AVAYA INC (Form Type: 8-K, Filing Date: 07/24/2006)

Item 2.02 Results of Operations and Financial Condition.

In accordance with SEC Release No. 33-8126, the following information is furnished under Item 2.02, “Results of Operations and Financial Condition.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On July 24, 2006, Avaya Inc. (the “Company”) issued a press release reporting financial results for the fiscal quarter ended June 30, 2006 and held a public webcast in connection with the issuance of the press release. A copy of the press release is attached as Exhibit 99.1 hereto and incorporated into this Form 8-K by reference.

The Company provides its adjusted effective tax rate in the webcast presentation as additional information to help investors better understand its financial results. This is a non-GAAP financial measure. This measure excludes the impact of certain items that the Company believes may affect the comparability of its historical results of operations. The webcast presentation also includes a slide relating to net cash. This financial measure is a non-GAAP financial measure.

A “non-GAAP financial measure” is defined as a numerical measure of a company’s performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”). Pursuant to the requirements of Regulation G, the Company has included a comparison of such non-GAAP financial measure to the most directly comparable GAAP financial measure in the Company’s supplementary materials, which are available on the Avaya investor relations website at www.avaya.com/investors.

Management believes that the presentation of its adjusted effective tax rate, which excludes the effects of certain items, provides investors with a more meaningful understanding of the Company’s effective tax rate for the quarter. In addition, the Company’s management uses this measure when reviewing the Company’s financial results. In addition, management believes that the presentation of net cash in the supplementary materials provides useful information to investors about the Company’s ability to satisfy its debt obligations with currently available funds.

The presentation of this additional information is not meant to be considered in isolation or as a substitute for the Company’s financial results prepared in accordance with GAAP.

Item 2.06. Material Impairments.

On July 19, 2006, management and the Board of Directors of the Company determined that the Company would record a non-cash pre-tax impairment charge of approximately $28 million in the third quarter of fiscal 2006. This charge is related to the development of three applications of internal use software designed to simplify the process of creating tickets for service orders, the process of taking an order through our systems and simplifying other aspects of our financial systems.

The impairment was recognized and measured in accordance with the provisions of FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” As a result of an evaluation done during the third quarter of fiscal 2006, the Company determined that it was no longer probable that the software programs being developed will be completed and placed in service, based upon the indication that new technologies introduced in the

marketplace will be used in its place, in addition to programming difficulties which would have reduced the efficiency of the internally developed software programs. Therefore, the software programs must be reported at the lower of the carrying amount or fair value, which was determined to be zero.

The Company does not anticipate any future cash expenditures resulting from this impairment charge. The charge has been reported in the selling, general and administrative expenses line item in the Company’s Consolidated Statements of Income for the three and nine months ended June 30, 2006.

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

Appointment of Chief Executive Officer

On July 24, 2006, the Company announced that its Chairman and Chief Executive Officer, Donald K. Peterson, has stepped down as President and Chief Executive Officer effective immediately. Mr. Peterson will remain Chairman of the Board of Directors until September 30, 2006. Louis J. D’Ambrosio, who has been the Company’s Senior Vice President and President, Global Sales and Marketing since November 2005, has been elected by the Company’s Board of Directors to become President and Chief Executive Officer.

Mr. D’Ambrosio was the Company’s Group Vice President, Global Sales, Channels & Marketing from January 2004 until November 2005, and was the Group Vice President, Avaya Global Services from the time he joined the Company in December 2002 until December 2003. Prior to December 2002, he served in a number of executive positions with International Business Machines Corporation, including most recently as Vice President of Worldwide Sales and Marketing—Software Business. Mr. D’Ambrosio joined IBM in 1987.

A copy of the press release is attached as Exhibit 99.2 hereto and incorporated into this Form 8-K by reference.

