8-K

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): January 23, 2006

AVAYA INC.

(Exact name of registrant as specified in its charter)

Delaware	1-15951	22-3713430
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)
211 Mount Airy Road
Basking Ridge, NJ		07920
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code: (908) 953-6000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

In accordance with SEC Release No. 33-8126, the following information is furnished under Item 2.02, “Results of Operations and Financial Condition.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On January 23, 2006, Avaya Inc. (the “Company”) issued a press release reporting financial results for the fiscal quarter ended December 31, 2005 and held a public webcast in connection with the issuance of the press release.  A copy of the charts related to such presentation and certain other information is attached as Exhibit 99.1 hereto and incorporated into this Form 8-K by reference.  These materials are also available on the Avaya investor relations website at http://investors.avaya.com/.

Item 9.01. Financial Statements and Exhibits.

(c)Exhibits.

99.1Presentation of Avaya Inc. dated January 23, 2006

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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: January 23, 2006	By:	/s/ Garry K. McGuire
		Name:	Garry K. McGuire
		Title:	Chief Financial Officer and
			Senior Vice President,
			Corporate Development

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EXHIBIT INDEX

EXHIBIT NUMBER	DESCRIPTION
99.1	Presentation of Avaya Inc. dated January 23, 2006.

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EX-99.1

Exhibit 99.1

Searchable text section of graphics shown above

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Q1 FY2006
Earnings Conference Call

January 23, 2006

© 2006 Avaya Inc.  All rights reserved.

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Forward Looking Statements

This presentation contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements give our current expectations or forecasts of future events.  Actual future results may vary materially.  They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties.  Consequently, no forward-looking statement can be guaranteed and you are cautioned not to place undue reliance on these forward-looking statements.

The risks and uncertainties referred to above include, but are not limited to: price and product competition; rapid or disruptive technological development, including the effects of the technology shift from traditional TDM to IP telephony; dependence on new product development; the mix of our products and services; customer demand for our products and services, including risks specifically associated with the services business and, in particular, the maintenance and rental and managed services lines of business, primarily due to renegotiations of customer contracts and changes in scope, pricing pressures and cancellations; general industry and market conditions and growth rates and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations; risks related to inventory, including warranty costs, obsolescence charges, excess capacity, material and labor costs, and our distributors’ decisions regarding their own inventory level; the economic, political and other risks associated with international sales and operations, including increased exposure to currency fluctuations and to European economies as a result of our acquisition of Tenovis; the ability to successfully integrate acquired companies, including Tenovis, which has required significant management time and attention; the ability to attract and retain qualified employees; control of costs and expenses; U.S. and non-U.S. government regulation; and the ability to form and implement alliances.

For a further list and description of such risks and uncertainties, see the reports filed by Avaya with the SEC, which are available at www.sec.gov, particularly the information contained in Part I, Item 1, entitled “Forward Looking Statements”, of our fiscal 2005 Form 10-K.  Avaya disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Presentation:  Unless indicated otherwise, all results are presented in accordance with accounting principles generally accepted in the United States (GAAP).

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Q1 FY2006 Results
Financial Summary

•Revenues grew 8.8% year over year

•Product sales rose 6.7%

•Rental and managed services increased 34%

•Services grew 5%

•On a constant currency basis the revenue growth was 10.8%

•Adjusted for the Tenovis pre-acquisition stub period last year, revenue increased 1.6%

•Gross margin was flat at 47.2% compared with 47.3% a year ago

•Operating income was $107 million

•Includes a $21 million benefit from vacation policy change

•Cash flow from operations was $106 million

•Cash position of $726 million remains strong

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Revenue
Quarterly Trend

[CHART]

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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Revenue by Geography

					YoY
Dollars in millions	Q1 FY06		Q1 FY05		Change
U.S.	$	734	$	734	0.0	%
Outside the U.S.:
EMEA - Europe/Middle East/Africa	364		278		30.9	%
APAC - Asia Pacific	87		74		17.6	%
Americas, non-U.S.	64		62		3.2	%
Total outside the U.S.	515		414		24.4	%
Total revenue	$	1,249	$	1,148	8.8	%

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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U.S. Revenue Summary

•Overall U.S. revenues were flat year over year

•Sales of products increased 5% year over year

•Double digit growth of large communication systems

•Double digit growth of small communications systems

•Services revenues declined by about 1% year over year

•Rental and managed services revenues decreased 20% year over year

•Several large managed services contracts were renegotiated in the 1st half of last year lowering the revenue run rate

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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EMEA Revenue Summary

•Overall EMEA revenues grew 31% year over year

•On constant currency basis the increase was 40% year over year

•Revenues increased in Germany and the rest of EMEA

•Revenues decreased in the U.K.

