UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________

FORM 10-Q

________________________________________________



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2015



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-15951

________________________________________________

AVAYA INC.

(Exact name of registrant as specified in its charter)

________________________________________________



Delaware		22-3713430
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4655 Great America Parkway Santa Clara, California		95054
(Address of principal executive offices)		(Zip Code)

(908) 953-6000

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

*See Explanatory Note in Part II, Item 5

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of ~~May 8,~~August 5, 2015, 100 shares of Common Stock, $.01 par value, of the registrant were outstanding.

Table of Contents

TABLE OF CONTENTS


Item	Description	Page	Description	Page

	PART I—FINANCIAL INFORMATION		PART I—FINANCIAL INFORMATION
1.	Financial Statements	1	Financial Statements	1
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
3.	Quantitative and Qualitative Disclosures About Market Risk	46	Quantitative and Qualitative Disclosures About Market Risk	50
4.	Controls and Procedures	46	Controls and Procedures	50

	PART II—OTHER INFORMATION		PART II—OTHER INFORMATION
1.	Legal Proceedings	47	Legal Proceedings	51
1A.	Risk Factors	47	Risk Factors	51
2.	Unregistered Sales of Equity Securities and Use of Proceeds	47	Unregistered Sales of Equity Securities and Use of Proceeds	51
3.	Defaults Upon Senior Securities	47	Defaults Upon Senior Securities	51
4.	Mine Safety Disclosures	47	Mine Safety Disclosures	51
5.	Other Information	47	Other Information	51
6.	Exhibits	48	Exhibits	52
	Signatures	49	Signatures	54

When we use the terms “we,” “us,” “our,” “Avaya” or the “Company,” we mean Avaya Inc., a Delaware corporation, and its consolidated subsidiaries taken as a whole, unless the context otherwise indicates.

This Quarterly Report on Form 10-Q contains the registered and unregistered Avaya Aura^®, AvayaLive, Avaya Scopia^® and other trademarks or service marks of Avaya and are the property of Avaya Inc. and/or its affiliates. This Quarterly Report on Form 10-Q also contains additional tradenames, trademarks or service marks belonging to us and to other companies. We do not intend our use or display of other parties’ trademarks, tradenames or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

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PART I—FINANCIAL INFORMATION



Item 1.	Financial Statements.

Avaya Inc.

Consolidated Statements of Operations (Unaudited)

(In millions)


	Three months ended March 31,						Six months ended March 31,						Three months ended June 30,						Nine months ended June 30,
	2015			2014			2015			2014			2015			2014			2015			2014
REVENUE
Products	$	487		$	532		$	1,036		$	1,106		$	494		$	511		$	1,530		$	1,617
Services	508			528			1,038			1,085			505			543			1,543			1,628
	995			1,060			2,074			2,191			999			1,054			3,073			3,245
COSTS
Products:
Costs (exclusive of amortization of acquired technology intangible assets)	182			206			385			434			186			199			571			633
Amortization of acquired technology intangible assets	7			14			16			28			10			14			26			42
Services	214			243			443			492			219			234			662			726
	403			463			844			954			415			447			1,259			1,401
GROSS PROFIT	592			597			1,230			1,237			584			607			1,814			1,844
OPERATING EXPENSES
Selling, general and administrative	356			397			730			790			356			365			1,086			1,155
Research and development	86			101			174			196			82			93			256			289
Amortization of acquired intangible assets	57			57			114			115			55			56			169			171
Restructuring charges, net	10			42			25			49			7			45			32			94
	509			597			1,043			1,150			500			559			1,543			1,709
OPERATING INCOME	83			—			187			87			84			48			271			135
Interest expense	(110		)	(116		)	(222		)	(235		)	(113		)	(112		)	(335		)	(347		)
Loss on extinguishment of debt	—			(4		)	—			(4		)	(6		)	(1		)	(6		)	(5		)
Other (expense) income, net	(1		)	(2		)	13			(1		)	(11		)	(7		)	2			(8		)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	(28		)	(122		)	(22		)	(153		)	(46		)	(72		)	(68		)	(225		)
Benefit from (provision for) income taxes of continuing operations	6			(1		)	3			(27		)
(Provision for) benefit from income taxes of continuing operations													(3		)	8			—			(19		)
LOSS FROM CONTINUING OPERATIONS	(22		)	(123		)	(19		)	(180		)	(49		)	(64		)	(68		)	(244		)
Income from discontinued operations, net of income taxes	—			27			—			30			—			2			—			32
NET LOSS	$	(22	)	$	(96	)	$	(19	)	$	(150	)	$	(49	)	$	(62	)	$	(68	)	$	(212	)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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Avaya Inc.

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In millions)

Three months ended March 31, Six months ended March 31,
2015 2014 2015 2014
Net loss $ (22 ) $ (96 ) $ (19 ) $ (150 )
Other comprehensive income (loss):
Pension, postretirement and postemployment benefit-related items, net of tax of $10 and $11 for the three and six months ended March 31, 2015 and $9 and $9 for the three and six months ended March 31, 2014, respectively 7
4
24
15
Cumulative translation adjustment, net of tax benefit of $0 and $0 for the three and six months ended March 31, 2015 and $1 and $1 for the three and six months ended March 31, 2014, respectively 66
—
76
(15 )
Other —
(1 ) —
(1 )
Other comprehensive income (loss) 73
3
100
(1 )
Comprehensive income (loss) $ 51
$ (93 ) $ 81
$ (151 )



	Three months ended June 30,						Nine months ended June 30,
	2015			2014			2015			2014
Net loss	$	(49	)	$	(62	)	$	(68	)	$	(212	)
Other comprehensive (loss) income:
Pension, postretirement and postemployment benefit-related items, net of tax benefit of $7 and $18 for the three and nine months ended June 30, 2015 and $5 and $14 for the three and nine months ended June 30, 2014, respectively	10			9			34			24
Cumulative translation adjustment, net of tax benefit of $0 and $0 for the three and nine months ended June 30, 2015 and $1 and $2 for the three and nine months ended June 30, 2014, respectively	(25		)	4			51			(11		)
Other	—			—			—			(1		)
Other comprehensive (loss) income	(15		)	13			85			12
Comprehensive (loss) income	$	(64	)	$	(49	)	$	17		$	(200	)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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Avaya Inc.

Consolidated Balance Sheets (Unaudited)

(In millions, except per share and shares amounts)


	March 31, 2015			September 30, 2014			June 30, 2015			September 30, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	332		$	322		$	328		$	322
Accounts receivable, net	688			745			647			745
Inventory	190			197			179			197
Deferred income taxes, net	23			24			20			24
Other current assets	216			211			215			211
TOTAL CURRENT ASSETS	1,449			1,499			1,389			1,499
Property, plant and equipment, net	278			281			280			281
Deferred income taxes, net	47			52			42			52
Acquired intangible assets, net	1,093			1,224			1,038			1,224
Goodwill	4,053			4,047			4,075			4,047
Other assets	91			99			96			99
TOTAL ASSETS	$	7,011		$	7,202		$	6,920		$	7,202
LIABILITIES
Current liabilities:
Debt maturing within one year	$	19		$	19		$	7		$	19
Accounts payable	384			416			375			416
Payroll and benefit obligations	217			228			218			228
Deferred revenue	722			668			679			668
Business restructuring reserve, current portion	95			86			77			86
Other current liabilities	235			254			264			254
TOTAL CURRENT LIABILITIES	1,672			1,671			1,620			1,671
Long-term debt	5,920			5,949			5,947			5,949
Pension obligations	1,395			1,535			1,379			1,535
Other postretirement obligations	266			273			267			273
Deferred income taxes, net	255			249			259			249
Business restructuring reserve, non-current portion	70			119			76			119
Other liabilities	410			475			409			475
TOTAL NON-CURRENT LIABILITIES	8,316			8,600			8,337			8,600
Commitments and contingencies
STOCKHOLDER'S DEFICIENCY
Common stock, par value $.01 per share; 100 shares authorized, issued and outstanding	—			—			—			—
Additional paid-in capital	2,973			2,962			2,977			2,962
Accumulated deficit	(4,850		)	(4,831		)	(4,899		)	(4,831		)
Accumulated other comprehensive loss	(1,100		)	(1,200		)	(1,115		)	(1,200		)
TOTAL STOCKHOLDER'S DEFICIENCY	(2,977		)	(3,069		)	(3,037		)	(3,069		)
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY	$	7,011		$	7,202		$	6,920		$	7,202

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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Avaya Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In millions)


	Six months ended March 31,						Nine months ended June 30,
	2015			2014			2015			2014
OPERATING ACTIVITIES:
Net loss	$	(19	)	$	(150	)	$	(68	)	$	(212	)
Income from discontinued operations, net of income taxes	—			30			—			32
Loss from continuing operations	(19		)	(180		)	(68		)	(244		)
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
Depreciation and amortization	186			237			279			336
Share-based compensation	11			14			15			20
Amortization of debt issuance costs	7			7			10			11
Accretion of debt discount	3			2			5			4
Non-cash charge for debt issuance costs upon redemption of debt	—			2			3			3
Third-party fees expensed in connection with the debt modification	—			2			8			2
Provision for uncollectible receivables	1			1
Payment of paid-in-kind interest							(1		)	(9		)
Deferred income taxes, net	(19		)	(31		)	—			(33		)
Unrealized (gain) loss on foreign currency exchange	(5		)	6
Gain on sale of investments and long-lived assets, net							(1		)	—
Unrealized loss on foreign currency exchange							6			4
Changes in operating assets and liabilities:
Accounts receivable	55			44			103			57
Inventory	1			23			12			38
Accounts payable	(22		)	(10		)	(33		)	(24		)
Payroll and benefit obligations	(54		)	(79		)	(72		)	(144		)
Business restructuring reserve	(17		)	(22		)	(34		)	(6		)
Deferred revenue	70			27			17			12
Other assets and liabilities	(53		)	(11		)	(64		)	(6		)
NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES	145			32			185			21
NET CASH PROVIDED BY DISCONTINUED OPERATING ACTIVITIES	—			4			—			4
NET CASH PROVIDED BY OPERATING ACTIVITIES	145			36			185			25
INVESTING ACTIVITIES:
Capital expenditures	(67		)	(59		)	(92		)	(94		)
Capitalized software development costs	—			(1		)	—			(1		)
Acquisition of businesses, net of cash acquired	(6		)	(11		)	(18		)	(14		)
Proceeds from sale of long-lived assets	—			61			—			61
Proceeds from sale-leaseback transactions	15			—			15			—
Proceeds from sale of investments	—			1			1			1
Purchase of investment							(1		)	(10		)
Other investing activities, net	(2		)	—			(2		)	—
NET CASH USED FOR CONTINUING INVESTING ACTIVITIES	(60		)	(9		)	(97		)	(57		)
NET CASH PROVIDED BY DISCONTINUED INVESTING ACTIVITIES	—			98			—			98
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES	(60		)	89			(97		)	41
FINANCING ACTIVITIES:
Proceeds from term B-6 loans	—			1,136
Repayment of term B-5 loans	—			(1,138		)
Proceeds from borrowings under multi-currency revolver	50			—
Repayments of borrowings under multi-currency revolver	(70		)	—
Proceeds from Term B-7 Loans							2,100			—
Repayment of Term B-3 Loans							(1,473		)	—
Repayment of Term B-6 Loans							(581		)	—
Proceeds from Term B-6 Loans							—			1,136
Repayment of Term B-5 Loans							—			(1,138		)
Proceeds from Foreign ABL							20			—
Proceeds from Domestic ABL							—			40
Proceeds from borrowings on revolving loans under the Senior Secured Credit Agreement							50			100
Repayments of borrowings on revolving loans under the Senior Secured Credit Agreement							(122		)	—
Repayment of senior unsecured cash pay notes							—			(58		)
Repayment of senior unsecured PIK toggle notes							—			(83		)
Debt issuance and debt modification costs	—			(10		)	(14		)	(10		)
Repayment of long-term debt	(19		)	(19		)	(25		)	(28		)
Payments related to sale-leaseback transactions	(5		)	—			(8		)	—
Other financing activities, net	(2		)	3			(3		)	2
NET CASH USED FOR FINANCING ACTIVITIES	(46		)	(28		)	(56		)	(39		)
Effect of exchange rate changes on cash and cash equivalents	(29		)	(1		)	(26		)	—
NET INCREASE IN CASH AND CASH EQUIVALENTS	10			96			6			27
Cash and cash equivalents at beginning of period	322			288			322			288
Cash and cash equivalents at end of period	$	332		$	384		$	328		$	315

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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AVAYA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.	Background, Merger and Basis of Presentation

Background

Avaya Inc. together with its consolidated subsidiaries (collectively, the “Company” or “Avaya”) is a leading provider of contact center, unified communications and networking products and services. The Company's products and services portfolio spans software, hardware, networking technology and professional services. The Company conducts its business operations in three segments. Two of those segments, Global Communications Solutions and Avaya Networking, make up Avaya's Enterprise Collaboration Solutions product portfolio. The third segment contains Avaya’s services portfolio and is called Avaya Global Services.

The Company sells directly through its worldwide sales force and through its global network of channel partners. As of ~~March 31,~~June 30, 2015, Avaya had approximately ~~11,100~~11,300 channel partners, including distributors, service providers, dealers, value-added resellers, system integrators and business partners that provide sales and service support.

Merger

Avaya is a wholly owned subsidiary of Avaya Holdings Corp., a Delaware corporation (“Parent”). Parent was formed by affiliates of two private equity firms, Silver Lake Partners (“Silver Lake”) and TPG Capital (“TPG”) (collectively, the “Sponsors”). Silver Lake and TPG, through Parent, acquired Avaya in a transaction that was completed on October 26, 2007 (the “Merger”).

Acquisition of the Enterprise Solutions Business of Nortel Networks Corporation

On December 18, 2009, Avaya acquired certain assets and assumed certain liabilities of the enterprise solutions business (“NES”) of Nortel Networks Corporation out of bankruptcy court proceedings, for an adjusted purchase price of $933 million. The terms of the acquisition did not include any significant contingent consideration arrangements.

Acquisition of RADVISION Ltd.

On June 5, 2012, Avaya acquired RADVISION Ltd. (“Radvision”) for $230 million. Radvision is a global provider of videoconferencing and telepresence technologies over internet protocol (“IP”) and wireless networks. The terms of the acquisition did not include any significant contingent consideration arrangements.

Divestiture of IT Professional Services Business

Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements as of ~~March 31,~~June 30, 2015 and for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 include the accounts of Avaya Inc. and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial statements, and should be read in conjunction with the Consolidated Financial Statements and other financial information for the fiscal year ended September 30, 2014, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on November 26, 2014. The significant accounting policies used in preparing these unaudited interim Consolidated Financial Statements are the same as those described in Note 2 to those audited Consolidated Financial Statements except for recently adopted accounting guidance as discussed in Note 2 “Recent Accounting Pronouncements” of these unaudited interim Consolidated Financial Statements. In management’s opinion, these unaudited interim Consolidated Financial Statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the financial condition, results of operations and cash flows for the periods indicated. The consolidated results of operations for the interim periods reported are not necessarily indicative of the results to be experienced for the entire fiscal year.

As a result of the divestiture of the ITPS business, the results of operations and cash flows of this business have been classified as discontinued operations in all periods presented. ~~The consolidated results of operations for the interim periods reported are not necessarily indicative of the results to be experienced for the entire fiscal year.~~

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2.	Recent Accounting Pronouncements

New Accounting Guidance Recently Adopted

In the first quarter of fiscal 2015, the Company adopted Accounting Standards Update ("ASU") No. 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The standard requires the netting of unrecognized tax benefits (“UTBs”) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. UTBs are required to be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. The relevant presentation and disclosures have been applied prospectively and the Company has reclassed amounts from other liabilities to deferred tax liabilities.

In April 2015, the FASB issued ASU 2015-03 “Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The standard requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The Company adopted this guidance in the second quarter of fiscal 2015, which has been applied retrospectively. As a result of the adoption of this standard, unamortized debt issuance costs of $13 million originally included in other current assets and $42 million originally included in other assets, were reclassified as a reduction of debt maturing within one year and long-term debt, respectively, in the Consolidated Balance Sheet as of September 30, 2014.

Recent Accounting Guidance Not Yet Effective

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09 “Revenue from Contracts with Customers.” The standard supersedes most of the current revenue recognition guidance under GAAP and is intended to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. This ~~accounting~~new guidance is effective for the Company beginning in the first quarter of fiscal ~~2018; early~~2019. Early adoption is ~~not permitted.~~permitted in the first quarter of fiscal 2018. The ASU may be applied retrospectively (a) to each reporting period presented or (b) with the cumulative effect in retained earnings at the beginning of the adoption period. The Company is currently evaluating the method of adoption and the impact that the adoption of this accounting guidance may have on its Consolidation Financial Statements.

In August 2014, the FASB issued ASU No. 2014-15 "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." The standard requires management to evaluate, at each annual and interim reporting period, the company's ability to continue as a going concern within one year of the date the financial statements are issued and provide related disclosures. This accounting guidance is effective for the Company on a prospective basis beginning in the first quarter of fiscal 2017 and is not expected to have a material effect on its Consolidated Financial Statements.

In January 2015, the FASB issued ASU No. 2015-01 "Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items." The standard eliminated from GAAP the concept of extraordinary items. This accounting guidance is effective for the Company on a prospective basis beginning in the first quarter of fiscal 2016 and is not expected to have a material effect on its Consolidated Financial Statements.


3.	Business Combinations

Other ~~Acquisition~~Acquisitions

During the ~~six~~nine months ended ~~March 31,~~June 30, 2015, the Company completed ~~an acquisition~~acquisitions primarily to enhance the ~~Company’s~~Company's technology ~~portfolio for an~~portfolio. The aggregate purchase price ~~of $10~~for these acquisitions was $35 million and are subject to working capital and ~~other~~ customary adjustments. The ~~acquisition has~~acquisitions have been accounted for under the acquisition method. The acquired intangible assets associated with ~~this acquisition~~these acquired entities were not material. These unaudited Consolidated Financial Statements include the operating results of the acquired entities since their respective acquisition dates. The revenues and expenses specific to these acquired entities and their pro forma results are not material to these unaudited Consolidated Financial Statements.

IT Navigator

On October 1, 2013, Avaya acquired IT Navigator, Ltd. (“IT Navigator”), a global provider of Cloud, social media and management products and services. The integration of the Avaya and IT Navigator portfolios has added key management reporting and social media capabilities and enhanced Avaya's Cloud as well as its unified communication and contact center products. These unaudited Consolidated Financial Statements include the operating results of IT Navigator since October 1, 2013. The terms of the acquisition did not include any significant contingent consideration arrangements.

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These unaudited consolidated financial statements include the operating results of the acquired entities since their respective acquisition dates. The revenues and expenses specific to these businesses and their pro forma results are not material to these unaudited consolidated financial statements.


4.	Divestitures

IT Professional Services Business

On March 31, 2014, the Company completed the sale of the ITPS business of its wholly-owned subsidiary, Avaya Government Solutions Inc. for an initial sales price of $98 million, net of $2 million in costs to sell and subject to working capital and other customary price adjustments. Subsequent to the sale, positive working capital adjustments of $3 million were identified, and the final sales price of the ITPS business as adjusted is $101 million. The ITPS business, which was part of the Avaya Global Services segment, provides specialized information technology services exclusively to government customers in the U.S. The Company retained its Federal product sales and services teams and continues to sell unified communications, collaboration, contact center and networking products and services to Federal, state and municipal governments under the name Avaya Government Solutions.

Discontinued Operations

~~Summarized~~The summarized financial information ~~relating to the Company's~~of ITPS is reported as discontinued operations ~~are~~ as follows:


In millions	Three months ended March 31, 2014			Six months ended March 31, 2014			Three months ended June 30, 2014			Nine months ended June 30, 2014
SERVICES REVENUE	$	26		$	53		$	—		$	53
OPERATING INCOME FROM DISCONTINUED OPERATIONS	$	3		$	7		$	—		$	7
Gain on sale of ITPS business	49			49			3			52
INCOME FROM DISCONTINUED OPERATIONS BEFORE INCOME TAXES	52			$	56		3			$	59
Provision for income taxes from discontinued operations	(25		)	(26		)	(1		)	(27		)
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES	$	27		$	30		$	2		$	32

Technology Business Unit

On July 31, 2014, the Company completed the sale of assets and liabilities associated with the Technology Business Unit ("TBU") for a final sales price of $26 million. TBU, which was acquired as part of the Radvision acquisition, is a software development business that licenses technologies to developers for their use and integration into their own products and includes protocol stacks, client framework solutions, and network testing and monitoring tools.


5.	Goodwill and Acquired Intangible Assets

Goodwill

Goodwill is not amortized but is subject to periodic testing for impairment in accordance with GAAP at the reporting unit level, which is one level below the Company’s operating segments. The test for impairment is conducted annually each July 1^st or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company determined that no events occurred or circumstances changed during the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 that would more likely than not reduce the fair value of any of the Company's reporting units below their respective carrying amounts. However, if market conditions deteriorate, it may be necessary to record impairment charges in the future.

Acquired Intangible Assets

Acquired intangible assets include acquired technology, customer relationships, trademarks and trade-names and other intangibles. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five years to fifteen years.

Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

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Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually each July 1^st or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Certain of the Company’s trademarks and trade names are expected to generate cash flow indefinitely. Consequently, these assets are classified as indefinite-lived intangibles.

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The Company determined that no events had occurred or circumstances changed during the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 that would indicate that its long-lived assets, including intangible assets with finite lives, may not be recoverable or that it is more likely than not that its intangible assets with indefinite lives are impaired. However, if market conditions deteriorate, it may be necessary to record impairment charges in the future.


6.	Supplementary Financial Information

Supplemental Operations Information


	Three months ended March 31,						Six months ended March 31,						Three months ended June 30,						Nine months ended June 30,
In millions	2015			2014			2015			2014			2015			2014			2015			2014
OTHER (EXPENSE) INCOME, NET
Interest income	$	1		$	1		$	1		$	1		$	—		$	—		$	1		$	1
(Loss) gain on foreign currency transactions	(1		)	(2		)	5			—			(3		)	1			2			1
Third party fees incurred in connection with debt modifications	—			(2		)	—			(2		)	(8		)	—			(8		)	(2		)
Venezuela hyperinflationary and devaluation charges	—			(2		)	—			(2		)	—			—			—			(2		)
Change in certain tax indemnifications	—			3			9			3			—			(8		)	9			(5		)
Other, net	(1		)	—			(2		)	(1		)	—			—			(2		)	(1		)
Total other (expense) income, net	$	(1	)	$	(2	)	$	13		$	(1	)	$	(11	)	$	(7	)	$	2		$	(8	)


7.	Business Restructuring Reserve and Programs

Fiscal 2015 Restructuring Program

During fiscal 2015, the Company continued to identify opportunities to streamline operations and generate costs savings which included eliminating employee positions. During the ~~six~~nine months ended ~~March 31,~~June 30, 2015, the Company recognized restructuring charges of ~~$25~~$32 million, net. These charges included employee separation costs of ~~$18~~$24 million primarily associated with fiscal 2015 employee severance actions in the U.S. and Europe, Middle East and Africa ("EMEA"), for which the related payments are expected to be completed in fiscal 2019. The separation charges include, but are not limited to, social pension fund payments and health care and unemployment insurance costs to be paid to or on behalf of the affected employees. As the Company continues to evaluate opportunities to streamline its operations, it may identify cost savings globally and ~~identify~~take additional ~~operational synergies, additional cost saving opportunities that may exist.~~restructuring actions in the future and the costs of those actions could be material.

