Additional Information
Alcatel Lucent
1.2 Reported results and adjusted results 2
1.3 Breakdown of 2015 revenues by operating
segment 5
1.4 Breakdown of 2015 revenues by geographical
area 5
1.5 Change in R&D expenses 6
1.6 Adjusted operating income 6
1.7 Change in net cash position 7
1.8 Change in market capitalization 7
2
Parent company statutory accounts
2.1 Activities of the parent company 10
2.2 Statutory accounts of Alcatel Lucent SA as
of December 31, 2015 10
2.3 Notes to the annual statutory accounts 14
2.4 Statutory Auditors’ report on the annual financial statements of Alcatel Lucent for the year ended December 31, 2015 33
2.5 Statutory Auditors’ special report on regulated agreements and commitments 35
3
Report of the chairman of the Board of
Directors – internal control and
risk management
3.1 Global system of internal control and risk
management 40
3.2 Accounting and financial reporting 51
3.3 Report on the President’s report 53
4
Sustainability
4.1 Alcatel-Lucent combines with Nokia 56
4.2 Our approach to sustainability: Responsible
business innovation 56
4.3 Our engagement with stakeholders 63
4.4 Ethical Business 66
4.5 Environment 71
4.6 Our people 78
4.7 Society and philanthropy 88
4.8 Supply chain 90
4.9 Sustainability data 93
4.10 Article 225 of France’s Grenelle II Law (July
10, 2010) 101
4.11 United Nations Global Compact 104
4.12 Independent verification 105
20-F”) filed with the U.S Securities and Exchange Commission, both of which documents are in English, is equivalent to the information provided in French in the “Document de Re´fe´rence” filed with the Autorite´ des Marche´s Financiers on April 28,(1).
This document is a free translation from French to English of the information from the Document de Re´fe´rence that is not included in the 2015 20-F. Should there be any difference between the French and the English versions, only the text in the French language shall be deemed authentic and considered as expressing the exact information published by Alcatel-Lucent. (1) Except for certain financial information concerning the fourth quarter of
2015, which may be found in English on our website: www.alcatel-lucent.com, under the heading “Investor Relations” and then “Financial Date – February 11, 2016 Press release”.
1.1
Introduction
2
1.2
Reported results and adjusted results
2
1.3
Breakdown of 2015 revenues by operating segment
5
1.4
Breakdown of 2015 revenues by geographical area
5
1.5
Change in R&D expenses
6
1.6
Adjusted operating income (loss)
6
1.7
Change in net cash position
7
1.1
Introduction
For purposes of this document, the term “Group” means the group comprised of Alcatel Lucent (hereafter “Alcatel-Lucent”) after the combination of Alcatel (hereafter “historical Alcatel” or “Alcatel”) and Lucent Technologies Inc. (hereafter “Lucent”),
together with all their consolidated subsidiaries. The expression “the Company” means either Alcatel when referring to a period ending on or prior to November 30, 2006, or Alcatel-Lucent when referring to a later period.
1.2
Reported results and adjusted results
Reported results: in accordance with regulatory reporting requirements, reported results for the years 2013, 2014 and 2015 include the non-cash impacts from Purchase Price Allocation (“PPA”) entries following the business combination with Lucent.
Adjusted results:in addition to the reported results and in order to provide meaningful comparable information, Alcatel-Lucent is providing adjusted results that exclude the main non-cash
impacts from PPA entries resulting from the Lucent business combination. These non-cash impacts are material to us and non-recurring due to the different amortization periods depending on the nature of the adjustments, as detailed in Note 3 to the consolidated financial statements included in our 2009 document de référence. Reported figures are not comparable with those of our main competitors and many other business players in our field of activity who have not undergone a similar business combination.
Condensed income statement for 2015
(in millions of euros, except per share data) Adjusted Reported
Revenues 14,275 14,275
Operating income (loss)(1) 1,029 1,004
Restructuring costs (401) (401)
Litigations (31) (31)
Gain (loss) on disposal of consolidated entities (1) (1)
Transaction-related costs (104) (104)
Impairment of assets (193) (193)
Post-retirement benefit plan amendments 404 404
Income (loss) from operating activities 703 678
Net income - group share 221 206
Diluted earnings per share(in euros) 0.08 0.07
Diluted earnings per ADS(in U.S $)(2) 0.09 0.08
(1) Operating income (loss) refers here to the income (loss) from operating activities before restructuring costs, transaction-related costs, impairment of assets, gain (loss) on disposal of consolidated entities, litigations and post-retirement benefit plan amendments.
(2) Earnings per ADS (American Depositary Share) in U.S. $ have been calculated using the U.S. Federal Reserve Bank of New York noon Euro/U.S. dollar buying rate of U.S. $ 1.0859 on December 31, 2015.
Condensed adjusted income statement for 2015 and 2014
(in millions of euros, except per share data) 2015 2014(1)
Revenues 14,275 13,178
Operating income (loss)(2) 1,029 623
Restructuring costs (401) (574)
Litigations (31) 7
Gain (loss) on disposal of consolidated shares (1) 20
Transaction-related costs (104)
-Impairment of assets (193)
-Post-retirement benefit plan amendment 404 112
Income (loss) from operating activities 703 188
Net income - group share 221 (75)
Diluted earnings per share(in euros) 0.08 (0.04)
Diluted earnings per ADS(in U.S.$)(3) 0.09 (0.05)
(1) 2014 amounts are restated to reflect the impact of a change in accounting treatment (see note 4 to the 2015 consolidated financial statements).
(2) Operating income (loss) refers here to the income (loss) from operating activities before restructuring costs, transaction-related costs, impairment of assets, gain (loss) on disposal of consolidated entities, litigations and post-retirement benefit plan amendments.
(3) Earnings per ADS in U.S. $ have been calculated using the U.S. Federal Reserve Bank of New York noon Euro/U.S. dollar buying rate of U.S.$ 1.0859 as of December 31, 2015 and U.S.$ 1.2101 as of December 31, 2014.
2015
(unaudited) In Euro million except per share data As reported PPA Adjusted
Revenues 14,275 - 14,275
Cost of sales (9,132) - (9,132)
Gross Profit 5,143 - 5,143
Administrative and selling expenses(a) (1,761) (2) (1,763)
Research and Development costs(b) (2,378) 27 (2,351)
Operating income (loss)(1) 1,004 25 1,029
Restructuring costs (401) - (401)
Impairment of assets (193) - (193)
Post-retirement benefit plan amendment 404 - 404
Litigations (31) - (31)
Gain/(loss) on disposal of consolidated entities (1) - (1)
Transaction-related costs (104) - (104)
Income (loss) from operating activities 678 25 703
Financial result (net) (405) - (405)
Share in net income (losses) of equity affiliates 2 - 2
Income tax benefit (expense)(c) (24) (10) (34)
Income (loss) from continuing operations 251 15 266
Income (loss) from discontinued activities (16) - (16)
Net Income (loss) 235 15 250
of which : Equity owners of the parent 206 15 221
Non-controlling interests 29 - 29
Earnings per share : basic 0.07 - 0.08
Earnings per share : diluted 0.07 - 0.08
(1) Income (loss) from operating activities before restructuring costs, transaction-related costs, impairment of assets, gain / (loss) on disposal of consolidated entities, litigations and post-retirement benefit plan amendment. It corresponds to the measure of the operating income (loss) of the segments (see note 5 to our consolidated financial statements at December 31, 2015).
