BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 30778 BNY Y27905 001.00.00.00 0/2 Queue: BNY_CPS *Y27905/001/2* Description: FORM 10-K EDGAR 2

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006

OR

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO.: 001-11639 LUCENT TECHNOLOGIES INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 22-3408857

(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)

600 MOUNTAIN AVENUE, MURRAY HILL, NEW JERSEY 07974

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: 908-582-8500

0/2 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None.

Date: 22-JAN-2007 10:37:45.81 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No  001.00.00.00 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No Operator: BNY99999T 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),Y27905 and (2) has been subject to such filing requirements for the past 90 days. Yes No  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will

notBNY be*Y27905/001/2* contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  IndicatePhone: (212)924-5500 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). Large accelerated filer  Accelerated filer Non-accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No  At March 31, 2006, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately $13,639,895,000. CRC: 30778 At DecemberEDGAR 2 1, 2006, 100 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the registrant’s annual report to shareowners for the fiscal year ended September 30, 2006 (Part II). Site: BOWNE OF NEW YORK (2) [E/O] Portions of the registrant’s definitive proxy statement for its 2007 annual meeting of shareowners filed with the Securities and Exchange Commission within 120 days after September 30, 2006, or an amendment to this Form 10-K filed not later than 120 days after September 30, 2006 (Parts II and III).

WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 57134 BNY Y27905 002.00.00.00 0/5 Queue: BNY_CPS *Y27905/002/5* Description: FORM 10-K EDGAR 2

TABLE OF CONTENTS

Item Description Page PART I Item 1. Business 3 Item 1A. Risk Factors 16 Item 1B. Unresolved Staff Comments 23 Item 2. Properties 23 Item 3. Legal Proceedings 24 Item 4. Submission of Matters to a Vote of Security Holders 25

PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6. Selected Financial Data 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26 Item 8. Financial Statements and Supplementary Data 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27 Item 9A. Controls and Procedures 27 Item 9B. Other Information 27

PART III Item 10. Directors and Executive Officers of the Registrant 27 Item 11. Executive Compensation 28 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 28 Item 13. Certain Relationships and Related Transactions 28 Item 14. Principal Accounting Fees and Services 28

PART IV Item 15. Exhibits and Financial Statement Schedules 29

This report contains trademarks, service marks and registered marks of us and our subsidiaries, and other companies, as 0/5 indicated.

Date: 22-JAN-2007 10:37:45.81 Explanatory note Following completion of its merger with a wholly owned subsidiary of Alcatel, Lucent Technologies Inc. is no longer subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, but is voluntarily filing this report in order to be in compliance with the terms of the Indenture for its 2-3/4% Series A Convertible Senior Debentures due 2023 and its 2-3/4%

Series002.00.00.00 B Convertible Senior Debentures due 2025.

Operator: BNY99999T 2 Y27905 BNY *Y27905/002/5* Phone: (212)924-5500 CRC: 57134 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 36725 BNY Y27905 003.00.00.00 0/2 Queue: BNY_CPS *Y27905/003/2* Description: FORM 10-K EDGAR 2

PART I

Item 1. Business Company Overview Lucent Technologies Inc. (referred to in this report as the “Company,” “we,” “us,” “our” or “Lucent”) designs and delivers the systems, software and services that drive next-generation communications networks. Supported by Bell Labs research and development, we use our strengths in mobility, optical, access, data and voice networking technologies, as well as services, to create new revenue-generating opportunities for our customers, while enabling them to quickly deploy and better manage their networks. Our customer base includes communications service providers, governments and enterprises worldwide.

Merger With Alcatel On April 2, 2006, we entered into an Agreement and Plan of Merger with Alcatel and a wholly owned subsidiary of Alcatel (the “Merger Agreement”). Under the terms of the Merger Agreement, on November 30, 2006, Alcatel’s subsidiary merged with and into Lucent, with Lucent surviving the merger and becoming a wholly owned subsidiary of Alcatel, now known as Alcatel-Lucent. In connection with our merger with the wholly owned subsidiary of Alcatel (the “Merger”), Alcatel filed a registration statement on Form F-4 (File no. 33-133919), which included a definitive proxy statement/prospectus, dated August 4, 2006, relating to the Alcatel ordinary shares underlying the Alcatel American Depositary Shares (“ADSs”) issued in the Merger, and a registration statement on Form F-6 (File no. 333-138770) to register the Alcatel-Lucent ADSs issued in the Merger.

Corporate Information We were incorporated in Delaware in November 1995. Our principal executive offices are located at 600 Mountain Avenue, Murray Hill, New Jersey 07974 (telephone number 908-582-8500). Our fiscal year begins October 1 and ends September 30. Since we are a wholly owned subsidiary of Alcatel-Lucent, we do not maintain our own Website. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports (should they be filed), as well as other documents we or Alcatel-Lucent have filed with the Securities and Exchange Commission (the “SEC”) are available, free of charge, through the website maintained by the SEC at www.sec.gov. Alternatively, you may read and copy any materials we or Alcatel-Lucent file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Company History Lucent was initially the systems and technology units that had been part of AT&T Corp., including the research and development

icon0/2 Bell Laboratories. Although we separated from AT&T on September 30, 1996, our history dates back to 1869 when the Western Electric Manufacturing Company was formed. By 1880, it was the largest electrical manufacturing company in the U.S. and it would become the exclusive developer and manufacturer of equipment for the Bell telephone companies that operated the U.S.’ telephone network. In 1907, AT&T (formerly American Bell) and Western Electric engineering departments were combined Date: 22-JAN-2007 10:37:45.81 into a single organization that, in 1925, would become Bell Telephone Laboratories and generate some of the most significant scientific and technological discoveries of the 20th century. Effective January 1, 1984, AT&T agreed to divest its local Bell telephone companies. As part of this divestiture, a new unit, AT&T

Technologies,003.00.00.00 assumed Western Electric’s charter. In 1989, AT&T Technologies branched into several business units, which would all later combine with Bell Labs to become the original Lucent Technologies. AT&T launched Lucent in April 1996 with an initial public offering. The spin-off was completed in September 1996 when AT&T Operator: BNY99999T distributed its shares of Lucent to AT&T shareholders. Y27905 3 BNY *Y27905/003/2* Phone: (212)924-5500 CRC: 36725 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 6872 BNY Y27905 004.00.00.00 0/1 Queue: BNY_CPS *Y27905/004/1* Description: FORM 10-K EDGAR 2

On November 30, 2006, a wholly owned subsidiary of Alcatel merged with and into Lucent, with Lucent surviving the Merger and becoming a wholly owned subsidiary of Alcatel, now known as Alcatel-Lucent.

Strategy for Growth Our goal is to create new possibilities to enhance people’s lives by transforming the way the world communicates. Our mission is to be the partner of choice for the world’s leading service providers, governments and enterprises by helping them create, build and maintain innovative, reliable and cost-effective communications networks and meet their customers’ growing needs through the rapid deployment of new communication services. Our vision for the industry is converged services — creating networks that deliver communications services that are simple, secure and seamless, personal and portable, for people at work, home or anywhere in between. Our growth strategy is based on bringing to market comprehensive next-generation network solutions that satisfy the increasing end user demand for converged services. Consequently, we seek to deliver solutions that allow service providers to fully transform their businesses at the application or service level, the network element and infrastructure level, and in the business models employed to meet end-user needs. We have been investing in key next-generation technologies, such as third-generation or 3G mobility, next-generation optical networking, broadband access and data, voice over Internet protocol (“VoIP”) products, services and applications, including middleware, operations support software, and end-user applications. The Internet protocol (“IP”) Multimedia Subsystem architecture, or IMS, is the cornerstone of our vision of next-generation networks. IMS is an open, IP- based solution for next-generation networks to deliver voice, video and data services across wireless, wireline and converged networks. This architecture is designed to allow carriers the flexibility to customize their service architectures to the specific communications needs of their customers. Additionally, we continue to offer alternative business models including hosted and managed services and a suite of professional services, with the goal of reducing service providers’ capital and operational expense. We believe this industry demand for converged services will drive service providers to invest in their IMS core network. We believe that we are a leader in IMS because our solution has a common platform that cuts across both wireless and wireline, as well as voice, video and data. We have introduced over 20 new products, applications and Bell Labs technologies that support our common platform approach to IMS across our entire wireless and wireline portfolio. In addition, we believe our vision and our IMS solutions are gaining acceptance with customers. In fiscal 2006, we announced additional contract wins for our IMS-based solutions and portfolio, including PAETEC in the U.S., KPN in Europe, and New World Telecom in Hong Kong. In addition to these publicly announced wins, as of November 10, 2006, we currently have 116 ongoing IMS element trials with 24 customers, and we are particularly encouraged by the increased number of trials and discussions under way with customers outside the U.S. We expect to continue to gradually convert IMS trials into deployments. By assisting networks to transform and by deploying core IMS network solutions, we have achieved some critical initial steps in realizing our vision and are now focusing our efforts and resources on bringing to market the “IMS adjacencies” — the products and0/1 services that are enabled by, and deployed on, a core IMS network. We believe we are well positioned to realize accelerated growth and profitability associated with the broader IMS opportunity by providing our customers with IMS-enabled products and services in areas such as applications, services, content delivery, VoIP solutions, mobile high-speed data, next-generation optical

networkingDate: 22-JAN-2007 10:37:45.81 and broadband access and data, as well as integrated operating support systems and business support systems services. We continue to deliver our next-gen optical, data networking and broadband access portfolio to customers, including launching Acuity Network Architecture, a service-aware, end-to-end architecture designed to deliver more efficiently at a lower cost high-

bandwidth004.00.00.00 IP-based multimedia services to business, residential and mobile subscribers. Ethernet over SONET and over SDH continues as a trend and we look to achieve continued growth in this area. In addition, we continued to make significant progress in IPTV in fiscal 2006, and with additions by Bell Labs in content management and Quality of Service features, we unveiled MiViewTV™,Operator: BNY99999T IPTV software now available for all customers.

Y27905 4 BNY *Y27905/004/1* Phone: (212)924-5500 CRC: 6872 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 34217 BNY Y27905 005.00.00.00 0/3 Queue: BNY_CPS *Y27905/005/3* Description: FORM 10-K EDGAR 2

Convergence and transformation involve multiple layers of applications, network infrastructures and alternative business models and approaches, not all of which we supply. Our customers’ success depends on the evolution of their business models and their networks both to generate new revenue streams and to manage more efficiently the costs of their networks. We believe that customers will increasingly need the depth and expertise of our services group, Lucent Worldwide Services, as they evolve their networks and determine future needs. We believe Lucent Worldwide Services has become a network integrator of choice across the entire services value chain — from business case modeling to other professional services such as network planning and design, installation, integration, optimization and multi-vendor maintenance. With the creation of next-generation communications networks becoming an industry reality, Lucent Worldwide Services has a broad range of solutions to address the challenges of evolving complex networks and managing network integration. More specifically, this transformation architecture is supported by a set of solutions aimed at enabling service providers and enterprises to migrate their existing network infrastructure to next- generation architectures, such as IMS, enabling cost-effective delivery of converged voice, video and data services anytime and anywhere over a common core transport network. Network transformation, network integration and service solutions were components of over 75% of contracts in fiscal 2006. In the government sector, we look to achieve continued growth via the pursuit of opportunities in the areas of converged services, secure solutions, disaster recovery and public safety. In the enterprise market, we are focused on bringing the benefits of convergence to the business user. We continue to focus on emerging markets, which we believe will offer opportunities as communications networks enable economic development. During fiscal 2006, 33% of our total revenue was generated from customers outside the U.S., including emerging markets, and we announced contract wins in Hong Kong, Malaysia, Korea, Japan, New Zealand, Russia, Costa Rica, the Bahamas, Brazil and Venezuela. We continue to believe the telecom industry is in the early stages of a multiyear transformation to next-generation networks. As a result, we have been focusing on certain high-growth areas, such as IMS and IMS adjacencies, 3G mobility, next-generation optical networking, broadband access and data, VoIP solutions and multimedia converged services and applications. As this transformation progresses, our customers are increasingly focused on deploying new IP-based, revenue-generating services that will differentiate their businesses and build customer loyalty. However, the actual trialing, testing and deployment of these new technologies will take time. This is a long-term technology transition, which will create opportunities for us and our customers in these growth areas. We are working to turn these technologies and opportunities into cost-effective solutions for our customers. Within this environment, certain service providers are currently investing to meet growing capacity demands. These demands are being driven by the coverage requirements, subscriber growth and traffic increases that place demands on networks of all kinds. In addition, many service providers have increased investments in the systems, software and technologies that enable next- generation converged services that cut across wireless and wireline, as well as voice, video and data. There is also a growing interest in content such as games, music and entertainment. To meet these challenges, we have been adapting our product portfolio around a common IMS platform designed to give our customers the flexibility to build the types of networks and offer the types of services required to best meet the demand for converged broadband services. Effective October 1, 2005, we combined our mobility and wireline businesses into a single unit, the0/3 Network Solutions Group. This change is enabling us to improve our efficiency, market approach and cost structure. We are also focused on the following actions:

•Date: 22-JAN-2007 10:37:45.81 The implementation of a services-led software strategy that combined our network operations software business with our Lucent Worldwide Services business, which is expected to bring better alignment, focus, efficiency and differentiating solutions.

• The optimization of our supply chain network, including the consolidation of our EMS (electronic manufacturing service) providers from four to two.

• The005.00.00.00 continuation of business process simplification efforts across the Company, including corporate center functions.

Operator: BNY99999T 5 Y27905 BNY *Y27905/005/3* Phone: (212)924-5500 CRC: 34217 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 42640 BNY Y27905 006.00.00.00 0/3 Queue: BNY_CPS *Y27905/006/3* Description: FORM 10-K EDGAR 2

We believe these actions will allow us to more effectively focus our efforts and resources on pursuing high-growth areas where we have strong technology, market or customer advantages. We believe that focusing on these areas will allow us to serve our customers better and provide us with the best opportunity to grow our business profitably.

Communications Equipment and Services Market Market Environment Our service provider customers operate in a fast-changing environment driven by new technology, increased competition and regulatory change. End-users are demanding fast, personalized, secure, easy-to-use communications and are relying on new applications in both their professional and personal lives. These applications and services are enabled by technologies such as mobile high-speed data, next-generation optical networking, broadband access and data, VoIP and multimedia converged services and applications. Our strategy and portfolio are focused on identifying and capitalizing on these growth opportunities, and we believe that demand for these new applications and services will drive profitable growth for both the service providers and Lucent. In many regions, regulatory changes continue to influence the telecom industry. These changes in telecommunications law were designed to liberalize closed markets, encourage competition, create new services and stimulate demand. Historically, this changing legislative landscape has created uncertainty, particularly in the U.S. Depending on the situation, these legislative changes have caused acceleration, postponement or cancellation of major network investments and upgrades by certain customers. Rulings by the Federal Communications Commission in the U.S. and other government regulatory bodies in foreign countries appear to provide a favorable environment for a new breed of high-speed access (broadband) as well as VoIP services. However, the delay of 3G license awards in China could continue to have a negative effect on future network investments in that country. Service providers continue to focus on lowering operational costs, reducing debt, expanding new services and improving the security and reliability of their networks as they look to adapt to a changing regulatory environment. Our addressable market spans the following market segments — voice switching, data networking, optical networking, access, mobility, operating support systems software, applications and services. Key next-generation segments — IMS and IMS adjacencies, 3G mobility, next-generation optical networking, broadband access and data, VoIP solutions, multimedia converged services and applications— are expected to grow faster than the overall market through 2009. While opportunities are more limited and smaller than in the past, we believe a large market opportunity still remains for leading telecommunications equipment vendors to help customers address their business needs.

Consolidation There has been some consolidation among service providers as they look to expand their scope and scale, while improving cost efficiencies.0/3 This industry dynamic presents both challenges and opportunities for equipment vendors. One potential challenge may come in the form of rationalized capital spending in the future. In addition, integration activities may delay new network deployments. However, we anticipate that there will also be opportunities, as carriers will require assistance integrating these large,Date: 22-JAN-2007 10:37:45.81 complex networks. Also, depending on the service providers involved, some of the consolidation could enable certain vendors to extend their reach into customers that were previously focused on different technologies or areas.

Competition

The006.00.00.00 global telecommunications networking industry remains highly dynamic and competitive. Our current principal competitors include Ciena Corporation, Cisco Systems, LM Ericsson Telephone Company, Fujitsu Limited, Huawei Technologies, Motorola, NEC Corporation, Nokia Corporation, Nortel Networks Corporation, Samsung Networks, Siemens, UT Starcom, and ZTE Corporation.Operator: BNY99999T Some of our competitors, such as Nortel, compete across many of our product lines, while others compete in a small subset of our products. Y27905 6 BNY *Y27905/006/3* Phone: (212)924-5500 CRC: 42640 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 54570 BNY Y27905 007.00.00.00 0/2 Queue: BNY_CPS *Y27905/007/2* Description: FORM 10-K EDGAR 2

We expect that the level of competition will continue to intensify, for several reasons. First, consolidation occurring among vendors, including portions of Nokia and Siemens as well as Ericsson and Marconi, will create a smaller but stronger set of competitors. We believe most industry participants will seek to strengthen their relationships with large service providers, as the 30 largest providers currently represent approximately 75% of global carrier spending. In addition, carrier consolidation continues, resulting in fewer customers. Competition is also accelerating around converged network technologies as carriers are shifting capital to areas that will enable network migration. Furthermore, competitors providing low-priced products and services from Asia are gaining market share worldwide. As a result, we continue to operate in an environment of increased competitive pricing.

Reportable Segments With our first quarter 2006 results, we began reporting under a new segment structure, organized around our respective products and services. The reportable segments for fiscal 2005 had been Mobility Solutions, Integrated Network Solutions (“INS”) and Lucent Worldwide Services. Mobility Solutions provided software and wireless equipment to support radio access and core networks. INS provided a broad range of software and wireline equipment related to voice networking (primarily consisting of switching products, which we sometimes refer to as convergence solutions, and voice networking products), data and network management (primarily consisting of access and related data networking equipment and operating support software) and optical networking. Voice networking, data and network management and optical networking products are an integral part of our customers’ networks and the foundation for our IMS-based solutions. Under our new organizational structure, our mobility and wireline businesses were combined into a single unit, the Network Solutions Group (“NSG”). NSG consists of the following operating segments: Mobility Access and Applications Solutions; Multimedia Network Solutions; and Converged Core Solutions. The Network Operations Software reporting unit that was previously reported within the wireline business was transferred to Lucent Worldwide Services. The Lucent Worldwide Services segment represents a worldwide services organization that provides deployment, maintenance, professional and managed services in support of our product offerings as well as multi-vendor networks. Financial information about these segments and by geographic areas is set forth in Note 12 to our Consolidated Financial Statements and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Exhibit 13 to this report. Mobility Access and Applications Solutions’ revenues were approximately $4.1 billion during fiscal 2006. A significant portion of Mobility Access and Applications Solutions’ revenues was derived from a few large service providers in the U.S. Verizon Wireless and Sprint Nextel combined accounted for 64% and 62% of total Mobility Access and Applications Solutions’ revenues during fiscal 2006 and 2005, respectively. As of September 30, 2006, Mobility Access and Applications Solutions had approximately 6,800 full-time employees engaged mainly in product development, general management and marketing activities. Multimedia Network Solutions’ revenues were approximately $1.7 billion during fiscal 2006 and were primarily from large, established service providers. As of September 30, 2006, Multimedia Network Solutions had approximately 2,200 employees, primarily engaged in product development, marketing and general management activities. Converged Core Solutions’ revenues were approximately $600 million during fiscal 2006 and were primarily from large, established0/2 service providers. As of September 30, 2006, Converged Core Solutions had approximately 900 employees, primarily engaged in product development, marketing and general management activities.

LucentDate: 22-JAN-2007 10:37:45.81 Worldwide Services’ revenues were approximately $2.3 billion during fiscal 2006. As of September 30, 2006, Lucent Worldwide Services had approximately 10,600 employees dedicated to professional services, managed services, deployment services and maintenance services. Financial information about our products is set forth in our Management’s Discussion and Analysis of Financial Condition and

Results007.00.00.00 of Operations starting on page F-11 of Exhibit 13 to this report.

Organization of the Business Operator: BNY99999T Effective October 1, 2005, our reportable segments are Mobility Access and Applications Solutions, Multimedia Network Solutions and Converged Core Solutions, which are all within NSG; Lucent Worldwide Services, which includes our network operations softwareY27905 unit formerly included in INS; and Other. These segments are organized around the products and services we sell.

BNY *Y27905/007/2* 7 Phone: (212)924-5500 CRC: 54570 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 9246 BNY Y27905 008.00.00.00 0/3 Queue: BNY_CPS *Y27905/008/3* Description: FORM 10-K EDGAR 2

Mobility Access Solutions Mobility Access Solutions is focused on providing 3G network solutions based on CDMA2000 (Code Division Multiple Access) and UMTS/HSPA (Universal Mobile Telecommunications System/High-Speed Packet Access) and spread-spectrum technologies that enable wireless service providers to offer high-quality mobile voice and high-speed data services. CDMA2000 is a globally deployed 3G wireless technology, predominantly used in North America, Asia Pacific and portions of South America. UMTS/HSPA is the 3G technology derived from the GSM standard deployed worldwide. Our wireless customers worldwide continue to add voice subscribers and minutes of use to their networks, so voice capacity continues to be a very important driver in their network investment. At the same time, their voice revenues are under pressure from increased competition and this is driving investment in 3G network solutions that bring new mobile high-speed data capabilities to their networks. Thus, much of our current wireless growth and a focus of our customers is related to 3G mobile high-speed data network deployments, which consist of upgrading existing base stations and — in some cases — providing new base stations and other equipment that enable operators to introduce mobile high-speed data services at rates comparable to wireline connections. We continue to be the global leader in CDMA2000 spread-spectrum networks, with more than 35 customers on the continents of North and South America, Asia, Europe and in the Australia/New Zealand region. We currently have 19 commercial CDMA2000 1xEV-DO customers, helping them deliver mobile high-speed data services at speeds of up to 2.4 Megabits per second. For UMTS/HSPA, Cingular launched the world’s first commercial High-Speed Downlink Packet Access (“HSDPA”) network with Lucent-supplied equipment in the Phoenix and Seattle markets and O2 and Manx Telecom launched Europe’s first commercial HSDPA network with Lucent-supplied equipment on the Isle of Man. HSDPA is an evolution of UMTS networks that support very high-speed data connections on mobile networks. Certain operators are now upgrading their networks to support even faster high-speed data capabilities and laying the foundation for future enhancements that enable two-way, real-time data applications, such as VoIP, video telephony and enhanced push-to- talk with technologies such as CDMA2000 1xEV-DO Revision A (“Rev. A”) for CDMA networks and High-Speed Uplink Packet Access (“HSUPA”) technology for UMTS/HSPA networks. These technologies make the introduction of VoIP services on mobile networks more efficient and increase the data speeds and capacity of 3G networks. In 2006, Sprint Nextel, Telecom New Zealand and Verizon Wireless announced contracts with us to deploy Rev. A technology. We are dedicated to helping wireless service providers capture the industry opportunities being created by the growing demand for “blended lifestyle” services. Our customers are interested in introducing IMS-enabled services that blend voice, video and data capabilities to create next-generation service applications such as video telephony or real-time gaming delivered to subscribers anytime, anywhere and in ways that enhance their lifestyles. Technologies such as Rev. A are an important part of our future in the mobility market because they form the basis of our next-generation networks designed to make these advanced applications a reality by increasing performance and capacity. The0/3 most important products in Mobility Access Solutions’ CDMA2000 and UMTS/HSPA portfolios are developed internally, including radio access products, circuit and packet core backbone networks, and network management, application and service delivery systems. Mobility Access Solutions also taps into our strengths in voice networking, data and network management and opticalDate: 22-JAN-2007 10:37:45.81 networking, and leverages the expertise of Lucent Worldwide Services. We have worked and will continue to work with other equipment vendors to help us offer best-in-class, end-to-end solutions and products.

8 008.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/008/3* Phone: (212)924-5500 CRC: 9246 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 29213 BNY Y27905 009.00.00.00 0/5 Queue: BNY_CPS *Y27905/009/5* Description: FORM 10-K EDGAR 2

Key Mobility Access Products Base station products provide the radio links that transmit and receive wireless subscriber calls and manage handoffs as customers move from cell to cell (a cell is the area in which calls are handled by a particular base station). Each radio base station covers a specific geographic area and has the capacity to handle a certain amount of subscriber traffic. Our base station platform supports both CDMA2000 and UMTS/HSPA technologies and addresses the form, fit and function of future assemblies in a modular fashion. Therefore, many current base station products may be used as the cell evolves to include expanded capacity for wireless voice and/or data transmissions. Core network equipment connects base stations to the public voice and data networks. Our Converged Core Solutions business develops the majority of this voice and packet data core switching network equipment, which can support IMS-enabled services.

Applications Solutions Applications Solutions is reported as part of the Mobility Access Solutions segment and centralizes our development of software applications designed to enable our customers to deliver advanced communications services to their subscribers. The Applications Solutions Group supports existing applications, such as the widely deployed Lucent AnyPath® Messaging System and the Lucent SurePay® Real-time Rating and Charging Engine, as well as new IMS applications, based on innovative Bell Labs technology, which deliver blended lifestyle services to subscribers.

Key Applications Solutions Products Lucent AnyPath® Messaging System integrates existing call answering and voice messaging capabilities with a wide array of new and emerging media-rich applications, including advanced multimedia, mobile data, unified communications, speech-enabled and real-time voice portal applications. In addition, the Lucent AnyPath® Messaging System provides continuous new application development to assist in the quick and efficient deployment of innovative differentiated services for subscribers. Lucent SurePay® Real-time Rating and Charging Engine collects charging information from various network elements and supports rapid deployment of new rating plans and sales promotions, to help service providers respond quickly to changing industry requirements. Lucent Content Managing and Delivery Solution™ provides a single platform that supports all content and media types, such as firewall and security software, ring tones, games, music and videos, designed to enable operators to maximize content revenues while increasing operational efficiencies. The platform manages the complete content life cycle by offering software for processing submissions from a content provider, content management in catalogs, digital rights management, rendering to ensure content is formatted for the subscriber’s wireless device, a Web-style page that can serve as the carrier’s “storefront,” and a delivery mechanism. Lucent Unified Subscriber Data Server™, an advanced customer information data server, enables the creation and maintenance of a0/5 single profile for each subscriber and all of the services they use, in contrast to the traditional method of maintaining individual subscriber databases for each service. Lucent Intelligent Services Gateway™ (“ISG”), a full-featured and flexible Parlay/OSA gateway, offers mediation gateway and policyDate: 22-JAN-2007 10:37:45.81 management capabilities. The ISG supports simplified integration of location- and presence-based applications and other mobile/converged applications into carrier networks.

Multimedia Network Solutions 009.00.00.00 Multimedia Network Solutions develops optical, data and broadband access solutions for wireline networks, with special focus on providing end-to-end solutions that enable service providers to offer blended multimedia subscriber services over intelligent networkOperator: BNY99999T infrastructures. The optical unit builds laser-based transmission and switching systems that transport information using pulses of light. These systemsY27905 include core backbone high-capacity systems for fast, efficient transport of information over long distances; intelligent optical switches and cross-connects in the center of the network that aggregate and bridge metropolitan area traffic for transport over long-haul and ultra-long haul optical networks; and metropolitan optical systems that aggregate and increase the use of fiber opticBNY systems*Y27905/009/5* for both voice and data traffic in metropolitan or regional areas. Phone: (212)924-5500 9 CRC: 29213 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 40795 BNY Y27905 010.00.00.00 0/7 Queue: BNY_CPS *Y27905/010/7* Description: FORM 10-K EDGAR 2

Our optical systems are based on industry standards that promote interoperability and allow customers to use some of their existing investments. Our integrated optical network management of single and multi-vendor networks through Navis® Optical Management solutions gives customers cost-effective maintenance and operations support and multiple protection options, which help increase reliability. Our modular designs help customers achieve cost savings through improved space and power requirements. The data and access units provide large scale, reliable, and secure broadband access and next-generation data networks solutions for the deployment of unique and personalized blended lifestyle services. The data business leverages the large embedded base of Lucent Asynchronous Transfer Mode (“ATM”) and Frame Relay switches in helping customers evolve to IP/Multiprotocol Label Switching (“MPLS”) core data networks. The data business supplies Carrier Ethernet solutions through our Riverstone Networks acquisition, and partners with other vendors to provide IP and Ethernet edge solutions as required. In addition, the access business provides a competitive IPTV/IP Multimedia access solution and an end-to-end IPTV software solution, to enable blended lifestyle services.

Key Multimedia Network Products The LambdaUnite® MultiService Switch is a compact, global, next-generation optical transport system and switch that provides a bridge between data-intensive metro networks and high-speed optical core networks, connecting cities, campuses and corporate networks to the larger, long-haul public networks. The LambdaXtreme® Transport system is a 3G long-haul optical networking system that can transmit very large amounts of information across continents at one of the lowest costs per bit per kilometer in its class. LambdaXtreme® Transport is a dense wave division multiplexing system that supports new ring architectures as well as traditional span-to-span networks. Our Metropolis® optical systems are metropolitan area networking systems that provide a simple, differentiated way for our customers to data-enable their installed base of SONET/SDH systems, giving our customers the ability to generate new revenues by supporting Ethernet data transport over SONET/SDH networks that formerly were used to carry only voice traffic. The CBX 3500® Multiservice Edge Switch uses the same software as our Multiservice GX 550® and CBX 500® switches and is designed for seamless insertion into operating networks to minimize operating expenses during network expansion. We have higher-capacity cards for the CBX 3500®, offering additional capabilities to support high-bandwidth IP, ATM and Frame Relay edge services. All of these switches are widely deployed across the globe. The Stinger® DSLAM products provide high-speed Digital Subscriber Line (“DSL”) services in multiple network deployments. We believe these products are ideally suited for IP video broadcast and pay-per-view deployments because of their multicast capabilities, which limit the amount of optical bandwidth carriers must provide between the central office and the remote location, thereby reducing expenses. Stinger® DSLAMs are a critical component of today’s largest commercial IPTV deployment. The AnyMedia® Access Platform is a next-generation Digital Loop Carrier system, widely sold outside the U.S. to support mixed deployments0/7 of circuit switched voice lines and broadband DSL. AnyMedia® is an IP Line Gateway that carriers may deploy to migrate from Class 5 switches to softswitches. The Lucent Ethernet Router™ portfolio delivers scalable, carrier-grade Ethernet solutions from access to core. Ethernet in the metropolitanDate: 22-JAN-2007 10:37:45.81 network — carrier Ethernet — is a particularly attractive solution to provide connectivity between multiple business sites. Additionally, carrier Ethernet now features capabilities that makes it suitable not only for delivering business services, but also residential triple play — including IPTV — and wireless backhaul and transport. The Lucent Ethernet Router™ portfolio supports the most stringent carrier availability requirements and delivers a range of Ethernet functionality from Ethernet switching,

MPLS,010.00.00.00 Virtual Private LAN Services (“VPLS”) and Hierarchical-VPLS capabilities.

10 Operator: BNY99999T Y27905 BNY *Y27905/010/7* Phone: (212)924-5500 CRC: 40795 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 22201 BNY Y27905 011.00.00.00 0/6 Queue: BNY_CPS *Y27905/011/6* Description: FORM 10-K EDGAR 2

Lucent’s MiViewTV™ platform is an interactive multimedia delivery platform that supports a wide variety of entertainment programming — including on-demand content, broadcast TV, multi-party video gaming — as well as interactive communications and information services such as IM/chat, interactive Web services, unified messaging and video conferencing. In fiscal 2006, we acquired the assets that make up MiViewTV™ from Telefonica as part of a broader strategic relationship with the carrier. The platform includes core IPTV middleware, security and digital rights management, video/content on demand, service quality and operations support system (OSS/BSS) management, subscriber management, service orchestration, and content asset management and distribution as well as a unique “audience tracker” feature. It also is tightly coupled with our industry-leading IMS to deliver sophisticated “blended” services that combine video, Web and telecom capabilities.

Converged Core Solutions Converged Core Solutions provides next-generation switching solutions, such as IMS core products, and traditional switching solutions (i.e., 5ESS® switches) for service providers, government and enterprise customers. Converged Core Solutions products are part of the Lucent IMS solution that enables service providers to offer blended lifestyle services — advanced, converged lifestyle-enhancing applications over wireless and wireline networks — that consumer and enterprise customers demand. Converged Core Solutions is focused on demonstrating our leadership in next-generation technology and providing a next- generation core solution that delivers value over IP, such as blended lifestyle services, and enables us to offer complete solutions that include other NSG products and services.

Key Converged Core Products The Lucent 5ESS® switch is a central component in traditional telephone networks around the world. The 5ESS® switch is a modular, digital communications hub for circuit-switched voice traffic. We are actively engaged with our traditional voice networking customers to help them evolve their 5ESS® circuit-switched platforms to increase capacity, lower cost of operations, accelerate new feature introductions — such as support for Personal Handyphone Systems (“PHS”) popular in China and Japan — and lay the groundwork for the introduction of packet-based IP transport and IMS-based services. PHS is an extension of a wireline network that uses a wireless telephone similar to a cordless phone and provides mobility and extended-range voice and data services. The Lucent Compact Switch™ can support from as few as 1,000 subscribers to more than 100,000 subscribers on a single integrated platform. Service providers can deploy the switch for end-office (Class 5) and tandem (Class 4) applications to replace an existing switch or as an addition to the network. In addition to providing VoIP, Internet off-load and gateway mobile switching center features, the Lucent Compact Switch™ also offers capabilities compliant with U.S. electronic surveillance and enhanced 911 rules. The switch also can serve as a building block for carriers that choose to migrate to an IMS-based network to offer blended lifestyle services. The0/6 Lucent Session ManagerSM provides multiple IMS functions and forms the core of our IMS architecture and manages user presence and call types, dynamically connecting subscribers to a variety of services in an IMS-based network.

TheDate: 22-JAN-2007 10:37:45.81 Lucent Network Gateway™ provides the IMS media gateway function and permits seamless interaction between IP networks and both traditional wireless and wireline networks. The Lucent Feature Server™ enables consumer, business and wireless services, on both IMS-based and non-IMS based networks, including the new application feature server that supports a variety of telephony and mobility services on broadband or narrowband011.00.00.00 networks.

11 Operator: BNY99999T Y27905 BNY *Y27905/011/6* Phone: (212)924-5500 CRC: 22201 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 41695 BNY Y27905 012.00.00.00 0/4 Queue: BNY_CPS *Y27905/012/4* Description: FORM 10-K EDGAR 2

The Lucent Network Controller™ is an element in our IMS-based solution, which provides the media gateway control function. Carriers have the option of integrating the signaling functionality into the network controller or deploying it as a stand-alone element. These VoIP functions were previously associated with traditional softswitches. The Lucent Network Gateway™ acts as a media gateway and bridges both traditional circuit networks and packet-based networks to form the cornerstone of an IMS network architecture. The network gateway interconnects bearer traffic among Public Switched Telephone Network (“PSTN”), IP and ATM networks, which are used for wireless and wireline applications under the control of the Lucent Network Controller™ or other H.248 compliant media gateway controllers.

Lucent Worldwide Services Lucent Worldwide Services (“Services”) provides professional services, managed services, deployment services and maintenance services. Our network planning, design, optimization, integration and management services are critical to simplifying convergence and empowering service providers to bring profitable lifestyle-changing services to end-users, while driving increased revenues. Services is increasingly providing these services in a multi-vendor environment — networks that utilize equipment from numerous other vendors. Services leverages its core competencies, drawing on the expertise and the innovation of Bell Labs to address this opportunity. Services offerings are provided in combination with Lucent products, as well as services that are offered stand-alone or based on other vendors’ products. Services is focused on increasing its international presence and capabilities and has plans aimed at penetrating new markets adjacent to the core service provider market, such as government, enterprise, and cable markets.

Professional Services These network, planning, design, integration and optimization services help our customers identify network areas where they can capitalize on high-margin opportunities, apply Bell Labs tools and techniques to optimize performance and reduce operating expenses, and plan evolution to protect their network investment and increase profits. Enhanced engineering services help our customers determine the best configuration for maximizing traffic capacity and for achieving other operational efficiencies. These services also provide our customers with “in service” upgrades to help them migrate to new technologies. Enhanced technical services help carriers maintain a high-performing network by identifying and correcting network performance issues, balancing traffic loads and integrating new multi-vendor equipment and software into a live system. Professional services helps our customers improve network quality by troubleshooting, reporting and resolving problems and providing on-the-job training to their staff. Professional services revenues accounted for approximately 30% of fiscal 2006 Services revenues.

Deployment Services These services help our customers bring their equipment online in an efficient manner, allowing them to begin generating revenues more quickly, through a suite of global solutions and services to implement network plans and designs. Our site location and0/4 construction services help research, locate and acquire, and construct facilities to deliver quality, buildable real estate for network deployments. Engineering services design and configure multi-vendor equipment, survey and assess equipment and site conditions, and document equipment and site data to help ensure smooth deployments. Material Sourcing services provide installationDate: 22-JAN-2007 10:37:45.81 site material and third-party network equipment to enable one-stop shopping from us and simplify procurement and delivery processes. Installation services install, test and configure equipment, helping to assure efficient network deployments. Deployment revenues accounted for approximately 31% of fiscal 2006 Services revenues.

Maintenance Services 012.00.00.00 These services help our customers improve the performance of their multi-vendor networks and maintain network reliability and availability to ensure quality of service. Remote Technical Support Services provide remote support capabilities to diagnose, resolveOperator: BNY99999T and restore the network. On-Site Technical Support Services provide technical specialists to deliver on-site maintenance services as our customers expand into new territories, develop new service offers, or face regional technical labor shortages. Y27905 12 BNY *Y27905/012/4* Phone: (212)924-5500 CRC: 41695 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 29932 BNY Y27905 013.00.00.00 0/2 Queue: BNY_CPS *Y27905/013/2* Description: FORM 10-K EDGAR 2

Repair & Exchange Services manage inventory and operating expenses with repair and replacement of critical network hardware. Preventive Maintenance Services identify, analyze and recommend products and services that help providers keep networks operating at peak performance. Maintenance revenues accounted for approximately 37% of fiscal 2006 Services revenues.

Managed Services These services consist of a wide range of outsourced network operations and network transformation services that help our clients reduce their operating expenses while preserving and enhancing network reliability. Managed services help provide a seamless transition to an outsourced environment utilizing state-of-the-art tools and technology plus highly skilled technicians to provide ongoing network management of our customers’ networks. These functions can be performed at our global network operations centers or at the customer’s network operations center. We currently provide network operation services to more than 40 customers around the world. Although these revenues do not represent a significant portion of Services revenues, managed services are often embedded in professional, deployment and maintenance services. By relying on our global multi-vendor expertise and field-proven processes, our customers can leverage their installed base of assets across multiple technologies and vendors, quickly implement new technologies and applications to expand presence in target markets, and simplify operations through customized support to design, build, and manage communication networks.

Research and Development Bell Labs, one of the world’s largest research and development organizations focused on communications-related technology, supports all of our segments. Bell Labs provides basic and applied research and development support for our business. Bell Labs’ mission is to develop technically advanced products and services that will keep us at the forefront of communications, to conduct fundamental research in scientific fields important to communications and to create innovations that can be put to use in our new communications products and services. Bell Labs’ research activities continue to focus on the technologies we view as central to our business strategy, including network design and engineering, network services and IMS, photonics and optical technology, data networking, wireless communications, algorithms and software and computer science. Bell Labs looks at both near-term and long-term opportunities, actively working on current product and service research and development as well as exploring fundamental scientific breakthroughs that may be ten or more years out on the horizon. Protecting both global communications networks and the people that use them remains a top priority as we work to deliver on the promise of next-generation networking. The industry’s migration to an all-IP architecture means that our customers face a host of new network and user vulnerabilities not present in the closed, circuit-switched telephony world. Addressing these vulnerabilities becomes even more difficult when compounded by the large number of vendors and service providers that are working on an increasing number of standards and technologies across multiple networks. To address this challenge, Bell Labs has intensified its focus on the aspects of security that are most relevant to meeting the needs of the market. We plan to continue to invest in the R&D efforts of Bell Labs because we believe it gives us a competitive advantage in developing0/2 innovative technologies. There are more than 9,000 employees in Bell Labs, which includes R&D, services and technical staff. Most of these employees serve in R&D roles in our Mobility Access Solutions, Multimedia Network Solutions and Converged Core Solutions segments. There are approximately 1,000 employees supporting research efforts within Bell Labs core

researchDate: 22-JAN-2007 10:37:45.81 group. Overall, 11 researchers at Bell Labs have shared in six Nobel Prizes in Physics. Bell Labs researchers have also been awarded nine U.S. National Medals of Science and seven U.S. National Medals of Technology. In addition, our scientists and engineers have earned more than 31,000 patents since 1925. Our research and development costs are discussed in our Management’s Discussion and Analysis of Financial Condition and

Results013.00.00.00 of Operations, starting on page F-11 of Exhibit 13 to this report.

