0000912057-01-536394.txt : 20011029
0000912057-01-536394.hdr.sgml : 20011029
ACCESSION NUMBER: 0000912057-01-536394
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 20011024
ITEM INFORMATION: Other events
FILED AS OF DATE: 20011024
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AVAYA INC
CENTRAL INDEX KEY: 0001116521
STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661]
IRS NUMBER: 223713430
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-15951
FILM NUMBER: 1764707
BUSINESS ADDRESS:
STREET 1: 211 MOUNT AIRY RD
CITY: BASKING RIDGE
STATE: NJ
ZIP: 07920
BUSINESS PHONE: 9089536000
MAIL ADDRESS:
STREET 1: 211 MOUNT AIRY ROAD
CITY: BASKING RIDGE
STATE: NJ
ZIP: 07920
FORMER COMPANY:
FORMER CONFORMED NAME: LUCENT EN CORP
DATE OF NAME CHANGE: 20000612
8-K
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a2061775z8-k.txt
8-K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 8-K
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
Date of Report (Date of earliest event reported): October 24, 2001
------------------------
AVAYA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-15951 22-3713430
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
211 Mount Airy Road 07920
Basking Ridge, NJ (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (908) 953-6000
--------------------------------------------------------------------------------
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ITEM 5. OTHER EVENTS.
Attached hereto as Exhibit 12.1 is a computation of the Ratio of Earnings to
Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Accretion for Avaya Inc., a Delaware corporation ("Avaya"), for the nine
month periods ended June 30, 2001 and 2000, the fiscal years ended
September 30, 2000, 1999, 1998 and 1997 and the nine month period ended
September 30, 1996.
Attached hereto as Exhibit 99.1 is a press release disclosing the financial
results of Avaya, a Delaware corporation, for the quarter and fiscal year ended
September 30, 2001.
ITEM 7(C). EXHIBITS
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Accretion.
99.1 Press Release, dated October 24, 2001.
This current report contains forward-looking statements 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, rapid technological development, dependence on new product
development, the successful introduction of new products, the mix of our
products and services, customer demand for our products and services, the
ability to successfully integrate acquired companies, control of costs and
expenses, the ability to form and implement alliances, the economic, political
and other risks associated with international sales and operations, U.S. and
foreign government regulation, general industry and market conditions and growth
rates and general domestic and international economic conditions including
interest rate and currency exchange rate fluctuations. For a further list and
description of such risks and uncertainties, see the other reports filed by
Avaya with the Securities and Exchange Commission. 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AVAYA INC.
Date: October 24, 2001 By: /s/ GARRY K. MCGUIRE SR.
-----------------------------------------
Name: Garry K. McGuire Sr.
TITLE: CHIEF FINANCIAL OFFICER
II-1
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Accretion.
99.1 Press Release, dated October 24, 2001.
EX-12.1
3
a2061775zex-12_1.txt
EXHIBIT 12.1
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK ACCRETION
The following table sets forth Avaya Inc.'s ratio of earnings to fixed
charges and ratio of earnings to combined fixed charges and preferred stock
accretion derived from our unaudited consolidated financial statements for the
nine months ended September 30, 1996, our audited consolidated financial
statements for the fiscal years ended September 30, 1997, 1998, 1999 and 2000,
and our unaudited consolidated financial statements for the nine months ended
June 30, 2001 and 2000. Except for our financial statements as of and for the
nine months ended June 30, 2001, our consolidated financial statements have been
derived from the financial statements and accounting records of Lucent
Technologies Inc. using the historical results of operations and historical
basis of the assets and liabilities transferred to us from Lucent. We believe
the assumptions underlying the consolidated financial statements are reasonable.
The ratio of earnings to fixed charges and ratio of earnings to combined fixed
charges and preferred stock accretion prior to September 30, 2000 may not be
indicative of our future performance as an independent company.
In reviewing the ratio of earnings to fixed charges and ratio of earnings to
combined fixed charges and preferred stock accretion, please note the following:
- In fiscal 1996, we changed our fiscal year end from December 31 to
September 30.
- For the nine months ended September 30, 1996, the computation of ratio of
earnings to combined fixed charges and preferred stock accretion does not
include the interest portion of rental expense as we were unable to derive
rental expense from the historical financial statements. The consolidated
financial statements for such period were prepared using the historical
basis of assets and liabilities and historical results of operations
related to Lucent's businesses. These businesses were transferred to
Lucent from AT&T Corp. as result of its separation from AT&T in
September 1996, and then transferred to us from Lucent in September 2000.
- On September 30, 2000, we were spun off from Lucent pursuant to a
distribution of all outstanding shares of our common stock to Lucent
shareowners. Although our consolidated statements of operations include
interest expense for each of the respective years, our balance sheets
prior to the distribution do not include an allocation of Lucent debt at
the corporate level because Lucent used a centralized approach to finance
its operations. The interest rates used equate to an estimate of what we
believe we would have obtained with a "BBB" rating, our current long term
debt rating by Standard & Poor's. Average debt balances utilized for the
interest expense calculation include an estimate of the amount of
financing thought to be needed to historically fund our operations. These
estimates were determined based upon the cash flows for each of the
periods and do not necessarily reflect the level of financing we will
incur as a stand-alone company.
- On September 30, 2000, we assumed $780 million of commercial paper from
Lucent, which largely represents the portion of Lucent liabilities that
Lucent determined should be attributed to us. As of June 30, 2001, we
repaid approximately $142 million of the commercial paper.
