LUCENT TECHNOLOGIES INC
10-Q, 1999-05-13
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<PAGE>
 1

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                    FORM 10-Q



            X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           ---
                         SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 1999

                                       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 number 001-11639

                            LUCENT TECHNOLOGIES INC.

          A Delaware                                   I.R.S. Employer
          Corporation                                  No. 22-3408857


              600 Mountain Avenue, Murray Hill, New Jersey 07974

                     Telephone - Area Code 908-582-8500




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), and (2) has been subject to such filing
requirements for the past 90 days. Yes .X No ....

At April 30, 1999, 2,672,481,440 common shares were outstanding.








<PAGE>
 2                                                           Form 10-Q - Part I

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF INCOME
                (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

                                           For the Three        For the Six
                                            Months Ended       Months Ended
                                             March 31,           March 31,
                                           1999     1998       1999      1998

Revenues.............................   $ 8,220  $ 6,184    $ 17,484   $14,959

Costs................................     4,327    3,436       8,725     7,958

Gross margin.........................     3,893    2,748       8,759     7,001

Operating Expenses:
Selling, general and
  administrative expenses ...........     1,902    1,501       3,688     3,068
Research and development expenses ...     1,139      932       2,070     1,764
In-process research
 and development expenses............        18      157          39       584
Total operating expenses.............     3,059    2,590       5,797     5,416

Operating income.....................       834      158       2,962     1,585
Other income (expense) - net ........       (65)      31          37       178
Interest expense.....................        95       58         173       120
Income before income taxes...........       674      131       2,826     1,643
Provision for income taxes...........       232      102         956       789

Income before cumulative effect of
  accounting change..................       442       29       1,870       854

Cumulative effect of accounting change
 (net of income taxes of $842).......         -        -       1,308         -

Net income...........................   $   442  $    29    $  3,178   $   854

Earnings per common share - basic:
Income before cumulative effect of
  accounting change..................   $   0.17 $   0.01   $   0.70   $  0.33
Cumulative effect of accounting
  change ............................          -        -       0.49         -
Net income...........................   $   0.17 $   0.01   $   1.19   $  0.33

Earnings per common share - diluted:
Income before cumulative effect of
  accounting change..................   $   0.16 $   0.01   $   0.68   $  0.32
Cumulative effect of accounting
  change ............................          -        -       0.48         -
Net income...........................   $   0.16 $   0.01   $   1.16   $  0.32

Dividends declared
  per common share...................   $   0.00 $   0.00   $   0.04   $  0.0375


See Notes to Consolidated Financial Statements.






<PAGE>
 3                                                           Form 10-Q - Part I

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

                                          March 31,     September 30,
                                            1999            1998
ASSETS

Cash and cash equivalents..............   $   792        $   712

Accounts receivable less
 allowances of $349 at
 March 31, 1999 and $392 at
 September 30, 1998 ...................     8,752          7,014

Inventories............................     4,332          3,081

Contracts in process, net of contract
 billings of $4,370 at
 March 31, 1999 and $3,036 at
 September 30, 1998....................     1,106          1,259

Deferred income taxes - net............     1,632          1,623

Other current assets...................     1,160            493

Total current assets...................    17,774         14,182

Property, plant and equipment, net
  of accumulated depreciation of
  $6,935 at March 31, 1999 and
  $6,392 at September 30, 1998.........     5,751          5,410

Prepaid pension costs..................     6,210          3,754

Deferred income taxes - net............         -            750

Capitalized software development costs.       346            298

Other assets...........................     2,759          2,437

TOTAL ASSETS...........................   $32,840        $26,831


See Notes to Consolidated Financial Statements.



                                    (CONT'D)







<PAGE>
 4                                                           Form 10-Q - Part I

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS (CONT'D)
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

                                        March 31,      September 30,
                                           1999            1998
LIABILITIES

Accounts payable.......................   $ 2,410         $ 2,044
Payroll and benefit-related
  liabilities..........................     1,724           2,515
Postretirement and postemployment
  benefit liabilities..................       184             187
Debt maturing within one year..........     3,185           2,231
Other current liabilities..............     4,059           3,481

Total current liabilities..............    11,562          10,458

Postretirement and postemployment
  benefit liabilities..................     6,471           6,380
Long-term debt ........................     3,716           2,409
Other liabilities......................     2,040           1,969

Total liabilities .....................    23,789          21,216

Commitments and contingencies

SHAREOWNERS' EQUITY

Preferred stock-par value $1.00 per share
 Authorized shares: 250,000,000
 Issued and outstanding shares: none...         -               -
Common stock-par value $.01 per share
 Authorized shares: 6,000,000,000
 Issued and outstanding shares:
 2,672,362,415 at March 31, 1999
 2,658,545,914 at September 30, 1998...        27              27
Additional paid-in capital.............     4,996           4,569
Guaranteed ESOP obligation.............       (34)            (49)
Retained earnings......................     4,384           1,350
Accumulated other comprehensive
 income (loss).........................      (322)           (282)

Total shareowners' equity...............    9,051           5,615

TOTAL LIABILITIES AND
 SHAREOWNERS' EQUITY...................   $32,840         $26,831


See Notes to Consolidated Financial Statements.






<PAGE>
 5                                                           Form 10-Q - Part I

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Dollars in Millions)
                                   (Unaudited)
                                                 For the Six Months
                                                   Ended March 31,
                                                 1999           1998
Operating Activities
Net income...............................     $ 3,178        $   854
Adjustments to reconcile net income
  to net cash (used in)provided by
  operating activities:
   Cumulative effect of accounting change      (1,308)             -
   Business restructuring charge(reversal)          -            (33)
   Depreciation and amortization.........         831            648
   Provision for uncollectibles..........          13             84
   Deferred income taxes.................         272             78
   Purchased in-process research and
     development.........................          39            584
   Increase in accounts receivable ......      (1,879)          (622)
   Increase in inventories
     and contracts in process............      (1,056)          (245)
   Increase(decrease) in accounts
     payable.............................         305           (227)
   Changes in other operating assets
     and liabilities.....................      (1,442)          (510)
   Other adjustments for noncash
     items - net.........................        (420)          (295)
Net cash (used in)provided by
 operating activities....................      (1,467)           316

Investing Activities
Capital expenditures ....................        (806)          (606)
Proceeds from the sale or disposal of
  property, plant and equipment..........          58             42
Purchases of equity investments..........        (116)           (68)
Sales of equity investments..............           1             25
Acquisitions of businesses,
 net of cash acquired....................        (212)           (15)
Dispositions of businesses...............          57            265
Other investing activities - net.........         (12)           (45)
Net cash used in investing activities....      (1,030)          (402)

Financing Activities
Repayments of long-term debt ............          (8)           (62)
Issuance of long-term debt...............       1,825            335
Proceeds of issuance of common stock.....         432            228
Dividends paid...........................        (106)           (97)
S-Corp distribution to stockholder                  -            (10)
Increase (decrease) in short-term
  borrowings - net.......................         455           (645)
Net cash provided by(used in)
  financing activities...................       2,598           (251)

See Notes to Consolidated Financial Statements.

                                    (CONT'D)





<PAGE>
 6                                                           Form 10-Q - Part I

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
                              (Dollars in Millions)
                                   (Unaudited)

                                                  For the Six Months
                                                    Ended March 31,
                                                  1999          1998

Effect of exchange rate
  changes on cash........................          (21)          (42)

Net increase(decrease) in cash and
  cash equivalents.......................           80          (379)

Cash and cash equivalents
  at beginning of year...................          712         1,382

Cash and cash equivalents
  at end of period.......................      $   792       $ 1,003

















See Notes to Consolidated Financial Statements.






<PAGE>
 7                                                            Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
by Lucent pursuant to the rules and regulations of the Securities and Exchange
Commission and, in the opinion of management, include all adjustments necessary
for a fair presentation of the results of operations, financial position and
cash flows for each period shown.

On February 26, 1999 Lucent acquired Kenan Systems Corporation, a privately held
developer of third-party billing and customer care software, in exchange for
25.76 million shares of Lucent common stock. The transaction was accounted for
as a pooling-of-interests. The unaudited consolidated financial statements of
Lucent for prior periods have been restated to include the financial position,
cash flows and results of operations of Kenan. The unaudited consolidated
statements of income for the three and six month periods ended March 31, 1998
were derived by combining the results of operations of Lucent for the three and
six months ended March 31, 1998, respectively with the results of operations of
Kenan for the three and six months ended June 30, 1998, respectively. The
unaudited consolidated balance sheet at September 30, 1998 was derived by
combining the financial position of Lucent at September 30, 1998 with the
financial position of Kenan at December 31, 1998. The unaudited consolidated
statement of cash flows for the six months ended March 31, 1998 was derived by
combining the cash flows of Lucent for the six months ended March 31, 1998 with
the cash flows of Kenan for the six months ended June 30, 1998.

The preparation of financial statements during interim periods requires
management to make numerous estimates and assumptions that impact the reported
amounts of assets, liabilities, revenues and expenses. Estimates and assumptions
are reviewed periodically and the effect of revisions is reflected in the
results of operations of the interim periods in which changes are determined to
be necessary. During the three and six months ended March 31, 1999, improved
performance on multi-year contracts and the resolution of certain contingencies
had a positive impact on the reported results of operations.

The financial statement results for interim periods are not necessarily
indicative of financial results for the full year. These unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto in Lucent's Form 10-K for the year ended
September 30, 1998, the audited supplemental consolidated financial statements
and notes thereto in Exhibit 99-1 of the Company's Form 8-K (dated February 26,
1999) for the year ended September 30, 1998 and the unaudited supplemental
consolidated financial statements and notes thereto included in Exhibit 99-2 of
the Company's Form 8-K (dated February 26, 1999) for the quarterly period ended
December 31, 1998.

The financial statements presented have been restated to reflect the two-for-one
splits of Lucent's common stock which became effective on April 1, 1998 and
April 1, 1999. Certain prior period amounts have been reclassified to conform to
the current period presentation.

2. ACCOUNTING CHANGE - EMPLOYEE BENEFIT PLANS

Effective October 1, 1998, Lucent changed its method for calculating the market-
related value of plan assets used in determining the expected return-on-asset
component of annual net pension and postretirement benefit costs. Under the
previous accounting method, the calculation of the market-related value of plan
assets included only interest and dividends immediately, while all other
realized and unrealized gains and losses were amortized on a straight-line basis
over a five-year period. The new method used to calculate market-related value
includes immediately an amount based on Lucent's historical asset returns and
amortizes the difference between that amount and the actual return on a
straight-line basis over a five-year period. The new method is preferable under
Statement of Financial Accounting Standards No. 87 because it results in
calculated plan asset values that are closer to current fair value, thereby
lessening the accumulation of unrecognized gains and losses, while still
mitigating the effects of annual market value fluctuations.






<PAGE>
 8                                                            Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

The cumulative effect of this accounting change related to periods prior to
fiscal year 1999 of $2,150 ($1,308 after-tax, or $0.49 and $0.48 per basic and
diluted share, respectively) is a one-time, non-cash credit to fiscal 1999
earnings. This accounting change also resulted in a reduction in benefit costs
as a result of the change in Lucent's pension and postretirement accounting in
the three and six months ended March 31, 1999 that increased income by $107 ($65
after-tax, or $0.02 per basic and diluted share) and $215 ($130 after-tax, or
$0.05 per basic and diluted share), respectively as compared to the previous
accounting method. A comparison of pro forma amounts is presented below showing
the effects if the accounting change were applied retroactively:

<TABLE>
<CAPTION>
                                              Three Months                Six Months
                                             Ended March 31,            Ended March 31,
                                            1999       1998            1999       1998
                                            ----       ----            ----       ----
<S>                                         <C>       <C>             <C>       <C>   
Net Income                                  $  442    $   89          $1,870    $  973
         Earnings per share-basic           $ 0.17    $ 0.03          $ 0.70    $ 0.37
         Earnings per share-diluted         $ 0.16    $ 0.03          $ 0.68    $ 0.37
</TABLE>


3. COMPREHENSIVE INCOME

Lucent has adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" as of October 1, 1998 which requires new
standards for reporting and display of comprehensive income and its components
in the financial statements. However, it does not affect net income or total
shareowners' equity. The components of comprehensive income, net of tax, are as
follows:

<TABLE>
<CAPTION>
                                        Three Months Ended        Six Months Ended
                                             March  31,              March  31,
                                          1999       1998         1999       1998
                                       --------------------     --------------------
<S>                                    <C>          <C>         <C>         <C>   
Net income...........................  $  442       $  29       $ 3,178     $  854

Other comprehensive income(loss):
 Foreign currency translation
    adjustments......................     (96)        (31)          (45)      (113)
 Unrealized holding gains(losses)
    arising during the period........     (13)          3            (2)       (18)
 Minimum pension liability adjustment       7           -             7          -
Comprehensive income.................  $  340       $   1       $ 3,138     $  723
</TABLE>

The after-tax components of accumulated other comprehensive income(loss) are as
follows:

<TABLE>
<CAPTION>
                                           Foreign Currency              Total Accumulated
                                              Translation               Other Comprehensive
                                             Adjustments      Other        Income(Loss)
                                           ----------------   -----     -------------------
<S>                                        <C>                <C>       <C>
Accumulated other comprehensive income
  (loss) at September 30, 1998........        $ (279)         $ (3)           $ (282)
Other comprehensive income (loss)
 for the period.......................           (45)            5               (40)
Accumulated other comprehensive income
  (loss) at March 31, 1999............        $ (324)         $  2            $ (322)
</TABLE>

The foreign currency translation adjustments are not currently adjusted for
income taxes since they relate to indefinite investments in non-United States
subsidiaries.
<PAGE>
 9                                                          Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                (Unaudited)
4.  ACQUISITIONS

In the quarter ended March 31, 1999, Lucent completed the purchases of
WaveAccess Ltd., the Ethernet LAN component business of Enable Semiconductor,
and Sybarus Technologies. In the quarter ended December 31, 1998 Lucent
completed the purchase of Quadritek Systems, Inc.

The following table presents the aggregate information related to these
acquisitions:

                                Three Months Ended        Three Months Ended
                                     12/31/98                   3/31/99
                               --------------------      --------------------
Purchase price................         $50                       $137
Goodwill......................          24                        109
Existing technology...........           5                         12
Purchased IPR&D (after-tax)...          14                         15
Goodwill amortization
  period (years)..............           8                        4-7
Existing technology
  amortization period (years).           6                          7

All of the above acquisitions were accounted for under the purchase method of
accounting.

Included in the purchase price for the above acquisitions was purchased
in-process research and development, which was a noncash charge to earnings as
the related technology had not reached technological feasibility and had no
future alternative use. The remaining purchase price, less liabilities assumed,
was allocated to tangible assets and intangible assets, including goodwill and
existing technology.