13 Operator: BNY99999T Y27905 BNY *Y27905/013/2* Phone: (212)924-5500 CRC: 29932 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 61073 BNY Y27905 014.00.00.00 0/2 Queue: BNY_CPS *Y27905/014/2* Description: FORM 10-K EDGAR 2

Supply Chain Networks Supply Chain Networks (“SCN”) manages our end-to-end global supply chain, which is needed to produce and deliver our products and services to our worldwide customers. The organization designs, implements and optimizes the supply chain for our products, with the goal of establishing product cost, product cycle and interval, and quality that meet our objectives and those of our customers. SCN identifies suppliers needed to support our product lines and ensures continuity of supply at the required price and quality. We make significant purchases of components and other materials from many U.S. and non-U.S. sources. While there have been some shortages in components and some other materials in technology commodities common across the industry, we have generally been able to obtain sufficient materials and components from various sources around the world to meet our needs. We also develop and maintain alternative sources for essential materials and components. We do not have a concentration of sources of supply of materials, labor or services that, if suddenly eliminated, could severely impact our operations. We currently use contract manufacturers to supply most of our product lines, but we continue to integrate and test internally many of these products. Celestica Corporation manufactures most of the wireless products we design, while Solectron Corporation manufactures most of the wireline products we design, including access, optical, data and switching products. Our contract manufacturers also include other local companies in various regions. SCN controls the source selection for all significant or strategic components. Our contract manufacturers use their leverage and global buying power to negotiate prices from vendors we approve. SCN monitors their performance to ensure process and technical product specifications are met.

Global Sales and Services Organization Our Global Sales and Services Organization (“GSSO”) combines our Global Sales force and Lucent Worldwide Services business, including Managed Services, Professional Services, Maintenance and Deployment, all under one umbrella. The GSSO organization was formed earlier in fiscal 2006 to bring dedicated support to customers around the world, helping them better manage and transform their networks

Corporate Centers Our corporate centers provide centrally managed but locally deployed corporate support groups that include cash management, legal, accounting, tax, marketing, public relations, insurance, advertising, human resources and information technology services.

Backlog Our backlog was $2.0 billion and $1.9 billion as of September 30, 2006 and 2005, respectively. Substantially all of the orders included in the September 30, 2006 backlog are scheduled for delivery during fiscal 2007. However, customers may reschedule their orders, which would delay the associated revenues. Further, although we believe that the orders included in the backlog are firm,0/2 customers may be able to cancel some orders without penalty, and we may elect to permit cancellation of orders without penalty where management believes that it is in our best interest to do so. Some customers may also become unable to finance their purchases as a result of deterioration in their financial position. Date: 22-JAN-2007 10:37:45.81 Seasonality Our revenues and earnings have not demonstrated consistent seasonal characteristics.

Patents,014.00.00.00 Trademarks and Other Intellectual Property Rights We have patents to protect some of our innovations and proprietary products and technology. We market our products and servicesOperator: BNY99999T primarily under our own names and marks. We consider our patents and trademarks to be valuable assets. Many of our trademarks are registered throughout the world. We currently own approximately 7,300 patents in the U.S. and 8,900 patents in

otherY27905 countries.

14 BNY *Y27905/014/2* Phone: (212)924-5500 CRC: 61073 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 23573 BNY Y27905 015.00.00.00 0/2 Queue: BNY_CPS *Y27905/015/2* Description: FORM 10-K EDGAR 2

The patents outside the U.S. are, for the most part, counterparts of our U.S. patents. Our intellectual property licensing division licenses, protects and maintains our intellectual property and enforces our intellectual property rights. This responsibility includes licensing our patents and technology to third parties and negotiating agreements regarding our licensing of intellectual property from others. Many of our patents are licensed to other companies with large patent portfolios, and we are licensed to use patents owned by these other companies, including our former affiliates, Agere, AT&T, Avaya and NCR. The terms of these cross-licenses may vary. We rely on patent, trademark, trade secret and copyright laws both to protect our intellectual property, including our proprietary technology, and to protect us against claims from others. We believe that we have direct intellectual property rights or rights under cross-licensing arrangements covering substantially all of our material technologies. However, third parties may assert infringement claims against us or against our customers in connection with their use of our systems and products. When infringement claims are made against our customers or us, the outcomes of these claims are sometimes difficult to predict because of the technological complexity of our systems and products.

Employee Relations As of September 30, 2006, we had approximately 29,800 employees, of whom approximately 17,400, or 58%, were located in the U.S. Unions, primarily the Communications Workers of America, represent approximately 2,800, or 9%, of our employees, or approximately 16% of our U.S. employees.

Forward-looking Statements This annual report on Form 10-K and other documents we file with the SEC contain statements about future performance, events or developments, which are also known as “forward-looking statements.” Forward-looking statements are based on current expectations, estimates, forecasts and projections about us, our future performance and the industries in which we operate as well as on our management’s assumptions and beliefs. Statements that contain words like “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or variations of such words and similar expressions are forward- looking statements. Since they relate to future developments, results or events, these statements are highly speculative and involve risks, uncertainties and assumptions that are difficult to assess. You should not construe any of these statements as a definitive or invariable expression of what will actually occur or result. Any forward-looking statements in this annual report on Form 10-K are not guarantees of future performance, and actual results, developments and business decisions may differ from those contemplated by those forward-looking statements, possibly materially. Except as required by applicable law, we disclaim any duty to update any forward-looking statements in this Form 10-K after its distribution, even if new information, future events, changes in assumptions or any other reason would alter those statements.

Executive Officers of the Registrant

The0/2 following information about our executive officers is included herein in accordance with Part III, Item 10 and is as of December 1, 2006.

Date: 22-JAN-2007 10:37:45.81 Date Became Name Age Title Executive Officer

Cynthia Christy-Langenfeld 40 Chief Executive Officer and President 03/04 David Hitchcock 45 Chief Financial Officer and Treasurer 03/06

Timothy015.00.00.00 Keller 45 General Counsel and Secretary 11/06 All of these executive officers have held high-level managerial positions with us for more than the past five years. Operator: BNY99999T 15 Y27905 BNY *Y27905/015/2* Phone: (212)924-5500 CRC: 23573 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 13190 BNY Y27905 016.00.00.00 0/2 Queue: BNY_CPS *Y27905/016/2* Description: FORM 10-K EDGAR 2

Officers are not elected or appointed for a fixed term of office.

Environmental Matters Our current and historical operations are subject to a wide range of environmental protection laws. In the U.S., these laws often require parties to fund remedial action regardless of fault. We have remedial and investigatory activities under way at numerous current and former facilities. In addition, we were named a successor to AT&T as a potentially responsible party at numerous Superfund sites pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) or comparable state statutes. Under our Separation and Distribution Agreement with AT&T, we are responsible for all liabilities primarily resulting from or relating to our assets and the operation of our business as conducted at any time prior to or after the separation from AT&T, including related businesses discontinued or disposed of prior to our separation from AT&T. Furthermore, under that Separation and Distribution Agreement, we are required to pay a portion of contingent liabilities in excess of certain amounts paid out by AT&T and NCR, including environmental liabilities. In our separation agreements with Agere and Avaya, those companies have agreed, subject to certain exceptions, to assume all environmental liabilities related to their respective businesses. The future impact of environmental matters, including potential liabilities, is often difficult to estimate. We record an environmental reserve when it is probable that a liability has been incurred and the amount of the liability is reasonably estimable. This practice is followed whether the claims are asserted or unasserted. Management expects that the amounts reserved will be paid out over the periods of remediation for the applicable sites, which typically range from five to 30 years. For additional information about our environmental matters, see Note 14 to our Consolidated Financial Statements contained in Exhibit 13 to this report.

Separation Agreements In connection with our separation from AT&T in 1996, we, AT&T and NCR entered into a Separation and Distribution Agreement and related ancillary agreements, including an employee benefits agreement, technology-related agreements, a tax-sharing agreement and other tax-related agreements. We entered into similar agreements with Avaya and Agere when we spun them off. These agreements provide that we and our former affiliates are separately responsible for all liabilities, including contingent liabilities, related to our and their respective businesses and operations. In addition, these agreements provide for the sharing of contingent liabilities that are neither primarily our contingent liabilities nor contingent liabilities associated with the businesses of our former affiliates. We also share liability for specifically identified liabilities, including liabilities relating to terminated, divested or discontinued businesses or operations, and, in the agreements with AT&T and Avaya, specified contingent liabilities and excess liabilities.

Item 1A. Risk Factors 0/2 Risks Related to Our Business Our business, our future performance and forward-looking statements are affected by general industry and market conditions and growthDate: 22-JAN-2007 10:37:45.81 rates, general U.S. and non-U.S. economic and political conditions (including the global economy), interest rate and currency exchange rate fluctuations and other events. The following items are representative of the risks, uncertainties and other conditions that can affect our business, our future performance and the forward-looking statements that we make in this report or that we may make in the future.

We016.00.00.00 May Fail To Realize the Anticipated Cost Savings, Revenue Enhancements and Other Benefits Expected From the Merger.

WeOperator: BNY99999T may fail to realize the anticipated cost savings, revenue enhancements and other benefits that we expect to achieve from the Merger. The Merger integrated Alcatel and Lucent, two companies that had previously operated independently. We and Alcatel

enteredY27905 into the Merger Agreement with the expectation that, among other things, the Merger would enable Alcatel-Lucent to

16 BNY *Y27905/016/2* Phone: (212)924-5500 CRC: 13190 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 39874 BNY Y27905 017.00.00.00 0/2 Queue: BNY_CPS *Y27905/017/2* Description: FORM 10-K EDGAR 2

consolidate support functions, optimize its supply chain and procurement structure, leverage its research and development and services across a larger base, and reduce its worldwide workforce by approximately 9,000, all of which is expected to create opportunities to achieve cost savings and revenue synergies and to achieve other synergistic benefits. Delays encountered by us or Alcatel-Lucent in the transition process could have a material adverse effect on our revenues, expenses, operating results and financial condition. Although we expect significant benefits to result from the Merger, there can be no assurance that we will actually realize these anticipated benefits. Achieving the benefits of the Merger will depend in part upon meeting the challenges inherent in the successful combination and integration of global business enterprises of the size and scope of us and Alcatel-Lucent and the possible resulting diversion of management attention for an extended period of time. There can be no assurance that we and Alcatel-Lucent will meet these challenges and that such diversion will not negatively affect our operations. Uncertainties Associated With the Merger May Cause a Loss of Employees and May Otherwise Materially Adversely Affect Our Future Business and Operations. Our success will depend in part upon our ability to retain key employees. Competition for qualified personnel can be intense. Our current and prospective employees may experience uncertainty about their roles following the Merger. This may materially adversely affect our ability to attract and retain key management, sales, marketing, technical and other personnel. In addition, key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with us following the Merger. Accordingly, no assurance can be given that we will be able to attract or retain key employees to the same extent we had been able to attract or retain employees in the past. Technological innovation is important to our success, and depends, to a significant degree, on the work of technically skilled employees. Competition for the services of these types of employees is vigorous. We cannot provide any assurance that we will be able to attract and retain these employees. If we are unable to attract and retain technically skilled employees, our competitive position could be materially adversely affected. We Operate in a Highly Competitive Industry with Many Participants. Our Failure to Compete Effectively Would Harm Our Business. We operate in a highly competitive environment in our business, competing on the basis of product offerings, technical capabilities, quality, service and pricing. Competition for new service providers and enterprise customers as well as for new infrastructure deployments is particularly intense and increasingly focused on price. We believe we offer customers and prospective customers many benefits in addition to competitive pricing, including strong support and integrated services for quality, technologically-advanced products; however, in some situations, we may not be able to compete effectively if purchasing decisions are based solely on the lowest price. We have a number of competitors, some of which are very large, with substantial technological and financial resources and established relationships with global service providers. Some of our competitors have very low cost structures, support from governments0/2 in their home countries, or both. In addition, new competitors may enter the industry as a result of shifts in technology. These new competitors, as well as existing competitors, may include entrants from the telecom, computer software, computer services, data networking and semiconductor industries. We cannot assure you that we will be able to compete successfullyDate: 22-JAN-2007 10:37:45.81 with these companies. Competitors may be able to offer lower prices, additional products or services or a more attractive mix of products or services, or services or other incentives that we cannot or will not match or offer. These competitors may be in a stronger position to respond quickly to new or emerging technologies and may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to customers, prospective

customers,017.00.00.00 employees and strategic partners.

17 Operator: BNY99999T Y27905 BNY *Y27905/017/2* Phone: (212)924-5500 CRC: 39874 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 48862 BNY Y27905 018.00.00.00 0/2 Queue: BNY_CPS *Y27905/018/2* Description: FORM 10-K EDGAR 2

Technology Drives Our Products and Services. If We Fail to Keep Pace with Technological Advances in Our Industry, or If We Pursue Technologies That Do Not Become Commercially Accepted, Customers May Not Buy Our Products or Use Our Services. The telecom industry uses numerous and varied technologies and large service providers often invest in several and, sometimes, incompatible technologies. The industry also demands frequent and, at times, significant technology upgrades. Furthermore, enhancing our services revenues requires that we develop and maintain leading tools. We do not have the resources to invest in all of these existing and potential technologies. As a result, we concentrate our resources on those technologies that we believe have or will achieve substantial customer acceptance and in which we have appropriate technical expertise. However, existing products often have short product life cycles characterized by declining prices over their lives. In addition, the choices we make for developing technologies may prove incorrect if customers do not adopt the products that we develop or if those technologies ultimately prove to be unviable. Our revenues and operating results depend to a significant extent on our ability to maintain a product portfolio and service capability that is attractive to our customers, to enhance our existing products, to continue to introduce new products successfully and on a timely basis and to develop new or enhance existing tools for our services offerings. A Small Number of Our Customers Account for a Substantial Portion of Our Revenues, and Most of Our Revenues Come from Telecommunications Service Providers. The Loss of One or More Key Customers or Reduced Spending of These Service Providers Could Significantly Reduce Our Revenues, Profitability and Cash Flow. A few large telecommunications service providers account for a substantial portion of our revenues. These customers include Verizon and Verizon Wireless, Sprint Nextel, BellSouth and China Unicom. Verizon and Verizon Wireless together accounted for approximately 28% of our fiscal 2006 revenues, 28% of our fiscal 2005 revenues and 27% of our fiscal 2004 revenues. In addition, the telecom industry has recently experienced substantial consolidation, as evidenced by the mergers of Sprint and Nextel, Cingular and AT&T Wireless, SBC Communications and AT&T, Verizon and MCI, and the pending merger of AT&T and BellSouth. As service providers increase in size, it is possible that an even greater portion of our revenues will be attributable to a smaller number of large service providers going forward. Further, our existing customers are typically not obligated to purchase a certain amount of products or services over any period of time from us and may have the right to reduce, delay or even cancel previous orders. We, therefore, have difficulty projecting future revenues from existing customers with certainty. Although historically our customers have not made sudden supplier changes, our customers could vary, and have varied, their purchases from period to period, sometimes significantly. Combined with our reliance on a small number of large customers, this could have an adverse effect on our revenues, profitability and cash flow. In addition, our concentration of business in the telecommunications service provider industry makes us extremely vulnerable to downturns or slowdowns in spending in that industry. The Telecom Industry Fluctuates and Is Affected By Many Factors, Including Decisions By Service Providers Regarding Their Deployment of Technology and Their Timing of Purchases, as Well as Demand and Spending for Communications Services By Businesses and Consumers. After significant deterioration earlier this decade, the global telecom industry stabilized in 2004 and experienced modest growth in

20050/2 and 2006, as reflected in increased capital expenditures by service providers and growing demand for telecommunications services. Although we believe the overall industry will continue to grow, the rate of growth could vary geographically and across different technologies, and is subject to substantial fluctuations. The specific industry segments in which we participate may not

experienceDate: 22-JAN-2007 10:37:45.81 the growth of other segments. In that case, our results of operations may be adversely affected. If capital investment by service providers grows at a slower pace than anticipated, our revenues and profitability may be adversely affected. The level of demand by service providers can change quickly and can vary over short periods of time, including from month to month. As a result of the uncertainty and variations in the telecom industry, accurately forecasting revenues, results and

cash018.00.00.00 flow remains difficult.

18 Operator: BNY99999T Y27905 BNY *Y27905/018/2* Phone: (212)924-5500 CRC: 48862 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 24927 BNY Y27905 019.00.00.00 0/3 Queue: BNY_CPS *Y27905/019/3* Description: FORM 10-K EDGAR 2

In addition, our sales volume and product mix affect our gross margin. Therefore, if reduced demand for our products results in lower than expected sales volume, or we have an unfavorable product mix, we may not achieve the gross margin rate we expect, resulting in lower than expected profitability. These factors may fluctuate from quarter to quarter. We Have Long-Term Sales Agreements with a Number of Our Large Customers. Some of These Agreements May Prove Unprofitable As Our Costs and Product Mix Shift Over the Lives of the Agreements. We have entered into long-term sales agreements with a number of our large customers, and we expect that we will continue to enter into long-term sales agreements in the future. Some of our existing sales agreements require us to sell products and services at fixed prices over the lives of the agreements, and some require, or may in the future require, us to sell products and services that we would otherwise discontinue, thereby diverting our resources from developing more profitable or strategically important products. The costs we incur in fulfilling some of our sales agreements may vary substantially from our initial cost estimates. Any cost overruns that we cannot pass on to our customers could adversely affect our results of operations. We Rely on Two Contractors to Provide Most of the Components and Products We Design. If Either of Them Fails to Deliver Quality Components and Products at Reasonable Prices on a Timely Basis, We May Not Be Able to Fulfill Our Obligations to Some of Our Customers. We generally purchase most of the wireless products we design from Celestica, and most of the wireline products we design from Solectron. If either of them fails to fulfill their obligations to us, or if we do not properly manage these arrangements, we could fail to perform some of our obligations to our customers and our customer relationships could suffer. If so, our customers may make claims against us for which we do not have sufficient recourse against our supplier. In addition, by limiting the number of our contract manufacturers, we have fewer employees with the expertise needed to manage these third party arrangements. We provide rolling forecasts to our contract manufacturers to manage product supplies, but because of market fluctuations, accurate forecasting is very difficult and we have limited ability to adjust volumes and delivery schedules to satisfy changes customers could require. We also may experience supply interruptions, cost escalations and competitive disadvantages if our contract manufacturers fail to develop, implement or maintain manufacturing methods appropriate for our products and customers. Our Pension and Postretirement Benefit Plans Are Large and Have Funding Requirements That Fluctuate Based on the Performance of the Financial Markets and the Level of Interest Rates and May Be Affected By Changes in Legal Requirements. These Plans Are Also Costly, and Our Efforts to Fund or Control Those Costs May Be Ineffective. Among other compensation and benefit programs, many of our former and current employees and retirees in the U.S. participate in one or more of the following benefit plans: • management pension plan;

• occupational pension plan;

• postretirement health care benefit plan for former management employees; and/or

0/3 • postretirement health care benefit plan for former represented employees. As described in more detail under the captions “Application of Critical Accounting Estimates — Pension and postretirement benefits”Date: 22-JAN-2007 10:37:45.81 and “Liquidity and Capital Resources — Future capital requirements and funding sources” in our Management’s Discussion and Analysis of Financial Condition and Results of Operations starting on pages F-6 and F-27, respectively, of Exhibit 13 to this report, the performance of the financial markets, especially the equity markets, and the level of interest rates, impact the funding obligations for these pension plans. Accordingly, the amounts we might contribute to these benefit plans are subject to considerable uncertainty. You should carefully review this discussion in Exhibit 13. 019.00.00.00 Our U.S. pension plans meet the requirements of ERISA’s current funding rules, and we do not expect to make any contributions to our qualified U.S. pension plans through 2008. We are unable to provide an estimate of future funding requirements beyond fiscalOperator: BNY99999T 2008 for the pension plans. However, based on our actuarial projections we believe that it is unlikely that any required contributions would have a material effect on our liquidity during fiscal 2008 through fiscal 2011. Y27905

19 BNY *Y27905/019/3* Phone: (212)924-5500 CRC: 24927 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 25235 BNY Y27905 020.00.00.00 0/6 Queue: BNY_CPS *Y27905/020/6* Description: FORM 10-K EDGAR 2

Recent legislative changes, in the form of the Pension Protection Act of 2006 (the “PPA”), impact the funding requirements for our U.S. pension plans. The PPA alters the manner in which liabilities and asset values are determined for the purpose of calculating required pension contributions and the timing and manner in which required contributions to under-funded pension plans would be made. These changes could significantly increase the funding requirements for our U.S. management pension plan and reduce excess pension assets that could be available to fund retiree health care benefits. Accordingly, the amounts we might contribute to these benefit plans in the future are subject to considerable uncertainty. The PPA also provides for what is called a “collectively bargained” transfer under Section 420 of the Internal Revenue Code, under which pension assets in excess of 120% of pension plan funding obligations would be available to fund health care costs for our formerly represented retirees. Together with our unions, we are proposing additional changes to Section 420 as technical corrections, which would facilitate our ability to provide a collectively bargained level of retiree health care benefits by using such excess pension assets. With the adoption of the technical corrections that we are pursuing, we believe it is likely that almost all of the health care funding required for formerly represented retirees (assuming the present level and structure of benefits) could be addressed through Section 420 transfers based on current actuarial assumptions. However, no assurances can be given that we will be successful in our efforts to obtain these technical corrections. We have amended our collective bargaining agreement to extend to June 30, 2007 the time period within which the additional changes we are seeking to the PPA must be obtained. If, by that date, the legislation imposes constraints that would significantly impair our ability to fund retiree health care costs using excess pension assets, we would have the ability, at our sole discretion beginning on January 1, 2008, to adjust the level of subsidy we provide for formerly represented retiree health care. We have also taken some steps, and expect that we will take additional actions over time, to reduce the overall cost of our retiree health care benefit plans and the share of these costs borne by us, consistent with legal requirements and our collective bargaining obligations. However, the rate of cost increases may exceed our actions to reduce these costs. In addition, as described in Note 14 to our Consolidated Financial Statements in Exhibit 13, the reduction or elimination of retiree health care benefits has led to lawsuits against us. Any other initiatives that we undertake to control or reduce costs may lead to additional claims against us. Many of Our Current and Planned Products Are Highly Complex and May Contain Defects or Errors That Are Detected Only After Deployment in Telecommunications Networks. If That Occurs, Our Reputation May Be Harmed. Our products are highly complex, and there is no assurance that our extensive product development, manufacturing and integration testing is or will be adequate to detect all defects, errors, failures and quality issues that could affect customer satisfaction or result in claims against us. As a result, we might have to replace certain components and/or provide remediation in response to the discovery of defects in products that are shipped. Most of these occurrences can be rectified without incident, as has generally been the case historically. However, the occurrence of any defects, errors, failures or quality issues could result in cancellation of orders, product returns, diversion of our resources, legal actions by customers or customers’ end-users and other losses to us, or to our customers or end-users. These occurrences could also result in the loss of or delay in market acceptance of our products and loss of sales, which would harm our business and adversely affect our revenues and profitability. 0/6 Rapid Changes to Existing Regulations or Technical Standards or the Implementation of New Ones for Products and Services Not Previously Regulated Could Be Disruptive, Time-Consuming and Costly to Us.

WeDate: 22-JAN-2007 10:37:45.81 develop many of our products and services based on existing regulations and technical standards, our interpretation of unfinished technical standards or the lack of such regulations and standards. Changes to existing regulations and technical standards, or the implementation of new regulations and technical standards relating to products and services not previously regulated, could adversely affect our development efforts, by increasing compliance costs and causing delay. Demand for those

products020.00.00.00 and services could also decline.

20 Operator: BNY99999T Y27905 BNY *Y27905/020/6* Phone: (212)924-5500 CRC: 25235 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 6773 BNY Y27905 021.00.00.00 0/6 Queue: BNY_CPS *Y27905/021/6* Description: FORM 10-K EDGAR 2

We Are Involved in Lawsuits, Which, If Determined against Us, Could Require Us to Pay Substantial Damages. We are defendants in various lawsuits. These lawsuits include such matters as commercial disputes, claims regarding intellectual property, product discontinuance, asbestos claims, labor, employment and benefit claims, shareowner litigation and others. For a discussion of some of these legal proceedings, you should read Note 14 to our Consolidated Financial Statements in Exhibit 13 to this report. We cannot predict the extent to which any of the pending or future actions will be resolved in our favor, or whether significant monetary judgments will be rendered against us. Any material losses resulting from these claims could adversely affect our profitability and cash flow. If We Fail to Protect Our Intellectual Property Rights, Our Business and Prospects May Be Harmed. Intellectual property rights, such as patents, are vital to our business, and developing new products and technologies that are unique to us is critical to our success. We have numerous U.S. and foreign patents and numerous pending patents. However, we cannot predict whether any patents, issued or pending, will provide us with any competitive advantage or whether such patents will be challenged by third parties. Moreover, our competitors may already have applied for patents that, once issued, could prevail over our patent rights, or otherwise limit our ability to sell our products. Our competitors also may attempt to design around our patents or copy or otherwise obtain and use our proprietary technology. In addition, patent applications that we have currently pending may not be granted. If we do not receive the patents that we seek or if other problems arise with our intellectual property, our competitiveness could be significantly impaired, which would limit our future revenues and harm our prospects. We Are Subject to Intellectual Property Litigation and Infringement Claims, Which Could Cause Us to Incur Significant Expenses or Prevent Us from Selling Certain Products. From time to time, we receive notices or claims from third parties of potential infringement in connection with products or services. We also may receive such notices or claims when we attempt to license our intellectual property to others. Intellectual property litigation can be costly and time-consuming and can divert the attention of management and key personnel from other business issues. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. A successful claim by a third party of patent or other intellectual property infringement by us could compel us to enter into costly royalty or license agreements or force us to pay significant damages and could even require us to stop selling certain products. Further, if one of our important patents or other intellectual property rights is invalidated, we may suffer losses of licensing revenues and be prevented from attempting to block others, including competitors, from using the related technology. We Are Subject to Environmental, Health and Safety Laws that Restrict Our Operations. Our operations are subject to a wide range of environmental, health and safety laws, including laws relating to the use, disposal and clean-up of, and human exposure to, hazardous substances. In the U.S., these laws often require parties to fund remedial action regardless of fault. Although we believe our reserves are adequate to cover our environmental liabilities, factors such as the discovery of additional contaminants, the extent of required remediation and the imposition of additional clean-up obligations could cause our capital expenditures and other expenses relating to remediation activities to exceed the amount reflected in our environmental0/6 reserve and adversely affect our results of operations and cash flows. Compliance with existing or future environmental, health and safety laws could subject us to future liabilities, cause the suspension of production, restrict our ability to utilize facilities or require us to acquire costly pollution control equipment or incur other significant expenses. Date: 22-JAN-2007 10:37:45.81 21 021.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/021/6* Phone: (212)924-5500 CRC: 6773 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 5809 BNY Y27905 022.00.00.00 0/3 Queue: BNY_CPS *Y27905/022/3* Description: FORM 10-K EDGAR 2

Our Business Requires a Significant Amount 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 have historically 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: • the level of sales;

• the collection of receivables;

• the timing and size of capital expenditures;

• costs associated with potential restructuring actions; and

• customer financing obligations. In order to finance our business, we expect that we will use available cash and investments and will have access to a syndicated credit facility allowing for the drawdown of significant levels of debt if required. However, we expect that our ability to draw on this facility will be conditioned upon compliance with financial covenants. There can be no assurance that we will be in compliance with the financial covenants required by our lenders at all times in the future. We may need to secure additional sources of funding if the syndicated credit facility and borrowings are not available or are insufficient to finance our business. We cannot provide any 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 operating cash flow to be used to pay principal and interest on the 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. Alcatel-Lucent’s expected short-term debt rating will allow us limited access to the commercial paper market, although the commercial paper market may not be available to us on acceptable terms and conditions. Alcatel-Lucent’s ability to have access to the capital markets and its financing costs will be, in part, dependent on Standard & Poor’s, Moody’s or similar agencies’ ratings with respect to its debt and corporate credit and their outlook with respect to Alcatel-Lucent’s business. Alcatel-Lucent’s expected short-term and long-term credit ratings, as well as any possible future lowering of its ratings, may result in higher financing costs and reduced access to the capital markets. We cannot provide any assurance that Alcatel-Lucent’s credit ratings will be sufficient to give us access to the capital markets on acceptable terms, or that once obtained, such credit ratings will not be reduced by Standard & Poor’s, Moody’s or similar rating agencies. Credit and Commercial Risks and Exposures Could Increase If the Financial Condition of Our Customers Declines.

A substantial0/3 portion of our sales are to customers in the telecom industry. These customers may require their suppliers to provide extended payment terms, direct loans or other forms of financial support as a condition to obtaining commercial contracts. We expect that we may provide or commit to financing where appropriate for our business. Our ability to arrange or provide financing forDate: 22-JAN-2007 10:37:45.81 our customers will depend on a number of factors, including our and Alcatel-Lucent’s credit ratings, levels of available credit, and abilities to sell off commitments on acceptable terms. More generally, we expect that we will 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 contract022.00.00.00 price before receiving any significant payment from the customer. As a result of the financing that may be provided to customers and our commercial risk exposure under long-term contracts, our businessOperator: BNY99999T 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 Y27905 22 BNY *Y27905/022/3* Phone: (212)924-5500 CRC: 5809 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 25642 BNY Y27905 023.00.00.00 0/6 Queue: BNY_CPS *Y27905/023/6* Description: FORM 10-K EDGAR 2

jurisdiction, or have experienced financial difficulties. Upon the financial failure of a customer, we may experience losses on credit extended and loans made to such customer, losses relating to commercial risk exposure, and the loss of the customer’s ongoing business. If 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. We Have Significant International Operations and a Significant Amount of Our Sales Are Made in Emerging Markets and Regions. 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. We expect to continue to focus on expanding business in emerging markets in Asia, Africa and Latin America. In many of these emerging markets, we may be 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 are 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. We are required to move products from one country to another and provide services in one country from a base in another. Accordingly, we are vulnerable to abrupt changes in customs and tax regimes that may have significant negative impacts on our financial condition and operating results. An Impairment of Goodwill or Other Intangible Assets Would Adversely Affect Our Financial Condition or Results of Operation. We have a significant amount of intangible assets including goodwill and other acquired intangibles, development costs for software to be sold, leased or otherwise marketed and internal use software development costs as of September 30, 2006. Goodwill is not amortized but is tested for impairment annually, or more often, if an event or circumstance indicates that an impairment loss may have been incurred. Other intangible assets are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events such as product discontinuances, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable. Historically, we have recognized significant impairment charges due to various reasons, including some of those noted above as well as potential restructuring actions or adverse market conditions that are either specific to the telecom industry or general in nature. As a result, additional impairment charges may be incurred in the future that could be significant and that could have an adverse effect on our results of operations or financial condition.

Item 1B. Unresolved Staff Comments None. 0/6 Item 2. Properties

AsDate: 22-JAN-2007 10:37:45.81 of September 30, 2006, we operated in 128 facilities in the U.S. totaling 15.0 million square feet, of which 8.3 million was owned and 6.7 million was leased. In addition, we operated in 152 facilities in 49 other countries totaling 4.5 million square feet, of which 1.4 million was owned and 3.1 million was leased. Our properties include systems integration/manufacturing sites, warehouse sites, offices sites (administration, sales, field service), and research and development sites. Included above are 1.1 million square feet that have been vacated under our restructuring actions. Most of our properties are used jointly by our 023.00.00.00 reporting segments. We believe our facilities are suitable and adequate to meet our current needs.

Operator: BNY99999T 23 Y27905 BNY *Y27905/023/6* Phone: (212)924-5500 CRC: 25642 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 26816 BNY Y27905 024.00.00.00 0/2 Queue: BNY_CPS *Y27905/024/2* Description: FORM 10-K EDGAR 2

Item 3. Legal Proceedings We are subject to legal proceedings, lawsuits and other claims, including proceedings by government authorities. In addition, we may be subject to liabilities of some of our former affiliates under separation agreements with them (see “Item 1. Business — Separation Agreements”). Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Consequently, we are unable to estimate the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of September 30, 2006. We believe that our current cases will not have a material financial impact on us after final disposition. However, because of the uncertainties of legal proceedings, one or more of these proceedings could ultimately result in material monetary payments by us. Please see Note 14 to our Consolidated Financial Statements contained in Exhibit 13 to this report for additional information about legal proceedings involving us.

Litigation and Lawsuits Litigation, lawsuits and similar claims currently involving us include the following types of matters: • Commercial disputes including breach of contract, product performance disputes and other claims.

• Intellectual property actions, usually involving patent infringement claims.

• Employment, including retiree benefit, matters.

• Environmental, health and safety claims, including asbestos-related claims. In the normal course of business, we are involved in commercial disputes with customers, suppliers, subcontractors and others. These matters generally involve claims for monetary damages for breach of contract or breach of warranty or similar claims. While many of these disputes are settled amicably without litigation, some will result in lawsuits. The downturn in the telecom industry early this decade and the insolvency or failure of numerous service providers have led to more claims and disputes and to an increase in the number that results in litigation. We are defendants in various cases in which third parties have claimed we are infringing their patents, including certain cases where infringement claims have been made against our customers in connection with products we have provided to them. We also occasionally institute actions against third parties whom we believe are infringing our intellectual property rights, and these actions sometimes lead to counterclaims by the opposing parties. We are subject to various employment-related claims regarding employee dismissals, benefits, compensation and other matters. As a result of our restructuring actions and plans for the future, we have reduced our workforce significantly and expect to make further reductions in the future. Although we have not experienced a significant increase in the number of employment-related claims as a result of these workforce reductions, workforce reductions can precipitate additional claims against us. We have taken and0/2 may continue to take steps to reduce the cost of providing postretirement health care benefits. These actions may increase claims made against us, and lawsuits have been filed against us in connection with the elimination of the death benefit in our U.S. Management Pension Plan and reductions in retiree health care benefits. In addition, the Equal Employment Opportunity CommissionDate: 22-JAN-2007 10:37:45.81 has initiated a suit against us regarding certain policies used by our predecessors prior to 1980. We are a defendant in various lawsuits involving alleged exposure to asbestos. These cases involve exposure to asbestos in premises owned or operated by us or by the predecessors of our business, such as AT&T or Western Electric, or in products manufactured or sold by us or our predecessors. Historically, we have not paid any material amounts related to asbestos claims. We024.00.00.00 have experienced an increase in the number of asbestos claims asserted against us, and these claims are on the rise generally in the U.S. against owners or operators of premises or companies that manufactured or sold products allegedly containing asbestos. Despite this trend, we currently do not expect these cases to have a significant impact on us in the future, Operator: BNY99999T although no assurance can be given that this will be the case.

TwoY27905 shareowner suits were filed against us asserting claims with respect to the Merger. On April 3, 2006, a putative class action entitled Resnick v. Lucent Technologies Inc., et al was filed against us and members of our board of directors in the

BNY *Y27905/024/2* 24 Phone: (212)924-5500 CRC: 26816 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 45852 BNY Y27905 025.00.00.00 0/4 Queue: BNY_CPS *Y27905/025/4* Description: FORM 10-K EDGAR 2

Superior Court of New Jersey, Law Division, Union County. The named plaintiffs proposed to represent a class of our shareowners and claimed that, among other things, the Merger with Alcatel was the product of breaches of duty by our board of directors in that they allegedly failed to maximize shareowner value in the transaction. On May 4, 2006, a second putative class action entitled AR Maley Trust v. Lucent Technologies, et al was filed against us and members of our board of directors in the U.S. District Court of the Southern District of New York. The named plaintiff proposed to represent a class of our shareowners and claimed that, among other things, Lucent and its directors breached their fiduciary duties by allegedly failing to maximize shareowner value in the transaction. Along with other relief, both the Resnick and AR Maley Trust complaints sought an injunction against the closing of the Merger. On September 6, 2006, we reached a tentative settlement of these actions. The settlement is subject to customary conditions including court approval.

Government Investigations In August 2003, the U.S. Department of Justice (the “DOJ”) and the SEC informed us that they had each commenced an investigation into possible violations of the Foreign Corrupt Practices Act (“FCPA”) with respect to our operations in Saudi Arabia. These investigations followed allegations made by the National Group for Communications and Computers Ltd. in an action filed against us on August 8, 2003. In April 2004, we reported to the DOJ and the SEC that an internal FCPA compliance audit and an outside counsel investigation found incidents and internal control deficiencies in our operations in China that potentially involve FCPA violations. In November 2004, we reported that our former Chairman and Chief Executive Officer, the former head of our Saudi Arabia operations, and a third former employee received “Wells” notices from the SEC. In May 2005, the SEC Enforcement Staff notified representatives of these individuals that the SEC staff would not be recommending enforcement action against these individuals. The investigation is continuing with respect to both China and Saudi Arabia. During September 2006, we received a “Wells” notice relating to this investigation of our operations in China under the FCPA. We responded to the “Wells” notice via a written submission to the SEC staff and are continuing discussions with the SEC staff in an effort to resolve the matter. In May 2005, we received subpoenas on two different matters, requesting specific documents and records. One of the subpoenas related to a DOJ investigation of potential antitrust and other violations by various participants in connection with the federal E- Rate program. The subpoena required us to produce documents before a grand jury of the U.S. District Court in Georgia. The second subpoena was from the Office of Inspector General, U.S. General Services Administration and related to a federal investigation into certain sales to the federal government of telecommunications equipment and related maintenance services. In August 2006, we reported that during April 2006, the California Department of Justice served us with discovery requests related to sales to California governmental agencies of telecommunications equipment and related maintenance services.

Item 4. Submission of Matters to a Vote of Security Holders On0/4 September 7, 2006, we held a special meeting of shareowners at which our shareowners were asked to consider and vote upon a proposal to approve and adopt the Merger Agreement and the transactions contemplated by the Merger Agreement (together, the “Proposal”). The final results of the shareowner vote at the special meeting were as follows: 2,329,800,391 shares wereDate: 22-JAN-2007 10:37:45.81 voted for the Proposal, 116,409,626 shares were voted against the Proposal and 39,717,450 shares abstained. The 2,329,800,391 shares voted in favor of the Proposal represented 51.98% of the outstanding shares of our common stock as of the record date for the special meeting, and of those votes cast or abstained, 93.72% voted to approve and adopt the Merger Agreement. 025.00.00.00 25 Operator: BNY99999T Y27905 BNY *Y27905/025/4* Phone: (212)924-5500 CRC: 45852 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 36281 BNY Y27905 026.00.00.00 0/2 Queue: BNY_CPS *Y27905/026/2* Description: FORM 10-K EDGAR 2

PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (a) Market Price, Holders and Dividend Information Prior to completion of the Merger on November 30, 2006, our common stock had been traded on the New York Stock Exchange (“NYSE”) under the symbol LU. The following table presents the high and low sales prices of our common stock as reported on the NYSE:

High Low YEAR ENDED SEPTEMBER 30, 2006 Quarter ended December 31, 2005 $3.49 $2.64 Quarter ended March 31, 2006 3.16 2.48 Quarter ended June 30, 2006 3.22 2.25 Quarter ended September 30, 2006 2.47 1.99

YEAR ENDED SEPTEMBER 30, 2005 Quarter ended December 31, 2004 $4.16 $3.11 Quarter ended March 31, 2005 3.86 2.70 Quarter ended June 30, 2005 3.17 2.35 Quarter ended September 30, 2005 3.30 2.81 Following completion of the Merger, there is no longer any trading market for our common stock. On December 1, 2006, there was one shareowner of record of our common stock. We currently do not pay cash dividends on our common stock and have no plans to reinstate a dividend on our common stock. During the three months ended September 30, 2006, we did not issue any common shares that were not registered under the Securities Act of 1933. Other information required by this Item is set forth in Part III, Item 12, of this report. (b) Not applicable. (c) No repurchases of the Company’s equity securities were made during the fourth quarter of fiscal 2006.