- On October 2, 2000, we sold to Warburg, Pincus Equity Partners, L.P. and
related investment funds 4,000,000 shares of our Series B convertible
participating preferred stock and warrants to purchase our common stock
for an aggregate purchase price of $400 million. For the nine months ended
June 30, 2001, we recorded a $19.8 million reduction in retained earnings
representing the amount accreted on the Series B preferred stock for the
dividend period.
AVAYA INC.
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK ACCRETION
(DOLLARS IN MILLIONS)
(UNAUDITED)
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED SEPTEMBER 30, ENDED
JUNE 30, JUNE 30, ----------------------------------------- SEPTEMBER 30,
2001 2000 2000 1999 1998 1997 1996
----------- ----------- -------- -------- -------- -------- -------------
EARNINGS
Income (Loss) Before Income Taxes... $ (29) $ 277 $ (448) $ 307 $ 240 $ 82 $ 176
Less:
Interest Capitalized During the
Period.......................... 4 2 2 -- -- -- --
Add:
Fixed Charges..................... 84 105 137 139 125 81 46
------ ------ ------ ------ ------ ------ ------
TOTAL EARNINGS AVAILABLE............ $ 51 $ 380 $ (313) $ 446 $ 365 $ 163 $ 222
FIXED CHARGES
Total Interest Expense Including
Capitalized Interest.............. $ 34 $ 61 $ 78 $ 90 $ 94 $ 59 $ 46
Interest Portion of Rental Expense
(1)............................... 50 44 59 49 31 22 --
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES................. $ 84 $ 105 $ 137 $ 139 $ 125 $ 81 $ 46
Add:
Accretion of Series B Preferred
Stock........................... 24(3) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
TOTAL COMBINED FIXED CHARGES AND
PREFERRED STOCK ACCRETION......... $ 108 $ 105 $ 137 $ 139 $ 125 $ 81 $ 46
RATIO OF EARNINGS TO FIXED
CHARGES........................... N/A(4) 3.6 N/A(2) 3.2 2.9 2.0 4.8
====== ====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK
ACCRETION......................... N/A(4) 3.6 N/A(2) 3.2 2.9 2.0 4.8
====== ====== ====== ====== ====== ====== ======
--------------------------
(1) For all periods presented, the percent of rental expense included in the
computation of fixed charges represents a reasonable approximation of the
interest factor.
(2) For the year ended September 30, 2000, earnings available are inadequate to
cover fixed charges and combined fixed charges and preferred stock accretion
by $450 million, due to a pre-tax business restructuring charge of
$684 million.
(3) Amount represents pre-tax earnings required to cover the preferred stock
accretion requirement of $19.8 million for the nine months ended June 30,
2001. This amount is calculated by dividing the preferred stock accretion
requirement by the reciprocal effective income tax rate from continuing
operations of 16.3% for the period.
(4) For the nine months ended June 30, 2001, earnings available are inadequate
to cover fixed charges and combined fixed charges and preferred stock
accretion by $33 million and $57 million, respectively, due to a pretax
business restructuring charge of $271 million.
EX-99.1
4
a2061775zex-99_1.txt
EXHIBIT 99.1
EXHIBIT 99.1
[LOGO]
MEDIA INQUIRIES: INVESTOR INQUIRIES:
Lynn Newman Derrick Vializ
908-953-8692 (office) 908-953-7500 (office)
973-993-8033 (home) vializ@avaya.com
lynnnewman@avaya.com
AVAYA REPORTS FISCAL FOURTH QUARTER AND FISCAL 2001 RESULTS
- Earns 4 Cents Per Share From Ongoing Operations in Fourth Quarter Despite
29 Percent Revenue Decline
- Fiscal 2001 Diluted EPS from Ongoing Operations Increases 20 Percent Over
Fiscal 2000
- Accelerated Restructuring Yields Significant Expense Reduction
FOR IMMEDIATE RELEASE: WEDNESDAY, OCTOBER 24, 2001
BASKING RIDGE, N.J.--Avaya Inc. (NYSE:AV), a global leader in corporate
communications networking solutions and services, today said net income from
ongoing operations for the fourth fiscal quarter ended September 30, 2001 was
$18 million or 4 cents per share on a diluted basis*, excluding business
restructuring and related charges. This compares to net income from ongoing
operations of $20 million or 7 cents per diluted share in the year ago quarter.
(See note for definition of fourth fiscal quarter 2000 ongoing operations.)
Revenues from Avaya's ongoing operations for the fourth fiscal quarter were
$1.442 billion, a decrease of 29.2 percent or $596 million compared to revenues
from ongoing operations of $2.038 billion in the year ago quarter.
The company noted that in the fourth quarter virtually all business segments
around the world were affected by an industry-wide slowdown. However, IP port
shipments increased 28.2 percent from the third fiscal quarter, to more than
50,000 ports from 39,000 ports, reflecting continued customer interest in an
evolutionary move to IP telephony.
"Despite the industry-wide economic slowdown, we are executing well on the
plan we outlined one year ago when we became an independent company," said Don
Peterson, president and CEO, Avaya. "In a declining market, we've increased
diluted EPS from ongoing operations 20 percent over the previous year. We've now
accelerated what had been a three-year program to restructure our business,
reinvest in higher growth segments of the enterprise market, and as a result
grow revenues. We are on target to complete our restructuring one year early, by
the end of 2002."