PPA : Purchase Price Allocation entries related to Lucent business combination
Nature of PPA - non cash amortization charges included in Reported Accounts but excluded from Adjusted Accounts (see Note 5 to our Consolidated Financial Statements as of December 31, 2015)
These impacts are non-recurring due to the different amortization periods depending of the nature of the adjustments, as indicated hereafter: (a) Amortization of intangibles assets - long term customer relationship (5-8 years)
(b) Amortization of intangibles assets: Acquired technologies (5-10 years) and In Process R&D (5-7 years) (c) Normative tax impact at 38% on above PPA adjustments excluding goodwill impairment
1.3
Breakdown of 2015 revenues by operating segment
The operations of the Group were organized in three operatingsegments in 2015 – Core Networking, Access and Other. The Core Networking segment includes our IP Routing, IP Transport and IP Platforms divisions. The Core Networking segment accounted for 47% of revenues (€6.8 billion) in 2015. The
Access segment accounted for 52% of revenues (€7.5 billion) in 2015 and includes our Wireless and Fixed Access businesses as well as Managed Services and Licensing. Lastly, the Other segment accounted for much less than 1% of revenues.
Breakdown of 2015 revenues by operating segment
Core Networking
47%
Access
52%
Other
less than 1%
Alcatel-Lucent had revenues of€14.3 billion in 2015.
1.4
Breakdown of 2015 revenues by geographical area
North America was flat as a percent of total revenues in 2015 compared to 2014, while Asia Pacific increased slightly, Europe declined slightly and the Rest of World region was flat. This balanced geographical presence can limit the Group’s exposure
to the investment cycles of its service provider clients in a particular area, unless those cycles are synchronized across all regions.
Breakdown of 2015 revenues by geographical area
North America
44%
Asia Pacific
21%
Rest of World
13%
Europe
1.5
Change in R&D expenses
In 2015, reported R&D expenses were€2,378 million after a net impact of capitalization of€31 million of development expenses. Adjusted* R&D expenses were€2,351 million, or 16.5% of the Group’s revenue (after capitalization of development expensesand excluding €27 million of amortization of acquired technologies and in-process R&D valued at fair value at the date of the Lucent business combination), an increase of 7.3% from €2,191 million, or 16.6% of revenues in 2014.
Change in R&D expenses
2014 2015
3,000 2,500
1,500 2,000
1,000 500 0
2,191 2,351
(in millions of euros)
* Excluding the impacts of the PPA entries in connection with the Lucent business combination.
1.6
Adjusted operating income
Adjusted operating income, that is the income from operating activities before restructuring costs, transaction-related costs, gain on disposal of consolidated entities, impairment of assets, litigations and post-retirement benefit plan amendments, and excluding the negative non-cash impacts of the PPA entries in
connection with the Lucent business combination, increased from an income of€623 million or 4.7% of revenues in 2014 to an income of€1,029 million or 7.2% of revenues in 2015. This increase reflects our efforts to reduce our fixed costs and improve the overall profitability across the Group.
Adjusted operating income
2014 2015
1,200 1,000 800 600 400 200 0
623
1,029
1.7
Change in net cash position
On December 31, 2015, the Group had a net cash position of €1,409 million, which is an increase of€1,083 million compared to the net cash position of€326 million at the end of 2014. Theimprovement in net cash primarily reflects the improvement in overall levels of free cash flow.
Change in net cash position
2014 2015
1,600 1,400 1,200 1,000 800 600 400 200 0
326
1,409
(in millions of euros)
1.8
Change in market capitalization
In 2015, Alcatel-Lucent’s market capitalization increased compared to 2014, marked notably by the announcement that Nokia and Alcatel-Lucent would combine to create an innovation leader in next-generation technology and services for an IP connected world. Global financial markets showed mixed trends in 2015, as evidenced by Europe markets, such as
CAC-40, a composite of the top 40 Euronext listed companies in France, which ended the year with strong growth, as compared to US markets, which showed mixed trends as both the Dow Jones Industrial Index and S&P 500, both showed declines while the NASDAQ grew.
Change in market capitalization
2014 2015
12 10 8 6 4 2 0
8.3
10.9
2.1
Activities of the parent company
10
2.2
Statutory accounts of Alcatel Lucent SA as of December 31, 2015
10
2.3
Notes to the annual statutory accounts
14
2.4
Statutory Auditors’ report on the annual financial statements of Alcatel Lucent for the year
ended December 31, 2015
33
2.1
Activities of the parent company
Alcatel-Lucent, the Group’s parent company, has no operatingactivity. It is the direct and indirect holding company for all Group companies.
Its principal missions are as follows:
Š centralized treasury management and granting of guarantees to subsidiaries in respect of certain bank borrowings and operating contracts;
Š clearing entity of the new research and development and intellectual property costs recharges mechanism; and Š management of the French tax group.
As a result of the Nokia’s public exchange offer, Alcatel-Lucent is currently controlled by Nokia Corporation.
2.2.
Statutory accounts of Alcatel-Lucent SA as of
December 31, 2015
Key figures
The financial statements for the year ended December 31, 2015 show net€794.9 million compared to€890.1 million net gain the previous year.
Appropriation of net income and dividend distribution
The 2015 net gain of Alcatel-Lucent, the parent company, totaled€794,896,527.00.
No dividend will be proposed to the Annual Shareholders’ Meeting approving the 2015 accounts.