Item 6. Selected Financial Data

The0/2 information required by this Item is included in page F-33 of our annual report to shareowners for the year ended September 30, 2006. This page of the annual report to shareowners is included in Exhibit 13 to this report.

ItemDate: 22-JAN-2007 10:37:45.81 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The information required by this Item is included in pages F-2 to F-32 of our annual report to shareowners for the year ended September 30, 2006. These pages of the annual report to shareowners are included in Exhibit 13 to this report.

Item026.00.00.00 7A. Quantitative and Qualitative Disclosures About Market Risk The information required by this Item is included in pages F-31 to F-32 of our annual report to shareowners for the year ended

SeptemberOperator: BNY99999T 30, 2006. These pages of the annual report to shareowners are included in Exhibit 13 to this report.

Y27905 26 BNY *Y27905/026/2* Phone: (212)924-5500 CRC: 36281 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 47850 BNY Y27905 027.00.00.00 0/4 Queue: BNY_CPS *Y27905/027/4* Description: FORM 10-K EDGAR 2

Item 8. Financial Statements and Supplementary Data The information required by this Item is included in pages F-33 to F-79 of our annual report to shareowners for the year ended September 30, 2006. These pages of the annual report to shareowners are included in Exhibit 13 to this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.

Item 9A. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2006. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2006, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting Management’s report on our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and the independent registered public accounting firm’s related audit report are included in Item 8 of this Annual Report on Form 10-K and are incorporated herein by reference.

Changes in Internal Control over Financial Reporting No change in our internal control over financial reporting occurred during the fiscal quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 0/4 Item 9B. Other Information None. Date: 22-JAN-2007 10:37:45.81

PART III

Item 10. Directors and Executive Officers of the Registrant 027.00.00.00 Information required by this Item for executive officers is set forth under the heading “Executive Officers of the Registrant” in Part I, Item 1, of this report. In accordance with the instructions of Form 10-K, the other information required by Item 10 will be includedOperator: BNY99999T in either (1) our definitive proxy statement for our 2007 annual meeting of shareowners or (2) an amendment to this Form 10-K filed not later than 120 days after the end of our fiscal year covered by this Form 10-K. Y27905 27 BNY *Y27905/027/4* Phone: (212)924-5500 CRC: 47850 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 19605 BNY Y27905 028.00.00.00 0/5 Queue: BNY_CPS *Y27905/028/5* Description: FORM 10-K EDGAR 2

We have adopted a code of ethics that applies to our Chief Executive Officer and all financial officers and executives, including our Chief Financial Officer and Principal Accounting Officer. This code of ethics supplements our “Business Guideposts: A Personal Commitment,” which is a code of business conduct and ethics applicable to all of our directors and employees. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers to file, with the SEC and the NYSE, reports of their holdings and transactions in our common stock through the date on which our common stock was deregistered and delisted. Based on our records and other information, we believe that all required Section 16(a) reports for our directors and executive officers for fiscal 2006 were timely filed.

Item 11. Executive Compensation In accordance with the instructions of Form 10-K, the information required by Item 11 will be included in either (1) our definitive proxy statement for our 2007 annual meeting of shareowners, or (2) an amendment to this Form 10-K filed not later than 120 days after the end of our fiscal year covered by this Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters In accordance with the instructions of Form 10-K, the information required by Item 12 will be included in either (1) our definitive proxy statement for our 2007 annual meeting of shareowners, or (2) an amendment to this Form 10-K filed not later than 120 days after the end of our fiscal year covered by this Form 10-K.

Item 13. Certain Relationships and Related Transactions In accordance with the instructions of Form 10-K, the information required by Item 13 will be included in either (1) our definitive proxy statement for our 2007 annual meeting of shareowners, or (2) an amendment to this Form 10-K filed not later than 120 days after the end of our fiscal year covered by this Form 10-K.

Item 14. Principal Accounting Fees and Services In accordance with the instructions of Form 10-K, the information required by Item 14 will be included in either (1) our definitive proxy statement for our 2007 annual meeting of shareowners, or (2) an amendment to this Form 10-K filed not later than 120 days after the end of our fiscal year covered by this Form 10-K.

28 0/5 Date: 22-JAN-2007 10:37:45.81 028.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/028/5* Phone: (212)924-5500 CRC: 19605 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 63720 BNY Y27905 029.00.00.00 0/2 Queue: BNY_CPS *Y27905/029/2* Description: FORM 10-K EDGAR 2

PART IV

Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report:

Pages (1) Consolidated Financial Statements: (i) Consolidated Statements of Operations * (ii) Consolidated Balance Sheets * (iii) Consolidated Statements of Changes in Shareowners’ Equity (Deficit) * (iv) Consolidated Statements of Cash Flows * (v) Notes to Consolidated Financial Statements *

(2) Five-Year Summary of Selected Financial Data *

* Incorporated by reference to the appropriate portions in pages F-37 through F-79 of our annual report to shareowners for the fiscal year ended September 30, 2006 (see Part II and Exhibit 13).

(3) Exhibits: See Exhibit Index on page 31 for a description of the documents that are filed as exhibits to this report on Form 10-K or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical referencing the SEC filing that included the document. We will furnish, without charge, to a security holder upon request a copy of our definitive proxy statement for our 2007 annual meeting of shareowners. We will furnish any other exhibit at cost. (b) The Exhibit Index on page 31 describes the documents that are filed as exhibits to this report on Form 10-K or incorporated by reference herein. (c) Separate financial statements of subsidiaries not consolidated and 50 percent or less owned persons are omitted since no such entity constitutes a “significant subsidiary” pursuant to the provisions of Regulation S-X, Article 3-09.

29 0/2 Date: 22-JAN-2007 10:37:45.81 029.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/029/2* Phone: (212)924-5500 CRC: 63720 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 37947 BNY Y27905 030.00.00.00 0/4 Queue: BNY_CPS *Y27905/030/4* Description: FORM 10-K EDGAR 2

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

LUCENT TECHNOLOGIES INC.

By: /s/ DAVID W. HITCHCOCK David W. Hitchcock Chief Financial Officer

(Principal Financial and Accounting Officer) Date: December 14, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

/s/ CYNTHIA CHRISTY-LANGENFELD PRINCIPAL EXECUTIVE OFFICER Cynthia Christy-Langenfeld

Chief Executive Officer Date: December 14, 2006

/s/ DAVID W. HITCHCOCK PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER David W. Hitchcock

Chief Financial Officer Date: December 14, 2006

DIRECTORS Cynthia Christy-Langenfeld Frank D’Amelio David Hitchcock Timothy Keller Hubert de Pesquidoux

Michael0/4 Quigley

Date: 22-JAN-2007 10:37:45.81 By: /s/ DAVID W. HITCHCOCK Attorney-in-Fact Date: December 14, 2006

030.00.00.00 30 Operator: BNY99999T Y27905 BNY *Y27905/030/4* Phone: (212)924-5500 CRC: 37947 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 65068 BNY Y27905 031.00.00.00 0/1 Queue: BNY_CPS *Y27905/031/1* Description: FORM 10-K EDGAR 2

EXHIBIT INDEX The following documents are filed as exhibits to this report on Form 10-K or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.

Exhibit Number Description

2.1 Agreement and Plan of Merger, dated as of April 2, 2006, by and among the registrant, Alcatel and Aura Merger Sub, Inc. (Exhibit 2.1 to Current Report on Form 8-K filed April 3, 2006).

3(i) 1 Certificate of Incorporation of the registrant, as amended, effective February 16, 2000 (Exhibit 3.1 to Registration Statement on Form S-4, No. 333-31400).

3(i) 2 Certificate of Amendment of Restated Certificate of Incorporation of the registrant, dated February 26, 2004 (Exhibit 3(i) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

3(ii) By-Laws of the registrant, as amended as of February 18, 2004 (Exhibit 3(ii) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

4(ii) 1 Indenture, dated as of April 1, 1996, between the registrant and The Bank of New York, as trustee (Exhibit 4A to Registration Statement on Form S-3, No. 333-01223).

4(ii) 2 First Supplemental Indenture, dated as of April 17, 2000, to Indenture dated as of April 1, 1996, between the registrant and The Bank of New York, as trustee (Exhibit 4 to Current Report on Form 8-K filed May 5, 2000).

4(ii) 3 Amended and Restated Trust Agreement, dated as of March 19, 2002, among the registrant, as depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware), as Delaware trustee, and the individuals named therein, as administrative trustees, relating to Lucent Technologies Capital Trust I (Exhibit 4 (v) 1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).

4(ii) 4 Form of certificate for preferred securities of Lucent Technologies Capital Trust I, designated as 7.75% Cumulative Convertible Trust Preferred Securities (liquidation preference $1,000 per preferred security) (Exhibit B to Exhibit 4(v) 1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).

4(ii) 5 Indenture, dated as of March 19, 2002, between the registrant and The Bank of New York, as indenture 0/1 trustee (Exhibit 4(v) 3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).

4(ii) 6 Form of the registrant’s 7.75% convertible subordinated debentures due 2017 (Exhibit A to Exhibit 4(v) 3 to Date: 22-JAN-2007 10:37:45.81 Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).

4(ii) 7 Guarantee Agreement, dated as of March 19, 2002, between the registrant, as guarantor, and The Bank of New York, as guarantee trustee (Exhibit 4(v) 5 to Quarterly Report on Form 10-Q for the quarter ended

031.00.00.00 March 31, 2002).

31 Operator: BNY99999T Y27905 BNY *Y27905/031/1* Phone: (212)924-5500 CRC: 65068 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 58789 BNY Y27905 032.00.00.00 0/3 Queue: BNY_CPS *Y27905/032/3* Description: FORM 10-K EDGAR 2

Exhibit Number Description

4(ii) 8 Indenture, dated as of June 4, 2003, between the registrant and The Bank of New York, as trustee (Exhibit 4.1 to Current Report on Form 8-K filed June 25, 2003).

4(ii) 9 First Supplemental Indenture, dated as of June 4, 2003, between the registrant and The Bank of New York, as trustee (Exhibit 4.2 to Current Report on Form 8-K filed June 25, 2003).

4(ii) 10 Indenture, dated as of November 24, 2003, between the registrant and The Bank of New York, as trustee (Exhibit 4(ii) 11 to Annual Report on Form 10-K for the year ended September 30, 2003).

4(ii) 11 Form of the registrant’s 8% convertible subordinated debentures due 2031 (Exhibit A to Exhibit 4(ii) 11 to Annual Report on Form 10-K for the year ended September 30, 2003).

4(ii) 12 Warrant Agreement (including Form of Warrant Certificate), dated as of December 10, 2004, between the registrant and The Bank of New York, as warrant agent (Exhibit 4.1 to Current Report on Form 8-K filed December 10, 2004).

4(ii) 13 Stipulation and Agreement of Settlement, dated September 22, 2003, in settlement of litigation in the U.S. District Court for the District of New Jersey entitled In re Lucent Technologies Inc. Securities Litigation (Exhibit 4.8 to Registration Statement on Form S-3, No. 333-120984).

4(iii) Other instruments in addition to exhibits under 4(ii) that define the rights of holders of long-term debt of the registrant and all of its consolidated subsidiaries are not filed herewith pursuant to Regulation S-K, Item 601(b) (4)(iii)(A). Pursuant to this regulation, the registrant agrees to furnish a copy of any such instrument to the SEC upon request.

10(i) 1 Tax Sharing Agreement, by and among AT&T Corp., the registrant and NCR Corporation, dated as of February 1, 1996, and amended and restated as of March 29, 1996 (Exhibit 10.6 to Registration Statement on Form S-1, No. 333-00703).

10(i) 2 Amended and Restated Letter of Credit Issuance and Reimbursement Agreement, dated as of August 11, 2006, among the registrant, several banks and other parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 99.1 to Current Report on Form 8-K filed August 15, 2006).

10(i)0/3 3 Amended and Restated External Sharing Debt Agreement, dated as of October 1, 2004, among the registrant, several banks and other parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 99.2 to Current Report on Form 8-K filed October 7, 2004).

Date: 22-JAN-2007 10:37:45.81 10(i) 4 First Amendment, dated as of April 8, 2005, to Amended and Restated External Sharing Debt Agreement, dated as of October 1, 2004, among the registrant, several banks and other parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter

032.00.00.00 ended March 31, 2005).

10(i) 5 Second Amendment, dated as of August 11, 2006, to Amended and Restated External Sharing Debt

Operator: BNY99999T Agreement, dated as of October 1, 2004, among the registrant, several banks and other parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 99.2 to Current Report on Form 8-K filed

Y27905 August 15, 2006).

32 BNY *Y27905/032/3* Phone: (212)924-5500 CRC: 58789 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 11732 BNY Y27905 033.00.00.00 0/3 Queue: BNY_CPS *Y27905/033/3* Description: FORM 10-K EDGAR 2

Exhibit Number Description

10(i) 6 Amended and Restated Guarantee and Collateral Agreement, dated as of August 11, 2006, made by the registrant and certain of its subsidiaries in favor of JPMorgan Chase Bank, N.A., as collateral agent (Exhibit 99.3 to Current Report on Form 8-K filed August 15, 2006).

10(i) 7 Amended and Restated Collateral Sharing Agreement, dated as of August 11, 2006, among the registrant, certain of its subsidiaries and JPMorgan Chase Bank, N.A., as collateral agent (Exhibit 99.4 to Current Report on Form 8-K filed August 15, 2006).

10(ii)(B) 1 Patent License Agreement, among AT&T Corp., NCR Corporation and the registrant, effective as of March 29, 1996 (Exhibit 10.7 to Registration Statement on Form S-1, No. 333-00703).

10(ii)(B) 2 Amended and Restated Technology License Agreement, among AT&T Corp., NCR Corporation and the registrant, effective as of March 29, 1996 (Exhibit 10.8 to Registration Statement on Form S-1, No. 333- 00703).

10(ii)(B) 3 Electronics Manufacturing Services Agreement, No. HO32050265, between the registrant and Solectron Corporation, effective July 21, 2005 (Exhibit 10(ii)(B) 3 to Annual Report on Form 10-K for the year ended September 30, 2005).*

10(ii)(B) 4 External Manufacturing Services Agreement, No. WR71050115, between the registrant and Celestica Corporation, entered into September 30, 2005, and effective April 1, 2005 (Exhibit 10(ii)(B) 4 to Annual Report on Form 10-K for the year ended September 30, 2005).*

10(ii)(B) 5 Transition Agreement between Celestica Corporation and the registrant, dated September 16, 2005 (Exhibit 10(ii)(B) 5 to Annual Report on Form 10-K for the year ended September 30, 2005).*

10(iii)(A) 1 Lucent Technologies Inc. Short Term Incentive Program (Exhibit 10(iii)(A) 1 to Annual Report on Form 10-K for the year ended September 30, 2004).**

10(iii)(A) 2 Lucent Technologies Inc. 2004 Equity Compensation Plan for Non-Employee Directors (Exhibit 10(iii) 1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).**

10(iii)(A)0/3 3 First Amendment to the Lucent Technologies Inc. 2004 Equity Compensation Plan for Non-Employee Directors (Exhibit 10(iii)(A) 6 to Annual Report on Form 10-K for the year ended September 30, 2004).**

10(iii)(A)Date: 22-JAN-2007 10:37:45.81 4 Lucent Technologies Inc. Deferred Compensation Plan (Exhibit 10(iii)(A) 7 to Annual Report on Form 10-K for the year ended September 30, 2004).**

10(iii)(A) 5 Lucent Technologies Inc. Supplemental Pension Plan (Exhibit 10(iii)(A) 8 to Annual Report on Form 10-K for

033.00.00.00 the year ended September 30, 2004).**

10(iii)(A) 6 Summary of compensation terms for certain named executive officers (Exhibit 10(iii)(A) 14 to Annual Report

Operator: BNY99999T on Form 10-K for the year ended September 30, 2005).**

Y27905 33 BNY *Y27905/033/3* Phone: (212)924-5500 CRC: 11732 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 23872 BNY Y27905 034.00.00.00 0/2 Queue: BNY_CPS *Y27905/034/2* Description: FORM 10-K EDGAR 2

Exhibit Number Description

10(iii)(A) 7 Summary of compensation terms for non-employee directors (Exhibit 10(iii)(A) 15 to Annual Report on Form 10-K for the year ended September 30, 2005).**

10(iii)(A) 8 Officer Severance Policy for Cynthia K. Christy-Langenfeld, dated January 23, 2001 (Exhibit 10(iii)(A) 17 to Annual Report on Form 10-K for the year ended September 30, 2005).**

10(iii)(A) 9 Lucent Technologies Executive Officer Severance Policy (Exhibit 10(iii)(A) 18 to Annual Report on Form 10-K for the year ended September 30, 2004).**

10(iii)(A) 10 Lucent Technologies Officer Severance Program (Exhibit 10(iii)(A) 21 to Annual Report on Form 10-K for the year ended September 30, 2005).**

12 Computation of Deficiency of Earnings to Cover Combined Fixed Charges and Preferred Stock Dividend Requirements and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements.

13 Selected portions (pages F-1 to F-79) of the registrant’s Annual Report to Shareowners for the year ended September 30, 2006.

14 Code of Ethics for Chief Executive Officer and Senior Financial Officers (Exhibit 14 to Annual Report on Form 10-K for the year ended September 30, 2003).

21 List of subsidiaries of the registrant.

24 Powers of Attorney executed by directors who signed this report.

31.1 Certification of Cynthia K. Christy-Langenfeld required by Rule 13a-14(a) (17 C.F.R. 240.13a-14(a)).

31.2 Certification of David W. Hitchcock required by Rule 13a-14(a) (17 C.F.R. 240.13a-14(a)).

32 Certification of Cynthia K. Christy-Langenfeld and David W. Hitchcock pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 0/2

* Certain confidential portions of this exhibit have been omitted and filed separately with the SEC pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

**Date: 22-JAN-2007 10:37:45.81 Management contract or compensatory plan or arrangement.

34 034.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/034/2* Phone: (212)924-5500 CRC: 23872 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: FORM 10-K O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 51576 BNY Y27905 035.00.00.00 0/4 Queue: BNY_CPS *Y27905/035/4* Description: Exhibit 13 EDGAR 2

Exhibit 13

LUCENT TECHNOLOGIES FINANCIAL REVIEW 2006

Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements F-2 Executive Summary F-2 Application of Critical Accounting Estimates F-5 Consolidated Results of Operations F-11 Results of Operations by Segment F-21 Liquidity and Capital Resources F-25 Quantitative and Qualitative Disclosures About Market Risk F-31

Five-Year Summary of Selected Financial Data F-33 Report on Internal Control Over Financial Reporting F-34 Report of Independent Registered Public Accounting Firm F-35

Consolidated Financial Statements Consolidated Statements of Operations F-37 Consolidated Balance Sheets F-38 Consolidated Statements of Changes in Shareowners’ Equity (Deficit) F-39 Consolidated Statements of Cash Flows F-40

Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies F-41 2. Merger with Alcatel F-45 3. Business Restructuring F-45 4. Business Acquisitions F-47 5. Supplementary Financial Information F-48 6. Earnings Per Common Share F-49 7. Accumulated Other Comprehensive Loss F-50 8. Income Taxes F-51 9. Debt Obligations and Early Extinguishment of Debt F-54 10. Employee Benefit Plans F-57 11. Stock Compensation Plans F-63 12. Operating Segments F-67 0/4 13. Financial Instruments F-69 14. Commitments and Contingencies F-73 15. Subsequent Events F-78

Date: 22-JAN-2007 10:37:45.81 16. Quarterly Information (Unaudited) F-79

F-1 035.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/035/4* Phone: (212)924-5500 CRC: 51576 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 56926 BNY Y27905 036.00.00.00 0/2 Queue: BNY_CPS *Y27905/036/2* Description: Exhibit 13 EDGAR 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that are based on future performance, events or developments, including other statements about Lucent’s managements’ future expectations, beliefs, goals, plans or prospects that are based on current expectations, estimates, forecasts and projections about Lucent, as well as Lucent’s future performance and the industries in which it operates, in addition to management’s assumptions. These statements constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or variations of such words and similar expressions are intended to identify such forward-looking statements which are not statements of historical facts. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to assess. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. These risks and uncertainties are based upon a number of important factors including, among others: difficulties and delays in achieving synergies and cost savings from our merger with Alcatel; our ability to retain key employees due to uncertainties associated with the merger; our ability to operate effectively in a highly competitive industry with many participants; our ability to keep pace with technological advances and correctly identify and invest in the technologies that become commercially accepted; our reliance on a small number of key customers; fluctuations in the telecommunications market; fluctuations in our working capital requirements and cash flows; the pricing, cost and other risks inherent in our long-term sales agreements; impairment of goodwill or other acquired intangibles; exposure to the credit risk of our customers; reliance on a limited number of contract manufacturers to supply products we sell; the social, political and economic risks of our foreign operations; the costs and risks associated with our pension and postretirement benefit obligations; the complexity of our products; changes to existing regulations or technical standards; existing and future litigation; difficulties and costs in protecting intellectual property rights and exposure to infringement claims by others; and compliance with environmental, health and safety laws. For a more complete list and description of such risks and uncertainties, see the reports filed by us with the Securities and Exchange Commission (the SEC). Except as required under the federal securities laws and the rules and regulations of the SEC, we disclaim any intention or obligation to update publicly any forward-looking statements after the distribution of this MD&A, whether as a result of new information, future events, changes in assumptions or otherwise.

EXECUTIVE SUMMARY We design and deliver the systems, software and services that drive next-generation communications networks. Backed by Bell Labs research and development, we use our strengths in mobility, optical, access, data and voice networking technologies, as well as services, to create new revenue-generating opportunities for our customers, while enabling them to quickly deploy and better manage their networks. Our customer base includes communications service providers, governments and enterprises worldwide.0/2 There has been some consolidation among service providers as they look to expand their scope and scale while improving cost

efficiencies.Date: 22-JAN-2007 10:37:45.81 This industry dynamic presents both challenges and opportunities for equipment vendors. One potential challenge may come in the form of rationalized capital spending in the future. In addition, integration activities may delay new network deployments. However, we anticipate that there will also be opportunities, as carriers will require assistance integrating these large, complex networks. Also, depending on the service providers involved, some of the consolidation could enable certain vendors to extend their reach to customers that were previously focused on different technologies or areas. 036.00.00.00 We continue to believe the telecom industry is in the early stages of a multiyear transformation to next-generation networks. As a result we have been focusing on certain high-growth areas, such as services, Internet protocol (IP) multimedia subsystem (IMS), broadbandOperator: BNY99999T access, optical and next-generation mobile

Y27905 F-2 BNY *Y27905/036/2* Phone: (212)924-5500 CRC: 56926 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 60115 BNY Y27905 037.00.00.00 0/2 Queue: BNY_CPS *Y27905/037/2* Description: Exhibit 13 EDGAR 2

high-speed data. As this transformation progresses, our customers are increasingly focused on deploying new IP-based, revenue- generating services that will differentiate their businesses and build customer loyalty. However, the actual trialing, testing and deployment of these new technologies will take time. This is a long-term technology transition, which will create opportunities for us and our customers in growth areas such as mobile high-speed data, broadband access, metro optical networking and voice over Internet protocol (VoIP) solutions, as well as in professional and managed services. We are working to turn these technologies and opportunities into cost-effective offers for our customers. Within this environment, certain service providers are currently investing to meet growing capacity demands. These demands are being driven by the coverage requirements, subscriber growth and traffic increases that place demands on networks of all kinds. In addition, service providers have increased investments in the systems, software and technologies that enable next-generation converged services that cut across wireline and wireless, as well as voice, video and data. There is also a growing interest in content such as games, music and entertainment. To meet these challenges, we have been adapting our product portfolio around a common IMS platform that gives our customers the flexibility to build the types of networks and offer the types of services required to best meet the demand for converged broadband services. We combined our mobility and wireline businesses into a single unit, the Network Solutions Group. This change is enabling us to improve our efficiency, market approach and cost structure. We are also focused on the following actions: • The implementation of a services-led software strategy that combined the network operations software business with the Services business, which is expected to bring better alignment, focus and efficiency.

• The optimization of our supply chain network, including the consolidation of our EMS (electronic manufacturing service) providers from four to two.

• The continuation of business process simplification efforts across the Company, including corporate center functions. These actions allow us to more effectively focus our efforts and resources on pursuing high-growth areas where we have strong technology, market or customer advantages. We believe that focusing on these areas will allow us to serve our customers better and provide us with the best opportunity to profitably grow the business. Capital spending in our target markets can change rapidly and can vary over short periods of time. In addition, the timing of customer orders, deployments and acceptances for large network build-outs as well as the general availability of products and software releases may also impact future revenues. As a result of this uncertainty, it is difficult to make accurate forecasts of near- and long-term results and cash flow. In addition, because a limited number of customers accounts for a significant amount of our revenue, our results are subject to fluctuation due to changes in spending by one or more of these customers. Exposure to this type of fluctuation is most prevalent in our Mobility Access and Applications Solutions segment.

F-3 0/2 Date: 22-JAN-2007 10:37:45.81 037.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/037/2* Phone: (212)924-5500 CRC: 60115 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 53415 BNY Y27905 038.00.00.00 0/11 Queue: BNY_CPS *Y27905/038/11* Description: Exhibit 13 EDGAR 2

The following table includes certain financial information.

Years ended September 30, (in millions) 2006 2005 Change 2004 Change Mobility Access & Applications Solutions $4,051 $4,660 (13%) $4,166 12% Multimedia Network Solutions (MNS) 1,677 1,563 7% 1,498 4% Converged Core Solutions (CCS) 600 850 (29%) 1,215 (30%) Services 2,313 2,220 4% 2,044 9% Intellectual property 130 113 15% 72 57% Other 2535 (29%) 50 (30%)

Revenues $8,796 $9,441 (7%) $9,045 4%

Gross margin $3,735 $4,124 $ (389) $3,779 $ 345 Gross margin rate 42% 44% (2pts) 42% 2 pts

Operating expenses $3,066 $2,863 $ 203 $2,560 $303 Percentage of revenue 35% 30% 5 pts 28% 2 pts

Operating income $ 669 $1,261 $ (592) $1,219 $ 42 Other income, net 224 114 240 Interest expense 324341 396 Income taxes 42 (151) (939)

Net income $ 527 $1,185 $2,002

As discussed in more detail throughout our MD&A: • During fiscal 2006, Mobility Access and Applications Solutions revenues decreased primarily due to lower CDMA sales particularly in the APaC region. CCS revenues decreased due to lower sales of legacy circuit switching and Personal Handyphone Systems (PHS), as declines in these product sales continue to outpace growth in spending on next- generation technologies. Services revenues increased due to higher deployment services.

• During fiscal 2005, Mobility Access and Applications Solutions revenues continued to increase due to deployment of EVDO and CDMA network expansion in the U.S., as certain of our large customers increase network investment for high- speed mobile data services and deploy additional capacity to support subscriber growth. MNS revenues increased due to higher optical networking sales. CCS revenues decreased due to lower sales of legacy circuit switching and PHS as declines in these product sales continue to outpace growth in spending on next-generation technologies. Services revenues increased due to higher professional services and government contracts.

• Among other factors, the gross margin rate decreased during fiscal 2006 as a result of unfavorable mix and lower sales 0/11 volume. The gross margin rate increased during fiscal 2005 as a result of a more favorable mix. The impact of competitive pricing pressures continued to be offset by cost reductions in all periods presented.

Date: 22-JAN-2007 10:37:45.81 • Fiscal 2006 operating expenses increased primarily due to the Winstar litigation charge and a lower pension credit offset in part by lower accruals for employee incentive awards. Fiscal 2005 operating expenses increased primarily due to lower recoveries of bad debt and customer financing, additional selling expenses to support the Global Sales Organization and Services growth initiatives and higher charges related to various litigation matters.

•038.00.00.00 The net pension and postretirement benefit credit (net pension credit) was $429 million, $718 million and $868 million during fiscal 2006, 2005 and 2004, respectively, and is expected to decline by approximately $150 million during fiscal 2007.

Operator: BNY99999T • Valuation allowances were maintained on substantially all of our net deferred tax assets. As a result, federal and certain

Y27905 state and non-U.S. income taxes attributable to pre-tax income were

F-4 BNY *Y27905/038/11* Phone: (212)924-5500 CRC: 53415 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 22046 BNY Y27905 039.00.00.00 0/3 Queue: BNY_CPS *Y27905/039/3* Description: Exhibit 13 EDGAR 2

not provided during fiscal 2006, 2005 and 2004. However, income tax benefits were recognized primarily as a result of valuation allowance reversals related to certain carryback claims and other potential sources of taxable income, including an $816 million federal net operating loss carryback claim recognized during fiscal 2004 and additional benefits from the favorable resolution of certain income tax audit matters.

• Cash and cash equivalents and marketable securities were $3.4 billion and $4.9 billion as of September 30, 2006 and 2005, respectively. During fiscal 2006, cash and marketable securities were used to repay long-term debt of $383 million, collateralize a letter of credit issued in connection with the Winstar judgment of $311 million and for the Riverstone acquisition of $206 million.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES Our consolidated financial statements are based on the selection of accounting policies and the application of accounting estimates, some of which require management to make significant assumptions. Actual results could differ materially from the estimated amounts. We believe that some of the more important estimates and related assumptions that affect our financial condition and results of operations are in the areas of revenue recognition, pension and postretirement benefits, income taxes, legal contingencies and intangible assets. During the fourth quarter of fiscal 2006, we elected to early adopt Statement of Financial Accounting Standards (SFAS) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS No. 123R, “Share-Based Payment”, was adopted on October 1, 2005. There were no other accounting policies adopted during fiscal 2006 that had a material effect on our financial condition or results of operations. Refer to Note 1 to our consolidated financial statements for our significant accounting policies.

Revenue recognition Most of our sales are generated from complex contractual arrangements that require significant revenue recognition judgments in determining the units of delivery and related values, as well as determining whether acceptance milestones have been achieved. These judgments are particularly important in the areas of multiple-element arrangements, the application of software revenue recognition rules and contract accounting and the assessment of collectibility. Revenues from contracts with multiple-element arrangements, such as those including products sold with installation and integration services, are recognized as the revenue for each unit of accounting is earned, based on the relative fair value of each unit of accounting as determined by internal or third-party analyses of market-based prices. A delivered element is considered a separate unit of accounting if it has value to the customer on a standalone basis, if there is objective and reliable evidence of the fair value of undelivered elements in the arrangement, and if delivery or performance of undelivered elements is considered probable and substantially under our control.

Many0/3 of our products are integrated with software that is embedded in our hardware at delivery. In those cases where indications are that software is more than incidental and was a significant factor in the customer’s purchasing decision, such as where the transaction includes software upgrades or enhancements, we apply software revenue recognition rules to determine the amount andDate: 22-JAN-2007 10:37:45.81 timing of revenue recognition. In multiple element arrangements where software is considered more than incidental, fair value of an undelivered element is determined using vendor-specific objective evidence. The percentage-of-completion method of accounting is used for sales generated from certain contracts, primarily those related to customized network solutions and network build-outs with durations of at least six months. We make important judgments in estimating039.00.00.00 revenue and cost and in measuring progress toward completion. These judgments underlie our determinations regarding overall contract value, contract profitability and timing of revenue recognition. Revenue and cost estimates are revised Operator: BNY99999T F-5 Y27905 BNY *Y27905/039/3* Phone: (212)924-5500 CRC: 22046 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 38872 BNY Y27905 040.00.00.00 0/4 Queue: BNY_CPS *Y27905/040/4* Description: Exhibit 13 EDGAR 2

periodically based on changes in circumstances. Revenues recognized under the percentage-of-completion method of accounting have increased during recent fiscal years, representing 26%, 25% and 24% of total revenues during fiscal 2006, 2005 and 2004, respectively. The threshold for contracts that qualify for the percentage-of-completion method of accounting was lowered to $5 million from $20 million, which resulted in $44 million of additional revenue recognized during fiscal 2005. The assessment of collectibility is critical in determining whether revenues should be recognized. As part of the revenue recognition process, we determine whether trade and notes receivable are reasonably assured of collection based on various factors. Revenue and related costs are deferred if we are uncertain as to whether the receivable can be collected. Revenue is deferred but costs are recognized when we determine that the collection or sale of the receivable is unlikely. Deferred revenue was $540 million and $529 million as of September 30, 2006 and 2005, respectively.

Pension and postretirement benefits Our results of operations include the impact of significant pension and postretirement benefits that are measured using actuarial valuations. Inherent in these valuations are key assumptions, including assumptions about discount rates, expected return on plan assets and expected participation rates in retirement health care plans. These assumptions are updated on an annual basis at the beginning of each fiscal year or more frequently upon the occurrence of significant events. Changes in the related pension and postretirement benefit costs or credits may occur in the future due to changes in the assumptions. Our net pension credit was $429 million, $718 million and $868 million during fiscal 2006, 2005 and 2004. Approximately two-thirds of these amounts are allocated to operating expenses, with the balance in costs used to determine gross margin. This allocation is based on a recent comparison of salaries that are related to costs and those that are related to operating expenses. Refer to our “Consolidated Results of Operations” section of this MD&A for a further discussion of changes in the net pension credit and the related impact on our results. The expected rate of return on pension plan assets used to develop our pension credit was 8.5%, 8.5% and 8.75% during fiscal 2006, 2005 and 2004, respectively, and is determined at the beginning of the period. Changes in the rate were generally due to lower expected future returns based on studies performed by our external investment advisors. Similar changes were made to our expected rate of return on postretirement plan assets due to lower expected future returns, as well as for changes in the mix of assets held. A lower expected rate of return reduces our net pension credit and profitability. We plan to use an expected rate of return of 8.5% for the management plan and 6.75% for the occupational plans during fiscal 2007 which will result in a weighted average rate of about 7.63%. The fiscal 2007 expected rate of return for the occupational plans reflects a significant change in the allocation of plan assets as more assets are invested in fixed income securities rather than equity securities. The discount rate used to determine our pension credit was 5.5%, 5.5% and 5.75% during fiscal 2006, 2005 and 2004, respectively. The discount rate is determined at the beginning of the period. We plan to use a discount rate of 5.75% during fiscal 2007. Changes in the discount rate were due to increased long-term interest rates. The discount rate is also somewhat volatile because it is determined based upon the prevailing rate as of the measurement date. Similar adjustments were made to the discount0/4 rate used to determine our postretirement benefit cost. The discount rate used to determine the postretirement health care benefit costs is slightly lower due to a shorter expected duration of postretirement health care obligations as compared to pension plan obligations. A higher discount rate decreases the plan obligations and increases our net pension credit and

profitabilityDate: 22-JAN-2007 10:37:45.81 for those plans where actuarial losses are being amortized. Otherwise, a higher discount rate decreases our net pension credit and profitability. The expected rate of return on pension plan assets and the discount rate as well as the amortization of actuarial gains and losses were determined in accordance with consistent methodologies, as described in Note 10 to our consolidated financial statements. 040.00.00.00 F-6 Operator: BNY99999T Y27905 BNY *Y27905/040/4* Phone: (212)924-5500 CRC: 38872 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 18888 BNY Y27905 041.00.00.00 0/5 Queue: BNY_CPS *Y27905/041/5* Description: Exhibit 13 EDGAR 2

Mortality assumptions were updated as of September 30, 2005, using actual company experience during the most recent four years for retirees and the RP2000 Mortality Table for all other participants. This resulted in an increase in the management pension obligation of approximately $500 million and a decrease in the occupational pension obligation of approximately $200 million during fiscal 2005. Additionally, this change reduced the fiscal 2006 net pension credit by approximately $50 million. Holding all other assumptions constant, a 0.5% increase or decrease in the discount rate would have increased or decreased the fiscal 2006 net pension credit by approximately $30 million and $45 million, respectively. The impact of changes in the discount rate is different if the resulting actuarial gains or losses are subject to amortization. A 0.5% increase or decrease in the expected return on plan assets would have increased or decreased the fiscal 2006 net pension credit by approximately $165 million. In addition, a 0.5% increase or decrease in the discount rate would have decreased or increased the fiscal 2006 pension obligation by approximately $1.4 billion and the postretirement obligation by approximately $240 million. There have been several recent developments related to retiree health care benefits, including changes in benefits, cost sharing and legislation, such as Medicare Part D of the Medicare Prescription Drug Improvement and Modernization Act of 2003. These legislative changes and recent experience with participation rates for management retiree plans have required us to assess the expected future participation rates of certain retirees in the existing plans. Generally, we assume that approximately 3% to 5% of all retirees subject to cost sharing will opt out of our plans on an annual basis. The impact of these participation rates favorably impacted our annual net pension credit and profitability by approximately $30 million during fiscal 2006. The impact of differences between actual and assumed experience will affect our net pension credit and profitability in the future through the amortization of actuarial gains or losses. We have taken various actions to reduce our share of retiree health care costs during recent periods, including the shifting of certain costs to our retirees. Our retiree health care obligations are determined using the terms of the current plans. Health care benefits for employees who retired prior to March 1, 1990 are not subject to annual dollar caps on the Company’s share of future benefit costs. The benefit obligation associated with this retiree group approximated 60% of the total retiree health care obligation. Management employees who retired on or after March 1, 1990 have paid amounts above their caps since 2001. The obligation related to plans covering formerly represented retirees who retired on or after March 1, 1990 assumed that annual dollar caps are effective and were enforced beginning November 1, 2004. We either waived or increased these caps in two prior negotiations. Our collective bargaining agreements were ratified during December 2004, and will expire on May 26, 2012. The collective bargaining agreements address retiree health care benefits, among other items. We agreed to continue to subsidize these benefits up to the established cap level consistent with our current actuarial assumptions. Except for costs attributable to an implementation period that ended on February 1, 2005, costs that are in excess of this capped level are being borne by the retirees in the form of premiums and plan design changes. We also agreed to establish a $400 million trust that is being funded by us over eight years and managed jointly by trustees appointed by the Company and the unions. The trust is being used to mitigate the cost impact on retirees of premiums or plan design changes. The agreements also acknowledge that retiree health care benefits will no longer be a subject of bargaining between the Company and the unions.

As 0/5 a result of these changes, our required obligation for retiree health care benefits increased by the net present value of the $400 million of committed contributions to the trust during fiscal 2005. This incremental cost is being amortized over the contract period. We also considered the substantive plan requirements of SFAS No. 106 and have determined that our obligation for

retireeDate: 22-JAN-2007 10:37:45.81 health care benefits is appropriately stated based on our past practice of shifting certain costs to retirees and on the actions that are contemplated as a result of the new agreements. The net present value of the required contributions to the new trust is approximately one-third of the amount of the costs that are expected to be in excess of the capped level during the contract period.

041.00.00.00 F-7 Operator: BNY99999T Y27905 BNY *Y27905/041/5* Phone: (212)924-5500 CRC: 18888 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 11948 BNY Y27905 042.00.00.00 0/3 Queue: BNY_CPS *Y27905/042/3* Description: Exhibit 13 EDGAR 2

The discount rate used to determine the minimum pension liability was 5.75%, 5.5% and 5.5% as of September 30, 2006, 2005 and 2004, respectively. Changes in the discount rate were due to the reasons described above. Market conditions and interest rates significantly affect the future assets and liabilities of our pension plans. The minimum pension liability was eliminated upon the adoption of SFAS 158. Refer to Note 10 to our consolidated financial statements for additional information. The estimated accumulated benefit obligation related to the U.S. management employees’ pension plan and several other smaller pension plans exceeded the fair value of the plan assets as of September 30, 2005 and 2004. Changes in the minimum pension liability increased our shareowners’ equity by $46 million and $150 million during fiscal 2005 and 2004, respectively. Prior to adopting SFAS 158, additional minimum pension liabilities were reduced by $3.2 billion through a direct credit to accumulated other comprehensive loss. The reduction of these liabilities resulted from plan asset performance and a higher discount rate used to determine the obligation.

Income taxes Changes in valuation allowances favorably impacted our results of operations by $229 million, $357 million and $1.2 billion during fiscal 2006, 2005 and 2004, respectively. Our valuation allowance for net deferred tax assets was $7.2 billion and $7.3 billion as of September 30, 2006 and 2005, respectively. We have significant deferred tax assets, resulting from tax credit carryforwards, net operating loss carryforwards and deductible temporary differences that may reduce taxable income in future periods. We also have significant deferred tax liabilities resulting from taxable temporary differences that may result in taxable amounts in future periods. Valuation allowances have been established and maintained for deferred tax assets based on a “more likely than not” threshold. Refer to Note 8 to our consolidated financial statements for further components of the deferred tax assets and liabilities and related valuation allowances. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law for each tax jurisdiction. We have considered the following possible sources of taxable income when assessing the realization of the deferred tax assets: • Future taxable income exclusive of reversing temporary differences and carryforwards.