Appointment of Chief Operating Officer

The Company also announced on July 24, 2006 the appointment of Michael Thurk, its Senior Vice President and President, Global Communications Solutions since November 2005, to the newly-created position of Chief Operating Officer. Mr. Thurk was the Company’s Group Vice President, Global Communications Solutions from October 2004 until November 2005, the Group Vice President, Enterprise Communications Group from August 2002 until September 2004 and the Group Vice President, Systems, from January 2002 until July 2002. Prior to joining Avaya, Mr. Thurk held various positions at Ericsson from June 1998 until December 2001, including President, Ericsson Datacom Inc. and Vice President, Division Data Backbone and Optical Networks.

A copy of the press release is attached as Exhibit 99.2 hereto and incorporated into this Form 8-K by reference.

Election of Director

On July 23, 2006, the Board of Directors of the Company elected Frank J. Fanzilli to its Board of Directors, with an effective date of August 3, 2006. In connection with Mr. Fanzilli’s election, the Board of Directors increased its size to 11.

The Board of Directors has not yet appointed Mr. Fanzilli to any committee. The Board of Directors will consider the independence of Mr. Fanzilli under the New York Stock Exchange listing standards and the Company’s independence guidelines at the next meeting of its Governance Committee.

A copy of the press release is attached as Exhibit 99.3 hereto and incorporated into this Form 8-K by reference.

Item 9.01. Financial Statements and Exhibits.

99.1		Press Release issued by Avaya Inc. dated July 24, 2006

99.2		Press Release issued by Avaya Inc. dated July 24, 2006

99.3		Press Release issued by Avaya Inc. dated July 24, 2006

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	AVAYA INC.


Date: July 24, 2006	By:	/s/ Garry K. McGuire
		Name:	Garry K. McGuire
		Title:	Chief Financial Officer and
			Senior Vice President,
			Corporate Development

EXHIBIT INDEX

EXHIBIT NUMBER		DESCRIPTION

99.1		Press Release of Avaya Inc. dated July 24, 2006

99.2		Press Release of Avaya Inc. dated July 24, 2006

99.3		Press Release of Avaya Inc. dated July 24, 2006

Exhibit 99.1

Media Inquiries:		Investor Inquiries:
Lynn Newman		Matthew Booher
908-953-8692 (office)		908-953-7500 (office)
908-672-1321 (mobile)		mbooher@avaya.com
lynnnewman@avaya.com

AVAYA REPORTS THIRD FISCAL QUARTER 2006 RESULTS
—U.S. Product Sales Increase 15 Percent Year-Over-Year
—Worldwide Product Sales Grow 12 Percent Year-Over-Year
—Operating Cash Flow Was $181 Million in the Quarter

FOR IMMEDIATE RELEASE: MONDAY, JULY 24, 2006

BASKING RIDGE, N. J. — Avaya Inc., (NYSE:AV) a leading global provider of business communications applications, systems and services, today reported net income of $44 million or 10 cents per diluted share in the third fiscal quarter of 2006.

The company’s third quarter results were affected by $22 million in restructuring charges primarily in its EMEA region and a $29 million asset impairment charge partially offset by a $22 million benefit resulting from a favorable non-income tax settlement. The net negative pre-tax impact of these items was $29 million. The company also received a tax benefit totaling $21 million as a result of a transfer pricing adjustment and non-U.S. audit settlement.

In the same quarter last year the company reported net income of $194 million or 40 cents per diluted share. These results include the net favorable impact of $123 million related to the settlement of certain tax matters and other deferred tax adjustments.

The company’s third fiscal quarter 2006 revenues increased 4.9 percent to $1.297 billion compared to $1.236 billion in the same period last year. Product sales worldwide rose 12 percent over the same period, with U.S. product sales rising 15 percent. The company’s operating income for the quarter was $28 million. Avaya generated $181 million in operating cash flow and had $822 million in cash at the end of the quarter.

“We delivered another solid quarter of product sales growth. Driven by a 23 percent increase in IP line shipments, overall product sales rose 12 percent, U.S. product sales increased 15 percent, and we shipped our 10 millionth IP line,” said Garry K. McGuire, chief financial officer, Avaya. “While we are encouraged by these positive trends, higher costs and expenses during the quarter affected operating results. We remain focused on improving our cost and expense profile across geographies and businesses, particularly in Europe.”