ONGOING FISCAL 2001 RESULTS
For fiscal 2001, net income from ongoing operations was $214 million or 66
cents per share on a diluted basis, excluding one-time and start-up expenses
associated with the company's spin-off, costs associated with the acquisitions
of VPNet Technologies and Quintus Corporation and outsourcing certain
manufacturing operations to Celestica Inc., as well as the restructuring
charges. This is an increase in net income of 37.2 percent over fiscal 2000 net
income of $156 million and an increase in diluted EPS of 20.0 percent compared
to fiscal 2000 earnings from ongoing operations of 55 cents a diluted share.**
Revenues from ongoing operations for fiscal 2001 were $6.793 billion
compared to $7.487 billion for fiscal 2000, a decrease of $694 million or
9.3 percent.
OUTLOOK FOR FISCAL 2002
"In 2001, we demonstrated our ability to manage the business on an
expense-to-revenue basis, exiting the year at an SG&A annual run rate more than
$600 million less than our total SG&A expense in fiscal 2000, and we are
committed to sustaining that management discipline throughout 2002," said Garry
McGuire, chief financial officer, Avaya. "In addition, we gained market share in
key segments and continued to invest in research and development for the next
generation of enterprise communications products and applications. We believe we
are well positioned to serve the needs of enterprise customers and grow our
revenues when the global economy begins to improve."
"With the economic difficulties that are already apparent for 2002, we are
taking a conservative view and are preparing for a decline in revenue on an
annual basis, and approximately flat sequential revenue in the first quarter of
2002," McGuire said. "We will continue to manage our expenses aggressively, and
are targeting revenues and earnings per share better than the current market
view for 2002."
REVENUES OUTSIDE THE UNITED STATES
Avaya said revenues from ongoing operations from outside the United States
were $305 million in the fourth fiscal quarter of 2001, compared to
$420 million in the year ago quarter, a decrease of $115 million or
27.4 percent. Revenues outside the United States as a percentage of total Avaya
revenues were 21.2 percent in the fourth quarter of fiscal 2001, essentially
flat compared with 20.6 percent in the same quarter last year.
For fiscal 2001, revenues from ongoing operations from outside the United
States were $1.635 billion or 24.1 percent of total revenues, a slight increase
compared with revenues of $1.611 billion or 21.5 percent of total revenues in
fiscal 2000.
UPDATE ON TARGET IMPROVEMENT METRICS
Avaya said its accelerated restructuring plan influenced the performance of
the company's target improvement metrics. Gross margin percentage increased
slightly compared to the year ago quarter despite a decline in revenue due to a
reduction in costs related to retirements and voluntary employee separations
since June. The impact of employees leaving the business contributed to a
decline in research and development spending sequentially from the third
quarter, although Avaya continues selective hiring for research and development
in high growth areas. Selling, general and administrative spending declines also
reflect savings from the ongoing redesign of many functions within Avaya and the
decrease in headcount since June. The reduction in the tax rate is in part due
to more research tax credits, as well as the tax effect of non-U.S. activities
from ongoing operations.
REPORTED RESULTS FOR FOURTH FISCAL QUARTER, INCLUDING RESTRUCTURING COSTS
For the fourth fiscal quarter ended September 30, 2001, Avaya reported a net
loss of $328 million, including a $540 million pre-tax charge related to the
company's accelerated restructuring program and a $67 million pre-tax charge
primarily for one-time expenses associated with the company's spin-off from
Lucent Technologies, offset by a $35 million pre-tax reversal of business
restructuring liabilities initially recorded in September 2000. These results
compare with a reported net loss of $543 million for the quarter ended
September 30, 2000, including business restructuring and related charges and
start-up expenses associated with the company's spin-off.
Reported revenues for the fourth quarter in fiscal 2001 were $1.442 billion
compared with reported revenues of $2.038 billion in the same period last year.
REPORTED RESULTS FOR FISCAL YEAR 2001, INCLUDING RESTRUCTURING COSTS
Including one-time and start-up expenses associated with the company's
spin-off, a reversal of business restructuring liabilities, costs associated
with the acquisitions of VPNet and Quintus, and charges related to outsourcing
certain manufacturing operations to Celestica, as well as the accelerated
restructuring charges, the company reported a net loss of $352 million for
fiscal 2001. In fiscal 2000, the company reported a net loss of $375 million,
including business restructuring and related charges and start-up expenses
associated with the company's spin-off, results from operations and the gain on
the sale of the small and medium-sized sales organization, and the results of
the wire installation business the company exited.
Reported revenues for fiscal 2001 were $6.793 billion compared with reported
revenues of $7.732 billion for fiscal 2000.
BUSINESS HIGHLIGHTS
Avaya noted the following business highlights since the end of the last
quarter:
- Avaya and Accenture announced a customer relationship management (CRM)
alliance to deliver contact center business solutions to help enterprises
increase operational efficiency, enhance/ retain customer relationships
and support revenue growth. The alliance brings together Accenture's
market prominence in CRM consulting and business integration services with
Avaya's leadership in CRM solutions and Internet Protocol (IP)
communications.
- Also in the CRM market, Avaya introduced Interaction Center, a modular
software solution that enables businesses to add communications channels
such as email, voice, Web chat and browser-based collaboration to
multi-vendor networks as needed. The software provides a single
administration interface across multiple network platforms. The CRM
services market, with a 2000-2005 compounded annual growth rate of
25.2 percent, is expected to surpass $148 billion by 2005, according to
market research firm IDC.