• Future reversals of existing taxable temporary differences.

• Taxable income in prior carryback years.

• Tax planning strategies. We have not relied upon future taxable income exclusive of temporary differences and carryforwards for the realization of U.S. deferred tax assets during recent periods. Reliance on this source is difficult when there is negative evidence such as cumulative losses in recent years, even if income is reported in the current period. Cumulative losses weigh heavily in the overall assessment.0/3 We determine cumulative losses on a rolling twelve-quarter basis. We are no longer in a cumulative loss position in the U.S. as of September 30, 2006. Income forecasts were considered in conjunction with other positive and negative evidence, including our current financial performance, our market environment and other factors. Although U.S. profits were generated in recentDate: 22-JAN-2007 10:37:45.81 periods and we are no longer in a cumulative loss position in the U.S., a substantial amount of the profits were generated from a pension credit that is not currently taxable. As a result, we concluded that there was not sufficient positive evidence to enable us to conclude that it was more likely than not that the net U.S. deferred tax assets would be realized. Therefore, we have maintained a valuation allowance on our net U.S. deferred tax assets. This assessment will continue to be undertaken in the future. Our results of operations might be favorably impacted in the future by reversals of valuation allowances if we are able to 042.00.00.00 demonstrate sufficient positive evidence that our deferred tax assets will be realized. We have assumed that all of our deferred tax liabilities will ultimately generate taxable income or reduce potential tax deductions. MostOperator: BNY99999T of these deferred tax liabilities are related to prepaid pension costs that result primarily from pension credits that are not currently taxable. The tax impacts for pension, retiree health care and other retiree benefits are usually driven by funding requirements.Y27905 Valuation allowances

F-8 BNY *Y27905/042/3* Phone: (212)924-5500 CRC: 11948 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 38551 BNY Y27905 043.00.00.00 0/4 Queue: BNY_CPS *Y27905/043/4* Description: Exhibit 13 EDGAR 2

were reversed in recent periods as a result of reductions in net deferred tax assets driven by pension credits. These reversals have resulted in more reliance on the expected reversal of taxable temporary differences for the realization of deferred tax assets, rather than valuation allowances. We have limited this potential source of future taxable income to the extent of the related deferred tax assets for retiree benefits after considering potential funding scenarios and actions such as Section 420 transfers. We expect that the deferred taxes associated with retiree benefits will be in a net liability position by approximately $125 million as of September 30, 2007, which would result in a corresponding deferred tax charge during fiscal 2007, beginning in the first quarter. Our assumptions regarding the future tax consequences of retiree benefits might change for various reasons, including changes in legislation, actual return on plan assets, Section 420 transfers, or changes in plan design. Such changes could impact our valuation allowance assessment and necessitate additional charges. In addition, the funded status of our pension, retiree health care and other retiree benefits is required to be recognized in the balance sheet as a result of adopting SFAS 158. The cumulative direct charges in equity to reflect the funded status of these benefits were $3.8 billion as of September 30, 2006. If these amounts were to reverse in future periods, charges to our results of operations will be required for the related deferred tax impacts. The potential deferred tax charges associated with these liabilities were $1.5 billion as of September 30, 2006. During the fourth quarter of fiscal 2003, we filed a net operating loss carryback claim related to the carryback of our fiscal 2001 federal net operating loss to 1996, a year in which we filed our federal income tax return as part of the AT&T consolidated group. We reached a tentative agreement with the Internal Revenue Service (IRS) on September 1, 2004 that allowed for a tax refund of $816 million (plus statutory interest to the date of payment), subject to approval by the Congressional Joint Committee on Taxation. The tax benefit related to the claim was not recognized at that time or prior to that time, because it was related to a complex matter and there was no assurance that the approval from the Joint Committee would be obtained. On November 8, 2004, we received written confirmation from the IRS that the Joint Committee had approved our tentative agreement with the IRS and that our agreement with the IRS was final. We were required to reassess the realization of our net operating loss carryforwards as of September 30, 2004, because the Joint Committee’s final approval was received prior to the issuance of our consolidated financial statements. As a result, an $816 million income tax benefit and $45 million of interest income was recognized during the fourth quarter of fiscal 2004 from the reversal of valuation allowances. An additional $41 million of interest income was recognized during fiscal 2005. The $902 million refund was received during the fourth quarter of fiscal 2005. We assess the realization of deferred tax assets in each jurisdiction in a manner similar to that discussed above. We reversed $29 million and $81 million of valuation allowances related to non-U.S. tax jurisdictions during fiscal 2006 and 2005, respectively. We determined that it was more likely than not that these net deferred tax assets were realizable based upon actual financial performance and future income projections and certain other factors for those jurisdictions. We were not in a cumulative loss position in these jurisdictions at the time of the reversals. We assess the likelihood of the ultimate determination of various contingent tax liabilities that arise in many different tax jurisdictions. These tax matters can be complex in nature and uncertain as to the ultimate outcome. We establish reserves for tax contingencies when we believe an unfavorable outcome is likely to occur and the liability can be reasonably estimated, similar to accounting for other contingencies. Although we believe these positions are fully supportable, we consider the likelihood of potential0/4 challenges and the sustainability of such challenges upon examination. Changes in our tax reserves have occurred and are likely to continue to occur as our assessments change based on current facts and circumstances, such as further developments and progress of tax examinations in various jurisdictions. The net impact of the reassessments of such changes, primarilyDate: 22-JAN-2007 10:37:45.81 from the finalization of tax audits, resulted in the recognition of income tax benefits of $18 million, $130 million and $142 million during fiscal 2006, 2005 and 2004, respectively.

F-9 043.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/043/4* Phone: (212)924-5500 CRC: 38551 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 10370 BNY Y27905 044.00.00.00 0/2 Queue: BNY_CPS *Y27905/044/2* Description: Exhibit 13 EDGAR 2

Legal contingencies We are subject to proceedings, lawsuits and other claims, including proceedings under laws and government regulations related to securities, environmental, labor, product and other matters. These contingencies are often resolved over long periods of time. We assess the likelihood of any adverse judgments in or outcomes to these contingencies, as well as potential ranges of possible losses. Reserves are established when it is probable that a liability has been incurred or an asset has been impaired and the amount of the loss can be reasonably estimated based on a detailed analysis of each individual issue, often with the assistance of outside legal counsel. We also determine whether disclosures are required for each contingency based on this assessment. There are several hundred contingencies that are currently being assessed. Most of these contingencies are not currently reserved because we have determined that it is not probable that a loss has been incurred. New developments, such as a change in settlement strategy or an adverse court ruling, may change our assessment as to the likely outcome or potential range of possible losses. Our most significant reserves are related to environmental matters that are discussed in Note 14 to our consolidated financial statements along with our other significant matters.

Intangible assets Our intangible assets include goodwill and other acquired intangibles of $607 million, development costs for software to be sold, leased or otherwise marketed of $242 million and internal use software development costs of $97 million as of September 30, 2006. As a result of the Riverstone acquisition in fiscal 2006, goodwill and other acquired intangible assets of $186 million were recorded. Refer to Note 4 to our consolidated financial statements for information related to the purchase price allocation. Goodwill is not amortized but is tested for impairment annually, or more often, if an event or circumstance indicates that an impairment loss may have been incurred. Other intangible assets are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events such as product discontinuances, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable. The annual goodwill impairment tests completed during the fourth quarter of fiscal 2006, 2005 and 2004 did not result in an impairment loss. As of September 30, 2006, goodwill and acquired intangible assets of $607 million are assigned to reporting units, including $240 million to the data networking reporting unit within the MNS segment, which includes Riverstone-related products, and $174 million to the next-generation converged core solutions reporting unit within the CCS segment, which includes Telica-related products. The estimated fair value of the reporting units used in the most recent impairment test was determined using projected cash flows over a seven-year period discounted at a range of 10% to 25% plus a terminal value. The carrying amounts for the data networking reporting unit and next-generation converged core solutions reporting unit exceeded the estimated fair value without considering the terminal value. If the expected results for these two reporting units are not realized, particularly the next- generation converged core solutions reporting unit, which generated losses in fiscal 2006 and 2005, impairment charges may be required in the future. Software development costs related to UMTS technology were expensed as incurred during fiscal 2006, 2005 and 2004. 0/2

F-10 Date: 22-JAN-2007 10:37:45.81 044.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/044/2* Phone: (212)924-5500 CRC: 10370 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 12488 BNY Y27905 045.00.00.00 0/4 Queue: BNY_CPS *Y27905/045/4* Description: Exhibit 13 EDGAR 2

CONSOLIDATED RESULTS OF OPERATIONS Revenues

Years ended September 30, (in millions) 2006 2005 2004 Mobility Access & Applications Solutions $ 4,051 46% $ 4,660 49% $ 4,166 46% Multimedia Network Solutions (MNS) 1,677 19% 1,563 17% 1,498 17% Converged Core Solutions (CCS) 600 7% 850 9% 1,215 13% Services 2,313 26% 2,220 24% 2,044 23% Intellectual property 130 2% 113 1% 72 1% Other 25 — 35 — 50 —

Revenues $ 8,796 100% $ 9,441 100% $ 9,045 100%

U.S. $ 5,881 67% $ 5,936 63% $ 5,517 61% Other Americas (Canada, Caribbean & Latin America) 703 8% 728 8% 537 6% EMEA (Europe, Middle East & Africa) 1,354 15% 1,337 14% 1,292 14% APaC (Asia Pacific & China) 858 10% 1,440 15% 1,699 19%

Revenues $8,796 100% $ 9,441 100% $9,045 100%

Fiscal 2006 vs. 2005 Revenues decreased by 7% during fiscal 2006. The decrease was primarily driven by lower Mobility Access and Applications Solutions and CCS revenues. Refer to the segment discussion later in this MD&A for information on changes in revenues by segment and product. The revenue decrease in the U.S. during fiscal 2006 was primarily due to lower sales from our two largest customers. Sales to these two customers decreased by approximately $280 million and accounted for 40% of our consolidated sales during fiscal 2006. The decrease in Other Americas was due to lower sales in Canada. The increase in EMEA was primarily due to higher sales in data networking products and services, partially offset by lower sales in Mobility products. The decrease in APaC was primarily due to lower CDMA sales in China driven by further delays in the issuance of 3G licenses, the continuing reduction in PHS sales in China and to a lesser extent, our limited participation in highly competitive market opportunities in India. Revenues

from0/4 customers in China represented 4% and 9% of consolidated revenues during fiscal 2006 and 2005, respectively, and are expected to continue to decline due to further delays in the issuance of 3G licenses and the continuing reduction in PHS sales and other unfavorable conditions.

OurDate: 22-JAN-2007 10:37:45.81 revenues are subject to fluctuation as a result of changes in customer spending patterns and short-term capital requirements, as well as the timing of customer acceptances. Changes in foreign currency rates did not have a material impact to our consolidated revenues during fiscal 2006.

Fiscal045.00.00.00 2005 vs. 2004 Revenues increased by 4% during fiscal 2005. The increase was primarily driven by higher Mobility Access and Applications

SolutionsOperator: BNY99999T revenues, particularly in the U.S., and to a lesser extent, by higher Services revenues. Converged Core Solutions revenues continued to decline.

TheY27905 increase in the U.S. was due to higher spending by our two largest customers to upgrade their CDMA wireless networks and deploy additional capacity to support subscriber growth. Sales to these two customers increased by approximately $500 million and accounted for 36% of our consolidated sales during fiscal 2005. The increase in Other Americas was due to higher CDMA

salesBNY *Y27905/045/4* in Venezuela and various product sales in Canada. The increase in EMEA was primarily due to higher sales of certain wireline products and services, as well as favorable foreign currency impacts in Europe. The decline in APaC was primarily due to lowerPhone: (212)924-5500 voice networking sales in China, primarily in PHS sales, and the timing of CDMA network deployments in Korea, as well as the completion of a major CDMA project in India

F-11 CRC: 12488 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 26854 BNY Y27905 046.00.00.00 0/1 Queue: BNY_CPS *Y27905/046/1* Description: Exhibit 13 EDGAR 2

during fiscal 2004. Revenues from customers in China represented 9% and 10% of consolidated revenues during fiscal 2005 and 2004, respectively.

Gross Margin

Years ended September 30, (in millions) 2006 2005 2004 Gross margin $3,735 $4,124 $3,779 Gross margin rate 42% 44% 42% The cost of materials, components and manufacturing that are sourced from third parties are the most significant items used in determining our gross margin. These costs are negotiated through supply agreements and fluctuate with changes in sales volume. Employee-related costs, such as salaries and related benefits associated with services, logistics and warehousing and other direct supply chain functions, are also included. Employee-related costs will not usually fluctuate based on changes in sales volume. However, employee-related costs may change as a result of actions to align our resources to market conditions, annual salary or wage increases or changes in employee benefits, including those related to pension or health care costs for active employees and retirees. A portion of employee-related costs are subject to collective bargaining agreements. To a lesser extent, amortization of software development costs, certain other overhead items related to IT and facility related costs, as well as charges associated with warranty and inventory values, are also used in determining gross margin. In assessing the ultimate realization of inventories, we make judgments as to future demand requirements and compare these with the current or committed inventory levels. Reserve requirements generally increase when projected demand requirements decrease due to market conditions, technological and product life cycle changes and longer than expected usage periods. It is possible that changes in inventory reserves may be required if there is a rapid change in the demand for our products due to fluctuations in market conditions or to new technological developments. Most of the costs used in determining gross margin are included in our reportable segments. Our gross margin rate is subject to fluctuation due to changes in volume, geographic, product and service mix, the impact of significant inventory-related or warranty charges and revisions to estimates related to long-term contracts. Changes in estimates related to long-term contracts could occur throughout the execution of a project as a result of changes in previously expected costs, contract change orders or the resolution of project contingencies, among other items. Changes in the expected profitability for a contract are reflected in results during the period that they are determined, based on the project’s percentage of completion to date. As a result, the cumulative effect of any changes would be reflected in the results of the current period. Our gross margin rate may also be impacted by other factors, such as competitive pricing pressures, the initial impact of sales of certain next-generation products, our efforts to enter emerging markets and our ability to continue realizing cost reductions. We operate in highly competitive markets that are subject to pricing pressures for various reasons, including technological changes, new entrants and supply and demand fluctuations. Although we believe that these impacts have reduced our relative revenue levels0/1 from prior periods, our gross margin has not been significantly impacted due to our ability to realize cost reductions. The following factors impacted our consolidated gross margin rate during fiscal 2006:

Date: 22-JAN-2007 10:37:45.81 • The impact of a lower net pension credit decreased the gross margin rate by one percentage point.

• The impact of lower accruals for employee incentive awards increased the gross margin rate by one percentage point.

• Historically, our gross margin rate is generally higher in our wireless business as compared to our wireline and services

046.00.00.00 businesses, and higher in the U.S. as compared to non-U.S. regions. The

F-12 Operator: BNY99999T Y27905 BNY *Y27905/046/1* Phone: (212)924-5500 CRC: 26854 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 46970 BNY Y27905 047.00.00.00 0/1 Queue: BNY_CPS *Y27905/047/1* Description: Exhibit 13 EDGAR 2

unfavorable impact of the lower percentages of Mobility Access and Applications Solutions revenues to the consolidated revenues and other factors including pricing and product mix accounted for a decrease of approximately two percentage points in the gross margin rate. The following factors impacted our consolidated gross margin rate during fiscal 2005: • The consolidated gross margin rate increased due to lower employee incentive awards and decreased due to a lower net pension and postretirement benefit credit. The net impact of these items increased the consolidated gross margin rate by one percentage point.

• The net impact of higher provisions for slow moving and obsolete inventories, customer and supplier contract settlements, warranty expenses, and certain customer obligations decreased the consolidated gross margin rate by one percentage point.

• Historically, our gross margin rate is generally higher in our wireless business than in our wireline and services businesses, and higher in the U.S. than in non-U.S. regions. The favorable impact of the higher percentage of Mobility Access and Applications Solutions and U.S. revenues on the consolidated revenues, cost reductions and revised estimates related to long-term contracts was offset by other factors including pricing and product mix. The net effect of these items increased the consolidated gross margin rate by approximately two percentage points from the comparable prior year period.

Operating Expenses

Years ended September 30, (in millions) 2006 2005 Change 2004 Change Marketing and sales (M&S) $ 891 $ 955 $ (64) $ 903 $ 52 General and administration (G&A) 628 794 (166) 620 174

Selling, general and administrative (SG&A) expenses, excluding the following three items: 1,519 1,749 (230) 1,523 226 Winstar litigation 278 — 278 — — Provision for (recovery of) bad debts and customer financings 4 (69) 73 (230) 161 Amortization of other acquired intangible assets 27 16 11 3 13

SG&A 1,828 1,696 132 1,296 400 Research and development (R&D) 1,177 1,177 — 1,270 (93) Merger related expenses 45 — 45 — — In-process research and development (IPR&D) 12 — 12 14 (14) Business restructuring 4 (10) 14 (20) 10

Operating expenses $ 3,066 $2,863 $203 $2,560 $303 0/1

Salaries and related employee benefits associated with product development, selling and administrative functions are the most significant costs included in operating expenses. These employee-related expenses do not fluctuate significantly with short-term changesDate: 22-JAN-2007 10:37:45.81 in revenue levels. However, employee related expenses may change as a result of salary increases or changes in related benefits, as well as changes in workforce levels. Salary increases are generally provided to employees on an annual basis and were increased by approximately 3 percent effective in December 2005. Changes in the funding levels of short- and long-term employee incentive awards may also impact trends between various periods. Operating expenses are also reflected net of a credit

attributed047.00.00.00 to pension, postretirement and postemployment benefits that are discussed in more detail throughout this MD&A. Changes in this net credit will impact the trends between various periods. To a lesser extent, third-party consulting fees and certain other overhead items, such as information technology- and facility-related costs are also included in operating expenses.

MostOperator: BNY99999T of the SG&A expenses are included in our Global Sales Organization and shared services, such as general corporate functions. In contrast, most of the R&D expenses are directly associated with research and product development for our wireline

andY27905 wireless products and included in our reportable segments.

F-13 BNY *Y27905/047/1* Phone: (212)924-5500 CRC: 46970 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 32971 BNY Y27905 048.00.00.00 0/1 Queue: BNY_CPS *Y27905/048/1* Description: Exhibit 13 EDGAR 2

Operating expenses increased during fiscal 2006, primarily due to the Winstar litigation charges. The impact of annual salary increases and a lower net pension and postretirement benefit credit also contributed to the increase. However, this impact was offset by lower accruals for employee incentive awards due to lower than targeted performance in the current year period and slightly lower average workforce levels. The net effect of these compensation and benefit matters impacted M&S, G&A and R&D trends. Our reportable segment results were not impacted by the changes in the net pension and postretirement benefit credit or changes in the funding of employee incentive awards.

SG&A Fiscal 2006 vs. 2005 SG&A decreased by 13% in fiscal 2006, excluding the impact of the Winstar litigation charge, bad debt and customer financing and amortization of other acquired intangible assets. Reductions of $126 million were primarily attributed to lower average workforce levels and lower overhead from the general corporate centers and the global sales organization. Lower accruals for employee incentive awards of $115 million (including lower sales compensation) and lower litigation charges of $100 million also contributed to the decrease. The impact of these items more than offset an $87 million lower net pension and postretirement benefit credit, $16 million of higher stock-based compensation expense and less favorable settlements of non-income tax matters and other disputes of $8 million. SG&A charges related to various litigation matters were $14 million and $114 million during fiscal 2006 and 2005, respectively.

Fiscal 2005 vs. 2004 SG&A increased by 15% in fiscal 2005, excluding the impact of bad debts and customer financings and amortization of other acquired intangibles. Changes in SG&A included the impact of compensation and benefit matters discussed above and higher selling expenses to support the global sales organization and Services growth initiatives, including the government market. During fiscal 2005, SG&A included approximately $10 million of lower employee incentive awards and approximately $50 million of a lower net pension credit. SG&A charges related to various litigation matters were $114 million and $34 million during fiscal 2005 and 2004, respectively.

Provision for (Recovery of) Bad Debts and Customer Financings Net recoveries during fiscal 2005 and 2004 were due to the favorable settlement or sale of certain fully reserved notes receivable and accounts receivable and significantly lower bad debt and customer financing exposure. These settlements generally occur as a result of the resolution of work-outs and consummation of bankruptcy proceedings. The charges for bad debt and customer financings were $20 million, $14 million and $24 million during fiscal 2006, 2005 and 2004, respectively.

A considerable0/1 amount of judgment is required in assessing the realization of trade receivables and notes receivable, including the current creditworthiness of each customer and the related aging of past due balances. Reserves for trade receivables are determined by using percentages applied to certain categories of aged receivables. Specific accounts are also evaluated when we becomeDate: 22-JAN-2007 10:37:45.81 aware of information indicating that a customer may not be able to meet its financial obligations due to a deterioration of its financial condition, lower credit ratings or bankruptcy. Reserve requirements are based on the best facts available to us and are re-evaluated and adjusted as additional information is received. Typically, reserves are reduced only when agings improve or customer settlement proceeds are recovered. Recoveries are generally the result of direct negotiations with the customer, resolutions in bankruptcy or legal actions. Additional charges or recoveries may occur in the future. 048.00.00.00

F-14 Operator: BNY99999T Y27905 BNY *Y27905/048/1* Phone: (212)924-5500 CRC: 32971 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 19112 BNY Y27905 049.00.00.00 0/1 Queue: BNY_CPS *Y27905/049/1* Description: Exhibit 13 EDGAR 2

R&D Our R&D investment is focused on enhancing, expanding and evolving our broad portfolio of leading edge technologies and reshaping our product portfolio to capture convergence opportunities. In addition, our R&D investment also supports Bell Labs long-term research programs in such areas as computer science, materials science and bioengineering. We believe our current R&D spending levels and plans are aligned with current and expected market opportunities. R&D costs are charged to expense as incurred. However, the costs incurred for the development of computer software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has been established. The amortization of these costs is reflected as a cost component in determining our gross margin. Unamortized software development costs determined to be in excess of the net realizable value of the product are expensed immediately and reflected in R&D if such determination is made prior to when the product is available for general release to customers.

Years ended September 30, (in millions) 2006 2005 2004 Cost capitalized $230 $232 $258 Amortization 230 262 281

Fiscal 2006 vs. 2005 R&D expenses were flat in fiscal 2006. Lower accruals for fiscal 2006 employee incentive awards were $97 million. Lower average workforce levels and less discretionary spending of $37 million were primarily from the Services organization. The impact of these items was offset by a $111 million lower net pension credit and $23 million of higher stock-based compensation expense.

Fiscal 2005 vs. 2004 R&D decreased by 7% in fiscal 2005, primarily due to changes in compensation and benefit matters as well as to recent cost- reduction actions in our wireline business. During fiscal 2005, R&D included approximately $135 million of lower employee incentive awards and approximately $55 million of a lower net pension credit.

Merger related expenses Merger related expenses included proxy material costs and third party professional fees that are directly attributable to the merger transaction with Alcatel.

IPR&D IPR&D charges resulted from the Riverstone acquisition during fiscal 2006 and the Telica acquisition during fiscal 2004. IPR&D

represents0/1 technology that has not reached technological feasibility and has no alternative future use. Refer to Note 4 to our consolidated financial statements for information regarding the purchase price allocation.

GoodwillDate: 22-JAN-2007 10:37:45.81 Impairment and Amortization of Other Acquired Intangible Assets The increase in the amortization of other acquired intangible assets were related to the acquisition of Riverstone and Telica, respectively. Refer to the “Application of Critical Accounting Estimates” for further discussion.

049.00.00.00 F-15 Operator: BNY99999T Y27905 BNY *Y27905/049/1* Phone: (212)924-5500 CRC: 19112 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 15994 BNY Y27905 050.00.00.00 0/4 Queue: BNY_CPS *Y27905/050/4* Description: Exhibit 13 EDGAR 2

Business Restructuring

Years ended September 30, (in millions) 2006 2005 2004

Employee separations $ — $ (5) $ (14) Contract settlements (1) (2) (15) Facility closings 5 (3) 12 Other — — (3)

Restructuring costs (reversals) 4 (10) (20) Asset write-downs — — 1 Net gains on sales — — (1)

Net charges (reversals) $ 4 $(10) $ (20)

During fiscal 2001, we committed to and began implementing a restructuring program to realign resources to focus on the large telecommunications service provider market. We assessed our product portfolio and associated R&D and then streamlined the rest of our operations to support those reassessments. We eliminated some marginally profitable or non-strategic product lines, merged certain technology platforms, consolidated development activities, eliminated management positions and many duplications in marketing functions and programs, centralized our sales support functions and sold or leased certain of our manufacturing facilities and made greater use of contract manufacturers. We sold or disposed of the assets related to the eliminated product lines, closed facilities and reduced the employee workforce on a global basis. The restructuring actions have been completed. However, the related reserves reflected many estimates, including those pertaining to employee separation costs, inventory, contractual obligations, facility exit costs and proceeds from asset sales. The individual plan’s reserve requirement under our restructuring program was reassessed at the end of each reporting period. Actual experience has been and may continue to be different from these estimates. Reversals or charges related to revisions of our estimates for certain restructuring plans initiated in prior periods were primarily due to the following: • Reversals of employee separation charges were primarily due to differences in the actual versus assumed demographics of separated employees, including age, length of service and salaries.

• The net contract settlement reversals were the result of settlements of certain contractual obligations and purchase commitments for amounts lower than originally estimated.

• Charges or reversals related to facility closings were primarily due to revised estimates of costs and expected sublease rental income on certain properties resulting from changes in the commercial real estate market. The remaining reserve requirements are related to leases on exited facilities as of September 30, 2006. Facility exit costs of $113 million are expected to be paid over the remaining lease terms and are reflected net of expected sublease rental income of $680/4 million. Expected market conditions for commercial real estate are received from real estate brokers for most facilities and are considered in estimating the sublease rental income. Additional charges or reversals may be required if the expected amount of sublease rental income changes in the future or if other circumstances change. Date: 22-JAN-2007 10:37:45.81

F-16 050.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/050/4* Phone: (212)924-5500 CRC: 15994 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 65186 BNY Y27905 051.00.00.00 0/4 Queue: BNY_CPS *Y27905/051/4* Description: Exhibit 13 EDGAR 2

Pension, Postretirement and Postemployment Benefits

Years ended September 30, (in millions) 2006 2005 2004

Pension benefit credit $ (660) $ (973) $(1,111) Postretirement benefit cost 231 255 243

Net pension and postretirement benefit credit $ (429) $ (718) $ (868)

Postemployment benefit cost $ 91 $ 72 $ 40

We maintain defined benefit pension plans covering the majority of employees and retirees, as well as postretirement benefit plans for U.S. retirees that include health care, dental benefits and life insurance coverage. Additionally, we offer various postemployment benefits to certain employees after employment but before retirement, including disability benefits, severance pay and workers’ compensation. The pension credit is determined under complex rules using actuarial assumptions. The rules provide for various smoothing techniques under which gains and losses are spread over future periods. The largest component of the pension credit is the expected return on plan assets. This amount is partially offset by the assumed interest cost on the benefit obligations, the service costs and amortization of unrecognized gains and losses. Our pension plans are well funded. The fair value of pension plan assets was $35.1 billion and exceeded the related benefit obligation by $5.2 billion as of September 30, 2006. Significant pension actuarial assumptions for fiscal 2006 expense include an 8.5% expected rate of return on plan assets and a 5.5% discount rate used in determining the interest cost. This 3% rate differential is a significant reason why we recognize a pension credit. The postretirement benefit costs are determined in a similar manner. However, most of these benefit obligations are unfunded, and therefore the interest costs on the benefit obligations exceed the expected return on plan assets. Approximately two-thirds of the net credit is reflected in operating expenses, with the balance in costs used to determine gross margin. The decrease in the net pension and postretirement benefit credit during fiscal 2006 was primarily due to: • Reductions in the market-related value of plan assets due to the impact of actual losses incurred on plan assets during fiscal 2002 and 2001.

• Changes in mortality assumptions as of September 30, 2005. The decrease in the net pension and postretirement benefit credit during fiscal 2005 was primarily due to: • Reduction in the market-related value of plan assets due to the impact of actual losses incurred on plan assets during fiscal 2002 and 2001. 0/4 • Reduction in the expected rate of return on pension plan assets.

Date: 22-JAN-2007 10:37:45.81 • Impact of the collective bargaining agreements that were ratified in December 2004. However, these items were partially offset by the impact of the following items: • Reduction in the discount rate.

•051.00.00.00 Full year recognition of the prescription drug benefit under Medicare Part D of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Medicare Modernization Act) and expected reduction in plan participation rates as a result of recent experience and the Medicare Modernization Act. Operator: BNY99999T During the third quarter of fiscal 2006, the allocation of U.S. pension plan assets was changed as part of a routine periodic review. The overall pension plan asset portfolio now reflects a balance of investments split about 50/50 between equity and fixed income securitiesY27905 compared to the previous split of about 75 percent equity and 25 percent fixed income. We believe this action was prudent given the demographics, funded status and future obligations for our pension plans.

TheBNY shift*Y27905/051/4* in asset allocation from equities to fixed income securities related to the occupational pension

Phone: (212)924-5500 F-17 CRC: 65186 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 50794 BNY Y27905 052.00.00.00 0/4 Queue: BNY_CPS *Y27905/052/4* Description: Exhibit 13 EDGAR 2

plan whose participants include formerly represented retirees. Assets in this pension plan are currently well in excess of liabilities, and the plan fiduciaries, acting in accordance with advice from an independent external asset allocation advisor, determined that a higher allocation to fixed income securities would be in the best interests of the plan participants. As a result of this change in asset allocation, we currently anticipate the expected rate of return on plan assets will decrease by about one percentage point during fiscal 2007. The fiscal 2007 net pension credit will be impacted by this change as well as by other important factors such as a 25 basis point increase in the discount rate, driven by prevailing interest rates at September 30, 2006 and differences between our actuarial assumptions and actual results for this fiscal year. We currently expect a reduction in the fiscal 2007 net pension credit of approximately $150 million as a result of these changes and factors. Actual result may differ from these preliminary expectations. Refer to Note 10 to our consolidated financial statements and the “Application of Critical Accounting Estimates” for further information.

Stock-Based Compensation Expense SFAS 123R was adopted on October 1, 2005 and requires among other items, the recognition of stock option expense in the results of operations. The modified prospective transition method was elected, therefore prior period results were not restated. Stock-based compensation expense was $85 million and $35 million during fiscal 2006 and 2005, respectively. Stock-based compensation expense recognized in the results of operations during fiscal 2006 was $182 million lower than the pro forma amount determined under the fair value-based method and disclosed in accordance with SFAS 123 for fiscal 2005. This reduction was primarily due to the amortization of previously unvested awards over the original vesting periods and lower fair value amounts attributed to the more recent awards. There were no significant modifications to existing awards or acceleration of vesting periods during fiscal 2006 and 2005. Refer to Note 11 to our consolidated financial statements for more information on stock-based compensation.

Other Income, Net

Years ended September 30, (in millions) 2006 2005 2004

Interest income $ 177 $ 121 $ 89 Interest income on tax refunds and settlements 3 88 135 Legal (settlements) recoveries 18 (65) (84) SEC settlement — — (25) Winstar post-judgment interest (9) — — Minority interest 34 (30) (6)

Other-than-temporary0/4 write-down of investments (8) (20) (22) Gain (loss) on sale of investments (14) (4) 75 Loss on extinguishment of convertible securities and debt, net — (11) (7)

Other,Date: 22-JAN-2007 10:37:45.81 net 23 35 85

Other income, net $ 224 $ 114 $ 240

Fiscal 2006

The052.00.00.00 increase in interest income was primarily due to higher average marketable securities balances and higher interest rate yields.

LegalOperator: BNY99999T (settlements) recoveries during fiscal 2006 were related to a third party indemnification associated

Y27905 F-18 BNY *Y27905/052/4* Phone: (212)924-5500 CRC: 50794 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 13052 BNY Y27905 053.00.00.00 0/3 Queue: BNY_CPS *Y27905/053/3* Description: Exhibit 13 EDGAR 2

with the previously settled consumer products leasing lawsuit. Refer to Note 14 to our consolidated financial statements for more information on legal settlements. One of our joint ventures recognized a loss during fiscal 2006. The loss recognized by the joint venture during fiscal 2006 included internal pricing adjustments related to certain prior periods.

Fiscal 2005 Charges of $54 million related to the shareowner lawsuit settlement were recognized, including $71 million related to changes in fair market value of warrants prior to their issuance in December 2004, net of $17 million of recoveries from fiduciary insurance carriers. The remaining legal settlement charges of $11 million were primarily related to parties that opted out of our global settlement and a supplier claim. Interest income on tax refunds and settlements was due primarily to the favorable resolution of certain prior-year federal income tax audits and to the recognition of a federal net operating loss carryback claim under tax-sharing agreements with AT&T, Avaya and Agere. Refer to Note 8 to our consolidated financial statements for further information on these tax matters. Minority interest is primarily attributable to a joint venture located in China that manufactures certain of our products.

Fiscal 2004 Charges of $56 million related to the shareowner lawsuit settlement were recognized, including $91 million related to changes in the estimated fair value of the warrants that were expected to be issued, $5 million related to changes in the fair value of our common stock that was deposited into escrow and subsequently sold and $40 million of recoveries from fiduciary insurance carriers. The remaining legal settlement charges of $28 million were primarily related to Y2K claims under our separation agreement with Avaya and a prior year sale of our consumer products business. We reached an agreement with the SEC and paid a $25 million fine in connection with the SEC’s investigation into our revenue recognition issues previously identified in November and December of 2000. The final judgment and consent decree to settle the investigation with the SEC was entered into in May 2004. Interest income on tax settlements was due primarily to the favorable resolution of certain prior year federal income tax audits and the recognition of a federal net operating loss carryback claim under tax sharing agreements with AT&T, Avaya and Agere. The gain on sale of an investment was primarily related to the maturity of a forward contract for the sale of Corning common stock we owned. The shares of Corning were obtained in connection with the sale of certain joint ventures associated with the optical fiber business in fiscal 2002.

Interest Expense

Fiscal0/3 2006 vs. 2005 Interest expense decreased by $17 million to $324 million during fiscal 2006, primarily due to extinguishment of convertible securities and certain other debt obligations. Date: 22-JAN-2007 10:37:45.81

Fiscal 2005 vs. 2004 Interest expense decreased by $55 million to $341 million during fiscal 2005, primarily due to the extinguishment of convertible

securities053.00.00.00 and certain other debt obligations.

F-19 Operator: BNY99999T Y27905 BNY *Y27905/053/3* Phone: (212)924-5500 CRC: 13052 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 30242 BNY Y27905 054.00.00.00 0/3 Queue: BNY_CPS *Y27905/054/3* Description: Exhibit 13 EDGAR 2

Income Taxes

Years Ended September 30, (in millions) 2006 2005 2004

Carryback claims $ — $ (19) $ (844) Favorable resolution of prior-period tax audits (18) (130) (142) Reversal of non-U.S. valuation allowances (29) (81) (17) Non-U.S. and state income taxes attributed to pre-tax income 89 79 64

Income taxes $ 42 $ (151) $ (939)

Valuation allowances were reversed due to the recognition of certain net operating loss carryback claims, including a claim of $816 million that was recognized during fiscal 2004 that was related to the carryback of our fiscal 2001 federal net operating loss to 1996, a year in which we filed our federal income tax return as part of the AT&T consolidated group. The other carryback claims recognized were primarily related to taxes paid in prior years by our former foreign sales corporation and previously merged companies, including a $21 million tax refund (including interest of $2 million) received during the first quarter of fiscal 2006. This tax refund was not previously recognized until the fourth quarter of fiscal 2005 due to the uncertainty of receiving the refund from an unaffiliated third party. Interest income related to these claims was $43 million and $45 million during fiscal 2005 and 2004, respectively. Certain income tax benefits were recognized due to the favorable settlement of audit matters related to the years 1990 through 2005, including matters with a previously merged company and the settlement of certain matters under tax-sharing agreements with AT&T, Avaya and Agere. We also recognized interest income related to these settlements of $45 million and $90 million during fiscal 2005 and 2004, respectively. Valuation allowances related to certain non-U.S. tax jurisdictions that exited a cumulative loss position were reversed based on our assessment that it was more likely than not that those deferred tax assets will be realizable based on income projections and certain other factors for those jurisdictions. The realization of our deferred tax assets is dependent upon the existence of taxable income during future periods. During fiscal 2004, 2005, and 2006, most of our pretax income in the U.S. was generated from a pension credit that is not currently taxable. As a result, even though we exited a cumulative loss position during the fourth quarter of fiscal 2005, we have concluded that there was not sufficient positive evidence to enable us to conclude that it was more likely than not that the U.S. deferred tax assets would be realized. Therefore, we have continued to maintain a valuation allowance on our net U.S. deferred tax assets. However, the expected future tax consequences of deferred tax liabilities generated primarily from our pension credit continue to be relied upon to support the deferred tax assets of other retiree benefits. This resulted in not providing taxes attributable to U.S. income during fiscal 2006, 2005 and 2004 as valuation allowances were reversed to the extent of increases in deferred tax

liabilities.0/3 We expect that the U.S. deferred taxes associated with retiree benefits will be in a net liability position as of September 30, 2007. We currently expect to recognize non-cash impacting U.S. deferred taxes of approximately $125 million for the above item during fiscalDate: 22-JAN-2007 10:37:45.81 2007. Expected U.S. deferred tax expense will be recognized throughout the year and is likely to change during fiscal 2007 as a result of a number of variables, including our assessment of the future realization of deferred tax assets. Refer to the “Application of Critical Accounting Estimates” in this MD&A and Note 8 to our consolidated financial statements for more detail regarding income taxes. 054.00.00.00 F-20 Operator: BNY99999T Y27905 BNY *Y27905/054/3* Phone: (212)924-5500 CRC: 30242 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 32377 BNY Y27905 055.00.00.00 0/4 Queue: BNY_CPS *Y27905/055/4* Description: Exhibit 13 EDGAR 2

RESULTS OF OPERATIONS BY SEGMENT Mobility Access and Applications Solutions

Years ended September 30, (in millions) 2006 2005 Change 2004 Change

U.S. $ 3,360 $ 3,481 (3%) $ 2,992 16% Non-U.S. 6911,179 (41%) 1,174 —

Total revenues $ 4,051 $ 4,660 (13%) $ 4,166 12%

Gross margin % 55% 54% 1 pt 51% 3 pts

Segment income $ 1,422 $ 1,704 $ (282) $ 1,290 $ 414

Return on sales 35% 37% (2 pts) 31% 6 pts

Fiscal 2006 vs. 2005 Mobility Access and Applications Solutions revenues reflected a $627 million decrease in Mobility Access Solutions and an $18 million increase in Applications Solutions. U.S. revenues decreased primarily due to a slow-down in spending on some of our current-generation wireless solutions, including lower CDMA sales to our two largest customers as certain initial stages of large high-speed data network build-outs are nearing completion. Expansion and upgrades for these high-speed data network build- outs, combined with similar deployments by other customers, will continue to drive our CDMA revenues in the U.S. These two customers accounted for 64% and 62% of total Mobility Access and Applications Solutions revenues during fiscal 2006 and 2005, respectively. Including these two customers, the five largest Mobility Access and Applications Solutions customers accounted for 82% and 79% of total Mobility Access and Applications Solutions revenues during fiscal 2006 and 2005, respectively. The decline in revenues from the two largest customers was offset by additional revenues related to a large UMTS contract in the U.S. Non- U.S. revenues decreased primarily due to lower CDMA sales in China driven by the delay of 3G licenses and to a lesser extent, lower UMTS data card sales in EMEA and our selective participation in highly competitive market opportunities in India. Approximately 89% of Mobility Access and Applications Solutions revenues are currently generated from CDMA technology. We expect revenues related to a large UMTS contract in the U.S. will continue to grow during fiscal 2007. We are conducting third- generation UMTS / W-CDMA trials in China. Consolidation has occurred with several large U.S. wireless service providers and may have impacted capital spending in certain situations. These events may continue to present opportunities for us to assist in integration efforts or to expand our products/services or technologies in certain networks where they were not previously utilized. However, events may impact our future revenue trends as these service providers assess potential technology migrations to common platforms or leverage excess capacity. In addition, the timing of awards of licenses and spectrum to service providers and the technologies that ultimately will be 0/4 deployed in certain markets, such as China, may also impact future revenue. Future quarterly revenue trends may be volatile as a result of the high concentration of revenue among a limited number of customers and the resulting exposure to their spending patterns and the general availability of next-generation products. Date: 22-JAN-2007 10:37:45.81 R&D investment in Mobility Access and Application Solutions is focused primarily on CDMA and UMTS next-generation technologies and includes expenses associated with UMTS product trials with certain customers. This investment continues to support our leadership position in spread-spectrum technology and our development of high-speed mobile data solutions.