The value allocated to purchased in-process research and development was
determined utilizing an income approach that included an excess earnings
analysis reflecting the appropriate cost of capital for the investment.
Estimates of future cash flows related to the in-process research and
development were made for each project based on Lucent's estimates of revenue,
operating expenses and income taxes from the project. These estimates were
consistent with historical pricing, margins and expense levels for similar
products.

Revenues were estimated based on relevant market size and growth factors,
expected industry trends, individual product sales cycles and the estimated life
of each product's underlying technology. Estimated operating expenses, income
taxes and charges for the use of contributory assets were deducted from
estimated revenues to determine estimated after-tax cash flows for each project.
Estimated operating expenses include cost of goods sold, selling, general and
administrative expenses and research and development expenses. The research and
development expenses include estimated costs to maintain the products once they
have been introduced into the market and generate revenues and costs to complete
the in-process research and development.

The discount rates utilized to discount the projected cash flows were based on
consideration of Lucent's weighted average cost of capital, as well as other
factors including the useful life of each project, the anticipated profitability
of each project, the uncertainty of technology advances that were known at the
time and the stage of completion of each project.

Management is primarily responsible for estimating the fair value of the assets
and liabilities acquired, and has conducted due diligence in determining the
fair value. Management has made estimates and assumptions that affect the
reported amounts of assets, liabilities, and expenses resulting from such
acquisitions. Actual results could differ from those amounts.
<PAGE>
 10                                                         Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

5. ASCEND COMMUNICATIONS, INC.

On January 13, 1999, Lucent announced that it had entered into a definitive
agreement to merge with Ascend Communications, Inc. Under the terms of the
agreement, which was approved by each company's board of directors, each share
of Ascend common stock will be converted into 1.650 shares of Lucent common
stock. Based on Lucent's closing stock price of $53 15/16 on January 12, 1999,
the transaction would be valued at approximately $20 billion. The transaction,
which is subject to customary conditions and regulatory approvals, is expected
to be completed during Lucent's third fiscal quarter, which ends June 30, 1999,
and is expected to be accounted for as a pooling-of-interests.

6.   SUPPLEMENTARY BALANCE SHEET INFORMATION

Inventories at March 31, 1999 and September 30, 1998 were as follows:

                                        March 31,       September 30,
                                          1999              1998
                                     --------------    ---------------
     Completed goods ...............    $ 2,281           $ 1,578
     Work in process and
       raw materials................      2,051             1,503
     Total inventories .............    $ 4,332           $ 3,081

7.   BUSINESS RESTRUCTURING AND OTHER CHARGES

For the three months ended March 31, 1999 and 1998, $19 and $99, respectively,
were applied to the 1995 business restructuring reserve. For the six months
ended March 31, 1999 and 1998, $32 and $137, respectively, were applied to the
1995 business restructuring reserve. Included in the three and six months ended
March 31, 1998 activity was a $33 reversal of business restructuring and other
charges primarily related to employee separations. The remaining reserve for
business restructuring as of March 31, 1999 was $219.

8. EARNINGS PER COMMON SHARE

Basic earnings per common share was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share was calculated by dividing net income by the sum of the
weighted average number of common shares outstanding plus all additional common
shares that would have been outstanding if potentially dilutive common shares
had been issued.

Earnings per share amounts for the periods presented have been restated to
reflect the two-for-one splits of Lucent's common stock, which became effective
on April 1, 1998 and April 1, 1999. The following table reconciles the number of
shares utilized in the earnings per share calculations for the three and six
month periods ended March 31, 1999 and 1998:
<PAGE>
 11                                                         Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                     Three Months Ended       Six Months Ended
                                          March 31,               March 31,
                                       1999       1998        1999        1998
                                   -------------------------------------------
<S>                                  <C>        <C>          <C>        <C>   
Net income........................   $  442     $   29       $3,178     $  854

Earnings per common share - basic:
 Income before cumulative effect
  of accounting change............   $ 0.17     $ 0.01       $ 0.70     $ 0.33
 Cumulative effect of accounting
   change.........................        -          -         0.49          -
 Net income.......................   $ 0.17     $ 0.01       $ 1.19     $ 0.33

Earnings per common share - diluted:
 Income before cumulative effect
   of accounting change...........   $ 0.16     $ 0.01       $ 0.68     $ 0.32
 Cumulative effect of accounting
   change.........................        -          -         0.48          -
 Net income.......................   $ 0.16     $ 0.01       $ 1.16     $ 0.32


Number of Shares (in millions)
- ----------------------------------
Common shares - basic.............  2,666.7    2,633.9      2,663.5    2,617.1

Effect of dilutive securities:
 Stock options....................     72.9       47.1         70.2       41.8
 Other............................      5.0        2.5          5.0        1.8

Common shares - diluted...........  2,744.6    2,683.5      2,738.7    2,660.7

Options excluded from the
computation of earnings per share
- - diluted since option exercise
price was greater than the
average market price of the
common shares for the period......      1.1        0.3          1.4        0.5
</TABLE>

9.  PHILIPS CONSUMER COMMUNICATIONS ("PCC")

On October 1, 1997, Lucent contributed its Consumer Products business to a new
venture formed by Lucent and Philips Electronics N.V. ("Philips") in exchange
for 40% ownership of PCC. On October 22, 1998, Lucent and Philips announced
their intention to end the PCC venture and agreed to regain control of their
original businesses. The results of operations and net assets of the remaining
businesses Lucent previously contributed to PCC have been consolidated as of
October 1, 1998. The revenues are included in Other Systems and Products. In
December 1998, Lucent sold certain assets of the wireless handset portion of the
remaining businesses to Motorola. Lucent is continuing to look for opportunities
to sell the remaining consumer products businesses.
<PAGE>
 12                                                         Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

10.  COMMITMENTS AND CONTINGENCIES

In the normal course of business, Lucent is subject to proceedings, lawsuits and
other claims, including proceedings under government laws and regulations
related to environmental and other matters. Such matters are subject to many
uncertainties, and outcomes are not predictable with assurance. Consequently,
the ultimate aggregate amount of monetary liability or financial impact with
respect to these matters at March 31, 1999 cannot be ascertained. While these
matters could affect the operating results of any one quarter when resolved in
future periods and while there can be no assurance with respect thereto,
management believes that after final disposition, any monetary liability or
financial impact to Lucent beyond that provided for at March 31, 1999 would not
be material to the annual consolidated financial statements.

Lucent's current and historical operations are subject to a wide range of
environmental protection laws. In the United States, these laws often require
parties to fund remedial action regardless of fault. Lucent has remedial and
investigatory activities underway at numerous current and former facilities. In
addition, Lucent was named a successor to AT&T Corp. ("AT&T") as a potentially
responsible party ("PRP") at numerous "Superfund" sites pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") or comparable state statutes. Under the Separation and Distribution
Agreement ("Separation and Distribution Agreement"), among Lucent, AT&T and NCR
Corporation ("NCR"), dated as of February 1, 1996 as amended and restated,
Lucent is responsible for all liabilities primarily resulting from or relating
to the operation of Lucent's business as conducted at any time prior to or after
the separation from AT&T of the businesses and operations transferred to form
Lucent (the "Separation") including related businesses discontinued or disposed
of prior to the Separation, and Lucent's assets including, without limitation,
those associated with these sites. In addition, under the Separation and
Distribution Agreement, Lucent is required to pay a portion of contingent
liabilities paid out in excess of certain amounts by AT&T and NCR, including
environmental liabilities.

It is often difficult to estimate the future impact of environmental matters,
including potential liabilities. Lucent records 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 range
from 5 to 30 years. Reserves for estimated losses from environmental remediation
are, depending on the site, based primarily upon internal or third party
environmental studies, estimates as to the number, participation level and
financial viability of any other PRPs, the extent of the contamination and the
nature of required remedial actions. Accruals are adjusted as further
information develops or circumstances change. The amounts provided for in
Lucent's consolidated financial statements for environmental reserves are the
gross undiscounted amount of such reserves, without deductions for insurance or
third party indemnity claims. In those cases where insurance carriers or third
party indemnitors have agreed to pay any amounts and management believes that
collectibility of such amounts is probable, the amounts are reflected as
receivables in the financial statements. Although Lucent believes that its
reserves are adequate, there can be no assurance that the amount of capital
expenditures and other expenses which will be required relating to remedial
actions and compliance with applicable environmental laws will not exceed the
amounts reflected in Lucent's reserves or will not have a material adverse
effect on Lucent's financial condition, results of operations or cash flows. Any
possible loss or range of possible loss that may be incurred in excess of that
provided for at March 31, 1999 cannot be estimated.
<PAGE>
 13                                                         Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)


11. SUBSEQUENT EVENTS

Mosaix
- ------
On April 5, 1999, Lucent announced its intention to acquire Mosaix, a Redmond,
Washington-based provider of software that links companies' front and back
offices and helps them deliver more responsive and efficient customer service.
Under the terms of the agreement, each share of Mosaix will be converted into
0.1927 shares of Lucent -- $10.77 per Mosaix share, based on Lucent's April 1,
1999 closing stock price of $55.875. The value of the transaction would be
approximately $145, including approximately 2.8 million common shares to be
reissued by Mosaix, based on Lucent's closing price on April 1, 1999. Lucent
expects that the acquisition will be completed in the quarter ended June 30,
1999 and be accounted for as a pooling-of-interests.
<PAGE>
 14                                                         Form 10-Q - Part I


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

HIGHLIGHTS

Lucent reported net income of $442 million, or $0.16 per share(diluted) for the
quarter ended March 31, 1999. The year-ago quarterly net income was $29 million,
or $0.01 per share(diluted). For the current six month period, Lucent reported
net income of $3,178 million, or $1.16 per share(diluted) compared with net
income of $854 million, or $0.32 per share(diluted) in the same prior period.
Included in the current six month results is a $1,308 million (or $0.48 per
share-diluted) cumulative effect of accounting change related to Lucent's
pension and postretirement benefits (see Note 2). Lucent's income before the
cumulative effect of accounting change was $1,870 million for the six month
period ended March 31, 1999. Net income for the three and six month periods
ended March 31, 1998 includes a $33 million, pre-tax (or $21 million, after-tax)
reversal of the 1995 business restructuring charges.

Gross margin increased $1,145 million and $1,758 million for the quarter and six
month periods ended March 31, 1999, respectively, compared with the year- ago
periods. These increases in gross margin were primarily due to higher sales
volume and improved performance on multi-year contracts compared with the same
periods of the prior year.

Operating income of $834 million reflects an increase of $676 million in the
quarter compared with the same quarter in 1998 and was 10.1% of revenues. For
the six months ended March 31, 1999, operating income of $2,962 million reflects
an increase of $1,377 million, largely due to increased sales levels.

On January 13, 1999, Lucent announced that it had entered into a definitive
agreement to merge with Ascend Communications, Inc. Under the terms of the
agreement, which was approved by each company's board of directors, each share
of Ascend common stock will be converted into 1.65 shares of Lucent common
stock. Based on Lucent's closing stock price of $53 15/16 on January 12, 1999,
the transaction would be valued at approximately $20 billion. The transaction,
which is subject to customary conditions and regulatory approvals, is expected
to be completed during Lucent's third fiscal quarter, which ends June 30, 1999,
and is expected to be accounted for as a pooling-of-interests.

On January 22, 1999, Lucent completed the acquisition of WaveAccess. The
acquisition was accounted for using the purchase method of accounting and has
been included in the financial statements for the periods ended March 31, 1999.

On February 22, 1999, Lucent acquired Sybarus Technologies, a privately held
semiconductor design company based in Ottawa, Canada. The transaction was
accounted for under the purchase method of accounting and has been included in
the financial statements for the periods ended March 31, 1999.

During the quarter ended March 31, 1999, Lucent acquired the Ethernet LAN
component business of Enable Semiconductor ("Enable"), a privately held company
based in Milpitas, California. The transaction was accounted for under the
purchase method of accounting and has been included in the financial statements
for the periods ended March 31, 1999.
<PAGE>
 15                                                         Form 10-Q - Part I


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

KEY BUSINESS CHALLENGES

Lucent continues to face significant competition and expects that the level of
competition on pricing and product offerings will intensify. Lucent expects that
new competitors will enter its markets as a result of the trend toward global
expansion by foreign and domestic competitors as well as continued changes in
technology and public policy. These competitors may include entrants from the
telecommunications, software, data networking and semiconductor industries.
Existing competitors have, and new competitors may have, strong financial
capability, technological expertise, well-recognized brand names and a global
presence. As a result, Lucent's management periodically assesses market
conditions and redirects the Company's resources to meet the challenges of
competition. Steps Lucent may take include acquiring or investing in new
businesses and ventures, partnering with existing businesses, delivering new
technologies, closing and consolidating facilities, disposing of assets,
reducing work force levels or withdrawing from markets.

Lucent has taken measures to manage the seasonality of its business by changing
the date on which its fiscal year ends and its compensation programs for
employees. As a result, Lucent has achieved a more uniform distribution of
revenues -- accompanied by a related redistribution of earnings -- throughout
the year. Revenues and earnings still remain higher in the first fiscal quarter
primarily because many of Lucent's large customers historically delay a
disproportionate percentage of their capital expenditures until the fourth
quarter of the calendar year (Lucent's first fiscal quarter).

The purchasing behavior of Lucent's largest customers has increasingly been
characterized by the use of fewer, larger contracts. These contracts typically
involve longer negotiating cycles, require the dedication of substantial amounts
of working capital and other resources, and in general require costs that may
substantially precede recognition of associated revenues. Moreover, in return
for larger, longer-term purchase commitments, customers often demand more
stringent acceptance criteria, which can also cause revenue recognition delays.
Lucent has increasingly provided or arranged long-term financing for customers
as a condition to obtain or bid on infrastructure projects. Certain multi-year
contracts involve new technologies that may not have been previously deployed on
a large-scale commercial basis. On its multi-year contracts, Lucent may incur
significant initial cost overruns and losses that are recognized in the quarter
in which they become ascertainable. Further, profit estimates on such contracts
are revised periodically over the lives of the contracts, and such revisions can
have a significant impact on reported earnings in any one quarter.

Historically, a limited number of customers have provided a substantial portion
of Lucent's total revenues. The loss of any of these customers, or any
substantial reduction in orders by any of these customers, could materially
adversely affect Lucent's operating results.

Lucent has been successful in diversifying its customer base and seeking out new
types of customers globally. These new types of customers include competitive
access providers, competitive local exchange carriers, wireless service
providers, cable television network operators and computer manufacturers.
<PAGE>
 16                                                         Form 10-Q - Part I


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


REVENUES - THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS ENDED
MARCH 31, 1998

Total revenues increased 32.9% to $8,220 million in the quarter compared with
the same quarter of 1998, due to increases in sales from Systems for Network
Operators, Business Communications Systems, Microelectronic Products and Other
Systems and Products. For the quarter, sales within the United States increased
by 24.3% compared with the same quarter in 1998 and sales outside the United
States increased 60.6% compared with the same quarter last year. Sales outside
of the United States were 28.8% of revenues for the current quarter as compared
to 23.9% of revenues for the year-ago quarter.

