Exhibit 99.1
Media Inquiries: |
| Investor Inquiries: |
Lynn Newman |
| Matthew Booher |
908-953-8692 (office) |
| 908-953-7500 (office) |
908-672-1321 (mobile) |
| mbooher@avaya.com |
lynnnewman@avaya.com |
|
|
AVAYA REPORTS RESULTS FOR THIRD QUARTER OF FISCAL 2007
— GAAP EPS was 12 Cents Compared to 10 Cents in the Prior Year
— Non-GAAP EPS(1) was 15 Cents Compared to 8 Cents in the Prior Year
— GAAP Operating Income was $70 Million Compared to $28 Million in the Prior Year
— Non-GAAP Operating Income(1) was $91 Million Compared to $50 Million in the Prior Year
— Operating Cash Flow was $202 Million Compared to $181 Million in the Prior Year
— Over One Million IP Lines were Shipped for the Fifth Consecutive Quarter
FOR IMMEDIATE RELEASE: TUESDAY, July 24, 2007
BASKING RIDGE, N. J. – Avaya Inc., (NYSE:AV) a leading global provider of business communications applications, software and services, today announced net income of $55 million and earnings per share of 12 cents for the third fiscal quarter of 2007 on a U.S. generally accepted accounting principles (GAAP) basis. In the third fiscal quarter of 2006, the company reported net income of $44 million and earnings per share of 10 cents on a GAAP basis. Non-GAAP net income(1) was $69 million or 15 cents per share, compared with non-GAAP net income(1) for the third fiscal quarter of 2006 of $38 million or 8 cents per share.
Avaya’s third fiscal quarter 2007 revenues decreased 1.6 percent to $1.276 billion compared to $1.297 billion in the same period last year. Sales of products declined 1.6 percent, rental and managed services revenues declined 7.1 percent, and services revenues were flat. Foreign exchange benefited revenues by approximately $30 million, primarily in Europe. U.S. revenues declined 8 percent. EMEA revenues were relatively flat, with growth outside of Germany offset by declines within Germany. Asia Pacific revenues grew by 33 percent. Revenues in the Americas, non-U.S., grew by 11 percent, driven by performance in Latin America.
The company’s total gross margin was 46.8 percent for the third fiscal quarter of 2007 compared to 45.3 percent in the prior year.
Selling, general and administrative expense and research and development expense were both lower compared to the prior year, contributing to the year-over-year income improvement.
The company reported operating income for the third fiscal quarter of 2007 of $70 million and non-GAAP operating income(1) of $91 million. In the third fiscal quarter of 2006, the company reported operating income of $28 million and non-GAAP operating income(1) of $50 million.
(1) Avaya defines non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share as excluding the impact of restructuring charges, acquisition and merger-related charges and certain income tax items. See “Reconciliation of Non-GAAP Financial Measures” accompanying this release.
1
Avaya’s effective tax rate was 31.3% for the third quarter of fiscal 2007.
Avaya generated $202 million in operating cash flow during the third fiscal quarter of 2007 compared to $181 million in the third fiscal quarter of 2006. Avaya’s cash balance at the end of the third quarter of fiscal 2007 was $1.057 billion, compared with $899 million as of September 30, 2006.
Business Segment Results
Global Communications Solutions (GCS) generated revenues of $686 million in the third fiscal quarter of 2007, a decrease of $18 million compared to the same period last year. Communications systems declines were partially offset by increased sales of converged voice applications. The decline in large communications systems was primarily attributable to the U.S., partially offset by growth in Asia Pacific and Latin America. The decline in small communications systems was primarily attributable to declines in the U.S. and Germany. Revenues from converged voice applications increased $9 million.
GCS results continue to show the shift to IP from traditional TDM telephony: during the third quarter of fiscal 2007 Avaya shipped over one million IP lines for the 5th consecutive quarter. IP product sales increased 10% compared to the third quarter of fiscal 2006. As a result of the continued growth in this newer technology, IP telephony now represents 69% of the Company’s sales in this quarter.
GCS generated operating income of $25 million, a decrease of $11 million compared with the third fiscal quarter of 2006, primarily as a result of lower volume.
Avaya Global Services (AGS) generated revenues of $590 million in the third fiscal quarter of 2007, relatively flat compared to $593 million in the same period last year. Product Support Services grew slightly primarily due to higher contract maintenance revenues. Consulting and Systems Integration revenues declined due to lower implementation services in connection with lower sales of products in the direct channel. Global Managed Services revenues were relatively flat.
AGS generated operating income of $63 million, an increase of $29 million compared with the third fiscal quarter of 2006, as a result of improved efficiencies and expense controls.