Segment055.00.00.00 income decreased primarily due to a $285 million decrease in gross margin and slightly offset by a $3 million decrease in operating expenses. The decrease in gross margin was primarily due to lower sales volume. Operator: BNY99999T F-21 Y27905 BNY *Y27905/055/4* Phone: (212)924-5500 CRC: 32377 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 54267 BNY Y27905 056.00.00.00 0/5 Queue: BNY_CPS *Y27905/056/5* Description: Exhibit 13 EDGAR 2

Fiscal 2005 vs. 2004 Mobility Access and Applications Solutions revenues increased $494 million. U.S. revenues increased primarily due to higher sales to Verizon Wireless and Sprint Nextel as they executed their EVDO deployment and CDMA network investment for high- speed mobile data services and additional network capacity. These two customers accounted for 62% and 60% of Mobility Access and Applications Solutions revenues during fiscal 2005 and 2004, respectively. Including these two customers, five customers accounted for 79% and 77% of Mobility Access and Applications Solutions revenues during fiscal 2005 and 2004, respectively. Non-U.S. revenues increased primarily in Other Americas due to higher CDMA sales in Brazil, Venezuela and Canada. These increases were partially offset by lower revenues in APaC resulting from the timing of obtaining customer acceptance for a CDMA project in India in the prior period. Approximately 91% of fiscal 2005 Mobility Access and Applications Solutions revenues were derived from CDMA technology. Segment income increased due to a $382 million increase in gross margin and a $32 million decrease in operating expenses. The increase in gross margin was primarily due to higher sales volume and to a lesser extent, a three-percentage point improvement in the gross margin rate due to a more favorable geographic mix.

Multimedia Network Solutions (MNS)

Years ended September 30, (in millions) 2006 2005 Change 2004 Change Data and access $ 777 $ 725 7% $ 727 — Optical networking 900838 7% 7719%

Total revenues $ 1,677 $ 1,563 7% $ 1,498 4%

U.S. $ 717 $ 623 15% $ 631 (1%) Non-U.S. 960 940 2% 867 8%

Total revenues $ 1,677 $1,563 7% $ 1,498 4%

Gross margin % 30% 31% (1pt) 35% (4 pts)

Segment income $ 127 $ 112 $ 15 $167 $ (55)

Return on sales 8% 7% 1pt 11% (4 pts)

Fiscal 2006 vs. 2005 MNS revenues increased by $114 million. U.S. revenues increased primarily due to higher optical networking sales. Non-U.S. revenues increased primarily from higher data and access sales in Europe, partially offset by lower sales of all MNS products in APaC. Five customers accounted for 41% and 39% of MNS revenues during fiscal 2006 and 2005, respectively.

R&D0/5 investment in MNS supports a broad array of current and next-generation technologies, including metro optical and broadband networking solutions.

SegmentDate: 22-JAN-2007 10:37:45.81 income increased due to a $32 million increase in gross margin which was partially offset by a $17 million increase in operating expenses. The higher gross margin was driven by higher revenues. The increase in operating expenses was primarily due to higher expenses related to the Riverstone acquisition including in-process R&D, intangible asset amortization and additional headcount related expenses.

Fiscal056.00.00.00 2005 vs. 2004 MNS revenues increased by $65 million. The increase in non-U.S. regions primarily resulted from higher sales in optical networkingOperator: BNY99999T products and certain data and access products in Europe. Five customers accounted for 39% and 43% of MNS’s revenues during fiscal 2005 and 2004, respectively. Y27905 F-22 BNY *Y27905/056/5* Phone: (212)924-5500 CRC: 54267 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 42524 BNY Y27905 057.00.00.00 0/5 Queue: BNY_CPS *Y27905/057/5* Description: Exhibit 13 EDGAR 2

Segment income decreased due to a $52 million decrease in gross margin and a $3 million increase in operating expenses. The lower gross margin was due to a four-percentage point decrease in the gross margin rate. The gross margin rate decreased due to unfavorable product mix and higher-inventory related charges and as well as certain reserve reversals and settlements recognized during the prior period.

Converged Core Solutions (CCS)

Years ended September 30, (in millions) 2006 2005 Change 2004 Change U.S. $ 334 $ 422 (21%) $ 644 (34%) Non-U.S. 266 428 (38%) 571 (25%)

Total revenues $ 600 $ 850 (29%) $1,215 (30%)

Gross margin % 43% 30% 13 pts 32% (2 pts)

Segment income $ 70 $ 36 $ 34 $ 223 $ (187)

Return on sales 12% 4% 8 pts 18% (14 pts)

Fiscal 2006 vs. 2005 CCS revenues declined by $250 million. The decline in U.S. revenues was attributed to circuit switching products. Lower non-U.S. sales were attributed to lower PHS sales in China. Five customers accounted for 48% and 56% of CCS revenues during fiscal 2006 and 2005, respectively. Circuit switching revenues declined by $94 million to $309 million. PHS revenues declined by $141 million to $103 million. Traditional circuit switching product sales have been declining at a faster rate than the growth in next-generation technologies. This decline is more prevalent in the U.S. PHS sales declined as service providers in China curtailed their spending in preparation for transitioning to 3G networks . CCS’s remaining revenues consisted primarily of sales of next-generation products and refurbished equipment. Although customer-spending levels for CCS products may not change significantly in the aggregate, the mix of what is purchased is likely to continue to change or fluctuate. Our future revenues will be impacted by our success in offering a product portfolio that effectively addresses customer needs. CCS revenues may continue to decline due to the transition to next-generation networks. R&D investment in CCS supports a broad array of current and next-generation technologies, including IMS and VoIP. Segment income increased primarily due to a $30 million decrease in operating expenses. The decrease in operating expense was due to lower R&D spending attributed to lower average employee workforce levels and higher SG&A expense from a legal settlement in the prior year period. 0/5 Fiscal 2005 vs. 2004 CCS revenues declined by $365 million. The decline in the U.S. revenue was attributed to legacy circuit switching products. Lower non-U.S.Date: 22-JAN-2007 10:37:45.81 sales were attributed to lower PHS sales in China. Five customers accounted for 56% and 58% of CCS revenues during fiscal 2005 and 2004, respectively. Circuit switching revenues declined by $155 million to $403 million. PHS revenues declined by $138 million to $244 million. Traditional circuit switching product sales have been declining at a faster rate than the growth rate of next-generation technolo057.00.00.00 gies. This decline was most significant in the U.S., where certain customers shifted their spending to other areas, such as fiber-to-the-premise and broadband access, in response to competitive factors from cable service providers. PHS sales declined

asOperator: BNY99999T service providers in China curtailed their spending in preparation for transitioning to 3G networks. CCS’s remaining revenues consisted primarily of sales of next-generation products and refurbished equipment. Y27905 F-23 BNY *Y27905/057/5* Phone: (212)924-5500 CRC: 42524 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 44794 BNY Y27905 058.00.00.00 0/7 Queue: BNY_CPS *Y27905/058/7* Description: Exhibit 13 EDGAR 2

Segment income decreased due to a $134 million decrease in gross margin and a $53 million increase in operating expenses. The lower gross margin was due to a two-percentage point decrease in the gross margin rate. The gross margin rate decreased due to the impact of lower sales volume and unfavorable product mix. Operating expenses increased primarily due to additional R&D expense in next-generation technologies driven by the Telica acquisition.

Services

Years ended September 30, (in millions) 2006 2005 Change 2004 Change U.S. $ 1,317 $ 1,263 4% $ 1,128 12% Non-U.S. 996 957 4% 916 4%

Total revenues $ 2,313 $ 2,220 4% $ 2,044 9%

Gross margin % 25% 29% (4 pts) 28% 1 pt

Segment income $ 314 $ 344 $ (30) $ 302 $ 42

Return on sales 14% 15% (1 pt) 15% —

Fiscal 2006 vs. 2005 Services revenues increased by $93 million. U.S. revenues increased primarily due to a large UMTS contract, offset by lower government revenues. Non-U.S. revenues increased due to higher revenues in all regions except APaC including China. Five customers accounted for 47% and 46% of Services revenues during fiscal 2006 and 2005, respectively. Deployment services increased by $110 million primarily related to a large UMTS contract. Managed services increased by $22 million. These increases were partially offset by lower professional services revenues of $45 million primarily due to lower government revenues. Segment income decreased due to a $70 million decrease in gross margin that was partially offset by a $40 million decrease in operating expenses. The decrease in gross margin was due to the lower gross margin rate primarily driven by a large UMTS contract. The decrease in operating expense was primarily attributed to lower average workforce levels.

Fiscal 2005 vs. 2004 Services revenues increased by $176 million. Revenues increased in the U.S. and in the non-U.S. regions, primarily in Other Americas and EMEA. Five customers accounted for 46% and 41% of Services revenues during fiscal 2005 and 2004, respectively. Professional services increased by $241 million primarily due to government contracts, including a project in Iraq, and services for wireless0/7 customers. Deployment services decreased by $64 million due to a decrease in sales of wireline products that required installation, as well as a decline in services related to preparing sites for placement of wireless network equipment. Segment income increased due to a $66 million increase in gross margin that was offset by a $24 million increase in operating expenses.Date: 22-JAN-2007 10:37:45.81 The higher gross margin resulted from an increase in the gross margin rate and higher revenues. The gross margin rate increased by one-percentage point as a result of lower average employee workforce levels. Operating expenses increased due to higher sales and marketing expenses incurred to further expand worldwide service offerings.

058.00.00.00 F-24 Operator: BNY99999T Y27905 BNY *Y27905/058/7* Phone: (212)924-5500 CRC: 44794 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 22207 BNY Y27905 059.00.00.00 0/3 Queue: BNY_CPS *Y27905/059/3* Description: Exhibit 13 EDGAR 2

LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and marketable securities were approximately $3.4 billion and $4.9 billion as of September 30, 2006 and 2005, respectively. As discussed in more detail below, the fiscal 2006 cash flows included payment of fiscal 2005 employee incentive awards, additional working capital and cash used to repay debt, to collateralize a letter of credit issued in connection with the Winstar judgment and for the Riverstone acquisition. Summarized annual cash flow information and key working capital metrics are as follows:

(in millions) 2006 2005 2004 Net income $ 527 $ 1,185 $ 2,002 Non-cash items (46) (361) (587) Changes in working capital (422) (133) 18 Other changes (531) 26 (799)

Operating activities $ (472) $ 717 $ 634

Investing activities $ (268) $(1,268) $ (869)

Financing activities $ (340) $ (421) $ (239)

Days sales outstanding in accounts receivable 57 52 51 Inventory turnover 7.9 7.2 6.9 Days sales outstanding in working capital 44 30 23

Operating Activities Our operating results and resulting cash flows have fluctuated during the past few years due to changes in revenue levels, cost reductions and other factors discussed throughout this MD&A. The following discussion is intended to further explain differences between net income and cash flow. Non-cash items include items that are not expected to generate or require the use of cash, such as the pension credit and depreciation and amortization. In addition, charges or credits related to the changes in the fair value of warrants issued in connection with the global settlement of our shareowner lawsuit impacted the non-cash items through the first quarter of fiscal 2005. Changes in working capital requirements include changes in receivables, inventories and contracts in process, accounts payable and deferred revenue. Working capital requirements are impacted by the timing of cash collections, customer billings and

accounts0/3 payable disbursements. The increase in the days sales outstanding in working capital during fiscal 2006 was driven primarily by an increase in accounts receivable and contracts in process and a reduction in accounts payable. We periodically sold certain non-U.S. accounts receivable with extended payment terms where it was cost effective to do so. We sold $135 million and $226 million of receivables during the fiscal years ended September 30, 2006 and 2005, respectively. This impact is reflected Date: 22-JAN-2007 10:37:45.81 in the changes in receivables. Receivables with extended payment terms were $251 million and $225 million as of September 30, 2006 and September 30, 2005, respectively. Generally, working capital requirements will increase or decrease with changes in quarterly revenue levels. In addition, working

capital059.00.00.00 requirements might be impacted by changes in payment terms, the timing of attaining billing milestones and collections performance. The timing of certain payments will also impact our cash flow. For example, while employee incentive awards are accrued throuOperator: BNY99999T ghout the fiscal year, they are generally paid during the first quarter of the subsequent fiscal year. Annual incentive awards of approximately $350 million were paid during the first quarter of fiscal 2006. In addition, approximately $100 million was paid under a three-yearY27905 long-term incentive program (2003-2005 cycle) during the first quarter of fiscal 2006. This long-term incentive

F-25 BNY *Y27905/059/3* Phone: (212)924-5500 CRC: 22207 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 24619 BNY Y27905 060.00.00.00 0/4 Queue: BNY_CPS *Y27905/060/4* Description: Exhibit 13 EDGAR 2

program was introduced for approximately 1,100 employees in advanced leadership positions during fiscal 2003. Annual incentive awards related to fiscal 2006 of $110 million and long-term incentive awards of $80 million are expected to be paid during the first quarter of fiscal 2007. Fiscal 2006 other changes included capitalized software of $230 million, legal settlement payments of $104 million, funding of $49 million for deferred compensation and non-qualified pension benefits related to certain current and retired officers. The impact of these items was partially offset by the impact of $287 million of reserves (including $9 million of post judgment interest) provided for as a result of the Winstar judgment. Fiscal 2005 other changes included the impact of changes in tax-related assets and liabilities of $627 million, primarily due to tax refunds that were accrued for in fiscal 2004 and proceeds of $201 million from a welfare benefits trust as reimbursement for management health care contributions that were made during fiscal 2004. Offsetting these impacts were a $215 million payment related to our shareowner lawsuit settlement, cash outlays for restructuring of $69 million and capitalized software of $232 million, as well as higher accruals for employee incentive awards during fiscal 2004 that were paid during fiscal 2005. Fiscal 2004 other changes included an $861 million tax refund that was received during fiscal 2005, cash outlays for restructuring of $227 million and capitalized software of $258 million. Partially offsetting these impacts were certain insurance and customer settlements and customer financing recoveries of approximately $600 million.

Investing Activities Fiscal 2006 investing activities included net sales and maturities of marketable securities of $418 million. Although we have the ability and intent to hold these marketable securities until maturity, we may continue to purchase and sell marketable securities in an attempt to improve our investment returns. We also used $206 million of cash to purchase certain net assets of Riverstone Networks, a supplier of carrier-grade Ethernet routers for the telecommunications industry. Changes in restricted cash included $312 million of cash used to collateralize a letter of credit issued in connection with the Winstar judgment. The remaining cash used in investing activities was for capital expenditures of $195 million, including internal-use software of $42 million. Fiscal 2005 investing activities included net purchases of marketable securities of $1.0 billion and capital expenditures of $221 million, of which $60 million was for internal-use software. Fiscal 2004 investing activities included net purchases of marketable securities of $821 million and capital expenditures of $157 million, of which $54 million was for internal use software. Partially offsetting these cash outflows were cash proceeds of $63 million from the sale of certain manufacturing and real estate facilities in the U.S. and China.

Financing Activities We are currently authorized by our board of directors to extinguish certain of our convertible securities and other debt obligations prior to maturity. During the past few years, we retired convertible securities and certain other debt obligations in exchange for shares0/4 of our common stock and cash, in separate, multiple and privately-negotiated transactions. Fiscal 2006 financing activities included $383 million of cash to repay or repurchase certain debt obligations including $368 million related to our 7.25% notes that matured during July 2006. We also received net proceeds of $46 million from the issuance of 26Date: 22-JAN-2007 10:37:45.81 million common shares primarily for certain employee benefit plans. Fiscal 2005 financing activities included $547 million of cash to repay or repurchase certain debt obligations and convertible securities. We also received net proceeds of $126 million from the issuance of 48 million 060.00.00.00 F-26 Operator: BNY99999T Y27905 BNY *Y27905/060/4* Phone: (212)924-5500 CRC: 24619 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 37230 BNY Y27905 061.00.00.00 0/2 Queue: BNY_CPS *Y27905/061/2* Description: Exhibit 13 EDGAR 2

common shares primarily for certain employee benefit plans. Fiscal 2004 financing activities included $500 million of cash to repay or repurchase certain debt obligations and convertible securities, including $249 million under our recapitalization program and $216 million of variable interest notes related to our Insured Special Purpose Trust. We also received net proceeds of $276 million from the issuance of 91 million common shares for certain employee benefit plans.

Cash Management Achieving optimal returns on our cash balance involves concentrating domestic cash in a primary account with our lead bank in order to make efficient investment decisions in various instruments and maturities. Short-term domestic cash is invested daily in money market funds. Strategic short- and long-term domestic cash is outsourced to various fund managers and the portfolio consists of investment-grade debt securities such as treasury notes, corporate bonds, high-quality asset-backed securities and government agency bonds, with various maturities. International cash is invested in international money market funds, time deposits and other bank accounts. Approximately 74% of our cash, cash equivalents and marketable securities were held domestically as of September 30, 2006.

Future Capital Requirements and Funding Sources We do not expect that our operations will generate cash on a sustainable basis until our pre-tax income exceeds the amount of net non-cash income items, which have been driven primarily by our pension credit. Our pension credit was $660 million, $973 million and $1.1 billion during the fiscal years ended September 30, 2006, 2005 and 2004, respectively. Our cash requirements during the next few years are primarily related to funding our operations, retiree health care obligations, capital expenditures, potential acquisitions, debt obligations and related interest and other matters discussed below. We have the right to redeem $486 million of 8% convertible securities for cash after August 14, 2006. These securities are redeemable at the option of the holders on August 2, 2007 whereby we have the right to satisfy the redemption with cash, shares of our common stock, or a combination of both. We believe our cash and cash equivalents of $1.3 billion and marketable securities of $2.1 billion as of September 30, 2006 are sufficient to fund our cash requirements for fiscal 2007 as well as the following few years. However, we cannot provide assurance that our actual cash requirements will not be greater than we currently expect. If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations, we might be required to obtain additional sources of funds through additional operating improvements, capital market transactions, asset sales or financing from third parties, or a combination thereof. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms. The remaining cash requirements for our restructuring program are expected to be $114 million, primarily for lease obligations over the remaining lease terms, net of expected sublease rental income of $68 million. The cash requirement could increase in the future if the expected sublease income is not realized. Our0/2 U.S. pension plans meet the requirements of ERISA’s current funding rules, and we do not expect to make contributions to our qualified U.S. pension plans through fiscal 2008. We also currently believe that it is unlikely that any required contributions would have a material effect on our liquidity through fiscal 2011. Annual contributions to our non-qualified and non-U.S. pension plansDate: 22-JAN-2007 10:37:45.81 are expected to be approximately $60 million in each of the next five fiscal years. On August 17, 2006, President Bush signed into law the Pension Protection Act of 2006. The principal changes under this legislation relate to the way assets and liabilities are valued to determine required pension contributions. This legislation also impacts the timing and manner of required contributions to under-funded pension plans. The Pension Protection Act contains Section061.00.00.00 420 Amendments that we were pursuing as discussed in more detail below.

Operator: BNY99999T F-27 Y27905 BNY *Y27905/061/2* Phone: (212)924-5500 CRC: 37230 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 36452 BNY Y27905 062.00.00.00 0/6 Queue: BNY_CPS *Y27905/062/6* Description: Exhibit 13 EDGAR 2

We currently provide retiree health care benefits for our retirees in the U.S., including 44,000 management retirees and 66,000 formerly represented retirees as well as an additional 64,000 dependents of retirees. The obligations and plan assets for management and formerly represented retirees are accounted for separately. Historically, retiree health care benefits were funded through plan assets set aside in trusts and transfers of excess pension assets. There are currently no plan assets available in these trusts to fund the obligations of the management retirees. There are $104 million of assets in trusts as of September 30, 2006, that are available to fund the obligations of the formerly represented retirees. We are permitted to transfer pension plan assets that are in excess of 125% of pension plan obligations under Section 420 of the Internal Revenue Code to fund annual retiree health care benefits. Our cumulative Section 420 transfers were $1.9 billion, although no transfers were made within the management retiree plan since fiscal 2002 or within the formerly represented retiree plan since fiscal 2003. There were approximately $2.2 billion of pension plan assets that would be eligible for a conventional Section 420 transfer in our formerly represented retiree plan as of the most recent valuation (January 1, 2006). The funding levels for our management retiree pension plans were below the required thresholds that would allow for Section 420 transfers. If a conventional Section 420 transfer is made, we are required to maintain a certain level of cost per participant for a period of five years beginning with the year of transfer. The Pension Protection Act allows an employer to fund more than one year’s retiree health care benefits through a Section 420 transfer and permit the terms of an enforceable collective bargaining agreement to serve as an alternative to the maintenance of cost requirements described above. Under this new type of transfer, pension assets in excess of 120% of obligations would be available to fund retiree health care costs. There were approximately $2.8 billion of pension plan assets that would be eligible for a collectively bargained Section 420 transfer as of the most recent valuation (January 1, 2006). However, additional changes are being pursued as technical corrections that are related to minimum pension funding thresholds of 120% following a collectively bargained Section 420 transfer that would facilitate our ability to provide a collectively bargained level of retiree health care benefits. With suitable legislation, we believe it is likely that almost all of the funding required for formerly represented retirees (assuming the present level and structure of benefits) could be addressed through Section 420 transfers based on current actuarial assumptions. However, no assurances can be given that we will be successful in these efforts or that other legislative changes will not be adopted that will adversely affect the amount of pension plan assets that would be available for Section 420 transfers. Our collective bargaining agreements with our unions currently provide that if suitable legislation is not obtained by June 30, 2007, our obligation to fund a $400 million trust for represented retiree health care by 2012 will terminate, and we can change the level of the subsidy for represented retiree health care at our sole discretion beginning January 1, 2008, subject to the maintenance of cost requirements that expire on September 30, 2007. We are planning to make a collectively bargained Section 420 transfer during December 2006 of no more than $550 million for formerly represented retirees to cover costs from October 1, 2006 through December 31, 2007. Assuming the present level and structure of benefits, our expected cash requirements for funding retiree health care benefits and other0/6 postretirement benefits are expected to be $126 million during fiscal 2007 and are expected to increase to $315 million, $489 million, $469 million and $443 million during the next four consecutive fiscal years due to the depletion of plan assets held in trusts. These amounts include the collectively bargained Section 420 transfer discussed above and the expected annual Medicare PartDate: 22-JAN-2007 10:37:45.81 D subsidy of approximately $70 million. These expected funding requirements are subject to change.

F-28 062.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/062/6* Phone: (212)924-5500 CRC: 36452 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 64372 BNY Y27905 063.00.00.00 0/6 Queue: BNY_CPS *Y27905/063/6* Description: Exhibit 13 EDGAR 2

Contractual Obligations and Other Commercial Commitments and Contingencies Our contractual obligations as defined by the SEC’s rules and regulations are presented in the table below. However, our expected cash flow cannot be entirely assessed based on such obligations since they are subject to changes based on future events. Many of our outsourced manufacturing agreements are linked to future sales forecasts and will vary based on customer demands. Furthermore, we have other cash requirements that are not included in the table. These requirements are related to our normal operations that are not based on “commitments”, such as purchases of services on an “as needed” basis, employee compensation, and other items. The most significant factor affecting our future cash flows is our ability to earn and collect cash from our customers.

Contractual obligations

Payments due during the years ending September 30, (in millions) Total 2007 2008 and 2009 2010 and 2011 2012 and thereafter Long-term debt (a) $5,081 $ 486 $ 202 $ 750 $ 3,643 Interest on long-term debt (a) 3,577 285 488 448 2,356 Operating leases (b) 775 147 207 147 274 Unconditional purchase obligations (c) 553 486 65 2 —

Total (d) (e) $9,986 $1,404 $ 962 $ 1,347 $ 6,273

(a) The long-term debt principal amounts exclude $31 million of fair value basis adjustments and unamortized discounts. Refer to Note 9 to our consolidated financial statements for additional information related to long-term debt and convertible securities, including early redemption features.

(b) The contractual obligations under operating leases exclude approximately $150 million of potential lease obligations that were assigned to Avaya, Agere and other entities for which we remain secondarily liable. The operating lease obligations for facilities reserved under our restructuring program of $127 million are included in the table.

(c) Unconditional purchase obligations include all commitments to purchase goods or services that are noncancelable or would impose a penalty if the agreements were cancelled prior to expiration. In these situations, the amount of the penalty was included in the “2007” column in the table above. Amounts exclude obligations included in accounts payable as of September 30, 2006.

(d) Certain other long-term liabilities of $775 million are excluded in the above table because they do not represent contractual obligations as defined by the SEC’s rules. These liabilities are primarily contingencies related to tax, litigation and insurance matters, long-term employee compensation and non-cash items, such as deferred income taxes and minority interest. The estimated future cash payments for these items are expected to be $279 million during fiscal years 2008 through 2009,

0/6 $100 million during fiscal years 2010 through 2011, and $143 million during 2012 and thereafter. Other long-term liabilities related to facility reserves in connection with our restructuring plans are included in the operating leases caption.

(e) Obligations related to pensions, postretirement health and welfare benefits and postemployment benefit obligations are Date: 22-JAN-2007 10:37:45.81 excluded from the table. Refer to Note 10 to our consolidated financial statements and the above discussion for a summary of our expected contributions to these plans.

Other commercial commitments

063.00.00.00 Amounts expiring during the years ending September 30, (in millions) Total 2007 2008 and 2009 2010 and 2011 2012 and thereafter

LettersOperator: BNY99999T of credit (a) $ 493 $ 454 $ 27 $ 1 $ 11 Undrawn customer commitments 11 — 65 — Approved but not available customer commitments 26 — — — 26 Y27905

Total $ 530 $ 454 $ 33 $ 6 $ 37

BNY *Y27905/063/6* F-29 Phone: (212)924-5500 CRC: 64372 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 21708 BNY Y27905 064.00.00.00 0/7 Queue: BNY_CPS *Y27905/064/7* Description: Exhibit 13 EDGAR 2

(a) Refer to Note 13 to our consolidated financial statements for further information.

Customer Financing Commitments We may provide or commit to additional customer financings on a limited basis. We are focusing on the larger service providers that typically have less demand for such financing. We carefully review requests for customer financing on a case-by-case basis. Such reviews assess the credit quality of the individual borrowers, their respective business plans and market conditions. We also assess our ability to sell or transfer the undrawn commitments and drawn borrowings to unrelated third parties. Our net exposure for customer financing commitments was not material as of September 30, 2006. Refer to Note 13 of our consolidated financial statements for additional information.

Credit Ratings Our credit ratings are below investment grade. Any credit downgrade affects our ability to enter into and maintain certain contracts on favorable terms and increases our cost of borrowing. Our credit ratings as of December 14, 2006, are as follows:

Liability to subsidiary trust 8.00% convertible issuing Rating Agency Long-term debt securities preferred securities Last change

Standard & Poor’s(a)(b) B+ B B- Upgraded December 5, 2006 Moody’s (c) Ba3 B2 B2 Upgraded December 11, 2006 Fitch (d)

(a) Long-term corporate rating upgraded to BB- with Positive Outlook on December 5, 2006.

(b) All long-term ratings removed from CreditWatch, except the senior unsecured debt ratings, which remain on CreditWatch with positive implications on December 5, 2006.

(c) Moody’s withdrew Lucent’s corporate family rating of B1 on December 11, 2006.

(d) Fitch withdrew Lucent’s ratings on December 8, 2006.

F-30 0/7 Date: 22-JAN-2007 10:37:45.81 064.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/064/7* Phone: (212)924-5500 CRC: 21708 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 43597 BNY Y27905 065.00.00.00 0/3 Queue: BNY_CPS *Y27905/065/3* Description: Exhibit 13 EDGAR 2

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from changes in foreign currency exchange rates, interest rates and equity prices. We manage our exposure to risk from changing exchange rates and interest rates through the use of derivative financial instruments, coupled with other strategies. Our risk management objective is to minimize the effects of volatility on our cash flows by identifying the assets, liabilities or forecasted transactions exposed to these risks and hedging them. Hedges may be achieved either by forward or option contracts, by swap derivatives or by terms embedded into certain contracts that affect the ultimate amount of cash flows under the contract. The gains and losses on these exposures are generally offset by reciprocal changes in the value of the hedging instruments when used because there is a high correlation between the hedging instruments and the underlying exposures. We use derivative financial instruments as risk management tools and not for trading or speculative purposes. Generally, price risk on equity holdings is not hedged.

Foreign Currency Risk As a multinational company, we conduct our business in a wide variety of currencies and are therefore subject to market risk for changes in foreign exchange rates. We use foreign exchange forward and option contracts to minimize exposure to the risk of the eventual net cash inflows and outflows resulting from foreign currency denominated transactions with customers, suppliers and non-U.S. subsidiaries. Our objective is to hedge all types of foreign currency risk to preserve our cash flows, but we generally do not expect to designate these derivative instruments as hedges under current accounting standards unless the benefits of doing so are material. Cash inflows and outflows denominated in the same foreign currency are netted on a legal entity basis or at the corporate level. The corresponding net cash flow exposure is appropriately hedged. To the extent that the forecasted cash flow exposures are overstated or understated or if there is a shift in the timing of the anticipated cash flows during periods of currency volatility, we may experience unanticipated currency gains or losses. We do not hedge our net investment in non-U.S. entities because we view those investments as long-term in nature. Our primary net foreign currency exposures included the euro, British pound, Canadian dollar, Korean won and Mexican peso. The fair value of foreign exchange contracts is subject to changes in foreign currency exchange rates. We use the Monte Carlo simulation model to calculate Value at Risk (VAR). This model estimates the potential loss in fair value of foreign currency forwards and options over a defined period of time within a certain confidence level by randomly generating different foreign currency exchange rates repeatedly and then applying those exchange rates to our outstanding forwards and options. As a result of our foreign currency VAR calculations, we estimated with 95 percent confidence that the fair value of our foreign currency derivatives would not decline by more than $10 million and $9 million over a quarterly period during fiscal 2006 and 2005, respectively. Consistent with the nature of the economic hedge, any changes in the value of the forwards and options would be offset by reciprocal changes in the underlying exposure.

Interest Rate Risk We0/3 are exposed to various forms of interest rate risk. Refer to Note 13 to our consolidated financial statements for further information related to interest rate risk. Date: 22-JAN-2007 10:37:45.81 F-31 065.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/065/3* Phone: (212)924-5500 CRC: 43597 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 64087 BNY Y27905 066.00.00.00 0/2 Queue: BNY_CPS *Y27905/066/2* Description: Exhibit 13 EDGAR 2

The impacts of a sensitivity analysis we performed under a model that assumes a hypothetical 100 basis point increase in interest rates are as follows:

Hypothetical Hypothetical decrease in fair decrease in fair Fair value as of value as of Fair value as of value as of (in millions) September 30, 2006 September 30, 2006 September 30, 2005 September 30, 2005 Assets: Short-term marketable securities $ 630 $ 3 $ 357 $ 2 Long-term marketable securities 1,476 22 2,163 34 Interest rate swaps — — — — Liabilities: Debt maturing within one year 490 — 372 3 Long-term debt (including liability to subsidiary trust issuing preferred securities) 4,383 292 5,144 303 Interest rate swaps 6 4 5 7 Our sensitivity analysis excludes customer finance notes because a significant portion of the principal balances and related receivables for accrued interest are fully-reserved.

Equity Price Risk Our investment portfolio includes equity investments in publicly held companies that are classified as available-for-sale and other strategic equity holdings in privately held companies and venture funds. These securities are exposed to price fluctuations and are generally concentrated in high-technology industries. The carrying values of our available-for-sale equity securities and privately held securities were $2 million and $59 million, respectively, as of September 30, 2006. We generally do not hedge our equity price risk due to hedging restrictions imposed by the issuers, illiquid capital markets or our inability to hedge non-marketable equity securities in privately held companies. An adverse movement in equity prices on our available-for-sale equity securities would not have a material impact due to their immaterial carrying values as of September 30, 2006 and 2005. The impact of an adverse movement in equity prices on our holdings in privately held companies cannot be easily quantified, as our ability to realize returns on investments depends on the enterprises’ ability to raise additional capital or derive cash inflows from continuing operations or through liquidity events such as initial public offerings, mergers or private sales. The process of determining the fair values of our privately held equity investments inherently requires certain assumptions and subjective judgments. These valuation assumptions and judgments include consideration of: (1) the investee’s earnings and cash flow position, cash flow projections, and rate of cash consumption; (2) recent rounds of equity infusions by us and other investors; (3) the strength of the enterprise’s management; and (4) valuation data provided by the enterprise that may be compared with data for peers. Investment impairment charges were $8 million, $20 million and $22 million during fiscal 2006, 2005 and 2004, 0/2 respectively. Similar charges may be required in the future if declines in the fair value of investments are determined to be other- than-temporary. Date: 22-JAN-2007 10:37:45.81 F-32 066.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/066/2* Phone: (212)924-5500 CRC: 64087 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 14464 BNY Y27905 067.00.00.00 0/2 Queue: BNY_CPS *Y27905/067/2* Description: Exhibit 13 EDGAR 2

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

Years ended September 30, 2006 2005 2004 2003 2002 RESULTS OF OPERATIONS Revenues $ 8,796 $ 9,441 $ 9,045 $ 8,470 $12,321 Business restructuring 4 (10) (20) (184) 1,490 Goodwill impairment — — — 35 826 Income taxes 42 (151) (939) (233) 4,757 Income (loss) from continuing operations 527 1,185 2,002 (770) (11,826) Earnings (loss) per common share from continuing operations: Basic 0.12 0.27 0.47 (0.29) (3.51) Diluted 0.11 0.24 0.42 (0.29) (3.51)

FINANCIAL POSITION Cash, cash equivalents and marketable securities $ 3,443 $ 4,930 $ 4,873 $ 4,507 $ 4,420 Assets 15,355 16,400 16,963 15,911 17,791 Debt 5,050 5,434 5,990 5,980 5,106 Liabilities 14,698 16,025 18,342 19,282 20,845 8.00% redeemable convertible preferred stock — — — 868 1,680 Shareowners’ equity (deficit) 657 375 (1,379) (4,239) (4,734)

F-33 0/2 Date: 22-JAN-2007 10:37:45.81 067.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/067/2* Phone: (212)924-5500 CRC: 14464 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 42743 BNY Y27905 068.00.00.00 0/3 Queue: BNY_CPS *Y27905/068/3* Description: Exhibit 13 EDGAR 2

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control-Integrated Framework. Based on this assessment, management concluded that, as of September 30, 2006, the Company’s internal control over financial reporting is effective based on those criteria. Our assessment of the effectiveness of the Company’s internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein. This report appears on page F-35.

/s/ Cynthia K. Christy-Langenfeld /s/ David W. Hitchcock Cynthia K. Christy-Langenfeld David W. Hitchcock Chief Executive Officer Chief Financial Officer

F-34 0/3 Date: 22-JAN-2007 10:37:45.81 068.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/068/3* Phone: (212)924-5500 CRC: 42743 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 42455 BNY Y27905 069.00.00.00 0/4 Queue: BNY_CPS *Y27905/069/4* Description: Exhibit 13 EDGAR 2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareowners of LUCENT TECHNOLOGIES INC.: We have completed integrated audits of Lucent Technologies Inc.’s 2006 and 2005 consolidated financial statements and of its internal control over financial reporting as of September 30, 2006, and an audit of its 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. Consolidated financial statements In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in shareowners’ equity (deficit) and cash flows present fairly, in all material respects, the financial position of Lucent Technologies Inc. and its subsidiaries at September 30, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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 financial statements are free of material misstatement. An audit of financial statements 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment, as of October 1, 2005. As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, as of September 30, 2006. As discussed in Note 2 to the consolidated financial statements, the Company completed its merger with Alcatel on November 30, 2006. Internal control over financial reporting Also, in our opinion, management’s assessment, included in the Report on Internal Control Over Financial Reporting appearing on page F-34 of the 2006 Annual Report to Shareowners, that the Company maintained effective internal control over financial reporting as of September 30, 2006 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those0/4 criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessmentDate: 22-JAN-2007 10:37:45.81 of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting 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 assurance069.00.00.00 about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such otherOperator: BNY99999T procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. Y27905 F-35 BNY *Y27905/069/4* Phone: (212)924-5500 CRC: 42455 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 26478 BNY Y27905 070.00.00.00 0/5 Queue: BNY_CPS *Y27905/070/5* Description: Exhibit 13 EDGAR 2

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Florham Park, New Jersey December 14, 2006

F-36 0/5 Date: 22-JAN-2007 10:37:45.81 070.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/070/5* Phone: (212)924-5500 CRC: 26478 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 17617 BNY Y27905 071.00.00.00 0/8 Queue: BNY_CPS *Y27905/071/8* Description: Exhibit 13 EDGAR 2

LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share amounts)

Years ended September 30, 2006 2005 2004

Revenues: Products $6,483 $7,221 $7,001 Services 2,313 2,220 2,044

Total revenues 8,796 9,441 9,045

Costs: Products 3,315 3,734 3,793 Services 1,746 1,583 1,473

Total costs 5,061 5,317 5,266

Gross margin 3,735 4,124 3,779 Operating expenses: Selling, general and administrative 1,828 1,696 1,296 Research and development 1,177 1,177 1,270 Merger related expenses 45 — — In-process research and development 12 — 14 Business restructuring 4 (10) (20)

Total operating expenses 3,066 2,863 2,560

Operating income 669 1,261 1,219 Other income, net 224 114 240 Interest expense 324 341 396

Income before income taxes 569 1,034 1,063 Income taxes 42 (151) (939)

Net income 527 1,185 2,002 Conversion and redemption cost — 8.00% preferred stock — — (1) Preferred stock dividends and accretion — — 12

Net income applicable to common shareowners $ 527 $ 1,185 $ 2,013

Net0/8 income per share applicable to common shareowners: Basic $ 0.12 $ 0.27 $ 0.47 Diluted $0.11 $0.24 $0.42

Date: 22-JAN-2007 10:37:45.81 Weighted average number of common shares outstanding: Basic 4,469 4,426 4,258 Diluted 5,168 5,218 5,313 071.00.00.00 See Notes to Consolidated Financial Statements.

Operator: BNY99999T F-37 Y27905 BNY *Y27905/071/8* Phone: (212)924-5500 CRC: 17617 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 37226 BNY Y27905 072.00.00.00 0/9 Queue: BNY_CPS *Y27905/072/9* Description: Exhibit 13 EDGAR 2

LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except per share amounts)

September 30, September 30, 2006 2005 ASSETS Cash and cash equivalents $1,337 $ 2,410 Marketable securities 630 357 Receivables, net 1,630 1,395 Inventories 731 731 Other current assets 1,066 690

Total current assets 5,394 5,583 Marketable securities 1,476 2,163 Property, plant and equipment, net 1,228 1,295 Prepaid pension costs 5,761 6,010 Goodwill and other acquired intangibles, net 607 419 Other assets 889 930

Total assets $ 15,355 $ 16,400

LIABILITIES Accounts payable $ 689 $ 769 Payroll and benefit-related liabilities 706 1,095 Debt maturing within one year 486 368 Other current liabilities 1,604 1,588

Total current liabilities 3,485 3,820 Postretirement and postemployment benefit liabilities 5,248 4,751 Pension liabilities 539 1,423 Long-term debt 4,564 5,066 Other liabilities 862 965

Total liabilities 14,698 16,025

Commitments and contingencies

0/9 SHAREOWNERS’ EQUITY Preferred stock — par value $1.00 per share; authorized shares: 250; issued and outstanding: none — — Common stock — par value $.01 per share; Authorized shares: 10,000; 4,485 issued and 4,484 Date: 22-JAN-2007 10:37:45.81 outstanding shares as of September 30, 2006, and 4,457 issued and 4,447 outstanding shares as of September 30, 2005 45 45 Additional paid-in capital 23,670 23,513 Accumulated deficit (19,081) (19,608)

Accumulated072.00.00.00 other comprehensive loss (3,977) (3,575)

Total shareowners’ equity 657375

Operator: BNY99999T Total liabilities and shareowners’ equity $ 15,355 $ 16,400

Y27905 See Notes to Consolidated Financial Statements.