Year-To-Date Results

For the first nine months of fiscal 2006, Avaya reported net income of $153 million or 32 cents per diluted share compared to net income of $261 million or 54 cents per diluted share for the first nine months of 2005. Revenues for the first nine months of fiscal 2006 were $3.784 billion compared to $3.606 billion last year. The company generated operating cash flow of $456 million in the first nine months of fiscal 2006 compared to $186 million in the year ago period.

Third Fiscal Quarter Highlights

Since the end of the last quarter, Avaya has announced several customer wins, market leadership updates, alliance partnerships and new solution offers.

2006 FIFA World Cup Network

Avaya powered the world’s biggest converged voice and data network for the 2006 FIFA World Cup in Germany. More than 21 terabytes of voice and data traffic traveled over the network during the six weeks it was operating and the network achieved 99.999 percent availability without a single major outage and free of errors. During that time, people logged onto the network approximately 640,000 times for a total of nearly 790,000 minutes of calling.

Customer Update

Kimberly-Clark selected Avaya as its provider of global telephony applications and communications network services. Kimberly-Clark will use Avaya MultiVantage® Communications Applications, a suite of Internet Protocol (IP) telephony, contact center, messaging and mobility applications, to connect more than 57,000 employees worldwide to deliver cost-savings and economies of scale.

Avaya was named one of 10 companies selected to participate in a $4 billion U.S. Army project that will overhaul voice and data communications infrastructures of U.S. Army bases worldwide. The Infrastructure Modernization contract will support the Army’s Installation Information Infrastructure Modernization Program with a single integrated communications system.

ING Mexico, a leader in providing insurance, pension benefits and financial services, centralized its customer care operations to improve efficiency and customer service. The company chose an Avaya contact center solution, and established a contact center in Mexico City with 305 employees who handle an average of 220,000 calls each month. The Avaya solution, which includes Avaya Customer Interaction suites, also reduced from eight percent to two percent, the call drop-out levels.

Vanguard, the second largest mutual fund firm in the U.S., selected Avaya for IP telephony networking, applications and more than 18,000 endpoints around the world. The contract also includes project design, implementation and management, plus five years of maintenance services provided by Avaya Global Services.

New Solution Offers

Avaya introduced a comprehensive portfolio of solutions targeted to companies with between 100-500 employees, including:

o Avaya MultiVantage® Express — delivers the most robust set of communications applications in the industry in a single-server solution, including IP telephony, messaging, contact center and mobility applications.

o Avaya S8400 Media Server — provides a migration path to the expanded power of Avaya Communication Manager IP telephony for existing DEFINITY® ProLogix, IP600 or S8100 server customers.

o Avaya-On-Demand — provides Avaya’s marketing-leading, intelligent communications as a service, including IP Telephony, contact center and messaging, in a low-risk, highly-flexible per-seat, per-month subscription model.

Avaya unveiled its next generation of IP phones, which deliver unparalleled simplicity and faster access to a vast array of advanced applications, transforming the way people think about, use and hear voice communications. The new Avaya one-X™ Deskphone Edition is designed to enhance user experiences through more intelligent access to intelligent communications. The advanced business phones are more functional and flexible, and as easy to navigate as a cell phone, providing a better way for enterprise users to communicate, get information and be more productive in their work.

The new Avaya Mobile Communications System (MCS) enables businesses and public sector organizations to quickly set up command centers with complete, secure voice and data communications to support business continuity, disaster response and recovery, or short-term events. The system brings together a wide range of voice and data capabilities in a fully configured package that can be up and running in less than an hour. The MCS provides IP telephony, basic voice messaging, data networking, and connectivity to a variety of networks.

