Avaya, Avaya Financial, Avaya Reports, Chapter 11, Avaya News
Communication Technology firm Avaya updated reported financial results for the third fiscal quarter ended June 30, 2017. (Photo/Avaya)

Avaya updated reported financial results for the third fiscal quarter ended June 30, 2017. The company tests long-lived assets for impairment annually as of July 1, or more frequently if events occur or circumstances change that indicate an asset may be impaired. The assessment, which is historically completed in September, indicated impairment of an indefinite-lived intangible asset. Since the assessment was based on a forecast completed before the end of third quarter fiscal 2017, the impairment is therefore recorded in the third quarter. We believe that all other items in the financial statements are materially correct and in accordance with U.S. GAAP. There is no impact to the adjusted EBITDA. The financial tables below reflect these updates to the financial results.

 Inc.
(Debtor-in-possession)
Consolidated Statements of Operations
(Unaudited; in millions)
Three months ended
June 30,
Nine months ended
June 30,
2017 2016 2017 2016
REVENUE
Products $ 345 $ 398 $ 1,094 $ 1,286
Services 458 484 1,388 1,458
803 882 2,482 2,744
COSTS
Products:
Costs (exclusive of amortization of acquired intangible assets) 122 141 395 461
Amortization of acquired technology intangible assets 5 7 16 22
Services 186 192 567 599
313 340 978 1,082
GROSS PROFIT 490 542 1,504 1,662
OPERATING EXPENSES
Selling, general and administrative 357 317 994 1,027
Research and development 60 66 181 211
Amortization of acquired intangible assets 57 57 170 170
Impairment of indefinite-lived intangible assets 65 65
Goodwill impairment 52 52
Restructuring charges, net 8 44 22 88
599 484 1,484 1,496
OPERATING (LOSS) INCOME (109 ) 58 20 166
Interest expense (17 ) (117 ) (229 ) (352 )
Other income, net 3 1 2 7
Reorganization costs, net (35 ) (77 )
LOSS BEFORE INCOME TAXES (158 ) (58 ) (284 ) (179 )
Benefit from (provision for) income taxes 12 (57 ) 30 (66 )
NET LOSS $ (146 ) $ (115 ) $ (254 ) $ (245 )
Avaya Inc.
(Debtor-in-possession)
Consolidated Balance Sheets
(Unaudited; in millions)
June 30,
2017
September 30,
2016
ASSETS
Current assets:
Cash and cash equivalents $ 729 $ 336
Accounts receivable, net 469 584
Inventory 101 153
Other current assets 264 187
Assets held for sale 134
TOTAL CURRENT ASSETS 1,697 1,260
Property, plant and equipment, net 205 253
Acquired intangible assets, net 349 617
Goodwill 3,541 3,629
Other assets 74 62
TOTAL ASSETS $ 5,866 $ 5,821
LIABILITIES
Current liabilities:
Debt maturing within one year $ 725 $ 6,018
Accounts payable 253 338
Payroll and benefit obligations 113 183
Deferred revenue 538 705
 restructuring reserve, current portion 39 69
Other current liabilities 89 267
Liabilities held for sale 54
TOTAL CURRENT LIABILITIES 1,811 7,580
Liabilities subject to compromise 7,904
Pension obligations 563 1,743
Other postretirement obligations 245
Deferred income taxes, net 31 169
Business restructuring reserve, non-current portion 37 65
Other liabilities 155 439
TOTAL NON-CURRENT LIABILITIES 8,690 2,661
Commitments and contingencies
STOCKHOLDER’S DEFICIENCY
Common stock
Additional paid-in capital 2,976 2,966
Accumulated deficit (5,979 ) (5,725 )
Accumulated other comprehensive loss (1,632 ) (1,661 )
TOTAL STOCKHOLDER’S DEFICIENCY (4,635 ) (4,420 )
TOTAL LIABILITIES AND STOCKHOLDER’S DEFICIENCY $ 5,866 $ 5,821
Avaya Inc.
(Debtor-in-possession)
Condensed Statements of Cash Flows
(Unaudited; in millions)
Nine months ended
June 30,
2017 2016
Net cash (used for) provided by:
Net loss $ (254 ) $ (245 )
Adjustments to net loss for non-cash items 448 296
Changes in operating assets and liabilities (69 ) (21 )
Operating activities 125 30
Investing activities (120 ) (80 )
Financing activities 387 3
Effect of exchange rate changes on cash and cash equivalents 1 (7 )
Net increase (decrease) in cash and cash equivalents 393 (54 )
Cash and cash equivalents at beginning of period 336 323
Cash and cash equivalents at end of period $ 729 $ 269
Avaya Inc.
(Debtor-in-possession)
Supplemental Schedules of Revenue
(Unaudited; in millions)
Three Months Ended Three Months Ended June 30,
Revenues Mix Change
Sept. 30, 2016 Dec. 31, 2016 Mar. 31, 2017 2017 2016 2017 2016 Amount Pct. Pct., net of FX impact
Revenue by Segment
$ 397 $ 346 $ 309 GCS $ 302 $ 356 38 % 40 % $ (54 ) -15 % -15 %
72 55 39 Networking 43 42 5 % 5 % 1 2 % 2 %
469 401 348 Total ECS product revenue 345 398 43 % 45 % (53 ) -13 % -13 %
489 474 456 AGS 458 484 57 % 55 % (26 ) -5 % -5 %
$ 958 $ 875 $ 804 Total revenue $ 803 $ 882 100 % 100 % $ (79 ) -9 % -8 %
Revenue by Geography
$ 552 $ 466 $ 450 U.S. $ 435 $ 487 54 % 55 % $ (52 ) -11 % -11 %
International:
217 234 202 EMEA 204 206 25 % 23 % (2 ) -1 % 0 %
104 90 77 APAC – Asia Pacific 88 102 11 % 12 % (14 ) -14 % -14 %
85 85 75 Americas International – Canada and Latin America 76 87 10 % 10 % (11 ) -13 % -11 %
406 409 354 Total International 368 395 46 % 45 % (27 ) -7 % -6 %
$ 958 $ 875 $ 804 Total revenue $ 803 $ 882 100 % 100 % $ (79 ) -9 % -8 %