The following table summarizes the components of the fiscal 2015 restructuring program during the ~~six~~nine months ended ~~March 31,~~June 30, 2015:


In millions	Employee Separation Costs			Lease Obligations		Total			Employee Separation Costs			Lease Obligations		Total
2015 restructuring charges	$	18		$	1	$	19		$	24		$	1	$	25
Cash payments	(7		)	—		(7		)	(12		)	—		(12		)
Impact of foreign currency fluctuations	(1		)	—		(1		)	(1		)	—		(1		)
Balance as of March 31, 2015	$	10		$	1	$	11
Balance as of June 30, 2015									$	11		$	1	$	12

Fiscal 2014 Restructuring Program

During fiscal 2014, the Company continued to identify opportunities to streamline operations and generate costs savings which included exiting facilities and eliminating employee positions. Restructuring charges recorded during fiscal year 2014 associated with these initiatives, net of adjustments to previous periods, were $165 million. These charges included employee separation costs of $155 million, primarily associated with employee severance actions of $123 million in EMEA and $24 million in the U.S. The EMEA charges ~~include~~included plans in the third and fourth quarters of fiscal 2014 for the elimination of 121 and 165 positions and resulted in a charge of $26 million and $39 million, respectively, for which the related payments are expected to be completed in fiscal 2019. The separation charges include, but are not limited to, social pension fund payments

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and health care and unemployment insurance costs to be paid to or on behalf of the affected employees. The charges in the U.S. included an enhanced separation plan that was offered to certain employees ~~that will result~~and resulted in the elimination of 172 positions and a restructuring charge of $10 million, for which the related payments are expected to be completed in fiscal 2015.

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Restructuring charges also included $9 million of lease obligations primarily in the U.S. The future lease obligations, net of estimated sublease income, related to operating lease obligations for unused space in connection with vacating or consolidating facilities during fiscal 2014 are expected to continue through fiscal 2022.

The following table summarizes the components of the fiscal 2014 restructuring program during the ~~six~~nine months ended ~~March 31,~~June 30, 2015:


In millions	Employee Separation Costs			Lease Obligations			Total			Employee Separation Costs			Lease Obligations			Total
Balance as of October 1, 2014	$	115		$	7		$	122		$	115		$	7		$	122
Cash payments	(17		)	(2		)	(19		)	(30		)	(3		)	(33		)
Adjustments ⁽¹⁾	—			2			2			—			3			3
Impact of foreign currency fluctuations	(14		)	—			(14		)	(11		)	—			(11		)
Balance as of March 31, 2015	$	84		$	7		$	91
Balance as of June 30, 2015										$	74		$	7		$	81


⁽¹⁾	Included in adjustments are changes in estimates, whereby all increases and decreases in costs related to the fiscal 2014 restructuring program are recorded to the restructuring charges line item in operating expenses in the period of the adjustment.

Fiscal 2008 through 2013 Restructuring Programs

During fiscal years 2008 through 2013, the Company identified opportunities to streamline operations and generate cost savings which included exiting facilities and eliminating employee positions. The payments related to the headcount reductions identified in those programs are expected to be completed in fiscal 2018. Future rental payments, net of estimated sublease income, related to operating lease obligations for unused space in connection with the closing or consolidation of facilities are expected to continue through fiscal 2021.

The following table aggregates the remaining components of the fiscal 2008 through 2013 restructuring programs during the ~~six~~nine months ended ~~March 31,~~June 30, 2015:


In millions	Employee Separation Costs			Lease Obligations			Total			Employee Separation Costs			Lease Obligations			Total
Balance as of October 1, 2014	$	9		$	74		$	83		$	9		$	74		$	83
Cash payments	(5		)	(10		)	(15		)	(6		)	(14		)	(20		)
Adjustments⁽¹⁾	1			3			4			1			3			4
Impact of foreign currency fluctuations	(2		)	(7		)	(9		)	(1		)	(6		)	(7		)
Balance as of March 31, 2015	$	3		$	60		$	63
Balance as of June 30, 2015										$	3		$	57		$	60

⁽¹⁾

Included in adjustments are changes in estimates, whereby all increases and decreases in costs related to the fiscal 2009 through 2013 restructuring programs are recorded to the restructuring charges line item in operating expenses in the period of the adjustment. Included in adjustments are changes in estimates whereby all increases in costs related to the fiscal 2008 restructuring reserve are recorded in the restructuring charges line item in operating expenses in the period of the adjustments and decreases in costs are recorded as adjustments to goodwill.

In furtherance of the restructuring programs noted above and cost saving initiatives to consolidate facilities, on January 14, 2014, the Company completed the sale of its Westminster, Colorado facility. In connection with the sale of the facility, in December 2013 the Company changed its estimate of the salvage value and the useful life of the building to reflect the expected sales price and closing date for the sale, respectively. The changes to the estimated salvage value and the useful life resulted in $35 million of additional depreciation expense for the ~~six~~nine months ended ~~March 31,~~June 30, 2014.


8.	Financing Arrangements

In connection with the Merger, on October 26, 2007, the Company entered into financing arrangements consisting of a senior secured credit facility (the "Senior Secured Credit Agreement"), a senior unsecured credit facility, which later became senior unsecured notes, and a senior secured multi-currency asset-based revolving credit facility (the "Domestic ABL"), certain of which arrangements were subsequently amended ~~on December 18, 2009~~ in connection with an acquisition and debt refinancing transactions.

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~~connection with the acquisition of NES and amended on February 11, 2011 in connection with a debt refinancing.~~ During fiscal 2015 and 2014, the Company entered into transactions to refinance certain term loans under its ~~senior secured credit facility with a new tranche of term loans. Also during fiscal 2014, the Company~~Senior Secured Credit Agreement and redeemed its senior unsecured notes due 2015 through cash on-hand and borrowings under the Company's revolving credit facilities.

~~Principal amounts of long term debt and long term debt net of discounts and issuance costs consists of the following:~~

March 31,
2015 September 30,
2014
In millions Principal Amount Net of Discounts and Issuance Costs Principal Amount Net of Discounts and Issuance costs
Variable rate senior secured multi-currency asset-based revolving credit facility due October 26, 2016 $ 40
$ 40
$ 40
$ 40
Variable rate senior secured multi-currency revolver due October 26, 2016 70
69
90
88
Variable rate senior secured term B-3 loans due October 26, 2017 2,090
2,071
2,102
2,079
Variable rate senior secured term B-4 loans due October 26, 2017 1
1
1
1
Variable rate senior secured term B-6 loans due March 31, 2018 1,121
1,109
1,128
1,113
7% senior secured notes due April 1, 2019 1,009
998
1,009
996
9% senior secured notes due April 1, 2019 290
285
290
285
10.50% senior secured notes due March 1, 2021 1,384
1,366
1,384
1,366
Total debt $ 6,005
5,939
$ 6,044
5,968
Debt maturing within one year (19 ) (19 )
Non-current portion of long-term debt $ 5,920
$ 5,949

On February 5, 2014, Avaya Inc., Citibank, N.A., ("Citibank") and the lenders party thereto entered into Amendment No. 8 to the Senior Secured Credit ~~Agreement pursuant to which the Cash Flow Credit Agreement was amended.~~Agreement. Pursuant to the amendment, the Company refinanced in full all of the outstanding senior secured term B-5 loans ("Term B-5 Loans") with the cash proceeds from the issuance of $1,138 million aggregate principal balance of senior secured term B-6 loans ("Term B-6 Loans") under the ~~Cash Flow~~Senior Secured Credit Agreement.

The February 5, 2014 amendment of the ~~Cash Flow~~Senior Secured Credit Agreement was accounted for as a modification of debt to the extent the existing ~~term~~Term B-5 ~~loans~~Loans were refinanced with ~~term~~Term B-6 ~~loans~~Loans issued to the same creditor and an extinguishment of debt to the extent refinanced with ~~term~~Term B-6 ~~loans~~Loans issued to a different creditor. Accordingly, for the portion accounted for as a debt extinguishment the difference between the reacquisition price (including any unamortized premium and debt issue costs) of $4 million was recognized as a loss upon debt extinguishment during ~~fiscal~~nine months ended June 30, 2014. Third party expenses of $2 million associated with the modification of debt were expensed as incurred and included in other income, net during ~~fiscal~~the nine months ended June 30, 2014.

On May 15, 2014, Avaya redeemed 100% of the aggregate principal amount of the Company’s 10.125%/10.875% senior unsecured PIK toggle notes due 2015 and 9.75% senior unsecured cash-pay notes due 2015 at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, orof $92 million and $58 million, respectively. The redemption price of $150 million was funded through cash on-hand of $10 million, borrowings of $100 million under the revolver portion of the ~~Cash Flow~~Senior Secured Credit Agreement ~~(the “CF Draw”)~~ and borrowings of ~~$40~~$40 million under the Domestic ABL.

On May 29, 2015, Avaya Inc., Citibank, and the lenders party thereto entered into Amendment No. 9 to the Senior Secured Credit Agreement. Pursuant to the amendment the Company refinanced a portion of the outstanding Term B-3, B-4 and B-6 Loans in exchange for and with the proceeds from the issuance of $2,125 million in principal amount of senior secured ~~asset-based credit facility (the “ABL Draw”~~term B-7 loans ("Term B-7 Loans").

maturing May 29, 2020. The ~~senior secured multi-currency revolver available under~~Term B-7 Loans bear interest at a rate per annum equal to either a base rate (subject to a floor of 2.00%) or a LIBOR rate (subject to a floor of 1.00%), in each case plus an applicable margin. The base rate is determined by reference to the ~~Cash Flow Agreement allows~~higher of (1) the prime rate of Citibank and (2) the federal funds effective rate plus 0.50%. The applicable margin for borrowings of upTerm B-7 Loans is 4.25% per annum with respect to base rate borrowings and 5.25% per annum with respect to LIBOR borrowings, in each case, subject to increase pursuant to the terms of the Senior Secured Credit Agreement.

The May 29, 2015 amendment of the Senior Secured Credit Agreement was accounted for as a modification of debt to the extent the existing Term B-3, B-4 and B-6 Loans were refinanced with Term B-7 Loans issued to the same creditor and an extinguishment of debt to the extent refinanced with Term B-7 Loans issued to a different creditor. Accordingly, for the portion accounted for as a debt extinguishment the difference between the reacquisition price (including any unamortized discount and debt issue costs) of $6 million was recognized as a loss upon debt extinguishment during the nine months ended June 30, 2015. Third party expenses of $8 million associated with the modification of debt were expensed as incurred and included in other expense, net during the nine months ended June 30, 2015.

On June 4, 2015, Avaya Inc., Citicorp USA, Inc. and the lenders party thereto completed Amendment No. 4 to Domestic ABL which, among other things; (i) extended the stated maturity of the facility from October 26, 2016 to June 4, 2020 (subject to certain conditions specified in the Domestic ABL), (ii) increased the sublimit for letter of credit issuances under the Domestic ABL from $150 million to $200 ~~million. At March 31, 2015 and September 30, 2014, there were borrowings of $70~~ million, and ~~$90 million, respectively, in addition to $26 million~~(iii) amended certain covenants and ~~$0 million~~other provisions of ~~issued~~the existing agreement. At the same time, certain foreign subsidiaries of the Company (the "Foreign Borrowers"), Citibank and ~~outstanding letters of credit with~~ the ~~aggregate remaining revolver availability of $104 million and $110 million, respectively.~~

~~The Company's~~lenders party thereto entered into a new senior secured ~~multi-currency~~foreign asset-based revolving credit facility ~~allows for borrowings of up~~(the "Foreign ABL") which matures June 4, 2020 (subject to certain conditions specified in the Foreign ABL). Available credit under the Domestic ABL remains $335 million subject to availability under athe borrowing ~~base, of which~~base. Available credit under the Foreign ABL is $150 million ~~may be in~~subject to availability under the ~~form of letters of credit. The~~respective borrowing ~~base at any time equals the sum of 85% of eligible accounts receivable plus 85%~~bases of the ~~net orderly liquidation value~~Foreign Borrowers.

Borrowings under the Domestic ABL bear interest at a rate per annum equal to, at the Company's option, either (a) a LIBOR rate plus a margin of ~~eligible inventory, subject to certain reserves and other adjustments.~~1.75% or (b) a base rate plus a margin of 0.75%. At ~~March 31,~~June 30, 2015 and September 30, 2014, the Company had aggregate outstanding borrowings of $40 million and ~~$40~~$40 million,, respectively, in addition to ~~$120~~$145 million and $79 million of issued and outstanding letters of credit with aggregate remaining revolver availability of ~~$115~~$40 million and ~~$207~~$207 million,~~, respectively.~~ respectively, under the Domestic ABL.

The Foreign ABL provides senior secured financing of up to $150 million, subject to availability under the respective borrowing bases of the Foreign Borrowers. The total borrowing base for all Foreign Borrowers at any time equals the sum of (i) 85% of eligible accounts receivable of the Foreign Borrowers, plus (ii) 85% of the net orderly liquidation value of eligible inventory of the Canadian Foreign Borrower and Irish Foreign Borrower, subject to certain reserves and other adjustments. The Foreign ABL includes borrowing capacity available for letters of credit and for Canadian or European swingline loans, and is available in Euros, Canadian dollars and British pound sterling in addition to U.S. dollars.

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Under the Foreign ABL the Foreign Borrowers have the right to request up to $30 million of additional commitments. The lenders under the Foreign ABL are not under any obligation to provide any such additional commitments, any increase in commitments is subject to certain conditions precedent and any borrowing in respect of such increased commitments would be subject to the borrowing base under the Foreign ABL at such time. At June 30, 2015 the Company had aggregate outstanding borrowings of $20 million, no outstanding letters of credit and remaining revolver availability of $81 million under the Foreign ABL.

Borrowings under the Foreign ABL bear interest at a rate per annum equal to, at the Foreign Borrowers’ option depending upon the currency and type of the applicable borrowing, (a) a base rate determined by reference to the highest of (1) the prime rate of Citibank, (2) the federal funds effective rate plus 0.50% and (3) the sum of 1.00% plus the LIBOR rate for a thirty day interest period as determined on such day, (b) a Canadian prime rate determined by reference to the higher of (1) the base rate of Citibank, Canadian branch, and (2) the sum of 1.00% plus the CDOR rate for a thirty day interest period as determined on such day, (c) a LIBOR rate, (d) a CDOR Rate, (e) a EURIBOR rate or (f) an overnight LIBOR rate, in each case plus an applicable margin. The initial applicable margin for borrowings under the Foreign ABL on June 4, 2015 was equal to (1) 0.75% per annum with respect to base rate and Canadian prime rate borrowings and (2) 1.75% per annum with respect to LIBOR, CDOR or EURIBOR borrowings. The applicable margin for borrowings under the Foreign ABL is subject to a step down based on average historical excess availability under the Foreign ABL. Swingline loans bear interest at a rate per annum equal to, in the case of swingline loans to the Canadian Foreign Borrower, the base rate if denominated in U.S. Dollars or the Canadian prime rate if denominated in Canadian dollars and, in the case of swingline loans to the UK Foreign Borrower, the Irish Foreign Borrower or the German Foreign Borrowers, the base rate if denominated in U.S. Dollars or the overnight LIBOR rate if denominated in Euros or British pound sterling. In addition to paying interest on outstanding principal under the Foreign ABL, the Foreign Borrowers are required to pay a commitment fee of 0.25% per annum in respect of the unutilized commitments thereunder. The Foreign Borrowers must also pay customary letter of credit fees equal to the applicable margin on LIBOR, CDOR and EURIBOR loans and agency fees.

On June 5, 2015, the Company permanently reduced the revolving credit commitments under its Senior Secured Credit Agreement from $200 million to $18 million and all letters of credit outstanding under the Senior Secured Credit Agreement were transferred to the Domestic ABL. At June 30, 2015 and September 30, 2014 there was $18 million and $90 million in outstanding loan balances and $0 million and $0 million issued and outstanding letters of credit. The Company expensed unamortized debt costs of less than $1 million during the nine months ended June 30, 2015 associated with the modifications.

The weighted average contractual interest rate of the Company’s outstanding debt as of ~~March 31,~~June 30, 2015 and September 30, 2014 was ~~6.9%~~7.3% and 6.9%, respectively. The effective interest rate of each obligation is not materially different than its contractual interest rate. As of ~~March 31,~~June 30, 2015 and September 30, 2014,, the Company was not in default under any of its debt agreements.

Principal amounts of long term debt and long term debt net of discounts and issuance costs consists of the following:



	June 30, 2015					September 30, 2014
In millions	Principal Amount		Net of Discounts and Issuance Costs			Principal Amount		Net of Discounts and Issuance Costs
Variable rate revolving loans under the Senior Secured Credit Agreement due October 26, 2016	$	18	$	18		$	90	$	88
Variable rate revolving loans under the Domestic ABL due June 4, 2020 ⁽¹⁾	40		40			40		40
Variable rate revolving loans under the Foreign ABL due June 4, 2020 ⁽¹⁾	20		20			—		—
Variable rate Term B-3 Loans due October 26, 2017	616		611			2,102		2,079
Variable rate Term B-4 Loans due October 26, 2017	1		1			1		1
Variable rate Term B-6 Loans due March 31, 2018	537		532			1,128		1,113
Variable rate Term B-7 Loans due May 29, 2020	2,119		2,081			—		—
7% senior secured notes due April 1, 2019	1,009		998			1,009		996
9% senior secured notes due April 1, 2019	290		286			290		285
10.50% senior secured notes due March 1, 2021	1,384		1,367			1,384		1,366
Total debt	$	6,034	5,954			$	6,044	5,968
Debt maturing within one year			(7		)			(19		)
Non-current portion of long-term debt			$	5,947				$	5,949

(1) Maturity date is subject to certain conditions specified in the respective ABL Agreements.

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Annual maturities of long-term debt for the next five years ending September 30 and thereafter consist of:


In millions
Remainder of fiscal 2015	$	19	$	6
2016	38		25
2017	148		43
2018	3,117		1,179
2019	1,299		1,324
2020 and thereafter	1,384		3,457
Total	$	6,005	$	6,034

Capital Lease Obligations

Included in other liabilities is ~~$62~~$59 million and $59 million of capital lease obligations, net of imputed interest as of ~~March 31,~~June 30, 2015 and September 30, 2014, respectively, which includes assets under a sale-leaseback arrangement and an office facility.

On August 20, 2014, the Company entered into an agreement to outsource certain delivery services associated with the Avaya Private Cloud Services business. That agreement also included the sale of specified assets owned by the Company which are being leased-back by Avaya and accounted for as a capital lease. Under the terms of the agreement, additional financing is also available to Avaya and its subsidiaries of up to $24 million per year for the sale of equipment used in the performance of services under the agreement, provided that no material adverse change with respect to the Company has occurred or is continuing as of the date any such financing is requested. During the ~~six~~nine months ended ~~March 31,~~June 30, 2015, the Company received $15 million in cash proceeds in connection with the sale of equipment used in the performance of services under this agreement. As of ~~March 31,~~June 30, 2015 and September 30, 2014, capital lease obligations associated with this agreement were ~~$46~~$45 million and $40 million, respectively.


9.	Derivatives and Other Financial Instruments

Interest Rate Swaps

From time to time, the Company has entered into interest rate swap agreements to manage the amount of its floating rate debt in order to reduce its exposure to variable rate interest payments associated with certain borrowings under the ~~Cash Flow~~Senior Secured Credit Agreement. As of and during the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 there were no outstanding interest rate swap agreements.

Foreign Currency Forward Contracts

The Company utilizes foreign currency forward contracts primarily to manage short-term exchange rate exposures on certain receivables, payables and intercompany loans residing on foreign subsidiaries’ books, which are denominated in currencies other than the subsidiary’s functional currency. When those items are revalued into the subsidiaries’ functional currencies at the month-end exchange rates, the fluctuations in the exchange rates are recognized in the Consolidated Statements of Operations as other (expense) income, net. Changes in the fair value of the Company’s foreign currency forward contracts used to offset these exposed items are also recognized in the Consolidated Statements of Operations as other (expense) income, net in the period in which the exchange rates change.

The gains and (losses) of the foreign currency forward contracts included in other (expense) income, net were $3$(4) million and $2 million for the three months ended ~~March 31,~~June 30, 2015 and 2014, respectively, and $~~(1)~~(5) million and $24 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, respectively.

The following table summarizes the estimated fair value of the foreign currency forward contracts:


In millions
Balance Sheet Location	March 31, 2015			September 30, 2014			June 30, 2015			September 30, 2014
Other current assets	$	1		$	—		$	1		$	—
Other current liabilities	(1		)	(2		)	(1		)	(2		)
Net Asset (Liability)	$	—		$	(2	)	$	—		$	(2	)

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10.	Fair Value Measures

Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants

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at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

The accounting guidance for fair value measurements also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The inputs are prioritized into three levels that may be used to measure fair value:

Level 1: Inputs that reflect quoted prices for identical assets or liabilities in active markets that are observable.

Level 2: Inputs that reflect quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3: Inputs that are unobservable to the extent that observable inputs are not available for the asset or liability at the measurement date.

Asset and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of ~~March 31,~~June 30, 2015 and September 30, 2014 were as follows:


	March 31, 2015								June 30, 2015
	Fair Value Measurements Using								Fair Value Measurements Using
In millions	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other Current Assets:
Foreign currency forward contracts	$	1	$	—	$	1	$	—	$	1	$	—	$	1	$	—
Other Non-Current Assets:
Investments	$	1	$	1	$	—	$	—	$	1	$	1	$	—	$	—
Other Current Liabilities:
Foreign currency forward contracts	$	1	$	—	$	1	$	—	$	1	$	—	$	1	$	—



	September 30, 2014
	Fair Value Measurements Using
In millions	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other Non-Current Assets:
Investments	$	1	$	1	$	—	$	—
Other Current Liabilities:
Foreign currency forward contracts	$	2	$	—	$	2	$	—

Foreign Currency Forward Contracts

Foreign currency forward contracts classified as Level 2 assets and liabilities are priced using quoted market prices for similar assets or liabilities in active markets.

Investments

Investments classified as Level 21 assets and liabilities are priced using quoted market prices for identical assets ~~which~~in active markets that are ~~subject to infrequent transactions (i.e., a less active market).~~observable.

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Fair Value of Financial Instruments

The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to the extent the underlying liability will be settled in cash, approximate carrying values because of the short-term nature of these instruments.

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On October 3, 2011 and October 3, 2012, the Company advanced $8 million and $10 million, respectively, to Parent in exchange for a note receivable. The proceeds of such notes were used by Parent to fund, in part, an acquisition of all outstanding shares of a unified communications solutions provider. Immediately upon completing the acquisition, Parent merged the acquired entity with and into Avaya Inc., with Avaya Inc. surviving the merger.

The principal amount of these notes plus any accrued and unpaid interest are due in full January 24, 2019 (as modified) and October 28, 2017 (as modified) with interest at the rate of 1.65% (as modified) and 1.85% (as modified) per annum, respectively. These notes are included in other assets in the Company's Consolidated Balance Sheets. The estimated fair value of the $8 million note receivable was $7 million and $6 million at ~~March 31,~~June 30, 2015 and September 30, 2014, respectively. The estimated fair value of the $10 million note receivable was $9 million and $9 million at ~~March 31,~~June 30, 2015 and September 30, 2014, respectively. The estimated fair value of each note was determined based on a Level 2 input using discounted cash flow techniques.

The estimated fair values of the amounts borrowed under the Company's revolving credit facilities at ~~March 31,~~June 30, 2015 were estimated based on a Level 2 input using discounted cash flow techniques. Significant inputs to the discounted cash flow model include projected future cash flows based on projected LIBOR rates, and the average margin for companies with similar credit ratings and similar maturities. The estimated fair values of all other amounts borrowed under the Company’s financing arrangements at ~~March 31,~~June 30, 2015 and September 30, 2014 were estimated based on a Level 2 input using quoted market prices for the Company’s debt which is subject to infrequent transactions (i.e. a less active market).

The estimated fair values of the amounts borrowed under the Company’s credit agreements at ~~March 31,~~June 30, 2015 and September 30, 2014 are as follows:


	March 31, 2015				September 30, 2014				June 30, 2015				September 30, 2014
In millions	Principal Amount		Fair Value		Principal Amount		Fair Value		Principal Amount		Fair Value		Principal Amount		Fair Value
Variable rate senior secured multi-currency asset-based revolving credit facility due October 26, 2016	$	40	$	38	$	40	$	38
Variable rate senior secured multi-currency revolver due October 26, 2016	70		68		90		86
Variable rate senior secured term B-3 loans due October 26, 2017	2,090		2,063		2,102		2,002
Variable rate senior secured term B-4 loans due October 26, 2017	1		1		1		1
Variable rate senior secured term B-6 loans due March 31, 2018	1,121		1,118		1,128		1,116
Variable rate revolving loans under the Senior Secured Credit Agreement due October 26, 2016									$	18	$	18	$	90	$	86
Variable rate revolving loans under the Domestic ABL due June 4, 2020 ⁽¹⁾									40		35		40		38
Variable rate revolving loans under the Foreign ABL due June 4, 2020 ⁽¹⁾									20		17		—		—
Variable rate Term B-3 Loans due October 26, 2017									616		611		2,102		2,002
Variable rate Term B-4 Loans due October 26, 2017									1		1		1		1
Variable rate Term B-6 Loans due March 31, 2018									537		534		1,128		1,116
Variable rate Term B-7 Loans due May 29, 2020									2,119		2,045		—		—
7% senior secured notes due April 1, 2019	1,009		1,006		1,009		975		1,009		988		1,009		975
9% senior secured notes due April 1, 2019	290		298		290		294		290		297		290		294
10.50% senior secured notes due March 1, 2021	1,384		1,179		1,384		1,204		1,384		1,152		1,384		1,204
Total	$	6,005	$	5,771	$	6,044	$	5,716	$	6,034	$	5,698	$	6,044	$	5,716

(1) Maturity date is subject to certain conditions specified in the respective ABL Agreements.