Market Leadership

Avaya was named the leader in U.S. Enterprise Telephony for the first quarter of 2006 according to InfoTech’s InfoTrack for Enterprise Communications, First Quarter 2006 Report. Avaya captured 19.8 percent of the U.S. Enterprise Telephony market in the first quarter, giving the company a four-point lead over the nearest competitor. This is third consecutive quarter Avaya has been named the leader in this measure.

Avaya finished 5.5 points ahead of the nearest competitor in global Enterprise Telephony market share for the first quarter, according to Dell ’Oro Group’s IP Telephony Enterprise Report, 1Q06. Avaya completed its sixth consecutive quarter of leadership in this market according to Dell ‘Oro, with 20.3 percent of market revenues, exceeding overall market growth.

In the first quarter of 2006, Avaya extended its lead in global Enterprise Internet Protocol Telephony Port Shipments and global Enterprise IP Telephony Revenue, leading both measurements for the tenth consecutive quarter, according to Synergy Research Group’s 1Q 2006 Enterprise Voice Market Shares Report. The report had Avaya leading in IP Port Shipments as defined by Synergy with 22 percent of the global market for the first quarter of 2006, 2.5 points ahead of the nearest competitor.

Frost & Sullivan recognized Avaya in three areas this quarter. The company received the 2006 Frost & Sullivan Growth Strategy Leadership Award in North America for Avaya one-X Quick Edition, a peer-to-peer IP telephony system for small businesses and branch offices with up to 20 users per location. In North America, Avaya received two 2006 Frost & Sullivan Market Leadership Awards. Leading in the categories of Enterprise Telephony, which encompasses both IP and traditional telephony, and Automatic Call Distribution for contact centers the Award for Market Leadership the company that has exhibited market share leadership through the effective implementation of market strategy.

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:

· supply issues related to our outsourced manufacturing operations;

· 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 www.sec.gov, particularly the information contained in Part I, Item 1, entitled “Forward Looking Statements,” of our fiscal 2006 Form 10-Q for the second quarter. 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” and “adjusted effective tax rate” in the supplementary materials accompanying the conference call discussing third quarter earnings results. These are non-GAAP financial measures which management believes provide useful information to investors.

The rationale for managements’ use of these non-GAAP measures is included as part of the Form 8-K furnished to the SEC today. The reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures is included as part of the supplementary materials presented with the third quarter earnings materials. The supplementary materials are available on the Avaya investor relations website at 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. EDT on Monday, July 24, 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. EDT July 24, through July 31, 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 2009163.

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 (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®. 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						For the nine months ended
	June 30,						June 30,
	2006			2005			2006			2005
REVENUE
Sales of products	$	636		$	566		$	1,820		$	1,663
Services	504			497			1,492			1,472
Rental and managed services	157			173			472			471
	1,297			1,236			3,784			3,606
COST
Sales of products	304			265			856			755
Services	334			325			972			972
Rental and managed services	71			71			201			198
	709			661			2,029			1,925
GROSS MARGIN	588			575			1,755			1,681

OPERATING EXPENSES
Selling, general and administrative	423			406			1,207			1,169
Research and development	115			93			318			296
Restructuring charges	22			-			42			—
TOTAL OPERATING EXPENSES	560			499			1,567			1,465

OPERATING INCOME	28			76			188			216
Other income (expense), net	5			4			16			(34		)
Interest expense	—			(3		)	(3		)	(18		)

INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES	33			77			201			164

(Benefit from) provision for income taxes	(11		)	(117		)	48			(99		)
INCOME FROM CONTINUING OPERATIONS	44			194			153			263

(LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES	—			—			—			(2		)

NET INCOME	$	44		$	194		$	153		$	261

EARNINGS PER SHARE - BASIC
Earnings per share from continuing operations	$	0.10		$	0.41		$	0.33		$	0.56
(Loss) per share from discontinued operations	—			—			—			(0.01		)
EARNINGS PER SHARE	$	0.10		$	0.41		$	0.33		$	0.55

