Avaya Inc.
Consolidated S tatements of Operations
(Unaudited; in millions)
Three months ended
December 31,
2014
2013
REVENUE
Products
Services
$
COSTS
Products:
Costs (exclusive of amortization of acquired technology intangible assets)
Amortization of acquired technology intangible assets
Services
549
530
1,079
$
574
557
1,131
203
9
229
441
638
228
14
249
491
640
374
88
57
15
534
393
95
58
7
553
OPERATING INCOM E
104
87
Interest expense
Other income, net
(112)
14
(119)
1
GROSS PROFIT
OPERATING EXPENSES
Selling, general and administrative
Research and development
Amortization of acquired intangible assets
Restructuring charges, net
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Provision for income taxes of continuing operations
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income from discontinued operations, net of income taxes
NET INCOME (LOSS)
6
(31)
(3)
(26)
3
(57)
$
3
3
$
(54)
Avaya Inc.
Consolidated Balance S heets
(Unaudited; in millions)
December 31,
2014
AS S ETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventory
Deferred income taxes, net
Other current assets
TOTAL CURRENT ASSETS
Property, plant and equipment, net
Deferred income taxes, net
Acquired intangible assets, net
Goodwill
Other assets
TOTAL AS S ETS
LIABILITIES
Current liabilities:
Debt maturing within one year
Accounts payable
Payroll and benefit obligations
Deferred revenue
Business restructuring reserve, current portion
Other current liabilities
TOTAL CURRENT LIABILITIES
$
$
$
Long-term debt
Pension obligations
Other postretirement obligations
Deferred income taxes, net
Business restructuring reserve, non-current portion
Other liabilities
TOTAL NON-CURRENT LIABILITIES
S eptember 30,
2014
328
704
192
21
238
1,483
279
46
1,157
4,047
136
7,148
$
32
406
208
669
86
260
1,661
$
$
322
745
197
24
224
1,512
281
52
1,224
4,047
141
7,257
32
416
228
668
86
254
1,684
5,973
1,493
267
254
111
421
8,519
5,991
1,535
273
249
119
475
8,642
2,969
(4,828)
(1,173)
(3,032)
7,148
2,962
(4,831)
(1,200)
(3,069)
7,257
Commitments and contingencies
S TOCKHOLDER'S DEFICIENCY
Common stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
TOTAL STOCKHOLDER'S DEFICIENCY
TOTAL LIABILITIES AND S TOCKHOLDER'S DEFICIENCY
$
$
Avaya Inc.
Condensed S tatements of Cash Flows
(Unaudited; in millions)
Three months ended
December 31,
2014
2013
Net cash provided by (used for):
Net
Netincome
loss (loss)
Income from discontinued operations, net of income taxes
Income (loss) from continuing operations
Adjustments to income (loss) from continuing operations for non-cash items
Changes in operating assets and liabilities
Continuing operating activities
Changes
Discontinued
in operating
operating
assets
activities
and liabilities
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
3
$
3
(54)
3
(57)
86
(25)
64
64
(26)
(22)
(10)
6
322
328
120
(6)
57
7
64
(43)
(10)
1
12
288
300
-
$
$
Avaya Inc.
S upplemental S chedules of Revenue
(Unaudited; in millions)
Three Months Ended
Three Months Ended December 31,
Mix
Revenues
Mar. 31,
2014
June 30,
2014
S ept. 30,
2014
$
476
56
532
528
$ 1,060
$
450
61
511
543
$ 1,054
$
$
$
$
532
543
520
59
579
547
$ 1,126
588
313
112
297
108
321
111
103
528
$ 1,060
106
511
$ 1,054
106
538
$ 1,126
Revenue by S egment
GCS
Networking
Total ECS product revenue
AGS
Total revenue
Revenue by Geography
U.S.
International:
EM EA
APAC - Asia Pacific
Americas International - Canada
and Latin America
Total International
Total revenue
2014
2013
Amount
Change
2013
$ 481
68
549
530
$ 1,079
$ 507
67
574
557
$ 1,131
45%
6%
51%
49%
100%
45%
6%
51%
49%
100%
$
(26)
1
(25)
(27)
$ (52)
-5%
1%
-4%
-5%
-5%
-4%
3%
-3%
-3%
-3%
$ 572
$ 604
53%
53%
$
(32)
-5%
-5%
301
101
303
114
28%
9%
27%
10%
(2)
(13)
-1%
-11%
3%
-11%
105
507
$ 1,079
110
527
$ 1,131
10%
47%
100%
10%
47%
100%
(5)
(20)
(52)
-5%
-4%
-5%
2%
0%
-3%
$
Pct.