11.	Income Taxes

The ~~benefit from~~provision for income taxes of continuing operations for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $3$0 million ~~as compared to the provision for income taxes of continuing operations of $27~~and $19 million, ~~for the six months ended March 31, 2014.~~respectively.

The effective rate for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 differs from the statutory U.S. Federal income tax rate primarily due to (1) the effect of tax rate differentials on foreign income/loss, (2) changes in the valuation allowance established against the Company’s deferred tax assets, (3) net reductions for unrecognized tax benefits resulting from the lapse of statute of limitations offset by increases due to tax positions taken during the current period, (4) recognition of a $6 million income tax benefit related to the correction of prior period valuation allowances on deferred income tax assets, and (5) recognition of ~~a $11~~an $18 million income tax benefit as a result of net gains in other comprehensive income.

During the three months ended December 31, 2014, the Company recorded a correction to prior period valuation allowance on deferred tax assets. This adjustment decreased the provision for income taxes of continuing operations by $6 million; prior to this adjustment, the Company's provision for income taxes of continuing operations was $3$6 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2015. The Company evaluated the correction in relation to the ~~six~~nine months ended ~~March 31,~~June 30, 2015, the expected full

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year results for fiscal 2015, as well as the period in which the adjustment originated, and concluded that the adjustment was not material to the current or any prior fiscal year.

The effective rate for the ~~six~~nine months ended ~~March 31,~~June 30, 2014 differs from the statutory U.S. federal income tax rate primarily due to (1) the effect of tax rate differentials on foreign income/loss, (2) changes in the valuation allowance established against the Company’s deferred tax assets, (3) ~~recognition~~reductions in the Company's unrecognized tax benefits of ~~an $8~~$35 million ~~income~~resulting from the settlement of certain international tax ~~benefit as a result of net gain in other~~

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~~comprehensive income, and~~exams, (4) recognition of a $22 million income tax benefit as a result of net gains in income from discontinued ~~operations.~~operations, (5) recognition of an $11 million income tax benefit as a result of net gains in other comprehensive income, and (6) recognition of a $7 million income tax benefit related to the correction of prior year deferred income tax assets and liabilities for certain non-U.S. legal entities.

During the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, the Company recorded a tax charge of ~~$11~~$18 million and $8$11 million, respectively, related to net gains included in other comprehensive income and during the ~~six~~nine months ended ~~March 31,~~June 30, 2014 recorded a tax charge of $22 million related to discontinued operations. As a result of the charges to other comprehensive income and discontinued operations for these tax effects the Company recognized an income tax benefit in continuing operations as less current period valuation allowance was required against the Company's deferred tax assets in each period.

During the three months ended June 30, 2014, the Company recorded a correction to prior period deferred income tax assets and liabilities for certain non-U.S. legal entities. This adjustment decreased the provision for income taxes of continuing operations by $7 million. Prior to this adjustment the Company's provision for income taxes of continuing operations was $26 million for the nine months ended June 30, 2014. The Company evaluated the correction in relation to the three and nine months ended June 30, 2014, the expected full year results for fiscal 2014, as well as the periods in which the adjustment originated, and concluded that the adjustment is not material to this period or any prior quarter or year.

For interim financial statement purposes, U.S. GAAP income tax expense related to ordinary income is determined by applying an estimated annual effective income tax rate against the Company's ordinary income. Income tax expense/benefit related to items not characterized as ordinary income is recognized as a discrete item when incurred. The estimation of the Company's annual effective income tax rate requires the use of management forecasts and other estimates, a projection of jurisdictional taxable income and losses, application of statutory income tax rates, and an evaluation of valuation allowances. The Company's estimated annual effective income tax rate may be revised, if necessary, in each interim period during the fiscal year.


12.	Benefit Obligations

The Company sponsors non-contributory defined benefit pension plans covering a portion of its U.S. employees and retirees, and postretirement benefit plans covering a portion of its U.S. retirees that include healthcare benefits and life insurance coverage. Certain non-U.S. operations have various retirement benefit programs covering substantially all of their employees. Some of these programs are considered to be defined benefit pension plans for accounting purposes.

The Company froze benefit accruals and additional participation in the pension and postretirement plans for its U.S.

management employees effective December 31, 2003. The Company also amended the postretirement plan for its

U.S. management employees effective January 1, 2013, to terminate retiree dental coverage, and to cease providing

medical and prescription drug coverage to a retiree, dependent, or lawful spouse who has attained age 65, and effective January 1, 2015, to reduce the Company's maximum contribution toward the cost of providing benefits under the plan.

Effective November 25, 2013 and January 31, 2014, the Company entered into a two-year contract extensions with the Communications Workers of America (“CWA”) and the International Brotherhood of Electrical Workers (“IBEW”), respectively. With the contract extensions, the contracts with the CWA and IBEW now terminate on June 13, 2016. The contract extensions did not affect the Company's obligation for pension and postretirement benefits available to U.S. employees of the Company who are represented by the CWA or IBEW (“represented employees”).

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The components of the pension and postretirement net periodic benefit cost (credit) for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 are provided in the table below:



	Pension Benefits - U.S.						Pension Benefits - Non-U.S.					Postretirement Benefits - U.S.
	Three months ended June 30,						Three months ended June 30,					Three months ended June 30,
In millions	2015			2014			2015		2014			2015			2014
Components of Net Periodic Benefit Cost
Service cost	$	1		$	2		$	2	$	1		$	—		$	—
Interest cost	34			36			3		5			5			6
Expected return on plan assets	(45		)	(43		)	—		(1		)	(2		)	(3		)
Amortization of unrecognized prior service cost	1			—			—		—			(4		)	(3		)
Amortization of previously unrecognized net actuarial loss	24			21			1		1			2			1
Net periodic benefit cost	$	15		$	16		$	6	$	6		$	1		$	1


	Pension Benefits - U.S.						Pension Benefits - Non-U.S.					Postretirement Benefits - U.S.						Pension Benefits - U.S.						Pension Benefits - Non-U.S.						Postretirement Benefits - U.S.
	Three months ended March 31,						Three months ended March 31,					Three months ended March 31,						Nine months ended June 30,						Nine months ended June 30,						Nine months ended June 30,
In millions	2015			2014			2015		2014			2015			2014			2015			2014			2015			2014			2015			2014
Components of Net Periodic Benefit Cost
Service cost	$	1		$	1		$	1	$	2		$	1		$	1		$	3		$	4		$	5		$	5		$	1		$	1
Interest cost	34			37			4		6			5			5			102			109			11			16			15			17
Expected return on plan assets	(45		)	(42		)	—		(1		)	(3		)	(3		)	(134		)	(127		)	(1		)	(2		)	(7		)	(9		)
Amortization of unrecognized prior service cost	—			—			—		—			(3		)	(3		)	1			—			—			—			(10		)	(9		)
Amortization of previously unrecognized net actuarial loss	25			20			2		1			1			1			73			62			5			3			4			3
Net periodic benefit cost	$	15		$	16		$	7	$	8		$	1		$	1		$	45		$	48		$	20		$	22		$	3		$	3

~~Table~~During the three month period ended June 30, 2015, the Company approved and announced its plan to freeze the defined benefit pension plan in the Netherlands effective September 30, 2016, which resulted in the recognition of ~~Contents~~

Pension Benefits -
U.S.

Pension Benefits -
Non-U.S.

Postretirement
Benefits - U.S.
Six months ended March 31, Six months ended March 31, Six months ended March 31,
In millions 2015 2014 2015 2014 2015 2014
Components of Net Periodic Benefit Cost
Service cost $ 2
$ 2
$ 3
$ 4
$ 1
$ 1
Interest cost 68
73
8
11
10
11
Expected return on plan assets (89 ) (84 ) (1 ) (1 ) (5 ) (6 )
Amortization of unrecognized prior service cost —
—
—
—
(6 ) (6 )
Amortization of previously unrecognized net actuarial loss 49
41
4
2
2
2
Net periodic benefit cost $ 30
$ 32
$ 14
$ 16
$ 2
$ 2
a $1 million curtailment gain. This gain was offset by the recognition of a $1 million curtailment loss for a defined benefit pension plan in Germany, which was the result of a restructuring initiative.

The Company's general funding policy with respect to its U.S. qualified pension plans is to contribute amounts at least sufficient to satisfy the minimum amount required by applicable laws and regulations. For the ~~six~~nine month period ended ~~March 31,~~June 30, 2015, the Company made contributions of $3761 million to satisfy minimum statutory funding requirements. Estimated payments to satisfy minimum statutory funding requirements for the remainder of fiscal 2015 are $5528 million.

The Company provides certain pension benefits for U.S. employees, which are not pre-funded, and certain pension benefits for non-U.S. employees, the majority of which are not pre-funded. Consequently, the Company makes payments as these benefits are disbursed or premiums are paid. For the ~~six~~nine month period ended ~~March 31,~~June 30, 2015, the Company made payments for these U.S. and non-U.S. pension benefits totaling $35 million and $1721 million, respectively. Estimated payments for these U.S. and non-U.S. pension benefits for the remainder of fiscal 2015 are $42 million and $96 million, respectively.

During the ~~six~~nine months ended ~~March 31,~~June 30, 2015, the Company contributed $812 million to the represented employees’ post-retirement health trust to fund current benefit claims and costs of administration in compliance with the terms of the agreements between the Company and the CWA and IBEW. Estimated contributions under the terms of the agreements are $1611 million for the remainder of fiscal 2015.

The Company also provides certain retiree medical benefits for U.S. employees, which are not pre-funded. Consequently, the Company makes payments as these benefits are disbursed. For the ~~six~~nine month period ended ~~March 31,~~June 30, 2015, the Company made payments totaling $4 million for these retiree medical benefits. Estimated payments for these retiree medical benefits for the remainder of fiscal 2015 are $21 million.

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13.	Reportable Segments

Avaya conducts its business operations in three segments. Two of those segments, Global Communications Solutions (“GCS”) and Avaya Networking (“Networking”), make up Avaya’s Enterprise Collaboration Solutions (“ECS”) product portfolio. The third segment contains Avaya’s services portfolio and is called Avaya Global Services (“AGS”).

The GCS segment primarily develops, markets, and sells unified communications and contact center products by integrating multiple forms of communications, including telephone, e-mail, instant messaging and video. Avaya’s Networking segment’s portfolio of products offers integrated networking products which are scalable across customer enterprises. The AGS segment develops, markets and sells comprehensive end-to-end global service offerings that allow customers to evaluate, plan, design, implement, monitor, manage and optimize complex enterprise communications networks.

For internal reporting purposes, the Company’s chief operating decision maker makes financial decisions and allocates resources based on segment profit information obtained from the Company’s internal management systems. Management does not include in its segment measures of profitability selling, general, and administrative expenses, research and development expenses, amortization of intangible assets, and certain discrete items, such as charges relating to restructuring actions, impairment charges, and merger-related costs as these costs are not core to the measurement of segment management’s performance, but rather are controlled at the corporate level.

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Summarized financial information relating to the Company’s reportable segments is shown in the following table:


	Three months ended March 31,						Six months ended March 31,						Three months ended June 30,						Nine months ended June 30,
In millions	2015			2014			2015			2014			2015			2014			2015			2014
REVENUE
Global Communications Solutions	$	440		$	476		$	921		$	983		$	435		$	450		$	1,356		$	1,433
Avaya Networking	47			56			115			123			59			61			174			184
Enterprise Collaboration Solutions	487			532			1,036			1,106			494			511			1,530			1,617
Avaya Global Services	508			528			1,038			1,085			505			543			1,543			1,628
	$	995		$	1,060		$	2,074		$	2,191		$	999		$	1,054		$	3,073		$	3,245
GROSS PROFIT
Global Communications Solutions	$	289		$	304		$	603		$	618		$	287		$	287		$	890		$	905
Avaya Networking	16			26			48			58			21			27			69			85
Enterprise Collaboration Solutions	305			330			651			676			308			314			959			990
Avaya Global Services	294			289			596			598			286			309			882			907
Unallocated Amounts⁽¹⁾	(7		)	(22		)	(17		)	(37		)	(10		)	(16		)	(27		)	(53		)
	592			597			1,230			1,237			584			607			1,814			1,844
OPERATING EXPENSES
Selling, general and administrative	356			397			730			790			356			365			1,086			1,155
Research and development	86			101			174			196			82			93			256			289
Amortization of intangible assets	57			57			114			115			55			56			169			171
Restructuring charges, net	10			42			25			49			7			45			32			94
	509			597			1,043			1,150			500			559			1,543			1,709
OPERATING INCOME	83			—			187			87			84			48			271			135
INTEREST EXPENSE, LOSS ON EXTINGUISHMENT OF DEBT AND OTHER (EXPENSE) INCOME, NET	(111		)	(122		)	(209		)	(240		)	(130		)	(120		)	(339		)	(360		)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	$	(28	)	$	(122	)	$	(22	)	$	(153	)	$	(46	)	$	(72	)	$	(68	)	$	(225	)


⁽¹⁾	Unallocated Amounts in Gross Profit include the effect of the amortization of acquired technology intangibles and costs that are not core to the measurement of segment management’s performance, but rather are controlled at the corporate level.

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14.	Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss as of ~~March 31,~~June 30, 2015 and 2014 are summarized as follows:


In millions	Change in unamortized pension, postretirement and postemployment benefit-related items			Cumulative Translation Adjustment			Other			Accumulated Other Comprehensive Loss			Change in unamortized pension, postretirement and postemployment benefit-related items			Cumulative Translation Adjustment			Other			Accumulated Other Comprehensive Loss
Balance as of October 1, 2014	$	(1,150	)	$	(49	)	$	(1	)	$	(1,200	)	$	(1,150	)	$	(49	)	$	(1	)	$	(1,200	)
Other comprehensive income before reclassifications	—			76			—			76			—			51			—			51
Amounts reclassified to earnings	35			—			—			35			52			—			—			52
Provision for income taxes	(11		)	—			—			(11		)	(18		)	—			—			(18		)
Balance as of March 31, 2015	$	(1,126	)	$	27		$	(1	)	$	(1,100	)
Balance as of June 30, 2015													$	(1,116	)	$	2		$	(1	)	$	(1,115	)

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In millions	Change in unamortized pension, postretirement and postemployment benefit-related items			Cumulative Translation Adjustment			Other			Accumulated Other Comprehensive Loss			Change in unamortized pension, postretirement and postemployment benefit-related items			Cumulative Translation Adjustment			Other			Accumulated Other Comprehensive Loss
Balance as of October 1, 2013	$	(949	)	$	(56	)	$	(1	)	$	(1,006	)	$	(949	)	$	(56	)	$	(1	)	$	(1,006	)
Other comprehensive loss before reclassifications	—			(16		)	—			(16		)	—			(13		)	—			(13		)
Amounts reclassified to earnings	24			—			(1		)	23			38			—			(1		)	37
(Provision for) benefit from income taxes	(9		)	1			—			(8		)	(14		)	2			—			(12		)
Balance as of March 31, 2014	$	(934	)	$	(71	)	$	(2	)	$	(1,007	)
Balance as of June 30, 2014													$	(925	)	$	(67	)	$	(2	)	$	(994	)

The amounts reclassified out of accumulated other comprehensive loss into the Consolidated Statements of Operations prior to the impact of income taxes, with line item ~~location,~~locations, during the three and ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 were as follows:


	Three months ended March 31,					Six months ended March 31,						Three months ended June 30,				Nine months ended June 30,
In millions	2015		2014			2015		2014			Line item in Statements of Operations	2015		2014		2015		2014			Line item in Statements of Operations
Change in unamortized pension, postretirement and postemployment benefit-related items	$	4	$	3		$	9	$	6		Costs - Products	$	4	$	4	$	13	$	10		Costs - Products
	4		3			9		6			Costs - Services	4		4		13		10			Costs - Services
	7		6			14		10			Selling, general and administrative	8		5		22		15			Selling, general and administrative
	2		1			3		2			Research and development	1		1		4		3			Research and development
	17		13			35		24				17		14		52		38
Other	—		(1		)	—		(1		)	Other (expense) income, net	—		—		—		(1		)	Other (expense) income, net
Total amounts reclassified to operations	$	17	$	12		$	35	$	23			$	17	$	14	$	52	$	37


15.	Commitments and Contingencies

Legal Proceedings

In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations and proceedings, including, but not limited to, those identified below, relating to intellectual property, commercial, employment, environmental and regulatory matters.

The Company believes that it has meritorious defenses in connection with its current lawsuits and material claims and disputes, and intends to vigorously contest each of them.

Based on the Company's experience, management believes that the damages amounts claimed in a case are not a meaningful indicator of the potential liability. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of cases.

Other than as described below, in the opinion of the Company's management based upon information currently available to the Company, while the outcome of these lawsuits, claims and disputes is uncertain, the likely results of these lawsuits, claims and disputes are not expected, either individually or in the aggregate, to have a material adverse effect on the Company's financial

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position, results of operations or cash flows, although the effect could be material to the Company's results of operations or cash flows for any interim reporting period.

Antitrust Litigation

In 2006, the Company instituted an action in the U.S. District Court, District of New Jersey, against defendants Telecom Labs, Inc., TeamTLI.com Corp. and Continuant Technologies, Inc. (“TLI/Continuant”) and subsequently amended its complaint to include certain individual officers of these companies as defendants. Defendants purportedly provide maintenance services to customers who have purchased or leased the Company's communications equipment. The Company asserted in its amended complaint that, among other things, defendants, or each of them, engaged in tortious conduct by improperly accessing and utilizing the Company's proprietary software, including passwords, logins and maintenance service permissions, to perform certain maintenance services on the Company's customers' equipment. TLI/Continuant filed counterclaims against the Company alleging that the Company has violated the Sherman Act's prohibitions against anticompetitive conduct through the manner in which the Company sells its products and services. TLI/Continuant sought to recover the profits they claim they would have earned from maintaining Avaya's products, and asked for injunctive relief prohibiting the conduct they claim is anticompetitive.

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The trial commenced on September 9, 2013. On January 8, 2014, the Court issued an opinion dismissing the Company's affirmative claims. With respect to TLI/Continuant’s counterclaims, on March 27, 2014, a jury found against the Company on two of eight claims and awarded damages of $20 million. Under the federal antitrust laws, the jury’s award is subject to automatic trebling, or $60 million.

Following the jury verdict, TLI/Continuant sought an injunction regarding the Company’s ongoing business operations. On June 30, 2014, a federal judge rejected the demands of TLI/Continuant’s proposed injunction and stated that “only a narrow injunction is appropriate.” Instead, the judge issued an order relating to customers who purchased an Avaya PBX system between January 1, 1990 and April 30, 2008 only. Those customers and their agents will have free access to the on demand maintenance commands that were installed on their systems at the time of the purchase transaction. The court specified that this right “does not extend to access on a system purchased after April 30, 2008.” Consequently, the injunction affects only systems sold prior to April 30, 2008. The judge denied all other requests TLI/Continuant made in its injunction filing. The Company is complying with the injunction.

The Company and TLI/Continuant filed post-trial motions seeking to overturn the jury’s verdict, which motions were denied. In September 2014, the Court entered judgment in the amount of $63 million, which included the jury's award of $20 million, subject to automatic trebling, or $60 million, plus prejudgment interest in the amount of $3 million. On October 10, 2014, the Company filed a Notice of Appeal, and on October 23, 2014, TLI/Continuant filed a Notice of Conditional Cross-Appeal. On October 23, 2014, the Company filed its supersedeas bond with the Court in the amount of $63 million, which includes an amount for post-judgment interest and stays execution of the judgment while the matter is on appeal. The Company secured posting of the bond through the issuance of a letter of credit under its existing credit facilities. On November 10, 2014, TLI/Continuant made an application for attorney's fees, expenses and costs, which the Company is contesting. TLI/Continuant’s current application for attorneys’ fees, expenses and costs is approximately $65 million and represents activity through September 11, 2014. Once the initial application is resolved by the Court, the Company expects that TLI/Continuant will make a supplemental application for activity beyond September 11, 2014. Once required, and in order to stay the enforcement of any award for attorney’s fees, expenses and costs, on appeal or otherwise, the Company will post a bond in the amount of the award for attorney’s fees, expenses and costs, plus interest. The Company expects to secure posting of the bond through existing resources and may use any or a combination of the issuance of one or more letters of credit under its existing credit facilities and cash on hand.

The Company continues to believe that TLI/Continuant's claims are without merit and unsupported by the facts and law, and the Company intends to defend this matter, including by filing its appeal to the United States Court of Appeals for the Third Circuit. The Company ~~expects to file~~filed its initial appellate brief with the Third Circuit ~~in May~~on June 12, 2015 and briefing by the parties is scheduled to continue through ~~September 2015.~~November 18, 2015, after which the Third Circuit will likely schedule oral argument and then issue a written opinion. No loss reserve has been provided for this matter.

In the event TLI/Continuant ultimately succeed on appeal, any potential loss could be material. At this time an outcome cannot be predicted and, as a result, the Company cannot be assured that this case will not have a material adverse effect on the manner in which it does business, its financial position, results of operations, or cash flows.

Intellectual Property and Commercial Disputes

In the ordinary course of business, the Company is involved in litigation alleging it has infringed upon third parties’ intellectual property rights, including patents and copyrights; some litigation may involve claims for infringement against customers, distributors and resellers by third parties relating to the use of Avaya’s products, as to which the Company may provide indemnifications of varying scope to certain parties. The Company is also involved in litigation pertaining to general

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commercial disputes with customers, suppliers, vendors and other third parties including royalty disputes. These matters are on-going and the outcomes are subject to inherent uncertainties. As a result, the Company cannot be assured that any such matter will not have a material adverse effect on its financial position, results of operations or cash flows.

SNMP Research International, Inc. and SNMP Research, Inc. (collectively, “SNMP-RI”) brought a complaint, on November 2, 2011, against Avaya and Nortel Networks, Inc. (“Nortel”) (and others) in the Nortel Chapter 11 bankruptcy proceeding captioned In re Nortel Networks, Inc., 09-10138 (KG) (Bankr. D. Del.). In the complaint, SNMP-RI alleges that Avaya is liable to SNMP-RI for copyright and trade secret infringement with respect to Nortel products acquired by Avaya that incorporate SNMP-RI products. No trial date has been set. In a separate case pending in the United States District Court for the District of Delaware, SNMP-RI alleged that (i) Avaya either underreported or failed to report royalties owed to SNMP-RI under a license agreement and (ii) Avaya’s use of SNMP-RI software in certain ways constitutes copyright and trade secret infringement. Trial of this matter is currently scheduled to begin May 9, 2016.

In late 2014 SNMP-RI also brought two separate complaints against several of Avaya’s resellers or distributors, alleging essentially the same facts as in the matters described above. One case, filed in the U.S. District Court for the Northern District of Georgia, has been stayed. Avaya is waiting for a ruling on its motion to stay the second matter pending in the United States District Court for the District of Delaware.

Avaya believes it has meritorious defenses but at this time an outcome cannot be predicted and, as a result, the Company cannot be assured that this case will not have a material adverse effect on the manner in which it does business, its financial position, results of operations, or cash flows.