F-38 BNY *Y27905/072/9* Phone: (212)924-5500 CRC: 37226 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 55522 BNY Y27905 073.00.00.00 0/4 Queue: BNY_CPS *Y27905/073/4* Description: Exhibit 13 EDGAR 2

LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY (DEFICIT) (in millions)

Accumulated Additional Other Total Shares of Common Paid-In Accumulated Comprehensive Shareowners’ Common Stock Stock Capital Deficit Loss Equity (Deficit) Balance as of September 30, 2003 4,169 $ 42 $22,252 $ (22,795) $ (3,738) $ (4,239) Net income 2,002 2,002 Minimum pension liability adjustment 150 150 Reclassification adjustment for realized gains on investments (75) (75) Foreign currency translation adjustments 34 34 Unrealized holding losses on investments (6) (6)

Comprehensive income 2,105

Issuance of common stock in connection with the exchange of certain debt obligations 22 92 92 Issuance of common stock related to employee benefit plans 93 1 275 276 Issuance of common stock in connection with settlement of shareowner lawsuits 33 105 105 Stock-based compensation 16 16 Issuance of common stock related to Telica acquisition 78 1 253 254 Preferred stock dividends and accretion 12 12

Balance as of September 30, 2004 4,395 44 23,005 (20,793) (3,635) (1,379)

Net income 1,185 1,185 Minimum pension liability

ad0/4 justment 46 46 Foreign currency translation adjustments 27 27

UnrealizedDate: 22-JAN-2007 10:37:45.81 holding losses on investments (13) (13)

Comprehensive income 1,245

Issuance of warrants to purchase

common073.00.00.00 stock in connection with settlement of shareowner lawsuits 323 323

IssuanceOperator: BNY99999T of common stock related to employee benefit plans 48 1 108 109

Stock-basedY27905 compensation 35 35 Issuance of common stock related to Telica acquisition 3 8 8

OtherBNY *Y27905/073/4* 1 34 34

Balance as of September 30, 2005 4,447 45 23,513 (19,608) (3,575) 375

NetPhone: (212)924-5500 income 527 527 Minimum pension liability adjustment 3,169 3,169 Foreign currency translation adjustments 74 74 Unrealized holding gains on investments 9 9

Comprehensive income 3,779

Adoption of FASB Statement CRC: 55522 No.EDGAR 2 158 (3,654) (3,654) Issuance of common stock related to employee benefit plans 28 46 46 Stock-based compensation 82 82 Site: BOWNE OF NEW YORK Release[E/O] of Telica escrow shares 9 29 29

Balance as of September 30, 2006 4,484 $ 45 $23,670 $ (19,081) $ (3,977) $ 657

See Notes to Consolidated Financial Statements.

F-39 WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 55776 BNY Y27905 074.00.00.00 0/2 Queue: BNY_CPS *Y27905/074/2* Description: Exhibit 13 EDGAR 2

LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions)

Years ended September 30, 2006 2005 2004 Operating activities: Net income $ 527 $1,185 $2,002

Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 544 599 693 Bad debt and customer financing 4 (69) (230) Deferred income taxes (12) (84) (19) Pension credit (660) (973) (1,111) Stock-based compensation expense 85 35 16 Other adjustments for non-cash items (7) 131 64 Changes in operating assets and liabilities: Receivables (260) 42 200 Inventories and contracts in process (113) 50 (59) Accounts payable (54) (160) (203) Deferred revenue 5 (65) 80 Other operating assets and liabilities (531) 26 (799)

Net cash (used in) provided by operating activities (472) 717 634

Investing activities: Capital expenditures (195) (221) (157) Purchases of marketable securities (3,718) (4,950) (2,091) Maturities of marketable securities 470 939 918 Sales of marketable securities 3,666 2,966 352 Business acquisitions (206) — — Changes in restricted cash (285) — — Proceeds from the sale or disposal of property, plant and equipment 3 2 63 Other investing activities (3) (4) 46

Net cash used in investing activities (268) (1,268) (869)

0/2 Financing activities: Repayments of long-term debt (383) (547) (479) Date: 22-JAN-2007 10:37:45.81 Issuance of common stock 46 126 276 Redemptions of preferred stock — — (21) Other financing activities (3) — (15)

Net cash used in financing activities (340) (421) (239)

Effect074.00.00.00 of exchange rate changes on cash and cash equivalents 7 3 32

Net decrease in cash and cash equivalents (1,073) (969) (442) Cash and cash equivalents at beginning of year 2,410 3,379 3,821

Operator: BNY99999T Cash and cash equivalents at end of year $ 1,337 $ 2,410 $ 3,379

Y27905 Income tax (payments) refunds, net $ (36) $ 755 $ 52

Interest payments $ 317 $ 341 $ 371

BNY *Y27905/074/2*

Phone: (212)924-5500 See Notes to Consolidated Financial Statements.

F-40 CRC: 55776 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 28458 BNY Y27905 075.00.00.00 0/2 Queue: BNY_CPS *Y27905/075/2* Description: Exhibit 13 EDGAR 2

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include all majority-owned subsidiaries over which we exercise control. Investments where we exercise significant influence but do not control (generally a 20% to 50% ownership interest), are accounted for under the equity method of accounting. All material intercompany transactions and balances have been eliminated.

Use of Estimates We are required to make estimates and assumptions that affect amounts reported in the financial statements and footnotes. Actual results could be different from estimated amounts. We believe that the more important estimates and related assumptions that affect our financial condition and results of operations are in the areas of revenue recognition, pension and postretirement benefits, income taxes, legal contingencies, intangible assets, stock-based compensation, employee incentive awards, receivables and customer financing, inventories, business restructuring and warranty. Estimates and assumptions are periodically reviewed, and the effects of any material revisions are reflected in the period that they are determined to be necessary.

Foreign Currency Translation and Transactions Results of operations and cash flows are translated at daily exchange rates and assets and liabilities are translated at end-of- period exchange rates for operations outside the U.S. that prepare financial statements in currencies other than the U.S. dollar. Translation adjustments are included as a separate component of accumulated other comprehensive loss in shareowners’ equity (deficit). Gains and losses from foreign currency transactions are reflected in other income, net.

Revenue Recognition Revenue is recognized when persuasive evidence of an agreement exists, delivery has occurred, the amount is fixed or determinable, and collection of the resulting receivable is probable. Most of our sales are generated from complex contractual arrangements that require significant revenue recognition judgments, particularly in the areas of multiple-element arrangements, the application of software revenue recognition rules, contract accounting and the assessment of collectibility. Revenues from contracts with multiple-element arrangements, such as those including products with installation and integration services, are recognized as the revenue for each unit of accounting is earned based on the relative fair value of each unit of accounting as determined by internal or third-party analyses of market-based prices. A delivered element is considered a separate unit of accounting if it has value to the customer on a standalone basis, there is objective and reliable evidence of the fair value of undelivered elements in the arrangement, and delivery or performance of undelivered elements is considered probable and

substantially0/2 under our control. Revenue is generally recognized when title passes to the customer, which usually is upon delivery of the equipment, provided our installation requirements are expected to be completed within 90 days from equipment delivery and all other revenue recognition criteria are met. Revenue is generally recognized for products sold through multiple distribution channels when the reseller or distributor sells the product to the end user. Services revenue is generally recognized at the time of Date: 22-JAN-2007 10:37:45.81 performance. Software revenue recognition rules are applied when software is sold on a standalone basis, or when software is embedded with our hardware and the software is considered more than incidental. Software is determined to be more than incidental when it is apparent that it is a significant factor in the customer’s purchasing decision, such as when a transaction also includes software 075.00.00.00 upgrades or enhancements. In multiple-element arrangements, where software is considered more than incidental, fair value of an undelivered element is determined using vendor-specific objective evidence (VSOE). If VSOE cannot be determined or any undeliveredOperator: BNY99999T element is essential to the functionality of the delivered element, revenue is deferred until such criteria are met or until the last element is delivered. Y27905 F-41 BNY *Y27905/075/2* Phone: (212)924-5500 CRC: 28458 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 4406 BNY Y27905 076.00.00.00 0/2 Queue: BNY_CPS *Y27905/076/2* Description: Exhibit 13 EDGAR 2

The percentage-of-completion method of accounting is used for sales generated from certain contracts, primarily those related to customized network solutions and network build-outs with durations of at least six months. The units-of-delivery method or units- of-work-performed method is used to measure progress on each contract. Revenue and cost estimates are revised periodically based on changes in circumstances. Any expected losses on contracts are recognized immediately upon contract signing or as soon thereafter as identified. The assessment of collectibility is critical in determining whether revenue should be recognized. As part of the revenue recognition process, we determine whether trade and notes receivables are reasonably assured of collection based on various factors. Revenue and related costs are deferred if we are uncertain as to whether the receivable can be collected or sold. Revenue is deferred but costs are recognized when we determine that the collection or sale of the receivable is unlikely.

Research and Development and Software Development Costs Research and development costs are charged to expense as incurred. However, the direct labor and related overhead costs incurred for the development of computer software that will be sold (“marketed software”) are capitalized when technological feasibility is established. Technological feasibility is established upon completion of all of the planning, designing, coding and testing activities that are necessary in order to establish that the product can be produced to meet its design specifications, including functions, features and technical performance requirements. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Capitalization ceases and amortization of marketed software development costs begins when the product is available for general release to customers. Amortization is recognized as costs included in our gross margin on a product-by-product basis, generally using the straight-line method over a 12- to 18-month period. Unamortized marketed software development costs determined to be in excess of the net realizable value of the product are charged to research and development expense, if such a determination is made prior to the general release to the customer, or to costs thereafter.

Internal Use Software Direct labor and related overhead costs incurred during the application development stage for developing, purchasing or otherwise acquiring software for internal use are capitalized. These costs are amortized over the estimated useful lives of the software, generally three years. Costs incurred during the preliminary project stage are expensed as incurred.

Pension, postretirement, and postemployment benefits plans On September 29, 2006, Statement of Financial Accounting Standards (SFAS) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” was issued. SFAS 158 requires, among other things, the recognition of the funded status of each defined pension benefit plan, retiree health care and other postretirement benefit plans and postemployment benefit plans on the balance sheet. We adopted SFAS 158 as of September 30, 2006. See Note 10 for additional information.0/2

Stock-Based Compensation Date: 22-JAN-2007 10:37:45.81 Effective October 1, 2005, we adopted SFAS No. 123R, “Share-Based Payment.” We elected to use the modified prospective transition method, therefore, prior period results were not restated. Prior to the adoption of SFAS 123R, stock-based compensation expense related to stock options was not recognized in the results of operations if the exercise price was at least equal to the market value of the common stock on the grant date, in accordance with Accounting Principles Board Opinion No. 25,

“Accounting076.00.00.00 for Stock Issued to Employees.” As a result, the recognition of stock-based compensation expense was generally limited to the expense attributed to restricted stock unit awards and stock option modifications, as well as the amortization of certain acquisition-related deferred compensation. Operator: BNY99999T

F-42 Y27905 BNY *Y27905/076/2* Phone: (212)924-5500 CRC: 4406 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 34382 BNY Y27905 077.00.00.00 0/2 Queue: BNY_CPS *Y27905/077/2* Description: Exhibit 13 EDGAR 2

SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. For options with graded vesting, we value the stock option grants and recognize compensation expense as if each vesting portion of the award was a separate award. Under the modified prospective method, awards that were granted, modified, or settled on or after October 1, 2005 are measured and accounted for in accordance with SFAS 123R. Unvested equity-classified awards that were granted prior to October 1, 2005 will continue to be accounted for in accordance with SFAS 123, except that all awards are recognized in the results of operations over the remaining vesting periods. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized. In addition, the realization of tax benefits in excess of amounts recognized for financial reporting purposes will be recognized as a financing activity rather than an operating activity as in the past. Refer to Note 11 for further information regarding our stock-based compensation plans.

Cash and Cash Equivalents All highly liquid investments with original maturities of three months or less are considered cash equivalents. These primarily consist of money market funds and, to a lesser extent, time deposits and commercial paper. Cash held as collateral or escrowed for contingent liabilities is included in other current and non-current assets based on the expected release of the underlying obligation.

Marketable Securities Our marketable securities consist of debt securities that are designated as available-for-sale and are recorded at fair value. Unrealized holding gains or losses are reported as a component of accumulated other comprehensive loss. Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold. Marketable securities with original maturities greater than three months and less than one year are classified as short-term; otherwise they are classified as long-term. An impairment charge is recognized when the decline in the fair value of a security below the amortized cost basis is determined to be other-than-temporary. We consider various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below our amortized cost basis, any adverse changes in the financial condition of the issuers’ and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Inventories Inventories are stated at the lower of cost (which approximates cost determined on a first-in, first-out basis) or market. Excess and obsolete inventory reserves are generally determined by future demand forecasts. 0/2 Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is determined using accelerated Date: 22-JAN-2007 10:37:45.81 and straight-line methods over the estimated useful lives of the various asset classes. Useful lives for buildings and building improvements, furniture and fixtures, and machinery and equipment principally range from five to fifty years, five to ten years and two to ten years, respectively. Acquisition costs and substantial improvements to property, plant and equipment are capitalized. The cost of normal maintenance 077.00.00.00 and repairs are expensed as incurred.

GoodwillOperator: BNY99999T and Other Acquired Intangible Assets Goodwill is tested for impairment in the fourth quarter of each fiscal year or more often if an event or circumstances indicate that an Y27905 impairment loss has been incurred. An impairment charge is recognized if

F-43 BNY *Y27905/077/2* Phone: (212)924-5500 CRC: 34382 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 665 BNY Y27905 078.00.00.00 0/2 Queue: BNY_CPS *Y27905/078/2* Description: Exhibit 13 EDGAR 2

a reporting unit’s goodwill carrying amount exceeds its implied fair value. Other acquired intangible assets are amortized on a straight-line basis over the periods benefited, primarily over four years. The following table, restated to reflect the changes in reportable segments as further described in Note 12, summarizes the changes in the carrying value of goodwill and other acquired intangible assets.

Goodwill Mobility Other Access and Multimedia Converged acquired Applications Network Core intangible (in millions) Solutions Solutions Solutions Services Total assets As of September 30, 2004 $ 32 $ 85 $ 154 $ 102 $ 373 $ 61 Amortization — — — — — (16) Reclassification/other — 1 — — 1 —

As of September 30, 2005 32 86 154 102 374 45 Telica escrow release — — 20 9 29 — Riverstone acquisition — 97 — — 97 89 Amortization — — — — — (27)

As of September 30, 2006 $ 32 $ 183 $ 174 $ 111 $ 500 $ 107

Other acquired intangible assets were net of accumulated amortization of $90 million and $64 million as of September 30, 2006 and 2005, respectively. The following table summarizes the estimated future amortization expense of other acquired intangible assets.

(in millions) Amount Fiscal Year: 2007 $ 38 2008 35 2009 21 2010 13

Total $ 107

Impairment of Other Long-Lived Assets Other long-lived assets, including property, plant and equipment, capitalized software and other acquired intangible assets are reviewed for impairment whenever events such as product discontinuances, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized when the carrying

amount0/2 of a long-lived asset exceeds the sum of the undiscounted cash flows expected to result from the asset’s use and eventual disposition. An impairment loss is measured as the amount by which the carrying amount exceeds its fair value, which is typically calculated using discounted expected future cash flows. The discount rate applied to these cash flows is based on our

weiDate: 22-JAN-2007 10:37:45.81 ghted average cost of capital, which represents the blended after-tax costs of debt and equity.

Reclassifications Certain amounts have been reclassified to conform to our current period presentation. 078.00.00.00 Recent Pronouncements

DuringOperator: BNY99999T June 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”, was issued, which clarifies the accounting for uncertainty in income taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expectedY27905 to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years BNY *Y27905/078/2* F-44 Phone: (212)924-5500 CRC: 665 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 12567 BNY Y27905 079.00.00.00 0/3 Queue: BNY_CPS *Y27905/079/3* Description: Exhibit 13 EDGAR 2

beginning after December 15, 2006. We are currently evaluating the effects, if any, that this Interpretation may have on our consolidated financial statements. On September 15, 2006, FASB Statement No. 157, “Fair Value Measurements”, was issued, which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles (GAAP). As a result of SFAS 157, there is now a common definition of fair value to be used throughout GAAP. This Statement is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the effects, if any, that SFAS 157 may have on our consolidated financial statements.

2. MERGER WITH ALCATEL On April 2, 2006, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Alcatel and a wholly owned subsidiary of Alcatel. The merger was completed on November 30, 2006 in which Lucent and Alcatel combined their businesses through a merger of Alcatel’s subsidiary with Lucent, with Lucent surviving the merger and becoming a wholly owned subsidiary of Alcatel. Under the terms of the Merger Agreement, each Lucent share was converted into the right to receive 0.1952 of an American Depository Share (ADS) of Alcatel, with each Alcatel ADS representing one ordinary share of Alcatel. The merger qualified as a reorganization for federal income tax purposes. The terms of certain contracts, employee benefit arrangements and debt agreements have provisions which could result in changes to the terms or settlement amounts upon a change in control of Lucent.

3. BUSINESS RESTRUCTURING During fiscal 2001, we committed to and began implementing a restructuring program to realign resources to focus on the large telecommunications service provider market. We assessed our product portfolio and associated R&D and then streamlined the rest of our operations to support those reassessments. We eliminated some marginally profitable or non-strategic product lines, merged certain technology platforms, consolidated development activities, eliminated management positions and many duplications in marketing functions and programs, centralized our sales support functions, and sold or leased certain of our manufacturing facilities and made greater use of contract manufacturers. We sold or disposed of the assets related to the eliminated product lines, closed facilities and reduced the employee workforce on a global basis. The net business restructuring charges were $2.3 billion and $11.4 billion during fiscal 2002 and 2001, respectively. We have completed the restructuring actions but continue to evaluate the remaining restructuring reserves at the end of each reporting period. Most of the remaining reserve requirements are related to leases on exited facilities as of September 30, 2006. Additional charges or reversals may be required if the expected amount of sublease rental income changes in the future or if other circumstances change. All reportable segments, sales and marketing, and general corporate functions participated in these actions. However, the initial charges or subsequent revisions to the reserves were excluded from their results and were reported separately. The following table0/3 summarizes the net charges or reversals under our restructuring program.

Years ended September 30, (in millions) 2006 2005 2004 Date: 22-JAN-2007 10:37:45.81 Restructuring costs $ 4 $ (10) $ (20) Asset write-downs — — 1 Business dispositions — — (1)

Net charges (reversals) $ 4 $(10) $ (20)

079.00.00.00

F-45 Operator: BNY99999T Y27905 BNY *Y27905/079/3* Phone: (212)924-5500 CRC: 12567 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 51360 BNY Y27905 080.00.00.00 0/1 Queue: BNY_CPS *Y27905/080/1* Description: Exhibit 13 EDGAR 2

Restructuring Costs The following table summarizes the components of restructuring costs and related reserve activity.

Employee Contract Facility separations settlements closings Other Total (in millions) Restructuring reserve as of September 30, 2003 $ 62 $ 34 $ 367 $ 4 $ 467

Charges related to prior-year plans — — 44 — 44 Reversals related to prior-year plans (14) (15) (32) (3) (64)

Total restructuring costs for fiscal 2004 (14) (15) 12 (3) (20) Utilization of reserves (38) (11) (177) (1) (227)

Restructuring reserve as of September 30, 2004 10 8 202 — 220

Charges related to prior-year plans 1 — 16 — 17 Reversals related to prior-year plans (6) (2) (19) — (27)

Total restructuring costs for fiscal 2005 (5) (2) (3) — (10) Utilization of reserves (4) (5) (54) — (63)

Restructuring reserve as of September 30, 2005 1 1 145 — 147

Charges related to prior-year plans — — 12 — 12 Reversals related to prior-year plans — (1) (7) — (8)

Total restructuring costs for fiscal 2006 — (1) 5 — 4 Utilization of reserves — — (37) — (37)

Restructuring reserve as of September 30, 2006 $ 1 $ — $ 113 $ — $ 114

Employee Separations There were approximately 53,600 employee separations associated with employee separation charges from fiscal 2001 through fiscal 2003. Substantially all of the employee separations were completed as of September 30, 2003. The revisions to prior-year plans were due to actual termination benefits and curtailment costs being lower than the estimated amounts as a result of certain differences in assumed demographics, including the age, service lives and salaries of the separated employees.

Contract Settlements 0/1 Contract settlement charges were primarily incurred for settlements of purchase commitments with suppliers and contract renegotiations or cancellations of contracts with customers, all of which resulted from the discontinuance of various product lines.

RevisionsDate: 22-JAN-2007 10:37:45.81 to prior-year plans were due primarily to the negotiated settlement of obligations and commitments for amounts lower than originally estimated.

Facility Closings

The080.00.00.00 planned exit of certain owned and leased facilities consisting of approximately 15.9 million square feet were included in the restructuring program. All of these sites were exited as of September 30, 2003. Charges were recognized for the expected remaining future cash outlays associated with trailing lease liabilities, lease termination payments and expected restoration costs inOperator: BNY99999T connection with the plans. The trailing lease liabilities were reduced by expected sublease rental income. Revisions to prior-year plans were due to the impact of changes in estimated facility closing costs, including additional space Y27905 consolidation, expected sublease rental income on certain properties resulting from changes in the commercial real estate market and early termination of certain lease obligations. BNY *Y27905/080/1* F-46 Phone: (212)924-5500 CRC: 51360 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 34834 BNY Y27905 081.00.00.00 0/1 Queue: BNY_CPS *Y27905/081/1* Description: Exhibit 13 EDGAR 2

The facility closings charges, since the inception of our plan, were net of expected sublease rental income of $377 million. This expected sublease rental income was subsequently reduced by $275 million, including $49 million, $3 million and $105 million during fiscal 2006, 2005 and 2004, respectively. The majority of the remaining reserve as of September 30, 2006 of $113 million is expected to be paid over the remaining lease terms ranging from several months to over 7 years, and is reflected net of expected sublease income of $68 million. We have received commitments for approximately $37 million of this expected sublease rental income as of September 30, 2006. Additional charges may be required in the future if the expected sublease income is not realized.

Utilization of Business Restructuring Reserves

Years ended September 30, (in millions) 2006 2005 2004 Cash payments $ (37) $ (69) $ (227) Other — 6 —

Utilization of reserves $ (37) $ (63) $ (227)

4. BUSINESS ACQUISITIONS On April 27, 2006, we acquired certain net assets of Riverstone Networks Inc., a supplier of carrier-grade Ethernet routers, for $203 million in cash plus $3 million for direct costs of the acquisition. The purchase price excludes $4 million of cash that was held in escrow as of September 30, 2006. On August 20, 2004, we acquired 100 percent of the outstanding equity of Telica. Telica provides voice over Internet Protocol (VoIP) communications switching equipment that enables service providers to deliver enhanced and traditional voice services over Internet protocol and legacy networks. The aggregate purchase price included approximately 80 million shares of our common stock, valued at $258 million, and options to purchase shares of our common stock. The value of the common shares was determined based on the average market price of our common shares over the two-day period before and after the date of the acquisition agreement. The purchase price included $9 million that was recognized as a current liability because certain Telica shares were not presented for exchange as of September 30, 2004. These shares were tendered in fiscal 2005. During February 2006, nine million shares of our common stock, valued at $29 million, were released from an escrow account established for possible post-closing claims related to the Telica acquisition. The escrow agreement expired and there were no pending claims against the escrow. The purchase price in excess of the estimated fair value of tangible assets acquired for these acquisitions was allocated to goodwill, identifiable intangible assets and in-process research and development (IPR&D). The identifiable intangible assets were attributed0/1 to developed technology and customer relationships that are amortized over their expected useful lives. IPR&D represents technology that has not reached technological feasibility and has no alternative future use. The value of IPR&D was determined using an income approach that included an excess earnings analysis reflecting the appropriate cost of capital for each project.Date: 22-JAN-2007 10:37:45.81 These estimated future cash flows considered estimates of revenues, gross margin, operating expenses and income taxes and were consistent with historical pricing, cost and expense levels for similar products. The discount rates were determined after consideration of our weighted average cost of capital, as well as other factors, including the estimated useful life of each project and the uncertainty of technological advances that were known at the time and the stage of completion of each project. The goodwill and identifiable intangible assets related to the Riverstone acquisition will be deductible for tax purposes. Summarized081.00.00.00 information regarding the purchase price allocation for these acquisitions is as follows:

Operator: BNY99999T F-47 Y27905 BNY *Y27905/081/1* Phone: (212)924-5500 CRC: 34834 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 23979 BNY Y27905 082.00.00.00 0/5 Queue: BNY_CPS *Y27905/082/5* Description: Exhibit 13 EDGAR 2

(in millions) Riverstone Telica Purchase price $206 $262 Goodwill $ 97 $178 Developed technology $ 62 $ 60 Customer relationships $23 $— Other identifiable intangible assets $ 4 $ — Amortization period (in years) 4 4 In-process research and development (IPRD) $ 12 $ 14 Weighted average discount rate -Intangible assets 22% 33% Weighted average discount rate -IPRD 25% 33% The operating results of these businesses acquired were included in our consolidated results since the date of acquisition. Pro forma results were not presented because the effect of either acquisition was not material.

5. SUPPLEMENTARY FINANCIAL INFORMATION

Years ended September 30, (in millions) 2006 2005 2004 Supplementary Statement of Operations Information:

Depreciation of property, plant and equipment $ 222 $ 230 $ 284 Amortization of software development costs 295 342 376 Amortization of other acquired intangible assets 27 16 3 Other amortization — 11 30

Depreciation and amortization $ 544 $ 599 $ 693

Interest income $ 177 $ 121 $ 89 Interest income on tax refunds and settlements 3 88 135 Legal recoveries (settlements) 18 (65) (84) SEC settlement — — (25) Winstar post-judgment interest (9) — — Minority interest 34 (30) (6) Other-than-temporary write-down of investments (8) (20) (22) (Loss) gain on sale of investments (14) (4) 75 Loss on extinguishment of convertible securities and debt, net — (11) (7) Other, net 23 35 85

Other0/5 income, net $ 224 $ 114 $ 240

September 30, (Date: 22-JAN-2007 10:37:45.81 in millions) 2006 2005 Supplementary Balance Sheet Information:

Completed goods $ 524 $ 580

Work082.00.00.00 in process 37 39 Raw materials 170 112

Inventories $ 731 $ 731

Operator: BNY99999T Contracts in process, gross $7,900 $6,240 Less:Y27905 progress billings 7,791 6,252

Contracts in process, net $ 109 $(12)

BNY *Y27905/082/5* Costs and recognized income not yet billed $ 344 $ 208

BillingsPhone: (212)924-5500 in excess of costs and recognized income (235) (220)

Contracts in process, net $ 109 $ (12)

Land and improvements $76$75 Buildings and improvements 1,547 1,495 Machinery, electronic and other equipment 1,839 2,097

Property, plant and equipment, gross 3,462 3,667 Less: accumulated depreciation 2,234 2,372

Property, plant and equipment, net $ 1,228 $ 1,295

CRC: 23979 EDGAR 2

F-48 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 46336 BNY Y27905 083.00.00.00 0/3 Queue: BNY_CPS *Y27905/083/3* Description: Exhibit 13 EDGAR 2

September 30, 2006 2005 Restricted cash $ 336 $ 41 Deferred income taxes 243 237 Prepaid expenses 195 206 Contracts in process, net 109 — Non-trade receivables 105 117 Income tax receivables, including related interest 42 85 Other 36 4

Other current assets $ 1,066 $ 690

Marketed software $ 242 $ 254 Internal use software 97 120 Restricted cash 124 137 Deferred income taxes 85 78 Investments 61 65 Non-trade receivables 18 20 Retainage receivables — 8 Other 262 248

Other assets $ 889 $ 930

Deferred revenue $ 540 $ 529 Winstar litigation reserve 288 — Warranty 130 188 Contracts in process, net — 12 Business restructuring 26 44 Deferred income taxes 1 6 Other 619 809

Other current liabilities $ 1,604 $ 1,588

Deferred income taxes $ 208 $205 Business restructuring 87 102 Environmental 76 72 Warranty 65 69 Deferred compensation 60 112 Minority interest 26 63 Other, including contingencies 340 342

Other liabilities $ 862 $ 965 0/3

Years ended September 30, (in millions) 2006 2005 2004 ValuationDate: 22-JAN-2007 10:37:45.81 and Qualifying Accounts Allowance for uncollectible accounts receivable: Allowance at beginning of year $ 84 $ 110 $ 246 Charges (recoveries), net 20 (18) (42)

Other083.00.00.00 account transfers (4) 11 7 Write-offs (5) (19) (101)

Allowance at end of year $ 95 $ 84 $ 110

Operator: BNY99999T

Inventory valuation reserves: ReserveY27905 at beginning of year $ 712 $ 710 $ 980 Charges 60 71 21 Other account transfers 11 20 (36) Write-offsBNY *Y27905/083/3* (138) (89) (255)

ReservePhone: (212)924-5500 at end of year $ 645 $ 712 $ 710

6. EARNINGS PER COMMON SHARE Basic EPS is calculated by dividing net income applicable to common shareowners by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated by dividing net income applicable to common shareowners, adjusted to exclude preferred dividends and accretion,

F-49 CRC: 46336 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 3223 BNY Y27905 084.00.00.00 0/2 Queue: BNY_CPS *Y27905/084/2* Description: Exhibit 13 EDGAR 2

conversion costs, redemption costs and interest expense related to the potentially dilutive securities, by the weighted average number of common shares outstanding during the period, plus any additional common shares that would have been outstanding if potentially dilutive common shares had been issued during the period. The following table summarizes the computation of basic and diluted EPS.

Years ended September 30, (in millions, except per share amounts) 2006 2005 2004 Net income $ 527 $ 1,185 $ 2,002 Conversion and redemption cost — 8.00% convertible securities — — (1) Preferred stock dividends and accretion — — 12

Net income applicable to common shareowners — basic 527 1,185 2,013 Adjustment for dilutive securities on net income: Interest expense related to convertible securities 45 86 200

Net income applicable to common shareowners — diluted $ 572 $ 1,271 $ 2,213

Weighted average shares outstanding — basic 4,469 4,426 4,258 Effect of dilutive securities: Stock options 42 60 72 Warrants — 15 — 2.75% convertible securities 651 542 496 8.00% convertible securities 6 167 249 7.75% convertible securities — 8 238

Weighted average shares outstanding — diluted 5,168 5,218 5,313

EPS: Basic $ 0.12 $ 0.27 $ 0.47 Diluted 0.11 0.24 0.42 The following table summarizes the potential shares of common stock that were excluded from the diluted per share calculation, because the effect of including these potential shares was antidilutive.

Years ended September 30, (in millions) 2006 2005 2004 8.00% convertible securities 194 70 3 7.75% convertible securities 228 228 —

Potentially dilutive shares 422 298 3

Securities0/2 excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares: Warrants 199 — —

StockDate: 22-JAN-2007 10:37:45.81 options 259 297 252

The calculation of dilutive or potentially dilutive common shares related to our convertible securities considers the conversion features or redemption features, whichever are more dilutive. Redemption features are only considered if we have the right to settle redemption requests through the issuance of our common stock, as in the case of our 2.75% and 8.00% convertible securities.084.00.00.00 In this case, the “if redeemed” calculations are based upon the 12-month average price of our common stock and the weighted average number of the respective securities outstanding during the periods presented. The dilutive effect of our

convertibleOperator: BNY99999T securities may fluctuate from period to period as a result of the as reported net income levels and the average market price of our common stock. Y27905 7. ACCUMULATED OTHER COMPREHENSIVE LOSS

BNY *Y27905/084/2* F-50 Phone: (212)924-5500 CRC: 3223 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 20332 BNY Y27905 085.00.00.00 0/3 Queue: BNY_CPS *Y27905/085/3* Description: Exhibit 13 EDGAR 2

The components of accumulated other comprehensive loss are summarized below. Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.

ForeignChange in net Minimum Total accumulated currency unrealized holding pension Unrecognized losses other translation gains / losses on liability and prior service comprehensive (in millions) adjustment investments adjustment cost, net loss Balance as of September 30, 2003 $ (278) $ 75 $ (3,535) $ — $ (3,738) Current-period change 34 (81) 150 — 103

Balance as of September 30, 2004 (244) (6) (3,385) — (3,635) Current-period change 27 (13) 46 — 60

Balance as of September 30, 2005 (217) (19) (3,339) — (3,575) Current-period change 749 3,169 —3,252 Adoption of SFAS 158 170 (3,824) (3,654)

Balance as of September 30, 2006 $ (143) $ (10) $ — $ (3,824) $ (3,977)

8. INCOME TAXES The following table summarizes the U.S. and non-U.S. components of income before income taxes and the provision (benefit) for income taxes.

Years ended September 30, (in millions) 2006 2005 2004 Income before income taxes: U.S. $ 340 $ 742 $ 985 Non-U.S. 229 292 78

Income before income taxes $ 569 $1,034 $1,063

Provision (benefit) for income taxes: Current: Federal $ 5 $ (98) $ (961) State and local 3 (21) (10) Non-U.S. 46 52 51

Subtotal 54 (67) (920)

Deferred: Non-U.S. (12) (84) (19)

Subtotal (12) (84) (19)

Provision0/3 (benefit) for income taxes $ 42 $ (151) $ (939)

The following table summarizes the principal elements of the difference between the effective tax (benefit) rate and the U.S. federalDate: 22-JAN-2007 10:37:45.81 statutory income tax (benefit) rate.

Years ended September 30, (in millions) 2006 2005 2004 Provision for income taxes at 35% statutory rate $ 199 $ 362 $ 372 State085.00.00.00 and local income tax, net of federal income tax effect 18 21 33 Foreign earnings taxed at different rates 61 (16) (24) Merger-related expenses 16 — — TaxOperator: BNY99999T audit-related adjustments (18) (130) (142) Medicare Part D subsidy (27) (24) (6) OtherY27905 differences, net 22 (7) 16 Change in valuation allowance (229) (357) (1,188)

Provision (benefit) for income taxes $ 42 $ (151) $ (939)

BNY *Y27905/085/3* Effective income tax (benefit) rate 7.4% (14.6)% (88.4)%

Phone: (212)924-5500 F-51 CRC: 20332 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 14618 BNY Y27905 086.00.00.00 0/1 Queue: BNY_CPS *Y27905/086/1* Description: Exhibit 13 EDGAR 2

The following table summarizes the change in the valuation allowance.

September 30, (in millions) 2006 2005 2004 Valuation allowance at beginning of year $ 7,298 $ 8,027 $10,021 Credited to expense (229) (357) (1,188) Charged (credited) to other comprehensive loss 185 (13) (29) Write-offs (82) (359) (756) Acquisitions and other — — (21)

Valuation allowance at end of year $ 7,172 $ 7,298 $ 8,027

The following table summarizes the components of deferred income tax assets and liabilities.

September 30, (in millions) 2006 2005 Bad debt and customer financing reserves $ 37 $ 60 Inventory reserves 164 192 Business restructuring reserves 44 58 Pension and postretirement benefits 2,273 2,498 Other employee benefits 267 300 Other reserves 428 384 Net operating loss/credit carryforwards 6,412 6,368 Valuation allowance (7,172) (7,298)

Deferred tax assets $ 2,453 $ 2,562

Pension benefits $2,241 $2,357 Other, including depreciation and amortization 93 101

Deferred tax liabilities $2,334 $2,458

Net deferred tax assets $ 119 $ 104

Included in: Other current assets $ 243 $ 237 Other non-current assets 85 78 Other current liabilities (1) (6) Other non-current liabilities (208) (205)

0/1 Total $ 119 $ 104

The following table summarizes carryforwards of losses (tax-effected) and tax credits. Date: 22-JAN-2007 10:37:45.81 (in millions) Amount Expiration Federal net operating losses $3,644 2022 to 2026 State net operating losses 771 2007 to 2026

Capital086.00.00.00 losses 227 2007 to 2010 Foreign net operating losses/credits 532 2007 to indefinite Foreign tax credits 219 2010

ResearchOperator: BNY99999T credits 790 2017 to 2026 State credits (various) 229 2007 to 2018

TotalY27905 as of September 30, 2006 $6,412

Federal and state net operating losses above exclude $8 million in fiscal 2006 tax benefits attributable to stock-based compensation. The additional tax benefit associated with the windfall is not recognized until the deduction reduces the taxes BNY *Y27905/086/1* payable. Accordingly, since the tax benefit does not reduce our current taxes payable in fiscal 2006 due to net operating losses in

thePhone: (212)924-5500 current period as well as loss carryforwards, the windfall tax benefits are not reflected in our net operating losses in the deferred tax assets as of September 30, 2006.

F-52 CRC: 14618 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 6014 BNY Y27905 087.00.00.00 0/2 Queue: BNY_CPS *Y27905/087/2* Description: Exhibit 13 EDGAR 2

The write-off of carryforwards includes the impact of the expiration of certain net operating loss and tax credit carryforwards, the repatriation of certain non-U.S. earnings to the U.S. and audit-related and other adjustments that reduced the net operating loss carryforwards during the respective periods. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carry-back or carry- forward periods under the tax law for each tax jurisdiction. We have considered the following possible sources of taxable income when assessing the realization of the deferred tax assets: • Future taxable income exclusive of reversing temporary differences and carryforwards

• Future reversals of existing taxable temporary differences

• Taxable income in prior carry-back years

• Tax planning strategies We have not relied upon future taxable income exclusive of temporary differences and carryforwards for the realization of U.S. deferred tax assets during recent periods. Although profits were generated in recent periods and we are no longer in a cumulative loss position in the U.S., a substantial amount of the profits were generated from a pension credit that is not currently taxable. As a result, we concluded that there was not sufficient positive evidence to enable us to conclude that it was more likely than not that the net U.S. deferred tax assets would be realized. Therefore, we have maintained a valuation allowance on our net U.S. deferred tax assets as of September 30, 2006 and 2005. We have assumed that all of our deferred tax liabilities will ultimately generate taxable income or reduce potential tax deductions. Most of these deferred tax liabilities are related to prepaid pension costs that result primarily from pension credits that are not currently taxable. During the fourth quarter of fiscal 2003, we filed a net operating loss carryback claim related to the carryback of our fiscal year 2001 federal net operating loss to 1996, a year in which we filed our federal income tax return as part of the AT&T Corp consolidated group. We reached a tentative agreement with the Internal Revenue Service (IRS) on September 1, 2004 that allowed for a tax refund of $816 million (plus statutory interest to the date of payment), subject to approval by the Congressional Joint Committee on Taxation. The tax benefit related to the claim was not recognized at that time or prior to that time, because it was related to a complex matter and there was no assurance that approval from the Joint Committee would be obtained. On November 8, 2004, we received written confirmation from the IRS that the Joint Committee approved our tentative agreement with the IRS and that our agreement with the IRS was final. We were required to reassess the realization of our net operating loss carryforwards as of September 30, 2004, because the Joint Committee’s final approval was received prior to the issuance of our consolidated financial statements. As a result, we recognized an $816 million income tax benefit from the reversal of valuation allowances due to the realization of deferred tax assets and interest income of $45 million during the fourth quarter of fiscal 2004. This refund plus additional interest was received during fiscal 2005.

We0/2 have not provided for U.S. deferred income taxes or foreign withholding taxes on undistributed earnings of $632 million of our non-U.S. subsidiaries, since these earnings are intended to be reinvested indefinitely. As a result of our U.S. net operating loss carryforwards and valuation allowance, the amount of additional taxes that might be payable on such undistributed earnings is not expectedDate: 22-JAN-2007 10:37:45.81 to be significant. However, if significant changes to our net operating loss carryforwards and valuation allowance occur in the future, the amount of additional taxes on undistributed earnings could be significant. As a result, it is not practical to estimate the amount of additional taxes that might be payable on such undistributed earnings. We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, we may record incremental tax expense087.00.00.00 based upon the probable outcomes of such matters. In addition, we adjust the previously reported tax expense to reflect the expected results of these examinations. The net income tax benefit recognized as a result of the expected favorable resolution of certain tax audit matters were $18 million, $130 million and $142 million during fiscal 2006, 2005 and 2004, respectively. Operator: BNY99999T

F-53 Y27905 BNY *Y27905/087/2* Phone: (212)924-5500 CRC: 6014 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 25521 BNY Y27905 088.00.00.00 0/2 Queue: BNY_CPS *Y27905/088/2* Description: Exhibit 13 EDGAR 2

9. DEBT OBLIGATIONS AND EXTINGUISHMENT OF DEBT The following table summarizes components of long-term debt obligations.

September 30, (in millions) 2006 2005 7.25% notes due July 15, 2006 $ — $ 368 8.00% convertible securities redeemable on August 2, 2007 486 501 5.50% notes due November 15, 2008 202 202 2.75% Series A convertible debentures redeemable on June 15, 2010 750 750 2.75% Series B convertible debentures redeemable on June 15, 2013 881 881 7.75% convertible securities due March 15, 2017 1,102 1,102 6.50% debentures due January 15, 2028 300 300 6.45% debentures due March 15, 2029 1,360 1,360 Unamortized discount (26) (28) Fair value basis adjustment attributable to hedged debt obligations (6) (3) Other 1 1

Subtotal long-term debt 5,050 5,434 Amounts maturing within one year (486) (368)

Long-term debt $4,564 $5,066

The maturities of debt as of September 30, 2006 for the next successive five fiscal years and thereafter were $486 million in 2007, none in 2008, $202 million in 2009, $750 million in 2010, none in 2011 and $3.6 billion thereafter, after considering redemption features at the option of the holder for the convertible securities.