The following appropriation will therefore be proposed at the Annual Shareholders’ Meeting approving the 2015 accounts:
Available for distribution (in euros)
Income (loss) of the year 794,896,527.00
Retained earnings brought forward (12,306,827,303.36)
TOTAL (11,511,930,776.36)
Appropriation
Transfer to legal reserve
-Proposed dividend
-Retained earnings (11,511,930,776.36)
TOTAL (11,511,930,776.36)
In accordance with French legal requirements, dividends per share for the past three years are detailed in the following table:
2015 (proposed) 2014 2013 2012
Number of shares eligible for dividends 3,036,337,359 2,820,432,270 2,808,554,197 2,326,563,826
Par value 0.05 0.05 0.05 2.00
-Parent company income statements
(in millions of euros) Notes 2015 2014 2013
Net sales 556.3 370.5 348.7
Other revenues 76.4 39.7 57.5
Operating revenues 632.7 410.2 406.2
Purchases of services and other expenses (672.9) (406.1) (401.1)
Taxes and similar payments, excluding income tax (1.7) (4.3) (2.2)
Payroll costs (15.8) (33.6) (15.2)
Operating expenses (690.4) (444.0) (418.5)
Operating income (loss) (3) (57.7) (33.8) (12.3)
Revenues from investments in subsidiaries and associates (4) 11.8 412.0 12.0
Interest income and similar revenues 382.7 334.4 205.2
Interest expense and similar expenses (204.3) (229.9) (283.8)
Net change in financial provisions and amortization of bond premiums (3) 7,727.4 459.8 2,095.1
Other financial income (loss) 0.2 11.6 6.5
Financial income (loss) (3) 7,917.8 987.9 2,035.0
Income (loss) before non-recurring items and income tax (3) 7,860.1 954.1 2,022.7
Non-recurring revenues 1,691.4 1.0 7.6
Non-recurring expenses (8,785.9) (111.2) (145.7)
Non-recurring income (loss) (3) (7,094.5) (110.2) (138.1)
Income tax (3)/(5) 29.3 46.2 25.0
Notes 2015 2014 2013
ASSETS(in millions of euros) Gross value Depreciation Net value Net value Net value
Intangible assets (7) 523.3 (203.1) 320.2 16.5 16.5
Investments in subsidiaries and associates (8) 30,741.7 (22,455.9) 8,285.8 9,275.5 8,888.9
Receivables from subsidiaries and associates (9) 0.6 (0.6) - -
-Other financial assets (9) 11,135.4 (216.6) 10,918.8 8,476.0 9,044.3
Investments and other non-current assets 41,877.7 (22,673.1) 19,204.6 17,751.5 17,933.2
TOTAL NON-CURRENT ASSETS 42,401 (22,876.2) 19,524.8 17,768.0 17,949.7
Accounts receivable and other current assets (15)/(16) 695.7 - 695.7 685.7 690.2
Marketable securities (10) 1,179.9 - 1,179.9 1,070.4 1,679.4
Cash (10) 2,938.6 - 2,938.6 2,543.0 2,643.0
TOTAL CURRENT ASSETS 4,814.2 - 4,814.2 4,299.1 5,012.6
Prepayments and deferred charges 20.2 - 20.2 39.9 41.3
TOTAL ASSETS (6) 47,235.4 (22,876.2) 24,359.2 22,107.0 23,003.6
Notes 2015 2014 2013
LIABILITIES AND STOCKHOLDERS’ EQUITY
(in millions of euros)
Before appropriation
After appropriation(1)
After appropriation
After appropriation
Capital stock 151.8 151.8 141.0 140.4
Additional paid-in capital 21,290.9 21,290.9 20,928.1 20,914.0
Reserves 2,237.9 2,237.9 2,237.9 2,237.9
Retained earnings (12,306.8) (11,511.9) (12,306.8) (13,196.9)
Net income (loss) for the year 794.9 - -
-Shareholders’ equity (12) 12,168.7 12,168.7 11,000.2 10,095.4
Reserves for liabilities and charges (13)/(19) 35.2 35.2 38.2 59.5
Bonds convertible into new or existing shares
(“OCEANE”) (14)/(15)/(16) 1,486.3 1,486.3 1,777.7 628.9
Other bonds and notes issued (14)/(15)/(16) 190.4 190.4 192.1 698.5
Bank borrowings and overdrafts (15)/(16) 2.5 2.5 3.8
-Miscellaneous borrowings (15)/(16) 1,226.6 1,226.6 1,414.1 1,310.3
Financial debt 2,905.8 2,905.8 3,387.7 2,637.7
Taxation and social security (15)/(16) 12.9 12.9 8.2 11.0
Other liabilities (15)/(16) 9,222.7 9,222.7 7,669.1 10,191.4
Liabilities 9,235.6 9,235.6 7,677.3 10,202.4
Unrealized foreign exchange gain 13.9 13.9 3.6 8.6
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 24,359.2 24,359.2 22,107.0 23,003.6
Parent company statements of changes in financial position (after proposed appropriation of the 2015 net income)
(in millions of euros) 2015 2014 2013
Sources of funds
Net income (loss) 794.9 890.1 1,909.6
Depreciation and amortization 43.1 - 0.2
Changes in valuation allowances and other reserves, net(Notes 8, 9 and 13) (7,730.1) (481.5) (2,129.9)
Net (gain)/loss on disposal of non-current assets(1) 7,059.0 83.3 97.2
Funds provided (used) by operations 166.9 491.9 (122.9)
Increase in capital stock(Note 12) 373.6 14.7 989.8
Increase in other bonds(Note 14) - 1,148.8 628.9
Increase in long-term debt(Note 15) - 121.3 702.4
Property, plant and equipment sold 23.8 -
-Investments sold(1) 1,667.6 15.9 18.2
Other sources of funds - -
-TOTAL SOURCES 2,231.9 1,792.6 2,216.4
Application of funds
Increase in property, plant, equipment and intangible assets 346.8 -
-Increase in investments 20.0 -
-Dividend payable - -
-Conversion of bonds into shares 291.4 - 47.7
Other application of funds 2,481.9 (32.9) 3,121.8
TOTAL APPLICATION 3,140.1 (32.9) 3,169.5
Analysis of changes in working capital
Accounts receivable and other current assets (78.2) (4.3) (60.8)
Other liabilities (453.9) (8.0) (114.4)
Cash and cash equivalents:
Š short-term financial debt(2) (904.9) 2,546.7 (2,277.6)
Š cash 419.3 (99.9) 1,190.4
Š marketable securities 109.5 (609.9) 309.3
Increase (decrease) in working capital (908.2) 1,825.5 (953.1)
(1) Investments sold are essentially Coralec shares.
2.3
Notes to the annual statutory accounts
Note 1 Accounting policies
The annual financial statements have been prepared in accordance with French accounting rules and principles (as set forth in the French general chart of accounts CRC-regulation 99-03). The following accounting principles are described below:
a/ Intangible assets
Intangible assets are recorded at acquisition cost and mainly include intellectual property rights amortized over a straight-line basis over five years after acquisition. An impairment loss is recognized if the current value is less than the gross value.
b/ Financial assets
b1/ Investments in subsidiaries and associates:
Investments in subsidiaries and associates are recorded at acquisition cost, excluding incidental expenses, subject to any revaluation in accordance with French law.
When the carrying value of such investments is less than their gross value, a valuation allowance is set up for the difference. Carrying values are based on:
Š value in use of the investment, in respect of subsidiaries and associates held for the long-term. Value in use is determined case by case based on the recoverable value of the underlying assets, re-evaluation of net assets, estimated market values, and, for listed companies, the stock market value; and Š estimated market value, in respect of associates that could
be sold if market conditions proved favorable, and, in respect of listed companies, estimated market value based on the average stock market prices for the last month of the accounting period.
As required, when the carrying value of the investment is negative, in addition to the valuation allowance set up, other assets are depreciated and, if necessary, a general risk reserve is recorded.
b2/ Long-term receivables from investments:
These are long-term loans granted to companies held directly or indirectly by the company. They are recorded at their nominal value. They are distinguished from current accounts received or granted to subsidiaries, used for daily cash management. An impairment loss is recognized in the event of risk of non recovery.
b3/ Treasury stock
Alcatel-Lucent shares owned by the parent company do not fulfill any particular classification criteria and, therefore, are recorded as other financial assets in the balance sheet.
