- Product Sales Rose 9.2 Percent Year-Over-Year BASKING RIDGE,
N.J., April 26 /PRNewswire-FirstCall/ -- Avaya Inc., (NYSE: AV) a
leading global provider of business communications applications,
systems and services, today reported income from continuing
operations of $38 million or eight cents per diluted share in the
second fiscal quarter of 2006, which includes a restructuring
charge of $20 million pre-tax, or three cents per diluted share
after-tax, related to severance and other employee termination
costs associated with headcount reductions in Europe. In the same
quarter last year the company reported income from continuing
operations of $36 million or seven cents per diluted share. The
company's second fiscal quarter 2006 revenues increased 1.3 percent
to $1.238 billion. On a constant currency basis second fiscal
quarter 2006 revenues increased 3.4 percent. The company's
operating income for the quarter was $53 million. Avaya generated
$169 million in operating cash flow and had $745 million in cash at
the end of the quarter. "Product sales rose 9.2 percent overall and
14 percent in the United States. We shipped our nine millionth IP
line during the quarter," said Don Peterson, chairman and CEO,
Avaya. "However, product supply delays continued to constrain sales
growth. A key priority is to resolve the supply issue and better
serve our customers." Share Repurchase Program Avaya said it
repurchased 9.5 million shares of common stock during the second
fiscal quarter at an average price of $10.90, or a total of $103
million. Since the inception of the company's share repurchase
program during the second fiscal quarter of 2005, Avaya has
repurchased a total of 28.9 million shares at an average price of
$10.37, or a total of $300 million. Since the inception of the
program, the company has reduced its diluted common shares by four
percent. Year-To-Date Results For the first six months of fiscal
2006, Avaya reported income from continuing operations of $109
million or 23 cents per diluted share compared to income from
continuing operations of $69 million or 15 cents per diluted share
for the first six months of 2005. Revenues for the first six months
of fiscal 2006 were $2.487 billion compared to $2.370 billion last
year. The first six months of fiscal 2006 include a full period's
results from Tenovis, compared to a partial period last year. The
company generated operating cash flow of $275 million in the first
six months of fiscal 2006 compared to $60 million in the year ago
period. The company said that based on the information it has
today, and assuming no major changes in foreign currency exchange
rates and the resolution of product supply issues, it would expect
to see growth in revenues in the second half of fiscal 2006 on both
a sequential basis compared to the first half of fiscal 2006, and
on a year over year basis compared to the second half of fiscal
2005. Second Fiscal Quarter Highlights Since the end of the last
quarter, Avaya has announced several customer wins, market share
updates, alliance partnerships and new solution offers. Awards and
Recognition * Avaya one-X Quick Edition, won the Best In
VoiceCon(R) Award. VoiceCon(R) 2006 is the leading conference and
exhibition for enterprise voice, IP Telephony and convergence in
North America. * Avaya took top honors as Miercom's "Best in Test"
for its IP telephony solution for small to medium businesses,
adding to its first place win for "high end" IP telephony systems
in a January 2006 review. * Avaya was named the leader in U.S.
Enterprise Telephony for the fourth quarter of 2005 according to
InfoTech's InfoTrack for Enterprise Communications, Fourth Quarter
2005 Report. The report is based on analysis of telephony line
shipment data. 2006 FIFA World Cup(TM) Network * Avaya began
installing the network for the 2006 FIFA World Cup(TM) games in
Germany this June. The installation began in Cologne and Hamburg to
prepare for FIFA integration testing. The converged network
combines voice and data on the same infrastructure, which reduces
costs and simplifies network administration. The network will
connect the 12 FIFA World Cup Stadiums, the stadium media centers
and FIFA headquarters in Berlin. Players, coaches, volunteers and
fans will use the Avaya network to accredit players and
journalists, report results, track materials supplies, confirm
hotel accommodations, arrange transportation, manage ticketing, and
maintain security systems. Customers * Ping An Insurance, China's
second largest life insurer, will implement IP telephony solutions
including our enterprise conferencing and collaboration
capabilities. Avaya Global Services will also provide Network
Analysis and network optimization and project management services.