Other

In October 2009, a group of former employees of Avaya’s former Shreveport, Louisiana manufacturing facility brought suit in Louisiana state court, naming as defendants Alcatel-Lucent USA, Inc., Lucent Technologies Services Company, Inc., and AT&T Technologies, Inc. The former employees allege hearing loss due to hazardous noise exposure from the facility dating back over forty years, and stipulate that the total amount of each individual’s damages does not exceed fifty thousand dollars. In February 2010 plaintiffs amended their complaint to add the Company as a named defendant. There are 101 plaintiffs in the case. ~~The~~In light of the Louisiana Supreme Court’s holding in another hearing loss case (“Graphic Packaging”), in which the Court ~~has been presented a legal issue in a different case not involving the Company~~held that ~~could impact the outcome~~noise induced hearing loss qualifies as an occupational injury or disease subject to Workers’ Compensation claims, Avaya intends to file dispositive motions seeking dismissal of this ~~case; as a result, the trial court has stayed this matter pending resolution of the Supreme Court decision.~~ matter.

At this time an outcome cannot be predicted however, because the amounts of the claims individually and in the aggregate are not material, the Company believes the outcome of this matter will not have a material adverse effect on the manner in which it does business, its financial position, results of operations, or cash flows.

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General

The Company records accruals for legal contingencies to the extent that it has concluded it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described above because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes.

Product Warranties

The Company recognizes a liability for the estimated costs that may be incurred to remedy certain deficiencies of quality or performance of the Company’s products. These product warranties extend over a specified period of time generally ranging up to two years from the date of sale depending upon the product subject to the warranty. The Company accrues a provision for estimated future warranty costs based upon the historical relationship of warranty claims to sales. The Company periodically reviews the adequacy of its product warranties and adjusts, if necessary, the warranty percentage and accrued warranty reserve, which is included in other current and non-current liabilities in the Consolidated Balance Sheets, for actual experience.


In millions
Balance as of October 1, 2014	$	13		$	13
Reductions for payments and costs to satisfy claims	(6		)	(9		)
Accruals for warranties issued during the period	4			6
Balance as of March 31, 2015	$	11
Balance as of June 30, 2015				$	10

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Guarantees of Indebtedness and Other Off-Balance Sheet Arrangements

Letters of Credit

As of ~~March 31,~~June 30, 2015, the Company had ~~outstanding an aggregate~~$179 million of ~~$178 million in irrevocable~~outstanding letters of credit which ensure the Company's performance or payment to third parties. Included in this amount is $~~146~~145 million of letters of credit issued under~~its~~ ~~$535 million~~ ~~committed revolving credit facilities, which facilities are available through October 26, 2016. Also included is $32~~ the Domestic ABL and $34 million of letters of credit issued under other uncommitted facilities.

Surety Bonds

The Company arranges for the issuance of various types of surety bonds, such as license, permit, bid and performance bonds, which are agreements under which the surety company guarantees that the Company will perform in accordance with contractual or legal obligations. These bonds vary in duration although most are issued and outstanding from three months to three years. These bonds are backed by $71 million of the Company’s letters of credit and include the $63 million supersedeas bond filed with the Court in the TLI/Continuant matter discussed above. If the Company fails to perform under its obligations, the maximum potential payment under these surety bonds is $7677 million as of ~~March 31,~~June 30, 2015. ~~Historically, no surety bonds have been drawn upon.~~

Purchase Commitments and Termination Fees

The Company purchases components from a variety of suppliers and uses several contract manufacturers to provide manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and to help assure adequate component supply, the Company enters into agreements with contract manufacturers and suppliers that allow them to produce and procure inventory based upon forecasted requirements provided by the Company. If the Company does not meet these specified purchase commitments, it could be required to purchase the inventory, or in the case of certain agreements, pay an early termination fee. Historically, the Company has not been required to pay a charge for not meeting its designated purchase commitments with these suppliers, but has been obligated to purchase certain excess inventory levels from its outsourced manufacturers due to actual sales of product varying from forecast and due to transition of manufacturing from one vendor to another.

The Company’s outsourcing agreements with its most significant contract manufacturers automatically renew in July and September for successive periods of twelve months each, subject to specific termination rights for the Company and the contract manufacturers. All manufacturing of the Company’s products is performed in accordance with either detailed requirements or specifications and product designs furnished by the Company, and is subject to rigorous quality control standards.

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Long-Term Cash Incentive Bonus Plan

Parent has established a long-term incentive cash bonus plan (“LTIP”). Under the LTIP, Parent will make cash awards available to compensate certain key employees upon the achievement of defined returns on the Sponsors’ initial investment in the Parent (a “triggering event”). Parent has authorized LTIP awards covering a total of $60 million, of which $2523 million in awards were outstanding as of ~~March 31,~~June 30, 2015. The Company will begin to recognize compensation expense relative to the LTIP awards upon the occurrence of a triggering event (e.g., a sale or initial public offering). As of ~~March 31,~~June 30, 2015, no compensation expense associated with the LTIP has been recognized.

Credit Facility Indemnification

In connection with its obligations under the credit facilities described in Note 8, “Financing Arrangements,” the Company has agreed to indemnify the third-party lending institutions for costs incurred by the institutions related to changes in tax law or other legal requirements. While there have been no amounts paid to the lenders pursuant to this indemnity in the past, there can be no assurance that the Company will not be obligated to indemnify the lenders under this arrangement in the future. As of ~~March 31,~~June 30, 2015, no amounts have been accrued pursuant to this indemnity.

Transactions with Alcatel-Lucent

Pursuant to the Contribution and Distribution Agreement effective October 1, 2000, Lucent Technologies, Inc. (now Alcatel-Lucent) contributed to the Company substantially all of the assets, liabilities and operations associated with its enterprise networking businesses (the “Company’s Businesses”) and distributed the Company’s stock pro-rata to the shareholders of Lucent (“distribution”). The Contribution and Distribution Agreement, among other things, provides that, in general, the Company will indemnify Alcatel-Lucent for all liabilities including certain pre-distribution tax obligations of Alcatel-Lucent relating to the Company’s Businesses and all contingent liabilities primarily relating to the Company’s Businesses or otherwise assigned to the Company. In addition, the Contribution and Distribution Agreement provides that certain contingent liabilities not allocated to one of the parties will be shared by Alcatel-Lucent and the Company in prescribed percentages. The Contribution and Distribution Agreement also provides that each party will share specified portions of contingent liabilities based upon agreed percentages related to the business of the other party that exceed $50 million. The Company is unable to

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determine the maximum potential amount of other future payments, if any, that it could be required to make under this agreement.

The Tax Sharing Agreement governs Alcatel-Lucent’s and the Company’s respective rights, responsibilities and obligations after the distribution with respect to taxes for the periods ending on or before the distribution. Generally, pre-distribution taxes or benefits that are clearly attributable to the business of one party will be borne solely by that party, and other pre-distribution taxes or benefits will be shared by the parties based on a formula set forth in the Tax Sharing Agreement. The Company may be subject to additional taxes or benefits pursuant to the Tax Sharing Agreement related to future settlements of audits by state and local and foreign taxing authorities for the periods prior to the Company’s separation from Alcatel-Lucent.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Unless the context otherwise indicates, as used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the terms “we,” “us,” “our,” “the Company,” “Avaya” and similar terms refer to Avaya Inc. and its subsidiaries. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the unaudited interim Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. The matters discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Cautionary Note Regarding Forward-Looking Statements” at the end of this discussion.

Our accompanying unaudited interim Consolidated Financial Statements as of ~~March 31,~~June 30, 2015 and for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission, or the SEC, for interim financial statements, and should be read in conjunction with our Consolidated Financial Statements and other financial information for the fiscal year ended September 30, 2014, which were included in our Annual Report on Form 10-K filed with the SEC on November 26, 2014. In our opinion, the unaudited interim Consolidated Financial Statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair statement of the financial condition, results of operations and cash flows for the periods indicated.

Overview

We are a leading provider of contact center, unified communications and networking products and services designed to help enterprise and midmarket businesses increase workforce productivity, customer engagement, and customer lifetime value, with the ultimate objective of higher revenue and profitability for our customers.

Our products and services portfolio spans software, hardware, professional and support services, and cloud services. These fall under three reporting segments:

•Global Communications Solutions, or GCS, encompass all of our real-time collaboration, contact center and unified communications software and hardware. Unified communications integrates real-time communication services including telephony, e-mail, instant messaging and video. Examples in GCS include audio conferencing systems; mobile video software, software that runs contact center operations such as call routing; software that enables mobile access to the company network for employees; and hardware such as phones, gateways, and servers. This reporting segment also includes a development platform, which allows our customers and third parties to adapt our technology by creating custom applications, workflows, and environments for their unique needs and allows them to integrate Avaya’s capabilities into their existing infrastructure. GCS also includes cloud-supporting software and hardware products, which make it possible to use our contact center and unified communications products via the cloud.

•Avaya Networking includes our advanced fabric networking technology which offers a virtualized network designed to be simple to deploy, agile and resilient. This reporting segment also includes products such as Ethernet switches and routers; wireless networking; and access control products that enforce role- and policy- based access to the network. Our fabric networking technology is flexible and extensible to legacy network systems. It helps customers simplify their network environment and eliminate the need for manual individual configuration, implementation, and maintenance of each network component. It enables customers to reduce the multiple protocols necessary in legacy networks to a single, unified technology while maintaining their existing Ethernet network infrastructure, if desired.

•Avaya Global Services, or AGS, includes professional and support services designed to help our customers maximize the benefits of using our products and technology. Our services include support for implementation, deployment, monitoring, troubleshooting, optimization, and more. This reporting segment also includes our cloud and managed services, which enable customers to take advantage of our technology in a private, hybrid, or public cloud environment. The majority of our revenue in this reporting segment is recurring in nature, based on multi-year services contracts.

Initial Registration Statement of Parent

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remainder of the net proceeds, for working capital and other general corporate purposes, including repayment of a portion of our long-term indebtedness, the potential redemption of some or all of our Series A Preferred Stock and supporting our strategic growth opportunities in the future. The registration statement remains under review by the SEC and shares of common stock registered thereunder may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Form 10-Q and the pending registration statement shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of those securities in any State or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State or other jurisdiction. Further, there is no way to predict whether or not Parent will be successful in completing the offering as contemplated and if it is successful, we cannot be certain if, or how much of, the net proceeds will be used for the purposes identified above.

Our Products and Services

Avaya’s solutions are combinations of our products and services designed to help our customers address their customer and team engagement needs, before, during and after any transition they may make to a mobile- and cloud-enabled communications environment. We believe our unified communications, contact center, and networking technology can increase productivity and profitability for businesses of all sizes.

We aim to be the leader in our industry in addressing the customer needs and priorities resulting from recent trends and emerging challenges. We have invested in open, mobile enterprise communication and collaboration platforms and are well poised to serve a broad range of needs, from servicing ~~old~~older generation phone systems to deploying leading edge call center technology via the cloud. While we remain committed to our legacy capabilities and the customers who rely on them, in the past several years we have also responded to the emerging landscape by evolving our market and product approach in three important ways.

We have invested in research and development and new technologies to develop and provide more comprehensive contact center, unified communications, and networking products and services, continuing our focus on the enterprise while expanding the value we can provide to midmarket customers.

We have evolved our product design philosophy, anticipating demand for products that are ~~cloud-~~mobile- and ~~mobile enabled.~~cloud-enabled and which can be integrated into customers' workflows, processes, and applications. We also design our products to be flexible, extensible, secure and reliable. This allows our customers to transition from old communications and collaboration technology to newer technology in a way that is manageable and cost-effective.

We have increased our focus on packaging our products and services into “solutions” including Customer Engagement Solutions, Team Engagement Solutions, and Networking Solutions. These solutions address the challenges faced by our customers and offer the advantage of being customizable where necessary to meet customer needs.

With our products and services, packaged as solutions, we can address the needs of a diverse range of customers, including large multinational enterprises, small and medium-sized businesses, and government organizations. Our customers operate in a broad range of industries, including financial services, manufacturing, retail, transportation, energy, media and communications, healthcare, education and government.

Customer Engagement Solutions

Our Customer Engagement Solutions are designed to facilitate long-lasting and successful relationships between companies and their customers. The objective is to increase customer lifetime value, revenue, and profitability for our customers - even as they evolve to integrate more communications channels and mobile devices into their customer service strategies. These solutions are predominately made up of our contact center products and services, and supported by our networking technology and development environment. Some of the benefits of Avaya Customer Engagement Solutions include:

Improved customer experience: As businesses increasingly compete on customer experience, we offer products and services designed to incorporate multiple channels of communication, improve customer satisfaction and retention; increase referrals and customer acquisition; and increase cross-sell and upsell opportunities. For example, our intelligent routing and multi-modal integration software can help an enterprise or midmarket business deliver a seamless ongoing conversation with a customer, even if that conversation includes interactions by phone, chat, email, and social media. Our products and services are designed to drive consistency and increased satisfaction across touch points and enable better measurement of customer experience data for dispersion to other business units.

Contact center efficiency: We believe the contact center is at the heart of a successful customer engagement solution because it is a primary channel of communication between the customer and businesses, even as modes of contact expand to include social media, chat, and mobile apps. Our products and services are designed to help our customers achieve contact center efficiency through automation, by reducing operational costs and staffing impacts, eliminating resource constraints caused by repetitive requests and manual processes, and ensuring service level agreements as well as compliance requirements. For example, we might deploy our contact center platform with intelligent call routing

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and contact flow analytics software to help a customer better manage volume fluctuations and better match contact center resources to customer needs in real-time.

Revenue growth: Our solutions are designed to help our customers increase revenue through stronger and longer lasting customer relationships. We believe our solutions address this challenge by reducing complexity within the contact center and facilitating better sell-through, sell-in and sell-up performance. For example, we might deploy our Avaya Customer Experience Portal with software for proactive consumer outreach, to help a customer increase the efficiency and effectiveness of increasing repeat purchases and order sizes, while allowing the customer’s end-consumer to use his or her preferred communications channel for the interaction.

Team Engagement Solutions

Avaya Team Engagement Solutions are designed to offer businesses the simplicity of a single solution to address workforce communication and collaboration needs, including via mobile devices. These solutions are made up predominately of our real-time collaboration and unified communications products and services, and supported by our networking technology and development environment. Some of the benefits of Avaya Team Engagement Solutions include:

Communications modernization: Avaya helps modernize communications ecosystems by centralizing, consolidating and virtualizing underlying technology infrastructures and making applications available via the cloud. This model is designed to account for mobile device usage, reduce total cost of ownership for the entire collaboration environment and allow firms to transition from a capital expenditure to operating expenditure model. For example, an Avaya private cloud solution can be implemented to integrate virtualized voice, email, video, messaging, chat and conferencing capabilities. This enables cloud access to communications tools for desk-based and remote workers and improves security, delivering total cost of ownership efficiencies and rapid payback.

Worker productivity: Our conferencing, messaging, and other unified communications products and services are designed to help our customers integrate products that equally support desk-workers, teleworkers, and frequent business travelers, thereby increasing the mobility and productivity of their workforce. Our customers are increasingly demanding that individual workers be able to communicate across device types, channels and geographic locations knowing that their devices, data and connections are reliable and secure. For example, our customers using the Avaya Session Border Control can securely extend the corporate unified communications capabilities to a remote user on a mobile device and to desk phones in their remote and home offices.

Team productivity: Our unified communications products and services are designed to help our customers improve team productivity by diminishing the complexity of team collaboration channels, enabling off-the-shelf and customizable application integration, providing omni-channel conferencing across audio, web, and video for room, desktop, and mobile platforms. It also provides the opportunity to simplify and expand by moving conferencing services into the cloud. For example, the Avaya Scopia platform can enable employees or remote workers to collaborate using high-definition, secure video conferencing accessed through on-premise conference rooms, desktop systems, and mobile devices.

Examples of GCS products that may be part of a Customer or Team Engagement solution include, but are not limited to:

Avaya Aura Conferencing: A combination of hardware and software that provides simple access to multi-media collaboration. In the same application users can use voice, video, chat, and web conferencing. Based on the Avaya Aura architecture, Avaya Aura Conferencing is distributed and scalable to thousands of users. Its modular conception allows the system to be dimensioned appropriately in terms of video or web content servers or voice communications manager. The complementary Avaya Video Conferencing infrastructure includes Avaya Scopia Elite Multipoint Conferencing Units, or MCUs, reliable and highly scalable multi-party video conferencing platforms for enterprise and service provider environments. They offer advanced and easy-to-use multi-party infrastructure for video conferencing and are at the core of a high definition deployment. In addition, gateways for Microsoft Lync and Session Initiation Protocol, or SIP, provide connectivity and interoperability with unified communications products to standards-based video conferencing systems and infrastructure.

Avaya Aura Core: A next-generation architecture powering our customers’ communications and collaboration services. Based on IMS, an industry standard defined by 3GPP, this core (a blend of hardware and software) provides a flat communications control and management function using SIP methods. Unlike point-to-point SIP, or even standard client server SIP approaches used by most of our competitors, the Avaya Aura Core uses the SIP-ISC, or IMS Service Control, signaling standard to allow multiple independent applications to serve communication sessions. Avaya Aura can scale to hundreds of thousands of users, serving the small enterprise all the way through the largest enterprise customers in the world.

Avaya Aura Contact Center: Avaya Aura Contact Center lets customers connect with a company in ways beyond phone calls, including via text, IM, email, and chat. The omni-channel contact center solution gives agents the context (real-time and historical) to deliver a differentiated customer experience. It is designed to provide a unified, efficient, and highly personalized experience that builds brand and customer loyalty.

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Avaya Aura Call Center Elite: With intelligent routing and resource selection features, Avaya Aura Call Center Elite allows a business to determine if its customers should be served by the least busy agent, the first available agent, or the agent with skills that best match the customer’s needs. Calls can be routed across a pool of agents regardless of physical location.

Avaya IP Office: Avaya IP Office is a unified communications set of hardware and software products designed specifically for midmarket-sized customers. Avaya IP Office can be deployed on-premise or in the cloud. It was designed to simplify processes and streamline information exchange within companies. Communications capabilities can be added as needed. The latest version of Avaya IP Office (9.0) gives midmarket customers features and functions that large enterprises use, but at a scale that is efficient and affordable for them. Avaya IP Office delivers a seamless collaboration experience across voice, video, and mobility for up to 2,000 users.

IP Office Contact Center - Mid Market: New in 2014 and built to integrate with the IP Office Platform, this is a contact center software solution designed specifically for midmarket business needs. It enables seamless conversations for hundreds of agents across multiple modes of communication, including voice, email, chat, text, and fax.

Avaya Contact Center Select: New in 2014, this advanced software provides enterprise-level contact center capabilities to midmarket clients on the Avaya IP Office platform. It provides, among other things, omni-channel support (voice, email, chat, SMS, and fax) scalability for 30 - 250 agents and skills-based routing.

Avaya Scopia: A standards-based portfolio of hardware and software products that includes conference room systems, desktop and mobile video conferencing, and infrastructure and management. Available extensions include HD (high-definition) video-conference rooms, and mobile applications for video conferencing, control, and management on mobile devices.

AvayaLive Video: New in 2015, a cloud-based version of Avaya Scopia mobile video, employing a similar underlying architecture but delivered as a service via the AvayaLive web portal. It offers one-click access to a virtual conference room using mobile or desktop devices without the purchase of any additional on-premise technology.

Avaya Phones: Avaya’s range of desk phones and portable technologies include IP and digital desk phones, digital enhanced cordless telecommunications (DECT) handsets, wireless phones, docking stations for “bring-your-own-device (BYOD)”, and conference room phones. Avaya phones offer capabilities including touch screen and applications such as integration to corporate calendar, directory and presence, enhanced audio quality for a “you-are-there” experience, customization and soft keys, and multiple lines appearances.

The Avaya Engagement Development Platform: The Avaya Engagement Development Platform is a software platform that simplifies embedding robust communications and collaboration capabilities into business applications, such as CRM or Enterprise Resources Planning, or ERP. This platform allows customers, third parties, and Avaya to create customized engagement applications and environments to meet unique needs. Customers and third parties can integrate business applications with unified communications technology and contact center capabilities including voice, short message service or SMS, and email.

Networking Products

Our advanced fabric networking technology, based on open industry standards, is designed to deliver a virtualized network that is simple to deploy, agile to operate, and resilient. Many conventional networking technologies have complex architectures, layering protocols over protocols, making the network architecture fragile and significantly impeding the roll-out of real-time applications. Avaya’s fabric networking technology is called Fabric Connect. It helps customers simplify their network environment and eliminate the need for manual individual configuration, implementation, and maintenance of each network component. We believe Fabric Connect is currently capable of delivering many of the benefits that are promised in future implementations of software-defined networking. Fabric Connect reduces the multiple protocols necessary in legacy networks to a single, unified technology and is fully compatible with existing Ethernet networks. Unified access and network virtualization capabilities form the foundation of Avaya Networking Solutions. Benefits include:

Unified access: Our unified access solution is designed to securely extend both fixed and mobile BYOD policies and enable proactive provisioning, quality monitoring, and active application awareness and control.

Network virtualization: Our network virtualization products are designed to optimize the physical network, decrease network complexity, eliminate complex protocols, and integrate security features for the safe segmentation of data. All of this is intended to accelerate application and user deployment.

In addition to Fabric Connect, our networking product portfolio includes:

Ethernet Switches and Routers: a range of Ethernet Switches, Routers, and supporting software for data center, core, edge and branch applications;

Wireless Networking: cost-effective and scalable products that enable enterprises to support wireless connectivity and services;

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Access Control: products that enforce role- and policy-based access control to the network; and

Unified Management and Orchestration: products that provide support for data and voice networks by simplifying the requirements associated across functional areas.

Avaya Global Services

Avaya Global Services consult, enable, support, manage, optimize and even outsource enterprise communications products (applications and networks) to help customers achieve enhanced business results both directly and through partners. Avaya’s portfolio of services is designed to enable customers to mitigate risk, reduce total cost of ownership, and optimize communication products. Avaya Global Services is supported by patented design and management tools, and by network operations and technical support centers around the world.

Avaya’s Global Services portfolio is divided into Avaya Professional Services and Avaya Client Services.

Avaya Professional Services (APS)

APS helps organizations leverage technologies effectively to meet their business objectives. Our strategic and technical consulting, as well as deployment and customization services, help customers accelerate business performance and deliver an improved customer experience. Whether deploying new products or optimizing existing capabilities, APS leverages its specialists globally across three core areas:

Enablement Services: Provide access to expertise and resources for planning, defining and deploying Avaya products to maximize technology potential, simplify your business processes, increase security, and minimize risk. Avaya integrates and tests equipment, trains employees, and deploys a plan to help ensure success.

Optimization Services: Help drive increased value and greater business results by leveraging customers’ existing technology. Avaya consultants and product architects analyze a communications environment in the context of customer business priorities and strategies, working to increase customers’ ROI by implementing proven best practices, enabling operational improvements, and stress testing products and services.

Innovation Services: Help identify improved methods for using communications and collaboration to increase business productivity, employee efficiency and customer service levels. Our consultative approach, deep industry experience, and custom application services, from business planning through to execution and product integration, is designed to create alignment with customer’s specific business objectives.

Avaya Client Services (ACS)

ACS is a market-leading organization offering support, management and optimization of enterprise communications networks to help customers mitigate risk, reduce total cost of ownership, and optimize product performance. ACS is supported by patented design and management tools, and by network operations and technical support centers around the world. The contracts for these services range from one to multiple- years, with three year terms being the most common. Custom or complex services contracts are typically five years in length. The portfolio of ACS services includes:

Global Support Services (GSS): Provides a comprehensive suite of support options both directly and through partners to proactively resolve issues and improve uptime. Support offers and capabilities include:

24x7 remote support

proactive remote monitoring

sophisticated diagnostic tools

parts replacement

onsite response

Recent innovations include our Avaya Support Web site that quickly connects customers to advanced Avaya technicians via live chat, voice or video. The web site also provides access to “Ava,” an interactive virtual chat agent based on Avaya Automated Chat that quickly searches our knowledge base and a wide range of “how-to” videos to answer customer support questions. Ava learns with each customer interaction and can make the decision to transition the chat to an Avaya technician-often without the customer realizing the change is taking place.

All new support solutions are published to the web by our engineers, generally within 30 minutes of finding a resolution, adding value for customers by providing known solutions for potential issues rapidly. Most of our customers also benefit from Avaya EXPERT Systems, which provides real-time monitoring of diagnostic and system status. This proactively identifies potential issues to improve reliability, uptime, and faster issue resolution.

Avaya Private Cloud and Managed Services (APCS): Provides the IT Infrastructure Library (ITIL), aligned, multivendor managed and outsourcing services for customers’ communications environments. Managed and private cloud services can be procured in standard packages or in fully custom arrangements that include on-premise or private Cloud options, Service Level Agreements (SLAs), billing and reporting.

