2004 EH&S Annual Report

Lucent Corporate EH&S Goals and Results For FY2004

We will improve safety performance: While continually improving our health & safety management systems, we strive for zero accidents/injuries. Our fiscal 2004 target for Lost Workday Case Rate is 0.40. For results, click here. Additionally, where Lucent utilizes product and service suppliers, their EH&S performance will be reviewed and considered during the vendor selection process. Further, the suppliers' ongoing safety performance will be monitored and evaluated to ensure that it is sustained and effective. For results, click here. We will use energy efficiently: For Lucent Operations: Having exceeded our five-year goal to avoid the emission of 50,000 metric tons of greenhouse gases (GHGs), we will sustain the progress and seek to reduce an additional 5,000 metric tons of GHGs in 2004. For results, click here. For Lucent Products: Lucent will design products that are more energy efficient over their life cycles. We will minimize EH&S effects of Lucent products over their full life cycles: By July 2006, Lucent will develop and implement methodologies to produce products, in support of market requirements, that are free of lead, hexavalent chromium, mercury, cadmium, and certain brominated flame retardants. Such products are designated "X-free". In 2004, we will: Conduct portfolio reviews and supply chain gap analyses for product components and subassemblies for which

Letter from the Chairman

At Lucent, we have always been committed to protecting the environment, the health and safety of our employees, and the communities in which we work. As such, we are dedicated to implementing sound and responsible environmental practices. We have a distinguished heritage of environmental management and corporate social responsibility, and we are continually striving for further improvement in these areas. Our environmental stewardship efforts are based on the concept of sustainability meaning we strive to meet the needs of the current generation without compromising the needs of future generations. Knowing that we must ensure the future availability of resources, we view designing for the environment just as important as designing for high performance, reliability and quality. Patricia Russo Chairman and Chief Executive Officer

Going forward, every Lucent employee needs to remain dedicated to demonstrating that sustainability is both an attitude and a way of life. This approach will help ensure a healthy and safe environment for future generations. And by combining a focus on business excellence with heightened environmental and safety awareness, we will better position ourselves for success in the global marketplace. This 2004 EH&S Annual Report summarizes some of the recent progress Lucent has made with regard to our environmental practices. Upon reading it, I am confident you will find that we continue to take this commitment seriously. The reason we take it so seriously is simple: It is the right thing to do.

Letter from Roy Femenella Lucent Environment, Health & Safety Vice President
Over the years, we have strived to integrate environment, health and safety (EH&S) aspects into our fundamental business processes. To that end, I'm pleased to report that Lucent is currently implementing a global management system that will be ISO 9001, TL9000 and ISO 14001 compliant. As a result of this approach, decisions regarding product and operational matters jointly consider EH&S implications and opportunities, with a "line of sight" to our board of directors.

As we have increasingly employed strategic business partners in support of Lucent Technologies' vision and mission, there is also an increased recognition that being a socially responsible company extends to our suppliers. As you review this annual report, you will see examples of how we have continued to drive EH&S awareness through our supply chain. Our EH&S expectations are now fully integrated into the Lucent Supplier Capability Assessment tool that Lucent uses to assess a supplier's capability to systematically meet our needs and expectations. The assessment is used to determine if Lucent should use, or continue to use, a supplier. Lastly, we have attempted to structure our annual report with consideration given to the Global Reporting Initiative Sustainability Reporting Guidelines. It is in this spirit that we have included EH&S information, which we believe is most relevant to Lucent's business model and our stakeholders. We welcome feedback from our stakeholders and will seek opportunities to proactively engage them and solicit their input going forward.

Roy Femenella Lucent Environment, Health and Safety Vice President

Introduction

One of Lucent's core values, "a strong sense of social responsibility," sets the foundation for the kind of company that we aspire to be and guides our actions as we go forward to create our future one where we serve and enhance the communities and the society on which we depend. More and more, our stewardship in those areas is built on the concept of sustainability. This remains a driving force for Lucent's environment, health and safety (EH&S) programs and our belief that corporate investment in EH&S is both socially responsible and business critical. It is an investment in our ability to meet customer needs, address environmental considerations, support our operations and create sustainable competitive advantage. Building on our legacy of EH&S reporting, we are taking steps, commencing with this annual report, to incorporate elements of the Global Reporting Initiative (GRI) 2002 Sustainability Reporting Guidelines (Guidelines) and establish a baseline for future reports. We have used the Guidelines to help decide the content that we believe is most appropriate for Lucent and its stakeholders, given our evolution from a vertically integrated manufacturing company to a business model that relies on strategic supply chain partners. Our intention is to provide stakeholders with significant insight into Lucent's commitment and support of sustainable development, a key aspect of social responsibility.

Lucent has design control. Incorporate X-free requirements in product specifications. Identify and evaluate alternative (X-free) parts in the active component portfolio. For results, click here. By January 2006, we will develop and implement methodologies, in support of market requirements, to achieve a 75 percent level of recovery and a 65 percent level of recycling for Lucent products. In 2004, we will: Baseline the current levels of recycling and recovery. Establish processes and metrics to calculate compliance and meet reporting requirements. Incorporate critical Design For Environment aspects into design and supply chain processes. For results, click here.