- The company introduced Avaya-TM- Speech Access for Unified
Messenger-Registered Trademark-, the first unified messaging solution that
allows mobile workers to access voice messaging, Microsoft Exchange and
Microsoft Outlook functions, such as e-mail, calendar and task list
management, with natural conversation from any phone. The solution goes
beyond providing traditional unified messaging access to email, voice mail
and fax messages, giving enterprises with growing mobile workforces
extended access to critical communication tools using simple
conversational phrases.
- Avaya announced a new security application for its portfolio of virtual
private networks (VPNs). The new application--the Avaya Wireless VPN--is
designed to address the most challenging wireless local area network (LAN)
security requirements. This is particularly important in today's business
environment, in which enterprises contend with hackers who may be able to
discover the algorithm that encrypts data before it is broadcast over
wireless LANs.
- Avaya entered into an agreement with IBM to develop and provide joint
solutions that will enable businesses and service providers to rapidly
deploy new communications management, customer relationship management and
contact center solutions. Under the agreement, IBM Global Services, the
world's largest networking services and systems integration company, will
develop consulting and implementation services to complement various Avaya
products and services.
- The company introduced a number of products in high-growth areas at the
September 2001 Networld+Interop trade show, including a 10-Gigabit
Ethernet solution designed to help enterprises optimize their business by
expanding their infrastructure bandwidth; IP Office, a new converged voice
and data communications solution for small and mid-sized enterprises
(SMEs), giving them networking and communications applications that large
companies already use; and the Avaya 4630 IP Screenphone to provide
businesses--such as airlines, financial institutions and hotels--with
solutions for public spaces that give users simple, one-touch access to
information through a unique user interface.
ABOUT AVAYA INC.
Avaya, headquartered in Basking Ridge, N.J., USA, is a leading global
provider of communications solutions and services that help businesses,
government agencies and other institutions excel in the customer economy. Avaya
offers Customer Relationship Management Solutions, Unified Communication
Solutions, Hosted Solutions, Multi-Service Networking Infrastructure, and
Converged Voice and Data Networks--including the company's no-compromise
Enterprise-Class IP Solutions (ECLIPS)--all supported by Avaya Services and
Avaya Labs. Avaya is a worldwide leader in unified messaging, messaging systems,
call centers and structured cabling systems. It is a U.S. leader in voice
communications systems and services. Avaya is an official partner for the 2002
FIFA World Cup-TM-, the 2003 Women's World Cup and the 2006 FIFA World Cup-TM-
championships. For more information on Avaya, visit its website at
http://www.avaya.com.
This news release contains forward-looking statements regarding the
company's outlook for revenue and earnings 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, general industry market conditions and growth
rates and general domestic and international economic conditions including
interest rate and currency exchange rate fluctuations and the economic,
political, and other risks associated with international sales and operations,
U.S. and foreign government regulation, price and product competition, rapid
technological development, dependence on new product development, the successful
introduction of new products, the mix of our products and services, customer
demand for our products and services, the ability to successfully integrate
acquired companies, control of costs and expenses, the ability to implement in a
timely manner its restructuring plans, 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 Securities and Exchange Commission.
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.
NOTE: Fourth fiscal quarter 2000 ongoing operations exclude business
restructuring and related charges and start-up expenses associated with the
company's spin-off from Lucent Technologies in September 2000.
* Earnings per share includes the effect of goodwill amortization expense.
** For the twelve months ended September 30, 2001, earnings per share is
net of 9 cents or approximately $26.6 million attributable to the
accretion of Series B convertible participating preferred stock.
Excluding the accretion of preferred stock, earnings per share for
ongoing operations for the twelve months ended September 30, 2001, would
have been 75 cents per share on a diluted basis, and for as reported
results would have been a loss of $1.24 per share on a diluted basis.
NOTE TO EDITORS:
Avaya will host a conference call with a listen-only Q&A session to discuss
these results at 9:00 am EST on Wednesday, October 24, 2001. To ensure you are
on the call from the start, we suggest that you access the call 10-15 minutes
early by dialing:
Within the U.S. and Outside the U.S. 706-634-2454
For those unable to participate, there will be a playback available from
1:00 p.m. on October 24 through October 31, 2001. 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 1997295.
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. Following the live webcast, a replay will be available on our
archives at the same web address.