The following table presents Lucent's revenues by product line, and the
approximate percentage of total revenues for the three months ended March 31,
1999 and 1998:

                                                      Three Months
                                                         Ended
                                                       March  31,
  Dollars in Millions                       --------------------------------
                                                 1999             1998
                                            -------------    ---------------
Systems for Network Operators........       $5,149   63%     $3,681   60%
Business Communications Systems......        1,987   24       1,730   28
Microelectronic Products.............          851   10         705   11
Other Systems and Products...........          233    3          68    1
Total................................       $8,220  100%     $6,184  100%

Revenues from SYSTEMS FOR NETWORK OPERATORS increased $1,468 million, or 39.9%
in 1999 compared with the same quarter in 1998. Revenues were driven by sales of
wireless systems, optical networking systems, data networking systems for
service providers, switching systems, communications software and services.
Continued demand for data services and Internet access in businesses and
residences contributed to the group's quarterly revenues.

Revenues from Systems for Network Operators in the United States increased by
28.1% over the year-ago quarter. Revenues generated outside the United States
increased 82.6% compared with the same quarter in 1998 due to revenue growth in
all major international regions. Revenues generated outside the United States
represented 28.2% of revenues for the quarter compared with 21.6% for the same
quarter of 1998.

Revenues from BUSINESS COMMUNICATIONS SYSTEMS increased $257 million, or 14.9%
compared with the year-ago quarter. Increased sales of Definity(R) enterprise
communication servers, including those with Call Center applications, messaging
systems, and NetCare(R) services contributed to the increased revenue for the
quarter. Sales within the United States increased 10.3% for the quarter compared
with the same quarter of 1998. Revenues generated outside the United States
increased by 33.9%. Revenues generated outside the United States represented
22.6% of revenues for the quarter compared with 19.4% in the same quarter in
1998.


- --------------------------------------
(R)  Registered trademark of Lucent
<PAGE>
 17                                                         Form 10-Q - Part I


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

Revenues from MICROELECTRONIC PRODUCTS increased $146 million, or 20.7% compared
with the year-ago quarter driven by sales of optoelectronics components and
customized chips for high performance communications, data networking, and
computing. Increased revenues from power systems also contributed to the
increase. Sales within the United States increased 4.7% compared to the same
quarter in 1998. Revenues generated outside the United States increased 37.3%.
The growth in revenues outside the United States was driven by sales in the
Asia/Pacific, including China, and Europe/Middle-East/Africa regions. Revenues
generated outside the United States represented 55.8% of sales for the quarter
compared with 49.1% for the same quarter of 1998.

Revenues from OTHER SYSTEMS AND PRODUCTS increased $165 million compared with
the year-ago quarter primarily due to the consolidation of the businesses
regained from the PCC venture (see Note 9).

COSTS AND GROSS MARGIN - THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS
ENDED MARCH 31, 1998

Total costs increased by $891 million, or 25.9% in 1999 compared with the same
quarter in 1998 primarily due to higher sales volume. As a percentage of
revenue, gross margin increased to 47.4% from 44.4% in the year-ago quarter. The
increase this quarter compared with the same quarter in 1998 reflects a more
favorable mix of products and improved performance on multi-year contracts.

OPERATING EXPENSES - THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS
ENDED MARCH 31, 1998

Selling, general and administrative expenses as a percentage of revenues were
23.1% for the quarter, a decrease of 1.2 percentage points compared with 24.3%
for the same quarter in 1998.

Selling, general and administrative expenses increased $401 million, or 26.7%
compared with the same year-ago quarter. This increase was primarily associated
with higher sales levels.

Research and development expenses represented 13.9% of revenues for the quarter
compared with 15.1% of revenues for the same quarter of 1998.

Research and development expenses increased $207 million during the quarter
compared with the same year-ago quarter. This was primarily due to increased
expenditures in support of wireless, data networking, optical networking and
switching, and microelectronic products.

The purchased in-process research and development expenses for the 1999 quarter
were $18 million associated with the acquisitions of Sybarus, WaveAccess and
Enable compared with $157 million related to the acquisition of Prominet for the
same quarter of 1998.
<PAGE>
 18                                                         Form 10-Q - Part I


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

OTHER INCOME(EXPENSE), INTEREST EXPENSE AND PROVISION FOR INCOME TAXES - THREE
MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS ENDED MARCH 31, 1998

Other income(expense) - net was an expense of $65 million as compared to income
of $31 million for the year-ago quarter. Contributing to the decrease were
higher losses on foreign exchange and increased charitable contributions in the
current quarter.

Interest expense for the quarter increased $37 million to $95 million compared
with the same quarter in 1998. The increase in interest expense is due to higher
debt levels for the quarter ended March 31, 1999 compared with the same quarter
in 1998.

The effective income tax rate for the quarter was 34.4%, a decrease from 77.9%
in the same quarter of 1998. This decrease was due to the 1998 write-off of
non-tax deductible purchased in-process research and development expenses
associated with the acquisition of Prominet. Excluding the impact of the
purchased in-process research and development expenses associated with the
acquisition of Enable and WaveAccess in 1999 and Prominet in 1998, the effective
tax rate was 34.0% for 1999 as compared to 35.4% for 1998. This decrease is
primarily due to the tax impact of foreign activity.

REVENUES - SIX MONTHS ENDED MARCH 31, 1999 VERSUS SIX MONTHS ENDED MARCH 31,
1998

Total revenues increased to $17,484 million, or 16.9% compared with the same six
month period in 1998, due to increases in sales from Systems for Network
Operators, Business Communications Systems, Microelectronic Products and Other
Systems and Products. Revenue growth was due to sales increases globally. Total
revenue growth for the six month period was driven by sales within the United
States which grew 4.8% compared with the same period in 1998, and sales outside
the United States which increased 52.6% compared with the same period in 1998.

The following table presents Lucent's revenues by product line, and the
approximate percentage of total revenues for the six months ended March 31, 1999
and 1998:

                                                       Six Months
                                                          Ended
                                                        March 31,
  Dollars in Millions                       --------------------------------
                                                 1999              1998
                                            --------------    --------------
Systems for Network Operators........       $ 11,324   64%    $  9,675   65%
Business Communications Systems......          3,962   23        3,660   24
Microelectronic Products.............          1,672   10        1,480   10
Other Systems and Products...........            526    3          144    1
Total................................       $ 17,484  100%    $ 14,959  100%
<PAGE>
 19                                                         Form 10-Q - Part I

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

Revenues from SYSTEMS FOR NETWORK OPERATORS increased $1,649 million, or 17.0%
compared with the same six month period in 1998. The increase resulted from
higher sales of switching and optical networking systems, data networking
systems for service providers, wireless systems, communications software and
services. Demand for those products was driven in part by second line subscriber
growth in businesses and residences for Internet services and data traffic.

Revenues from Systems for Network Operators in the United States was flat
compared to the year-ago six month period. Revenues generated outside the United
States for 1999 increased 70.5% compared with the same six month period in 1998
due to revenue growth in the Europe/Middle-East/Africa and Caribbean/Latin
America regions. Revenues generated outside the United States represented 35.6%
of revenues for 1999 compared with 24.4% in same six month period of 1998.

Revenues from BUSINESS COMMUNICATIONS SYSTEMS increased $302 million, or 8.3%
compared with the same six month period in 1998. This increase was led by sales
of DEFINITY(R) enterprise communication servers, NetCare(R) services and
messaging systems. Revenues generated outside the United States increased by
18.8%, due to growth in all major international regions. Revenues generated
outside the United States represented 20.8% of the revenue for 1999 compared
with 19.0% in the same six month period of 1998. For 1999, sales within the
United States increased 5.8% compared with the same six month period of 1998.

Revenues from MICROELECTRONIC PRODUCTS increased $192 million, or 13.0% for 1999
compared with the same six month period in 1998 due to higher sales of
optoelectronic components and customized chips for high performance
communications, data networking and computing. Increased sales of power systems
also contributed to the increase. Sales within the United States were relatively
flat compared with the same period in 1998. Revenues generated outside the
United States increased 28.3% compared with the same period in 1998. The growth
in revenues generated outside the United States was driven by sales in the
Asia/Pacific, including China, Europe/Middle-East/Africa and Canada regions.
Revenues generated outside the United States represented 55.6% of sales compared
with 48.9% for the same six month period of 1998.

Revenues from OTHER SYSTEMS AND PRODUCTS increased $382 million compared with
the year-ago quarter primarily due to the consolidation of the businesses
regained from the PCC venture (see Note 9).

COSTS AND GROSS MARGIN - SIX MONTHS ENDED MARCH 31, 1999 VERSUS SIX MONTHS
ENDED MARCH 31, 1998

Total costs increased $767 million, or 9.6% compared with the same six month
period in 1998 due to the increase in sales volume. Gross margin percentage
increased to 50.1% from 46.8% in the year-ago period. The increase in gross
margin percentage for the current six months was due to a more favorable mix of
products and improved performance on multi-year contracts.

OPERATING EXPENSES - SIX MONTHS ENDED MARCH 31, 1999 VERSUS SIX MONTHS ENDED
MARCH 31, 1998

Selling, general and administrative expenses as a percentage of revenues were
21.1% for 1999, an increase of 0.6 percentage points from the same period in
1998.
<PAGE>
 20                                                         Form 10-Q - Part I


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

Selling, general and administrative expenses increased $620 million, or 20.2%
compared with the same period in 1998. This increase is attributed to the higher
sales volume, investment in growth initiatives and increased amortization of
goodwill and existing technology. In addition, the 1998 six-month period
included a $33 million reversal of 1995 business restructuring charges.

Research and development expenses represented 11.8% of revenues for the period,
unchanged from the year-ago six-month period.

Research and development expenses increased $306 million compared with the same
period in 1998. This was primarily due to increased expenditures in support of
wireless, data networking, optical networking, switching and microelectronic
products.

The purchased in-process research and development expenses for 1999 were $39
million reflecting the charges associated with the acquisition of Quadritek,
Sybarus, WaveAccess and Enable, compared with $584 million related to the
acquisitions of Livingston and Prominet for the same period in 1998.

OTHER INCOME, INTEREST EXPENSE AND PROVISION FOR INCOME TAXES -SIX MONTHS
ENDED MARCH 31, 1999 VERSUS SIX MONTHS ENDED MARCH 31, 1998

Other income -- net decreased $141 million for 1999 compared with the same
period in 1998. This decrease was primarily due to the $149 million gain on the
sale of the Company's ATS business in the year-ago period.

Interest expense was $173 million for the first six months of 1999, an increase
of $53 million due to higher debt levels in 1999.

The effective income tax rate was 33.8% for the six months ended March 31, 1999,
a decrease from the effective tax rate of 48.0% in the year-ago period. This
decrease was due to the 1998 write-off of non-tax deductible purchased
in-process research and development expenses associated with the acquisition of
Livingston and Prominet. Excluding the impact of the purchased in-process
research and development expenses associated with the acquisition of Enable and
WaveAccess in 1999 and Prominet and Livingston in 1998, the effective income tax
rate decreased from 35.4% in 1998 to 33.7% in 1999. This decrease was primarily
due to increased research tax credits and the tax impact of foreign activity.

CASH FLOWS - SIX MONTHS ENDED MARCH 31, 1999 VERSUS SIX MONTHS ENDED MARCH 31,
1998

Cash used in operating activities for the six months ended March 31, 1999 was
$1,467 million compared with cash provided by operating activities of $316
million in the same year-ago period. This reduction in cash was primarily due to
increases in accounts receivable and inventories.

Cash payments of $32 million were made for the six-month period ended March 31,
1999, for the 1995 business restructuring charge. Of the 23,000 positions that
Lucent announced it would eliminate in connection with the restructuring
charges, approximately 20,200 positions have been eliminated as of March 31,
1999.
<PAGE>
 21                                                         Form 10-Q - Part I


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

Comparing the six months ended March 31, 1999 and 1998, cash used in investing
activities increased to $1,030 million from $402 million primarily due to
increases in capital expenditures and cash used for acquisitions, and the
decrease in cash from dispositions.

Capital expenditures were $806 million and $606 million for the six-month
periods ended March 31, 1999 and 1998, respectively. Capital expenditures relate
to expenditures for equipment and facilities used in manufacturing and research
and development, including expansion of manufacturing capacity, and expenditures
for cost reduction efforts and international growth.

Cash provided by financing activities for the six months ended March 31, 1999
was $2,598 million compared with $251 million used in financing activities in
the same year-ago period. This increase in cash provided by financing activities
was primarily due to increased issuances of both short- and long-term debt.

The ratio of total debt to total capital (debt plus equity) was 43.3% at March
31, 1999 compared to 45.2% at September 30, 1998.

TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY

Total assets increased $6,009 million, or 22.4%, from fiscal year-end 1998. This
increase was largely due to increases in prepaid pension costs, accounts
receivable, and inventories of $2,456 million, $1,738 million, and $1,251
million, respectively. Prepaid pension costs increased due to the change in
accounting for pensions. The increase in accounts receivable was primarily
related to higher sales volume, and a higher percentage of sales outside the
United States. The increase in inventories resulted from the need to meet
current and anticipated sales commitments to customers.

Total liabilities increased $2,573 million, or 12.1% from fiscal year-end 1998.
This increase was due primarily to higher short- and long-term debt levels.

Working capital, defined as current assets less current liabilities, increased
$2,488 million from September 30, 1998, primarily resulting from the increase in
accounts receivable and inventories, partially offset by higher short-term debt.

On March 15, 1999, Lucent issued $1.36 billion of 6.45% 30 year debentures due
March 15, 2029. Lucent is using the proceeds to reduce its outstanding
commercial paper balance.

At March 31, 1999, Lucent maintained approximately $4,700 million in credit
facilities of which a portion is used to support Lucent's commercial paper
program. At March 31, 1999, approximately $4,200 million was unused.

Future financings will be arranged to meet Lucent's requirements with the
timing, amount and form of issue depending on the prevailing market and general
economic conditions. Lucent anticipates that borrowings under its bank credit
facilities, the issuance of additional commercial paper, cash generated from
operations and short- and long-term debt financings will be adequate to satisfy
its future cash requirements, although there can be no assurance that this will
be the case.
<PAGE>
 22                                                         Form 10-Q - Part I


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

Network operators world-wide are requiring their suppliers to arrange or provide
long-term financing for them as a condition to obtaining or bidding on
infrastructure projects. These projects may require financing in amounts ranging
from modest sums to over a billion dollars. Lucent has increasingly provided or
arranged long-term financing for customers. As market conditions permit,
Lucent's intention is to lay off these long-term financing arrangements, which
may include both commitments and drawn down borrowings, to financial
institutions and investors. This enables Lucent to reduce the amount of its
commitments and free up additional financing capacity.

As of March 31, 1999, Lucent had made commitments or entered into agreements to
extend credit to certain network operators, including PCS and wireless
operators, for an aggregate of approximately $4,360 million. As of March 31,
1999, approximately $635 million had been advanced and was outstanding. Included
in the $4,360 million is approximately $4,030 million to fourteen network
operators. As of March 31, 1999, approximately $515 million had been advanced
and outstanding under seven of these arrangements.

