Lucent Q3 Revenues Slide

MURRAY HILL, N.J. -- Lucent Technologies (NYSE: LU - News) today reported results for the third quarter of fiscal 2003, which ended June 30, 2003, in accordance with U.S. generally accepted accounting principles (GAAP). The company recorded revenues of $1.96 billion in the quarter, which represented an 18 percent sequential decline from the $2.4 billion in revenues achieved in the second quarter of fiscal 2003. The company recorded $2.95 billion in revenues in the year-ago quarter.

The company's net loss for the quarter was $254 million or 7 cents per share(1). These results compare with a loss of $351 million or 14 cents per share in the second quarter of fiscal 2003 and a net loss of $8.03 billion or $2.35 per share in the year-ago quarter.

The third quarter's loss per share included the negative impact of charges associated with an impairment of goodwill related to certain multiservice switching products and the revaluation of warrants that are expected to be issued as part of Lucent's global settlement of shareowner litigation, which were offset by certain income tax benefits.

By comparison, the loss per share for the second quarter of fiscal 2003 included the net unfavorable impact of 6 cents per share(2), which was primarily due to charges for Lucent's global settlement of shareowner litigation and the repurchase of convertible securities and debt obligations, certain income tax benefits and a reduction of business restructuring reserves. The loss per share for the year-ago quarter included the net unfavorable impact of $2.11 per share(2) for several items, including deferred tax valuation allowances, business restructuring actions and asset impairments.

EXECUTIVE COMMENTARY ON FINANCIAL RESULTS AND OUTLOOK

"Despite our decline in Mobility revenues this quarter, we were able to continue our progress on the bottom line," said Lucent Technologies Chairman and CEO Patricia Russo. "We also saw some positive indicators in new revenue opportunity areas, highlighted by services contracts with Telecom New Zealand and the U.S. Army, as well as new business partnerships with other technology leaders like Juniper Networks. We will balance our investment in new revenue opportunities with the need to reduce our breakeven further, and we now expect our return to profitability to occur in fiscal 2004."

The company said it is continuing its practice of not providing quarterly revenue guidance.

"This quarter, we continued to see progress on our balance sheet. We contained spending and used only a modest amount of cash, which left us with a balance of about $4.9 billion in cash and short-term investments," said Lucent Technologies Chief Financial Officer Frank D'Amelio. "We continue to see progress in our cost reductions and this helped us post a gross margin of 29 percent despite the revenue decline.

"We clearly have more work to do given the continuing market uncertainty, and we are developing plans to lower our breakeven so that we can return to profitability as soon as possible in fiscal 2004."

BALANCE SHEET UPDATE

As of June 30, 2003, Lucent had $4.9 billion in cash and short-term investments. This represents an increase of approximately $1.5 billion in the quarter. The increase primarily resulted from $1.6 billion raised through a public offering of convertible senior debt. The offering was part of the company's overall effort to strengthen its balance sheet. It provides additional flexibility to repay or repurchase certain short- and medium-term debt obligations over time, or can be used for general corporate purposes. Cash used in operations was $58 million during the quarter, compared with $293 million in the second quarter.

GROSS MARGIN AND OPERATING EXPENSES

Gross margin for the quarter was 29 percent of revenues as compared with 32 percent for the second quarter of fiscal 2003, a sequential decrease of 3 percentage points. The decline was the result of lower sales volume and product mix, related to the Mobility business.

Operating expenses for the third quarter of fiscal 2003 were $842 million as compared with $742 million for the second quarter of fiscal 2003. The sequential increase was primarily due to the net impact of changes in restructuring and bad debt reserves and a goodwill impairment charge in the third quarter. Excluding the impact of these items, sequential operating expenses decreased slightly.

Lucent Technologies Inc.