EARNINGS PER SHARE - DILUTED
Earnings per share from continuing operations	$	0.10		$	0.40		$	0.32		$	0.54
Earnings per share from discontinued operations	—			—			—			—
EARNINGS PER SHARE	$	0.10		$	0.40		$	0.32		$	0.54

Weighted Average Shares Outstanding - Basic shares	459			478			465			473
Weighted Average Shares Outstanding - Diluted shares	465			487			472			491

Avaya Inc. and Subsidiaries

Consolidated Balance Sheets

As of June 30, 2006 and September 30, 2005

(Unaudited; Dollars in Millions, except per share amounts)

	June 30, 2006			September 30, 2005(a)

Current assets:
Cash and cash equivalents	$	822		$	750
Accounts Receivable less allowances of $51 and $58
as of June 30, 2006 and September 30, 2005, respectively	818			862
Inventory	296			288
Deferred tax asset, net	149			143
Other current assets	178			128
TOTAL CURRENT ASSETS	2,263			2,171

Property, plant and equipment, net	678			738
Deferred tax asset, net	866			911
Intangible assets (b)	294			337
Goodwill (c)	948			914
Other assets	174			148
TOTAL ASSETS	$	5,223		$	5,219

LIABILITIES
Current liabilities:
Accounts payable	$	395		$	402
Payroll and benefit obligations	306			300
Deferred revenue	268			244
Other current liabilities	319			373
TOTAL CURRENT LIABILITIES	1,288			1,319

Benefit obligations	1,624			1,561
Deferred tax liability, net	82			96
Other liabilities	270			282
TOTAL NON-CURRENT LIABILITIES	1,976			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, 457,975,112 and 471,328,963 issued (including 403,195 and 207,053 treasury shares) as of June 30, 2006 and September 30, 2005, respectively	5			5
Additional paid-in capital	2,689			2,895
Retained earnings (accumulated deficit)	100			(53		)
Accumulated other comprehensive loss	(830		)	(883		)
Less treasury stock at cost	(5		)	(3		)
TOTAL STOCKHOLDERS’ EQUITY	1,959			1,961
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	5,223		$	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 $206 million related to Tenovis and $29 million related to Spectel as of June 30, 2006.

(c) Goodwill includes $593 million related to Tenovis, $65 million related to Spectel and $26 million related to Nimcat as of June 30, 2006.

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 September 30, 2005										For the Fiscal Year Ended September 30, 2006
	Q1		Q2		Q3		Q4		YTD		Q1		Q2		Q3		Q4		YTD
Global Communications Solutions	$	592	$	625	$	648	$	707	$	2,572	$	661	$	661	$	704			$	2,026
Avaya Global Services	556		597		588		589		2,330		588		577		593				1,758
Corporate	—		—		—		—		—		—		—		—				—
Total Avaya	$	1,148	$	1,222	$	1,236	$	1,296	$	4,902	$	1,249	$	1,238	$	1,297	$	—	$	3,784

OPERATING INCOME FROM CONTINUING OPERATIONS

	For the Fiscal Year Ended September 30, 2005												For the Fiscal Year Ended September 30, 2006
	Q1		Q2			Q3		Q4			YTD		Q1		Q2			Q3			Q4		YTD

Global Communications Solutions	$	25	$	(12	)	$	1	$	43		$	57	$	43	$	32		$	36				$	111
Avaya Global Services	56		27			37		46			166		60		41			34					135
Corporate: (A)	7		37			38		(7		)	75		4		(20		)	(42		)			(58		)
Total Avaya	$	88	$	52		$	76	$	82		$	298	$	107	$	53		$	28		$	—	$	188

(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. The third quarter of fiscal 2006 includes an impairment charge for certain internal use software and restructuring charges related to lease termination obligations arising from the close or consolidation of international office facilities and separation of additional employees in Germany.

