)/ reversals
|
|
|
(18 |
) |
|
|
20 |
|
Utilization
|
|
|
131 |
|
|
|
427 |
|
Changes in consolidation group
|
|
|
11 |
|
|
|
40 |
|
Net effect of exchange rate changes and other changes
|
|
|
(52 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
At December 31
|
|
|
(423 |
) |
|
|
(495 |
) |
|
|
|
|
|
|
|
F-53
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 20 Trade receivables and related
accounts
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Receivables bearing interest
|
|
|
138 |
|
|
|
101 |
|
Other trade receivables
|
|
|
3,510 |
|
|
|
2,876 |
|
|
|
|
|
|
|
|
Gross value (excluding construction contracts)
|
|
|
3,648 |
|
|
|
2,977 |
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(228 |
) |
|
|
(284 |
) |
|
|
|
|
|
|
|
Net value (excluding construction contracts)
|
|
|
3,420 |
|
|
|
2,693 |
|
|
|
|
|
|
|
|
Receivables on construction contracts*
|
|
|
700 |
|
|
|
606 |
|
|
|
|
|
|
|
|
Total, net
|
|
|
4,120 |
|
|
|
3,299 |
|
|
|
|
|
|
|
|
Of which due after one year on the Net
value (excluding construction
contracts)**
|
|
|
0 |
|
|
|
|
|
|
|
|
|
* |
Included in the amounts due from/to customers on construction
contracts. |
|
|
** |
Data is not available for 2004. |
Note 21 Other assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
Other assets
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
827 |
|
|
|
1,418 |
|
Other non-current assets
|
|
|
468 |
|
|
|
332 |
|
|
|
|
|
|
|
|
Total
|
|
|
1,295 |
|
|
|
1,750 |
|
|
|
|
|
|
|
|
Of which: Currency derivatives on working capital
|
|
|
|
|
|
|
102 |
|
|
Other currency derivatives
|
|
|
105 |
|
|
|
420 |
|
|
Interest-rate derivatives
|
|
|
178 |
|
|
|
148 |
|
|
Other current and non-current assets
|
|
|
1,012 |
|
|
|
1,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
Other liabilities
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
1931 |
|
|
|
2,157 |
|
Other non-current liabilities
|
|
|
295 |
|
|
|
201 |
|
|
|
|
|
|
|
|
Total
|
|
|
2,226 |
|
|
|
2,358 |
|
|
|
|
|
|
|
|
Of which: Currency derivatives on working capital
|
|
|
|
|
|
|
|
|
|
Other currency derivatives
|
|
|
128 |
|
|
|
360 |
|
|
Interest-rate derivatives
|
|
|
71 |
|
|
|
43 |
|
|
Other current and non-current liabilities
|
|
|
2,027 |
|
|
|
1,955 |
|
F-54
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 22 Allocation of 2005 net
income
The Board of Directors will propose to the Shareholders
Ordinary Annual General Meeting to distribute a dividend of
0.16 per
share for the year ended December 31, 2005, which aggregate
amount is
229 million
(distributions in previous years: no dividends were distributed
for 2004 and 2003).
Note 23 Shareholders equity
|
|
(a) |
Number of shares comprising the capital stock |
|
|
|
|
|
|
|
Number of | |
|
|
shares | |
|
|
| |
December 31, 2005
|
|
|
|
|
Number of ordinary shares issued (share capital)
|
|
|
1,428,541,640 |
|
Treasury shares
|
|
|
(58,920,710 |
) |
|
|
|
|
Number of shares in circulation
|
|
|
1,369,620,930 |
|
|
|
|
|
Weighting effect of share issues for stock options exercised
|
|
|
(1,223,804 |
) |
Weighting effect of treasury shares
|
|
|
(402,473 |
) |
Weighting effect of share issues in respect of business
combinations
|
|
|
|
|
|
|
|
|
Number of shares used for calculating basic earnings per
share
|
|
|
1,367,994,653 |
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
shares | |
|
|
| |
December 31, 2004
|
|
|
|
|
Number of ordinary shares issued (share capital)
|
|
|
1,305,455,461 |
|
Number of notes mandatorily redeemable for new or existing shares
|
|
|
120,780,519 |
|
Treasury shares
|
|
|
(60,262,153 |
) |
|
|
|
|
Number of shares in circulation
|
|
|
1,365,973,827 |
|
|
|
|
|
Weighting effect of share issues for stock options exercised
|
|
|
(1,664,706 |
) |
Weighting effect of treasury shares
|
|
|
(1,577,474 |
) |
Weighting effect of share issues in respect of business
combinations
|
|
|
(13,203,489 |
) |
|
|
|
|
Number of shares used for calculating basic earnings per
share
|
|
|
1,349,528,158 |
|
|
|
|
|
|
|
(b) |
Capital increase program for employees with subscription
stock option plan |
Under a capital increase program for employees of the Group,
approved by the Board of Directors on March 7, 2001, 91,926
Class A shares were issued at a price of
50 per
share. Each share subscribed included the right to receive three
options, each exercisable for one Class A share. 275,778
options were granted and are exercisable during the one-year
period from July 1, 2004 until July 1, 2005 or from
the end of the unavailability period set by article 163 bis C of
the General Tax Code (4 years on this date), for the
beneficiaries who were employees of a member of the Group whose
registered office is located in France at the time the options
were granted.
F-55
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(c) |
Capital stock and additional paid-in capital |
At December 31, 2005, the capital stock consisted of
1,428,541,640 ordinary shares of nominal value
2 (1,305,455,461
ordinary shares of nominal value
2 at
December 31, 2004 and 1,284,410,024 ordinary shares of
nominal value 2
at January 1, 2004).
During 2005, increases in capital stock and additional paid-in
capital amounted to
662.1 million.
These increases related to the following actions:
|
|
|
|
|
issuance of 1,855,913 shares for
12.0 million,
as a result of the exercise of 1,855,913 options (including
additional paid-in capital of
8.3 million); |
|
|
|
redemption of 450,000 bonds redeemable for Alcatel shares in
connection with the acquisition of Imagic TV in 2003 and Spatial
Wireless in 2004 generating a capital increase of
5.1 million
(including additional paid-in capital of
4.2 million); |
|
|
|
redemption of 120,780,266 ORANE notes issued in 2002 and
redeemable for new or existing Alcatel shares, generating a
capital increase of
645.0 million,
including additional paid-in capital of
403.4 million. |
During 2004, increases in capital stock and additional paid-in
capital amounted to
238 million.
These increases related to the following actions:
|
|
|
|
|
issuance of 1,508,728 shares for
9.9 million,
as a result of the exercise of 1,508,728 options (including
additional paid-in capital of
6.9 million); |
|
|
|
redemption of 3,212 ORANE notes issued in 2002 and redeemable
for new or existing Alcatel shares, generating a capital
increase of
0.017 million,
including additional paid-in capital of
0.011 million; |
|
|
|
acquisition of Spatial Wireless in December 2004, which resulted
in the issuance of 17,390,262 shares for
207.2 million
(including additional paid-in capital of
172.4 million);
in addition, of the 1,598,072 bonds redeemable for Alcatel
shares issued in this transaction by Coralec (a subsidiary of
Alcatel) at the price of
11.912 to cover
the exercise of options and warrants, 393,035 bonds were
redeemed by the issuance of an equal number of Alcatel shares,
generating a capital increase of
4.7 million,
including additional paid-in capital of
3.9 million; and |
|
|
|
redemption of 300,000, 400,000, 50,000 and 1,000,000 bonds
redeemable for Alcatel 0. |
|
|
|
cover option exercises, warrant exercises and note conversions
issued in connection with the acquisitions of Astral Point in
2002, Telera in 2002, Imagic TV in 2003 and TiMetra in 2003,
generating capital increases of
4.9 million,
2.1 million,
0.4 million
and
8.1 million,
including additional paid-in capital of
4.3 million,
1.3 million,
0.3 million
and
6.1 million,
respectively. |
F-56
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2005, stock options plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 | |
|
1999-2000 | |
|
|
|
|
1996 Plans | |
|
1997 Plans | |
|
1998 Plan | |
|
Plans | |
|
U.S. Plans | |
|
2000 Plans | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
(in number of options) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD 21.40- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price
|
|
|
12.96 |
|
|
|
13.42 |
|
|
|
19.27 |
|
|
|
20.95 |
|
|
|
20.52 |
|
|
|
28.40 |
|
|
|
USD 84.88 |
|
|
|
48.00 |
|
|
|
48.00 |
|
|
|
65.00 |
|
|
|
64.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
07.01.98 |
|
|
|
07.01.98 |
|
|
|
05.01.02 |
|
|
|
12.11.02 |
|
|
|
12.09.03 |
|
|
|
09.08.04 |
|
|
|
|
|
|
|
04.01.03 |
|
|
|
07.01.03 |
|
|
|
12.13.03 |
|
|
|
12.13.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04.01.05 |
|
|
|
07.01.05 |
|
|
|
12.13.05 |
|
|
|
12.13.04 |
|
To
|
|
|
12.31.03 |
|
|
|
12.31.03 |
|
|
|
12.31.04 |
|
|
|
12.31.04 |
|
|
|
12.31.05 |
|
|
|
12.31.05 |
|
|
|
|
|
|
|
12.31.05 |
|
|
|
06.30.04 |
|
|
|
12.31.05 |
|
|
|
12.12.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.31.07 |
|
|
|
06.30.06 |
|
|
|
12.31.07 |
|
|
|
12.12.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
January 1, 1996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
9,069,500 |
|
|
|
394,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(185,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 1996 |
|
|
8,884,500 |
|
|
|
394,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
8,199,500 |
|
|
|
367,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(396,000 |
) |
|
|
(7,500 |
) |
|
|
(115,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 1997 |
|
|
8,488,500 |
|
|
|
386,500 |
|
|
|
8,084,500 |
|
|
|
367,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,602,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,163,950 |
) |
|
|
(114,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(30,500 |
) |
|
|
(5,000 |
) |
|
|
(45,000 |
) |
|
|
(5,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 1998 |
|
|
6,294,050 |
|
|
|
267,500 |
|
|
|
8,039,500 |
|
|
|
362,000 |
|
|
|
11,602,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545,000 |
|
|
|
7,866,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,630,425 |
) |
|
|
(38,250 |
) |
|
|
(35,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,000 |
) |
|
|
|
|
|
|
(100,000 |
) |
|
|
(7,500 |
) |
|
|
(427,250 |
) |
|
|
|
|
|
|
(143650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 1999 |
|
|
4,658,625 |
|
|
|
229,650 |
|
|
|
7,904,500 |
|
|
|
354,500 |
|
|
|
11,175,250 |
|
|
|
545,000 |
|
|
|
7,722,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,407,838 |
|
|
|
15,239,250 |
|
|
|
8,905,804 |
|
|
|
1,235,500 |
|
|
|
306,700 |
|
Exercised
|
|
|
(1,277,690 |
) |
|
|
(92,750 |
) |
|
|
(56,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(393,296 |
) |
|
|
(10,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(112,500 |
) |
|
|
(2,500 |
) |
|
|
(412,000 |
) |
|
|
(46,250 |
) |
|
|
(3,060,818 |
) |
|
|
(923,120 |
) |
|
|
(47,328 |
) |
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2000 |
|
|
3,380,935 |
|
|
|
136,500 |
|
|
|
7,736,000 |
|
|
|
352,000 |
|
|
|
10,763,250 |
|
|
|
498,750 |
|
|
|
23,676,704 |
|
|
|
14,306,130 |
|
|
|
8,858,476 |
|
|
|
1,235,500 |
|
|
|
306,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(732,728 |
) |
|
|
(1,250 |
) |
|
|
(15,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(261,205 |
) |
|
|
(3,000 |
) |
|
|
(376 |
) |
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(30,000 |
) |
|
|
|
|
|
|
(60,000 |
) |
|
|
(5,000 |
) |
|
|
(3,327,376 |
|
|
|
(161,500 |
) |
|
|
(122,364 |
) |
|
|
(130,150 |
) |
|
|
(3,600 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2001 |
|
|
2,648,207 |
|
|
|
135,250 |
|
|
|
7,691,000 |
|
|
|
352,000 |
|
|
|
10,703,250 |
|
|
|
493,750 |
|
|
|
20,088,123 |
|
|
|
14,141,630 |
|
|
|
8,735,736 |
|
|
|
1,105,350 |
|
|
|
303,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,577 |
) |
|
|
|
|
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(12,000 |
) |
|
|
|
|
|
|
(157,500 |
) |
|
|
(30,000 |
) |
|
|
(306,000 |
) |
|
|
(22,500 |
) |
|
|
(3,871,401 |
) |
|
|
(581,075 |
) |
|
|
(37,684 |
) |
|
|
(40,000 |
) |
|
|
(5,100 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2002 |
|
|
2,629,630 |
|
|
|
135,250 |
|
|
|
7,532,500 |
|
|
|
322,000 |
|
|
|
10,397,250 |
|
|
|
471,250 |
|
|
|
16,216,722 |
|
|
|
13,560,555 |
|
|
|
8,698,052 |
|
|
|
1,065,350 |
|
|
|
298,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(27,500 |
) |
|
|
|
|
|
|
(40,000 |
) |
|
|
(10,000 |
) |
|
|
(165,000 |
) |
|
|
(17,500 |
) |
|
|
(2,797,641 |
) |
|
|
(320,500 |
) |
|
|
(6,524 |
) |
|
|
(32,500 |
) |
|
|
(86,421 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2003 |
|
|
2,602,130 |
|
|
|
135,250 |
|
|
|
7,492,500 |
|
|
|
312,000 |
|
|
|
10,232,250 |
|
|
|
453,750 |
|
|
|
13,419,081 |
|
|
|
13,240,055 |
|
|
|
8,691,528 |
|
|
|
1,032,850 |
|
|
|
211,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 | |
|
1999-2000 | |
|
|
|
|
1996 Plans | |
|
1997 Plans | |
|
1998 Plan | |
|
Plans | |
|
U.S. Plans | |
|
2000 Plans | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
(in number of options) | |
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(56,000 |
) |
|
|
(15,000 |
) |
|
|
(110,000 |
) |
|
|
(10,000 |
) |
|
|
(2,276,230 |
) |
|
|
(174,000 |
) |
|
|
(5,429,868 |
) |
|
|
(11,000 |
) |
|
|
(3,838 |
) |
Expired
|
|
|
(2,602,130 |
) |
|
|
(135,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
7,436,500 |
|
|
|
297,000 |
|
|
|
10,122,250 |
|
|
|
443,750 |
|
|
|
11,142,851 |
|
|
|
13,066,055 |
|
|
|
3,261,660 |
|
|
|
1,021,850 |
|
|
|
207,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(237,500 |
) |
|
|
(22,500 |
) |
|
|
(476 095 |
) |
|
|
(203,750 |
) |
|
|
(2,956 |
) |
|
|
(18,000 |
) |
|
|
(10,241 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
(7,436,500 |
) |
|
|
(297,000 |
) |
|
|
|
|
|
|
|
|
|
|
(608 141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,884,750 |
|
|
|
421,250 |
|
|
|
10,058,615 |
|
|
|
12,862,305 |
|
|
|
3,258,704 |
|
|
|
1,003,850 |
|
|
|
197,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Plans | |
|
|
| |
|
|
(in number of options) | |
Exercise price |
|
50.00 | |
|
50.00 | |
|
41.00 | |
|
39.00 | |
|
32.00 | |
|
19.00 | |
|
9.00 | |
|
20.80 | |
|
9.30 | |
|
20.80 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Exercise period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
03.07.02 |
|
|
|
07.01.04 |
|
|
|
04.02.02 |
|
|
|
04.02.02 |
|
|
|
06.15.02 |
|
|
|
09.03.02 |
|
|
|
11.15.02 |
|
|
|
12.19.02 |
|
|
|
12.19.02 |
|
|
|
01.01.05 |
|
|
|
|
03.07.05 |
|
|
|
07.01.05 |
|
|
|
|
|
|
|
|
|
|
|
06.15.05 |
|
|
|
09.03.05 |
|
|
|
11.15.05 |
|
|
|
12.19.05 |
|
|
|
12.19.05 |
|
|
|
01.01.06 |
|
To
|
|
|
03.06.09 |
|
|
|
06.30.05 |
|
|
|
04.01.09 |
|
|
|
04.01.09 |
|
|
|
06.14.09 |
|
|
|
09.02.09 |
|
|
|
11.14.09 |
|
|
|
12.18.09 |
|
|
|
12.18.09 |
|
|
|
12.31.05 |
|
|
|
|
03.06.09 |
|
|
|
06.30.06 |
|
|
|
|
|
|
|
|
|
|
|
06.14.09 |
|
|
|
09.02.09 |
|
|
|
11.14.09 |
|
|
|
12.18.09 |
|
|
|
12.18.09 |
|
|
|
12.31.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
37,668,588 |
|
|
|
275,778 |
|
|
|
48,850 |
|
|
|
2,500 |
|
|
|
977,410 |
|
|
|
138,200 |
|
|
|
162,000 |
|
|
|
27,871,925 |
|
|
|
565,800 |
|
|
|
935,660 |
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,075,160 |
) |
|
|
(825 |
) |
|
|
(7,050 |
) |
|
|
|
|
|
|
(19,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2001 |
|
|
36,593,428 |
|
|
|
274,953 |
|
|
|
41,800 |
|
|
|
2,500 |
|
|
|
958,060 |
|
|
|
138,200 |
|
|
|
162,000 |
|
|
|
27,871,925 |
|
|
|
565,800 |
|
|
|
935,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,271,749 |
) |
|
|
(2,343 |
) |
|
|
(5,500 |
) |
|
|
|
|
|
|
(21,175 |
) |
|
|
(10,300 |
) |
|
|
(30,000 |
) |
|
|
(2,283,225 |
) |
|
|
(37,200 |
) |
|
|
(16,840 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2002 |
|
|
35,321,679 |
|
|
|
272,610 |
|
|
|
36,300 |
|
|
|
2,500 |
|
|
|
936,885 |
|
|
|
127,900 |
|
|
|
132,000 |
|
|
|
25,588,700 |
|
|
|
528,600 |
|
|
|
918,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,444 |
) |
|
|
|
|
Forfeited
|
|
|
(6,345,632 |
) |
|
|
(150 |
) |
|
|
(24,050 |
) |
|
|
|
|
|
|
(119,780 |
) |
|
|
(13,050 |
) |
|
|
(23,000 |
) |
|
|
(2,517,719 |
) |
|
|
(68,750 |
) |
|
|
(23,950 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2003 |
|
|
28,976,047 |
|
|
|
272,460 |
|
|
|
12,250 |
|
|
|
2,500 |
|
|
|
817,105 |
|
|
|
114,850 |
|
|
|
109,000 |
|
|
|
23,070,981 |
|
|
|
395,406 |
|
|
|
894,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,000 |
) |
|
|
|
|
|
|
(42,574 |
) |
|
|
|
|
Forfeited
|
|
|
(1,047,721 |
) |
|
|
(240 |
) |
|
|
|
|
|
|
|
|
|
|
(33,484 |
) |
|
|
(8,800 |
) |
|
|
|
|
|
|
(2,539,840 |
) |
|
|
(13,326 |
) |
|
|
(240 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2004 |
|
|
27,928,326 |
|
|
|
272,220 |
|
|
|
12,250 |
|
|
|
2,500 |
|
|
|
783,621 |
|
|
|
106,050 |
|
|
|
106,000 |
|
|
|
20,531,141 |
|
|
|
339,506 |
|
|
|
894,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,500 |
) |
|
|
|
|
Forfeited
|
|
|
(806,956 |
) |
|
|
(194,670 |
) |
|
|
|
|
|
|
|
|
|
|
(15,981 |
) |
|
|
(2,250 |
) |
|
|
|
|
|
|
(1,547,776 |
) |
|
|
(101 |
) |
|
|
(640 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2005 |
|
|
27,121,370 |
|
|
|
77,550 |
|
|
|
12,250 |
|
|
|
2,500 |
|
|
|
767,640 |
|
|
|
103,800 |
|
|
|
106,000 |
|
|
|
18,983,365 |
|
|
|
336,905 |
|
|
|
893,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-58
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 Plans | |
|
|
| |
|
|
(in number of options) | |
Exercise price |
|
17.20 | |
|
16.90 | |
|
14.40 | |
|
13.30 | |
|
5.20 | |
|
3.20 | |
|
4.60 | |
|
5.40 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Exercise period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
02.15.03 |
|
|
|
04.02.03 |
|
|
|
05.13.03 |
|
|
|
06.03.03 |
|
|
|
09.02.03 |
|
|
|
10.07.03 |
|
|
|
11.14.03 |
|
|
|
12.02.03 |
|
|
|
|
02.15.06 |
|
|
|
|
|
|
|
05.13.06 |
|
|
|
06.03.06 |
|
|
|
09.02.06 |
|
|
|
10.07.06 |
|
|
|
11.14.06 |
|
|
|
12.02.06 |
|
To
|
|
|
02.14.10 |
|
|
|
04.01.10 |
|
|
|
05.12.10 |
|
|
|
06.02.10 |
|
|
|
06.01.10 |
|
|
|
10.06.10 |
|
|
|
11.13.10 |
|
|
|
12.01.10 |
|
|
|
|
02.14.10 |
|
|
|
|
|
|
|
05.12.10 |
|
|
|
06.02.10 |
|
|
|
06.01.10 |
|
|
|
10.06.10 |
|
|
|
11.13.10 |
|
|
|
12.01.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
123,620 |
|
|
|
55,750 |
|
|
|
54,300 |
|
|
|
281,000 |
|
|
|
1,181,050 |
|
|
|
30,500 |
|
|
|
111,750 |
|
|
|
54,050 |
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(14,250 |
) |
|
|
(1,000 |
) |
|
|
|
|
|
|
(17,660 |
) |
|
|
(64,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2002 |
|
|
109,370 |
|
|
|
54,750 |
|
|
|
54,300 |
|
|
|
263,340 |
|
|
|
1,116,800 |
|
|
|
30,500 |
|
|
|
111,750 |
|
|
|
54,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32 182 |
) |
|
|
(853 |
) |
|
|
(3 375 |
) |
|
|
|
|
Forfeited
|
|
|
(20,425 |
) |
|
|
(13,000 |
) |
|
|
(5,250 |
) |
|
|
(14,090 |
) |
|
|
(165,232 |
) |
|
|
(9,138 |
) |
|
|
(4,250 |
) |
|
|
(10,250 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2003 |
|
|
88,945 |
|
|
|
41,750 |
|
|
|
49,050 |
|
|
|
249,250 |
|
|
|
919,386 |
|
|
|
20,509 |
|
|
|
104,125 |
|
|
|
43,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(204,147 |
) |
|
|
(3,165 |
) |
|
|
(20,838 |
) |
|
|
(3,562 |
) |
Forfeited
|
|
|
(5,578 |
) |
|
|
(6,000 |
) |
|
|
(4,469 |
) |
|
|
(5,771 |
) |
|
|
(60,849 |
) |
|
|
(3,885 |
) |
|
|
(7,294 |
) |
|
|
(2,000 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2004 |
|
|
83,367 |
|
|
|
35,750 |
|
|
|
44,581 |
|
|
|
243,479 |
|
|
|
654,390 |
|
|
|
13,459 |
|
|
|
75,993 |
|
|
|
38,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(228,445 |
) |
|
|
(3,000 |
) |
|
|
(25,873 |
) |
|
|
(15,685 |
) |
Forfeited
|
|
|
(10,537 |
) |
|
|
(1,000 |
) |
|
|
(3,281 |
) |
|
|
(11,500 |
) |
|
|
(15,544 |
) |
|
|
|
|
|
|
|
|
|
|
(10,918 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2004 |
|
|
72,830 |
|
|
|
34,750 |
|
|
|
41,300 |
|
|
|
231,979 |
|
|
|
410,401 |
|
|
|
10,459 |
|
|
|
51,224 |
|
|
|
11,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-59
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 Plans | |
|
|
| |
|
|
(in number of options) | |
Exercise price |
|
6.70 | |
|
6.70 | |
|
7.60 | |
|
8.10 | |
|
9.30 | |
|
10.90 | |
|
11.20 | |
|
11.10 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Exercise period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
03.07.04 |
|
|
|
07.01.06 |
|
|
|
06.18.04 |
|
|
|
07.01.04 |
|
|
|
09.01.04 |
|
|
|
10.01.04 |
|
|
|
11.14.04 |
|
|
|
12.01.04 |
|
|
|
|
03.07.07 |
|
|
|
07.01.07 |
|
|
|
06.18.07 |
|
|
|
07.01.07 |
|
|
|
09.01.07 |
|
|
|
10.01.07 |
|
|
|
11.14.07 |
|
|
|
12.01.07 |
|
To
|
|
|
03.06.11 |
|
|
|
06.30.07 |
|
|
|
06.17.11 |
|
|
|
06.30.11 |
|
|
|
08.31.11 |
|
|
|
09.30.11 |
|
|
|
11.13.11 |
|
|
|
11.30.11 |
|
|
|
|
03.06.11 |
|
|
|
06.30.08 |
|
|
|
06.17.11 |
|
|
|
06.30.11 |
|
|
|
08.31.11 |
|
|
|
09.30.11 |
|
|
|
11.13.11 |
|
|
|
11.30.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
25,626,865 |
|
|
|
827,348 |
|
|
|
338,200 |
|
|
|
53,950 |
|
|
|
149,400 |
|
|
|
101,350 |
|
|
|
63,600 |
|
|
|
201,850 |
|
Exercised
|
|
|
(7,750 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,583,230 |
) |
|
|
(17,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2003 |
|
|
24,035,885 |
|
|
|
810,127 |
|
|
|
338,200 |
|
|
|
53,950 |
|
|
|
149,400 |
|
|
|
101,350 |
|
|
|
63,600 |
|
|
|
201,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,221,749 |
) |
|
|
(111 |
) |
|
|
(6,944 |
) |
|
|
(473 |
) |
|
|
(1,603 |
) |
|
|
|
|
|
|
|
|
|
|
(562 |
) |
Forfeited
|
|
|
(1,142,822 |
) |
|
|
(605 |
) |
|
|
(31,654 |
) |
|
|
(23,951 |
) |
|
|
(6,300 |
) |
|
|
(29,376 |
) |
|
|
(2,000 |
) |
|
|
(37,300 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2004 |
|
|
21,671,314 |
|
|
|
809,411 |
|
|
|
299,602 |
|
|
|
29,526 |
|
|
|
141,497 |
|
|
|
71,974 |
|
|
|
61,600 |
|
|
|
163,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,566,542 |
) |
|
|
(147 |
) |
|
|
(10,746 |
) |
|
|
(1,842 |
) |
|
|
(833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(477,617 |
) |
|
|
(467 |
) |
|
|
(10,378 |
) |
|
|
(5,434 |
) |
|
|
(2,735 |
) |
|
|
(10,291 |
) |
|
|
(1,500 |
) |
|
|
(29,501 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2005 |
|
|
19,627,155 |
|
|
|
808,797 |
|
|
|
278,478 |
|
|
|
22,250 |
|
|
|
137,929 |
|
|
|
61,683 |
|
|
|
60,100 |
|
|
|
134,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Plans | |
|
|
| |
|
|
(in number of options) | |
Exercise price |
|
13,20 | |
|
13,10 | |
|
12,80 | |
|
11,70 | |
|
9,90 | |
|
9,80 | |
|
11,20 | |
|
11,90 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Exercise period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
03.10.05 |
|
|
|
04.01.05 |
|
|
|
05.17.05 |
|
|
|
07.01.05 |
|
|
|
09.01.05 |
|
|
|
10.01.05 |
|
|
|
11.12.05 |
|
|
|
12.01.05 |
|
|
|
|
05.10.08 |
|
|
|
04.01.08 |
|
|
|
05.17.08 |
|
|
|
07.01.08 |
|
|
|
09.01.08 |
|
|
|
10.01.08 |
|
|
|
11.12.08 |
|
|
|
12.01.08 |
|
To
|
|
|
03.09.12 |
|
|
|
03.31.12 |
|
|
|
05.16.12 |
|
|
|
06.30.12 |
|
|
|
08.31.12 |
|
|
|
09.30.12 |
|
|
|
11.11.12 |
|
|
|
11.30.12 |
|
|
|
|
03.09.12 |
|
|
|
03.31.12 |
|
|
|
05.16.12 |
|
|
|
06.30.12 |
|
|
|
08.31.12 |
|
|
|
09.30.12 |
|
|
|
11.11.12 |
|
|
|
11.30.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
18,094,315 |
|
|
|
48,100 |
|
|
|
65,100 |
|
|
|
313,450 |
|
|
|
38,450 |
|
|
|
221,300 |
|
|
|
69,600 |
|
|
|
42,900 |
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(724,065 |
) |
|
|
(7,350 |
) |
|
|
(2,550 |
) |
|
|
(13,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2004 |
|
|
17,370,250 |
|
|
|
40,750 |
|
|
|
62,550 |
|
|
|
299,950 |
|
|
|
38,450 |
|
|
|
221,300 |
|
|
|
69,600 |
|
|
|
42,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(300 |
) |
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,017,737 |
) |
|
|
(11,292 |
) |
|
|
(6,050 |
) |
|
|
(22,450 |
) |
|
|
(1,300 |
) |
|
|
(27,700 |
) |
|
|
(800 |
) |
|
|
(5,000 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2005 |
|
|
16,352,513 |
|
|
|
29,458 |
|
|
|
56,500 |
|
|
|
277,500 |
|
|
|
37,150 |
|
|
|
193,300 |
|
|
|
68,800 |
|
|
|
37,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Plans | |
|
|
| |
|
|
(in number of options) | |
Exercise price |
|
11.41 | |
|
10.00 | |
|
8.80 | |
|
9.80 | |
|
10.20 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Exercise period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
01.03.06 |
|
|
|
03.10.06 |
|
|
|
06.01.06 |
|
|
|
09.01.06 |
|
|
|
11.14.06 |
|
|
|
|
|
|
|
|
03.10.09 |
|
|
|
06.01.09 |
|
|
|
09.01.09 |
|
|
|
11.14.09 |
|
To
|
|
|
01.02.13 |
|
|
|
03.09.13 |
|
|
|
05.31.13 |
|
|
|
08.31.13 |
|
|
|
11.13.13 |
|
|
|
|
|
|
|
|
03.09.13 |
|
|
|
05.31.13 |
|
|
|
08.31.13 |
|
|
|
11.13.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
497,500 |
|
|
|
16,756,690 |
|
|
|
223,900 |
|
|
|
72,150 |
|
|
|
54,700 |
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(17,400 |
) |
|
|
(707,210 |
) |
|
|
(8,800 |
) |
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2005 |
|
|
480,100 |
|
|
|
16,049,480 |
|
|
|
215,100 |
|
|
|
72,150 |
|
|
|
54,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The option plans of companies that were acquired by Alcatel
provide for the issuance of Alcatel shares or ADSs upon exercise
of options granted under such plans in an amount determined by
applying the exchange ratio used in the acquisition to the
number of shares of the acquired company that were the subject
of the options (see the following table).
The following table sets forth the U.S. and Canadian companies
that issued these plans, the number of outstanding and
exercisable options as of December 31, 2005, the weighted
average exercise price and the weighted average exercise period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options | |
|
Exercisable options | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
|
|
remaining | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Number | |
|
exercise | |
|
Average | |
|
Amount | |
|
Average | |
|
|
|
|
outstanding at | |
|
period | |
|
Exercise | |
|
exercisable at | |
|
Exercise | |
Company |
|
Exercise Price | |
|
31/12/2005(a) | |
|
(years) | |
|
Price | |
|
31/12/2005(a) | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Packet Engines
|
|
|
USD 0.29-USD 0.86 |
|
|
|
10,372 |
|
|
|
2.10 |
|
|
|
0.59 |
|
|
|
10,372 |
|
|
|
0.59 |
|
Xylan
|
|
|
USD 0.05-USD 18.14 |
|
|
|
1,393,928 |
|
|
|
2.21 |
|
|
|
9.08 |
|
|
|
1,393,928 |
|
|
|
9.08 |
|
Internet Devices Inc
|
|
|
USD 0.26-USD 1.17 |
|
|
|
23,980 |
|
|
|
2.88 |
|
|
|
0.92 |
|
|
|
23,980 |
|
|
|
0.92 |
|
DSC
|
|
|
USD 16.57-USD 44.02 |
|
|
|
45,690 |
|
|
|
1.25 |
|
|
|
20.40 |
|
|
|
45,690 |
|
|
|
20.40 |
|
Genesys
|
|
|
USD 0.01-USD 41.16 |
|
|
|
3,018,403 |
|
|
|
3.25 |
|
|
|
20.70 |
|
|
|
3,018,403 |
|
|
|
20.70 |
|
Newbridge
|
|
|
USD 11.72-USD 52.48 |
|
|
|
4,253 |
|
|
|
2.40 |
|
|
|
12.73 |
|
|
|
4,253 |
|
|
|
12.73 |
|
Astral Point
|
|
|
EUR 0.29-EUR 58.71 |
|
|
|
74,510 |
|
|
|
4.29 |
|
|
|
16.57 |
|
|
|
74,510 |
|
|
|
16.57 |
|
Telera
|
|
|
EUR 0.43-EUR 6.36 |
|
|
|
136,161 |
|
|
|
4.88 |
|
|
|
5.15 |
|
|
|
135,759 |
|
|
|
5.14 |
|
Imagic TV
|
|
|
EUR 2.84-EUR 64.68 |
|
|
|
78,506 |
|
|
|
1.74 |
|
|
|
18.69 |
|
|
|
78,069 |
|
|
|
18.77 |
|
TiMetra
|
|
|
EUR 0.53-EUR 7.97 |
|
|
|
1,703,423 |
|
|
|
4.96 |
|
|
|
5.91 |
|
|
|
1,152,000 |
|
|
|
5.10 |
|
Spatial Wireless
|
|
|
EUR 0.24-EUR 9.10 |
|
|
|
858,123 |
|
|
|
8.24 |
|
|
|
2.97 |
|
|
|
248,177 |
|
|
|
2.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of options
|
|
|
|
|
|
|
7,347,349 |
|
|
|
|
|
|
|
|
|
|
|
6,185,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
In number of Alcatel shares. |
Except in the case of Astral Point, Telera, Imagic TV, TiMetra
and Spatial Wireless, upon exercise, Alcatel will not issue new
ADSs (or, consequently, shares); the options set forth in the
above table for Packet Engines, Xylan, Internet Devices, DSC,
Genesys and Newbridge entitle the holders to purchase existing
ADSs held by Group subsidiaries.
Only stock option plans established after November 7, 2002,
and whose stock options were not yet fully vested at
January 1, 2005, are restated according to IFRS 2
Share-based Payment. Those stock options that
F-61
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
were fully vested at December 31, 2004 do not therefore
result in either a charge in 2004 or in subsequent accounting
periods.
By simplification, during the vesting period and as a result of
employees leaving the Group, no option cancellations are
considered when determining compensation expense for stock
options granted. During the vesting period and as a result of
employees leaving the Group, the accounting impact of option
cancellations is recognized when the cancellation is made. For
options cancelled before the end of the vesting period, this can
mean correcting the charge, recognized in prior accounting
periods, in the period following the cancellation.
Options cancelled after the vesting period and options not
exercised do not result in correcting charges previously
recognized.
Fair value of granted options
The fair value of stock options is measured using the
Cox-Ross-Rubinstein Binomial model. This allows behavioral
factors governing the exercise of stock options to be taken into
consideration and to consider that all options will not be
systematically exercised by the end of the exercise period. The
expected volatility is determined as being the implied
volatility at the grant date.
Assumptions for the plans representing more than 1,000,000
outstanding options are as follows:
|
|
|
|
|
expected volatility: 60% for the 2002 and March 2003 plans and
40% for the later plans; |
|
|
|
risk-free rate: 4.58% for the 2002 plans, 3.84% for the March
2003 plan, 3.91% for the March 2004 plan and 3.50% for the March
2005 plan ; |
|
|
|
distribution rate on future income: 0% in 2003, 2004 and
2005 and 1% for later years. |
Based on these assumptions, the fair values of options used in
the calculation of compensation expense for share-based payments
are as follows:
|
|
|
|
|
2002 plans: weighted average fair value of
2.48 ; |
|
|
|
March 2003 plan with an exercise price of
6.70: fair value
of 3.31; |
|
|
|
March 2004 plan with an exercise price of
13.20: fair
value of 5.06; |
|
|
|
March 2005 plan with an exercise price of
10.00: fair
value of 3.72; |
Other plans have fair values between
2.89 and
5.08 and a
weighted average fair value of
3.86.
|
|
|
Impact on net income (loss) of share-based payments resulting
from stock option or stock purchase plans |
Compensation expense recognized for share-based payments in
accordance with IFRS 2 is analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Compensation expense for share-based payments
|
|
|
69 |
|
|
|
60 |
|
|
These amounts are presented on a separateline in the income
statement and concern thefollowing captions:
|
|
|
|
|
|
|
|
|
|
cost of sales
|
|
|
22 |
|
|
|
19 |
|
|
administrative and selling expenses
|
|
|
29 |
|
|
|
26 |
|
|
research and development costs
|
|
|
18 |
|
|
|
15 |
|
F-62
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The entire expense recognized in application of IFRS 2 concerns
share-based payments. None of these transactions results in the
outflow of cash.
|
|
|
Characteristics of subscription stock option plans or stock
purchase plans recognized in compliance with IFRS 2 |
The following rules are applicable to all plans granted in 2002,
2003, 2004 and 2005:
|
|
|
|
|
Vesting is gradual: options vest in successive portions over
4 years, for which 25% of the options are vested if the
employee remains employed after 12 months and, for each
month after the first year,
1/48th additional
options are vested if the employee remains employed by the Group. |
|
|
|
Exercise period depends on countries: in some countries, stock
options can be exercised as soon as they are vested; in other
countries, a four-year period of inalienability exists. Whatever
the beginning of the period is, stock options terminate
8 years after the grant date. |
Exceptionally, certain plans that existed in companies acquired
in a business combination have been converted into Alcatel
subscription stock option plans or stock purchase plans. The
vesting conditions are not necessarily aligned to Alcatels
vesting conditions.
|
|
|
Conditions of settlement: |
All stock options granted are exclusively settled in shares.
|
|
|
Number of options granted and change in number of
options |
Stock option plans covered by IFRS 2 and the change in number of
stock options generating compensation expense are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 Plans | |
|
2003 Plans | |
|
2004 Plans | |
|
2005 Plans | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in number of options) | |
|
|
4,60 to | |
|
|
|
7.60 to | |
|
|
|
9.80 to | |
|
|
|
8.80 to | |
|
|
Exercise price |
|
5.40 | |
|
6.70 | |
|
11.20 | |
|
13.20 | |
|
13.10 | |
|
10.00 | |
|
11.41 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Exercise period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
11/14/03 |
|
|
|
03/07/04 |
|
|
|
06/08/04 |
|
|
|
03/10/05 |
|
|
|
04/01/05 |
|
|
|
03/10/06 |
|
|
|
01/03/06 |
|
|
|
|
|
|
|
|
12/02/06 |
|
|
|
03/07/07 |
|
|
|
12/01/07 |
|
|
|
03/10/08 |
|
|
|
12/01/08 |
|
|
|
03/10/09 |
|
|
|
11/14/09 |
|
|
|
|
|
To
|
|
|
11/13/10 |
|
|
|
06/30/07 |
|
|
|
06/17/11 |
|
|
|
03/09/12 |
|
|
|
03/31/12 |
|
|
|
03/09/13 |
|
|
|
01/31/13 |
|
|
|
|
|
|
|
|
12/01/10 |
|
|
|
06/30/07 |
|
|
|
11/30/11 |
|
|
|
03/09/12 |
|
|
|
11/30/12 |
|
|
|
03/09/13 |
|
|
|
11/13/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
65,181 |
|
|
|
12,079,954 |
|
|
|
536,493 |
|
|
|
17,370,250 |
|
|
|
775,500 |
|
|
|
|
|
|
|
|
|
|
|
30,827,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,756,690 |
|
|
|
848,250 |
|
|
|
17,604,940 |
|
Exercised
|
|
|
(20,774 |
) |
|
|
(1,172,079 |
) |
|
|
(10,050 |
) |
|
|
|
|
|
|
(300 |
) |
|
|
|
|
|
|
|
|
|
|
(1,203,203 |
) |
Forfeited
|
|
|
(4,907 |
) |
|
|
(357,667 |
) |
|
|
(44,854 |
) |
|
|
(1,017,737 |
) |
|
|
(74,592 |
) |
|
|
(707,210 |
) |
|
|
(26,200 |
) |
|
|
(2,233,167 |
) |
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
39,500 |
|
|
|
10,550,208 |
|
|
|
481,589 |
|
|
|
16,352,513 |
|
|
|
700,608 |
|
|
|
16,049,480 |
|
|
|
822,050 |
|
|
|
44,995,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which could be exercised
|
|
|
29,189 |
|
|
|
5,809,745 |
|
|
|
271,665 |
|
|
|
7,316,197 |
|
|
|
208,096 |
|
|
|
|
|
|
|
|
|
|
|
13,634,892 |
|
Weighted average share price at exercise date
|
|
|
9.86 |
|
|
|
9.99 |
|
|
|
10.39 |
|
|
|
|
|
|
|
9.80 |
|
|
|
|
|
|
|
|
|
|
|
9.99 |
|
Alcatel has established a buy-back program for the ordinary
shares, authorized at the shareholders ordinary annual
general meetings held on April 17, 2003, June 4, 2004
and May 20, 2005, in order to optimize return on equity and
to carry out transactions to improve earnings per share. The
purchases may
F-63
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
only relate up to a maximum of 10% of the capital stock over a
period of up to 18 months from the most recent
shareholders general meeting. As part of this program, no
shares had been purchased as of December 31, 2005 (no
shares had been purchased in 2004).
