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 BNY Y27905 001.00.00.00 0/2 [E/O] Queue: BNY_CPS ECRDC: 3G077A8 R 2 *Y27905/001/2* Description: FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (cid:0) 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 (cid:2) 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 ID ENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 600 MOUNTAIN AVENUE, MURRAY HILL, NEW JERSEY 07974 5.81 (ADDRESS OF PRINCIPA L EXECUTIVE OFFICES) (ZIP C ODE) 4 7: 3 10: REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: 908-582-8500 07 2 N-200/ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: A 22-J0* None. e: 0 Dat0.2 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: 0/ . None T01 90 999I1.nd0ica(cid:0)te by c(cid:2)heck mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Y9Y0es0 No N0 B / ator: IY5neds5ic a(cid:2)te Nbyo c (cid:0)he ck mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Oper900 I7nd9icate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 2 0EYxc7hange Act of 1934 during the preceding 12 months (or for such shorter period that th(cid:0)e regist(cid:2)rant was required to file such 550rep2orts), and (2) has been subject to such filing requirements for the past 90 days. Yes No 4-Y 92INndYicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will 212)nBot* be contained, to the best of registrant’s knowledge, in definiti(cid:2)ve proxy or information statements incorporated by reference in e: (Part III of this Form 10-K or any amendment to this Form 10-K. n o h P Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (cid:2) (cid:0) (cid:0) Large accelerated filer Accelerated filer Non-accelerated filer (cid:0) (cid:2) 2 Indi cate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No R RKAt 8MAarch 31, 2006, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant YOwa077sG approximately $13,639,895,000. NEW At RC: 3DEDecember 1, 2006, 100 shares of the registrant’s common stock were outstanding. F C O E WN O] DOCUMENTS INCORPORATED BY REFERENCE O B(1/) Portions of the registrant’s annual report to shareowners for the fiscal year ended September 30, 2006 (Part II). e: E Sit(2[) Portions of the registrant’s definitive proxy statement for its 2007 annual meeting of shareowners filed with the Securities and M E Exchange Commission within 120 days after September 30, 2006, or an amendment to this Form 10-K filed not later than T S 120 days after September 30, 2006 (Parts II and III). Y S G N TI T E S E P YT TN D E K TEUC 10- EGRATEL L CPSORM OWNE INTame: ALCA ueue: BNY_escription: F 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 BNY Y27905 002.00.00.00 0/5 [E/O] Queue: BNY_CPS ECRDC: 5G713A4 R 2 *Y27905/002/5* Description: FORM 10-K 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 1 5.8Item 15. Exhibits and Financial Statement Schedules 29 4 7: 3 0: 1 07 5 N-20T0/his report contains trademarks, service marks and registered marks of us and our subsidiaries, and other companies, as Aindicated. 22-J0* e: 0 Dat0.5 Explanatory note 0/ . TF0ol2lowing completion of its merger with a wholly owned subsidiary of Alcatel, Lucent Technologies Inc. is no longer subject to the 90 999r2.ep0orting requirements of the U.S. Securities Exchange Act of 1934, as amended, but is voluntarily filing this report in order to be Y9i0n c0ompliance with the terms of the Indenture for its 2-3/4% Series A Convertible Senior Debentures due 2023 and its 2-3/4% BNS0e/ries B Convertible Senior Debentures due 2025. ator: 55 Oper900 2 79 2 0Y7 0 55 2 4-Y 2 Y 9N 212)B* e: ( n o h P 2 R K A R 4 YO 713G NEW RC: 5ED F C O E WN O] O B / e: E Sit [ M E T S Y S G N TI T E S E P YT TN D E K TEUC 10- EGRATEL L CPSORM OWNE INTame: ALCA ueue: BNY_escription: F 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 BNY Y27905 003.00.00.00 0/2 [E/O] Queue: BNY_CPS ECRDC: 3G672A5 R 2 *Y27905/003/2* Description: FORM 10-K 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. 