2004 EH&S Annual Report

Lucent Technologies environmental, health and safety policy
Lucent Technologies is committed to protecting the environment and the health and safety of our people, our customers and the communities where we operate. Meeting this commitment is a primary management objective and the individual and collective responsibility of all Lucent employees and Lucent Business Partners worldwide. To that end, we shall: comply with all applicable environmental, health and safety laws, regulations and Lucent's Global EH&S standards continue improvement in our environment, health and safety performance by implementing management systems ensure that our products are safe, and work with suppliers and customers to promote responsible use throughout their life cycles reduce environmental impact of our operations and products by: conserving natural resources; striving to eliminate waste, emissions and use of hazardous materials; reusing and recycling materials; and responsibly managing energy use motivate and prepare all employees to take personal accountability for protecting the environment and creating a safe and healthy workplace be a leader in deploying and promoting innovative, cost-effective environmental, health and safety technologies and procedures. We will regularly review and improve this policy, communicate it to all employees, and make it available to all stakeholders.

Patricia Russo President and Chief Executive Officer

Roy Femenella Environment, Health and Safety Vice President

2004 EH&S Annual Report Operations

Safety at Lucent
Lucent global facilities/operations have established numerous safety committees to provide employees a forum to discuss and resolve important safety issues. Safety committees are composed of both management and employee representatives who meet on a periodic basis to address pertinent EH&S issues at the facilities/operations. For example, safety committees at Lucent: Review, evaluate and recommend action on EH&S practices currently used by or recommended for the facility/operation. Help ensure compliance with applicable EH&S regulations. Encourage management commitment and employee involvement in EH&S activities. Promote compliance with EH&S Management System policy, goals and objectives. Local and regional regulatory requirements for the establishment of safety committees also are followed. Approximately 95 percent of all global Lucent employees in facilities/operations have functional safety committees. In addition to using safety committees to promote EH&S initiatives at our facilities/operations, safety huddles and newsletters are provided periodically to Lucent employees to inform them of important EH&S issues.

Work-related injuries and illnesses

Lucent implements a global process to record work-related injuries/illnesses as required by the Lucent EH&S Worldwide Standard "Serious Incident Reporting and Routine Reporting & Recordkeeping." In addition to the Lucent requirements for recording work-related injuries/illnesses, local/regional regulatory requirements are followed. Injury/Illness data (i.e., lost workday, medical treatment, work restriction, first aid) are maintained on the Corporate Health Services database for all worldwide operations. Lucent's fiscal 2004 Lost Workday Case Rate (number of lost workday cases per hundred employees) was 0.33, which was significantly below our target of 0.40. Additionally, Lucent had a global injury/illness Total Case Rate (number of recordable cases per hundred employees) of 0.81. There were no work-related fatalities in fiscal 2004.

Lucent Health Services

Lucent Health Services is dedicated to providing integrated services that improve employee health, increase productivity, enhance morale, and reduce Lucent health costs. We offer our employees a diverse menu of medical services, including: on-site clinics that provide a variety of clinical services and resources, a consolidated Health Center to support the occupational health needs of U.S. employees who do not have access to an on-site clinic, and our Employee Assistance Program (EAP), through which Lucent employees or family members can receive assessment, guidance or counseling for such problems as alcoholism, substance abuse, interpersonal or relationship difficulties, psychological or emotional disorders, and stress. On a global platform, Lucent Health Services is pleased to provide our employees with reliable health information and health improvement tools from Mayo Clinic, which provides specific information

on a variety of diseases and conditions, as well as programs to help them improve their health. Lucent Health Services also grants medical support to Lucent employees who go on temporary assignments in other countries by providing advice and guidance, including maintaining and making available a global listing of available certified physicians.

Environmental Management Systems

Lucent Technologies fully supports the development and deployment of EH&S Management System standards (e.g., ISO 14001, the U.S. Occupational Safety & Health Administration Voluntary Protection Program, OHS18000) among its various businesses. In order to maintain maximum operational flexibility, the appropriate standard is selected to meet the needs and functionality requirements of each individual business unit, as well as the most beneficial method of deploying that standard (e.g., facility- specific, multi-site, business unit). Lucent Technologies Lucent is currently implementing a companywide One Lucent Management System (OneLMS) that will be ISO 9001:2000, TL9000 R3.0/R3.5 and ISO 14001:1996(E) compliant. The target date to achieve this certification is the first quarter of 2005. Lucent is in the process of incorporating locations and organizations that are already certified to the ISO 14001 environmental management system standard into the One Lucent Environmental Management System (OneLEMS), which is the environmental element of the OneLMS. Third-party certified ISO14001 environmental management systems (OneLEMS) cover all of our "manufacturing related" sites worldwide, representing 100 percent of the associated 6,900 employees. Manufacturing for Lucent One of the most visible and dramatic changes in Lucent's business model and overall supply chain is the transformation of Lucent's manufacturing infrastructure. Lucent has migrated from a highly vertically integrated manufacturing enterprise to a largely virtual manufacturing company. Thus, Lucent does not operate significant manufacturing facilities. Rather, we have retained a small, globally diverse network of System Integration Centers where product assembly and test are conducted, and all of which have third-party certified ISO 14001 environmental management systems. Since most of our manufacturing services are provided by industry-leading partners, collaboration on eco-environmental performance is more important than ever. Lucent has committed to evaluate the products and operations of strategic partners. Major suppliers are required to deploy or maintain an Environmental Management System at locations where parts or products are manufactured for Lucent. Of Lucent's suppliers of Electronic Manufacturing Services, 83 percent had third-party registered ISO14001 systems at the end of 2004. We will continue to monitor progress to ensure our requirement of complete coverage is realized.