Their carrying value is calculated at year-end on the basis of the average stock market prices for the last month of the accounting period. If necessary, a valuation allowance is recorded.
c/ Marketable securities
Marketable securities are recorded at the lower of cost and net realizable value (either average market price for the last month of the period, or period-end sales value, or estimated market value).
d/ Foreign currency transactions
Foreign currency revenues and expenses are recorded at the equivalent euro value at the date of the transaction. Cash, short term financial assets and debts and related off balance sheet financial instruments denominated in foreign currency are translated at period-end rates of exchange. The resulting currency translation adjustments are shown in the income statement. A reserve for potential foreign exchange losses is set up for unrealized foreign exchange losses that are not offset by corresponding unrealized foreign exchange gains, unless related financial instruments are used that qualify as a hedge and are such that no significant loss will arise when they mature.
e/ Interest rate derivatives
Gains and losses on these contracts are calculated and recognized to match the recognition of revenues and expenses on the hedged debt.
f/ Accounting for liabilities
In accordance with the“Comité de Réglementation Comptable” CRC regulation n° 2000-06 dated December 7, 2000 on accounting for liabilities, Alcatel-Lucent records a liability only when it has a present obligation towards a third party and that it is probable or certain that the obligation will result in an outflow of resources without at least an offsetting equivalent inflow of resources. The obligation must exist at the period end in order for a provision to be recognized.
g/ Bonds issued
Bonds issued at a premium or with a reimbursement premium are recorded in liabilities for their total value, including the premiums. The contra-entry for such premiums is recorded in the balance sheet as an asset. The premiums are amortized on a straight-line basis over the life of the corresponding bonds. This amortization is accelerated in case of partial buy-backs of issued bonds.
The fees and expenses linked to the issuance of bonds are recorded in the income statement on a straight-line basis over the life of the corresponding bonds.
h/ Taxes
Alcatel-Lucent and its subsidiaries, held directly or indirectly more than 95%, form a tax group as defined in Article 223 A of the French General Tax Code. Each company belonging to this French tax group calculates its income tax charge on the basis of its own tax results for the year. Alcatel-Lucent, as parent company of the French tax group, takes into account its own results and the tax consolidation entries when determining the tax group’s taxable result.
The income tax charge or income recorded in the income statement by Alcatel-Lucent consists of the following items: Š the difference between the y-1 income tax receivable owed
by tax profitable subsidiaries (whose taxable income, including the offsetting of carry forward tax losses, has been determined on a stand-alone basis) and the payable booked against the Treasury with respect to the income tax due by the French tax group headed by Alcatel-Lucent for y-1; Š potential adjustments to prior years’ tax charges; and Š potential reserves for tax risks.
i/ Pensions
As from January 1, 2004, Alcatel-Lucent applies the “Conseil national de la comptabilité”’s regulation no. 2003-R01 on pensions and other long-term benefits.
Actuarial gains and losses due to experience adjustments and effects of changes in actuarial assumptions existing at December 31, 2003 were transferred to shareholders’ equity, as allowed by the“Conseil national de la comptabilité”’s press release dated July 22, 2004.
Actuarial gains and losses computed between January 1, 2004 and December 31, 2006 were recorded using the “corridor” method. Consequently they were recorded as an adjustment to the pension reserve and they are amortized if they exceed a given amount. As from 2007, all actuarial gains and losses are recognized in the income statement relating to the financial year as incurred.
The 2013-02 recommendation put in place on the 7th of November 2013 by the French Accounting Principles Authority was applied, by anticipation, on the financial year beginning the 1st of January 2013. The resulting changes from this first application were treated in accordance with the norms relating to changes in accounting methods. The application of this recommendation consequently leads to immediate income statement recognition of the amendments during their period of occurrence. The expenses budgeted for the assets value are now calculated using the discount rate instead of the assets’ expected rate of return. Alcatel has also confirmed its application of the immediate recognition of actuarial gains and losses on the income statement. This change in policy has no impact on the opening of prior accounting periods.
Note 2 2015 Major events
Alcatel-Lucent pursued its activity of parent company of the Group and year 2015 was marked by the following items: Š Public Exchange Offer by Nokia (“Nokia Offer”) for
Alcatel-Lucent’s securities
On April 15, 2015, Nokia and Alcatel-Lucent announced their intention to combine to create an innovation leader in next generation technology and services for an IP connected world. The two companies entered into a memorandum of understanding under which Nokia will make an offer for all of the equity securities issued by Alcatel-Lucent, through a public exchange offer in France and in the United States, subject to certain conditions, on the basis of 0.55 of a new Nokia share for every Alcatel-Lucent share. The all-share transaction valued Alcatel-Lucent at €15.6 billion on a fully diluted basis, corresponding to a fully diluted premium of 34% (equivalent to €4.48 per share), and a premium to shareholders of 28% (equivalent to€4.27 per share), on the weighted average share price of Alcatel-Lucent for the three months preceding the announcement. This was based on Nokia’s closing share price of€7.77 on April 13, 2015.
Each company’s Board of Directors has approved the terms of the proposed transaction.
On June 17, 2015, Nokia and Alcatel Lucent announced that the U.S. Department of Justice had granted early termination of the antitrust waiting period for the contemplated combination of Nokia and Alcatel-Lucent.
On October 19, 2015, Nokia received clearance from the Chinese Ministry of Commerce.
On October 21, 2015, following the decision by the French Ministry of Economy to approve the proposed transaction, Nokia announced receipt of all required regulatory approvals to proceed with the filing of its public exchange offer.
On November 18, 2015, following the clearance decision of Nokia Offer by the AMF, Nokia launched its public exchange offer for all outstanding shares, American depositary shares and OCEANE of lucent. The deadline for tendering Alcatel-lucent shares and OCEANE was on December 23, 2015.
acquisition of Alcatel-Lucent.
During the second quarter of 2015, Alcatel-Lucent informed employees that the conditions attached to the stock-option and performance shares plans granted to them would be modified so that all vesting and performance conditions would be deemed satisfied at the acquisition date, should the employees agree to tender their Alcatel-Lucent shares to the project of future exchange offer by Nokia.
A specific share package contingent upon the closing of the exchange offer was also granted to Mr. Michel Combes, the Group CEO until September 1, 2015. On September 10, 2015, the Board of Directors modified the initial share package and made the following decisions:
– performance units: the performances of the 2013 and 2014 years under the 2013 and 2014 plans have already been assessed and represent 1,025,649 vested performance units. 2015 level of achievement will be evaluated at the beginning of 2016 by the Board of Directors and pro-rated to Mr. Michel Combes’ presence during 2015 (i.e. 2/3) representing a maximum of 444,444 performance units; and – stock-options: March 2014 agreement to grant Mr. Michel Combes 700,000 stock-options was replaced by 350,000 Alcatel-Lucent shares. 2015 level of achievement will be evaluated at the beginning of 2016 by the Board of Directors and pro-rated to Mr. Michel Combes’ presence during 2015 (i.e. 2/3) representing a maximum of 58,333 shares.
performances beginning of 2016.
