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Avaya Reports First Fiscal Quarter 2006 Results- Diluted Earnings Per Share From Continuing Operations of 15 Cents Compared to 7 Cents Year-Over-Year
BASKING RIDGE, N.J., Jan. 23 /PRNewswire-FirstCall/ -- Avaya Inc., (NYSE: AV) a leading global provider of business communications applications, systems and services, today reported income from continuing operations of $71 million or 15 cents per diluted share in the first fiscal quarter of 2006. The company said diluted earnings per share included a benefit of $13 million or three cents per diluted share, after taxes, related to a change in its vacation policy. In addition, diluted earnings per share included an expense of $3 million or one cent per diluted share, after taxes, related to the adoption of Statement of Financial Accounting Standards No. 123(R). SFAS 123(R), which requires the expensing of equity-based compensation, was effective for the company beginning on October 1, 2005. In the same quarter last year the company reported income from continuing operations of $33 million or seven cents per diluted share. The company's first fiscal quarter 2006 revenues increased 8.8 percent to $1.249 billion, compared to revenues of $1.148 billion in the first fiscal quarter of 2005. The first quarter of 2006 included the full quarter contribution from the Tenovis acquisition. Avaya said its Global Communications Systems revenues rose 11.7 percent year-over-year and Avaya Global Services revenues increased 5.8 percent over the same period. The company's operating income for the quarter was $107 million. Avaya generated $106 million in operating cash flow and had $726 million in cash at the end of the quarter. "During the quarter, Avaya shipped its eight millionth IP line, with shipments increasing 16 percent compared to the year ago quarter," said Don Peterson, chairman and CEO, Avaya. "Within the United States, IP telephony lines rose 21 percent over the same period. As we move through 2006, our global size and scale, technology and applications leadership and the scope and breadth of our solutions and services portfolio position us to benefit as enterprises continue to evolve to IP telephony." Share Repurchase Program Avaya said it repurchased 7.9 million shares of common stock during the first fiscal quarter at an average price of $11.32, or a total of $90 million. Since the inception of the company's share repurchase program during the second quarter of 2005, Avaya has repurchased a total of 19.5 million shares at an average price of $10.11, or a total of $197 million. Since the inception of the program, the company has reduced its diluted common shares by three percent. First Fiscal Quarter Highlights Avaya announced several customer wins, market share updates, alliance partnerships and new solution offers since the last quarter. -- InfoTech named Avaya the leader in U.S. Enterprise Telephony with 21
percent share and in U.S. IP telephony with 22 percent share for the
third calendar quarter of 2005.
-- For the fourth consecutive quarter, the Dell 'Oro Group named Avaya the
global market leader in Enterprise Telephony in the third calendar
quarter of 2005 with 19 percent market share two points ahead of the
nearest competitor.
-- For the eighth consecutive quarter, Synergy Research named Avaya
worldwide leader in Enterprise IP Telephony in the third calendar
quarter of 2005 with 22 percent of the global market by shipments and
25 percent by revenues.
-- Miercom, a leading network consultancy and product test center, awarded
the highest score ever recorded in its annual large-scale IP PBX
shoot-out to Avaya, As a result, Avaya earned the "Best in Test" award
for high-end IP PBX solutions from Business Communications Review
magazine, which featured an article on the test results in its January
2006 issue. This is the second consecutive year Avaya won this award.
-- Bank of Communications, one of the largest banks in China, will deploy
2500 lines of Avaya Interactive Voice Response systems to enhance
customer self service at Shanghai HQ and several regional offices.
-- Aramex, a transportation company based in the Middle East, is
implementing IP telephony at three sites in Dubai, with plans to roll
out other offices in Jordan, New York, India and 200 offices across
five continents with a total deployment to more than 4,000 employees.
-- Gas Natural, a leading natural gas distributor in Spain, is migrating
to an IP contact center and converged communication network for over
1,000 distributed contact center agents and using mobility applications
such as unified communication, softphone and wireless.
-- During the FIFA World Cup(TM) Final Draw an Avaya converged
communications network powered the first in a series of events leading
to the 2006 FIFA World Cup. The new, open standards-based network
reduced the cost of call traffic and enabled attendees, FIFA employees
and accredited users to work flexibly and access the network from a
variety of locations within the Messe, Germany complex.
-- The company announced Avaya VPNremote(TM) for its family of Avaya 4600
model IP telephones. The feature embeds virtual private network remote
capabilities into these IP telephones. Easily installed in a remote or
home office, the solution provides telecommuters with an "always on"
business-class, IP telephone.