Occupational Safety & Health Administration VPP

In 2004, the U.S. Occupational Safety and Health Administration (OSHA) visited the Holmdel, Murray Hill and Whippany, N.J., locations to evaluate their safety management systems. These sites encompass a range of activities and operations, including research and development (R&D), product management, supply chain management and corporate administrative services. As Star sites (the highest OSHA rating) within the OSHA VPP for four years, these facilities have demonstrated an excellence in safety practices. To continue in the VPP, a facility must have a periodic on-site evaluation by OSHA, while maintaining industry-leading statistics. While at these locations, the OSHA teams reviewed written safety programs, toured the facility and interviewed employees. They assessed management commitment to safety, employee involvement, hazard prevention, safety training, and looked for continual improvement in each area. All three locations retained their Star recognition in the VPP. Exemplary programs identified by OSHA during the on-site evaluation include the Lucent EH&S Web site, Medical Emergency Response Teams, and the computerized chemical inventory database.

Incidents
Lucent was not involved in any incidents such as spills or regulatory noncompliances during 2004.

2004 EH&S Annual Report Products

Product Compliance
Product is developed with state-of-the-art technology that is designed to meet applicable, country-specific product conformance standards, including product safety, electromagnetic compatibility, radio frequency and laser safety, and eco-environmental requirements. Lucent uses its development experience and continuous stringent quality checks to incorporate operational safety features into the designs of our products. Lucent employs product compliance tools to ensure regulatory compliance where products will be marketed. These compliance tools are used to enable Lucent designers to identify all applicable international legislation and/or regulations early in the design cycle. They also facilitate timely development, sale and deployment of safe and compliant products worldwide. Lucent continues to refine and enhance its online tools used by designers of Lucent products in identifying and assessing product compliance of customers, regions and countries where our products may be marketed or sold. The OnePC (Product Conformance) Checklists, Guidelines & Requirements, and the Country-Specific Conformance Requirements are examples of our extensive online tools that ensure complete product safety compliance. These tools enable Lucent designers to identify all applicable international standards and/or regulations affecting the sale and marketing of Lucent products. They also provide a means of ensuring that all necessary documentation and testing data are maintained for the period of time as mandated by standards or regulations. We provide our customers with product documentation that includes energy consumption data, equipment modularity or expansion capabilities and applicable product safety, radio frequency safety, laser safety and battery labeling information for all products. Material safety data sheets are provided to our customers for any applicable materials that may be brought onto a site through our installation services activities. Detailed information on material content of products is shared with customers during the bid and tender process for any product covered by the tender request.

Environmental Impact
Lucent systematically identifies the environmental aspects of its products and associated activities. The aspect evaluation process is based on a proactive multi-criteria product life cycle approach. It is used to identify environmental aspects associated with hardware products in accordance with environmental management system procedures using methodology consistent with draft standard ISO 14062, Integration of Product Aspects into Product Design. Integrating environmental aspects into product design and development involves consideration of a range of potential impacts helping to ensure that reduction of one impact does not result in an increase in another impact. When using a multi-criteria life cycle approach in designing and developing a product, different criteria may be applied while maintaining the product's function. The aspect evaluation process is to establish an eco- environmental baseline for current products and gather the data necessary to influence future product designs. Environmental Aspects are considered across the entire life cycle of our products and include: banned and restricted substances (material content), energy efficiency, end-of-service-life take-back, ability to be recycled and reusability. Minimization of the amount of material used is a design objective. Additionally, efforts to extend the life of a product take into consideration design for maintenance, repair, refurbishment and reuse. Similarly, the variety of materials used is minimized to promote ease of separation and ability to be recycled, particularly for plastic parts. Based on our analyses to date, for our products, the life cycle stage with the greatest environmental impacts is the product's use stage (typically 15 to 20 years). This is a function of the amount of energy consumed over the life of our products. Consequently, improved energy efficiency of our products results in a significant decrease in greenhouse gas emissions over their life cycles. Our customers are concerned about the use of energy, and the associated resulting impacts (global warming from electric utility greenhouse gas emissions) from the operation of their telecommunications networks. European bodies, such as the EU's Joint Research Centre, have begun studies on ways to legislate energy-saving features and efficiency targets for broadband equipment.

Product Energy Use

Lucent's corporate energy goal states that products should be designed to be more energy efficient than prior generations. Lucent uses a management system approach to ensure that energy efficiency is considered in a product's design. Metrics are used to demonstrate continual improvement in the energy efficiency of our products. A comparison of a new product with that of a previous generation quantifies the improvements made to energy efficiency. An example of recent base station evaluations demonstrating energy efficiency improvements for designs within the 2002-2004 time period is provided below:

Additionally, the environmental performance of a base station can be evaluated from a product functionality and energy use perspective using an eco-performance metric. In the example below, the Compact 4.0 V2 base station was more energy efficient than the Modcell 4.0 unit, when considering the electrical usage for a unit of product functionality, which in this instance is bandwidth. The results are summarized in the table below. Year Product Energy Efficiency
% Improvement over previous

2002

2003
(4 sectors / 3 carriers)

2004 Outdoor CDMA Compact V2

(3 sectors / 4 carriers)

Outdoor Modcell Outdoor Modcell 4 3

(3 sector / 3 carriers)

Baseline

34%

25%

product

The use of an eco-performance metric provides the ability to demonstrate continual improvement of a product family. Hardware improvements such as the use of passive cooling, which eliminates the need for fans, and the use of newly available energy efficient amplifiers, contribute to the energy reductions for the product. Overall product eco-performance also typically increases as new types of technologies provide greater product functionality, for example, more bandwidth. The results for an outdoor mobile base station are summarized in the table below: Year Product Functional Energy Efficiency
Watts / bandwidth capacity (mega bits/sec)