AVAYA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
(UNAUDITED; DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
9/30/01 9/30/00
-------- --------
ASSETS
Cash and cash equivalents................................. $ 250 $ 271
Receivables less allowances of $68 at September 30, 2001
and $62 at September 30, 2000 (a)....................... 1,185 1,758
Inventory................................................. 649 639
Deferred income taxes, net................................ 246 450
Other current assets...................................... 439 244
------ ------
TOTAL CURRENT ASSETS.................................... 2,769 3,362
------ ------
Property, plant and equipment, net........................ 988 966
Prepaid benefit costs..................................... -- 387
Deferred income taxes, net................................ 529 44
Goodwill and other intangible assets, net................. 255 204
Other assets.............................................. 107 74
------ ------
TOTAL ASSETS............................................ $4,648 $5,037
====== ======
LIABILITIES
Accounts payable.......................................... $ 624 $ 763
Current portion of long term debt......................... 145 80
Business restructuring reserve............................ 179 499
Payroll and benefit obligations........................... 333 491
Advance billings and deposits............................. 133 253
Other current liabilities................................. 604 503
------ ------
TOTAL CURRENT LIABILITIES............................... 2,018 2,589
------ ------
Long term debt............................................ 500 713
Benefit obligations....................................... 637 421
Deferred revenue.......................................... 84 83
Other liabilities......................................... 533 467
------ ------
TOTAL NONCURRENT LIABILITIES............................ 1,754 1,684
------ ------
Commitments and contingencies
Series B convertible participating preferred stock, par
value $1.00 per share, 4 million shares authorized,
issued and outstanding (b).............................. 395 --
------ ------
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, 286,851,934 and 282,027,675 issued
and outstanding as of September 30, 2001 and September
30, 2000, respectively.................................. 3 3
Additional paid-in capital (b)............................ 905 825
Retained earnings (deficit)............................... (379) --
Accumulated other comprehensive loss...................... (46) (64)
Less treasury stock at cost (147,653 shares as of
September 30, 2001)..................................... (2) --
------ ------
TOTAL STOCKHOLDERS' EQUITY.............................. 481 764
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $4,648 $5,037
====== ======
--------------------------
(a) In June 2001, Avaya entered into a securitization program whereby the
Company sold approximately $331 million in certain trade receivables to an
unaffiliated financial institution for $200 million in cash. The Company has
a retained interest of approximately $131 million in these receivables,
which has been included in other current assets in the consolidated balance
sheet as of September 30, 2001.
(b) On October 2, 2000, Avaya sold to Warburg, Pincus Equity Partners, L.P.
4 million shares of our Series B convertible participating preferred stock
and warrants to purchase our common stock for $400 million. The proceeds
from the Warburg investment were allocated between the preferred stock and
warrants based upon the fair market value of each security with
$368 million allocated to preferred stock and $32 million to warrants. The
warrants are included in Stockholders' Equity as part of "Additional paid-in
capital". The preferred stock includes accretion of $27 million for fiscal
2001.
AVAYA INC. AND SUBSIDIARIES
THREE MONTH COMPARATIVE STATEMENTS OF OPERATIONS
AS REPORTED VS. ONGOING OPERATIONS
(UNAUDITED; DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
9/30/2001 9/30/2000
----------------------------------------- --------------------------------------------
AS REPORTED ADJUSTMENTS (B) ONGOING AS REPORTED (A) ADJUSTMENTS (C) ONGOING
----------- --------------- -------- --------------- --------------- --------
REVENUE
Products.................... $ 899 $ -- $ 899 $1,532 $ $1,532
Services.................... 543 -- 543 506 506
------ ------ ----- ------ ------ ------
1,442 -- 1,442 2,038 -- 2,038
------ ------ ----- ------ ------ ------
COST
Products.................... 639 639 973 973
Services.................... 214 214 249 249
------ ------ ----- ------ ------ ------
853 -- 853 1,222 -- 1,222
------ ------ ----- ------ ------ ------
GROSS MARGIN.................. 589 -- 589 816 -- 816
------ ------ ----- ------ ------ ------
OPERATING EXPENSES
Selling, general and
administrative............ 452 (6) 446 739 (73) 666
Business restructuring and
related charges........... 566 (566) -- 684 (684) --
Research and development.... 108 -- 108 118 118
------ ------ ----- ------ ------ ------
TOTAL OPERATING EXPENSES...... 1,126 (572) 554 1,541 (757) 784
------ ------ ----- ------ ------ ------
OPERATING INCOME (LOSS)....... (537) 572 35 (725) 757 32
Other income (expense)--net... 3 3 17 17
Interest expense.............. 7 7 17 17
------ ------ ----- ------ ------ ------
INCOME (LOSS) BEFORE INCOME
TAXES....................... (541) 572 31 (725) 757 32
Provision (benefit) for income
taxes....................... (213) 226 13 (182) 194 12
------ ------ ----- ------ ------ ------
NET INCOME (LOSS)............. $ (328) $ 346 $ 18 $ (543) $ 563 $ 20
====== ====== ===== ====== ====== ======
EARNINGS PER SHARE -- BASIC... $(1.17) $0.04 $(1.95) $ 0.07
EARNINGS PER SHARE --
DILUTED..................... $(1.17) $0.04 $(1.95) $ 0.07
BASIC SHARES.................. 286 286 279 279
DILUTED SHARES................ 286 287 279 289
EFFECTIVE TAX RATE (%)........ 39.5%* 38.0% 25.1%* 37.5%
------------------------
* Represents a benefit
(a) Certain amounts have been reclassified to conform to the fiscal 2001
presentation.
(b) The fiscal 2001 adjustment column removes from results charges for the
following:
- $6 million of start-up expenses associated with our spin-off from Lucent.
- $566 million comprised of a $540 million charge related to the accelerated
restructuring initiative and $61 million for one-time expenses associated
with our spin-off from Lucent, outsourcing
certain manufacturing operations, and the accelerated restructuring,
partially offset by a $35 million reversal of business restructuring
liabilities initially recorded in September 2000.
(c) The fiscal 2000 adjustment column removes from results the following charges
related to our spin-off from Lucent:
- $73 million of start-up expenses.
- $684 million comprised of a $520 million business restructuring charge,
$75 million asset impairment charge and $89 million for one-time expenses.