On July 29, 2015, the Board of Directors, upon recommendation of the Compensation Committee and the Corporate Governance and Nominations Committee, in order to ensure the protection of the Company, requested the execution of a non-compete agreement with Mr. Michel Combes.
On September 10, 2015, the Board of Directors maintained the main terms of the non-compete agreement but the amount was reduced to€3.1 million which will be paid in three installments with the first payment on October 30, 2015. An expense of €4.1 million, including payroll taxes, was recorded.
Š License agreements
On April 1, 2015, we terminated certain former license agreements and entered into new license agreements with Qualcomm over a 6 to 10-year period. Total commitments amounted to $400 million (see Note 7).
Š Disposal of Coralec shares
We disposed of our Coralec shares to Alcatel-Lucent Participations (see Note 8).
Note 3 Income statement analysis
Net loss is analyzed below:(in millions of euros) 2015 2014
Operating revenues 632.7 410.2
Operating expenses (690.4) (444.0)
Operating income (loss) (57.7) (33.8)
Financial income (loss) 7,917.8 987.9
Income (loss) before non-recurring items and income tax 7,860.1 954.1
Non-recurring items (7,094.5) (110.2)
Income tax 29.3 46.2
Net income (loss) after tax 794.9 890.1
Operating activities
Revenues increased by 186 million at€556.3 million (compared to€370.5 million in 2014). This increase is mainly due to the re-invoicing of the R&D expenses as part of our Cost Sharing agreement.
Operating revenues amounted to€633 million, including specific costs related to the exchange offer launched by Nokia transferred to non-recurring expenses.
The increase of our operating expenses for €246 million is mainly related to the amount of the R&D expenses received (€182 million) and specific expenses linked to the public exchange offer.
Financial income/(loss) - Non-recurring items
Financial gain was€7,917.8 million in 2015 compared to a gain of€987.9 million in 2014 essentially due to the dividends received and the change in the valuation of investments in subsidiaries.
Non-recurring losses of€7,094.5 million were mainly related to the disposal of our Coralec shares to our fully-owned company Alcatel-Lucent Participations; the correlative release of financial reserve amounted to€7,078.6 million.
Net change in financial reserves and depreciation
The net change in financial reserves and depreciation resulted in a gain of €7,727.4 million in 2015 compared to a gain of €459.8 million in 2014:
2015 2014
(in millions of euros) (Increase) Write-back
Net
movement (Increase) Write-back
Net movement
Depreciation of investments in
subsidiaries and associates (Note 8) 323.7 (8,040.7) (7,717.0) (316.8) 703.4 386.6 Depreciation of other financial
investments and other financial
assets (Note 9) - (10.2) (10.2) - 73.6 73.6
Depreciation of marketable securities - -
-Reserves for financial risks - (0.2) (0.2) (0.4) - (0.4)
Depreciation other current assets (Note 15) - - -
-Depreciation L.T. loans (Note 9) - - -
-Others risks (Note 13) - - - (0.2) - (0.2)
Interest rate risk & Others (Note 13) - (0.2) (0.2) (0.2) - (0.2)
Amortization of premiums on bonds - - -
-TOTAL 323.7 (8,051.1) (7,727.4) (317.2) 777.0 459.8
Depreciation of investments in subsidiaries
The 2015 net gain resulted from the re-assessment of the inventory values of each investment and the release of the reserve on Coralec shares. (See valuation exercise in Note 8).
Depreciation of other financial investments
The release of €10.2 million of other financial investments related mainly to the depreciation in the valuation of treasury stock recorded at the closing December stock market prices.
Depreciation of marketable securities No movement was recorded in 2015.
Reserves for financial risks
€0.2 million was recorded regarding the valuation of receivable in US dollars at December 31, 2015.
Dividends
Dividends received from subsidiaries decreased from €412.0 million in 2014 to€11.8 million in 2015 (see Note 4).
Financial interest
Net income from financial products and interest was a gain of €178.4 million compared to a gain of €104.5 million in 2014, which was mainly due to:
Š the effects of the debt restructuring (€16 million), Š the variation in the deposits of the subsidiaries :
– additional financial interests from the loan granted to Alcatel-Lucent Participation for (+€25.6 million) ; and
– reduced financial interests on the deposit from Alcatel-Lucent USA for (€25.9 million).
Income tax
Income tax represented a net benefit of€29.3 million of which: an income tax benefit of€20.0 million generated by the French tax group and a research credit tax for 2015 of€9.3 million (see Note 5).
(in millions of euros) 2015 2014
Subsidiaries
Electro Banque 10.6 410.8
Alcatel-Lucent Norway 1.2 1.2
TOTAL 11.8 412.0
Note 5 Income tax
French tax group
12 French subsidiaries belonged at December 31, 2015 (see Note 23).
Tax benefit (charge) breakdown
The tax benefit is analyzed as follows:
2015 2014
(in millions of euros)
Pre-tax amount
Tax benefit (charge)
Pre-tax amount
Tax benefit (charge)
Operating income (loss) (57.7) 9.3 (33.8) 9.0
Financial income (loss) 7,917.8 987.9
-Income (loss) before non-recurring items and income tax 7,860.1 9.3 954.1 9.0
Non-recurring items (7,094.5) (110.2) 15.3
French tax Group 20.0 - 21.9
Total tax benefit (charge) 29.3 29,3 46.2 46.2
Net income (loss) after tax 794.9 - 890.1
-Note: non tax-deductible expenses defined in Article 39.4 of the French General Tax Code amounted€26.3 thousand in 2015 for tax expenses of€10 thousand.
Note 6 Balance sheet
Total assets increased to€24,359 million after the valuation of investments in subsidiaries at the end of 2015.
Note 7 Intangible assets
Gross value
(in millions of euros) 12/31/2014 Increases(1) Decreases 12/31/2015
Goodwill 39.6 - - 39.6
Patents, trademarks, intellectual property rights(1) 136.9 346.7 - 483.7
Intangible assets 176.5 346.7 - 523.3
(1) On April 1, 2015, Alcatel-Lucent terminated certain license agreements and entered into new license agreements with Qualcomm for an amount of€335 million accounted for as intangible assets.
Amortization and depreciation
(in millions of euros) 12/31/2014 Decreases Increases 12/31/2015
Goodwill (25.1) - - (25.1)
Patents, trademarks, intellectual property rights(1) (134.9) - (43.1) (178.0)
Intangible assets (160.0) - (43.1) (203.1)
(1) Amortization of licenses from Qualcomm.