Alcatel shares owned by Group consolidated subsidiaries were
1,575 million
at December 31, 2005
(1,607 million
at December 31, 2004). They are deducted at cost from
retained earnings.
|
|
|
|
|
|
|
(in millions | |
|
|
of euros) | |
|
|
| |
Balance at January 1, 2004
|
|
|
388 |
|
|
|
|
|
Other changes*
|
|
|
(84 |
) |
Minority interests in 2004 income
|
|
|
69 |
|
|
|
|
|
Balance at December 31, 2004
|
|
|
373 |
|
|
|
|
|
Other changes**
|
|
|
63 |
|
Minority interests in 2005 income
|
|
|
41 |
|
|
|
|
|
Balance at December 31, 2005
|
|
|
477 |
|
|
|
|
|
* This amount relates to translation
adjustments and to changes related to discontinued operations.
|
|
** |
This amount primarily relates to translation adjustments. |
Note 24 Compound financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ORANE | |
|
OCEANE | |
|
|
| |
|
| |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock
|
|
|
242 |
|
|
|
242 |
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
403 |
|
|
|
403 |
|
|
|
|
|
|
|
|
|
Reserves (prepaid interest)
|
|
|
(132 |
) |
|
|
(132 |
) |
|
|
|
|
|
|
|
|
Reserves (equity component)
|
|
|
|
|
|
|
|
|
|
|
126 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
513 |
|
|
|
513 |
|
|
|
126 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds due after one year
|
|
|
|
|
|
|
|
|
|
|
901 |
|
|
|
886 |
|
Convertible bonds due within one year
(interest paid and payable)
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial debt
|
|
|
|
|
|
|
|
|
|
|
949 |
|
|
|
935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs relating to gross debt
|
|
|
|
|
|
|
|
|
|
|
(68 |
) |
|
|
(67 |
) |
|
|
(a) |
ORANE (Obligations Remboursables en Actions Nouvelles ou
Existantes) |
On December 19, 2002, Alcatel issued 120,786,517 notes, of
nominal value
5.34 each,
mandatorily redeemable for new or existing shares (ORANE) (one
share for one note), for a total amount of
645 million,
with a maturity date of December 23, 2005. The notes
carried an annual interest rate of 7.917%. On
F-64
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
January 2, 2003, Alcatel paid the full amount of the
discounted interest of
132 million,
calculated from the settlement date to the maturity date at a
discount rate of 7.917%, which amounted to
1.09115 for each
bond.
For the repayment of the ORANEs, Alcatel issued only new shares.
During 2004, 3,660 notes were repaid by issuance of
3,212 shares. During 2005, and prior to the redemption of
the notes on December 23, 2005, 10,560 notes were repaid by
issuance of 10,307 shares (the difference between the
number of notes repaid and the number of shares issued
(253) results from the impact of discounted interest at the
time of the debt issuance).
The notes were entirely redeemed on December 23, 2005 by
the issuance of 120,769,959 shares.
The ORANE notes are considered as a component of equity that is
classified from the outset in shareholders equity. As the
discounted interest was paid in full on January 2, 2003,
that amount was also recognized in shareholders equity and
no interest expense was recognized either in the 2004 or 2005
income statements. The net amount of
513 million
received from the note issuance has therefore been reclassified
to shareholders equity in the opening balance sheet at
January 1, 2004 in accordance with IFRSs.
|
|
(b) |
OCEANE (Obligations Convertibles ou Echangeables en Actions
Nouvelles ou Existantes) |
On June 12, 2003, Alcatel issued 63,192,019 bonds having a
nominal value of
16.18 each,
convertible into new or existing Alcatel ordinary shares
(OCEANE) for a total value of
1,022 million.
These bonds mature on January 1, 2011 and bear interest at
a rate of 4.75% per annum.
These bonds have a buy-back option that Alcatel can exercise in
the period from June 12, 2008 to December 31, 2010.
The OCEANE bonds are considered as a compound financial
instrument containing an equity component and a debt component.
Early application of the buy-back option does not require any
separate accounting, as the repurchase price is at nominal value
and the buy-back option is a derivative closely linked to the
debt issuance. The buy-back option is therefore included in the
debt component of this compound financial instrument. At the
time of issuance, the debt component was valued at
860.7 million,
which corresponds to the present value of a similar bond issue
but without any equity component. The equity component included
in shareholders equity was valued at
161.8 million
at the date of issuance. The contra entry to the equity
component, which is amortized to income over the life of the
debt, increases the interest cost of this financial debt by
20.0 million
in 2005 and by
18.6 million
in 2004.
The effective rate of interest of the debt component is 7.83%
including debt issuance costs.
At December 31, 2005, the fair value of the debt component
of the OCEANE bonds was
1,099 million
(see note 26g) and the market value of the OCEANE bonds was
1,151 million.
Note 25 Pensions, retirement indemnities and
other post-retirement benefits
In accordance with the laws and customs of each country, the
Group provides to its employees pension plans, medical insurance
and reimbursement of medical expenses. In France, Group
employees benefit from a retirement indemnity plan. In other
countries, the plans depend upon local legislation, the business
and the historical practice of the subsidiary concerned.
Over and above state pension plans, the plans can be defined
contribution plans or defined benefit plans. In the latter case,
the plans are wholly or partially funded by assets solely to
support such plans (listed shares, bonds, insurance contracts or
other types of dedicated investments).
F-65
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
State plans
In certain countries, and more particularly in France and Italy,
the Group participates in mandatory social security plans
organized at state or industry level, for which contributions
expensed correspond to the contributions due to such state or
equivalent organizations. Such plans are considered to be
defined contribution plans. However, in certain countries, the
element of social security contributions paid that relates to
pension plans is not clearly identifiable.
Other defined contribution plans
The benefits paid out depend solely on the amount of
contributions paid into the plan and the investment returns
arising from the contributions. The Groups obligation is
limited to the amount of contributions that are expensed.
Contributions made to defined contribution plans (excluding
mandatory social security plans organized at state or industry
level) are
40 million
for 2005
(40 million
for 2004).
Defined benefit plans
Independent actuaries calculate annually the Groups
obligation in respect of these plans, using the projected unit
credit method. Actuarial assumptions comprise mortality, rates
of employee turnover, projection of future salary levels and
revaluation of future benefits. Future estimated benefits are
discounted using discount rates appropriate to each country.
These plans have differing characteristics:
|
|
|
|
|
life annuity: the retirees benefit from receiving a pension
during their retirement. These plans are to be found primarily
in Germany, United Kingdom and the United States. |
|
|
|
lump-sum payment on the employees retirement or departure.
These plans are to be found primarily in France, Belgium and
Italy. |
|
|
|
post-employment medical care during retirement. In the United
States, Alcatel reimburses medical expenses of certain retired
employees. |
Pensions and retirement obligations are determined in accordance
with the accounting policies presented in note 1k.
For retirement plans, actuarial gains and losses are recognized
as income or expense in accordance with the corridor
method (net cumulative actuarial gains and losses exceeding the
greater of 10% of the present value of the defined benefit
obligations and 10% of the fair value of the plan assets are
amortized as income or expense over the expected average
remaining working period).
For plans providing for the reimbursement of medical expenses,
actuarial gains and losses are recognized as income or expense
over the average remaining working period.
F-66
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
To determine actuarial valuations, actuaries have determined
general assumptions on a country-by-country basis and specific
assumptions (rate of employee turnover, salary increases)
company by company. The assumptions for 2005 and 2004 are as
follows (the rates indicated are weighted average rates):
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
Discount rate
|
|
|
3.95 |
% |
|
|
4.46 |
% |
Future salary increases
|
|
|
3.34 |
% |
|
|
3.52 |
% |
Expected long-term return on assets
|
|
|
4.28 |
% |
|
|
4.70 |
% |
Post-retirement cost trend rate
|
|
|
7.50 |
% |
|
|
7.50 |
% |
Average residual active life
|
|
|
15-27 years |
|
|
|
15-27 years |
|
The above rates are broken down by geographical segment as
follows for 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected long-term | |
|
|
Discount rate | |
|
Future salary increases | |
|
return on assets | |
|
|
| |
|
| |
|
| |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
France
|
|
|
3.75 |
% |
|
|
3.49 |
% |
|
|
4.27 |
% |
Belgium
|
|
|
3.75 |
% |
|
|
3.70 |
% |
|
|
3.75 |
% |
United Kingdom
|
|
|
5.00 |
% |
|
|
4.25 |
% |
|
|
6.50 |
% |
Germany
|
|
|
3.75 |
% |
|
|
2.75 |
% |
|
|
3.50 |
% |
Rest of Europe
|
|
|
3.32 |
% |
|
|
2.86 |
% |
|
|
3.85 |
% |
North America
|
|
|
4.98 |
% |
|
|
4.93 |
% |
|
|
5.37 |
% |
Other
|
|
|
4.25 |
% |
|
|
4.89 |
% |
|
|
5.12 |
% |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
France
|
|
|
4.32 |
% |
|
|
2.82 |
% |
|
|
4.73 |
% |
Belgium
|
|
|
4.30 |
% |
|
|
5.98 |
% |
|
|
4.00 |
% |
United Kingdom
|
|
|
5.25 |
% |
|
|
4.50 |
% |
|
|
6.50 |
% |
Germany
|
|
|
4.31 |
% |
|
|
2.75 |
% |
|
|
4.50 |
% |
Rest of Europe
|
|
|
3.96 |
% |
|
|
2.55 |
% |
|
|
4.68 |
% |
North America
|
|
|
5.27 |
% |
|
|
4.76 |
% |
|
|
5.37 |
% |
Other
|
|
|
5.03 |
% |
|
|
4.16 |
% |
|
|
3.37 |
% |
The discount rates are obtained by reference to market yields on
high quality bonds (government and prime-rated
corporations AA or AAA) having maturity dates
equivalent to those of the plans.
The returns on plan assets are determined plan by plan and
depend upon the asset allocation of the investment portfolio and
the expected future performance.
F-67
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Components of net periodic cost of post-employment benefit plans
are:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Service cost
|
|
|
(60 |
) |
|
|
(72 |
) |
Interest cost
|
|
|
(139 |
) |
|
|
(146 |
) |
Expected return on plan assets
|
|
|
93 |
|
|
|
96 |
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
Amortization of recognized actuarial gain/(loss)
|
|
|
8 |
|
|
|
5 |
|
Effect of curtailments
|
|
|
5 |
|
|
|
15 |
|
Effect of settlements
|
|
|
|
|
|
|
|
|
Effect of adjustment on net assets
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
(93 |
) |
|
|
(104 |
) |
|
|
|
|
|
|
|
Of which: recognized in income (loss) from operating activities
before restructuring, share-based payments, impairment of
capitalized development costs and gain on
disposal of consolidated entities
|
|
|
(47 |
) |
|
|
(54 |
) |
recognized
in other financial income (loss)
|
|
|
(46 |
) |
|
|
(50 |
) |
F-68
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The change in the obligation recorded in the balance sheet is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
CHANGE IN BENEFIT OBLIGATION
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
|
(3,282 |
) |
|
|
(3,212 |
) |
|
|
|
|
|
|
|
Service cost
|
|
|
(60 |
) |
|
|
(72 |
) |
Interest cost
|
|
|
(139 |
) |
|
|
(146 |
) |
Plan participants contributions
|
|
|
(5 |
) |
|
|
(4 |
) |
Amendments
|
|
|
|
|
|
|
(72 |
) |
Business combinations
|
|
|
(31 |
) |
|
|
|
|
Disposals
|
|
|
2 |
|
|
|
53 |
|
Curtailments
|
|
|
7 |
|
|
|
14 |
|
Settlements
|
|
|
26 |
|
|
|
19 |
|
Special termination benefits
|
|
|
(2 |
) |
|
|
0 |
|
Actuarial (gains) and losses
|
|
|
(129 |
) |
|
|
(46 |
) |
Benefits paid
|
|
|
177 |
|
|
|
166 |
|
Other (foreign currency translation)
|
|
|
(60 |
) |
|
|
18 |
|
|
|
|
|
|
|
|
Benefit obligation at December 31
|
|
|
(3,496 |
) |
|
|
(3,282 |
) |
|
|
|
|
|
|
|
Benefit obligation excluding effect of future salary increases
|
|
|
(3,230 |
) |
|
|
(2,934 |
) |
Effect of future salary increases
|
|
|
(266 |
) |
|
|
(348 |
) |
|
|
|
|
|
|
|
Benefit obligation
|
|
|
(3,496 |
) |
|
|
(3,282 |
) |
|
|
|
|
|
|
|
Pertaining to retirement plans
|
|
|
(3,476 |
) |
|
|
(3,265 |
) |
Pertaining to post-employment medical care plans
|
|
|
(20 |
) |
|
|
(17 |
) |
CHANGE IN PLAN ASSETS
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
|
2,106 |
|
|
|
1,974 |
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
93 |
|
|
|
96 |
|
Actuarial gains and (losses)
|
|
|
111 |
|
|
|
47 |
|
Employers contributions
|
|
|
80 |
|
|
|
84 |
|
Plan participants contributions
|
|
|
5 |
|
|
|
4 |
|
Amendments
|
|
|
|
|
|
|
32 |
|
Business combinations
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
|
Curtailments
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
(26 |
) |
|
|
(15 |
) |
Benefits paid/ Special termination benefits
|
|
|
(117 |
) |
|
|
(108 |
) |
Other (foreign currency translation)
|
|
|
34 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at December 31
|
|
|
2,286 |
|
|
|
2,106 |
|
|
|
|
|
|
|
|
Present value of defined benefit obligations that are wholly or
partly funded
|
|
|
(2,426 |
) |
|
|
(2,323 |
) |
Fair value of plan assets
|
|
|
2,286 |
|
|
|
2,106 |
|
|
|
|
|
|
|
|
Funded status of defined benefit obligations that are wholly
or partly funded
|
|
|
(140 |
) |
|
|
(217 |
) |
|
|
|
|
|
|
|
Present value of defined benefit obligations that are wholly
unfunded
|
|
|
(1,070 |
) |
|
|
(959 |
) |
|
|
|
|
|
|
|
Funded status
|
|
|
(1,210 |
) |
|
|
(1,176 |
) |
|
|
|
|
|
|
|
Unrecognized actuarial losses/(gains)
|
|
|
46 |
|
|
|
9 |
|
Unrecognized prior service cost
|
|
|
|
|
|
|
|
|
Unrecognized surplus (due to application of asset ceiling)
|
|
|
(3 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
NET AMOUNT RECOGNIZED
|
|
|
(1,167 |
) |
|
|
(1,172 |
) |
|
|
|
|
|
|
|
of which:
|
|
|
|
|
|
|
|
|
|
prepaid pension costs
|
|
|
294 |
|
|
|
287 |
|
|
pensions, retirement indemnities and other
post-retirement benefits
|
|
|
(1,461 |
) |
|
|
(1,459 |
) |
F-69
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The unfunded status, which amounted to
1,210 million
at December 31, 2005
(1,176 million
at December 31, 2004), relates primarily to France and
Germany. Decisions on funding the benefit obligations are taken
based on each countrys legal requirements and the
tax-deductibility of the contributions made. In France and
Germany, the funding of pension obligations relies primarily on
defined contribution plans; setting up other funding
arrangements is not common practice. Furthermore, in Germany,
the benefits accruing to employees are guaranteed in the event
of bankruptcy through a system of mutual insurance common to all
companies involved in similar plans.
The benefit obligation, the fair value of the plan assets and
the actuarial gains (losses) generated for the current year and
the previous year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Experience adjustments | |
|
|
|
|
|
|
|
|
|
|
generated on the benefit | |
|
Experience adjustments | |
|
|
|
|
|
|
|
|
obligation | |
|
generated on the plan assets | |
|
|
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
Funded | |
|
|
|
In percentage | |
|
|
|
In percentage | |
|
|
Benefit | |
|
|
|
(unfunded) | |
|
|
|
of the benefit | |
|
|
|
of the plan | |
|
|
obligation | |
|
Plan assets | |
|
status | |
|
Amount | |
|
obligation | |
|
Amount | |
|
assets | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
2005
|
|
|
(3,496 |
) |
|
|
2,286 |
|
|
|
(1,210 |
) |
|
|
72 |
|
|
|
2.06 |
% |
|
|
111 |
|
|
|
4.86 |
% |
2004
|
|
|
(3,282 |
) |
|
|
2,106 |
|
|
|
(1,176 |
) |
|
|
6 |
|
|
|
0.18 |
% |
|
|
47 |
|
|
|
2.23 |
% |
In respect of the medical care plans, a change of one percentage
point in the assumed medical costs has the following impact:
|
|
|
|
|
|
|
|
|
|
|
Increase of | |
|
Decrease of | |
|
|
1% | |
|
1% | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
Impact on the current service cost and interest costs
|
|
|
(0 |
) |
|
|
0 |
|
Impact on the benefit obligation
|
|
|
(0 |
) |
|
|
0 |
|
The plan assets of retirement plans are invested as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity | |
|
Short-term | |
|
Property | |
|
|
|
|
Bonds | |
|
Securities | |
|
Investments | |
|
assets | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros and percentage) | |
2005
|
|
|
941 |
|
|
|
626 |
|
|
|
348 |
|
|
|
371 |
|
|
|
2,286 |
|
|
|
|
41 |
% |
|
|
28 |
% |
|
|
15 |
% |
|
|
16 |
% |
|
|
100 |
% |
2004
|
|
|
853 |
|
|
|
576 |
|
|
|
365 |
|
|
|
312 |
|
|
|
2,106 |
|
|
|
|
41 |
% |
|
|
27 |
% |
|
|
17 |
% |
|
|
15 |
% |
|
|
100 |
% |
The investment policy relating to plan assets within the Group
depends upon local practices. In all cases, the proportion of
equity securities cannot exceed 80% of plan assets and no
individual equity security may represent more than 5% of total
equity securities within the plan. The equity securities held by
the plan must be listed on a recognized exchange.
The property assets are not occupied by Group entities.
The bonds held by the plan must have a minimum A
rating according to Standard & Poors or
Moodys rating criteria.
The contributions that are expected to be paid for 2006 are
66 million
for the retirement plans.
F-70
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 26 Financial debt
|
|
(a) |
Analysis of financial debt, net |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Marketable securities, net
|
|
|
640 |
|
|
|
552 |
|
Cash and cash equivalents
|
|
|
4,510 |
|
|
|
4,611 |
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
|
5,150 |
|
|
|
5,163 |
|
|
|
|
|
|
|
|
(Convertible and other bonds long-term portion)
|
|
|
(2,393 |
) |
|
|
(3,089 |
) |
(Other long-term debt)
|
|
|
(359 |
) |
|
|
(402 |
) |
(Current portion of long-term debt)
|
|
|
(1,046 |
) |
|
|
(1,115 |
) |
|
|
|
|
|
|
|
(Financial debt, gross)
|
|
|
(3,798 |
) |
|
|
(4,606 |
) |
|
|
|
|
|
|
|
Derivative interest rate instruments other current
and non-current assets
|
|
|
178 |
|
|
|
148 |
|
Derivative interest rate instruments other current
and non-current liabilities
|
|
|
(71 |
) |
|
|
(43 |
) |
|
|
|
|
|
|
|
Cash (financial debt), net
|
|
|
1,459 |
|
|
|
662 |
|
|
|
|
|
|
|
|
|
|
(b) |
Analysis of financial debt, gross by type |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Convertible bonds
|
|
|
901 |
|
|
|
886 |
|
Other bonds
|
|
|
1,960 |
|
|
|
2,788 |
|
Bank loans and overdrafts
|
|
|
629 |
|
|
|
687 |
|
Commercial paper
|
|
|
127 |
|
|
|
61 |
|
Finance lease obligations
|
|
|
60 |
|
|
|
45 |
|
Accrued interest
|
|
|
121 |
|
|
|
139 |
|
|
|
|
|
|
|
|
Financial debt, gross
|
|
|
3,798 |
|
|
|
4,606 |
|
|
|
|
|
|
|
|
F-71
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Convertible bonds
The characteristics of these bonds and how they are recognized
are detailed in note 24b.
Other bonds
Changes in 2005:
Repurchases
Certain other bonds were subject to buy-back and cancellation in
2005, amounting to
291 million
and corresponding to a nominal value of
280 million,
detailed as follows:
|
|
|
|
|
Nominal value repurchased:
|
|
|
|
|
5.875% EUR due September 2005
|
|
|
51,627,000 |
|
Zero-rate coupon due June 2006
|
|
|
4,838,724 |
|
5.625% EUR due March 2007
|
|
|
150,925 |
|
7.00% EUR due December 2006
|
|
|
72,603,000 |
|
4.375% EUR due February 2009
|
|
|
150,676,000 |
|
The difference between the repurchased amount and the nominal
value was included in financial income (loss) in other financial
income (loss), net (see note 8).
Repayments
The balance of the bonds carrying interest at 5.875% was repaid
in September 2005 for a residual nominal amount of
524.7 million.
Changes in 2004:
Offer to
exchange bonds:
On March 17, 2004, Alcatel launched an offer to exchange
bonds in a strategy primarily to lengthen its average debt
maturity. On March 30, 2004, Alcatel announced that bonds
with a nominal value of
366 million,
coming from Alcatels 7% bond issue of
1.2 billion,
due 2006, had been exchanged by the holders for new euro bonds
having a nominal value of
412 million,
due 2014. The new bonds bear interest at 6.375% per annum.
Additional bonds having a nominal value of
50 million,
which are interchangeable with the new bonds, were also issued.
The total nominal value of the new and additional bonds, due
2014, amounts to
462 million.
The exchange offer, which closed on April 7, 2004, was
recorded in the second quarter 2004. In accordance with IAS 39,
such exchange of debt is not considered as an extinguishment of
the initial debt and the issuance of new debt, because the
borrowing conditions are not substantially different as a result
of the exchange transaction. The loss arising on the exchange
offer and the related transaction fees are recognized as an
adjustment of the carrying amount of the existing debt and are
amortized over the remaining life of the adjusted bonds.
F-72
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Repurchases
and repayments:
During 2004, certain other bonds were subject to buy-back and
cancellation, amounting to
643 million
and corresponding to a nominal value of
617 million,
detailed as follows:
|
|
|
|
|
|
|
Nominal value | |
Repurchased bonds |
|
repurchased | |
|
|
| |
5.75% FRF due February 2004
|
|
|
762,245 |
|
5% EUR due October 2004
|
|
|
22,819,000 |
|
5.875% EUR due September 2005
|
|
|
217,102,000 |
|
Zero-rate coupon due June 2006
|
|
|
111,191,052 |
|
5.625% EUR due March 2007
|
|
|
38,874,495 |
|
7% EUR due December 2006
|
|
|
226,209,000 |
|
The difference between the repurchased amount and the nominal
value was included in financial income (loss) in other financial
income (loss), net (see note 8).
The other changes for 2004 were the repayment on
February 17, 2004 of the residual
183 million
on bonds issued by Alcatel at a fixed rate of 5.75% in February
1994, and the repayment on October 12, 2004 of the residual
336.4 million
in bonds issued at a rate of 5% on October 12, 1999.
|
|
(c) |
Analysis by maturity date |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Current portion of long-term debt
|
|
|
769 |
|
|
|
910 |
|
Short-term debt
|
|
|
277 |
|
|
|
205 |
|
|
|
|
|
|
|
|
Financial debt due within one year
|
|
|
1,046 |
|
|
|
1,115 |
|
2006
|
|
|
|
|
|
|
627 |
|
2007
|
|
|
364 |
|
|
|
393 |
|
2008
|
|
|
104 |
|
|
|
61 |
|
2009
|
|
|
878 |
|
|
|
1,043 |
|
2010
|
|
|
9 |
|
|
|
|
|
2011 and thereafter
|
|
|
1,397 |
|
|
|
1,367 |
|
|
|
|
|
|
|
|
Financial debt due after one year
|
|
|
2,752 |
|
|
|
3,491 |
|
|
|
|
|
|
|
|
Total
|
|
|
3,798 |
|
|
|
4,606 |
|
|
|
|
|
|
|
|
F-73
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(d) |
Debt analysis by rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
|
|
Effective | |
|
Interest | |
|
|
|
|
interest | |
|
rate after | |
|
|
Amounts | |
|
rate | |
|
hedging | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Convertible bonds
|
|
|
901 |
|
|
|
7.83 |
% |
|
|
7.40 |
% |
Other bonds
|
|
|
1,960 |
|
|
|
6.16 |
% |
|
|
4.57 |
% |
Bank loans and overdrafts and finance lease obligations
|
|
|
689 |
|
|
|
3.58 |
% |
|
|
3.29 |
% |
Commercial paper
|
|
|
127 |
|
|
|
2.47 |
% |
|
|
2.47 |
% |
Accrued interest
|
|
|
121 |
|
|
|
5.39 |
% |
|
|
4.18 |
% |
|
|
|
|
|
|
|
|
|
|
Financial debt, gross
|
|
|
3,798 |
|
|
|
5.94 |
% |
|
|
4.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(e) |
Debt analysis by type of rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Before | |
|
After | |
|
Before | |
|
After | |
|
|
hedging | |
|
hedging | |
|
hedging | |
|
hedging | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Total fixed rate debt
|
|
|
3,686 |
|
|
|
1,132 |
|
|
|
4,468 |
|
|
|
1,153 |
|
Total floating rate debt
|
|
|
112 |
|
|
|
2,666 |
|
|
|
138 |
|
|
|
3,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,798 |
|
|
|
3,798 |
|
|
|
4,606 |
|
|
|
4,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f) |
Debt analysis by currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Before | |
|
After | |
|
Before | |
|
After | |
|
|
hedging | |
|
hedging | |
|
hedging | |
|
hedging | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Euro
|
|
|
3,609 |
|
|
|
3,609 |
|
|
|
4,512 |
|
|
|
4,512 |
|
U.S. Dollar
|
|
|
141 |
|
|
|
141 |
|
|
|
52 |
|
|
|
52 |
|
Other
|
|
|
48 |
|
|
|
48 |
|
|
|
42 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,798 |
|
|
|
3,798 |
|
|
|
4,606 |
|
|
|
4,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of Alcatels debt is determined for each
loan by discounting the future cash flows using a discount rate
corresponding to bond yields at the end of the year, adjusted by
the Groups credit rate risk. The fair value of debt and
bank overdrafts at floating interest rates approximates the net
carrying amounts.
At December 31, 2005, the fair value of debt before hedging
(and credit spread) amounted to
4,141 million.
The fair value of the financial instruments that hedge the debt
is calculated in accordance with the same method, based on the
net present value of the future cash flows.
At December 31, 2005, the fair value of the debt after
hedging was
4,033 million.
At December 31, 2004, the fair value of debt before hedging
(and credit spread) amounted to
4,926 million.
F-74
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of the financial instruments that hedge the debt
is calculated in accordance with the same method, based on the
net present value of the future cash flows.
At December 31, 2004, the fair value of the debt after
hedging was
4,748 million.
At January 31, 2006, Alcatel credit ratings were as follows:
|
|
|
|
|
|
|
|
|
|
|
Rating Agency |
|
Long-term Debt | |
|
Short-term Debt |
|
Outlook |
|
Last Update |
|
|
| |
|
|
|
|
|
|
Moodys
|
|
|
Ba1 |
|
|
Not Prime |
|
Positive |
|
April 11, 2005 |
Standard & Poors
|
|
|
BB |
|
|
B |
|
Stable |
|
November 10, 2004 |
On April 11, 2005, Moodys upgraded Alcatels
long-term debt credit rating to Ba1 from Ba3 and maintained its
outlook Positive. The Not Prime rating of the short-term debt
was reaffirmed.
Recent history of Alcatels long-term debt credit
rating
|
|
|
|
|
|
|
|
|
|
|
Date |
|
Moodys |
|
Date |
|
Standard & Poors |
|
|
|
|
|
|
|
April 11, 2005
|
|
Ba1 |
|
Outlook Positive |
|
November 10, 2004 |
|
BB |
|
Outlook Stable |
September 8, 2004
|
|
Ba3 |
|
Outlook Positive |
|
March 10, 2004 |
|
BB- |
|
Outlook Stable |
May 10, 2004
|
|
B1 |
|
Outlook Positive |
|
August 11, 2003 |
|
B+ |
|
Outlook Stable |
December 5, 2003
|
|
B1 |
|
Outlook Stable |
|
October 4, 2002 |
|
B+ |
|
Outlook Negative |
November 20, 2002
|
|
B1 |
|
Outlook Negative |
|
July 12, 2002 |
|
BB+ |
|
Outlook Negative |
Rating clauses affecting Alcatel debt at December 31,
2005
Alcatels short-term debt rating allows a limited access to
the commercial paper market.
Alcatels outstanding bonds do not contain clauses that
could trigger an accelerated repayment in the event of a
lowering of its credit ratings. However, the
1.2 billion
bond issue maturing in December 2006 includes a step up
rating change clause, which provides that the interest
rate is increased by 150 basis points if Alcatels
ratings fall below investment grade. This clause was triggered
when Alcatels credit rating was lowered to below
investment grade status in July 2002. The 150 basis point
increase in the interest rate from 7% to 8.5% became effective
in December 2002, and was first applied to the payment of the
December 2003 coupon. This bond issue also contains a step
down rating change clause that provides that the interest
rate will be decreased by 150 basis points if
Alcatels ratings with both agencies move back to
investment grade level. However, this interest rate decrease
will not take place since the condition relating to
Alcatels ratings was not met before December 31, 2005.
Syndicated bank credit facility
On March 15, 2005, Alcatel amended the three-year
multi-currency revolving facility that had been put in place on
June 21, 2004. Consequently, the maturity date of the
facility was lengthened from June 2007 to June 2009, the
financial conditions were improved and one of the financial
covenants was eliminated. Moreover, Alcatel decided to reduce
the amount of this revolving facility from
1,300 million
to
1,000 million.
The availability of this syndicated credit facility of
1,000 million
is not dependent upon Alcatels credit ratings. At
December 31, 2005, the credit facility had not been drawn
and remained undrawn at the date of approval of the 2005
financial statements by Alcatels Board of Directors.
Alcatels ability to draw on this facility is conditioned
upon its compliance with a financial covenant linked to the
capacity of Alcatel to
F-75
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
generate sufficient cash to repay its net debt. As the Group had
cash, cash equivalents and marketable securities in excess of
its gross financial debt at December 31, 2005,
September 30, 2005, June 30, 2005, March 31, 2005
and at December 31, 2004, 2003 and 2002, the
above-mentioned financial covenant was not applicable at these
dates.
Note 27 Provisions
|
|
(a) |
Balance at December 31 |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Provisions for product sales
|
|
|
580 |
|
|
|
662 |
|
Provisions for restructuring
|
|
|
417 |
|
|
|
692 |
|
Provisions for litigation
|
|
|
130 |
|
|
|
95 |
|
Other provisions
|
|
|
494 |
|
|
|
600 |
|
|
|
|
|
|
|
|
Total*
|
|
|
1,621 |
|
|
|
2,049 |
|
|
|
|
|
|
|
|
* Of which: portion expected to be used within one year
|
|
|
1,024 |
|
|
|
1,397 |
|
portion
expected to be used after one year
|
|
|
597 |
|
|
|
652 |
|
(b) Change during 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in | |
|
|
|
|
|
|
December 31, | |
|
|
|
|
|
|
|
consolidated | |
|
|
|
December 31, | |
|
|
2004 | |
|
Appropriation | |
|
Utilization | |
|
Reversals | |
|
companies | |
|
Other | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of euros) | |
Provisions for product sales
|
|
|
662 |
|
|
|
305 |
|
|
|
(212 |
) |
|
|
(236 |
) |
|
|
(7 |
) |
|
|
68 |
|
|
|
580 |
|
Provisions for restructuring
|
|
|
692 |
|
|
|
172 |
|
|
|
(414 |
) |
|
|
(40 |
) |
|
|
(7 |
) |
|
|
14 |
|
|
|
417 |
|
Provisions for litigation
|
|
|
95 |
|
|
|
21 |
|
|
|
(28 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
52 |
|
|
|
130 |
|
Other provisions
|
|
|
600 |
|
|
|
76 |
|
|
|
(59 |
) |
|
|
(41 |
) |
|
|
(16 |
) |
|
|
(66 |
) |
|
|
494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,049 |
|
|
|
574 |
|
|
|
(713 |
) |
|
|
(327 |
) |
|
|
(30 |
) |
|
|
68 |
|
|
|
1,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on the income statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before
restructuring, share-based payments, impairment of capitalized
development costs and gain on disposal of consolidated entities
|
|
|
|
|
|
|
(360 |
) |
|
|
|
|
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
(93 |
) |
restructuring costs
|
|
|
|
|
|
|
(161 |
) |
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
(121 |
) |
other financial income (loss)
|
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
income taxes
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
income (loss) from discontinued operations and
gain/(loss) on disposal of consolidated entities
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
(574 |
) |
|
|
|
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
(247 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-76
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At period-end, contingent liabilities exist with regard to
ongoing tax disputes. Neither the financial impact nor the
timing of any outflows of resources that could result from an
unfavorable outcome of these disputes can be estimated at
present. Nevertheless, the Group is confident in the outcome of
these ongoing disputes.
(c) Analysis of restructuring
provisions
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Opening balance
|
|
|
692 |
|
|
|
1,084 |
|
|
|
|
|
|
|
|
Utilization during the period
|
|
|
(414 |
) |
|
|
(606 |
) |
New plans and adjustments to previous estimates*
|
|
|
132 |
|
|
|
334 |
|
Effect of acquisition (disposal) of consolidated
subsidiaries
|
|
|
(7 |
) |
|
|
(66 |
) |
Cumulative translation adjustments and other changes
|
|
|
14 |
|
|
|
(54 |
) |
|
|
|
|
|
|
|
Closing balance
|
|
|
417 |
|
|
|
692 |
|
|
|
|
|
|
|
|
|
|
* |
For 2005, total restructuring costs were
110 million,
representing a reversal of asset impairment losses of
11 million
and
121 million
of new restructuring plans and adjustments to previous plans
(for 2004, total restructuring costs were
324 million
relating to new restructuring plans and adjustments to previous
plans). In addition, a finance cost of
11 million
(10 million
for 2004) was recorded in other financial income (loss) in 2005
for the amount related to reversing the discount element
included in provisions. |
For 2005, the costs relate primarily to restructuring plans in
Western Europe (Germany, Spain, France).
Note 28 Market-related exposures
The Group has a centralized treasury management in order to
minimize the Groups exposure to market risks, including
interest rate risk, foreign exchange risk, and counterparty
risk. The Group uses derivative financial instruments having off
balance sheet risk characteristics to manage and reduce its
exposure to fluctuations in interest rates and foreign exchange
rates.
All of Alcatels debt is issued in euros. Interest rate
derivatives are used primarily to convert fixed rate debt into
floating rate debt.
Firm commercial contracts or other firm commitments are hedged
by forward foreign exchange transactions, while commercial bids,
which are not firmly committed, are hedged by currency options.
The duration of such bids does not usually exceed 18 months.
Because of the diversity of its customers and their diverse
geographical locations, management believes that the credit risk
relating to customers is limited and that there is no risk of
significant credit concentration.