2.75% Series A and B Convertible Debentures During the third quarter of fiscal 2003, we sold 2.75% Series A convertible senior debentures and 2.75% Series B convertible senior debentures for an aggregate amount of $1.6 billion, net of the underwriters discount and related fees and expenses of $46 million. The debentures were issued at a price of $1,000 per debenture and were issued under our universal shelf registration statement. The debentures rank equal in priority with all of the existing and future unsecured and unsubordinated indebtedness and senior in right of payment to all of the existing and future subordinated indebtedness. The terms governing the debentures limit our ability to create liens, secure certain indebtedness and merge with or sell substantially all of our assets to another entity. The debentures are convertible into shares of common stock only if (1) the sale price of our common stock for at least twenty trading days during the period of thirty consecutive trading days ending on the last trading day of the previous calendar quarter is greater0/2 than or equal to 120% of the applicable conversion price, (2) the trading price of the debentures is less than 97% of the product of the sale price of our common stock and the conversion rate during any five consecutive trading-day period, (3) the debentures have been called for redemption by us or (4) certain specified corporate actions occur. AtDate: 22-JAN-2007 10:37:45.81 our option, the debentures are redeemable for cash after certain dates (optional redemption periods) at 100% of the principal amount plus any accrued and unpaid interest. In addition, at our option, the debentures are redeemable earlier (provisional redemption periods) if the sale price of the common stock exceeds 130% of the applicable conversion price. Under these circumstances, the redemption price would also include a make-whole payment equal to the present value of all remaining scheduled088.00.00.00 interest payments through the beginning of the optional redemption periods. At the option of the holder, the debentures are redeemable on certain dates at 100% of the principal amount plus any accrued and unpaidOperator: BNY99999T interest. In these circumstances, we may pay the purchase price with cash, common stock (with the common stock to be valued at a 5% discount from the then current market price) or a combination of both. Y27905 F-54 BNY *Y27905/088/2* Phone: (212)924-5500 CRC: 25521 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 48024 BNY Y27905 089.00.00.00 0/3 Queue: BNY_CPS *Y27905/089/3* Description: Exhibit 13 EDGAR 2

The following table summarizes the specific terms of these securities.

Series A Series B Amount $750,000,000 $880,500,000 Conversion ratio of common share per debenture 299.4012 320.5128 Initial conversion price $3.34 $3.12 Redemption periods at our option: Provisional redemption periods June 20, 2008 through June 19, 2010 June 20, 2009 through June 19, 2013 Optional redemption periods After June 19, 2010 After June 19, 2013 Redemption dates at the option of the holder June 15, 2010, 2015 and 2020 June 15, 2013 and 2019 Maturity dates June 15, 2023 June 15, 2025

7.75% Convertible Securities (Liability to Subsidiary Trust Issuing Preferred Securities) During fiscal 2002, Lucent Technologies Capital Trust I (the Trust) sold 7.75% cumulative convertible trust preferred securities for an aggregate amount of $1.75 billion. The Trust used the proceeds to purchase our 7.75% convertible subordinated debentures due March 15, 2017, which represent all of the Trust’s assets. The terms of the trust preferred securities are substantially the same as the terms of the debentures. We own all of the common securities of the Trust and as a result previously consolidated the Trust. Upon review of the provisions of FIN 46(R) during the second quarter of fiscal 2004, we determined that the holders of the trust preferred securities were the primary beneficiaries of the Trust. As a result, we de-consolidated the Trust and reflected our obligation to the Trust in long-term debt. The effect of this change had no effect on our reported liabilities or results of operations. We continue to be obligated to repay the debentures held by the Trust and guarantee repayment of the preferred securities issued by the Trust. We may redeem the debentures, in whole or in part, for cash at premiums ranging from 103.88% beginning March 20, 2007, to 100.00% on March 20, 2012 and thereafter. To the extent we redeem debentures, the Trust is required to redeem a corresponding amount of trust preferred securities. We have irrevocably and unconditionally guaranteed, on a subordinated basis, the payments due on the trust preferred securities to the extent we make payments on the debentures to the Trust. The ability of the Trust to pay dividends depends on the receipt of interest payments on the debentures. We have the right to defer payments of interest on the debentures for up to 20 consecutive quarters. If payment of interest on the debentures is deferred, the Trust will defer the quarterly distributions on the trust preferred securities for a corresponding period. Deferred interest accrues at an annual rate of 9.25%. At the option of the holder, each trust preferred security is convertible into shares of our common stock, subject to an additional adjustment under certain circumstances. The following table summarizes the terms of this security.

Conversion ratio of common shares per security 206.6116 Conversion0/3 price $4.84 Redemption period at our option After March 19, 2007 Maturity date March 15, 2017 Date: 22-JAN-2007 10:37:45.81 8% Convertible Securities The following table summarizes the terms of this security.

Conversion089.00.00.00 ratio of common shares per security 168.3502 Conversion price $5.94 Redemption period at our option After August 14, 2006 Operator: BNY99999T Redemption dates at the option of the holder On August 2, 2007, 2010 and 2016 Mandatory redemption date August 1, 2031 Y27905

F-55 BNY *Y27905/089/3* Phone: (212)924-5500 CRC: 48024 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 21990 BNY Y27905 090.00.00.00 0/2 Queue: BNY_CPS *Y27905/090/2* Description: Exhibit 13 EDGAR 2

On November 24, 2003, we exchanged all of our outstanding 8% redeemable convertible preferred stock for 8% convertible subordinated debentures. This exchange was made pursuant to rights we had under the terms of the preferred stock to exchange the stock for the convertible subordinated debentures. These debentures have an interest rate of 8%, the same as the dividend rate on the preferred stock, and have the same payment and record dates as the preferred stock dividends, but the interest on the debentures must be paid in cash. The subordinated debentures have terms substantially the same as the preferred stock with respect to put rights, redemptions and conversion into common stock.

Extinguishment of Convertible Securities and Debt Obligations The following table summarizes the impact of the retirement of convertible securities and certain debt obligations through exchanges of our common stock and cash.

Years ended September 30, (in millions) 2006 2005 2004 8% convertible securities $ 15 $ 316 $ 58 7.75% convertible securities — 50 —

Total convertible securities 15 366 58 Other debt obligations 368 170 274

Total convertible securities and debt extinguished $ 383 $ 536 $ 332

Shares of our common stock exchanged — — 22

Cash used for extinguishments $ 383 $ 547 $ 249

8% convertible securities — conversion/redemption costs $ — $(9) $ (4)

7.75% convertible securities — conversion costs — 3 — Debt obligations — losses — (5) (4)

Impact on net income (loss) applicable to common shareowners $ — $ (11) $ (8)

Conversion costs were recognized in amounts equal to the fair value of the additional common shares issued to the holders of each respective preferred security to prompt the exchange over the number of shares of common stock obligated to be issued pursuant to the original conversion terms of the security.

0/2 F-56 Date: 22-JAN-2007 10:37:45.81 090.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/090/2* Phone: (212)924-5500 CRC: 21990 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 28173 BNY Y27905 091.00.00.00 0/1 Queue: BNY_CPS *Y27905/091/1* Description: Exhibit 13 EDGAR 2

10. EMPLOYEE BENEFIT PLANS We maintain defined benefit pension plans covering the majority of employees and retirees, as well as other postretirement benefit plans for U.S. retirees that include health care, dental benefits and life insurance coverage. The U.S. pension plans feature a traditional service-based program, as well as a cash balance program. The cash balance program was added to our defined benefit pension plan for U.S. management employees hired after December 31, 1998. No employees were transitioned from our traditional program to our cash balance program. Additionally, employees covered by the cash balance program are not eligible to receive company-paid postretirement health and group life coverage. U.S. management employees with less than 15 years of service as of June 30, 2001, are not eligible to receive postretirement group life and health care benefits. We also maintain defined benefit pension plans in 14 countries outside the U.S. that comprise approximately 2.6% of our pension plan assets and 3.5% of our pension plan obligations as of September 30, 2006. On September 29, 2006, SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” was issued. SFAS 158 requires, among other things, the recognition of the funded status of each defined pension benefit plan, retiree health care and other postretirement benefit plans and postemployment benefit plans on the balance sheet. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. The initial impact of the standard due to unrecognized prior service costs or credits and net actuarial gains or losses as well as subsequent changes in the funded status is recognized as a component of accumulated comprehensive loss in shareowners’ equity. Additional minimum pension liabilities (AML) and related intangible assets are also derecognized upon adoption of the new standard. SFAS 158 requires initial application for fiscal years ending after December 15, 2006, with earlier application encouraged. We adopted SFAS 158 as of September 30, 2006. The following table summarizes the effect of required changes in the AML as of September 30, 2006 prior to the adoption of SFAS 158 as well as the impact of the initial adoption of SFAS 158.

September 30, 2006 Prior to AML and September 30, 2006 SFAS 158 AML SFAS 158 Post AML and SFAS (in millions) Adjustments Adjustment Adjustment 158 Adjustments Prepaid pension costs $6,636 $ 2,325 $(3,200) $5,761 Other assets $ 898 $ (1) $ (8) $ 889 Pension liabilities $1,294 $ (845) $ 90 $ 539 Postretirement & postemployment liabilities $4,892 $ — $ 356 $5,248 Accumulated other comprehensive loss $3,492 $(3,169) $ 3,654 $3,977 The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost (credit) during the next fiscal year are as follows:

(in millions) Pension Postretirement Postemployment Total Prior service cost (credit) $3 $(74) $1 $(70) Net0/1 loss $145 $ 58 $24 $227

F-57 Date: 22-JAN-2007 10:37:45.81 091.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/091/1* Phone: (212)924-5500 CRC: 28173 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 7874 BNY Y27905 092.00.00.00 0/2 Queue: BNY_CPS *Y27905/092/2* Description: Exhibit 13 EDGAR 2

The following tables summarize changes in the benefit obligation, the plan assets and the funded status of our pension and postretirement benefit plans as well as the components of net periodic benefit costs, including key assumptions. The measurement dates for plan assets and obligations were September 30, 2006 and 2005.

Postretirement Pension benefits benefits September 30, September 30, (in millions) 2006 2005 2006 2005 Change in benefit obligation: Benefit obligation at beginning of year $31,311 $31,301 $ 6,306 $ 6,487 Service cost 154 158 7 7 Interest cost 1,642 1,658 315 344 Actuarial (gains) losses (641) 931 9 48 Amendments 14 78 (61) 248 Benefits paid (2,558) (2,802) (888) (940) Plan participant contributions 4 4 145 112 Settlements (11) (11) — — Curtailments — 1 — — Termination benefits 3 — — — Exchange rate changes 55 (23) — — Other (2) 16 — —

Benefit obligation at end of year $29,971 $31,311 $5,833 $6,306

Change in plan assets: Fair value of plan assets at beginning of year $34,004 $32,073 $1,200 $ 1,630 Actual return on plan assets 3,592 4,689 60 102 Benefits paid (2,558) (2,802) (888) (940) Plan participant contributions 4 4 145 112 Company contributions 58 60 238 284 Exchange rate changes 47 (23) — — Settlements (11) (11) — — Other (3) 14 (2) 12

Fair value of plan assets at end of year $35,133 $34,004 $ 753 $ 1,200

Funded status of the plan at end of year $ 5,162 $ 2,693 $(5,080) $(5,106)

Unrecognized prior service cost (credit) 81 (996) 0/2 Unrecognized transition obligation 1 — Unrecognized net loss 5,137 1,254

Net amounts recognized $ 7,912 $(4,848) Date: 22-JAN-2007 10:37:45.81

Amounts recognized in the consolidated balance sheets: Prepaid pension costs $ 5,761 $ 6,010 $ — $ — Other assets — 8 — — Payroll092.00.00.00 and benefit-related liabilities (60) (22) (135) (240) Postretirement and postemployment benefit liabilities — — (4,945) (4,608)

PensionOperator: BNY99999T liabilities (539) (1,423) — — Accumulated other comprehensive loss — 3,339 — —

Net amounts recognized $ 5,162 $ 7,912 $(5,080) $(4,848) Y27905

F-58 BNY *Y27905/092/2* Phone: (212)924-5500 CRC: 7874 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 39685 BNY Y27905 093.00.00.00 0/1 Queue: BNY_CPS *Y27905/093/1* Description: Exhibit 13 EDGAR 2

Additional Information

Postretirement Pension benefits benefits September 30, September 30, (in millions) 2006 2005 2006 2005 Benefit obligation by major plans: U.S. management $17,282 $18,014 $— $— U.S. occupational 11,233 11,936 — — Non-U.S. and supplemental 1,456 1,361 — — Non-represented health — — 1,314 1,472 Formerly represented health — — 3,023 3,298 Group life and other — — 1,496 1,536

Benefit obligation at end of year $29,971 $31,311 $5,833 $ 6,306

Plan assets by major plans: U.S. management $17,256 $16,771 $— $— U.S. occupational 16,959 16,404 — — Non-U.S. and supplemental 918 829 — — Formerly represented health — — 104 544 Group life and other — — 649 656

Fair value of plan assets at end of year $35,133 $34,004 $ 753 $ 1,200

Accumulated benefit obligation $29,539 $30,920 n/a n/a

Amounts recognized in accumulated other comprehensive loss consists of: Net loss $ 3,431 n/a $1,201 n/a Prior service cost (credit) 37 n/a (986) n/a

Total amount recognized $ 3,468 n/a $215 n/a

Plans with underfunded or non-funded accumulated benefit obligation: Aggregate projected benefit obligation $ 745 $18,715 n/a n/a Aggregate accumulated benefit obligation 682 18,350 n/a n/a Agg0/1 regate fair value of plan assets 185 16,914 n/a n/a

Components of Net Periodic Benefit Cost Date: 22-JAN-2007 10:37:45.81 Years ended September 30, (in millions) 2006 2005 2004 Pension credit: Service cost $ 154 $158 $150 Interest093.00.00.00 cost on benefit obligation 1,642 1,658 1,716 Expected return on plan assets (2,728) (2,897) (3,059)

AmortizationOperator: BNY99999T of prior service costs 58 82 70 Amortization of net loss 211 21 6

SubtotalY27905 (663) (978) (1,117) Termination benefits 3 1 — Curtailments — — 1 Settlements — 4 5

BNY *Y27905/093/1* Pension credit (included in Other costs and expenses) $ (660) $ (973) $(1,111)

Phone: (212)924-5500 Years ended September 30, (in millions) 2006 2005 2004 Postretirement benefit cost: Service cost $7 $7 $8 Interest cost on benefit obligation 315 344 434 Expected return on plan assets (67) (98) (161) Amortization of prior service credits (70) (38) (97) Amortization of net loss 46 40 59

CRC: 39685 PostretirementEDGAR 2 benefit cost (included in Other costs and expenses) $ 231 $ 255 $ 243

F-59 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 33617 BNY Y27905 094.00.00.00 0/3 Queue: BNY_CPS *Y27905/094/3* Description: Exhibit 13 EDGAR 2

Key assumptions

Years ended September 30, 2006 2005 2004 Assumptions used to determine: Benefit obligations — discount rate: Pension 5.75% 5.50% 5.50% Postretirement health care and other 5.50% 5.25% 5.25% Postretirement life 5.75% 5.50% 5.25% Rate of compensation increase 4.00% 4.00% 4.00% Net benefit cost or credit — discount rate: Pension 5.50% 5.50% 5.75% Postretirement health care and other 5.25% 5.25% 5.75% Postretirement life 5.50% 5.25% 5.75% Expected return on plan assets: Pension 8.50% 8.50% 8.75% Postretirement health care 4.25% 2.75% 3.25% Postretirement life 6.50% 7.50% 7.75% Rate of compensation increase 4.00% 4.00% 3.50% The weighted average expected rate of return on plan assets that will be used to determine the fiscal 2007 net periodic benefit cost is 7.63% for pension, 5.25% for postretirement health care benefits and 7.25% for postretirement life benefits.

September 30, 2006 2005 Assumed health care cost trend rates: Health care cost trend rate assumed for next year 9.2% 10.8% Health care cost trend rate assumed for next year (excluding postretirement dental benefits) 9.4% 11.1% Rate that the cost trend rate gradually declines to 5.0% 5.0% Year that the rate reaches the rate it is assumed to remain at 2014 2011 The assumed health care cost trend rate has a significant effect on the amounts reported. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:

1 percentage point (in millions) Increase Decrease Effect on total of service and interest cost components $12 $ (10)

Effect0/3 on postretirement benefit obligation 213 (191) Yield curves matching our benefit obligations were derived from 30-year Treasury strip rates. The resulting risk free rates from these yield curves were adjusted to available yields on high-quality fixed income investments with maturities corresponding to our benefitDate: 22-JAN-2007 10:37:45.81 obligations to develop discount rates at each measurement date. Yields and changes in yields of several funds, as well as the original Citigroup pension yield curve, were also considered in setting the discount rates. The average duration of our primary pension obligations and postretirement health care obligations were 10.1 years and 6.3 years, respectively, as of September 30, 2006. We094.00.00.00 considered several factors in developing our expected rate of return on plan assets, including our historical returns and input from our external advisors. Individual asset class return forecasts were developed based upon current market conditions, for

example,Operator: BNY99999T price-earnings levels and yields and long-term growth expectations. The expected long-term rate of return is the weighted average of the target asset allocation of each individual asset class. Our long-term expected rate of return on plan assets included an anticipated premium over projected market returns received from our external advisors (8.0% for our managementY27905 plan and 6.3% for our occupational plan as of September 30, 2006 and 7.8% as of September 30, 2005). Our actual 10-year annual rate of return on pension plan assets was 10.3%, 10.6% and 11.0% during fiscal 2006, 2005 and 2004, respectively. BNY *Y27905/094/3* The expected return on plan assets was determined using the expected rate of return and a calculated Phone: (212)924-5500 F-60 CRC: 33617 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 28347 BNY Y27905 095.00.00.00 0/5 Queue: BNY_CPS *Y27905/095/5* Description: Exhibit 13 EDGAR 2

value of assets, referred to as the “market-related value.” The aggregate market-related value of pension and postretirement plan assets was $34.7 billion as of September 30, 2006, which was less than the fair value by $1.2 billion and was $34.3 billion as of September 30, 2005, which was less than the fair value of plan assets by $74 million. Differences between the assumed and actual returns are amortized to the market-related value on a straight-line basis over a five-year period. Gains and losses have resulted from changes in actuarial assumptions and from differences between assumed and actual experience, including, among other items, reductions in discount rates and increases in actual returns on plan assets as compared to assumed returns. These gains and losses (except those differences being amortized to the market-related value) are only amortized to the extent they exceed 10% of the higher of the market-related value or the projected benefit obligation of each respective plan. As a result, net losses of $1.9 billion related to pension benefits and $400 million related to postretirement benefits are not expected to be amortized during fiscal 2007. The remaining net losses of $1.5 billion related to pension benefits are amortized over the expected remaining service periods of active plan participants (approximately 10 years during fiscal 2007) and $800 million related to postretirement benefits are amortized over the average remaining life expectancy of fully eligible participants (ranging from 7 years to 18 years during fiscal 2007). On December 8, 2003, the President of the United States signed the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act). The Act introduced a prescription drug benefit under Medicare (Medicare Part D), as well as a federal subsidy to sponsors of retiree health care benefits plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. We currently sponsor retiree health care plans that provide prescription drug benefits to our U.S. retirees that our plan actuaries have determined are actuarially equivalent to Medicare Part D. We elected to prospectively recognize the effects of the Act during the fourth quarter of fiscal 2004, which reduced the accumulated postretirement benefit obligation by approximately $600 million. On January 21, 2005, the Centers for Medicare and Medicaid Services issued a Final Rule in the Federal Register for implementing the Medicare Prescription Drug Benefit that clarified the methodology for determining actuarial equivalence and the amount of the federal subsidy. The impact of the Final Rule did not materially affect our postretirement benefit cost and related obligation.

Plan Assets The following table summarizes the target asset allocation ranges of our pension and postretirement trusts by asset category.

Pension target Percentage of pension Postretirement target Percentage of postretirement allocation range as of plan assets as of September 30, allocation as of plan assets as of September 30, September 30, 2006 2006 2005 September 30, 2006 2006 2005 Asset category: Equity securities 29%—47% 35% 62% 42% 42% 28% Fixed income securities 41%—57% 49 25 58% 58 69 Real estate 4%—8% 8 6 n/a — —

Private0/5 equity and other 5%—9% 8 7 n/a — 3

Total 100% 100% 100% 100%

TheDate: 22-JAN-2007 10:37:45.81 majority of the pension plan assets are held in a master pension trust. Postretirement plan assets are held in three separate trusts. Plan assets are managed by independent investment advisors with the objective of maximizing returns with a prudent level of risk. We periodically complete asset-liability studies to assure that the optimal asset allocation is maintained in order to meet future benefit obligations. The Board of Directors formally approves the target allocation ranges every three to five years upon completion of a study by our external advisors. During the third quarter of fiscal 2006, the allocation of U.S. pension plan assets was095.00.00.00 changed as part of a routine periodic review. The overall pension plan asset portfolio now reflects a balance of investments split about 50/50 between equity and fixed income securities compared to the previous split of about 75 percent equity and 25 percent fixed income. We believe this action was prudent given the demographics, funded status and future obligations for our pensionOperator: BNY99999T plans. Investment advisors managing plan assets may use derivative financial instruments including futures contracts, forward contracts, options and interest rate swaps to manage market Y27905

F-61 BNY *Y27905/095/5* Phone: (212)924-5500 CRC: 28347 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 33808 BNY Y27905 096.00.00.00 0/2 Queue: BNY_CPS *Y27905/096/2* Description: Exhibit 13 EDGAR 2

exposure and foreign currency and interest-rate risk. Pension plan assets included $2 million and $13 million of our common stock as of September 30, 2006 and 2005, respectively. Postretirement plan assets included $8 million of our common stock as of September 30, 2005.

Contributions We contribute to our pension and postretirement benefit plans to make benefit payments to plan participants and to pre-fund some benefits by means of trust funds. For our U.S. pension plans, the funding policy is to contribute amounts to the trusts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as we may determine to be appropriate. Contributions are made to benefit plans for the sole benefit of plan participants. The following table summarizes expected contributions (net of Medicare Part D subsidies) to our various pension and postretirement plans through fiscal 2016. We do not expect to make contributions to our qualified U.S. pension plans during fiscal 2007 or 2008. We are unable to estimate the expected contributions to our qualified U.S. pension plans beyond fiscal 2008. Actual contributions may differ from expected contributions due to various factors, including performance of plan assets, interest rates and potential legislative changes. The below table is net of using eligible excess pension plan assets to fund certain retiree health care costs (a Section 420 transfer) of $516 million which is expected to be made during December 2006.

Pension Postretirement Non-qualified and Formerly Non-represented non-U.S. pension represented retiree retiree health (in millions) plans health plans plans Other benefit plans 2007 $ 61 $ (44) $159 $ 11 2008 61 150 155 10 2009 63 334 145 10 2010 65 322 137 10 2011 66 304 129 10 2012—16 318 1,327 520 202

Benefit Payments The following table summarizes expected benefit payments from our various pension and postretirement plans through fiscal 2016. Actual benefit payments may differ from expected benefit payments. These amounts are reflected net of expected plan participant contributions and the annual Medicare Part D subsidy of approximately $70 million.

Pension Postretirement Qualified U.S. Qualified U.S. Non-qualified and Formerly Non-represented management pension occupational non-U.S. pension represented retiree retiree health (in millions0/2 ) plans pension plans plans health plans plans Other benefit plans 2007 $1,345 $1,056 $ 57 $ 389 $159 $ 93 2008 1,333 1,032 59 343 155 93

2009Date: 22-JAN-2007 10:37:45.81 1,320 1,007 59 334 145 95 2010 1,308 982 61 322 137 98 2011 1,295 956 61 304 129 99 2012—16 6,303 4,396 331 1,327 520 502 096.00.00.00 Savings Plans Our savings plans generally allow employees to contribute a portion of their compensation on a pre-tax and/or after-tax basis in accordanceOperator: BNY99999T with specified guidelines. We match a percentage of the employee contributions up to certain limits. In certain countries, we contribute a fixed percentage of employee salaries. Savings plan expense was $54 million, $55 million and $114 millionY27905 for fiscal 2006, 2005 and 2004, respectively.

F-62 BNY *Y27905/096/2* Phone: (212)924-5500 CRC: 33808 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 32596 BNY Y27905 097.00.00.00 0/1 Queue: BNY_CPS *Y27905/097/1* Description: Exhibit 13 EDGAR 2

Postemployment Benefits Various postemployment benefits are offered to certain employees after employment but before retirement including disability benefits, severance pay and workers’ compensation. These benefits are paid in accordance with our established postemployment benefit practices and policies. We accrue for these future postemployment benefits, which are funded on a pay-as-you-go basis. The obligations for severance benefits are determined based on expected future attrition rates. The differences between actual and assumed expense is amortized over the average remaining service period. The expense under these plans was $91 million, $72 million and $40 million during fiscal 2006, 2005 and 2004, respectively. The accrued postemployment liability was $374 million and $255 million as of September 30, 2006 and 2005, respectively. These amounts include $71 million and $112 million in payroll- and benefit-related liabilities as of September 30, 2006 and 2005, respectively. The adoption of SFAS 158 resulted in a $141 million increase in the severance pay liability as of September 30, 2006.

11. STOCK COMPENSATION PLANS We have stock-based compensation plans under which directors, officers and other eligible employees receive stock options and other equity-based awards, usually on an annual basis. The plans provide for the grant of stock options, stock appreciation rights, performance share awards, restricted stock awards and other stock unit awards. Historically, stock options have been granted to broad groups of employees at most levels on a discretionary basis. Beginning in fiscal 2006, employees at mid-level leadership and below are eligible to receive restricted stock units (RSU) instead of stock options. Employees in more advanced leadership positions (approximately 1,000 employees) continue to be eligible to receive stock options. In addition, the long-term incentive award program was modified for the current three-year cycle beginning in fiscal 2006, to change the denomination of any targeted awards to performance shares for officers. Performance shares will also represent 25% of any targeted awards for all other participants. Effective November 1, 2005, the Employee Stock Purchase Plan (2001 ESPP) was also modified to reduce the discount from 15% to 5% of market value at the purchase date, and to eliminate the lookback feature. As a result, the 2001 ESPP is no longer accounted for as compensatory beginning November 1, 2005. Stock options are generally granted with an exercise price equal to the market value of a share of common stock on the date of grant. Stock options also expire within five to 10 years and vest within four years from the date of grant. Subsequent to December 2002, stock option grants have a term of seven years with graded vesting of 25% per year. Subject to customary antidilution adjustments and certain exceptions, the total number of shares of common stock authorized for option and other equity grants under the plans was 380 million shares as of September 30, 2006. Under the terms of the 2001 ESPP, eligible employees may have up to 10% of eligible compensation deducted from their pay to purchase shares of common stock, subject to plan limits, at a discount of 15% of the market value either at the purchase date or at certain earlier dates defined in the 2001 ESPP plan. During fiscal 2006, 2005 and 2004, 9 million, 17 million and 18 million shares of common stock were purchased under the 2001 ESPP, respectively. As of September 30, 2006, 184 million shares were available for issuance under the 2001 ESPP. 0/1 RSU awards generally vest over three to four years. The initial broad-based RSU awards granted during the first quarter of fiscal 2006 vest ratably over three years.

PerformanceDate: 22-JAN-2007 10:37:45.81 share awards under the long-term incentive award program are earned over three years. The number of shares earned for the three-year performance cycle is based on achievement of annual financial targets established at the beginning of each fiscal year in the cycle. These awards are subject to fair value adjustments for any changes in the underlying market value of our common stock, until the performance levels have been determined at the end of each fiscal year. 097.00.00.00 F-63 Operator: BNY99999T Y27905 BNY *Y27905/097/1* Phone: (212)924-5500 CRC: 32596 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 19419 BNY Y27905 098.00.00.00 0/2 Queue: BNY_CPS *Y27905/098/2* Description: Exhibit 13 EDGAR 2

The following table summarizes stock option activity.

Weighted average Shares exercise price (in millions) per share Outstanding as of September 30, 2003 388 $11.70 Granted/assumed 55 3.05 Exercised (9) 1.67 Forfeited/expired (31) 10.46

Outstanding as of September 30, 2004 403 10.84

Granted/assumed 50 3.92 Exercised (13) 1.63 Forfeited/expired (22) 7.26

Outstanding as of September 30, 2005 418 10.50

Granted/assumed 27 2.82 Exercised (17) 1.63 Forfeited/expired (138) 8.88

Outstanding as of September 30, 2006 290 $11.08

The following table summarizes information about stock options.

Stock options outstanding Stock options exercisable Weighted average Weighted Weighted remaining average average contractual exercise exercise Shares life price Shares price Range of exercise prices per share (in millions) (years) per share (in millions) per share $0.04 to $2.25 87 2.0 $ 1.64 78 $ 1.66 $2.26 to $3.50 68 4.9 3.05 22 3.20 $3.51 to $5.00 44 5.0 3.96 12 3.97 $5.01 to $9.00 9 2.7 6.48 8 6.51 $9.01 to $16.03 27 1.6 12.10 27 12.10 $16.04 to $77.10 55 2.5 42.09 55 42.09

Amounts as of September 30, 2006 290 3.2 $11.08 202 $14.50

Amounts as of September 30, 2005 418 $10.50 314 $12.93

Amounts as of September 30, 2004 403 $10.84 282 $14.47

0/2 The weighted average remaining term for stock options outstanding and exercisable was 3.2 years and 2.4 years, respectively, as of September 30, 2006. The aggregate intrinsic value for stock options outstanding and exercisable was $62 million and

$53Date: 22-JAN-2007 10:37:45.81 million, respectively, as of September 30, 2006. The intrinsic value of stock options is calculated as the amount by which the market price of our common stock exceeds the exercise price of the option. Proceeds received from the exercise of stock options were $29 million and $21 million during the years ended September 30, 2006 and 2005, respectively. The intrinsic value related to the exercise of stock options was $22 million and $20 million during the years098.00.00.00 ended September 30, 2006 and 2005, respectively, of which the majority is currently deductible for tax purposes. However, these tax benefits were not realized due to net operating loss carryforwards. Operator: BNY99999T F-64 Y27905 BNY *Y27905/098/2* Phone: (212)924-5500 CRC: 19419 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 59261 BNY Y27905 099.00.00.00 0/4 Queue: BNY_CPS *Y27905/099/4* Description: Exhibit 13 EDGAR 2

The following table summarizes unvested RSU activity for fiscal 2006.

Shares Weighted average (in millions) grant date fair value Unvested as of September 30, 2005 3 $ 4.36 Granted 12 2.74 Vested (2) 4.50 Forfeited (1) 3.09

Unvested as of September 30, 2006 12 $ 2.90

During fiscal 2005, 2 million restricted stock units were awarded at a weighted average market value of $3.49. The following table summarizes the pro forma effect of stock-based compensation for fiscal 2005 and 2004 as if the fair value method of accounting for stock compensation had been applied. Due to the adoption of SFAS 123R in fiscal 2006, such pro forma information is not necessary.

Years ended September 30, (in millions, except per share amounts) 2005 2004 Net income, as reported $ 1,185 $ 2,002 Add: Stock-based employee compensation expense included in net income, as reported 35 16 Deduct: Total stock-based employee compensation expense determined under the fair value based method (267) (338)

Pro forma net income $ 953 $ 1,680

Income per share applicable to common shareowners: As reported: Basic $ 0.27 $ 0.47 Diluted 0.24 0.42 Pro forma: Basic 0.22 0.40 Diluted 0.20 0.36 No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for substantially all net deferred tax assets. We elected to adopt the alternative method of calculating the historical pool of windfall tax benefits as permitted by FASB Staff Position (FSP) No. SFAS 123R-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” This is a simplified method to determine the pool of windfall tax benefits that is used in determining the tax effects of stock compensation in the results of operations and cash flow reporting for awards that were outstanding as of the adoption of SFAS 123R. The0/4 following table summarizes the components and classification of stock-based compensation expense.

Years ended September 30,

(inDate: 22-JAN-2007 10:37:45.81 millions) 2006 2005 2004 Stock options $ 68 $ — $ — Restricted stock units 15 16 5 Other 2 19 11

Total099.00.00.00 stock-based compensation expense $ 85 $35 $ 16

Costs $ 11 $ — $ — SellinOperator: BNY99999T g, general and administrative 48 32 14 Research and development 26 3 2

TotalY27905 stock-based compensation expense $ 85 $ 35 $ 16

F-65 BNY *Y27905/099/4* Phone: (212)924-5500 CRC: 59261 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 8384 BNY Y27905 100.00.00.00 0/1 Queue: BNY_CPS *Y27905/100/1* Description: Exhibit 13 EDGAR 2

The fair value of stock options was estimated using the Black-Scholes option-pricing model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. The assumptions for the current period grants were developed based on SFAS 123R and SEC guidance contained in Staff Accounting Bulletin (SAB) No. 107, “Share-Based Payment.” The following table summarizes the assumptions used to compute the weighted average fair value of stock option grants.

2006 2005 2004 Dividend yield 0.0% 0.0% 0.0% Weighted average volatility 54.3% 82.0% 90.2% Risk-free interest rate 4.4% 3.5% 2.6% Expected holding period (in years) 4.8 3.8 3.2 Weighted average fair value of options granted $1.41 $2.34 $1.83 • No dividend yield was assumed because we currently do not pay cash dividends on our common stock and have no plans to reinstate a dividend. An increase in the dividend yield will decrease stock compensation expense.

• The weighted average volatility for the current period was developed using equal weight from (a) implied volatilities of traded options and warrants to purchase our common stock at prices that approximate the option’s exercise price and have a life in excess of one year, and (b) historical volatility for periods equal to the expected life of the options. Prior to fiscal 2006, only historical volatility was considered. An increase in the weighted average volatility assumption will increase stock compensation expense.

• The risk-free interest rate was developed using the U.S. Treasury yield curve for periods equal to the expected life of the options on the grant date. An increase in the risk-free interest rate will increase stock compensation expense.

• The expected holding period for the current period grants was calculated using the average of the vesting period and the term of the option based on guidance contained in SAB 107. Prior to fiscal 2006, this assumption was developed after considering vesting schedules, life of the option, historical experience and estimates of future exercise behavior patterns. An increase in the expected holding period will increase stock compensation expense. SFAS 123R requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. As a result, for most awards, recognized stock compensation was reduced for estimated forfeitures prior to vesting primarily based on historical annual forfeiture rates of approximately 7%. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances. Prior to October 1, 2005, actual forfeitures were accounted for as they occurred for purposes of required pro forma stock compensation disclosures. As of September 30, 2006, approximately $69 million of unrecognized stock compensation related to unvested awards (net of estimated forfeitures) is expected to be recognized over a weighted-average period of 1.4 years. 0/1 F-66 Date: 22-JAN-2007 10:37:45.81 100.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/100/1* Phone: (212)924-5500 CRC: 8384 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 62168 BNY Y27905 101.00.00.00 0/1 Queue: BNY_CPS *Y27905/101/1* Description: Exhibit 13 EDGAR 2

12. OPERATING SEGMENTS Network Solutions Group consists of the following operating segments: Mobility Access Solutions, Applications Solutions, Multimedia Network Solutions and Converged Core Solutions. Applications Solutions is aggregated with Mobility Access Solutions because its results are not material and do not meet the requirements for being reported separately. Applications Solutions was previously reported with our wireless business. Multimedia Network Solutions consists primarily of optical, data and access products. Converged Core Solutions consists primarily of voice networking products, including circuit switching, personal handyphone systems and next-generation switching products. The Network Operations Software reporting unit that was previously reported within the wireline business was transferred to Lucent Worldwide Services (Services). Services provides deployment, maintenance, professional and managed services in support of our product offerings and multivendor networks. Other changes to the previous reporting structure included the elimination of certain internal revenue sharing arrangements between our wireless and wireline businesses, the internal transfer of certain organizations and revised allocations of employee benefit costs that are more closely aligned with actual benefit costs for active employees. The prior period segment results were revised to conform to the new reporting structure. In addition, the revenues attributed to products and services were revised in the Consolidated Statements of Operations to conform to the new reporting structure. The accounting policies of the reportable segments are the same as those applied in the consolidated financial statements. Performance measurement and resource allocation for the reportable segments are based on many factors. The primary financial measures include the revenues, costs and expenses directly controlled by each reportable segment and exclude the following: • Global sales organization expenses.

• Certain costs related to shared services, such as general corporate functions, which are managed on a common basis in order to realize economies of scale and efficient use of resources.

• Certain employee compensation and benefits, including stock-based compensation, differences between actual and budgeted employee benefit costs, differences between actual and budgeted employee incentive awards, as well as most of the impacts related to pension, postretirement and postemployment benefits.

• Bad debt and customer financing.

• Merger related expenses.

• Business restructuring.

• Revenues and expenses associated with licensing and protecting intellectual property rights.

• Certain other general and miscellaneous costs and expenses not directly used in assessing the performance of the operating segments.

0/1 Years ended September 30, (in millions) 2006 2005 2004 Revenues:

MobilityDate: 22-JAN-2007 10:37:45.81 Access & Applications Solutions $ 4,051 $4,660 $4,166 Multimedia Network Solutions 1,677 1,563 1,498 Converged Core Solutions 600 850 1,215 Services 2,313 2,220 2,044

Re101.00.00.00 portable segments 8,641 9,293 8,923 Intellectual property 130 113 72 Other 25 35 50

RevenuesOperator: BNY99999T $ 8,796 $ 9,441 $ 9,045

Y27905 F-67 BNY *Y27905/101/1* Phone: (212)924-5500 CRC: 62168 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 62102 BNY Y27905 102.00.00.00 0/1 Queue: BNY_CPS *Y27905/102/1* Description: Exhibit 13 EDGAR 2

Years ended September 30, 2006 2005 2004 Operating income: Mobility Access & Applications Solutions $ 1,422 $1,704 $1,290 Multimedia Network Solutions 127 112 167 Converged Core Solutions 70 36 223 Services 314 344 302

Reportable segments 1,933 2,196 1,982 Global sales organization (453) (503) (487) Shared services such as general corporate functions (1,079) (1,104) (1,123) Unallocated compensation and benefits 636 738 662 Bad debt and customer financing (4) 69 230 Merger related expenses (45) — — Business restructuring (4) 10 20 Winstar litigation charge (278) — — Other (37) (145) (65)

Operating income $ 669 $ 1,261 $ 1,219

Supplemental Segment Information

Years ended September 30, (in millions) 2006 2005 2004 Depreciation and amortization: Mobility Access & Applications Solutions $ 202 $191 $190 Multimedia Network Solutions 64 49 54 Converged Core Solutions 35 80 88 Services 21 28 46

Reportable segments 322 348 378 Non-segment 222 251 315

Depreciation and amortization $ 544 $599 $693

Multimedia Network Solutions revenues: Data and access $ 777 $ 725 $ 727 Optical networking 900 838 771

Total $1,677 $1,563 $1,498

0/1

Geographic Information

Date: 22-JAN-2007 10:37:45.81 Revenues (a) Long- lived assets (b) Years ended September 30, September 30, (in millions) 2006 2005 2004 2006 2005 2004 U.S. $ 5,881 $ 5,936 $ 5,517 $ 1,624 $ 1,496 $ 1,567 Non-U.S. 2,915 3,505 3,528 211 218 243

102.00.00.00 Totals $ 8,796 $ 9,441 $ 9,045 $ 1,835 $ 1,714 $ 1,810

Operator: BNY99999T

(a) Revenues are attributed to geographic areas based on the location of customers.