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Avaya can manage existing infrastructure of any age and from any communications vendor, and many customers leverage this model as a way to manage complex existing environments while they upgrade their entire communication network to the latest technology. This provides customers with the option of a recurring operational expense, rather than a one-time capital expenditure, for upgrading to the latest technology. In these types of deals, the underlying products and infrastructure are owned by the equipment vendor, or managed services/Cloud provider, and are often included in the managed services pricing/revenue.

In addition, managed services can take the form of one of three Cloud models offered by Avaya:

Avaya Partner Cloud Service, a model that supports public and private products offered by service providers and system integrators;

Avaya Branded Cloud Service, an Avaya-hosted multi-customer public cloud option; and

Private Cloud, a private cloud model for individual customers.

We sometimes refer to the foregoing products and services as “flagship,” “legacy,” and “core” as follows:

Flagship includes products and services which reflect the expertise and innovation in some of the newest enhancements to our product portfolio. We believe these products and services offer the highest potential to contribute to revenue growth. The Flagship category includes Video, Avaya Aura®, IP Office, contact center, Wireless LAN, SBC, ethernet/fabric switching, Avaya professional services, Avaya cloud and Avaya managed services.

Core includes products and services which are foundational components of our technology solutions. The Core category includes certain phone models, gateways, servers, core contact center, and other managed and maintenance support services.

Legacy includes certain products we acquired in our acquisitions of Tenovis and the enterprise solutions business, or NES, of Nortel Networks Corporation, but does not include NES networking products.

Our Technology

Technology enhances the way people communicate and collaborate, enabling team and customer engagement. We leverage critical technology and open standards across our portfolio to our customers’ advantage. One of these standards is Session Initiation Protocol, or “SIP”, and Avaya is a leading innovator in leveraging its use for business collaboration. By allowing application flexibility and cost reduction, SIP has become the protocol of choice for real-time communications and will continue to expand in the industry. We distinguish ourselves from competition by exploiting advanced SIP capabilities as opposed to only exploiting basic features. Avaya shifts communications from having to coordinate multiple, independent media and communications systems toward session management based environments, where multiple media and resources can flexibly be brought into a seamless experience. This fundamental difference supports more fluid, effective and persistent collaboration across media such as voice, video and text and modes of communications such as calls or conferences.

Over the last few years, we have shifted our design philosophy anticipating increased demand for our unified communications and contact center products to be available via cloud delivery. While our products have traditionally been deployed on a customer’s premise, many can now also be deployed in public, private and hybrid cloud models. Further, through comprehensive monitoring technologies, these products and services can also be deployed as managed services.

Multimedia Session Management

At the core of our architecture, SIP based Avaya Aura Session Manager centralizes communications control and application integration. Applications are decoupled from the network and can be deployed to individual users based on their need, rather than by where they work or the capabilities of the system to which they are connected. This allows for extreme scalability, with the Avaya Aura Session Manager currently capable of handling up to 350,000 users per system.

Unique End User Experiences

Avaya one-X Communicator and Avaya one-X Mobile software clients leverage the Avaya Aura technology and allow users to perform all unified communications and conferencing functions, via voice, video and text. In addition, users can access Microsoft Exchange services, such as e-mail, contacts and calendar and exchange instant message and presence information with Microsoft Lync users (i.e., Microsoft Communicator clients).

The Avaya Engagement Development platform is software that abstracts the core Avaya Aura system and allows developers with common web and JAVA programming skills to develop innovative applications that embed communications. For example a customer escalation registered in an insurance claims application could start an Avaya Engagement Development platform workflow that would automatically find and join the customer, the claims adjuster and claims manager via email or SMS and bring them into a video conferencing session. This ability to invoke and combine communications functions allows our customers to generate more business value from their Avaya products.

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Management and Orchestration

Simple and consistent management and operations are essential to customers. We believe our management products facilitate efficient operations and better overall performance. They cover a wide range of functions, from initial provisioning to monitoring and orchestration of components to enable networking of communications services.

Advanced Routing and Switching Protocols

Avaya offers routing switches and wireless products that embed advanced protocols such as “shortest path bridging (SPB)” at the forefront of the networking industry. SPB simplifies networking by provisioning services at the edge rather than on every node; as a consequence, administration is simpler and recovery from incidents can be up to 100 times faster than in conventional data networks. As an example, we believe this type of infrastructure is able to support applications such as multicasting large numbers of video streams or network isolation, delivering lower cost and better performance. Our continued investment in this domain contributes to our differentiation in the networking space.

Additional Technologies

In addition to Session Management, we use technologies including:

Messaging and Presence via SIP/SIMPLE and XMPP: The Avaya Aura Presence Services collects, aggregates and disseminates rich presence and enables instant messaging including using SIP/SIMPLE and XMPP, providing interoperability with systems from other vendors, such as Microsoft and ~~IBM;~~IBM.

Virtualization and Cross Operating System (OS) Support: Our software applications run on a broad range of operating systems including, but not limited to, Microsoft Windows, Apple MAC OS and Google Android. We also support virtualization to not only reduce the physical server footprint using hypervisor technology to run multiple applications concurrently on a single physical platform, but also facilitate certain tasks such as system expansion or recovery.

High Quality/Low Bandwidth Video: Avaya’s Video products and services are able to deliver high quality video while minimizing bandwidth consumption and responding to adverse network conditions such as congestion or packet loss. We use H.264 High Profile for bandwidth efficiency and cascading media to optimize bandwidth between sites and H.264 Scalable Video Coding, or SVC.

Virtualization is used in our Avaya Aura portfolio to decrease the supporting hardware cost and also to enable operations resilience and facilitate scalability.

WebRTC is a newly evolving technology that Avaya is leveraging to develop a new generation of Unified Communications. WebRTC allows for communication clients to be supported directly from HTML 5 browsers. Voice and video are embedded in web applications, allowing access to these media to be much more ubiquitous.

Big Data: By leveraging the power of large unstructured data stores, important information streams from multi-vendor systems and customer support infrastructure can be aggregated. This allows Avaya to create a next generation of contact centers, where customer service or sales representative assignment is made based on real-time business insights.

Divestiture of IT Professional Services Business

On March 31, 2014, the Company completed the sale of its IT Professional Services (“ITPS”) business for a final sales price of $101 million, inclusive of $3 million of working capital adjustments and net of $2 million in costs to sell. See Note 4, ~~“Divestiture~~“Divestitures - IT Professional Services Business,” to our unaudited interim Consolidated Financial Statements for further details. As a result of management's divestiture of the ITPS business, the results of operations, cash flows and assets and liabilities of the ITPS business have been classified as discontinued operations for fiscal 2014.

Refinancing of Debt

During fiscal 2015 and 2014, the Company entered into refinancing transactions which lowered the interest rate of certain debt and extended the maturity dates of other debt.

On February 5, 2014, the Company completed ~~an amendment~~Amendment No. 8 to the senior secured credit facility dated October 26, 2007 (the "Senior Secured Credit Agreement") pursuant to which the Company refinanced $1,138 million aggregate principal amount of senior secured term B-5 loans (“~~term~~Term B-5 ~~loans”~~Loans”) with the cash proceeds from the issuance of senior secured term B-6 loans (“~~term~~Term B-6 ~~loans”~~Loans”). On May 15, 2014, the Company redeemed 100% of the aggregate principal amount of its 9.75% senior unsecured cash-pay notes due 2015 and 10.125%/10.875% senior unsecured PIK toggle notes due 2015 at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, orof $92 million and $58 million, respectively. The redemption price of $150 million was funded through cash on-hand of $10 million and borrowings of $140 million under the Company's revolving credit ~~facilities,~~facilities.

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On May 29, 2015, the Company completed Amendment No. 9 to the Senior Secured Credit Agreement pursuant to which ~~are payable~~the Company refinanced $2,054 million in ~~full on~~aggregate principal amounts of senior secured term B-3 loans (“Term B-3 Loans”), senior secured term B-4 loans (“Term B-4 Loans”), and Term B-6 Loans and repaid $32 million of revolving loans outstanding under its Senior Secured Credit Agreement in exchange for and with the proceeds from the issuance of senior secured term B-7 loans ("Term B-7 Loans") maturing May 29, 2020.

On June 4, 2015, Avaya Inc., Citicorp USA, Inc. and the lenders party thereto completed Amendment No. 4 to the Company's senior secured multi-currency asset-based revolving credit facility (the "Domestic ABL") which, among other things; (i) extended the stated maturity of the facility from October 26, ~~2016.~~2016 to June 4, 2020 (subject to certain conditions specified in the Domestic ABL), (ii) increased the sublimit for letter of credit issuances under the Domestic ABL from $150 million to $200 million, and (iii) amended certain covenants and other provisions of the existing agreement. At the same time, certain foreign subsidiaries of the Company (the "Foreign Borrowers"), Citibank N.A. and the lenders party thereto entered into a new senior secured foreign asset-based revolving credit facility (the "Foreign ABL") which matures June 4, 2020 (subject to certain conditions specified in the Foreign ABL). Available credit under the Domestic ABL remains $335 million subject to availability under the borrowing base. Available credit under the Foreign ABL is $150 million subject to availability under the respective borrowing bases of the Foreign Borrowers.

On June 5, 2015, the Company permanently reduced the revolving credit commitments under its Senior Secured Credit Agreement from $200 million to $18 million and transferred all letters of credit outstanding under the Senior Secured Credit Agreement to the Domestic ABL.

See Note 8, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements and “Management's Discussion and Analysis - Liquidity and Capital Resources: Credit Facilities” for further details.

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Principal amounts of long term debt and long term debt net of discounts and issuance costs as of ~~March 31,~~June 30, 2015 consists of the following:


In millions	Principal Amount		Net of Discounts and Issuance Costs			Principal Amount		Net of Discounts and Issuance Costs
Variable rate senior secured multi-currency asset-based revolving credit facility due October 26, 2016	$	40	$	40
Variable rate senior secured multi-currency revolver due October 26, 2016	70		69
Variable rate senior secured term B-3 loans due October 26, 2017	2,090		2,071
Variable rate senior secured term B-4 loans due October 26, 2017	1		1
Variable rate senior secured term B-6 loans due March 31, 2018	1,121		1,109
Variable rate revolving loans under the Senior Secured Credit Agreement due October 26, 2016						$	18	$	18
Variable rate revolving loans under the Domestic ABL due June 4, 2020 ⁽¹⁾						40		40
Variable rate revolving loans under the Foreign ABL due June 4, 2020 ⁽¹⁾						20		20
Variable rate Term B-3 Loans due October 26, 2017						616		611
Variable rate Term B-4 Loans due October 26, 2017						1		1
Variable rate Term B-6 Loans due March 31, 2018						537		532
Variable rate Term B-7 Loans due May 29, 2020						2,119		2,081
7% senior secured notes due April 1, 2019	1,009		998			1,009		998
9% senior secured notes due April 1, 2019	290		285			290		286
10.50% senior secured notes due March 1, 2021	1,384		1,366			1,384		1,367
Total debt	$	6,005	5,939			$	6,034	5,954
Debt maturing within one year			(19		)			(7		)
Non-current portion of long-term debt			$	5,920				$	5,947

(1) Maturity date is subject to certain conditions specified in the respective ABL Agreements.

The weighted average contractual interest rate of the Company's outstanding debt as of ~~March 31,~~June 30, 2015 and September 30, 2014 was ~~6.9%~~7.3% and 6.9%, respectively.

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The table below sets forth the annual maturities of our long term debt as of ~~March 31,~~June 30, 2015 for the next five years ending September ~~30th:~~30th and thereafter consist of:


In millions
Remainder of fiscal 2015	$	19	$	6
2016	38		25
2017	148		43
2018	3,117		1,179
2019	1,299		1,324
2020 and thereafter	1,384		3,457
Total	$	6,005	$	6,034

Financial Results Summary

Our revenue for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~2,074~~3,073 million and $~~2,191~~3,245 million, respectively, a decrease of $~~117~~172 million or 5%. Revenues were affected by the unfavorable impact of foreign currencies particularly in Europe, Canada, and Latin America. The decrease was also attributable to declines in sales of our core and legacy products and associated services, particularly in the U.S., where the Company was constrained by sales execution.

As we continue to transform our business and focus our go-to-market efforts to drive growth in our flagship product lines and services such as Aura, Avaya Private Cloud Services or APCS, contact center and IP Office, revenues attributable to our core and legacy product lines and services have declined. We have worked to migrate customers from legacy products such as the Nortel and Tenovis lines into our newer offerings. Further, as our core products such as gateways, servers, and phones or other software endpoints are integral components to our flagship and legacy products, core product sales declined as the decrease in sales of our legacy products were only partially offset by the increase in the sales of our flagship products. In addition, we believe better utilization of SIP technology, which enables our customers to run their communication networks more efficiently, requiring fewer gateways and servers, has contributed to lower demand for our core and legacy products. The declines in our legacy and core products in turn contributed in part to lower maintenance revenue. The decreases in our maintenance revenue is offset in part by increases in ~~APCS.~~APCS revenue.

As a result of a growing market trend around Cloud consumption preferences more customers are exploring operational expense, or OpEx models, rather than capital expenditure, or CapEx models, for procuring technology. The shift to OpEx models enables customers to manage costs and efficiencies, by paying a subscription fee for business collaboration and communications services rather than purchasing the underlying products and services, infrastructure and personnel, which are owned and managed by the equipment vendor or a managed services or Cloud provider. We believe the market trend toward OpEx models will continue as we see an increasing number of opportunities and requests for proposal based on OpEx models. As the trend towards the OpEx model continues, we have focused our go-to-market strategy on our APCS as well as our flagship product offerings. Since the beginning of fiscal 2014, as part of our go-to-market strategy we have made leadership changes, increased our front-line resources, conducted training, and are now focused on the systems and the accountability required to speed up the rate of execution. Throughout fiscal 2014 and into fiscal 2015, our total contracted value for cloud and managed services grew. These contracts

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are usually larger than contracts under a CapEx model, but the associated revenues are recognized over a period of time, typically three to seven years. As of ~~March 31,~~June 30, 2015, we anticipate the total future revenues for these contracts to be in excess of $800 million.

The Company has maintained its focus on profitability levels and investing in future results and continued to implement cost savings programs designed to streamline its operations, generate cost savings, and eliminate overlapping processes and expenses associated with various acquisitions and in response to the global economic downturn. These cost savings programs have included: (1) reducing headcount, (2) relocating certain job functions to lower cost geographies, including service delivery, customer care, research and development, human resources and finance, (3) eliminating real estate costs associated with unused or under-utilized facilities and (4) implementing gross margin improvement and other cost reduction initiatives. During fiscal 2014, the Company incurred restructuring charges of $165 million, the full benefits of which we have ~~not fully begun~~yet to realize in our operating results. The Company continues to evaluate opportunities to streamline its operations and identify cost savings globally and may take additional restructuring actions in the future and the costs of those actions could be material.

Operating income for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$187~~$271 million and ~~$87~~$135 million, respectively, an increase of ~~$100~~$136 million. The increase in operating income reflects the continued benefit from our cost savings initiatives and is offset by the decrease in revenues as discussed above. In addition, our operating results for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 as compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2014 reflect, among other things:

improvement in gross margin to ~~59.3%~~59.0% for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 as compared to ~~56.5%~~56.8% for the ~~six~~nine months ended ~~March 31,~~June 30, 2014;

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lower depreciation and amortization charges as the Company sold under-utilized facilities and certain intangible assets have been fully amortized;

decreased restructuring charges of ~~$24~~$62 million as the Company initiated greater cost cutting actions during the ~~six~~nine months ended ~~March 31,~~June 30, 2014, particularly in Europe; and

a favorable impact of foreign currency on our operating expenses.

Operating income includes non-cash depreciation and amortization of ~~$186~~$279 million and ~~$237~~$336 million and share-based compensation of ~~$11~~$15 million and ~~$14~~$20 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, respectively.

Net loss for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$19~~$68 million ~~as compared to $150~~and $212 million, ~~for the six months ended March 31, 2014.~~respectively. The improvement ~~in our results~~ is primarily attributable to the increase in our operating income as described above, ~~the release of a reserve related to a tax indemnification liability,~~ lower interest expense as a result of fiscal 2014 refinancing transactions, and a ~~benefit~~lower provision for income taxes. These improvements were partially offset by higher third party fees incurred in connection with modifying certain debt during the nine months ended June 30, 2015 versus 2014. Further, our results for nine months ended June 30, 2014 reflects $32 million of income from ~~income taxes primarily~~discontinued operations associated with ~~changes in valuation allowances and unrecognized tax benefits in certain jurisdictions.~~the sale of the IT Professional Services business which was completed March 31, 2014.

Results From Operations

Three Months Ended ~~March 31,~~June 30, 2015 Compared with Three Months Ended ~~March 31,~~June 30, 2014

Revenue

Our revenue for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$995~~$999 million and ~~$1,060~~$1,054 million, respectively, a decrease of ~~$65~~$55 million or 6%5%. The following table sets forth a comparison of revenue by portfolio:


	Three months ended March 31,												Three months ended June 30,
	2015		2014		Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact		2015		2014		Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact
In millions	2015		2014		2015		2014		Yr. to Yr. Percentage Change				2015		2014		2015		2014		Yr. to Yr. Percentage Change
GCS	$	440	$	476	44	%	45	%	(8	)%	(5	)%	$	435	$	450	44	%	42	%	(3	)%	0	%
Networking	47		56		5	%	5	%	(16	)%	(14	)%	59		61		6	%	6	%	(3	)%	(4	)%
Total ECS product revenue	487		532		49	%	50	%	(8	)%	(6	)%	494		511		50	%	48	%	(3	)%	(1	)%
AGS	508		528		51	%	50	%	(4	)%	0	%	505		543		50	%	52	%	(7	)%	(3	)%
Total revenue	$	995	$	1,060	100	%	100	%	(6	)%	(3	)%	$	999	$	1,054	100	%	100	%	(5	)%	(2	)%

GCS revenue for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$440~~$435 million and ~~$476~~$450 million, respectively, a decrease of ~~$36~~$15 million or 8%3%. The decrease in GCS revenue was primarily attributable to the unfavorable impact of foreign currency and lower demand for our legacy and core ~~products and the unfavorable impact of foreign currency.~~products. These decreases in GCS revenue were partially offset by increases in demand for our flagship products as discussed above.

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Networking revenue for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$47~~$59 million and ~~$56~~$61 million, respectively, a decrease of $9$2 million or ~~16%~~3%. The decrease in Networking revenue is primarily attributable to ~~the revenues associated with the Company's successful completion of its networking implementation at the Sochi Olympics.~~lower demand in EMEA.

AGS revenue for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$508~~$505 million and ~~$528~~$543 million, respectively, a decrease of ~~$20~~$38 million or 4%7%. The decrease in AGS revenue was primarily due to the unfavorable impact of foreign currency and lower maintenance services revenues as a result of lower demand for our legacy and core ~~products in prior periods.~~products. These decreases in AGS revenue were partially offset by higher revenues from professional ~~services and Cloud and managed services performed under contracts entered into in prior periods. As discussed above, the revenues associated with these contracts are recognized over a period~~services.

Table of ~~time, typically three to seven years.~~Contents

The following table sets forth a comparison of revenue by location:


	Three months ended March 31,												Three months ended June 30,
	2015		2014		Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact		2015		2014		Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact
In millions	2015		2014		2015		2014		Yr. to Yr. Percentage Change				2015		2014		2015		2014		Yr. to Yr. Percentage Change
U.S.	$	531	$	532	53	%	50	%	0	%	0	%	$	538	$	543	54	%	52	%	(1	)%	(1	)%
International:
EMEA	266		313		27	%	29	%	(15	)%	(8	)%	263		297		26	%	28	%	(11	)%	(4	)%
APAC - Asia Pacific	104		112		11	%	11	%	(7	)%	(5	)%	107		108		11	%	10	%	(1	)%	2	%
Americas International - Canada and Latin America	94		103		9	%	10	%	(9	)%	0	%	91		106		9	%	10	%	(14	)%	(5	)%
Total International	464		528		47	%	50	%	(12	)%	(6	)%	461		511		46	%	48	%	(10	)%	(3	)%
Total revenue	$	995	$	1,060	100	%	100	%	(6	)%	(3	)%	$	999	$	1,054	100	%	100	%	(5	)%	(2	)%

Revenue in the U.S. for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$531~~$538 million and ~~$532~~$543 million, respectively, a decrease of $1$5 million or ~~less than~~ 1%. The decrease in U.S. revenue was primarily attributable to lower ~~sales of~~maintenance services associated with our core and legacy ~~products and associated maintenance.~~products. These decreases in U.S. revenue were partially offset by higher revenues from sales of our flagship ~~products, professional services, and Cloud and managed services performed under contracts entered into in prior periods.~~products. Revenue in EMEA for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$266~~$263 million and ~~$313~~$297 million, respectively, a decrease of ~~$47~~$34 million or ~~15%~~11%. The decrease in EMEA revenue was primarily attributable to the unfavorable impact of foreign currency, lower sales of our core and legacy products and associated ~~maintenance, and the revenues associated with the Company's successful completion of its networking implementation at the Sochi Olympics in fiscal 2014.~~maintenance. These decreases in EMEA revenue were partially offset by higher revenue from sales of our flagship ~~products and Cloud and managed services performed under contracts entered into in prior periods.~~products. Revenue in APAC for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$104~~$107 million and ~~$112~~$108 million, respectively, a decrease of $8$1 million or 7%1%. The decrease in APAC revenue was primarily attributable to ~~lower revenues associated with products and~~ the unfavorable impact of foreign ~~currency.~~currency and lower revenues associated with products. These decreases in APAC revenue were partially offset by higher revenues from professional services. Revenue in Americas International was ~~$94~~$91 million and ~~$103~~$106 million for the three months ended ~~March 31,~~June 30, 2015 and 2014, respectively, a decrease of $9$15 million or 9%14%. The decrease in Americas International revenue was primarily attributable to the unfavorable impact of foreign ~~currency.~~currency and lower revenues associated with products.

We sell our products directly to end users and through an indirect sales channel. The following table sets forth a comparison of revenue from sales of products by channel:


	Three months ended March 31,												Three months ended June 30,
	2015		2014		Percentage of Total ECS Product Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact		2015		2014		Percentage of Total ECS Product Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact
In millions	2015		2014		2015		2014		Yr. to Yr. Percentage Change				2015		2014		2015		2014		Yr. to Yr. Percentage Change
Direct	$	130	$	131	27	%	25	%	(1	)%	4	%	$	120	$	132	24	%	26	%	(9	)%	(4	)%
Indirect	357		401		73	%	75	%	(11	)%	(10	)%	374		379		76	%	74	%	(1	)%	—	%
Total ECS product revenue	$	487	$	532	100	%	100	%	(8	)%	(6	)%	$	494	$	511	100	%	100	%	(3	)%	(1	)%

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Gross Profit

The following table sets forth a comparison of gross profit by segment:


	Three months ended March 31,															Three months ended June 30,
	Gross Profit						Gross Margin				Change					Gross Profit						Gross Margin				Change
In millions	2015			2014			2015		2014		Amount			Pct.		2015			2014			2015		2014		Amount			Pct.
GCS	$	289		$	304		65.7	%	63.9	%	$	(15	)	(5	)%	$	287		$	287		66.0	%	63.8	%	$	—		—	%
Networking	16			26			34.0	%	46.4	%	(10		)	(38	)%	21			27			35.6	%	44.3	%	(6		)	(22	)%
ECS	305			330			62.6	%	62.0	%	(25		)	(8	)%	308			314			62.3	%	61.4	%	(6		)	(2	)%
AGS	294			289			57.9	%	54.7	%	5			2	%	286			309			56.6	%	56.9	%	(23		)	(7	)%
Unallocated amounts	(7		)	(22		)	⁽¹⁾		⁽¹⁾		15			⁽¹⁾		(10		)	(16		)	⁽¹⁾		⁽¹⁾		6			⁽¹⁾
Total	$	592		$	597		59.5	%	56.3	%	$	(5	)	(1	)%	$	584		$	607		58.5	%	57.6	%	$	(23	)	(4	)%


⁽¹⁾	Not meaningful

Gross profit for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$592~~$584 million and ~~$597~~$607 million, respectively, a decrease of $5$23 million or 1%4%. The decrease is primarily attributable to the unfavorable impact of foreign currency and the decrease in sales volume. These decreases in gross profit were partially offset by the success of our gross margin improvement initiatives and the impact of lower amortization of acquired technology intangible assets. Our gross margin improvement initiatives included exiting facilities, reducing the workforce, relocating positions to lower-cost geographies, productivity improvements, and obtaining better pricing from our contract manufacturers and transportation vendors. As a result of our gross margin improvement initiatives and the impact of lower amortization of acquired technology intangible assets, gross margin increased to ~~59.5%~~58.5% for the three months ended ~~March 31,~~June 30, 2015 from ~~56.3%~~57.6% for the three months ended ~~March 31,~~June 30, 2014.