-- The new Avaya IP Video Telephony Solution integrates Avaya
Communication Manager (TM) software for IP telephony with desktop video
conferencing, group video conferencing, and multipoint network
solutions from Polycom. This enables video to be more easily used in
daily communications and enables video conferencing across multiple
parties using various communications devices by creating a unified
network.
-- A collaboration with Symbol Technologies integrates Symbol's advanced
data capture, mobile computing platforms and wireless infrastructure
with Avaya's Internet protocol telephony software and mobile client
applications. This is particularly helpful for businesses in retail,
healthcare, manufacturing environments where campus workers use mobile
computers, scanners and other technologies.
Forward Looking Statements
Certain statements made in the earnings conference call are forward- looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements regarding Avaya's expected performance and outlook for operating results are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to: -- price and product competition;
-- rapid or disruptive technological development, including the effects of
the technology shift from traditional TDM to IP telephony;
-- dependence on new product development;
-- the mix of our products and services;
-- customer demand for our products and services, including risks
specifically associated with the services business and, in particular,
the maintenance and rental and managed services lines of business,
primarily due to renegotiations of customer contracts and changes in
scope, pricing pressures and cancellations;
-- general industry and market conditions and growth rates and general
domestic and international economic conditions including interest rate
and currency exchange rate fluctuations;
-- risks related to inventory, including warranty costs, obsolescence
charges, excess capacity, material and labor costs, and our
distributors' decisions regarding their own inventory levels;
-- the economic, political and other risks associated with international
sales and operations, including increased exposure to currency
fluctuations and to European economies as a result of our acquisition
of Tenovis;
-- the ability to successfully integrate acquired companies, including
Tenovis, which has required significant management time and attention;
-- the ability to attract and retain qualified employees;
-- control of costs and expenses;
-- U.S. and non-U.S. government regulation; and
-- the ability to form and implement alliances.
For a further list and description of such risks and uncertainties, see the reports filed by Avaya with the SEC, which are available at http://www.sec.gov/, particularly the information contained in Part I, Item 1, entitled "Forward Looking Statements," of our fiscal 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 of Information in this Press Release In an effort to provide investors with additional information regarding the company's results as determined by accounting principles generally accepted in the United States (GAAP), the company has also disclosed "net cash" in the supplementary materials accompanying the conference call discussing first quarter earnings results. Net cash is a non-GAAP financial measure which management believes provides useful information to investors. The rationale for managements' use of this non-GAAP measure is included as part of the Form 8-K furnished to the SEC today. The reconciliation of this non-GAAP measure to its most directly comparable GAAP financial measures is included as part of the supplementary materials presented with the first quarter earnings materials. The supplementary materials are available on the Avaya investor relations website at http://www.avaya.com/investors and will be included in a subsequent filing of a Form 8-K with the SEC. Conference Call and Webcast Avaya will host a conference call with a listen-only Q&A session to discuss these results at 5:00 p.m. EST on Monday, Jan. 23, 2006. To ensure you are on the call from the start, we suggest you access the call 10-15 minutes early by dialing: Within and outside the United States: 706-634-2454. For those unable to participate, there will be a playback available from 8:00 p.m. EST Jan. 23, through Jan. 30, 2006. For the replay, if you are calling from within the United States, please dial 800-642-1687. If you are calling from outside the United States, please dial 706-645-9291. The passcode for the replay is 3975038. WEBCAST Information: Avaya will webcast this conference call live, with a listen-only Q&A session. To ensure that you are on the webcast, we suggest that you access our website (http://www.avaya.com/investors) 10-15 minutes prior to the start. Supplementary materials accompanying the conference call are available at the same location. Following the live webcast, a replay will be available on our archives at the same web address. About Avaya Avaya Inc. designs, builds and manages communications networks for more than one million businesses worldwide, including more than 90 percent of the FORTUNE 500(R). Focused on businesses large to small, Avaya is a world leader in secure and reliable Internet Protocol telephony systems and communications software applications and services. Driving the convergence of voice and data communications with business applications -- and distinguished by comprehensive worldwide services -- Avaya helps customers leverage existing and new networks to achieve superior business results. For more information visit the Avaya website: http://www.avaya.com/ Avaya Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited; Dollars and Shares in Millions, except per share amounts)