* During the Torino Olympic Winter Games, NBC Olympics used an
Avaya IP telephony solution to provide communication capabilities
linking the International Broadcast Center and NBC's Field Shop
with sports venues in Torino, Italy, NBC Olympics headquarters in
Stamford, Conn., and NBC Studios at 30 Rockefeller Center in New
York. This is the fourth consecutive Olympics Games at which Avaya
provided services to NBC. Alliances * Avaya and Microsoft Corp.
announced their intent to develop open standards, Session
Initiation Protocol (SIP)-based interoperability between Avaya
MultiVantage(R) Communications Applications and Microsoft Office
Communicator, the unified communications client for Microsoft(R)
Office Live Communications Server 2005. * Avaya and Samsung
Electronics announced a strategic alliance to collaborate on the
joint development and marketing of IP communications solutions to
businesses globally. This collaboration will drive the delivery of
enhanced IP convergence products and mobility solutions that
integrate both companies' technologies. * Avaya extended its
flagship IP telephony software, Avaya Communication Manager to the
popular Nokia Series 80 smart phones, such as the Nokia 9300, Nokia
9300i and the Nokia 9500 Communicator. The software lets workers
use a single mobile device that contains key functions usually
found on a desktop business phone. New Solutions and Initiatives *
Avaya introduced Avaya one-X(TM) Quick Edition, an innovative
SIP-based, peer-to-peer solution that is simple to set up and use.
All the software is in the phone, with no need for a communications
server or advanced installation skills. * A new Avaya Software and
Custom Application Practice will address the market movement toward
Services Oriented Architecture, a software architecture that can
make it easier to disaggregate and rearrange pieces of software for
more flexible access to applications in a Web Services model. * The
company selected Frankfurt, Germany for a new Global Centre of
Excellence dedicated to product and solution development efforts in
critical areas, including DECT technology, handset design and
contact centre applications. Avaya also established a compatibility
testing lab in Germany to support continued global growth of its
DeveloperConnection program, which promotes development, testing
and co-marketing of third-party products that are compatible with
Avaya solutions. * In a successful test, Avaya linked an F-15E
fighter jet in flight with a remote government command center in
California and a general at the Pentagon via a multiparty, IP
conference call. In addition to the multiparty conference call,
successful tests were completed using Avaya's IP telephony network
to call an in-flight, E-2C Hawkeye surveillance aircraft equipped
with an Avaya IP Softphone. Communication has previously been
limited to two-party calls using 'push to talk' radios, with
critical information relayed from one party to the next. Forward
Looking Statements Certain statements made in the earnings
conference call are forward- looking statements within the meaning
of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements regarding Avaya's expected
performance and outlook for operating results are based on current
expectations, forecasts and assumptions that involve risks and
uncertainties that could cause actual outcomes and results to
differ materially. These risks and uncertainties include, but are
not limited to: * supply issues related to our outsourced
manufacturing operations; * price and product competition; * rapid
or disruptive technological development, including the effects of
the technology shift from traditional TDM to IP telephony; *
dependence on new product development; * the mix of our products
and services; * customer demand for our products and services,
including risks specifically associated with the services business
and, in particular, the maintenance and rental and managed services
lines of business, primarily due to renegotiations of customer
contracts and changes in scope, pricing pressures and
cancellations; * general industry and market conditions and growth
rates and general domestic and international economic conditions
including interest rate and currency exchange rate fluctuations; *
risks related to inventory, including warranty costs, obsolescence
charges, excess capacity, material and labor costs, and our
distributors' decisions regarding their own inventory levels; * the
economic, political and other risks associated with international
sales and operations, including increased exposure to currency
fluctuations and to European economies as a result of our
acquisition of Tenovis; * the ability to successfully integrate
acquired companies, including Tenovis, which has required
significant management time and attention; * the ability to attract
and retain qualified employees; * control of costs and expenses; *
U.S. and non-U.S. government regulation; and * the ability to form
and implement alliances. For a further list and description of such
risks and uncertainties, see the reports filed by Avaya with the
SEC, which are available at http://www.sec.gov/, particularly the
information contained in Part I, Item 1, entitled "Forward Looking
Statements," of our fiscal 2006 Form 10-Q for the first quarter.