2002 Outdoor Modcell 3

(3 sector / 3 carriers)

2003 Outdoor Modcell 4

(4 sectors / 3 carriers)

2004 Outdoor CDMA Compact V2

(3 sectors / 4 carriers)

32 Baseline

19 41%

5 74%

% Improvement

Product Take-Back
Teams from across the business have been focusing on the EU Directive addressing Waste from Electrical and Electronic Equipment (WEEE). It requires producers to take back equipment at the end of their useful life and sets targets for recycling and recovery, beginning with products placed into the EU market in August 2005. Lucent has established a take-back program in accordance with WEEE. The capability to take

back products is fully implemented for all products and customers globally. In 2004, Lucent informed European customers about the terms and conditions under which take-back obligations will be executed. We have recycling programs for our products throughout the world that are capable of meeting WEEE requirements now. We continue to assess and analyze our product designs and recycling programs to achieve higher efficiencies. For example, Lucent has determined from its existing key contractors the current levels or baseline of recycling, and has established processes and metrics to calculate compliance and meet reporting requirements that take effect starting in 2006. In compliance with the WEEE Directive, Lucent is cooperating with its approved recyclers in an ongoing effort to understand their requirements for improving the recycling efficiency of our products. We also have completed life cycle assessments of some of our products to define key design-for- environment features that were then incorporated into tools, which support design and supply chain processes. Handling Take-back Requests Lucent's Global Reverse Supply Chain Organization (GRSC) has put in place the necessary processes to deal with any request for take-back and will coordinate such requests within Lucent. This support function will not only deal with take-back legal requirements but also will support swap-outs or other business opportunities in the "services" business segment where Lucent would manage the displacement of obsolete equipment for the customer. A take-back help desk is the one stop for any take-back requests. The first step in the process is a review of the product to see if there is an opportunity to resell valuable used equipment through the Special Customer Operations (SCO) organization. Lucent's second option is to take the equipment to approved contractors to be recycled, using the most efficient methods for "environmentally responsible" recovery. We audit each recycler we work with to ensure that they follow accepted practices. Lucent receives reports as to the quantity and type of materials recovered, and we make sure that the materials are directed to the appropriate destination for reuse or disposal. While our capability to take back equipment was previously put in place, our main focus in 2004 was to assess various options to arrange for taking back equipment, and shipping it to appropriate recyclers. Our target is to identify the most efficient set-up, while assuring appropriate waste handling, recycling and reporting according to the various requirements of individual EU member states. As we look ahead, it is expected that other countries around the world will adopt legislation similar to the EU directives during the next few years. The work being done now to comply with the EU mandates will prepare Lucent for future customer and legal requirements around the globe.

Recycling & Recovery

In accordance with the EU WEEE Directive, by January 2006 Lucent will have developed and implemented methodologies to achieve a minimum level of product recycling of 65 percent by weight. For any electronic product, the EU specifies a mandatory recovery target of 75 percent by weight. Recovery is defined as the weight of recycled materials plus the weight of combustible material incinerated for energy recovery. In order to comply with the provisions of the WEEE Directive, Lucent will provide reuse and treatment information for each new product within one year after the equipment is put on the market. This information must identify the different components and materials in the electronic equipment, as well as the location of any restricted substances and preparations. The European Electronics Recycling Association has, upon request by industry, started a standardization effort to achieve a common understanding between producers and treatment operators of the product information relevant for end of life consideration. It defines the list of items that are relevant to treatment facility operators. These items relate to either parts that require specific treatment according to the directive, or parts for which specific treatment requirements exist. Continuing our efforts in 2004, Lucent conducted a baseline recycling evaluation of our product portfolio. For most products, recycling rates were determined to be greater than 75 percent, which exceeds the 65 percent target.

Lucent has developed a practical method to demonstrate compliance with regulatory recycling targets. An eco-metric tracking tool is used to capture recycling data and demonstrate compliance with EU regulatory recycling targets. However, Lucent chooses not to stop there, as we continue to identify areas where future recycling improvements should be focused. For example, we are working with our preferred global recyclers to identify materials that they need to separate for further treatment and recycling efforts. We are also working with our suppliers to determine the presence and use of these materials in our supply chain, and to evaluate better life cycle alternatives.

2004 EH&S Annual Report Initiatives

Energy Use
Both electrical and natural gas annual usage rates have decreased in Lucent facilities, from 2003 to 2004. Review of energy use from 31 facilities, located across North America, indicated a reduction of 48,830,373 kWh of electricity and 2,760,564 therms of natural gas, over that time period. Emission of air contaminants associated with natural gas combustion decreased more than 22 percent, as documented from 31 facilities in North America, from 2003 to 2004. Emission (metric tons) 2003 Sulfur Dioxide (SO2) Nitrogen Oxides (NOx) Carbon Monoxide (CO) Total Suspended Particulates (TSP) Volatile Organic Compounds (VOC) Ammonia (NH3) Lead (Pb) Particulate Matter, 10 microns (PM-10) Particulate Matter, 2.5 microns (PM-2.5) Carbon Dioxide (CO2) Methane (CH4) 0.33 55.83 46.90 4.24 3.07 1.79 0.00 4.24 4.24 66,999 1.28 2004 0.26 43.31 36.38 3.29 2.38 1.39 0.00 3.29 3.29 51,973 1.00

Air Contaminant

Greenhouse Gas Emissions

Total greenhouse gas (GHG) emissions have been reduced as a direct result of a decrease in energy consumption. Since becoming a member of the United States Department of Energy "Voluntary Reporting of Greenhouse Gases" program in 1993, Lucent has achieved GHG emission reductions of more than 400,000 metric tons. These reductions were due to the implementation of energy efficient projects, fuel substitution and recycling activities. Lucent has established an emission reduction program, and is committed to using energy efficiently to meet the program goals to avoid, over five years, what would otherwise be the emission of 50,000 metric tons of greenhouse gases relative to a 1999 baseline level. As documented in the United States Department of Energy "Voluntary Reporting of Greenhouse Gases" program documents, Lucent has significantly exceeded that five-year goal.