The following tables reconcile GAAP measures to non-GAAP measures:

Avaya Inc.
(Debtor-in-possession)
Supplemental Schedule of Non-GAAP Adjusted EBITDA
(Unaudited; in millions)
Three months ended
June 30,
Nine months ended
June 30,
2017 2016 2017 2016
Net loss $ (146 ) $ (115 ) $ (254 ) $ (245 )
Interest expense 17 117 229 352
Interest income (1 ) (1 ) (2 ) (1 )
(Benefit from) provision for income taxes (12 ) 57 (30 ) 66
Depreciation and amortization 85 93 263 277
EBITDA (57 ) 151 206 449
Restructuring charges, net 8 44 22 88
Sponsors’ and other advisory fees 18 9 82 15
Acquisition and integration-related costs 1 1 1 2
Third-party sales transformation costs 5
Reorganization items, net 35 77
Non-cash share-based compensation 4 4 10 12
Impairment of indefinite-lived intangible assets 65 65
Goodwill impairment 52 52
Impairment of long-lived asset 3 3
Costs in connection with certain legal matters 53 2 53 53
Foreign currency gains, net (2 ) (1 ) (1 ) (10 )
Pension/OPEB/nonretirement postemployment benefits and long-term disability costs 24 13 70 42
Other 1
Adjusted EBITDA $ 204 $ 223 $ 641 $ 656
Avaya Inc.
(Debtor-in-possession)
Supplemental Schedules of Non-GAAP Reconciliations
(Unaudited; in millions)
Three Months Ended
June 30, Sept. 30, Dec. 31, Mar. 31 June 30
2016 2016 2016 2017 2017
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin
Gross Profit $ 542 $ 583 $ 533 $ 481 $ 490
Gross Margin 61.5 % 60.9 % 60.9 % 59.8 % 61.0 %
Items excluded:
Amortization of acquired technology intangible assets 7 8 5 6 5
Share-based compensation 1
Costs in connection with certain legal matters 1
Non-GAAP Gross Profit $ 550 $ 592 $ 538 $ 487 $ 495
Non-GAAP Gross Margin 62.4 % 61.8 % 61.5 % 60.6 % 61.6 %
Reconciliation of Non-GAAP Operating Income
Operating Income (Loss) $ 58 $ (428 ) $ 65 $ 64 $ (109 )
Percentage of Revenue 6.6 % -44.7 % 7.4 % 8.0 % -13.6 %
Items excluded:
Amortization of acquired intangible assets 64 64 62 62 62
Restructuring charges, net 44 17 10 4 8
Acquisition and integration-related costs 1
Impairment charges 542 120
Advisory fees 7 27 48 14 18
Share-based compensation 4 7 2 4 4
Costs in connection with certain legal matters 2 53
Non-GAAP Operating Income $ 180 $ 229 $ 187 $ 148 $ 156
Non-GAAP Operating Margin 20.4 % 23.9 % 21.4 % 18.4 % 19.4 %
Avaya Inc.
(Debtor-in-possession)
Supplemental Schedules of Non-GAAP Reconciliation of Gross Profit and Gross Margin by Portfolio
(Unaudited; in millions)
Three Months Ended
June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
2016 2016 2016 2017 2017
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin – Products
Revenue $ 398 $ 469 $ 401 $ 348 $ 345
Costs (exclusive of amortization of acquired technology intangible assets) 141 169 146 127 122
Amortization of acquired technology intangible assets 7 8 5 6 5
GAAP Gross Profit 250 292 250 215 218
GAAP Gross Margin 62.8 % 62.3 % 62.3 % 61.8 % 63.2 %
Items excluded:
Amortization of acquired technology intangible assets 7 8 5 6 5
Costs in connection with certain legal matters 1
Non-GAAP Gross Profit $ 258 $ 300 $ 255 $ 221 $ 223
Non-GAAP Gross Margin 64.8 % 64.0 % 63.6 % 63.5 % 64.6 %
Reconciliation of Non-GAAP Gross Profit and Non-GAAP Gross Margin – Services
Revenue $ 484 $ 489 $ 474 $ 456 $ 458
Costs 192 198 191 190 186
GAAP Gross Profit 292 291 283 266 272
GAAP Gross Margin 60.3 % 59.5 % 59.7 % 58.3 % 59.4 %
Items excluded:
Share-based and other compensation 1
Non-GAAP Gross Profit $ 292 $ 292 $ 283 $ 266 $ 272
Non-GAAP Gross Margin 60.3 % 59.7 % 59.7 % 58.3 % 59.4 %
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