Avaya disclaims any intention or obligation to update or revise any
forward- looking statements, whether as a result of new
information, future events or otherwise. Presentation of
Information in this Press Release In an effort to provide investors
with additional information regarding the company's results as
determined by accounting principles generally accepted in the
United States (GAAP), the company has also disclosed "net cash" in
the supplementary materials accompanying the conference call
discussing second quarter earnings results. Net cash is a non-GAAP
financial measure which management believes provides useful
information to investors. The rationale for managements' use of
this non-GAAP measure is included as part of the Form 8-K furnished
to the SEC today. The reconciliation of this non-GAAP measure to
its most directly comparable GAAP financial measures is included as
part of the supplementary materials presented with the second
quarter earnings materials. The supplementary materials are
available on the Avaya investor relations website at
http://www.avaya.com/investors and will be included in a subsequent
filing of a Form 8-K with the SEC. Conference Call and Webcast
Avaya will host a conference call with a listen-only Q&A
session to discuss these results at 5:00 p.m. EDT on Wednesday,
April 26, 2006. To ensure you are on the call from the start, we
suggest you access the call 10-15 minutes early by dialing: Within
and outside the United States: 706-634-2454. For those unable to
participate, there will be a playback available from 8:00 p.m. EDT
April 26, through May 3, 2006. For the replay, if you are calling
from within the United States, please dial 800-642-1687. If you are
calling from outside the United States, please dial 706-645-9291.
The passcode for the replay is 7378848. WEBCAST Information: Avaya
will webcast this conference call live, with a listen-only Q&A
session. To ensure that you are on the webcast, we suggest that you
access our website (http://www.avaya.com/investors) 10-15 minutes
prior to the start. Supplementary materials accompanying the
conference call are available at the same location. Following the
live webcast, a replay will be available on our archives at the
same web address. About Avaya Avaya Inc. designs, builds and
manages communications networks for more than one million
businesses worldwide, including more than 90 percent of the FORTUNE
500(R). Focused on businesses large to small, Avaya is a world
leader in secure and reliable Internet Protocol telephony systems
and communications software applications and services. Driving the
convergence of voice and data communications with business
applications -- and distinguished by comprehensive worldwide
services -- Avaya helps customers leverage existing and new
networks to achieve superior business results. For more information
visit the Avaya website: http://www.avaya.com/. Avaya Inc. and
Subsidiaries Consolidated Statements of Operations (Unaudited;
Dollars and Shares in Millions, except per share amounts) For the
three months For the six months ended ended March 31, March 31,
2006 2005 2006 2005 REVENUE Sales of products $593 $543 $1,184
$1,097 Services 487 498 988 975 Rental and managed services 158 181
315 298 1,238 1,222 2,487 2,370 COST Sales of products 275 245 552
490 Services 317 339 638 647 Rental and managed services 68 75 130
127 660 659 1,320 1,264 GROSS MARGIN 578 563 1,167 1,106 OPERATING
EXPENSES Selling, general and administrative 399 406 784 763
Research and development 106 105 203 203 Restructuring charges 20 -
20 - TOTAL OPERATING EXPENSES 525 511 1,007 966 OPERATING INCOME 53
52 160 140 Other income (expense), net 6 - 11 (38) Interest expense
(2) (5) (3) (15) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES 57 47 168 87 Provision for income taxes 19 11 59 18 INCOME
FROM CONTINUING OPERATIONS 38 36 109 69 (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF TAXES - - - (2) NET INCOME $38 $36 $109 $67
EARNINGS PER SHARE - BASIC Earnings per share from continuing
operations $0.08 $0.08 $0.23 $0.15 (Loss) per share from
discontinued operations - - - (0.01) EARNINGS PER SHARE $0.08 $0.08
$0.23 $0.14 EARNINGS PER SHARE - DILUTED Earnings per share from
continuing operations $0.08 $0.07 $0.23 $0.15 (Loss) per share from
discontinued operations - - - (0.01) EARNINGS PER SHARE $0.08 $0.07
$0.23 $0.14 Weighted Average Shares Outstanding - Basic shares 466
480 469 470 Weighted Average Shares Outstanding - Diluted shares
472 493 475 493 Avaya Inc. and Subsidiaries Consolidated Balance
Sheets As of March 31, 2006 and September 30, 2005 (Unaudited;
Dollars in Millions, except per share amounts) March 31, September
30, 2006 2005(a) ASSETS Current assets: Cash and cash equivalents