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Ozone Depleting Substances

Lucent Technologies has mandatory requirements for the use and emissions of ozone depleting substances, which includes chlorofluorocarbon / hydrochlorofluorocarbon (CFC/HCFC) refrigerants. Since 1997, Lucent has had in place a global CGC/HCFC refrigerant management plan that prohibits the purchase of nonhermetically sealed air conditioning and refrigeration systems that use these substances, and restricts the transfer of any remaining amounts of these substances outside the company. These company requirements are similar to those established under the United States federal regulations.

RF Environment Exposure Assessments

Compliance with governmental regulations forms the basis for determining safe operating requirements for both site (wireless base station deployment) and worker (occupational) compliance. Lucent also participates on regional and international standard committees that are concerned with both human RF exposure and RF measurement techniques. Technical experts within Lucent contribute information to these committees to ensure scientific-based RF guidelines are developed.

Supply Chain Performance

Our efforts to drive EH&S awareness through our supply chain continued in 2004. EH&S expectations are now fully integrated into the Lucent Supplier Capability Assessment (LSCA) tool that Lucent uses to assess a supplier's capability in terms of the necessary processes and controls to systematically meet our needs and expectations. The assessment is used to determine if Lucent should use, or continue to use a supplier, and the associated risk in doing so. Through the LSCA process, we evaluate the EH&S performance of service and product suppliers within the Lucent supply chain. The process assesses a supplier's complete management, quality and technical capabilities, and establishes baseline information on a supplier via an initial questionnaire. It also may include an on-site review to get a "real world perspective" of a supplier's capabilities. Some areas taken into consideration include: The presence of an Environmental, Health & Safety Management System (ISO 14001, Eco-Management and Audit Scheme or equivalent). Use of Environmentally Hazardous Substances in terms of reporting, minimization of use and substitution. Lucent has established QPS 20.248 Lucent Technologies Supply Chain Requirements for Control and Reporting of Material Content, which identifies specific materials that are banned in products or packaging provided by Lucent and lists environmentally hazardous substances that are to be avoided in its products and packaging. This document can be viewed on Lucent's external Supply Chain Portal (select "General Use Documents," then "Eco-Environmental Alerts and Requirements"). QPS20.248 also requires Lucent's suppliers to declare the presence of certain environmentally hazardous substances of concern, if they are contained in products provided to Lucent. As a vital partner in the LSCA process, EH&S professionals have reviewed suppliers' responses to the EH&S section of the initial questionnaire, participated in on-site reviews and supported the assessment of supplier responses to EH&S issues identified during the on-site reviews. In addition to the LSCA process for product and services suppliers, a new LSCA was developed to assess product distributors. EH&S clauses have been included in Lucent's standard Terms & Conditions, for all "goods" and/or "services" supplier agreements, including a clause regarding environmentally hazardous substances as noted previously. Another clause, new in 2004, asks "goods" suppliers to provide Lucent with eco-declarations of material content when available for any of the products that they supply to Lucent. In "services" supplier agreements, Lucent sets high workplace safety standards and requires our suppliers to do the same by agreeing to the "Workplace Safety" clause that was updated in 2004.

Rebuilding the Communications Infrastructure in Iraq

As a key part of the Lucent Worldwide Services' (LWS) business strategy, Lucent Technologies continues to target the services business as an area for growth. Occasionally work in the services sector can present unique and demanding challenges. Lucent is currently contributing to the rebuilding of the communications infrastructure in Iraq. Working in this challenging environment puts significant demands on individuals. Notwithstanding the threats associated with insurgent activity, the working environment has many hazards that need to be carefully managed. Issues such as blast-damaged or unstable buildings, poor or temporary accommodations and absence of infrastructure means that the highest level of occupational health and safety awareness is required to maintain a safe

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working environment for Lucent's staff, its customers and contractors. Lucent's EH&S professionals in Baghdad apply the methodologies of the LWS EH&S management system to identify risk, implement risk management programs and establish goals for minimizing work-related accidents. In support of the Baghdad based professionals, Lucent has leveraged the skills of its network of EH&S professionals in the Middle East and Europe to give support by delivering specialist training and technical direction and advice when needed. EH&S awareness training is delivered so that individuals are aware of risk and understand how to avoid work-related hazards. EH&S requirements have been integrated into the contracts of the subcontractors involved. Lucent monitors the EH&S performance of subcontractors to ensure that safe work practices are followed.