AVAYA INC. AND SUBSIDIARIES
COMPARATIVE STATEMENTS OF REVENUE AND OPERATING INCOME--ONGOING OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED; DOLLARS IN MILLIONS)
REVENUE--ONGOING
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
9/30/2001 9/30/2000
----------------------------------- -----------------------------------
U.S. INTERNATIONAL TOTAL U.S. INTERNATIONAL TOTAL
-------- ------------- -------- -------- ------------- --------
Communications
Solutions............ $ 495 $201 $ 696 $ 793 $288 $1,081
Services............... 479 64 543 470 36 506
Connectivity........... 161 42 203 355 96 451
------ ---- ------ ------ ---- ------
Total Operating
Segments........... 1,135 307 1,442 1,618 420 2,038
Other.................. 2 (2) -- -- -- --
------ ---- ------ ------ ---- ------
Total Avaya.......... $1,137 $305 $1,442 $1,618 $420 $2,038
====== ==== ====== ====== ==== ======
PERCENT CHANGE
-----------------------------------
U.S. INTERNATIONAL TOTAL
-------- ------------- --------
Communications
Solutions............ (37.6%) (30.2%) (35.6%)
Services............... 1.9% 77.8% 7.3%
Connectivity........... (54.6%) (56.3%) (55.0%)
----- ----- -----
Total Operating
Segments........... (29.9%) (26.9%) (29.2%)
Other.................. N/A N/A N/A
----- ----- -----
Total Avaya.......... (29.7%) (27.4%) (29.2%)
===== ===== =====
SEGMENT OPERATING INCOME--ONGOING
FOR THE THREE MONTHS ENDED
---------------------------
9/30/2001 9/30/2000 PERCENT
TOTAL TOTAL CHANGE
------------ ------------ --------
Communications Solutions.................................... $104 $281 (63.0%)
Services.................................................... 299 220 35.9%
Connectivity................................................ 4 113 (96.5%)
---- ---- -----
Total Operating Segments.................................... 407 614 (33.7%)
Other....................................................... (372) (582) 36.1%
---- ---- -----
Total Avaya................................................. $ 35 $ 32 9.4%
==== ==== =====
AVAYA INC. AND SUBSIDIARIES
TWELVE MONTH COMPARATIVE STATEMENTS OF OPERATIONS
AS REPORTED VS. ONGOING OPERATIONS
(UNAUDITED; DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE TWELVE MONTHS ENDED FOR THE TWELVE MONTHS ENDED
9/30/2001 9/30/2000
---------------------------------------- --------------------------------------------
AS REPORTED ADJUSTMENTS (B) ONGOING AS REPORTED (A) ADJUSTMENTS (C) ONGOING
----------- --------------- -------- --------------- --------------- --------
REVENUE
Products.................... $4,701 $ -- $4,701 $5,774 $(245) $5,529
Services.................... 2,092 -- 2,092 1,958 -- 1,958
------ ---- ------ ------ ----- ------
6,793 -- 6,793 7,732 (245) 7,487
------ ---- ------ ------ ----- ------
COST
Products.................... 2,937 -- 2,937 3,471 (145) 3,326
Services.................... 960 -- 960 1,012 -- 1,012
------ ---- ------ ------ ----- ------
3,897 -- 3,897 4,483 (145) 4,338
------ ---- ------ ------ ----- ------
GROSS MARGIN.................. 2,896 -- 2,896 3,249 (100) 3,149
------ ---- ------ ------ ----- ------
OPERATING EXPENSES
Selling, general and
administrative............ 2,058 (48) 2,010 2,540 (167) 2,373
Business restructuring and
related charges........... 837 (837) -- 684 (684) --
Research and development.... 536 -- 536 468 -- 468
Purchased in-process
research and
development............... 32 (32) -- -- -- --
------ ---- ------ ------ ----- ------
TOTAL OPERATING
EXPENSES................ 3,463 (917) 2,546 3,692 (851) 2,841
------ ---- ------ ------ ----- ------
OPERATING INCOME (LOSS)....... (567) 917 350 (443) 751 308
Other income (expense) --
net......................... 34 -- 34 71 (45) 26
Interest expense.............. 37 -- 37 76 -- 76
------ ---- ------ ------ ----- ------
INCOME (LOSS) BEFORE INCOME
TAXES....................... (570) 917 347 (448) 706 258
Provision (benefit) for income
taxes....................... (218) 351 133 (73) 175 102
------ ---- ------ ------ ----- ------
NET INCOME (LOSS)............. $ (352) $566 $ 214 $ (375) $ 531 $ 156
====== ==== ====== ====== ===== ======
EARNINGS PER SHARE -- BASIC... $(1.33) $ 0.66 $(1.39) $ 0.58
EARNINGS PER SHARE --
DILUTED..................... $(1.33) $ 0.66 $(1.39) $ 0.55
BASIC SHARES.................. 284 284 269 269
DILUTED SHARES................ 284 286 269 283
EFFECTIVE TAX RATE (%)........ 38.3%* 38.0% 16.3%* 39.5%
------------------------
* Represents a benefit
(a) Certain amounts have been reclassified to conform to the fiscal 2001
presentation.
(b) The fiscal 2001 adjustment column removes from results charges for the
following:
- $48 million of start-up expenses associated with our spin-off from Lucent.
- $837 million comprised of (1) a $134 million charge related to the
Company's outsourcing of certain of its manufacturing operations, (2) a
$540 million charge related to the accelerated restructuring initiative,
(3) $178 million in one-time expenses associated primarily with our
spin-off from Lucent, and (4) a $20 million asset impairment charge for
the Shreveport facility in connection with the Company's manufacturing
outsourcing transaction. These charges were partially offset by a
$35 million reversal of business restructuring liabilities initially
recorded in September 2000.
