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Effective October 1, 2004, we established a new streamlined organizational structure that included, among other things, combining the
businesses of our four segments into two business organizations: (i) Carrier Networks and Global Operations, and (ii) Enterprise Networks. We
are reviewing the impact of these changes on our reportable segments under Statement of Financial Accounting Standards, or SFAS, No. 131,
“Disclosures about segments of an enterprise and related information”.
Ourbusinessenvironment
In 2001, we entered into an unprecedented period of business realignment in response to a significant adjustment in the industry. Industry
demand for networking equipment dramatically declined in response to the industry adjustment, severe economic downturns in various regions
around the world and a tightening in global capital markets. We implemented a company-wide restructuring plan to streamline our operations
and activities around core markets and operations, which included significant workforce reductions, global real estate closures and dispositions,
substantial write-downs of our capital assets, goodwill and other intangible assets and extensive contract settlements with customers and
suppliers around the world. As a result of these actions, our workforce declined significantly from January 1, 2001 to December 31, 2003 and
over the same time period, we significantly reduced our facilities. In 2003, customer spending remained cautious as a result of tightened capital
markets mainly in the first half of 2003 and customers realigning capital spending with their current levels of revenues and profits in order to
maximize their return on invested capital. We experienced continued industry adjustment and capital spending restrictions by our service
provider customers. Also, excess network capacity and competition continued to exist in the industry which led to continued pricing pressures
on the sale of certain of our products.
During the second half of 2003 and in 2004, we began to experience a period of relative industry stability. Throughout the second half of 2003
and in 2004, we announced several new contracts across all of our reportable segments, but primarily in our Wireless Networks segment, as
certain service provider customers began to expand and upgrade their existing networks. In 2004, however, we continued to experience pricing
pressures on sales of certain products across all of our reportable segments primarily as a result of increased competition.
As first announced on August 19, 2004, we have put in place a new strategic plan that recognizes these industry dynamics and the evolution of
the converged network (see “Our strategic plan and outlook”). In an increasingly cost-competitive environment, we are taking steps that we
believe will better position us to grow market share and improve our results and cash generation. As part of our strategic plan, we also
announced a focused workforce reduction of approximately 3,250 employees.
In May 2003, we commenced certain balance sheet reviews at the direction of certain members of former management that led to a
comprehensive review and analysis of our assets and liabilities, or the Comprehensive Review, which resulted in the
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• Wireless Networks — Our Wireless Networks segment provides communications networks that enable end-users to be mobile
while they send and receive voice and data communications using wireless devices, such as cellular telephones, personal digital
assistants and other computing and communications devices. Our Wireless Networks customers are wireless service providers, and
their customers are the subscribers for wireless communications services.
• Enterprise Networks — Our Enterprise Networks segment provides data, voice and multimedia communications solutions for our
enterprise customers. Our Enterprise Networks customers consist of a broad range of enterprise customers around the world,
including large businesses and their branch offices, small businesses and home offices, as well as government agencies, educational
and other institutions and utility organizations.
• Wireline Networks — Our Wireline Networks segment addresses the demand by our service provider customers for cost efficient
data, voice and multimedia communications solutions. We offer our Wireline Networks products and services to a wide range of
wireline and wireless service providers around the world. Our service provider customers include local and long distance telephone
companies, wireless service providers, cable operators and other communication service providers. We also provide services to our
data networking and security customers which consist of system integrators that in turn build, operate and manage networks for
their customers, such as businesses, government agencies and utility organizations.
• Optical Networks — Our Optical Networks segment solutions transport data, voice and multimedia communications within and
between cities, countries or continents by transmitting communications signals in the form of light waves through fiber optic cables.
Our Optical Networks business is primarily focused on offering our optical networking solutions to service providers around the
world. The service provider customers for our optical networking products include local and long-distance telephone companies,
cable operators, Internet service providers and other communications service providers.