Remediation
The Remediation Group within Lucent oversees the investigation, design, construction and operation of environmental remediation and restoration projects. In taking its legacy environmental responsibilities seriously, Lucent makes every effort to achieve a cleanup standard that addresses human health and the environment and does so in a financially responsible manner. Our remediation activities fall into two broad categories associated with Lucent owned (or formerly owned) facilities and third-party waste disposal and reclamation facilities. In certain cases, the liability may be related to a business or property acquisition. Projects may be regulated under one or more local, state or federal programs such as CERCLA (Superfund), RCRA (Hazardous Waste), state cleanup programs in the United States, as well as the international or country-specific regulations. When Lucent sold its manufacturing operations to contract manufacturing service providers or property developers, wherever possible, we sought to identify prospective purchasers that would reuse or redevelop the properties in a manner that is beneficial to the community and the environment. In most instances, Lucent has retained responsibility for managing any presale environmental issues. Lucent works closely with the buyer(s) and regulatory agencies to ensure a smooth ownership transition and to facilitate redevelopment. This includes innovative contracting relationships with our environmental consultants and remediation contractors to complete site cleanup and closure on an expedited schedule. This approach provides benefits to the buyer, the community and Lucent. For waste disposal and reclamation facilities, these Superfund sites are usually shared liability sites with multiple parties participating in the management, operations and funding. Funding is typically based on the respective party's share of the total volume of waste that went into the site. At a few sites, Lucent has the primary responsibility for operations and funding. Where there is a potential for disruption of wetlands, or impacts have already occurred, the remedial design is modified to ensure the wetlands area is protected, restored, or replaced with an equivalent wetlands resource. A recent example is the design and construction at the MW Manufacturing site in Pennsylvania. The design was modified to minimize impacts to existing wetlands and to provide additional wetland resources. The cover design was revised to protect or relocate the existing on-site wetlands and to create additional wetlands. Also, the groundwater extraction design was modified to minimize the potential disturbance of down-gradient wetlands. As a result of ongoing remediation operations and maintenance, Lucent restored more than 494 million gallons (1.87 billion liters) of groundwater to productive use in fiscal 2004. Groundwater remediation systems are closely monitored to ensure the effluent quality meets applicable standards, which, in many cases, are the drinking water standards. In addition to our efforts to remove contaminants from the environment, Lucent also participates in supplemental programs designed to assist the communities affected by the past operations. Recent examples include a program in East St. Louis, Ill., that provided health and safety training to citizens who were then employed on the remedial project. In 2004, Lucent, along with other parties, helped develop and fund a $2 million lead abatement program in Madison County, Ill. This program will identify and abate potential lead paint and lead pipe issues throughout the community. In 2004, Lucent completed the cleanup of the MW Driftwood site in Driftwood, Pa., under the Pennsylvania Act 2 Land Recycling Program. This cleanup facilitated acceptance of the site into the Brownfield Action Team Program, which will assist in creation of new business and as many as 40 jobs over the next three years. Driftwood is located in a rural, economically disadvantaged part of Pennsylvania. Total remediation expenditures for FY2004 were $19.5 million (this includes offsets for cost recoveries and credits from other parties).

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2004 EH&S Annual Report Recognition

External Recognition
The Mobility Solutions Product Based Environmental Management System (PBEMS) was highlighted as a best practice by Envirowise. Envirowise - Practical Environmental Advice for Business is a government program that offers free, independent and practical advice to UK businesses to reduce waste at source and increase profits. This recognition focused on their sustainable design of electrical and electronic products to control costs and comply with legislation guide GG427. Through the PBEMS, sustainability concepts are applied to the design and development of wireless hardware products worldwide. The PBEMS conforms to the requirements of the ISO 14001 international standard and has received third-party certification. Qingdao System Integration Center's (SIC) Huangdao plant was awarded by Qingdao Economic Development Zone's Governmental Office for excellent occupational health performance. The Institute for the Sustainability of Resources in Spain recognized Lucent Technologies with the second prize in the category of "the company with the best sustainability project" in the 2004 Sustainability Awards. The Institute for the Sustainability of Resources (ww.isrcer.org) is a nonprofit foundation encompassing public authorities in Spain and Portugal, including the Ministry for the Environment, private companies and professionals of reputation in the environmental field. OSHA VPP Star recertification has been achieved by three of our U.S. facilities: Holmdel, Murray Hill and Whippany, New Jersey.

EH&S Champions Program

Around the world and across the business, individuals and teams demonstrated Lucent's commitment to protecting the environment and ensuring the health and safety of its employees, customers and communities during 2004. Fifteen projects spread across eight countries, representing all of our global regions, were chosen as the year's EH&S Champions. Sponsored by the Lucent Foundation and Lucent's EH&S organization, the annual EH&S Champions Awards program honors employees who have successfully addressed environment, health and safety issues in their business practices, workplaces and communities. Nominations are collected by the Foundation from employees, and projects are selected by an individual panel of judges based on criteria that includes environment, health and safety benefits, cost savings, ease of replication, program effectiveness and innovation. The Lucent Foundation provides a $2,000 donation to a nonprofit organization that has been selected by each of the award recipients/teams. Program Effectiveness Projects in the Program Effectiveness category, chosen for improving our operations and products in the areas of pollution prevention, waste reduction and energy efficiency, or affecting accident prevention and the reduction of on-duty injuries or illnesses, are: Environmental Stress Testing at the NESIC - In North Andover, Mass., members of the Supply Chain Networks (SCN), Bell Labs and former Integrated Network Solutions teams created a series of goals and targets to better understand the environmental impact of product stress testing at the NESIC (Northeast Systems Integration Center) ISO 14001 certified environmental management system. The team collaborated with others in a long-term effort to reduce facility energy consumption, optimize system test energy efficiency and minimize costs, while maintaining the quality and reliability of Lucent's products. Team members: Suresh Goyal, Jeff Griffin, Shirish Kher, John Lindberg, Jeff Sutton and Rajesh Swaminathan. RF Switch Mode Power Amplifiers - A Bell Labs team in Nuremberg, Germany, designed a highly efficient RF (radio frequency) switch mode power amplifier to dramatically reduce the energy consumption of Lucent's UMTS and CDMA wireless base stations - and consequently reduce the overall energy consumption of our customers' wireless networks. Team members: Georg Fischer, Horst Schenkel and Bernd Friedel.

