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Avaya Reports Second Fiscal Quarter 2003 Results

04-24-2003

Avaya Inc., a leading global provider of communications networksand services for businesses, today reported second fiscal quarterresults in accordance with generally accepted accounting principles(GAAP). Avaya's revenues rose to $1.081 billion in the secondfiscal quarter of 2003, an increase of 1.3 percent sequentiallyfrom revenues of $1.067 billion in the first fiscal quarter of2003. Revenues in the year ago quarter were $1.279 billion.

Avaya Inc., a leading global provider of communications networksand services for businesses, today reported second fiscal quarterresults in accordance with generally accepted accounting principles(GAAP). Avaya's revenues rose to $1.081 billion in the secondfiscal quarter of 2003, an increase of 1.3 percent sequentiallyfrom revenues of $1.067 billion in the first fiscal quarter of2003. Revenues in the year ago quarter were $1.279 billion.

The company had a net loss of $16 million or a loss of fourcents per diluted share in the second fiscal quarter of 2003,compared to a net loss of $121 million or a loss of 33 cents perdiluted share in the first fiscal quarter of 2003. In the sameperiod last year, the company had a net loss of $63 million or aloss per diluted share of 63 cents.

Avaya said operating income in the second fiscal quarter of 2003was $28 million compared to an operating loss of $18 million in thefirst fiscal quarter of 2003. In the second fiscal quarter of 2002,Avaya had an operating loss of $108 million.

Cash And Gross Margin
The company's cash balance increased in the second fiscal quarterof 2003 to $724 million and cash flow from operations for thequarter was $85 million. Gross margin in the second fiscal quarterwas 42.2 percent, up from 39.7 percent in the first fiscalquarter.

CEO Comments
"We made great strides this quarter to strengthen our financialposition and size our business to take advantage of marketplaceopportunities," said Don Peterson, chairman and CEO, Avaya. "We hadhigher gross margins and positive operating income. Our cashbalance increased for the third quarter in a row and we saw somestability in revenues as customers invested in Avaya solutions thatdeliver immediate benefits," Peterson added. "We remain cautious inour expectations given the uncertain economic conditions and we'llcontinue to manage resources closely to drive additionalefficiencies."

Year-To-Date Results
Revenues for the first six months of fiscal 2003 were $2.148billion compared to revenues of $2.585 billion for the first sixmonths of fiscal 2002.

The company had a net loss of $137 million or a loss of 37 centsper diluted share for the first six months of fiscal 2003, comparedto a net loss of $83 million or a loss of 74 cents per dilutedshare for the first six months of fiscal 2002.

Operating income for the first six months of fiscal 2003 was $10million compared to an operating loss of $135 million for the firstsix months of fiscal 2002.

Highlights in the Quarter
Among the announcements Avaya made in the second quarter are:

  • Avaya Enterprise Connect, a set of solutions and services thatallow businesses to extend the advanced features and completefunctionality of Avaya MultiVantage™ CommunicationsApplications — including Internet Protocol (IP)telephony, contact center, unified communication and messaging— from a central location to any size office or home in adistributed enterprise over a secure, high-performance convergednetwork.
  • Avaya Modular Messaging, which enables workers to easily accessand manage voice and fax messages in IP and traditional telecomnetwork environments.
  • Single Point of Accountability services offers and tools fromAvaya Global Services that help enterprises to evolve theirmulti-vendor voice and data networks into secure and reliableInternet-protocol (IP) telephony converged networks. Offers andtools include: a customer readiness survey tool,ExpertNetSM VoIP assessment tools and network continuityassessment for planning and design; enterprise project managementfor implementation; complete remote management of convergednetworks and a Software Protection Plan for MultiVantage™software.
  • Avaya is building a large call center for the Unicom GuomaiCommunications Co., Ltd. in China. Once completed, the call centerwill be leased to enterprises and serve as their virtual customerservice center.


Second Quarter And Year-To-Date Results On An Ongoing(Non-GAAP) Basis
The company had a net loss on an ongoing basis of $5 million or aloss of one cent per diluted share in the second fiscal quarter of2003, compared to a net loss on an ongoing basis of $34 million ora loss of nine cents per diluted share in the first fiscal quarterof 2003. In the second fiscal quarter of 2002 the loss was $10million or five cents per diluted share.