The Corporate results include a restructuring charge of $13 million, primarily related to workforce reductions in Germany. In addition, merger-related costs of $8 million are included in the Corporate results. The merger-related costs are associated with the definitive agreement announced on June 4, 2007, under which Avaya agreed to merge with an entity controlled by Silver Lake Partners and TPG Partners. During the third fiscal quarter of 2006, the Corporate results
2
included restructuring charges of $22 million and impairment charges of $29 million, partially offset by a $22 million benefit related to non-income tax audit settlements.
Fiscal 2007 Year-To-Date Results
For the first nine months of fiscal 2007, the Company earned GAAP net income of $183 million and earnings per share of 40 cents compared to net income of $153 million and earnings per share of 32 cents for the first nine months of fiscal 2006. Operating income for the first nine months of fiscal 2007 was $241 million compared to $188 million for the first nine months of fiscal 2006. Revenues for the first nine months of fiscal 2007 were $3.850 billion compared to $3.784 billion last year. Operating cash flow for the first nine months of fiscal 2007 was $424 million compared to $456 million last year.
Third Fiscal Quarter Highlights
Customers Benefit from Avaya Intelligent Communications
Florida Family Abuse Hotline, as a critical component in its disaster recovery plan, is incorporating a Mobile Communication System from Avaya. The Avaya Mobile Communication System (MCS) offers full-featured voice and data capabilities that can be deployed at a moment’s notice to a temporary office, remote location or disaster site. The 24-hour Hotline fields calls from citizens, case workers and law enforcement officers who are reporting the suspected abuse or neglect of children and elderly adults. The Avaya MCS, which was selected for business continuity and disaster recovery purposes, mirrors the capabilities of the primary contact center, with computer-telephony integration, the same announcements, user names and logins, and even the same statistical reports. It also provides the department with greatly expanded recovery capabilities.
Air China, one of the leading airlines in the country, has increased its sales and enhanced customer service levels with Avaya’s intelligent communications solutions. Avaya helped Air China’s Telephone Sales and Services Center to achieve a revenue increase of nearly 300 percent since the deployment of advanced contact center technologies in August 2006. The Center is now more agile in responding to customer demands and providing personalized, always-on services.
When the Jersey City, NJ, Liberty Science Center reopened, visitors experienced the benefits of new intelligent communications capabilities from Avaya. Avaya technology will help expand learning beyond the museum’s walls as part of the Center’s new “Science Now, Science Everywhere” initiative. Visitors will be able to use cell phones to interact with exhibits and learn anywhere, at any time. They will be able to retrieve and download supplementary information and commentary, vote in museum polls and even contribute additional information of their own. For example, the museum’s “Communication: Leave Your Mark” exhibit lets guests add bubbles to the screen by sending text messages.
Winn Army Community Hospital is now using a new intelligent communications solution designed by Avaya and Interactive Northwest Inc. The system has allowed new breakthroughs in the service it delivers to more than 75,000 soldiers, retirees and their families at Fort Stewart, Ga. The applications the companies have provided to Winn Army Community Hospital are helping patients benefit from shorter hold times, improved service, and faster access to personnel and test results.
3
Total Gas & Power, one of Britain’s leading energy suppliers, has transformed its telephone infrastructure into a single, advanced network with an IP telephony solution from Avaya Inc. The company’s new network, based on Avaya Communication Manager IP Telephony software, has allowed Total Gas & Power to develop to a highly flexible and efficient call center facility for over 100 agents designed to specifically maximize call handling capacity and meet growing customer needs. A key element of the new call center is the centralized management feature provided by the Automatic Call Distribution (ACD) which allows for faster linkage of people, call monitoring and an advanced queuing system enabling agents to prioritize and distribute calls accordingly.
The Royal Albert Hall, one of the UK’s most iconic buildings which welcomes world-class artists and audiences from around the world, has deployed an Avaya IP solution to provide ‘state of the art’ customer service to the 1.2 million visitors that attend the venue each year. The investment in the converged communication solution was made as part of Royal Albert Hall’s ambitions to further improve the standard of service offered to customers and event promoters. The new voice and data solution supports the telephony requirements of users across the organization as well as offering advanced functionality within the Box Office contact center. The design of the solution will also contribute to a reduction of the Hall’s communication costs by consolidating the voice and data infrastructure into a single centralized network.
New Solution Offers
Avaya Distributed Office, a new IP telephony communications system that delivers rich branch communications capabilities and powerful management tools in an economical package, will help businesses deliver a consistent customer experience across hundreds of locations while dramatically increasing the speed and ease of deployment. The system provides rich communication, collaboration and mobility capabilities that are designed with the unique needs of the branch office in mind. Features such as presence and instant messaging can be delivered to every location, enhancing staff responsiveness to customer needs. Mobility features support employees on the go, providing effective communications regardless of location.