As part of the revenue recognition process, Lucent assesses the collectibility
of its receivables relating to contracts with customers for which Lucent
provides financing.

In addition to the above arrangements, Lucent will continue to provide or commit
to financing where appropriate for its business. The ability of Lucent to
arrange or provide financing for its customers will depend on a number of
factors, including Lucent's capital structure and level of available credit, and
its continued ability to lay off commitments and drawn down borrowings on
acceptable terms.

Lucent believes that it will be able to access the capital markets on terms and
in amounts that will be satisfactory to Lucent and that it will be able to
obtain bid and performance bonds, to arrange or provide customer financing as
necessary, and to engage in hedging transactions on commercially acceptable
terms, although there can be no assurance that this will be the case.

RISK MANAGEMENT

Lucent is exposed to market risk from changes in foreign currency exchange rates
and interest rates, which could impact its results of operations, financial
condition and cash flow. Lucent manages its exposure to these market risks
through its regular operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments. Derivative
financial instruments are viewed as risk management tools and are not used for
speculative or trading purposes. In addition, derivative financial instruments
are entered into with a diversified group of major financial institutions in
order to manage Lucent's exposure to nonperformance by the counterparties on
such instruments.

Lucent manages its ratio of fixed to floating rate debt with the objective of
achieving a mix that management believes is appropriate. To manage this mix in a
cost effective manner, Lucent, from time to time, enters into interest rate swap
agreements, in which it agrees to exchange various combinations of fixed and/or
variable interest rates based on agreed upon notional amounts. Lucent had no
material interest rate swap agreements in effect as of March 31, 1999 and
September 30, 1998. Management does not foresee or expect any significant
changes in its exposure to interest rate fluctuations or in how such exposure is
managed in the near future.
<PAGE>
 23                                                         Form 10-Q - Part I


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

IN-PROCESS RESEARCH AND DEVELOPMENT

In connection with the acquisition of Quadritek in the quarter ended December
31, 1998, Lucent allocated $14 million of the purchase price to purchased in-
process research and development. In connection with the acquisitions of
WaveAccess, Enable and Sybarus, in the quarter ended March 31, 1999, Lucent
allocated $15 million of the purchase prices to purchased in-process research
and development. As part of the process of analyzing each of these acquisitions,
Lucent made a decision to buy technology that had not yet been commercialized
rather than develop the technology internally. Lucent based this decision on
factors such as the amount of time it would take to bring the technology to
market. Lucent also considered Bell Labs' resource allocation and its progress
on comparable technology. Lucent expects to use the same decision process in the
future.

Lucent estimated the fair value of in-process research and development for each
of the above acquisitions using an income approach. This involved estimating the
fair value of the in-process research and development using the present value of
the estimated after-tax cash flows expected to be generated by the purchased
in-process research and development, using risk adjusted discount rates and
revenue forecasts as appropriate. The selection of the discount rate was based
on consideration of Lucent's weighted average cost of capital, as well as other
factors including the useful life of each technology, profitability levels of
each technology, the uncertainty of technology advances that were known at the
time, and the stage of completion of each technology. Lucent believes that the
estimated in-process research and development amounts so determined represent
fair value and do not exceed the amount a third party would pay for the
projects.

Where appropriate, Lucent deducted an amount reflecting the contribution of core
technology from the anticipated cash flows from an in-process research and
development project. At the date of each acquisition, the in-process research
and development projects had not yet reached technological feasibility and had
no alternative future uses. Accordingly, the value allocated to these projects
was capitalized and immediately expensed at acquisition. If the projects are not
successful or completed timely, management's product pricing and growth rates
may not be achieved and Lucent may not realize the financial benefits expected
from the projects.

Quadritek
- ---------
On October 1, 1998, Lucent completed the acquisition of Quadritek. Quadritek was
involved in the development of Internet Protocol ("IP") network administration
software solutions. At the acquisition date, Quadritek was conducting
development, engineering, and testing activities associated with new product
offerings that will address IP name and address automation and the
synchronization of the delivery of network services for IP infrastructure.

WaveAccess
- ----------
On January 22, 1999, Lucent completed the acquisition of WaveAccess. WaveAccess
was involved in the development of packet radio technology for wireless Internet
access and metropolitan area networks. At the acquisition date, WaveAccess was
conducting development, engineering, and testing activities associated with the
next generations of WaveAccess' point-to-point Ethernet bridges, point-to- point
modems, and point-to-multipoint systems.
<PAGE>
 24                                                         Form 10-Q - Part I

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

Sybarus
- -------
On February 22, 1999, Lucent completed the purchase of Sybarus. Sybarus was a
start-up company involved in semiconductor design. At the acquisition date,
Sybarus was developing integrated circuit technology for use in Synchronous
Optical Network and Synchronous Digital Hierarchy high-speed fiber optic
transmission systems.

Enable
- ------
During the quarter ended March 31, 1999, Lucent acquired Enable. Enable was
involved in the development of Ethernet local area network components. At the
acquisition date, Enable was conducting development, engineering, and testing
activities associated with Fast Ethernet and Gigabit Ethernet components for
networking systems.

OTHER

Lucent's current and historical operations are subject to a wide range of
environmental protection laws. In the United States, these laws often require
parties to fund remedial action regardless of fault. Lucent has remedial and
investigatory activities underway at numerous current and former facilities. In
addition, Lucent was named a successor to AT&T as a potentially responsible
party ("PRP") at numerous "Superfund" sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") or
comparable state statutes. Under the Separation and Distribution Agreement,
among AT&T, Lucent and NCR Corporation dated as of February 1, 1996, as amended
and restated, Lucent is responsible for all liabilities primarily resulting from
or related to the operation of Lucent's business as conducted at any time prior
to or after the Separation including related businesses discontinued or disposed
of prior to the Separation, and Lucent's assets including, without limitation,
those associated with these sites. In addition, under the Separation and
Distribution Agreement, Lucent is required to pay a portion of contingent
liabilities paid out in excess of certain amounts by AT&T and NCR, including
environmental liabilities.

It is often difficult to estimate the future impact of environmental matters,
including potential liabilities. Lucent records 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 period of remediation for the applicable site which ranges
from 5 to 30 years. Reserves for estimated losses from environmental remediation
are, depending on the site, based primarily upon internal or third party
environmental studies, and estimates as to the number, participation level and
financial viability of any other PRPs, the extent of the contamination and the
nature of required remedial actions. Accruals are adjusted as further
information develops or circumstances change. The amounts provided for in
Lucent's consolidated financial statements for environmental reserves are the
gross undiscounted amount of such reserves, without deductions for insurance or
third party indemnity claims. In those cases where insurance carriers or third
party indemnitors have agreed to pay any amounts and management believes that
collectibility of such amounts is probable, the amounts are reflected as
receivables in the financial statements. Although Lucent believes that its
reserves are adequate, there can be no assurance that the amount of capital and
other expenditures that will be required relating to remedial actions and
compliance with applicable environmental laws will not exceed the amounts
reflected in Lucent's reserves or will not have a material adverse effect on
Lucent's financial condition, results of operations or cash flows. Any possible
loss or range of possible loss that may be incurred in excess of that provided
for at March 31, 1999 cannot be estimated.
<PAGE>
 25                                                         Form 10-Q - Part I


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

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis of Results of Operations and Financial
Condition and other sections of this report contain forward-looking statements
that are based on current expectations, estimates, forecasts and projections
about the industries in which Lucent operates, management's beliefs and
assumptions made by management. In addition, other written or oral statements
which constitute forward-looking statements may be made by or on behalf of
Lucent. Words such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions ("Future Factors") which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. Lucent undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.

Future Factors include increasing price and product/services competition by
foreign and domestic competitors, including new entrants; rapid technological
developments and changes and Lucent's ability to continue to introduce
competitive new products and services on a timely, cost-effective basis; the mix
of products/services; the achievement of lower costs and expenses; the ability
to successfully integrate the operations and businesses of Ascend, Kenan and
other acquired companies; the outcome and impact of Year 2000; domestic and
foreign governmental and public policy changes which may affect the level of new
investments and purchases made by customers; changes in environmental and other
domestic and foreign governmental regulations; protection and validity of patent
and other intellectual property rights; reliance on large customers; customer
demand for Lucent's products and services; technological, implementation and
cost/financial risks in the increasing use of large, multi-year contracts; the
cyclical nature of Lucent business; the outcome of pending and future litigation
and governmental proceedings; and continued availability of financing, financial
instruments and financial resources in the amounts, at the times and on the
terms required to support Lucent's future business. These are representative of
the Future Factors that could affect the outcome of the forward-looking
statements. In addition, such statements could be affected by general industry
and market conditions and growth rates, general domestic and international
economic conditions including interest rate and currency exchange rate
fluctuations and other Future Factors.

For a further description of Future Factors that could cause actual results to
differ materially from such forward-looking statements, see below in this report
including the other sections referred to and also see the discussion in Lucent's
Form 10-K for the year ended September 30, 1998 in Item 1 in the section
entitled "OUTLOOK-Forward Looking Statements" and the remainder of the OUTLOOK
section.
<PAGE>
 26                                                         Form 10-Q - Part I

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

Competition:
See discussion above under KEY BUSINESS CHALLENGES.

Dependence On New Product Development:
The markets for Lucent's principal products are characterized by rapidly
changing technology, evolving industry standards, frequent new product
introductions and evolving methods of building and operating communications
systems for network operators and business customers. Lucent's operating results
will depend to a significant extent on its ability to continue to introduce new
systems, products, software and services successfully on a timely basis and to
reduce costs of existing systems, products, software and services. The success
of these and other new offerings is dependent on several factors, including
proper identification of customer needs, cost, timely completion and
introduction, differentiation from offerings of Lucent's competitors and market
acceptance. In addition, new technological innovations generally require a
substantial investment before any assurance is available as to their commercial
viability, including, in some cases, certification by international and domestic
standards-setting bodies.

Reliance on Major Customers:
See discussion above under KEY BUSINESS CHALLENGES.

Readiness for Year 2000:
Lucent is engaged in a major effort to minimize the impact of the Year 2000 date
change on Lucent's products, information technology systems, facilities and
production infrastructure. Lucent has targeted June 30, 1999 for completion of
these efforts.

The Year 2000 challenge is a priority within Lucent at every level of the
Company. Primary Year 2000 preparedness responsibility rests with program
offices which have been established within each of Lucent's product groups and
corporate centers. A corporate-wide Lucent Year 2000 Program Office ("LYPO")
monitors and reports on the progress of these offices. Each program office has a
core of full-time individuals augmented by a much larger group who have been
assigned specific Year 2000 responsibilities in addition to their regular
assignments. Further, Lucent has engaged third parties to assist in its
readiness efforts in certain cases. LYPO has established a methodology to
measure, track and report Year 2000 readiness status consisting of five steps:
inventory; assessment; remediation; testing and deployment. In addition, LYPO
tracks and reports on the development and deployment of Year 2000 contingency
plans.

Lucent is completing programs to make its new commercially available products
Year 2000 ready and has developed evolution strategies for customers who own
non-Year 2000 ready Lucent products. Nearly all of the upgrades and new products
needed to support customer migration are already generally available.

Lucent has launched extensive efforts to alert customers who have non-Year 2000
ready products, including direct mailings, phone contacts and participation in
user and industry groups. Lucent also has a Year 2000 website www.lucent.com/y2k
that provides Year 2000 product information. Lucent continues to cooperate in
the Year 2000 information sharing efforts of the Federal Communications
Commission and other governmental bodies.
<PAGE>
 27                                                         Form 10-Q - Part I

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


Lucent believes it has sufficient resources to provide timely support to its
customers that require product migrations or upgrades. However, because this
effort is heavily dependent on customer cooperation, Lucent monitors customer
response and takes steps to encourage customer responsiveness, as necessary.

Lucent has largely completed the inventory and assessment phases of the program
with respect to its factories, information systems, and facilities. Completion
of the remediation, testing and deployment phases of this project remains on
schedule to meet a June 30, 1999 target date. LYPO has developed a formal
"exceptions" tracking process to approve and track a small number of individual
cases in which factors such as third party dependencies prevent project
completion by the corporate target date. Completion of required activities in
these cases is anticipated well in advance of any adverse Year 2000 impact. As
of March 31, 1999, over 90% of factory-related remediation activities had been
completed. In addition, over 80% of the factory-related testing and deployment
activities had been completed.

Lucent is also completing its Year 2000 readiness program for the large number
of facilities that it owns or leases world-wide. Priority is being placed on
Lucent-owned facilities, leased facilities that Lucent manages and other
critical facilities that house large numbers of employees or significant
operations. Remediation efforts at these significant facilities have largely
been completed.

Currently, over 80% of Lucent's information technology infrastructure has been
determined to be Year 2000 ready and is deployed for use. In addition, over 85%
of the business applications lines of code that are supported by Lucent's
information technology group are now Year 2000 ready and have been deployed or
are awaiting deployment.

To ensure the continued delivery of third party products and services, Lucent's
procurement organization has analyzed Lucent's supplier base and has sent
surveys to approximately 5,000 suppliers. To supplement this effort, Lucent is
conducting more detailed readiness reviews of the Year 2000 status of the
suppliers ranked as most critical based on the nature of their relationship with
Lucent, the product/service provided and/or the content of their survey
responses. The majority of Lucent's suppliers have not completed their Year 2000
readiness efforts and, as a result, at this time Lucent cannot fully evaluate
the Year 2000 risks to its supply chain. Lucent continues to monitor the Year
2000 status of its suppliers to minimize this risk and is developing appropriate
contingency responses as the risks become clearer.

Lucent has committed considerable resources to Year 2000 contingency planning
throughout the enterprise. These plans focus on risks posed by the Year 2000
date change, as well as other sensitive dates such as September 9, 1999 and
February 29, 2000. Lucent's plans are designed both to mitigate the impact of
Year 2000 failures, as well as providing for emergency response mechanisms and
supporting the prompt resumption of regular operations. Lucent has largely
completed the first working drafts of its Year 2000 contingency plans for
customer support. Contingency plans for facilities are targeted for completion
by May 31, 1999. As Lucent completes the balance of its contingency plans over
the next several months, the plans will be continuously enhanced as updated
information is obtained, the risks posed by external dependencies become clearer
and customer support needs become more focused.
<PAGE>
 28                                                         Form 10-Q - Part I

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

The risk to Lucent resulting from the failure of third parties in the public and
private sector to attain Year 2000 readiness is the same as other firms in
Lucent's industry and other business enterprises generally. The following are
representative of the types of risks that could result in the event of one or
more major failures of Lucent's information systems, factories or facilities to
be Year 2000 ready, or similar major failures by one or more major third party
suppliers to Lucent: (1) information systems--could include interruptions or
disruptions of business and transaction processing such as customer billing,
payroll, accounts payable and other operating and information processes, until
systems can be remedied or replaced; (2) factories and facilities--could include
interruptions or disruptions of manufacturing processes and facilities with
delays in delivery of products, until non-compliant conditions or components can
be remedied or replaced; and (3) major suppliers to Lucent--could include
interruptions or disruptions of the supply of raw materials, supplies and Year
2000 ready components which could cause interruptions or disruptions of
manufacturing and delays in delivery of products, until the third party supplier
remedied the problem or contingency measures were implemented. Risks of major
failures of Lucent's principal products could include adverse functional impacts
experienced by customers, the costs and resources for Lucent to remedy problems
or replace products where Lucent is obligated or undertakes to take such action,
and delays in delivery of new products.