For the three months ended
December 31,
2005 2004
REVENUE
Sales of products $591 $554
Services 501 477
Rental and managed services 157 117
1,249 1,148
COST
Sales of products 277 245
Services 321 308
Rental and managed services 62 52
660 605
GROSS MARGIN 589 543
OPERATING EXPENSES
Selling, general and administrative 385 357
Research and development 97 98
TOTAL OPERATING EXPENSES 482 455
OPERATING INCOME 107 88
Other income (expense), net 5 (38)
Interest expense (1) (10)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 111 40
Provision for income taxes 40 7
INCOME FROM CONTINUING OPERATIONS 71 33
For the three months ended
December 31,
2005 2004
DISCONTINUED OPERATIONS
(Loss) from discontinued operations -- (2)
Provision (benefit) for income taxes -- --
(LOSS) FROM DISCONTINUED OPERATIONS -- (2)
NET INCOME $71 $31
EARNINGS PER SHARE - BASIC
Earnings per share from continuing
operations $0.15 $0.07
Earnings per share from
discontinued operations -- --
EARNINGS PER SHARE $0.15 $0.07
EARNINGS PER SHARE - DILUTED
Earnings per share from continuing
operations $0.15 $0.07
Earnings per share from
discontinued operations -- --
EARNINGS PER SHARE $0.15 $0.07
Weighted Average Shares Outstanding
- Basic shares 471 460
Weighted Average Shares Outstanding
- Diluted shares 478 492
Avaya Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2005 and September 30, 2005
(Unaudited; Dollars in Millions, except per share amounts)
December 31, September 30,
2005 2005 (a)
ASSETS
Current assets:
Cash and cash equivalents $726 $750
Accounts Receivable less allowances of $56
and $58 as of December 31, 2005 and September
30, 2005, respectively 811 862
Inventory 282 288
Deferred tax asset, net 136 143
Other current assets 137 128
TOTAL CURRENT ASSETS 2,092 2,171
Property, plant and equipment, net 715 738
Deferred tax asset, net 888 911
Intangible assets (b) 317 337
Goodwill (c) 904 914
Other assets 162 148
TOTAL ASSETS $5,078 $5,219
LIABILITIES
Current liabilities:
Accounts payable $381 $402
Debt maturing within one year 5 5
Payroll and benefit obligations 245 300
Deferred revenue 236 244
Other current liabilities 318 368
TOTAL CURRENT LIABILITIES 1,185 1,319
Long-term debt 25 25
Benefit obligations 1,577 1,561
Deferred tax liability, net 89 96
Other liabilities 267 257
TOTAL NON-CURRENT LIABILITIES 1,958 1,939
Commitments and contingencies
STOCKHOLDERS' EQUITY
Series A junior participating preferred stock,
par value $1.00 per share,
7.5 million shares authorized; none
issued and outstanding -- --
Common stock, par value $0.01 per share, 1.5
billion shares authorized, 469,845,994 and
471,328,963 issued (including 274,192 and
207,053 treasury shares) as of December 31, 2005
and September 30, 2005, respectively 5 5
Additional paid-in capital 2,821 2,895
Retained earnings (accumulated deficit) 18 (53)
Accumulated other comprehensive loss (905) (883)
Less treasury stock at cost (4) (3)
TOTAL STOCKHOLDERS' EQUITY 1,935 1,961
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,078 $5,219
Notes to the Balance Sheets:
(a) Certain prior year amounts have been reclassified to conform to the
current period presentation.
(b) Intangible assets include $216 million related to Tenovis and
$33 million related to Spectel as of December 31, 2005.
(c) Goodwill includes $549 million related to Tenovis, $65 million related
to Spectel and $29 million related to Nimcat as of December 31, 2005.
Avaya Inc. and Subsidiaries
Operating Segments
Revenue and Operating Income from Continuing Operations
Quarterly Trend
(Unaudited; Dollars in Millions)
REVENUE
For the Fiscal Year Ended For the Fiscal Year Ended
September 30, 2005 September 30, 2006
Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD
Global
Communications
Solutions $592 $625 $648 $707 $2,572 $661 $661
Avaya Global
Services 556 597 588 589 2,330 588 588
Corporate -- -- -- -- -- -- --
Total
Avaya $1,148 $1,222 $1,236 $1,296 $4,902 $1,249 $-- $-- $-- $1,249
OPERATING INCOME FROM
CONTINUING OPERATIONS
For the Fiscal Year Ended For the Fiscal Year Ended
September 30, 2005 September 30, 2006
Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD
Global
Communications
Solutions $25 $(12) $1 $43 $57 $43 $43
Avaya Global
Services 56 27 37 46 166 60 60
Corporate (A) 7 37 38 (7) 75 4 4
Total
Avaya $88 $52 $76 $82 $298 $107 $-- $-- $-- $107
(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.