Avaya introduced the 3.1 release of Quick Edition, with additional software that delivers a range of new features and two new hardware components designed to enhance customer service, reduce expenses and simplify maintenance and administration of the system. The new enhancements to this market-leading, innovative peer-to-peer phone system enable more small companies and branch offices worldwide to improve customer service and reduce expenses, transacting business with a simple yet sophisticated IP telephony system.
Avaya and Singapore Telecommunications Limited (SingTel) collaborated to jointly provide a managed IP solution to enterprises in Singapore. Branded as SingTel Managed IP PBX, the solution enables enterprises to enjoy innovative IP-based unified communications applications with the option of not incurring high upfront and maintenance costs. A scalable solution, it offers an attractive utility-based option as well as other options to meet the varying current and future needs of the enterprise.
4
Forward-Looking Statements
Certain statements made in this press release 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:
· price and product competition, including from competitors who may offer products and applications similar to those we offer as part of another offering, and from current leaders in information technology which benefit from the convergence of enterprise voice and data networks;
· rapid or disruptive technological development, including the effects of the technology shift from traditional TDM to IP telephony;
· dependence on new product development;
· 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 erosion and cancellations;
· supply issues related to our outsourced manufacturing operations, logistics, distribution or components;
· risks related to inventory, including warranty costs, obsolescence charges, excess capacity, material and labor costs, and our distributors’ decisions regarding their own inventory levels;
· general industry and market conditions and growth rates and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations;
· 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 a large percentage of our business being conducted in Europe;
· the ability to successfully integrate acquired companies, which may require significant management time and attention;
· the ability to attract and retain qualified employees;
· control of costs and expenses, including difficulties in completing restructuring actions in a timely and efficient manner due to labor laws and required approvals;
· U.S. and non-U.S. government regulation; and
· the ability to form and implement alliances.
In addition, we may not be able to complete the proposed sale of the Company on the terms summarized in Avaya’s filings with the SEC or on other acceptable terms, or at all, due to a number of factors, including the failure to satisfy customary closing conditions.
For a further list and description of such risks and uncertainties, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Avaya’s filings with the SEC, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, which are available at www.sec.gov. 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.
5
Use of Non-GAAP Financial Measures
In an effort to provide investors with additional information regarding the Company’s results as determined by GAAP, the Company has also disclosed non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share in this press release.
These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States and they have limitations in that they do not reflect all amounts associated with Avaya’s results of operations as determined in accordance with GAAP. These measures should only be used in evaluating Avaya’s results of operations together with the corresponding GAAP measures.
Avaya believes that the presentation of non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share, which exclude the impact of restructuring charges, acquisition and merger-related charges and certain income tax items, provides meaningful supplemental information regarding Avaya’s performance. These non-GAAP financial measures also help investors compare Avaya’s financial results for the current quarter to its financial results for prior quarters and the prior fiscal year. In addition, Avaya’s management uses these measures when reviewing the Company’s financial results and to further understand the Company’s operating performance.
The reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures is included at the end of this press release.
About Avaya
Avaya delivers Intelligent Communications solutions that help companies transform their businesses to achieve marketplace advantage. More than 1 million businesses worldwide, including more than 90 percent of the FORTUNE 500 (R), use Avaya solutions for IP Telephony, Unified Communications, Contact Centers and Communications Enabled Business Processes. Avaya Global Services provides comprehensive service and support for companies, small to large. For more information visit the Avaya Web site: http://www.avaya.com.
6
Avaya Inc.