GCS gross profit for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$289~~$287 million and ~~$304~~$287 million, ~~respectively, a decrease of $15 million, or 5% . The decreases~~respectively. Decreases in GCS gross profit are attributable to the decrease in sales volume and the unfavorable impact of foreign currency and were ~~partially~~ offset by the success of our gross margin improvement initiatives discussed above. As a result of our gross margin improvement initiatives GCS gross margin increased to ~~65.7%~~66.0% for the three months ended ~~March 31,~~June 30, 2015 compared to ~~63.9%~~63.8% for the three months ended ~~March 31,~~June 30, 2014.

Networking gross profit for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$16~~$21 million and ~~$26~~$27 million, a decrease of ~~$10~~$6 million, or ~~38%~~22%. Networking gross margin for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~34.0%~~35.6% and ~~46.4%~~44.3%, respectively. The decreases in Networking gross profit and gross margin isare primarily attributable to ~~the Company's successful networking implementation at the Sochi Olympics in fiscal 2014.~~higher customer discounts and inventory costs associated with certain Networking products which are approaching end of life.

AGS gross profit for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$294~~$286 million and ~~$289~~$309 million, respectively, ~~an increase~~a decrease of $5$23 million or 2%7%. The ~~increase~~decrease in AGS gross profit is primarily due to lower revenue and the unfavorable impact of foreign currency. These decreases in AGS gross profit were partially offset to the continued benefit from our gross margin improvement initiatives discussed ~~above.~~above and higher professional services revenues. We have redesigned the Avaya support website and continue to transition our customers from an agent-based support model to a largely self-service/web-based support model. ~~These increases in AGS gross profit were partially offset by lower services revenue and the unfavorable impact of foreign currency.~~ Our gross margin improvement initiatives have ~~allowed~~enabled us to reduce the workforce and relocate positions to lower-cost ~~geographies and as a result~~geographies. AGS gross margin ~~increased~~decreased to ~~57.9%~~56.6% for the three months ended ~~March 31,~~June 30, 2015 from ~~54.7%~~56.9% for the three months ended ~~March 31,~~June 30, 2014. The decrease is primarily the result of a greater percentage of the AGS revenue coming from professional services during the three months ended June 30, 2015.

Unallocated amounts for the three months ended ~~March 31,~~June 30, 2015 and 2014 include the effect of the amortization of acquired technology intangibles and costs that are not core to the measurement of segment management’s performance, but rather are controlled at the corporate level. The decrease in unallocated amounts is primarily attributable to lower amortization associated with technology intangible assets acquired prior to fiscal 2014 and $6 million of additional depreciation related to the change in estimates of salvage value and useful life of the Company's Westminster, Colorado facility during the three months ended March 31, 2014.

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Operating Expenses


	Three months ended March 31,													Three months ended June 30,
	2015		2014		Percentage of Revenue				Change					2015		2014		Percentage of Revenue				Change
In millions	2015		2014		2015		2014		Amount			Pct.		2015		2014		2015		2014		Amount			Pct.
Selling, general and administrative	$	356	$	397	35.8	%	37.5	%	$	(41	)	(10	)%	$	356	$	365	35.6	%	34.6	%	$	(9	)	(2	)%
Research and development	86		101		8.6	%	9.5	%	(15		)	(15	)%	82		93		8.2	%	8.8	%	(11		)	(12	)%
Amortization of intangible assets	57		57		5.7	%	5.4	%	—			0	%	55		56		5.5	%	5.3	%	(1		)	(2	)%
Restructuring charges, net	10		42		1.0	%	4.0	%	(32		)	(76	)%	7		45		0.7	%	4.3	%	(38		)	(84	)%
Total operating expenses	$	509	$	597	51.1	%	56.4	%	$	(88	)	(15	)%	$	500	$	559	50.0	%	53.0	%	$	(59	)	(11	)%

SG&A expenses for the three months ended ~~March 31,~~June 30, 2015 and 2014 were $356 million and ~~$397~~$365 million, respectively, a decrease of ~~$41 million.~~$9 million or 2%. The decrease was attributable to the cost of the marketing rights and other marketing expenses associated with the Sochi Olympics during the three months ended March 31, 2014, $8 million of additional depreciation related to the change in the estimates of salvage value and useful life of the Company's Westminster, Colorado facility during the three months ended March 31, 2014, the favorable impact of foreign currency and ~~our cost savings initiatives. Our cost savings initiatives include exiting~~the resolution of certain commercial and ~~consolidating facilities, reducing~~intellectual property legal disputes during the ~~workforce~~three months ended June 30, 2014, partially offset by higher employee costs, other marketing expenses and ~~relocating positions to lower-cost geographies.~~selling costs.

R&D expenses for the three months ended ~~March 31,~~June 30, 2015 and 2014 were ~~$86~~$82 million and ~~$101~~$93 million, respectively, a decrease of ~~$15~~$11 million. The decrease was primarily due to lower expenses ~~associated with~~attributable to our cost savings initiatives discussed above and the favorable impact of foreign currency.

Amortization of intangible assets for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$57~~$55 million and ~~$57~~$56 million, respectively.

Restructuring charges, net, for the three months ended ~~March 31,~~June 30, 2015 and 2014 were ~~$10~~$7 million and ~~$42~~$45 million, respectively, a decrease of ~~$32~~$38 million. The Company continued to identify opportunities to streamline its operations and generate cost savings which included consolidating and exiting facilities and eliminating employee positions. Restructuring charges recorded during the three months ended ~~March 31,~~June 30, 2015 include employee separation costs of $7$6 million primarily associated with employee severance actions in EMEA and the U.S. and lease obligations of $3$1 million. Restructuring charges recorded during the three months ended ~~March 31,~~June 30, 2014 include employee separation costs of $39 million primarily associated with employee severance actions in EMEA and the ~~U.S.and~~U.S. and lease obligations of $3$6 million. The EMEA charges include a plan approved during the three months ended June 30, 2014 for the elimination of 121 positions and resulted in a charge of $19 million, for which the related payments are expected to continue into fiscal 2019. Employee separation charges include, but are not limited to, social pension fund payments and health care and unemployment insurance costs to be paid to or on behalf of the affected employees. The Company continues to evaluate opportunities to streamline its operations and identify cost savings globally and may take additional restructuring actions in the future and the costs of those actions could be material.

Operating Income

Operating income for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$83~~$84 million and ~~less than $1~~$48 million, respectively.

Operating income for the three months ended ~~March 31,~~June 30, 2015 and 2014 includes non-cash expenses for depreciation and amortization of ~~$92~~$93 million and ~~$118~~$99 million and share-based compensation of $4 million and $8$6 million for each of the periods, respectively.

Interest Expense

Interest expense for the three months ended ~~March 31,~~June 30, 2015 and 2014 was ~~$110~~$113 million and ~~$116~~$112 million, ~~respectively, which~~respectively. Interest expense includes non-cash ~~interest~~ expense ~~of $6 million and $5 million, respectively. Non-cash interest expense for each period includes~~associated with amortization of debt issuance costs and accretion of debt ~~discount.~~discount of $5 million and $6 million, respectively. Cash interest expense for the three months ended ~~March 31,~~June 30, 2015 and 2014, was ~~$104~~$108 million and ~~$111~~$106 million, respectively, ~~a decrease~~an increase of $7$2 million. Cash interest expense for the three months ended ~~March 31,~~June 30, 2015 compared to the three months ended ~~March 31,~~June 30, 2014 ~~decreased~~increased as a result of additional borrowings during the quarter under our revolving credit facilities which we repaid in part with the refinancing transaction that took place on May 29, 2015. This increase was partially offset by lower interest rates on certain debt ~~refinancing transactions that occurred~~we refinanced during fiscal 2014. See Note 8, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements for further details.

Loss on Extinguishment of Debt

During the three months ended June 30, 2015, we recognized a $6 million loss on extinguishment of debt associated with the amendment to our Senior Secured Credit Agreement completed on May 29, 2015, pursuant to which the Company refinanced a portion of its outstanding Term B-3, B-4 and B-6 Loans with the proceeds from the issuance of Term B-7 Loans maturing May 29, 2020. The loss represents the difference between the reacquisition price and the carrying value (including unamortized discount and debt issuance costs) for the portion of the refinanced debt accounted for as a debt extinguishment. During the three months ended June 30, 2014, we recognized a $1 million loss on extinguishment of debt associated with the redemption of 100%

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of the aggregate principal amount of the 10.125%/10.875% senior unsecured PIK toggles notes and the 9.75% senior unsecured cash-pay notes. The loss represents the difference between the reacquisition price and the carrying value of the debt. See Note 8, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements for further details.

Other Expense, Net

Other expense, net for the three months ended ~~March 31,~~June 30, 2015 and 2014 was $1$11 million and $2$7 million, respectively. Other expense, net, for the three months ended ~~March 31,~~June 30, 2015 includes $8 million of third party fees incurred in connection with debt modification and net foreign currency losses of $1$3 million. Other expense, net, for the three months ended ~~March 31,~~June 30, 2014 includes charges associated with certain tax indemnifications of $8 million, partially offset by net foreign currency transaction ~~losses~~gains of ~~$2 million and a translation loss associated with the remeasurement of the monetary assets and liabilities of our Venezuelan subsidiary of $2~~$1 million.

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(Provision for) Benefit from ~~(Provision for)~~ Income Taxes of Continuing Operations

The ~~benefit from~~provision for income taxes of continuing operations for the three months ended ~~March 31,~~June 30, 2015 was $6$3 million as compared to a ~~provision for~~benefit from income taxes of continuing operations of $1$8 million for the three months ended ~~March 31,~~June 30, 2014.

The effective rate for the three months ended ~~March 31,~~June 30, 2015 differs from the statutory U.S. Federal income tax rate primarily due to (1) the effect of tax rate differentials on foreign income/loss, (2) changes in the valuation allowance established against the Company’s deferred tax assets, (3) recognition of a $10 million income tax benefit as a result of net gains in other comprehensive income.

~~The effective income tax rate for the three months ended March 31, 2014~~ differs from the statutory U.S. Federal income tax rate primarily due to (1) the effect of tax rate differentials on foreign income/loss in the Consolidated Statements of Operations, (2) changes in the valuation allowance established against the Company’s deferred tax assets, (3) recognition of ~~an $8~~a $7 million income tax benefit as a result of net gains in other comprehensive income.

The effective income ~~and~~tax rate for the three months ended June 30, 2014 differs from the statutory U.S. Federal income tax rate primarily due to (1) the effect of tax rate differentials on foreign income/loss in the Consolidated Statements of Operations, (2) changes in the valuation allowance established against the Company’s deferred tax assets, (3) reductions in the Company's unrecognized tax benefits of $35 million resulting from the settlement of certain international tax exams, (4) recognition of a ~~$22~~$7 million income tax benefit related to the correction of prior year deferred tax assets and liabilities for certain non-U.S. legal entities, and (5) recognition of a $3 million income tax benefit as a result of net gains in ~~income from discontinued operations.~~other comprehensive income.

During the three months ended ~~March 31,~~June 30, 2015 and 2014, the Company recorded tax charges of ~~$10~~$7 million and $8$3 million, respectively, related to net gains included in other comprehensive ~~income and during the three months ended March 31, 2014 recorded a tax charge of $22 million related to discontinued operations.~~income. As a result of the charges to other comprehensive income ~~and discontinued operations~~ for ~~these~~this tax ~~effects~~effect, the Company recognized an income tax benefit in continuing operations as less current period valuation allowance was required against the Company's deferred tax assets in each period.

Income from Discontinued Operations, Net of Income Taxes

Income from discontinued operations for the three months ended ~~March 31,~~June 30, 2014 was ~~$27~~$2 million. On March 31, 2014, the Company completed the sale of its ITPS business for a final sales price of $101 million, inclusive of $3 million of working capital adjustments, and net of $2 million in costs to sell. Income from discontinued operations for the three months ended June 30, 2014 reflects the $3 million adjustment to the gain on the sale of the ITPS business resulting from the working capital adjustments identified during the period net of income taxes of $1 million. See Note 4, “Divestiture - IT Professional Services Business,” to our unaudited interim Consolidated Financial Statements for further details.

~~Six~~Nine Months Ended ~~March 31,~~June 30, 2015 Compared with ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2014

Revenue


	Six months ended March 31,												Nine months ended June 30,
	2015		2014		Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact		2015		2014		Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact
In millions	2015		2014		2015		2014		Yr. to Yr. Percentage Change				2015		2014		2015		2014		Yr. to Yr. Percentage Change
GCS	$	921	$	983	44	%	45	%	(6	)%	(5	)%	$	1,356	$	1,433	44	%	44	%	(5	)%	(3	)%
Networking	115		123		6	%	5	%	(7	)%	(5	)%	174		184		6	%	6	%	(5	)%	(5	)%
Total ECS product revenue	1,036		1,106		50	%	50	%	(6	)%	(5	)%	1,530		1,617		50	%	50	%	(5	)%	(3	)%
AGS	1,038		1,085		50	%	50	%	(4	)%	(1	)%	1,543		1,628		50	%	50	%	(5	)%	(2	)%
Total revenue	$	2,074	$	2,191	100	%	100	%	(5	)%	(3	)%	$	3,073	$	3,245	100	%	100	%	(5	)%	(3	)%

GCS revenue for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~921~~1,356 million and $~~983~~1,433 million, respectively, a decrease of $6277 million or 6%5%. The decrease in GCS revenue was primarily attributable to lower demand for our legacy and core products

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and sales execution, particularly in the U.S. and the unfavorable impact of foreign currency. These decreases in GCS revenue were partially offset by increases in demand for our flagship products as discussed above.

Networking revenue for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~115~~174 million and $~~123~~184 million, respectively, a decrease of $810 million or 7%5%. The decrease in Networking revenue is primarily attributable to the revenues associated with the Company's successful completion of its networking implementation at the Sochi Olympics in fiscal 2014, partially offset by revenue associated with new product releases.

AGS revenue for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~1,038~~1,543 million and $~~1,085~~1,628 million, respectively, a decrease of $4785 million or 4%5%. The decrease in AGS revenue was primarily due to ~~the unfavorable impact of foreign currency and~~ lower maintenance services revenues as a result of lower demand for our legacy and core products in prior ~~periods.~~periods and the unfavorable impact of foreign currency. These decreases in AGS revenue were partially offset by higher revenue from Cloud and managed services performed under contracts entered into in prior periods and revenues from professional services. As discussed above, the revenues associated with Cloud and managed services contracts are recognized over a period of time, typically three to seven years.

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The following table sets forth a comparison of revenue by location:


	Six months ended March 31,												Nine months ended June 30,
	2015		2014		Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact		2015		2014		Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact
In millions	2015		2014		2015		2014		Yr. to Yr. Percentage Change				2015		2014		2015		2014		Yr. to Yr. Percentage Change
U.S.	$	1,103	$	1,136	53	%	52	%	(3	)%	(3	)%	$	1,641	$	1,679	53	%	52	%	(2	)%	(2	)%
International:
EMEA	567		616		27	%	28	%	(8	)%	(3	)%	830		913		27	%	28	%	(9	)%	(3	)%
APAC - Asia Pacific	205		226		10	%	10	%	(9	)%	(8	)%	312		334		10	%	10	%	(7	)%	(4	)%
Americas International - Canada and Latin America	199		213		10	%	10	%	(7	)%	0	%	290		319		10	%	10	%	(9	)%	(1	)%
Total International	971		1,055		47	%	48	%	(8	)%	(3	)%	1,432		1,566		47	%	48	%	(9	)%	(3	)%
Total revenue	$	2,074	$	2,191	100	%	100	%	(5	)%	(3	)%	$	3,073	$	3,245	100	%	100	%	(5	)%	(3	)%

Revenue in the U.S. for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~1,103~~1,641 million and $~~1,136~~1,679 million, respectively, a decrease of $3338 million or 3%2%. The decrease in U.S. revenue was primarily attributable to constrained sales execution and lower sales of our core and legacy products and associated maintenance. These decreases in U.S. revenues were partially offset by higher revenue associated with our flagship products, professional services and Cloud and managed services performed under contracts entered into in prior periods. Revenue in EMEA for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~567~~830 million and $~~616~~913 million, respectively, a decrease of $4983 million or 8%9%. The decrease in EMEA revenue was primarily attributable to the unfavorable impact of foreign currency and lower revenues from lower sales of our core and legacy products and associated maintenance. These decreases in EMEA revenue were partially offset by higher revenue from Cloud and managed services performed under contracts entered into in prior periods. Revenue in APAC for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~205~~312 million and $~~226~~334 million, respectively, a decrease of $2122 million or 9%7%. The decrease in APAC revenue was primarily attributable to lower revenues associated with products and the unfavorable impact of foreign currency. Revenue in Americas International was $~~199~~290 million and $~~213~~319 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, respectively, a decrease of $1429 million or 7%9%. The decrease in Americas International revenue was primarily attributable to the unfavorable impact of foreign ~~currency.~~currency and lower revenues associated with products and associated maintenance.

We sell our products directly to end users and through an indirect sales channel. The following table sets forth a comparison of revenue from sales of products by channel:


	Six months ended March 31,												Nine months ended June 30,
	2015		2014		Percentage of Total ECS Product Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact		2015		2014		Percentage of Total ECS Product Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact
In millions	2015		2014		2015		2014		Yr. to Yr. Percentage Change				2015		2014		2015		2014		Yr. to Yr. Percentage Change
Direct	$	263	$	280	25	%	25	%	(6	)%	(3	)%	$	383	$	412	25	%	25	%	(7	)%	(3	)%
Indirect	773		826		75	%	75	%	(6	)%	(5	)%	1,147		1,205		75	%	75	%	(5	)%	(4	)%
Total ECS product revenue	$	1,036	$	1,106	100	%	100	%	(6	)%	(5	)%	$	1,530	$	1,617	100	%	100	%	(5	)%	(3	)%

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Gross Profit

The following table sets forth a comparison of gross profit by segment:


	Six months ended March 31,															Nine months ended June 30,
	Gross Profit						Gross Margin				Change					Gross Profit						Gross Margin				Change
In millions	2015			2014			2015		2014		Amount			Pct.		2015			2014			2015		2014		Amount			Pct.
GCS	$	603		$	618		65.5	%	62.9	%	$	(15	)	(2	)%	$	890		$	905		65.6	%	63.2	%	$	(15	)	(2	)%
Networking	48			58			41.7	%	47.2	%	(10		)	(17	)%	69			85			39.7	%	46.2	%	(16		)	(19	)%
ECS	651			676			62.8	%	61.1	%	(25		)	(4	)%	959			990			62.7	%	61.2	%	(31		)	(3	)%
AGS	596			598			57.4	%	55.1	%	(2		)	—	%	882			907			57.2	%	55.7	%	(25		)	(3	)%
Unallocated amounts	(17		)	(37		)	⁽¹⁾		⁽¹⁾		20			⁽¹⁾		(27		)	(53		)	⁽¹⁾		⁽¹⁾		26			⁽¹⁾
Total	$	1,230		$	1,237		59.3	%	56.5	%	$	(7	)	(1	)%	$	1,814		$	1,844		59.0	%	56.8	%	$	(30	)	(2	)%


⁽¹⁾	Not meaningful

Gross profit for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~1,230~~1,814 million and $~~1,237~~1,844 million, respectively, a decrease of $730 million or ~~less than 1%~~2%. The decrease is primarily attributable to ~~a decrease in sales volume and~~ the unfavorable impact of foreign ~~currency.~~currency and the decrease in sales volume. These decreases in gross profit were partially offset by the success of our gross margin improvement initiatives and the impact of lower amortization of acquired technology intangible assets. Our gross margin improvement initiatives included exiting facilities, reducing the workforce, relocating positions to lower-cost geographies, productivity improvements, and obtaining better pricing from our contract manufacturers and transportation vendors. As a result of our gross margin improvement initiatives and the impact of lower amortization of acquired technology intangible assets, and lower depreciation associated with the Company's Westminster, Colorado facility during fiscal 2014, gross margin increased to ~~59.3%~~59.0% for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 from ~~56.5%~~56.8% for the ~~six~~nine months ended ~~March 31,~~June 30, 2014.

GCS gross profit for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~603~~890 million and $~~618~~905 million, respectively, a decrease of $15 million, or 2%. The decrease in GCS gross profit is primarily attributable to the unfavorable impact of foreign currency and lower sales ~~volume and~~volume. These decreases were partially offset by the success of our gross margin improvement initiatives discussed above. As a result of our gross margin improvement initiatives GCS gross margin increased to ~~65.5%~~65.6% for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 from ~~62.9%~~63.2% for the ~~six~~nine months ended ~~March 31,~~June 30, 2014.

Networking gross profit for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $4869 million and $5885 million, a decrease of ~~$10~~$16 million, or ~~17%~~19%. Networking gross margin for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was ~~41.7%~~39.7% and ~~47.2%~~46.2%, respectively. The decreases in Networking gross profit and gross margin is primarily attributable to the Company's successful networking implementation at the Sochi Olympics in fiscal 2014.

AGS gross profit for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~596~~882 million and $~~598~~907 million, respectively, a decrease of $225 million or ~~less than 1%~~3%. The decrease in AGS gross profit is primarily due to lower services revenue and the unfavorable impact of foreign ~~currency and lower services revenue.~~currency. These decreases in AGS gross profit were partially offset by the continued benefit from our gross margin improvement initiatives discussed above. We have redesigned the Avaya support website and continue to transition our customers from an agent-based support model to a largely self-service/web-based support model. Our gross margin improvement initiatives have ~~allowed~~enabled us to reduce the workforce and relocate positions to lower-cost geographies. As a result of the above factors, AGS gross margin increased to ~~57.4%~~57.2% for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 from ~~55.1%~~55.7% for the ~~six~~nine months ended ~~March 31,~~June 30, 2014.

Unallocated amounts for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 include the effect of the amortization of acquired technology intangibles and costs that are not core to the measurement of segment management’s performance, but rather are controlled at the corporate level. The decrease in unallocated amounts is attributable to lower amortization associated with technology intangible assets acquired prior to fiscal 2014 and $6 million of additional depreciation related to the change in estimates of salvage value and useful life of the Company's Westminster, Colorado facility during the six months ended March 31, 2014.

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Operating Expenses


	Six months ended March 31,													Nine months ended June 30,
	2015		2014		Percentage of Revenue				Change					2015		2014		Percentage of Revenue				Change
In millions	2015		2014		2015		2014		Amount			Pct.		2015		2014		2015		2014		Amount			Pct.
Selling, general and administrative	$	730	$	790	35.2	%	36.1	%	$	(60	)	(8	)%	$	1,086	$	1,155	35.3	%	35.6	%	$	(69	)	(6	)%
Research and development	174		196		8.4	%	8.9	%	(22		)	(11	)%	256		289		8.3	%	8.9	%	(33		)	(11	)%
Amortization of intangible assets	114		115		5.5	%	5.2	%	(1		)	(1	)%	169		171		5.5	%	5.3	%	(2		)	(1	)%
Restructuring charges, net	25		49		1.2	%	2.2	%	(24		)	(49	)%	32		94		1.0	%	2.9	%	(62		)	(66	)%
Total operating expenses	$	1,043	$	1,150	50.3	%	52.4	%	$	(107	)	(9	)%	$	1,543	$	1,709	50.1	%	52.7	%	$	(166	)	(10	)%

SG&A expenses for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 were $~~730~~1,086 million and $~~790~~1,155 million, respectively, a decrease of $6069 million. The decrease was primarily attributable to the favorable impact of foreign currency, the cost of the marketing rights and other marketing expenses associated with the Sochi Olympics during the ~~six~~nine months ended ~~March 31,~~June 30, 2014, $24 million of additional depreciation related to the change in the estimates of salvage value and useful life of the Company's Westminster, Colorado facility during the six months ended March 31, 2014,, the ~~favorable impact~~resolution of ~~foreign currency~~certain commercial and intellectual property legal disputes during the three months ended June 30, 2014 and our cost savings initiatives. Our cost savings initiatives include exiting and consolidating facilities, reducing the workforce and relocating positions to lower-cost geographies. The decrease was partially offset by higher employee costs, other marketing expenses and selling costs.