Lucent believes it is taking the necessary steps to resolve Year 2000 issues;
however, given the possible consequences of failure to resolve significant Year
2000 issues, there can be no assurance that any one or more such failures would
not have a material adverse effect on Lucent. Lucent estimates that the costs of
efforts to prepare for Year 2000 from calendar year 1997 through 2000 is about
$535 million, of which an estimated $375 million has been spent as of March 31,
1999. Lucent has been able to reprioritize work projects to largely address Year
2000 readiness needs within its existing organizations. As a result, most of
these costs represent costs that would have been incurred in any event. These
amounts cover costs of the Year 2000 readiness work for inventory, assessment,
remediation, testing and deployment including fees and charges of contractors
for outsourced work and consultant fees. Costs for previously contemplated
updates and replacements of Lucent's internal systems and information systems
infrastructure have been excluded without attempting to establish whether the
timing of non-Year 2000 replacement or upgrading was accelerated.

While the Year 2000 cost estimates above include additional costs, Lucent
believes, based on available information, that it will be able to manage its
total Year 2000 transition without any material adverse effect on its business
operations, products or financial prospects.

The actual outcomes and results could be affected by Future Factors including,
but not limited to, the continued availability of skilled personnel, cost
control, the ability to locate and remediate software code problems, critical
suppliers and subcontractors meeting their commitments to be Year 2000 ready and
provide Year 2000 ready products, and timely actions by customers.

European Monetary Union - Euro:
On January 1, 1999, eleven member countries of the European Union established
fixed conversion rates between their existing sovereign currencies, and adopted
the Euro as their new common legal currency. The Euro is currently
<PAGE>
 29                                                         Form 10-Q - Part I

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

trading on currency exchanges and the legacy currencies will remain legal tender
in the participating countries for a transition period between January 1, 1999
and January 1, 2002. During the transition period, cash-less payments can be
made in the Euro, and parties can elect to pay for goods and services and
transact business using either the Euro or a legacy currency. Between January 1,
2002 and July 1, 2002, the participating countries will introduce Euro notes and
coins and withdraw all legacy currencies so that they will no longer be
available.

Lucent has in place a joint European-United States team representing affected
functions within the Company. This team is evaluating Euro related issues
affecting the Company that include its pricing/marketing strategy, conversion of
information technology systems, existing contracts and currency risk and risk
management in the participating countries. The Euro conversion may affect
cross-border competition by creating cross-border price transparency.

Lucent will continue to evaluate issues involving introduction of the Euro as
further accounting, tax and governmental legal and regulatory guidance is
available. Based on current information and Lucent's current assessment, Lucent
does not expect that the Euro conversion will have a material adverse effect on
its business or financial condition.

Employee Relations:
On March 31, 1999, Lucent employed approximately 148,000 persons, of whom 76.9%
were located in the United States. Of these domestic employees, 39.6% are
represented by unions, primarily the Communications Workers of America
("CWA")and the International Brotherhood of Electrical Workers ("IBEW"). Lucent
has agreements with the CWA and IBEW expiring May 31, 2003.

Multi-Year Contracts:
Lucent has significant contracts for the sale of infrastructure systems to
network operators which extend over a multi-year period, and expects to enter
into similar contracts in the future, with uncertainties affecting recognition
of revenues, stringent acceptance criteria, implementation of new technologies
and possible significant initial cost overruns and losses. See also discussion
above under TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY, and KEY BUSINESS
CHALLENGES.

Seasonality:
See discussion above under KEY BUSINESS CHALLENGES.

Future Capital Requirements:
See discussion above under TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY.

Growth Outside the U.S., Foreign Exchange and Interest Rates: Lucent intends to
continue to pursue growth opportunities in markets outside the U.S. In many
markets outside the U.S., long-standing relationships between potential
customers of Lucent and their local providers, and protective regulations,
including local content requirements and type approvals, create barriers to
entry. In addition, pursuit of such growth opportunities outside the U.S. may
require significant investments for an extended period before returns on such
investments, if any, are realized. Such projects and investments could be
adversely affected by reversals or delays in the opening of foreign markets to
new competitors, exchange controls, currency fluctuations, investment policies,
repatriation of cash, nationalization, social and political risks, taxation, and
other factors, depending on the country in which such opportunity arises.
Difficulties in foreign financial markets and economies, and of foreign
financial institutions, could adversely affect demand from customers in the
affected countries.
<PAGE>
30                                                         Form 10-Q - Part I

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


See discussion above under RISK MANAGEMENT with respect to foreign exchange and
interest rates. A significant change in the value of the dollar against the
currency of one or more countries where Lucent sells products to local customers
or makes purchases from local suppliers may materially adversely affect Lucent's
results. Lucent attempts to mitigate any such effects through the use of foreign
currency contracts, although there can be no assurances that such attempts will
be successful.

Lucent hedges certain foreign currency transactions. The decline in value of
non-U.S. dollar currencies, may, if not reversed, adversely affect Lucent's
ability to contract for product sales in U.S. dollars because Lucent's products
may become more expensive to purchase in U.S. dollars for local customers doing
business in the countries of the affected currencies.

Legal Proceedings and Environmental:
See discussion above in Note 10 - COMMITMENTS AND CONTINGENCIES and OTHER.
<PAGE>
31                                                         Form 10-Q - Part I

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


SHARE RESTATEMENT

Effective on April 1, 1999, Lucent split its common stock in a two-for-one split
through the issue of one additional share for each outstanding share. As result,
the tables below represent a retroactive restatement of the earnings(loss) per
share as reported in the Company's Form 8-K (dated February 26, 1999), Exhibit
99-1 for the year ended September 30, 1998 and Exhibit 99-2 for the quarter
ended December 31, 1998:

                                Five Year Summary
                 (Dollars in millions, except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                               Twelve Months          Nine Months        Twelve Months
                                  Ended                  Ended                Ended
                               September 30,         September 30,        December 31,
                           ---------------------      -------------       -------------
                            1998    1997    1996      1996     1995       1995     1994
<S>                         <C>     <C>     <C>       <C>      <C>        <C>      <C>
                                             (1)       (2)                 (1)
Earnings(loss) per common
 share - basic (3)(4)       0.40    0.22    (0.34)    0.10     0.07      (0.41)     n/a

Earnings(loss) per common
 share - diluted (3)(4)     0.39    0.22    (0.34)    0.10     0.07      (0.41)     n/a

Earnings(loss) per common
 share - Pro Forma(4)(5)     n/a     n/a    (0.31)    0.09     0.06      (0.34)     n/a

Dividends per common
 share (4)                  0.0775  0.05625 0.0375    0.0375     -          -       n/a
</TABLE>

(1) Includes pretax restructuring and other charges of $2,801 ($1,847 after
    taxes) recorded as $892 of costs, $1,645 of selling, general and
    administrative expenses and $264 of research and development expenses.
(2) Beginning September 30, 1996, Lucent changed its fiscal year end from
    December 31 to September 30, and reported results for the nine-month
    transition period ended September 30, 1996. 
(3) The calculation of earnings (loss) per share on a historical basis includes 
    the retroactive recognition
    to January 1, 1995 of the 2,098,499,576 shares (524,624,894 shares on a
    pre-split basis) owned by AT&T on April 10, 1996.
(4) All per share data has been restated to reflect the two-for-one splits of
    Lucent's common stock which became effective on April 1, 1998 and April 1,
    1999.
(5) The calculation of earnings (loss) per share on a pro forma basis assumes
    that all 2,572,405,300 shares outstanding on April 10, 1996 were outstanding
    since January 1, 1995 and gives no effect to the use of proceeds from the
    IPO.
n/a Not applicable
<PAGE>
 32                                                          Form 10-Q - Part I

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

<TABLE>
<CAPTION>
QUARTERLY INFORMATION (UNAUDITED)
                                                   FISCAL YEAR QUARTERS
                               FIRST         SECOND        THIRD         FOURTH       TOTAL
                              -------       --------      -------       --------    ---------
<S>                           <C>           <C>           <C>           <C>         <C>
Year Ended                                                                         
  September 30, 1998                                                               
Earnings(loss) per                                                                 
 common share - basic.......  $ 0.32(a)     $ 0.01(b)    $(0.08)(c)    $ 0.16(d)    $  0.40 (a,b,c,d)
Earnings(loss) per                                                                 
 common share - diluted.....  $ 0.31(a)     $ 0.01(b)    $(0.08)(c)    $ 0.15(d)    $  0.39 (a,b,c,d)
Dividends per share.........  $ 0.0375      $ 0.000      $ 0.02        $ 0.02       $  0.0775
Stock price:(f)                                                                    
   High.....................   22 35/64      32 1/16      41 27/32      54 1/4       54 1/4
   Low......................   18 3/32       18 23/64     32            34 3/16      18 3/32
   Quarter-end close........   19 31/32      31 31/32     41 19/32      34 5/8       34 5/8
                                                                                   
Year Ended                                                                         
  September 30, 1997                                                               
Earnings(loss) per                                                                 
 common share - basic.......  $ 0.33        $ 0.03       $ 0.09        $(0.23)(e)   $ 0.22(e)
Earnings(loss) per                                                                 
 common share - diluted.....  $ 0.33        $ 0.03       $ 0.09        $(0.23)(e)   $ 0.22(e)
Dividends per share.........  $ 0.01875     $ 0.00       $ 0.01875     $ 0.01875    $ 0.05625
Stock price:(f)                                                                    
   High.....................   13 9/32       15 5/32      18 35/64      22 11/16     22 11/16
   Low......................   10 17/32      11 3/16      12 15/32      18 3/64      10 17/32
   Quarter-end close........   11 9/16       13 1/8       18 1/64       20 11/32     20 11/32
</TABLE>

(a) As a result of the 1998 acquisition of Livingston, Lucent recorded a non-tax
    charge of $427 in the first quarter for purchased in-process research and
    development.

(b) As a result of the 1998 acquisition of Prominet, Lucent recorded a non-tax
    charge of $157 in the second quarter for purchased in-process research and
    development.

(c) As a result of the 1998 acquisitions of Yurie and Optimay, Lucent recorded a
    non-tax charge of $668 in the third quarter for purchased in-process
    research and development.

(d) As a result of the 1998 acquisitions of SDX, MassMedia, LANNET and JNA,
    Lucent recorded a charge of $164 ($160 after tax) in the fourth quarter for
    purchased in- process research and development.

(e) As a result of the 1997 acquisition of Octel, Lucent recorded a charge of
    $979 ($966 after tax) in the fourth quarter for purchased in-process
    research and development and other charges.

(f)  Obtained from the Composite Tape. Stock prices have been restated to
     reflect the two-for-one splits of the Company's common stock effective
     April 1, 1998 and April 1, 1999.
<PAGE>
 33                                                          Form 10-Q - Part II
                      Part II - Other Information

Item 2.  Changes in Securities and Use of Proceeds.

(c)      On February 26, 1999, Lucent issued approximately 25.76 million shares
         of its common stock (adjusted to reflect the two-for-one split of its
         common stock effective April 1, 1999) to the owner of Kenan Systems
         Corporation in exchange for Kenan's total equity, in a merger
         transaction. The issuance of the common stock was exempt from
         registration under Section 4(2) of the Securities Act of 1933 because
         the transaction did not involve a public offering of securities by
         Lucent.


Item 4. Submission of Matters to a Vote of Security Holders.

Lucent held its 1999 Annual Meeting of Shareowners on February 17, 1999. At that
meeting, shareowners elected three individuals as Directors of the Company for
terms to expire at the Annual Meeting to be held in the year 2002. In addition,
shareowners approved one Company proposal and rejected four shareowner
proposals. The persons elected and the results of the voting are as follows:

                                Votes                 Votes
                                  For              Withheld

Paul A. Allaire         1,094,075,432            10,890,025
Henry B. Schacht        1,093,728,415            11,237,042
John A. Young           1,092,327,081            12,638,376

                               Votes        Votes                      Broker
                                 For      Against       Abstain     Non-votes
Company proposal:
Approve an Amendment
to the Certificate of
Incorporation to
Increase Authorized
Common Stock . . . . . 1,034,852,065    63,311,632    6,801,760             0

Shareowner proposals:
Eliminate classified
board  . . . . . . . .   356,298,827   480,611,144   24,312,645   243,742,841

Discontinue Executive
Incentive Programs . .    76,608,234   748,761,091   38,853,291   243,742,841

Adopt Confidential
Voting Policy/
Independent Inspectors
of Election  . . . . .   367,114,305   469,560,783   24,547,528   243,742,841

Adopt Anti-Slave
Labor Policy . . . . .    88,801,828   700,859,371   71,561,417   243,742,841
<PAGE>
 34                                                          Form 10-Q - Part II
                      Part II - Other Information


Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits:

     Exhibit Number

     (3) (i)           Articles of Incorporation of the registrant, as amended
                       effective on February 17, 1999.

     (3) (ii)          By-Laws of the registrant, as amended effective February
                       17, 1999.

     (12)              Computation of Ratio of Earnings to Fixed Charges

     (27)              Financial Data Schedule

(b)  Reports on Form 8-K:

     Current Report on Form 8-K dated January 8, 1999 was filed pursuant to
     Item 5. (Other Events).

     Current Report on Form 8-K dated January 13, 1999 was filed pursuant to
     Item 5. (Other Events) and Item 7(c) (Exhibits).

     Current Report on Form 8-K dated February 26, 1999 was filed pursuant to
     Item 5. (Other Events) and Item 7 (Financial Statements, Pro Forma
     Financial Information and Exhibits).
<PAGE>
 35                                                          Form 10-Q




                              SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                            Lucent Technologies Inc.









Date May 13, 1999
                          /s/ James S. Lusk
                          -----------------------------
                          By James S. Lusk
                          Vice President and Controller
                         (Principal Accounting Officer)
<PAGE>
 36                                                          Form 10-Q


                                Exhibit Index

Exhibit
Number

(3) (i)   Articles of Incorporation of the registrant, as amended
          effective on February 17, 1999.

(3) (ii)  By-Laws of the registrant, as amended effective on February 17, 1999.

(12)      Computation of Ratio of Earnings to Fixed Charges

(27)      Financial Data Schedule

<PAGE>

                                                                 Exhibit (3)(i)





                      FORM OF CERTIFICATE OF INCORPORATION
                                       OF
                            LUCENT TECHNOLOGIES INC.