Pct., net of
FX impact
2014
Use of non-GAAP (Adjusted) Financial Measures
The information furnished in this release includes non-GAAP financial measures that differ from
measures calculated in accordance with generally accepted accounting principles in the United
States (GAAP), including adjusted EBITDA, non-GAAP gross margin as a percentage of revenue,
and non-GAAP operating income.
EBITDA is defined as net income (loss) before income taxes, interest expense, interest income
and depreciation and amortization and excludes the results of discontinued operations for all
periods presented. Adjusted EBITDA is EBITDA further adjusted to exclude certain charges and
other adjustments permitted in calculating covenant compliance under our debt agreements as
further described in our SEC filings.
We believe that including supplementary information concerning Adjusted EBITDA is appropriate
to provide additional information to investors to demonstrate compliance with our debt agreements
and because it serves as a basis for determining management compensation. In addition, we
believe Adjusted EBITDA provides more comparability between our historical results and results
that reflect purchase accounting and our current capital structure. Accordingly, Adjusted EBITDA
measures our financial performance based on operational factors that management can impact in
the short-term, namely the Company’s pricing strategies, volume, costs and expenses of the
organization.
Adjusted EBITDA has limitations as an analytical tool. Adjusted EBITDA does not represent net
income (loss) or cash flow from operations as those terms are defined by GAAP and does not
necessarily indicate whether cash flows will be sufficient to fund cash needs. While adjusted
EBITDA and similar measures are frequently used as measures of operations and the ability to
meet debt service requirements, these terms are not necessarily comparable to other similarly
titled captions of other companies due to the potential inconsistencies in the method of calculation.
Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters that we
consider not to be indicative of our ongoing operations. In particular, based on our debt
agreements the definition of Adjusted EBITDA allows us to add back certain non-cash charges that
are deducted in calculating net income (loss). Our debt agreements also allow us to add back
restructuring charges, certain fees payable to our private equity sponsors and other specific cash
costs and expenses as defined in the agreements and that portion of our pension costs, other
post-employment benefits costs, and non-retirement post-employment benefits costs representing
the amortization of pension service costs and actuarial gain or loss associated with these
employment benefits. However, these are expenses that may recur, may vary and are difficult to
predict. Further, our debt agreements require that Adjusted EBITDA be calculated for the most
recent four fiscal quarters. As a result, the measure can be disproportionately affected by a
particularly strong or weak quarter. Further, it may not be comparable to the measure for any
subsequent four-quarter period or any complete fiscal year.
Non-GAAP gross margin excludes the amortization of acquired technology intangible assets, share
based compensation, impairment of long lived assets and purchase accounting adjustments. We
have included non-GAAP gross margin because we believe it provides additional useful
information to investors regarding our operations by excluding those charges that management
does not believe are reflective of the Company’s ongoing operating results when assessing the
performance of the business.
Non-GAAP operating income excludes the amortization of technology intangible assets,
restructuring and impairment charges, acquisition and integration related costs, share based
compensation, impairment of long lived assets and purchase accounting adjustments. We have
included non-GAAP operating income because we believe it provides additional useful information
to investors regarding our operations by excluding those charges that management does not
believe are reflective of the company’s ongoing operating results when assessing the performance
of the business.
These non-GAAP measures are not based on any comprehensive set of accounting rules or
principles and have limitations as analytical tools in that they do not reflect all of the amounts
associated with Avaya’s results of operations as determined in accordance with GAAP. As such,
these measures should only be used to evaluate Avaya's results of operations in conjunction with
the corresponding GAAP measures.
The following tables reconcile GAAP measures to non-GAAP measures:
Avaya Inc.
