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Avaya Earns 22 Cents Per Diluted Share from Continuing Operationsin Second Fiscal Quarter of 2004

  • Revenues Increase 5.9 Percent Over Year Ago Period To $1.0 Billion; Gross Margin Increases To 47 Percent From 44 Percent Compared To Second Fiscal Quarter 2003; Operating Cash Flow From Continuing Operations For The First Six Months Of Fiscal 2004 Is $121 Million

Avaya reported second fiscal quarter income from continuing operations of $103 million or earnings of 22 cents per diluted share for the second quarter of fiscal 2004.

Avaya Inc. (NYSE:AV), a leading global provider of communications networks and services for businesses, reported second fiscal quarter income from continuing operations of $103 million or earnings of 22 cents per diluted share for the second quarter of fiscal 2004.

These results include:

  • a $21 million loss related to the redemption of senior secured notes, and a $5 million loss on a sale of CommScope common shares, which are included in income from continuing operations before income taxes; and
  • an $89 million benefit included in income taxes related to the favorable settlement of certain tax matters.

In the same quarter last year, Avaya reported a loss of $55 million or a loss of 15 cents per diluted share from continuing operations. Second fiscal quarter 2004 revenues increased to $1.006 billion compared to $950 million in the same period last year.

The company said including results from discontinued operations, net income for the second fiscal quarter of 2004 was $125 million or earnings of 27 cents per diluted share compared to a net loss of $41 million or a loss of 11 cents per diluted share in the second fiscal quarter of 2003.

Avaya said continuing operations include all operations except its former Connectivity Solutions segment, substantially all of which it pested in the quarter, and the Expanets business it has substantially pested, both of which are included as discontinued operations.

CEO Comments
"This quarter's performance clearly demonstrates Avaya's continued ability to successfully execute against our business model," said Don Peterson, chairman and CEO, Avaya. "We grew revenues, expanded operating margins and increased cash flow. At the same time, we completed the integration of Expanets a full quarter ahead of schedule, reduced debt and took further steps to globalize our business with the announcement of our intent to acquire a majority stake in Tata Telecom."

Year-To-Date Results
Revenues for the first six months of fiscal 2004 were $1.977 billion, an increase of 4.3 percent compared to revenues of $1.896 billion for the first six months of fiscal 2003. Avaya earned $133 million or 30 cents per diluted share from continuing operations in the first six months of fiscal 2004, compared to a loss from continuing operations of $180 million or a loss of 49 cents per diluted share in the first six months of fiscal 2003.

Avaya noted, including results from discontinued operations, it earned $135 million or 30 cents per diluted share in the first six months of fiscal 2004 compared to a net loss of $162 million or a net loss of 44 cents per diluted share in the same period of fiscal 2003.

CFO Comments
"Avaya is structured to deliver long-term profitable growth," said Garry K. McGuire, chief financial officer and senior vice president, corporate development, Avaya. "Over the last twelve months, we've turned a net debt* position of $162 million into a net cash* position of $787 million, a positive swing of approximately $950 million. We have a better cost structure and a stronger balance sheet designed to continue to deliver value to shareholders."

Avaya said it expects revenues in the third fiscal quarter of 2004 to increase over second fiscal quarter 2004 revenues. Avaya said it now expects to achieve its previously stated fourth fiscal quarter 2004 goal of operating margin of six percent to seven percent in the third fiscal quarter, one quarter ahead of plan. The company also said it is well-positioned to achieve its 10 percent to 12 percent operating margin goal for the second half of fiscal year 2005.

Highlights From The Quarter
Avaya introduced new products and announced several customer wins in the quarter including the following:

Morgan Stanley selected Avaya to provide voice networking and contact center solutions to its offices around the globe, including Morgan Stanley's Institutional Securities Group in twenty countries, Discover Card in the U.S. and Morgan Stanley's credit card business in the U.K. Avaya Global Services will be Morgan Stanley's single-point of contact for implementation, monitoring and maintenance of voice networking and contact center solutions around the globe. The implementation of Avaya voice networking marks a shift away from traditional site-based PBX communications to a distributed, IP architecture that gives the company more mobility, flexibility and enhances customer service.

The Boston Red Sox have boosted customer service for their fans and communications capabilities for the team using Avaya IP telephony and contact center solutions. Fans will have easier access to ticket sales with new skills-based routing technology sending each call to an ideally matched agent. During spring training, Avaya IP Softphone provided staff members with the features of their Boston-based business phones through their laptop computers.

Kenneth Cole Productions deployed Avaya Enterprise Branch Connect Solution with Avaya IP Office systems in the company's 82 retail locations across the US. Kenneth Cole's wide area network now links all the stores to its NY Metro-area headquarters and IT center. The solution simplifies management, reduces voice and data-related costs and provides more information on local operations directly to the centralized IT department and headquarters.

Atento Peru, a leading customer service outsourcer, selected Avaya contact center solutions to enhance customer service while reducing operating costs. Atento's new "El Naranjal" Contact Center will have more than 550 agents responding to customers from throughout the Southern Cone. With the Avaya Customer Interaction Suite, customers can now contact the company anytime, anywhere, and use any means (e-mail, Web, or telephone) to access information.

Korea's Induk Institute of Technology will use the Avaya Wireless AP-3 wireless local area network (WLAN) solution for its next-generation wireless project. Induk will be the first Korean campus to deploy the 802.11g standard WLAN for more than 7,000 students, faculty and staff.

Avaya deployed an Avaya IP Office communications system for Horsham District Council in Sussex in the south of England. The new system will enable a faster, more effective response to enquiries from over 121,000 of the district's residents and help Horsham District Council meet the UK government objectives of delivering services electronically by 2005.

The company introduced Avaya Network Bandwidth Optimization, a service that can create more capacity on a company's communications network and more than double data transmission speeds without investing in hardware-based bandwidth compression systems or network upgrades. The service manages information and data traffic, enabling workers to download data and access the Internet more quickly, regardless of whether they access the corporate network in the office or over a dial-up modem.

Avaya integrated Session Initiation Protocol — an industry standard that enables users to conduct multimedia communications sessions — into its portfolio of IP-based MultiVantage Communications Applications. The integration allows for new converged communications solutions bringing Internet applications, such as instant messaging, together with voice and telephone features such as conferencing, voice-mail and "click-to-dial" capabilities. This capability allows inpiduals and teams across many locations to easily collaborate with the right person, using the right device, at the right time.

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®. Focused on businesses large to small, Avaya is a world leader in secure and reliable Internet Protocol (IP) 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 Web site:

This news release contains forward-looking statements regarding the company's outlook for operating results 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 our 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.

*Net cash is defined as cash and cash equivalents less total debt outstanding. At March 31, 2004, this amount is calculated as cash and cash equivalents of $1,516 million less total debt of $729 million. Net debt is defined as total debt outstanding less cash and cash equivalents. At March 31, 2003, this amount is calculated as total debt of $886 million less cash and cash equivalents of $724 million. Management believes that the presentation of net cash and net debt provides useful information to investors about the company's ability to satisfy its debt obligation with currently available funds.

NOTE: Avaya will host a conference call with a listen-only Q&A session to discuss these results at 5:00 p.m. EDT on Tuesday, April 27, 2004. 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. EDT, April 27, through May 4, 2004. 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 6432275.

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 Web site ( 10-15 minutes prior to the start. Slides 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.

Click here for the earnings statement.

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