Net value
(in millions of euros) 12/31/2014 Increases Decreases 12/31/2015
Goodwill 14.5 - - 14.5
Patents, trademarks, intellectual property rights 2.0 346.7 (43.1) 305.7
Intangible assets 16.5 346.7 (43.1) 320.2
Note 8 Investments in subsidiaries and associates
Gross value
(in millions of euros) 12/31/2014 Increases Decreases 12/31/2015
Subsidiaries 39,072.7 - (8,726.7) 30,346.0
Associates 375.7 20.0 - 295.7
TOTAL 39,448.4 20.0 (8,726.7) 30,741.7
Depreciation
(in millions of euros) 12/31/2014 Decreases Increases 12/31/2015
Subsidiaries (29,799.3) 8,040.7 (303.0) (22,061.6)
Associates (373.6) - (20.7) (394.3)
TOTAL (30,172.9) 8,040.7 (323.7) (22,455.9)
Net value
(in millions of euros) 12/31/2014 Increases Decreases 12/31/2015
Subsidiaries 9,273.4 8,040.7 (9,029.7) 8,284.4
Associates 2.1 20.0 (20.7) 1.4
TOTAL 9,275.5 8,060.7 (9,050.4) 8,285.8
Gross value
The decrease of€8,727 million is related to the disposal of our Coralec shares to Alcatel-Lucent Participations.
Reserves for depreciation
Changes in reserves for depreciation of investments in subsidiaries and associates during the year were the following: Increase in reserves for depreciation is related to Alcatel-Lucent Submarine Networks (€296 million), Electro Banque (€7 million) and Alcatel-Lucent Holding Gmbh (€20 million). Release of depreciations is related to Alcatel-Lucent Participations (€962.0 million). Reserves for depreciation that are related to Alcatel-Lucent Participations and Alcatel-Lucent Submarine Networks were based on the recoverable value of the Alcatel-Lucent Group, estimated on the basis of the enterprise values
of the different business divisions. The approach consists in calculating for each business division a fair value excluding debt and taxes, based on discounted future cash flows for the period 2016 to 2020 and on a discounted terminal value in 2020. The discount rate used of 9.50% (9.80% in 2014) is based on the weighted average cost of the Group’s capital. The sum of these recoverable values, adjusted for consolidated net cash and other balance sheet items, such as tax assets and liabilities, financial assets and other non-operating assets and liabilities, constitutes the fair value of the Group.
The enterprise value is then allocated between the participating interests held by Alcatel-Lucent Participations, and the other subsidiaries of which Alcatel-Lucent Submarine Networks. The value obtained for each entity is then compared to the historical book value of each investment and, where necessary, a reserve for depreciation is recorded.
Note 9 Receivables from subsidiaries and associates and other financial assets
The changes during the year were as follows:Gross value
(in millions of euros) 12/31/2014 Increases Decreases 12/31/2015
Alcatel-Lucent shares held 259.8 - - 259.8
Long-term loans to subsidiaries 8,438.8 2,432.6 - 10,871.4
Other financial assets 4.9 - - 4.9
TOTAL 8,703.5 2,432.6 - 11,136.1
Depreciation
(in millions of euros) 12/31/2014 Decreases Increases 12/31/2015
Alcatel-Lucent shares held (222.7) 10.2 - (212.5)
Long-term loans to subsidiaries - - -
-Other financial assets (4.8) - - (4.8)
TOTAL (227.5) 10.2 - (217.3)
Net value
(in millions of euros) 12/31/2014 Increases Decreases 12/31/2015
Alcatel-Lucent shares held 37.1 10.2 - 47.3
Long-term loans to subsidiaries 8,438.8 2,432.6 - 10,871.4
Other financial assets 0.1 - - 0.1
TOTAL 8,476.0 2,442.8 - 10,918.8
Long-term loans to subsidiaries
Loans granted to Alcatel-Lucent Participations increased €2,406 million during the financial year.
Treasury stocks
The market value of Alcatel-Lucent shares owned by the company amounts to €47.3 million based on the last stock market prices of December 2015 (€37.1 million at December 31, 2014).
Note 10 Marketable securities, cash and short-term financial debt
The net amounts of short-term financial assets and debts (including short-term advances to or from subsidiaries in the context of the Group’s Treasury Convention, which appear in the balance sheet in “Accounts receivable and other current assets” or “Other liabilities”) were as follows:
(in millions of euros) 2015 2014
Cash 2,938.6 2,543.0
Group’s Treasury Convention with subsidiaries (see note 15) 335.7 389.6
Total cash and cash equivalents(1) 3,274.3 2,932.6
Marketable securities(2) 1,179.9 1,070.4
Short-term part of bonds -
-TOTAL SHORT-TERM FINANCIAL ASSETS 4,454.2 4,003.0
Short-term bonds -
-Short-term bank loans and overdrafts -
-Other short-term financial debt (24.7) (31.5)
Group’s Treasury Convention with subsidiaries (see note 15) (8,337.9) (7,233.5)
TOTAL SHORT-TERM FINANCIAL DEBT(3) (8,362.6) (7,265.1)
TOTAL (3,908.4) (3,262.1)
(1) Including bank deposits and short-term advances to subsidiaries resulting from the Group’s Treasury Convention. (2) Including monetary UCITS
(3) Including bank loans and overdrafts and short-term advances from subsidiaries resulting from the Group’s Treasury Convention.
The change in Alcatel-Lucent’s short-term financial assets and debts reflects a large volume of transactions undertaken by the parent company on behalf of its subsidiaries.
Note 11 Market-related exposures
Currency risks and interest rate risks are analyzed below.Currency risks
As of December 31, 2015, off-balance sheet financial instruments, held for hedging purposes, were as follows: Purchaser/Lender Principal amount
(in millions of euros) Within one year
Between 1 and
5 years Over 5 years
Fair value
Forward exchange contracts 1,022.9 - - (1.2)
Forward exchange swaps 5,310.4 - - 80.9
Cross currency swaps - 459.3 - 108.5
Currency option contracts:
Š Call - - -
-Principal amount
(in millions of euros) Within one year
Between 1 and
5 years Over 5 years
Fair value
Forward exchange contracts (1,044.7) - - 0,1
Forward exchange swaps (1,571.6) - - (44,7)
Cross currency swaps - - -
-Currency option contracts:
Š Call - - -
-Š Put - - -
-Interest rate risks
At December 31, 2015, off balance sheet financial instruments held to manage interest rate risks were as follows: Principal amount
(in millions of euros) Within one year
Between 1 and
5 years Over 5 years
Fair value
Interest rate swaps: - - -
-Pay fixed rate - - -
-Pay floating rate - - -
-Liquidity risk and credit rating
As of December 31, 2015, Alcatel-Lucent credit ratings were as follows:
Rating Agency
Corporate
Family rating Long-term Debt Short-term Debt Outlook
Last update of CFR/Debt
Last update of the outlook Moody’s B2 B2/B3(1) Not prime Review for upgrade August 28, 2015 April 20, 2015 Standard & Poor’s B+ B+ B Review for upgrade August 5, 2015 April 17, 2015 (1) The OCEANE 2018, the OCEANE 2019 and the OCEANE 2020 are rated B3; all other long term debt issued by Alcatel-Lucent is rated B2.