For the first six months of fiscal 2003, Avaya had a net loss of$39 million or a loss of 10 cents per diluted share on an ongoingbasis, compared to a net loss of $26 million or a loss of 13 centsper diluted share on an ongoing basis for the same period lastyear.

Operating income on an ongoing basis in the second fiscalquarter of 2003 was $14 million compared to an operating loss of$14 million in the first fiscal quarter. In the second fiscalquarter of 2002, Avaya had an operating loss on an ongoing basis of$20 million.

For the first six months of fiscal 2003, operating income on anongoing basis was at breakeven compared to an operating loss of $41million on an ongoing basis in the first six months of fiscal2002.

Avaya noted the second fiscal quarter of 2003 ongoing resultsexclude the following:

  • $17 million of income recognized for the reversal of businessrestructuring liabilities established in prior periods, partiallyoffset by $3 million of expenses associated with the fourth quarterfiscal 2002 business restructuring initiative; and
  • a $36 million pre-tax loss ($26 million after tax) related tothe exchange of Liquid Yield Option™ (LYONs) Notes inJanuary, partially offset by a $1 million gain recognized from thebuyback of LYONs in March.


Other Matters
Avaya noted the second quarter results announced today do notinclude a charge for its portion of the liability related to classaction lawsuits Lucent Technologies settled in the quarter. Avayawill contribute to the pending settlement as part of its separationagreement with Lucent.

To the extent that Avaya has a sufficient understanding of thedetails of the settlement prior to the filing of its second quarterForm 10-Q, it will record a charge related to the settlement in thesecond quarter financial statements included in Form 10-Q.

About Avaya
Avaya Inc. designs, builds and manages communications networks formore than 1 million businesses worldwide, including 90 percent ofthe FORTUNE 500®. Focused on businesses large to small,Avaya is a world leader in secure and reliable Internet Protocol(IP) telephony systems and communications software applications andservices.

Driving the convergence of voice and data communications withbusiness applications — and distinguished bycomprehensive worldwide services — Avaya helps customersleverage existing and new networks to achieve superior businessresults. For more information visit the Avaya Web site: http://www.avaya.com

This news release contains forward-lookingstatements regarding the company's outlook for operating resultsand future cash needs based on current expectations, forecasts andassumptions that involve risks and uncertainties that could causeactual outcomes and results to differ materially. These risks anduncertainties include, but are not limited to, general industrymarket conditions and growth rates and general domestic andinternational economic conditions including interest rate andcurrency exchange rate fluctuations and the economic, political,and other risks associated with international sales and operations,U.S. and foreign government regulation, price and productcompetition, rapid technological development, dependence on newproduct development, the successful introduction of new products,the mix of our products and services, customer demand for ourproducts and services, the ability to successfully integrateacquired companies, control of costs and expenses, the ability toimplement in a timely manner our restructuring plans, and theability to form and implement alliances. For a further list anddescription of such risks and uncertainties, see the reports filedby Avaya with the Securities and Exchange Commission. Avayadisclaims any intention or obligation to update or revise anyforward-looking statements, whether as a result of new information,future events or otherwise.

NOTE: Liquid Yield Option and LYON are trademarks ofMerrill Lynch & Co., Inc.

NOTE: Avaya will host a conference call with alisten-only Q&A session to discuss these results at 5:00 p.m.EDT on Thursday, April 24, 2003. To ensure you are on the call fromthe start, we suggest you access the call 10-15 minutes early bydialing:

Within and outside the United States: 706-634-2454

For those unable to participate, there will be a playbackavailable from 8:00 p.m. EDT, April 24, through May 1, 2003. Forthe replay, if you are calling from within the United States,please dial 800-642-1687. If you are calling from outside theUnited States, please dial 706-645-9291. The passcode for thereplay is 7306084.

WEBCAST Information: Avaya will Webcast this conference calllive, with a listen-only Q&A session. To ensure that you are onthe Webcast, we suggest that you access our Web site (http://www.avaya.com/investors)10-15 minutes prior to the start. Slides accompanying theconference call are available at the same location. Following thelive Webcast, a replay will be available on our archives at thesame Web address.

Click here for earnings statement.

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