(b)Y27905 Consists of property, plant and equipment and goodwill and other acquired intangible assets.

Concentrations BNY *Y27905/102/1* Historically, a limited number of customers accounted for a substantial portion of our total revenues. Revenues from Verizon,

includingPhone: (212)924-5500 Verizon Wireless, accounted for 28%, 28% and 27% of consolidated revenues in fiscal 2006, 2005 and 2004, respectively. Revenues from Sprint Nextel accounted for 12%,

F-68 CRC: 62102 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 56438 BNY Y27905 103.00.00.00 0/3 Queue: BNY_CPS *Y27905/103/3* Description: Exhibit 13 EDGAR 2

12% and 11% of consolidated revenue in fiscal 2006, 2005 and 2004, respectively. Revenues from customers located in China accounted for 4%, 9% and 10% of consolidated revenues in fiscal 2006, 2005 and 2004, respectively. We expect a significant amount of our future revenues will continue to be generated by a limited number of customers. The loss of any of these customers or any substantial reduction in orders by any of these customers could adversely affect our operating results and cash flows. We have outsourced the manufacturing of the majority of our wireless and wireline product lines with a few suppliers. Refer to Note 14 for further information.

13. FINANCIAL INSTRUMENTS Fair Values The following table summarizes the carrying values and estimated fair values of financial instruments, based on quoted market prices. The carrying values of cash and cash equivalents, receivables, payables and debt maturing within one year approximate fair value.

Years ended September 30, 2006 2005 (in millions) Carrying value Fair value Carrying value Fair value Long-term debt $4,564 $4,383 $5,066 $5,144 The following table summarizes our available-for-sale debt securities.

Amortized Gross unrealized Gross unrealized (in millions) cost gains losses Estimated fair value U.S. Treasury and government agency debt securities $ 931 $ 1 $ (4) $ 928 Corporate bonds 522 — (3) 519 Asset-backed securities 662 1 (4) 659

Total as of September 30, 2006 $ 2,115 $ 2 $ (11) $ 2,106

Classified as: Current $ 633 $ — $ (3) $ 630 Non-current 1,482 2 (8) 1,476

Total as of September 30, 2006 $ 2,115 $ 2 $ (11) $2,106

U.S. Treasury and government agency debt securities $ 1,350 $ — $ (10) $ 1,340 Corporate bonds 572 — (6) 566 Asset-backed securities 618 — (4) 614

0/3 Total as of September 30, 2005 $ 2,540 $ — $ (20) $2,520

ClassifiedDate: 22-JAN-2007 10:37:45.81 as: Current $ 359 $ — $ (2) $ 357 Non-current 2,181 — (18) 2,163

Total as of September 30, 2005 $ 2,540 $ — $ (20) $ 2,520

Gross103.00.00.00 unrealized losses on our available-for-sale securities were primarily caused by increases in interest rates. Unrealized losses of $8 million were related to securities that were in a continuous loss position for more than one year as of September 30, 2006. We do not consider these investments to be other-than-temporarily impaired because we have the ability and intent to hold themOperator: BNY99999T until maturity or until the fair value is recovered.

Y27905 F-69 BNY *Y27905/103/3* Phone: (212)924-5500 CRC: 56438 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 23521 BNY Y27905 104.00.00.00 0/3 Queue: BNY_CPS *Y27905/104/3* Description: Exhibit 13 EDGAR 2

Proceeds from the sale of marketable debt securities were $3,666 million and $2,966 million during fiscal 2006 and 2005. The realized gains and (losses) on these sales were $2 million and $(16) million for fiscal 2006 and $2 million and $(8) million for fiscal 2005. The following table summarizes the contractual maturities of our available-for-sale debt securities.

(in millions) Amortized cost Estimated fair value 2007 $ 633 $ 630 2008 — 2012 1,081 1,077 2013 — 2017 18 18 2018 and thereafter 383 381 The following table summarizes the carrying value of our non-consolidated equity investments.

September 30, (in millions) 2006 2005 Available-for-sale $ 2 $ 2 Cost method 52 58 Equity method 7 5

Non-consolidated equity investments $ 61 $65

Proceeds from the sale of available-for-sale equity securities were $178 million during fiscal 2003. During fiscal 2003, we entered into prepaid forward sales agreements for all of our Corning shares (received as partial proceeds for the sale of certain optical fiber operations). Under these agreements, we received proceeds of $113 million and locked in $64 million of unrealized appreciation. This gain was recognized during fiscal 2004. Gross unrealized losses and proceeds from the sale of available-for- sale equity securities were not material during fiscal 2006, 2005 and 2004. All investments are periodically reviewed to determine if declines in fair value below cost basis are other-than-temporary. This review considers, among other factors, significant and sustained decreases in quoted market prices, a series of historical and projected operating losses, changes in the market demand for technology and our intent to provide future funding. If the decline in fair value has been determined to be other-than-temporary, an impairment loss is recognized, and a new cost basis is established. Other-than-temporary impairment losses related to our non-consolidated equity investments were $8 million, $20 million and $22 million during fiscal 2006, 2005 and 2004, respectively.

Credit Risk All financial instruments involve credit risk for non-performance by counterparties. The contract or notional amounts of these instruments reflect the extent of involvement we have in particular classes of financial instruments.

Our0/3 maximum exposure to credit loss on commitments to extend credit and financial guarantees is limited to the amount drawn and outstanding on those instruments. Exposure to credit risk is controlled through credit approvals, credit limits and continuous monitoring procedures. Reserves for losses are established based upon collectibility assessments. Date: 22-JAN-2007 10:37:45.81 Derivative Financial Instruments and Market Risk All financial instruments inherently expose the holders to market risk, including changes in currency and interest rates and equity prices. We manage our exposure to these market risks through our regular operating and financing activities, including the use of derivative104.00.00.00 financial instruments.

ForeignOperator: BNY99999T Currency Risk Our business is conducted using different foreign currencies. The objective of our foreign currency risk management policy is to preserveY27905 the value of cash flows in non-functional currencies. Our policy is to hedge all significant booked and firmly committed cash flows identified as creating foreign currency

BNY *Y27905/104/3* F-70 Phone: (212)924-5500 CRC: 23521 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 34160 BNY Y27905 105.00.00.00 0/3 Queue: BNY_CPS *Y27905/105/3* Description: Exhibit 13 EDGAR 2

exposure on a rolling 12-month basis. In addition, we typically hedge a portion of our exposure resulting from identified anticipated cash flows, providing the flexibility to mitigate the variability of longer-term forecasts as well as changing market conditions. Foreign exchange forward and option contracts are used to manage our foreign currency risk. We also have hedged foreign exchange risk in certain sales and purchase contracts with cash flows indexed to changes in or denominated in a currency that neither party to the contract uses as its functional currency. These embedded derivative terms affect the ultimate amount of cash flows under the contract. Our primary net foreign currency exposures include the euro, British pound, Canadian dollar, Korean won and Mexican peso. The following table provides a summary of the total net notional amounts of foreign exchange forward and option contracts and embedded derivatives.

September 30, (in millions) 2006 2005 Purchase contracts $484 $192 Sale contracts 727 329 The fair value of hedged contracts and embedded derivatives was a net liability of $4 million and $7 million as of September 30, 2006 and 2005, respectively. All types of foreign currency risk are hedged to preserve our cash flows in accordance with corporate risk management policies, but we generally do not designate related derivative instruments as hedges under SFAS 133, for cost/benefit reasons. The changes in fair value of these undesignated freestanding foreign currency derivative instruments and embedded derivatives are recorded in other income (expense) in the period of change.

Interest Rate Risk We are exposed to various forms of interest rate risk. The fair value of our fixed-rate available-for-sale marketable securities and the interest income earned on our cash and cash equivalents may fluctuate as interest rates change. In addition, if interest rates remain low, we may forgo the opportunity to obtain more favorable interest rates on borrowings due to our fixed-rate debt obligations. Our objective is to mitigate the variability of cash inflows and outflows resulting from interest rate fluctuations by maintaining a balanced mix of fixed- and floating-rate debt and investments. We mitigate our interest rate risk by entering into interest rate swaps on a portion of our debt obligations to make them variable-rate debt instruments and by including fixed-rate assets in our investment portfolio. We also expect that these transactions will reduce our overall cost of borrowing and increase investment returns. As of September 30, 2006, we had interest rate swaps where we received fixed interest rates of 5.5% and paid floating rates based upon the three-month LIBOR rate plus agreed-upon spreads (ranging from 1.72% to 1.76%) on notional amounts aggregating $200 million. As of September 30, 2006, the three-month LIBOR rate was 5.37%. We do not foresee any significant changes0/3 in our interest rate risk management strategy or in our exposure to interest rate fluctuations. The “short-cut method” of paragraph 68 of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” was applied. This method assumes no ineffectiveness in the hedging relationship between the interest rate swaps and the debt obligationsDate: 22-JAN-2007 10:37:45.81 because the hedging relationship is expected to be highly effective in achieving offsetting changes in fair value of the fixed-rate debt instruments attributable to changes in interest rates. All of our assumptions are supported with contemporaneous documentation that identifies our risk management objectives and strategies for undertaking the hedges. The fair value of the interest rate swaps was a current liability of $6 million and $5 million as 105.00.00.00 of September 30, 2006 and 2005, respectively.

Operator: BNY99999T F-71 Y27905 BNY *Y27905/105/3* Phone: (212)924-5500 CRC: 34160 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 37974 BNY Y27905 106.00.00.00 0/4 Queue: BNY_CPS *Y27905/106/4* Description: Exhibit 13 EDGAR 2

Equity Price Risk We hold equity investments in publicly held companies that are classified as available-for-sale and other strategic equity holdings in privately held companies and venture funds. These equity investments are exposed to price fluctuations and are generally concentrated in the high-technology industries. We generally do not hedge our equity price risk due to hedging restrictions imposed by the issuers, illiquid capital markets or our inability to hedge non-marketable equity securities in privately held companies. We had no outstanding hedging instruments for our equity price risk as of September 30, 2006.

Customer Financing Commitments Requests for providing commitments to extend credit and financial guarantees are reviewed and subject to approval by senior management. We regularly review all outstanding commitments, letters of credit and financial guarantees to assess the adequacy of our reserves for possible credit and guarantee losses. The following table summarizes our customer financing commitments for amounts drawn and available but not drawn. These commitments may expire without being drawn upon. The amounts drawn on these commitments are generally collateralized by substantially all of the assets of the respective creditors.

September 30, 2006 September 30, 2005 Total loans Total loans and and (in millions) guarantees Loans Guarantees guarantees Loans Guarantees Drawn commitments $ 22 $ 21 $ 1 $ 45 $ 30 $ 15 Available but not drawn 11 6 5 6 — 6 Committed but not available 26 26 — — — —

Total $ 59 $53 $ 6 $51 $30 $ 21

The following table summarizes the change in the customer financing reserves.

Years ended September 30, (in millions) 2006 2005 2004 Reserve at beginning of year $ 37 $ 135 $ 415 Recoveries, net (16) (51) (188) Other account transfers 5 (37) (29) Write-offs — (10) (63)

Reserve at end of year $ 26 $ 37 $ 135

Drawn and undrawn commitments are monitored by assessing, among other things, each customer’s short-term and long-term liquidity0/4 positions, the customer’s current operating performance versus plan, the execution challenges facing the customer, changes in the competitive landscape and the customer’s management experience and depth. When potential problems are evident, certain mitigating actions are taken, including cancellation of commitments. Although these actions can limit the extent of ourDate: 22-JAN-2007 10:37:45.81 losses, we remain exposed to the extent of drawn and guaranteed amounts.

Commitments to Extend Credit Commitments to extend credit to third parties are conditional agreements generally having fixed expiration or termination dates and106.00.00.00 specific interest rates and purposes. In certain situations, credit may not be available for drawdown until certain conditions are met. Operator: BNY99999T Letters of Credit

LettersY27905 of credit are obtained to ensure the performance or payment to third parties in accordance with specified terms and conditions. Secured and unsecured outstanding letters of credit were $493 million

BNY *Y27905/106/4* F-72 Phone: (212)924-5500 CRC: 37974 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 36909 BNY Y27905 107.00.00.00 0/2 Queue: BNY_CPS *Y27905/107/2* Description: Exhibit 13 EDGAR 2

and $269 million as of September 30, 2006 and 2005, respectively. The estimated fair value of letters of credit was $3 million and $4 million as of September 30, 2006 and 2005, respectively. On August 11, 2006, we amended and restated our two primary letter of credit agreements (Amended and Restated Letter of Credit Issuance and Reimbursement Agreement and Amended and Restated External Sharing Debt Agreement). The first agreement provides for the issuance of revolving credit loans and letters of credit up to $500 million. The second agreement permits us to renew and extend letters of credits until the facility termination date. Under these revised agreements, we are required to maintain a minimum amount of unrestricted cash and short-term investments greater than $1 billion, as defined in the agreements. Also, the aggregate amount of the commitment under the two agreements may not exceed $1.5 billion at any time. These agreements terminate on March 30, 2007. On August 11, 2006, we also amended our Guarantee and Collateral Agreement and our Collateral Sharing Agreement. Under these agreements, certain of our U.S. subsidiaries guaranteed certain of our obligations. We, along with these subsidiaries, pledged significant portions of our assets as collateral. These agreements secure certain obligations, including letters of credit, specified hedging arrangements, lines of credit, cash management and other bank operating arrangements. The collateral pledged under these agreements was released on November 30, 2006. These outstanding obligations amounted to $155 million as of September 30, 2006.

Transfers of Financial Instruments We have agreements that allow us to sell receivables from selected customers at a discount to various financial institutions on a non-recourse basis. We sold approximately $148 million and $297 million of accounts and notes receivable during fiscal 2006 and 2005, respectively. These transactions were accounted for as sales. Discounting fees were $2 million and $9 million during fiscal 2006 and 2005, respectively. Sales and transfers that do not meet the criteria for surrender of control are accounted for as secured borrowings. There were no secured borrowings or receivables held for sale as of September 30, 2006.

Warrants In connection with our shareholder lawsuit settlement, we issued warrants to purchase 200 million shares of our common stock during December 2004, of which 199 million were outstanding as of September 30, 2006. The warrants have an exercise price of $2.75 per share and expire on December 10, 2007.

14. COMMITMENTS AND CONTINGENCIES Legal Proceedings We are subject to legal proceedings, lawsuits and other claims, including proceedings by government authorities. In addition, we may be subject to liabilities of some of our former affiliates under separation agreements with them. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Consequently, unless otherwise indicated, we are unable to estimate the 0/2 ultimate aggregate amounts of monetary liability or ranges of possible losses with respect to our pending litigation matters as of September 30, 2006. The resolution of these matters could have a material impact on our consolidated results of operations, financial position and cash flows. Charges of $301 million, $193 million, and $120 million were recognized during fiscal 2006, 2005,Date: 22-JAN-2007 10:37:45.81 and 2004, respectively, primarily due to settlements, dispositions and changes in estimates related to various litigation matters. Unless indicated below, no individual charges were material to our results of operations.

Winstar 107.00.00.00 We were a defendant in an adversary proceeding originally filed in U.S. Bankruptcy Court in Delaware by

Operator: BNY99999T F-73 Y27905 BNY *Y27905/107/2* Phone: (212)924-5500 CRC: 36909 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 20233 BNY Y27905 108.00.00.00 0/1 Queue: BNY_CPS *Y27905/108/1* Description: Exhibit 13 EDGAR 2

Winstar and Winstar Wireless, Inc. in connection with the bankruptcy of Winstar and various related entities. The trial for this matter concluded in June 2005. The trial pertained to breach of contract and other claims against us, for which the trustee for Winstar was seeking compensatory damages of approximately $60 million, as well as costs and expenses associated with litigation. The trustee was also seeking recovery of a payment Winstar made to us in December 2000 of approximately $190 million plus interest. On December 21, 2005, the judge rendered his decision and the verdict resulted in a judgment against us for approximately $244 million, plus statutory interest and other costs. As a result, we recognized a $278 million charge (including related interest and other costs of approximately $34 million) in the first quarter of fiscal 2006 and additional charges of $9 million for post-judgment interest during the remainder of fiscal 2006. In addition, $311 million of cash was used to collateralize a letter of credit that was issued during the second quarter of fiscal 2006 in connection with this matter. This judgment is under appeal with the U.S. District Court for the District of Delaware. Additional charges for post-judgment interest will be recognized in subsequent periods until this matter is resolved.

Securities and Related Cases We previously entered into a global settlement of 53 separate lawsuits against us and certain of our current and former directors, officers and employees, which involved claims generally relating to the purchase of our securities during different class periods. The net charges related to our global securities and related cases, including changes in the fair market value of warrants that were issued as part of the settlement and insurance recoveries, were $54 million and $56 million during fiscal 2005 and 2004, respectively. All cases brought by individual investors who opted out of the class action settlement have been resolved.

Government Investigations In August 2003, the U.S. Department of Justice (the DOJ) and the SEC informed us that they had each commenced an investigation into possible violations of the Foreign Corrupt Practices Act (FCPA) with respect to our operations in Saudi Arabia. These investigations followed allegations made by the National Group for Communications and Computers Ltd. (NGC) in an action filed against us in August 2003, which is described below. In April 2004, we reported to the DOJ and the SEC that an internal FCPA compliance audit and an outside counsel investigation found incidents and internal control deficiencies in our operations in China that potentially involve FCPA violations. We are cooperating with those agencies. We believe these incidents and deficiencies did not have a material effect on our results of operations. However, we can not determine whether this continuing investigation will affect our future business operations in China. In November 2004, we reported that our former Chairman and Chief Executive Officer, the former head of our Saudi Arabia operations and a third former employee received Wells notices from the SEC. A Wells notice is a common procedure where the SEC staff has preliminarily decided to recommend an enforcement action to the SEC. In May 2005, the SEC Enforcement Staff notified representatives of these individuals that the SEC staff would not be recommending enforcement action against these individuals. The investigation is continuing with respect to both China and Saudi Arabia. During September 2006, we received a Wells notice relating to this investigation of our operations in China under the FCPA. We responded0/1 to the Wells notice via a written submission to the SEC staff and are continuing discussions with the SEC staff in an effort to resolve the matter.

InDate: 22-JAN-2007 10:37:45.81 May 2005, we received subpoenas on two different matters, requesting specific documents and records. One of the subpoenas related to a DOJ investigation of potential antitrust and other violations by various participants in connection with the federal E- Rate program. The subpoena required us to produce documents before a grand jury of the U.S. District Court in Georgia. The second subpoena was from the Office of Inspector General, U.S. General Services Administration and related to a federal investigation into certain sales to the federal government of telecommunications equipment and related maintenance services. In Aug108.00.00.00 ust 2006, we reported that during April 2006, the California Department of Justice served us with discovery requests related to sales to California governmental agencies of telecommunications equipment and related maintenance services. It is too early for

usOperator: BNY99999T to determine whether any of these matters will have a material effect on our business, financial position, results of operations or cash flows. Y27905 F-74 BNY *Y27905/108/1* Phone: (212)924-5500 CRC: 20233 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 40335 BNY Y27905 109.00.00.00 0/1 Queue: BNY_CPS *Y27905/109/1* Description: Exhibit 13 EDGAR 2

Employment and Benefits Related Cases We have implemented various actions to address the rising costs of providing retiree health care benefits and the funding of our pension plans. These actions have led to the filing of cases against us and may lead to the filing of additional cases. Purported class action lawsuits have been filed against us in connection with the elimination of the death benefit from our U.S. management pension plan in early 2003. Three such cases have been consolidated into a single action pending in the U.S. District Court in New Jersey, captioned In Re Lucent Death Benefits ERISA Litigation. The elimination of this benefit reduced our future pension obligations by approximately $400 million. The benefit was paid out of the pension plan assets to certain qualified surviving dependents, such as spouses or dependent children of management retirees. The case alleges that we wrongfully terminated this death benefit and requests that it be reinstated, along with other remedies. On November, 27, 2006, the Court granted our motion for summary judgment and dismissed plaintiffs’ claims. Plaintiffs have appealed. A separate case challenging the elimination of the death benefit, Chastain, et al. v. AT&T, was filed in the U.S. District Court in the Western District of Oklahoma. The Chastain case also involves claims related to changes to retiree health care benefits. In October 2005, a purported class action was filed by Peter A. Raetsch, Geraldine Raetsch and Curtis Shiflett, on behalf of themselves and all others similarly situated, in the U.S. District Court for the District of New Jersey. The plaintiffs allege that we failed to maintain health care benefits for retired management employees as required by the Internal Revenue Code, ERISA, and our pension and medical plans. We filed a motion to dismiss, which resulted in the court remanding the claim to the administrative (claims) review process. The court retained jurisdiction, and ordered the Lucent defendants to report the factual and legal findings (from the claims review process) to the court by December 31, 2006. The Equal Employment Opportunity Commission (EEOC) filed a purported class action lawsuit against us, EEOC v. Lucent Technologies Inc., in the U.S. District Court in California. The case alleges gender discrimination in connection with the provision of service credit to a class of our present and former employees who were out of work because of maternity prior to 1980 and seeks the restoration of lost service credit prior to April 29, 1979, together with retroactive pension payment adjustments, corrections of service records, back pay and recovery of other damages and attorneys’ fees and costs.

Intellectual Property Cases We are defendants in various cases in which third parties claim infringement of their patents, including certain cases where infringement claims have been made against our customers in connection with products we have provided to them.

Other Matters On April 3, 2006, a putative class action entitled Resnick v. Lucent Technologies Inc., et al was filed against us and members of our board of directors in the Superior Court of New Jersey, Law Division, Union County. The named plaintiffs proposed to represent a class of our shareowners and claimed that, among other things, the proposed merger with Alcatel was the product of breaches of duty by our board of directors in that they allegedly failed to maximize shareowner value in the transaction. On May0/1 12, 2006, a second putative class action entitled AR Maley Trust v. Lucent Technologies Inc., et al was filed against us and members of our board of directors in the United States District Court for the Southern District of New York. The named plaintiff proposed to represent a class of our shareowners and claimed that, among other things, Lucent and the directors breached their fiduciaryDate: 22-JAN-2007 10:37:45.81 duties by allegedly failing to maximize shareowner value in the transaction. Along with other relief, both the Resnick and AR Maley Trust complaints sought an injunction against the closing of the proposed merger. On September 6, 2006, we reached a tentative settlement of these actions. The settlement is subject to customary conditions including court approval. On August 8, 2003, NGC filed an action in the U.S. District Court for the Southern District of New York against us, certain former officers109.00.00.00 and employees, our subsidiary, Lucent Technologies International Inc., certain unaffiliated individuals and an unaffiliated company, alleging violations of the Racketeer Influenced Corrupt Organizations Act (RICO) and other improper activities. These

allegationsOperator: BNY99999T relate to

Y27905 F-75 BNY *Y27905/109/1* Phone: (212)924-5500 CRC: 40335 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 59662 BNY Y27905 110.00.00.00 0/2 Queue: BNY_CPS *Y27905/110/2* Description: Exhibit 13 EDGAR 2

activities in Saudi Arabia in connection with certain telecommunications contracts involving us, the Kingdom of Saudi Arabia and other entities. The complaint seeks damages in excess of $63 million, which could be tripled under RICO. The allegations in this complaint appear to arise out of certain contractual disputes between NGC and us that are the subject of a separate case that NGC previously filed against us in U.S. District Court in New Jersey and other related proceedings brought by NGC in Saudi Arabia. On March 1, 2006, the District Court in New York granted our motion to dismiss the case in its entirety. NGC has filed a notice of appeal. Some of the claims brought by NGC in the New Jersey action have been dismissed, but that case and the other claims in Saudi Arabia are still pending.

Separation Agreements We are party to various agreements that were entered into in connection with the separation of Lucent and former affiliates, including AT&T, Avaya, Agere Systems and NCR Corporation. Pursuant to these agreements, we and the former affiliates have agreed to allocate certain liabilities related to each other’s business, and we have agreed to share liabilities based on certain allocations and thresholds. We are not aware of any material liabilities to our former affiliates as a result of the separation agreements that are not otherwise reflected in our consolidated financial statements. Nevertheless, it is possible that potential liabilities for which the former affiliates bear primary responsibility may lead to contributions by us.

Other Commitments Contract Manufacturers We have outsourced most of our manufacturing operations to electronic manufacturing service (EMS) providers. Two EMS providers supply most of our Lucent designed wireless and wireline products. Celestica has the exclusive right to manufacture and provide most of our existing wireless products. Purchases from Celestica were approximately $640 million, $690 million and $750 million during fiscal 2006, 2005 and 2004, respectively. Solectron Corporation consolidates the outsourced manufacturing of our portfolio of wireline products. Purchases from Solectron were $310 million, $238 million and $241 million during fiscal 2006, 2005 and 2004, respectively. The agreements with Celestica and Solectron are for a minimum of three years, with no right to terminate for convenience. We are generally not committed to unconditional purchase obligations in these contract-manufacturing relationships. However, there is exposure to short-term purchase commitments when they occur within the contract manufacturers’ lead-time for specific products or raw materials. These commitments were $264 million as of September 30, 2006. Sudden and significant changes in forecasted demand requirements within the lead-time of those products or raw materials could adversely affect our results of operations and cash flows.

Guarantees and Indemnification Agreements We divested certain businesses and assets through sales to third-party purchasers and spin-offs to our common shareowners. In connection with these transactions, certain direct or indirect indemnifications are provided to the buyers or other third parties doing business with the divested entities. These indemnifications include secondary liability for certain leases of real property and equipment0/2 assigned to the divested entity and certain specific indemnifications for certain legal and environmental contingencies, as well as vendor supply commitments. The time durations of such indemnifications vary but are standard for transactions of this nature. Date: 22-JAN-2007 10:37:45.81 We remain secondarily liable for approximately $150 million of lease obligations as of September 30, 2006, that were assigned to Avaya, Agere and purchasers of our other businesses. The remaining terms of these assigned leases and our corresponding guarantees range from one month to 13 years. The primary obligor under assigned leases may terminate or restructure the lease obligation before its original maturity and thereby relieve us of our secondary liability. We generally have the right to receive indemnity110.00.00.00 or reimbursement from the assignees and have not reserved for losses on this form of guarantee. We are party to a tax-sharing agreement to indemnify AT&T and are liable for tax adjustments that are attributable to our lines of business,Operator: BNY99999T as well as a portion of certain other shared tax adjustments during the years prior to our separation from AT&T. We have similar agreements with Avaya and Agere. Y27905 F-76 BNY *Y27905/110/2* Phone: (212)924-5500 CRC: 59662 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 347 BNY Y27905 111.00.00.00 0/1 Queue: BNY_CPS *Y27905/111/1* Description: Exhibit 13 EDGAR 2

Certain tax adjustments have been proposed or assessed subject to these tax-sharing agreements. The outcome of these other matters is not expected to have a material adverse effect on our consolidated results of operations, consolidated financial position or near-term liquidity. We license to our customers software and rights to use intellectual property that might provide the licensees with an indemnification against any liability arising from third-party claims of patent, copyright or trademark infringement. We cannot determine the maximum amount of losses that we could incur under this type of indemnification, because we often may not have enough information about the nature and scope of an infringement claim until it has been submitted to us. We indemnify our directors and certain of our current and former officers for third-party claims alleging certain breaches of their fiduciary duties as directors or officers. Certain costs incurred for providing such indemnification may be recovered under various insurance policies. We are unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved in each agreement. Historically, payments made under these agreements have not had a material effect on our business, financial condition, results of operations or cash flows. Warranty reserves are established for costs expected to be incurred after the sale and delivery of a product or service under specific product or service warranty provisions. These reserves are established when it is probable that customers will make claims and when a reasonable estimate of costs can be made. The reserves are determined as a percentage of revenues based on the actual trend of historical charges incurred over various periods. In addition, any significant or unusual issues are specifically identified and reserved. The following table summarizes the activity related to warranty reserves.

(in millions) 2006 2005 Reserve at beginning of year $ 257 $ 297 Accruals for warranties, net 60 47 Payments (122) (87)

Reserve at end of year $ 195 $257

Environmental Matters Our current and historical operations are subject to a wide range of environmental laws. In the U.S., these laws often require parties to fund remedial action regardless of fault. We have remedial and investigatory activities underway at numerous current and former facilities. Environmental reserves of $96 million have been established for environmental liabilities that can be reasonably estimated as of September 30, 2006. These reserves are not discounted to present value. We have receivables of $19 million with respect to environmental matters due from third-party indemnitors as of September 30, 2006. Receivables are recorded only if the indemnitors have agreed to pay the claims and management believes collection of the receivables is reasonably assured. Environmental0/1 matters did not have a significant impact on our consolidated results of operations, financial position or cash flows for all periods presented. Reserves for estimated losses from environmental remediation are, depending on the site, based on analyses of many Date: 22-JAN-2007 10:37:45.81 interrelated factors, including: • The extent and degree of contamination and the nature of required remedial actions.

• The timing and various types of environmental expenditures, such as investigatory, remedial, capital and operations, and 111.00.00.00 maintenance costs.

• Applicable legal requirements defining remedial goals and methods.

Operator: BNY99999T • Progress and stage of existing remedial programs in achieving remedial goals.

•Y27905 Innovations in remedial technology and expected trends in environmental costs and legal requirements.

• The number, participation level and financial viability of other potentially responsible parties.

•BNY *Y27905/111/1* The timing and likelihood of potential recoveries or contributions from other third parties. Phone: (212)924-5500 F-77 CRC: 347 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 1704 BNY Y27905 112.00.00.00 0/1 Queue: BNY_CPS *Y27905/112/1* Description: Exhibit 13 EDGAR 2

• Historical experience.

• The degree of certainty and reliability of all the factors considered. It is often difficult to estimate the future impact of environmental matters, including potential liabilities, due to the above factors and the lengthy time periods involved in resolving them, which may be up to 30 years or longer. Although we believe that our reserves are currently adequate, there can be no assurance that the amount of capital expenditures and other expenses that will be required for remedial actions and compliance with applicable environmental laws will not exceed the amounts reflected in reserves or will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows. Any possible loss or range of possible loss that may be incurred in excess of amounts provided for as of September 30, 2006, cannot be reasonably estimated.

Lease Commitments We lease land, buildings and equipment under agreements that expire in various years through 2020. Rental expense under operating leases was $142 million, $191 million and $230 million, net of sublease rental income of $28 million, $32 million and $38 million, for fiscal 2006, 2005 and 2004, respectively. Future minimum lease payments due under non-cancelable operating leases as of September 30, 2006, were $147 million in 2007, $120 million in 2008, $87 million in 2009, $77 million in 2010, $70 million in 2011 and $274 million thereafter. These future minimum lease payments do not include future sublease rental income of $25 million in 2007, $21 million in 2008, $20 million in 2009, $18 million in 2010, $14 million in 2011 and $106 million thereafter. All above amounts include leases that are associated with our restructuring actions.

15. SUBSEQUENT EVENTS On November 2, 2006, Lucent acquired the remaining 81% of Mobilitec, Inc. that was previously not owned for $40 million of cash. Mobilitec is a leading provider of content management software for wireless services providers. The purchase price may increase by an additional $9 million upon the subsequent resolution of contingencies and earn-out provisions.

F-78 0/1 Date: 22-JAN-2007 10:37:45.81 112.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/112/1* Phone: (212)924-5500 CRC: 1704 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 56927 BNY Y27905 113.00.00.00 0/2 Queue: BNY_CPS *Y27905/113/2* Description: Exhibit 13 EDGAR 2

16. QUARTERLY INFORMATION (UNAUDITED)

(in millions, except per share amounts) First Second Third Fourth Total Year ended September 30, 2006 Revenues $2,047 $2,138 $2,050 $2,561 $8,796 Gross margin 851 926 839 1,119 3,735 Other income, net 84 48 35 57 224 Income taxes 16 31 40 (45) 42 Net income (loss) (104) 181 79 371 527

Income (loss) per common share: Net income — basic (0.02) 0.04 0.02 0.08 0.12 Net income — diluted (0.02) 0.04 0.02 0.07 0.11

Year ended September 30, 2005 Revenues $2,335 $2,335 $2,340 $2,431 $9,441 Gross margin 984 975 1,052 1,113 4,124 Other income (expense), net (46) 43 52 65 114 Income taxes 10 (41) (34) (86) (151) Net income 174 267 372 372 1,185

Income per common share: Net income — basic 0.04 0.06 0.08 0.08 0.27 Net income — diluted 0.04 0.06 0.07 0.07 0.24 There were no dividends per common share for any of the periods presented. The impact of significant items incurred during the first three interim periods of each fiscal year are discussed in more detail and disclosed in our quarterly reports on Form 10-Q. The quarterly impact of litigation charges related to the Winstar judgment and the shareowner settlement and discrete income tax items were as follows: • Charge related to the Winstar judgment of $278 million was recognized in the first quarter of fiscal 2006.

• The results of fiscal 2006 include the impact of certain discrete tax items related to the reversal of certain non-U.S. tax valuation allowances of $29 million in the fourth quarter of fiscal 2006 and the favorable resolution of prior period tax audits of $2 million, $9 million and $7 million for the first, third and fourth quarters of fiscal 2006, respectively. The results also include U.S. deferred tax charges (benefits) of $16 million, $26 million and ($42) million during the second, third and fourth quarters of fiscal 2006.

• Charges0/2 (benefits), primarily to adjust the fair value of the warrants that were issued in connection with the settlement of our shareowner class action lawsuits and related insurance recoveries, were $71 million and ($17) million for the first and third quarters of fiscal 2005.

•Date: 22-JAN-2007 10:37:45.81 The results of fiscal 2005 include the impact of certain discrete tax items related to the reversal of valuation allowances and the favorable settlement of certain prior-year federal and state tax audit matters. Tax-related benefits recognized were $55 million, $56 million and $119 million for the second, third and fourth quarters of fiscal 2005, respectively. We also recognized interest income related to these settlements of $5 million, $53 million, $20 million and $10 million during the four quarters of fiscal 2005. 113.00.00.00 F-79 Operator: BNY99999T Y27905 BNY *Y27905/113/2* Phone: (212)924-5500 CRC: 56927 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: Exhibit 13 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 27425 BNY Y27905 114.00.00.00 0/7 Queue: BNY_CPS *Y27905/114/7* Description: EXHIBIT 12 EDGAR 2

EXHIBIT 12

LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS AND DEFICIENCY OF EARNINGS TO COVER COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS (DOLLARS IN MILLIONS) (UNAUDITED)

FOR THE YEARS ENDED SEPTEMBER 30, 2006 2005 2004 2003 2002 Income (loss) from continuing operations before income taxes, minority interest and losses from equity investments $ 536 $ 1,064 $ 1,066 $(1,002) $(7,083) Less: Interest capitalized during the period — — — — 4 Less: Minority interest in pretax income of subsidiaries that have not incurred fixed charges (34) 30 — — —

Add: Fixed charges 371405 473 442577

Total earnings (loss) to cover fixed charges 941 1,439 1,539 (560) (6,510)

Fixed charges: Total interest expense including capitalized interest 324 341 396 353 469

Interest portion of rental expenses 47 64 77 89 108

Total fixed charges 371 405 473 442 577 Preferred stock dividends and accretion — — (12) 103 167 Ratio of earnings to combined fixed charges and preferred stock dividend requirements 2.5 3.6 3.3 — —

Deficiency of earnings to cover combined fixed charges and preferred stock dividend

re0/7 quirements — — — $1,105 $7,254 Fixed charges consist of interest expense on all indebtedness and that portion of operating lease rental expense that is representative of the interest factor. Preferred stock dividend requirements consist of the amount of pre-tax earnings that is requiredDate: 22-JAN-2007 10:37:45.81 to pay the dividends on outstanding preferred stock. 114.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/114/7* Phone: (212)924-5500 CRC: 27425 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: EXHIBIT 12 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 4320 BNY Y27905 115.00.00.00 0/3 Queue: BNY_CPS *Y27905/115/3* Description: EXHIBIT 21 EDGAR 2

Exhibit 21

Lucent Technologies do Brasil Indústria e Comércio Ltda. Brazil Lucent Technologies Treasury Services Ireland Lucent Technologies (China) Co., Ltd. P.R.C. Ascend Communications, Inc. US Bell Laboratories, Inc. US First Beacon Insurance Company US LTI NJ Finance LLC US Lucent Asset Management Corporation US Lucent Technologies Integrated Solutions Inc. US Lucent Technologies GRL LLC US Lucent Technologies International Inc. US Lucent Technologies World Services Inc. US New Jersey Nanotechnology Consortium LLC US Western Electric Company, Incorporated US 0/3 Date: 22-JAN-2007 10:37:45.81 115.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/115/3* Phone: (212)924-5500 CRC: 4320 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: EXHIBIT 21 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 2925 BNY Y27905 116.00.00.00 0/7 Queue: BNY_CPS *Y27905/116/7* Description: EXHIBIT 24 EDGAR 2

Exhibit 24

POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, Lucent Technologies Inc., a Delaware corporation (the “Company”), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10- K for the fiscal year ended September 30, 2006; and WHEREAS, the undersigned is a director of the Company; NOW, THEREFORE, each of the undersigned hereby constitutes and appoints David W. Hitchcock as attorney-in-fact for and in the name, place and stead of the undersigned, and in the capacity of the undersigned as a director of the Company, to executive the above referenced Form 10-K and any amendments or supplements thereto, hereby giving and granting to said attorney-in-fact, full power and authority to do and perform each and every act and thing required and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that such attorney-in-fact may or shall lawfully do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on December 14, 2006.

By: /s/ Cynthia Christy-Langenfeld Name: Cynthia Christy-Langenfeld

By: /s/ Timothy Keller Name: Timothy Keller

By: /s/ Michael Quigley Name: Michael Quigley

By: /s/ Hubert De Pesquidoux 0/7 Name: Hubert De Pesquidoux

Date: 22-JAN-2007 10:37:45.81

By: /s/ Frank D’Amelio Name: Frank D’Amelio

116.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/116/7* Phone: (212)924-5500 CRC: 2925 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: EXHIBIT 24 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 1184 BNY Y27905 117.00.00.00 0/5 Queue: BNY_CPS *Y27905/117/5* Description: EXHIBIT 31.1 EDGAR 2

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION I, Cynthia K. Christy-Langenfeld, Chief Executive Officer of Lucent Technologies Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Lucent Technologies Inc. (the “registrant”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in this case) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 0/5 Date: December 14, 2006

/s/Date: 22-JAN-2007 10:37:45.81 Cynthia K. Christy-Langenfeld Chief Executive Officer (Principal Executive Officer) 117.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/117/5* Phone: (212)924-5500 CRC: 1184 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: EXHIBIT 31.1 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 20966 BNY Y27905 118.00.00.00 0/4 Queue: BNY_CPS *Y27905/118/4* Description: EXHIBIT 31.2 EDGAR 2

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION I, David W. Hitchcock, Chief Financial Officer of Lucent Technologies Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Lucent Technologies Inc. (the “registrant”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in this case) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 0/4 Date: December 14, 2006

/s/Date: 22-JAN-2007 10:37:45.81 David W. Hitchcock Chief Financial Officer (Principal Financial Officer) 118.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/118/4* Phone: (212)924-5500 CRC: 20966 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: EXHIBIT 31.2 O BOWNE INTEGRATED TYPESETTING SYSTEM Site: BOWNE OF NEW YORK Phone: (212)924-5500 Operator: BNY99999T Date: 22-JAN-2007 10:37:45.81 Name: ALCATEL LUCENT [E/O] CRC: 44033 BNY Y27905 119.00.00.00 0/6 Queue: BNY_CPS *Y27905/119/6* Description: EXHIBIT 32 EDGAR 2

EXHIBIT 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, Cynthia K. Christy-Langenfeld, Chief Executive Officer of Lucent Technologies Inc. (the “Company”), and David W. Hitchcock, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-K of the Company for the year ended September 30, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 14, 2006

/s/ Cynthia K. Christy-Langenfeld Cynthia K. Christy-Langenfeld Chief Executive Officer

/s/ David W. Hitchcock David W. Hitchcock Chief Financial Officer 0/6 Date: 22-JAN-2007 10:37:45.81 119.00.00.00 Operator: BNY99999T Y27905 BNY *Y27905/119/6* Phone: (212)924-5500 CRC: 44033 EDGAR 2 Site: BOWNE OF NEW YORK [E/O] WNE INTEGRATED TYPESETTING SYSTEM ame: ALCATEL LUCENT ueue: BNY_CPS escription: EXHIBIT 32 O