                                    ARTICLE I
                                      NAME

The name of the corporation (which is hereinafter referred to as the
"Corporation") is: "Lucent Technologies Inc."

                                   ARTICLE II
                                REGISTERED AGENT

The address of the Corporation's registered office in the State of Delaware is
1013 Centre Road, Wilmington, Delaware 19805, county of New Castle. The name of
the Corporation's registered agent at such address is The Prentice Hall
Corporation System, Inc.

                                   ARTICLE III
                                     PURPOSE

The purpose of the Corporation shall be to engage in any lawful act or activity
for which corporations may be organized and incorporated under the General
Corporation Law of the State of Delaware (the "DGCL").

                                   ARTICLE IV
                                  CAPITAL STOCK

SECTION 1. The Corporation shall be authorized to issue 6,250,000,000 shares of
capital stock, of which 6,000,000,000 shares shall be shares of Common Stock,
$.01 par value ("Common Stock"), and 250,000,000 shares shall be shares of
Preferred Stock, $1.00 par value ("Preferred Stock").

SECTION 2. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for the issuance
of shares of Preferred Stock in series and, by filing a certificate pursuant to
the DGCL (hereinafter referred to as a "Preferred Stock Designation"), to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, privileges, preferences and rights
of the shares of each such series and the qualifications, limitations and
restrictions thereof. The authority of the Board of Directors with respect to
each series shall include, but not be limited to, determination of the
following:

(a) the designation of the series, which may be by distinguishing number, letter
or title;

(b) the number of shares of the series, which number the Board of Directors may
thereafter (except where otherwise provided in the Preferred Stock Designation)
increase or decrease (but not below the number of shares thereof then
outstanding);

<PAGE>
(c) whether dividends, if any, shall be cumulative or noncumulative, and, in the
case of shares of any series having cumulative dividend rights, the date or
dates or method of determining the date or dates from which dividends on the
shares of such series shall be cumulative;

(d) the rate of any dividends (or method of determining such dividends) payable
to the holders of the shares of such series, any conditions upon which such
dividends shall be paid and the date or dates or the method for determining the
date or dates upon which such dividends shall be payable;

(e) the price or prices (or method of determining such price or prices) at
which, the form of payment of such price or prices (which may be cash, property
or rights, including securities of the same or another corporation or other
entity) for which, the period or periods within which and the terms and
conditions upon which the shares of such series may be redeemed, in whole or in
part, at the option of the Corporation or at the option of the holder or holders
thereof or upon the happening of a specified event or events, if any;

(f) the obligation, if any, of the Corporation to purchase or redeem shares of
such series pursuant to a sinking fund or otherwise and the price or prices at
which, the form of payment of such price or prices (which may be cash, property
or rights, including securities of the same or another corporation or other
entity) for which, the period or periods within which and the terms and
conditions upon which the shares of such series shall be redeemed or purchased,
in whole or in part, pursuant to such obligation;

(g) the amount payable out of the assets of the Corporation to the holders of
shares of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation;

(h) provisions, if any, for the conversion or exchange of the shares of such
series, at any time or times at the option of the holder or holders thereof or
at the option of the Corporation or upon the happening of a specified event or
events, into shares of any other class or classes or any other series of the
same or any other class or classes of stock, or any other security, of the
Corporation, or any other corporation or other entity, and the price or prices
or rate or rates of conversion or exchange and any adjustments applicable
thereto, and all other terms and conditions upon which such conversion or
exchange may be made;

(i) restrictions on the issuance of shares of the same series or of any other
class or series, if any; and

(j) the voting rights, if any, of the holders of shares of the series.

SECTION 3. The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. The holders of shares of Common Stock
shall be entitled to one vote for each such share upon all proposals presented
to the stockholders on which the holders of Common Stock are entitled to vote.
Except as otherwise provided by law or by the resolution or resolutions adopted
by the Board of Directors designating the rights, powers and preferences of any
series of Preferred Stock, the Common Stock shall have the exclusive right to
vote for the election of directors and for all other purposes, and holders of
Preferred Stock shall not be entitled to receive


                                       -2-

<PAGE>
notice of any meeting of stockholders at which they are not entitled to vote.
The number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the outstanding Common Stock, without a
vote of the holders of the Preferred Stock, or of any series thereof, unless a
vote of any such holders is required pursuant to any Preferred Stock
Designation.

The Corporation shall be entitled to treat the person in whose name any share of
its stock is registered as the owner thereof for all purposes and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.

SECTION 4. There has been created a series of Preferred Stock, par value $1.00
per share, of the Corporation having the following designation, number of
shares, relative rights, preferences, and limitations:

         (a) Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 15,000,000. Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.

         (b) Dividends and Distributions.

                  (A) Subject to the rights of the holders of any shares of any
         series of Preferred Stock (or any similar stock) ranking prior and
         superior to the Series A Preferred Stock with respect to dividends, the
         holders of shares of Series A Preferred Stock, in preference to the
         holders of Common Stock, and of any other junior stock, shall be
         entitled to receive, when, as and if declared by the Board of Directors
         out of funds legally available for the purpose, quarterly dividends
         payable in cash on the first day of March, June, September and December
         in each year (each such date being referred to herein as a "Quarterly
         Dividend Payment Date"), commencing on the first Quarterly Dividend
         Payment Date after the first issuance of a share or fraction of a share
         of Series A Preferred Stock, in an amount per share (rounded to the
         nearest cent) equal to the greater of (a) $1 or (b) subject to the
         provision for adjustment hereinafter set forth, 100 times the aggregate
         per share amount of all cash dividends, and 100 times the aggregate per
         share amount (payable in kind) of all non-cash dividends or other
         distributions, other than a dividend payable in shares of Common Stock
         or a subdivision of the outstanding shares of Common Stock (by
         reclassification or otherwise), declared on the Common Stock since the
         immediately preceding Quarterly Dividend Payment Date or, with respect
         to the first Quarterly Dividend Payment Date, since the first issuance
         of any share or fraction of a share of Series A Preferred Stock. In the
         event the Corporation shall at any time declare or pay any dividend on
         the Common Stock payable in shares of Common Stock, or effect a
         subdivision or combination or consolidation of the outstanding shares
         of Common Stock (by reclassification or


                                       -3-

<PAGE>
         otherwise than by payment of a dividend in shares of Common Stock) into
         a greater or lesser number of shares of Common Stock, then in each such
         case the amount to which holders of shares of Series A Preferred Stock
         were entitled immediately prior to such event under clause (b) of the
         preceding sentence shall be adjusted by multiplying such amount by a
         fraction, the numerator of which is the number of shares of Common
         Stock outstanding immediately after such event and the denominator of
         which is the number of shares of Common Stock that were outstanding
         immediately prior to such event.

                  (B) The Corporation shall declare a dividend or distribution
         on the Series A Preferred Stock as provided in paragraph (A) of this
         Section immediately after it declares a dividend or distribution on the
         Common Stock (other than a dividend payable in shares of Common Stock);
         provided that, in the event no dividend or distribution shall have been
         declared on the Common Stock during the period between any Quarterly
         Dividend Payment Date and the next subsequent Quarterly Dividend
         Payment Date, a dividend of $1 per share on the Series A Preferred
         Stock shall nevertheless be payable on such subsequent Quarterly
         Dividend Payment Date.

                  (C) Dividends shall begin to accrue and be cumulative on
         outstanding shares of Series A Preferred Stock from the Quarterly
         Dividend Payment Date next preceding the date of issue of such shares,
         unless the date of issue of such shares is prior to the record date for
         the first Quarterly Dividend Payment Date, in which case dividends on
         such shares shall begin to accrue from the date of issue of such
         shares, or unless the date of issue is a Quarterly Dividend Payment
         Date or is a date after the record date for the determination of
         holders of shares of Series A Preferred Stock entitled to receive a
         quarterly dividend and before such Quarterly Dividend Payment Date, in
         either of which events such dividends shall begin to accrue and be
         cumulative from such Quarterly Dividend Payment Date. Accrued but
         unpaid dividends shall not bear interest. Dividends paid on the shares
         of Series A Preferred Stock in an amount less than the total amount of
         such dividends at the time accrued and payable on such shares shall be
         allocated pro rata on a share-by-share basis among all such shares at
         the time outstanding. The Board of Directors may fix a record date for
         the determination of holders of shares of Series A Preferred Stock
         entitled to receive payment of a dividend or distribution declared
         thereon, which record date shall be not more than 60 days prior to the
         date fixed for the payment thereof.

         (c) Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:

                  (A) Subject to the provision for adjustment hereinafter set
         forth, each share of Series A Preferred Stock shall entitle the holder
         thereof to 100 votes on all matters submitted to a vote of the
         stockholders of the Corporation. In the event the Corporation shall at
         any time declare or pay any dividend on the Common Stock payable in
         shares of Common Stock, or effect a subdivision or combination or
         consolidation of the outstanding shares of Common Stock (by
         reclassification or otherwise than by payment of a dividend in shares
         of Common Stock) into a greater or lesser number of shares of Common
         Stock, then in each such case the number of votes per share to which
         holders of shares of Series A Preferred Stock were entitled immediately
         prior to such event shall be


                                       -4-

<PAGE>
         adjusted by multiplying such number by a fraction, the numerator of
         which is the number of shares of Common Stock outstanding immediately
         after such event and the denominator of which is the number of shares
         of Common Stock that were outstanding immediately prior to such event.

                  (B) Except as otherwise provided herein, in any other
         Certificate of Designations creating a series of Preferred Stock or any
         similar stock, or by law, the holders of shares of Series A Preferred
         Stock and the holders of shares of Common Stock and any other capital
         stock of the Corporation having general voting rights shall vote
         together as one class on all matters submitted to a vote of
         stockholders of the Corporation.

                  (C) Except as set forth herein, or as otherwise provided by
         law, holders of Series A Preferred Stock shall have no special voting
         rights and their consent shall not be required (except to the extent
         they are entitled to vote with holders of Common Stock as set forth
         herein) for taking any corporate action.

         (d)  Certain Restrictions.

                  (A) Whenever quarterly dividends or other dividends or
         distributions payable on the Series A Preferred Stock as provided in
         Section 2 are in arrears, thereafter and until all accrued and unpaid
         dividends and distributions, whether or not declared, on shares of
         Series A Preferred Stock outstanding shall have been paid in full, the
         Corporation shall not:

                           (i) declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking junior (either
                  as to dividends or upon liquidation, dissolution or winding
                  up) to the Series A Preferred Stock;

                           (ii) declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking on a parity
                  (either as to dividends or upon liquidation, dissolution or
                  winding up) with the Series A Preferred Stock, except
                  dividends paid ratably on the Series A Preferred Stock and all
                  such parity stock on which dividends are payable or in arrears
                  in proportion to the total amounts to which the holders of all
                  such shares are then entitled;

                           (iii) redeem or purchase or otherwise acquire for
                  consideration shares of any stock ranking junior (either as to
                  dividends or upon liquidation, dissolution or winding up) to
                  the Series A Preferred Stock, provided that the Corporation
                  may at any time redeem, purchase or otherwise acquire shares
                  of any such junior stock in exchange for shares of any stock
                  of the Corporation ranking junior (either as to dividends or
                  upon dissolution, liquidation or winding up) to the Series A
                  Preferred Stock; or

                           (iv) redeem or purchase or otherwise acquire for
                  consideration any shares of Series A Preferred Stock, or any
                  shares of stock ranking on a parity with the Series A
                  Preferred Stock, except in accordance with a purchase offer
                  made in writing or by publication (as determined by the Board
                  of Directors) to all holders


                                       -5-

<PAGE>
                  of such shares upon such terms as the Board of Directors,
                  after consideration of the respective annual dividend rates
                  and other relative rights and preferences of the respective
                  series and classes, shall determine in good faith will result
                  in fair and equitable treatment among the respective series or
                  classes.

                  (B) The Corporation shall not permit any subsidiary of the
         Corporation to purchase or otherwise acquire for consideration any
         shares of stock of the Corporation unless the Corporation could, under
         paragraph (A) of this Section 4(d), purchase or otherwise acquire such
         shares at such time and in such manner.

         (e) Reacquired Shares. Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock subject to
the conditions and restrictions on issuance set forth herein, in the Certificate
of Incorporation, or in any other Certificate of Designations creating a new
series of Preferred Stock or any similar stock or as otherwise required by law.

         (f) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

         (g) Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth,


                                       -6-

<PAGE>
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

         (h) No Redemption. The shares of Series A Preferred Stock shall not be
redeemable.

         (i) Rank. The Series A Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of any
other class of the Corporation's Preferred Stock.

         (j) Amendment. The Certificate of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.

                                    ARTICLE V
                               STOCKHOLDER ACTION

Effective as of the time at which AT&T Corp., a New York corporation, and its
affiliates shall cease to be the beneficial owner of an aggregate of at least a
majority of the then outstanding shares of Common Stock (the "Trigger Date"),
any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
Effective as of the Trigger Date, except as otherwise required by law and
subject to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, special
meetings of stockholders of the Corporation for any purpose or purposes may be
called only by the Board of Directors pursuant to a resolution stating the
purpose or purposes thereof approved by a majority of the total number of
Directors which the Corporation would have if there were no vacancies (the
"Whole Board") or by the Chairman of the Board of Directors of the Corporation
and, effective as of the Trigger Date, any power of stockholders to call a
special meeting is specifically denied. No business other than that stated in
the notice shall be transacted at any special meeting. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the voting power of all shares of the
Corporation entitled to vote generally in the election of directors (the "Voting
Stock") then outstanding, voting together as a single class, shall be required
to alter, amend, adopt any provision inconsistent with or repeal this Article V.


                                       -7-

<PAGE>
                                   ARTICLE VI
                              ELECTION OF DIRECTORS

Unless and except to the extent that the By-Laws of the Corporation shall so
require, the election of directors of the Corporation need not be by written
ballot.

                                   ARTICLE VII
                               BOARD OF DIRECTORS

SECTION 1. NUMBER, ELECTION AND TERMS. Except as otherwise fixed by or pursuant
to the provisions of Article IV hereof relating to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect additional directors under specified
circumstances, the number of the Directors of the Corporation shall be fixed
from time to time exclusively pursuant to a resolution adopted by a majority of
the Whole Board (but shall not be less than three). The Directors, other than
those who may be elected by the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, shall be
classified, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, one class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1997, another class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 1998, and another class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1999, with each class to hold office until its successor is duly elected and
qualified. At each succeeding annual meeting of stockholders, directors elected
to succeed those directors whose terms then expire shall be elected for a term
of office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until such person's successor
shall have been duly elected and qualified.

SECTION 2. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES; STOCKHOLDER PROPOSAL
OF BUSINESS. Advance notice of stockholder nominations for the election of
Directors and of the proposal of business by stockholders shall be given in the
manner provided in the By-Laws of the Corporation, as amended and in effect from
time to time.