Consolidated Statements of Income
(Unaudited; Dollars and Shares in Millions, except per share amounts)
|
| For the three months ended |
| For the nine months ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||
REVENUE |
|
|
|
|
|
|
|
|
| ||||
Sales of products |
| $ | 626 |
| $ | 636 |
| $ | 1,884 |
| $ | 1,820 |
|
Services |
| 507 |
| 507 |
| 1,525 |
| 1,503 |
| ||||
Rental and managed services |
| 143 |
| 154 |
| 441 |
| 461 |
| ||||
|
| 1,276 |
| 1,297 |
| 3,850 |
| 3,784 |
| ||||
COST |
|
|
|
|
|
|
|
|
| ||||
Sales of products |
| 302 |
| 304 |
| 892 |
| 856 |
| ||||
Services |
| 312 |
| 335 |
| 960 |
| 976 |
| ||||
Rental and managed services |
| 65 |
| 70 |
| 204 |
| 197 |
| ||||
|
| 679 |
| 709 |
| 2,056 |
| 2,029 |
| ||||
GROSS MARGIN |
| 597 |
| 588 |
| 1,794 |
| 1,755 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| ||||
Selling, general and administrative |
| 402 |
| 423 |
| 1,184 |
| 1,207 |
| ||||
Research and development |
| 104 |
| 115 |
| 332 |
| 318 |
| ||||
Restructuring charges, net |
| 13 |
| 22 |
| 29 |
| 42 |
| ||||
Merger costs |
| 8 |
| — |
| 8 |
| — |
| ||||
TOTAL OPERATING EXPENSES |
| 527 |
| 560 |
| 1,553 |
| 1,567 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
OPERATING INCOME |
| 70 |
| 28 |
| 241 |
| 188 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other income, net |
| 10 |
| 5 |
| 23 |
| 16 |
| ||||
Interest expense |
| (1 | ) | — |
| (1 | ) | (3 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
INCOME BEFORE INCOME TAXES |
| 79 |
| 33 |
| 263 |
| 201 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for (benefit from) income taxes |
| 24 |
| (11 | ) | 80 |
| 48 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
NET INCOME |
| $ | 55 |
| $ | 44 |
| $ | 183 |
| $ | 153 |
|
|
|
|
|
|
|
|
|
|
| ||||
EARNINGS PER SHARE - BASIC |
| $ | 0.12 |
| $ | 0.10 |
| $ | 0.40 |
| $ | 0.33 |
|
|
|
|
|
|
|
|
|
|
| ||||
EARNINGS PER SHARE - DILUTED |
| $ | 0.12 |
| $ | 0.10 |
| $ | 0.40 |
| $ | 0.32 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted Average Shares Outstanding - Basic |
| 452 |
| 459 |
| 453 |
| 465 |
| ||||
Weighted Average Shares Outstanding - Diluted |
| 459 |
| 465 |
| 459 |
| 472 |
|
7
Avaya Inc.
Consolidated Balance Sheets
As of June 30, 2007 and September 30, 2006
(Unaudited; Dollars in Millions, except per share amounts)
|
| June 30, 2007 |
| September 30, 2006(a) |
| ||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 1,057 |
| $ | 899 |
|
Accounts receivable less allowances of $59 and $57 as of June 30, 2007 and September 30, 2006, respectively |
| 869 |
| 871 |
| ||
Inventory |
| 304 |
| 285 |
| ||
Deferred income taxes, net |
| 177 |
| 153 |
| ||
Other current assets |
| 212 |
| 151 |
| ||
TOTAL CURRENT ASSETS |
| 2,619 |
| 2,359 |
| ||
|
|
|
|
|
| ||
Property, plant and equipment, net |
| 626 |
| 668 |
| ||
Deferred income taxes, net |
| 700 |
| 787 |
| ||
Intangible assets (b) |
| 275 |
| 263 |
| ||
Goodwill (c) |
| 1,121 |
| 941 |
| ||
Other assets |
| 222 |
| 182 |
| ||
TOTAL ASSETS |
| $ | 5,563 |
| $ | 5,200 |
|
|
|
|
|
|
| ||
LIABILITIES |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
| $ | 395 |
| $ | 418 |
|
Payroll and benefit obligations |
| 400 |
| 377 |
| ||
Deferred revenue |
| 327 |
| 286 |
| ||
Business restructuring reserve |
| 78 |
| 98 |
| ||
Other current liabilities |
| 220 |
| 249 |
| ||
TOTAL CURRENT LIABILITIES |
| 1,420 |
| 1,428 |
| ||
|
|
|
|
|
| ||
Benefit obligations |
| 1,372 |
| 1,321 |
| ||
Deferred income taxes, net |
| 79 |
| 77 |
| ||
Other liabilities |
| 266 |
| 288 |
| ||
TOTAL NON-CURRENT LIABILITIES |
| 1,717 |
| 1,686 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
Common stock, par value $0.01 per share, 1.5 billion shares authorized, 457,182,852 and 452,203,778 issued (including 1,060,315 and 461,429 treasury shares) as of June 30, 2007 and September 30, 2006, respectively |
| 5 |
| 5 |
| ||
Additional paid-in capital |
| 2,713 |
| 2,637 |
| ||
Retained earnings |
| 331 |
| 148 |
| ||
Accumulated other comprehensive loss |
| (609 | ) | (698 | ) | ||
Less treasury stock at cost |
| (14 | ) | (6 | ) | ||
TOTAL STOCKHOLDERS’ EQUITY |
| 2,426 |
| 2,086 |
| ||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 5,563 |
| $ | 5,200 |
|
Notes to the Balance Sheets:
(a) | Certain prior year amounts have been reclassified to conform to the current period presentation. |
|
|
(b) | Intangible assets include $166 million related to Tenovis, $40 million related to Ubiquity, $22 million related to Spectel, $5 million related to Nimcat and $3 million related to Traverse as of June 30, 2007. |
|
|
(c) | Goodwill includes $627 million related to Tenovis, $128 million related to Ubiquity, $64 million related to Spectel, $28 million related to Nimcat and $8 million related to Traverse as of June 30, 2007. |
8
Avaya Inc.