R&D expenses for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 were $~~174~~256 million and $~~196~~289 million, respectively, a decrease of $2233 million. The decrease was primarily due to lower expenses associated with our cost savings initiatives discussed above and the favorable impact of foreign currency.

Amortization of intangible assets for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~114~~169 million and ~~$115~~$171 million, respectively.

Restructuring charges, net, for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 were $2532 million and $4994 million, respectively, a decrease of $2462 million. The Company continued to identify opportunities to streamline its operations and generate cost savings which included consolidating and exiting facilities and eliminating employee positions. Restructuring charges recorded during the ~~six~~nine months ended ~~March 31,~~June 30, 2015 include employee separation costs of ~~$19~~$25 million primarily associated with employee severance actions in EMEA and the U.S. and lease obligations of $6$7 million primarily related to facilities in the U.S. Restructuring charges recorded during the ~~six~~nine months ended ~~March 31,~~June 30, 2014 include employee separation costs of ~~$44~~$83 million primarily associated with employee severance actions in EMEA and the U.S. and lease obligations of $5$11 million. Employee separation charges include, but are not limited to, social pension fund payments and health care and unemployment insurance costs to be paid to or on behalf of the affected employees. The Company continues to evaluate opportunities to streamline its operations and identify cost savings globally and may take additional restructuring actions in the future and the costs of those actions could be material.

Operating Income

Operating income for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~187~~271 million and $87135 million, respectively.

Operating income for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 includes non-cash expenses for depreciation and amortization of $~~186~~279 million and $~~237~~336 million and share-based compensation of $1115 million and $1420 million for each of the periods, respectively.

Interest Expense

Interest expense for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $~~222~~335 million and $~~235~~347 million, ~~respectively, which~~respectively. Interest expense includes non-cash interest expense of ~~$10~~$15 million and $9$15 million, ~~respectively. Non-cash interest expense for each period includes~~respectively, associated with the amortization of debt issuance costs and accretion of debt discount. Cash interest expense for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, was ~~$212~~$320 million and ~~$226~~$332 million, respectively, a decrease of ~~$14~~$12 million. ~~Cash~~The decrease in cash interest expense ~~for~~is the~~six months ended March 31, 2015~~ ~~compared to the~~ ~~six months ended March 31, 2014~~ ~~decreased as a~~ result of certain debt refinancing transactions that occurred during fiscal 2014. This decrease in interest expense was partially offset by additional borrowings during the three months ended June 30, 2015 under our revolving credit facilities which we repaid in part with the refinancing transaction that took place on May 29, 2015. See Note 8, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements for further details.

Loss on Extinguishment of Debt

During the nine months ended June 30, 2015, we recognized a $6 million loss on extinguishment of debt associated with an amendment to our Senior Secured Credit Agreement completed on May 29, 2015, pursuant to which the Company refinanced a portion of its outstanding Term B-3, B-4 and B-6 Loans with the proceeds of the issuance of Term B-7 Loans maturing May 29,

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2020. The loss represents the difference between the reacquisition price and the carrying value (including unamortized discount and debt issuance costs) for the portion of the refinanced debt accounted for as a debt extinguishment. During the nine months ended June 30, 2014, we recognized a $5 million loss on extinguishment of debt in connection with (1) the refinancing of $1,138 million aggregate principal amount of Term B-5 Loans with the cash proceeds from the issuance of Term B-6 Loans and (2) the redemption of 100% of the aggregate principal amount of the 10.125%/10.875% senior unsecured PIK toggles notes and the 9.75% senior unsecured cash-pay notes. See Note 8, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements for further details.

Other Income (Expense), Net

Other income, net for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 was $132 million as compared to other expense, net of $18 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2014. Other income, net, for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 includes $2 million of net foreign currency gains ~~of $5~~and $9 million ~~and~~associated with the release of a reserve related to a tax indemnification liability, partially offset by $8 million of ~~$9 million.~~third party fees incurred in connection with debt modification. Other expense, net, for the ~~six~~nine months ended ~~March 31,~~June 30, 2014 includes a $5 million charge for a change in certain tax indemnification reserves, $2 million of third party fees incurred in connection with debt modifications and $2 million of translation ~~loss~~losses recognized in connection with the remeasurement of the monetary assets and liabilities of our Venezuelan subsidiary, ~~of $2 million.~~partially offset by $1 million net foreign currency gains.

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~~Benefit from (Provision for)~~Provision for Income Taxes of Continuing Operations

The ~~benefit from~~provision for income taxes of continuing operations for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 was $30 million ~~as compared to a provision for income taxes of continuing operations of~~and $2719 million ~~for the six months ended March 31, 2014.~~, respectively.

The effective rate for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 differs from the statutory U.S. Federal income tax rate primarily due to (1) the effect of tax rate differentials on foreign income/loss in the Consolidated Statements of Operations, (2) changes in the valuation allowance established against the Company’s deferred income tax assets, (3) net reductions for unrecognized tax benefits resulting from the lapse of statute of limitations offset by increases due to tax positions taken during the current period, (4) recognition of a $6 million income tax benefit related to the correction of prior year valuation allowances on deferred income tax assets, and (5) recognition of a ~~$11~~$18 million income tax benefit as a result of net gains in other comprehensive income.

The effective income tax rate for the ~~six~~nine months ended ~~March 31,~~June 30, 2014 differs from the statutory U.S. Federal income tax rate primarily due to (1) the effect of tax rate differentials on foreign income/loss in the Consolidated Statements of Operations, (2) changes in the valuation allowance established against the Company’s deferred income tax assets, (3) ~~recognition~~reductions in the Company's unrecognized tax benefits of ~~an $8~~$35 million ~~income~~resulting from the settlement of certain international tax ~~benefit as a result of net gains in other comprehensive income, and~~exams, (4) recognition of a $22 million income tax benefit as a result of net gains in income from discontinued ~~operations.~~operations, (5) recognition of an $11 million income tax benefit as a result of net gains in other comprehensive income, and (6) recognition of a $7 million income tax benefit related to the correction of prior year deferred income tax assets and liabilities for certain non-U.S. legal entities.

During the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, the Company recorded tax charges of ~~$11~~$18 million and $8$11 million, respectively, related to net gains included in other comprehensive income and during the ~~six~~nine months ended ~~March 31,~~June 30, 2014 recorded a tax charge of $22 million related to discontinued operations. As a result of the charges to other comprehensive income and discontinued operations for these tax effects the Company recognized an income tax benefit in continuing operations as less current period valuation allowance was required against the Company's deferred tax assets in each period.

Income from Discontinued Operations, Net of Income Taxes

Income from discontinued operations for the ~~six~~nine months ended ~~March 31,~~June 30, 2014 was $3032 million. On March 31, 2014, the Company completed the sale of its ITPS business for a final sales price of $101 million, inclusive of $3 million of working capital adjustments, and net of $2 million in costs to sell. Income from discontinued operations for the nine months ended June 30, 2014 includes the gain on sale of the ITPS business of $52 million. See Note 4, “Divestiture - IT Professional Services Business,” to our unaudited interim Consolidated Financial Statements for further details.

Liquidity and Capital Resources

We expect our existing cash balance, cash generated by operations and borrowings available under our credit facilities to be our primary sources of short-term liquidity. Based on our current level of operations, we believe these sources will be adequate to meet our liquidity needs for at least the next twelve months. Our ability to meet our cash requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. As part of our analysis, we have assessed the implications of recent financial events on our current business and determined that these market conditions have not resulted in an inability to meet our obligations as they come due in the ordinary course of business and have not had a significant impact on our liquidity as of ~~March 31,~~June 30, 2015. However, there can be no assurance that our business will generate sufficient cash flow from operations or that future

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borrowings will be available to us under our credit facilities in an amount sufficient to enable us to repay our indebtedness, or to fund our other liquidity needs.

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Sources and Uses of Cash

The following table provides the condensed statements of cash flows for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014:


	Six months ended March 31,						Nine months ended June 30,
In millions	2015			2014			2015			2014
Net cash (used for) provided by:
Net loss	$	(19	)	$	(150	)	$	(68	)	$	(212	)
Income from discontinued operations, net of income taxes	—			30			—			32
Loss from continuing operations	(19		)	(180		)	(68		)	(244		)
Adjustments to net loss for non-cash items	184			240			324			338
Changes in operating assets and liabilities	(20		)	(28		)	(71		)	(73		)
Continuing operating activities	145			32			185			21
Discontinued operating activities	—			4			—			4
Operating activities	145			36			185			25
Continuing investing activities	(60		)	(9		)	(97		)	(57		)
Discontinued investing activities	—			98			—			98
Investing activities	(60		)	89			(97		)	41
Financing activities	(46		)	(28		)	(56		)	(39		)
Effect of exchange rate changes on cash and cash equivalents	(29		)	(1		)	(26		)	—
Net increase in cash and cash equivalents	10			96			6			27
Cash and cash equivalents at beginning of period	322			288			322			288
Cash and cash equivalents at end of period	$	332		$	384		$	328		$	315

Operating Activities

Cash provided by operating activities was $~~145~~185 million and $3625 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, respectively.

Adjustments to reconcile net loss to net cash provided by operations for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 were $~~184~~324 million and $~~240~~338 million, and primarily consisted of depreciation and amortization of $~~186~~279 million and $~~237~~336 million, deferred income taxes of ~~$(19)~~$0 million and ~~$(31)~~$(33) million, unrealized ~~(gain)~~ loss on foreign currency exchange of ~~$(5)~~$6 million and $6$4 million, non-cash interest expense of ~~$10~~$15 million and $9$15 million, and share based compensation of ~~$11~~$15 million and ~~$14~~$20 million, respectively. Adjustments to reconcile net loss to net cash provided by operations for the nine months ended June 30, 2015 and 2014 also includes paid-in-kind interest of $1 million and $9 million, respectively, which was expensed in prior periods and paid in association with the refinancing of certain debt as discussed below.

During the ~~six~~nine months ended ~~March 31,~~June 30, 2015, changes in our operating assets and liabilities resulted in a net decrease in cash and cash equivalents of $2071 million. The net decrease was driven by payments associated with our employee incentive programs, the timing of payments to our vendors, and business restructuring reserves established in previous periods. These decreases were partially offset by increases in deferred revenues and collection of accounts receivable.

During the ~~six~~nine months ended ~~March 31,~~June 30, 2014, changes in our operating assets and liabilities resulted in a net decrease in cash and cash equivalents of $2873 million. The net decrease was driven by payments associated with our employee incentive ~~programs.~~programs, accrued interest, and business restructuring reserves established in previous periods. These decreases were partially offset by collection of accounts receivable and the timing of payment of accounts payable.

Investing Activities

Cash used for investing activities for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 was ~~$60~~$97 million as compared to cash provided by investing activities for the ~~six~~nine months ended ~~March 31,~~June 30, 2014 of $8941 million. During the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, cash used for investing activities included capital expenditures of $6792 million and ~~$59~~$94 million and acquisitions of businesses, net of cash acquired of $6$18 million and ~~$11~~$14 million, ~~respectively.~~respectively, as we continue to enhance our technology portfolio. During the ~~six~~nine months ended ~~March 31,~~June 30, 2015 we received proceeds of $15 million for the sale of equipment used in the ~~the~~ performance of services under our agreement with HP Enterprise Services, LLC. During the ~~six~~nine months ended ~~March 31,~~ June 30,

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2014, the Company received $98 million in proceeds from the sale of its ITPS business and also received $61 million from the sale of other long-lived assets. Also, during the nine months ended June 30, 2014, the Company invested $10 million for less than a 6% equity interest in an unaffiliated privately-held company.

Financing Activities

Cash used for financing activities was ~~$46~~$56 million and $2839 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, ~~respectively, and includes $19 million in scheduled debt repayments in each period. During~~respectively.

Cash flows from financing activities for the ~~six~~nine months ended ~~March 31,~~

~~Table~~June 30, 2015 includes cash proceeds of ~~Contents~~

~~2015~~ ~~cash~~$2,100 million from the issuance of of Term B-7 Loans maturing May 29, 2020. The proceeds from the issuance of the Term B-7 Loans were used ~~by financing activities also includes $20~~to: (a) repay $2,054 million aggregate principal amounts of Term B-3 Loans, Term B-4 Loans, and Term B-6 Loans, (b) repay $32 million of ~~repayments in excess of borrowing~~revolving loans outstanding under our Senior Secured Credit Agreement, (c) pay $8 million of third party fees and expenses for debt modification costs incurred in the refinancing transaction, and (d) pay $1 million for interest accrued on the refinanced term and revolving credit ~~facilities~~loans through the date of the refinancing transaction. The redemption price of the Term B-3 Loans and $5Term B-6 Loans includes $1 million of paid-in-kind interest expense recognized in prior periods and $4 million of unamortized discount which is included in the loss on extinguishment of debt during the nine months ended June 30, 2015. In addition to the $32 million repaid with the proceeds of the Term B-7 Loans, we repaid another $90 million and borrowed $50 million of revolving loans under our Senior Secured Credit Agreement during the nine months ended June 30, 2015. We also paid $8 million of payments related to the Company's sales-leaseback arrangement with HP.

Cash flows from financing activities for the ~~six~~nine months ended ~~March 31,~~June 30, 2014 includes proceeds of $1,136 million from the issuance of ~~term~~Term B-6 ~~loans,~~Loans and $140 million from borrowing under the Company's revolving credit facilities. The proceeds from the issuance of ~~which~~the Term B-6 Loans were used to repay $1,138 million of ~~term~~Term B-5 ~~loans.~~ Loans and the proceeds from borrowings under the Company's revolving credit facilities, together with cash on-hand of $10 million, were used to redeem $92 million of 10.125%/10.875% senior unsecured PIK toggle notes and $58 million of 9.75% senior unsecured cash-pay notes. The redemption of the $92 million of 10.125%/10.875% senior unsecured PIK toggle notes includes $9 million of paid-in-kind interest expensed in prior periods.

Cash used for financing activities for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014 also includes scheduled debt repayments of $25 million and $28 million, and cash paid for debt issuance and debt modification costs of $14 million and $10 ~~million.~~million, respectively.

Credit Facilities

We have entered into borrowing arrangements and further amended the arrangements with several financial institutions in connection with the Merger on October 26, 2007 and the acquisition of the enterprise solutions business of Nortel Networks Corporation in December 2009.

During the three months ended December 31, 2012, the Company completed three transactions which allowed the Company to refinance $848 million of term loans under its senior secured credit facilities that were scheduled to mature on October 26, 2014. These transactions were (1) an amendment and restatement of the ~~senior secured credit facility~~Senior Secured Credit Agreement and the ~~senior secured multi-currency asset-based revolving credit facility~~Domestic ABL on October 29, 2012 along with the extension of the maturity date of $135 million aggregate principal amount of senior secured term B-1 loans ~~or the term~~("Term B-1 ~~loans,~~Loans"), (2) an amendment and restatement of the ~~senior secured credit facility~~Senior Secured Credit Agreement on December 21, 2012 along with the extension of the maturity date of $713 million aggregate principal amount of ~~term~~Term B-1 ~~loans~~Loans and $134 million aggregate principal amount of ~~senior secured term~~Term B-4 ~~loans,~~Loans, and (3) the issuance on December 21, 2012 of $290 million of 9% senior secured notes due April 2019.

During the three months ended March 31, 2013, the Company refinanced the remaining $584 million of ~~term~~Term B-1 ~~loans~~Loans outstanding under its ~~senior secured credit facility~~Senior Secured Credit Agreement with the cash proceeds of $589 million aggregate principal amount of ~~term~~Term B-5 ~~loans~~Loans under the ~~senior secured credit facility.~~Senior Secured Credit Agreement.

Additionally, during the three months ended March 31, 2013, the Company refinanced $1,384 million of senior unsecured notes through (1) amendments to the ~~senior secured credit facility~~Senior Secured Credit Agreement and the ~~senior secured multi-currency asset-based revolving credit facility~~Domestic ABL permitting the refinancing of the 9.75% senior unsecured notes due 2015 and 10.125%/10.875% senior unsecured PIK toggle notes due 2015 (collectively, the “Cash Pay and PIK Toggle Notes”) with indebtedness secured by a lien on certain collateral on a junior-priority basis and (2) the exchange of $1,384 million of Cash Pay and PIK Toggle Notes for $1,384 million of 10.50% senior secured notes due 2021.

On February 5, 2014, ~~the Company,~~Avaya Inc., Citibank, ~~N.A., as Administrative Agent,~~ and the lenders party thereto entered into Amendment No. 8 to the Senior Secured Credit Agreement, pursuant to which the ~~senior secured credit facility was amended.~~

~~Pursuant to Amendment No. 8 to Credit Agreement, the~~ Company refinanced in full all ~~term~~Term B-5 ~~loans~~Loans outstanding under the ~~senior secured credit facility~~Senior Secured Credit Agreement with the cash proceeds from the Company’s borrowing of approximately $1,138 million aggregate principal amount of ~~term~~Term B-6 ~~loans~~Loans under the ~~senior secured credit facility.~~Senior Secured Credit Agreement. In addition, the Company paid $15 million in cash for

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certain fees and expenses incurred in connection with the refinancing. The ~~new term~~Term B-6 ~~loans~~Loans mature on March 31, 2018, which was the same date on which the ~~term~~Term B-5 ~~loans~~Loans were scheduled to mature.

The ~~new tranche of term~~Term B-6 ~~loans bears~~Loans bear interest at a rate per annum equal to either a base rate (subject to a floor of 2.00%) or a LIBOR rate (subject to a floor of 1.00%), in each case plus an applicable margin. Subject to the floor, ~~described in the immediately preceding sentence,~~ the base rate is determined by reference to the higher of (1) the prime rate of Citibank, N.A. and (2) the federal funds effective rate plus one half of 1%. The applicable margin for borrowings of ~~term~~Term B-6 ~~loans~~Loans is 4.50% per annum with respect to base rate borrowings and 5.50% per annum with respect to LIBOR borrowings, in each case, subject to increase pursuant to the ~~senior secured credit facility~~Senior Secured Credit Agreement in connection with the making of certain refinancing, extended or replacement term loans under the ~~senior secured credit facility~~Senior Secured Credit Agreement with an Effective Yield (as defined in the ~~senior secured credit facility)~~Senior Secured Credit Agreement) greater than the applicable Effective Yield payable in respect of the ~~term~~Term B-6 ~~loans~~Loans at such time plus 50 basis points.

On May 15, 2014, the Company redeemed 100% of the aggregate principal amount of its 10.125%/10.875% senior unsecured PIK toggle notes due 2015 and 9.75% senior unsecured cash-pay notes due 2015 at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, or $92 million and $58 million, respectively. The redemption price of $150 million was funded through cash on-hand of $10 million, borrowings of $100 million under the multi-currency revolver available under the ~~senior secured credit facility,~~Senior Secured Credit Agreement and $40 million under the ~~senior secured asset-based credit facility.~~Domestic ABL.

~~During~~On May 29, 2015, Avaya Inc., Citibank, and the ~~three months ended September 30, 2014,~~lenders party thereto entered into Amendment No. 9 to the Senior Secured Credit Agreement pursuant to which the Company ~~repaid $10~~issued $2,125 million of Term B-7 Loans maturing May 29, 2020, the ~~borrowings~~proceeds of which were used to: (a) repay $1,473 million in principal amounts of Term B-3 Loans maturing October 26, 2017, $0.4 million in principal amounts of Term B-4 Loans maturing October 26, 2017, and $581 million of Term B-6 Loans maturing March 31, 2018, (b) repay $32 million of revolving loans outstanding under its Senior Secured Credit Agreement, (c) fund $33 million in original issue discounts, fees and expenses incurred in connection with the ~~Company's~~refinancing transaction, and (d) pay $1 million for interest accrued on the refinanced term and revolving credit ~~facilities. During~~loans through the ~~six months ended March 31, 2015,~~date of the ~~Company repaid $70 million and borrowed $50 million under the multi-currency revolver.~~

~~Borrowings under the senior secured multi-currency revolver~~refinancing transaction. The Term B-7 Loans bear interest at a rate per annum equal to either a base rate (subject to a floor of 2.00%) or a LIBOR rate (subject to a floor of 1.00%), in each case plus an applicable margin.

~~Table~~ The base rate is determined by reference to the higher of ~~Contents~~(1) the prime rate of Citibank and (2) the federal funds effective rate plus one half of 1%. The applicable margin for borrowings of Term B-7 Loans is 4.25% per annum with respect to base rate borrowings and 5.25% per annum with respect to LIBOR borrowings, in each case, subject to increase pursuant to the terms of the Credit Agreement.

On June 4, 2015, Avaya Inc., Citicorp USA, Inc. and the lenders party thereto completed Amendment No. 4 to the Domestic ABL which, among other things; (i) extended the stated maturity of the facility from October 26, 2016 to June 4, 2020 (subject to certain conditions specified in the Domestic ABL), (ii) increased the sublimit for letter of credit issuances under the Domestic ABL from $150 million to $200 million, and (iii) amended certain covenants and other provisions of the existing agreement. At the same time, the Foreign Borrowers, Citibank N.A. and the lenders party thereto entered into the Foreign ABL which matures June 4, 2020 (subject to certain conditions specified in the Foreign ABL). Available credit under the Domestic ABL remains $335 million subject to availability under the borrowing base. Available credit under the Foreign ABL is $150 million subject to availability under the respective borrowing bases of the Foreign Borrowers.

Borrowings under the ~~senior secured asset-based credit facility~~Domestic ABL bear interest at a rate per annum equal to, at the Company's option, either (a) a LIBOR rate plus a margin of 1.75% or (b) a base rate plus a margin of 0.75%.

Under the Foreign ABL Credit Agreement the Foreign Borrowers have the right to request up to $30 million of additional commitments. The lenders under the Foreign ABL are not under any obligation to provide any such additional commitments, any increase in commitments is subject to certain conditions precedent and any borrowing in respect of such increased commitments would be subject to the borrowing base under the Foreign ABL at such time.

Borrowings under the Foreign ABL bear interest at a rate ~~election made on~~per annum equal to, at the ~~May 15, 2014~~Foreign Borrowers’ option depending upon the currency and type of the applicable borrowing, ~~was~~(a) a base rate determined by reference to the highest of (1) the prime rate of Citibank, N.A., (2) the federal funds effective rate plus 0.50% and (3) the sum of 1.00% plus the LIBOR ~~rate.~~rate for a thirty day interest period as determined on such day, (b) a Canadian prime rate determined by reference to the higher of (1) the base rate of Citibank, N.A., Canadian branch, and (2) the sum of 1.00% plus the CDOR rate for a thirty day interest period as determined on such day, (c) a LIBOR rate, (d) a CDOR Rate, (e) a EURIBOR rate or (f) an overnight LIBOR rate, in each case plus an applicable margin. The initial applicable margin for borrowings under the Foreign ABL on June 4, 2015 is equal to (1)

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0.75% per annum with respect to base rate and Canadian prime rate borrowings and (2) 1.75% per annum with respect to LIBOR, CDOR or EURIBOR borrowings. The applicable margin for borrowings under the Foreign ABL is subject to a step down based on average historical excess availability under the Foreign ABL. Swingline loans bear interest at a rate per annum equal to, in the case of ~~March 31,~~swingline loans to the Canadian Foreign Borrower, the base rate if denominated in U.S. Dollars or the Canadian prime rate if denominated in Canadian dollars and, in the case of swingline loans to the UK Foreign Borrower, the Irish Foreign Borrower or the German Foreign Borrowers, the base rate if denominated in U.S. Dollars or the overnight LIBOR rate if denominated in Euros or British pound sterling. In addition to paying interest on outstanding principal under the Foreign ABL, the Foreign Borrowers are required to pay a commitment fee of 0.25% per annum in respect of the unutilized commitments thereunder. The Foreign Borrowers must also pay customary letter of credit fees equal to the applicable margin on LIBOR, CDOR and EURIBOR loans and agency fees.