1 8 5. 4 37:Company History 0: 1 07 L2ucent was initially the systems and technology units that had been part of AT&T Corp., including the research and development N-20i0/con Bell Laboratories. Although we separated from AT&T on September 30, 1996, our history dates back to 1869 when the AWestern Electric Manufacturing Company was formed. By 1880, it was the largest electrical manufacturing company in the U.S. 22-Ja0nd* it would become the exclusive developer and manufacturer of equipment for the Bell telephone companies that operated the e: 0 DatU0..S2.’ telephone network. In 1907, AT&T (formerly American Bell) and Western Electric engineering departments were combined i0nto/ a single organization that, in 1925, would become Bell Telephone Laboratories and generate some of the most significant . Ts0ci3entific and technological discoveries of the 20th century. 90 999E3.ff0ective January 1, 1984, AT&T agreed to divest its local Bell telephone companies. As part of this divestiture, a new unit, AT&T Y900 NT0echnologies, assumed Western Electric’s charter. In 1989, AT&T Technologies branched into several business units, which B / ator: w5o5uld all later combine with Bell Labs to become the original Lucent Technologies. OperA90T0&T launched Lucent in April 1996 with an initial public offering. The spin-off was completed in September 1996 when AT&T d7is9tributed its shares of Lucent to AT&T shareholders. 2 0Y7 0 55 2 3 4-Y 2 Y 9N 212)B* e: ( n o h P 2 R K A R 5 YO 672G NEW RC: 3ED F C O E WN O] O B / e: E Sit [ M E T S Y S G N TI T E S E P YT TN D E K TEUC 10- EGRATEL L CPSORM OWNE INTame: ALCA ueue: BNY_escription: F 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 BNY Y27905 004.00.00.00 0/1 [E/O] Queue: BNY_CPS ECRDC: 6G872AR 2 *Y27905/004/1* Description: FORM 10-K 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 1IMS element trials with 24 customers, and we are particularly encouraged by the increased number of trials and discussions under 8 45.way with customers outside the U.S. We expect to continue to gradually convert IMS trials into deployments. 7: 3 0:By assisting networks to transform and by deploying core IMS network solutions, we have achieved some critical initial steps in 1 07 r1ealizing our vision and are now focusing our efforts and resources on bringing to market the “IMS adjacencies” — the products N-20a0/nd services that are enabled by, and deployed on, a core IMS network. We believe we are well positioned to realize accelerated A e: 22-Jgs00eror*vwicthe sa nind aprreoafista sbuilcithy aass saopcpialicteadti ownitsh, stheerv bicroeas,d ceor nIMteSn to dpepliovreturyn,i tVyo bIPy psrooluvitdioinngs ,o muro bcuiles thoimghe-rssp weiethd IdMaSta-,e nneaxbtl-egde nperoradtuiocnts oapntdic al Datn0.et1working and broadband access and data, as well as integrated operating support systems and business support systems s0er/vices. . T04 Y99999WA04.0ceu00 ictyo nNtientuweo rtok Aderclihvieter cotuurr en,e ax ts-geervnic oep-taicwaal,r ed,a etan dn-etotw-eonrdki nagrc ahnitde cbturorea ddbeasnigdn aecdc teos sd eploivretfro mlioo troe ceuffsictoiemnetlyrs a, ti nac lluodwienrg claoustn hchiginhg- Nb0andwidth IP-based multimedia services to business, residential and mobile subscribers. Ethernet over SONET and over SDH B / Operator: ciM905no iVIn05PtiieTnwVuTe insV ™afiss,c aIaP lt Tr2eV0n 0ds6 oa,f ntawdna dwr ewe niltohoo wak d atdovi ataiiolcanhbsiel ebv yefo Bcr eoalnlll t Licnauubsestod im ng ercoroswn.t th e nint mthaisn aargeeam. eInn ta adndditi oQnu, awliety coofn Stienruveicde t ofe mataukrees s, iwgnei fuicnavneti lperdo gress 79 2 0Y7 550 2 4 4-Y 2 Y 9N 212)B* e: ( n o h P 2 R K A R YO 872G NEW RC: 6ED F C O E WN O] O B / e: E Sit [ M E T S Y S G N TI T E S E P YT TN D E K TEUC 10- EGRATEL L CPSORM OWNE INTame: ALCA ueue: BNY_escription: F 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 BNY Y27905 005.00.00.00 0/3 [E/O] Queue: BNY_CPS ECRDC: 3G421A7 R 2 *Y27905/005/3* Description: FORM 10-K 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 81interest in content such as games, music and entertainment. 