Avaya Inc. and Subsidiaries
Condensed Statements of Cash Flows
For the Nine Months Ended June 30, 2006 and 2005
(Unaudited; Dollars in Millions)

	For the nine months ended June 30, 2006			For the nine months ended June 30, 2005

Net cash provided by operating activities of continuing operations	$	456		$	186

Net cash (used in) investing activities of continuing operations	(139		)(a)	(478		)(a)

Net cash (used in) financing activities of continuing operations	(250		)(b)	(582		)(b)

Effect of exchange rate changes on cash and cash equivalents	5			(8		)

Net increase (decrease) in cash and cash equivalents	72			(882		)

Cash and cash equivalents at beginning of fiscal year	750			1,617

Cash and cash equivalents at end of period	$	822		$	735

(a) Includes capital expenditures of $83 and $97 and capitalized software development costs of $53 and $44 for the nine months ended June 30, 2006 and 2005, respectively.
Includes $383 relating to acquisition of businesses, net of cash acquired for the nine months ended June 30, 2005.

(b) Includes $256 related to the repurchase of common stock for the nine months ended June 30, 2006.
Includes $315 related to the repurchase of the senior notes for the nine months ended June 30, 2005.

Avaya Inc. and Subsidiaries

Supplemental Revenue Tables

(Unaudited, Dollars in Millions)

Revenue by Geography

									Third Fiscal Quarter
													Mix
3Q05		4Q05		1Q06		2Q06		*Dollars in millions*	2006		2005		2006		2005		Change
$	717	$	768	$	734	$	719	U.S.	$	753	$	717	58	%	58	%	$	36	5.0	%
								Outside the U.S:
377		378		364		356		EMEA - Europe/Middle East/Africa	387		377		30	%	30	%	10		2.7	%
83		90		87		99		APAC - Asia Pacific	87		83		7	%	7	%	4		4.8	%
59		60		64		64		Americas, non-U.S.	70		59		5	%	5	%	11		18.6	%
519		528		515		519		Total outside the U.S.	544		519		42	%	42	%	25		4.8	%
$	1,236	$	1,296	$	1,249	$	1,238	Total revenue	$	1,297	$	1,236	100	%	100	%	$	61	4.9	%

Revenue by Type

									Third Fiscal Quarter
													Mix
3Q05		4Q05		1Q06		2Q06		*Dollars in millions*	2006		2005		2006		2005		Change
$	566	$	631	$	591	$	593	Sales of products	$	636	$	566	49	%	46	%	$	70		12.4	%
497		499		501		487		Services	504		497		39	%	40	%	7			1.4	%
173		166		157		158		Rental and managed services(a)	157		173		12	%	14	%	(16		)	-9.2	%
$	1,236	$	1,296	$	1,249	$	1,238	Total revenue	$	1,297	$	1,236	100	%	100	%	$	61		4.9	%

Sales of Products by Channel

									Third Fiscal Quarter
													Mix
3Q05		4Q05		1Q06		2Q06		*Dollars in millions*	2006		2005		2006		2005		Change
$	279	$	322	$	268	$	250	Direct	$	277	$	279	44	%	49	%	$	(2	)	-0.7	%
287		309		323		343		Indirect	359		287		56	%	51	%	72			25.1	%
$	566	$	631	$	591	$	593	Total sales of products	$	636	$	566	100	%	100	%	$	70		12.4	%

GCS Revenue by Class

									Third Fiscal Quarter
													Mix
3Q05		4Q05		1Q06		2Q06		*Dollars in millions*	2006		2005		2006		2005		Change
$	393	$	445	$	413	$	414	Large Communications Systems	$	455	$	393	65	%	61	%	$	62		15.8	%
93		91		88		94		Small Communications Systems	92		93		13	%	14	%	(1		)	-1.1	%
151		164		151		141		Converged Voice Applications	144		151		20	%	23	%	(7		)	-4.6	%
11		7		9		12		Other	13		11		2	%	2	%	2			18.2	%
$	648	$	707	$	661	$	661	Total revenue - GCS	$	704	$	648	100	%	100	%	$	56		8.6	%