F-77
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A Interest rate risk
Derivative financial instruments held at December 31, 2005
are intended to reduce the cost of debt and to hedge interest
rate risk. At December 31, 2005 and 2004, outstanding
interest rate derivatives have the following characteristics:
|
|
(a) |
Outstanding interest rate derivatives at December 31 |
|
|
|
Analysis by type and maturity date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
Contract notional amounts | |
|
|
|
|
|
|
Maturity date | |
|
|
|
2004 | |
|
|
| |
|
|
|
| |
|
|
Less than | |
|
1 to | |
|
After | |
|
|
|
Market | |
|
|
|
Market | |
|
|
one year | |
|
5 years | |
|
5 years | |
|
Total | |
|
value | |
|
Total | |
|
value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed rate
|
|
|
1,897 |
|
|
|
3,579 |
|
|
|
133 |
|
|
|
5,609 |
|
|
|
(10 |
) |
|
|
4,088 |
|
|
|
27 |
|
|
Pay floating rate
|
|
|
2,108 |
|
|
|
5,518 |
|
|
|
498 |
|
|
|
8,124 |
|
|
|
118 |
|
|
|
7,285 |
|
|
|
149 |
|
Caps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
890 |
|
|
|
1,656 |
|
|
|
|
|
|
|
2,546 |
|
|
|
12 |
|
|
|
3,729 |
|
|
|
13 |
|
|
Sell
|
|
|
763 |
|
|
|
1,656 |
|
|
|
|
|
|
|
2,419 |
|
|
|
(12 |
) |
|
|
2,971 |
|
|
|
(11 |
) |
Floors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367 |
|
|
|
2 |
|
|
Sell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367 |
|
|
|
(2 |
) |
Forward rate agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options on interest rate swaps USD Libor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
212 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
Sell
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
212 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis by accounting category |
|
|
|
|
|
|
|
|
|
|
|
Market value | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Fair value hedges
|
|
|
78 |
|
|
|
146 |
|
Cash flow hedge
|
|
|
|
|
|
|
|
|
Instruments not qualifying for hedge accounting
|
|
|
30 |
|
|
|
32 |
|
|
|
|
|
|
|
|
Total
|
|
|
108 |
|
|
|
178 |
|
|
|
|
|
|
|
|
F-78
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(b) |
Interest rate sensitivity |
|
|
|
Interest rate sensitivity in terms of financial
cost |
An immediate increase in interest rates of 1%, applied to
financial assets and liabilities and related hedging
instruments, would decrease interest expense by
14 million
for 2005
(14 million
for 2004).
|
|
|
Interest rate sensitivity in terms of
mark-to-market |
An increase of 1% in the interest rate curve, applied to
financial debt and related hedging instruments, would have a
positive impact of
53 million
on the market value of the financial debt in 2005
(50 million
in 2004).
B Currency risk
|
|
(a) |
Outstanding currency derivatives at December 31 |
|
|
|
Analysis by type and currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
U.S. | |
|
British | |
|
|
|
Market | |
|
|
|
Market | |
|
|
dollar | |
|
pound | |
|
Other | |
|
Total | |
|
value | |
|
Total | |
|
value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Buy/ Lend foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
983 |
|
|
|
192 |
|
|
|
610 |
|
|
|
1,785 |
|
|
|
31 |
|
|
|
1,722 |
|
|
|
(37 |
) |
Short-term exchange swaps
|
|
|
267 |
|
|
|
72 |
|
|
|
250 |
|
|
|
589 |
|
|
|
4 |
|
|
|
132 |
|
|
|
(2 |
) |
Cross currency swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
Currency option contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy call
|
|
|
355 |
|
|
|
|
|
|
|
235 |
|
|
|
590 |
|
|
|
18 |
|
|
|
1,406 |
|
|
|
18 |
|
Sell put
|
|
|
335 |
|
|
|
|
|
|
|
1052 |
|
|
|
1387 |
|
|
|
(19 |
) |
|
|
2,653 |
|
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,940 |
|
|
|
264 |
|
|
|
2,147 |
|
|
|
4,351 |
|
|
|
34 |
|
|
|
5,913 |
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sell/ Borrow foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
1,700 |
|
|
|
129 |
|
|
|
278 |
|
|
|
2,107 |
|
|
|
(58 |
) |
|
|
2,924 |
|
|
|
177 |
|
Short-term exchange swaps
|
|
|
1,056 |
|
|
|
125 |
|
|
|
204 |
|
|
|
1,385 |
|
|
|
(16 |
) |
|
|
385 |
|
|
|
5 |
|
Cross currency swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency option contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sell call
|
|
|
250 |
|
|
|
|
|
|
|
164 |
|
|
|
414 |
|
|
|
(15 |
) |
|
|
1,455 |
|
|
|
(17 |
) |
Buy put
|
|
|
737 |
|
|
|
|
|
|
|
1,037 |
|
|
|
1,774 |
|
|
|
26 |
|
|
|
3,032 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,743 |
|
|
|
254 |
|
|
|
1,683 |
|
|
|
5,680 |
|
|
|
(63 |
) |
|
|
7,796 |
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-79
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Analysis by type and maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity date | |
|
|
| |
|
|
Less than | |
|
1 to | |
|
After | |
|
|
|
|
1 year | |
|
5 years | |
|
5 years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Buy/ Lend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
1,779 |
|
|
|
6 |
|
|
|
|
|
|
|
1,785 |
|
Short-term exchange swaps
|
|
|
589 |
|
|
|
|
|
|
|
|
|
|
|
589 |
|
Cross currency swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency option contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy call
|
|
|
392 |
|
|
|
198 |
|
|
|
|
|
|
|
590 |
|
Sell put
|
|
|
593 |
|
|
|
794 |
|
|
|
|
|
|
|
1,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,353 |
|
|
|
998 |
|
|
|
|
|
|
|
4,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity date | |
|
|
| |
|
|
Less than | |
|
1 to | |
|
After | |
|
|
|
|
1 year | |
|
5 years | |
|
5 years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Sell/ Borrow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
2,055 |
|
|
|
52 |
|
|
|
|
|
|
|
2,107 |
|
Short-term exchange swaps
|
|
|
1,385 |
|
|
|
|
|
|
|
|
|
|
|
1,385 |
|
Cross currency swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency option contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy call
|
|
|
299 |
|
|
|
115 |
|
|
|
|
|
|
|
414 |
|
Sell put
|
|
|
948 |
|
|
|
826 |
|
|
|
|
|
|
|
1,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,687 |
|
|
|
993 |
|
|
|
|
|
|
|
5,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis by accounting category |
|
|
|
|
|
|
|
|
|
|
|
Market value | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Fair value hedges
|
|
|
(37 |
) |
|
|
113 |
|
Cash flow hedge
|
|
|
(3 |
) |
|
|
|
|
Hedges of net investments
|
|
|
|
|
|
|
|
|
Instruments not qualifying for hedge accounting
|
|
|
11 |
|
|
|
45 |
|
|
|
|
|
|
|
|
Total
|
|
|
(29 |
) |
|
|
158 |
|
|
|
|
|
|
|
|
F-80
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(b) |
Reclassification to income statement of gains or losses on
hedges of forecast transactions that were originally recognized
in equity |
|
|
|
|
|
|
|
(in millions of euros) | |
Cash flow hedges accounted for in shareholders equity
at December 31, 2004
|
|
|
0 |
|
Changes in fair value
|
|
|
2 |
|
Reclassification of gains or losses to income statement
|
|
|
|
|
Cash flow hedges accounted for in shareholders equity
at December 31, 2005
|
|
|
2 |
|
|
|
|
|
Changes in the fair values of cash flow hedges accounted for in
shareholders equity at December 31, 2005 are expected
to be reclassified to the income statement for
2 million
in 2006.
Alcatel and its subsidiaries are not engaged in speculative
trading in the stock markets. Subject to approval by Alcatel,
subsidiaries may make equity investments in selected companies.
At December 31, 2005, no transactions are in progress on
Alcatel shares or on other shares held by Alcatel.
Note 29 Customers deposits and
advances
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Advance payments received on construction contracts
|
|
|
704 |
|
|
|
448 |
|
Other deposits and advances received from customers
|
|
|
440 |
|
|
|
525 |
|
|
|
|
|
|
|
|
Total customers deposits and advances
|
|
|
1,144 |
|
|
|
973 |
|
|
|
|
|
|
|
|
Of which: Portion due within one year*
|
|
|
961 |
|
|
|
|
|
Portion
due after one year*
|
|
|
183 |
|
|
|
|
|
|
|
* |
Data is not available for 2004. |
F-81
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 30 |
Net cash provided (used) by operating activities before
changes in working capital, interest and taxes |
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Net income (loss) attributable to the equity holders of the
parent
|
|
|
930 |
|
|
|
576 |
|
|
|
|
|
|
|
|
Minority interests
|
|
|
41 |
|
|
|
69 |
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of tangible and
intangible assets
|
|
|
581 |
|
|
|
545 |
|
|
Of which impact of capitalized development costs
|
|
|
248 |
|
|
|
196 |
|
Amortization of capitalized development costs
|
|
|
|
|
|
|
88 |
|
Changes in pension obligations, net
|
|
|
(49 |
) |
|
|
(38 |
) |
Provisions, impairment losses and fair value changes
|
|
|
(500 |
) |
|
|
(607 |
) |
Net (gain) loss on disposal of assets
|
|
|
(317 |
) |
|
|
(139 |
) |
Share in net income (losses) of equity affiliates
(net of dividends received)
|
|
|
29 |
|
|
|
81 |
|
(Income) loss from discontinued operations
|
|
|
13 |
|
|
|
(142 |
) |
Finance costs
|
|
|
96 |
|
|
|
121 |
|
Share-based payments
|
|
|
69 |
|
|
|
60 |
|
Taxes
|
|
|
91 |
|
|
|
36 |
|
|
|
|
|
|
|
|
Sub-total of adjustments
|
|
|
13 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities before
changes in working capital, interest and taxes
|
|
|
984 |
|
|
|
650 |
|
|
|
|
|
|
|
|
F-82
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 31 |
Contractual obligations and disclosures related to off
balance sheet commitments |
|
|
(a) |
Contractual obligations |
The following table presents minimum payments that the Group
will have to make in the future under contracts and firm
commitments as of December 31, 2005. Amounts related to
financial debt and finance lease obligations are fully reflected
in the consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity date | |
|
|
| |
|
|
Less than | |
|
1 to | |
|
4 to | |
|
After | |
|
|
Contractual cash obligations |
|
1 year | |
|
3 years | |
|
5 years | |
|
5 years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Financial debt (excluding finance leases)
|
|
|
986 |
|
|
|
468 |
|
|
|
887 |
|
|
|
1,397 |
|
|
|
3,738 |
|
Finance lease obligations
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 |
|
Equity component of Oceane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126 |
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total included in balance sheet
|
|
|
1,046 |
|
|
|
468 |
|
|
|
887 |
|
|
|
1,523 |
|
|
|
3,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs on financial debt
|
|
|
164 |
|
|
|
200 |
|
|
|
152 |
|
|
|
89 |
|
|
|
605 |
|
Operating leases
|
|
|
150 |
|
|
|
264 |
|
|
|
182 |
|
|
|
350 |
|
|
|
946 |
|
Commitments to purchase fixed assets
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
Other unconditional purchase obligations*
|
|
|
81 |
|
|
|
15 |
|
|
|
3 |
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub total Commitments
|
|
|
423 |
|
|
|
479 |
|
|
|
337 |
|
|
|
439 |
|
|
|
1,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Other unconditional purchase obligations result mainly from
obligations under multi-year supply contracts linked to the sale
of businesses to third parties. |
|
|
(b) |
Off balance sheet commitments |
Off balance sheet commitments of the Group were primarily as
follows:
|
|
|
|
|
certain guarantees given to the Groups customers for
contract execution (performance bonds, guarantees on advances
received issued by financial institutions); |
|
|
|
guarantee relating to the maximum intra-day bank overdraft
allowed for Group subsidiaries under the Groups cash
pooling agreement with certain banks; |
|
|
|
guarantees given under securitization programs or on sale of
receivables (see description below). |
Guarantees given in the normal course of the Groups
business are presented below.
F-83
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For guarantees given for contract performance, only those
granted by financial institutions are presented below.
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Guarantees given on contracts performed by consolidated
subsidiaries or by non-consolidated subsidiaries
|
|
|
2,034 |
|
|
|
1,742 |
|
Discounted notes receivable and other
|
|
|
|
|
|
|
5 |
|
Other contingent commitments
|
|
|
624 |
|
|
|
793 |
|
|
|
|
|
|
|
|
Sub-total Contingent commitments
|
|
|
2,658 |
|
|
|
2,540 |
|
|
|
|
|
|
|
|
Debt security interests granted and other debt guarantees
|
|
|
97 |
|
|
|
156 |
|
Guarantees on cash pooling
|
|
|
639 |
|
|
|
605 |
|
|
|
|
|
|
|
|
Total
|
|
|
3,394 |
|
|
|
3,301 |
|
|
|
|
|
|
|
|
|
|
|
Contingent commitments at December 31,
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity date | |
|
|
|
|
| |
|
|
|
|
Less than | |
|
1 to | |
|
4 to | |
|
After | |
|
|
Contingent commitments |
|
1 year | |
|
3 years | |
|
5 years | |
|
5 years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Guarantees on Group contracts*
|
|
|
1,223 |
|
|
|
292 |
|
|
|
180 |
|
|
|
123 |
|
|
|
1,818 |
|
Guarantees on third party contracts
|
|
|
139 |
|
|
|
59 |
|
|
|
9 |
|
|
|
9 |
|
|
|
216 |
|
Discounted notes receivable and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other contingent commitments
|
|
|
171 |
|
|
|
169 |
|
|
|
134 |
|
|
|
150 |
|
|
|
624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,533 |
|
|
|
520 |
|
|
|
323 |
|
|
|
282 |
|
|
|
2,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counter guarantees received
|
|
|
272 |
|
|
|
41 |
|
|
|
4 |
|
|
|
2 |
|
|
|
319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Reflected in balance
sheet 302
The amounts reflected in the preceding tables represent the
maximum potential amounts of future payments
(undiscounted) that the Group could be required to make
under current guarantees granted by the Group. These amounts are
not reduced by any amounts that may be recovered under recourse
provisions in the guarantees or guarantees given by customers
for the Groups benefit, which are included in the
counter guarantees received line.
Commitments related to product warranties, pension and
end-of-career
indemnities are not included in the preceding table. These
commitments are fully reflected in the financial statements.
Contingent liabilities arising out of litigation, arbitration or
regulatory actions are not included in the preceding table with
the exception of those linked to Group construction contracts.
For more information concerning litigation, see note 34.
Guarantees given on Group construction contracts consist of
performance bonds issued by financial institutions to customers
and bank guarantees given to secure advance payments received
from customers (excluding security interests and restricted cash
which are indicated in the table Guarantees granted on
debt, advance payments received, contingencies and security
interests granted at December 31, 2005 of this note).
Alcatel gives guarantees related to advances and payments
received from customers, or commits to indemnify the customer,
if the subsidiary contractor does not perform the contract in
compliance with the terms of the contract. In the event that,
due to occurrences, such as delay in delivery or litigation
related to failure in
F-84
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
performance on the underlying contracts, it becomes likely that
Alcatel will become liable for such guarantees, the estimated
risk is reserved for on the consolidated balance sheet under the
caption provisions (see note 28) or in
inventory reserve. The amounts concerned are given in the
preceding table in the specific caption *Reflected in
balance sheet.
Commitments related to contracts that have been cancelled or
interrupted due to the default or bankruptcy of the customer are
included in the above-mentioned Guarantees on Group
contracts as long as the legal release of the guarantee
has not been obtained.
Additionally, most of the performance guarantees given to Group
customers are insured. The evaluation of risk related to
guarantees takes into account the insurance proceeds that may be
received in case of a claim.
Guarantees given on third party construction contracts could
contingently require the Group to make payments to the
guaranteed party based on a non-consolidated companys
failure to perform under an agreement. The fair value of these
contingent liabilities, corresponding to the premiums received
by the guarantor for issuing the guarantees, was
2 million
at December 31, 2005
(3 million
at December 31, 2004).
|
|
|
Guarantees granted on debt, advance payments
received, contingencies and security interests granted at
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity date | |
|
|
|
|
|
|
| |
|
|
|
|
Guarantees on borrowings and |
|
Less than | |
|
1 to | |
|
4 to | |
|
After | |
|
|
|
Total of the balance | |
|
% of the balance | |
advance payments received |
|
1 Year | |
|
3 Years | |
|
5 Years | |
|
5 Years | |
|
Total | |
|
sheet caption | |
|
sheet caption | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Security interests granted
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
Other guarantees given
|
|
|
61 |
|
|
|
1 |
|
|
|
6 |
|
|
|
20 |
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
66 |
|
|
|
1 |
|
|
|
6 |
|
|
|
24 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value of assets given in guarantee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
819 |
|
|
|
0.0 |
|
tangible assets
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
1,111 |
|
|
|
0.5 |
|
financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
306 |
|
|
|
1.3 |
|
inventories and work in progress
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,438 |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
9 |
|
|
|
3,674 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee on cash pooling |
Not included in the preceding table is a guarantee granted to
the banks that implement the Group cash pooling. This guarantee
covers the risk involved in any debit position that could remain
outstanding after daily transfers between Alcatel Central
Treasurys accounts and the Group subsidiaries
accounts. At December 31, 2005, this guarantee was valued
at
639 million
(605 million
at December 31, 2004).
|
|
|
Sale of carry-back receivable |
In May 2002, Alcatel sold to a credit institution a carry-back
receivable with a face value of
200 million
resulting from Alcatels decision to carry back 2001 tax
losses. As indicated in note 38-IV-E,
F-85
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
this receivable is kept in the consolidated balance sheet with
the contra entry in financial debt because of the Groups
ability to recover this receivable before its maturity date.
Alcatel is required to indemnify the purchaser in case of any
error or inaccuracy concerning the amount or nature of the
receivable sold. The sale will be retroactively cancelled in the
event of a modification to the law or regulations that
substantially changes the rights attached to the receivable sold.
|
|
|
Securitization of customer receivables |
In December 2003, Alcatel entered into a securitization program
for the sale of customer receivables without recourse. Eligible
receivables are sold to a special purpose vehicle, which
benefits from a subordinated financing from the Group
representing an over-collateralization determined on the basis
of the portfolio of receivables sold. This special purpose
vehicle is fully consolidated in accordance with SIC 12. The
receivables sold at December 31, 2005, which amounted to
61 million
(82 million
at December 31, 2004), are therefore maintained in the
consolidated balance sheet. At December 31, 2005, the
maximum amount of receivables that could be sold amounted to
150 million
(150 million
at December 31, 2004), representing a credit line available
to the Group. This amount can be increased to
250 million.
The purpose of this securitization program is to optimize the
management and recovery of receivables in addition to providing
extra financing.
Note 32 Related party transactions
To the Groups knowledge, the only shareholder holding more
than 5% of the parent companys share capital is Brandes
Investment Partners LP.
Transactions with related parties (as defined by IAS 24
Related Party Disclosures) during 2005 and 2004 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of | |
|
|
euros) | |
Revenues
|
|
|
|
|
|
|
|
|
Non-consolidated affiliates
|
|
|
44 |
|
|
|
42 |
|
Joint ventures
|
|
|
|
|
|
|
|
|
Equity affiliates
|
|
|
9 |
|
|
|
11 |
|
Cost of sales
|
|
|
|
|
|
|
|
|
Non-consolidated affiliates
|
|
|
(48 |
) |
|
|
(67 |
) |
Joint ventures
|
|
|
(145 |
) |
|
|
(120 |
) |
Equity affiliates
|
|
|
(23 |
) |
|
|
(4 |
) |
Research and development costs
|
|
|
|
|
|
|
|
|
Non-consolidated affiliates
|
|
|
(7 |
) |
|
|
(5 |
) |
Joint ventures
|
|
|
(36 |
) |
|
|
(41 |
) |
Equity affiliates
|
|
|
(3 |
) |
|
|
|
|
F-86
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Outstanding balances arising from related party transactions at
December 31, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Other assets
|
|
|
|
|
|
|
|
|
Non-consolidated affiliates
|
|
|
21 |
|
|
|
41 |
|
Joint ventures
|
|
|
30 |
|
|
|
35 |
|
Equity affiliates
|
|
|
29 |
|
|
|
14 |
|
Valuation allowances
|
|
|
(20 |
) |
|
|
(6 |
) |
Other liabilities
|
|
|
|
|
|
|
|
|
Non-consolidated affiliates
|
|
|
(22 |
) |
|
|
(20 |
) |
Joint ventures
|
|
|
(50 |
) |
|
|
(18 |
) |
Equity affiliates
|
|
|
(18 |
) |
|
|
(15 |
) |
Cash (financial debt), net
|
|
|
|
|
|
|
|
|
Non-consolidated affiliates
|
|
|
|
|
|
|
(11 |
) |
Joint ventures
|
|
|
(11 |
) |
|
|
15 |
|
Equity affiliates
|
|
|
(38 |
) |
|
|
(31 |
) |
Members of the Board of Directors and members of the
Groups executive committee are those present during the
year and listed in the Corporate Governance section of the
Annual Report. In 2005 and 2004, compensation, benefits and
social security contributions attributable to members of the
Board of Directors and to the executive committee members
(Key management personnel) were as follows:
Recorded expense in respect of compensation and related
benefits attributable to Key management personnel during the
year
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Short-term benefits
|
|
|
|
|
|
|
|
|
Fixed remuneration
|
|
|
7 |
|
|
|
7 |
|
Variable remuneration
|
|
|
7 |
|
|
|
4 |
|
Directors fees
|
|
|
1 |
|
|
|
1 |
|
Employers social security contributions
|
|
|
4 |
|
|
|
4 |
|
Termination benefits and retirement indemnities
|
|
|
5 |
|
|
|
|
|
Other benefits
|
|
|
|
|
|
|
|
|
Post-employment benefits
|
|
|
5 |
|
|
|
4 |
|
Share-based payments (stock option plans)
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Total
|
|
|
34 |
|
|
|
25 |
|
|
|
|
|
|
|
|
Note 33 Payroll and staff training rights
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Wages and salaries (including social security/pension costs)
|
|
|
3,702 |
|
|
|
3,740 |
|
F-87
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The law of May 4, 2004 in France provides French company
employees with the right to receive individual training of at
least 20 hours per year that can be accumulated over six
years. Costs incurred relating to these individual training
rights are considered as period costs. Cost accruals are not
required to be made except in exceptional circumstances.
Accumulated individual staff training rights were
601,179 hours at December 31, 2005 (312,400 hours
at December 31, 2004).
Note 34 Contingencies
In addition to legal proceedings incidental to the conduct of
its business (including employment-related collective actions in
France and the U.S.) which management believes are adequately
reserved against in the financial statements or will not result
in any significant costs to the Group, Alcatel is involved in
the following legal proceedings:
France Telecom
Since 1993, a legal investigation has been ongoing concerning
overbillings which are alleged to have been
committed in Alcatel CIT to the detriment of its principal
client, France Telecom, based on an audit of production costs
conducted in 1989 in the transmission division, and in 1992 in
the switching division. Two settlement agreements were entered
into with France Telecom, one in 1993 in relation to the
transmission division, and the other in May 2004 in relation to
the switching activity: in the latter it was recognized that the
parties dispute on pricing did not involve fraud by
Alcatel CIT.
In April 1999, Alcatel learned that the criminal investigation
had been extended to determine whether corporate funds of
Alcatel CIT and Alcatel had been misused. As a consequence, both
Alcatel CIT and Alcatel filed civil complaints to preserve their
rights with respect to this investigation.
In January 2000, the investigating magistrate declared his
investigation closed. Since then, the file has been the subject
of several procedural developments, including appeals relating
to the closing of the investigation phase with respect to a
former employee of Alcatel CIT, who has been indicted. At the
end of November 2004, the investigating magistrate again
declared his investigation closed. By a decision dated
June 29, 2005, which has now become final, the division of
the Paris Court of Appeals dealing with issues arising in the
context of criminal investigation definitely rejected a final
request for annulment. As a result, the investigating magistrate
may now close his judicial inquiry at any time.
Class A and Class O shareholders
Several purported class action lawsuits have been filed since
May 2002 against Alcatel and certain of its officers and
directors challenging the accuracy of certain public disclosures
that were made in the prospectus for the initial public offering
of Alcatel Class O shares and in other public statements
regarding market demand for the former Optronics divisions
products.
The lawsuits purport to be brought on behalf of persons who
(i) acquired Alcatel Class O shares in or pursuant to
the initial public offering of the American Depositary Shares
conducted by Alcatel in October 2000, (ii) purchased
Alcatel Class A and Class O shares in the form of ADSs
between October 20, 2000 and May 29, 2001 and
(iii) purchased Alcatel Class A shares in the form of
ADSs between May 1, 2000 and May 29, 2001. The amount
of damages sought by these lawsuits has not yet been specified.
The actions have been consolidated in the United States District
Court, Southern District of New York. Alcatel filed a motion to
dismiss this action on January 31, 2003 and a decision on
the motion was rendered on March 4, 2005. The judge
rejected a certain number of the plaintiffs demands with
prejudice. He also rejected all the remaining claims under the
federal securities laws for lack of specificity in the
pleadings, but with leave to file a further amended complaint.
This was filed, and fully briefed as of August 5, 2005. The
parties are now waiting for the judges decision.
F-88
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Costa Rica
Beginning in early October 2004, Alcatel learned that
investigations had been launched in Costa Rica by the Costa
Rican Attorney General and the National Congress, regarding
payments alleged to have been made by a consultant on behalf of
an Alcatel subsidiary to various state and local officials in
Costa Rica, two political parties in Costa Rica and
representatives of ICE, the state-owned telephone company, in
connection with the procurement by the Alcatel subsidiary of
several contracts for network equipment and services from ICE.
Upon learning of these allegations, Alcatel immediately
commenced and is continuing an investigation into this matter.
In Costa Rica and other countries, Alcatel retains consultants
to assist it with its local operations and contracts.
Alcatels contracts with persons through whom Alcatel deals
locally strictly prohibit the provision of any pecuniary or
other advantage in contravention of applicable laws. In
addition, Alcatel has a strict Statement of Business Practice (a
copy of which is available on its web site, www.alcatel.com,
under the heading Sustainable Development Values and
Charters) that imposes the highest standards of legal and
ethical conduct on its employees. Alcatel rigorously enforces
this Statement of Business Practice across the entire company
and, when violations occur, Alcatel takes prompt and appropriate
action against the persons involved.
Alcatel has terminated the employment of the president of
Alcatel de Costa Rica and a vice president-Latin America of a
French subsidiary. Alcatel is also in the process of pursuing
criminal actions against the former president of Alcatel de
Costa Rica, the local consultants and the employee of the French
subsidiary based on its suspicion of their complicity in an
improper payment scheme and misappropriation of funds. The
contracts with the local consultants were limited to the
specific projects involved and are no longer in effect or have
been terminated, and any payments due under those contracts have
been suspended. Alcatels internal investigation is
continuing.
Alcatel contacted the United States Securities and Exchange
Commission and the United States Department of Justice and
informed them that Alcatel will cooperate fully in any inquiry
or investigation into these matters. The SEC is conducting an
inquiry into payments by Alcatel in foreign countries. If the
Department of Justice or the SEC determines that violations of
law have occurred, it could seek civil or, in the case of the
Department of Justice, criminal sanctions, including monetary
penalties against Alcatel. Neither the Department of Justice nor
the SEC has informed Alcatel what action, if any, they will take.
Several investigations have been launched in Costa Rica
concerning this matter by both the Costa Rican Attorney General
and the Costa Rican National Congress. On November 25,
2004, the Costa Rican Attorney Generals Office commenced a
civil lawsuit against Alcatel CIT to seek compensation for the
pecuniary damage caused by the alleged payments described above
to the people and the Treasury of Costa Rica, and for the loss
of prestige suffered by the Nation of Costa Rica. On
February 1, 2005, ICE commenced a lawsuit against Alcatel
CIT to seek compensation for the pecuniary damage caused by the
alleged payments described above to ICE and its customers, and
for the harm to the reputation of ICE resulting from these
events. The amount of damages sought by these lawsuits has not
yet been specified. Alcatel intends to defend these actions
vigorously and deny any liability or wrongdoing with respect to
these litigations.
Alcatel is unable to predict the outcome of these investigations
and civil lawsuit and their effect on its business. If the Costa
Rican authorities conclude criminal violations have occurred,
Alcatel may be banned from participating in government
procurement contracts within Costa Rica for a certain period and
fines or penalties may be imposed on Alcatel, in an amount which
Alcatel is not able to determine at this time. Alcatel expects
to generate approximately
10 million
in revenue from Costa Rican contracts in 2006. Based on the
amount of revenue received from these contracts, Alcatel does
not believe a loss of business in Costa Rica would have a
material adverse effect on Alcatel as whole. However, these
events may have a negative impact on the image of Alcatel in
Latin America.
F-89
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Taiwan
Certain employees of Taisel, a Taiwanese subsidiary of Alcatel,
and Siemens Taiwan, along with a few suppliers and a legislative
aide, have been the subject of an investigation by the Taipei
Investigators Office of the Ministry of Justice relating
to an axle counter supply contract awarded to Taisel by Taiwan
Railways in 2003. It has been alleged that persons in Taisel and
Siemens Taiwan and subcontractors hired by them were involved in
a bid rigging and illicit payment arrangement for the Taiwan
Railways contract.
Upon learning of these allegations, Alcatel immediately
commenced and is continuing an investigation into this matter.
Alcatel terminated the former president of Taisel. A director of
international sales and marketing development of a German
subsidiary who was involved in the Taiwan Railways contract has
resigned.
On February 21, 2005, the former president of Taisel,
Taisel and others were indicted for violation of the Taiwanese
Government Procurement Act.
On November 15, 2005, the Taipei criminal district court
found Taisel not guilty of the alleged violation of the
Government Procurement Act. The former President of Taisel was
not judged because he was not present or represented at the
proceedings. The court found two Taiwanese businessmen involved
in the matter guilty of violations of the Business Accounting
Act.
The prosecutor has filed an appeal with the Taipei court of
appeal. Should the higher court find Taisel guilty of the
bid-rigging allegations in the indictment, Taisel may be banned
from participating in government procurement contracts within
Taiwan for a certain period and fines or penalties may be
imposed on Alcatel, in an amount not to exceed
25,000.
Other allegations made in connection with this matter may still
be under ongoing investigation by the Taiwanese authorities.
As a group, Alcatel expects to generate approximately
126 million
of revenue from Taiwanese contracts in 2006, of which only a
part will be from governmental contracts. Based on the amount of
revenue expected from these contracts, Alcatel does not believe
a loss of business in Taiwan would have a material adverse
effect on Alcatel as a whole.
Effect of the investigations. Alcatel reiterates that its
policy is to conduct its business with transparency, and in
compliance with all laws and regulations, both locally and
internationally. Alcatel will fully cooperate with all
governmental authorities in connection with the investigation of
any violation of those laws and regulations.
Although it is not possible at this stage of these cases to
predict the outcome with any degree of certainty, Alcatel
believes that the ultimate outcome of these proceedings will not
have a material adverse effect on its consolidated financial
position or its income (loss) from operating activities. Alcatel
is not aware of any other exceptional circumstances or
proceedings that have had or may have a significant impact on
the business, the financial position, the net income (loss) or
the assets of Alcatel or the Group.
Note 35 Events after the balance sheet
date
There were no events, favorable or unfavorable, that occurred
between the balance sheet date and February 1, 2006, the
date when the Board of Directors authorized the consolidated
financial statements for issue. However, the consolidated
financial statements will only be final once approved by the
Annual Shareholders Meeting.
F-90
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 36 Main consolidated companies
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
Consolidation | |
Company |
|
Country | |
|
% control | |
|
% interest | |
|
method | |
|
|
| |
|
| |
|
| |
|
| |
Alcatel(a)(b)
|
|
|
France |
|
|
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|
Parent company |
|
OPERATING COMPANIES*
|
|
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|
Alcatel Australia Limited
|
|
|
Australia |
|
|
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|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Austria A.G
|
|
|
Austria |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Bell NV
|
|
|
Belgium |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Business Systems S.A.
|
|
|
France |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Canada Inc.
|
|
|
Canada |
|
|
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|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel CIT
|
|
|
France |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel China Investment CO. Ltd.
|
|
|
R.P.C. |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel España S.A.
|
|
|
Spain |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Indetel S.A. de C.V.
|
|
|
Mexico |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Italia S.p.A.
|
|
|
Italy |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Polska SA
|
|
|
Poland |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Portugal SA
|
|
|
Portugal |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Schweiz AG
|
|
|
Switzerland |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel SEL A.G
|
|
|
Germany |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Shanghai
Bell(c)
|
|
|
R.P.C. |
|
|
|
50 |
|
|
|
50 |
|
|
|
Full consolidation |
|
Alcatel Alenia Space
|
|
|
France |
|
|
|
67 |
|
|
|
67 |
|
|
|
Proportionate |
|
Telespazio
|
|
|
Italy |
|
|
|
33 |
|
|
|
33 |
|
|
|
Proportionate |
|
Alcatel Submarine Networks Limited
|
|
|
U.K. |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Submarine Networks S.A.
|
|
|
France |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Telecom Limited
|
|
|
U.K. |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Telecom Nederland BV
|
|
|
The Netherlands |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Telecom Norway A/ S
|
|
|
Norway |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Telecommunicacoes SA
|
|
|
Brazil |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Alcatel Teletas
Telekommunikasyon(b)
|
|
|
Turkey |
|
|
|
65 |
|
|
|
65 |
|
|
|
Full consolidation |
|
Alcatel USA Inc.
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Radio Frequency Systems GmbH
|
|
|
Germany |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Radio Frequency Systems Inc.