5. 4 37:To meet these challenges, we have been adapting our product portfolio around a common IMS platform designed to give our 0: 07 1c3ustomers the flexibility to build the types of networks and offer the types of services required to best meet the demand for N-20ct0/hoen vNeertgweodr kb rSooaldubtiaonnds Gserrovuicpe. sT. hEisff ecchtaivneg eO icst oebnearb 1li,n 2g0 u0s5 t,o w iem cporomvbei noeudr eofufirc mienocbyil,it ym aanrkde wt airpeplinroea bcuhs ainneds csoesst isnttrou cat usrineg. lWe eu nairt,e A 22-Ja0ls*o focused on the following actions: e: 0 Dat(cid:129)0. T3he implementation of a services-led software strategy that combined our network operations software business with our 0L/ucent Worldwide Services business, which is expected to bring better alignment, focus, efficiency and differentiating solutions. . T 05 Y99999(cid:129)05.0 pT00rhoev iodpetrism firzoamtio fno uorf toou trw sou.pply chain network, including the consolidation of our EMS (electronic manufacturing service) N 0 ator: B(cid:129)5 T5/he continuation of business process simplification efforts across the Company, including corporate center functions. Oper900 5 79 2 0Y7 0 55 2 4-Y 2 Y 9N 212)B* e: ( n o h P 2 R K A R 7 YO 421G NEW RC: 3ED F C O E WN O] O B / e: E Sit [ M E T S Y S G N TI T E S E P YT TN D E K TEUC 10- EGRATEL L CPSORM OWNE INTame: ALCA ueue: BNY_escription: F 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 BNY Y27905 006.00.00.00 0/3 [E/O] Queue: BNY_CPS ECRDC: 4G264A0 R 2 *Y27905/006/3* Description: FORM 10-K 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 1vendors to help customers address their business needs. 8 5. 4 7: 0:3Consolidation 1 07 T3here has been some consolidation among service providers as they look to expand their scope and scale, while improving cost N-20e0/fficiencies. This industry dynamic presents both challenges and opportunities for equipment vendors. One potential challenge A e: 22-Jmd00eap*yl ocyommeen itns .t hHeo wfoermve ro,f wraet iaonntaicliizpeadte c tahpaitt athl sepree nwdililn agl sino tbhee ofuptpuorert.u Inni taiedsd, itaiosn c,a inrrtieegrsra wtiiolln r eaqcutiivrieti eass smisatay ndceela iny tneegwra tninegtw thoreks e Datl0.arg3e, complex networks. Also, depending on the service providers involved, some of the consolidation could enable certain v0en/dors to extend their reach into customers that were previously focused on different technologies or areas. . T06 90 999C6.o0mpetition Y900 BNT0he/ global telecommunications networking industry remains highly dynamic and competitive. Our current principal competitors ator: i5nc5lude Ciena Corporation, Cisco Systems, LM Ericsson Telephone Company, Fujitsu Limited, Huawei Technologies, Motorola, OperN90E0C Corporation, Nokia Corporation, Nortel Networks Corporation, Samsung Networks, Siemens, UT Starcom, and ZTE C7o9rporation. Some of our competitors, such as Nortel, compete across many of our product lines, while others compete in a small s2ubset of our products. 0Y7 0 55 2 24-YY 6 9N 212)B* e: ( n o h P 2 R K A R 0 YO 264G NEW RC: 4ED F C O E WN O] O B / e: E Sit [ M E T S Y S G N TI T E S E P YT TN D E K TEUC 10- EGRATEL L CPSORM OWNE INTame: ALCA ueue: BNY_escription: F 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 BNY Y27905 007.00.00.00 0/2 [E/O] Queue: BNY_CPS ECRDC: 5G457A0 R 2 *Y27905/007/2* Description: FORM 10-K 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. 