Operating Segments
Revenue and Operating Income
Quarterly Trend
(Unaudited; Dollars in Millions)
REVENUE
|
| For the Fiscal Year Ended |
| For the Fiscal Year Ended |
| ||||||||||||||||||||||||||
|
| September 30, 2006 |
| September 30, 2007 |
| ||||||||||||||||||||||||||
|
| Q1 |
| Q2 |
| Q3 |
| Q4 |
| YTD |
| Q1 |
| Q2 |
| Q3 |
| Q4 |
| YTD |
| ||||||||||
|
|
|
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|
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|
|
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| ||||||||||
Global Communications Solutions |
| $ | 661 |
| $ | 661 |
| $ | 704 |
| $ | 760 |
| $ | 2,786 |
| $ | 682 |
| $ | 698 |
| $ | 686 |
|
|
| $ | 2,066 |
| |
Avaya Global Services |
| 588 |
| 577 |
| 593 |
| 604 |
| 2,362 |
| 598 |
| 596 |
| 590 |
|
|
| 1,784 |
| ||||||||||
Corporate |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
|
| — |
| ||||||||||
Total Avaya |
| $ | 1,249 |
| $ | 1,238 |
| $ | 1,297 |
| $ | 1,364 |
| $ | 5,148 |
| $ | 1,280 |
| $ | 1,294 |
| $ | 1,276 |
| $ | — |
| $ | 3,850 |
|
OPERATING INCOME
|
| For the Fiscal Year Ended |
| For the Fiscal Year Ended |
| ||||||||||||||||||||||||||
|
| September 30, 2006 |
| September 30, 2007 |
| ||||||||||||||||||||||||||
|
| Q1 |
| Q2 |
| Q3 |
| Q4 |
| YTD |
| Q1 |
| Q2 |
| Q3 |
| Q4 |
| YTD |
| ||||||||||
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| ||||||||||
Global Communications Solutions |
| $ | 43 |
| $ | 32 |
| $ | 36 |
| $ | 86 |
| $ | 197 |
| $ | 22 |
| $ | 38 |
| $ | 25 |
|
|
| $ | 85 |
| |
Avaya Global Services |
| 60 |
| 41 |
| 34 |
| 36 |
| 171 |
| 53 |
| 56 |
| 63 |
|
|
| 172 |
| ||||||||||
Corporate: (A) |
| 4 |
| (20 | ) | (42 | ) | (47 | ) | (105 | ) | 15 |
| (13 | ) | (18 | ) |
|
| (16 | ) | ||||||||||
Total Avaya |
| $ | 107 |
| $ | 53 |
| $ | 28 |
| $ | 75 |
| $ | 263 |
| $ | 90 |
| $ | 81 |
| $ | 70 |
| $ | — |
| $ | 241 |
|
(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. In addition, certain discrete items, such as charges related to restructuring actions, as well as merger-related costs, are not allocated to the operating segments and remain in Corporate.
9
Avaya Inc.
Condensed Statements of Cash Flows
For the Nine Months Ended June 30, 2007 and 2006
(Unaudited; Dollars in Millions)
|
| For the nine months ended |
| For the nine months ended |
| ||
|
| June 30, 2007 |
| June 30, 2006 |
| ||
|
|
|
|
|
| ||
Net cash provided by operating activities of continuing operations |
| $ | 424 |
| $ | 456 |
|
|
|
|
|
|
| ||
Net cash (used for) investing activities of continuing operations |
| (304 | )(a) | (139 | )(a) | ||
|
|
|
|
|
| ||
Net cash provided by (used for) financing activities of continuing operations |
| 13 | (b) | (250 | )(b) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
| 25 |
| 5 |
| ||
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
| 158 |
| 72 |
| ||
|
|
|
|
|
| ||
Cash and cash equivalents at beginning of the period |
| 899 |
| 750 |
| ||
|
|
|
|
|
| ||
Cash and cash equivalents at end of the period |
| $ | 1,057 |
| $ | 822 |
|
(a) Includes capital expenditures of $79 and $83 and capitalized software development costs of $71 and $53 for the nine months ended June 30, 2007 and 2006, respectively.
The nine months ended June 30, 2007 also include $147 used for the acquisition of Ubiquity and $15 used for the acquisition of Traverse Networks.
(b) Includes $94 and $256 related to the repurchase of Avaya common stock for the nine months ended June 30, 2007 and 2006, respectively.