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Taiwan International Standard Electronics Ltd (Taisel)
|
|
|
Taiwan |
|
|
|
60 |
|
|
|
60 |
|
|
|
Full consolidation |
|
Alda Marine
|
|
|
France |
|
|
|
51 |
|
|
|
51 |
|
|
|
Proportionate |
|
Evolium Holding SAS
|
|
|
France |
|
|
|
66 |
|
|
|
66 |
|
|
|
Proportionate |
|
|
|
|
(a) |
|
Percentages of control and interest equal 100% unless otherwise
specified. |
|
(b) |
|
Publicly traded |
|
(c) |
|
The financial data of Alcatel, as the parent company, are
included under the business segment Others. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation | |
Company |
|
Country | |
|
% control | |
|
% interest | |
|
method | |
|
|
| |
|
| |
|
| |
|
| |
HOLDINGS AND
OTHER(b)
|
|
|
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|
|
|
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|
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|
|
Aerospace, defence and IT&S
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thales (ex
Thomson-CSF)(a)
|
|
|
France |
|
|
|
12.8 |
|
|
|
9.5 |
|
|
|
Equity |
|
Financial Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alcatel Holding Canada Corp.
|
|
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
|
Alcatel NV
|
|
|
Netherlands |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
|
Alcatel Participations
|
|
|
France |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
|
Alcatel UK Limited
|
|
|
U.K. |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
|
Compagnie Financière Alcatel
|
|
|
France |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
|
Coralec
|
|
|
France |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
|
Telpart
|
|
|
France |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
Financial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electro Banque
|
|
|
France |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
|
Electro Ré
|
|
|
Luxembourg |
|
|
|
|
|
|
|
|
|
|
|
Full consolidation |
|
|
|
|
(a) |
|
Publicly traded. |
|
(b) |
|
Financial data for Alcatel, as the parent company, are included
in this business segment. |
F-91
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 37 Quarterly information (unaudited)
|
|
(a) |
Consolidated income statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
Q1 | |
|
Q2 | |
|
Q3 | |
|
Q4 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Revenues
|
|
|
2,607 |
|
|
|
3,145 |
|
|
|
3,289 |
|
|
|
4,094 |
|
|
|
13,135 |
|
Cost of sales
|
|
|
(1,658 |
) |
|
|
(2,026 |
) |
|
|
(2,151 |
) |
|
|
(2,668 |
) |
|
|
(8,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
949 |
|
|
|
1,119 |
|
|
|
1,138 |
|
|
|
1,426 |
|
|
|
4,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
(498 |
) |
|
|
(515 |
) |
|
|
(498 |
) |
|
|
(489 |
) |
|
|
(2,000 |
) |
|
Research and development expenses before capitalization of
development expenses
|
|
|
(366 |
) |
|
|
(385 |
) |
|
|
(376 |
) |
|
|
(417 |
) |
|
|
(1,544 |
) |
|
Impact of capitalization of development expenses
|
|
|
22 |
|
|
|
44 |
|
|
|
14 |
|
|
|
21 |
|
|
|
101 |
|
Research and development costs
|
|
|
(344 |
) |
|
|
(341 |
) |
|
|
(362 |
) |
|
|
(396 |
) |
|
|
(1,443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
107 |
|
|
|
263 |
|
|
|
278 |
|
|
|
541 |
|
|
|
1,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments (stock option plans)
|
|
|
(18 |
) |
|
|
(20 |
) |
|
|
(17 |
) |
|
|
(14 |
) |
|
|
(69 |
) |
Restructuring costs
|
|
|
(15 |
) |
|
|
(34 |
) |
|
|
2 |
|
|
|
(63 |
) |
|
|
(110 |
) |
Impairment of capitalized development costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on disposal of consolidated entities
|
|
|
|
|
|
|
|
|
|
|
129 |
|
|
|
|
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities
|
|
|
74 |
|
|
|
209 |
|
|
|
392 |
|
|
|
464 |
|
|
|
1,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial interest on gross financial debt
|
|
|
(55 |
) |
|
|
(55 |
) |
|
|
(58 |
) |
|
|
(50 |
) |
|
|
(218 |
) |
|
Financial interest on cash and cash equivalents
|
|
|
24 |
|
|
|
36 |
|
|
|
32 |
|
|
|
30 |
|
|
|
122 |
|
Finance costs
|
|
|
(31 |
) |
|
|
(19 |
) |
|
|
(26 |
) |
|
|
(20 |
) |
|
|
(96 |
) |
Other financial income (loss)
|
|
|
42 |
|
|
|
31 |
|
|
|
(44 |
) |
|
|
17 |
|
|
|
46 |
|
Share in net income (losses) of equity affiliates
|
|
|
(1 |
) |
|
|
(22 |
) |
|
|
9 |
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before tax and discontinued operations
|
|
|
84 |
|
|
|
199 |
|
|
|
331 |
|
|
|
461 |
|
|
|
1,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
49 |
|
|
|
27 |
|
|
|
(52 |
) |
|
|
(115 |
) |
|
|
(91 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
133 |
|
|
|
226 |
|
|
|
279 |
|
|
|
346 |
|
|
|
984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
3 |
|
|
|
(18 |
) |
|
|
(7 |
) |
|
|
9 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
136 |
|
|
|
208 |
|
|
|
272 |
|
|
|
355 |
|
|
|
971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
124 |
|
|
|
196 |
|
|
|
266 |
|
|
|
344 |
|
|
|
930 |
|
Minority interests
|
|
|
12 |
|
|
|
12 |
|
|
|
6 |
|
|
|
11 |
|
|
|
41 |
|
Net income (loss) attributable to the equity holders of the
parent per share (in euros)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
0.09 |
|
|
|
0.14 |
|
|
|
0.19 |
|
|
|
0.25 |
|
|
|
0.68 |
|
Diluted earnings per share
|
|
|
0.09 |
|
|
|
0.14 |
|
|
|
0.19 |
|
|
|
0.25 |
|
|
|
0.68 |
|
Net income (loss) (before discontinued operations)
attributable to the equity holders of the parent per share
(in euros)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
0.09 |
|
|
|
0.15 |
|
|
|
0.19 |
|
|
|
0.25 |
|
|
|
0.69 |
|
Diluted earnings per share
|
|
|
0.09 |
|
|
|
0.15 |
|
|
|
0.19 |
|
|
|
0.25 |
|
|
|
0.69 |
|
Net income (loss) of discontinued operations per share
(in euros)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
0.00 |
|
|
|
(0.01 |
) |
Diluted earnings per share
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
0.00 |
|
|
|
(0.01 |
) |
F-92
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
Q1 | |
|
Q2 | |
|
Q3 | |
|
Q4 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Revenues
|
|
|
2,515 |
|
|
|
2,899 |
|
|
|
3,024 |
|
|
|
3,806 |
|
|
|
12,244 |
|
Cost of sales
|
|
|
(1,607 |
) |
|
|
(1,714 |
) |
|
|
(1,865 |
) |
|
|
(2,445 |
) |
|
|
(7,631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
908 |
|
|
|
1,185 |
|
|
|
1,159 |
|
|
|
1,361 |
|
|
|
4,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
(487 |
) |
|
|
(532 |
) |
|
|
(429 |
) |
|
|
(496 |
) |
|
|
(1,944 |
) |
|
Research and development expenses before capitalization of
development expenses
|
|
|
(378 |
) |
|
|
(429 |
) |
|
|
(385 |
) |
|
|
(428 |
) |
|
|
(1,620 |
) |
|
Impact of capitalization of development expenses
|
|
|
41 |
|
|
|
33 |
|
|
|
27 |
|
|
|
29 |
|
|
|
130 |
|
Research and development costs
|
|
|
(337 |
) |
|
|
(396 |
) |
|
|
(358 |
) |
|
|
(399 |
) |
|
|
(1,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
84 |
|
|
|
257 |
|
|
|
372 |
|
|
|
466 |
|
|
|
1,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments (stock option plans)
|
|
|
(7 |
) |
|
|
(17 |
) |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
(60 |
) |
Restructuring costs
|
|
|
(65 |
) |
|
|
(68 |
) |
|
|
(18 |
) |
|
|
(173 |
) |
|
|
(324 |
) |
Impairment of capitalized development expenses
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(88 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities
|
|
|
12 |
|
|
|
172 |
|
|
|
336 |
|
|
|
187 |
|
|
|
707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial interest on gross financial debt
|
|
|
(50 |
) |
|
|
(58 |
) |
|
|
(63 |
) |
|
|
(55 |
) |
|
|
(226 |
) |
|
Financial interest on cash, cash equivalents and marketable
securities
|
|
|
22 |
|
|
|
26 |
|
|
|
29 |
|
|
|
28 |
|
|
|
105 |
|
Finance costs
|
|
|
(28 |
) |
|
|
(32 |
) |
|
|
(34 |
) |
|
|
(27 |
) |
|
|
(121 |
) |
Other financial income (loss)
|
|
|
32 |
|
|
|
(8 |
) |
|
|
16 |
|
|
|
(26 |
) |
|
|
14 |
|
Share in net income (losses) of equity affiliates
|
|
|
6 |
|
|
|
(3 |
) |
|
|
(34 |
) |
|
|
(30 |
) |
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before tax and discontinued operations
|
|
|
22 |
|
|
|
129 |
|
|
|
284 |
|
|
|
104 |
|
|
|
539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
21 |
|
|
|
28 |
|
|
|
(14 |
) |
|
|
(71 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
43 |
|
|
|
157 |
|
|
|
270 |
|
|
|
33 |
|
|
|
503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
232 |
|
|
|
(40 |
) |
|
|
(44 |
) |
|
|
(6 |
) |
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)(1)
|
|
|
275 |
|
|
|
117 |
|
|
|
226 |
|
|
|
27 |
|
|
|
645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
278 |
|
|
|
96 |
|
|
|
195 |
|
|
|
7 |
|
|
|
576 |
|
Minority interests
|
|
|
(3 |
) |
|
|
21 |
|
|
|
31 |
|
|
|
20 |
|
|
|
69 |
|
Net income (loss) attributable to the equity holders of the
parent per share (in euros):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
0.21 |
|
|
|
0.07 |
|
|
|
0.14 |
|
|
|
0.01 |
|
|
|
0.43 |
|
Diluted earnings per share
|
|
|
0.21 |
|
|
|
0.07 |
|
|
|
0.14 |
|
|
|
0.00 |
|
|
|
0.42 |
|
Net income (loss) (before discontinued operations)
attributable to the equity holders of the parent per share (in
euros)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
0.04 |
|
|
|
0.10 |
|
|
|
0.17 |
|
|
|
0.01 |
|
|
|
0.32 |
|
Diluted earnings per share
|
|
|
0.04 |
|
|
|
0.10 |
|
|
|
0.17 |
|
|
|
0.00 |
|
|
|
0.31 |
|
Net income (loss) of discontinued operations per share (in
euros)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
0.17 |
|
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
|
0.00 |
|
|
|
0.11 |
|
Diluted earnings per share
|
|
|
0.17 |
|
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
|
0.00 |
|
|
|
0.11 |
|
|
|
(1) |
See Preliminary remarks in note 38. |
F-93
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(b) Information by business segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
Q1 | |
|
Q2 | |
|
Q3 | |
|
Q4 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed communications
|
|
|
987 |
|
|
|
1,224 |
|
|
|
1,282 |
|
|
|
1,720 |
|
|
|
5,213 |
|
Mobile communications
|
|
|
789 |
|
|
|
958 |
|
|
|
1,092 |
|
|
|
1,257 |
|
|
|
4,096 |
|
Private communications
|
|
|
848 |
|
|
|
981 |
|
|
|
928 |
|
|
|
1,161 |
|
|
|
3,918 |
|
Other and eliminations
|
|
|
(17 |
) |
|
|
(18 |
) |
|
|
(13 |
) |
|
|
(44 |
) |
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,607 |
|
|
|
3,145 |
|
|
|
3,289 |
|
|
|
4,094 |
|
|
|
13,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed communications
|
|
|
50 |
|
|
|
120 |
|
|
|
121 |
|
|
|
288 |
|
|
|
579 |
|
Mobile communications
|
|
|
66 |
|
|
|
115 |
|
|
|
116 |
|
|
|
139 |
|
|
|
436 |
|
Private communications
|
|
|
34 |
|
|
|
59 |
|
|
|
64 |
|
|
|
117 |
|
|
|
274 |
|
Other
|
|
|
(43 |
) |
|
|
(31 |
) |
|
|
(23 |
) |
|
|
(3 |
) |
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
107 |
|
|
|
263 |
|
|
|
278 |
|
|
|
541 |
|
|
|
1,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities excluding
capital gains (losses) on disposal of tangible and intangible
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed communications
|
|
|
50 |
|
|
|
112 |
|
|
|
121 |
|
|
|
280 |
|
|
|
563 |
|
Mobile communications
|
|
|
66 |
|
|
|
109 |
|
|
|
116 |
|
|
|
132 |
|
|
|
423 |
|
Private communications
|
|
|
35 |
|
|
|
52 |
|
|
|
64 |
|
|
|
102 |
|
|
|
253 |
|
Other
|
|
|
(44 |
) |
|
|
(32 |
) |
|
|
(23 |
) |
|
|
(3 |
) |
|
|
(102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
107 |
|
|
|
241 |
|
|
|
278 |
|
|
|
511 |
|
|
|
1,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-94
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
Q1 | |
|
Q2 | |
|
Q3 | |
|
Q4 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed communications
|
|
|
1,086 |
|
|
|
1,305 |
|
|
|
1,203 |
|
|
|
1,531 |
|
|
|
5,125 |
|
Mobile communications
|
|
|
617 |
|
|
|
712 |
|
|
|
893 |
|
|
|
1,091 |
|
|
|
3,313 |
|
Private communications
|
|
|
849 |
|
|
|
921 |
|
|
|
957 |
|
|
|
1,219 |
|
|
|
3,946 |
|
Other and eliminations
|
|
|
(37 |
) |
|
|
(39 |
) |
|
|
(29 |
) |
|
|
(35 |
) |
|
|
(140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,515 |
|
|
|
2,899 |
|
|
|
3,024 |
|
|
|
3,806 |
|
|
|
12,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed communications
|
|
|
46 |
|
|
|
167 |
|
|
|
184 |
|
|
|
179 |
|
|
|
576 |
|
Mobile communications
|
|
|
80 |
|
|
|
70 |
|
|
|
119 |
|
|
|
149 |
|
|
|
418 |
|
Private communications
|
|
|
28 |
|
|
|
40 |
|
|
|
92 |
|
|
|
107 |
|
|
|
267 |
|
Other
|
|
|
(70 |
) |
|
|
(20 |
) |
|
|
(23 |
) |
|
|
31 |
|
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
84 |
|
|
|
257 |
|
|
|
372 |
|
|
|
466 |
|
|
|
1,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities excluding
capital gains (losses) on disposal of tangible and intangible
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed communications
|
|
|
45 |
|
|
|
159 |
|
|
|
156 |
|
|
|
170 |
|
|
|
530 |
|
Mobile communications
|
|
|
80 |
|
|
|
67 |
|
|
|
105 |
|
|
|
145 |
|
|
|
397 |
|
Private communications
|
|
|
28 |
|
|
|
39 |
|
|
|
74 |
|
|
|
101 |
|
|
|
242 |
|
Other
|
|
|
(70 |
) |
|
|
(27 |
) |
|
|
(23 |
) |
|
|
36 |
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
83 |
|
|
|
238 |
|
|
|
312 |
|
|
|
452 |
|
|
|
1,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 38 Reconciliation schedules from French
GAAP to IFRSs
Preliminary remarks
As indicated in the section Transition to IFRS of
the 2004 Reference Document, Alcatels 2004 IFRS financial
information presented hereafter has been changed marginally
compared to that previously communicated.
The changes are explained primarily by:
|
|
|
|
|
the completion of the analysis of the impact of the application
of IAS 38 Intangible Assets, IAS 32 Financial
Instruments: Disclosure and Presentation and IAS 39
Financial Instruments: Recognition and Measurement, |
|
|
|
the publication of IFRS data from certain companies consolidated
under the equity method, for which the transition impact to
IFRSs was either provisional or not available at the time of
publishing the 2004 Reference Document, |
|
|
|
consideration of the latest available information in terms of
interpreting the existing standards, |
|
|
|
completion of the verification of adjustments relating to the
cumulative translation adjustments and to accrued pensions and
retirement obligations, and |
|
|
|
the reclassifications between the current and non-current
portions of other assets and liabilities. |
F-95
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
I. Reconciliation of equity as
of January 1, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
Carry-back | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orane & | |
|
impacts IAS | |
|
Stock- | |
|
receivable | |
|
|
|
|
|
Reclas- | |
|
|
|
|
French | |
|
R&D | |
|
Oceane | |
|
32 and 39 | |
|
options | |
|
and SVF | |
|
Pensions | |
|
|
|
Total | |
|
sifications | |
|
|
|
|
GAAP | |
|
(IV.A) | |
|
(IV.B) | |
|
(IV.C) | |
|
(IV.D) | |
|
(IV.E) | |
|
(IV.F) | |
|
Other | |
|
adjustments | |
|
(IV.F) | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
|
|
Goodwill, net
|
|
|
3,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
(21 |
) |
|
|
(188 |
) |
|
|
3,630 |
|
Other intangible assets, net
|
|
|
284 |
|
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299 |
|
|
|
|
|
|
|
583 |
|
Property, plant and equipment, net
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
(69 |
) |
|
|
1,436 |
|
Share in net income (losses) of equity affiliates
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
32 |
|
|
|
78 |
|
|
|
501 |
|
Inventories and work in progress, net
|
|
|
1,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(226 |
) |
|
|
1,206 |
|
Amount due from customers on construction contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
527 |
|
|
|
527 |
|
Trade receivables and other related accounts, net
|
|
|
3,364 |
|
|
|
|
|
|
|
|
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
(105 |
) |
|
|
(496 |
) |
|
|
2,763 |
|
Advances and progress payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
|
|
106 |
|
Deferred tax assets
|
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
0 |
|
|
|
(1 |
) |
|
|
(70 |
) |
|
|
2,064 |
|
|
|
1,994 |
|
Other current and non-current assets
|
|
|
4,053 |
|
|
|
|
|
|
|
(109 |
) |
|
|
1,126 |
|
|
|
|
|
|
|
342 |
|
|
|
|
|
|
|
|
|
|
|
1,359 |
|
|
|
(2,102 |
) |
|
|
3,310 |
|
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
432 |
|
|
|
434 |
|
Cash, cash equivalents and marketable securities
|
|
|
6,269 |
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
(15 |
) |
|
|
6,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
21,132 |
|
|
|
261 |
|
|
|
(109 |
) |
|
|
1,075 |
|
|
|
(31 |
) |
|
|
342 |
|
|
|
0 |
|
|
|
11 |
|
|
|
1,549 |
|
|
|
111 |
|
|
|
22,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued pension and retirement obligations
|
|
|
1,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222 |
|
|
|
6 |
|
|
|
228 |
|
|
|
|
|
|
|
1,238 |
|
Other equity (notes mandatorily redeemable for shares)
|
|
|
645 |
|
|
|
|
|
|
|
(645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(645 |
) |
|
|
|
|
|
|
|
|
Financial debt
|
|
|
5,293 |
|
|
|
|
|
|
|
(165 |
) |
|
|
95 |
|
|
|
|
|
|
|
375 |
|
|
|
|
|
|
|
9 |
|
|
|
314 |
|
|
|
224 |
|
|
|
5,831 |
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
5 |
|
|
|
(8 |
) |
|
|
122 |
|
|
|
114 |
|
Provisions
|
|
|
3,049 |
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
2 |
|
|
|
(35 |
) |
|
|
(253 |
) |
|
|
2,761 |
|
Customers deposits and advances
|
|
|
1,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116 |
) |
|
|
1,065 |
|
Amount due to customers on construction contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93 |
|
|
|
93 |
|
Trade payables and related accounts
|
|
|
3,617 |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
6 |
|
|
|
3,620 |
|
Debt linked to bank activity
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224 |
) |
|
|
|
|
Liabilities related to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253 |
|
|
|
253 |
|
Other current and non-current liabilities
|
|
|
2,720 |
|
|
|
|
|
|
|
|
|
|
|
775 |
|
|
|
(231 |
) |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
558 |
|
|
|
6 |
|
|
|
3,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
17,739 |
|
|
|
0 |
|
|
|
(810 |
) |
|
|
862 |
|
|
|
(231 |
) |
|
|
343 |
|
|
|
209 |
|
|
|
36 |
|
|
|
409 |
|
|
|
111 |
|
|
|
18,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
3,393 |
|
|
|
261 |
|
|
|
701 |
|
|
|
213 |
|
|
|
200 |
|
|
|
(1 |
) |
|
|
(209 |
) |
|
|
(25 |
) |
|
|
1,140 |
|
|
|
(0 |
) |
|
|
4,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock and additional paid-in capital
|
|
|
10,131 |
|
|
|
|
|
|
|
645 |
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
680 |
|
|
|
|
|
|
|
10,811 |
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35 |
) |
|
|
|
|
|
|
(35 |
) |
Treasury stock owned by consolidated companies
|
|
|
(1,728 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(1,730 |
) |
Other reserves
|
|
|
(4,855 |
) |
|
|
261 |
|
|
|
56 |
|
|
|
213 |
|
|
|
200 |
|
|
|
(21 |
) |
|
|
(209 |
) |
|
|
(30 |
) |
|
|
470 |
|
|
|
(516 |
) |
|
|
(4,901 |
) |
Cumulative translation adjustments
|
|
|
(518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
518 |
|
|
|
|
|
Net income (loss) attributable to the Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity attributable to the equity
holders of the parent
|
|
|
3,030 |
|
|
|
261 |
|
|
|
701 |
|
|
|
213 |
|
|
|
200 |
|
|
|
(21 |
) |
|
|
(209 |
) |
|
|
(30 |
) |
|
|
1,115 |
|
|
|
0 |
|
|
|
4,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests Shareholders equity
|
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
5 |
|
|
|
25 |
|
|
|
0 |
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
3,393 |
|
|
|
261 |
|
|
|
701 |
|
|
|
213 |
|
|
|
200 |
|
|
|
(1 |
) |
|
|
(209 |
) |
|
|
(25 |
) |
|
|
1,140 |
|
|
|
0 |
|
|
|
4,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-96
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
II. Reconciliation of equity as
of December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
Business | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orane & | |
|
impacts IAS | |
|
Stock- | |
|
Carry back | |
|
combi- | |
|
|
|
|
|
Reclas- | |
|
|
|
|
French | |
|
R&D | |
|
Oceane | |
|
32 and 39 | |
|
options | |
|
receivables | |
|
nations | |
|
|
|
Total | |
|
sifications | |
|
|
|
|
GAAP | |
|
(IV.A) | |
|
(IV.B) | |
|
(IV.C) | |
|
(IV.D) | |
|
(IV.E) | |
|
(IV.G) | |
|
Other | |
|
adjustments | |
|
(V.G) | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Goodwill, net
|
|
|
3,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388 |
|
|
|
(6 |
) |
|
|
382 |
|
|
|
(194 |
) |
|
|
3,774 |
|
Other intangible assets, net
|
|
|
397 |
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308 |
|
|
|
0 |
|
|
|
705 |
|
Property, plant and equipment, net
|
|
|
1,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
(71 |
) |
|
|
1,095 |
|
Share in net income (losses of equity affiliates
|
|
|
454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
(24 |
) |
|
|
174 |
|
|
|
604 |
|
Inventories and work in progress, net
|
|
|
1,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(254 |
) |
|
|
1,273 |
|
Amount due from customers on construction contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
729 |
|
|
|
729 |
|
Trade receivables and other related accounts, net
|
|
|
3,520 |
|
|
|
|
|
|
|
|
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
(102 |
) |
|
|
(725 |
) |
|
|
2,693 |
|
Advances and progress payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 |
|
|
|
90 |
|
Deferred tax assets
|
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(59 |
) |
|
|
1,697 |
|
|
|
1,638 |
|
Other current and non-current assets
|
|
|
3,281 |
|
|
|
|
|
|
|
(57 |
) |
|
|
721 |
|
|
|
|
|
|
|
158 |
|
|
|
|
|
|
|
12 |
|
|
|
834 |
|
|
|
(1,733 |
) |
|
|
2,382 |
|
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
196 |
|
Prepaid pension costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287 |
|
|
|
287 |
|
Cash, cash equivalents and marketable securities
|
|
|
5,111 |
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
(12 |
) |
|
|
5,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
19,037 |
|
|
|
270 |
|
|
|
(57 |
) |
|
|
687 |
|
|
|
(14 |
) |
|
|
158 |
|
|
|
388 |
|
|
|
(24 |
) |
|
|
1,408 |
|
|
|
184 |
|
|
|
20,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued pension and retirement obligations
|
|
|
1,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315 |
|
|
|
1,459 |
|
Other equity (notes mandatorily redeemable for shares)
|
|
|
645 |
|
|
|
|
|
|
|
(645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(645 |
) |
|
|
0 |
|
|
|
|
|
Financial debt
|
|
|
4,359 |
|
|
|
|
|
|
|
(146 |
) |
|
|
106 |
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
9 |
|
|
|
142 |
|
|
|
105 |
|
|
|
4,606 |
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
6 |
|
|
|
126 |
|
|
|
132 |
|
Provisions
|
|
|
2,278 |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
55 |
|
|
|
(284 |
) |
|
|
2,049 |
|
Customers deposits and advances
|
|
|
1,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(191 |
) |
|
|
973 |
|
Amount due to customers on construction contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
133 |
|
Trade payables and related accounts
|
|
|
3,360 |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(7 |
) |
|
|
3,350 |
|
Debt linked to bank activity
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105 |
) |
|
|
|
|
Liabilities related to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97 |
|
|
|
97 |
|
Other current and non-current liabilities
|
|
|
2,238 |
|
|
|
|
|
|
|
|
|
|
|
370 |
|
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
304 |
|
|
|
(5 |
) |
|
|
2,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
15,293 |
|
|
|
0 |
|
|
|
(791 |
) |
|
|
488 |
|
|
|
(79 |
) |
|
|
173 |
|
|
|
0 |
|
|
|
68 |
|
|
|
(141 |
) |
|
|
184 |
|
|
|
15,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
3,744 |
|
|
|
270 |
|
|
|
734 |
|
|
|
199 |
|
|
|
65 |
|
|
|
(15 |
) |
|
|
388 |
|
|
|
(92 |
) |
|
|
1,549 |
|
|
|
0 |
|
|
|
5,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock and additional paid-in capital
|
|
|
10,369 |
|
|
|
|
|
|
|
645 |
|
|
|
|
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
775 |
|
|
|
|
|
|
|
11,144 |
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
|
|
|
|
|
|
(66 |
) |
Treasury stock owned by consolidated companies
|
|
|
(1,605 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(1,607 |
) |
Other reserves
|
|
|
(5,041 |
) |
|
|
261 |
|
|
|
56 |
|
|
|
244 |
|
|
|
68 |
|
|
|
(22 |
) |
|
|
4 |
|
|
|
2 |
|
|
|
613 |
|
|
|
(516 |
) |
|
|
(4,944 |
) |
Cumulative translation adjustments
|
|
|
(636 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
(34 |
) |
|
|
(63 |
) |
|
|
516 |
|
|
|
(183 |
) |
Net income (loss) attributable to the Group
|
|
|
281 |
|
|
|
7 |
|
|
|
33 |
|
|
|
(45 |
) |
|
|
(60 |
) |
|
|
7 |
|
|
|
408 |
|
|
|
(55 |
) |
|
|
295 |
|
|
|
|
|
|
|
576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity attributable to the equity
holders of the parent
|
|
|
3,368 |
|
|
|
267 |
|
|
|
734 |
|
|
|
199 |
|
|
|
65 |
|
|
|
(15 |
) |
|
|
387 |
|
|
|
(85 |
) |
|
|
1,552 |
|
|
|
(0 |
) |
|
|
4,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests Net income (loss)
|
|
|
66 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
0 |
|
|
|
69 |
|
Minority interests Shareholders equity
|
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
(7 |
) |
|
|
(6 |
) |
|
|
0 |
|
|
|
304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
3,744 |
|
|
|
270 |
|
|
|
734 |
|
|
|
199 |
|
|
|
65 |
|
|
|
(15 |
) |
|
|
388 |
|
|
|
(92 |
) |
|
|
1,549 |
|
|
|
(0 |
) |
|
|
5,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-97
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
III. Reconciliation of
2004 net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orane & | |
|
impacts IAS | |
|
Stock- | |
|
Carry | |
|
Business | |
|
|
|
|
|
Reclas- | |
|
|
|
|
French | |
|
R&D | |
|
Oceane | |
|
32 and 39 | |
|
options | |
|
back | |
|
combinations | |
|
|
|
Total | |
|
sifications | |
|
|
|
|
GAAP | |
|
(IV.A) | |
|
(IV.B) | |
|
(IV.C) | |
|
(IV.D) | |
|
(IV.E) | |
|
(IV.G) | |
|
Other | |
|
adjustments | |
|
(V.H) | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
|
|
Revenues
|
|
|
12,265 |
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
(16 |
) |
|
|
(5 |
) |
|
|
12,244 |
|
Cost of sales
|
|
|
(7,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
54 |
|
|
|
(7,631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,575 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(31 |
) |
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
20 |
|
|
|
(11 |
) |
|
|
49 |
|
|
|
4,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
(2,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
64 |
|
|
|
(1,944 |
) |
Research and development costs
|
|
|
(1,587 |
) |
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98 |
|
|
|
(1 |
) |
|
|
(1,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
978 |
|
|
|
98 |
|
|
|
0 |
|
|
|
(31 |
) |
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
22 |
|
|
|
89 |
|
|
|
112 |
|
|
|
1,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments (stock subscription or stock option plans)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
(60 |
) |
Restructuring costs
|
|
|
(304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
(21 |
) |
|
|
1 |
|
|
|
(324 |
) |
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88 |
) |
|
|
|
|
|
|
(88 |
) |
Amortization of goodwill
|
|
|
(409 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408 |
|
|
|
|
|
|
|
408 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities
|
|
|
|
|
|
|
10 |
|
|
|
0 |
|
|
|
(31 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
408 |
|
|
|
1 |
|
|
|
328 |
|
|
|
114 |
|
|
|
707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on notes mandatorily redeemable for shares
|
|
|
(44 |
) |
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
Financial income, net
|
|
|
(132 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
(8 |
) |
|
|
(26 |
) |
|
|
51 |
|
|
|
(107 |
) |
Other revenue (expense)
|
|
|
364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
(14 |
) |
|
|
(350 |
) |
|
|
|
|
Share in net income (loss) of equity affiliates
|
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
(27 |
) |
|
|
63 |
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before tax and discontinued operations
|
|
|
|
|
|
|
10 |
|
|
|
33 |
|
|
|
(45 |
) |
|
|
(60 |
) |
|
|
7 |
|
|
|
408 |
|
|
|
(48 |
) |
|
|
305 |
|
|
|
(122 |
) |
|
|
539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(9 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
(7 |
) |
|
|
(7 |
) |
|
|
(20 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
10 |
|
|
|
33 |
|
|
|
(45 |
) |
|
|
(60 |
) |
|
|
7 |
|
|
|
408 |
|
|
|
(55 |
) |
|
|
298 |
|
|
|
(142 |
) |
|
|
503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
142 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
347 |
|
|
|
10 |
|
|
|
33 |
|
|
|
(45 |
) |
|
|
(60 |
) |
|
|
7 |
|
|
|
408 |
|
|
|
(55 |
) |
|
|
298 |
|
|
|
(0 |
) |
|
|
645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to::
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
281 |
|
|
|
7 |
|
|
|
33 |
|
|
|
(45 |
) |
|
|
(60 |
) |
|
|
7 |
|
|
|
408 |
|
|
|
(55 |
) |
|
|
295 |
|
|
|
(0 |
) |
|
|
576 |
|
|
Minority interests
|
|
|
66 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV. Main adjustments
A. Capitalization of development
costs (IAS 38)
As indicated in Note 1e to Alcatels French GAAP
audited consolidated financial statements as of
December 31, 2004, research and development costs were
expensed as incurred under French GAAP, with the exception of
certain software development costs
(32 million
in 2004, see Note 4 to Alcatels French GAAP
consolidated financial statements as of December 31, 2004).
The application of the principles defined in IAS 38
Intangible Assets requires the Group to capitalize
part of the development costs that had been expensed under
French GAAP. Furthermore, IFRS 1 First-time Adoption of
International Financial Reporting
F-98
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Standards requires retrospective application of IFRS
standards at the transition date, January 1, 2004.
Consequently, development expenditures capitalized in the
opening IFRS balance sheet corresponding to periods prior to
January 1, 2004 amount to
299 million
while related deferred tax assets amount to
38 million,
or a net
261 million
impact on shareholders equity.
Alcatel has put in place the information systems required to
test the eligibility of development costs for capitalization, as
set out in IAS 38. However, full retrospective application of
IAS 38 has not been possible due to the lack of complete and
reliable information for prior periods. If Alcatels
research and development effort remains constant, this new IAS
38 implementation will have a positive, though diminishing
impact, on net income (loss)
(98 million
for 2004 earnings) given an average remaining amortization
period of 2 to 3 years. The impact of capitalization is
thus presented under a specific income statement caption to
better isolate the
ramp-up effect of the
capitalization of development costs.
Application of IAS 38 and IAS 36 Impairment of
Assets has caused a net reconciliation adjustment in 2004
consolidated net income (loss) of
10 million,
resulting from the aforementioned capitalized development costs
of
98 million
(period development expenses of
199 million
eligible for capitalization in accordance with IAS 38, minus
amortization charge of
101 million
from prior-periods capitalized development costs), offset
to a large extent in 2004 by an exceptional
88 million
charge corresponding to an impairment loss related to prior
periods capitalized development costs.
The table below presents the impacts on the 2004 opening and
closing balance sheets and on 2004 net income (loss) (on a
quarterly basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, | |
|
|
|
|
|
|
|
|
|
December 31, | |
Balance sheet adjustments |
|
2004 | |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Intangible assets, net
|
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308 |
|
Deferred tax assets
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other retained earnings
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261 |
|
Cumulative translation adjustments
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Net income (loss)
|
|
|
0 |
|
|
|
32 |
|
|
|
22 |
|
|
|
24 |
|
|
|
(68 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement adjustments |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Research and development expenses
|
|
|
32 |
|
|
|
22 |
|
|
|
24 |
|
|
|
20 |
|
|
|
98 |
|
Impairment of goodwill and other intangibles
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(88 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
32 |
|
|
|
22 |
|
|
|
24 |
|
|
|
(68 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B. |
Orane/ Oceane (IAS 32 and IAS 39) |
The convertible bonds (OCEANE) and notes mandatorily
redeemable for shares (ORANE) issued by Alcatel in 2003 and
2002, respectively, are compound financial instruments that,
according to IAS 32 Financial Instruments: Disclosure and
Presentation, include a debt component (none, in the case
of the ORANE, since all interest was pre-paid at issuance date)
and an equity component (see note 1m).
F-99
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The first-time adoption of IFRSs calls for recognition of these
instruments equity components valued at the issuance date
within shareholders equity as of January 1, 2004. The
ORANE bonds, reported at their nominal issuance value of
645 million
in other equity under French GAAP, are reported as
shareholders equity in the IFRS opening balance sheet at
their issuance value, reduced by the amount of related issuance
expenses and prepaid interest that had not been amortized as of
December 31, 2003. Prepaid interest was
132 million
at the issuance date. Interest cost recorded under French GAAP
but reversed under IFRSs amounted to
44 million
for 2004. The balance of issuance expenses capitalized under
French GAAP but written off against retained earnings under
IFRSs was
84 million
at January 1, 2004 and
40 million
at December 31, 2004.
The convertible bonds (OCEANE) issued for a nominal value
of
1,022 million
and reported until maturity at that same amount as financial
debt under French GAAP, are reported in the IFRS opening balance
sheet as financial debt for
857 million
(before the impact of interest rate derivatives in accordance
with IAS 32 and 39, see section C below) and as
shareholders equity for
165 million.
The adjustments will affect the future level of financial
expenses: positively due to the accounting for prepaid expenses
(issuance costs and prepaid interest) against shareholders
equity as of January 1, 2004 for
109 million
in the aggregate for the two instruments, and negatively due to
the amortization charge of OCEANEs equity component until
their maturity in January 2011.
The table below presents the impacts on the 2004 opening and
closing balance sheets and on 2004 net income (loss) (on a
quarterly basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, | |
|
|
|
|
|
|
|
|
|
December 31, | |
Balance sheet adjustments |
|
2004 | |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Other current and non-current assets
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity (notes mandatorily redeemable for shares)
|
|
|
(645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(645 |
) |
Financial debt
|
|
|
(165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
(810 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock and additional paid-in capital
|
|
|
645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
645 |
|
Other retained earnings
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
Net income (loss)
|
|
|
0 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 | |
|
Q2 | |
|
Q3 | |
|
Q4 | |
|
|
Income statement adjustments |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Interest expense on notes mandatorily redeemable for shares
|
|
|
11 |
|
|
|
11 |
|
|
|
11 |
|
|
|
11 |
|
|
|
44 |
|
Net financial income (loss)
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-100
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
C. |
Other IAS 32 and 39 adjustments (Hedging &
investments available for sale) |
Under IFRSs, financial assets available for sale (as defined in
IAS 39) are recorded at fair value. For listed securities,
the opening shareholders equity as of January 1, 2004
for IFRSs was adjusted for the difference between carrying value
and market value, net of any possible deferred tax impacts. As
such securities were recorded under French GAAP at the lower of
historical acquisition cost and market value, the impact on
shareholders equity under IFRSs is positive. As a result,
the Groups financial assets were revalued at
January 1, 2004 by
53 million,
of which
48 million
related to the Groups holding in Nexans, and at
December 31, 2004 by
84 million,
of which
56 million
related to the Groups holding in Nexans and
25 million
to the Groups holding in Avanex. During 2004, Alcatel
reduced its holding in Avanex from above 20% to below 20% (see
note 2 to Alcatels French GAAP financial statements
at December 31, 2004, for changes in consolidated
companies). Accordingly, this investment, which was accounted
for as an equity affiliate at January 1, 2004, is now
recorded in shares in non-consolidated subsidiaries in other
non-current financial assets at December 31, 2004. The
revaluation of the Groups holding in Nexans resulted in an
increase of
48 million
and
56 million
in the Groups net cash position at January 1, 2004
and at December 31, 2004, respectively, as this holding is
recorded in marketable securities.
In accordance with the provisions of IAS 39 on financial
instruments, derivatives are recorded at fair value in the
balance sheet. Gains and losses resulting from the revaluation
of the Groups derivative instruments at fair value at the
closing date are recognized in the income statement in the case
of fair value hedge accounting.
Derivative instruments qualify for fair value hedge accounting
when i) at the inception of the hedge, there is formal
identification and documentation of the hedging relationship;
and ii) the hedge is expected to be highly effective, its
effectiveness can be reliably measured and it indeed proves to
be highly effective throughout the financial reporting periods
for which the hedge has been designated.
The Group holds interest rate derivatives (see note 1s)
covering the entirety of its financial debt (fixed-interest rate
debt, primarily). Most of these derivatives are fully attached
to a well-identified financial liability and qualify as fair
value hedges. The changes in their fair value are therefore
largely offset in earnings by revaluations of the underlying
debt.
Currency derivatives held by the Group are of two types: foreign
exchange derivatives used to hedge balance sheet items or firm
commitments that are eligible for fair value hedge accounting
and derivatives used to hedge foreign exchange risk on
commercial bids that are accounted for as trading financial
instruments. Fair value hedges have no impact on the income
statement (except for their ineffective part, which is recorded
in financial income (loss)), so long as the changes in fair
value of the derivatives offset the changes in fair value of the
corresponding balance sheet items or firm commitments.
Derivatives related to commercial bids have an impact on net
income (loss) because hedge accounting cannot be applied. These
derivatives are
marked-to-market at
each financial statement closing date and corresponding changes
in fair value are accounted for in net income (loss). However,
IAS 39 does not allow changes in fair value of the underlying
commercial bid to be recorded in net income (loss).
The application of IAS 39 leads therefore to volatility in net
income (loss) during the period preceding the coming into force
of commercial contracts. Changes in fair value of the
instruments hedging commercial bids are recorded in cost of
sales.
The documentation of foreign currency hedging relationships,
which was completed at the beginning of 2005, enabled some
derivatives related to future revenues to qualify as cash flow
hedges. Such treatment should limit the volatility in net income
(loss) caused by the usual accounting for these instruments (see
note 1e). The impact on 2004 cost of sales of recording
hedging instruments for commercial bids was
(28) million
for Q1,
0 million
for Q2,
10 million
for Q3 and
49 million
for Q4, representing a total
F-101
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
impact of
31 million
for the year 2004. The impact on 2005 cost of sales was
(22) million for Q1,
(12) million
for Q2,
(10) million for Q3 and
(16) million for Q4, representing a total impact of
(60) million
for the year 2005.
Changes in fair value of interest rate derivatives and currency
derivatives are reported under IFRSs as other assets and
liabilities. Due to the IAS 32 rules on the offsetting of
financial assets and liabilities, and depending on the
instruments used, it is generally not possible to set off the
hedged balance sheet items against the derivatives representing
the same hedged transaction. Application of these rules leads to
a significant increase in other assets and liabilities.
Accounting for derivative instruments in accordance with IAS 32
and 39 as discussed above increases the Groups retained
earnings by
160 million
at January 1, 2004 and by
110 million
at December 31, 2004.
The table below presents the impacts on the 2004 opening and
closing balance sheets and on 2004 net income (loss) (on a
quarterly basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, | |
|
|
|
|
|
|
|
|
|
December 31, | |
Balance sheet adjustments |
|
2004 | |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Trade receivables and related accounts, net
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98 |
) |
Other current and non-current assets
|
|
|
1126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
721 |
|
Assets held for sale
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Cash, cash equivalents and marketable securities
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
1075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial debt
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
Provisions
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Trade payables and related accounts
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Other current and non-current liabilities
|
|
|
775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other retained earnings
|
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160 |
|
Fair value changes of shares available for sale
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84 |
|
Cumulative translation adjustments
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Net income (loss)
|
|
|
0 |
|
|
|
(4 |
) |
|
|
(43 |
) |
|
|
22 |
|
|
|
(20 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement adjustments |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Revenues
|
|
|
(7 |
) |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(11 |
) |
|
|
(31 |
) |
Cost of sales*
|
|
|
(31 |
) |
|
|
6 |
|
|
|
5 |
|
|
|
20 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(38 |
) |
|
|
(0 |
) |
|
|
(2 |
) |
|
|
9 |
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial income (loss)
|
|
|
34 |
|
|
|
(43 |
) |
|
|
24 |
|
|
|
(29 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
(4 |
) |
|
|
(43 |
) |
|
|
22 |
|
|
|
(20 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-102
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
* |
Of which related to hedging of exchange risks on commercial
bids:
(28) million in Q1,
0 million
in Q2,
10 million
in Q3 and
49 million
in Q4. Total impact on 2004 was
31 million. |
|
|
D. |
Stock options (IFRS 2 and IFRS 3) |
The application of IFRS 2 Share-based Payment
changed the method of accounting for stock options that are
granted by the Group to its employees. Alcatel elected not to
opt for full retrospective application as allowed by IFRS 2.
Only stock option plans established after November 7, 2002,
and whose stock options are not yet fully vested at
December 31, 2004, are restated in the IFRS opening balance
sheet as of January 1, 2004. IFRS 2 treatment will
therefore apply to the 2003 and 2004 plans, to the plans
resulting from business combinations completed after
November 7, 2002, under which stock options had not yet
fully vested at December 31, 2004 (see notes 2 and 21c
to Alcatels French GAAP consolidated financial statements
as of December 31, 2004), and to future plans.
The Group uses a Cox-Ross-Rubinstein binomial model to measure
the compensation expense related to those certain stock options
granted in the preceding paragraph. Their fair value has been
determined at their respective grant dates and represents
deferred compensation expense of
35 million
recorded in the IFRS opening shareholders equity as of
January 1, 2004, which is set off by an identical amount
recorded in additional paid-in capital. The net impact on
shareholders equity is therefore zero. The deferred
compensation expense is amortized to income statement over the
vesting period of the stock options, being 4 years for most
of the plans concerned. The amortization to income statement is
not straight-line but depends on the vesting conditions attached
to each plan.