Avaya Inc. and Subsidiaries
Condensed Statements of Cash Flows
For the Three Months Ended December 31, 2005 and 2004
(Unaudited; Dollars in Millions)
For the three For the three
months ended months ended
December 31, December 31,
2005 2004
Net cash provided by (used in) operating
activities of continuing operations $106 $(36)
Net cash (used in) investing activities of
continuing operations (42)(a) (400)(a)
Net cash (used in) financing activities
of continuing operations (84)(b) (288)(b)
Effect of exchange rate changes on cash
and cash equivalents (4) 18
Net decrease in cash and cash equivalents (24) (706)
Cash and cash equivalents at beginning
of fiscal year 750 1,617
Cash and cash equivalents at end of period $726 $911
(a) Includes capital expenditures of $26 and $22 and capitalized software
development costs of $18 and $14 for the three months ended December
31, 2005 and 2004, respectively. Includes $383 relating to
acquisition of businesses, net of cash acquired for the three months
ended December 31, 2004.
(b) Includes $90 related to the repurchase of common stock for the three
months ended December 31, 2005 and $314 related to the repurchase of
the senior secured notes for the three months ended December 31, 2004.
Avaya Inc. and Subsidiaries
Supplemental Revenue Tables
(Unaudited, Dollars in Millions)
Revenue by
Geography
First Fiscal Quarter
Mix
Dollars in
1Q05 2Q05 3Q05 4Q05 millions 2006 2005 2006 2005 Change
$734 $689 $717 $768 U.S. $734 $734 59% 64% $-- 0.0%
Outside
the U.S.:
EMEA -
Europe/Middle
278 387 377 378 East/Africa 364 278 29% 24% 86 30.9%
APAC - Asia
74 89 83 90 Pacific 87 74 7% 6% 13 17.6%
Americas,
62 57 59 60 non-U.S. 64 62 5% 6% 2 3.2%
Total
outside
414 533 519 528 the U.S. 515 414 41% 36% 101 24.4%
Total
$1,148 $1,222 $1,236 $1,296 revenue $1,249 $1,148 100% 100% $101 8.8%
Revenue by
Type
First Fiscal Quarter
Mix
Dollars in
1Q05 2Q05 3Q05 4Q05 millions 2006 2005 2006 2005 Change
Sales of
$554 $543 $566 $631 products $591 $554 47% 48% $37 6.7%
477 498 497 499 Services 501 477 40% 42% 24 5.0%
Rental and
managed
117 181 173 166 services* 157 117 13% 10% 40 34.2%
Total
$1,148 $1,222 $1,236 $1,296 revenue $1,249 $1,148 100% 100% $101 8.8%
Sales of Products
by Channel
First Fiscal Quarter
Mix
Dollars in
1Q05 2Q05 3Q05 4Q05 millions 2006 2005 2006 2005 Change
$261 $265 $279 $322 Direct $268 $261 45% 47% $7 2.7%
293 278 287 309 Indirect 323 293 55% 53% 30 10.2%
Total sales
$554 $543 $566 $631 of products $591 $554 100% 100% $37 6.7%
*: 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.
GCS Revenue by
Class
First Fiscal Quarter
Mix
Dollars in
1Q05 2Q05 3Q05 4Q05 millions 2006 2005 2006 2005 Change
Large
Communications
$354 $393 $393 $445 Systems $413 $354 63% 60% $59 16.7%
Small
Communications
69 78 93 91 Systems 88 69 13% 12% 19 27.5%
Converged
Voice
150 145 151 164 Applications 151 150 23% 25% 1 0.7%
19 9 11 7 Other 9 19 1% 3% (10) -52.6%
Total revenue
$592 $625 $648 $707 - GCS $661 $592 100% 100% $69 11.7%
AGS Revenue by
Class
First Fiscal Quarter
Mix
Dollars in
1Q05 2Q05 3Q05 4Q05 millions 2006 2005 2006 2005 Change
$371 $372 $378 $370 Maintenance $380 $371 65% 67% $9 2.4%
Implementation
and
integration
103 122 117 125 services 123 103 21% 18% 20 19.4%
Managed
79 96 88 87 services 85 79 14% 14% 6 7.6%
3 7 5 7 Other -- 3 0% 1% (3) -100.0%
Total
revenue
$556 $597 $588 $589 - AGS $588 $556 100% 100% $32 5.8%
First Call Analyst: FCMN Contact: lynnnewman@avaya.com Website: http://www.avaya.com/ |
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