SECTION 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise
provided for or fixed by or pursuant to the provisions of Article IV hereof
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, newly created directorships resulting
from any increase in the number of Directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled by the affirmative vote of a majority of the remaining
Directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any Director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the class of Directors in which the new directorship was created or the vacancy
occurred and until such Director's successor shall have been duly elected and
qualified. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.

SECTION 4. REMOVAL. Subject to the rights of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation to elect
Directors under specified


                                       -8-

<PAGE>
circumstances, any Director may be removed from office only for cause by the
affirmative vote of the holders of at least a majority of the voting power of
all Voting Stock then outstanding, voting together as a single class.

SECTION 5. AMENDMENT, REPEAL, ETC. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal this Article VII.

                                  ARTICLE VIII
                                     BY-LAWS

The By-Laws may be altered or repealed and new By-Laws may be adopted (1) at any
annual or special meeting of stockholders, by the affirmative vote of the
holders of a majority of the voting power of the stock issued and outstanding
and entitled to vote thereat, provided, however, that any proposed alteration or
repeal of, or the adoption of any By-Law inconsistent with, Section 2.2, 2.7 or
2.10 of Article II of the By-Laws or with Section 3.2, 3.9 or 3.11 of Article
III of the By-Laws or this sentence, by the stockholders shall require the
affirmative vote of the affirmative vote of the holders of at least 80% of the
voting power of all Voting Stock then outstanding, voting together as a single
class; and provided, further, however, that in the case of any such stockholder
action at a special meeting of stockholders, notice of the proposed alteration,
repeal or adoption of the new By-Law or By-Laws must be contained in the notice
of such special meeting, or (2) by the affirmative vote of a majority of the
Whole Board.

Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 80% of the voting
power of all Voting Stock then outstanding, voting together as a single class
shall be required to alter, amend, adopt any provision inconsistent with or
repeal this Article VIII.

                                   ARTICLE IX
                    AMENDMENT OF CERTIFICATE OF INCORPORATION

The Corporation reserves the right at any time from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and, except as set forth in Article X, all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the right reserved in this Article. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the Voting Stock then outstanding, voting together as
a single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal Article V, VII, VIII or this sentence.


                                       -9-

<PAGE>
                                    ARTICLE X
                       LIMITED LIABILITY; INDEMNIFICATION

SECTION 1. LIMITED LIABILITY OF DIRECTORS. A director of the Corporation shall
not be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except, if required by the
DGCL, as amended from time to time, for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
Neither the amendment nor repeal of Section 1 of this Article X shall eliminate
or reduce the effect of Section 1 of this Article X in respect of any matter
occurring, or any cause of action, suit or claim that, but for Section 1 of this
Article X would accrue or arise, prior to such amendment or repeal.

SECTION 2. INDEMNIFICATION AND INSURANCE.

(a) Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
amounts paid or to be paid in settlement, and excise taxes or penalties arising
under the Employee Retirement Income Security Act of 1974, as in effect from
time to time) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
such person's heirs, executors and administrators; provided, however, that,
except as provided in paragraph (b) hereof, the Corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board. The right to indemnification conferred in this Section
shall be a contract right and shall include the right to have the Corporation
pay the expenses incurred in defending any such proceeding in advance of its
final disposition; any advance payments to be paid by the Corporation within 20
calendar days after the receipt by the Corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;
provided, however, that, if and to the extent the DGCL requires, the payment of
such expenses incurred by a director or officer in such person's capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be


                                      -10-

<PAGE>
indemnified under this Section or otherwise. The Corporation may, to the extent
authorized from time to time by the Board of Directors, grant rights to
indemnification, and rights to have the Corporation pay the expenses incurred
in defending any proceeding in advance of its final disposition, to any employee
or agent of the Corporation to the fullest extent of the provisions of this
Article with respect to the indemnification and advancement of expenses of
directors and officers of the Corporation.

(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within 30 calendar days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standard of conduct which makes
it permissible under the DGCL for the Corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because the claimant has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.

(c) Non-Exclusivity of Rights. The right to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition
conferred in this Section shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-Law, agreement, vote of stockholders or
disinterested directors or otherwise. No repeal or modification of this Article
shall in any way diminish or adversely affect the rights of any director,
officer, employee or agent of the Corporation hereunder in respect of any
occurrence or matter arising prior to any such repeal or modification.

(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.

(e) Severability. If any provision or provisions of this Article X shall be held
to be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of this
Article X (including, without limitation, each portion of any paragraph of this
Article X containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this Article X (including, without
limitation, each such portion of any paragraph of this Article X containing


                                      -11-

<PAGE>
any such provision held to be invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.

                                      -12-

<PAGE>

                                                                Exhibit (3)(ii)


                                     BY-LAWS
                                       OF
                            LUCENT TECHNOLOGIES INC.
                        (AMENDED AS OF FEBRUARY 17, 1999)
              INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE


                                    ARTICLE I
                               OFFICES AND RECORDS

SECTION 1.1. DELAWARE OFFICE. The principal office of the Corporation in the
State of Delaware shall be located in the City of Wilmington, County of New
Castle, and the name and address of its registered agent is The Prentice Hall
Corporation System, Inc.

SECTION 1.2. OTHER OFFICES. The Corporation may have such other offices, either
within or without the State of Delaware, as the Board of Directors may designate
or as the business of the Corporation may from time to time require.

SECTION 1.3. BOOKS AND RECORDS. The books and records of the Corporation may be
kept outside the State of Delaware at such place or places as may from time to
time be designated by the Board of Directors.

                                   ARTICLE II
                                  STOCKHOLDERS

SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held on such date and at such time as may be fixed by
resolution of the Board of Directors.

SECTION 2.2. SPECIAL MEETING. Except as otherwise required by law and subject to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation for any purpose or purposes may be called only
by (i) the Board of Directors pursuant to a resolution stating the purpose or
purposes thereof approved by a majority of the total number of Directors which
the Corporation would have if there were no vacancies (the "Whole Board"), or
(ii) by the Chairman of the Board of Directors of the Corporation. In addition,
prior to the Trigger Date (as defined in the Certificate of Incorporation), the
Corporation will call a special meeting of stockholders promptly upon request by
AT&T Corp., a New York corporation ("AT&T"), or any of its affiliates, in each
case, if such entity is a stockholder of the Corporation. No business other than
that stated in the notice shall be transacted at any special meeting.

SECTION 2.3. PLACE OF MEETING. The Board of Directors or the Chairman of the
Board, as the case may be, may designate the place of meeting for any annual
meeting or for any special meeting of the stockholders. If no designation is so
made, the place of meeting shall be the principal office of the Corporation.

<PAGE>

                                                                               2

SECTION 2.4. NOTICE OF MEETING. Written or printed notice, stating the place,
day and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be delivered by the Corporation not less than 10 calendar days nor
more than 60 calendar days before the date of the meeting, either personally or
by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at such
person's address as it appears on the stock transfer books of the Corporation.
Such further notice shall be given as may be required by law. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting.
Meetings may be held without notice if all stockholders entitled to vote are
present, or if notice is waived by those not present in accordance with Section
6.4 of these By-Laws. Any previously scheduled meeting of the stockholders may
be postponed, and any special meeting of the stockholders may be canceled, by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.

SECTION 2.5. QUORUM AND ADJOURNMENT; VOTING. Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the voting
power of all outstanding shares of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series of stock voting as a
class, the holders of a majority of the shares of such class or series shall
constitute a quorum of such class or series for the transaction of such
business. The Chairman of the meeting may adjourn the meeting from time to time,
whether or not there is such a quorum. No notice of the time and place of
adjourned meetings need be given except as required by law. The stockholders
present at a duly called meeting at which a quorum is present may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.

SECTION 2.6. PROXIES. At all meetings of stockholders, a stockholder may vote by
proxy executed in writing (or in such manner prescribed by the General
Corporation Law of the State of Delaware (the "DGCL")) by the stockholder, or by
such person's duly authorized attorney in fact.

SECTION 2.7.  NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.

(A)   Annual Meetings of Stockholders.

(1) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (a) pursuant to the
Corporation's notice of meeting pursuant to Section 2.4 of these By-Laws, (b) by
or at the direction of the Board of Directors, or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this By-Law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this By-Law.

(2) For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this
By-Law, the stockholder must have
<PAGE>

                                                                               3

given timely notice thereof in writing to the Secretary of the Corporation and
such other business must otherwise be a proper matter for stockholder action. To
be timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 45th calendar day nor earlier than the 75th calendar day prior
to the first anniversary of the record date of stockholders entitled to vote at
the preceding year's annual meeting; provided, however, that in the event that
the record date is more than 30 calendar days before or more than 60 calendar
days after such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the 75th calendar day prior to such record date
and not later than the close of business on the later of the 45th calendar day
prior to such record date or the 10th calendar day following the calendar day on
which public announcement of such record date is first made by the Corporation.
In no event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.

(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this
By-Law to the contrary, in the event that the number of directors to be elected
to the Board of Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 55 calendar
days prior to the first anniversary of the record date for the preceding year's
annual meeting, a stockholder's notice required by this By-Law shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th calendar day following the day on which such public
announcement is first made by the Corporation.

(B) Special Meetings of Stockholders.

Only such business shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Corporation's notice
of meeting under Section 2.4 of these By-Laws. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (a) by or at the direction of the Board of Directors, or (b)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any
<PAGE>

                                                                               4

stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in this By-Law, who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in this
By-Law. In the event the Corporation calls a special meeting of stockholders for
the purpose of electing one or more directors to the Board of Directors, any
stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the Corporation's notice of meeting pursuant
to such clause (b), if the stockholder shall have delivered written notice
thereof containing the information set forth in the notice specified in the last
sentence of paragraph (A) (2) of this By-Law to the Secretary at the principal
executive offices of the Corporation not earlier than the 120th calendar day
prior to such special meeting and not later than the close of business on the
later of the 90th calendar day prior to such special meeting or the 10th
calendar day following the date on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.

(C) General.

(1) Only such persons who are nominated in accordance with the procedures set
forth in this ByLaw shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
By-Law. Except as otherwise provided by law, the Certificate of Incorporation or
these By-Laws, the Chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this By-Law and, if any proposed nomination or business
is not in compliance with this By-Law, to declare that such defective proposal
or nomination shall be disregarded.

(2) For purposes of this By-Law, "public announcement" shall mean disclosure in
a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.

(3) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this By-Law.
Nothing in this By-Law shall be deemed to affect any rights (i) of stockholders
to request inclusion of proposals in the Corporation's proxy statement pursuant
to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of
Preferred Stock to elect directors under an applicable Preferred Stock
Designation (as defined in the Corporation's Certificate of Incorporation).

SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, subject to the rights of the holders of any
series of Preferred Stock to elect directors under an applicable Preferred Stock
Designation, a plurality of the votes cast thereat shall elect directors. Except
as otherwise provided by law, the Certificate of Incorporation, Preferred Stock
Designation, or these By-Laws, in all matters other than the election of
directors, the affirmative vote of a majority of
<PAGE>

                                                                               5

the voting power of the shares present in person or represented by proxy at the
meeting and entitled to vote on the matter shall be the act of the stockholders.

SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board
of Directors by resolution shall appoint, or shall authorize an officer of the
Corporation to appoint, one or more inspectors, which inspector or inspectors
may include individuals who serve the Corporation in other capacities,
including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspector(s)
to replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging such person's duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of such person's ability. The inspector(s) shall have the
duties prescribed by law. The Chairman of the meeting shall fix and announce at
the meeting the date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting.

SECTION 2.10. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Effective as of the
Trigger Date, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of such holders and may not be effected by any consent in writing by such
holders.

                                   ARTICLE III
                               BOARD OF DIRECTORS

SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation shall
be managed under the direction of the Board of Directors. In addition to the
powers and authorities by these By-Laws expressly conferred upon them, the Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws required to be exercised or done by the
stockholders.

SECTION 3.2. NUMBER AND TENURE. Except as otherwise fixed by or pursuant to the
provisions of Article IV of the Certificate of Incorporation relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect additional
directors under specified circumstances, the number of the Directors of the
Corporation shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the Whole Board (but shall not be less than
three). The Directors, other than those who may be elected by the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible, one class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1997, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1998, and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 1999, with each class to
hold office until its
<PAGE>

                                                                               6

successor is duly elected and qualified. At each succeeding annual meeting of
stockholders, directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, with each director to hold
office until such person's successor shall have been duly elected and qualified.

SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held without other notice than this By-Law immediately after, and at the same
place as, the annual meeting of stockholders. The Board of Directors may, by
resolution, provide the time and place for the holding of additional regular
meetings without other notice than such resolution.

SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors shall
be called at the request of the Chairman of the Board, the President or a
majority of the Board of Directors then in office. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.

SECTION 3.5. NOTICE. Notice of any special meeting of directors shall be given
to each director at such person's business or residence in writing by hand
delivery, first-class or overnight mail or courier service, telegram or
facsimile transmission, or orally by telephone. If mailed by first-class mail,
such notice shall be deemed adequately delivered when deposited in the United
States mails so addressed, with postage thereon prepaid, at least 5 calendar
days before such meeting. If by telegram, overnight mail or courier service,
such notice shall be deemed adequately delivered when the telegram is delivered
to the telegraph company or the notice is delivered to the overnight mail or
courier service company at least 24 hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least 12 hours before such meeting. If by telephone or by hand
delivery, the notice shall be given at least 12 hours prior to the time set for
the meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of such meeting, except for amendments to these By-Laws, as provided
under Section 8.1. A meeting may be held at any time without notice if all the
directors are present or if those not present waive notice of the meeting either
before or after such meeting.

SECTION 3.6. ACTION BY CONSENT OF BOARD OF DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.

SECTION 3.7. CONFERENCE TELEPHONE MEETINGS. Members of the Board of Directors or
any committee thereof may participate in a meeting of the Board of Directors or
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
<PAGE>

                                                                               7

SECTION 3.8. QUORUM. Subject to Section 3.9, a whole number of directors equal
to at least a majority of the Whole Board shall constitute a quorum for the
transaction of business, but if at any meeting of the Board of Directors there
shall be less than a quorum present, a majority of the directors present may
adjourn the meeting from time to time without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. The directors present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.

SECTION 3.9. VACANCIES. Except as otherwise provided for or fixed by or pursuant
to the provisions of Article IV of the Certificate of Incorporation relating to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect directors
under specified circumstances, newly created directorships resulting from any
increase in the number of Directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other cause
shall be filled by the affirmative vote of a majority of the remaining Directors
then in office, even though less than a quorum of the Board of Directors. Any
Director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor shall have been duly elected and qualified. No decrease in the number
of Directors constituting the Board of Directors shall shorten the term of any
incumbent Director.