For stock options that vested during 2004, the compensation
expense recorded in the 2004 consolidated net income (loss) was
60 million.
This impact is presented under a specific income statement
caption. However, as the compensation expense does not result in
an outflow of cash and a contra entry to the expense is recorded
in retained earnings, the application of this standard has no
impact on shareholders equity, either at January 1,
2004 or at December 31, 2004.
Application of this standard will have a negative impact on
future earnings, as vesting progresses. While there is a
ramp-up effect due to
the limited retrospective application of IFRS 2, income
statement impacts from future plans are difficult to anticipate
as their fair values will depend on market or behavioral factors
(primarily, stock price changes and volatility, stock-option
exercise practices, etc.).
The IFRS opening balance sheet at January 1, 2004 also
contains a net
200 million
increase in shareholders equity (offset by a reduction of
231 million
in other liabilities reduced by
31 million
of related deferred taxes), which corresponds to the
cancellation of provisions under French GAAP related to stock
options existing in companies that were acquired by the Group
before January 1, 2004. These provisions were booked based
on the intrinsic value of existing stock options at the
acquisition date, which is an accounting treatment that does not
comply with IFRS 2 and IFRS 3 Business Combinations.
At December 31, 2004, these liabilities were
79 million
and related deferred tax assets were
14 million,
with a corresponding impact of
65 million
on shareholders equity.
F-103
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below presents the impacts on the 2004 opening and
closing balance sheets and on 2004 net income (loss) (on a
quarterly basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, | |
|
|
|
|
|
|
|
|
|
December 31, | |
Balance sheet adjustments |
|
2004 | |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Deferred tax assets
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current and non-current liabilities
|
|
|
(231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
(231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock and additional paid-in-capital
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126 |
|
Deferred compensation
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
Other retained earnings
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68 |
|
Cumulative translation adjustments
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Net income (loss)
|
|
|
0 |
|
|
|
(7 |
) |
|
|
(17 |
) |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement adjustments |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Share-based payments (stock option plans)
|
|
|
(7 |
) |
|
|
(17 |
) |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
(7 |
) |
|
|
(17 |
) |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. |
SVF Trust and sale of a carry-back tax receivable |
IFRSs require recognition of certain commitments and financial
assets that are considered as off balance sheet in
Alcatels 2004 French GAAP financial statements, namely a
securitization scheme and the sale of a carry-back receivable.
The Groups off balance sheet commitments are described in
note 31 to Alcatels French GAAP consolidated
financial statements at December 31, 2004.
At December 31, 2003, the Group participated in two
structured securitization schemes (the SVF trust program and a
customer receivables securitization program). The special
purpose vehicle used in the SVF trust program was consolidated
in the Groups French GAAP financial statements as of
January 1, 2004, following changes in French accounting
regulations. The impact on the opening IFRS balance sheet at
January 1, 2004 resulted in recording
200 million
in other current assets and non-current assets and
212 million
in financial debt. As a result of consolidating this
special purpose vehicle in the French GAAP financial statements
in 2004 and due to the termination of the trust program in 2004,
the transition to IFRSs had no impact at December 31, 2004.
As the special purpose entity used in the customer receivables
securitization program was already consolidated in the French
GAAP financial statements at December 31, 2003, the
transition to IFRSs had no impact on this program.
F-104
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Sale of carry-back receivable |
The carry-back receivable sold in 2002 is reported under IFRSs
in other current assets and other non-current assets
at its discounted value (using the implicit rate of the
transaction in the sale to a credit institution) and in
financial debt at the discounted value of the debt
(using the French state bonds rate).
The impact of recognizing the SVF trust program and the
carry-back receivable at January 1, 2004 and
December 31, 2004 are as follows:
The table below presents the impacts on the 2004 opening and
closing balance sheets and on 2004 net income (loss) (on a
quarterly basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, | |
|
|
|
|
|
|
|
|
|
December 31, | |
Balance sheet adjustments |
|
2004 | |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Other current and non-current assets
|
|
|
342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial debt
|
|
|
375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173 |
|
Provisions
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock and additional paid-in-capital
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Deferred compensation
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Other retained earnings
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22 |
) |
Cumulative translation adjustments
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Net income (loss)
|
|
|
0 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
7 |
|
Minority interests
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement adjustments |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Net financial income (loss)
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F. |
Pension and retirement obligations (IAS 19) |
The methods for determining pension obligations and other
post-employment benefits, as described in notes 1k and 24
to Alcatels French GAAP consolidated financial statements
at December 31, 2004, comply with IAS 19 Employee
Benefits, on the basis that, at the end of 2004 and with
retroactive effect to January 1, 2004, the Group applied
the Conseil National de la Comptabilités
recommendation (2003-R.01) in anticipation of IFRS
implementation. The pre-tax impact of applying this
recommendation is a reduction of
222 million
in shareholders equity, as shown in note 24b to
Alcatels 2004 French GAAP consolidated financial
statements. This adjustment only impacts shareholders
equity under IFRSs at January 1, 2004 and not
shareholders equity at December 31, 2004.
F-105
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
G. |
Business combinations (IFRS 3) |
The Group abandoned, starting January 1, 2004, the
pooling of interests method (in accordance with
paragraph 215 of regulation No. 99-02) in its French
GAAP financial statements in anticipation of the changeover to
IFRSs.
Since the Group elected to adopt the IFRS 1 option not to
restate business combinations that do not comply with IFRS 3
Business Combinations and which occurred before
January 1, 2004, first-time adoption of IFRSs has not
resulted in any changes to the accounting methods previously
applied.
In application of IFRS 3, goodwill is no longer amortized
beginning January 1, 2004. This increases
shareholders equity under IFRSs at December 31, 2004
by
388 million
and also increases net income (loss) by
408 million.
The table below presents the impacts on the 2004 opening and
closing balance sheets and on 2004 net income (loss) (on a
quarterly basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, | |
|
|
|
|
|
|
|
|
|
December 31, | |
Balance sheet adjustments |
|
2004 | |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Goodwill, net
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock and additional paid-in capital
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Deferred compensation
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Other retained earnings
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Cumulative translation adjustments
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
Net income (loss)
|
|
|
0 |
|
|
|
105 |
|
|
|
102 |
|
|
|
103 |
|
|
|
98 |
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement adjustments |
|
Q1 2004 | |
|
Q2 2004 | |
|
Q3 2004 | |
|
Q4 2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Amortization of goodwill
|
|
|
105 |
|
|
|
102 |
|
|
|
103 |
|
|
|
98 |
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
105 |
|
|
|
102 |
|
|
|
103 |
|
|
|
98 |
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under IAS 1 Presentation of Financial Statements, a
distinction is required to be made between current and
non-current items in the balance sheet. This presentation is
different from the previous balance sheet presentation under
French GAAP that was based on the type and/or liquidity of
assets and liabilities. The presentation of the balance sheet
has therefore been appropriately adapted. Assets and liabilities
related to the operating cycle and other items due within
12 months from the balance sheet date are classified as
current; all other assets and liabilities are classified as
non-current. In addition, certain specific rules governing the
offsetting of assets and liabilities (for example, certain
provisions for product sales relating to construction contracts
that have to be deducted from contract assets in accordance with
IAS 11 Construction Contracts) result in
reclassifications compared to French GAAP. Also, in application
of IAS 1, minority
F-106
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interests are now included in shareholders equity,
including the detailed distinction between the amounts
attributable to the equity holders of the parent and those
attributable to the minority interests.
The application of IAS 1 (as revised in December 2003), IAS 12
Income Taxes, IAS 11 Construction
Contracts, IFRS 1 First-time Adoption of
International Financial Reporting Standards, IAS 28
Investments in Associates and IFRS 5
Non-current Assets Held for Sale and Discontinued
Operations have significant consequences on the manner of
presenting the financial information as explained below.
The reclassifications relating to the consolidated statements of
cash flows are presented in note VII.
The main impacts on the balance sheet presentation coming from
these standards are firstly the presentation of deferred tax
assets and liabilities in separate balance sheet captions (in
non-current) compared to the previous practice of presenting
them within other accounts receivable, net and other payables,
and secondly, the inclusion within financial debt of the debt
linked to our bank activity
(224 million
at January 1, 2004 and
105 million
at December 31, 2004).
For the income statement, the application of IAS 1 resulted in
reclassifying exceptional and non-recurring items previously
accounted for in other revenue (expense), such as
gains on disposal of property, plant and equipment
(94 million
gain in 2004) or on disposal of shares
(256 gain in
2004), to income statement captions corresponding to the nature
of the underlying asset (cost of sales, administrative and
selling expenses, research and development costs, financial
income (loss) or income (loss) from discontinued operations).
|
|
B. |
IAS 11 Construction contracts |
The principles of IAS 11 are very similar to those already used
by the Group under French GAAP to account for construction
contracts (or long-term contracts). In particular, the
percentage of completion method of accounting applied by the
Group (see note 1l to Alcatels French GAAP
consolidated financial statements at December 31, 2004)
complies with IAS 11. Contract segmentation and combination
rules are also basically equivalent to the Groups
principles.
The way of accounting for penalty provisions (changes are
recorded in contract revenues under IFRSs but in cost of sales
in Alcatels French GAAP consolidated financial
statements), and for the financial impact on revenues of
deferred payments when they are material, have had a limited
effect on the income statement and no impact on the Groups
gross profit and opening IFRS shareholders equity.
Penalties related to construction contracts have resulted in a
27 million
reclassification in 2004 between revenues and cost of sales with
no effect on either gross profit or on opening IFRS
shareholders equity.
On the balance sheet side, the adjustments introduced by IAS 11
are more significant. For each construction contract, the
aggregate amount of costs incurred and recognized profits less
the sum of recognized losses and progress billings is measured.
If the amount obtained is positive, it is presented as an asset
in amount due from customers on construction
contracts and if the amount obtained is negative, it is
presented as a liability in amounts due to customers on
construction contracts. This reclassification reduced
assets and liabilities respectively by
188 million
at January 1, 2004 and by
248 million
at December 31, 2004.
The presentation of assets and liabilities related to
construction contracts under specific balance sheet captions
(included in working capital) and the application of specific
offset rules as required by IAS 11 reduced the Groups
working capital (representing
178 million
at January 1, 2004 and
185 million
at
F-107
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2004), due to presenting certain provisions
for product sales as deductions from the specific captions.
|
|
C. |
IFRS 1 First-time adoption Cumulative translation
adjustments |
IFRS 1 First-time Adoption of IFRSs allows companies
to reclassify cumulative translation adjustments in consolidated
reserves at January 1, 2004. As a result, in the event of a
disposal of a business division or subsidiary whose accounts are
expressed in a currency other than the consolidation currency
(euro), the gain or loss on disposal will not include any
translation differences generated before January 1, 2004.
Adoption of this treatment results in a transfer in
Alcatels January 1, 2004 opening IFRS balance sheet
of
518 million
from cumulative translation adjustments to retained earnings,
which had no impact on total shareholders equity at
January 1, 2004.
|
|
D. |
IAS 28 Investment in associates |
By applying this standard, goodwill related to companies
consolidated using the equity method is now recorded in
share in net assets of equity affiliates and no
longer in goodwill. This reclassification impacts
the balance sheet by
188 million
at January 1, 2004 and by
194 million
at December 31, 2004, but has no effect on total
shareholders equity.
|
|
E. |
IFRS 5 Non-current assets held for sale and discontinued
operations |
Net assets of a disposal group or tangible assets held for sale,
as defined in IFRS 5, are reported as Assets held for
sale and Liabilities related to disposal groups held
for sale, without the possibility to set off the assets
and liabilities concerned. Property, plant and equipment
reported as assets held for sale are no longer
depreciated.
The reclassifications made under this standard impacted the
opening balance sheet by
247 million
and by
99 million
at December 31, 2004 (of which SAFT battery operations and
other assets held for sale represented
432 million
and related liabilities
253 million
at January 1, 2004, and of which SAFT Power System
activities and other assets held for sale represented
196 million
and related liabilities
97 million
at December 31, 2004).
The application of this standard has no material impact on the
Groups 2004 net income (loss), except for income
statement reclassifications. As a result, the net capital gain
of
211 million
from the disposal of the SAFT activities and from the transfer
of the optical fiber and mobile phone activities to Draka JV and
to TAMP JV respectively was reclassified from other
revenue (expense) to income (loss) from discontinued
operations.
Income (loss) from discontinued operations from January 1,
2004 until the date of disposal was reported under French GAAP
in share in net income (losses) of equity affiliates
for
66 million
and was reclassified under IFRSs to income (loss) from
discontinued operations for
142 million.
Several tables detailing all the reclassification entries are
presented below for the balance sheets at January 1, 2004
and at December 31, 2004, and for the 2004 consolidated
income statement.
F-108
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
F. |
Balance sheet at January 1, 2004
Reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAS 28 | |
|
|
|
|
|
|
|
|
|
|
IFRS 1 | |
|
Investments | |
|
IFRS 5 Assets | |
|
|
|
|
IAS 1 | |
|
IAS 11 | |
|
Cumulative | |
|
in associates | |
|
and disposal | |
|
|
|
|
Specific | |
|
Construction | |
|
translation | |
|
(equity | |
|
groups held for | |
|
|
|
|
caption | |
|
contracts | |
|
adjustments | |
|
affiliates) | |
|
sale and other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Goodwill, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188 |
) |
|
|
|
|
|
|
(188 |
) |
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69 |
) |
|
|
(69 |
) |
Share in net assets of equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188 |
|
|
|
(110 |
) |
|
|
78 |
|
Inventories and work in progress, net
|
|
|
|
|
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(226 |
) |
Amounts due from customers on construction contracts
|
|
|
|
|
|
|
527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
527 |
|
Trade receivables and related accounts, net
|
|
|
|
|
|
|
(489 |
) |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(496 |
) |
Advances and progress payments
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
Deferred tax assets
|
|
|
2,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,064 |
|
Other current and non-current assets
|
|
|
(2,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
(2,102 |
) |
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
432 |
|
|
|
432 |
|
Cash, cash equivalents and marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
52 |
|
|
|
(188 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
247 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial debt
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
224 |
|
Provisions
|
|
|
|
|
|
|
(253 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(253 |
) |
Deferred tax liabilities
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122 |
|
Customers deposits and advances
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
(83 |
) |
|
|
(116 |
) |
Amounts due to customers on construction contracts
|
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93 |
|
Trade payables and related accounts
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Debt linked to bank activity
|
|
|
(224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224 |
) |
Liabilities related to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253 |
|
|
|
253 |
|
Other current and non-current liabilities
|
|
|
(70 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
77 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
52 |
|
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
247 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other retained earnings
|
|
|
|
|
|
|
|
|
|
|
(518 |
) |
|
|
|
|
|
|
|
|
|
|
(518 |
) |
Cumulative translation adjustments
|
|
|
|
|
|
|
|
|
|
|
518 |
|
|
|
|
|
|
|
|
|
|
|
518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-109
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
G. |
Balance sheet at December 31, 2004
Reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAS 28 | |
|
|
|
|
|
|
|
|
|
|
IFRS 1 | |
|
Investments | |
|
IFRS 5 Assets | |
|
|
|
|
IAS 1 | |
|
IAS 11 | |
|
Cumulative | |
|
in associates | |
|
and disposal | |
|
|
|
|
Specific | |
|
Construction | |
|
translation | |
|
(equity | |
|
groups held for | |
|
|
|
|
caption | |
|
contracts | |
|
adjustments | |
|
affiliates) | |
|
sale and other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Goodwill, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194 |
) |
|
|
|
|
|
|
(194 |
) |
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71 |
) |
|
|
(71 |
) |
Share in net assets of equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194 |
|
|
|
(20 |
) |
|
|
174 |
|
Inventories and work in progress, net
|
|
|
|
|
|
|
(254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(254 |
) |
Amounts due from customers on construction contracts
|
|
|
|
|
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
729 |
|
Trade receivables and related accounts, net
|
|
|
|
|
|
|
(723 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(725 |
) |
Advances and progress payments
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 |
|
Deferred tax assets
|
|
|
1,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,697 |
|
Prepaid pension costs
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287 |
|
Other current and non-current assets
|
|
|
(1,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
(1,733 |
) |
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
196 |
|
Cash, cash equivalents and marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
333 |
|
|
|
(248 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
99 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued pension and retirement obligations
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
315 |
|
Financial debt
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
Provisions
|
|
|
|
|
|
|
(264 |
) |
|
|
|
|
|
|
|
|
|
|
(20 |
) |
|
|
(284 |
) |
Deferred tax liabilities
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126 |
|
Customers deposits and advances
|
|
|
|
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
(82 |
) |
|
|
(191 |
) |
Amounts due to customers on construction contracts
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133 |
|
Trade payables and related accounts
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
Debt linked to bank activity
|
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105 |
) |
Liabilities related to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97 |
|
|
|
97 |
|
Other current and non-current liabilities
|
|
|
(80 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
76 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
333 |
|
|
|
(248 |
) |
|
|
|
|
|
|
|
|
|
|
99 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other retained earnings
|
|
|
|
|
|
|
|
|
|
|
(518 |
) |
|
|
|
|
|
|
2 |
|
|
|
(516 |
) |
Cumulative translation adjustments
|
|
|
|
|
|
|
|
|
|
|
518 |
|
|
|
|
|
|
|
(2 |
) |
|
|
516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-110
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
H. |
Income statement 2004 Reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAS 1 | |
|
IFRS 5 | |
|
|
|
|
|
|
IAS 1 | |
|
IAS 11 | |
|
Disposal of | |
|
Assets and | |
|
|
|
|
|
|
Disposal of | |
|
Construction | |
|
financial | |
|
disposal groups | |
|
|
|
|
|
|
assets | |
|
contracts | |
|
assets | |
|
held for sale | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Revenues
|
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
(5 |
) |
Cost of sales
|
|
|
23 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
23 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
26 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
64 |
|
Research and development costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
94 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
18 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Amortization of capitalized development costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Interest expense on notes mandatorily redeemable for shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial income (loss)
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
6 |
|
|
|
51 |
|
Other revenue (expense)
|
|
|
(94 |
) |
|
|
|
|
|
|
(45 |
) |
|
|
(211 |
) |
|
|
|
|
|
|
(350 |
) |
Share in net income (losses) of equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
(3 |
) |
|
|
63 |
|
Income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20 |
) |
|
|
(20 |
) |
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
(3 |
) |
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-111
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
VI. |
Operating working capital and cash (financial debt), net at
January 1, 2004 and December 31, 2004 |
|
|
A. |
Operating working capital at January 1, 2004
Reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Other impacts | |
|
|
|
|
|
|
|
|
|
|
French | |
|
IAS 32 and | |
|
|
|
Total | |
|
Reclassifications | |
|
|
|
|
GAAP | |
|
39 IV.C | |
|
Other | |
|
Adjustments | |
|
V.F | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
|
|
Inventories and work in progress, net
|
|
|
1,432 |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(226 |
) |
|
|
1,206 |
|
Amounts due from customers on construction contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
527 |
|
|
|
527 |
|
Trade receivables and related accounts, net
|
|
|
3,364 |
|
|
|
(101 |
) |
|
|
(4 |
) |
|
|
(105 |
) |
|
|
(496 |
) |
|
|
2,763 |
|
Advances and progress payments, net
|
|
|
106 |
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
106 |
|
Customers deposits and advances
|
|
|
(1,181 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
116 |
|
|
|
(1,065 |
) |
Amounts due to customers on construction contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(93 |
) |
|
|
(93 |
) |
Trade payables and related accounts
|
|
|
(3,617 |
) |
|
|
3 |
|
|
|
0 |
|
|
|
3 |
|
|
|
(6 |
) |
|
|
(3,620 |
) |
Currency derivatives on working
capital(1)
|
|
|
|
|
|
|
98 |
|
|
|
0 |
|
|
|
98 |
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating working capital, net
|
|
|
104 |
|
|
|
0 |
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(178 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
recorded in other current assets and other current liabilities. |
Note:
|
|
|
Each of the columns presented above is discussed in
sections IV and V of this note. |
B. Cash (financial debt), net at
January 1, 2004 Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Orane & | |
|
Other impacts | |
|
Carry-back | |
|
|
|
|
|
|
|
|
French | |
|
Oceane | |
|
IAS 32 and | |
|
receivable, SVF and | |
|
TOTAL | |
|
Reclassifications | |
|
|
|
|
GAAP | |
|
IV.B | |
|
39 IV.C | |
|
other IV.E | |
|
Adjustments | |
|
V.F | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Cash, cash equivalents and marketable securities
|
|
|
6,269 |
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
48 |
|
|
|
(15 |
) |
|
|
6,302 |
|
Financial debt
|
|
|
(5,293 |
) |
|
|
165 |
|
|
|
(95 |
) |
|
|
(384 |
) |
|
|
(314 |
) |
|
|
(224 |
) |
|
|
(5,831 |
) |
Derivative instruments relating to financial debt, net
|
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (financial debt) net
|
|
|
976 |
|
|
|
165 |
|
|
|
60 |
|
|
|
(384 |
) |
|
|
(159 |
) |
|
|
(239 |
) |
|
|
578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
Each of the columns presented above is discussed in
sections IV and V of this note. |
|
|
The reclassification related to the debt linked to the bank
activity
(224 million),
which is included in financial debt under IFRSs, was classified
in other payables under French GAAP. |
|
|
The other impacts of IAS 32 and 39 correspond to recording our
investment in Nexans at market value in marketable securities,
representing an impact of
48 million,
and to recording the impact of changes in interest rates on the
value of financial debt that is offset for the most part by
related derivative instruments (interest-rate hedges). |
F-112
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
The adjustment of
384 million
indicated in the column Carry-back receivable, SVF and
other comprises a
375 million
adjustment relating to the consolidation of the SVF trust
program and to the sale of the carry-back receivable (impact of
212 million
for the consolidation of the SVF trust program and
163 million
for recording the receivable relating to the sale of the
carry-back receivable). |
|
|
C. |
Operating working capital at December 31,
2004 Reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Other impacts | |
|
|
|
|
|
|
|
|
|
|
French | |
|
IAS 32 and | |
|
|
|
Total | |
|
Reclassifications | |
|
|
|
|
GAAP | |
|
39 IV.C | |
|
Other | |
|
Adjustments | |
|
V.G | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Inventories and work in progress, net
|
|
|
1,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(254 |
) |
|
|
1,273 |
|
Amounts due from customers on construction contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
729 |
|
|
|
729 |
|
Trade receivables and related accounts, net
|
|
|
3,520 |
|
|
|
(98 |
) |
|
|
(4 |
) |
|
|
(102 |
) |
|
|
(725 |
) |
|
|
2,693 |
|
Advances and progress payments, net
|
|
|
89 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
(0 |
) |
|
|
90 |
|
Customers deposits and advances
|
|
|
(1,164 |
) |
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
191 |
|
|
|
(973 |
) |
Amounts due to customers on construction contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133 |
) |
|
|
(133 |
) |
Trade payables and related accounts
|
|
|
(3,360 |
) |
|
|
3 |
|
|
|
0 |
|
|
|
3 |
|
|
|
7 |
|
|
|
(3,350 |
) |
Currency derivatives on working
capital(1)
|
|
|
|
|
|
|
95 |
|
|
|
7 |
|
|
|
102 |
|
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating working capital, net
|
|
|
612 |
|
|
|
0 |
|
|
|
4 |
|
|
|
4 |
|
|
|
(185 |
) |
|
|
431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
recorded in other current assets and other current liabilities. |
Note:
|
|
|
Each of the columns presented above is discussed in
sections IV and V of this note. |
D. Cash (financial debt), net at
December 31, 2004 Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Orane & | |
|
Other impacts | |
|
Carry-back | |
|
|
|
|
|
|
|
|
French | |
|
Oceane | |
|
IAS 32 and | |
|
receivable and | |
|
Total | |
|
Reclassifications | |
|
|
|
|
GAAP | |
|
IV.B | |
|
39 IV.C | |
|
other IV.E | |
|
Adjustments | |
|
V.G | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Cash, cash equivalents and marketable securities
|
|
|
5,111 |
|
|
|
|
|
|
|
64 |
|
|
|
0 |
|
|
|
64 |
|
|
|
(12 |
) |
|
|
5,163 |
|
Financial debt
|
|
|
(4,359 |
) |
|
|
146 |
|
|
|
(106 |
) |
|
|
(182 |
) |
|
|
(142 |
) |
|
|
(105 |
) |
|
|
(4,606 |
) |
Derivative instruments relating to financial debt, net
|
|
|
|
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (financial debt), net
|
|
|
752 |
|
|
|
146 |
|
|
|
63 |
|
|
|
(182 |
) |
|
|
27 |
|
|
|
(117 |
) |
|
|
662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
Each of the columns presented above is discussed in
sections IV and V of this note. |
|
|
The reclassification related to the debt linked to the bank
activity
(105 million),
which is included in financial debt under IFRSs, compares with a
classification in other payables under French GAAP. |
F-113
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
The other impacts of IAS 32 and 39 correspond primarily to
recording our investment in Nexans at market value in marketable
securities, representing an impact of
56 million,
and to recording the impact of changes in interest rates on the
value of financial debt that is offset for the most part by
related derivative instruments (interest-rate hedges). |
|
|
The adjustment of
182 million
indicated in the column Carry-back receivable and
other includes a
173 million
adjustment relating to recording the receivable relating to the
sale of the carry-back receivable. The consolidation of the SVF
trust program has no impact at December 31, 2004, because
it had already been included in the French GAAP consolidated
financial statements in 2004 and because this program was
terminated during 2004. |
|
|
VII. |
Adjustment impacts on consolidated statement of cash flows |
Most of the adjustments made from applying IFRSs (recording of
financial assets available for sale at fair value, accounting
for share-based payments, recording of derivatives at market
value, etc.) have no impact on the statement of cash flows.
The only adjustment impacting the presentation of the statement
of cash flows is the capitalization of development costs. The
amounts capitalized are presented in net cash provided
(used) by investing activities, whereas the
corresponding research and development costs were shown as a
reduction in net cash provided (used) by operating
activities under French GAAP.
The reclassification entries are as follows:
|
|
|
|
|
Cash flows from discontinued operations are classified
differently under the two accounting practices (as part of
net cash provided (used) by investing activities
under French GAAP but in a specific caption at the foot of the
statement of cash flows under IFRSs). |
|
|
|
The different presentation of debt linked to the bank activity
under French GAAP and IFRSs (see notes VI-B and VI-D) results in
presenting changes in this debt in net cash provided
(used) by financing activities under IFRSs and no
longer in net cash provided (used) by operating
activities. |
|
|
|
Non-listed marketable securities were included in cash and
cash equivalents in the statement of cash flows under
French GAAP, whereas, under IFRSs, the change in this caption is
presented in net cash provided (used) by investing
activities. |
F-114
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications | |
|
|
|
Adjustments | |
|
|
|
|
|
|
| |
|
|
|
research | |
|
|
|
|
|
|
Discontinued | |
|
Debt linked to | |
|
Marketable | |
|
|
|
and | |
|
|
|
|
French | |
|
operations | |
|
the bank | |
|
securities and | |
|
TOTAL | |
|
development | |
|
|
|
|
GAAP | |
|
V.B | |
|
activity V.C | |
|
other | |
|
Reclassifications | |
|
IV.A | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Net cash provided (used) by operating activities
|
|
|
(289 |
) |
|
|
|
|
|
|
119 |
|
|
|
29 |
|
|
|
148 |
|
|
|
199 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of tangible and intangible assets
|
|
|
218 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
217 |
|
Capital expenditures
|
|
|
(380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199 |
) |
|
|
(579 |
) |
Decrease in loans and other financial assets
|
|
|
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
569 |
|
Cash expenditures for acquisition of consolidated and
unconsolidated companies
|
|
|
(205 |
) |
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
(120 |
) |
Cash proceeds from sale of consolidated and unconsolidated
companies
|
|
|
359 |
|
|
|
(295 |
) |
|
|
|
|
|
|
|
|
|
|
(295 |
) |
|
|
|
|
|
|
64 |
|
Changes in marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(265 |
) |
|
|
(265 |
) |
|
|
|
|
|
|
(265 |
) |
Discontinued operations
|
|
|
(247 |
) |
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
314 |
|
|
|
37 |
|
|
|
|
|
|
|
(266 |
) |
|
|
(229 |
) |
|
|
(199 |
) |
|
|
(114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance/(repayment) of debt
|
|
|
(1,105 |
) |
|
|
|
|
|
|
(119 |
) |
|
|
(30 |
) |
|
|
(149 |
) |
|
|
|
|
|
|
(1,254 |
) |
Other changes in cash from financing activities
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
(1,102 |
) |
|
|
|
|
|
|
(119 |
) |
|
|
(30 |
) |
|
|
(149 |
) |
|
|
|
|
|
|
(1,251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
(67 |
) |
|
|
|
|
|
|
|
|
|
|
(67 |
) |
|
|
|
|
|
|
(67 |
) |
Net effect of exchange rate changes
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,128 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
(266 |
) |
|
|
(296 |
) |
|
|
|
|
|
|
(1,424 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
6,195 |
|
|
|
30 |
|
|
|
|
|
|
|
(190 |
) |
|
|
(160 |
) |
|
|
|
|
|
|
6,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
5,067 |
|
|
|
|
|
|
|
|
|
|
|
(456 |
) |
|
|
(456 |
) |
|
|
|
|
|
|
4,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-115
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
VIII. Reconciliation of
2004 net income (loss) by quarter
|
|
A. |
Reconciliation of Q1 2004 net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Research | |
|
|
|
Other | |
|
|
|
|
|
|
|
|
|
|
French | |
|
and | |
|
Orane & | |
|
impacts IAS | |
|
Stock | |
|
Carry-back | |
|
Business | |
|
|
|
Total | |
|
Reclas- | |
|
|
|
|
GAAP | |
|
development | |
|
Oceane | |
|
32 and 39 | |
|
options | |
|
receivable | |
|
combinations | |
|
Other | |
|
adjustments | |
|
sifications | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Revenues
|
|
|
2,533 |
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
(2 |
) |
|
|
(16 |
) |
|
|
2,515 |
|
Cost of sales
|
|
|
(1,562 |
) |
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
(30 |
) |
|
|
(15 |
) |
|
|
(1,607 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
971 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(38 |
) |
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
6 |
|
|
|
(32 |
) |
|
|
(31 |
) |
|
|
908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
(498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
13 |
|
|
|
(487 |
) |
Research and development costs
|
|
|
(369 |
) |
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
33 |
|
|
|
(1 |
) |
|
|
(337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
104 |
|
|
|
32 |
|
|
|
0 |
|
|
|
(38 |
) |
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
(19 |
) |
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments (stock option or stock purchase plans)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(7 |
) |
|
|
0 |
|
|
|
(7 |
) |
Restructuring costs
|
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
0 |
|
|
|
(65 |
) |
Impairment of capitalized development costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Amortization of goodwill
|
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
|
|
1 |
|
|
|
106 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities
|
|
|
|
|
|
|
32 |
|
|
|
0 |
|
|
|
(38 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
105 |
|
|
|
5 |
|
|
|
97 |
|
|
|
(20 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on notes mandatorily redeemable for shares
|
|
|
(11 |
) |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
11 |
|
|
|
0 |
|
|
|
|
|
Financial income (loss)
|
|
|
(40 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
34 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
1 |
|
|
|
34 |
|
|
|
10 |
|
|
|
4 |
|
Other revenue (expense)
|
|
|
245 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(244 |
) |
|
|
|
|
Share in net income (losses) of equity affiliates
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
21 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax and discontinued operations
|
|
|
|
|
|
|
32 |
|
|
|
8 |
|
|
|
(4 |
) |
|
|
(7 |
) |
|
|
2 |
|
|
|
105 |
|
|
|
6 |
|
|
|
142 |
|
|
|
(233 |
) |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
16 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
1 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
32 |
|
|
|
8 |
|
|
|
(4 |
) |
|
|
(7 |
) |
|
|
2 |
|
|
|
105 |
|
|
|
10 |
|
|
|
146 |
|
|
|
(232 |
) |
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0 |
) |
|
|
(0 |
) |
|
|
232 |
|
|
|
232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
129 |
|
|
|
32 |
|
|
|
8 |
|
|
|
(4 |
) |
|
|
(7 |
) |
|
|
2 |
|
|
|
105 |
|
|
|
10 |
|
|
|
146 |
|
|
|
(0 |
) |
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
134 |
|
|
|
30 |
|
|
|
8 |
|
|
|
(4 |
) |
|
|
(7 |
) |
|
|
2 |
|
|
|
105 |
|
|
|
10 |
|
|
|
144 |
|
|
|
(0 |
) |
|
|
278 |
|
|
Minority interests
|
|
|
(5 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2 |
|
|
|
0 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-116
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
B. |
Reconciliation of Q2 2004 net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Research | |
|
|
|
Other | |
|
|
|
|
|
|
|
|
|
|
French | |
|
and | |
|
Orane & | |
|
impacts IAS | |
|
Stock | |
|
Carry-back | |
|
Business | |
|
|
|
Total | |
|
Reclas- | |
|
|
|
|
GAAP | |
|
development | |
|
Oceane | |
|
32 and 39 | |
|
options | |
|
receivable | |
|
combinations | |
|
Other | |
|
adjustments | |
|
sifications | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Revenues
|
|
|
2,911 |
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
(3 |
) |
|
|
(9 |
) |
|
|
2,899 |
|
Cost of sales
|
|
|
(1,755 |
) |
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
9 |
|
|
|
32 |
|
|
|
(1,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,156 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(0 |
) |
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
6 |
|
|
|
6 |
|
|
|
23 |
|
|
|
1,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
(532 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
1 |
|
|
|
(532 |
) |
Research and development costs
|
|
|
(413 |
) |
|
|
22 |
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
17 |
|
|
|
0 |
|
|
|
(396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
211 |
|
|
|
22 |
|
|
|
0 |
|
|
|
(0 |
) |
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
22 |
|
|
|
24 |
|
|
|
257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments (stock option or stock purchase plans)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(17 |
) |
|
|
0 |
|
|
|
(17 |
) |
Restructuring costs
|
|
|
(67 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
(2 |
) |
|
|
(68 |
) |
Impairment of capitalized development costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Amortization of goodwill
|
|
|
(102 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
102 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities
|
|
|
|
|
|
|
22 |
|
|
|
0 |
|
|
|
(0 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
102 |
|
|
|
1 |
|
|
|
108 |
|
|
|
22 |
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on notes mandatorily redeemable for shares
|
|
|
(11 |
) |
|
|
|
|
|
|
11 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
11 |
|
|
|
0 |
|
|
|
|
|
Financial income (loss)
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
(43 |
) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
(3 |
) |
|
|
(47 |
) |
|
|
10 |
|
|
|
(40 |
) |
Other revenue (expense)
|
|
|
32 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
(32 |
) |
|
|
|
|
Share in net income (losses) of equity affiliates
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0 |
) |
|
|
(0 |
) |
|
|
40 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax and discontinued operations
|
|
|
|
|
|
|
22 |
|
|
|
8 |
|
|
|
(43 |
) |
|
|
(17 |
) |
|
|
2 |
|
|
|
102 |
|
|
|
(2 |
) |
|
|
72 |
|
|
|
40 |
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
28 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
(0 |
) |
|
|
28 |
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
22 |
|
|
|
8 |
|
|
|
(43 |
) |
|
|
(17 |
) |
|
|
2 |
|
|
|
102 |
|
|
|
(2 |
) |
|
|
72 |
|
|
|
40 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40 |
) |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
45 |
|
|
|
22 |
|
|
|
8 |
|
|
|
(43 |
) |
|
|
(17 |
) |
|
|
2 |
|
|
|
102 |
|
|
|
(2 |
) |
|
|
72 |
|
|
|
(0 |
) |
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
23 |
|
|
|
23 |
|
|
|
8 |
|
|
|
(43 |
) |
|
|
(17 |
) |
|
|
2 |
|
|
|
102 |
|
|
|
(2 |
) |
|
|
73 |
|
|
|
(0 |
) |
|
|
96 |
|
|
Minority interests
|
|
|
22 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(1 |
) |
|
|
0 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-117
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
C. |
Reconciliation of Q3 2004 net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Research | |
|
|
|
Other | |
|
|
|
Total | |
|
|
|
|
|
|
French | |
|
and | |
|
Orane & | |
|
impacts IAS | |
|
Stock | |
|
Carry-back | |
|
Business | |
|
|
|
adjust- | |
|
Reclas- | |
|
|
|
|
GAAP | |
|
development | |
|
Oceane | |
|
32 and 39 | |
|
options | |
|
receivable | |
|
combinations | |
|
Other | |
|
ments | |
|
sifications | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Revenues
|
|
|
3,009 |
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
(3 |
) |
|
|
18 |
|
|
|
3,024 |
|
Cost of sales
|
|
|
(1,872 |
) |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
10 |
|
|
|
(3 |
) |
|
|
(1,865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,137 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(2 |
) |
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
9 |
|
|
|
7 |
|
|
|
15 |
|
|
|
1,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
(486 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
(429 |
) |
Research and development costs
|
|
|
(381 |
) |
|
|
24 |
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
22 |
|
|
|
1 |
|
|
|
(358 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
270 |
|
|
|
24 |
|
|
|
0 |
|
|
|
(2 |
) |
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
7 |
|
|
|
29 |
|
|
|
73 |
|
|
|
372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments (stock option or stock purchase plans)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(18 |
) |
|
|
0 |
|
|
|
(18 |
) |
Restructuring costs
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
0 |
|
|
|
(18 |
) |
Impairment of capitalized development costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Amortization of goodwill
|
|
|
(103 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
103 |
|
|
|
0 |
|
|
|
103 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities
|
|
|
|
|
|
|
24 |
|
|
|
0 |
|
|
|
(2 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
103 |
|
|
|
3 |
|
|
|
110 |
|
|
|
73 |
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on notes mandatorily redeemable for shares
|
|
|
(11 |
) |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
11 |
|
|
|
0 |
|
|
|
|
|
Financial income (loss)
|
|
|
(44 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
24 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
5 |
|
|
|
27 |
|
|
|
(1 |
) |
|
|
(18 |
) |
Other revenue (expense)
|
|
|
47 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(41 |
) |
|
|
|
|
Share in net income (losses) of equity affiliates
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
(28 |
) |
|
|
13 |
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax and discontinued operations
|
|
|
|
|
|
|
24 |
|
|
|
8 |
|
|
|
22 |
|
|
|
(18 |
) |
|
|
1 |
|
|
|
103 |
|
|
|
(26 |
) |
|
|
114 |
|
|
|
44 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
0 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
24 |
|
|
|
8 |
|
|
|
22 |
|
|
|
(18 |
) |
|
|
1 |
|
|
|
103 |
|
|
|
(27 |
) |
|
|
113 |
|
|
|
44 |
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
113 |
|
|
|
24 |
|
|
|
8 |
|
|
|
22 |
|
|
|
(18 |
) |
|
|
1 |
|
|
|
103 |
|
|
|
(27 |
) |
|
|
113 |
|
|
|
0 |
|
|
|
226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
84 |
|
|
|
23 |
|
|
|
8 |
|
|
|
22 |
|
|
|
(18 |
) |
|
|
1 |
|
|
|
103 |
|
|
|
(28 |
) |
|
|
111 |
|
|
|
0 |
|
|
|
195 |
|
|
Minority interests
|
|
|
29 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
1 |
|
|
|
2 |
|
|
|
0 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-118
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
D. |
Reconciliation of Q4 2004 net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Research | |
|
|
|
Other | |
|
|
|
Total | |
|
|
|
|
|
|
French | |
|
and | |
|
Orane & | |
|
impacts IAS | |
|
Stock | |
|
|
|
Business | |
|
|
|
adjust- | |
|
Reclas- | |
|
|
|
|
GAAP | |
|
development | |
|
Oceane | |
|
32 and 39 | |
|
options | |
|
Carry-back | |
|
combinations | |
|
Other | |
|
ments | |
|
sifications | |
|
IFRS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Revenues
|
|
|
3,812 |
|
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
(8 |
) |
|
|
2 |
|
|
|
3,806 |
|
Cost of sales
|
|
|
(2,501 |
) |
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
16 |
|
|
|
40 |
|
|
|
(2,445 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,311 |
|
|
|
0 |
|
|
|
0 |
|
|
|
9 |
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
(1 |
) |
|
|
8 |
|
|
|
42 |
|
|
|
1,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
(494 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
(496 |
) |
Research and development costs
|
|
|
(424 |
) |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
26 |
|
|
|
(1 |
) |
|
|
(399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities before restructuring,
share-based payments, impairment of capitalized development
costs and gain on disposal of consolidated entities
|
|
|
393 |
|
|
|
20 |
|
|
|
0 |
|
|
|
9 |
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
10 |
|
|
|
39 |
|
|
|
34 |
|
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments (stock option or stock purchase plans)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(18 |
) |
|
|
0 |
|
|
|
(18 |
) |
Restructuring costs
|
|
|
(159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
(17 |
) |
|
|
3 |
|
|
|
(173 |
) |
Impairment of capitalized development costs
|
|
|
|
|
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(88 |
) |
|
|
0 |
|
|
|
(88 |
) |
Amortization of goodwill
|
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98 |
|
|
|
(1 |
) |
|
|
97 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operating activities
|
|
|
|
|
|
|
(68 |
) |
|
|
0 |
|
|
|
9 |
|
|
|
(18 |
) |
|
|
|
|
|
|
98 |
|
|
|
(8 |
) |
|
|
13 |
|
|
|
39 |
|
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on notes mandatorily redeemable for shares
|
|
|
(11 |
) |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
11 |
|
|
|
0 |
|
|
|
|
|
Financial income (loss)
|
|
|
(45 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
(11 |
) |
|
|
(40 |
) |
|
|
32 |
|
|
|
(53 |
) |
Other revenue (expense)
|
|
|
40 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(7 |
) |
|
|
(33 |
) |
|
|
|
|
Share in net income (losses) of equity affiliates
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax and discontinued operations
|
|
|
|
|
|
|
(68 |
) |
|
|
9 |
|
|
|
(20 |
) |
|
|
(18 |
) |
|
|
2 |
|
|
|
98 |
|
|
|
(26 |
) |
|
|
(23 |
) |
|
|
27 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
(0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
(10 |
) |
|
|
(21 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
(68 |
) |
|
|
9 |
|
|
|
(20 |
) |
|
|
(18 |
) |
|
|
2 |
|
|
|
98 |
|
|
|
(36 |
) |
|
|
(33 |
) |
|
|
6 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
60 |
|
|
|
(68 |
) |
|
|
9 |
|
|
|
(20 |
) |
|
|
(18 |
) |
|
|
2 |
|
|
|
98 |
|
|
|
(36 |
) |
|
|
(33 |
) |
|
|
(0 |
) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
40 |
|
|
|
(69 |
) |
|
|
9 |
|
|
|
(20 |
) |
|
|
(18 |
) |
|
|
2 |
|
|
|
98 |
|
|
|
(35 |
) |
|
|
(33 |
) |
|
|
(0 |
) |
|
|
7 |
|
|
Minority interests
|
|
|
20 |
|
|
|
1 |
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
0 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-119
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
IX. |
IFRS balance sheet at January 1, 2004 |
|
|
|
|
|
|
|
January 1, | |
|
|
2004 | |
|
|
| |
|
|
(in millions of euros) | |
ASSETS
|
|
|
|
|
Goodwill
|
|
|
3,630 |
|
Intangible assets, net
|
|
|
583 |
|
Goodwill and intangible assets, net
|
|
|
4,213 |
|
Property, plant and equipment, gross
|
|
|
6,092 |
|
Depreciation
|
|
|
(4,656 |
) |
Property, plant and equipment, net
|
|
|
1,436 |
|
Share in net assets of equity affiliates
|
|
|
501 |
|
Other non-current financial assets, net
|
|
|
1,043 |
|
Deferred tax assets
|
|
|
1,994 |
|
Other non-current assets
|
|
|
353 |
|
|
|
|
|
Total non-current assets
|
|
|
9,540 |
|
|
|
|
|
Inventories and work in progress, net
|
|
|
1,206 |
|
Amounts due from customers on construction contracts
|
|
|
527 |
|
Trade receivables and related accounts, net
|
|
|
2,763 |
|
Advances and progress payments
|
|
|
106 |
|
Other current assets
|
|
|
1,837 |
|
Assets held for sale
|
|
|
434 |
|
Current income taxes
|
|
|
77 |
|
Marketable securities, net
|
|
|
267 |
|
Cash and cash equivalents
|
|
|
6,035 |
|
Total current assets
|
|
|
13,252 |
|
|
|
|
|
TOTAL ASSETS
|
|
|
22,792 |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
Capital stock
|
|
|
2,810 |
|
Additional paid-in capital
|
|
|
7,966 |
|
Less treasury stock at cost
|
|
|
(1,730 |
) |
Retained earnings, fair value and other reserves
|
|
|
(4,901 |
) |
Cumulative translation adjustments
|
|
|
|
|
Net income (loss) attributable to the equity holders
of the parent
|
|
|
|
|
Shareholders equity attributable to the
equity holders of the parent
|
|
|
4,145 |
|
|
|
|
|
Minority interests
|
|
|
388 |
|
|
|
|
|
Total shareholders equity
|
|
|
4,533 |
|
|
|
|
|
Pensions, retirement indemnities and other post-retirement
benefits
|
|
|
1,238 |
|
Bonds and notes issued, long-term
|
|
|
4,186 |
|
Other long-term debt
|
|
|
483 |
|
Deferred tax liabilities
|
|
|
114 |
|
Other non-current liabilities
|
|
|
161 |
|
|
|
|
|
Total non-current liabilities
|
|
|
6,182 |
|
|
|
|
|
Provisions
|
|
|
2,761 |
|
Current portion of long-term debt
|
|
|
1,162 |
|
Customers deposits and advances
|
|
|
1,065 |
|
Amounts due to customers on construction contracts
|
|
|
93 |
|
Trade payables and related accounts
|
|
|
3,620 |
|
Liabilities related to disposal groups held for sale
|
|
|
253 |
|
Current income tax liabilities
|
|
|
11 |
|
Other current liabilities
|
|
|
3,112 |
|
|
|
|
|
Total current liabilities
|
|
|
12,077 |
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
22,792 |
|
|
|
|
|
F-120
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 39 |
Summary of differences between accounting principles followed
by Alcatel and U.S. GAAP |
Alcatels accounts are prepared in accordance with
International Financial Reporting Standards (IFRSs)
as adopted by the EU (see note 1) which differ in certain
respects from generally accepted accounting principles in the
United States (U.S. GAAP). Differences that
existed between generally accepted according principles in
France (French GAAP), which was used before IFRS,
will continue to exist in certain areas as a result of the
transitional provisions applied under IFRS 1 even though an IFRS
accounting policy may be the same, or similar, to that applied
under US GAAP.