•Sales of products rose 11% year over year

•Services revenues increased 29% year over year

•Rental and managed services revenues was up 80% year over year

•Revenues adjusted for Tenovis pre-acquisition stub period last year

•EMEA revenue declined 4.7% year over year

•Constant currency basis was up 2.4% year over year

•Sales of products rose 2% year over year

•Services revenue was flat and rental & managed services revenue decreased about 14% year over year

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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Asia-Pacific & Americas non-U.S. Revenue Summary

Asia-Pacific

•Asia-Pacific revenues increased 18% year over year

•On a constant currency basis revenues grew 19%

•Revenues increased in India, greater China and Japan

•Sales of products and services revenue increased

Americas non-U.S.

•Americas non-U.S. revenues increased 3% year over year

•On a constant currency basis revenues decreased by 4%

•Sales of products decreased while services revenue increased

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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Gross Margin and Operating Expenses

							YoY
Dollars in millions	Q1 FY06			Q1 FY05			Change
Revenue
Sales of products	$	591		$	554		6.7	%
Services	501			477			5.0	%
Rental and managed services	157			117			34.2	%
	1,249			1,148			8.8	%
Gross Margin %
Sales of products	53.1		%	55.8		%	-2.7	%
Services	35.9		%	35.4		%	0.5	%
Rental and managed services	60.5		%	55.6		%	4.9	%
	47.2		%	47.3		%	-0.1	%
Operating Expenses
Selling, general and administrative	385			357			7.8	%
Research and development	97			98			-1.0	%
	482			455			5.9	%

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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Operating and Net Income

							YoY
Dollars in millions	Q1 FY06			Q1 FY05			Change
Operating Income	107			88			21.6	%
Other income (expense), net	5			(38		)
Interest expense	(1		)	(10		)
Income from Continuing Operations	111			40			177.5	%
Provision for income taxes	40			7
Income from Continuing Operations	71			33
Loss from Discontinued Operations	—			(2		)
Net Income	$	71		$	31

•Operating income for Q1 FY06 includes $21 million benefit from vacation policy change

•Net income for Q1 FY06 includes effective tax rate of 36.4%

•Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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Gross and Operating Margins

Gross Margin ($M)

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Operating Income ($M)

[CHART]

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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Segment Results
Global Communications Solutions

					YoY
Dollars in millions	Q1 FY06		Q1 FY05		Change
Large Communications Systems	$	413	$	354	16.7	%
Small Communications Systems	88		69		27.5	%
Converged Voice Applications	151		150		0.7	%
Other	9		19		-52.6	%
Total revenue - GCS	$	661	$	592	11.7	%

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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Revenue ($M)

[CHART]

Operating Income (Loss) ($M)

[CHART]

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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Segment Results

Avaya Global Services

					YoY
Dollars in millions	Q1 FY06		Q1 FY05		Change
Maintenance	$	380	$	371	2.4	%
Implementation and integration services	123		103		19.4	%
Managed services	85		79		7.6	%
Other	—		3		-100.0	%
Total revenue - AGS	$	588	$	556	5.8	%

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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Revenue ($M)

[CHART]

Operating Income ($M)

[CHART]

Note: Q1 FY05 includes a partial quarter contribution from Tenovis acquisition

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Cash Flows
Operating Cash Flow of $106 million

	Three Months
($ in millions)	Ended 12/31/05
Net Cash Provided by Operating Activities	$	106
Net Cash Used in Investing Activities	(42		)
Net Cash Used in Financing Activities	(84		)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(4		)
Net Decrease in Cash and Cash Equivalents	(24		)
Cash and Cash Equivalents at beginning of fiscal year	750
Cash and Cash Equivalents at end of period	$	726

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Balance Sheet
Cash

Cash outlays in Q4:

•$44M for capex & capitalized software

•$90M share repurchases

[CHART]

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Balance SheetDebt

[CHART]

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Balance SheetNet Cash*

[CHART]

*Net Cash is defined as cash and cash equivalents less total debt. At 12/31/05 this amount is calculated as cash and cash equivalents of $726M less total debt of $30M. Net cash is a non GAAP financial measure.

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Share Repurchase Program

Shares Repurchased (in millions)

[CHART]

•Share repurchase program approved by the board in Q3 FY05

•Authorization to repurchase up to $500 million in shares over a two-year time period ending in Q3 FY07

•As of Q1 FY06, $197 million used for share repurchases

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Summary
Key Areas of Focus

•Focused on product sales growth in the U.S. and other major regions

•Quarter saw a resumption of year over year product growth in the U.S.

•Maintain stability in maintenance base

•U.S. maintenance revenues roughly flat over the last 4 quarters on a sequential basis

•Rental and managed services remains a concern

•Working to improve closure rate by managed services business and address erosion in rental base

•Maintain significant level of operating cash flow over the remainder of the year

•Continue to manage our cost and expense structure

•Planning additional actions in Europe

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Q1 FY2006
Earnings Conference Call

January 23, 2006

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