SECTION 3.10. EXECUTIVE AND OTHER COMMITTEES. (a) The Board of Directors may, by
resolution adopted by a majority of the Whole Board, designate an Executive
Committee to exercise, subject to applicable provisions of law, all the powers
of the Board in the management of the business and affairs of the Corporation
when the Board is not in session, including without limitation the power to
declare dividends, to authorize the issuance of the Corporation's capital stock
and to adopt a certificate of ownership and merger pursuant to Section 253 of
the General Corporation Law of the State of Delaware, and may, by resolution
similarly adopted, designate one or more other committees. The Executive
Committee and each such other committee shall consist of one or more directors
of the Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, other than the Executive
Committee (the powers of which are expressly provided for herein), may to the
extent permitted by law exercise such powers and shall have such
responsibilities as shall be specified in the designating resolution. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Each committee shall keep written minutes of its
proceedings and shall report such proceedings to the Board when required.

(b) A majority of any committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. Notice of such
meetings shall be given to each member of the committee in the manner provided
for in Section 3.5 of these By-Laws. The

<PAGE>

                                                                               8

Board shall have power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee. Nothing herein shall be deemed
to prevent the Board from appointing one or more committees consisting in whole
or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority of the
Board.

SECTION 3.11. REMOVAL. Subject to the rights of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect Directors under specified circumstances, any Director may be removed from
office only for cause by the affirmative vote of the holders of at least a
majority of the voting power of all Voting Stock then outstanding, voting
together as a single class.

SECTION 3.12. RECORDS. The Board of Directors shall cause to be kept a record
containing the minutes of the proceedings of the meetings of the Board and of
the stockholders, appropriate stock books and registers and such books of
records and accounts as may be necessary for the proper conduct of the business
of the Corporation.

                                   ARTICLE IV
                                    OFFICERS

SECTION 4.1. ELECTED OFFICERS. The elected officers of the Corporation shall be
a Chairman of the Board of Directors, a President, a Secretary, a Treasurer, and
such other officers (including, without limitation, Senior Vice Presidents and
Executive Vice Presidents and Vice Presidents) as the Board of Directors from
time to time may deem proper. The Chairman of the Board shall be chosen from
among the directors. All officers elected by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof. The Board or any committee thereof may
from time to time elect, or the Chairman of the Board or President may appoint,
such other officers (including one or more Vice Presidents, Controllers,
Assistant Secretaries and Assistant Treasurers), as may be necessary or
desirable for the conduct of the business of the Corporation. Such other
officers and agents shall have such duties and shall hold their offices for such
terms as shall be provided in these By-Laws or as may be prescribed by the Board
or such committee or by the Chairman of the Board or President, as the case may
be.

SECTION 4.2. ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after the annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Each officer shall
hold office until such person's successor shall have been duly elected and shall
have qualified or until such person's death or until he shall resign or be
removed pursuant to Section 4.8.

SECTION 4.3. CHAIRMAN OF THE BOARD; CHIEF EXECUTIVE OFFICER. The Chairman of the
Board shall preside at all meetings of the stockholders and of the Board of
Directors and shall be the
<PAGE>

                                                                               9

Chief Executive Officer of the Corporation. The Chairman of the Board shall be
responsible for the general management of the affairs of the Corporation and
shall perform all duties incidental to such person's office which may be
required by law and all such other duties as are properly required of him by the
Board of Directors. He shall make reports to the Board of Directors and the
stockholders, and shall see that all orders and resolutions of the Board of
Directors and of any committee thereof are carried into effect. The Chairman of
the Board may also serve as President, if so elected by the Board. The Directors
also may elect a Vice-Chairman to act in the place of the Chairman upon his or
her absence or inability to act.

SECTION 4.4. PRESIDENT. The President shall act in a general executive capacity
and shall assist the Chairman of the Board in the administration and operation
of the Corporation's business and general supervision of its policies and
affairs. The President, if he or she is also a Director, shall, in the absence
of or because of the inability to act of the Chairman of the Board, perform all
duties of the Chairman of the Board and preside at all meetings of stockholders
and of the Board of Directors.

SECTION 4.5. VICE PRESIDENTS. Each Senior Vice President and Executive Vice
President and any Vice President shall have such powers and shall perform such
duties as shall be assigned to him by the Board of Directors.

SECTION 4.6. TREASURER. The Treasurer shall exercise general supervision over
the receipt, custody and disbursement of corporate funds. The Treasurer shall
cause the funds of the Corporation to be deposited in such banks as may be
authorized by the Board of Directors, or in such banks as may be designated as
depositories in the manner provided by resolution of the Board of Directors. The
Treasurer shall have such further powers and duties and shall be subject to such
directions as may be granted or imposed from time to time by the Board of
Directors, the Chairman of the Board or the President.

SECTION 4.7. SECRETARY. (a) The Secretary shall keep or cause to be kept in one
or more books provided for that purpose, the minutes of all meetings of the
Board, the committees of the Board and the stockholders; the Secretary shall see
that all notices are duly given in accordance with the provisions of these
By-Laws and as required by law; shall be custodian of the records and the seal
of the Corporation and affix and attest the seal to all stock certificates of
the Corporation (unless the seal of the Corporation on such certificates shall
be a facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal; and
shall see that the books, reports, statements, certificates and other documents
and records required by law to be kept and filed are properly kept and filed;
and in general, shall perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to the Secretary by
the Board, the Chairman of the Board or the President.

(b) Assistant Secretaries shall have such of the authority and perform such of
the duties of the Secretary as may be provided in these By-Laws or assigned to
them by the Board of Directors or the Chairman of the Board or by the Secretary.
During the Secretary's absence or inability, the Secretary's authority and
duties shall be possessed by such Assistant Secretary or Assistant
<PAGE>

                                                                              10

Secretaries as the Board of Directors, the Chairman of the Board, the President
or a Vice Chairman of the Board may designate.

SECTION 4.8. REMOVAL. Any officer elected, or agent appointed, by the Board of
Directors may be removed by the affirmative vote of a majority of the Whole
Board whenever, in their judgment, the best interests of the Corporation would
be served thereby. Any officer or agent appointed by the Chairman of the Board
or the President may be removed by him whenever, in such person's judgment, the
best interests of the Corporation would be served thereby. No elected officer
shall have any contractual rights against the Corporation for compensation by
virtue of such election beyond the date of the election of such person's
successor, such person's death, such person's resignation or such person's
removal, whichever event shall first occur, except as otherwise provided in an
employment contract or under an employee deferred compensation plan.

SECTION 4.9. VACANCIES. A newly created elected office and a vacancy in any
elected office because of death, resignation, or removal may be filled by the
Board of Directors for the unexpired portion of the term at any meeting of the
Board of Directors. Any vacancy in an office appointed by the Chairman of the
Board or the President because of death, resignation, or removal may be filled
by the Chairman of the Board or the President.

                                    ARTICLE V
                        STOCK CERTIFICATES AND TRANSFERS

SECTION 5.1. STOCK CERTIFICATES AND TRANSFERS. The interest of each stockholder
of the Corporation shall be evidenced by certificates for shares of stock in
such form as the appropriate officers of the Corporation may from time to time
prescribe. The shares of the stock of the Corporation shall be transferred on
the books of the Corporation by the holder thereof in person or by such person's
attorney, upon surrender for cancellation of certificates for at least the same
number of shares, with an assignment and power of transfer endorsed thereon or
attached thereto, duly executed, with such proof of the authenticity of the
signature as the Corporation or its agents may reasonably require. The
certificates of stock shall be signed, countersigned and registered in such
manner as the Board of Directors may by resolution prescribe, which resolution
may permit all or any of the signatures on such certificates to be in facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue. Notwithstanding the foregoing
provisions regarding share certificates, the proper officers of the Corporation
may provide that some or all of any or all classes or series of the
Corporation's common or any preferred shares may be uncertificated shares.

SECTION 5.2. LOST, STOLEN OR DESTROYED CERTIFICATES. No certificate for shares
of stock in the Corporation shall be issued in place of any certificate alleged
to have been lost, destroyed or stolen, except on production of such evidence of
such loss, destruction or theft and on delivery to the Corporation of a bond of
indemnity in such amount, upon such terms and secured by such
<PAGE>

                                                                              11

surety, as the Board of Directors or any financial officer may in its or such
person's discretion require.


                                   ARTICLE VI
                            MISCELLANEOUS PROVISIONS

SECTION 6.1. FISCAL YEAR. The fiscal year of the Corporation shall begin on the
first day of October and end on the last day of September of each year.

SECTION 6.2. DIVIDENDS. The Board of Directors may from time to time declare,
and the Corporation may pay, dividends on its outstanding shares in the manner
and upon the terms and conditions provided by law and the Certificate of
Incorporation.

SECTION 6.3. SEAL. The corporate seal shall have inscribed thereon the words
"Corporate Seal," the year of incorporation and the word "Delaware."

SECTION 6.4. WAIVER OF NOTICE. Whenever any notice is required to be given to
any stockholder or director of the Corporation under the provisions of the DGCL
or these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of the
stockholders or the Board of Directors or committee thereof need be specified in
any waiver of notice of such meeting.

SECTION 6.5. AUDITS. The accounts, books and records of the Corporation shall be
audited upon the conclusion of each fiscal year by an independent certified
public accountant selected by the Board of Directors, and it shall be the duty
of the Board of Directors to cause such audit to be done annually.

SECTION 6.6. RESIGNATIONS. Any director or any officer, whether elected or
appointed, may resign at any time by giving written notice of such resignation
to the Chairman of the Board, the President, or the Secretary, and such
resignation shall be deemed to be effective as of the close of business on the
date said notice is received by the Chairman of the Board, the President, or the
Secretary, or at such later time as is specified therein. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.


                                   ARTICLE VII
                            CONTRACTS, PROXIES, ETC.

SECTION 7.1. CONTRACTS. Except as otherwise required by law, the Certificate of
Incorporation, a Preferred Stock Designation, or these By-Laws, any contracts or
other instruments may be executed and delivered in the name and on the behalf of
the Corporation by such officer or officers
<PAGE>

                                                                              12

of the Corporation as the Board of Directors may from time to time direct. Such
authority may be general or confined to specific instances as the Board may
determine. The Chairman of the Board, the President or any Senior Vice
President, Executive Vice President or Vice President may execute bonds,
contracts, deeds, leases and other instruments to be made or executed for or on
behalf of the Corporation. Subject to any restrictions imposed by the Board of
Directors or the Chairman of the Board, the President or any Senior Vice
President, Executive Vice President or Vice President of the Corporation may
delegate contractual powers to others under such person's jurisdiction, it being
understood, however, that any such delegation of power shall not relieve such
officer of responsibility with respect to the exercise of such delegated power.

SECTION 7.2. PROXIES. Unless otherwise provided by resolution adopted by the
Board of Directors, the Chairman of the Board, the President or any Senior Vice
President, Executive Vice President or Vice President may from time to time
appoint an attorney or attorneys or agent or agents of the Corporation, in the
name and on behalf of the Corporation, to cast the votes which the Corporation
may be entitled to cast as the holder of stock or other securities in any other
corporation, any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing, in the name of the Corporation as
such holder, to any action by such other corporation, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.

                                  ARTICLE VIII
                                   AMENDMENTS

SECTION 8.1. AMENDMENTS. The By-Laws may be altered or repealed and new By-Laws
may be adopted (1) at any annual or special meeting of stockholders by the
affirmative vote of the holders of a majority of the voting power of the stock
issued and outstanding and entitled to vote thereat, provided, however, that any
proposed alteration or repeal of, or the adoption of any By-Law inconsistent
with, Section 2.2, 2.7 or 2.10 of Article II or Section 3.2, 3.9 or 3.11 of
Article III of the By-Laws by the stockholders shall require the affirmative
vote of the holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, and provided, further, however,
that, in the case of any such stockholder action at a special meeting of
stockholders, notice of the proposed alteration, repeal or adoption of the new
By-Law or By-Laws must be contained in the notice of such special meeting, or
(2) by the affirmative vote of a majority of the Whole Board.
<PAGE>

                                                                              13

      I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of
the By-Laws of Lucent Technologies Inc., a Delaware corporation, as in effect on
the date hereof.

Effective as of February 17, 1999



                                     /s/ Richard J. Rawson
                                     -------------------------------------
                                     Richard J. Rawson
                                     Secretary of Lucent Technologies Inc.



[Seal]

<PAGE>

                                                                    EXHIBIT 12




                             Lucent Technologies Inc.
                Computation of Ratio of Earnings to Fixed Charges

                              (Dollars in Millions)
                                   (Unaudited)


                                                               For the Six
                                                               Months Ended
                                                              March 31, 1999

Income Before Income Taxes.............................           $ 2,826

Less Interest Capitalized during
  the Period...........................................                 9
Less Undistributed Earnings of Less than 50%
  Owned Affiliates.....................................                 2

Add Fixed Charges......................................               272

Total Earnings ........................................           $ 3,087



Fixed Charges

Total Interest Expense Including Capitalized Interest..           $   191

Interest Portion of Rental Expense.....................                81

    Total Fixed Charges................................           $   272

Ratio of Earnings to Fixed Charges.....................              11.3

<TABLE> <S> <C>

<ARTICLE>             5
<LEGEND>
  This schedule contains summary financial information extracted from the
  unaudited balance sheet of Lucent at March 31, 1999 and the unaudited
  consolidated statement of income for the six month period ended March 31, 1999
  and is qualified in its entirety by reference to such financial statements.
  The financial data schedule reflects the two-for-one split of Lucent's common
  stock which became effective on April 1, 1999.
  </LEGEND>
         
  <S>                             <C>
  <PERIOD-TYPE>                   6-MOS
  <FISCAL-YEAR-END>                   SEP-30-1999
  <PERIOD-START>                       OCT-1-1998
  <PERIOD-END>                        MAR-31-1999
  <CASH>                                      792
  <SECURITIES>                                  0
  <RECEIVABLES>                             9,101
  <ALLOWANCES>                                349
  <INVENTORY>                               4,332
  <CURRENT-ASSETS>                         17,774
  <PP&E>                                   12,686
  <DEPRECIATION>                            6,935
  <TOTAL-ASSETS>                           32,840
  <CURRENT-LIABILITIES>                    11,562
  <BONDS>                                   3,716
                           0
                                     0
  <COMMON>                                     27
  <OTHER-SE>                                9,024
  <TOTAL-LIABILITY-AND-EQUITY>             32,840
  <SALES>                                  17,484
  <TOTAL-REVENUES>                         17,484
  <CGS>                                     8,725
  <TOTAL-COSTS>                             8,725
  <OTHER-EXPENSES>                          2,109
  <LOSS-PROVISION>                             13
  <INTEREST-EXPENSE>                          173
  <INCOME-PRETAX>                           2,826
  <INCOME-TAX>                                956
  <INCOME-CONTINUING>                       1,870
  <DISCONTINUED>                                0
  <EXTRAORDINARY>                               0
  <CHANGES>                                 1,308
  <NET-INCOME>                              3,178
  <EPS-PRIMARY>                              1.19
  <EPS-DILUTED>                              1.16
          
  
</TABLE>


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