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Lucent forms an agreement with SEC

Lucent Technologies, the nation's largest maker of telecommunications equipment, said on Thursday that it had reached a preliminary agreement with the Securities and Exchange Commission to end an investigation of its accounting practices.

Lucent said the agreement, which is subject to the approval of SEC commissioners, would not require the company to pay a fine or restate any financial results. The SEC had been investigating Lucent for the last two years after the company alerted the commission that US$679 million in revenue may have been improperly recorded. The SEC is expected to release its finding after commissioners vote on the agreement.

The resolution of the investigation removes a lingering doubt that had plagued Lucent's management since late 2000, when the company dismissed a senior sales executive over his involvement in transactions that were later considered improper.

"This is a case where we identified the problem to the SEC and worked together with them throughout the process," Patricia F. Russo, Lucent's chief executive, said on Thursday in an interview. "I'm very pleased with the outcome."

John P. Gavin, an expert on SEC inquiries, said on Thursday he was not surprised that Lucent would not be subjected to any penalties or fines.

"We'd like to believe this is the best the SEC can do, and it probably is given the way legal proceedings work in cases like these," said Gavin, whose company, SEC Insight, retrieves and analyzes SEC documents. "But while Lucent is emerging from the investigation unscathed, there's the perception that the company generally failed its shareholders."

Lucent has also recently settled other legal disputes, including a breach-of-contract claim filed by Nina Aversano, a former senior executive who left the company in October 2000, and a relatively small shareholder lawsuit in Texas by Obtek, which had accused Lucent of providing misleading financial information.

Henry B. Schacht, a former Lucent chief executive who stepped down as the company's chairman last week, said he would continue at Lucent as a senior adviser focusing on the company's outstanding legal challenges. With the SEC investigation resolved, Schacht is expected to turn much of his attention to a class-action shareholder suit that claims Lucent used improper methods to improve its financial results.

Despite Thursday's rise, Lucent's shares are still down more than 90 percent from their peak of US$64.69 in December 1999. The company, which is based in Murray Hill, New Jersey, is still amid a wide-reaching cost-cutting and an overhaul effort that has reduced its staff to about 35,000 from more than 123,000 through spin-offs and job cuts. Russo recently reaffirmed the company's expectation that the company would return to profitability by September after three years of losses.

Lucent has sought to lessen company practices that were common when it was at the forefront of the telecommunications industry's breakneck expansion of the late-1990s. The construction of numerous networks around the world with Lucent equipment was followed by a string of bankruptcy protection filings by large customers and a debilitating oversupply of communications capacity.

Although the accounting issues brought to the attention of the SEC were specifically related to misleading documentation, improper offers of credits and the booking of sales that were never shipped, analysts say Lucent's aggressive financing of its own sales overshadowed the development of later problems.

After the industry's crisis began in 2000, Lucent is thought to have written down almost US$3 billion of debt related to the financing of equipment purchases by its customers, or more than the telecommunications debt exposure recently written down by several large investment banks. Lucent has lowered its vendor-financing commitments to about US$744 million after reaching a high of US$8.4 billion in December 1999.

"Lucent has gone through the painful process of correcting some of things it was doing in the gangbuster days," said Steven D. Levy, a telecommunications equipment analyst with Lehman Brothers.
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