On June 5, 2015, ~~term loans~~the Company permanently reduced the revolving credit commitments under its Senior Secured Credit Agreement from $200 million to $18 million and transferred all letters of credit outstanding under the ~~Cash Flow~~Senior Secured Credit Agreement include term B-3 loans, term B-4 loans and term B-6 loans with remaining face values (after all principal payments through March 31, 2015) of $2,090 million, $1 million and $1,121 million, respectively. to the Domestic ABL.

The Company regularly evaluates market conditions, its liquidity profile, and various financing alternatives for opportunities to enhance its capital structure. If opportunities are favorable, the Company may refinance existing debt or issue additional debt securities.

~~For example, on April 29,~~As of June 30, 2015, the Company obtained commitments from certain lenders to refinance a portion of its term B-3, B-4 and B-6 loans maturing on October 26, 2017, October 26, 2017 and March 31, 2018, respectively, with a portion of the proceeds from a new $2,125 million tranche of term B-7 loans. The Company will issue a portion of the term B-7 loans in exchange for existing term B-3 and B-6 loans held by electing investors. The Company expects to use the remaining proceeds from the issuance of the term B-7 loans to (i) permanently prepay on a pro rata basis, a portion of its obligations under its outstanding term B-3, B-4 and B-6 loans, (ii) to prepay (with a corresponding permanent reduction in commitments) a portion of outstanding loans under its senior secured multi-currency revolving credit facility (together with accrued and unpaid interest thereon) and (iii) to pay fees and expenses incurred in connection with the refinancing, including the original issue discount on the term B-7 loans. The new tranche of term B-7 loans are expected to bear interest at LIBOR (subject to a 1% floor) plus 5.25% and mature in May 2020. The refinancing is subject to customary closing conditions and is expected to close in May 2015. Until the refinancing closes, the Company cannot provide any assurance that the refinancing will close within the anticipated timeline, or at all, and if it does, that it will close pursuant to the terms described herein.

~~We are~~was not in default under ~~the senior secured credit facility, the indentures governing our notes or our senior secured multi-currency asset-based revolving credit facility.~~any of its debt agreements.

See Note 8, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements for further details.

Future Cash Requirements

Our primary future cash requirements will be to fund debt service, restructuring payments, capital expenditures and benefit obligations. In addition, we may use cash in the future to make strategic acquisitions.

Specifically, we expect our primary cash requirements for the remainder of fiscal 2015 to be as follows:

Debt service—We expect to make payments of ~~$232~~$127 million during the remainder of fiscal 2015 in principal and interest associated with long-term debt and interest associated with our two revolving credit facilities, although we may elect to make additional principal payments under certain circumstances. The expected payments are exclusive of principal payments we have made or may make under our revolving credit facilities. In the ordinary course of business, we may from time to time borrow and repay amounts under our revolving credit facilities to meet business needs.

Restructuring payments—We expect to make payments of approximately ~~$50~~$25 million to ~~$60~~$28 million during the remainder of fiscal 2015 for employee separation costs and lease termination obligations associated with restructuring actions we have taken through ~~March 31,~~June 30, 2015 and additional actions we may take in fiscal 2015 as the Company continues to evaluate opportunities to streamline its operations and identify additional cost savings globally.

Capital expenditures—We expect to spend approximately ~~$60~~$25 million to ~~$75~~$35 million for capital expenditures and capitalized software development costs during the remainder of fiscal 2015.

Benefit obligations—We estimate we will make payments under our pension and postretirement obligations totaling ~~$86~~$48 million during the remainder of fiscal 2015. These payments include: ~~$55~~$28 million to satisfy the minimum statutory funding requirements of our U.S. qualified plans, $4$2 million of payments under our U.S. benefit plans which are not pre-funded, $9$6 million under our non-U.S. benefit plans which are predominately not pre-funded, ~~$16~~$11 million under our U.S. retiree medical benefit plan which is not pre-funded and $2$1 million under the agreements for represented retirees to post-retirement health trusts. See discussion in Note 12, “Benefit Obligations” to our unaudited interim Consolidated Financial Statements for further details of our benefit obligations.

On October 23, 2014, in connection with a litigation matter, the Company filed a supersedeas bond with the Court in the amount of $63 million to stay execution of a judgment against it while the matter is on appeal. The Company secured posting of the bond through the issuance of a letter of credit under its ~~existing~~ credit facilities. In connection with this proceeding, an application was also filed seeking attorneys' fees, expenses and costs, which the Company is contesting. The current application for attorneys’ fees, expenses and costs is approximately $65 million and represents activity through September 11, 2014. Once the initial application is resolved by the Court, the Company expects that a supplemental application will be filed for activity beyond September 11, 2014. Once required, and in order to stay the enforcement of any award for attorney’s fees, expenses and

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costs, on appeal or otherwise, the Company will post a bond in the amount of the award for attorney's fees, expenses and costs, plus interest. The Company expects to secure posting of the bond through existing resources and may use any or a combination of the issuance of one or more letters of credit under its existing credit facilities and cash on hand. See Note 15 - "Commitments and Contingencies - Antitrust Litigation" to our unaudited interim Consolidated Financial Statements for additional details regarding this litigation matter.

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We and our subsidiaries, affiliates, our Parent and/or significant stockholders of our Parent may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Future Sources of Liquidity

We expect our existing cash balance, cash generated by operations and borrowings available under our credit facilities to be our primary sources of short-term liquidity. We expect that revenues from higher margin products and services and continued focus on accounts receivable, inventory management and cost containment will enable us to generate positive net cash from operating activities. Further, we continue to focus on cost reductions and have initiated restructuring plans designed to reduce overhead and provide cash savings.

As discussed above, on June 4, 2015 the Company completed an amendment to the Domestic ABL and entered into a new Foreign ABL. The ~~Company currently has two revolving credit facilities providing for borrowings of up to an aggregate of $535 million subject~~Domestic ABL and Foreign ABL expire June 4, 2020 (subject to certain ~~contractual limitations. Our senior secured multi-currency asset-based revolving~~conditions specified in the Domestic ABL and Foreign ABL) and provides credit ~~facility provides senior secured revolving financing of~~ up to $335 million ~~subject~~and $150 million (subject to availability under athe calculated borrowing ~~base which, at any time, equals~~bases as defined for each facility), respectively, to the ~~sum~~Company in the form of ~~85%~~loans and letters of ~~eligible accounts receivable plus 85% of~~credit. On June 5, 2015, the ~~net orderly liquidation value of eligible inventory, subject to certain reserves and other adjustments. In addition, although~~Company permanently reduced the ~~senior secured multi-currency asset-based~~ revolving credit ~~facility does not require us~~commitments under its Senior Secured Credit Agreement from $200 million to ~~comply with any financial ratio maintenance covenants, if we have Excess Availability~~$18 million and all letters of credit outstanding under the ~~facility of less than $33.5 million at any time, we will not be permitted~~Senior Secured Credit Agreement were transferred to ~~borrow any additional amounts thereunder unless our pro forma Consolidated Fixed Charge Coverage Ratio (each such term as defined in~~ the ~~credit agreement governing the facility) is at least 1.0 to 1.0.~~ Domestic ABL.

As of ~~March 31,~~June 30, 2015 the Company had $40 million of outstanding borrowings, $~~120~~145 million of issued and outstanding letters of credit and remaining revolver availability of $~~115~~40 million under the ~~multi-currency asset-based revolving credit facility. We also have a senior secured multi-currency revolver, which allows for borrowings of up to $200 million. At~~ ~~March 31, 2015, the Company had $70~~Domestic ABL, $20 million of outstanding borrowings, ~~$26 million of issued and~~no outstanding letters of credit and remaining revolver availability of ~~$104~~$81 million under the ~~senior secured multi-currency revolver. Both~~Foreign ABL, and $18 million of outstanding borrowings, no outstanding letters of credit and no remaining revolver availability under the Senior Secured Credit Agreement. All three revolving credit facilities include ~~other~~ customary conditions that, if not complied with, could restrict our availability to borrow. See Note 8, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements.

On August 20, 2014, we signed an agreement with HP Enterprise Services, LLC, or HP, pursuant to which the Company will outsource to HP certain delivery services associated with the Avaya Private Cloud Services business. In connection with that agreement, HP acquired specified assets owned by the Company. HP also agreed to make available one or more additional financings to Avaya and its subsidiaries of up to $24 million per fiscal year for the sole purpose of financing the use of equipment for the performance of services under the agreement, provided that no material adverse change with respect to the Company has occurred and is continuing as of the date any such financing is requested. During the ~~six~~nine months ended ~~March 31,~~June 30, 2015 we received proceeds of $15 million in connection with the financing of equipment for the performance of services under our agreement with HP.

On June 9, 2011, Parent filed with the SEC a registration statement on Form S-1 (as amended from time to time, the “registration statement”) relating to a proposed initial public offering of its common stock. As contemplated in the registration statement, the net proceeds of the proposed offering are expected to be used, among other things, to repay a portion of our long-term indebtedness. The registration statement remains under review by the SEC and shares of common stock registered thereunder may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This document and the pending registration statement shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of those securities in any State or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State or other jurisdiction. Further, there is no way to predict whether or not Parent will be successful in completing the offering as contemplated and if it is successful, we cannot be certain if, or how much of, the net proceeds will be used for the purposes identified above.

During the fourth quarter of fiscal 2012, the Company changed its indefinite reinvestment of undistributed foreign earnings assertion with respect to its non-U.S. subsidiaries. This change in assertion reflects the Company's intention and ability to maintain flexibility with respect to sourcing of funds from non-U.S. locations. As of ~~March 31,~~June 30, 2015, balances of cash and cash equivalents held outside the U.S. that are in excess of in-country needs and which could not be distributed to the U.S. without restriction were not material.

~~Table of Contents~~

If we do not generate sufficient cash from operations, face unanticipated cash needs such as the need to fund significant strategic acquisitions or do not otherwise have sufficient cash and cash equivalents, we may need to incur additional debt or issue additional equity. In order to meet our cash needs we may, from time to time, borrow under our credit facilities or issue long-term or short-term debt or equity, if the market and our credit facilities and the indentures governing our notes permit us to do so. Furthermore, if we acquire a business in the future that has existing debt, our debt service requirements may increase. We regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure. If market conditions are favorable, we may refinance our existing debt or issue additional securities.

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Based on past performance and current expectations, we believe that our existing cash and cash equivalents of ~~$332~~$328 million as of ~~March 31,~~June 30, 2015 and future cash provided by operating activities will be sufficient to meet our future cash requirements described above for at least the next twelve months. Our ability to meet these requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Debt Ratings

As of ~~March 31,~~June 30, 2015, we had a long-term corporate family rating of B3 with a negative outlook from Moody’s. On April 17, 2015, Standard & Poor’s revised its outlook to stable from negative and affirmed its B- corporate credit rating for our Company. Our ability to obtain additional external financing and the related cost of borrowing may be affected by our debt ratings, which are periodically reviewed by the major credit rating agencies. The ratings are subject to change or withdrawal at any time by the respective credit rating agencies.

Critical Accounting Policies and Estimates

Management has reassessed the critical accounting policies as disclosed in our Annual Report on Form 10-K filed with the SEC on November 26, 2014 and determined that there were no significant changes to our critical accounting policies in the ~~six~~nine months ended ~~March 31,~~June 30, 2015 except for recently adopted accounting guidance as discussed in Note 2, “Recent Accounting Pronouncements - New Accounting Guidance Recently Adopted” to our unaudited interim Consolidated Financial Statements.

New Accounting Pronouncements

See discussion in Note 2, “Recent Accounting Pronouncements” to our unaudited interim Consolidated Financial Statements for further details.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking ~~statements,~~statements.” ~~including statements regarding our potential issuance of term B-7 loans under our senior secured credit facilities and the use of proceeds of such issuance.~~ All statements other than statements of historical fact are “forward-looking” statements for purposes of the U.S. federal and state securities laws. These statements may be identified by the use of forward looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this report under Part II, Item 1A, “Risk Factors,” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this report, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

our ability to develop and sell advanced communications products and services, including unified communications, data networking products and contact center products;

the market for our products and services, including unified communications products;

our ability to remain competitive in the markets we serve;

economic conditions and the willingness of enterprises to make capital investments;

our reliance on our indirect sales channel;

the ability to protect our intellectual property and avoid claims of infringement;

the ability to retain and attract key employees;

our degree of leverage and its effect on our ability to raise additional capital and to react to changes in the economy or our industry;

our ability to manage our supply chain and logistics functions;

liquidity and our access to capital markets;

risks relating to the transaction of business internationally;

our ability to effectively integrate acquired businesses;

an adverse result in any significant litigation, including antitrust, intellectual property and commercial disputes or employment litigation;

our ability to maintain adequate security over our information systems;

foreign currency exchange rate fluctuations;

environmental, health and safety laws, regulations, costs and other liabilities, and climate change risks; and

pension and post-retirement healthcare and life insurance liabilities.

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

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EBITDA and Adjusted EBITDA

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. EBITDA provides us with a measure of operating performance that excludes items that are outside the control of management, which can differ significantly from company to company depending on capital structure, the tax jurisdictions in which companies operate and capital investments. Under the Company’s debt agreements, the ability to draw down on the revolving credit facilities or engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied in part to ratios based on Adjusted EBITDA. As defined in our debt agreements, Adjusted EBITDA is a non-GAAP measure of EBITDA further adjusted to exclude certain charges and other adjustments permitted in calculating covenant compliance under our debt agreements. 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 new capital structure following the Merger. Accordingly, Adjusted EBITDA measures our financial performance based on operational factors that management can impact in the short-term, such as the Company’s pricing strategies, volume, costs and expenses of the organization.

EBITDA and Adjusted EBITDA have limitations as analytical tools. 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, Sponsors' fees 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.

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The unaudited reconciliation of loss from continuing operations, which is a GAAP measure, to EBITDA and Adjusted EBITDA is presented below:


	Three months ended March 31,						Six months ended March 31,						Three months ended June 30,						Nine months ended June 30,
In millions	2015			2014			2015			2014			2015			2014			2015			2014
Loss from continuing operations	$	(22	)	$	(123	)	$	(19	)	$	(180	)	$	(49	)	$	(64	)	$	(68	)	$	(244	)
Interest expense	110			116			222			235			113			112			335			347
Interest income	(1		)	(1		)	(1		)	(1		)	—			—			(1		)	(1		)
(Benefit from) provision for income taxes	(6		)	1			(3		)	27
Provision for (benefit from) for income taxes													3			(8		)	—			19
Depreciation and amortization	92			118			186			237			93			99			279			336
EBITDA	173			111			385			318			160			139			545			457
Restructuring charges, net	10			42			25			49			7			45			32			94
Sponsors’ fees (a)	2			2			4			4			1			2			5			6
Acquisition-related costs													1			—			1			—
Integration-related costs (b)	—			2			1			4			—			1			1			5
Loss on extinguishment of debt (c)	—			4			—			4
Third-party fees expensed in connection with the debt modification (d)	—			2			—			2
Divestiture-related costs (c)													—			2			—			2
Loss on extinguishment of debt (d)													6			1			6			5
Third-party fees expensed in connection with the debt modification (e)													8			—			8			2
Non-cash share-based compensation	4			8			11			14			4			6			15			20
Gain on sale of investments and long-lived assets, net													(1		)	—			(1		)	—
Change in certain tax indemnifications	—			(3		)	(9		)	(3		)	—			8			(9		)	5
Venezuela hyperinflationary and devaluation charges	—			2			—			2			—			—			—			2
Resolution of certain legal matters (f)													—			8			—			8
Loss (gain) on foreign currency transactions	1			2			(5		)	—			3			(1		)	(2		)	(1		)
Pension/OPEB/nonretirement postemployment benefits and long-term disability costs (e)	17			13			34			26
Pension/OPEB/nonretirement postemployment benefits and long-term disability costs (g)													18			12			52			38
Other	1			—			1			2			—			—			1			2
Adjusted EBITDA	$	208		$	185		$	447		$	422		$	207		$	223		$	654		$	645


(a)	Sponsors’ fees represent monitoring fees payable to affiliates of the Sponsors and their designees pursuant to a management services agreement entered into at the time of the Merger.


(b)	Integration-related costs primarily represent third-party consulting fees and other administrative costs and primarily relate to developing compatible IT systems and internal processes with NES and consolidating and coordinating the operations of Avaya with Radvision and other acquisitions.


(c)	Divestiture-related costs include legal and other costs primarily related to the sale of the ITPS business.

(d)

Loss on extinguishment of debt represents the loss recognized in connection with certain debt refinancing transactions entered into during fiscal 2015 and 2014. The loss is based on the difference between the reacquisition price and the carrying value (including unamortized debt issue costs) of the debt. See Note 8, "Financing Arrangements," to our unaudited interim Consolidated Financial Statements located elsewhere in this Form 10-Q.


~~(d)~~(e)	The third-party fees expensed in connection with debt modification represent fees paid to third parties in connection with certain debt refinancing transactions entered into during fiscal 2015 and 2014. See Note 8, "Financing Arrangements," to our unaudited interim Consolidated Financial Statements located elsewhere in this Form 10-Q.


~~(e)~~(f)	Charges recognized in connection with the resolution of certain commercial and intellectual property legal disputes that, individually and in the aggregate, were not material to Avaya's financial position.


(g)	Represents that portion of our pension costs, other post-employment benefit costs and non-retirement post-employment benefit costs representing the amortization of prior service costs and net actuarial gains/losses associated with these employment benefits.

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Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosure About Market Risk” in Avaya’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014 filed with the SEC on November 26, 2014. As of ~~March 31,~~June 30, 2015, there have been no material changes in this information.



Item 4.	Controls and Procedures.


a)	Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this report, our management, under the supervision and with the participation of the principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)). Based on this evaluation, our principal executive officer and principal financial officer have concluded (1) that ~~the~~our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and (2) that ~~the~~our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.


b)	Changes in Internal Control Over Financial Reporting.

There were no changes in the Company's internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION



Item 1.	Legal Proceedings.

The information included in Note 15, “Commitments and Contingencies” to the unaudited interim Consolidated Financial Statements is incorporated herein by reference.



Item 1A.	Risk Factors.

There have been no material changes during the quarterly period ended ~~March 31,~~June 30, 2015 to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

None.



Item 3.	Defaults Upon Senior Securities.

Not Applicable.



Item 4.	Mine Safety Disclosures.

Not Applicable.



Item 5.	Other Information.

Pursuant to Section 15(d) of the Securities Exchange Act of 1934, the Company’s obligations to file periodic and current reports ended as of October 1, 2010. Nevertheless, the Company continues to file timely periodic reports and current reports with the SEC voluntarily to comply with the terms of the indenture governing its senior secured notes due 2021.

During and subsequent to the quarter ended ~~March 31,~~June 30, 2015, no events took place that were required to be disclosed in a report on Form 8-K but were not reported.

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Item 6.	Exhibits.



Exhibit Number
10.1		Amendment No. 9 to Credit Agreement, dated as of May 29, 2015, among Avaya Inc., Citibank, N.A., as Administrative Agent, the Extending Term B-7 Lenders, the Refinancing Term B-7 Lenders and the Required Lenders (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 3, 2015)
10.2		Amendment No. 4 to Credit Agreement, dated as of June 4, 2015, among Avaya Inc., the subsidiary borrowers party thereto, Citicorp USA, Inc., as administrative agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 10, 2015)
10.3		Credit Agreement, dated as of June 4, 2015, among Avaya Canada Corp., Avaya UK, Avaya International Sales Limited, Avaya Deutschland GmbH and Avaya GmbH & Co., KG, Citibank, N.A., as administrative agent and letter of credit issuer, Citibank, N.A., Canadian Branch, as Canadian swing line lender, Citibank, N.A., London branch, as European swing line lender, the other lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., as documentation agent, and Citigroup Global Markets, Inc., Bank of America, N.A., and Wells Fargo Bank, National Association, as joint lead arrangers and joint bookrunners (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 10, 2015)
10.4		U.S. Pledge and Security Agreement, dated as of June 4, 2015, among Avaya International Sales Limited, as Irish Borrower, and Citibank, N.A., as administrative agent
10.5		U.S. Guaranty (Foreign ABL), dated as of June 4, 2015, among Avaya Inc., the subsidiary guarantors from time to time party thereto, and Citibank, N.A., as administrative agent
10.6		Canadian Pledge and Security Agreement, dated as of June 4, 2015, among Avaya Canada Corp., as Canadian Borrower, and Citibank, N.A., as administrative agent
10.7		Canadian Guarantee (Foreign ABL), dated as of June 4, 2015, among Avaya Canada Corp., as Canadian Borrower, and Citibank, N.A., as administrative agent
10.8		Deed of Hypothec, dated as of June 2, 2015, between Avaya Canada Corp., as grantor, and Citibank, N.A., as the representative
10.9		Deposit Account Control Agreement, dated as of June 4, 2015, among Avaya Canada Corp., as lien grantor, Citibank, N.A., as the secured party, and Citibank, N.A., Canadian branch as depositary bank
10.10		Undisclosed Pledge of Receivables, dated as of June 4, 2015, between Avaya International Sales Limited, as pledgor, and Citibank, N.A., in its capacity of administrative agent and as pledgee
10.11		(Notarized) Share Pledges over all shares of Avaya Deutschland GmbH, dated as of June 4, 2015, among Avaya GmbH & Co. KG as pledgor, Avaya Deutschland GmbH as company and Citibank, N.A., as administrative agent
10.12		Interest Pledges over the general and all limited partnership interests in Avaya GmbH & Co. KG, dated as of June 4, 2015, among Avaya Verwaltungs GmbH, Avaya Germany GmbH and Tenovis Telecom Frankfurt GmbH & Co. KG, as pledgors, Avaya GmbH & Co. KG, as partnership, and Citibank, N.A., as administrative agent
10.13		German Guarantee and Indemnity Agreement, dated as of June 4, 2015, among Avaya GmbH & Co. KG, Avaya Deutschland GmbH, Avaya Verwaltungs GmbH, Avaya Germany GmbH and Tenovis Telecom Frankfurt GmbH & Co. KG, as guarantors, and Citibank, N.A., as administrative agent
10.14		Account Pledge Agreement, dated as of June 4, 2015, among Avaya Deutschland GmbH and Avaya GmbH & Co. KG, as pledgors, and Citibank, N.A., as administrative agent
10.15		Global Assignment Agreement, dated as of June 4, 2015, among Avaya Deutschland GmbH and Avaya GmbH & Co. KG, as assignors, and Citibank, N.A., as administrative agent
10.16		Security Transfer Agreement, dated as of June 4, 2015, among Avaya Deutschland GmbH, Avaya GmbH & Co. KG and Avaya International Sales Limited, as transferors, and Citibank, N.A., as administrative agent
10.17		Irish Security Deed, dated June 4, 2015, among the companies specified in Schedule 1 thereto, as the original chargors, and Citibank, N.A., as administrative agent
10.18		Irish Security Trust Deed, dated June 4, 2015, among Citibank, N.A., as administrative agent, and the companies specified in Schedule 1 thereto, as the original chargors
10.19		Security Agreement, dated as of June 4, 2015, between Avaya UK, Avaya International Sales Limited, Avaya Deutschland GmbH, as chargors, and Citibank, N.A., as administrative agent
10.20		Share Charge, dated as of June 4, 2015, between Avaya UK Holdings Limited, as chargor, and Citibank, N.A., as administrative agent
10.21		Security Trust Deed, dated as of June 4, 2015, between Citibank, N.A., as administrative agent, and the companies listed in Schedule 1 thereto, as the original chargors

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Exhibit Number
31.1		Certification of Kevin J. Kennedy pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~
		2002
31.2		Certification of David Vellequette pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~
		2002
32.1		Certification of Kevin J. Kennedy pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~
		2002
32.2		Certification of David Vellequette pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~
		2002
101		The following materials from Avaya Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets at ~~March 31,~~June 30, 2015 and September 30, 2014, (ii) Consolidated Statement of Operations for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, (iii) the Consolidated Statement of Comprehensive Income for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, (iv) Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~March 31,~~June 30, 2015 and 2014, and (v) Notes to Consolidated Financial Statements (Unaudited)*



*	Pursuant to Rule 406 T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

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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, thereunto duly authorized.



	AVAYA INC.

	By:	/s/ L. DAVID VD~~ELLEQUETTE~~ELL'Osso
		L. David ~~Vellequette~~Dell'Osso ~~Senior~~ Vice President, ~~and~~Corporate Controller & Chief ~~Financial~~Accounting Officer (Principal Accounting Officer)

~~May 8,~~August 5, 2015

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