Rating clauses affecting Alcatel debt at December 31, 2015
Given its current short-term ratings and the lack of liquidity of the French commercial paper (“billets de trésorerie”) market, Alcatel-Lucent has decided not to participate in this market for the time being.
Alcatel-Lucent outstanding bonds do not contain clauses that could trigger an accelerated repayment in the event of a lowering of its credit ratings.
Liquidity risk on the financial debt
As of December 31, 2015, the Group considers that its available marketable securities, cash and cash equivalents and the available syndicated bank credit facility are sufficient to
cover its operating expenses and capital expenditures and its financial debt requirements for the next twelve months.
Alcatel-Lucent syndicated bank credit facility
On December 17, 2013, Alcatel-Lucent closed a €504 million three-year revolving credit facility with a syndicate of 12 international banks. The availability of this instrument is not dependent upon Alcatel-Lucent Credit Ratings. The availability of this facility is dependent upon Alcatel-Lucent meeting a financial covenant linked to its capacity to cover its interest charges. This credit facility was undrawn as of December 31, 2015.
The syndicated bank facility signed in April 5, 2007 was cancelled following the closing of the Alcatel-Lucent USA Inc. Senior Secured Facility in January 2013.
Note 12 Shareholders’ equity
The changes in shareholders’ equity during the year 2015 were as follows:
(in millions of euros)
Number of shares
outstanding Capital
Additional Paid-in capital
Legal reserve
Statutory reserves
Other reserves
Retained earnings
Net income for the period
Total share-holders’ equity
At December 31, 2014
before appropriation 2,820,432,270 141.0 20,928,1 369.6 1,673.3 195.0 (13,196.9) 890.1 11,000.2
Appropriation of net
income (loss) - - - 890.1 (890.1)
-Increases in capital:
Š conversion of
convertible bonds 173,073,649 8.7 282.6 - - - 291.3
Š subscriptions 4,236,071 0.2 (0.2) - - -
-Š stock options
exercised 38,595,369 1.9 80.4 - - - 82.3
Net income (loss) for the
year - - - 794.9 794.9
At December 31, 2015
before appropriation 3,036,337,359 151.8 21,290.9 369.6 1,673.3 195.0 (12,306.8) 794.9 12,168.7
Appropriation of net
income (loss) (proposal) - - - 794.9 (794.9)
-Dividend to be distributed
relating to 2015 (proposal) - - -
-At December 31, 2015 after appropriation
(proposal) 3,036,337,359 151.8 21,290.9 369.6 1,673.3 195.0 (11,511.9) - 12,168.7
Capital stock, consisting of 3,036,357,359 ordinary shares of nominal value €0.05, amounted to €151.8 million at the end of 2015.
The distributable income comprises the net income of the year reduced by any losses brought forward and by any legal or statutory appropriations to reserves and increased by any positive retained earnings. In addition, the Shareholders’
Meeting is allowed to decide the distribution of available reserves and additional paid–in capital. However, the legal reserve, unavailable reserves resulting from the enforcement of laws or company by-laws and revaluation reserves cannot be distributed. In view of the above-mentioned proposed appropriation for 2015, distributable reserves amounted to €11,647.3 million.
Note 13 Reserves for liabilities and charges
The movements on reserves for liabilities and charges in 2015 were as follows:
(in millions of euros) 12/31/2014 Increases (Write-backs) (Utilizations) 12/31/2015
Reserve for unrealized foreign exchange
losses 0.3 - (0.2) - 0.1
Reserve for financial risks (Note 4) - - - -
-Reserves for litigation, guarantees given
on investments sold and other reserves 4.4(1) 0.4 (1.0) - 3.8
Reserves for pensions and retirement
indemnities (Note 17) 33.5 2.1 (4.3) - 31.3
Reserves for risks relating to subsidiaries - - - -
-TOTAL 38.2 2.5 (5.5) - 35.2
Income statement impact:
Š operating income (loss) 2.5 (5.3)
-Š financial income (loss) - (0.2)
-Š non-recurring income (loss) - - -
-(1) At December 31, 2015, the€3.7 million of Reserves for litigation, guarantees given in investment sold and other reserves consisted essentially of€3.4 million Saft liability guarantee.
At December 31, 2015, outstanding Alcatel-Lucent bonds amounted to€1,676.7 million compared to€1,969.8 million at December 31, 2014. These amounts are analyzed as follows:
(in millions of euros) 12/31/2014
Conversion of bonds into
shares Repayment
New
issuances 12/31/2015
Convertible bonds
Š Senior Notes 8.50 % -€195M(1)due
January 2016 192.1 - (1.7) - 190.4
Š OCEANE 4.25% -€629 M due July 2018(2) 628.9 (211.4) - - 417.5
Š OCEANE 0.00% -€688 M due 2019(3) 688.5 (48.9) - - 639.6
Š OCEANE 0.125% -€460 M due 2020(4) 460.3 (31.1) - - 429.2
TOTAL 1,969.8 (291.4) (1.7) - 1,676.7
(1) Guaranteed by Alcatel-Lucent USA Inc. and certain subsidiaries of Alcatel-Lucent. (2) Conversion 117,427,501 notes in shares as part of the exchange offer launched by Nokia. (3) Conversion 11,891,116 notes in shares as part of the exchange offer launched by Nokia. (4) Conversion 7,729,972 notes in shares as part of the exchange offer launched by Nokia.
Note 15 Analysis by maturity date of liabilities and receivables and other current assets
(in million of euros)
Amount at 12/31/2015
Less than
one year 1-5 years
After 5 years
Out of which accruals Financial debt
Š convertible bonds (OCEANE) 1,486.3 - 1,486.3 -
-Š other bonds 190.4 190.4 - -
-Š bank loans and overdrafts 2.5 2.5 - -
-Š other financial debt 1,226.6 583.6 - 643.0 24.7
Tax and social liabilities 12.9 12.9 - - 12.9
Other liabilities (after appropriation) 9,222.7 8,900.9 321.8 - 208.1
TOTAL LIABILITIES 12,141.4 9,690.3 1,808.1 643.0 245.7
Analysis of other liabilities at December 31, 2015
(in million of euros)
Amount at 12/31/2015
Amount at 12/31/2014
Advances from subsidiaries - Group’s Treasury Convention 8,337.9 7,233.5
Accounts payable(1) 171.3 102.1
Other 713.5 333.5
TOTAL 9,222.7 7,669.1
(in millions of euros)
Amount at 12/31/2015
Less than
one year 1-5 years
After 5 years
Out of which accruals Receivables
Tax and social receivables 31.9 24.1 7.8 -
-Other accounts receivable and other current
assets 663.8 563.0 100.8 - 166.5
TOTAL 695.7 587.1 108.6 - 166.5
Analysis of other accounts receivable and other current assets at december 31, 2015
(in million of euros)
Amount at 12/31/2015
Amount at 12/31/2014
Advances to subsidiaries - Group’s Treasury Convention 335.7 389.6
Receivables 49.6 109.7
Other 278.5 164.6
Total 663.8 663.9
Note 16 Related party transactions
Outstanding balances at December 31, 2015 arising from related party transactions were as follows:
(in millions of euros)
Net balance sheet amount
Of which consolidated or related companies Investments and other non-current assets
Š Investments in subsidiaries and associates 8,285.8 8,285.8
Š Due from subsidiaries and associates -
-Š Other financial assets(1) 10,871.4 10,864.7
Š Other investments 47.4 47.2
Accounts receivable 695.7 507.5
Marketable securities/Cash 4,118.5
-Financial debt
Š Convertible bonds and other bonds 1,676.7
-Š Bank loans and overdrafts 2.5
-Š Other financial debt 1,226.6 1,210.1
Tax and social liabilities 9,051.3 8,607.2
Other liabilities (after appropriation) -
-(1) Of which€10,218.6 million loans granted to Alcatel-Lucent Participations. Related party transactions for the period were as follows:
(in millions of euros)
Net income statement amount
Of which consolidated or related companies Financial income (loss)
Š Revenues from investments in subsidiaries and associates 11.8 11.8
Š Interest income and similar revenues 382.7 329.1
Š Interest expenses and similar expenses (204.3) (114.1)
Š Other financial income (loss) 7,727.6 7,727.1
At December 31, 2015, Alcatel-Lucent’s pensions and retirement indemnity obligations were either reserved (the reserve amounts to €31.3 million - see Note 13) or were covered by insurance contracts.