1 8Multimedia Network Solutions’ revenues were approximately $1.7 billion during fiscal 2006 and were primarily from large, 5. 7:4established service providers. As of September 30, 2006, Multimedia Network Solutions had approximately 2,200 employees, 3 0:primarily engaged in product development, marketing and general management activities. 1 07 2 AN-20Ce0/sotnavbelirsgheedd Cseorrvei cSeo plurtoiovnidse’ rrse.v Aesn uoef sS wepetreem abpeprr o3x0i,m 2a0t0e6ly, $C6o0n0v emrgilleiodn C dourrein Sgo fliustcioanl 2s 0h0a6d aanpdp rwoexriem aprteimlya 9ri0ly0 f reommp lloayrgeee,s , primarily 22-Je0ng*aged in product development, marketing and general management activities. e: 0 DatL0.uc2ent Worldwide Services’ revenues were approximately $2.3 billion during fiscal 2006. As of September 30, 2006, Lucent W0o/rldwide Services had approximately 10,600 employees dedicated to professional services, managed services, deployment . Ts0er7vices and maintenance services. 90 Y9999F07.in00ancial information about our products is set forth in our Management’s Discussion and Analysis of Financial Condition and NR0esults of Operations starting on page F-11 of Exhibit 13 to this report. B / Operator: O905rg05anization of the Business E7ff9ective October 1, 2005, our reportable segments are Mobility Access and Applications Solutions, Multimedia Network Solutions 2 0aYnd7 Converged Core Solutions, which are all within NSG; Lucent Worldwide Services, which includes our network operations 0 55sof2tware unit formerly included in INS; and Other. These segments are organized around the products and services we sell. 4-Y 2 Y 9N 212)B* 7 e: ( n o h P 2 R K A R 0 YO 457G NEW RC: 5ED F C O E WN O] O B / e: E Sit [ M E T S Y S G N TI T E S E P YT TN D E K TEUC 10- EGRATEL L CPSORM OWNE INTame: ALCA ueue: BNY_escription: F 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 BNY Y27905 008.00.00.00 0/3 [E/O] Queue: BNY_CPS ECRDC: 9G246AR 2 *Y27905/008/3* Description: FORM 10-K 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 1 5.8capabilities to create next-generation service applications such as video telephony or real-time gaming delivered to subscribers 4 7:anytime, anywhere and in ways that enhance their lifestyles. Technologies such as Rev. A are an important part of our future in 3 0:the mobility market because they form the basis of our next-generation networks designed to make these advanced applications a 1 07 r3eality by increasing performance and capacity. N-200/ AThe most important products in Mobility Access Solutions’ CDMA2000 and UMTS/HSPA portfolios are developed internally, 22-Ji0nc*luding radio access products, circuit and packet core backbone networks, and network management, application and service e: d0elivery systems. Mobility Access Solutions also taps into our strengths in voice networking, data and network management and Dato0.pt3ical networking, and leverages the expertise of Lucent Worldwide Services. We have worked and will continue to work with 0/ To0.th8er equipment vendors to help us offer best-in-class, end-to-end solutions and products. 90 9998.0 Y900 8 N0 B / ator: 55 Oper900 79 2 0Y7 0 55 2 4-Y 2 Y 9N 212)B* e: ( n o h P 2 R K A R YO 246G NEW RC: 9ED F C O E WN O] O B / e: E Sit [ M E T S Y S G N TI T E S E P YT TN D E K TEUC 10- EGRATEL L CPSORM OWNE INTame: ALCA ueue: BNY_escription: F 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 BNY Y27905 009.00.00.00 0/5 [E/O] Queue: BNY_CPS ECRDC: 2G921A3 R 2 *Y27905/009/5* Description: FORM 10-K 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 1submissions from a content provider, content management in catalogs, digital rights management, rendering to ensure content is 8 45.formatted for the subscriber’s wireless device, a Web-style page that can serve as the carrier’s “storefront,” and a delivery 7: 0:3mechanism. 