$745 $750 Accounts Receivable less allowances of $51 and $58 as of
March 31, 2006 and September 30, 2005, respectively 799 862
Inventory 292 288 Deferred tax asset, net 133 143 Other current
assets 181 128 TOTAL CURRENT ASSETS 2,150 2,171 Property, plant and
equipment, net 708 738 Deferred tax asset, net 866 911 Intangible
assets (b) 307 337 Goodwill (c) 916 914 Other assets 168 148 TOTAL
ASSETS $5,115 $5,219 LIABILITIES Current liabilities: Accounts
payable $383 $402 Debt maturing within one year 5 5 Payroll and
benefit obligations 262 300 Deferred revenue 271 244 Other current
liabilities 316 368 TOTAL CURRENT LIABILITIES 1,237 1,319 Long-term
debt 24 25 Benefit obligations 1,588 1,561 Deferred tax liability,
net 83 96 Other liabilities 273 257 TOTAL NON-CURRENT LIABILITIES
1,968 1,939 Commitments and contingencies STOCKHOLDERS' EQUITY
Series A junior participating preferred stock, par value $1.00 per
share, 7.5 million shares authorized; none issued and outstanding -
- Common stock, par value $0.01 per share, 1.5 billion shares
authorized, 461,815,717 and 471,328,963 issued (including 360,150
and 207,053 treasury shares) as of March 31, 2006 and September 30,
2005, respectively 5 5 Additional paid-in capital 2,735 2,895
Retained earnings (accumulated deficit) 56 (53) Accumulated other
comprehensive loss (882) (883) Less treasury stock at cost (4) (3)
TOTAL STOCKHOLDERS' EQUITY 1,910 1,961 TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,115 $5,219 Notes to the Balance Sheets: (a)
Certain prior year amounts have been reclassified to conform to the
current period presentation. (b) Intangible assets include $208
million related to Tenovis and $31 million related to Spectel as of
March 31, 2006. (c) Goodwill includes $563 million related to
Tenovis, $65 million related to Spectel and $26 million related to
Nimcat as of March 31, 2006. Avaya Inc. and Subsidiaries Operating
Segments Revenue and Operating Income from Continuing Operations
Quarterly Trend (Unaudited; Dollars in Millions) REVENUE For the
Fiscal Year Ended For the Fiscal Year Ended September 30, 2005
September 30, 2006 Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD Global
Communications Solutions $592 $625 $648 $707 $2,572 $661 $661
$1,322 Avaya Global Services 556 597 588 589 2,330 588 577 1,165
Corporate - - - - - - - - Total Avaya $1,148 $1,222 $1,236 $1,296
$4,902 $1,249 $1,238 $- $- $2,487 OPERATING INCOME FROM CONTINUING
OPERATIONS For the Fiscal Year Ended For the Fiscal Year Ended
September 30, 2005 September 30, 2006 Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4
YTD Global Communications Solutions $25 $(12) $1 $43 $57 $43 $32
$75 Avaya Global Services 56 27 37 46 166 60 41 101 Corporate:(A) 7
37 38 (7) 75 4 (20) (16) Total Avaya $88 $52 $76 $82 $298 $107 $53
$- $- $160 (A) The segments are managed as two individual
businesses and, as a result, include certain allocated costs and
expenses of shared services, such as information technology, human
resources, legal and finance. At the beginning of each fiscal year,
the amount of certain corporate overhead expenses, including
targeted annual incentive awards, to be charged to operating
segments is determined and fixed for the entire year in the annual
plan. The annual incentive award accrual is adjusted quarterly
based on actual year to date results and those estimated for the
remainder of the year. This adjustment of the annual incentive
award accrual, as well as any other over/under absorption of
corporate overheads against plan is recorded and reported within
the Corporate caption. For the second quarter of fiscal 2006,
Corporate also includes the restructuring charges associated with
the fiscal 2006 EMEA restructuring. Avaya Inc. and Subsidiaries
Condensed Statements of Cash Flows For the Six Months Ended March
31, 2006 and 2005 (Unaudited; Dollars in Millions) For the six For
the six months ended months ended March 31, March 31, 2006 2005 Net
cash provided by operating activities of continuing operations $275
$60 Net cash (used in) investing activities of continuing
operations (99)(a) (450)(a) Net cash (used in) financing activities
of continuing operations (179)(b) (380)(b) Effect of exchange rate
changes on cash and cash equivalents (2) 8 Net decrease in cash and
cash equivalents (5) (762) Cash and cash equivalents at beginning
of fiscal year 750 1,617 Cash and cash equivalents at end of period
$745 $855 (a) Includes capital expenditures of $54 and $56 and
capitalized software development costs of $37 and $27 for the six
months ended March 31, 2006 and 2005, respectively. Includes $383
relating to acquisition of businesses, net of cash acquired for the
six months ended March 31, 2005. (b) Includes $193 related to the
repurchase of common stock for the six months ended March 31, 2006.