AGS Revenue by Class

									Third Fiscal Quarter
													Mix
3Q05		4Q05		1Q06		2Q06		*Dollars in millions*	2006		2005		2006		2005		Change
$	381	$	375	$	380	$	366	Maintenance(b)	$	375	$	381	63	%	65	%	$	(6	)	-1.6	%
118		125		123		120		Implementation and integration services(b)	130		118		22	%	20	%	12			10.2	%
88		87		85		90		Managed services(b)	87		88		15	%	15	%	(1		)	-1.1	%
1		2		—		1		Other(b)	1		1		0	%	0	%	—			0.0	%
$	588	$	589	$	588	$	577	Total revenue - AGS	$	593	$	588	100	%	100	%	$	5		0.9	%

(a) 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.

(b) Prior year revenue amounts have been reclassified to conform to current interim period presentation.

Exhibit 99.2

Media Inquiries:		Investor Inquiries
Lynn Newman		Matthew Booher
908-953-8692 (office)		908-953-7500 (office)
908-672-1321 (mobile)		mbooher@avaya.com
lynnnewman@avaya.com

AVAYA ELEVATES VETERAN EXECUTIVES

—Louis J. D’Ambrosio named President and Chief Executive Officer,
—Michael Thurk named Chief Operating Officer, and
—Donald Peterson To Remain Chairman Through September 30, 2006

FOR IMMEDIATE RELEASE: MONDAY, JULY 24, 2006

BASKING RIDGE, N.J.—Avaya Inc. (NYSE: AV) today announced that the company’s Board of Directors has appointed Louis J. D’Ambrosio President and Chief Executive Officer. Mr. D’Ambrosio has held a series of key leadership roles at Avaya, most recently as Senior Vice President and President, Global Sales and Marketing. The company’s Board of Directors also has appointed Mr. Michael Thurk, Avaya’s Senior Vice President and President, Global Communications Solutions, as Chief Operating Officer. The company also announced that Donald K. Peterson, who will be stepping down as President and CEO, will remain Avaya’s chairman of the board of directors through September 30, 2006.

“As seasoned Avaya executives with broad backgrounds in technology and communications, we believe Lou and Mike have the vision and drive to accelerate Avaya’s strategic transformation and deliver enhanced shareholder value. They are the natural choice to lead Avaya as customers increasingly leverage communications solutions for competitive advantage,” said Philip A. Odeen, Avaya’s lead director.

Mr. Odeen continued: “Lou has led a set of initiatives to establish Avaya’s market share leadership position in IP telephony. He has driven a customer centricity throughout the company and injected a software and services strategic thinking into Avaya’s direction. Mike has a record of developing cutting edge communication technology, dramatically improving the profitability of the products business and achieving leadership market positions.”

Mr. D’Ambrosio said, “I am looking forward to leading Avaya during this dynamic period in our industry. I believe that the transition by enterprises from their traditional communications systems to next-generation communications solutions presents substantial opportunities for Avaya. We intend to use our strengths—the size, scale and footprint of our global business, a broad range of software solutions and industry partners, and our financial strength—to help companies use intelligent communications to fundamentally transform their business processes.

As we move forward, we also intend to build on our existing partnerships and strategic alliances as well as develop new relationships. I am pleased to be partnering with Mike and the entire management team to help enable Avaya to reach its full potential.”

Mr. Thurk said, “Avaya is a company with a track record of innovation, talented people and solid growth potential. Lou and I share a vision for accelerating Avaya’s growth and making it an even stronger organization.”

Mr. Odeen commented, “On behalf of the Avaya Board, I want to extend our sincere thanks to Don for his leadership and valuable contributions to the company for more than six years, during a period of transformation in the industry. As Avaya’s first chief executive officer, Don established a track record of outstanding technology and services that have helped customers reduce costs and move their own businesses into the future. Under his guidance, Avaya has achieved financial stability, invested in key growth areas, developed important new products and led a successful effort to extend market leadership by building a new, global brand.”