Those differences which have a significant effect on the
Groups profit for the financial year and equity are as
follows:
|
|
(a) |
Differences in accounting for business combinations |
|
|
|
Adoption of French pooling of interests
accounting method for stock-for-stock business combinations
under French GAAP that were not restated in the opening IFRS
balance sheet (as of January 1, 2004) |
From January 1, 1999, in connection with the change in
French accounting principles, Alcatel accounted for its
acquisition of DSC Communications Corporation (DSC)
under the French pooling of interests accounting method: assets
and liabilities of DSC Communications Corporation were accounted
for on a carryover basis at the acquisition date, adjusted to
Alcatels accounting method. The difference resulting from
the application of the pooling of interests accounting method
remained in shareholders equity.
The two stock-for-stock acquisitions made during the first half
of 2000, Genesys Telecommunications Laboratories
(Genesys) and Newbridge Networks Corporation
(Newbridge), the stock-for-stock acquisition of
Kymata made during the second half of 2001, the stock-for-stock
acquisition of Astral Point and Telera made during 2002 and the
stock-for-stock acquisition of TiMetra made during 2003 have
been accounted for using the pooling of interests accounting
method under French GAAP.
Under IFRS, these business combinations have not been restated
to conform with IFRS 3 Business combinations
(IFRS 3) requirements, as permitted by the exemption
authorized by IFRS 1 § 13(a)) that we elected.
Under U.S. GAAP, the DSC, Genesys, Newbridge, Kymata,
Astral Point and Telera acquisitions have been recorded under
the purchase accounting method. TiMetra being a development
stage-company when acquired, the difference between the fair
value of net assets acquired and the purchase price was
accounted for in operating expenses.
The purchase prices were mainly allocated to acquired
technology, in-process research and development, fair value of
investments, deferred compensation and deferred tax liabilities
resulting in goodwill of:
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Date of | |
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acquisition | |
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Currency | |
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Goodwill | |
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| |
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| |
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(in millions) | |
DSC
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1998 |
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USD |
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2,613 |
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Genesys
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2000 |
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USD |
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1,471 |
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Newbridge
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2000 |
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|
CAD |
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|
6,968 |
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Kymata
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2001 |
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|
GBP |
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|
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57 |
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Astral Point
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2002 |
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|
|
USD |
|
|
|
138 |
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Telera
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|
2002 |
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|
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USD |
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|
|
47 |
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TiMetra
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2003 |
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USD |
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114 |
(a) |
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(a) |
|
As TiMetra did not meet the definition of a business as defined
by EITF Issue No. 98-3 Determining Whether a
Non-Monetary
Transaction Involves Receipt of Productive Assets or of a
Business, an amount of $114 million, representing the
excess of the |
F-121
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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|
purchase price over the fair value of all identifiable assets
acquired and liabilities assumed was accounted for directly in
the income statement as a loss. The fair value of the
identifiable assets acquired was based upon an appraisal made by
an external expert. |
As part of the changeover to IFRS on and after January 1,
2005, the French pooling of interest method of
accounting for business combinations occurring in 2004 has been
abandoned on and after January 1, 2004 by the Group (see
note 1c).
|
|
|
Intangible assets and impairment |
In connection with the acquisitions described above, the Group
allocated part of the purchase prices to acquired technologies.
The amounts recorded at the acquisition dates were:
USD 256 million for DSC, USD 59 million for
Genesys, CAD 694 million for Newbridge, GBP 10 million
for Kymata, USD 8 million for Astral Point,
USD 27 million for Telera and USD 40 million
for TiMetra. Those intangible assets are amortized over their
estimated useful life (three to seven years) and are tested for
impairment in compliance with Statement of Financial Accounting
Standards (SFAS) No. 144 Accounting for
the Impairment or Disposal of Long-Lived Assets
(SFAS 144).
|
|
|
Allocation of the purchase price to in-process research
and development projects related to business combinations
accounted for using the French pooling of interests
method and not restated in the IFRS opening balance sheet |
In connection with the acquisition of DSC, the Group allocated
USD 1,096 million of the purchase price to in-process
research and development projects. At the acquisition date, DSC
was conducting design, development, engineering and testing
activities associated with the completion of hundreds of
projects aimed at developing next-generation technologies that
were expected to address emerging market demands for the
telecommunication equipment market. The allocation of
USD 1,096 million of the purchase price to these
in-process research and development projects represented their
estimated fair values. More specifically, the development,
engineering and testing activities associated with the following
technologies were allocated as portions of the purchase price:
Access (USD 600 million), Switching (USD 400 million),
and Transmission (USD 100 million).
In connection with the acquisition of Newbridge, the Group
allocated USD 750 million of the purchase price to
in-process research and development projects.
At the acquisition date, Newbridge was conducting design,
development, engineering and testing activities associated with
the completion of numerous projects aimed at developing
next-generation technologies that were expected to address
emerging market demands for the telecommunication equipment
market. The allocation of USD 750 million of the
purchase price to these in-process research and development
projects represented their estimated fair value. More
specifically, the development, engineering and testing
activities associated with the following technologies were
allocated portions of the purchase price: Switching and Routing
(USD 505 million) and Access (USD 245 million).
At the acquisition date, Genesys was conducting design,
development, engineering and testing activities associated with
the completion of several projects related to Genesys release 6.
The allocation of USD 100 million of the purchase
price to the in-process research and development projects
represented their estimated fair values.
F-122
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At the acquisition date, TiMetra was developing routers to
handle data traffic at what is known as the network edge, the
part of the data network that links offices, homes and other
buildings to the long distance core network. In June
2003, TiMetra introduced its first product, for next generation
carrier networks, designed to fit multiple applications. The
allocation of USD 5.5 million of the purchase price to
the in-process research and development projects represented
their estimated fair values using the methodology described
above.
Approximately USD 42 million had been spent on
research and development projects as of the valuation date.
Costs to complete the projects were estimated at approximately
USD 9 million over 24 months following the
acquisition. Management estimated that the aforementioned
projects were in various stages of development and were
approximately 80% complete, in the aggregate, based on
development costs.
Estimated total revenues from the acquired in-process technology
were expected to peak in 2006 and 2007 and steadily decline
thereafter as other new products and technologies were expected
to be introduced by Alcatel.
The estimated costs of good sold as well as operating expenses
as a percentage of revenues for TiMetra were expected to be
materially consistent with historical levels, primarily due to
the extremely competitive nature of the industry and the need to
continue to spend heavily on research and development.
A discount rate of 35% was used for determining the value of the
in-process research and development. This rate is higher than
the implied weighted average cost of capital for the acquisition
due to inherent uncertainties surrounding the successful
development of the purchased in-process technology, the useful
life of such technology, the profitability levels of such
technology, and the uncertainty of technological advances that
were unknown at that time.
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|
|
Allocation of the purchase price to in-process research
and development projects related to business combinations
accounted for using the purchase method |
As part of the changeover to IFRS on and after January 1,
2005, the French pooling of interest method of
accounting for business combinations occurring in 2004 has been
abandoned on and after January 1, 2004 by the Group. All
business combination from January 1, 2004 onwards are
accounted for using the purchase method.
Development expenditures that relates to an in-process research
or development project (IPR&D) acquired in a
business combination is recognized as an intangible asset
separate from goodwill under IFRS and U.S. GAAP.
Under U.S. GAAP (FASB Interpretation N°4), at the date
the combination is consummated, all costs assigned to activities
to be used in research and development are charged to expense
unless the assets have alternative future uses. Therefore
IPR&D identified in a business combination and accounted for
as intangible assets apart from goodwill are fully amortized
once the business combination is consummated.
On the other hand, under IFRS, expenditures related to IPR&D
accounted for as asset in a business combination are considered
indefinite-lived until the completion or abandonment of the
associated research and development efforts, at which point the
useful life of this asset will be determined and the
amortization will begin or the impairment booked.
The main IPR&D concerned are related to the following
business combinations: Spatial Wireless in 2004 and Native
Networks in 2005.
F-123
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At the acquisition time, Spatial Wireless was developing a UMTS
(Universal Mobile Telecommunications System) project qualified
as in-process research and development project. This UMTS
project, represents a major engineering effort to integrate UMTS
and support for Wi-Fi handset access into the Alcatels
wireless Softswitch technology. The allocation of
USD 10 million of the purchase price to the in-process
research and development projects was estimated at
USD 10 million at the end of 2004 and
USD 14.5 million in 2005.
Approximately USD 4 million had been spent since June
2003 on this in-process research and development project as of
the acquisition date. Management estimated that the
aforementioned project was approximately 80% complete,
therefore, costs to complete the project were estimated at
approximately USD 1 million over 5 months
following the acquisition.
Estimated total revenues from the acquired in-process technology
were expected to peak in 2006 to 2010 and steadily decline
thereafter as other new products and technologies were expected
to be introduced by Alcatel.
The estimated costs of good sold as well as operating expenses
as a percentage of revenues for Spatial were expected to be
materially consistent with historical levels, primarily due to
the extremely competitive nature of the industry and the need to
continue to spend heavily on research and development.
A discount rate of 30% was used for determining the value of the
in-process research and development. This rate is higher than
the implied weighted average cost of capital for the acquisition
due to inherent uncertainties surrounding the successful
development of the purchased in-process technology, the lifetime
of such technology, the profitability levels of such technology,
and the likelihood of technological evolutions unknown at that
time.
|
|
|
Contribution of Space businesses by Alcatel and Alenia to
two jointly controlled joint ventures |
As described in note 3 to the financial statements, on
July 1, 2005, Alcatel and Finmeccanica announced the
creation of two joint ventures that had been described in a
memorandum of understanding signed by the parties on
June 24, 2004: Alcatel Alenia Space (Alcatel holds 67% and
Finmeccanica 33%) and Telespazio Holding (Finmeccanica holds 67%
and Alcatel 33%). These joint ventures are jointly
controlled, as defined by IAS 31 Joint Ventures and
are therefore consolidated using the proportionate method of
consolidation starting July 1, 2005.
Under IFRS, in accordance with the guidance provided by SIC 13
Jointly Controlled Entities Non-Monetary
Contributions by Venturers, the recognition of any portion
of a gain or loss from the transaction shall reflect the
substance of the transaction. While the assets are retained by
the joint venture, and provided the venturer has transferred the
significant risks and rewards of ownership, the venturer shall
recognise only that portion of the gain or loss that is
attributable to the interests of the other venturers. Therefore
a gain related to the contributed business has been accounted
for amounting to
129 million
as of December 31, 2005.
Under U.S. GAAP, contributing assets to a joint venture does not
usually result in the culmination of the earnings process.
However, similar to the guidance in Statement of
Position 78-9, Accounting for Investments in Real Estate
Ventures, when cash is paid to one of the joint venturers in
order to balance the fair market value of assets contributed by
each venturer, gain recognition is allowed insofar as such gain
is limited to the lesser of the computed gain or the amount of
cash received, provided the recipient has no refund or
continuing support obligation. As indicated in note 3,
Alcatel received from Finmecannica a payment of
109 million
upon creation of the joint venture.
Further, gain on disposal related to contributed assets differs
under U.S. GAAP from the gain accounted for under IFRS, due
to differences between the net book value of the contributed
assets under both standards,
F-124
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
mainly related to the amortization of goodwill (see
note 39b) and accounting treatment of pensions (see
note 39f).
As a consequence of the above, the gain related to the
contributed business that has been accounted for under
U.S. GAAP in 2005 amounts to
72 million.
|
|
(b) |
Amortization and impairment of goodwill |
Under French GAAP, goodwill was generally amortized over its
estimated life, not to exceed 20 years.
As business combinations consummated before January 1, 2004
were not restated in the opening IFRS balance sheet, accumulated
amortization of goodwill as of December 31, 2004 accounted
for in accordance with French GAAP was maintained in the IFRS
consolidated financial statements.
From January 1, 2004 goodwill (including goodwill on equity
method investments) are no more amortized under IFRS but
annually impairment tested as prescribed by IFRS 3.
Beginning January 1, 2002, for the purpose of preparing the
U.S. GAAP reconciliation, Alcatel adopted
SFAS No. 142 Goodwill and Other Intangible
Assets (SFAS 142). Goodwill is no longer
amortized but rather tested for impairment at the adoption date
and on an annual basis or whenever indicators of impairment
arise. The goodwill impairment test, which is based on fair
value, is performed at the reporting unit level (one level below
the operating segment). In the first step, the fair value of the
reporting unit is compared to its book value, including
goodwill. If the fair value of the reporting unit is less than
its book value, a second step is performed which compares the
implied value of the reporting units goodwill to the
carrying value of its goodwill. The implied value of the
goodwill is determined based upon the difference between the
fair value of the division and the net of the fair value of the
identifiable assets and liabilities of the reporting unit. If
the implied value of the goodwill is less than its carrying
value, the difference is recorded as an impairment. During 2002,
material impairment losses have been accounted for in accordance
with SFAS 142 requirements. These impairments losses were
related to some of the business combinations accounted for using
French pooling of interests method described in
note 39(a) above.
Under IFRS, goodwill is allocated to cash generating
units (defined as the smallest group of identifiable
assets that generates cash inflows from continuing use largely
independent of the cash inflows from other assets) or groups of
cash generating units, which represent the lowest
level within the entity at which the goodwill is monitored for
internal management purposes. In Alcatel this level is similar
to the reporting unit level as defined by SFAS 142. If the
recoverable amount of the group of cash generating units
(including goodwill) is lower than its carrying amount, an
impairment loss shall be accounted for to reduce the carrying
amount of the assets of the group of units to the recoverable
amount, first in reducing the carrying amount of goodwill and
then in reducing the carrying amounts of other assets.
The impairment losses accounted for under U.S. GAAP mainly
in 2002 were not accounted for under IFRS, these impairment
losses being related to business combinations in which no
goodwill had been recorded under IFRS as indicated in
note 39(a).
Additionally, goodwill on equity method investments is no longer
amortized. However, it is still to be tested for impairment in
accordance with Accounting Principles Board Opinion
(APB) No. 18, The Equity Method of
Accounting for Investments in Common Stock
(APB 18) .
Amortization charges of goodwill for fiscal year 2002 and 2003
accounted for in our previous French GAAP consolidated financial
statements are therefore restated in our U.S. GAAP
consolidated financial statements and specific U.S. GAAP
impairment losses have been accounted for related to business
combinations recorded under French pooling of interest
methods that were not restated under IFRS.
F-125
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(c) |
Capitalization of development expenses related to Research
and Development efforts |
Under IFRS -IAS 38 Intangible assets (IAS
38) expenses related to development phase of a research
and development project shall be capitalized if certain criteria
are met:
|
|
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|
|
technical feasibility of completing the project so that it will
be available for use or sale, |
|
|
|
intention to complete the project, |
|
|
|
ability to use or sell the intangible asset arising from the
project, |
|
|
|
capacity to generate probable future economic benefits, |
|
|
|
availability of adequate resources to complete the
development, and |
|
|
|
ability to measure the expenditures attributable to the project). |
Under U.S. GAAP, software development costs would be
similarly capitalized in accordance with SFAS No. 86
Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed. However, in accordance with
SFAS No 2 Accounting for Research and Development
Costs non-software development costs shall be charged to
expense when incurred.
|
|
(d) |
Liability recognition for certain employee termination
benefits and other costs associated to restructuring plans such
as anticipated termination of leases |
The main difference between IFRS and U.S. GAAP relates to
voluntary termination benefits. Under IAS 19 Employee
benefits (IAS 19), benefits are recognized
when the entity is demonstrably committed to providing those
benefits. This definition differs from the requirements of
SFAS N° 88 Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits, the liability is recognized
when incurred (when the employee accepts the entitys offer
of voluntary termination of employment).
Another difference is related to the accounting method for
onerous contracts. Under IAS 37 Provisions, Contingent
Liabilities and Contingent Assets (IAS 37) an
onerous contract is a contract in which the unavoidable costs of
meeting its obligations exceed the economic benefits expected.
We recognize a provisions as soon as definition of a provision
is met. In the specific case of onerous operating lease the
provision could be recognized before we cease to use the asset
concerned. Sub-lease
rentals are accounted for only if we enter in such sub-leases.
Under SFAS 146, a liability for a cost to terminate a
contract before the end of its term shall be recognized at fair
value when the entity terminates the contract. If the contract
is an operating lease the fair value of the liability at the
cease-use date shall be determined based on the remaining lease
rentals, reduced by estimated sublease rentals that could be
reasonably obtained, even if the entity does not intend to enter
into a sublease.
|
|
(e) |
Other comprehensive income |
SFAS No. 130 Other Comprehensive Income
(SFAS 130) requires retroactive reporting of
comprehensive income and its components, displayed as
prominently as other financial statements. Comprehensive income
may be defined for U.S. GAAP purposes as the change in
equity of a business enterprise from transactions and other
events and circumstances from non-owner sources. IAS 1
Presentation of Financial Statements (IAS
1) does not require the same disclosures as SFAS 130.
For instance IAS 1 does not require display or disclosure of the
accumulated balances for individual items reported directly in
equity.
F-126
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
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(f) |
Pension and post-retirement benefits other than pension
plans |
Under U.S. GAAP, when the unfunded accumulated benefit
obligation (being the actuarial present value of benefits
attributed by the pension benefit formula to employee service
rendered prior to that date and based on current and past
compensation levels) exceeds the fair value of plan assets, an
additional minimum liability must be recognized in accordance
with SFAS No. 87 Employers Accounting for
Pensions. If this liability exceeds the unrecognized prior
service cost, the excess is recorded as a reduction of
shareholders equity. Under IFRS (IAS 19), there is no such
requirement.
To comply with U.S. GAAP, the Group applies the
SFAS No. 106 Employers Accounting for
Post-retirement Benefits other than Pensions. These
post-retirement benefits, primarily life insurance and health
care, cover most of Alcatels U.S. Group employees.
Starting January 1, 2004, Alcatel comply with IAS 19
(Employee Benefits). The actuarial gains and losses linked to
experience adjustments and to the effects of changes in
actuarial assumptions that were recorded at January 1,
2004, have been recorded in shareholders equity (see
note 1k). Under U.S. GAAP those actuarial gains and
losses will be recognized over the expected average remaining
working lives of the employees.
Accounting for stock option plans under IFRS Share-Based
Payment (IFRS 2) leads to recognition of a
compensation expense. Equity-settled share based payment such as
stock options plans are measured at fair value. Fair value is
determined at the date of grant using an appropriate evaluation
model (see note 1w and note 23e). Only options issued
after November 7, 2002 and not fully vested at
January 1, 2005 are accounted for using IFRS principles.
Other stock options does not lead to recognition of a
compensation expense.
Under U.S. GAAP, Alcatel accounts for those plans under the
recognition and measurement principles of APB Opinion
No. 25, Accounting For Stock Issued To
Employees (APB 25), and related
interpretations. Stock-based employee compensation cost is
reflected in net income based on the intrinsic value of the
stock options granted.
The effect on net income and earnings per share, if Alcatel had
applied the fair value recognition provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), is presented in
note 42(2).
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(h) |
Leases and sale-leaseback transactions |
SFAS 13 Accounting for leases
(SFAS 13) requires that in a sale-leaseback
transaction with a lease classified as an operating lease, any
profit or loss on the sale shall be deferred and amortized in
proportion to the rental payments over the period of time that
the asset is expected to be used. Under IAS 17
Leases, the profit corresponding to the disposal of
the asset is not deferred if the transaction was made with a
selling price and rental payments that correspond to the market
conditions at the time of the transaction.
IAS 17 Leases and SFAS 13 prescribe similar
lease accounting approaches based on whether a lease transfers
substantially all of the risks and rewards related to ownership
of the leased asset. However, SFAS 13 provide quantitative
criteria to determine if a lease is an operating lease or a
capital lease where IAS 17 requires subjective determinations to
be made. It could lead in certain rare circumstances to consider
a lease as operating lease under U.S. GAAP and as finance
lease under IAS 17 and vice versa.
F-127
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
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(i) |
Compound financial instruments |
If a financial instrument contains both a liability and an
equity component, such components shall be classified separately
as financial liabilities or equity instruments under IAS 32
Financial Instruments: Disclosure and Presentation
(IAS 32).
This is the case with the bonds issued by the Group in 2003
(Oceane Obligation Convertible ou Echangeable en
Actions Nouvelles ou Existantes, bonds convertible into or
exchanged for new or existing shares) and 2002
(Orane Obligation Remboursable en Actions Nouvelles
ou Existantes, bonds mandatorily redeemable for new or existing
shares) (see note 1m).There is no debt component booked for
the ORANE bonds since all interests was pre-paid at the issuance
date.
These requirements differ from those of U.S. GAAP . The
Orane (Notes mandatorily redeemeable for shares) is presented on
a specific balance sheet line item in the U.S. GAAP
classified balance sheet (see note 41(4)) and the Oceane
(bonds convertible into or exchanged for new or existing shares)
are accounted for as financial debt and presented as long term
financial debt in the U.S. GAAP classified balance sheet
(see note 41(4)).
|
|
(j) |
Reversal of inventory write-down |
Under IAS 2 Inventories (IAS 2),
inventories are written-down if cost becomes higher than net
realizable value. An assessment of the net realizable value is
made at each reporting period. When there is clear evidence of
an increase of the net realizable value because of changes in
economic circumstances, the amount of the write-down is reversed
even if the inventories remain unsold.
Under U.S. GAAP, ARB N° 43 Restatement and
Revision of Accounting Research Bulletins states that
following a write-down such reduced amount is to be
considered the cost for subsequent accounting purposes and
it is therefore not permitted to reverse a former write-down
before the inventory is either sold or written-off.
|
|
(k) |
Presentation of consolidated financial statements |
The classification of certain items in, and the format of,
Alcatels consolidated financial statements vary to some
extent from U.S. GAAP.
The most significant reporting and presentation practices
followed by Alcatel that differ from U.S. GAAP are
described in the following paragraphs:
In its balance sheet, Alcatel reports the costs incurred plus
recognized profits less the sum of recognized losses and
progress billings for all construction contracts in progress
either in the specific balance sheet line item amount due
from customers or in the specific line item amounts
due to customers depending if the amounts determined
contract by contract are respectively positive or negative as
required by IAS 11 Construction Contracts (IAS
11). These specific balance sheet line items does not
exist under U.S. GAAP and the corresponding amounts are
presented in inventories, trade receivables and related
accounts, or other reserves depending upon their nature.
Deferred taxes are presented in non current assets and
liabilities under IFRS and as current or non current under
U.S. GAAP based on the classification for financial
reporting of the related tax asset or liability.
Under IFRS (IAS 1), the income statement is presented using a
classification based on the function of expenses. Nevertheless,
when an item of income and expense is material, the nature and
amount shall be disclosed separately. Expenses presented on
specific line item of the income statement due to their
materiality
F-128
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are restructuring costs, impairment of intangible assets,
share-based payment and gain on sale of stock in subsidiaries.
Income statements line item presented could therefore differ
between the two standards.
In its statement of cash flows under IFRS, Alcatel presents the
items net cash provided (used) by operating
activities before changes in working capital, interest and
taxes, this item would not be shown under a U.S. GAAP
statement of cash flows presentation.
|
|
(l) |
Discontinued operations |
In April 2004, Alcatel and TCL Communication Technology Holdings
Limited announced the execution of a memorandum of understanding
to form a joint venture mobile handset company. The joint
venture company which is an investment in associate in
accordance with IAS 28 Investments in Associates
officially started operations on August 31, 2004 and is 55%
owned by TCL and 45% owned by Alcatel and accounted for under
the equity method. The mobile phone business of Alcatel is no
longer considered to be under Alcatels control as of
December 31, 2003 and therefore the results and financial
position of this business have been accounted for in
discontinued operations under IFRS in accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued
Operations (IFRS 5). This transaction would
not be considered as a discontinued activity under
U.S. GAAP due to our 45% interest in TCL & Alcatel
Mobile Phone Ltd at year end. Under U.S. GAAP, due to
continuing involvement (this concept being not present in the
definition of discontinued operations in IFRS 5), the mobile
phone business results from January 1, 2004 to
August 30, 2004 have been presented as continued activities
in our consolidated financial statements and not accounted for
in the specific income (loss) from discontinued operation line
item.
In May 2004, Alcatel announced that it had entered into a
binding agreement with Draka to combine their respective global
optical fiber and communication cable businesses. This
transaction was completed on July 1, 2004. Draka owns 50.1%
and Alcatel 49.9% of the new company Draka Comteq BV. The
optical fiber business of Alcatel is no longer considered to be
under Alcatels control as of December 31, 2003 and
therefore the results and financial position of this business
have been accounted for in discontinued operations under IFRS.
This transaction would not be considered as a discontinued
activity under U.S. GAAP due to our 49.9% interest in Draka
Comteq BV at year end. Under U.S. GAAP, the optical fiber
business results from January 1, 2004 to June 30, 2004
have been presented as continued activities in our consolidated
financial statements and not accounted for in the specific
income (loss) from discontinued operation line item.
Due to differences in accounting for goodwill, the value of net
assets under IFRS and U.S. GAAP is different with regard to
the discontinued operations of SAFT and Saft Power Systems (see
comments given in note 3 Changes in
consolidated companies of our consolidated financial statements
under IFRS). As a result, we have recorded a reconciling charge
of
35 million
before tax in our income (loss) from discontinued activities
under U.S. GAAP.
|
|
(m) |
Cumulative translation adjustment |
Due to the election made to reset the cumulative translation
adjustment as of January 1, 2004 to zero, as permitted by
IFRS 1 (see comments given in note 1d), Alcatel created a
permanent reconciling item for U.S. GAAP purposes.
|
|
(n) |
Effect of cumulative translation adjustments on sale of
subsidiaries |
We elected to reset the cumulative translation adjustments to
zero as of the transition date to IFRS (January 1, 2004),
as discussed in Note 1(d) to our consolidated financial
statements. As a result, we created a permanent reconciling item
between IFRS and U.S. GAAP. A portion of this reconciling
item is reversed each time we dispose of a consolidated
subsidiary, the financial statements of which were denominated
in a
F-129
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
currency other than our reporting currency, the euro, and for
which the cumulative translation adjustment as of
January 1, 2004 was something other than zero under
U.S. GAAP.
|
|
(o) |
Reversal of inventory write-downs |
Under U.S. GAAP, reversal of an inventory write-down is
prohibited, as a write-down creates a new cost basis. Under
IFRS, however, a reversal (limited to the amount of the original
write-down) is required for any subsequent increase in the value
of inventory previously written down.
|
|
(p) |
Fair value of marketable securities |
During the transition to IFRS, we decided to designate as
financial assets at fair value through profit or
loss some of the financial assets reported as
marketable securities, as permitted by the
provisions of IAS 39 § 9(b), which relate to
the definitions of the four categories of financial instruments,
and in particular, for financial assets with quoted market
prices in an active market and the fair value of which can be
reliably measured.
Under U.S. GAAP, these marketable securities are classified
as available-for-sale securities according to the
guidance provided by FASB Statement No 115 with change in
fair value recorded in Other Comprehensive Income.
|
|
(q) |
Adjustments on equity affiliates |
The most significant portion of this adjustment is related to
the share in net assets of Thales, which is accounted for under
the equity method. The difference primarily arose from the
following:
Our adoption of FASB Statement No. 142, effective
January 1, 2002, which required us to cease the
amortization of goodwill (including goodwill related to equity
affiliates) for U.S. GAAP purposes. Effective upon our
transition to IFRS (January 1, 2004), we discontinued
amortization of goodwill in accordance with IFRS 3;
however, we adopted the IFRS 1 transitional provisions on a
prospective basis. This difference in the adoption dates between
the two standards has created a reconciling item which is
presented as adjustments on equity affiliates as it
relates to Share in net assets of equity affiliates
balance sheet line items.
Thales, a French public company, also adopted IFRS effective
January 1, 2004. The primary reconciling item between
French GAAP and IFRS resulted from the election of the
option to record accumulated unrecognized actuarial gains and
losses relating to pensions at the transition date in
shareholders equity pursuant to IFRS 1. As a result,
an adjustment has been recorded to cancel the effect of these
IFRS transitional provisions in arriving at U.S. GAAP net
income.
|
|
Note 40 |
Reconciliation to U.S. GAAP |
The following is a summary of the estimated adjustments to
Alcatel net income (loss) attributable to the equity holders of
the parent for the years 2005 and 2004 and Alcatel
shareholdersequity attributable to the equity holders of
the parent at December 31, 2005 and 2004, which would be
required if U.S. GAAP had been applied instead of IFRS.