The nine months ended June 30, 2007 also include $100 received from the exercise of stock options.
10
Avaya Inc.
Supplemental Revenue Tables
(Unaudited, Dollars in Millions)
Revenue by Geography
|
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| Third Fiscal Quarter |
| |||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
| Mix |
|
|
| |||||||||||
3Q06 |
| 4Q06 |
| 1Q07 |
| 2Q07 |
| Dollars in millions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Change |
| |||||||||
$ | 753 |
| $ | 788 |
| $ | 732 |
| $ | 746 |
| U.S. |
| $ | 694 |
| $ | 753 |
| 54 | % | 58 | % | $ | (59 | ) | -7.8 | % |
|
|
|
|
|
|
|
| Outside the U.S: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
182 |
| 183 |
| 186 |
| 178 |
| Germany |
| 172 |
| 182 |
| 13 | % | 14 | % | (10 | ) | -5.5 | % | |||||||
205 |
| 208 |
| 203 |
| 190 |
| EMEA - Europe/Middle East/Africa (Excluding Germany) |
| 216 |
| 205 |
| 17 | % | 16 | % | 11 |
| 5.4 | % | |||||||
387 |
| 391 |
| 389 |
| 368 |
| Total EMEA |
| 388 |
| 387 |
| 30 | % | 30 | % | 1 |
| 0.3 | % | |||||||
87 |
| 110 |
| 88 |
| 111 |
| APAC - Asia Pacific |
| 116 |
| 87 |
| 10 | % | 7 | % | 29 |
| 33.3 | % | |||||||
70 |
| 75 |
| 71 |
| 69 |
| Americas, non-U.S. |
| 78 |
| 70 |
| 6 | % | 5 | % | 8 |
| 11.4 | % | |||||||
544 |
| 576 |
| 548 |
| 548 |
| Total outside the U.S. |
| 582 |
| 544 |
| 46 | % | 42 | % | 38 |
| 7.0 | % | |||||||
$ | 1,297 |
| $ | 1,364 |
| $ | 1,280 |
| $ | 1,294 |
| Total revenue |
| $ | 1,276 |
| $ | 1,297 |
| 100 | % | 100 | % | $ | (21 | ) | -1.6 | % |
Revenue by Type
|
|
|
|
|
|
|
|
|
| Third Fiscal Quarter |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mix |
|
|
|
|
| |||||||||
3Q06 |
| 4Q06 |
| 1Q07 |
| 2Q07 |
| Dollars in millions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Change |
| |||||||||
$ | 636 |
| $ | 690 |
| $ | 619 |
| $ | 639 |
| Sales of products |
| $ | 626 |
| $ | 636 |
| 49 | % | 49 | % | $ | (10 | ) | -1.6 | % |
507 |
| 514 |
| 509 |
| 509 |
| Services (b) |
| 507 |
| 507 |
| 40 | % | 39 | % | — |
| 0.0 | % | |||||||
154 |
| 160 |
| 152 |
| 146 |
| Rental and managed services (a), (b) |
| 143 |
| 154 |
| 11 | % | 12 | % | (11 | ) | -7.1 | % | |||||||
$ | 1,297 |
| $ | 1,364 |
| $ | 1,280 |
| $ | 1,294 |
| Total revenue |
| $ | 1,276 |
| $ | 1,297 |
| 100 | % | 100 | % | $ | (21 | ) | -1.6 | % |
Sales of Products by Channel
|
|
|
|
|
|
|
|
|
| Third Fiscal Quarter |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mix |
|
|
|
|
| |||||||||
3Q06 |
| 4Q06 |
| 1Q07 |
| 2Q07 |
| Dollars in millions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Change |
| |||||||||
$ | 277 |
| $ | 302 |
| $ | 259 |
| $ | 277 |
| Direct |
| $ | 258 |
| $ | 277 |
| 41 | % | 44 | % | $ | (19 | ) | -6.9 | % |
359 |
| 388 |
| 360 |
| 362 |
| Indirect |
| 368 |
| 359 |
| 59 | % | 56 | % | 9 |
| 2.5 | % | |||||||
$ | 636 |
| $ | 690 |
| $ | 619 |
| $ | 639 |
| Total sales of products |
| $ | 626 |
| $ | 636 |
| 100 | % | 100 | % | $ | (10 | ) | -1.6 | % |
GCS Revenue by Class
|
|
|
|
|
|
|
|
|
| Third Fiscal Quarter |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mix |
|
|
|
|
| |||||||||
3Q06 |
| 4Q06 |
| 1Q07 |
| 2Q07 |
| Dollars in millions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Change |
| |||||||||
$ | 455 |
| $ | 483 |
