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EXHIBIT 99.1
AVAYA
2002 INVESTMENT COMMUNITY
MEETING
GARRY K. MCGUIRE
CFO AND SENIOR VP OF OPERATIONS
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Q4 FY02 EXIT RATE
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Q4'02 Q4'02 EXIT
ACTUAL RATE COMMENTS
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Revenues............................. 1,152 1,152
Gross Margins........................ 442 454 Obsolete inventory
38.4% 39.4%
SG&A................................. 343 355 One-time savings and miscellaneous
items
29.8% 30.8%
R&D.................................. 105 106
9.1% 9.2%
Operating Income..................... (6) (7)
(0.5%) (0.6%)
Other Inc/(Exp)...................... (10) 2 Writedown of certain equity
investments
Interest Expense..................... 18 17
Pre-tax Inc/(Loss)................... (34) (22)
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ACHIEVING BREAKEVEN IN Q3 FY03
- - IN Q3 FY03 THE COMPANY WOULD ACHIEVE BREAKEVEN AT $1,075M
- - KEY ASSUMPTIONS:
-- FULL FLOW THROUGH OF RESTRUCTURING SAVINGS: $67M
-- MANUFACTURING EFFICIENCIES
-- PARTIALLY OFFSET BY INCREASES IN PENSION AND INSURANCE COSTS
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ACHIEVING BREAKEVEN IN Q3 FY03
- - OTHER ACTIONS ARE AVAILABLE TO OFFSET FURTHER REVENUE DECLINE
- UP TO $50M RESTRUCTURING CHARGE AVAILABLE UNDER BANK FACILITY (PAYBACK NO
MORE THAN SIX MONTHS)
- BREAKEVEN LEVEL CAN BE LOWERED FURTHER
- STRONG FINANCIAL DISCIPLINE ON EXPENSES AT ALL LEVELS
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ACHIEVING BREAKEVEN IN Q3 FY03
BASED ON ACTIONS TO DATE
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Q4'02 Q4'02 Q3'03
ACTUAL EXIT RATE BREAKEVEN COMMENTS
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Revenues........................ 1,152 1,152 1,075 7% decline
Gross Margins................... 442 454 443 Manufacturing savings, BRR
savings
38.4% 39.4% 41.2%
SG&A............................ 344 355 328 BRR savings, partially offset by
pension, insurance costs
29.8% 30.3% 30.5%
R&D............................. 105 106 97 Slight decline
9.1% 9.2% 9.0%
Operating Inc................... (6) (7) 17
(0.5%) (0.6%) 1.6%
Other Income.................... (10) 2 --
Interest Expense................ 18 17 17
Pre-tax Inc/(Loss).............. (34) (22) 0 Breakeven level reached
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OPERATING LEVERAGE
- - EVERY $100M OF INCREMENTAL REVENUE ABOVE THE BREAKEVEN POINT GENERATES $68M OF
OPERATING INCOME
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REVENUE..................................................... $ 100M $ 300M
GROSS MARGIN................................................ 72M 216M
OPERATING INCOME............................................ 68M 203M
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Assumes all other conditions remain constant, eg, mix, margin, etc.
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FY03 POTENTIAL USES OF CASH
QUARTERLY DETAIL
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($ MILLIONS) Q1'03 Q2'03 Q3'03 Q4'03 TOTAL
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BRR & One-time Payments..................................... $52 $37 $20 $18 $127
Pensions.................................................... 8 38 45
Interest Expense............................................ 12 12 12 13 48
CAPEX....................................................... 19 19 19 19 76
--- --- --- --- ----
Total....................................................... 82 68 59 88 296
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BRR: FY03 EXPECTED SAVINGS
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Q1'03 Q2'03 Q3'03 Q4'03 FY03 TOTAL
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Incremental Savings..................................... 37 12 2 51M
Cumulative Savings...................................... 54 66 68 68 256M
</Table>
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BRR RESERVES AND EXPECTED CASH USAGE
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BRR BALANCE AS OF Q3 FY2002................................. $109M
+ NEW BRR CHARGE (46M+74M)................................ 120M
-- USAGE FOR EMPLOYEE SEPARATIONS......................... (29)M
-- USAGE FOR LEASE OBLIGATIONS............................ (10)M
-- REVERSAL OF PRIOR RESERVES............................. (20)M
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BRR BALANCE AS OF Q4 FY2002................................. $170M
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Q1 Q2 Q3 Q4
CASH USAGE FY03 FY03 FY03 FY03 FY04/+ TOTAL
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BRR.............................................. 46M 34M 18M 17M 55M $170M
One-Time......................................... 6M 3M 2M 1M 4M $ 16M
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EXPECTED MINIMUM CASH POSITION
- - CASH AT END OF Q1'03 = $600M
- - MINIMUM CASH AT 9/30/03 = $500M
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ASSUMING
($ MILLIONS) BREAKEVEN
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Pre-tax Income- Breakeven................................... $ 0 BRR SAVINGS $240M
EBITDA...................................................... 270
Changes in Working Capital:
BRR....................................................... (127)
Other Working Capital..................................... 150
Capital Expenditures........................................ (75)
Other Uses.................................................. (89)
Increase.................................................... 129
</Table>
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2003 AND BEYOND: MAINTAINING OUR
FINANCIAL DISCIPLINE
- - FORECASTING FUTURE IS DIFFICULT
-- STATE OF US AND WORLD ECONOMY
-- TECHNOLOGY TRANSITION RATE IS HARD TO PREDICT
- - FINANCIAL DISCIPLINE REQUIRED
-- WE ARE MANAGING WHAT WE CAN CONTROL
- COSTS
- CASH MANAGEMENT
- BALANCE SHEET
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WHY AVAYA?
- - CASH:
-- MAINTAIN AND STRENGTHEN OUR FINANCIAL POSITION
- - EARNINGS:
-- ACHIEVE BREAKEVEN BY Q3 FY03
- - GROWTH:
-- GENERATE SUSTAINABLE PROFITABILITY BY STABILIZING & GROWING REVENUES
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OUR COMMITMENT
- - WE WILL STAY CLOSE TO OUR MARKETS IN ORDER TO LEVERAGE AND CAPITALIZE ON THE
POTENTIAL OF OUR LARGE, DIVERSE INSTALLED CUSTOMER BASE
- - WE HAVE THE PRODUCTS AND THE PEOPLE TO SUCCESSFULLY COMPETE, AND EVEN IN THE
CURRENT ENVIRONMENT THERE IS EVIDENCE THAT WE ARE CAPTURING MARKET SHARE AND
MIND SHARE
- - WE WILL CONTINUOUSLY WORK TO IMPROVE EVERY ASPECT OF OUR BUSINESS IN ORDER TO
OPERATE AS EFFECTIVELY AND EFFICIENTLY AS POSSIBLE
- - WE WILL MAINTAIN AND STRENGTHEN THE COMPANY'S FINANCIAL FOOTING
-- OUR LIQUIDITY IS STRONG AND THERE ARE ADDITIONAL STEPS WE ARE EXPLORING
TO FURTHER SOLIDIFY THE POSITION
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