F-130
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note | |
|
2005(a) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Net income (loss) attributable to the equity holders of the
parent according to IFRS
|
|
|
|
|
|
$ |
1,101 |
|
|
|
930 |
|
|
|
576 |
|
Business combinations and amortization of goodwill
|
|
|
39 |
(a)(b) |
|
|
(118 |
) |
|
|
(100 |
) |
|
|
(43 |
) |
Capitalization of development costs
|
|
|
39 |
(c) |
|
|
27 |
|
|
|
23 |
|
|
|
73 |
|
Restructuring plans
|
|
|
39 |
(d) |
|
|
(62 |
) |
|
|
(52 |
) |
|
|
(97 |
) |
Sale and lease back transactions
|
|
|
39 |
(h) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
23 |
|
Compound financial instruments
|
|
|
39 |
(i) |
|
|
(32 |
) |
|
|
(27 |
) |
|
|
(33 |
) |
Discontinued operations
|
|
|
39 |
(l) |
|
|
|
|
|
|
|
|
|
|
(35 |
) |
Share based payments
|
|
|
39 |
(g) |
|
|
82 |
|
|
|
69 |
|
|
|
60 |
|
Pension and post-retirement benefits
|
|
|
39 |
(f) |
|
|
(11 |
) |
|
|
(9 |
) |
|
|
30 |
|
Effect of cumulative translation adjustments on sale of
subsidiaries
|
|
|
39 |
(n) |
|
|
40 |
|
|
|
34 |
|
|
|
|
|
Reversal of inventory write-downs
|
|
|
39 |
(o) |
|
|
|
|
|
|
|
|
|
|
(25 |
) |
Fair value of marketable securities
|
|
|
39 |
(p) |
|
|
(25 |
) |
|
|
(21 |
) |
|
|
|
|
Adjustment on equity affiliates
|
|
|
39 |
(q) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
Other adjustments
|
|
|
|
|
|
|
(15 |
) |
|
|
(14 |
) |
|
|
(4 |
) |
Tax effect of the above adjustments
|
|
|
|
|
|
|
(77 |
) |
|
|
(65 |
) |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) according to U.S. GAAP
|
|
|
|
|
|
|
903 |
|
|
|
763 |
|
|
|
550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Translation of amounts from
into
U.S. $ has been made merely for the convenience of the
reader at the Noon Buying Rate of
1 = U.S. $1.1842
on December 31, 2005. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
Note | |
|
2005(a) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Shareholders equity attributable to the equity holders
of the parent according to IFRS
|
|
|
|
|
|
$ |
7,382 |
|
|
|
6,234 |
|
|
|
4,920 |
|
Business combinations and amortization of goodwill
|
|
|
39 |
(a)(b) |
|
|
3,866 |
|
|
|
3,265 |
|
|
|
3,107 |
|
Capitalization of development costs
|
|
|
39 |
(c) |
|
|
(230 |
) |
|
|
(194 |
) |
|
|
(224 |
) |
Restructuring plans
|
|
|
39 |
(d) |
|
|
71 |
|
|
|
60 |
|
|
|
109 |
|
Sale and lease back transactions
|
|
|
39 |
(h) |
|
|
(231 |
) |
|
|
(195 |
) |
|
|
(193 |
) |
Compound financial instruments
|
|
|
39 |
(i) |
|
|
(137 |
) |
|
|
(116 |
) |
|
|
(734 |
) |
Pension and post-retirement benefits
|
|
|
39 |
(f) |
|
|
(506 |
) |
|
|
(427 |
) |
|
|
(294 |
) |
Discontinued operations
|
|
|
39 |
(l) |
|
|
|
|
|
|
|
|
|
|
3 |
|
Reversal of inventory write-downs
|
|
|
39 |
(o) |
|
|
(30 |
) |
|
|
(25 |
) |
|
|
(25 |
) |
Adjustment on equity affiliates
|
|
|
39 |
(q) |
|
|
118 |
|
|
|
100 |
|
|
|
101 |
|
Other adjustments
|
|
|
|
|
|
|
22 |
|
|
|
17 |
|
|
|
48 |
|
Tax effect of the above adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity according to U.S. GAAP
|
|
|
|
|
|
$ |
10,325 |
|
|
|
8,719 |
|
|
|
6,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Translation of amounts from
into
U.S. $ has been made merely for the convenience of the
reader at the Noon Buying Rate of
1 = U.S. $1.1842
on December 31, 2005. |
F-131
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 41 |
Summarized U.S. GAAP Consolidated Financial
Statements |
Under U.S. GAAP, the following information would be set
forth in the consolidated financial statements for the years
ended December 31, 2005 and 2004 as either a separate
statement or as a component of the consolidated statements of
changes in shareholders equity and minority interests.
|
|
(1) |
Summarized U.S. GAAP Consolidated Income Statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005(a) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Net sales
|
|
$ |
15,547 |
|
|
|
13,129 |
|
|
|
12,663 |
|
Cost of sales
|
|
|
(10,086 |
) |
|
|
(8,517 |
) |
|
|
(8,092 |
) |
Administrative and selling expenses
|
|
|
(2,426 |
) |
|
|
(2,049 |
) |
|
|
(2,004 |
) |
Research and development expenses
|
|
|
(1,704 |
) |
|
|
(1,439 |
) |
|
|
(1,573 |
) |
Purchased in-process R&D
|
|
|
(12 |
) |
|
|
(10 |
) |
|
|
(9 |
) |
Restructuring costs
|
|
|
(206 |
) |
|
|
(174 |
) |
|
|
(431 |
) |
Amortization and impairment of goodwill and other operating
expenses
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1,113 |
|
|
|
940 |
|
|
|
550 |
|
Interest expense on notes mandatorily redeemable for shares
|
|
|
(47 |
) |
|
|
(40 |
) |
|
|
(44 |
) |
Other interest expense
|
|
|
(240 |
) |
|
|
(203 |
) |
|
|
(191 |
) |
Interest income and other financial income, net
|
|
|
135 |
|
|
|
114 |
|
|
|
128 |
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of stock in subsidiaries
|
|
|
195 |
|
|
|
165 |
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes
|
|
|
1,156 |
|
|
|
976 |
|
|
|
664 |
|
Share in net income of equity affiliates
|
|
|
(26 |
) |
|
|
(22 |
) |
|
|
(33 |
) |
Provision for income tax
|
|
|
(185 |
) |
|
|
(156 |
) |
|
|
(9 |
) |
Minority interests
|
|
|
(41 |
) |
|
|
(35 |
) |
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
904 |
|
|
|
763 |
|
|
|
556 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
904 |
|
|
|
763 |
|
|
|
550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Translation of amounts from
into
U.S. $ has been made merely for the convenience of the
reader at the Noon Buying Rate of
1 = U.S. $1.1842
on December 31, 2005. |
|
|
(2) |
Earnings per share under U.S. GAAP: |
Earnings per share presented below are calculated in accordance
with SFAS 128 Earnings per Share. The number of
shares to be issued upon conversion of notes mandatorily
redeemable for new or existing shares (ORANE) is excluded
of the calculation of basic earnings per share.
F-132
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005(a) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Ordinary shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of adoption of new
standards
|
|
$ |
0.66 |
|
|
|
0.56 |
|
|
|
0.45 |
|
Net income (loss)
|
|
$ |
0.66 |
|
|
|
0.56 |
|
|
|
0.45 |
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of adoption of new
accounting standards
|
|
$ |
0.66 |
|
|
|
0.55 |
|
|
|
0.42 |
|
Net income (loss)
|
|
$ |
0.66 |
|
|
|
0.55 |
|
|
|
0.42 |
|
|
|
|
(a) |
|
Translation of amounts from
into
U.S. $ has been made merely for the convenience of the
reader at the Noon Buying Rate of
1 = U.S. $1.1842
on December 31, 2005. |
The following tables present a reconciliation of the basic
earnings per share and diluted earnings per share for each year
disclosed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares | |
|
|
| |
|
|
Net income | |
|
Number of | |
|
Per share | |
2005 |
|
(loss) | |
|
shares | |
|
amount | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Basic earnings per share
|
|
|
763 |
|
|
|
1,367,994,653 |
|
|
|
0.56 |
|
Stock option plans
|
|
|
|
|
|
|
9,188,929 |
|
|
|
|
|
Convertible bonds and notes mandatorily redeemable for shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
763 |
|
|
|
1,377,183,582 |
|
|
|
0.55 |
|
|
|
|
|
|
|
|
|
|
|
The number of stock options not exercised as of
December 31, 2005 amounted to 149,359,801 shares. Only
9,188,929 share equivalents have been taken into account
for the calculation of the diluted earnings per share, as the
remaining share equivalents had an anti-dilutive effect.
Furthermore, 63,192,019 new or existing Alcatel ordinary shares,
which are issuable in respect of Alcatels convertible
bonds (OCEANE) issued on June 12, 2003, have not been
taken into account in the calculation of the diluted earnings
per share amount due to their anti-dilutive effect.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares | |
|
|
| |
|
|
Net income | |
|
Number of | |
|
Per share | |
2004 |
|
(loss) | |
|
shares | |
|
amount | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Basic earnings per share
|
|
|
550 |
|
|
|
1,228,745,770 |
|
|
|
0.45 |
|
Stock option plans
|
|
|
|
|
|
|
14,133,029 |
|
|
|
|
|
Notes mandatorily redeemable for shares (ORANE)
|
|
|
29 |
|
|
|
120,782,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
579 |
|
|
|
1,363,661,187 |
|
|
|
0.42 |
|
|
|
|
|
|
|
|
|
|
|
The number of stock options not exercised as of
December 31, 2004 amounted to 150,715,229 shares. Only
14,133,029 share equivalents have been taken into account
for the calculation of the diluted earnings per share, as the
remaining share equivalents had an anti-dilutive effect.
Furthermore, 63,192,019 new or existing Alcatel ordinary shares,
which are issuable in respect of Alcatels convertible
bonds (OCEANE) issued on June 12, 2003, have not been
taken into account in the calculation of the diluted earnings
per share amount due to their anti-dilutive effect.
F-133
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(3) |
Statement of comprehensive income |
Under U.S. GAAP, the following information would be set
forth in the consolidated financial statements for the years
ended December 31, 2005 and 2004 as either a separate
statement or as a component of the consolidated statement of
changes in shareholders equity and minority interests.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005(a) | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Net income (loss) under U.S. GAAP
|
|
$ |
904 |
|
|
|
763 |
|
|
|
550 |
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
666 |
|
|
|
562 |
|
|
|
(262 |
) |
Unrealized gains (losses) on securities
|
|
|
(57 |
) |
|
|
(48 |
) |
|
|
39 |
|
Cash flow hedge
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
Minimum pension liability adjustments
|
|
|
(163 |
) |
|
|
(138 |
) |
|
|
(103 |
) |
Tax effect on the above adjustments
|
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) according to U.S. GAAP
|
|
$ |
1,351 |
|
|
|
1,141 |
|
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Translation of amounts from
into
U.S. $ has been made merely for the convenience of the
reader at the Noon Buying Rate of
1 =
U.S. $1.1842 on December 31, 2005. |
If Alcatel were to present consolidated financial statements in
accordance with U.S. GAAP, the accumulated balances for
minimum pension liability adjustments, foreign currency
translation adjustments, unrealized gains (losses) on
available-for-sale securities and cash flow hedge would be
disclosed either on the face of the consolidated balance sheets,
in the statements of changes in shareholders equity and
minority interests, or in the notes to the financial statements.
The following table presents the accumulated balances, net of
tax, of each of these classifications.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum | |
|
Foreign | |
|
Unrealized | |
|
|
|
|
pension | |
|
currency | |
|
gains | |
|
|
|
|
liability | |
|
translation | |
|
(losses) on | |
|
Cash flow | |
|
|
adjustments | |
|
adjustments | |
|
securities | |
|
hedge | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance beginning of the year
|
|
|
(363 |
) |
|
|
(1,116 |
) |
|
|
82 |
|
|
|
|
|
Current period change
|
|
|
(138 |
) |
|
|
562 |
|
|
|
(48 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance end of the year
|
|
|
(501 |
) |
|
|
(554 |
) |
|
|
34 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance beginning of the year
|
|
|
(244 |
) |
|
|
(854 |
) |
|
|
43 |
|
|
|
|
|
Current period change
|
|
|
(119 |
) |
|
|
(262 |
) |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance end of the year
|
|
|
(363 |
) |
|
|
(1,116 |
) |
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-134
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(4) |
Classified balance sheet as of December 31: |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
4,510 |
|
|
|
4,611 |
|
Marketable securities, net
|
|
|
640 |
|
|
|
552 |
|
Other debtors
|
|
|
1,310 |
|
|
|
1,894 |
|
Trade receivables and related accounts
|
|
|
4,090 |
|
|
|
3,494 |
|
Inventories, net
|
|
|
1,695 |
|
|
|
1,502 |
|
Assets held for sale
|
|
|
50 |
|
|
|
118 |
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
12,295 |
|
|
|
12,171 |
|
|
|
|
|
|
|
|
Other investments & other non current assets, net
|
|
|
2,312 |
|
|
|
2,396 |
|
Share in net assets of equity affiliates
|
|
|
706 |
|
|
|
708 |
|
|
|
|
|
|
|
|
Investments and other non-current assets
|
|
|
3,018 |
|
|
|
3,104 |
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost
|
|
|
4,636 |
|
|
|
4,910 |
|
Less: accumulated depreciation
|
|
|
(3,468 |
) |
|
|
(3,692 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
1,168 |
|
|
|
1,218 |
|
|
|
|
|
|
|
|
Acquisition goodwill, net
|
|
|
7,024 |
|
|
|
6,829 |
|
Other intangible assets, net
|
|
|
679 |
|
|
|
566 |
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
7,703 |
|
|
|
7,395 |
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT ASSETS
|
|
|
11,889 |
|
|
|
11,717 |
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
24,184 |
|
|
|
23,888 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
2,106 |
|
|
|
2,553 |
|
Trade payables and related accounts
|
|
|
3,755 |
|
|
|
3,356 |
|
Accrued contract costs & other accrued liabilities
|
|
|
1,264 |
|
|
|
1,573 |
|
Customers deposits and advances
|
|
|
1,144 |
|
|
|
1,164 |
|
Short-term financial debt
|
|
|
1,051 |
|
|
|
1,053 |
|
Liabilities related to discontinued activities or to a disposal
group held for sale
|
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
9,320 |
|
|
|
9,799 |
|
|
|
|
|
|
|
|
Notes mandatorily redeemable for
shares(1)
|
|
|
|
|
|
|
645 |
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
573 |
|
|
|
381 |
|
|
|
|
|
|
|
|
Other long-term financial debt
|
|
|
394 |
|
|
|
388 |
|
Bonds and notes issued, long-term
|
|
|
2,519 |
|
|
|
3,240 |
|
|
|
|
|
|
|
|
Long-term financial debt
|
|
|
2,913 |
|
|
|
3,628 |
|
|
|
|
|
|
|
|
Other reserves
|
|
|
470 |
|
|
|
639 |
|
Accrued pensions and retirement obligations
|
|
|
1,717 |
|
|
|
1,557 |
|
|
|
|
|
|
|
|
Total reserves
|
|
|
2,187 |
|
|
|
2,196 |
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
5,673 |
|
|
|
6,850 |
|
|
|
|
|
|
|
|
MINORITY INTERESTS
|
|
|
472 |
|
|
|
375 |
|
|
|
|
|
|
|
|
Capital stock
|
|
|
2,857 |
|
|
|
2,610 |
|
Additional paid-in capital
|
|
|
21,594 |
|
|
|
21,215 |
|
Retained earnings, fair value and other reserves
|
|
|
(13,558 |
) |
|
|
(14,241 |
) |
Unrealized holding gains (losses) and cash flow hedge
|
|
|
36 |
|
|
|
82 |
|
Cumulative translation adjustments
|
|
|
(554 |
) |
|
|
(1,116 |
) |
Less treasury stock, at cost
|
|
|
(1,656 |
) |
|
|
(1,686 |
) |
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
8,719 |
|
|
|
6,864 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
24,184 |
|
|
|
23,888 |
|
|
|
|
|
|
|
|
|
|
(1) |
The notes mandatorily redeemable for shares previously reflected
between the total non-current liabilities and the minority
interests captions have been reclassified within the caption
total non-current liabilities. |
F-135
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(5) |
Statement of changes in shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional | |
|
|
|
Minimun | |
|
holding | |
|
Cash | |
|
Cumulative | |
|
Treasury | |
|
Net | |
|
|
|
|
Capital | |
|
paid-in | |
|
Retained | |
|
liability | |
|
gains/ | |
|
flow | |
|
translation | |
|
stock at | |
|
income | |
|
Shareholders | |
|
|
stock | |
|
capital | |
|
earnings | |
|
adjustment | |
|
(losses) | |
|
hedge | |
|
adjustment | |
|
cost | |
|
(loss) | |
|
equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Balance at December 31, 2004 after appropriation
|
|
|
2,610 |
|
|
|
21,215 |
|
|
|
(13,878 |
) |
|
|
(363 |
) |
|
|
82 |
|
|
|
|
|
|
|
(1,116 |
) |
|
|
(1,686 |
) |
|
|
|
|
|
|
6,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital increase
|
|
|
5 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Capital increase linked to the repayment of the notes
mandatorily redeemable for shares (Orane)
|
|
|
242 |
|
|
|
403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
645 |
|
Net change in treasury stock Ordinary shares owned by
consolidated subsidiaries
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
(7 |
) |
Net changes in cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Net changes in unrealized holding gains/(losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48 |
) |
Minimum liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138 |
) |
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
562 |
|
|
|
|
|
|
|
|
|
|
|
562 |
|
Other changes
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
763 |
|
|
|
763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 before appropriation
|
|
|
2,857 |
|
|
|
21,594 |
|
|
|
(13,820 |
) |
|
|
(501 |
) |
|
|
34 |
|
|
|
2 |
|
|
|
(554 |
) |
|
|
(1,656 |
) |
|
|
763 |
|
|
|
8,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposed appropriation of net income (loss)
|
|
|
|
|
|
|
|
|
|
|
534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(763 |
) |
|
|
(229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 after appropriation
|
|
|
2,857 |
|
|
|
21,594 |
|
|
|
(13,286 |
) |
|
|
(501 |
) |
|
|
34 |
|
|
|
2 |
|
|
|
(554 |
) |
|
|
(1,656 |
) |
|
|
|
|
|
|
8,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-136
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 42 Specific U.S. GAAP
disclosures
|
|
(1) |
Impairment of goodwill (Disclosure SFAS 142) |
The changes during 2005 in the carrying value of goodwill per
segment are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
Mobile | |
|
Private | |
|
|
|
Total | |
|
|
communications | |
|
communications | |
|
communications | |
|
Other | |
|
group | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euro) | |
Balance as of January 1, 2004
|
|
|
4,026 |
|
|
|
401 |
|
|
|
2,384 |
|
|
|
20 |
|
|
|
6,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired during year
|
|
|
|
|
|
|
183 |
|
|
|
29 |
|
|
|
|
|
|
|
212 |
|
Goodwill adjusted during allocation period
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Impairment losses
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(4 |
) |
Goodwill written off related to sale or discontinuance of
business
|
|
|
(10 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
(17 |
) |
Currency translation adjustments
|
|
|
(112 |
) |
|
|
(16 |
) |
|
|
(64 |
) |
|
|
(2 |
) |
|
|
(194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2004
|
|
|
3,904 |
|
|
|
569 |
|
|
|
2,341 |
|
|
|
15 |
|
|
|
6,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired during year
|
|
|
30 |
|
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
140 |
|
Goodwill adjusted during allocation period
|
|
|
|
|
|
|
9 |
|
|
|
(6 |
) |
|
|
|
|
|
|
3 |
|
Impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill written off related to sale or discontinuance of
business
|
|
|
|
|
|
|
|
|
|
|
(343 |
) |
|
|
|
|
|
|
(343 |
) |
Currency translation adjustments and other
|
|
|
853 |
|
|
|
(30 |
) |
|
|
(430 |
) |
|
|
2 |
|
|
|
395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2005
|
|
|
4,787 |
|
|
|
548 |
|
|
|
1,672 |
|
|
|
17 |
|
|
|
7,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of identifiable intangible assets acquired
|
|
|
Entities acquired during the year |
|
|
|
|
|
|
|
|
|
|
|
Gross carrying | |
|
Accumulated | |
|
|
amount | |
|
amortization | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
Amortized intangible assets
|
|
|
27 |
|
|
|
(17 |
) |
Acquired technology and in process research and
development
|
|
|
11 |
|
|
|
(7 |
) |
Other
|
|
|
16 |
|
|
|
(10 |
) |
Unamortized intangible assets
|
|
|
|
|
|
|
|
|
The amortization expense of entities acquired during the year
was
9 million.
Amortization expense of intangible assets is expected to be
3 million
in 2006 and
2 millions
in 2007, 2008 and 2009.
|
|
|
|
|
|
|
|
|
|
|
Gross carrying | |
|
Accumulated | |
|
|
amount | |
|
amortization | |
|
|
| |
|
| |
|
|
(in millions of euros) | |
Amortized intangible assets
|
|
|
1,444 |
|
|
|
(809 |
) |
Acquired technology
|
|
|
294 |
|
|
|
(203 |
) |
Other(a)
|
|
|
1,150 |
|
|
|
(606 |
) |
Unamortized intangible
assets(b)
|
|
|
44 |
|
|
|
|
|
F-137
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(a) |
|
mainly software development costs. |
|
(b) |
|
intangible assets related to the application of SFAS 87
(see note 42 (5) a) |
The amortization expense for the year ended December 31,
2005 was
257 million.
Amortization expense of intangible assets excluding intangibles
assets related to the application of SFAS 87 is expected to
236 million
in 2006,
216 million
in 2007,
152 million
in 2008,
18 million
in 2009,
9 million
in 2010 and
3 million
in 2011.
|
|
(2) |
Stock-based compensation (disclosure SFAS 123 and
SFAS 148) |
From 1996 to 2005, Alcatel adopted stock option incentive plans
(see note 23).
The following information is disclosed according to the
Statement of Financial Accounting Standard No. 123
Accounting for Stock-Based Compensation
(SFAS 123) and relates to the plans adopted in
1999 through 2005:
Since 2004, the fair value of options at grant date has been
determined using a binomial method (Cox-Ross-Rubinstein model).
This allows behavioral factors governing the exercise of
stock-options to be taken into consideration and to consider
that all options will not be systematically exercised by the end
of the exercise period. The fair values at grant date of options
granted during the years 2003, 2002 and 1999 have been estimated
using the Black Scholes model and a stochastic model for the
2000 and 2001 plans, each with the following characteristics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
1999 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Interest rate
|
|
|
3.50% |
|
|
|
3.91% |
|
|
|
3.62% |
|
|
|
3.80% |
|
|
|
5% |
|
|
|
5% |
|
|
|
6%(a) |
|
Expected life
|
|
|
3-8 years |
|
|
|
3-8 years |
|
|
|
3-8 years |
|
|
|
3-8 years |
|
|
|
3-9 years |
|
|
|
5-10 years |
|
|
|
5 years |
|
Expected volatility
|
|
|
40% |
|
|
|
40% |
|
|
|
60% |
|
|
|
60% |
|
|
|
(c) |
|
|
|
(b) |
|
|
|
39% |
|
Expected dividends
|
|
|
(e) |
|
|
|
(d) |
|
|
|
1% |
|
|
|
1% |
|
|
|
1% |
|
|
|
1% |
|
|
|
1% |
|
|
|
|
(a) |
|
USD rates, concern mainly U.S. plans |
|
(b) |
|
73% for Alcatel Class O shares, 64% for Class A
shares, 51% for ADS. |
|
(c) |
|
50% for Alcatel Class O shares, 46% for Class A
shares, 46% for ADS. |
|
(d) |
|
0% in 2004 and 2005, 1% for later years |
|
(e) |
|
0% in 2005, 1% for later years |
The models used to calculate option values were developed to
estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ
from the Groups stock option awards. These models are very
sensitive as to the stock price volatility assumptions.
Accordingly, management believes that these valuation models do
not necessarily provide a reliable single measure of the fair
value of the Groups stock option awards.
The Group continues to apply the accounting method prescribed by
APB Opinion No. 25 Accounting for Stock Issued to
Employees.
F-138
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table discloses the pro forma net income and
earnings per share, as if the fair value based accounting method
had been used to account for stock-based compensation cost:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros except | |
|
|
per share data) | |
Net income (loss) as reported
|
|
|
763 |
|
|
|
550 |
|
Stock-based employee compensation expense included in reported
net income, net of tax
|
|
|
|
|
|
|
|
|
Stock-based employee compensation expense determined under fair
value based method for all awards, net of tax
|
|
|
(168 |
) |
|
|
(350 |
) |
|
|
|
|
|
|
|
Proforma net income (loss)
|
|
|
595 |
|
|
|
200 |
|
|
|
|
|
|
|
|
Basic earnings per ordinary share as reported
|
|
|
0.56 |
|
|
|
0.45 |
|
Basic earnings per ordinary share proforma
|
|
|
0.43 |
|
|
|
0.16 |
|
Diluted earnings per ordinary share as reported
|
|
|
0.55 |
|
|
|
0.42 |
|
Diluted earnings per ordinary share proforma
|
|
|
0.43 |
|
|
|
0.16 |
|
|
|
(3) |
Restructuring (SFAS 146) |
Under IFRS, as disclosed in note 1(j), the Group records
restructuring reserves when the restructuring programs have been
finalized and approved by the Groups management and have
been announced before the balance sheet date of the Groups
financial statements. Under U.S. GAAP, the Group records
restructuring as disclosed in note 39(d).
The impact of this U.S. GAAP adjustment for the years ended
December 31, 2005 and 2004 respectively is as follows:
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
Current | |
|
|
|
translation | |
|
|
|
|
December 31, | |
|
year | |
|
|
|
adjustments | |
|
December 31, | |
|
|
2004 | |
|
expense | |
|
Utilization | |
|
and others | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Restructuring reserve according to IFRS
|
|
|
692 |
|
|
|
132 |
|
|
|
(414 |
) |
|
|
7 |
|
|
|
417 |
|
Moving costs
|
|
|
(16 |
) |
|
|
8 |
|
|
|
|
|
|
|
1 |
|
|
|
(7 |
) |
Lease obligations and other direct costs
|
|
|
(33 |
) |
|
|
3 |
|
|
|
|
|
|
|
(3 |
) |
|
|
(33 |
) |
Termination costs in excess of legal obligations
|
|
|
(61 |
) |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
(20 |
) |
Total U.S. GAAP adjustment
|
|
|
(110 |
) |
|
|
52 |
|
|
|
|
|
|
|
(2 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve according to U.S.GAAP
|
|
|
582 |
|
|
|
184 |
* |
|
|
(414 |
) |
|
|
5 |
|
|
|
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which related to plan initiated after December 31,
2002 (see detail in SFAS 146 disclosure)
|
|
|
379 |
|
|
|
187 |
|
|
|
(303 |
) |
|
|
(7 |
) |
|
|
256 |
|
|
|
* |
Total restructuring costs according to U.S. GAAP were
174 million
and in addition, a finance cost of
10 million
was recorded in interest income and other financial income
net for the amount related to reversing the discount
element included in restructuring reserves. |
F-139
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The current year expense recorded in 2005 includes the following
major actions:
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
(in millions of euros) | |
Termination costs in Alcatel-CIT (France)
|
|
|
45 |
|
Reorganization and termination costs for Alcatel Space
and Alcatel Space Alenia
|
|
|
17 |
|
Termination costs in Alcatel Espana S.A. (Spain)
|
|
|
18 |
|
Italy
|
|
|
12 |
|
Closure of Illkirch (France)
|
|
|
18 |
|
Termination costs in Germany and closure of Stuttgart
optics factory
|
|
|
25 |
|
Reorganization, outsourcing and termination costs in USA
|
|
|
10 |
|
Other plans in the world
|
|
|
39 |
|
|
|
|
|
Total
|
|
|
184 |
|
|
|
|
|
The reserve at the end of 2005 is analyzed below:
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
(in millions of euros) | |
Employee termination benefits
|
|
|
258 |
|
Other costs
|
|
|
99 |
|
|
|
|
|
Total
|
|
|
357 |
|
|
|
|
|
The remaining
258 million
reserve for employee termination benefits at December 31,
2005 includes approximately 2,356 employees representing:
|
|
|
|
|
|
|
Number of | |
|
|
employees | |
|
|
| |
Termination costs in Alcatel-CIT (France)
|
|
|
468 |
|
Downsizing of Submarine Networks Division
|
|
|
140 |
|
Termination costs in Alcatel Espana S.A. (Spain)
|
|
|
65 |
|
Reorganization of Space Division: termination mainly in
France and Belgium
|
|
|
599 |
|
Termination costs in other European units (UK, Belgium,
Portugal, AT Nordics)
|
|
|
293 |
|
Termination costs in Germany and closure of Stuttgart
optics factory
|
|
|
383 |
|
Closure of Illkirch industrial activity
|
|
|
66 |
|
Reorganization, outsourcing and termination costs in
North American plants (U.S. and Canada)
|
|
|
45 |
|
Other plans in the world
|
|
|
297 |
|
|
|
|
|
Total
|
|
|
2,356 |
|
|
|
|
|
F-140
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
SFAS 146 disclosure related to plans initiated after
December 31, 2002: |
The evolution of the restructuring reserve under U.S. GAAP
during the year ended December 31, 2005 for the plans
initiated after December 31, 2002, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs paid | |
|
|
|
|
|
|
December 31, | |
|
Charged to | |
|
or settled | |
|
CTA and | |
|
December 31, | |
|
|
2004 | |
|
expense | |
|
(utilization) | |
|
other | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euro) | |
Alcatel-CIT
|
|
|
94 |
|
|
|
42 |
|
|
|
(86 |
) |
|
|
(2 |
) |
|
|
48 |
|
Alcatel Espana S.A. (Spain)
|
|
|
24 |
|
|
|
18 |
|
|
|
(25 |
) |
|
|
|
|
|
|
17 |
|
Submarine Networks Division
|
|
|
42 |
|
|
|
9 |
|
|
|
(26 |
) |
|
|
2 |
|
|
|
27 |
|
Space division
|
|
|
10 |
|
|
|
15 |
|
|
|
(3 |
) |
|
|
(6 |
) |
|
|
16 |
|
Germany
|
|
|
90 |
|
|
|
35 |
|
|
|
(41 |
) |
|
|
1 |
|
|
|
85 |
|
Italy
|
|
|
|
|
|
|
15 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
Alcatel USA
|
|
|
27 |
|
|
|
11 |
|
|
|
(25 |
) |
|
|
1 |
|
|
|
14 |
|
Illkirch
|
|
|
45 |
|
|
|
15 |
|
|
|
(41 |
) |
|
|
(5 |
) |
|
|
14 |
|
Other (no individual amount higher than
50 million)
|
|
|
47 |
|
|
|
27 |
|
|
|
(41 |
) |
|
|
2 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
379 |
|
|
|
187 |
|
|
|
(303 |
) |
|
|
(7 |
) |
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination benefits
|
|
|
262 |
|
|
|
170 |
|
|
|
(243 |
) |
|
|
|
|
|
|
189 |
|
Contract terminations
|
|
|
22 |
|
|
|
6 |
|
|
|
(9 |
) |
|
|
3 |
|
|
|
22 |
|
Other associated costs
|
|
|
95 |
|
|
|
11 |
|
|
|
(51 |
) |
|
|
(10 |
) |
|
|
45 |
|
The major type of costs associated with the exit or disposal
activities initiated after December 31, 2002 and the
information by reportable segment are the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
amount | |
|
|
|
|
Amount | |
|
incurred as of | |
|
|
Total amount | |
|
incurred in | |
|
December 31, | |
Plans initiated in 2005 |
|
expected | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Termination benefits
|
|
|
94 |
|
|
|
88 |
|
|
|
88 |
|
Contract terminations
|
|
|
9 |
|
|
|
9 |
|
|
|
9 |
|
Other associated costs
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
104 |
|
|
|
98 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
16 |
|
|
|
16 |
|
|
|
16 |
|
Mobile Communications Group
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
Private Communications Group
|
|
|
33 |
|
|
|
27 |
|
|
|
27 |
|
Other
|
|
|
53 |
|
|
|
53 |
|
|
|
53 |
|
F-141
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2005, there is no plan exceeding
20 million
individually. The major actions were taken in Spain, Italy, and
France (mainly in the Space activities).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
amount | |
|
|
|
|
Amount | |
|
Amount | |
|
incurred as of | |
|
|
Total amount | |
|
incurred in | |
|
incurred in | |
|
December 31, | |
Plans initiated in 2004 |
|
expected | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Termination benefits
|
|
|
82 |
|
|
|
74 |
|
|
|
5 |
|
|
|
79 |
|
Contract terminations
|
|
|
11 |
|
|
|
32 |
|
|
|
(1 |
) |
|
|
31 |
|
Other associated costs
|
|
|
24 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
117 |
|
|
|
111 |
|
|
|
3 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
31 |
|
|
|
27 |
|
|
|
4 |
|
|
|
31 |
|
Mobile Communications Group
|
|
|
4 |
|
|
|
4 |
|
|
|
1 |
|
|
|
5 |
|
Private Communications Group
|
|
|
16 |
|
|
|
14 |
|
|
|
1 |
|
|
|
15 |
|
Other
|
|
|
66 |
|
|
|
66 |
|
|
|
(3 |
) |
|
|
63 |
|
The major exit activities initiated during 2004, and their
impact in 2004 and 2005 are the following:
|
|
|
Alcatel España S.A. (Spain) restructuring plan |
In order to further reduce its fixed costs basis, Alcatel
España S.A decided in the fourth quarter of 2004 to extend
the 2003 collective plan (see below). This extension was focused
on employees with high compensation costs and affects 130
employees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
amount | |
|
|
|
|
Amount | |
|
Amount | |
|
incurred as of | |
|
|
Total amount | |
|
incurred in | |
|
incurred in | |
|
December 31, | |
Plans initiated in 2004 |
|
expected | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Termination benefits
|
|
|
25 |
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
Contract terminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other associated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25 |
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
Mobile Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Communications Group
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Other
|
|
|
19 |
|
|
|
19 |
|
|
|
|
|
|
|
19 |
|
F-142
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Alcatel USA exit activities |
Due to a shift in the Access market, Alcatel USA engaged in a
plan to discontinue the 7201 product line. The discontinuation
of this activity resulted in costs related to unused fixed
assets, contract manufacturing liabilities and the closure of
part of the Petaluma, CA facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
amount | |
|
|
|
|
Amount | |
|
Amount | |
|
incurred as of | |
|
|
Total amount | |
|
incurred in | |
|
incurred in | |
|
December 31, | |
Plans initiated in 2004 |
|
expected | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Termination benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract terminations
|
|
|
11 |
|
|
|
11 |
|
|
|
(2 |
) |
|
|
9 |
|
Other associated costs
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17 |
|
|
|
17 |
|
|
|
(2 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
13 |
|
|
|
13 |
|
|
|
(1 |
) |
|
|
12 |
|
Mobile Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Communications Group
|
|
|
3 |
|
|
|
3 |
|
|
|
(1 |
) |
|
|
2 |
|
Other
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
|
|
amount | |
|
|
|
|
Amount | |
|
Amount | |
|
Amount | |
|
incurred as of | |
|
|
Total amount | |
|
incurred in | |
|
incurred in | |
|
incurred in | |
|
December 31, | |
Plans initiated in 2003 |
|
expected | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Termination benefits
|
|
|
912 |
|
|
|
690 |
|
|
|
185 |
|
|
|
79 |
|
|
|
954 |
|
Contract terminations
|
|
|
60 |
|
|
|
58 |
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
53 |
|
Other associated costs
|
|
|
85 |
|
|
|
66 |
|
|
|
55 |
|
|
|
10 |
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,057 |
|
|
|
814 |
|
|
|
237 |
|
|
|
87 |
|
|
|
1,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
595 |
|
|
|
497 |
|
|
|
46 |
|
|
|
54 |
|
|
|
597 |
|
Mobile Communications Group
|
|
|
127 |
|
|
|
77 |
|
|
|
65 |
|
|
|
20 |
|
|
|
162 |
|
Private Communications Group
|
|
|
245 |
|
|
|
202 |
|
|
|
68 |
|
|
|
19 |
|
|
|
289 |
|
Other
|
|
|
90 |
|
|
|
38 |
|
|
|
58 |
|
|
|
(6 |
) |
|
|
90 |
|
The figures in the above table do not include plans initiated in
2003 for companies that are no longer consolidated.
The major exit activities initiated during 2003 and their impact
in 2003, 2004 and 2005 are as follows:
|
|
|
Alcatel-CIT restructuring Plan |
Due to the downturn in the telecom market, and more
specifically, the domestic French market, Alcatel CIT had to
reduce its cost base to remain competitive. In January 2003,
Alcatel CIT management signed an agreement with French unions
called accord de méthode, corresponding to the
overcapacity of more than 1,000 people.
CIT had to reduce its resources in Fixed networks, given on the
one hand, the maturity of voice activities and
reduction of new functionalities requested by operators, and on
the other hand, the reduced
F-143
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
R&D efforts and necessary resources. Reduction in Wireline
Transmission was due to decreased activities mostly related to
reduced SDH business (high capacity transmission). Terrestrial
Transmission was hit by the drop in sales as a consequence of
the overall market downturn, impacting mostly marketing and
operation resources. The research division was penalized by a
sharp activity downturn, particularly in Optics.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
|
|
amount | |
|
|
|
|
Amount | |
|
Amount | |
|
Amount | |
|
incurred as of | |
|
|
Total amount | |
|
incurred in | |
|
incurred in | |
|
incurred in | |
|
December 31, | |
Plans initiated in 2003 |
|
expected | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Termination benefits
|
|
|
431 |
|
|
|
262 |
|
|
|
134 |
|
|
|
42 |
|
|
|
438 |
|
Contract terminations
|
|
|
2 |
|
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
6 |
|
Other associated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
433 |
|
|
|
263 |
|
|
|
139 |
|
|
|
42 |
|
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
243 |
|
|
|
168 |
|
|
|
44 |
|
|
|
15 |
|
|
|
227 |
|
Mobile Communications Group
|
|
|
117 |
|
|
|
60 |
|
|
|
64 |
|
|
|
21 |
|
|
|
145 |
|
Private Communications Group
|
|
|
47 |
|
|
|
30 |
|
|
|
15 |
|
|
|
6 |
|
|
|
51 |
|
Other
|
|
|
26 |
|
|
|
5 |
|
|
|
16 |
|
|
|
|
|
|
|
21 |
|
|
|
|
Alcatel España S.A. (Spain) restructuring
plan: |
Due to the overall downsizing of the market affecting Europe and
the local competition in prices (particularly fixed networks
products), Alcatel España had to reduce its cost base to
remain competitive in the local environment.
Starting mid 2002, the production of wireline access products at
the Toledo site was outsourced in order to address the general
downturn in the telecommunication market and to allow more
flexibility. In addition, Alcatel management decided to
concentrate the production of switching products since several
production sites were operating in Europe below capacity. The
switching production at the Villaverde site was stopped and the
remaining volume was transferred to Germany.
In March 2003, a new plan was launched with the goal of
centralizing functions of the entire Alcatel España
organization. This plan eliminated much duplication in several
functions and allowed a greater use of the resources. As a
consequence, the Villaverde site was closed and all the
employees working at this site were moved to the central office
in Ramirez del Prado. In total, approximately 460 persons were
covered under this reorganization and restructuring plan.
F-144
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In November 2003, an extension to the collective plan was
negotiated with the unions to cover a downsizing of the
activities of the Integration and Service Division.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
|
|
amount | |
|
|
|
|
Amount | |
|
Amount | |
|
Amount | |
|
incurred as of | |
|
|
Total amount | |
|
incurred in | |
|
incurred in | |
|
incurred in | |
|
December 31, | |
Plans initiated in 2003 |
|
expected | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Termination benefits
|
|
|
86 |
|
|
|
84 |
|
|
|
8 |
|
|
|
|
|
|
|
92 |
|
Contract terminations
|
|
|
2 |
|
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
|
4 |
|
Other associated costs
|
|
|
9 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
97 |
|
|
|
92 |
|
|
|
11 |
|
|
|
1 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
60 |
|
|
|
66 |
|
|
|
3 |
|
|
|
|
|
|
|
69 |
|
Mobile Communications Group
|
|
|
3 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Private Communications Group
|
|
|
11 |
|
|
|
20 |
|
|
|
5 |
|
|
|
|
|
|
|
25 |
|
Other
|
|
|
23 |
|
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
|
4 |
|
|
|
|
Submarine Networks Division restructuring plan |
After two years of strong growth within the submarine industry,
the market collapsed in 2001. Alcatels submarine worldwide
sales decreased from
1.8 billion
in 2001 to
0.5 billion
in 2002 and
0.2 billion
in 2003. Most of the operators in the submarine market filed for
Chapter 11 protection, suspended payments, cancelled their
contracts or asked for re-negotiation of the contract terms.
In order to face this very difficult situation, the French
locations were re-organized and a social plan was implemented
with a specific announcement in 2003. Given strong product
synergies with terrestrial optical systems, the production for
new generation submarine systems were made in the factories for
optical terrestrial systems. The production of cables in France
was significantly recast to the future market requirements.