S upplemental S chedule of Non-GAAP Adjusted EBITDA
(Unaudited; in millions)
Income (loss) from continuing operations
Interest expense
Provision for income taxes
Depreciation and amortization
EBITDA
Restructuring charges, net
Sponsors’ fees
Integration-related costs
Non-cash share-based compensation
Change in certain tax indemnifications
Gain on foreign currency transactions
Pension/OPEB/nonretirement postemployment benefits and longterm disability costs
Other
Adjusted EBITDA
Three months ended
December 31,
2014
2013
$
3
$
(57)
112
119
3
26
94
119
212
207
15
7
2
2
1
2
7
6
(9)
(6)
(2)
$
17
239
$
13
2
237
Avaya Inc.
S upplemental S chedules of Non-GAAP Reconciliations
(Unaudited; in millions)
Reconciliation of Non-GAAP Gross Profit
and Non-GAAP Gross Margin
Gross Profit - Adjusted for discontinued operations
Gross M argin - Adjusted for discontinued operations
Items excluded:
Amortization of acquired technology intangible assets
Share-based compensation
Incremental accelerated depreciation associated with vacating a facility
Non-GAAP Gross Profit - Adjusted for discontinued operations
Dec. 31,
2013
Three Months Ended
Mar. 31,
June 30,
S ept. 30,
2014
2014
2014
$
$
$
Non-GAAP Gross M argin - Adjusted for discontinued operations
Reconciliation of Non-GAAP Operating Income
Operating Income - Adjusted for discontinued operations
Percentage of Revenue
Non-GAAP Operating M argin - Adjusted for discontinued operations
14
3
657
$
58.1%
$
Items excluded:
Amortization of acquired intangible assets
Restructuring and impairment charges, net
Integration-related costs
Divestiture-related costs
Share-based compensation
Incremental accelerated depreciation associated with vacating certain facilities
Resolution of certain legal matters
Other
Non-GAAP Operating Income - Adjusted for discontinued operations
640
56.6%
87
7.7%
193
17.1%
14
4
6
621
$
$
58.6%
$
72
7
3
6
16
2
$
597
56.3%
0.0%
142
13.4%
14
3
624
$
$
59.2%
$
71
42
2
8
19
$
607
57.6%
48
4.6%
180
17.1%
14
3
672
$
$
62
5.5%
$
212
18.8%
649
60.1%
$
70
71
3
5
1
$
638
59.1%
9
2
59.7%
70
45
1
2
6
8
$
655
58.2%
Dec. 31,
2014
104
9.6%
66
15
1
7
$
193
17.9%
Avaya Inc.
S upplemental S chedules of Non-GAAP Reconciliation of Gross Profit and Gross Margin by Portfolio
(Unaudited; in millions)
Reconciliation of Non-GAAP Gross Profit
and Non-GAAP Gross Margin - Products
Revenue
Costs (exclusive
Costs
(exclusiveofof
amortization
amortization
of acquired
of technology
technology
intangible
intangible
assets)
assets)
Amortization of
Amortization
ofacquired
technology
technology
intangible
intangible
assets
assets
GAAP Gross Profit
GAAP Gross M argin
Items excluded:
Amortization of acquired technology intangible assets
Incremental accelerated depreciation associated with vacating a facility
Non-GAAP Gross Profit
Dec. 31,
2013
Three Months Ended
Mar. 31,
June 30,
S ept. 30,
2014
2014
2014
Dec. 31,
2014
$
$
$
$
Non-GAAP Gross M argin
Reconciliation of Non-GAAP Gross Profit
and Non-GAAP Gross Margin - S ervices
Revenue
Costs
GAAP Gross Profit
GAAP Gross M argin
Items excluded:
Share-based compensation
Incremental accelerated depreciation associated with vacating a facility
Non-GAAP Gross Profit
Non-GAAP Gross M argin
574
228
14
332
57.8%
14
346
$
60.3%
$
$
557
249
308
55.3%
3
311
55.8%
532
206
14
312
58.6%
14
3
329
$
$
61.8%
$
$
528
243
285
54.0%
4
3
292
55.3%
511
199
14
298
58.3%
14
312
$
$
61.1%
$
$
543
234
309
56.9%
3
312
57.5%
579
221
14
344
59.4%
14
358
$
61.8%
$
$
547
236
311
56.9%
3
314
57.4%
549
203
9
337
61.4%
9
346
63.0%
$
$
530
229
301
56.8%
2
303
57.2%