| $ | 435 |
| $ | 440 |
| Large Communications Systems |
| $ | 437 |
| $ | 455 |
| 64 | % | 65 | % | $ | (18 | ) | -4.0 | % |
92 |
| 96 |
| 85 |
| 84 |
| Small Communications Systems |
| 74 |
| 92 |
| 11 | % | 13 | % | (18 | ) | -19.6 | % | |||||||
144 |
| 169 |
| 151 |
| 162 |
| Converged Voice Applications |
| 153 |
| 144 |
| 22 | % | 20 | % | 9 |
| 6.3 | % | |||||||
13 |
| 12 |
| 11 |
| 12 |
| Other |
| 22 |
| 13 |
| 3 | % | 2 | % | 9 |
| 69.2 | % | |||||||
$ | 704 |
| $ | 760 |
| $ | 682 |
| $ | 698 |
| Total revenue - GCS |
| $ | 686 |
| $ | 704 |
| 100 | % | 100 | % | $ | (18 | ) | -2.6 | % |
AGS Revenue by Class
|
|
|
|
|
|
|
|
|
| Third Fiscal Quarter |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mix |
|
|
|
|
| |||||||||
3Q06 |
| 4Q06 |
| 1Q07 |
| 2Q07 |
| Dollars in millions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Change |
| |||||||||
$ | 402 |
| $ | 404 |
| $ | 411 |
| $ | 412 |
| Product Support Services (b) |
| $ | 408 |
| $ | 402 |
| 69 | % | 68 | % | $ | 6 |
| 1.5 | % |
106 |
| 111 |
| 98 |
| 97 |
| Consulting and Systems Integration (b) |
| 99 |
| 106 |
| 17 | % | 18 | % | (7 | ) | -6.6 | % | |||||||
84 |
| 89 |
| 89 |
| 87 |
| Global Managed Services (b) |
| 83 |
| 84 |
| 14 | % | 14 | % | (1 | ) | -1.2 | % | |||||||
1 |
| — |
| — |
| — |
| Other (b) |
| — |
| 1 |
| 0 | % | 0 | % | (1 | ) | -100.0 | % | |||||||
$ | 593 |
| $ | 604 |
| $ | 598 |
| $ | 596 |
| Total revenue - AGS |
| $ | 590 |
| $ | 593 |
| 100 | % | 100 | % | $ | (3 | ) | -0.5 | % |
(a) The services portion falls within the global 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.
11
Avaya Inc.
Supplemental Revenue Tables
(Unaudited, Dollars in Millions)
Revenue by Geography
|
| Nine Months Ended June 30, |
| |||||||||||||
|
|
|
|
|
| Mix |
|
|
|
|
| |||||
Dollars in millions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Change |
| |||||
U.S. |
| $ | 2,172 |
| $ | 2,206 |
| 56 | % | 58 | % | $ | (34 | ) | -1.5 | % |
Outside the U.S: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Germany |
| 536 |
| 550 |
| 14 | % | 14 | % | (14 | ) | -2.5 | % | |||
EMEA - Europe/Middle East/Africa |
| 609 |
| 557 |
| 16 | % | 15 | % | 52 |
| 9.3 | % | |||
Total EMEA |
| 1,145 |
| 1,107 |
| 30 | % | 29 | % | 38 |
| 3.4 | % | |||
APAC - Asia Pacific |
| 315 |
| 273 |
| 8 | % | 8 | % | 42 |
| 15.4 | % | |||
Americas, non-U.S. |
| 218 |
| 198 |
| 6 | % | 5 | % | 20 |
| 10.1 | % | |||
Total outside the U.S. |
| 1,678 |
| 1,578 |
| 44 | % | 42 | % | 100 |
| 6.3 | % | |||
Total revenue |
| $ | 3,850 |
| $ | 3,784 |
| 100 | % | 100 | % | $ | 66 |
| 1.7 | % |
Revenue by Type
|
| Nine Months Ended June 30, |
| |||||||||||||
|
|
|
|
|
| Mix |
|
|
|
|
| |||||
Dollars in millions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Change |
| |||||
Sales of products |
| $ | 1,884 |
| $ | 1,820 |
| 49 | % | 48 | % | $ | 64 |
| 3.5 | % |
Services (b) |
| 1,525 |
| 1,503 |
| 40 | % | 40 | % | 22 |
| 1.5 | % | |||
Rental and managed services (a), (b) |
| 441 |
| 461 |
| 11 | % | 12 | % | (20 | ) | -4.3 | % | |||
Total revenue |
| $ | 3,850 |
| $ | 3,784 |
| 100 | % | 100 | % | $ | 66 |
| 1.7 | % |
Sales of Products by Channel
|
| Nine Months Ended June 30, |
| |||||||||||||
|
|
|
|
|
| Mix |
|
|
|
|
| |||||