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Defensive Driving Program - In 2001, a Lucent Worldwide Services (LWS) team in San Pedro de los Pinos, Mexico, established the Defensive Driving Program, which includes documented safety rules and controls for Lucent vehicles, drivers and their managers, as well as annual driver training. As a result, Lucent Mexico has had no injuries and an 83 percent reduction in the number of vehicle incidents/accidents in the past four years while maintaining a fleet of 116 vehicles used by 160 drivers. The program also has reduced insurance and maintenance costs in Mexico and has been replicated in other countries throughout the Caribbean/Latin America (CALA) region. Team Members: Luis Cantu, Silvia Crespo, Mario Cruz, Jorge De Leon, Samuel De Leon and Monica Segura. Vehicle Safety Management - A Global Sales team in Qingdao, China, joined by members of SCN, launched a new program for vehicle safety management, which includes monthly safety inspections for shuttle buses and company cars and provides monthly traffic safety training for all drivers. The program reduced the traffic accident rate to zero in 2004 and improved vehicle safety awareness among employees. Team members: Wang Chen, Wu Zhan Jun, Gary Tao Lin, Lv Xiao Peng, Qin Ping, Jiang Ruidong, Fu Guang Xu, Chi Yaoshi and Annie Andi Zhang. Remanufactured Circuit Packs - Members of Optical Networking in Holmdel, N.J., and SCN in North Andover, Mass., partnered with the Special Customer Operations group to develop $5 million in incremental revenues for 2004 by remanufacturing OLS1.6T (400G/800G) circuit packs from excess inventory, buy-backs and trade-ins, and reselling them to customers. Team members: Douglas Brochetti, Paul Deshaw, Jayne Hall, Lisa Lam, Robin Miller, Catherine Rose, Chris Stafford, Pilar Somohano, Blake Tucker and Sam Willoughby. Management Practices Projects in the Management Practices category, selected for achievements in developing effective environment, health and safety management programs within Lucent or in partnerships with strategic business partners, government agencies or outside organizations, are: Hazard Gas Risk Remediation Team - In New Jersey, members of Lucent EH&S (LEH&S), Bell Labs and Lucent Real Estate came together to ensure that all Lucent R&D facilities minimize the release of toxic chemicals into the environment. The team developed management practices that require Lucent laboratories to use state-of-the-art air pollution control equipment, continuous emission monitors and safety devices that result in automatic gas flow shutoff. The team also has been asked by the state of New Jersey Department of Environmental Protection to help design a regulatory policy to effectively control chemical emissions from research facilities within the state. Team Members: Jose Alvarez, Larry Bernson, Evans Chen, Don Church, Larry Federico, Steve Ferrante, Bill Hemp, Bob Keller, Richard Quick, Rose Kopf, Nick Sauer, Shaun Van Doren and Eric Wichman. APAC Supplier Performance Management - An LEH&S team in Shanghai, China, provides training to Lucent's Supplier Management team and Quality team on EH&S issues and encourages Lucent suppliers to meet EH&S legal requirements in developing their own EH&S management systems. This benefits their business and Lucent's. The team has created a comprehensive database containing information on the EH&S management status of more than 130 suppliers. Team members: Richard Ren, Wei San Wan, Colin Wang, Grace Xu and Hong Xu. Promoting EH&S in APAC - During the past seven years, LWS and LEH&S teams in Hong Kong and Singapore worked together to establish and implement EH&S management systems in all Lucent's Asia/Pacific (APAC) locations, resulting in increased employee awareness about EH&S issues and a safer working environment. Programs have been created to train managers and employees, measure and control waste disposal, minimize the use of electricity, paper and fossil fuels, and encourage recycling throughout the region. Also, during the past two years, the region has suffered no lost work time due to accidents or injuries. Team members: Asam Cho and Wee Liang Ong. Eco-Metrics Development Team - A cross-functional team from Swindon, England; Columbus, Ohio; Murray Hill and Whippany, N.J., developed a process to systematically manage product eco-environmental performance improvement data (Eco-Metrics). This facilitates the "green" evolution of products and compliance with regulatory requirements. Team members: Fred Blechinger, Kathy Donnelly, Sue Holman, Beth Kujan, Roger Olds and Gabriel Valdez Promoting EH&S in Australia/New Zealand - LWS, SCN, LRE and LEH&S team members in