- $32 million for purchased in-process research and development of which
$31 million is associated with the Company's acquisition of VPNet
Technologies, Inc. in the second quarter of fiscal 2001 and $1 million is
associated with the acquisition of Quintus Corporation in the third
quarter of fiscal 2001.
(c) The fiscal 2000 adjustment column removes the following from results of
operations:
- The adjustments in revenue and cost remove from results of operations the
effects of the small and medium sized sales organization sold to
Expanets, Inc. in the second quarter of fiscal 2000, and the results of
the wire installation business which the company exited.
- $167 million which includes $94 million related to the small and medium
sized sales organization sold to Expanets, Inc. in the second quarter of
fiscal 2000 and $73 million of start-up expenses associated with our
spin-off from Lucent.
- $684 million related to our spin-off from Lucent which includes a
$520 million business restructuring charge, $75 million asset impairment
charge and $89 million for one-time expenses.
- $45 million gain related to the small and medium sized sales organization
sold to Expanets, Inc. in the second quarter of fiscal 2000.
AVAYA INC. AND SUBSIDIARIES
COMPARATIVE STATEMENTS OF REVENUE AND OPERATING INCOME--ONGOING OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED; DOLLARS IN MILLIONS)
REVENUE--ONGOING
FOR THE TWELVE MONTHS ENDED FOR THE TWELVE MONTHS ENDED
9/30/2001 9/30/2000
----------------------------------- -----------------------------------
U.S. INTERNATIONAL TOTAL U.S. INTERNATIONAL TOTAL
-------- ------------- -------- -------- ------------- --------
Communications
Solutions.......... $2,279 $1,098 $3,377 $2,968 $1,150 $4,118
Services............. 1,879 213 2,092 1,828 130 1,958
Connectivity......... 999 323 1,322 1,088 331 1,419
------ ------ ------ ------ ------ ------
Total Operating
Segments......... 5,157 1,634 6,791 5,884 1,611 7,495
Other................ 1 1 2 (8) -- (8)
------ ------ ------ ------ ------ ------
Total Avaya........ $5,158 $1,635 $6,793 $5,876 $1,611 $7,487
====== ====== ====== ====== ====== ======
PERCENT CHANGE
-----------------------------------
U.S. INTERNATIONAL TOTAL
-------- ------------- --------
Communications
Solutions.......... (23.2%) (4.5%) (18.0%)
Services............. 2.8% 63.8% 6.8%
Connectivity......... (8.2%) (2.4%) (6.8%)
------ ----- ------
Total Operating
Segments......... (12.4%) 1.4% (9.4%)
Other................ (112.5%) N/A (125.0%)
------ ----- ------
Total Avaya........ (12.2%) 1.5% (9.3%)
====== ===== ======
SEGMENT OPERATING INCOME--ONGOING
FOR THE TWELVE MONTHS ENDED
---------------------------------------------
9/30/2001 9/30/2000 PERCENT
TOTAL TOTAL CHANGE
--------------------- --------------------- --------
Communications Solutions............... $ 726 $1,275 (43.1%)
Services............................... 1,010 798 26.6%
Connectivity........................... 387 265 46.0%
------ ------ -----
Total Operating Segments............. 2,123 2,338 (9.2%)
------ ------ -----
Other.................................. (1,773) (2,030) 12.7%
------ ------ -----
Total Avaya.......................... $ 350 $ 308 13.6%
====== ====== =====
AVAYA INC.
TARGET IMPROVEMENT MEASURES
ONGOING OPERATIONS
FISCAL 2001
FY 2001/Q1 FY 2001/Q2 FY 2001/Q3 FY 2001/Q4 FY 2001
-------------------- -------------------- -------------------- -------------------- --------
$IN $IN $IN $IN $IN
MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS
-------- --------- -------- --------- -------- --------- -------- --------- --------
Revenue................. 1,785 100.0 1,852 100.0 1,714 100.0 1,442 100.0 6,793
Gross Margin(A)......... 757 42.4 819 44.2 731 42.6 589 40.8 2,896
SG&A(A)................. 532 29.8 550 29.6 482 28.0 446 30.9 2,010
Research & Development.. 140 7.8 153 8.3 135 7.9 108 7.5 536
Operating Income........ 85 4.8 116 6.3 114 6.7 35 2.4 350
Effective Tax Rate...... 39.1% 37.3% 38.0% 38.0%
FY 2001
--------- IMPROVEMENT
TARGETS FROM
% OF REV. FY2000
--------- ---------------
Revenue................. 100.0
Increase 1.5
to 2.5
Gross Margin(A)......... 42.6 points(B)
Improve 7
SG&A(A)................. 29.5 to 10 Points(B)
Increase 2
Research & Development.. 7.9 to 4 points(C)
Improve 6
Operating Income........ 5.2 to 8 points(C)
Improve 3
Effective Tax Rate...... 38.0% to 5 points(C)
------------------------------
A In conjunction with the outsourcing of most of our manufacturing to
Celestica, we have reclassified certain logistics costs such as
transportation and warehousing from SG&A to Cost of Sales in the first
quarter of fiscal 2001.
B The company is targeting the end of fiscal 2002 to make these improvements.
C The company is targeting the end of fiscal 2003 to make these improvements.
D Amortization of goodwill and other intangible assets, which is included in
SG&A, has been presented below for each of the respective quarterly periods.