Dollars in millions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Change |
| |||||
Direct |
| $ | 794 |
| $ | 795 |
| 42 | % | 44 | % | $ | (1 | ) | -0.1 | % |
Indirect |
| 1,090 |
| 1,025 |
| 58 | % | 56 | % | 65 |
| 6.3 | % | |||
Total sales of products |
| $ | 1,884 |
| $ | 1,820 |
| 100 | % | 100 | % | $ | 64 |
| 3.5 | % |
GCS Revenue by Class
|
| Nine Months Ended June 30, |
| |||||||||||||
|
|
|
|
|
| Mix |
|
|
|
|
| |||||
Dollars in millions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Change |
| |||||
Large Communications Systems |
| $ | 1,312 |
| $ | 1,282 |
| 64 | % | 62 | % | $ | 30 |
| 2.3 | % |
Small Communications Systems |
| 243 |
| 274 |
| 12 | % | 14 | % | (31 | ) | -11.3 | % | |||
Converged Voice Applications |
| 466 |
| 436 |
| 22 | % | 22 | % | 30 |
| 6.9 | % | |||
Other |
| 45 |
| 34 |
| 2 | % | 2 | % | 11 |
| 32.4 | % | |||
Total revenue - GCS |
| $ | 2,066 |
| $ | 2,026 |
| 100 | % | 100 | % | $ | 40 |
| 2.0 | % |
AGS Revenue by Class
|
| Nine Months Ended June 30, |
| |||||||||||||
|
|
|
|
|
| Mix |
|
|
|
|
| |||||
Dollars in millions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| Change |
| |||||
Product Support Services (b) |
| $ | 1,231 |
| $ | 1,215 |
| 69 | % | 69 | % | $ | 16 |
| 1.3 | % |
Consulting and Systems Integration (b) |
| 294 |
| 290 |
| 16 | % | 17 | % | 4 |
| 1.4 | % | |||
Global Managed Services (b) |
| 259 |
| 251 |
| 15 | % | 14 | % | 8 |
| 3.2 | % | |||
Other (b) |
| — |
| 2 |
| 0 | % | 0 | % | (2 | ) | -100.0 | % | |||
Total revenue - AGS |
| $ | 1,784 |
| $ | 1,758 |
| 100 | % | 100 | % | $ | 26 |
| 1.5 | % |
(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.
12
Avaya Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited; Dollars and Shares in Millions, except per share amounts)
|
| For the three months ended |
| For the three months ended |
| ||
|
| June 30, |
| June 30, |
| ||
|
| 2007 |
| 2006 |
| ||
|
|
|
|
|
| ||
Operating Income: |
|
|
|
|
| ||
|
|
|
|
|
| ||
GAAP Operating Income |
| $ | 70 |
| $ | 28 |
|
|
|
|
|
|
| ||
Items Included in Operating Income: |
|
|
|
|
| ||
Restructuring charges, net |
| (13 | ) | (22 | ) | ||
Merger costs |
| (8 | ) | — |
| ||
Total Items Included in Operating Income |
| (21 | ) | (22 | ) | ||
|
|
|
|
|
| ||
Non-GAAP Operating Income |
| $ | 91 |
| $ | 50 |
|
|
| For the three months ended |
| For the three months ended |
| ||
|
| June 30, |
| June 30, |
| ||
|
| 2007 |
| 2006 |
| ||
|
|
|
|
|
| ||
Net Income: |
|
|
|
|
| ||
|
|
|
|
|
| ||
GAAP Net Income |
| $ | 55 |
| $ | 44 |
|
|
|
|
|
|
| ||
Items Included in Net Income: |
|
|
|
|
| ||
Restructuring charges, net, after tax |
| (9 | ) | (15 | ) | ||
Merger costs, after tax |
| (5 | ) | — |
| ||
Favorable settlement of certain tax matters and other deferred tax adjustments |
| — |
| 21 |
| ||
Total Items Included in Net Income |
| (14 | ) | 6 |
| ||
|
|
|
|
|
| ||
Non-GAAP Net Income |
| $ | 69 |
| $ | 38 |
|
|
|
|
|
|
| ||
Diluted Shares |
| 459 |
| 465 |
| ||
|
|
|
|
|
| ||
Non-GAAP EPS (Non-GAAP Net Income / Diluted Shares) |
| $ | 0.15 |
| $ | 0.08 |
|
GAAP EPS |
| $ | 0.12 |
| $ | 0.10 |
|
Avaya defines non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share as excluding the impact of restructuring charges, acquisition and merger-related charges and certain income tax items.
13