Lou D’Ambrosio

D’Ambrosio has played key leadership roles on the Avaya Executive Council. In his most recent role as Avaya’s Senior Vice President and President, Global Sales and Marketing, D’Ambrosio led a team responsible for Avaya’s $5 billion revenue stream and achieving market share leadership* in IP telephony. He leads the company’s initiatives to translate technology innovation into customer solutions.

Previously at Avaya, D’Ambrosio led Avaya’s $2B Services business unit, which provides the most comprehensive full life-cycle services in the communications industry—including network consulting, deployment, integration, maintenance, and managed services.

Before joining Avaya in 2002, D’Ambrosio spent 16 years at IBM where he held leadership roles in IBM Global Services, Software, and Sales and Marketing. These roles included leading worldwide strategy for IBM Global Services, leading field operations for IBM Software, and heading up a vertical business unit in Asia Pacific. D’Ambrosio was a member of IBM’s worldwide management committee.

D’Ambrosio began his career with AT&T, in the same division that that has ultimately become Avaya.

D’Ambrosio received his M.B.A. from Harvard Business School and Bachelor of Science from Pennsylvania State University, summa cum laude.

Michael Thurk

As a member of Avaya’s executive team for the past four years and most recently as President of Global Communications Solutions, Thurk has helped lead Avaya’s efforts to develop and offer converged communication solutions to meet businesses’ needs worldwide. His vast experience in all aspects of data and IP communication has enabled Avaya to successfully collaborate with customers to assure current communications needs are met while providing customers with a leading edge vision for the future.

Thurk has more than 30 years of data and telecommunications experience, including management positions at Ericsson, Digital Equipment and several U.S. data communications companies. At Ericsson, he was Executive Vice President, Data Backbone and Optical Networks Division.

Before his assignment with Ericsson, he was president of Boston-based Xyplex Networks, a network equipment developer. Thurk was senior vice president for two years with General DataComm, with responsibility for marketing and service. Prior to that, he worked for 14 years with Digital Equipment, in senior roles and as a vice president responsible for enterprise network and telecommunications related businesses. He began his career at GTE.

Thurk has a B.S. in computer science from Purdue University, an M.B.A. from Babson College, and completed the Advanced Management Program at INSEAD in France.

Avaya will host a conference call today to discuss the company’s fiscal third quarter 2006 results at 5:00 PM EDT. A listen-only broadcast of the conference call and presentation notes can be accessed on the company’s website at www.avaya.com/investors. You also may listen to a replay of the conference call beginning at 8:00 p.m. EDT on July 24 through July 31, by dialing 800-642-1687 within the United States and 706-645-9291 outside the United States. The replay access code is 2009163.

About Avaya

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 was named the leader in U.S. Enterprise Telephony for the first quarter of 2006 according to InfoTech’s InfoTrack for Enterprise Communications, First Quarter 2006 Report. Avaya also finished 5.5 points ahead of its nearest competitor in global Enterprise Telephony market share for the first quarter, according to Dell ’Oro Group’s IP Telephony Enterprise Report, 1Q06.

Forward-Looking Statements

Statements made in this press release that relate to future performance or financial results of the Company are forward-looking statements which involve uncertainties that could cause actual performance or results to materially differ. Avaya undertakes no obligation to update any of these statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. Accordingly, any forward-looking statement should be read in conjunction with the additional information about risks and uncertainties set forth in Avaya’s Securities and Exchange Commission reports, including Avaya’s annual report on Form 10-K for the year ended September 30, 2005 and its quarterly report on Form 10-Q for the quarter ended March 31, 2006.

Delaware	1-15951	22-3713430
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

211 Mount Airy Road
Basking Ridge, NJ	07920
(Address of principal executive offices)	(Zip Code)

Media Inquiries:		Investor Inquiries:
W. Scott Horne		Matthew Booher
908-953-3476 (office)		908-953-7500 (office)
horne@avaya.com		mbooher@avaya.com