1 07 L5ucent Unified Subscriber Data Server™, an advanced customer information data server, enables the creation and maintenance N-20o0/f a single profile for each subscriber and all of the services they use, in contrast to the traditional method of maintaining individual A 22-Js0ub*scriber databases for each service. Date: L0.0uc5ent Intelligent Services Gateway™ (“ISG”), a full-featured and flexible Parlay/OSA gateway, offers mediation gateway and p0ol/icy management capabilities. The ISG supports simplified integration of location- and presence-based applications and other Tm0.o9bile/converged applications into carrier networks. 90 9999.0 Y9M0u0ltimedia Network Solutions N0 ator: BMp5ruo5/lvtiimdiendgi ae nNde-ttow-oernkd S sooluluttioionnss dtheavet leonpasb olep tsicearvl,i cdea tpar oavnidd ebrrso taod obfafenrd b alecncedsesd smoululttiimonesd ifao rs wubirseclirnibee nre stewrovrickes,s woivthe rs ipneteclilaigl efonct us on Opern90et0work infrastructures. 79 T2he optical unit builds laser-based transmission and switching systems that transport information using pulses of light. These 0Y7 550sys2tems include core backbone high-capacity systems for fast, efficient transport of information over long distances; intelligent 4-oYptical switches and cross-connects in the center of the network that aggregate and bridge metropolitan area traffic for transport 2 Y 9N e: (212)ooBvpet*irc lsoynsgt-ehmasu l foarn db outlhtr avo-liocneg a hnadu dl aotpat itcraalf fnice tinw omrkestr;o apnodli tmane toror preogliitoanna ol patriecaals s. y stems that aggregate and increase the use of fiber n o h P 9 2 R K A R 3 YO 921G NEW RC: 2ED F C O E WN O] O B / e: E Sit [ M E T S Y S G N TI T E S E P YT TN D E K TEUC 10- EGRATEL L CPSORM OWNE INTame: ALCA ueue: BNY_escription: F 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 BNY Y27905 010.00.00.00 0/7 [E/O] Queue: BNY_CPS ECRDC: 4G079A5 R 2 *Y27905/010/7* Description: FORM 10-K 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 1believe these products are ideally suited for IP video broadcast and pay-per-view deployments because of their multicast 8 45.capabilities, which limit the amount of optical bandwidth carriers must provide between the central office and the remote location, 7: 3thereby reducing expenses. Stinger® DSLAMs are a critical component of today’s largest commercial IPTV deployment. 0: 1 07 T7he AnyMedia® Access Platform is a next-generation Digital Loop Carrier system, widely sold outside the U.S. to support mixed N-20d0/eployments of circuit switched voice lines and broadband DSL. AnyMedia® is an IP Line Gateway that carriers may deploy to A 22-Jm0ig*rate from Class 5 switches to softswitches. Date: T0.0he7 Lucent Ethernet Router™ portfolio delivers scalable, carrier-grade Ethernet solutions from access to core. Ethernet in the m0e/tropolitan network — carrier Ethernet — is a particularly attractive solution to provide connectivity between multiple business Ts0.ite0s. Additionally, carrier Ethernet now features capabilities that makes it suitable not only for delivering business services, but Y99999as10.0ulsp01op roerstsid tehnet imalo tsritp sletr ipnlgaeyn —t c ianrcrileurd ianvga IilPaTbVili t—y r eaqnudi rweimreelenstss abnadc kdhealiuvle arsn da trraanngsep oorft .E Tthheer nLeutc efunnt cEtitohnearnliteyt fRroomut eErt™he rpnoertt fsowlioit ching, NM0PLS, Virtual Private LAN Services (“VPLS”) and Hierarchical-VPLS capabilities. B / ator: 55 Oper900 10 79 2 0Y7 0 55 2 4-Y 2 Y 9N 212)B* e: ( n o h P 2 R K A R 5 YO 079G NEW RC: 4ED F C O E WN O] O B / e: E Sit [ M E T S Y S G N TI T E S E P YT TN D E K TEUC 10- EGRATEL L CPSORM OWNE INTame: ALCA ueue: BNY_escription: F