FY 2001/Q1 FY 2001/Q2 FY 2001/Q3 FY 2001/Q4 FY 2001
-------------------- -------------------- -------------------- -------------------- --------
$IN $IN $IN $IN $IN
MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS
-------- --------- -------- --------- -------- --------- -------- --------- --------
Amortization (D)..... 14 0.8 18 1.0 20 1.2 20 1.4 72
FY 2001
--------- IMPROVEMENT
TARGETS FROM
% OF REV. FY2000
--------- ------------
Amortization (D)..... 1.1 N/A
AVAYA INC.
TARGET IMPROVEMENT MEASURES
ONGOING OPERATIONS
FISCAL 2000
FY 2000/Q1 FY 2000/Q2 FY 2000/Q3 FY 2000/Q4 FY 2000
--------------------- --------------------- --------------------- --------------------- ---------
$IN $IN $IN $IN $IN
MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Revenue............... 1,727 100.0 1,831 100.0 1,891 100.0 2,038 100.0 7,487
Gross Margin(A)....... 783 45.3 749 40.9 801 42.4 816 40.0 3,149
SG&A(A)............... 549 31.7 553 30.2 605 32.0 666 32.6 2,373
Research &
Development......... 105 6.1 119 6.5 126 6.7 118 5.8 468
Operating Income...... 129 7.5 77 4.2 70 3.7 32 1.6 308
Effective Tax Rate.... 40.2% 39.3% 39.6% 37.5%
FY 2000
--------- IMPROVEMENT
TARGETS FROM
% OF REV. FY2000
--------- ---------------
Revenue............... 100.0
Increase 1.5
to 2.5
Gross Margin(A)....... 42.1 points(B)
Improve 7
SG&A(A)............... 31.7 to 10 Points(B)
Research & Increase 2
Development......... 6.3 to 4 points(C)
Improve 6
Operating Income...... 4.1 to 8 points(C)
Improve 3
Effective Tax Rate.... 39.5% to 5 points(C)
------------------------------
A In conjunction with the outsourcing of most of our manufacturing to
Celestica, we have reclassified certain logistics costs such as
transportation and warehousing from SG&A to Cost of Sales.
B The company is targeting the end of fiscal 2002 to make these improvements.
C The company is targeting the end of fiscal 2003 to make these improvements.
D Amortization of goodwill and other intangible assets, which is included in
SG&A, has been presented below for each of the respective quarterly periods.
FY 2000/Q1 FY 2000/Q2 FY 2000/Q3 FY 2000/Q4
-------------------- -------------------- -------------------- --------------------
$IN $IN $IN $IN
MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS % OF REV. MILLIONS % OF REV.
-------- --------- -------- --------- -------- --------- -------- ---------
Amortization (D)............... 14 0.8 14 0.8 14 0.7 13 0.6
FY 2000
-------------------- IMPROVEMENT
$IN TARGETS FROM
MILLIONS % OF REV. FY2000
-------- --------- ------------
Amortization (D)............... 55 0.7 N/A
AVAYA INC.
REVENUES FROM ONGOING OPERATIONS
(UNAUDITED; DOLLARS IN MILLIONS)
FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 2000
----------------------------------------------------
Q1 Q2 Q3 Q4 YTD
-------- -------- -------- -------- --------
Communications Solutions:
Traditional Voice(1).................. $ 645 $ 682 $ 656 $ 683 $2,666
Data(2)/IP Convergence(3)............. 45 71 67 67 250
Applications(4)......................... 300 267 304 331 1,202
Communications Solutions................ 990 1,020 1,027 1,081 4,118
Connectivity(5)......................... 272 326 370 451 1,419
Services(6)............................. 470 486 496 506 1,958
Other................................... (5) (1) (2) -- (8)
------ ------ ------ ------ ------
TOTAL AVAYA............................. $1,727 $1,831 $1,891 $2,038 $7,487
====== ====== ====== ====== ======
FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 2001
----------------------------------------------------
Q1 Q2 Q3 Q4 YTD
-------- -------- -------- -------- --------
Communications Solutions:
Traditional Voice(1).................. $ 556 $ 546 $ 478 $ 400 $1,980
Data(2)/IP Convergence(3)............. 125 135 111 86 457
Applications(4)......................... 247 251 232 210 940
Communications Solutions................ 928 932 821 696 3,377
Connectivity(5)......................... 356 391 372 203 1,322
Services(6)............................. 499 529 521 543 2,092
Other................................... 2 -- -- -- 2
------ ------ ------ ------ ------
TOTAL AVAYA............................. $1,785 $1,852 $1,714 $1,442 $6,793
====== ====== ====== ====== ======
Footnotes:
1. Voice--includes traditional voice systems, IP enabled Definity releases,
wireless, transtalk wireless, installation & wire.
2. Data--includes Local Area Networks, Wide Area Networks, and Virtual Private
Networks
3. IP Convergence--includes IP ports sold, IP Softphones, IP Hardphones,
Directory Service Software, Enterprise Mgmt Software and Network Alchemy.
4. Applications--includes Customer Relationship Management, Messaging,
E-Communications and Professional Services.
5. Connectivity--includes Structured Cabling (SYSTIMAX-Registered Trademark- &
ExchangeMAX-Registered Trademark-) and Electronic Cabinets.
6. Services--includes Maintenance (Contracts & Per Occurrence), DataCare, and
Value Added Services.