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Australia and New Zealand successfully implemented a tracking system for incident/accident reporting and investigation, as well as programs for measuring and controlling the disposal of waste and use of electricity, paper and fossil fuels. Between 2002 and 2004, their efforts to minimize on-the-job accidents and illnesses resulted in a 90 percent reduction in insurance costs in both countries. Team members: Marcus Andreassen, Asam Cho, Sarah Corney, Steve Doherty, Louise Hammond, Mike Hyett, Dillip Kanji, Andrew Kingham, Matthew Lawrence, Lesia Masnyi, Jim McGregor, Lynette Messina, Ravenel Morgan, NicolleMuller, Wee Liang Ong, Angela Sammons, Neville Todd, Gabriel Wong and Melanie Young. Planning for the Future In the Planning for the Future category, the projects, chosen for innovation in environmentally sound design, technology or manufacturing methods and processes, or workplace design innovations that prevent job-related injury or illness, are: UCR 450 Cost Reduction Program - The UCR 450, a radio controller board for the CDMA Flexentr Modcell 4, was designed and developed by teams in Columbus, Ohio, and Nuremberg, Germany, in compliance with the European Union's Restrictions on Hazardous Substances (RoHS). By including new functionality, the team reduced waste products and power, leading to cost savings of more than $1 million. Team members: Peter Baehrle, Jim Batey, Jeffrey Blankenship, John Chismar, Kevin Daugherty, Dave Dempski, Wolfgang Eckl, Bernd Friedel, Mike Hayden, Jim Heom, Fred Hoefelmeyer, Gerhard Kaminski, Don Motley, Carl Olen, Paul Redder, Kai Schmitt, Shrijay Dalal, Gary McClung, Joseph Moussa, Adam Smith, Mike Vehonsky and Dave Walder. Energy Modeling Tool - A cross-organizational team in Whippany, N.J., created a statistical tool to provide accurate information on the energy consumed by Flexentr products. The tool is now used by product development teams, customer teams and external customers to evaluate the energy impact of wireless base station operations. Team members: Abe Assad, Beth Kujan, John Olivieri, Jitendra Patel and Michael Venezia. Modcell Solar Shields - A physical design team in Whippany, N.J., replaced the solar shields mounted on the Flexentr CDMA Modular Cell with polycarbonate solar shields, resulting in a 98 percent improvement in environmental performance and a reduction in cost for materials, shipping and installation time. Team members: Joe Borowiec, Alex DiNota, Jack Dispenza and Jerry Grandov. CDMA Baseband Radio Circuit Pack Development Team - Team members from SCN and Mobility Solutions in Columbus, Ohio, redesigned the CDMA Baseboard Radio (CBR) circuit pack so that its productivity is maintained but its energy consumption is reduced. The redesigned circuit pack consists of one circuit board instead of two, resulting in lower production and shipping costs because the pack is lighter and requires less material to build. Additionally, the impact on the environment includes a reduction in greenhouse gas emissions and solid waste generation. Team members: Jim Batey, Jeff Blankenship, John Chismar, Kevin Daugherty, Mike Hayden, Paul Redder, Larry Shepard, Adam Smith, Dave Walder and Terry Zylstra. Social Responsibility The project chosen for Social Responsibility, demonstrating outstanding individual or corporate citizenship, is: Operation Bob: Supporting Our Troops - LWS team members in Sunnyvale, Calif.; Holmdel, N.J.; Malvern, Pa.; and Columbus, Ohio, helped a colleague who was called to active duty in Kuwait in July 2004 and his Navy Reserve unit by collecting personal health care items and sending them overseas. The team's contribution positively influenced the health, well- being and morale of the unit and helped offset costs that the military families would incur for these items. Team members: Karin Donnelly, Chris Frantz, Lyn Green, Tom Jones and Suzanne Pearson.

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2004 EH&S Annual Report GRI Index

Global Reporting Initiative (GRI) Index
The performance indicators from the Environment, Health & Safety; Customer Health & Safety; and Products & Services sections of the GRI Guidelines that we have determined to be relevant and feasible for reporting are summarized below. We will continue to assess the appropriate GRI performance indicators for future reporting. EN3 EN8 EN9 Direct energy use segmented by primary source Greenhouse gas emissions Use and emissions of ozone-depleting substances. Energy Use Greenhouse Gas Emissions Ozone Depleting Substances Energy Use Incidents Environmental Impact Recycling & Recovery

EN10 NOx, SOx, and other significant air emissions by type. Significant spills of chemicals, oils, and fuels in terms of total number EN13 and total volume. EN14 Significant environmental impacts of principal products and services Percentage of the weight of products sold that is reclaimable at the EN15 end of the products' useful life and percentage that is actually reclaimed EN16 Incidents of and fines for noncompliance with all applicable international declarations/conventions/treaties, and national, subnational, regional, and local regulations associated with environmental issues Objectives, programs, and targets for protecting and restoring native ecosystems and species in degraded areas.

Incidents Product Energy Use Remediation Supply Chain Performance Remediation

EN18 Energy consumption footprint of major products EN27

Performance of suppliers relative to environmental components of EN33 programs and procedures described in response to Governance Structure and Management Systems section (Section 3.16). EN35 Total environmental expenditures by type. LA5

Work-related Practices on recording and notification of occupational accidents and diseases, and how they relate to the ILO Code of Practice on Recording injuries and and Notification of Occupational Accidents and Diseases. illnesses Description of formal joint health and safety committees comprising management and worker representatives and proportion of work force Safety at Lucent covered by any such committees. Standard injury, lost day, and absentee rates and number of work-related fatalities (including subcontracted workers). Work-related injuries and illnesses

LA6

LA7 LA8 PR1 PR 2 PR4 PR5

Description of policies or programs (for the workplace and beyond) on Lucent Health HIV/AIDS. Services Description of policy for preserving customer health and safety during use of products and services Description of policy, procedures/management systems, and compliance mechanisms related to product information and labeling. Number and type of instances of non- compliance with regulations concerning customer health and safety, including the penalties and fines assessed for these breaches. Product Compliance Product Compliance Incidents

Number of complaints upheld by regulatory or similar official bodies to Incidents oversee or regulate the health and safety of products and services.

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PR6

Voluntary code compliance, product labels and awards

Environmental Management Systems OSHA VPP Recognition

Copyright 2005 Lucent Technologies. All rights reserved.

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