The 2013-02 recommendation put in place on the 7th of November 2013 by the French Accounting Principles Authority was applied, by anticipation, on the financial year beginning the 1st of January 2013. The resulting changes from this first application were treated in accordance with the norms relating
to changes in accounting methods. The application of this recommendation led to immediate recognition in the income statement of the amendments during their period of occurrence. The expenses budgeted for the assets value are now calculated using the discount rate instead of the assets’ expected rate of return. Alcatel-Lucent has also confirmed its application of the immediate recognition of actuarial gains and losses in the income statement. This change in policy had no impact on the opening of prior accounting periods.
The actuarial assumptions used are as follows:
Discount rate 2,00%
Future salary increases including inflation rate, by age :
Š Less year 44 years old : 10,00% Š Between 40 and 44 : 9,00% Š Between 45 and 49 : 6,00% Š Between 50 and 54 : 5,00% Š Between 55 and 59 : 3,50% Š More 59 years old : 0,00%
The discount rate used is 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.
Components of net periodic benefit (cost) of post-employment benefit plans are:
(in millions of euros)
Service cost (1.6)
Interest cost (1.5)
Interest income 0.9
Amendments
-Recognized actuarial gain/(loss) 4.3
Effect of curtailments
-Effect of settlements
-Effect of adjustment on net assets
The change in the obligation recorded in the balance sheet was as follows: (in millions of euros)
Change in benefit obligation
Benefit obligation at January 1 (86.6)
Service cost (1.6)
Interest cost (1.5)
Plan participants’ contributions
-Amendments
-Curtailments
-Settlements 3.5
Special termination benefits
-Actuarial (gains) and losses 4.6
Benefits paid
-Benefit obligation at December 31 (81.5)
Benefit obligation excluding effect of future salary increases (80.6)
Effect of future salary increases (0.9)
Benefit obligation at December 31 (81.5)
Change in plan assets
Fair value of plan assets at January 1 53.1
Interest income 0.9
Actuarial gains and (losses) (0.3)
Employer’s contributions
-Plan participants’ contributions
-Amendments
-Curtailments
-Settlements (3.5)
Benefits paid/Special termination benefits
-Fair value of plan assets at December 31 50.2
Present value of defined benefit obligations that are wholly or partially funded (81.5)
Fair value of plan assets 50.2
Funded status of defined benefit obligations that are wholly or partially funded (31.3)
Present value of defined benefit obligations that are wholly unfunded
-Funded status (31.3)
Net amount recognized (31.3)
The plan assets of retirement plans were invested as follows:
(in millions of euros and percentage) Market value %
Bonds 43.2 86%
Equity securities 1.7 3%
Short-term investments 1.8 4%
Property assets 3.5 7%
Presentation of here below financing commitments does not preclude the existence of significant off-balance sheet commitments in accordance with accounting principles.
Other commitments
Alcatel-Lucent has also given the following guarantees with regard to the Group’s general operations:
(in millions of euros)
Amount at 12/31/2015
Less than
one year 1-5 years After 5 years
Guarantees granted to subsidiaries or other Group companies - - -
-Assets pledged to secure Alcatel-Lucent’s financial debt - - -
-Guarantees given on:
Š commercial contracts 1,663.4 827.0 198.9 637.5
Š loans 1,791.1 - 1,791.1
-Š other items 483.1 26.4 403.2 53.5
TOTAL 3,937.6 853.4 2,393.2 691.0
The guarantees given on commercial contract (€1,663.4 million) included guarantees on businesses sold or contributed to Thales (€46.9 million) for which Alcatel-Lucent received a counter-guarantee from the purchaser.
Guarantees received
(in millions of euros)
Amount at 12/31/2015
Less than
one year 1-5 years After 5 years
Credit facility - - -
-TOTAL - - -
-Note 19 Contingencies
In addition to legal proceedings incidental to the conduct of its business (including employment-related collective actions in France and the United States) which management believes are adequately reserved against in the financial statements (see Note 25e to the consolidated financial statements) or will not result in any significant costs to the Group, Alcatel-Lucent is involved in the following legal proceedings.
a/ Governmental actions and investigations
Costa Rican ActionsIn early October 2004, Alcatel-Lucent learned that investigations had been launched in Costa Rica by the Costa Rican prosecutors and the National Congress, regarding payments made by consultants allegedly on behalf of Alcatel CIT (CIT), a French subsidiary now called Alcatel-Lucent International, or other Alcatel-Lucent subsidiaries to various public officials in Costa Rica, two political parties in Costa Rica and representatives of Instituto Costarricense de Electricidad (ICE), the state-owned telephone company, in connection with the procurement by CIT of several contracts for network equipment and services from ICE.
Alcatel-Lucent settled the Attorney General’s social damages claims in return for a payment by CIT of approximately U.S.$10 million.
On June 30, 2015, Alcatel-Lucent, Alcatel-Lucent International (that is, the former CIT) and Alcatel-Lucent Trade International AG signed a settlement agreement with ICE in full and final settlement of all litigation between the parties, and more specifically the following court proceedings:
Š civil claim filed by ICE against CIT, among others, in the context of the criminal proceedings brought against various Costa Rican individuals as a consequence of the 2004 bribery allegations;
Š claim filed by CIT against ICE in October 2008 regarding ICE’s termination of the contract for CIT to install 400,000 GSM cellular telephone lines (the “400KL GSM contract”); and
Š civil claim filed by ICE in May 2012 against Alcatel-Lucent, CIT and Alcatel-Lucent Trade International AG for damages on the basis of the corruption matter that was investigated by and settled with the Costa Rican and the United States authorities.