Includes $314 related to the repurchase of the senior notes and
$103 related to the partial repayment of the secured floating rate
notes for the six months ended March 31, 2005. Avaya Inc. and
Subsidiaries Supplemental Revenue Tables (Unaudited, Dollars in
Millions) Revenue by Geography Second Fiscal Quarter Mix Dollars in
2Q05 3Q05 4Q05 1Q06 millions 2006 2005 2006 2005 Change $689 $717
$768 $734 U.S. $719 $689 58% 56% $30 4.4% Outside the U.S: EMEA -
Europe/ Middle East/ 387 377 378 364 Africa 356 387 29% 32% (31)
-8.0% APAC - Asia 89 83 90 87 Pacific 99 89 8% 7% 10 11.2%
Americas, 57 59 60 64 non-U.S. 64 57 5% 5% 7 12.3% Total outside
533 519 528 515 the U.S. 519 533 42% 44% (14) -2.6% Total $1,222
$1,236 $1,296 $1,249 revenue $1,238 $1,222 100% 100% $16 1.3%
Revenue by Type Second Fiscal Quarter Mix Dollars in 2Q05 3Q05 4Q05
1Q06 millions 2006 2005 2006 2005 Change Sales of $543 $566 $631
$591 products $593 $543 48% 44% $50 9.2% 498 497 499 501 Services
487 498 39% 41% (11) -2.2% Rental and managed 181 173 166 157
services(a) 158 181 13% 15% (23)-12.7% Total $1,222 $1,236 $1,296
$1,249 revenue $1,238 $1,222 100% 100% $16 1.3% Sales of Products
by Channel Second Fiscal Quarter Mix Dollars in 2Q05 3Q05 4Q05 1Q06
millions 2006 2005 2006 2005 Change $265 $279 $322 $268 Direct $250
$265 42% 49% $(15)-5.7% 278 287 309 323 Indirect 343 278 58% 51% 65
23.4% Total sales $543 $566 $631 $591 of products $593 $543 100%
100% $50 9.2% GCS Revenue by Class Second Fiscal Quarter Mix
Dollars in 2Q05 3Q05 4Q05 1Q06 millions 2006 2005 2006 2005 Change
Large Communic- ations $393 $393 $445 $413 Systems $414 $393 63%
63% $21 5.3% Small Communic- ations 78 93 91 88 Systems 94 78 14%
13% 16 20.5% Converged Voice Applic- 145 151 164 151 ations 141 145
21% 23% (4) -2.8% 9 11 7 9 Other 12 9 2% 1% 3 33.3% Total revenue -
$625 $648 $707 $661 GCS $661 $625 100% 100% $36 5.8% AGS Revenue by
Class Second Fiscal Quarter Mix Dollars in 2Q05 3Q05 4Q05 1Q06
millions 2006 2005 2006 2005 Change Maintenance $377 $381 $375 $380
(b) $366 $377 63% 63% $(11)-2.9% Implement- ation and integration
123 118 125 123 services(b) 120 123 21% 21% (3) -2.4% Managed 96 88
87 85 services(b) 90 96 16% 16% (6) -6.3% 1 1 2 - Other(b) 1 1 0%
0% - 0.0% Total revenue - $597 $588 $589 $588 AGS $577 $597 100%
100% $(20) -3.4% (a) The services portion falls within the managed
services line in the AGS Revenue by Class chart and the product
portion is spread among the applicable line items in the GCS
Revenue by Class chart. (b) Prior year revenue amounts have been
reclassified to conform to current interim period presentation.
DATASOURCE: Avaya Inc. CONTACT: Media Inquiries - Lynn Newman,
+1-908-953-8692 (office) +1-908- 672-1321 (mobile), ; Investor
Inquiries - Matthew Booher, +1-908-953-7500 (office), Web site:
http://www.avaya.com/
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