Due to a general overcapacity on the wet maintenance market and
accelerated by contract terminations, a restructuring plan of
the maintenance fleet was decided by management in the second
half of 2003 aiming at
F-145
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reducing the vessel fleet from eight to six. The restructuring
covers mainly the termination of the charter of one of the
vessels as well as a write-off of another vessel.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
|
|
amount | |
|
|
Total | |
|
Amount | |
|
Amount | |
|
Amount | |
|
incurred as of | |
|
|
amount | |
|
incurred in | |
|
incurred in | |
|
incurred in | |
|
December 31, | |
Plans initiated in 2003 |
|
expected | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Termination benefits
|
|
|
78 |
|
|
|
66 |
|
|
|
9 |
|
|
|
6 |
|
|
|
81 |
|
Contract terminations
|
|
|
10 |
|
|
|
14 |
|
|
|
(4 |
) |
|
|
|
|
|
|
10 |
|
Other associated costs
|
|
|
20 |
|
|
|
20 |
|
|
|
|
|
|
|
(4 |
) |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
108 |
|
|
|
100 |
|
|
|
5 |
|
|
|
2 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
108 |
|
|
|
100 |
|
|
|
5 |
|
|
|
2 |
|
|
|
107 |
|
Mobile Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization of Space Division: |
In 2001 and 2002, the satellite market suffered from a large
market downturn, which led to overcapacities in Alcatel Space
and other main competitors in this industry.
Starting 2003, collective social plans were launched in France
and in Belgium.
To further resolve the overcapacity issues, it was also decided
to close the Norway and Denmark subsidiaries and to transfer the
workload to France.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
|
|
amount | |
|
|
Total | |
|
Amount | |
|
Amount | |
|
Amount | |
|
incurred as of | |
|
|
amount | |
|
incurred in | |
|
incurred in | |
|
incurred in | |
|
December 31, | |
Plans initiated in 2003 |
|
expected | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Termination benefits
|
|
|
54 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
54 |
|
Contract terminations
|
|
|
10 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Other associated costs
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
64 |
|
|
|
64 |
|
|
|
3 |
|
|
|
|
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Communications Group
|
|
|
64 |
|
|
|
64 |
|
|
|
3 |
|
|
|
|
|
|
|
67 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring plan in Germany: |
Due to considerable technological changes and a serious
reduction in the digital switching market, employment levels in
Switching (particularly in installation/deployment) were sharply
decreasing in 2002 and 2003. Besides, due to a worldwide flat
demand in Optical transmission systems from 2001 onwards, the
F-146
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Optics factory in Stuttgart could no longer be sustained for
economic reasons. Voluntary leave and a reduction in working
time in the first three quarters in 2003 were not sufficient as
restructuring measures.
At the end of November 2003, a new restructuring plan was
launched. Main activities impacted were Switching (where Germany
is one of the production units), Optical Transmission Systems
(mainly manufacturing activities) and general administration.
In 2004 and 2005, new actions (outsourcing of optical activities
and new voluntary departures) were implemented, giving rise to
additional costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
|
|
amount | |
|
|
Total | |
|
Amount | |
|
Amount | |
|
Amount | |
|
incurred as of | |
|
|
amount | |
|
incurred in | |
|
incurred in | |
|
incurred in | |
|
December 31, | |
Plans initiated in 2003 |
|
expected | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Termination benefits
|
|
|
62 |
|
|
|
54 |
|
|
|
|
|
|
|
26 |
|
|
|
80 |
|
Contract terminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other associated costs
|
|
|
17 |
|
|
|
11 |
|
|
|
28 |
|
|
|
9 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
79 |
|
|
|
65 |
|
|
|
28 |
|
|
|
35 |
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
79 |
|
|
|
65 |
|
|
|
28 |
|
|
|
35 |
|
|
|
129 |
|
Mobile Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of Illkirch industrial activity: |
Beginning July 2001, Alcatel restructured its industrial
activities related to the production of GSM terminals at the
Illkirch site. At first, the site was converted to the
manufacture of opto-electronic components. However, when the
components market collapsed, Alcatel opted to seek industrial
work outside its own activities (Intraprise project).
As no significant workload could be found, Alcatel management
announced in November 2003 the closing of the Illkirch
Industries Division.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
|
|
amount | |
|
|
Total | |
|
Amount | |
|
Amount | |
|
Amount | |
|
incurred as of | |
|
|
amount | |
|
incurred in | |
|
incurred in | |
|
incurred in | |
|
December 31, | |
|
|
expected | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Termination benefits
|
|
|
88 |
|
|
|
68 |
|
|
|
20 |
|
|
|
|
|
|
|
88 |
|
Contract terminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other associated costs
|
|
|
16 |
|
|
|
|
|
|
|
16 |
|
|
|
6 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
104 |
|
|
|
68 |
|
|
|
36 |
|
|
|
6 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Communications Group
|
|
|
104 |
|
|
|
68 |
|
|
|
36 |
|
|
|
6 |
|
|
|
110 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-147
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2004:
The impact of the U.S. GAAP adjustment for the year ended
December 31, 2004 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
Current | |
|
|
|
translation | |
|
|
|
|
December 31, | |
|
year | |
|
|
|
adjustments | |
|
December, 31, | |
|
|
2003 | |
|
expense | |
|
Utilization | |
|
and others | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Restructuring reserve according to IFRS
|
|
|
1,084 |
|
|
|
334 |
|
|
|
(606 |
) |
|
|
(120 |
) |
|
|
692 |
|
Consolidation of discontinued activities
|
|
|
|
|
|
|
3 |
|
|
|
(37 |
) |
|
|
34 |
|
|
|
|
|
Moving costs
|
|
|
(14 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
Lease obligations and other direct costs
|
|
|
(58 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
(33 |
) |
Termination costs in excess of legal obligation
|
|
|
(148 |
) |
|
|
86 |
|
|
|
|
|
|
|
1 |
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. GAAP adjustment
|
|
|
(220 |
) |
|
|
97 |
|
|
|
(37 |
) |
|
|
50 |
|
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve according to U.S. GAAP
|
|
|
864 |
|
|
|
431 |
|
|
|
(643 |
) |
|
|
(70 |
) |
|
|
582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which related to plan initiated after December 31,
2002 (see detail in SFAS 146 disclosure)
|
|
|
409 |
|
|
|
349 |
|
|
|
(384 |
) |
|
|
5 |
|
|
|
379 |
|
The current year expense recorded in 2004 included the following
major actions:
|
|
|
|
|
|
|
2004 | |
|
|
| |
Termination costs in Alcatel-CIT (France)
|
|
|
144 |
|
Termination costs in Alcatel Espana S.A. (Spain)
|
|
|
36 |
|
Termination costs in other European units (UK, Belgium,
Portugal, AT Nordics)
|
|
|
31 |
|
Termination costs in Germany and closure of Stuttgart
optics factory
|
|
|
65 |
|
Closure of Illkirch industrial activity
|
|
|
43 |
|
Reorganization, outsourcing and termination costs in
North American plants (U.S. and Canada)
|
|
|
38 |
|
Other plans in the world
|
|
|
74 |
|
|
|
|
|
Total
|
|
|
431 |
|
|
|
|
|
The reserve at the end of 2004 is analyzed below:
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
(in millions | |
|
|
of euros) | |
Employee termination benefits
|
|
|
405 |
|
Other costs
|
|
|
177 |
|
|
|
|
|
Total
|
|
|
582 |
|
|
|
|
|
F-148
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The remaining
405 million
reserve for employee termination benefits at December 31,
2004 included approximately 3,627 employees representing:
|
|
|
|
|
|
|
Number of | |
|
|
employees | |
|
|
| |
Termination costs in Alcatel-CIT (France)
|
|
|
583 |
|
Downsizing of Submarine Networks Division
|
|
|
138 |
|
Termination costs in Alcatel Espana S.A. (Spain)
|
|
|
124 |
|
Reorganization of Space Division: Termination mainly in
France and Belgium
|
|
|
443 |
|
Termination costs in other European units (UK, Belgium,
Portugal, AT Nordics)
|
|
|
299 |
|
Termination costs in Germany and closure of Stuttgart
optics factory
|
|
|
925 |
|
Closure of Illkirch industrial activity
|
|
|
293 |
|
Reorganization, outsourcing and termination costs in
North American plants (U.S. and Canada)
|
|
|
365 |
|
Other plans in the world
|
|
|
457 |
|
|
|
|
|
Total
|
|
|
3,627 |
|
|
|
|
|
|
|
(4) |
Pension and post-retirement benefits other than pension
plans |
In accordance with the laws and customs of each country, the
Group provides to its employees pensions plans, medical
insurance and reimbursement of medical expenses. In France,
Group employees benefit from a retirement indemnity plan. In
other countries, the plans depend upon local legislation, the
business and the historical practice of the subsidiary concerned.
Disclosures in accordance with FASB Statement No. 132
(Revised) Employers Disclosures about Pensions and other
Post-Retirement
Benefits are as follows:
a) Pensions and retirement
indemnities
Pensions and retirement obligations are determined in accordance
with the accounting principles presented in note 1k.
|
|
|
Assumptions for the calculation |
Discount rates are determined by reference to risk-free rates on
bonds issued by the highest-rated companies, and possibly
government securities when no such issuers exist, of appropriate
duration at the measurement date of each plan. Expected returns
on assets are based on the expected rate of return on plan
assets (calculated taking into account historic returns, asset
allocation and expected future returns). They are both defined
centrally to achieve consistency in same monetary areas. Each
company within Alcatel has the responsibility of determining its
set of local assumptions such as withdrawal rate and salary
increase rates to take into account specific local conditions.
The assumptions for 2005 and 2004 are as follows (the rates
indicated are weighted average rates):
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
Year ended | |
|
|
December 31, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
Discount rate
|
|
|
3.95 |
% |
|
|
4.46 |
% |
Future salary increases
|
|
|
3.34 |
% |
|
|
3.52 |
% |
Average residual active life
|
|
|
15-27 years |
|
|
|
15-27 years |
|
Amortization period of transition obligation
|
|
|
15 years |
|
|
|
15 years |
|
F-149
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Fiscal year | |
|
Fiscal year | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Expected long-term return on assets
|
|
|
4.28 |
% |
|
|
4.70 |
% |
Split between domestic and foreign is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
Year ended | |
|
|
December 31, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Domestic | |
|
Foreign | |
|
Domestic | |
|
Foreign | |
|
|
| |
|
| |
|
| |
|
| |
Discount rate
|
|
|
3.75 |
% |
|
|
3.97 |
% |
|
|
4.32 |
% |
|
|
4.47 |
% |
Future salary increase
|
|
|
3.49 |
% |
|
|
3.32 |
% |
|
|
2.82 |
% |
|
|
3.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year | |
|
Fiscal year | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Expected long-term return on assets
|
|
|
4.27 |
% |
|
|
4.28 |
% |
|
|
4.73 |
% |
|
|
4.70 |
% |
The assumptions used for the calculation of the Projected
Benefit Obligation as of the measurement date
(December 31st) of the preceding fiscal year are used to
determine the calculation of interest rate and service cost of
the following year.
|
|
|
Pensions obligation and funded status |
A detailed reconciliation of the changes in the PBO for fiscal
year 2005 and 2004 is provided in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Total | |
|
Domestic | |
|
Foreign | |
|
Total | |
|
Domestic | |
|
Foreign | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Benefit obligation at beginning of year
|
|
|
(3,210 |
) |
|
|
(211 |
) |
|
|
(2,999 |
) |
|
|
(3,282 |
) |
|
|
(306 |
) |
|
|
(2,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
(60 |
) |
|
|
(11 |
) |
|
|
(49 |
) |
|
|
(72 |
) |
|
|
(10 |
) |
|
|
(62 |
) |
Interest cost
|
|
|
(138 |
) |
|
|
(11 |
) |
|
|
(127 |
) |
|
|
(145 |
) |
|
|
(10 |
) |
|
|
(135 |
) |
Plan participants contributions
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
Amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
(1 |
) |
|
|
47 |
|
Reclassification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business combinations
|
|
|
(87 |
) |
|
|
(33 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
72 |
|
|
|
14 |
|
|
|
58 |
|
Curtailments
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
14 |
|
|
|
7 |
|
|
|
7 |
|
Settlements
|
|
|
26 |
|
|
|
|
|
|
|
26 |
|
|
|
19 |
|
|
|
4 |
|
|
|
15 |
|
Special termination benefits
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (loss)/gain
|
|
|
(124 |
) |
|
|
(47 |
) |
|
|
(77 |
) |
|
|
(38 |
) |
|
|
88 |
|
|
|
(126 |
) |
Benefits paid
|
|
|
174 |
|
|
|
5 |
|
|
|
169 |
|
|
|
162 |
|
|
|
3 |
|
|
|
159 |
|
Other (foreign currency translation)
|
|
|
(57 |
) |
|
|
|
|
|
|
(57 |
) |
|
|
18 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
(3,476 |
) |
|
|
(307 |
) |
|
|
(3,169 |
) |
|
|
(3,210 |
) |
|
|
(211 |
) |
|
|
(2,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-150
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Total | |
|
Domestic | |
|
Foreign | |
|
Total | |
|
Domestic | |
|
Foreign | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Accumulated benefit obligation
|
|
|
(3,210 |
) |
|
|
(275 |
) |
|
|
(2,935 |
) |
|
|
(2,869 |
) |
|
|
(191 |
) |
|
|
(2,678 |
) |
Effect of salary increase
|
|
|
(266 |
) |
|
|
(32 |
) |
|
|
(234 |
) |
|
|
(341 |
) |
|
|
(20 |
) |
|
|
(321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
(3,476 |
) |
|
|
(307 |
) |
|
|
(3,169 |
) |
|
|
(3,210 |
) |
|
|
(211 |
) |
|
|
(2,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows for fiscal year 2005 and 2004 the
change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Total | |
|
Domestic | |
|
Foreign | |
|
Total | |
|
Domestic | |
|
Foreign | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Fair value of plan assets at beginning of year
|
|
|
2,084 |
|
|
|
48 |
|
|
|
2,036 |
|
|
|
2,050 |
|
|
|
58 |
|
|
|
1,992 |
|
Actual return on plan assets
|
|
|
204 |
|
|
|
6 |
|
|
|
198 |
|
|
|
143 |
|
|
|
2 |
|
|
|
141 |
|
Employers contribution
|
|
|
77 |
|
|
|
6 |
|
|
|
71 |
|
|
|
80 |
|
|
|
6 |
|
|
|
74 |
|
Plan participants contributions
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
|
|
(15 |
) |
|
|
(41 |
) |
Reclassification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business combinations
|
|
|
25 |
|
|
|
19 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
(10 |
) |
Curtailments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
(26 |
) |
|
|
|
|
|
|
(26 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
(15 |
) |
Special termination benefits/ Benefits paid
|
|
|
(114 |
) |
|
|
(5 |
) |
|
|
(109 |
) |
|
|
(104 |
) |
|
|
(3 |
) |
|
|
(101 |
) |
Other (foreign currency translation)
|
|
|
31 |
|
|
|
|
|
|
|
31 |
|
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
2,286 |
|
|
|
74 |
|
|
|
2,212 |
|
|
|
2,084 |
|
|
|
48 |
|
|
|
2,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the funded status of pension benefit plans
is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Total | |
|
Domestic | |
|
Foreign | |
|
Total | |
|
Domestic | |
|
Foreign | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Funded status
|
|
|
(1,190 |
) |
|
|
(233 |
) |
|
|
(957 |
) |
|
|
(1,126 |
) |
|
|
(163 |
) |
|
|
(963 |
) |
Unrecognized actuarial loss/(gain)
|
|
|
231 |
|
|
|
54 |
|
|
|
177 |
|
|
|
158 |
|
|
|
(15 |
) |
|
|
173 |
|
Unrecognized transition obligation
|
|
|
(0 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
Unrecognized prior service cost
|
|
|
53 |
|
|
|
|
|
|
|
53 |
|
|
|
57 |
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
|
(906 |
) |
|
|
(179 |
) |
|
|
(727 |
) |
|
|
(913 |
) |
|
|
(180 |
) |
|
|
(733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-151
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amounts recognized in the statement of financial position
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Total | |
|
Domestic | |
|
Foreign | |
|
Total | |
|
Domestic | |
|
Foreign | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Accrued
|
|
|
(1,638 |
) |
|
|
(242 |
) |
|
|
(1,396 |
) |
|
|
(1,491 |
) |
|
|
(198 |
) |
|
|
(1,293 |
) |
Prepaid
|
|
|
76 |
|
|
|
|
|
|
|
76 |
|
|
|
61 |
|
|
|
|
|
|
|
61 |
|
Intangible assets
|
|
|
44 |
|
|
|
|
|
|
|
44 |
|
|
|
44 |
|
|
|
|
|
|
|
44 |
|
Accumulated other comprehensive loss
|
|
|
612 |
|
|
|
63 |
|
|
|
549 |
|
|
|
473 |
|
|
|
18 |
|
|
|
455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount accrued for in consolidated financial
statements
|
|
|
(906 |
) |
|
|
(179 |
) |
|
|
(727 |
) |
|
|
(913 |
) |
|
|
(180 |
) |
|
|
(733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For fiscal year 2005 and 2004, the PBO, ABO and fair value of
plan assets whose ABO exceeded the fair value of plan assets at
the measurement date were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Total | |
|
Domestic | |
|
Foreign | |
|
Total | |
|
Domestic | |
|
Foreign | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Projected Benefit Obligation
|
|
|
(2,674 |
) |
|
|
(282 |
) |
|
|
(2,392 |
) |
|
|
(2,485 |
) |
|
|
(211 |
) |
|
|
(2,274 |
) |
Accumulated Benefit Obligation
|
|
|
(2,559 |
) |
|
|
(252 |
) |
|
|
(2,307 |
) |
|
|
(2,374 |
) |
|
|
(191 |
) |
|
|
(2,183 |
) |
Fair value of plan assets
|
|
|
1,102 |
|
|
|
70 |
|
|
|
1,032 |
|
|
|
962 |
|
|
|
48 |
|
|
|
914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underfunding of accumulated benefit obligation
|
|
|
(1,457 |
) |
|
|
(182 |
) |
|
|
(1,275 |
) |
|
|
(1,412 |
) |
|
|
(143 |
) |
|
|
(1,269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic pension cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Total | |
|
Domestic | |
|
Foreign | |
|
Total | |
|
Domestic | |
|
Foreign | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Components of net periodic cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
(60 |
) |
|
|
(11 |
) |
|
|
(49 |
) |
|
|
(72 |
) |
|
|
(10 |
) |
|
|
(62 |
) |
Interest cost
|
|
|
(138 |
) |
|
|
(11 |
) |
|
|
(127 |
) |
|
|
(145 |
) |
|
|
(10 |
) |
|
|
(135 |
) |
Expected return on plan assets
|
|
|
93 |
|
|
|
3 |
|
|
|
90 |
|
|
|
97 |
|
|
|
2 |
|
|
|
95 |
|
Amortization of transition obligation
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Amortization of prior service cost
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
Amortization of recognized actuarial gain/(loss)
|
|
|
11 |
|
|
|
1 |
|
|
|
10 |
|
|
|
14 |
|
|
|
1 |
|
|
|
13 |
|
Effect of curtailments
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
39 |
|
|
|
4 |
|
|
|
35 |
|
Effect of settlements
|
|
|
(6 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
(6 |
) |
Special termination benefits
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
(103 |
) |
|
|
(16 |
) |
|
|
(87 |
) |
|
|
(76 |
) |
|
|
(13 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual cost under IFRS for pension benefits plans is
93 million
and
104 million
for the years ended December 31, 2005 and 2004,
respectively.
F-152
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Plan assets are invested as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private and | |
|
Equity | |
|
Short-term | |
|
Property | |
|
|
|
|
public bonds | |
|
securities | |
|
investments | |
|
assets | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions of euros and percentage) | |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
21 |
|
|
|
44 |
% |
|
|
18 |
|
|
|
37 |
% |
|
|
9 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
100 |
% |
Foreign
|
|
|
823 |
|
|
|
41 |
% |
|
|
537 |
|
|
|
26 |
% |
|
|
364 |
|
|
|
18 |
% |
|
|
312 |
|
|
|
15 |
% |
|
|
2,036 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
844 |
|
|
|
40 |
% |
|
|
555 |
|
|
|
27 |
% |
|
|
373 |
|
|
|
18 |
% |
|
|
312 |
|
|
|
15 |
% |
|
|
2,084 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
47 |
|
|
|
64 |
% |
|
|
23 |
|
|
|
31 |
% |
|
|
4 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
100 |
% |
Foreign
|
|
|
894 |
|
|
|
40 |
% |
|
|
603 |
|
|
|
27 |
% |
|
|
344 |
|
|
|
16 |
% |
|
|
371 |
|
|
|
17 |
% |
|
|
2,212 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
941 |
|
|
|
41 |
% |
|
|
626 |
|
|
|
28 |
% |
|
|
348 |
|
|
|
15 |
% |
|
|
371 |
|
|
|
16 |
% |
|
|
2,286 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investment policy relating to plan assets within the Group
depends upon local practices. In all cases, the proportion of
equity securities cannot exceed 80% of plan assets and no
individual equity security may represent more than 5% of total
equity securities within the plan. The equity securities held by
the plan must be listed on a recognized exchange. The bonds held
by the plan must have a minimum A rating according
to Standard & Poors or Moodys rating
criteria.
Moreover, for fiscal year 2006, we expect to contribute
66 million
to pension funds.
Expected benefit payments for defined benefit pension plans
through 2015 are as follows:
|
|
|
|
|
Total |
|
Expected benefit payments | |
|
|
| |
|
|
(in millions of euros) | |
2006
|
|
|
200 |
|
2007
|
|
|
185 |
|
2008
|
|
|
184 |
|
2009
|
|
|
188 |
|
2010
|
|
|
187 |
|
2011-2015
|
|
|
979 |
|
|
|
(b) |
Other post-retirement benefits |
These post-retirement benefits only relate to American employees
for medical insurance and life insurance. Therefore, foreign
amounts are equal to total amounts and domestic amounts are nil.
The assumptions for 2005 and 2004 are as follows (the rates
indicated are weighted average rates). They are equal to pension
plan assumptions for American companies:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
General inflation
|
|
|
2.72 |
% |
|
|
3.00 |
% |
Discount rate
|
|
|
4.97 |
% |
|
|
5.27 |
% |
Post-retirement cost trend rate
|
|
|
5.00 |
% |
|
|
5.00 |
% |
F-153
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other post-retirement
obligation and funded status:
|
|
|
|
|
|
|
|
|
|
|
Other post- | |
|
|
retirement | |
|
|
benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
|
(17 |
) |
|
|
(17 |
) |
Service cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
(1 |
) |
|
|
(1 |
) |
Plan participants contributions
|
|
|
|
|
|
|
|
|
Amendments
|
|
|
|
|
|
|
|
|
Business combinations
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
|
Curtailments
|
|
|
2 |
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
Special termination benefits
|
|
|
|
|
|
|
|
|
Actuarial (loss)/gain
|
|
|
(5 |
) |
|
|
(3 |
) |
Benefits paid
|
|
|
3 |
|
|
|
4 |
|
Other (foreign currency translation)
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
(20 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
The main American medical and life insurance plan was amended in
2003. After 2006, Alcatel will no longer participate in this
plan.
|
|
|
|
|
|
|
|
|
|
|
Other post- | |
|
|
retirement | |
|
|
benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
- |
|
|
|
|
|
Actual return on plan assets
|
|
|
|
|
|
|
|
|
Employers contributions
|
|
|
3 |
|
|
|
4 |
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
Amendments
|
|
|
|
|
|
|
|
|
Business combinations
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
|
Curtailments
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
Special termination benefits/benefits paid
|
|
|
(3 |
) |
|
|
(4 |
) |
Other (foreign currency translation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
F-154
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Other post- | |
|
|
retirement | |
|
|
benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Funded status
|
|
|
(20 |
) |
|
|
(17 |
) |
Unrecognized actuarial loss/(gain)
|
|
|
45 |
|
|
|
37 |
|
Unrecognized transition obligation
|
|
|
|
|
|
|
|
|
Unrecognized prior service cost
|
|
|
(104 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
|
Net amount recognized
|
|
|
(79 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
|
Components of net
periodic pension cost:
|
|
|
|
|
|
|
|
|
|
|
Other post- | |
|
|
retirement | |
|
|
benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Components of net periodic cost
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
(1 |
) |
|
|
(1 |
) |
Expected return on plan assets
|
|
|
|
|
|
|
|
|
Amortization of transition obligation
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
6 |
|
|
|
6 |
|
Amortization of recognized actuarial gain/(loss)
|
|
|
(9 |
) |
|
|
(3 |
) |
Effect of curtailments
|
|
|
|
|
|
|
|
|
Effect of settlements
|
|
|
|
|
|
|
|
|
Special termination benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
(4 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
Amounts recognized in
the statement of financial position:
|
|
|
|
|
|
|
|
|
|
|
Other post- | |
|
|
retirement | |
|
|
benefits | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Accrued benefit liability
|
|
|
(79 |
) |
|
|
(68 |
) |
Prepaid benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount accrued for under U.S. GAAP
|
|
|
(79 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
|
Regarding the other benefit plans, a one-percentage point change
in assumed health care cost trend rates would have the following
effects:
|
|
|
|
|
|
|
|
|
|
|
1 percentage | |
|
1 percentage | |
|
|
point increase | |
|
point decrease | |
|
|
| |
|
| |
Effect on total of service and interest cost components:
|
|
|
2.0 |
% |
|
|
(1.6 |
)% |
Effect on the post-retirement benefit obligation:
|
|
|
2.0 |
% |
|
|
(1.7 |
)% |
F-155
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Benefit payments
Expected benefit payments for other post-retirement obligation
through 2015 are as follows:
|
|
|
|
|
Total |
|
Expected benefit payments |
|
|
|
|
|
(in millions of euros) |
2006
|
|
|
2 |
|
2007
|
|
|
1 |
|
2008
|
|
|
1 |
|
2009
|
|
|
1 |
|
2010
|
|
|
1 |
|
2011-2015
|
|
|
4 |
|
|
|
(a) |
Deferred tax balances: |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Deferred tax assets
|
|
|
7,345 |
|
|
|
6,301 |
|
Less valuation
allowance(a)
|
|
|
(5,577 |
) |
|
|
(4,636 |
) |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
1,768 |
|
|
|
1,665 |
|
Deferred tax liabilities
|
|
|
(162 |
) |
|
|
(109 |
) |
|
|
|
|
|
|
|
Net deferred taxes
|
|
|
1,606 |
|
|
|
1,556 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Of which
30 million
at December 31, 2005
(62 million
at December 31, 2004) will be allocated to reduce goodwill. |
Major temporary differences giving rise to deferred taxes at
December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Tax effect of temporary differences related to:
|
|
|
|
|
|
|
|
|
|
Accounting for long-term contracts
|
|
|
(42 |
) |
|
|
(16 |
) |
|
Depreciation of property, plant and equipment
|
|
|
(45 |
) |
|
|
|
|
|
Other
|
|
|
(75 |
) |
|
|
(93 |
) |
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(162 |
) |
|
|
(109 |
) |
|
|
|
|
|
|
|
Tax losses carried forward
|
|
|
5,836 |
|
|
|
4,858 |
|
Accrued pension and retirement obligation
|
|
|
442 |
|
|
|
111 |
|
Other reserves
|
|
|
351 |
|
|
|
217 |
|
Other
|
|
|
716 |
|
|
|
1,115 |
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
7,345 |
|
|
|
6,301 |
|
Less: Valuation allowance
|
|
|
(5,577 |
) |
|
|
(4,636 |
) |
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
|
1,768 |
|
|
|
1,665 |
|
|
|
|
|
|
|
|
Total deferred tax assets (liabilities), net
|
|
|
1,606 |
|
|
|
1,556 |
|
|
|
|
|
|
|
|
F-156
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred tax balances are analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005 |
|
Current | |
|
Non-current | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Deferred tax assets (net of valuation allowance)
|
|
|
316 |
|
|
|
1,452 |
|
|
|
1,768 |
|
Deferred tax liabilities
|
|
|
(53 |
) |
|
|
(109 |
) |
|
|
(162 |
) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
263 |
|
|
|
1,343 |
|
|
|
1,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004 |
|
Current | |
|
Non-current | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(in millions of euros) | |
Deferred tax assets (net of valuation allowance)
|
|
|
235 |
|
|
|
1,430 |
|
|
|
1,665 |
|
Deferred tax liabilities
|
|
|
(33 |
) |
|
|
(76 |
) |
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
202 |
|
|
|
1,354 |
|
|
|
1,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
Analysis of income tax (expense) benefit |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Current tax (expense) benefit
|
|
|
(52 |
) |
|
|
82 |
|
Net change in operating losses carried forward
|
|
|
(34 |
) |
|
|
110 |
|
Net change in valuation allowance
|
|
|
119 |
|
|
|
(10 |
) |
Other deferred tax (expense) benefit
|
|
|
(189 |
) |
|
|
(191 |
) |
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(156 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
(c) |
Effective income tax rate |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
Income (loss) before taxes, share in net income of equity
affiliates, purchased research and development, impairment of
goodwill, minority interests and extraordinary items
|
|
|
985 |
|
|
|
678 |
|
Average income tax rate
|
|
|
32.3 |
% |
|
|
28.4 |
% |
|
|
|
|
|
|
|
Expected tax (charge) benefit
|
|
|
(318 |
) |
|
|
(193 |
) |
Impact of:
|
|
|
|
|
|
|
|
|
net change in valuation allowance
|
|
|
119 |
|
|
|
(10 |
) |
tax credits
|
|
|
5 |
|
|
|
14 |
|
other
|
|
|
38 |
|
|
|
180 |
|
|
|
|
|
|
|
|
Actual income tax (charge) benefit
|
|
|
(156 |
) |
|
|
(9 |
) |
Effective tax rate
|
|
|
15.8 |
% |
|
|
1.4 |
% |
|
|
|
|
|
|
|
F-157
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(d) |
Income (loss) before taxes, share in net income of equity
affiliates, purchased research and development, minority
interests and extraordinary items by geographical origin: |
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in millions | |
|
|
of euros) | |
France
|
|
|
251 |
|
|
|
84 |
|
Foreign
|
|
|
734 |
|
|
|
590 |
|
|
|
|
|
|
|
|
Income (loss) before tax
|
|
|
985 |
|
|
|
674 |
|
|
|
|
|
|
|
|
The recognition provisions of FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45), were adopted on
January 1, 2003. FIN 45 requires recognition of an
initial liability for the fair value of an obligation assumed by
issuing a guarantee and is applied on a prospective basis to all
guarantees issued or modified after December 31, 2002. The
adoption of FIN 45 did not have a material effect on the
audited consolidated financial statements.
Through our normal course of business, we have entered into
guarantees and indemnifications which mainly arose from the
following situations:
|
|
|
|
|
Business sale agreements |
|
|
|
Intellectual property indemnification obligations |
|
|
|
Lease agreements |
|
|
|
Third-party debt agreements |
|
|
|
Indemnification of lenders and agents under our credit and
support facilities and security arrangements |
|
|
|
Indemnification of counterparties in receivables securitization
transactions |
|
|
|
Other indemnification agreements |
Guarantees and indemnification agreements are mainly disclosed
in note 31 with:
debt guarantees for third-party debt
agreements, indemnification of lenders and agents under our
credit and support facilities and security arrangements and
indemnification of counterparties in receivables securitization
transactions;
and other contingent commitments.
Regarding business sale agreements, the Group is unable to
reasonably estimate the maximum amount that could be payable
under these arrangements because the exposures are not capped
and because of the conditional nature of the Groups
obligations and the unique facts and circumstances involved in
each agreement.
The Group records a liability for product warranties
corresponding to the estimated amount of future repair and
replacement costs for products still under warranty at the
balance sheet date. The liability is included in the reserves
for product sales disclosed in note 27. The reserve is
calculated based on historical experience concerning the costs
and frequency of repairs or replacements.
F-158
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Change of product warranty reserve during fiscal 2005 and 2004:
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
(in millions of euros) |
As of January 1, 2005
|
|
|
380 |
|
|
|
|
|
|
Additional reserves
|
|
|
144 |
|
Used
|
|
|
(128 |
) |
Changes in estimates of pre-existing warranties
|
|
|
(100 |
) |
Change in consolidated companies
|
|
|
4 |
|
Exchange differences and other
|
|
|
37 |
|
|
|
|
|
|
As of December 31, 2005
|
|
|
337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
(in millions of euros) | |
As of January 1, 2004
|
|
|
574 |
|
|
|
|
|
Additional reserves
|
|
|
123 |
|
Used
|
|
|
(139 |
) |
Changes in estimates of pre-existing warranties
|
|
|
(141 |
) |
Change in consolidated companies
|
|
|
(49 |
) |
Exchange differences and other
|
|
|
12 |
|
|
|
|
|
As of December 31, 2004
|
|
|
380 |
|
|
|
|
|
Disclosures related to guarantees given are set forth in
note 31.
|
|
(7) |
Other information on affiliates |
Market value of Alcatels stake in listed equity affiliates
at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
% interest |
|
Net value |
|
Value |
|
|
|
|
|
|
|
|
|
(in millions of euros) |
Thales
|
|
|
9.5 |
% |
|
|
429 |
|
|
|
624 |
|
In addition, dividends received in 2005 from equity affiliates
amounted to
15 million
(20 million
for 2004).
|
|
(8) |
Combined information concerning subsidiaries consolidated
using the proportionate consolidation method |
This information is provided in note 16d.
|
|
(9) |
Recently issued U.S. Accounting Standards |
In December 2004, the Financial Accounting Standards Board
(FASB) published FASB Statement No. 123 (revised
2004), Share-Based Payment (SFAS 123(R)).
SFAS 123(R) replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS 123(R) requires compensation expense, measured as the
fair value at the grant date, related to share-based payment
transactions to be recognized in the financial statements over
the period that an employee provides service in exchange for the
award.
F-159
ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2005, the SEC amended the compliance dates for
SFAS 123(R), to allow companies to implement the standard
at the beginning of their next fiscal year, instead of the next
reporting period beginning after June 15, 2005.
SFAS No. 123(R) is effective for Alcatel as of
January 1, 2006 as we have not elected early adoption of
the standard.
Upon adoption of SFAS 123(R), companies are allowed to
select one of three alternative transition methods, each of
which has different financial reporting implications. Alcatel
will use the modified prospective method of adoption. Under this
method, prior years financial results will not include the
impact of recording stock options using fair value. Under this
method, SFAS 123(R) applies to new awards and to awards
modified, repurchased, or cancelled after the required effective
date (i.e. January 1, 2006 for Alcatel). Additionally,
compensation cost for the portion of awards for which the
requisite service has not been rendered that are outstanding as
of the required effective date shall be recognized as the
requisite service is rendered on or after the required effective
date. The compensation cost for that portion of awards shall be
based on the grant-date fair value of those awards as calculated
for either recognition or pro forma disclosures under
Statement 123.
Although Alcatel has not yet fully quantified the impact this
standard will have on its financial statements, it is likely
that the adoption of SFAS 123(R) will have a material
impact on Alcatels financial position and results of
operations. Note 25 (2) herein provides the pro forma
net income and earnings per share as if Alcatel had used a
fair-value-based method similar to the methods required under
SFAS 123(R) to measure the compensation expense for
employee stock awards.
In March 2005, the SEC issued Staff Accounting
Bulletin No. 107 (SAB 107) regarding
the Staffs interpretation of SFAS 123(R). This
interpretation expresses the views of the staff regarding the
interaction between SFAS 123(R) and certain SEC rules and
regulations and provides the staffs views regarding the
valuation of share-based payment arrangements for public
companies. In particular, this SAB provides guidance related to
share-based payment transactions with nonemployees, the
transition from nonpublic to public entity status, valuation
methods, the accounting for certain redeemable financial
instruments issued under share-based payment arrangements, the
classification of compensation expense, non-GAAP financial
measures, first-time adoption of SFAS 123(R) in an interim
period, capitalization of compensation cost related to
share-based payment arrangements, the accounting for income tax
effects of share-based payment arrangements upon adoption of
SFAS 123(R), the modification of employee share options
prior to adoption of Statement 123(R) and disclosures in
Managements Discussion and Analysis subsequent to adoption
of SFAS 123(R).
The Group is in the process of assessing what impact the
pronouncement will have on its consolidated financial statements
as reconciled to U.S. GAAP.
In May 2005, the FASB issued FASB Statement No. 154,
Accounting Changes and Error Corrections a
replacement of APB Opinion No. 20 and FASB Statement
No. 3 (SFAS 154). SFAS 154 replaces APB Opinion
No. 20, Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements and
changes the requirements for the accounting for and reporting of
a change in accounting principle. This statement applies to all
voluntary changes in accounting principle. It also applies to
changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific
transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed.
SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005 and requires prospective application.
Alcatel will adopt this standard on January 1, 2006 and
currently does not believe that the standard will have a
material effect on its consolidated financial position, results
of operations or cash flows as reconciled to U.S. GAAP.
In November 2005, the FASB issued FASB Staff Position
FAS 115-1 and FAS 124-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments (FSP 115-1), which provides
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ALCATEL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
guidance on determining when investments in certain debt and
equity securities are considered impaired, whether that
impairment is other-than-temporary, and on measuring such
impairment loss. FSP 115-1 also includes accounting
considerations subsequent to the recognition of an other-than
temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as
other-than-temporary impairments. FSP 115-1 is required to be
applied to reporting periods beginning after December 15,
2005. Alcatel does not believe the adoption of FSP 115-1 will
have a material impact on its consolidated financial position,
results of operations or cash flows as reconciled to
U.S. GAAP.
In February 2006, the FASB issued FASB Statement No. 155,
Accounting for Certain Hybrid Financial Instruments, an
amendment of FASB Statements No. 133 and 140
(SFAS 155). SFAS 155 amends FASB
Statements No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133), and
No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.
SFAS 155 among other things permits
fair value remeasurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would
require bifurcation. SFAS 155 is effective for all
financial instruments acquired or issued after the beginning of
an entitys first fiscal year that begins after
September 15, 2006. Alcatel does not believe that the
standard will have a material effect on its consolidated
financial position,results of operations or cash flows as
reconciled to U.S. GAAP.
Other recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force), the AICPA and the
SEC did not or are not believed by management to have a material
impact on Alcatels present or future consolidated
financial statements.
Note 43 Subsequent events
On March 24, 2006, we issued a press release confirming
that we are engaged in discussions with Lucent about a potential
merger of equals that is intended to be priced at market. We
stated that there can be no assurances that any agreement will
be reached or that a transaction will be consummated, and that
we will have no further comment until an agreement is reached or
the discussions are terminated.
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