The telecommunications industry suffered a severe business downturn during the early part of this decade. Lucent Technologies Inc. is one of the major equipment providers to this industry. Below are the comparative income statements for Lucent Technologies for the fiscal years ended September 30, 2004 and 2003.

1. Prepare a horizontal analysis income statement for Lucent Technologies.
2. Interpret youranalysis.

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Lucent Technologies Inc. Consolidated Statements of Income For the Years Ended September 30, 2004 and 2003 In millions Revenues Costs of revenues Gross profit Operating expenses 2004 9,045 5,266 $ 3,779 2003 8,470 5,818 5 2,652 Selling, general, and administrative Research and developme 1,296 1270 2,566 1,213 246 1,509 1.488 Total operating expenses Operating income (loss) 2,997 (345) (305) (353) Other income (expense)-net Interest expense (396) Income (loss) from continuing operations before 1,063 939 2,002 (1,003) 233 S (770) income tax (exe) benefit Income tax (expense) benefit Income (loss) from continuing operations